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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
 x
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended June 30, 2005 oro
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from  to
 0-27166
 XATA Corporation
  Minnesota
    
    41-1641815(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
 
  (952) 707-5600
 
   x o
 APPLICABLE ONLY TO CORPORATE ISSUERS:
    1




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Index
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Balance Sheets as of June 30, 2005 and September 30, 2004
    
    
    3Statements of Operations for the Three and Nine Months Ended June 30, 2005 and 2004
    
    
    5Statements of Cash Flows for the Nine Months Ended June 30, 2005 and 2004
    
    
    6Notes to Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    14Item 3. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22SIGNATURESEXHIBITSEarnings Per Share ComputationCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 XATA CORPORATION
 
 BALANCE SHEETS
  June 30,
    
    
    September 30,ASSETS
    
    2005
    
    
    2004Current AssetsCash and cash equivalents
    
    $
    5,144,786
    
    
    $
    5,322,497Accounts receivable, less allowances for doubtful accounts
and sales returns of $274,000 and $293,000
    
    
    3,541,562
    
    
    
    5,500,832Inventories
    
    
    1,621,143
    
    
    
    1,067,034Deferred product costs
    
    
    2,036,359
    
    
    
    511,079Prepaid expenses
    
    
    90,246
    
    
    
    230,809Total current assets
    
    
    12,434,096
    
    
    
    12,632,251Equipment and Leasehold Improvements, at costEngineering and manufacturing equipment
    
    
    412,005
    
    
    
    388,424Office furniture and equipment
    
    
    1,528,105
    
    
    
    1,150,962Leasehold improvements
    
    
    41,344
    
    
    
    24,9481,981,454
    
    
    
    1,564,334Less: accumulated depreciation and amortization
    
    
    (1,298,068
    )
    
    
    (1,108,304
    )Total equipment and leasehold improvements
    
    
    683,386
    
    
    
    456,030Other AssetsDeferred product costs, net of current portion
    
    
    826,385
    
    
    
    303,481Total assets
    
    $
    13,943,867
    
    
    $
    13,391,762
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June 30,
    
    
    September 30,LIABILITIES AND SHAREHOLDERS' EQUITY
    
    2005
    
    
    2004Current LiabilitiesBank line of credit
    
    $
    751,179
    
    
    $
    518,008Current maturities of long-term debt
    
    
    
    
    
    
    231,403Accounts payable
    
    
    1,702,325
    
    
    
    1,733,932Accrued expenses
    
    
    1,602,080
    
    
    
    1,592,808Deferred revenue
    
    
    4,760,363
    
    
    
    2,657,882Total current liabilities
    
    
    8,815,947
    
    
    
    6,734,033Long-Term Debt, net of current maturities
    
    
    
    
    
    
    19,969Deferred Revenue, net of current portion
    
    
    2,866,830
    
    
    
    1,501,799Total liabilities
    
    
    11,682,777
    
    
    
    8,255,801Commitments
    
    
    
    
    
    
    Shareholders EquityPreferred stock, 4% convertible, 5,000,000 shares
authorized; 1,710,060 and 1,643,304 shares issued
    
    
    4,259,834
    
    
    
    3,922,532Common stock, par value $0.01 per share; 25,000,000 shares
authorized; 7,543,580 and 7,253,785 shares issued
    
    
    75,436
    
    
    
    72,538Additional paid-in capital
    
    
    19,721,517
    
    
    
    19,000,497Accumulated deficit
    
    
    (21,795,697
    )
    
    
    (17,859,606
    )Total shareholders equity
    
    
    2,261,090
    
    
    
    5,135,961Total liabilities and shareholders equity
    
    $
    13,943,867
    
    
    $
    13,391,762
  4




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XATA CORPORATION
 
 STATEMENTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    4,864,865
    
    
    $
    5,106,476
    
    
    $
    13,719,078
    
    
    $
    13,079,408Cost of goods sold
    
    
    3,267,592
    
    
    
    3,420,957
    
    
    
    9,508,419
    
    
    
    8,667,461Gross profit
    
    
    1,597,273
    
    
    
    1,685,519
    
    
    
    4,210,659
    
    
    
    4,411,947Operating expensesSelling, general and administrative
    
    
    1,872,091
    
    
    
    1,188,459
    
    
    
    4,951,655
    
    
    
    3,539,293Research and development
    
    
    853,641
    
    
    
    620,139
    
    
    
    2,987,042
    
    
    
    1,588,2772,725,732
    
    
    
    1,808,598
    
    
    
    7,938,697
    
    
    
    5,127,570Operating loss
    
    
    (1,128,459
    )
    
    
    (123,079
    )
    
    
    (3,728,038
    )
    
    
    (715,623
    )Non-operating income (expense)Interest income
    
    
    17,724
    
    
    
    6,276
    
    
    
    69,618
    
    
    
    13,451Interest expense
    
    
    (1,498
    )
    
    
    (22,653
    )
    
    
    (11,391
    )
    
    
    (62,607
    )Other, net
    
    
    13,007
    
    
    
    11,625
    
    
    
    26,912
    
    
    
    12,79729,233
    
    
    
    (4,752
    )
    
    
    85,139
    
    
    
    (36,359
    )Net loss before income taxes
    
    
    (1,099,226
    )
    
    
    (127,831
    )
    
    
    (3,642,899
    )
    
    
    (751,982
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (1,099,226
    )
    
    
    (127,831
    )
    
    
    (3,642,899
    )
    
    
    (751,982
    )Preferred stock dividends and
deemed dividend
    
    
    (100,867
    )
    
    
    (141,899
    )
    
    
    (293,192
    )
    
    
    (822,774
    )Loss to common shareholders
    
    $
    (1,200,093
    )
    
    $
    (269,730
    )
    
    $
    (3,936,091
    )
    
    $
    (1,574,756
    )Loss per common share  basic and
diluted:Net loss
    
    $
    (0.16
    )
    
    $
    (0.02
    )
    
    $
    (0.52
    )
    
    $
    (0.12
    )Loss to common shareholders
    
    
    (0.17
    )
    
    
    (0.04
    )
    
    
    (0.55
    )
    
    
    (0.22
    )Weighted average common and
common share equivalentsBasic and Diluted
    
    
    7,261,895
    
    
    
    7,051,079
    
    
    
    7,188,108
    
    
    
    7,001,462
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XATA CORPORATION
 
 STATEMENTS OF CASH FLOWS
  Nine Months EndedJune 30,2005
    
    
    2004Cash provided by (used in) operating activitiesNet loss
    
    $
    (3,642,899
    )
    
    $
    (751,982
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation and amortization of equipment and leasehold improvements
    
    
    189,764
    
    
    
    138,304Amortization of capitalized software development costs
    
    
    
    
    
    
    907,797Deferred compensation recognized
    
    
    314,544
    
    
    
    59,964Issuance of warrants for services rendered
    
    
    25,000
    
    
    
    Changes in assets and liabilities:Accounts receivable, net
    
    
    1,959,269
    
    
    
    350,872Inventories
    
    
    (554,109
    )
    
    
    93,962Deferred product costs
    
    
    (2,048,184
    )
    
    
    (285,522
    )Prepaid expenses
    
    
    140,564
    
    
    
    (70,706
    )Accounts payable
    
    
    (31,607
    )
    
    
    (876,618
    )Accrued expenses
    
    
    53,382
    
    
    
    318,183Deferred revenue
    
    
    3,467,511
    
    
    
    1,510,052Net cash provided by (used in) operating activities
    
    
    (126,765
    )
    
    
    1,394,306Cash used in investing activitiesPurchase of equipment
    
    
    (417,120
    )
    
    
    (101,312
    )Net cash used in investing activities
    
    
    (417,120
    )
    
    
    (101,312
    )Cash provided by financing activitiesNet borrowings (payments) on bank line of credit
    
    
    233,171
    
    
    
    (405,838
    )Payments on long-term debt
    
    
    (251,372
    )
    
    
    (120,179
    )Net proceeds from issuance of preferred stock
    
    
    
    
    
    
    3,710,760Net proceeds from issuance of warrants
    
    
    
    
    
    
    56,403Proceeds from options and warrants exercised
    
    
    384,375
    
    
    
    284,994Net cash provided by financing activities
    
    
    366,174
    
    
    
    3,526,140Increase (decrease) in cash and cash equivalents
    
    
    (177,711
    )
    
    
    4,819,134Cash and cash equivalentsBeginning
    
    
    5,322,497
    
    
    
    607,754Ending
    
    $
    5,144,786
    
    
    $
    5,426,888Supplemental disclosures of cash flow informationCash payments for interest
    
    $
    11,391
    
    
    $
    62,607Supplemental schedule of noncash investing and financing activitiesPreferred stock dividends payable
    
    $
    14,518
    
    
    $
    15,639Preferred stock dividends paid
    
    
    169,561
    
    
    
    77,221Preferred stock deemed dividends
    
    
    167,742
    
    
    
    729,913
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Note 1. Management Statement
  Note 2. Significant Accounting Policies
 Revenue recognition: Software Revenue Recognition, as amended by SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions Revenue Recognition
     7




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Cash and cash equivalents:
 Allowance for doubtful accounts and sales returns:
 Inventories:
 June 30
    
    
    September 302005
    
    
    2004Raw materials and subassemblies
    
    $
    681,413
    
    
    $
    552,108Finished goods
    
    
    939,730
    
    
    
    514,926Total inventories
    
    $
    1,621,143
    
    
    $
    1,067,034
 8




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Research and development costs:
 Equipment and Leasehold Improvements:
 Net loss per share:
  Stock-based compensation:
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    $
    (1,099,226
    )
    
    $
    (127,831
    )
    
    $
    (3,642,899
    )
    
    $
    (751,982
    )Deduct: Total stock-based
employee compensation expense
determined under fair value based
methods for all awards, net of
related tax effects
    
    
    (21,000
    )
    
    
    (49,000
    )
    
    
    (135,000
    )
    
    
    (221,000
    )Pro forma net loss
    
    $
    (1,120,226
    )
    
    $
    (176,831
    )
    
    $
    (3,777,899
    )
    
    $
    (972,982
    )Basic and diluted net loss
per common shareAs reported
    
    $
    (0.15
    )
    
    $
    (0.02
    )
    
    $
    (0.51
    )
    
    $
    (0.11
    )Pro forma
    
    
    (0.15
    )
    
    
    (0.03
    )
    
    
    (0.53
    )
    
    
    (0.14
    )
 9




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Restricted stock awards:
  Common stock warrants:
  Note 3. Commitments
 Reseller Commitment
  Fiscal Years ending September 30:2005
    
    $
    81,0002006
    
    
    588,000
 Note 4. Line of Credit
  10




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Note 5. Transactions with Related Party
  Note 6. Capital Stock
   
    
    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.
    11




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Item 2. Managements Discussion and Analysis or Plan of Operation
  Overview
  Critical Accounting Policies
  Revenue recognition.
 12




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Allowance for doubtful accounts and sales returns.
 Research and development costs.
 13




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Recently Issued Accounting Pronouncements
 Accounting for Inventory Costs. Inventory Costs an amendment of ARB No. 43, Chapter 4
 Accounting for Share-Based Payment. Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Results of Operations
  Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Gross profit
    
    
    33
    %
    
    
    33
    %
    
    
    31
    %
    
    
    34
    %Selling, general and administrative
    
    
    38
    %
    
    
    23
    %
    
    
    36
    %
    
    
    27
    %Research and development
    
    
    18
    %
    
    
    12
    %
    
    
    22
    %
    
    
    12
    %Operating loss
    
    
    -23
    %
    
    
    -2
    %
    
    
    -27
    %
    
    
    -5
    %Net loss
    
    
    -23
    %
    
    
    -3
    %
    
    
    -27
    %
    
    
    -6
    %
 Net Sales.
 14




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Cost of Goods Sold.
 Operating Expenses.
   15




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Non-operating Income and Expense.
 Net Loss.
 Liquidity and Capital Resources
       16




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Transactions with Related Party
  
 Item 3. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting
   17




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Forward-looking Statements
 This document 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, the economy and the business environment in
general. Risks and uncertainties about us include, but are not limited to, the following:
 
    
    although we expect to incur operating losses in the current fiscal year, these losses
may continue beyond the expected timeframe or in excess of the expected magnitude, and we
may be dependent upon external investment to support our operations during periods in which
we incur operating losses;
    
    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 communication networks
owned and controlled by others, and accordingly, their problems may adversely impact us;
    
    for the foreseeable future, we are dependent upon the continued receipt and fulfillment
of new orders for our current products;
    
    our growth and profitability depend on our timely introduction and market acceptance of
new products, our ability to continue to fund research and development activities, and our
ability to establish and maintain strategic partner relationships.
 You are encouraged to read more about the specific risks and uncertainties of our business. We
have described those that we currently consider most important in our report on Form 10-KSB for our
fiscal year ended September 30, 2004. We undertake no obligation to update our disclosures in this
regard.
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities and Small Business Issuer Purchases of Equity
Securities
  18




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Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5.
Other Information
  
 Item 6.
Exhibits
 Exhibit11
    
    Earnings per share computation31.1
    
    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
 Reports on Form 8-K
 1.
    
    Report on Form 8-K dated April 12, 2005 concerning the press release for the
appointment of Mark E. Ties as Chief Financial Officer2.
    
    Report on Form 8-K dated May 10, 2005 concerning the press release for financial
results for the fiscal quarter ended March 31, 2005.
 
 SIGNATURES
  Dated: August 11, 2005
    XATA Corporation
(Registrant)By:
    /s/  Mark E. TiesMark E. TiesChief Financial Officer
(Signing as Principal Financial and Accounting
Officer, and as Authorized Signatory of Registrant) 19