##### Table of Contents



Form 10-KSB U.S. SECURITIES AND EXCHANGE COMMISSION  (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934For the fiscal year ended: September 30, 2004o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934For the transition period from  toCommission file number: 0-27166
 XATA CORPORATION 
  Minnesota
    
    41-1641815(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)151 East Cliff Road, Suite 10, Burnsville, Minnesota
    
    55337(Address of principal executive offices)
    
    (Zip Code)
 Issuers telephone number: (952) 707-5600 Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.01 par value 
  Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ    Noo Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. o State issuers revenues for its most recent fiscal year: $18,931,579.




---



##### Table of Contents



The aggregate market value of the voting stock held by non-affiliates of the
registrant was $24,990,000 as of November 30, 2004, based upon the closing sale
price on the Nasdaq Small Cap Market reported for such date. Shares of Common
Stock held by each officer and director and by each person who owns 10% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. There were 7,281,785 shares of the registrants Common Stock issued and
outstanding as of December 15, 2004. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10-KSB incorporates information by reference from the
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
February 17,2005 to the extent stated herein. Except with respect to
information specifically incorporated by reference in this Form 10-KSB, the
Proxy Statement is not deemed to be filed as a part of this Report. It is
anticipated that the Proxy Statement will be filed with the Commission not
later than January 14, 2005. In addition, there are incorporated by reference
in this Report certain previously filed exhibits identified in Part III, Item
13. ii




---



TABLE OF CONTENTS PagePART IItem 1. Description of Business
    
    
    1Item 2. Description of Property
    
    
    17Item 3. Legal Proceedings
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17PART IIItem 5. Market for Common Equity, Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities
    
    
    18Item 6. Managements Discussion and Analysis or Plan of Operation
    
    
    20Item 7. Financial Statements
    
    
    25Item 8. Changes In and Disagreement with Accountants on Accounting and
Financial Disclosure
    
    
    25Item 8A. Controls and Procedures
    
    
    25Item 8B. Other Information
    
    
    25PART IIIItem 9. Directors and Executive Officers of the Registrant
    
    
    26Item 10. Executive Compensation
    
    
    26Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    27Item 12. Certain Relationships and Related Transactions
    
    
    27Item 13. Exhibits and Reports on Form 8-K
    
    
    27Item 14. Principal Accountant Fees and Services
    
    
    30SIGNATURESAmended Restricted Stock Award AgreementLoan and Security Agreement with Silicon Valley BankEarnings Per Share ComputationAmended Code of EthicsConsent of Grant Thornton LLPCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  iii




---



##### Table of Contents



Forward Looking Statements This report includes forward-looking statements based on current expectations.
Actual results may differ materially. These forward-looking statements involve
a number of risks and uncertainties about us, our business, our customers, and
the economy and business environment in general. Risks and uncertainties about
us include, for example, the following:  
    
    We incurred operating losses in our most recent fiscal year, and
such losses are likely to continue in the next fiscal year.  
    
    We may be unable to adapt to technological change quickly enough to
grow or to retain our customer base.  
    
    We will continue to be dependent upon positioning systems and
wireless communication networks owned and controlled by others, and
accordingly, their problems may adversely impact us.  
    
    We have made certain volume purchase commitments for satellite
communication services that may exceed our customer demand
requirements.  
    
    For the foreseeable future, we are dependent upon the continued
receipt and fulfillment of new orders for our current products.  
    
    Our growth and profitability depend on our timely introduction and
market acceptance of new products, our ability to continue to fund
product development activities, and our ability to establish and
maintain strategic partner relationships. Trademark Notice XATA®, OpCenter®, XATANET, SmartCom, Position Plus, Yard
Express and XATA MobileSync are all trademarks of XATA Corporation. XATA®and OpCenter® are registered with the U.S. Patent and Trademark
Office. 
 PART I 
 Item 1. Description of Business About XATA XATA was founded in 1985 to address the demand for onboard information systems
for the private fleet trucking industry. Over 20 years, we have developed a
deep understanding of the requirements of fleet operators to control costs and
maximize vehicle and driver performance. Today, we are a leading provider of
onboard fleet management systems for the private fleet trucking market. Our
products seamlessly combine global positioning, wireless communications, the
Internet and fleet management software to provide an enterprise fleet
management system for many of North Americas largest trucking fleets. XATA was the first to provide completely paperless electronic logs,
exception-based management and learned standards for accurate fleet
intelligence. Our first-generation products, introduced in the early 1990s,
included our revolutionary Driver Computer and 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. In
the late 1990s we integrated wireless communications enabling
real-time data exchange with the mobile units and upgraded our host software to
OpCenter, an advanced Windows-based platform. 1




---



##### Table of Contents



While our OpCenter system continues to be a leading solution for large private
trucking fleets, we believe that there is significant growth potential for our
next-generation Web-based XATANET 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 our new fleet management products will enable
us to significantly broaden our penetration of the commercial trucking market. We began shipping our XATANET system in fiscal 2003 utilizing the satellite
communication network of ORBCOMM LLC. Since the initial release, we have added
additional application functionality and wireless communication options,
including 802.11b Wi-Fi and digital cellular services. In 2000, we formed a strategic alliance with John Deere Special Technologies
Group, Inc. (JDSTG), a subsidiary of Deere & Company, to enable us to
accelerate our product development initiatives and more effectively distribute
our new products to both new and existing markets. As part of the
relationship, Deere provided debt financing and made two equity investments in
XATA. Deere now holds common stock representing 24% of our outstanding common
stock, calculated on a pro forma basis, assuming conversion of all outstanding
preferred stock to common stock. In December 2003, Trident Capital invested approximately $4.2 million in our
company by acquiring 1,612,903 shares of convertible preferred stock. On an
as-converted basis, Trident Capital now owns approximately 19% of our company
(the details of this transaction is further disclosed in Part II, Item 5 of
this report). Trident Capital, a private equity firm with more than $1.2
billion under management, focuses on investments in the information services
and enterprise software sectors. The additional capital has allowed us to
continue expanding our product development, distribution and marketing efforts,
and provided a strong endorsement of our plans for future growth. Trucking Industry Background and Trends Private fleets and for-hire carriers comprise the two major fleet categories
within the commercial trucking industry. Private fleets (our current market
focus) 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 trucking and 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, fuel, drivers, insurance, maintenance, dispatchers 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. We
believe there is, and will continue to be, significant demand in the trucking
industry for onboard fleet management systems, principally because the use of
this technology enables fleet operators to reduce expenses, respond to
competitive pressures and improve customer service. We believe the following trends continue to impact the private fleet trucking
industry, resulting in increasing competitive pressures and demand for mobile
information technology:  
    
    New technologies: Historical barriers to purchase are
diminishing with the affordability, simplicity and acceptance of new
wireless communication and internet technologies. 2




---



##### Table of Contents




    
    Increased operating costs: Fuel, insurance, driver salaries
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.  
    
    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.  
    
    E-commerce: 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 Internet technologies 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 onboard computers with the host information systems
of trucking fleet operators.  
    
    Government regulations: Increasing government regulations
have tightened U.S. Department of Transportation (DOT) driver log
requirements. 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. The FMCSA is currently evaluating the benefit of onboard
systems to increase hours-of-service compliance, and in turn,
highway safety. We believe computer generated driver logs may
eventually be mandated by federal or state governments. The extensive hours-of-service regulations imposed by the FMCSA are compounded
by additional regulation in each of the 50 states. In general, 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. To complicate an already large paperwork requirement, these 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 driver log compliance. Our systems are designed to automate compliance
with each of these regulatory requirements. Our Products and Services XATA provides powerful, advanced, yet user-friendly computer systems used by
manufacturing, distribution, petroleum and other operators of trucking fleets
to reduce fuel costs, increase operational efficiencies, improve safety and
enhance customer service. Our product offerings consist of OpCenter, our comprehensive Windows-based
fleet management system, and XATANET, our next-generation Web-based fleet
management system. Our products
perform the following functions to enable fleet operators to control costs and
maximize vehicle and driver performance:  
    
    Mobile two-way messaging and real-time vehicle location.  
    
    Automation of DOT driver log requirements and state fuel tax reporting. 3




---



##### Table of Contents




    
    Comprehensive vehicle and driver performance reporting.  
    
    Efficient routing, trip optimization and stop activity scheduling.  
    
    Diagnostic and accident data capture. These systems integrate data generated within the truck as well as data
received via GPS (Global Positioning System) into either a Windows- or
Web-based user interface, enabling fleet managers to measure fleet performance,
resolve exception conditions, monitor ongoing operations and perform detailed
analyses. XATANET Fleet Management System Our newest product line, XATANET, is the evolution of our most successful
software applications to a Java and Internet based architecture. As a modular
Java-based suite of software applications, XATANET can be used with different
types of computing hardware, communication networks and peripheral devices.
This also allows our customers to install only the specific application
packages that fit their current needs and offers them the flexibility to scale
their system configurations, buying additional XATANET applications as their
needs evolve. We offer several wireless communications options with XATANET, including
satellite, digital cellular and 802.11b Wi-Fi, as well as combinations of these
networks operating in a single mobile unit. XATANET dramatically reduces
training time and expense because the system allows information from certain
applications to be automatically sent to the host system without driver
involvement. The XATANET system consists of the following components:  
    
    XATANET Mobile - An onboard operating system that manages the
vehicle data network interface, GPS, wireless communication,
application management, driver interfaces and other peripheral
devices. It supports, via a Java virtual machine, any mix of
Java-based independent software applications. This system operates
on our XATA Application Module mobile computing and communication
device.  
    
    XATANET Gateway - A PC-based system that is located at fleet
specified sites to exchange data with drivers and vehicles that
choose to utilize yard-based 802.11b Wi-Fi communication capability.
The XATANET Gateway connects to yard antennas to exchange data with
drivers or vehicles. The gateway is also connected to the Internet
which allows data exchange with the XATANET Server and directly with
authorized system users. This system component is not required if
the customer chooses to use satellite or digital cellular wireless
communication networks for data exchange.  
    
    XATANET Server - An Internet-based server that collects
information from XATANET Mobile and XATANET Gateway systems,
processes and stores that information, and presents the information
to users on demand and by automatic exception communication.
This server is designed to handle large enterprises, multiple fleets,
and multiple carriers in a
single centralized, XATA-managed system
while allowing secure access to specific data by users that can use an
Internet browser from any PC at any location. We currently offer Bronze, Silver, Gold and Platinum service packages that
include a roof-mounted XATA Application Module containing the XATANET Mobile
system and selected applications. No driver training is required for the Bronze
package because these applications do not require a driver 4




---



##### Table of Contents



interface. This
immediately benefits vehicle owners and provides for the future expansion of
software applications and hardware components as future requirements unfold.
With the addition of our Micro Driver Display, the Silver, Gold and Platinum
packages offer additional functionality to more effectively manage a trucking
fleet, including automated fuel tax accounting, two-way messaging, automated
DOT driver logging and driver dispatching. A typical XATANET customer purchases a XATA Application Module with our in-cab
micro display for each vehicle, and enters into a service agreement that
provides access to the Web-based XATANET Server as well as online and telephone
support. New software applications and updates to existing software
applications can be downloaded wirelessly to each vehicle utilizing our
patent-pending XATA MobileSync over-the-air application management tool. When combined with our XATA Application Module mobile computing and
communication device, XATANET eliminates costly and time consuming hardware
installation and extensive training of drivers and system operators, which are
the major impediments typically associated with implementing onboard computer
systems. XATANET significantly reduces the time required for deployment of an
initial vehicle system because we host the central management system over the
Web, enabling our customers to avoid a complicated host system implementation.
In addition, many of the XATANET applications do not require driver
involvement, which eliminates driver training and improves data integrity. OpCenter Fleet Management System Our OpCenter system enables managers to achieve measurable fleet performance
and productivity improvements by integrating 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. The Driver Computer has a touch-sensitive, easy-to-read, user-friendly screen
that provides instant feedback to the driver. Our Driver Computer is well
accepted by drivers because it is easy to use and acts as an onboard
information advisor. Each driver has an electronic Driver Key that stores his
identity, log, dispatch, and trip data and is a means of electronically
transferring information to and from the Driver Computer and Data Station.
Data Stations are located where drivers begin and end their trips, and provide
dispatch data on a Driver Key at the beginning of each trip and offload actual
trip data from the Driver Key at the end of each trip. Our OpCenter Fleet Management Software operates in a multi-user, Windows NT
environment and is capable of managing 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. OpCenter provides a
decision support tool for the entire distribution team. This system reduces
operating costs, improves safety, streamlines compliance reporting and
automates data collection for other systems. By integrating all fleet
operations under one Windows NT-based desktop workstation, our suite of
intelligent applications help users efficiently measure fleet performance,
resolve exception conditions, monitor ongoing operations and perform detailed
analysis. When integrated with optional satellite, digital cellular or 802.11b Wi-Fi
wireless communications, OpCenter provides immediate access to critical onboard
information. Its real-time notification is triggered by user-defined onboard
conditions, ensuring that only critical information is reported to fleet
management. Detecting and processing of exception conditions only improves
operating efficiency while minimizing recurring communication charges. 5




---



##### Table of Contents



XATA Application Module The XATA Application Module is our mobile computing and communication platform
for both our OpCenter and XATANET systems. It incorporates a powerful, rugged
microprocessor with a twelve channel GPS receiver to process data and record
vehicle location and is housed in a UV resistant plastic dome and a rugged
aluminum base. The modules optional communication features can transfer data
wirelessly via satellite, digital cellular or 802.11b Wi-Fi wireless
communication networks. It can be mounted on a mirror strut, faring strut, or
any other location that has a clear GPS signal path. The self-locking sealed
cable connector requires no screws or bolts and seals the module and cable from
outside elements. Our latest-generation, dual-mode XATA Application Module utilizes both the
ORBCOMM satellite and Sprint digital cellular networks in a single unit to
provide high-bandwidth, low latency, ubiquitous coverage. Our patent pending
XATA MobileSync over-the-air application management instantly makes new
features available and reduces the cost of updating software in the vehicle,
allowing fleets to select and implement additional applications on the fly
and overcoming the traditional implementation bottlenecks associated with
onboard technology. Our SmartCom LCR (least-cost-routing) uses a least cost approach to routing
wireless communication by switching between digital cellular and satellite
networks based on available coverage. By detecting and processing
communication conditions in real-time instead of back at the office, fleets
minimize transmission costs and control the recurring communication charges
that can negatively impact wireless communication costs. XATAServ XATAServ is our comprehensive customer service and technical support program,
offering a wide range of support options designed to provide customer-focused
solutions for operation of any of our onboard fleet management systems. Our
customer service mission is to develop, communicate and deliver a comprehensive
goal attainment and support program that ensures our customers success with
our applications by providing the tools, training and knowledge necessary to
identify and maximize their return on investment. XATAServ provides assistance
in all areas, beginning with rollout and including training and support of
ongoing operations. Our XATAServ program is in addition to the limited hardware
warranty included in the base price of our systems. We also offer
management-level consulting services to provide our customers with information
and advice on how to improve their usage of our products. These advanced
training services are different from the basic training and support service for
front-line staff. Our consultants advise the customers management on use of
the advanced capabilities of our systems to reduce operating costs and increase
savings. They also assist customers in interpreting data and detecting trends
that require more extensive experience and expertise than technical support. Target Markets There are approximately 7.4 million commercial trucks operating in the United
States, of which 6.1 million are operated by private fleets and 1.3 million are
operated by for-hire carriers. While most of our current customers fall into a
portion of the private fleet category, we believe that our new fleet management
products will enable us to enter other segments of the commercial trucking
industry. 6




---



##### Table of Contents



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,
including our OpCenter system, required a minimum fleet size in order to
recover the fixed costs of a host system implementation. As a result, we target
our OpCenter system to private fleets that operate more than 30 heavy-duty
trucks in select vertical markets. We believe our historic target market segment has comprised approximately
300,000 vehicles. We believe our introduction of XATANET will allow us to
significantly expand our addressable market to 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 host
system to collect, process and present their data. We believe these fleets
represent a significant new market opportunity. We view the total 6.1 million
commercial trucks in this segment as our target market going forward, with
particular emphasis on fleets operating heavy duty trucks, estimated at 3.5
million vehicles. For-Hire Carriers For-hire carriers include both truckload and less-than-truckload (LTL)
carriers, whose primary business is the trucking and transportation of freight
that belongs to others. There are approximately 1.3 million commercial trucks
in the for-hire carrier market segment. 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 In December 2003, we were awarded orders totaling approximately $8.0 million
from two truck manufacturers as part of the United States Postal Service (USPS)
2004 cargo van purchase. USPS specified our OpCenter system as a component for
each of the trucks it purchased from these truck manufacturers. Sales relating
to the USPS cargo van purchase accounted for approximately 30% of fiscal 2004
revenue. Sales to The Kroger Company accounted for approximately 17% of fiscal
2003 revenue. No other customer accounted for 10% or more of revenue in either
of these fiscal years. Our systems have been installed in approximately 35,000 commercial trucks at
over 1,000 customer locations. Our customers include Fortune 500 companies and
other large organizations, including Allegiance Healthcare Corporation, Baxter
Healthcare Corporation, Bi-Lo, LLC, The BOC Group plc, Core-Mark International,
CVS Pharmacy, Eby-Brown Company, Foster Farms Dairy, Hannaford Trucking Co.,
The Kroger Co., McLane Company, Publix Super Markets, Inc., Penske Corporation,
Perlman Rocque, Ryder System Inc., Safeway, Inc., Supervalu, Inc., Toys R Us,
Inc., Unisource Worldwide, Inc., United Natural Foods, Inc., the United States
Postal Service, Whirlpool Corporation and xpedx (a division of International
Paper Company). 7




---



##### Table of Contents



Sales, Marketing and Distribution Channels We market our products to operators of trucking fleets through our nationwide
direct sales force as well as through several leading truck leasing companies. Direct Sales Our direct sales force sells our onboard fleet management systems primarily to
private fleet truck operators and logistics providers. The efforts of our
direct sales force are supported by our systems engineering staff, which has a
strong working knowledge of the hardware and software configurations required
by fleet operations, and by our technical support representatives, who have
experience integrating our systems into fleets. We offer continuing
comprehensive service and technical support to our customers through our
XATAServ maintenance and support program. 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 currently focus our direct sales and marketing efforts on companies
operating fleets of 30 or more vehicles within vertical markets that have
experienced significant benefits from our systems. These vertical markets
include food distribution, petroleum production and marketing, manufacturing
and processing, retail/wholesale delivery, and the United States Postal
Service. We also use a combination of integrated marketing activities, including
advertising, trade shows, the Internet and direct mail, 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 for our management staff, as well as for customers who
have gained efficiencies in fleet operations using our technology. We have found the average sales cycle for our OpCenter system to be six to
twelve months. Our sales cycle experience with our newer XATANET system has
been approximately three to six months, due to its simpler Web-based
architecture and our focus towards smaller fleet centers for that product.
Customers often compare multiple competing systems by conducting in-vehicle
product evaluations before making a purchase commitment. Customers typically
view a system purchase as a five-year technology commitment. Truck Leasing Companies Distribution relationships with leading truck leasing companies provide an
important sales channel for our XATANET system to more easily penetrate the
small and mid-size private fleets that our direct sales force cannot address in
a cost-effective manner. In 2003, we established two new distribution
partners, Penske Truck Leasing Co., L.P. (a partnership of Penske Corporation
and GE Capital) and NationaLease (National Truck Leasing System). In our
arrangement with Penske, Penske integrates our XATANET web-based system into
its full-service lease program through a private labeled offering named
FleetIQ. NationaLease also offers XATANET to its large base of lease customers
in a joint go-to-market strategy with us. As we continue to evolve the XATANET
system, we anticipate that offering our product through major truck leasing
companies and other new distribution channels will drive substantial additional
sales. Competition Our traditional competition for our OpCenter system has included onboard system
providers such as Cadec Corporation and Tripmaster Corporation. These
companies provide hardware and software that connect to the truck and operate
in the dispatch office in a client-server architecture. All of the onboard
systems monitor fleet productivity in terms of miles, speed, fuel economy, idle
time, time at stop and
engine performance, and can automate processes within the fleet operation such
as driver logs, fuel tax 8




---



##### Table of Contents



reports and payroll. These companies have
incorporated GPS and wide area wireless communications into their systems, but
at a typical cost of $3,000 to $4,000 per truck. Although these capabilities
have long been desired by fleet operators for gaining efficiencies and
providing better customer service, the high initial price of these systems
significantly limits their market potential. Implementation costs, such as
driver and office, have also been an obstacle. Due to these issues, significant
penetration into the private fleet market by these products has been limited. Over the past several years, communication providers, who traditionally
targeted the over-the-road, for-hire segment of the trucking industry, have
begun to target the largely untapped private fleet segment due to its size.
They have focused on adding fleet management applications to their
communication capabilities. Fleet managers require such applications to reduce
operating costs, eliminate paperwork, streamline information flow, monitor
driver productivity, and monitor vehicle performance for maintenance and fuel
consumption efficiency. To address these needs, some communication providers
now offer software applications to automate driver logs, fuel tax reporting,
and other fleet management tasks, but they typically lack the deep industry
knowledge necessary to offer a comprehensive package for the private fleet
trucking industry. Companies in this market include Qualcomm Incorporated and
PeopleNet Communications Corporation. Relatively new entrants into the market include companies that provide
low-cost, low-end solutions with GPS capabilities for vehicle positioning and
cellular communications for two way messaging. These companies include At
Road, Inc., FleetBoss Global Positioning Solutions Inc., AirIQ, Inc. and
Teletrac, Inc. They all have systems that we believe provide limited
functionality and limited scalability. Their success has come mainly from
route delivery operations and smaller class vehicles in high-coverage urban
areas. We believe that they will require more sophisticated mobile computing
platforms, additional application functionality and improved wireless
communication options to be successful in the larger-class private fleet
market. XATANETs advantages include a complete fleet management offering, availability
over the Web, low-cost satellite communications and true scalability.
Scalability allows customers the flexibility to purchase a low-cost system that
requires no driver training, can automate many of the manual processes within a
fleet, and can provide the needed metrics for improving fleet productivity. As
the needs of the customer expand, applications, handheld devices and driver
displays can be added to enhance the systems functionality. Traditionally,
fleets have been forced to buy a complete package. XATANET has an advantage
due to its scalable, Web-based architecture, satellite coverage and competitive
pricing. Of the various competitive systems available in the marketplace
today, the system sold by PeopleNet Communications is the closest competitor
our XATANET system. We believe the nature and sources of competition in our industry are rapidly
evolving and, in the future, that these changes will require us to adapt our
existing products and to develop new products which facilitate the collection,
processing and communication of onboard information throughout the
transportation network and the entire supply chain. This will likely involve
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, including others who we may consider to be competitors in one or more
lines of our business. 9




---



##### Table of Contents



Alliances Penske Truck Leasing We entered into an agreement with Penske Truck Leasing Co., L.P. (a partnership
of Penske Corporation and GE Capital) in April, 2003 under which we provide
Penske a private labeled version of our XATANET web-based fleet management
system, wireless communication services, managed hosting services and technical
support. Penske has integrated our XATANET web-based system as an option for
its full-service lease customers under the name FleetIQ. In total, Penske
Truck Leasing has approximately 200,000 vehicles under management. NationaLease We entered into a relationship with NationaLease Purchasing Corporation, an
affiliate of National Truck Leasing System, in March, 2003 whereby NationaLease
offers XATANET to its truck leasing customers in a joint go-to-market strategy
with us. NationaLease is a consortium of approximately 120 independent truck
leasing companies with a total fleet of 65,000 vehicles. ORBCOMM We entered into a value added reseller relationship with ORBCOMM LLC, the
leading provider of low earth orbit (LEO) satellite service, in October, 2002.
The initial contract term expires in April, 2006 and is extendable at XATAs
option for an additional three years. The agreement provides XATA with
favorable pricing in exchange for certain volume commitments. XATA believes
that ORBCOMMs LEO service provides the same full-coverage service with greater
data throughput than the leading geo-synchronous earth orbit (GEO) satellite
service at lower up-front and recurring costs. Sprint We entered into a value added reseller relationship with Sprint Solutions, Inc.
in October, 2004, enabling us to provide digital cellular wireless
communications over the Sprint PCS network. Our latest-generation, dual-mode
XATA Application Module mobile platform utilizes both the ORBCOMM satellite and
Sprint digital cellular networks to provide high-bandwidth, low latency
ubiquitous coverage. Manufacturing, Production, and Quality Control We subcontract the manufacture and assembly of our mobile hardware products
pursuant to our detailed specifications and quality requirements. One of our
primary manufacturing vendors is Phoenix International Corporation, a
subsidiary of Deere & Company. John Deere Special Technologies Group, Inc.,
our largest shareholder, is also a subsidiary of Deere & Company. All such
suppliers have entered into confidentiality agreements with respect to our
proprietary technology. We believe our current suppliers can provide
production volumes to meet our anticipated increases in product demand and are
not aware of any difficulty experienced by our suppliers in obtaining raw
materials for manufacture. We believe that we would be able to access
alternative sources of supply without severe difficulty or disruption in our
business if any of our suppliers failed in their commitments to us. Patents, Trademarks, and Copyrights XATA and OpCenter 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. 10




---



##### Table of Contents



In addition, we possess a
design patent issued by the United States Patent and Trademark Office that
covers the design of our Driver Computer display, and have patent applications
pending on other technologies. We also claim trademark and trade name
protection for the following: XATANET, XATA MobileSync, SmartCom, Position Plus
and Yard Express. We have trademark applications pending with the United
States Patent and Trademark Office for XATANET and XATA MobileSync. We protect
and defend our intellectual property rights vigorously. Research and Development Our market position is based on our strong research and development capability
and our market technology leadership. We believe product development must
continue in order to maintain this market position, integrate industry
requirements, respond to market opportunities and keep abreast of technological
change, which we expect to continue at a rapid pace. Along with
customer-driven requirements, much of the impetus to adopt new technologies
comes from logistics providers, suppliers, shippers, government and other
non-industry influences that encourage the use of reliable, low-cost
technologies to increase overall industry efficiency. These new technologies
include GPS, advanced wireless communications (cellular, satellite, wireless
and paging) and the Internet. Research and development expense was
approximately $2.43 million in fiscal 2004 and $1.88 million for fiscal 2003.
In addition, we invested approximately $530,000 for fiscal 2004 and $920,000 in
fiscal 2003 on the enhancement of released products. The expenses associated
with released products are included as a component of cost of sales. No
software development costs were capitalized in fiscal 2004 or fiscal 2003, in
accordance with our accounting policy on capitalization of software development
costs (see Note 1 in Notes to Financial Statements). Employees As of September 30, 2004, our staff included 75 employees and 5 independent
contractors whose primary assignments are approximately as follows: 31 in
product design, development and testing; 13 in sales and marketing; 23 in
customer support; 10 in administrative, finance and IS; and 3 in purchasing and
warehousing. Executive Officers Craig S. Fawcett, President & Chief Executive Officer, Director Mr. Fawcett, age 38, has been President and Chief Executive Officer since
joining XATA in February 2002. He is a graduate of Harvard Business School with
an MBA and has a Bachelor of Science degree in Engineering from Ohio State
University. Before joining XATA, Mr. Fawcett was Vice President of the Global
Agriculture Division of Deere & Company where he held numerous leadership
positions involving mergers and acquisitions, operations, special technologies,
business development, and served on several boards of Deere-owned technology
companies. Prior to that, he was a strategic management consultant for Arthur
Andersen (now Accenture), where he led a series of international technology
project engagements for Global-1000 clients. John G. Lewis, Chief Operating Officer & Chief Financial Officer, Secretary Mr. Lewis, age 39, joined XATA in January 2001. Before joining XATA, Mr. Lewis
was Chief Financial Officer of St. Paul-based PrimeYield Systems, Inc., a

manufacturer of high-performance
semiconductor test devices, where he managed the sale of the company to a
strategic buyer and directed the post-sale integration process. Prior to that,
Mr. Lewis was President of a Minneapolis-based manufacturing 11




---



##### Table of Contents



company which he
merged into a larger competitor and managed the post-merger integration. Mr.
Lewis began his career with Price Waterhouse as a Senior Consultant in the
Strategy Implementation Group in Newport Beach, CA. He is the Managing Member
of Legend Holdings, LLC, a real estate holding company, and a member of the
Twin Cities Chapter of Financial Executives International. Mr. Lewis has an MBA
from the J. L. Kellogg Graduate School of Management at Northwestern University
and a Bachelor of Science degree in Engineering from Northwestern University. Peter Thayer, Chief Technology Officer Mr. Thayer, age 45, joined XATA in April 2004 as Chief Technology Officer. As
CTO, Thayer is responsible for guiding and implementing the strategic direction
of XATAs technology. Before joining XATA, Mr. Thayer was vice president of
engineering for MobileAria, a subsidiary of Delphi Corp. specializing in fleet
management and security services for mobile transportation platforms. Mr.
Thayer also has 13 years experience with EDS, where he developed solutions for
Delphi Automotive and General Motors. Mr. Thayer holds eight patents through
Delphi Automotive Systems. He holds an MBA from Purdue University, a Masters
degree in Electrical Engineering from Purdue University, and a Bachelor of
Science degree in Industrial Engineering from North Carolina State University. Mark W. Engel, Vice President  Sales Mr. Engel, age 42, joined XATA in September 2004 as Vice President of Sales.
He is responsible for the creation, implementation and execution of all sales
strategies for both direct and indirect sales channels. Before joining XATA,
Mr. Engel led the Mid America region at Oracle Corporation, where he managed
sales teams targeting multiple vertical industries, and successfully penetrated
additional market segments following the launch of a new product suite. Prior
to Oracle, Mr. Engel developed an eBusiness practice for Deloitte and Touches
Management Consulting Division. He has extensive experience selling and
managing sales teams that targeted both large and small companies in a variety
of vertical industries and across multiple enterprise software disciplines,
including manufacturing automation, enterprise resource planning, customer
relationship management, supply chain planning, e-business systems and enabling
technologies. Mr. Engel holds a Bachelors degree in Electrical Engineering
from the University of North Dakota. Thomas N. Flies, Vice President  Business Development Mr. Flies, age 35, is responsible for the companys business development,
marketing and product management efforts. Mr. Flies joined XATA in 1990 and
has served in various roles in sales, marketing, and product development
including Sr. Vice President of Product Development where he led the
development and introduction of XATAs OpCenter product line. He was named
Vice President of Business Development in 2002 to focus on developing and
marketing XATANET to truck leasing companies. In his role, Mr. Flies is
responsible for developing product and marketing strategies and programs that
drive revenue growth and establishing strong brand awareness. Mr. Flies holds
degrees in Business and Computer Science from the University of St. Thomas.
Mr. Flies is a member of the National Private Truck Council (NPTC), American
Trucking Association (ATA), Truck Rental and Leasing Association (TRALA) and
the Council of Logistics Management (CLM). 12




---



##### Table of Contents



Investment Considerations and Risk Factors We do not have a long or stable history of profitable operations.From
inception in 1985 through fiscal year 1994, we focused our efforts primarily on
product development. During this time we had limited product marketing and
distribution and incurred a cumulative loss of $5.81 million. We had operating
profits in fiscal years 1995 and 1996. However, we experienced a combined net
loss of $6.67 million in our fiscal years 1997 and 1998. These losses resulted
in large part from the re-valuation and expensing of certain software acquired
in 1996 business acquisitions. We generated net profits of $493,000 and
$520,000 for fiscal years 1999 and 2000. In our 2001, 2002 and 2003 fiscal
years, we incurred net losses of $2.21 million, $4.15 million and $3.78
million, respectively, due to increased product development, operating and
amortization expenses. We incurred a net loss of $1.19 million in the fiscal
year ended September 30, 2004 due to continued high product development and
amortization expenses. We cannot with any certainty predict if our operations
will be profitable or generate positive cash flow in the future. We are dependent on key customers.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. During the
fiscal year ended September 30, 2004,ten customers, together, accounted for
approximately 60% of net sales. Although we have experienced growth in our
customer base, we are still dependent on continued purchases by present
customers who continue to equip and upgrade their fleets. Loss of any
significant current customers or an inability to further expand our customer
base would adversely affect us. Our sales cycle is long.The period required to complete a sale of our systems
has historically been up to a year or longer. The length of the sales cycle
may result in quarter-to-quarter fluctuations in revenue. Our systems are
technically complex, which means the customer has to make an advance budget
decision. The availability of new and other technologies also complicates and
delays buying decisions. We have competitors who are larger than we are.Many of the companies who
offer competitive products have greater financial and other resources than our
company. These competitors 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. These
systems must link trucking operations with other facets of the supply chain
through a variety of sophisticated software and communications technologies.
These changes reflect a trend toward integration of intra-company data with the
larger external supply chain involving the flow of goods to markets. We must
continue to adapt our existing products and develop new products that
facilitate the collection, integration, communication and utilization of
information throughout the entire supply chain. This may entail 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.
These trends may require us to establish strategic alliances with other
companies who may be competitors. 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 private 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. 13




---



##### Table of Contents



Our target market is highly cyclical.The fleet trucking segment of the
transportation industry is subject to fluctuations and business cycles. We
cannot predict to what extent these business cycles may result in increases or
decreases in capital purchases by fleet managers. A significant downturn in
the prospects of the fleet trucking segment of the transportation industry
could have a material, adverse affect on us. The effectiveness of our selling efforts depends on knowledgeable staff and
effective marketing alliances.Direct sales of our products are dependent in
part upon the salespersons in-depth knowledge and understanding of our
systems. This knowledge is attained through experience and training over a
period of several months or longer. We must attract, train, and retain
qualified personnel on a continuing basis. We may not be able to sustain or
augment our sales and marketing efforts by retaining or adding personnel, and
it is possible that increased sales and marketing efforts will not result in
increased sales or profitability. We believe that marketing alliances with
truck leasing companies, truck manufacturers and others in the truck supply
chain will become increasingly important distribution channels for our
products. We may not be able to establish or sustain effective alliances.
Moreover, we may have limited control over the selling efforts of our alliance
partners. We are dependent on proprietary technology.Our success is heavily dependent
upon proprietary technology. We have been issued a design patent by the United
States Patent and Trademark Office that covers our Driver Computer 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. We have made certain volume
commitments to ORBCOMM LLC. Our ability to satisfy these commitments depends
not only on our ability to sell a specified number of ORBCOMM enabled systems,
but also on ORBCOMMs ability to provide reliable data communication services
to our customers. 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 14




---



##### Table of Contents



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. 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 November 30, 2004, JDSTG owned approximately 24% and Trident
Capital owned approximately 19% of our common stock on an as-converted basis,
and Trident has the ability to increase its ownership significantly through
exercising warrants. 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 our 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 our company. We are dependent on key personnel.Our staff is small and our future success
depends to a significant extent on the efforts of key management, technical and
sales personnel. The loss of one of our key employees could adversely affect
our ability to provide leading edge technology to the transportation industry. We may need additional capital.Although we believe cash flow from operations,
the recent investment by Trident Capital and our $2 million line of credit will
be sufficient to meet capital requirements for the foreseeable future, our cash
needs may vary significantly from predictions. For example, if we do not
generate anticipated cash flow, 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. New Business Plan.In 2003, we adopted a new business plan focused on
additional truck market segments that provide larger volume and recurring
revenue opportunities. We believe we are positioned to pursue high volume
truck market opportunities with our new software and hardware products.
Although we believe that our financing, partnering and product line will
position us to pursue new markets, implementation of this plan entails the
development and commercialization of new, leading-edge technology, which may
encounter lack of customer acceptance, competition, problems in large-scale
implementation, or other setbacks frequently encountered in commercialization
of new products. Accordingly, there can be no assurance that this business plan
will be successful. We may issue additional stock without shareholder consent.We have authorized
25,000,000 shares of common stock, of which 7,281,785 shares were issued and
outstanding as of December 15, 2004. 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
5,000,000 shares of preferred stock. As of December 15, 2004, 1,676,800 shares
of Series B Convertible Preferred Stock were issued and outstanding. In a
prior year, we issued 46,667 shares of Series A Convertible Preferred Stock,
which was subsequently converted to common stock. The Board of Directors can
issue additional preferred 15




---



##### Table of Contents



stock in one or more series and fix the terms of
such stock without shareholder approval. Preferred stock may include the right
to vote as a series on particular matters, preferences as to dividends and
liquidation, conversion and redemption rights and sinking fund provisions. The
issuance of preferred stock could adversely affect the rights of the holders of
common stock and reduce the value of the common stock. In addition, specific
rights granted to holders of preferred stock could be used to restrict our
ability to merge with or sell our assets to a third party. Our directors liability is limited under Minnesota law and under certain
agreements.Our Articles of Incorporation, as amended and restated, state that
our directors are not liable for monetary damages for breach of fiduciary duty,
except for a breach of the duty of loyalty, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
for dividend payments or stock repurchases illegal under Minnesota law or for
any transaction in which the director derived an improper personal benefit. In
addition, our bylaws provide that we shall indemnify our officers and directors
to the fullest extent permitted by Minnesota law for all expenses incurred in
the settlement of any actions against them in connection with their service as
officers or directors of the Company. In addition, we have entered into
indemnification agreements with 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. Anti-takeover provisions.Minnesota law provides Minnesota corporations with
anti-takeover protections. These protective provisions could delay or prevent
a change in control of our company by requiring shareholder approval of
significant acquisitions of our voting stock. These provisions operate even
when many shareholders may think a takeover would be in their best interests. 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, may lead to an increase in 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. Failure to achieve and maintain effective internal controls could have a
material adverse effect on our business, operating results and stock price.We
are in the process of documenting and testing our internal control procedures
in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act,
which requires annual management assessments of the effectiveness of our
internal controls over financial reporting and a report by our Independent
Auditors addressing these assessments. During the course of our testing we may
identify deficiencies which we may not be able to remediate in time to meet the
deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements
of Section 404. In addition, if we fail to achieve and maintain the adequacy of
our internal controls, as such standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal controls over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective
internal controls, particularly those related to revenue recognition, are
necessary for us to produce reliable financial reports and are important to
helping prevent financial fraud. If we cannot provide reliable financial
reports or
prevent fraud, our business and operating results could be harmed, investors
could lose confidence in our reported financial information, and the trading
price of our stock could drop significantly. 16




---



##### Table of Contents



Item 2. Description of Property On April 4, 1997, we leased 20,588 square feet of office and warehouse space at
151 East Cliff Road in Burnsville, Minnesota. We signed a seven year,
non-cancelable operating lease for this space, with initial rental payments of
$12,010 per month, plus a pro rata share of the building operating expenses
commencing June 1, 1997. The base rent increased to $14,810 on February 1,
1999, in part due to occupancy of an additional 4,800 square feet of warehouse
space adjacent to the originally occupied space. Base rent increased to
$16,291 on June 1, 2002. In May 2003 we extended this lease through November
2006. Effective with this extension, our leased space was reduced to the
20,588 square feet we initially occupied, and our base rent was reduced to
$12,541 per month. We believe our current space is adequate for our needs for
the foreseeable future. 
 Item 3. Legal Proceedings None. 
 Item 4. Submission of Matters to a Vote of Security Holders None. 17




---



##### Table of Contents



PART II 
 Item 5. Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities The following table sets forth the quarterly high and low sales prices as
reported by the NASDAQ SmallCap Market for fiscal years 2003 and 2004. Sale PriceFiscal Year 2003
    
    Low
    
    HighFirst Quarter
    
    $
    2.92
    
    
    $
    4.11Second Quarter
    
    
    2.68
    
    
    
    3.54Third Quarter
    
    
    3.01
    
    
    
    4.25Fourth Quarter
    
    
    2.20
    
    
    
    3.34
 Sale PriceFiscal Year 2004
    
    Low
    
    HighFirst Quarter
    
    $
    2.00
    
    
    $
    4.29Second Quarter
    
    
    3.30
    
    
    
    6.25Third Quarter
    
    
    5.00
    
    
    
    6.74Fourth Quarter
    
    
    5.00
    
    
    
    6.37
 Our common stock is held by 112 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 1,500. Dividend Policy Except for dividends paid to the holders of Series A 8% 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 1,612,903 shares of Series B Preferred Stock
that pays an annual cumulative dividend of 4% of the original issue price
(payable in additional shares of Preferred Stock rather than 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
each of May 28, 2004 and November 30, 2004 in additional shares of Preferred
Stock rather than cash. Accordingly, we issued a total of 63,897 shares of
Preferred Stock for payment of dividends as of December 15, 2004. Sale of Unregistered Securities On December 6, 2003, we entered into a Common Stock Warrant and Series B
Preferred Stock Purchase Agreement (the Stock Purchase Agreement) with the
following entities associated with Trident Capital, Inc. (collectively
Trident):  Trident Capital Fund-V, L.P. 18




---



##### Table of Contents



 Trident Capital Fund-V Affiliates Fund, L.P.  Trident Capital Fund-V Affiliates Fund (Q), L.P.  Trident Capital Fund-V Principals Fund, L.P.  Trident Capital Fund-V, C.V. Under the Stock Purchase Agreement, Trident purchased 1,612,903 shares of
Series B Preferred Stock for $4,096,774, or $2.54 per share. Each share of the
Preferred Stock is convertible into one share of our Common Stock. The price
per share of Preferred Stock and the conversion price for the Common Stock is
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 Preferred Stock pays an annual cumulative dividend of 4% of the original
issue price (payable in additional shares of Preferred Stock rather than 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 Preferred Stock is redeemable at the option of Trident at 100% 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 us, we default on our debts or file for bankruptcy, or
in the event of a change of control. We may redeem the Preferred Stock at our
option after five years from the date of issuance if the market price of our
Common Stock is greater than three times the conversion price on each of the
sixty consecutive days prior to the redemption date. Additionally, we issued Trident 5-year warrants to purchase 451,226 shares of
its Common Stock at an exercise price of $3.17 per share. The aggregate
purchase price of the warrants was $56,403. The warrants permit cashless
exercise. Pursuant to the Stock Purchase Agreement, we filed a Registration Statement on
Form S-3 to register the resale, from time to time, of the Common Stock to be
issued pursuant to conversion of the Preferred Stock and exercise of the
warrants, and a reasonable estimate of any Common Stock to be issued as
dividends on the Preferred Stock. Cherry Tree Securities, LLC acted as placement agent in consideration of a
$320,000 cash fee and 7-year warrants for purchase of an aggregate of 163,265
shares of common stock (130,612 shares at $2.54 per share and 32,653 shares at
$3.17 per share). These warrants permit cashless exercise and provide the
holders with piggyback registration rights. On September 15, 2004, we issued a warrant for the purchase of 9,615 shares of
common stock exercisable at $5.55 per share to Williams Executive Search. This
warrant was partial consideration for executive search services. On December 10, 2003, three directors of the company exercised warrants for the
purchase of an aggregate of 20,139 shares of Common Stock. These warrants were
issued in December 1998 for service as directors. All such securities have been issued in reliance upon the exemption from
registration under Section 4(2) and/or Section 4(6) of the Securities Act of
1933. A Form D was filed with respect to the Trident investment. 19




---



##### Table of Contents



Item 6. Managements Discussion and Analysis or Plan of Operation 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 Investment
Considerations and elsewhere in this Report. 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 1 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.We derive our revenue from sales of hardware, software and
related services, and from application service contracts. We recognize revenue
for hardware and software revenue, in accordance with Statement of Position
97-2 and Securities and Exchange Commission Staff Accounting Bulletin 101, when
(i) persuasive evidence of an arrangement exists (for example a signed
agreement or purchase order), (ii) shipment has occurred, as evidenced by
shipping documents or customer acceptance, (iii) the fee is fixed or
determinable and payable within twelve months, and (iv) collectibility is
probable and supported by credit checks or past payment history. Pursuant to
certain contractual arrangements, we recognize revenue for completed systems
held at our warehouse pending the receipt of delivery instructions from the
customer. We defer recognition of revenue on products sold in conjunction with
application service contracts, as discussed below. Many of our customers purchase software maintenance agreements annually.
Customers may also purchase extended warranty and service support contracts.
Revenue from maintenance agreements, extended warranty and service support
contracts are deferred and recognized ratably over the contract period. When
invoiced in advance, fees for professional services are recognized as they are
performed. Application service revenue, which is composed of monthly fees, is recognized
ratably over the initial service contract period, which commences upon the
activation of the mobile application module. When system products are sold in
conjunction with an application service contract, we defer the product revenue
and associated production costs, and recognize both ratably over the minimum
service contract term (generally one to five years) rather than upon shipment
of the product. Our application service revenue relates to sales of our
XATANET fleet management system, a relatively new product with which we have
limited market experience. Once we gain additional experience with this
product, it is possible that we may conclude it to be appropriate to recognize
product revenue and associated product costs over a term that is longer than
the initial service contract term. Because we expect the proportion of sales
treated under this policy, including sales of XATANET, to increase relative to
sales of other products, we expect deferred revenue to increase over time.
This will have the effect of delaying revenue recognition of XATANET system
sales to future periods, and thus will lower the amount of revenue recognized
in earlier periods. Allowance for doubtful accounts and sales returns.We grant credit to
customers in the normal course of business. The majority of our accounts
receivables 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. Accounts
receivable are typically due from customers
within 30 20




---



##### Table of Contents



days and are stated at amounts due from customers net of an allowance
for doubtful accounts and sales returns. Accounts outstanding longer than the
contractual payment terms are considered 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. We
determine our allowance for sales returns by considering several factors,
including history of prior sales credits issued. We regularly assess the
allowance for sales returns and increase it as needed. When we accept a
product return or issue a sales credit for which we had specifically increased
the allowance, we write-off the associated accounts receivable and decrease the
allowance for sales returns. Capitalized software development costs.Our policy provides for capitalization
of software development costs incurred after establishing technological
feasibility. However, if the amounts eligible for capitalization are deemed to
be immaterial, we may choose to recognize the expense for such amounts in the
period in which they were incurred. Costs that are capitalized are later
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. Capitalization of software
development costs has the effect of reducing operating costs and increasing
reported profitability in the period in which such costs occur. Amortization
of these costs increases cost of goods sold in the periods over which such
amortization takes place, thus decreasing reported profitability in those
periods. We completed amortizing previously capitalized software development
costs on September 30, 2004, which increased our reported net loss in fiscal
2004. We review our long-lived assets periodically to determine potential impairment
by comparing the carrying value of the long-lived assets with estimated future
cash flows expected to result from the use of the assets, including cash flows
from disposition. If the sum of the expected future cash flows is less than
the carrying value, we will recognize an impairment loss equal to the amount by
which the carrying value exceeds the fair value of the long-lived assets. Research and development costs.We charge expenditures for research and
development activities to operations as incurred. If we expend funds on the
development of software, including software development salaries, for projects
or products that we deem to have achieved technological feasibility, such costs
could be capitalized as described above, which would have the effect of
reducing research and development costs in the current period. Income taxes. Deferred income taxes are provided on 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. 21




---



##### Table of Contents



Results of Operations for the years ending September 30, 2004 and 2003 The following table sets forth certain Statements of Operations data as a
percentage of net sales: Fiscal Year EndedSeptember 30,2004
    
    2003Net sales
    
    
    100
    %
    
    
    100
    %Gross profit
    
    
    33
    %
    
    
    25
    %Selling, general and administrative
    
    
    27
    %
    
    
    41
    %Research and development
    
    
    13
    %
    
    
    17
    %Operating loss
    
    
    -6
    %
    
    
    -33
    %Net loss
    
    
    -6
    %
    
    
    -33
    %
 Net Sales. Our net sales increased 66.8% to $18.93 million in fiscal 2004
compared to $11.35 million in fiscal 2003. Net sales derived from OpCenter
hardware and software increased to $14.43 million in fiscal 2004 from $9.49
million in fiscal 2003, an increase of 52.2%. Net sales from software
maintenance, support and services increased to $3.46 million in fiscal 2004
from $1.63 million in fiscal 2003, an increase of 112%. Recognized sales of
XATANET equipment and services increased to $1.04 million in fiscal 2004 from
$232,000 in fiscal 2003. Net sales increased in the fiscal 2004 due to strong sales of our OpCenter
enterprise fleet management system, led by sales to the United States Postal
Service (USPS). In December 2003, we were awarded orders totaling
approximately $8.0 million from two truck manufacturers as part of the USPS
2004 cargo van purchase. USPS specified our OpCenter system as a component for
each of the trucks it purchased from these truck manufacturers. We generally
recognize revenue for the hardware and software components of these orders at
the time of delivery. We defer revenue for software maintenance, extended
warranties and service support contracts, and recognize such revenue ratably
over the contract period. In fiscal 2004, net sales derived from the USPS 2004
cargo van orders totaled $5.63 million. We expect to complete delivery of the
hardware and software components of these orders by December 31, 2004. Cost of Goods Sold.Total cost of goods sold was $12.60 million in fiscal 2004
compared to $8.53 million in fiscal 2003. Cost of goods sold is impacted by
product sales mix, order discounts, warranty expenses and other variable and
fixed expenses. We incurred warranty costs associated with the field support
of initial XATANET unit shipments. Such warranty costs are more fully
described in Note 1 in the Notes to Financial Statements. Amortization of
capitalized software development costs, a fixed, non-cash expense component of
cost of goods sold, decreased to $1.32 million in fiscal 2004 from $1.42
million in fiscal 2003, as the capitalized development costs for certain
products became fully amortized. Capitalized software costs were fully
amortized as of September 30, 2004, and as such we do not expect to incur such
amortization expense in fiscal 2005. Operating Expenses. Operating expenses include research and development
expenses, as well as selling, general and administrative expenses. Total
operating expenses were $7.49 million in fiscal 2004, compared to $6.54 million
in fiscal 2003. The increased operating expense was due to increases in both
research and development expenses as well as selling, general and
administrative expenses. Research and development expenses were $2.43 million in fiscal 2004 compared to
$1.88 million in fiscal 2003. Software development costs are capitalized after
the establishment of technological feasibility of new products and later
amortized to cost of goods sold based on the anticipated useful life of the
product. 22




---



##### Table of Contents



The useful life of each product is determined based upon its
anticipated future net revenues. In fiscal 2004 and 2003, no software
development costs were capitalized because the expenditures were on products
that had not fully attained technological feasibility. Due to the acceleration
of several product development initiatives, we anticipate that total
expenditures for research and development in fiscal 2005 will be higher than in
fiscal 2004. Selling, general and administrative expenses were $5.06 million in fiscal 2004
compared to $4.67 million in fiscal 2003, an increase of $395,000. This
increase was primarily due to additional staffing to manage revenue growth. As
a percentage of net sales, these expenses decreased in fiscal 2004 due
continued efforts to control operating expenses. Non-operating Income (Expense).Interest income totaled $28,000 in fiscal 2004
compared to $7,000 for fiscal 2003. The increase in interest income in the
current year was due to an increased cash balance from the Trident investment
proceeds as well as cash generated from operating activities. Interest expense
was $77,000 in fiscal 2004 compared to $78,000 in fiscal 2003. Income Taxes.No income tax benefit or expense was recorded in fiscal 2004 or
fiscal 2003. Because we have had continued operating losses and do not have
objectively verifiable positive evidence of future taxable income as prescribed
by Financial Accounting Standards Board (FASB) Statement 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,
2004, we had federal net operating loss carryforwards of approximately $15.6
million. See Note 5 to the financial statements. Net Loss.We incurred a net loss in fiscal 2004 of $1.19 million compared to a
net loss of $3.78 million in fiscal 2003. The decrease in net loss was due
primarily to increased revenue, partially offset by higher research and
development expenditures and selling, general and administrative expenses. Liquidity and Capital Resources Working capital at the end of fiscal 2004 totaled $5.90 million compared to
working capital of $732,000 at the end of fiscal 2003. The $5.17 million
increase in working capital was due to the $3.77 million net proceeds from the
Trident preferred stock investment (see Note 7 in the Notes to Financial
Statements), approximately $1.16 million generated from operating activities,
and $455,000 in proceeds from exercised options and warrants. Net cash provided by operating activities during fiscal 2004 was $1.16 million,
resulting primarily from an increase in deferred revenue of $2.41 million,
amortization and depreciation expense totaling $1.50 million, and a $1.01
million increase in accounts payable and accrued expenses, offset by the $1.19
million net loss for the fiscal year, a $1.96 million increase in accounts
receivable and increased prepaid expenses and deferred product costs of
$617,000. We bill and are paid for certain of our products and services in
advance of when we recognize such billings as revenue. The growth of such
billings in fiscal 2004 significantly contributed to cash generated by
operating activities. Additionally, we amortized $1.32 million of previously
capitalized software development costs in fiscal 2004. Because we paid for
such development costs in prior periods, this was a non-cash expense for fiscal
2004. We anticipate that
future growth of our business will result in increases in accounts receivable,
accounts payable, inventories and deferred revenue and deferred product costs. 23




---



##### Table of Contents



Net cash used in investing activities of $219,000 in fiscal 2004 resulted from
fixed asset expenditures for computer equipment, software licenses and items
required for the production and testing of our XATA Application Module. Net cash provided by financing activities of $3.77 million during fiscal 2004
included $4.22 million in proceeds from the issuance of preferred stock and the
exercise of options and warrants. This increase was offset by a net credit
line decrease of $274,000 and $176,000 in principal repayment of long-term
debt. We believe our current cash balance, line of credit and vendor terms will be
adequate to fund our operating needs for the foreseeable future. However,
significant new product development or working capital needs may require
additional external funding. Moreover, it is possible that our cash needs may
vary significantly from our predictions due to failure to generate anticipated
cash flow or other reasons. No assurance can be given that our predictions
regarding our cash needs will prove accurate, that we will not require
additional financing, that we will be able to secure any required additional
financing when needed or at all, or that such financing, if obtained, will be
on terms favorable or acceptable to us. Subsequent Events On November 30, 2004, we pre-paid the remaining principal balance of $213,000
on our Promissory Note with Deere & Company. The Promissory Note was created
on April 20, 2000 in the original principal amount of $1,000,000. On December 17, 2004, we established a new $2 million line of credit with
Silicon Valley Bank. This line of credit replaced a similarly sized credit
facility with a prior lender. The new line of credit is subject to borrowing
eligibility based on eligible accounts receivable and is collateralized by
substantially all the assets of the Company. Under the agreement, all amounts
owed under the line of credit must be repaid to the lender not later than the
December 16, 2005 final due date. See also Note 10 in the Notes to Financial
Statements. Recently Issued Accounting Pronouncements Accounting for Inventory Costs In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
151, Inventory Costs an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that . . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal as to require treatment as current period charges. . . . This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of so abnormal. In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this Statement will have any immediate material impact on the
Company. 24




---



##### Table of Contents



Accounting for Share-Based Payment In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
123 (revised 2004), Share-Based Payment. This Statement is a revision of FASB
Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. This Statement
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. This Statement requires
that the compensation cost relating to share-based payment transactions be
measured on the fair value of the equity or liability instruments issued. This
Statement focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. This Statement
is effective in the first interim or annual reporting period that begins after
December 15, 2005. Management is currently assessing if the adoption of this
Statement will have a material impact on the Company. 
 Item 7. Financial Statements Report of Independent Registered Public Accounting Firm
    
    
    F-1Balance Sheets
    
    
    F-2 - F-3Statements of Operations
    
    
    F-4Statements of Changes in Shareholders Equity
    
    
    F-5Statements of Cash Flows
    
    
    F-6Notes to Financial Statements
    
    
    F-7 - F-19
 
 Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure None. 
 Item 8A. 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 for the Company. Such officers have concluded that the
Companys disclosure controls and procedures (as defined in Exchange Act Rule
13a-14(c)) are sufficiently effective to ensure that the information required
to be disclosed by the Company in this report is gathered, analyzed and
disclosed with adequate timeliness, accuracy and completeness, based on an
evaluation of such controls and procedures as of the end of the period covered
by this report. Changes in internal controls.The Certifying Officers also have indicated that
there have been no significant changes in the Companys internal controls or in
other factors during its fourth fiscal quarter ended September 30, 2004, that
could materially affect such controls subsequent to the date of their
evaluation and there were no corrective actions with regard to significant
deficiencies and material weaknesses during the fourth fiscal quarter. 
 Item 8B. Other Information On December 20, 2004, the Company amended the restricted stock award agreements
for officers and other employees to whom the Company had made such awards
during the fiscal year ended September
30, 2004. The amendment removed all restrictions on transfer after vesting.
However, each grant continues to vest over three years and the stock is not
transferable prior to vesting. The form of Restricted Stock Award Agreement
for officers is attached as an exhibit to this Form 10-KSB. 25




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and
Shareholders of XATA Corporation We have audited the accompanying balance sheets of XATA Corporation (a
Minnesota corporation) as of September 30, 2004 and 2003, and the related
statements of operations, shareholders equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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 financial position of XATA Corporation as of
September 30, 2004 and 2003, 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. /s/ Grant Thornton LLP Minneapolis, Minnesota
November 12, 2004 F-1




---



##### Table of Contents



XATA CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 2004 AND 2003 ASSETS
    
    2004
    
    2003Current AssetsCash and cash equivalents
    
    $
    5,322,497
    
    
    $
    607,754Accounts receivable, less allowances for doubtful accounts and
sales returns of $293,000 and $322,000
    
    
    5,500,832
    
    
    
    3,538,938Inventories
    
    
    1,067,034
    
    
    
    943,153Deferred product costs
    
    
    511,079
    
    
    
    269,629Prepaid expenses
    
    
    230,809
    
    
    
    123,023Total current assets
    
    
    12,632,251
    
    
    
    5,482,497Equipment and Leasehold Improvements, at cost
Engineering and manufacturing equipment
    
    
    388,424
    
    
    
    341,038Office furniture and equipment
    
    
    1,150,962
    
    
    
    979,313Leasehold improvements
    
    
    24,948
    
    
    
    24,9481,564,334
    
    
    
    1,345,299Less: accumulated depreciation and amortization
    
    
    (1,108,304
    )
    
    
    (925,873
    )Total equipment and leasehold improvements
    
    
    456,030
    
    
    
    419,426Other AssetsCapitalized software development costs, less accumulated
amortization of $7,269,615 and $5,950,426
    
    
    
    
    
    
    1,319,190Deferred product costs, net of current portion
    
    
    303,481
    
    
    
    35,782Total assets
    
    $
    13,391,762
    
    
    $
    7,256,895
 See Notes to Financial Statements F-2




---



##### Table of Contents



LIABILITIES AND SHAREHOLDERS EQUITY
    
    2004
    
    2003Current LiabilitiesBank line of credit
    
    $
    518,008
    
    
    $
    792,184Current maturities of long-term debt
    
    
    231,403
    
    
    
    175,893Accounts payable
    
    
    1,733,932
    
    
    
    1,462,175Accrued expenses
    
    
    1,592,808
    
    
    
    794,967Deferred revenue
    
    
    2,657,882
    
    
    
    1,524,910Total current liabilities
    
    
    6,734,033
    
    
    
    4,750,129Long-Term Debt, net of current maturities
    
    
    19,969
    
    
    
    251,296Deferred Revenue, net of current portion
    
    
    1,501,799
    
    
    
    221,424Total liabilities
    
    
    8,255,801
    
    
    
    5,222,849Commitments
    
    
    
    
    
    
    Shareholders EquityPreferred stock, 4% convertible, 5,000,000 shares
authorized; 1,643,304 shares issued at September 30, 2004
    
    
    3,922,532
    
    
    
    Common stock, par value $0.01 per share; 25,000,000 shares
authorized; 7,253,785 and 6,938,575 shares issued
    
    
    72,538
    
    
    
    69,386Additional paid-in capital
    
    
    19,000,497
    
    
    
    17,767,539Accumulated deficit
    
    
    (17,859,606
    )
    
    
    (15,802,879
    )Total shareholders equity
    
    
    5,135,961
    
    
    
    2,034,046Total liabilities and shareholders equity
    
    $
    13,391,762
    
    
    $
    7,256,895
 See Notes to Financial Statements F-3




---



##### Table of Contents



XATA CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2004 AND 2003 2004
    
    2003Net sales
    
    $
    18,931,579
    
    
    $
    11,350,492Cost of goods sold
    
    
    12,599,328
    
    
    
    8,531,760Gross profit
    
    
    6,332,251
    
    
    
    2,818,732Operating expensesSelling, general and administrative
    
    
    5,060,261
    
    
    
    4,665,262Research and development
    
    
    2,428,065
    
    
    
    1,877,9147,488,326
    
    
    
    6,543,176Operating loss
    
    
    (1,156,075
    )
    
    
    (3,724,444
    )Non-operating income (expense)Interest income
    
    
    28,110
    
    
    
    6,697Interest expense
    
    
    (77,350
    )
    
    
    (78,314
    )Other
    
    
    14,351
    
    
    
    12,202(34,889
    )
    
    
    (59,415
    )Loss before income taxes
    
    
    (1,190,964
    )
    
    
    (3,783,859
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (1,190,964
    )
    
    $
    (3,783,859
    )Preferred stock dividends and deemed dividend
    
    
    (865,763
    )
    
    
    Loss to common shareholders
    
    $
    (2,056,727
    )
    
    $
    (3,783,859
    )Loss per common share - basic and diluted:Net loss
    
    $
    (0.19
    )
    
    $
    (0.55
    )Loss to common shareholders
    
    $
    (0.29
    )
    
    $
    (0.55
    )Weighted average common and
common share equivalentsBasic and Diluted
    
    
    7,021,573
    
    
    
    6,934,416
 See Notes to Financial Statements F-4




---



##### Table of Contents



XATA CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years Ended September 30, 2004 and 2003 Common Stock
    
    Preferred Stock
    
    AdditionalPaid-In
    
    AccumulatedShares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Deficit
    
    TotalBalance, September 30, 2002
    
    
    6,928,825
    
    
    $
    69,288
    
    
    
    
    
    
    $
    
    
    
    $
    17,748,440
    
    
    $
    (12,019,020
    )
    
    $
    5,798,708Common stock issued on exercise of options
    
    
    9,750
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    19,099
    
    
    
    
    
    
    
    19,197Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,783,859
    )
    
    
    (3,783,859
    )Balance, September 30, 2003
    
    
    6,938,575
    
    
    
    69,386
    
    
    
    
    
    
    
    
    
    
    
    17,767,539
    

    
    
    (15,802,879
    )
    
    
    2,034,046Common stock issued on exercise of options
    
    
    147,220
    
    
    
    1,472
    
    
    
    
    
    
    
    
    
    
    
    418,329
    
    
    
    
    
    
    
    419,801Common stock issued on exercise of warrants
    
    
    28,470
    
    
    
    285
    
    
    
    
    
    
    
    
    
    
    
    34,512
    
    
    
    
    
    
    
    34,797Issuance of restricted shares of common stock
    
    
    139,520
    
    
    
    1,395
    
    
    
    
    
    
    
    
    
    
    
    (1,395
    )
    
    
    
    
    
    
    Issuance of common stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    25,000Issuance of preferred stock and warrants
    
    
    
    
    
    
    
    
    
    
    1,612,903
    
    
    
    3,115,398
    
    
    
    651,765
    
    
    
    
    
    
    
    3,767,163Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    30,401
    
    
    
    77,222
    
    
    
    
    
    
    
    (135,851
    )
    
    
    (58,629
    )Preferred stock deemed dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    729,912
    
    
    
    
    
    
    
    (729,912
    )
    
    
    Recognition of restricted shares of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,747
    
    
    
    
    
    
    
    104,747Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,190,964
    )
    
    
    (1,190,964
    )Balance, September 30, 2004
    
    
    7,253,785
    
    
    $
    72,538
    
    
    
    1,643,304
    
    
    $
    3,922,532
    
    
    $
    19,000,497
    
    
    $
    (17,859,606
    )
    
    $
    5,135,961
 See Notes to Financial Statements. F-5




---



##### Table of Contents



XATA CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2004 AND 2003 2004
    
    2003Cash provided by (used in) operating activitiesNet loss
    
    $
    (1,190,964
    )
    
    
    (3,783,859
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation and amortization of equipment and leasehold improvements
    
    
    182,431
    
    
    
    246,151Amortization of capitalized software development costs
    
    
    1,319,190
    
    
    
    1,423,831Deferred compensation recognized
    
    
    104,747
    
    
    
    Issuance of warrants for services rendered
    
    
    25,000
    
    
    
    Write-off of software product
    
    
    
    
    
    
    48,594Changes in assets and liabilities:Accounts receivable
    
    
    (1,961,894
    )
    
    
    (334,362
    )Inventories
    
    
    (123,881
    )
    
    
    250,718Accounts payable
    
    
    271,757
    
    
    
    539,550Deferred revenue
    
    
    2,413,347
    
    
    
    708,865Accrued expenses
    
    
    739,212
    
    
    
    267,591Deferred product costs
    
    
    (509,149
    )
    
    
    (305,411
    )Prepaid expenses
    
    
    (107,786
    )
    
    
    (11,555
    )Net cash provided by (used in) operating activities
    
    
    1,162,010
    
    
    
    (949,887
    )Cash used in investing activitiesPurchase of equipment
    
    
    (219,035
    )
    
    
    (96,541
    )Net cash used in investing activities
    
    
    (219,035
    )
    
    
    (96,541
    )Cash provided by financing activitiesNet borrowings (payments) on bank line of credit
    
    
    (274,176
    )
    
    
    792,184Payments on long-term debt
    
    
    (175,817
    )
    
    
    (215,318
    )Net proceeds from issuance of preferred stock and warrants
    
    
    3,767,163
    
    
    
    Proceeds from options and warrants exercised
    
    
    454,598
    
    
    
    19,197Net cash provided by financing activities
    
    
    3,771,768
    
    
    
    596,063Increase (decrease) in cash and cash equivalents
    
    
    4,714,743
    
    
    
    (450,365
    )Cash and cash equivalentsBeginning
    
    
    607,754
    
    
    
    1,058,119Ending
    
    $
    5,322,497
    
    
    $
    607,754Supplemental disclosures of cash flow informationCash payments for interest
    
    $
    77,350
    
    
    $
    78,314Supplemental schedule of noncash investing and financing activitiesPreferred stock dividends payable
    
    $
    58,629
    
    
    $
    Restricted stock
    
    $
    603,210
    
    
    $
    Preferred stock deemed dividends
    
    $
    729,912
    
    
    $
    
 See Notes to Financial Statements F-6




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies Nature of business:XATA Corporation (XATA or the Company) develops,
markets and services fully integrated, onboard fleet management systems for the
fleet trucking segment of the transportation industry in the United States of
America and Canada. XATA systems utilize proprietary software, onboard
touch-screen computers, and related hardware components and accessories to
capture, analyze, and communicate operating information that assists fleet
management in improving productivity and profitability. The majority of the Companys sales are on a credit basis to customers located
throughout the United States of America. A summary of the Companys significant accounting policies follows: 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) 101, Revenue
Recognition in Financial Statements. Hardware and software revenue is recognized under SOP 97-2 and SAB 101 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
and customer acceptance, (iii) the fee is fixed or determinable and payable
within twelve months, and (iv) collectibility is probable and supported by
credit checks or past payment history. Pursuant to certain contractual
arrangements, revenues are recognized for completed systems held at the
Companys warehouse pending the receipt of delivery instructions from the
customer. As of September 30, 2004, the Company had approximately $23,000 of
systems on hand that had been billed to those customers awaiting specific
delivery instructions, compared to $42,000 on September 30, 2003. Many of the Companys customers purchase software maintenance agreements
annually. Customers may also purchase extended warranty and service support
contracts. Revenue from maintenance agreements, extended warranty and service
support contracts are deferred and recognized ratably over the contract period.
When billed in advance, fees for professional services are recognized as they
are performed. With regard to software arrangements involving multiple elements, the Company
allocates revenue to each element based on the relative fair value of each
element. The Companys determination of fair value of each element 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 post-contract
customer support (PCS) components of its license arrangements. VSOE for PCS is
determined based upon the customers annual renewal rates for these elements.
Accordingly, assuming all other revenue recognition criteria are met, revenue
from perpetual licenses is recognized upon delivery, and revenue from PCS is

recognized ratably over the applicable term, typically one year. F-7




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies (Continued) Application service revenue, which is composed of monthly fees, is recognized
ratably over the minimum service contract period, which commences upon the
activation of the mobile application module. When system products are sold in
conjunction with an application service contract, the Company defers the
product revenue and associated product costs (deferred product costs) at
shipment and recognizes both ratably over the minimum service contract, which
is generally a one to five year period. The Company accounts for the resale of certain satellite and other wireless
communication services in conjunction with its products based on the gross
amount billed to customers. Cash and cash equivalents:The Company considers all highly liquid temporary
investments with an original maturity of 120 days or less to be cash
equivalents. The Company maintains its cash in bank deposit and money market
accounts, which, at times, exceed federally, insured limits. The Company
invests excess cash in commercial paper and other liquid investments. The
Company has not experienced any losses in such accounts. Fair value of financial instruments:The financial statements include the
following financial instruments: cash and cash equivalents, accounts
receivable, accounts payable and notes payable. At September 30, 2004 and
2003, no separate comparison of fair values versus carrying values is presented
for the aforementioned financial instruments since their fair values are not
significantly different than their balance sheet carrying amounts. Allowance for doubtful accounts and sales returns:The Company grants credit
to customers in the normal course of business. The majority of the Companys
accounts receivables 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.
Accounts receivable are typically due from customers within 30 days and are
stated at amounts due from customers net of an allowance for doubtful accounts
and sales returns. Accounts outstanding longer than the contractual payment
terms are considered past due. The Company determines its allowance for
doubtful accounts by considering a number of factors, including the length of
time trade receivables are past due, the Companys previous loss history, the
customers current ability to pay its obligation to the Company, 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 Company determines its allowance for sales returns by
considering several factors, including history of prior sales credits issued.
The Company regularly assesses the allowance for sales returns and increases it
as needed. When the Company accepts a product return or issues a sales credit
for which it had specifically increased the allowance, it writes-off the
associated accounts receivable and decreases the allowance for sales returns. Changes in the Companys allowance for doubtful accounts and sales returns are
as follows:  F-8




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies (Continued) 2004
    
    2003Beginning balance
    
    $
    322,000
    
    
    $
    162,000Bad debt expense (recoveries)
    
    
    5,000
    
    
    
    (20,000
    )Revenue reduction (increase)
    
    
    (34,000
    )
    
    
    180,000Ending balance
    
    $
    293,000
    
    
    $
    322,000
 Inventories:Inventories 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. Capitalized software development costs:Software development costs incurred
after establishing technological feasibility are capitalized. However, if the
amounts eligible for capitalization are deemed to be immaterial, we may choose
to recognize the expense fur such amounts in the period in which they are
incurred. 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). During fiscal year 2004, the
estimated useful life of the remaining capitalized software development costs
were evaluated and found to be shorter than previously estimated. Accordingly,
amortization of these capitalized development costs were accelerated in fiscal
2004, resulting in an additional $421,000 of amortization expense. The Company
reviews its long-lived assets periodically to determine potential impairment by
comparing the carrying value of the long-lived assets with estimated future
cash flows expected to result from the use of the assets, including cash flows
from disposition. Should the sum of the expected future cash flows be less
than the carrying value, the Company would recognize an impairment loss. An
impairment loss would be measured by comparing the amount by which the carrying
value exceeds the fair value of the long-lived assets. In fiscal 2003, the
Company recorded an impairment loss of $49,000, included in cost of goods sold,
to write off the net balance of capitalized software development costs related
to a product line for which revenue is not expected to be realized in the
foreseeable future. There was no impairment loss recorded in fiscal 2004. Research and development costs:Expenditures for research and development
activities performed by the Company are charged to operations as incurred. Capitalized fixed assets:Capitalized expenditures exceeding $1,000 with an
expected useful life greater than one year are capitalized. F-9




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies (Continued) Depreciation and amortization:Depreciation and amortization for financial
reporting purposes are computed using the straight-line method based on the
estimated useful lives of individual assets. Depreciation and amortization for
income tax reporting purposes are computed using accelerated methods.
Depreciable lives for financial reporting purposes are as follows: YearsEngineering and manufacturing equipment
    
    3-7Office furniture and equipment
    
    3-7Leasehold improvements
    
    3-15
 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 at the time of sale and for other costs associated
with specific items at the time their existence and amount are determinable.
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. In fiscal 2004 and fiscal 2003, the Company incurred warranty claims in
connection with the initial deployment of its XATANET fleet management system.
The changes in the Companys product warranty liability are as follows: 2004
    
    2003Liability, beginning of year
    
    $
    70,000
    
    
    $
    15,000Expense for new
warranties issued
    
    
    915,000
    
    
    
    260,000Warranty claims
    
    
    (629,600
    )
    
    
    (205,000
    )Liability, end of year
    
    $
    355,400
    
    
    $
    70,000
 Income taxes:Deferred income taxes are provided on 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. F-10




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies (Continued) Net loss per share:Basic and diluted net loss per common share is computed by
dividing the net loss of $1,190,964, less preferred stock dividends of
$135,851, by the weighted average common shares outstanding for the year of
7,021,573. At September 30, 2004 and 2003, the Company had options and warrants
outstanding to purchase a total of 1,328,893 and 875,593 shares of common
stock, at a weighted-average exercise price of $3.44 and $3.49. Because the
Company incurred a net loss in both fiscal 2004 and 2003, the inclusion of
potential common shares in the calculation of diluted net loss per common share
would have an antidilutive effect. Therefore, basic and diluted net loss per
common share amounts is the same in fiscal 2004 and 2003. Stock-based compensation:The Company has a stock-based employee compensation
plan, which is described more fully in Note 7. The Company applies Accounting
Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for its plan. Under this method,
compensation expense is recognized for the amount by which the market price of
the common stock on the date of grant exceeds the exercise price of an option.
No compensation costs related to stock option grants have been recognized in
the consolidated Statements of Operations (see Note 7). The following table
illustrates the effect on net loss if the Company had applied the fair value
recognition provisions of Financial Accounting Standards Board (FASB) Statement
123, Accounting for Stock-Based Compensation, using the assumptions described
in Note 7, to its stock-based employee plan. 2004
    
    2003Net loss, as reported
    
    $
    (1,190,964
    )
    
    $
    (3,783,859
    )Deduct: Total stock-based
employee compensation expense
determined under fair value based
methods for all awards, net of
related tax effects
    
    
    (269,000
    )
    
    
    (481,000
    )Pro forma net loss
    
    $
    (1,459,964
    )
    
    $
    (4,264,859
    )Basic and diluted net loss
per common shareAs reported
    
    $
    (0.19
    )
    
    $
    (0.55
    )Pro forma
    
    
    (0.23
    )
    
    
    (0.62
    )
 Estimates:Preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. F-11




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies (Continued) Reclassifications:Certain 2003 amounts have been reclassified to conform to
the 2004 presentation. Recently issued accounting pronouncements: Accounting for Inventory Costs In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
151, Inventory Costs an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that . . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal as to require treatment as current period charges. . . . This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of so abnormal. In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this Statement will have any immediate material impact on the
Company. Accounting for Share-Based Payment In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
123 (revised 2004), Share-Based Payment. This Statement is a revision of FASB
Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. This Statement
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. This Statement requires
that the compensation cost relating to share-based payment transactions be
measured on the fair value of the equity or liability instruments issued. This
Statement focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. This Statement
is effective in the first interim or annual reporting period that begins after
December 15, 2005. Management is currently assessing if the adoption of this
Statement will have a material impact on the Company. Note 2. Inventories Inventories consist of the following: September 302004
    
    2003Raw materials and subassemblies
    
    $
    552,108
    
    
    $
    454,146Finished goods
    
    
    514,926
    
    
    
    489,007Total inventories
    
    $
    1,067,034
    
    
    $
    943,153
 F-12




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 3. Bank Line of Credit As of September 30, 2004, the Company had a $2,000,000 credit line agreement
with a financial institution. Advances under the line of credit accrued
interest at prime rate plus 2.90%, or 7.65% as of
September 30, 2004. The line was subject to borrowing base requirements and is
collateralized by substantially all the assets of the Company (see also Note
10). Note 4. Long-Term Debt Long-term debt consists of the following: September 302004
    
    2003Note payable to Deere & Company, due in monthly
installments of $20,077 including interest at prime plus
2% (6.50% and 6.00% at September 30, 2004 and 2003)
through October 2005, collateralized by all inventories,
equipment and intellectual property
    
    $
    251,372
    
    
    $
    415,968Other
    
    
    
    
    
    
    11,221251,372
    
    
    
    427,189Less current maturities
    
    
    231,403
    
    
    
    175,893$
    19,969
    
    
    $
    251,296
 The Company entered into a Promissory Note with Deere & Company on April 20,
2000 in the original principal amount of $1,000,000. On November 30, 2004, the
Company pre-paid the remaining principal balance of $213,000. See also Note
10. F-13




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 5. Income Taxes The Companys deferred tax assets and liabilities are as follows: September 302004
    
    2003Inventory and warranty reserve
    
    $
    235,000
    
    
    $
    121,000Accrued expenses and deferred revenue
    
    
    125,000
    
    
    
    151,000Accounts receivable and sales reserve
    
    
    109,000
    
    
    
    119,000Research and development credits
    
    
    976,000
    
    
    
    817,000Net operating loss carryforwards
    
    
    5,790,000
    
    
    
    5,933,000Gross deferred tax assets
    
    
    7,235,000
    
    
    
    7,141,000Valuation allowance on deferred tax assets
    
    
    (7,195,000
    )
    
    
    (6,604,000
    )Net deferred tax assets
    
    
    40,000
    
    
    
    537,000Software development costs
    
    
    
    
    
    
    (488,000
    )Depreciation
    
    
    (40,000
    )
    
    
    (49,000
    )Gross deferred tax liabilities
    
    
    (40,000
    )
    
    
    (537,000
    )Net deferred tax assets (liability)
    
    $
    
    
    
    $
    
 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. The Companys income tax expense (benefit) differed from the statutory federal
rate as follows: September 302004
    
    2003Statutory federal rate applied to loss before income taxes
    
    $
    (405,000
    )
    
    $
    (1,287,000
    )State income tax benefit
    
    
    (36,000
    )
    
    
    (114,000
    )Permanent differences
    
    
    10,000
    
    
    
    14,000Change in valuation allowance
    
    
    591,000
    
    
    
    1,539,000Research and development credit
    
    
    (159,000
    )
    
    
    (154,000
    )Other
    
    
    (1,000
    )
    
    
    2,000$
    
    
    
    $
    Current
    
    $
    
    
    
    $
    Deferred
    
    
    
    
    
    
    $
    
    
    
    $
    
 F-14




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS At September 30, 2004, the Company had federal net operating loss carryforwards
of approximately $15.6 million, which will begin to expire in 2009. At September 30, 2004, the Company had research and development credit
carryforwards of approximately $976,000, which will begin to expire in 2009. Note 6. Commitments Leases The Company leases its office, warehouse, and certain office equipment under
noncancelable operating leases. The facility lease requires 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: Years ending September 30:2005
    
    
    180,0002006
    
    
    180,0002007
    
    
    54,0002008
    
    
    2,000
 Rental expense, including common area costs and net of rental income, was
approximately $269,000 and $252,000 for the fiscal years ended September 30,
2004 and 2003. Reseller Commitment On October 11, 2002, the Company entered into a U.S. Value Added Reseller
Agreement with ORBCOMM LLC. Pursuant to this agreement, the Company is
authorized to resell certain satellite communication services in conjunction
with its products. In exchange for favorable pricing, the Company has
committed to certain volume minimums. On March 30, 2004, the Company and
ORBCOMM amended this agreement by revising certain commitment dates.
Approximate future minimum purchases in excess of units already activated under
customer agreements are as follows: Years ending September 30:2005
    
    $
    700,0002006
    
    
    1,160,000$
    1,860,000
 401(k) plan:The Company has a 401(k) plan covering substantially all employees
and is operated on a calendar year basis. The Company provides an employer
matching contribution equal to 25% of an employees contribution for employee
deferrals of up to 6% of their compensation. Matching
contributions for the fiscal year ending September 30, 2004 and 2003 totaled
$51,000 and $52,000. F-15




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 7. Capital Stock The Company is authorized to issue up to 25,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock. 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. On August 31, 2000, John Deere Special Technologies Group, Inc. (JDSTG)
purchased 630,000 shares of Common Stock from the Company and 200,000 shares of
common stock from an entity owned in part by a Director of the Company (XIP),
each at $3.805 per share. On July 5, 2001, JDSTG purchased an additional
1,314,060 shares of Common Stock from the Company at $3.805 per share. In
connection with the Agreement, the Company is subject to certain restrictions,
including the payment of dividends on its common stock (except for stock
dividends) and the redemption of its capital stock. On December 6, 2003, the Company entered into a Common Stock Warrant and Series
B Preferred Stock Purchase Agreement (the Stock Purchase Agreement) with the
following entities associated with Trident Capital, Inc. (collectively
Trident):   Trident Capital Fund-V, L.P. Trident Capital Fund-V Affiliates Fund, L.P. Trident Capital Fund-V Affiliates Fund (Q), L.P. Trident Capital Fund-V Principals Fund, L.P. Trident Capital Fund-V, C.V. Under the Stock Purchase Agreement, Trident purchased 1,612,903 shares of
Series B Preferred Stock for $4,096,774, 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 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 Preferred Stock pays an annual cumulative dividend of 4% of
the original issue price (payable semi-annually; payable in additional shares
of Preferred Stock rather than 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. In the fiscal year ended September 30, 2004, the Company issued 30,401 shares
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 Preferred Stock
resulted in a non-cash deemed dividend of $100,931. The Preferred Stock is redeemable at the option of Trident at 100% 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
Preferred Stock will increase from 4% to 10%. The Company may redeem the
Preferred F-16




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS 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 451,226 shares of
its Common Stock at an exercise price of $3.17 per share. The aggregate
purchase price of the warrants was $56,403. The warrants permit cashless
exercise. In connection with this transaction, the Company recognized a one-time,
non-cash deemed dividend of $628,982 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 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. See also Exhibit 11 filed herewith. As required under the Stock Purchase Agreement, the Company filed a
Registration Statement on Form S-3 to register the resale, from time to time,
of the Common Stock to be issued pursuant to conversion of the Preferred Stock
and exercise of the warrants, and a reasonable estimate of any Common Stock to
be issued as dividends on the Preferred Stock. The Securities and Exchange
Commission declared this Registration Statement effective on March 15, 2004. 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 163,265
shares of Common Stock (130,612 shares at $2.54 per share and 32,653 shares at
$3.17 per share). These warrants permit cashless exercise and provide the
holders with piggyback registration rights. Stock option plans:In February 2002 the Company adopted the 2002 Long Term
Incentive and Stock Option Plan (the 2002 Plan). The 2002 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 2002 Plan. A total of
750,000 shares of the Companys common stock have been reserved for issuance
pursuant to options granted or shares awarded under the 2002 Plan. Generally,
the options that are granted under the 2002 Plan are exercisable for a period
of five years from the date of grant and vest over a period of up to three
years from the date of grant. F-17




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS The following tables summarize information relating to outstanding stock
options as of September 30, 2004 and 2003 : 2004
    
    2003Weighted-
    
    
    
    
    
    Weighted-Average Exercise
    
    
    
    
    
    AverageShares
    
    Price
    
    Shares
    
    Exercise PriceOptions outstanding at beginning of year
    
    
    828,115
    
    
    $
    3.56
    
    
    
    863,111
    
    
    $
    3.64Options granted
    
    
    28,000
    
    
    
    3.96
    
    
    
    251,932
    
    
    
    3.75Options exercised
    
    
    (147,220
    )
    
    
    2.85
    
    
    
    (9,750
    )
    
    
    1.97Options canceled
    
    
    (19,107
    )
    
    
    2.62
    
    
    
    (277,178
    )
    
    
    4.13Options outstanding at end of year
    
    
    689,788
    
    
    $
    3.76
    
    
    
    828,115
    
    
    $
    3.56
 Options Outstanding
    
    Options ExercisableWeighted-Number
    
    Average
    
    
    
    
    
    NumberOutstanding at
    
    Remaining
    
    Weighted
    
    Exercisable at
    
    WeightedSeptember 30,
    
    Contractual
    
    Average Exercise
    
    September 30,
    
    AverageRange of exercise price
    
    2004
    
    Life (Years)
    
    Price
    
    2004
    
    Exercise Price$2.37 - $3.52
    
    
    267,350
    
    
    
    1.56
    
    
    $
    3.16
    
    
    
    249,350
    
    
    $
    3.15$3.64 - $4.95
    
    
    407,438
    
    
    
    2.57
    
    
    
    4.09
    
    
    
    257,203
    
    
    
    4.15$5.00 - $5.63
    
    
    15,000
    
    
    
    0.40
    
    
    
    5.26
    
    
    
    15,000
    
    
    
    5.26689,788
    
    
    
    2.13
    
    
    $
    3.76
    
    
    
    521,553
    
    
    $
    3.70
 The fair value of each option is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 2004 and 2003: dividend rate of zero for both years;
price volatility of 58% for 2004 and 46% for 2003; risk-free interest rate of
3.04% for 2004 and 2.75% for 2003; and expected life of five years for 2004 and
2003. The weighted-average fair value per option of options granted in 2004
and 2003 was $2.08 and $1.57. Restricted stock awards:The Company recently changed its long-term incentive
compensation practices by granting restricted shares of common stock rather
than stock options. The Company granted a total of 139,520 restricted shares
of common stock to various management employees in the fiscal year ended
September 30, 2004. Each grant of restricted shares vests over three years.
During the fiscal year ended September 30, 2004, the Company recognized
$104,747 of deferred compensation related to restricted stock awards. Common stock warrants:The Company has, on occasion, issued warrants for the
purchase of common stock to directors, consultants and placement agents.
Compensation expense associated with the warrants has not been material. At
September 30, 2004, warrants were outstanding to purchase a total of 639,105
shares of common stock at a weighted-average exercise price of $3.10 per share,
with a weighted-average remaining life of approximately 4.13 years. F-18




---



##### Table of Contents



XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS Note 8. Major Customers The Company operates in a single reporting segment. Net sales include sales to
major customers as follows: Year Ended September 302004
    
    2003Revenue percentage:Customer A
    
    
    27
    %
    
    
    *Customer B
    
    
    *
    
    
    
    17
    %Ending receivable balance:Customer A
    
    $
    1,006,000
    
    
    $
    *Customer B
    
    
    *
    
    
    
    437,000
  *
    
    Net sales were less than 10 percent of total net sales. 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 continued purchases by
present customers who continue to equip and upgrade their fleets. Loss of any
significant current customers or an inability to further expand its customer
base would adversely affect the Company. Note 9. Related Party Transactions The Company purchases a significant portion of the hardware components for its
products from Phoenix International Corporation (Phoenix), a wholly owned
subsidiary of Deere & Company. John Deere Special Technologies Group, Inc.,
our largest shareholder, is also a subsidiary of Deere & Company. Payments by
the Company to Phoenix totaled $4,401,000 during the Companys fiscal year
ended September 30, 2004 and $1,541,000 during the fiscal year ended September
30, 2003. All transactions between Phoenix and the Company have been and will
be on terms negotiated at arms length. The net amount payable to Phoenix on
September 30, 2004 was $469,000, compared to $679,000 on September 30, 2003. Note 10. Subsequent Events (unaudited) On November 30, 2004, the Company pre-paid the remaining principal balance of
$213,000 on its Promissory Note with Deere & Company. The Promissory Note was
created on April 20, 2000 in the original principal amount of $1,000,000. On December 17, 2004 the Company established a new line of credit with Silicon
Valley Bank. Advances under the line of credit accrue interest at the prime
rate. The line is subject to borrowing base requirements and is collateralized
by substantially all the assets of the Company. The agreement expires on
December 16, 2005. F-19




---



##### Table of Contents



PART III 
 Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act Certain information about our executive officers called for by this Item is
contained in Part II of this Report, and other information is incorporated by
reference to our definitive proxy statement which will be filed within 120 days
after the end of our fiscal year pursuant to Regulation 14A (the Proxy
Statement). We have adopted a Code of Ethics applicable to our principal executive,
financial and accounting officers. The Code is filed as Exhibit 14 to this
Report and will be provided without charge, upon request, to any person. 
 Item 10. Executive Compensation Information called for by this Item is incorporated by reference to our
definitive proxy statement which will be filed within 120 days after the end of
our fiscal year pursuant to Regulation 14A. Equity Compensation Plan Information The Company has three equity compensation plans: its 1991 Long-Term
Incentive and Stock Option Plan, its 2001 Interim Incentive and Stock Option
Plan, and its 2002 Long-Term Incentive and Stock Option Plan, all of which have
been approved by the shareholders of the Company. The 1991 and 2001 Plans have
terminated and no additional awards can be made under those Plans. In
addition, the Company has issued warrants to its directors and certain service
providers. These awards have not been presented to or approved by the
shareholders. The following table presents information as of September 30, 2004 about
these plans, with separate disclosure for shareholder-approved plans and other
plans. Number of securitiesremaining available forNumber of securities to be
    
    Weighted-average exercise
    
    future issuance underissued upon exercise of
    
    price of outstanding
    
    equity compensation plansoutstanding options,
    
    options, warrants and
    
    (excluding securitieswarrants and rights
    
    rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    689,788
    (1)
    
    $
    3.76
    
    
    
    252,626
    (2)Equity compensation
plans not approved
by security holders
    
    
    187,879
    (3) (4) (5)
    
    $
    2.92
    
    
    
    - 0 -Total
    
    
    877,667
    
    
    $
    3.58
    
    
    
    252,626
  (1)
    
    Consists of options (expressed as number of shares) outstanding under
the following plans:1991 Long-Term Incentive and Stock Option Plan  194,4342001 Interim Incentive and Stock Option Plan  137,5002002 Long-Term Incentive and Stock Option Plan  357,854 26




---



##### Table of Contents



(2)
    
    Consists of shares available for future option grants as follows:1991 Long-Term Incentive and Stock Option Plan  none2001 Interim Incentive and Stock Option Plan  none2002 Long-Term Incentive and Stock Option Plan  252,626(3)
    
    Includes five-year warrants for the purchase of a total of 15,000
shares, exercisable at market value at the time of grant, issued to
directors of the Company in consideration of service on the Board of
Directors. The warrants contain a cashless exercise feature that
allows the holder to exercise for shares in an amount equal to the
excess of aggregate current market value over the aggregate exercise
price, divided by the current market value per share.(4)
    
    Includes 7-year warrants issued as part of its consideration to the
placement agent for the Trident Capital investment in the Company for
purchase of an aggregate of 163,265 shares of Common Stock (130,612
shares at $2.54 per share and 32,653 shares at $3.17 per share). These
warrants permit cashless exercise and provide the holders with
piggyback registration rights.(5)
    
    Includes a 5-year warrant for the purchase of 9,615 shares,
exercisable at market value at the time of grant, issued to an outside
consultant as partial consideration for executive search services. The
warrants contain a cashless exercise feature that allows the holder
to exercise for shares in an amount equal to the excess of aggregate
current market value over the aggregate exercise price, divided by the
current market value per share. 
 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information called for by this Item is incorporated by reference to our
definitive proxy statement which will be filed within 120 days after the end of
our fiscal year pursuant to Regulation 14A. 
 Item 12. Certain Relationships and Related Transactions Information called for by this Item is incorporated by reference to our
definitive proxy statement which will be filed within 120 days after the end of
our fiscal year pursuant to Regulation 14A. 
 Item 13. Exhibits and Reports on Form 8-K Reports on Form 8-K  1.
    
    Report on Form 8-K dated July 21, 2004 concerning the
press release for financial
results for the three month period ending June 30, 2004. 27




---



##### Table of Contents



Exhibits ExhibitNo.
    
    Description of Exhibits3.1
    
    Restated Articles of Incorporation, as amended (1)3.2
    
    Bylaws (1)3.3
    
    Amended and Restated Bylaws, effective February 26, 2002 (12)4.1
    
    Form of certificate representing the Common Stock (1)4.2
    
    Certificate of Designation of Preferences of Series B Preferred Stock (17)4.3
    
    Form of Trident Warrants (17)4.4
    
    Form of Cherry Tree Warrants (17)9.0
    
    Voting Agreement (17)10.1
    
    Lease (for Office and Manufacturing Facilities), dated September 11, 1986,
Letter Agreement and Amendment No. 1 to lease dated July 10, 1992, and
Amendment No. 2 to Lease (1)10.2
    
    Agreements with Dennis R. Johnson regarding employment (1)10.3
    
    Agreements with William P. Flies regarding employment (1)10.4
    
    1991 Long-Term Incentive and Stock Option Plan, as amended by
the Board of Directors in May 1997 subject to ratification by the
shareholders10.5
    
    Purchase Agreement with Ryder Dedicated Logistics, Inc. dated December 31,
1994, with supplemental agreement dated September 1, 1995 (2)10.7
    
    Lease dated December 26, 1996 with Hoyt Properties, Inc. for
new corporate headquarters (3)10.8
    
    Letter of Agreement with William Callahan regarding
compensation (4)10.9
    
    Credit Agreement with Norwest Business Credit, Inc., dated
October 23, 1998 and Amendments dated November 30, 1998 and January
8, 1999 (5)10.10
    
    Master Security Agreement and Promissory Note with GE
Capital Corporation Commercial Asset Funding, dated August 6, 1998
(5)10.11
    
    Separation Agreement with Dennis R. Johnson (6)10.12
    
    Separation Agreement with William Callahan (6)10.13
    
    Amendment to Credit Agreement with Norwest Bank dated December 1, 1999 (6)10.14
    
    Sublease Agreement with Kavoras, Inc. dated September 1, 1999 (6)10.15
    
    Stock Purchase Agreement with JDSTG, dated August 30, 2000 (7)10.16
    
    Registration Rights Agreement with JDSTG dated August 30, 2000 (7)10.17
    
    Amendment No. 1, dated October 31, 2000, to Stock Purchase
Agreement with JDSTG (9)10.18
    
    Side Agreement with JDSTG dated December 28, 2000 (8)10.19
    
    Employment Agreement dated October 1, 2000 with William P.
Flies, Chief Executive Officer (10)10.20
    
    Employment Agreement dated January 15, 2001 with John G.
Lewis, Chief Financial Officer (10)10.21
    
    Employment Agreement dated October 1, 2000 with Thomas N.
Flies, Senior Vice President of Product Development (10)10.22
    
    Employment Agreement dated October 1, 2000 with Joel G.
Jorgenson, Senior Vice President of Sales (10)10.23
    
    Employment Agreement dated February 5, 2001 with J. Perry
McGahan, Vice President of Software Engineering (11)10.24
    
    Employment Agreement dated February 20, 2002 with Craig S.
Fawcett, Chief Executive Officer (12)10.25
    
    Financing Agreement and Revolving Note with Itasca Business
Credit, Inc. dated December 23, 2002 (13)
 28




---



##### Table of Contents



ExhibitNo.
    
    Description of Exhibits10.26
    
    Form of Warrant issued to directors as equity compensation
(13), (14)10.27
    
    Employment Agreement dated October 1, 2002 with William P.
Flies, Chief Technical Officer (15)10.28
    
    First Lease Amendment dated May 5, 2003 which amends Lease
dated December 27, 1996 with Hoyt Properties for Burnsville,
Minnesota corporate headquarters (15)10.29
    
    Separation Agreement and Release dated June 11, 2003 with
William P. Flies, Chief Technical Officer (16)10.30
    
    Trident Investor Indemnification Agreement (17)10.31
    
    Trident Director Indemnification Agreement (17)10.32
    
    Common Stock Warrant and Series B Preferred Stock Purchase Agreement (17)10.33
    
    First Amendment to Financing Agreement and Restated
Revolving Note with Itasca Business Credit, Inc.10.34
    
    Amended Restricted Stock Award Agreement (18)*10.35
    
    Loan and Security Agreement with Silicon Valley Bank *11
    
    Earnings per share computation14
    
    Amended Code Of Ethics For Principal Executive Officer And
Senior Financial Officers *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 *99.1
    
    Fiscal Year 2004 Definitive Proxy Materials (portions of
which are incorporated herein by reference) (19)
   *
    
    Filed herewith(1)
    
    Incorporated by reference to exhibit filed as a part of Registration
Statement on Form S-2 (Commission File No. 33-98932).(2)
    
    Incorporated by reference to exhibit filed as a part of Report on Form
10-QSB for the fiscal quarter ended March 31, 1995. Certain segments have
been granted confidential treatment.(3)
    
    Incorporated by reference to exhibit filed as a part of Report on Form
10-QSB for the fiscal quarter ended March 31, 1997.(4)
    
    Incorporated by reference to exhibit filed as a part of Report on Form
10-KSB for fiscal year ended September 30, 1997.(5)
    
    Incorporated by reference to exhibit filed as a part of Report on Form
10-KSB for fiscal year ended September 30, 1998.(6)
    
    Incorporated by reference to exhibit filed as a part of Report on Form
10-KSB for fiscal year ended September 30, 1999.(7)
    
    Incorporated by reference to exhibit filed as a part of Report on Form
8-K on September 7, 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 a part of Report on Form
8-K on November 2, 2000. 29




---



##### Table of Contents



(10)
    
    Incorporated by reference to exhibit filed as part of Report on Form
10-QSB for the fiscal quarter ended December 31, 2000.(11)
    
    Incorporated by reference to exhibit filed as part of Report on Form
10-QSB for the fiscal quarter ended March 31, 2001.(12)
    
    Incorporated by reference to exhibit filed as part of Report on Form
10-QSB for the fiscal quarter ended March 31, 2002.(13)
    
    Incorporated by reference to exhibit filed as part of Report on Form
10-KSB for the fiscal year ended September 30, 2002.(14)
    
    Warrants substantially identical to the warrant filed as Exhibit 10.26
have been issued and are outstanding as follows: Holder
    
    Date of Issuance
    
    Exercise Price
    
    Number of SharesRichard Bogen
    
    
    5/14/00
    
    
    
    4.50
    
    
    
    5,000Stephen Lawrence
    
    
    9/17/01
    
    
    
    3.69
    
    
    
    10,000
  (15)
    
    Incorporated by reference to exhibit filed as part of Report on Form
10-QSB for the fiscal quarter ended March 31, 2003.(16)
    
    Incorporated by reference to exhibit filed as part of Report on Form
10-QSB for the fiscal quarter ended June 30, 2003.(17)
    
    Incorporated by reference to exhibit filed as part of Report on Form 8-K
on December 9, 2003.(18)
    
    Form of Amended Restricted Stock Award Agreement for awards granted to
Craig S. Fawcett, John G. Lewis, Peter A. Thayer, Mark W. Engel and Thomas
N. Flies. The award agreements are identical for each individual except
for name, dates and number of shares.(19)
    
    To be filed in definitive form not later than January 14, 2005. 
 Item 14. Principal Accountant Fees and Services Information called for by this Item is incorporated by reference to our
definitive proxy statement which will be filed within 120 days after the end of
our fiscal year pursuant to Regulation 14A. 30




---



##### Table of Contents



SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. XATA CORPORATIONDated: December 20, 2004
    By:
    /s/     Craig S. FawcettCraig S. Fawcett, President and ChiefExecutive Officer (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 20, 2004
    By:
    /s/     Richard L. BogenRichard L. Bogen, Director Dated: December 20, 2004
    By:
    /s/     Craig S. FawcettCraig S. Fawcett, Chief Executive Officer, Director Dated: December 20, 2004
    By:
    /s/     Carl M. FredericksCarl M. Fredericks, Director Dated: December 20, 2004
    By:
    /s/     Roger W. KleppeRoger W. Kleppe, Director Dated: December 20, 2004
    By:
    /s/     Stephen A. LawrenceStephen A. Lawrence, Director (Chairman) Dated: December 20, 2004
    By:
    /s/     John G. LewisJohn G. Lewis, Chief Operating Officer and Chief 
Financial Officer (Principal  accounting and
financial officer) Dated: December 20, 2004
    By:
    /s/     Christopher P. MarshallChristopher P. Marshall, Director Dated: December 20, 2004
    By:
    /s/     Charles R. Stamp, Jr.Charles R. Stamp, Jr., Director




---



##### Table of Contents



INDEX TO EXHIBITS IndexNumber
    
    Description10.34
    
    Amended Restricted Stock Award Agreement10.35
    
    Loan and Security Agreement with Silicon Valley Bank11
    
    Earnings per share computation14
    
    Amended Code of Ethics for Principal Executive Officer and Senior Financial Officers23
    
    Consent of Grant Thornton LLP, independent registered public accounting firm*31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002