UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended September 30, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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For the transition period from
to
Commission File Number 0-27166
XATA Corporation
(Exact name of registrant as specified in its charter)
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Minnesota
(State or other jurisdiction of
incorporation or organization)
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41-1641815
(I.R.S. Employer
Identification No.)
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965 Prairie Center Drive
Eden Prairie, Minnesota
(Address of principal executive offices)
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55344
(Zip Code)
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Registrant’s telephone number, including area code:
(952)707-5600
Securities registered pursuant to Section 12(b) of the Act:
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(Title of Class)
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(Name of each exchange on which registered)
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Common Stock, $0.01 par value per share
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Nasdaq Capital Market
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
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Yes
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No
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
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Yes
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No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
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Yes
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No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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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 the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
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Yes
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No
As of March 31, 2008, the aggregate market value of the registrant’s common stock held by
non-affiliates of the registrant was $17,700,000 based on the last transaction price as reported on
the Nasdaq Capital Market on such date. This calculation does not reflect a determination that
certain persons are affiliates of the registrant for any other purposes.
The number of shares of common stock outstanding on November 30, 2008 was 8,775,769.
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the
definitive proxy statement for the Annual Meeting of Stockholders to be held on February 4, 2009.
Forward Looking Statements
Statements contained in this Report that are not statements of historical fact should be considered
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Examples of forward-looking statements include, but are not limited to: (i) projections of
revenue, income or loss, the payment or nonpayment of dividends, capital structure and other
statements concerning future financial performance; (ii) statements of our plans and objectives by
our management or Board of Directors, including those relating to products or services; (iii)
statements of assumptions underlying such statements; (iv) statements regarding business
relationships with vendors, customers or collaborators; and (v) statements regarding products,
their characteristics, performance, sales potential or effect in the hands of customers. Words such
as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “should,” “potential,” “goals,”
“strategy,” and similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ
materially from those in such statements. Factors that could cause actual results to differ from
those discussed in the forward-looking statements include, but are not limited to, the risk factors
described in Item 1A of Part I of this Report, as updated or supplemented by risk factors described
in future documents we file with the SEC (including reports on Form 10-Q and 8-K). The performance
of our business and our securities may be adversely affected by these factors and by other factors
common to other businesses and investments, or to the general economy. You should consider these
factors with caution and form your own independent conclusions about the likely effect of these
factors on any forward-looking statement, and on our future performance in general. Forward-looking
statements speak only as of the date on which such statements are made, and we undertake no
obligation to update any forward-looking statement to reflect events or circumstances after the
date on which such statement is made.
PART I
Item 1. Business
About XATA
We are one of the leading providers of fleet management solutions to the truck transportation
industry. Our innovative technologies and value-added services are intended to enable customers to
optimize the utilization of their assets and enhance the productivity of fleet operations across
the entire supply chain, resulting in decreased costs, improved compliance with U.S. Department of
Transportation (DOT) regulations, and enhanced customer service.
Founded in 1985, XATA has leveraged over 20 years of experience developing solutions for North
America’s premier trucking fleets. That knowledge has resulted in a clear understanding of the
features and functions that matter most to transportation executives, fleet operators and drivers.
We were the first company to provide completely paperless electronic logs, exception-based
management reporting and learned standards for accurate business intelligence. Our products combine
enterprise software, mobile technology, real-time communications and global positioning systems
(GPS) to provide an enterprise logistics management solution for private and for-hire fleet
operators.
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Our first-generation products, introduced in the early 1990’s, included our
revolutionary touch-screen Driver Computer and PC-based Fleet Management System software.
Valuable data was downloaded from driver computers to the fleet management system host
software in batch mode via our patented driver key for compliance reporting and analysis.
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In 1999, we introduced OpCenter, a Microsoft Windows-based customer-hosted system that
can manage multiple operation centers and users over a wide area network.
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In 2004, we introduced XATANET, our next-generation Web-based system. Over the past
several years we have invested heavily in product development to bring the XATANET system
to market, as well as to develop additional software applications for managing trucks and
fleet operations. We believe that XATANET enables us to significantly broaden our
penetration of the 3.6 million medium and heavy duty vehicle private fleet transportation
market.
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On January 31, 2008, XATA completed its acquisition of GeoLogic Solutions, Inc., which
provides the commercial trucking industry with wireless asset management solutions in the
for-hire segment of the over-the-road transportation sector. GeoLogic Solutions, Inc.’s
mobile communications and tracking system, MobileMax, had approximately 35,000 licensed
users across North America at the time of acquisition.
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Trucking Industry Background and Trends
Private fleets and for-hire carriers comprise the two major fleet categories within the commercial
trucking industry. Private fleets include manufacturers, wholesalers, retailers and other
companies who transport their own goods using equipment they own or lease. For-hire carriers
include truckload and less-than-truckload carriers whose primary business is the transportation of
freight that belongs to others.
Commercial trucking fleets are characterized by considerable investment in equipment, high
operating costs, significant annual mileage per vehicle and extensive federal and state compliance
reporting requirements. Costs for equipment, drivers, fuel, insurance, maintenance, and support
personnel make the efficient operation of each vehicle an essential and complex part of fleet
management. Accordingly, accurate and timely data collection and analysis enables managers of
truck fleets to reduce operating costs, utilize assets efficiently and improve delivery times. We
believe there is, and will continue to be, significant demand in the trucking industry for fleet
management systems, principally because the use of this technology enables fleet operators to
reduce expenses, maintain compliance standards and improve customer service.
We believe the following trends continue to impact the trucking industry, resulting in increasing
competitive pressures and demand for mobile information technology:
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Increased operating costs: Driver salaries, fuel, insurance, and other operating
costs continue to increase. These trends encourage operators to utilize onboard
information systems to control costs and more effectively manage their fleets.
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Government regulations: DOT driver log requirements have become more stringent. The
Federal Motor Carrier Safety Administration (FMCSA), an administration within the DOT,
implemented new driver hours-of-service rules in January 2004, tightening driver work
rules. These rules were challenged in federal court and the FMSCA issued revised rules
effective October 1, 2005. On November 19, 2008, the FMCSA published a final rule
adopting the provisions of its December 17, 2007, interim final rule on the
hours-of-service rules. The final regulation will take effect on January 19, 2009.
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The FMCSA is currently evaluating the use of Electronic Onboard Recorders (EOBR’s) to
increase hours-of-service compliance and compliance-related highway safety. Because of
illegal paper log adjustments, the FMCSA would like to mandate the use of EOBR’s for
drivers with poor safety records, while providing additional incentives for those who
will switch voluntarily. These logbooks could be used to force drivers to adhere to the
hour-of-service restrictions and save time by no longer using the paper log. In 1997,
FMCSA issued a memorandum limiting the use of advanced technology in compliance reviews
and enforcement. On November 19, 2008, FMCSA issued a policy change that rescinded the
1997 memorandum. We believe the change in policy will make computer-generated driver
logs and EOBRs systems more widely accepted and eventually result in federal or state
government mandates.
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Additionally, states require trucks to pay state fuel taxes based on the amount of fuel
consumed in their state. To comply with these regulations, drivers must record state
border crossing and fuel purchase information. Many long haul vehicles cross up to 25
state borders per week, resulting in significant paperwork for the driver, the clerical
staff of the carrier and the processor of the carrier’s fuel tax returns. In order to
comply with these requirements, records must be maintained at the fleet home base as
well as at the carrier’s headquarters. Records must also be readily available for
federal regulators to review fuel tax compliance. Our systems are designed to automate
compliance with each of these regulatory requirements.
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Furthermore, there is increased pressure, by a variety of federal and state government
agencies, to implement environmental, “green” regulations to reduce the country’s carbon
footprint and greenhouse gas emissions. Policies that may be favored by environmental
concerns include a national speed limit of 65 miles per hour for all trucks, decreased
idling, reducing highway congestion and other policies that seek to get more value out
of every gallon of fuel burned. In order to comply with any such requirements, records
will need to be maintained and be available for federal and state regulators to review.
Our systems can help with the monitoring of these types of environmental components.
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New technologies: Affordability, simplicity and acceptance of new wireless
communications and internet technologies have historically proven to be barriers for
customers to purchase our solutions. New technologies are helping to reduce these
barriers.
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Safety and security concerns: Since the terrorist attacks of September 11, 2001,
public authorities and fleet operators have become more acutely interested in
technology solutions to increase the safety and security of their drivers and cargo.
This is especially true for companies transporting petroleum products and other
hazardous loads.
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Mobile technology: As companies increasingly rely on just-in-time inventory
management and seek to control and monitor inventories throughout their entire supply
chain, they demand better service and increased capabilities from their trucking
operators and vendors. In addition, as companies increasingly adopt mobile
technologies, including the internet, to reduce communication costs, paperwork and
processing times, trucking operators are adopting technology to comply with the
operating processes and systems of their customers. This trend encourages integration
of mobile technology with the host information systems of trucking fleet operators.
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Our Products and Services
XATA provides a total fleet management solution, including hardware, software and services. XATA’s
primary sources of revenue are its XATANET and MobileMax products. XATANET is a
software-as-a-service (SaaS) solution for which XATA receives a monthly per-truck subscription fee.
MobileMax is a hosted solution whose revenue is derived from monthly per-truck communications
service fees.
XATANET Fleet Management System
XATA provides a powerful, advanced, yet user-friendly, software-as-a-service (SaaS) system called
XATANET, used by manufacturing, distribution, petroleum and other operators of trucking fleets to
reduce fuel costs, increase operational efficiencies, enhance customer service and improve safety
and compliance.
As a SaaS system, the XATANET software application delivery model operates for use by its customers
over the Internet. Customers do not pay for owning the software itself but rather for using it with
a monthly subscription fee. The benefits of XATA’s SaaS delivery model is the decrease in
customers’ in-house IT hardware and software resources, faster implementation time compared to
on-site products, automatic upgrades to the most current software levels and access with an
internet browser anywhere, anytime.
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Through its web-based design, XATANET performs the following functions to enable fleet operators to
control costs and maximize vehicle and driver performance:
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Automation of DOT driver log requirements and state fuel tax reporting.
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Comprehensive vehicle and driver performance reporting.
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Real-time asset tracking, route management, trip optimization and stop activity
scheduling.
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Mobile two-way messaging and real-time vehicle location.
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Diagnostic and accident data capture.
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XATANET integrates mobile technology, driver displays and cost-effective communications with a
suite of powerful, web-based applications delivered on-demand via the Internet. XATANET combines
the data generated within the truck as well as data received wirelessly into a web-based user
interface, enabling fleet managers to measure fleet performance, resolve exception conditions,
monitor ongoing operations and perform detailed analysis.
XATANET is ideal for organizations that seek to eliminate the startup costs and lengthy
implementation times typically associated with fleet management solutions. XATANET allows fleets
of all sizes to install, utilize and pay for only those applications that benefit their
organization today, gaining immediate value at a lower cost of entry, while retaining the ability
to expand their use as fleet operations evolve.
A XATANET solution is composed of these primary components:
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Mobile Applications: These core XATANET applications provide for the optimization of
fleet operations, including electronic driver logs, automated fuel tax, driver and vehicle
management. The mobile environment is designed with easy integration with third-party
complementary applications such as proof of delivery, navigation, and trailer temperature
monitoring. XATA provides onboard, rugged, mobile computing platforms that connect to the
engine, gathering vehicle and diagnostic information.
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Driver Displays: Touch-screen driver displays are mounted in the cab of the truck
capturing and communicating fleet performance information. With the ability to monitor
fuel economy, estimated time of arrival (ETA), and regulatory compliance drivers can help
ensure the fleet reaches optimum performance levels.
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Wireless Communications: XATANET systems use patented technologies that utilize
lowest-cost communication methods synchronizing trip and driver data with maximum
efficiency. Our multi-mode systems combine CDMA 1xRTT, 802.11b WiFi, and satellite
wireless networks to provide “no-gap” coverage and high speed data download. The XATANET
onboard mobile computing platforms include GPS and wireless communications hardware that
collect, store and intelligently manage data communications.
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MobileMax Fleet Management System
MobileMax helps companies track and manage nearly every aspect of their fleets’ activities to help
control costs and increase return on investment (ROI). The MobileMax solution features Multi-Mode
communication capabilities that automatically switch between land-based and satellite
communications to take advantage of the cost-savings and reliability of both terrestrial and
satellite communication.
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MobileMax provides real-time communication and tracking capabilities, records state-line crossings,
monitors driver and vehicle performance and alerts companies of driver arrival at/or departure from
geofenced locations.
Similar to XATANET, MobileMax is composed of these primary components:
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Mobile Applications: These core applications provide for the optimization of fleet
operations, including automated fuel tax, driver and vehicle management.
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Driver Displays: Color touch-screen driver displays are mounted in the cab of the truck
capturing and communicating fleet performance information. These displays also provide
in-cab communications between drivers on the road and home base.
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Communications: MobileMax systems use patented technologies that utilize lowest-cost
communication methods synchronizing trip and driver data with maximum efficiency. The
multi-mode system combines GSM GPRS terrestrial communication with L-band geosynchronous
satellite networks to provide “no-gap” coverage and high-speed data download. MobileMax’s
onboard hardware combines the system’s transceiver and antenna in one shell that uses a
single-cable connection to handle data communications.
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Legacy OpCenter Fleet Management System
XATA’s legacy OpCenter system allows managers to achieve measurable fleet performance and
productivity improvements by integrating proven onboard technology into the fleet management
process. The OpCenter system consists of a driver computer, driver key, data station and our
OpCenter Fleet Management Software hosted and managed by the customer.
Our OpCenter Fleet Management Software operates in a multi-user, Microsoft Windows environment and
can manage multiple fleets over a wide area network. The system collects, validates and processes
data recorded by a fleet’s network of Driver Computers and Data Stations.
With the introduction and widespread adoption of the web-based XATANET on-demand software solution,
XATA is focused on migrating OpCenter customers to the XATANET platform. Through an
OpCenter-to-XATANET upgrade program, XATA will consult with OpCenter customers to identify
opportunities for fleet management improvements through upgrading to XATANET. These consultations
include an in-depth look at how the customer utilizes OpCenter and the potential benefits of
implementing XATANET.
Professional Services
XATA offers an array of professional IT and consultation services: XATANET and MobileMax solution
implementation, driver and back-office training, consulting for best operations practices and
building custom reports on an ad-hoc basis for customers.
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Implementation services include project management, website setup and configuration,
best-practices recommendations, data integration and software implementation.
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Training services include web-audio training, on-site training and one-on-one training
for fleet management and drivers. This includes teaching how to use the in-cab devices (for
drivers) and how to best use the XATANET reports (for fleet management personnel).
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Best-practice consulting includes examining a customer’s fleet operations and making
recommendations for improvements, using the XATANET or MobileMax fleet management
solutions.
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XATA’s custom reporting service allows XATANET and MobileMax customers to have
specialized reports made for their operations, beyond the suite of standard reports already
offered by XATA.
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Target Markets
There are approximately 8.1 million commercial trucks operating in the United States, of which 6.6
million are operated by private fleets and 1.5 million are operated by for-hire carriers. Our
current customers include both private and for-hire fleets with heavy-duty trucks, and we believe
that our fleet management products will enable us to further penetrate each of these segments of
the commercial truck industry.
Private Fleets
Private fleets include the commercial trucks operated by manufacturers, wholesalers, retailers and
other companies who transport their own goods using equipment they own or lease. Historically, the
costs associated with purchasing an integrated hardware and software system for onboard computing
required a minimum fleet size in order to recover the fixed costs associated with a traditional
fleet management system.
We believe XATANET will allow us to significantly expand our potential market to include a much
larger portion of the private fleet sector, including smaller fleets, large decentralized fleets
and fleets in new vertical markets. Specifically, smaller fleets and decentralized fleets are able
to purchase individual XATANET software application packages that target their specific information
needs and use our Internet-based system to collect, process and present their data. We believe
these fleets represent a significant new market opportunity. We view the total 6.6 million
commercial trucks in this segment as part of our target market going forward, with particular
emphasis on fleets operating medium and heavy duty trucks, estimated at 3.6 million vehicles.
For-Hire Carriers
For-hire carriers include both truckload and less-than-truckload carriers, whose primary business
is the trucking and transportation of freight that belongs to others. We believe MobileMax,
acquired with the acquisition of GeoLogic, will allow us to expand our potential market to include
a much larger portion of the for-hire fleet sector, including large decentralized fleets and
regionalized, medium-sized fleets. For-hire fleets are able to purchase a MobileMax system that
integrates with third party fleet routing and dispatch systems and then use our communication-based
system to track and monitor their fleet assets based on the information from the third-party
application. We believe these fleets represent a significant new market opportunity. We view the
total 1.5 million commercial trucks in this segment as part of our target market, with particular
emphasis on fleets operating medium and heavy duty trucks.
Other Markets
We believe our XATANET web-based system may ultimately be introduced into several other new markets
because of its open system architecture and the many potential applications for web-based,
GPS-enabled tools.
Major Customers
Our systems have been installed in approximately 64,000 trucks in North America. Our customers
comprise Fortune 500 companies and other large organizations, such as Core-Mark International, CVS
Pharmacy, Sysco, US Foodservice, Weyerhauser Co., Whirlpool Corporation and xpedx (a division of
International Paper Company.)
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As we implement our solutions at a customer, net sales will be impacted by the significant amount
of up front hardware revenue. In fiscal 2008 and 2007, we had one individual customer in each
fiscal year that accounted for approximately 12 percent and 20 percent, respectively, as the result
of significant hardware sales. However, no individual customer accounted for more than 5 percent of
our recurring revenue, including monthly subscriptions from XATANET and monthly fees from our
MobileMax and OpCenter product lines, in fiscal 2008 or 2007.
Sales and Marketing
Our direct sales force sells our subscription and communication-based fleet management systems
primarily to fleet truck operators and logistics providers through national and regional sales
account executives. The efforts of our sales executives are supported by our systems sales
consultants, client management, professional services and customer service professionals. These
professionals have a strong working knowledge of the hardware and software configurations and
experience integrating our systems into fleets. We believe the level of service we provide to our
customers is unique in the industry and a key competitive advantage in securing new customers and
retaining existing accounts.
We focus our direct sales and marketing efforts on companies operating fleets of all sizes within
vertical markets that have experienced significant benefits from our systems. These vertical
markets include food distribution, petroleum production and marketing, manufacturing,
retail/wholesale delivery, and government.
We also use a combination of integrated marketing activities, including advertising, public
relations, trade shows, the Internet and demand generation, to gain exposure within our target
markets. We exhibit our products at selected industry conferences to promote brand awareness. We
actively pursue speaking opportunities at industry trade shows and industry association forums for
our management staff, as well as for customers who have gained efficiencies in fleet operations
using our technology.
Competition
Competition in fleet management for the trucking industry continues to increase at a quick pace.
Key competitors, including XATA, compete primarily on the basis of functionality, ease of use,
quality, price, service availability and corporate financial strength.
As the demand by businesses for fleet management solutions increases, the quality, functionality
and breadth of competing products and services continue to improve. The adoption of industry
standards helps existing and new competitors, including XATA, to advance the adoption of fleet
management systems and increase market penetration.
Key Alliances and Relationships
We continue to establish relationships with third parties with the intent to increase the
deployment of our solutions. We believe that establishing these strategic relationships will
facilitate our technological leadership and increase our access to new customers. Some of our
existing relationships include:
Communication Providers
We have established relationships with Sprint/Nextel (Sprint) and Orbcomm LLC (Orbcomm) to provide
wireless connectivity between our subscribers and our XATANET host system. We contract directly
with Sprint and Orbcomm for the provision of wireless communications, which are bundled with our
XATANET solutions.
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Our MobileMax systems use AT&T and Mobile Satellite Ventures, whose parent company is SkyTerra, to
provide communications between our users and the MobileMax host.
Manufacturers
During the first quarter of fiscal 2006, we established a relationship with Winland Electronics,
Inc. for the manufacture and testing of our XATANET mobile onboard hardware platforms pursuant to
our detailed specifications and quality requirements. Additionally, we have a relationship with EPM
Global Services for the manufacture and testing of our MobileMax onboard hardware platforms
pursuant to our detailed specifications and quality requirements.
We have relationships with other companies that manufacture components for our solutions as well.
All of our suppliers have entered into confidentiality agreements with respect to our proprietary
technology. While current vendors are meeting the company’s quality and performance expectations,
the company believes that a disruption in the supply of XATA Application Modules, color display
units and MobileMax Mobile Data Terminals, which are each supplied by separate, single vendors,
would affect the Company’s ability to deliver finished goods and replacement parts.
Third-party Application and Hardware Providers
We have relationships with companies who provide a variety of applications and hardware devices to
our target market, including dispatch, routing, training, fleet management, handheld devices and
driver displays, in a go to market strategy with us. These companies include ALK Technologies,
McLeod Software, TMW Systems, Motorola/Symbol, Intermec and QSI plus over 15 additional companies.
In general, we seek relationships with third-party providers to extend the benefits of the XATANET
solution throughout our customer’s supply chain.
Patents, Trademarks, and Copyrights
XATA
®
, OpCenter
®
, XATANET
®
, and MobileMax™ are trademarks
registered with the United States Patent and Trademark office. All computer programs, report
formats, and screen formats are protected under United States copyright laws. In addition, we
possess several design patents issued by the United States Patent and Trademark Office that covers
various aspects of our technology.
Research and Development
In fiscal 2008 and 2007, we spent approximately $6.0 million and $4.4 million, respectively, on
research and development activities. We concentrate our research and development activities on
software and hardware solutions that meet our customers’ current and anticipated future needs. To
enhance our existing solutions and to introduce new solutions to our existing and potential
customers, we focus on the following key areas:
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SaaS Infrastructure.
We intend to continue to improve our SaaS infrastructure to meet
the increasing needs of our expanding customer base and the associated increase in
transactions. Also, we will continue to monitor and analyze the XATANET infrastructure’s
capacity and ability to meet the service level requirements of our customers. For example,
during fiscal 2008, we added two new web servers to facilitate data traffic and further
support our SaaS infrastructure, as well as two separate servers to monitor data and web
traffic. The SaaS infrastructure currently handles more than an estimated 200 million
transactions per month.
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Software.
We intend to continue to develop our software applications by offering new
features while enhancing existing features. The release of XATANET 4.0 in October 2007 laid
the foundation for further product enhancements in 2008, including the release of XATANET
versions 4.1 and 4.2. These two releases added functionality to the product, including
administrative upgrades, point-of-delivery (POD) functionality and GPS enhancements.
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MobileMax developments in 2008 continued to allow for the release of navigation
functionality in 2009. We intend to continue to develop and release platform upgrades to
support the new and enhanced software features through our own development efforts and those
of our strategic hardware partners.
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Employees
As of September 30, 2008, our staff included 169 employees, of which 168 are full-time employees,
in research and development, information services, sales and marketing, customer support,
administrative, finance, purchasing and warehousing.
Item 1A. Risk Factors
We do not have a long or stable history of profitable operations.
The Company’s net losses to
common shareholders for the fiscal years 2008 and 2007 were $3.6 million and $7.8 million,
respectively. The respective periods’ net losses were $3.4 million and $6.8 million. Additional
amounts of $0.2 million and $1.0 million, resulting from beneficial conversion charges and
preferred stock dividends increased such respective period losses to the aforementioned levels of
net losses to common shareholders.
Our existing customers might cancel contracts with us, fail to renew contracts or fail to purchase
additional services and products.
We sell large orders to individual fleets and may be dependent
upon a few major customers each year whose volume of purchases is significantly greater than that
of other customers. As we continue to grow our existing customer base this risk will lessen, but
until such time we are still dependent on our installed customer base for our recurring revenues,
which is a significant portion of our overall revenue. If our customers cancel existing contracts,
fail to renew their service contracts or fail to purchase additional services or products, then our
revenues could decrease and our operating results could be adversely affected.
Our market is highly competitive and is subject to revenue fluctuations.
Many of the
companies who offer competitive products offer products ranging in sophistication and cost from
basic onboard recorders to advanced mobile satellite communication and information systems. Their
products may offer better or more functions than ours or may be more effectively marketed. In
addition, the nature and sources of competition in our industry are rapidly evolving and
increasingly depend on the ability to deliver integration of multiple information systems. Given
that the period required to complete a sale of our systems has historically been up to a year or
longer, we must continue the development of new technologies and the adaptation of new and existing
products to be compatible with products and services provided by others in the industry. The length
of our sales cycle may also result in quarter-to-quarter fluctuations in revenue. The fleet
trucking segment of the transportation industry is also subject to fluctuations and business cycles
and a significant downturn in its prospects could have a material, adverse affect on us. Moreover,
our customers and potential customers may freeze or reduce budget spending during the current
economic downturn, which could further delay our sales and adversely affect our results of
operations.
We have a limited number of products and those products are concentrated in one industry.
Although
our systems have potential applications in a number of industries, to date we have targeted only
the fleet trucking segment of the transportation industry. If this market segment experiences a
downturn that decreases our sales, the development of new applications and markets could take
several months or longer, and could require substantial funding. In addition, our future success
is dependent in part on developing and marketing new software applications. We cannot assure that
new applications can be successfully developed or marketed in a timely manner.
We are dependent on key personnel and contract manufacturers.
Our staff is small and our future
success depends to a significant extent on the efforts of key management, technical and sales
personnel. The Company’s continued growth will place an increasing strain on our resources, and we
could
experience difficulties relating to a variety of operational matters, including hiring, training
and managing an increasing number of employees, obtaining sufficient quantities of product from
vendors, obtaining sufficient materials and contract manufacturers to produce our products,
expanding our distribution capabilities and enhancing our customer service, financial, and
operating systems. The loss of key employees or a contract manufacturer in a period of rapid growth
could adversely affect our financial condition and operating results.
9
We are dependent on proprietary technology.
Our success is heavily dependent upon proprietary
technology. We have been issued patents by the United States Patent and Trademark Office that
cover certain aspects of our technology and processes and have recently applied for several
software-related patents, but we have not yet been awarded patents on any of our software programs.
We rely primarily on a combination of copyright, trademark and trade secret laws, confidentiality
procedures, and contractual provisions to protect our proprietary rights. These measures afford
only limited protection. Our means of protecting our proprietary rights may prove inadequate, or
our competitors may independently develop similar technology, either of which could adversely
affect us. In addition, despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our systems or obtain and use information that we regard as
proprietary.
We depend on wireless communication networks owned and controlled by others.
If we are unable to
deliver continued access to communication services with sufficient capacity, our revenues could
decrease. Our ability to grow and achieve profitability depends on the ability of satellite and
digital cellular wireless carriers to provide sufficient network capacity, reliability and security
to our customers. Even where wireless carriers provide coverage to entire regions, there are
occasional lapses in coverage, for example due to man-made or natural obstructions blocking the
transmission of data. These effects could make our services less reliable and less useful, and
customer satisfaction could suffer. Our financial condition could be seriously harmed if our
wireless carriers were to increase the prices of their services, or to suffer operational or
technical failures.
Our products may quickly become obsolete.
Our systems utilize proprietary software and onboard
touch-screen computers. Although we believe our proprietary software is more important in the
capture and communication of operating data than the hardware on which the software operates,
continued improvements in hardware may render our technology, including its software, obsolete.
The field of software and hardware is constantly undergoing rapid technological change and we may
not be able to react and adapt to changes in this field. Moreover, development by our competitors
could make our systems and services less competitive or obsolete. We believe that advancements in
hardware and communications technology provide opportunities for us to form alliances with
companies offering products complementary to our systems and services, but we cannot assure that we
can form alliances with such companies or that any such alliance will be successful. Our success
depends, in large part, on our ability to anticipate changes in technology and industry standards,
and develop and introduce new features and enhancements to our system on a timely basis. If we are
unable to do so for technological or other reasons or if new features or enhancements do not
achieve market acceptance, our business could be materially and adversely affected. We may
encounter technical or other difficulties that could in the future delay the introduction of new
systems or system features or enhancements.
Third parties may claim we infringe their intellectual property rights.
Many participants in the
technology industry, as well as third parties that have obtained patent rights, have regularly
demonstrated a readiness to take legal action based on allegations of patent and other intellectual
property infringement. Accordingly, we may be subject to claims that our products infringe on the
intellectual property rights of others. Any such claim, whether valid or not, may be time
consuming and expensive to defend. Such claims or litigations could require us to stop selling the
affected products, redesign those products to avoid infringement, or obtain a license, all of which
would be costly and harm our business.
JDSTG and Trident Capital, who are represented on our Board of Directors, individually and together
own enough stock to exert significant influence over XATA.
As of December 10, 2008, beneficial
ownership of Common Stock, as reported in our definitive proxy statement for the Annual Meeting of
Stockholders to be held on February 4, 2009, held by JDSTG was approximately 24.4 percent and by
Trident Capital was approximately 39.1 percent of our common stock. In addition, JDSTG is entitled
to name up to three representatives to our Board of Directors and Trident is entitled to name up to
two representatives. Trident is entitled to vote its Preferred Stock as if converted to common
stock and to vote as a separate class (to the exclusion of the holders of common stock) on the
election of its two director nominees. Both JDSTG and Trident benefit from certain restrictive
covenants of XATA in connection with their equity investments in the Company. The combination of
stock ownership and Board of Director representation enables these shareholders, individually and
together, to a greater degree, to exercise significant influence over the Company.
10
We may need additional capital.
If we do not generate anticipated cash flow to met operating and
debt service needs, or if we grow at a rate faster than we anticipate, our predictions regarding
cash needs may prove inaccurate and we may require additional financing. Our inability to obtain
needed financing could have a material adverse effect on operating results. We cannot assure that
we will be able to secure additional financing when needed or that financing, if obtained, will be
on terms favorable or acceptable to us. Moreover, future financing may result in dilution to
holders of our common stock.
If we are unable to comply with the covenants in our debt arrangements, our outstanding debt could
become immediately payable.
Our debt agreements contain covenants, including minimum level of net
worth and fixed charge coverage ratio, and other affirmative covenants. If we are not able to
comply with all of these covenants, for any reason, some or all of our outstanding debt could
become immediately due and payable. In such case, we may not have sufficient cash to pay our debts
or, if our cash is utilized to repay outstanding debt, we could experience an immediate and
significant reduction in working capital available to operate our business.
If our common share price decreases to a level such that the fair value of our net assets is less
than the carrying value of our net assets, we may be required to record additional significant
non-cash charges associated with goodwill impairment.
We account for goodwill in accordance with
SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142, among other things, requires
that goodwill be tested for impairment at least annually. We have designated July 1 as the date
for our annual impairment test. Although the results of our testing on July 1, 2008, indicated no
evidence of impairment, should the fair value of our net assets, determined by our market
capitalization, be less than the carrying value of our net assets at future annual impairment test
dates, we may have to recognize goodwill impairment losses in our future results of operations.
This could impair our ability to achieve or maintain profitability in the future.
Fair value assessments of our intangible assets required by GAAP may require us to record
significant non-cash charges associated with intangible asset impairment.
A significant portion of
our assets are intangibles relating to customer agreements and relationships. We amortize these
assets on a straight-line basis over their estimated lives, which are estimated to be eight years.
We review the carrying value of these assets at least annually for evidence of impairment. In
accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of,” an impairment loss is recognized when the estimate of
undiscounted future cash flows generated by such assets is less than the carrying amount.
Measurement of the impairment loss is based on the present value of the expected future cash flows.
Future fair value assessments of intangible assets may require impairment charges to be recorded
in the results of operations for future periods. This could impair our ability to achieve or
maintain profitability in the future.
We may issue additional stock without shareholder consent.
We have authorized 25,000,000 shares of
common stock, of which 8,775,769 shares were issued and outstanding as of November 30, 2008. The
Board of Directors has authority, without action or vote of the shareholders, to issue all or part
of the authorized but unissued shares. Additional shares may be issued in connection with future
financing, acquisitions, employee stock plans, or otherwise. Any such issuance will dilute the
percentage ownership of existing shareholders. We are also currently authorized to issue up to
10,000,000 shares of preferred
stock. As of November 30, 2008, 1,964,000 shares of Series B Convertible Preferred Stock,
1,269,000 Series C Convertible Preferred Stock and 1,567,000 shares of Series D Convertible
Preferred Stock were issued and outstanding. The Board of Directors can issue additional preferred
stock in one or more series and fix the terms of such stock without shareholder approval. Preferred
stock may include the right to vote as a series on particular matters, preferences as to dividends
and liquidation, conversion and redemption rights and sinking fund provisions. The issuance of
preferred stock could adversely affect the rights of the holders of common stock and reduce the
value of the common stock. In addition, specific rights granted to holders of preferred stock could
be used to restrict our ability to merge with or sell our assets to a third party.
11
Our common stock could be delisted due to failure to satisfy a continued listing rule or standard.
The Nasdaq Marketplace Rule 4310(c)(3)(B) requires the Company to have a minimum $35 million in
market value of listed securities, $2.5 million in shareholders’ equity, or $500,000 in net income
from continuing operations for the most recently completed fiscal year or two of the three most
recently completed fiscal years. Nasdaq previously informed the Company that it was out of
compliance with the Rule and provided 30 calendar days, or until September 26, 2005, to regain
compliance with the Rule. By virtue of the Trident Capital investment in September 2005, we
regained compliance with the Nasdaq Marketplace listing requirements. However, Nasdaq has advised
us that it will continue to monitor our compliance with the listing standards. If we fail to show
compliance with all provisions of the Rule, we may be subject to delisting.
Our directors’ liability is limited under Minnesota law and under certain agreements.
Our Articles
of Incorporation, as amended and restated, state that our directors are not liable for monetary
damages for breach of fiduciary duty, except for a breach of the duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing violation of law,
for dividend payments or stock repurchases illegal under Minnesota law or for any transaction in
which the director derived an improper personal benefit. In addition, our bylaws provide that we
shall indemnify our officers and directors to the fullest extent permitted by Minnesota law for all
expenses incurred in the settlement of any actions against them in connection with their service as
officers or directors of the Company. In addition, we have entered into indemnification agreements
with the Trident investors, and its representatives who serve as directors on our Board, which may
supplement the indemnification provisions available to them under Minnesota law.
We face burdens relating to the recent trend toward stricter corporate governance and financial
reporting standards.
New legislation or regulations that follow the trend of imposing stricter
corporate governance and financial reporting standards, including compliance with Section 404 of
the Sarbanes-Oxley Act of 2002, continues to increase our costs of compliance. A failure to comply
with these new laws and regulations may impact market perception of our financial condition and
could materially harm our business. Additionally, it is unclear what additional laws or regulations
may develop, and we cannot predict the ultimate impact of any future changes.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
On July 9, 2007, we entered into a lease for 26,800 square feet of office space at 965 Prairie
Center Drive in Eden Prairie, Minnesota. On December 10, 2007, this location became the principal
address of the company. The lease term is for 86 months with a base rent of $37,500 per month plus
a pro rata share of the building operating expenses.
Effective January 1, 2009, we will also be leasing 15,800 square feet of office and warehouse space
in Burnsville, Minnesota. This facility houses the Company’s distribution activities. This lease
obligation will carry a base rent of $7,700 per month plus a pro rata share of the building
operating expenses and
expires March 31, 2014.
12
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
13
PART II
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Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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The following table sets forth the quarterly high and low sales prices for our common stock as
reported by the NASDAQ Capital Market for fiscal years 2008 and 2007. There is no market for our
Series B, Series C or Series D Preferred Stock.
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Fiscal Year 2008
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Low
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High
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First Quarter
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$
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2.64
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$
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4.21
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Second Quarter
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2.98
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3.54
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Third Quarter
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3.05
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3.80
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Fourth Quarter
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3.35
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3.95
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Fiscal Year 2007
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Low
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High
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First Quarter
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$
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5.08
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$
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5.50
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Second Quarter
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4.84
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5.25
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Third Quarter
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3.79
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4.70
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Fourth Quarter
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2.67
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4.03
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As of November 30, 2008, our common stock is held by 92 registered holders of record. Registered
ownership includes nominees who may hold securities on behalf of multiple beneficial owners. We
estimate the number of beneficial owners of our common stock to be approximately 1,000.
Dividend Policy
Except for dividends paid to the holders of Series A 8 percent Convertible Preferred Stock (from
issuance in May 1999 until conversion in full in August 2000), we have never paid cash dividends on
any of our securities. We have retained any earnings for use in our operations. Our Board of
Directors will determine future dividend payments, if any, based upon our earnings, capital needs
and other relevant factors.
On December 6, 2003, we issued 1,613,000 shares of Series B Preferred Stock that pays an annual
cumulative dividend of 4 percent of the original issue price (payable in additional shares of
Preferred Stock or cash, at the option of the holders). The Series B Preferred Stock provides that
we cannot pay dividends to the holders of any other capital stock unless and until we have paid
dividends accrued on the Series B Preferred Stock. The holders of the Series B Preferred Stock
elected to receive dividends due and payable on May 31, 2008 and November 30, 2008 in additional
shares of Series B Preferred Stock rather than cash. Accordingly as of November 30, 2008, we had
issued a total of 76,000 and 73,000 shares of Series B Preferred Stock for payment of dividends in
calendar year 2008 and 2007, respectively.
Sale of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
14
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the financial statements and the
related notes included in this Report. This Report contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those in such
forward-looking statements as a result of many factors, including those discussed in “Risk Factors”
and elsewhere in this Report.
Overview
XATA is one of the leading providers of fleet management solutions to the truck transportation
industry. Our innovative technologies and value-added services are intended to enable customers to
optimize the utilization of their assets and enhance the productivity of fleet operations across
the entire supply chain, resulting in decreased costs, improved compliance with U.S. Department of
Transportation (DOT) regulations, and enhanced customer service.
Over the past two decades, XATA has developed relationships with the nation’s largest fleets
including CVS Pharmacy, Sysco, US Foodservice, Weyerhauser Co., and xpedx to find and develop
technologies that provide information about their fleets and transform that data into actionable
intelligence.
On January 31, 2008, XATA completed its acquisition of GeoLogic Solutions, Inc., which provides the
commercial trucking industry with wireless asset management solutions in the for-hire segment of
the over-the-road transportation sector. GeoLogic Solutions, Inc.’s mobile communications and
tracking system, MobileMax, had approximately 35,000 licensed users across North America at the
time of acquisition.
XATA pioneered innovations, such as learned standards and paperless driver logs. We engineer
software that improves overall transportation operations and integrates fleet data with back-office
billing, payroll and routing systems.
Technology, People, Processes
XATA takes a three-prong approach to meeting its customer’s fleet management needs:
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Technology.
XATA provides a total fleet management solution, including hardware,
software and services. XATANET, our web-based, on-demand scalable software, includes a
variety of web-based enterprise applications. As our flagship product, 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.
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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.
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People.
Several XATA employees have been with our company for many years, providing a
thorough understanding of the trucking industry. With employee expertise in safety, fleet
management and technology, XATA is able to provide consultation services to help
organizations implement best practices for fleet productivity and develop specific customer
hardware and reporting requirements.
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Processes.
All XATA processes are designed to make managing fleets easier. Drawing on
hundreds of successful implementations with a wide variety of fleets including
multibillion-dollar organizations, XATA carefully plans each phase of the implementation
and follows well established methodologies. The process begins with assessing our
customers’ objectives. Then, we develop a detailed implementation schedule that includes
all aspects of the project, from implementation to conversion, integration, training and
problem solving.
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Critical Accounting Policies
Accounting policies, methods and estimates are an integral part of our financial statements and are
based upon management’s current judgments. Certain accounting policies, methods and estimates are
particularly important because of their significance to the financial statements. Note 2 of the
Notes to Financial Statements includes a summary of the significant accounting policies and methods
we use. The following is a discussion of what we believe to be the most critical of these policies
and methods.
Revenue Recognition.
The Company derives its revenue from sales of hardware, software and related
services, and from application service contracts. The Company recognizes revenue in accordance
with Statement of Position (SOP) 97-2,
Software Revenue Recognition
, as amended by SOP 98-9,
Modification of SOP 97-2,
Software Revenue Recognition with Respect to Certain Transactions
, and
Securities and Exchange Commission Staff Accounting Bulletin (SAB) 104,
Revenue Recognition in
Financial Statements
.
Software revenue is recognized under SOP 97-2 and SAB 104 when (i) persuasive evidence of an
arrangement exists (for example a signed agreement or purchase order), (ii) delivery has occurred,
as evidenced by shipping documents or customer acceptance, (iii) the fee is fixed or determinable
and payable within twelve months, and (iv) collectability is probable and supported by credit
checks or past payment history.
With regard to software arrangements involving multiple elements, the Company allocates revenue to
the software and service elements based on the relative fair value of each element with the
residual amount allocated to the system revenue which is recognized upon delivery. The Company’s
determination of fair value relating to the software and service elements in multiple-element
arrangements is based on vendor-specific objective evidence (VSOE). The Company limits its
assessment of VSOE for each element to the price charged when the same element is sold separately.
The Company has analyzed all of the elements included in its multiple-element arrangements and has
determined that it has sufficient VSOE to allocate revenue to consulting services and post-contract
customer support (PCS) components of its license arrangements. The Company sells its consulting
services separately, and has established VSOE on this basis. VSOE for PCS components are
determined based upon the customer’s annual renewal rates for these elements. Accordingly,
assuming all other revenue recognition criteria are met, revenue from licenses is recognized upon
delivery, and revenue from PCS components are recognized ratably over the applicable term,
typically one year.
Agreements that do not meet the requirements described in Emerging Issues Task Force (EITF) 00-03,
Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use
Software Stored on Another Entity’s Hardware
, to allow treatment under SOP 97-2, result in the
recognition of all revenue ratably over the term of the agreement.
Allowance for doubtful accounts.
We grant credit to customers in the normal course of business.
The majority of the Company’s accounts receivable and investment in sales-type leases receivable
are due from companies with fleet trucking operations in a variety of industries. Credit is
extended based on an evaluation of a customer’s financial condition and, generally, collateral is
not required, although sales-type leases receivable are secured by a retained security interest in
the leased equipment. Accounts receivable are typically due from customers within 30 days and are
stated at amounts net of an allowance
for doubtful accounts. Accounts outstanding longer than the contractual payment terms are
considered
16
past due. We determine the allowance for doubtful accounts by considering a number of
factors, including the length of time trade receivables are past due, our previous loss history,
the customer’s current ability to pay its obligation, and the condition of the general economy and
the industry as a whole. We reserve for these accounts receivable by increasing bad debt expense
when they are determined to be uncollectible. Payments subsequently received, or otherwise
determined to be collectible, are treated as recoveries that reduce bad debt expense.
Goodwill.
As of September 30, 2008, the Company had a goodwill balance of $3,011,000 that resulted
from the Company’s acquisition of GeoLogic Solutions, Inc. on January 31, 2008. The Company
records goodwill when the purchase price of net tangible and intangible assets acquired exceeds
their fair value. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
“Goodwill and Other Intangible Assets,”
the Company will review goodwill for impairment at least
annually, on the first day of the fourth quarter, or more frequently if an event occurs indicating
the potential for impairment. Goodwill is not amortized, but instead tested for impairment at the
reporting unit level. We have one reporting unit. The annual goodwill impairment test is a two-step
process. First, we determine if the carrying value of our related reporting unit exceeds fair
value, which would indicate that goodwill may be impaired. If we then determine that goodwill may
be impaired, we compare the implied fair value of the goodwill to its carrying amount to determine
if there is an impairment loss. The Company completed this review in the fourth quarter of fiscal
2008 and concluded that no impairment existed.
Intangible assets are carried at cost less accumulated amortization. The Company amortizes the
cost of identified intangible assets on a straight-line basis over their expected economic lives.
In accordance with SFAS No. 144, “
Accounting for the Impairment or Disposal of Long-Lived Assets
,”
the Company reviews intangible assets that have finite useful lives when an event occurs indicating
the potential for earlier impairment. The Company reviews for impairment using facts or
circumstances, either internal or external, indicating that it may not recover the carrying value
of the asset. The Company measures impairment losses related to long-lived assets based on the
amount by which the carrying amounts of these assets exceed their fair values. The Company
measures fair value under SFAS No. 144, which is generally based on the present value of estimated
future cash flows. The Company’s analysis is based on available information and on assumptions and
projections it considers to be reasonable and supportable. The cash flow analysis considers the
likelihood of possible outcomes and is based on the Company’s best estimate of projected future
cash flows. If necessary, the Company performs subsequent calculations to measure the amount of
the impairment loss based on the excess of the carrying value over the fair value of the impaired
assets.
Product Warranties.
The Company sells its hardware products with a limited warranty, with an option
to purchase extended warranties. The Company provides for estimated warranty costs in relation to
the recognition of the associated revenue. Factors affecting the Company’s product warranty
liability include the number of units sold, historical and anticipated rates of claims and cost per
claim. The Company periodically assesses the adequacy of its product warranty liability based on
changes in these factors. At September 30, 2008 and 2007, the Company had an accrual for product
warranties of $1,576,000 and $911,000, respectively. These amounts are included in accrued expenses
on the Company’s balance sheet.
Capitalized system development costs
. System development costs incurred after establishing
technological feasibility are capitalized as capitalized system development costs in accordance
with SFAS No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed
. Costs that are capitalized are amortized to cost of goods sold beginning when the
product is first released for sale to the general public. Amortization is at the greater of the
amount computed using the ratio of current gross revenues for the product to the total of current
and anticipated future gross revenues or the straight-line method over the estimated economic life
of the product (two to five years). As of September 30, 2008 and 2007 there were zero capitalized
development costs. Research and development expenses are charged to expense as incurred. Such
expenses include product development costs which have not met the capitalization criteria of SFAS
No. 86.
17
Income taxes
. Deferred income taxes are provided for using the liability method whereby deferred
tax assets and deferred tax liabilities are recognized for the effects of taxable temporary
differences. Temporary differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
On October 1, 2007, the Company adopted FIN 48,
Accounting for Uncertainty in Income Taxes — an
Interpretation of FASB Statement No. 109
(“FIN 48”). FIN 48 requires application of a
“more-likely-than-not” threshold to the recognition and derecognition of uncertain tax positions.
Under FIN 48, once the-more-likely-than-not threshold is met, the amount of benefit to be
recognized is the largest amount of tax benefit that is greater than 50 percent likely of being
ultimately realized upon settlement. It further requires that a change in judgment related to the
expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of
such a change. The impact of adopting FIN 48 on the Company’s consolidated financial statements was
not material and no cumulative effect adjustment was recorded to the October 1, 2007 balance of
accumulated deficit. In 2008, the Company recognized no tax benefit or liabilities for
uncertainties related to prior and current year income tax positions, which were determined to be
immaterial.
Stock-based Compensation.
The Company accounts for share-based employee compensation plans under
the provisions of SFAS 123(R),
Share-Based Payment,
which requires the measurement and recognition
of compensation expense for all share-based payment awards to employees and directors based on
estimated fair values. The Company estimates the fair value of options granted using the
Black-Scholes option valuation model and the assumptions shown in Note 8 to the financial
statements. The Company estimates the volatility of the common stock at the date of grant based on
a historical volatility rate, consistent with SFAS 123(R) and Securities and Exchange Commission
SAB No. 107. 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 identified in
SAB 107 for share-based awards granted during fiscal 2008 and 2007. The simplified method
calculates the expected term as the average of the vesting and contractual terms of the award. The
risk-free interest rate assumption is based on observed interest rates appropriate for the term of
the options. The Company uses historical data to estimate pre-vesting option forfeitures and
records share-based compensation expense only for those awards that are expected to vest. The
fair value of options are amortized over the vesting period of the awards utilizing a straight-line
method.
Operating Results
We believe the percentage relationship between net sales and major expense items in the statement
of operations is important in evaluating the performance of our business operations. We operate as
one business segment and believe the information presented in our Management’s Discussion and
Analysis of Financial Condition and Results of Operations provides an understanding of our
business, operations and financial condition. The following table sets forth certain Statements of
Operations data as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
Gross profit
|
|
|
47.4
|
%
|
|
|
44.8
|
%
|
|
Selling, general and administrative expense
|
|
|
40.5
|
%
|
|
|
54.4
|
%
|
|
Research and development expense
|
|
|
11.2
|
%
|
|
|
14.2
|
%
|
|
Operating loss
|
|
|
(4.3
|
%)
|
|
|
(23.8
|
%)
|
|
Net loss
|
|
|
(6.3
|
%)
|
|
|
(22.2
|
%)
|
18
Comparison of Fiscal 2008 operating results to Fiscal 2007
Net Sales
Overall net sales increased 75.1 percent to $53.7 million for fiscal 2008 compared to $30.7 million
in fiscal 2007. Net sales of products and services acquired with GeoLogic Solutions, Inc. were
$14.1 million for the eight month period ending September 30, 2008. Fiscal 2008 net sales,
excluding GeoLogic Solutions, Inc., increased by 29.2 percent compared to fiscal 2007 driven by a
sales increase of 57.0 percent in XATANET products. Fiscal 2008 net sales derived from the legacy
OpCenter product line decreased 43.0 percent as expected to $4.9 million compared to $8.6 million
for fiscal 2007 as we continue to migrate customers to the XATANET platform. Recurring revenue,
including monthly subscriptions from XATANET and monthly fees from MobileMax and OpCenter product
lines, increased 51.3 percent to comprise 44.1 percent of total sales compared to 34.8 percent for
fiscal 2007.
We ended fiscal 2008 with $12.8 million of deferred revenue in comparison to $9.6 million at the
end of fiscal 2007. For agreements that do not meet the requirements described in EITF 00-03, all
revenue was recognized over the initial term of each subscription rather than at the time of
delivery. The initial term of customer contracts are a minimum of twelve months.
Cost of Goods Sold
Cost of goods sold includes the direct product costs associated with fulfilling customer orders,
warranty costs related to previously sold systems, communication and hosting costs, product repair
and refurbishment costs, and expenses associated with the enhancement of released products. Total
cost of goods sold increased $11.3 million to $28.2 million for fiscal 2008 compared to $16.9
million for fiscal 2007. Overall gross profit as a percent of net sales improved 2.6 percentage
points to 47.4 percent for fiscal 2008 versus 44.8 percent for fiscal 2007. This improvement in
overall margins for fiscal 2008 was the result of the increase in higher margin recurring revenue
as a percent of total revenue and improved XATANET subscription margins. XATANET subscription
margins improved to 60.0 percent for fiscal 2008 compared to 56.5 percent in fiscal 2007.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of employee salaries in our sales,
support and administration functions, sales commissions, marketing and promotional expenses,
executive and administrative costs, and accounting and professional fees. Selling, general and
administrative expenses were $21.8 million for fiscal 2008 compared to $16.7 million for fiscal
2007. Selling, general and administrative expenses reflect an increase due to additional costs of
GeoLogic Solutions, Inc., amortization expense of $1.1 million related to intangible assets
acquired with GeoLogic Solutions, Inc., and investments in our brand strategy, professional
services business, and direct sales model. Fiscal 2007 selling, general and administration expenses
included charges of $1.4 million of legal and settlement costs
associated with a patent infringement lawsuit and $1.9 million write-off of capitalized system
development cost relating to products that will not be marketed.
19
Research & Development Expenses
Research and development expenses consist of employee salaries and expenses related to development
personnel and consultants, as well as expenses associated with software and hardware development.
Research and development expenses were $6.0 million for fiscal 2008 compared to $4.4 million for
fiscal 2007. The increase of $1.6 million was primarily due to an increase in development costs
associated with future releases of fleet management systems that have not yet reached technological
feasibility and additional costs of GeoLogic Solutions, Inc.
Net Interest Expense
Net interest expense increased $1.5 million to $1.0 million in fiscal 2008, compared to net
interest income of $0.5 million in fiscal 2007. The increase in interest expense was primarily due
to borrowings of long-term debt related to the acquisition of GeoLogic Solutions, Inc.
Income Taxes
No income tax benefit or expense was recorded in fiscal 2008 or fiscal 2007 as the result of
continued operating losses and the Company does not have objectively verifiable positive evidence
of future taxable income as prescribed by SFAS No. 109. We concluded that a full valuation
allowance was appropriate. Realization of deferred tax assets is dependent on future taxable income
during the periods when deductible temporary differences and carryforwards are expected to be
available to reduce taxable income. The amount of the net deferred tax asset considered realizable
could be increased in the future if we return to profitability and actual future taxable income is
higher than currently estimated. At September 30, 2008, we had federal net operating loss
carryforwards of approximately $45.8 million.
The Company implemented the provisions of FIN 48,
Accounting for Uncertainty in Income Taxes — an
Interpretation of FASB Statement No. 109
, effective October 1, 2007. The impact of adopting FIN 48
on the Company’s consolidated financial statements was not material and no cumulative effect
adjustment was recorded to the October 1, 2007 balance of accumulated deficit.
Net Loss to Common Shareholders
We incurred net losses to common shareholders of $3.6 million and $7.8 million for fiscal 2008 and
2007, respectively. Net loss to common shareholders for fiscal 2007 reflects preferred stock
deemed dividends relating to the issuance of Series D Preferred Stock of $0.7 million. Fiscal 2008
and 2007 reflect preferred stock dividends and preferred stock deemed dividends of $0.3 million and
$0.3 million, respectively, relating to Series B Preferred Stock.
Liquidity and Capital Resources
As of September 30, 2008, we held $8.9 million in cash and cash equivalents and had working
capital, which is total current assets less total current liabilities, of $8.1 million. This
compared to $13.7 million in cash and cash equivalents, and working capital of $10.5 million, as of
September 30, 2007.
Operating activities used cash of $1.1 million during fiscal 2008 primarily the result of the $4.0
million increase in accounts receivable supporting the revenue growth, while operating activities
provided cash of $1.6 million during fiscal 2007.
Cash used in investing activities of $19.4 million for fiscal 2008 included $16.3 million for the
purchase of GeoLogic Solutions Inc. and $3.1 million for purchases of equipment and leasehold
improvements.
20
Cash provided by financing activities of $15.8 million for fiscal 2008 included borrowings on
long-term debt of $19.2 million offset by payments on long-term debt of $3.2 million and payments
on financing costs of $0.3 million.
In connection with the financing of the acquisition of GeoLogic Solutions, Inc., the Company
entered into a three-year secured credit facility with Silicon Valley Bank (“SVB”) consisting of a
$10.0 million revolving line of credit bearing interest at a floating rate equal to 0.5% over SVB’s
Prime Rate. The credit facility is secured by substantially all the assets of the Company.
Interest is paid monthly in arrears, and the entire amount of any outstanding principal is due at
maturity on January 30, 2011. The credit agreement contains certain financial covenants which
impose a minimum level of net worth and fixed charge coverage ratio.
Also in connection with the acquisition of GeoLogic Solutions, Inc., the Company entered into a
four year secured credit facility consisting of an $8.0 million term loan with Partner’s for Growth
II, L.P. (“PFG”) bearing interest at a fixed rate of 14.5%, subject to adjustment under various
circumstances. Under the terms of the loan agreement, the Company must comply with financial
covenants specifying minimum levels of net worth and fixed charge coverage ratio. The loan is
secured by substantially all the assets of the Company and is subordinate to the security interest
of SVB. Interest is payable monthly, and the Company is required to make periodic principal
payments on specified dates over the term of the loan with the remainder of the unpaid principal
due at maturity on January 31, 2012.
In addition to the preceding sources of financing, the Company also issued $1.8 million of debt
obligations to the seller (the “Seller Notes”) in conjunction with the acquisition of GeoLogic
Solutions, Inc. The Seller Notes bear interest at an annual rate of 11% and mature in full on
January 31, 2009. A portion of the Seller Notes with a principal amount of $525,000 are
convertible into common stock of the Company upon maturity, in the event the Company does not repay
such Seller Notes in full. The conversion price for such Seller Notes is $3.308 per share. The
Seller Notes are subordinate to the security interests of SVB and PFG.
We believe our existing funds, debt facilities and vendor terms will provide adequate cash to fund
operating needs for the foreseeable future. In addition, as debt facilities become due, it may be
necessary to obtain additional external funding.
Our Series B Preferred Stock prohibits payment of dividends to the holders of any other capital
stock unless and until we have paid dividends accrued on the Series B Preferred Stock, which pays
an annual cumulative dividend of 4 percent of the original issue price. At the option of the
Series B Preferred Stock holders, such dividends are payable in additional shares of Preferred
Stock or cash. In fiscal 2008 and 2007, we issued 75,000 and 72,000 shares, respectively, of
Series B Preferred Stock for payment of accrued dividends. We are further restricted from dividend
payments by our primary lender.
Off-Balance Sheet Arrangements
Not applicable
Recently Issued Accounting Pronouncements
Fair Value Measurements (SFAS 157)
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
. SFAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements but does not require any new fair value measurements. In February 2008, the Financial
Accounting Standards Board issued FASB Staff Position (“FSP”) No. 157-2,
“Effective Date of FASB
No. 157,”
which delays the effective date for non-financial assets and non-financial liabilities to
fiscal years beginning after November 15, 2008, except for items that are measured at fair value in
the financial
statements on a recurring basis (at least annually). The adoption of this accounting pronouncement
is not expected to have a material effect on the financial statements.
21
The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159)
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities,
which permits entities to choose to measure many financial assets and
financial liabilities at fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company does not plan to measure any of its existing
financial assets or liabilities at fair value under the provisions of SFAS No. 159 and, therefore,
does not anticipate any material impact to its results of operations or financial position related
to the adoption of this standard.
Business Combinations — Revised (SFAS 141R)
In December 2007, the FASB issued SFAS No. 141(R) (revised 2007),
Business Combinations
. SFAS
141(R) replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, including goodwill, the
liabilities assumed and any non-controlling interest in the acquiree. SFAS 141(R) also establishes
disclosure requirements to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement is effective for fiscal years
beginning after December 15, 2008. The impact of the adoption of SFAS 141(R) will depend on future
acquisitions, if any, as there will be no impact on our existing financial position and results of
operations.
The Hierarchy of Generally Accepted Accounting Principles (SFAS 162)
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting
Principles
. SFAS No. 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles
. We do not expect the adoption of SFAS
No. 162 to have a material effect on our financial position, operating results or cash flows.
22
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of XATA Corporation
We have audited the accompanying consolidated balance sheets of XATA Corporation (a Minnesota
corporation) (the “Company”) as of September 30, 2008 and 2007, and the related consolidated
statements of operations, changes in shareholders’ equity and cash flows for the years then ended.
Our audits of the basic consolidated financial statements included the financial statement schedule
listed in the index appearing under Item 15. These financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of XATA Corporation as of September 30, 2008 and
2007, and the results of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
December 16, 2008
F-1
XATA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,904
|
|
|
$
|
13,675
|
|
|
Accounts receivable, less allowances
of $333 and $256
|
|
|
11,365
|
|
|
|
3,280
|
|
|
Inventories
|
|
|
2,735
|
|
|
|
2,672
|
|
|
Deferred product costs
|
|
|
1,474
|
|
|
|
752
|
|
|
Current portion of investment in sales-type leases
|
|
|
768
|
|
|
|
—
|
|
|
Prepaid expenses and other current assets
|
|
|
691
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
25,937
|
|
|
|
20,772
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and leasehold improvements, net
|
|
|
3,925
|
|
|
|
1,583
|
|
|
Intangible assets, net
|
|
|
12,420
|
|
|
|
—
|
|
|
Goodwill
|
|
|
3,011
|
|
|
|
—
|
|
|
Deferred product costs, net of current portion
|
|
|
2,685
|
|
|
|
1,798
|
|
|
Investment in sales-type leases, net of current portion
|
|
|
310
|
|
|
|
—
|
|
|
Debt financing costs, net
|
|
|
708
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
48,996
|
|
|
$
|
24,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Current portion of long-term obligations
|
|
$
|
1,845
|
|
|
$
|
161
|
|
|
Accounts payable
|
|
|
4,394
|
|
|
|
3,419
|
|
|
Accrued expenses
|
|
|
6,574
|
|
|
|
3,548
|
|
|
Deferred revenue
|
|
|
4,996
|
|
|
|
3,105
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
17,809
|
|
|
|
10,233
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, net of current portion
|
|
|
16,342
|
|
|
|
220
|
|
|
Deferred revenue, net of current portion
|
|
|
7,848
|
|
|
|
6,524
|
|
|
Other long-term liabilities
|
|
|
805
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
42,804
|
|
|
|
17,075
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par, 10,000 shares authorized:
|
|
|
|
|
|
|
|
|
|
Series B, 4% convertible, 2,250 shares designated;
shares issued and outstanding: 1,926 at September 30, 2008
and 1,851 at September 30, 2007
|
|
|
5,181
|
|
|
|
4,921
|
|
|
Series C, convertible, 1,400 shares designated;
1,269 shares issued and outstanding at September 30, 2008
and September 30, 2007
|
|
|
4,845
|
|
|
|
4,845
|
|
|
Series D, convertible, 1,600 shares designated;
1,567 shares issued and outstanding at September 30, 2008
and September 30, 2007
|
|
|
5,937
|
|
|
|
5,937
|
|
|
Common stock, par value $0.01 per share; 25,000 shares
authorized; shares issued and outstanding: 8,745 at September 30, 2008
and 8,516 at September 30, 2007
|
|
|
87
|
|
|
|
85
|
|
|
Additional paid-in capital
|
|
|
28,234
|
|
|
|
25,760
|
|
|
Accumulated deficit
|
|
|
(38,092
|
)
|
|
|
(34,470
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
6,192
|
|
|
|
7,078
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
48,996
|
|
|
$
|
24,153
|
|
|
|
|
|
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-2
XATA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
53,726
|
|
|
$
|
30,676
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
28,246
|
|
|
|
16,932
|
|
|
Selling, general and administrative
|
|
|
21,777
|
|
|
|
16,702
|
|
|
Research and development
|
|
|
6,027
|
|
|
|
4,351
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
56,050
|
|
|
|
37,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2,324
|
)
|
|
|
(7,309
|
)
|
|
Interest income
|
|
|
404
|
|
|
|
525
|
|
|
Interest expense
|
|
|
(1,441
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(3,361
|
)
|
|
|
(6,808
|
)
|
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,361
|
)
|
|
|
(6,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(192
|
)
|
|
|
(185
|
)
|
|
Preferred stock deemed dividends
|
|
|
(69
|
)
|
|
|
(817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss to common shareholders
|
|
$
|
(3,622
|
)
|
|
$
|
(7,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share — basic and diluted
|
|
$
|
(0.44
|
)
|
|
$
|
(0.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and
common share equivalents
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
8,326
|
|
|
|
7,922
|
|
|
|
|
|
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-3
XATA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
Series C
|
|
Series D
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Unearned
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Preferred Stock
|
|
Preferred Stock
|
|
Common Stock
|
|
Paid-In
|
|
Stock-Based
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Compensation
|
|
Deficit
|
|
Total
|
|
Balance at September 30, 2006
|
|
|
1,779
|
|
|
$
|
4,579
|
|
|
|
1,269
|
|
|
$
|
4,845
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
7,963
|
|
|
$
|
80
|
|
|
$
|
23,246
|
|
|
$
|
(900
|
)
|
|
$
|
(26,660
|
)
|
|
$
|
5,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued on exercise of options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
54
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54
|
|
|
Issuance of restricted shares of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
450
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
Elimination of unearned compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(900
|
)
|
|
|
900
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,021
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,021
|
|
|
Forfeiture of restricted shares of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(23
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Purchase of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
112
|
|
|
|
1
|
|
|
|
604
|
|
|
|
—
|
|
|
|
—
|
|
|
|
605
|
|
|
Issuance of preferred stock and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,567
|
|
|
|
5,279
|
|
|
|
—
|
|
|
|
—
|
|
|
|
739
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,018
|
|
|
Preferred stock dividends
|
|
|
72
|
|
|
|
183
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(185
|
)
|
|
|
(2
|
)
|
|
Preferred stock deemed dividends
|
|
|
—
|
|
|
|
159
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
658
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(817
|
)
|
|
|
—
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,808
|
)
|
|
|
(6,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
|
1,851
|
|
|
|
4,921
|
|
|
|
1,269
|
|
|
|
4,845
|
|
|
|
1,567
|
|
|
|
5,937
|
|
|
|
8,516
|
|
|
|
85
|
|
|
|
25,760
|
|
|
|
—
|
|
|
|
(34,470
|
)
|
|
|
7,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued on exercise of options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
—
|
|
|
|
44
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44
|
|
|
Issuance of restricted shares of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
151
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,588
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,588
|
|
|
Forfeiture of restricted shares of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Issuance of common stock and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
91
|
|
|
|
1
|
|
|
|
843
|
|
|
|
—
|
|
|
|
—
|
|
|
|
844
|
|
|
Preferred stock dividends
|
|
|
75
|
|
|
|
191
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(192
|
)
|
|
|
(1
|
)
|
|
Preferred stock deemed dividends
|
|
|
—
|
|
|
|
69
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(69
|
)
|
|
|
—
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,361
|
)
|
|
|
(3,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
1,926
|
|
|
$
|
5,181
|
|
|
|
1,269
|
|
|
$
|
4,845
|
|
|
|
1,567
|
|
|
$
|
5,937
|
|
|
|
8,745
|
|
|
$
|
87
|
|
|
$
|
28,234
|
|
|
$
|
—
|
|
|
$
|
(38,092
|
)
|
|
$
|
6,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-4
XATA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash (used in) provided by operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,361
|
)
|
|
$
|
(6,808
|
)
|
|
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,426
|
|
|
|
664
|
|
|
Amortization of debt financing costs
|
|
|
167
|
|
|
|
—
|
|
|
Loss on disposal of long-lived assets
|
|
|
42
|
|
|
|
|
|
|
Impairment loss on capitalized development costs
|
|
|
—
|
|
|
|
1,930
|
|
|
Issuance of warrants for services rendered
|
|
|
—
|
|
|
|
33
|
|
|
Stock based compensation
|
|
|
1,588
|
|
|
|
2,021
|
|
|
Changes in assets and liabilities, net of impact of acquisition:
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(4,034
|
)
|
|
|
1,980
|
|
|
Inventories
|
|
|
2,289
|
|
|
|
(1,039
|
)
|
|
Deferred product costs
|
|
|
(1,609
|
)
|
|
|
2,570
|
|
|
Prepaid expenses and other assets
|
|
|
(520
|
)
|
|
|
(123
|
)
|
|
Lease equipment receivable
|
|
|
746
|
|
|
|
—
|
|
|
Accounts payable
|
|
|
(1,946
|
)
|
|
|
1,731
|
|
|
Accrued expenses
|
|
|
(148
|
)
|
|
|
970
|
|
|
Deferred revenue
|
|
|
3,215
|
|
|
|
(2,360
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(1,145
|
)
|
|
|
1,569
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
|
|
|
|
|
|
|
Purchase of equipment and leasehold improvements
|
|
|
(3,117
|
)
|
|
|
(624
|
)
|
|
Additions to system development costs
|
|
|
—
|
|
|
|
(160
|
)
|
|
Acquisition of GeoLogic Solutions, Inc., net of cash acquired
|
|
|
(16,280
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(19,397
|
)
|
|
|
(784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
|
|
|
|
|
|
|
Borrowings on long-term obligations
|
|
|
19,224
|
|
|
|
—
|
|
|
Payments on long-term obligations
|
|
|
(3,167
|
)
|
|
|
(108
|
)
|
|
Payments on financing costs
|
|
|
(339
|
)
|
|
|
—
|
|
|
Proceeds from issuance of common stock
|
|
|
—
|
|
|
|
605
|
|
|
Proceeds from issuance of preferred stock and warrants
|
|
|
—
|
|
|
|
5,985
|
|
|
Proceeds from options and warrants exercised
|
|
|
53
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
15,771
|
|
|
|
6,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(4,771
|
)
|
|
|
7,321
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
13,675
|
|
|
|
6,354
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
$
|
8,904
|
|
|
$
|
13,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
1,035
|
|
|
$
|
24
|
|
|
|
|
Supplemental schedule of noncash investing and financing activities
|
|
|
|
|
|
|
|
|
|
Preferred stock deemed dividends
|
|
$
|
69
|
|
|
$
|
817
|
|
|
Preferred stock dividends payable
|
|
|
65
|
|
|
|
63
|
|
|
Preferred stock dividends paid
|
|
|
192
|
|
|
|
185
|
|
|
Equipment purchased under capital lease
|
|
|
—
|
|
|
|
306
|
|
|
Issuance of warrants in consideration for financing fees
|
|
|
535
|
|
|
|
—
|
|
|
Issuance of sellers note
|
|
|
1,750
|
|
|
|
—
|
|
|
Issuance of common stock related to acquistion of GeoLogic Solutions, Inc.
|
|
|
300
|
|
|
|
—
|
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-5
Notes to Consolidated Financial Statements
Note 1. Description of Business
XATA Corporation (the “Company”) develops, markets and services fully integrated, onboard fleet
management systems for the private and for-hire fleet segment of the transportation industry. The
Company sells its products in the United States and Canada. The Company’s systems utilize
proprietary software and related hardware components and accessories to capture, analyze, and
communicate operating information that assists fleet management in improving productivity and
efficiency.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiary GeoLogic Solutions, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Revenue Recognition
The Company derives its revenue from sales of hardware, software and related services, and from
application service contracts. The Company recognizes revenue in accordance with Statement of
Position (SOP) 97-2,
Software Revenue Recognition
, as amended by SOP 98-9, Modification of SOP
97-2,
Software Revenue Recognition with Respect to Certain Transactions
, and Securities and
Exchange Commission Staff Accounting Bulletin (SAB) 104,
Revenue Recognition in Financial
Statements
.
Software revenue is recognized under SOP 97-2 and SAB 104 when (i) persuasive evidence of an
arrangement exists (for example a signed agreement or purchase order), (ii) delivery has occurred,
as evidenced by shipping documents or customer acceptance, (iii) the fee is fixed or determinable
and payable within twelve months, and (iv) collectability is probable and supported by credit
checks or past payment history.
With regard to software arrangements involving multiple elements, the Company allocates revenue to
the software and service elements based on the relative fair value of each element with the
residual amount allocated to the system revenue which is recognized upon delivery. The Company’s
determination of fair value relating to the software and service elements in multiple-element
arrangements is based on vendor-specific objective evidence (VSOE). The Company limits its
assessment of VSOE for each element to the price charged when the same element is sold separately.
The Company has analyzed all of the elements included in its multiple-element arrangements and has
determined that it has sufficient VSOE to allocate revenue to consulting services and post-contract
customer support (PCS) components of its license arrangements. The Company sells its consulting
services separately, and has established VSOE on this basis. VSOE for PCS components are
determined based upon the customer’s annual renewal rates for these elements. Accordingly,
assuming all other revenue recognition criteria are met, revenue from licenses is recognized upon
delivery, and revenue from PCS components are recognized ratably over the applicable term,
typically one year.
Agreements that do not meet the requirements described in Emerging Issues Task Force (EITF) 00-03,
Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use
Software Stored on Another Entity’s Hardware
, to allow treatment under SOP 97-2, result in the
recognition of all revenue ratably over the term of the agreement.
F-6
Allowance for Doubtful Accounts
The Company grants credit to customers in the normal course of business. The majority of the
Company’s accounts receivable and investment in sales-type leases receivable are due from companies
with fleet trucking operations in a variety of industries. Credit is extended based on an
evaluation of a customer’s financial condition and, generally, collateral is not required, although
sales-type leases receivable are secured by a retained security interest in the leased equipment.
Accounts receivable are typically due from customers within 30 days and are stated at amounts net
of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment
terms are considered past due. The Company determines the allowance for doubtful accounts by
considering a number of factors, including the length of time trade receivables are past due, our
previous loss history, the customer’s current ability to pay its obligation, and the condition of
the general economy and the industry as a whole. The Company reserves for these accounts
receivable by increasing bad debt expense when they are determined to be uncollectible. Payments
subsequently received, or otherwise determined to be collectible, are treated as recoveries that
reduce bad debt expense. The balance of the allowance accounts at September 30, 2008 and 2007 was
$333,000 and $256,000, respectively.
Segment Reporting
The Company operates as a single reportable segment. The Company will evaluate additional segment
disclosure requirements as it expands its operations or experiences changes in its business.
The Company had no significant revenues from customers outside of the United States in fiscal 2008,
and 2007, and had no significant long-lived assets deployed outside the United States at September
30, 2008 and 2007.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Basis of Presentation
Certain amounts from prior year’s financial statements have been reclassified to conform to the
current year presentation. These reclassifications had no effect on net loss to common
shareholders or shareholders’ equity.
Cash and Cash Equivalents
Cash and cash equivalents included highly liquid investments in overnight sweep and money market
accounts.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk,
consist primarily of cash equivalents, accounts receivable and sales-type leases receivable. The
Company’s cash equivalents consist of checking, overnight sweep, and money market accounts, which,
at times, exceed federally insured limits. The Company has not experienced any losses in such
accounts.
F-7
The majority of the Company’s accounts receivable and investment in sales-type leases receivable
are due from companies with fleet trucking operations in a variety of industries. In general, the
Company does not require collateral or other security to support accounts receivable, although
sales-type leases receivable are secured by a retained security interest in the leased equipment.
Accounts receivable are typically due from customers within 30 days and are stated at amounts due
from customers net of any allowance accounts. Accounts receivable outstanding longer than the
contractual payment terms are considered past due. To reduce credit risk, management performs
ongoing evaluations of its customers’ financial condition.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash and cash
equivalents, accounts receivable, sales-type lease receivables, accounts payable and debt
obligations, approximate fair value.
Inventories
Inventories consist of finished goods and parts and accessories, and are stated at the lower of
cost or market. Cost is determined on the standard cost method, which approximates the first-in,
first-out method.
Inventories consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Parts and accessories
|
|
$
|
835
|
|
|
$
|
1,021
|
|
|
Finished goods
|
|
|
1,900
|
|
|
|
1,651
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
2,735
|
|
|
$
|
2,672
|
|
|
|
|
|
|
|
|
|
Investment in Sales-Type Leases
As the result of the acquisition of GeoLogic Solutions, Inc. on January 31, 2008, the Company
acquired GeoLogic Solutions, Inc.’s investment in sales-type leases. The Company records the
investment in sales-type leases at the present value of the future minimum lease payments. There
is no guaranteed residual value associated with the leased devices. The receivables generally have
terms of five years and are collateralized by a security interest in the related equipment. The
Company records subscriber revenue on these leased devices as the ongoing service is provided over
the term of the related lease agreement and recognizes interest income as the lease payments are
billed to the customers. Future minimum lease payments to the Company under non-cancelable
sales-type leases as of September 30, 2008 are as follows (in thousands):
F-8
|
|
|
|
|
|
|
Years ending September 30,
|
|
|
|
|
|
2009
|
|
|
840
|
|
|
2010
|
|
|
296
|
|
|
2011
|
|
|
42
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
1,178
|
|
|
Less: amount representing interest (at 11.71%)
|
|
|
(100
|
)
|
|
|
|
|
|
|
Present value of net minimum sales-type lease payments
|
|
|
1,078
|
|
|
Less: current portion of investment in sales-type leases
|
|
|
(768
|
)
|
|
|
|
|
|
|
Investment in sales-type leases, excluding current portion
|
|
$
|
310
|
|
|
|
|
|
|
Interest income from sales-type leases was approximately $119,000 for the eight month period
subsequent to the acquisition of GeoLogic Solutions, Inc.
Debt Financing Costs
Debt financing costs are amortized to interest expense over the term of the related financing
agreement on a straight-line basis, which approximates the effective interest method. The carrying
value of the debt financing costs is approximately $708,000, net of accumulated amortization of
$167,000 as of September 30, 2008.
Equipment and Leasehold Improvements
Purchased equipment and leased equipment under capital leases are stated at cost and depreciated
using the straight-line method over estimated useful lives of approximately two to seven years.
Leasehold improvements are amortized over the shorter of the remaining lease term at the time of
purchase or their estimated useful lives (one to seven years). Depreciation for income tax
reporting purposes is computed using accelerated methods.
Equipment and leasehold improvements consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Office furniture and equipment
|
|
$
|
4,003
|
|
|
$
|
3,353
|
|
|
Engineering and manufacturing equipment
|
|
|
831
|
|
|
|
574
|
|
|
Leasehold improvements
|
|
|
2,473
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,307
|
|
|
|
4,005
|
|
|
Less: accumulated depreciation
|
|
|
(3,382
|
)
|
|
|
(2,422
|
)
|
|
|
|
|
|
|
|
|
|
Equipment and leasehold improvements, net
|
|
$
|
3,925
|
|
|
$
|
1,583
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1,297,000 and $664,000 for fiscal 2008 and 2007, respectively.
Capitalized System Development Costs
System development costs incurred after establishing technological feasibility are capitalized as
capitalized system development costs in accordance with Statement of Financial Accounting Standards
No. 86, (SFAS No. 86),
Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise
Marketed
. Costs that are capitalized are amortized to cost of goods sold beginning when the
product is
F-9
first released for sale to the general public. Amortization is at the greater of the
amount computed using the ratio of current gross revenues for the product to the total of current
and anticipated future gross revenues or the straight-line method over the estimated economic life
of the product (two to five years). As of September 30, 2008 and 2007 there were zero capitalized
development costs.
During fiscal 2007, the Company recognized costs of $1,930,000 relating to impairment of
capitalized system development costs and associated product inventory relating to products that
will not be marketed. These costs were recognized as a component of selling, general and
administrative expense.
Product development costs which have not met the capitalization criteria of SFAS No. 86 are charged
to research and development expense as incurred.
Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be
recognized when the sum of the undiscounted future net cash flows expected to result from the use
of the asset and its eventual disposition is less than its carrying amount.
Goodwill and Intangible Assets
As of September 30, 2008, the Company had a goodwill balance of $3,011,000 that resulted from the
Company’s acquisition of GeoLogic Solutions, Inc. on January 31, 2008. The Company records
goodwill when the purchase price of net tangible and intangible assets acquired exceeds their fair
value. In accordance with SFAS No. 142,
“Goodwill and Other Intangible Assets,”
the Company will
review goodwill for impairment at least annually, on the first day of the fourth quarter, or more
frequently if an event occurs indicating the potential for impairment. Goodwill is not amortized,
but instead tested for impairment at the reporting unit level. We have one reporting unit. The
annual goodwill impairment test is a two-step process. First, we determine if the carrying value of
our related reporting unit exceeds fair value, which would indicate that goodwill may be impaired.
If we then determine that goodwill may be impaired, we compare the implied fair value of the
goodwill to its carrying amount to determine if there is an impairment loss. The Company completed
this review in the fourth quarter of fiscal 2008 and concluded that no impairment existed.
Intangible assets are carried at cost less accumulated amortization. The Company amortizes the
cost of identified intangible assets on a straight-line basis over their expected economic lives.
In accordance with SFAS No. 144, “
Accounting for the Impairment or Disposal of Long-Lived Assets
,”
the Company reviews intangible assets that have finite useful lives when an event occurs indicating
the potential for earlier impairment. The Company reviews for impairment using facts or
circumstances, either internal or external, indicating that it may not recover the carrying value
of the asset. The Company measures impairment losses related to long-lived assets based on the
amount by which the carrying amounts of these assets exceed their fair values. The Company
measures fair value under SFAS No. 144, which is generally based on the present value of estimated
future cash flows. The Company’s analysis is based on available information and on assumptions and
projections it considers to be reasonable and supportable. The cash flow analysis considers the
likelihood of possible outcomes and is based on the Company’s best estimate of projected future
cash flows. If necessary, the Company performs subsequent calculations to measure the amount of
the impairment loss based on the excess of the carrying value over the fair value of the impaired
assets.
F-10
Based on the preliminary allocation of the purchase price for GeoLogic Solutions, Inc., intangible
assets subject to amortization were as follows as of September 30, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Life (years)
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Acquired customer contracts
|
|
|
8
|
|
|
$
|
13,500
|
|
|
$
|
(1,125
|
)
|
|
$
|
12,375
|
|
|
Other intangibles
|
|
|
7
|
|
|
|
49
|
|
|
|
(4
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8
|
|
|
$
|
13,549
|
|
|
$
|
(1,129
|
)
|
|
$
|
12,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense in fiscal 2008 was $1,129,000. Future amortization expense, as of September
30, 2008, is expected to be as follows (in thousands):
|
|
|
|
|
|
|
Years Ending September 30,
|
|
|
|
|
|
2009
|
|
$
|
1,695
|
|
|
2010
|
|
|
1,695
|
|
|
2011
|
|
|
1,695
|
|
|
2012
|
|
|
1,695
|
|
|
2013
|
|
|
1,695
|
|
|
Thereafter
|
|
|
3,948
|
|
|
|
|
|
|
|
Total expected amortization expense
|
|
$
|
12,420
|
|
|
|
|
|
|
Product Warranties
The Company sells its hardware products with a limited warranty, with an option to purchase
extended warranties. The Company provides for estimated warranty costs in relation to the
recognition of the associated revenue. Factors affecting the Company’s product warranty liability
include the number of units sold, historical and anticipated rates of claims and cost per claim.
The Company periodically assesses the adequacy of its product warranty liability based on changes
in these factors.
At September 30, 2008 and 2007, the Company had accruals for product warranties of approximately
$1,576,000 and $911,000, respectively. These amounts are included in accrued expenses on the
Company’s balance sheet.
Shipping Costs
Shipping costs, which are classified as a component of cost of goods sold, were approximately
$539,000 and $290,000 in fiscal 2008 and 2007, respectively. Customer billings related to shipping
and handling fees are reported as net sales.
Advertising Costs
Advertising costs consist primarily of ad campaigns, catalog brochures, promotional items and trade
show expenses and are expensed as incurred. Advertising costs, which are included in selling,
general and administrative expenses, were approximately $902,000 and $340,000 in fiscal 2008 and
2007, respectively.
F-11
Income taxes
The Company accounts for income taxes following the provisions of SFAS No. 109,
Accounting for
Income Taxes
. SFAS No. 109 requires that deferred income taxes be recognized for the future tax
consequences associated with differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year end, based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect taxable earnings.
Valuation allowances are established by the Company when necessary to reduce deferred tax assets to
the amount more likely than not to be realized. The effect of changes in tax rates is recognized in
the period in which the rate change occurs.
Stock-Based Compensation
The Company accounts for share-based employee compensation plans under the provisions of SFAS
123(R),
Share-Based Payment,
which requires the measurement and recognition of compensation expense
for all share-based payment awards to employees and directors based on estimated fair values. The
Company estimates the fair value of options granted using the Black-Scholes option valuation model
and the assumptions shown in Note 8 to the financial statements. The Company estimates the
volatility of the common stock at the date of grant based on a historical volatility rate,
consistent with SFAS 123(R) and Securities and Exchange Commission Staff Accounting Bulletin
No. 107 (SAB 107). 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
identified in SAB 107 for share-based awards granted during fiscal 2008 and 2007. 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.
Major Customers
The Company had the following significant customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net Sales
|
|
Percentage of Ending Receivables at
|
|
|
|
For the Year Ended September 30,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Customer A
|
|
|
12.3
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
Customer B
|
|
|
*
|
|
|
|
*
|
|
|
|
15.1
|
%
|
|
|
*
|
|
|
Customer C
|
|
|
*
|
|
|
|
19.6
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
*
|
|
Customer total was less than 10 percent of net sales or ending receivables.
|
The Company sells large orders to individual fleets and may be dependent upon a few major customers
each year whose volume of purchases is significantly greater than that of other customers.
Although the Company has experienced growth in its customer base, it is still dependent on present
customers’ continued hardware purchases to equip and upgrade their fleets, as well as recurring
product revenue. Loss of any significant current customers or an inability to further expand its
customer base would adversely affect the Company.
Major Suppliers
While current vendors are meeting the Company’s quality and performance expectations, the Company
believes that a disruption in the supply of XATA Application Modules (XAMs) and MobileMax Mobile
Data Terminals (MDTs), which are each supplied by separate single vendors, would affect the
Company’s ability to deliver finished goods and replacement parts.
F-12
Recently Issued Accounting Standards
Fair Value Measurements (SFAS 157)
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
. SFAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements but does not require any new fair value measurements. In February 2008, the Financial
Accounting Standards Board issued FASB Staff Position (“FSP”) No. 157-2,
“Effective Date of FASB
No. 157,”
which delays the effective date for non-financial assets and non-financial liabilities to
fiscal years beginning after November 15, 2008, except for items that are measured at fair value in
the financial statements on a recurring basis (at least annually). The adoption of this accounting
pronouncement is not expected to have a material effect on the financial statements.
The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159)
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities,
which permits entities to choose to measure many financial assets and
financial liabilities at fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company does not plan to measure any of its existing
financial assets or liabilities at fair value under the provisions of SFAS No. 159 and, therefore,
does not anticipate any material impact to its results of operations or financial position related
to the adoption of this standard.
Business Combinations — Revised (SFAS 141R)
In December 2007, the FASB issued SFAS No. 141(R) (revised 2007),
Business Combinations
. SFAS
141(R) replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, including goodwill, the
liabilities assumed and any non-controlling interest in the acquiree. SFAS 141(R) also establishes
disclosure requirements to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement is effective for fiscal years
beginning after December 15, 2008. The impact of the adoption of SFAS 141(R) will depend on future
acquisitions as there will be no impact on our existing financial position and results of
operations.
The Hierarchy of Generally Accepted Accounting Principles (SFAS 162)
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting
Principles
. SFAS No. 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles
. The Company does not expect the adoption
of SFAS No. 162 to have a material effect on its financial position, operating results or cash
flows.
Note 3. GeoLogic Solutions, Inc. Acquisition
On January 31, 2008, the Company acquired all of the outstanding stock of GeoLogic Solutions, Inc.
The results of operations of GeoLogic Solutions, Inc. have been included in the Company’s
consolidated
results of operations since the date of acquisition. GeoLogic Solutions, Inc. provides mobile
communications and tracking systems for the transportation industry. The acquisition enhanced the
Company’s product portfolio and broadened its addressable market.
F-13
The total purchase price included $15,277,000 in cash, 90,689 shares of common stock (valued at
$300,000) of the Company and $1,750,000 in debt obligations to the seller of GeoLogic Solutions,
Inc. The Company also incurred $1,560,000 of transaction costs in connection with the acquisition.
The Company incurred additional debt of $16,223,000 in connection with the acquisition of GeoLogic
Solutions, Inc.
The components of the purchase price and the preliminary allocation to the assets and liabilities
based on their estimated fair values at the date of acquisition are as follows (in thousands):
|
|
|
|
|
|
|
Cash
|
|
$
|
15,277
|
|
|
Debt obligations
|
|
|
1,750
|
|
|
Common stock
|
|
|
300
|
|
|
Transaction costs
|
|
|
1,560
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
18,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
557
|
|
|
|
|
|
|
Other current assets
|
|
|
6,208
|
|
|
|
|
|
|
Property and equipment
|
|
|
554
|
|
|
|
|
|
|
Intangible and other assets
|
|
|
1,049
|
|
|
|
|
|
|
Current liabilities
|
|
|
(5,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
|
|
|
|
2,376
|
|
|
Acquired customer contracts
|
|
|
|
|
|
|
13,500
|
|
|
Goodwill
|
|
|
|
|
|
|
3,011
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
18,887
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma results of operations for the year ended September 30, 2008 and 2007, as if the
purchase had occurred at the beginning of the periods indicated are as follows (in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
Net sales
|
|
$
|
60,679
|
|
|
$
|
52,795
|
|
|
Net loss to common shareholders
|
|
$
|
(7,582
|
)
|
|
$
|
(19,123
|
)
|
|
Net loss per common share — basic and diluted
|
|
$
|
(0.91
|
)
|
|
$
|
(2.39
|
)
|
|
Weighted average common and common
share equivalents — basic and diluted
|
|
|
8,326
|
|
|
|
8,013
|
|
Pro forma adjustments relate to amortization of intangible assets, interest expense resulting from
acquisition financing and certain other adjustments. The above unaudited pro forma consolidated
results of operations are for comparative purposes only and are not necessarily indicative of
results that would have occurred had the acquisition been consummated as of the beginning of the
periods presented, nor are they necessarily indicative of future results.
F-14
Note 4. Financing Arrangements
In connection with the financing of the acquisition of GeoLogic Solutions, Inc., the Company
entered into a three-year secured credit facility with Silicon Valley Bank (“SVB”) consisting of a
$10.0 million revolving line of credit bearing interest at a floating rate equal to 0.5% over SVB’s
Prime Rate. The credit facility is secured by substantially all the assets of the Company.
Interest is paid monthly in arrears, and the entire amount of any outstanding principal is due at
maturity on January 30, 2011. The credit agreement contains certain financial covenants which
impose a minimum level of net worth and fixed charge coverage ratio.
Also in connection with the acquisition of GeoLogic Solutions, Inc., the Company entered into a
four year secured credit facility consisting of an $8.0 million term loan with Partner’s for Growth
II, L.P. (“PFG”) bearing interest at a fixed rate of 14.5%, subject to adjustment under various
circumstances. Under the terms of the loan agreement, the Company must comply with financial
covenants specifying minimum levels of net worth and fixed charge coverage ratio. The loan is
secured by substantially all the assets of the Company and is subordinate to the security interest
of SVB. Interest is payable monthly, and the Company is required to make periodic principal
payments on specified dates over the term of the loan with the remainder of the unpaid principal
due at maturity on January 31, 2012.
In addition to the preceding sources of financing, the Company also issued $1.8 million of debt
obligations to the seller (the “Seller Notes”) in conjunction with the acquisition of GeoLogic
Solutions, Inc. The Seller Notes bear interest at an annual rate of 11% and mature in full on
January 31, 2009. A portion of the Seller Notes with a principal amount of $525,000 are
convertible into common stock of the Company upon maturity, in the event the Company does not repay
such Seller Notes in full. The conversion price for such Seller Notes is $3.308 per share. The
Seller Notes are subordinate to the security interests of SVB and PFG.
Long- term obligations and notes payable consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
September 30, 2007
|
|
|
Subordinated notes
|
|
$
|
1,225
|
|
|
$
|
—
|
|
|
Subordinated convertible notes
|
|
|
525
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
1,750
|
|
|
|
|
|
|
Senior secured revolving credit facility
|
|
|
8,223
|
|
|
|
—
|
|
|
Secured term loan
|
|
|
8,000
|
|
|
|
—
|
|
|
Capitalized leases
|
|
|
214
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
Total long-term obligations
|
|
|
18,187
|
|
|
|
381
|
|
|
Less current portion of long-term obligations
|
|
|
1,845
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
Total long-term obligations, net of current portion
|
|
$
|
16,342
|
|
|
$
|
220
|
|
|
|
|
|
|
|
|
|
The aggregate schedule of maturities of long-term obligations and notes payable subsequent to
September 30, 2008 are as follows:
|
|
|
|
|
|
|
Years Ending September 30,
|
|
|
|
|
|
2009
|
|
$
|
1,845
|
|
|
2010
|
|
|
84
|
|
|
2011
|
|
|
11,243
|
|
|
2012
|
|
|
5,015
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,187
|
|
|
|
|
|
|
F-15
Note 5. Net Loss Per Share
Basic loss per 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 share reflects the potential
dilution that could occur if securities or other obligations to issue common stock such as options,
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 share is equal to basic net
loss per share for all periods presented because the effect of including such securities or
obligations would have been antidilutive.
Options and warrants to purchase 3,234,000 and 2,770,000 shares of common stock at weighted average
per share exercise prices of $3.97 and $4.23 were excluded for the 2008 and 2007 fiscal years,
respectively, due to the Company incurring a net loss during the 2008 and 2007 fiscal years. The
inclusion of these outstanding options and warrants would have an antidilutive effect. Therefore,
basic and diluted net loss per common share amounts are the same for fiscal 2008 and 2007.
Note 6. Income Taxes
The Company’s deferred tax assets and liabilities are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Inventory and warranty reserve
|
|
$
|
862
|
|
|
$
|
619
|
|
|
Accrued expenses, deferred revenue and other
|
|
|
2,615
|
|
|
|
1,541
|
|
|
Accounts receivable and sales reserve
|
|
|
123
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,600
|
|
|
|
2,255
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
907
|
|
|
|
12
|
|
|
Research and development credit
|
|
|
1,456
|
|
|
|
1,400
|
|
|
Net operating loss carryforwards
|
|
|
16,930
|
|
|
|
9,160
|
|
|
Identifiable intangible assets
|
|
|
(4,595
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,698
|
|
|
|
10,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax asset
|
|
|
18,298
|
|
|
|
12,827
|
|
|
Less: valuation allowance
|
|
|
(18,298
|
)
|
|
|
(12,827
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
The Company periodically reviews the valuation allowance it has established on its deferred tax
assets. Realization of deferred tax assets is dependent upon sufficient future taxable income
during periods when deductible temporary differences and carryforwards are expected to be available
to reduce taxable income. The amount of the net deferred tax asset considered realizable could be
increased in the future if the Company returns to profitability and actual future taxable income is
higher than currently estimated and it becomes more likely than not that these amounts would be
realized.
F-16
The Company’s income tax expense (benefit) differed from the statutory federal rate as follows
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Statutory federal rate applied to loss
before income taxes
|
|
$
|
(1,143
|
)
|
|
$
|
(2,315
|
)
|
|
State income tax benefit
|
|
|
(81
|
)
|
|
|
(183
|
)
|
|
Stock based compensation
|
|
|
195
|
|
|
|
230
|
|
|
Permanent differences
|
|
|
32
|
|
|
|
16
|
|
|
Change in valuation allowance
|
|
|
1,053
|
|
|
|
2,462
|
|
|
Research and development credit
|
|
|
(56
|
)
|
|
|
(209
|
)
|
|
Other
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008, the Company had federal net operating loss carryforwards and research and
development credit carryforwards of approximately $45.8 million and $1.5 million, respectively,
which begin to expire in 2009 through 2028. Approximately $31.1 million of net operating loss
carryforwards were acquired with the acquisition of GeoLogic Solutions, Inc.; however, the usage of
these net operating losses is limited in accordance with the provisions of Section 382 of the
Internal Revenue Code. Accordingly, only approximately $20.1 million of the acquired net operating
loss carryforwards are available for use and are included in the $45.8 million carryforward amount.
The remaining $25.7 million of net operating loss carryforwards may be subject to annual use
limitations in accordance with the same provisions. Included in the net operating loss
carryforwards is approximately $291,000 related to stock
options, which currently have a full valuation allowance, and when realized for financial statement
purposes will not result in a reduction in income tax expense. Rather, the benefit will be
recorded as an increase to additional paid-in capital.
The net deferred tax assets of Geologic Solutions, Inc. were fully reserved for in the purchase
accounting for the acquisition thereby increasing goodwill. Any subsequent reversal of the
valuation allowance will be recorded as a reduction of goodwill, as opposed to a reduction of
income tax expense, pursuant to current accounting standards.
The Company implemented the provisions of FIN 48,
Accounting for Uncertainty in Income Taxes — an
Interpretation of FASB Statement No. 109
, effective October 1, 2007. This interpretation clarifies
the accounting for uncertainty in income taxes recognized in a Company’s financial statements and
prescribes a recognition threshold and measurement criteria for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. It also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The impact of adopting FIN 48 on the Company’s consolidated financial
statements was not material and no cumulative effect adjustment was recorded to the October 1, 2007
balance of accumulated deficit. In 2008, the Company recognized no tax benefit or liabilities for
uncertainties related to prior and current year income tax positions, which were determined to be
immaterial.
F-17
Note 7. Commitments
Leases
The Company leases its offices, warehouse, and certain office equipment under noncancelable
operating leases. The facility leases require that the Company pay a portion of the real estate
taxes, maintenance, utilities and insurance.
Approximate future minimum rental commitments, excluding common area costs under these
non-cancelable operating leases, are (in thousands):
|
|
|
|
|
|
|
Years ending September 30,
|
|
|
|
|
|
2009
|
|
$
|
997
|
|
|
2010
|
|
|
1,062
|
|
|
2011
|
|
|
738
|
|
|
2012
|
|
|
520
|
|
|
2013
|
|
|
536
|
|
|
Thereafter
|
|
|
611
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,464
|
|
|
|
|
|
|
Rental expense, including common area costs, was approximately $1,144,000 and $367,000 for the
fiscal years ended September 30, 2008 and 2007.
401(k) Plan
The Company has a 401(k) plan covering substantially all employees and is operated on a calendar
year basis. The Plan provides for a Company matching contribution equal to 50 percent of an
employee’s contribution for employee deferrals of up to 6 percent of their compensation with
immediate vesting.
Matching contributions for the fiscal years ended September 30, 2008 and 2007 totaled $337,000 and
$147,000, respectively.
Note 8. Shareholders’ Equity
Common Stock
The Company is authorized to issue up to 25,000,000 shares of common stock.
Preferred Stock
The Company has authorized an undesignated class of preferred stock of 10,000,000 shares. The
Board of Directors can issue preferred stock in one or more series and fix the terms of such stock
without shareholder approval. Preferred stock may include the right to vote as a series on
particular matters, preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions.
F-18
Series B
In December 2003, the Company’s Board of Directors authorized the sale of up to 1,700,000 shares of
Series B Preferred Stock through a private placement. Pursuant to a Stock Purchase Agreement
entered into in December 2003 with Trident Capital, Inc. and its affiliates (collectively,
“Trident”) the Company sold 1,613,000 shares of Series B Preferred Stock for $4,097,000, or $2.54
per share. Each share of the Preferred Stock is convertible into one share of the Company’s common
stock. The price per share of the Series B Preferred Stock and the conversion price for the common
stock were equal to the “market value” of the common stock (as defined in the rules of the Nasdaq
Stock Market) on the date of execution of the definitive agreements. The Series B Preferred Stock
pays an annual cumulative dividend of 4 percent of the original issue price (payable semi-annually;
payable in additional shares of Series B Preferred Stock or cash, at the option of the holders) and
has a non-participating preferred liquidation right equal to the original issue price, plus accrued
unpaid dividends. The Series B Preferred Stock provides that the Company cannot pay dividends to
the holders of any other capital stock unless and until the Company has paid dividends accrued on
the Series B Preferred Stock.
In fiscal 2008 and 2007 the Company issued 75,000 and 72,000 shares, respectively, of Series B
Preferred Stock to Trident for payment of accrued dividends. Based on the market value of the
Company’s 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 deemed dividend of $69,000 and
$159,000 in fiscal 2008 and 2007, respectively.
The Series B Preferred Stock is redeemable at the option of Trident at 100 percent of the original
purchase price plus accrued and unpaid dividends at any time after five years from the date of
issuance, or at any time if there is a significant adverse judgment against the Company, the
Company defaults on its debts or files for bankruptcy, or in the event of a change of control.
However, the Company may decline to redeem any or all of the Preferred Stock at its sole option and
discretion, and in such case the annual cumulative dividend on the Series B Preferred Stock will
increase from 4 percent to 10 percent. In the event that upon a change of control the Company does
not have sufficient funds to redeem any or all of the Preferred Stock the annual cumulative
dividend on the Series B Preferred Stock will increase from 4 percent to 6 percent. The Company
may redeem the Series B Preferred Stock at its option after five years from the date of issuance if
the market price of its common stock is greater than three times the conversion price on each of
the sixty consecutive days prior to the redemption date.
Additionally, the Company issued Trident 5-year warrants for 451,000 shares of its common stock at
an
exercise price of $3.17 per share. The aggregate purchase price of the warrants was $56,000. The
warrants permit “cashless exercise.”
In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of
$629,000 relating to the beneficial conversion portion of the preferred stock. The beneficial
conversion portion was determined by allocating the Trident proceeds on a fair value basis between
the preferred stock and the warrants. The amount of the deemed dividend was the difference
between the deemed fair value of the Series B Preferred Stock and the purchase price on the date of
the transaction. The deemed dividend was recorded as an addition to preferred stock with a
corresponding increase to accumulated deficit. The addition was recognized at the date of issuance
of the preferred stock, the same date at which the shares were eligible for conversion.
On December 6, 2003, the placement agent for the Trident investment received as consideration a
$320,000 cash fee and 7-year warrants for purchase of an aggregate of 163,000 shares of Common
Stock (130,000 shares at $2.54 per share and 33,000 shares at $3.17 per share). These warrants
permit “cashless exercise” and provide the holders with piggyback registration rights.
F-19
Series C
In August 2005, the Company’s Board of Directors authorized the sale of up to 1,400,000 shares of
Series C Preferred Stock through a private placement. Pursuant to a Stock Purchase Agreement
entered into in September 2005 with Trident, the Company sold 1,269,000 shares of Series C
Preferred Stock for $5,000,000, or $3.94 per share. Each share of the Series C Preferred Stock is
convertible into one share of the Company’s common stock. The price per share of Series C Preferred
Stock and the conversion price for the common stock are equal to the “market value” of the common
stock (as defined in the rules of the Nasdaq Stock Market) on the date of execution of the
definitive agreements. The Series C Preferred Stock does not pay a dividend, unless the Company
declines to redeem the stock upon demand of the holders after an Acceleration Event (as defined in
the Certificate of Designation of the Series C Preferred Stock). In that case, the Series C
Preferred Stock pays an annual cumulative dividend of 4 percent of the original issue price
(payable in cash). The Series C Preferred Stock has a non-participating liquidation right equal to
the original issue price, plus accrued unpaid dividends which are senior to the Common Stock and
junior to the Series B Preferred Stock. The Company may redeem the Series C Preferred Stock at its
option after five (5) years from the date of issuance at the original issue price, plus accrued
unpaid dividends, if the market value of the common stock is at least three (3) times the then
effective conversion price for a specified period.
Additionally, the Company issued Trident 5-year warrants to purchase 375,000 shares of its common
stock at an exercise price of $3.94 per share. The aggregate fair value of the warrants was
$47,000. The warrants permit “cashless exercise.”
In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of
$419,000 relating to the beneficial conversion portion of the preferred stock. The beneficial
conversion portion was determined by allocating the Trident proceeds on a fair value basis between
the preferred stock and the warrants. The amount of the deemed dividend was the difference
between the deemed fair value of the Series C Preferred Stock and the purchase price on the date of
the transaction. The deemed dividend was recorded as an addition to preferred stock with a
corresponding increase to accumulated deficit. The addition was recognized at the date of issuance
of the preferred stock, the same date at which the shares were eligible for conversion.
No broker or placement agent was involved in the placement of the Series C Preferred Stock and no
commissions or other compensation was paid.
Series D
In May 2007, the Company’s Board of Directors authorized the sale of up to 1,600,000 shares of
Series D Preferred Stock through a private placement. Pursuant to a Stock Purchase Agreement
entered into in June 2007 with Trident, the Company sold 1,567,000 shares of Series C Preferred
Stock for $6,000,000, or $3.83 per share. Each share of the Series D Preferred Stock is
convertible into one share of the Company’s common stock. The price per share of Series D Preferred
Stock and the conversion price for the common stock are equal to the “market value” of the common
stock (as defined in the rules of the Nasdaq Stock Market) on the date of execution of the
definitive agreements. The Series D Preferred Stock does not pay a dividend, unless the Company
declines to redeem the stock upon demand of the holders after an Acceleration Event (as defined in
the Certificate of Designation of the Series D Preferred Stock). In that case, the Series D
Preferred Stock pays an annual cumulative dividend of 4 percent of the original issue price
(payable in cash). The Series D Preferred Stock has a non-participating liquidation right equal to
the original issue price, plus accrued unpaid dividends which are senior to the Common Stock and
junior to the Series B and Series C Preferred Stock. The Company may redeem the Series D Preferred
Stock at its option after five (5) years from the date of issuance at the original issue price,
plus accrued unpaid dividends, if the market value of the common stock is at least three (3) times
the then effective conversion price for a specified period.
F-20
Additionally, the Company issued Trident 5-year warrants to purchase 470,000 shares of its common
stock at an exercise price of $3.83 per share. The aggregate fair value of the warrants was
$59,000. The warrants permit “cashless exercise.”
In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of
$658,000 relating to the beneficial conversion portion of the preferred stock. The beneficial
conversion portion was determined by allocating the Trident proceeds on a fair value basis between
the preferred stock and the warrants. The amount of the deemed dividend was the difference
between the deemed fair value of the Series D Preferred Stock and the purchase price on the date of
the transaction. The deemed dividend was recorded as an addition to preferred stock with a
corresponding increase to accumulated deficit. The addition was recognized at the date of issuance
of the preferred stock, the same date at which the shares were eligible for conversion.
No broker or placement agent was involved in the placement of the Series D Preferred Stock and no
commissions or other compensation was paid.
Stock Option Plans
In February 2007 the Company adopted the 2007 Long Term Incentive and Stock Option Plan (the 2007
Plan). The 2007 Plan permits the granting of “incentive stock options” meeting the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified options that do not
meet the requirements of Section 422. Stock appreciation rights and restricted stock awards may
also be granted under the 2007 Plan. A total of 500,000 shares of the Company’s common stock were
originally reserved for issuance pursuant to options granted or shares awarded under the 2007 Plan.
The 2007 Plan has an evergreen provision in which the maximum number of shares that may be issued
under the 2007 Plan shall be cumulatively increased on January 1, 2008 and on each January 1
thereafter for nine years by the lesser of (i) 500,000 Common Shares, (ii) 3% of the Company’s
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 164,068 shares
authorized and available for future equity awards as of September 30, 2008. Generally, the options
that are granted under the 2007 Plan are exercisable for a period of five to ten years from the
date of grant and vest over a period of up to three years from the date of grant.
The Company has three equity compensation plans: its 2001 Interim Incentive and Stock Option Plan,
its 2002 Long-Term Incentive and Stock Option Plan and its 2007 Long-Term Incentive and Stock
Option Plan, all of which have been approved by the shareholders of the Company. The 2001 Interim
and 2002 Plans have terminated and no additional awards can be made under those Plans.
F-21
The following tables summarize information relating to stock option activity as of September 30,
2008 and 2007 (in thousands, except per share amount):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Options outstanding at September 30, 2006
|
|
|
388
|
|
|
$
|
4.60
|
|
|
Granted
|
|
|
894
|
|
|
|
5.15
|
|
|
Exercised
|
|
|
(15
|
)
|
|
|
3.73
|
|
|
Cancelled
|
|
|
(35
|
)
|
|
|
4.83
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2007
|
|
|
1,232
|
|
|
|
5.01
|
|
|
Granted
|
|
|
323
|
|
|
|
3.05
|
|
|
Exercised
|
|
|
(15
|
)
|
|
|
2.98
|
|
|
Cancelled
|
|
|
(301
|
)
|
|
|
4.43
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2008
|
|
|
1,239
|
|
|
|
4.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Range of
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
exercise
|
|
of
|
|
|
Contractual
|
|
|
Exercise
|
|
|
of
|
|
|
Contractual
|
|
|
Exercise
|
|
|
price
|
|
Shares
|
|
|
Life
|
|
|
Price
|
|
|
Shares
|
|
|
Life
|
|
|
Price
|
|
|
$2.99
|
|
|
237
|
|
|
|
4.9
|
|
|
$
|
2.99
|
|
|
|
25
|
|
|
|
9.4
|
|
|
$
|
2.99
|
|
|
$3.15 – $3.99
|
|
|
83
|
|
|
|
3.5
|
|
|
|
3.60
|
|
|
|
36
|
|
|
|
2.4
|
|
|
|
3.87
|
|
|
$4.33 – $4.98
|
|
|
62
|
|
|
|
4.7
|
|
|
|
4.69
|
|
|
|
46
|
|
|
|
5.2
|
|
|
|
4.82
|
|
|
$5.03 – $5.40
|
|
|
857
|
|
|
|
4.1
|
|
|
|
5.23
|
|
|
|
445
|
|
|
|
3.8
|
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,239
|
|
|
|
4.3
|
|
|
|
4.66
|
|
|
|
552
|
|
|
|
4.1
|
|
|
|
5.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during fiscal years 2008 and 2007 was $3,000 and $12,000,
respectively. The intrinsic value of outstanding options and options exercisable was $242,000 and
$26,000, respectively, as of September 30, 2008.
The fair value of each option is estimated at the grant date using the Black-Scholes option-pricing
model. The weighted average fair value and the assumptions used to determine the fair values are
as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
Number of shares granted
|
|
|
323
|
|
|
|
894
|
|
|
Fair value per share
|
|
$
|
0.81
|
|
|
$
|
1.79
|
|
|
Risk-free interest rate
|
|
|
2.24
|
%
|
|
|
4.65
|
%
|
|
Expected volatility
|
|
|
30.88
|
%
|
|
|
35.39
|
%
|
|
Expected life (in years)
|
|
|
3.7
|
|
|
|
4.0
|
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
As of September 30, 2008, there was approximately $783,000 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 of these remaining vesting periods is 1.3 years.
F-22
Restricted Stock Awards
The Company grants restricted shares of common stock as part of its long-term incentive
compensation to employees. Fair market value of restricted stock awards are determined based on
the closing market price on the date of grant. Restricted stock awards vest over one to three
years and stock may be sold once vested. The Company also granted 15,625 and 10,000 shares of
common stock to certain directors in fiscal 2008 and 2007, respectively. Restricted stock awards
granted to directors vest immediately.
The following table summarizes information relating to restricted stock activity as of September
30, 2008 and 2007 (in thousands, except per share amount):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number of
|
|
|
Average Grant
|
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
Restricted stock outstanding at September
30, 2006
|
|
|
212
|
|
|
$
|
4.95
|
|
|
Granted
|
|
|
450
|
|
|
|
5.34
|
|
|
Vested
|
|
|
(278
|
)
|
|
|
5.23
|
|
|
Cancelled
|
|
|
(23
|
)
|
|
|
4.98
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding at September
30, 2007
|
|
|
361
|
|
|
|
5.22
|
|
|
Granted
|
|
|
151
|
|
|
|
3.04
|
|
|
Vested
|
|
|
(198
|
)
|
|
|
4.94
|
|
|
Cancelled
|
|
|
(29
|
)
|
|
|
4.08
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding at September
30, 2008
|
|
|
285
|
|
|
|
4.37
|
|
|
|
|
|
|
|
|
|
|
The Company recognizes compensation expense ratably over the vesting period of the restricted
stock. The total fair value of shares vested during fiscal years 2008 and 2007 was $651,000 and
$1,023,000.
As of September 30, 2008, there was approximately $986,000 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 of these remaining vesting periods is 1.5
years.
Common stock warrants
The Company has issued warrants for the purchase of common stock to directors, consultants and
placement agents. Compensation expense associated with the warrants has not been material and has
been recorded as expense at its fair value.
In fiscal 2008, the Company issued 457,000 warrants relating to debt facilities utilized in
connection with acquisition of GeoLogic Solutions, Inc. In fiscal 2007, the Company issued 470,000
warrants relating to the issuance of Series D Preferred Stock. The fair value of these warrants on
the date of issue was $535,000 and $714,000, respectively.
F-23
The following tables summarize information relating to stock warrants (amounts in thousands, with
the exception of per warrant amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Life (years)
|
|
|
Warrants outstanding at
September 30, 2006
|
|
|
1,033
|
|
|
$
|
3.49
|
|
|
|
3.0
|
|
|
Granted
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at
September 30, 2007
|
|
|
1,538
|
|
|
|
5.22
|
|
|
|
2.9
|
|
|
Granted
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at
September 30, 2008
|
|
|
1,995
|
|
|
|
3.54
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9. Legal Proceedings
The Company was named as one of many defendants in a patent infringement lawsuit filed during
fiscal 2007. In November 2007, the Company reached a settlement agreement with the plaintiff that
dismissed the Company from the lawsuit and provided the Company a fully paid-up irrevocable and
perpetual license to the patents at issue, in exchange for cash compensation. The Company
recognized $1.4 million in legal and settlement expenses during fiscal 2007 related to this matter.
F-24
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures.
The Company’s Chief Executive Officer and Chief
Financial Officer (collectively, the “Certifying Officers”) are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) for the
Company. Based on an evaluation of such disclosure controls and procedures as of the end of the
period covered by this report, such officers have concluded that the Company’s disclosure controls
and procedures are effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.
Management’s report on internal control over financial reporting.
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our
management, including the Certifying Officers, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. In accordance with the Securities and Exchange Commission’s published guidance, the
Company’s assessment of internal control over financial reporting excluded the fiscal 2008
acquisition of GeoLogic Solutions, Inc., which represents approximately 26.3 percent of net sales
for the year ended September 30, 2008. Based on this evaluation, our management concluded that our
internal control over financial reporting was effective as of September 30, 2008.
Due to its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate due to changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.
This annual report does not include an attestation report of the company’s registered public
accounting firm regarding internal control over financial reporting. Management’s report was not
subject to attestation by the company’s registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the company to provide only
management’s report in this annual report.
Changes in internal controls over financial reporting.
The Certifying Officers also have indicated
that there have been no changes in the Company’s internal controls over financial reporting during
its fourth fiscal quarter ended September 30, 2008, that have materially affected or are reasonably
likely to materially affect such controls.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The required information regarding our directors and executive officers and regarding compliance
with Section 16(a) of the Exchange Act is incorporated by reference from our definitive proxy
statement,
including the information under the headings “Proposal 1 — Election of Directors”, “Executive
Compensation — Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance”
for the Annual Meeting of Stockholders to be held on February 4, 2009.
25
We have adopted a Code of Ethics (Code) applicable to our principal executive, financial and
accounting officers. The Code is posted on our website at
www.xata.com
, and we will post on such
website any amendment to, or waiver from, a provision of our Code within four business days
following the date of such amendment or waiver.
Item 11. Executive Compensation
Information called for by this Item is incorporated by reference from our definitive proxy
statement, including the information under the heading “Executive Compensation”, for the Annual
Meeting of Stockholders to be held on February 4, 2009.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information called for by this Item is incorporated by reference from our definitive proxy
statement, including the information under the headings “Equity Compensation Plan Information” and
“Principal Shareholders and Ownership of Management” for the Annual Meeting of Stockholders to be
held on February 4, 2009.
Item 13. Certain Relationships and Related Transactions, Director Independence
Information called for by this Item is incorporated by reference from our definitive proxy
statement, including information under the headings “Certain Relationships and Related Party
Transactions” and “Proposal 1 — Election of Directors” for the Annual Meeting of Stockholders to be
held on February 4, 2009.
Item 14. Principal Accountant Fees and Services
Information called for by this Item is incorporated by reference from our definitive proxy
statement, including the information contained under the heading “Audit Committee Report –
Principal Accountant”, for the Annual Meeting of Stockholders to be held on February 4, 2009.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents Filed as Part of Form 10-K
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of September 30, 2008 and 2007
Consolidated Statements of Operations for the years ended September 30, 2008 and 2007
Consolidated Statements of Changes in Shareholders’ Equity for the years ended September 30,
2008 and 2007
Consolidated Statements of Cash Flows for the years ended September 30, 2008 and 2007
|
2.
|
|
Financial Statement Schedules
|
Schedule II — Valuation and Qualifying Accounts
26
The list of exhibits in the Exhibit Index is incorporated herein by reference.
(b) Exhibits
We hereby file the exhibits listed in the attached Exhibit Index.
(c) Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts
27
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
XATA CORPORATION
|
|
|
Dated: December 17, 2008
|
By:
|
/s/ John J. Coughlan
|
|
|
|
|
John J. Coughlan, Chairman, Chief
|
|
|
|
|
Executive Officer and President
(Principal executive officer)
|
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Company and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Dated: December 17, 2008
|
|
By:
|
|
/s/ John J. Coughlan
|
|
|
|
|
|
|
|
|
|
|
|
John J. Coughlan, Chairman, Chief
Executive Officer and President
|
|
|
|
|
|
|
|
Dated: December 17, 2008
|
|
By:
|
|
/s/ Carl M. Fredericks
|
|
|
|
|
|
|
|
|
|
|
|
Carl M. Fredericks, Director
|
|
|
|
|
|
|
|
Dated: December 17, 2008
|
|
By:
|
|
/s/ Thomas G. Hudson
|
|
|
|
|
|
|
|
|
|
|
|
Thomas G. Hudson, Director
|
|
|
|
|
|
|
|
Dated: December 17, 2008
|
|
By:
|
|
/s/ Roger W. Kleppe
|
|
|
|
|
|
|
|
|
|
|
|
Roger W. Kleppe, Director
|
|
|
|
|
|
|
|
Dated: December 17, 2008
|
|
By:
|
|
/s/ Chad Lindbloom
|
|
|
|
|
|
|
|
|
|
|
|
Chad Lindbloom, Director
|
|
|
|
|
|
|
|
Dated: December 17, 2008
|
|
By:
|
|
/s/ Michael J. Paxton
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Paxton, Director
|
|
|
|
|
|
|
|
Dated: December 17, 2008
|
|
By:
|
|
/s/ Christopher P. Marshall
|
|
|
|
|
|
|
|
|
|
|
|
Christopher P. Marshall, Director
|
|
|
|
|
|
|
|
Dated: December 17, 2008
|
|
By:
|
|
/s/ Charles R. Stamp, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
Charles R. Stamp, Jr., Director
|
|
|
|
|
|
|
|
Dated: December 17, 2008
|
|
By:
|
|
/s/ Mark E. Ties
|
|
|
|
|
|
|
|
|
|
|
|
Mark E. Ties, Chief Financial Officer
(Principal accounting and financial
officer)
|
28
Schedule II
XATA Corporation
Valuation and Qualifying Accounts
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
|
beginning of
|
|
|
costs and
|
|
|
other
|
|
|
|
|
|
|
Balance at
|
|
|
Description
|
|
period
|
|
|
expenses
|
|
|
accounts (1)
|
|
|
Deductions (2)
|
|
|
end of period
|
|
|
Year ended
September 30, 2007
deducted from
assets accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
allowance for
bad debts
|
|
$
|
286
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
157
|
|
|
$
|
130
|
|
|
Year ended
September 30, 2008
deducted from
assets accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
allowance for
bad debts
|
|
|
130
|
|
|
|
92
|
|
|
|
638
|
|
|
|
527
|
|
|
|
333
|
|
|
|
|
|
|
(1)
|
|
This amount represents allowance for bad debts established at the time of acquisition of
GeoLogic Solutions, Inc.
|
|
|
|
(2)
|
|
Amounts recorded in fiscal 2008 include $511,000 for accounts reserved for at the time of
acquisition from
GeoLogic Solutions, Inc.
|
29
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibits
|
|
|
|
|
|
3.1
|
|
Second Restated Articles of Incorporation of XATA Corporation *
|
|
|
|
|
|
3.2
|
|
Bylaws of XATA Corporation
(22)
|
|
|
|
|
|
4.1
|
|
Common Stock Warrant and Series B Preferred Stock Purchase Agreement, dated December 6, 2003
(1)
|
|
|
|
|
|
4.2
|
|
Common Stock Warrant and Series C Preferred Stock Purchase Agreement, dated September 7, 2005
(2)
|
|
|
|
|
|
4.3
|
|
Common Stock Warrant and Series D Preferred Stock Purchase Agreement, dated June 18, 2007
(3)
|
|
|
|
|
|
4.4
|
|
Form of warrant issued to Trident entities in connection with Common Stock Warrant and Series B
Preferred Stock Purchase Agreement
(1)
|
|
|
|
|
|
4.5
|
|
Form of warrant issued to Cherry Tree Securities, LLC for its service as placement agent in connection
with Common Stock Warrant and Series B Preferred Stock Purchase Agreement
(1)
|
|
|
|
|
|
4.6
|
|
Form of warrant issued to Trident entities in connection with Common Stock Warrant and Series C
Preferred Stock Purchase Agreement
(2)
|
|
|
|
|
|
4.7
|
|
Form of warrant issued to Trident entities in connection with Common Stock Warrant and Series D
Preferred Stock Purchase Agreement
(3)
|
|
|
|
|
|
4.8
|
|
Investor Rights Agreement, dated June 19, 2007
(3)
|
|
|
|
|
|
4.9
|
|
Form of Senior Subordinated Convertible Notes issued on January 31, 2008, by XATA Corporation to each
of Platinum Equity Capital Partners, L.P., Platinum Equity Capital Partners-A, L.P., Platinum Equity
Capital Partners-PF, L.P. and Platinum Transportation Principals, LLC
(24)
|
|
|
|
|
|
4.10
|
|
Common Stock Warrant, dated as of January 31, 2008, issued by XATA Corporation to Silicon Valley Bank
(24)
|
|
|
|
|
|
4.11
|
|
Common Stock Warrant, dated as of January 31, 2008, issued by XATA Corporation to Partners for Growth
II, L.P.
(24)
|
|
|
|
|
|
9.0
|
|
Amended and Restated Voting Agreement, dated September 7, 2005
(2)
|
|
|
|
|
|
10.4
|
|
Trident Investor Indemnification Agreement
(1)
|
|
|
|
|
|
10.5
|
|
Trident Director Indemnification Agreement
(1)
|
|
|
|
|
|
10.6
|
|
Stock Purchase Agreement with JDSTG, dated August 30, 2000
(6)
|
|
|
|
|
|
10.7
|
|
Registration Rights Agreement with JDSTG dated August 30, 2000
(6)
|
|
|
|
|
|
10.8
|
|
Amendment No. 1, dated October 31, 2000, to Stock Purchase Agreement with JDSTG
(7)
|
|
|
|
|
|
10.9
|
|
Side Agreement with JDSTG dated December 28, 2000
(8)
|
|
|
|
|
|
10.10
|
|
Loan and Security Agreement with Silicon Valley Bank, dated as of December 17, 2004
(9)
|
|
|
|
|
|
10.11
|
|
First Amendment to Loan and Security Agreement with Silicon Valley Bank, dated as of December 16, 2005
(10)
|
|
|
|
|
|
10.12
|
|
Employment Agreement dated October 1, 2000 with Thomas N. Flies
(11)
|
30
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibits
|
|
|
|
|
|
10.13
|
|
Form of Warrant issued to directors as equity compensation
(12)
|
|
|
|
|
|
10.14
|
|
2002 Long-Term Incentive and Stock Option Plan
(22)
|
|
|
|
|
|
10.15
|
|
Form of Restricted Stock Award Agreement pursuant to 2002 Long-Term Incentive and Stock Option Plan
(13)
|
|
|
|
|
|
10.16
|
|
Form of Directors’ Restricted Stock Award Agreement pursuant to 2002 Long-Term Incentive and Stock
Option Plan
(14)
|
|
|
|
|
|
10.17
|
|
2007 Long-term Incentive and Stock Option Plan
(15)
|
|
|
|
|
|
10.18
|
|
Form of Stock Option Agreement for Directors pursuant to 2007 Long-term Incentive and Stock Option Plan
(22)
|
|
|
|
|
|
10.19
|
|
Form of Stock Option Agreement for Employees pursuant to 2007 Long-term Incentive and Stock Option Plan
(22)
|
|
|
|
|
|
10.20
|
|
Change of Control Agreement with Mark Ties
(16)
|
|
|
|
|
|
10.21
|
|
Change of Control Agreement with Thomas Schlick
(17)
|
|
|
|
|
|
10.22
|
|
Executive Employment Agreement with John J. Coughlan
(18)
|
|
|
|
|
|
10.23
|
|
Incentive Stock Option Agreement with John J. Coughlan
(18)
|
|
|
|
|
|
10.24
|
|
Restricted Stock Award Agreement with John J. Coughlan
(18)
|
|
|
|
|
|
10.25
|
|
Matching Restricted Stock Award Agreement with John J. Coughlan
(18)
|
|
|
|
|
|
10.26
|
|
Change of Control Agreement with David Gagne
(19)
|
|
|
|
|
|
10.27
|
|
Non-Qualified Stock Option Agreement with David Gagne
(19)
|
|
|
|
|
|
10.28
|
|
Matching Restricted Stock Award Agreement with David Gagne
(19)
|
|
|
|
|
|
10.29
|
|
Separation and Release Agreement with Peter A. Thayer
(19)
|
|
|
|
|
|
10.30
|
|
Business Agreement with Winland Electronics dated June 28, 2005
(20)
|
|
|
|
|
|
10.31
|
|
Reseller Agreement with Orbcomm, Inc. dated July 31, 2006
(20)
|
|
|
|
|
|
10.32
|
|
Second Amendment to Custom Service Agreement with Sprint Solutions, Inc. effective January 1, 2007
(20)
|
|
|
|
|
|
10.33
|
|
Stock Purchase Agreement, dated as of December 19, 2007, between XATA Corporation, GeoLogic Solutions,
Inc., GeoLogic Management, Inc., Platinum Equity Capital Partners, L.P., Platinum Equity Capital
Partners-A, L.P., Platinum Equity Capital Partners-PF, L.P. and Platinum Transportation Principals,
LLC.
(23)
|
|
|
|
|
|
10.34
|
|
First Amendment to Stock Purchase Agreement, dated as of January 31, 2008, between XATA Corporation,
GeoLogic Solutions, Inc., GeoLogic Management, Inc., Platinum Equity Capital Partners, L.P., Platinum
Equity Capital Partners-A, L.P., Platinum Equity Capital Partners-PF, L.P. and Platinum Transportation
Principals, LLC.
(24)
|
|
|
|
|
|
10.35
|
|
Loan and Security Agreement, dated as of January 31, 2008, between Silicon Valley Bank, XATA
Corporation and GeoLogic Solutions, Inc.
(24)
|
|
|
|
|
|
10.36
|
|
Loan and Security Agreement, dated as of January 31, 2008, between Partners for Growth II, L.P., XATA
Corporation and GeoLogic Solutions, Inc.
(24)
|
31
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibits
|
|
|
|
|
|
10.37
|
|
Separation Agreement, dated January 16, 2008, between XATA Corporation and Thomas L. Schlick
(25)
|
|
|
|
|
|
10.38
|
|
Severance Agreement between Mark E. Ties and the Company dated May 8, 2008
(26)
|
|
|
|
|
|
10.39
|
|
Separation Agreement, dated March 1, 2007, between XATA Corporation and James Griffin
(27)
|
|
|
|
|
|
10.40
|
|
Amendment to Separation Agreement, dated October 1, 2008, between XATA Corporation and James Griffin
(27)
|
|
|
|
|
|
10.41
|
|
Second Amendment to Loan and Security Agreement dated November 20, 2008.*
|
|
|
|
|
|
10.42
|
|
First Amendment to PFG Loan and Security Agreement dated November 20, 2008.*
|
|
|
|
|
|
23
|
|
Consent of Grant Thornton LLP, independent registered public accounting firm*
|
|
|
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
32.2
|
|
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
*
|
|
Filed herewith
|
|
|
|
(1)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K on December 9, 2003
|
|
|
|
(2)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K on September 22, 2005
|
|
|
|
(3)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K on June 22, 2007
|
|
|
|
(4)
|
|
Incorporated by reference to exhibit filed as a part of Report on Form 10-QSB for the fiscal quarter
ended March 31, 1997
|
|
|
|
(5)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 10-QSB for the fiscal quarter
ended March 31, 2003
|
|
|
|
(6)
|
|
Incorporated by reference to exhibit filed as a part of Report on Form 8-K on September 7, 2000
|
|
|
|
(7)
|
|
Incorporated by reference to exhibit filed as a part of Report on Form 8-K on November 2, 2000
|
|
|
|
(8)
|
|
Incorporated by reference to exhibit filed as a part of Report on Form 10-KSB for the fiscal year ended
September 30, 2000
|
|
|
|
(9)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended
September 30, 2004
|
|
|
|
(10)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 10-KSB/A for the fiscal year ended
September 30, 2005
|
|
|
|
(11)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 10-QSB for the fiscal quarter
ended December 31, 2000
|
|
|
|
(12)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended
September 30, 2002
|
|
|
|
(13)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended September 30, 2004
|
32
|
|
|
|
|
|
|
(14)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K on March 1, 2006
|
|
|
|
(15)
|
|
Incorporated by reference to exhibit filed as part of Registration Statement on Form S-8 on
February 15, 2007
|
|
|
|
(16)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K on April 12, 2005
|
|
|
|
(17)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K on April 11, 2006
|
|
|
|
(18)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K on October 4, 2006
|
|
|
|
(19)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K on January 8, 2007
|
|
|
|
(20)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended
September 30, 2006
|
|
|
|
(21)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K on July 9, 2007
|
|
|
|
(22)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 10-K for the fiscal year ended
September 30, 2007
|
|
|
|
(23)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K filed with the SEC on
December 24, 2007
|
|
|
|
(24)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K filed with the SEC on February
6, 2008
|
|
|
|
(25)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K filed with the SEC on
January 18, 2008
|
|
|
|
(26)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 10-Q for the fiscal quarter ended
June 30, 2008.
|
|
|
|
(27)
|
|
Incorporated by reference to exhibit filed as part of Report on Form 8-K filed with the SEC on October
7, 2008
|
33
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