SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X Quarterly report pursuant to Section 13 of 15(d) of the Securities
- ------ Exchange Act of 1934
For the quarterly period ended December 31, 1997 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ------ Exchange Act of 1934
For the transition period from ___________ to ____________
Commission File Number: 0-27166
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XATA Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1641815
- --------------------------------- -----------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
151 E. Cliff Road, Suite 10, Burnsville, Minnesota 55337
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (612) 894-3680
------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of February 11, 1998, the following securities of the Registrant were
outstanding: 4,392,559 shares of Common Stock, $.01 par value per share.
<PAGE>
XATA Corporation
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Balance Sheets as of
December 31, 1997 and September 30, 1997 3
Statement of Operations for the Three
Months Ended December 31, 1997 and 1996 5
Statement of Cash Flows for the Three
Months Ended December 31, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of
Operation 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
PART I. Item 1. Financial Information
XATA Corporation
BALANCE SHEETS
December 31, 1997 and September 30, 1997
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS: 1997 1997
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 0 $ 336,126
Available-for-sale securities 2,202,538 3,054,076
Accounts receivable, less allowance for doubtful accounts 3,071,001 2,613,039
of $275,000 at December 31, 1997, and $275,000 at September 30, 1997.
Inventories 554,441 434,836
Prepaid expenses 102,473 115,334
Deferred taxes 1,172,714 1,040,000
------------- -------------
Total current assets 7,103,167 7,593,411
Equipment and leasehold improvements, at cost:
Engineering and manufacturing equipment 787,461 759,181
Office furniture and equipment 1,444,496 1,310,079
Leasehold improvements 38,417 38,417
------------- -------------
2,270,374 2,107,677
Less accumulated depreciation and amortization (1,009,845) (885,425)
------------- -------------
Net equipment and leasehold improvements 1,260,529 1,222,252
------------- -------------
Other Assets:
Capitalized software development costs, less accumulated amortization
of $1,739,731 at December 31, 1997, and $1,495,369 at September 30, 1997. 1,344,487 1,065,633
Purchased software, less accumulated amortization
of $1,033,811 at December 31, 1997, and $1,000,000 at September 30, 1997. 366,189 400,000
Goodwill, less accumulated amortization
of $1,372,437 at December 31, 1997, and $1,365,294 at September 30, 1996. 166,666 173,809
Other 51,709 54,873
------------- -------------
Total other assets 1,929,051 1,694,315
Total assets $ 10,292,747 $ 10,509,978
============= =============
</TABLE>
<PAGE>
XATA Corporation
BALANCE SHEETS
December 31, 1997 and September 30, 1997
<TABLE>
<CAPTION>
December 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY: 1997 1997
------------- -------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 671,647 $ 648,175
Accrued expenses and taxes payable 992,442 980,227
Deferred revenue 1,043,596 1,116,106
------------- -------------
Total current liabilities 2,707,685 2,744,508
Long-term Liabilities:
Long-term debt 159,920 156,256
Deferred taxes 460,000 460,000
------------- -------------
Total long-term liabilities 619,920 616,256
Stockholders' Equity:
Common stock, par value $.01 per share, authorized 8,333,333 shares;
issued 4,392,559 at December 31, 1997 and 4,383,025 at
September 30, 1997 43,925 43,830
Additional paid-in capital 9,210,676 9,195,771
Common stock to be issued 271,875 271,875
Retained earnings (accumulated deficit) (2,561,334) (2,362,262)
------------- -------------
Total stockholders' equity 6,965,142 7,149,214
------------- -------------
Total liabilities and stockholders' equity $ 10,292,747 $ 10,509,978
============= =============
</TABLE>
<PAGE>
XATA Corporation
STATEMENT OF OPERATIONS
For the Three Months ended December 31, 1997 and 1996
Three Month Periods
Ended December 31,
1997 1996
------------ ------------
Net sales $ 2,557,797 $ 2,480,075
Cost of sales 1,457,096 1,256,066
------------ ------------
Gross profit 1,100,701 1,224,009
Operating expenses 1,465,228 1,218,971
------------ ------------
Operating income (loss) (364,527) 5,038
Non-operating (expense) income:
Interest (expense) (3,664) (3,401)
Interest income 36,405 43,016
------------ ------------
32,741 39,615
------------ ------------
Net income (loss) before income taxes (331,786) 44,653
Income tax provision (132,714) 17,900
------------ ------------
Net income (loss) $ (199,072) $ 26,753
============ ============
Net income (loss) per share
Basic EPS $ (0.05) $ 0.01
============ ============
Diluted EPS $ (0.05) $ 0.01
============ ============
Weighted average common and common
equivalent shares outstanding
Basic EPS 4,414,009 4,409,119
============ ============
Diluted EPS 4,414,009 4,583,564
============ ============
<PAGE>
XATA Corporation
STATEMENT OF CASH FLOWS
For the Three Months Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Three Month Periods
Ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (199,072) $ 26,753
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 412,900 337,865
Deferred taxes
(Increase) decrease in accrued income in available-for-sale securities 41,775 (1,578)
(Gain) or loss on sale of available-for-sale securities 0 0
Amortization of discount on note payable 3,664 3,350
Change in assets and liabilities:
(Increase) decrease in accounts receivable (457,962) (729,455)
(Increase) decrease in inventories (119,605) 67,467
(Increase) decrease in prepaid expenses 12,861 (19,448)
(Increase) decrease in deferred tax asset (132,714) 0
Increase (decrease) in accounts payable 23,472 (523,432)
Increase (decrease) in accrued expenses and taxes payable 12,215 (141,218)
Increase (decrease) in deferred revenue (72,510) 136,837
------------ ------------
Net cash provided by (used in) operating activities (474,976) (842,859)
------------ ------------
Cash Flows from Investing Activities
Purchase of available-for-sale securities (1,498,340) (1,039,319)
Proceeds from sale and maturity of available-for-sale securities 2,308,103 1,890,608
Purchase of fixed assets (162,697) (118,687)
Additions to software development costs (523,216) (266,588)
------------ ------------
Net cash provided by (used in) investing activities 123,850 466,014
------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in line of credit 0 0
Proceeds from long-term debt 0 0
Repayment of long-term debt 0 0
Proceeds from options and warrants exercised 15,000 0
Proceeds from public stock offering 0 0
------------ ------------
Net cash provided by (used in) financing activities 15,000 0
------------ ------------
Increase (decrease) in cash and cash equivalents (336,126) (376,845)
Cash and Cash Equivalents
Beginning 336,126 740,085
------------ ------------
Ending $ 0 $ 363,240
============ ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. MANAGEMENT STATEMENT
In the opinion of management of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal,
recurring accruals) necessary to present fairly the financial position of the
Company as of December 31, 1997 and the results of operations and cash flows for
the three month periods ended December 31, 1997 and 1996. The results of
operations for any interim period are not necessarily indicative of the results
for the fiscal year ending September 30, 1998. These interim financial
statements should be read in conjunction with the Company's annual financial
statements and related notes thereto included in the Company's Form 10-KSB and
Annual Report to shareholders for the fiscal year ended September 30, 1997.
NOTE 2. EARNINGS PER SHARE
The FASB has issued Statement No. 128, Earnings per Share, which supersedes APB
Opinion No. 15. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants and convertible securities, outstanding that trade in a public
market. Those entities that have only common stock outstanding are required to
present basic earnings per-share amounts. Basic per-share amounts are computed,
generally, by dividing net income or loss by the weighted-average number of
common shares outstanding. All other entities are required to present basic and
diluted per-share amounts. Diluted per-share amounts assume the conversion,
exercise or issuance of all potential common stock instruments unless the effect
is anti-dilutive thereby reducing the loss or increasing the income per common
share. The Company initially applied Statement No. 128 for the three months
ended December 31, 1997 and, as required by the Statement, has restated all per
share information for the prior years to conform to the Statement.
<PAGE>
PART I ITEM 2. Management's discussion and analysis or plan of operation. The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company's results of
operation and financial condition. This discussion should be read in conjunction
with the financial statements in Item 1 and the Company's report on Form 10-KSB
for the period ended September 30, 1997.
RESULTS OF OPERATIONS
NET SALES. XATA is a leading provider of information software, systems and
services to transportation companies. XATA's products and services unify all
participants in a company's supply chain to optimize the collection,
communication and processing of information throughout the transportation
network. XATA's systems use onboard computers, fleet management software, route
optimization software, dispatch software, Internet software, satellite
positioning and mobile communication capabilities to improve fleet productivity
and profitability.
The Company's net sales for the three months ended December 31, 1997 increased
3.1% to $2,557,797 as compared to sales of $2,480,075 for the comparable three
month period ended December 31, 1996. Sales to private fleet customers for the
three months ended December 31, 1997 were 9% higher than the comparable period
in fiscal 1997. This growth, together with the increased revenue from XET (XATA
Enterprise Technologies, an unincorporated division, formerly known as Payne &
Associates), has been more than enough to offset a slowdown in deliveries to a
large customer. This customer continues to be involved in a major restructuring
program intended to direct additional funds into its leading lines of business,
one of which includes the division that purchases XATA onboard computers.
Deliveries to this customer accounted for almost 14% the revenue for the first
three months of fiscal 1997, but approximately 1% of the revenue for the first
three months of fiscal 1998. Although XATA expects that deliveries to this
particular customer in fiscal 1998 will remain at or below fiscal 1997 levels,
XATA anticipates that total Company revenue for fiscal 1998 will exceed fiscal
1997 levels.
GROSS PROFIT. The Company had a gross profit of $1,100,701 (43.0% of net sales)
for the three months ended December 31, 1997, compared to a gross profit of
$1,224,009 (49.4% of net sales) for the comparable 1997 period. The decrease in
gross profit percentage is due to the increased amortization of capitalized
software development costs, increased costs for software and hardware
continuation expenses, and increased costs for the technical support department.
These were somewhat offset by improved percentages for material content of the
onboard computer system sales and decreased percentage for amortization of
purchased software.
OPERATING EXPENSES. Operating expenses include research and development, selling
expenses and general and administrative expenses. Total operating expenses were
$1,465,228 for the three month period ended December 31, 1997 (57.3% of net
sales) compared to $1,218,971 (49.2% of net sales) for the comparable prior year
period.
Operating expenses other than research and development were $1,228,556 (40.0% of
net sales) for the three month period ended December 31, 1997 compared to
$1,059,993 (42.7% of net sales) for the comparable prior year period. The
increases of $168,563 for the three month period ended December 31, 1997
compared to the comparable prior year periods were primarily due to planned
increases in sales, marketing and MIS expenses associated with a higher level of
sales. These were offset somewhat by the decrease in amortization of goodwill
associated with the purchase of Payne & Associates. The Company will continue to
develop required infrastructure to facilitate planned increases in revenue and,
accordingly, expects that operating expenses will continue to increase during
fiscal 1998 and fiscal 1999.
<PAGE>
The Company's market position is based on its strong research capability and its
technology leadership, as evidenced by its growing customer base. The Company
has significantly increased expenditures for its combined research and
development and capitalized software development costs. Expenditures for
research and development are included in operating expenses and are charged to
operations as incurred. These research and development expenses during the three
months ended December 31, 1997 were $236,672 compared to $158,978 during the
comparable 1996 period. The increases over the prior year periods occurred
primarily as the result of planned increases in personnel and expenses related
to new product 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. Software development costs of $523,216 were capitalized for the
three month period ended December 31, 1997, compared to $266,588 for the
comparable three month period of 1996. The increase is due to development of
enhancements and new software versions to respond to industry requirements and
customer needs. The Company anticipates that expenditures for research and
development and capitalized software development to continue to increase during
fiscal 1998 and fiscal 1999.
INTEREST INCOME AND EXPENSES. Net interest income for the three month period
ended December 31, 1997 was $32,741 compared to $39,615 in the comparable prior
year period.
INCOME TAXES. Income tax expense has been recorded at a 40% effective tax rate.
Income tax expense for the three month period ended December 31, 1997, was a tax
benefit of $132,714 compared to a tax expense of $17,900 for the comparable 1996
period.
NET INCOME. Net income (loss) for the three month period ended December 31,
1997, was a loss of $199,072 compared to net income of $26,753 for the
comparable 1996 period. The $225,825 decrease from the prior year three month
period is primarily the result of additional amortization of capitalized
software development costs and planned increases in engineering, technical
support, and sales and marketing expenses, as well as the other factors
discussed in this section.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's working capital was $4,395,482 compared to
$4,848,903 at September 30, 1997. Cash and cash equivalents are held primarily
in a fund composed of short-term commercial paper until such time as required by
operations. Available-for-sale securities of $2,202,538 at December 31, 1997 are
composed of U.S. Treasury notes, and corporate debt securities with maturities
ranging from February 1998 to December 1999. The cost of the available-for-sale
securities approximated fair market value at December 31, 1997.
Cash flows provided by operating activities during the three months ended
December 31, 1997 totaled a negative $512,353, resulting primarily from the
increase in accounts receivable ($457,962).
Cash flows made available from investing activities during the three months
ended December 31, 1997 totaled $123,850, resulting from the net selling
activity of the available-for-sale securities ($809,763) which were offset by
additions to software development costs ($523,216) and capital expenditures
($162,697). This compares to net sales of available-for-sale securities
($851,289), partially offset by additions to software development costs
($266,588) and capital expenditures ($118,687) totaling $466,014 of funds made
available from investing activities for the comparable period in 1996. Capital
expenditures were primarily for internal PC equipment and office equipment to
support increases in personnel and engineering
<PAGE>
equipment used in developing new products. Although the Company has no firm
commitments for capital expenditures, it anticipates capital expenditures of at
least $300,000 during the balance of fiscal 1998.
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 1998. Advances under the line of credit accrue interest
at prime plus 1.5%, with an effective rate of 10.0% as of February 11, 1998. The
Company has no minimum interest requirements, but is committed to an annual
administrative fee of $1,200. At December 31, 1997 there were no balances due.
The Company anticipates renewing both the term debt facility and the line of
credit in March 1998.
Cash flows from financing activities during the three months ended December 31,
1997 totaling $15,000 resulted from the exercise of stock options by employees.
During fiscal year 1998, cash will be required to meet increased working capital
needs, including inventory and accounts receivable financing, increased
expenditures for marketing, sales, and customer support, continuing research and
development expenses and capital expenditures. The Company believes its cash on
hand plus its available-for-sale securities, its line of credit, and its current
vendor terms will be adequate to fund the delivery of its anticipated revenue
growth and to maintain its liquidity for a period of approximately 18 to 24
months. The Company's future cash flows from operations, however, may vary
depending on a number of factors, including level of competition, general
economic conditions and other factors beyond the Company's control.
FORWARD-LOOKING STATEMENTS
THIS REPORT, AND IN PARTICULAR THE PARAGRAPH TITLED "OUTLOOK - FOURTH QUARTER
NON-CASH CHARGE", 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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes In Securities -
* In November 1997, the Company issued a 5-year warrant
for purchase of 6,000 shares of common stock to
Edward T. Michalek, concurrent with his resignation
from the Board of Directors. The warrant was issued
in recognition of his 11 years of service as chairman
of the Board and is exercisable at $5.25 per share
(the fair market value of the common stock as of the
date of grant). The Company has relied upon
exemptions from registration under the Securities Act
of 1933 (the "Act") as set forth in Sections 4(2) and
4(6) of the Act.
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
* On April 30, 1997 the Board of Directors of the
Company authorized the repurchase of shares of the
Company's common stock in market transactions from
time to time, not to exceed $1 million. Any shares
which are repurchased will retire to authorized,
unissued capital stock of the Company. As of February
11, 1998 no shares had been repurchased during the
current fiscal year.
Item 6. Exhibits and Reports on Form 8-K - Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: February 12, 1998 XATA Corporation
(Registrant)
by: /s/ Robert M. Featherstone
-----------------------------
Robert M. Featherstone
Chief Financial Officer
(Signing as Principal Financial and
Accounting Officer and as Authorized)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854398
<NAME> XATA CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 2,202,538
<RECEIVABLES> 3,346,001
<ALLOWANCES> 275,000
<INVENTORY> 554,441
<CURRENT-ASSETS> 7,103,167
<PP&E> 2,270,374
<DEPRECIATION> 1,009,845
<TOTAL-ASSETS> 10,292,747
<CURRENT-LIABILITIES> 2,707,685
<BONDS> 619,920
0
0
<COMMON> 43,925
<OTHER-SE> 6,921,217
<TOTAL-LIABILITY-AND-EQUITY> 10,292,747
<SALES> 2,557,797
<TOTAL-REVENUES> 2,557,797
<CGS> 1,457,096
<TOTAL-COSTS> 1,465,228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,664
<INCOME-PRETAX> (331,786)
<INCOME-TAX> 132,714
<INCOME-CONTINUING> (199,072)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (199,072)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
