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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Form 10-K FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (Mark One)  [X ]
    
    
    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 2004 or  [  ]
    
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 0-26140 Remote Dynamics, Inc.  Delaware
    
    51-0352879(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
 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 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of each Class) 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]




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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [  ] No [X] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS; Indicate by check mark whether the registrant has filed all documents and
reports required by Sections 12, 13, or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes [X] No [  ] The aggregate market value of the voting and nonvoting common equity held
by non-affiliates of the Registrant as of February 27, 2004 was $1,180,539.* The number of shares outstanding of Registrants Common Stock was 6,866,095 as
of November 15, 2004.




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DOCUMENTS INCORPORATED BY REFERENCE Portions of the Companys definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after August 31, 2004 (the
Proxy Statement) are incorporated by reference into Part III of the Form
10-K.   *Excludes the Common Stock held by executive officers, directors and by
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
February 27, 2004.Exclusion of such shares should not be construed to
indicate that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the Registrant
or that such person is controlled by or under common control with the
Registrant.




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Remote Dynamics, Inc. FORM 10-K
For the Fiscal Year Ended August 31, 2004 INDEX PagePART IITEM 1. BUSINESS
    
    
    1ITEM 2. PROPERTIES
    
    
    36ITEM 3. LEGAL PROCEEDINGS
    
    
    36ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    40PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    43ITEM 6. SELECTED FINANCIAL DATA
    
    
    48ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    51ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    70ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    70ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    71ITEM 9A. CONTROLS AND PROCEDURES
    
    
    71ITEM 9B OTHER INFORMATION
    
    
    71PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    72ITEM 11. EXECUTIVE COMPENSATION
    
    
    72ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    72ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    72ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    72PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    73Third Amended and Restated By-LawsThird Amendment to Lease AgreementEmployment Agreement - Dennis R. CaseyEmployment Agreement - W. Michael SmithEmployment Agreement - J. Raymond BilbaoEmployment Agreement - Joseph W. PollardRestricted Stock Agreement - Dennis R. CaseyRestricted Stock Agreement - W. Michael SmithRestricted Stock Agreement - J. Raymond BilbaoRestricted Stock Agreement - Joseph W. PollardEmployment Agreement - David BagleyRestricted Stock Agreement - David Bagley2004 Restated Management Incentive PlanStatement Re: Computation of Per Share EarningsSubsidiariesCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
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PART I 
 ITEM 1. BUSINESS GENERAL Stockholders should also carefully consider the information presented
under Risk Factors below. EXECUTIVE SUMMARY Remote Dynamics, Inc., a Delaware Corporation formerly known as
Minorplanet Systems USA, Inc. (the Company), markets, sells and supports
automatic vehicle location (AVL) and mobile resource management solutions
targeting companies that operate private vehicle fleets. Management believes the growth potential for AVL and mobile resource
management solutions is significant. The Company estimates that there are
currently approximately 21 million commercial fleet vehicles in operation in
the United States and only 1 million AVL units are installed. Of the 1 million
currently installed units, most are used on the long haul trucking and public
transit segments, which the Company estimates are 30% -50% penetrated. Based
on research conducted by the Company, management believes the market for AVL
products may grow approximately 20% per year over the next 3 years. Management also believes the marketplace of providers for AVL and mobile
resource management solutions is highly fragmented with few players that are
able to offer a high capacity platform, flexible software solutions and proven
coast-to-coast service and support such as that provided by the Company. Historically, much of the Companys revenues have been derived from
products sold to the long-haul trucking industry and to SBC. The Company
expects revenues from these legacy customers to decline substantially during
2005, and for the Company to sustain ongoing business operations and ultimately
achieve profitability, it must substantially increase its sales and penetration
into the marketplace with next generation, competitive products and services. The Company believes to take advantage of the marketplace, it must bring
to market new AVL and mobile resource management solutions that utilize
wireless Internet protocol networks such as General Packet Radio System
(GPRS) that provide the information, mapping and management reporting via a
web-based and service bureau-based environment. The Company believes
introduction of the next generation products and associated web-based
architecture will provide substantial savings in wireless transmission costs
over the current GSM circuit-switched data VMI product and will further allow
the Company to substantially reduce its customer support and maintenance costs
by avoiding costly maintenance visits to customer premises to service the
command and control center component of the VMI system. Moreover, the Company
has designed its next generation products with a flexible architecture to
accommodate expected additional functional requirements that will be required
to effectively compete in the marketplace. Anticipated marketplace needs
include; 1) ability for the AVL mobile device as a communications hub for
personal computers and handheld devices, 2) ability to communicate with WiFi
hotspots, 3) ability to integrate with a variety of in-vehicle sensors and 3)
ability to integrate the AVL information into existing customer legacy
applications. During 2004, the Company has been developing state-of-the-art
hardware and software that it plans to commercially launch as its next
generation AVL solution in the first calendar quarter of 2005. These new products form the basis of managements business plan for 2005
and beyond and will be the foundation for expected growth in revenues and
ultimately profitability for the Company. In addition, these products are
designed to allow the Company to move to a recurring revenue model for the AVL
marketplace, an important and necessary change to the Companys revenue model
to achieve overall sustained revenue growth and cash flow positive operations. 1




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Management currently does not expect to achieve profitability in the next
fiscal year since the Company will be expanding its sales force and building a
base of customers that purchase information and data services from the Company
on a monthly recurring basis. Key to achieving profitability is to amass a
sufficient number of customers such that the monthly recurring revenues and
corresponding gross margins exceed the operating costs and expenses to support
the Companys customer base. Management currently estimates that for the
Company to achieve profitability, it will need to have approximately 38,000 to
40,000 units of its next generation product in service. However, there can be
no assurance that the Company can achieve the required sales of its next
generation product to meet its profitability goals. HISTORICAL BACKGROUND The Company develops and implements mobile communications solutions for
service vehicle fleets, long-haul truck fleets, and other mobile-asset fleets,
including integrated voice, data and position location services. The Company
markets and sells products and services in the automatic vehicle location
(AVL) market in the United States. The Companys AVL products are designed
to maximize the productivity of a mobile workforce as well as reduce vehicle
mileage and fuel-related expenses. The Companys initial product offering, the Series 5000, was developed
for, and sold to, companies that operate in the long-haul trucking market. The
Company provides mobile communications services to the long-haul trucking
market through a wireless enhanced services network, which utilizes patented
technology developed and owned by the Company, to integrate various
transmission, long-distance, switching, tracking and other services provided
through contracts with certain telecommunications companies and cellular
carriers. The Companys wireless enhanced services network covers 98% of the
available analog cellular service areas in the United States, and 100% of the
available A-side coverage in Canada. A-side coverage refers to a type of
license awarded by the FCC to provide cellular service in a specific area.
Call processing and related functions for the Companys enhanced wireless
network are provided through the Companys Network Services Center (the NSC).
The Company holds 42 United States and 16 foreign patents that cover certain
key features of its network that are used in locating and communicating with
vehicles using the existing cellular infrastructure. The Series 5000 product
application was customized and has been sold to and installed in the service
vehicle fleets of member companies of SBC Communications, Inc. (the SBC
Companies) pursuant to the Service Vehicle Contract (the Service Vehicle
Contract). On June 5, 2001, the Company effected a 1-for-5 reverse stock split that
was approved by the stockholders at the annual meeting. On June 21, 2001, the Company consummated the stock issuance transactions
approved by the Companys stockholders at the annual meeting on June 4, 2001.
As a result of the closing of transactions contemplated by that certain Stock
Purchase and Exchange Agreement by and among the Company, Minorplanet Systems
PLC, a United Kingdom public limited company (Minorplanet UK), and Mackay
Shields LLC, dated February 14, 2001 (the Purchase Agreement), the Company
issued 30,000,000 shares of its common stock (shares not adjusted for December
3, 2004 1-for-5 reverse stock split) in a change of control transaction to
Minorplanet UK, which was the majority stockholder of the Company prior to the
October 6, 2003 stock transfer to Erin Mills Investment Corporation discussed
below. In exchange for this stock issuance, Minorplanet UK paid the Company
$10,000,000 in cash and transferred to the Company all of the shares of its
wholly-owned subsidiary, Minorplanet Limited and its wholly-owned subsidiary,
Mislex (302) Limited, now known as, Minorplanet Systems USA Limited, which
holds an exclusive, royalty-free, 99-year license to market, sell and operate
Minorplanet UKs vehicle management information technology in the United
States, Canada and Mexico (the License Rights). Upon completion of the stock
issuance transactions, and prior to the October 6, 2003 transfer to Erin Mills
and the July 2, 2004 effective date of the Companys bankruptcy plan of
reorganization, Minorplanet UK beneficially owned approximately 62% of the
outstanding shares of the Companys common stock. On March 15, 2002, the Company completed the sale to Aether Systems, Inc.
(Aether) of certain assets and licenses related to the Companys long-haul
trucking and asset-tracking businesses pursuant to the Asset Purchase Agreement
effective as of March 15, 2002, by and between the Company and Aether (the
Sale). Under the terms of the Asset Purchase Agreement, the Company sold to
Aether assets and related license rights to its 2




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Platinum Service software solution, 20/20V, and TrackWare® asset and
trailer-tracking products. In addition, the Company and Aether agreed to form a
strategic relationship with respect to the Companys long-haul customer
products, pursuant to which the Company assigned to Aether all service revenues
generated post-closing from its HighwayMaster Series 5000 (Series 5000)
customer base. Aether, in turn, agreed to reimburse the Company for the network
and airtime service costs related to providing the Series 5000 service. The
two companies also agreed to work jointly in the adaptation of the Minorplanet
VMI technology for the potential distribution of VMI by Aether to the
long-haul-trucking market. As consideration for the Sale, the Company received $3 million in cash, of
which $0.8 million was held in escrow as of August 31, 2002 and later released
to the Company during the fiscal year ended August 31, 2003 after certain
conditions were met by the Company. The Company also received a note for $12
million payable, at the option of Aether, in either cash or convertible
preferred stock in three equal installments of $4 million on April 14, May 14,
and June 14, 2002. The consideration for the Sale was determined through
arms-length negotiation between the Company and Aether. Aether later paid
cash in lieu of preferred stock for each of the three $4 million installments.
As of August 31, 2002, all three $4 million cash installments had been received
by the Company from Aether. On September 17, 2004, Aether sold its logistics
division which held the assets sold by the Company to Aether on March 15, 2002,
to Platinum Equity LLC. Effective July 22, 2002, the Company amended its Certificate of
Incorporation to change its corporate name to Minorplanet Systems USA, Inc. On October 6, 2003, Minorplanet UK transferred 42.1 percent (approximately
4.1 million shares) of the Companys outstanding common shares beneficially
owned by Minorplanet UK to Erin Mills Investment Corporation (Erin Mills),
ending Minorplanet UKs majority ownership of the Company. Following the share
transfer, Erin Mills beneficially owned 46 percent (approximately 4.4 million
shares) of the Companys outstanding common stock, while Minorplanet UK
retained 19.9 percent (approximately 1.9 million shares) of the Companys
outstanding common stock. In connection with the Minorplanet UK share transfer to Erin Mills, the
Company also obtained an option to repurchase from Erin Mills up to 3.9 million
shares of the Companys common stock at of $0.05 for every 1,000 shares,
pursuant to that certain Stock Repurchase Option Agreement between the Company
and Erin Mills dated August 15, 2003. Gerry Quinn, the president of Erin Mills,
currently serves on the Companys Board of Directors. In addition, concurrently with these transactions, the Company reached the
following agreements with Minorplanet UK:  
    
    Minorplanet UK irrevocably waived certain approval rights,
including the right to appoint members to the Companys board of
directors, as were provided for in that certain Stock Purchase and
Exchange Agreement dated February 14, 2001 and the Companys bylaws;  
    
    Minorplanet UK waived $1.8 million of accrued executive consulting
fees that it had previously billed to the Company.  
    
    The exclusive License and Distribution Agreement, which grants to
the Companys United Kingdom-based subsidiary a 99-year, royalty-free,
exclusive right and license to market, sell and commercially exploit
the VMI technology in the United States, Canada and Mexico, was amended
to grant Minorplanet UK, or its designee, the right to market and sell
the VMI technology, on a non-exclusive basis, in the Northeast region
of the United States. The Company retained the right to market and sell
the VMI technology under the Minorplanet name and logo in this
Northeast region.  
    
    Minorplanet UK obtained anti-dilution rights from the Company,
under which it had the right to subscribe for and to purchase at the
same price per share as the offering or private sale, that number of
shares necessary to maintain the lesser of (i) the percentage holdings
of the Companys stock on the date of subscription or (ii) 19.9 percent
of the Companys issued and outstanding common stock. 3




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See the Form 8-Ks filed by the Company on August 27, 2003 and October 14, 2003
respectively, which contain additional information. On December 3, 2003, the Company effected a 1-for-5 reverse stock split
that was approved by the holders of a majority the Companys outstanding common
stock via written consent. Voluntary Bankruptcy Filing On February 2, 2004, (the Commencement Date), the Company and two of its
wholly-owned subsidiaries, Caren (292) Limited (Caren) and Minorplanet
Systems USA Limited (Limited) (the Company, Caren and Limited shall
hereinafter collectively be referred to as the Debtors) filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Northern District of Texas Dallas
Division (the Bankruptcy Court), in order to facilitate the restructuring of
their debt, trade liabilities, and other obligations. During the pendency of
the bankruptcy, the Debtors remained in possession of their assets and operated
as debtors-in-possession under the jurisdiction of the Bankruptcy Court and
in accordance with the applicable provisions of Bankruptcy Code, the Federal
Rules of Bankruptcy Procedure and applicable court orders. On February 24,
2004, the United States Trustee appointed an official committee of unsecured
creditors (the Committee) consisting of representatives of five (5) of the
twenty (20) largest unsecured creditors. Under Section 362 of the Bankruptcy Code, the filing of the bankruptcy
petition automatically stayed most actions against the Debtors including most
actions to collect pre-petition indebtedness or exercise control over the
property of the Debtors estate. The Bankruptcy Court established April 9,
2004 as the bar date for creditors and other parties-in-interest (other than
governmental entities) to file their proofs of claims and proofs of interest.
The bar date for governmental entities to file their proofs of claims and
proofs of interest was May 10, 2004. On June 15, 2004, the Bankruptcy Court
entered an order approving the Debtors motion for substantive consolidation of
the estates of the Company, Caren and Limited. On May 24, 2004, the Bankruptcy Court entered an order approving the
Debtors Second Amended Disclosure Statement (Disclosure Statement) for use
to solicit the vote of creditors and equity interest holders on the acceptance
or rejection of the Debtors plan of reorganization. The Bankruptcy Court also
set the record date for purposes of voting on the Debtors plan of
reorganization as May 21, 2004, approved solicitation/voting procedures of the
plan of reorganization, and set hearing on the confirmation of the plan of
reorganization. On June 17, 2004, the Debtors and the Committee reached a settlement
agreement on several matters regarding the plan of reorganization subject to
bankruptcy court approval (the Committee Settlement). The material terms of
the Committee Settlement were as follows:  
    
    For purposes of the Debtors plan of reorganization, the Debtors
and Committee agreed that the value of the Debtors shall be equal to
$25.3 million, such that holders of allowed unsecured claims under the
plan of reorganization shall receive 75%, and prior equity holders
shall receive 25%, of the 7,000,000 shares of new common stock issued
upon confirmation of the plan of reorganization.  
    
    The Debtors and the Committee reached agreement on the composition
of the Board of Directors of the Company upon emergence from
bankruptcy;  
    
    The Debtors and the Committee reached agreement on the general
terms and conditions of new employment agreements for senior management
of the Company.  
    
    The Debtors and the Committee reached agreement on the general
terms and conditions under which restricted shares would be issued to
senior management of the Company.  
    
    The Debtors, HFS Minorplanet Funding LLC (HFS) and the Committee
agreed to amend the April 15, 2004 letter agreement so that the price
per share at which HFS may convert the unpaid principal and accrued
interest due under the $1.575 million promissory note (later amended
and increased to $2.0 4




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million) into common stock of the Company, shall be set at $3.62 per
share of common stock, provided that such amount shall be reduced (i) by
twenty percent (20%) if such unpaid principal and accrued interest is
converted within one (1) year after the date the promissory note was
issued or (ii) by fifteen percent (15%) if such unpaid principal and
accrued interest is converted more than one (1) year after the date the
promissory note was issued. The Committee further agreed that it would not object to, and both the
Committee and the Debtors, using their best efforts, would affirmatively
support approval of the Debtors plan of reorganization, settlement and
confirmation of the Debtors plan of reorganization, in the form as modified by
the terms hereof. On June 22, 2004, the Debtors filed their Third Amended Joint
Plan of Reorganization to incorporate the settlement terms reached with the
Committee. On June 29, 2004, the Bankruptcy Court entered an order confirming the
Debtors Third Amended Joint Plan of Reorganization, as Modified (the Plan).
The Bankruptcy Court also approved the Settlement Agreement between the Debtors
and the Committee. The Bankruptcy Court further set the enterprise value of the
Company at $25.3 million for purposes of distributions of new common stock
under the Plan. The effective date of the Plan was set by the Debtors pursuant
to the Plan as Friday, July 2, 2004 (the Effective Date). The Plan was
substantially consummated on July 8, 2004. In general, pursuant to the Plan, as of the Effective Date:  
    
    Holders of allowed administrative and priority claims will be
paid in cash in the ordinary course as they come due or on such
other terms as the parties may agree. Holders of allowed priority
tax claims will receive periodic payments as provided under section
1129(a)(9)(C) of the Bankruptcy Code, unless the parties agree to
other terms for the payment of such claims.  
    
    Holders of allowed secured claims shall receive, at the
election of the Debtors, either (i) payment in cash in an amount
equivalent to the full amount of such holders allowed secured
claim; (ii) deferred cash payments over a period of five (5) years
after the initial distribution date totaling the amount of such
holders allowed secured claim, with interest; (iii) the return of
the collateral securing such allowed secured claim in full
satisfaction of such claim, or (iv) such other treatment as may be
agreed to in writing by such holder and the Debtors.  
    
    Holders of allowed general unsecured claims received their
pro rata share of seventy-five percent (75%) of seven million
(7,000,000) shares of the new common stock of the Company on or as
soon as practicable after the Effective Date.  
    
    Each holder of an allowed convenience claim received cash in
an amount equal to fifty percent (50%) of their allowed claims, up
to an aggregate maximum of one hundred fifty thousand dollars
($150,000) for all such claims paid as soon as practicable after the
Effective Date.  
    
    All existing equity interests in the Debtors were
extinguished as of the Effective Date. Each holder of an equity
interest in the Company that was attributable to existing common
stock received a pro rata share of twenty-five percent (25%) of
seven million (7,000,000) shares of the new common stock that was
not issued to holders of allowed general unsecured claims. The
holders of equity interests in the Company, Limited and Caren, other
than common stock, did not receive or retain any property under the
Plan.  
    
    The new common stock and the restricted shares were issued
and distributed in accordance with the terms of the Plan without
further act or action under applicable law, regulation, order or
rule and are exempt from registration under applicable securities
law pursuant to section 1145(a) of the Bankruptcy Code. 5




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
    
    The Debtors initially distributed 7,000,000 shares of new
common stock to satisfy holders of allowed general unsecured claims
and holders of equity interests in the Company that were
attributable to existing common stock. The initial distribution of
7,000,000 shares of new common stock resulted in the satisfaction of
approximately $17.6 million of allowed general unsecured claims. As
of August 31, 2004, the Company had estimated and recorded a
probable liability for approximately $1.4 million associated with
disputed general unsecured claims, which if allowed, would result in
the issuance of additional shares of new common stock. Although the
Company believes that some portion of its general unsecured claims
objected to will be ultimately disallowed by the Bankruptcy Court,
the Company cannot presently determine with certainty the total
amount of claims objected to which will be allowed or disallowed.
Subsequent to August 31, 2004, certain rejection claims and other
disputed claims were settled and allowed by the bankruptcy court
resulting in the issuance of an additional 271,043 shares of common
stock to satisfy approximately $0.9 million of the $1.4 million
estimated liability that the Company had recorded as of August 31,
2004. Caren and Limited, as a matter of law, were merged with and into the
Company, ceasing to exist as separate entities as of the Effective Date. In
addition,  
    
    The Companys certificate of incorporation was amended and
restated to change the Companys corporate name to Remote Dynamics,
Inc. on the Effective Date;  
    
    the size of the board was increased to seven (7) directors
with four (4) new directors being appointed by the Official
Unsecured Creditors Committee on behalf of the unsecured creditors
and three (3) directors to be appointed by the Debtors;  
    
    a new restricted stock plan for key executive officers was
approved;  
    
    the Company entered into two (2) year term employment
agreements with the following key executive officers which included
restricted stock grants to each officer:  
    
    Dennis R. Casey  President and Chief Executive Officer
    
    J. Raymond Bilbao  Senior Vice President, General Counsel & Secretary  
    
    W. Michael Smith  Executive Vice President, Chief
Operating Officer, Chief Financial Officer & Treasurer The Plan received overwhelming acceptance with approximately 98.6% of the
existing stockholders actually voting on the Plan, of which approximately 99.9%
voted to accept the Plan. Additionally, approximately 75% of the unsecured
creditors, who received their prorata share of 75% of the new common stock
issued under the Plan, voted to accept the Plan. Under the Plan, holders of the
Companys 13.75% Interest Senior Notes due 2005 and holders of the Companys
common stock as of the close of trading on Friday, July 2, 2004 were entitled
to receive their prorata distributions of new common stock under the Plan. Pursuant to Section 365 of the Bankruptcy Code, the Company assumed,
assumed as modified or rejected certain pre-petition executory contracts and
unexpired leases upon the Effective Date. With respect to executory contracts
assumed, the Company was required to cure all pre-petition defaults, monetary
and otherwise. With respect to executory contracts rejected, the Company is
excused from further performance under such agreement and the Bankruptcy Code
treats the rejected contract as if it were breached by the Company immediately
prior to the Companys filing of bankruptcy. The other contracting party was
entitled to a prepetition, general unsecured claim for the damages sustained as
a result of the breach of contract caused by the rejection. 6




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Exit Financing On June 24, 2004, the Company entered into a Second Amended Letter
Agreement (the Letter Agreement) with HFS Minorplanet Funding LLC and other
accredited investors which it represents (HFS), subject to bankruptcy court
approval, for the provision of $1.575 million in exit financing to the Company
in accordance with the Committee Settlement. On June 29, 2004, the Bankruptcy
Court entered an order approving an exit credit facility to be provided by HFS
to the Company in the amount of $1.575 million (the Exit Financing). On June
29, 2004, the Company and HFS closed on the Exit Financing. Upon funding, the
Company agreed to issue a $1.575 million convertible promissory note to HFS
with the principal balance being due 36 months from the date of funding, with
an annual interest rate of 12 percent. HFS was required to provide the funding
within 21 days of the June 29, 2004 closing. On July 20, 2004, the Company amended the Exit Financing by entering into
and consummating a Third Amended Letter Agreement (the Third Amended
Agreement) with HFS increasing the amount of the financing from $1.575 million
to $2.0 million issuing a $2.0 million convertible promissory note to HFS with
the principal balance being due 36 months from the date of funding, with an
annual interest rate of 12 percent (the Note). Upon issuance of the Note,
HFS provided the $2 million funding to the Company less a commission in the
amount of $80,000 representing four percent (4%) of the loan proceeds. Pursuant to the Third Amended Agreement, HFS, may at any time demand
repayment of such portion of the accrued interest and unpaid principal on the
Note in such number of shares of common stock, based upon a fixed conversion
price of $2.90 per share of common stock, if converted in year 1 of the
repayment of the Note or a fixed conversion price of $3.08 per share of common
stock if converted subsequent to year 1 of the repayment of the Note, whose
aggregate value equals the amount of accrued interest and principal being
repaid. Pursuant to the Third Amended Agreement, the Companys Board of Directors
must execute any documents or instruments or pass any corporate resolutions
necessary to appoint to the Board of Directors of the Company one additional
director designated by HFS (Additional Designee) unless such appointment
would cause the Company to violate the independent director requirements, based
on the written advice of legal counsel, as set forth in the rules and
regulations of the NASDAQ Stock Exchange, the Sarbanes-Oxley Act of 2002 (the
SOX) and the rules and regulations promulgated by the Securities and Exchange
Commission pursuant to the SOX. This Additional Designee shall serve on the
Companys Board of Directors until the promissory note is repaid in cash or
repaid by conversion to common stock. Accordingly, Stephen CuUnjieng, the President of HFS, was appointed to the
Companys Board of Directors effective July 13, 2004 as the Additional Designee
pursuant to the Letter Agreement. Mr. CuUnjieng has been employed by the
Company as Director of Strategic Finance since January 30, 2004, immediately
prior to the filing of the bankruptcy, to assist the Company with further fund
raising. Mr. CuUnjieng is a controlling partner in HFS. Securities Purchase Agreement  Sale of Series A Preferred Stock On October 4, 2004, the Company announced that it had closed the sale of
5,000 shares of Series A Convertible Preferred Stock (Series A Preferred
Stock), with each preferred share having a face value of $1,000, for a total
purchase price of $5,000,000, on October 1, 2004 (the Closing). The Series A
Preferred Stock is convertible into shares of the Companys common stock
(Common Stock) at a conversion price (Conversion Price) of $2.00 per share.
The Company sold the Series A Preferred Stock to an investor pursuant to that
certain Securities Purchase Agreement, October 1, 2004, by and between the
Company and SDS Capital Group SPC, Ltd. The Series A Preferred Stock was issued
to the investor pursuant to the exemption from the registration requirements of
the Securities Act of 1933, as amended (the Securities Act) provided by
Regulation D promulgated thereunder. In addition to the above pricing and number of the securities sold, the
Securities Purchase Agreement also provides that the Company shall use the
proceeds from this offering only for general corporate purposes and working
capital. The Company further agreed to (i) timely file the with SEC all reports
required to be filed by it 7




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under the Securities Exchange Act of 1934, (ii) reserve 5,000,000 shares
of Common Stock for issuance upon conversion of the Series A Preferred Stock
and upon exercise of the warrants described below, (iii) use commercially
reasonable efforts to maintain the listing of the Common Stock on the Nasdaq
SmallCap Market, and (iv) not redeem, repurchase or declare or
pay any cash
dividend on any shares of capital stock. The Company further granted the
investor the right to participate in the future issuance of equity or
equity-linked securities of the Company for a period of 12 months after the
closing of the Series A Preferred Stock issuance. The Company also agreed to
indemnify the investor from damages it incurs (A) as a result of any breach of
the representations, warranties and covenants contained in the Securities
Purchase Agreement or in the related transaction documents by the Company or
(B) as a result of a cause of action brought by a third-party resulting from
(1) the execution of the transaction documents, (2) any transaction financed by
the use of proceeds or (3) the status of the investor as a holder of the
Companys securities. The terms of the Series A Preferred Stock are set forth in the Certificate
of Designation, Preferences and Rights, the most significant of which are as
follows: RankingThe Series A preferred stock ranks senior to the Companys Common
Stock with respect to payment of dividends and amounts upon any liquidation,
dissolution or winding up of the Company. Dividends. Dividends accrue from the date of issuance of the Series A
Preferred Stock through October 1, 2006, and will be cumulative from such date,
whether or not in any dividend period or periods such dividends are declared.
Holders of shares of Series A Preferred Stock will be entitled to receive, when
and as declared by the Companys Board of Directors, out of funds legally
available therefore, cumulative cash dividends payable in an amount equal to 8%
per year. Conversion Rights. Each holder of Series A Preferred Stock has the right
to convert its shares of Series A Preferred Stock into shares of the Companys
Common Stock at a conversion price of $2.00 per share of Common Stock. The
conversion price shall be adjusted in the event of stock splits, stock
dividends and similar distributions and events affecting all of the Companys
common stockholders on a pro rata basis so that the conversion price is
proportionately increased or decreased to reflect the event. In addition, if
there is a change of control (as discussed below), then each holder of Series A
Preferred Stock has the right to receive upon conversion, in lieu of Common
Stock otherwise issuable, such shares of stock, securities or other property as
would have been issued or payable in such change of control with respect to the
number of shares of Common Stock which would have been issuable upon conversion
had such change of control not taken place (subject to appropriate revisions to
preserve the economic value of the Series A preferred shares before the change
of control). The Company has to give 10 days notice to the holders of our
Series A Preferred Stock before we may effect any Change of Control (as
defined below). In no event can any holder of Series A Preferred Stock
beneficially own or have the right to vote more than 4.99% of the Companys
outstanding shares of common stock at any given time regardless of how the
holder of the Series A Preferred Stock obtained such shares. For purposes of the Series A Preferred Stock, a Change of Control means
any sale, transfer or other disposition of all or substantially all of the
Companys assets, the adoption of a liquidation plan, any merger or
consolidation where the Company is not the surviving entity with the Companys
capital stock unchanged, any share exchange where all of the Companys shares
of Common Stock are converted into other securities or property, any sale or
issuance by the Company granting a person the right to acquire 50% or more of
the Companys outstanding Common Stock, any reclassification of the Companys
Common Stock, and the first day on which the current members of the Companys
Board of Directors cease to represent at least a majority of the members of the
Companys Board of Directors then serving. Redemption Rights of the Company. If, at any time after October 1, 2005
and before October 1, 2008, during a period of at least twenty (20) consecutive
trading days (a) the closing trading price of the Companys Common Stock is at
least 200% of the conversion price then in effect and (b) the trading volume
and trading price of the Companys Common Stock result in a product of at least
$350,000 on each trading day, then the Company shall have the right to redeem
all shares of Series A Preferred Stock then outstanding at a price per share
equal to 200% of the face amount of such shares, plus all accrued and unpaid
dividends thereon through the closing date of such redemption. 8




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Voting Rights and Limitations.Except as otherwise provided in the
Certificate of Designation and as otherwise required by the Delaware General
Corporation Law, each holder of Series A Preferred Stock has the right to vote
on all matters before the common stockholders on an as-converted basis voting
together with the common stockholders as a single class. This voting right is
subject to the limitation that in no event may a holder of shares of Series A
Preferred Stock (or warrants discussed below) have the right to convert shares
of Series A Preferred Stock into shares of the Companys Common Stock or to
dispose of any shares of Series A Preferred Stock to the extent that such right
to effect such conversion or disposition would result in the holder and its
affiliates together beneficially owning or having the power to vote more than
4.99% of the Companys then outstanding shares of Common Stock. The holders of
a majority of the Series A Preferred Stock also have the right to appoint one
representative to the Companys Board of Directors and are entitled to
designate one observer to the meetings of the Companys Board of Directors and
its committees. Warrants Issued to Holder of Series A Preferred Stock. In connection with
the issuance of shares of Series A Preferred Stock, the Company also issued to
the Series A Preferred Stock holder two warrants to purchase shares of the
Companys common stock. With respect to the first warrant (the Structured warrant), the holder
has the right to purchase up to 1,000,000 shares of the Companys Common Stock
at an exercise price equal to $0.909 per share. The exercise price per share
may be adjusted if SBC Services, Inc. and/or its affiliates do not award the
Company a contract pursuant to the Request for Quotation for the provision of
VTS equipment and service with (a) a minimum term of one year through which the
Company will receive a minimum of $10,000,000 in annual gross revenues
(determined in accordance with U.S. generally accepted accounting principles)
and which contract contemplates the renewal by SBC for at least one additional
year, or (b) a minimum term of two years through which the Company will receive
a minimum of $10,000,000 in annual gross revenues (determined in accordance
with GAAP) (collectively referred to as the SBC Condition). If the SBC
Condition is not satisfied by November 15, 2004, then the exercise price shall
be equal to 75% of the average trading price for the Companys Common Stock for
the ten trading day period immediately preceding November 15, 2004. If the SBC
Condition is not satisfied by January 15, 2005, then the exercise price shall
again be adjusted so that it is equal to 75% of the average trading price for

the Companys Common Stock for the ten trading day period immediately preceding
January 15, 2005. As the Company was unable to sign a 2 year contract with SBC
in satisfaction of the SBC Condition, the $0.909 per share exercise price for
the Structured Warrant issued to the holder of the Series A Preferred Stock
will be modified to equal 75% of the average closing price of the Companys
common stock for the ten day period immediately prior to November 15, 2004 and
will be further modified to equal 75% of the average closing price of the
Companys common stock for the ten day period immediately prior to January 15,
2005. Based upon the current trading price of the Companys common stock, the
exercise price of the Structured Warrant is likely to be adjusted downward
which would allow the holder of the Series A Preferred Stock to purchase the
Companys common stock at a lower price and may increase the dilution to the
Companys stockholders. In addition, the right of the holder of Series A
Preferred Stock to maintain an Investment Oversight Committee to monitor and
approve the expenditure of the net proceeds from the sale of the Series A
Preferred Stock shall remain in effect indefinitely. The Structured Warrant
may be exercised at any time until October 1, 2009. The Structured Warrant
contains certain anti-dilution price protections in the event of a dilutive
stock issuance (in addition to anti-dilution protections for stock splits and
other similar pro rata events), but these protections only apply if the Company
obtains stockholder approval of these provisions. The Company is obligated to
call and hold a special meeting of its stockholders for the purpose of voting
to approve the anti-dilution provisions in the Structured Warrant governing
dilutive stock issuances. The second warrant (the Incentive Warrant), to purchase 625,000 shares
of the Companys common stock was issued to the Series A Preferred Stock holder
at the same exercise price and adjustment terms as the Structured Warrant
described above, and the Incentive Warrants remaining terms are identical
except: (i) the Incentive Warrant is only exercisable from September 1, 2005
through September 1, 2010, and (ii) the Company has the right to repurchase the
Incentive Warrant in full for a total price of $10.00 provided that (A) the
trading price of the Companys Common Stock exceeds $7.50 (subject to
adjustment for stock splits, etc.) for 10 consecutive trading days at anytime
during the period beginning January 1, 2005 and ending June 30, 2005, and (B)
the Companys gross revenue exceeds $9,999,999 at anytime during the six-month
period ending June 30, 2005. As the Company was unable to sign a 2 year
contract with SBC in satisfaction of the SBC Condition, the $0.909 per share
exercise 9




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price for the Incentive Warrant issued to the holder of the Series A
Preferred Stock will be modified to equal 75% of the average closing price of
the Companys common stock for the ten day period immediately prior to November
15, 2004 and will be further modified to equal 75% of the average closing price
of the Companys common stock for the ten day period immediately prior to
January 15, 2005. Based upon the current trading price of the Companys common
stock, the exercise price of the Incentive Warrants is likely to be adjusted
downward which would allow the holder of the Series A Preferred Stock to
purchase the Companys common stock at a lower price and may increase the
dilution to the Companys stockholders. In addition, the right of the holder
of Series A Preferred Stock to maintain an Investment Oversight Committee to
monitor and approve the expenditure of the net proceeds from the sale of the
Series A Preferred Stock shall remain in effect indefinitely. Both the
Structured Warrant and the Incentive Warrant contain a provision that prevents
any holder from exercising any part of the warrant if such exercise would
result in such holder beneficially owning or having the right to vote more than
4.99% of the Companys outstanding shares of common stock. Registration Rights Agreement. In connection with the issuance of Series
A Preferred Stock and Structured Warrant and Incentive Warrant to the Series
A Preferred Stock holder, the Company entered into a Registration Rights
Agreement, dated October 1, 2004, with the Series A Preferred Stock holder,
whereby the Company granted certain registration rights to the Series A
Preferred Stock holder. On or prior to November 29, 2004, the Company is
obligated to file a Registration Statement on Form S-3 covering 5,000,000
shares of the Companys Common Stock that the Series A Preferred Stock holder
may acquire upon conversion of the Series A Preferred Stock or upon exercise of
the Structured Warrant and the Incentive Warrant. The Company could face a
liquidated damages claim by the Series A Preferred Stock holder if (i) the
initial registration statement is not declared effective by the SEC on or prior
to January 29, 2004, (ii) after the effectiveness of the registration
statement, sales of the Companys Common Stock cannot be made by the Series A
Preferred Stock holder due to a stop order by the SEC or the Companys need to
update the registration statement, or (iii) the Companys Common Stock is not
listed on Nasdaq, the New York Stock Exchange or the American Stock Market.
The liquidated damages for the first 30 days equal 3% of the purchase price of
the Series A Preferred Stock and equal 1.5% for each 30 days thereafter of
non-compliance. In addition to the liquidated damages provision discussed
above, the Series A Preferred Stock holder can require the redemption of its
shares of Series A Preferred Stock upon certain default events. The Series A Preferred Stock holder also has the right to piggy-back on to
the registration statements filed by the Company registering shares of the
Companys Common Stock (other than Form S-8 and Form S-4 registration
statements filed by the Company), subject to share cut-backs by the
underwriters (if an underwritten public offering), provided that at least 25%
of the shares requested for inclusion in the registration statement by the
Series A Preferred Stock holder must be included in such underwritten public
offering. Redemption Rights of Series A Preferred Stock. The holders of shares of
Series A Preferred Stock shall have the right to cause the Company to redeem
any or all of its shares at a price equal to 115% of face value (150% of the
face value if the redemption event is a Change of Control event discussed
below), plus accrued but unpaid dividends in the following events:  
    
    the Common Stock is suspended from trading or is not listed for
trading on at least one of, the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
Market for an aggregate of 10 or more trading days in any twelve-month
period;  
    
    the initial registration statement required to be filed by the
Company pursuant to the Registration Rights Agreement has not been
declared effective by January 29, 2005 or such registration statement,
after being declared effective, cannot be utilized by the holders of
Series A Preferred Stock for the resale of all of their registrable
securities for an aggregate of more than 15 days in the aggregate;  
    
    the Company fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of
Series A Preferred Stock upon conversion of the Series A Preferred
Stock as and when required and such failure continues uncured for five
business days;  
    
    the Company provides written notice (or otherwise indicates) to any
holder of Series A Preferred Stock, or states by way of public
announcement distributed via a press release, at any time, of its
intention not to 10




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issue, or otherwise refuses to issue, shares of Common Stock to any
holder of Series A Preferred Stock upon conversion in accordance with the
terms of the Certificate of Designation for the Series A Preferred Stock;  
    
    the Company or any subsidiary of the Company shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for the Company or for a
substantial part of its the Companys property or business;  
    
    bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for the relief of Company shall be instituted by
or against the Company or any subsidiary which shall not be dismissed
within 60 days of their initiation;  
    
    the Company shall:  
    
    sell, convey or dispose of all or substantially all of its assets;  
    
    merge or consolidate with or into, or engage in any other business
combination with, any other person or entity, in any case which results
in either (i) the holders of the voting securities of the Company
immediately prior to such transaction holding or having the right to
direct the voting of fifty percent (50%) or less of the total
outstanding voting securities of the Company or such other surviving or
acquiring person or entity immediately following such transaction or
(ii) the members of the Board of Directors or other governing body of
the Company comprising fifty percent (50%) or less of the members of
the board of directors or other governing body of the Corporation or
such other surviving or acquiring person or entity immediately
following such transaction;  
    
    either (i) fail to pay, when due, or within any applicable grace
period, any payment with respect to any indebtedness of the Company in
excess of $250,000 due to any third party, other than payments
contested by the Company in good faith, or (ii) suffer to exist any
other default under any agreement binding the Company which default or
event of default would or is likely to have a material adverse effect
on the business, operations, properties, prospects or financial
condition of the Company;  
    
    have fifty percent (50%) or more of the voting power of its capital
stock owned beneficially by one person, entity or group;  
    
    experience any other Change of Control not otherwise addressed
above; or  
    
    the Company otherwise shall breach any material term under the
private placement transaction documents, and if such breach is curable,
shall fail to cure such breach within 10 business days after the
Company has been notified thereof in writing by the holder; Actions Requiring Approval of Holder of a Majority of the Companys Series
A Preferred Stock. So long as any shares of Series A Preferred Stock are
outstanding, the Company shall not take any of the following corporate actions
(whether by merger, consolidation or otherwise) without first obtaining the
approval of the majority holders of Series A Preferred Stock: (i) alter or change the rights, preferences or privileges of the Series A
Preferred Stock, or increase the authorized number of shares of Series A
Preferred Stock; (ii) amend its certificate of incorporation or bylaws; (iii) issue any shares of Series A Preferred Stock other than pursuant to
the Securities Purchase Agreement; 11




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(iv) redeem, repurchase or otherwise acquire, or declare or pay any cash
dividend or distribution on, any junior securities; (v) increase the par value of the Common Stock; (vi) sell all or substantially all of its assets or stock, or consolidate
or merge with another entity; (vii) enter into or permit to occur any Change of Control transaction; (viii) sell, transfer or encumber technology, other than licenses granted
in the ordinary course of business; (ix) liquidate, dissolve, recapitalize or reorganize; (x) authorize, reserve, or issue Common Stock with respect to any plan or
agreement that provides for the issuance of equity securities to
employees, officers, directors or consultants of the Corporation in
excess of 250,000 shares of Common Stock; (xi) change its principal business; (xii) issue shares of Common Stock, other than as contemplated herein or
by the Warrants; (xiii) increase the number of members of the Board of Directors to more
than 7 members, or, if no Series A director has been elected, increase
the number of members of the Board to more than 6 members; (xiv) alter or change the rights, preferences or privileges of any
capital stock of the Corporation so as to affect adversely the Series A
Preferred Stock; (xv) create or issue any senior securitiesor pari passusecurities to
the Series A Preferred Stock; (xvi) except for the issuance of debt securities to, or incurrence of
indebtedness from, a recognized financial institution in an aggregate
amount not exceeding $5,000,000 (or such additional amount as the Board
and the majority holders of the Companys Series A Preferred Stock agree
is reasonably necessary for the Company to perform its obligations under
a contract with SBC Communications, Inc. and which, in the case of debt
securities, are not convertible securities or purchase rights, issue any
debt securities or incur any indebtedness that would have any preferences
over the Series A Preferred Stock upon liquidation of the Company, or
redeem, repurchase, prepay or otherwise acquire any outstanding debt
securities or indebtedness of the Company, except as expressly required
by the terms of such securities or indebtedness; (xvii) make any dilutive issuance; (xviii) enter into any agreement, commitment, understanding or other
arrangement to take any of the foregoing actions; or (xix) cause or authorize any subsidiary of the Company to engage in any
of the foregoing actions. Notwithstanding the foregoing, after such time as the SBC Condition (as
defined below) is satisfied, no such approval of the majority holders of the
Companys Series A Preferred Stock shall generally be required with respect to
subparagraphs (i)  (xiii), and (xviii)  (xix) if such action is approved by
the affirmative vote of at least two-thirds of the Companys Board of
Directors. PRODUCTS AND SERVICES The Companys products and services can be classified into two major
operating segments: Vehicle Management Information (VMI) and NSC Systems. NSC
Systems includes three separate product and service categories: truck fleet
mobile communications, SBC service vehicles and mobile asset tracking. The
Company began marketing the VMI product during the third calendar quarter of
2001. Approximately 72% and 28% of the Companys total revenues were derived
from the NSC Systems and VMI operating segments, respectively, during 12




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the twelve months ended August 31, 2004. See operating segment financial
information in Note 18 of the Consolidated Financial Statements attached
hereto. Vehicle Management Information (VMI) On June 21, 2001, the Company acquired an exclusive, royalty-free, 99-year
license to market, sell and operate Minorplanet System PLCs VMI technology in
the United States, Canada and Mexico. VMI is designed to maximize the
productivity of a mobile workforce as well as reduce vehicle mileage and fuel
related expenses. The VMI technology consists of: (i) a data control unit
(DCU) that continually monitors and records a vehicles position, speed and
distance traveled; (ii) a command and control center (CCC) which receives and
stores in a database information downloaded from the DCUs; and (iii) software
used for communication, messaging and detailed reporting. VMI uses
satellite-based Global Positioning System (GPS) location technology to
acquire a vehicle location on a minute-by-minute basis, and a global system for
mobile communications (GSM) based cellular network to transmit data between
the DCUs and the CCC. GSM is a digital technology developed in Europe and has
been adapted for North America. GSM is the most widely used digital standard
in the world. The VMI application is targeted to small and medium sized fleets
based in major metropolitan areas. VMI provides minute-by-minute visibility into the activities of a mobile
workforce via an extensive reporting system that provides real-time and
exception-based reporting. Real-time reports provide information regarding a
vehicles location, idling, stop time, speed and distance traveled. With
real-time reporting, the customer can determine when an employee starts or
finishes work, job site arrival times and site visit locations. In addition,
exception reports allow the customer to set various parameters within which
vehicles must operate, and the system will report exceptions including
speeding, extended stops, unscheduled stops, route deviations, visits to barred
locations and excessive idling. Next Generation AVL Product The Company currently believes that it must modify its current automatic
vehicle location business model to a recurring revenue model in order to create
long-term enterprise value for our stockholders as it is typical to value
companies in the automatic vehicle location marketplace using a discounted cash
flow analysis. By moving to a recurring revenue model, the Company will be
positioned to potentially create long-term recurring cash flows in future
periods that should increase the overall value of the business enterprise as
compared to a non-recurring cash flow model. The Company has further
determined that in order to fully exploit the automatic vehicle location market
in the U.S. in a recurring revenue business model, the Company must develop and
introduce an automatic vehicle location product which utilizes the General
Packet Radio System technology common known as GPRS, for data transmission
along with the automatic vehicle location software which is hosted by the
Company in a service bureau environment allowing customers to access their data
via the Internet or dedicated frame relay. The Company believes introduction
of the next generation products and associated web-based architecture will
provide substantial savings in wireless transmission costs over the current GSM
circuit-switched data VMI unit and will further allow the Company to
substantially reduce its customer support and maintenance costs by avoiding
costly maintenance visits to customer premises to service the command and
control center component of the VMI system. In early 2003, the Company
requested that Minorplanet Systems PLC develop a GPRS-enabled VMI unit and
modify the VMI software to be hosted in an Internet environment. Minorplanet
Systems PLC initially scheduled delivery of the GPRS-enabled mobile unit and
web-hosted software on or before September 2003. However, Minorplanet Systems
PLC has been unable to deliver a commercially viable GPRS-enabled mobile unit
and web-hosted software. In conjunction with the Companys development of the next-generation
product for the SBC companies, the Company initiated the internal development
of a GPRS-enabled mobile unit and web-hosted, service bureau-based automatic
vehicle location software during the first calendar quarter of 2004, which can
be hosted by the Company using its existing network services center complex
with minor modifications and minimal capital expenditures. The Company is
currently testing the next-generation product and believes the initial product
version is approximately 90 percent complete. Customers using the next
generation product will access their data via the Internet or dedicated frame
relay. The Company currently anticipates commercially launching its next
generation AVL product by the first calendar quarter of 2005. There can be no
assurances that the Company will be able to 13




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commercially launch the next generation AVL product by the first calendar
quarter of 2005, and failure to do so will have a material adverse impact on
its business, financial condition and results of operations. During the pendency of the bankruptcy proceedings, the Company notified
Minorplanet Systems PLC that it intended to reject the VMI license as part of
its plan of reorganization. In order to ensure a smooth transition to its next
generation AVL product, the Company initiated negotiations with Minorplanet
Systems PLC for a temporary use license to market and sell the VMI product
until the Companys next generation AVL product was commercially available. On June 14, 2004, the Bankruptcy Court approved a settlement agreement
with Minorplanet Limited, Minorplanet Systems PLC and the Company regarding the
license agreement for the VMI technology which allows the Company to use,
market and sell the VMI technology until December 31, 2004. The material terms
of this settlement agreement include the following:  
    
    On June 30, 2004, the VMI license agreement converted to a nonexclusive license until December 31, 2004, at which time it
terminates;  
    
    From the period beginning June 30, 2004 through December 31, 2004, the territory in which the Company may market, sell and
use the VMI system was reduced to the following metropolitan areas: Los Angeles, California; Atlanta, Georgia; Dallas,
Texas and Houston, Texas;  
    
    As of July 31, 2004, the Company was no longer permitted to use the name, Minorplanet;  
    
    The Company was required to provide Minorplanet Limited, at no cost, 100 VMI units with T-Mobile special tariff SIM cards;  
    
    Subsequent to December 31, 2004, the Company has the right to use the VMI software internally only for the sole purpose of
satisfying its warranty, service and support obligations to its existing VMI customer base; and  
    
    Minorplanet Limited was allowed a general unsecured claim of $1,000,000 and it released and waived its administrative claim
and waived any future research and development fees due under the VMI license agreement. As part of the settlement, the Company also provided to Minorplanet
Limited and Minorplanet Systems PLC a general release of any and all claims
which could have been asserted against either of them. NSC Systems Truck Fleet Mobile Communications The Companys initial product offering, the Series 5000, was developed for
and, prior to the Sale to Aether on March 15, 2002, was marketed and sold by
the Company to customers that operate mobile fleets in the long-haul trucking
market. This product continues to provide long-haul trucking customers with a
total communications solution that combines voice and data communications
services with satellite-based GPS location technology. The Company also
provides engine monitoring, scanning, mapping and dispatch management
applications. The Series 5000 solutions enable trucking companies of all sizes
to maximize their efficiency as they manage trucks that are often dispersed
across the country. Prior to the Sale to Aether on March 15, 2002, the Series 5000 mobile
communications and information system was fully integrated with the AS/400,
UNIX, and Windows® fleet management software solutions from 18 key industry
suppliers. Integration partners included Creative Systems, Innovative
Transportation Systems (ITS), Maddocks Systems TruckMate® for Windows,
ProMiles, TMW Truck Systems and Tom McLeod LoadMaster Software. Full system
integration provided an end-to-end mobile communications and information system
solution by combining the on-road communications, data collection and tracking
capabilities of the Series 5000 with vendor dispatch software, enabling fleet
operators to improve customer service, manage their dispatch operations more
effectively and, ultimately, increase revenue miles per truck. 14




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For the years ended August 31, 2004 and 2003, the eight months ended
August 31, 2002, and the year ended December 31, 2001, truck fleet mobile
communications product and service revenue accounted for approximately 23%,
54%, 63%, and 41% of the Companys total revenue, respectively. The Company
completed the Sale to Aether of certain assets and licenses related to the
Companys long-haul trucking and asset-tracking businesses on March 15, 2002.
Under the terms of the March 15, 2002 Sale, the Company and Aether agreed to
form a strategic relationship with respect to the Companys long-haul customer
products, pursuant to which the Company assigned to Aether all service revenues
generated post-closing from its Series 5000 customer base. Aether, in turn,
agreed to reimburse the Company for the network and airtime service costs
related to providing the Series 5000 service. SBC Service Vehicles In response to a request from the SBC Companies for a product which would
maximize the productivity of their service vehicle fleets, the Company
developed and sold to the SBC Companies the Series 5005S mobile unit. The
Series 5005S mobile unit is based on the Series 5000 product offering with
customized proprietary hardware and software, which uses the Companys NSC for
data transmission. The Series 5005S mobile unit was further modified to
utilize the GSM/digital network for transmission for certain SBC Companies. In addition to fleet monitoring and voice and data communications
capabilities, the Series 5005S mobile units feature alarm-monitoring
functionality. This product feature provides the driver the ability to summon
emergency assistance by pressing a panic alarm button on a key fob when away
from, but in close proximity to, the service vehicle. The panic alarm signal
is intelligently routed to a third party alarm-monitoring center under contract
with the Company that confirms the validity of the alarm with the technician
and then notifies the appropriate safety agency. The GPS data is also
transmitted to the monitoring center to pinpoint the location of the vehicle
for the most efficient dispatch of the safety personnel. For the years ended August 31, 2004 and 2003, the eight months ended
August 31, 2002, and the year ended December 31, 2001, SBC service vehicle
product and service revenue accounted for approximately 49%, 33%, 34%, and 58%
of the Companys total revenue, respectively. As of August 31, 2004, the SBC
Companies have purchased and installed approximately 40,000 Series 5005S mobile
units, of which approximately 30,000 remained installed and in-service.
However, new shipments of the Series 5005S mobile units are expected to be
minimal during the Companys next fiscal year. The Series 5005S mobile units
were not part of the March 15, 2002 Sale to Aether. On October 8, 2004, the term of the Companys Service Vehicle Contract
with SBC Companies was extended through December 31, 2005. The Company does
not expect to generate revenue from the Companys Service Vehicle Contract
after December 31, 2005. The Service Vehicle Contract does not require SBC to
maintain a minimum number of mobile units activated for service during the
remaining term of the contract. However, if the number of mobile units
activated for service falls below 13,140 mobile units, the Company and SBC are
required to negotiate an adjustment to the service rates for transmission and
maintenance/repair based upon the lesser number of units in service. If SBC and
the Company are unable to reach agreement on the adjusted rates within 30 days,
the Company may terminate the SBC Agreement immediately upon written notice.
If SBC fails to maintain the minimum 13,140 mobile units activated for service,
there can be no assurances that the Company and SBC will be able to reach
agreement on adjustment of contract rates. In late October 2004, SBC informed the Company that SBC had selected
another vendor to provide vehicle tracking products and services to SBC and
would begin implementation mid-year 2005. Accordingly, the Company does not
believe that the service term of the SBC Service Vehicle Contract will be
extended beyond December 31, 2005. As the SBC Companies transition to another
vehicle tracking solution, the Company expects that SBC will begin deactivating
the Companys mobile units beginning mid-year 2005. Currently, the Company
receives approximately $890,000 in monthly revenues from SBC representing
approximately 55% of the total monthly revenues of the Company. It is
anticipated that SBC will begin deactivating units beginning in April of 2005
and complete the deactivations by December 31, 2005. 15




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The Company has announced that it will begin beta testing its new AVL
products with actual customers in November of 2004 and further expects that
such beta product version is approximately 90 percent complete for the customer
testing. The Company expects to complete a full commercial launch of its new
AVL products in the first quarter of 2005. The Company expects that its new AVL
products will form the basis of revenue for the Company for future periods. As
the revenues from the SBC Contract steadily decline in 2005, the Companys
future revenues will be solely dependent upon sales of its next generation
product line. The failure of the marketplace to accept the Companys next
generation product line will have a material adverse effect on the Companys
business, financial condition and results of operations. Since SBC has selected an alternate vendor to supply the next generation
product, management has revised its business plans and related forecasts taking
into effect the declining revenue from SBC and the costs associated with the
commercial launch of its new products. Based on current forecasts, management
believes that it will need to raise a minimum of $6 million by June 2005 to
fund the launch of its new products and fund working capital as the SBC revenue
declines during 2005. However, the timing of the deactivations by SBC as well
as the ability to meet sales projections of the new AVL products heavily
influences the capital requirements of the Company. Should SBC deactivate the
Companys units sooner than is currently anticipated in the Companys
projections, or the Company not meet its current sales projections, the amount
of capital required may increase. Currently, management believes that should
the required funding be obtained, it will be raised through the issuance of
debt or equity securities. However, there can be no assurance that the Company
will be able to raise the funds necessary to sustain the Companys operations
until revenues from sales of the Companys new AVL products are sufficient to
sustain the Companys operations and the failure to do so may have a material
adverse effect upon the Companys business, financial condition and results of
operations. Mobile Asset Tracking  TrackWare® & 20/20V The Company entered the mobile-asset-tracking market in October 1999 with
the introduction of its trailer-tracking product, TrackWare. The TrackWare
product combines the technologies of GPS and control channel messaging to
report location details and specific trailer events, such as connection and
non-connection to a tractor, loaded/unloaded and door open/close status of a
trailer. The TrackWare Remote Unit (TrackWare Unit) comes equipped with a
GPS satellite receiver, a Cellemetry®-enabled cellular transceiver,
microprocessor, antenna, battery and cables. The term Cellemetry-enabled
receiver refers to the analog wireless transceiver utilized by the Companys
TrackWare product which utilizes the Cellemetry network owned and operated by
Cellemetry LLC to send short data messages over the overhead control channel of
the existing analog wireless infrastructure. The Companys analog wireless
transceiver in its TrackWare unit utilizes the Cellemetry network via a Service
Agreement with Cellemetry LLC which includes a license to use the Cellemetry
technology. Cellemetry is a federally registered trademark of Cellemetry LLC. In March of 2001, the Company announced the launch of 20/20V, a low cost
tracking solution designed for small fleets in the transportation marketplace.
20/20V uses the Cellemetry data network to communicate location information at
predetermined intervals. Users of the 20/20V application may access
location-based information via the Internet. The March 15, 2002 Sale of certain assets to Aether included assets
related to the 20/20V and TrackWare product lines. Accordingly, the Company no
longer distributes and sells these product lines as part of its business. COMPETITION Vehicle Management Information (VMI) The Company believes that its primary competitors in the automatic vehicle location market include:  
    
    @Road @Road currently sells an Internet-based solution using the CDPD or
GPRS networks of AT&T Wireless, Nextel, Cingular Wireless, Verizon, and
other carriers. @Roads mobile resource management 16




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system enables vehicle location, wireless voice and text communications, and remote transaction processing with signature capture
using a PDA.  
    
    Teletrac Teletrac currently sells an Internet-based solution and offers service on GPRS, CDPD, and
Cellemetry wireless networks as well as Teletracs own proprietary TDOA network.  
    
    Trimble- In addition to providing advanced GPS components, Trimble augments GPS with other positioning
technologies as well as wireless communications and software to create complete customer solutions.
Trimble focuses on emerging applications including surveying, automobile navigation, machine guidance,
asset tracking, wireless platforms, and telecommunications infrastructures.  
    
    Other Regional Competitors- There are numerous smaller regional companies vying for a local presence. NSC Systems Truck mobile communications  
    
    Qualcomm Qualcomm pioneered the commercialization of the
code-division multiple access (CDMA) technology used in
wireless communications equipment and satellite ground
stations mainly in North America. Qualcomms OmniTRACS
satellite vehicle tracking system is used by the trucking
industry to manage vehicle fleets. Qualcomm, Inc. ranks
first in the truck mobile communications market with
greater than 50% of the market share.  
    
    Geologic Solutions Geologic Solutions provides wireless
and mobile data services in the transportation, fleet
management, and mobile government markets. SBC Service Vehicles The Company believes that it currently provides products and services to
one of the largest single customers in the service vehicle category with the
SBC Companies. At August 31, 2004, the Company had approximately 30,000 units
in service with the SBC Companies. The initial three-year term of the service
contract with the SBC Companies expired on December 31, 2001. The Company has
subsequently renewed its service contract with the SBC Companies for several
additional one-year terms with the current one-year renewal term expiring on
December 31, 2005. The Company believes that its primary competitors in the
service vehicle market are the same as those described above under Vehicle
Management Information. On October 8, 2004, the term of the Companys Service Vehicle Contract
with SBC Companies was extended through December 31, 2005. The Company does
not expect to generate revenue from the Companys Service Vehicle Contract
after December 31, 2005. The Service Vehicle Contract does not require SBC to
maintain a minimum number of mobile units activated for service during the
remaining term of the contract. However, if the number of mobile units
activated for service falls below 13,140 mobile units, the Company and SBC are
required to negotiate an adjustment to the service rates for transmission and
maintenance/repair based upon the lesser number of units in service. If SBC and
the Company are unable to reach agreement on the adjusted rates within 30 days,
the Company may terminate the SBC Agreement immediately upon written notice.
If SBC fails to maintain the minimum 13,140 mobile units activated for service,
there can be no assurances that the Company and SBC will be able to reach
agreement on adjustment of contract rates. In late October 2004, SBC informed the Company that SBC had selected
another vendor to provide vehicle tracking products and services to SBC and
would begin implementation mid-year 2005. Accordingly, the Company does not
believe that the service term of the SBC Service Vehicle Contract will be
extended beyond December 31, 2005. As the SBC Companies transition to another
vehicle tracking solution, the Company expects that SBC will begin deactivating
the Companys mobile units beginning mid-year 2005. Currently, the Company
receives approximately $890,000 in monthly revenues from SBC representing
approximately 55% of the total monthly 17




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revenues of the Company. It is anticipated that SBC will begin
deactivating units beginning in April of 2005 and complete the deactivations by
December 31, 2005. The Company has announced that it will begin beta testing its new AVL
products with actual customers in November of 2004 and further expects that
such beta product version is approximately 90 percent complete for the customer
testing. The Company expects to complete a full commercial launch of its new
AVL products in the first quarter of 2005. The Company expects that its new AVL
products will form the basis of revenue for the Company for future periods. As
the revenues from the SBC Contract steadily decline in 2005, the Companys
future revenues will be solely dependent upon sales of its next generation
product line. The failure of the marketplace to accept the Companys next
generation product line will have a material adverse effect on the Companys
business, financial condition and results of operations. Since SBC has selected an alternate vendor to supply its next generation
product, management has revised its business plans and related forecasts taking
into effect the declining revenue from SBC and the costs associated with the
commercial launch of its new products. Based on current forecasts, management
believes that it will need to raise a minimum of $6 million by June 2005 to
fund the launch of its new products and fund working capital as the SBC revenue
declines during 2005. However, the timing of the deactivations by SBC as well
as the ability to meet sales projections of the new AVL products heavily
influences the capital requirements of the Company. Should SBC deactivate the
Companys units sooner than is currently anticipated in the Companys
projections, or the Company not meet its current sales projections, the amount
of capital required may increase. Currently, management believes that should
the required funding be obtained, it will be raised through debt or sales of
additional equity securities. However, there can be no assurance that the
Company will be able to raise the funds necessary to sustain the Companys
operations until revenues from sales of the Companys new AVL products are
sufficient to sustain the Companys operations and the failure to do so may
have a material adverse effect upon the Companys business, financial condition
and results of operations. EMPLOYEES At August 31, 2004, the Company had 116 employees. The Companys employees
are not represented by a collective bargaining agreement. INFRASTRUCTURE AND OPERATIONS Networks.The Company uses wireless data and/or voice technologies,
combined with GPS satellite technology, for all of its products. The Companys
strategy is to select and use wireless networks that provide the best fit for
each product and application or specific customer need. The March 15, 2002 Sale to Aether of certain assets and related license
rights included the Companys Platinum Service software solution, 20/20V, and
TrackWare® asset and trailer-tracking products. In addition, the Company and
Aether agreed to form a strategic relationship with respect to the Companys
long-haul customer products, pursuant to which the Company assigned to Aether
all service revenues generated post-closing from its Series 5000 customer base.
Aether, in turn, agreed to reimburse the Company for the network and airtime
service costs related to providing the Series 5000 service. The Sale did not
include the Companys NSC or Series 5000 system technology. Series 5000 Mobile Units.These units use circuit-switched analog
cellular technology for transmitting location, as well as other information, to
the Companys NSC. The NSC then routes the data to the appropriate
destination, which may be a customers dispatcher workstation for data or any
other telephone for voice communication. In addition, these units take
advantage of the Companys patented Advanced Cellular Transmission Technology
(ACTT). ACTT is a one-way data communication technology from the mobile unit
back to the NSC. ACTT takes advantage of unused fields in the cellular control
channel to provide very short data bursts suitable for providing status updates
of vehicle location information. The primary benefit of ACTT is reduced cost
to the customer and the Company of utilizing the overhead control channel for
data messaging. The Company believes that analog cellular technology provides
the best terrestrial-based ubiquitous coverage for over-the-road vehicles that 18




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travel across the United States. As digital technologies further
penetrate existing cellular infrastructure, digital cellular networks may
become a viable alternative for over-the-road vehicles. Series 5005S Mobile Units.For service vehicles, as part of the Companys
best fit strategy, these units also may be integrated with a GSM telephone
utilizing the 1900 MHz frequency, where required. Global system for mobile
communications (GSM) is a digital technology developed in Europe and has been
adapted for North America. GSM is the most widely used digital standard in the
world. Since service vehicles primarily operate in urban areas, these digital
networks provide appropriate coverage. VMI & Next Generation AVL Product. The VMI technology uses a GSM digital
network. The next generation AVL product utilizes the general packet radio
service (GPRS) bearer channel of the GSM network to provide Internet protocol
based wireless data transmission. Currently, there are three major carriers
providing GSM/GPRS coverage in the United States: T-Mobile, Cingular and AT&T
Wireless, all of which provide coverage in the major metropolitan areas in the
United States. These carriers have announced joint arrangements to continue to
expand GSM/GPRS coverage in the United States, including interoperability among
the three carriers. The Company believes the coverage, bandwidth and price of
the GSM/GPRS network make it best suited for the next generation technology. TrackWare and 20/20V Product.The TrackWare Remote Unit and 20/20V unit
use proprietary overhead control channel technology to provide short two-way
data messages on a national basis. This network is provided by a third party
provider, Cellemetry LLC, and the Companys NSC which has been adapted to
integrate with the Cellemetry network. Network Services Center.The Companys NSC provides switching services for
each Series 5000 and 5005S mobile unit (hereinafter collectively referred to as
Mobile Unit or Mobile Units), connecting them to the nationwide network of
cellular providers, the customers dispatcher workstation and the nationwide
landline telephone network. The NSC is capable of processing, storing and
transmitting data to and from the Mobile Units and provides a gateway for the
Cellemetry network to enable transmission of data to customers. Additionally,
voice communications are routed from each Series 5000 Mobile Unit through the
Companys nationwide enhanced-services network to the NSC, which automatically
completes the call through the public telephone network to the end user. Voice
communications from the customers dispatcher or personal calls for the driver
are routed through a toll-free telephone number to the NSC, which completes the
call through the appropriate wireless cellular system for the region in which
the truck is operating. Data packets from the host or a Mobile Unit are stored
in the NSC, and then transmitted in cost-effective batches. Time-critical
information, as configured by the customer, is immediately transmitted to the
receiving party. The NSC records data from each transmission, generates a call
record and processes the information into customer billing records. Call Routing.Each time a Mobile Unit travels into a new cellular
metropolitan statistical area (MSA) or rural statistical area (RSA), it
automatically registers with the cellular carrier under contract with the
Company. The cellular carrier routes the message to Syniverse Technologies,
Inc., formerly Telecommunications Services Incorporated (Syniverse). Pursuant
to a contract with the Company, Syniverse provides the NSC with call delivery
information utilized by the NSC to deliver calls to the Mobile Unit as it
travels through a new MSA or RSA. Navigation Technology.GPS technology allows customers to identify the
location of any mobile asset at any time via satellite. GPS is operated by the
United States government, and broadcasts navigational information from a
network of dedicated satellites orbiting the earth. GPS navigational receivers
interpret signals from multiple satellites to determine the receivers
geographical coordinates, elevation and velocity. GPS navigational signals can
be received worldwide, without adaptation of the receiver unit to foreign
standards. The Company believes that the network of GPS navigational satellites
will be maintained by the United States Defense Department in an operational
status for the foreseeable future. Although stand-alone GPS units are available
for purchase by any consumer at relatively low cost, the Company believes that
raw navigational information is of little use in tracking assets unless the GPS
receiver is integrated with a computer system, such as the Companys mobile
communication units, to record routes traveled relative to mapped roadways or
to transmit position reports to a central dispatcher. 19




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Wireless Infrastructure.The Federal Communications Commission (FCC)
has provided for a two-operator duopoly in each analog cellular market. Only
two licenses were awarded to provide analog cellular service in any specific
cellular MSA or RSA. One of the two licenses in each market was initially
awarded to a company or group that was affiliated with a local landline
telephone carrier in the market (the Wireline or B-Side license) and the
other license in each market was initially awarded to a company, individual or
group not affiliated with any landline telephone carrier (the Non-Wireline or
A-Side license). However, once a license was awarded, the license holder
could sell the license to another qualified entity, including the sale of
B-Side licenses to groups not affiliated with the landline telephone carrier,
and the sale of A-Side licenses to a landline telephone carrier. The
Companys system utilizes both the A-Side and B-Side carriers in its coverage
areas, and has agreements with both A-Side and B-Side carriers in approximately
75% of its markets, allowing system redundancy and greater flexibility. In
addition to cellular licenses, the FCC has issued up to six licenses in each
market for the 1.9 megahertz (PCS) spectrum. PCS is generally available in
certain metropolitan markets and surrounding areas. A number of cellular carriers are in the process of upgrading from
existing analog cellular systems to enhanced systems utilizing digital
technology. However, the Company believes that the large number of analog
telephones already owned by cellular subscribers will ensure that cellular
telephone operators continue to offer services to existing analog users
concurrently with digital users over an extended phase-in period that exceeds
the expected useful life of the current analog Mobile Units. STRATEGIC SERVICE ALLIANCES OF THE COMPANY Wireless Carriers.The Company has established a network for the United
States that offers mobile communication coverage in 98% of the available analog
wireless service areas in the United States (which covers approximately 95% of
the United States interstate highway system) and 100% of the A-Side coverage in
Canada. The Company has agreements in place with 66 wireless carriers,
including all the regional Bell operating companies, AT&T Wireless Inc. and
Rogers Cantel, Inc., in 706 markets in the United States and Canada. The
Company has entered into contracts with both A-side and B-side carriers in
approximately 75% of United States wireless coverage regions. In most cases,
terms of contracts between the Company and each of its cellular carriers are
generally for one year, with automatic one-year successive renewal terms unless
either party elects to terminate the contract upon 180-day notice prior to the
end of the renewal term. The Company has executed contracts with certain
wireless carriers that provide for an initial three-year term with automatic
one-year successive renewal terms unless either party elects to terminate the
contract upon 180-day notice prior to the end of the renewal term. The
Companys agreements with wireless carriers provide that the Company will not
be required to reimburse carriers for fraudulent usage unless the carriers have
fully implemented the Companys anti-fraud protocol. Although the Companys
anti-fraud protocol has been effective in preventing fraud to date, there can
be no assurance that this will be the case in the future. Syniverse. Syniverse provides clearinghouse functions to the cellular
industry, creating the data link between a foreign network and a traveling
vehicles home cellular service area, performing credit checking functions and
facilitating roamer incoming call delivery functions. The Companys contract
with Syniverse covers certain functions that are critical to the Companys
ability to instantly deliver calls nationwide for its NSC network subscribers
in connection with the Companys agreement with Aether Systems. The Syniverse
contract covers an initial term that began on May 3, 1999 and ends on April 15,
2005. On June 30, 2004, the Company amended its contract with Aether Systems
to extend the transition period during which it provides network services to
the Companys network subscribers until April 30, 2005 after which time the
agreement continues on a month-to-month basis unless terminated by either party
upon 60 days advance written notice. Upon expiration of the Aether agreement,
the Company may discontinue its purchase of Syniverse services as it will no
longer provide network services to such network subscribers. As per the terms
of the Syniverse agreement, subsequent to April 15, 2005, the Company may
terminate the Syniverse agreement for convenience by providing Syniverse with
60 days prior written notice of termination. A failure in the Syniverse
network prior to April 30, 2005 could have a material adverse effect on the
Companys business, financial condition and results of operations. See the
Risk Factor on page 31 relating to the Syniverse relationship. T-Mobile. The Company markets and sells T-Mobile GSM data services to its
VMI customers as an agent of T-Mobile pursuant to a National Premier Dealer
Agreement entered into with T-Mobile USA, Inc. on January 1, 20




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2003 so that such VMI customers have a direct contractual relationship for
the purchase of GSM data services with T-Mobile. The agreement has an initial
term of two years and automatically terminates unless the Company provides
written notice of its intent to renew to T-Mobile at least 60 days prior to the
end the term. The Company also resells T-Mobile GSM data services to the Companys VMI
customers pursuant to a reseller agreement with T-Mobile. The reseller
agreement has an initial term of one year which continues on a month-to-month
basis following the expiration of such initial term unless terminated by either
party on written notice. The initial term of the reseller agreement has
expired and the reseller agreement is currently on a month-to-month term. If
the Company is unable to renew such agreements with T-Mobile and other U.S.
wireless carriers refuse to support circuit-switched data on their GSM networks
for our VMI units, such failures could have a material adverse effect on the
Companys business, financial condition and results of operations. See Risk
Factor on page 32 regarding risks associated with this relationship. Cingular Wireless LLC.On March 30, 1999, the Company executed an
Administrative Carrier Agreement with Southwestern Bell Mobile Systems, Inc.,
now known as Cingular Wireless whereby Cingular provides clearinghouse services
to the Company, including the direct payment of the Companys cellular service
providers for cellular airtime through the cellular clearinghouse process.
This agreement provides for an initial term of 3- years that automatically
renews for 5 additional consecutive 1-year terms. While the Company has no
reason to believe that Cingular will not renew this agreement, it is possible
that Cingular will attempt to renegotiate higher rates for the services which
it provides at the time of renewal. If the Company is unable to negotiate
commercially reasonable rate increases, the Companys service margins could be
reduced substantially. If the Company is unable to renew because it cannot
reach agreement on commercially reasonable rate increases, the failure to renew
this contract and continue existing arrangements for payment to the Companys
cellular service providers could require the Company to post security deposits
or provide other financial assurances, which could have a material adverse
effect on the Companys business, financial condition or results of operations.
Cingular also provides the Companys customers with analog cellular service as
per a Cellular Service Agreement originally entered into on June 7, 1993 and
last amended on May 7, 1999 for a three-year term with automatic renewal for
successive one-year terms unless either party provides a minimum of 90 days
written notice of intent to terminate prior to the expiration of any renewal
period. See the Risk Factor on page 32 regarding risks associated with this
relationship. Alarm Monitoring Services.On May 25, 2000, the Company and Criticom
International Corporation (CIC) entered into a Monitoring Services Agreement
with an initial term of three years that automatically renews for successive
two-year terms pursuant to which CIC provides certain panic alarm monitoring
services for the Company in connection with the Companys obligations to the
SBC Companies. The Criticom contract has an initial term of three years and
automatically renews for successive two-year terms unless terminated by either
party on 120 days notice. The initial 2year term of the Criticom contract
expired on June 30, 2003 and the Criticom contract is currently in a 2-year
renewal term which expires on June 30, 2005, subject to the automatic renewal
for additional 2-year terms. While the Company has no reason to believe that
Criticom will not renew this contract, it is possible that Criticom could fail
to renew the contract in an attempt to renegotiate higher rates to be paid by
the Company. If the Company is unable to renew the Criticom contract or renew
it with rates similar to current rates, it may be required to develop its own
alarm monitoring center, including obtaining the required licenses, or execute
an agreement with another alarm monitoring services provider, which agreement
may not be available on commercially acceptable terms. As the Company will
have limited resources, it may be unable to develop its own monitoring services
center or successfully continue with an alternate provider, either of which
could have a material adverse effect on the Companys business, financial
condition and results of operations. See the Risk Factor on page 31 relating
to the CIC relationship. Key Suppliers.The Company does not manufacture or assemble its products
but subcontracts for the manufacture of its products from various suppliers. PATENTS AND PROPRIETARY TECHNOLOGY The Company has obtained 42 United States patents and 16 foreign patents
and has applied for, and has pending, additional United States and foreign
patents. In general, the Companys existing patents claim inventions 21




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involving the innovative and novel utilization of the existing wireless
infrastructure as well as the particular operational features and functionality
of certain of the Companys historical products and services. The Companys
software is also protected under patents, federal and state trade secret law
and federal copyright law. See the Risk Factor on page 34 regarding risks
associated with the Companys patents. RESEARCH AND DEVELOPMENT The Company relies primarily on its internal team of engineers for
research and development relating to its current and prospective products. As
of August 31, 2004, the Company had completed approximately 60% of the
development of its web hosted, service bureau-based AVL software. The Company
currently anticipates commercially launching its next generation AVL products
by the first calendar quarter of 2005. Total research and development expensed
through August 31, 2004 associated with development of the Companys next
generation AVL products was approximately $0.6 million. Prior to the rejection
in the bankruptcy proceedings of the VMI license and the initiation of
development of the Companys next generation AVL mobile unit, the Company
relied primarily on Minorplanet UK for research and development for products
for the AVL marketplace. Pursuant to the Exclusive License and Distribution
Agreement with Minorplanet UK, the Company was required to pay $1 million per
year to Minorplanet UK for this research and development. Under a settlement
agreement with Minorplanet UK, approved by the Bankruptcy Court, Minorplanet UK
waived any future research and development fees due under the VMI license
agreement. REGULATION The Companys products and services are subject to various regulations
promulgated by the FCC that apply to the wireless communications industry
generally. The Companys Mobile Units, DCUs, CCCs and its TrackWare® Units
must meet certain radio frequency emission standards so as to avoid interfering
with other devices. The Company relies on the manufacturer of the cellular
transceiver components of the Mobile Units, DCUs, CCCs and the TrackWare®
Units to carry out appropriate testing and regulatory compliance procedures
regarding the radio emissions of the cellular transceiver component. The FCC also controls several other aspects of the wireless industry that
affect the Companys ability to provide services. The FCC controls the amount
of radio spectrum available to cellular carriers, which could eventually limit
growth in cellular carrier capacity. The FCC also regulates telecommunications service providers or common
carriers, requiring approval for entry into the marketplace and regulating the
service rates offered through tariff filing requirements. Additionally, most
states regulate rates and market entry for telecommunications service
providers. In order to encourage growth within the information services segment
of the telecommunications industry, the FCC issued an order creating the
enhanced services exemption from regulation. In general, providers of enhanced
services are not subject to regulation by the FCC or the various state
regulatory agencies. Services qualify as enhanced services if data is
transmitted between the provider and customer so that the customer is able to
interact with or manipulate the data regardless of whether the services
provided include telecommunications transmission components, such as wireless
or long distance services. The Company believes that the services it provides
to its customers in connection with the Mobile Units, DCUs, CCCs and
TrackWare Units qualify as enhanced services and are exempt from both FCC and
state regulation. Alternatively, the Company believes that its services may be
characterized as a private network not offered to the public at large but
offered to specific group of users, which management believes should also serve
to exempt the Company from FCC and state regulation. The wireless telecommunications industry currently is experiencing
significant regulatory changes that may require a re-examination of laws and
regulations applicable to the Companys operations. The Companys services may
be characterized by the FCC as Commercial Mobile Radio Services (CMRS). If
the Companys services are classified as CMRS, the Company may be subject to
FCC regulation as a telecommunications service provider. However, the FCC has
decided to forbear from most regulation of the CMRS marketplace, including
regulation of the rates and terms of market entry for interstate services
offered by CMRS providers. In addition, the U.S. Congress has preempted state
regulation of CMRS market entry and rates. FCC decisions thus far have
enhanced the 22




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development of CMRS, including requiring local telephone companies to
offer interconnection and access to their networks to CMRS providers and to
establish reciprocal compensation arrangements with CMRS providers for the
transportation and termination of calls at prices that are cost-based and
reasonable. If any services offered by the Company are determined to be
telecommunications services by the FCC, the revenues generated from these
services would be subject to the required contribution to the federal universal
service fund. At this time, revenues generated from the Companys services that
meet the definition of enhanced services are not subject to FCC-mandated
universal service fund contribution. However, based on a conservative
interpretation, the Company has historically reported certain revenues
generated by the personal calling plan service offered by the Company as a
telecommunications service for purposes of federal universal service fund
contribution filings. Various states have instituted their own universal
service fund mechanisms which may or may not follow the federal statutes in
exempting revenues generated by enhanced services. The Company cannot predict
the impact of any future requirements to contribute to state and federal
universal service mechanisms. RECAPITALIZATION TRANSACTION {Note: All share information referred to in the Recapitalization
Transaction discussion below has not been adjusted for the five for one reverse
stock split effected by the Company on December 3, 2003} On June 21, 2001, the Company consummated the stock issuance transactions
approved by the Companys stockholders at the annual meeting on June 4, 2001.
As a result of the closing of transactions contemplated by the Purchase
Agreement, the Company issued 30,000,000 shares of its common stock in a
change of control transaction to Minorplanet UK. In exchange for this stock
issuance, Minorplanet UK paid the Company $10,000,000 in cash and transferred
to the Company all of the shares of its wholly-owned subsidiary, Minorplanet
Limited, which holds an exclusive, royalty-free, 99-year license to market,
sell and operate Minorplanet UKs vehicle management information technology in
the United States, Canada and Mexico. As of August 31, 2003, and prior to the
October 6, 2003 transfer to Erin Mills and the July 2, 2004 effective date of
the Companys bankruptcy plan of reorganization, Minorplanet UK beneficially
owned approximately 62% of the outstanding shares of the Companys common stock
which is the sole voting security of the Company. The Company also issued 12,670,497 shares of its common stock (valued at
$1.60 per share) to holders of its Senior Notes due 2005 (Senior Notes), in
exchange for the cancellation of Senior Notes with an aggregate principal
amount of $80,022,000 (the Exchange Offer). The foregoing stock issuance
transactions are hereinafter collectively referred to as the
Recapitalization. As a result of the Recapitalization, the Company
significantly reduced its indebtedness and related interest expense. In
addition, the Company acquired the VMI technology and commenced distribution of
Minorplanet UKs VMI product in the United States. Pursuant to the Purchase Agreement, the Company appointed two additional
directors to the Companys Board of Directors that were designated by
Minorplanet UK: Messrs. Robert Kelly and Andrew Tillman. Mr. Tillman was
subsequently replaced with Michael Abrahams as one of the two Minorplanet UK
Designees. The Purchase Agreement provided that Minorplanet UK had the right
to designate two of the seven directors in the future (the Investor
Directors), and to maintain proportionate representation on the Board of
Directors and its committees. Given Minorplanet UKs then current ownership,
however, it had the right to elect all director nominees if it decided to do
so. In addition, the Purchase Agreement also provided that so long as
Minorplanet UK had the right to designate Minorplanet UK Directors (i.e., it
owns at least 5% of the outstanding common stock of the Company), none of the
following actions could be taken unless approved by all of the Minorplanet UK
Directors:  
    
    any capital expenditure by the Company that is not contemplated in
any current annual budget which exceeds $200,000;  
    
    the hiring and firing of any Company officer or senior executive
reporting to the chief executive officer who has an annual salary of
$130,000 or more, or entering into employment agreements with these
individuals or amendments to existing agreements; 23




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
    
    the direct or indirect redemption, purchase or making of any
payments with respect to stock appreciation rights and similar types of
stock plans;  
    
    the sale, lease or transfer of any assets of the Company
representing 5% or more of the Companys consolidated assets, or the
merger, consolidation, recapitalization, reclassification or other
changes to the capital stock of the Company; except as required under
law, the taking or instituting of bankruptcy or similar proceedings;  
    
    the issuance, purchase, acquisition or redemption of any capital
stock or any notes or debt convertible into equity;  
    
    the acquisition of another entity;  
    
    the entering into any agreement or contract which commits the
Company to pay more than $1,000,000 or with a term in excess of 12
months and requiring payments in the aggregate which exceed $200,000;  
    
    the amendment of the Companys Certificate of Incorporation or
Bylaws that would adversely affect holders of the Companys common
stock or Minorplanet UKs rights under the Purchase Agreement;  
    
    the exiting of, or entering into a different line of business;  
    
    the incurrence of any indebtedness or liability or the making of
any loan except in the ordinary course of business;  
    
    the placing of any lien on the Companys assets or properties; or  
    
    the adoption or implementation of any anti-takeover provision that
would adversely affect Minorplanet UK. END OF MINORPLANET UK MAJORITY OWNERSHIP AND VMI LICENSE RIGHT SETTLEMENT On October 6, 2003, Minorplanet UK transferred 42.1 percent (approximately
4.1 million shares) of the Companys outstanding common shares beneficially
owned by Minorplanet UK to Erin Mills, ending Minorplanet UKs majority
ownership of the Company. Following the share transfer, Erin Mills beneficially
owned 46 percent (approximately 4.4 million shares) of the Companys
outstanding common stock, while Minorplanet UK retained 19.9 percent
(approximately 1.9 million shares) of the Companys outstanding common stock. In connection with the Minorplanet UK share transfer to Erin Mills, the
Company also obtained an option to repurchase from Erin Mills up to 3.9 million
shares of the Companys common stock at a price of $0.05 for every 1,000
shares, pursuant to that certain Stock Repurchase Option Agreement between the
Company and Erin Mills dated August 15, 2003. Gerry Quinn, the president of
Erin Mills, currently serves on the Companys Board of Directors. In addition, concurrently with these transactions, the Company also
reached the following agreements with Minorplanet UK:  
    
    Minorplanet UK irrevocably waived the approval rights granted to
the Minorplanet UK Directors set forth above, including the right to
appoint members to the Companys Board of Directors, as were provided
for in that certain Stock Purchase and Exchange Agreement dated
February 14, 2001 and the Companys bylaws;  
    
    Minorplanet UK waived $1.8 million of accrued executive consulting
fees that it had previously billed to the Company.  
    
    The exclusive License and Distribution Agreement, which grants to
the Companys United Kingdom-based subsidiary a 99-year, royalty-free,
exclusive right and license to market, sell and commercially exploit
the 24




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VMI technology in the United States, Canada and Mexico, was amended to
grant Minorplanet UK, or its designee, the right to market and sell the
VMI technology, on a non-exclusive basis, in the Northeast region of the
United States. The Company retained the right to market and sell the VMI
technology under the Minorplanet name and logo in this Northeast region.  
    
    Minorplanet UK obtained anti-dilution rights from the Company,
under which it had the right to subscribe for and to purchase at the
same price per share as the offering or private sale, that number of
shares necessary to maintain the lesser of (i) the percentage holdings
of the Companys stock on the date of subscription or (ii) 19.9 percent
of the Companys issued and outstanding common stock.  See the Form 8-Ks filed by the Company on August 27, 2003 and October 14,
2003 respectively, which contain additional information. In conjunction with the Companys development of the next-generation
product for the SBC companies, the Company initiated the internal development a
GPRS-enabled mobile unit and web-hosted, service bureau-based automatic vehicle
location software during the first calendar quarter of 2004, which can be
hosted by the Company using its existing network services center complex with
minor modifications and minimal capital expenditures. The Company is currently
testing the next-generation product and believes the initial product version is
approximately 90 percent complete. Customers using the next generation product
will access their data via the Internet or dedicated frame relay. The Company
currently anticipates commercially launching its next generation AVL product by
the first calendar quarter of 2005. There can be no assurances that the
Company will be able to commercially launch the next generation AVL product by
the first calendar quarter of 2005, and failure to do so will have a material
adverse impact on its business, financial condition and results of operations. During the pendency of the bankruptcy proceedings, the Company notified
Minorplanet Systems PLC that it intended to reject the VMI license as part of
our Plan of Reorganization. In order to ensure a smooth transition to its next
generation AVL product, the Company initiated negotiations with Minorplanet
Systems PLC for a temporary use license to market and sell the VMI product
until the Companys next generation AVL product was commercially available. On June 14, 2004, the Bankruptcy Court approved a settlement agreement
with Minorplanet Limited, Minorplanet Systems PLC and the Company regarding the
license agreement for the VMI technology which allows the Company to use,
market and sell the VMI technology until December 31, 2004. The material terms
of this settlement agreement include the following:  
    
    On June 30, 2004, the VMI license agreement converted to a nonexclusive license until December 31, 2004, at which time it
terminates;  
    
    From the period beginning June 30, 2004 through December 31, 2004, the territory in which the Company may market, sell and
use the VMI system was reduced to the following metropolitan areas: Los Angeles, California; Atlanta, Georgia; Dallas,
Texas and Houston, Texas;  
    
    As of July 31, 2004, the Company is no longer permitted to use the name, Minorplanet;  
    
    The Company was required to provide Minorplanet Limited, at no cost, 100 VMI units with T-Mobile special tariff SIM cards;  
    
    Subsequent to December 31, 2004, the Company has the right to use the VMI software internally only for the sole purpose of
satisfying its warranty, service and support obligations to its existing VMI customer base; and  
    
    Minorplanet Limited was allowed a general unsecured claim of $1,000,000, and it released and waived its administrative
claim and waived any future research and development fees due under the VMI license agreement. As part of the settlement, the Company also provided to Minorplanet
Limited and Minorplanet Systems PLC a general release of any and all claims
which could have been asserted against either of them. 25




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RISK FACTORS Forward-Looking Statements. This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as
amended, that are based upon managements current beliefs and projections, as
well as assumptions made by and information currently available to management.
In some cases, you can identify these forward-looking statements by words such
as, anticipate, believe, estimate, expect, may, could, intend,
predict, potential and similar expressions that are intended to identify
forward-looking statements. Any statement or conclusion concerning future
events is a forward-looking statement, and should not be interpreted as a
promise or conclusion that the event will occur. The Companys actual
operating results or the actual occurrence of any such event could differ
materially from those projected in the forward-looking statements. Factors
that could cause or contribute to such differences include those discussed in
this risk factor section, as well as those discussed elsewhere in this Form
10-K or in the documents incorporated herein by reference. The Company has operated at a significant loss in recent periods and such
losses will continue. The Company has incurred significant operating losses since our inception,
and such losses will continue for the near future. The Company may not ever
achieve profitability. Even if the Company does achieve profitability, the
Company may not be able to sustain or increase profits on a quarterly or annual
basis. The Company will require additional financing in order to sustain its business
operations until revenues generated from sales of its next generation product
lines are sufficient to fund on-going operations. The Companys recent private placement transaction with SDS Capital Group
SPC, Ltd. resulted in net cash proceeds of approximately $4.6 million after
payment of expenses. However, the Company has incurred significant operating
losses since inception and has limited financial resources to support itself
until such time that the Company is able to generate positive cash flow from
operations. The Companys future cash flow from operations and operating
requirements may vary depending on a number of factors, including acceptance in
the marketplace of its products, the level of competition, general economic
conditions and other factors beyond our control. There can be no assurance
that the Company will be able to meet its sales projections. If the Company
fails to meet its sales projections, the Company may require additional
financing to continue to execute its business plan and sustain its business
operations. There can be no assurance that the Company will be able to obtain
such financing on favorable terms or at all. Further, the Certificate of
Designation for the Companys Series A Preferred Stock, which is part of the
Companys Certificate of Incorporation, requires the approval of the Holders of
the Companys Series A Preferred Stock to effect certain transactions, such as
issuing senior or pari passusecurities or issuing certain debt or equity
securities, and there can be no assurance that the Company will be able to
obtain such approval. Critical success factors in managements plans to achieve positive cash flow
from operations include:  
    
    Ability to raise a minimum of $6 million in additional capital
resources to fund the Companys operations until revenues from the next
generation GPRS-based product line are sufficient to fund ongoing
operations.  
    
    Ability to complete development of a GPRS-based next generation
product line.  
    
    Significant market acceptance of our product offerings, including
the Companys next generation product line, in the United States.  
    
    Maintaining and expanding the Companys direct sales channel and
expanding into new markets not currently served by the Company. New
salespersons will require training and time to become productive. In
addition, there is significant competition for qualified salespersons,
and the Company must continue to offer attractive compensation plans
and opportunities to attract qualified salespersons.  
    
    Maintaining and expanding indirect distribution channels.  
    
    Securing and maintaining adequate third party leasing sources for
customers who purchase the Companys products. 26




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There can be no assurances that any of these success factors will be
realized or maintained. SBC has selected an alternate vendor to supply the next generation product
for its service vehicle fleet; thus, management has revised its business plans
and related forecasts taking into effect the declining revenue from SBC and the
costs associated with the commercial launch of its new products. Based on
current forecasts, management believes that it will need to raise a minimum of
$6 million, in addition to the $4.6 million received from the sale of the
Series A Preferred Stock discussed above, by June 2005 to fund the launch of
its new products and fund working capital as the SBC revenue declines during
2005. However, the timing of the deactivations by SBC as well as the ability
to meet sales projections of the new AVL products heavily influences the
capital requirements of the Company. Currently, management believes that the required funding may have to be
raised through issuance of debt or equity securities. However, there can be no
assurance that the Company will be able to raise the funds necessary to sustain
the Companys operations until revenues from sales of the Companys new AVL
products are sufficient to sustain the Companys operations and the failure to
do so may have a material adverse effect upon the Companys business, financial
condition and results of operations. The failure of the Company to raise the
additional capital will have a material adverse effect on the Companys
business, financial condition and results of operations. If the SBC Companies deactivate the Companys mobile units sooner than
management currently anticipates, the amount of capital required by the Company
to sustain its operations will significantly increase. In late October 2004, SBC informed the Company that SBC had selected
another vendor to provide vehicle tracking products and services to SBC and
would begin implementation mid-year 2005. Accordingly, the Company does not
believe that the service term of the SBC Service Vehicle Contract will be
extended beyond December 31, 2005. The Company does not expect to generate
any revenue from the SBC Service Vehicle Contract after December 31, 2005. As
the SBC Companies transition to another vehicle tracking solution, the Company
expects that SBC will begin deactivating the Companys mobile units beginning
mid-year 2005. Currently, the Company receives approximately $890,000 in
monthly revenues from SBC representing approximately 55% of the total monthly
revenues of the Company. The Company anticipates that SBC will begin
deactivating units beginning in April of 2005 and complete the deactivations by
December 31, 2005. Since SBC has selected an alternate vendor to supply its next generation
product, management has revised its business plans and related forecasts taking
into effect the declining revenue from SBC and the costs associated with the
commercial launch of its new products. Based on current forecasts, management
believes that it will need to raise a minimum of $6 million by June 2005 to
fund the launch of its new products and fund working capital as the SBC revenue
declines during 2005. However, the timing of the deactivations by SBC as well
as the ability to meet sales projections of the new AVL products heavily
influences the capital requirements of the Company. Should SBC deactivate the
Companys units sooner than is currently anticipated in the Companys
projections, the amount of capital required by June 2005 may significantly
increase. Currently, management believes that should the required funding be
obtained, it will be raised through debt or sales of additional equity
securities. However, there can be no assurance that the Company will be able
to raise the funds necessary to sustain the Companys operations until revenues
from sales of the Companys new AVL products are sufficient to sustain the
Companys operations and the failure to do so would likely have a material
adverse effect upon the Companys business, financial condition and results of
operations. 27




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Following the expiration of the SBC Contract, the Companys revenues will be
primarily dependent on sales of its next generation product line, and the
failure of the Company to achieve its sales projections for its next generation
product line will have a material adverse effect on the Companys business,
financial condition and results of operations. The Company has announced that it will begin beta testing its new AVL
products with actual customers in November of 2004 and further expects that
such beta product version is approximately 90 percent complete for the customer
testing. The Company expects to complete a full commercial launch of its new
AVL products in the first quarter of 2005. The Company expects that its new AVL
products will form the basis of revenue for the Company for future periods. As
the revenues from the SBC Contract steadily decline in 2005, the Companys
future revenues will be primarily dependent upon sales of its next generation
product line. The failure of the marketplace to accept the Companys next
generation product line will have a material adverse effect on the Companys
business, financial condition and results of operations. The exercise price on the Structured and Incentive Warrants issued to the
holder of the Series A Preferred Stock will be modified based upon the
Companys failure to obtain a contract with the SBC Companies that would have
generated certain minimum revenues which could result in further dilution to
the Companys stockholders. The Company failed to satisfy the contingency contained in the recently
consummated $5 million preferred stock financing transaction to sign a two-year
agreement with the SBC Companies with minimum annual revenues of $10 million
per year on or before November 15, 2004. Thus, pursuant to the Warrant
Agreements, the $0.909 per share exercise price for the warrants issued to the
holder of the Series A Preferred Stock will be adjusted to equal 75% of the
average closing price of the Companys common stock for the ten day period
immediately prior to November 15, 2004 and will be further adjusted to equal
75% of the average closing price of the Companys common stock for the ten day
trading period immediately prior to January 15, 2005; provided in each instance
that the exercise price may only be adjusted downward and not upward. Based
upon the current trading price of the Companys common stock, the exercise
price of both the Structured and Incentive Warrants may be adjusted downward
which would allow the holder of the Series A Preferred Stock to purchase the
Companys common stock at a lower price and may increase the dilution to the
Companys stockholders. In addition, the right of the holder of Series A
Preferred Stock to maintain an Investment Oversight Committee to monitor and
approve the expenditure of the net proceeds from the sale of the Series A
Preferred Stock shall remain in effect indefinitely. Potential future offerings could dilute the interest of the Companys common
stockholders. The Company expects in the future to increase its capital resources by
making additional offerings of equity and debt securities, including classes of
preferred stock and common stock. The effect of additional equity offerings
may be the dilution of the equity of stockholders or the reduction of the price
of shares of the common stock, or both. The Company is unable to estimate the
amount, timing or nature of additional offerings as they will depend upon
market conditions and other factors. The certificate of designation for the Companys Series A Preferred Stock
contains restrictions on the Companys ability to take certain actions without
the approval of the Series A Preferred Stockholders, including entering into
mergers or issuing additional debt or equity, and also contains certain
mandatory redemption events which could force the Company to redeem shares when
the Company does not have the funds to do so. The Company is prohibited from taking numerous actions without the
approval of the holders of at least a majority of the Series A Preferred Stock,
including, without limitation:  
    
    amending the Companys certificate of incorporation or bylaws;  
    
    redeeming securities;  
    
    entering into an asset sale, merger or similar transaction;  
    
    creating or issuing senior or pari passusecurities; or 28




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
    
    issuing debt or equity securities. Accordingly, the Company may not be able to obtain the approval of the Series A
Preferred stockholders needed to complete a necessary or advisable financing
transaction, or necessary to effect any other transaction that the Companys
Board of Directors deems to be in the best interests of the Companys
stockholders. The Certificate of Designation also contains numerous redemption events,
including any breach by the Company of any of the transaction documents
pursuant to which the Company issued Series A Preferred Stock and warrants to
the investor in the Companys Series A Preferred Stock. If any of these
redemptions events were to occur, the holders of the Companys Series A
Preferred stock could force the Company to redeem their shares of Series A
Preferred Stock. The Company may not have the funds available to affect such
forced redemption and the holders could take further actions such as forcing
the Company into involuntary bankruptcy. The Company has received a notice from Nasdaq that its common stock fails to
meet the minimum bid price requirement of $1.00 for continued listing on the
Nasdaq SmallCap Market, and if the Company does not regain compliance with this
continued listing requirement by March 30, 2005 (subject to certain
extensions), the Company may lose its Nasdaq SmallCap listing which may
adversely impact the liquidity of its common stock and its ability to raise
additional capital or continue operations. On October 1, 2004, the Company received notice from Nasdaq stating that
for the previous 30 days, its common stock had closed below the minimum $1.00
per share requirement for continued inclusion under Nasdaq Marketplace Rule
4310(c)(4). In accordance with Marketplace Rule 4310(c)(4), the Company was
provided 180 calendar days, or until March 30, 2005, to regain compliance under
this rule. In order to regain compliance, the Company must demonstrate a
closing bid price for its common stock of $1.00 per share or more for a minimum
of 10 consecutive business days. The Company has not determined to take any
particular course of action at this time with respect to the Nasdaq notice. The written notice further provided that if compliance with the $1.00
minimum bid price requirement cannot be demonstrated by the Company by March
30, 2005, Nasdaq will grant the Company an additional 180 calendar days to
regain compliance, if at that time, the Company meets The Nasdaq SmallCap
Market initial listing requirements as set forth in Marketplace Rule 4310(c),
except for the $1.00 minimum bid price requirement. The written notice
provided that if the Company has not regained compliance with the $1.00 minimum
bid price requirement during the second 180 day compliance period, but again
satisfy The Nasdaq SmallCap Market initial listing requirements as set forth in
Marketplace Rule 4310(c), except for the $1.00 minimum bid price requirement at
the end of such period, the Company would be afforded an additional compliance
period up to its next stockholder meeting to regain compliance, provided that
it commit: (1) to seek stockholder approval for a reverse stock split at or
before its next stockholder meeting and (2) to promptly thereafter effect the
reverse stock split. Such shareholder meeting must occur within 2 years
following October 1, 2004. If the Company fails to regain compliance with
$1.00 minimum bid requirement during the third compliance period and is not
eligible for an additional compliance period, the Nasdaq Staff would notify the
Company at that time that its securities would be delisted and the Company
would have the right to appeal such delisting to the Nasdaq Listing
Qualifications Panel which stays the effect of the delisting pending a hearing
on the matter before the Panel. If the closing bid for the Companys common stock remains below $1.00 per
share and it is no longer listed on The Nasdaq SmallCap Market, the Companys
common stock may be deemed to be penny stock. If the Companys common stock is
considered penny stock, it will be subject to rules that impose additional
sales practices on broker-dealers who sell the Companys securities. For
example, broker-dealers selling penny stock must make a special suitability
determination for the purchaser and must have received the purchasers written
consent to the transaction prior to sale. Also, a disclosure schedule must be
prepared before any transaction involving a penny stock can be completed,
including required disclosure concerning:  
    
    sales commissions payable to both the broker-dealer and the registered representative; and  
    
    current quotations for the securities. 29




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Monthly statements are also required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stock. Because of these additional obligations, some
brokers may not effect transactions in penny stock. This could have a material
and adverse effect on the market for the Companys Common Stock, and the
ability of stockholders to sell shares. The Company faces significant competition in the automatic vehicle location
marketplace. The Companys vehicle management information product faces significant
competition from internal development teams of customers and potential
customers and from several other suppliers of similar products, many of which
may have greater name recognition and greater financial and technological
resources. As the demand by business for mobile tracking services increase,
the quality, functionality and breadth of competing products and services will
likely improve and new competitors may enter the market. Further, the adoption
of widespread industry standards may make it easier for new market entrants or
existing competitors to improve their existing services, to offer some or all
of the services the Company presently offers or may offer in the future, or to
offer new services that the Company does not offer. The Company can provide no
assurance that its products will compete successfully with the products of its
competitors or that the Company will adapt to changes in the business,
regulatory or technological environment as successfully as its competitors. If
the Company is unable to compete successfully, the Companys ability to acquire
or retain customers could be limited which could result in a decrease in its
revenues. The Company may be unable to adapt to shifts in technology in the wireless
communications industry. Technology in the wireless communications industry is in a rapid and
continuing state of change as new technologies and enhancements to existing
technologies continue to be introduced. The Companys future success will
depend upon its ability to develop and market products and services that meet
changing customer needs and that anticipate or respond to technological changes
on a timely and cost-effective basis. The Company can offer no assurance that
it will be able to keep pace with technological developments. The Companys
failure to develop and market products and services that meet changing customer
needs and that anticipate or respond to technological changes on a timely and
cost-effective basis could result in a material adverse effect on the its
business, financial condition and results of operations. A small number of the Companys stockholders own a substantial amount of its
shares of common stock, and if such stockholders were to sell those shares in
the public market within a short period of time, the price of the Companys
common stock on The Nasdaq SmallCap Market could drop significantly. Minorplanet Systems PLC currently holds 894,682 shares of the Companys
common stock (approximately 13.2% of the Companys outstanding shares), Mackay
Shields LLC currently holds 663,374 shares of the Companys common stock
(approximately 9.8% of the Companys outstanding shares), Merced Partners
currently holds 625,558 shares of the Companys common stock (approximately
9.3% of the Companys outstanding shares), and OTA, LLC currently holds 563,400
shares of the Companys common stock (approximately 8.3% of the Companys
outstanding shares); all of which are eligible for public resale. In addition,
other stockholders own substantial amounts of shares of the Companys common
stock. Sales of a large number of shares of the Companys common stock or even
the availability of a substantial number of shares for sale could have the
effect of reducing the price per share of the Companys common stock on the
Nasdaq SmallCap Market, especially given that the Companys common stock is
thinly traded on that market. If the Company is unable to renew or replace our existing cellular service
agreements at current rates as they expire, the cost of delivering our services
could increase. 30




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A substantial number of the Companys contracts with its cellular carriers
automatically renew on an annual basis, subject to notice of termination in the
30-days prior to such annual renewal. In order to continue to provide mobile
communications services to the Companys customers, the Company must
continually renew its agreements with individual cellular carriers. If the
Company is unable to renew or replace these contracts with cellular carriers at
rates similar to the current rates, the resulting higher costs of cellular
transmission time could have a material adverse effect on its business,
financial condition and results of operations. If wireless carriers on which the Company depends for services decide to
abandon or do not continue to expand their wireless networks, the Company may
lose subscribers and our revenues could decrease. Currently, the Companys AVL products rely on GSM/GPRS networks. This
protocol covers only portions of the United States and Canada, and may not gain
widespread market acceptance. If wireless carriers abandon these protocols in
favor of other types of wireless technology, the Company may not be able to
provide services to its customers. In addition, if wireless carriers do not
expand their coverage areas, the Company will be unable to meet the needs of
customers who may wish to use some of its services outside the current coverage
area. The Company is dependent on a sole provider of alarm-monitoring services
to SBC and if the Company is unable to procure these services from this
provider, the Companys costs for obtaining this service could increase, or the
Company may be forced to expend funds to develop this service. The Company relies on Criticom International Corporation as its sole
provider of certain alarm monitoring services to the SBC companies as required
by the Companys contract with CIC. The Criticom contract has an initial term
of three years and automatically renews for successive 2-year terms unless
terminated by either party on 120 days notice. The initial 2year term of the
Criticom contract expired on June 30, 2003 and the Criticom contract is
currently in a 2-year renewal term which expires on June 30, 2005, subject to
the automatic renewal for additional 2-year terms. While the Company has no
reason to believe that Criticom will not renew this contract, it is possible
that Criticom could fail to renew the contract in an attempt to renegotiate
higher rates to be paid by the Company. If the Company is unable to renew the
Criticom contract or renew it with rates similar to current rates, the Company
may be required to develop its own alarm monitoring center, including obtaining
the required licenses, or execute an agreement with another alarm monitoring
services provider, which agreement may not be available on commercially
acceptable terms. As the Company will have limited resources, it may be unable
to develop its own monitoring services center or successfully continue with an
alternate provider, either of which could have a material adverse effect on the
Companys business, financial condition and results of operations. As the Company relies on Syniverse to provide essential clearinghouse
services for its network service center subscribers, an extensive failure in
the Syniverse network or unavailability of the Syniverse network could force
the Company to make costly design changes to our network. Syniverse provides clearinghouse functions to the cellular industry,
creating the data link between a foreign network and a traveling vehicles home
cellular service area, performing credit checking functions and facilitating
roamer incoming call delivery functions. The Companys contract with Syniverse
covers certain functions that are critical to the Companys ability to
instantly deliver calls nationwide for the Companys network services center
subscribers in connection with the Companys agreement with Aether Systems.
The Syniverse contract covers an initial term that began on May 3, 1999 and
ends on April 15, 2005. On June 30, 2004, the Company amended its contract
with Aether Systems to extend the transition period during which the Company
provides network services to its network subscribers until April 30, 2005 after
which time the agreement continues on a month-to-month basis unless terminated
by either party upon 60 days advance written notice. Upon expiration of the
Aether agreement, the Company may discontinue its purchase of Syniverse
services as it will no longer provide network services to such network
subscribers. As per the terms of the Syniverse agreement, subsequent to April
15, 2005, the Company may terminate the Syniverse agreement for convenience by
providing Syniverse with 60 days prior written notice of termination. A
failure in the Syniverse network prior to April 30, 2005 could have a material
adverse effect on the Companys business, financial condition and results of
operations. 31




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As the Company relies on Cingular Wireless for various cellular clearinghouse
services, the Companys inability to renew its agreement with Cingular could
significantly increase its cost of obtaining this necessary service. On March 30, 1999, the Company executed an Administrative Carrier
Agreement with Southwestern Bell Mobile Systems, Inc., now known as Cingular
Wireless whereby Cingular provides clearinghouse services to the Company,
including the direct payment of its cellular service providers for cellular
airtime through the cellular clearinghouse process. This agreement provides
for an initial term of 3-years that automatically renews for 5-additional
consecutive 1-year terms. While the Company has no reason to believe that
Cingular will not renew this agreement, it is possible that Cingular will
attempt to renegotiate higher rates for the services which it provides at the
time of renewal. If the Company is unable to negotiate commercial reasonable
rate increases, the Companys service margins could be reduced substantially.
If the Company is unable to renew because it cannot reach agreement on
commercially reasonable rate increases, the failure to renew this contract and
continue existing arrangements for payment to the Companys cellular service
providers could require the Company to post security deposits or provide other
financial assurances, which could have a material adverse effect on the
Companys business, financial condition or results of operations. Cingular
also provides the Companys customers with analog cellular service as per a
Cellular Service Agreement originally entered into on June 7, 1993 and last
amended on May 7, 1999 for a 3-year term with automatic renewal for successive
1-year terms unless either party provides a minimum of 90 days written notice
of intent to terminate prior to the expiration any renewal period. The Company does not expect to pay dividends on our common stock in the
foreseeable future. The Company has never paid cash dividends on its common stock and has no
plans to do so in the foreseeable future. The Company intends to retain
earnings, if any, to develop and expand its business. The Company relies primarily on T-Mobile for the provision of GSM data services
to its VMI customers and the Companys inability to renew its agreements with
T-Mobile may increase the Companys costs of providing GSM data services to its
VMI customers, result in a decrease in GSM coverage for its VMI customers or
may require the Company to retrofit its installed base of VMI units with mobile
units which utilize GSM/GPRS. The Company markets and sells T-Mobile GSM data services to its VMI
customers as an agent of T-Mobile pursuant to a National Premier Dealer
Agreement entered into with T-Mobile USA, Inc. on January 1, 2003 so that such
VMI customers have a direct contractual relationship for the purchase of GSM
data services with T-Mobile. This agreement has an initial term of 2 years and
automatically terminates unless the Company provides written notice of its
intent to renew to T-Mobile at least 60 days prior to the end the term. The Company also resells T-Mobile GSM data services to its VMI customers
pursuant to a reseller agreement with T-Mobile. The reseller agreement has an
initial term of 1-year which continues on a month-to-month basis following the
expiration of such initial term unless terminated by either party on written
notice. The initial term of the reseller agreement has expired and the
reseller agreement is currently on a month-to-month term. If the Company is unable to renew such agreements with T-Mobile and other
U.S. wireless carriers refuse to support circuit-switched data on their GSM
networks for our VMI units, such failures could have a material adverse effect
on the Companys business, financial condition and results of operations. Any natural disaster, terrorist attack or other occurrence that renders the
Companys network service center inoperable could significantly hinder the
delivery of the Companys services to its customers because the Company lacks
an effective remote back-up communications system. Currently, the Companys disaster recovery systems focus on internal
redundancy and diverse routing around within the network services center
operated by the Company. The Company does not currently have a remote back-up
communications system that would enable it to continue to provide mobile
communications services to our customers in the event of a natural disaster,
terrorist attack or other occurrence that rendered its network services center
inoperable. Accordingly, the Companys business is subject to the risk that
such a disaster, attack, security intrusion by a computer hacker or other
occurrence could hinder or prevent the Company from providing 32




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services to some or all of its customers. The delay in the delivery of
our services could cause some of its customers to discontinue business with the
Company which may materially reduce its revenues. The Company depends on Global Positioning System, commonly called GPS,
technology owned and controlled by others, and the Company would be unable to
deliver its services if the Company does not have continued access to this
technology and its satellites. The Companys services rely on signals from GPS satellites built and
maintained by the U.S. Department of Defense. GPS satellites and their ground
support systems are subject to electronic and mechanical failures and sabotage.
If one or more satellites malfunction, there could be a substantial delay
before they are repaired or replaced, if at all, and the Companys services may
cease to function and customer satisfaction would suffer. In addition, the
U.S. government could decide not to continue to operate and maintain GPS
satellites over a long period of time or to charge for the use of GPS.
Furthermore, because of ever-increasing commercial applications of GPS and
international political unrest, U.S. government agencies may become
increasingly involved in the administration or the regulation of the use of GPS
signals in the future. If factors such as the foregoing affect GPS, for
example by affecting the availability, quality, accuracy or pricing of GPS
technology, the Companys business will suffer. The Company depends on its key personnel, and the loss of one or more of these
individuals could have a material adverse effect on its business. The Company is dependent on the efforts of:  
    
    Dennis R. Casey, President and Chief Executive Officer;  
    
    W. Michael Smith, Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Treasurer;  
    
    J. Raymond Bilbao, Senior Vice President, General Counsel and
Secretary;  
    
    Joseph W. Pollard, Senior Vice President, Sales and Marketing; and  
    
    David Bagley, Senior Vice President, Networks and Engineering. The Company maintains 2-year term employment agreements with these
executives which expire as follows:  
    
    The employment agreements with Messrs. Casey, Smith and Bilbao expire on July 2, 2006;  
    
    The employment agreement with Mr. Pollard expires on July 26, 2006; and  
    
    The employment agreement with Mr. Bagley expires on September 17, 2006. Subsequent to the expiration of the initial term, the employment contracts
with these executives continue on a month-to-month basis, subject to
termination by either the executive or the Company upon notice. In addition,
the Company is also dependent upon a group of its employees possessing valuable
technical skills some of whom are bound by 1-year employment agreements and
others who are not bound by any employment agreements. The loss of services of one or more of these individuals could materially
and adversely affect the Companys business and future prospects. The Company
does not maintain key-man life insurance on any of its officers or employees.
The Company can provide no assurance that it will be able to attract and retain
additional management and technical personnel required in connection with the
growth and development of its business. 33




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Increases in the wholesale rates for digital wireless minutes could reduce or
eliminate the Companys services margin. The Company currently purchases digital wireless minutes at wholesale
rates to operate certain parts of its business. While the Company presently
has no reason to believe that such rates will increase, such rates are outside
of its control and any increase in the digital wireless minutes may have a
material adverse effect on the Companys costs which could decrease its profit
margins and revenues. Product liability claims could have a material adverse effect on the Companys
business by creating additional costs related to the payment or settlement of
these claims. It is possible that the operation of the Companys products may give rise
to product liability claims. Product liability claims present a risk of
protracted litigation, substantial money damages, attorneys fees, costs and
expenses and diversion of management attention. Product liability claims that
exceed policy limits applicable to its liability insurance or that are excluded
from the policy coverage could result in a material adverse effect on the
Companys business, financial condition and results of operations. Changes in industry-specific government regulations could require the Company
to materially increase its expenses to pay compliance fees. The Company believes that its products and services are currently exempt
from both Federal Communications Commission and state regulations. The Company
relies on its long-distance providers and wireless providers to comply with any
applicable regulatory requirements. In the event that the Companys services
were reclassified as telecommunications services, the Company could be forced
to expend substantial time, money and resources to comply with the applicable
regulations and contribute to applicable universal services funds mandated by
federal regulations. Such an event could result in a material adverse effect
on the Companys business, financial condition and results of operations due to
such increase in expenses. The Company may not be able to adequately protect its patents and other
proprietary technology, and its intellectual property rights may be challenged
by others. The Companys products and services are highly dependent upon its
technology and the scope and limitations of our proprietary intellectual
property rights. In order to protect the Companys technology, the Company
relies on a combination of patents, copyrights and trade secret laws, as well
as certain customer licensing agreements, employee and third-party
confidentiality and non-disclosure agreements and other similar arrangements.
If the Companys assertion of proprietary intellectual property rights is held
to be invalid, or if another partys use of the Companys technology were to
occur to any substantial degree, the Companys business, financial condition
and results of operations could be materially adversely affected. Several of the Companys competitors have obtained and can be expected to
obtain patents that cover products or services directly or indirectly related
to those the Company offers. The Company attempts to be aware of patents
containing claims that may pose a risk of infringement by its products or
services. In addition, patent applications in the United States are
confidential until a patent is issued; accordingly, the Company cannot evaluate
the extent to which its products or services may infringe on future patent
rights being sought by others. In general, if it were determined that any of
the Companys products, services or planned enhancements infringed valid patent
rights held by others, the Company would be required to obtain licenses to
develop and market such products, services or enhancements from the holders of
the patents, to redesign such products or services to avoid infringement, or to
cease marketing such products or services or developing such enhancements. In
such event, the Company also might be required to pay past royalties or other
damages. The Company can provide no assurance that, should it become
necessary, the Company would be able to obtain licenses on commercially
reasonable terms, or that the Company would be able to design or redesign its
products to incorporate alternative technologies, without a material adverse
effect on the Companys business, financial condition and results of
operations. 34




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The Companys current business plan contemplates significant expansion, which
it may be unable to manage. If the Company successfully implements its business strategy, the Company
may experience periods of expansion. The Company can provide no assurance that
it will successfully maintain and improve its operating and financial systems,
expand, train and manage its employee base, properly manage production and
inventory levels to meet product demand and facilitate new product
introductions in connection with the expansion of its business. In general, the
Companys failure to manage the growth of its business effectively could result
in a material adverse effect on the Companys business, financial condition and
results of operations. The Companys adoption of Fresh Start accounting make comparisons of its
financial position and results of operations with those of prior fiscal periods
more difficult, In connection with the Companys emergence from bankruptcy, the Company
implemented Fresh Start accounting as of June 30, 2004. Fresh Start
accounting required the Company to allocate its reorganization value to all of
its assets and liabilities in accordance with Statement of Position 90-7
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.
As a result, the consolidated financial statements for periods after the
Companys emergence from bankruptcy are not comparable to the Companys
consolidated financial statements for the periods prior to the Companys
emergence from bankruptcy. The application of Fresh Start accounting makes
it more difficult to compare the Companys post-emergence operations and
results to those in pre-emergence periods and could adversely affect trading in
and the liquidity of the Companys Common Stock. The Companys Certificate of Incorporation, Bylaws and state law contain
provisions that could discourage a takeover. The Company has adopted a Certificate of Incorporation and Bylaws, which
in addition to state law, may discourage, delay or prevent a merger or
acquisition that a stockholder may consider favorable. These provisions include
the following:  
    
    authorizing the board to issue blank check preferred stock on terms it deems advisable;  
    
    prohibiting cumulative voting in the election of directors; and  
    
    limiting the persons who may call special meetings of stockholders; The Company has adopted a Certificate of Incorporation that permits its
Board of Directors to issue shares of preferred stock without stockholder
approval, which means that its Board of Directors could issue shares with
special voting rights or other provisions that could deter a takeover. In
addition to delaying or preventing an acquisition, the issuance of a
substantial number of shares of preferred stock could adversely affect the
price of the Companys common stock and dilute existing stockholders. A large number of shares of the Companys Common Stock are eligible for future
sale, and the sale of these shares may cause the price of the Companys Common
Stock to drop. As a result of our recent bankruptcy, the Company issued a large number of
new shares of its Common Stock to its stockholders and previous creditors,
which shares were exempt from the registration requirements of the Securities
Act and are currently freely tradable subject to compliance with the volume
limitations imposed by Rule 144 on certain of the Companys stockholders. In
addition, the Company has agreed to register an additional 5,000,000 shares of
its common stock for resale on behalf of the holder of the Series A Preferred
Stock upon its conversion of shares of its Series A Preferred Stock and upon
the exercise of warrants the Company issued to it, which the Company intends to
do by the filing of an S-3 Registration Statement with the SEC. Accordingly,
most of the Companys issued and outstanding shares of Common Stock are freely
tradable under federal securities laws. The market price of the Companys Common Stock could drop due to sales of
a large number of shares of its Common Stock or the perception that they could
occur. These factors could also make it more difficult to raise funds through
future offerings of Common Stock. 35




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The price of the Companys common stock is volatile. Historically, market prices for securities of emerging companies in the
telecommunications industry have been highly volatile. Future announcements
concerning the Companys business, the business of its competitors or its
wireless providers, including results of technological innovations, new
commercial products, financial transactions, government regulations,
proprietary rights or product or patent litigation, may have a significant
impact on the market price of shares of the Companys common stock. The market
price of the Companys common stock and its trading volume have been highly
volatile in recent periods and its common stock is often thinly traded. 
 AVAILABLE INFORMATION The Companys annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports are available without
charge at the Securities and Exchange Commission website
(http://www.sec.gov). ITEM 2. PROPERTIES Real Property and Leases The Company does not own any real property. The Company leases
approximately 38,700 square feet of office space for its corporate headquarters
in Richardson, Texas. The Company leases approximately 25,000 square feet of
warehouse and office space in Plano, Texas. 
 ITEM 3. LEGAL PROCEEDINGS Legal Proceedings Voluntary Bankruptcy Filing On the Commencement Date, the Debtors filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Texas Dallas Division , in order
to facilitate the restructuring of their debt, trade liabilities, and other
obligations. During the pendency of the bankruptcy, the Debtors remained in
possession of their assets and operated as Debtors-in-possession under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and
applicable court orders. On February 24, 2004, the United States Trustee
appointed an official committee of unsecured creditors consisting of
representatives of five (5) of the twenty (20) largest unsecured creditors. Under Section 362 of the Bankruptcy Code, the filing of the bankruptcy
petition automatically stayed most actions against the Debtors including most
actions to collect pre-petition indebtedness or exercise control over the
property of the Debtors estate. The Bankruptcy Court established April 9,
2004 as the bar date for creditors and other parties-in-interest (other than
governmental entities) to file their proofs of claims and proofs of interest.
The bar date for governmental entities to file their proofs of claims and
proofs of interest was May 10, 2004. On June 15, 2004, the Bankruptcy Court
entered an order approving the Debtors motion for substantive consolidation of
the estates of the Company, Caren and Limited. On May 24, 2004, the Bankruptcy Court entered an order approving the
Debtors Second Amended Disclosure Statement for use to solicit the vote of
creditors and equity interest holders on the acceptance or rejection of the
Companys plan of reorganization. The Bankruptcy Court also set the record
date for purposes of voting on the Debtors plan of reorganization as May 21,
2004, approved solicitation/voting procedures of the plan of reorganization,
and set hearing on the confirmation of the plan of reorganization. On June 17, 2004, the Debtors and the Committee reached a settlement
agreement on several matters regarding the plan of reorganization subject to
bankruptcy court approval (the Committee Settlement). The material terms of
the Committee Settlement were as follows:  
    
    For purposes of the Debtors plan of reorganization, the Debtors
and Committee agreed that the value of the Debtors shall be equal to
$25.3 million, such that holders of allowed unsecured claims under the
plan of 36




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reorganization shall receive 75%, and prior equity holders shall receive
25%, of the 7,000,000 shares of new common stock issued upon confirmation
of the plan of reorganization.  
    
    The Debtors and the Committee reached agreement on the composition
of the Board of Directors of the Company upon emergence from
bankruptcy;  
    
    The Debtors and the Committee reached agreement on the general
terms and conditions of new employment agreements for senior management
of the Company.  
    
    The Debtors and the Committee reached agreement on the general
terms and conditions under which restricted shares would be issued to
senior management of the Company.  
    
    The Debtors, HFS and the Committee agreed to amend the April 15,
2004 letter agreement so that the price per share at which HFS may
convert the unpaid principal and accrued interest due under the $1.575
million promissory note (later amended and increased to $2.0 million)
into common stock of the Company, shall be set at $3.62 per share of
common stock, provided that such amount shall be reduced (i) by twenty
percent (20%) if such unpaid principal and accrued interest is
converted within one (1) year after the date the promissory note was
issued or (ii) by fifteen percent (15%) if such unpaid principal and
accrued interest is converted more than one (1) year after the date the
promissory note was issued. The Committee further agreed that it would not object to, and both the
Committee and the Debtors, using their best efforts, would affirmatively
support approval of the Debtors plan of reorganization, settlement and
confirmation of the Debtors plan of reorganization, in the form as modified by
the terms hereof. On June 22, 2004, the Debtors filed their Third Amended Joint
Plan of Reorganization to incorporate the settlement terms reached with the
Committee. On June 29, 2004, the Bankruptcy Court entered an order confirming the
Debtors plan of reorganization. The Bankruptcy Court also approved the
Settlement Agreement between the Debtors and the Committee. The Bankruptcy
Court further set the enterprise value of the Company at $25.3 million for
purposes of distributions of new common stock under the Plan. The effective
date of the Plan was set by the Debtors pursuant to the Plan as Friday, July 2,
2004 (the Effective Date). The Plan was substantially consummated on July 8,
2004. In general, pursuant to the Plan, as of the Effective Date:  
    
    Holders of allowed administrative and priority claims will be
paid in cash in the ordinary course as they come due or on such
other terms as the parties may agree. Holders of allowed priority
tax claims will receive periodic payments as provided under section
1129(a)(9)(C) of the Bankruptcy Code, unless the parties agree to
other terms for the payment of such claims.  
    
    Holders of allowed secured claims shall receive, at the
election of the Debtors, either (i) payment in cash in an amount
equivalent to the full amount of such holders allowed secured
claim; (ii) deferred cash payments over a period of five (5) years
after the initial distribution date totaling the amount of such
holders allowed secured claim, with interest; (iii) the return of
the collateral securing such allowed secured claim in full
satisfaction of such claim, or (iv) such other treatment as may be
agreed to in writing by such holder and the Debtors.  
    
    Holders of allowed general unsecured claims received their
pro rata share of seventy-five percent (75%) of seven million
(7,000,000) shares of the new common stock of the Company on or as
soon as practicable after the Effective Date.  
    
    Each holder of an allowed convenience claim received cash in
an amount equal to fifty percent (50%) of their allowed claims, up
to an aggregate maximum of one hundred fifty thousand dollars
($150,000) for all such claims paid as soon as practicable after the
Effective Date. 37




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
    
    All existing equity interests in the Debtors were
extinguished as of the Effective Date. Each holder of an equity
interest in the Company that was attributable to existing common
stock received a pro rata share of twenty-five percent (25%) of
seven million (7,000,000) shares of the new common stock that was
not issued to holders of allowed general unsecured claims. The
holders of equity interests in the Company, Limited and Caren, other
than common stock, did not receive or retain any property under the
Plan.  
    
    The new common stock and the restricted shares were issued
and distributed in accordance with the terms of the Plan without
further act or action under applicable law, regulation, order or
rule and are exempt from registration under applicable securities
law pursuant to section 1145(a) of the Bankruptcy Code.  
    
    The Debtors initially distributed 7,000,000 shares of new
common stock to satisfy holders of allowed general unsecured claims
and holders of equity interests in the Company that were
attributable to existing common stock. The initial distribution of
7,000,000 shares of new common stock resulted in the satisfaction of
approximately $17.6 million of allowed general unsecured claims. As
of August 31, 2004, the Company had estimated and recorded a
probable liability for approximately $1.4 million associated with
disputed general unsecured claims, which if allowed, would result in
the issuance of additional shares of new common stock. Although the
Company believes that some portion of its general unsecured claims
objected to will be ultimately disallowed by the Bankruptcy Court,
the Company cannot presently determine with certainty the total
amount of claims objected to which will be allowed or disallowed.
Subsequent to August 31, 2004, certain rejection claims and other
disputed claims were settled and allowed by the bankruptcy court
resulting in the issuance of an additional 271,043 shares of common
stock to satisfy approximately $0.9 million of the $1.4 million
estimated liability that the Company had recorded as of August 31,
2004. Caren and Limited, as a matter of law, were merged with and into the
Company, ceasing to exist as separate entities as of the Effective Date. In
addition,  
    
    The Companys certificate of incorporation was amended and
restated to change the Companys corporate name to Remote Dynamics,
Inc. on the Effective Date;  
    
    the size of the board was increased to seven (7) directors
with four (4) new directors being appointed by the Official
Unsecured Creditors Committee on behalf of the unsecured creditors
and three (3) directors to be appointed by the Debtors;  
    
    a new restricted stock plan for key executive officers was
approved;  
    
    the Company entered into two (2) year term employment
agreements with the following key executive officers which included
restricted stock grants to each officer:  
    
    Dennis R. Casey  President and Chief Executive Officer
    
    J. Raymond Bilbao  Senior Vice President, General Counsel & Secretary  
    
    W. Michael Smith  Executive Vice President, Chief
Operating Officer, Chief Financial Officer & Treasurer The Plan received overwhelming acceptance with approximately 98.6% of the
existing stockholders actually voting on the Plan, of which approximately 99.9%
voted to accept the Plan. Additionally, approximately 75% of the unsecured
creditors, who received their prorata share of 75% of the new common stock
issued under the Plan, voted to accept the Plan. Under the Plan, holders of the
Companys 13.75% Interest Senior Notes due 2005 and holders of the Companys
common stock as of the close of trading on Friday, July 2, 2004 were entitled
to receive their prorata distributions of new common stock under the Plan. 38




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Pursuant to Section 365 of the Bankruptcy Code, the Company assumed,
assumed as modified or rejected certain pre-petition executory contracts and
unexpired leases upon the Effective Date. With respect to executory contracts
assumed, the Company was required to cure all prepetition defaults, monetary
and otherwise. With respect to executory contracts rejected, the Company is
excused from further performance under such agreement and the Bankruptcy Code
treats the rejected contract as if it were breached by the Company immediately
prior to the Companys filing of bankruptcy. The other contracting party was
entitled to a prepetition, general unsecured claim for the damages sustained as
a result of the breach of contract caused by the rejection. Exit Financing On June 24, 2004, the Company entered into a Second Amended Letter
Agreement (the Letter Agreement) with HFS Minorplanet Funding LLC and other
accredited investors which it represents (HFS), subject to bankruptcy court
approval, for the provision of $1.575 million in exit financing to the Company
in accordance with the Committee Settlement. On June 29, 2004, the Bankruptcy
Court entered an order approving an exit credit facility to be provided by HFS
to the Company in the amount of $1.575 million (the Exit Financing). On June
29, 2004, the Company and HFS closed on the Exit Financing. Upon funding, the
Company agreed to issue a $1.575 million convertible promissory note to HFS
with the principal balance being due 36 months from the date of funding, with
an annual interest rate of 12 percent. HFS was required to provide the funding
within 21 days of the June 29, 2004 closing. On July 20, 2004, the Company amended the Exit Financing by entering into
and consummating a Third Amended Letter Agreement (the Third Amended
Agreement) with HFS increasing the amount of the financing from $1.575 million
to $2.0 million issuing a $2.0 million convertible promissory note to HFS with
the principal balance being due 36 months from the date of funding, with an
annual interest rate of 12 percent (the Note). Upon issuance of the Note,
HFS provided the $2 million funding to the Company less a commission in the
amount of $80,000 representing four percent (4%) of the loan proceeds. Pursuant to the Third Amended Agreement, HFS, may at any time demand
repayment of such portion of the accrued interest and unpaid principal on the
Note in such number of shares of common stock, based upon a fixed conversion
price of $2.90 per share of common stock, if converted in year 1 of the
repayment of the Note or a fixed conversion price of $3.08 per share of common
stock if converted subsequent to year 1 of the repayment of the Note, whose
aggregate value equals the amount of accrued interest and principal being
repaid. Pursuant to the Third Amended Agreement, the Companys Board of Directors
must execute any documents or instruments or pass any corporate resolutions
necessary to appoint to the Board of Directors of the Company one additional
director designated by HFS (Additional Designee) unless such appointment
would cause the Company to violate the independent director requirements, based
on the written advice of legal counsel, as set forth in the rules and
regulations of the NASDAQ Stock Exchange, the Sarbanes-Oxley Act of 2002 (the
SOX) and the rules and regulations promulgated by the Securities and Exchange
Commission pursuant to the SOX. This Additional Designee shall serve on the
Companys Board of Directors until the promissory note is repaid in cash or
repaid by conversion to common stock. Accordingly, Stephen CuUnjieng, the President of HFS, was appointed to the
Companys Board of Directors effective July 13, 2004 as the Additional Designee
pursuant to the Letter Agreement. Mr. CuUnjieng has been employed by the
Company as Director of Strategic Finance since January 30, 2004, immediately
prior to the filing of the bankruptcy, to assist the Company with further fund
raising. Mr. CuUnjieng is a controlling partner in HFS. The Company is
involved in various claims and lawsuits incidental to its business, primarily
collections lawsuits in which the Company is seeking payment of amounts owed to
it by customers. In connection with the Companys efforts to collect payments
from a small number of former customers, such former customers have on occasion
alleged breaches of contractual obligations under service agreements with the
Company. The Company does not believe that these claims and lawsuits will have
a material adverse affect on the Companys business, financial condition and
results of operations. 39




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Vote by Stockholders on Debtors Chapter 11 Plan of Reorganization On the Commencement Date, the Debtors filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Texas Dallas Division , in order
to facilitate the restructuring of their debt, trade liabilities, and other
obligations. During the pendency of the bankruptcy, the Debtors remained in
possession of their assets and operated as Debtors-in-possession under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and
applicable court orders. On February 24, 2004, the United States Trustee
appointed an official committee of unsecured creditors consisting of
representatives of five (5) of the twenty (20) largest unsecured creditors. Under Section 362 of the Bankruptcy Code, the filing of the bankruptcy
petition automatically stayed most actions against the Debtors including most
actions to collect pre-petition indebtedness or exercise control over the
property of the Debtors estate. The Bankruptcy Court established April 9,
2004 as the bar date for creditors and other parties-in-interest (other than
governmental entities) to file their proofs of claims and proofs of interest.
The bar date for governmental entities to file their proofs of claims and
proofs of interest was May 10, 2004. On June 15, 2004, the Bankruptcy Court
entered an order approving the Debtors motion for substantive consolidation of
the estates of the Company, Caren and Limited. On May 24, 2004, the Bankruptcy Court entered an order approving the
Debtors Second Amended Disclosure Statement for use to solicit the vote of
creditors and equity interest holders on the acceptance or rejection of the
Companys plan of reorganization. The Bankruptcy Court also set the record
date for purposes of voting on the Debtors plan of reorganization as May 21,
2004, approved solicitation/voting procedures of the plan of reorganization,
and set hearing on the confirmation of the plan of reorganization. On June 17, 2004, the Debtors and the Committee reached a settlement
agreement on several matters regarding the plan of reorganization subject to
bankruptcy court approval (the Committee Settlement). The material terms of
the Committee Settlement were as follows:  
    
    For purposes of the Debtors plan of reorganization, the Debtors
and Committee agreed that the value of the Debtors shall be equal to
$25.3 million, such that holders of allowed unsecured claims under the
plan of reorganization shall receive 75%, and prior equity holders
shall receive 25%, of the 7,000,000 shares of new common stock issued
upon confirmation of the plan of reorganization.  
    
    The Debtors and the Committee reached agreement on the composition
of the Board of Directors of the Company upon emergence from
bankruptcy;  
    
    The Debtors and the Committee reached agreement on the general
terms and conditions of new employment agreements for senior management
of the Company.  
    
    The Debtors and the Committee reached agreement on the general
terms and conditions under which restricted shares would be issued to
senior management of the Company.  
    
    The Debtors, HFS and the Committee agreed to amend the April 15,
2004 letter agreement so that the price per share at which HFS may
convert the unpaid principal and accrued interest due under the $1.575
million promissory note (later amended and increased to $2.0 million)
into common stock of the Company, shall be set at $3.62 per share of
common stock, provided that such amount shall be reduced (i) by twenty
percent (20%) if such unpaid principal and accrued interest is
converted within one (1) year after the date the promissory note was
issued or (ii) by fifteen percent (15%) if such unpaid principal and
accrued interest is converted more than one (1) year after the date the
promissory note was issued. 40




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##### Table of Contents



The Committee further agreed that it would not object to, and both the
Committee and the Debtors, using their best efforts, would affirmatively
support approval of the Debtors plan of reorganization, settlement and
confirmation of the Debtors plan of reorganization, in the form as modified by
the terms hereof. On June 22, 2004, the Debtors filed their Third Amended Joint
Plan of Reorganization to incorporate the settlement terms reached with the
Committee. On June 29, 2004, the Bankruptcy Court entered an order confirming the
Debtors plan of reorganization. The Bankruptcy Court also approved the
Settlement Agreement between the Debtors and the Committee. The Bankruptcy
Court further set the enterprise value of the Company at $25.3 million for
purposes of distributions of new common stock under the Plan. The effective
date of the Plan was set by the Debtors pursuant to the Plan as Friday, July 2,
2004 (the Effective Date). The Plan was substantially consummated on July 8,
2004. In general, pursuant to the Plan, as of the Effective Date:  
    
    Holders of allowed administrative and priority claims will be
paid in cash in the ordinary course as they come due or on such
other terms as the parties may agree. Holders of allowed priority
tax claims will receive periodic payments as provided under section
1129(a)(9)(C) of the Bankruptcy Code, unless the parties agree to
other terms for the payment of such claims.  
    
    Holders of allowed secured claims shall receive, at the
election of the Debtors, either (i) payment in cash in an amount
equivalent to the full amount of such holders allowed secured
claim; (ii) deferred cash payments over a period of five (5) years
after the initial distribution date totaling the amount of such
holders allowed secured claim, with interest; (iii) the return of
the collateral securing such allowed secured claim in full
satisfaction of such claim, or (iv) such other treatment as may be
agreed to in writing by such holder and the Debtors.  
    
    Holders of allowed general unsecured claims received their
pro rata share of seventy-five percent (75%) of seven million
(7,000,000) shares of the new common stock of the Company on or as
soon as practicable after the Effective Date.  
    
    Each holder of an allowed convenience claim received cash in
an amount equal to fifty percent (50%) of their allowed claims, up
to an aggregate maximum of one hundred fifty thousand dollars
($150,000) for all such claims paid as soon as practicable after the
Effective Date.  
    
    All existing equity interests in the Debtors were
extinguished as of the Effective Date. Each holder of an equity
interest in the Company that was attributable to existing common
stock received a pro rata share of twenty-five percent (25%) of
seven million (7,000,000) shares of the new common stock that was
not issued to holders of allowed general unsecured claims. The
holders of equity interests in the Company, Limited and Caren, other
than common stock, did not receive or retain any property under the
Plan.  
    
    The new common stock and the restricted shares were issued
and distributed in accordance with the terms of the Plan without
further act or action under applicable law, regulation, order or
rule and are exempt from registration under applicable securities
law pursuant to section 1145(a) of the Bankruptcy Code.  
    
    The Debtors initially distributed 7,000,000 shares of new
common stock to satisfy holders of allowed general unsecured claims
and holders of equity interests in the Company that were
attributable to existing common stock. The initial distribution of
7,000,000 shares of new common stock resulted in the satisfaction of
approximately $17.6 million of allowed general unsecured claims. As
of August 31, 2004, the Company had estimated and recorded a
probable liability for approximately $1.4 million associated with
disputed general unsecured claims, which if allowed, would result in
the issuance of additional shares of new common stock. Although the
Company believes that some portion of its general unsecured claims
objected to will be ultimately disallowed by the Bankruptcy Court,
the 41




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##### Table of Contents



Company cannot presently determine with certainty the total amount of
claims objected to which will be allowed or disallowed. Subsequent to
August 31, 2004, certain rejection claims and other disputed claims
were settled and allowed by the bankruptcy court resulting in the
issuance of an additional 271,043 shares of common stock to satisfy
approximately $0.9 million of the $1.4 million estimated liability that
the Company had recorded as of August 31, 2004. Caren and Limited, as a matter of law, were merged with and into the
Company, ceasing to exist as separate entities as of the Effective Date. In
addition,  
    
    The Companys certificate of incorporation was amended and
restated to change the Companys corporate name to Remote Dynamics,
Inc. on the Effective Date;  
    
    the size of the board was increased to seven (7) directors
with four (4) new directors being appointed by the Official
Unsecured Creditors Committee on behalf of the unsecured creditors
and three (3) directors to be appointed by the Debtors;  
    
    a new restricted stock plan for key executive officers was
approved;  
    
    the Company entered into two (2) year term employment
agreements with the following key executive officers which included
restricted stock grants to each officer:  
    
    Dennis R. Casey  President and Chief Executive Officer
    
    J. Raymond Bilbao  Senior Vice President, General Counsel & Secretary  
    
    W. Michael Smith  Executive Vice President, Chief
Operating Officer, Chief Financial Officer & Treasurer The Plan received overwhelming acceptance with approximately 98.6% of the
existing stockholders actually voting on the Plan, of which approximately 99.9%
voted to accept the Plan. Additionally, approximately 75% of the unsecured
creditors, who received their prorata share of 75% of the new common stock
issued under the Plan, voted to accept the Plan. Under the Plan, holders of the
Companys 13.75% Interest Senior Notes due 2005 and holders of the Companys
common stock as of the close of trading on Friday, July 2, 2004 were entitled
to receive their prorata distributions of new common stock under the Plan. 42




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PART II 
  ITEM 5.
    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES The Companys Common Stock was initially offered to the public on June 22,
1995, and was quoted on the Nasdaq National Market (Nasdaq NMS) through close
of business on February 1, 1999, after which time it began trading on the
Nasdaq SmallCap Market (Nasdaq SmallCap) under the symbol HWYM. The
Companys common stock currently trades under the symbol REDI. The
following table sets forth the range of high and low trading prices on the
Nasdaq SmallCap Market, as applicable, for the Common Stock for the periods
indicated. Such price quotations represent inter-dealer prices without retail
markup, markdown or commission and may not necessarily represent actual
transactions. BID PRICESHIGH
    
    LOWPredecessor Company2002First Quarter
    
    $
    4.00
    
    
    $
    1.22Second Quarter
    
    $
    2.18
    
    
    $
    0.96Two months ended August 31, 2002
    
    $
    1.06
    
    
    $
    0.822003First Quarter
    
    $
    1.04
    
    
    $
    0.53Second Quarter
    
    $
    0.99
    
    
    $
    0.58Third Quarter
    
    $
    0.71
    
    
    $
    0.44Fourth Quarter
    
    $
    0.70
    
    
    $
    0.482004First Quarter
    
    $
    0.76
    
    
    $
    0.37Second Quarter
    
    $
    8.35
    
    
    $
    0.33Third Quarter
    
    $
    1.15
    
    
    $
    0.45Fourth
Quarter (through June 30th)
    
    $
    0.60
    
    
    $
    0.41Reorganized CompanyFourth Quarter (beginning July 1st)
    
    $
    18.52
    
    
    $
    0.72
 The prices of the Companys Common Stock for the periods subsequent to
December 3, 2003 reflect a 1-for-five reverse stock split which the Company
effected during the second fiscal quarter of 2003. There
were 100 registered holders of common stock and an estimated 2,500
broker/dealers who beneficially hold common stock on behalf of stockholders as
of November 15, 2004.The last sales price for the Companys Common Stock as
reported on November 15, 2004 was $0.88. The Company did not pay dividends
on its Common Stock for the fiscal year ended August 31, 2004 and has no plans
to do so in the foreseeable future. Furthermore, covenants in the Certificate
of Designation for the Series A Preferred Stock require the consent of a
majority of the Series A Preferred Stock before the Company may delete or pay a
dividend on its Common Stock. On September 18, 1998, the SEC declared effective the Companys
registration statement on Form S-3 which was filed to register warrants and
warrant shares as required pursuant to the Warrant Registration Rights
Agreement entered into as part of the Companys 1997 Debt Offering. Prior to
the Effective Date of the plan of reorganization, under the terms of the
Warrant Registration Rights Agreement, the Company was obligated to use its
best efforts to keep the Registration Statement continuously effective until
the earlier of (i) the expiration of the warrants or (ii) the time when all
warrants had been exercised; provided, however, that during any consecutive
365-day period, the Company could suspend the effectiveness of the registration
statement on up to two occasions for a 43




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period of not more than 45 consecutive days in connection with a possible
acquisition, business combination or other development affecting the Company if
the Board of Directors had determined that disclosure thereof would not be in
the best interests of the Company. The Company would not have received any
proceeds from the sale of the warrants by the selling warrant holders. During
the current fiscal year and prior to Effective Date of the plan of
reorganization, no warrants were sold and no warrant shares were exercised.
Following the Effective Date of the plan of reorganization, all existing
registration rights were extinguished. Prior to the Effective Date of the plan of reorganization the holders of
the Companys common stock that acquired their shares pursuant to the Purchase
Agreement or the Exchange Offer transactions the Company completed on June 21,
2001 were entitled to certain registration rights pursuant to a registration
rights agreement the Company also entered into with these stockholders.
Pursuant to this registration rights agreement, 3,058,749 shares (adjusted for
the December 2003 five for one reverse stock split) of the Companys common
stock (540,000 shares of which were owned by Minorplanet UK) were registered
for resale under a Form S-3 registration statement that was declared effective
with the SEC on October 23, 2001. On up to three separate occasions, but no
more than twice in any twelve-month period, the holders of at least ten percent
(10%) of the Companys shares that were registered were entitled to request
that the Company undertake an underwritten offering of such shares if the
proposed offering had anticipated aggregate proceeds in excess of $10,000,000
at the time of the request. The Company was required to keep this Form S-3
registration statement effective until any holders entitled to sell shares of
the Companys common stock under it were otherwise entitled to sell such shares
without restriction pursuant to Rule 144 under the Securities Act. In addition to the registration rights described above, pursuant to this
registration rights agreement, the holders of at least fifteen percent (15%) of
the then outstanding common stock issued pursuant to the Purchase Agreement and
Exchange Offer transactions were entitled to require the Company, on up to five
separate occasions, but no more than twice in any twelve-month period, to
register shares of the Companys common stock for resale if the proposed
offering had anticipated aggregate proceeds in excess of $10,000,000 at the
time the registration request is made. Also, subject to certain limitations,
all of these stockholders that were deemed to be parties to this registration
rights agreement were generally entitled to include such shares (a piggyback
right) in any transaction in which the Company sold its common stock to the
public. The foregoing registration rights were subject to limitations as to
amount by the underwriters of any offering and to blackout periods in which the
Companys management could delay an offering for a limited period of time.
Following the Effective Date of the plan of reorganization, all existing
registration rights were extinguished. Under the terms of the Purchase Agreement and a Lockup Agreement executed
by the exchanging note holders in connection with the June 21, 2001 Exchange
Offer, all of the selling stockholders (except for Minorplanet UK) agreed to
certain contractual lock-up restrictions regarding the resale of the shares
they acquired in the Exchange Offer. On June 16, 2002, all remaining shares
were released from lock-up provisions and such stockholders were free to resell
all of their shares subject to compliance with applicable securities laws. In connection with the closing of the transactions contemplated by the
Purchase Agreement, the stockholders approved Amendment Number 2 to the
Companys 1994 Amended and Restated Stock Option Plan which increased the
number of shares of the Companys common stock available for issuance to
1,020,000 shares. Accordingly, on October 10, 2001, the Company filed a Form
S-8 registration statement covering an additional 945,947 shares that could be
issued under the stock option plan, prior to the Effective Date of the
Companys plan of reorganization. At the Companys 2002 Annual Meeting of Stockholders held on May 21, 2002,
the stockholders approved the amendment to the Companys Amended and Restated
1994 Stock Option Plan increasing the number of shares of common stock issuable
under the stock option plan to 1,441,600 shares. The stock options issued
pursuant to this stock option plan and the plan itself were cancelled effective
July 2, 2004 pursuant to the Companys Third Amended Joint Plan of
Reorganization. The following table summarizes information about the Companys
equity compensation plans at August 31, 2004: 44




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Equity Compensation Plan Information (a)
    
    (b)
    
    (c)Number of securitiesremaining available forWeighted average
    
    future issuance underNumber of securities to be
    
    exercise price of
    
    equityissued upon exercise of
    
    outstanding
    
    compensation plansoutstanding options,
    
    options, warrants,
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    and rights
    
    reflected in column (a))Equity compensation
plans approved by
security holders
    
    
    450,000
    
    
    $
    
    
    
    
    175,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    450,000
    
    
    
    
    
    
    
    175,000
 On June 1, 2003, the Company granted warrants to a consultant for the
purchase of 15,000, 25,000, and 20,000 shares of common stock at exercise
prices of $3.50, $7.00, and $14.0 per share, respectively. These warrants were
cancelled effective July 2, 2004 pursuant to the Companys plan of
reorganization. A former director of the Company held options granted on June 22, 1998
outside of the Plan to purchase 152 shares of common stock of the Company at a
price of $12.50 per share. These options were cancelled effective July 2, 2004
pursuant to the Companys plan of reorganization. The Company granted warrants to a consultant for the purchase of 320
shares of common stock at a price of $28.15 per share on March 31, 2000. These
warrants were cancelled effective July 2, 2004 pursuant to the Companys plan
of reorganization. On the Effective Date, the Company granted 150,000 restricted shares of
common stock to Dennis R. Casey, the Companys President and Chief Executive
Officer, pursuant to the Remote Dynamics, Inc. Restated 2004 Management
Incentive Plan. On the Effective Date, the Company granted 100,000 restricted
shares of common stock to J. Raymond Bilbao, the Companys Senior Vice
President, General Counsel & Secretary, pursuant to the Remote Dynamics, Inc.
Restated 2004 Management Incentive Plan. On the Effective Date, the Company
granted 100,000 restricted shares of common stock to W. Michael Smith, the
Companys Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Treasurer, pursuant to the Remote Dynamics, Inc. Restated 2004
Management Incentive Plan. On August 1, 2004, the Company granted 100,000 restricted shares of common
stock to Joseph W. Pollard, the Companys Senior Vice President  Sales &
Marketing, pursuant to the Remote Dynamics, Inc. Restated 2004 Management
Incentive Plan. On September 25, 2004, the Company granted 75,000 restricted
shares of common stock to David Bagley, the Companys Senior Vice President 
Networks and Engineering, pursuant to the Remote Dynamics, Inc. Restated 2004
Management Incentive Plan. Cancellation of Existing Equity and Issuance of New Common Stock under Plan On June 29, 2004, the Bankruptcy Court entered an order confirming the
Companys plan of reorganization. The Bankruptcy Court also approved the
Settlement Agreement between the Company and the Committee. The Bankruptcy
Court further set the enterprise value of the Company at $25.3 million for
purposes of distributions of new common stock under the Plan. The effective
date of the Plan was set by the Company pursuant to the Plan as Friday, July 2,
2004 (the Effective Date). The plan of reorganization was substantially
consummated on July 8, 2004. 45




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Under the Plan,  
    
    Holders of allowed general unsecured claims received their pro rata
share of seventy-five percent (75%) of seven million (7,000,000) shares
of the new common stock of the Company on or as soon as practicable
after the Effective Date;  
    
    All existing equity interests in the Company were extinguished as
of the Effective Date. Each holder of an equity interest in the
Company that was attributable to existing common stock received a pro
rata share of twenty-five percent (25%) of seven million (7,000,000)
shares of the new common stock that was not issued to holders of
allowed general unsecured claims. The holders of equity interests in
the Company, Limited and Caren, other then common stock, will not
receive or retain any property under the Plan.
    
    The following senior executives of the Company, as part of new
employment contracts, received restricted stock grants pursuant to the
2004 Remote Dynamics Management Incentive Plan approved as part of the
Plan:  
    
    Dennis R. Casey  President and Chief Executive
Officer. Mr. Casey received 150,000 shares of restricted stock
which vest upon achievement of certain performance objectives.  
    
    J. Raymond Bilbao  Senior Vice President,
General Counsel & Secretary. Mr. Bilbao received 100,000
shares of restricted stock which vest upon achievement of
certain performance objectives  
    
    W. Michael Smith  Executive Vice President,
Chief Operating Officer, Chief Financial Officer & Treasurer.
Mr. Smith received 100,000 shares of restricted stock which
vest upon achievement of certain performance objectives.  
    
    The new common stock and the restricted shares were issued and
distributed in accordance with the terms of the Plan without further
act or action under applicable law, regulation, order or rule and are
exempt from registration under applicable securities law pursuant to
section 1145(a) of the Bankruptcy Code.  
    
    The Company initially distributed 7,000,000 shares of new common
stock to satisfy holders of allowed general unsecured claims and
holders of equity interests in Minorplanet Systems USA, Inc. that were
attributable to existing common stock. The initial distribution of
7,000,000 shares of new common stock resulted in the satisfaction of
approximately $17.6 million of allowed general unsecured claims. As of
August 31, 2004, the Company had estimated and recorded a probable
liability for approximately $1.4 million associated with disputed
general unsecured claims, which if allowed, would result in the
issuance of additional shares of new common stock. Although the Company
believes that some portion of its general unsecured claims objected to
will be ultimately disallowed by the Bankruptcy Court, the Company
cannot presently determine with certainty the total amount of claims
objected to which will be allowed or disallowed. Subsequent to August
31, 2004, certain rejection claims and other disputed claims were
settled and allowed by the bankruptcy court resulting in the issuance
of an additional 271,043 shares of common stock to satisfy
approximately $0.9 million of the $1.4 million estimated liability that
the Company had recorded as of August 31, 2004. Securities Law Matters Relating to Securities Issued Under the Plan of
Reorganization Section 1145(a) of the Bankruptcy Code generally exempts from registration
under the Securities Act, the offer or sale of a debtors securities under a
Chapter 11 plan if such securities are issued in exchange for a claim against,
or an equity interest in, such debtor. In reliance upon this exemption, the
Companys Common Stock issued to creditors and existing stockholders under the
plan of reorganization are generally exempt from the registration requirements
of the Securities Act. Accordingly, such securities may be resold without
registration under the Securities Act or other federal securities laws pursuant
to an exemption provided by section 4(1) of the Securities 46




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Act, unless the holder is an underwriter with respect to such
securities, as that term is defined in the Bankruptcy Code. The Company
expresses no view as whether any particular stockholder is an underwriter
given that it is highly dependent upon each stockholders facts and
circumstances with respect to the Common Stock issued under the plan of
reorganization. In addition, such securities generally may be resold without
registration under the state securities laws pursuant to various exemptions
provided by the respective laws of the several states. However, the Company
makes no representations as to whether any particular stockholder may freely
trade in the shares of the Companys Common Stock issued pursuant to the plan
of reorganization and recipients of Common Stock issued pursuant to the plan of
reorganization are advised to consult with their own legal advisors as to
whether they may freely trade such securities and as to the availability of any
exemption from registration under state law in any given instance and as to any
applicable requirements or conditions of such availability. Issuer Purchases of Equity Securities (d) Maximum Number(c) Total Number of
    
    (or ApproximateShares (or Units)
    
    Dollar Value) ofPurchased as Part
    
    Shares (or Units)(a) Total Number of
    
    (b) Average Price
    
    of Publicly
    
    that May Yet BeShares (or Units)
    
    Paid per Share (or
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Purchased
    
    Unit)
    
    Programs
    
    Plans or ProgramsMonth #1 (July 29,
2004  July 29,
2004)
    
    929,948 shares of
Common Stock (1)
    
    $2.00 per share of
Common Stock
    
    
    0
    
    
    
    0
 (1) On July 29, 2004, the Company entered into and closed a stock repurchase
letter agreement with Lloyd Miller, a Director on the Companys Board of
Directors, and certain affiliates of Lloyd Miller (the Miller Shareholder
Group) to purchase from the Miller Shareholder Group 929,948 shares of its
common stock at a purchase price of $2.00 per share or $1,859,896. Following
the repurchase, 6,520,052 shares of the Companys common stock remained issued
and outstanding. A Special Committee of the Companys Board of Directors
composed of three Directors not interested in the repurchase transaction
considered, negotiated and approved the repurchase transaction. Contemporaneous
with the closing of this stock repurchase, Lloyd I. Miller, Mair Fabish and
Alan Howe resigned from the Board of Directors of the Company. 47




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ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data The following selected financial data as of and for the fiscal years ended
December 31, 1999 through December 31, 2001, the eight month transition period
ended August 31, 2002, the fiscal year ended August 31,
2003, the ten month period ended June 30, 2004, and the two
month period ended August 31, 2004 have been derived from the Companys audited
consolidated financial statements, including the consolidated balance sheets
and consolidated statements of operations for the applicable periods. Due to
the change in fiscal year end, the selected financial data provided for the
eight months ended August 31, 2001 and twelve months ended August 31, 2002 is
provided for comparable purposes and has been derived from unaudited financial
statements, including the balance sheet at August 31, 2001 and August 31, 2002.
As a result of the adoption of SEC Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, as a cumulative effect change in
accounting principle in 2000, results for the fiscal year ended December 31,
2000 and all periods thereafter are not comparable to prior periods. Effective June 30, 2004, as a result of the Companys emergence from
bankruptcy, the Company adopted fresh-start accounting in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code
(SOP 90-7). Fresh- start accounting has resulted in material changes to the
financial statements for periods beginning after June 30, 2004, to reflect
adjustments required pursuant to SOP 90-7 to record assets and liabilities at
fair values in accordance with procedures specified by Statement of Financial
Accounting Standards No. 141  Business Combinations (FAS 141). All
financial results for periods prior to July 1, 2004 are referred to as those of
the Predecessor Company (the Predecessor Company) and all results for periods
including and subsequent to July 1, 2004 are referred to as those of the
Reorganized Company (the Reorganized Company). Due to the reorganization and
implementation of SOP 90-7, financial statements for periods beginning after
June 30, 2004 will not be comparable to those of the Predecessor Company. 48




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Reorganized
    
    Predecessor
    
    
    
    
    
    PredecessorCompany
    
    Company
    
    
    
    
    
    CompanyTwo months
    
    Ten months
    
    Combined yearended
    
    ended
    
    ended
    
    Year endedAugust 31,
    
    June 30,
    
    August 31,
    
    August 31,2004
    
    2004
    
    2004
    
    2003(in thousands, except share information)Statement of Operations DataRevenues:Product
    
    $
    209
    
    
    $
    1,066
    
    
    $
    1,275
    
    
    $
    2,319Ratable product
    
    
    574
    
    
    
    4,489
    
    
    
    5,063
    
    
    
    9,837Service
    
    
    2,439
    
    
    
    14,430
    
    
    
    16,869
    
    
    
    32,755Total revenues
    
    
    3,222
    
    
    
    19,985
    
    
    
    23,207
    
    
    
    44,911Cost of revenues:Product
    
    
    49
    
    
    
    911
    
    
    
    960
    
    
    
    1,953Ratable product
    
    
    240
    
    
    
    2,094
    
    
    
    2,334
    
    
    
    6,871Service
    
    
    1,217
    
    
    
    7,470
    
    
    
    8,687
    
    
    
    17,508Total cost of revenues
    
    
    1,506
    
    
    
    10,475
    
    
    
    11,981
    
    
    
    26,332Gross profit
    
    
    1,716
    
    
    
    9,510
    
    
    
    11,226
    
    
    
    18,579Expenses:General and administrative
    
    
    914
    
    
    
    5,767
    
    
    
    6,681
    
    
    
    9,456Customer service
    
    
    337
    
    
    
    1,939
    
    
    
    2,276
    
    
    
    3,988Sales and marketing
    
    
    294
    
    
    
    2,079
    
    
    
    2,373
    
    
    
    11,632Engineering
    
    
    183
    
    
    
    1,593
    
    
    
    1,776
    
    
    
    1,800Depreciation and amortization
    
    
    393
    
    
    
    3,451
    
    
    
    3,844
    
    
    
    5,626Impairment loss on license right
    
    
    
    
    
    
    28,759
    
    
    
    28,759
    
    
    
    2,121
    
    
    
    43,588
    
    
    
    45,709
    
    
    
    32,502Operating loss
    
    
    (405
    )
    
    
    (34,078
    )
    
    
    (34,483
    )
    
    
    (13,923
    )Interest income
    
    
    51
    
    
    
    351
    
    
    
    402
    
    
    
    447Interest expense
    
    
    (37
    )
    
    
    (905
    )
    
    
    (942
    )
    
    
    (2,118
    )Other (expense) income
    
    
    (11
    )
    
    
    257
    
    
    
    246
    
    
    
    (426
    )Loss before reorganization items and income taxes
    
    
    (402
    )
    
    
    (34,375
    )
    
    
    (34,777
    )
    
    
    (16,020
    )Reorganization items:Restructuring expenses and losses
    
    
    (139
    )
    
    
    (3,384
    )
    
    
    (3,523
    )
    
    
    Gain on discharge of liabilities subject to compromise
    
    
    
    
    
    
    190
    
    
    
    190
    
    
    
    Fresh start accounting adjustments
    
    
    
    
    
    
    20,331
    
    
    
    20,331
    
    
    
    Net loss before income taxes
    
    
    (541
    )
    
    
    (17,238
    )
    
    
    (17,779
    )
    
    
    (16,020
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (541
    )
    
    $
    (17,238
    )
    
    $
    (17,779
    )
    
    $
    (16,020
    )Net loss income per share  basic and diluted
    
    $
    (0.08
    )
    
    $
    (1.78
    )
    
    
    n/a
    
    
    $
    (1.66
    )Weighted average number of shares outstandingBasic and diluted
    
    
    6,505
    
    
    
    9,671
    
    
    
    n/a
    
    
    
    9,670
 49




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##### Table of Contents



Predecessor CompanyEight months endedYear ended August 31,
    
    August 31,
    
    Year ended December 31,2003
    
    2002
    
    2002
    
    2001
    
    2001
    
    2000
    
    1999(In thousands, except share infomation)Statement of Operations DataRevenues:Product
    
    $
    2,319
    
    
    $
    11,936
    
    
    $
    5,074
    
    
    $
    12,796
    
    
    $
    19,658
    
    
    $
    41,971
    
    
    $
    43,018Ratable product
    
    
    9,837
    
    
    
    9,618
    
    
    
    6,780
    
    
    
    7,026
    
    
    
    9,864
    
    
    
    12,093
    
    
    
    Service
    
    
    32,755
    
    
    
    45,216
    
    
    
    30,102
    
    
    
    32,844
    
    
    
    47,958
    
    
    
    48,066
    
    
    
    52,655Total revenues
    
    
    44,911
    
    
    
    66,770
    
    
    
    41,956
    
    
    
    52,666
    
    
    
    77,480
    
    
    
    102,130
    
    
    
    95,673Cost of revenues:Product
    
    
    1,953
    
    
    
    9,426
    
    
    
    3,996
    
    
    
    9,810
    
    
    
    15,239
    
    
    
    30,031
    
    
    
    34,752Ratable product
    
    
    6,871
    
    
    
    7,634
    
    
    
    5,213
    
    
    
    5,814
    
    
    
    8,236
    
    
    
    10,006
    
    
    
    Service
    
    
    17,508
    
    
    
    24,515
    
    
    
    16,155
    
    
    
    18,204
    
    
    
    26,563
    
    
    
    30,636
    
    
    
    26,724Inventory write-down to net realizable value
    
    
    
    
    
    
    4,693
    
    
    
    
    
    
    
    
    
    
    
    4,693
    
    
    
    
    
    
    
    Provision for settlement of litigation
    
    
    
    
    
    
    100
    
    
    
    100
    
    
    
    2,100
    
    
    
    2,100
    
    
    
    
    
    
    
    Total cost of revenues
    
    
    26,332
    
    
    
    46,368
    
    
    
    25,464
    
    
    
    35,928
    
    
    
    56,831
    
    
    
    70,673
    
    
    
    61,476Gross profit
    
    
    18,579
    
    
    
    20,402
    
    
    
    16,492
    
    
    
    16,738
    
    
    
    20,649
    
    
    
    31,457
    
    
    
    34,197Expenses:General and administrative
    
    
    9,456
    
    
    
    11,856
    
    
    
    7,943
    
    
    
    8,349
    
    
    
    12,482
    
    
    
    12,478
    
    
    
    14,706Customer service
    
    
    3,988
    
    
    
    5,396
    
    
    
    3,411
    
    
    
    5,051
    
    
    
    7,036
    
    
    
    7,146
    
    
    
    7,770Sales and marketing
    
    
    11,632
    
    
    
    10,386
    
    
    
    8,600
    
    
    
    2,784
    
    
    
    4,570
    
    
    
    4,980
    
    
    
    4,091Engineering
    
    
    1,800
    
    
    
    2,433
    
    
    
    1,374
    
    
    
    4,107
    
    
    
    5,166
    
    
    
    4,345
    
    
    
    2,685Network services center
    
    
    
    
    
    
    1,045
    
    
    
    461
    
    
    
    1,168
    
    
    
    1,753
    
    
    
    1,512
    
    
    
    1,437Severance and AutoLink termination costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Depreciation and amortization
    
    
    5,626
    
    
    
    7,087
    
    
    
    4,322
    
    
    
    4,673
    
    
    
    7,438
    
    
    
    5,907
    
    
    
    6,55132,502
    
    
    
    38,203
    
    
    
    26,111
    
    
    
    26,132
    
    
    
    38,445
    
    
    
    36,368
    
    
    
    37,051Operating loss
    
    
    (13,923
    )
    
    
    (17,801
    )
    
    
    (9,619
    )
    
    
    (9,394
    )
    
    
    (17,796
    )
    
    
    (4,911
    )
    
    
    (2,854
    )Interest income
    
    
    447
    
    
    
    539
    
    
    
    457
    
    
    
    420
    
    
    
    501
    
    
    
    1,371
    
    
    
    2,037Interest expense
    
    
    (2,118
    )
    
    
    (2,124
    )
    
    
    (1,411
    )
    
    
    (6,642
    )
    
    
    (7,355
    )
    
    
    (13,368
    )
    
    
    (13,422
    )Other (expense) income
    
    
    (426
    )
    
    
    (183
    )
    
    
    (183
    )
    
    
    
    
    
    
    
    
    
    
    1,569
    
    
    
    2,715Gain on recapitalization and extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,461
    
    
    
    59,461
    
    
    
    
    
    
    
    (Loss) income before income taxes and
cumulative effect of accounting change
    
    
    (16,020
    )
    
    
    (19,569
    )
    
    
    (10,756
    )
    
    
    43,845
    
    
    
    34,811
    
    
    
    (15,339
    )
    
    
    (11,524
    )Income tax benefit
    
    
    
    
    
    
    978
    
    
    
    978
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income before cumulative effect
of accounting change
    
    
    (16,020
    )
    
    
    (18,591
    )
    
    
    (9,778
    )
    
    
    43,845
    
    
    
    34,811
    
    
    
    (15,339
    )
    
    
    (11,524
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,206
    )
    
    
    Net (loss) income
    
    $
    (16,020
    )
    
    $
    (18,591
    )
    
    $
    (9,778
    )
    
    $
    43,845
    
    
    $
    34,811
    
    
    $
    (20,545
    )
    
    $
    (11,524
    )Basic and diluted (loss) income per share:(Loss) income before cumulative effect
of accounting change
    
    $
    (1.66
    )
    
    $
    (1.93
    )
    
    $
    (1.01
    )
    
    $
    12.42
    
    
    $
    6.23
    
    
    $
    (15.16
    )
    
    $
    (11.54
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.15
    )
    
    
    Net (loss) income per share
    
    $
    (1.66
    )
    
    $
    (1.93
    )
    
    $
    (1.01
    )
    
    $
    12.42
    
    
    $
    6.23
    
    
    $
    (20.31
    )
    
    $
    (11.54
    )Weighted average number of shares outstandingBasic and diluted
    
    
    9,670
    
    
    
    9,634
    
    
    
    9,647
    
    
    
    3,530
    
    
    
    5,586
    
    
    
    1,012
    
    
    
    999
 50




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##### Table of Contents



August 31,
    
    August 31,
    
    August 31,
    
    December 31,2004
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Balance Sheet DataCash and short-term investments
    
    $
    1,312
    
    
    $
    5,105
    
    
    $
    18,090
    
    
    $
    14,889
    
    
    $
    20,641
    
    
    $
    17,768Restricted cash
    
    
    439
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Working capital
    
    
    (2,784
    )
    
    
    753
    
    
    
    8,337
    
    
    
    12,486
    
    
    
    20,825
    
    
    
    35,660Property and equipment, net
    
    
    4,283
    
    
    
    3,865
    
    
    
    6,425
    
    
    
    8,583
    
    
    
    12,851
    
    
    
    15,703Total assets
    
    
    35,756
    
    
    
    56,100
    
    
    
    81,403
    
    
    
    87,597
    
    
    
    81,044
    
    
    
    74,073Notes payable
    
    
    2,741
    
    
    
    14,316
    
    
    
    14,254
    
    
    
    14,109
    
    
    
    92,484
    
    
    
    92,090Stockholders equity (deficit)
    
    
    19,499
    
    
    
    19,490
    
    
    
    35,418
    
    
    
    44,179
    
    
    
    (58,341
    )
    
    
    (38,051
    )
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS Executive Summary The Company markets, sells and supports automatic vehicle location (AVL)
and mobile resource management solutions targeting companies that operate
private vehicle fleets. Management believes the growth potential for AVL and mobile resource
management solutions is significant. The Company estimates that there are
currently approximately 21 million commercial fleet vehicles in operation in
the United States and only 1 million AVL units are installed. Of the 1 million
currently installed units, most are used on the long haul trucking and public
transit segments, which the Company estimates are 30% -50% penetrated. Based
on research conducted by the Company, management believes the market for AVL
products may grow approximately 20% per year over the next 3 years. Management also believes the marketplace of providers for AVL and mobile
resource management solutions is highly fragmented with few players that are
able to offer a high capacity platform, flexible software solutions and proven
coast-to-coast service and support such as that provided by the Company. Historically, much of the Companys revenues have been derived from
products sold to the long-haul trucking industry and to SBC. The Company
expects revenues from these legacy customers to decline substantially during
2005, and for the Company to sustain ongoing business operations and ultimately
achieve profitability, it must substantially increase its sales and penetration
into the marketplace with next generation, competitive products and services. The Company believes to take advantage of the marketplace, it must bring
to market new AVL and mobile resource management solutions that utilize
wireless Internet protocol networks such as General Packet Radio System
(GPRS) that provide the information, mapping and management reporting via a
web-based and service bureau-based environment. The Company believes
introduction of the next generation products and associated web-based
architecture will provide substantial savings in wireless transmission costs
over the current GSM circuit-switched data VMI product and will further allow
the Company to substantially reduce its customer support and maintenance costs
by avoiding costly maintenance visits to customer premises to service the
command and control center component of the VMI system. Moreover, the Company
has designed its next generation products with a flexible architecture to
accommodate expected additional functional requirements that will be required
to effectively compete in the marketplace. Anticipated marketplace needs
include; 1) ability for the AVL mobile device as a communications hub for
personal computers and handheld devices, 2) ability to communicate with WiFi
hotspots, 3) 51




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##### Table of Contents



ability to integrate with a variety of in-vehicle sensors and 3)
ability to integrate the AVL information into existing customer legacy applications. During 2004, the Company has been
developing state-of-the-art hardware and software that it plans to commercially
launch as its next generation AVL solution in the first calendar quarter of
2005. These new products form the basis of managements business plan for 2005
and beyond and will be the foundation for expected growth in revenues and
ultimately profitability for the Company. In addition, these products are
designed to allow the Company to move to a recurring revenue model for the AVL
marketplace, an important and necessary change to the Companys revenue model
to achieve overall sustained revenue growth and cash flow positive operations. Management currently does not expect to achieve profitability in the next
fiscal year since the Company will be expanding its sales force and building a
base of customers that purchase information and data services from the Company
on a monthly recurring basis. Key to achieving profitability is to amass a
sufficient number of customers such that the monthly recurring revenues and
corresponding gross margins exceed the operating costs and expenses to support
the Companys customer base. Management currently estimates that for the
Company to achieve profitability, it will need to have approximately 38,000 to
40,000 units of its next generation product in service. However, there can be
no assurance that the Company can achieve the required sales of its next
generation product to meet its profitability goals. General Overview As a result of the completion of the transactions contemplated by the
Stock Purchase and Exchange Agreement by and among Remote Dynamics (formerly
known as Minorplanet Systems USA, Inc.), Minorplanet Systems PLC, a United
Kingdom public limited company (Minorplanet UK ), and Mackay Shields LLC,
dated February 14, 2001, the Company commenced marketing the Vehicle Management
Information  (VMI) product licensed from Minorplanet Limited, the operating
subsidiary of Minorplanet UK, into the automatic vehicle location market in
the United States during the last half of 2001. VMI is designed to maximize
the productivity of a mobile workforce as well as reduce vehicle mileage and
fuel related expenses. The VMI technology consists of: (i) a data control unit
that continually monitors and records a vehicles position, speed and distance
traveled; (ii) a command and control center which receives and stores in a
database information downloaded from the DCUs; and (iii) software used for
communication, messaging and detailed reporting. VMI uses satellite-based
Global Positioning System (GPS) location technology to acquire a vehicle
location on a minute-by-minute basis and a global system for mobile
communications (GSM) based cellular network to transmit data between the
DCUs and the CCC. GSM is a digital technology developed in Europe and has been
adapted for North America. GSM is the most widely used wireless digital
standard in the world. The VMI application is intended to be targeted to small
and medium sized fleets in the metro marketplace. VMI provides minute-by-minute visibility into the activities of a mobile
workforce via an extensive reporting system that provides real-time and
exception-based reporting. Real-time reports provide information regarding a
vehicles location, idling, stop time, speed and distance traveled. With
real-time reporting, the customer can determine when an employee starts or
finishes work, job site arrival times and site visit locations. In addition,
exception reports allow the customer to set various parameters within which
vehicles must operate, and the system will report exceptions including
speeding, extended stops, unscheduled stops, route deviations, visits to barred
locations and excessive idling. Through its NSC Systems segment, 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 Companies,
pursuant to the service vehicle contract (the Service Vehicle Contract or
Contract). Prior to the sale to Aether Systems Inc. of certain assets and
licenses, the Company also provided mobile asset tracking solutions with its
trailer-tracking products, TrackWare® and 20/20V. 52




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On June 21, 2001, the Company consummated the stock issuance transactions
approved by the Companys stockholders at the annual meeting on June 4, 2001.
As a result of the closing of transactions contemplated by that certain Stock
Purchase and Exchange Agreement by and among the Company, Minorplanet Systems
PLC, a United Kingdom public limited company (Minorplanet UK), and Mackay
Shields LLC, dated February 14, 2001 (the Purchase Agreement), the Company
issued 30,000,000 shares of its common stock (not adjusted for the December
2003 five for one reverse stock split) in a change of control transaction to
Minorplanet
UK, which was the majority stockholder of the Company prior to the October
6, 2003 stock transfer to Erin Mills Investment Corporation discussed below. In
exchange for this stock issuance, Minorplanet UK paid the Company $10,000,000
in cash and transferred to the Company all of the shares of its wholly-owned
subsidiary, Minorplanet Limited and its wholly-owned subsidiary, Mislex (302)
Limited, later known as Minorplanet Systems USA Limited, which held an
exclusive, royalty-free, 99-year license to market, sell and operate
Minorplanet UKs vehicle management information technology in the United
States, Canada and Mexico (the License Rights). Upon completion of the stock
issuance transactions, and prior to the October 6, 2003 transfer to Erin Mills,
Minorplanet UK beneficially owned approximately 62% of the outstanding shares
of the Companys common stock. On March 15, 2002, the Company completed the Sale to Aether of certain
assets and licenses related to the Companys long-haul trucking and
asset-tracking businesses pursuant to the Asset Purchase Agreement effective as
of March 15, 2002, by and between the Company and Aether (the Sale). Under
the terms of the Asset Purchase Agreement, the Company sold to Aether assets
and related license rights to its Platinum Service software solution, 20/20V,
and TrackWare® asset and trailer-tracking products. In addition, the Company
and Aether agreed to form a strategic relationship with respect to the
Companys long-haul customer products, pursuant to which the Company assigned
to Aether all service revenues generated post-closing from its Series 5000
customer base. Aether, in turn, agreed to reimburse the Company for the network
and airtime service costs related to providing the Series 5000 service.
Hereinafter, Series 5000 units for which the Company provides network services
are referred to as network services subscribers. As consideration for the Sale to Aether, the Company received $3 million
in cash, of which $0.8 million was held in escrow as of August 31, 2002 and
later released to the Company during the fiscal year ended August 31, 2003
after certain conditions were met by the Company. The Company also received a
note for $12 million payable, at the option of Aether, in either cash or
convertible preferred stock in three equal installments of $4 million on April
14, May 14, and June 14, 2002. The consideration for the Sale was determined
through arms-length negotiation between the Company and Aether. Aether paid
cash in lieu of preferred stock for each of the three $4 million installments.
On September 17, 2004, Aether sold its logistics division which held the assets
sold by the Company to Aether on March 15, 2002, to Platinum Equity LLC. On October 6, 2003, Minorplanet UK transferred 42.1 percent of the
Companys outstanding common shares beneficially owned by Minorplanet UK to
Erin Mills Investment Corporation (Erin Mills), ending Minorplanet UKs
majority ownership of the Company. Immediately following the share transfer,
Erin Mills beneficially owned 46 percent of the Companys outstanding common
stock, while Minorplanet UK retained 19.9 percent of the Companys outstanding
common stock. In connection with the Minorplanet UK share transfer to Erin Mills, the
Company also obtained an option to repurchase from Erin Mills up to 3.9 million
shares of the Companys common stock at a price of $0.05 for every 1,000
shares, pursuant to that certain Stock Repurchase Option Agreement between the
Company and Erin Mills dated August 15, 2003. Gerry Quinn, the president of
Erin Mills, currently serves on the Companys Board of Directors. In addition, concurrently with these transactions, the Company reached the
following agreements with Minorplanet UK:  
    
    Minorplanet UK irrevocably waived the approval rights, including
the right to appoint members to the Companys Board of Directors, as
were provided for in that certain Stock Purchase and Exchange Agreement
dated February 14, 2001 and the Companys bylaws; 53




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##### Table of Contents




    
    Minorplanet UK waived $1.8 million of accrued executive consulting
fees that it had previously billed to the Company.
    
    The exclusive License and Distribution Agreement, which grants to
the Companys United Kingdom-based subsidiary a 99-year, royalty-free,
exclusive right and license to market, sell and commercially exploit
the VMI technology in the United States, Canada and Mexico, was amended
to grant Minorplanet UK, or its designee, the right to market and sell
the VMI technology, on a non-exclusive basis, in the Northeast
region of the United States. The Company retained the right to market and
sell the VMI technology under the Minorplanet name and logo in this
Northeast region.
    
    Minorplanet UK obtained anti-dilution rights from the Company,
under which it had the right to subscribe for and to purchase at the
same price per share as the offering or private sale, that number of
shares necessary to maintain the lesser of (i) the percentage holdings
of the Companys stock on the date of subscription or (ii) 19.9 percent
of the Companys issued and outstanding common stock. See the Form 8-Ks filed by the Company on August 27, 2003 and October 14,
2003 respectively, which contain additional information. On November 12, 2003, the Company filed a Definitive Information Statement
on Schedule 14C with the SEC, and mailed the Information Statement to
stockholders of record as of November 7, 2003. On December 3, 2003, the
Company announced that the one-for-five reverse stock split took effect at the
opening of trading on the NASDAQ SmallCap Market. The reverse split reduced
the Companys outstanding shares of common stock to 9,669,832 from 48,349,161
shares previously outstanding. Unless otherwise noted, all shares and earnings
per share amounts for all periods presented have been restated to reflect the
reverse stock split. Voluntary Bankruptcy Filing On the Commencement Date, the Debtors filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Texas Dallas Division, in order
to facilitate the restructuring of their debt, trade liabilities, and other
obligations. During the pendency of the bankruptcy, the Debtors remained in
possession of their assets and operated as Debtors-in-possession under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and
applicable court orders. On February 24, 2004, the United States Trustee
appointed an official committee of unsecured creditors consisting of
representatives of five (5) of the twenty (20) largest unsecured creditors. Under Section 362 of the Bankruptcy Code, the filing of the bankruptcy
petition automatically stayed most actions against the Debtors including most
actions to collect pre-petition indebtedness or exercise control over the
property of the Debtors estate. The Bankruptcy Court established April 9,
2004 as the bar date for creditors and other parties-in-interest (other than
governmental entities) to file their proofs of claims and proofs of interest.
The bar date for governmental entities to file their proofs of claims and
proofs of interest was May 10, 2004. On June 15, 2004, the Bankruptcy Court
entered an order approving the Debtors motion for substantive consolidation of
the estates of the Company, Caren and Limited. On May 24, 2004, the Bankruptcy Court entered an order approving the
Debtors Second Amended Disclosure Statement for use to solicit the vote of
creditors and equity interest holders on the acceptance or rejection of the
Debtors plan of reorganization. The Bankruptcy Court also set the record date
for purposes of voting on the Debtors plan of reorganization as May 21, 2004,
approved solicitation/voting procedures of the plan of reorganization, and set
hearing on the confirmation of the plan of reorganization. On June 17, 2004, the Debtors and the Committee reached a settlement
agreement on several matters regarding the plan of reorganization subject to
bankruptcy court approval (the Committee Settlement). The material terms of
the Committee Settlement were as follows: 54




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##### Table of Contents




    
    For purposes of the Debtors plan of reorganization, the Debtors
and Committee agreed that the value of the Debtors shall be equal to
$25.3 million, such that holders of allowed unsecured claims under the
plan of reorganization shall receive 75%, and prior equity holders
shall receive 25%, of the 7,000,000 shares of new common stock issued
upon confirmation of the plan of reorganization.
    
    The Debtors and the Committee reached agreement on the composition
of the Board of Directors of the Company upon emergence from
bankruptcy;
    
    The Debtors and the Committee reached agreement on the general
terms and conditions of new employment agreements for senior management
of the Company.
    
    The Debtors and the Committee reached agreement on the general
terms and conditions under which restricted shares would be issued to
senior management of the Company.
    
    The Debtors, HFS Minorplanet Funding LLC (HFS) and the Committee
agreed to amend the April 15, 2004 letter agreement so that the price
per share at which HFS may convert the unpaid principal and accrued
interest due under the $1.575 million promissory note (later amended
and increased to $2.0 million) into common stock of the Company, shall
be set at $3.62 per share of common stock, provided that such amount
shall be reduced (i) by twenty percent (20%) if such unpaid principal
and accrued interest is converted within one (1) year after the date
the promissory note was issued or (ii) by fifteen percent (15%) if such
unpaid principal and accrued interest is converted more than one (1)
year after the date the promissory note was issued. The Committee further agreed that it would not object to, and both the
Committee and the Debtors, using their best efforts, would affirmatively
support approval of the Debtors plan of reorganization, settlement and
confirmation of the Debtors plan of reorganization, in the form as modified by
the terms hereof. On June 22, 2004, the Debtors filed their Third Amended Joint
Plan of Reorganization to incorporate the settlement terms reached with the
Committee. On June 29, 2004, the Bankruptcy Court entered an order confirming the
Debtors plan of reorganization. The Bankruptcy Court also approved the
Settlement Agreement between the Debtors and the Committee. The Bankruptcy
Court further set the enterprise value of the Company at $25.3 million for
purposes of distributions of new common stock under the Plan. The effective
date of the Plan was set by the Debtors pursuant to the Plan as Friday, July 2,
2004 (the Effective Date). The Plan was substantially consummated on July 8,
2004. In general, pursuant to the Plan, as of the Effective Date:  
    
    Holders of allowed administrative and priority claims
will be paid in cash in the ordinary course as they come due or
on such other terms as the parties may agree. Holders of allowed
priority tax claims will receive periodic payments as provided
under section 1129(a)(9)(C) of the Bankruptcy Code, unless the
parties agree to other terms for the payment of such claims.
    
    Holders of allowed secured claims shall receive, at the
election of the Debtors, either (i) payment in cash in an amount
equivalent to the full amount of such holders allowed secured
claim; (ii) deferred cash payments over a period of five (5)
years after the initial distribution date totaling the amount of
such holders allowed secured claim, with interest; (iii) the
return of the collateral securing such allowed secured claim in
full satisfaction of such claim, or (iv) such other treatment as
may be agreed to in writing by such holder and the Debtors.
    
    Holders of allowed general unsecured claims received
their pro rata share of seventy-five percent (75%) of seven
million (7,000,000) shares of the new common stock of the Company
on or as soon as practicable after the Effective Date. 55




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
    
    Each holder of an allowed convenience claim received
cash in an amount equal to fifty percent (50%) of their allowed
claims, up to an aggregate maximum of one hundred fifty thousand
dollars ($150,000) for all such claims paid as soon as
practicable after the Effective Date.
    
    All existing equity interests in the Debtors were
extinguished as of the Effective Date. Each holder of an equity
interest in the Company that was attributable to existing common
stock received a pro rata share of twenty-five percent (25%) of
seven million (7,000,000) shares of the new common stock that was
not issued to holders of allowed general unsecured claims. The
holders of equity interests in the Company, Limited and Caren,
other than common stock, did not receive or retain any property
under the Plan.
    
    The new common stock and the restricted shares were
issued and distributed in accordance with the terms of the Plan
without further act or action under applicable law, regulation,
order or rule and are exempt from registration under applicable
securities law pursuant to section 1145(a) of the Bankruptcy
Code.
    
    The Debtors initially distributed 7,000,000 shares of
new common stock to satisfy holders of allowed general unsecured
claims and holders of equity interests in the Company that were
attributable to existing common stock. The initial distribution
of 7,000,000 shares of new common stock resulted in the
satisfaction of approximately $17.6 million of allowed general
unsecured claims. As of August 31, 2004, the Company had
estimated and recorded a probable liability for approximately
$1.4 million associated with disputed general unsecured claims,
which if allowed, would result in the issuance of additional
shares of new common stock. Although the Company believes that
some portion of its general unsecured claims objected to will be
ultimately disallowed by the Bankruptcy Court, the Company cannot
presently determine with certainty the total amount of claims
objected to which will be allowed or disallowed. Subsequent to
August 31, 2004, certain rejection claims and other disputed
claims were settled and allowed by the bankruptcy court resulting
in the issuance of an additional 271,043 shares of common stock
to satisfy approximately $0.9 million of the $1.4 million
estimated liability that the Company had recorded as of August
31, 2004. Caren and Limited, as a matter of law, were merged with and into the
Company, ceasing to exist as separate entities as of the Effective Date. In
addition,  
    
    The Companys certificate of incorporation was amended and restated
to change the Companys corporate name to Remote Dynamics, Inc. on the
Effective Date;
    
    the size of the board was increased to seven (7) directors with
four (4) new directors being appointed by the Official Unsecured
Creditors Committee on behalf of the unsecured creditors and three (3)
directors to be appointed by the Debtors;
    
    a new restricted stock plan for key executive officers was
approved;
    
    the Company entered into two (2) year term employment agreements
with the following key executive officers which included restricted
stock grants to each officer:  
    
    Dennis R. Casey  President and Chief Executive Officer
    
    J. Raymond Bilbao  Senior Vice President, General Counsel & Secretary
    
    W. Michael Smith  Executive Vice President, Chief
Operating Officer, Chief Financial Officer & Treasurer The Plan received overwhelming acceptance with approximately 98.6% of the
existing stockholders actually voting on the Plan, of which approximately 99.9%
voted to accept the Plan. Additionally, approximately 75% of the unsecured
creditors, who received their prorata share of 75% of the new common stock
issued under the Plan, voted to accept the Plan. Under the Plan, holders of the
Companys 13.75% Interest Senior Notes due 2005 56




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and holders of the Companys common stock as of the close of trading on
Friday, July 2, 2004 were entitled to receive their prorata distributions of
new common stock under the Plan. Pursuant to Section 365 of the Bankruptcy Code, the Company assumed,
assumed as modified or rejected certain pre-petition executory contracts and
unexpired leases upon the Effective Date. With respect to executory contracts
assumed, the Company was required to cure all pre-petition defaults, monetary
and otherwise. With respect to executory contracts rejected, the Company is
excused from further performance under such agreement and the Bankruptcy Code
treats the rejected contract as if it were breached by the Company immediately
prior to the Companys filing of bankruptcy. The other contracting party was
entitled to a prepetition, general unsecured claim for the damages sustained as
a result of the breach of contract caused by the rejection. Next Generation AVL Product The Company currently believes that it must modify its current automatic
vehicle location business model to a recurring revenue model in order to create
long-term enterprise value for our stockholders as it is typical to value
companies in the automatic vehicle location marketplace using a discounted cash
flow analysis. By moving to a recurring revenue model, the Company will be
positioned to potentially create long-term recurring cash flows in future
periods that should increase the overall value of the business enterprise as
compared to a non-recurring cash flow model. The Company has further
determined that in order to fully exploit the automatic vehicle location market
in the U.S. in a recurring revenue business model, the Company must develop and
introduce an automatic vehicle location product which utilizes the General
Packet Radio System technology common known as GPRS, for data transmission
along with the automatic vehicle location software which is hosted by the
Company in a service bureau environment allowing customers to access their data
via the Internet or dedicated frame relay. The Company believes introduction
of the next generation products and associated web-based architecture will
provide substantial savings in wireless transmission costs over the current GSM
circuit-switched data VMI unit and will further allow the Company to
substantially reduce its customer support and maintenance costs by avoiding
costly maintenance visits to customer premises to service the command and
control center component of the VMI system. In early 2003, the Company
requested that Minorplanet Systems PLC develop a GPRS-enabled VMI unit and
modify the VMI software to be hosted in an Internet environment. Minorplanet
Systems PLC initially scheduled delivery of the GPRS-enabled mobile unit and
web-hosted software on or before September 2003. However, Minorplanet Systems
PLC has been unable to deliver a commercially viable GPRS-enabled mobile unit
and web-hosted software. In conjunction with the Companys development of the next-generation
product for the SBC companies, the Company initiated the internal development
of a GPRS-enabled mobile unit and web-hosted, service bureau-based automatic
vehicle location software during the first calendar quarter of 2004, which can
be hosted by the Company using its existing network services center complex
with minor modifications and minimal capital expenditures. The Company is
currently testing the next-generation product and believes the initial product
version is approximately 90 percent complete. Customers using the next
generation product will access their data via the Internet or dedicated frame
relay. The Company currently anticipates commercially launching its next
generation AVL product by the first calendar quarter of 2005. There can be no
assurances that the Company will be able to commercially launch the next
generation AVL product by the first calendar quarter of 2005, and failure to do
so will have a material adverse impact on its business, financial condition and
results of operations. During the pendency of the bankruptcy proceedings, the Company notified
Minorplanet Systems PLC that it intended to reject the VMI license as part of
the Plan of Reorganization. In order to ensure a smooth transition to its next
generation AVL product, the Company initiated negotiations with Minorplanet
Systems PLC for a temporary use license to market and sell the VMI product
until the Companys next generation AVL product was commercially available. On June 14, 2004, the Bankruptcy Court approved a settlement agreement
with Minorplanet Limited, Minorplanet Systems PLC and the Company regarding the
license agreement for the VMI technology which allows the Company to use,
market and sell the VMI technology until December 31, 2004. The material terms
of this settlement agreement include the following: 57




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
    
    On June 30, 2004, the VMI license agreement converted to a nonexclusive license until December 31, 2004, at which time it
terminates;
    
    From the period beginning June 30, 2004 through December 31, 2004, the territory in which the Company may market, sell and
use the VMI system was reduced to the following metropolitan areas: Los Angeles, California; Atlanta, Georgia; Dallas,
Texas and Houston, Texas;
    
    As of July 31, 2004, the Company is no longer permitted to use the name, Minorplanet;
    
    The Company was required to provide Minorplanet Limited, at no cost, 100 VMI units with T-Mobile special tariff SIM cards;
    
    Subsequent to December 31, 2004, the Company has the right to use the VMI software internally only for the sole purpose of
satisfying its warranty, service and support obligations to its existing VMI customer base; and
    
    Minorplanet Limited was allowed a general unsecured claim of $1,000,000, and it released and waived its administrative
claim and waived any future research and development fees due under the VMI license agreement. As part of the settlement, the Company also provided to Minorplanet
Limited and Minorplanet Systems PLC a general release of any and all claims
which could have been asserted against either of them. Research and Development The Company relies primarily on its internal team of engineers for
research and development relating to its current and prospective products. As
of August 31, 2004, the Company had completed approximately 60% of the
development of its web hosted, service bureau-based AVL software. The Company
currently anticipates commercially launching its next generation AVL products
by the first calendar quarter of 2005. Total research and development expensed
through August 31st associated with development of the Companys next
generation AVL products was approximately $0.6 million. Prior to the rejection
in the bankruptcy proceedings of the VMI License and the initiation of
development of the Companys next generation AVL mobile unit, the Company
relied primarily on Minorplanet UK for research and development for products
for the AVL marketplace. Pursuant to the Exclusive License and Distribution
Agreement with Minorplanet UK, the Company was required to pay $1 million per
year to Minorplanet UK for this research and development. Critical Accounting Policies and Estimates Estimates Inherent in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. The significant accounting policies and estimates, which are believed to
be the most critical to aid in fully understanding and evaluating reported
financial results, are stated in this section. The following policies and
estimates should be read in conjunction with the financial statements and notes
thereto. 58




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Fresh Start Accounting In accordance with the provisions of Statement of Position 90-7 Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code (SOP
90-7), the Company adopted fresh start accounting upon emergence from
bankruptcy because holders of existing voting shares immediately before
confirmation of the Plan received less than 50% of the voting shares of the
emerging entity and its reorganization value was less than its postpetition
liabilities and allowed claims. The reorganization value of the Company was
determined to be $25.3 million based on a discounted cash flow analysis
utilizing cash flow projections from the Companys five-year business plan
including a terminal value, and after extensive negotiations among parties in
interest. The reorganization value allocated to the Companys net assets
pursuant to SOP 90-7 was $23.3 million, which is net of the $2 million exit
financing received from HFS after the Company emerged from bankruptcy (this
exit financing was contemplated in the discounted cash flow model utilized to
determine the $25.3 reorganization value). The $23.3 million allocated to net
assets also excluded $1.4 million in pre-petition liabilities for disputed
claims that were not discharged with the initial issuance of stock to creditors upon
confirmation of the Plan. The reorganization value was allocated to the
Companys tangible and identifiable intangible assets in conformity with the
procedures specified by FAS 141 and liabilities were recorded at their net
present values. The Company used the results of an independent financial
advisory firms fair market valuation to value its fixed assets. Inventory and
certain software were valued at estimated replacement cost. An independent
financial advisory firm was also utilized to value the Companys intangible
assets. The Company recorded fresh start accounting adjustments increasing net
assets by $20.3 million as of June 30, 2004 to reflect assets and liabilities
at fair value. These fresh start accounting adjustments included the recording
of $19.7 million in goodwill and $1.2 million in other intangible assets, a
$0.2 million increase in property and equipment, a $1.4 million reduction in
the fair value of the VMI license right, and a $0.6 million net reduction in
deferred product revenues and deferred product costs. Revenue Recognition The Company generally recognizes revenue when the following criteria are
met: there is persuasive evidence that an arrangement exists, delivery has
occurred and all obligations under such arrangement have been fulfilled, the
price is fixed and determinable, and collectibility is reasonably assured. The
Company recognizes revenue from its long haul trucking Series 5000 mobile units
under the provisions of EITF No. 00-21, Revenue Arrangements With Multiple
Deliverables (EITF 00-21) and Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101) as amended in December of 2003
by Staff Accounting Bulletin No. 104, Revenue Recognition in Financial
Statements (SAB 104). Initial sale proceeds received under multiple-element
sales arrangements which require the Company to deliver products or services
over a period of time and which are not determined by the Company to meet
certain criteria are deferred. Sales proceeds related to delivered products
that are deferred are recognized over the greater of the contract life or the
estimated life of the customer relationship. The Company estimated such
periods to range from three to ten years. The Companys estimate of the life
of a customer relationship is determined based upon the Companys historical
experience with its customers together with the Companys estimate of the
remaining life of the applicable product offering. If the customer
relationship is terminated prior to the end of the estimated customer
relationship period, such deferred sales proceeds are recognized as revenue in
the period of termination. The Company periodically reviews its estimates of
the customer relationship period as compared to historical results and adjusts
its estimates prospectively. Under sales arrangements, which meet the criteria
described above, revenues are recognized upon shipment of the products or upon
customer acceptance of the delivered products if terms of the sales arrangement
give the customer the right of acceptance. Sales arrangements recognized upon
initial delivery and acceptance relate primarily to products delivered under
the Service Vehicle Contract. The VMI product includes both hardware and software components. Due to
the interdependency of the functionality of these components, revenue
recognition is governed by EITF 00-21, SAB 104 (an amendment to SAB 101), and
Statement of Position 97-2, Software Revenue Recognition (SOP 97-2).
Initial sale proceeds received under multiple-element sales arrangements which
require the Company to deliver products or services over a period of time and
which are not determined by the Company to meet certain criteria are deferred.
Currently, the Company resells wireless airtime to many customers of its VMI
products over the contract term; therefore, the 59




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Company defers these VMI product revenues. In addition, the Company has
also deferred revenue consistent with the provisions of SOP 97-2. For those
customers that do not purchase wireless airtime service directly from the
Company, revenue is deferred under the provisions of SOP 97-2 which requires
deferral if a significant portion of the software licensing fee is not due
until more than twelve months after delivery and vendor specific objective
evidence of fair value for post contract services is not available. VMI
product sales are recognized ratably over the customer contract term. Such
terms range from one to five years. If the customer relationship is terminated
prior to the end of the customer contract term, such deferred sales proceeds
are recognized as revenue in the period of termination. Service revenue generally commences upon product installation and customer
acceptance, and is recognized ratably over the period such services are
provided. Allowance for Doubtful Accounts The Company continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon
historical experience and specific customer information. A considerable amount
of judgment is required in assessing the ultimate realization of the Companys
accounts receivable. There is no guarantee that the Company will continue to
experience the same credit loss history in future periods. If a significant
change in the liquidity or financial condition of a large customer or group of
customers were to occur, it could have a material adverse affect on the
collectibility of accounts receivable and future operating results. Inventory Valuation Inventories consist primarily of component parts and finished products
that are valued at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method. The Company records a write-down for excess
and obsolete inventory based on usage history and specific identification
criteria. Actual demand or market conditions may be different than those
projected by management, which could have a material impact on operating
results and financial position. Valuation of Long-Lived Assets Management evaluates the recoverability of the Companys long-lived assets
under Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ( SFAS 144). SFAS 144 requires
management to review for impairment of its long-lived assets, whenever events
or changes in circumstances indicate that the carrying amount of an asset might
not be recoverable and exceeds its fair value. Impairment evaluations involve
management estimates of asset useful lives and future cash flows. When such an
event occurs, management estimates the future cash flows expected to result
from the use of the asset and its eventual disposition. If the undiscounted
expected future cash flows are less than the carrying amount of the asset and
the carrying amount of the asset exceeds its fair value, an impairment loss is
recognized. Management generally utilizes an expected present value technique,
in which multiple cash flow scenarios that reflect the range of possible
outcomes and a risk-free rate are used, to estimate fair value of the asset.
Actual useful lives and cash flows could be different from those estimated by
management. This could have a material affect on the Companys operating
results and financial position. Management assesses the impairment in value to its long-lived assets
whenever events or circumstances indicate that the carrying value may not be
recoverable. Significant factors, which would trigger an impairment review,
include the following:  
    
    significant negative industry trends,
    
    significant changes in technology,
    
    significant underutilization of the asset, and
    
    significant changes in how the asset is used or is planned to be used. 60




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Intangible Assets Management accounts for goodwill, the VMI license right, and other
intangibles in accordance with Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets (SFAS 142). For amortizable
intangible assets (goodwill is not amortized) management evaluates the useful
lives each reporting period to determine whether events and circumstances
warrant a revision to the remaining period of amortization. Such evaluations
include, but are not limited to review of the existing technology, probability
of future developments, and estimated cash flow projections. If the estimate
of the remaining useful life changes, the remaining carrying amount of the
intangible asset is amortized prospectively over that revised remaining useful
life. Actual useful lives could be different from those estimated by
management. This could have a material affect on the Companys operating
results and financial position. In accordance with SFAS 144, management also tests for impairment losses
on intangible assets with determinable lives consistent with the policies
discussed above in Valuation of Long-Lived Assets (see discussion of the
$28.8 million impairment loss recognized on the VMI license right during the
twelve months ended August 31, 2004 in Results of Operations below). Goodwill is tested for
impairment on an annual basis, or between annual tests if it is determined that
a significant event or change in circumstances warrants such testing, in
accordance with the provisions of SFAS 142 which requires a comparison of the
carrying value of goodwill to the fair value of the reporting unit. If the
fair value of the reporting unit is less than the carrying value of goodwill,
an adjustment to the carrying value of goodwill could be required which could
have a material affect on the Companys operating results and financial
position. Results of Operations Due to the consummation of the Companys bankruptcy and the application of
fresh start accounting, results of operations for the periods after June 30,
2004 are not comparable to the results for previous periods. However, for the
discussion of results of operations, the ten months ended June 30, 2004
(Predecessor Company) have been combined with the two months ended August 31,
2004 (Reorganized Company) and then compared to the fiscal year ended August
31, 2003. Differences between periods due to fresh start accounting
adjustments are explained when necessary. Twelve Months Ended August 31, 2004, Compared to Twelve Months Ended August 31,
2003 Total revenue for the twelve months ended August 31, 2004 decreased to
$23.2 million from $44.9 million during the twelve months ended August 31,
2003. NSC Systems revenue decreased from $39.9 million during the twelve
months ended August 31, 2003 to $16.8 million during the twelve months ended
August 31, 2004 primarily due to a continued reduction in active network
subscriber units from 12,554 at August 31, 2003 to 4,673 at August 31, 2004 and
the related material completion of deferred service revenue recognition
associated with the Sale to Aether. This decrease in network services
subscriber units was anticipated after the Sale to Aether as many of these
units have converted to either Aethers network or to other carrier networks.
NSC Systems service revenue of $15.5 million during the twelve months ended
August 31, 2004 was down from $31.5 million during the previous fiscal year
while NSC Systems product revenue, including ratable product revenue, decreased
from $8.3 million to $1.3 million during the twelve months ended August 31,
2003 and 2004, respectively. New NSC Systems product sales during fiscal year
2004 were minimal consisting primarily of parts sales under the Service Vehicle
Contract. The Company anticipates further declines in NSC Systems service and
product revenues during the next fiscal year as SBC has selected an alternative
vendor to supply its next generation product (see further discussion under
Liquidity and Capital Resources) and further churn of the network subscriber
units is expected. VMI revenue for the twelve months ended August 31, 2004 was $6.4 million
up from $5.1 million during the same period of the prior fiscal year. Total
new VMI unit sales decreased to approximately 1,600 units during the twelve
months ended August 31, 2004 from approximately 5,600 units sold during the
same period of the previous fiscal year due primarily to a significant
reduction in sales personnel as management worked to revise the sales model and
the negative perception by potential customers of the Companys bankruptcy
filing. In accordance with 61




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the Companys revenue recognition policies, VMI revenue and the associated
cost of sales are deferred and recognized over the contract life. Thus, the
increase in VMI revenue during the twelve months ended August 31, 2004 in
comparison to the same period of the previous fiscal year is primarily due to
the ratable recognition of previously deferred revenue associated with the VMI
installed base including recognition of remaining deferred revenue under VMI
customer contracts that were terminated prior to their contract end dates. Total gross profit margin improved to 48% during the twelve months ended
August 31, 2004 from 41% during the same period of the previous fiscal year.
Contributing to the improvement in margin was a decrease in NSC Systems network
subscriber unit ratable gross profit (network subscriber product sales have
historically low margins) due to the network subscriber unit churn discussed
above. Also contributing were higher margins on VMI product sales and part
sales under the Service Vehicle Contract, as well as a decrease in NSC Systems
and VMI airtime service costs due to cost reduction efforts and credits
obtained from airtime providers. On September 26, 2002, the Company entered into a letter addendum to the
exclusive license and distribution agreement with Minorplanet Limited, the
operating subsidiary of Minorplanet UK, to provide executive and non-executive
sales and marketing consulting services for the six-month period from August
23, 2002 to February 22, 2003. Under terms of the agreement, the Company was
not required to pay the executive consulting fees incurred during this six-month period totaling $1.76 million unless
and until the Company filed a Form 10-K reporting net income and positive cash
flow for the previous 12-month period. As of August 31, 2003 a liability for
the $1.76 million in executive consulting fees, payable to Minorplanet Limited,
was included on the Companys Condensed Consolidated Balance Sheets under
Other non-current liabilities. On October 6, 2003, Minorplanet UK forever
waived and discharged the $1.76 million executive consulting fees owed by the
Company. Thus, the $1.76 million liability was reversed and effectively
converted to a capital contribution by Minorplanet UK to the Company. In
addition, a $0.3 million liability payable to Minorplanet Limited for
non-executive consulting costs was converted to a capital contribution during
the twelve months ended August 31, 2004. As discussed above, during the third fiscal quarter ended May 31, 2004,
the Company notified Minorplanet UK that it intended to reject the VMI license
as part of the its plan of reorganization and later negotiated the Compromise
and Settlement Agreement regarding the license right described above.
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144) requires management
of the Company to review for impairment of its long-lived assets, whenever
events or changes in circumstances indicate that the carrying amount of an
asset might not be recoverable and exceeds its fair value. Thus, management
used an expected present value technique, in which multiple cash flow scenarios
that reflect the range of possible outcomes and a risk-free rate are used, to
estimate the fair value of the VMI license right resulting in the recognition
of an impairment loss of $28.8 million during the third quarter of fiscal 2004.
Based on updated sales and cash flow forecasts, the Company later recorded a
fresh start adjustment to reflect the fair value of the license right at $1.3
million at June 30, 2004. This new fair value of the license right is being
amortized over a three-year life. Sales and marketing costs decreased
by $9.3 million during the twelve months ended August 31,
2004 in comparison to the same period of the prior year primarily due to a $2.7
million decrease in executive and non-executive consulting fees incurred under
the addendum to the exclusive license and distribution agreement with
Minorplanet Limited and the reduction in sales and marketing personnel, and
related operating costs discussed above. General and administrative expenses
decreased from $9.5 million during the twelve months ended August 31, 2003 to
$6.7 million during the twelve months ended August 31, 2004 primarily due to
personnel reductions, a decrease in professional fees (non-reorganization
items), a decrease in other administrative expenses due to the reorganization
and general cost-cutting efforts, and a reversal of property tax accruals.
During the twelve months ended August 31, 2004, the Company reversed property
tax accruals of approximately $0.3 million in order to properly reflect the
Companys liability due to recent changes in Texas property tax laws. Customer
service expenses decreased to $2.3 million during the twelve months ended
August 31, 2004 from $4.0 million during the same period of the prior fiscal
year primarily due to staffing reductions and other cost-cutting efforts.
Depreciation and amortization expense decreased to $3.8 million during the
twelve months ended August 31, 2004 from $5.6 million during the same period in
the prior year primarily due to certain network service center assets becoming
fully depreciated. 62




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The Companys total operating loss, which includes the $28.8 million
impairment loss on the VMI license right, for the twelve months ended August
31, 2004 was $34.5 million in comparison to a $13.9 million operating loss
during the same period of the prior fiscal year. The Companys NSC Systems
segment reported operating income of $3.1 million for the twelve months ended
August 31, 2004. The VMI segment reported an operating loss of $37.6 million
for the same period. Interest expense decreased from $2.1 million during the
twelve months ended August 31, 2003 to $0.9 million during the twelve months
ended August 31, 2004 as interest on the $14.3 million in senior notes stopped
accruing as of the February 2nd bankruptcy petition filing date. The Company recorded $3.5 million in reorganization expenses associated
with its Chapter 11 bankruptcy filing during the twelve months ended August 31,
2004, including approximately $1.9 million in professional fees and $1.6
million in losses associated with the rejection of executory contracts and
unexpired leases and other reorganization costs. In addition, the Company
recorded fresh start adjustments increasing net assets by $20.3 million as of
June 30, 2004 to reflect assets and liabilities at fair value (see discussion
above under Critical Accounting Policies and Estimates  Fresh Start
Accounting ). The Companys net loss for the twelve months ended August 31,
2004 was $17.8 million in comparison to $16.0 million during the same period
of the previous fiscal year. Twelve Months Ended August 31, 2003, Compared to Twelve Months Ended August 31,
2002 Revenue decreased during the twelve months ended August 31, 2003 to $44.9
million from $66.8 million during the twelve months ended August 31, 2002.
Total product revenue, including ratable product revenue, decreased from $21.6
million during the twelve months ended August 31, 2002 to $12.2 million during
the twelve months ended August 31, 2003, due primarily to lower NSC Systems
product sales. NSC Systems product revenue decreased from $20.6 million
during the twelve months ended August 31, 2002 to $8.3 million during the
twelve months ended August 31, 2003, primarily due to lower sales under the
Service Vehicle Contract with SBC. Also contributing to the decrease in NSC
Systems product revenue was a reduction in ratable revenue recognition
associated with the NSC Systems network subscriber units as there have been no
new network subscriber unit sales since the Sale of certain assets to Aether in
March of 2002. Partially offsetting the decrease in NSC Systems product revenue was an
increase in VMI product revenue from $1.0 million during the twelve months
ended August 31, 2002 to $3.8 million during the twelve months ended August 31,
2003. The Company began marketing the VMI product in the Dallas, Texas market
during the third quarter of 2001, the Houston, Texas market during the fourth
quarter of 2001, the Atlanta, Georgia market during the first quarter of 2002,
and the Los Angeles, California and Austin, Texas markets beginning in July of
2002. Approximately 5,600 VMI units were sold during the twelve months ended
August 31, 2003 versus approximately 3,800 units sold during the twelve months
ended August of 2002. However, in accordance with the Companys revenue
recognition policies, revenue and the associated cost of sales are deferred
under SAB 101 and SOP 97-2, and recognized over the greater of the contract
life or the life of the estimated customer relationship. As of August 31,
2003, the Company had recorded an additional $8.9 million in deferred product
revenue associated with VMI product sales reflected on the Companys balance
sheet. Service revenues decreased from $45.2 million during the twelve months
ended August 31, 2002 to $32.8 million during the twelve months ended August
2003. The decrease is primarily associated with the anticipated reduction in
NSC Systems network subscriber units after the Sale to Aether in March of 2002.
Network subscriber units decreased from 27,218 at August 31, 2002 to 12,554 at
August 31, 2003 as many of these units had converted to Aethers network or to
other networks. Gross profit was 41% during the twelve months ended August 31, 2003 up
from 31% during the twelve months ended August 2002. During December of 2001,
the Company recorded an inventory write-down of $4.7 million for excess
inventory associated with certain circuit boards used in the manufacture of the
TrackWare and 20/20V product lines. Excluding this inventory write-down, gross
profit would have been 38% during the twelve months ended August 31, 2002. The
effective 3% increase in total gross profit, excluding the inventory write-off,
was primarily associated with higher ratable product margins on VMI sales and
lower airtime costs within the NSC Systems segment. 63




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Total operating expenses were $32.5 million during the twelve months ended
August 31, 2003 down from $38.2 million during the same period of the previous
year. Sales and marketing costs increased to $11.6 million during the twelve
months ended August 31, 2003 from $10.4 million during the twelve months ended
August 31, 2002. This increase is primarily due to higher sales consulting
costs during the first half of the 2003 fiscal year and other ongoing
expenditures related to the VMI sales operations. On September 26, 2002, the
Company entered into a letter addendum to the exclusive license and
distribution agreement with Minorplanet Limited, the operating subsidiary of
Minorplanet UK, to provide executive and non-executive sales and marketing
consulting services for the six-month period from August 23, 2002 to February
22, 2003. After expiration of the initial term of this agreement, Minorplanet
Limited continued to provide certain non-executive consulting services through
August 31, 2003. During the twelve months ended August 31, 2003, total sales
and marketing executive and non-executive consulting service expenses incurred
under this agreement were approximately $2.7 million. Under the terms of the
agreement, the Company was not required to pay the $1.8 million executive
consulting fees incurred during the six months ended February 22, 2003 until
such time as the Company reported in a Form 10-K net income and positive cash
flow for the previous twelve-month period. On October 6, 2003, Minorplanet UK
forever waived and discharged the $1.8 million executive consulting fees owed
by the Company to Minorplanet UK. The $1.2 million increase in sales and marketing costs during the twelve
months ended August 31, 2003 was offset by a $5.5 million operating expense
reduction, excluding depreciation and amortization, across all other
departments including general and administration, customer service,
engineering, and network services center. Personnel reductions associated
with the Sale to Aether and cost-reduction plans contributed to the decrease in
these departmental expenses. Also contributing was a reduction in contract
labor expenses and a decrease in NSC System third-party billing costs as the
billing process is now done internally rather than being outsourced. After
the Sale to Aether in March of 2002, all costs of operating the NSC were
included in cost of revenues in order to properly match these expenses with the
associated revenues generated from providing the network and airtime services
to Aether. Total NSC operating costs charged to cost of sales during the
twelve months ended August 31, 2003 and the twelve months ended August 31, 2002
were $2.3 million and $1.1 million, respectively. Depreciation and amortization expense decreased by $1.5 million during the
twelve months ended August 31, 2003 in comparison to the same period during
2002 primarily due to several network service center assets becoming fully
depreciated. Operating losses improved to $13.9 million during the twelve
months ended August 31, 2003 from $17.8 million during the twelve months ended
August 31, 2002. Excluding the $4.7 million inventory write-down during
December of 2001, operating losses would have been $13.1 million during the
twelve months ended August 31, 2002. Thus, the effective $0.8 increase in
operating losses, excluding inventory write-downs, during the twelve months
ended August 31, 2003 is primarily due to lower NSC Systems sales under the
Service Vehicle Contract with the SBC Companies and a reduction in NSC Systems
service gross profit due to the anticipated decrease in NSC Systems network
subscriber units after the Sale to Aether in March of 2002. Operating income
for the NSC Systems segment was $11.0 million for the twelve months ended
August 31, 2003, which was offset by the $24.9 million VMI segment operating
loss. Eight Months Ended August 31, 2002, Compared to Eight Months Ended August 31,
2001 Total revenues for the eight months ending August 31, 2002 decreased to
$42.0 million from $52.7 million during the eight months ended August 31, 2001.
Product revenues, including ratable product revenue, for the same periods
decreased to $11.9 million during 2002 from $19.8 million in 2001 due to a
reduction in NSC Systems sales. The decrease in NSC Systems product revenue
was primarily due to lower sales under the Service Vehicle Contract with SBC as
well as a reduction in long haul trucking product sales due to the Sale of
certain assets to Aether in March of 2002. The Company began marketing the VMI product in the Dallas, Texas market
during the third quarter of 2001, the Houston, Texas market during the fourth
quarter of 2001, the Atlanta, Georgia market during the first quarter of 2002,
and the Los Angeles, California and Austin, Texas markets beginning in July of
2002. Approximately 3,600 VMI units were sold during the eight months ended
August 31, 2002. However, in accordance with the Companys revenue recognition
policies, revenue and the associated cost of sales are deferred under SAB 101
and SOP 97-2, and recognized over the greater of the contract life or the life
of the estimated customer relationship. Thus, total VMI product revenue during
the eight months ended August 31, 2002 was only $0.9 64




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million, recorded in ratable product revenue on the Companys Consolidated
Statements of Operations. The Company had recorded an additional $3.6 million
in deferred product revenue associated with VMI product sales reflected on the
Companys balance sheet as of August 31, 2002. VMI sales did not contribute
significantly to the Companys total revenue during 2001. Service revenues for the eight months ended August 31, 2002 decreased to
$30.1 million from $32.8 million during the same period last year. The
decrease in service revenues is primarily attributable to a reduction in the
number of NSC Systems network services subscriber units from 31,738 at August
31, 2001 to 27,218 as of August 31, 2002 and a lower monthly average service
revenue per unit for the total installed base. The Companys total installed
base, including network subscribers, was 68,220 at August 31, 2002 down only
slightly from 69,199 at August 31, 2001; however, the proportion of service
vehicles relative to long-haul trucking had increased resulting in a lower
average revenue per mobile unit. Average revenue for service vehicles is
significantly less than that of long-haul trucking because of different product
functionality. Total gross profit of 39% for the eight months ended August 31, 2002
increased from 32% during the same period last year. During the first quarter
of 2001, the Company received significant quantities of
TrackWare finished goods inventory, the carrying amount of which was
written down by approximately $0.6 million to estimated market value. During
the second quarter of 2001, the Company reached an agreement in principle to
settle the litigation with its outsource manufacturer for reimbursement for
excess and obsolete inventory. As a result of this agreement in principle, the
Company recorded a provision of $2.1 million during the first quarter of 2001
and an additional $0.1 million during the eight months ended August 31, 2002 as
its estimate of the cost to be incurred to settle this litigation. Excluding
the provision for legal settlement and the inventory write-down, total gross
profit for the eight months ended August 2002 and 2001 would have been 40% and
37% respectively. The effective increase in total gross profit was primarily
due to improved margins on NSC Systems product sales and maintenance services
under the Service Vehicle Contract. Total operating expenses were $26.1 million for both the eight months
ended August 31, 2002 and 2001. Sales and marketing costs for the eight
months ending August 31, 2002 increased to $8.6 million from $2.8 million
during the eight months ended August 31, 2001. This increase was primarily
due to expenditures related to the VMI product launch including the hiring of
new sales personnel and the opening of four VMI sales and operations offices in
Dallas, Houston, Atlanta, and Los Angeles. Expenditures of approximately $0.6
million were also incurred for contracted sales, training and operational
support services associated with the VMI product launch during 2002. The
increase in VMI sales and marketing costs during the eight months ended August
31, 2002 was offset by reductions in operating expenses across all other
departments including customer service, engineering, network services, and
general and administrative. These decreases were primarily associated with
personnel reductions made as a consequence of the cancellation of various
technology initiatives, as well as personnel reductions associated with the
Sale to Aether of certain assets and license rights to the Companys long haul
trucking and asset tracking businesses. Operating losses increased to $9.6 million during the eight months ended
August 31, 2002 from $9.4 million during the eight months ended August 31, 2001
primarily due to lower sales under the Service Vehicle Contract. The Companys
NSC Systems segment reported operating income of $7.7 million for the eight
months ended August 31, 2002, which was offset by the $17.3 million operating
loss from the VMI segment associated with the launch of the new VMI product.
During 2001, the Service Vehicle Contract was responsible for the majority of
product revenues. Interest expense decreased to $1.4 million during the eight months ending
August 31, 2002 from $6.6 million during the same period in 2001, due to the
$80.0 million reduction in Senior Notes payable as a result of the
Recapitalization. Thus, net loss before income taxes and excluding the gain on
recapitalization improved to $10.8 million for the eight months ending August
31, 2002 in comparison to $15.6 million during the eight months ended August
31, 2001. The gain on recapitalization in 2001 of $59.5 million, net of Federal
income taxes, reflects the difference between the fair value of the common
stock issued in exchange for $80.0 million principal amount of Senior Notes
retired, together with accrued interest thereon, net of expenses associated
with the Exchange Offer. 65




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Liquidity and Capital Resources The Company has incurred significant operating losses since inception and
has limited financial resources to support itself until such time that it is
able to generate positive cash flow from operations. The Company had cash and
cash equivalents of $1.3 million as of August 31, 2004. In addition the
Company had $0.4 million in restricted cash held in escrow accounts on behalf
of the Company by third parties that provided professional services during the
bankruptcy proceedings. The Bankruptcy Court had not yet approved payment for
such professional services as of August 31, 2004. On July 20, 2004, the Company entered into and consummated the Third
Amended Letter Agreement with HFS issuing a $2.0 million convertible promissory
note to HFS with the principal balance being due 36 months from the date of
funding, with an annual interest rate of 12 percent. Upon issuance of the
Note, HFS provided the $2 million funding to the Company less a commission in
the amount of $80,000 representing four percent (4%) of the loan proceeds.
Pursuant to the Third Amended Agreement, HFS, may at any time demand repayment
of such portion of the accrued interest and unpaid principal on the Note in
such number of shares of common stock, based upon a fixed conversion price of $2.90 per share of common stock, if
converted in year one of the repayment of the Note or a fixed conversion price
of $3.08 per share of common stock if converted subsequent to year one of the
repayment of the Note, whose aggregate value equals the amount of accrued
interest and principal being repaid. Stephen CuUnjieng, the President of HFS,
was appointed to the Companys Board of Directors effective July 13, 2004. Mr.
CuUnjieng has been employed by the Company as Director of Strategic Finance
since January 30, 2004, immediately prior to the filing of the bankruptcy, to
assist the Company with further fund raising. Mr. CuUnjieng is a controlling
partner in HFS. On July 29, 2004, the Company entered into and closed a stock repurchase
letter agreement with Lloyd Miller, a Director of the Companys Board of
Directors, and certain affiliates of Lloyd Miller (the Miller Shareholder
Group) to purchase from the Miller Shareholder Group 929,948 shares of common
stock at a purchase price of $2.00 per share or $1,859,896. A Special
Committee of the Companys Board of Directors composed of three Directors not
interested in the repurchase transaction considered, negotiated, and approved
the repurchase transaction. Contemporaneous with the closing of the stock
repurchase, Lloyd Miller resigned from the Board of Directors of the Company.
The treasury stock is reflected at cost on the Companys Consolidated Balance
Sheet at August 31, 2004. On October 4, 2004, subsequent to the end of the period covered by this
Form 10-K report, the Company announced that it had closed the sale of 5,000
shares of Series A Convertible Preferred Stock (Series A Preferred Stock),
with each preferred share having a face value of $1,000, for a total purchase
price of $5 million, on October 1, 2004 (the Closing). Net cash proceeds
received by the Company were $4.6 million after payment of expenses. The Series
A Preferred Stock is convertible into shares of the Companys common stock at a
conversion price of $2.00 per share. The Company sold the Series A Preferred
Stock to an investor pursuant to that certain Securities Purchase Agreement,
dated October 1, 2004, by and between the Company and SDS Capital Group SPC,
Ltd. The Series A Preferred Stock was issued to the investor pursuant to the
exemption from the registration requirements of the Securities Act of 1933, as
amended provided by Regulation D promulgated thereunder. In addition to the
above pricing and number of the securities sold, the Securities Purchase
Agreement also provides that the Company shall use the proceeds from this
offering only for general corporate purposes and working capital. In
connection with the issuance of shares of Series A Preferred Stock, the Company
also issued to the Series A Preferred Stock holder two warrants to purchase
shares of the Companys common stock (see Securities Purchase Agreement 
Sale of Series A Preferred Stock in Item 1 of this Form 10-K for additional
information regarding the Series A Preferred Stock transaction). 66




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A summary of the Companys cash flows for the years ended August 31, 2004
and 2003 are as follows: Reorganized
    
    Predecessor
    
    
    
    
    
    PredecessorCompany
    
    Company
    
    
    
    
    
    CompanyTwo months
    
    Ten months
    
    Combined yearended
    
    ended
    
    ended
    
    Year endedAugust 31,
    
    June 30,
    
    August 31,
    
    August 31,2004
    
    2004
    
    2004
    
    2003(in thousands)Net cash used in operating activities
    
    $
    (1,023
    )
    
    $
    (1,789
    )
    
    $
    (2,812
    )
    
    $
    (13,062
    )Net cash provided by (used in) investing activities
    
    
    (303
    )
    
    
    (548
    )
    
    
    (851
    )
    
    
    7,102Cash flows from financing activities:Proceeds from sale of service contract
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    758Proceeds from issuance of note payable
    
    
    2,000
    
    
    
    
    
    
    
    2,000
    
    
    
    Debt issuance costs
    
    
    (80
    )
    
    
    
    
    
    
    (80

    )
    
    
    Common stock repurchased
    
    
    (1,860
    )
    
    
    
    
    
    
    (1,860
    )
    
    
    Other
    
    
    (48
    )
    
    
    (142
    )
    
    
    (190
    )
    
    
    (106
    )Net cash provided by (used in) financing activities
    
    
    12
    
    
    
    (142
    )
    
    
    (130
    )
    
    
    652Total change in cash
    
    
    (1,314
    )
    
    
    (2,479
    )
    
    
    (3,793
    )
    
    
    (5,308
    )Cash and cash equivalents, end of period
    
    $
    1,312
    
    
    $
    2,626
    
    
    $
    1,312
    
    
    $
    5,105
 Net cash used in operating activities decreased during the year ended
August 31, 2004 compared to the same period of the prior year primarily due to
a significant decrease in operating expenses, excluding the VMI license right
impairment loss, associated primarily with reorganization efforts and a $1.0
million decrease in the Companys cash interest expense. The decrease in net cash provided by investing activities during the year
ended August 31, 2004 in comparison to the prior year was primarily
attributable to the sale of $7.7 million in short-term investments during the
year ended August 31, 2003 used to fund the Companys ongoing operations. Net cash provided by financing activities during the year ended August 31,
2003 included $0.8 million in proceeds from the service contract associated
with the Sale to Aether. Net cash used in financing activities during the year
ended August 31, 2004 included the $2 million in proceeds from the issuance of
the note payable to HFS net of the $1.9 million stock repurchase in July of
2004 and payments under capital lease agreements. Subsequent to August 31, 2004, the Company paid approximately $1.1 million
to cure pre-petition liabilities related to executory contracts accepted under
the Plan and $0.3 million in previously accrued professional fees related to
services provided during the bankruptcy proceedings. The Company has a
remaining liability of approximately $1.2 million for professional services
provided during the bankruptcy. The Company believes that the potential market opportunity for automatic
vehicle location products in the United States, such as the GPRS-based next
generation product line currently being developed by the Company, is
significant. GPRS is an acronym for general packet radio service which is an
Internet protocol-based method of wireless data transmission. Currently,
competition in this market segment is fragmented, and no clear market leader
exists. The Company currently believes that it will be positioned with its
telematics product lines and proven operations support to take advantage of the
significant market potential. In addition, the Company has renewed its Service
Vehicle Contract with SBC for an additional term that ends on December 31,
2005. Also, as a result of the sale to Aether of certain assets and licenses
related to the Companys long-haul trucking and asset-tracking businesses,
Aether is contractually obligated to continue to reimburse the Company for the
network and airtime service costs related to providing service for
HighwayMaster Series 5000 (Series 5000) units as long as such units 67




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remain
active on the Companys network. On July 7, 2004, the Company and Aether
further amended their transition services agreement to extend the transition
services term through April 30, 2005 with such transition services term
continuing thereafter on a month-to-month basis unless terminated by either
party on sixty (60) days prior written notice (on September 17, 2004, Aether
sold its logistics division which held the assets sold by the Company to Aether
on March 15, 2002, to Platinum Equity LLC). Critical success factors in managements plans to achieve positive cash flow
from operations include:  
    
    Ability to raise a minimum of $6 million in additional capital
resources to fund the Companys operations until revenues from the
GPRS-based next generation product line are sufficient to fund ongoing
operations.
    
    Ability to complete development of a GPRS-based next generation
product line.
    
    Significant market acceptance of the Companys product offerings,
including the Companys next generation product line, in the United
States.
    
    Maintaining and expanding the Companys direct sales channel and
expanding into new markets not currently served by the Company. New
salespersons will require training and time to become productive. In
addition, there is significant competition for qualified salespersons,
and the Company must continue to offer attractive compensation plans
and opportunities to attract qualified salespersons.
    
    Maintaining and expanding indirect distribution channels.
    
    Securing and maintaining adequate third party leasing sources for
customers who purchase the Companys products. There can be no assurances that any of these success factors will be
realized or maintained. SBC has selected an alternate vendor to supply the next generation
product; thus, management has revised its business plans and related forecasts
taking into effect the declining revenue from SBC and the costs associated with
the commercial launch of its new products including approximately $1.0 million
in anticipated capital expenditures during the next fiscal year. Based on
current forecasts, management believes that it will need to raise a minimum of
$6 million by June 2005, in addition to the $4.6 million received from the sale
of the Series A Preferred Stock discussed above, to fund the launch of its new
products and fund working capital as the SBC revenue declines during 2005.
However, the timing of the deactivations by SBC as well as the ability to meet
sales projections of the new AVL products heavily influences the capital
requirements of the Company. If the SBC Companies deactivate the Companys units sooner than is
currently anticipated in the Companys projections, the amount of capital
required by the Company to sustain operations will significantly increase.
Currently, management believes that should the required funding be obtained, it
will be raised through the issuance of debt or equity securities. However,
there can be no assurance that the Company will be able to raise the funds
necessary to sustain the Companys operations until revenues from sales of the
Companys new AVL products are sufficient to sustain the Companys operations
and the failure to do so may have a material adverse effect upon the Companys
business, financial condition and results of operations. The Company has recently announced the availability of its new AVL
products that should form the basis of revenue for the Company for future
periods. The Company believes that the new products are state-of-the-art and
provide industry-leading features and functionality. In addition, the Company
believes the new product design expands the potential market in which the
Company may pursue. The Company expects to complete a full
commercial launch of its new products in the first quarter of 2005. As
the revenues from the SBC Contract steadily decline in 2005, the Companys
future revenues will be solely dependent upon sales of its next generation
product line. The failure of the marketplace to accept the Companys next
generation product line will have a material adverse effect on the Companys
business, financial condition and results of operations. As a result of restructuring through the Chapter 11 process, the Company
has significantly reduced its indebtedness including elimination of the $14.3
million principal obligation on the senior notes as well as the annual $2
million in related interest costs. The Company also is no longer required to
pay $1 million annually to Minorplanet UK for research and development fees
previously due under the VMI license agreement. In addition, 68




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the Company
expects to save approximately $0.8 million during the next fiscal year as a
result of rejecting or modifying certain unexpired lease agreements during the
bankruptcy proceedings. At this time, it is not possible to accurately predict the effect of the
bankruptcy filing on the Companys business. It is possible that because of
operating performance or other factors, the Company may not be able to continue
as a going concern. Accordingly, the Company urges that extreme caution be
exercised with respect to existing and future investments in any of the
Companys securities. Should the Company not continue as a going
concern, it may be unable to realize its assets and discharge its
liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability of the recorded assets
or the amounts and classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern. Nasdaq Delisting Notification On October 1, 2004, the Company received notice from Nasdaq stating that
for the previous 30 days, its common stock had closed below the minimum $1.00
per share requirement for continued inclusion under Nasdaq Marketplace Rule
4310(c)(4). In accordance with Marketplace Rule 4310(c)(4), the Company was
provided 180 calendar days, or until March 30, 2005, to regain compliance under
this rule. In order to regain compliance, the Company must demonstrate a
closing bid price for its common stock of $1.00 per share or more for a minimum
of 10 consecutive business days. The Company has not determined to take any
particular course of action at this time with respect to the Nasdaq notice. The written notice further provided that if compliance with the $1.00
minimum bid price requirement cannot be demonstrated by the Company by March
30, 2005, Nasdaq will grant the Company an additional 180 calendar days to
regain compliance, if at that time, the Company meets The Nasdaq SmallCap
Market initial listing requirements as set forth in Marketplace Rule 4310(c),
except for the $1.00 minimum bid price requirement. The written notice
provided that if the Company has not regained compliance with the $1.00 minimum
bid price requirement during the second 180 day compliance period, but again
satisfies The Nasdaq SmallCap Market initial listing requirements as set forth
in Marketplace Rule 4310(c), except for the $1.00 minimum bid price requirement
at the end of such period, the Company would be afforded an additional
compliance period up to its next stockholder meeting to regain compliance,
provided that it commit: (1) to seek stockholder approval for a reverse stock
split at or before its next stockholder meeting and (2) to promptly thereafter
effect the reverse stock split. Such shareholder meeting must occur within 2
years following October 1, 2004. If the Company fails to regain compliance
with $1.00 minimum bid requirement during the third compliance period and is
not eligible for an additional compliance period, the Nasdaq Staff would notify
the Company at that time that its securities would be delisted and the Company
would have the right to appeal such delisting to the Nasdaq Listing
Qualifications Panel which stays the effect of the delisting pending a hearing
on the matter before the Panel. If the closing bid for the Companys common stock remains below $1.00 per
share and it is no longer listed on The Nasdaq SmallCap Market, the Companys
common stock may be deemed to be penny stock. If the Companys common stock is
considered penny stock, it will be subject to rules that impose additional
sales practices on broker-dealers who sell the Companys securities. For
example, broker-dealers selling penny stock must make a special suitability
determination for the purchaser and must have received the purchasers written
consent to the transaction prior to sale. Also, a disclosure schedule must be
prepared before any transaction involving a penny stock can be completed,
including required disclosure concerning:  
    
    sales commissions payable to both the broker-dealer and the registered representative; and
    
    current quotations for the securities. Monthly statements are also required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stock. Because of these additional obligations, some 69




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brokers may not effect transactions in penny stock. This could have a material
and adverse effect on the market for the Companys common stock, and the
ability of stockholders to sell shares. Contractual Obligations The following summarizes the Companys significant financial commitments at
August 31, 2004: Payments due by periodContractual Obligations
    
    Total
    
    Less than 1 Year
    
    1-3 Years
    
    3-5 Years
    
    More than 5 YearsLong-Term Debt (a)Principal Payments

    
    $
    2,000
    
    
    $
    
    
    
    $
    2,000
    
    
    $
    
    
    
    $
    Interest Payments
    
    
    700
    
    
    
    240
    
    
    
    460
    
    
    
    
    
    
    
    Capital Lease Obligations
    
    
    1,342
    
    
    
    521
    
    
    
    552
    
    
    
    269
    
    
    
    Operating Leases
    
    
    2,112
    
    
    
    362
    
    
    
    600
    
    
    
    600
    
    
    
    550Purchase Obligations
    
    
    743
    
    
    
    743
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term Liabilities (b)
    
    
    762
    
    
    
    275
    
    
    
    312
    
    
    
    119
    
    
    
    56Total
    
    $
    7,659
    
    
    $
    2,141
    
    
    $
    3,924
    
    
    $
    988
    
    
    $
    606
  (a)
    
    See discussion of HFS note payable in Liquidity and Capital Resources.(b)
    
    Primarily includes obligations under priority tax claims allowed under the
bankruptcy proceedings and product warranty commitments. Impact of Recently Issued Accounting Standards During December 2003, the SEC issued Statement of Accounting Bulletin
#104, Revenue Recognition (SAB 104), which revised and rescinded portions
of SAB 101. The issuance of SAB 104 did not impact the Companys revenue
recognition policies. In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities (FIN 46R),
which addresses how a business enterprise should evaluate whether it has a
controlling financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity. FIN 46R replaces FASB
Interpretation No. 46, Consolidation of Variable Interest Entities, which was
issued in January 2003. The provisions of FIN 46R did not have any impact on
the Companys financial statements. 
 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not have any material exposure to market risk associated
with its cash and cash equivalents. The Companys note payables are at a fixed
rates and, thus, are not exposed to interest rate risk. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Companys financial statements, Schedule II  Valuation and Qualifying
Accounts, and reports of independent auditors, are included on pages F-1
through F-50 and pages S-1 through S-4. 70




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. Change from Arthur Andersen to Deloitte & Touche LLP During the Companys two fiscal years ended December 31, 2001 and December
31, 2000 respectively, and the subsequent interim period through August 14,
2002, there were no disagreements with Arthur Andersen on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Andersens satisfaction, would
have caused them to make reference to the subject matter in connection with
their report on the Companys consolidated financial statements for such years;
and there were no reportable events, as listed in Item 304(a)(1)(v) of
Regulation S-K. Change from Deloitte & Touche LLP to BDO Seidman LLP During the Companys two most recent fiscal years and through March 19,
2004, there were no disagreements with Deloitte & Touche LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to Deloittes satisfaction, would
have caused them to make reference to the subject matter in connection with
their report on the Companys consolidated financial statements for such years,
and there were no reportable events, as listed in Item 304(a)(1)(v) of
Regulation S-K. 
 ITEM 9A. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures, which it has
designed to ensure that material information related to the Company, including
its consolidated subsidiaries, is made known to the Companys disclosure
committee on a regular basis. The Company has a disclosure committee, which
consists of certain members of the Companys senior management. Under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), an evaluation of the effectiveness of the Companys
disclosure controls and procedures was performed as of August 31, 2004. Based
on this evaluation, the CEO and CFO have concluded that the Companys
disclosure controls and procedures are effective to ensure that material
information is recorded, processed, summarized and reported by management of
the Company on a timely basis in order to comply with the Companys public
disclosure obligations under the relevant federal securities laws and the SEC
rules promulgated thereunder. There were no changes in the Companys internal controls over financial
reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act)
that occurred during the fourth fiscal quarter ended August 31, 2004, that have
materially affected, or are reasonably likely to materially effect, the
Companys internal controls over financial reporting. 
 ITEM 9B. Other Information None. 71




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding Directors and Executive Officers is incorporated by
reference to the section entitled Election of Directors in the Companys
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after August 31, 2004. 
 ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from
the Proxy Statement, to be filed within 120 days after August 31, 2004, under
the heading Executive Compensation. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference from
the Companys definitive Proxy Statement, to be filed with the Securities and
Exchange Commission within 120 days after August 31, 2004, under the heading
Security Ownership of Certain Beneficial Owners and Management. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from
the Proxy Statement, to be filed within 120 days after August 31, 2004, under
the heading Certain Transactions. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference from
the Proxy Statement, to be filed within 120 days after August 31, 2004, under
the heading Principal Accountant Fees and Services. 72




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PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Page Number(a
    )
    
    Documents filed as part of the report:(1)
    

    
    
    



    Independent Auditors Report
    

    
    F-1Report of Previous Independent Auditors
    
    
    F-2Consolidated Balance Sheets as of August 31, 2004 and August 31, 2003
    
    
    F-5Consolidated Statements of Operations for the Two Months Ended August 31,
2004, the Ten Months Ended June 30, 2004,
the Year Ended August 31, 2003, the Eight Months Ended
August 31, 2002, and the Year Ended December 31, 2001
    
    
    F-6Consolidated Statements of Cash Flows for the Two Months Ended August 31,
2004, the Ten Months Ended June 30, 2004,
the Year Ended August 31, 2003, the Eight Months Ended
August 31, 2002, and the Year Ended December 31, 2001
    
    
    F-7Consolidated Statements of Changes in Stockholders Equity (Deficit) for
the Two Months Ended August 31, 2004, the
Ten Months Ended June 30, 2004, the Year Ended
August 31, 2003, the Eight Months Ended August 31, 2002, and the
Year Ended December 31, 2001
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-9(2)
    

    

    
    
    Financial Statement SchedulesIndependent Auditors Report on Supplemental Financial Statement
Schedule, Valuation and Qualifying Accounts
    
    
    S-1Report of Previous Independent Auditors on Financial Statement Schedule
    
    
    S-2Schedule II-Valuation and Qualifying Accounts
    
    
    S-4
 Financial statement schedules other than those listed above have been omitted
because they are either not required, not applicable or the information is
otherwise included. 73




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INDEX TO EXHIBITS EXHIBITNUMBER
    
    
    
    TITLE2.1
    
    -
    
    Stock Purchase and Exchange Agreement by and between the Company,
Minorplanet Systems PLC and Mackay Shields LLC, dated February 14, 2001
(14)2.2
    
    -
    
    Asset Purchase Agreement by and between the Company and Aether Systems,
Inc. dated March 15, 2002 (15)2.3
    
    -
    
    Findings and Fact, Conclusions of Law and Order Confirming Companys
Third Amended Joint Plan of Reorganization and Approving Settlement of
Companys Amended Motion for Valuation (22)2.4
    
    -
    
    Securities Purchase Agreement by and between the Company and SDS
Capital Group SPC, Ltd. dated October 1, 2004 (24)2.5
    
    -
    
    Registration Rights Agreement by and between the Company and SDS
Capital Group SPC, Ltd. dated October 1, 2004 (24)2.6
    
    -
    
    Certificate of Designation, Preferences and Rights, Series A
Convertible Preferred Stock of Remote Dynamics, Inc. filed with
Secretary of State of Delaware on October 1, 2004 (24)2.7
    
    -
    
    Stock Purchase Warrant issued to SDS Capital Group SPC, Ltd. on October
1, 2004 for purchase of 1,000,000 shares of common stock (24)2.8
    
    -
    
    Stock Purchase Warrant issued to SDS Capital Group SPC, Ltd. on October
1, 2004 for purchase of 625,000 shares of common stock (24)3.1
    
    -
    
    Amended and Restated Certificate of Incorporation of the Company (23)3.2
    
    -
    
    Third Amended and Restated By-Laws of the Company (26)4.1
    
    -
    
    Specimen of certificate representing Common Stock, $.01 par value, of
the Company (1)10.1
    
    -
    
    Exclusive License and Distribution Agreement by and between Minorplanet
Limited, (an @Track subsidiary) and Mislex (302) Limited, dated June
21, 2001 (13)10.2
    
    -
    
    Product Development Agreement, dated December 21, 1995, between
HighwayMaster Corporation and IEX Corporation (2)(3)10.3
    
    -
    
    Lease Agreement, dated March 20, 1998, between HighwayMaster
Corporation and Cardinal Collins Tech Center, Inc. (4)10.4
    
    -
    
    Agreement No. 980427 between Southwestern Bell Telephone Company,
Pacific Bell, Nevada Bell, Southern New England Telephone and
HighwayMaster Corporation executed on January 13, 1999 (6)(7)10.5
    
    -
    
    Administrative Carrier Agreement entered into between HighwayMaster
Corporation and Southwestern Bell Mobile Systems, Inc. on March 30,
1999 (6)(7)10.6
    
    -
    
    Addendum to Agreement entered into between HighwayMaster Corporation
and International Telecommunications Data Systems, Inc. on February 4,
1999 (6)(7)10.7
    
    -
    
    Second Addendum to Agreement entered into between HighwayMaster
Corporation and International Telecommunications Data Systems, Inc. on
February 4, 1999 (6)(7)10.8
    
    -
    
    Fleet-on-Track Services Agreement entered into between GTE
Telecommunications Services Incorporated and HighwayMaster Corporation
on May 3, 1999 (8)(9)10.9
    
    -
    
    Limited Liability Company Agreement of HighwayMaster of Canada, LLC
executed March 3, 2000 (10)
 74




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EXHIBITNUMBER
    
    
    
    TITLE10.10
    
    -
    
    Monitoring Services Agreement dated May 25, 2000, by and between the
Company and Criticom International Corporation (11) (12)10.11
    
    -
    
    Agreement No. 980427-03, dated January 31, 2002 between SBC Ameritech,
SBC Pacific Bell, SBC Southern New England Telephone, SBC Southwestern
Bell Telephone, L.P. and the Company (16) (17)10.12
    
    -
    
    Addendum dated September 26, 2002 to Exclusive Licence and Distribution
Agreement (18)10.13
    
    -
    
    Irrevocable Waiver and Consent to Amendment to Bylaws of certain rights
executed by Minorplanet Systems PLC, dated October 6, 2003 (19)10.14
    
    -
    
    Variation Agreement to Exclusive License and Distribution Agreement by
and between Minorplanet Limited, as Licensor, and Minorplanet Systems
USA, Limited, as Licensee, dated October 6, 2003 (19)10.15
    
    
    
    Amendment No. 3 to Agreement No. 980427-03 by and between Minorplanet
Systems USA, Inc. and SBC Services, Inc. dated January 21, 2004 (21)10.16
    
    -
    
    Amendment No. 5 to Agreement No. 980427-03 by and between Remote
Dynamics, Inc. and SBC Services, Inc. dated October 8, 2004 (25)10.17
    
    -
    
    Third Amendment to Lease Agreement between the Company and Cardinal
Collins Tech Center, Inc. dated July 1, 2004 (26)10.18
    
    -
    
    Employment Agreement between the Company and Dennis R. Casey dated July
2, 2004 (26)10.19
    
    -
    
    Employment Agreement between the Company and W. Michael Smith dated
July 2, 2004 (26)10.20
    

    -
    
    Employment Agreement between the Company and J. Raymond Bilbao dated
July 2, 2004 (26)10.21
    
    -
    
    Employment Agreement between the Company and Joseph W. Pollard dated
July 26 , 2004 (26)10.22
    
    -
    
    Restricted Stock Agreement between the Company and Dennis R. Casey
dated July 2, 2004 (26)10.23
    
    -
    
    Restricted Stock Agreement between the Company and W. Michael Smith
dated July 2, 2004 (26)10.24
    
    -
    
    Restricted Stock Agreement between the Company and J. Raymond Bilbao
dated July 2, 2004 (26)10.25
    
    -
    
    Restricted Stock Agreement between the Company and Joseph W. Pollard
dated July 26, 2004 (26)10.26
    
    -
    
    Employment Agreement between the Company and David Bagley dated
September 17, 2004 (26)10.27
    
    -
    
    Restricted Stock Agreement between the Company and David Bagley dated
September 17, 2004 (26)10.28
    
    -
    
    2004 Restated Management Incentive Plan (26)11.0
    
    -
    
    Statement Regarding Computation of Per Share Earnings (26)14.1
    
    -
    
    Code of Ethics for Senior Financial Officers approved by the Board of
Directors of the Company on November 7, 2003 (20)16.1
    
    -
    
    Letter from Arthur Andersen to the SEC (Omitted pursuant to Item 304T
of Regulation S-K)21.1
    
    -
    
    Subsidiaries of Registrant (26)31.1
    
    -
    
    Certification Pursuant to Section 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, by Dennis R. Casey, President and Chief
Executive Officer (Principal Executive Officer) (26)31.2
    
    -
    
    Certification Pursuant to Section 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, by W. Michael Smith, Executive Vice
President, Chief Operating Officer, Chief Financial Officer and
Treasurer (Principal Financial and Accounting Officer) (26)32.1
    
    -
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
 75




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EXHIBITNUMBER
    
    
    
    TITLESection 906 of the Sarbanes-Oxley Act of 2002, by Dennis R. Casey,
President and Chief Executive Officer (Principal Executive Officer)
(26)32.2
    
    -
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, by W. Michael Smith,
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Treasurer (Principal Financial and Accounting Officer) (26)99.1
    
    -
    
    Amended and Restated Audit Committee Charter approved by Audit
Committee of the Board of Directors of the Company on November 18, 2003
(20)
   1.
    
    Filed in connection with the Companys
Registration Statement on Form S-1, as amended (No. 33-91486),
effective June 22, 1995.2.
    
    Filed in connection with the Companys Annual
Report on Form 10-K for the fiscal year ended December 31,
1995.3.
    
    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, 1995.4.
    
    Filed in connection with the Companys Form 10-Q
Quarterly Report for the quarterly period ended September 30,
1998.5.
    
    Filed in connection with the Companys Form 10-K
fiscal year ended December 31, 1998.6.
    
    Filed in connection with the Companys Form 10-Q
Quarterly Report for the quarterly period ended March 31,
1999.7.
    
    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,
1999.8.
    
    Filed in connection with the Companys Form 10-Q
Quarterly Report for the quarterly period ended June 30, 1999.9.
    
    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, 1999.10.
    
    Filed in connection with the Companys Form 10-Q
Quarterly Report for the quarterly period ended March 31,
2000.11.
    
    Certain confidential portions deleted pursuant to
Order Granting Application for Confidential Treatment issued
December 5, 2000 in connection with the Companys Form 10   Q
Quarterly Report for the quarterly period ended June 30, 2000.12.
    
    Filed in connection with the Companys Form 10-Q
Quarterly Report for the quarterly period ended June 30, 2000.13.
    
    Filed in connection with Companys Current Report
on Form 8-K filed with SEC on June 29, 2001.14.
    
    Filed as Appendix A to the Companys Definitive
Proxy Statement on Schedule 14A filed with the SEC on May 11,
2001.15.
    
    Filed in connection with the Companys Current
Report on Form 8-K filed with the SEC on March 27, 2002.
Certain confidential portions deleted pursuant to Order
Granting Application for Confidential Treatment issued in
connection with the Companys Current Report on Form 8-K filed
with the SEC on March 27, 2002.16.
    
    Filed in connection with the Companys Form 10-Q
Quarterly Report for the quarterly period ended March 31,
2002.17.
    
    Certain confidential portions deleted pursuant to
Order Granting Application for Confidential Treatment issued
in connection with the Companys Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2002.18.
    
    Filed in connection with the Companys Form 10-Q
Quarterly Report for the quarterly period ended November 30,
2002.19.
    
    Filed in connection with the Companys Current
Report on Form 8-K filed with the SEC on August 27, 2003. 76




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##### Table of Contents



20.
    
    Filed in connection with Companys Form 10-K
Annual Report for the year ended August 31, 2003.21.
    
    Filed in connection with the Companys Form 10-Q
Quarterly Report for the quarterly period ended February 29,
2004.22.
    
    Filed in connection with Companys Current Report
on Form 8-K with SEC on June 23, 2004.23.
    
    Filed in connection with the Companys Form 10-Q
Quarterly Report for the quarterly period ended May 31, 2004.24.
    
    Filed in connection with the Companys Current
Report of Form 8-K with SEC on October 4, 2004.25.
    
    Filed in connection with the Companys Current
Report of Form 8-K with SEC on October 13, 200426.
    
    Filed herewith. 77




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. November 15, 2004REMOTE DYNAMICS, INC.By:
    
    /s/ Dennis R. CaseyDennis R. CaseyPresident and Chief Executive Officer(Principal Executive Officer)
 78




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K for the fiscal year ended August 31, 2004, has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Dennis R. Casey

Dennis R. Casey
    
    Chief Executive Officer and Director
(Principal Executive Officer)
    
    November 15, 2004/s/ W. Michael Smith

W. Michael Smith
    
    Executive Vice President, Chief
Operating Officer, Chief Financial
Officer, and Treasurer (Principal
Financial and Accounting Officer)
    
    November 15, 2004/s/ Gregg Pritchard

Gregg Pritchard
    
    Director
    
    November 15, 2004/s/ Gerry C. Quinn

Gerry C. Quinn
    
    Director
    
    November 15, 2004/s/ Thomas Honeycutt

Thomas Honeycutt
    
    Director
    
    November 15, 2004/s/ Stephen CuUnjieng

Stephen CuUnjieng
    
    Director
    
    November 15, 2004/s/ Matthew Petzold

Matthew Petzold
    
    Director
    
    November 15, 2004
 79




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Report of Independent Registered Public Accounting Firm Board of Directors
Remote Dynamics, Inc.
Richardson, Texas We have audited the accompanying consolidated balance sheet of Remote Dynamics,
Inc. as of August 31, 2004 and the related consolidated statements of
operations, stockholders equity (deficit), and cash flows for the ten months
ended June 30, 2004 and the two months ended August 31, 2004. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Remote Dynamics,
Inc. at August 31, 2004, and the results of its operations and its cash flows
for the ten months ended June 30, 2004 and the two months ended August 31, 2004
in conformity with accounting principles generally accepted in the United
States of America. The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has negative cash flows from operating activities
that raise substantial doubt about its ability to continue as a going concern.
Managements plans in regard to these matters are described in Note 1 to the
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty. /s/ BDO Seidman, LLPBDO Seidman, LLPDallas, TexasOctober 30, 2004
 F-1




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REPORT OF PREVIOUS INDEPENDENT AUDITORS To the Board of Directors and Stockholders of
Minorplanet Systems USA, Inc.: We have audited the accompanying consolidated balance sheets of Minorplanet
Systems USA, Inc. and subsidiaries (the Company) as of August 31, 2003 and
2002 and the related consolidated statements of operations, cash flows, and
changes in stockholders equity (deficit) for the year ended August 31, 2003
and the eight month period ended August 31, 2002. These financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements of the Company for the years ended December
31, 2001 and 2000 were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on those financial statements
in their report dated March 15, 2002. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of August 31, 2003
and 2002, and the results of its operations and its cash flows for the year
ended August 31, 2003 and the eight month period ended August 31, 2002 in
conformity with accounting principles generally accepted in the United States
of America. The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Companys recurring losses from operations and
negative cash flows from operating activities raise substantial doubt about its
ability to continue as a going concern. Managements plans concerning these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. As discussed in Note 3 to the financial statements, in 2003 the Company adopted
Statement of Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS 145). As discussed above, the financial statements of the
Company for the years ended December 31, 2001 and 2000 were audited by other
auditors who have ceased operations. As described in Note 3, those financial
statements have been reclassified to give effect to SFAS 145. We audited the
adjustments described in Note 3 that were applied to conform the 2001 and 2000
financial statements to the presentation required by SFAS 145. Our audit
procedures with respect to the 2001 and 2000 disclosures in Note 3 included (1)
comparing the amounts shown as Extraordinary item in the Companys
consolidated statements of operations to the Companys underlying accounting
analysis obtained from management, (2) on a test basis, comparing the amounts
comprising the Extraordinary item obtained from management to independent
supporting documentation, and (3) testing the mathematical accuracy of the
underlying analysis. As discussed above, the financial statements of Minorplanet Systems USA, Inc.
and subsidiaries for the year ended December 31, 2001 were audited by other
auditors who have ceased operations. As described in Note 20, the Company
changed the composition of its reportable segments in 2002, and the amounts in
the 2001 financial statements relating to reportable segments have been
restated to conform to the 2003 and 2002 composition of reportable segments.
We audited the adjustments that were applied to restate the disclosures for
reportable segments reflected in the 2001 financial statements. Our procedures
included (i) agreeing the adjusted amounts of segment revenues, operating
income and assets to the Companys
underlying records obtained from management, and (ii) F-2




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testing the mathematical accuracy of the reconciliations of segment amounts to
the consolidated financial statements. In our opinion, such adjustments described above are appropriate and have
been properly applied. However, we were not engaged to audit, review, or apply
any procedures to the 2001 financial statements of the Company other than with
respect to such adjustments and the matter discussed above and, accordingly, we
do not express an opinion or any other form of assurance on the 2001 financial
statements taken as a whole. DELOITTE & TOUCHE LLP Dallas, Texas
November 7, 2003 F-3




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REPORT OF PREVIOUS INDEPENDENT AUDITORS THE FOLLOWING REPORT OF ARTHUR ANDERSEN, LLP (ANDERSEN) IS A COPY OF THE
REPORT PREVIOUSLY ISSUED BY ANDERSEN ON MARCH 15, 2002 AND SUCH REPORT HAS NOT
BEEN REISSUED BY ANDERSEN. THE REPORT OF ANDERSEN IS INCLUDED IN THIS ANNUAL
REPORT ON FORM 10-K PURSUANT TO RULE 2-02 (E) OF REGULATION S-X. AFTER
REASONABLE EFFORTS THE COMPANY HAS NOT BEEN ABLE TO OBTAIN A REISSUED REPORT
FROM ANDERSEN. ANDERSEN HAS NOT CONSENTED TO THE INCLUSION OF ITS REPORT IN
THIS ANNUAL REPORT ON FORM 10-K. BECAUSE ANDERSEN HAS NOT CONSENTED TO THE
INCLUSION OF ITS REPORT IN THIS ANNUAL REPORT, IT MAY BE DIFFICULT FOR
STOCKHOLDERS TO SEEK REMEDIES AGAINST ANDERSEN AND STOCKHOLDERS ABILITY TO SEEK
RELIEF AGAINST ANDERSEN MAY BE IMPAIRED OR UNAVAILABLE. To the Board of Directors and
Stockholders of

@Track Communications, Inc.: We have audited the accompanying consolidated balance sheets of @Track
Communications, Inc. (a Delaware corporation) and subsidiaries (the Company)
as of December 31, 2001 and 2000, and the related consolidated statements of
operations, cash flows, and stockholders equity (deficit) for the years ended
2001, 2000 and 1999. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of @Track Communications, Inc.
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years ended 2001, 2000 and 1999, in
conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Dallas, Texas,
March 15, 2002 F-4




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REMOTE DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information) Reorganized
    
    PredecessorCompany
    
    CompanyAugust 31,
    
    August 31,2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,312
    
    
    $
    5,105Restricted cash
    
    
    439
    
    
    
    Accounts receivable, net of allowance for doubtful accounts
of $162 and $246, respectively
    
    
    2,700
    
    
    
    4,710Inventories
    
    
    674
    
    
    
    2,190Deferred product costs  current portion
    
    
    980
    
    
    
    1,600Lease receivables and other current assets, net
    
    
    987
    
    
    
    1,081Total current assets
    
    
    7,092
    
    
    
    14,686Property and equipment, net of accumulated depreciation
and amortization of $180 and $22,559 respectively
    
    
    4,283
    
    
    
    3,865Deferred product costs  non-current portion
    
    
    1,085
    
    
    
    2,429Goodwill
    
    
    19,724
    
    
    
    License right, net
    
    
    1,207
    
    
    
    33,485Other intangibles, net
    
    
    1,085
    
    
    
    Lease receivables and other assets, net
    
    
    1,280
    
    
    
    1,635Total assets
    
    $
    35,756
    
    
    $
    56,100LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,167
    
    
    $
    4,203Accrued interest on senior notes payable
    
    
    
    
    
    
    903Deferred product revenues  current portion
    
    
    2,374
    
    
    
    3,316Accrued expenses and other current liabilities
    
    
    5,335
    
    
    
    5,511Total current liabilities
    
    
    9,876
    
    
    
    13,933Deferred product revenues  non-current portion
    
    
    3,174
    
    
    
    6,217Senior notes payable and other notes payable, net of discount
    
    
    741
    
    
    
    14,316Note payable  HFS
    
    
    2,000
    
    
    
    Other non-current liabilities
    
    
    466
    
    
    
    2,144Total liabilities
    
    
    16,257
    
    
    
    36,610Commitments
and contingencies (Note 16)Stockholders equity:Common
stock, $0.01 par value, 50,000,0000 shares authorized, 7,450,000
shares issued and 6,520,052 outstanding at August 31, 2004;
100,000,000 shares authorized, 9,684,992 shares issued and 9,669,832
shares outstanding at August 31, 2003
    
    
    75
    
    
    
    484Preferred Stock, $0.01 par value, 2,000,000 shares authorized at August 31, 2004
only; no shares issued and outstanding at August 31, 2004Preferred Stock  Series E, $0.01 par value, 20,000 shares authorized at August 31, 2003
only; 1 share issued and outstanding at August 31, 2003
    
    
    
    
    
    
    Treasury stock, 929,948 and 15,160 shares at August 31, 2004 and 2003 at cost
    
    
    (1,860
    )
    
    
    (562
    )Additional paid-in capital
    
    
    22,297
    
    
    
    218,601Deferred stock compensation
    
    
    (472
    )
    
    
    Accumulated deficit
    
    
    (541
    )
    
    
    (199,033
    )Total stockholders equity
    
    
    19,499
    
    
    
    19,490Total liabilities and stockholders equity
    
    $
    35,756
    
    
    $
    56,100
 See accompanying notes to consolidated financial statements. F-5




---



##### Table of Contents



REMOTE DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) ReorganizedCompany
    
    Predecessor CompanyTwo months
    
    Ten months
    
    
    
    
    
    Eight monthsended
    
    ended
    
    Year ended
    
    ended
    
    Year endedAugust 31,
    
    June 30,
    
    August 31,
    
    August 31,
    
    December 31,2004
    
    2004
    
    2003
    
    2002
    
    2001RevenuesProduct
    
    $
    209
    
    
    $
    1,066
    
    
    $
    2,319
    
    
    $
    5,074
    
    
    $
    19,658Ratable product
    
    
    574
    
    
    
    4,489
    
    
    
    9,837
    
    
    
    6,780
    
    
    
    9,864Service
    
    
    2,439
    
    
    
    14,430
    
    
    
    32,755
    
    
    
    30,102
    
    
    
    47,958Total revenues
    
    
    3,222
    
    
    
    19,985
    
    
    
    44,911
    
    
    
    41,956
    
    
    
    77,480Cost of revenuesProduct
    
    
    49
    
    
    
    911
    
    
    
    1,953
    
    
    
    3,996
    
    
    
    15,239Ratable product
    
    
    240
    
    
    
    2,094
    
    
    
    6,871
    
    
    
    5,213
    
    
    
    8,236Service
    
    
    1,217
    
    
    
    7,470
    
    
    
    17,508
    
    
    
    16,155
    
    
    
    26,563Inventory write-down to net realizable value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,693Provision for settlement of litigation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    2,100Total cost of revenues
    
    
    1,506
    
    
    
    10,475
    
    
    
    26,332
    
    
    
    25,464
    
    
    
    56,831Gross profit
    
    
    1,716
    
    
    
    9,510
    
    
    
    18,579
    
    
    
    16,492
    
    
    
    20,649Expenses:General and administrative
    
    
    914
    
    
    
    5,767
    
    
    
    9,456
    
    
    
    7,943
    
    
    
    12,482Customer service
    
    
    337
    
    
    
    1,939
    
    
    
    3,988
    
    
    
    3,411
    
    
    
    7,036Sales and marketing
    
    
    294
    
    
    
    2,079
    
    
    
    11,632
    
    
    
    8,600
    
    
    
    4,570Engineering
    
    
    183
    
    
    
    1,593
    
    
    
    1,800
    
    
    
    1,374
    
    
    
    5,166Network services center
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    461
    
    
    
    1,753Depreciation and amortization
    
    
    393
    
    
    
    3,451
    
    
    
    5,626
    
    
    
    4,322
    
    
    
    7,438Impairment loss on license right
    
    
    
    
    
    
    28,759
    
    
    
    
    
    
    
    
    
    
    
    2,121
    
    
    
    43,588
    
    
    
    32,502
    
    
    
    26,111
    
    
    
    38,445Operating loss
    
    
    (405
    )
    
    
    (34,078
    )
    
    
    (13,923
    )
    
    
    (9,619
    )
    
    
    (17,796
    )Interest income
    
    
    51
    
    
    
    351
    
    
    
    447
    
    
    
    457
    
    
    
    501Interest expense
    
    
    (37
    )
    
    
    (905
    )
    
    
    (2,118
    )
    
    
    (1,411
    )
    
    
    (7,355
    )Other (expense) income
    
    
    (11
    )
    
    
    257
    
    
    
    (426
    )
    
    
    (183
    )
    
    
    Gain on recapitalization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,461(Loss) income before reorganization items
and income taxes
    
    
    (402
    )
    
    
    (34,375
    )
    
    
    (16,020
    )
    
    
    (10,756
    )
    
    
    34,811Reorganization items:Restructuring expenses and losses
    
    
    (139
    )
    
    
    (3,384
    )
    
    
    
    
    
    
    
    
    
    
    Gain on discharge of liabilities subject to
compromise
    
    
    
    
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    Fresh start accounting adjustments
    
    
    
    
    
    
    20,331
    
    
    
    
    
    
    
    
    
    
    
    Net loss before income taxes
    
    
    (541
    )
    
    
    (17,238
    )
    
    
    (16,020
    )
    
    
    (10,756
    )
    
    
    34,811Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    978
    
    
    
    Net (loss) income
    
    $
    (541
    )
    
    $
    (17,238
    )
    
    $
    (16,020
    )
    
    $
    (9,778
    )
    
    $
    34,811Net (loss) income per share  basic and diluted
    
    $
    (0.08
    )
    
    $
    (1.78
    )
    
    $
    (1.66
    )
    
    $
    (1.01
    )
    
    $
    6.23Weighted average number of shares outstandingBasic and diluted
    
    
    6,505
    
    
    
    9,671
    
    
    
    9,670
    
    
    
    9,647
    
    
    
    5,586
 See accompanying notes to consolidated financial statements. F-6




---



##### Table of Contents



REMOTE DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) ReorganizedCompany
    
    Predecessor CompanyTwo months
    
    Ten months
    
    Year ended
    
    Eight months
    
    Year endedended August 31,
    
    ended June 30,
    
    August 31,
    
    ended August 31,
    
    December 31,2004
    
    2004
    
    2003
    
    2002
    
    2001Cash flows from operating activities:Net (loss) income
    
    $
    (541
    )
    
    $
    (17,238
    )
    
    $
    (16,020
    )
    
    $
    (9,778
    )
    
    $
    34,811Adjustments to reconcile net loss (income) to cash used in
operating activities:Depreciation and amortization
    
    
    187
    
    
    
    1,432
    
    
    
    3,011
    
    
    
    2,574
    
    
    
    6,070Amortization of discount on notes payable
    
    
    
    
    
    
    30
    
    
    
    60
    
    
    
    39
    
    
    
    219Amortization of license right and other intangibles
    
    
    206
    
    
    
    2,019
    
    
    
    2,615
    
    
    
    1,748
    
    
    
    1,368Impairment loss on license right
    
    
    
    
    
    
    28,759
    
    
    
    
    
    
    
    
    
    
    
    Gain on recapitalization  non-cash portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,682
    )Inventory write-down to net realizable value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,693Provision for bad debts
    
    
    110
    
    
    
    923
    
    
    
    1,353
    
    
    
    803
    
    
    
    1,056Non-cash compensation and consulting
    
    
    
    
    
    
    2
    
    
    
    92
    
    
    
    532
    
    
    
    Amortization of deferred service revenues
    
    
    (14
    )
    
    
    (224
    )
    
    
    (6,595
    )
    
    
    (5,376
    )
    
    
    Loss on assets retired or sold
    
    
    14
    
    
    
    247
    
    
    
    302
    
    
    
    
    
    
    
    Gain on discharge of liabilities subject to compromise
    
    
    
    
    
    
    (190
    )
    
    
    
    
    
    
    
    
    
    
    Fresh start accounting adjustments
    
    
    
    
    
    
    (20,331
    )
    
    
    
    
    
    
    
    
    
    
    Changes in operating assets and liabilities:Increase in restricted cash
    
    
    
    
    
    
    (439
    )
    
    
    
    
    
    
    
    
    
    
    Decrease in accounts receivable
    
    
    3
    
    
    
    1,619
    
    
    
    2,780
    
    
    
    3,615
    
    
    
    212Decrease (increase) in inventory
    
    
    108
    
    
    
    1,408
    
    
    
    (609
    )
    
    
    477
    
    
    
    5,610Decrease in deferred product costs
    
    
    198
    
    
    
    1,466
    
    
    
    3,616
    
    
    
    3,054
    
    
    
    6,477(Increase) decrease in lease receivables and other assets
    
    
    (167
    )
    
    
    160
    
    
    
    (755
    )
    
    
    (2,153
    )
    
    
    1,373(Decrease) increase in accounts payable
    
    
    (254
    )
    
    
    (1,493
    )
    
    
    (1,172
    )
    
    
    358
    
    
    
    (5,475
    )(Decrease) in deferred product revenues
    
    
    (419
    )
    
    
    (2,709
    )
    
    
    (1,312
    )
    
    
    (2,491
    )
    
    
    (7,605
    )(Decrease) increase in accrued expenses and other liabilities
    
    
    (454
    )
    
    
    2,770
    
    
    
    (428
    )
    
    
    (3,638
    )
    
    
    (4,512
    )Net cash used in operating activities
    
    
    (1,023
    )
    
    
    (1,789
    )
    
    
    (13,062
    )
    
    
    (10,236
    )
    
    
    (12,385
    )Cash flows from investing activities:Additions to property and equipment
    
    
    (303
    )
    
    
    (553
    )
    
    
    (575
    )
    
    
    (1,251
    )
    
    
    (1,587
    )Proceeds from sale of assets
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    2,740
    
    
    
    Decrease (increase) in short-term investments
    
    
    
    
    
    
    
    
    
    
    7,677
    
    
    
    (3,543
    )
    
    
    (4,134
    )Purchase of license right
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,215
    )Net cash provided by (used in) investing activities
    
    
    (303
    )
    
    
    (548
    )
    
    
    7,102
    
    
    
    (2,054
    )
    
    
    (6,936
    )Cash flows from financing activities:Proceeds from sale of service contract
    
    
    
    
    
    
    
    
    
    
    758
    
    
    
    11,510
    
    
    
    Proceeds from exercise of stock options
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    485
    
    
    
    Proceeds from issuance of note payable
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,450Debt issuance costs
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments on capital leases
    
    
    (48
    )
    
    
    (146
    )
    
    
    (106
    )
    
    
    (47
    )
    
    
    Common stock repurchased
    
    
    (1,860
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )Net cash provided by (used in) financing activities
    
    
    12
    
    
    
    (142
    )
    
    
    652
    
    
    
    11,948
    
    
    
    9,435(Decrease) in cash and cash equivalents
    
    
    (1,314
    )
    
    
    (2,479
    )
    
    
    (5,308
    )
    
    
    (342
    )
    
    
    (9,886
    )Cash and cash equivalents, beginning of period
    
    
    2,626
    
    
    
    5,105
    
    
    
    10,413
    
    
    
    10,755
    
    
    
    20,641Cash and cash equivalents, end of period
    
    $
    1,312
    
    
    $
    2,626
    
    
    $
    5,105
    
    
    $
    10,413
    
    
    $
    10,755Supplemental cash flow information:Interest paid
    
    $
    23
    
    
    $
    1,000
    
    
    $
    1,990
    
    
    $
    997
    
    
    $
    6,539Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    995Non-cash investing and financing activities:Discharge of debt and exchange of 5,250,000 shares of
common stock under the plan of reorganization
    
    $
    
    
    
    $
    17,605
    
    
    $
    
    
    
    $
    
    
    
    $
    Conversion of related party liability to capital contribution
    
    $
    
    
    
    $
    2,066
    
    
    $
    
    
    
    $
    
    
    
    $
    Note receivable received as proceeds from sale of assets
and service contract
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,000
    
    
    $
    Receivable held in escrow received as proceeds from sale
of assets and service contract
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,000
    
    
    $
    Purchases of assets through capital leases
    
    $
    1,125
    
    
    $
    63
    
    
    $
    178
    
    
    $
    224
    
    
    $
    Fair value of license right acquired in exchange for common
stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    38,000Fair value of senior notes exchanged for common stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    20,273
 See accompanying notes to consolidated financial statements. F-7




---



##### Table of Contents



REMOTE DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
(in thousands, except share information) Common StockPreferred Stock
    
    Common Stock
    
    Class B
    
    AdditionalPaid-inShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    CapitalPredecessor Company:Stockholders equity (deficit) at December 31, 2000
    
    
    
    
    
    $
    
    
    
    
    5,127,756
    
    
    $
    51
    
    
    
    1,000
    
    
    $
    
    
    
    
    150,201Conversion of Class B Common to Common
    
    
    
    
    
    
    
    
    
    
    320,000
    
    
    
    3
    
    
    
    (1,000
    )
    
    
    
    
    
    
    (3
    )Issuance of Series E Preferred Stock
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Common Stock issued to Minorplanet UK
    
    
    
    
    
    
    
    
    
    
    30,000,000
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    47,625Common Stock issued in Note Exchange
    
    
    
    
    
    
    
    
    
    
    12,670,497
    
    
    
    127
    
    
    
    
    
    
    
    
    
    
    
    19,671Common Stock repurchasedNet incomeStockholders equity at December 31, 2001
    
    
    1
    
    
    
    
    
    
    
    48,118,253
    
    
    
    481
    
    
    
    
    
    
    
    
    
    
    
    217,495Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    306,707
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    482Acceleration of vesting on stock options

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532Net lossStockholders equity at August 31, 2002
    
    
    1
    
    
    
    
    
    
    
    48,424,960
    
    
    
    484
    
    
    
    
    
    
    
    
    
    
    
    218,509Issuance of stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92Net lossStockholders equity at August 31, 2003
    
    
    1
    
    
    
    
    
    
    
    48,424,960
    
    
    
    484
    
    
    
    
    
    
    
    
    
    
    
    218,601Related party capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,066Reverse stock split
    
    
    
    
    
    
    
    
    
    
    (38,739,968
    )
    
    
    (387
    )
    
    
    
    
    
    
    
    
    
    
    387Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    2,588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Common stock repurchasedNet loss of predecessor companyElimination of predecessor equity
in connection with fresh start accounting
    
    
    (1
    )
    
    
    
    
    
    
    (9,687,580
    )
    
    
    (97
    )
    
    
    
    
    
    
    
    
    
    
    (221,060
    )Issuance of common stock under plan
of reorganization
    
    
    
    
    
    
    
    
    
    
    7,000,000
    
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    21,830Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    350,000
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    1,172Reorganized Company:Stockholders equity at June 30, 2004
    
    
    
    
    
    
    
    
    
    
    7,350,000
    
    
    
    74
    
    
    
    
    
    
    

    
    
    
    
    23,002Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    151Change in deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (856
    )Common stock repurchasedNet lossStockholders equity at August 31, 2004
    
    
    
    
    
    $
    
    
    
    
    7,450,000
    
    
    $
    75
    
    
    
    
    
    
    $
    
    
    
    $
    22,297
   [Continued from above table, first column(s) repeated] Treasury StockDeferred
    
    
    
    AccumulatedComp.
    
    Shares
    
    Amount
    
    Deficit
    
    TotalPredecessor Company:Stockholders equity (deficit) at December 31, 2000
    
    $
    
    
    
    
    62,399
    
    
    $
    (547
    )
    
    $
    (208,046
    )
    
    $
    (58,341
    )Conversion of Class B Common to Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of Series E Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Common Stock issued to Minorplanet UK
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,925Common Stock issued in Note Exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,798Common Stock repurchased
    
    
    
    
    
    
    13,400
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,811
    
    
    
    34,811Stockholders equity at December 31, 2001
    
    
    
    
    
    
    75,799
    
    
    
    (562
    )
    
    
    (173,235
    )
    
    
    44,179Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    485Acceleration of vesting on stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,778
    )
    
    
    (9,778
    )Stockholders equity at August 31, 2002
    
    
    
    
    
    
    75,799
    
    
    
    (562
    )
    
    
    (183,013
    )
    
    
    35,418Issuance of stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,020
    )
    
    
    (16,020
    )Stockholders equity at August 31, 2003
    
    
    
    
    
    
    75,799
    
    
    
    (562
    )
    
    
    (199,033
    )
    
    
    19,490Related party capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,066Reverse stock split
    
    
    
    
    
    
    (60,639
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Common stock repurchased
    
    
    
    
    
    
    3,875,703
    
    
    
    
    
    
    
    
    
    
    
    Net loss of predecessor company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,238
    )
    
    
    (17,238
    )Elimination of predecessor equity
in connection with fresh start accounting
    
    
    
    
    
    
    (3,890,863
    )
    
    
    562
    
    
    
    216,271
    
    
    
    (4,324
    )Issuance of common stock under plan
of reorganization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,900Issuance of restricted stock
    
    
    (1,176
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reorganized Company:Stockholders equity at June 30, 2004
    
    
    (1,176
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,900Issuance of restricted stock
    
    
    (152
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in deferred stock compensation
    
    
    856
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock repurchased
    
    
    
    
    
    
    929,948
    
    
    
    (1,860
    )
    
    
    
    
    
    
    (1,860
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (541
    )
    
    
    (541
    )Stockholders equity at August 31, 2004
    
    $
    (472
    )
    
    
    929,948
    
    
    $
    (1,860
    )
    
    $
    (541
    )
    
    $
    19,499
 See accompanying notes to consolidated financial statements. F-8




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REMOTE DYNAMICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS OVERVIEW, REORGANIZATION AND GOING CONCERN Business Overview Remote Dynamics, Inc., a Delaware corporation formerly known as
Minorplanet Systems USA, Inc. (the Company) develops and implements mobile
communications solutions for service vehicle fleets, long-haul truck fleets,
and other mobile-asset fleets, including integrated voice, data and position
location services. As a result of the completion of the transactions
contemplated by the Stock Purchase and Exchange Agreement by and among the
Company, Minorplanet Systems PLC, a United Kingdom public limited company
(Minorplanet UK), and Mackay Shields LLC, dated February 14, 2001, the
Company commenced marketing the Vehicle Management Information  (VMI)
product licensed from Minorplanet Limited, the operating subsidiary of
Minorplanet UK, into the automatic vehicle location (AVL) market in the
United States during the last half of the calendar year 2001. The Company
markets and sells the VMI product in Dallas, Texas; Houston, Texas; Atlanta,
Georgia; and Los Angeles, California. VMI is designed to maximize the
productivity of a mobile workforce as well as reduce vehicle mileage and
fuel-related expenses. The VMI technology consists of: (i) a data control unit
(DCU) that continually monitors and records a vehicles position, speed and
distance traveled; (ii) a command and control center (CCC) which receives and
stores in a database information downloaded from the DCUs; and (iii) software
used for communication, messaging and detailed reporting. VMI uses
satellite-based Global Positioning System (GPS) location technology to
acquire a vehicle location on a minute-by-minute basis and a global system for
mobile communications (GSM) based cellular network to transmit data between
the DCUs and the CCC. GSM is a digital technology developed in Europe and has
been adapted for North America. GSM is the most widely used wireless digital
standard in the world. The VMI application is intended to be targeted to small
and medium sized fleets in the metro marketplace. VMI provides minute-by-minute visibility into the activities of a mobile
workforce via an extensive reporting system that provides real-time and
exception-based reporting. Real-time reports provide information regarding a
vehicles location, idling, stop time, speed and distance traveled. With
real-time reporting, the user can view when an employee starts or finishes
work, job site arrival times and site visit locations. In addition, exception
reports allow the user to set various parameters within which vehicles must
operate, and the system will report exceptions including speeding, extended
stops, unscheduled stops, route deviations, visits to barred locations and
excessive idling. The Companys initial product offering, the Series 5000, was developed for
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 member
companies of SBC Communications, Inc. (the SBC Companies) pursuant to the
Service Vehicle Contract (the Service Vehicle Contract). During the fourth
calendar quarter of 1999, the Company entered the mobile asset tracking market
with the introduction of its trailer-tracking product, TrackWare®. During the
first calendar quarter of 2001, the Company began marketing and selling
20/20V, a low-cost tracking product designed for small and medium sized fleets
in the transportation marketplace. On March 15, 2002, the Company completed the sale to Aether of certain
assets and licenses related to the Companys long-haul trucking and
asset-tracking businesses pursuant to the Asset Purchase Agreement effective as
of March 15, 2002, by and between the Company and Aether (the Sale). Under
the terms of the Sale, the
Company sold to Aether assets and related license rights to its Platinum
Service software solution, 20/20V, and TrackWare® asset and trailer-tracking
products. In addition, the Company and Aether agreed to form a strategic F-9




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relationship with respect to the Companys long-haul customer products,
pursuant to which the Company assigned to Aether all service revenues generated
post-closing from its Series 5000 customer base. Aether, in turn, agreed to
reimburse the Company for the network and airtime service costs related to
providing the Series 5000 service. On September 17, 2004, Aether sold its
logistics division which held the assets sold by the Company to Aether on March
15, 2002, to Platinum Equity LLC. Voluntary Bankruptcy Filing and Reorganization On February 2, 2004, (the Commencement Date), the Company and two of its
wholly-owned subsidiaries, Caren (292) Limited (Caren) and Minorplanet
Systems USA Limited (Limited) (the Company, Caren and Limited shall
hereinafter collectively be referred to as the Debtors) filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Northern District of Texas Dallas
Division (the Bankruptcy Court), in order to facilitate the restructuring of
their debt, trade liabilities, and other obligations. During the pendency of
the bankruptcy, the Debtors remained in possession of their assets and operated
as debtors-in-possession under the jurisdiction of the Bankruptcy Court and
in accordance with the applicable provisions of Bankruptcy Code, the Federal
Rules of Bankruptcy Procedure and applicable court orders. On February 24,
2004, the United States Trustee appointed an official committee of unsecured
creditors (the Committee) consisting of representatives of five (5) of the
twenty (20) largest unsecured creditors. Under Section 362 of the Bankruptcy Code, the filing of the bankruptcy
petition automatically stayed most actions against the Company including most
actions to collect pre-petition indebtedness or exercise control over the
property of the Companys estate. The Bankruptcy Court established April 9,
2004 as the bar date for creditors and other parties-in-interest (other than
governmental entities) to file their proofs of claims and proofs of interest.
The bar date for governmental entities to file their proofs of claims and
proofs of interest was May 10, 2004. On June 15, 2004, the Bankruptcy Court
entered an order approving the Debtors motion for substantive consolidation of
the estates of the Company, Caren and Limited. On May 24, 2004, the Bankruptcy Court entered an order approving the
Debtors Second Amended Disclosure Statement for use to solicit the vote of
creditors and equity interest holders on the acceptance or rejection of the
Companys plan of reorganization. The Bankruptcy Court also set the record
date for purposes of voting on the Debtors plan of reorganization as May 21,
2004, approved solicitation/voting procedures of the plan of reorganization,
and set hearing on the confirmation of the plan of reorganization. On June 17, 2004, the Debtors and the Committee reached a settlement
agreement on several matters regarding the plan of reorganization subject to
bankruptcy court approval (the Committee Settlement). The material terms of
the Committee Settlement were as follows:  
    
    For purposes of the Debtors plan of reorganization, the Debtors
and Committee agreed that the value of the Debtors shall be equal to
$25.3 million, such that holders of allowed unsecured claims under the
plan of reorganization shall receive 75%, and prior equity holders
shall receive 25%, of the 7,000,000 shares of new common stock issued
upon confirmation of the plan of reorganization.
    
    The Debtors and the Committee reached agreement on the composition
of the Board of Directors of the Company upon emergence from
bankruptcy;
    
    The Debtors and the Committee reached agreement on the general
terms and conditions of new employment agreements for senior management
of the Company.
    
    The Debtors and the Committee reached agreement on the general
terms and conditions under which restricted shares would be issued to
senior management of the Company. F-10




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
    
    The Debtors, HFS Minorplanet Funding LLC (HFS) and the Committee
agreed to amend the April 15, 2004 letter agreement so that the price
per share at which HFS may convert the unpaid principal and accrued
interest due under the $1.575 million promissory note (later amended
and increased to $2.0 million) into common stock of the Company, shall
be set at $3.62 per share of common stock, provided that such amount
shall be reduced (i) by twenty percent (20%) if such unpaid principal
and accrued interest is converted within one (1) year after the date
the promissory note was issued or (ii) by fifteen percent (15%) if such
unpaid principal and accrued interest is converted more than one (1)
year after the date the promissory note was issued. The Committee further agreed that it would not object to, and both the
Committee and the Debtors, using their best efforts, would affirmatively
support approval of the Debtors plan of reorganization, settlement and
confirmation of the Debtors plan of reorganization, in the form as modified by
the terms hereof. On June 22, 2004, the Debtors filed their Third Amended Joint
Plan of Reorganization to incorporate the settlement terms reached with the
Committee. On June 29, 2004, the Bankruptcy Court entered an order confirming the
Debtors plan of reorganization. The Bankruptcy Court also approved the
Settlement Agreement between the Debtors and the Committee. The Bankruptcy
Court further set the enterprise value of the Company at $25.3 million for
purposes of distributions of new common stock under the Plan. The effective
date of the Plan was set by the Debtors pursuant to the Plan as Friday, July 2,
2004 (the Effective Date). The Plan was substantially consummated on July 8,
2004. In general, pursuant to the Plan, as of the Effective Date:  
    
    Holders of allowed administrative and priority claims will be
paid in cash in the ordinary course as they come due or on such
other terms as the parties may agree. Holders of allowed priority
tax claims will receive periodic payments as provided under section
1129(a)(9)(C) of the Bankruptcy Code, unless the parties agree to
other terms for the payment of such claims.
    
    Holders of allowed secured claims shall receive, at the
election of the Debtors, either (i) payment in cash in an amount
equivalent to the full amount of such holders allowed secured
claim; (ii) deferred cash payments over a period of five (5) years
after the initial distribution date totaling the amount of such
holders allowed secured claim, with interest; (iii) the return of
the collateral securing such allowed secured claim in full
satisfaction of such claim, or (iv) such other treatment as may be
agreed to in writing by such holder and the Debtors.
    
    Holders of allowed general unsecured claims received their
pro rata share of seventy-five percent (75%) of seven million
(7,000,000) shares of the new common stock of the Company on or as
soon as practicable after the Effective Date.
    
    Each holder of an allowed convenience claim received cash in
an amount equal to fifty percent (50%) of their allowed claims, up
to an aggregate maximum of one hundred fifty thousand dollars
($150,000) for all such claims paid as soon as practicable after the
Effective Date.
    
    All existing equity interests in the Debtors were
extinguished as of the Effective Date. Each holder of an equity
interest in the Company that was attributable to existing common
stock received a pro rata share of twenty-five percent (25%) of
seven million (7,000,000) shares of the new common stock that was
not issued to holders of allowed general unsecured claims. The
holders of equity interests in the Company, Limited and Caren, other
than common stock, did not receive or retain any property under the
Plan.
    
    The new common stock and the restricted shares were issued
and distributed in accordance with the terms of the Plan without
further act or action under applicable law, regulation, order or F-11




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rule and are exempt from registration under applicable securities
law pursuant to section 1145(a) of the Bankruptcy Code.  
    
    The Debtors initially distributed 7,000,000 shares of new
common stock to satisfy holders of allowed general unsecured claims
and holders of equity interests in the Company that were
attributable to existing common stock. The initial distribution of
7,000,000 shares of new common stock resulted in the satisfaction of
approximately $17.6 million of allowed general unsecured claims. As
of August 31, 2004, the Company had estimated and recorded a
probable liability for approximately $1.4 million associated with
disputed general unsecured claims, which if allowed, would result in
the issuance of additional shares of new common stock. Although the
Company believes that some portion of its general unsecured claims
objected to will be ultimately disallowed by the Bankruptcy Court,
the Company cannot presently determine with certainty the total
amount of claims objected to which will be allowed or disallowed.
Subsequent to August 31, 2004, certain rejection claims and other
disputed claims were settled and allowed by the bankruptcy court
resulting in the issuance of an additional 271,043 shares of common
stock to satisfy approximately $0.9 million of the $1.4 million
estimated liability that the Company had recorded as of August 31,
2004. Caren and Limited, as a matter of law, were merged with and into the
Company, ceasing to exist as separate entities as of the Effective Date. In
addition,  
    
    The Companys certificate of incorporation was amended and
restated to change the Companys corporate name to Remote Dynamics,
Inc. on the Effective Date;  
    
    the size of the board was increased to seven (7) directors
with four (4) new directors being appointed by the Official
Unsecured Creditors Committee on behalf of the unsecured creditors
and three (3) directors to be appointed by the Debtors;  
    
    a new restricted stock plan for key executive officers was
approved;  
    
    the Company entered into two (2) year term employment
agreements with the following key executive officers which included
restricted stock grants to each officer:  
    
    Dennis R. Casey  President and Chief Executive Officer
    
    J. Raymond Bilbao  Senior Vice President, General Counsel & Secretary
    
    W. Michael Smith  Executive Vice President, Chief
Operating Officer, Chief Financial Officer & Treasurer The Plan received overwhelming acceptance with approximately 98.6% of the
existing stockholders actually voting on the Plan, of which approximately 99.9%
voted to accept the Plan. Additionally, approximately 75% of the unsecured
creditors, who received their prorata share of 75% of the new common stock
issued under the Plan, voted to accept the Plan. Under the Plan, holders of the
Companys 13.75% Interest Senior Notes due 2005 and holders of the Companys
common stock as of the close of trading on Friday, July 2, 2004 were entitled
to receive their prorata distributions of new common stock under the Plan. Pursuant to Section 365 of the Bankruptcy Code, the Company assumed,
assumed as modified or rejected certain pre-petition executory contracts and
unexpired leases upon the Effective Date. With respect to executory contracts
assumed, the Company was required to cure all prepetition defaults, monetary
and otherwise. With respect to executory contracts rejected, the Company is
excused from further performance under such agreement and the Bankruptcy Code
treats the rejected contract as if it were breached by the Company immediately
prior to the Companys filing of bankruptcy. The other contracting party was
entitled to a pre-petition, general unsecured claim for the damages sustained
as a result of the breach of contract caused by the rejection. F-12




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Going Concern The Company believes that the potential market opportunity for automatic
vehicle location products in the United States, such as the GPRS-based next
generation product line currently being developed by the Company, is
significant. GPRS is an acronym for general packet radio service which is an
Internet protocol-based method of wireless data transmission. Currently,
competition in this market segment is fragmented, and no clear market leader
exists. The Company currently believes that it will be positioned with its
telematics product lines and proven operations support to take advantage of the
significant market potential. In addition, the Company has renewed its service
vehicle contract with SBC for an additional term that ends on December 31,
2005. Also, as a result of the sale to Aether of certain assets and licenses
related to the Companys long-haul trucking and asset-tracking businesses,
Aether is contractually obligated to continue to reimburse the Company for the
network and airtime service costs related to providing service for
HighwayMaster Series 5000 units as long as such units remain active on the
Companys network. On July 7, 2004, the Company and Aether further amended
their transition services agreement to extend the transition services term
through April 30, 2005 with such transition services term continuing thereafter
on a month-to-month basis unless terminated by either party on sixty (60) days
prior written notice (on September 17, 2004, Aether sold its logistics division
which held the assets sold by the Company to Aether on March 15, 2002, to
Platinum Equity LLC). Critical success factors in managements plans to achieve positive cash flow
from operations include:  
    
    Ability to raise a minimum of $6 million in additional capital
resources to fund the Companys operations until revenues from the
GPRS-based next generation product line are sufficient to fund ongoing
operations.
    
    Ability to complete development of a GPRS-based next generation
product line.
    
    Significant market acceptance of the Companys product offerings,
including the Companys next generation product line, in the United
States.
    
    Maintaining and expanding the Companys direct sales channel and
expanding into new markets not currently served by the Company. New
salespersons will require training and time to become productive. In
addition, there is significant competition for qualified salespersons,
and the Company must continue to offer attractive compensation plans
and opportunities to attract qualified salespersons.
    
    Maintaining and expanding indirect distribution channels.
    
    Securing and maintaining adequate third party leasing sources for
customers who purchase the Companys products. There can be no assurances that any of these success factors will be
realized or maintained. SBC has selected an alternate vendor to supply the next generation
product; thus, management has revised its business plans and related forecasts
taking into effect the declining revenue from SBC and the costs associated with
the commercial launch of its new products. Based on current forecasts,
management believes that it will need to raise a minimum of $6 million, in
addition to the $4.6 million received from the sale of the Series A Preferred
Stock in October of 2004 discussed in Note 20, by June 2005 to fund the launch
of its new products and fund working capital as the SBC revenue declines during
2005. However, the timing of the deactivations by SBC as well as the ability
to meet sales projections of the new AVL products heavily influences the
capital requirements of the Company. Should SBC deactivate the Companys units
sooner than is currently anticipated in the Companys projections, or the
Company not meet its current sales projections, the amount of capital required
may increase. Currently, management believes that should the required funding
be obtained, it will be raised through issuance of debt or equity securities.
However, there can be no assurance that the Company will be able to raise the
funds necessary to sustain the Companys operations until revenues from sales
of the Companys new AVL products are sufficient to sustain the Companys
operations and the failure to do so may have a material adverse effect upon the
Companys business, financial condition and results of operations. Although the Company believes that it has exited the Chapter 11 process as
a stronger and more financially viable entity, at this time it is not possible
to accurately predict the effect of the bankruptcy filing on its business. It
is possible that because of operating performance or other factors, the Company
may not be able to continue as a F-13




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going concern. Accordingly, the Company urges
that extreme caution be exercised with respect to existing and future
investments in any of the Companys securities. Should the Company not
continue as a going concern, it may be unable to realize its assets and
discharge its liabilities in the normal course of business. The financial
statements do not include any adjustments relating to the recoverability of the
recorded assets or the amounts and classification of the liabilities that might
be necessary should the Company be unable to continue as a going concern. 2. FRESH START ACCOUNTING AND RESTRUCTURING EXPENSES Fresh Start Accounting In accordance with the provisions of Statement of Position 90-7 Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code (SOP
90-7), the Company adopted fresh start accounting upon emergence from
bankruptcy because holders of existing voting shares immediately before
confirmation of the Plan received less than 50% of the voting shares of the
emerging entity and its reorganization value was less than its postpetition
liabilities and allowed claims as shown below (in thousands): Postpetition liabilities and allowed claims
    
    $
    32,841Reorganization value (net of $2 million exit
financing)
    
    
    (23,333
    )Excess of liabilities over reorganization value
    
    $
    9,508
 The Companys Plan was confirmed by the Bankruptcy Court on June 29, 2004
and the Effective Date of the Plan was July 2, 2004. The Company adopted fresh
start accounting as of June 30, 2004 as the Company determined that its
selection of June 30, 2004 versus June 29, 2004 was more convenient for
financial reporting purposes and that the results for the period from June 29,
2004 to June 30, 2004 were immaterial to the consolidated financial statements.
All results for periods prior to July 1, 2004 are referred to as those of the
Predecessor Company (the Predecessor Company) and all results for periods
including and subsequent to July 1, 2004 are referred to as those of the
Reorganized Company (the Reorganized Company). The reorganization value of the Company was determined to be $25.3 million
based on a discounted cash flow analysis utilizing cash flow projections from
the Companys five-year business plan including a terminal value, and after
extensive negotiations among parties in interest. The reorganization value
allocated to the Companys net assets pursuant to SOP 90-7 was $23.3 million,
which is net of the $2 million exit financing received from HFS after the
Company emerged from bankruptcy (this exit financing was contemplated in the
discounted cash flow model utilized to determine the $25.3 reorganization
value). The $23.3 million allocated to net assets also excluded $1.4 million
in pre-petition liabilities for disputed claims that were not discharged with
the initial issuance of stock to creditors upon confirmation of the Plan. The
reorganization value was allocated to the Companys tangible and identifiable
intangible assets in conformity with the procedures specified by Financial
Accounting Standards Board in Statement of Accounting Standards No. 141,
Business Combinations  (FAS 141) and liabilities were recorded at their net
present values. The Company used the results of an independent financial
advisory firms fair market valuation to value its property and equipment.
Inventory and certain software were valued at estimated replacement cost. An
independent financial advisory firm was also utilized to value the Companys
intangible assets. The excess reorganization value not attributable to specific tangible or
identified intangible assets of $19.7 million was recorded as goodwill in
accordance with SOP 90-7 and Statement of Financial Accounting Standards No.
142 Goodwill and Other Intangible Assets (FAS 142 ). The Companys
business plan assumes significant changes including ongoing development of next
generation products and services and a fundamental change to move
to a recurring revenue model. The Companys products and services that
existed as of the June 30, 2004 fresh start accounting date are not expected to
provide significant cash flows within the Companys long term business plan.
While the Company had begun the development of its next generation AVL product
as of June 30, 2004, the product was substantially incomplete. The Companys
primary value is encompassed in its experience and existing infrastructure that
could allow the Company to take advantage of anticipated growth in the AVL
marketplace. This F-14




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strategic position is not contractually or legally based and cannot be
separated from the business; therefore, such value is reflected in goodwill. The effects of the Plan and the application of fresh start accounting as
defined by SOP 90-7 on the Predecessor Companys unaudited consolidated balance
sheet through June 30, 2004 is set forth below. It reflects the pro forma
effect of the initial discharge of debt and exchange of stock under the Plan,
cancellation of the Predecessor Companys equity, and application of fresh
start accounting. The unaudited pro forma balance sheet should be reviewed in
conjunction with the corresponding notes and the audited consolidated financial
statements contained herein. Predecessor
    
    Debt Discharge
    
    
    
    
    
    ReorganizedCompany
    
    and Exchange
    
    Fresh Start
    
    CompanyJune 30, 2004
    
    of Stock (a)
    
    Adjustments (b)
    
    June 30, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,626
    
    
    
    
    
    
    
    
    
    
    $
    2,626Restricted cash
    
    
    439
    
    
    
    
    
    
    
    
    
    
    
    439Accounts receivable, net
    
    
    2,762
    
    
    
    
    
    
    
    
    
    
    
    2,762Inventories
    
    
    783
    
    
    
    
    
    
    
    
    
    
    
    783Deferred product costs  current portion
    
    
    1,153
    
    
    
    
    
    
    
    (36
    )
    
    
    1,117Lease receivables and other current assets, net
    
    
    973
    
    
    
    (69
    )
    
    
    
    
    
    
    904Total current assets
    
    
    8,736
    
    
    
    (69
    )
    
    
    (36
    )
    
    
    8,631Property and equipment, net
    
    
    2,797
    
    
    
    
    
    
    
    259
    
    
    
    3,056Deferred product costs  non-current portion
    
    
    1,410
    
    
    
    
    
    
    
    (264
    )
    
    
    1,146Goodwill
    
    
    
    
    
    
    
    
    
    
    19,724
    
    
    
    19,724License right, net
    
    
    2,707
    
    
    
    
    
    
    
    (1,429
    )
    
    
    1,278Other intangible assets
    
    
    
    
    
    
    
    
    
    
    1,220
    
    
    
    1,220Lease receivables and other assets, net
    
    
    1,206
    
    
    
    (40
    )
    
    
    
    
    
    
    1,166Total assets
    
    $
    16,856
    
    
    $
    (109
    )
    
    $
    19,474
    
    
    $
    36,221LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities not subject to compromise:Accounts payable
    
    $
    137
    
    
    $
    2,283
    
    
    
    
    
    
    $
    2,420Deferred product revenues  current portion
    
    
    2,757
    
    
    
    
    
    
    
    (107
    )
    
    
    2,650Accrued expenses and other current liabilities
    
    
    3,309
    
    
    
    2,061
    
    
    
    
    
    
    
    5,370Total current liabilities not subject to
compromise
    
    
    6,203
    
    
    
    4,344
    
    
    
    (107
    )
    
    
    10,440Liabilities subject to compromise
    
    
    22,315
    
    
    
    (22,315
    )
    
    
    
    
    
    
    Long-term liabilities not subject to compromise:Deferred product revenues  non-current portion
    
    
    4,066
    
    
    
    
    
    
    
    (750
    )
    
    
    3,316Other non-current liabilities
    
    
    257
    
    
    
    309
    
    
    
    
    
    
    
    566Total long-term liabilities not subject to
compromise
    
    
    4,323
    
    
    
    309
    
    
    
    (750
    )
    
    
    3,882Total liabilities
    
    
    32,841
    
    
    
    (17,663
    )
    
    
    (857
    )
    
    
    14,322Total stockholders equity (deficit)
    
    
    (15,985
    )
    
    
    17,554
    
    
    
    20,331
    
    
    
    21,900Total liabilities and stockholders equity
    
    $
    16,856
    
    
    $
    (109
    )
    
    $
    19,474
    
    
    $
    36,221
  (a)
    
    To record the discharge or reclassification of prepetition
obligations related to long-term debt, other liabilities, and equity
and the issuance of 7,000,000 shares of new common stock to
creditors and old equity holders. Also includes the issuance of
350,000 shares of restricted stock to executives approved under the
Plan, and the write off of the remaining unamortized prepaid loan
fees and debt discount related to the discharged long-term debt.
The cancellation of the Companys pre-reorganization equity includes
the reversal of the $20.3 million gain on the fresh start adjustment
of assets and liabilities to fair value as well as the reversal of
the $0.2 million gain on discharge of liabilities subject to
compromise. F-15




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(b)
    
    To record fresh start
adjustments to reflect assets and liabilities at fair value. Management
used an expected present value technique, in which multiple cash flow
scenarios that reflect the range of possible outcomes and a risk-free
rate are used, to estimate the fair value of the VMI license right.
Deferred product revenue and the related deferred product costs were
adjusted to fair value based on present value calculations utilizing
appropriate current interest rates. As discussed above, the results of
an independent financial advisory firms fair market valuation was
utilized to value property and equipment. Inventory and certain software
were valued at estimated replacement cost. An independent financial
advisory firm was also utilized to value the Companys intangible assets. Restructuring Expenses and Losses Pursuant to SOP 90-7, the Companys consolidated financial statements for
periods including and subsequent to the Chapter 11 petition filing distinguish
transactions directly associated with the reorganization from the ongoing
operations of the business. Certain expenses, realized gains and losses and
provisions for losses resulting from the reorganization and restructuring of
the business are reported separately as reorganization items. Total
reorganization expenses and losses incurred by the Company are as follows (in
thousands): Predecessor
    
    ReorganizedCompany
    
    CompanyFor the ten
    
    For the twomonths ended
    
    months endedJune 30, 2004
    
    August 31, 2004Professional fees
    
    $
    1,793
    
    
    $
    127Losses on rejection of executory
contracts, unexpired leases and other
claims
    
    
    1,324
    
    
    
    Other restructuring expenses and losses
    
    
    267
    
    
    
    12Total restructuring expenses and losses
    
    $
    3,384
    
    
    $
    139
 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation On July 22, 2002, after approval from its majority shareholder,
Minorplanet Systems PLC, the Companys name was changed from @Track
Communications Inc. to Minorplanet Systems USA, Inc. On July 2, 2004, the
Effective Date, the Companys name was changed from Minorplanet Systems USA,
Inc. to Remote Dynamics, Inc. The consolidated financial statements for the ten month period ended June
30, 2004 and the two month period ended August 31, 2004 have been prepared in
accordance with SOP 90-7 which provides guidance for financial reporting by
entities that have filed petitions under the Bankruptcy Code and have
reorganized in accordance with the Bankruptcy Code. As a result of the
application of fresh start accounting, the Companys financial results for the
twelve months ended August 31, 2004 include two different bases of accounting
and, accordingly, the operating results and cash flows of the Reorganized
Company and the Predecessor Company are separately presented. The Reorganized
Companys financial statements are not comparable with those of the Predecessor
Companys. The Predecessor Companys consolidated financial statements presented
herein include those of Remote Dynamics Inc., formerly known as Minorplanet
Systems USA, Inc., and its wholly owned subsidiaries: HighwayMaster of Canada,
LLC, Caren (292) Limited and Minorplanet Systems USA Limited. Caren (292)
Limited and Minorplanet Systems USA Limited were merged into Remote Dynamics,
Inc. on the Effective Date of the Plan and cease to exist as separate entities.
The Reorganized Companys consolidated financial statements presented F-16




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herein
include those of Remote Dynamics Inc., and its wholly owned subsidiaries:
HighwayMaster of Canada, LLC and RD Technologies, Inc. which was newly formed
upon emergence from bankruptcy. Estimates Inherent in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. Revenue Recognition The Company generally recognizes revenue when the following criteria are
met: there is persuasive evidence that an arrangement exists, delivery has
occurred and all obligations under such arrangement have been fulfilled, the
price is fixed and determinable, and collectibility is reasonably assured. The
Company recognizes revenue from its long haul trucking Series 5000 mobile units
under the provisions of EITF No. 00-21, Revenue Arrangements With Multiple
Deliverables (EITF 00-21) and Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101) as amended in December of 2003
by Staff Accounting Bulletin No. 104, Revenue Recognition in Financial
Statements (SAB 104). Initial sale proceeds received under multiple-element
sales arrangements which require the Company to deliver products or services
over a period of time and which are not determined by the Company to meet
certain criteria are deferred. Sales proceeds related to delivered products
that are deferred are recognized over the greater of the contract life or the
estimated life of the customer relationship. The Company estimated such
periods to range from three to ten years. The Companys estimate of the life
of a customer relationship is determined based upon the Companys historical
experience with its customers together with the Companys estimate of the
remaining life of the applicable product offering. Sales proceeds recognized
under this method are portrayed in the accompanying Condensed Consolidated
Statement of Operations as Ratable product revenues. The related deferred
revenue is classified as a current and long term liability on the Condensed
Consolidated Balance Sheets under the captions Deferred product revenues 
current portion and Deferred product revenues- non-current portion. If the
customer relationship is terminated prior to the end of the estimated customer
relationship period, such deferred sales proceeds are recognized as revenue in
the period of termination. The Company periodically reviews its estimates of
the customer relationship period as compared to historical results and adjusts
its estimates prospectively. Under sales arrangements, which meet the criteria
described above, revenues are recognized upon shipment of the products or upon
customer acceptance of
the delivered products if terms of the sales arrangement give the customer
the right of acceptance. Sales arrangements
recognized upon initial delivery and acceptance relate primarily to
products delivered under the Service Vehicle Contract. The VMI product includes both hardware and software components. Due to
the interdependency of the functionality of these components, revenue
recognition is governed by EITF 00-21, SAB 104 (an amendment to SAB 101), and
Statement of Position 97-2, Software Revenue Recognition (SOP 97-2).
Initial sale proceeds received under multiple-element sales arrangements which
require the Company to deliver products or services over a period of time and
which are not determined by the Company to meet certain criteria are deferred.
Currently, the Company resells wireless airtime to many customers of its VMI
products over the contract term; therefore, the Company defers these VMI
product revenues. In addition, the Company has also deferred revenue
consistent with the provisions of SOP 97-2. For those customers that do not
purchase wireless airtime service directly from the Company, revenue is
deferred under the provisions of SOP 97-2 which requires deferral if a
significant portion of the software licensing fee is not due until more than
twelve months after delivery and vendor specific objective evidence of fair
value for post contract services is not available. VMI product sales are
recognized ratably over the customer contract term. Such terms range from one
to five years. VMI product sales proceeds recognized under this method are
portrayed in the accompanying Condensed Consolidated Statement of Operations as
Ratable product revenues. The related deferred revenue is classified as a
current and long term liability on the Condensed Consolidated Balance Sheets
under the captions Deferred product revenues  current portion and Deferred F-17




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product revenues non-current portion. If the customer relationship is
terminated prior to the end of the customer contract term, such deferred sales
proceeds are recognized as revenue in the period of termination. Service revenue generally commences upon product installation and customer
acceptance, and is billed and recognized during the period such services are
provided. As a result of the Sale to Aether, the Company recorded deferred service
revenues totaling $12.2 million in March of 2002, which reflected the estimated
fair value of services to be provided to Aether net of cash reimbursements from
Aether under the terms of the agreement. The deferred service revenue is being
recognized, based on the number of active network service subscriber units,
over the term of the agreement with Aether that initially expired in September
of 2003. Although the Company and Aether have amended their transition
services agreement to extend the transition services term through April 30,
2005, the remaining unrecognized portion of the deferred service revenue as of
August 31, 2004 was less than $0.1 million. The Company provides lease financing to certain customers of its VMI
products. Leases under these arrangements are classified as sales-type leases
or operating leases. These leases typically have terms of one to five years,
and all sales type leases are discounted at interest rates ranging from 14% to
18% depending on the customers credit risk. The net present value of the lease
payments for sales-type leases is recognized as product revenue and deferred
under the Companys revenue recognition policy described above. Income from
operating leases is recognized ratably over the term of the leases. Shipping and Handling Fees and Costs The Company records amounts billed to customers for shipping and handling
and related costs incurred for shipping and handling as components of Product
revenues and Cost of product revenues respectively. Deferred Product Costs The Company defers certain product costs (generally consisting of the
direct cost of product sold and installation costs) for its sales contracts
determined to require deferral accounting. The deferred costs are classified
as a current and long term asset on the balance sheet under the captions
Deferred product costs  current portion and Deferred product costs non-current
portion. Such costs are recognized over the
longer of the term of the service contract or the estimated life of the
customer relationship and are portrayed in the accompanying Consolidated
Statements of Operations as Ratable product costs. Such terms range from one
to ten years. If the customer
relationship is terminated prior to the end of the estimated customer
relationship period, such costs are recognized in the period of termination. Financial Instruments The Company considers all liquid interest-bearing investments with a
maturity of ninety days or less at the date of purchase to be cash equivalents.
Short-term investments mature between ninety days and one year from the
purchase date. All cash and short-term investments are classified as available
for sale. Cost approximates market for all classifications of cash and
short-term investments; realized and unrealized gains and losses were not
material during the two months ended August 31, 2004, the ten months ended June
30, 2004, the year ended August 31, 2003, the eight months ended August 31,
2002, and the year ended December 31, 2001. The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximates fair value because of
their short-term maturity. F-18




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Business and Credit Concentrations The Company continuously monitors collections and payments from its
customers and maintains a provision for estimated accounts receivable that may
eventually become uncollectible based upon historical experience and specific
customer information. There is no guarantee that the Company will continue to
experience the same credit loss history in future periods. If a significant
change in the liquidity or financial condition of a large customer or group of
customers were to occur, it could have a material adverse affect on the
collectibility of accounts receivable and future operating results. During the two months ended August 31, 2004, the ten months ended June
30, 2004, the year ended August 31, 2003 and the eight months ended August 31,
2002, one customer and Aether Systems accounted for approximately 73%, 70%, 74%
and 65%, respectively, of total revenues. During the year ended December 31,
2001, one customer accounted for approximately 41% of total revenues. The Companys bad debt expense as a percent of total revenues was 3.4% for
the two months ended August 31, 2004, 4.6% for the ten months ended June 30,
2004, 3.0% for the year ended August 31, 2003, 1.9% for the eight months ended
August 31, 2002, and 1.4% for the year ended December 31, 2001. Inventories Inventories consist primarily of component parts and finished products
that are valued at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method. The Company records a write-down for excess
and obsolete inventory based on usage history and specific identification
criteria. Property and Equipment Property and equipment of the Predecessor Company, prior to fresh start
accounting adjustments, were stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the various classes of assets, which
generally ranged from two to seven years. After fresh start accounting
adjustments, the new fair value of property and equipment is being depreciated
on a straight-line basis over the estimated applicable remaining useful lives
which generally ranged from one to seven years. Maintenance and repairs are
charged to operations. Valuation of Long-Lived Assets Management evaluates the recoverability of the Companys long-lived assets
under Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ( SFAS 144). SFAS 144 requires
management to review for impairment of its long-lived assets, whenever events
or changes in circumstances indicate that the carrying amount of an asset might
not be recoverable and exceeds its fair value. Impairment evaluations involve
management estimates of asset useful lives and future cash flows. When such an
event occurs, management estimates the future cash flows expected to result
from the use of the asset and its eventual disposition. If the undiscounted
expected future cash flows are less than the carrying amount of the asset and
the carrying amount of the asset exceeds its fair value, an impairment loss is
recognized. Management utilizes an expected present value technique, in which
multiple cash flow scenarios that reflect the range of possible outcomes and a
risk-free rate are used, to estimate fair value of the asset. Management assesses the impairment in value to its long-lived assets
whenever events or circumstances indicate that the carrying value may not be
recoverable. Significant factors, which would trigger an impairment review,
include the following:  
    
    significant negative industry trends,
    
    significant changes in technology,
    
    significant underutilization of the asset, and
    
    significant changes in how the asset is used or is planned to be used. F-19




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Research and Development Costs The Company expenses research and development costs as incurred. During
the two months ended August 31, 2004 and the ten months ended June 30, 2004,
the Company expensed $183,000 and $1,236,000, respectively in research and
development costs associated with new product development. During the year
ended August 31, 2003, the eight months ended August 31, 2002, and the year
ended December 31, 2001, the Company expensed $1,000,000, $675,000, and
$3,091,000, respectively, in research and development costs associated with new
product development. All research and development costs are reflected in
Engineering expenses in the Consolidated Statements of Operations. Capitalized Software Costs In accordance with Statement of Position 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, software
development costs that meet certain capitalization requirements are
capitalized. Such costs consist of software development costs for products to
be sold or leased, as well as the cost of software acquired for internal use.
Additions to capitalized software during the two months ended August 31, 2004,
the ten months ended June 30, 2004, the year ended August 31, 2003, the eight
months ended August 31, 2002, and the year ended December 31, 2001 were
$129,000, $352,000, $213,000, $0, and $672,000, respectively. VMI License Right In June of 2001, the Company received a 99-year exclusive license right to
market, sell and operate Minorplanet UKs VMI technology in the United States,
Canada and Mexico. The license covered rights to existing technologies of
Minorplanet UK as well as any future developments. In addition, the Company
agreed to pay an annual fee of $1,000,000 to aid in funding research and
development of future products covered by the license rights. Based on the
Companys evaluation of the useful life of the existing technology, probability
of future developments to bring new products to market and projected cash flows
from these products, the license right was initially being amortized over a
15-year life. Management accounts for the VMI license right in accordance with Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets (SFAS 142). The license right
was acquired and valued in the accompanying Consolidated Balance Sheet as
an asset purchase at an amount which reflected the fair value of the common
stock issued by the Company based on the market price of the Companys common
stock on
the date of consummation of the transaction ($1.60 per share on June 21,
2001), plus the incremental direct costs incurred. The Company currently believes that it must modify its current automatic
vehicle location business model to a recurring revenue model in order to create
long-term enterprise value for its stockholders. The Company has determined
that in order to fully exploit the AVL market in the U.S. in a recurring
revenue business model, the Company must develop and introduce an AVL product
which utilizes GPRS for data transmission along with the AVL software which is
hosted by the Company in a service bureau environment allowing customers to
access their data via the Internet or dedicated frame relay. The Company
further believes that a GPRS-enabled AVL mobile unit will provide substantial
savings in wireless transmission costs over the current GSM circuit-switched
data VMI unit and will further allow the Company to substantially reduce its
customer support and maintenance costs by avoiding costly maintenance visits to
customer premises to service the CCC component of the VMI system. In early
2003, the Company requested that Minorplanet UK develop a GPRS-enabled VMI unit
and modify the VMI software to be hosted in a web environment. Minorplanet UK
initially scheduled delivery of the GPRS-enabled mobile unit and web-hosted
software on or before September 2003. However, Minorplanet UK has been unable
to deliver a commercially viable GPRS-enabled mobile unit and web-hosted
software and announced that it had elected to outsource the development of
web-hosted software, which would not be available until mid-2005. In conjunction with the Companys development of the next-generation
product for the SBC companies, the Company initiated the internal development
of a GPRS-enabled mobile unit and web-hosted, service bureau- F-20




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based automatic
vehicle location software during the first calendar quarter of 2004, which can
be hosted by the Company using its existing network services center complex
with minor modifications and minimal capital expenditures. The Company is
currently testing the next-generation product and believes the initial product
version is approximately 90 percent complete. Customers using the next
generation product will access their data via the Internet or dedicated frame
relay. The Company currently anticipates commercially launching its next
generation AVL product by the first calendar quarter of 2005. There can be no
assurances that the Company will be able to commercially launch the next
generation AVL product by the first calendar quarter of 2005, and failure to do
so will have a material adverse impact on its business, financial condition and
results of operations. Accordingly, the Company notified Minorplanet UK that it intended to
reject the VMI license as part of its plan of reorganization and initiated
negotiations with Minorplanet UK for a temporary use license to market and sell
the VMI product until the Companys Next Generation Product is commercially
available to ensure a smooth transition to the Next Generation Product. On
June 14, 2004, the Bankruptcy Court approved a Compromise and Settlement
Agreement (the Agreement) by and among the Company and Minorplanet Limited
and Minorplanet UK regarding the license agreement for the VMI technology which
allows the Company to use, market and sell the VMI technology until December
31, 2004. The material terms of the VMI Settlement Agreement include the
following:  (1)
    
    On June 30, 2004, the VMI license agreement converted to a
nonexclusive license until December 31, 2004 when it shall terminate.(2)
    
    From the period beginning June 30, 2004 through December 31, 2004,
the territory in which the Company may market, sell and use the VMI
system shall be reduced to the following metropolitan areas: Los
Angeles, California; Atlanta, Georgia; Dallas, Texas; and Houston,
Texas.(3)
    
    On July 31, 2004, the Company shall no longer use the name,
Minorplanet, nor any derivative thereof, and shall remove and refrain
from using any references to said name.(4)
    
    The Company provided Minorplanet Limited, at no cost, 100 AEM 3000
VMI units to USA specifications with accompanying special tariff SIMs
for T-Mobile.(5)
    
    Subsequent to December 31, 2004, the Company has the right to use
the VMI software internally for the sole purpose of satisfying its
warranty, service and support obligations to its existing VMI customer
base.(6)
    
    Minorplanet Limited was allowed a general unsecured claim in the
amount of $1,000,000 in Limiteds bankruptcy case no. 04-31202-SAF-11.
On the Effective Date, Minorplanet Limited released and waived its
administrative claim and, as of such date, waived any future R&D fees
due under Section 16.4 of the VMI license agreement.(7)
    
    The Company provided to Minorplanet Limited and Minorplanet UK a
general release of any and all claims which could have been asserted
against Minorplanet Limited or Minorplanet UK by the Company. SFAS 144 requires management of the Company to review for impairment of
its long-lived assets whenever events or changes in circumstances indicate that
the carrying amount of an asset might not be recoverable and exceeds its fair
value. Thus, management used an expected present value technique, in which
multiple cash flow scenarios that reflect the range of possible outcomes and a
risk-free rate are used, to estimate the fair value of the VMI license right
and recognized an impairment loss of $28.8 million during the third quarter of
fiscal 2004. Based on updated sales and cash flow forecasts, the Company later
recorded a $1.4 million fresh start accounting adjustment to reflect the fair
value of the license right at $1.3 million at June 30, 2004. This new fair
value of the license right is being amortized over a three-year life. At August 31, 2004, the new $1.2 million carrying value of the license
right is net of $0.1 million in accumulated amortization. Excluding the
impairment loss, amortization of the license right charged to expense F-21




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during
the two months ended August 31, 2004 and the ten months ended June 30, 2004 was
$0.1 million and $2.0 million, respectively. Amortization of the license right
charged to expense during the year ended August 31, 2003, the eight months
ended August 31, 2002, and the year ended December 31, 2001 was $2.6 million,
$1.8 million and $1.4 million, respectively. Goodwill and Other Intangibles Upon implementation of fresh start accounting as of June 30, 2004, the
Reorganized Company recorded goodwill and other intangible assets and therefore
applied provisions of SFAS 142 that requires that goodwill not be amortized but
reviewed annually (or more frequently if impairment indicators arise) for
impairment. Intangible assets that are not deemed to have indefinite lives are
amortized over their estimated useful lives. In accordance with SFAS 144, management tests for impairment losses on
intangible assets with determinable lives consistent with the policies
discussed above in Valuation of Long-Lived Assets. Goodwill is tested for
impairment on an annual basis, or between annual tests if it is determined that
a significant event or change in circumstances warrants such testing, in
accordance with the provisions of SFAS 142 which requires a comparison of the
carrying value of goodwill to the fair value of the reporting unit. If the
fair value of the reporting unit is less than the carrying value of goodwill,
an adjustment to the carrying value of goodwill could be required which could
have a material affect on the Companys operating results and financial
position. Advertising Costs Advertising costs are expensed as incurred. During the two months ended
August 31, 2004, the ten months ended June 30, 2004, the year ended August 31,
2003, the eight months ended August 31, 2002, and the year ended December 31,
2001, the Company expensed $5,000, $32,000, $20,000, $362,000 and $633,000
respectively, in advertising costs that are reflected in Sales and marketing
expenses in the Consolidated Statements of Operations. Income Taxes Deferred income taxes are calculated using an asset and liability approach
wherein deferred taxes are provided for the tax effects of basis differences
for assets and liabilities arising from differing treatments for financial and
income tax reporting purposes. A valuation allowance is recognized if, based on
the weight of available evidence, it is more likely than not that some portion
or all of the deferred tax asset will not be realized. Stock Based Awards The Predecessor Company applied the intrinsic value method of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, in accounting for its stock option
plans. Accordingly, compensation expense was recorded at the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. All pre-existing common stock and other equity interests (including but
not limited to warrants, stock options and anti-dilutive rights), outstanding
as of the Effective Date of the Plan were extinguished. As of August 31, 2004,
no stock options had been issued by the Reorganized Company. Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting for Stock-Based Compensation, established accounting and
disclosure requirements using a fair value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS 123, the
Predecessor Company elected to continue to apply the intrinsic-value based
method of accounting described above, and adopted the disclosure requirements
of SFAS 123. In accordance with the provisions of SFAS No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure, pro forma net loss
and net loss per share disclosures, as if the Company recorded compensation
expense based on the fair value of stock-based awards, are presented below (in
thousands, except per share data): F-22




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##### Table of Contents



ReorganizedCompany
    
    Predecessor CompanyTwo Months
    
    Ten Months
    
    Year
    
    Eight Months
    
    YearEnded
    
    Ended
    
    Ended
    
    Ended
    
    EndedAugust 31,
    
    June 30,
    
    August 31,
    
    August 31,
    
    December 31,2004
    
    2004
    
    2003
    
    2002
    
    2001Net (loss) income, as reported
    
    
    
    
    
    
    (541
    )
    
    
    (17,238
    )
    
    $
    (16,020
    )
    
    $
    (9,778
    )
    
    $
    34,811Add: Stock-based employee compensation expense
included in reported net income
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    532
    
    
    
    Deduct: Stock-based employee compensation
expense
determined under fair value based method for all awards
    
    
    
    
    
    
    
    
    
    
    (428
    )
    
    
    (692
    )
    
    
    (798
    )
    
    
    (2,718
    )Net (loss) income, pro forma
    
    
    
    
    
    $
    (541
    )
    
    $
    (17,664
    )
    
    $
    (16,712
    )
    
    $
    (10,044
    )
    
    $
    32,093Net (loss) income per share  basic and diluted
    
    As reported
    
    $
    (0.08
    )
    
    $
    (1.78
    )
    
    $
    (1.66
    )
    
    $
    (1.01
    )
    
    $
    6.23Pro-forma
    
    $
    (0.08
    )
    
    $
    (1.83
    )
    
    $
    (1.73
    )
    
    $
    (1.04
    )
    
    $
    5.75Weighted average number of shares outstanding:Basic and diluted
    
    
    
    
    
    
    6,505
    
    
    
    9,671
    
    
    
    9,670
    
    
    
    9,647
    
    
    
    5,586
 The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants during the years as follows (there were no
option grants during the two months ended August 31, 2004, the ten months ended
June 30, 2004 or the eight months ended August 31, 2002). For the Year
    
    For the Year EndedEnded August 31,
    
    December 31,2003
    
    2001
    
    2000Dividend
    
    
    
    
    
    
    
    
    
    
    Expected volatility
    
    
    96.60
    %
    
    
    97.31
    %
    
    
    92.31
    %Risk free rate of return
    
    
    3.02
    %
    
    
    5.20
    %
    
    
    5.89
    %Expected life in years
    
    
    4.5
    
    
    
    6.0
    
    
    
    6.0
 Restricted Stock On July 2, 2004, in accordance with the plan of reorganization, the
Company adopted the Restated 2004 Management Incentive Plan (the Incentive
Plan). The Incentive Plan allows for the issuance of up to 700,000 restricted
shares of common stock to management. As of August 31, 2004, 450,000 shares
of restricted stock had been issued to certain members of the senior management
for the Company. These grants vest based on the achievement of specific
corporate performance targets over a three-year period and are subject to
forfeiture if such performance targets are not achieved. These restricted
shares will be accounted for in accordance with variable plan accounting, which
requires that the fair value of the shares be measured and charged to the
income statement upon determination that the fulfillment of the performance
criteria has been met or is probable. The Company did not record any
compensation expense associated with these restricted shares during the two
month period ended August 31, 2004 as no vesting had occurred. As of August
31, 2004, the Company had recorded a deferred compensation charge of $0.5
million associated with the issuance of these restricted shares. F-23




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##### Table of Contents



Earnings Per Share & Reverse Stock Split The Company computes earnings per share in accordance SFAS No. 128,
Earnings Per Share. Net (loss) income per basic share was computed by
dividing net (loss) income by the weighted average number of shares outstanding
during the respective periods. Diluted earnings per share is computed using the
Treasury Stock Method. The Companys potentially dilutive securities have
been excluded from the weighted average number of shares outstanding, since
their effect would be anti-dilutive. Earnings per share amounts for all periods presented have been restated to
reflect the reverse stock split effected December 3, 2003. Unless otherwise
noted, all shares presented have also been adjusted for the reverse stock
split. Reporting Comprehensive Income The accompanying consolidated financial statements do not include any
items of other comprehensive income. Reclassification As a result of the implementation of Statement of Financial Accounting
Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections"(SFAS 145), the
$59,461,000 gain previously reported by the Company for the fiscal year ended
December 31, 2001 as an extraordinary item, has been reclassified as a Gain on
recapitalization in the accompanying Consolidated Statements of Operations and
Consolidated Statement of Cash Flows. New Accounting Standards During December 2003, the SEC issued Statement of Accounting Bulletin
#104, Revenue Recognition (SAB 104), which revised and rescinded portions
of SAB 101. The issuance of SAB 104 did not impact the Companys revenue
recognition policies. In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities (FIN 46R),
which addresses how a business enterprise should evaluate whether it has a
controlling financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity. FIN 46R replaces FASB
Interpretation No. 46, Consolidation of Variable Interest Entities, which was
issued in January 2003. The provisions of FIN 46R did not have any impact on
the Companys financial statements. 4. 2001 STOCK SPLIT AND RECAPITALIZATION { Note: All share information referred to in this footnote has not been
adjusted for the five for one reverse stock split effected by the Company on
December 3, 2003} On June 4, 2001, the 1000 shares of Class B Common Stock were converted
into 320,000 shares of Common Stock at the option of the sole holder of the
shares. On June 5, 2001, the Company effected a reverse stock split in the
ratio of one (1) share of post-split common stock for every five (5) shares of
pre-split common stock and amended the Companys Certificate of Incorporation
to increase the number of authorized shares of common stock from 50,000,000
shares to 100,000,000 shares. In addition, the Company created a new class of Series E Preferred Stock
and on June 5, 2001 issued one (1) share of Series E Preferred Stock. The
Series E Preferred Stock has a liquidation preference of $1,000 per share
and is entitled to the payment of annual dividends at the rate of 7% per
share. The Series E Preferred Stock does not have any voting, conversion or
preemptive rights. F-24




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##### Table of Contents



On June 21, 2001, the Company consummated the stock issuance transactions
approved by the Companys stockholders at the annual meeting on June 4, 2001.
As a result of the closing of transactions contemplated by that certain Stock
Purchase and Exchange Agreement by and among the Company, Minorplanet Systems
PLC, a United Kingdom public limited company (Minorplanet UK), and Mackay
Shields LLC (MacKay), dated February 14, 2001 (the Purchase Agreement), the
Company issued 30,000,000 shares of its common stock in a change of control
transaction to Minorplanet UK. In exchange for this stock issuance,
Minorplanet UK paid the Company $10,000,000 in cash and transferred to the
Company all of the shares of its wholly-owned subsidiary, Minorplanet Limited,
which holds an exclusive, royalty-free, 99-year license to market, sell and
operate Minorplanet UKs VMI technology in the United States, Canada and
Mexico. As a result of this transaction, and prior to the October 6, 2003
stock transfer to Erin Mills Investment Corporation, Minorplanet UK
beneficially owned approximately 62% of the outstanding shares of the Companys
common stock , which is the sole voting security of the Company. The License
Right was initially valued in the accompanying Consolidated Balance Sheet as
an asset purchase at an amount which reflected the fair value of the common
stock issued by the Company based on the market price of the Companys common
stock on the date of consummation of the transaction ($1.60 per share on June
21, 2001), plus the incremental direct costs incurred in effecting the
transaction. Also, the Company issued 12,670,497 shares of its common stock (valued at
$1.60 per share) to holders of its Senior Notes due 2005 (Senior Notes) in
exchange for the cancellation of Senior Notes with an aggregate principal
amount of $80,022,000 (the Exchange Offer). The total principal amount of
Senior Notes that remained outstanding after completion of the Exchange Offer
was $14,333,000. As a result of this Exchange Offer, the Company recognized a
$59,461,000 gain, net of $995,000 of Federal income taxes and $3,067,000 in the
aggregate amount of unamortized debt discount and issuance costs, and including
$3,773,000 of waived accrued interest payable, which is reflected as a gain on
recapitalization in the accompanying Consolidated Statements of Operations. The
foregoing transactions are hereinafter collectively referred to as the
Recapitalization. 5. SALE OF ASSETS On March 15, 2002, the Company completed the Sale to Aether. As
consideration for the Sale, the Company received $3 million in cash, of which
$0.8 million was held in escrow as of August 31, 2002 and later released to the
Company during the fiscal year ended August 31, 2003 after certain conditions
were met by the Company. The Company also received a note for $12 million
payable, at the option of Aether, in either cash or convertible preferred stock
in three equal installments of $4 million on April 14, May 14, and June 14,
2002. The consideration for the Sale was determined through arms-length
negotiation between the Company and Aether. Aether later paid cash in lieu of
preferred stock for each of the three $4 million installments. Proceeds from the Sale to Aether totaled $15 million, of which $12.2
million was allocated to deferred service revenue and reflected the estimated
fair value of services to be provided to Aether net of cash reimbursements from
Aether under the terms of the agreement. The remaining proceeds were allocated
to consideration for assets sold, net of transaction costs, and no gain or loss
resulted from the sale. The deferred service revenue is being recognized,
based on the number of active network service subscriber units, over the term
of the agreement with Aether that was initially scheduled to expire in
September of 2003. In July of 2003, the term of the agreement with Aether was
extended through January of 2005. On July 7, 2004, the Company and Aether
further amended their transition services agreement to extend the transition
services term through April 30, 2005 with such transition services term
continuing thereafter on a month-to-month basis unless terminated by either
party on sixty (60) days prior written notice. 6. CHANGE IN FISCAL YEAR END On May 21, 2002, the Companys Board of Directors approved changing the
Companys fiscal year end to August 31st. Accordingly, the Company has
presented audited financial statements for the eight-months ended
August 31, 2002, the transition period, in this Form 10-K. The
following table provides unaudited condensed financial information for the same
comparable periods of the prior year (in thousands except per share). F-25




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##### Table of Contents



Predecessor CompanyTwelve months ended
    
    Eight months endedAugust 31,
    
    August 31,Unaudited
    
    
    
    
    
    Unaudited2003
    
    2002
    
    2002
    
    2001Revenues
    
    $
    44,911
    
    
    $
    66,770
    
    
    $
    41,956
    
    
    $
    52,666Cost of revenues
    
    
    26,332
    
    
    
    46,368
    
    
    
    25,464
    
    
    
    35,928Gross profit
    
    
    18,579
    
    
    
    20,402
    
    
    
    16,492
    
    
    
    16,738Expenses
    
    
    32,502
    
    
    
    38,203
    
    
    
    26,111
    
    
    
    26,132Operating loss
    
    
    (13,923
    )
    
    
    (17,801
    )
    
    
    (9,619
    )
    
    
    (9,394
    )Interest income
    
    
    447
    
    
    
    539
    
    
    
    457
    
    
    
    420Interest expense
    
    
    (2,118
    )
    
    
    (2,124
    )
    
    
    (1,411
    )
    
    
    (6,642
    )Other expense
    
    
    (426
    )
    
    
    (183
    )
    
    
    (183
    )
    
    
    Gain on recapitalization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,461Loss before income taxes
    
    
    (16,020
    )
    
    
    (19,569
    )
    
    
    (10,756
    )
    
    
    43,845Income tax benefit
    
    
    
    
    
    
    978
    
    
    
    978
    
    
    
    Net (loss) income
    
    $
    (16,020
    )
    
    $
    (18,591
    )
    
    $
    (9,778
    )
    
    $
    43,845Basic and diluted (loss) income per share
    
    $
    (1.66
    )
    
    $
    (1.93
    )
    
    $
    (1.01
    )
    
    $
    12.42Weighted average number of shares outstanding:Basic and diluted
    
    
    9,670
    
    
    
    9,634
    
    
    
    9,647
    
    
    
    3,530
 7. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of the following (in thousands): Reorganized
    
    PredecessorCompany
    
    CompanyAugust 31,
    
    August 31,2004
    
    2003Cash
    
    $
    494
    
    
    $
    367Money market accounts
    
    
    818
    
    
    
    4,738Cash and cash equivalents
    
    $
    1,312
    
    
    $
    5,105
 In addition to the above cash and cash equivalents, as of August 31, 2004
the Company had $439,000 in restricted cash held in escrow accounts on behalf
of the Company by third parties that provided professional services during the
bankruptcy proceedings. The Bankruptcy Court had not yet approved payment for
such professional services as of August 31, 2004. F-26




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##### Table of Contents



8. INVENTORIES Inventories consist of the following (in thousands): Reorganized
    
    PredecessorCompany
    
    CompanyAugust 31,
    
    August 31,2004
    
    2003Complete systems
    
    $
    459
    
    
    $
    1,507Component parts
    
    
    215
    
    
    
    683$
    674
    
    
    $
    2,190
 During the year ended December 31, 2001, the Company recorded an inventory
write-down of $4.7 million for excess inventory associated with certain circuit
boards used in the manufacture of the Trackware and 20/20V product lines. The
Trackware product line was designed to more efficiently utilize trailer assets.
Due to the economic downturn, trucking companies had an excess of trailers in
their fleets; thus, utilization of these assets was not an issue for many
trucking companies, and management believed that significant demand for the
Trackware product would not increase in the near term. In addition, the
Company announced the launch of 20/20V in March of 2001; however, by December
of 2001, the Company had not incurred any significant sales from this product. 9. PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands): Reorganized
    
    PredecessorCompany
    
    CompanyAugust 31,
    
    August 31,2004
    
    2003Network service center
    
    $
    685
    
    
    $
    15,529Machinery and equipment
    
    
    158
    
    
    
    1,822Software
    
    
    955
    
    
    
    3,355Leasehold improvements
    
    
    646
    
    
    
    2,233Vehicles, computer equipment, and other equipment
    
    
    2,019
    
    
    
    3,4854,463
    
    
    
    26,424Less: accumulated depreciation and amortization
    
    
    (180
    )
    
    
    (22,559
    )$
    4,283
    
    
    $
    3,865
 Total depreciation and amortization expense related to property and
equipment charged to operations during the two months ended August 31, 2004,
the ten months ended June 30, 2004, the year ended August 31, 2003, the eight
months ended August 31, 2002, and the year ended December 31, 2001 was
$187,000, $1,432,000, $3,011,000, $2,574,000 and $5,854,000, respectively. As of August 31, 2004 and August 31, 2003, the unamortized portion of
software costs was $920,000 and $476,000, respectively. Amortization of
such costs charged to expense during the two months ended August 31, 2004, the
ten months ended June 30, 2004, the year ended August 31, 2003, the eight
months ended August 31, F-27




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##### Table of Contents



2002, and the year ended December 31, 2001 was $35,000,
$293,000, $575,000, $727,000 and $1,568,000 respectively. Such costs are
included in Depreciation and amortization on the Companys Consolidated
Statements of Operations. 10. GOODWILL AND OTHER INTANGIBLE ASSETS Upon implementation of fresh start accounting as of June 30, 2004, the
Reorganized Company recorded goodwill and other intangible assets and
therefore applied provisions of SFAS 142 that requires that goodwill not be
amortized but reviewed annually (or more frequently if impairment indicators
arise) for impairment. Intangible assets that are not deemed to have
indefinite lives are amortized over their estimated useful lives. Goodwill
and other intangible assets consist of the following as of August 31, 2004
(in thousands): Reorganized CompanyAugust 31, 2004Accumulated
    
    
    
    
    
    AmortizationGross
    
    Amortization
    
    Net
    
    Period in monthsGoodwill
    
    $
    19,724
    
    
    $
    
    
    
    $
    19,724
    
    
    
    n/aOther intangibles:Customer relationships
    
    
    1,220
    
    
    
    (135
    )
    
    
    1,085
    
    
    
    18
 Total amortization expense for other intangible assets for the two-month
period ended August 31, 2004 was approximately $135,000. Estimated
amortization expense for each of the next five fiscal years ending August 31st
are as follows: $813,000 in 2005, $271,000 in 2006, and $0 in 2007, 2008 and
2009. 11. LEASE RECEIVABLES AND OTHER ASSETS The Company provides lease financing to certain customers of its VMI
products. Leases under these arrangements are classified as sales-type leases
or operating leases. These leases typically have terms of one to five years,
and all sales type leases are discounted at interest rates ranging from 14% to
18% depending on the customers credit risk. The net present value of the lease payments for sales-type leases is
recognized as product revenue and deferred under the Companys revenue
recognition policy. The components of the net investment in sales-type leases
are as follows (in thousands): Reorganized
    
    PredecessorCompany
    
    CompanyAugust 31,
    
    August 31,2004
    
    2003Minimum lease payments receivable
    
    $
    2,359
    
    
    $
    2,924Less: Allowance for uncollectibles
    
    
    (357
    )
    
    
    (452
    )2,002
    
    
    
    2,472Less: Unearned interest income
    
    
    (559
    )
    
    
    (827
    )Net investment in sales-type leases
    
    $
    1,443
    
    
    $
    1,645
 The long-term portion of the Net investment in sales-type leases at August
31, 2004 and 2003 was $1,051,000 and $1,351,000, respectively. F-28




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##### Table of Contents



Total minimum lease payments receivable on sales-type leases as of August
31, 2004 are as follows (in thousands): Fiscal Year Ending August 31,2005
    
    $
    7832006
    
    
    7172007
    
    
    5812008
    
    
    2482009
    
    
    30Total minimum lease payments receivable
    
    $
    2,359
 Income from operating leases is recognized ratably over the term of the
leases. Total future minimum rental payments due under operating leases as of
August 31, 2004 are as follows (in thousands): Fiscal Year Ending August 31,2004
    
    $
    2792005
    
    
    2052006
    
    
    74Total minimum rental payments
    
    $
    558
 Equipment held under operating leases as of August 31, 2004 and 2003 was
$322,000 and $403,000 respectively, net of $7,000 and $80,000 accumulated
depreciation, respectively. Other assets on the Companys Consolidated Balance Sheets also include
certain prepaid expenses, deposits, and miscellaneous receivables. 12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following (in thousands): Reorganized
    
    PredecessorCompany
    
    CompanyAugust 31,
    
    August 31,2004
    
    2003Reorganization accruals
    
    $
    3,087
    
    
    $
    Notes payable  current portion
    
    
    554
    
    
    
    142Property, franchise, and other taxes payable
    
    
    326
    
    
    
    733Accrued warranty costs
    
    
    182
    
    
    
    211Accounts payable  related party
    
    
    
    
    
    
    553Provision for settlement of litigation
    
    
    
    
    
    
    1,681Other
    
    
    1,186
    
    
    
    2,191$
    5,335
    
    
    $
    5,511
 F-29




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##### Table of Contents



Reorganization accruals in the above table include approximately $1.7
million in accrued professional fees related to services provided during the
bankruptcy proceedings and approximately $1.4 million in accruals for losses on
rejected executory contracts, unexpired leases, and other claims. Compromise Settlement Agreement During the first calendar quarter of 2001, the outsource manufacturer (the
Vendor) that supplied substantially all of the Companys finished goods
inventory asserted a claim for reimbursement for excess and obsolete inventory
purchased in its capacity as the manufacturer of the Companys products. This
claim was disputed by the Company. As a result of this dispute, beginning in
April 2001, the Vendor ceased to perform on its contract to provide finished
goods inventory and certain other services to the Company. The claims and
counterclaims ultimately led to each of the parties filing litigation against
the other. The Vendor and the Company executed a Compromise Settlement
Agreement on October 9, 2001. The Company recorded a provision of $2.1 million
during 2001 and an additional $0.1 million during the eight months ended August
31, 2002 as its estimate of the cost to be incurred to settle this litigation.
The remaining unpaid liability of approximately $1.3 million as of the February
2, 2004 bankruptcy petition filing date was discharged in exchange for stock
issued under the plan of reorganization soon after the Effective Date. 13. NOTE PAYABLES Senior Notes of the Predecessor Company As part of the Recapitalization in 2001, the Predecessor Company closed an
Exchange Offer to the holders of the Senior Notes. The Predecessor Company
issued approximately 2,534,000 shares of its common stock (adjusted for the
December 2003 reverse stock split) to holders of its Senior Notes who accepted
the Exchange Offer, in exchange for the cancellation of Senior Notes with an
aggregate principal amount of $80,022,000. The total principal amount of Senior
Notes that remained outstanding as of August 31, 2003 was $14,333,000 and it
was recorded at the accreted value of $14,208,000. The Senior Notes had an
effective interest rate of 14.1%. In accordance with the Companys Plan, soon after the Effective Date, the
Reorganized Company issued 4,495,670 shares of common stock to holders of the
Senior Notes in exchange for the discharge of the $14,333,000 in Senior Notes
plus approximately $750,000 in interest accrued through the February 2, 2004
bankruptcy petition filing date. HFS note payable On June 24, 2004, the Company entered into a Second Amended Letter
Agreement (the Letter Agreement) with HFS Minorplanet Funding LLC and other
accredited investors which it represents (HFS), subject to bankruptcy court
approval, for the provision of $1.575 million in exit financing to the Company
in accordance with the Committee Settlement. On June 29, 2004, the Bankruptcy
Court entered an order approving an exit credit facility to be provided by HFS
to the Company in the amount of $1.575 million (the Exit Financing). On June
29, 2004, the Company and HFS closed on the Exit Financing. Upon funding, the
Company agreed to issue a $1.575 million convertible promissory note to HFS
with the principal balance being due 36 months from the date of funding, with
an annual interest rate of 12 percent. HFS was required to provide the funding
within 21 days of the June 29, 2004 closing. On July 20, 2004, the Company amended the Exit Financing by entering into
and consummating a Third Amended Letter Agreement (the Third Amended
Agreement) with HFS increasing the amount of the financing from $1.575 million
to $2.0 million issuing a $2.0 million convertible promissory note to HFS with
the principal balance being due 36 months from the date of funding, with an
annual interest rate of 12 percent (the Note). Upon issuance of the Note,
HFS provided the $2 million funding to the Company less a commission in the
amount of $80,000 representing four percent (4%) of the loan proceeds. F-30




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##### Table of Contents



Pursuant to the Third Amended Agreement, HFS, may at any time demand
repayment of such portion of the accrued interest and unpaid principal on the
Note in such number of shares of common stock, based upon a fixed conversion
price of $2.90 per share of common stock, if converted in year 1 of the
repayment of the Note or a fixed conversion price of $3.08 per share of common
stock if converted subsequent to year 1 of the repayment of the Note, whose
aggregate value equals the amount of accrued interest and principal being
repaid. Pursuant to the Third Amended Agreement, the Companys Board of Directors
must execute any documents or instruments or pass any corporate resolutions
necessary to appoint to the Board of Directors of the Company one additional
director designated by HFS (Additional Designee) unless such appointment
would cause the Company to violate the independent director requirements, based
on the written advice of legal counsel, as set forth in the rules and
regulations of the NASDAQ Stock Exchange, the Sarbanes-Oxley Act of 2002 (the
SOX) and the rules and regulations promulgated by the Securities and Exchange
Commission pursuant to the SOX. This Additional Designee shall serve on the
Companys Board of Directors until the promissory note is repaid in cash or
repaid by conversion to common stock. Accordingly, Stephen CuUnjieng, the President of HFS, was appointed to the
Companys Board of Directors effective July 13, 2004 as the Additional Designee
pursuant to the Letter Agreement. Mr. CuUnjieng has been employed by the
Company as Director of Strategic Finance since January 30, 2004, immediately
prior to the filing of the bankruptcy, to assist the Company with further fund
raising. Mr. CuUnjieng is a controlling partner in HFS. Other notes payable The Company leases certain vehicles, computer equipment, and other
equipment under capital leases. As of August 31, 2004 and 2003, assets under
capital leases included in Property and equipment on the Companys
Consolidated Balance Sheets, were $1,284,000 and $408,000, net of accumulated
depreciation of $42,000 and $155,000, respectively. The following is a schedule of the Companys future minimum lease payments
under capital leases together with the present value of the net minimum lease
payments as of August 31, 2004 (in thousands). Fiscal year ending August 31,2005
    
    $
    5212006
    
    
    3972007
    
    
    1552008
    
    
    2692009
    
    
    Total minimum lease payments
    
    
    1,342Less: amount representing interest
    
    
    (117
    )Present value of net minimum lease payments
    
    $
    1,225
 F-31




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##### Table of Contents



14. INCOME TAXES The components of the income tax provision are as follows (in thousands). ReorganizedCompany
    
    Predecessor CompanyTwo Months
    
    Ten Months
    
    Year Ended
    
    Eight months
    
    Year EndedEnded August 31,
    
    Ended June 30,
    
    August 31,
    
    Ended August 31,
    
    December 31,2004
    
    2004
    
    2003
    
    2002
    
    2001Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (978
    )
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (978
    )
    
    
    Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Tax Expense (Benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (978
    )
    
    $
    
 During the year ended December 31, 2001, the Company paid $978,000 to the
Internal Revenue Service for alternative minimum tax purposes. The $978,000
payment was reflected as an expense in 2001 and was netted against the gain on
the 2001 Recapitalization. During the eight month period ended August 31,
2002, a new tax law was enacted that changed certain aspects of the alternative
minimum tax. As a result of a tax law change, the Company did not owe any
federal taxes to the Internal Revenue Service for the year ended December 31,
2001. As of August 31, 2002, the Company recorded a receivable for these taxes
and reflected the $978,000 as a current year income tax benefit on the
Companys Consolidated Statement of Operations. The $978,000 was refunded and
received by the Company during the year ended August 31, 2003. Deferred taxes are provided for those items reported in different periods
for income tax and financial reporting purposes. The net deferred tax asset
has been fully reserved because of uncertainty regarding the Companys ability
to recognize the benefit of the asset in future years. The tax effects of the
temporary differences that give rise to significant portions of the deferred
tax assets are as follows (in thousands). Reorganzied
    
    PredecessorCompany
    
    CompanyAugust 31, 2004
    
    August 31, 2003Deferred tax assets:Deferred revenue
    
    
    1,387
    
    
    
    2,247Allowance for doubtful accounts
    
    
    176
    
    
    
    238Other accrued liabilities
    
    
    97
    
    
    
    1,899Inventory reserves
    
    
    228
    
    
    
    115Other reserves
    
    
    190
    
    
    
    Intangible assets
    
    
    199
    
    
    
    498Impairment loss
    
    
    10,264
    
    
    
    Net operating loss carryforwards
    
    
    66,225
    
    
    
    60,174Gross deferred tax assets
    
    
    78,766
    
    
    
    65,171Valuation allowance
    
    
    (70,920
    )
    
    
    (64,100
    )Net deferred tax assets
    
    
    7,846
    
    
    
    1,071Deferred tax liabilities:Depreciation
    
    
    (448
    )
    
    
    (1,071
    )Intangible assets
    
    
    (7,398
    )
    
    
    Gross deferred tax liabilities
    
    
    (7,846
    )
    
    
    (1,071
    )Net deferred tax asset
    
    $
    
    
    
    $
    
 F-32




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##### Table of Contents



There was a net increase in the valuation allowance of $6.8 million during
the twelve months ended August 31, 2004. The provision for income taxes is different than the amount computed using
the applicable statutory federal income tax rate with the difference summarized
below (in thousands). ReorganizedCompany
    
    Predecessor CompanyTwo Months
    
    Ten Months
    
    Year ended
    
    Eight Months
    
    Year EndedEnded August 31,
    
    Ended June 30,
    
    August 31,
    
    Ended August 31,
    
    December 31,2004
    
    2004
    
    2003
    
    2002
    
    2001Income tax at federal statutory rate
    
    $
    (184
    )
    
    $
    (5,861
    )
    
    $
    (5,416
    )
    
    $
    (3,657
    )
    
    $
    (8,381
    )Valuation allowance
    
    
    182
    
    
    
    6,638
    
    
    
    5,394
    
    
    
    2,796
    
    
    
    8,458Other
    
    
    2
    
    
    
    (777
    )
    
    
    22
    
    
    
    (117
    )
    
    
    (77
    )Provision for income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (978
    )
    
    $
    
 At August 31, 2004, the Company had net operating loss carryforwards
aggregating approximately $195 million, that expire in various years between
2008 and 2024. The utilization of these net operating losses will be limited
pursuant to Internal Revenue Code Section 382 and may cause some amount of the
carryforwards to expire unutilized. 15. STOCKHOLDERS EQUITY INSTRUMENTS AND RELATED MATTERS Common and Preferred Stock As of August 31, 2003, the Company had 9,684,992 shares of common stock
issued and 9,669,832 shares of common stock outstanding, adjusted to reflect
the reverse stock split in the ratio of one share of post-split common stock
for every five shares of pre-split common stock that the Company effected on
December 3, 2003. One share of Series E Preferred Stock was issued and
outstanding at August 31, 2003. All equity interests in the Predecessor
Company were extinguished as of the July 2, 2004 Effective Date of the plan of
reorganization. As of August 31, 2004 the Company had 50,000,000 shares of common stock
authorized, par value $0.01, and 2,000,000 shares of preferred stock
authorized, par value $0.01. The Company had 7,450,000 common stock shares
issued and 6,520,052 shares outstanding. No preferred shares were issued or
outstanding at August 31, 2004. Stock Repurchase On July 29, 2004, the Company entered into and closed a stock repurchase
letter agreement with Lloyd Miller, a Director of the Companys Board of
Directors, and certain affiliates of Lloyd Miller (the Miller Shareholder
Group) to purchase from the Miller Shareholder Group 929,948 shares of common
stock at a purchase price of $2.00 per share or $1,859,896. A Special
Committee of the Companys Board of Directors composed of three Directors with
no personal interest in the repurchase transaction considered, negotiated, and
approved the repurchase transaction. Contemporaneous with the closing of the
stock repurchase, Lloyd Miller resigned from the Board of Directors of the
Company. The treasury stock is reflected at cost on the Companys Consolidated
Balance Sheet at August 31, 2004. F-33




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##### Table of Contents



Restricted Stock On July 2, 2004, in accordance with the plan of reorganization, the
Company adopted the Restated 2004 Management Incentive Plan (the Incentive
Plan). The Incentive Plan allows for the issuance of up to 700,000 restricted
shares of common stock to management. As of August 31, 2004, 450,000 shares
of restricted stock had been issued to certain members of the senior management
for the Company. These grants vest based on the achievement of specific
corporate performance targets over a three-year period and are subject to
forfeiture if such performance targets are not achieved. These restricted
shares will be accounted for in accordance with variable plan accounting, which
requires that the fair value of the shares be measured and charged to the
income statement upon determination that the fulfillment of the performance
criteria has been met or is probable. The Company did not record any
compensation expense associated with these restricted shares during the two
month period ended August 31, 2004 as no vesting had occurred. As of August
31, 2004, the Company had recorded a deferred compensation charge of $0.5
million associated with the issuance of these restricted shares. The following
table summarizes information about the Reorganized Companys equity
compensation plan at August 31, 2004: (a)
    
    (b)
    
    (c)Number of securitiesremaining available forNumber of securities to be
    
    Weighted average
    
    future issuance under equityissued upon exercise of
    
    exercise price of
    
    compensation plansoutstanding options,
    
    outstanding options,
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    warrants, and rights
    
    reflected in column (a))Equity compensation plans
approved by security holders
    
    
    450,000
    
    
    $
    
    
    
    
    250,000Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    450,000
    
    
    $
    
    
    
    
    250,000
 Predecessor Companys Equity Stock Plans All pre-existing common stock and other equity interests (including but
not limited to warrants, stock options and anti-dilutive rights), outstanding
as of the Effective Date of the Plan were extinguished. Prior to the
reorganization, under the Companys 1994 Stock Option Plan (the Stock Option
Plan), as amended, options could be granted to employees for the purchase of
an aggregate of up to 1,441,600 shares of the Companys stock. The Stock
Option Plan required that the exercise price for each stock option be not less
than 100% of the fair market value of common stock at the time the option was
granted. Both nonqualified stock options and incentive stock options, as
defined by the Internal Revenue Code, could be granted and generally, options
granted vested 20% on the date of grant and 20% on each of the following four
anniversary dates of the date of grants. A summary of the changes in the
Predecessor Companys Stock Option Plan is presented below (all shares have
been adjusted for the five for one reverse stock split effected on December 3,
2003): F-34




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##### Table of Contents



Ten Months ended
    
    Year ended
    
    Eight months ended
    
    Year endedJune 30, 2004
    
    August 31, 2003
    
    August 31, 2002
    
    December 31, 2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning of period
    
    
    325,781
    
    
    $
    1.41
    
    
    
    515,533
    
    
    $
    1.59
    
    
    
    761,166
    
    
    $
    1.59
    
    
    
    66,185
    
    
    $
    1.38Granted
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    0.80
    
    
    
    
    
    
    
    
    
    
    
    734,063
    
    
    
    1.61Exercised
    
    
    (2,588
    )
    
    
    1.41
    
    
    
    
    
    
    
    
    
    
    
    (61,341
    )
    
    
    1.58
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (323,193
    )
    
    
    1.41
    
    
    
    (269,752
    )
    
    
    1.58
    
    
    
    (184,292
    )
    
    
    1.60
    
    
    
    (39,082
    )
    
    
    1.48Outstanding at end of period
    
    
    
    
    
    $
    
    
    
    
    325,781
    
    
    $
    1.41
    
    
    
    515,533
    
    
    $
    1.59
    
    
    
    761,166
    
    
    $
    1.59Options exercisable at end of period
    
    
    
    
    
    $
    
    
    
    
    32,567
    
    
    $
    1.61
    
    
    
    184,607
    
    
    $
    1.57
    
    
    
    56,642
    
    
    $
    1.46Weighted average fair value of
options granted during the period
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    0.57
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1.28
 On June 1, 2003, the Company granted warrants to a consultant for the
purchase of 15,000, 25,000, and 20,000 shares of common stock at exercise
prices of $3.50, $7.00, and $14.0 per share, respectively. These warrants were
cancelled effective July 2, 2004 pursuant to the Companys Third Amended Joint
Plan of Reorganization. Effective March 15, 2002, two of the Companys executives resigned their
employment with the Company in connection with the Sale to Aether consummated
on March 15, 2002. As part of their separation agreements, vesting was
accelerated on a portion of previously unvested stock options resulting in a
new measurement date. The stock options no longer qualified for treatment
under APB Opinion No. 25; therefore, in accordance with SFAS No. 123,
compensation expense in the amount of $0.5 million was recorded and is
reflected in the Companys Consolidated Statements of Operations. A former director of the Company held options granted on June 22, 1998
outside of the Plan to purchase 152 shares of common stock of the Company at a
price of $12.50 per share. These options were cancelled effective July 2, 2004
pursuant to the Companys Third Amended Joint Plan of Reorganization. The Company granted warrants to a consultant for the purchase of 320
shares of common stock at a price of $28.15 per share on March 31, 2000. These
warrants were cancelled effective July 2, 2004 pursuant to the Companys Third
Amended Joint Plan of Reorganization. Retirement Plan The Company sponsors a 401(k) Retirement Investment Profit-Sharing Plan
(the Retirement Plan) covering substantially all employees. In order to
attract and retain employees, during 2000, the Company amended the Retirement
Plan to include a mandatory employer matching. Matching contributions during
the two months ended August 31, 2004, the ten months ended June 30, 2004, the
year ended August 31, 2003, the eight months ended August 31, 2002, and the
year ended December 31, 2001 were $13,000, $66,000, $96,000, $114,100 and
$236,000 respectively. F-35




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##### Table of Contents



16. OTHER COMMITMENTS AND CONTINGENCIES Operating Lease Commitments The Company leases certain office facilities and equipment under
non-cancelable operating leases, with expirations through 2011. The future
minimum lease payments associated with such leases for the fiscal years ending
August 31 are as follows (in thousands). 2005
    
    $
    3622006
    
    
    3002007
    
    
    3002008
    
    
    3002009 and thereafter
    
    
    850$
    2,112
 During the two months ended August 31, 2004, the ten months ended June 30,
2004, the year ended August 31, 2003, the eight months ended August 31, 2002,
and the year ended December 31, 2001, total rent charged to operating expenses,
net of sub-lease rentals, was approximately $106,000, $1,955,000, $3,362,000,
$2,226,000, and $1,423,000, respectively. Sublease rentals for the same
periods were approximately $0, $366,000, $328,000, $275,000, and $274,000. Product Warranty Guarantees The Company provides a limited warranty on all VMI product sales, at no
additional cost to the customer, that provides for replacement of defective
parts during the contract term, typically ranging from one to five years. The
Company also provides limited two-year warranties to replace defective parts on
units sold to the SBC Companies under the Service Vehicle Contract. The
Company establishes an estimated liability for expected future warranty
commitments based on a review of historical warranty expenditures associated
with these products and other similar products. Changes in the Companys
product warranty liability, which is included in Accrued expenses and other
current liabilities and Other non-current liabilities in the accompanying
Consolidated Balance Sheets, are summarized below (in thousands). ReorganizedCompany
    
    Predecessor CompanyTwo
    
    Ten
    
    TwelveMonths Ended
    
    Months Ended
    
    Months EndedAugust 31, 2004
    
    June 30, 2004
    
    August 31, 2003Warranty product liability at beginning of period
    
    $
    434
    
    
    $
    514
    
    
    $
    491Accruals for product warranties issued
    
    
    9
    
    
    
    118
    
    
    
    371Product replacements
    
    
    (58
    )
    
    
    (186
    )
    
    
    (173
    )Adjustments to pre-existing warranty estimates
    
    
    (10
    )
    
    
    (12
    )
    
    
    (175
    )Warranty product liability at end of period
    
    $
    375
    
    
    $
    434
    
    
    $
    514
 The long-term portion of the warranty product liability at August 31, 2004
and 2003 was $194,000 and $303,000, respectively. F-36




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##### Table of Contents



Provision for Potential Losses on Rejection of Executory Contracts and Other
Claims As of August 31, 2004, the Company had estimated and recorded a $1.4
million probable liability associated with disputed general unsecured claims
filed during the bankruptcy proceedings, which if allowed, would result in the
issuance of additional shares of new common stock. Although the Company
believes that some portion of its general unsecured claims objected to will be
ultimately disallowed by the Bankruptcy Court, the Company cannot presently
determine with certainty the total amount of claims objected to which will be
allowed or disallowed. Subsequent to August 31, 2004, certain rejection claims
and other disputed claims were settled and allowed by the bankruptcy court
resulting in the issuance of an additional 271,043 shares of common stock to
satisfy approximately $0.9 million of the $1.4 million estimated liability that
the Company had recorded as of August 31, 2004. It is reasonably possible
that a change in this estimated liability for probable losses on rejected
executory contracts, unexpired leases, and other claims may occur in the near
term. Other Purchase Commitments As of August 31, 2004, the Company had approximately $743,000 in primarily
inventory-related other purchase commitments. 17. RELATED PARTY TRANSACTIONS As of August 31, 2003, Minorplanet UK owned 62 percent of the Companys
outstanding common stock and thus controlled the Company. On October 6, 2003,
Minorplanet UK transferred 42.1 percent of the Companys outstanding common
stock to Erin Mills Investment Corporation (Erin Mills), ending Minorplanet
UKs majority ownership position in the Company. As of August 31, 2004,
Minorplanet UK owned 13.7 percent of the Reorganized Companys outstanding
common stock. See further discussion under VMI License Right in Note 3. In connection with the Minorplanet UK share transfer to Erin Mills, the
Company also obtained an option to repurchase from Erin Mills up to 3.9 million
shares of the Companys common stock at a price of $0.05 for every 1,000
shares, pursuant to that certain Stock Repurchase Option Agreement between the
Company and Erin Mills dated August 15, 2003. Gerry Quinn, the president of
Erin Mills, currently serves on the Companys Board of Directors. On July 1,
2004, prior to the extinguishment of the Companys existing common stock in
accordance with the Plan, the Company repurchased the 3.9 million shares of
common stock from Erin Mills for a nominal sum. Transactions with Minorplanet UK and its operating subsidiaries are
summarized below (in thousands). ReorganizedCompany
    
    Predecessor CompanyTwo Months
    
    Ten Months
    
    Year Ended
    
    Eight Months
    
    Year EndedEnded August 31,
    
    Ended June 30,
    
    August 31,
    
    Ended August 31,
    
    December 31,2004
    
    2004
    
    2003
    
    2002
    
    2001Research and development costs
    
    $
    
    
    
    $
    833
    
    
    $
    1,000
    
    
    $
    667
    
    
    $
    525Contract service expenses
    
    
    
    
    
    
    
    
    
    
    2,719
    
    
    
    641
    
    
    
    Inventory and other purchases
    
    
    
    
    
    
    
    
    
    
    146
    
    
    
    
    
    
    
    Product sales
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
 Reorganized
    
    PredecessorCompany
    
    CompanyAs of August 31,
    
    As of August 31,2004
    
    2003Other current liabilities
    
    $
    
    
    
    $
    553Other non-current liabilities
    
    
    
    
    
    
    1,760
 F-37




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##### Table of Contents



In accordance with the VMI license settlement agreement discussed in Note
3, the Company also provided Minorplanet Limited, the operating subsidiary of
Minorplanet UK, at no cost, 100 AEM 3000 VMI units and Minorplanet Limited was
allowed a general unsecured claim in the amount of $1 million in the Companys
bankruptcy case. On the Effective Date, Minorplanet UK released and waived its
administrative claim and, as of such date, waived any future R&D fees due under
Section 16.4 of the VMI license agreement. Soon after the Effective Date, the
Reorganized Company issued 298,062 shares of common stock in settlement of the
$1 million general unsecured claim in accordance with the Plan. Prior to the bankruptcy reorganization, the Company paid Minorplanet
Limited an annual fee of $1.0 million to aid in funding research and
development of future products covered by the license rights. The research
and development costs in the above table represent the annual $1.0 million fee
pro-rated for the applicable periods. On September 26, 2002, the Company entered into a letter addendum to the
exclusive license and distribution agreement with Minorplanet Limited to
provide executive and non-executive sales and marketing consulting services for
the six-month period from August 23, 2002 to February 22, 2003. Under terms of
the agreement, the Company was not required to pay the executive consulting
fees incurred during this six-month period totaling $1.76 million unless and
until the Company filed a Form 10-K reporting net income and positive cash flow
for the previous 12-month period. As of August 31, 2003 a liability for $1.76
million payable to Minorplanet Limited was included on the Companys
Consolidated Balance Sheet under Other non-current liabilities. On October
6, 2003, Minorplanet UK forever waived and discharged the $1.76 million
executive consulting fees owed by the Company to Minorplanet Limited. Thus,
the $1.76 million liability was reversed and effectively converted to a capital
contribution by Minorplanet UK to the Company. In addition, a $0.3 million
liability payable to Minorplanet UK for non-executive consulting costs was
converted to a capital contribution during the ten months ended June 30, 2004.
Other current liabilities in the above table primarily include the unpaid
portion of the non-executive sales and marketing contract services and research
and development costs as of August 31, 2003. HFS Note Payable On
July 20, 2004, the Company entered into and consummated the Third
Amended Letter Agreement with HFS issuing a $2.0 million convertible promissory
note to HFS with the principal balance being due 36 months from the date of
funding, with an annual interest rate of 12 percent. Upon issuance of the
Note, HFS provided the $2 million funding to the Company less a commission in
the amount of $80,000 representing four percent (4%) of the loan proceeds.
Accordingly, Stephen CuUnjieng, the President of HFS, was appointed to the
Companys Board of Directors effective July 13, 2004. Mr. CuUnjieng has been
employed by the Company as Director of Strategic Finance since January 30,
2004, immediately prior to the filing of the bankruptcy, to assist the Company
with further fund raising. Mr. CuUnjieng is a controlling partner in HFS (see
Note 13 for additional information). Stock Repurchase On July 29, 2004, the Company entered into and closed a stock repurchase
letter agreement with Lloyd Miller, a Director of the Companys Board of
Directors, and certain affiliates of Lloyd Miller to purchase from the Miller
Shareholder Group 929,948 shares of common stock at a purchase price of $2.00
per share or $1,859,896 (see Note 15 for additional information). SBC Prior to the consummation of the Recapitalization in 2001, SBC Wireless
LLC was considered a related party by virtue of the control provisions afforded
by the shareholder agreement executed upon its purchase of the Companys common
stock. As a result of the Recapitalization, such control provisions were
eliminated, and SBC Wireless LLC is no longer a related party. Certain affiliates of SBC Wireless LLC, which are wholly owned by Cingular
Wireless, LLC, a joint venture in which SBC Communications, Inc. (SBC) is a
lead venturer, serve as customers of and vendors to the F-38




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##### Table of Contents



Company. The Company sells mobile communication units and provides
services pursuant to the Service Vehicle Contract. Additionally, one
affiliated company serves as administrative carrier and provides
clearinghouse services, and other affiliated companies of SBC are among the
cellular carriers with whom the Company purchases airtime in connection with
the Companys provision of its services. Sales to these affiliated companies
of SBC for the twelve months ended December 31, 2001, the period when it was a
related party, were approximately $15.3 million. 18. SEGMENT REPORTING The Companys reportable segments offer different products and/or
services. Each segment also requires different technology and marketing
strategies. The Companys two reportable segments are VMI and Network Service
Center Systems (NSC Systems). During the last half of the 2001 calendar year, the Company commenced
marketing the VMI product licensed from Minorplanet Limited into the AVL
marketplace in the United States. VMI is designed to maximize the productivity
of a mobile workforce as well as reduce vehicle mileage and fuel related
expenses. The VMI technology consists of: (i) a data control unit that
continually monitors and records a vehicles position, speed and distance
traveled; (ii) a command and control center which receives and stores in a
database information downloaded from the DCUs; and (iii) software used for
communication, messaging and detailed reporting. VMI uses the satellite-based
global positioning system to acquire a vehicle location on a minute-by-minute
basis and a global system for mobile communications based cellular network to
transmit data between the DCUs and the CCC. The VMI application is targeted
to small and medium-sized fleets in the metro marketplace. Through its NSC Systems segment, 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., pursuant to the Service Vehicle Contract. Prior to the Sale to Aether, the Company also provided mobile asset
tracking solutions with its trailer-tracking products, TrackWare® and 20/20V.
On March 15, 2002, the Company completed the Sale to Aether of certain NSC
Systems assets and licenses related to the Companys long-haul trucking and
asset-tracking businesses pursuant to an Asset Purchase Agreement effective as
of March 15, 2002, by and between the Company and Aether. Pursuant to the
terms of the Sale, these products continued to use the Companys Network
Service Center to relay voice and messages between the mobile units and the
customers dispatchers. Operating expenses are allocated to each segment based on managements
estimate of the utilization of financial resources by each segment. Goodwill
is allocated solely to the NSC Systems segment. The following tables set forth
segment financial information (in thousands). Reorganized CompanyTwo Months Ended August 31, 2004ReorganizationNSC Systems
    
    VMI
    
    Items
    
    ConsolidatedRevenues
    
    $
    2,390
    
    
    $
    832
    
    
    $
    
    
    
    $
    3,222Operating income (loss)
    
    
    118
    
    
    
    (523
    )
    
    
    
    
    
    
    (405
    )Interest expense
    
    
    32
    
    
    
    5
    
    
    
    
    
    
    
    37Interest income
    
    
    2
    
    
    
    49
    
    
    
    
    
    
    
    51Depreciation and amortization
    
    
    301
    
    
    
    92
    
    
    
    
    
    
    
    393Net income (loss)
    
    
    88
    
    
    
    (490
    )
    
    
    (139
    )
    
    
    (541
    )Total assets
    
    
    29,812
    
    
    
    5,944
    
    
    
    
    
    
    
    35,756Capital expenditures
    
    
    251
    
    
    
    52
    
    
    
    
    
    
    
    303
 F-39




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##### Table of Contents



Predecessor CompanyTen Months Ended June 30, 2004ReorganizationNSC Systems
    
    VMI
    
    Items
    
    ConsolidatedRevenues
    
    $
    14,438
    
    
    $
    5,547
    
    
    $
    
    
    
    $
    19,985Operating income (loss)
    
    
    2,990
    
    
    
    (37,068
    )
    
    
    
    
    
    
    (34,078
    )Interest expense
    
    
    (905
    )
    
    
    
    
    
    
    
    
    
    
    (905
    )Interest income
    
    
    15
    
    
    
    336
    
    
    
    
    
    
    
    351Impairment loss on license right
    
    
    
    
    
    
    28,759
    
    
    
    
    
    
    
    28,759Depreciation and amortization
    
    
    1,282
    
    
    
    2,169
    
    
    
    
    
    
    
    3,451Net income (loss)
    
    
    2,491
    
    
    
    (36,866
    )
    
    
    17,137
    
    
    
    (17,238
    )Total assets
    
    
    30,495
    
    
    
    5,726
    
    
    
    
    
    
    
    36,221Capital expenditures
    
    
    312
    
    
    
    242
    
    
    
    
    
    
    
    554
 Predecessor CompanyTwelve Months Ended August 31, 2003NSC Systems
    
    VMI
    
    ConsolidatedRevenues
    
    $
    39,854
    
    
    $
    5,057
    
    
    $
    44,911Operating income (loss)
    
    
    11,029
    
    
    
    (24,952
    )
    
    
    (13,923
    )Interest expense
    
    
    2,118
    
    
    
    
    
    
    
    2,118Interest income
    
    
    117
    
    
    
    330
    
    
    
    447Depreciation and amortization
    
    
    2,803
    
    
    
    2,823
    
    
    
    5,626Income tax benefit
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    8,918
    
    
    
    (24,938
    )
    
    
    (16,020
    )Total assets
    
    
    12,998
    
    
    
    43,102
    
    
    
    56,100Capital expenditures
    
    
    344
    
    
    
    231
    
    
    
    575
 Predecessor CompanyEight Months Ended August 31, 2002NSC Systems
    
    VMI
    
    ConsolidatedRevenues
    
    $
    40,786
    
    
    $
    1,170
    
    
    $
    41,956Operating income (loss)
    
    
    7,657
    
    
    
    (17,276
    )
    
    
    (9,619
    )Interest expense
    
    
    1,411
    
    
    
    
    
    
    
    1,411Interest income
    
    
    347
    
    
    
    110
    
    
    
    457Depreciation and amortization
    
    
    2,503
    
    
    
    1,819
    
    
    
    4,322Income tax benefit
    
    
    978
    
    
    
    
    
    
    
    978Net income (loss)
    
    
    7,388
    
    
    
    (17,166
    )
    
    
    (9,778
    )Total assets
    
    
    38,665
    
    
    
    42,738
    
    
    
    81,403Capital expenditures
    
    
    966
    
    
    
    285
    
    
    
    1,251
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Predecessor CompanyTwelve Months Ended December 31, 2001NSC Systems
    
    VMI
    
    ConsolidatedRevenues
    
    $
    77,349
    
    
    $
    131
    
    
    $
    77,480Operating loss
    
    
    (12,549
    )
    
    
    (5,247
    )
    
    
    (17,796
    )Interest expense
    
    
    7,355
    
    
    
    
    
    
    
    7,355Interest income
    
    
    501
    
    
    
    
    
    
    
    501Depreciation and amortization
    
    
    6,068
    
    
    
    1,370
    
    
    
    7,438Gain on recapitalization, net
    
    
    59,461
    
    
    
    
    
    
    
    59,461Net income (loss)
    
    
    40,058
    
    
    
    (5,247
    )
    
    
    34,811Total assets
    
    
    48,255
    
    
    
    39,342
    
    
    
    87,597Capital expenditures
    
    
    1,478
    
    
    
    109
    
    
    
    1,587
 During the two months ended August 31, 2004, the ten months ended June 30,
2004, the year ended August 31, 2003 and the eight months ended August 31,
2002, one customer and Aether Systems within the NSC Systems segment, accounted
for approximately 73%, 70%, 74% and 65%, respectively, of total revenues.
During the year ended December 31, 2001, one customer accounted for
approximately 41% of total revenues. 19. CHANGE IN PRINCIPAL INDEPENDENT PUBLIC ACCOUNTANTS Change from Arthur Andersen to Deloitte & Touche LLP The Company received a letter on August 2, 2002 from the SEC notifying the
Company that its independent auditor, Arthur Andersen, in connection with the
wind-down of Andersens business, had notified the SEC that it would be unable
to perform future audit services for the Company effective immediately. Andersens reports on the Companys consolidated financial statements for
the two fiscal years ended December 31, 2001 and December 31, 2000 did not
contain an adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles. During the Companys two fiscal years ended December 31, 2001 and December
31, 2000 respectively, and the subsequent interim period through August 14,
2002, there were no disagreements with Andersen on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Andersens satisfaction, would have caused
them to make reference to the subject matter in connection with their report on
the Companys consolidated financial statements for such years; and there were
no reportable events, as listed in Item 304(a)(1)(v) of Regulation S-K. The letter from Andersen to the SEC required by Item 304 of Regulation S-K
has been omitted from the exhibit list to this Form 10-K pursuant to Item
304T(b)(2) of Regulation S-K as such letter could not be obtained after
reasonable efforts. As recommended by the audit committee of the Companys Board of Directors,
on August 12, 2002, the board of directors approved the engagement of, and the
Company engaged, Deloitte & Touche LLP (Deloitte) to serve as the Companys
independent public accountants for 2002. During the Companys two fiscal years ending December 31, 2001 and
December 31, 2000 respectively, and the subsequent interim period through
August 11, 2002, the Company did not consult Deloitte with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Companys consolidated financial statements, or any other matters or
reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K. F-41




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Change from Deloitte & Touche LLP toBDO Seidman LLP On March 15, 2004, the Audit Committee of the Board of Directors of the
Company approved the dismissal of and dismissed Deloitte & Touche LLP
(Deloitte) who previously served as the Companys principal independent
public accountants. On November 7, 2003 Deloitte completed its audit of the consolidated
financial statements of the Company as of August 31, 2003 and 2002, and for the
fiscal year ended August 31, 2003 and the eight month period ended August 31,
2002, and issued a report thereon dated November 7, 2003 which expressed an
unqualified opinion and included explanatory paragraphs concerning the
Companys ability to continue as a going concern (the November 7, 2003
Report). The November 7, 2003 Report is included in the Companys Annual
Report on Form 10-K for the fiscal year ended August 31, 2003 which was
previously filed by the Company with the Securities and Exchange Commission
(the Commission) on December 1, 2003. Except as contained in Deloittes November 7, 2003 Report, Deloittes
reports on the consolidated financial statements of the Company for the eight
month transition period ended August 31, 2002 and for the fiscal year ended
August 31, 2003 do not contain an adverse opinion or disclaimer of opinion or a
qualification or modification as to uncertainty, audit scope or accounting
principles. During the Companys two most recent fiscal years and through March 19,
2004, there were no disagreements with Deloitte on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to Deloittes satisfaction, would have caused
them to make reference to the subject matter in connection with their report on
the Companys consolidated financial statements for such years, and there were
no reportable events, as listed in Item 304(a)(1)(v) of Regulation S-K. On March 19, 2004, following their review of the Companys disclosure
contained herein in response to Item 304(a) of Regulation S-K, Deloitte
furnished the Company with a letter addressed to the Commission stating that it
agrees with the statements made by the Company contained herein in response to
Item 304(a) of Regulation S-K. On March 15, 2004, the Audit Committee of the Companys Board of Directors
approved the engagement of BDO Seidman LLP (BDO), to serve as the Companys
principal independent public accountants to audit the Companys financial
statements for the fiscal year 2004, subject to the final approval of the
Bankruptcy Court. On May 10, 2004, the Bankruptcy Court entered an order
authorizing the Company to employ and retain BDO. During the Companys two most recent fiscal years and through March 19,
2004, the Company did not consult BDO with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Companys
consolidated financial statements, or any other matters or reportable events
listed in Items 304 (a)(2)(i) and (ii) of Regulation S-K. See Form 8-K filed
by the Company on March 19, 2004 that contains additional information. 20. SUBSEQUENT EVENTS Nasdaq Delisting Notification On October 1, 2004, the Company received notice from Nasdaq stating that
for the previous 30 days, its common stock had closed below the minimum $1.00
per share requirement for continued inclusion under Nasdaq Marketplace Rule
4310(c)(4). In accordance with Marketplace Rule 4310(c)(4), the Company was
provided 180 calendar days, or until March 30, 2005, to regain compliance under
this rule. In order to regain compliance, the Company must demonstrate a
closing bid price for its common stock of $1.00 per share or more for a minimum
of 10 consecutive business days. The Company has not determined to take any
particular course of action at this time with respect to the Nasdaq notice. F-42




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##### Table of Contents



The written notice further provided that if compliance with the $1.00
minimum bid price requirement cannot be demonstrated by the Company by March
30, 2005, Nasdaq will grant the Company an additional 180 calendar days to
regain compliance, if at that time, the Company meets The Nasdaq SmallCap
Market initial listing requirements as set forth in Marketplace Rule 4310(c),
except for the $1.00 minimum bid price requirement. The written notice
provided that if the Company has not regained compliance with the $1.00 minimum
bid price requirement during the second 180 day compliance period, but again
satisfies The Nasdaq SmallCap Market initial listing requirements as set forth
in Marketplace Rule 4310(c), except for the $1.00 minimum bid price requirement
at the end of such period, the Company would be afforded an additional
compliance period up to its next stockholder meeting to regain compliance,
provided that it commit: (1) to seek stockholder approval for a reverse stock
split at or before its next stockholder meeting and (2) to promptly thereafter
effect the reverse stock split. Such shareholder meeting must occur within 2
years following October 1, 2004. If the Company fails to regain compliance
with the $1.00 minimum bid requirement during the third compliance period and
is not eligible for an additional compliance period, the Nasdaq Staff would
notify the Company at that time that its securities would be delisted and the
Company would have the right to appeal such delisting to the Nasdaq Listing
Qualifications Panel which stays the effect of the delisting pending a hearing
on the matter before the Panel. If the closing bid for the Companys common stock remains below $1.00 per
share and it is no longer listed on The Nasdaq SmallCap Market, the Companys
common stock may be deemed to be penny stock. If the Companys common stock is
considered penny stock, it will be subject to rules that impose additional
sales practices on broker-dealers who sell the Companys securities. For
example, broker-dealers selling penny stock must make a special suitability
determination for the purchaser and must have received the purchasers written
consent to the transaction prior to sale. Also, a disclosure schedule must be
prepared before any transaction involving a penny stock can be completed,
including required disclosure concerning:  
    
    sales commissions payable to both the broker-dealer and the
registered representative; and  
    
    current quotations for the securities. Monthly statements are also required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stock. Because of these additional obligations, some
brokers may not effect transactions in penny stock. This could have a material
and adverse effect on the market for the Companys common stock, and the
ability of stockholders to sell shares. Securities Purchase Agreement -  Sale of Series A Preferred Stock On October 4, 2004, the Company announced that it had closed the sale of
5,000 shares of Series A Convertible Preferred Stock (Series A Preferred
Stock), with each preferred share having a face value of $1,000, for a total
purchase price of $5,000,000, on October 1, 2004 (the Closing). Net cash
proceeds received by the Company were $4.6 million after payment of expenses. The terms of the Series A Preferred Stock are set forth in the Certificate
of Designation, Preferences and Rights, the most significant of which are as
follows: RankingThe series A preferred stock ranks senior to the Companys Common
Stock with respect to payment of dividends and amounts upon any liquidation,
dissolution or winding up of the Company. Dividends. Dividends accrue from the date of issuance of the Series A
Preferred Stock through October 1, 2006, and will be cumulative from such date,
whether or not in any dividend period or periods such dividends are declared.
Holders of shares of Series A Preferred Stock will be entitled to receive, when
and as declared by the F-43




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##### Table of Contents



Companys Board of Directors, out of funds legally available therefore,
cumulative cash dividends payable in an amount equal to 8% per year. Conversion Rights. Each holder of Series A Preferred Stock has the right
to convert its shares of Series A Preferred Stock into shares of the Companys
Common Stock at a conversion price of $2.00 per share of Common Stock. The
conversion price shall be adjusted in the event of stock splits, stock
dividends and similar distributions and events affecting all of the Companys
common stockholders on a pro rata basis so that the conversion price is
proportionately increased or decreased to reflect the event. In addition, if
there is a change of control (as discussed below), then each holder of Series A
Preferred Stock has the right to receive upon conversion, in lieu of Common
Stock otherwise issuable, such shares of stock, securities or other property as
would have been issued or payable in such change of control with respect to the
number of shares of Common Stock which would have been issuable upon conversion
had such change of control not taken place (subject to appropriate revisions to
preserve the economic value of the Series A preferred shares before the change
of control). The Company has to give 10 days notice to the holders of our
Series A Preferred Stock before it may effect any Change of Control (as
defined below). In no event can any holder of Series A Preferred Stock
beneficially own or have the right to vote more than 4.99% of the Companys
outstanding shares of common stock at any given time regardless of how the
holder of the Series A Preferred Stock obtained such shares. For purposes of the Series A Preferred Stock, a Change of Control means
any sale, transfer or other disposition of all or substantially all of the
Companys assets, the adoption of a liquidation plan, any merger or
consolidation where the Company is not the surviving entity with the Companys
capital stock unchanged, any share exchange where all of the Companys shares
of Common Stock are converted into other securities or property, any sale or
issuance by the Company granting a person the right to acquire 50% or more of
the Companys outstanding Common Stock, any reclassification of the Companys
Common Stock, and the first day on which the current members of the Companys
Board of Directors cease to represent at least a majority of the members of the
Companys Board of Directors then serving. Redemption Rights of the Company. If, at any time after October 1, 2005
and before October 1, 2008, during a period of at least twenty (20) consecutive
trading days (a) the closing trading price of the Companys Common Stock is at
least 200% of the conversion price then in effect and (b) the trading volume
and trading price of the Companys Common Stock result in a product of at least
$350,000 on each trading day, then the Company shall have the right to redeem
all shares of Series A Preferred Stock then outstanding at a price per share
equal to 200% of the face amount of such shares, plus all accrued and unpaid
dividends thereon through the closing date of such redemption. Voting Rights and Limitations.Except as otherwise provided in the
Certificate of Designation and as otherwise required by the Delaware General
Corporation Law, each holder of Series A Preferred Stock has the right to vote
on all matters before the common stockholders on an as-converted basis voting
together with the common stockholders as a single class. This voting right is
subject to the limitation that in no event may a holder of shares of Series A Preferred Stock (or warrants discussed below) have the right to
convert shares of Series A Preferred Stock into shares of the Companys Common
Stock or to dispose of any shares of Series A Preferred Stock to the extent
that such right to effect such conversion or disposition would result in the
holder and its affiliates together beneficially owning or having the power to
vote more than 4.99% of the Companys then outstanding shares of Common Stock.
The holders of a majority of the Series A Preferred Stock also have the right
to appoint one representative to the Companys Board of Directors and are
entitled to designate one observer to the meetings of the Companys Board of
Directors and its committees. Warrants Issued to Holder of Series A Preferred Stock. In connection with
the issuance of shares of Series A Preferred Stock, the Company also issued to
the Series A Preferred Stock holder two warrants to purchase shares of the
Companys common stock. With respect to the first warrant (the Structured warrant), the holder
has the right to purchase up to 1,000,000 shares of the Companys Common Stock
at an exercise price equal to $0.909 per share. The exercise F-44




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##### Table of Contents



price per share may be adjusted if SBC Services, Inc. and/or its affiliates do
not award the Company a contract pursuant to the Request for Quotation for the
provision of VTS equipment and service with (a) a minimum term of one year
through which the Company will receive a minimum of $10,000,000 in annual gross
revenues (determined in accordance with U.S. generally accepted accounting
principles) and which contract contemplates the renewal by SBC for at least one
additional year, or (b) a minimum term of two years through which the Company
will receive a minimum of $10,000,000 in annual gross revenues (determined in
accordance with GAAP) (collectively referred to as the SBC Condition). If
the SBC Condition is not satisfied by November 15, 2004, then the exercise
price shall be equal to 75% of the average trading price for the Companys
Common Stock for the ten trading day period immediately preceding November 15,
2004. If the SBC Condition is not satisfied by January 15, 2005, then the
exercise price shall again be adjusted so that it is equal to 75% of the
average trading price for the Companys Common Stock for the ten trading day
period immediately preceding January 15, 2005. As the Company was unable to
sign a 2 year contract with SBC in satisfaction of the SBC Condition, the
$0.909 per share exercise price for the Structured Warrant issued to the holder
of the Series A Preferred Stock will be modified to equal 75% of the average
closing price of the Companys common stock for the ten day period immediately
prior to November 15, 2004 and will be further modified to equal 75% of the
average closing price of the Companys common stock for the ten day period
immediately prior to January 15, 2005. Based upon the current trading price of
the Companys common stock, the exercise price of the Structured Warrant is
likely to be adjusted downward which would allow the holder of the Series A
Preferred Stock to purchase the Companys common stock at a lower price and may
increase the dilution to the Companys stockholders. In addition, the right of
the holder of Series A Preferred Stock to maintain an Investment Oversight
Committee to monitor and approve the expenditure of the net proceeds from the
sale of the Series A Preferred Stock shall remain in effect indefinitely. The
Structured Warrant may be exercised at any time until October 1, 2009. The
Structured Warrant contains certain anti-dilution price protections in the
event of a dilutive stock issuance (in addition to anti-dilution protections
for stock splits and other similar pro rata events), but these protections only
apply if the Company obtains stockholder approval of these provisions. The
Company is obligated to call and hold a special meeting of its stockholders for
the purpose of voting to approve the anti-dilution provisions in the Structured
Warrant governing dilutive stock issuances. The second warrant (the Incentive Warrant), to purchase 625,000 shares
of the Companys common stock was issued to the Series A Preferred Stock holder
at the same exercise price and adjustment terms as the Structured Warrant
described above, and the Incentive Warrants remaining terms are identical
except: (i) the Incentive Warrant is only exercisable from September 1, 2005
through September 1, 2010, and (ii) the Company has the right to repurchase the
Incentive Warrant in full for a total price of $10.00 provided that (A) the
trading price of the Companys Common Stock exceeds $7.50 (subject to
adjustment for stock splits, etc.) for 10 consecutive trading days at anytime
during the period beginning January 1, 2005 and ending June 30, 2005, and (B)
the Companys gross revenue exceeds $9,999,999 at anytime during the six-month
period ending June 30, 2005. As the Company was unable to sign a 2 year
contract with SBC in satisfaction of the SBC Condition, the $0.909 per share
exercise price for the Incentive Warrant issued to the holder of the Series A
Preferred Stock will be modified to equal 75% of the average closing price of
the Companys common stock for the ten day period immediately prior to November
15, 2004 and will be further modified to equal 75% of the average closing price
of the Companys common stock for the ten day period immediately prior to January 15, 2005. Based upon the
current trading price of the Companys common stock, the exercise price of the
Incentive Warrant is likely to be adjusted downward which would allow the
holder of the Series A Preferred Stock to purchase the Companys common stock
at a lower price and may increase the dilution to the Companys stockholders.
In addition, the right of the holder of Series A Preferred Stock to maintain an
Investment Oversight Committee to monitor and approve the expenditure of the
net proceeds from the sale of the Series A Preferred Stock shall remain in
effect indefinitely. Both the Structured Warrant and the Incentive Warrant
contain a provision that prevents any holder from exercising any part of the
warrant if such exercise would result in such holder beneficially owning or
having the right to vote more than 4.99% of the Companys outstanding shares of
common stock. Registration Rights Agreement. In connection with the issuance of Series
A Preferred Stock and Structured Warrant and Incentive Warrant to the Series
A Preferred Stock holder, the Company entered into a Registration Rights
Agreement, dated October 1, 2004, with the Series A Preferred Stock holder,
whereby the Company granted certain registration rights to the Series A
Preferred Stock holder. On or prior to November 29, 2004, the Company is
obligated to file a Registration Statement on Form S-3 covering 5,000,000
shares of the F-45




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##### Table of Contents



Companys Common Stock that the Series A Preferred Stock holder may
acquire upon conversion of the Series A Preferred Stock or upon exercise of the
Structured Warrant and the Incentive Warrant. The Company could face a
liquidated damages claim by the Series A Preferred Stock holder if (i) the
initial registration statement is not declared effective by the SEC on or prior
to January 29, 2004, (ii) after the effectiveness of the registration
statement, sales of the Companys Common Stock cannot be made by the Series A
Preferred Stock holder due to a stop order by the SEC or the Companys need to
update the registration statement, or (iii) the Companys Common Stock is not
listed on Nasdaq, the New York Stock Exchange or the American Stock Market.
The liquidated damages for the first 30 days equal 3% of the purchase price of
the Series A Preferred Stock and equal 1.5% for each 30 days thereafter of
non-compliance. In addition to the liquidated damages provision discussed
above, the Series A Preferred Stock holder can require the redemption of its
shares of Series A Preferred Stock upon certain default events. The Series A Preferred Stock holder also has the right to piggy-back on to
the registration statements filed by the Company registering shares of the
Companys Common Stock (other than Form S-8 and Form S-4 registration
statements filed by the Company), subject to share cut-backs by the
underwriters (if an underwritten public offering), provided that at least 25%
of the shares requested for inclusion in the registration statement by the
Series A Preferred Stock holder must be included in such underwritten public
offering. Redemption Rights of Series A Preferred Stock. The holders of shares of
Series A Preferred Stock shall have the right to cause the Company to redeem
any or all of its shares at a price equal to 115% of face value (150% of the
face value if the redemption event is a Change of Control event discussed
below), plus accrued but unpaid dividends in the following events:  
    
    the Common Stock is suspended from trading or is not listed for
trading on at least one of, the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
Market for an aggregate of 10 or more trading days in any twelve-month
period;  
    
    the initial registration statement required to be filed by the
Company pursuant to the Registration Rights Agreement has not been
declared effective by January 29, 2005 or such registration statement,
after being declared effective, cannot be utilized by the holders of
Series A Preferred Stock for the resale of all of their registrable
securities for an aggregate of more than 15 days in the aggregate;  
    
    the Company fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of
Series A Preferred Stock upon conversion of the Series A Preferred
Stock as and when required and such failure continues uncured for five
business days;
    
    the Company provides written notice (or otherwise indicates) to any
holder of Series A Preferred Stock, or states by way of public
announcement distributed via a press release, at any time, of its
intention not to issue, or otherwise refuses to issue, shares of Common
Stock to any holder of Series A Preferred Stock upon conversion in
accordance with the terms of the Certificate of Designation for the
Series A Preferred Stock;  
    
    the Company or any subsidiary of the Company shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for the Company or for a
substantial part of its the Companys property or business;  
    
    bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for the relief of Company shall be instituted by
or against the Company or any subsidiary which shall not be dismissed
within 60 days of their initiation;  
    
    the Company shall:  
    
    sell, convey or dispose of all or substantially all of its assets; F-46




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
    
    merge or consolidate with or into, or engage in any other business
combination with, any other person or entity, in any case which results
in either (i) the holders of the voting securities of the Company
immediately prior to such transaction holding or having the right to
direct the voting of fifty percent (50%) or less of the total
outstanding voting securities of the Company or such other surviving or
acquiring person or entity immediately following such transaction or
(ii) the members of the Board of Directors or other governing body of
the Company comprising fifty percent (50%) or less of the members of
the board of directors or other governing body of the Corporation or
such other surviving or acquiring person or entity immediately
following such transaction;  
    
    either (i) fail to pay, when due, or within any applicable grace
period, any payment with respect to any indebtedness of the Company in
excess of $250,000 due to any third party, other than payments
contested by the Company in good faith, or (ii) suffer to exist any
other default under any agreement binding the Company which default or
event of default would or is likely to have a material adverse effect
on the business, operations, properties, prospects or financial
condition of the Company;  
    
    have fifty percent (50%) or more of the voting power of its capital
stock owned beneficially by one person, entity or group;  
    
    experience any other Change of Control not otherwise addressed
above; or  
    
    the Company otherwise shall breach any material term under the
private placement transaction documents, and if such breach is curable,
shall fail to cure such breach within 10 business days after the
Company has been notified thereof in writing by the holder; Actions Requiring Approval of Holder of a Majority of the Companys Series
A Preferred Stock. So long as any shares of Series A Preferred Stock are
outstanding, the Company shall not take any of the following corporate actions
(whether by merger, consolidation or otherwise) without first obtaining the
approval of the majority holders of Series A Preferred Stock: (i) alter or change the rights, preferences or privileges of the Series A
Preferred Stock, or increase the authorized number of shares of Series A
Preferred Stock; (ii) amend its certificate of incorporation or bylaws; (iii) issue any shares of Series A Preferred Stock other than pursuant to
the Securities Purchase Agreement; (iv) redeem, repurchase or otherwise acquire, or declare or pay any cash
dividend or distribution on, any junior securities; (v) increase the par value of the Common Stock; (vi) sell all or substantially all of its assets or stock, or consolidate
or merge with another entity; (vii) enter into or permit to occur any Change of Control transaction; (viii) sell, transfer or encumber technology, other than licenses granted
in the ordinary course of business; (ix) liquidate, dissolve, recapitalize or reorganize; (x) authorize, reserve, or issue Common Stock with respect to any plan or
agreement that provides for the issuance of equity securities to
employees, officers, directors or consultants of the Corporation in
excess of 250,000 shares of Common Stock; F-47




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(xi) change its principal business; (xii) issue shares of Common Stock, other than as contemplated herein or
by the Warrants; (xiii) increase the number of members of the Board of Directors to more
than 7 members, or, if no Series A director has been elected, increase
the number of members of the Board to more than 6 members; (xiv) alter or change the rights, preferences or privileges of any
capital stock of the Corporation so as to affect adversely the Series A
Preferred Stock; (xv) create or issue any senior securitiesor pari passusecurities to
the Series A Preferred Stock; (xvi) except for the issuance of debt securities to, or incurrence of
indebtedness from, a recognized financial institution in an aggregate
amount not exceeding $5,000,000 (or such additional amount as the Board
and the majority holders of the Companys Series A Preferred Stock agree
is reasonably necessary for the Company to perform its obligations under
a contract with SBC Communications, Inc. and which, in the case of debt
securities, are not convertible securities or purchase rights, issue any
debt securities or incur any indebtedness that would have any preferences over the Series A
Preferred Stock upon liquidation of the Company, or redeem, repurchase,
prepay or otherwise acquire any outstanding debt securities or
indebtedness of the Company, except as expressly required by the terms of
such securities or indebtedness; (xvii) make any dilutive issuance; (xviii) enter into any agreement, commitment, understanding or other
arrangement to take any of the foregoing actions; or (xix) cause or authorize any subsidiary of the Company to engage in any
of the foregoing actions. Notwithstanding the foregoing, after such time as the SBC Condition (as
defined below) is satisfied, no such approval of the majority holders of the
Companys Series A Preferred Stock shall generally be required with respect to
subparagraphs (i)  (xiii), and (xviii)  (xix) if such action is approved by
the affirmative vote of at least two-thirds of the Companys Board of
Directors. Extension of Service Vehicle Contract With SBC On October 8, 2004, the term of the Companys Service Vehicle Contract
with the SBC companies was extended through December 31, 2005. The SBC Service
Vehicle Contract does not require SBC to maintain a minimum number of mobile
units activated for service during the remaining term of the contract. However,
if the number of mobile units activated for service falls below 13,140 mobile
units, the Company and SBC are required to negotiate an adjustment to the
service rates for transmission and maintenance/repair based upon the lesser
number of units in service. If SBC and the Company are unable to reach
agreement on the adjusted rates within 30 days, the Company may terminate the
SBC Service Vehicle Contract immediately upon written notice. If SBC fails to
maintain the minimum 13,140 mobile units activated for service, there can be no
assurances that the Company and SBC will be able to reach agreement on
adjustment of contract rates. In late October 2004, SBC informed the Company that SBC had selected
another vendor to provide vehicle tracking products and services to SBC and
would begin implementation mid-year 2005. Accordingly, the Company does not
believe that the service term of the SBC Service Vehicle Contract will be
extended beyond December 31, 2005. As the SBC Companies transition to another
vehicle tracking solution, the Company expects that SBC will begin deactivating
the Companys mobile units beginning mid-year 2005. Currently, the Company
receives approximately $890,000 in monthly revenues from SBC representing
approximately 55% of the total monthly revenues of the Company. It is
anticipated that SBC will begin deactivating units beginning in April of 2005
and complete the deactivations by December 31, 2005. F-48




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Since SBC has selected an alternate vendor to supply its next generation
product, management has revised its business plans and related forecasts taking
into effect the declining revenue from SBC and the costs associated with the
commercial launch of its new products. Based on current forecasts, management
believes that it will need to raise a minimum of $6 million by June 2005 to
fund the launch of its new products and fund working capital as the SBC revenue
declines during 2005. However, the timing of the deactivations by SBC as well
as the ability to meet sales projections of the new AVL products heavily
influences the capital requirements of the Company. If the SBC Companies deactivate the Companys units sooner than is
currently anticipated in the Companys projections, the amount of capital
required by the Company to sustain operations will significantly
increase. Currently, management believes that should the required funding
be obtained, it will be raised through the issuance of debt or equity
securities. However, there can be no assurance that the Company will be able
to raise the funds necessary to sustain the Companys operations until revenues
from sales of the Companys new AVL products are sufficient to sustain the
Companys operations and the failure to do so may have a material adverse
effect upon the Companys business, financial condition and results of
operations. The Company has recently announced the availability of its new AVL
products that should form the basis of revenue for the Company for future
periods. The Company believes that the new products are state-of-the-art and
provide industry-leading features and functionality. In addition, the Company
believes the new product design expands the potential market in which the
Company may pursue. The Company expects to complete a full commercial launch of
its new products in the first quarter of 2005. As the revenues from the SBC
Contract steadily decline in 2005, the Companys future revenues will be solely
dependent upon sales of its next generation product line. The failure of the
marketplace to accept the Companys next generation product line will have a
material adverse effect on the Companys business, financial condition and
results of operations. Additional Restricted Stock Grants to Management Subsequent to August 31, 2004, the Company granted 75,000 restricted
shares of common stock to a senior executive, pursuant to the Remote Dynamics,
Inc. Restated 2004 Management Incentive Plan. 21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Unaudited condensed quarterly results of operations for the Reorganized
Company and Predecessor Company are presented below (in thousands, except per
share amounts). Due to the change in fiscal year end, results for the short
two-month period ending August 31, 2002 are also presented below. ReorganizedPredecessor Company
    
    CompanyOne Month
    
    Two MonthFirst
    
    Second
    
    Third
    
    Ended June 30,
    
    Period Ended2004
    
    Quarter
    
    Quarter
    
    Quarter (a)
    
    2004 (b)
    
    August 31, 2004Total revenues
    
    $
    6,817
    
    
    $
    5,967
    
    
    $
    5,274
    
    
    $
    1,927
    
    
    $
    3,222Gross profit
    
    
    2,858
    
    
    
    3,027
    
    
    
    2,842
    
    
    
    783
    
    
    
    1,716Operating loss (exlcuding reorganization items)
    
    
    (2,845
    )
    
    
    (1,079
    )
    
    
    (29,873
    )
    
    
    (281
    )
    
    
    (405
    )Net loss
    
    
    (3,280
    )
    
    
    (1,346
    )
    
    
    (31,630
    )
    
    
    19,018
    
    
    
    (541
    )Basic and diluted income (loss) per share
    
    $
    (0.34
    )
    
    $
    (0.14
    )
    
    $
    (3.27
    )
    
    $
    1.97
    
    
    $
    (0.08
    )Weighted average shares outstanding:Basic and diluted
    
    
    9,670
    
    
    
    9,671
    
    
    
    9,672
    
    
    
    9,672
    
    
    
    6,505
  (a)
    
    Net loss for the third quarter ending May 31, 2004 included a $28.8 million impairment loss on the
write down of the VMI license right.(b)
    
    Net income for the one-month period ended June 30, 2004 includes several items related to the Companys emergence
from bankruptcy including a $20.3 million fresh start accounting adjustment to reflect assets and liabilities at
fair value. F-49




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##### Table of Contents



Predecessor CompanyFirst
    
    Second
    
    Third
    
    Fourth2003
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenues
    
    $
    13,629
    
    
    $
    12,045
    
    
    $
    10,892
    
    
    $
    8,346Gross profit
    
    
    5,595
    
    
    
    5,200
    
    
    
    4,584
    
    
    
    3,201Operating loss
    
    
    (3,956
    )
    
    
    (3,880
    )
    
    
    (2,739
    )
    
    
    (3,349
    )Net loss
    
    
    (4,473
    )
    
    
    (4,404
    )
    
    
    (3,228
    )
    
    
    (3,915
    )Basic and diluted loss per share
    
    $
    (0.46
    )
    
    $
    (0.46
    )
    
    $
    (0.33
    )
    
    $
    (0.40
    )Weighted average shares outstanding:Basic and diluted
    
    
    9,670
    
    
    
    9,670
    
    
    
    9,670
    
    
    
    9,670
 Predecessor CompanyTwo MonthsFirst
    
    Second
    
    Ending2002
    
    Quarter
    
    Quarter
    
    August 31,Total revenues
    
    $
    14,982
    
    
    $
    15,621
    
    
    $
    11,353Gross profit
    
    
    6,520
    
    
    
    6,093
    
    
    
    3,879Operating loss
    
    
    (3,991
    )
    
    
    (3,098
    )
    
    
    (2,530
    )Loss before income tax benefit
    
    
    (4,425
    )
    
    
    (3,515
    )
    
    
    (2,816
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    978Net loss
    
    
    (4,425
    )
    
    
    (3,515
    )
    
    
    (1,838
    )Basic and diluted loss per share
    
    $
    (0.46
    )
    
    $
    (0.36
    )
    
    $
    (0.19
    )Weighted average shares outstanding:Basic and diluted
    
    
    9,611
    
    
    
    9,666
    
    
    
    9,670
 Predecessor CompanyFirst
    
    Second
    
    Third
    
    Fourth2001
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenues
    
    $
    22,436
    
    
    $
    17,212
    
    
    $
    19,472
    
    
    $
    18,360Gross profit
    
    
    7,640
    
    
    
    4,475
    
    
    
    6,646
    
    
    
    1,888Operating loss
    
    
    (2,423
    )
    
    
    (5,874
    )
    
    
    (1,996
    )
    
    
    (7,503
    )Net (loss) income
    
    
    (5,582
    )
    
    
    50,762
    
    
    
    (2,406
    )
    
    
    (7,963
    )Basic and diluted (loss) income per share
    
    $
    (5.51
    )
    
    $
    25.77
    
    
    $
    (0.25
    )
    
    $
    (0.83
    )Weighted average shares outstanding:Basic and diluted
    
    
    1,013
    
    
    
    1,970
    
    
    
    9,611
    
    
    
    9,609
 F-50




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Report of Independent Registered Public Accounting Firm Board of Directors
Remote Dynamics, Inc.
Richardson, Texas The audits referred to in our report dated October 30, 2004 relating to the
consolidated financial statements of Remote Dynamics, Inc., which is contained
in Item 8 of this Form 10-K included the audit of the financial statement
schedule listed in the accompanying index. This financial statement schedule
is the responsibility of the Companys management. Our responsibility is to
express an opinion on this financial statement schedule based upon our audits. In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein. /s/ BDO Seidman, LLP BDO Seidman, LLP Dallas, Texas
October 30, 2004 S-1




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INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders of
Minorplanet Systems USA, Inc.
Dallas, Texas We have audited the consolidated financial statements of Minorplanet Systems
USA, Inc. (the Company) as of August 31, 2003 and 2002, and for the year
ended August 31, 2003 and the eight month period ended August 31, 2002, and
have issued our report thereon dated November 7, 2003 (which report expresses
an unqualified opinion and includes explanatory paragraphs concerning the
Companys ability to continue as a going concern, the adoption of SFAS No. 145,
and the application of procedures relating to certain reclassifications and
disclosures of financial statement amounts related to the 2001 and 2000
financial statements that were audited by other auditors who have ceased
operations); such financial statements and report are included in the Annual
Report on Form 10K. Our audit also included the 2003 and 2002 financial
statement schedule of Minorplanet Systems USA, Inc. This financial statement
schedule is the responsibility of the Companys management. Our responsibility
is to express an opinion based on our audits. In our opinion, the 2003 and
2002 financial statement schedule, when considered in relation to the 2003 and
2002 basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein. The financial statement
schedule for the years ended December 31, 2001 and 2000 was audited by other
auditors who have ceased operations. Those auditors expressed an opinion, in
their report dated March 15, 2002, that such 2001 and 2000 financial statement
schedule, when considered in relation to the 2001 and 2000 basic financial
statements taken as a whole (prior to the reclassifications and disclosures
referred to above), presented fairly, in all material respects, the information
set forth therein. DELOITTE & TOUCHE LLP Dallas, Texas
November 7, 2003 S-2




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REPORT OF PREVIOUS INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE THE FOLLOWING REPORT OF ARTHUR ANDERSEN, LLP (ANDERSEN) IS A COPY OF THE
REPORT PREVIOUSLY ISSUED BY ANDERSEN ON MARCH 15, 2002 AND SUCH REPORT HAS NOT
BEEN REISSUED BY ANDERSEN. THE REPORT OF ANDERSEN IS INCLUDED IN THIS ANNUAL
REPORT ON FORM 10-K PURSUANT TO RULE 2-02 (E) OF REGULATION S-X. AFTER
REASONABLE EFFORTS THE COMPANY HAS NOT BEEN ABLE TO OBTAIN A REISSUED REPORT
FROM ANDERSEN. ANDERSEN HAS NOT CONSENTED TO THE INCLUSION OF ITS REPORT IN
THIS ANNUAL REPORT ON FORM 10-K. BECAUSE ANDERSEN HAS NOT CONSENTED TO THE
INCLUSION OF ITS REPORT IN THIS ANNUAL REPORT, IT MAY BE DIFFICULT FOR
STOCKHOLDERS TO SEEK REMEDIES AGAINST ANDERSEN AND STOCKHOLDERS ABILITY TO SEEK
RELIEF AGAINST ANDERSEN MAY BE IMPAIRED OR UNAVAILABLE. To the Board of Directors and Stockholders of
@Track Communications, Inc. We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in @Track
Communications annual report to stockholders in this Form 10-K and have issued
our report thereon dated March 15, 2002. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule of
Valuation and Qualifying Accounts is the responsibility of the Companys
management and is presented for the purpose of complying with the Securities
and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Dallas, Texas
March 15, 2002 S-3




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SCHEDULE II REMOTE DYNAMICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS ($ in thousands) AdditionsBalance at
    
    Charged toBeginning of
    
    Costs and
    
    
    
    
    
    Balance atDescription
    
    Period
    
    Expenses
    
    Deductions
    
    End of PeriodPredecessor CompanyYear ended December 31, 2001Allowance for doubtful accountsAccounts receivable
    
    
    7,305
    
    
    
    1,056
    
    
    
    (4,807
    )
    
    
    3,554Warranty reserve
    
    
    1,469
    
    
    
    1,406
    
    
    
    (2,249
    )
    
    
    626Provision for settlement of litigation
    
    
    
    
    
    
    2,100
    
    
    
    (519
    )
    
    
    1,581Valuation allowance against
deferred tax asset
    
    
    67,256
    
    
    
    8,458
    
    
    
    (19,804
    )
    
    
    55,910Eight months ended August 31, 2002Allowance for doubtful accountsAccounts receivable
    
    
    3,554
    
    
    
    155
    
    
    
    (866
    )
    
    
    2,843Allowance for doubtful accountsLease payment receivables
    
    
    
    
    
    
    648
    
    
    
    (459
    )
    
    
    189Warranty reserve
    
    
    626
    
    
    
    660
    
    
    
    (795
    )
    
    
    491Provision for settlement of litigation
    
    
    1,581
    
    
    
    100
    
    
    
    
    
    
    
    1,681Valuation allowance against
deferred tax asset
    
    
    55,910
    
    
    
    3,635
    
    
    
    (839
    )
    
    
    58,706Year ended August 31, 2003Allowance for doubtful accountsAccounts receivable
    
    
    2,843
    
    
    
    234
    
    
    
    (2,831
    )
    
    
    246Allowance for doubtful accountsLease receivables
    
    
    189
    
    
    
    1,144
    
    
    
    (881
    )
    
    
    452Warranty reserve
    
    
    491
    
    
    
    196
    
    
    
    (173
    )
    
    
    514Provision for settlement of litigation
    
    
    1,681
    
    
    
    
    
    
    
    
    
    
    
    1,681Valuation allowance against
deferred tax asset
    
    
    58,706
    
    
    
    5,394
    
    
    
    
    
    
    
    64,100Ten months ended June 30, 2004Allowance for doubtful accountsAccounts receivable
    
    
    246
    
    
    
    352
    
    
    
    (377
    )
    
    
    221Allowance for doubtful accountsLease receivables
    
    
    452
    
    
    
    594
    
    
    
    (671
    )
    
    
    375Warranty reserve
    
    
    514
    
    
    
    118
    
    
    
    (198
    )
    
    
    434Provision for settlement of litigation
    
    
    1,681
    
    
    
    
    
    
    
    (1,681
    )
    
    
    Valuation allowance against
deferred tax asset
    
    
    64,100
    
    
    
    6,638
    
    
    
    
    
    
    
    70,738Reorganized CompanyTwo months ended August 31, 2004Allowance for doubtful accountsAccounts receivable
    
    
    221
    
    
    
    35
    
    
    
    (94
    )
    
    
    162Allowance for doubtful accountsLease receivables
    
    
    375
    
    
    
    50
    
    
    
    (68
    )
    
    
    357Warranty reserve
    
    
    434
    
    
    
    9
    
    
    
    (68
    )
    
    
    375Valuation allowance against
deferred tax asset
    
    
    70,738
    
    
    
    182
    
    
    
    
    
    
    
    70,920
 S-4