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EX-23 - EX-23 - XRS Corp | c55145exv23.htm |
EX-31.1 - EX-31.1 - XRS Corp | c55145exv31w1.htm |
EX-32.1 - EX-32.1 - XRS Corp | c55145exv32w1.htm |
EX-32.2 - EX-32.2 - XRS Corp | c55145exv32w2.htm |
EX-31.2 - EX-31.2 - XRS Corp | c55145exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2009
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] |
For the transition period from to
Commission File Number 0-27166
XATA Corporation
(Exact name of registrant as specified in its charter)
Minnesota | 41-1641815 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
965 Prairie Center Drive | 55344 | |
Eden Prairie, Minnesota | (Zip Code) | |
(Address of principal executive offices) |
Registrants telephone number, including area code:
(952)707-5600
(952)707-5600
Securities registered pursuant to Section 12(b) of the Act:
(Title of Class) | (Name of each exchange on which registered) | |
Common Stock, $0.01 par value per share | Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act:
None
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. o Yes þ No
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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act (Check one):
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o (Do not check if a smaller reporting company) | Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
As of March 31, 2009, the aggregate market value of the registrants common stock held by
non-affiliates of the registrant was $12,200,000 based on the last transaction price as reported on
the Nasdaq Capital Market on such date. This calculation does not reflect a determination that
certain persons are affiliates of the registrant for any other purposes.
The number of shares of common stock outstanding on December 1, 2009 was 8,787,994.
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the
definitive proxy statement for the Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission not later than 120 days after the end of the fiscal year covered by this
report.
TABLE OF CONTENTS
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Forward Looking Statements
Statements contained in this Report that are not statements of historical fact should be considered
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Examples of forward-looking statements include, but are not limited to: (i) projections of
revenue, income or loss, the payment or nonpayment of dividends, capital structure and other
statements concerning future financial performance; (ii) statements of our plans and objectives by
our management or Board of Directors, including those relating to products or services; (iii)
statements of assumptions underlying such statements; (iv) statements regarding business
relationships with vendors, customers or collaborators; and (v) statements regarding products,
their characteristics, performance, sales potential or effect in the hands of customers. Words such
as believes, anticipates, expects, intends, targeted, should, potential, goals,
strategy, and similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ
materially from those in such statements. Factors that could cause actual results to differ from
those discussed in the forward-looking statements include, but are not limited to, the risk factors
described in Item 1A of Part I of this Report, as updated or supplemented by risk factors described
in future documents we file with the SEC (including reports on Form 10-Q and 8-K). The performance
of our business and our securities may be adversely affected by these factors and by other factors
common to other businesses and investments, or to the general economy. You should consider these
factors with caution and form your own independent conclusions about the likely effect of these
factors on any forward-looking statement, and on our future performance in general. Forward-looking
statements speak only as of the date on which such statements are made, and we undertake no
obligation to update any forward-looking statement to reflect events or circumstances after the
date on which such statement is made.
PART I
Item 1. Business
About XATA
We are one of the leading providers of fleet management solutions to the truck transportation
industry. Our innovative technologies and value-added services are intended to enable customers to
optimize the utilization of their assets and enhance the productivity of fleet operations across
the entire supply chain, resulting in decreased costs, improved compliance with U.S. Department of
Transportation (DOT) regulations, increased competitive advantage, and enhanced customer service.
Founded in 1985, XATA has leveraged over 20 years of experience developing solutions for North
Americas premier trucking fleets. That knowledge has resulted in a clear understanding of the
features and functions that matter most to transportation executives, fleet operators and drivers.
We were the first company to provide completely paperless electronic logs, exception-based
management reporting and learned standards for accurate business intelligence. Our products combine
enterprise software, mobile technology, real-time communications and global positioning systems
(GPS) to provide an enterprise logistics management solution for private and for-hire fleet
operators.
| Our first-generation products, introduced in the early 1990s, included our revolutionary touch-screen Driver Computer and PC-based Fleet Management System software. Valuable data was downloaded from driver computers to the fleet management system host software in batch mode via our patented driver key for compliance reporting and analysis. | ||
| In 1999, we introduced OpCenter, a Microsoft Windows-based customer-hosted system that can manage multiple operation centers and users over a wide area network. |
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| In 2004, we introduced XATANET, our next-generation Web-based system. Over the past several years we have invested heavily in product enhancements and additional software applications to ensure that XATANET continues to meet the needs of fleet operators. We believe that the XATANET platform enables us to service approximately 3.2 million medium and heavy duty vehicle private fleet transportation market. | ||
| In 2008, XATA completed its acquisition of GeoLogic Solutions, Inc., which provides the commercial trucking industry with wireless asset management solutions in the for-hire segment of the over-the-road transportation sector. | ||
| In 2009, XATA partnered with Digi International to deliver a state-of-the-art on-truck hardware to support XATAs next-generation onboard communications technology. Under the agreement, Digi will deliver iDigi services and a range of cellular and satellite communications products to meet XATAs technology and connectivity needs for the for-hire and private fleet trucking marketplaces. | ||
| In December 2009, the Company acquired Turnpike Global Technologies, Inc. and Turnpike Global Technologies LLC (combined Turnpike). Turnpikes RouteTracker products allow us to continue our growth strategy by expanding our addressable market to include small and medium-size fleets in North America and key vertical markets, such as Less Than Truckload (LTL), and the automation of fuel tax reporting. |
Trucking Industry Background and Trends
Private fleets and for-hire carriers comprise the two major fleet categories within the commercial
trucking industry. Private fleets include manufacturers, wholesalers, retailers and other
companies who transport their own goods using equipment they own or lease. For-hire carriers
include truckload and less-than-truckload carriers whose primary business is the transportation of
freight that belongs to others.
Commercial trucking fleets are characterized by considerable investment in equipment, high
operating costs, significant annual mileage per vehicle and extensive federal and state compliance
reporting requirements. Costs for equipment, drivers, fuel, insurance, maintenance, and support
personnel make the efficient operation of each vehicle an essential and complex part of fleet
management. Accordingly, accurate and timely data collection and analysis enables managers of
truck fleets to reduce operating costs, utilize assets efficiently and improve delivery times. We
believe there is, and will continue to be, significant demand in the trucking industry for fleet
management systems, principally because the use of this technology enables fleet operators to
reduce expenses, maintain compliance standards and improve customer service.
We believe the following trends continue to impact the trucking industry, resulting in increasing
competitive pressures and demand for mobile information technology:
| Increased operating costs: Driver salaries, fuel, insurance, and other operating costs continue to fluctuate. Recent challenging economic conditions have also increased the need for cost saving efforts. These trends encourage operators to utilize onboard information systems to control costs and more effectively manage their fleets, including fleet consolidation in order to optimize asset utilization. | ||
| Government regulations: DOT driver log requirements have become more stringent. The Federal Motor Carrier Safety Administration (FMCSA), an administration within the DOT, implemented new driver hours-of-service rules in January 2004, tightening driver work rules. These rules were challenged in federal court and the FMSCA issued revised rules effective October 1, 2005. On November 19, 2008, the FMCSA published a final rule adopting the provisions of its December 17, 2007, interim final rule on the hours-of-service rules. The final regulation took effect on January 19, 2009. This final rule allows commercial motor vehicle (CMV) drivers to continue to drive up to 11 hours within a 14-hour, non-extendable window from the start of the workday, following at least 10 consecutive hours off duty (11-hour rule). This rule has currently been issued a court ruling, due to pressure from groups such as Public Citizen, which has required the FMCSA to develop and produce alternatives to |
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this 11-hour rule within the next 9 months and have an amended regulation published within the next year. | |||
The FMCSA is currently in the processes of issuing a new regulation in the use of Electronic Onboard Recorders (EOBRs) to increase hours-of-service compliance and compliance-related highway safety. Because of illegal paper log adjustments, the FMCSA would like to mandate the use of EOBRs for drivers with poor safety records, while providing additional incentives for those who will switch voluntarily. These logbooks could be used to force drivers to adhere to the hour-of-service restrictions and save time by no longer using the paper log. In 1997, FMCSA issued a memorandum limiting the use of advanced technology in compliance reviews and enforcement. On November 19, 2008, FMCSA issued a policy change that rescinded the 1997 memorandum. We believe the change in policy will make computer-generated driver logs and EOBRs systems more widely accepted and eventually result in federal or state government mandates. This regulation is currently published to go to the White House Office of Management and Budget in the next 60 days. | |||
As of December 3, 2009, the FMCSA has issued a New Proposed Rule Making on the EOBR Supporting Documents to go in conjunction with the New Regulation for EOBR in commercial motor vehicles. This concerns all documents that are defined to support HOS DOT audits. | |||
Additionally, states require trucks to pay state fuel taxes based on the amount of fuel consumed in their state. To comply with these regulations, drivers must record state border crossing 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 processor of the carriers fuel tax returns. In order to comply with these requirements, records must be maintained at the fleet home base as well as at the carriers headquarters. Records must also be readily available for federal regulators to review fuel tax compliance. Our systems are designed to automate compliance with each of these regulatory requirements. | |||
Furthermore, there is increased pressure, by a variety of federal and state government agencies, to implement environmental, green regulations to reduce the countrys carbon footprint and greenhouse gas emissions. Policies that may be favored by environmental concerns include a national speed limit of 65 miles per hour for all trucks, decreased idling, reducing highway congestion and other policies that seek to get more value out of every gallon of fuel burned. In order to comply with any such requirements, records will need to be maintained and be available for federal and state regulators to review. Our systems can help with the monitoring of these types of environmental components. | |||
| New technologies: Affordability, simplicity and acceptance of new wireless communications and internet technologies have historically proven to be barriers for customers to purchase our solutions. New technologies are helping to reduce these barriers. | ||
| Safety and security concerns: Since the terrorist attacks of September 11, 2001, public authorities and fleet operators have become more acutely interested in technology solutions to increase the safety and security of their drivers and cargo. This is especially true for companies transporting petroleum products and other hazardous loads. | ||
| Mobile technology: As companies increasingly rely on just-in-time inventory management and seek to control and monitor inventories throughout their entire supply chain, they demand better service and increased capabilities from their trucking operators and vendors. In addition, as companies increasingly adopt mobile technologies, including the internet, to reduce communication costs, paperwork and processing times, trucking operators are adopting technology to comply with the operating processes and systems of their customers. |
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This trend encourages integration of mobile technology with the host information systems of trucking fleet operators. |
Our Products and Services
XATA provides a total fleet optimization solution, including hardware, software and services.
XATAs primary sources of revenue are its XATANET and MobileMax products. XATANET is a
software-as-a-service (SaaS) solution for which XATA receives a monthly per-truck subscription fee.
MobileMax is a hosted solution whose software revenue is derived from monthly per-truck
communications service fees.
XATANET Fleet Management System
XATANET is a powerful, advanced, yet user-friendly, software-as-a-service (SaaS) system used by
manufacturing, grocery, food service, distribution, petroleum and other operators of trucking
fleets to reduce fuel costs, increase operational efficiencies, enhance customer service and
improve safety and compliance.
As a SaaS system, the XATANET software application delivery model operates for use by its customers
over the Internet and customers pay a monthly subscription fee. The benefits of XATAs SaaS
delivery model is the decrease in customers in-house IT hardware and software resources, faster
implementation time compared to on-site products, automatic upgrades to the most current software
levels and access with an internet browser anywhere, anytime.
Through its web-based design, XATANET performs the following functions to enable fleet operators to
control costs and maximize vehicle and driver performance:
| Automation of DOT driver log requirements and state fuel tax reporting. | ||
| Comprehensive vehicle and driver performance reporting. | ||
| Real-time asset tracking, route management, trip optimization and stop activity scheduling. | ||
| Mobile two-way messaging and real-time vehicle location. | ||
| Diagnostic and accident data capture. |
XATANET integrates mobile technology, driver displays and cost-effective communications with a
suite of powerful, web-based applications delivered on-demand via the Internet. XATANET combines
the data generated within the truck as well as data received wirelessly into a web-based user
interface, enabling fleet managers to measure fleet performance, resolve exception conditions,
monitor ongoing operations and perform detailed analysis.
XATANET is ideal for organizations that seek to eliminate the startup costs and lengthy
implementation times typically associated with fleet management solutions. XATANET allows fleets
of all sizes to install, utilize and pay for only those applications that benefit their
organization today, gaining immediate value at a lower cost of entry, while retaining the ability
to expand their use as fleet operations evolve.
A XATANET solution is composed of these primary components:
| Mobile Applications: These core XATANET applications provide for the optimization of fleet operations, including electronic driver logs, automated fuel tax, driver and vehicle management. The mobile environment is designed with easy integration with third-party complementary applications such as proof of delivery, navigation, and routing systems. XATA provides onboard, rugged, mobile computing platforms that connect to the engine, gathering vehicle and diagnostic information. |
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| Driver Displays: Touch-screen driver displays are mounted in the cab of the truck capturing and communicating fleet performance information. With the ability to monitor fuel economy, estimated time of arrival (ETA), and regulatory compliance drivers can help ensure the fleet reaches optimum performance levels. | ||
| Wireless Communications: XATANET systems use patented technologies that utilize lowest-cost communication methods synchronizing trip and driver data with maximum efficiency. Our multi-mode systems combine CDMA 1xRTT and satellite wireless networks to provide no-gap coverage and high speed data download. The XATANET onboard mobile computing platforms include GPS and wireless communications hardware that collect, store and intelligently manage data communications. |
MobileMax Fleet Management System
MobileMax helps companies track and manage nearly every aspect of their fleets activities to help
control costs and increase return on investment (ROI). The MobileMax solution features Multi-Mode
communication capabilities that automatically switch between land-based and satellite
communications to take advantage of the cost-savings and reliability of both terrestrial and
satellite communication.
MobileMax provides real-time communication and tracking capabilities, records state-line crossings,
monitors driver and vehicle performance and alerts companies of driver arrival at/or departure from
geofenced locations.
Similar to XATANET, MobileMax is composed of these primary components:
| Mobile Applications: These core applications provide for the optimization of fleet operations, including automated fuel tax, driver and vehicle management. | ||
| Driver Displays: Color touch-screen driver displays are mounted in the cab of the truck capturing and communicating fleet performance information. These displays also provide in-cab communications between drivers on the road and home base. | ||
| Communications: MobileMax systems use patented technologies that utilize lowest-cost communication methods synchronizing trip and driver data with maximum efficiency. The multi-mode system combines GSM GPRS terrestrial communication with L-band geosynchronous satellite networks to provide no-gap coverage and high-speed data download. MobileMaxs onboard hardware combines the systems transceiver and antenna in one shell that uses a single-cable connection to handle data communications. |
RouteTracker Fleet Management System
On December 4, 2009, the Company acquired all of the outstanding stock of Turnpike Global
Technologies, Inc. and Turnpike Global Technologies LLC (combined
Turnpike). (Refer to Note 11 of the
Notes to Financial Statements for further details on the acquisition transaction). Turnpike provides simple
solutions, through its RouteTracker products, to the transportation industry that result in immediate cost
savings. RouteTracker has been recognized as the first solution to fully automate, from end-to-end, the
fuel and mileage tax process required by the International Fuel Tax Agreement (IFTA). RouteTracker
interacts with various handheld devices using Bluetooth as a wireless in-cab communication medium. The
information collected by RouteTracker is made available to the
end-user via web-based reporting.
Purchasing Turnpike will allow XATA to continue its growth strategy by expanding XATAs addressable
market to include small and medium-size fleets in North America and key vertical markets, such as Less
Than Truckload (LTL) and beverage, where Turnpikes product functionality meets specific customer
needs.
Legacy OpCenter Fleet Management System
With the introduction and widespread adoption of the web-based XATANET on-demand software solution,
XATA has migrated many of its OpCenter customers to the XATANET platform. XATA has announced its
planned sunset of the OpCenter product as of December 31, 2009 and continues to work with customers
to migrate them to the XATANET platform.
Professional
Services
XATA offers an array of professional IT and consultation services: XATANET and MobileMax solution
implementation, driver and back-office training, consulting for best operations practices and
building custom reports on an ad-hoc basis for customers.
| Implementation services include project management, website setup and configuration, best-practices recommendations, data integration and software implementation. |
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| Training services include online training, on-site training and one-on-one training for fleet management and drivers. This includes teaching how to use the in-cab devices (for drivers) and how to best use the XATANET reports (for fleet management personnel). | ||
| Best-practice consulting includes examining a customers fleet operations and making recommendations for improvements, using the XATANET or MobileMax fleet management solutions. | ||
| XATAs custom reporting service allows XATANET and MobileMax customers to have specialized reports made for their operations, beyond the suite of standard reports already offered by XATA. |
Target Markets
There are approximately 8.1 million commercial trucks operating in the United States, of which 6.6
million are operated by private fleets and 1.5 million are operated by for-hire carriers. Our
current customers include both private and for-hire fleets with heavy-duty trucks, and we believe
that our fleet management products will enable us to further penetrate each of these segments of
the commercial truck industry.
Private Fleets
Private fleets include the commercial trucks operated by manufacturers, wholesalers, retailers and
other companies who transport their own goods using equipment they own or lease. Historically, the
costs associated with purchasing an integrated hardware and software system for onboard computing
required a minimum fleet size in order to recover the fixed costs associated with a traditional
fleet management system.
We believe XATANET allows us to address the needs of a larger portion of the private fleet sector,
including smaller fleets, large decentralized fleets and fleets in new vertical markets.
Specifically, smaller fleets and decentralized fleets are able to purchase individual XATANET
software application packages that target their specific information needs and use our
Internet-based system to collect, process and present their data. We believe these fleets represent
a significant market opportunity. We view the total 6.6 million commercial trucks in this segment
as part of our target market going forward, with particular emphasis on fleets operating medium and
heavy duty trucks, estimated at 3.2 million vehicles.
For-Hire Carriers
For-hire carriers include both truckload and less-than-truckload carriers, whose primary business
is the trucking and transportation of freight that belongs to others. We believe MobileMax,
acquired with the acquisition of GeoLogic Solutions, Inc., addresses the needs of the for-hire
fleet sector, including large decentralized fleets and regionalized, medium-sized fleets. For-hire
fleets are able to purchase a MobileMax system that integrates with third party fleet routing and
dispatch systems and then use our communication-based system to track and monitor their fleet
assets based on the information from the third-party application. We believe these fleets represent
a significant new market opportunity. We view the total 1.7 million commercial trucks in this
segment as part of our target market, with particular emphasis on fleets operating medium and heavy
duty trucks.
Other Markets
We believe our XATANET web-based system may ultimately be introduced into several other new markets
because of its open system architecture and the many potential applications for web-based,
GPS-enabled tools.
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Major Customers
Our systems have been installed in over 73,000 trucks in North America. Our customers comprise
Fortune 500 companies and other large organizations, such as Bradco Supply, Core-Mark
International, CVS Pharmacy, Dean Foods, Kellogs, Oldcastle Inc., Reyes Holdings, Sysco, US
Foodservice, and xpedx (a division of International Paper Company.)
As we implement our solutions at a customer today, revenue is impacted by an upfront hardware
purchase. In fiscal 2009, we had two individual customers that accounted for approximately 13.7
percent and 14.1 percent of revenue, respectively, as the result of significant hardware sales.
However, no individual customer accounted for more than 10.0 percent of our software revenue, which
includes monthly subscriptions from XATANET and monthly fees from our MobileMax and OpCenter
product lines in fiscal 2009.
Sales and Marketing
Our direct sales force sells our subscription and communication-based fleet management systems
primarily to fleet truck operators and logistics providers through national and regional sales
account executives. The efforts of our sales executives are supported by our systems sales
consultants, client management, professional services and customer service professionals. These
professionals have a strong working knowledge of the hardware and software configurations and
experience integrating our systems into fleets. We believe the level of service we provide to our
customers is unique in the industry and a key competitive advantage in securing new customers and
retaining existing accounts.
We focus our direct sales and marketing efforts on companies operating fleets of all sizes within
vertical markets that have experienced significant benefits from our systems. These vertical
markets include food distribution, petroleum production and marketing, manufacturing,
retail/wholesale delivery, and government.
We also use a combination of integrated marketing activities, including advertising, public
relations, trade shows, the Internet and demand generation, to gain exposure within our target
markets. We exhibit our products at selected industry conferences to promote brand awareness. We
actively pursue speaking opportunities at industry trade shows and industry association forums for
our management staff, as well as for customers who have gained efficiencies in fleet operations
using our technology.
Competition
Competition in fleet management for the trucking industry continues to increase at a quick pace.
Key competitors, including XATA, compete primarily on the basis of functionality, ease of use,
quality, price, service availability and corporate financial strength.
As the demand by businesses for fleet management solutions increases, the quality, functionality
and breadth of competing products and services continue to improve. The adoption of industry
standards helps existing and new competitors, including XATA, to advance the adoption of fleet
management systems and increase market penetration.
Key Alliances and Relationships
We continue to establish relationships with third parties with the intent to increase the
deployment of our solutions. We believe that establishing these strategic relationships will
facilitate our technological leadership and increase our access to new customers. Some of our
existing relationships include:
Communication Providers
We have established relationships with Sprint/Nextel (Sprint) and Orbcomm LLC (Orbcomm) to provide
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wireless connectivity between our subscribers and our XATANET host system. We contract directly
with Sprint and Orbcomm for the provision of wireless communications, which are bundled with our
XATANET solutions.
Our MobileMax systems use AT&T and Mobile Satellite Ventures, whose parent company is SkyTerra, to
provide communications between our users and the MobileMax host.
Manufacturers
During fiscal 2006, we established a relationship with Winland Electronics, Inc. for the
manufacture and testing of our XATANET mobile onboard hardware platforms pursuant to our detailed
specifications and quality requirements. Additionally, we have a relationship with EPM Global
Services for the manufacture and testing of our MobileMax onboard hardware platforms pursuant to
our detailed specifications and quality requirements.
We have relationships with other companies that manufacture components for our solutions as well. All of our suppliers have entered into confidentiality agreements with respect to our proprietary technology. While current vendors are meeting the companys quality and performance expectations, the company believes that a disruption in the supply of XATA Application Modules, color display units and MobileMax Mobile Data Terminals, which are each supplied by separate, single vendors, would affect the Companys ability to deliver finished goods and replacement parts.
We have relationships with other companies that manufacture components for our solutions as well. All of our suppliers have entered into confidentiality agreements with respect to our proprietary technology. While current vendors are meeting the companys quality and performance expectations, the company believes that a disruption in the supply of XATA Application Modules, color display units and MobileMax Mobile Data Terminals, which are each supplied by separate, single vendors, would affect the Companys ability to deliver finished goods and replacement parts.
Third-party Application and Hardware Providers
We have relationships with companies who provide a variety of applications and hardware devices to
our target market, including dispatch, routing, training, fleet management, handheld devices and
driver displays, in a go to market strategy with us. These companies include ALK Technologies,
McLeod Software, TMW Systems, Motorola/Symbol, Intermec and QSI plus over 15 additional companies.
In general, we seek relationships with third-party providers to extend the benefits of our
solutions throughout our customers supply chain.
Additionally, we signed an agreement in September 2009 with Digi International to deliver a range
of its cellular and satellite communications products. The products will support our onboard
computing communications technology and help broaden our portfolio of communications and fleet
management solutions. These products are expected to be available for delivery in the first half
of 2010.
Patents, Trademarks, and Copyrights
XATA®, OpCenter®, XATANET®, and MobileMax are trademarks
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, we
possess several design patents issued by the United States Patent and Trademark Office that covers
various aspects of our technology.
Research and Development
In fiscal 2009 and 2008, we spent approximately $5.5 million and $5.0 million, respectively, on
research and development activities. We concentrate our research and development activities on
software and hardware solutions that meet our customers current and anticipated future needs. To
enhance our existing solutions and to introduce new solutions to our existing and potential
customers, we focus on the following key areas:
| SaaS Infrastructure. We intend to continue to improve our SaaS infrastructure to meet the increasing needs of our expanding customer base and the associated increase in transactions. Also, we will continue to monitor and analyze the XATANET infrastructures capacity and ability to meet the service level requirements of our customers. |
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| Software. XATA intends to continue developing our software applications by offering new features while enhancing our existing features. Several enhancements were made to XATANET in 2009, including integrated navigation specifically for professional truck drivers, and several advancements to our fleet-data reporting and analytic capabilities. Added functionality to XATANET included integration between industry-standard handheld devices and third-party fleet management software. MobileMax developments in 2009 included the release of our professional navigation function. XATA intends to continue developing and releasing platform upgrades to support our new and enhanced software features. This will be conducted through our own development efforts and through those of our strategic hardware-partners. |
Employees
As of September 30, 2009, our staff included 176 full time employees in research and development,
information services, sales and marketing, customer support, administrative, finance, purchasing
and warehousing. No Company employees are represented by labor unions or are subject to a
collective bargaining agreement.
Item 1A. Risk Factors
We do not have a long or stable history of profitable operations. The Companys net losses to
common shareholders for the fiscal years 2009 and 2008 were $2.8 million and $3.6 million,
respectively. The respective periods net losses were $2.1 million and $3.4 million. Additional
amounts of $0.7 million and $0.3 million, resulting from beneficial conversion charges and
preferred stock dividends increased such respective period losses to the aforementioned levels of
net losses to common shareholders.
Our existing customers might cancel contracts with us, fail to renew contracts or fail to purchase
additional services and products. 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. As we continue to grow our existing customer base this risk will lessen, but
until such time we are still dependent on our installed customer base for our recurring revenues,
which is a significant portion of our overall revenue. If our customers cancel existing contracts,
fail to renew their service contracts or fail to purchase additional services or products, then our
revenues could decrease and our operating results could be adversely affected.
Our market is highly competitive and is subject to revenue fluctuations. Many of the
companies who offer competitive products offer products ranging in sophistication and cost from
basic onboard recorders to advanced mobile satellite communication and information 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. Given
that the period required to complete a sale of our systems has historically been up to a year or
longer, we must continue 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. The length
of our sales cycle may also result in quarter-to-quarter fluctuations in revenue. The fleet
trucking segment of the transportation industry is also subject to fluctuations and business cycles
and a significant downturn in its prospects could have a material, adverse affect on us. Moreover,
our customers and potential customers may freeze or reduce budget spending during the current
economic downturn, which could further delay our sales and adversely affect our results of
operations.
We have a limited number of products and those products are concentrated in one industry. Although
our systems have 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 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
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developing and marketing new software applications. We cannot assure that
new applications can be successfully developed or marketed in a timely manner.
We are dependent on key personnel and contract manufacturers. Our staff is small and our future
success depends to a significant extent on the efforts of key management, technical and sales
personnel. The Companys continued growth will place an increasing strain on our resources, and we
could experience difficulties relating to a variety of operational matters, including hiring, training
and managing an increasing number of employees, obtaining sufficient quantities of product from
vendors, obtaining sufficient materials and contract manufacturers to produce our products,
expanding our distribution capabilities and enhancing our customer service, financial, and
operating systems. The loss of key employees or a contract manufacturer in a period of rapid growth
could adversely affect our financial condition and operating results.
We are dependent on proprietary technology. Our success is heavily dependent upon proprietary
technology. We have been issued patents by the United States Patent and Trademark Office that
cover certain aspects of our technology and processes and have recently applied for several
software-related patents, but we have not yet been awarded patents on any of our software programs.
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.
We depend on wireless communication networks owned and controlled by others. If we are unable to
deliver continued access to communication services with sufficient capacity, our revenues could
decrease. Our ability to grow and achieve profitability depends on the ability of satellite and
digital cellular wireless carriers to provide sufficient network capacity, reliability and security
to our customers. Even where wireless carriers provide coverage to entire regions, there are
occasional lapses in coverage, for example due to man-made or natural obstructions blocking the
transmission of data. These effects could make our services less reliable and less useful, and
customer satisfaction could suffer. Our financial condition could be seriously harmed if our
wireless carriers were to increase the prices of their services, or to suffer operational or
technical failures.
Our products may quickly become obsolete. Our systems utilize proprietary software and onboard
computer gateways and touch-screen displays. Although we believe our proprietary software is more
important in the capture and communication of operating data than the hardware on which the
software operates, continued improvements in hardware may render our technology, including its
software, obsolete. The field of software and hardware is constantly undergoing rapid
technological change and we may not be able to react and adapt to changes in this field. Moreover,
development by our competitors could make our systems 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 systems 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
and 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.
Third parties may claim we infringe their intellectual property rights. Many participants in the
technology industry, as well as third parties that have obtained patent rights, have regularly
demonstrated a readiness to take legal action based on allegations of patent and other intellectual
property infringement. Accordingly, we may be subject to claims that our products infringe on the
intellectual property rights of others. Any such claim, whether valid or not, may be time
consuming and expensive to defend. Such
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claims or litigations could require us to stop selling the affected products, redesign those
products to avoid infringement, or obtain a license, all of which would be costly and harm our
business. The Company was named as one of many defendants in a patent infringement lawsuit filed
during 2009. In December 2009, the Company reached a settlement agreement with the plaintiff that
will dismiss the Company from the lawsuit and provide the Company a fully paid-up irrevocable and
perpetual license to the patents at issue, in exchange for cash compensation. The Company
recognized $1.2 million in legal and settlement expenses during fiscal 2009 related to this matter.
Our acquisition of Turnpike is accompanied by a variety of risks, any of which may adversely affect
our business.
On December 4, 2009, we completed our acquisition of Turnpike Global Technologies, Inc. and
Turnpike Global Technologies LLC (combined Turnpike). This acquisition is accompanied by a variety of
risks commonly encountered in acquisitions of businesses, which include:
| failure to achieve the financial and strategic goals for the acquired and combined business; | ||
| difficulty and unexpected costs in assimilating the operations and personnel of the acquired businesses; | ||
| product liability and other exposure associated with acquired businesses or the sale of their products; | ||
| unanticipated liabilities, legal risks and costs; | ||
| retention of key personnel; and | ||
| distraction of management from our ongoing business. |
These risks could harm our business, financial condition or results of operations, particularly
given the significance of our acquisition of Turnpike.
JDSTG and Trident Capital, who are represented on our Board of Directors, individually and together
own enough stock to exert significant influence over XATA. As of December 1, 2009, beneficial
ownership of Common Stock, as reported in our definitive proxy statement for the Annual Meeting of
Stockholders, held by JDSTG was approximately 24.4 percent and by Trident Capital was approximately
44.5 percent of our common stock. In addition, JDSTG is entitled to name up to three
representatives to our Board of Directors and Trident is entitled to name up to two
representatives. Trident is entitled to vote its Preferred Stock as if converted to common stock
and to vote as a separate class (to the exclusion of the holders of common stock) on the election
of its two director nominees. Both JDSTG and Trident benefit from certain restrictive covenants of
XATA in connection with their equity investments in the Company. The combination of stock ownership
and Board of Director representation enables these shareholders, individually and together, to a
greater degree, to exercise significant influence over the Company.
We may need additional capital. If we do not generate anticipated cash flow to support our
anticipated growth, our predictions regarding cash needs may prove inaccurate and we may require
additional financing. Subsequent to year end, the Company raised $30.2 million in convertible
debt, which was used towards the purchase of Turnpike and to pay off the term loan with PFG of $8.0
million and the litigation settlement. The remaining proceeds will be utilized in working capital
needs and future growth. We believe this and predicted future cash flows from operations will be
adequate to meet our operating and growth needs.
If our common share price decreases to a level such that the fair value of our net assets is less
than the carrying value of our net assets, we may be required to record additional significant
non-cash charges associated with goodwill impairment. We account for goodwill in accordance with
Accounting Standards Codification (ASC) 350-20, Intangibles Goodwill and Others. ASC 350-20,
among other things, requires that goodwill be tested for impairment at least annually. We have
designated July 1 as the date for our annual impairment test. Although the results of our testing
on July 1, 2009, indicated no evidence
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of impairment, should the fair value of our net assets, determined by our market capitalization, be
less than the carrying value of our net assets at future annual impairment test dates, we may have
to recognize goodwill impairment losses in our future results of operations. This could impair our
ability to achieve or maintain profitability in the future.
Fair
value assessments of our intangible assets required by GAAP may require us to record significant non-cash charges associated with intangible asset impairment. A significant portion of
our assets are intangibles relating to customer agreements and relationships. We amortize these
assets on a straight-line basis over their estimated lives, which are estimated to be eight years.
We review the carrying value of these assets at least annually, or more frequently if unusual
events or market conditions warrant, for evidence of impairment. In accordance with ASC 360-10,
Property, Plant, and Equipment Overall, an impairment loss is recognized when the estimate of
undiscounted future cash flows generated by such assets is less than the carrying amount.
Measurement of the impairment loss is based on the present value of the expected future cash flows.
Future fair value assessments of intangible assets may require impairment charges to be recorded
in the results of operations for future periods. This could impair our ability to achieve or
maintain profitability in the future.
We may issue additional stock without shareholder consent. We have authorized 25,000,000 shares of
common stock, of which 8,787,994 shares were issued and outstanding as of December 1, 2009 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 stock plans, or otherwise. Any such issuance will dilute the
percentage ownership of existing shareholders. We are also currently authorized to issue up to
10,000,000 shares of preferred stock. As of December 1, 2009, 2,043,793 shares of Series B
Convertible Preferred Stock, 1,296,036 Series C Convertible Preferred Stock, 1,566,580 shares of
Series D Convertible Preferred Stock and 1,355,857 shares of Series F Convertible Preferred Stock
were issued and outstanding. The Board of Directors can issue additional preferred stock in one or
more series and fix the terms of such stock without shareholder approval. 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 adversely affect the rights of the holders of common stock and reduce the
value of the common stock. In addition, specific rights granted to holders of preferred stock could
be used to restrict our ability to merge with or sell our assets to a third party.
Our directors liability is limited under Minnesota law and under certain agreements. 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 connection with their service as
officers or directors of the Company. In addition, we have entered into indemnification agreements
with the Trident investors, and its representatives who serve as directors on our Board, which may
supplement the indemnification provisions available to them under Minnesota law.
We
face burdens relating to the recent trend toward stricter corporate governance and financial reporting standards. New legislation or regulations that follow the trend of imposing stricter
corporate governance and financial reporting standards, including compliance with Section 404 of
the Sarbanes-Oxley Act of 2002, continues to increase our costs of compliance. A failure to comply
with these new laws and regulations may impact market perception of our financial condition and
could materially harm our business. Additionally, it is unclear what additional laws or regulations
may develop, and we cannot predict the ultimate impact of any future changes.
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Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
On July 9, 2007, we entered into a lease for 26,800 square feet of office space at 965 Prairie
Center Drive in Eden Prairie, Minnesota. On December 10, 2007, this location became the principal
address of the company. The lease term is for 86 months with a base rent of $37,500 per month plus
the building operating expenses.
Effective January 1, 2009, we began leasing 15,800 square feet of office and warehouse space in
Burnsville, Minnesota. This facility houses the Companys distribution activities. This lease
obligation has a base rent of $7,700 per month plus a pro rata share of the building operating
expenses and expires March 31, 2014.
Item 3. Legal Proceedings
XATA was named as one of six defendants in a lawsuit, filed in the United States District Court,
Eastern District of Texas, Tyler Division (6:09-cv-00157-LED). The plaintiff, Innovative Global
Solutions (IGS), has sued Turnpike Global Technologies, L.L.C., Cadec Global, Inc., General
Electric, Trimble Navigation Ltd., Networkfleet, Inc. and XATA Corporation for infringement of
certain patents and has requested that the court assess compensatory damages against each defendant
and enjoin further infringing activities by the defendants. XATA has settled with the plaintiff and
has received a fully paid license in exchange for payment of $1.0 million.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The following table sets forth the quarterly high and low sales prices for our common stock as
reported by the NASDAQ Capital Market for fiscal years 2009 and 2008. There is no market for our
Series B, Series C, Series D or Series F Preferred Stock.
Fiscal Year 2009 | Low | High | ||||||
First Quarter |
$ | 1.52 | $ | 3.85 | ||||
Second Quarter |
1.47 | 3.00 | ||||||
Third Quarter |
1.62 | 3.98 | ||||||
Fourth Quarter |
2.49 | 4.00 |
Fiscal Year 2008 | Low | High | ||||||
First Quarter |
$ | 2.64 | $ | 4.21 | ||||
Second Quarter |
2.98 | 3.54 | ||||||
Third Quarter |
3.05 | 3.80 | ||||||
Fourth Quarter |
3.35 | 3.95 |
As of November 6, 2009, our common stock is held by 121 registered holders of record. Registered
ownership includes nominees who may hold securities on behalf of multiple beneficial owners. We
estimate the number of beneficial owners of our common stock to be approximately 1,000.
Dividend Policy
Except for dividends paid to the holders of Series A 8 percent Convertible Preferred Stock (from
issuance in May 1999 until conversion in full in August 2000), we have never paid cash dividends on
any of our securities. We have retained any earnings for use in our operations. Our Board of
Directors will determine future dividend payments, if any, based upon our earnings, capital needs
and other relevant factors.
On December 6, 2003, we issued 1,613,000 shares of Series B Preferred Stock that pays an annual
cumulative dividend of 4 percent of the original issue price (payable in additional shares of
Preferred Stock or cash, at the option of the holders). The Series B Preferred Stock provides that
we cannot pay dividends to the holders of any other capital stock unless and until we have paid
dividends accrued on the Series B Preferred Stock. The holders of the Series B Preferred Stock
elected to receive dividends due and payable on May 31 and November 30 annually in additional
shares of Series B Preferred Stock rather than cash. Accordingly, we have issued a total of 78,000
and 75,000 shares of Series B Preferred Stock for payment of dividends in fiscal 2009 and 2008,
respectively.
Sale of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
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Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the financial statements and the
related notes included in this Report. This Report contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those in such
forward-looking statements as a result of many factors, including those discussed in Risk Factors
and elsewhere in this Report.
Overview
XATA is one of the leading providers of fleet management solutions to the truck transportation
industry. Our innovative technologies and value-added services are intended to enable customers to
optimize the utilization of their assets and enhance the productivity of fleet operations across
the entire supply chain, resulting in decreased costs, improved compliance with U.S. Department of
Transportation (DOT) regulations, and enhanced customer service.
Over the past two decades, XATA has developed relationships with the nations largest fleets
including CVS Pharmacy, Dean Foods, Sysco, US Foodservice, and xpedx to find and develop
technologies that provide information about their fleets and transform that data into actionable
intelligence.
On January 31, 2008, XATA completed its acquisition of GeoLogic Solutions, Inc., which provides the
commercial trucking industry with wireless asset management solutions in the for-hire segment of
the over-the-road transportation sector.
XATA pioneered innovations, such as learned standards and paperless driver logs. We engineer
software that improves overall transportation operations and integrates fleet data with back-office
billing, payroll and routing systems.
Technology, People, Processes
XATA takes a three-prong approach to meeting its customers fleet management needs:
| Technology. XATA provides a total fleet management solution, including hardware, software and services through the following solutions: |
| XATANET, our web-based, on-demand scalable software, includes a variety of web-based enterprise applications. XATANET, provides critical real-time information about our customers fleets, allows for paperless driver logs and provides summary and granular reports on driver and vehicle performance. XATANET can also integrate with back-office applications, for a seamless flow of information, and our software works with a variety of in-cab communications devices. | ||
| MobileMax helps for-hire trucking companies track and manage nearly every aspect of their fleets activities to help control costs and increase ROI. The MobileMax solution features Multi-Mode communication capabilities that automatically switch between land-based and satellite communications to take advantage of the cost-savings and reliability of both terrestrial and satellite communication. MobileMax integrates with dispatching and routing applications for a seamless flow of information. |
| People. With employee expertise in safety, fleet management and technology, XATA is able to provide consultation services to help organizations implement best practices for fleet productivity and develop specific customer hardware and reporting requirements. |
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| Processes. All XATA processes are designed to make managing fleets easier. Drawing on hundreds of successful implementations with a wide variety of fleets including multibillion-dollar organizations, XATA carefully plans each phase of the implementation and follows well established methodologies. The process begins with assessing our customers objectives. Then, we develop a detailed implementation schedule that includes all aspects of the project, from implementation to conversion, integration, training and problem solving. |
Critical Accounting Policies
Accounting policies, methods and estimates are an integral part of our financial statements and are
based upon managements current judgments. Certain accounting policies, methods and estimates are
particularly important because of their significance to the financial statements. Note 2 of the
Notes to Financial Statements includes a summary of the significant accounting policies and methods
we use. The following is a discussion of what we believe to be the most critical of these policies
and methods.
Revenue Recognition. The Company derives its revenue from sales of systems, software and related
services. The Company recognizes revenue in accordance with Accounting Standards Codification
(ASC) 985-605 Software Revenue and ASC 605-10 Revenue Recognition Overall.
Software revenue is recognized under ASC 985-605 and ASC 605-10 when (i) persuasive evidence of an
arrangement exists (for example a signed agreement or purchase order), (ii) delivery has occurred,
as evidenced by shipping documents or customer acceptance, (iii) the fee is fixed or determinable
and payable within twelve months, and (iv) collectability is probable and supported by credit
checks or past payment history.
With regard to arrangements involving multiple elements, the Company allocates revenue to the
software and services elements based on the fair value of each element with the residual amount
allocated to the systems revenue which is recognized upon delivery. The Companys determination of
fair value relating to the software and services elements in multiple-element arrangements is based
on vendor-specific objective evidence (VSOE). The Companys assessment of VSOE for each element is
either the price charged when the same element is sold separately or the price established by
management if that item is not yet sold separately. The Company has analyzed all of the elements
included in its multiple-element arrangements and has determined that it has sufficient VSOE to
allocate revenue to the services and software components of its arrangements. Accordingly, assuming
all other revenue recognition criteria are met, revenue from the software component is recognized
ratably over the applicable term.
Agreements that do not meet the requirements described in ASC 985-605, results in the recognition
of all revenue ratably over the term of the agreement.
Allowance for doubtful accounts. The Company grants credit to customers in the normal course of
business. The majority of the Companys accounts receivable and investment in sales-type leases
receivable are due from companies with fleet trucking operations in a variety of industries.
Credit is extended based on an evaluation of a customers financial condition and, generally,
collateral is not required, although sales-type leases receivable are secured by a retained
security interest in the leased equipment. Accounts receivable are typically due from customers
within 30 days and are stated at amounts net of an allowance for doubtful accounts. Accounts
receivable outstanding longer than the contractual payment terms are considered past due. The
Company determines the allowance for doubtful accounts by considering a number of factors,
including the length of time accounts receivables are past due, our previous loss history, the
customers current ability to pay its obligation, and the condition of the general economy and the
industry as a whole. The Company reserves for these accounts receivable by increasing bad debt
expense when they are determined to be uncollectible. Payments subsequently received, or otherwise
determined to be collectible, are treated as recoveries that reduce bad debt expense.
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Goodwill. As of September 30, 2009, the Company had a goodwill balance of $3.0 million that
resulted from the Companys acquisition of GeoLogic Solutions, Inc. on January 31, 2008. The
Company records goodwill when the purchase price of net tangible and intangible assets acquired
exceeds their fair value. In accordance with ASC 350-20 Intangibles Goodwill and Others, the
Company reviews goodwill for impairment at least annually, on the first day of the fourth quarter,
or more frequently if an event occurs indicating the potential for impairment. Goodwill is not
amortized, but instead tested for impairment at the reporting unit level. We have one reporting
unit. The annual goodwill impairment test is a two-step process. First, we determine if the
carrying value of our related reporting unit exceeds fair value, which would indicate that goodwill
may be impaired. If we then determine that goodwill may be impaired, we compare the implied fair
value of the goodwill to its carrying amount to determine if there is an impairment loss. The
Company completed this review in the fourth quarter of fiscal 2009 and concluded that no impairment
existed.
Intangible assets are carried at cost less accumulated amortization. The Company amortizes the
cost of identified intangible assets on a straight-line basis over their expected economic lives.
In accordance with ASC 360-10 Property, Plant, and Equipment Overall, the Company reviews
intangible assets that have finite useful lives when an event occurs indicating the potential for
earlier impairment. The Company measures impairment losses related to long-lived assets based on
the amount by which the carrying amounts of these assets exceed their fair values. The Company
measures fair value under ASC 360-10, which is generally based on the sum of the undiscounted
future cash flows. The Companys analysis is based on available information and on assumptions and
projections it considers to be reasonable and supportable. The cash flow analysis considers the
likelihood of possible outcomes and is based on the Companys best estimate of projected future
cash flows. If necessary, the Company performs subsequent calculations to measure the amount of
the impairment loss based on the excess of the carrying value over the fair value of the impaired
assets.
Product Warranties. The Company sells its products with a limited warranty. The Company provides
for estimated warranty costs in relation to the recognition of the associated revenue. Factors
affecting the Companys product warranty liability include the number of units sold, historical and
anticipated rates of claims and cost per claim. The Company periodically assesses the adequacy of
its product warranty liability based on changes in these factors. At September 30, 2009 and 2008,
the Company had an accrual for product warranties of $1.8 million and $1.6 million,
respectively. These amounts are included in accrued expenses on the Companys balance
sheet.
Capitalized system development costs. System development costs incurred after establishing
technological feasibility are capitalized as capitalized system development costs in accordance
with ASC 985-20 Software Costs to Be Sold, Leased, or Otherwise Marketed. Costs that are
capitalized are amortized to cost of goods sold beginning when the product is first released for
sale to the general public. Amortization is 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 estimated economic life of the product (two to five
years). As of September 30, 2009 and 2008 there were no capitalized development costs. Research and
development expenses are charged to expense as incurred. Such expenses include product development
costs which have not met the capitalization criteria of ASC 985-20.
Income taxes. Deferred income taxes are provided for using the liability method whereby deferred
tax assets and deferred tax liabilities are recognized for the effects of 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.
On October 1, 2007, the Company adopted ASC 740-10 Income Tax. ASC 740-10 requires application of
a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions.
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Under ASC 740-10, once the-more-likely-than-not threshold is met, the amount of benefit to be
recognized is the largest amount of tax benefit that is greater than 50 percent likely of being
ultimately realized upon settlement. It further requires that a change in judgment related to the
expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of
such a change. The impact of adopting ASC 740-10 on the Companys consolidated financial statements
was not material and no cumulative effect adjustment was recorded to the October 1, 2007 balance of
accumulated deficit. In fiscal 2009, the Company recognized no tax benefit or liabilities for
uncertainties related to prior and current year income tax positions, which were determined to be
immaterial.
Stock-based Compensation. The Company accounts for share-based employee compensation plans under
the provisions of ASC 718 Compensation Stock Compensation, which requires the measurement and
recognition of compensation expense for all share-based payment awards to employees and directors
based on estimated fair values. The Company estimates the fair value of options granted using the
Black-Scholes option valuation model and the assumptions shown in Note 9 to the financial
statements. The Company estimates the volatility of the common stock at the date of grant based on
a historical volatility rate, consistent with ASC 718. The decision to use historical volatility
was based upon the lack of traded common stock options. The expected term is estimated consistent
with the simplified method, as identified in ASC 718-10 Compensation Stock Compensation -
Overall, for share-based awards granted during fiscal 2009 and 2008. The simplified method
calculates the expected term as the average of the vesting and contractual terms of the award. The
risk-free interest rate assumption is based on observed interest rates appropriate for the term of
the options. The Company uses historical data to estimate pre-vesting option forfeitures and
records share-based compensation expense only for those awards that are expected to vest. The
fair value of options are amortized over the vesting period of the awards utilizing a straight-line
method.
Operating Results
We operate as one business segment and believe the information presented in our Managements
Discussion and Analysis of Financial Condition and Results of Operations provides an understanding
of our business, operations and financial condition. The following table sets forth detail related
to revenue, cost of goods sold, and gross margins:
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For the Twelve Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Software |
||||||||
Revenue |
$ | 34,776 | $ | 23,794 | ||||
Cost of goods sold |
9,582 | 7,245 | ||||||
Gross margin |
$ | 25,194 | $ | 16,549 | ||||
Gross margin % |
72.4 | % | 69.6 | % | ||||
Systems |
||||||||
Revenue |
$ | 25,215 | $ | 25,681 | ||||
Cost of goods sold |
22,871 | 19,556 | ||||||
Gross margin |
$ | 2,344 | $ | 6,125 | ||||
Gross margin % |
9.3 | % | 23.9 | % | ||||
Services |
||||||||
Revenue |
$ | 5,334 | $ | 4,251 | ||||
Cost of goods sold |
3,687 | 3,155 | ||||||
Gross margin |
$ | 1,647 | $ | 1,096 | ||||
Gross margin % |
30.9 | % | 25.8 | % | ||||
Total |
||||||||
Revenue |
$ | 65,325 | $ | 53,726 | ||||
Cost of goods sold |
36,140 | 29,956 | ||||||
Gross margin |
$ | 29,185 | $ | 23,770 | ||||
Gross margin % |
44.7 | % | 44.2 | % |
Comparison of Fiscal 2009 operating results to Fiscal 2008
Revenue
Overall revenue increased 22 percent to $65.3 million for fiscal 2009 compared to $53.7 million for
fiscal 2008. The organic revenue growth, which includes GeoLogic Solutions, Inc. revenue for the
eight month period from the date of acquisition to September 30, 2008 and the comparable period in
fiscal 2009, was 10 percent for fiscal 2009.
Software revenue, including monthly subscriptions from XATANET and monthly fees from MobileMax and
OpCenter product lines, increased 46 percent to comprise 53 percent of total revenue for fiscal
2009 compared to 44 percent for fiscal 2008. This increase is due to subscription growth and
increased average revenue per unit (ARPU). ARPU was positively impacted by increased subscription
rates on renewal contracts and rate increases from add on applications.
Systems revenue, which includes hardware, warranty, repair, and activation revenue, decreased 2
percent to comprise 39 percent of total revenue for fiscal 2009 compared to 48 percent for fiscal
2008. This decline is due to a decrease in average sale prices, which were impacted by sluggish
economic conditions. Total unit deployment remained relatively consistent year over year.
Services revenue, which includes training, implementation, installation, and professional service
revenue, increased 25 percent and comprise 8 percent of total revenue for each of fiscal 2009 and
fiscal 2008. The
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increase in service revenue is driven mostly by an increase in installation revenue as our service
organization installed a greater percentage of units sold as compared to fiscal 2008.
Cost of Goods Sold and Gross Margin
Cost of software. Cost of software consists of communication, hosting costs, and direct personnel
costs related to network and infrastructure support. Cost of software increased 32 percent for
fiscal 2009 compared to fiscal 2008 supporting software revenue growth of 46 percent over the same
period. As the end of fiscal 2009, total software subscriptions were over 73,000 compared to
approximately 64,000 at the end of fiscal 2008. Software gross margin improved 3 percentage points
for fiscal 2009 versus fiscal 2008. The margin improvement was the result of increased ARPU,
reduction in communication costs and continued leverage of the cost structure.
Cost of systems. Cost of systems consists of the direct product costs, warranty costs, product
repair costs, and direct personnel costs related to customer support. Cost of systems increased 17
percent to $22.9 million for fiscal 2009 compared to $19.6 million for fiscal 2008. Systems gross
margins decreased 15 percentage points for fiscal 2009 versus fiscal 2008. Declining systems sales
prices due to competitive pressures and increased warranty costs contributed to the decrease in
gross margin.
Cost of services. Cost of services consists of third party vendor costs and direct costs related to
service personnel. Cost of services increased 17 percent to $3.7 million for the fiscal 2009
compared to $3.2 million for fiscal 2008. Service gross margins improved 5 percentage points for
fiscal 2009 versus fiscal 2008. This improvement was primarily the result of higher utilization of
services personnel compared to the same periods of fiscal 2008.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of employee salaries in our sales, client
management and administration functions, sales commissions, marketing and promotional expenses,
executive and administrative costs, and accounting and professional fees. Selling, general and
administrative expenses were $24.2 million or 37 percent of revenue for fiscal 2009. Included in
selling, general, and administrative costs for fiscal 2009 are
non-comparable items of litigation settlement costs of $1.2
million and $1.4 million related to the additional cost structure of GeoLogic Solutions, Inc for
the 5 month incremental period not included in fiscal 2008.
Excluding these non-comparable items, selling, general, and administrative
costs for fiscal 2009 remained relatively flat compared to $21.1 million or 39 percent of revenue for fiscal 2008. As a percentage of
revenue these costs continue to decline as a result of leveraging this cost structure.
Research & Development Expenses
Research and development expenses consist of employee salaries and expenses related to development
of software and systems. Research and development expenses were $5.5 million or 8 percent of
revenue for fiscal 2009 compared to $5.0 million or 9 percent of revenue for fiscal 2008. Research
and development expenses increased as we continue to invest in new functionality for the private
and for-hire fleet customers.
Net Interest Expense
Net interest expense increased $0.5 million to $1.5 million in fiscal 2009, compared to net
interest expense of $1.0 million in fiscal 2008. The increase in interest expense was due to
borrowings of long-term debt related to the acquisition of GeoLogic Solutions, Inc.
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Income Taxes
Income tax expense of $35,000, relating to alternative minimum tax and other minimum taxes in
certain jurisdictions which could not be completely offset by previous net operating losses, was
recorded in fiscal 2009. No income tax benefit or expense was recorded in fiscal 2008 as the result
of operating losses. The Company does not have objectively verifiable positive evidence of future
taxable income as prescribed by ASC 740- Income Tax. Accordingly, we concluded that a full
valuation allowance was appropriate. 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 asset
considered realizable could be increased in the future if we return to profitability and actual
future taxable income is higher than currently estimated. At September 30, 2009, we had federal net
operating loss carryforwards of approximately $44.6 million.
The Company implemented the provisions of ASC 740 related to uncertain tax positions, effective
October 1, 2007. The impact of the adoption on the Companys consolidated financial statements was
not material and no cumulative effect adjustment was recorded to the October 1, 2007 balance of
accumulated deficit.
Net Loss to Common Shareholders
We incurred net losses to common shareholders of $2.8 million and $3.6 million for fiscal 2009 and
2008, respectively. Net loss to common shareholders for fiscal 2009 reflects preferred stock
deemed dividends relating to the issuance of Series F Preferred Stock of $0.5 million. Fiscal 2009
and 2008 reflect preferred stock dividends and preferred stock deemed dividends of $0.2 million and
$0.3 million, respectively, relating to Series B Preferred Stock.
Liquidity and Capital Resources
As of September 30, 2009, we held $3.4 million in cash and cash equivalents and had working
capital, which is total current assets less total current liabilities, of $3.3 million. This
compared to $8.9 million in cash and cash equivalents, and working capital of $8.1 million, as of
September 30, 2008. The decrease in working capital is the result of paying down the line of credit
by $7.7 million and other debt of $1.8 million during fiscal 2009.
Operating activities provided cash of $2.6 million during fiscal 2009 as the result of a reduction
in net loss and improved leveraging of the overall working capital, while operating activities used
cash of $1.1 million during fiscal 2008.
Cash used in investing activities of $1.4 million for fiscal 2009 for purchases of equipment and
leasehold improvements.
The Company generated $1.2 million of free cash flow from operations (cash provided from operations
less cash used in purchases of equipment and leasehold improvements) in fiscal 2009 compared to a
negative free cash flow from operations of $4.3 million in fiscal 2008. This increase is the result
of improved operating results and a reduced investment in working capital.
Cash used in financing activities of $6.7 million for fiscal 2009 included $2.9 million of proceeds
from the issuance of preferred stock and a net payment on long-term debt of $9.5 million.
In connection with the financing of the acquisition of GeoLogic Solutions, Inc., the Company
entered into a three-year secured credit facility with Silicon Valley Bank (SVB) consisting of a
$10.0 million revolving line of credit bearing interest at a floating rate equal to 0.5% over SVBs
Prime Rate. The credit facility was secured by substantially all the assets of the Company.
Interest was paid monthly in arrears, and the entire amount of any outstanding principal was to be
due at maturity on January 30, 2011.
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The credit agreement contained certain financial covenants which imposed a minimum level of net
worth and fixed charge coverage ratio. The balance as of September 30, 2009 was $0.5 million and
the available credit, subject to certain covenants and ratios, was $9.5 million. In October 2009,
the Company paid the outstanding balance on the line of credit and subsequently canceled the
facility with the SVB in December 2009.
Also in connection with the acquisition of GeoLogic Solutions, Inc., the Company entered into a
four year secured credit facility consisting of an $8.0 million term loan with Partners for Growth
II, L.P. (PFG) bearing interest at a fixed rate of 14.5%, subject to adjustment under various
circumstances. Under the terms of the loan agreement, the Company complied with financial
covenants specifying minimum levels of net worth and fixed charge coverage ratio. The loan was
secured by substantially all the assets of the Company and was subordinate to the security interest
of SVB. Interest was payable monthly, and the Company was to be required to make quarterly
principal payments of $1.0 million beginning March 31, 2011 with the remainder of the unpaid
principal due at maturity on January 31, 2012. In December 2009, the Company paid the outstanding
balance of $8.0 million plus accrued interest and terminated the facility.
As of September 30, 2009, the Company was in compliance with all financial covenants related to the
debt obligations.
In addition to the preceding sources of financing, the Company also issued $1.8 million of debt
obligations to the seller (the Seller Notes) in conjunction with the acquisition of GeoLogic
Solutions, Inc. The Seller Notes and related accrued interest were paid in full in February 2009.
We believe our existing funds, debt facilities and vendor terms will provide adequate cash to fund
operating needs for the foreseeable future. In addition, as debt facilities become due, it may be
necessary to obtain additional external funding.
Our Series B Preferred Stock prohibits payment of dividends to the holders of any other capital
stock unless and until we have paid dividends accrued on the Series B Preferred Stock, which pays
an annual cumulative dividend of 4 percent of the original issue price. At the option of the
Series B Preferred Stock holders, such dividends are payable in additional shares of Preferred
Stock or cash. In fiscal 2009 and 2008, we issued 78,000 and 75,000 shares, respectively, of
Series B Preferred Stock for payment of accrued dividends. We are further restricted from dividend
payments by our primary lender.
Subsequent Events
The Company was named as one of six defendants in a patent infringement lawsuit filed during 2009.
In December 2009, the Company reached a settlement agreement with the plaintiff that will dismiss
the Company from the lawsuit and provide the Company a fully paid-up irrevocable and perpetual
license to the patents at issue, in exchange for cash compensation. The Company recognized $1.2
million in legal and settlement expenses during fiscal 2009 related to this matter.
On December 4, 2009, the Company acquired all of the outstanding stock of Turnpike Global
Technologies, Inc. and Turnpike Global Technologies LLC (combined Turnpike) for a total purchase price
consisting of $10.0 million in cash and 833,333 shares of common stock of the Company. The
issuance of common shares is contingent on the approval by the shareholders at the Annual Meeting.
Additionally, the Company has committed to pay out up to an additional 2,500,000 shares of common
stock subject to shareholder approval and certain performance goals of the acquired entity over the
next three anniversaries.
In connection with financing the acquisition of Turnpike, the Company issued convertible debt
totaling $30.2 million. The convertible debt carries an interest rate of 14% per annum and the
principal and interest are due on November 1, 2010. However, this convertible debt will be
converted into 10,066,667
22
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shares of preferred stock and 3,020,000 warrants to purchase common shares subject to shareholder
approval at the Annual Meeting. The Company used proceeds of the convertible debt towards the
purchase of Turnpike and to pay off the term loan with PFG of $8.0 million and the litigation
settlement. The remaining proceeds will be utilized in working capital needs and future growth.
Off-Balance Sheet Arrangements
Not applicable
Recently Issued Accounting Pronouncements
Fair Value Measurements and Disclosures (ASC 820)
In September 2006, the FASB issued ASC 820 Fair Value Measurements and Disclosures. ASC 820
defines fair value, establishes a framework for measuring fair value and expands disclosures about
fair value measurements but does not require any new fair value measurements. We adopted ASC 820
for all financial assets and liabilities recognized or disclosed at fair value in our consolidated
financial statements on a recurring basis (at least annually). The adoption of ASC 820 for all
financial assets and liabilities did not have a material impact on our financial statements. In
February 2008, the Financial Accounting Standards Board delayed the effective date for
non-financial assets and non-financial liabilities to fiscal years beginning after November 15,
2008, except for items that are measured at fair value in the financial statements on a recurring
basis (at least annually). The adoption of ASC 820 for all non-financial assets and non-financial
liabilities is not expected to have a material effect on the financial statements.
Business Combinations Revised (ASC 805)
In December 2007, the FASB issued ASC 805 Business Combinations. ASC 805 establishes principles
and requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling
interest in the acquiree. ASC 805 also establishes disclosure requirements to enable users of the
financial statements to evaluate the nature and financial effects of the business combination. This
guidance is effective for fiscal years beginning after December 15, 2008. The impact of the
adoption of ASC 805 will be on future acquisitions, including the December 4, 2009 acquisition of
Turnpike. There will be no impact on our existing financial position and results of operations.
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles
In June 2009, the FASB issued Accounting Standards Update (ASU) 2009-01, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting. The Codification will
become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. On the effective date, the Codification
will supersede all then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification will become
non-authoritative. The ASU is effective for financial statements issued for interim and annual
periods ending after September 15, 2009 and did not have a material impact on our financial
statements.
Subsequent Events (ASC 855)
In
May 2009, the FASB issued ASC 855 Subsequent Events, to incorporate the accounting and
disclosure requirements for subsequent events into U.S. generally accepted accounting principles.
ASC 855 introduces new terminology, defines a date through which management must evaluate
subsequent events, and lists the circumstances under which an entity must recognize and disclose
events or
23
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transactions occurring after the balance-sheet date. The Company adopted ASC 855 as of June 30,
2009, which was the required effective date. The adoption of ASC 855 did not have a material impact
on our financial statements.
Revenue Recognition (ASU 2009-13 and ASU 2009-14)
In October 2009, the FASB issued the following ASUs: ASU No. 2009-13 Revenue Recognition (ASC
Topic 605) Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues
Task Force and ASU No. 2009-14 Software (ASC Topic 985) Certain Revenue Arrangements That
Include Software Elements, a consensus of the FASB Emerging Issues Task Force.
ASU No. 2009-13: This guidance modifies the fair value requirements of ASC subtopic 605-25 -
Revenue Recognition-Multiple Element Arrangements by allowing the use of the best estimate of
selling price in addition to VSOE and VOE (now referred to as TPE standing for third-party
evidence) for determining the selling price of a deliverable. A vendor is now required to use its
best estimate of the selling price when VSOE or TPE of the selling price cannot be determined. In
addition, the residual method of allocating arrangement consideration is no longer permitted.
ASU No. 2009-14: This guidance modifies the scope of ASC subtopic 965-605 Software-Revenue
Recognition to exclude from its requirements (a) non-software components of tangible products and
(b) software components of tangible products that are sold, licensed, or leased with tangible
products when the software components and non-software components of the tangible product function
together to deliver the tangible products essential functionality.
These updates require expanded qualitative and quantitative disclosures and are effective for
fiscal years beginning on or after June 15, 2010. However, companies may elect to adopt as early as
interim periods ended September 30, 2009. These updates may be applied either prospectively from
the beginning of the fiscal year for new or materially modified arrangements or retrospectively.
The Company is currently evaluating the impact of adopting these updates on our consolidated
financial statements.
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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of XATA Corporation
Shareholders of XATA Corporation
We have audited the accompanying consolidated balance sheets of XATA Corporation (a Minnesota
corporation) (the Company) as of September 30, 2009 and 2008, and the related consolidated
statements of operations, changes in shareholders equity and cash flows for the years then ended.
Our audits of the basic consolidated financial statements included the financial statement schedule
listed in the index appearing under Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of XATA Corporation as of September 30, 2009 and
2008, and the results of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Grant Thornton LLP | ||||
Minneapolis, Minnesota | ||||
December 18, 2009 |
F-1
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XATA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 3,440 | $ | 8,904 | ||||
Accounts receivable, less allowances
of $368 and $333 |
9,323 | 11,365 | ||||||
Inventories |
4,104 | 2,735 | ||||||
Deferred product costs |
2,060 | 1,474 | ||||||
Current portion of investment in sales-type leases |
281 | 768 | ||||||
Prepaid expenses and other current assets |
783 | 691 | ||||||
Total current assets |
19,991 | 25,937 | ||||||
Equipment and leasehold improvements, net |
3,980 | 3,925 | ||||||
Intangible assets, net |
10,725 | 12,420 | ||||||
Goodwill |
3,011 | 3,011 | ||||||
Deferred product costs, net of current portion |
2,470 | 2,685 | ||||||
Investment in sales-type leases, net of current portion |
29 | 310 | ||||||
Debt financing costs, net |
458 | 708 | ||||||
Total assets |
$ | 40,664 | $ | 48,996 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Current portion of long-term obligations |
$ | 84 | $ | 1,845 | ||||
Accounts payable |
5,366 | 4,394 | ||||||
Accrued expenses |
5,914 | 6,574 | ||||||
Deferred revenue |
5,280 | 4,996 | ||||||
Total current liabilities |
16,644 | 17,809 | ||||||
Long-term obligations, net of current portion |
8,534 | 16,342 | ||||||
Deferred revenue, net of current portion |
6,101 | 7,848 | ||||||
Other long-term liabilities |
820 | 805 | ||||||
Total liabilities |
32,099 | 42,804 | ||||||
Shareholders equity |
||||||||
Preferred stock, no par, 10,000 shares authorized: |
||||||||
Series B, 4% convertible, 2,250 shares designated;
shares issued and outstanding: 2,004 at September 30, 2009
and 1,926 at September 30, 2008 |
4,790 | 5,181 | ||||||
Series C, convertible, 1,400 shares designated;
1,269 shares issued and outstanding at September 30, 2009
and September 30, 2008 |
4,426 | 4,845 | ||||||
Series D, convertible, 1,600 shares designated;
1,567 shares issued and outstanding at September 30, 2009
and September 30, 2008 |
5,279 | 5,937 | ||||||
Series F, convertible, 1,400 shares designated;
1,356 shares issued and outstanding at September 30, 2009 |
2,365 | | ||||||
Common stock, par value $0.01 per share; 25,000 shares
authorized; shares issued and outstanding: 8,789 at
September 30, 2009 and 8,745 at September 30, 2008 |
88 | 87 | ||||||
Additional paid-in capital |
32,536 | 28,234 | ||||||
Accumulated deficit |
(40,919 | ) | (38,092 | ) | ||||
Total shareholders equity |
8,565 | 6,192 | ||||||
Total liabilities and shareholders equity |
$ | 40,664 | $ | 48,996 | ||||
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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Table of Contents
XATA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the Years Ended September 30, | ||||||||
2009 | 2008 | |||||||
Revenue |
$ | 65,325 | $ | 53,726 | ||||
Costs and expenses |
||||||||
Cost of goods sold |
36,140 | 29,956 | ||||||
Selling, general and administrative |
24,236 | 21,062 | ||||||
Research and development |
5,507 | 5,032 | ||||||
Total costs and expenses |
65,883 | 56,050 | ||||||
Operating loss |
(558 | ) | (2,324 | ) | ||||
Interest income |
112 | 404 | ||||||
Interest expense |
(1,621 | ) | (1,441 | ) | ||||
Loss before income taxes |
(2,067 | ) | (3,361 | ) | ||||
Income tax expense |
(35 | ) | | |||||
Net loss |
(2,102 | ) | (3,361 | ) | ||||
Preferred stock dividends |
(200 | ) | (192 | ) | ||||
Preferred stock deemed dividends |
(525 | ) | (69 | ) | ||||
Net loss to common shareholders |
$ | (2,827 | ) | $ | (3,622 | ) | ||
Net loss per common share basic and diluted |
$ | (0.33 | ) | $ | (0.44 | ) | ||
Weighted average common and
common share equivalents |
||||||||
Basic and diluted |
8,551 | 8,326 | ||||||
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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Table of Contents
XATA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(in thousands)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(in thousands)
Series B | Series C | Series D | Series F | Additional | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-In | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2007 |
1,851 | $ | 4,921 | 1,269 | $ | 4,845 | 1,567 | $ | 5,937 | | $ | | 8,516 | $ | 85 | $ | 25,760 | $ | (34,470 | ) | $ | 7,078 | ||||||||||||||||||||||||||||||
Common stock issued on exercise of options |
| | | | | | | | 15 | | 44 | | 44 | |||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares of common stock |
| | | | | | | | 151 | 1 | (1 | ) | | | ||||||||||||||||||||||||||||||||||||||
Stock based compensation |
| | | | | | | | | | 1,588 | | 1,588 | |||||||||||||||||||||||||||||||||||||||
Forfeiture of restricted shares of common stock |
| | | | | | | | (28 | ) | | | | | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock and warrants |
| | | | | | | | 91 | 1 | 843 | | 844 | |||||||||||||||||||||||||||||||||||||||
Preferred stock dividends |
75 | 191 | | | | | | | | | | (192 | ) | (1 | ) | |||||||||||||||||||||||||||||||||||||
Preferred stock deemed dividends |
| 69 | | | | | | | | | | (69 | ) | | ||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (3,361 | ) | (3,361 | ) | |||||||||||||||||||||||||||||||||||||
Balance at September 30, 2008 |
1,926 | 5,181 | 1,269 | 4,845 | 1,567 | 5,937 | | | 8,745 | 87 | 28,234 | (38,092 | ) | 6,192 | ||||||||||||||||||||||||||||||||||||||
Issuance of restricted shares of common stock |
| | | | | | | | 48 | 1 | (1 | ) | | | ||||||||||||||||||||||||||||||||||||||
Stock based compensation |
| | | | | | | | | | 1,613 | | 1,613 | |||||||||||||||||||||||||||||||||||||||
Forfeiture of restricted shares of common stock |
| | | | | | | | (4 | ) | | | | | ||||||||||||||||||||||||||||||||||||||
Issuance of preferred stock and warrants |
| | | | | | 1,356 | 2,365 | | | 500 | | 2,865 | |||||||||||||||||||||||||||||||||||||||
Record the beneficial conversion feature |
| | | | | | | (484 | ) | | | 484 | | | ||||||||||||||||||||||||||||||||||||||
Preferred stock dividends |
78 | 197 | | | | | | | | | | (200 | ) | (3 | ) | |||||||||||||||||||||||||||||||||||||
Preferred stock deemed dividends |
| 41 | | | | | | 484 | | | | (525 | ) | | ||||||||||||||||||||||||||||||||||||||
Adjustment to reflect value of beneficial conversion feature |
| (629 | ) | | (419 | ) | | (658 | ) | | | | | 1,706 | | | ||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (2,102 | ) | (2,102 | ) | |||||||||||||||||||||||||||||||||||||
Balance at September 30, 2009 |
2,004 | $ | 4,790 | 1,269 | $ | 4,426 | 1,567 | $ | 5,279 | 1,356 | $ | 2,365 | 8,789 | $ | 88 | $ | 32,536 | $ | (40,919 | ) | $ | 8,565 | ||||||||||||||||||||||||||||||
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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Table of Contents
XATA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended September 30, | ||||||||
2009 | 2008 | |||||||
Operating activities |
||||||||
Net loss |
$ | (2,102 | ) | $ | (3,361 | ) | ||
Adjustments to reconcile net loss to net cash provided by
operating activities: |
||||||||
Depreciation and amortization |
3,017 | 2,426 | ||||||
Amortization of debt financing costs |
250 | 167 | ||||||
Loss on disposal of long-lived assets |
| 42 | ||||||
Stock based compensation |
1,613 | 1,588 | ||||||
Changes in assets and liabilities, net of impact of acquisition: |
||||||||
Accounts receivable, net |
2,042 | (4,034 | ) | |||||
Inventories |
(1,368 | ) | 2,289 | |||||
Deferred product costs |
(372 | ) | (1,609 | ) | ||||
Prepaid expenses and other assets |
(92 | ) | (520 | ) | ||||
Lease equipment receivable |
769 | 746 | ||||||
Accounts payable |
972 | (1,946 | ) | |||||
Accrued expenses |
(649 | ) | (148 | ) | ||||
Deferred revenue |
(1,463 | ) | 3,215 | |||||
Net cash provided by (used in) operating activities |
2,617 | (1,145 | ) | |||||
Investing activities |
||||||||
Purchase of equipment and leasehold improvements |
(1,377 | ) | (3,117 | ) | ||||
Purchase of GeoLogic Solutions, Inc., net of cash acquired |
| (16,280 | ) | |||||
Net cash used in investing activities |
(1,377 | ) | (19,397 | ) | ||||
Financing activities |
||||||||
Borrowings on long-term obligations |
18,077 | 19,224 | ||||||
Payments on long-term obligations |
(27,646 | ) | (3,167 | ) | ||||
Payments on financing costs |
| (339 | ) | |||||
Proceeds from issuance of preferred stock and warrants |
2,865 | | ||||||
Proceeds from options exercised |
| 53 | ||||||
Net cash (used in) provided by financing activities |
(6,704 | ) | 15,771 | |||||
Decrease in cash and cash equivalents |
(5,464 | ) | (4,771 | ) | ||||
Cash and cash equivalents |
||||||||
Beginning |
8,904 | 13,675 | ||||||
Ending |
$ | 3,440 | $ | 8,904 | ||||
Supplemental disclosures of cash flow information |
||||||||
Cash payments for interest |
$ | 1,513 | $ | 1,035 | ||||
Supplemental schedule of noncash investing and financing activities |
||||||||
Preferred stock deemed dividends |
$ | 525 | $ | 69 | ||||
Preferred stock dividends |
$ | 200 | $ | 192 | ||||
Preferred stock dividends paid |
$ | 197 | $ | 191 | ||||
Issuance of warrants in consideration for financing fees |
| $ | 535 | |||||
Issuance of sellers note |
| $ | 1,750 | |||||
Issuance of common stock related to purchase of GeoLogic Solutions, Inc. |
| $ | 300 |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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Notes to Consolidated Financial Statements
Note 1. Description of Business
XATA Corporation (the Company) develops, markets and services fully integrated, onboard fleet
management systems for the private and for-hire fleet segment of the transportation industry. The
Company sells its products in the United States and Canada. The Companys systems utilize
proprietary software and related hardware components and accessories to capture, analyze, and
communicate operating information that assists fleet management in improving productivity and
efficiency.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiary GeoLogic Solutions, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Revenue Recognition
The Company derives its revenue from sales of hardware, software and related services. The Company
recognizes revenue in accordance with Accounting Standards Codification (ASC) 985-605 Software
Revenue Recognition and ASC 605-10 Revenue Recognition Overall. Revenues are presented net
of any taxes collected from customers and remitted to governmental authorities.
Software revenue is recognized under ASC 985-605 and ASC 605-10 when (i) persuasive evidence of an
arrangement exists (for example a signed agreement or purchase order), (ii) delivery has occurred,
as evidenced by shipping documents or customer acceptance, (iii) the fee is fixed or determinable
and payable within twelve months, and (iv) collectability is probable and supported by credit
checks or past payment history.
With regard to arrangements involving multiple elements, the Company allocates revenue to the
software and services elements based on the fair value of each element with the residual amount
allocated to the systems revenue which is recognized upon delivery. The Companys determination of
fair value relating to the software and services elements in multiple-element arrangements is based
on vendor-specific objective evidence (VSOE). The Companys assessment of VSOE for each element is
either the price charged when the same element is sold separately or the price established by
management if that item is not yet sold separately. The Company has analyzed all of the elements
included in its multiple-element arrangements and has determined that it has sufficient VSOE to
allocate revenue to the services and software components of its arrangements. Accordingly, assuming
all other revenue recognition criteria are met, revenue from the software component is recognized
ratably over the applicable term.
Agreements that do not meet the requirements described in ASC 985-605, results in the recognition
of all revenue ratably over the term of the agreement.
Allowance for Doubtful Accounts
The Company grants credit to customers in the normal course of business. The majority of the
Companys accounts receivable and investment in sales-type leases receivable are due from companies
with fleet trucking operations in a variety of industries. Credit is extended based on an
evaluation of a customers financial condition and, generally, collateral is not required, although
sales-type leases
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receivable
are secured by a retained security interest in the leased equipment. Accounts receivable are typically due from customers within 30 days and are stated at amounts net
of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment
terms are considered past due. The Company determines the allowance for doubtful accounts by
considering a number of factors, including the length of time trade receivables are past due, our previous loss history, the customers
current ability to pay its obligation, and the condition of the general economy and the industry as
a whole. The Company reserves for these accounts receivable by increasing bad debt expense when
they are determined to be uncollectible. Payments subsequently received, or otherwise determined
to be collectible, are treated as recoveries that reduce bad debt expense. The balance of the
allowance accounts at September 30, 2009 and 2008 was $0.4 million and $0.3 million, respectively.
Segment Reporting
The Company operates as a single reportable segment. The Company will evaluate additional segment
disclosure requirements as it expands its operations or experiences changes in its business.
The Company had no significant revenues from customers outside of the United States in fiscal 2009
and 2008, and had no significant long-lived assets deployed outside the United States at September
30, 2009 and 2008.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States 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.
Basis of Presentation
Certain amounts from the prior years financial statements have been reclassified to conform to the
current year presentation. These reclassifications resulted from a detailed review by management of
the operating expenses of the Company and involved moving certain internal salaries and IT related
costs from selling, general and administrative expenses and research and development expenses to
cost of goods sold and between operating expense categories. These reclassifications had no effect
on net loss to common shareholders or shareholders equity. The reclassifications are shown below
(in thousands):
As Previously | As Currently | |||||||||||
Reported | Reclassification | Reported | ||||||||||
For fiscal 2008: |
||||||||||||
Cost of goods sold |
$ | 28,246 | $ | 1,710 | $ | 29,956 | ||||||
Selling, general and administrative expenses |
21,777 | (715 | ) | 21,062 | ||||||||
Research and development expenses |
6,027 | (995 | ) | 5,032 |
Additionally, during fiscal year 2009, the Company determined that the previous accounting provided
on the initial issuance of the Series B, C and D preferred stock did not reflect the value of the
beneficial conversion feature as additional paid-in capital. The Company has made an adjustment
within the equity section to properly reflect the carrying value of the respective issues of the
preferred stock. These reclassifications had no effect on net loss to common shareholders.
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Cash and Cash Equivalents
Cash and cash equivalents included highly liquid investments in overnight sweep and money market
accounts. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation
insurance limits.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk,
consist primarily of cash equivalents, accounts receivable and sales-type leases receivable. The
Companys cash equivalents consist of checking, overnight sweep, and money market accounts, which,
at times, exceed federally insured limits. The Company has not experienced any losses in such
accounts.
The majority of the Companys accounts receivable and investment in sales-type leases receivable
are due from companies with fleet trucking operations in a variety of industries. In general, the
Company does not require collateral or other security to support accounts receivable, although
sales-type leases receivable are secured by a retained security interest in the leased equipment.
Accounts receivable are typically due from customers within 30 days and are stated at amounts due
from customers net of any allowance accounts. Accounts receivable outstanding longer than the
contractual payment terms are considered past due. To reduce credit risk, management performs
ongoing evaluations of its customers financial condition.
Fair Value of Financial Instruments
Fair Value Hierarchy
ASC 820 Fair Value Measurement and Disclosures, establishes a fair value hierarchy that requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. Observable inputs are obtained from independent sources and can be validated
by a third party, whereas unobservable inputs reflect assumptions regarding what a third party
would use in pricing an asset or liability. A financial instruments categorization within the fair
value hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2 Include other inputs that are directly or indirectly observable in the marketplace.
Level 3 Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
The carrying amounts of the Companys financial instruments, which include cash and cash
equivalents, accounts receivable, sales-type lease receivables, accounts payable and debt
obligations, approximate fair value. The fair value of cash and cash
equivalents is approximated using level 1 inputs. The fair value of
accounts receivable, sales-type lease receivables, accounts payable,
and debt obligations is approximated using level 3 inputs.
Inventories
Inventories consist of finished goods which are stated at the lower of cost or market. Cost is
determined on the average cost method, which approximates the first-in, first-out method.
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Investment in Sales-Type Leases
As the result of the acquisition of GeoLogic Solutions, Inc. on January 31, 2008, the Company
acquired GeoLogic Solutions, Inc.s investment in sales-type leases. The Company records the
investment in sales-type leases at the present value of the future minimum lease payments. There
is no guaranteed residual value associated with the leased devices. The receivables generally have
terms of five years and are collateralized by a security interest in the related equipment. The
Company records subscriber revenue on these leased devices as the ongoing service is provided over
the term of the related lease agreement and recognizes interest income as the lease payments are billed to the customers. Future
minimum lease payments to the Company under non-cancelable sales-type leases as of September 30,
2009 are as follows (in thousands):
Years ending September 30, |
||||
2010 |
$ | 296 | ||
2011 |
42 | |||
Total minimum lease payments |
338 | |||
Less: amount representing interest (at 11.71%) |
(28 | ) | ||
Present value of net minimum sales-type lease payments |
310 | |||
Less: current portion of investment in sales-type leases |
(281 | ) | ||
Investment in sales-type leases, excluding current portion |
$ | 29 | ||
Interest income from sales-type leases was approximately $0.1 million for each of fiscal 2009 and
for the eight-month period subsequent to the acquisition of GeoLogic Solutions, Inc. to September
30, 3008.
Debt Financing Costs
Debt financing costs are amortized to interest expense over the term of the related financing
agreement on a straight-line basis, which approximates the effective interest method. The net
carrying value of the debt financing costs is approximately $0.5 million and $0.7 million as of
September 30, 2009 and 2008, respectively.
Equipment and Leasehold Improvements
Purchased equipment and leased equipment under capital leases are stated at cost and depreciated
using the straight-line method over estimated useful lives of approximately two to seven years.
Leasehold improvements are amortized over the shorter of the remaining lease term at the time of
purchase or their estimated useful lives (one to seven years). Depreciation for income tax
reporting purposes is computed using accelerated methods.
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Equipment and leasehold improvements consist of (in thousands):
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Office furniture and equipment |
$ | 4,984 | $ | 4,003 | ||||
Engineering and manufacturing equipment |
900 | 831 | ||||||
Leasehold improvements |
2,650 | 2,473 | ||||||
8,534 | 7,307 | |||||||
Less: accumulated depreciation |
(4,554 | ) | (3,382 | ) | ||||
Equipment and leasehold improvements, net |
$ | 3,980 | $ | 3,925 | ||||
Depreciation
expense, included in selling, general and administrative expenses, was approximately $1.3 million for each of fiscal 2009 and 2008.
Capitalized System Development Costs
System development costs incurred after establishing technological feasibility are capitalized as
capitalized system development costs in accordance with Statement of ASC 985-20 Software Costs
to Be Sold, Leased, or Otherwise Marketed. Costs that are capitalized are amortized to cost of
goods sold beginning when the product is first released for sale to the general public.
Amortization is 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 estimated economic life of the product (two to five years). As of September 30,
2009 and 2008 there were no capitalized development costs.
Product development costs that do not meet the capitalization criteria of ASC 985-20 are charged to
research and development expense as incurred.
Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be
recognized when the sum of the undiscounted future net cash flows expected to result from the use
of the asset and its eventual disposition is less than its carrying amount.
Goodwill and Intangible Assets
As of September 30, 2009, the Company had a goodwill balance of $3.0 million that resulted from the
Companys acquisition of GeoLogic Solutions, Inc. on January 31, 2008. The Company records
goodwill when the purchase price of net tangible and intangible assets acquired exceeds their fair
value. In accordance with ASC 350-20 Intangibles Goodwill and Others, the Company reviews
goodwill for impairment at least annually, on the first day of the fourth quarter, or more
frequently if an event occurs indicating the potential for impairment. Goodwill is not amortized,
but instead tested for impairment at the reporting unit level. We have one reporting unit. The
annual goodwill impairment test is a two-step process. First, we determine if the carrying value of
our related reporting unit exceeds fair value, which would indicate that goodwill may be impaired.
If we then determine that goodwill may be impaired, we compare the implied fair value of the
goodwill to its carrying amount to determine if there is an impairment loss. The Company completed
this review in the fourth quarter of fiscal 2009 and concluded that no impairment existed.
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Intangible assets are carried at cost less accumulated amortization. The Company amortizes
the cost of identified intangible assets on a straight-line basis over their expected economic
lives. In accordance with ASC 360-10 Property, Plant, and Equipment Overall, the Company
reviews intangible assets that have finite useful lives when an event occurs indicating the
potential for earlier impairment. The Company measures impairment losses related to long-lived
assets based on the amount by which the carrying amounts of these assets exceed their fair values.
The Company measures fair value under ASC 360-10, which is generally based on the sum of the
undiscounted future cash flows. The Companys analysis is based on available information and on
assumptions and projections it considers to be reasonable and supportable. The cash flow analysis
considers the likelihood of possible outcomes and is based on the Companys best estimate of
projected future cash flows. If necessary, the Company performs subsequent calculations to measure
the amount of the impairment loss based on the excess of the carrying value over the fair value of
the impaired assets.
Based on the allocation of the purchase price for GeoLogic Solutions, Inc., intangible assets
subject to amortization were as follows as of September 30, 2009 (in thousands):
Weighted Average | Accumulated | |||||||||||||||
Life (years) | Cost | Amortization | Net | |||||||||||||
Acquired customer contracts |
8 | $ | 13,500 | $ | (2,812 | ) | $ | 10,688 | ||||||||
Other intangibles |
7 | 49 | (12 | ) | 37 | |||||||||||
Total |
8 | $ | 13,549 | $ | (2,824 | ) | $ | 10,725 | ||||||||
Intangible assets subject to amortization were as follows as of September 30, 2008 (in thousands):
Weighted Average | Accumulated | |||||||||||||||
Life (years) | Cost | Amortization | Net | |||||||||||||
Acquired customer contracts |
8 | $ | 13,500 | $ | (1,125 | ) | $ | 12,375 | ||||||||
Other intangibles |
7 | 49 | (4 | ) | 45 | |||||||||||
Total |
8 | $ | 13,549 | $ | (1,129 | ) | $ | 12,420 | ||||||||
Amortization expense was approximately $1.7 million and $1.1 million for fiscal 2009 and 2008,
respectively. Future amortization expense, as of September 30, 2009, is expected to be as follows
(in thousands):
Years ending September 30, | ||||
2010 |
$ | 1,695 | ||
2011 |
1,695 | |||
2012 |
1,695 | |||
2013 |
1,695 | |||
2014 |
1,695 | |||
Thereafter |
2,250 | |||
Total expected amortization expense |
$ | 10,725 | ||
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Product Warranties
The Company sells its products with a limited warranty. The Company provides for estimated
warranty costs in relation to the recognition of the associated revenue. Factors affecting the
Companys product warranty liability include the number of units sold, historical and anticipated
rates of claims and cost per claim. The Company periodically assesses the adequacy of its product
warranty liability based on changes in these factors.
At September 30, 2009 and 2008, the Company had accruals for product warranties of approximately
$1.8 million and $1.6 million, respectively. These amounts are included in accrued expenses on the
Companys balance sheet.
Shipping Costs
Shipping costs, which are classified as a component of cost of goods sold, were approximately $0.3
million and $0.5 million in fiscal 2009 and 2008, respectively. Customer billings related to
shipping and handling fees are reported as revenue.
Advertising Costs
Advertising costs consist primarily of ad campaigns, catalog brochures, promotional items and trade
show expenses and are expensed as incurred. Advertising costs, which are included in selling,
general and administrative expenses, were approximately $0.9 million for each of fiscal 2009 and
2008.
Income taxes
The Company accounts for income taxes following the provisions of ASC 740-10 Income Taxes -
Overall. ASC 740-10 requires that deferred income taxes be recognized for the future tax
consequences associated with differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year end, based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect taxable earnings.
Valuation allowances are established by the Company when necessary to reduce deferred tax assets to
the amount more likely than not to be realized. The effect of changes in tax rates is recognized in
the period in which the rate change occurs.
Stock-Based Compensation
The Company accounts for share-based employee compensation plans under the provisions of ASC 718
Compensation Stock Compensation, which requires the measurement and recognition of compensation
expense for all share-based payment awards to employees and directors based on estimated fair
values. The Company estimates the fair value of options granted using the Black-Scholes option
valuation model and the assumptions shown in Note 9 to the financial statements. The Company
estimates the volatility of the common stock at the date of grant based on a historical volatility
rate, consistent with ASC 718. The decision to use historical volatility was based upon the lack of
traded common stock options. The expected term is estimated consistent with the simplified method,
as identified in ASC 718-10 Compensation Stock Compensation Overall, for share-based awards
granted during fiscal 2009 and 2008. The simplified method calculates the expected term as the
average of the vesting and contractual terms of the award. The risk-free interest rate assumption
is based on observed interest rates appropriate for the term of the options. The Company uses
historical data to estimate pre-vesting option forfeitures and records share-based compensation
expense only for those awards that are expected to vest. The fair value of options are amortized
over the vesting period of the awards utilizing a straight-line method.
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Major Customers
The Company had the following significant customers:
Percentage of Revenue | Percentage of Ending Receivables | |||||||||||||||
For the Year Ended September 30, | At September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Customer A |
13.7 | % | 12.3 | % | 19.6 | % | * | |||||||||
Customer B |
14.1 | % | * | * | 15.1 | % |
* | Customer total was less than 10 percent of revenue or ending receivables. |
The Company sells 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. Although the Company has experienced growth in its customer base, it is still dependent
on present customers continued hardware purchases to equip and upgrade their fleets, as well as
recurring product revenue. Loss of any significant current customers or an inability to further
expand its customer base would adversely affect the Company.
Major Suppliers
While current vendors are meeting the Companys quality and performance expectations, the Company
believes that a disruption in the supply of XATA Application Modules (XAMs) and MobileMax Mobile
Data Terminals (MDTs), which are each supplied by separate single vendors, would affect the
Companys ability to deliver finished goods and replacement parts.
Recently Issued Accounting Standards
Fair Value Measurements and Disclosures (ASC 820)
In September 2006, the FASB issued ASC 820 Fair Value Measurements and Disclosures. ASC 820
defines fair value, establishes a framework for measuring fair value and expands disclosures about
fair value measurements but does not require any new fair value measurements. We adopted ASC 820
for all financial assets and liabilities recognized or disclosed at fair value in our consolidated
financial statements on a recurring basis (at least annually). The adoption of ASC 820 for all
financial assets and liabilities did not have a material impact on our financial statements. In
February 2008, the Financial Accounting Standards Board delayed the effective date for
non-financial assets and non-financial liabilities to fiscal years beginning after November 15,
2008, except for items that are measured at fair value in the financial statements on a recurring
basis (at least annually). The adoption of ASC 820 for all non-financial assets and non-financial
liabilities is not expected to have a material effect on the financial statements.
Business Combinations Revised (ASC 805)
In December 2007, the FASB issued ASC 805 Business Combinations. ASC 805 establishes principles
and requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling
interest in the acquiree. ASC 805 also establishes disclosure requirements to enable users of the
financial statements to evaluate the nature and financial effects of the business combination. This
guidance is effective for fiscal years beginning after December 15, 2008. The impact of the
adoption of ASC 805 will be on future acquisitions, including the December 4, 2009 acquisition of
Turnpike. There will be no impact on our existing financial position and results of operations.
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The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles
In June 2009, the FASB issued Accounting Standards Update (ASU) 2009-01, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting. The Codification will
become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. On the effective date, the Codification
will supersede all then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification will become
non-authoritative. The ASU is effective for financial statements issued for interim and annual
periods ending after September 15, 2009 and did not have a material impact on our financial
statements.
Subsequent Events (ASC 855)
In May 2009, the FASB issued ASC 855 Subsequent Events, to incorporate the accounting and
disclosure requirements for subsequent events into U.S. generally accepted accounting principles.
ASC 855 introduces new terminology, defines a date through which management must evaluate
subsequent events, and lists the circumstances under which an entity must recognize and disclose
events or transactions occurring after the balance-sheet date. The Company adopted ASC 855 as of
June 30, 2009, which was the required effective date. The adoption of ASC 855 did not have a
material impact on our financial statements.
Revenue Recognition (ASU 2009-13 and ASU 2009-14)
In October 2009, the FASB issued the following ASUs: ASU No. 2009-13, Revenue Recognition (ASC
Topic 605) Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues
Task Force and ASU No. 2009-14, Software (ASC Topic 985) Certain Revenue Arrangements That
Include Software Elements, a consensus of the FASB Emerging Issues Task Force.
ASU No. 2009-13: This guidance modifies the fair value requirements of ASC subtopic 605-25 Revenue
Recognition-Multiple Element Arrangements by allowing the use of the best estimate of selling
price in addition to VSOE and VOE (now referred to as TPE standing for third-party evidence) for
determining the selling price of a deliverable. A vendor is now required to use its best estimate
of the selling price when VSOE or TPE of the selling price cannot be determined. In addition, the
residual method of allocating arrangement consideration is no longer permitted.
ASU No. 2009-14: This guidance modifies the scope of ASC subtopic 965-605 Software-Revenue
Recognition to exclude from its requirements (a) non-software components of tangible products and
(b) software components of tangible products that are sold, licensed, or leased with tangible
products when the software components and non-software components of the tangible product function
together to deliver the tangible products essential functionality.
These updates require expanded qualitative and quantitative disclosures and are effective for
fiscal years beginning on or after June 15, 2010. However, companies may elect to adopt as early as
interim periods ended September 30, 2009. These updates may be applied either prospectively from
the beginning of the fiscal year for new or materially modified arrangements or retrospectively.
The Company is currently evaluating the impact of adopting these updates on our consolidated
financial statements.
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Note 3. Revenue and Cost of Goods Sold Information
The Company operates and manages the business as one reportable segment. Factors used to identify
the single operating segment include the financial information available for evaluation by the chief
operating decision maker in making decisions about how to allocate resources and assess
performance. For the years ended September 30, 2009 and 2008, the Company reported the following
revenues and related cost of goods sold by type:
For the Years Ended September 30, | ||||||||
2009 | 2008 | |||||||
Revenue: |
||||||||
Software |
$ | 34,776 | $ | 23,794 | ||||
Systems |
25,215 | 25,681 | ||||||
Services |
5,334 | 4,251 | ||||||
Total revenue |
$ | 65,325 | $ | 53,726 | ||||
For the Years Ended September 30, | ||||||||
2009 | 2008 | |||||||
Cost of goods sold: |
||||||||
Software |
$ | 9,582 | $ | 7,245 | ||||
Systems |
22,871 | 19,556 | ||||||
Services |
3,687 | 3,155 | ||||||
Total cost of goods sold |
$ | 36,140 | $ | 29,956 | ||||
Software revenue includes monthly subscriptions from XATANET and monthly fees from MobileMax and
OpCenter product lines. Systems revenue includes hardware, warranty, repair, and activation
revenue. Services revenue includes training, implementation, installation, and professional
service revenue.
Cost of software consists of communication, hosting costs, and direct personnel costs related to
network and infrastructure support. Cost of systems consists of the direct product costs, warranty
costs, product repair costs, and direct personnel costs related to customer support. Cost of
services consists of third party vendor costs and direct costs related to service personnel.
Note 4. GeoLogic Solutions, Inc. Acquisition
On January 31, 2008, the Company acquired all of the outstanding stock of GeoLogic Solutions, Inc.
The results of operations of GeoLogic Solutions, Inc. have been included in the Companys
consolidated results of operations since the date of acquisition. GeoLogic Solutions, Inc. provides
mobile communications and tracking systems for the transportation industry. The acquisition
enhanced the Companys product portfolio and broadened its addressable market.
The total purchase price included $15.3 million in cash, 90,689 shares of common stock (valued at
$0.3 million) of the Company and $1.8 million in debt obligations to the seller of GeoLogic
Solutions, Inc. The Company also incurred $1.6 million of transaction costs in connection with the
acquisition. The Company incurred additional debt of $16.2 million in connection with the
acquisition.
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The components of the purchase price and the allocation to the assets and liabilities based on
their estimated fair values at the date of acquisition are as follows (in thousands):
Cash |
$ | 15,277 | ||||||
Debt obligations |
1,750 | |||||||
Common stock |
300 | |||||||
Transaction costs |
1,560 | |||||||
Total purchase price |
$ | 18,887 | ||||||
Cash |
$ | 557 | ||||||
Other current assets |
6,208 | |||||||
Property and equipment |
554 | |||||||
Intangible and other assets |
1,049 | |||||||
Current liabilities |
(5,992 | ) | ||||||
Net assets |
2,376 | |||||||
Acquired customer contracts |
13,500 | |||||||
Goodwill |
3,011 | |||||||
Total |
$ | 18,887 | ||||||
Unaudited pro forma results of operations for the year ended September 30, 2008, as if the purchase
had occurred at the beginning of the year are as follows (in thousands, except per share amounts):
Revenue |
$ | 60,679 | ||
Net loss to common shareholders |
$ | (7,582 | ) | |
Net loss per common share basic and diluted |
$ | (0.91 | ) | |
Weighted average common and common
share equivalents basic and diluted |
8,326 |
Pro forma adjustments relate to amortization of intangible assets, interest expense resulting from
acquisition financing and certain other adjustments. The above unaudited pro forma consolidated
results of operations are for comparative purposes only and are not necessarily indicative of
results that would have occurred had the acquisition been consummated as of the beginning of the
period presented, nor are they necessarily indicative of future results.
Note 5. Financing Arrangements
In connection with the financing of the acquisition of GeoLogic Solutions, Inc., the Company
entered into a three-year secured credit facility with Silicon Valley Bank (SVB) consisting of a
$10.0 million revolving line of credit bearing interest at a floating rate equal to 0.5% over SVBs
Prime Rate. The credit facility was secured by substantially all the assets of the Company.
Interest was paid monthly in arrears, and the entire amount of any outstanding principal was to be
due at maturity on January 30, 2011. The credit agreement contained certain financial covenants
which imposed a minimum level of net worth and fixed charge coverage ratio. The balance outstanding
was $0.5 million at September 30, 2009 and $8.2 million at September 30, 2008. In October 2009, the
Company paid the outstanding balance on the line of credit and subsequently canceled the facility
with the SVB.
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Also in connection with the acquisition of GeoLogic Solutions, Inc., the Company entered into a
four year secured credit facility consisting of an $8.0 million term loan with Partners for Growth
II, L.P. (PFG) bearing interest at a fixed rate of 14.5%, subject to adjustment under various
circumstances. Under the terms of the loan agreement, the Company complied with financial
covenants specifying minimum levels of net worth and fixed charge coverage ratio. The loan was
secured by substantially all the assets of the Company and was subordinate to the security interest
of SVB. Interest was payable monthly, and the Company was to be required to make quarterly
principal payments of $1.0 million beginning March 31, 2011 with the remainder of the unpaid
principal due at maturity on January 31, 2012. The balance of $8.0 million was outstanding at
September 30, 2009 and 2008. In December 2009, the Company paid the outstanding balance of $8.0
million plus accrued interest.
As of September 30, 2009, the Company was in compliance with all financial covenants related to the
debt obligations.
In addition to the preceding sources of financing, the Company also issued $1.8 million of
subordinated debt obligations to the seller (the Seller Notes) in conjunction with the
acquisition of GeoLogic Solutions, Inc. The Seller Notes and related accrued interest were paid in
full in February 2009.
Long- term obligations and notes payable consist of the following (in thousands):
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Subordinated notes issued to seller |
$ | | $ | 1,225 | ||||
Subordinated convertible notes issued to seller |
| 525 | ||||||
Total notes payable issued to seller |
| 1,750 | ||||||
Senior secured revolving credit facility |
500 | 8,223 | ||||||
Secured term loan |
8,000 | 8,000 | ||||||
Capitalized leases |
118 | 214 | ||||||
Total long-term obligations |
8,618 | 18,187 | ||||||
Less current portion of long-term obligations |
84 | 1,845 | ||||||
Total long-term obligations, net of current portion |
$ | 8,534 | $ | 16,342 | ||||
The aggregate schedule of maturities of long-term obligations and notes payable subsequent to
September 30, 2009 were as follows:
Years ending September 30, | ||||
2010 |
$ | 84 | ||
2011 |
3,520 | |||
2012 |
5,014 | |||
Total |
$ | 8,618 | ||
Note 6. Net Loss Per Share
Basic loss per common share is computed based on the weighted average number of common shares
outstanding by dividing net loss applicable to common shareholders by the weighted average number
of common shares outstanding for the period. Generally, diluted net income per common share
reflects the potential dilution that could occur if securities or other obligations to issue common
stock such as options,
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restricted stock units, warrants or convertible preferred stock, were
exercised or converted into common stock that then shared in the earnings of the Company. However,
diluted net loss per common share is equal to basic net loss per common share for all periods
presented because the effect of including such securities or obligations would have been
antidilutive.
Potentially dilutive securities representing approximately 4.2 million shares of common stock
outstanding at September 30, 2009 and 3.5 million shares of common stock outstanding as September
30, 2008 were excluded from the computation of diluted earnings per share because their effect
would have been antidilutive.
Note 7. Income Taxes
The Companys deferred tax assets and liabilities are as follows (amounts in thousands):
September 30, | ||||||||
2009 | 2008 | |||||||
Current deferred tax assets: |
||||||||
Inventory and warranty reserve |
$ | 838 | $ | 862 | ||||
Accrued expenses, deferred revenue and other |
2,733 | 2,615 | ||||||
Accounts receivable and sales reserve |
136 | 123 | ||||||
3,707 | 3,600 | |||||||
Non-current deferred tax assets: |
||||||||
Depreciation and amortization |
949 | 907 | ||||||
Tax credit carryforwards |
1,748 | 1,456 | ||||||
Net operating loss carryforwards |
16,520 | 16,930 | ||||||
Identifiable intangible assets |
(3,968 | ) | (4,595 | ) | ||||
15,249 | 14,698 | |||||||
Total deferred tax asset |
18,956 | 18,298 | ||||||
Less: valuation allowance |
(18,956 | ) | (18,298 | ) | ||||
Net deferred tax asset |
$ | | $ | | ||||
The Company periodically reviews the valuation allowance it has established on its deferred
tax assets. 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 has incurred net operating losses since
inception, but has not reflected any benefit of such net operating loss carryforwards in the
accompanying consolidated financial statements. Given the Companys history of losses and the
uncertainty of projecting future taxable income, the Company has provided a full valuation
allowance against its deferred tax assets at September 30, 2009 and 2008. The amount of the net
deferred tax asset considered realizable could be increased in the future if the Company returns to
profitability and actual future taxable income is higher than currently estimated, and it becomes
more likely than not that these amounts would be realized.
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The Companys income tax expense (benefit) differed from the statutory federal rate as follows
(amounts in thousands):
September 30, | ||||||||
2009 | 2008 | |||||||
Statutory federal rate applied to loss |
||||||||
before income taxes |
$ | (703 | ) | $ | (1,143 | ) | ||
State income tax expense (benefit) |
(23 | ) | (81 | ) | ||||
Stock based compensation |
242 | 195 | ||||||
Other permanent differences |
83 | 32 | ||||||
Change in valuation allowance |
658 | 1,053 | ||||||
Research and development credit |
(258 | ) | (56 | ) | ||||
Alternative minimum tax |
25 | | ||||||
Other |
11 | | ||||||
$ | 35 | $ | | |||||
Current |
$ | 35 | $ | | ||||
Deferred |
| | ||||||
$ | 35 | $ | | |||||
As of September 30, 2009, the Company had federal net operating loss carryforwards and tax credit
carryforwards of approximately $44.6 million and $1.7 million, respectively, which begin to expire
in 2010 through 2029. Approximately $31.1 million of net operating loss carryforwards were acquired
with the acquisition of GeoLogic Solutions, Inc.; however, the usage of these net operating losses
is limited in accordance with the provisions of Section 382 of the Internal Revenue Code.
Accordingly, only approximately $20.1 million of the acquired net operating loss carryforwards are
available for use and are included in the $44.6 million carryforward amount. The remaining $24.5
million of net operating loss carryforwards may be subject to annual use limitations in accordance
with the same provisions. Included in the net operating loss carryforwards is approximately
$291,000 related to stock options, which currently have a full valuation allowance, and if realized
for financial statement purposes will not result in a reduction in income tax expense. Rather, the
benefit will be recorded as an increase to additional paid-in capital.
The Company implemented the provisions of ASC 740 Income Taxes related to uncertain tax
positions, effective October 1, 2007. This interpretation clarifies the accounting for uncertainty
in income taxes recognized in a Companys financial statements and prescribes a recognition
threshold and measurement criteria for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. It also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
The impact of adopting ASC 740 on the Companys consolidated financial statements was not material
and no cumulative effect adjustment was recorded to the October 1, 2007 balance of accumulated
deficit. In 2009, the Company recognized no tax benefit or liabilities for uncertainties related to
prior and current year income tax positions, which were determined to be immaterial.
The Company currently has no income tax payable balance for unrecognized tax benefits, and
accordingly, there is no interest or penalties recorded on the balance sheet for such items.
However, as discussed above, the value of GeoLogic Solutions, Inc. net operating loss carryforwards
have been reduced by $11.0 million based on limitations on their use pursuant to Section 382 of the
Internal
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Revenue Code. The Company is currently open to audit under the statute of limitations by the
Internal Revenue Service and the appropriate state income taxing authorities from 1994 to 2008 due
to the net operating loss carryforwards from those years.
Note 8. Commitments
Leases
The Company leases its offices, warehouse, and certain office equipment under noncancelable
operating leases, which generally have escalating rentals over the
term of the lease. The facility leases require 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
non-cancelable operating leases, are (in thousands):
Years ending September 30, | ||||
2010 |
$ | 1,089 | ||
2011 |
748 | |||
2012 |
527 | |||
2013 |
540 | |||
2014 |
551 | |||
Thereafter |
147 | |||
Total |
$ | 3,602 | ||
Rental expense, including common area costs, was approximately $1.6 million and $1.1 million for
the fiscal years ended September 30, 2009 and 2008.
401(k) Plan
The Company has a 401(k) plan covering substantially all employees and is operated on a calendar
year basis. The Plan provides for a Company matching contribution equal to 50 percent of an
employees contribution for employee deferrals of up to 6 percent of their eligible compensation
with immediate vesting. Matching contributions for the fiscal years ended September 30, 2009 and
2008 totaled $0.4 million and $0.3 million, respectively.
Note 9. Shareholders Equity
Common Stock
The Company is authorized to issue up to 25,000,000 shares of common stock.
Preferred Stock
The Company has authorized an undesignated class of preferred stock of 10,000,000 shares. The
Board of Directors can issue preferred stock in one or more series and fix the terms of such stock
without shareholder approval. 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.
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Series B
In December 2003, the Companys Board of Directors authorized the sale of up to 1,700,000 shares of
Series B Preferred Stock through a private placement. Pursuant to a Stock Purchase Agreement
entered into in December 2003 with Trident Capital, Inc. and its affiliates (collectively,
Trident) the Company sold 1,613,000 shares of Series B Preferred Stock for $4.1 million, or $2.54
per share. Each share of the Preferred Stock is convertible into one share of the Companys common
stock. The price per share of the Series B Preferred Stock and the conversion price for the common
stock were equal to the market value of the common stock (as defined in the rules of the Nasdaq
Stock Market) on the date of execution of the definitive agreements. The Series B Preferred Stock
pays an annual cumulative dividend of 4 percent of the original issue price (payable semi-annually;
payable in additional shares of Series B Preferred Stock or cash, at the option of the holders) and
has a non-participating preferred liquidation right equal to the original issue price, plus accrued
unpaid dividends. The Series B Preferred Stock provides that the Company cannot pay dividends to
the holders of any other capital stock unless and until the Company has paid dividends accrued on
the Series B Preferred Stock.
In fiscal 2009 and 2008 the Company issued 78,000 and 75,000 shares, respectively, of Series B
Preferred Stock to Trident for payment of accrued dividends. Based on the market value of the
Companys common stock on the date of the dividend payment, the payment of the dividend in
additional shares of Series B Preferred Stock resulted in a non-cash dividend of $0.2 million and
$0.3 million in fiscal 2009 and 2008, respectively.
The Series B Preferred Stock is redeemable at the option of Trident at 100 percent of the original
purchase price plus accrued and unpaid dividends at any time after five years from the date of
issuance, or at any time if there is a significant adverse judgment against the Company, the
Company defaults on its debts or files for bankruptcy, or in the event of a change of control.
However, the Company may decline to redeem any or all of the Preferred Stock at its sole option and
discretion, and in such case the annual cumulative dividend on the Series B Preferred Stock will
increase from 4 percent to 10 percent. In the event that upon a change of control the Company does
not have sufficient funds to redeem any or all of the Preferred Stock the annual cumulative
dividend on the Series B Preferred Stock will increase from 4 percent to 6 percent. The Company
may redeem the Series B Preferred Stock at its option after five years from the date of issuance if
the market price of its common stock is greater than three times the conversion price on each of
the sixty consecutive days prior to the redemption date.
Additionally, the Company issued Trident 5-year warrants for 451,000 shares of its common stock at
an exercise price of $3.17 per share. The aggregate purchase price of the warrants was $56,000.
The warrants permit cashless exercise.
In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of
$0.6 million relating to the beneficial conversion portion of the preferred stock. The beneficial
conversion portion was determined by allocating the Trident proceeds on a fair value basis between
the preferred stock and the warrants. The amount of the deemed dividend was the difference
between the deemed fair value of the Series B Preferred Stock and the purchase price on the date of
the transaction. The deemed dividend was recorded as an addition to preferred stock with a
corresponding increase to accumulated deficit. The addition was recognized at the date of issuance
of the preferred stock, the same date at which the shares were eligible for conversion.
On December 6, 2003, the placement agent for the Trident investment received as consideration a
$0.3 million cash fee and 7-year warrants for purchase of an aggregate of 163,000 shares of Common
Stock (130,000 shares at $2.54 per share and 33,000 shares at $3.17 per share). These warrants
permit cashless exercise and provide the holders with piggyback registration rights.
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Series C
In August 2005, the Companys Board of Directors authorized the sale of up to 1,400,000 shares of
Series C Preferred Stock through a private placement. Pursuant to a Stock Purchase Agreement
entered into in September 2005 with Trident, the Company sold 1,269,000 shares of Series C
Preferred Stock for $5.0 million, or $3.94 per share. Each share of the Series C Preferred Stock
is convertible into one share of the Companys common stock. The price per share of Series C
Preferred Stock and the conversion price for the common stock are equal to the market value of
the common stock (as defined in the rules of the Nasdaq Stock Market) on the date of execution of
the definitive agreements. The Series C Preferred Stock does not pay a dividend, unless the Company
declines to redeem the stock upon demand of the holders after an Acceleration Event (as defined in
the Certificate of Designation of the Series C Preferred Stock). In that case, the Series C
Preferred Stock pays an annual cumulative dividend of 4 percent of the original issue price
(payable in cash). The Series C Preferred Stock has a non-participating liquidation right equal to
the original issue price, plus accrued unpaid dividends which are senior to the Common Stock and
junior to the Series B Preferred Stock. The Company may redeem the Series C Preferred Stock at its
option after five (5) years from the date of issuance at the original issue price, plus accrued
unpaid dividends, if the market value of the common stock is at least three (3) times the then
effective conversion price for a specified period.
Additionally, the Company issued Trident 5-year warrants to purchase 375,000 shares of its common
stock at an exercise price of $3.94 per share. The aggregate fair value of the warrants was
$47,000. The warrants permit cashless exercise.
In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of
$0.4 million relating to the beneficial conversion portion of the preferred stock. The beneficial
conversion portion was determined by allocating the Trident proceeds on a fair value basis between
the preferred stock and the warrants. The amount of the deemed dividend was the difference
between the deemed fair value of the Series C Preferred Stock and the purchase price on the date of
the transaction. The deemed dividend was recorded as an addition to preferred stock with a
corresponding increase to accumulated deficit. The addition was recognized at the date of issuance
of the preferred stock, the same date at which the shares were eligible for conversion.
No broker or placement agent was involved in the placement of the Series C Preferred Stock and no
commissions or other compensation was paid.
Series D
In May 2007, the Companys Board of Directors authorized the sale of up to 1,600,000 shares of
Series D Preferred Stock through a private placement. Pursuant to a Stock Purchase Agreement
entered into in June 2007 with Trident, the Company sold 1,567,000 shares of Series C Preferred
Stock for $6.0 million, or $3.83 per share. Each share of the Series D Preferred Stock is
convertible into one share of the Companys common stock. The price per share of Series D Preferred
Stock and the conversion price for the common stock are equal to the market value of the common
stock (as defined in the rules of the Nasdaq Stock Market) on the date of execution of the
definitive agreements. The Series D Preferred Stock does not pay a dividend, unless the Company
declines to redeem the stock upon demand of the holders after an Acceleration Event (as defined in
the Certificate of Designation of the Series D Preferred Stock). In that case, the Series D
Preferred Stock pays an annual cumulative dividend of 4 percent of the original issue price
(payable in cash). The Series D Preferred Stock has a non-participating liquidation right equal to
the original issue price, plus accrued unpaid dividends which are senior to the Common Stock and
junior to the Series B and Series C Preferred Stock. The Company may redeem the Series D Preferred
Stock at its option after five (5) years from the date of issuance at the original issue price,
plus accrued
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unpaid dividends, if the market value of the common stock is at least three (3) times
the then effective conversion price for a specified period.
Additionally, the Company issued Trident 5-year warrants to purchase 470,000 shares of its common
stock at an exercise price of $3.83 per share. The aggregate fair value of the warrants was
$59,000. The warrants permit cashless exercise.
In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of
$0.7 million relating to the beneficial conversion portion of the preferred stock. The beneficial
conversion portion was determined by allocating the Trident proceeds on a fair value basis between
the preferred stock and the warrants. The amount of the deemed dividend was the difference
between the deemed fair value of the Series D Preferred Stock and the purchase price on the date of
the transaction. The deemed dividend was recorded as an addition to preferred stock with a
corresponding increase to accumulated deficit. The addition was recognized at the date of issuance
of the preferred stock, the same date at which the shares were eligible for conversion.
No broker or placement agent was involved in the placement of the Series D Preferred Stock and no
commissions or other compensation was paid.
Series E and Series F
In February 2009, the Company sold 1,355,857 shares of Series E Preferred Stock for $3.0 million,
or $2.22 per share. Each share of the Series E Preferred Stock was converted into one share of the
Series F Preferred Stock in April 2009 and the Certificate of Designation for the Series E
Preferred Stock was cancelled. Each share of Series F Preferred Stock is convertible into one share
of the Companys common stock. The price per share of Series F Preferred Stock and the conversion
price for the common stock are equal to the market value of the common stock (as defined in the
rules of the Nasdaq Stock Market) on the date of execution of the definitive agreements. The
Series F Preferred Stock does not pay a dividend, unless the Company declines to redeem the stock
upon demand of the holders after an Acceleration Event (as defined in the Certificate of
Designation of the Series F Preferred Stock). In that case, the Series F Preferred Stock pays a
cumulative dividend of 4 percent of the original issue price per annum on each outstanding share of
Series F Preferred Stock (payable in cash). The Series F Preferred Stock has a non-participating
liquidation right equal to the original issue price, plus accrued unpaid dividends, which is senior
to the Companys common stock and the Series B, Series C, and Series D Preferred Stock. The
Company may redeem the Series F Preferred Stock at its option after five years from the date of
issuance at the original issue price, plus accrued unpaid dividends, if the market value of the
common stock is at least three times the then effective conversion price for a specified period.
Additionally, the Company issued 7-year warrants to purchase 406,759 shares of its common stock at
an exercise price of $2.22 per share. Also in connection with this transaction, the Company
extended by two years the term of each common stock warrant issued on September 15, 2005 (in
connection with the purchase of the Companys Series C Preferred Stock) and June 19, 2007 (in
connection with the purchase of the Companys Series D Preferred Stock), so that such warrants are
now exercisable until the seventh anniversary (instead of the fifth anniversary) of the original
date of issuance. The aggregate fair value of the warrants was $0.5 million, of which $0.1 million
related to the modification of the Series C and Series D warrants. The warrants permit cashless
exercise.
In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of
$0.5 million relating to the beneficial conversion portion of the preferred stock. The beneficial
conversion portion was determined by allocating the proceeds on a fair value basis between the
preferred stock and the warrants. The amount of the deemed dividend was the difference between the
deemed fair value of the Series E Preferred Stock and the purchase price on the date of the
transaction. The deemed dividend was
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recorded as an addition to preferred stock with a corresponding increase to accumulated deficit. The addition was recognized at the date of issuance
of the Series E Preferred Stock, the same date at which such shares were eligible for conversion.
No broker or placement agent was involved in the placement of the preferred stock and warrants in
this transaction and no commissions or other compensation was paid.
Stock Plans
In February 2007 the Company adopted the 2007 Long Term Incentive and Stock Option Plan (the 2007
Plan). The 2007 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, restricted stock awards, and
restricted stock units may also be granted under the 2007 Plan. A total of 500,000 shares of the
Companys common stock were originally reserved for issuance pursuant to equity awards under the
2007 Plan. Subsequently, 1,000,000 shares were approved for addition to the 2007 Plan at the 2009
Annual Shareholders Meeting. The 2007 Plan has an evergreen provision in which the maximum number
of shares that may be issued under the 2007 Plan shall be cumulatively increased on January 1, 2008
and on each January 1 thereafter for nine years by the lesser of (i) 500,000 Common Shares, (ii) 3%
of the Companys outstanding Common Shares, on an as-converted basis, as of the preceding December
31 and (iii) a number of Common Shares determined by the Board or Committee. The Company has
594,598 shares authorized and available for future equity awards as of September 30, 2009.
Generally, the options that are granted under the 2007 Plan are exercisable for a period of ten
years from the date of grant and vest over a period of up to three years from the date of grant.
The Company has three equity compensation plans: its 2001 Interim Incentive and Stock Option Plan,
its 2002 Long-Term Incentive and Stock Option Plan and its 2007 Long-Term Incentive and Stock
Option Plan, all of which have been approved by the shareholders of the Company. The 2001 Interim
and 2002 Plans have terminated and no additional awards can be made under those Plans.
Stock Options
The following tables summarize information relating to stock option activity for fiscal 2009
and 2008 (in thousands, except per share amount):
Weighted | ||||||||
Average | ||||||||
Shares | Exercise Price | |||||||
Options outstanding at September 30, 2007 |
1,232 | $ | 5.01 | |||||
Granted |
323 | 3.05 | ||||||
Exercised |
(15 | ) | 2.98 | |||||
Cancelled |
(301 | ) | 4.43 | |||||
Options outstanding at September 30, 2008 |
1,239 | 4.66 | ||||||
Granted |
732 | 2.18 | ||||||
Cancelled |
(66 | ) | 4.15 | |||||
Options outstanding at September 30, 2009 |
1,905 | 3.73 | ||||||
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Table of Contents
Information regarding options outstanding and exercisable at September 30, 2009 is as
follows (in thousands, except per share amount):
Options Outstanding | Options Exercisable | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||||||||
Remaining | Average | Remaining | Average | |||||||||||||||||||||
Range of | Number | Contractual | Exercise | Number | Contractual | Exercise | ||||||||||||||||||
exercise price | of Shares | Life (Years) | Price | of Shares | Life (Years) | Price | ||||||||||||||||||
$2.00 - $2.99 |
883 | 9.1 | $ | 2.25 | 122 | 8.6 | $ | 2.75 | ||||||||||||||||
$3.15 - $3.99 |
132 | 8.7 | 3.64 | 29 | 8.2 | 3.49 | ||||||||||||||||||
$4.33 - $4.98 |
35 | 6.9 | 4.64 | 30 | 6.8 | 4.70 | ||||||||||||||||||
$5.03 - $5.40 |
855 | 7.0 | 5.23 | 716 | 6.9 | 5.25 | ||||||||||||||||||
1,905 | 8.1 | 3.73 | 897 | 7.2 | 4.83 | |||||||||||||||||||
There were no options exercised during fiscal year 2009. Total intrinsic value of stock options
exercised during fiscal year 2008 was $3,000. The intrinsic value of outstanding options and
options exercisable was $593,000 and $27,000, respectively, as of September 30, 2009.
On December 19, 2008, pursuant to and in accordance with the recommendation of the Compensation
Committee (the Committee) of the Board of Directors of the Company, the Company extended the
expiration date of all employee stock options previously issued under the 2007 Long-Term Incentive
and Stock Option Plan and the 2002 Long-Term Incentive and Stock Option Plan from five years to ten
years. No changes were made to any other terms of the stock options and the exercise prices
remained the same. The total impact of this modification is that an additional $80,000 of
compensation cost is being recognized ratably over the remaining vesting periods of the modified
options.
The fair value of each option is estimated at the grant date using the Black-Scholes option-pricing
model. The weighted average fair value at the date of grant and the assumptions used to determine
such values are indicated in the following table (number of shares in thousands):
For the Years Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Number of shares granted |
732 | 323 | ||||||
Fair value per share |
$ | 0.87 | $ | 0.81 | ||||
Risk-free interest rate |
2.29 | % | 2.24 | % | ||||
Expected volatility |
40.29 | % | 30.88 | % | ||||
Expected life (in years) |
5.73 | 3.70 | ||||||
Dividend yield |
| |
As of September 30, 2009, there was approximately $0.7 million of total unrecognized compensation
costs related to stock option awards. The Company will recognize this cost over the remaining
vesting periods of these options. The weighted average period over which the costs will be
recognized is 1.5 years.
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Table of Contents
Restricted Stock Awards
The Company grants restricted shares of common stock as part of its long-term incentive
compensation to employees. Fair market values of restricted stock awards are determined based on
the closing market price on the date of grant. Restricted stock awards vest over one to three
years and stock may be sold once vested. The Company also granted 15,000 and 15,625 shares of
common stock to certain directors in fiscal 2009 and 2008, respectively. Restricted stock awards
granted to directors vest immediately.
The following table summarizes information relating to restricted stock activity for fiscal 2009
and 2008 (in thousands, except per share amount):
Weighted | ||||||||
Number of | Average Grant | |||||||
Shares | Date Fair Value | |||||||
Restricted stock outstanding at September 30, 2007 |
361 | $ | 5.22 | |||||
Granted |
151 | 3.04 | ||||||
Vested |
(198 | ) | 4.94 | |||||
Cancelled |
(29 | ) | 4.08 | |||||
Restricted stock outstanding at September 30, 2008 |
285 | 4.37 | ||||||
Granted |
48 | 3.24 | ||||||
Vested |
(173 | ) | 4.48 | |||||
Cancelled |
(4 | ) | 2.99 | |||||
Restricted stock outstanding at September 30, 2009 |
156 | 3.93 | ||||||
The total fair value of shares vested during fiscal years 2009 and 2008 was $0.5 million and $0.7
million, respectively. The weighted average grant date fair value of restricted stock awards
granted during fiscal years 2009 and 2008, respectively, was $3.24 and $3.04.
At September 30, 2009, there was approximately $0.4 million of total unrecognized compensation
costs related to restricted stock awards. The Company will recognize this cost over the remaining
vesting periods of these awards. The weighted average period over which the costs will be
recognized is 1.5 years.
Restricted Stock Units
The Company currently grants restricted units of common stock as part of its long-term incentive
compensation to employees. The fair value of restricted stock units is determined based on the
closing market price of the Companys stock on the date of grant. Restricted stock units vest over
a period of three years for employees.
The following table summarizes information relating to restricted stock unit activity for fiscal
2009 (number of units in thousands):
Weighted | ||||||||
Number of | Average Grant | |||||||
Shares | Date Fair Value | |||||||
Restricted stock outstanding at September 30, 2008 |
| | ||||||
Granted |
241 | $ | 2.00 | |||||
Restricted stock outstanding at September 30, 2009 |
241 | 2.00 | ||||||
At September 30, 2009, there was approximately $0.4 million of total unrecognized compensation
costs related to restricted stock units. The Company will recognize this cost over the remaining
vesting periods of these units. The weighted average period over which the costs will be recognized
is 1.7 years.
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Table of Contents
Common stock warrants
The Company has issued warrants for the purchase of common stock to management, consultants and
placement agents. Compensation expense associated with the warrants has not been material and has
been recorded as expense at its fair value.
In fiscal 2009, the Company issued 407,000 warrants relating to the issuance of Series F Preferred
Stock.In fiscal 2008, the Company issued 457,000 warrants relating to debt facilities utilized in
connection with acquisition of GeoLogic Solutions, Inc. The fair value of these warrants on the
date of issue was $0.5 million and $0.5 million, respectively.
The following tables summarize information relating to stock warrants (amounts in thousands, with
the exception of per warrant amounts):
Weighted | ||||||||||||
Weighted | Average | |||||||||||
Number of | Average | Remaining | ||||||||||
Warrants | Exercise Price | Life (years) | ||||||||||
Warrants outstanding at September 30, 2007 |
1,538 | $ | 5.22 | 2.9 | ||||||||
Granted |
457 | |||||||||||
Warrants outstanding at September 30, 2008 |
1,995 | 3.54 | 2.6 | |||||||||
Granted |
407 | |||||||||||
Cancelled |
(461 | ) | ||||||||||
Warrants outstanding at September 30, 2009 |
1,941 | 3.34 | 4.0 | |||||||||
Note 10. Legal Proceedings
XATA was named as one of six defendants in a lawsuit, filed in the United States District Court,
Eastern District of Texas, Tyler Division (6:09-cv-00157-LED). The plaintiff, Innovative Global
Solutions (IGS), has sued Turnpike Global Technologies, L.L.C., Cadec Global, Inc., General
Electric, Trimble Navigation Ltd., Networkfleet, Inc. and XATA Corporation for infringement of
certain patents and has requested that the court assess compensatory damages against each defendant
and enjoin further infringing activities by the defendants. XATA has settled with the plaintiff and
has received a fully paid license in exchange for payment of $1.0 million.
Note 11. Subsequent Events
The Company has evaluated all subsequent events through December 18, 2009, which represents the
filing date of this Annual Report on Form 10-K with the Securities and Exchange Commission, to
ensure that this Annual Report on Form 10-K includes appropriate disclosure of events both
recognized in the financial statements as of September 30, 2009, and events which occurred
subsequent to September 30, 2009 but were not recognized in the financial statements.
The Company was named as one of six defendants in a patent infringement lawsuit filed during 2009.
In December 2009, the Company reached a settlement agreement with the plaintiff that will dismiss
the Company from the lawsuit and provide the Company a fully paid-up irrevocable and perpetual
license to the patents at issue, in exchange for cash compensation. The Company recognized $1.2
million in legal and settlement expenses during fiscal 2009 related to this matter.
F-27
Table of Contents
On December 4, 2009, the Company acquired all of the outstanding stock of Turnpike Global
Technologies, Inc. and Turnpike Global Technologies LLC (combined Turnpike) for a total purchase price
consisting of $10.0 million in cash and 833,333 shares of common stock of the Company. The
issuance of common shares is contingent on the approval by the shareholders at the Annual Meeting.
Additionally,the Company has committed to pay out up to an additional 2,500,000 shares of common stock subject
to shareholder approval and certain performance goals of the acquired entity over the next three
anniversaries.
In connection with financing the acquisition of Turnpike, the Company issued convertible debt
totaling $30.2 million. The convertible debt carries an interest rate of 14% per annum and the
principal and interest are due on November 1, 2010. However, this convertible debt will be
converted into 10,066,667 shares of preferred stock and 3,020,000 warrants to purchase common
shares subject to shareholder approval at the Annual Meeting. The Company used proceeds of the
convertible debt towards the purchase of Turnpike and to pay off the term loan with PFG of $8.0
million and the litigation settlement. The remaining proceeds will be utilized in working capital
needs and future growth.
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Table of Contents
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures. The Companys Chief Executive Officer and Chief
Financial Officer (collectively, the Certifying Officers) are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) for the
Company. Based on an evaluation of such disclosure controls and procedures as of the end of the
period covered by this report, such officers have concluded that the Companys disclosure controls
and procedures were effective as of September 30, 2009.
Managements report on internal control over financial reporting. Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our
management, including the Certifying Officers, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our management concluded that our internal control
over financial reporting was effective as of September 30, 2009.
Due to its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate due to changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.
This annual report does not include an attestation report of the companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the company to provide only
managements report in this annual report.
Changes in internal controls over financial reporting. There have been no changes in the Companys
internal controls over financial reporting during its fourth fiscal quarter ended September 30,
2009, that have materially affected or are reasonably likely to materially affect such controls.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The required information regarding our directors and executive officers and regarding compliance
with Section 16(a) of the Exchange Act is incorporated by reference from our definitive proxy
statement, including the information under the headings Proposal 1 Election of Directors,
Executive Compensation Executive Officers and Section 16(a) Beneficial Ownership Reporting
Compliance for the Annual Meeting of Stockholders.
We have adopted a Code of Ethics (Code) applicable to our principal executive, financial and
accounting officers. The Code is posted on our website at www.xata.com, and we will post on such
website any
F-29
Table of Contents
amendment to, or waiver from, a provision of our Code within four business days following the date
of such amendment or waiver.
Item 11. Executive Compensation
Information called for by this Item is incorporated by reference from our definitive proxy
statement, including the information under the heading Executive Compensation, for the Annual
Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information called for by this Item is incorporated by reference from our definitive proxy
statement, including the information under the headings Equity Compensation Plan Information and
Principal Shareholders and Ownership of Management for the Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, Director Independence
Information called for by this Item is incorporated by reference from our definitive proxy
statement, including information under the headings Certain Relationships and Related Party
Transactions and Proposal 1 Election of Directors for the Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services
Information called for by this Item is incorporated by reference from our definitive proxy
statement, including the information contained under the heading Audit Committee Report
Principal Accountant, for the Annual Meeting of Stockholders.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents Filed as Part of Form 10-K
1. | Financial Statements |
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of September 30, 2009 and 2008
Consolidated Statements of Operations for the years ended September 30, 2009 and 2008
Consolidated Statements of Changes in Shareholders Equity for the years ended September 30, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended September 30, 2009 and 2008
2. | Financial Statement Schedules |
Schedule II Valuation and Qualifying Accounts
3. | Exhibits |
The list of exhibits in the Exhibit Index is incorporated herein by reference.
(b) Exhibits
We hereby file the exhibits listed in the attached Exhibit Index.
F-30
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(c) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
F-31
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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 18, 2009 | By: | /s/ John J. Coughlan | ||
John J. Coughlan, Chairman, Chief Executive Officer and | ||||
President (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 18, 2009 | By: | /s/ John J. Coughlan | ||
John J. Coughlan, Chairman, Chief Executive Officer and | ||||
President | ||||
Dated: December 18, 2009 | By: | /s/ Carl M. Fredericks | ||
Carl M. Fredericks, Director | ||||
Dated: December 18, 2009 | By: | /s/ Thomas G. Hudson | ||
Thomas G. Hudson, Director | ||||
Dated: December 18, 2009 | By: | /s/ Roger W. Kleppe | ||
Roger W. Kleppe, Director | ||||
Dated: December 18, 2009 | By: | /s/ Chad Lindbloom | ||
Chad Lindbloom, Director | ||||
Dated: December 18, 2009 | By: | /s/ Michael J. Paxton | ||
Michael J. Paxton, Director | ||||
Dated: December 18, 2009 | By: | /s/ Christopher P. Marshall | ||
Christopher P. Marshall, Director | ||||
Dated: December 18, 2009 | By: | /s/ Bharat S. Vedak | ||
Bharat S. Vedak, Director | ||||
Dated: December 18, 2009 | By: | /s/ Mark E. Ties | ||
Mark E. Ties, Chief Financial Officer (Principal accounting | ||||
and financial officer) |
F-32
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Schedule II
XATA Corporation
Valuation and Qualifying Accounts
(in thousands)
XATA Corporation
Valuation and Qualifying Accounts
(in thousands)
Balance at | Charged to | Charged to | ||||||||||||||||||
beginning of | costs and | other | Deductions | Balance at | ||||||||||||||||
Description | period | expenses | accounts (1) | (2) | end of period | |||||||||||||||
Year ended September 30, 2008 deducted
from assets accounts: |
||||||||||||||||||||
Accounts receivable allowance for
bad debts |
$ | 130 | $ | 92 | $ | 638 | $ | 527 | $ | 333 | ||||||||||
Year ended September 30, 2009 deducted
from assets accounts: |
||||||||||||||||||||
Accounts receivable allowance for
bad debts |
333 | 115 | | 80 | 368 |
(1) | This amount represents allowance for bad debts established at the time of acquisition of GeoLogic Solutions, Inc. | |
(2) | Amounts recorded in fiscal 2008 include $511,000 for accounts reserved for at the time of acquisition from GeoLogic Solutions, Inc. |
F-33
Table of Contents
Exhibit | ||
No. | Description of Exhibits | |
3.1 | Second Restated Articles of Incorporation, as amended through April 17, 2009 (incorporated by reference to Exhibit 3.1 of the Companys Report on Form 10-K filed with the SEC on December 17, 2008, and Exhibits 3.1, 3.2 and 3.3 of the Companys Report on Form 8-K filed with the SEC on April 21, 2009).(28) | |
3.2 | Restated Bylaws, as amended February 4, 2009 (22) | |
4.1 | Common Stock Warrant and Series B Preferred Stock Purchase Agreement, dated December 6, 2003 (1) | |
4.2 | Common Stock Warrant and Series C Preferred Stock Purchase Agreement, dated September 7, 2005 (2) | |
4.3 | Common Stock Warrant and Series D Preferred Stock Purchase Agreement, dated June 18, 2007 (3) | |
4.4 | Form of warrant issued to Trident entities in connection with Common Stock Warrant and Series B Preferred Stock Purchase Agreement (1) | |
4.5 | Form of warrant issued to Cherry Tree Securities, LLC for its service as placement agent in connection with Common Stock Warrant and Series B Preferred Stock Purchase Agreement (1) | |
4.6 | Form of warrant issued to Trident entities in connection with Common Stock Warrant and Series C Preferred Stock Purchase Agreement (2) | |
4.7 | Form of warrant issued to Trident entities in connection with Common Stock Warrant and Series D Preferred Stock Purchase Agreement (3) | |
4.8 | Investor Rights Agreement, dated June 19, 2007 (3) | |
4.9 | Form of Senior Subordinated Convertible Notes issued on January 31, 2008, by XATA Corporation to each of Platinum Equity Capital Partners, L.P., Platinum Equity Capital Partners-A, L.P., Platinum Equity Capital Partners-PF, L.P. and Platinum Transportation Principals, LLC (24) | |
4.10 | Common Stock Warrant, dated as of January 31, 2008, issued by XATA Corporation to Silicon Valley Bank (24) | |
4.11 | Common Stock Warrant, dated as of January 31, 2008, issued by XATA Corporation to Partners for Growth II, L.P. (30) | |
4.12 | Amended and Restated Investor Rights Agreement dated as of February 12, 2009 by and among the Company, Trident Capital Fund-V, L.P., Trident Capital Fund-V Affiliates Fund, L.P., Trident Capital Fund-V Affiliates Fund (Q), L.P., Trident Capital Fund-V Principals Fund, L.P. and Trident Capital Parallel Fund-V, C.V. (31) | |
4.13 | Form of Warrant issued on February 12, 2009 to Trident Capital Fund-V, L.P., Trident Capital Fund-V Affiliates Fund, L.P., Trident Capital Fund-V Affiliates Fund (Q), L.P., Trident Capital Fund-V Principals Fund, L.P., Trident Capital Parallel Fund-V, C.V., GW 2001 Fund, L.P., Weber Capital Partners II, L.P. and certain members of the Companys management (24) | |
9.0 | Amended and Restated Voting Agreement, dated September 7, 2005 (2) | |
10.4 | Trident Investor Indemnification Agreement (1) | |
10.5 | Trident Director Indemnification Agreement (1) | |
10.6 | Stock Purchase Agreement with JDSTG, dated August 30, 2000 (6) |
F-34
Table of Contents
Exhibit | ||
No. | Description of Exhibits | |
10.7 | Registration Rights Agreement with JDSTG dated August 30, 2000 (6) |
|
10.8 | Amendment No. 1, dated October 31, 2000, to Stock Purchase Agreement with JDSTG (7) |
|
10.9 | Side Agreement with JDSTG dated December 28, 2000 (8) |
|
10.10 | Loan and Security Agreement with Silicon Valley Bank, dated as of December 17, 2004 (9) |
|
10.11 | First Amendment to Loan and Security Agreement with Silicon Valley Bank, dated as of December 16, 2005
(10) |
|
10.12 | Employment Agreement dated October 1, 2000 with Thomas N. Flies (11) |
|
10.13 | Form of Warrant issued to directors as equity compensation (12) |
|
10.14 | 2002 Long-Term Incentive and Stock Option Plan (22) |
|
10.15 | Form of Restricted Stock Award Agreement pursuant to 2002 Long-Term Incentive and Stock Option Plan
(13) |
|
10.16 | Form of Directors Restricted Stock Award Agreement pursuant to 2002 Long-Term Incentive and Stock
Option Plan (14) |
|
10.17 | 2007 Long-term Incentive and Stock Option Plan (15) |
|
10.18 | Form of Stock Option Agreement for Directors pursuant to 2007 Long-term Incentive and Stock Option Plan
(22) |
|
10.19 | Form of Stock Option Agreement for Employees pursuant to 2007 Long-term Incentive and Stock Option Plan
(22) |
|
10.20 | Change of Control Agreement with Mark Ties (16) |
|
10.21 | Change of Control Agreement with Thomas Schlick (17) |
|
10.22 | Executive Employment Agreement with John J. Coughlan (18) |
|
10.23 | Incentive Stock Option Agreement with John J. Coughlan (18) |
|
10.24 | Restricted Stock Award Agreement with John J. Coughlan (18) |
|
10.25 | Matching Restricted Stock Award Agreement with John J. Coughlan (18) |
|
10.26 | Change of Control Agreement with David Gagne (19) |
|
10.27 | Non-Qualified Stock Option Agreement with David Gagne (19) |
|
10.28 | Matching Restricted Stock Award Agreement with David Gagne (19) |
|
10.29 | Separation and Release Agreement with Peter A. Thayer (19) |
|
10.30 | Business Agreement with Winland Electronics dated June 28, 2005 (20) |
|
10.31 | Reseller Agreement with Orbcomm, Inc. dated July 31, 2006 (20) |
|
10.32 | Second Amendment to Custom Service Agreement with Sprint Solutions, Inc. effective January 1, 2007
(20) |
F-35
Table of Contents
Exhibit | ||
No. | Description of Exhibits | |
10.33 | Stock Purchase Agreement, dated as of December 19, 2007, between XATA Corporation, GeoLogic Solutions, Inc., GeoLogic Management, Inc., Platinum Equity Capital Partners, L.P., Platinum Equity Capital Partners-A, L.P., Platinum Equity Capital Partners-PF, L.P. and Platinum Transportation Principals, LLC. (23) | |
10.34 | First Amendment to Stock Purchase Agreement, dated as of January 31, 2008, between XATA Corporation, GeoLogic Solutions, Inc., GeoLogic Management, Inc., Platinum Equity Capital Partners, L.P., Platinum Equity Capital Partners-A, L.P., Platinum Equity Capital Partners-PF, L.P. and Platinum Transportation Principals, LLC. (24) | |
10.35 | Loan and Security Agreement, dated as of January 31, 2008, between Silicon Valley Bank, XATA Corporation and GeoLogic Solutions, Inc. (24) | |
10.36 | Loan and Security Agreement, dated as of January 31, 2008, between Partners for Growth II, L.P., XATA Corporation and GeoLogic Solutions, Inc. (24) | |
10.37 | Separation Agreement, dated January 16, 2008, between XATA Corporation and Thomas L. Schlick (25) | |
10.38 | Severance Agreement between Mark E. Ties and the Company dated May 8, 2008 (26) | |
10.39 | Separation Agreement, dated March 1, 2007, between XATA Corporation and James Griffin (27) | |
10.40 | Amendment to Separation Agreement, dated October 1, 2008, between XATA Corporation and James Griffin (27) | |
10.41 | Second Amendment to Loan and Security Agreement dated November 20, 2008. (37) | |
10.42 | First Amendment to PFG Loan and Security Agreement dated November 20, 2008. (38) | |
10.43 | Severance Agreement between XATA Corporation and David Gagne dated May 7, 2009 (29) | |
10.44 | Common Stock Warrant and Series E Preferred Stock Purchase Agreement dated as of February 12, 2009 by and among XATA Corporation, Trident Capital Fund-V, L.P., Trident Capital Fund-V Affiliates Fund, L.P., Trident Capital Fund-V Affiliates Fund (Q), L.P., Trident Capital Fund-V Principals Fund, L.P., Trident Capital Parallel Fund-V, C.V., Weber Capital Partners II, L.P., GW 2001 Fund, L.P. and certain members of the Companys management (32) | |
10.45 | Exchange Agreement dated February 12, 2009 by and among XATA Corporation, Trident Capital Fund-V, L.P., Trident Capital Fund-V Affiliates Fund, L.P., Trident Capital Fund-V Affiliates Fund (Q), L.P., Trident Capital Fund-V Principals Fund, L.P., Trident Capital Parallel Fund-V, C.V., Weber Capital Partners II, L.P., GW 2001 Fund, L.P. and certain members of the Companys management (33) | |
10.46 | Amendment, dated January 27, 2009, to certain promissory notes issued by the Company on January 31, 2008 to Platinum Equity Capital Partners, L.P., Platinum Equity Capital Partners-A, L.P., Platinum Equity Capital Partners-PF, L.P. and Platinum Transportation Principals, LLC (34) | |
10.47 | 2007 Long-term Incentive and Stock Option Plan, as amended effective February 4, 2009 (35) | |
10.48 | Form of XATA Corporation Restricted Stock Unit Award Agreement (36) | |
23 | Consent of Grant Thornton LLP, independent registered public accounting firm* | |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | |
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | |
32.1 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * | |
32.2 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * | |
* | Filed herewith |
F-36
Table of Contents
Exhibit | ||
No. | Description of Exhibits | |
(1) | Incorporated by reference to exhibit filed as part of Report on Form 8-K on December 9, 2003 |
|
(2) | Incorporated by reference to exhibit filed as part of Report on Form 8-K on September 22, 2005 |
|
(3) | Incorporated by reference to exhibit filed as part of Report on Form 8-K on June 22, 2007 |
|
(4) | Incorporated by reference to exhibit filed as a part of Report on Form 10-QSB for the fiscal quarter
ended March 31, 1997 |
|
(5) | Incorporated by reference to exhibit filed as part of Report on Form 10-QSB for the fiscal quarter
ended March 31, 2003 |
|
(6) | Incorporated by reference to exhibit filed as a part of Report on Form 8-K on September 7, 2000 |
|
(7) | Incorporated by reference to exhibit filed as a part of Report on Form 8-K on November 2, 2000 |
|
(8) | Incorporated by reference to exhibit filed as a part of Report on Form 10-KSB for the fiscal year ended
September 30, 2000 |
|
(9) | Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended
September 30, 2004 |
|
(10) | Incorporated by reference to exhibit filed as part of Report on Form 10-KSB/A for the fiscal year ended
September 30, 2005 |
|
(11) | Incorporated by reference to exhibit filed as part of Report on Form 10-QSB for the fiscal quarter
ended December 31, 2000 |
|
(12) | Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended
September 30, 2002 |
|
(13) | Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended
September 30, 2004 |
|
(14) | Incorporated by reference to exhibit filed as part of Report on Form 8-K on March 1, 2006 |
|
(15) | Incorporated by reference to exhibit filed as part of Registration Statement on Form S-8 on February
15, 2007 |
|
(16) | Incorporated by reference to exhibit filed as part of Report on Form 8-K on April 12, 2005 |
|
(17) | Incorporated by reference to exhibit filed as part of Report on Form 8-K on April 11, 2006 |
|
(18) | Incorporated by reference to exhibit filed as part of Report on Form 8-K on October 4, 2006 |
|
(19) | Incorporated by reference to exhibit filed as part of Report on Form 8-K on January 8, 2007 |
|
(20) | Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended
September 30, 2006 |
|
(21) | Incorporated by reference to exhibit filed as part of Report on Form 8-K on July 9, 2007 |
|
(22) | Incorporated by reference to Exhibit 3.1 of the Companys Report on Form 8-K filed with the SEC on
February 10, 2009 |
|
(23) | Incorporated by reference to exhibit filed as part of Report on Form 8-K filed with the SEC on December
24, 2007 |
|
(24) | Incorporated by reference to exhibit filed as part of Report on Form 8-K filed with the SEC on February
6, 2008 |
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Table of Contents
Exhibit | ||
No. | Description of Exhibits | |
(25) | Incorporated by reference to exhibit filed as part of Report on Form 8-K filed with the SEC on January 18, 2008 | |
(26) | Incorporated by reference to exhibit filed as part of Report on Form 10-Q for the fiscal quarter ended June 30, 2008. | |
(27) | Incorporated by reference to exhibit filed as part of Report on Form 8-K filed with the SEC on October 7, 2008 | |
(28) | Incorporated by reference to Exhibit 3.1 of the Companys Report on Form 10-K filed with the SEC on December 17, 2008, and Exhibits 3.1, 3.2 and 3.3 of the Companys Report on Form 8-K filed with the SEC on April 21, 2009 | |
(29) | Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K filed with the SEC on May 11, 2009 | |
(30) | Incorporated by reference to Exhibit 4.1 of the Companys Report on Form 8-K filed with the SEC on February 18, 2009 | |
(31) | Incorporated by reference to Exhibit 4.2 of the Companys Report on Form 8-K filed with the SEC on February 18, 2009 | |
(32) | Incorporated by reference to Exhibit 10.1 of the Companys Report on Form 8-K filed with the SEC on February 18, 2009 | |
(33) | Incorporated by reference to Exhibit 10.2 of the Companys Report on Form 8-K filed with the SEC on February 18, 2009 | |
(34) | Incorporated by reference to exhibit filed as part of Report on Form 10-Q for the fiscal quarter ended March 31, 2009 | |
(35) | Incorporated by reference to Appendix A to the Companys Proxy Statement filed with the Securities and Exchange Commission on December 22, 2008 | |
(36) | Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K/A filed with the SEC on December 10, 2009 | |
(37) | Incorporated by reference to Exhibit 10.41 of the Companys Report on Form 10-K filed with the SEC on December 17, 2008 | |
(38) | Incorporated by reference to Exhibit 10.42 of the Companys Report on Form 10-K filed with the SEC on December 17, 2008 |
F-38