SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission file number 0-23044
MOTIENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0976127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Knightsbridge Parkway
Lincolnshire, IL 60069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 478-4200
Securities registered pursuant to Section 12(b) of the
Act: None Securities registered pursuant to Section
12(g) of the Act:
Common stock, $0.01 par value per share
(Title of 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 report(s), 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 amendments to
this Form 10-K. Yes [ ] No [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of shares of common stock held by non-affiliates at
June 30, 2004 was approximately $200,051,042.
Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Section 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 [ ] No [X]
Number of shares of common stock outstanding at March 15, 2005: 65,144,383
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
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Page
PART I
Cautionary Note Regarding Forward-Looking Statements 3
Item 1. Business 4
Item 2. Properties 31
Item 3. Legal Proceedings 32
Item 4. Submission of Matters to a Vote of Security Holders 32
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities 33
Item 6. Selected Financial Data 36
Item 7. Management's Discussion and Analysis of Financial Condition and 40
Results of Operations
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 70
Financial Disclosure
Item 9A. Controls and Procedures 70
Item 9B. Other Information 72
PART III
Item 10. Directors and Executive Officers of Motient 73
Item 11. Executive Compensation 77
Item 12. Security Ownership of Certain Beneficial Owners and Management and 81
Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions 84
Item 14. Principal Accountant Fees and Services 86
PART IV
Item 15. Exhibits and Financial Statement Schedules 87
Signatures 96
Financial Statements Motient F-1
Financial Statements MSV M-1
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements regarding
our expected financial position and operating results, our business strategy and
our financing plans are forward-looking statements. These statements can
sometimes be identified by our use of forward-looking words such as "may",
"will", "anticipate", "estimate", "expect", "project", or "intend". These
forward-looking statements reflect our plans, expectations and beliefs and,
accordingly, are subject to certain risks and uncertainties. We cannot guarantee
that any of such forward-looking statements will be realized.
Statements regarding factors that may cause actual results to differ materially
from those contemplated by such forward-looking statements, or cautionary
statements, include, among others, those under the captions "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview" and "Risk Factors," and elsewhere in this report, including in
conjunction with the forward-looking statements included in this report. All of
our subsequent written and oral forward-looking statements (or statements that
may be attributed to us) are expressly qualified in their entirety by the
cautionary statements referred to above and contained elsewhere in this report.
You should carefully review the risk factors described in our other filings with
the SEC from time to time, including our quarterly reports on Form 10-Q which
will be filed in the future, as well as our other reports and filings with the
SEC.
Our forward-looking statements are based on information available to us today,
and we do not undertake any obligation to update these statements. Our actual
results may differ significantly from the results discussed.
3
PART I
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Item 1. Business.
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Overview
We are a nationwide provider of two-way, wireless mobile data services and
wireless internet services. Owning and operating a wireless radio data network
that provides wireless mobile data service to customers across the United
States, we primarily generate revenue from the sale of airtime on our network
and from the sale of communications devices, which are manufactured by other
companies. Our customers use our network and our wireless applications for
wireless email messaging and wireless data communications services. This enables
businesses, mobile workers and consumers to wirelessly transfer electronic
information and messages and to wirelessly access corporate databases and the
Internet. Our network is designed to offer a broad array of wireless data
services, such as:
o two-way mobile Internet services, including our own eLink(SM) wireless
email service and our BlackBerry(TM) by Motient wireless email service,
each providing personal consumers and corporate customers with wireless
access to a broad range of email and information services;
o wireless data systems used by companies involved in data transmission and
processing, used to connect remote equipment, such as wireless
point-of-sale terminals, with a central monitoring facility; and
o mobile data and mobile management systems used by transportation and other
companies to wirelessly coordinate remote, mobile assets and personnel.
Our eLink service and BlackBerry by Motient service are two-way wireless email
services that use our DataTac network. They allow users to remotely and
wirelessly access their email, and allow users to synchronize the calendar and
organizer functions of their desktop computer with a handheld device such as a
RIM 850 or 857 Wireless Handheld, a small, data-only wireless handheld device.
Research In Motion, Ltd., or RIM, has discontinued making these models, and
therefore sales of these devices have declined recently and we anticipate sales
of these devices will continue to decrease. Motient cannot use any newer RIM
devices on our network and currently has no alternative product for these
services. However, current users of eLink and BlackBerry by Motient may still
continue to use their devices on our network. We currently are exploring
different ways to provide similar wireless email services to our customers using
iMotient Solutions(TM), which we discuss below.
In addition to selling wireless data services that use our own network, we are
also a reseller of airtime on the Cingular and Sprint wireless networks. We have
reseller agreements with these companies that allow us to sell and promote
wireless data applications and solutions to our customers using these networks,
which are more modern and have greater capacity than our own, while still
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maintaining a direct relationship with the customer, since "back office"
functions like customer support, application design and implementation, and
billing, among other support services, are handled by Motient.
These arrangements allow us to provide integrated wireless data solutions to our
customers using a variety of networks. In December 2004, we launched a new set
of products and services designed to provide these integrated wireless data
solutions to our customers called iMotient Solutions(TM). iMotient allows
Motient's customers to use these multiple networks via a single connection to
Motient's back-office systems, providing a single alternative for application
and software development, device management and billing across multiple
networks, including but not limited to GPRS, 1XRTT, and our own DataTac network.
Once connected to iMotient, customers will receive our proprietary applications
and services that reduce airtime usage, improve performance and reduce costs. As
of February 1, 2005, we have not generated any revenues from iMotient Solutions,
however, we have recently signed customer agreements and anticipate generating
revenue in the near term.
As of March 15, 2005, Motient's terrestrial wireless two-way data network covers
a geographic area populated by more than 195 million people and is comprised of
over 1,200 base stations that provide service to 412 of the nation's largest
cities and towns, including all primary metropolitan statistical areas, commonly
known as "MSAs". Subscriber units, which may be mobile or stationary, receive
and transmit wireless data messages to and from these terrestrial base stations
via radio frequencies. Terrestrial messages are then routed to their destination
via data switches that Motient owns, which connect to the public data network.
Motient's network is a wireless packet-switched network based on technologies
developed prior to newer networks built around CDMA or GSM technologies, and,
unlike those networks, cannot accommodate wireless telephony. Over the course of
2004, Motient implemented and completed certain initiatives to rationalize the
size of its network, primarily to remove unprofitable base stations and reduce
unneeded coverage.
During the first quarter of 2005, Motient initiated a plan to refocus its
DataTac network primarily on the top 40 MSAs. This plan involves the
decommissioning of DataTac network components and termination of service in
previously served MSAs other than the top 40. Given the similar coverage
profiles of the Cingular and Sprint networks, the significantly increased
bandwidth capabilities of these networks relative to DataTac and the
concentration of our revenues in the top 40 MSAs, we determined that this plan
best allowed us to match our network infrastructure costs with our revenue base,
while continuing to meet the needs of as many of our customers as possible. We
have notified our customers of this change in our network coverage and this
decommissioning will begin on June 1, 2005. We are making every effort to
provide any impacted customers with alternatives to migrate their services and
applications either to our new iMotient Solutions(TM) platform, or to other
networks using our agreements with RACO Wireless, Inc. and eAccess Solutions,
Inc. Our 800 MHz FCC licenses for these discontinued markets may be lost as a
result of these actions. While we are taking steps to avoid this possibility,
and while we believe that any such losses would not be material to our
business, we can provide no assurance that any such losses would not negatively
impact our business. We believe that the value of our FCC licenses in these
smaller markets is very small compared to the value of our FCC licenses in the
top 40 MSAs.
As of December 31, 2003 and 2004, there were approximately 204,000 user devices
and 132,000 user devices registered, respectively, and 115,000 user devices and
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77,000 user devices, respectively, with active usage on Motient's network.
Registered devices represent devices that our customers and resellers have
registered for use on our network. These devices may be kept in inventory by our
customers for future use, in which case they are not generally revenue
producing. We count a device as active when it is removed from inventory by the
customer and transmits data traffic.
In the fourth quarter of 2004, we performed an analysis of our registered user
devices from our larger resellers, which represent a majority of our registered
user devices not in service. Given the decline in our wireless internet base in
2004, the end-of-life of the RIM 857 devices and the general availability of
next-generation devices that were voice capable from wireless carrier such as
T-Mobile and Verizon, we determined that many of the devices registered by our
resellers on our network were not likely to be put back in service on our
network. As a result, during the fourth quarter of 2004 and the first quarter of
2005 approximately 39,000 user devices were deregistered from our network, of
which approximately 30,000 were de-registered by SkyTel Communications, Inc. on
December 30, 2004. The de-registration of these user devices did not impact our
revenue or our billable and active user devices and we believe that our
registered device counts now provide a more accurate representation of user
devices held in inventory by our customers that may be put back in service by
our customers in the future.
Our website is www.motient.com.
Management and Board Changes Since January 1, 2004
On March 4, 2005, the board of directors elected Barry A. Williamson to serve as
a member of the board.
On February 28, 2005, Peter Aquino resigned from the board of directors.
On June 15, 2004, the board of directors designated Raymond L. Steele and
Jonelle St. John as the board's financial experts.
On May 24, 2004, the board of directors designated Myrna J. Newman, the
Company's controller and chief accounting officer, as the principal financial
officer of the Company.
Also on May 24, 2004, the board of directors elected Christopher W. Downie to
the position of executive vice president, chief operating officer and treasurer.
Mr. Downie remains the principal executive officer.
On May 6, 2004, the board of directors elected Raymond L. Steele to serve as a
member of the board. They also elected him to the Company's Audit Committee.
On May 6, 2004 the board of directors elected Robert L. Macklin to the position
of general counsel and secretary.
On March 18, 2004 the board of directors elected Christopher W. Downie to the
position of executive vice president, chief financial officer and treasurer, and
designated Mr. Downie as the Company's principal executive officer.
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On February 18, 2004, Daniel Croft, senior vice president, marketing and
business development, and Michael Fabbri, senior vice president, sales, were
relieved of their duties as part of a reduction in force.
On February 10, 2004, our board of directors and Walter V. Purnell, Jr. mutually
agreed to end his employment as president and chief executive officer of Motient
and all of its wholly owned subsidiaries. Concurrently, Mr. Purnell resigned as
a director of such entities and of Mobile Satellite Ventures L.P., or MSV, and
all of its subsidiaries.
History
Motient was formed in 1988 under the name "American Mobile Satellite
Corporation" to construct, launch and operate a mobile satellite services system
to provide a full range of mobile voice and data services via satellite to land,
air and sea-based customers subject to local regulation. During 1995, we
successfully launched our first satellite and initiated commercial voice
service. In late 1996, we expanded our mobile data business through the
acquisition of Rockwell International Corporation's dual mode mobile messaging
and global positioning and monitoring service for commercial trucking fleets.
In March 1998, we acquired Motient Communications, formerly ARDIS Company, from
Motorola and combined the ARDIS terrestrial-based business with our
satellite-based business to offer a broad range of integrated end-to-end
wireless solutions through two network configurations, either a "satellite-only"
service network or a "multi-mode" terrestrial and satellite service network.
Following operation of a joint network for three years, we decided to base our
business primarily on the terrestrial network and make the satellite available
to a joint venture. Motient's satellite and related assets and business were
sold on November 26, 2001 to MSV.
Mobile Satellite Ventures
Business
MSV is a provider of mobile satellite-based communications services. MSV uses
two satellites to provide service, which allow customers access to
satellite-based wireless data, voice, fax and dispatch radio services almost
anywhere in North and Central America, northern South America, the Caribbean,
Hawaii and in various coastal waters.
MSV is also developing a next-generation system, a hybrid satellite/terrestrial
wireless network over North America that MSV expects will utilize new satellites
working with MSV's patented "ancillary terrestrial component" technology. MSV
will be able to deploy terrestrial two-way radio network technology in thousands
of locations across the United States, allowing subscribers to integrate
satellite-based communications services with more traditional land-based
wireless communications services. MSV is headquartered in Reston, VA, with an
office in Ottawa, ON, Canada.
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MSV is structured as a limited partnership, of which Motient is one of the
limited partners. Motient holds a proportionate ownership interest in the
corporate general partner. Motient has certain rights to appoint directors to
the sole general partner of the limited partnership, but does not have any
direct or indirect operating control over MSV. As of March 1, 2005, we have a
49% direct and indirect interest in MSV.
History
On June 29, 2000, we formed a joint venture subsidiary, MSV, with certain other
parties, in which we owned 80% of the membership interests. The remaining 20%
interests in MSV were owned by three investors unrelated to Motient. However,
the minority investors had the right to participate in certain business
decisions that were made in the normal course of MSV's business. Therefore, in
accordance with Emerging Issues Task Force Issue No 96-16, "Investor's
Accounting for an Investee When the Investor Has a Majority of the Voting
Interest but the Minority Shareholder or Shareholders Have Certain Approval or
Veto Rights", our investment in MSV has been recorded for all periods presented
in the consolidated financial statements included in this annual report pursuant
to the equity method of accounting.
Through November 2001, MSV used our satellite network to conduct research and
development activities. On November 26, 2001, we sold the assets comprising our
satellite communications business to MSV. In consideration for our satellite
business assets, we received the following:
o a $24.0 million cash payment in June 2000;
o a $41.0 million cash payment paid at closing on November 26, 2001, net of
$4.0 million retained by MSV related to our sublease of real estate from
MSV; and
o a five-year, $15.0 million note.
In this transaction, TMI Communications and Company, Limited Partnership, or
TMI, a Canadian satellite services provider, also contributed its satellite
communications business assets to MSV. In addition, Motient purchased a $2.5
million convertible note issued by MSV as part of this transaction, and certain
other investors, including a subsidiary of Rare Medium, purchased a total of
$52.5 million of MSV convertible notes. On August 12, 2002, we purchased an
additional $957,000 of MSV convertible notes. At December 31, 2002, on a fully
diluted basis, Motient owned approximately 25.5% of the equity of MSV, assuming
certain other investors fully exercised their option to make additional
investments in MSV as a result of the FCC's ATC approval process described more
fully below.
On August 21, 2003, two investors in MSV (excluding Motient) invested an
additional $3.7 million in MSV in exchange for Class A preferred units of
limited partnership interests in MSV. MSV used the proceeds from this investment
8
to repay other indebtedness that was senior in its right of repayment to
Motient's promissory note. Under the terms of the amended and restated
investment agreement, these investors also had the option of investing an
additional $17.6 million in MSV.
On April 2, 2004, an additional $17.6 million investment in MSV was consummated.
Of the proceeds, $5.0 million was used to repay certain outstanding indebtedness
of MSV, including $2.0 million of accrued interest under the $15.0 million
promissory note issued to Motient by MSV. The remainder of the proceeds from
this investment was used for general corporate purposes by MSV. Motient was
required to use 25% of the $2 million it received in this transaction, or
$500,000, to make prepayments under its existing notes owed to Rare Medium
Group, Inc. and Credit Suisse First Boston. As of the closing, Motient's
percentage ownership of MSV was approximately 29.5% (assuming conversion of all
outstanding convertible notes).
On November 12, 2004, we acquired approximately 5.4 million MSV limited
partnership units, and a corresponding number of shares in MSV's general
partner, Mobile Satellite Ventures GP Inc. ("MSV GP"). These units consist of
4.2 million units purchased for $125 million in cash and 1.2 million units
received for the cancellation of our $15 million principal note (and all accrued
interest thereon) issued by MSV and the conversion of $3.5 million of
convertible notes issued by MSV (including the cancellation of the accrued
interest on such convertible notes). In connection with our investment, the
other limited partners of MSV exchanged their outstanding notes (but not
generally the accrued interest thereon), and one limited partner contributed an
additional $20 million of cash, for limited partnership units and a
corresponding number of MSV GP shares. Such investments and conversions
increased Motient's ownership of MSV from 29.5% (assuming conversion of all
outstanding convertible notes) to 38.6%.
On February 9, 2005, Motient entered into a merger agreement with Telcom
Satellite Ventures Inc. and Telcom Satellite Ventures II Inc. and simultaneously
consummated the transactions contemplated thereby, pursuant to which Telcom
merged with and into MVH Holdings Inc., a direct and wholly-owned subsidiary of
Motient, in a tax free reorganization in which MVH is the surviving company. In
exchange for 2,296,835 MSV limited partnership units held by the Telcom
entities, Motient issued to Telcom's stockholders 8,187,804 shares of its common
stock.
Concurrently with this merger, Motient (through MVH) also purchased 373.7 shares
of common stock of Spectrum Space Equity Investors IV, Inc. and two other
related entities, representing approximately 66.3% of the outstanding common
stock of each of such entities, and 221.2 shares of common stock of Columbia
Space Partners, Inc. and two other related entities, representing approximately
27.8% of the outstanding common stock of such entities. In total, Motient issued
to the Spectrum entities and Columbia entities a total of 4,516,978 shares of
Motient common stock in a private placement in exchange for indirect ownership
through the Spectrum and Columbia entities of 1,267,098 MSV units.
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At the consummation of these transactions, Motient's direct and indirect
ownership of MSV was approximately 49%. Motient does not control MSV and
accounts for its investment under the equity method.
MSV's Next-Generation Communications System: ATC
In February 2003, the FCC adopted an order governing ancillary terrestrial
component, or ATC, technology, giving mobile satellite operators broad authority
to use their assigned spectrum to operate an ATC. ATC technology allows a
wireless provider to use satellite communications technology in conjunction with
more traditional land-based wireless communications technologies, allowing a
user to utilize a signal from both satellite and terrestrial locations,
depending on a variety of technical and cost concerns. ATC can enhance satellite
availability, efficiency and economic viability by terrestrially reusing at
least some of the frequencies that are allocated to the satellite systems. An
appeal of this decision has been filed before a federal court. We cannot predict
the outcome of this pending appeal.
Without ATC, it may be challenging for mobile satellite systems to reliably
serve densely populated areas, because the satellite's signal may be blocked by
high rise structures and may not penetrate into buildings. As a result, the
satellite spectrum may be underutilized or unused in such areas. The use of ATC
retransmission can reduce or eliminate this problem.
The ATC Order established a set of preconditions and technical limits for ATC
operations, as well as an application process for ATC approval of the specific
system incorporating the ATCs that the licensee intends to use. On November 18,
2003, MSV filed an application with the FCC to expand the use of its L-band
spectrum and construct its next-generation hybrid network with ATC. On November
8, 2004 the FCC issued an order granting MSV the first ATC license ever granted
by the FCC. The FCC also approved several of MSV's waiver requests, allowing MSV
to further enhance its service coverage, but it specifically deferred its ruling
on other MSV waiver requests. The order sets forth various limitations and
conditions necessary to the use of ATC by MSV, but there can be no assurances
that such conditions will be satisfied by MSV, or that such limitations will not
be unnecessarily burdensome to MSV. One of MSV's competitors has asked the FCC
to review the November 8, 2004 decision. We cannot predict the outcome of this
review. On February 25, 2005, the FCC issued a revised set of rules following a
detailed multi-year process for the use of ATC. The rules expanded the technical
and operational flexibility of ATC Services allowing for greater capacity in
both the uplink and downlink directions. These rules are subject to challenge at
the FCC or before a federal court.
MSV's Spectrum Assets
MSV, together with Mobile Satellite Ventures (Canada) Inc., licensed by Industry
Canada, has access to more than 25 MHz of L-band spectrum that is authorized for
use in every market in North America. The L-band spectrum is positioned within
the range of frequencies used by terrestrial wireless providers in North
America. In addition to its L-band spectrum, MSV has certain rights to receive
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nationwide spectrum in the S-band (2 GHz range) from its affiliate, TMI
Communications and Company, Limited Partnership, or TMI, as a result of
authorizations from the FCC and Canada's regulatory authority. The S-band
authorizations contain certain conditions and require the satisfaction of
certain satellite construction and other milestones. Additionally, the amount of
the S-band spectrum that can be utilized by any one operator is contingent upon
the number of remaining authorized operators in the band as determined by their
respective ability to meet construction and other milestones. There can be no
assurance that such conditions and milestones will be satisfied. Also, the
transfer of the S-band authorizations to MSV is subject to approval by the FCC
and Canadian regulatory authority.
For additional information regarding MSV, please see the financial statements of
MSV beginning on page M-1.
Fresh Start Accounting
In January 2002, Motient and an informal committee of its senior noteholders
reached an agreement in principle with respect to the primary terms of a Plan of
Reorganization of Motient and its principal subsidiaries. Accordingly, on
January 10, 2002, Motient and certain of its subsidiaries filed for protection
under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court
for the Eastern District of Virginia. The Bankruptcy Court confirmed the Plan of
Reorganization on April 26, 2002, and the Plan became effective on May 1, 2002.
Upon effectiveness of the Plan, the ownership of Motient changed significantly,
with creditors becoming the new owners of substantially all of the equity of
Motient. Under the Plan, holders of the senior notes exchanged the principal
amount of their notes and all accrued interest thereon for shares of our common
stock. In addition, certain of our trade creditors received shares of our common
stock in settlement of their claims. All then outstanding shares of our
pre-reorganization common stock and all unexercised options and warrants were
cancelled. Holders of our pre-reorganization common stock received warrants to
purchase an aggregate of approximately 1,496,512 shares of common stock. These
warrants never vested and therefore they expired on May 1, 2004. Additionally,
our certificate of incorporation and bylaws were amended and restated. Our
restated certificate of incorporation authorizes Motient to issue up to 100
million shares of common stock and up to 5 million shares of preferred stock.
On the effective date of our Plan of Reorganization, a new board of directors of
Motient consisting of seven members was established. Effective May 1, 2002, we
adopted "fresh-start" accounting in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code". We determined that the
selection of May 1, 2002 versus April 26, 2002 for the "fresh-start" date was
more convenient for financial statement reporting purposes and that the results
for the period from April 26, 2002 to May 1, 2002 were immaterial to our
consolidated financial statements. Under "fresh-start" accounting, a new entity
has been deemed created for financial reporting purposes.
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Further details regarding the Plan of Reorganization are contained in our
disclosure statement with respect to the Plan of Reorganization, which was filed
as Exhibit 99.2 to our current report on Form 8-K dated March 4, 2002.
Motient's Business Strategy
Motient's objective is to use its enterprise wireless data experience to
continue to penetrate the large markets for mobile data communications services
and solutions and wireless telemetry applications while keeping costs under
control. To meet these objectives, we intend to:
Focus Growth Efforts on iMotient Solutions Service Platform. In December 2004,
we launched a new set of products and services designed to provide seamless
wireless data solutions to our customers over multiple networks called iMotient
Solutions(TM). iMotient allows Motient's customers to use multiple networks via
a single connection to Motient's back-office systems, providing a one-source
alternative for development, device management and billing across multiple
networks, including but not limited to GPRS, 1XRTT, and DataTac. Once connected
to iMotient, customers will receive proprietary applications and services that
reduce airtime usage, improve performance and reduce costs. As part of the
iMotient Solutions platform, in addition to selling wireless services that use
our own network, we are also a reseller of airtime on the Cingular and Sprint
wireless networks. These reseller agreements allow us to sell and promote
applications and solutions to enterprise accounts on networks with greater
capacity than our own, while still maintaining a direct relationship with the
customer, since "back office" functions like customer support, application
design and implementation and billing, among other support services are handled
by Motient.
Focus Growth Efforts for the DataTac Network on Network Efficient Applications.
Certain applications have key attributes that make them an efficient use of the
Motient DataTac network. Applications such as wireless point-of-sale and
transportation and dispatching applications (found in industries such as
transportation, trucking and credit card processing) typically have small
bandwidth requirements and can be designed to utilize the network on a 24 hours
per day, 7 days per week basis, thus smoothing loading requirements and
optimally using our existing capacity. We believe that these kinds of
applications are poised for significant growth and that this growth can be
accommodated efficiently on the existing Motient DataTac network, and we have
signed agreements with several resellers that specialize in these kinds of
applications. This focus could also allow for some excess capacity to be
removed from our DataTac network in the future, which would reduce our operating
costs.
Leverage Motient's Expertise in Selling and Provisioning Complete Wireless Data
Solutions for Business Customers. A key strategic asset of Motient is its
experienced sales, customer care and technical support team. This team is
qualified to sell complete wireless data solutions, rather than simply devices
and network airtime, that may include network services that utilize more than
Motient's core terrestrial network, such as customer support and business
services.
Develop New Wireless Applications to Increase Demand and Revenue Per Subscriber.
Motient intends to exploit the market potential of its wireless network by
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working with other companies to develop additional innovative wireless
applications. As market acceptance and demand for wireless email grows, Motient
believes users will demand an increasing variety of Internet-based content and
services. Motient currently offers content-based services for use with its eLink
service provided by GoAmerica and Notify Inc.
Leverage Distribution Resources of Strategic Resellers. To penetrate target
markets without significant direct sales and marketing expenses, Motient has
signed a number of strategic alliances with various industry leaders. Motient
intends to leverage the relationships, marketing and distribution resources and
large existing customer bases of these resellers to reach significantly more
potential customers than Motient would be able to address on its own. Motient
has a roster of resellers and resale contracts with third parties, including
SkyTel Communications, Inc., Metrocall Wireless, Inc., Geologic Solutions
(formerly Aether Systems, which purchased our transportation assets in November
2000), Research In Motion, Ltd. and Earthlink, Inc., among others. Motient has
also entered into agreements with a number of device manufacturers, resellers
and software vendors to develop and offer a variety of specialized applications,
including heating, ventilation and air conditioning, commonly known as HVAC,
system monitoring, energy meter reading, office and vending machine automation
and wireless point-of-sale applications such as credit card processing. Motient
plans to continue to seek new strategic distribution channels that will enable
it to more fully penetrate its existing markets and access potential new
markets. In addition, Motient intends to exploit cross-selling opportunities
using some of its existing large corporate customers in the future.
Effectively Manage the Anticipated Migration of our Mobile Internet Segment
Customers. Due to the emergence of high-bandwidth competitive data networks, and
with additional voice service capabilities, as well as limitations on the number
of available mobile internet user devices, primarily as a result of Research In
Motion's decision in 2003 to discontinue the RIM 857 product line on our DataTac
network, we are implementing initiatives to manage the migration of these
customers to next-generation network solutions. These initiatives include
supporting customer migration efforts by referring these customer relationships
to T-Mobile through our sub-dealer agreements with RACO Wireless or otherwise
through eAccess Solutions, Inc. This allows us to continue to support our
customers' needs, while also generating revenue from these customers. This
migration of customers could also allow for some excess capacity to be removed
from our network, which would reduce our operating costs.
Work With Vendors to Develop Less Expensive and More Functional User Devices to
Address Competition and Increase Demand for its Services. Motient plans to
continue to work with vendors to develop new generations of user devices and
applications that combine improved functionality and convenience at a lower
price. Motient also plans to continue to incorporate inexpensive, off the shelf
software or free software in its services. Motient believes that lower price
points will help accelerate the acceptance and adoption of its services in its
traditional markets and will also enable Motient to better penetrate its
targeted new wireless markets. By working with suppliers and by making strategic
software and hardware investments, Motient has lowered the total cost of
ownership of its products. At the same time, Motient has improved the
functionality of its devices and made them smaller and more convenient.
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Take Advantage of Motient's Professional Service and Back-Office Capabilities to
Potentially Generate New Revenue Opportunities. Motient has deployed
comprehensive and customized wireless data communications solutions for
businesses for over a decade. These wireless data communications solutions have
often required specialized billing, data switching requirements and inventory
and reporting requirements, among other customized back-office capabilities.
With our new iMotient platform, these professional services and back-office
capabilities can be customized to satisfy existing and new customers on
Motient's network or alternative networks. Motient believes that these
professional services and back-office capabilities can be positioned as network
or carrier agnostic and thus provide customers potentially expansive network
capabilities and service at the lowest cost.
Rationalize Cost Structure & Improve Network Utilization. Motient plans to
rationalize its network infrastructure by focusing on market segments that are
most appropriate for its technology. We intend to focus on the markets
identified above because we believe that this will enable us to grow our
revenues while also reducing the operating cost of our network, because these
markets are less demanding on our network.
Motient's Wireless Service Offerings
General
Motient sells wireless devices, airtime and applications. Our wireless data
applications include wireless email, wireless internet and intranet access,
wireless faxing, paging and peer-to-peer communications, wireless asset tracking
and dispatching, and wireless point-of-sale and data monitoring applications.
Motient supports 8 types of devices from 8 different manufacturers for use on
our network. These devices include Research In Motion handheld devices,
ruggedized laptops, handheld digital assistants and wireless modems for personal
computers, or PCs. Motient has also developed proprietary software and has
engaged a variety of other software firms to develop other "middleware," to
assist its customers' development efforts in connecting their applications to
our network. Also, a number of off-the-shelf software packages enable popular
email software applications on Motient's network.
Motient also has agreements with Sprint and Cingular to resell airtime
subscriptions and communications devices for use on their next generation
high-speed networks for wireless data communications services. In doing so,
Motient believes we will be able to enhance our sales performance by offering
enterprise customers a full array of technology solutions that meet their needs,
independent of the network.
iMotient Solutions
In December 2004, we announced the creation of iMotient Solutions(TM) and that
we are a reseller of airtime on the Cingular and Sprint wireless networks. These
reseller agreements allow us to sell and promote wireless data applications and
solutions to customers using networks that are more modern, and therefore have
greater capacity, than our own DataTac network, while still maintaining a direct
relationship with the customer, since "back office" functions like customer
support, application design and implementation and billing, among other things,
are handled by Motient.
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The iMotient Solutions set of products and services allows Motient's customers
to use these multiple networks via a single connection to Motient's back-office
systems, providing a one-source alternative for software and application
development, device management and billing across multiple networks, including
but not limited to GPRS, 1XRTT and DataTac networks. Once connected to iMotient,
customers will receive our proprietary applications and services that reduce
airtime usage, improve performance and reduce costs.
Wireless Internet
Motient offers a variety of wireless email solutions for its network, including
its own eLink wireless e-mail applications, as well as Research In Motion's, or
RIM's, BlackBerry(TM) wireless solution for use on its own network.
Motient's eLink and BlackBerry(TM) applications for use on Motient's DataTac
network are generally used on wireless handheld devices manufactured by Research
In Motion, including the RIM 850 and RIM 857 wireless handhelds. Production of
the RIM 850 and RIM 857 wireless handhelds has been discontinued by Research in
Motion, as they cannot offer many of the features, like voice capability, that
the newer RIM devices can. For these reasons, we do not anticipate significant
future sales of these wireless internet devices, applications and services. In
addition, due to the competitive nature of this market segment from wireless
carriers with greater financial resources than our own, we expect this revenue
segment to decline in the future as customers migrate to alternative networks.
Motient can offer its customers an opportunity to utilize T-Mobile's GPRS
network for their wireless email solutions via its sub-dealer agreement with
RACO Wireless, Inc., a T-Mobile master dealer. T-Mobile's network can support
newer devices from RIM that are voice capable, among other things. Motient also
can offer its customers access to other alternative networks through its
agreement with eAccess Solutions, Inc.
We are currently exploring ways to offer comparable wireless email solutions
utilizing our iMotient Solutions platform in order to expand sales in this
market segment. There is no assurance that we can be successful in these efforts
and we may not be able to offer comparable competitive products.
Field Service Applications
In the field service market, long-standing customers, such as IBM, use Motient's
wireless network, wireless applications and professional support services and
back-office capabilities to enable their mobile field service technicians to
stay connected. For these and other field service customers, Motient also
provides critical professional support service and back-office functionality
tailored to our customers' respective communications requirements, such as
specialized billing, data switching, inventory tracking, customer support and
reporting.
The iMotient Solutions set of products and services will allow Motient to expand
sales in this market segment by using the coverage and capacity of multiple
networks.
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Transportation and Shipping
In the transportation and shipping market, customers take advantage of Motient's
network, data switching and routing capabilities and professional support
services and back-office capabilities to provide effective communications
solutions to transportation and shipping fleets and other similar mobile
customers. For these and other transportation and shipping customers, Motient
also provides critical professional support service and back-office functions
tailored to our customers' respective communications requirements, such as
specialized billing, data switching, inventory tracking, customer support and
reporting.
The iMotient Solutions set of products and services will allow Motient to expand
its market presence in this vertical channel while leveraging the coverage and
capacity of multiple networks.
Telemetry
Telemetry involves the transmission of generally small amounts of data from a
remote device to a master collection or monitoring point. The data may be stored
in a mobile device and then transmitted when necessary or cost-effective.
Motient has signed agreements with a variety of resellers, device manufacturers
and software vendors in this market. We have also signed agreements with several
application service providers to develop and offer a variety of customer-driven
telemetry applications.
Applications include HVAC system monitoring, wireless point-of-sale systems,
energy monitoring, vending and office machine automation and security/alarm
monitoring. We believe that our expansive wireless network and telemetry
experience will allow us to provide cost-effective and comprehensive solutions
for these communication requirements.
The iMotient Solutions set of products and services will allow Motient to expand
sales in this market segment by using the coverage and capacity of multiple
networks.
Pricing of Services
Motient's customers are generally charged a monthly access fee or minimum usage
fee. Unless on a flat rate plan, users also pay for usage depending on the
number of kilobytes of data transmitted. Motient's pricing plans offer a wide
variety of volume packaging options, consistent with customer demand and market
conditions, from flat-rate plans to per message or per kilobyte plans. In
certain cases, primarily as it relates to strategic resellers, a percentage of
these subscriber units do not become revenue producing for up to several months
from initial registration on the network.
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Motient's Customers
As of December 31, 2004, there were approximately 132,000 user devices
registered on Motient's network, with 107,000 in a billable status and 77,000
with active usage. Motient's customer base consists of large corporations in the
following market categories:
Percentage of
Market Categories Billable Units
----------------- --------------
Transportation and package delivery 39%
Field service 7
Telemetry and point of sale 21
Wireless internet or email 33
----
Total 100%
====
For the year ended December 31, 2004, four customers accounted for approximately
40% of Motient's service revenue, with one of those customers, SkyTel,
accounting for more than 22%. The loss of one or more of these customers, or any
event, occurrence or development, which adversely affects Motient's relationship
with one or more of these customers, could harm Motient's business. The
contracts with these customers are generally multi-year contracts, and the
services provided pursuant to such contracts are generally customized
applications developed to work solely on Motient's network.
UPS, Motient's second largest customer for the year ended December 31, 2003 and
tenth largest customer for the year ended December 31, 2004, substantially
completed its migration to next generation network technology in the first six
months of 2003, and its monthly airtime usage of Motient's network declined
significantly. Consequently, the revenue and cash flows generated by UPS
declined significantly. While Motient expects that UPS will remain a customer
for the foreseeable future, there are no minimum purchase requirements under
Motient's contract with UPS and the contract may be terminated by UPS on 30
days' notice. As of December 31, 2004, UPS had approximately 4,700 user devices
actively passing traffic units on Motient's network.
In addition, due to a separate arrangement entered into in 2002 under which UPS
prepaid for network airtime to be used by it in 2004 and beyond, we do not
expect that UPS will be required to make any cash payments to us through 2006
for service to be provided through 2006. As of December 31, 2004 the value of
our remaining airtime service obligations to UPS in respect of the prepayment
was approximately $4.0 million. If UPS terminates its contract with Motient, any
remaining prepayment would be required to be repaid.
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Marketing and Distribution
Motient markets its wireless services through strategic distribution resellers
and its direct sales force.
Strategic Alliances and Resellers
To penetrate new wireless data markets, which Motient believes have significant
growth potential, we have signed contracts for a variety of strategic alliances,
including with industry leaders. Motient intends to use the marketing and
distribution resources and large existing customer bases of these resellers to
address significantly more potential customers than Motient would be able to
address on its own.
Motient is continuing to seek additional strategic distribution channels to help
us move forward with our plan to more fully penetrate our existing markets and
access potential new markets on an incremental basis.
Furthermore, Motient has broadened its product line by entering into agreements
with Sprint and Cingular to include their next generation high-speed data
services in Motient's product offerings. By doing so, Motient believes that it
will be able to market itself as a "one-stop shop" for a full array of
technology and product offerings, not just those products operating on the
Motient network.
Direct Sales Force
Motient has a direct sales force that is experienced in selling its various
wireless services. Prior to making a buying decision, a majority of Motient's
potential customers exercise a due diligence process where competitive
alternatives are evaluated. Motient's employees often assist in developing
justification studies, application design support, hardware testing, planning
and training. Motient's internal sales force has been key to its ability to
convey customer feedback to its product management team, enabling Motient to
identify and develop new product and service features. Motient's internal sales
force is also supported by technical project managers that assist customers to
assess, design and implement their wireless data need and solutions.
Motient's Network
Motient's two-way wireless radio data network provides a wide range of mobile
data services. Users of Motient's network access it through subscriber units
that may be portable, mobile or stationary devices. Subscriber units receive and
transmit wireless data messages to and from terrestrial radio
transmitters/receivers, known as base stations, which are located on various
leased antenna sites across the United States. Terrestrial messages are then
routed to their destination via leased communications circuits and data switches
that Motient owns, which connect to the public data network.
Motient's terrestrial network delivers superior in-building penetration,
completion rates and response times compared to other wireless data networks
through the use of a patented single frequency reuse technology developed by
Motorola. Single frequency reuse technology enables multiple base stations in a
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given area to use the same frequency. As a result, a message sent by a
subscriber can be received by a number of base stations. This technology
contrasts with more commonly used multiple frequency reuse systems, which
provide for only one transmission path for a given message at a particular
frequency. In comparison with multiple frequency reuse systems, Motient's
technology provides superior in-building penetration and response times and
enables it to incrementally deploy additional capacity as required, instead of
in larger increments as required by most wireless networks.
Equipment and Supplier Relationships
Motient has contracts with a variety of vendors to supply devices designed to
meet the requirements of specific end-user applications on its DataTac network.
Motient continues to pursue enhancements to these devices that will result in
additional desirable features and reduced cost of ownership. Although many of
the components of its products are available from a number of different
suppliers, Motient relies on a relatively small number of key suppliers for
devices for its DataTac network. The devices used with Motient's services
generally are subject to various product certification requirements and
regulatory approvals before they are delivered for use by its customers. There
are currently eight types of subscriber units available from eight different
manufacturers that can operate on Motient's terrestrial network. Examples of
portable subscriber units include ruggedized laptop computers, small external
modems, handheld or palmtop "assistants" and pen-based "tablets." Motient is
also working with other device manufacturers and software developers to bring
its network services to other existing popular PDA and wireless email platforms.
Under our iMotient Solutions platform and our reseller agreements with Cingular
and Sprint, we have access to a variety of vendors to supply devices designed to
meet the requirements of specific end-user applications. These vendors have
certified devices for use on either or both of the Cingular or Sprint networks,
and we are able to use any certified device that supports GPRS data on Cingular
or any 1XRTT device certified on Sprint's network.
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AT&T Corp. provides network telecommunications services, including a nationwide
wireline data network, and leased sites which house regional switching equipment
for Motient's terrestrial network. Motient also has a relationship with AT&T as
Motient's vendor for switched inbound and outbound public switched telephone
network services, which connect Motient's network to the public
telecommunications network.
Motient's terrestrial DataTac network, and certain of its competitive strengths
such as comparatively strong in-building penetration, is based upon single
frequency reuse technology. Motorola holds the patent for the single frequency
reuse technology. Motient has entered into several agreements with Motorola
historically under which Motorola provided certain continued support for the
terrestrial network infrastructure, and ongoing maintenance and service of the
terrestrial network base stations. We do not currently have any service
agreement with Motorola.
Competition
The wireless communications industry is highly competitive and is characterized
by constant technological innovation. Motient competes by providing access to
multiple networks, broad geographic coverage, deep in-building penetration,
demonstrated reliability and experience in designing and implementing software
and other wireless applications for enterprise customers. These features
distinguish Motient from the competition. Motient's wireless solutions are used
by businesses that need critical customer and operational information in a
mobile environment. Motient offers multiple business lines and competes with a
variety of service providers, from small startups to Fortune 500 companies.
Motient's competitors include service providers in several markets--dedicated
mobile data, PCS and cellular, narrowband PCS/enhanced paging and emerging
technology platforms. Motient's agreements with Sprint and Cingular are not
exclusive and other wireless services providers have similar agreements with
these carriers.
Employees
On December 31, 2004 and March 15, 2005, Motient had 95 and 94 employees,
respectively. None of Motient's employees are represented by a labor union.
Motient considers its relations with its employees to be good.
Regulation
The terrestrial two-way wireless data network used in Motient's wireless
business is regulated to varying degrees at the federal, state and local levels.
Various legislative and regulatory proposals under consideration from time to
time by Congress and the FCC have in the past materially affected and may in the
future materially affect the telecommunications industry in general, and
Motient's wireless business in particular. The following is a summary of
significant laws, regulations and policies affecting the operation of Motient's
wireless business. In addition, many aspects of regulation at the federal, state
and local level currently are subject to judicial review or are the subject of
administrative or legislative proposals to modify, repeal, or adopt new laws and
administrative regulations and policies. Neither the outcome of these
proceedings nor their impact on Motient's operations can be predicted at this
time.
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The ownership and operation of Motient's terrestrial network is subject to the
rules and regulations of the FCC, which acts under authority established by the
Communications Act of 1934, as amended, and related federal laws. Among other
things, the FCC allocates portions of the radio frequency spectrum to certain
services and grants licenses to and regulates individual entities using that
spectrum. Motient operates pursuant to various licenses granted by the FCC.
Motient is a commercial mobile radio service provider and therefore is regulated
as a common carrier. Motient must offer service at just and reasonable rates on
a first-come, first-served basis, without any unjust or unreasonable
discrimination, and Motient is subject to the FCC's complaint processes. The FCC
has decided not to apply or to withhold its right, at this time, to apply
numerous common carrier provisions of the Communications Act to commercial
mobile radio service providers. In particular, Motient is not subject to
traditional public utility rate-of-return regulation, and is not required to
file tariffs with the FCC.
The FCC's universal service fund supports the provision of affordable
telecommunications to high-cost areas and the provision of advanced
telecommunications services to schools, libraries, and rural health care
providers. Under the FCC's current rules, end-user revenues derived from the
sale of information and other non-telecommunication services and certain
wholesale revenues derived from the sale of telecommunications services are not
subject to universal service fund obligations. Generally, Motient is not
required to contribute to the universal service fund. Current rules also do not
require that Motient impute to its contribution base retail revenues derived
when it uses its own transmission facilities to provide a service that includes
both information service and telecommunications components. There can be no
assurances that the FCC will retain the exclusions described herein or its
current policy regarding the scope of a carrier's contribution base. Motient may
also be required to contribute to state universal service programs. The
requirement to make these state universal service payments, the amount of which
in some cases may be subject to change and is not yet determined, may have a
material adverse impact on the conduct of Motient's business.
Motient is subject to the Communications Assistance for Law Enforcement Act, or
CALEA. Under CALEA, Motient must ensure that law enforcement agencies can
intercept certain communications transmitted over its network. Motient must also
ensure that law enforcement agencies are able to access certain call-identifying
information relating to communications over Motient's network. The deadline for
complying with the CALEA requirements and any rules subsequently promulgated was
June 30, 2002. Based on discussions with Federal law enforcement agencies
regarding the applicability of CALEA's provisions to Motient, we do not believe
that our network, which uses packet data technology, is subject to the
requirements of CALEA. At the suggestion of Federal law enforcement agencies, we
have developed an alternative methodology for intercepting certain
communications over our network for the purposes of law enforcement
surveillance. We believe this alternative methodology has substantially the same
functionality as the standards provided in CALEA. It is possible that our
21
alternative methodology may ultimately be found not to comply with CALEA's
requirements, or that our interpretation that CALEA does not apply to our
network may ultimately be found to be incorrect.
In addition, CALEA establishes a federal fund to compensate telecommunications
carriers for all reasonable costs directly associated with modifications
performed by carriers in connection with equipment, facilities and services
installed or deployed on or before January 1, 1995. For equipment, facilities
and services deployed after January 1, 1995, the CALEA fund is intended to
compensate carriers for any reasonable costs associated with modifications
required to make compliance "reasonably achievable." It is possible that all
necessary modifications will not qualify for this compensation and that the
available funds will not be sufficient to reimburse Motient. Therefore, the
requirement to comply with CALEA could have a material adverse effect on the
conduct of Motient's business.
Motient's FCC licenses are renewable, site-based, 800 MHz licenses, granted for
a term of 10 years. Renewal is granted in the ordinary course for licenses like
those which Motient holds.
Motient's FCC licenses are subject to restrictions in the Communications Act
that (i) some FCC licenses may not be held by a corporation of which more than
20% of its capital stock is directly owned of record or voted by non-U.S.
citizens or entities or their representatives and (ii) no such FCC license may
be held by a corporation controlled by another corporation, referred to as
indirect ownership, if more than 25% of the controlling corporation's capital
stock is owned of record or voted by non-U.S. citizens or entities or their
representatives, if the FCC finds that the public interest is served by the
refusal or revocation of such license. However, with the implementation of the
Basic Telecommunications Agreement, negotiated under the auspices of the World
Trade Organization and to which the United States is a party, the FCC will
presume that indirect ownership interests in our FCC licenses in excess of 25%
by non-U.S. citizens or entities will be permissible to the extent that the
ownership interests are from World Trade Organization-member countries. If the
25% foreign ownership limit is exceeded, the FCC could take a range of potential
actions that could harm Motient's business.
In order to address certain concerns from wireless users in the public safety
community, such as fire and police departments, on July 8, 2004, the FCC
approved adoption of a reconfiguration plan for the 800 MHz spectrum band. Under
the plan, Nextel Communications Inc. will occupy spectrum in the 1.9 GHz band in
exchange for, among other things, (1) relocating and retuning public safety
licensees in the 800 MHz band, and (2) consolidating its own 800MHz frequencies
in the so-called "upper 800" MHz band. On April 8, 2004, Motient filed a request
with the FCC asking that the FCC relocate its 800MHz band frequencies into the
"Guard Band", which is that portion of the 800 MHz frequency band immediately
adjacent to the upper-800 as part of the 800 MHz reconfiguration plan. On August
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6, 2004, the FCC released the text of its July 8, 2004 order. The text of the
order did not grant Motient's request, but neither did it explicitly deny it. On
December 2, 2004, Motient filed comments with the FCC seeking to clarify and
implement Motient's original request of April 8, 2004. On December 22, 2004, the
FCC clarified that Motient would generally be allowed, subject to certain
conditions, to move its 800 MHz frequencies to the upper-800 MHz band. Motient
cannot assure you that its operations will be not affected by the adoption or
implementation of this order or any subsequent addenda.
As a result of our ongoing network rationalization efforts, our 800 MHz FCC
licenses may be lost in markets to which we are discontinuing service. We
believe that the value of our FCC licenses in these smaller markets is very
small compared to the value of our FCC licenses in the top 40 MSAs. While we are
taking steps to avoid this possibility, and while we believe that any such
losses would not be material to our business, we can provide no assurance that
any such losses would not negatively impact our business.
Accounting and Auditing Matters
On March 2, 2004, we dismissed PricewaterhouseCoopers as our independent
auditors. The audit committee of our board of directors approved the dismissal
of PricewaterhouseCoopers. PricewaterhouseCoopers was previously appointed to
audit our consolidated financial statements for the period May 1, 2002 to
December 31, 2002, and, by its terms, such engagement was to terminate upon the
completion of services related to such audit.
PricewaterhouseCoopers has not reported on our consolidated financial statements
for such period or for any other fiscal period. On March 2, 2004, the audit
committee engaged Ehrenkrantz Sterling & Co. LLC as Motient's independent
auditors to audit our consolidated financial statements for the period May 1,
2002 to December 31, 2002 and for the fiscal year ended December 31, 2003.
On June 1, 2004, Ehrenkrantz Sterling & Co. LLC, merged with the firm of
Friedman Alpren & Green LLP. The new entity, Friedman LLP has been retained by
Motient and the Audit Committee of Motient's Board of Directors approved this
decision on June 4, 2004.
Risk Factors
An investment in our common stock involves risks. Any of the following risks, as
well as other risks and uncertainties, could harm our business and financial
results and cause the value of our securities to decline, which in turn could
cause investors to lose all or part of their investment in us. The risks below
are not the only ones we face. Additional risks not currently known to us, or
that we currently deem immaterial also may impair our business.
We have undergone significant organizational restructuring and we face
substantial operational challenges.
We have been forced to take material actions to reduce operating costs and
preserve our remaining cash. For example, in February 2004 we effected a
reduction in force that reduced our workforce from approximately 166 to 112
employees. The elimination of certain sales and other personnel may have a
negative effect on our future revenues and growth prospects and our ability to
support new product initiatives and generate customer demand. In addition, over
the course of 2004 we removed unneeded capacity across the network by
deconstructing under-utilized and un-profitable base stations. In addition,
during the first quarter of 2005, Motient initiated a plan to refocus its
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DataTac network primarily on the top 40 Metropolitan Statistical Areas (MSAs).
This plan involves the decommissioning of DataTac network components and
termination of service in previously served MSAs above Top 40. Given the similar
coverage profiles of the Cingular and Sprint networks, the significantly
increased bandwidth capabilities of these networks relative to DataTac and the
concentration of our revenues in the top 40 MSAs, we determined that this plan
best allowed us to match our network infrastructure costs with our revenue base,
while continuing to meet the needs of as many of our customers as possible. As
Motient begins decommissioning its DataTac network outside of the 40 largest
MSA, it may be faced with the loss of certain FCC licenses in those areas.
Motient anticipates that if it is not able to sell, lease or otherwise monetize
these frequencies, it may be forced to return the underlying licenses to the
FCC. We have discussed these changes to our network with many of our customers
to assist them in evaluating the potential impact, if any, to their respective
communications requirements. These reductions in network capacity and coverage
may have a negative effect on our future revenues and growth prospects.
We are not and may never be cash flow positive, and our prospects will depend on
our ability to control our costs while maintaining and improving our service
levels.
We do not generate sufficient cash from operations to cover our operating
expenses, and it is unclear when, or if, we will be able to do so. As a result,
we have been involved in the process of reducing our expenditures in a variety
of areas, including a reduction in the number of our employees, the closure of
our Reston facility and the restructuring and reduction of our network. We also
have renegotiated several of our key vendor and customer arrangements and
continue to aggressively pursue further vendor cost reductions when
opportunities arise. We continue to use more cash than we generate from
operations. Our prospects will depend in part on our ability to reduce operating
costs further and operate more efficiently, while maintaining and improving our
service levels.
We will need additional liquidity to fund our operations.
We do not generate sufficient cash from operations to cover our operating
expenses, and it is unclear when, or if, we will be able to do so. Even if we
begin to generate cash in excess of our operating expenses, we expect to require
additional funds to meet capital expenditures and other non-operating cash
expenses. We currently anticipate that our funding requirements through 2005
should be met through a combination of various sources, including:
o cash on hand
o cash from a rights offering announced in December 2004, expected to be
completed by May or June 2005, and,
o cash from the exercise of outstanding options and warrants
There can be no assurance that the foregoing sources of liquidity will provide
sufficient funds in the amounts or at the time that funding is required. In
addition, if our ability to realize such liquidity from any such source is
delayed or the proceeds from any such source are insufficient to meet our
expenditure requirements as they arise, we will seek additional equity or debt
financing, although such additional financing may not be available on reasonable
terms, if at all.
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We will continue to incur significant losses.
If we do not become profitable, we could have difficulty obtaining funds to
continue our operations. We have incurred net losses every year since we began
operations. These losses are due to the costs of developing and building our
network and the costs of developing, selling and providing products and
services. Although we have significantly reduced our losses, we will continue to
have losses in the future.
We generate a large part of our revenues and cash flows from a small number of
customers, and the loss of one or more key customers could result in a
significant reduction in revenues and cash flows.
For the year ended December 31, 2004, four customers accounted for approximately
40% of our service revenue, with one of those customers, SkyTel Communications,
Inc., accounting for more than 22%. None of these significant customers are
obligated to purchase any minimum quantity of airtime, service or hardware from
us. There can be no assurance that the revenue generated from our largest
customers will continue in future periods. We may lose certain revenues from
major customers due to churn and migration to alternative technologies. The loss
of one or more of our key customers, a material reduction in such customers' use
of our network, or any other event, occurrence or development which adversely
affects our relationship with one or more of these customers, could harm our
business by reducing revenue and reducing net cash flow from operations.
In addition, United Parcel Service, Inc., or UPS, our second largest customer
for the year ended December 31, 2003 and our tenth largest customer for the year
ended December 31, 2004, substantially completed its migration to next
generation network technology by the end of the second quarter of 2003, and its
monthly airtime usage of our network declined significantly. In December 2002 we
entered into a separate agreement with UPS under which UPS made a significant
prepayment for network airtime service to be provided beginning January 1, 2004.
The prepayment was credited against airtime services provided to UPS beginning
January 1, 2004, until the prepayment is fully credited. If UPS terminates our
contract (which it may do on 30 days' notice), any remaining prepayment would be
required to be repaid. Based on the current level of network airtime usage by
UPS, we do not expect that UPS will be required to make any cash payments to us
through 2006 for service provided through 2006.
Our growth has been curtailed by funding constraints.
We have significantly decreased the amount that we are spending on the
maintenance and growth of our operations, network and subscriber base due to our
liquidity constraints. We have taken a number of steps to continue to reduce our
operating and capital expenditures in order to lower our cash burn rate. Our
failure to generate or raise sufficient funds may require us to delay or abandon
some of our expenditures, which could harm our business and competitive
position.
We face burdens relating to the recent trend toward stricter corporate
governance and financial reporting standards.
25
New legislation or regulations that follow the trend of imposing stricter
corporate governance and financial reporting standards, including compliance
with Section 404 of the Sarbanes-Oxley Act of 2002, may lead to an increase in
our costs of compliance. Beginning with our annual report on Form 10-K for the
year ended December 31, 2004, we will be required to file our quarterly and
annual reports on an accelerated basis, which we have not been required to do in
the past. A failure to comply with these new laws and regulations may impact
market perception of our financial condition and could materially harm our
business. Additionally, it is unclear what additional laws or regulations may
develop, and we cannot predict the ultimate impact of any future changes.
We may not be able to realize value from our investment in MSV due to risks
associated with MSV's next-generation business plan.
MSV's next-generation business plan involving the development of a next
generation network that combines satellite services with ancillary terrestrial
components, or ATC, is novel and without established precedent. Neither MSV nor
any other company has developed an integrated hybrid network combining satellite
services with ATC, and MSV's success will depend on several factors, including:
o the ultimate resolution of pending FCC and court proceedings with
respect to MSV's L-band license and S-band rights;
o MSV's ability to effectively make use of spectrum in the S-band and
L-band;
o MSV's ability to structure partnerships to fund its next generation
system consistent with various regulations governing ownership and
operation of both satellite assets and ATC;
o MSV's ability to coordinate with other satellite system operators to
optimize both its overall spectrum access and the utility of its
spectrum for certain wireless protocols;
o whether the price paid for spectrum in prior transactions is
indicative of the future value of MSV's spectrum assets and MSV's
ability to effect transactions that realize the value of such spectrum
assets;
o the supply of available wireless spectrum in the marketplace;
o MSV's ability to develop and integrate the complex technologies
associated with its next-generation system as well as appropriately
and effectively manage interference;
o MSV's ability to develop and deploy innovative network management
techniques to permit mobile devices to seamlessly transition between
satellite and terrestrial mode;
o the construction, delivery and launch of MSV's next-generation
satellites and the maintenance of MSV's existing geostationary
satellites;
o MSV's ability to obtain funding for the construction of the satellite
component of its next-generation service on favorable terms;
o MSV's dependence on one or more third party partners to construct the
terrestrial base station component of its next-generation network;
o market acceptance and level of demand for MSV's next-generation
network; and
o protection of MSV's proprietary information and intellectual property
rights.
26
If MSV is unable to implement its next-generation business strategy, our
investment in MSV could be materially and adversely affected. For additional
information regarding MSV, please see the financial statements of MSV beginning
on page M-1.
Motient may have to take actions which are disruptive to its business to avoid
registration under the Investment Company Act of 1940.
Motient may have to take actions which are disruptive to its business if it is
deemed to be an investment company under the Investment Company Act of 1940.
Motient's equity investments, in particular its ownership interests in MSV, may
constitute investment securities under the Investment Company Act. A company may
be deemed to be an investment company if it owns investment securities with a
value exceeding 40% of its total assets excluding cash items and government
securities, subject to certain other exclusions. Investment companies are
required to register under and comply with the Investment Company Act unless an
exclusion or SEC safe harbor applies. If Motient were to be deemed an investment
company, it would become subject to the requirements of the Investment Company
Act. As a consequence, Motient would be prohibited from engaging in business as
it has in the past and might be subject to civil and criminal penalties for
noncompliance. In addition, certain of its contracts might be voidable, and a
court-appointed receiver could take control of Motient and liquidate its
business.
We could lose market share and revenues as a result of increasing competition
from companies in the wireless communications industry that have greater
resources and name recognition.
We expect to face intense competition in all of our markets, which could result
in a loss of customers and lower revenues and could make it more difficult for
us to enter new markets. Our competitors include service providers in several
markets -- dedicated mobile data, personal communications service, or PCS,
narrowband PCS/enhanced paging and emerging technology platforms. The growth in
wireless data opportunities has led traditional hardware manufacturers and
software developers to invest in technologies that will allow the migration of
core products and services to a mobile environment.
Our wireless internet service competes with a variety of services that offer
two-way messaging and personal digital assistant, or PDA, functionality on
small, portable devices. Most of these competing services are better established
in the marketplace, and many competitors have substantially greater financial,
technical, marketing, sales, distribution and other resources than we have. Our
agreement with Research In Motion permits us to market the BlackBerry(TM)
service in the United States on the Motient network. These and other firms may
enter the markets where we focus our sales efforts, which may create downward
pressure on the prices for our services and negatively impact our returns. Many
of the existing and potential competitors have financial and other resources far
greater than those of Motient. In addition, continuing consolidation in the
communications industry may strengthen existing competitors or give rise to
significant new competitors, which would threaten our business.
27
In addition, a variety of new technologies, devices and services will result in
new types of competition for us in the near future. The emergence of new
protocols such as the wireless access protocol, or WAP, and the Bluetooth
protocol enable the use of the Internet as a platform to exchange information
among people with different devices running on different networks. Also, several
large wireless providers are deploying new, so-called "2.5G" and "3G"
technologies, including new forms of CDMA, time division multiple access, or
TDMA, and GSM technologies, which will increase the data capabilities of
wireless voice and data services and will have a competitive impact on our
business.
Failure to keep pace with rapidly changing markets for wireless communications
would significantly harm our business.
The technology and markets for wireless communications services change rapidly.
Our success depends, in part, on our ability to respond and adapt to change. For
example, large wireless voice carriers are in the process of expanding their
ability to offer wireless data services that may compete with our services, by
deploying "2.5G" and "3G" technologies. These technologies, which include GPRS
and 1XRTT, support both wireless voice and packet data services. While we will
endeavor to enhance the efficiency and performance of our existing data-only
network through a variety of measures, we also expect to consider, as
appropriate, alliances or other contractual arrangements with larger wireless
communications providers, so that we can continue to offer as complete an array
of data services as possible. We cannot guarantee that we will be able to
compete effectively under, or adjust our contemplated plan of development to
meet, changing market conditions. We cannot guarantee that we will be able to
implement our strategy or that our strategy will be successful in these rapidly
evolving markets. The markets for wireless communications services are also
marked by the continuous introduction of new products and services and increased
capacity for services similar to those provided by Motient. Technological
advances may also increase the efficiency of existing products or services. If a
technology becomes available that is more cost-effective or creates a superior
product, we may be unable to access this technology or finance the necessary
substantial capital expenditures that may be required. Our technology may be
rendered less profitable or less viable by existing, proposed or as yet
undeveloped technologies. We cannot guarantee that we will have the financial
and other resources available to compete effectively against companies
possessing such technologies. We are unable to predict which of the many
possible future products and services will meet evolving industry standards and
consumer demands. We cannot guarantee that we can adapt to technological changes
or offer products or services on a timely basis to establish or maintain a
competitive position.
The success of our wireless communications business depends on our ability to
enter into and maintain third party distribution relationships.
A key element of our strategy is to develop and capitalize on distribution
relationships with leading companies who can provide access to significant
numbers of potential customers in our target markets. For example, Motient has
reseller agreements with SkyTel, Metrocall, Geologic Solutions and Earthlink, as
well as Research In Motion. Because we are relying on these distribution
28
companies to enable us to acquire subscribers, our success in penetrating our
targeted markets will depend, to a large extent, on the efforts of these
distribution companies, as well as future distribution companies. The rollout of
sales efforts by these distribution companies may be subject to delays, some of
which may be outside of our control. Some of our resellers have experienced
significant financial difficulties in recent periods. Our inability to fully
capitalize on our third party distribution agreements, the termination of or
failure to renew any of these agreements, or our inability to enter into similar
distribution relationships with other leading companies could reduce our access
and exposure to potential customers.
We expect to maintain a limited inventory of devices to be used in connection
with our wireless internet service, and any interruption in the supply of such
devices could significantly harm our business.
We depend on independent vendors to develop and manufacture wireless
communications devices for our networks, which are significant elements of our
business plan because most of our services require these devices. Numerous
vendors manufacture devices that can be utilized on the Cingular and Sprint
networks that can be offered to Motient's current and future customers through
our iMotient Solutions(TM) platform.
We carry a limited inventory of these devices and generally have no guaranteed
supply arrangements. Some of these suppliers and vendors are relatively small
companies and have limited resources and production capacities. In addition,
some of our sole-source suppliers themselves rely on sole- or limited-sources of
supply for components included in their devices.
We may not be able to develop, acquire and maintain proprietary information and
intellectual property rights, which could limit the growth of our business and
reduce our market share.
Our wireless communications business depends on technical knowledge, and we
believe that our future success is based, in part, on our ability to keep up
with new technological developments and incorporate them in our products and
services. We own or have the right to use certain of our work products,
inventions, designs, software, systems and similar know-how. While we have taken
steps to diligently protect that information, there is no assurance that the
information will not be disclosed to others or that others will not
independently develop similar information, systems and know-how. Protection of
our information, systems and know-how may result in litigation, the cost of
which could be substantial. There is also no assurance that third parties will
not assert claims that our products or services infringe on their proprietary
rights.
If we are found to infringe or misappropriate a third party's proprietary
rights, we could be required to pay damages to the third party, alter our
products or services, obtain a license from the third party or cease activities
utilizing these proprietary rights, including making or selling products or
services utilizing the proprietary rights. Our inability to do any of the
foregoing on commercially favorable terms could have a material adverse impact
on our business, financial condition or results of operations.
We also rely on some technologies licensed from third parties. We cannot be sure
that these licenses will remain available on commercially reasonable terms or at
all. The loss of these technologies could require us to obtain substitute
technology of lower quality or performance standards or at a greater cost, which
could harm our business.
29
Government regulation may increase our cost of providing services, slow our
expansion into new markets, subject our services to additional competitive
pressures and affect the value of our common stock.
Motient's ownership and operation of wireless communication systems are subject
to significant regulation by the FCC under authority granted by the
Communications Act of 1934 and related federal laws. There is no assurance that
the rules and regulations of the FCC will continue to support our operations as
presently conducted. A number of Motient's licenses are subject to renewal by
the FCC. We cannot guarantee that all existing licenses will be renewed and that
the requisite frequencies will be coordinated. Moreover, the recent changes to
our wireless network specifically the future discontinuance of service to
certain smaller markets, may result in the loss of our FCC licenses in such
markets. Current federal law requires prior FCC approval of greater than 25%
ownership of Motient by citizens or entities of foreign countries, which could
limit the value of our common stock.
Motient's competitive position may be harmed if the wireless terrestrial network
technology it licenses from Motorola is made available to competitors.
Motient holds a non-exclusive license to use a single frequency reuse
technology. The terrestrial network, and some of its competitive strengths, such
as in-building penetration, is based upon this technology. Under the terms of
the non-exclusive license, Motorola could enter into arrangements to license
this technology to any of our competitors, and those agreements could harm our
ability to compete.
We do not expect to pay any dividends on our common stock for the foreseeable
future.
We have never paid cash dividends on our common stock and do not anticipated
that any cash dividends will be paid on the common stock for the foreseeable
future. The payment of any dividend by us will be at the discretion of our board
of directors and will depend on, among other things, our earnings, capital
requirements and financial condition. In addition, under Delaware law, a
corporation cannot declare or pay dividends on its capital stock unless it has
an available surplus. Furthermore, the terms of some of our financing
arrangements directly limit our ability to pay cash dividends on our common
stock. The terms of any future indebtedness of our subsidiaries also may
generally restrict the ability of some of our subsidiaries to distribute
earnings or make other payments to us.
Future sales of our common stock could adversely affect its price and/or our
ability to raise capital.
Sales of substantial amounts of common stock, or the perception that such sales
could occur, could adversely affect the prevailing market price of the common
stock and our ability to raise capital. We have announced a rights offering,
pursuant to which we may sell up to 2.5 million shares of common stock at $8.57
per share.
We may issue additional common stock in future financing transactions or as
incentive compensation for our executives and other personnel, consultants and
advisors. Issuing any equity securities would be dilutive to the equity
interests represented by our then-outstanding shares of common stock. The market
price for our common stock could decrease as the market takes into account the
30
dilutive effect of any of these issuances. Any additional issuance of equity by
Motient would also be subject to certain pre-emptive rights held by the
investors in Motient's April, July and November 2004 private placements.
Finally, if Motient decides to file a registration statement to raise additional
capital (other than the rights offering mentioned above), some of Motient's
existing stockholders hold piggyback registration rights that, if exercised,
will require Motient to include their shares in the registration statement. Any
of these conditions could adversely affect Motient's ability to raise needed
capital.
Rights Offering
On November 22, Motient announced that it will issue to each of its stockholders
of record one right for each share of Motient common stock held as of the close
of business on December 17, 2004. Each right will entitle any holder that did
not participate in the April, July or November 2004 private placement to
purchase 0.103 shares of its common stock at a price of $8.57 per share, with
fractions rounded up to the next whole share. A maximum of 2.5 million shares
may be sold in the Rights Offering, generating maximum aggregate proceeds of
approximately $21.4 million.
The rights will be non-transferable and will expire if not exercised within the
exercise period. The rights will not be exercisable until the registration
statement covering the rights and the shares of underlying common stock is
declared effective by the SEC, and the exercise period will expire 30 days after
the rights become exercisable. Motient has not filed a registration statement
relating to the rights offering, but intends to do so as soon as reasonably
practicable. Motient expects to consummate this rights offering in mid 2005.
The holders of the rights will not have over-subscription rights, and there will
be no backstop to purchase unsubscribed shares. Purchasers that purchased shares
in the November 12, 2004 private placement of its common stock, which include
all purchasers in its April and July 2004 private placements, have waived their
right to participate in the rights offering. Motient reserves the right to
abandon this rights offering at any time prior to the effectiveness of the
registration statement relating to the rights offering, and upon any such
abandonment, any and all of the rights previously issued will be cancelled, will
no longer be exercisable and will be of no further force or effect.
Item 2. Properties.
- -------------------
Motient leases approximately 79,000 square feet for headquarters office space
and an operations center in Lincolnshire, IL, the lease for which expires
December 31, 2010. On April 1, 2003, Motient subleased approximately 8,500
square feet to a third party under a sublease agreement that expires on December
31, 2005.
Motient also leases site space for over 1,200 base stations and antennae across
the country for the terrestrial network under one to five-year lease contracts
with varied renewal provisions.
31
Motient believes that its existing facilities are adequate to meet its needs for
the foreseeable future.
Item 3. Legal Proceedings.
- --------------------------
In March 2005, Research In Motion Ltd. (RIM) settled an outstanding patent
infringement lawsuit related to RIM's BlackBerry handheld device and software,
which Motient supports on its DataTac wireless network. As a result of this
settlement, RIM and its customers, including Motient, may use the BlackBerry
device and software without any further interference from NTP, Inc., the holder
of the disputed patents.
On April 15, 2004, Motient filed a claim under the rules of the American
Arbitration Association in Fairfax County, VA, against Wireless Matrix
Corporation, a reseller of Motient's services, for the non-payment of certain
amounts due and owing under the "take-or-pay" agreement between Motient and
Wireless Matrix. Under this agreement, Wireless Matrix agreed to purchase
certain minimum amounts of air-time on the Motient network. In February 2004,
Wireless Matrix informed Motient that it was terminating its agreement with
Motient. Motient did not believe that Wireless Matrix had any valid basis to do
so, and consequently filed the above mentioned claim seeking over $2.6 million
in damages, which amount represents Wireless Matrix's total prospective
commitment under the agreement. On May 10, 2004, Motient received notice of a
counter-claim by Wireless Matrix of approximately $1 million, representing such
amounts as Wireless Matrix claimed to have paid in excess of services rendered
under the agreement. In June 2004, Motient reached a favorable out of court
settlement, in which Wireless Matrix paid Motient $1.1 million.
From time to time, Motient is involved in legal proceedings in the ordinary
course of its business operations. Although there can be no assurance as to the
outcome or effect of any legal proceedings to which Motient is a party, Motient
does not believe, based on currently available information, that the ultimate
liabilities, if any, arising from any such legal proceedings not otherwise
disclosed would have a material adverse impact on its business, financial
condition, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
No matters were submitted to a vote of our stockholders during the fourth
quarter of fiscal 2004.
In March 2005, the board voted to propose to the shareholders that Motient's
authorized shared be increased from 100 million to 200 million at Motient's next
annual meeting.
32
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
- --------------------------------------
Our common stock is not listed on any national securities exchange or on the
Nasdaq Stock Market. Our common stock has been quoted under the symbol "MNCP" on
the Pink Sheets since May 2, 2002.
The following tables set forth for the period indicated the high and low bid
prices for our common stock for the periods indicated for 2003, 2004 and 2005.
----------------------------------------------------------------------
2005 High Low
----------------------------------------------------------------------
First Quarter (through March 15, 2005) $31.45 $21.25
----------------------------------------------------------------------
2004 High Low
----------------------------------------------------------------------
First Quarter $7.45 $4.05
Second Quarter $14.01 $6.15
Third Quarter $13.75 $8.40
Fourth Quarter $23.95 $8.95
----------------------------------------------------------------------
2003 High Low
----------------------------------------------------------------------
First Quarter $4.00 $2.75
Second Quarter $5.75 $2.00
Third Quarter $6.35 $4.35
Fourth Quarter $5.55 $3.50
----------------------------------------------------------------------
The high and low sales prices represent the intra-day prices on the Pink Sheets.
The quotations represent inter-dealer quotations, without retail markups,
markdowns or commissions, and may not necessarily represent actual transactions.
On March 15, 2005, the last reported bid price of our common stock was $25.40
per share on the Pink Sheets. As of March 15, 2005, there were approximately 106
record holders of our common stock.
Dividends
We have never declared or paid any cash dividends on our capital stock and do
not plan to pay dividends on our capital stock for the foreseeable future. The
payment of any dividend by us will be at the discretion of our board of
directors and will depend on, among other things, our earnings, capital
requirements and financial condition. Under Delaware law, a corporation cannot
declare or pay dividends on its capital stock unless it has an available
surplus.
33
Recent Sales of Unregistered Securities
On April 7, 2004, Motient sold 4,215,910 shares of its common stock at a per
share price of $5.50 for an aggregate purchase price of $23.2 million to several
different investors. The sale of these shares was not registered under the
Securities Act of 1933, as amended and the shares may not be sold in the United
States absent registration or an applicable exemption from registration
requirements. The shares were offered and sold pursuant to the exemption from
registration afforded by Rule 506 under the Securities Act and/or Section 4(2)
of the Securities Act. In connection with this sale, Motient signed a
registration rights agreement with the holders of these shares. Motient also
issued warrants to purchase an aggregate of 1,053,978 shares of its common stock
to the investors listed above, at an exercise price of $5.50 per share. Because
Motient met certain conditions following the issuance of the warrants, they will
never vest.
In connection with this sale, Motient issued to Tejas Securities Group, Inc.,
its placement agent for the private placement, and certain CTA affiliates,
warrants to purchase 600,000 and 400,000 shares, respectively, of its common
stock. The exercise price of these warrants is $5.50 per share. The warrants are
immediately exercisable upon issuance and have a term of five years. Motient
also paid Tejas Securities Group, Inc. a placement fee of $350,000 at closing.
The fair value of the warrants was estimated at $6.2 million using a
Black-Scholes model. The shares were offered and sold pursuant to the exemption
from registration afforded by Rule 506 under the Securities Act and/or Section
4(2) of the Securities Act.
On July 1, 2004, Motient sold 3,500,000 shares of its common stock at a per
share price of $8.57 for an aggregate purchase price of $30.0 million to
multiple investors. The sale of these shares was not registered under the
Securities Act and the shares may not be sold in the United States absent
registration or an applicable exemption from registration requirements. The
shares were offered and sold pursuant to the exemption from registration
afforded by Rule 506 under the Securities Act and/or Section 4(2) of the
Securities Act. Motient also issued warrants to purchase an aggregate of 525,000
shares of its common stock to the investors listed above, at an exercise price
of $8.57 per share. Because Motient met certain conditions following the
issuance of the warrants, they will never vest.
In connection with this sale, Motient issued to certain affiliates of CTA and
Tejas Securities Group, Inc., its placement agent for the private placement,
warrants to purchase 340,000 and 510,000 shares, respectively, of its common
stock. The exercise price of these warrants is $8.57 per share. The warrants are
immediately exercisable upon issuance and have a term of five years. Motient
also paid Tejas Securities Group, Inc. a placement fee of $850,000 at closing.
The fair value of the warrants was estimated at $11.6 million using a
Black-Scholes model. The shares were offered and sold pursuant to the exemption
from registration afforded by Rule 506 under the Securities Act and/or Section
4(2) of the Securities Act.
34
On November 12, 2004, Motient sold 15,353,609 shares of its common stock at a
per share price of $8.57. Motient received aggregate proceeds of $126,397,809,
net of $5,182,620 in commissions paid to its placement agent, Tejas Securities
Group, Inc. The approximately 60 purchasers included substantially all of the
purchasers from the April and July 2004 private placements, as well multiple new
investors. The sale of these shares was not registered under the Securities Act
and the shares may not be sold in the United States absent registration or an
applicable exemption from registration requirements. The shares were offered and
sold pursuant to the exemption from registration afforded by Rule 506 under the
Securities Act and/or Section 4(2) of the Securities Act. In connection with
this sale, Motient signed a registration rights agreement with the holders of
these shares. Among other things, this registration rights agreement required us
to file and cause to make effective a registration statement permitting the
resale of the shares by the holders thereof. Motient also issued warrants to
purchase an aggregate of approximately 3,838,401 shares of its common stock to
the investors listed above, at an exercise price of $8.57 per share. These
warrants will vest if and only if Motient does not meet certain deadlines
between January and March 2005 with respect to certain requirements under the
registration rights agreement, one of which has already been met, and one of
which was not met. Accordingly, 25% of these warrants have vested, and 25% of
these warrants will never vest. If the remaining warrants vest, they may be
exercised by the holders thereof at any time through November 11, 2009.
On February 9, 2005, Motient entered into a merger agreement with Telcom
Satellite Ventures Inc. and Telcom Satellite Ventures II Inc. and simultaneously
consummated the transactions contemplated thereby, pursuant to which Telcom
merged with and into MVH Holdings Inc., a direct and wholly-owned subsidiary of
Motient, in a tax free reorganization in which MVH is the surviving company. In
exchange for 2,296,835 MSV limited partnership units owned by the Telcom
entities, Motient issued to Telcom's stockholders 8,187,804 shares of its common
stock. As the purchasers are all accredited investors, and no general
solicitation has occurred, or will occur, as part of the offering and sale of
these securities, Motient has relied upon the exemption from registration
afforded by Rule 506 under the Securities Act and/or Section 4(2) of the
Securities Act.
Concurrently with this merger, Motient (through MVH) also purchased 373.7 shares
of common stock of Spectrum Space Equity Investors IV, Inc. and two other
related entities, representing approximately 66.3% of the outstanding common
stock of each of such entities, and 221.2 shares of common stock of Columbia
Space Partners, Inc. and two other related entities, representing approximately
27.8% of the outstanding common stock of such entities. In total, Motient issued
to the Spectrum entities and Columbia entities a total of 4,516,978 shares of
Motient common stock in a private placement in exchange for indirect ownership
of 1,267,098 MSV units. As the purchasers are all accredited investors, and no
general solicitation has occurred, or will occur, as part of the offering and
sale of these securities, Motient has relied upon the exemption from
registration afforded by Rule 506 under the Securities Act and/or Section 4(2)
of the Securities Act.
35
Telcom, Columbia and Spectrum also received warrants exercisable for an
aggregate of approximately 952,858 shares of Motient common stock. The warrants
have a term of five years and an exercise price equal to $22.50. Each warrant
shall become exercisable only as follows: (i) with respect to 35% of the warrant
shares, on the date that is 30 days following the closing of the merger, if a
registration statement covering the resale of the shares shall not have been
filed with the SEC by such date, (ii) with respect to an additional 35% of the
warrant shares, on the 60th day after the closing of the merger, if a
registration statement covering the resale of the shares shall not have been
filed with the SEC by such date, and (iii) with respect to 30% of the warrant
shares, on the 180th day after the closing of the Mergers, if a registration
statement covering the resale of the shares shall not have been declared
effective. As Motient has filed a registration statement covering these shares
on February 14, 2005, 70% of the 952,858 warrants will never vest.
No securities were repurchased during the fourth quarter of 2004.
Certain information concerning our equity compensation plans appearing under
"Equity Compensation Plan Information" is included in "Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters" below.
Item 6. Selected Financial Data.
- ---------------------------------
The following table summarizes our financial results as of and for the fiscal
years ended December 31, 2000 and 2001, the four months ended April 30, 2002,
the eight months ended December 31, 2002, and the years ended December 31, 2003
and 2004. The consolidated balance sheet data and the other consolidated
statement of operations data are derived from the consolidated financial
statements of Motient, which were audited by Ehrenkrantz Sterling & Co. LLC,
independent public accounting firm, except for the December 31, 2003 and 2004
balance sheets, which were audited by Friedman LLP, successors-in-interest to
Ehrenkrantz Sterling & Co. LLC. All of the financial information for Motient up
to and including April 30, 2002 is referred to as "Predecessor Company" results.
The financial information for Motient for the periods subsequent to April 30,
2002 are referred to as "Successor Company" results.
You should read our selected financial data in conjunction with the information
contained in "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes thereto included elsewhere in this report. In reading the
following selected financial data, please note the following:
o Effective May 1, 2002, as a result of our emergence from bankruptcy,
we adopted "fresh-start" accounting in accordance with American
Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the
Bankruptcy Code". "Fresh-start" accounting has resulted in material
changes to financial statements for periods beginning after May 1,
2002, to reflect adjustments required pursuant to SOP 90-7 to record
assets and liabilities at fair values in accordance with procedures
specified by Statement of Financial Accounting Standards No. 141,
"Business Combinations".
36
o Because the summary financial data below relates to periods prior to
May 1, 2002, the effective date we emerged from bankruptcy, we refer
to the summary financial data as that of the Predecessor Company. Due
to the reorganization and implementation of SOP 90-7, financial
statements issued for periods beginning after May 1, 2002 will not be
comparable to that of the Predecessor Company.
o In November 2002, we initiated a process to seek the concurrence of
the staff of the SEC with respect to our conclusions of the
appropriate accounting for the formation of and certain transactions
with MSV in 2000 and 2001 and the sale of certain of our
transportation assets to Aether Systems in 2000. This process was
completed in March 2003. The staff of the SEC did not object to
certain aspects of our prior accounting with respect to the MSV and
Aether Systems transactions, but did object to other aspects of our
prior accounting for these transactions. For a description of the
material differences between our original accounting treatment with
respect to the MSV and Aether Systems transactions and the revised
accounting treatment that we concluded is appropriate as a result of
this process, please see our current report on Form 8-K dated March
14, 2003.
o As a result of our re-audit of the years ended December 31, 2000 and
2001 performed by, Ehrenkrantz Sterling & Co. LLC, certain additional
financial statement adjustments were proposed and accepted by us for
the periods noted above. See Note 2, "Significant Accounting Policies"
of notes to the consolidated financial statements.
37
Selected Consolidated Financial Data
(Amounts in thousands except per share data)
Predecessor
Successor Company Company(1)(2)(3)(4)
----------------- -------------------
Eight Months Four Months (Restated) (Restated)
Year Ended Year Ended Ended Ended Year Ended Year Ended
December 31, December 31, December 31, April 30, December 31, December 31,
2004 2003 2002 2002 2001 2000
---- ---- ---- ---- ---- ----
Revenues $ 36,880 $ 54,485 $ 36,617 $ 22,373 $ 90,265 $ 95,756
Operating Loss (46,587) (48,739) (35,531) (21,649) (120,491) (191,845)
Income (loss) before
reorganization items (72,329) (62,122) (58,786) (24,138) (267,000) (134,851)
----------- ----------- ----------- ----------- ----------- -----------
Reorganization items -- -- (772) 256,116 (2,497) (3,035)
Income tax provision -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income (72,329) (62,122) (59,558) 231,978 (269,497) (137,886)
XM radio preferred stock
dividend requirement -- -- -- -- -- (5,081)
XM beneficial conversion -- -- -- -- -- (44,438)
----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income before
cumulative effect of accounting
change $ (72,329) $ (62,122) $ (59,558) $ 231,978 $ (269,497) $ (187,405)
Cumulative effect of change in
accounting principle -- -- -- -- -- (4,677)
Net (loss) income attributable
to common shareholders $ (72,329) $ (62,122) $ (59,558) $ 231,978 $ (269,497) $ (192,082)
=========== =========== =========== =========== =========== ===========
Basic and diluted net income
(loss) per common share $ (2.21) $ (2.47) $ (2.37) $ 3.98 $ (5.27) $ (3.89)
Weighted-average common shares
outstanding during the period -
basic and diluted 32,771 25,145 25,097 58,251 51,136 49,425
Total assets 248,080 157,028 202,221 257,401 240,465 1,572,036
Long term liabilities $ 675 $ 33,189 $ 33,913 $ 29,785 $ 30,652 $ 753,376
38
(1) Motient restated certain of its financial data reflected above to reflect
certain transactions with MSV in 2000 and 2001, the sale of assets to Aether
Systems in 2000 and certain additional adjustments. For further information,
please see Note 2, "Significant Accounting Policies - Restatement of Financial
Statements," of notes to the consolidated financial statements herein.
(2) As of December 31, 2000, we had an equity interest of approximately 33.1%
(or 21.3% on a fully diluted basis) in XM Radio, a public company that launched
its