SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- -------- Exchange Act of 1934
For the quarterly period ended June 30, 1999 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
----------------------------------------------
XATA Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1641815
- ------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
151 E. Cliff Road, Suite 10, Burnsville, Minnesota 55337
- --------------------------------------------------------------------------------
(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 August 9, 1999, the following securities of the Registrant were
outstanding: 4,423,133 shares of Common Stock, $.01 par value per share.
<PAGE>
XATA Corporation
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
Item 1. Financial Statements:
Balance Sheets as of
June 30, 1999 and September 30, 1998 3
Statements of Operations for the Three and Nine
Months Ended June 30, 1999 and 1998 5
Statements of Cash Flows for the Nine
Months Ended June 30, 1999 and 1998 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
</TABLE>
2
<PAGE>
PART I. Item 1. Financial Information
XATA Corporation
BALANCE SHEETS
June 30, 1999 and September 30, 1998
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS: 1999 1998
----------- -------------
(unaudited) (audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 487,541 --
Accounts receivable, less allowance for doubtful accounts
of $230,794 at June 30, 1999, and $1,047,000 at September 30, 1998 1,946,454 1,942,458
Notes receivable, current portion 17,854 44,496
Inventories 357,921 474,011
Prepaid expenses 121,102 104,480
Deferred taxes 0 0
----------- -----------
Total current assets 2,930,872 2,565,445
Equipment and leasehold improvements, at cost:
Engineering and manufacturing equipment 793,568 844,438
Office furniture and equipment 1,398,696 1,677,269
Leasehold improvements 38,064 38,417
----------- -----------
2,230,328 2,560,124
Less accumulated depreciation and amortization (1,576,317) (1,331,571)
----------- -----------
Net equipment and leasehold improvements 654,011 1,228,553
----------- -----------
Other Assets:
Notes receivable, long term portion 8,561 54,436
Capitalized software development costs, less accumulated amortization
of $434,311 at June 30, 1999, and $2,395,993 at September 30, 1998 4,089,619 2,685,324
Purchased software, less accumulated amortization
of $116,676 at June 30, 1999, and $1,135,243 at September 30, 1998 83,324 264,757
Goodwill, less accumulated amortization
of $76,192 at June 30, 1999, and $1,393,866 at September 30, 1998 123,808 145,237
Other 32,726 42,217
----------- -----------
Total other assets 4,338,038 3,191,971
Total assets $ 7,922,921 $ 6,985,969
=========== ===========
</TABLE>
3
<PAGE>
XATA Corporation
BALANCE SHEETS
June 30, 1999 and September 30, 1998
<TABLE>
<CAPTION>
June 30, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY: 1999 1998
----------- -------------
(unaudited) (audited)
<S> <C> <C>
Current Liabilities:
Bank line of credit $ 325,482 $ 548,996
Current maturities of long term debt 300,549 309,534
Accounts payable 1,065,573 1,122,754
Accrued expenses and taxes payable 837,564 845,846
Deferred revenue 1,096,176 729,820
----------- -----------
Total current liabilities 3,625,344 3,556,950
Long-term Liabilities:
Long-term debt 235,356 461,491
Deferred taxes -- --
----------- -----------
Total long-term liabilities 235,356 461,491
Stockholders' Equity:
Commonstock, par value $.01 per share, authorized 8,333,333 shares; issued
4,395,243 at June 30, 1999 and 4,383,025 at
September 30, 1998 44,306 44,306
Preferred Stock, par value $15.00 per share, authorized 333,333 shares 650,000 --
issued 46,667 at June 30, 1999 and 0 at September 30, 1998
Additional paid-in capital 9,406,197 9,398,821
Common stock to be issued 135,688 135,688
Retained earnings (accumulated deficit) (6,173,970) (6,611,287)
----------- -----------
Total stockholders' equity 4,062,221 2,967,528
----------- -----------
Total liabilities and stockholders' equity $ 7,922,921 $ 6,985,969
=========== ===========
</TABLE>
4
<PAGE>
XATA Corporation
STATEMENTS OF OPERATIONS
For the Three and Nine Months ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Three Month Periods Nine Month Periods
Ended June 30, Ended June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 2,929,051 $ 1,015,931 $ 8,648,048 $ 7,014,623
Cost of sales 1,667,022 1,552,234 4,796,155 5,023,080
----------- ----------- ----------- -----------
Gross profit 1,262,029 (536,303) 3,851,893 1,991,543
Operating expenses 1,040,141 1,835,886 3,315,643 4,716,649
----------- ----------- ----------- -----------
Operating income (loss) 221,888 (2,372,189) 536,250 (2,725,106)
Non-operating (expense) income:
Interest (expense) (40,250) (7,660) (97,213) (14,675)
Interest income 2,487 16,013 5,434 82,107
Dividend (expense) (7,154) 0 (7,154) 0
----------- ----------- ----------- -----------
(44,917) 8,353 (98,933) 67,432
----------- ----------- ----------- -----------
Net income (loss) before income taxes 176,971 (2,363,836) 437,317 (2,657,674)
Income tax provision (benefit) 0 0 0 (117,535)
----------- ----------- ----------- -----------
Net income (loss) $ 176,971 $(2,363,836) $ 437,317 $(2,540,139)
=========== =========== =========== ===========
Net income (loss) per share
Basic EPS $ 0.04 $ (0.53) $ 0.10 $ (0.57)
=========== =========== =========== ===========
Diluted EPS $ 0.04 $ (0.53) $ 0.10 $ (0.57)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding
Basic EPS 4,418,133 4,422,135 4,418,133 4,417,901
=========== =========== =========== ===========
Diluted EPS 4,419,239 4,422,135 4,469,894 4,417,901
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
XATA Corporation
STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Nine Month Periods
Ended June 30,
1999 1998
----------- -----------
Cash Flows from Operating Activities (unaudited) (unaudited)
<S> <C> <C>
Net cash provided by (used in) operating activities $ 1,632,386 $(1,417,881)
Cash Flows from Investing Activities
Purchase of available-for-sale securities 0 (1,999,156)
Proceeds from sale and maturity of available-for-sale securities 0 5,001,957
Proceeds from principal payments received on notes receivable 72,517 0
Purchase of fixed assets (37,190) (505,177)
Additions to software development costs (1,857,239) (2,024,006)
Proceeds from the sale of assets 485,701 0
----------- -----------
Net cash provided by (used in) investing activities (1,336,211) 473,618
----------- -----------
Cash Flows from Financing Activities
Net increase (decrease) in line of credit (223,514) 635,000
Proceeds from long-term debt (8,985) 0
Repayment of long-term debt (226,135) 0
Proceeds from options and warrants exercised 0 15,000
Proceeds from preferred stock offering 650,000 0
----------- -----------
Net cash provided by (used in) financing activities 191,366 650,000
----------- -----------
Increase (decrease) in cash and cash equivalents 487,541 (294,263)
Cash and Cash Equivalents
Beginning 0 336,126
----------- -----------
Ending $ 487,541 $ 41,863
=========== ===========
</TABLE>
6
<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 June 30, 1999 and the results of operations and cash flows for the
three and nine month periods ended June 30, 1999 and 1998. The results of
operations for any interim period are not necessarily indicative of the results
for the fiscal year ending September 30, 1999. 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, 1998.
NOTE 2. BASIC AND DILUTED PER SHARE
Basic per-share amounts are computed, generally, by dividing net income or loss
by the weighted-average number of common shares outstanding. 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
NOTE 3. CORPORATE LIQUIDITY
The Company continues to emphasize promotion of its core onboard computing
products and continues to evaluate opportunities to sell non-core and
under-performing product lines. Management believes that the disposition of the
under-performing product lines and operational cost-reduction efforts will
provide positive cash flow from operations. The Company believes 1) cash from
operations, 2) bank line of credit, 3) current vendor terms, 4) the sale of
under performing assets and 5) its recent infusion of new equity, through the
sale of Preferred Stock, will provide adequate cash to fund the delivery of its
anticipated revenues for the foreseeable future. Any significant new product
development in the near term will require external funding. The Company may not
be able to secure external funding when needed or at all, and such financing, if
available, may not be on terms favorable or acceptable to the Company.
During May 1999 the Company completed the sale of 46,667 shares of Series A 8%
Convertible Preferred Stock. The preferred stock is convertible to common stock
at the rate of 1 to 10. This will result in a price per common share of $1.50.
The Preferred Stock is senior to common stock as to liquidation and dividends.
The sale resulted in a net infusion of $650,000 in cash. This cash will be used
primarily for new product development.
NOTE 4. SALES OF ASSETS
On February 4, 1999, the Company sold a non-core business unit located in
Peoria, Illinois for $350,000, plus approximately $65,000 for certain open
accounts receivable associated with that business. The sale resulted in a gain
of approximately $31,000. In addition, the Company sold a piece of real estate,
no longer needed by the Company, for approximately $72,000 resulting in a loss
of approximately $7,000.
7
<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, 1998.
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the three months ended June 30, 1999
increased 188.3% to $2,929,051 as compared to sales of $1,015,931 for the
comparable three month period ended June 30, 1998. Net sales for the nine months
ended June 30, 1999 increased 23.3% to $8,648,048 from the comparable nine
months ended June 30, 1998. During the three and nine month periods ended June
30, 1998, the Company recognized a charge against revenue of approximately
$790,000. Net sales increases for the three and nine months ended June 30, 1999,
adjusted for this charge, were 110.6% and 12.0% respectively.
The Company expects revenues for fiscal 1999 to exceed fiscal 1998 levels.
GROSS PROFIT. The Company had a gross profit of $1,262,029 or 43.1% of net sales
for the three months ended June 30, 1999. This compared to a negative gross
profit of $536,303 for the comparable 1998 period. For the nine month ended June
30, 1999 and 1998 the Company recorded a gross profit of $3,851,893 or 44.5% of
net sales and $1,991,543, 28.4% of net sales, respectively. The increase in
gross profit was primarily due to the absence in the 1999 period of any charge
comparable to last year's charge against revenue and increased sales volume to
private fleets. In addition, costs associated with certain operating departments
such as software and technical support that are charged to the cost of sales
have decreased from the prior year. Other expenses such as the amortization of
capitalized software development costs were lower than in the prior year because
certain capitalized software development costs were fully amortized at the end
of fiscal 1998.
The Company expects downward pressure on its gross margin in the next several
quarters as it begins to price its onboard computer products more aggressively
to respond to competitive pricing.
OPERATING EXPENSES. Operating expenses include research and development, selling
expenses and general and administrative expenses. Total operating expenses were
$1,040,141 for the three month period ended June 30, 1999 or 35.5% of net sales
compared to $1,835,886 (180.7% of net sales) for the comparable prior year
period. The nine month ended June 30, 1999 and 1998 operating expenses were
$3,315,643 (38.3% of net sales) and $4,716,649 (67.2% of net sales),
respectively.
Operating expenses other than research and development were $849,733 (29.0% of
net sales) for the three-month period ended June 30, 1999 compared to $1,700,762
(167.4% of net sales) for the comparable prior year period. The nine month
totals were $2,598,871 (30.1% of net sales) and $4,012,082 (57.2% of net sales),
respectively. The decreases of $851,029 and $1,413,211 for the three and nine
month periods ended June 30, 1999 compared to the comparable prior year periods
were primarily due to a charge against bad debt expense of approximately
$350,000 at June 30, 1998, the sale of the Company's operation in Peoria, IL and
planned decreases in sales, marketing and MIS expenses.
8
<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 over the past two years.
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 June 30, 1999 were $191,408 compared to $135,124
during the comparable 1998 period. The nine-month totals were $548,747 and
$510,588 respectively. The increase over the prior year period occurred
primarily as the result of several new scheduled projects. Software development
costs are capitalized after the establishment of technological feasibility of
new products. Capitalized software development costs are amortized to cost of
sales over the expected useful life of the product, beginning when the first
commercial sales are made. The recoverability of capitalized costs is evaluated
each quarter. Software development costs of $689,938 were capitalized for the
three-month period ended June 30, 1999, and $1,857,239 for the nine months ended
June 30, 1999. This compares to $819,441 and $2,024,005 for the comparable three
and nine month periods in fiscal 1998. The decrease in the 1999 period is due to
the completion of Desktop Dispatch redevelopment, completion of Phase I of the
Symbol project and the completion of Phase I of OpCenter(TM). These decreases
were partially offset by increases in development for the XATA OnBoard System,
previously called the Intelligent Vehicle System.
The Company anticipates that expenditures for research and development and
capitalized software development will be at or slightly below fiscal 1998 levels
during fiscal 1999, but will increase during fiscal 2000.
INTEREST INCOME AND EXPENSES. Net interest expense for the three-month period
ended June 30, 1999 was $44,917 compared to net interest income of $8,353 in the
comparable prior year period. For the nine-month period ended June 30, 1999 net
interest expense was $98,434. For the nine-month period ended June 30, 1998 net
interest income was $67,432.
The Company expects that it will incur a net interest expense in the future due
to the utilization of its line of credit, payment of quarterly dividends on the
recently issued Preferred Stock and new credit and loan facilities that may be
consummated.
INCOME TAXES. No income tax expense or benefit was recorded for the three and
nine month periods ending June 30, 1999 due to no utilization of the Company's
net operating losses. No income tax expense or benefit was recorded for the
three months ended June 30, 1998. For the nine months ended June 30, 1998, an
income tax benefit of $117,535 was recorded.
NET INCOME. The Company recorded a net income of $176,971 for the three-month
period ended June 30, 1999, compared to net loss of $2,363,836 for the
comparable period in 1998. The nine-month totals were a net income of $437,317
and net loss of $2,540,139, respectively. The prior year three and nine month
net income figures include a $790,000 charge to earnings related to the reserves
for the Desktop Dispatch(TM) receivables.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had a working capital deficit of $694,472 compared
to a deficit of $991,505 at September 30, 1998. Cash and cash equivalents are
held primarily in a fund composed of short-term commercial paper until such time
as required by operations.
9
<PAGE>
Cash flows provided by operating activities during the nine months ended June
30, 1999 totaled $1,632,386. This resulted primarily from the operating income
of $536,250, non-cash charges for depreciation and amortization of $895,297 and
other working capital accounts, including net accounts receivable and accounts
payable of $200,842.
Cash flows used in investing activities during the nine months ended June 30,
1999 totaled $1,336,211. This was primarily made up of additions to software
development costs of $1,857,239 and capital expenditures of $37,190. These were
partially offset by principal payments on notes receivable of $72,517 and
proceeds from the sale of certain assets of $485,701.
Cash flows provided by financing activities during the nine months ended June
30, 1999 totaled $191,366, of which $650,000 was from the sale of preferred
stock. This was partially offset by a decrease of $223,514 in the use of the
bank line of credit and repayments of $226,135 on long term debt.
During fiscal 1999, cash will be required to meet working capital needs,
including inventory and accounts receivable financing, sales and marketing
expenditures, customer support, continuing research and development expenses and
capital expenditures. The Company believes that 1) cash from operations, 2) bank
line of credit, 3) current vendor terms, 4) the sale and planned sale of under
performing assets and 5) the recently issued Preferred Stock will provide
adequate cash to fund the delivery of its anticipated revenues and development
needs for the foreseeable future. However, any significant new product
development in the near term will require external funding. The Company may not
be able to secure external funding when needed or at all, and such financing, if
available, may not be on terms favorable or acceptable to the Company.
The report of the Company's audit firm, with respect to the Company's financial
statements for the fiscal year ended September 30, 1998, indicate that the
Company's losses and reductions in working capital raise doubt as to the
Company's ability to continue as a going concern. The Company believes that many
of the factors contributing to that opinion have been addressed and their
effects were mitigated or reversed in the current fiscal year.
FORWARD-LOOKING STATEMENTS
THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS.
ACTUAL RESULTS MAY DIFFER MATERIALLY. THESE FORWARD-LOOKING STATEMENTS INVOLVE A
NUMBER OF RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THE RECEIPT AND
SHIPPING OF NEW ORDERS FOR THE COMPANY'S CURRENT PRODUCTS; THE TIMELY
INTRODUCTION AND MARKET ACCEPTANCE OF NEW PRODUCTS; THE SUCCESSFUL AND TIMELY
DISPOSITION OF THE COMPANY'S NON-CORE BUSINESS UNITS AND THE DETERMINATION OF
WRITE-DOWNS, IF ANY, ASSOCIATED WITH SUCH TRANSACTIONS; RESEARCH AND DEVELOPMENT
FUNDING AT THE LEVELS REQUIRED; AND THE ABILITY TO SECURE AND MAINTAIN STRATEGIC
PARTNER RELATIONSHIPS.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes In Securities
During May 1999 the Company sold 46,667 shares of Series A 8%
Convertible Preferred Stock for $15.00 per share, paid in
cash. Under the terms of the sale, the Company is required to
register the underlying common stock under the Securities Act
of 1933 to permit resale by the investors. The sale was a
private placement to less than ten (10) accredited investors,
as defined in Regulation D of the Securities Act of 1933.
Accordingly the Company believes that the sale of the
Preferred Stock was exempt from registration under Sections
4(2) and 4(6) of the Securities Act. No underwriting fees or
commissions were paid. The preferred stock is convertible to
common stock at the rate of 1 to 10. This will result in a
price per common share of $1.50. The Preferred Stock is senior
to common stock as to liquidation and dividends. For further
information about the rights and preferences of the Preferred
Stock, see the Certificate of Designations of Preferred Stock,
as amended by Amendment No. 1, filed as an Exhibit to the
Company's report on Form 8-K dated June 3, 1999 (See Part II,
Item 6 below)
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K
The Company filed the following reports on Form 8-K during the
quarter ended June 30, 1999:
Form 8-K dated June 3, 1999 concerning the sale of
preferred stock.
Exhibits
--------
* Exhibit 27 - Financial Data Schedule
11
<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: August 9, 1999 XATA Corporation
---------------- (Registrant)
by: /s/ Gary C. Thomas
-------------------------
Gary C. Thomas
Chief Financial Officer
(Signing as Principal Financial and Accounting
Officer and as Authorized)
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854398
<NAME> XATA CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 487,541
<SECURITIES> 0
<RECEIVABLES> 2,177,248
<ALLOWANCES> 230,794
<INVENTORY> 357,921
<CURRENT-ASSETS> 2,930,872
<PP&E> 2,230,328
<DEPRECIATION> 1,576,317
<TOTAL-ASSETS> 7,922,921
<CURRENT-LIABILITIES> 3,625,344
<BONDS> 235,356
0
650,000
<COMMON> 44,306
<OTHER-SE> 3,367,915
<TOTAL-LIABILITY-AND-EQUITY> 7,922,921
<SALES> 8,648,048
<TOTAL-REVENUES> 8,648,048
<CGS> 4,796,155
<TOTAL-COSTS> 3,315,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,213
<INCOME-PRETAX> 437,317
<INCOME-TAX> 0
<INCOME-CONTINUING> 437,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 437,317
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
