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 March 31, 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
----------------------------------------------
XATA Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1641815
- ------------------------------------ ------------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or Organization)
151 E. Cliff Road, Suite 10, Burnsville, Minnesota 55337
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (612) 894-3680
-------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 10, 2000 the following securities of the Registrant were outstanding:
4,530,361 shares of Common Stock, $.01 par value per share.
<PAGE>
XATA Corporation
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements:
Balance Sheets as of
March 31, 2000 and September 30, 1999 3
Statements of Earnings for the Three and Six
Months Ended March 31, 2000 and 1999 5
Statements of Cash Flows for the Six
Months Ended March 31, 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
</TABLE>
2
<PAGE>
PART I. Item 1. Financial Information
XATA Corporation
BALANCE SHEETS
March 31, 2000 and September 30, 1999
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS: 2000 1999
---------- ----------
(unaudited) (audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 66,740 $ 122,898
Accounts receivable, net 2,352,837 1,740,089
Inventories 1,044,161 637,713
Prepaid expenses 92,514 123,640
Deferred income tax 160,000 0
---------- ----------
Total current assets 3,716,252 2,624,340
Equipment and leasehold improvements, net 440,459 539,934
Other Assets:
Capitalized software development costs, net 5,736,835 4,464,815
Purchased software, net 0 66,656
Goodwill, net 0 116,665
Other 27,717 35,979
---------- ----------
Total other assets 5,764,552 4,684,115
Total assets $9,921,263 $7,848,389
========== ==========
</TABLE>
3
<PAGE>
XATA Corporation
BALANCE SHEETS
March 31, 2000 and September 30, 1999
<TABLE>
<CAPTION>
March 31, September 30,
LIABILITIES AND SHAREHOLDERS' EQUITY : 2000 1999
----------- -----------
(unaudited) (audited)
<S> <C> <C>
Current Liabilities:
Bank line of credit $ 760,792 $ 237,395
Current maturities of long term debt 332,884 486,140
Accounts payable 2,242,339 1,170,715
Accrued expenses 680,503 728,113
Deferred revenue 1,268,395 1,118,599
----------- -----------
Total current liabilities 5,284,913 3,740,962
Shareholders' Equity:
Preferred stock, 8% convertible 600,000 700,005
Common stock 45,125 44,356
Additional paid-in capital 9,628,544 9,502,255
Accumulated deficit (5,637,319) (6,139,189)
----------- -----------
Total shareholders' equity 4,636,350 4,107,427
----------- -----------
Total liabilities and shareholders' equity $ 9,921,263 $ 7,848,389
=========== ===========
</TABLE>
4
<PAGE>
XATA Corporation
STATEMENTS OF EARNINGS
For the Three and Six Months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended March 31, Ended March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 3,162,783 $ 3,366,664 $ 6,091,429 $ 5,718,998
Cost of sales 1,830,361 1,819,575 3,445,212 3,129,133
----------- ----------- ----------- -----------
Gross profit 1,332,422 1,547,089 2,646,217 2,589,865
Operating expenses 1,039,499 1,194,436 2,082,932 2,275,503
----------- ----------- ----------- -----------
Operating income 292,923 352,653 563,285 314,362
Non-operating (expense) income:
Interest expense (41,488) (39,589) (67,919) (81,390)
Interest income 1,321 450 1,867 2,946
Other (18,675) 24,428 (128,362) 24,428
----------- ----------- ----------- -----------
(58,842) (14,711) (194,414) (54,016)
----------- ----------- ----------- -----------
Earnings before income taxes 234,081 337,942 368,871 260,346
Income tax benefit (160,000) 0 (160,000) 0
----------- ----------- ----------- -----------
Net earnings $ 394,081 $ 337,942 $ 528,871 $ 260,346
=========== =========== =========== ===========
Net earnings per share
Basic $ 0.09 $ 0.08 $ 0.11 $ 0.06
=========== =========== =========== ===========
Diluted $ 0.08 $ 0.08 $ 0.11 $ 0.06
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding
Basic 4,475,597 4,418,133 4,455,506 4,418,133
=========== =========== =========== ===========
Diluted 5,014,648 4,460,298 4,983,528 4,459,582
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
XATA Corporation
STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Six Month Periods
Ended March 31,
2000 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
----------- -----------
Cash Flows from Operating Activities $ 788,381 $ 1,510,219
----------- -----------
Cash Flows from Investing Activities
Proceeds received on notes receivable 9,072 81,078
Purchase of equipment (46,708) (50,870)
Additions to capitalized software development costs (1,414,985) (1,167,301)
Proceeds from sale of assets 225,000 485,701
----------- -----------
Net cash used in investing activities (1,227,621) (651,392)
----------- -----------
Cash Flows from Financing Activities
Net borrowings on bank line of credit 523,397 (483,071)
Proceeds from long-term debt 0 (8,985)
Payments of long-term debt (153,256) (153,089)
Proceeds from the exercise of common stock options 27,054 0
Preferred stock dividends paid (14,113) 0
----------- -----------
Net cash provided by (used in) financing activities 383,082 (645,145)
----------- -----------
Increase (decrease) in cash and cash equivalents (56,158) 213,682
Cash and Cash Equivalents
Beginning period 122,898 0
----------- -----------
Ending period $ 66,740 $ 213,682
=========== ===========
</TABLE>
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. MANAGEMENT STATEMENT
In the opinion of management of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal,
recurring accruals) necessary to present fairly the financial position of the
Company as of March 31, 2000 and the results of operations and cash flows for
the three and six month periods ended March 31, 2000 and 1999. 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 bank line of credit
and current vendor terms. This 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 and is secured
by the Company's fixed assets and inventory. 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
During the three month period ended March 31, 2000, the Company re-evaluated the
valuation allowance it had previously established on its deferred tax assets.
The Company now believes it will realize an income tax benefit for at least 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 $160,000 to reflect its estimate of the amount of
deferred tax assets it believes is more likely than not will be realized.
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
7
<PAGE>
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.
8
<PAGE>
PART I ITEM 2. Management's discussion and analysis or plan of operation. The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company's results of
operation and financial condition. This discussion should be read in conjunction
with the financial statements in Item 1 and the Company's report on Form 10-KSB
for the period ended September 30, 1999.
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the three months ended March 31, 2000
decreased 6.1% to $3,162,783 as compared to sales of $3,366,664 for the
comparable three month period ended March 31, 1999. Net sales for the six months
ended March 31, 2000 increased 6.5% to $6,091,429 from the comparable six months
ended March 31, 1999. The decrease in net sales for the three months ended March
31, 2000 was due to slightly lower unit sales prices partially offset by higher
service revenues. The increase for the six months ended March 31, 2000 was
primarily due to higher software and service revenues. The Company anticipates
that total revenue for fiscal 2000 will exceed fiscal 1999 levels.
GROSS PROFIT. The Company had a gross profit of $1,332,422 (42.1% of net sales)
for the three months ended March 31, 2000, compared to a gross profit of
$1,547,089 (46.0% of net sales) for the same period in 1999. The six month
totals were $2,646,217 (43.4% of net sales) and $2,589,865 (45.3% of net sales)
respectively. The decrease in gross profit percentage is due primarily to higher
material costs and an increase in the amortization of capitalized software
development costs allocated to cost of sales.
OPERATING EXPENSES. Operating expenses include research and development, selling
expenses and general and administrative expenses. Total operating expenses were
$1,039,499 for the three month period ended March 31, 2000 (32.9% of net sales)
compared to $1,194,436 (35.5% of net sales) for the comparable prior year
period. The six month totals were $2,082,932 (34.2% of net sales) and $2,275,503
(39.8% of net sales), respectively.
Operating expenses other than research and development were $889,981 (28.1% of
net sales) for the three month period ended March 31, 2000 compared to $954,335
(28.3% of net sales) for the comparable prior year period. The six month totals
were $1,752,797 (28.8% of net sales) and $1,749,138 (30.6% of net sales),
respectively. The decrease of $64,354 for the three month period ended March 31,
2000, compared to the same period last year, is due to lower employee expenses.
These were offset partially by increases in outside services, office and
engineering supplies and depreciation and amortization expenses. The Company
expects that operating expenses for fiscal 2000 will be the same or slightly
lower than 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 six months ended March 31, 2000 were $149,518 and $330,135 respectively.
During the same periods in fiscal 1999, research and development expenditures
were $240,101 and $357,239, respectively. The decrease from the prior year
periods occurred as the result of fewer new scheduled projects. Software
development costs are capitalized after the establishment of technological
feasibility of new products. Capitalized software development costs are
amortized to cost of sales over the expected useful life of the product,
beginning when first made available to the general public. The recoverability of
capitalized costs is evaluated each quarter. Software development costs of
$714,230 were capitalized for the three month period ended March 31, 2000, and
$1,716,985, which includes a non-cash expense of $302,000, were
9
<PAGE>
capitalized for the six months ended March 31, 2000. This compares to $469,378
and $1,167,301 for the comparable three and six month periods in fiscal 1999.
The increase is primarily due to continuing development of the JAVALAN system.
The Company anticipates that expenditures for research and development and
capitalized software development for fiscal 2000 will remain at approximately
the same level as fiscal 1999.
INTEREST AND OTHER INCOME AND EXPENSES. Net interest expense for the three month
period ended March 31, 2000 was $40,167 compared to $39,139 in the comparable
prior year period. For the six month periods ended March 31, 2000 and 1999, net
interest expense was $66,052 and $78,444, respectively. Other expense includes
$30,000 in fees paid to John G. Kinnard & Co., an investment banker, for its
efforts in assisting the Company in assessing various alternatives. In addition,
on December 30, 1999 the Company sold its RouteView product line for $225,000,
resulting in a loss of approximately $90,000. The Company anticipates that net
interest expense will continue to increase as the bank line of credit is used to
support software development programs.
INCOME TAXES. During the three month period ended March 31, 2000, the Company
re-evaluated the valuation allowance it had previously established on its
deferred tax assets. The Company now believes it will realize an income tax
benefit for at least 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 $160,000 to reflect its estimate of the amount of
deferred tax assets it believes is more likely than not will be realized.
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 $394,081 for the three month
period ended March 31, 2000, compared to net earnings of $337,942 for the same
period in 1999. For the six month period ended March 31, 2000 net earnings were
$528,871 compared to $260,346 for the comparable period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had a working capital deficit of $1,568,661
compared to a deficit of $1,116,622 at September 30, 1999.
Cash flows provided by operating activities during the six months ended March
31, 2000 totaled $788,381 compared to $1,510,219 for the same period a year ago.
Cash provided by operations for the six months ended March 31, 2000 was
primarily the result of net earnings before income tax benefit of $369,871, non
cash expenses (depreciation and amortization) of $610,110, an increase in
accounts payable of $769,624 and the cash affect of an increase in deferred
revenue of $99,796. These were partially offset by an increase in accounts
receivable of $619,885, an increase in inventory of $406,448 and other working
capital items of $34,687.
Cash flows used in investing activities were $1,227,621 for the six months
ending March 31, 2000 compared to $651,392 during the same period last year. The
cash used in investing activities was
10
<PAGE>
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 $383,082 during the six months
ended March 31, 2000 compared to cash used in financing activities of $645,145
during the same period a year ago. The increase was due to additional use of the
Company's bank line of credit.
During fiscal 2000, cash will be required to meet working capital needs,
including inventory and accounts receivable financing, sales and marketing
expenditures, customer support, continuing research and development expenses and
capital expenditures. The Company believes that 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.
11
<PAGE>
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 -
The annual meeting of shareholders of the Company was held on
February 23, 2000. As of the record date, December 28, 1999
there were 4,435,633 shares of Common Stock issued and
outstanding. There were present and voting at the meeting, in
person or by proxy, 4,226,420 shares of Common Stock
(approximately 95% of the total issued and outstanding).
Matters voted upon and results thereof are as follows:
1.Election of Directors:
FOR WITHHELD
Dennis R. Johnson 4,029,810 196,610
William P. Flies 4,214,965 11,455
Carl M. Fredericks 4,165,873 60,547
Roger Kleppe 4,173,173 53,247
Stephen Lawrence 4,188,953 37,467
2. Ratification of appointment of Grant Thornton LLP as the
independent auditors of the Company for the year ending
September 30, 2000:
FOR 4,218,494 AGAINST 6,026 ABSTAIN 1,900
-------------- ------------- -------
Item 5. Other Information
Subsequent Events -- 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 and is secured by the
Company's fixed assets and inventory. Principal and
interest are paid monthly.
Item 6. Exhibits and Reports on Form 8-K
o Exhibit 11 - Earnings Per Share
o Exhibit 27 - Financial Data Schedule
Form 8-K - None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 12, 2000 XATA Corporation
---------------- (Registrant)
by: /s/ Gary C. Thomas
---------------------
Gary C. Thomas
Chief Financial Officer
(Signing as Principal Financial and
Accounting Officer and as Authorized)
13
EXHIBIT 11
XATA Corporation
Earnings per Share
Three and Six months Ending March 31, 2000
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
------------- -------------
<S> <C> <C>
BASIC COMPUTATION
Net earnings $ 394,081 $ 528,871
Less: Preferred Stock dividend 12,888 $ 27,001
------------- -------------
Earnings available to common shareholders $ 381,193 $ 501,870
------------- -------------
Weighted average shares outstanding 4,475,597 4,455,506
------------- -------------
BASIC EARNINGS PER SHARE $ 0.09 $ 0.11
============= =============
DILUTED COMPUTATION
Net earnings available to common shareholders $ 381,193 $ 501,870
Plus: Preferred Stock dividend (assumed conversion) 12,888 $ 27,001
Earnings available to common shareholders ------------- -------------
plus assumed conversions $ 394,081 $ 528,871
------------- -------------
Weighted average shares outstanding 4,475,597 4,455,506
Common stock equivalents * 539,051 528,022
------------- -------------
Weighted average shares outstanding
plus equivalents 5,014,648 4,983,528
------------- -------------
DILUTED EARNINGS PER SHARE $ 0.08 $ 0.11
============= =============
</TABLE>
* includes 433,340 and 450,090 shares underlying the Company's Series A
Convertible Preferred Stock for the Three and Six Months Ending March 31,
2000, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 66,740
<SECURITIES> 0
<RECEIVABLES> 2,602,668
<ALLOWANCES> 249,831
<INVENTORY> 1,044,161
<CURRENT-ASSETS> 3,716,252
<PP&E> 2,063,930
<DEPRECIATION> 1,623,471
<TOTAL-ASSETS> 9,921,263
<CURRENT-LIABILITIES> 5,284,913
<BONDS> 0
0
600,000
<COMMON> 45,125
<OTHER-SE> 3,991,225
<TOTAL-LIABILITY-AND-EQUITY> 9,921,263
<SALES> 6,091,429
<TOTAL-REVENUES> 6,091,429
<CGS> 3,445,212
<TOTAL-COSTS> 2,082,932
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,052
<INCOME-PRETAX> 368,871
<INCOME-TAX> (160,000)
<INCOME-CONTINUING> 528,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 528,871
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
