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
For the fiscal year ended: September 30, 1999
|_| TRANSITION REPORT UNDER 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
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(Name of small business issuer in its charter)
Minnesota 41-1641815
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
151 East Cliff Road, Suite 10, Burnsville, Minnesota 55337
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(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
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(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.
State issuer's revenues for its most recent fiscal year: $ 11,181,000.
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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: $ 8,806,100 based on shares held by non-affiliates as of December 10,
1999, and the closing sale price for said shares in the Nasdaq Small Cap Market
as of such date. For purposes of this calculation, the Company has excluded as
"affiliates" all directors, officers and persons holding 10% or more of the
outstanding common stock, based upon their most recent filing of Schedule 13G or
13D.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,435,633 shares of Common Stock,
46,667 shares of Preferred Stock as of December 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on February 23, 2000 (the "Proxy Statement") is
incorporated by reference 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 of this Report. It is anticipated that the Proxy Statement will be filed
with the Commission not later than January 19, 2000. In addition, there are
incorporated by reference in this Report certain previously filed exhibits
identified in Part III, Item 13.
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 1
Item 2. Description of Property 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
PART II
Item 5. Market for the Common Equity and Related Stockholder Matters 19
Item 6. Management's Discussion and Analysis or Plan of Operation 20
Item 7. Financial Statements 24
Item 8. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure 24
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 25
Item 10. Executive Compensation 25
Item 11. Security Ownership of Certain Beneficial Owners and Management 25
Item 12. Certain Relationships and Related Transactions 25
Item 13. Exhibits and Reports on Form 8-K 26
SIGNATURES
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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; research and development
funding at the levels required; and the ability to secure and maintain strategic
partner relationships.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
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. In December 1991, the Company obtained additional needed
capital through a merger with a publicly held entity. In late 1995, the Company
received net proceeds of approximately $4,945,000 from a public offering.
Today, XATA is focused on developing and delivering solution-based
applications for the transportation industry. XATA ONBOARD is a powerful,
advanced, intelligent, yet user-friendly onboard computer system on the market
which seamlessly combines onboard computing, real-time communications, global
positioning, and fleet management software to provide an enterprise-wide
logistics management solution for America's largest fleets. With 16 years of
industry experience, over 400 fleets using its system, and more than 20,000
units installed in the field, XATA continues to develop leading-edge software
solutions that deliver a significant and rapid return on investment for its
customers.
In August 1996, the Company purchased substantially all of the
assets of a 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 Desktop Dispatch, SatMap
WarRoom, Dealer Locator, Internet Dealer Locator, Transportation Breakdown
Management System, and LoadTracker. This acquisition was intended to provide the
Company with capabilities in the development of Internet, Intranet and
Windows(R)-based applications software that complement the core functionality of
the XATA Fleet Management System and to broaden the portfolio of products the
Company could offer to the fleet trucking industry. In June 1997, XATA formed a
new unincorporated business division, XATA Enterprise Technologies (XET), using
personnel and products XATA acquired from Payne.
In October, 1996, the Company acquired all of the issued and
outstanding equity securities of Key Logistics, Inc., a company which developed
a PC Windows(R)-based software known as RouteView 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. currently remains as a wholly owned subsidiary of
the Company. RouteView is sold and marketed as both a stand-alone software
package and as an integrated component of the XATA system.
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The Company incurred significant losses in 1998. The 1998 loss was
attributable principally to loss of sales of XET products which did not perform
to customers' expectations, as well as other factors, such as 1) the Company's
inability to deliver Windows NT-based fleet management software, 2) the
Company's inability to deliver real-time communication capabilities being sold
by competitors, and 3) customers' special Year 2000 concerns. During the first
quarter of fiscal 1999, the Company reassessed its products and operations and
decided to direct its product development and marketing efforts to areas of its
core competencies. The Company further determined that the XET and RouteView
products, although complementary to its core products, do not significantly
impact its core competencies and, in general, are not integral to the Company's
plans for second generation product development, as formulated in the first
quarter of fiscal 1999. Accordingly, the Company sold the remaining assets of
XET to Mobile Communications Security, Inc. in February 1999. In addition, the
Company has had discussions with several companies that have expressed an
interest in acquiring Desktop Dispatch(TM) and RouteView(TM). These discussions
resulted in a tentative agreement whereby the RouteView(TM) operation would be
sold to an investment group that includes two of the current employees working
with the RouteView(TM) product. The sale of the RouteView(TM) operation, if
concluded, is expected to become final in late first quarter fiscal 2000 or
early second quarter fiscal 2000. There is no assurance that the sale will be
concluded. The Company intends to begin offering Desktop Dispatch(TM) as an
integrated application, within OpCenter(TM) beginning in late first quarter or
early second quarter of fiscal 2000 and will not actively pursue the sale of the
product at this time. The Company may, however receive unsolicited offers for
Desktop Dispatch(TM) and will evaluate each offer to determine the best return
for the Company.
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 5% of the GDP. 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 traditionally have comprised 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. Today, however, the functions of for-hire and private
carriers are evolving to include services that address more than merely
delivery, resulting in the rapidly growing market segment of logistics.
Logistics providers manage a portion or all of the transportation and logistics
for businesses that choose to outsource as part of their operation.
The Company believes that the following trends are significantly
impacting the trucking 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), that will drive up the cost of compliance.
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4. Continued revolutionary changes in trucking technology
which are creating capabilities that are becoming
required standard features for all truck operations; for
example, in cab communications capabilities.
5. Continued shortage of qualified drivers for heavy-duty
trucking operations.
6. Continued emphasis on effective management of the
movement of goods from the source of supply to the final
customer (supply chain management).
7. Continued blurring of the distinctions between
traditional segments of the trucking industry as many
fleets begin acting as broad-based transportation
providers.
Management of the Company believes that there is, and will continue
to be, significant demand in the transportation industry for onboard technology,
principally because the use of this technology enables trucking companies to
both respond to competitive pressures with significant cost savings and to
deliver increased levels of customer service.
TARGET MARKET
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 trucking, transportation and logistics companies
operating 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 $25,000. 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 $18,000 per year. These costs, plus driver costs exceeding
$0.40 per mile, insurance costs of up to $5,000 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 may 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
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currently allow, but do not require, onboard electronic driver logs.
Extensive federal regulation of the industry is supplemented by
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. Several
engine manufacturers also market systems that provide limited fuel and vehicle
performance information directly from the ECM (electronic control module) in
electronic engines to the fleet and driver. 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.
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. In 1997, Eaton
Corporation, a major manufacturer of commercial truck components, commercially
introduced Fleet Advisor, the first system to integrate onboard computing with
real-time communications. Although communication systems are traditionally not
in direct competition with XATA's products, and are, in fact, complementary to
XATA's system, they compete for a fleet's "technology 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 provide its customers with a total
integrated solution by developing communication capabilities and solutions
internally and by establishing strategic relationships, such as its current
relationships with Bell South and Symbol Technologies.
The Company believes that the nature and sources of competition in
its industry are rapidly evolving and, in the future, that these changes will
require it to adapt its existing products and to develop new products which
facilitate the collection, communication and processing of onboard information
throughout the transportation network and the entire supply chain. This may
entail the development of new technologies and the adaptation of new and
existing products to be compatible with products and services provided by others
in the industry, including others who may be considered competitors of the
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Company in one or more lines of business. Currently the Company believes that
its primary direct competitors, those companies that offer substantially similar
products and services, are Eaton Corporation and CADEC. The Company also
competes with many companies who offer a portion of the Company's total
solution. Most of the Company's competitors are substantially better capitalized
and possess greater human and technical resources than the Company.
DESCRIPTION OF THE COMPANY'S PRODUCTS AND SERVICES
XATA's on board system is a state-of-the-art information system that
integrates onboard computing, real-time communications, global positioning, and
advanced fleet management software into an enterprise-wide logistics solution
for the fleet trucking industry.
Transportation professionals are increasingly turning to onboard
technology in order to improve fleet productivity and profitability. XATA
enables these professionals to achieve measurable improvements by integrating
onboard technology into the fleet management process. The XATA system features
ease-of-use and extensive functionality not found in competitors' products. This
has led to its use by such nationally known fleets as AmeriServe, BOC Gases,
Coca Cola, EOTT, Safeway, Supervalu, Ruan, Ryder, Penske, Unisource, BP/Amoco,
Marathon/Ashland, United States Postal Service and Whirlpool.
XATA's onboard computer is a valuable productivity tool for the
professional driver that helps him contribute to the overall success of his
company. The onboard computer and powerful fleet management software unifies
drivers and fleet managers into a single team with the power to drive out cost
and drive up service.
SYSTEM COMPONENTS
The XATA system consists of six basic components, each contributing a unique
function to the performance of the whole system:
* Mobile Application Server
* Driver Computer
* Data Station
* Driver Key
* OpCenter(TM)
* SmartCom(TM)
Mobile Application Server
The Mobile Application Server ("MAS") is a technologically advanced onboard
computer available on the market today. The MAS and Driver Computer form an
advanced client/server architecture that extends the life of the customer's
existing onboard computer system and enables the deployment of new applications
in the future using this powerful platform.
Using this client/server architecture, the MAS contains and executes multiple
onboard applications in a multi-tasking real time environment while providing
extensive connectivity to vehicle networks, peripheral devices, and other server
devices.
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The MAS serves as the primary application platform for XATA's onboard computer
system by:
* providing processor and memory resources for more advanced applications.
* supporting connectivity to multiple peripheral devices.
* providing the architecture to support the use of GPS and real-time
communications.
* increasing the level of systems integration in the vehicle.
* creating an architecture that is modular, scaleable, expandable, and open.
The MAS is physically small, about the size of a box of diskettes, but contains
a powerful 486-class microprocessor, flash disk, memory, backup battery power, a
real time clock, an Ethernet port, and a Controller Area Network ("CAN") port.
In addition, the MAS contains three RS-232 serial I/O ports, two of which can be
either RS-485 ports or RS-232 ports and an internal 12 Channel GPS receiver.
These servers are built to live in the harsh operating conditions of heavy-duty
vehicles and to handle the concurrent events that occur in those vehicles. They
are controlled by pSOS, a popular multi- tasking, real-time operating system,
which manages multiple applications that function in a client/server
architecture. TCP/IP application interfaces are employed throughout the system.
Driver Computer
The Driver Computer has a large, touch-sensitive, easy to read, user-friendly
screen which provides instant feedback to the driver. It requires little
training and interacts with the driver, who simply touches the screen. The
Driver Computer has a very high level of acceptance among drivers not only
because it is easy to use, but because it makes the job easier and, in fact,
acts as an onboard advisor in a number of ways. For example, the Driver Computer
creates a paperless interactive trip plan, paperless state fuel tax data
capture, and a DOT certified paperless driver's log. In addition, the XATA
system gives the driver important information about each day's routes. The
system tells the driver where to go, when to be there, and what to do. The trip
plan is always available for the driver's review. All data that is captured by
the Driver Computer is presented to the driver first, and the driver can read
and interact with the system at all times.
Driver Key
Each driver has an electronic key which stores the driver's identity, the
driver's log, dispatch data, and trip data. It has the capacity to hold multiple
trips. Besides serving as a data storage device, the Driver Key transports
information to and from the Driver Computer and Data Stations for collection
purposes, utilizing the key receptacles built into both devices. Because each
key contains a computer memory chip, the Driver Key provides a portable,
powerful, efficient and secure method for transporting information in a
paperless, electronic format.
Data Station
Data Stations contain the same hardware as the Driver Computer, but utilize
different software. The Data Stations are located where trips begin and end. The
data station gives the driver his dispatch data on a Driver Key at the beginning
of trips and offloads actual trip data from the driver's key at the end of
trips. The Data Station connects directly to a PC or to a modem, giving the user
the capability to transfer information to or from his PC or from any remote
site. Drivers can access the Data Station at any time, allowing them to operate
on their schedule without the need to physically interchange paper with
management.
OpCenter(TM) Fleet Management Software
OpCenter(TM)operates in an open, multi-user, Windows NT environment, and
collects, validates and processes data recorded by a fleet's network of XATA
onboard computers - then stores the information
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in an open SQL database for further analysis and reporting. It also
automatically delivers this information in a user-friendly, intelligent format
over an interactive desktop interface. OpCenter(TM) provides a decision support
system for the entire distribution team that reduces operating costs, improves
safety, streamlines compliance reporting, and automates data collection for
other systems. By integrating all fleet operations under one Windows NT-based
desktop, this family of intelligent applications helps users efficiently measure
fleet performance, resolve exception conditions, monitor ongoing operations and
perform detailed analysis when time permits.
The OpCenter(TM) modules - Frontline, Control Center, Courier Station and Task
Force - are tailored to specific job functions:
* Frontline streamlines data collection, processing and reporting through
automatically generated, standard reports.
* Control Center controls security, configuration and system management, and
can be customized to meet the needs of a single site or an enterprise-wide
distribution network.
* Courier Station is a powerful communications management application that
collects and distributes data to wired and wireless networks including
spread spectrum, terrestrial and satellite networks.
* Task Force is a collection of fleet management applications designed to
support information delivery and analysis.
OpCenter(TM) fleet management software provides access to all of the information
captured by the Driver Computers. The software serves as an expert system that
learns the important factors in the fleet's operation. It collects trip
information from the Data Stations and oversees every aspect of dispatch, cargo
management, and driver management. The data import and export capabilities
provides the carrier headquarters with compliance data and domicile comparisons.
In addition, OpCenter(TM) provides the user's MIS department with accurate data
for billing, payroll, incentives, and routing. OpCenter(TM) uses its learned
knowledge and the customer's guidelines to detect and report exceptions.
Automatic reporting, structured specifically by each customer, provides the user
with user defined information on a consistent schedule. More extensive detail
reports are also available when the user needs to "drill down" into the detail
for any reason.
With more than 100 standard reports, and a powerful query tool that lets users
create customized graphical reports, OpCenter(TM) provides instant access to the
information and analysis fleet managers need. XATA's OpCenter(TM) suite is
currently the only fleet management software on the market that automatically
retrieves, transforms and delivers onboard information throughout the enterprise
in an intelligent, interactive, exception-based format. In addition to
OpCenter's(TM) four modules, users may also select optional software
applications, such as Desktop Dispatch(TM), to expand OpCenter's(TM)
capabilities to meet their individual needs. These optional system applications
are described in more detail below.
SmartCom(TM)
SmartCom(TM) is a suite of communications applications that complement XATA's
industry-leading onboard logistics applications and fleet management software.
SmartCom(TM) provides intelligent and immediate access to critical onboard
information at multiple levels within fleet operations by integrating
"real-time" communications throughout XATA's suite of logistics applications.
XATA uses a "least cost, network independent" approach to deliver SmartCom's(TM)
communications capabilities. SmartCom's real-time notification is triggered by
onboard exception conditions, defined and selected by users, ensuring only
critical information is reported to fleet management.
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By detecting and processing exception conditions onboard - 'in-the-truck' -
instead of back at the office, customers minimize transmission costs and control
the recurring communication charges that can negatively impact return on
investment.
By enabling real-time identification and communication of exception conditions,
SmartCom(TM) helps drivers, dispatchers and fleet managers work together to
improve customer service and operating efficiency. SmartCom's(TM) inherent
design minimizes message size and traffic by providing only critical information
with the most operational benefit.
XATA's SmartCom(TM) provides customers with the flexibility to choose from
several different communication modes to find the least costly, most efficient
means to send and receive fleet information. XATA is the only company that
allows customers to select logistics applications independently from a
communication network. Vendors that own their network or resell air-time for
profit are not minimizing cost for their customers. XATA designs its logistics
applications to minimize transmission costs through the intelligence built into
the system.
SmartCom(TM) applications will operate on any communication network that the
customer may choose. With this approach the customer has the flexibility to
deliver information in a "least cost" manner via several different modes:
* Data Key - allows the upload and download of trip data via a no-cost
"batch" method at the beginning or end of trips. XATA collects and
processes detailed driver and vehicle data, a majority of which is not
relevant to "real-time" operating decisions.
* Yard Express - allows fleets to communicate at no cost with in-yard
wireless technology.
* Bell South - This terrestrial network allows low-cost communication in
metropolitan areas containing 93% of the US population.
* Other WAN modes - Satellites offer complete, continuous coverage anywhere
in the world.
SYSTEM APPLICATIONS
The XATA system offers functionality, which XATA believes to be superior to any
other system on the market today. The XATA system includes the software
applications described below:
Onboard Fuel Management
Every XATA Driver Computer has "real time" fuel management. Fuel consumption is
sensed 10 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 Department of Transportation regulations. Therefore, no
paper record must be produced by the driver. Driver logs can be recalled for the
prior 8 days, at any time and the driver's available driving time is constantly
displayed.
Electronic State Fuel Tax
All of the electronic data concerning fuel consumption is captured by the Driver
Computer and transferred directly to the customer's fuel tax processor. 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.
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Electronic Tachograph
This one-of-a-kind system turns the XATA Driver Computer into a high-tech speed
recorder. It can record and report a second-by-second, foot-by-foot analysis of
any vehicle's speed data, at any time and at any location, and it lets the
customer create precise reports of speed, speed changes and distance for any
unit in the fleet.
Smart Route
Every XATA Driver Computer is capable of receiving complete trip plan data from
the Route Dispatcher subsystem, and during the route, collects comprehensive
stop and leg information. This allows for comparison between planned and actual
data. The Driver Computer can receive dispatch data that guides drivers through
their routes with step-by-step instructions.
Exception Management
XATA's expert system software works in the background of OpCenter(TM) analyzing
every event, then offering suggestions to improve productivity. The customer is
relieved of the time intensive, error prone task of manually processing
information, since the XATA system alerts the user to only the problems that
occur. "Management by exception" allows operations personnel to spend more time
interacting with drivers and customers and less time dealing with all of the
information being collected. This type of decision support is currently only
available from XATA.
Onboard Tables
Every fleet has terminology that is specific to its operation. Every XATA Driver
Computer gives a customer the ability to create and download customized tables
with information specific to the fleet's operation, including cargo lists, delay
tables, unplanned events, notes, and many more.
Smart Standards
The XATA System compiles a learned operational standard for every element of a
customer's fleet, including: locations, legs, routes, drivers and power units.
This "learned history" can be used to establish exception reporting guidelines
or used as an ongoing measurement against the standards set by fleet management.
Position Plus(TM) GPS
Position Plus(TM) is a suite of application software that uses a MAS with a
built-in GPS (Global Positioning System) receiver to add the date, time and
vehicle position to traditional onboard computer data in order to enhance and
extend the benefits provided by the XATA system. Position Plus(TM) consists of
four applications:
1. Hands Free State Crossing--automatically acquires and records vehicle
locations at state line crossings to support completely automated fuel tax
reporting.
2. GPS Logs--automatically acquires and records vehicle position at driver
log status changes to support automated driver logs.
3. GPS Locations--automatically acquires and records vehicle position during
trips to identify customer, fueling, rest, and service stops.
4. Onboard Compass--vehicle direction is available to assist the driver when
traveling unfamiliar routes via a compass heading displayed on the Driver
Computer.
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Yard Express(TM)
Yard Express(TM) provides wireless communication with drivers while they are in
a yard, whether local or remote, and is intended to decrease the amount of time
needed to perform typical yard activities. Yard Express(TM) combines local area
radio communications with XATA's Driver Computer and Fleet Management System to
expedite the data collection and dispatch process and improve the efficiency of
the driver. In the vehicle, Yard Express(TM) utilizes a XATA Driver Computer,
MAS, and a spread spectrum radio to allow the driver to transfer trip data and
receive new dispatch data in the yard without leaving the vehicle. In the
dispatch office, Yard Express(TM) utilizes the XATA Fleet Management System, a
PC-based communications server, and local area radio hardware to allow the
dispatcher to queue information to the drivers and to allow the drivers to
receive this data via the radio network.
Smart Check
SmartCheck automates check calls, enabling dispatchers and fleet managers to
automatically receive updates from drivers when pre-defined conditions or events
occur, or to request an update from SmartRoute, an integrated dispatching
application that monitors route progress.
Smart Messaging
SmartMessaging streamlines two-way messaging between drivers and fleet
operations by predefining the most common messages, and providing a means to
send free form text messages when necessary.
Fleet Incentives
Create incentive programs tailored to fleet objectives for all drivers, specific
drivers or the entire fleet management team.
MultiView
Expands the capabilities of OpCenter(TM) to handle the measuring, monitoring and
management of multiple fleets and multiple operations within the same database.
Custom Commands
Allows the fleet to define and use up to eight new commands and associated data
screens for the Driver Computer to allow the customized collection of fleet
specific information.
Tanker Manager
Tanker Manager software allows drivers and fleet managers to use the power of
the XATA system to accurately capture inventory data during bulk deliveries of
gases and liquids. The software also does all calculations for the driver and
performs validity checks on the data entered. The resulting improvement in
inventory management means fleet managers can provide their customers with
better service while optimizing delivery and production schedules and reducing
driver paperwork.
Desktop Dispatch(TM)
Desktop Dispatch(TM) allows a dispatcher to manage the entire dispatch process
using one application, from order entry, to equipment tracking and trailer
management, through final invoicing. Desktop Dispatch(TM) lets dispatchers place
orders, build trips, assign and track drivers and equipment, and optimize loads.
It allows dispatchers to manage more operational functions and receive and post
orders faster and more accurately with the same resources.
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XATASERV
XATAServ is the Company's comprehensive customer service and
technical support program, offering a wide range of support options designed to
provide customer-focused solutions for operation of the XATA System. The mission
of XATAServ is to develop, communicate and deliver a comprehensive goal
attainment and support program that ensures the customer's success with the XATA
system by providing the tools, training and knowledge necessary to identify and
maximize their return on investment. 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. XATA also offers management-level consulting
services to provide clients with information and advice on how to improve their
usage of the XATA system. These advanced training services are different from
the basic training and support service for front-line staff. XATA's consultants
advise management on how to use the advanced capabilities of the XATA system to
reduce operating costs and increase savings. They help answer critical questions
about interpreting data and detecting trends that require more extensive
experience and expertise than technical support.
ROUTEVIEW(TM)
In October 1996, the Company acquired all of the capital stock of
Key Logistics, Inc., which is currently a wholly owned subsidiary of the
Company. Key Logistics' principal product is RouteView(TM), a PC
Windows(R)-based software system that automatically sequences and optimizes
delivery routes on a daily basis. RouteView(TM) 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(TM) is designed to both duplicate and automate the everyday
tasks and tools of the routing process in a way that is simple, understandable,
and easy-to-use. RouteView(TM) 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(TM) Tools allow the user to view the effects of route changes before
implementation.
In September of 1997, the Company introduced a 32-bit version of its
RouteView(TM) software. Compatible with the Windows 95(R) and Windows NT(R)
platforms, the new version of this map-based software processes stops and
optimizes routes within a familiar, point-and-click interface. The new version
of RouteView(TM) also features an interface with XATA's onboard computer system.
RouteView's(TM) main functions include verifying addresses with its
powerful address-location system, assigning stops to individual routes,
sequencing stops within routes, optimizing routes to achieve minimum mileage,
balancing routes to maximize the use of assets and calculating estimated time of
arrivals ("ETAs"). It also prints street-level maps and manifests for drivers
that include addresses and ETAs for each stop as well as notes on special or
time-sensitive stops.
JAVALAN
During the past two years, the Company has developed its next
generation system, which includes its existing on board applications, along with
several customer specific applications, and the interface ("Hub") to the
internet enterprise. Developed in the JAVA program language, the system
eliminates many of the problems related to the development and implementation of
new applications and simplifies customer access to system originated
information.
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YEAR 2000 ISSUE
The Company has investigated the impact of the Year 2000 issue on
both its own internal information systems and the products it develops, markets
and sells. During fiscal 1996, the Company purchased from a worldwide supplier
and developer of information systems an enterprise-wide information system with
written assurance from the developer that the system will correctly function
across the Year 2000, as verified by previous systems tests. During fiscal 1997,
the Company reviewed all of the products it develops, markets and sells. The one
product that was not Year 2000 compliant was modified to be compliant at a
nominal cost before the end of fiscal 1998. We cannot be sure that the Year 2000
issue will be properly addressed by customers, vendors, service utilities,
government and other external entities. Contracts have been made with these
parties to determine their Year 2000 readiness. The efforts of third parties are
not within our control and their failure to properly and completely address the
Year 2000 issue could result in business disruption, loss of revenue and
increased operating costs.
MARKETING
XATA sells its onboard computer systems to the fleet trucking
industry and logistics providers nationwide through its direct sales force and
several OEM agreements. 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
transportation and logistics companies operating fleets of 25 or more vehicles
within specific vertical markets that have experienced significant benefits with
the XATA system, including food distribution, petroleum production and
marketing, manufacturing and processing, and retail/wholesale delivery.
The Company uses a combination of integrated marketing activities,
including but not limited to advertising, trade shows, the Internet, and direct
mail to gain exposure within the marketplace. The Company uses exhibits at
selected industry conferences to promote XATA name awareness, demonstrate its
products, and obtain additional sales opportunities. XATA also actively pursues
speaking opportunities at such trade shows for its customers who have gained
efficiencies in fleet operations using the Company's technology.
MAJOR CUSTOMERS
Net sales during the fiscal years ended September 30, 1999 and 1998
to customers who accounted for more than ten percent of revenue in either of
such years are as follows:
Years Ended September 30,
-------------------------------------
1999 1998
---------------- ---------------
Percent of Net Sales
-------------------------------------
Mack Truck(U.S. Postal Service) 17% *
Safeway, Inc. 13% 17%
Ryder Systems, Inc. * 16%
* 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
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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, a slow down or
delay in orders or implementation of any major customers, or a 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 that
covers the design of its computer display. The Company's software programs have
not been patented. The Company claims trademark and tradename protection for the
following: OpCenter(TM), SmartCom(TM), RouteView(TM) and Desktop Dispatch(TM).
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 logistics providers,
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 $847,000 for
fiscal 1999 and $750,000 for fiscal 1998. Capitalized software development costs
were $2,421,000 for fiscal 1999 and $3,057,000 for fiscal 1998.
EMPLOYEES
As of September 30, 1999, XATA's staff included 52 employees and 10
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; 12 in sales, marketing, and customer
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service; 4 in logistics; and 35 engineering, product design, and development.
RISK FACTORS
WE DO NOT HAVE A LONG OR STABLE HISTORY OF PROFITABLE OPERATIONS. From inception
in 1985 through the fiscal year ended September 30, 1994, we focused our efforts
primarily on product development. During this time we had only limited product
marketing and distribution and incurred a cumulative loss of $5,809,000. We had
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. We experienced a combined net loss of $6,670,100 for the fiscal years
ended September 30, 1997 and 1998. These losses resulted in large part from the
re-valuation and expensing of certain software acquired in a 1996 business
acquisitions. We generated a net profit of $493,361 for fiscal year ended
September 30, 1999. Although, we have returned to profitability in fiscal 1999,
we cannot assure that profitability will be sustained.
WE ARE DEPENDENT ON KEY CUSTOMERS. We sell large orders to individual fleets and
may be dependent upon a few major customers each year whose volume of purchases
is significantly greater than that of other customers. During the fiscal year
ended September 30, 1999, two customers, together, accounted for approximately
30% of net sales. Although we have experienced significant growth in our
customer base, we are still dependent on continued purchases by present
customers who continue to equip and upgrade their fleets. Loss of any
significant current customers or an inability to further expand our customer
base would adversely affect the Company.
OUR SALES CYCLE CAN BE LONG. The period required to complete a sale of the
Company's systems can be as long as 12 months. The length of the sales cycle may
result in quarter to quarter fluctuations in purchase orders and shipments. Our
systems are technically complex, which usually means that the customer has to
make an advance budget decision. The availability of new and other technologies
also complicates and delays buying decisions. In addition, some customers and
prospects have indicated that they may delay the acquisition of technology
during the fourth calendar quarter of 1999 and possibly the first calendar
quarter of 2000 due to Y2K monitoring requirements.
WE HAVE SEVERAL LARGER COMPETITORS. Many of the companies who offer competitive
products have greater financial and other resources than the Company. These
competitors are based both in the United States and in Europe and offer products
ranging in sophistication and cost from basic onboard recorders to advanced
mobile satellite communication systems. Their products may offer better or more
functions than ours or may be more effectively marketed. In addition, the nature
and sources of competition in our industry are rapidly evolving and increasingly
depend on the ability to deliver integration of multiple information systems.
These systems must link trucking operations and all other facets of the supply
chain through a variety of sophisticated software and communications
technologies, including but not limited to the Internet. These changes reflect a
trend toward integration of intra-company data with the larger external supply
chain involving the flow of goods to markets. We will have to adapt our existing
products and develop new products that facilitate the collection, integration,
communication and optimal utilization of information throughout the
transportation network and the entire supply chain. This may entail the
development of new technologies and the adaptation of new and existing products
to be compatible with products and services provided by others in the industry.
These trends will require us to establish strategic alliances with other
companies who may be competitors.
WE HAVE A LIMITED NUMBER OF PRODUCTS AND THOSE PRODUCTS ARE CONCENTRATED IN ONE
INDUSTRY. Although our system has potential applications in a number of
industries, to date, we have targeted only the fleet trucking segment of the
transportation industry. If this market segment experiences a downturn that
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decreases our sales, the development of new applications and markets could take
several months or longer, and could require substantial funding. In addition,
our future success is dependent in part on developing and marketing new software
applications. We cannot assure that any new applications can be successfully
developed or marketed.
OUR TARGET MARKET IS HIGHLY CYCLICAL. The fleet trucking segment of the
transportation industry is subject to fluctuations and business cycles. We
cannot predict to what extent these business cycles may result in increases or
decreases in capital purchases by fleet managers. A significant downturn in the
prospects of the fleet trucking segment of the transportation industry could
have a material adverse effect on us. Although we had a backlog of $3,011,000 at
December 15, 1999, which we believe to be firm, the backlog could decrease as a
result of cancellations or reductions of orders in response to adverse economic
conditions in the industry or other factors.
THE EFFECTIVENESS OF OUR SELLING EFFORTS DEPENDS ON KNOWLEDGEABLE STAFF. Sales
of our products are dependent in part upon the salesperson's in-depth knowledge
and understanding of the XATA system. This knowledge is attained only through
experience and training over a period of several months. We must attract, train,
and retain qualified personnel on a continuing basis. We may not be able to
sustain or augment our sales and marketing efforts by adding personnel, or
otherwise, and it is possible that augmented sales and marketing efforts will
not result in increased sales or profitability.
WE ARE DEPENDENT ON PROPRIETARY TECHNOLOGY. Our success is heavily dependent
upon proprietary technology. We have been issued a design patent by the United
States Patent and Trademark Office that covers the design of its computer
display, but our software programs have not been patented. We rely primarily on
a combination of copyright, trademark and trade secret laws, confidentiality
procedures, and contractual provisions to protect our proprietary rights. These
measures afford only limited protection. Our means of protecting our proprietary
rights may prove inadequate, or our competitors may independently develop
similar technology, either of which could adversely affect us. In addition,
despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our systems or obtain and use information that we
regard as proprietary. Customer access to our source code may increase the
possibility of misappropriation or other misuse of our software.
OUR PRODUCTS MAY QUICKLY BECOME OBSOLETE. Our systems utilize proprietary
software and an onboard touch-screen computer. Although we believe our
proprietary software is more important in the capture and communication of
operating data than the hardware in which the software is encased, continued
improvements in hardware may render our technology, including its software,
obsolete. The field of PC-based software and hardware is constantly undergoing
rapid technological changes and we may not be able to react and adapt to changes
in this field. Moreover, development by our competitors could make our system
and services less competitive or obsolete. We believe that advancements in
hardware and communications technology provide opportunities for us to form
alliances with companies offering products complementary to our system and
services, but we cannot assure that we can form alliances with such companies or
that any such alliance will be successful. Our success depends, in large part,
on our ability to anticipate changes in technology, industry standards and
develop and introduce new features and enhancements to our system on a timely
basis. If we are unable to do so for technological or other reasons or if new
features or enhancements do not achieve market acceptance, our business could be
materially and adversely affected. We may encounter technical or other
difficulties that could in the future delay the introduction of new systems or
system features or enhancements.
OUR CURRENT MANAGEMENT OWNS ENOUGH STOCK TO EXERT SIGNIFICANT CONTROL OVER THE
COMPANY. As of September 30, 1999, the officers and directors of the Company
beneficially own approximately 33% of
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the Company's outstanding shares of common stock. Because of such ownership,
management is able to significantly influence the affairs of the Company,
including the election of the Board of Directors. There is no cumulative voting
for the election of directors of the Company.
WE ARE DEPENDENT ON KEY PERSONNEL. Our future success depends to a significant
extent on the efforts of key management, technical, and sales personnel,
particularly William P. Flies, Chief Technical Officer. We are the beneficiary
of a key-person life insurance policy on William P. Flies in the amount of
$2,000,000. The loss of Mr. Flies would adversely affect the Company's ability
to provide leading edge technology to the transportation industry. In addition,
we currently do not have a permanent Chief Executive Officer and need to recruit
a person for this position. We cannot assure that the Company will be able to
attract and retain a qualified CEO or any other personnel necessary for the
business. There are no employment agreements in place with any of the key
management, technical or sales personnel.
WE MAY NEED ADDITIONAL CAPITAL. Although cash flow from operations and bank
financing has been sufficient to fund operations during the past several years,
we intend to create new marketing programs, hire additional personnel and
increase sales. In addition, we may consider acquisition of complementary or
additional businesses or products. We made no such acquisitions within the last
two years. Although, as of the date of this document, we believe that cash flow
from operations and our bank financing will be sufficient to meet capital
requirements for the foreseeable future, our cash needs may vary significantly
from predictions. For example, if we do not generate anticipated cash flow, or
if we grow at a rate faster than we anticipate, our predictions regarding cash
needs may prove inaccurate and we may require additional financing. Our
inability to obtain needed financing could have a material adverse effect on
operating results. We cannot assure that we will be able to secure any
additional financing when needed or at all or that financing, if obtained, will
be on terms favorable or acceptable to us. Moreover, future financing may result
in dilution to holders of the common stock.
WE MAY ISSUE ADDITIONAL STOCK WITHOUT SHAREHOLDER CONSENT. The Company has
authorized 8,333,333 shares of common stock, of which 4,435,633 shares are
issued and outstanding as of September 30, 1999. The Board of Directors has
authority, without action or vote of the shareholders, to issue all or part of
the authorized but unissued shares. Additional shares may be issued in
connection with future financing, acquisitions, employee plans, or otherwise.
Any such issuance will dilute the percentage ownership interest of existing
shareholders, and may dilute the book value of the common stock. In addition,
the Company is authorized to issue up to 333,333 shares of preferred stock, no
designated par value, of which 46,667 shares have been issued as Series A 8%
Convertible Preferred Stock and are outstanding. The Board of Directors can
issue preferred stock in one or more series and fix the terms of such stock
without approval by shareholders. Preferred stock may include the right to vote
as a series on particular matters, preferences as to dividends and liquidation,
conversion and redemption rights and sinking fund provisions. The issuance of
preferred stock could affect the rights of the holders of common stock adversely
and reduce the value of the common stock. In addition, specific rights granted
to holders of preferred stock could be used to restrict the Company's ability to
merge with or sell its assets to a third party.
OUR DIRECTORS' LIABILITY IS LIMITED UNDER MINNESOTA LAW. Our Articles of
Incorporation, as amended and restated, state that our directors are not liable
for monetary damages for breach of fiduciary duty, except for a breach of the
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Minnesota law or for any transaction in which
the director derived an improper personal benefit. In addition, our bylaws
provide that we shall indemnify our officers and directors to the fullest extent
permitted by Minnesota law for all expenses incurred in the settlement of any
actions against them in
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connection with their service as officers or directors of the Company.
ANTI-TAKEOVER PROVISIONS. Minnesota law provides Minnesota corporations with
anti-takeover protections. These protective provisions could delay or prevent a
change in control of the Company by requiring shareholder approval of
significant acquisitions of voting stock of the Company. These provisions
operate even when many shareholders may think a takeover would be in their best
interests.
YEAR 2000 ISSUE. We have investigated the impact of the Year 2000 issue on both
our own internal information systems and the products we develop. During fiscal
1996, we purchased from a world-wide supplier and developer of information
systems an enterprise-wide information system with written assurance from the
developer that the system will correctly function across the year 2000, as
verified by previous system tests. During fiscal 1997, we reviewed all the
products it developed, markets and sells for compliance to year 2000 operations.
One product was not in compliance and was modified during fiscal 1998 at a
nominal cost. We cannot be sure that the Year 2000 issue will be properly
addressed by customers, vendors, service utilities, government and other
external entities. Contacts have been made with these parties to determine their
Year 2000 readiness. The efforts of third parties are not within our control and
their failure to properly and completely address the Year 2000 issue could
result in business disruption, loss of revenue and increased operating costs.
NEW BUSINESS PLAN. In the first quarter of fiscal 1999, the Company reassessed
its product lines and its operations in light of the losses incurred in 1998 and
1997 and adopted a plan to spin-off products and services (principally XET and
RouteView(TM) products and services) identified as falling outside of its core
competencies. XET was sold in February 1999 and we are currently in negotiations
to sell the RouteView(TM) product. While there are no assurances that the sale
will be closed as planned, it is anticipated that the sale will be completed no
later than January 31, 2000. The sale of RouteView(TM) will not significantly
impact operations during fiscal 2000.
ITEM 2. DESCRIPTION OF PROPERTY
On April 4, 1997, the Company moved into 20,588 square feet of new
office and warehouse space at 151 East Cliff Road in Burnsville, Minnesota. The
Company has signed a seven (7) year, non-cancelable operating lease for this
space, with initial rental payments of $12,010.00 per month, plus a pro rata
share of the building operating expenses commencing June 1, 1997. The base rent
increased to $14,810.00 on February 1, 1999, in part due to occupancy on March
1, 1999, of an additional 4,800 square feet of warehouse space adjacent to the
Company's current space. Base rent will increase to $16,291 on June 1, 2002, the
sixth year of the lease. On September 1, 1999 approximately 4,800 square feet of
space was subleased to Kavoras, Inc. This is a month to month agreement. Current
rent for this space is $2,400 per month. To the extent any additional space is
unused, the Company will endeavor to sublease such space until such time as the
Company operations require additional space. The lease may be renewed for three
(3) additional terms of five (5) years each.
The Company believes that this space is adequate for its needs at
this location for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective June 1, 1999 the Company's Common Stock began trading
under the symbol "XATA" on the Nasdaq Small Cap Market. Prior to June 1, 1999,
the Company's Common Stock traded on the Nasdaq National Market, also under the
symbol "XATA".
The following table sets forth the quarterly high and low sales
prices as reported by the Nasdaq National Market during fiscal year ended
September 30, 1998 and through May 31,1999. Prices from June 1, 1999 through
September 30, 1999 are as reported by the Nasdaq Small Cap Market.
- - - - - - - - - - - - - - - - - ---------------------------
SALE PRICE
----------
FISCAL YEAR 1998 LOW HIGH
--- ----
First Quarter 3.375 7.250
Second Quarter 3.375 6.000
Third Quarter 2.000 5.750
Fourth Quarter 2.000 3.250
SALE PRICE
----------
FISCAL YEAR 1999 LOW HIGH
--- ----
First Quarter 1.188 2.500
Second Quarter 1.125 2.375
Third Quarter 0.906 4.750
Fourth Quarter 2.750 4.000
The Company's Common Stock is held by approximately 90 registered
holders of record. Registered ownership includes nominees who may hold
securities on behalf of multiple beneficial owners. The Company estimates the
number of beneficial owners of its Common Stock at 1,300.
DIVIDEND POLICY
Prior to June 30, 1999 the Company had never paid cash dividends on
any of its securities. The Company retained any earnings for use in its
operations. With the sale of a portion of the authorized preferred stock in May
1999, the Company began accruing a dividend as required by the sale agreement.
After accessing the Company's ability to pay its debts in the normal course of
business, the preferred stock dividends for the third and fourth quarters of
fiscal 1999 were paid. Future dividend payments 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
During the past three fiscal years, the Company has issued an
aggregate of 55,809 shares of common stock (9,375 in September 1996, 6,250 in
May 1997, 12,500 in October 1997, 2,684 in April 1998, 12,500 in August 1998 and
12,500 in August 1999) to 3 persons who joined the Company as employees in
connection with the Company's acquisition of the Payne & Associates assets from
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Computer Petroleum Corporation ("CPC"). Such employees were formerly employees
of CPC.
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. An additional, 10,390
shares were issued in August 1998.
During fiscal 1999, the Company issued warrants for the purchase of
an aggregate of 32,478 shares of common stock to non-employee directors in lieu
of cash payment of quarterly director's fees. These shares are exercisable at a
price based on prices ranging from $1.23 to $1.80 per share.
On February 8, 1999 the Company issued a warrant for the purchase of
25,000 shares of common stock, exercisable at $1.75 per share to Edward T.
Michalek. This warrant was in consideration for his agreement to serve as the
Company's interim Chief Executive Officer.
During May, 1999 the Company sold 46,667 shares of Series A 8%
Convertible Preferred Stock to several qualified investors at $15.00 per share.
The shares are convertible into the Company's common stock at the rate of 10
shares of common stock for each share of preferred stock converted.
All such securities have been or will be issued in reliance upon the
exemption from registration under Section 4(2) of the Securities Act of 1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PREFACE
In August 1996, the Company purchased substantially all of the
assets of a 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. 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. In June 1997, XATA formed a new
unincorporated business division, XATA Enterprise Technologies (XET), using
personnel and products acquired from Payne.
During the fourth quarter of 1997, the Company completed an
evaluation of the recoverability of assets (primarily purchased software and
goodwill) acquired from Payne in August 1996. Certain events occurred during
fiscal 1997 that caused the full recoverability of those assets to be brought
into question. As a result of these events, which occurred after the
acquisition, it became clear that the investment in Payne had become severely
impaired. Management determined the value of the remaining product of Payne's
being sold by the Company to be approximately $200,000. Accordingly, the
goodwill and acquired software relating to the Payne acquisition were written
down to this estimated value, resulting in a fourth quarter charge of
approximately $1.8 million.
During the third quarter of 1998, the Company decided to suspend
sales of its Desktop Dispatch(TM) software product. The Company suspended sales
of this product and reversed revenues on licenses sold as a result of the
product's unacceptable performance under actual service conditions. The Company
planned to re-introduce Desktop Dispatch(TM) to the market in spring of 1999. In
June 1999, the decision was made to seek a buyer for Desktop Dispatch(TM) and at
the same time incorporate Desktop Dispatch(TM) into the Company's OpCenter(TM)
system. Management completed a valuation of the product and subsequently reduced
the recoverable value of Desktop Dispatch(TM) by $172,000. As part of any sale
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of Desktop Dispatch(TM), the Company would license Desktop Dispatch(TM) from the
buyer for use in certain OpCenter(TM) on an as needed basis. The Company is no
longer actively seeking a buyer for the Desktop Dispatch(TM) product and is
completing its integration into the OpCenter(TM) product. The Company will
evaluate any unsolicited offers to purchase Desktop Dispatch(TM), should they
arise.
During the second quarter of fiscal 1999, the remaining assets of
XET were sold to Mobile Communications Security, Inc. A gain of approximately
$30,000 was realized on the sale of these assets.
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 and are
not expected to have 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.
The Company has investigated the impact of the Year 2000 issue on
both its own internal information systems and the products it develops, markets
and sells. See "Business-Year 2000 Issues". As discussed, Year 2000 is not
expected to have a material effect on the Company's financial position,
operations or cash flow.
RESULTS OF OPERATIONS
NET SALES. The Company had net sales of $11,182,000 for fiscal 1999
compared to $9,215,000 in fiscal 1998. This represents an increase of
$1,967,000, or 21%, for fiscal 1999 over the previous fiscal year. Onboard sales
to private fleet customers for fiscal 1999 were $10,555,000 compared to
$8,411,000 in fiscal 1998. Sales of XET products for the four months of
operations in fiscal 1999 were $ 122,000 compared to $835,000 in fiscal 1998.
RouteView(TM) sales were $505,000 in fiscal 1999 and $258,000 in fiscal 1998.
The Company anticipates that total revenue for fiscal 2000 will exceed fiscal
1999 levels.
GROSS PROFIT. The Company had a gross profit in fiscal 1999 of
$4,932,000 or 44.0% of net revenue compared to $4,508,000, 48.9% of net revenue,
for fiscal 1998. Gross margins are dependent on product sales mix and discounts
on volume shipments to certain customers. The Company anticipates gross margins,
as a percentage of sales, for fiscal 2000 to be unchanged or slightly lower than
in fiscal 1999.
OPERATING EXPENSES. Operating expenses include sales and marketing
expenses, general and administrative expenses, and research and development.
Total operating expenses were $4,286,000 for fiscal 1999 (38.3% of net sales)
compared to $8,231,000 for fiscal 1998 (89.3 % of net sales).
Operating expenses other than research and development were
$3,439,000 in fiscal 1999 (30.8% of net sales) compared to $7,481,000 in fiscal
1998 (81.2% of net sales). Operating expenses for fiscal 1998 included a
one-time charge to bad debt expense of $300,000 associated with the
discontinuance of Desktop Dispatch(TM). Operating expenses for fiscal 1999
reflect a decrease in salaries, wages and benefits due to a reduction in the
number of employees, reduced advertising and travel expense. Operating expenses
for fiscal 2000 are expected to be slightly higher than in fiscal 1999.
The Company's market position is based on its strong research
capability and its technology
21
<PAGE>
leadership. The increases in research and development in recent years occurred
as the result of planned increases in personnel and expenses related to new
system capabilities. Expenditures for research and development, net of
capitalized software development costs, are charged to operations as incurred.
These charges amounted to $847,000 for fiscal 1999 and $750,000 for fiscal 1998.
Software development costs are capitalized after the establishment of
technological feasibility and later amortized to cost of goods sold based on the
anticipated useful life of the product. The useful life of each product is
determined based upon its anticipated future net revenues. Capitalized software
development costs were $2,421,000 for 1999 compared to $3,057,000 for 1998. This
decrease was due primarily to the completion of the Desktop Dispatch(TM) product
in mid 1999. The Company anticipates that expenditures for research and
development and software development for fiscal 2000 will be similar to those
experienced in fiscal 1999, subject to available funding.
INTEREST INCOME (EXPENSE). Interest income for fiscal 1999 was
$20,000 compared to $94,000 for fiscal 1998. The decrease was due to a lower
average cash balance. Interest expense was $149,000 in fiscal 1999 compared to
$37,000 in fiscal 1998 due to utilization of the bank line of credit during
fiscal 1999.
NET EARNINGS (LOSS). Net earnings for fiscal 1999 were $493,000
compared to a net loss of $4,249,000 in fiscal 1998. The increase in fiscal
1999 was due to higher revenue, lower operating costs and no income tax expense.
INCOME TAXES
The Company had no income tax expense in fiscal 1999 compared to
$573,000 in fiscal 1998. The 1998 income tax expense consists primarily of an
increase in the valuation allowance on deferred tax assets as a result of a
change in the conclusion regarding the realizability of the deferred tax assets.
At September 30, 1999, the Company has federal net operating loss carry forwards
of approximately $10,342,000. See Note 6 to financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit at the end of fiscal 1999
of $1,117,000 compared to working capital deficit of $991,000 at the end of
fiscal 1998. The increase in the deficit was due primarily to a decrease in
accounts receivable and an increase in deferred revenue.
Net cash provided by operating activities during fiscal 1999 totaled
$2,001,000 resulting primarily from net earnings of $493,000, depreciation and
amortization of $1,191,000, and other working capital items of $371,000. The
Company anticipates that continued growth in its business will result in
increases in accounts receivable and accounts payable and, to a lesser extent,
inventory.
Net cash used in investing activities of $1,935,000 during fiscal
1999 resulted primarily from expenditures for software development of
$2,421,000, offset by the proceeds from the sale of the XET product line and the
Company's condominium. The Company expects capital expenditures and product
development expenses for fiscal 2000 to be approximately the same or higher than
those incurred in fiscal 1999.
Net cash provided by financing activities was $57,000 during fiscal
1999. $650,000 was provided from the sale of shares of preferred stock. This was
offset by the repayment of the Company's bank line of credit and the note
payable to GE Capital.
In August 1998, the Company negotiated a long-term debt agreement
secured by certain of its fixed assets with GE Capital's Commercial Asset
Funding group. Under this agreement, recorded as a note payable, the Company
received $625,000 and is obligated to make payments, including interest at the
rate of 10%, of approximately $28,000 per month for 24 months. All payment were
made as scheduled during fiscal 1999. In
22
<PAGE>
October, 1998 the Company entered into an asset based financing agreement with
Norwest Bank Credit, Inc. under which the Company was given a line of credit,
based on eligible accounts receivable and inventory of $1,500,000. This
financing arrangement replaced a credit facility of $1,000,000 with Norwest
Bank, N.A. In November 1998, the agreement was amended to increase the credit
facility to $2,000,000. In January 1999, the agreement was again amended to
require the Company to maintain a minimum net worth level that varied on a
monthly basis during the term of the agreement. During fiscal 1999, all net
worth requirements were met.
The Company believes its line of credit, and its current vendor
terms will provide adequate cash to fund anticipated revenue growth and
operating needs, for the foreseeable future, if investments in product
development are strictly controlled. However, it is possible that the Company's
cash needs may vary significantly from its predictions, due to failure to
generate anticipated cash flow, growth at a rate faster than anticipated, or
other reasons. Moreover, any significant new product development in the near
term will require external funding. No assurance can be given that the Company's
predictions regarding its cash needs will prove accurate, that the Company will
not require additional financing, that the Company will be able to secure any
required additional financing when needed or at all, or that such financing, if
obtained, will be on terms favorable or acceptable to the Company.
SUBSEQUENT EVENTS
On November 9, 1999 the Company entered into an agreement with John
G. Kinnard whereby John G. Kinnard will advise and assist the Company in
evaluating its strategic alternatives, including the possible sale of the
Company.
On December 1, 1999 the Company renewed its line of credit agreement
with Wells Fargo Business Credit, Inc., previously Norwest Business Credit, Inc.
The terms of the agreement were unchanged. New minimum net worth levels were
established based upon expected earning during fiscal 2000.
ACCOUNTING PRONOUNCEMENTS
As of October 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. Statement
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components. Statement No. 130 requires unrealized gains or losses
on available-for-sale securities and certain other times, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The Company has no comprehensive income as defined
by SFAS No. 130.
During fiscal 1999, the Company adopted Financial Accounting
Standards Board Statement No. 131, Disclosures About Segments of an Enterprise
and related Information. This statement requires public enterprises to report
selected information about operating segments in annual and interim reports
issued to shareholders. This statement did not have an effect on the Company's
basic financial statements, as the Company operates in one business segment.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 2000. SFAS 133 requires entities to recognize
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS 133 also specifies new
23
<PAGE>
methods of accounting for derivatives used in risk management strategies
(hedging activities), prescribes the items and transactions that may be hedged
and specified detailed criteria required to qualify for hedge accounting.
Management believes the adoption of SFAS 133 will not have a material effect on
the financial statements, because the Company does not utilize derivative or
hedging instruments.
ITEM 7. FINANCIAL STATEMENTS
Auditors' Reports F-1 - F-2
Balance Sheets F-3 - F-4
Statements of Operations F-5
Statements of Changes in Shareholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8 - F-15
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August 13, 1999, XATA Corporation's (XATA) Board of Directors
determined that it would be in the best interests of the Company to cease the
relationship with its independent accounting and audit firm, McGladrey & Pullen,
LLP (McGladrey). McGladrey acted as independent accountant and auditors with
respect to the Company's financial statements for the previous two fiscal years
ended September 30, 1998. The reports of McGladrey on the financial statements
of the Company for its fiscal years ended September 30, 1998 and 1997, did not
contain any adverse opinion or disclaimer of opinion and were not qualified as
to uncertainty, audit scope or accounting principles. The report of McGladrey on
the financial statements for the fiscal year ended September 30, 1998, included
an explanatory paragraph regarding the uncertainty of the Company's ability to
continue as a going concern. During the Company's two most recent fiscal years
and the subsequent interim period through August 13, 1999, (i) there were no
disagreements between the Company and McGladrey on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of McGladrey, would have
caused McGladrey to make reference to the subject matter of the disagreement in
connection with its reports (a "Disagreement") and (ii) there were no reportable
events, as defined in Item 304(a)(1)(v) of Regulation S-K of the Securities and
Exchange Commission (a "Reportable Event"). The decision to replace McGladrey
was not the result of any disagreement between the Company and McGladrey on any
matter of accounting principal or practice, financial statement disclosure or
audit procedure nor any dispute with respect to the Company's ability to
continue as a "going concern."
On August 13, 1999, Grant Thornton LLP (Grant) was selected by the
Company's Board of Directors, upon the recommendation of its audit committee, as
the Company's new independent accountant and audit firm. Grant will audit the
Company's financial statements to be included in the Company's form 10-KSB for
the fiscal year ending September 30, 1999. The Company intends to have Grant
continue to serve as the Company's independent accounting and audit firm for the
fiscal year ending September 30, 2000. During the last two fiscal years, the
Company did not consult with Grant on any matters related to accounting
principles or practice, financial statement disclosures or audit procedures.
24
<PAGE>
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" (and the subcaption "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" 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 10. EXECUTIVE COMPENSATION
Information called for by this Item is set forth under the captions
"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 Ownership of 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
Information called for by this Item is set forth under the caption
"Principal Shareholders and Ownership of 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.
25
<PAGE>
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 fiscal year ended September 30, 1999.
1. Report on Form 8-K dated February 5, 1999; Resignation of
Dennis Johnson, president and chief executive officer and
naming of Edward T. Michalek as the new president and chief
executive officer.
2. Report on Form 8-K dated May 13, 1999; Sale of preferred stock
and move to Nasdaq Small Cap Market listing.
3. Report on Form 8-K dated August 13, 1999; Change in
Registrant's Certifying Accountant
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 by the Board of Directors in May 1997 subject to
ratification by the shareholders
10.5 Purchase Agreement with Ryder Dedicated Logistics, Inc.
dated December 31, 1994, with supplemental agreement
dated September 1, 1995 (2)
10.7 Lease dated December 26, 1996 with Hoyt Properties, Inc.
for new corporate headquarters. (3)
10.8 Letter of Agreement with William Callahan regarding
compensation (4)
10.9 Credit Agreement with Norwest Business Credit, Inc.,
dated October 23, 1998 and Amendments dated November 30,
1998 and January 8, 1999.(5)
10.10 Master Security Agreement and Promissory Note with GE
Capital Corporation Commercial Asset Funding, dated
August 6, 1998.(5)
10.11 Separation Agreement with Dennis R. Johnson
10.12 Separation Agreement with William Callahan
10.13 Amendment to Credit Agreement with Norwest Bank dated
December 1, 1999
10.14 Sublease Agreement with Kavoras, Inc. dated September 1,
1999
26
<PAGE>
21 Subsidiaries of the Company
23.1 Consent of McGladrey & Pullen, LLP, independent
certified public accountants
23.2 Consent of Grant Thornton LLP, independent certified
public accountants
27 Financial Data Schedule
99 1999 Definitive Proxy Materials (portions of which are
incorporated herein by reference).(6)
- - - - - - - - - - - - - - - - - --------------------
(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) Incorporated by reference to exhibit filed as a part of Report on
Form 10-QSB for the fiscal quarter ended March 31, 1997.
(4) Incorporated by reference to exhibit filed as a part of Report on
Form 10-KSB for fiscal year ended September 30, 1997.
(5) Incorporated by reference to exhibit filed as a part of Report on
Form 10-KSB for fiscal year ended September 30, 1998.
(6) To be filed in definitive form not later than January 19, 2000.
27
<PAGE>
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 28, 1999 By: /s/ Stephen A. Lawrence
----------------------------------------
Stephen A. Lawrence, Chairman (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 28, 1999 By: /s/ Stephen A. Lawrence
----------------------------------------
Stephen A. Lawrence, Director, Chairman
(Principal executive officer)
Dated: December 28, 1999 By: /s/ Gary C. Thomas
----------------------------------------
Gary C. Thomas, Chief Financial Officer
and Treasurer (Principal accounting and
financial officer)
Dated: December 28, 1999 By: /s/ William P. Flies
----------------------------------------
William P. Flies, Director, Chief
Technical Officer and Secretary
Dated: December 28, 1999 By: /s/ Dennis R. Johnson
----------------------------------------
Dennis R. Johnson, Director
Dated: December 28, 1999 By: /s/ Roger W. Kleppe
----------------------------------------
Roger W. Kleppe, Director
Dated: December 28, 1999 By: /s/ Carl M. Fredericks
----------------------------------------
Carl M. Fredericks, Director
<PAGE>
INDEX TO EXHIBITS
INDEX
NUMBER DESCRIPTION
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
10.11 Separation Agreement with Dennis R. Johnson
10.12 Separation Agreement with William Callahan
10.13 Amendment to Credit Agreement with Norwest Bank
10.14 Sublease with Kavoras, Inc
21 Subsidiaries of the Company
23.1 Consent of McGladrey & Pullen, LLP, independent public accountant
23.2 Consent of Grant Thornton LLP, independent public accountant
27 Financial Data Schedule
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
XATA Corporation
We have audited the accompanying balance sheet of XATA
Corporation as of September 30, 1999, and the related statements of operations,
changes in shareholders' equity, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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, 1999, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/Grant Thornton LLP
Minneapolis, Minnesota
December 8, 1999
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
XATA Corporation
Burnsville, Minnesota
We have audited the accompanying balance sheet of XATA Corporation as of
September 30, 1998, and the related statements of operations, changes in
shareholders' equity, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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, 1998, and the results of its operations and its cash flows for the
two years then ended, in conformity with generally accepted accounting
principles.
The September 30, 1998, financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
September 30, 1998, financial statements, the Company has incurred substantial
losses and reductions in cash and working capital during fiscal years 1998 and
1997. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2 to the September 30, 1998, financial statements. The
September 30, 1998, financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
December 8, 1998 (January 8, 1999, as to Note 8 to the September 30, 1998,
financial statements)
F-2
<PAGE>
XATA CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 122,898 $ -
Accounts receivables, less allowances for doubtful accounts and sales
returns of $167,995 in 1999 and $1,047,000 in 1998 1,740,089 1,986,954
Inventories 637,713 474,011
Prepaid expenses 123,640 104,480
-------------------------------------
TOTAL CURRENT ASSETS 2,624,340 2,565,445
-------------------------------------
Equipment and Leasehold Improvements, at cost
Engineering and manufacturing equipment 703,635 844,438
Office furniture and equipment 1,294,070 1,677,269
Leasehold improvements 38,064 38,417
-------------------------------------
2,035,769 2,560,124
Less accumulated depreciation and amortization 1,495,835 1,331,571
-------------------------------------
TOTAL EQUIPMENT AND LEASEHOLD IMPROVEMENTS 539,934 1,228,553
-------------------------------------
Other Assets
Capitalized software development costs, less accumulated
amortization of $622,411 in 1999 and $2,395,993 in 1998 4,464,815 2,685,324
Acquired software, less accumulated amortization of $133,344
in 1998 and $1,135,243 in 1998 66,656 264,757
Goodwill, less accumulated amortization of $83,335 in 1999
and $1,393,866 in 1998 116,665 145,237
Other 35,979 96,653
-------------------------------------
TOTAL OTHER ASSETS 4,684,115 3,191,971
-------------------------------------
TOTAL ASSETS $ 7,848,389 $ 6,985,969
=====================================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Bank line of credit $ 237,395 $ 548,996
Current maturities of long-term debt 486,140 309,534
Accounts payable 1,170,715 1,122,754
Accrued expenses:
Compensation 374,880 520,822
Other 353,233 158,319
Deferred revenue 1,118,599 896,525
--------------------------------------
TOTAL CURRENT LIABILITIES 3,740,962 3,556,950
--------------------------------------
Long-Term Debt - 461,491
--------------------------------------
Commitments - -
Shareholders' Equity
Preferred stock, 8% convertible, stated value $15.00 per share;
333,333 shares authorized; 46,667 shares issued in 1999 700,005 -
Common stock, par value $0.01 per share; 8,333,333 shares
authorized; 4,435,633 and 4,430,633 shares issued
in 1999 and 1998 44,356 44,306
Additional paid-in capital 9,502,255 9,398,821
Common stock to be issued, 12,500 shares in 1998 - 135,688
Accumulated deficit (6,139,189) (6,611,287)
--------------------------------------
TOTAL SHAREHOLDERS' EQUITY 4,107,427 2,967,528
--------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,848,389 $ 6,985,969
======================================
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
XATA CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 11,181,809 $ 9,214,893
Cost of goods sold 6,250,244 4,707,375
-------------------------------------------
GROSS PROFIT 4,931,565 4,507,518
Operating expenses:
Selling, development, general and administrative 4,285,664 8,231,032
-------------------------------------------
OPERATING PROFIT (LOSS) 645,901 (3,723,514)
Nonoperating income (expense):
Interest income 20,347 93,516
Interest expense (148,937) (36,997)
Other (23,950) (9,030)
-------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 493,361 (3,676,025)
Income tax expense - 573,000
-------------------------------------------
NET EARNINGS (LOSS) $ 493,361 $ (4,249,025)
===========================================
Basic net earnings (loss) per common share 0.11 (0.97)
Diluted net earnings (loss) per common share 0.10 (0.97)
Weighted-average common shares outstanding - basic 4,421,265 4,394,714
Weighted-average common shares outstanding - diluted 4,648,819 4,394,714
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
XATA CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------------------------------------------- Paid-In
Shares Amount Shares Amount Capital
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1997 - $ - 4,383,035 $ 43,830 9,195,771
Common stock issued on exercise of
options and warrants - - 9,524 95 14,905
Issuance of common stock - - 38,074 381 188,145
Net loss - - - - -
--------------------------------------------------------------------------
Balance, September 30, 1998 - - 4,430,633 44,306 9,398,821
Common stock issued on exercise of
options and warrants - - 5,000 50 10,250
Issuance of warrants - - 7,500
Reversal of common stock to be issued - - - 135,688
Issuance of preferred stock 46,667 700,005 (50,004)
Preferred stock dividend - -
Net earnings - - - - -
--------------------------------------------------------------------------
Balance, September 30, 1999 46,667 $ 700,005 4,435,633 $ 44,356 9,502,255
==========================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Common
Stock
To Be Accumulated
Issued Deficit Total
--------------------------------------------------------
<S> <C> <C> <C>
Balance, September 30, 1997 $ 271,875 $ (2,362,262) $ 7,149,214
Common stock issued on exercise of
options and warrants - - 15,000
Issuance of common stock (136,187) - 52,339
Net loss - (4,249,025) (4,249,025)
----------------------------------------------
Balance, September 30, 1998 135,688 (6,611,287) 2,967,528
Common stock issued on exercise of
options and warrants - - 10,300
Issuance of warrants 7,500
Reversal of common stock to be issued (135,688) - -
Issuance of preferred stock 650,001
Preferred stock dividend (21,263) (21,263)
Net earnings - 493,361 493,361
----------------------------------------------
Balance, September 30, 1999 $ - $ (6,139,189) $ 4,107,427
==============================================
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
XATA CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in) Operating Activities
Net earnings (loss) $ 493,361 $ (4,249,025)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in)
operating activities:
Depreciation 419,619 502,608
Amortization 771,802 1,626,909
Provision (reversal) for bad debt and sales returns (117,450) 918,000
Deferred income taxes - 580,000
Other non-cash items 46,848 80,050
Changes in assets and liabilities:
Accounts receivable 257,154 (975,364)
Inventories (163,702) (39,175)
Accounts payable 47,961 474,579
Accrued expenses and deferred revenue 264,437 (520,667)
Other (19,160) 10,854
-------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,000,870 (1,591,231)
--------------------------------
Cash provided by (used in) Investing Activities
Principal payments received on notes receivable 75,638 48,651
Proceeds from sale of note receivable - 548,983
Proceeds from sale and maturity of available-for-sale securities - 3,054,076
Purchase of equipment (51,010) (522,588)
Proceeds from sale of equipment - 5,269
Proceeds from sale of product line 383,071 -
Addition to software development costs (2,420,535) (3,056,728)
Proceeds from sale of assets 78,203 -
--------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,934,633) 77,663
--------------------------------
Cash provided by Financing Activities
Net (payments) borrowings on revolving credit agreement (311,601) 548,996
Proceeds from borrowings on long-term debt - 625,000
Payments on long-term debt (284,885) (23,632)
Proceeds from common stock issued - 12,078
Proceeds from options and warrants exercised 10,300 15,000
Proceeds from sale of preferred stock 650,001 -
Preferred stock dividend paid (7,154) -
--------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 56,661 1,177,442
--------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 122,898 (336,126)
Cash and Cash Equivalents
Beginning - 336,126
--------------------------------
Ending 122,898 -
================================
Supplemental Disclosures of Cash Flow Information
Cash payments for interest 99,619 23,596
Supplemental Schedule of Noncash Investing and Financing Activities
Preferred stock dividends payable 14,109 -
Warrants issued to directors 7,500 -
Accounts receivable converted into notes receivable - 727,945
Discount on interest-free note payable 15,660 13,401
================================
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
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.
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. At September 30, 1999, the Company had
approximately $ 224,000 of systems awaiting specific delivery instructions on
hand that had been billed to those customers. 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 highly liquid temporary investments 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: The financial statements include the
following financial instruments: cash and cash equivalents, accounts receivable,
accounts payable, and long-term debt. At September 30, 1999 and 1998, no
separate comparison of fair values versus carrying values is presented for the
aforementioned financial instruments since their fair values are not
significantly different than their balance sheet carrying amounts. The aggregate
fair values of the financial instruments would not represent the underlying
value of the Company.
The financial statements also include 8% convertible preferred stock. There is
no quoted market price for the preferred stock. Each share of preferred stock is
redeemable at the Company's option, at a price of $15 per share or convertible
into ten shares of the Company's common stock. Assuming all shares are redeemed,
the redemption value of the preferred stock would be $700,005. Assuming all of
the preferred stock is converted into common stock, the common stock would have
a market value of approximately $1,531,000 at September 30, 1999. These fair
value estimates are subjective in nature and involve uncertainties. Changes in
assumptions could affect these estimates.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined on the weighted-average method.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE DEVELOPMENT COSTS: 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 (two to five years).
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 $847,000 and $750,000 for the
years ended September 30, 1999 and 1998.
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
Acquired software 3-4
The Company reviews its long-lived assets periodically to determine potential
impairment by comparing 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. In
fiscal 1999 the Company recorded an impairment loss, for capitalized software
development costs, of $172,000. This loss is included in cost of goods sold.
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 income 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. Expense under the Plan for the year ended September 30, 1999
was $50,000 with no contribution for the year ended September 30, 1998.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET EARNINGS (LOSS) PER SHARE: Basic net earnings (loss) per common share is
computed by dividing net earnings (loss) available to common shareholders by the
weighted average common shares outstanding for the year. Diluted earnings (loss)
per common share reflect the dilutive effect of stock options and assume the
conversion of preferred stock and related earnings adjustments.
At September 30, 1999 and 1998, the Company had options and warrants outstanding
to purchase a total of 759,693 and 751,820 shares of common stock, at a
weighted-average exercise price of approximately $4.81 and $5.31. However,
because the Company incurred a loss in fiscal 1998, the inclusion of potential
common shares in the calculation of diluted loss per common share would have an
antidilutive effect. Therefore, basic and diluted loss per common share amounts
are the same.
STOCK-BASED COMPENSATION: The Company utilized the intrinsic value method of
accounting for its employee stock-based compensation plans. Pro forma
information related to the fair value based method of accounting is disclosed in
Note 9.
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.
RECENT ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, which is effective for fiscal
years beginning after June 15, 2000. SFAS 133 requires entities t recognize
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS 133 also specifies new methods of accounting for
derivatives used in risk management strategies (hedging activities), prescribes
the items and transactions that may be hedged, and specified detailed criteria
required to qualify for hedge accounting. Management believes the adoption of
SFAS 133 will not have a material effect on the financial statements.
During fiscal 1999, the Company adopted Financial Accounting Standards Board
Statement No. 131, Disclosures About Segments of an Enterprise and related
Information. This statement requires public enterprises to report selected
information about operating segments in annual and interim reports issued to
shareholders. This statement did not have an effect on the Company's basic
financial statements, as the Company operates in one business segment.
As of October 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income. Statement No. 130
establishes new rules for the reporting and display of comprehensive income and
its components. Statement No. 130 requires unrealized gains or losses on
available-for-sale securities and certain other items, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive income. The Company has no comprehensive income as defined by SFAS
No. 130.
RECLASSIFICATIONS: Certain 1998 amounts have been reclassified to conform to the
1999 presentation.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
NOTE 2. ACQUISITION OF KEY LOGISTICS, INC.
In fiscal 1997, the Company acquired certain assets of Key Logistics, Inc. The
acquisition was accounted for as a purchase. The Company issued 41,558 shares of
common stock with a fair value of $400,000. During 1998, an additional 10,390
shares of common stock were issued as certain financial goals were achieved.
Accordingly, the fair value of the shares issued of approximately $40,300 was
recognized as compensation expense in fiscal 1998.
NOTE 3. INVENTORIES
Inventories consisted of the following:
September 30
------------
1999 1998
--------------------
Raw materials and subassemblies $228,661 $270,511
Finished goods 409,052 203,500
-------- --------
$637,713 $474,011
======== ========
NOTE 4. BANK LINE OF CREDIT
The Company has a credit line agreement with a financial institution consisting
of a $2,000,000 line of credit. Advances under the line of credit accrue
interest at prime rate (8.25 percent at September 30, 1999 and 1998) plus 2.0
percent and are due on demand. The line is subject to borrowing base
requirements and is secured by substantially all the assets of the Company. The
agreement requires the Company to maintain certain financial requirements,
including a minimum monthly net worth level, which varies during the term of the
agreement. During fiscal 2000, the most restrictive of the net worth
requirements occurs on August 31, 2000, when the Company must maintain a net
worth of not less than $5,030,000. The agreement expires in October 2000 and
will be automatically renewed for one year unless previously cancelled by either
the Company or the bank.
NOTE 5. LONG-TERM DEBT Long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30
--------------------
1999 1998
--------------------
<S> <C> <C>
Note payable, noninterest-bearing, discounted at 9%, due
December 1999, unsecured $184,200 $169,657
Note payable, due in monthly installments of $28,840 including
interest at 10% through July 2000, secured by equipment and
leasehold improvements 301,940 601,368
-------- --------
486,140 771,025
Less current maturities 486,140 309,534
-------- --------
$ -- $461,491
======== ========
</TABLE>
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
NOTE 6. INCOME TAXES
The tax effects of the Company's deferred tax assets and liabilities are as
follows:
September 30
---------------------------
1999 1998
---------------------------
Goodwill and acquired software $ - $ 862,000
Inventory and warranty reserve 83,000 108,000
Accrued expenses and deferred revenue 150,000 188,000
Sales Reserve 67,000 352,000
Net operating loss carryforwards 4,137,000 2,589,000
----------- -----------
Gross deferred tax assets 4,437,000 4,099,000
Valuation allowance on deferred tax assets (2,475,000) (2,900,000)
----------- -----------
Net deferred tax assets 1,962,000 1,199,000
Software development costs (1,859,000) (1,071,000)
Depreciation (103,000) (128,000)
----------- -----------
Gross deferred tax liabilities (1,962,000) (1,199,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
The Company has recorded a valuation allowance on its deferred tax assets to
reduce the total to an amount that management believes is more likely than not
to be realized. Realization of deferred tax assets is dependent upon sufficient
future taxable income during periods when deductible temporary differences and
carryforwards are expected to be available to reduce taxable income.
The Company's income tax expense (benefit) differed from the statutory federal
rate as follows:
<TABLE>
<CAPTION>
September 30
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Statutory rate applied to earnings before tax $ 168,000 $(1,287,000)
State income tax (benefit), net of federal tax effect -- (67,000)
Net operating loss carryforwards (168,000) 1,335,000
Change in valuation allowance -- 580,000
Other -- 12,000
----------- -----------
$ -- $ 573,000
Currently refundable $ -- $ (7,000)
Deferred -- 580,000
----------- -----------
$ -- $ 573,000
=========== ===========
</TABLE>
At September 30, 1999, the Company has federal net operating losses of
approximately $10,342,000 expiring as follows: $221,000 in 2009, $1,255,000 in
2012, $4,439,000 in 2018 and $4,427,000 in 2019.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
NOTE 7. 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:
2000 $ 262,000
2001 255,000
2002 231,000
2003 202,000
2004 137,000
----------
$1,087,000
==========
Rental expense, including common area costs, was approximately $251,000 and
$232,000 for the years ended September 30, 1999 and 1998.
NOTE 8. STOCK OPTIONS AND WARRANTS
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 that 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 875,000 shares of the Company's common stock have
been reserved for issuance pursuant to options granted or shares awarded under
the Plan. Generally, 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. All stock options have been
granted at fair market value, and accordingly, no compensation expense has been
recorded for all periods presented.
Grants under the Plan are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
grants under the Plan. Had compensation cost for the plan been determined based
on the fair values of options granted (the method described in FASB Statement
No. 123), reported net earnings (loss) and basic and diluted net earnings (loss)
per common share on a pro forma basis as compared to reported results would have
been as follows:
1999 1998
----------------------------
Net earnings (loss):
As reported $ 493,361 $ (4,249,025)
Pro forma 110,996 (4,562,325)
Basic net earnings (loss) per common share:
As reported $ 0.11 $ (0.97)
Pro forma 0.03 (1.04)
Diluted net earnings (loss) per common share
As reported $ 0.10 $ (0.97)
Pro forma 0.02 (1.04)
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
For purposes of the aforementioned pro forma information, the fair value of each
option is estimated at the grant date using the Black-Scholes option-pricing
model with the following weighted-average assumptions for grants in 1999 and
1998: dividend rate of zero for both years; price volatility of 92% and 127%;
risk-free interest rate of 5.2% and 6.1%; and expected lives of approximately
four years in both periods. The weighted-average fair value per option, of
options granted in 1999 and 1998, was $1.74 and $3.49.
COMMON STOCK WARRANTS: The Company has, on occasion, issued warrants for the
purchase of common stock to consultants and placement agents. Compensation
expense associated with the warrants issued to consultants has not been
material. At September 30, 1999, warrants were outstanding to purchase a total
of 113,478 shares of common stock at a weighted-average exercise price of $4.59
per share, with a weighted-average remaining life of approximately 2.9 years.
Additional information relating to all outstanding options as of September 30,
1999 and 1998, is as follows:
1999 1998
-------------------- ------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
-----------------------------------------
Options outstanding at beginning of
Year 692,486 $5.31 530,736 $5.85
Options granted 241,151 2.53 206,750 4.26
Options exercised (5,000) 2.06 (5,780) 3.12
Options canceled (282,422) 4.02 (39,220) 4.87
-------- ----- -------- -----
Options outstanding at end of year 646,215 $4.85 692,486 $5.31
======== ===== ======== =====
The following table further summarizes information about stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Number Average Weighted- Number Weighted-
Outstanding at Remaining Average Exercisable at Average
September 30, Contractual Exercise September 30, Exercise
Range of Exercise Price 1999 Life (Years) Price 1999 Price
<S> <C> <C> <C> <C> <C>
$2.12 - $5.00 374,735 1.2 $3.01 74,709 $3.54
$5.01 - $9.50 271,480 3.5 7.39 251,897 7.49
------- --- ----- ------- -----
$2.12 - $9.50 646,215 2.2 $4.85 326,606 $6.59
======= === ===== ======= =====
</TABLE>
NOTE 9. PREFERRED STOCK
The Company is authorized to issue 333,333 shares of preferred stock. During
1999, the Company issued 46,667 shares of Class A 8% convertible preferred stock
at $15 per share. Proceeds received totaled $650,001, net of related issuance
costs of $50,004. Each share of preferred stock is convertible into 10 shares of
common stock. The holders of preferred stock have liquidation preference over
common shareholders and are entitled to receive cumulative cash dividends at an
annual rate of 8% per share. The preferred stock is redeemable, at the option of
the Company, at a $15 stated value per share.
At September 30, 1999, 466,670 shares of common stock were reserved for the
potential conversion of preferred stock.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
NOTE 10. MAJOR CUSTOMERS
Net sales include sales to major customers as follows:
Years Ended September 30
1999 1998
Revenue percentage:
Customer A 17 *
Customer B 13 17
Customer C * 16
Ending receivable balance:
Customer A $332,000 $ --
Customer B -- 907,000
Customer C -- 230,000
*Net sales were less than 10 percent of total net sales.
F-15
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into this 8th day of February, 1999 ("Effective
Date"), by and between XATA Corporation ("XATA" or "Company") and Dennis R.
Johnson (the "Employee").
WHEREAS, the Employee has heretofore been employed by XATA in the
position of President and Chief Executive Officer and is experienced in the
business of XATA; and
WHEREAS, the Employee is leaving the position of President and Chief
Executive Officer, but will continue as an employee of XATA to assist in the
transition to new management; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of XATA and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed by to assist management of XATA
and, in particular, such person or persons who may from time to time occupy the
role of President and Chief Executive Officer ("President/CEO") of XATA. The
Employee shall perform such executive duties (i.e. duties customarily associated
with the office of president or chief executive officer) as may be reasonably
requested by the Board of Directors of XATA (the "Board of Directors" or
"Board") and the President/CEO.
2. Base Compensation. XATA agrees to pay the Employee during the term
of this Agreement a salary (the "Salary"), payable at the times and in the
manner as XATA payroll generally, with each payment equal to the regular salary
payment amount received by Employee immediately prior to the execution of this
Agreement. Total salary paid under this Agreement shall be limited to $250,000.
No payment shall be due or payable by XATA for any period during which Employee
is in breach of this Agreement.
3. Prior Agreement. XATA and the Employee hereby agree that the payment
(the "Separation Payment") due Employee under his letter agreement with XATA
dated January 24, 1995 (the "Prior Agreement") in connection with the
termination of his employment as President/CEO of XATA shall be due and payable
in equal installments over a period of twenty (20) months at the times when
payroll is customarily paid to the employees of XATA, and that any amounts paid
as Salary under the terms of this Agreement shall offset and fully discharge an
equal then-payable amount of the Separation Payment. No payment shall be due or
payable by
<PAGE>
XATA for any period during which Employee is in breach of this Agreement. This
Section shall survive termination of this Agreement, except as provided in
Section 10(a).
4. Other Benefits.
(a) Participation in Retirement and Medical Plans. The
Employee shall be entitled to participate in any plan of XATA relating
to compensation, profit sharing, or other retirement benefits and
medical coverage or reimbursement plans as XATA may adopt for the
benefit of its employees.
(b) Expenses. XATA shall reimburse Employee for all reasonable
out-of-pocket expenses which Employee shall incur in connection with
his service for XATA which are documented with XATA's policies as set
forth from time to time.
(c) Options. Employee's existing options under the XATA 1991
Long-Term Incentive and Stock Option Plan shall not be affected by
Employee's change in duties and shall continue in accordance with their
terms while this Agreement is in effect.
5. Term. The term of employment of Employee under this Agreement shall
commence on the Effective Date and shall be terminable upon notice, with or
without cause, by XATA; provided, however, that in no event shall the term of
this Agreement extend for a period of more than twenty (20) months.
6. Loyalty. The Employee shall devote such time and attention to the
performance of his employment under this Agreement as shall be reasonably
requested from time to time by the Board of Directors and President/CEO. During
the term of Employee's employment under this Agreement, the Employee shall not
engage in any business or activity which is detrimental to the business affairs
or interests of XATA; provided, however, that this is not intended to restrict
Employee in seeking, obtaining, and carrying out the duties associated with,
other employment with any other person except (a) CADEC Corporation, Eaton
Corporation, or Meritor (as to each, a "Named Competitor"), (b) any affiliate of
any Named Competitor, or (c) any person who acquires or succeeds to the business
of any Named Competitor.
7. Standards. [INTENTIONALLY OMITTED]
8. Vacation and Sick Leave. The Employee shall not accrue any vacation
leave or sick leave during the term of this Agreement. All paid vacation accrued
by Employee prior to the Effective Date which has not been used by Employee as
of the Effective Date shall be paid to Employee in cash not later than February
26, 1999.
9. Covenants of Employee.
(a) Competing Employment. [INTENTIONALLY OMITTED]
2
<PAGE>
(b) Non-Solicitation Agreement. [INTENTIONALLY OMITTED]
(c) Confidential Information. Employee acknowledges that
during the term of his employment he will have access to confidential
information of the Company, the Company's affiliates, and the Company's
customers, including without limitation, information about business
plans, costs, products, research and development, funding, alliances,
customers, profits, markets, key personnel, operational methods, other
business affairs and methods and other information not available to the
public or in the public domain (collectively, "Confidential
Information"). Employee covenants and agrees that, except as required
by his duties to the Company, Employee will keep secret all
Confidential Information and will not, directly or indirectly, disclose
or disseminate Confidential Information to any other person, nor shall
he make use of any Confidential Information for any purpose whatsoever
except as permitted by the Company. Such covenant shall apply during
the term of his employment hereunder and for a period of six (6) months
after termination or expiration of this Agreement; provided, however,
that with respect to Confidential Information which constitutes a
"trade secret" under Minnesota Statutes Chapter 325C, such covenant
shall apply during the term of his employment hereunder and at all
times thereafter. Employee will promptly upon termination of this
Agreement deliver to the Company all tangible materials and objects
containing Confidential Information (including all copies thereof,
whether prepared by Employee or others) which he may possess or have
under his control. The term "Confidential Information" shall not
include any information which Employee can demonstrate (i) to be
generally known in the industry or to the public other than through
breach of Employee's obligations hereunder or (ii) to have been
disclosed to Employee by a source which is not connected or related in
any way to his employment with the Company and which is not under any
obligation of confidentiality.
(d) Reasonableness of Covenants. Employee acknowledges and
agrees that the geographic scope and period of duration of the
restrictive covenants contained in this Section are fair and reasonable
and that the interests sought to be protected by the Company are
legitimate business interests entitled to be protected.
(e) Injunctive Relief; Attorneys' Fees. The parties agree that
the remedy of damages at law for the breach by Employee of any of the
covenants contained in this Section 9 is an inadequate remedy. In
recognition of the irreparable harm that a violation by Employee of any
of the covenants, agreements or obligations arising under this
Agreement would cause XATA, Employee agrees that in addition to any
other remedies or relief afforded by law, an injunction against an
actual or threatened violation or violations may be issued against him
and every other Person concerned thereby, it being the understanding of
the parties that both damages and an injunction shall be proper modes
of relief and are not to be considered alternative remedies. In the
event of any such an actual violation, Employee agrees to pay the
costs, expenses and reasonable attorneys' fees incurred by the Company
in pursuing any of its rights with respect to such violation, in
addition to the actual damages sustained by the Company as a result
thereof. The provisions of Sections 9(c), (d) and (e) shall survive
termination of this Agreement.
3
<PAGE>
(f) Compensation. [INTENTIONALLY OMITTED]
(g) [INTENTIONALLY OMITTED]
10. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be
binding upon any corporation or other successor of XATA which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of XATA;
provided, however, that in the event that this Agreement is to be
acquired by any such successor in interest of XATA, Employee, at his
option, given within ten (10) business days after notice by XATA of
such proposed event, may elect (i) to terminate this Agreement,
effective with the effective date of the succession in interest and
(ii) to receive all payments remaining under Section 3 of this
Agreement in one lump sum, payable not later than thirty (30) days
after the effective date of the succession in interest.
(b) Since XATA is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning
or delegating his rights or duties hereunder without first obtaining
the written consent of XATA.
11. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
12. Applicable Law. This Agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Minnesota, except to the extent that Federal law shall be
deemed to apply.
13. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
14. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of XATA, and judgment
upon the award rendered may be entered in any court having jurisdiction thereof,
except to the extent that the parties may otherwise reach a mutual settlement of
such issue. XATA shall incur the cost of all fees and expenses associated with
filing a request for arbitration with the AAA, whether such filing is made on
behalf of XATA or the Employee, and the costs and administrative fees associated
with employing the arbitrator and related administrative expenses assessed by
the AAA. If the parties cannot mutually agree on an arbitrator, each party shall
select an arbitrator and those two arbitrators shall select a third arbitrator
and the third arbitrator shall conduct the arbitration. Otherwise, each party
shall pay its own costs and expenses, including reasonable attorneys' fees,
arising from such dispute, proceedings
4
<PAGE>
or actions, notwithstanding the ultimate outcome thereof, upon delivery of a
final judgment or settlement of the dispute.
15. Entire Agreement. This Agreement, together with any understanding
or modifications thereof as agreed to in writing by the parties, shall
constitute the entire agreement between the parties hereto with respect to the
Separation Payment and the Prior Agreement, and shall supersede all prior
understandings in writing or otherwise between the parties as to such matters.
XATA CORPORATION
By:
-------------------------------------
Its:
---------------------------------
-----------------------------------------
Dennis R. Johnson
5
EXHIBIT 10.12
Mr. Bill Callahan March 23, 1999
620 Northwood Drive
Iowa City, Iowa 52245
Re: Termination of Employment
This letter sets forth the Terms & Conditions relating to your termination of
employment with XATA Corporation.
NOTICE DATE: February 17, 1999
EFFECTIVE DATE: April 16, 1999
During the period February 17, through April 16, 1999, you will receive
your Current base pay along with the normal company benefits.
The disbursement of accrued personal time will be made within ten (10)
working Days of the return in good working condition, where applicable, of all
Company property.
NON-DISCLOSURE, CONFIDENTIALITY AND COVENANT NOT TO HIRE:
For a period of twelve (12) months, you agree to abide by the terms and
conditions Set forth in the XATA Corporation Employee Agreement.
Edward T. Michalek
Chief Executive Officer
XATA Corporation
EXHIBIT 10.13
THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Amendment, dated as of December ___, 1999 is made by and between
XATA CORPORATION, a Minnesota corporation (the "Borrower"), and WELLS FARGO
BUSINESS CREDIT, INC., f/k/a Norwest Business Credit, Inc., a Minnesota
corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into a Credit and Security
Agreement dated as of October 23, 1998, as amended by a First Amendment to
Credit and Security Agreement dated as of November 30, 1998, and a Second
Amendment to Credit and Security Agreement dated as of January 8, 1999 (as so
amended, the "Credit Agreement").
The Borrower has requested that certain amendments be made to the
Credit Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Defined Terms. Capitalized terms used in this Amendment which are
defined in the Credit Agreement shall have the same meanings as defined therein,
unless otherwise defined herein. In addition, Section 1.1 of the Credit
Agreement is amended by adding or amending, as the case may be, the following
definitions:
"'Borrowing Base' means, at any time and subject to change
from time to time in the Lender's sole discretion, the lesser of:
(a) the Maximum Line; or
(b) the sum of:
(i) the lesser of (A) 80% of Eligible
Accounts
plus
(ii) the lesser of (A) 50% of Eligible
Inventory or (B) $25,000
plus
(iii) the Overadvance Component."
"'Overadvance Component' means (1) $ 200,000, from December
__, 1999, through and including January 31, 2000, (2) $100,000 from
February 1, 2000, through and including February 29, 2000, and (3) $0
from March 1, 2000 and thereafter."
<PAGE>
"'Overadvance Floating Rate' means an annual rate equal to the
sum of the Base Rate plus four percent (4.0%), which annual rate shall
change when and as the Base Rate Changes."
2. Interest. Section 2.2 subsection (a) is amended and subsection (e)
is added as follows:
"(a) REVOLVING NOTE. Except as set forth in subsections (c),
(d) and (e), the outstanding principal balance of the Revolving Note
shall bear interest at the Floating Rate."
"(e) OVERADVANCE INTEREST RATE. Except as set forth in
subsections (b) and (c), the outstanding principal balance of the
Revolving Note that exceeds the Borrowing Base (when determined without
the Overadvance Component) shall bear interest at the Overadvance
Floating Rate."
3. Minimum Book Net Worth. Section 6.7 of the Credit Agreement is
hereby amended to read as follows:
"Section 6.7 Minimum Book Net Worth. The Borrower will
maintain, as of each month end described below, its Book Net Worth at
an amount not less than the amount set forth opposite such month end:
--------------------------------------------------
Month Ending Minimum Book Net Worth
--------------------------------------------------
October 31, 1999 $3,525,000
--------------------------------------------------
November 30, 1999 $3,560,000
--------------------------------------------------
December 31, 1999 $3,830,000
--------------------------------------------------
January 31, 2000 $4,070,000
--------------------------------------------------
February 28, 2000 $4,190,000
--------------------------------------------------
March 31, 2000 $3,980,000
--------------------------------------------------
April 30, 2000 $4,350,000
--------------------------------------------------
May 31, 2000 $4,225,000
--------------------------------------------------
June 30, 2000 $4,455,000
--------------------------------------------------
July 31, 2000 $4,960,000
--------------------------------------------------
August 31, 2000 $5,030,000
--------------------------------------------------
September 30, 2000 $4,930,000
--------------------------------------------------
4. New Covenants. On or before August 31, 2000, the Borrower and the
Lender shall agree on new covenant levels for Section 6.7 for periods after such
date. The
XATA Third Amendment 2
<PAGE>
new covenant levels will be based on the Borrower's projections for such periods
and shall be no less stringent than the present levels.
5. New Compliance Certificate. Exhibit B to the Credit Agreement is
hereby amended in its entirety and replaced with Exhibit A to this Amendment.
6. No Other Changes. Except as explicitly amended by this Amendment,
all of the terms and conditions of the Credit Agreement shall remain in full
force and effect and shall apply to any advance or letter of credit thereunder.
7. Conditions Precedent. This Amendment shall be effective when the
Lender shall have received an executed original hereof, together with each of
the following, each in substance and form acceptable to the Lender in its sole
discretion:
(a) A Certificate of the Secretary of the Borrower certifying
as to (i) the resolutions of the board of directors of the Borrower
approving the execution and delivery of this Amendment, (ii) the fact
that the articles of incorporation and bylaws of the Borrower, which
were certified and delivered to the Lender in connection with the
execution of the Credit Agreement continue in full force and effect and
have not been amended or otherwise modified except as set forth in the
Certificate to be delivered, and (iii) certifying that the officers and
agents of the Borrower who have been previously certified to the
Lender, pursuant to the Certificate of Authority of the Borrower's
secretary or assistant secretary dated as of November 30, 1998, as
being authorized to sign and to act on behalf of the Borrower continue
to be so authorized or setting forth the sample signatures of each of
the officers and agents of the Borrower authorized to execute and
deliver this Amendment and all other documents, agreements and
certificates on behalf of the Borrower.
(b) Payment of the fee described in Paragraph 8 and the costs
and expenses described in Paragraph 13.
(c) Such other matters as the Lender may require.
8. Overadvance Fee. The Borrower shall pay the Lender on the date
hereof a fully earned, non-refundable fee in the amount of $1,000 in
consideration of the Lender's provision of the Overadvance Component.
9. Representations and Warranties. The Borrower hereby represents and
warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations hereunder,
and this Amendment has been duly executed and delivered by the Borrower
and constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
XATA Third Amendment 3
<PAGE>
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate
action and do not (i) require any authorization, consent or approval by
any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any
law, rule or regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrower, or the
articles of incorporation or bylaws of the Borrower, or (iii) result in
a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound
or affected.
(c) All of the representations and warranties contained in
Article V of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
10. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
11. No Waiver. The execution of this Amendment and acceptance of any
documents related hereto shall not be deemed to be a waiver of any Default or
Event of Default under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.
12. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
13. Costs and Expenses. The Borrower hereby reaffirms its agreement
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Security Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the
XATA Third Amendment 4
<PAGE>
foregoing, the Borrower specifically agrees to pay all fees and disbursements of
counsel to the Lender for the services performed by such counsel in connection
with the preparation of this Amendment and the documents and instruments
incidental hereto. The Borrower hereby agrees that the Lender may, at any time
or from time to time in its sole discretion and without further authorization by
the Borrower, make a loan to the Borrower under the Credit Agreement, or apply
the proceeds of any loan, for the purpose of paying any such fees,
disbursements, costs and expenses and the fee required under paragraph 8 hereof.
14. Miscellaneous. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
WELLS FARGO BUSINESS CREDIT, INC., XATA CORPORATION
f/k/a Norwest Business Credit, Inc.
By
----------------------------------
By Stephen A. Lawrence
---------------------------------- Its Chairman
Roger Pfiffner
Its Vice President
XATA Third Amendment 5
<PAGE>
EXHIBIT A TO THIRD AMENDMENT
TO CREDIT AND SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
To: Michael Guillou
Wells Fargo Business Credit, Inc.
Date: __________________, 200___
Subject: XATA Corporation
Financial Statements
In accordance with our Credit and Security Agreement dated as of
October 23, 1998, as amended by a First Amendment to Credit and Security
Agreement dated as of November 30, 1998, a Second Amendment to Credit and
Security Agreement dated as of January 8, 1999, and a Third Amendment to Credit
and Security Agreement dated as of December ___, 1999 (the "Credit Agreement"),
attached are the financial statements of XATA Corporation (the "Borrower") as of
and for ________________, 200__ (the "Reporting Date") and the year-to-date
period then ended (the "Current Financials"). All terms used in this certificate
have the meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition as of the date thereof.
Events of Default. (Check one):
[ ] The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
[ ] The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement and attached hereto is a
statement of the facts with respect to thereto.
Financial Covenants. I further hereby certify as follows:
1. Minimum Book Net Worth. Pursuant to Section 6.7 of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
$____________ which [ ] satisfies [ ] does not satisfy the requirement that such
amount be not less than $_____________ on the Reporting Date as set forth in the
table below:
<PAGE>
--------------------------------------------------
Month Ending Minimum Book Net Worth
--------------------------------------------------
October 31, 1999 $3,525,000
--------------------------------------------------
November 30, 1999 $3,560,000
--------------------------------------------------
December 31, 1999 $3,830,000
--------------------------------------------------
January 31, 2000 $4,070,000
--------------------------------------------------
February 28, 2000 $4,190,000
--------------------------------------------------
March 31, 2000 $3,980,000
--------------------------------------------------
April 30, 2000 $4,350,000
--------------------------------------------------
May 31, 2000 $4,225,000
--------------------------------------------------
June 30, 2000 $4,455,000
--------------------------------------------------
July 31, 2000 $4,960,000
--------------------------------------------------
August 31, 2000 $5,030,000
--------------------------------------------------
September 30, 2000 $4,930,000
--------------------------------------------------
2. Capital Expenditures. Pursuant to Section 6.9 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the _____________ year
ended ______________, 200___, for Capital Expenditures, $__________________ in
the aggregate, which [ ] satisfies [ ] does not satisfy the requirement that
such expenditures not exceed $3,000,000 in the aggregate during such year.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
XATA CORPORATION
By
--------------------------------
Its Chief Financial Officer
A-2
EXHIBIT 10.14
SUBLEASE
AGREEMENT made as of this 1st day September, 1999, by and among XATA
CORPORATION, A MINNESOTA CORPORATION, hereinafter referred to as "Sublessor" and
KAVOURAS, INC., A MINNESOTA CORPORATION, hereinafter referred to as "Sublessee."
WITNESSETH:
WHEREAS, by a lease dated DECEMBER 27, 1996 with HOYT PROPERTIES, INC.,
A MINNESOTA CORPORATION, hereinafter referred to as "Lessor" leased certain
space in the building known as NICOLLET BUSINESS CENTER VI to XATA CORPORATION,
A MINNESOTA CORPORATION, as "Lessee," for a term of 84 months commencing on the
first day of JUNE, 1997 and continuing through and including the last day of
MAY, 2004, a copy of which lease is annexed hereto as Exhibit "A" and made a
part hereof and hereinafter referred to as the "Master Lease"; and
WHEREAS, Sublessor desires to sublease to Sublessee space in said
building, hereinafter referred to as the "Premises," on the terms and conditions
stated herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, Sublessor and Sublessee hereby agree as follows:
1. Sublessor subleases to Sublessee space in the amount of
approximately 4,800 square feet of office/warehouse space and Sublessee hires
from Sublessor the premises for the term and according to covenants and
conditions contained herein.
2. This sublease shall be for a term of 45 months commencing on the
first day of SEPTEMBER, 1999 and terminating on the last day of MAY, 2004.
3. During the period SEPTEMBER 1, 1999 through MAY 31, 2004, the
monthly rent shall be TWO THOUSAND FOUR HUNDRED AND 00/100 DOLLARS ($2,400.00)
DOLLARS. This monthly rental figure include charges for common area, operating
expenses, insurance and real estate taxes pursuant to ARTICLE 2.2 AND 2.3,
"OPERATING EXPENSES," of the Master Lease.
4. Sublessee shall pay, when due, all charges for sewer usage or
rental, water, electricity, gas, fuel oil, L.P. gas, and/or other utility
services or energy source furnished to the Demised Premises during the term of
this Sublease. Sublessee shall pay, when due, all charges for garbage disposal,
refuse removal, telephone, and janitorial service.
5. Sublessee covenants and agrees to use the Premises in accordance
with the terms and conditions of the Master Lease and further covenants not to
do any act which will result in a violation of the terms of the Master Lease.
- 1 -
<PAGE>
6. The Sublessee shall not, without the prior written consent of the
Sublessor and of the Lessor, assign the term hereby demised, nor suffer or
permit it to be assigned by operations of law or otherwise, nor shall the
Sublessee, without the prior written consent of the Sublessor and of the Lessor
let or underlet or permit the said premises or any part thereof to be used by
others for hire.
7. All of the terms, provisions, covenants and conditions contained in
the Master Lease are hereby made a part of this Agreement (except as herein
otherwise expressly provided), and such rights and obligations as are contained
therein are, during the term of this subletting, hereby imposed upon the
respective parties hereto, the Sublessor herein being substituted for the Lessor
in the Master Lease, and the Sublessee herein being substituted for the Lessee
in the Master Lease; provided, however, that the Sublessor shall not be liable
to Sublessee for any default by the Lessor under the Master Lease. Accordingly,
Sublessee recognizes that Sublessor is not in a position to render any of the
services or to perform any of the obligations required of Lessor by the terms of
this sublease. Therefore, notwithstanding anything to the contrary contained in
this sublease, Sublessee agrees that performance by Sublessor of all its
obligations hereunder are conditional upon due performance by the Lessor of its
corresponding obligations under the Master Lease. Sublessor warrants it will
comply with all terms of the Master Lease and to promptly pay all rent and other
charges due to Lessor.
8. Sublessee agrees to repair all damage done during this occupancy,
upon vacating the Premises; also the Sublessee agrees to hold insurance
coverage, both contents and public liability, for the use of the Premises.
9. Sublessor certifies all plumbing, heating, electrical and air
conditioning equipment to be in good operating condition at the commencement of
this Sublease.
10. Sublessor agrees to construct one bathroom within leased premises.
11. Sublessee agrees to abide by all sign criteria established by
Lessor.
12. Sublessee contemporaneously with the execution of this Sublease
Agreement has deposited with Sublessor the sum of TWO THOUSAND FOUR HUNDRED AND
00/100 DOLLARS ($2,400.00) DOLLARS, receipt of which is acknowledged hereby, to
be held as a Security Deposit and reimbursed to Sublessee on or around five (5)
days after the expiration of this Sublease Agreement.
13. This sublease shall be conditional upon the delivery to the
Sublessor by the Lessor, of the written consent of the Lessor to the Sublease.
14. Sublessee may cancel this sublease agreement by giving written
notice to Sublessor 120 days prior to effective cancellation date and by paying
a one time cancellation fee of FOUR THOUSAND FIVE HUNDRED ($4,500.00) DOLLARS.
If Sublease is cancelled AFTER ONE YEAR FROM INCEPTION OF SUBLEASE, the one time
cancellation fee will be TWO THOUSAND FOUR HUNDRED ($2,400.00) DOLLARS. Any
cancellation notice received without cancellation fee will be considered null
and void.
- 2 -
<PAGE>
SUBLESSEE: SUBLESSOR:
KAVOURAS, INC. XATA CORPORATION
A MINNESOTA CORPORATION A MINNESOTA CORPORATION
By: By:
--------------------------------- ---------------------------------
Its: Its:
-------------------------------- --------------------------------
- 3 -
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 relating to the 1991 Long-Term Incentive and Stock Option
Plan and subsequent amendment (commission file No.'s 33-74148, 33-89222, and
333-3670), the Registration Statement on Form S-8 for the registration of 31,389
shares (commission file No. 33-94006), and the Registration Statement on Form
S-3 (commission file No. 333-82905) of our report, dated December 8, 1998
(January 8, 1999, as to Note 8 to the September 30, 1998 financial Statements),
with respect to the 1998 financial statements of XATA Corporation, appearing in
this Annual Report on Form 10-KSB for the year ended September 30, 1999.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
December 28, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated December 8, 1999, accompanying
the financial statements included in the Annual Report of XATA Corporation on
Form 10-KSB, for the year ended September 30, 1999. We hereby consent to the
incorporation by reference of said report in the Registration Statements of XATA
Corporation on Forms S-8 (File No. 33-74148, 33-89222, 33-94006, 333-03670 and
333-28337) and Forms S-3 and amendments (File No. 333-82905).
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
December 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 122,898
<SECURITIES> 0
<RECEIVABLES> 1,908,084
<ALLOWANCES> 167,995
<INVENTORY> 637,713
<CURRENT-ASSETS> 2,624,340
<PP&E> 2,035,769
<DEPRECIATION> 1,495,835
<TOTAL-ASSETS> 7,848,389
<CURRENT-LIABILITIES> 3,740,962
<BONDS> 0
0
700,005
<COMMON> 44,356
<OTHER-SE> 3,363,066
<TOTAL-LIABILITY-AND-EQUITY> 7,848,389
<SALES> 11,181,809
<TOTAL-REVENUES> 11,181,809
<CGS> 6,250,244
<TOTAL-COSTS> 6,250,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63,299
<INTEREST-EXPENSE> 148,937
<INCOME-PRETAX> 493,361
<INCOME-TAX> 0
<INCOME-CONTINUING> 493,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 493,361
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.10
</TABLE>
