UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-31511
================================================================================
AT ROAD, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3209170
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
47200 Bayside Parkway
Fremont, CA 94538
(Address of principal executive offices, including zip code)
510-668-1638
(Registrant's telephone number, including area code)
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [X]
Explanatory Note: Although the Registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the period that the Registrant was required to file such reports, the Registrant
has not been subject to such filing requirements for the past 90 days.
As of November 8, 2000 there were 46,042,729 shares of the registrant's
Common Stock outstanding.
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999.
Condensed Consolidated Statements of Operations for the three months and
nine months ended September 30, 2000 and September 30, 1999.
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and September 30, 1999.
Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 6. Exhibits and Reports on Form 8-K.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
At Road, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
September 30, 2000 December 31, 1999
-------------------- -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 23,706 $ 22,714
Short-term investments 2,715 13,939
Restricted short-term investments 2,089 2,000
Subscriptions receivable from initial 58,590 -
public offering
Accounts receivable 4,247 807
Inventories 7,319 1,880
Deferred product costs and other current 5,847 1,486
assets -------- --------
Total current assets 104,513 42,826
Property and equipment, net 7,182 1,566
Deferred product costs, intangibles and other
assets 8,544 782
-------- --------
Total assets $120,239 $ 45,174
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,516 $ 2,020
Accrued liabilities 3,518 1,345
Deferred revenue 2,901 703
-------- --------
Total current liabilities 11,935 4,068
Deferred revenue and other long term 2,883 498
liabilities
Total liabilities 14,818 4,566
-------- --------
Stockholders' equity:
Convertible preferred stock - 51,606
Common stock 172,230 18,590
Deferred stock compensation (10,984) (11,632)
Notes receivable from stockholders (3,308) (1,758)
Accumulated other comprehensive loss (7) (21)
Accumulated deficit (52,510) (16,177)
-------- --------
Total stockholders' equity 105,421 40,608
-------- --------
Total liabilities and stockholders' equity $120,239 $ 45,174
======== ========
See accompanying notes to condensed consolidated financial statements.
3
At Road, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
------------------- ------------------ ------------------ -------------------
Revenues:
Service $ 2,353 $ 145 $ 4,877 $ 187
Product 698 80 1,535 136
-------- ------- -------- -------
Total revenues 3,051 225 6,413 323
Costs and expenses:
Cost of service revenue 1,758 154 3,887 224
Cost of product revenue 1,885 613 5,267 835
Sales and marketing 4,435 1,133 11,286 1,733
Research and development 2,466 572 6,631 1,066
General and 3,153 477 6,876 1,167
administrative
Amortization of 414 - 825 -
intangibles
Stock compensation (*) 2,859 637 9,814 1,000
-------- ------- -------- -------
Total costs and expenses 16,970 3,586 44,586 6,025
Loss from operations (13,919) (3,361) (38,173) (5,702)
Interest income, net 666 351 1,840 483
-------- ------- -------- -------
Net Loss $(13,253) $(3,010) $(36,333) $(5,219)
======== ======= ======== =======
Basic and diluted
net loss per share $(2.13) $(0.96) $(8.07) $(2.01)
======== ======= ======== =======
Shares used in
calculating basic and
diluted net loss per
share 6,221 3,121 4,502 2,601
======== ======== ======== =======
Pro forma basic and
diluted
net loss per share $(0.38) $(0.11) $(1.14) $(0.24)
======== ======== ======== =======
Shares used in
calculating pro forma
basic and diluted net
loss per share 35,073 26,241 31,910 21,594
======== ======== ======== =======
(*) Stock compensation
Cost of service revenue $ 57 $ 6 $ 153 $ 6
Cost of product revenue 109 - 358 -
Sales and marketing 448 117 1,388 159
Research and development 856 89 2,440 96
General and
administrative 1,389 425 5,475 739
-------- ------- -------- -------
Total $ 2,859 $ 637 $ 9,814 $ 1,000
======== ======= ======== =======
See accompanying notes to condensed consolidated financial statements.
4
At Road, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Nine months ended
September 30,
2000 1999
---------- ----------
Cash flows from operating activities:
Net loss $(36,333) $ (5,219)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,042 82
Amortization of deferred stock compensation 9,814 1,000
Common stock issued for consulting services - 43
Change in assets and liabilities:
Accounts receivable (3,387) (289)
Inventories (5,436) (1,028)
Deferred product costs and other current assets (6,616) (735)
Accounts payable 3,496 878
Accrued liabilities 1,962 557
Deferred revenue and other long term liabilities 4,583 438
---------- ----------
Net cash used in operating activities (29,875) (4,273)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (6,788) (471)
Proceeds from sale of property and equipment 100 -
Purchase of short-term investments (61) (12,009)
Proceeds from maturities of short-term investments 11,299 -
Purchase of restricted short-term investments (89) (2,000)
Cash paid in purchase of Differential Corrections, Inc. and
Hynet Technologies assets, net of cash acquired (3,363) -
Other assets (1,367) -
---------- ----------
Net cash used in investing activities (269) (14,480)
---------- ----------
Cash flows from financing activities:
Borrowings under line-of-credit agreements, net - 1,000
Proceeds from sale of preferred stock 32,049 23,167
Proceeds from sale of common stock 794 172
Issuance of note receivable related to previous issuance of
common stock (80) -
Initial public offering costs (1,627) -
--------- ---------
Net cash provided by financing activities 31,136 24,339
--------- ----------
Net increase in cash and cash equivalents 992 5,586
Cash and cash equivalents
Beginning of period 22,714 5,356
--------- ----------
Ending of period $ 23,706 $ 10,942
========= ==========
Supplemental disclosure of cash flow information--Cash paid $ - $ 4
for interest
========== ==========
Noncash investing and financing activities:
Issuance of common stock for notes receivable $ 1,470 $ -
========== ==========
Purchase of Differential Corrections, Inc. and Hynet
Technologies assets:
Value of stock issued $ 1,592 $ -
Cash paid 4,014 -
Liabilities assumed 215 -
---------- ----------
Assets acquired (including intangibles of $4,969) $ 5,821 $ -
========== ==========
See accompanying notes to condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Regulation S-X promulgated under the
Securities and Exchange Act of 1934. Correspondingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial information. The balance sheet at December
31, 1999 was derived from audited financial statements included in the Company's
Registration Statement on Form S-1. In the opinion of management the financial
statements include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial condition, results of
operations, and cash flows for such periods. Results of operations are not
necessarily indicative of results for any other interim period or for the full
year. These financial statements should be read in conjunction with the
Company's Registration Statement on Form S-1 (No. 333-41372) filed, and declared
effective, on September 28, 2000 by the Securities and Exchange Commission.
Note 2 - Initial Public Offering
On September 28, 2000, the Company entered into an agreement to sell
approximately 7,000,000 shares of common stock at an offering price of $9.00
per share through an initial public offering. All of the shares sold in the
offering were sold by the Company. The gross proceeds from the initial public
offering were approximately $63,000,000 and the Company estimates it will
incur approximately $6,000,000 in costs in connection with the offering. As
the proceeds from the offering were not received until October 4, 2000, the
Company has recorded a subscription receivable, net of underwriters'
commissions, in the amount of $58,600,000 at September 30, 2000. Upon
completion of the offering, each outstanding share of the Company's convertible
preferred stock was converted into one share of common stock.
In connection with the Company's Registration Statement on Form S-1 (no. 333-
41372) dated September 28, 2000, the Company filed an amended and restated
certificate of incorporation that authorized 100,000,000 shares of common stock
and 5,000,000 shares of undesignated preferred stock.
Note 3 - Basic and Diluted Loss Per Share
Basic and diluted net loss per share is computed by dividing the loss
attributable to common stockholders by the weighted average number of shares of
common stock outstanding for the period (excluding shares subject to
repurchase). Diluted loss per common share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Common share equivalents are excluded
from the computation in loss periods, as their effect would be antidilutive.
Pro forma basic and diluted net loss per common share is computed by dividing
the loss attributable to common stockholders by the weighted average number of
common shares outstanding for the period (excluding shares subject to
repurchase) plus the weighted average number of common shares resulting from the
conversion of outstanding shares of convertible preferred stock upon closing of
the initial public offering in October 2000.
The following is a reconciliation of the denominators used in calculating basic
and diluted net loss per share (in thousands):
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
---------------------------- ----------------------------
Weighted average common shares outstanding 10,112 4,621 8,752 3,337
Weighted average common shares outstanding
subject to repurchase (3,891) (1,500) (4,250) (736)
------ ------ ------ ------
Shares used in computation, basic and diluted 6,221 3,121 4,502 2,601
====== ====== ====== ======
Weighted average preferred stock outstanding 28,852 23,120 27,408 18,993
Shares used in computing pro forma per share
amounts on a converted basis 35,073 26,241 31,910 21,594
====== ====== ====== ======
6
The total number of options, restricted stock subject to repurchase, and
preferred stock excluded from diluted net loss per share computation for the
three and nine months ended September 30, 2000 and 1999 were as follows (in
thousands):
September 30,
2000 1999
-------- --------
Convertible preferred stock 28,890 23,120
Shares of common stock subject to repurchase 3,526 1,500
Outstanding options and stock purchase rights 5,015 5,026
Note 4 - Balance Sheet Items
Inventories consist of raw materials, work in process and finished goods, and
are stated at the lower of cost (average cost) or market and consist of the
following (in thousands):
September 30, December 31,
2000 1999
-------------------- --------------------
Raw materials $4,599 $1,095
Work in process 1,408 338
Finished goods 1,312 447
------ ------
Total $7,319 $1,880
====== ======
Deferred product costs and other current assets consists of the following (in
thousands):
September 30, December 31,
2000 1999
-------------------- --------------------
Current deferred product costs $5,543 $1,282
Prepaid expenses and other 304 204
------ ------
Total $5,847 $1,486
====== ======
Deferred product costs, intangibles, and other assets consist of the following
(in thousands):
September 30, December 31,
2000 1999
-------------------- --------------------
Purchased technology, net $4,141 $ -
Deferred product costs 2,849 594
Other 1,554 188
------ -----
Total $8,544 $ 782
====== =====
7
Deferred revenue and other long term liabilities consist of the following (in
thousands):
September 30, December 31,
2000 1999
-------------- -------------
Deferred revenue $2,543 $464
Deferred rent 312 6
Other liabilities 28 28
------ ----
Total $2,883 $498
====== ====
Note 5 - Comprehensive Loss
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, requires that an enterprise report, by major components
and as a single total, the change in its net assets during the period from
nonowner sources. At December 31, 1999 and September 30, 2000, accumulated
other comprehensive loss, comprised of unrealized losses on short-term
investments, were $21,000 and $7,000, respectively.
Note 6 - Segment Reporting
Effective January 1, 1999, the Company adopted SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. In 1999 and the nine months
ended September 30, 2000 the Company operated in a single reportable segment.
The Company plans to evaluate additional segment disclosure requirements as it
expands its operations. The Company had no significant revenues from customers
outside of the United States in three months and nine months ended September
30, 1999 and 2000 and had no significant long-lived assets deployed outside
the United States as of December 31, 1999 and September 30, 2000.
Note 7 - Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for the Company's fiscal year ending December 31, 2001. Management
believes that this statement will not have a significant impact on the Company's
financial position, results of operations or cash flows.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Except for the historical information contained herein, the matters discussed
in this Form 10-Q are forward-looking statements involving risks and
uncertainties that could cause actual results to differ materially from those
in such forward-looking statements. Potential risks and uncertainties include,
but are not limited to, our historical and future losses, limited operating
history, the infancy of the wireless data industry where there is no
established market for our products and services, our ability to adapt to
rapid technological change, our reliance on a limited number of customers and
our dependence on wireless networks, network infrastructure and positioning
systems owned and controlled by others. Further information regarding these
and other risks is included in our Registration Statement on Form S-1 (No. 333-
41372) dated September 28, 2000 and in our other filings with the Securities
and Exchange Commission. You should read the following description of our
financial condition and results of operations in conjunction with our
financial statements and notes thereto included in this Form 10-Q and within
our Registration Statement on Form S-1 (No. 333-41372) dated September 28,
2000.
Overview
We integrate Global Positioning System technology, wireless communications and
the Internet to enable companies to efficiently manage their mobile resources
with location-relevant and time-sensitive information. Our service is an easy-
to-use, cost-effective, Internet-based service for vehicle management that
provides location, reporting, dispatch, messaging and management services. Our
service allows customers to use our website to track the movement of their
vehicles, employees, and goods and services, and enables
8
two-way messaging between our customers and their mobile workers. We believe
our service provides significant value to our customers by our customers'
reducing costs and increasing their efficiency.
From July 1996 through June 1998, our operations consisted primarily of various
start-up activities relating to our current business, including development of
Global Positioning System technologies, recruiting personnel and raising
capital. We did not recognize any revenues prior to June 1998, and our expenses
consisted of research and development, sales and marketing and general and
administrative expenses. In 1998, we expanded our strategy and redirected our
focus to provide location-relevant and time-sensitive information services and
solutions to companies managing mobile resources.
In the second half of 1998, we introduced FleetASAP (SM), a cost-effective
service that leverages existing infrastructure, including the Global
Positioning System, wireless networks and the Internet, to enable companies to
efficiently manage their mobile resources. Our solution includes a proprietary
hardware and software platform that integrates wireless Internet connectivity
with a Global Positioning System receiver. The platform is installed in each
vehicle and receives signals transmitted from Global Positioning System
satellites to determine the location and velocity of the vehicle. These data
are transmitted over wireless networks and the Internet to our network of
secure servers. Our customers can retrieve the information from our website
using an Internet browser. Because the customer data and solution software
reside on our Internet infrastructure, our customers do not need to make a
substantial investment in infrastructure and support to use our services.
Since 1998, we have derived substantially all of our revenues from the sale of
our service and the associated platform hardware. Our service revenue is
comprised of monthly fees. Our customers can contract to receive our services
for terms of one, two or three years and can purchase enhanced features for
additional charges. As more customers use our service, the impact on our service
revenue is compounded. Our product revenue is comprised of sales of our Internet
Location Manager and Internet Data Terminal. We defer platform costs in amounts
equal to or less than the related deferred product revenue. Since the selling
prices of our platforms are often below our costs, we expense a portion of the
platform costs at the time of shipment and the remaining deferred platform costs
are amortized ratably over the minimum service contract period.
We recognize service revenue over the period during which services are
performed, commencing with product installation. Product revenue is deferred and
recognized ratably over the minimum service contract period. Allowances for
sales returns are recorded at the time product revenue is recognized.
To date, we have not sold our service outside the U.S. and Canada; however, we
intend to expand our service offerings to additional countries in 2001. We do
not expect that revenues from international sales will be material in 2000.
On September 28, 2000, we entered into an agreement to sell approximately 7.0
million shares of common stock at an offering price of $9.00 per share through
an initial public offering. The gross proceeds from the initial public offering
were approximately $63.0 million and we estimate we will incur approximately
$6.0 million in costs in connection with the offering. As the proceeds from
the offering were not received until October 4, 2000, we recorded a
subscription receivable, net of underwriters' commissions, in the amount of
$58.6 million at September 30, 2000. Upon completion of the offering, each
outstanding share of our convertible preferred stock was converted into one
share of common stock. Prior to the closing of this offering, we completed its
reincorporation in Delaware.
We will incur substantial stock compensation expense in future periods, which
represents non-cash charges incurred as a result of the issuance of stock
options to employees and consultants. The charge related to options granted to
employees is recorded based on the difference between the deemed fair value of
the common stock and the option exercise price of such options at the date of
grant, which is amortized over the option-vesting period. The charge related to
options granted to consultants is calculated at the end of each reporting period
based on the Black-Scholes model, which approximates fair value and is amortized
based on the term of the consulting agreement or service period. The amount of
the charge in each period related to options granted to consultants can
fluctuate depending on our stock price and volatility. As of September 30, 2000,
deferred stock compensation was $11.0 million, which will be amortized in future
periods.
Since inception, we have invested substantially in research and development,
business development, marketing, advertising, the building of sales channels,
and our overall infrastructure. We anticipate that such investments will
continue to grow in the near future. We have incurred losses in each year since
inception and expect to incur net losses at least for the next several quarters.
As of September 30, 2000, we had an accumulated deficit of $52.5 million. Net
losses have increased in each quarter in 2000. Our limited operating history
makes it difficult to forecast future operating results. Even if we were to
achieve profitability in any period, we may not sustain or increase
profitability on a quarterly or annual basis.
9
Results of Operations
Three and Nine Months Ended September 30, 2000 and 1999
Service Revenue
Service revenue, which is comprised of monthly fees, increased from $145,000
to $2.4 million for the three months ended September 30, 1999 and 2000,
respectively. Service revenue grew from $187,000 for the nine months ended
September 30, 1999 to $4.9 million for the same period in 2000. This growth is
consistent with the increases in our installed base of subscribers.
Product Revenue
Product revenue rose from $80,000 for the three months ended September 30, 1999
to $698,000 for the same period in 2000. Product revenue rose from $136,000 for
the nine months ended September 30, 1999 to $1.5 million for the same period in
2000. This growth is consistent with the increases in our installed base
of subscribers.
Cost of Service Revenue
Cost of service revenue consists of employees' salaries and expenses related to
the delivery and support of our services, costs and expenses associated with
connecting our services to wireless networks and the Internet, and depreciation
of our Internet Service Center. Cost of service revenues increased from
$154,000 to $1.8 million for the three months ended September 30, 1999 and 2000,
respectively. Cost of service revenues grew from $224,000 for the nine months
ended September 30, 1999 to $3.9 million for the same period in 2000. The
growth in cost of service revenue resulted from increases in direct service
delivery expenses, service infrastructure and personnel costs.
Cost of Product Revenue
Cost of product revenue consists of the cost of our platforms, including the
Internet Location Manager, Internet Data Terminal and related parts, as well as
costs associated with the final assembly, test, delivery, and installation of
our products. The selling prices of our platforms are often below cost; we
defer platform costs (not in excess of related deferred product revenue) and, as
a result, we expense a portion of the platform costs at the time of shipment and
the remaining deferred product costs are amortized ratably over the minimum
service contract period. We expect this practice will continue for the
foreseeable future as we continue to expand our installed base and as we view
product installation as enabling our core service business. We expect the impact
of this practice on future liquidity will be minimal as our service revenue
stream expands. Cost of product revenue rose from $613,000 for the three months
ended September 30, 1999 to $1.9 million for the same period in 2000. Cost of
product revenue rose from $835,000 for the nine months ended September 30,1999
to $5.3 million for the same period in 2000. The increase in cost of product
revenue was attributable primarily to the expansion of our services and the
resulting increase in the number of customers using our services.
Sales and Marketing Expenses
Sales and marketing expenses consist of employee salaries, sales commissions,
and marketing and promotional expenses. Sales and marketing expenses grew from
$1.1 million for the three months ended September 30, 1999 to $4.4 million for
the same period in 2000. Sales and marketing expenses rose from $1.7 million
for the nine months ended September 30, 1999 to $11.3 million for the same
period in 2000. Sales and marketing headcount grew from 30 to 97 at September
30, 1999 and 2000, respectively. Related increases in salaries and other
compensation, sales commissions and marketing campaigns comprised the majority
of the increases for the three and nine month periods. We expect that sales
and marketing expenses will continue to increase as we hire additional personnel
and expand our sales channels.
Research and Development Expenses
Research and development expenses consist of employee salaries and costs related
to development personnel and consultants, as well as expenses associated with
software and hardware development. Research and development expenses grew from
$572,000 for the three months ended September 30, 1999 to $2.5 million for the
same period in 2000. Research and development expenses rose from $1.1 million
for the nine months ended September 30, 1999 to $6.6 million for the same period
in 2000. Research and development headcount grew from 15 to 90 at September 30,
1999 and 2000, respectively. Increases in compensation and consultant expenses
accounted for the majority of the increase in expenses. We expect that research
and development expenses may increase in future periods.
10
General and Administrative Expenses
General and administrative expenses consist of employee salaries and related
executive, administrative, and accounting expenses and professional fees,
recruiting, and allowances for aged receivables. General and administrative
expenses grew from $477,000 for the three months ended September 30, 1999 to
$3.2 million for the same period in 2000. General and administrative expenses
rose from $1.2 million for the nine months ended September 30, 1999 to $6.9
million for the same period in 2000. General and administrative headcount
increased from 11 to 52 at September 30, 1999 and 2000, respectively. Salaries
and other compensation, professional fees and allowances for aged receivables
accounted for the majority of the increases. We expect that general and
administrative expenses will continue to increase as we hire additional
personnel and incur related expenses in anticipation of the growth of the
business and our operation as a public company.
Intangibles Amortization
Intangibles amortization relates to the intangible assets purchased from
Differential Corrections, Inc. in April 2000, which are being amortized over an
estimated useful life of three years.
Stock Compensation Expense
Deferred stock compensation related to the granting of stock options to
employees and consultants was $11.0 million at September 30, 2000. Amortization
of deferred stock compensation expense increased from $637,000 for the three
months ended September 30, 1999 to $2.9 million for the same period in 2000 and
increased from $1.0 million for the nine months ended September 30, 1999 to $9.8
million for the same period in 2000.
Interest Income, net
Net interest income is comprised of interest earned on cash, cash equivalents,
and short-term investments. Net interest income increased from $351,000 for
the three months ended September 30, 1999 to $666,000 for the same period in
2000 and increased from $483,000 for the nine months ended September 30, 1999
to $1.8 million for the same period in 2000. These increases arise from
investments of proceeds from our convertible preferred stock financings
completed in June and December 1999 and January, June and July 2000.
Net Loss
Net loss increased from $3.0 million for the three months ended September 30,
1999 to $13.3 million for the same period in 2000 and increased from $5.2
million for the nine months ended September 30, 1999 to $36.3 million for the
same period in 2000. These increases are attributable to growth in our operating
costs from $2.8 million to $13.3 million and from $5.0 million to $35.4 million
for the three month and nine month periods ended September 30, 1999 and 2000,
respectively.
We believe period-to-period comparisons of our operating results are not
necessarily meaningful. You should not rely on them to predict future
performance. The amount and timing of our operating expenses may fluctuate
significantly in the future as a result of a variety of factors.
Liquidity and Capital Resources
As of September 30, 2000, we held $23.7 million in cash and cash equivalents and
$4.8 million in short-term investments, which include $2.0 million of restricted
short-term investments. We currently have a $2.0 million revolving line of
credit facility against which there were no borrowings at September 30, 2000.
The line, against which letters of credit may be issued, is collateralized by a
restricted certificate of deposit of $2.0 million. At September 30, 2000, we had
two standby letters of credit outstanding for a total of $895,000. The line of
credit expires in March 2001.
In July 2000, we issued 100,000 shares of Series E convertible preferred stock
at $10.00 per share for proceeds of approximately $1.0 million.
On September 28, 2000, we entered into an agreement to sell approximately
7.0 million shares of common stock at an offering price of $9.00 per share
through an initial public offering, and received net aggregate proceeds of
approximately $57.0 million after deducting underwriting discounts and
commissions and estimated offering costs. The transaction closed on
October 4, 2000 and as a result, was recorded as subscriptions receivable in our
financial statements for September 30, 2000.
11
Net cash used for operating activities was $4.3 million and $29.9 million for
the nine months ended September 30, 1999 and 2000, respectively. Cash used for
operating activities was attributable primarily to net losses and increases in
accounts receivable, inventory, and deferred product costs. These increases
were offset in part by amortization of deferred stock compensation, increases in
accounts payable and accrued liabilities, and deferred revenues. As of
September 30, 2000 approximately $1.8 million of our accounts receivable were
over 90 days old. We believe we have adequately provided allowances as of
September 30, 2000 for any such amounts that may ultimately become
uncollectible. We defer product costs at time of shipment and expense any
amounts in excess of the related product revenue at that time. We record
accounts receivable from our customers and defer related product revenue upon
installation. Both deferred product cost and revenue are recognized ratably
over the minimum service contract period. As a result of deferred product costs
being recorded at the time of shipment and deferred product revenue being
recorded at the time of installation, deferred product costs will generally
exceed deferred revenue as we grow our business.
Net cash used for investing activities was $14.5 million and $269,000 for the
nine months ended September 30, 1999 and 2000, respectively. Cash used in
investing activities for both periods was primarily due to excess cash invested
in corporate debt securities and U. S. Government securities.
Net cash provided by financing activities was $24.3 million and $31.1 million
for the nine months ended September 30, 1999 and 2000, respectively. Cash
provided by financing activities in each period came primarily from proceeds
from the issuance of convertible preferred stock.
We believe that our cash and cash equivalents, short-term investments, and
proceeds from our initial public offering will be sufficient to meet our
anticipated cash needs for operating expenses, working capital and capital
expenditures for at least the next 12 months. If cash generated from
operations is insufficient to satisfy our liquidity requirements, we may seek
to obtain a larger credit facility or to sell additional equity or debt
securities, which may not be available on commercially reasonable terms or at
all, and which could dilute existing stockholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Short-Term Investments
At September 30, 2000, we held $4.8 million in short-term investments,
consisting of investment grade financial instruments with original maturities of
three to eighteen months. These available-for-sale securities are subject to
interest rate risk and will fall in value if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10% from
levels at September 30, 2000, the fair market value of the short-term
investments would decline by an immaterial amount. We generally expect to have
the ability to hold fixed income investments until maturity and therefore would
not expect operating results or cash flows to be affected to any significant
degree by a sudden change in market interest rates on short-term investments.
Foreign Currency Exchange Rate
We transact business primarily in U.S. dollars. We are subject, however, to
adverse movements in foreign currency exchange rates in those countries where we
conduct business. To date, the effect of fluctuations in foreign currency
exchange rates on expenses has not been material. Operating expenses incurred by
our subsidiary in India are denominated in Indian rupees. This subsidiary was
formed in November 1999 to perform research and development activities. We hold
fixed-price agreements denominated in U.S. dollars with key foreign-based
suppliers. Orient Semiconductor Electronics, in Taiwan, manufactures the
Internet Location Manager; Novatel, in Canada, provides the modem for the
Internet Location Manager; Taiwan Semiconductor Manufacturing Company, in
Taiwan, manufactures our Global Positioning System receiver chips; Philsar
Electronics, in Canada, manufactures our radio frequency chips; and Micronet, in
Israel, supplies our Internet Data Terminal. Should there be a sustained
increase in average exchange rates for the local currencies in the foregoing
countries, our suppliers may request increased pricing on any new agreements. If
this were to occur for all of these currencies and with each of these suppliers,
a 10% increase in average exchange rates could increase our product costs by
approximately 9%.
We do not use derivative financial instruments for speculative trading purposes,
nor do we currently hedge any foreign currency exposure to offset the effects of
changes in foreign exchange rates. Similarly, we do not use financial
instruments to hedge operating expenses of our Indian subsidiary.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We have received a letter from the holder of two patents claiming that we
infringe its patents. We are in the process of reviewing the patents; however,
the ultimate outcome of this matter cannot be determined at this time. We are
presently a defendant in a lawsuit arising out of the recruitment of employees.
We are in the process of reviewing the claims alleged in this lawsuit and while
the ultimate outcome cannot be predicted with certainty, we believe this lawsuit
is immaterial and without merit.
Item 2. Changes in Securities and Use of Proceeds.
In July 2000, we issued 100,000 shares of Series E convertible preferred stock
at $10.00 per share for proceeds of approximately $1.0 million.
Upon the closing date of the Company's initial public offering, all 28,889,868
shares of convertible preferred stock outstanding (Series A through E-1) were
converted into 28,889,868 shares of common stock and retired.
On September 28, 2000, the Company's Registration Statement on Form S-1 (No.
333-41372) was declared effective by the Securities and Exchange Commission,
pursuant to which 7,000,000 shares of the Company's common stock were offered
and sold for the account of the Company at a price of $9.00 per share. The
offering was closed on October 4, 2000. The managing underwriters of the
offering were Credit Suisse First Boston Corporation, Chase H&Q, and U.S.
Bancorp Piper Jaffray. After deducting approximately $4.4 million in
underwriting discounts and $1.6 million in related offering expenses, the net
proceeds of the offering were approximately $57.0 million. The $57.0 million
will be invested in investment grade, interest bearing securities. The Company
intends to use such remaining proceeds for general corporate purposes, including
further development and commercialization of its products, infrastructure
development, research and development, business development, marketing,
advertising, the building of sales channels, working capital and capital
expenditures.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company submitted an action by written consent to its shareholders of record
as of July 20, 2000. The matters to be approved and the results of such approval
as of August 25, 2000 were as follows:
1. The reincorporation of the Company from California to Delaware by
means of a merger of the Company with and into a wholly-owned Delaware
subsidiary, which transaction also contemplates the execution of
indemnification agreements between such subsidiary and each of its
officers and directors, and amendments to such subsidiary's charter
documents.
FOR (29,641,938) AGAINST ( 0 ) ABSTAIN (9,036,751)
2. The adoption of the Company's 2000 Directors' Stock Option Plan and
the reservation of 1,200,000 shares of the Company's common stock for
issuance thereunder, effective upon the effectiveness of the Company's
Registration Statement on Form S-1.
FOR (29,641,938) AGAINST ( 0 ) ABSTAIN (9,036,751)
3. The adoption of the Company's 2000 Employee Stock Purchase Plan and
the reservation of 450,000 shares of the Company's common stock for
issuance thereunder, plus certain annual increases in the total shares
in each of the fiscal years 2001 through 2010.
FOR (29,641,938) AGAINST ( 0 ) ABSTAIN (9,036,751)
13
4. The adoption of the Company's 2000 Stock Option Plan and the
reservation of 2,000,000 shares of the Company's common stock for
issuance thereunder, plus certain annual increases in the total shares
in each of the fiscal years 2001 through 2010.
FOR (29,641,938) AGAINST ( 0 ) ABSTAIN (9,036,751)
5. The amendment and restatement of the Company's Certificate of
Incorporation, effective and contingent upon At Road Delaware's
proposed initial public offering of common stock, authorizing, among
other things: (a) the conversion of the Company's preferred stock to
the Company's common stock; and (b) the creation of 5,000,000 shares
of undesignated preferred stock.
FOR (29,641,938) AGAINST ( 0 ) ABSTAIN (9,036,751)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: 27.1 Financial Data Schedule
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AT ROAD, INC.
By: /s/ Thomas C. Hoster
---------------------------------
Thomas C. Hoster
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 14, 2000
15
EXHIBIT INDEX
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Number Description
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27.1 Financial Data Schedule.
16