Attached files
file | filename |
---|---|
EX-23 - EX-23 - XRS Corp | c61608exv23.htm |
EX-31.1 - EX-31.1 - XRS Corp | c61608exv31w1.htm |
EX-32.1 - EX-32.1 - XRS Corp | c61608exv32w1.htm |
EX-32.2 - EX-32.2 - XRS Corp | c61608exv32w2.htm |
EX-31.2 - EX-31.2 - XRS Corp | c61608exv31w2.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, 2010
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 (State or other jurisdiction of incorporation or organization) |
41-1641815 (I.R.S. Employer Identification No.) |
|
965 Prairie Center Drive Eden Prairie, Minnesota (Address of principal executive offices) |
55344 (Zip Code) |
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, 2010, the aggregate market value of the registrants common stock held by
non-affiliates of the registrant was $21,800,000 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, 2010 was 9,816,411.
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
PART I | Page | |||||||
Item 1. | 1 | |||||||
Item 1A. | 8 | |||||||
Item 1B. | 11 | |||||||
Item 2. | 12 | |||||||
Item 3. | 12 | |||||||
Item 4. | 12 | |||||||
PART II | ||||||||
Item 5. | 13 | |||||||
Item 7. | 14 | |||||||
Item 8. | F-1 | |||||||
Item 9. | 25 | |||||||
Item 9A. | 25 | |||||||
Item 9B. | 25 | |||||||
PART III | ||||||||
Item 10. | 25 | |||||||
Item 11. | 26 | |||||||
Item 12. | 26 | |||||||
Item 13. | 26 | |||||||
Item 14. | 26 | |||||||
PART IV | ||||||||
Item 15. | 26 | |||||||
SIGNATURES | 27 | |||||||
EXHIBIT INDEX | 29 | |||||||
EX-23 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
ii
Table of Contents
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 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 25 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
integrate our customers enterprise-based software solutions with GPS (global positioning
systems)-based mobile technology through the use of real-time communications to provide our private
and for-hire fleet customers an enterprise logistics management solution.
| 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. |
1
Table of Contents
| In 2004, we introduced XATANET, our next-generation Web-based software as a service (SaaS) solution. We continue to invest in product enhancements and additional software applications to ensure that XATANET continues to meet the needs of our customers. We believe that the XATANET platform enables us to service approximately 3.2 million medium and heavy duty vehicles in the private fleet transportation market. | ||
| In 2008, XATA completed its acquisition of GeoLogic Solutions, Inc., which provides the commercial trucking industry through the MobileMax solution with wireless asset management solutions in the for-hire segment of the over-the-road transportation sector. We intend to migrate the functionality acquired as part of this acquisition into our XATANET platform. | ||
| In 2009, we acquired Turnpike Global Technologies, Inc. and Turnpike Global Technologies LLC (combined Turnpike). Turnpikes low-investment solution allows us to continue our growth strategy by expanding our addressable market to include any size fleet in North America and expanding into additional key vertical markets, such as Less Than Truckload (LTL), beverage and general freight. |
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 increase. Recent challenging economic conditions have also increased the need for cost-saving efforts. These trends encourage operators to utilize onboard information systems and fleet management solutions to control costs and more effectively manage their fleets 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 rules in January 2004, tightening driver work limitations. These rules were challenged in federal court and then 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 dictates the number of driving and resting hours required of drivers. This rule was challenged in court by groups such as Public Citizen, and FMCSA has been required to develop and produce alternatives to this rule. |
2
Table of Contents
On April 5, 2010 FMCSA released the final regulation for the use of Electronic Onboard Recorders (EOBRs) to increase hours-of-service compliance and compliance-related highway safety, 49 CFR 395.16. The initial regulation was modified in September of 2010 on two technical aspects the removal of the +85C to -40C operating temperature limits and allowing for a Type A USB connector. 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. The current criteria is one inspection of 10% or greater non-compliance will require the installation of EOBR devices for two years. There is additional movement to expand an overall mandate for the use of EOBRs in the Commercial Carrier industry. | |||
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. This year IFTA has conducted a review of technologies deployed that accumulate miles for fuel tax reporting. There is not a firm understanding of the actions resulting from the outcome of the study. | |||
In July of this year the FMCSA issued a formal Policy and Guidance requiring fleets to maintain GPS records once an hour while the vehicle is in motion to be used in DOT audits for Hours of Service Compliance. This Policy was directed at Fleets that use Mobile Communication systems and not EOBR. | |||
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. Many of the Mid Atlantic states have issued regulations prohibiting idling of the commercial vehicles for any reason. | |||
Additionally, various state and federal statues and rules have focused on the concerns over distracted driving and the use of electronic devices while a vehicle is in motion. The use of texting devices has been specifically targeted by these rules. To date no proposed rules have limited or prohibited the use of our products. | |||
Further, FMCSA launched a major new initiative, Comprehensive Safety Analysis (CSA) 2010 which is a new operational model designed to help the agency carry out its compliance and enforcement programs more efficiently and effectively. Currently, the safety fitness rating of a motor carrier is determined based on the results of a very labor intensive compliance review conducted at the carriers place of business. Aside from roadside inspections and new audits, the compliance review is the Agencys primary intervention. Under CSA 2010, FMCSA will implement a broader array of progressive interventions, some of which allow FMCSA to make contact with more carriers. Through this rulemaking FMCSA would establish safety fitness determinations based on safety data consisting of crashes, inspections, and violation history rather than the standard compliance review. This will enable the Agency to assess the safety performance of a greater segment of the motor |
3
Table of Contents
carrier industry with the goal of further reducing large truck and bus crashes and fatalities. A significant portion of the data used for these carrier ratings is gathered and stored by our products. |
| New technologies: New technologies are continuing to be offered throughout the industry, leaving customers with an increasing desire for expanded functionality in an affordable and simple fleet management solution. | ||
| 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. 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 software, systems and services.
XATANET and XATA Turnpike are software-as-a-service (SaaS) solutions for which XATA receives a
monthly per-truck subscription fee. MobileMax is a customer-hosted solution whose software revenue
is derived from monthly per-truck communications service fees.
XATANET Fleet Management Solution
XATANET is a powerful, advanced, yet user-friendly, SaaS solution used by manufacturing, grocery,
food service, distribution, petroleum and other operators of trucking fleets to obtain information
to help them reduce fuel costs, increase operational efficiencies, enhance customer service and
improve safety and compliance.
As a SaaS solution, XATANET is used by its customers over the Internet and customers pay a monthly
subscription fee. The benefits of XATAs SaaS delivery model is a reduction in customers in-house
IT hardware and software needs, faster implementation time compared to on-site products, automatic
upgrades to the most current software levels and access to fleet data via a web 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. |
4
Table of Contents
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 also 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 their fleet operations evolve.
MobileMax Fleet Management Solution
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.
XATA Turnpike Fleet Management Solution
XATA Turnpike is a PDA-based SaaS solution that enables XATA to serve any size fleet that requires
a simple, low investment solution. XATA Turnpike has expanded our addressable market to include
key vertical markets such as Less Than Truckload (LTL) and beverage, where XATA Turnpike meets
specific customer needs.
XATA Turnpike is unique in that it does not contain an embedded modem. Most onboard fleet
management systems utilize an expensive, in-cab system dependent on a cellular or satellite
communication platform to transmit data, while XATA Turnpike uses PDA based communication devices
via Bluetooth as its wireless communication tool. XATA Turnpike interacts with various handheld
devices, such as smartphones and mobile phones, thus eliminating upfront hardware costs.
Professional Services
XATA offers an array of professional IT and consultation services: solution implementation, driver
and back-office training, best-practice-operations consulting and building custom reports on an
ad-hoc basis for customers.
| Implementation services include project management, website setup and configuration, best-practice recommendations, data integration and software implementation. | ||
| Training services include online training, on-site training and one-on-one training for fleet management and drivers. | ||
| Best-practice consulting includes examining a customers fleet operations and making recommendations for improvements. | ||
| XATAs custom reporting service allows customers to have specialized reports created for their specific operations, beyond the suite of standard reports already offered by the various solutions. |
5
Table of Contents
Target Markets
There are approximately 8.9 million commercial trucks operating in North America, 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.
Our XATANET solution offers a robust enterprise functionality experience that meets the needs of a
large portion of the private-fleet market, including smaller fleets, large decentralized fleets and
fleets in various vertical markets that require that type of functionality. In the private fleet
market of 6.6 million commercial trucks, we estimate 3.2 million vehicles are in our target market
for the XATANET solution.
The MobileMax solution addresses the overall needs of the 1.5 million trucks operating in the
for-hire fleet sector, which includes large, decentralized fleets and regionalized medium-size
fleets.
The XATA Turnpike solution offers a low-investment model that can be utilized by private or
for-hire fleets from a single truck operation to large fleets. We believe this solution addresses
the overall needs of the 8.9 million commercial trucks in North America.
Other Markets
Within the private and for-hire fleets, XATA targets several vertical markets, including food
products and food distribution, manufacturing, retail, and oil and gas. Our acquisition of Turnpike
also opens up some new vertical markets, including beverage, construction and mining, small
package/LTL and utilities, as well as some other types of services companies.
Major Customers
Our systems have been installed in over 111,000 trucks in North America, and our customers include
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.).
We had one individual customer in fiscal 2010 that accounted for approximately 14.1 percent of our
revenue, as the result of significant system sales. However, no individual customer accounted for
more than 10.0 percent of our software revenue, which includes monthly subscriptions from our
XATANET and XATA Turnpike solutions and monthly fees from our MobileMax product line in fiscal
2010.
Sales and Marketing
We sell our products in two ways: direct sales and channel sales.
Direct Sales
Our direct-sales force includes national and regional sales account executives who sell our
subscription and communication-based fleet management solution primarily to fleet operators and
logistics providers. Our national sales executives are supported by sales consultants, as well as
by client management and professional services departments. All members of these departments are
professionals with a strong working knowledge of our systems and software, and they have experience
integrating our solutions with various types of 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 ones.
Channel Sales
We work closely with Verizon Wireless, Sprint, Rogers Wireless and other communication providers to
sell our products to fleets of all sizes and types. Our channel-sales force includes regional and
channel
6
Table of Contents
sales account executives who work in tandem with partner sales executives to sell our XATA
Turnpike solution.
We focus our direct and channel sales forces along with our marketing efforts on companies
operating fleets of all sizes within vertical markets that have experienced significant benefits
from our solutions.
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 and web-based campaigns, to gain exposure within our target markets. We
exhibit our products at selected industry conferences to promote brand awareness, and 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.
XATA and its key competitors compete primarily on the basis of functionality, ease of use, quality,
price, service availability and corporate financial strength.
As the demand 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 of increasing 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
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 LightSquared,
to provide communications between our users and the MobileMax host.
The XATA Turnpike solution can utilize various communications providers, including Verizon Wireless
and Sprint in the United States and Rogers Wireless in Canada.
Manufacturers
We have relationships with several manufactures to provide the system components that are required
for our solutions. All of our manufacturers 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 any major
component which are each supplied by separate, single manufacturer, would affect the Companys
ability to deliver finished goods and replacement parts.
7
Table of Contents
Third-party Applications
We have relationships with companies who provide a variety of applications that can be integrated
with XATAs solution to provide our target market with an expanded solution, including dispatch,
routing, training, fleet management. These companies include ALK Technologies, McLeod Software, TMW
Systems, and others. In general, we seek relationships with third-party providers to extend the
benefits of our solutions throughout our customers supply chain.
Patents, Trademarks, and Copyrights
XATA®,
XATANET®,
MobileMax, and Turnpike® 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 2010 and 2009, we spent approximately $6.5 million and $5.5 million, respectively, on
research and development activities. We concentrate our research and development activities on
solutions or additional functionality 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 infrastructures capacity and ability to meet the service level requirements of our customers. | ||
| Application Software. XATA intends to continue developing our software applications by enhancing current offerings, adding functionality and integrating with additional third-party solutions. Recent enhancements and additional functionality includes integrated navigation specifically for professional truck drivers, Speed Management, Fleet Performance Management, integration to industry-standard handheld devices and third-party fleet management software, and several advancements to our fleet-data reporting and analytic capabilities. |
Employees
As of September 30, 2010, our staff included 200 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 2010 and 2009 were $3.2 million and $2.8 million,
respectively. The respective periods net losses were $1.3 million and $2.1 million. Additional
amounts of $1.9 million and $0.7 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. Our private fleet and for- hire customers
historically have renewed at a
8
Table of Contents
high rate. Notwithstanding these retention rates, 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 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 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 contract manufacturers. We use a variety of product and engineering
vendors, a small number of which are critical to our business. The Companys continued growth could
place an increasing strain on these vendors and the loss of key contract manufacturers 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. 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,
9
Table of Contents
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.
Our industry is subject to significant and increasing regulations that could impact our product
offerings. Both our industry, and the trucking industry that serves as our customer base, are
subject to numerous legal, legislative and regulatory rules that place mandates on many aspects of
the businesses, including the collection and maintenance of data, operational and safety
requirements of products and methods of reporting driver and vehicle information. If new rules,
regulations or laws are created that make our products or services less valuable or unauthorized we
could lose customers and revenue or be required to spend additional capital to gain compliance.
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 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 is currently named as one of many defendants in
a patent infringement lawsuit. We have been able to reach settlement agreements in past cases.
Technology Crossover Ventures (TCV), 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 13, 2010, beneficial ownership of Common Stock, as reported in our definitive proxy
statement for the Annual Meeting of Stockholders, held by TCV was
approximately 52.9 percent, by
JDSTG was approximately 20.2 percent and by Trident Capital was
approximately 43.8 percent of our
common stock. In addition, JDSTG is entitled to nominate up to three representatives to our Board
of Directors, and both TCV and Trident is entitled to each elect up to two representatives. Both
TCV and Trident are entitled to vote their 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. Each of TCV, 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 inorganic growth, our predictions regarding cash needs may prove inaccurate and we may
require additional financing. During fiscal year 2010, 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. Subsequent to shareholder approval in February
2010, the convertible debt was converted into shares of Series G Preferred Stock. The remaining
proceeds will be utilized in working capital needs and future growth. We believe our current
capital structure and predicted future cash flows from operations will be adequate to meet our
operating and organic growth needs.
10
Table of Contents
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, 2010, indicated no evidence 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 relationships and technology. We amortize these
assets on a straight-line basis over their estimated lives. 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 100,000,000 shares of
common stock, of which 9,816,411 shares were issued and outstanding as of December 1, 2010. 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
50,000,000 shares of preferred stock. As of December 1, 2010, 2,126,362 shares of Series B
Convertible Preferred Stock, 1,269,036 Series C Convertible Preferred Stock, 1,566,580 shares of
Series D Convertible Preferred Stock, 1,355,857 shares of Series F Convertible Preferred Stock, and
10,066,663 shares of Series G 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 TCV and Trident investors, and its representatives who serve as directors on our Board, which
may supplement the indemnification provisions available to them under Minnesota law.
Item 1B. Unresolved Staff Comments |
Not applicable.
11
Table of Contents
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 $33,000 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 $7,900 per month plus a pro rata share of the building operating expenses and
expires March 31, 2014.
Item 3. Legal Proceedings |
XATA and its wholly owned subsidiary, Geologic Solutions, Inc., have been named as defendants in
two companion lawsuits in the United States District Court, Western District of North Carolina,
Asheville Division. The plaintiffs allege against XATA and Geologic that Geologic created an unsafe
product that permitted drivers to send and/or receive text messages while the vehicle is in motion.
The plaintiffs claim damages in a nonspecific amount, but exceeding $75,000. In both cases the
assigned U.S. Magistrate recommended that the cases be dismissed. Those Orders have been appealed
to the District Judge by plaintiffs and the parties are awaiting the Courts orders.
Item 4. Reserved |
12
Table of Contents
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 2010 and 2009. There is no market for our
Series B, Series C, Series D or Series F Preferred Stock.
Fiscal Year 2010 | Low | High | ||||||
First Quarter |
$ | 2.51 | $ | 3.74 | ||||
Second Quarter |
2.85 | 3.90 | ||||||
Third Quarter |
2.50 | 3.58 | ||||||
Fourth Quarter |
2.43 | 2.84 |
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 |
As of December 1, 2010, our common stock is held by 117 registered holders of record. Registered
ownership includes nominees who may hold securities on behalf of multiple beneficial owners.
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 issued a total of 81,000 and
78,000 shares of Series B Preferred Stock for payment of dividends in fiscal 2010 and 2009,
respectively.
Sale of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
13
Table of Contents
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.
Founded in 1985, XATA began providing fleet management solutions to the private fleet segment of
the truck transportation industry. XATA currently addresses the private fleet segment through
XATANET, its flagship software-as-a-service (SaaS) solution. With the acquisition of GeoLogic
Solutions, Inc. in January of 2008, XATA expanded its solutions to include the MobileMax product
line, which provides the commercial trucking industry with wireless asset management solutions in
the for-hire segment of the over-the-road transportation sector.
In December 2009, XATA acquired Turnpike Global Technologies, a Personal Digital Assistant
(PDA)-based fleet operations solution provider. Turnpikes XATA Turnpike products allows XATA to
continue its growth strategy by expanding the addressable market through low-cost options 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.
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. With the acquisition of Turnpike, XATA has relationships with additional customers
such as Coca-Cola and Loblaws.
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 |
14
Table of Contents
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. |
| XATA Turnpike is a PDA-based SaaS solution that enables XATA to serve any size fleet that requires a simple low investment solution. XATA Turnpike has expanded our addressable market to include key vertical markets such as Less Than Truckload and beverage, where XATA Turnpike meets specific customer needs. XATA Turnpike is unique in that it does not contain an embedded modem. Most onboard fleet Management systems utilize an expensive in-cab system dependant on a cellular or satellite communication platform to transmit data, while XATA Turnpike uses PDA based communication devices via Bluetooth as its wireless communication tool. XATA Turnpike interacts with various handheld devices such as smartphones and cell phones and thus eliminating upfront hardware costs and providing a low investment solution. |
| 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. | ||
| 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.
15
Table of Contents
With regards to arrangements involving multiple-elements that do not give customers the explicit
contractual right to take possession of our software at any time during the hosting period, revenue
is recognized in accordance with ASC 605-25. Under ASC 605-25, the hardware element must have stand
alone value and the monthly service element must have objective and reliable evidence of the
fair value. Revenue is allocated based on the fair value of each element as evidenced by
vendor specific objective evidence. Such evidence consists primarily of pricing of multiple
elements as if sold as separate products or services. When the fair value of any undelivered
element included in a multiple-element arrangement cannot be objectively determined, revenue is
deferred until all elements are delivered and/or services have been performed, or until we can
objectively determine the fair value of all remaining undelivered elements.
Agreements that do not meet the VSOE and fair value requirements for the arrangement elements
described in ASC 985-605 or ASC 605-25, results in the recognition of all revenue ratably over the
term of the agreement.
Third-Party Reseller Agreements. The Company has contracted with various resellers in the US and
Canada, collectively the Resellers, to allow for them to sell the XATA Turnpike application in
combination with their own communication services. The customer contracts directly with the
Resellers for the communication services and XATA Turnpike application. The customer is billed by
and remits all payments to the Resellers. The Resellers then remit a set portion of revenues
collected that relate to the XATA Turnpike application to the Company and retains the remainder as
their own revenue. In accordance with ASC 605-45 Revenue Recognition - Principal Agent
Considerations, the Company records the revenue received from the resellers net of the amounts
retained by the resellers.
Allowance for doubtful accounts. The Company grants credit to customers in the normal course of
business. The majority of the Companys accounts receivable is 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. 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.
Goodwill. As of September 30, 2010, the Company had a goodwill balance of $17.0 million that
resulted from the Companys acquisition of GeoLogic Solutions, Inc. on January 31, 2008 and
Turnpike Global Technologies Inc. and Turnpike Technologies LLC on December 4, 2009. 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 2010 and concluded that no impairment existed.
16
Table of Contents
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, 2010 and 2009,
the Company had an accrual for product warranties of $1.0 million and $1.8 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 amortization on a straight-line method over the estimated unit sales during the
economic life of the product (two to five years). At September 30, 2010, the Company had
capitalized development costs of $0.4 million and there were no capitalized development costs at
September 30, 2009. 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 de-recognition of uncertain tax
positions. 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 2010, 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
17
Table of Contents
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 2010 and 2009. 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:
18
Table of Contents
Twelve months ended September 30, | ||||||||
2010 | 2009 | |||||||
Software |
||||||||
Revenue |
$ | 42,862 | $ | 32,909 | ||||
Cost of goods sold |
10,870 | 8,654 | ||||||
Gross margin |
$ | 31,992 | $ | 24,255 | ||||
Gross margin % |
74.6 | % | 73.7 | % | ||||
Systems |
||||||||
Revenue |
$ | 21,641 | $ | 25,104 | ||||
Cost of goods sold |
20,918 | 22,861 | ||||||
Gross margin |
$ | 723 | $ | 2,243 | ||||
Gross margin % |
3.3 | % | 8.9 | % | ||||
Services |
||||||||
Revenue |
$ | 4,041 | $ | 5,334 | ||||
Cost of goods sold |
3,121 | 3,687 | ||||||
Gross margin |
$ | 920 | $ | 1,647 | ||||
Gross margin % |
22.8 | % | 30.9 | % | ||||
Other |
||||||||
Revenue |
$ | 2,107 | $ | 1,978 | ||||
Cost of goods sold |
956 | 938 | ||||||
Gross margin |
$ | 1,151 | $ | 1,040 | ||||
Gross margin % |
54.6 | % | 52.5 | % | ||||
Total |
||||||||
Revenue |
$ | 70,651 | $ | 65,325 | ||||
Cost of goods sold |
35,865 | 36,140 | ||||||
Gross margin |
$ | 34,786 | $ | 29,185 | ||||
Gross margin % |
49.2 | % | 44.7 | % |
In the above chart the revenue and cost of goods sold detail for categories listed are defined as
follows:
| Software revenue includes monthly subscriptions from our XATANET and XATA Turnpike solutions, and monthly fees from our MobileMax and OpCenter product lines | ||
| Systems revenue includes hardware, warranty, and repair revenue | ||
| Services revenue includes training, implementation, installation, professional service, and customer funded development revenue | ||
| Software cost of goods sold consists of communication, hosting costs, and direct personnel costs related to network and infrastructure support | ||
| System cost of goods sold consists of the direct product costs, warranty costs, product repair costs, and direct personnel costs related to customer support | ||
| Services cost of goods sold consists of third party vendor costs and direct costs related to service personnel |
19
Table of Contents
Comparison of fiscal 2010 operating results to fiscal 2009
Revenue
Revenue increased approximately 8 percent to $70.7 million for fiscal 2010 compared to $65.3
million for fiscal 2009. The revenue growth is driven by an increase in software revenue, as
software revenue grew approximately 30 percent to $42,862 from $32,909 in fiscal 2010 and 2009,
respectively. Software revenue comprised approximately 61 percent of total revenue for fiscal 2010
compared to approximately 50 percent for fiscal 2009. The software revenue increase resulted from
an organic revenue increase of approximately 13 percent as subscription growth and increases in
average revenue per unit (ARPU) continued to drive growth in the Companys core products and the
non-organic revenue growth associated with the acquisition of Turnpike. ARPU was positively
impacted by increased subscription rates on renewal contracts and rate increases from ala carte
applications such as navigation, speed management and fleet performance management. Total
subscriptions sold in fiscal 2010 increased 65 percent compared to fiscal 2009 activity.
Systems revenue decreased approximately 14 percent to comprise approximately 31 percent of total
revenue for fiscal 2010 compared to approximately 38 percent for fiscal 2009. This decline is due
to a decrease in the average sale prices of the Companys on-board devices as new technology and
competition continue to drive device prices down. Other factors contributing to the decline in
systems revenue is the fact that the Companys system flexible approach now allows for the
selling of the Companys software solutions in connection with partnered devices, in which case the
Company does not record the entire systems revenue on our income statement.
Services revenue decreased approximately 24 percent and comprises approximately 6 percent of total
revenue for fiscal 2010 compared to approximately 8 percent for fiscal 2009. The decrease in
service revenue is largely driven by a decrease in installation revenue as our service organization
installed a smaller percentage of units sold in fiscal 2010 as compared to fiscal 2009.
Cost of Goods Sold and Gross Margin
Overall cost of goods sold decreased approximately 1 percent to $35.9 million for fiscal 2010
compared to $36.1 million for fiscal 2009.
Software cost of goods sold of $10.9 million increased 26 percent for fiscal 2010 compared to $8.7
million in fiscal 2009. This increase supported software revenue growth of 30 percent over the
same period. At the end of fiscal 2010, total software subscriptions were over 111,000 compared to
approximately 73,000 at the end of fiscal 2009. Software gross margin improved 1 percentage point
in fiscal 2010 to 74.6 percent compared to 73.7 percent in fiscal 2009. The margin improvement was
the result of increased ARPU, reduction in communication costs and continued leverage of the cost
structure.
Systems cost of goods sold of $20.9 million decreased 8 percent for fiscal 2010 compared to $22.9
million in fiscal 2009. Systems gross margins decreased 6 percentage points to 3.3 percent for
fiscal 2010 compared to 8.9 percent in fiscal 2009. Declining systems sales prices due to
competitive pressures and our inability to lower our system cost along with warranty costs
contributed to the decrease in gross margin.
Services cost of goods sold of $3.1 million decreased 15 percent for fiscal 2010 compared to $3.7
million in fiscal 2009. Service gross margins declined 8 percentage points for fiscal 2010 to 22.8
percent compared to 30.9 percent in fiscal 2009. This decrease was primarily the result of the
decline in higher margin installation revenue and lower utilization of services personnel compared
to the same periods of fiscal 2009.
20
Table of Contents
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 $26.6 million or approximately 38 percent of revenue for fiscal 2010. Included in
selling, general, and administrative costs for fiscal 2010 was $3.7 million related to the
additional cost structure of Turnpike for the 10 month incremental period not included in fiscal
2009. Included in selling, general, and administrative costs for fiscal 2009 was $1.2 million
related to the patent litigation settlement not included in fiscal 2010. Excluding these
non-comparable items in fiscal 2010 and 2009, selling, general, and administrative costs for fiscal
2010 remained relatively flat compared to $24.2 million or approximately 37 percent of revenue for
fiscal 2009.
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 $6.5 million or approximately 9
percent of revenue for fiscal 2010 compared to $5.5 million or approximately 8 percent of revenue
for fiscal 2009. Research and development expenses increased due to additional cost structure
associated with the acquisition of Turnpike and costs associated with the development of new
functionality for our fleet customers.
Interest Expense on Financing Activities
In connection with financing the acquisition of Turnpike, the Company issued convertible debt
totaling $30.2 million. The convertible debt was converted into 10,066,667 shares of Series G
preferred stock and warrants to purchase 3,020,000 common shares upon obtaining approval at the
Annual Shareholder Meeting held February 17, 2010. The convertible debt carried an interest rate of
14% per annum. The non-cash interest expense recorded in fiscal 2010 associated with the
convertible debt and the write off of the unamortized balance of prepaid financing fees associated
with the retirement of several debt facilities was approximately $1.4 million.
Acquisition Related Interest and Mark to Market Expense
As part of the purchase price of Turnpike, the Company agreed to issue 833,333 shares of common
stock of the Company, contingent on the approval by the shareholders at the Annual Shareholder
Meeting. Additionally, the Company has committed to pay an earn out of up to an additional
2,500,000 shares of common stock subject to shareholder approval at the Annual Shareholder Meeting
and contingent on Turnpike achieving certain performance goals for 2010, 2011, and 2012 fiscal
years. Shareholder approval was received at the Annual Shareholder Meeting held February 17, 2010.
The fair value of the common shares relating to the purchase price and contingent earn out common
shares resulted in a non-cash interest charge of $0.4 million in fiscal 2010.
Net Interest Expense
Net interest and other expense decreased $1.1 million to $0.4 million in fiscal 2010, compared to
net interest expense of $1.5 million in fiscal 2009. The decrease in interest expense was due to
the retirement in fiscal 2010 of several debt facilities associated with our acquisition of
GeoLogic Solutions, Inc. in fiscal 2008.
Income Taxes
Income tax expense of $50,000, relating to alternative minimum tax and other taxes in certain
jurisdictions which could not be completely offset by previous net operating losses, was recorded
in fiscal 2010. The Company does not have objectively verifiable positive evidence of future
taxable income as
21
Table of Contents
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, 2010, we had federal net operating loss carryforwards of approximately
$50.8 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
The Company incurred net losses to common shareholders of $3.2 million and $2.8 million for fiscal
2010 and 2009, respectively. Net loss to common shareholders reflects preferred stock dividends and
preferred stock deemed dividends of $1.9 million and $0.7 million for fiscal 2010 and 2009,
respectively. For fiscal 2010, preferred stock deemed dividends includes $1.7 million related to
the beneficial conversion associated with the issuance of Series G preferred stock. For fiscal
2009, preferred stock deemed dividends includes $0.5 million related to beneficial conversion
associated with the issuance of Series F preferred stock. Fiscal 2010 and 2009 reflect preferred
stock dividends and preferred stock deemed dividends of $0.2 million and $0.2 million,
respectively, relating to Series B Preferred Stock.
Liquidity and Capital Resources
As of September 30, 2010, we held $13.4 million in cash and cash equivalents and had working
capital, which is total current assets less total current liabilities, of $15.2 million. This
compared to $3.4 million in cash and cash equivalents, and working capital of $3.3 million, as of
September 30, 2009. The increase in working capital is largely due to the $1.8 million of cash
provided by operating activities and $10.2 million in net proceeds from the issuance of convertible
debt, which was converted into Series G preferred stock, net of amounts paid for the acquisition of
Turnpike, a patent litigation settlement, and retirement of several debt facilities associated with
our acquisition of GeoLogics Solutions, Inc. in fiscal 2008.
Operating activities provided cash of $1.8 million during fiscal 2010 compared to $2.6 million in
fiscal 2009. The decrease in cash provided by operating activities in fiscal 2010 was driven by
$3.8 million improvement in cash net loss (net loss adjusted for non-cash items such as
depreciation, amortization, loss on the sale of assets and non-cash charges associated with the
convertible debt and Series G issuance) offset by additional working capital investment of $1.3
million in support of Turnpike growth and $3.3 million working capital investment for the organic
business.
Cash used in investing activities of $11.9 million for fiscal 2010. This amount was driven by the
acquisition of Turnpike and our investment in capital equipment.
The Company generated positive free cash flow from operations of $1.3 million (cash provided from
operations less cash used in purchases of equipment and leasehold improvements less any acquisition
and litigation related activity) in fiscal 2010 compared to $1.2 million in fiscal 2009.
Cash provided by financing activities was $20.0 million in fiscal 2010 compared to a use of cash of
$6.7 million in fiscal 2009. This increase was largely driven by the $29.7 million of proceeds
from the issuance of convertible debt which was converted into Series G preferred net of fees
offset by the pay off of several debt facilities associated with the fiscal 2008 acquisition of
GeoLogics Solutions, Inc.
22
Table of Contents
The Company believes our existing funds and vendor terms will provide adequate cash to fund
operating needs for the foreseeable future. However, it may be necessary to obtain additional
funding in order to execute our non-organic growth strategy.
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 2010 and 2009, we issued 81,000 and 78,000 shares, respectively, of Series B
Preferred Stock for payment of accrued dividends.
Subsequent Events
In connection with the acquisition of Turnpike, the Company committed to pay total earn-outs up to
an additional 2,500,000 shares of common stock upon the achievement of certain performance goals
for 2010, 2011 and 2012 fiscal years. The Company has determined that the 2010 performance goals
of $7.9 million in revenue and net new subscriptions of 10,875 were achieved and therefore expects
to issue 809,993 shares of common stock to the former shareholders of Turnpike with the value of
the remaining 23,340 shares being settled in cash of $70,000.
On September 30, 2010, the Company entered into a prepaid subscription agreement with Duke Capital,
a former shareholder of Turnpike and owned in part by two employees of Turnpike. This agreement
obligates the Company to provide hardware components and subscription service for 300 XATA Turnpike
devices to Duke Capital for a period of 24 months. The total value of the agreement is $0.3
million, reflects non-cancelable terms and the full amount due over the contract term was prepaid
by Duke Capital. Revenue will be recognized over the term of the agreement. The subscription of
these 300 units was included in the calculation of the achievement of the fiscal 2010 earn-out
goals and allowed the net new subscriptions goal to be met.
The Company has evaluated all subsequent events 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, 2010, and events which occurred subsequent to September 30, 2010 but were not
recognized in the financial statements.
Off-Balance Sheet Arrangements
Not applicable
Recently Issued Accounting Pronouncements
Fair Value Measurement and Disclosures (ASU 2010-06)
In January 2010, the FASB published ASU 2010-06 Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 clarifies improved
disclosure requirement related to fair value measurements and disclosures Overall Subtopic
(Subtopic 820-10) of the FASB Accounting Standards Codification. The new disclosures and
clarifications of existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosure about purchase, sales, issuances, and
settlement in the roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The amendments in this update are effective for interim and annual periods
ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption
of this standard did not have an impact on the Companys financial position and results of
operations.
23
Table of Contents
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 statement.
24
Table of Contents
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, 2010 and 2009, 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, 2010 and
2009, 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 13, 2010
December 13, 2010
F-1
Table of Contents
XATA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 13,374 | $ | 3,440 | ||||
Accounts receivable, less allowances of $444 at September 30, 2010 and $368 at September 30, 2009 |
11,392 | 9,323 | ||||||
Inventories |
3,047 | 4,104 | ||||||
Deferred product costs |
2,042 | 2,060 | ||||||
Prepaid expenses and other current assets |
1,260 | 1,064 | ||||||
Total current assets |
31,115 | 19,991 | ||||||
Equipment, leased equipment and leasehold improvements, net |
5,798 | 3,980 | ||||||
Intangible assets, net |
14,901 | 10,725 | ||||||
Goodwill |
17,048 | 3,011 | ||||||
Deferred product costs, net of current portion |
1,757 | 2,470 | ||||||
Deferred tax assets |
337 | | ||||||
Other assets |
420 | 487 | ||||||
Total assets |
$ | 71,376 | $ | 40,664 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Current portion of debt obligations |
$ | 839 | $ | 84 | ||||
Accounts payable |
5,138 | 5,366 | ||||||
Accrued expenses |
4,872 | 5,914 | ||||||
Deferred revenue |
5,070 | 5,280 | ||||||
Total current liabilities |
15,919 | 16,644 | ||||||
Debt obligations, net of current portion |
485 | 8,534 | ||||||
Deferred revenue, net of current portion |
3,591 | 6,101 | ||||||
Deferred tax liabilities |
2,242 | | ||||||
Other long-term liabilities |
638 | 820 | ||||||
Total liabilities |
22,875 | 32,099 | ||||||
Shareholders equity |
||||||||
Preferred stock, no par, 50,000 shares authorized: |
||||||||
Series B, 4% convertible, 2,250 shares designated; shares issued and outstanding: 2,085 at September 30, 2010 and 2,004 at September 30, 2009 |
5,033 | 4,790 | ||||||
Series C, convertible, 1,400 shares designated; shares issued and outstanding: 1,269 at September 30, 2010 and September 30, 2009 |
4,426 | 4,426 | ||||||
Series D, convertible, 1,600 shares designated; shares issued and outstanding: 1,567 at September 30, 2010 and September 30, 2009 |
5,279 | 5,279 | ||||||
Series F, convertible, 1,400 shares designated; shares issued and outstanding: 1,356 at September 30, 2010 and September 30, 2009 |
2,365 | 2,365 | ||||||
Series G, convertible, 10,100 shares designated; shares issued and outstanding: 10,067 at September 30, 2010 |
26,877 | | ||||||
Common stock, par value $0.01 per share; 100,000 shares authorized; shares issued and
outstanding: 9,816 at September 30, 2010 and 8,789 at September 30, 2009 |
98 | 88 | ||||||
Contingent common stock earn-out |
6,452 | | ||||||
Additional paid-in capital |
41,539 | 32,536 | ||||||
Accumulated deficit |
(44,129 | ) | (40,919 | ) | ||||
Accumulated other comprehensive income |
561 | | ||||||
Total shareholders equity |
48,501 | 8,565 | ||||||
Total liabilities and shareholders equity |
$ | 71,376 | $ | 40,664 | ||||
The accompanying notes are an integral part of these financial statements
F-2
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 Year Ended September 30, | ||||||||
2010 | 2009 | |||||||
Revenue |
$ | 70,651 | $ | 65,325 | ||||
Costs and expenses |
||||||||
Cost of goods sold |
35,864 | 36,140 | ||||||
Selling, general and administrative |
26,641 | 24,236 | ||||||
Research and development |
6,488 | 5,507 | ||||||
Acquisition related costs |
837 | | ||||||
Total costs and expenses |
69,830 | 65,883 | ||||||
Operating income (loss) |
821 | (558 | ) | |||||
Interest expense on financing activities |
(1,358 | ) | | |||||
Acquisition related interest and mark to market |
(359 | ) | | |||||
Net interest and other expense |
(365 | ) | (1,509 | ) | ||||
Loss before income taxes |
(1,261 | ) | (2,067 | ) | ||||
Income tax expense |
(50 | ) | (35 | ) | ||||
Net loss |
(1,311 | ) | (2,102 | ) | ||||
Preferred stock dividends |
(208 | ) | (200 | ) | ||||
Preferred stock deemed dividends |
(1,691 | ) | (525 | ) | ||||
Net loss to common shareholders |
$ | (3,210 | ) | $ | (2,827 | ) | ||
Net loss per common share basic and diluted |
$ | (0.34 | ) | $ | (0.33 | ) | ||
Weighted average common and
common share equivalents: |
||||||||
Basic and diluted |
9,313 | 8,551 | ||||||
The accompanying notes are an integral part of these financial statements
F-3
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(in thousands)
(in thousands)
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series B | Series C | Series D | Series F | Series G | Contingent | Additional | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Common Stock | Paid-In | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Earn-Out | Capital | Deficit | Income | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation |
| | | | | | | | | | | | | 1,210 | | | 1,210 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for share based
compensation awards
restricted stock units |
| | | | | | | | | | 221 | 2 | | 2 | | | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for acquisition
of
Turnpike Global Technologies |
| | | | | | | | | | 810 | 8 | | 2,422 | | | 2,430 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Forfeiture of restricted shares of
common stock |
| | | | | | | | | | (4 | ) | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||
Contingent common stock earn-out |
| | | | | | | | | | | | 6,452 | | | | 6,452 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of preferred stock and warrants |
| | | | | | | | 10,067 | 26,877 | | | | 3,715 | | | 30,592 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Record the beneficial conversion feature |
| | | | | | | | | | | | | 1,654 | (1,654 | ) | | | ||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends |
81 | 206 | | | | | | | | | | | | | (208 | ) | | (2 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock deemed dividends |
| 37 | | | | | | | | | | | | | (37 | ) | | | ||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | | | | | | | | | 561 | 561 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | | | | (1,311 | ) | | (1,311 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive loss |
| | | | | | | | | | | | | | | | (750 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2010 |
2,085 | $ | 5,033 | 1,269 | $ | 4,426 | 1,567 | $ | 5,279 | 1,356 | $ | 2,365 | 10,067 | $ | 26,877 | 9,816 | $ | 98 | $ | 6,452 | $ | 41,539 | $ | (44,129 | ) | $ | 561 | $ | 48,501 | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements
F-4
Table of Contents
XATA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year Ended September 30, | ||||||||
2010 | 2009 | |||||||
Operating activities |
||||||||
Net loss |
$ | (1,311 | ) | $ | (2,102 | ) | ||
Adjustments
to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation and amortization of intangibles |
5,117 | 3,017 | ||||||
Amortization of debt financing costs |
458 | 250 | ||||||
Gain on sale of equipment |
(69 | ) | | |||||
Non-cash interest expense on convertible debt |
892 | | ||||||
Non-cash charges for issuance of equity securities related to the
acquisition of Turnpike Global Technologies |
359 | | ||||||
Stock based compensation |
1,211 | 1,613 | ||||||
Changes in assets and liabilities, net of impact of acquisition: |
||||||||
Accounts receivable, net |
(1,299 | ) | 2,042 | |||||
Inventories |
1,057 | (1,368 | ) | |||||
Deferred product costs |
731 | (372 | ) | |||||
Prepaid expenses and other assets |
226 | 677 | ||||||
Accounts payable |
(1,164 | ) | 972 | |||||
Accrued expenses |
(1,657 | ) | (649 | ) | ||||
Deferred revenue |
(2,720 | ) | (1,463 | ) | ||||
Net cash provided by operating activities |
1,831 | 2,617 | ||||||
Investing activities |
||||||||
Purchase of equipment and leasehold improvements |
(2,695 | ) | (1,377 | ) | ||||
Proceeds from the sale of fixed assets |
269 | | ||||||
Acquisition of Turnpike Global Technologies, net of cash acquired |
(9,451 | ) | | |||||
Net cash used in investing activities |
(11,877 | ) | (1,377 | ) | ||||
Financing activities |
||||||||
Borrowings on long-term obligations, net of costs |
29,709 | 18,077 | ||||||
Payments on long-term obligations |
(9,740 | ) | (27,646 | ) | ||||
Proceeds from issuance of preferred stock and warrants |
| 2,865 | ||||||
Proceeds from options exercised |
4 | | ||||||
Net cash provided by (used in) financing activities |
19,973 | (6,704 | ) | |||||
Effects of exchange rate on cash |
7 | | ||||||
Increase (decrease) in cash and cash equivalents |
9,934 | (5,464 | ) | |||||
Cash and cash equivalents |
||||||||
Beginning of year |
3,440 | 8,904 | ||||||
Ending of year |
$ | 13,374 | $ | 3,440 | ||||
Supplemental disclosures of cash flow information |
||||||||
Cash payments for interest |
$ | 533 | $ | 1,513 | ||||
Supplemental schedule of noncash investing and financing activities |
||||||||
Assets acquired under capital lease obligation |
$ | 516 | $ | | ||||
Preferred stock deemed dividends |
$ | 1,691 | $ | 525 | ||||
Preferred stock dividends |
$ | 208 | $ | 200 | ||||
Preferred stock dividends paid |
$ | 206 | $ | 197 | ||||
Conversion of debt into Series G preferred stock and warrants |
$ | 30,592 | $ | | ||||
Contingent common stock earnout related to purchase of Turnpike Global Technologies |
$ | 6,454 | $ | | ||||
Issuance of common stock related to purchase of Turnpike Global Technologies |
$ | 2,430 | $ | | ||||
The accompanying notes are an integral part of these financial statements |
||||||||
F-5
Table of Contents
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
subsidiaries Turnpike Global Technologies, Inc. and Turnpike Global Technologies LLC (combined
Turnpike) and GeoLogic Solutions, Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Revenue Recognition
The Company derives its revenue from sales of monthly software subscriptions, software, systems and
related services. The Company recognizes revenue in accordance with Accounting Standards
Codification (ASC) 985-605 Software Revenue Recognition, ASC 605-10 Revenue Recognition
Overall, and ASC 605-25 Revenue Recognition Multiple Element Arrangements. 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 software 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 software 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.
With regards to arrangements involving multiple-elements that do not give customers the explicit
contractual right to take possession of our software at any time during the hosting period, revenue
is recognized in accordance with ASC 605-25. Under ASC 605-25, the hardware element must have stand
alone value and the monthly service element must have objective and reliable evidence of
the fair value. Revenue is allocated based on the fair value of each element as evidenced by VSOE.
Such evidence consists primarily of pricing of multiple elements as if sold as separate products or
services. When the fair value of any undelivered element included in a multiple-element
arrangement cannot be objectively determined, revenue is deferred until all elements are delivered
and/or services have been performed, or until we can objectively determine the fair value of all
remaining undelivered elements.
F-6
Table of Contents
Agreements that do not meet the requirements described in ASC 985-605 or ASC 605-25, results in the
recognition of all revenue ratably over the term of the agreement.
Third-Party Reseller Agreements
The Company has contracted with various resellers in the US and Canada, collectively the
Resellers, to allow for them to sell the XATA Turnpike application in combination with their own
communication services. The customer contracts directly with the Resellers for the communication
services and XATA Turnpike application. The customer is billed by and remits all payments to the
Resellers. The Resellers then remit a set portion of revenues collected that relate to the XATA
Turnpike application to the Company and retains the remainder as their own revenue. In accordance
with ASC 605-45 Revenue Recognition Principal Agent Considerations, the Company records the
revenue received from the Resellers net of the amounts retained by the Resellers.
Allowance for Doubtful Accounts
The Company grants credit to customers in the normal course of business. The majority of the
Companys accounts receivable is 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. 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, 2010 and 2009 was $0.4 million.
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 Companys Canadian subsidiary accounted for approximately 4% of the Companys total revenue for
fiscal 2010, and had $18.7 million of long-lived assets at September 30, 2010. The Company had no
significant revenues from customers outside of the United States in fiscal 2009, and had no
long-lived assets deployed outside of the United States at September 30, 2009.
Foreign Currency Translation
The financial statements with a functional currency other than the USD have been translated into
USD using the current rate method. Assets and liabilities have been translated using the exchange
rates at the balance sheet date. Income and expense amounts have been translated using the average
exchange rates during the period. Translation gains or losses resulting from the changes in
exchange rates have been reported as a component of accumulated other comprehensive income in the
statements of changes in shareholders equity.
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.
F-7
Table of Contents
Basis of Presentation
Certain amounts from prior years financial statements have been reclassified to conform to the
current year presentation. These reclassifications had no effect on net loss to common
shareholders or shareholders equity.
Cash and Cash Equivalents
Cash and cash equivalents included highly liquid investments in overnight sweep and money market
accounts. Cash and cash equivalents include individual investment balances that 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 and, accounts 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 is 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. 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, which the Company adopted for nonfinancial assets
and liabilities as of October 1, 2009, 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 following tables set forth by level within the fair value hierarchy, our financial assets and
liabilities that were accounted for at fair value on a recurring basis at September 30, 2010,
according to the valuation techniques we used to determine their fair values.
F-8
Table of Contents
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
September
30, 2010 |
Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities: |
||||||||||||||||
Contingent earn out |
$ | 181 | $ | | $ | | $ | 181 | ||||||||
Total |
$ | 181 | $ | | $ | | $ | 181 | ||||||||
The carrying amounts of the Companys financial instruments, which include cash and cash
equivalents, accounts receivable, accounts payable, and capital lease obligations, approximate fair
value. There were no such amounts at September 30, 2009.
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.
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 was approximately $0.5 million as of September 30, 2009.
In the first quarter of fiscal 2010, the Company paid the outstanding balance on its $8.0 million
term loan and $0.5 million line of credit and charged the remaining unamortized balance of the
related debt financing costs of $0.5 million to Interest expense on financing activities in the
statement of operations.
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.
Equipment and leasehold improvements consist of (in thousands):
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Office furniture and equipment |
$ | 5,558 | $ | 4,464 | ||||
Leased equipment |
2,959 | 520 | ||||||
Engineering and manufacturing equipment |
919 | 900 | ||||||
Leasehold improvements |
2,452 | 2,650 | ||||||
11,888 | 8,534 | |||||||
Less: accumulated depreciation |
(6,090 | ) | (4,554 | ) | ||||
Equipment and leasehold improvements, net |
$ | 5,798 | $ | 3,980 | ||||
Total depreciation expense included in selling, general, and administrative expense was
approximately $1.6 million and $1.3 million for the years ended September 30, 2010 and 2009,
respectively. Total depreciation expense included in cost of goods sold relating to leased XATA
Turnpike equipment was $1.0 million and hosting assets was $0.2 million for the twelve months ended
September 30, 2010.
F-9
Table of Contents
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,
2010 there was $0.4 million of capitalized development costs. At September 30, 2009 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
As of September 30, 2010, the Company had a goodwill balance of $17.1 million of which $3.0 million
resulted from the Companys acquisition of GeoLogic Solutions, Inc. on January 31, 2008 and $14.1
million resulted from the Companys preliminary purchase price allocation for its acquisition of
Turnpike on December 4, 2009. 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. The Company has one reporting unit. The annual goodwill impairment test is a
two-step process. First, the Company determines if the carrying value of the related reporting unit
exceeds fair value, which would indicate that goodwill may be impaired. If the Company determines
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 Companys most recent review was completed
in the fourth quarter of fiscal 2010 and concluded that no impairment existed.
The changes in the net carrying amount of goodwill for the twelve months ended September 30, 2010
are as follows:
Balance at September 30, 2009 |
$ | 3,011 | ||
Goodwill from acquisition of Turnpike |
13,665 | |||
Foreign currency translation adjustment |
372 | |||
Balance at September 30, 2010 |
$ | 17,048 | ||
Intangible Assets
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
F-10
Table of Contents
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.
Intangible assets subject to amortization were as follows as of September 30, 2010 (in thousands):
Foreign Currency | ||||||||||||||||||||
Weighted Average | Accumulated | Translation | ||||||||||||||||||
Life (years) | Cost | Amortization | Adjustment | Net | ||||||||||||||||
Acquired customer
contracts |
7.8 | $ | 14,900 | $ | (4,699 | ) | $ | 40 | $ | 10,241 | ||||||||||
Acquired technology |
7.0 | 2,700 | (328 | ) | 77 | 2,449 | ||||||||||||||
Reseller relationships |
6.0 | 1,500 | (213 | ) | 43 | 1,330 | ||||||||||||||
Trademark |
10.0 | 900 | (77 | ) | 28 | 851 | ||||||||||||||
Other intangibles |
7.0 | 49 | (19 | ) | | 30 | ||||||||||||||
Total |
7.7 | $ | 20,049 | $ | (5,336 | ) | $ | 188 | $ | 14,901 | ||||||||||
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 |
8.0 | $ | 13,500 | $ | (2,812 | ) | $ | 10,688 | ||||||||
Other intangibles |
7.0 | 49 | (12 | ) | 37 | |||||||||||
Total |
8.0 | $ | 13,549 | $ | (2,824 | ) | $ | 10,725 | ||||||||
Amortization expense was $2.6 million and $1.7 million for the twelve months ended September 30,
2010 and 2009, respectively. Future amortization expense, as of September 30, 2010, is expected to
be as follows (in thousands):
Year ending September 30, |
||||
2011 |
$ | 2,682 | ||
2012 |
2,682 | |||
2013 |
2,682 | |||
2014 |
2,682 | |||
2015 |
2,677 | |||
Thereafter |
1,496 | |||
Total expected amortization expense |
$ | 14,901 | ||
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
F-11
Table of Contents
claim. The Company periodically assesses the adequacy of its product warranty liability based on
changes in these factors.
At September 30, 2010 and 2009, the Company had accruals for product warranties of approximately
$1.0 million and $1.8 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 in fiscal 2010 and 2009. 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 $1.1 million and $0.9 million in fiscal
2010 and 2009, respectively.
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 2010 and 2009. 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.
F-12
Table of Contents
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, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Customer A |
14.1 | % | 13.7 | % | * | 19.6 | % | |||||||||
Customer B |
* | 14.1 | % | * | * |
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 various system components, many of these are supplied
by separate single vendors, would affect the Companys ability to deliver finished goods and
replacement parts.
Recently Issued Accounting Standards
Fair Value Measurement and Disclosures (ASU 2010-06)
In January 2010, the FASB published ASU 2010-06 Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 clarifies improved
disclosure requirement related to fair value measurements and disclosures Overall Subtopic
(Subtopic 820-10) of the FASB Accounting Standards Codification. The new disclosures and
clarifications of existing disclosures were effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosure about purchase, sales, issuances, and
settlement in the roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The amendments in this update were effective for interim and annual periods
ending on or after December 15, 2009, and needed to be applied on a retrospective basis. The
adoption of this standard did not have an impact on the Companys financial position and results of
operations.
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
F-13
Table of Contents
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 will adopt these updates for fiscal 2011 and does not anticipate any significant impact
on the consolidated financial statements.
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, 2010 and 2009, the Company reported the following
revenues and related cost of goods sold by type:
For the Twelve Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Revenue: |
||||||||
Software |
$ | 42,862 | $ | 32,909 | ||||
Systems |
21,641 | 25,104 | ||||||
Services |
4,041 | 5,334 | ||||||
Other |
2,107 | 1,978 | ||||||
Total revenue |
$ | 70,651 | $ | 65,325 | ||||
For the Twelve Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cost of goods sold: |
||||||||
Software |
$ | 10,870 | $ | 8,654 | ||||
Systems |
20,918 | 22,861 | ||||||
Services |
3,121 | 3,687 | ||||||
Other |
955 | 938 | ||||||
Total cost of goods sold |
$ | 35,864 | $ | 36,140 | ||||
Software revenue includes monthly subscriptions from XATANET and XATA Turnpike solutions, 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, infrastructure, and XATA Turnpike customer support. Cost of systems consists of the direct
product costs, warranty costs, product repair costs, and direct personnel costs related to XATANET
and MobileMax technical support. Cost of services consists of third party vendor costs and direct
costs related to service personnel.
Note 4. Acquisition of Turnpike Global Technologies, Inc. and Turnpike Global Technologies LLC
On December 4, 2009, the Company acquired all of the outstanding equity of Turnpike for a purchase
price at closing consisting of $10.0 million in cash and 833,333 shares of common stock of the
Company.
F-14
Table of Contents
Additionally, the Company committed to pay total earn-outs up to an additional 2,500,000
shares of common stock upon achievement by Turnpike of certain performance goals for 2010, 2011,
and 2012 fiscal years. All share related activity required shareholder approval. On February 17,
2010 the Companys shareholders approved the transaction and common shares totaling 809,993 were
issued to the shareholders of Turnpike, with the value of the remaining 23,340 shares being settled
in cash of $70,000 to non-accredited U.S. holders. Prior to shareholder approval, the fair value of
the common shares and contingent earn out was recorded as long term obligations of the Company with
periodic re-measurement of fair value. The imputed interest on the common shares and the mark to
market adjustment for the earn-outs has been shown as Acquisition related interest and mark to
market on the statement of operations.
In connection with financing the acquisition of Turnpike, the Company issued convertible debt
totaling $30.2 million. The convertible debt was converted into 10,066,663 shares of Series G
preferred stock and warrants to purchase 3,019,995 common shares (with an exercise price of $3.00
per share) on February 19, 2010, subsequent to shareholder approval. The convertible debt carried
an interest rate of 14% per annum. The Company used proceeds from the convertible debt for the
purchase of Turnpike, payment of transaction costs, pay off of the term loan with Partners for
Growth II, L.P. (PFG) of $8.0 million and to pay a litigation settlement. The remaining proceeds
are being utilized for working capital needs and future growth. The interest on the convertible
debt while it was outstanding has been included in Interest expense on financing activities on
the statement of operations.
The components of the purchase price and the preliminary allocation to the assets and liabilities
based on their estimated fair values at the date of acquisition are as follows (in thousands):
Cash |
$ | 10,000 | ||||||
Stock (1) |
2,477 | |||||||
Earn-Out (2) |
6,297 | |||||||
Total purchase price |
$ | 18,774 | ||||||
Cash |
$ | 548 | ||||||
Accounts receivable, less allowances for
doubtful accounts |
943 | |||||||
Prepaid expenses |
348 | |||||||
Equipment and leasehold improvements, net |
1,419 | |||||||
Deferred tax asset |
328 | |||||||
Accounts payable |
(609 | ) | ||||||
Accrued expenses |
(510 | ) | ||||||
Deferred tax liabilities |
(2,177 | ) | ||||||
Capital lease obligations |
(1,681 | ) | ||||||
Net liabilities |
(1,391 | ) | ||||||
Acquired customer contracts and other intangible assets,
net (3) |
6,500 | |||||||
Goodwill |
13,665 | |||||||
Total |
$ | 18,774 | ||||||
(1) | Stock amount calculated using the fair market value on the date of acquisition based on the present value of the 833,333 shares of common stock at a stated value of $3.00. | |
(2) | Earn-out potential of an additional 833,333 shares of common stock after the end of each of the 2010, 2011, and 2012 fiscal years. The amount was calculated using the estimated fair market value on the date of acquisition based on stock price and estimated probability of earn-out target achievements. | |
(3) | Intangible assets: |
F-15
Table of Contents
Fair Value | Est. Useful Life | |||||||
Acquired customer contracts |
$ | 1,400 | 6 years | |||||
Acquired technology |
2,700 | 7 years | ||||||
Reseller relationships |
1,500 | 6 years | ||||||
Trademark |
900 | 10 years | ||||||
Total intangible assets |
$ | 6,500 | ||||||
The following unaudited pro forma results of operations are presented to illustrate the
estimated effects of the Companys equity raise and acquisition of Turnpike on the Companys
historical results of operations. The pro forma adjustments are based on the preliminary
information available at the time of the preparation of this document. The 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 periods presented, nor are they necessarily indicative of future results.
Unaudited pro forma results of operations for the twelve months ended September 30, 2010 and 2009,
as if the equity raise, debt pay offs, acquisition of Turnpike, shareholder approval, and
conversion of the convertible debt and related beneficial conversion all occurred at the beginning
of the period indicated are as follows (in thousands, except per share amounts):
For the Twelve Months | ||||||||
Ended September 30, | ||||||||
2010 | 2009 | |||||||
(unaudited pro forma) | ||||||||
Revenue |
$ | 72,305 | $ | 70,890 | ||||
Net loss to common shareholders |
$ | (32 | ) | $ | (4,909 | ) | ||
Net loss per common share: |
||||||||
Basic |
$ | (0.00 | ) | $ | (0.52 | ) | ||
Diluted |
$ | (0.00 | ) | $ | (0.52 | ) | ||
Weighted average common and common
share equivalents basic and diluted |
9,623 | 9,385 |
Note 5. Financing Arrangements
Debt obligations consist of the following (in thousands):
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Contingent earn out |
$ | 181 | $ | | ||||
Senior secured revolving credit facility |
| 500 | ||||||
Secured term loan |
| 8,000 | ||||||
Capitalized leases |
1,143 | 118 | ||||||
Total debt obligations |
1,324 | 8,618 | ||||||
Less current portion of debt obligations |
839 | 84 | ||||||
Total debt obligations, net of current portion |
$ | 485 | $ | 8,534 | ||||
F-16
Table of Contents
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. 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. The balances outstanding were $0.5 million and $8.0 million
at September 30, 2009, for the revolving line of credit and term loan, respectively. In the first
quarter of fiscal 2010 both facilities were paid in full and subsequently canceled.
In connection with financing the acquisition of Turnpike in December 2009, the Company issued
convertible debt totaling $30.2 million. On February 19, 2010, the convertible debt converted into
10,066,663 shares of Series G preferred stock and warrants to purchase 3,019,995 common shares. The
convertible debt carried an interest rate of 14% per annum. The interest expense recorded during
twelve months ended September 30, 2010 was approximately $0.9 million. The Company used proceeds of
the convertible debt for the purchase of Turnpike, pay off the term loan with PFG of $8.0 million
and to pay a litigation settlement. The remaining proceeds are being utilized for working capital
needs and future growth.
The value of common stock relating to the Turnpike acquisition and related contingent earn outs
were treated as debt until shareholder approval was received on February 17, 2010. Subsequently,
these amounts were reclassified as equity. These items were re-measured at their fair value at the
end of each reporting period and on the date of shareholder approval. Charges for this
re-measurement were approximately $0.4 million for the twelve months ended September 30, 2010. The
portion of the earn-out to be settled in cash will continue to be re-measured at fair value at the
end of each reporting period until settlement.
In connection with the acquisition of Turnpike, the Company acquired a Master Lease Agreement with
Buffalo City Center Leasing, LLC (BCCL) effective October 1, 2007 for financing of certain
equipment used in the XATA Turnpike product offerings. The Master Lease Agreement has a term of 3
years with a renewal option for an additional 3 year term. Leases under the Master Lease Agreement
have a term of twenty seven months and effective interest rates of between 16.1% and 16.5% with
monthly payments including principal and interest. The balance of the Companys capital lease
obligation with BCCL was $1.1 million at September 30, 2010.
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, 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 3.4 million shares of common stock
outstanding at September 30, 2010 and 4.2 million shares of common stock outstanding as September
30, 2009 were excluded from the computation of diluted earnings per share because their effect
would have been antidilutive.
F-17
Table of Contents
Note 7. Income Taxes
The Companys deferred tax assets and liabilities are as follows (amounts in thousands):
September 30, | ||||||||
2010 | 2009 | |||||||
Current deferred tax assets: |
||||||||
Inventory and warranty reserve |
$ | 568 | $ | 838 | ||||
Accrued expenses, deferred revenue and other |
3,921 | 2,733 | ||||||
Accounts receivable and sales reserve |
147 | 136 | ||||||
4,636 | 3,707 | |||||||
Non-current deferred tax assets(liabilities): |
||||||||
Depreciation and amortization |
1,279 | 949 | ||||||
Tax credit carryforwards |
1,869 | 1,748 | ||||||
Net operating loss carryforwards |
14,253 | 16,520 | ||||||
Identifiable intangible assets |
(5,583 | ) | (3,968 | ) | ||||
11,818 | 15,249 | |||||||
Total deferred tax asset |
16,454 | 18,956 | ||||||
Less: valuation allowance |
(18,359 | ) | (18,956 | ) | ||||
Net deferred tax asset/(liability) |
$ | (1,905 | ) | $ | | |||
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 domestic deferred tax assets at September 30, 2010 and 2009. 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.
The Companys income tax expense (benefit) differed from the statutory federal rate as follows
(amounts in thousands):
F-18
Table of Contents
September 30, | ||||||||
2010 | 2009 | |||||||
Statutory federal rate applied to loss
before income taxes |
$ | (493 | ) | $ | (703 | ) | ||
State income tax benefit |
(34 | ) | (23 | ) | ||||
Stock based compensation |
180 | 242 | ||||||
Acquisition costs |
313 | | ||||||
Debt financing costs |
96 | | ||||||
Meals and entertainment |
39 | | ||||||
Other permanent differences |
| 83 | ||||||
Change in valuation allowance |
(596 | ) | 658 | |||||
Research and development credit |
(20 | ) | (258 | ) | ||||
Alternative minimum tax |
82 | 25 | ||||||
Section 382 limitaion adjustment |
572 | | ||||||
Other |
(89 | ) | 11 | |||||
$ | 50 | $ | 35 | |||||
As of September 30, 2010, the Company had federal net operating loss carryforwards and tax credit
carryforwards of approximately $50.8 million and $1.9 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 $18.6 million of the acquired net operating loss carryforwards are
available for use and are included in the $38.3 million carryforward amount. Pursuant to a Section
382 Study, the remaining $19.7 million of net operating loss carryforwards from Xata Corporation
are not subject to annual use limitations.
In 2009 and 2010, 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 $12.5 million based on limitations on their use pursuant to Section 382 of the
Internal 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 2009
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, as of September 30, 2010 are (in thousands):
F-19
Table of Contents
Years ending September 30, |
||||
2011 |
$ | 864 | ||
2012 |
569 | |||
2013 |
541 | |||
2014 |
551 | |||
2015 |
147 | |||
Total |
$ | 2,672 | ||
Rental expense, including common area costs, was approximately $1.5 million and $1.6 million for
the fiscal years ended September 30, 2010 and 2009.
401(k) Plan
The Company has a 401(k) plan covering substantially all U.S. employees and the plan is operated on
a calendar year basis. The Company provides an employer matching contribution equal to 50% of an
employees contribution for employee deferrals of up to 6% of their compensation. Matching
contributions for the fiscal years ended September 30, 2010 and 2009 totaled $0.4 million.
Purchase Commitments
From time to time in the ordinary course of the business the Company enters into purchase
commitments for inventory, third party software licenses, etc. The Company evaluates these
commitments on a quarterly basis to assure ourselves that all commitments made will be realized in
the ordinary course of business given the terms of the commitment and that no event has occurred
that has impaired such commitment. As of September 30, 2010, the Company believes that all
commitments made will be achieved over the terms established.
Note 9. Shareholders Equity
Common Stock
The Company is authorized to issue up to 100,000,000 shares of common stock.
Preferred Stock
The Company has authorized an undesignated class of preferred stock of 50,000,000 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.
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
F-20
Table of Contents
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 2010 and 2009 the Company issued 81,000 and 78,000 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 in
each of fiscal 2010 and 2009.
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.
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
F-21
Table of Contents
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 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.
F-22
Table of Contents
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 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.
Series G
In December 2009 in connection with financing the acquisition of Turnpike, the Company issued
convertible debt totaling $30.2 million. The convertible debt was converted into 10,066,663 shares
of Series G preferred stock on February 19, 2010, subsequent to shareholder approval. Each share of
Series G Preferred Stock is convertible into one share of the Companys common stock. The price
per share of Series G Preferred Stock and the conversion price for the common stock is $3.00. The
Series G Preferred Stock does not pay a dividend, unless the Company declines to redeem the stock
upon demand of the holders after five years from the date of issuance, a change in control, or an
Acceleration Event (as defined in the Certificate of Designation of the Series G Preferred Stock).
In that case, the Series G Preferred Stock pays a cumulative dividend of 4% of the original issue
price per annum on each
F-23
Table of Contents
outstanding share of Series G Preferred Stock (payable in cash). The
Series G 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, Series D and Series F Preferred Stock. The Company may redeem the Series G 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, as part of the debt conversion, the Company issued 7-year warrants to purchase
3,019,995 shares of its common stock at an exercise price of $3.00 per share. The aggregate fair
value of the warrants was $3.9 million. The warrants permit cashless exercise.
In connection with this transaction, the Company recognized a beneficial conversion feature valued
at $1.7 million. The beneficial conversion value was determined by first allocating the proceeds
from the convertible debt on a fair value basis between the underlying preferred stock and the
warrants and then comparing the fair value of the preferred stock and the computed purchase price
on the date of the commitment. The difference between the fair value and the computed purchase
price was recorded as the value of the beneficial conversion and was recorded as a debit to the
preferred stock and a credit to additional paid in capital at the time of conversion. In addition,
the Company recognized a deemed dividend of $1.7 million related to the beneficial conversion
feature because the value was available to the holders since the shares were immediately eligible
for conversion. The deemed dividend was recognized as a charge to accumulated deficit and a credit
to the preferred stock.
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
535,954 shares authorized and available for future equity awards as of September 30, 2010.
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 2010 and
2009 (in thousands, except per share amount):
F-24
Table of Contents
Weighted | ||||||||
Average | ||||||||
Shares | Exercise Price | |||||||
Options outstanding at September 30, 2008 |
1,239 | $ | 4.66 | |||||
Granted |
732 | 2.18 | ||||||
Cancelled: |
||||||||
Expired |
(25 | ) | 3.99 | |||||
Forfeited |
(41 | ) | 4.24 | |||||
Options outstanding at September 30, 2009 |
1,905 | 3.73 | ||||||
Granted |
503 | 2.89 | ||||||
Exercised |
(2 | ) | 2.00 | |||||
Cancelled: |
||||||||
Expired |
(25 | ) | 5.23 | |||||
Forfeited |
(154 | ) | 3.42 | |||||
Options outstanding at September 30, 2010 |
2,227 | $ | 3.55 | |||||
Information regarding options outstanding and exercisable at September 30, 2010 is as follows (in
thousands, except per share amount):
Options Outstanding | Options Exercisable | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||||||||
Remaining | Average | Remaining | Average | |||||||||||||||||||||
Number | Contractual | Exercise | Number | Contractual | Exercise | |||||||||||||||||||
Range of exercise price | of Shares | Life (Years) | Price | of Shares | Life (Years) | Price | ||||||||||||||||||
$2.00 - $2.99 |
1,249 | 8.5 | $ | 2.47 | 381 | 8.0 | $ | 2.39 | ||||||||||||||||
3.00 - 3.99 |
167 | 8.3 | 3.51 | 94 | 8.3 | 3.43 | ||||||||||||||||||
4.33 - 4.98 |
35 | 5.9 | 4.64 | 35 | 5.9 | 4.64 | ||||||||||||||||||
5.03 - 5.40 |
776 | 6.2 | 5.24 | 776 | 6.2 | 5.24 | ||||||||||||||||||
2,227 | 7.6 | 3.55 | 1,286 | 6.8 | 4.25 | |||||||||||||||||||
There were 2,000 options exercised during fiscal year 2010. Total intrinsic value of stock options
exercised during fiscal year 2010 was $1,000. The intrinsic value of outstanding options and
options exercisable was $0.3 million and $0.1 million, respectively, as of September 30, 2010.
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 $75,000 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):
F-25
Table of Contents
For the Twelve Months | ||||||||
Ended September 30, | ||||||||
2010 | 2009 | |||||||
Number of shares granted |
503 | 732 | ||||||
Fair value per share |
$ | 1.30 | $ | 0.87 | ||||
Risk-free interest rate |
3.02 | % | 2.29 | % | ||||
Expected volatility |
42.16 | % | 40.29 | % | ||||
Expected life (in years) |
5.93 | 5.73 | ||||||
Dividend yield |
| |
As of September 30, 2010, 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 1.45 years.
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 18,000 and 15,000 shares of
common stock to certain directors in fiscal 2010 and 2009, respectively. Restricted stock awards
granted to directors vest immediately.
The following table summarizes information relating to restricted stock activity for fiscal 2010
and 2009 (in thousands, except per share amount):
Weighted | ||||||||
Number of | Average Grant | |||||||
Shares | Date Fair Value | |||||||
Restricted stock outstanding at September 30, 2008 |
285 | $ | 4.37 | |||||
Granted |
48 | 3.24 | ||||||
Vested |
(173 | ) | 4.48 | |||||
Forfeited |
(4 | ) | 2.99 | |||||
Restricted stock outstanding at September 30, 2009 |
156 | 3.93 | ||||||
Granted |
18 | 3.06 | ||||||
Vested |
(92 | ) | 3.75 | |||||
Forfeited |
(4 | ) | 3.21 | |||||
Restricted stock outstanding at September 30, 2010 |
78 | $ | 3.96 | |||||
The total fair value of shares vested during fiscal years 2010 and 2009 was $0.3 million and $0.5
million, respectively. The weighted average grant date fair value of restricted stock awards
granted during fiscal years 2010 and 2009, respectively, was $3.06 and $3.24.
At September 30, 2010, there was approximately $0.2 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 1.15 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.
F-26
Table of Contents
The following table summarizes information relating to restricted stock unit activity for fiscal
2010 (number of units in thousands):
Weighted | ||||||||
Number of | Average Grant | |||||||
Shares | Date Fair Value | |||||||
Restricted stock units outstanding at September 30, 2008 |
| $ | | |||||
Granted |
241 | 2.00 | ||||||
Restricted stock units outstanding at September 30, 2009 |
241 | 2.00 | ||||||
Granted |
174 | 2.87 | ||||||
Settled |
(201 | ) | 2.20 | |||||
Cancelled: |
||||||||
Expired |
| | ||||||
Forfeited |
(29 | ) | 2.31 | |||||
Restricted stock outstanding at September 30, 2010 |
185 | $ | 2.55 | |||||
At September 30, 2010, there was approximately $0.5 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 1.57 years.
The total fair value of restricted stock units vested during fiscal year 2010 was $0.6 million.
In February 2010, the Company had a change in control, as defined in the employee Restricted Stock
Unit agreements, due to the issuance of the Series G preferred stock. This change in control was a
triggering event for the acceleration of the vesting and settlement of a portion of the Companys
outstanding restricted stock units. As a result of this acceleration, the Company recognized a
charge of $0.2 million.
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 2010, the Company issued 3,020,000 warrants relating to the issuance of Series G
Preferred Stock.
In fiscal 2009, the Company issued 407,000 warrants relating to the issuance of Series F Preferred
Stock.
The following tables summarize information relating to stock warrants (amounts in thousands, with
the exception of per warrant amounts):
F-27
Table of Contents
Weighted Average | ||||||||||||
Weighted Average | Remaining Life | |||||||||||
Number of Warrants | Exercise Price | (years) | ||||||||||
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 | |||||||||
Granted |
3,020 | |||||||||||
Cancelled |
(10 | ) | ||||||||||
Warrants outstanding at September 30, 2010 |
4,951 | $ | 3.13 | 5.1 | ||||||||
Note 10. Legal Proceedings
XATA and its wholly owned subsidiary, Geologic Solutions, Inc. were named as defendants in two
companion lawsuits in the United States District Court, Western District of North Carolina,
Asheville Division. The plaintiffs allege against XATA and Geologic that Geologic created an unsafe
product that permitted drivers to send and/or receive text messages while the vehicle is in motion.
The plaintiffs claim damages in a nonspecific amount, but exceeding $75,000. In both cases the
assigned U.S. Magistrate has recommended that the cases be dismissed. Those Orders have been
appealed to the District Judge by plaintiffs and the parties are awaiting the Courts orders.
During fiscal 2009, the Company was named as one of six defendants in a patent infringement
lawsuit. The Company reached a settlement agreement with the plaintiff that dismissed the Company
from the lawsuit and provides the Company with 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.
Note 11. Subsequent Events
In connection with the acquisition of Turnpike, the Company committed to pay total earn-outs up to
an additional 2,500,000 shares of common stock upon the achievement of certain performance goals
for 2010, 2011 and 2012 fiscal years. The Company has determined that the 2010 performance goals
of $7.9 million in revenue and net new subscriptions of 10,875 were achieved and therefore 809,993
shares of common stock will be issued to the former shareholders of Turnpike with the value of the
remaining 23,340 shares being settled in cash of $70,000.
On September 30, 2010, the Company entered into a prepaid subscription agreement with Duke Capital,
a former shareholder of Turnpike and owned in part by two employees of Turnpike. This agreement
obligates the Company to provide hardware components and subscription service for 300 XATA Turnpike
devices to Duke Capital for a period of 24 months. The total value of the agreement is $0.3
million, reflects non-cancelable terms and the full amount due over the contract term was prepaid
by Duke Capital. Revenue will be recognized over the term of the agreement. The subscription of
these 300 units was included in the calculation of the achievement of the fiscal 2010 earn-out
goals and allowed the net new subscriptions goal to be met.
The Company has evaluated all subsequent events 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,
2010, and events which occurred subsequent to September 30, 2010 but were not recognized in the
financial statements.
F-28
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, 2010 provided
that the evaluation did not include an assessment of the effectiveness
of the internal controls over financial reporting for the Turnpike
operations which were acquired on December 4, 2009.
Managements report on internal control over financial reporting. 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. In accordance with the Securities and Exchange Commissions published guidance, the
Companys assessment of internal control over financial reporting excluded the fiscal 2010
acquisition of Turnpike Inc., which represents approximately 9.3 percent of net sales for the year
ended September 30, 2010. Based on this evaluation, our management concluded that our internal
control over financial reporting was effective as of September 30, 2010.
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,
2010, 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.
25
Table of Contents
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 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, 2010 and 2009
Consolidated Statements of Operations for the years ended September 30, 2010 and 2009
Consolidated Statements of Changes in Shareholders Equity for the years ended September 30, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended September 30, 2010 and 2009
Consolidated Balance Sheet as of September 30, 2010 and 2009
Consolidated Statements of Operations for the years ended September 30, 2010 and 2009
Consolidated Statements of Changes in Shareholders Equity for the years ended September 30, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended September 30, 2010 and 2009
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.
(c) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
26
Table of Contents
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 13, 2010 | 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 13, 2010 | By: | /s/ John J. Coughlan | ||
John J. Coughlan, Chairman, Chief | ||||
Executive Officer and President | ||||
Dated: December 13, 2010 | By: | /s/ Karen T. Beckwith | ||
Karen T. Beckwith, Director | ||||
Dated: December 13, 2010 | By: | /s/ Donald R. Dixon | ||
Donald R. Dixon, Director | ||||
Dated: December 13, 2010 | By: | /s/ Thomas G. Hudson | ||
Thomas G. Hudson, Director | ||||
Dated: December 13, 2010 | By: | /s/ Roger W. Kleppe | ||
Roger W. Kleppe, Director | ||||
Dated: December 13, 2010 | By: | /s/ Chad Lindbloom | ||
Chad Lindbloom, Director | ||||
Dated: December 13, 2010 | By: | /s/ Christopher P. Marshall | ||
Christopher P. Marshall, Director | ||||
Dated: December 13, 2010 | By: | /s/ Michael J. Paxton | ||
Michael J. Paxton, Director | ||||
Dated: December 13, 2010 | By: | /s/ Bharat S. Vedak | ||
Bharat S. Vedak, Director | ||||
Dated: December 13, 2010 | By: | /s/ Mark E. Ties | ||
Mark E. Ties, Chief Financial Officer | ||||
(Principal accounting and financial officer) | ||||
27
Table of Contents
Schedule II
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, 2009
deducted from
assets accounts: |
||||||||||||||||||||
Accounts
receivable
allowance for
bad debts |
$ | 333 | $ | 115 | $ | | $ | 80 | $ | 368 | ||||||||||
Year ended
September 30, 2010
deducted from
assets accounts: |
||||||||||||||||||||
Accounts
receivable
allowance for
bad debts |
368 | 269 | 80 | 273 | 444 |
(1) | This amount represents allowance for bad debts established for Turnpike Global Technologies | |
(2) | Amounts recorded in fiscal 2010 include $53,000 for accounts reserved for the Turnpike Global Technologies acquisition |
28
Table of Contents
Exhibit | ||
No. | Description of Exhibits | |
3.1
|
Second Restated Articles of Incorporation, as amended through April 17, 2010.(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) | |
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) |
29
Table of Contents
Exhibit | ||
No. | Description of Exhibits | |
10.9
|
Side Agreement with JDSTG dated December 28, 2000 (8) | |
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) | |
10.22
|
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) | |
10.30
|
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) | |
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) | |
10.38
|
Severance Agreement between Mark E. Ties and the Company dated May 8, 2008 (26) | |
10.43
|
Severance Agreement between XATA Corporation and David Gagne dated May 7, 2010 (29) | |
10.44
|
Common Stock Warrant and Series E Preferred Stock Purchase Agreement dated as of February 12, 2010 by and among XATA Corporation, Trident Capital Fund-V, L.P., Trident Capital Fund-V Affiliates Fund, |
30
Table of Contents
Exhibit | ||
No. | Description of Exhibits | |
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, 2010 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, 2010, 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, 2010 (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 | |
(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 |
31
Table of Contents
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 | |
(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, 2010 | |
(30) | Incorporated by reference to Exhibit 4.1 of the Companys Report on Form 8-K filed with the SEC on February 18, 2010 | |
(31) | Incorporated by reference to Exhibit 4.2 of the Companys Report on Form 8-K filed with the SEC on February 18, 2010 | |
(32) | Incorporated by reference to Exhibit 10.1 of the Companys Report on Form 8-K filed with the SEC on February 18, 2010 | |
(33) | Incorporated by reference to Exhibit 10.2 of the Companys Report on Form 8-K filed with the SEC on February 18, 2010 |
32
Table of Contents
(34) | Incorporated by reference to exhibit filed as part of Report on Form 10-Q for the fiscal quarter ended March 31, 2010 | |
(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, 2010. | |
(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. |
33