@ROAD, INC - 10-Q Quarterly Report

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, 2004
OR



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-31511

@ROAD, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		94-3209170 (I.R.S. Employer 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 x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

As of November 1, 2004 there were 54,770,515 shares of the registrant’s Common Stock outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

@Road, Inc.

Condensed Consolidated Balance Sheets
(In thousands, except per share data) (unaudited)


	September 30,			December 31,
	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	20,849		$	103,669
Short-term investments		93,931			2,000
Accounts receivable		6,536			7,109
Inventories		3,274			2,425
Deferred product costs		11,566			11,921
Prepaid expenses and other		987			1,269

Total current assets		137,143			128,393
Property and equipment, net		2,266			2,298
Deferred product costs		6,693			7,270
Intangible assets, net		—			28
Other assets		330			1,027

Total assets	$	146,432		$	139,016

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,927		$	5,057
Accrued liabilities		5,105			5,465
Deferred revenue and customer deposits		10,234			9,751

Total current liabilities		19,266			20,273
Deferred revenue		5,534			6,582
Other long-term liabilities		6			33

Total liabilities		24,806			26,888
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000 shares authorized, shares issued and outstanding: none at September 30, 2004 and December 31, 2003		—			—
Common stock, $0.0001 par value, 250,000 shares authorized, shares issued and outstanding: 54,532 at September 30, 2004, 53,700 at December 31, 2003		230,898			228,441
Deferred stock compensation		—			(4	)
Notes receivable from stockholders		—			(87	)
Accumulated other comprehensive loss		(156	)		—
Accumulated deficit		(109,116	)		(116,222	)

Total stockholders’ equity		121,626			112,128

Total liabilities and stockholders’ equity	$	146,432		$	139,016

See notes to condensed consolidated financial statements.

@Road, Inc.

Condensed Consolidated Statements of Operations
(In thousands, except per share data) (unaudited)


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2004			2003		2004			2003
Revenues:
Service	$	14,920		$	13,113	$	43,332		$	35,851
Product		4,182			3,503		11,993			10,275

Total revenues		19,102			16,616		55,325			46,126

Costs and expenses:
Cost of service revenue (excluding intangibles amortization included below)		4,206			3,782		12,447			11,840
Cost of product revenue		4,376			5,249		13,172			15,078
Intangibles amortization		7			11		28			445
Sales and marketing		2,929			2,907		9,122			8,344
Research and development		1,695			1,386		4,493			4,019
General and administrative		3,240			2,189		7,793			6,847
Terminated acquisition costs		139					2,156
Stock compensation(*)		—			154		4			441

Total costs and expenses		16,592			15,678		49,215			47,014

Income (loss) from operations		2,510			938		6,110			(888	)

Other income (expense), net:
Interest income, net		426			151		1,009			436
Other income (expense), net		(6	)		6		(13	)		17

Total other income (expense), net		420			157		996			453

Net income (loss)	$	2,930		$	1,095	$	7,106		$	(435	)

Net income (loss) per share:
Basic	$	0.05		$	0.02	$	0.13		$	(0.01	)

Diluted	$	0.05		$	0.02	$	0.12		$	(0.01	)

Shares used in calculating net income (loss) per share:
Basic		54,498			50,689		54,156			48,821

Diluted		56,199			55,813		57,424			48,821

(*)Stock compensation:
Cost of service revenue	$	—		$	2	$	—		$	9
Cost of product revenue		—			11		—			25
Sales and marketing		—			13		1			23
Research and development		—			36		1			86
General and administrative		—			92		2			298

Total	$	—		$	154	$	4		$	441

See notes to condensed consolidated financial statements.

@Road, Inc.

Condensed Consolidated Statements of Stockholder’s Equity and Comprehensive Income
For the Nine Months Ended September 30, 2004 and 2003
and the Three Months Ended December 31, 2003
(In thousands) (unaudited)


									Notes			Accumulated
	Common Stock					Deferred			Receivable			Other									Total
						Stock			From			Comprehensive			Accumulated			Stockholders’			Comprehensive
	Shares		Amount			Compensation			Stockholders			Loss			Deficit			Equity			Income (Loss)
BALANCES, January 1, 2003		47,747	$	170,610		$	(491	)	$	(2,068	)	$	—		$	(117,884	)	$	50,167
Net loss																(435	)		(435	)	$	(435	)

Common stock issued through second public offering, net of issuance costs		4,000		51,850															51,850
Shares issued under employee stock purchase plan		288		595															595
Exercise of stock options		1,185		3,614															3,614
Collection of notes receivable from stockholders										1,981									1,981
Deferred stock compensation				5			(5	)
Reversal of deferred stock compensation due to employee terminations				(25	)		25
Amortization of deferred stock compensation		—		—			441			—			—			—			441

BALANCES, September 30, 2003		53,220		226,649			(30	)		(87	)		—			(118,319	)		108,213
Net (loss) income																2,097			2,097		$	2,097

Common stock issued through secondary public offering, net of issuance costs				39															39
Shares issued under employee stock purchase plan		275		889															889
Exercise of stock options		205		864															864
Collection of notes receivable from stockholders
Amortization of deferred stock compensation		—		—			26			—			—			—			26

BALANCES, December 31, 2003		53,700		228,441			(4	)		(87	)		—			(116,222	)		112,128
Net income																7,106			7,106		$	7,106
Unrealized gain (loss) loss on short-term investments													(156	)					(156	)		(156	)

Comprehensive income																					$	6,,950

Shares issued under employee stock purchase plan		243		1,129															1,129
Exercise of stock options		589		1,328															1,328
Collection of notes receivable from stockholders										87									87
Amortization of deferred stock compensation		—		—			4			—			—			—			4

BALANCES, September 30, 2004		54,532	$	230,898		$	—		$	—		$	(156	)	$	(109,116	)	$	121,626

See notes to condensed consolidated financial statements.

@Road, Inc.

Condensed Consolidated Statements of Cash Flows
(In thousands) (unaudited)


	Nine Months Ended
	September 30,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	7,106		$	(435	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Write-off of deferred acquisition costs		1,095			—
Depreciation and amortization		939			1,862
Loss on disposal of property and equipment		—			6
Amortization of deferred stock compensation		4			441
(Reversal) provision for inventory reserves		(27	)		1,071
(Reversal) provision for doubtful accounts and sales returns		(546	)		(68	)
Change in assets and liabilities:
Accounts receivable		1,119			627
Inventories		(822	)		1,998
Deferred product costs		932			(3,253	)
Prepaid expenses and other		(116	)		62
Accounts payable		(1,130	)		(993	)
Accrued and other liabilities		(387	)		1,152
Deferred revenue and customer deposits		(565	)		3,079

Net cash provided by operating activities		7,602			5,549

Cash flows from investing activities:
Purchase of property and equipment		(879	)		(1,094	)
Purchase of short-term investments		(123,016	)		—
Proceeds from the sale of short-term investments		30,929			241

Net cash used in investing activities		(92,966	)		(853	)

Cash flows from financing activities:
Proceeds from sale of common stock		2,457			56,059
Proceeds from payments on notes receivable issued to stockholders		87			1,981

Net cash provided by financing activities		2,544			58,040

Net increase (decrease) in cash and cash equivalents		(82,820	)		62,736
Cash and cash equivalents:
Beginning of period		103,669			35,659

End of period	$	20,849		$	98,395

Non-cash investing and financing activities:
Deferred stock compensation	$	—		$	5

Reversal of deferred stock compensation	$	—		$	25

Unrealized loss on short-term investments	$	(156	)	$	—

See notes to condensed consolidated financial statements.

@Road, Inc.

Notes To Condensed Consolidated Financial Statements
(unaudited)

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements were prepared by @Road, Inc. (Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made herein are adequate to make the information presented not misleading. In the opinion of management, the financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the financial condition, results of operations, and cash flows for the periods presented. Results of operations for the periods presented are not necessarily indicative of results to be expected for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto in its Form 10-K for the year ended December 31, 2003 (No. 000-31511), filed with the SEC.

Motorola is the sole supplier of microcontrollers used in the Company’s products. The Company expects to rely on Motorola as a source for this component for the next several years. Taiwan Semiconductor Manufacturing Company (TSMC) is the sole manufacturer of the Company’s Global Positioning System digital receiver chips used in some of the Company’s products. The Company expects to rely on TSMC as a source for this component for at least the next twelve months.

Note 2 — Basic and Diluted Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common stock, composed of unvested, restricted common stock and incremental shares of common stock issuable upon the exercise of stock options, are included in diluted net income (loss) per share to the extent such shares are dilutive. Potentially dilutive shares that are anti-dilutive, as calculated based on the weighted average closing price of our common stock for the period, are excluded from the calculation of diluted net income (loss) per share. Common share equivalents are excluded from the computation in loss periods, as their effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted net income per share for the periods indicated (in thousands, except per share data):


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2004		2003			2004			2003
Net income (loss)	$	2,930	$	1,095		$	7,106		$	(435	)
Shares (denominator):
Basic
Weighted average common shares outstanding		54,498		50,797			54,161			49,016
Weighted average common shares outstanding subject to repurchase		—		(108	)		(5	)		(195	)

Shares used in computation of basic net income (loss) per share		54,498		50,689			54,156			48,821
Diluted
Dilution impact from option equivalent shares		1,663		4,815			3,233			n/a
Dilution impact from employee stock purchase plan		38		201			30			n/a
Add back weighted average common shares subject to repurchase		—		108			5			n/a

Shares used in computation of diluted net income (loss) per share		56,199		55,813			57,424			48,821

Basic net income (loss) per share	$	0.05	$	0.02		$	0.13		($	0.01	)
Diluted net income (loss) per share	$	0.05	$	0.02		$	0.12		($	0.01	)

Employee stock options to purchase approximately 3,944,000 shares with a weighted average exercise price of $8.10 and approximately 97,000 shares with a weighted average exercise price of $13.33 for the three months ended September 30, 2004 and 2003, respectively, and approximately 1,689,000 shares with a weighted average exercise price of $11.11 and approximately 1,135,000 shares with a weighted average exercise price of $9.74 for the nine months ended September 30, 2003, respectively, were

outstanding, but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. Common stock subject to repurchase of approximately 79,000 shares with a weighted average repurchase price of $0.89 as of September 30, 2003, were outstanding, but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Note 3 — Balance Sheet Components

Inventories consists of raw materials, work in process and finished goods, and are stated at the lower of cost (average cost) or market and consisted as follows (in thousands):


	September 30,		December 31,
	2004		2003
Raw materials	$	971	$	1,294
Work in process		285		177
Finished goods		2,018		954

Total	$	3,274	$	2,425

Deferred revenue and customer deposits (excluding long-term deferred revenue) consisted as follows (in thousands):


	September 30,		December 31,
	2004		2003
Deferred revenue	$	9,853	$	9,341
Customer deposits		381		410


PART I.	FINANCIAL INFORMATION	3
	Item 1. Financial Statements.	3
	Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003.	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2004 and 2003.	4
	Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2004, and September 30, 2003 and the three months ended December 31, 2003.	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003.	6
	Notes to Condensed Consolidated Financial Statements.	7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	11
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	27
	Item 4. Controls and Procedures.	28
PART II.	OTHER INFORMATION	29
	Item 1. Legal Proceedings.	29
	Item 6. Exhibits.	29
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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