SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

     For the quarterly period ended May 31, 2004,

OR

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

     For the period from                                        to                                       

Commission file number 0-26140

REMOTE DYNAMICS, INC.

Registrant’s telephone number, including area code  (972) 301-2000

MINORPLANET SYSTEMS USA, INC.

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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 [   ]

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

REMOTE DYNAMICS, INC. AND SUBSIDIARIES

Form 10-Q

INDEX

2

REMOTE DYNAMICS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)

See accompanying notes to condensed consolidated financial statements.

3

REMOTE DYNAMICS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)

See accompanying notes to condensed consolidated financial statements.

4

REMOTE DYNAMICS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)

See accompanying notes to condensed consolidated financial statements.

5

REMOTE DYNAMICS, INC. AND SUBSIDIARIES
(Debtors-in-Possession)

See accompanying notes to condensed consolidated financial statements.

6

REMOTE DYNAMICS, INC. AND SUBSIDIARIES

1.

Reorganization and Going Concern Uncertainty

Voluntary Bankruptcy Filing

     On February 2, 2004, (the “Commencement Date”), Remote Dynamics, Inc., a Delaware corporation formerly known as Minorplanet Systems USA, Inc. (“Minorplanet” or the “Company”), and two of its wholly-owned subsidiaries, Caren (292) Limited (“Caren”) and Minorplanet Systems USA Limited (“Limited”) (Minorplanet, 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. The aggregate amount of all pre-petition claims is not known at this time since the claims are still being reviewed and certain contract rejection proofs of claim may still be filed up to 30 days after the effective date of the Company’s plan of reorganization. Holders of pre-petition claims must seek recovery through the Company’s plan of reorganization.

     On June 15, 2004, the Bankruptcy Court entered an order approving the Company’s motion for substantive consolidation of the estates of Minorplanet, 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 Debtor’s 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 for 1:30 p.m., June 28, 2004.

     On June 17, 2004, the Company 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 Debtors 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 Debtors.

•

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 Debtors.

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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 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 Debtors 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 Company.

•

Holders of allowed general unsecured claims will receive 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 shall receive cash in an amount equal to fifty percent (50%) of their allowed claims, up to an aggregate maximum of one hundred fifty thousand dollars ($150,000.00) for all such claims to be paid as soon as practicable following the Effective Date.

•

All existing equity interests in the Company were extinguished as of the Effective Date. Each holder of an equity interest in Minorplanet Systems USA, Inc. that is attributable to existing common stock will receive a pro rata share of twenty-five percent (25%) of seven million (7,000,000) shares of the new common stock that is not issued to holders of allowed general unsecured claims. The holders of equity interests in Minorplanet, 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 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. The Company has objected to approximately $1.5 million in 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 the 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. Additionally, as the Company has rejected certain executory contracts and unexpired leases, the other contracting party is entitled to a prepetition, general unsecured claim for the damages sustained as a result of the “breach of contract” caused by the rejection and must file a rejection proof of claim within 30 days of the Effective Date. The Company cannot predict with certainty the aggregate amount of rejection proof of claims that will be filed and ultimately allowed by the Bankruptcy Court resulting in the issuance of additional new common stock to such rejection claim holders.

•

Caren and Limited, as a matter of law, were merged with and into Remote Dynamics, Inc., ceasing to exist as separate entities as of the Effective Date.

•

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;

8

•

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 including 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 will receive 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 is required to cure all prepetition defaults, monetary and otherwise in one or more payments over a three-month period after the earlier of the Effective Date or the date the claim is allowed. 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 is entitled to a prepetition, general unsecured claim for the damages sustained as a result of the “breach of contract” caused by the rejection. Under the Plan, rejection proofs of claim must be filed within 30 days of the Effective Date. See also Note 7.

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 is required to provide the funding within 21 days of the June 29, 2004 closing. The Company is required to pay 36 monthly-accrued interest-only payments on the principal balance, with the initial interest payment due 30 days from funding. Following the initial year of the note, the Company may elect to repay the loan without premium or penalty. HFS may elect at any time prior to the maturity date of the note to convert all or any part of the principal or accrued interest to common stock.

     The price per share at which the conversion of unpaid principal and accrued interest may occur shall be $3.62 per share of common stock, provided that such amount shall be reduced (i) by 20% percent if such principal and accrued interest is converted within one year after the date the promissory note was issued or (ii) by 15% if such unpaid principal and accrued interest is converted more than one year after the date the promissory note was issued. Pursuant to the Letter Agreement, the Company’s board of directors shall 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. Stephen CuUnjieng, the President of HFS, was employed by the Company as Director of Strategic Finance on 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 the HFS.

9

Critical Success Factors

     The Company believes that the potential market opportunity for automatic vehicle location products, such as the general packet radio service (“GPRS”) based next generation product line currently being developed by the Company, in the United States is significant (see Note 4). The Company believes that there are approximately 20 million private (not “for hire”) commercial vehicles in the United States, the majority of which are service or metro vehicles, and that this market is approximately five percent (5%) penetrated. The Company anticipates that over the next few years, the marketplace will become increasingly aware of the very substantial benefits that global positioning and vehicle telematics systems can bring to their fleet operations and such systems will become standard in commercial fleets, both large and small. Currently, competition in this market segment is fragmented, and no clear market leader exists. The Company believes 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 (the “Service Vehicle Contract”) with the member companies of SBC Communications, Inc. (“SBC Companies”) for an additional term that ends on January 30, 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 remain active on the Company’s network. On July 8, 2003, the Company and Aether amended their transition services agreement to extend the transition period during which such Series 5000 units remain active on the Company’s network until January 30, 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.

Critical success factors in management’s plans to achieve positive cash flow from operations include:

•

Ability to raise additional capital resources.

•

Ability to complete development of a GPRS-based next generation product line.

•

Renewal of the Service Vehicle Contract and entering into a new agreement with SBC to upgrade their fleets to the next generation product line.

•

Significant market acceptance of the Company’s product offerings, including its next generation product line, in the United States.

•

Maintain and expand the Company’s direct sales channel and expand 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.

•

Maintain and expand indirect distribution channels.

•

Secure and maintain 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. Although the Company believes 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 the Company’s business or what the disposition will be of all claims against the Company. 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. The Company’s future results depend on the timely and successful implementation of its Plan.

Accounting Impact of Voluntary Bankruptcy Filing

     The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the provisions of Statement of Position 90-7 “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”). In accordance with SOP 90-7, the Company’s pre-petition liabilities that are subject to compromise are reported separately on the balance sheet at an estimated amount that will ultimately be allowed by the Bankruptcy Court. As of May 31, 2004, the Company’s pre-petition liabilities subject to compromise were as follows (in thousands):

10

     Pursuant to SOP 90-7, an objective of financial statements issued by an entity in Chapter 11 is to reflect its financial evolution during the proceeding. For that purpose, the financial statements of periods including and subsequent to filing the Chapter 11 petition should distinguish transactions and even