##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended June 30, 2007 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)151 E. Cliff Road, Suite 10, Burnsville, Minnesota 55337(Address of Principal Executive Offices) (Zip Code)
 (952) 707-5600
 
  þ o
 o þ
 o o þ




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##### 



Index
  
 Page No.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Balance Sheets as of June 30, 2007
and September 30, 2006
    
    
    4Statements of Operations for the Three and Nine Months Ended June 30, 2007 and 2006
    
    
    5Statements of Changes in Shareholders Equity
as of June 30, 2007 and September 30, 2006
    
    
    6Statements of Cash Flows for the Nine Months Ended June 30, 2007 and 2006
    
    
    7Notes to Financial Statements
    
    
    8Item 2.
    
    Managements Discussion and Analysis
of Financial Conditions and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    24PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    24Item 1A.
    
    Risk Factors
    
    
    24Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults upon Senior Securities
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    25Item 6.
    
    Exhibits
    
    
    25SIGNATURESEXHIBITSCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
   
 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 3




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##### Table of Contents



XATA CORPORATION
 
 STATEMENTS OF OPERATIONS
   Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    7,984
    
    
    $
    7,447
    
    
    $
    23,920
    
    
    $
    22,288Costs and expensesCost of goods sold
    
    
    4,282
    
    
    
    4,437
    
    
    
    13,133
    
    
    
    12,739Selling, general and administrative
    
    
    3,620
    
    
    
    2,580
    
    
    
    10,115
    
    
    
    7,895Research and development
    
    
    1,061
    
    
    
    1,084
    
    
    
    3,258
    
    
    
    3,028Total costs and expenses
    
    
    8,963
    
    
    
    8,101
    
    
    
    26,506
    
    
    
    23,662Operating loss
    
    
    (979
    )
    
    
    (654
    )
    
    
    (2,586
    )
    
    
    (1,374
    )Net interest income
    
    
    104
    
    
    
    95
    
    
    
    280
    
    
    
    129Loss before income taxes
    
    
    (875
    )
    
    
    (559
    )
    
    
    (2,306
    )
    
    
    (1,245
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (875
    )
    
    
    (559
    )
    
    
    (2,306
    )
    
    
    (1,245
    )Preferred stock dividends
    
    
    (46
    )
    
    
    (45
    )
    
    
    (138
    )
    
    
    (133
    )Preferred stock deemed dividends
    
    
    (722
    )
    
    
    (92
    )
    
    
    (817
    )
    
    
    (144
    )Net loss to common shareholders
    
    $
    (1,643
    )
    
    $
    (696
    )
    
    $
    (3,261
    )
    
    $
    (1,522
    )Net loss per common share  basic and diluted
    
    $
    (0.21
    )
    
    
    ($0.09
    )
    
    $
    (0.41
    )
    
    
    ($0.21
    )Weighted average common and
common share equivalentsBasic and Diluted
    
    
    7,959
    
    
    
    7,539
    
    
    
    7,908
    
    
    
    7,415
  4




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##### Table of Contents



XATA CORPORATION
 
 BALANCE SHEETS
  June 30,
    
    
    September 30,2007
    
    
    2006(Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    14,241
    
    
    $
    6,354Accounts receivable, less allowances for doubtful accounts
and sales returns of $143 and $278
    
    
    3,709
    
    
    
    5,260Inventories
    
    
    1,926
    
    
    
    2,212Deferred product costs
    
    
    1,006
    
    
    
    3,433Prepaid expenses
    
    
    356
    
    
    
    270Total current assets
    
    
    21,238
    
    
    
    17,529Equipment and leasehold improvements, net
    
    
    1,138
    
    
    
    1,316Captialized system development costs, net
    
    
    1,177
    
    
    
    1,191Deferred product costs, net of current portion
    
    
    1,856
    
    
    
    1,687Total assets
    
    $
    25,409
    
    
    $
    21,723LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesCurrent portion of long-term obligations
    
    $
    103
    
    
    $
    94Accounts payable
    
    
    1,464
    
    
    
    1,688Accrued expenses
    
    
    2,220
    
    
    
    2,674Deferred revenue
    
    
    3,685
    
    
    
    6,728Total current liabilities
    
    
    7,472
    
    
    
    11,184Long-term obligations, net of current portion
    
    
    98
    
    
    
    88Deferred revenue, net of current portion
    
    
    6,745
    
    
    
    5,261Total liabilities
    
    
    14,315
    
    
    
    16,533Shareholders Equity
Preferred stock, no par, 10,000 shares authorized:Series B, 4% convertible, 2,250 shares designated;
shares issued and outstanding: 1,851 at June 30, 2007
and 1,779 at September 30, 2006
    
    
    4,921
    
    
    
    4,579Series C, convertible, 1,400 shares designated;
1,269 shares issued and outstanding at June 30, 2007
and September 30, 2006
    
    
    4,845
    
    
    
    4,845Series D, convertible, 1,600 shares designated;
1,567 shares issued and outstanding at June 30, 2007
and 0 at September 30, 2006
    
    
    5,931
    
    
    
    Common stock, par value $0.01 per share; 25,000 shares
authorized; shares issued and outstanding: 8,516 at June 30, 2007
and 7,963 at September 30, 2006
    
    
    85
    
    
    
    80Additional paid-in capital
    
    
    25,233
    
    
    
    23,246Unearned stock based compensation
    
    
    
    
    
    
    (900
    )Accumulated deficit
    
    
    (29,921
    )
    
    
    (26,660
    )Total shareholders equity
    
    
    11,094
    
    
    
    5,190Total liabilities and shareholders equity
    
    $
    25,409
    
    
    $
    21,723
  5




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##### Table of Contents



XATA CORPORATION
 
 STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 PERIODS ENDED JUNE 30, 2007 AND SEPTEMBER 30, 2006
   Series B
    
    
    Series C
    
    
    Series D
    
    
    Additional
    
    
    UnearnedCommon Stock
    
    
    Preferred Stock
    
    
    Preferred Stock
    
    
    Preferred Stock
    
    
    Paid-In
    
    
    Stock-Based
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    TotalBalance, September 30, 2005
    
    
    7,549
    
    
    $
    76
    
    
    
    1,710
    
    
    $
    4,260
    
    
    
    1,269
    
    
    $
    4,845
    
    
    
    
    
    
    $
    
    
    
    $
    21,458
    
    
    $
    (1,007
    )
    
    $
    (24,595
    )
    
    $
    5,037Common stock issued on exercise of options
    
    
    344
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,255
    
    
    
    
    
    
    
    
    
    
    
    1,258Common stock issued on exercise of warrants
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of restricted shares of common stock
    
    
    199
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    963
    
    
    
    (965
    )
    
    
    
    
    
    
    Amortization of unearned stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    566
    
    
    
    
    
    
    
    566Elimination of unearned compensation related to
terminated employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (506
    )
    
    
    506
    
    
    
    
    
    
    
    Forfeiture of restricted shares of common stock
    
    
    (138
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (178
    )
    
    
    (3
    )Preferred stock deemed dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (144
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,743
    )
    
    
    (1,743
    )Balance, September 30, 2006
    
    
    7,963
    
    
    
    80
    
    
    
    1,779
    
    
    
    4,579
    
    
    
    1,269
    
    
    
    4,845
    
    
    
    
    
    
    
    
    
    
    
    23,246
    
    
    
    (900
    )
    
    
    (26,660
    )
    
    
    5,190Common stock issued on exercise of options
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    53Issuance of restricted shares of common stock
    
    
    450
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    Elimination of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (900
    )
    
    
    900
    
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,496
    
    
    
    
    
    
    
    
    
    
    
    1,496Forfeiture of restricted shares of common stock
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of common stock
    
    
    112
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    604
    
    
    
    
    
    
    
    
    
    
    
    605Issuance of preferred stock and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,567
    
    
    
    5,273
    
    
    
    738
    
    
    
    
    
    
    
    
    
    
    
    6,011Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    45Preferred stock deemed dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    658
    
    
    
    
    
    
    
    
    
    
    
    (817
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,306
    )
    
    
    (2,306
    )Balance, June 30, 2007
    
    
    8,516
    
    
    $
    85
    
    
    
    1,851
    
    
    $
    4,921
    
    
    
    1,269
    
    
    $
    4,845
    
    
    
    1,567
    
    
    $
    5,931
    
    
    $
    25,233
    
    
    $
    
    
    
    $
    (29,921
    )
    
    $
    11,094
  6




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##### Table of Contents



XATA CORPORATION
 
 STATEMENTS OF CASH FLOWS
   Nine months endedJune 30,2007
    
    
    2006Cash provided by operating activitiesNet loss
    
    $
    (2,306
    )
    
    $
    (1,245
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and impairment costs
    
    
    653
    
    
    
    303Issuance of warrants for services rendered
    
    
    33
    
    
    
    25Stock based compensation
    
    
    1,497
    
    
    
    414Changes in assets and liabilities:Accounts receivable, net
    
    
    1,551
    
    
    
    2,968Inventories
    
    
    286
    
    
    
    (438
    )Deferred product costs
    
    
    2,258
    
    
    
    (196
    )Prepaid expenses
    
    
    (86
    )
    
    
    (139
    )Accounts payable
    
    
    (224
    )
    
    
    126Accrued expenses
    
    
    (410
    )
    
    
    332Deferred revenue
    
    
    (1,559
    )
    
    
    1,897Net cash provided by operating activities
    
    
    1,693
    
    
    
    4,047Cash used in investing activitiesPurchase of equipment and leasehold improvements
    
    
    (202
    )
    
    
    (695
    )Additions to system development costs
    
    
    (160
    )
    
    
    (593
    )Net cash used in investing activities
    
    
    (362
    )
    
    
    (1,288
    )Cash provided by financing activitiesBorrowings on bank line of credit
    
    
    
    
    
    
    200Payments on bank line of credit
    
    
    
    
    
    
    (2,000
    )Borrowings on long-term obligations
    
    
    
    
    
    
    49Payments on long-term obligations
    
    
    (80
    )
    
    
    (57
    )Proceeds from issuance of common stock
    
    
    605
    
    
    
    Proceeds from issuance of preferred stock and warrants
    
    
    5,978Proceeds from options and warrants exercised
    
    
    53
    
    
    
    846Net cash provided by (used in) financing activities
    
    
    6,556
    
    
    
    (962
    )Increase in cash and cash equivalents
    
    
    7,887
    
    
    
    1,797Cash and cash equivalentsBeginning
    
    
    6,354
    
    
    
    6,473Ending
    
    $
    14,241
    
    
    $
    8,270Supplemental disclosures of cash flow informationCash payments for interest
    
    $
    17
    
    
    $
    79Supplemental schedule of noncash investing and financing activitiesIssuance of restricted stock
    
    $
    
    
    
    $
    966Preferred stock deemed dividends
    
    
    817
    
    
    
    144Unearned compensation for terminated employees
    
    
    
    
    
    
    158Preferred stock dividends payable
    
    
    16
    
    
    
    15Preferred stock dividends paid
    
    
    183
    
    
    
    175Equipment purchased under capital lease
    
    
    98
    
    
    
    212
  7




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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS
 Note 1. Significant Accounting Policies
 Presentation
   Revenue Recognition
 Software Revenue Recognition Software Revenue Recognition with Respect to Certain Transactions Revenue Recognition in Financial
Statements
    8




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##### Table of Contents



Use of Estimates
  Cash and Cash Equivalents
  Concentration of Credit Risk
   Fair Value of Financial Instruments
  Inventories
   9




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##### Table of Contents



June 30,
    
    
    September 30,2007
    
    
    2006Parts and accessories
    
    $
    1,394
    
    
    $
    786Finished goods
    
    
    532
    
    
    
    1,426Total inventories
    
    $
    1,926
    
    
    $
    2,212
 Equipment and Leasehold Improvements
   June 30,
    
    
    September 30,2007
    
    
    2006Office furniture and equipment
    
    $
    2,832
    
    
    $
    2,543Engineering and manufacturing equipment
    
    
    574
    
    
    
    564Leasehold improvements
    
    
    35
    
    
    
    343,441
    
    
    
    3,141Less: accumulated depreciation
    
    
    (2,303
    )
    
    
    (1,825
    )Equipment and leasehold improvements, net
    
    $
    1,138
    
    
    $
    1,316
  Capitalized System Development Costs
   Long-Lived Assets
  Product Warranties
  10




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##### Table of Contents



Shipping Costs
  Advertising Costs
  Research and Development Costs
 Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed
 Income taxes
 Accounting for
Income Taxes
 Reclassifications
  Recently Issued Accounting Standards
 Accounting Changes and Error Corrections (Statement 154)
 Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3
 11




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##### Table of Contents



Accounting Changes
 Accounting for Uncertainty in Income Taxes (FIN 48)
 Accounting for Uncertainty in Income Taxes
 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statement (SAB 108)
 Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
 Fair Value Measurements (FAS 157)
  Note 2. Stock-Based Compensation
 Stock Options
  12




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##### Table of Contents



Share
Based Payment
 Accounting for Stock Issued to Employees,
   Three months
    
    
    Nine months endedended June 30, 2006
    
    
    June 30, 2006Net loss to common shareholders, as reported
    
    $
    (696
    )
    
    $
    (1,522
    )Deduct: Total stock-based employee compensation
expense determined under fair value based methods
for all awards, net of related tax effects
    
    
    (1
    )
    
    
    (61
    )Pro forma net loss to common shareholders
    
    $
    (697
    )
    
    $
    (1,583
    )Basic and diluted net loss to common shareholders
per common shareAs reported
    
    $
    (0.09
    )
    
    $
    (0.21
    )Pro forma
    
    
    (0.09
    )
    
    
    (0.21
    )
  13




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##### Table of Contents



Weighted AverageShares
    
    
    Exercise PriceOptions outstanding at September 30, 2006
    
    
    388
    
    
    $
    4.60Granted
    
    
    879
    
    
    
    5.18Exercised
    
    
    (14
    )
    
    
    3.73Cancelled
    
    
    (33
    )
    
    
    4.94Options outstanding at June 30, 2007
    
    
    1,220
    
    
    $
    5.02
   Options Outstanding
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    Weighted
    
    
    
    
    
    
    
    
    
    AverageRemaining
    
    Average
    
    
    
    
    
    
    
    
    
    Remaining
    
    WeightedRange of
    
    Number
    
    Contractual
    
    Exercise
    
    Aggregate
    
    Number
    
    Contractual
    
    Average
    
    Aggregateexercise
    
    of
    
    Life
    
    Average
    
    Intrinsic
    
    of
    
    Life
    
    Exercise
    
    Intrinsicprice
    
    Shares
    
    (Years)
    
    Price
    
    Value
    
    Shares
    
    (Years)
    
    Price
    
    Value$2.85  $2.95
    
    
    13
    
    
    
    0.71
    
    
    $
    2.95
    
    
    
    
    
    
    
    13
    
    
    
    0.71
    
    
    $
    2.95$3.03  $3.99
    
    
    95
    
    
    
    0.69
    
    
    
    3.79
    
    
    
    
    
    
    
    95
    
    
    
    0.69
    
    
    
    3.79$4.18  $4.98
    
    
    116
    
    
    
    4.58
    
    
    
    4.68
    
    
    
    
    
    
    
    41
    
    
    
    4.36
    
    
    
    4.53$5.03  $5.40
    
    
    996
    
    
    
    5.24
    
    
    
    5.21
    
    
    
    
    
    
    
    45
    
    
    
    5.73
    
    
    
    5.171,220
    
    
    
    4.78
    
    
    $
    5.02
    
    
    $
    34
    
    
    
    194
    
    
    
    2.64
    
    
    $
    4.21
    
    
    $
    34
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Number of shares granted
    
    
    25
    
    
    
    
    
    
    
    879
    
    
    
    20Fair value
    
    $
    1.30
    
    
    $
    
    
    
    $
    1.81
    
    
    $
    2.95Risk-free interest rate
    
    
    4.65
    %
    
    
    
    
    
    
    4.65
    %
    
    
    4.55
    %Expected volatility
    
    
    31.91
    %
    
    
    
    
    
    
    35.57
    %
    
    
    41.76
    %Expected life (in years)
    
    
    3.50
    
    
    
    
    
    
    
    4.05
    
    
    
    10.0Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 14




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##### Table of Contents





Restricted Stock Awards




Number of
    
    
    Weighted AverageShares
    
    
    Fair ValueRestricted stock outstanding at September 30, 2006
    
    
    213
    
    
    $
    4.95Granted
    
    
    450
    
    
    
    5.34Vested
    
    
    (106
    )
    
    
    4.96Cancelled
    
    
    (23
    )
    
    
    4.98Restricted stock outstanding at June 30, 2007
    
    
    534
    
    
    $
    5.27










Note 3. Commitments


Leases




Reseller Commitment




15



---



##### Table of Contents



401(k) Plan
  Note 4. Bank Line of Credit
  Note 5. Shareholders Equity
 Common Stock
  Preferred Stock
  Series B
    16




---



##### Table of Contents



Series C
  Series D
  Common Stock Warrants
   Weighted AverageRemaining
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Contractual Life
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    (Years)
    
    
    ValueWarrants outstanding at September 30, 2006
    
    
    1,033
    
    
    $
    3.49
    
    
    
    2.99
    
    
    $
    1,983Granted
    
    
    505
    
    
    
    3.86
    
    
    
    4.97Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Warrants outstanding at June 30, 2007
    
    
    1,538
    
    
    $
    3.49
    
    
    
    3.14
    
    
    $
    681
 17




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##### Table of Contents



Note 6. Income (Loss) Per Share
   Note 7. Legal Proceedings
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward-looking Statements
  
    
    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;
 
 18




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##### Table of Contents




    
    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.
  Overview
    
    
    Mobile two-way messaging and real-time vehicle location.
    
    Automation of DOT driver log requirements and state fuel tax reporting.
    
    Comprehensive vehicle and driver performance reporting.
    
    Efficient routing, trip optimization and stop activity scheduling.
    
    Diagnostic and accident data capture.
  Critical Accounting Policies
  Revenue Recognition. Software Revenue Recognition Software Revenue Recognition with Respect to Certain Transactions Revenue Recognition in Financial
Statements
  19




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##### Table of Contents



Allowance for doubtful accounts and sales returns.
  Product Warranties
 Capitalized system development costs
 Research
and development costs. Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
 20




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##### Table of Contents



Income taxes Accounting
for Income Taxes
 Results of Operations for the three and nine months ended June 30, 2007 and 2006
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    46.4
    %
    
    
    40.4
    %
    
    
    45.1
    %
    
    
    42.8
    %Selling, general and administrative
    
    
    45.3
    %
    
    
    34.6
    %
    
    
    42.3
    %
    
    
    35.4
    %Research and development
    
    
    13.3
    %
    
    
    14.6
    %
    
    
    13.6
    %
    
    
    13.6
    %Operating loss
    
    
    (12.3
    %)
    
    
    (8.8
    %)
    
    
    (10.8
    %)
    
    
    (6.2
    %)Net loss
    
    
    (11.0
    %)
    
    
    (7.5
    %)
    
    
    (9.6
    %)
    
    
    (5.6
    %)
 Net Sales
     Cost of Goods Sold
  21




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##### Table of Contents



Selling, General and Administrative Expenses
   Research & Development Expenses
 .
  Net Interest Income
  Income Taxes
  22




---



##### Table of Contents



Net Loss to Common Shareholders
  Liquidity and Capital Resources
         23




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Item 103
 
 Item 1A. Risk Factors
  24




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5.      Other Information
  
 Item 6.     Exhibits
 Exhibit3.1
    
    
    Certificate of Designations for Series D Preferred Stock dated June 18, 2007. **4.1
    
    
    Investor Rights Agreement dated as of June 19, 2007 by and among XATA
Corporation, 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. and Trident Capital Parallel Fund-V, C.V. **4.2
    
    
    Form of Warrant issued to 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. and Trident Capital Parallel Fund-V, C.V. on June 19, 2007.
**10.1
    
    
    Common Stock Warrant and Series D Preferred Stock Purchase Agreement dated as of
June 18, 2007 by and among XATA Corporation, 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. and Trident Capital Parallel Fund-V, C.V.
**10.2
    
    
    Lease Agreement, dated as of July 9, 2007, between 965 Partnership LLP and XATA
Corporation. #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-OxleyAct of 2002 *32.2
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-OxleyAct of 2002 *
 25




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##### Table of Contents



*
    
    
    Filed herewith.**
    
    
    Incorporated by reference to the
corresponding exhibit to the Companys Current Report on Form 8-K dated June 18, 2007.#
    
    
    Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K dated July 9, 2007.
 
 SIGNATURES
  Dated:  August 3, 2007
    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) 
 26