SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
__X__ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000 or
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ____________
Commission File Number: 0-27166
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XATA Corporation
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(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1641815
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
151 E. Cliff Road, Suite 10, Burnsville, Minnesota 55337
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (952) 894-3680
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 10, 2000 the following securities of the Registrant were
outstanding: 4,537,528 shares of Common Stock, $.01 par value per share.
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XATA Corporation
INDEX
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements:
Balance Sheets as of
June 30, 2000 and September 30, 1999 3
Statements of Earnings for the Three and Nine
Months Ended June 30, 2000 and 1999 5
Statements of Cash Flows for the Nine
Months Ended June 30, 2000 and 1999 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of
Operation 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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PART I. Item 1. Financial Information
XATA Corporation
BALANCE SHEETS
June 30, 2000 and September 30, 1999
(unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS: 2000 1999
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ -- $ 122,898
Accounts receivable, net 3,328,793 1,740,089
Inventories 796,281 637,713
Prepaid expenses 103,645 123,640
Deferred income taxes 380,000 --
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Total current assets 4,608,719 2,624,340
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Equipment and leasehold improvements, net 381,771 539,934
Other Assets:
Capitalized software development costs, net 5,775,259 4,464,815
Purchased software, net -- 66,656
Goodwill, net -- 116,665
Other 20,069 35,979
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Total other assets 5,795,328 4,684,115
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Total assets $ 10,785,818 $ 7,848,389
============= =============
</TABLE>
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XATA Corporation
BALANCE SHEETS
June 30, 2000 and September 30, 1999
(unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
LIABILITIES AND SHAREHOLDERS' EQUITY: 2000 1999
------------- -------------
<S> <C> <C>
Current Liabilities:
Bank line of credit $ 955,450 $ 237,395
Current maturities of long term debt 144,260 486,140
Accounts payable 2,156,967 1,170,715
Accrued expenses 896,572 728,113
Deferred revenue 813,164 1,118,599
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Total current liabilities 4,966,413 3,740,962
Long term debt, less current portion 815,520 --
Shareholders' Equity:
Preferred stock, 8% convertible 600,000 700,005
Common stock 45,365 44,356
Additional paid-in capital 9,701,805 9,502,255
Accumulated deficit (5,343,285) (6,139,189)
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Total shareholders' equity 5,003,885 4,107,427
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Total liabilities and shareholders' equity $ 10,785,818 $ 7,848,389
============= =============
</TABLE>
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XATA Corporation
STATEMENTS OF EARNINGS
For the Three and Nine Months ended June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Three Month Periods Nine Month Periods
Ended June 30, Ended June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 3,255,099 $ 2,929,051 $ 9,346,528 $ 8,648,048
Cost of sales 2,092,656 1,667,022 5,537,868 4,796,155
------------ ------------ ------------ ------------
Gross profit 1,162,443 1,262,029 3,808,660 3,851,893
Operating expenses 997,977 1,040,141 3,080,909 3,315,643
------------ ------------ ------------ ------------
Operating income 164,466 221,888 727,751 536,250
Non-operating (expense) income:
Interest expense (57,001) (40,250) (124,920) (97,213)
Interest income 425 2,487 2,292 5,434
Other (25,834) (7,154) (154,196) (7,154)
------------ ------------ ------------ ------------
(82,410) (44,917) (276,824) (98,933)
------------ ------------ ------------ ------------
Earnings before income taxes 82,056 176,971 450,927 437,317
Income tax benefit (220,000) -- (380,000) --
------------ ------------ ------------ ------------
Net earnings $ 302,056 $ 176,971 $ 830,927 $ 437,317
============ ============ ============ ============
Net earnings per share
Basic $ 0.06 $ 0.04 $ 0.18 $ 0.10
============ ============ ============ ============
Diluted $ 0.06 $ 0.04 $ 0.17 $ 0.10
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding
Basic 4,535,225 4,418,133 4,481,982 4,418,133
============ ============ ============ ============
Diluted 5,030,538 4,419,239 4,996,267 4,469,894
============ ============ ============ ============
</TABLE>
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XATA Corporation
STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Nine Month Periods
Ended June 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities $ 514,670 $ 1,632,386
------------ ------------
Cash Flows from Investing Activities
Proceeds received on notes receivable 13,719 72,517
Purchase of equipment (50,404) (37,190)
Additions to capitalized software development costs (2,029,609) (1,857,239)
Proceeds from sale of assets 225,000 485,701
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Net cash used in investing activities (1,841,294) (1,336,211)
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Cash Flows from Financing Activities
Net borrowings on bank line of credit 718,055 (223,514)
Proceeds from long-term debt 1,000,000 (8,985)
Payments of long-term debt (526,360) (226,135)
Proceeds from the exercise of common stock options 47,054 --
Proceeds from preferred stock offering -- 650,000
Preferred stock dividends paid (35,023) --
------------ ------------
Net cash provided by financing activities 1,203,726 191,366
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Increase (decrease) in cash and cash equivalents (122,898) 487,541
Cash and Cash Equivalents
Beginning of period 122,898 --
------------ ------------
End of period $ -- $ 487,541
============ ============
</TABLE>
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NOTES TO FINANCIAL STATEMENTS
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NOTE 1. MANAGEMENT STATEMENT
In management's opinion, the accompanying unaudited financial statements contain
all adjustments (consisting of only normal, recurring accruals) necessary to
present fairly the financial position of the Company as of June, 30, 2000 and
the results of operations for the three and nine months ended June 30, 2000 and
1999, and cash flows for the nine month periods ended June 30, 2000 and 1999, in
accordance with the accounting principles generally accepted in the United
States of America. The results of operations for any interim period are not
necessarily indicative of the results for the fiscal year ending September 30,
2000. These interim financial statements should be read in conjunction with the
Company's annual financial statements and related notes thereto included in the
Company's Form 10-KSB and Annual Report to shareholders for the fiscal year
ended September 30, 1999.
NOTE 2. BASIC AND DILUTED PER SHARE
Basic net earnings per common share is computed by dividing net earnings
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per common share reflect the
dilutive effect of stock options, warrants, and assumes the conversion of
preferred stock and related earnings adjustments.
NOTE 3. CORPORATE LIQUIDITY
Management's plans in regard to meeting the Company's working capital needs in
fiscal 2000 include cash from operations, utilization of its $2 million bank
line of credit and current vendor terms. These should provide adequate cash to
fund operations for the foreseeable future if investments in product development
and other operating costs are strictly controlled. Any significant new product
development in the near term will require external funding. On April 20, 2000,
the Company borrowed $1 million from a corporate entity pursuant to a five year
promissory note. The note carries an interest rate of two percent over prime (an
effective rate of 11.5% as of June 30, 2000) and is secured by the Company's
equipment and leasehold improvements and inventories. Principal and interest are
paid monthly.
It is possible that the Company's cash needs may vary significantly from its
projections, due to failure to generate anticipated cash flow, growth at a rate
faster than anticipated or other reasons. No assurance can be given that the
Company's predictions regarding its cash needs will prove accurate and there can
be no assurance that current financial arrangements will be sufficient or that
additional financing, if needed, can be obtained on terms acceptable to the
Company.
NOTE 4. INCOME TAXES
Each quarter, the Company reviews the valuation allowance it has established on
its deferred tax assets. The Company believes it will realize an income tax
benefit for a portion of its net operating loss carryforward. However, because
of the uncertainties involved in projecting taxable income far into the future,
the Company has recorded net deferred tax assets and reduced the amount of the
valuation allowance by $380,000 to reflect its estimate of the amount of
deferred tax assets it believes is more likely than not will be realized. The
Company established the net deferred tax asset using an estimate of taxable
earnings over
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a future time horizon of two years. Realization of deferred tax assets is
dependent on future taxable income during the periods when deductible temporary
differences and carryforwards are expected to be available to reduce taxable
income. The amount of the net deferred tax assets considered realizable could be
reduced in the future if actual future taxable income is lower than estimated,
or if there are differences in the timing or amount of future reversals of
existing taxable temporary differences.
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PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company's results of
operation and financial condition. This discussion should be read in conjunction
with the financial statements in Item 1, the Company's report on Form 10-KSB and
Annual Report to Shareholders for the fiscal year ended September 30, 1999.
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the three months ended June 30, 2000
increased 11.1% to $3,255,099, compared to sales of $2,929,051 for the
comparable three month period ended June 30, 1999. Net sales for the nine months
ended June 30, 2000 increased 8.1% to $9,346,528 from the comparable nine months
ended June 30, 1999. The increase in net sales for the three and nine months
ended June 30, 2000 was due to higher unit sales prices, including software, and
higher services revenues, specifically custom development projects related to
the Company's partnership arrangements with Symbol Technologies, Inc and
QualComm, Inc. These increases were partially offset by slightly lower unit
sales and by higher discount levels. The Company anticipates that sales for
fourth quarter fiscal 2000 will be approximately the same as fourth quarter
fiscal 1999.
GROSS PROFIT. The Company had a gross profit of $1,162,443 (35.7% of net sales)
for the three months ended June 30, 2000, compared to a gross profit of
$1,262,029 (43.1% of net sales) for the same period in 1999. The nine month
totals were $3,808,660 (40.7% of net sales) and $3,851,893 (44.5% of net sales)
respectively. The decrease in gross profit percentage is due primarily to the
costs associated with the custom development projects, an increase in the number
of systems sold using the Mobile Application Server (MAS) (a change in product
mix), higher product discount levels and an increase in the amortization of
capitalized software development costs allocated to cost of sales. The Company
anticipates that the gross profit margin for fiscal 2000, as a percent of sales,
will be slightly lower than fiscal 1999.
OPERATING EXPENSES. Operating expenses include research and development, selling
expenses and general and administrative expenses. Total operating expenses were
$997,977 for the three month period ended June 30, 2000 (30.7% of net sales)
compared to $1,040,141 (35.5% of net sales) for the comparable prior year
period. The nine month totals were $3,080,909 (32.9% of net sales) and
$3,315,643 (38.3% of net sales), respectively.
Operating expenses other than research and development were $845,724 (26.0% of
net sales) for the three month period ended June 30, 2000 compared to $849,733
(29.0% of net sales) for the comparable prior year period. The nine month totals
were $2,598,521 (27.8% of net sales) and $2,598,871 (30.1% of net sales),
respectively. For the three month period ended June 30, 2000, compared to the
same period last year, increases in outside services, facilities and
depreciation and amortization were offset by decreases in salaries and wages and
employee benefits. For the nine month period ended June 30, 2000, compared to
the same period last year, increases in outside services were partially offset
by lower employee expense. The Company expects that operating expenses other
than research and development for fiscal 2000 will be approximately the same as
fiscal 1999.
The Company's market position is based on its strong research capability and its
technology leadership, as evidenced by its growing customer base. Expenditures
for research and development are included in operating expenses and are charged
to operations as incurred. Research and development expenses during the three
and nine months ended June 30, 2000 were $152,253 and $482,388 respectively.
During the same periods in fiscal 1999, research and development expenditures
were $191,408 and $548,747, respectively. The decrease from the prior year
periods occurred as the result of fewer scheduled projects. Software
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development costs are capitalized after the establishment of technological
feasibility of new products. Capitalized software development costs are
amortized to cost of sales over the expected useful life of the product,
beginning when the product is first made available to the general public. The
recoverability of capitalized costs is evaluated each quarter. Software
development costs of $614,624 were capitalized for the three month period ended
June 30, 2000, and $2,331,609, which includes a non-cash expense of $302,000,
were capitalized for the nine months ended June 30, 2000. This compares to
$689,938 and $1,857,239 for the comparable three and nine month periods in
fiscal 1999. The increase for the nine months ended June 30, 2000 is primarily
due to continuing development of the JAVALAN system. The Company anticipates
that expenditures for capitalized software development for fiscal 2000 will be
slightly higher than fiscal 1999.
INTEREST AND OTHER INCOME AND EXPENSES. Interest expense, net of interest
income, for the three month period ended June 30, 2000 was $56,576 compared to
$37,763 in the comparable prior year period. For the nine month periods ended
June 30, 2000 and 1999, net interest expense was $122,628 and $91,779,
respectively. Other expense for the three month period ended June 30, 2000 was
$25,834 compared to $7,154. For the nine month periods ended June 30, 2000 and
1999, other expense was $154,196 and $7,154, respectively. The Company
anticipates that net interest expense will continue to increase as the bank line
of credit is used to support software development programs. On December 30, 1999
the Company sold its RouteView product line for $225,000, resulting in a loss of
approximately $90,000. Other expense also includes $60,000 in fees to John G.
Kinnard & Company, an investment banker, for its efforts in assisting the
Company in assessing various alternatives. Notice of the Company's intention to
terminate the agreement with John G. Kinnard was given on June 27, 2000.
Termination became effective on July 12, 2000.
INCOME TAXES. Each quarter, the Company reviews the valuation allowance it has
established on its deferred tax assets. The Company believes it will realize an
income tax benefit for a portion of its net operating loss carryforward.
However, because of the uncertainties involved in projecting taxable income far
into the future, the Company recorded net deferred tax assets and reduced the
amount of the valuation allowance, during the three month period ended June 30,
2000, by $220,000 and for the nine months ended June 30, 2000 by $380,000, to
reflect its estimate of the amount of deferred tax assets it believes will more
likely than not be realized. The Company established the net deferred tax asset
using an estimate of taxable earnings over a future time horizon of two years.
Realization of deferred tax assets is dependent on future taxable income during
the periods when deductible temporary differences and carryforwards are expected
to be available to reduce taxable income. The amount of the net deferred tax
assets considered realizable could be reduced in the future if actual future
taxable income is lower than estimated, or if there are differences in the
timing or amount of future reversals of existing taxable temporary differences.
NET EARNINGS. The Company recorded net earnings of $302,056 for the three month
period ended June 30, 2000, compared to net earnings of $176,971 for the same
period in 1999. For the nine month period ended June 30, 2000 net earnings were
$830,927 compared to $437,317 for the comparable period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had a working capital deficit of $357,694 compared
to a deficit of $1,116,622 at September 30, 1999.
Cash flows provided by operating activities during the nine months ended June
30, 2000 totaled $514,670 compared to $1,632,386 for the same period a year ago.
Cash provided by operations for the nine months
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ended June 30, 2000 was primarily the result of net earnings before income tax
benefit of $450,927, non cash expenses (depreciation and amortization) of
$949,858, a non cash expense of $53,500 for a cashless exercise of common stock
warrant, an increase in accounts payable of $986,252 and an increase in accrued
expenses of $168,459. These were partially offset by the cash affect of a
decrease in deferred revenue of $355,435, an increase in accounts receivable of
$1,588,704 and an increase in inventories of $158,568.
Cash flows used in investing activities were $1,841,294 for the nine months
ending June 30, 2000 compared to $1,336,211 during the same period last year.
The cash used in investing activities was primarily for capitalized software
development costs and the purchase of equipment. These were partially offset by
the proceeds from the sale of assets.
Cash flows provided by financing activities were $1,203,726 during the nine
months ended June 30, 2000 compared to cash provided by financing activities of
$191,366 during the same period a year ago. The increase was due to additional
use of the Company's bank line of credit and cash received from the issuance of
a promissory note.
During fiscal 2000, cash will be required to meet working capital needs,
including inventories and accounts receivable financing, sales and marketing
expenditures, customer support, continuing research and development expenses and
capital expenditures. The Company believes that cash from operations,
utilization of its bank line of credit, current vendor terms and the $1 million
five year note will provide adequate cash to fund the delivery of its
anticipated revenues and development needs for the foreseeable future. The
Company's future cash flows from operations may, however, vary depending on a
number of factors including the level of competition, general economic
conditions as well as other factors beyond its control. Any significant new
product development in the near term will require external funding. No assurance
can be given that the Company's projections for cash needs will prove accurate
or that the Company will not require additional funding. The Company may not be
able to secure additional funding when needed or at all, and such financing, if
available, may not be on terms favorable or acceptable to the Company.
FORWARD-LOOKING STATEMENTS
THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS.
ACTUAL RESULTS MAY DIFFER MATERIALLY. THESE FORWARD-LOOKING STATEMENTS INVOLVE A
NUMBER OF RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THE RECEIPT AND
SHIPPING OF NEW ORDERS FOR THE COMPANY'S CURRENT PRODUCTS; THE TIMELY
INTRODUCTION AND MARKET ACCEPTANCE OF NEW PRODUCTS; RESEARCH AND DEVELOPMENT
FUNDING AT THE LEVELS REQUIRED AND THE ABILITY TO SECURE AND MAINTAIN STRATEGIC
PARTNER RELATIONSHIPS.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes In Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
Subsequent Events - None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
* Exhibit 11 - Earnings Per Share
* Exhibit 27 - Financial Data Schedule
Form 8-K - None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: August 14, 2000 XATA Corporation
----------------- (Registrant)
by: /s/ Gary C. Thomas
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Gary C. Thomas
Chief Financial Officer
(Signing as Principal Financial and
Accounting Officer and as Authorized)
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