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EX-31.1 - EX-31.1 - XRS Corp | c64503exv31w1.htm |
EX-32.2 - EX-32.2 - XRS Corp | c64503exv32w2.htm |
EX-31.2 - EX-31.2 - XRS Corp | c64503exv31w2.htm |
EX-32.1 - EX-32.1 - XRS Corp | c64503exv32w1.htm |
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2011 or
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 0-27166
Xata Corporation
(Exact Name of Registrant as Specified in its Charter)
Minnesota | 41-1641815 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
965 Prairie Center Drive, Eden Prairie, Minnesota 55344
(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code: (952) 707-5600
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes þ No o
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).
Yes o No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
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 definitions 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 |
APPLICABLE ONLY TO CORPORATE ISSUERS
As of April 26, 2011, the following securities of the Registrant were outstanding: 10,681,573
shares of Common Stock, $.01 par value per share, 2,126,362 shares of Series B Preferred Stock,
1,269,036 shares of Series C Preferred Stock, 1,566,580 shares of Series D Preferred Stock,
1,353,605 of Series F Preferred Stock and 10,066,663 shares of Series G Preferred Stock.
Xata Corporation
Index
Index
Page No. | ||||||||
PART I. FINANCIAL INFORMATION | ||||||||
Item 1. | Consolidated Financial Statements (Unaudited): |
|||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
Item 2. | 25 | |||||||
Item 4. | 31 | |||||||
PART II. OTHER INFORMATION | ||||||||
Item 1. | 33 | |||||||
Item 1A. | 33 | |||||||
Item 2. | 33 | |||||||
Item 3. | 33 | |||||||
Item 4. | 33 | |||||||
Item 5. | 33 | |||||||
Item 6. | 33 | |||||||
SIGNATURES | 34 | |||||||
EXHIBITS | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
2
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Xata Corporation
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended | For the Six Months Ended March | |||||||||||||||
March 31, | 31, | |||||||||||||||
In thousands, except per-share data | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenue |
$ | 16,741 | $ | 18,104 | $ | 30,719 | $ | 35,628 | ||||||||
Cost of goods sold |
8,643 | 9,065 | 14,301 | 18,757 | ||||||||||||
Selling, general and administrative |
6,664 | 6,925 | 12,777 | 13,075 | ||||||||||||
Research and development |
2,248 | 1,599 | 4,472 | 2,933 | ||||||||||||
Acquisition related costs |
| 58 | | 837 | ||||||||||||
Total costs and expenses |
17,555 | 17,647 | 31,550 | 35,602 | ||||||||||||
Operating (loss) income |
(814 | ) | 457 | (831 | ) | 26 | ||||||||||
Net interest and other expense |
(95 | ) | (88 | ) | (178 | ) | (364 | ) | ||||||||
Interest expense on financing activities |
| (579 | ) | | (1,358 | ) | ||||||||||
Acquisition related interest and mark to market |
| (192 | ) | | (354 | ) | ||||||||||
Loss before income taxes |
(909 | ) | (402 | ) | (1,009 | ) | (2,050 | ) | ||||||||
Income tax benefit |
(182 | ) | | (197 | ) | | ||||||||||
Net loss |
(727 | ) | (402 | ) | (812 | ) | (2,050 | ) | ||||||||
Preferred stock dividends |
(54 | ) | (52 | ) | (107 | ) | (103 | ) | ||||||||
Preferred stock deemed dividends |
| (1,654 | ) | 18 | (1,668 | ) | ||||||||||
Net loss to common shareholders |
$ | (781 | ) | $ | (2,108 | ) | $ | (901 | ) | $ | (3,821 | ) | ||||
Net loss per common share: |
||||||||||||||||
Basic and diluted |
$ | (0.07 | ) | $ | (0.23 | ) | $ | (0.09 | ) | $ | (0.43 | ) | ||||
Weighted average common and
common share equivalents: |
||||||||||||||||
Basic and diluted |
10,612 | 9,146 | 10,307 | 8,896 |
The accompanying notes are an integral part of the consolidated financial statements (unaudited).
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Xata Corporation
Consolidated Balance Sheets (Unaudited)
Consolidated Balance Sheets (Unaudited)
March 31, | September 30, | |||||||
In thousands | 2011 | 2010 | ||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 14,519 | $ | 13,374 | ||||
Accounts receivable, less allowances
of $315 at March 31, 2011 and $444 at September 30, 2010 |
8,505 | 11,392 | ||||||
Inventories |
2,498 | 3,047 | ||||||
Deferred product costs |
1,792 | 2,042 | ||||||
Prepaid expenses and other current assets |
1,009 | 1,260 | ||||||
Total current assets |
28,323 | 31,115 | ||||||
Equipment, leased equipment and leasehold improvements, net |
7,462 | 5,798 | ||||||
Intangible assets, net |
13,903 | 14,901 | ||||||
Goodwill |
17,866 | 17,048 | ||||||
Deferred product costs, net of current portion |
1,261 | 1,757 | ||||||
Other assets |
353 | 420 | ||||||
Total assets |
$ | 69,168 | $ | 71,039 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Current portion of debt obligations |
$ | 1,070 | $ | 839 | ||||
Accounts payable |
4,748 | 5,138 | ||||||
Accrued expenses |
4,402 | 4,872 | ||||||
Deferred revenue |
3,678 | 5,070 | ||||||
Total current liabilities |
13,898 | 15,919 | ||||||
Debt obligations, net of current portion |
905 | 485 | ||||||
Deferred revenue, net of current portion |
2,414 | 3,591 | ||||||
Deferred tax liabilities |
1,845 | 1,905 | ||||||
Other long-term liabilities |
600 | 638 | ||||||
Total liabilities |
19,662 | 22,538 | ||||||
Shareholders equity |
||||||||
Preferred stock, no par, 50,000 shares authorized: |
||||||||
Series B, 4% convertible, 2,250 shares designated;
shares issued and outstanding: 2,127 at March 31, 2011
and 2,085 at September 30, 2010 |
5,121 | 5,033 | ||||||
Series C, convertible, 1,400 shares designated;
shares issued and outstanding: 1,269 at March 31, 2011
and September 30, 2010 |
4,426 | 4,426 | ||||||
Series D, convertible, 1,600 shares designated;
shares issued and outstanding: 1,567 at March 31, 2011
and September 30, 2010 |
5,279 | 5,279 | ||||||
Series F, convertible, 1,400 shares designated;
shares issued and outstanding: 1,354 at March 31, 2011
and 1,356 at September 30, 2010 |
2,360 | 2,365 | ||||||
Series G, convertible, 10,100 shares designated;
shares issued and outstanding: 10,067 at March 31, 2011
and September 30, 2010 |
26,877 | 26,877 | ||||||
Common stock, par value $0.01 per share; 100,000 shares
authorized; shares issued and outstanding: 10,681 at
March 31, 2011 and 9,816 at September 30, 2010 |
107 | 98 | ||||||
Contingent common stock earn-out |
4,062 | 6,452 | ||||||
Additional paid-in capital |
44,549 | 41,539 | ||||||
Accumulated deficit |
(45,030 | ) | (44,129 | ) | ||||
Accumulated other comprehensive income |
1,755 | 561 | ||||||
Total shareholders equity |
49,506 | 48,501 | ||||||
Total liabilities and shareholders equity |
$ | 69,168 | $ | 71,039 | ||||
The
accompanying notes are an integral part of the consolidated financial statements (unaudited).
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Xata Corporation
Consolidated Statements of Changes in Shareholders Equity (Unaudited)
Consolidated Statements of Changes in Shareholders Equity (Unaudited)
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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In thousands | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Earn-Out | Capital | Deficit | Income | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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 |
| | | | | | | | | | 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation |
| | | | | | | | | | 35 | 1 | | 587 | | | 588 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Contingent common stock earn-out |
| | | | | | | | | | 810 | 8 | (2,390 | ) | 2,382 | | | | |||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Series F preferred stock into
common stock |
| | | | | | (2 | ) | (5 | ) | | | 2 | | | 5 | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of Options |
| | | | | | | | | | 18 | | | 36 | | | 36 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends |
42 | 106 | | | | | | | | | | | | | (107 | ) | | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock deemed dividends |
(18 | ) | | | | | | | | | | | | | 18 | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | | | | | | | | | 1,194 | 1,194 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | | | | (812 | ) | | (812 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income |
382 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2011 |
2,127 | $ | 5,121 | 1,269 | $ | 4,426 | 1,567 | $ | 5,279 | 1,354 | $ | 2,360 | 10,067 | $ | 26,877 | 10,681 | $ | 107 | $ | 4,062 | $ | 44,549 | $ | (45,030 | ) | $ | 1,755 | $ | 49,506 | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements (unaudited).
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Xata Corporation
Consolidated Statements of Cash Flows (Unaudited)
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended March 31, | ||||||||
In thousands | 2011 | 2010 | ||||||
Operating activities |
||||||||
Net loss |
$ | (812 | ) | $ | (2,050 | ) | ||
Adjustments
to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization of intangibles |
2,988 | 2,320 | ||||||
Amortization of debt financing costs |
458 | |||||||
Non-cash interest expense on convertible debt |
892 | |||||||
Non-cash charges for issuance of equity securities related to the acquisition of
Turnpike Global Technologies |
354 | |||||||
Loss on disposal of assets |
8 | |||||||
Stock based compensation |
588 | 847 | ||||||
Changes in assets and liabilities, net of impact of acquisition: |
||||||||
Accounts receivable, net |
2,923 | (478 | ) | |||||
Inventories |
598 | 1,616 | ||||||
Deferred product costs |
746 | 156 | ||||||
Prepaid expenses and other assets |
304 | 448 | ||||||
Accounts payable |
(1,118 | ) | (742 | ) | ||||
Accrued expenses |
(731 | ) | (1,932 | ) | ||||
Deferred revenue |
(2,569 | ) | (1,584 | ) | ||||
Net cash provided by operating activities |
2,925 | 305 | ||||||
Investing activities |
||||||||
Purchase of equipment and leasehold improvements |
(1,292 | ) | (1,073 | ) | ||||
Acquisition of Turnpike Global Technologies, net of cash acquired |
| (9,451 | ) | |||||
Net cash used in investing activities |
(1,292 | ) | (10,524 | ) | ||||
Financing activities |
||||||||
Borrowings on long-term obligations, net of costs |
| 29,709 | ||||||
Payments on long-term obligations |
(600 | ) | (9,072 | ) | ||||
Proceeds from issuance of common stock |
36 | | ||||||
Net cash (used in) provided by financing activities |
(564 | ) | 20,637 | |||||
Effects of exchange rate on cash |
76 | 7 | ||||||
Increase in cash and cash equivalents |
1,145 | 10,425 | ||||||
Cash and cash equivalents |
||||||||
Beginning |
13,374 | 3,440 | ||||||
Ending |
$ | 14,519 | $ | 13,865 | ||||
Cash payments for interest |
$ | 70 | $ | 329 | ||||
Supplemental schedule of noncash investing and financing activities |
||||||||
Assets acquired under capital lease obligation |
$ | 1,250 | $ | 92 | ||||
Preferred stock deemed dividends |
$ | 18 | $ | 1,668 | ||||
Preferred stock dividends |
$ | 107 | $ | 103 | ||||
Preferred stock dividends paid |
$ | 106 | $ | 102 | ||||
Conversion of debt into Series G preferred stock and warrants |
$ | | $ | 30,592 | ||||
Conversion of Series F perferred stock into common stock |
$ | 5 | $ | | ||||
Contingent common stock earnout related to purchase of Turnpike Global Technologies |
$ | | $ | 6,452 | ||||
Issuance of shares for settlement of contingent earn-out |
$ | 2,390 | $ | 2,430 |
The accompanying notes are an integral part of the consolidated financial statements (unaudited).
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Xata Corporation
Notes to consolidated financial statements (unaudited)
Notes to consolidated financial statements (unaudited)
Note 1. Significant Accounting Policies
Presentation
The accompanying unaudited consolidated financial statements were prepared by Xata Corporation (the
Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for
interim financial statements. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures made herein are adequate to make the
information presented not misleading.
In the opinion of management, the consolidated financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary to fairly present the financial
condition, results of operations, and cash flows for the periods presented. Results of operations
for the periods presented are not necessarily indicative of results to be expected for any other
interim period or for the full year. These consolidated financial statements should be read in
conjunction with the Companys financial statements and notes thereto in its Form 10-K for the year
ended September 30, 2010 and Annual Report to Shareholders filed with the SEC.
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
Adoption of New Accounting Principles
In September 2009, the Financial Accounting Standards Board (FASB) amended the accounting
standards related to revenue recognition for arrangements with multiple deliverables and
arrangements that include software elements (new accounting principles). The new accounting
principles permitted prospective or retrospective adoption. As such, the Company elected
prospective adoption of Accounting Standards Update No. 2009-13, Revenue Recognition (Topic 605)
Multiple-Deliverable Revenue Arrangements (ASU 2009-13) and Accounting Standards Update 2009-14,
Software (Topic 985)Certain Revenue Arrangements that Include Software Elements (ASU 2009-14)
during the first quarter of fiscal 2011. ASU 2009-13 amended existing accounting guidance for
revenue recognition for multiple-element arrangements. To the extent a deliverable within a
multiple-element arrangement is not accounted for pursuant to other accounting standards, including
ASC 985-605, Software-Revenue Recognition, ASU 2009-13 establishes a selling price hierarchy that
allows for the use of an estimated selling price (ESP) to determine the allocation of arrangement
consideration to a deliverable in a multiple element arrangement where neither vendor-specific
objective evidence (VSOE) nor third-party evidence (TPE) is available for that deliverable. ASU
2009-14 modifies the scope of ASC 985-605 to exclude tangible products containing software
components and nonsoftware components that function together to deliver the products essential
functionality. In addition, ASU 2009-14 provides guidance on how a vendor should allocate
arrangement consideration to nonsoftware and software deliverables in an arrangement where the
vendor sells tangible products containing software components that are essential in delivering the
tangible products functionality. The adoption of the above referenced guidance had no significant
impact on the manner in which the Company recognizes revenue and is not expected to have any
significant impact in the future.
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Revenue Recognition
The Company derives its revenue from sales of (1) software, which includes monthly subscriptions
from XataNet and Xata Turnpike solutions, monthly fees from the MobileMax solution and activation
fees; (2) hardware systems, which includes hardware, warranty and repair revenue; and (3) services,
which includes training, implementation, installation and professional service revenue.
The Company sells its products in two ways: direct sales and channel sales. The Companys
direct-sales include sales of the Companys solutions primarily to fleet operators and logistics
providers. The Companys channel sales are driven from Company personnel working in tandem with
partners to sell the Companys products to fleets of all sizes and types.
The Companys customers typically enter into multi-year agreements with automatic renewal features.
Customers are provided the option to terminate their contract at any time, but must pay through the
end of the governing contract, unless termination resulted from a performance issue driven by the
Company. Historically Xata Turnpike customers operated under month-to-month contracts and were
allowed to provide a 30-day termination notice. Beginning in fiscal 2011 Xata Turnpike direct
customer contract renewals were for a minimum of a one-year term, with an automatic one-year
renewal period, consistent with the Companys historic practices.
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has
occurred, the sales price is fixed or determinable, and collection is probable. Product is
considered delivered to the customer once it has been shipped and title and risk of loss have been
transferred. For most of the Companys hardware systems, software license and service sales, these
criteria are met at the time the hardware system is shipped and/or the services are provided. The
Company recognizes revenue from the sale of a hardware system and software bundled with the
hardware system that is essential to the functionality of the hardware system in accordance with
revenue recognition accounting guidance for arrangements with multiple deliverables. The Company
recognizes revenue in accordance with industry specific software accounting guidance for the
following types of sales transactions: (1) standalone sales of software products; and (2) sales of
software bundled with a hardware system, which is not essential to the functionality of the
hardware system.
The Company records deferred revenue when it receives payments in advance of the delivery of
products or the performance of services. In addition, revenue from MobileMax product lines are
deferred and recognized ratably over the term of the agreement in accordance with ASC 985-605,
Software-Revenue Recognition, as discussed further below.
Revenue Recognition for Arrangements with Multiple Deliverables
For multi-element arrangements that include tangible products that contain software that is
essential to the tangible products functionality and undelivered software elements that relate to
the tangible products essential software, the Company allocates revenue to all deliverables based
on their relative selling prices. In such circumstances, the Company uses a hierarchy to determine
the selling price to be used for allocating revenue to deliverables: (1) vendor-specific objective
evidence of fair value, if available, (2) third-party evidence of selling price if VSOE is not
available, and (3) best estimate of the selling price if neither VSOE nor TPE is available (a
description as to how the Company determined VSOE, TPE and ESP is provided below). The Company
limits the amount of revenue recognized for delivered elements to an amount that is not contingent
upon future delivery of additional products or services or meeting of any specified performance
conditions.
To determine the selling price in multiple-element arrangements, the Company established VSOE of
selling price using the price charged for a deliverable when sold separately and for software
subscriptions, based on the renewal rates offered to customers. For nonsoftware multiple element
arrangements, TPE is established by evaluating similar and interchangeable competitor products or
services in standalone arrangements with similarly situated customers. If the Company is unable to
determine the selling price because VSOE or TPE doesnt exist, ESP is determined for the purposes
of allocating the arrangement by considering several external and internal
8
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factors including, but not limited to, pricing practices, margin objectives, competition,
geographies in which the Company offers its products and services, internal costs and stage of the
product lifecycle. The determination of ESP is made through consultation with and approval by
management, taking into consideration the Companys go-to-market strategy. As the Companys
competitors pricing and go-to-market strategies evolve, the Company may modify its pricing
practices in the future, which could result in changes to the determination of VSOE, TPE and ESP.
As a result, the Companys future revenue recognition for multiple-element arrangements could
differ materially from its results in the current period. Selling prices are analyzed on an annual
basis or more frequently if significant fluctuations in the selling prices occur.
The software component of the Companys XataNet and Xata Turnpike solutions, functions together
with the hardware system component to deliver the solutions functionality. As a result, the
Company has identified two deliverables in arrangements involving the sale of these solutions. The
first deliverable is the hardware system component. The second deliverable is the hosting of the
software essential to the functionality of the hardware system, which is provided by the Company
(referred to throughout this document as software). The Company has allocated revenue between these
two deliverables using the relative selling price method. The Company maintains VSOE for the
software deliverable. Because the Company has neither VSOE nor TPE for the hardware system
deliverable, the allocation of revenue to the hardware systems on the Companys ESPs. Amounts
allocated to the delivered hardware system are recognized at the time of sale provided the other
conditions for revenue recognition have been met. Amounts allocated to essential solution software
are deferred and recognized on a straight-line basis over the term of the agreement with the
customer.
The Companys process for determining its ESP for deliverables without VSOE or TPE considers
multiple factors that may vary depending upon the unique facts and circumstances related to each
deliverable. Key factors considered by the Company in developing the ESPs for the hardware systems
include prices charged by the Company for similar offerings, the Companys historical pricing
practices and the life cycle of the hardware system. The Company may also consider additional
factors as appropriate, including the pricing of competitive alternatives if they exist, and
product-specific business objectives.
Revenue Recognition for Software Products
The Company accounts for multiple element arrangements that consist only of software or
software-related products, which include the Companys MobileMax solution, as well as its add-on
product offerings, in accordance with industry specific accounting guidance for software and
software-related transactions, ASU 985-605. For such transactions, revenue on arrangements that
include multiple elements is allocated to each element based on the relative fair value of each
element, and fair value is determined by VSOE. If the Company cannot objectively determine the fair
value of any undelivered element included in such multiple-element arrangements, the Company defers
revenue until all elements are delivered and services have been performed, or until fair value can
objectively be determined for any remaining undelivered elements, the Company uses the residual
method to recognize revenue. Under the residual method, the fair value of the undelivered elements
is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements
and is recognized as revenue.
Other Revenue Recognition Policies Applicable to Software and Nonsoftware Elements
Many of the Companys software arrangements include services, such as implementation, installation,
driver education and consulting services sold separately under engagement contracts and are
included as a part of the Companys services business. Revenues from these arrangements are
generally accounted for separately from new software revenues because the arrangements qualify as
services transactions as defined in ASC 985-605. The more significant factors considered in
determining whether the revenues should be accounted for separately include the nature of services
(i.e. consideration of whether the services are essential to the functionality of the licensed
product), degree of risk, availability of services from other vendors, timing of payments and
impact of milestones or acceptance criteria on the realizability of the software license fee.
Revenues for the aforementioned services are generally recognized as the services are performed. If
there is a significant uncertainty about the
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project completion or receipt of payment for the consulting services, revenues are deferred until
the uncertainty is sufficiently resolved.
Finally, the Company has entered into agreements with various companies, which provide a mechanism
for continued development, marketing and distribution of a wider variety of comprehensive solutions
to meet the needs of the changing marketplace. The Company recognizes revenue generated under the
aforementioned agreements in accordance with ASC 605-45 Revenue Recognition Principal Agent
Considerations, based upon the terms of each partnership agreement.
Allowance for Doubtful Accounts
The Company grants credit to customers in the normal course of business. The majority of the
Companys accounts receivable are due from companies with fleet trucking operations in a variety of
industries. Credit is extended based on an evaluation of a customers financial condition. 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, the Companys
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.
Foreign Currency Translation
The financial statements with a functional currency other than the U.S. Dollar have been translated
into U.S. Dollars 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.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments in overnight sweep and money market
accounts. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation
insurance limits. The Company has not experienced any losses from excess balances in the past and
does not expect to in the future.
Fair Value of Financial Instruments
The Company performs fair value measurements in accordance with the guidance provided by the FASBs
Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures. ASC 820
defines fair value as the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities required to be recorded at their
fair values, the Company considers the principal or most advantageous market to transact and
consider assumptions that market participants would use when pricing the assets or liabilities,
such as inherent risk, transfer restrictions, and risk of nonperformance.
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ASC 820 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. An assets
or liabilitys 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 Quoted prices for identical assets or liabilities in active markets;
Level 2 Inputs other than Level 1 that are directly or indirectly observable in the marketplace;
or
Level 3 Unobservable inputs which are supported by little or no market activity and that are
significant to the fair values of the assets or liabilities.
The Companys valuation techniques used to measure the fair value of money market funds and certain
marketable equity securities were derived from quoted prices in active markets for identical assets
or liabilities. The valuation techniques used to measure the fair value of all other financial
instruments, all of which have counterparties with high credit ratings, were valued based on quoted
market prices or model driven valuations using significant inputs derived from or corroborated by
observable market data.
Assets and Liabilities Measured at Fair Value
The Company has money market fund assets and a contingent earn out liability to non-accredited U.S.
shareholders carried at fair value. The following paragraphs provide additional information
regarding the valuation of the balances, on a recurring basis as of March 31, 2011 and September
30, 2010:
Money market funds The Company maintained money market funds, which are included in cash and
cash equivalents on the consolidated balance sheets of $13.7 million and $13.0 million as of March
31, 2011 and September 30, 2010, respectively. The valuation techniques used to measure the fair
values of the Companys money market funds, that were classified as Level 1, were derived from
quoted market prices as substantially all of these instruments have maturity dates (if any) within
one year from the date of purchase and active markets for these instruments exist. There were no
material transfers in or out of Level 1 during the six months ended March 31, 2011.
Contingent earn out liability The Companys valuation techniques used to measure the fair value
of the contingent earn out was based on the stock price on the date of the Turnpike acquisition and
the estimated probability of earn-out target achievements. The change in the contingent earn out
liability, which is included in debt obligations on the consolidated balance sheets has been
summarized in the rollforward below (in thousands):
Balances as of September 30, 2010 |
$ | 181 | ||
Payments of earn out |
(70 | ) | ||
Balance as of March 31, 2011 |
$ | 111 |
Inventories
Inventories consist of finished goods which are stated at the lower of cost or market. Cost is
determined on the average cost method, which approximates the first-in, first-out method.
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Equipment, Leased Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of (in thousands):
March 31, | September 30, | |||||||
2011 | 2010 | |||||||
Office furniture and equipment |
$ | 7,610 | $ | 5,558 | ||||
Leased equipment |
4,182 | 2,959 | ||||||
Engineering and manufacturing equipment |
902 | 919 | ||||||
Leasehold improvements |
2,491 | 2,452 | ||||||
15,185 | 11,888 | |||||||
Less: accumulated depreciation |
(7,723 | ) | (6,090 | ) | ||||
Equipment and leasehold improvements, net |
$ | 7,462 | $ | 5,798 | ||||
Depreciation expense included in selling, general and administrative expenses in the
consolidated statements of operations was approximately $0.5 million and $0.4 million for the three
months ended March 31, 2011 and 2010, respectively, and was approximately $1.0 million and $0.7
million for the six months ended March 31, 2011 and 2010, respectively. Depreciation on leased
Xata Turnpike equipment is recorded as cost of goods sold and was $0.3 million for the three months
ended March 31, 2011 and 2010, respectively, and $0.6 million and $0.4 million for the six months
ended March 31, 2011 and 2010, respectively.
Capitalized Software Development Costs
Hardware system development costs incurred after establishing technological feasibility are
capitalized as capitalized hardware system development costs in accordance with Statement of ASC
350-40-35 Internal-Use Computer Software 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 March 31, 2011
and September 30, 2010, there was $0.4 million of capitalized development costs. Amortization of
capitalized software is recorded as a cost of goods sold and was $2,100 for the three months ended
March 31, 2011.
Product development costs that do not meet the capitalization criteria of ASC 985-20 are charged to
research and development expense as incurred.
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Intangible Assets
Intangible assets subject to amortization were as follows as of March 31, 2011 (in thousands):
Foreign | ||||||||||||||||||||
Weighted | Currency | |||||||||||||||||||
Average Life | Accumulated | Translation | ||||||||||||||||||
(years) | Cost | Amortization | Adjustment | Net | ||||||||||||||||
Acquired customer
contracts |
7.8 | $ | 14,900 | $ | (5,666 | ) | $ | 115 | $ | 9,349 | ||||||||||
Acquired technology |
7.0 | 2,700 | (533 | ) | 228 | 2,395 | ||||||||||||||
Reseller relationships |
6.0 | 1,500 | (345 | ) | 123 | 1,278 | ||||||||||||||
Trademark |
10.0 | 900 | (124 | ) | 79 | 855 | ||||||||||||||
Other intangibles |
7.0 | 49 | (23 | ) | | 26 | ||||||||||||||
Total |
7.7 | $ | 20,049 | $ | (6,691 | ) | $ | 545 | $ | 13,903 | ||||||||||
Amortization expense was $0.7 million for each of the three months ended March 31, 2011 and
2010 and was $1.4 million and $1.2 million for the six months ended March 31, 2011 and 2010,
respectively.
Future amortization expense, as of March 31, 2011, is expected to be as follows (in thousands):
Years ending September 30, | ||||
2011 |
$ | 1,373 | ||
2012 |
2,745 | |||
2013 |
2,745 | |||
2014 |
2,745 | |||
2015 |
2,369 | |||
Thereafter |
1,926 | |||
Total expected amortization expense |
$ | 13,903 | ||
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.
The Company has evaluated these assets for impairment and has determined no impairment exists at
March 31, 2011.
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Goodwill
The changes in the net carrying amount of goodwill for the six months ended March 31, 2011 are as
follows (in thousands):
Balance at September 30, 2010 |
$ | 17,048 | ||
Foreign currency translation adjustment |
818 | |||
Balance at March 31, 2011 |
$ | 17,866 | ||
As of March 31, 2011, the Company had a goodwill balance of $17.8 million of which $13.7
million resulted from the Companys acquisition of Turnpike on December 4, 2009.
In accordance with ASC 350-20 Intangibles Goodwill and Others, the Company is required to
assess the carrying amount of its goodwill for impairment annually or more frequently if an event
occurs indicating the potential for impairment. The Company has one operating and reporting unit
that earns revenues, incurs expenses and makes available discrete financial information for review
by the Companys chief operations decision maker. Accordingly, the Company completes its goodwill
impairment testing on this single reporting unit.
Testing for goodwill impairment is a two step process. The first step screens for potential
impairment. If there is an indication of possible impairment the Company must complete the second
step to measure the amount of impairment loss, if any. The first step of the goodwill impairment
test, used to identify potential impairment, compares the fair value of the Companys market
capitalization with the carrying value of its net assets. If the Companys total market
capitalization is at or below the carrying value of its net assets, the Company would perform the
second step of the goodwill impairment test to measure the amount of impairment loss to record, if
any. The Company considers goodwill impairment test estimates critical due to the amount of
goodwill recorded on its balance sheet and the judgment required in determining fair value amounts.
Historically, the Companys market capitalization has been well above the carrying value of its
equity and there has been no indication of potential impairment. The results of the Companys most
recent annual assessment performed on the first day of the fourth quarter of fiscal 2010 did not
indicate any impairment of its goodwill.
The Company has evaluated these assets for impairment and has determined no impairment exists at
March 31, 2011.
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 March 31, 2011 and September 30, 2010, the Company had accruals for product warranties of
approximately $0.9 million and $1.0 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 $0.1
million for each of the three months ended March 31, 2011 and 2010 and $0.2 million for each of the
six months ended March 31, 2011 and 2010. Customer billings related to shipping and handling fees
are reported as hardware systems revenue.
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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 $0.3 million and $0.2 million for the three months ended
March 31, 2011 and 2010, respectively. Advertising costs were $0.6 million and $0.5 million for
the six months ended March 31, 2011 and 2010, 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. For the three and six months ended March 31, 2011, the
Company recorded an income tax benefit of $0.2 million, respectively.
Recently Issued Accounting Standards
Performing Step 2 of the Goodwill Impairment Test: In December 2010, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update No. 2010-28, When to Perform Step 2 of
the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic
350)IntangiblesGoodwill and Other (ASU 2010-28). ASU 2010-28 amends the criteria for performing
Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts
and requires performing Step 2 if qualitative factors indicate that it is more likely than not that
a goodwill impairment exists. The Company will adopt ASU 2010-28 in fiscal 2012 and any impairment
to be recorded upon adoption will be recognized as an adjustment to beginning retained earnings.
The Company is currently evaluating the impact of the pending adoption of ASU 2010-28 on the
consolidated financial statements.
Disclosure Requirements Related to Fair Value Measurements: In January 2010, the FASB issued
Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements (Topic
820)Fair Value Measurements and Disclosures (ASU 2010-06), to add additional disclosures about
the different classes of assets and liabilities measured at fair value, the valuation techniques
and inputs used, and the activity in Level 3 fair value measurements. This ASU also clarifies the
existing fair value disclosures regarding the level of disaggregation and the valuation techniques
and inputs used to measure fair value. ASU No. 2010-06 only impacts disclosures and was effective
for interim and annual reporting periods beginning after December 15, 2009, except for the
disclosures on purchases, sales, issuances and settlements in the roll-forward of activity for
Level 3 fair value measurements. Refer to the additional disclosures included above as a result of
the Companys adoption of ASU 2010-06.
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Note 2. 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 three and six months ended March 31, 2011 and 2010, the Company reported the
following revenues and related cost of goods sold by type (in thousands):
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue: |
||||||||||||||||
Software |
$ | 11,380 | $ | 10,790 | $ | 22,721 | $ | 20,466 | ||||||||
Hardware systems |
4,899 | 5,583 | 6,632 | 11,780 | ||||||||||||
Services |
462 | 1,138 | 1,366 | 2,229 | ||||||||||||
Other |
| 593 | | 1,153 | ||||||||||||
Total revenue |
$ | 16,741 | $ | 18,104 | $ | 30,719 | $ | 35,628 | ||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of goods sold: |
||||||||||||||||
Software |
$ | 2,698 | $ | 2,790 | $ | 5,470 | $ | 5,180 | ||||||||
Hardware systems |
5,168 | 5,228 | 7,210 | 11,537 | ||||||||||||
Services |
777 | 788 | 1,642 | 1,532 | ||||||||||||
Other |
| 259 | (21 | ) | 508 | |||||||||||
Total cost of goods sold |
$ | 8,643 | $ | 9,065 | $ | 14,301 | $ | 18,757 | ||||||||
Software revenue includes monthly subscriptions from XataNet and Xata Turnpike solutions,
monthly fees from MobileMax solution and activation fees. Hardware systems revenue includes
hardware, warranty and repair 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 hardware 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 3. Stock-Based Compensation
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
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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
362,493 shares authorized and available for future equity awards as of March 31, 2011.
Stock Options
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 fair value of each option is estimated at the grant date using the Black-Scholes option-pricing
model. 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 weighted average fair value at the date of grant and the assumptions used to determine
such values are indicated in the following (number of shares in thousands):
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Number of shares granted |
756 | 39 | 756 | 459 | ||||||||||||
Fair value per share |
$ | 1.21 | $ | 1.29 | $ | 1.21 | $ | 1.31 | ||||||||
Risk-free interest rate |
2.72 | % | 3.18 | % | 2.72 | % | 3.06 | % | ||||||||
Expected volatility |
39.99 | % | 39.30 | % | 39.99 | % | 42.41 | % | ||||||||
Expected life (in years) |
5.91 | 5.23 | 5.91 | 5.93 | ||||||||||||
Dividend yield |
| | | |
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. The simplified method calculates the expected
term as the average of the vesting and contractual terms of the award. The risk-free interest rate
assumption is based on observed interest rates appropriate for the term of the options. The Company
uses historical data to estimate pre-vesting option forfeitures and records share-based
compensation expense only for those awards that are expected to vest. The fair value of options
are amortized over the vesting period of the awards utilizing a straight-line method.
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Table of Contents
The following table summarizes information relating to stock option activity for fiscal 2010 and
for the six month period ended March 31, 2011 (number of shares in thousands):
Weighted | ||||||||
Average | ||||||||
Exercise | ||||||||
Shares | Price | |||||||
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 | ||||||
Granted |
756 | 2.85 | ||||||
Exercised |
(18 | ) | 2.00 | |||||
Cancelled: |
||||||||
Expired |
(108 | ) | 3.64 | |||||
Forfeited |
(167 | ) | 2.61 | |||||
Options outstanding at March 31, 2011 |
2,690 | $ | 3.41 | |||||
There were 17,917 options exercised during the six months ended March 31, 2011. Total
intrinsic value of stock options exercised during the six months ended March 31, 2011 was $9,900.
The intrinsic value of stock options outstanding and stock options outstanding and exercisable as
of March 31, 2011 was $0.2 million and $0.1 million, respectively.
Information regarding options outstanding and exercisable at March 31, 2011 is as follows (number
of shares in thousands):
Options Outstanding | Options Exercisable | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||||||||
Remaining | Average | Remaining | Average | |||||||||||||||||||||
Range of | Number of | Contractual | Exercise | Number of | Contractual | Exercise | ||||||||||||||||||
exercise price | Shares | Life (Years) | Price | Shares | Life (Years) | Price | ||||||||||||||||||
$2.00 $2.99
|
1,808 | 8.7 | $ | 2.63 | 756 | 7.9 | $ | 2.49 | ||||||||||||||||
3.00 3.99
|
96 | 8.1 | 3.32 | 72 | 7.9 | 3.30 | ||||||||||||||||||
4.33 4.98
|
35 | 5.4 | 4.64 | 35 | 5.4 | 4.64 | ||||||||||||||||||
5.03 5.40
|
751 | 5.7 | 5.25 | 751 | 5.7 | 5.25 | ||||||||||||||||||
2,690 | 7.8 | 3.41 | 1,614 | 6.6 | 4.11 | |||||||||||||||||||
As of March 31, 2011, there was approximately $1.2 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 1.2 years.
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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. Restricted stock awards granted to directors vest
immediately.
The following table summarizes information relating to restricted stock activity for fiscal 2010
and for the six month period ended March 31, 2011 (number of shares in thousands):
Weighted | ||||||||
Average | ||||||||
Number of | Grant Date | |||||||
Shares | Fair Value | |||||||
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 | ||||||
Granted |
35 | 2.85 | ||||||
Vested |
(95 | ) | 3.34 | |||||
Restricted stock outstanding at March 31, 2011 |
18 | $ | 5.12 | |||||
The total fair value of shares vested was $0.2 million for each of the three and six months ended
March 31, 2011 and 2010. The weighted average grant date fair value of restricted stock awards
granted during the three months ended March 31, 2011 and 2010 was $2.85 and $3.00, respectively.
The weighted average grant date fair value of restricted stock awards granted during the six months
ended March 31, 2011 and 2010 was $2.85 and $3.00, respectively.
At March 31, 2011, there was approximately $48,000 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 0.6
years.
Restricted Stock Units
The Company currently grants restricted units of common stock as part of its long-term incentive
compensation to employees. The fair value of restricted stock units is determined based on the
closing market price of the Companys stock on the date of grant. Restricted stock units vest over
a period of three years for employees.
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Table of Contents
The following table summarizes information relating to restricted stock unit activity for fiscal
2010 and the six month period ended March 31, 2011 (number of units in thousands):
Weighted | ||||||||
Average | ||||||||
Number of | Grant Date | |||||||
Shares | Fair Value | |||||||
Restricted stock outstanding at September 30, 2009 |
241 | $ | 2.00 | |||||
Granted |
174 | 2.87 | ||||||
Settled |
(201 | ) | 2.20 | |||||
Cancelled: |
||||||||
Forfeited |
(29 | ) | 2.31 | |||||
Restricted stock outstanding at September 30, 2010 |
185 | 2.55 | ||||||
Granted |
196 | 2.85 | ||||||
Settled |
(2 | ) | 3.00 | |||||
Cancelled: |
||||||||
Forfeited |
(39 | ) | 2.54 | |||||
Restricted stock outstanding at March 31, 2011 |
340 | $ | 2.72 | |||||
The total fair value of restricted stock units vested during the six months ended March 31,
2011 was $5,600.
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, the Company accelerated the related cost of $0.2
million during the quarter ended March 31, 2010.
At March 31, 2011, there was approximately $0.8 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 1.2
years.
Note 4. 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.
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Approximate future minimum rental commitments, excluding common area costs under these
non-cancelable operating leases, as of March 31, 2011 are (in thousands):
Years ending September 30, | ||||
2011 |
$ | 408 | ||
2012 |
601 | |||
2013 |
573 | |||
2014 |
584 | |||
2015 |
160 | |||
Thereafter |
| |||
Total |
$ | 2,326 | ||
Rental expense, including common area costs, was $0.4 million for each of the three months
ended March 31, 2011 and 2010. Rental expense, including common area costs, was $0.7 million and
$0.8 million for the six months ended March 31, 2011 and 2010, respectively.
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 were $0.1 million for each of the three months ended March 31, 2011 and 2010.
Matching contributions were $0.2 million for each of the six months ended March 31, 2011 and 2010,
respectively.
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 March 31, 2011 the Company believes that all commitments
made will be achieved over the terms established.
Note 5. Financing Arrangements
Debt obligations consist of the following (in thousands):
March 31, | September 30, | |||||||
2011 | 2010 | |||||||
Capitalized leases |
$ | 1,864 | $ | 1,143 | ||||
Contingent earn out |
111 | 181 | ||||||
Total debt obligations |
1,975 | 1,324 | ||||||
Less current portion of debt obligations |
1,070 | 839 | ||||||
Total debt obligations, net of current portion |
$ | 905 | $ | 485 | ||||
In connection with the financing of the acquisition of GeoLogic Solutions, Inc., in January
2008, 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
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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. In the first
quarter of fiscal 2010 both facilities were paid in full and subsequently canceled. Also, in the
first quarter of fiscal 2010, the remaining unamortized balance of the related debt financing costs
of $0.5 million was charged to interest expense on financing activities in the consolidated
statement of operations.
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 for the
six months ended December 30, 2009 was approximately $0.3 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 period and on the date of shareholder approval. There were approximately $0.2 million
of re-measurement charges that were recorded for the six months ended December 31, 2009. 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 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 Turnpike product offerings. 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 Master Lease Agreement expired on October 4, 2010.
The Company entered into the First Amendment to the Master Lease Agreement (the Amendment) on
January 7, 2011, which extended the term of the Master Lease Agreement through the end of the lease
term of any equipment leased under the Master Lease Agreement.
The balance of the Companys capital lease obligation with BCCL was $1.8 million at March 31, 2011.
Note 6. Shareholders Equity
Common Stock
The Company is authorized to issue up to 100,000,000 shares of common stock.
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
were achieved and therefore in December 2010, 809,993 shares of common stock were issued to the
former shareholders of Turnpike with the value of the remaining 23,340 shares being settled in cash
of $70,000.
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.
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Series B
In December 2003, the Company sold 1,612,903 shares of Series B Preferred Stock for $4.1 million,
or $2.54 per share. Each share of the Series B Preferred Stock is convertible into one share of
the Companys common stock. The Series B Preferred Stock pays a cumulative dividend of 4% of the
original issue price per annum (payable semi-annually) on each outstanding share of Series B
Preferred Stock. The dividend is payable in additional shares of Series B Preferred Stock rather
than cash, at the option of the holders.
In fiscal 2010 the Company issued 80,946 shares 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
results in a non-cash dividend of $0.2 million in fiscal 2010.
In the first quarter of fiscal 2011 the Company issued 41,805 shares 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 $0.1 million for the six months ended March 31,
2011.
Series C
In September 2005, the Company sold 1,269,036 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.
Series D
In June 2007, the Company sold 1,566,580 shares of Series D 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.
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. In February 2011, 2,252 shares of Series F Preferred Stock were
converted to common stock
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 at $3.00 per share 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.
In addition, 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.
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.
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In fiscal 2010, the Company issued 3,020,000 warrants relating to the issuance of Series G
Preferred Stock.
The following tables summarize information relating to stock warrants for fiscal 2010 and for the
six month period ended March 31, 2011 (number of warrants in thousands):
Weighted | Weighted | |||||||||||
Average | Average | |||||||||||
Number of | Exercise | Remaining | ||||||||||
Warrants | Price | Life (years) | ||||||||||
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 | |||||||||
Cancelled |
(147 | ) | ||||||||||
Warrants outstanding at March 31, 2011 |
4,804 | $ | 3.14 | 4.7 | ||||||||
Note 7. Net Loss Per Common 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 16.5 million and 11.1 million shares of
common stock outstanding for the three months ended March 31, 2011 and 2010, respectively, were
excluded from the computation of diluted earnings per share because their effect would have been
antidilutive. In addition, approximately 16.5 million and 8.8 million shares of common stock
outstanding for the six months ended March 31, 2011 and 2010, respectively, were excluded from the
computation of diluted earnings per share because their effect would have been antidilutive.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Forward-looking Statements
Except for the historical information contained herein, the matters discussed in this Report on
Form 10-Q are forward-looking statements involving risks and uncertainties that could cause actual
results to differ materially from those in such forward-looking statements. Numerous factors,
risks and uncertainties affect the Companys operating results and could cause the Companys actual
results to differ materially from forecasts and estimates or from any other forward-looking
statements made by, or on behalf of, the Company, and there can be no assurance that future results
will meet expectations, estimates or projections. Risks and uncertainties about us include, but
are not limited to, the following:
| as we have generated operating losses recently, additional operating losses may occur in the future and may be in excess of amounts that could be funded from operations, thus, we may be dependent upon external investment to support our operations during these periods; | ||
| we will continue to be dependent upon positioning hardware systems and communication networks owned and controlled by others, and accordingly, their problems may adversely impact us; | ||
| for the foreseeable future, we are dependent upon the continued receipt and fulfillment of new orders for our current products; | ||
| our growth and profitability depend on our timely introduction and market acceptance of new products, our ability to continue to fund research and development activities, and our ability to establish and maintain strategic partner relationships. |
Further information regarding these and other risks is included in Risk Factors in Part 1, Item
1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, in this Form
10-Q and in our other filings we make with the SEC.
Overview
Xata is 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 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. Inc. and Turnpike Global
Technologies, LLC (combined Turnpike), a Personal Digital Assistant (PDA)-based fleet operations
solution provider. 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.
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
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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 solutions.
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 software, hardware systems and services through the following solutions: |
| XataNet, our web-based, on-demand scalable software, includes a variety of web-based enterprise applications. XataNet provides critical real-time information about our customers fleets, allows for paperless driver logs and provides summary and granular reports on driver and vehicle performance. XataNet can also integrate with back-office applications, for a seamless flow of information, and our software works with a variety of in-cab communications devices. | ||
| MobileMax helps for-hire trucking companies track and manage nearly every aspect of their fleets activities to help control costs and increase ROI. The MobileMax solution features Multi-Mode communication capabilities that automatically switch between land-based and satellite communications to take advantage of the cost-savings and reliability of both terrestrial and satellite communication. MobileMax integrates with dispatching and routing applications for a seamless flow of information. | ||
| Xata Turnpike has been recognized as one of the first solutions to fully automate, from end-to-end, the fuel and mileage tax process required by the International Fuel Tax Agreement (IFTA). Xata Turnpike interacts with various handheld devices using Bluetooth as a wireless in-cab communication medium. The information collected by Xata Turnpike is made available to the end-user via web-based reporting. |
| 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 solutions 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 from multibillion-dollar organizations to small, single owner operations, 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
Our consolidated financial statements are prepared in accordance with U.S. generally accepted
accounting principles (GAAP) as set forth in the Financial Accounting Standards Boards Accounting
Standards Codification (Codification) and consider the various staff accounting bulletins and other
applicable guidance issued by the SEC. GAAP, as set forth within the Codification, requires us to
make certain estimates, judgments and assumptions. We believe that the estimates, judgments and
assumptions upon which we rely, are reasonable based upon information available to us at the time
that these estimates, judgments and assumptions are made. These estimates, judgments and
assumptions can affect the reported amounts of assets and liabilities as of the date of the
financial statements as well as the reported amounts of revenues and expenses during the periods
presented. To
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the extent there are material differences between these estimates, judgments or assumptions and
actual results, our financial statements will be affected. The accounting policies that reflect our
more significant estimates, judgments and assumptions and which we believe are the most critical to
aid in fully understanding and evaluating our reported financial results include the following:
| Revenue Recognition | ||
| Allowance for Doubtful Accounts | ||
| Goodwill and Intangible Assets Impairment Assessments | ||
| Product Warranties | ||
| Accounting for Income Taxes |
In many cases, the accounting treatment of a particular transaction is specifically dictated by
GAAP and does not require managements judgment in its application. There are also areas in which
managements judgment in selecting among available alternatives would not produce a materially
different result. Our senior management has reviewed these critical accounting policies and related
disclosures with the Audit Committee of the Board of Directors. There were no changes to the
Companys other critical accounting policies during the second quarter of fiscal 2011. Please refer
to Managements Discussion and Analysis of Financial Condition and Results of Operations contained
in Part II, Item 2 of our Form 10-Q for the quarterly period ended December 31, 2010 and Part II,
Item 7 of our Annual Report on Form 10-K for our fiscal year ended September 31, 2010 for a more
complete discussion of our critical accounting policies and estimates.
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Results of Operations for the three and six months ended March 31, 2011 and 2010
The following table sets forth detail related to revenue, cost of goods sold, and gross margins:
Three months ended March 31, | Six months ended March 31, | |||||||||||||||
(Dollar amounts in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Software |
||||||||||||||||
Revenue |
$ | 11,380 | $ | 10,790 | $ | 22,721 | $ | 20,466 | ||||||||
Cost of goods sold |
2,698 | 2,790 | 5,470 | 5,180 | ||||||||||||
Gross margin |
$ | 8,682 | $ | 8,000 | $ | 17,251 | $ | 15,286 | ||||||||
Gross margin % |
76.3 | % | 74.1 | % | 75.9 | % | 74.7 | % | ||||||||
Hardware systems |
||||||||||||||||
Revenue |
$ | 4,899 | $ | 5,583 | $ | 6,632 | $ | 11,780 | ||||||||
Cost of goods sold |
5,168 | 5,228 | 7,210 | 11,537 | ||||||||||||
Gross margin |
$ | (269 | ) | $ | 355 | $ | (578 | ) | $ | 243 | ||||||
Gross margin % |
(5.5 | %) | 6.4 | % | (8.7 | %) | 2.1 | % | ||||||||
Services |
||||||||||||||||
Revenue |
$ | 462 | $ | 1,138 | $ | 1,366 | $ | 2,229 | ||||||||
Cost of goods sold |
777 | 788 | 1,642 | 1,532 | ||||||||||||
Gross margin |
$ | (315 | ) | $ | 350 | $ | (276 | ) | $ | 697 | ||||||
Gross margin % |
(68.2 | %) | 30.8 | % | (20.2 | %) | 31.3 | % | ||||||||
Other |
||||||||||||||||
Revenue |
$ | | $ | 593 | $ | | $ | 1,153 | ||||||||
Cost of goods sold |
| 259 | (21 | ) | 508 | |||||||||||
Gross margin |
$ | | $ | 334 | $ | 21 | $ | 645 | ||||||||
Gross margin % |
0.0 | % | 56.3 | % | 0.0 | % | 55.9 | % | ||||||||
Total |
||||||||||||||||
Revenue |
$ | 16,741 | $ | 18,104 | $ | 30,719 | $ | 35,628 | ||||||||
Cost of goods sold |
8,643 | 9,065 | 14,301 | 18,757 | ||||||||||||
Gross margin |
$ | 8,098 | $ | 9,039 | $ | 16,418 | $ | 16,871 | ||||||||
Gross margin % |
48.4 | % | 49.9 | % | 53.4 | % | 47.4 | % |
Revenue
Total revenue decreased 7.5 percent to $16.7 million for the three months ended March 31, 2011
compared to $18.1 million for the same period in fiscal 2010. Total revenue decreased 13.8 percent
to $30.7 million for the six months ended March 31, 2011 compared to $35.6 million for the same
period in fiscal 2010.
Software revenue, including monthly subscriptions from XataNet and Xata Turnpike solutions, and
monthly fees from MobileMax increased 5.5 percent to $11.4 million for the three months ended March
31, 2011 compared to $10.8 million for the same period in fiscal 2010 driven by strong XataNet and
Xata Turnpike subscription growth. Software revenue for the three months ended March 31, 2011
represented 68.0 percent of total revenue compared to 59.6 percent for the same period of fiscal
2010. Software revenue increased 11.0 percent to comprise 74.0
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percent of total revenue for the
six months ended March 31, 2011 compared to 57.4 percent of total revenue for the same period in
fiscal 2010.
Hardware systems revenue, which includes hardware, warranty and repair revenue, decreased 12.3
percent to comprise 29.3 percent of total revenue for the three months ended March 31, 2011
compared to 30.8 percent for the same period in fiscal 2010. For the six months ended March 31,
2011, hardware systems revenue decreased 43.7 percent to comprise 21.6 percent of total revenue
compared to 33.1 percent for the same period in fiscal 2010. The decline in hardware systems
revenue has been impacted by the transition to the next generation XataNet platform and continuing
shift in the market to the lower investment Xata Turnpike solution.
Services revenue decreased 59.4 percent to comprise 2.8 percent of total revenue for the three
months ended March 31, 2011 compared to 6.3 percent for the same period in fiscal 2010. Service
revenue, which includes training, implementation, installation, and professional service revenue,
was $1.4 million for the six months ended March 31, 2011, which declined 38.7 percent compared to
the same period in fiscal 2010 as a result of lower hardware system activity.
Cost of Goods Sold and Gross Margin
Cost of software consists of communication, hosting costs, depreciation of Xata Turnpike units, and
direct personnel costs related to network, infrastructure, and Xata Turnpike customer support. Cost
of software decreased 3.3 percent and increased
5.6 percent for the three and six months ended March 31, 2011, respectively, compared to the same
periods in fiscal 2010. Software gross margin improved 2.2 and 1.2 percentage points for the three
and six months ended March 31, 2011, respectively, compared to the same periods in fiscal 2010.
The margin improvement was driven by the increased number of software subscriptions and continued
reduction in communication costs.
Cost of hardware 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
hardware systems decreased 1.1 percent and 37.5 percent for the three and six months ended March
31, 2011, respectively, compared to the same period in fiscal 2010. Hardware systems gross margins
decreased 11.9 and 10.8 percentage points for the three and six months ended March 31, 2011
compared to the same period in fiscal 2010 as a result incremental hardware system costs associated
with the initial rollout of the new XataNet platform and increased support and warranty costs as a
percentage of revenue.
Cost of services consists of third party vendor costs and direct costs related to service
personnel. Cost of services decreased 1.4 percent and increased 7.2 percent for the three and six
months ended March 31, 2011, respectively, compared to the same period in fiscal 2010. Service
gross margins decreased 51.5 percentage points for the six months ended March 31, 2011, compared to
the same period in fiscal 2010. Service margins were impacted by a decrease in hardware systems
activity and incremental costs associated with the initial rollout of the new XataNet platform.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of employee salaries in our executive, sales,
client management and administration functions, sales commissions, marketing and promotional
expenses, administrative and facilities costs, and professional fees. Selling, general and
administrative expenses for the three months ended March 31, 2011 were $6.7 million or 39.8 percent
of revenue compared to $6.9 million or 38.3 percent of revenue for the same period in fiscal 2010.
For the six months ended March 31, 2011, selling, general and administrative expenses were $12.8
million or 41.6 percent of revenue compared to $13.1 million or 36.7 percent of revenue for the
same period in fiscal 2010. The increase as a percent of revenue reflects the continued investment
in sales and marketing efforts.
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Research & Development Expenses
Research and development expenses consist of employee salaries and expenses related to development
of software and hardware systems. Research and development expenses were $2.2 million or 13.4
percent of revenue for the three months ended March 31, 2011 compared to $1.6 million or 8.8
percent of revenue for the comparable period in fiscal 2010. Research and development expenses
were $4.5 million or 14.6 percent of revenue for the six months ended March 31, 2011 compared to
$2.9 million or 8.2 percent of revenue for the comparable period in fiscal 2010. The increase
reflects a continued investment in research and development to support the new compliance
requirements facing the trucking industry and continuing to add new product functionality.
Net Interest and Other Expense
Net interest and other expense was $0.1 million for the three months ended March 31, 2011 and 2010.
Net interest and other expense was $0.2 million for the six months ended March 31, 2011, a decrease
of $0.2 million compared to $0.4 million for the comparable period in fiscal 2010. This decrease
was driven by the accelerated payoff of certain debt facilities, which occurred in February 2010.
Acquisition Related Costs
In connection with the acquisition of Turnpike, the Company incurred costs of $0.1 million and $0.8
million of direct out-of-pocket costs for the three and six months ended March 31, 2010,
respectively. In accordance with ASC 805 Business Combinations, the Company expensed these costs
as incurred as period costs. Similar charges were not recorded for the six months ended March 31,
2011.
Interest Expense on Financing Activities
There was no interest expense on financing activities recorded for the six months ended March 31,
2011. Interest expense on financing activities recorded for the six months ended March 31, 2010 was
approximately $1.4 million, which included interest related to the convertible debt of $0.9
million and the write off of the unamortized balance of prepaid financing fees of $0.5 million
associated with the accelerated payoff of certain debt facilities.
Acquisition Related Interest and Mark to Market Expense
During the six months ended March 31, 2010, the fair value of the common shares and contingent earn
out was recorded as long term obligations and were re-measured at their fair value at the end of
the period. Charges for this re-measurement were approximately $0.2 million and $0.4 million for
the three and six months ended March 31, 2010. Similar charges were not recorded for the six
months ended March 31, 2011.
Income Taxes
An income tax benefit of $0.2 million was recorded for the six months ended March 31, 2011 to
recognize the Canadian tax benefit that will be realized to the extent of the related deferred tax
liability recorded in conjunction with the acquisition of Turnpike, as well as other refundable
credits. On a consolidated basis, the Company does not have objectively verifiable positive
evidence of future taxable income as prescribed by ASC 740 Income Tax. Accordingly, we concluded
that a valuation allowance is 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 $38.3 million.
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Net Loss to Common Shareholders
The Company incurred net losses to common shareholders of $0.8 million and $2.1 million for the
three months ended March 31, 2011 and 2010, respectively, and $0.9 million and $3.8 million for the
six months ended March 31, 2011 and 2010, respectively. Net loss to common shareholders reflect
preferred stock dividends and preferred stock deemed dividends of $0.1 million and $1.7 million for
the three months ended March 31, 2011 and 2010, respectively, and $0.1 million and $1.8 million for
the six months ended March 31, 2011 and 2010, respectively.
Liquidity and Capital Resources
As of March 31, 2011, the Company held $14.5 million in cash and cash equivalents as compared to
$13.4 million as of September 30, 2010. Our working capital, which is total current assets less
total current liabilities, excluding the current portion of long-term obligations and deferred
revenue and applicable deferred costs, remains strong at $17.4 million as compared to $19.1 million
at September 30, 2010.
Operating activities provided cash of $2.9 million and $0.3 million during the six months ended
March 31, 2011 and 2010, respectively. Cash provided by operating activities increased by $2.6
million compared to the same period in fiscal 2010 due to improved earnings and changes in
components of working capital, primarily a decrease in accounts receivable.
Cash used in investing activities was $1.3 million and $1.1 million for the six months ended March
31, 2011 and 2010, respectively, as the result of planned fixed asset expenditures. In fiscal 2010,
the Company also invested $9.5 million in the acquisition of Turnpike.
Cash used by financing activities of $0.6 million for the six months ended March 31, 2011 primarily
reflect payments of capital lease obligations for Xata Turnpike units. Fiscal 2010 payments on
long-term borrowing reflect capital lease payments of $0.3 million and the accelerated payoff of
certain debt facilities and related charges of $8.3 million.
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 growth strategy.
Our Series B Preferred Stock prohibits payment of dividends to the holders of any other capital
stock unless and until the Company has paid dividends accrued on the Series B Preferred Stock,
which pays a cumulative dividend of 4% of the original issue price per annum (payable
semi-annually) on each outstanding share of Series B Preferred Stock. At the option of the Series
B Preferred Stock holders, such dividends are payable in additional shares of Series B Preferred
Stock or cash. During the six months ended March 31, 2011 and 2010, 42,000 and 40,000 shares,
respectively, of Series B Preferred Stock have been issued for payment of accrued dividends.
Recently Issued Accounting Standards
See Note 1 in the Notes to Consolidated Financial Statements located in Part I, Item 1 of this
Report.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting
Our principal executive officer and principal financial officer, or persons performing similar
functions, carried out an evaluation of the effectiveness, as of March 31, 2011, of the design and
operation of our disclosure controls and procedures (as defined in Exchange Rule 13a-15(e)) and
concluded that our disclosure controls and
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procedures are effective to ensure that information
required to be disclosed by us in reports that we file or submit under the Exchange Act is (i)
recorded, processed, summarized and reported within the time periods specified in
SEC rules and forms and (ii) accumulated and communicated to our principal executive officer and
principal financial officer as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal controls over financial reporting that occurred during our
most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 1A. Risk Factors.
In addition to the other information set forth in this report and our other SEC filings, you should
carefully consider the factors discussed under Risk Factors in Part I, Item 1A of our Annual
Report on Form 10-K for the year ended September 30, 2010, as updated by our subsequent SEC
filings, which could have a material impact on our business, financial condition or results of
operations. The risks described in our Annual Report on Form 10-K are not the only risks we face.
Additional risks and uncertainties not presently known to us or that we currently believe to be
immaterial may also adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Reserved
Item 5. Other Information.
None
Item 6. Exhibits.
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 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 6, 2011 |
Xata Corporation (Registrant) |
|||
by: | /s/ Scott G. Christian | |||
Scott G. Christian | ||||
Chief Financial Officer (Signing as Principal Financial and Accounting Officer, and as Authorized Signatory of Registrant) |
||||
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