FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: September 30, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from________________ to _________________
Commission file number: 0-27166
XATA CORPORATION
(Name of small business issuer in its charter)
Minnesota 41-1641815
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 East Travelers Trail, Burnsville, Minnesota 55337
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (612) 894-3680
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No[_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $10,313,014.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $26,848,254, based on 3,112,841 shares held by nonaffiliates as of
December 19, 1996, and the closing sale price for said shares in the Nasdaq
National Market as of such date.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,384,039 shares of Common Stock, as
of December 19, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on February 20, 1997 (the "Proxy Statement") is
incorporated by referenced in Part III of this Form 10-KSB to the extent stated
herein. Except with respect to information specifically incorporated by
reference in this Form 10-KSB, the Proxy Statement is not deemed to be filed as
a part hereof. Such Proxy Statement is not filed herewith, but will be filed
with the Commission not later than January 28, 1997. In addition, there are
incorporated by reference in this report on Form 10-KSB certain previously filed
exhibits identified in Part III, Item 13 hereof.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Common Equity and Related Stockholder Matters
Dividend Policy
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Liquidity and Capital Resources
Item 7. Financial Statements
Item 8. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
Reports on Form 8-K
Exhibits
SIGNATURES
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES, AND OTHER FACTORS DESCRIBED IN THIS REPORT, INCLUDING BUT NOT
LIMITED TO COMPETITION; TIMING OF RECEIPT AND SHIPMENT OF CUSTOMER ORDERS; THE
RESULTS OF MARKETING EFFORTS; THE EXPENSE AND TIME REQUIRED TO COMPLETE RESEARCH
AND DEVELOPMENT EFFORTS; AND THE INTEGRATION OF ACQUIRED BUSINESSES.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
XATA is a leading provider of full-service logistics systems and
solutions to the transportation and distribution segments of the fleet trucking
industry. XATA's products and services unify all participants in a company's
supply chain to facilitate the collection, communication and integration of
information from multiple fleet operating areas. XATA's systems use onboard
computers, fleet management software, route optimization software, and mobile
communication capabilities to improve fleet productivity and profitability.
XATA's solutions provide significant fleet savings and benefits through:
increased fuel economy; improved routing and scheduling; reduced driver,
clerical and compliance paperwork; reduced maintenance costs; improved driver
performance and safety; and better customer service.
XATA Corporation was founded in 1985 by William P. Flies to design,
develop, and distribute computer information systems for use in non-office
operating environments. Potential users of such systems are often not trained in
the use of information devices or experienced with computer automation.
Moreover, the environment for these extended applications is quite often harsh,
involving temperature extremes, vibration, dust and dirt, elevated humidity, and
rough handling. During this developmental period, management of the Company
identified the fleet trucking industry, with its multiple mobile "remote
offices," as an ideal "extended" information environment that was becoming
increasingly receptive to onboard vehicle data recording, analysis, and
utilization.
The Company developed its first Transactional Computer in 1985. In late
1986, pilot installations with certain customers enabled XATA to learn the
information needs of the industry. In 1988, after the enactment of federal
legislation permitting electronic driver logs, XATA expanded its customer base
from 5 fleets to 15 fleets. The Company's growth, however, was limited by a
shortage of capital and, until 1990, by the need for cost-effective "in field"
programmability. In 1990, the technology for nonvolatile memory with
cost-effective "in field" programmability became commercially available. XATA
incorporated this technology and other enhanced features in a newly designed
XATA system, which it introduced to the market in May 1991.
In December 1991, the Company became publicly held and obtained
additional needed capital through a merger with a publicly held entity.
Thereafter from 1991 through September 1994, the Company developed its system
and significantly expanded both the number of its systems sold and the number of
its customers. The Company has experienced operating profits beginning in the
fourth quarter of the fiscal year ended September 30, 1994, and continuing
throughout the fiscal year ended September 30, 1996. In addition, during fiscal
1996, the Company received net proceeds of approximately $4,945,000 from a
public offering.
In August 1996, the Company purchased substantially all of the assets
of an unincorporated business known as Payne & Associates ("Payne"), an
unincorporated division of Computer Petroleum Corporation, including software
products that integrate information, communication, and Internet based
technologies for trucking industry applications. Such products include Dispatch
2000, a feature rich dispatching application; Dealer Locator, an
Internet-compatible software that quickly locates service facilities for drivers
that need on-the-road assistance; SatCom, which uses wireless communications
technology to allow the driver and dispatcher to exchange text messages in real
time; SatMap, an automatic satellite positioning and mapping system that
provides fleet managers with a real time, graphical view of vehicle locations;
and LoadTracker, an Internet tool designed for online order entry, tracking,
rating, and reporting for both shippers and carriers using the Internet. This
acquisition provides the Company with capabilities in the application of global
positioning system and wireless communications technology which extend and
enhance the benefits of the XATA Distribution Information System.
In October, 1996, the Company acquired all of the issued and
outstanding equity securities of Key Logistics, Inc., a company which develops
and markets RouteView. RouteView is a PC Windows(TM)-based software that
automatically sequences and optimizes delivery routes on a daily basis.
RouteView generates computer-rendered maps that display each delivery location
on a route, sequences delivery locations to minimize mileage, and provides tools
for the dispatcher to modify routes as necessary. The name "Key Logistics" is no
longer in commercial use and Key Logistics' operations have been consolidated
into the Company; however, Key Logistics, Inc. remains as a wholly-owned
subsidiary of the Company. RouteView will be sold and marketed as both a
stand-alone software package and as an integrated component of the XATA System.
XATA directs its sales and marketing efforts to operators of "heavy
duty" (Class 6, 7 and 8) truck fleets of 25 or more vehicles, which account for
over 61% of the 2.9 million trucks in this industry segment. The commercial
operation of large fleets of heavy duty vehicles entails significant capital
investment and operating expenditures. Both for-hire and private carriers are
fast becoming broad-based freight transportation providers that seek profit and
increased efficiency outside of traditional boundaries. To date, fleet operators
have focused largely on containing labor costs and purchasing more efficient
equipment because they have lacked sufficient information to effectively monitor
and develop programs to improve other aspects of fleet operations, including
routing, scheduling and driver performance. An onboard information system can be
a powerful tool to help contain costs and increase operational efficiencies and
profitability through better truck and driver performance.
The trucking industry is also characterized by increased demands for
faster transit times and better service, as well as greater reliability and
safety. Combined with escalating fuel and labor costs, and extensive regulation
by federal and state authorities, these pressures necessitate the collection and
analysis of detailed operational information. As a result, more fleet managers
are evaluating the impact that onboard technology can have on containing costs,
achieving efficiencies, and optimizing the performance of the entire
transportation team. The XATA system provides information that enables fleet
management and individual drivers to uncover and realize significant savings and
benefits which improve performance.
The core of the XATA system is the Fleet Management System ("FMS" or
"Fleet Management System") software, an "expert" system that (i) automatically
learns about each fleet's operation to establish a standard for each driver,
vehicle, route, delivery point, and other operational data, (ii) detects and
notes exceptions to management guidelines using its extensive reporting and
analysis capabilities, and (iii) interfaces with the fleet's centrally-based
management information system to provide timely information for use in existing
corporate applications such as billing, payroll, incentive programs, and tax and
safety compliance reporting. The FMS software contains several discrete
applications and subsystems that determine the amount and type of information to
be collected by the fleet's vehicles. These applications include route
dispatching, state fuel tax monitoring, fuel cost management, preparation of
driver logs, and driver incentive tracking. The software recognizes each vehicle
as a valid data entry point, automatically collecting and compiling information
encountered during a truck's trip for later processing into the fleet's master
database. These new values are then "learned" by the system. Management can
tailor the software to address a wide range of operational parameters that
reflect company guidelines, fleet standards, and recordkeeping needs.
Comprehensive management reporting capabilities assist with exception review and
resolution by highlighting only those values that lie outside of defined ranges,
saving significant time in utilizing the information. The FMS software typically
runs on one PC per site and is connected to the fleet's central management
information system. In addition, the XATA system is designed to interface with
third party routing, communications, and global positioning systems, as well as
other complementary products.
In addition to the FMS software, the XATA Distribution Information
System includes (i) an onboard Driver Computer, with a touch-sensitive screen
installed in the cab of the truck and connected to various sensors throughout
the vehicle, which provides real-time information to the driver and accepts
driver input regarding operations; (ii) a Data Station, typically located at
terminals where trips begin and end, which stores information for retrieval by
the driver and the FMS software; and (iii) an individual, electronic Driver
Information Key, which is used to store and exchange information between the
system's hardware components.
In 1997, in the continuing evolution of its system architecture, the
Company intends to introduce the Mobile Application Server ("MAS"), which will
be the primary hardware platform for future enhancements to the XATA System.
This platform enhances the onboard functionality of the Driver Computer by
providing additional processor and memory resources necessary for more advanced
applications, by supporting additional connectivity to peripheral devices, and
by increasing the level of systems integration on the vehicle.
THE TRUCKING INDUSTRY
The trucking industry, with annual revenues around $300 billion, is the
major component of the transportation sector of the United States' economy,
accounting for 78% of the nation's freight bill and 3% of the gross national
product. Notwithstanding changes which are likely to occur within the industry,
as discussed below, published economic forecasts indicate that the trucking
industry's share of the total transportation market in the United States is
likely to remain relatively stable. Private carriers and for-hire carriers
comprise the two major fleet categories within the trucking industry. "Private
carriers" are manufacturers, wholesalers, merchants and other companies who
transport their own goods using equipment that they own or lease. "For-hire
carriers" are companies whose primary business is trucking and who transport
freight that belongs to others. Both private and for-hire carriers are fast
becoming broad-based freight transportation providers who seek operating
efficiencies or profit opportunities, respectively. The Company believes that
the following trends are significantly impacting the industry and are resulting
in increasing competitive pressures and an accelerated rate of change:
1. Further industry consolidation, as shippers demand more
service and logistical management. Only the most efficient
companies will survive.
2. Continued growth of outsourcing and leasing arrangements as
manufacturers consider the expense of maintaining their own
fleets.
3. Further legislation on driver health, safety, and the
environment (including stricter hours-of-service regulations),
which will drive up the cost of compliance.
4. Continued revolutionary changes in trucking technology, as
these capabilities become standard features for all truck
operations.
5. Continued shortage of qualified drivers for heavy-duty
trucking operations, driven by relatively low wages, a poor
public image, and demanding work.
6. Continued emphasis on effective management of the movement of
goods from the source of supply to the final customer (supply
chain management).
Management of the Company believes that there is, and will continue to
be, significant demand in the fleet trucking industry for onboard information
systems, principally because the use of this technology enables trucking
companies to respond to competitive pressures with significant cost savings and
efficiencies and because a significant replacement market exists for upgrading
the systems of prospective customers who utilize outdated technologies.
TARGET MARKET
Overall, there are currently approximately 12 million trucks that
operate in private or for-hire fleets of ten or more vehicles in the United
States. XATA's current target market consists of the approximately 2.9 million
Class 6, 7 and 8 "heavy duty" trucks which are designed to carry large amounts
of cargo over long distances. To date, XATA has concentrated its sales and
marketing efforts on fleets of 25 or more vehicles, which include approximately
61% of the heavy duty trucks in operation. The Company believes there is an
increasing demand by the management of these fleets for improved fuel economy,
productivity, and profitability. Heavy duty commercial trucking fleets are
characterized by a significant investment in equipment, valuable cargo,
relatively high operating costs, significant annual mileage per vehicle, and
extensive federal and state compliance reporting requirements. In general, any
fleet with ten or more vehicles has a sufficient capital investment in fleet
equipment and related operating costs to require the services of a fleet manager
to ensure efficient deployment of the fleet's assets. Investment in equipment
includes the cost of each tractor, at an average cost of $75,000, and each
trailer, at an average cost of $50,000. Heavy duty vehicles typically travel
100,000 miles per year with fuel economy figures of five to seven miles per
gallon ("mpg"), and fuel costs may average $20,000 per year. These costs, plus
driver costs exceeding $0.25 per mile, insurance costs of up to $10,000 per
vehicle per year, and expenses related to maintenance, dispatchers, safety
directors, clerical support and support equipment make the efficient operation
of each vehicle an essential and complex part of fleet management. Accordingly,
accurate and timely data collection and analysis is necessary to enable fleet
management to sustain and increase profitability.
In addition to management information needs, extensive operational data
collection and reporting is mandated by federal and state agencies. For example,
the Federal Highway Administration ("FHWA") imposes strict work hour rules on
drivers and requires maintenance of driver logs. Drivers of hazardous loads are
subject to additional regulation and documentation requirements. Failure to
maintain legally required driver logs can result in the permanent revocation of
a driver's commercial drivers license, substantial fines and, in the case of an
accident, potential liability for the trucking company and its management.
Although insurance companies and other safety-minded organizations are lobbying
to mandate electronic logs to improve the accuracy of recordkeeping, there is no
assurance that legislation or regulation mandating such logs will be adopted in
the near future. FHWA regulations currently allow, but do not require, onboard
electronic driver logs.
Added to the extensive federal regulation of the industry is regulation
by each of the 50 states. In general, each state requires that each vehicle pay
state fuel taxes based on the amount of fuel that is consumed while in that
state. Compliance requires the driver to record state border crossing
information and fuel purchase information. Many long haul vehicles cross up to
25 state borders per week, resulting in significant paperwork for the driver,
the clerical staff of the carrier and the carrier's fuel tax return preparer. To
complicate an already large paperwork requirement, these records must be
maintained at the vehicle domicile location (i.e., home base for a fleet of
trucks) and at the carrier's headquarters for access by state fuel tax auditors
and by federal driver log compliance personnel.
COMPETITION
Until the late 1970's, when Rockwell International introduced a product
called the TripMaster, onboard driver information was limited to engine gauges
and rudimentary tachographs. The TripMaster is an electronic version of the
tachograph that records road speed and engine speed in an electronic memory
rather than on paper. This data can be retrieved by numerous means, such as
cables or computers, and can be transferred to office equipment for presentation
in a format more readable than that produced by the tachograph. Other suppliers
of electronic tachograph equipment followed suit with similar products. In the
mid-1980's, CADEC Systems, Inc. (which was later acquired by Cummins Engine
Company, a large manufacturer of truck diesel engines) appeared in the market
with the first onboard driver interaction product, consisting of a keyboard
containing a single line screen. In addition, Eaton Corporation, a major
manufacturer of commercial truck components, has announced its intention to
market products with features similar to the Company's system.
The Company believes that although the XATA system is, in some
instances, more expensive than the products described above, none of these
products offers all of the features of the XATA system. Moreover, the XATA
system is easy to use and offers significant advantages over competing products
in identifying cost savings and efficiencies.
Sophisticated onboard communication systems were introduced to the
heavy duty trucking market in 1987 for the purpose of providing nationwide
two-way communication between vehicles and management sites. Today, Qualcomm,
Inc., a California-based company that produces and markets a satellite based
vehicle tracking and communication system, has captured a significant portion of
the onboard communications market. HighwayMaster Communications, Inc., a
Texas-based company, has introduced a nationwide cellular-based communication
system that provides both voice and data transmissions.
Although communication systems are not in direct competition with
XATA's products, and are, in fact, complementary to XATA's system, they compete
for a fleet's "onboard budget." XATA believes that trucking fleets that purchase
communication systems will eventually augment those systems with the
capabilities of an onboard system such as the XATA system, and conversely, that
those who purchase the XATA onboard system may augment that system with the
purchase of a complementary communication system. Therefore, the Company is
working to establish alliances with companies offering additional communication
products so that it can provide its customers with a total onboard solution.
DESCRIPTION OF THE COMPANY'S PRODUCTS AND SERVICES
The XATA Distribution Information System extends a fleet's corporate
information network from the office into the vehicle by collecting critical
logistics information and electronically circulating that data throughout the
entire fleet management and operations team, as well as certain other corporate
areas which are connected through the user's corporate management information
system. The goal of the XATA system is to automatically collect the information
available from the vehicle and to accurately capture the information available
from the driver only once, at the time of the initial encounter. This
information is then analyzed and selectively presented to transportation team
members at a time and in formats intended to increase productivity and improve
profitability.
The XATA system consists of four basic components, more fully described
below, which work together to provide fleet management with the tools to collect
and analyze accurate information generated during vehicle operation.
1. FLEET MANAGEMENT SYSTEM SOFTWARE. The core of the XATA system is the
FMS software, a software package designed to analyze and report on a fleet's
operation in conjunction with the hardware configuration required by the fleet's
operating environment. Hardware configuration typically is impacted by the
type(s) of vehicles and engines, type(s) of operation, fleet size, number of
sites, and type of industry. The software undergoes extensive beta site testing
and new versions are released on a controlled basis.
The FMS software is a fully integrated system. Even with the addition
of optional software modules, navigation through the system is seamless. The
interface to the FMS software is a DOS menu-driven platform that allows swift
navigation to any screen in the system through four character codes. The menus
are organized in a tiered, or tree-like, structure, as opposed to the pull-down
menus common in desktop applications. Consistent function key capabilities exist
throughout the system to assist operators with data entry.
The FMS software learns about key logistics activities in each fleet's
operation and uses this learned knowledge, as well as operational parameters
that reflect company guidelines and fleet standards, to detect and report
exceptions to such data and standards. The complete package of FMS software
typically runs on one PC per site and is connected to the fleet's central
management information system.
The FMS software contains a number of software applications designed to
collect, compile, and analyze the information that flows from the operation of a
fleet of vehicles and to build that information into a learned history, with
detailed information on drivers, vehicles, routes and customers. These
applications determine the capabilities of the system's hardware components,
including the Driver Computer and Data Station, described below. Examples of
these applications include route dispatching, driver logs, fuel management,
state fuel tax, and driver incentives.
ONBOARD FUEL MANAGEMENT. Every XATA Driver Computer has
real-time fuel management. Fuel consumption is sensed ten times per
second, electronically captured, and continually displayed for the
driver. Drivers can use this information to alter speed and gear
shifting to improve fuel economy.
ONBOARD ELECTRONIC LOGS. Every XATA Driver Computer
automatically maintains a complete electronic driver log that complies
with United States Department of Transportation ("DOT") regulations.
Driver logs can be recalled for the prior eight days at any time and
paper records are not required onboard, at the domicile, or at carrier
headquarters. Moreover, the driver's remaining driving time, as limited
by DOT regulations, is constantly displayed.
ONBOARD ROUTE DISPATCH. Every XATA Driver Computer is capable
of receiving complete trip plan data from the Route Dispatcher
subsystem. During the route, the Driver Computer collects comprehensive
stop and leg information, thus providing a comparison between planned
events and actual data. The Driver Computer can receive dispatch data
that guides drivers through their routes with step-by-step
instructions. Since the XATA system measures actual miles versus the
geographic miles utilized in most routing packages, the collected
information can be used to test and improve the performance of routing
software.
STATE FUEL TAX. All fuel consumption and mileage driven is
electronically captured, and all fuel purchases by state and all state
crossings are entered by the driver as they occur. This data can be
transferred directly to the fleet's fuel tax processor.
DRIVER INCENTIVES. The Driver Incentives application allows
the creation of incentive programs for all drivers, specific drivers,
or fleet management that are tailored to fleet objectives, such as fuel
economy or delivery performance. Because the XATA system learns the
performance standards associated with each specific driver and vehicle,
fleet management can create objective incentive programs based on
recorded operational data. Incentive plans are created in the Fleet
Management System and transferred to the Driver Computer, which uses
this plan detail to compute incentive points for the driver during
trips.
The software recognizes each Driver Computer as a valid data entry
point, and therefore as a mobile extension of the XATA system, automatically
establishing learned standards for that entity. Information encountered at any
point in the logistics process becomes part of the data stream and is built into
the fleet database. Once this learned history is established, data collected
during trips can be used to detect and report exceptions that assist management
in achieving fleet objectives. More specifically, as the FMS software learns
about the fleet's operations it (i) generates analyses to assist with future
route planning and trip scheduling, (ii) detects and highlights exceptions to
fleet standards through an extensive set of reports, and (iii) provides
information for existing corporate applications such as billing, payroll,
incentive programs, and compliance reporting.
Trip data collection and processing into the database is done by batch
mode only. Trip data collected from the Driver Computer is sent into the FMS
editor for review and correction by fleet management before being compiled into
the database. The FMS software includes more than ten features which ensure the
integrity and consistency of information collected from fleet operations and
allow for the meaningful presentation of that information for fleet operators.
Users of the XATA system also may purchase a single site or corporate
license for one or more of the optional software subsystems that augment the FMS
software with features not included in the base system. These subsystems,
described below, are fully integrated into the XATA system and can be utilized
in conjunction with all other software features.
* CUSTOM EXPORT, which creates exports from data extracts at a
summary level in comma delimited, ASCII, or DIF file formats
that can be used in most common application programs.
* CUSTOM REPORTS, which allow users to develop their own
reporting formats which they can save and run alongside XATA's
standard reports.
* ROUTE DISPATCHER, which defines and plans fleet routes and
trips by incorporating the learned history of drivers into a
complete activity performance plan that is transferred to a
Driver Computer.
* FLEET INCENTIVES, which create incentive programs tailored to
fleet objectives for all drivers, specific drivers, or the
fleet management team.
* XATASCOPE, which electronically tracks, collects, and stores
vehicle speed and distance data down to a "second-by-second"
level of detail for use in accident analysis.
* MULTIVIEW, which expands the capabilities of the FMS software
to handle multiple fleets and multiple operations within the
same database.
* TRIP DETAIL EXPORT, which exports all data elements collected
during a trip into an ASCII flat file format that can be used
in most common application programs.
* SEAMLESS, which allows a customer's transportation management
system to activate and utilize FMS software capabilities as if
such capabilities were an integral part of the external
system.
* CUSTOM ONBOARD COMMANDS, which allows the fleet to define up
to eight new commands and associated data screens for the
Driver Computer.
* CARGO EQUIPMENT, which allows the fleet to designate the
identification and specification of cargo equipment, such as
pallets and containers, and to track the detail activity of
this equipment.
In addition, customers may obtain special customized software
enhancements by placing a request through either their XATA account executive,
their customer support representative, or a systems engineer. Such requests are
entered into a product enhancement database and reviewed and prioritized by a
product committee based on customer and market needs. If the product can be
developed as a standard XATA offering, the costs of development are generally
not charged to the customer, unless an unusually aggressive time frame requires
a reallocation of resources.
Modifications to software are incorporated into either a new release or
a new version, depending on the scope of development. With any new version, the
FMS software, the Driver Computers, and the Data Stations are upgraded, usually
one site at a time.
SOFTWARE INTERFACES. XATA is continually evaluating partnerships with
other industry companies that develop and market technologies complementary to
onboard information systems, including routing and communications systems. These
partnerships broaden XATA's market exposure, provide added value to customers
who want to utilize more than one technology to increase efficiencies, generate
additional prospects through referrals, and provide a method for exchanging
valuable data between different applications. For example, the XATA system
interfaces to a number of popular routing systems, including those offered by
RoadNet, ROADSHOW, and Manugistics. These interfaces allow the input of a trip
plan optimized by a routing package into XATA's Route Dispatcher subsystem
located within the FMS software, where it is downloaded to a Driver Computer for
use by a driver during a trip. In turn, the interface allows the output of trip
detail collected by that Driver Computer to be put back into the routing system
for comparison and analysis. The interface extends the capabilities of the
routing package because, upon completion of the trip, the XATA system exports
collected trip detail back into the routing system, from which the routing
software can compare actual to planned results, and can adjust the next trip to
improve performance.
2. DRIVER COMPUTER. The Driver Computer is an onboard computer that
combines touch-screen technology, a microprocessor, and customizable software to
electronically capture and communicate information that flows from the operation
of the vehicle. Using vehicle sensors and driver inputs, the Driver Computer
automatically records and displays accurate information on vehicle performance
to the drivers. The functionality of the Driver Computer is enhanced for the
non-office environment by the following features:
* TOUCH-SENSITIVE SCREEN, providing a safe, user-friendly, and
efficient method for interacting with the Driver Computer.
* RUGGED CONSTRUCTION, designed to resist the vibrations,
temperature extremes, dirt, and chemicals associated with
harsh operating conditions in the trucking industry.
* LARGE, EASY-TO-READ DISPLAY, including a 3 x 7 screen
displaying 4 lines, each with 20 characters of information
which are 1/2" high and match the size of a human finger,
allowing for easy and reliable data entry.
* ILLUMINATED DISPLAY, including an easily adjustable
electroluminescent panel for low ambient light, which is
clearly visible both day and night.
3. DRIVER INFORMATION KEY. The Driver Information Key is an electronic
storage device with the approximate size and shape of a normal vehicle key that
provides a portable, powerful, secure method for transporting information
between the Data Station and the Driver Computer in a paperless, electronic
format. Each Driver Information Key is capable of storing the driver's identity,
as well as the driver's logs, dispatch data, and trip data with respect to
multiple trips. Every Driver Computer contains a key receptacle that will
receive the Driver Information Key. Driver Information Keys can be programmed to
perform specific functions depending on the identity of the user. Driver
Information Keys provide a user-friendly mechanism to: (i) transfer trip plans
(dispatch data), completed trips, and driver logs to and from Driver Computers;
(ii) program Driver Computers with fleet performance standards, exception
thresholds, and other security/control data, and (iii) access maintenance,
diagnostic, and repair information from electronic engines and other vehicle
operating systems.
4. DATA STATION. The Data Station has the same physical appearance as
the Driver Computer, but contains software that performs a different function.
The Data Station facilitates the collection, storage and transfer of information
between the Driver Computer and the FMS software, operating primarily as a
transfer mechanism between these two components. For example, the FMS software
can be used to create a table of typical reasons why drivers are delayed in
completing a customer delivery. This table can be transferred from the FMS
software to a Data Station, where it is retrieved by a driver via a Driver
Information Key, and then transferred to a specific vehicle's Driver Computer.
Data Stations are located at terminals, where trips begin and end, and
are typically set up for easy access. Drivers use the Data Stations to exchange
information upon returning from a trip, allowing them to operate on a schedule
independent of fleet management, without the need to physically interchange
paper after each day's work.
A Data Station directly interacts with the Driver Information Key and
the FMS software. In relation to the Driver Information Key, the Data Station
transfers dispatch data onto a Driver Information Key at the beginning of trips
and offloads actual trip data from the Driver Information Key at the end of
trips. In relation to the FMS software, the Data Station connects directly to a
PC to transfer offloaded trip information to the FMS software or to transfer a
new trip plan to a Data Station for retrieval by drivers. A Data Station can
also be accessed via a PC modem to remotely transfer information to or from any
fleet site.
5. XATASERV CUSTOMER SERVICE PROGRAM. XATAServ is the Company's
comprehensive customer service program, offering a wide range of support options
designed to provide customer-focused solutions for operation of the XATA System.
XATAServ is typically purchased at the time of the initial order and provides
assistance in all areas, beginning with rollout and installation, and including
training and support of ongoing operations. The XATAServ program is in addition
to the limited warranty included in the base price of the system.
PAYNE & ASSOCIATES
In August 1996, the Company acquired substantially all of the assets of
Payne & Associates ("Payne"), an unincorporated division of Computer Petroleum
Corporation. Payne's principal products are Dispatch 2000, Dealer Locator,
LoadTracker, and SATMAP 2000. Dispatch 2000 allows a dispatcher to manage the
entire dispatch process using one application, from order entry, to equipment
tracking and trailer management, through final invoicing and driver settlement.
An order wizard tracks the status of each load, on-screen in real time, as it
flows through the dispatch system. Dispatch 2000 uses a distance-based filtering
system for driver-load matching that can actually measure the distance from a
driver to a load, and vice versa, speeding the dispatch process and optimizing
load matching. Dispatch 2000 interfaces with SATMAP 2000, a satellite messaging
interface that allows drivers to communicate with dispatchers electronically via
satellite communications. Dispatch 2000 also has multi-tasking and multi-user
capabilities.
Dealer Locator provides immediate information on dealer and repair
facilities that service tractors and trailers. A database of over 30,000
qualified dealers is accessible by specific facilities (Goodyear tire dealers,
for example) and general categories (truck repair, towing, etc.). Database
entries include address, phone number, contact person, hours of service, and
special capabilities. Dealer Locator locates a truck via telephone number,
satellite interface or GPS, then locates the nearest repair facility by distance
and direction, and lists all others in descending order. The location of the
truck and nearest repair facilities can be viewed on a map. Dealer Locator also
allows the user to create a preferred network of dealers within the application.
Dealer Locator is also available in an internet version, Internet Locator, that
can be set up on a company's home page rather than installing it at every
facility.
LoadTracker uses the Internet for tracking loads, entering orders,
obtaining rates, and accessing reports. Instead of calling the carrier's
customer service department, a customer can connect with a LoadTracker site on
the Internet, enter a purchase order number, and receive detailed shipment
status. Users can also view the shipment's location on a digital map. Loads are
tracked almost instantly from a central database at a very low transaction cost.
SATMAP 2000 is a powerful communication software application that
allows custom control of all inbound and outbound fleet messaging. SATMAP 2000
automatically captures satellite communications, radio message, and position
reports from vehicles, and displays them on a detailed digital map in a
real-time environment.
KEY LOGISTICS
In October 1996, the Company acquired all of the capital stock of Key
Logistics, Inc., which is now a wholly-owned subsidiary of the Company. Key
Logistics' principal product is RouteView, a PC Windows(TM)-based software
system that automatically sequences and optimizes delivery routes on a daily
basis. RouteView generates street-detailed maps that display each delivery
location on a route, sequences delivery locations to minimize mileage and
provides tools for the dispatcher to modify routes as necessary. RouteView is
designed to automate the everyday tasks and tools of the routing process in a
way that is simple, understandable, and easy-to-use. RouteView assigns stops to
routes based on geographic territory, then sequences stops within these routes
to minimize miles in the same manner as a dispatcher performing these tasks
manually. Additional RouteView Tools allow the user to view the effects of route
changes before implementation.
MARKETING
XATA sells its onboard information systems to the fleet trucking
industry nationwide through its direct sales force and an OEM agreement. The
efforts of the direct sales force are supported, when necessary, by systems
engineers, who have a strong working knowledge of the typical hardware and
software configurations required by fleet operations, and by technical support
representatives with experience in integrating the XATA system into fleets in
similar industries under similar operating conditions. XATA is currently
focusing its sales and marketing efforts on larger fleets within specific
industry groups that have experienced significant benefits with the XATA system,
including food distribution and processing, petroleum production and marketing,
and retail/wholesale delivery.
The Company uses exhibits at selected industry conferences to promote
XATA name awareness, demonstrate its products, and obtain additional sales
opportunities. XATA actively pursues speaking opportunities at such trade shows
for its customers who have gained efficiencies in fleet operations using the
Company's technology.
The Company augments its targeted marketing efforts through XATA
University ("XATA U"), which is an overview course on the XATA system that is
held on a regular basis for companies in the process of selecting an onboard
system vendor. XATA U participants receive an overview of onboard technology,
the applications available for the fleet trucking industry, and the
functionality of the XATA system. The sessions are typically attended by
transportation, fleet safety, MIS or corporate managers involved in purchasing
onboard computers for their fleet. Over the course of two days, participants
learn about daily operation of the XATA system, experience actual driver
training, visit XATA's headquarters, and meet other transportation professionals
with similar needs.
MAJOR CUSTOMERS
Net sales during the fiscal years ended September 30, 1996 and 1995 to
customers who accounted for more than ten percent of revenue in either of such
years are as follows:
Years Ended September 30,
-------------------------------
1996 1995
-------------- -------------
Percent of Net Sales
-------------------------------
Ryder Integrated Logistics, Inc. (formerly known 45% 29%
as Ryder Dedicated Logistics, Inc.)
Whirlpool Corporation * 24%
* Net sales were less than ten percent of total net sales.
Although the Company anticipates growth in its customer base as its
sales volume increases, it is likely to continue to be dependent in the near
future on a few major customers who may change from year to year. Loss of any
major customer or failure to expand the Company's customer base could adversely
affect the Company.
MANUFACTURING, PRODUCTION, AND QUALITY CONTROL
The Company subcontracts the manufacture and assembly of its major
components, pursuant to the Company's specifications. All such suppliers have
entered into confidentiality agreements with respect to the Company's
proprietary technology used in manufacture and assembly. Although such suppliers
provide necessary labor and material components, the Company performs inventory
management, quality control management, and final system downloading at XATA's
facility. XATA believes its current suppliers can provide production volumes to
meet its anticipated increases in product demand and is not aware of any
difficulty experienced by its suppliers in obtaining raw materials for
manufacture. Other than purchase orders, the Company has no written supply
agreements with its suppliers.
PATENTS, TRADEMARKS, AND COPYRIGHTS
"XATA" is a trademark registered with the United States Patent and
Trademark office. All computer programs, report formats, and screen formats are
protected under United States copyright laws. In addition, the Company has been
issued a design patent by the United States Patent and Trademark Office which
covers the design of its computer display. The Company's software programs have
not been patented. The Company intends to protect and defend its intellectual
property rights vigorously.
RESEARCH AND DEVELOPMENT
The Company's market position is based on its strong research and
development capability and its market technology leadership. Management believes
that product development must continue in order to maintain this market
position, to integrate industry requirements, to respond to market
opportunities, and to keep abreast of technological change, which is expected to
continue at a rapid pace. The Company employs systems engineers who are engaged
in numerous development projects led by William P. Flies, the Company's founder
and Chief Technical Officer. Along with customer-driven requirements, much of
the impetus to adopt new technologies will come from suppliers, shippers,
government, and other non-industry influences that are endorsing the use of
reliable, low-cost technologies to increase overall industry efficiency. These
new technologies include global positioning systems, onboard communications
(cellular, satellite, wireless, paging), and trailer identification. Research
and development expense was approximately $505,000 for fiscal 1996 and $506,000
for fiscal 1995.
EMPLOYEES
As of September 30, 1996, XATA's staff included 62 employees and 5
contractors. Although employees are organized as an integral XATA team, their
primary assignments, including independent contractors, are as follows: 11 in
administrative, finance, and MIS; 24 in sales and customer service; 4 in
logistics; and 28 engineering, product design, and development.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 12,700 square feet of a 45,650 square foot
office/warehouse building in Burnsville, Minnesota, a southern suburb of
Minneapolis. XATA has used this facility since 1986 as its principal executive
office and manufacturing facility. Its lease, which terminates in 1997, has a
monthly cost of approximately $10,000, which includes operating costs. The
Company anticipates additional space requirements during fiscal 1997 and beyond
and believes that suitable space is available at this location or elsewhere on
terms acceptable to the Company.
The Company's Payne operation leases 3,150 square feet in an office
building in Peoria, Illinois. The lease terminates in the year 2000 and has a
monthly rental of $3,100, including operating costs. The Company believes that
this space is adequate for its needs at this location for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the quarterly high and low closing bid
prices in the over-the-counter market for the Company's Stock, as reported by
the National Association of Securities Dealers' OTC Bulletin Board (the "OTC
Bulletin Board") for the fiscal years ended September 30, 1995 and 1996 (through
December 19, 1995). The Company's Common Stock is traded under the symbol
"XATA." Such quotations represent interdealer prices, without retail markup,
markdown or commission, and do not necessarily represent actual transactions.
CLOSING BID PRICE
-----------------
LOW HIGH
--- ----
FISCAL YEAR 1995
First Quarter................................................. 1-1/8 2-1/4
Second Quarter................................................ 1-1/4 1-7/8
Third Quarter................................................. 1-1/2 2
Fourth Quarter (through Sept. 7, 1995)........................ 2 2-7/8
Fourth Quarter (Sept. 8, 1995 through Sept. 30, 1995)(1)...... 5-5/8 9-3/8
(1) A one-for-three reverse stock split occurred effective September 8,
1995. Prices reported for periods prior to that date have not been
adjusted to reflect the split.
Effective December 20, 1995, the Company's stock commenced trading in Nasdaq
National Market ("NM"). The following table sets forth the quarterly high and
low sales prices as reported by the NM commencing December 20, 1995. The low and
high closing bid prices for the Common Stock for the period October 1 - December
19, 1995 as reported by the OTC Bulletin Board were 7-7/8 and 9-1/2,
respectively.
- ---------------------------
SALE PRICE
----------
LOW HIGH
--- ----
FISCAL YEAR 1996
First Quarter (Dec. 20, 1995 - Dec. 31, 1995)................. 7 8
Second Quarter................................................ 7 7 5/8
Third Quarter................................................. 6-5/8 11-1/4
Fourth Quarter................................................ 8-1/4 11-1/2
As of December 19, 1996, the Company's Common Stock was held of record
by 81 holders. Registered ownership includes nominees who may hold securities on
behalf of multiple beneficial owners.
DIVIDEND POLICY
The Company has never paid cash dividends on any of its securities. The
Company currently intends to retain any earnings for use in its operations and
does not anticipate paying cash dividends in the foreseeable future. Future
dividend policy will be determined by the Company's Board of Directors based
upon the Company's earnings, if any, its capital needs and other relevant
factors.
RECENT SALE OF UNREGISTERED SECURITIES
In October 1996, the Company issued an aggregate of 41,558 shares of
its Common Stock to the two shareholders of Key Logistics, Inc., in exchange for
all of the issued and outstanding stock of Key Logistics. Such shares were
issued in reliance upon exemption from registration under Section 4(2) of the
Securities Act of 1933 (the "Act"). Key Logistics, which is currently a
wholly-owned subsidiary of the Company, is a developer of fleet routing software
called "RouteView," which allows truck fleet managers to download or type a list
of delivery addresses into the system. See Item 1. Business - Key Logistics. In
addition, pursuant to the Payne acquisition, the Company has issued 9,375 shares
of Common Stock, and has commitments to issue an additional 37,500 shares, to
several employees of Payne, who are now employees of the Company, in discharge
of certain obligations of Payne which were assumed by the Company. Such shares
will be issued in reliance upon the exemption from registration under Section
4(2) of the Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company develops, markets, and services fully-integrated, mobile
information systems for the fleet trucking segment of the transportation
industry in the United States. XATA systems utilize proprietary software,
onboard touch-screen computers, and related hardware components and accessories
to capture, analyze, and communicate operating information that assists fleet
management in improving productivity and profitability. Pursuant to contractual
arrangements with certain customers, the Company also provides warehousing
services for completed systems where ownership has transferred.
Revenue for sales of the Company's systems is recognized when ownership
transfers to the customer, which is generally upon shipment. Pursuant to certain
contractual arrangements discussed above, revenues are recognized for completed
systems held at the Company's warehouse pending the receipt of delivery
instructions from the customer. These arrangements have not had a significant
effect on the Company's working capital. Revenue from extended warranty and
service support contracts is deferred and recognized ratably over the contract
period.
On August 23, 1996, the Company acquired certain assets and assumed
certain liabilities of Payne & Associates ("Payne") for approximately $2,400,000
in cash and Company Common Stock, issued and to be issued, valued at
approximately $510,000. Payne develops and sells software products that
integrate information, communication and Internet based technologies for
trucking industry and other applications. The acquisition was accounted for as a
purchase and accordingly, the results of operations for Payne are included with
the Company's since the date of the acquisition. The operations of Payne did not
have a material effect on the Company's results of operations for fiscal 1996.
(See pro forma results of operations in Note 2 to the financial statements.)
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES, AND OTHER FACTORS DESCRIBED IN THIS REPORT, INCLUDING BUT NOT
LIMITED TO COMPETITION; TIMING OF RECEIPT AND SHIPMENT OF CUSTOMER ORDERS; THE
RESULTS OF MARKETING EFFORTS; THE EXPENSE AND TIME REQUIRED TO COMPLETE RESEARCH
AND DEVELOPMENT EFFORTS; AND THE INTEGRATION OF ACQUIRED BUSINESSES.
RESULTS OF OPERATIONS
NET SALES. The Company had net sales of $10,313,000 for fiscal 1996
compared to $7,130,000 for fiscal 1995. This represents an increase of
$3,183,000 (or 44.6%) for fiscal 1996 over the previous fiscal year. The sales
increase is primarily attributable to delivery of additional systems to existing
customers, primarily to a major customer (see Note 11 to the financial
statements) and to new customers generated from increased awareness of XATA's
system capability in the trucking industry. Revenue from new customers in fiscal
1996 totaled approximately $2,900,000, with the balance representing systems and
support sales to existing customers. The Company currently anticipates continued
revenue growth in 1997.
GROSS PROFIT. The Company had a gross profit of $4,841,000 (46.9%) of
net sales) for fiscal 1996 compared to a gross profit of $3,021,000 (42.4% of
net sales) for fiscal 1995, representing an improvement in gross profit
percentage of 10.6% in 1996 in comparison to 1995. The improvement in gross
profit resulted primarily from increased sales, which resulted in allocation of
fixed direct costs over a larger number of products and in lower material costs
from greater volume purchases of components. Beginning in fiscal 1994 and
continuing to the present, the Company has increasingly used outside vendors to
manufacture and assemble component parts. The Company anticipates that this
change will continue to have a number of beneficial results, including lower
average component costs, better quality, and shorter lead time for shipment of
customer orders and lower overall inventory levels. These beneficial results may
be offset in part by increased costs associated with a higher level of customer
support and increased software amortization due to software acquired in the
Payne acquisition, which will total approximately $300,000 in fiscal 1997, and
increasing internally capitalized software development costs. Gross margins are
dependent on product sales mix and discount of volume shipments to certain
customers. The Company anticipates gross margins to increase slightly in fiscal
1997.
OPERATING EXPENSES. Operating expenses include research and
development, selling expenses, and general and administrative expenses. Total
operating expenses were $3,517,000 for fiscal 1996 (34.1% of net sales) compared
to $2,228,000 for fiscal 1995 (31.3% of net sales).
Operating expenses other than research and development were $3,012,000
in fiscal 1996 (29.2% of net sales) compared to $1,722,000 in fiscal 1995 (24.2%
of net sales). The increase of $1,290,000 in fiscal 1996 compared to fiscal 1995
was primarily due to planned increases in sales and marketing personnel and
other marketing expenses plus other infra-structure additions associated with a
higher level of sales. Operating expenses are expected to continue to increase
in fiscal 1997, due to continued investment in the sales and marketing area, as
well as increased goodwill amortization expense of approximately $250,000
resulting from the Payne and Key Logistics acquisitions.
The Company's market position is based on its strong research
capability and its technology leadership. The Company has significantly
increased its expenditures for research and development including its
capitalized software development costs. Expenditures for research and
development, net of capitalized software development costs, are charged to
operations as incurred. These charges amounted to $505,000 for fiscal 1996 and
$506,000 for fiscal 1995. The increases in recent years occurred as the result
of planned increases in personnel and expenses related to new system
capabilities. Software development costs are capitalized after the establishment
of technological feasibility of new products or enhancements. Capitalized
software development costs are amortized to cost of sales over a two-year
period. Capitalized software development costs, before amortization, were
$664,000 for 1996 compared to $323,000 for 1995. The increases are due to
development of enhancements and new software versions to respond to industry
requirements and specific customer needs. The Company anticipates that
expenditures for research and development and software development will continue
to increase in 1997 over the 1996 level.
INCOME TAXES
Federal and state income tax benefit was $34,000 in fiscal 1996
compared to $0 in fiscal 1995. In 1996 and 1995, substantially of the Company's
taxable income was offset by available net operating loss carryforwards. At
September 30, 1996, substantially all of the Company's net operating loss
carryforwards have been utilized. Prior to 1996, the Company had recorded a
valuation allowance against its net deferred tax assets due to uncertainty of
realization. In 1996, due to significant profitable operations, the Company
reduced the valuation allowance to $0. As a result, the 1996 income tax benefit
consists of the reduction of this valuation allowance of $70,000 offset by
$36,000 of currently payable taxes. In future periods, the effective income tax
rate will significantly increase to approximately 40%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at the end of fiscal 1996 was $5,543,000
compared to $1,680,000 at the end of fiscal 1995. The improvement of $3,863,000
during fiscal 1996 was primarily the result of the $4,945,000 of net proceeds
from a public offering of Common Stock in December 1995, plus $1,554,000 of net
income achieved during 1996, reduced by $2,412,000 in cash used to acquire
Payne. At September 30, 1996, cash, cash equivalents, and available for sale
securities totaling $3,767,000 are held primarily in funds composed of
short-term commercial paper, corporate bonds, government bonds, and U.S.
Treasury notes until such time as required by operations.
Cash flows provided by operating activities during fiscal 1996 totaled
$1,954,000, resulting primarily from net income of $1,554,000, plus depreciation
and amortization of $578,000, and increases in accounts payable, accrued
expenses, and deferred revenue of $1,168,000, offset by increases in accounts
receivable of $1,361,000. The significant increase in accounts receivable at
September 30, 1996 was due to the significant increase in sales in the fourth
quarter of fiscal 1996 over the prior fiscal year. During fiscal 1995 cash flows
provided by operating activities totaled $129,000, resulting primarily from net
income of $787,000, plus depreciation and amortization of $305,000, and
increases in accounts payable and accrued expenses of $390,000, offset by
increases in accounts receivable of $1,200,000 and inventory of $222,000.
Accounts receivable at September 30, 1996 represent a significant increase from
the prior fiscal year due to a corresponding increase in sales in the fourth
quarter of fiscal 1996 over the prior fiscal year. The significant increase in
accounts payable is also due to the significant increase in sales. The Company
anticipates that the continued growth in its business will require continued
increases in accounts receivable.
Cash flows used in investing activities of $6,698,000 during fiscal
1996 resulted primarily from $2,412,000 used for the purchase of Payne and the
net investment in available-for-sale securities of $2,970,000 generated from
remaining proceeds of the public offering in December 1995. Other investing
activities during fiscal 1996 included expenditures for software development of
$664,000 and for capital expenditures of $602,000, consisting primarily of
internal computers and related equipment. Cash flows of $642,000 used in
investing activities during 1995 resulted from capital expenditures for various
internal computer equipment and from software development. Although the Company
has no firm commitments for capital expenditures, the Company anticipates
continued investment in internal computers and related equipment of at least
$500,000 in 1997.
The Company has a $150,000 term debt facility to be used for fixed
asset additions, and a $1,000,000 line of credit with Norwest Bank Minnesota,
N.A., both expiring in March 1997. Advances under the line of credit accrue
interest at prime plus 1.5% with an effective rate of 9.75% as of December 15,
1996. From time to time during fiscal 1996, the Company has temporarily used
advances of the line of credit to offset minimum interest requirements. At the
end of the current fiscal year, there were no balances due.
During fiscal 1996, the Company received the proceeds of an
underwritten public offering of 805,000 shares of Common Stock at $7.00 per
share which, net of underwriting discount and expenses of the offering, was
approximately $4,945,000.
The Company believes its cash and investments on hand, its line of
credit, and its current vendor terms will provide adequate cash to fund
anticipated revenue growth and operating needs for the next twelve to eighteen
months. However, the Company's future cash flows from operations may vary
depending on a number of factors, including level of competition, general
economic condition and other factors beyond the Company's control. If sales of
the Company's products do not increase as rapidly as expected, or if sales
increase more rapidly than anticipated, additional capital may be required
during this period, consisting of debt or equity financing.
ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123), ACCOUNTING FOR
STOCK-BASED COMPENSATION. SFAS 123 establishes financial accounting and
reporting standards for stock-based compensation plans. SFAS 123 encourages the
adoption of a fair value-based method of accounting for stock-based compensation
plans, but also allows entities to continue to measure compensation cost using
the intrinsic value-based method of accounting prescribed by APD Opinion No. 25
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Entities electing to remain with the
accounting in Opinion 25 must make pro forma disclosures of net income and
earnings per share as if the fair value-based method had been applied. SFAS 123
is effective for the year ending September 30, 1997. The Company has decided to
continue to measure compensation cost using APB Opinion No. 25, but will provide
the pro forma disclosures required under SFAS 123.
ITEM 7. FINANCIAL STATEMENTS
Independent Auditors' Report F-1
Balance Sheet F-2 - F-3
Statements of Operations F-4
Statements of Changes in Shareholder's Equity F-5
Statements of Cash Flows F-6 - F-7
Notes to Financial Statements F-8 - F-17
XATA CORPORATION
FINANCIAL REPORT
SEPTEMBER 30, 1996
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
XATA Corporation
Burnsville, Minnesota
We have audited the accompanying balance sheets of XATA Corporation as of
September 30, 1996 and 1995, and the related statements of operations, changes
in shareholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of XATA Corporation as of
September 30, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
November 7, 1996
XATA CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
ASSETS (NOTES 2 AND 5) 1996 1995
----------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 740,085 $ 519,715
Available-for-sale securities (Note 3) 3,026,520
Trade receivables, less allowance for doubtful accounts of
$13,000 in 1996 and $10,000 in 1995 (Note 11) 3,363,763 1,681,218
Inventories (Note 4) 373,891 507,498
Prepaid expenses 76,300 59,711
Deferred tax assets (Note 8) 265,000 --
----------- -----------
TOTAL CURRENT ASSETS 7,845,559 2,768,142
----------- -----------
Equipment and Leasehold Improvements, at cost
Engineering and manufacturing equipment 469,725 216,374
Office furniture and equipment 868,298 470,529
Leasehold improvements 72,747 43,060
----------- -----------
1,410,770 729,963
Less accumulated depreciation and amortization 513,089 333,293
----------- -----------
TOTAL EQUIPMENT AND LEASEHOLD IMPROVEMENTS 897,681 396,670
----------- -----------
Other Assets
Capitalized software development costs, less accumulated
amortization of $850,888 in 1996 and $509,173 in 1995 555,678 233,021
Acquired software, less accumulated amortization of $25,000
in 1996 1,175,000 --
Goodwill, less accumulated amortization of $15,942 in 1996 1,323,161 --
Other 55,029 5,185
----------- -----------
TOTAL OTHER ASSETS 3,108,868 238,206
----------- -----------
TOTAL ASSETS $11,852,108 $ 3,403,018
=========== ===========
</TABLE>
See Notes to Financial Statements.
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
----------- -----------
Current Liabilities
Accounts payable $ 996,033 $ 231,733
Accrued expenses(Note7) 690,154 476,779
Deferred revenue 591,044 379,998
Income taxes payable 25,012 --
----------- -----------
TOTAL CURRENT LIABILITIES 2,302,243 1,088,510
----------- -----------
Long-Term Debt (Note 6) 142,855 130,603
----------- -----------
Deferred Tax Liabilities (Note 8) 195,000 --
----------- -----------
Commitments and Contingencies (Notes 9 and 10)
Shareholders' Equity (Note 10)
Common stock, par value $0.01 per share;
authorized 8,333,333 shares; issued
4,342,481 shares in 1996
and 3,517,452 shares in 1995 43,425 35,175
Additional paid-in capital 8,701,956 3,644,110
Common stock to be issued, 37,500 shares 407,812 --
Retained earnings (accumulated deficit) 58,817 (1,495,380)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 9,212,010 2,183,905
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,852,108 3,403,018
=========== ===========
XATA CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
----------- -----------
Net sales (Note 11) $10,313,014 $ 7,129,589
Cost of goods sold (Note 9) 5,472,254 4,108,525
----------- -----------
GROSS PROFIT 4,840,760 3,021,064
Operating expenses 3,516,541 2,228,376
----------- -----------
OPERATING INCOME 1,324,219 792,688
Nonoperating income (expense):
Interest income 214,143 23,139
Interest expense (18,165) (28,650)
----------- -----------
INCOME BEFORE INCOME TAXES 1,520,197 787,177
Federal and state income tax benefit (Note 8) 34,000 --
----------- -----------
NET INCOME $ 1,554,197 $ 787,177
=========== ===========
Net income per share $ 0.36 $ 0.22
Weighted average common and common equivalent shares
outstanding 4,273,697 3,583,251
See Notes to Financial Statements.
<TABLE>
<CAPTION>
XATA CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996 AND 1995 (NOTE 10)
Retained
Common Stock Additional Common Stock Earnings
---------------------- Paid-In to Be (Accumulated
Shares Amount Capital Issued Deficit) Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 $ 3,456,090 $ 34,561 $ 3,551,614 $ -- $(2,282,557) $ 1,303,618
Common stock issued for salary and
bonuses 3,334 33 19,967 -- -- 20,000
Common stock issued on exercise of
options and warrants 58,028 581 72,529 -- -- 73,110
Net income -- -- -- -- 787,177 787,177
----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 1995 3,517,452 35,175 3,644,110 -- (1,495,380) 2,183,905
Proceeds from common stock net
of offering costs 805,000 8,050 4,936,490 -- -- 4,944,540
Common stock issued on exercise of
options and warrants 10,654 106 19,497 -- -- 19,603
Common stock issued/to be issued in
conjunction with the Payne
acquisition (Note 2) 9,375 94 101,859 407,812 -- 509,765
Net income -- -- -- -- 1,554,197 1,554,197
----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 1996 4,342,481 $ 43,425 $ 8,701,956 $ 407,812 $ 58,817 $ 9,212,010
=========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
XATA CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,554,197 $ 787,177
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 578,147 305,285
Common stock issued for employee compensation -- 20,000
Accrued income on available-for-sales securities (56,480) --
Deferred income taxes (70,000) --
Change in assets and liabilities, net of effects of Payne acquisition:
(Increase) decrease in:
Accounts receivable (1,361,348) (1,200,491)
Inventories 133,607 (221,769)
Prepaid expenses (16,589) (33,016)
Increase (decrease) in:
Accounts payable 743,342 82,789
Accrued expenses and deferred revenue 424,421 389,521
Income taxes payable 25,012 --
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,954,309 129,496
------------ ------------
Cash Flows From Investing Activities
Purchase of available-for-sale securities (11,797,903) --
Proceeds from sale and maturity of available-for-sale securities 8,827,863 --
Purchase of equipment (601,537) (318,398)
Addition to software development costs (664,372) (323,201)
Purchase of Payne & Associates (Note 2) (2,412,133) --
Purchase of other assets (50,000) --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (6,698,082) (641,599)
------------ ------------
</TABLE>
(Continued)
<TABLE>
<CAPTION>
XATA CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Financing Activities
Proceeds from common stock issued 4,944,540 --
Proceeds from options and warrants exercised 19,603 73,110
Proceeds from long-term debt -- 200,000
Payments on long-term debt -- (25,000)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,964,143 248,110
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 220,370 (263,993)
Cash and Cash Equivalents
Beginning 519,715 783,708
------------ ------------
Ending $ 740,085 $ 519,715
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 5,913 $ 28,651
Cash payments for income taxes 19,400 --
============ ============
Supplemental Schedule of Noncash Transactions
Payment on note payable to major customer through a credit
to accounts receivable $ -- $ 125,000
Discount on interest-free note payable offset against
capitalized software development costs -- 72,279
============ ============
See Notes to Financial Statements.
</TABLE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: XATA Corporation (the Company) develops, markets, and
services fully-integrated, mobile information systems for the fleet trucking
segment of the transportation industry in the United States. XATA systems
utilize proprietary software, onboard touch-screen computers, and related
hardware components and accessories to capture, analyze, and communicate
operating information that assists fleet management in improving productivity
and profitability. Pursuant to contractual arrangements with certain customers,
the Company also provides warehousing services for completed systems where
ownership has transferred.
The majority of the Company's sales are on a credit basis to customers located
throughout the United States.
A summary of the Company's significant accounting policies follows:
REVENUE RECOGNITION: Revenue for sales of the Company's systems is recognized
when ownership transfers to the customer, which is generally upon shipment.
Pursuant to certain contractual arrangements, revenues are recognized for
completed systems held at the Company's warehouse pending the receipt of
delivery instructions from the customer. Revenue from extended warranty and
service support contracts is deferred and recognized ratably over the contract
period.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all unrestricted cash and any Treasury bills, commercial paper, and
money market funds with an original maturity of three months or less to be cash
equivalents. The Company maintains its cash in bank deposit and money market
accounts, which, at times, exceed federally insured limits. The Company has not
experienced any losses in such accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS: At September 30, 1996, the Company adopted
the FASB Statement No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS. The following methods and assumptions were used by the Company in
estimating the fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value because
of the short maturity of those instruments.
INVESTMENT IN DEBT SECURITIES: The carrying amount approximates fair value (see
Note 3).
LONG-TERM DEBT: The fair value of the Company's long-term debt is estimated
based on interest rates for the same or similar debt offered to the Company
having the same or similar remaining maturities with similar collateral
requirements. At September 30, 1996, the carrying value of the Company's
long-term debt approximates fair value.
INVESTMENT IN DEBT SECURITIES: The Company has a diverse portfolio of
investments in debt securities. Management determines the appropriate
classification of the securities at the time they are acquired and evaluates the
appropriateness of such classifications at each balance sheet date. The Company
has classified its investment in debt securities as available-for-sale
securities. The available-for-sale securities are stated at fair value, and
unrealized holding gains and losses, if any, net of related deferred tax effect,
are reported as a separate component of stockholders' equity.
Realized gains and losses, including losses from declines in value of specific
securities determined by management to be other-than-temporary, are included in
income. Realized gains and losses are determined on the basis of the specific
cost of the securities sold.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined on the weighted average method.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS: The Company accounts for these costs
under rules set forth under Statement of Financial Accounting Standards No. 86,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE
MARKETED. As a result, software development costs incurred after the
establishment of technological feasibility are capitalized and later amortized
to cost of goods sold at the greater of the amount computed using the ratio of
current gross revenues for the product to the total of current and anticipated
future gross revenues or the straight-line method over the remaining estimated
economic life of the product. An original estimated economic life of two years
is assigned to capitalized software development costs. Software development
costs capitalized were approximately $664,000 and $251,000, for the years ended
September 30, 1996 and 1995, respectively.
Software development cost amortization was approximately $342,000 and $219,000,
for the years ended September 30, 1996 and 1995, respectively.
RESEARCH AND DEVELOPMENT COSTS: Expenditures for research and development
activities performed by the Company are charged to operations as incurred.
Research and development expense was approximately $505,000 and $506,000, for
the years ended September 30, 1996 and 1995, respectively.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are provided using
the straight-line method based on the estimated useful lives of individual
assets over the following periods:
Years
- --------------------------------------------------------------------------
Engineering and manufacturing equipment 3-7
Office furniture and equipment 3-7
Leasehold improvements 3-15
Goodwill 7
Capitalized software development costs 2
Acquired software 4
In accordance with Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, the Company reviews its long-lived assests periodically to
determine potential impairment by compairing the carrying value of the
long-lived assets with estimated future cash flows expected to result from the
use of the assets, including cash flows from disposition. Should the sum of the
expected future cash flows be less than the carrying value, the Company would
recognize an impairment loss. An impairment loss would be measured by comparing
the amount by which the carrying value exceeds the fair value of the long-lived
assets. To date, management has determined that no impairment of long-lived
assets exists.
PRODUCT WARRANTIES: The Company sells its systems with a limited warranty, with
an option to purchase extended warranties. The Company provides for estimated
warranty costs at the time of sale and for other costs associated with specific
items at the time their existence and amount are determinable.
INCOME TAXES: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
401(k) PLAN: The Company has a 401(k) plan covering substantially all employees.
The Company may make annual contributions to the plan at the discretion of the
Board of Directors. Company contributions for the year ended September 30, 1996,
were $70,000. There were no contributions for the year ended September 30, 1995.
NET INCOME PER SHARE: Net income per share of common stock is computed by
dividing net income by the weighted average number of common and common
equivalent shares outstanding during the period. Fully diluted earnings per
share did not differ from primary earnings per share in 1996 and 1995.
ACCOUNTING PRONOUNCEMENTS: In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123 (SFAS 123),
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS 123 establishes financial
accounting and reporting standards for stock-based compensation plans. SFAS 123
encourages the adoption of a fair value-based method of accounting for
stock-based compensation plans, but also allows entities to continue to measure
compensation cost using the intrinsic value-based method of accounting
prescribed by APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
Entities electing to remain with the accounting in Opinion No. 25 must make pro
forma disclosures of net income and earnings per share as if the fair
value-based method had been applied.
SFAS 123 is effective for the year ending September 30, 1997. The Company has
decided to continue to measure compensation cost using APB Opinion No. 25, but
will provide the pro forma disclosures required under SFAS 123.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. ACQUISITION OF PAYNE & ASSOCIATES
On August 23, 1996, the Company acquired certain assets and assumed certain
liabilities of Payne & Associates (Payne) (a division of Computer Petroleum
Corporation [CPC]) from UCG Acquisition Corporation (UCG). UCG acquired the
assets immediately prior to the closing of the purchase pursuant to a merger of
CPC into UCG. The purchase price consisted of a cash payment to UCG and a
combination of cash and stock issued/to be issued to CPC management to settle
certain liabilities and arrangements not assumed by UCG and to secure their
employment with the Company.
The acquisition has been accounted for as an asset purchase. The total purchase
price was as follows:
Cash paid to UCG $ 2,240,000
Cash paid to CPC management 125,000
Cash paid for direct acquisition costs 47,133
--------------------
Total cash paid 2,412,133
Common stock issued/to be issued to CPC management 509,765
--------------------
Total purchase price $ 2,921,898
====================
In addition to the common stock issued/to be issued above, an additional 28,125
shares of the Company's common stock may be issued over the next three years to
CPC management if certain financial goals related to Payne are achieved. The
issuance of these shares will be recorded as compensation expense in the period
earned.
The allocation of the purchase price was based on the fair market value of
Payne's assets and liabilities as of the date of acquisition. The total purchase
price was allocated as follows:
Accounts receivable $ 321,197
Equipment 82,556
Software 1,200,000
Goodwill 1,339,103
Accounts payable (20,958)
--------------------
Total purchase price $ 2,921,898
====================
Unaudited pro forma results of operations for the years ended September 30, 1996
and 1995, as though Payne had been acquired as of October 1, 1994, follow:
1996 1995
- -----------------------------------------------------------------------------
Sales $ 11,153,148 $ 7,652,036
Net income 1,008,810 (213,995)
Earnings per common and
common equivalent share 0.24 (0.06)
NOTE 3. INVESTMENT IN DEBT SECURITIES
The following is a summary of the Company's investment in available-for-sale
securities as of September 30, 1996:
Commercial paper $ 1,484,279
Corporate bonds 522,201
Government bonds 513,222
U.S. Treasury notes 506,818
--------------------
$ 3,026,520
====================
Available-for-sale securities of approximately $2,500,000 mature in 1997 with
the remaining balance maturing in 1998.
The cost of available-for-sale securities approximates fair value. The Company
realized no gains or losses on available-for-sale securities during the year
ended September 30, 1996.
NOTE 4. INVENTORIES
Inventories consisted of the following:
September 30
-------------------------------
1996 1995
- -------------------------------------------------------------------------
Raw materials and subassemblies $ 252,719 $ 334,750
Finished goods 171,172 192,748
Obsolescence reserve (50,000) (20,000)
-------------------------------
$ 373,891 $ 507,498
===============================
NOTE 5. LINE OF CREDIT
The Company has a credit line agreement with a financial institution consisting
of a $1,000,000 line of credit and a $150,000 equipment line expiring March 31,
1997. Advances under the line of credit and equipment line accrue interest at
prime plus 1.5 percent and prime plus 2.0 percent, respectively. The lines are
subject to borrowing base requirements, and are secured by substantially all the
assets of the Company. Covenants under the agreement require the Company to
maintain certain financial requirements, including minimum net worth and net
income levels. As of September 30, 1996, there were no borrowings under the line
of credit and equipment lines.
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following:
September 30
-------------------------
1996 1995
- --------------------------------------------------------------------------------
Note payable to major customer, noninterest bearing,
discounted at 9%, due December 1999, unsecured $ 142,855 $ 130,603
NOTE 7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
September 30
-------------------------
1996 1995
- --------------------------------------------------------------------------------
Accrued compensation $ 352,864 $ 225,205
Accrued vacation 152,164 69,325
Accrued warranty 75,000 50,000
Accrued profit sharing 70,000 --
Deferred compensation (Note 9) -- 117,868
Other 40,126 14,381
-------------------------
$ 690,154 $ 476,779
=========================
<TABLE>
<CAPTION>
NOTE 8. INCOME TAXES
The tax effects of the Company's deferred tax assets and liabilities are as
follows:
September 30
-----------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred revenue $ 113,000 $ 61,000
Inventory and warranty reserve 55,000 18,000
Accrued expenses 151,000 79,000
Federal and state net operating loss carryforwards 31,000 484,000
-----------------------------------------
Gross deferred tax assets 350,000 642,000
Valuation allowance on deferred tax assets -- (538,000)
-----------------------------------------
Net deferred tax assets 350,000 104,000
-----------------------------------------
Software development costs (224,000) (79,000)
Depreciation (56,000) (25,000)
-----------------------------------------
Gross deferred tax liabilities (280,000) (104,000)
-----------------------------------------
Net deferred tax asset $ 70,000 $ --
=========================================
The Company's deferred tax assets and liabilities are shown in the accompanying
balance sheet as follows:
September 30
-----------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------
Current deferred tax assets $ 265,000 $ --
Long-term deferred tax liabilities (195,000) --
-----------------------------------------
$ 70,000 $ --
=========================================
</TABLE>
<TABLE>
<CAPTION>
The Company's income tax expense (benefit) differed from the statutory federal
rate as follows:
September 30
-----------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Statutory rate applied to income before tax $ 532,000 $ 276,000
Utilization of federal and state net operating loss carryforwards (468,000) (276,000)
Change in valuation allowance (70,000) --
Other (28,000) --
-----------------------------------------
$ (34,000) $ --
=========================================
Currently payable $ 36,000 $ --
Deferred (70,000) --
-----------------------------------------
$ (34,000) $ --
=========================================
At September 30, 1996, the Company has federal net operating losses of
approximately $41,000 expiring in 2009.
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES: The Company leases its office, warehouse, and certain office
equipment under noncancelable operating leases. The facility lease requires that
the Company pay a portion of the real estate taxes, maintenance, utilities, and
insurance.
Approximate future minimum rental commitments excluding common area costs under
these noncancelable operating leases are:
Years ending September 30:
1997 $118,000
1998 49,000
1999 49,000
2000 46,000
2001 10,000
Rental expense including common area costs was approximately $138,000 and
$102,000, for the years ended September 30, 1996 and 1995, respectively.
DEFERRED COMPENSATION: During 1994, pursuant to a salary reduction program, the
Company recorded deferred compensation of $117,868. The deferred compensation
was paid in fiscal 1996.
PURCHASE COMMITMENT: In September 1996, the Company committed to purchase
approximately $1,387,000 of goods from one of their suppliers within the time
period from December 1996 to December 1998.
NOTE 10. SHAREHOLDERS' EQUITY
STOCK OPTION PLAN: The Company has a 1991 Long-Term Incentive and Stock Option
Plan ("Plan"). The Plan permits the granting of "incentive stock options"
meeting the requirements of Section 422 of the Internal Revenue Code of 1986 as
amended, and nonqualified options which do not meet the requirements of Section
422. Stock appreciation rights and restricted stock awards may also be granted
under the Plan. A total of 650,000 shares of the Company's common stock has been
reserved for issuance pursuant to options granted or shares awarded under the
Plan. In addition, nonemployee directors are automatically granted option for
2,000 shares on an annual basis.
A summary of stock option activity is as follows:
Option
Price
Shares Per Share
- ------------------------------------------------------------------------------
Outstanding at September 30, 1994 208,176 $ 2.63 - $ 4.68
Granted 187,623 4.32 - 9.25
Exercised (23,184) 3.00 - 5.07
Canceled (5,390) 3.00
--------------------------------------
Outstanding at September 30, 1995 367,225 2.82 - 9.25
Granted 91,934 7.00 - 11.00
Exercised (6,223) 3.00 - 4.68
Canceled (5,753) 4.68 - 9.25
--------------------------------------
Outstanding at September 30, 1996 447,183 $ 2.82 - $11.00
======================================
The options that have been granted under the Plan are exercisable for a period
of five years from the date of grant and vest over a period of up to three years
from the date of grant. At September 30, 1996, options for 249,510 shares were
exercisable. All stock options have been granted at fair market value, and
accordingly, no compensation expense has been recorded for all periods
presented.
Restricted stock awards for 3,334 shares were issued under the Plan for employee
compensation in 1995.
OTHER STOCK OPTIONS: During the year ended September 30, 1992, the Company
granted options for 10,463 shares of common stock to former directors of the
Company outside of the Plan at an exercise price of $3.00 per share, the fair
market value at date of grant. The options were exercised in 1995.
COMMON STOCK WARRANTS: During 1994, the Company issued warrants to a consultant
for the purchase of 3,333 shares of common stock for $2.63 per share and in 1996
for the purchase of 24,000 shares of common stock for $7.13 per share. All of
the warrants were outstanding at September 30, 1996. Compensation expense
related to the issuance of these warrants was not material.
Pursuant to a 1992 private placement, the placement agent was granted a five
year warrant to purchase 57,333 shares of common stock at $2.10 per share. As of
September 30, 1996, warrants for the purchase of 8,600 shares remained
outstanding.
PUBLIC OFFERING: On December 26, 1995, the Company completed a public offering
with the sale of 805,000 shares of common stock at $7.00 per share or $5,635,000
before placement agent's commission and offering costs. Net proceeds of the
offering, after deducting all offering costs and commissions, were $4,944,540.
In addition, the placement agent was granted a five-year warrant to purchase
35,000 shares of common stock at $8.40 per share. As of September 30, 1996, the
entire warrant was outstanding.
PREFERRED STOCK: The Company is authorized to issue 333,333 shares of preferred
stock. The Board of Directors is empowered to determine the rights, preferences,
privileges, and restrictions, including dividend rights and rates, liquidation
preferences, conversion or exchange rights, and redemption or sinking fund
provisions of the Company's preferred stock prior to issuance. The issuance of
preferred stock may, in some circumstances, deter or discourage takeover
attempts or other changes in the control of the Company.
As of September 30, 1996, no shares of preferred stock have been issued.
NOTE 11. MAJOR CUSTOMERS
Net sales include sales to major customers as follows:
Years Ended September 30
--------------------------------------
1996 1995
- ----------------------------------------------------------------------------
Revenue percentage:
Customer A 45 % 29 %
Customer B * 24
Years Ended September 30
----------------------------------------
1996 1995
- ----------------------------------------------------------------------------
Ending receivable balance:
Customer A $ 765,337 $ 645,330
Customer B * 182,655
* Net sales were less than 10 percent of total net sales for the period.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Information called for by this Item is set forth under the captions
"Election of Directors," and "Management" in the Company's definitive proxy
statement to be filed pursuant to Regulation 14A, which information is hereby
incorporated by reference and made a part hereof.
ITEM 10. EXECUTIVE COMPENSATION
Information called for by this Item is set forth under the caption
"Management" (and the subcaptions "Director Compensation" and ""Executive
Compensation" thereunder) in the Company's definitive proxy statement to be
filed pursuant to Regulation 14A, which information is hereby incorporated by
reference and made a part hereof.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by this Item is set forth under the caption
"Principal Shareholders and Management" in the Company's definitive proxy
statement to be filed pursuant to Regulation 14A, which information is hereby
incorporated by reference and made a part hereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Company during the
last quarter of the fiscal year ended September 30, 1996.
Form 8-K dated September 6, 1996 concerning acquisition of assets of
Payne & Associates.
EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------------------------------------
3.1 Restated Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
4.1 Form of certificate representing the Common Stock (1)
5.1 Opinion and Consent of Counsel to the Company (1)
10.1 Lease (for Office and Manufacturing Facilities),
dated September 11, 1986, Letter Agreement and
Amendment No. 1 to lease dated July 10, 1992, and
Amendment No. 2 to Lease (1)
10.2 Agreements with Dennis R. Johnson regarding
employment (1)
10.3 Agreements with William P. Flies regarding employment
(1)
10.4 1991 Long-Term Incentive and Stock Option Plan, as
amended (1)
10.5 Purchase Agreement with Ryder Dedicated Logistics,
Inc. dated December 31, 1994, with supplemental
agreement dated September 1, 1995 (2)
10.6 Credit Agreement with Norwest Bank Minnesota, N.A.,
and related security documents, dated June 1995, with
letter amendment dated October 1995 (1)
13 1997 Definitive Proxy Materials (portions of which
are incorporated herein by reference).(3)
21 Subsidiaries of the Company
23 Consent of McGladrey & Pullen, LLP, independent
certified public accountants
27 Financial Data Schedule
- --------------------
(1) Incorporated by reference to exhibit filed as a part of Registration
Statement on Form S-2 (Commission File No. 33-98932).
(2) Incorporated by reference to exhibit filed as a part of Report on Form
10-QSB for the fiscal quarter ended March 31, 1995. Certain segments
have been granted confidential treatment.
(3) To be filed in definitive form not later than January 28, 1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
XATA CORPORATION
Dated: December 27, 1996 By: /s/ Dennis R. Johnson
-------------------------------------------------
Dennis R. Johnson, Chief Executive Officer
(Principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Dated: December 27, 1996 By: /s/ Dennis R. Johnson
-------------------------------------------------
Dennis R. Johnson, Director, Chief Executive
Officer and President (Principal executive
officer)
Dated: December 27, 1996 By: /s/ Robert M. Featherstone
-------------------------------------------------
Robert M. Featherstone, Director, Chief Financial
Officer and Treasurer (Principal accounting and
financial officer)
Dated: December 27, 1996 By: /s/ William P. Flies
-------------------------------------------------
William P. Flies, Director, Chief Technical
Officer and Secretary
Dated: December 27, 1996 By: /s/ Edward T. Michalek
-------------------------------------------------
Edward T. Michalek, Chairman of the Board of
Directors
Dated: December __, 1996 By:
-------------------------------------------------
Stephen A. Lawrence, Director
Dated: December 27, 1996 By: /s/ Roger W. Kleppe
-------------------------------------------------
Roger W. Kleppe, Director
INDEX TO EXHIBITS
INDEX
NUMBER DESCRIPTION PAGE #
- --------------------------------------------------------------------------------
21 Subsidiaries of the Company
23 Consent of McGladrey & Pullen, LLP, independent public accountants
27 Financial Data Schedule
Exhibit 21
XATA Corporation has one wholly-owned subsidiary, which is Key Logistics, Inc.,
a Minnesota corporation. All business of Key Logistics, Inc. is conducted under
the "XATA" name and mark.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 related to the 1991 Long-Term Incentive and Stock Option
Plan and subsequent amendments (Commission File No.'s 33-74148, 33-89222, and
333-3670) and the Registration Statement on Form S-8 for the registration of
31,389 shares (10,463 shares after the September 8, 1995 reverse stock split),
under former director options (Commission File No. 33-94006), of our report,
dated November 7, 1996, with respect to the financial statements of XATA
Corporation, appearing in this Annual Report on Form 10-KSB for the year ended
September 30, 1996.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
December 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
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