Remote Dynamics Inc - 10-K Annual Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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.

(Exact name of Registrant as specified in its charter)


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]

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.

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

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.

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

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.

• 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.

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

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:

Ranking The 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.

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

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

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;

(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 securities or pari passu securities 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

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

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.

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.

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

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”.

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.

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


	Page
PART I
ITEM 1. BUSINESS		1
ITEM 2. PROPERTIES		36
ITEM 3. LEGAL PROCEEDINGS		36
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		40
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		43
ITEM 6. SELECTED FINANCIAL DATA		48
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		51
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		70
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		70
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		71
ITEM 9A. CONTROLS AND PROCEDURES		71
ITEM 9B OTHER INFORMATION		71
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT		72
ITEM 11. EXECUTIVE COMPENSATION		72
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		72
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		72
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES		72
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		73
Third Amended and Restated By-Laws
Third Amendment to Lease Agreement
Employment Agreement - Dennis R. Casey
Employment Agreement - W. Michael Smith
Employment Agreement - J. Raymond Bilbao
Employment Agreement - Joseph W. Pollard
Restricted Stock Agreement - Dennis R. Casey
Restricted Stock Agreement - W. Michael Smith
Restricted Stock Agreement - J. Raymond Bilbao
Restricted Stock Agreement - Joseph W. Pollard
Employment Agreement - David Bagley
Restricted Stock Agreement - David Bagley
2004 Restated Management Incentive Plan
Statement Re: Computation of Per Share Earnings
Subsidiaries
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

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	•		Dennis R. Casey – President and Chief Executive Officer

	•		J. Raymond Bilbao – Senior Vice President, General Counsel & Secretary