##### 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 1934
 For the quarterly period ended December 31, 2006
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number: 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 December 31, 2006 and September 30, 2006
    
    
    4Statements of Operations for the Three Months Ended December 31, 2006 and 2005
    
    
    5Statements of Changes in Shareholders Equity as of December 31, 2006 and September 30, 2006
    
    
    6Statements of Cash Flows for the Three Months Ended December 31, 2006 and 2005
    
    
    7Notes to Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Conditions and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1a. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 5. Other Information
    
    
    23Item 6. Exhibits
    
    
    23SIGNATURESEXHIBITSSection 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 Certification




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements




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##### Table of Contents



XATA CORPORATION
 
 BALANCE SHEETS
  December 31,
    
    
    September 30,2006
    
    
    2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    7,606,000
    
    
    $
    6,354,000Accounts receivable, less allowances for doubtful accounts
and sales returns of $480,000 and $472,000
    
    
    4,866,000
    
    
    
    5,260,000Inventories
    
    
    1,957,000
    
    
    
    2,212,000Deferred product costs
    
    
    2,638,000
    
    
    
    3,433,000Prepaid expenses
    
    
    354,000
    
    
    
    270,000Total current assets
    
    
    17,421,000
    
    
    
    17,529,000Equipment and leasehold improvements, net
    
    
    1,213,000
    
    
    
    1,316,000Captialized software development costs, net
    
    
    1,317,000
    
    
    
    1,191,000Deferred product costs, net of current portion
    
    
    1,812,000
    
    
    
    1,687,000Total assets
    
    $
    21,763,000
    
    
    $
    21,723,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesCurrent portion of long-term obligations
    
    $
    98,000
    
    
    $
    94,000Accounts payable
    
    
    1,798,000
    
    
    
    1,688,000Accrued expenses
    
    
    1,853,000
    
    
    
    2,674,000Deferred revenue
    
    
    5,870,000
    
    
    
    6,728,000Total current liabilities
    
    
    9,619,000
    
    
    
    11,184,000Long-term obligations, net of current portion
    
    
    62,000
    
    
    
    88,000Deferred revenue, net of current portion
    
    
    6,487,000
    
    
    
    5,261,000Total liabilities
    
    
    16,168,000
    
    
    
    16,533,000Shareholders EquityPreferred stock, no par, 5,000,000 shares authorized:Series B, 4% convertible, 2,250,000 shares designated;
1,815,000 and 1,779,000 shares issued and outstanding
    
    
    4,765,000
    
    
    
    4,579,000Series C, convertible, 1,400,000 shares designated;
1,269,000 shares issued and outstanding
    
    
    4,845,000
    
    
    
    4,845,000Common stock, par value $0.01 per share; 25,000,000 shares
authorized; 7,862,000 and 7,963,000 shares issued and outstanding
    
    
    77,000
    
    
    
    80,000Additional paid-in capital
    
    
    23,262,000
    
    
    
    23,246,000Unearned stock based compensation
    
    
    
    
    
    
    (900,000
    )Accumulated deficit
    
    
    (27,354,000
    )
    
    
    (26,660,000
    )Total shareholders equity
    
    
    5,595,000
    
    
    
    5,190,000Total liabilities and shareholders equity
    
    $
    21,763,000
    
    
    $
    21,723,000
  4




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##### Table of Contents



XATA Corporation
 
 STATEMENTS OF OPERATIONS
  Three months endedDecember 31,2006
    
    
    2005Net sales
    
    $
    7,774,000
    
    
    $
    6,423,000Costs and expensesCost of goods sold
    
    
    4,181,000
    
    
    
    3,772,000Selling, general and administrative
    
    
    3,239,000
    
    
    
    2,681,000Research and development
    
    
    991,000
    
    
    
    727,0008,411,000
    
    
    
    7,180,000Operating loss
    
    
    (637,000
    )
    
    
    (757,000
    )Non-operating incomeNet interest income
    
    
    83,000
    
    
    
    8,00083,000
    
    
    
    8,000Net loss before income taxes
    
    
    (554,000
    )
    
    
    (749,000
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    
    (554,000
    )
    
    
    (749,000
    )Preferred stock dividends
    
    
    (46,000
    )
    
    
    (43,000
    )Preferred stock deemed dividend
    
    
    (95,000
    )
    
    
    (52,000
    )Loss to common shareholders
    
    $
    (695,000
    )
    
    $
    (844,000
    )Loss per common share  basic and diluted:Loss to common shareholders
    
    $
    (0.09
    )
    
    $
    (0.12
    )Weighted average common and
common share equivalentsBasic and diluted
    
    
    7,845,000
    
    
    
    7,301,000
  5




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##### Table of Contents



XATA CORPORATION
 
 STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 PERIODS ENDED DECEMBER 31, 2006 AND SEPTEMBER 30, 2006
  Series B
    
    Series C
    
    Additional
    
    UnearnedCommon Stock
    
    Preferred Stock
    
    Preferred Stock
    
    Paid-In
    
    Stock-Based
    
    AccumulatedShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Compensation
    
    Deficit
    
    TotalBalance, September 30, 2005
    
    
    7,549,000
    
    
    $
    76,000
    
    
    
    1,710,000
    
    
    $
    4,260,000
    
    
    
    1,269,000
    
    
    $
    4,845,000
    
    
    $
    21,458,000
    
    
    $
    (1,007,000
    )
    
    $
    (24,595,000
    )
    
    $
    5,037,000Common stock issued on exercise of options
    
    
    344,000
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,255,000
    
    
    
    
    
    
    
    
    
    
    
    1,258,000Common stock issued on exercise of warrants
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of restricted shares of common stock
    
    
    199,000
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    963,000
    
    
    
    (965,000
    )
    
    
    
    
    
    
    Amortization of unearned stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    566,000
    
    
    
    
    
    
    
    566,000Elimination of unearned compensation related to
terminated employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (506,000
    )
    
    
    506,000
    
    
    
    
    
    
    
    Forfeiture of restricted shares of common stock
    
    
    (138,000
    )
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    75,000Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    69,000
    
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (178,000
    )
    
    
    (3,000
    )Preferred stock deemed dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (144,000
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,743,000
    )
    
    
    (1,743,000
    )Balance, September 30, 2006
    
    
    7,963,000
    
    
    $
    80,000
    
    
    
    1,779,000
    
    
    $
    4,579,000
    
    
    
    1,269,000
    
    
    $
    4,845,000
    
    
    $
    23,246,000
    
    
    $
    (900,000
    )
    
    $
    (26,660,000
    )
    
    $
    5,190,000Common stock issued on exercise of options
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    12,000Elimination of unearned compensation
    
    
    (213,000
    )
    
    
    (4,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (896,000
    )
    
    
    900,000
    
    
    
    
    
    
    
    Amortization of unearned stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    401,000
    
    
    
    
    
    
    
    
    
    
    
    401,000Vesting of restricted shares of common stock
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Direct purchase of common stock
    
    
    93,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    499,000
    
    
    
    
    
    
    
    
    
    
    
    500,000Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    36,000
    
    
    
    91,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,000
    )
    
    
    46,000Preferred stock deemed dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (95,000
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (554,000
    )
    
    
    (554,000
    )Balance, December 31, 2006
    
    
    7,862,000
    
    
    $
    77,000
    
    
    
    1,815,000
    
    
    $
    4,765,000
    
    
    
    1,269,000
    
    
    $
    4,845,000
    
    
    $
    23,262,000
    
    
    $
    
    
    
    $
    (27,354,000
    )
    
    $
    5,595,000
  6




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##### Table of Contents



XATA Corporation
 
 STATEMENTS OF CASH FLOWS
  Three months endedDecember 31,2006
    
    
    2005Cash provided by (used in) operating activitiesNet loss
    
    $
    (554,000
    )
    
    $
    (749,000
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation and amortization of equipment and leasehold improvements
    
    
    158,000
    
    
    
    74,000Unearned compensation recognized
    
    
    401,000
    
    
    
    120,000Changes in assets and liabilities:Accounts receivable, net
    
    
    394,000
    
    
    
    2,836,000Inventories
    
    
    255,000
    
    
    
    (2,786,000
    )Deferred product costs
    
    
    670,000
    
    
    
    440,000Prepaid expenses
    
    
    (84,000
    )
    
    
    (22,000
    )Accounts payable
    
    
    110,000
    
    
    
    (893,000
    )Accrued expenses
    
    
    (775,000
    )
    
    
    172,000Deferred revenue
    
    
    368,000
    
    
    
    (185,000
    )Net cash provided by (used in) operating activities
    
    
    943,000
    
    
    
    (993,000
    )Cash used in investing activitiesPurchase of equipment and leasehold improvements
    
    
    (55,000
    )
    
    
    (266,000
    )Additions to software development costs
    
    
    (126,000
    )
    
    
    (344,000
    )Net cash used in investing activities
    
    
    (181,000
    )
    
    
    (610,000
    )Cash provided by financing activitiesBorrowings on bank line of credit
    
    
    
    
    
    
    200,000Borrowings on long-term obligations
    
    
    
    
    
    
    49,000Payments on long-term obligations
    
    
    (22,000
    )
    
    
    (17,000
    )Proceeds from issuance of common stock
    
    
    500,000
    
    
    
    Proceeds from options and warrants exercised
    
    
    12,000
    
    
    
    114,000Net cash provided by financing activities
    
    
    490,000
    
    
    
    346,000Increase (decrease) in cash and cash equivalents
    
    
    1,252,000
    
    
    
    (1,257,000
    )Cash and cash equivalentsBeginning
    
    
    6,354,000
    
    
    
    6,473,000Ending
    
    $
    7,606,000
    
    
    $
    5,216,000Supplemental disclosures of cash flow informationCash payments for interest
    
    $
    7,000
    
    
    $
    40,000Supplemental schedule of noncash investing and financing activitiesIssuance of restricted stock/stock options
    
    $
    
    
    
    $
    64,000Preferred stock deemed dividends
    
    
    95,000
    
    
    
    51,000Unearned compensation for terminated employees
    
    
    
    
    
    
    76,000Preferred stock dividends payable
    
    
    15,000
    
    
    
    15,000Preferred stock dividends paid
    
    
    91,000
    
    
    
    87,000Equipment purchased under capital lease
    
    
    
    
    
    
    156,000
  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
   December 31,
    
    
    September 30,2006
    
    
    2006Raw materials and subassemblies
    
    $
    1,032,000
    
    
    $
    786,000Finished goods
    
    
    925,000
    
    
    
    1,426,000Total inventories
    
    $
    1,957,000
    
    
    $
    2,212,000
 9




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##### Table of Contents



Equipment and Leasehold Improvements
   December 31,
    
    
    September 30,2006
    
    
    2006Office furniture and equipment
    
    $
    2,590,000
    
    
    $
    2,543,000Engineering and manufacturing equipment
    
    
    572,000
    
    
    
    564,000Leasehold improvements
    
    
    34,000
    
    
    
    34,0003,196,000
    
    
    
    3,141,000Less: accumulated depreciation and amortization
    
    
    (1,983,000
    )
    
    
    (1,825,000
    )Equipment and leasehold improvements, net
    
    $
    1,213,000
    
    
    $
    1,316,000
  Capitalized Software Development Costs
  Long-Lived Assets
  Product Warranties
   Shipping Costs
  10




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##### Table of Contents



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 Accounting Changes
 11




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##### Table of Contents



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
 Note 2. Stock-Based Compensation
 Stock Options
 Share Based Payment
 Accounting for Stock Issued to Employees,
  12




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##### Table of Contents



Three months endedDecember 31, 2005Net loss to common shareholders, as reported
    
    $
    (844,000
    )Deduct: Total stock-based
employee compensation expense
determined under fair value based
methods for all awards, net of
related tax effects
    
    
    Pro forma net loss to common shareholders
    
    $
    (844,000
    )Basic and diluted net loss to common shareholders
per common shareAs reported
    
    $
    (0.12
    )Pro forma
    
    
    (0.12
    )
  Weighted-AverageShares
    
    Exercise PriceOptions outstanding at September 30, 2006
    
    
    388,051
    
    
    $
    4.60Options granted
    
    
    300,000
    
    
    
    5.40Options exercised
    
    
    (3,750
    )
    
    
    3.37Options outstanding at December 31, 2006
    
    
    684,301
    
    
    $
    4.96
 Options OutstandingWeighted-
    
    
    
    
    
    Options ExercisableNumber
    
    Average
    
    
    
    
    
    NumberOutstanding at
    
    Remaining
    
    Weighted
    
    Exercisable at
    
    WeightedDecember 31,
    
    Contractual
    
    Average
    
    December 31,
    
    AverageRange of exercise price
    
    2006
    
    Life (Years)
    
    Exercise Price
    
    2006
    
    Exercise Price$2.85 - $3.03
    
    
    
    20,000
    
    
    
    1.20
    
    
    $
    2.98
    
    
    
    20,000
    
    
    $
    2.98$3.67 - $3.99
    
    
    
    99,945
    
    
    
    1.10
    
    
    
    3.85
    
    
    
    98,945
    
    
    
    3.85$4.18 - $5.40
    
    
    
    564,356
    
    
    
    4.52
    
    
    
    5.22
    
    
    
    85,606
    
    
    
    4.83684,301
    
    
    
    3.93
    
    
    $
    4.96
    
    
    
    204,551
    
    
    $
    4.18
  Loss Per Share
  13




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##### Table of Contents



Restricted Stock Awards
   Note 3. Commitments
 Leases
   Reseller Commitment
  401(k) Plan
  Note 4. Bank Line of Credit
  14




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##### Table of Contents



Note 5. Shareholders Equity
 Common Stock
  Preferred Stock
  Series B
    Series C
  15




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##### Table of Contents



Common Stock Warrants
   Weighed-Average
    
    Weighted AverageDate
    
    Warrants Outstanding
    
    Exercise Price
    
    Remaining LifeDecember 31, 2006
    
    
    1,033,000
    
    
    $
    3.49
    
    
    2.74 yearsSeptember 30, 2006
    
    
    1,033,000
    
    
    $
    3.49
    
    
    2.99 years
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
   Critical Accounting Policies
  Revenue Recognition. Software Revenue Recognition Software Revenue Recognition with
 16




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##### Table of Contents



Respect to Certain Transactions Revenue Recognition in Financial
Statements
    Allowance for doubtful accounts and sales returns.
 Capitalized software development costs
 Research and development costs. Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
 17




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##### Table of Contents



Income taxes Accounting for Income Taxes
 Results of Operations for the three months ended December 31, 2006 and 2005
  Three months endedDecember 31,2006
    
    2005Net sales
    
    
    100
    %
    
    
    100
    %Gross profit
    
    
    46
    %
    
    
    41
    %Selling, general and administrative
    
    
    41
    %
    
    
    42
    %Research and development
    
    
    13
    %
    
    
    11
    %Operating loss
    
    
    -8
    %
    
    
    -12
    %Net loss
    
    
    -7
    %
    
    
    -12
    %
 Net Sales
     18




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##### Table of Contents



Cost of Goods Sold
  Selling, General and Administrative Expenses
  Research & Development Expenses
 .
 Non-operating Income (Expense)
  Income Taxes
  19




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##### Table of Contents



Net Income (Loss) to Common Shareholders
  Liquidity and Capital Resources
         20




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##### Table of Contents



Related Party Transactions
  
 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
   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;
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
    
    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.
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Item 103
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 3. Defaults upon Senior Securities
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Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit
 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
 
 SIGNATURES
  Dated: February 7, 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) 23