10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended September 30, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                      to                     

Commission File Number 0-27166

XATA Corporation

(Exact name of registrant as specified in its charter)

Minnesota	41-1641815
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
965 Prairie Center Drive	55344
Eden Prairie, Minnesota	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:
(952)707-5600

Securities registered pursuant to Section 12(b) of the Act:

(Title of Class)	(Name of each exchange on which registered)
Common Stock, $0.01 par value per share	Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act:
None

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer o       Accelerated Filer o       Non-Accelerated Filer þ

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

      As of March 31, 2007, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $24,220,000 based on the last transaction price as reported on the Nasdaq Capital Market on such date. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purposes.

      The number of shares of common stock outstanding on December 7, 2007 was 8,516,755.

      Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held on February 7, 2008.

TABLE OF CONTENTS

	Page
PART I
Item 1. Business		1
Item 1A. Risk Factors		9
Item 1B. Unresolved Staff Comments		12
Item 2. Properties		12
Item 3. Legal Proceedings		13
Item 4. Submission of Matters to a Vote of Security Holders		13
Executive Officers of the Registrant		13
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		15
Item 6. Selected Financial Data		16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		24
Item 8. Financial Statements and Supplementary Data		24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		25
Item 9A. Controls and Procedures		25
Item 9B. Other Information		25
PART III
Item 10. Directors, Executive Officers and Corporate Governance		25
Item 11. Executive Compensation		25
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		25
Item 13. Certain Relationships and Related Transactions, and Director Independence		25
Item 14. Principal Accountant Fees and Services		25
PART IV
Item 15. Exhibits and Financial Statement Schedules		26
SIGNATURES		30
EXHIBIT INDEX
Restated Articles of Incorporation
Bylaws
Certificate of Amendment of Certificate of Designation of Preferences of Series B Preferred Stock
2002 Long-Term Incentive and Stock Option Plan
Form of Stock Option Agreement for Directors
Form of Stock Option Agreement for Employees
Consent
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

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Forward Looking Statements

Statements contained in this Report that are not statements of historical fact should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, income or loss, the payment or nonpayment of dividends, capital structure and other statements concerning future financial performance; (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services; (iii) statements of assumptions underlying such statements; (iv) statements regarding business relationships with vendors, customers or collaborators; and (v) statements regarding products, their characteristics, performance, sales potential or effect in the hands of customers. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “should,” “potential,” “goals,” “strategy,” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, the risk factors described in Item 1A of Part I of this Report, as updated or supplemented by risk factors described in future documents we file with the SEC (including reports on Form 10-Q and 8-K). The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. You should consider these factors with caution and form your own independent conclusions about the likely effect of these factors on any forward-looking statement, and on our future performance in general. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.

Trademark Notice

XATA^®, OpCenter^®, XATANET^®, SmartCom™, and XATA MobileSync™ are all trademarks of XATA Corporation. XATA^®, XATANET^® and OpCenter^® are registered with the U.S. Patent and Trademark Office.

PART I

Item 1. Business

About XATA

We are one of the leading providers of fleet management solutions to the truck transportation industry. Our innovative technologies and value-added services are intended to enable customers to optimize the utilization of their assets and enhance the productivity of fleet operations across the entire supply chain, resulting in decreased costs, improved compliance with U.S. Department of Transportation regulations, enhanced customer service and better overall business productivity.

Founded in 1985, XATA has leveraged over 20 years of experience developing solutions for North America’s premier private fleets. That knowledge has resulted in a clear understanding of the features and functions that matter most to drivers and fleet operators.

We were the first company to provide completely paperless electronic logs, exception-based management reporting and learned standards for accurate business intelligence. Our products combine enterprise software, mobile technology, real-time communications and global positioning systems (GPS) to provide an enterprise logistics management solution for private fleet operators.

Our first-generation products, introduced in the early 1990’s, included our revolutionary touch-screen Driver Computer and PC-based Fleet Management System software. Valuable data was downloaded

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from Driver Computers to the Fleet Management System host software in batch mode via our patented Driver Key for compliance reporting and analysis.

In 1999, we introduced OpCenter, a Microsoft Windows-based customer-hosted system that can manage multiple operation centers and users over a wide area network. OpCenter continues to be a leading Fleet Management System for Fortune 1000 private trucking fleets.

In 2004, we introduced XATANET, our next-generation Web-based 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 XATANET enables us to significantly broaden our penetration of the 3.6 million medium and heavy duty vehicle private fleet transportation market.

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 of November 30, 2007, JDSTG owns approximately 13.4 percent of our outstanding common stock on a fully diluted basis.

From December 2003 through June 2007, Trident Capital (through its affiliated funds) invested approximately $15.1 million in the Company by acquiring shares of Series B, Series C and Series D Convertible Preferred Stock. Trident Capital is now our largest shareholder, holding approximately 37.7 percent of our common stock as of November 30, 2007, on an as if converted and fully diluted basis. The capital provided by Trident 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, drivers, fuel, insurance, maintenance, 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, utilize assets efficiently and improve delivery times. We believe there is, and will continue to be, significant demand in the trucking industry for fleet management systems, principally because the use of this technology enables fleet operators to reduce expenses, maintain compliance standards 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:

• Increased operating costs: Driver salaries, fuel, insurance, 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.

• Government regulations: U.S. Department of Transportation (DOT) driver log requirements have become more stringent. 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. These rules were challenged in federal court and the FMSCA issued revised rules effective October 1, 2005. The revised regulations became

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enforceable after a period of transitional compliance on January 1, 2006. The rate of change in the rules is a major obstacle to compliance within the trucking industry.

	The FMCSA is currently evaluating the benefit of Electronic Onboard Recorders (EOBR’s) 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.
	Additionally, 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. In order to comply with these requirements, 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 fuel tax compliance. Our systems are designed to automate compliance with each of these regulatory requirements.
•	New technologies: Historically, affordability, simplicity and acceptance of new wireless communications and internet technologies have proven to be barriers for customers to purchase our solutions. New technologies are helping to diminish these barriers.
•	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.
•	Mobile technology: 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 mobile technologies, including the internet, 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 mobile technology with the host information systems of trucking fleet operators.

Our Products and Services

XATA provides a powerful, advanced, yet user-friendly, software as a service (SaaS) system called XATANET used by manufacturing, distribution, petroleum and other operators of trucking fleets to reduce fuel costs, increase operational efficiencies, enhance customer service and improve safety and compliance.

As a SaaS system, XATANET software application delivery model is hosted and operates for use by its customers over the Internet. Customers do not pay for owning the software itself but rather for using it with a recurring revenue charge. The benefits of XATA’s SaaS delivery model is the decrease in customers’ in-house IT hardware and software resources, faster implementation time compared to on-site products, automatic upgrades to the most current software levels and access with an internet browser anywhere, anytime.

Through its web-based design, XATANET performs the following functions to enable fleet operators to control costs and maximize vehicle and driver performance:

• Automation of DOT driver log requirements and state fuel tax reporting.

• Comprehensive vehicle and driver performance reporting.

• Real-time asset tracking, route management, trip optimization and stop activity

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scheduling.

• Mobile two-way messaging and real-time vehicle location.

• Diagnostic and accident data capture.

XATANET Fleet Management System

XATANET integrates mobile technology, driver displays and cost-effective communications with a suite of powerful, Web-based applications delivered on-demand via the Internet. XATANET combines the data generated within the truck as well as data received via GPS (Global Positioning System) into a Web-based user interface, enabling fleet managers to measure fleet performance, resolve exception conditions, monitor ongoing operations and perform detailed analysis.

XATANET is ideal for organizations that seek to eliminate the startup costs and lengthy implementation times typically associated with fleet management solutions. XATANET allows fleets of all sizes to install, utilize and pay for only those applications that benefit their organization today, gaining immediate value at a lower cost of entry, while retaining the ability to expand their use as fleet operations evolve.

A XATANET solution is comprised of four primary components as described below:

Mobile Applications

XATA provides a core set of applications that provide for the optimization of fleet operations including electronic driver logs, automated fuel tax, driver and vehicle management. The mobile environment is designed with easy integration with third-party complementary applications such as proof of delivery, navigation, and trailer temperature monitoring.

Onboard Hardware

XATA Application Modules (XAM) – Rugged, mobile computing platforms including GPS and wireless communications hardware that collect, store and intelligently manage data communications. The XAM connects to the engine gathering vehicle and diagnostic information onboard. In conjunction with interactive driver displays, the XAM unifies communication between fleet management, vehicles, and drivers. Using our powerful onboard applications, all of the vehicle information can be delivered immediately to the driver display or reported back to fleet management, based on user defined preferences.

Our latest-generation, multi-mode XATA Application Module utilizes both the Orbcomm satellite and Sprint digital cellular (CDMA 1xRTT) 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.

Driver Displays

Touch-screen driver displays are mounted in the cab of the truck capturing and communicating fleet performance information. With the ability to monitor fuel economy, estimated time of arrival (ETA), and regulatory compliance drivers can help ensure the fleet reaches optimum performance levels.

The driver interface software is designed to be device independent to allow multiple devices to be used as display options in the cab. These devices could include cell phones, handheld, intelligent displays and laptops. By allowing a multiple displays options, the system allows for the customer to select the most appropriate display for their environment.

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Wireless Communications

XATA systems use patented technologies that utilize lowest cost communication methods synchronizing trip and driver data with maximum efficiency. Our multi-mode systems combine CDMA 1xRTT, 802.11b WiFi, and satellite wireless networks to provide “No Gap” coverage and high speed data download. When integrated with optional satellite, digital cellular or 802.11b Wi-Fi wireless communications via our XAM, XATANET 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.

Legacy OpCenter Fleet Management System

XATA’s legacy OpCenter system allows managers to achieve measurable fleet performance and productivity improvements by integrating proven 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. 

Our OpCenter Fleet Management Software operates in a multi-user, Microsoft Windows environment and can manage 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. When integrated with optional satellite, digital cellular or 802.11b Wi-Fi wireless communications via our XAM, 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.

With the introduction and widespread adoption of the web-based XATANET on-demand software solution, XATA is no longer selling the OpCenter system to new accounts. Existing OpCenter customers, however, that need to OpCenter-enable additions to their truck fleets may do so.

XATA has implemented an OpCenter-to-XATANET upgrade program for existing OpCenter customers. Through this program, XATA will consult with OpCenter customers to identify opportunities for fleet management improvements through upgrading to XATANET. These consultations include an in-depth look at how the customer utilizes OpCenter and the potential benefits of implementing XATANET.

Target Markets

There are approximately 8.1 million commercial trucks operating in the United States, of which 6.6 million are operated by private fleets and 1.5 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.

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 required a minimum fleet size in order to recover the fixed costs of a host system implementation.

We believe our historic target market segment has comprised approximately 300,000 vehicles. We believe XATANET will allow us to significantly expand our potential market to include 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 6.6 million commercial trucks in this segment as

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our target market going forward, with particular emphasis on fleets operating medium and heavy duty trucks, estimated at 3.6 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

Our systems have been installed in approximately 62,000 trucks at over 1,925 distribution centers. Our customers comprise Fortune 500 companies and other large organizations, such as Core-Mark International, C&S Wholesale Grocers, CVS Pharmacy, Dean Food, Kellogg Snacks Division, McLane Company, Publix Super Markets, Inc., Penske Corporation, Ryder System Inc., Safeway, Inc., Sara Lee Corp., Supervalu, Inc., US Foodservice, United States Postal Service, Weyerhauser Co., Whirlpool Corporation and xpedx (a division of International Paper Company.)

In fiscal 2007 and 2006, we had sales to one customer (hereinafter referred to as “Customer A”) who accounted for approximately 20 percent and 18 percent of fiscal year revenue, respectfully. In fiscal 2006, we had one additional customer (hereinafter referred to as “Customer B”) who accounted for approximately 18 percent of total revenue. No other customer accounted for 10 percent or more of revenue in fiscal 2007, 2006 or 2005.

Sales and Marketing

We market our products to operators of trucking fleets through a multi-tiered sales strategy including a direct sales force and various strategic alliances in our indirect sales channel.

Direct Sales Channel

Our direct sales force sells our SaaS fleet management systems primarily to private fleet truck operators and logistics providers through national and regional sales account executives. The efforts of our sales executives are supported by our systems sales consultants, client management, professional services and customer service organizations, which have a strong working knowledge of the hardware and software configurations and experience integrating our systems into fleets. 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 focus our direct sales and marketing efforts on companies operating fleets of all sizes 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 government.

Indirect Sales Channel

Distribution relationships with leading truck leasing companies such as Penske Truck Leasing Co., L.P. (a partnership of Penske Corporation and GE Capital) and NationaLease Purchasing Corporation (an affiliate of National Truck Leasing System) are the basis of our indirect sales channel. In our arrangement with Penske, Penske integrates our XATANET web-based system into its full-service lease program through a private labeled offering named Fleet I.Q. NationaLease also offers XATANET to its

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large base of lease customers in a joint go-to-market strategy with us.

As we continue to evolve the XATANET system, we anticipate offering our product through other new indirect sales channels such as sales agents, wireless carries and third party installers that will provide access to new customers.

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.

Competition

Competition in the mobile resource management system industry continues to increase at a rapid pace. We compete primarily on the basis of functionality, ease of use, quality, price, service availability and corporate financial strength. As the demand by businesses for mobile resource management solutions increases, the quality, functionality and breadth of competing products and services will likely improve and new competitors will likely enter our market. In addition, the widespread adoption of industry standards may make it easier for new market entrants or existing competitors to improve their existing products and services, to offer some or all of the products and services we offer or may offer in the future, or to offer new products and services that we do not offer. We also do not know to what extent network infrastructure developers and wireless network operators will seek to provide integrated wireless communications, Global Positioning Systems, software applications, transaction processing, and Internet solutions, including access devices developed internally or through captive suppliers.

Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies have greater name recognition and more established relationships with our target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can.

Key Alliances and Relationships

We continue to establish relationships with third parties with the intent to increase the deployment of our solutions. We believe that establishing these strategic relationships will facilitate our technological leadership and increase our access to new customers. Some of our existing relationships include:

Communication Providers

We have established relationships with Sprint/Nextel (Sprint) and Orbcomm LLC (Orbcomm) to provide wireless connectivity between our subscribers and our host system. We contract directly with Sprint and Orbcomm for the provision of wireless communications, which are bundled with our solutions. We are continuing to expand our communication providers and look to add additional partners in the next 12 – 18 months.

Indirect Sales Channel Alliances

We have an agreement with Penske Truck Leasing Co., L.P. in 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 Fleet I.Q. In total, Penske Truck Leasing has approximately 200,000 vehicles under management.

We also have a relationship with NationaLease Purchasing Corporation, whereby NationaLease offers XATANET to its truck leasing customers in a joint go-to-market strategy with us. NationaLease is a

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consortium of approximately 120 independent truck leasing companies with a total fleet of 65,000 vehicles.

Manufacturers

We have established a relationship with Winland Electronics, Inc. (Winland) for the manufacture and testing of our mobile hardware products pursuant to our detailed specifications and quality requirements during the first quarter of fiscal 2006.

We have relationships with other companies that manufacture components for our solutions as well. All of our 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 we are not aware of any difficulty experienced by our suppliers in obtaining raw materials for manufacture.

Patents, Trademarks, and Copyrights

XATA, XATANET, 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. 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. We also claim trademark and trade name protection for the following: XATA MobileSync, and SmartCom. We have patent applications pending with the United States Patent and Trademark Office for XATA MobileSync. We protect and defend our intellectual property rights vigorously.

Research and Development

We concentrate our research and development activities on software and hardware solutions that meet our customers’ current and anticipated future needs. To enhance our existing solutions and to introduce new solutions to our existing and potential customers, we focus on the following key areas:

• SaaS Infrastructure. We intend to continue to improve our SaaS infrastructure to meet the increasing needs of our expanding customer base and the associated increase in transactions. Also, we will continue to monitor and analyze the XATANET infrastructure’s capacity and ability to meet the service level requirements of our customers. For example, in September, 2007, we implemented a new storage area network (SAN) for improved performance and anticipated increase in transactional volume. At the same time, we deployed additional network servers to support enhanced capabilities in our on-demand XATANET with no interruption in service to our customers.

• Software. We intend to continue to develop our software applications by offering new features while enhancing existing features. For example, in October, 2007, we announced the availability of XATANET 4.0, the latest version of our on-demand fleet management system that offers a streamlined system management with instant notification of critical events and enhanced support for third-party in-cab displays and handheld devices. The release included XATAScope which provides reports on second-by-second speed, minute-by-minute speed, speed changes and speeding, giving fleet managers multiple views on driver driving habits and their impact on fuel use and road safety.

• Hardware.   We intend to continue to develop and release platform upgrades to add new features as well as to enhance existing features through our own development efforts and those of our strategic hardware partners

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Employees

As of September 30, 2007, our staff included 115 employees and 2 independent contractors whose primary assignments are approximately as follows: 32 in research, development and information services; 18 in sales and marketing; 44 in customer support; and 23 in administrative, finance, purchasing and warehousing.

Item 1A. Risk Factors

We do not have a long or stable history of profitable operations. The Company’s net losses to common shareholders for the fiscal years 2007, 2006 and 2005 were $7.8 million, $2.1 million and $6.7 million, respectively. The respective periods’ net losses were $6.8 million, $1.8 million and $6.0 million. Additional amounts of $1.0 million, $0.3 million and $0.7 million, resulting from beneficial conversion charges and preferred stock dividends increased such respective period losses to the aforementioned levels of net losses to common shareholders.

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. As we continue to grow our existing customer base this risk will lessen, but until such time 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.

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.

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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.

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 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, 2007, JDSTG owned approximately 13.4 percent and Trident Capital owned approximately 37.7 percent 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

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certain restrictive covenants of XATA in connection with their equity investments in the 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 the 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 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.

We may issue additional stock without shareholder consent. We have authorized 25,000,000 shares of common stock, of which 8,516,000 shares were issued and outstanding as of December 7, 2007. 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 10,000,000 shares of preferred stock. As of December 7, 2007, 1,888,000 shares of Series B Convertible Preferred Stock, 1,269,000 Series C Convertible Preferred Stock and 1,567,000 shares of Series D Convertible Preferred Stock were issued and outstanding. The Board of Directors can issue additional 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. 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 common stock could be delisted due to failure to satisfy a continued listing rule or standard. On August 26, 2005, the Company received a letter from The Nasdaq Listing Qualification Staff (“Nasdaq”), notifying the Company that it was not in compliance with Marketplace Rule 4310(c)(2)(B) (the “Rule”). This Rule requires the Company to have a minimum $35 million in market value of listed securities, $2.5 million in shareholders’ equity, or $500,000 in net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years. Nasdaq informed the Company that it had 30 calendar days, or until September 26, 2005, to regain compliance with the Rule. By virtue of the Trident Capital investment in September 2005, we regained compliance with the Nasdaq Marketplace listing requirements. However, Nasdaq has advised us that it will continue to monitor our compliance with the listing standards. If we fail to show compliance, we may be subject to delisting.

We may be unable to manage rapid growth. The Company’s continued growth will place an increasing strain on our resources, and we could experience difficulties relating to a variety of operational matters, including hiring, training and managing an increasing number of employees, obtaining sufficient quantities of product from vendors, obtaining sufficient materials and contract manufacturers to produce our products, expanding our distribution capabilities and enhancing our customer service, financial, and operating systems. There can be no assurance that the Company will be able to manage growth effectively. Any failure to manage growth could have a material adverse effect on the Company’s business, financial condition and results of operations.

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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, continues to increase 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 will become effective for the Company beginning in fiscal 2008, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our Independent Auditors in fiscal 2009 addressing the same. 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.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

On July 9, 2007, we entered into a lease for 26,800 square feet of office space at 965 Prairie Center Drive in Eden Prairie, Minnesota. On December 10, 2007, this location became the principal address of the company. The lease term is for 86 months with a base rent of $37,500 per month a plus pro rata share of the building operating expenses.

We also currently lease 20,600 square feet of office and warehouse space at 151 East Cliff Road in Burnsville, Minnesota. This facility was our headquarters until December 2007 and now continues to house the Company’s distribution activities. The current lease obligation carries a base rent of $13,000

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per month plus a pro rata share of the building operating expenses. The current lease expires March 31, 2008.

Item 3. Legal Proceedings

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Our current executive officers are as follows:

John J. Coughlan, Chairman of the Board, Chief Executive Officer and President

Mr. Coughlan, age 49, has been Chairman, Chief Executive Officer and President since joining XATA in October 2006. Prior to joining XATA, he was involved in a business consulting practice. He previously served as president and CEO of Lawson Software, Minnesota’s largest software company. Mr. Coughlan joined Lawson Software in 1987 and became CEO in February 2001 prior to the company’s initial public offering in December of 2001. In addition to his responsibilities at XATA, Mr. Coughlan is an active regional business advocate and serves on the board of directors for several local organizations, including Securian Financial Group, Inc. He replaced Craig Fawcett who resigned in September 2006.

Mark E. Ties, Chief Financial Officer & Treasurer

Mr. Ties, age 42, joined XATA in April 2005 as Chief Financial Officer. He is responsible for the Company’s finance, human resources, purchasing, and distribution functions. Before joining XATA, Mr. Ties was the chief financial officer and treasurer at Velocity Express Corporation, where he served as a member of the Company’s executive leadership team and was responsible for the Company’s financial activities including; capital raising activities; SEC compliance; financial planning and analysis; mergers and acquisitions; cash management; back-office process integration; corporate governance practices; and investor relations. Prior to Velocity, he served as a Senior Manager for Ernst & Young LLP in its entrepreneurial services and mergers and acquisitions departments and as a senior financial executive at a number of companies in varied industries. He has extensive financial management experience in the areas of financing, mergers and acquisitions, business integration and financial processes.

Thomas L. Schlick, Senior Vice President of Services and Support

Mr. Schlick, age 57, joined XATA in April 2006 as Chief Operating Officer. As COO, Mr. Schlick is responsible for the XATA’s service operations, project management, quality delivery, customer training, and implementation. Prior to joining XATA, Mr. Schlick was senior vice president, global service, solutions and sales operations, for DataCard Corporation. At DataCard, he served as a member of the executive leadership team and was responsible for global services activities including; field operations, technical product and software support, sales and service training, program management, depot repair, and call center operations. Prior to DataCard, he served as a senior executive at Rosemount, Inc., a division of Emerson Electric. Mr. Schlick has a B.S. degree in Electrical Engineering and an MBA from the University of Minnesota. He is a Six Sigma Green Belt, a Board Member of Association of Service Management, International and a senior member of the Instrument Society of America.

David A. Gagne, Executive Vice President of Sales and Marketing

Mr. Gagne, age 41, joined XATA in January of 2007 as Executive Vice President of Sales and Marketing. He is responsible for activities including planning, forecasting and development of strategies for increasing revenue of XATA’s products and services.  He also develops go-to-market programs to increase the visibility and awareness in the marketplace.  Prior to joining XATA, Mr. Gagne was vice president of strategic development at Lawson Software.  He held several leadership positions while at Lawson Software including vice president of the healthcare client group. Mr. Gagne has over 15 years experience working with sales teams to meet their revenue objectives and build ongoing customer relationships. He has a B. S. in Business Administration from Boston University School of Management.

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James C. Griffin Jr., Executive Vice President of Research and Development

Mr. Griffin, age 43, joined XATA in April 2007 as Executive Vice President of Research and Development. Mr. Griffin is responsible for XATA’s engineering, process engineering and research.  Prior to joining XATA, Mr. Griffin was a technology consultant for the University of Iowa’s Public Policy Center and helped coach businesses on improving their operations and sales functions into a more efficient and effective process.  In 1996, he founded Diversified Software Industries (DSI), a software company that provided solutions to the embedded software market and commercial transportation industry. NEXIQ Technologies, a leading vehicle diagnostic solutions company, acquired DSI in 2001. As Executive Vice President of NEXIQ, Mr. Griffin was responsible for re-positioning the company as a leading provider of telematics and wireless diagnostic solutions. He has a B.S degree in Electrical Engineering from the University of Iowa.  He has served on the Iowa Governor’s Information Technology Advisory Committee, the College of Engineering Economic Development Council, and the Advisory Board for the Electrical Engineering Department and the Board for the Iowa City Area Development Group.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The following table sets forth the quarterly high and low sales prices for our common stock as reported by the NASDAQ Capital Market for fiscal years 2007 and 2006. There is no market for our Series B, Series C or Series D Preferred Stock.

Fiscal Year 2007	Low		High
First Quarter	$	5.08	$	5.50
Second Quarter		4.84		5.25
Third Quarter		3.79		4.70
Fourth Quarter		2.67		4.03

Fiscal Year 2006	Low		High
First Quarter	$	3.29	$	5.20
Second Quarter		4.01		5.25
Third Quarter		4.70		5.32
Fourth Quarter		4.35		5.50

As of December 7, 2007, our common stock is held by 89 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.

The following graph compares the cumulative total return on the Company’s common stock during the last five fiscal years with the Nasdaq Market Index and Computer System Design and Services Index (NAICS Code 54151). The graph below compares cumulative total return of the two indicated indexes and the Company’s common stock assuming a $100 investment on October 1, 2002 and assuming the reinvestment of all dividends. Historical stock price performance is not necessarily indicative of future stock price performance.

Comparison of Five Year Cumulative Total Return
XATA Corporation, NASDAQ Market Index And NAICS Code Index

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Dividend Policy

Except for dividends paid to the holders of Series A 8 percent 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 1,613,000 shares of Series B Preferred Stock that pays an annual cumulative dividend of 4 percent of the original issue price (payable in additional shares of Preferred Stock or 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 May 31, 2007 and November 30, 2007 in additional shares of Series B Preferred Stock rather than cash. Accordingly as of December 7, 2007, we had issued a total of 73,000, 70,000 and 68,000 shares of Series B Preferred Stock for payment of dividends in calendar year 2007, 2006 and 2005, respectively.

Sale of Unregistered Securities

None.

Item 6. Selected Financial Data

The following selected financial data should be read in conjunction with the Company’s Financial Statements and Notes thereto together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all of which are include elsewhere in this Report. The Statement of Operation and Balance Sheet data presented below as of and for the years ended September 30, 2003 through September 30, 2007 have been derived from the Company’s Financial Statements included elsewhere in this Report or previously filed with the Securities and Exchange commission on Form 10-K and Form 10-KSB, which have been audited by Grant Thornton LLP, an independent registered public accounting firm.

Financial Highlights
(in thousands, except per share amounts and percentages)

	For the Years Ended Septmeber 30,
	2007			2006			2005			2004			2003
Net sales	$	30,676		$	30,629		$	19,303		$	18,932		$	11,350
Gross profit %’age		44.8	%		41.8	%		37.7	%		33.5	%		24.8	%
Operating loss		(7,309	)		(1,969	)		(6,079	)		(1,156	)		(3,724	)
Net loss to common shareholders		(7,810	)		(2,065	)		(6,736	)		(2,057	)		(3,784	)
Net loss per common share basic and diluted	$	(0.99	)	$	(0.28	)	$	(0.93	)	$	(0.29	)	$	(0.55	)
Working capital	$	10,539		$	6,345		$	6,285		$	5,898		$	732
Total assets		24,153			21,723			22,504			13,392			7,257
Total shareholders’ equity		7,078			5,190			5,037			5,136			2,034

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 “Risk Factors” 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 2 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 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) 104, Revenue Recognition in Financial Statements.

Software revenue is recognized under SOP 97-2 and SAB 104 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 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, revenues are recognized for completed systems held at our warehouse pending the receipt of delivery instructions from the customer. As of September 30, 2007 and 2006, we had approximately $0 and $20,000, respectively, of systems on hand that had been billed to those customers awaiting specific delivery instructions.

With regard to software arrangements involving multiple elements, we allocate revenue to each element based on the relative fair value of each element. Our determination of fair value of each element in multiple-element arrangements is based on vendor-specific objective evidence (VSOE). We limit our assessment of VSOE for each element to the price charged when the same element is sold separately. We have analyzed all of the elements included in our multiple-element arrangements and have determined that we have sufficient VSOE to allocate revenue to consulting services and post-contract customer support (PCS) components of our license arrangements. We sell our consulting services separately, and have established VSOE on this basis. VSOE for PCS components are determined based upon the customer’s annual renewal rates for these elements. Accordingly, assuming all other revenue recognition criteria are met, revenue from licenses is recognized upon delivery, and revenue from PCS components are recognized ratably over the applicable term, typically one year.

Prior to January 1, 2006, certain software sales included application service contracts. The terms of those contracts did not meet the requirements described in Emerging Issues Task Force (EITF) 00-03, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware, to account for it under SOP 97-2 and SAB 104 and resulted in the recognition of all revenue ratably over the term of the agreement. During the fiscal year ending September 30, 2006, we changed the terms of all new contracts, such that all the requirements of EITF 00-03 related to software delivery are met and the contracts are accounted for under SOP 97-2. For these new contracts, revenue is recognized based on the multiple element arrangement accounting described above.

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 days and are stated at amounts 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

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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 adjust 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 system development costs. Software and system development costs incurred after establishing technological feasibility are capitalized in accordance with Statement of Financial Accounting Standards No. 86, (SFAS No. 86), Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. These costs are amortized to cost of goods sold beginning when the product is first released for sale to the general public. The dollar amount amortized is 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 2007, the Company recognized costs of $1.9 million relating to impairment of capitalized system development costs and associated product inventory relating to products that will not be marketed.

Income taxes. Deferred income taxes are provided for using 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.

Stock-based Compensation. Prior to fiscal 2007, the Company accounted for share-based employee compensation plans under the measurement and recognition provisions of Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Financial Accounting Standards Board SFAS No. 123, Accounting for Stock-Based Compensation. Under the intrinsic value method permitted by SFAS No.123, no share-based compensation expense related to stock option awards granted to employees had been recognized in the Company’s Statement of Operations, since all stock option awards granted under the plans had an exercise price equal to the market value of the common stock on the date of the grant.

Effective October 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”), “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting methodology using the intrinsic value method under APB 25.

The Company adopted SFAS 123(R) using the modified prospective transition method. Under this transition method, compensation expense is recognized for periods subsequent to adoption date for all share-based awards granted prior to, but not yet vested, as of September 30, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS 123 and compensation expense for all share-based awards granted subsequent to September 30, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s financial statements for periods prior to adoption have not been restated to reflect the impact of SFAS 123(R).

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The Company estimates the fair value of options granted using the Black-Scholes option valuation model and the assumptions shown in Note 8 to the financial statements. The Company estimates the volatility of the common stock at the date of grant based on a historical volatility rate, consistent with SFAS 123(R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107 (SAB 107). The decision to use historical volatility was based upon the lack of market activity in the Company’s common stock options. The expected term is estimated consistent with the simplified method identified in SAB 107 for share-based awards granted during fiscal 2007. The simplified method calculates the expected term as the average of the vesting and contractual terms of the award. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of the options. The Company uses historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. The fair value of options are amortized over the vesting period of the awards utilizing a straight-line method.

Operating Results

We believe the percentage relationship between net sales and major expense items in the statement of operations is important in evaluating the performance of our business operations. We operate as one business segment and believe the information presented in our Management’s Discussion and Analysis of Financial Condition and Results of Operations provides an understanding of our business, operations and financial condition. The following table sets forth certain Statements of Operations data as a percentage of net sales:

	For the Years Ended Septmeber 30,
	2007			2006			2005
Net sales		100.0	%		100.0	%		100.0	%
Gross profit		44.8	%		41.8	%		37.7	%
Selling, general and administrative expense		54.4	%		35.1	%		50.4	%
Research and development expense		14.2	%		13.2	%		18.8	%
Operating loss		(23.8	%)		(6.4	%)		(31.5	%)
Net loss		(22.2	%)		(5.7	%)		(31.0	%)

Comparison of Fiscal 2007 operating results to Fiscal 2006

Net Sales

Net sales of our XATANET products increased 39.0 percent to $22.1 million in fiscal 2007 compared to $15.9 million for fiscal 2006. Our monthly recurring subscription revenue increased 76.1 percent to $7.8 million in fiscal 2007 compared to $4.4 million in fiscal 2006. XATANET sales contributed 72.0 percent of total net sales for fiscal 2007, compared to 51.8 percent for fiscal 2006. In fiscal 2007 net sales derived from our legacy OpCenter product line decreased 42.0 percent as expected to $8.6 million compared to $14.8 million for fiscal 2006 as we continue to migrate customers to the XATANET platform. As a result of these trends, overall net sales remained flat at $30.7 million for fiscal 2007 compared to fiscal 2006.

We ended fiscal 2007 with $9.6 million of deferred revenue in comparison to $12.0 million at the end of fiscal 2006 as our overall XATANET product revenue continues to shift to the new customer contract which allows certain revenue to be recognized at the time of delivery. Under the terms of the previous customer contract, all revenue was recognized over the initial term of each subscription rather than at the time of delivery. XATANET subscription terms are a minimum of twelve months.

Cost of Goods Sold

Cost of goods sold includes the direct product costs associated with fulfilling customer orders, warranty

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costs related to previously sold systems, communication and hosting costs, product repair and refurbishment costs, and expenses associated with the enhancement of released products. Total cost of goods sold decreased $0.9 million to $16.9 million for fiscal 2007 compared to $17.8 million for fiscal 2006. Overall gross profit as a percent of net sales improved 3.0 percentage points to 44.8 percent for fiscal 2007 versus 41.8 percent for fiscal 2006. This improvement in overall margins for fiscal 2007 was the result of the increase in XATANET recurring subscription revenue. XATANET gross margins as a percent of net sales improved to 38.1 percent for fiscal 2007 compared to 20.4 percent for fiscal 2006, primarily due to XATANET subscription margins improving to 56.5 percent for fiscal 2007 compared to 40.0 percent in fiscal 2006.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of employee salaries in our support, sales and administration functions, sales commissions, marketing and promotional expenses, executive and administrative costs, accounting and professional fees, recruiting costs and provision for doubtful accounts. Selling, general and administrative expenses were $16.7 million for fiscal 2007 compared to $10.7 million for fiscal 2006. Selling, general and administrative expense for fiscal 2007 was impacted by charges of $1.4 million of legal and settlement costs associated with a patent infringement lawsuit and $1.9 million write-off of capitalized system development cost relating to products that will not be marketed. Selling, general and administrative expenses reflect an increase in stock based compensation associated with changes in the executive team of $1.5 million. Fiscal 2007 selling, general and administration expenses excluding the legal and settlement costs, write-off of system development costs and the increase in stock based compensation, were $11.9 million or 38.8 percent of net sales.

Research & Development Expenses

Research and development expenses consist of employee salaries and expenses related to development personnel and consultants, as well as expenses associated with software and hardware development. Research and development expenses were $4.3 million for fiscal 2007 compared to $4.0 million for fiscal 2006. The increase of $0.3 million was primarily due to an increase in development costs associated with future releases of fleet management systems that have not yet reached technological feasibility.

Net Interest Income

Net interest income increased $0.3 million to $0.5 million in fiscal 2007 from $0.2 million in fiscal 2006. The increase in interest income was associated with higher average cash balances and improved interest rates during fiscal 2007.

Income Taxes

No income tax benefit or expense was recorded in fiscal 2007 or fiscal 2006. Because we have had continued operating losses and do not have objectively verifiable positive evidence of future taxable income as prescribed by SFAS 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, 2007, we had federal net operating loss carryforwards of approximately $24.8 million.

Net Loss to Common Shareholders

We incurred net losses to common shareholders of $7.8 million and $2.1 million for fiscal 2007 and 2006, respectively. Net loss to common shareholders for fiscal 2007 reflects preferred stock deemed dividends relating to the issuance of Series D Preferred Stock of $0.7 million. Fiscal 2007 and 2006 reflect preferred stock dividends and preferred stock deemed dividends of $0.3 million and $0.3 million, respectively, relating to Series B Preferred Stock.

20

Comparison of Fiscal 2006 operating results to Fiscal 2005

Net Sales

Net sales increased 58.7 percent to $30.6 million in fiscal 2006 compared to $19.3 million in fiscal 2005. Net sales derived from our legacy OpCenter product line increased 6.6 percent to $14.7 million for fiscal 2006 compared to $13.8 million for fiscal 2005.

Net sales of XATANET equipment and services increased 190 percent to $15.9 million for fiscal 2006 compared to $5.5 million for fiscal 2005. XATANET system sales were 52 percent of total net sales for fiscal 2006, compared to 28 percent for fiscal 2005. The 184 percent growth in XATANET equipment sales in fiscal 2006 is associated with the following: (i) the increase in XATANET systems revenue in fiscal 2006 resulting from prior period deferred sales versus fiscal 2005 and (ii) the change in our XATANET contract terms, which now meets the revenue recognition requirements for immediate revenue recognition related to the software and hardware components of a sale for most new system sales. The effect of this change was additional revenue of $1.8 million for fiscal 2006. The 207 percent growth in recognized XATANET subscription sales is due to a larger subscriber base in fiscal 2006 in comparison to fiscal 2005.

We ended fiscal 2006 with $12.0 million of deferred revenue in comparison to $11.1 million at the end of fiscal 2005. Revenue associated with XATANET systems that are not under our new contract format will continue to be recognized over the initial term of each subscription rather than at the time of delivery. XATANET subscription terms are a minimum of twelve months.

Cost of Goods Sold

Total cost of goods sold increased $5.8 million to $17.8 million for fiscal 2006 compared to $12.0 million for fiscal 2005, driven by increased XATANET system and subscription sales. Overall gross margins on sales increased 4.1 percentage points to 41.8 percent for fiscal 2006 versus 37.7 percent for fiscal 2005. This improvement in overall margins for fiscal 2006 was driven by strong OpCenter systems margins and by the improvement in XATANET subscriptions margins from 17 percent in fiscal 2005 to 40 percent in fiscal 2006.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $11.5 million for fiscal 2006 compared to $9.7 million for fiscal 2005. The increase of $1.8 million was mainly due to the following: (i) an increase in employee related expenses of $1.3 million due to an increase in headcount which occurred in late fiscal 2005 to support the XATANET product line (ii) an increase in stock based compensation expense of $0.1 million associated with the Company’s long-term incentive program and (iii) an increase in recruiting costs of $0.3 million associated with new executive, sales, and operations positions that were added in fiscal 2006.

Research & Development Expenses

Research and development expenses were $3.3 million for fiscal 2006 compared to $3.6 million for fiscal 2005. The decrease of $0.3 million was mainly due to the increase in capitalized software development costs. In fiscal 2006 and 2005, the Company incurred total research and development costs of $4.2 million and $3.9 million, respectively; of which $0.9 million and $0.3 million of software development costs were capitalized in fiscal 2006 and 2005, respectively. These costs were capitalized after the establishment of technological feasibility occurred as required by FAS 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. These costs will be amortized to cost of goods sold based on the greater of the amount completed 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).

21

Net Interest Income

Net interest income increased $0.1 million to $0.2 million in fiscal 2006 from $0.1 million in fiscal 2005. The increase was primarily associated with higher interest income due to larger cash balances and improved interest rates in fiscal 2006.

Net Loss to Common Shareholders

We incurred net losses to common shareholders of $2.1 million and $6.7 million for fiscal 2006 and 2005, respectively. For both periods the difference between net loss applicable to common shareholders and net loss relates to paid and deemed dividends on the Series B Preferred Stock.

Liquidity and Capital Resources

As of September 30, 2007, we held $13.7 million in cash and cash equivalents and had working capital of $10.5 million. This compared to $6.5 million in cash and cash equivalents, and working capital of $6.3 million, as of September 30, 2006.

Operating activities provided cash of $1.6 million and $2.1 million during fiscal 2007 and 2006, respectively, while operating activities used cash of $4.4 million in fiscal 2005. Cash provided by operating activities less cash used in investing activities, increased to $0.8 million for fiscal 2007 compared to $0.5 million and a negative $1.3 million for fiscal 2006 and 2005, respectively.

Cash provided by operating activities for fiscal 2007 reflects an increase in working capital of $3.8 million and non-cash expenses of $4.6 million offsetting a net loss of $6.8 million. Cash provided by operating activities for fiscal 2006 resulted primarily from an increase in working capital of $2.7 million and non-cash expenses of $1.1 million offsetting our net loss of $1.7 million.

Cash used in investing activities of $0.8 million for fiscal 2007 included $0.6 million for purchases of equipment and leasehold improvements and $0.2 million for capitalized software development.

Cash provided by financing activities of $6.5 million for fiscal 2007 included proceeds from the issuance of Series D preferred stock of $6.0 million and $0.6 million from the issuance of common stock.

On December 17, 2004 we established a $2.0 million line of credit with Silicon Valley Bank. On December 16, 2005, we amended this debt facility and increased the size of the facility to $5.0 million. Advances under the line of credit accrue interest at the prime rate, which was 7.75 percent as of September 30, 2007. The line of credit is subject to borrowing base requirements and is collateralized by substantially all our assets. We are required to meet a quick ratio level of no less than 1:1 under this agreement. This facility will expire on December 15, 2007.

Contractual Obligations

The following table summarizes our contractual cash obligations as of September 30, 2007 (amounts in thousands):

	2008		2009		2010		2011		2012		Thereafter
Contractual Obligations
Capital leases	$	193	$	112	$	98	$	22	$	15	$	—
Operating leases		453		416		421		414		421		993
Purchase obligations		8,076		—		—		—		—		—
Total	$	8,722	$	528	$	519	$	436	$	436	$	993

22

Purchase obligations are defined as contractual obligations to purchase goods or services that are enforceable and legally binding on us. These obligations specify all significant terms and the timing of the transaction.

We believe our current cash balance and vendor terms will provide adequate cash to fund operating needs for the foreseeable future. However, a protracted decline in revenue, significant revenue growth or an increase in product development in the near term may require us to obtain external funding. No assurance can be given that we will be able to secure any required additional financing when needed, or that such financing, if obtained at all, will be on terms favorable or acceptable to us. If additional financing is required and we are unable to secure such additional financing, we may need to implement measures to slow our growth or reduce operating costs, including reductions to product development, marketing and other operating activities.

Our Series B Preferred Stock prohibits payment of dividends to the holders of any other capital stock unless and until we have paid dividends accrued on the Series B Preferred Stock, which pays an annual cumulative dividend of 4 percent of the original issue price. At the option of the Series B Preferred Stock holders, such dividends are payable in additional shares of Preferred Stock or cash. In fiscal 2007, 2006 and 2005, we issued 72,000, 69,000 and 67,000 shares, respectively, of Series B Preferred Stock for payment of accrued dividends. We are further restricted from dividend payments by our primary lender.

Subsequent Events

The Company was named as one of many defendants in a patent infringement lawsuit filed during 2007. In November 2007, the Company reached a settlement agreement with the plaintiff that will dismiss the Company from the lawsuit and provide the Company a fully paid-up irrevocable and perpetual license to the patents at issue, in exchange for cash compensation. The Company recognized $1.4 million in legal and settlement expenses during fiscal 2007 related to this matter.

Off-Balance Sheet Arrangements

Not applicable

Recently Issued Accounting Pronouncements

Accounting Changes and Error Corrections (Statement 154)

In May 2005, the FASB issued Statement 154, Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3, as part of its short-term convergence project with the International Accounting Standards Board. Statement 154 requires that all voluntary changes in accounting principles and changes required by a new accounting pronouncement that do not include specific transition provisions be applied retrospectively to prior periods’ financial statements, unless it is impractical to do so. Opinion 20, Accounting Changes, required that most voluntary changes in accounting principle be recognized by including the cumulative effect of changing to the new accounting principle as a component of net income in the period of the change. Statement 154 does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of the Statement. The Company adopted Statement 154 effective prospectively as October 1, 2006. The adoption of this Statement did not have any effect on the Company’s financial statements.

Accounting for Uncertainty in Income Taxes (FIN 48)

In July, 2006 the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”).  FIN 48, an interpretation of FASB Statement No. 109 “Accounting for Income Taxes,” prescribes a recognition threshold and measurement process for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on the

23

derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions.  The accounting provisions of FIN 48 will be effective for the Company beginning October 1, 2007.  The Company is assessing the impact of the new guidance on all open tax positions and it is not expected to have a material impact on the financial statements.

Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statement (SAB 108)

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in the current year financial statements. The SAB requires registrants to quantify misstatements using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 does not change the guidance in SAB 99, “Materiality”, when evaluating the materiality of misstatements. Upon initial application, SAB 108 permits a one-time cumulative effect adjustment to beginning retained earnings. SAB 108 was effective for Company for the fiscal year ending September 30, 2007. The adoption of this Statement did not have any effect on the Company’s financial statements.

Fair Value Measurements (FAS 157)

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements but does not require any new fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is determining what impact if any this Statement will have on the financial statements.

The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of SFAS No. 159 will have on its financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk exposure is primarily interest rate risk related to its cash and cash equivalents. Our investment policy is to manage our total cash and investment balance to preserve principal and maintain liquidity.

Item 8. Financial Statements and Supplementary Data

24

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, 2007 and 2006, and the related statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2007. 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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2007 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, effective October 1, 2006, the Company changed its method for accounting for share-based payments to adopt Statement of Financial Accounting Standards No. 123(R), Share-Based Payments.

/s/ Grant Thornton LLP

Minneapolis, Minnesota
December 13, 2007

F-1

XATA CORPORATION
BALANCE SHEETS

(in thousands, except per share amounts)

	September 30,			September 30,
	2007			2006
ASSETS
Current Assets
Cash and cash equivalents	$	13,675		$	6,354
Accounts receivable, less allowances for doubtful accounts and sales returns of $256 and $472		3,280			5,260
Inventories		2,672			2,212
Deferred product costs		752			3,433
Prepaid expenses		393			270
Total current assets		20,772			17,529
Equipment and leasehold improvements, net		1,583			1,316
Capitalized system development costs, net		—			1,191
Deferred product costs, net of current portion		1,798			1,687
Total assets	$	24,153		$	21,723
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term obligations	$	161		$	94
Accounts payable		3,419			1,688
Accrued expenses		3,548			2,674
Deferred revenue		3,105			6,728
Total current liabilities		10,233			11,184
Long-term obligations, net of current portion		220			88
Deferred rent		98			—
Deferred revenue, net of current portion		6,524			5,261
Total liabilities		17,075			16,533
Shareholders’ Equity
Preferred stock, no par, 10,000 shares authorized:
Series B, 4% convertible, 2,250 shares designated; shares issued and outstanding: 1,851 at September 30, 2007 and 1,779 at September 30, 2006		4,921			4,579
Series C, convertible, 1,400 shares designated; 1,269 shares issued and outstanding at September 30, 2007 and September 30, 2006		4,845			4,845
Series D, convertible, 1,600 shares designated; 1,567 shares issued and outstanding at September 30, 2007 and 0 at September 30, 2006		5,937			—
Common stock, par value $0.01 per share; 25,000 shares authorized; shares issued and outstanding: 8,516 at September 30, 2007 and 7,963 at September 30, 2006		85			80
Additional paid-in capital		25,760			23,246
Unearned stock based compensation		—			(900	)
Accumulated deficit		(34,470	)		(26,660	)
Total shareholders’ equity		7,078			5,190
Total liabilities and shareholders’ equity	$	24,153		$	21,723

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

F-2

XATA CORPORATION
STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	For the Years Ended Septmeber 30,
	2007			2006			2005
Net sales	$	30,676		$	30,629		$	19,303
Costs and expenses
Cost of goods sold		16,932			17,814			12,024
Selling, general and administrative		16,702			10,746			9,736
Research and development		4,351			4,038			3,622
Total costs and expenses		37,985			32,598			25,382
Operating loss		(7,309	)		(1,969	)		(6,079	)
Net interest income		501			226			99
Loss before income taxes		(6,808	)		(1,743	)		(5,980	)
Income tax expense		—			—			—
Net loss		(6,808	)		(1,743	)		(5,980	)
Preferred stock dividends		(185	)		(178	)		(169	)
Preferred stock deemed dividends		(817	)		(144	)		(587	)
Net loss to common shareholders	$	(7,810	)	$	(2,065	)	$	(6,736	)
Net loss per common share — basic and diluted	$	(0.99	)		($0.28	)		($0.93	)
Weighted average common and common share equivalents
Basic and Diluted		7,922			7,484			7,212

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

F-3

XATA CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands)

							Series B				Series C				Series D				Additional			Unearned
	Common Stock						Preferred Stock				Preferred Stock				Preferred Stock				Paid-In			Stock-Based			Accumulated
	Shares			Amount			Shares		Amount		Shares		Amount		Shares		Amount		Capital			Compensation			Deficit			Total
Balance at September 30, 2004		7,254		$	73			1,643	$	3,923		—	$	—		—	$	—	$	19,499		$	(499	)	$	(17,860	)		5,136
Common stock issued on exercise of options		118			1			—		—		—		—		—		—		404			—			—			405
Issuance of restricted shares of common stock		197			2			—		—		—		—		—		—		1,016			(1,018	)					—
Amortization of unearned stock based compensation		—			—			—		—		—		—		—		—		—			435			—			435
Elimination of unearned compensation related to terminated employees		—			—			—		—		—		—		—		—		(75	)		75			—			—
Forfeiture of restricted shares of common stock		(20	)		—			—		—		—		—		—		—		—			—			—			—
Issuance of common stock warrants		—			—			—		—		—		—		—		—		25			—			—			25
Issuance of preferred stock and warrants		—			—			—		—		1,269		4,426		—		—		589			—			—			5,015
Preferred stock dividends		—			—			67		170		—		—		—		—		—			—			(169	)		1
Preferred stock deemed dividends		—			—			—		167		—		419		—		—		—			—			(586	)		—
Net loss		—			—			—		—		—		—		—		—		—			—			(5,980	)		(5,980	)
Balance at September 30, 2005		7,549			76			1,710		4,260		1,269		4,845		—		—		21,458			(1,007	)		(24,595	)		5,037
Common stock issued on exercise of options		344			3			—		—		—		—		—		—		1,255						—			1,258
Common 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			—			566
Elimination 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			—			—			75
Preferred stock dividends		—			—			69		175		—		—		—		—		—			—			(178	)		(3	)
Preferred stock deemed dividends		—			—			—		144		—		—		—		—		—			—			(144	)		—
Net loss		—			—			—		—		—		—		—		—		—			—			(1,743	)		(1,743	)
Balance at September 30, 2006		7,963			80			1,779		4,579		1,269		4,845		—		—		23,246			(900	)		(26,660	)		5,190
Common stock issued on exercise of options		14			—			—		—		—		—		—		—		54			—			—			54
Issuance of restricted shares of common stock		450			4			—		—		—		—		—		—		(4	)		—						—
Elimination of unearned compensation		—			—			—		—		—		—		—		—		(900	)		900			—			—
Stock based compensation		—			—			—		—		—		—		—		—		2,021			—			—			2,021
Forfeiture of restricted shares of common stock		(23	)		—			—		—		—		—		—		—		—			—			—			—
Issuance of common stock		112			1			—		—		—		—		—		—		604			—			—			605
Issuance of preferred stock and warrants		—			—			—		—		—		—		1,567		5,279		739			—			—			6,018
Preferred stock dividends		—			—			72		183		—		—		—		—		—			—			(185	)		(2	)
Preferred stock deemed dividends		—			—			—		159		—		—		—		658		—			—			(817	)		—
Net loss		—			—			—		—		—		—		—		—		—			—			(6,808	)		(6,808	)
Balance at September 30, 2007		8,516		$	85			1,851	$	4,921		1,269	$	4,845		1,567	$	5,937	$	25,760		$	—		$	(34,470	)	$	7,078

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

F-4

XATA CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)

	For the Years Ended September30,
	2007			2006			2005
Cash provided by operating activities
Net loss	$	(6,808	)	$	(1,743	)	$	(5,980	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		664			451			266
Impairment loss on capitalized development costs		1,930			—			—
Issuance of warrants for services rendered		33			75			25
Stock based compensation		2,021			566			435
Changes in assets and liabilities:
Accounts receivable, net		1,980			2,552			(2,311	)
Inventories		(1,039	)		(955	)		(190	)
Deferred product costs		2,570			553			(4,858	)
Prepaid expenses		(123	)		(66	)		27
Accounts payable		1,731			(699	)		653
Accrued expenses		970			500			578
Deferred revenue		(2,360	)		880			6,950
Net cash provided by operating activities		1,569			2,114			(4,405	)
Cash used in investing activities
Purchase of equipment and leasehold improvements		(624	)		(755	)		(610	)
Additions to system development costs		(160	)		(906	)		(285	)
Sales of short-term investments		—			—			3,990
Net cash used in investing activities		(784	)		(1,661	)		3,095
Cash provided by financing activities
Borrowings on bank line of credit		—			200			1,800
Payments on bank line of credit		—			(2,000	)		(518	)
Borrowings on long-term obligations		—			49			—
Payments on long-term obligations		(108	)		(79	)		(252	)
Proceeds from issuance of common stock		605			—			—
Proceeds from issuance of preferred stock and warrants		5,985						5,015
Proceeds from options and warrants exercised		54			1,258			405
Net cash provided by (used in) financing activities		6,536			(572	)		6,450
Increase (decrease) in cash and cash equivalents		7,321			(119	)		5,140
Cash and cash equivalents
Beginning		6,354			6,473			1,333
Ending	$	13,675		$	6,354		$	6,473
Supplemental disclosures of cash flow information
Cash payments for interest	$	24		$	86		$	77
Supplemental schedule of noncash investing and financing activities
Issuance of restricted stock	$	—		$	965		$	1,018
Preferred stock deemed dividends		817			144			587
Unearned compensation for terminated employees		—			506			75
Preferred stock dividends payable		63			61			58
Preferred stock dividends paid		185			175			170
Equipment purchased under capital lease		306			212			—

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

F-5

Note 1. Description of Business

XATA Corporation (the “Company”) develops, markets and services fully integrated, onboard fleet management systems for the private fleet segment of the transportation industry. The Company sells its products in the United States and Canada. The Company’s systems utilize proprietary software and related hardware components and accessories to capture, analyze, and communicate operating information that assists fleet management in improving productivity and efficiency.

Note 2. Summary of Significant Accounting Policies

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) 104, Revenue Recognition in Financial Statements.

Software revenue is recognized under SOP 97-2 and SAB 104 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 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, 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, 2007 and 2006, the Company had $0 and $20,000, respectively, of systems on hand that had been billed to those customers awaiting specific delivery instructions.

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 consulting services and post-contract customer support (PCS) components of its license arrangements. The Company sells its consulting services separately, and has established VSOE on this basis. VSOE for PCS components are determined based upon the customer’s annual renewal rates for these elements. Accordingly, assuming all other revenue recognition criteria are met, revenue from licenses is recognized upon delivery, and revenue from PCS components are recognized ratably over the applicable term, typically one year.

Prior to January 1, 2006, certain software sales included application service contracts. The terms of those contracts did not meet the requirements described in Emerging Issues Task Force (EITF) 00-03, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware, to account for it under SOP 97-2 and SAB 104 and resulted in the recognition of all revenue ratably over the term of the agreement. During the fiscal year ending September 30, 2006, we changed the terms of all new contracts, such that all the requirements of EITF 00-03 related to software delivery are met and the contracts are accounted for under SOP 97-2. For these new contracts, revenue is recognized based on the multiple element arrangement accounting described above.

Segment Reporting

The Company operates as a single reportable segment. The Company will evaluate additional segment disclosure requirements as it expands its operations or experiences changes in its business.

The Company had no significant revenues from customers outside of the United States in fiscal 2007,

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2006 and 2005, and had no significant long-lived assets deployed outside the United States at September 30, 2007 and 2006.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Cash Equivalents and Short-Term Investments

Cash equivalents consist of highly liquid investments with original maturities of three months or less when purchased by the Company.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash equivalents, short-term investments and accounts receivable. The Company’s cash equivalents and short-term investments consist of checking and money market accounts and other liquid investments, which, at times, exceed federally, insured limits. The Company has not experienced any losses in such accounts.

The majority of our accounts receivable are due from companies with fleet trucking operations in a variety of industries. In general, the Company does not require collateral or other security to support accounts receivable. 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. To reduce credit risk, management performs ongoing evaluations of its customers’ financial condition. The Company determines its allowance for doubtful accounts receivable based upon 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. Unexpected or significant future changes in trends could result in a material impact to future statements of operations or cash flows. 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 appropriate adjustments are made as needed. The provision for doubtful accounts is recorded as a charge to operating expenses while the provision for sales returns is recognized as a reduction of revenues.

Value of Financial Instruments

The amounts of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate fair value because of their short-term maturities.

At September 30, 2007 and 2006, the Company had $0 outstanding under its revolving credit facility with Silicon Valley Bank. The carrying amount of these borrowings approximates fair value as the rate of interest on the revolving credit facility approximates the current market rate of interest for similar instruments with a comparable maturity.

Inventories

Inventories consist of parts and accessories and finished goods, and 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.

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Inventories consist of (in thousands):

	September 30,		September 30,
	2007		2006
Parts and accessories	$	1,021	$	786
Finished goods		1,651		1,426
Total inventories	$	2,672	$	2,212

Equipment and Leasehold Improvements

Purchased equipment and leased equipment under capital leases is stated at cost and depreciated using the straight-line method over estimated useful lives of approximately two to seven years. Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives (three to fifteen years). Depreciation for income tax reporting purposes is computed using accelerated methods.

Equipment and leasehold improvements consist of (in thousands):

	September 30,			September 30,
	2007			2006
Office furniture and equipment	$	3,353		$	2,543
Engineering and manufacturing equipment		574			564
Leasehold improvements		78			34
		4,005			3,141
Less: accumulated depreciation		(2,422	)		(1,825	)
Equipment and leasehold improvements, net	$	1,583		$	1,316

Capitalized System Development Costs

System development costs incurred after establishing technological feasibility are capitalized as capitalized system development costs in accordance with Statement of Financial Accounting Standards No. 86, (SFAS No. 86), Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. 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 2007, the Company recognized costs of $1.9 million relating to impairment of capitalized system development costs and associated product inventory relating to products that will not be marketed. These costs were recognized as a component of selling, general and administrative expense.

Long-Lived Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.

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

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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.

At September 30, 2007 and 2006, the Company had accruals for product warranties of approximately $911,000 and $877,000, respectively.

Shipping and Handling Costs

Shipping and handling costs, which are classified as a component of cost of goods sold, were approximately $290,000, $320,000 and $304,000 in fiscal 2007, 2006 and 2005, respectively. Customer billings related to shipping and handling fees are reported as net sales.

Advertising Costs

All advertising costs are expensed as incurred. Advertising costs, which are included in selling, general and administrative expenses, were approximately $340,000, $191,000 and $208,000 in fiscal 2007, 2006 and 2005, respectively. Advertising costs consist primarily of ad campaigns, catalog brochures, promotional items and trade show expenses.

Research and Development Costs

Research and development expenses are charged to expense as incurred. Such expenses include product development costs which have not met the capitalization criteria of SFAS No. 86. During fiscal 2007 and 2006 approximately $160,000 and $906,000, respectively, of research and development costs were capitalized in accordance with FAS 86.

Income taxes

The Company accounts for income taxes following the provisions of SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires that deferred income taxes be recognized for the future tax consequences associated with differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable earnings. Valuation allowances are established by the Company when necessary to reduce deferred tax assets to the amount more likely than not to be realized. The effect of changes in tax rates is recognized in the period in which the rate change occurs.

Stock-Based Compensation

Prior to fiscal 2007, the Company accounted for share-based employee compensation plans under the measurement and recognition provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Financial Accounting Standards Board SFAS No. 123, Accounting for Stock-Based Compensation. Under the intrinsic value method permitted by SFAS No.123, no share-based compensation expense related to stock option awards granted to employees had been recognized in the Company’s Statement of Operations, since all stock option awards granted under the plans had an exercise price equal to the market value of the common stock on the date of the grant. The Company recognized compensation expense related to non-vested restricted stock grants issued during fiscal 2006 and 2005 of $566,000 and $435,000, respectively.

If compensation expense for stock based compensation related to stock options had been determined based on the fair value of options at the grant date consistent with the methods provided in SFAS 123, “Accounting for Stock-based Compensation,” the Company’s net loss and loss to common shareholders per share would have been as follows, (in thousands except per share amounts):

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	For the Years Ended September 30,
	2006			2005
Net loss to common shareholders, as reported	$	(2,065	)	$	(6,736	)
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(62	)		(155	)
Pro forma net loss to common shareholders	$	(2,127	)	$	(6,891	)
Basic and diluted net loss to common shareholders per common share
As reported	$	0.28		$	0.93
Pro forma		0.28			0.96

Effective October 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”), “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting methodology using the intrinsic value method under APB Opinion No. 25.

The Company adopted SFAS 123(R) using the modified prospective transition method. Under this transition method, compensation expense is recognized for periods subsequent to adoption date for all share-based awards granted prior to, but not yet vested, as of September 30, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS 123 and compensation expense for all share-based awards granted subsequent to September 30, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s financial statements for periods prior to adoption have not been restated to reflect the impact of SFAS 123(R).

The Company estimates the fair value of options granted using the Black-Scholes option valuation model and the assumptions shown in Note 8 to the financial statements. The Company estimates the volatility of the common stock at the date of grant based on a historical volatility rate, consistent with SFAS 123(R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107 (SAB 107). The decision to use historical volatility was based upon the lack of traded common stock options. The expected term is estimated consistent with the simplified method identified in SAB 107 for share-based awards granted during fiscal 2007. The simplified method calculates the expected term as the average of the vesting and contractual terms of the award. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of the options. The Company uses historical data to estimate pre-vesting option forfeitures and records share-based compensation expense only for those awards that are expected to vest. The fair value of options are amortized over the vesting period of the awards utilizing a straight-line method.

Basis of Presentation

Certain amounts from prior years’ consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on net loss to common shareholders or shareholders’ equity.

Major Customers

The Company had the following significant customers:

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	Percentage of Net Sales								Percentage of Ending Receivables
	For the Year Ended September 30,								For the Year Ended September 30,
	2007			2006			2005		2007		2006		2005
Customer A		19.6	%		18.4	%		*		*		*		*
Customer B		*			18.2	%		*		*		*		*

* Customer total was less than 10 percent of net sales or ending receivables.

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.

Major Suppliers

While current vendors are meeting the Company’s quality and performance expectations, the Company believes that a disruption in the supply of XATA Application Modules (XAMs) supplied by one vendor, would affect the Company’s ability to deliver finished goods and replacement parts.

Recently Issued Accounting Standards

Accounting Changes and Error Corrections (Statement 154)

In May 2005, the FASB issued Statement 154, Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3, as part of its short-term convergence project with the International Accounting Standards Board. Statement 154 requires that all voluntary changes in accounting principles and changes required by a new accounting pronouncement that do not include specific transition provisions be applied retrospectively to prior periods’ financial statements, unless it is impractical to do so. Opinion 20, Accounting Changes, required that most voluntary changes in accounting principle be recognized by including the cumulative effect of changing to the new accounting principle as a component of net income in the period of the change. Statement 154 does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of the Statement. The Company adopted Statement 154 effective prospectively as October 1, 2006. The adoption of this Statement did not have any effect on the Company’s financial statements.

Accounting for Uncertainty in Income Taxes (FIN 48)

In July, 2006 the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”).  FIN 48, an interpretation of FASB Statement No. 109 “Accounting for Income Taxes,” prescribes a recognition threshold and measurement process for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions.  The accounting provisions of FIN 48 will be effective for the Company beginning October 1, 2007.  The Company is assessing the impact of the new guidance on all open tax positions and it is not expected to have a material impact on the financial statements.

Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statement (SAB 108)

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in the current year financial statements. The SAB requires registrants to quantify

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misstatements using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 does not change the guidance in SAB 99, “Materiality”, when evaluating the materiality of misstatements. Upon initial application, SAB 108 permits a one-time cumulative effect adjustment to beginning retained earnings. SAB 108 was effective for Company for the fiscal year ending September 30, 2007. The adoption of this Statement did not have any effect on the Company’s financial statements.

Fair Value Measurements (FAS 157)

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements but does not require any new fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is determining what impact if any this Statement will have on the financial statements.

The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of SFAS No. 159 will have on its financial statements.

Note 3. Bank Line of Credit

As of September 30, 2007, the Company had a $5,000,000 credit line agreement with a financial institution. Advances under the line of credit accrue interest at the prime rate, which was 7.75 percent as of September 30, 2007. The line is collateralized by substantially all the assets of the Company. The Company is required to meet a quick ratio level of no less than 1:1 under this agreement. All amounts owed under this line of credit must be repaid not later than December 15, 2007. There were no borrowings under this credit line as of September 30, 2007.

Note 4. Long-Term Liabilities

During 2007, the Company financed the purchase of $306,000 of equipment using capital leases. Future minimum lease payments under all capital leases/equipment financing agreements as follows (amounts in thousands):

Years ending September 30,
2008	$	193
2009		112
2010		98
2011		22
2012		15
Total payments		440
Amounts representing interest (weighted average interest rate of 10.6%)		(59	)
Present value of minimum capitalized lease payments	$	381

Asset cost related to the above capital leases/financing agreements was $567,000 and $261,000 and accumulated depreciation was $166,000 and $64,000 at September 30, 2007 and 2006, respectively.

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Note 5. Net Loss Per Share

Basic loss per share is computed based on the weighted average number of common shares outstanding by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other obligations to issue common stock such as options, warrants or convertible preferred stock, were exercised or converted into common stock that then shared in the earnings/(losses) of the Company. For all periods presented, diluted net loss per share is equal to basic net loss per share because the effect of including such securities or obligations would have been antidilutive.

Options and warrants to purchase 2,771,000, 1,421,000 and 1,577,000 shares of common stock at weighted average per share exercise prices of $4.23, $3.79 and $3.57 were excluded for the 2007, 2006, and 2005 fiscal years, respectively due to the Company incurring a net loss during the 2007, 2006 and 2005 fiscal years. The inclusion of these outstanding options and warrants would have an antidilutive effect. Therefore, basic and diluted net loss per common share amounts are the same for fiscal 2007, 2006 and 2005.

Note 6. Income Taxes

The Company’s deferred tax assets and liabilities are as follows (amounts in thousands):

	September 30,
	2007			2006
Current deferred tax assets:
Inventory and warranty reserve	$	619		$	415
Accrued expenses, deferred revenue and other		1,541			873
Accounts receivable and sales reserve		95			175
		2,255			1,463
Non-current deferred tax assets:
Product development costs		—			(441	)
Depreciation		12			(8	)
Research and development credit		1,400			1,191
Net operating loss carryforwards		9,160			8,160
		10,572			8,902
Total deferred tax asset		12,827			10,365
Less: valuation allowance		(12,827	)		(10,365	)
Net deferred tax asset	$	—		$	—

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 and it becomes more likely than not that these amounts will be realized.

The Company’s income tax expense (benefit) differed from the statutory federal rate as follows (amounts in thousands):

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	September 30,
	2007			2006			2005
Statutory federal rate applied to loss before income taxes	$	(2,315	)	$	(593	)	$	(2,033	)
State income tax benefit		(183	)		(52	)		(179	)
Permanent differences		246			(67	)		4
Change in valuation allowance		2,462			769			2,401
Research and development credit		(209	)		(25	)		(190	)
Other		(1	)		(32	)		(3	)
	$	—		$	—		$	—
Current	$	—		$	—		$	—
Deferred		—			—			—
	$	—		$	—		$	—

As of September 30, 2007, the Company had federal net operating loss carryforwards and research and development credit carryforwards of approximately $24.8 million and $1.4 million, respectively, which begin to expire in 2009 through 2027. The carryforwards may be subject to annual use limitations in accordance with the provisions of Section 382 of the Internal Revenue Code. Included in the net operating loss carryforwards is approximately $0.3 million related to stock options, which currently have a full valuation allowance, and when realized for financial statement purposes will not result in a reduction in income tax expense. Rather, the benefit will be recorded as an increase to additional paid-in capital.

Note 7. Commitments

Leases

The Company leases its office, warehouse, and certain office equipment under noncancelable operating leases. The facility leases require 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 (in thousands):

Years ending September 30,
2008	$	453
2009		416
2010		421
2011		414
2012		421
Thereafter		993
Total	$	3,118

Rental expense, including common area costs and net of rental income, was approximately $367,000, $267,000 and $254,000 for the fiscal years ended September 30, 2007, 2006 and 2005.

401(k) Plan

The Company has a 401(k) plan covering substantially all employees and is operated on a calendar year basis. The Plan provides for a Company matching contribution equal to 50 percent of an employee’s contribution for employee deferrals of up to 6 percent of their compensation with immediate vesting. Matching contributions for the fiscal years ended September 30, 2007, 2006 and 2005 totaled $147,000,

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$107,000 and $60,000, respectively.

Note 8. Shareholders’ Equity

Common Stock

The Company is authorized to issue up to 25,000,000 shares of common stock.

Preferred Stock

The Company has authorized an undesignated class of preferred stock of 10,000,000 shares. 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.

Series B

In December 2003, the Company’s Board of Directors authorized the sale of up to 1,700,000 shares of Series B Preferred Stock through a private placement. On December 6, 2003, pursuant to a Stock Purchase Agreement entered into with Trident Capital, Inc. and its affiliates (collectively, “Trident”) the Company sold 1,613,000 shares of Series B Preferred Stock for $4,097,000, 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 the Series B Preferred Stock and the conversion price for the common stock were 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 Series B Preferred Stock pays an annual cumulative dividend of 4 percent of the original issue price (payable semi-annually; payable in additional shares of Series B Preferred Stock or 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 Series B Preferred Stock provides that the Company cannot pay dividends to the holders of any other capital stock unless and until the Company has paid dividends accrued on the Series B Preferred Stock.

In fiscal 2007, 2006 and 2005, the Company issued 72,000, 69,000 and 67,000 shares, respectively, 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 Series B Preferred Stock resulted in a non-cash deemed dividend of $159,000, $144,000 and $168,000 in fiscal 2007, 2006 and 2005, respectively.

The Series B Preferred Stock is redeemable at the option of Trident at 100 percent 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 Series B Preferred Stock will increase from 4 percent to 10 percent.  The Company may redeem the Series B Preferred 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 451,000 shares of its common stock at an exercise price of $3.17 per share. The aggregate purchase price of the warrants was $56,000. The warrants permit “cashless exercise.”

In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of $629,000 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

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stock and the warrants. The amount of the deemed dividend was the difference between the deemed fair value of the Series B 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.

On December 6, 2003, 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 163,000 shares of Common Stock (130,000 shares at $2.54 per share and 33,000 shares at $3.17 per share). These warrants permit “cashless exercise” and provide the holders with piggyback registration rights.

Series C

In August 2005, the Company’s Board of Directors authorized the sale of up to 1,400,000 shares of Series C Preferred Stock through a private placement. Pursuant to a Stock Purchase Agreement entered into in September 2005 with Trident, the Company sold 1,269,000 shares of Series C Preferred Stock for $5,000,000, or $3.94 per share. Each share of the Series C Preferred Stock is convertible into one share of the Company’s common stock. The price per share of Series C 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 Series C Preferred Stock does not pay a dividend, unless the Company declines to redeem the stock upon demand of the holders after an Acceleration Event (as defined in the Certificate of Designation of the Series C Preferred Stock). In that case, the Series C Preferred Stock pays an annual cumulative dividend of 4 percent of the original issue price (payable in cash). The Series C Preferred Stock has a non-participating liquidation right equal to the original issue price, plus accrued unpaid dividends which are senior to the Common Stock and junior to the Series B Preferred Stock. The Company may redeem the Series C Preferred Stock at its option after five (5) years from the date of issuance at the original issue price, plus accrued unpaid dividends, if the market value of the common stock is at least three (3) times the then effective conversion price for a specified period.

Additionally, the Company issued Trident 5-year warrants to purchase 375,000 shares of its common stock at an exercise price of $3.94 per share. The aggregate fair value of the warrants was $47,000. The warrants permit “cashless exercise.”

In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of $419,000 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 Series C 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.

No broker or placement agent was involved in the placement of the Series C Preferred Stock and no commissions or other compensation was paid.

Series D

In May 2007, the Company’s Board of Directors authorized the sale of up to 1,600,000 shares of Series D Preferred Stock through a private placement. Pursuant to a Stock Purchase Agreement entered into in June 2007 with Trident, the Company sold 1,567,000 shares of Series C Preferred Stock for $6,000,000, or $3.83 per share. Each share of the Series D Preferred Stock is convertible into one share of the Company’s common stock. The price per share of Series D 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

F-16

Nasdaq Stock Market) on the date of execution of the definitive agreements. The Series D Preferred Stock does not pay a dividend, unless the Company declines to redeem the stock upon demand of the holders after an Acceleration Event (as defined in the Certificate of Designation of the Series D Preferred Stock). In that case, the Series D Preferred Stock pays an annual cumulative dividend of 4 percent of the original issue price (payable in cash). The Series D Preferred Stock has a non-participating liquidation right equal to the original issue price, plus accrued unpaid dividends which are senior to the Common Stock and junior to the Series B and Series C Preferred Stock. The Company may redeem the Series D Preferred Stock at its option after five (5) years from the date of issuance at the original issue price, plus accrued unpaid dividends, if the market value of the common stock is at least three (3) times the then effective conversion price for a specified period.

Additionally, the Company issued Trident 5-year warrants to purchase 470,000 shares of its common stock at an exercise price of $3.83 per share. The aggregate fair value of the warrants was $59,000. The warrants permit “cashless exercise.”

In connection with this transaction, the Company recognized a one-time, non-cash deemed dividend of $658,000 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 Series D 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.

No broker or placement agent was involved in the placement of the Series D Preferred Stock and no commissions or other compensation was paid.

Stock Option Plans

In February 2007 the Company adopted the 2007 Long Term Incentive and Stock Option Plan (the 2007 Plan). The 2007 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 2007 Plan. A total of 500,000 shares of the Company’s common stock was originally reserved for issuance pursuant to options granted or shares awarded under the 2007 Plan. Generally, the options that are granted under the 2007 Plan are exercisable for a period of five to ten years from the date of grant and vest over a period of up to three years from the date of grant.

The Company has thee equity compensation plans: its 2001 Interim Incentive and Stock Option Plan, its 2002 Long-Term Incentive and Stock Option Plan and its 2007 Long-Term Incentive and Stock Option Plan, all of which have been approved by the shareholders of the Company. The 2001 Interim and 2002 Plans have terminated and no additional awards can be made under those Plans.

The following tables summarize information relating to stock option activity as of September 30, 2007, 2006 and 2005 (in thousands, except per share amount):

F-17

				Weighted
				Average
	Shares			Exercise Price
Options outstanding at September 30, 2004		690		$	3.76
Granted		25			5.23
Exercised		(118	)		3.43
Cancelled		(39	)		4.48
Options outstanding at September 30, 2005		558			3.84
Granted		199			5.09
Exercised		(356	)		3.71
Cancelled		(13	)		3.76
Options outstanding at September 30, 2006		388			4.60
Granted		894			5.15
Exercised		(15	)		3.73
Cancelled		(35	)		4.83
Options outstanding at September 30, 2007		1,232			5.01

	Options Outstanding						Options Exercisable
			Weighted						Weighted
			Average						Average
			Remaining		Weighted				Remaining		Weighted
Range of	Number		Contractual		Average		Number		Contractual		Average
exercise	of		Life		Exercise		of		Life		Exercise
price	Shares		(Years)		Price		Shares		(Years)		Price
$2.85 - $2.95		13		0.46	$	2.95		13		0.46	$	2.95
$3.03 - $3.99		107		1.03		3.77		92		0.41		3.79
$4.18 - $4.98		116		4.33		4.68		41		4.11		4.53
$5.03 - $5.40		996		4.99		5.21		104		5.14		4.63
		1,232		4.54	$	5.01		250		2.78	$	4.43

The intrinsic value of options exercised during fiscal years 2007, 2006 and 2005 was $12,000, $391,000, and $189,000, respectively. The intrinsic value of outstanding options and options exercisable was $0 and $0, respectively, as of September 30, 2007.

The fair value of each option is estimated at the grant date using the Black-Scholes option-pricing model. The weighted average fair value and the assumptions used to determine the fair values are as follows (in thousands, except per share amounts):

	For the Years Ended September 30,
	2007			2006			2005
Number of shares granted		894			199			25
Fair value	$	1.79		$	1.78		$	1.87
Risk-free interest rate		4.65	%		4.56	%		3.77	%
Expected volatility		35.39	%		28.00	%		33.00	%
Expected life (in years)		4.04			5.5			5.00
Dividend yield		—			—			—

F-18

As of September 30, 2007, there was approximately $1,345,000 of total unrecognized compensation costs related to stock option awards. The Company expects to recognize this cost over a weighted average remaining vesting period of 2.2 years.

Restricted Stock Awards

The Company grants restricted shares of common stock as part of its long-term incentive compensation to employees. Fair market value of restricted stock awards are determined based on the closing market price on the date of grant. Restricted shares awards vest over one to three years and stock awards may be sold once vested. The Company also granted 10,000, 10,000 and 12,500 shares of common stock to certain directors in fiscal 2007, 2006 and 2005, respectively. Restricted stock awards granted to directors vest immediately.

The following table summarizes information relating to restricted stock activity as of September 30, 2007, 2006 and 2005 (in thousands, except per share amount):

				Weighted
	Number of			Average Grant
	Shares			Date Fair Value
Restricted stock outstanding at September 30, 2004		140		$	4.32
Granted		197			5.17
Vested		(58	)		4.53
Cancelled		(20	)		3.99
Restricted stock outstanding at September 30, 2005		259			4.94
Granted		199			4.85
Vested		(107	)		4.84
Cancelled		(139	)		4.87
Restricted stock outstanding at September 30, 2006		212			4.95
Granted		450			5.34
Vested		(278	)		5.23
Cancelled		(23	)		4.98
Restricted stock outstanding at September 30, 2007		361		$	5.22

The Company recognizes compensation expense ratably over the vesting period of the restricted stock. Stock based compensation expense relating to restricted stock awards was $1,492,000, $566,000 and $435,000 for fiscal 2007, 2006 and 2005, respectively.

As of September 30, 2007, there was approximately $1,542,000 of total unrecognized compensation costs related to restricted stock awards. The Company expects to recognize this cost over a weighted average remaining vesting period of 2.4 years.

In fiscal 2006, the Company adjusted previously recorded deferred compensation expense for the periods beginning in fiscal year 2004 through fiscal 2006 due to a change in estimated expected forfeitures of restricted stock awards. This cumulative effect on current and prior periods was recognized in the current period resulting in a $118,000 reduction of deferred compensation expense in fiscal 2006.

As the result of the adoption of SFAS 123(R), the Company eliminated the unearned stock based compensation component of stockholders’ equity. The elimination resulted in a reclassification of $900,000 to additional paid in capital. Net loss and total shareholders’ equity were not impacted.

F-19

Common stock warrants

The Company has issued warrants for the purchase of common stock to directors, consultants and placement agents. Compensation expense associated with the warrants has not been material and has been recorded as expense at its fair value.

The Company issued 375,000 and 470,000 warrants relating to the issuance of Series C and Series D Preferred Stock, respectively.

The following tables summarize information relating to stock warrants (amounts in thousands, with the exception of per warrant amounts):

						Weighted
				Weighted		Average
	Number of			Average		Remaining
	Warrants			Exercise Price		Life (years)
Warrants outstanding at September 30, 2004		639		$	3.10		4.13
Granted		385
Exercised		—
Cancelled		(5	)
Warrants outstanding at September 30, 2005		1,019			3.43		3.83
Granted		40
Exercised		(6	)
Cancelled		(20	)
Warrants outstanding at September 30, 2006		1,033			3.49		2.99
Granted		505
Exercised		—
Cancelled		—
Warrants outstanding at September 30, 2007		1,538		$	3.61		2.89

Note 9. Related Party Transactions

The Company purchased 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 approximately $3,026,000 during the fiscal year ended September 30, 2006 and $9,376,000 during the fiscal year ended September 30, 2005. The net amount payable to Phoenix on September 30, 2006 was $0, compared to $451,000 on September 30, 2005. The Company ceased purchasing hardware components from Phoenix on October 31, 2005.

Note 10. Legal Proceedings

The Company was named as one of many defendants in a patent infringement lawsuit filed during 2007. In November 2007, the Company reached a settlement agreement with the plaintiff that will dismiss the Company from the lawsuit and provide the Company a fully paid-up irrevocable and perpetual license to the patents at issue, in exchange for cash compensation. The Company recognized $1.4 million in legal and settlement expenses during fiscal 2007 related to this matter.

Note 11. Selected Quarterly Financial Data – Unaudited

The following is a condensed summary of actual quarterly operating results for fiscal 2007 and 2006 (amounts in thousands, except for share amounts):

F-20

	Fiscal year 2007
	December 31,			March 31,			June 30,			September 30,
	2006			2007			2007			2007
Net sales	$	7,774		$	8,162		$	7,984		$	6,756
Costs and expenses
Cost of goods sold		4,181			4,670			4,282			3,799
Selling, general and administrative		3,057			3,438			3,620			6,587
Research and development		1,174			1,024			1,061			1,093
Operating loss		(637	)		(970	)		(979	)		(4,723	)
Net loss		(554	)		(875	)		(875	)		(4,502	)
Net loss to common shareholders	$	(695	)	$	(921	)	$	(1,643	)	$	(4,549	)
Net loss per common share
Basic and diluted	$	(0.09	)	$	(0.12	)	$	(0.21	)	$	(0.57	)
Weighted average common and common share equivalents
Basic		7,845			7,921			7,959			7,964
Diluted

	Fiscal year 2006
	December 31,			March 31,		June 30,			September 30,
	2005			2006		2006			2006
Net sales	$	6,423		$	8,418	$	7,447		$	8,342
Costs and expenses
Cost of goods sold		3,772			4,530		4,437			5,075
Selling, general and administrative		2,500			2,815		2,580			2,851
Research and development		908			1,036		1,084			1,011
Operating income/(loss)		(757	)		37		(654	)		(595	)
Net income/(loss)		(749	)		63		(559	)		(498	)
Net income/(loss) to common shareholders	$	(844	)	$	19	$	(696	)	$	(543	)
Net income/(loss) per common share
Basic and diluted	$	(0.12	)	$	—	$	(0.09	)	$	(0.07	)
Weighted average common and common share equivalents
Basic		7,301			7,406		7,539			7,690
Diluted		7,301			11,071		7,539			7,690

Certain amounts from prior year’s financial statement shave been reclassified to conform to the current year presentations. These reclassifications had no effect on net income/ (loss) to common shareholders or shareholders’ equity.

F-21

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. 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 (as defined in Exchange Act Rule 13a-15(e)) for the Company. Based on an evaluation of such disclosure controls and procedures as of the end of the period covered by this report, such officers have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in internal controls over financial reporting. The Certifying Officers also have indicated that there have been no changes in the Company’s internal controls over financial reporting during its fourth fiscal quarter ended September 30, 2007, that have materially affected or are reasonably likely to materially affect such controls.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The required information regarding our executive officers is contained in Part I of this Report.

The required information regarding our directors and regarding compliance with Section 16(a) of the Exchange Act is incorporated by reference from our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 7, 2008.

We have adopted a Code of Ethics (Code) applicable to our principal executive, financial and accounting officers. The Code is filed as Exhibit 14 to our report on Form 10-KSB for fiscal 2004 and will be provided without charge, upon request, to any person.

Item 11. Executive Compensation

Information called for by this Item is incorporated by reference from our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 7, 2008.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information called for by this Item is incorporated by reference from our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 7, 2008.

Item 13. Certain Relationships and Related Transactions, Director Independence

Information called for by this Item is incorporated by reference from our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 7, 2008.

Item 14. Principal Accountant Fees and Services

Information called for by this Item is incorporated by reference from our definitive proxy statement for the Annual Meeting of Stockholders to be held on February 7, 2008.

25

PART IV

Item 15. Exhibits and Financial Statement Schedules

Exhibit
No.	Description of Exhibits
3.1	Restated Articles of Incorporation of XATA Corporation (22)
3.2	Bylaws of XATA Corporation *
3.3	Certificate of Designation of Preferences of Series B Preferred Stock (1)
3.4	Certificate of Amendment of Certificate of Designation of Preferences of Series B Preferred Stock *
3.5	Certificate of Designation of Preferences of Series C Preferred Stock (2)
3.6	Certificate of Designation of Preferences of Series D Preferred Stock (3)
4.1	Common Stock Warrant and Series B Preferred Stock Purchase Agreement, dated December 6, 2003 (1)
4.2	Common Stock Warrant and Series C Preferred Stock Purchase Agreement, dated September 7, 2005 (2)
4.3	Common Stock Warrant and Series D Preferred Stock Purchase Agreement, dated June 18, 2007 (3)
4.4	Form of warrant issued to Trident entities in connection with Common Stock Warrant and Series B Preferred Stock Purchase Agreement (1)
4.5	Form of warrant issued to Cherry Tree Securities, LLC for its service as placement agent in connection with Common Stock Warrant and Series B Preferred Stock Purchase Agreement (1)
4.6	Form of warrant issued to Trident entities in connection with Common Stock Warrant and Series C Preferred Stock Purchase Agreement (2)
4.7	Form of warrant issued to Trident entities in connection with Common Stock Warrant and Series D Preferred Stock Purchase Agreement (3)
4.8	Investor Rights Agreement, dated June 19, 2007 (3)
9.0	Amended and Restated Voting Agreement, dated September 7, 2005 (2)

26

Exhibit
No.	Description of Exhibits
10.1	Lease dated December 26, 1996 with Hoyt Properties, Inc. (4)
10.2	First Lease Amendment, dated May 5, 2003, which amends Lease dated December 26, 1996 with Hoyt Properties, Inc. (5)
10.3	Lease Agreement, dated July 9, 2007, with 965 Partnership LLP (21)
10.4	Trident Investor Indemnification Agreement (1)
10.5	Trident Director Indemnification Agreement (1)
10.6	Stock Purchase Agreement with JDSTG, dated August 30, 2000 (6)
10.7	Registration Rights Agreement with JDSTG dated August 30, 2000 (6)
10.8	Amendment No. 1, dated October 31, 2000, to Stock Purchase Agreement with JDSTG (7)
10.9	Side Agreement with JDSTG dated December 28, 2000 (8)
10.10	Loan and Security Agreement with Silicon Valley Bank, dated as of December 17, 2004 (9)
10.11	First Amendment to Loan and Security Agreement with Silicon Valley Bank, dated as of December 16, 2005 (10)
10.12	Employment Agreement dated October 1, 2000 with Thomas N. Flies (11)
10.13	Form of Warrant issued to directors as equity compensation (12)
10.14	2002 Long-Term Incentive and Stock Option Plan *
10.15	Form of Restricted Stock Award Agreement pursuant to 2002 Long-Term Incentive and Stock Option Plan (13)
10.16	Form of Directors’ Restricted Stock Award Agreement pursuant to 2002 Long-Term Incentive and Stock Option Plan (14)
10.17	2007 Long-term Incentive and Stock Option Plan (15)
10.18	Form of Stock Option Agreement for Directors pursuant to 2007 Long-term Incentive and Stock Option Plan *
10.19	Form of Stock Option Agreement for Employees pursuant to 2007 Long-term Incentive and Stock Option Plan *
10.20	Change of Control Agreement with Mark Ties (16)
10.21	Change of Control Agreement with Thomas Schlick (17)
10.22	Executive Employment Agreement with John J. Coughlan (18)
10.23	Incentive Stock Option Agreement with John J. Coughlan (18)
10.24	Restricted Stock Award Agreement with John J. Coughlan (18)
10.25	Matching Restricted Stock Award Agreement with John J. Coughlan (18)
10.26	Change of Control Agreement with David Gagne (19)
10.27	Non-Qualified Stock Option Agreement with David Gagne (19)

27

Exhibit
No.	Description of Exhibits
10.28	Matching Restricted Stock Award Agreement with David Gagne (19)
10.29	Separation and Release Agreement with Peter A. Thayer (19)
10.30	Business Agreement with Winland Electronics dated June 28, 2005 (20)
10.31	Reseller Agreement with Orbcomm, Inc. dated July 31, 2006 (20)
10.32	Second Amendment to Custom Service Agreement with Sprint Solutions, Inc. effective January 1, 2007 (20)
14	Amended Code Of Ethics For Principal Executive Officer And Senior Financial Officers (9)
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 *

*	Filed herewith
(1)	Incorporated by reference to exhibit filed as part of Report on Form 8-K on December 9, 2003
(2)	Incorporated by reference to exhibit filed as part of Report on Form 8-K on September 22, 2005
(3)	Incorporated by reference to exhibit filed as part of Report on Form 8-K on June 22, 2007
(4)	Incorporated by reference to exhibit filed as a part of Report on Form 10-QSB for the fiscal quarter ended March 31, 1997
(5)	Incorporated by reference to exhibit filed as part of Report on Form 10-QSB for the fiscal quarter ended March 31, 2003
(6)	Incorporated by reference to exhibit filed as a part of Report on Form 8-K on September 7, 2000
(7)	Incorporated by reference to exhibit filed as a part of Report on Form 8-K on November 2, 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 part of Report on Form 10-KSB for the fiscal year ended September 30, 2004
(10)	Incorporated by reference to exhibit filed as part of Report on Form 10-KSB/A for the fiscal year ended September 30, 2005
(11)	Incorporated by reference to exhibit filed as part of Report on Form 10-QSB for the fiscal quarter ended December 31, 2000

28

(12)	Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended September 30, 2002
(13)	Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended September 30, 2004
(14)	Incorporated by reference to exhibit filed as part of Report on Form 8-K on March 1, 2006
(15)	Incorporated by reference to exhibit filed as part of Registration Statement on Form S-8 on February 15, 2007
(16)	Incorporated by reference to exhibit filed as part of Report on Form 8-K on April 12, 2005
(17)	Incorporated by reference to exhibit filed as part of Report on Form 8-K on April 11, 2006
(18)	Incorporated by reference to exhibit filed as part of Report on Form 8-K on October 4, 2006
(19)	Incorporated by reference to exhibit filed as part of Report on Form 8-K on January 8, 2007
(20)	Incorporated by reference to exhibit filed as part of Report on Form 10-KSB for the fiscal year ended September 30, 2006
(21)	Incorporated by reference to exhibit filed as part of Report on Form 8-K on July 9, 2007
(22)	Incorporated by reference to exhibit filed as part of Registration Statement on Form S-2 (Commission File No. 33-98932)

29

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 CORPORATION
Dated: December 13, 2007	By:	/s/ John J. Coughlan
		John J. Coughlan, Chairman, Chief
		Executive Officer and President (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 13, 2007	By:	/s/ John J. Coughlan
		John J. Coughlan, Chairman, Chief
		Executive Officer and President
Dated: December 13, 2007	By:	/s/ Carl M. Fredericks
		Carl M. Fredericks, Director
Dated: December 13, 2007	By:	/s/ Thomas G. Hudson
		Thomas G. Hudson, Director
Dated: December 13, 2007	By:	/s/ Roger W. Kleppe
		Roger W. Kleppe, Director
Dated: December 13, 2007	By:	/s/ Stephen A. Lawrence
		Stephen A. Lawrence, Director
Dated: December 13, 2007	By:	/s/ Mark E. Ties
		Mark E. Ties, Chief Financial Officer
		(Principal accounting and financial officer)
Dated: December 13, 2007	By:	/s/ Christopher P. Marshall
		Christopher P. Marshall, Director
Dated: December 13, 2007	By:	/s/ Charles R. Stamp, Jr.
		Charles R. Stamp, Jr., Director

30

EX-3.1

Exhibit 3.1

SECOND RESTATED
ARTICLES OF INCORPORATION
OF
XATA CORPORATION

ARTICLE 1

     The name of this corporation shall be XATA Corporation.

ARTICLE 2

     The registered office of this corporation in the State of Minnesota shall be 151 East Cliff Road, Suite 10, Burnsville, Minnesota 55337, and the registered agent of this corporation shall be: none.

ARTICLE 3

     3.1 This Corporation shall have the authority to issue an aggregate of twenty-five million (25,000,000) shares of Common Stock, $.01 par value per share. Such shares shall be designated as this Corporation’s “Common Stock.”

     3.2 This Corporation shall have the authority to issue an aggregate of ten million (10,000,000) shares of Preferred Stock, which may be issued in one or more series as determined from time to time by the Board of Directors. The shares of Preferred Stock of any series authorized for issuance by the Board of Directors shall be senior to the Common Stock with respect to any distribution (as such term is defined in Section 302A.011, Subd. 10, Minnesota Statutes) if so designated by the Board of Directors. The Board of Directors is hereby granted the express authority to fix by resolution any other powers, preferences, rights (including, without limitation, voting rights), qualifications, limitations or restrictions with respect to any particular series of Preferred Stock.

     3.3 There shall be no cumulative voting by the holders of the Common Stock.

     3.4 The shareholders of this Corporation shall have no preemptive rights to subscribe for or otherwise acquire (i) any new or additional shares of stock of this Corporation of any class whether now authorized or authorized hereafter, or (ii) any options or warrants to purchase, subscribe for or otherwise acquire any such new or additional shares of any class, or any shares, bonds, notes, debentures, or (iii) other securities convertible into or carrying options or warrants to purchase, subscribe for, or otherwise acquire any such new or additional shares of any class.

ARTICLE 4

     In addition to, and not by way of limitation, of, the powers granted to the Board of Directors by Chapter 302A, Minnesota Revised Statutes, the Board of Directors of this corporation shall have the following powers and authority:

1

     4.1 To fix by resolution any designation, power, preference, right, qualification, limitation or restriction with respect to the issuance of any series of the preferred Stock of this corporation authorized by these Articles of Incorporation.

     4.2 To issue shares of a class or series to holders of shares of another class or series to effectuate share dividends, splits, or conversion of its outstanding shares.

     4.3 To fix the terms, provisions and conditions of and to authorize the issuance, sale, pledge or exchange of bonds, debentures, notes, or other evidences of indebtedness of this corporation.

     4.4 To issue authorized securities of this corporation and rights to acquire such securities and to reserve securities of this corporation for issuance upon exercise of such rights.

     4.5 To adopt, amend or repeal all or any of the Bylaws of this corporation by the vote of a majority of its members, subject to the power of the shareholders to adopt, amend or repeal such Bylaws.

     4.6 As to any member of the Board, to give advance written consent or opposition to a resolution stating an action to be taken by the Board. If such member is not present at the meeting at which action is taken upon such resolution, such consent or opposition does not constitute presence for purposes of determining the existence of a quorum, but shall be counted as a vote in favor of or against the resolution and shall be entered in the minutes or other record of action taken by the Board at the meeting if the resolution acted upon by the Board at the meeting is substantially the same or has substantially the same effect as the resolution to which the member of the Board has consented or objected.

     4.7 To adopt an indemnity plan and to purchase and maintain insurance for officers, directors, employees and agents against liability asserted against them and incurred in any such capacity or arising out of their status as such, and to enter into contracts for indemnification of such persons, to the fullest extent permissible under the provisions of Chapter 302A, Minnesota Revised Statutes. Except as expressly provided in Section 302A.251, Subd. 4, Minnesota Revised Statutes, a member of the Board of Directors of this corporation shall have no personal liability to this corporation or to the shareholders for monetary damages for breach of fiduciary duty as a member of the Board of Directors. Amendment or repeal of this Section 4.7 shall not adversely affect any right of indemnification or limitation of liability of any officer, director, employee or agent with respect to any liability or alleged liability arising out of any act or omission occurring prior to such amendment or repeal.

     4.8 To take any action required or permitted to be taken at a meeting of the Board by written action signed by the number of directors that would be required to take same action at a meeting of the Board at which all directors were present, including action requiring shareholder approval, provided, that any action taken in writing which requires shareholder approval shall be signed by all directors.

2

EX-3.2

Exhibit 3.2

BYLAWS
OF
XATA CORPORATION

ARTICLE I
OFFICES

     The registered office of the corporation shall be that set forth in the Articles of Incorporation dated May 12, 1989, filed with the Secretary of State of Minnesota on May 15, 1989, or in the most recent amendment thereof, or in a statement of the Board of Directors filed with the Secretary of State of the State of Minnesota changing the registered office in the manner prescribed by law. The corporation may also have offices and places of business at such other locations as the Board of Directors may from time to time designate, or the business of the corporation may require.

ARTICLE 11
SHAREHOLDER’S MEETINGS

     Section 2.1. Time and Place of Meetings. Regular or special meetings of the shareholders, if any, shall be held on the date and at the time and place fixed by the President/Chief Executive Officer or the Board of Directors, except that a meeting called by, or at the demand of a shareholder or shareholders, pursuant to Minnesota Statutes, Section 302A.431, Subd. 2, shall be held in the county where the principal executive office is located.

     Section 2.2. Regular Meetings. An annual meeting of the shareholders shall be held at such place as the Board of Directors shall designate, either within or without the State of Minnesota, and on such date and at such time as may be determined by the Board of Directors and communicated to the shareholders according to the requirements set forth herein, for the purpose of electing directors and for the transaction of any other business which may properly come before it. Additional regular meetings of the shareholders may be held on a less frequent periodic basis. No meeting shall be considered a regular meeting unless specifically designated as such in the notice of meeting or unless all the shareholders are present in person or by proxy and none of them objects to such designation. Any business appropriate for action by the shareholders may be transacted at a regular meeting.

     Section 2.3. Special Meetings. Special meetings of the shareholders may be held at any time and for any purpose and may be called by the President/Chief Executive Officer, Chief Financial Officer, any two or more directors, or at the request in writing of a shareholder or shareholders holding ten percent (10%) or more of the shares entitled to vote (except that a special meeting for the purpose of considering any action to directly or indirectly effect a business combination, including any action to change or otherwise affect the composition of the Board of Directors for that purpose, must be requested by shareholders holding not less than twenty-five percent (25%) of all shares of the corporation entitled to vote). A shareholder request for a special meeting must be in writing, addressed to the President/Chief Executive Officer or the Chief Financial Officer of the corporation, and must specify the purposes of such meeting.

     Section 2.4. Notice of Meetings. Written notice of a meeting of the shareholders stating the time and place thereof shall be mailed at least five (5) days but not more than sixty (60) days prior to the meeting, except as otherwise provided by statute, to each shareholder entitled to vote thereat to the last known address of such shareholder as the same appears upon the books of the corporation.

     Every notice of any special meeting shall state the purpose or purposes for which the meeting has been called, and the business transacted at all special meetings shall be confined to the purpose stated in the call, unless all of the shareholders are present in person or by proxy and none of them objects to consideration of a particular item of business.

     Section 2.5. Closing of Transfer Books; Record Date. The Board of Directors may close the stock transfer books of the corporation for a period not exceeding sixty (60) days preceding the date of any meeting of shareholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect. In lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date for payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the shareholders entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion, or exchange of capital stock, and in such case such shareholders and only such shareholders shall be shareholders of record on the date so fixed and shall be entitled to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. If the Board of Directors fails to fix such a record date the record date shall be the twentieth (20th) day preceding the date of payment or allotment.

     Section 2.6. Waiver of Notice. Notice of the time, place and purpose of any meeting of shareholders, whether required by statute, the Articles of Incorporation or these Bylaws, may be waived by any shareholder. Such waiver may be given before, at, or after the meeting, and may be given in writing, orally or by attendance.

     Section 2.7. Action without Meeting. Any action which may be taken at a meeting of the shareholders may be taken without a meeting, if authorized in writing or writings signed by all shareholders who would be entitled to notice of a meeting for such purpose.

     Section 2.8. Quorum. The presence at any meeting, in person or by proxy, of the holders of a majority of the shares entitled to vote, shall constitute a quorum for the transaction of business. If, however, such majority shall not be present in person or by proxy at any meeting of the shareholders, those present shall have the power to adjourn the meeting from time to time, without notice other than by announcement at the meeting, until the requisite amount of voting shares shall be represented. At any such adjourned meeting at which the required number of voting shares shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed.

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     Section 2.9. Voting. At all meetings of the shareholders, each shareholder having the right to vote shall be entitled to vote in person or by proxy, duly appointed by an instrument in writing subscribed by such shareholder. Each shareholder shall have one (1) vote for each share having voting power standing in his name on the books of the corporation. Upon the demand of any shareholder, the vote for directors or the vote upon any question before the meeting shall be by ballot. All elections shall be had and all questions decided by a majority vote except as otherwise required by these Bylaws, the Articles of Incorporation, any applicable shareholder agreement, or statute.

     Section 2.10. Proxies. At any meeting of the shareholders, any shareholder may be represented and vote by a proxy or proxies appointed by an instrument in writing and filed with the Secretary at or before the meeting. An appointment of a proxy or proxies for shares held jointly by two or more shareholders is valid if signed by any one of them, unless and until the corporation receives from any one of those shareholders written notice denying the authority of such other person or persons to appoint a proxy or proxies or appointing a different proxy or proxies. In the event that any instrument shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or if only one shall be present then that one, shall have and may exercise all of the proxies so designated unless the instrument shall otherwise provide. If the proxies present at the meeting are equally divided on an issue, the shares represented by such proxies shall not be voted on such issue.

     A proxy granted by an entity shall be valid if signed by a person who is an executive officer (or equivalent) of such entity or any person specifically authorized to do so in a resolution of the governing body of such entity. A proxy granted to an entity may be exercised by a person who is an executive officer (or equivalent) of such entity or any person specifically authorized to do so in a resolution of the governing body of such entity.

     No proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless coupled with an interest or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed three (3) years from the date of its execution. Subject to the above, any duly executed proxy shall continue in full force and effect and shall not be revoked unless written notice of its revocation or a duly executed proxy bearing a later date is filed with the Secretary of the corporation. A proxy’s authority shall not be revoked by the death or incapacity of the maker unless, before the vote is cast and the authority exercised, written notice of such death or incapacity is given to the corporation.

     Section 2.11. Advance Notice of Business. At any regular or special meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any shareholder of the corporation who complies with the notice procedures set forth in this Section. For business to be properly brought before any regular or special meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder’s notice of any such business to be conducted at an annual meeting must be delivered to the Secretary, or mailed and received at the principal executive office of the corporation, not less than 90 days prior to the first anniversary date of the prior year’s annual meeting. If, however, the date of the annual meeting of shareholders is more than 30 days before

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or after such anniversary date, notice by a shareholder shall be timely only if so delivered, or so mailed and received, not less than 90 days before such annual meeting or, if later, within 10 days after the first public announcement of the date of such annual meeting. “Public announcement” means disclosure (i) when made in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service, (ii) when filed in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15 (d) of the Securities Exchange Act of 1934, as amended, or (iii) when mailed as the notice of the meeting pursuant to these Bylaws.

     If a special meeting of shareholders of the corporation is called for any purpose other than electing Directors, or if a regular meeting other than an annual meeting is held, for a shareholder’s notice of any such business to be timely it must be delivered to the Secretary, or mailed and received at the principal executive office of the corporation, not less than 90 days before such special meeting or such regular meeting, or, if later, within 10 days after the first public announcement of the date of such special meeting or such regular meeting. Except to the extent otherwise required by law, the adjournment of a regular or special meeting of shareholders shall not commence a new time period for the giving of a shareholder’s notice as required above.

     A shareholder’s notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the regular or special meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the corporation’s books, of the shareholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the shareholder and (d) any material interest of the shareholder in such business.

     Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any regular or special meeting except in accordance with the procedures set forth in this Section and, as an additional limitation, the business transacted at any special meeting shall be limited to the purposes stated in the notice of the special meeting.

     The Chairman of the meeting shall, if the facts warrant, determine that business was not properly brought before the meeting in accordance with the provisions of this Section and, if the Chairman should so determine, the Chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

ARTICLE III
BOARD OF DIRECTORS

     Section 3.1. Election of Directors. The number of Directors that shall constitute the whole Board shall be at least one (1). In the absence of a resolution of the shareholders or the Directors, the number of Directors shall be the number last fixed by the shareholders or the Directors; provided, however, that the Board of Directors may not decrease the number of Directors. Directors need not be shareholders. Each of the Directors shall hold office until the next succeeding annual meeting of shareholders and until his successor shall have been duly elected and qualified, or until his earlier resignation or removal from office as hereinafter provided. In the event that any person standing for election as director receives the affirmative

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vote of less than 50% of the shares present and entitled to vote at the meeting in the election of Directors, by person or by proxy, such position shall be eliminated and the number of directors to be elected shall be reduced accordingly; provided, however, that the number of directors shall not be less than one (1) and the nominee receiving the most votes, even though less than a majority, shall be elected as a Director of the corporation.

     Section 3.2. Board Meetings; Place and Notice. Meetings of the Board of Directors may be held from time to time at any place within or without the State of Minnesota that the Board of Directors may designate. In the absence of designation by the Board of Directors, Board meetings shall be held at the principal executive office of the corporation, except as may be otherwise unanimously agreed orally or in writing or by attendance. Any director may call -a meeting of the Board of Directors by giving two (2) days notice to all directors of the date and time of the meeting. The notice need not state the purpose of the meeting. Notice may be given by mail, telephone, telegram or in person. If a meeting schedule is adopted by the Board of Directors, or if the date and time of a Board of Directors meeting has been announced at a previous meeting, no notice is required.

     Section 3.3. Waiver of Notice. Notice of the time, place and purpose of any meeting of the Board of Directors, whether required by statute, the Articles of Incorporation, or these Bylaws,, may be waived by any director. Such waiver may be given before, at, or after the meeting and may be given in writing, orally or by attendance. The attendance of a director at a meeting and participation therein shall constitute waiver of notice of such meeting unless the director attends for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened, the director so states at the meeting, and the director does not thereafter participate in the meeting.

     Section 3.4. Quorum and Action of Board. At all meetings of the Board of Directors, a majority of the directors shall be necessary and sufficient to constitute a quorum for the transaction of business; provided that if less than a majority of the directors are present, a majority of those present may adjourn the meeting from time to time without notice other than an announcement at the meeting at which adjournment is taken.

     The directors present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.

     The act of a majority of the directors present at any meeting at which a quorum is present, or at any meeting at which a quorum was present and at which the remaining directors are authorized under this Section to continue to transact business shall be the act of the Board of Directors.

     Section 3.5. Electronic Communications. A conference among directors by any means of communication through which the directors may simultaneously hear each other during the conference constitutes a board meeting, if the same notice is given of the conference as required by these Bylaws for a meeting, and if the number of directors participating in the conference would be sufficient to constitute a quorum at a meeting. Participation in a meeting by such electronic means of communication constitutes presence in person at the meeting.

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     Section 3.6. Vacancies. Any vacancy occurring on the Board of Directors by reason of death, resignation, disqualification, or increase in the number of directors, may be filled by a majority of the remaining directors, though less than a quorum, at any regular or special meeting, except that vacancies on the Board resulting from newly created directorships may only be filled by a majority vote of the directors serving at the time of the increase. Each director so elected shall hold office until the next regular or special shareholder meeting or until his or her successor is elected and qualified.

     Section 3.7. Resignations. Any director of the corporation may resign at any time by giving written notice to the Chairman of the Board or to the President/Chief Executive Officer or Secretary of the corporation. Unless a later date is specified in the notice of resignation as the effective date of resignation, resignation shall take effect on the date of receipt of the written notice by the Chairman, President/Chief Executive Officer, or Secretary. Unless otherwise specified in such notice, the acceptance of the resignation shall not be necessary to make it effective.

     Section 3.8. Removal. At a meeting of shareholders called expressly for that purpose, any director or the entire Board of Directors may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors.

     Section 3.9. Absent Directors. A director may give advance written consent or opposition to a proposal to be acted on at a Board meeting. If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition stated in writing and delivered to the President/Chief Executive Officer or the officer or director presiding at the meeting shall be counted as a vote in favor of or against the proposal if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. Such written consent or opposition shall be entered in the minutes or other record of action at the meeting.

     Section 3.10. Action without Meeting. Any action which is required or may be taken at a meeting of the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by a majority of all the directors entitled to vote with respect to the subject matter thereof, except as to matters that require shareholder approval, in which case such consent in writing must be signed by all of the directors. Action taken by such written consent shall be effective on the date when signed by the required number of directors, or such earlier effective date as set forth therein. When written action is permitted to be taken by less than all of the directors, all directors shall be notified immediately of its text and effective date. Failure to provide the notice shall not invalidate the written action. A director who does not sign or consent to the written action shall have no liability for the action or actions taken thereby.

     Section 3.11. Presumption of Assent. For purposes of any liability as a director, a director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless:

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     (a) He objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not thereafter participate in the meeting;

     (b) He votes against the action at the meeting; or

     (c) He is prohibited from voting at the meeting due to a conflict of interest.

     Section 3.12. Committees. The Board of Directors may, by a majority vote, designate two or more of their number to constitute an executive committee, which, to the extent determined by the Board and allowed by law, shall have and exercise the authority of the Board in the management of the business of the corporation. Such executive committee shall act only in the interval between meetings of the Board and shall be subject at all times to the control and direction of the Board. The Board of Directors by a majority vote may also appoint one or more natural persons who need not be Board members to serve on such other committees as the Board may determine. Such other committees shall have powers and duties as shall from time to time be prescribed by the Board. A majority of the members of any committee present at a meeting is a quorum for the transaction of business. All committees shall keep accurate minutes of their meetings, which minutes shall be made available upon request to members of that committee and to any director.

     Section 3.13. Chairman. The Board may elect one of their number to serve as Chairman, who shall preside, when present, at all meetings of the Board.

     Section 3.14. Compensation. The. directors of the corporation and all members of committees shall serve without salary, unless ordered by the directors; however, they shall be paid the necessary expenses incurred in the execution of their duties. Nothing herein shall preclude the paying by the corporation of a salary or other compensation to an officer or employee who is also a director.

     Section 3.15. Limitation of Liability. Except as expressly provided in Minnesota Statutes, Section 302A.251, Subd. 4, a member of the Board of Directors of this corporation shall have no personal liability to this corporation or to the shareholders for monetary damages for breach of fiduciary duty as a member of the Board of directors. Amendment or repeal of such limitation in these Bylaws or in the Articles of Incorporation of this corporation shall -not adversely. affect any limitation of liability of a director with respect to any liability or alleged liability arising out of any act or omission occurring prior to such amendment or repeal.

ARTICLE IV
OFFICERS

     Section 4.1. Election of Officers. The Board of Directors shall, from time to time, elect a President/Chief Executive Officer and a Treasurer/Chief Financial Officer. The Board of Directors may, but shall not be required to, elect a Secretary and one (1) or more Vice Presidents, as they may determine, one of whom may be designated as an Executive Vice President. In addition, the Board of Directors may elect such other officers and agents as it may determine necessary, including Assistant Secretaries and Assistant Treasurers. Such officers shall exercise such powers and perform such duties as are prescribed by the Articles of Incorporation or the

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Bylaws or as may be otherwise determined from time to time by the Board of Directors. Any number of offices or functions of those officers may be held or exercised by the same person.

     Section 4.2. Terms of Office. The officers of the corporation shall hold office for such terms as shall be determined from time to time by the Board of Directors or until their successors are chosen and qualify in their stead. Any officer elected or appointed by the Board of Directors may be removed by the affirmative vote of a majority of the whole Board of Directors with or without cause.

     Section 4.3. Salaries. The salaries of all officers and agents of the corporation shall be determined by the Board of Directors.

     Section 4.4. President/Chief Executive Officer. The President/Chief Executive Officer shall be the chief executive officer of the corporation, and shall have the general direction of the affairs of the corporation. He shall preside at all meetings of the shareholders and of the Board of Directors. He shall direct general active management of the business of the corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute all contracts, mortgages and other instruments of the corporation, and may appoint and discharge agents and employees. He shall be ex officio a member of any executive committee which may be constituted hereunder, and all other standing committees, and shall perform all such other duties as are incident to his office, or are properly required of him by the Board of Directors. As used herein or in other writings of, or documents delivered on behalf of, the corporation, the titles “President” and “Chief Executive Officer” shall mean one and the same person and shall be interchangeable.

     Section 4.5. Vice Presidents. The Vice Presidents in the order designated by the Board of Directors shall perform the duties and exercise the powers of the President/Chief Executive Officer in his absence or incapacity. The Vice Presidents shall perform such other duties as the Board of Directors shall from time to time prescribe.

     Section 4.6. Secretary and Assistant Secretaries. The Secretary shall attend all sessions of the Board of Directors and all meetings of the shareholders, and record all votes and minutes for all proceedings in a book kept for that purpose, and shall perform like duties for the standing committees when required. He shall give or cause to be given notice of all meetings of the shareholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President/Chief Executive Officer under whose supervision he shall be. He shall keep in safe custody the seal, if any, of the corporation, and shall affix the same to any instrument requiring it.

     The Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the Board of Directors shall prescribe.

     Section 4.7. Treasurer/Chief Financial Officer and Assistant Treasurers. The Treasurer/Chief Financial officer shall have the custody of the corporate funds and securities, and shall keep full and accurate account of receipt and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit

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of the corporation in such depositories as may be designated from time to time by the Board of Directors; he shall disburse the funds of the corporation in discharge of corporate liabilities and obligations as may be ordered by the Board of Directors from time to time, taking the proper vouchers for such disbursements, and shall render to the President and the Board of Directors whenever they may require the same, an account of all of his transactions and of the financial condition of the corporation; he shall give the corporation a bond, if required by the Board of Directors, in such sum as the Board of Directors may by resolution determine; and with one (1) or more sureties satisfactory to the Board of Directors for the faithful performance of the duties of his office, and for the restoration to the corporation in case of death, resignation, retirement or removal from office of all books, vouchers, papers, money and other property of whatsoever kind in his possession or under his control belonging to the corporation. As used herein or in other writings of, or documents delivered on behalf of, the corporation, the titles “Treasurer” and “Chief Financial Officer’ shall mean one and the same person and shall be interchangeable.

     The Assistant Treasurer shall, in the absence or disability of the Treasurer/Chief Financial Officer, perform the duties and exercise the powers of the Treasurer/Chief Financial Officer, and shall perform such other duties as the Board of Directors shall prescribe.

     Section 4.8. Vacancies. If the office of any officer or agent becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the Board of Directors, by a majority vote, shall choose a successor or successors who shall hold office for the unexpired term in respect of which such vacancy occurred.

     Section 4.9. Delegation of Authority. An officer elected or appointed by the Board of Directors may delegate some or all of the duties or powers of his office to other persons, provided that such delegation is in writing.

     Section 4.10. Contract Rights. The election or appointment of a person as an officer or agent does not, of itself, create contract rights.

ARTICLE V
INDEMNIFICATION

     To the full extent permitted or required by Section 302A.521 of the Minnesota Business Corporation Act, as now enacted or hereinafter amended, or by other provisions of law, each person who was or is a party or is threatened to be made a party to any threatened, pending, or pleaded action, suit,. or proceeding, whenever brought, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer or agent of the corporation, or he is or was serving at the specific request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation, partnership, joint venture, trust or other entity or enterprise, shall be indemnified by the corporation against expenses, including attorneys’ fees, judgments, fines, and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit, or proceeding; provided, however, that the indemnification with respect to a person who is or was serving as a director, officer, employee, fiduciary, or agent of another corporation, partnership, joint venture, trust, or other enterprise shall apply only to the extent such person is not indemnified by such other corporation, partnership, joint venture, trust, or other entity or enterprise. Indemnification provided by this paragraph shall continue as

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to a person or agent and shall inure to the benefit of the heirs, executors, and administrators of. such person and shall apply whether or not the claim against such person arises out of matters occurring before the adoption of this paragraph.

     To the full extent permitted by the Minnesota Business Corporation Act, as now enacted or hereinafter amended, the corporation shall have the authority to purchase and maintain insurance for officers, directors, employees and agents against liability arising out of their status as such.

     Further, to the full extent permitted by the Minnesota Business Corporation Act, as now enacted or hereinafter amended, the corporation shall have the authority to enter into such agreements as the Board of Directors deems appropriate for the indemnification of present or future directors and officers of the corporation in connection with their service to, or status with, the corporation or any other corporation, entity or enterprise with which such person is serving at the express written request of the corporation.

ARTICLE VI
SHARES

     Section 6.1. Issuance of Shares. The Board of Directors is authorized and empowered to issue shares of the capital stock of the corporation to the full amount authorized by the Articles of Incorporation and all amendments thereto in such amounts and at such times as may be determined by the Board of Directors and as permitted by law.

     Section 6.2. Certificates. Shares of the capital stock of the corporation may be certificated or uncertificated, as determined by the Board of Directors. If certificated, the certificates shall be in such form or forms as may be determined by the Board of Directors or those actually used in the event the Board fails to act. Certificates shall be signed by the President/Chief Executive Officer or a Vice President, and by the Secretary or an Assistant Secretary, if one has been elected or appointed, otherwise, by the Treasurer/Chief Financial Officer or an Assistant Treasurer; provided, however, that where a certificate is countersigned by a transfer agent or an assistant transfer agent or by a transfer clerk acting on behalf of the corporation and registered by a registrar, the signatures of said officers on such certificates for shares may be facsimiles. If a person signs or has a facsimile signature placed upon a certificate while an officer, transfer agent, or registrar of the corporation, and if the person has ceased to hold such office, the certificate may be issued by the corporation as if the person had the capacity at the date of its issue. All certificates for shares shall be consecutively numbered or otherwise identified, and shall state the name of the corporation, that it is organized under the laws of the State of Minnesota, the name of the person to whom the shares are issued, the number and class of shares, and the designation of the series, if any, that the certificate represents. The name of the person to whom the shares are issued with the number of shares and date of issue shall be entered on the books of the corporation.

     Section 6.3. Transfer of Shares. The shares of stock of the corporation shall be transferable upon its books only by the record holder of such stock or by attorney lawfully constituted in writing, and, in the case of certificated shares, upon surrender to the corporation of the old stock certificates, properly endorsed, to the person in charge of the stock and transfer

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books and designate, by whom they shall be cancelled. A record shall be made of each transfer, and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.

     Section 6.4. Lost Certificates. Any shareholder claiming a certificate of shares to be lost, stolen or destroyed shall make an affidavit or affirmation of that fact in such form as the Board of Directors may require, and shall, if the Board of Directors so requires:

     (a) advertise such fact in such manner as the Board of Directors may require;

     (b) give to the corporation and its transfer agent and registrar, if any, a bond of indemnity in open penalty as to amount or in such other sum as the Board of Directors may direct, in form satisfactory to the Board of Directors and to-the transfer agent-and registrar of the corporation, if any, and with or without such sureties as the Board of Directors with the approval of the transfer agent and registrar, if any, may prescribe; and

     (c) satisfy such other requirements as may be imposed by the Board.

     If notice by the shareholder of the loss, destruction, or wrongful taking of a certificate is received by the corporation before the corporation has received notice that the shares represented by such certificate have been acquired by a bona fide purchaser, and if the foregoing requirements imposed by the Board are satisfied, then the Board of Directors shall authorize the issuance of a new certificate for shares of the same tenor and for the same number of shares as the one alleged to have been lost or destroyed.

     Section 6.5. Dividends. The Board of Directors may declare dividends to the extent permitted by Section 302A.551 of the Minnesota Business Corporation Act as and when it deems expedient. Before declaring any dividend, there may be reserved out of the accumulated profits such sums as the Board of Directors from time to time, in its discretion, thinks proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends, or for such other purposes as the Board of Directors shall think conducive to the interests of the corporation.

     Shareholders entitled to payment of such dividend shall be those shareholders of record on the date fixed by the Board for closing of the books of the corporation. If no date for closing of the books is fixed by the Board, the shareholders entitled to payment of the dividend shall be the shareholders of record on the date on which the resolution declaring such dividend is adopted by the Board.

ARTICLE VII
MISCELLANEOUS

     Section 7.1. Books of Account. The corporation shall keep such books of account as are required by Section 302A.461 of the Minnesota Business Corporations Act and every, shareholder shall have a right to examine such books, in person or by agent or attorney, to the extent provided in such Section.

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     Section 7.2. Corporate Seal. If so directed by the Board of Directors, the corporation may use a corporate seal. The failure to use such seal, however, shall not affect the validity of any documents executed on behalf of the corporation. The seal need only include the word ‘seal”, but it may also include, at the discretion of the Board of Directors, such additional wording as is permitted by law.

     Section 7.3. Checks and Documents. All checks or demands for money and notes of the corporation and all other instrument, documents or deeds of every kind, nature and description required to be executed in the name and in behalf of the corporation shall be signed by such of the officers or agents of the corporation as the Board of Directors may from time to time by resolution designate and determine.

     Section 7.4. Fiscal Year. The fiscal year of this corporation shall be as determined by resolution of the Board of Directors.

     Section 7.5. Amendments to Bylaws. These Bylaws may be amended or altered by the vote of a majority of the Board of Directors. Such authority of the Board of Directors is subject to the power of the shareholders to change or repeal such Bylaws as prescribed by statute and subject to any other limitations on such authority prescribed by statute.

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EX-3.4

Exhibit 3.4

CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION
OF PREFERENCES OF SERIES B PREFERRED STOCK
OF
XATA CORPORATION,
a Minnesota Corporation

     The undersigned, Craig S. Fawcett, hereby certifies that:

     (a) He is the duly elected and acting Chief Executive Officer of Xata Corporation, a Minnesota corporation (the “Corporation”).

     (b) On December 8, 2003, the Corporation filed with the Secretary of State of the State of Minnesota the Certificate of Designation of Preferences of Series B Preferred Stock of Xata Corporation (the “Certificate of Designation”).

     (c) Pursuant to the authority conferred upon the Board of Directors of the Corporation by Section 3.2 of the Corporation’s Restated Articles of Incorporation (the “Articles”), the Board of Directors of the Corporation on January 13, 2004, adopted the following resolutions amending the following provisions of the Certificate of Designation;

     WHEREAS, the Board of Directors of the Corporation desires to amend and restate certain of the powers, rights, preferences, qualifications, limitations and restrictions relating to the Series B Preferred Stock:

     NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Articles, the following sections of the Certificate of Designation are amended as follows:

     1. Amendment and Restatement of Section 4(D). Section 4(D) is amended and restated in full to read as follows:

     “(D) For purposes of this Section 4, unless waived in writing by holders of sixty percent (60%) of the outstanding shares of Series B Preferred Stock, a Change of Control shall be deemed to be a Liquidation Event and shall entitle the holders of Series B Preferred Stock to receive proceeds from such Liquidation Event (including payments at closing, and at each date after the closing on which additional amounts are paid to stockholders of the Corporation as a result of the Liquidation Event) in cash, securities or other property (valued as provided in Section 4(E) below) in the amount specified in this Section 4. A “Change of Control” shall mean (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization in which outstanding shares of the Corporation are exchanged for securities or other consideration issued, or caused to be issued, by an acquiring corporation or its subsidiary (other than a mere reincorporation transaction) or person or group in which in excess of forty percent (40%) of the voting power of the Corporation’s outstanding Common Stock is transferred; (ii) a sale of all or substantially all of the assets of the Corporation; or (iii) the beneficial acquisition from the Corporation by any person or group in a

transaction or series of related transactions in which such person or group holds in excess of forty percent (40%) of the voting power of the Corporation’s outstanding Common Stock following such transaction.”

     2. Amendment of Section 5(A)(i) Caption.

     The caption to Section 5(A)(i) is hereby amended to be entitled “Optional Redemption by the Corporation.”

     3. Amendment of Sections 5(A) and 5(B).

     (a) Section 5(A)(ii) is hereby amended and restated in full to read as follows:

          “(ii) At the Request of the Holders:

(A)

The holders of sixty percent (60%) of the Series B Preferred Stock may, by written notice to the Corporation (the “Election Notice”), require the Corporation to redeem the outstanding             shares of Series B Preferred Stock at any time following the first to occur of: (a) the Maturity Date (as defined in Section 5(A)(i)), (b) the delivery of an Acceleration Event Notice (as defined below) or (c) a Change in Control. Any such Election Notice shall specify a date upon which such redemption shall occur (the “Redemption Date”); provided, however, that if the redemption is related to the passing of the Maturity Date or a Change of Control, then (i) the Election Notice shall be given not less than sixty (60) days nor more than ninety (90) days prior to the requested Redemption Date, and (ii) at least thirty (30) days but no more than sixty (60) days prior to the Redemption Date the Corporation shall send a notice (a “Redemption Notice”) to all holders of Series B Preferred Stock setting forth (A) the Redemption Date, (B) the Redemption Price for the shares of Series B Preferred Stock to be redeemed, and (C) the place at which such holders may obtain payment of their respective portions of the Total Redemption Price upon surrender of their share certificates. If redemption is being sought in connection with an Acceleration Event, the Corporation shall set the Redemption Date on a date as soon as practicable following the occurrence of the Acceleration Event, and shall send the Redemption Notice to all holders of Series B Preferred Stock as far as practicable in advance of the Redemption Date. The Corporation shall effect such redemption on the Redemption Date by paying the Redemption Price in exchange for each share of Series B Preferred Stock.

(B)

Notwithstanding the foregoing, the Corporation may decline to redeem any or all of the Series B Preferred Stock (provided that any redemption in part shall be pro rata across holders) and in such

	case, the Preferred Dividend described in Section 3 shall increase from four percent (4%) per annum to ten percent (10%) per annum and shall be compounded semi-annually from the date of the Election Notice.
(C)	Notwithstanding the above, any holder of Series B Preferred Stock may convert such shares into Common Stock pursuant to Section 6(A) prior to the date immediately preceding the Redemption Date.
(D)	For purposes of this Section 5(A)(ii), an Acceleration Event shall consist of (i) any judgment against the Corporation in excess of $10,000,000 unless such judgment is stayed within sixty (60) days of the date of such judgment; (ii) any event of default under any indebtedness of the Corporation that causes $10,000,000 or more of such indebtedness to accelerate; or (iii) an event of bankruptcy, an assignment for the benefit of creditors or similar event. The Corporation shall, on the date an Acceleration Event (as defined below) occurs, or as soon as reasonably practicable thereafter (but in no event later than five (5) days following the date of an Acceleration Event), provide a written notice to all holders of Series B Preferred Stock with a description of the facts giving rise to the Acceleration Event (the “Acceleration Event Notice”).”

     (b) Section 5(A)(iii) is hereby deleted in its entirety.

     (c) Section 5(B) is hereby amended and restated in full to read as follows:

               “(B) Method of Redemption.

                    (i) On or prior to the Redemption Date, the Corporation shall deposit the Total Redemption Price of the shares to be redeemed with a bank or trust company having aggregate capital and surplus in excess of $100,000,000, as a trust fund (an “Eligible Institution”), with irrevocable instructions and authority to the Eligible Institution to pay, on and after the Redemption Date, the Redemption Price of the shares to their respective holders upon the surrender of their share certificates. Any money deposited by the Corporation pursuant to this Section 5(B) for the redemption of shares thereafter converted into shares of Common Stock pursuant to Section 4 hereof prior to the Redemption Date shall be returned to the Corporation forthwith upon such conversion, The balance of any funds deposited by the Corporation pursuant to this Section 5(B) remaining unclaimed at the expiration of one (1) year following the Redemption Date shall be returned to the Corporation promptly upon its written request, and each holder of Preferred Stock shall thereafter look only to the Corporation for payment of the Redemption Price.

                    (ii) Each holder of shares of Series B Preferred Stock to be redeemed shall surrender such holder’s certificates representing such shares to the Corporation in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the holder of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price or the Corporation is unable to pay the Total Redemption Price, all rights of the holder of such shares as holder of Series B Preferred Stock (except the right to receive the Redemption Price per share without interest upon surrender of their certificates), shall cease and terminate with respect to such shares; provided that in the event that any shares of Series B Preferred Stock are not redeemed due to a default in payment by the Corporation, due to the election by the Corporation not to effect the redemption, pursuant to Section 5(A)(ii)(B), or because the Corporation does not have sufficient legally available funds, such shares of Series B Preferred Stock shall remain outstanding and shall be entitled to all of the rights and preferences provided herein until redeemed.”

* * *

     RESOLVED FURTHER, that the Chairman of the Board, the Chief Executive Officer, the President or any Vice President, the Secretary, the Chief Financial Officer, the Treasurer, or any Assistant Secretary or Assistant Treasurer of this Corporation are each authorized to execute, verify, and file the Amendment to Certificate of Designation of Preferences of Series B Preferred Stock in accordance with Minnesota law.

[Remainder of Page Intentionally Left Blank]

     IN WITNESS WHEREOF, the undersigned has executed this certificate and does affirm the foregoing as true under penalty of perjury this 13^th day of January, 2004.

/s/ Craig S. Fawcett

Craig S. Fawcett

Chief Executive Officer

EX-10.14

Exhibit 10.14

XATA CORPORATION

2002 LONG-TERM INCENTIVE
AND
STOCK OPTION PLAN

TABLE OF CONTENTS

1.	Purpose of Plan	1
2.	Stock Subject to Plan	1
3.	Administration of Plan	1
4.	Eligibility	2
5.	Price	3
6.	Term	3
7.	Exercise of Option or Award	3
8.	Additional Restrictions	4
9.	Alternative Stock Appreciation Rights	4
10.	Ten Percent Shareholder Rule	4
11.	Non-Transferability	4
12.	Restricted Stock Awards	5
13.	Performance Awards	5
14.	Dilution or Other Adjustments	6
15.	Amendment or Discontinuance of Plan	6
16.	Time of Granting	6
17.	Income Tax Withholding and Tax Bonuses	6
18.	Effective Date and Termination of Plan	7
19.	Automatic Grant of Non-Employee Director Options	7

2002 LONG-TERM INCENTIVE
AND
STOCK OPTION PLAN

1. Purpose of Plan.

This Plan shall be known as the “XATA 2002 LONG-TERM INCENTIVE AND STOCK OPTION PLAN” and is hereinafter referred to as the “Plan”. The purpose of the Plan is to aid in maintaining and developing personnel capable of assuring the future success of XATA Corporation, a Minnesota corporation (the “Company”), to offer such personnel additional incentives to put forth maximum efforts for the success of the business, and to afford them an opportunity to acquire a proprietary interest in the Company through stock options and other long-term incentive awards as provided herein. Options granted under this Plan may be either incentive stock options (“Incentive Stock Options”) within the meaning of Section 422 of the Internal Revenue Code of 1986 (the “Code”), or options which do not qualify as Incentive Stock Options. Awards granted under this Plan shall be stock appreciation rights (“SARs”), restricted stock or performance awards as hereinafter described.

2. Stock Subject to Plan.

Subject to the provisions of Section 14 hereof, the stock to be subject to options or other awards under the Plan shall be the Company’s authorized Common Stock, par value $0.01 per share (the “Common Shares”). Such shares may be either authorized but unissued shares, or issued shares which have been reacquired by the Company. Subject to adjustment as provided in Section 14 hereof, the maximum number of shares on which options may be exercised or other award issued under this Plan shall be 1,250,000 shares. If an option or award under the Plan expires, or for any reason is terminated or unexercised with respect to any shares, such shares shall again be available for options or awards thereafter granted during the term of the Plan.

3. Administration of Plan.

     (a) Except as provided in Section 3(d) hereof, the Plan shall be administered by the Board of Directors of the Company or a committee thereof. The members of any such committee shall be appointed by and serve at the pleasure of the Board of Directors. If no committee is appointed by the Board, the committee shall be comprised of all of the members of the Board of Directors. (The group administering the Plan shall hereinafter be referred to as the “Committee”.)

     (b) The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan: (i) to determine the purchase price of the Common Stock covered by each option or award, (ii) to determine the employees to whom and the time or times at which such options and awards shall be granted and the number of shares to be subject to each, (iii) to determine the form of payment to be made upon the exercise of an SAR or in connection with performance awards, either cash, Common Shares of the Company or a combination thereof, (iv) to determine the terms of exercise of each option and award, (v) to accelerate the time at which all or any part of an option or award may be exercised, (vi) to amend or modify the terms of any option or award with the consent of the optionee, (vii) to interpret the Plan, (viii) to prescribe, amend and rescind rules and regulations relating to the Plan, (ix) to determine the terms and provisions of each option and award agreement under the Plan (which agreements need not be identical), including the designation of those options intended to be Incentive Stock Options, and (x) to make all other determinations necessary or advisable for the administration of the Plan, subject to the exclusive authority of the Board of Directors under Section 15 herein to amend or

terminate the Plan. The Committee’s determinations on the foregoing matters, unless otherwise disapproved by the Board of Directors of the Company, shall be final and conclusive.

     (c) The Committee may select one of its members as its Chairman and shall holds its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduces to writing and signed by all of the members of the Committee shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. The grant of an option or award shall be effective only if a written agreement shall have been duly executed and delivered by and on behalf of the Company following such grant. The Committee may appoint a Secretary and may make such rules and regulations for the conduct of its business as it shall deem advisable.

     (d) Section 19 of the Plan shall be administered by the President and the Chief Financial Officer, whose construction and interpretation of the terms and provisions of such Sections shall be final and conclusive; provided that the numbers of Common Shares subject to options granted to Non-Employee Directors (defined below) under Section 19, the timing of the grants of such options (except as provided in Section 19), the eligibility for such options, and the terms and conditions of such options, shall be automatic and non-discretionary in accordance with the terms of such Section.

4. Eligibility.

     Incentive Stock options may only be granted under this Plan to any full or part-time employee (which term as used herein includes, but is not limited to, officers and directors who are also employees) of the Company and of its present and future subsidiary corporations (herein called “subsidiaries”). Full or part-time employees, non-employee members of the Board of Directors, and non-employee consultants, agents or independent contractors to the Company or one of its subsidiaries shall be eligible to receive options which do not qualify as Incentive Stock Options and awards. For purposes of Section 19 hereof, “Non-Employee Director,” means any member of the Board of Directors who is not at the time of option grant an employee of the Company. Non-Employee Directors shall be eligible for discretionary grants and awards under the Plan in addition to automatic option grants under Section 19. In determining the persons to whom options and awards shall be granted and the number of shares subject to each, the Committee may take into account the nature of services rendered by the respective employees or consultants, their present and potential contributions to the success of the Company and such other factors as the Committee in its discretion shall deem relevant. A person who has been granted an option or award under this Plan may be granted additional options or awards under the Plan if the Committee shall so determine; provided, however, that for Incentive Stock Options, to the extent the aggregate fair market value (determined at the time the Incentive Stock Option is granted) of the Common Shares with respect to which all Incentive Stock Options are exercisable for the first time by an employee during any calendar year (under all plans described in subsection (d) of Section 422 of the Code of his employer corporation and its parent and subsidiary corporations) exceeds $100,000, such options shall be treated as options which do not qualify as Incentive Stock Options. Nothing in the Plan or in any agreement thereunder shall confer on any employee any right to continue in the employ of the Company or any of its subsidiaries or affect, in any way, the right of the Company or any of its subsidiaries to terminate his or her employment at the time.

5. Price.

     The option price for all Incentive Stock Options, for options which do not qualify as Incentive Stock Options, and if applicable, the price for all awards granted under the Plan shall be determined by the Committee, but shall not be less than 100% of the fair market value of the Common Shares at the date

2

of grant of such option or award. For purposes of the preceding sentence and for all other valuation purposes under the Plan, the fair market value of the Common Shares shall be as reasonably determined by the Committee. If on the date of grant of any option or award hereunder the Common Shares are not traded on an established securities market, the Committee shall make a good faith attempt to satisfy the requirements of this Section 5 and in connection therewith shall take such action as it deems necessary or advisable.

6. Term.

     Each option and award and all rights and obligations thereunder shall expire on the date determined by the Committee and specified in the option or award agreement. The Committee shall be under no duty to provide terms of like duration for options or awards granted under the Plan, but the term of an Incentive Stock Option may not extend more than ten (10) years from the date of grant of such option and the term of options granted under the Plan which do not qualify as Incentive Stock Options may not extend more than fifteen (15) years from the date of granting of such option.

7. Exercise of Option or Award.

     (a) The Committee shall have full and complete authority to determine whether an option or award will be exercisable in full at any time or from time to time during the term thereof, or to provide for the exercise thereof in such installments, upon the occurrence of such events (such as termination of employment for any reason) and at such times during the term of the option as the Committee may determine and specify in the option or award agreement.

     (b) The exercise of any option or award granted hereunder shall only be effective at such time that the sale of Common Shares pursuant to such exercise will not violate any state or federal securities or other laws.

     (c) An optionee or grantee electing to exercise an option or award shall give written notice to the Company of such election and of the number of shares subject to such exercise. The full purchase price of such shares shall be tendered with such notice of exercise. Payment shall be made to the Company in cash (including bank check, certified check, personal check, or money order), or, at the discretion of the Committee and as specified by the Committee, (i) by delivering certificates for the Company’s Common Shares already owned by the optionee or grantee having a fair market value as of the date of grant equal to the full purchase price of the shares, (ii) by delivering a combination of cash and such shares, or (iii) by delivering (including by fax) to the Company or its designated agent an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell or margin the Common Shares and deliver the sale or margin loan proceeds directly to the Company to the extent required to pay the option exercise price.

     (d) The fair market value of the Common Shares which are tendered in payment of the exercise price shall be determined as provided in Section 5 herein.

     (e) Until such person has been issued the shares subject to such exercise, he or she shall possess no rights as a shareholder with respect to such shares.

8. Additional Restrictions.

     The Committee shall have full and complete authority to determine whether all or any part of the Common Shares of the Company acquired upon exercise of any of the options or awards granted under the Plan shall be subject to restrictions on the transferability thereof or any other restrictions affecting in

3

any manner the optionee’s or grantee’s rights with respect thereto, but any such restriction shall be contained in the agreement relating to such options or awards.

9. Alternative Stock Appreciation Rights.

     (a) Grant. At the time of grant of an option or award under the Plan (or at any other time), the Committee, in its discretion, may grant a Stock Appreciation Right (“SAR”) evidenced by an agreement in such form as the Committee shall from time to time approve. Any such SAR may be subject to restrictions on the exercise thereof as may be set forth in the agreement representing such SAR which agreement shall comply with and be subject to the following terms and conditions and any additional terms and conditions established by the Committee that are consistent with the terms of the Plan.

     (b) Exercise. An SAR shall be exercised by the delivery to the Company of a written notice which shall state that the holder thereof elects to exercise his or her SAR as to the number of shares specified in the notice and which shall further state what portion, if any, of the SAR exercise amount (hereinafter defined) the holder thereof requests be paid to in cash and what portion, if any, is to be paid in Common Shares of the Company. The Committee promptly shall cause to be paid to such holder the SAR exercise amount either in cash, in Common Shares of the Company, or any combination of cash and shares as the Committee may determine. Such determination may be either in accordance with the request made by the holder of the SAR or in the sole and absolute discretion of the Committee. The SAR exercise amount is the excess of the fair market value of one share of the Company’s Common Shares on the date of exercise over the per share exercise price in respect of which the SAR was granted, multiplied by the number of shares as to which the SAR is exercised. For the purposes hereof, the fair market value of the Company’s shares shall be determined as provided in Section 5 herein.

10. Ten Percent Shareholder Rule.

     Notwithstanding any other provision in the Plan, if at the time an option is granted pursuant to the Plan the optionee owns directly or indirectly (within the meaning of Section 425(d) of the Code) Common Shares of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporations, if any (within the meaning of Section 422(b)(6) of the Code), then any Incentive Stock Option to be granted to such optionee pursuant to the Plan shall satisfy the requirements of Section 422(c)(6) of the Code, and the option price shall be not less than 110% of the fair market value of the Common Shares of the Company determined as described herein, and such option by its terms shall not be exercisable after the expiration of five (5) years from the date such option is granted.

11. Non-Transferability.

     No Incentive Option granted under the Plan shall be transferable by an optionee, otherwise than by will or the laws of descent or distribution. Except as otherwise provided in an option or award agreement, during the lifetime of an optionee or grantee, the option shall be exercisable only by such optionee or grantee.

12. Restricted Stock Awards.

     Awards of Common Shares subject to forfeiture and transfer restrictions may be granted by the Committee. Any restricted stock award shall be evidenced by an agreement in such form as the Committee shall from time to time approve, which agreement shall comply with and be subject to the

4

following terms and conditions and any additional terms and conditions established by the Committee that are consistent with the terms of the Plan:

     (a) Grant of Restricted Stock Awards. Each restricted stock award made under the Plan shall be for such number of Common Share as shall be determined by the Committee and set forth in the agreement containing the terms of such restricted stock award. Such agreement shall set forth a period of time during which the grantee must remain in the continuous employment of the Company in order for the forfeiture and transfer restrictions to lapse. If the Committee so determines, the restrictions may lapse during such restricted period in installments with respect to specified portions of the shares covered by the restricted stock award. The agreement may also, in the discretion of the Committee, set forth performance or other conditions that will subject the Common Shares to forfeiture and transfer restrictions. The Committee may, at its discretion, waive all or any part of the restrictions applicable to any or all outstanding restricted stock awards.

     (b) Delivery of Common Shares and Restrictions. At the time of a restricted stock award, a certificate representing the number of Common Shares awarded thereunder shall be registered in the name of the grantee. Such certificate shall be held by the Company or any custodian appointed by the Company for the account of the grantee subject to the terms and conditions of the Plan, and shall bear such a legend setting forth the restrictions imposed thereon as the Committee, in its discretion, may determine. The grantee shall have all rights of a shareholder with respect to the Common Shares, including the right to receive dividends and the right to vote such shares, subject to the following restrictions: (i) the grantee shall not be entitled to delivery of the stock certificate until the expiration of the restricted period and the fulfillment of any other restrictive conditions set forth in the restricted stock agreement with respect to such Common Shares; (ii) none of the Common Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during such restricted period or until after the fulfillment of any such other restrictive conditions; and (iii) except as otherwise determined by the Committee, all of the Common Shares shall be forfeited and all rights of the grantee to such Common Shares shall terminate, without further obligation on the part of the Company, unless the grantee remains in the continuous employment of the Company for the entire restricted period in relation to which such Common Shares were granted and unless any other restrictive conditions relating to the restricted stock award are met. Any Common Shares, any other securities of the Company and any other property (except for cash dividends) distributed with respect to the Common Shares subject to restricted stock awards shall be subject to the same restrictions, terms and conditions as such restricted Common Shares.

     (c) Termination of Restrictions. At the end of the restricted period and provided that any other restrictive conditions of the restricted stock award are met, or at such earlier time as otherwise determined by the Committee, all restrictions set forth in the agreement relating to the restricted stock award or in the Plan shall lapse as to the restricted Common Shares subject thereto, and a stock certificate for the appropriate number of Common Shares, free of the restrictions and the restricted stock legend, shall be delivered to the grantee or his beneficiary or estate, as the case may be.

13. Performance Awards.

     The Committee is further authorized to grant Performance awards. Subject to the terms of this Plan and any applicable award agreement, a Performance award granted under the Plan (i) may be denominated or payable in cash, Common Shares (including, without limitation, restricted stock), other securities, other awards, or other property and (ii) shall confer on the holder thereof rights valued as determined by the Committee, in its discretion, and payable to, or exercisable by, the holder of the Performance awards, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee, in its discretion, shall establish. Subject to the terms of this Plan

5

and any applicable award agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance award granted, and the amount of any payment or transfer to be made by the granter and by the Company under any Performance award shall be determined by the Committee.

14. Dilution or Other Adjustments.

     If there shall be any change in the Common Shares through merger, consolidation, reorganization, recapitalization, dividend in the form of stock (of whatever amount), stock split or other change in the corporate structure, appropriate adjustments in the Plan and outstanding options and awards shall be made by the Committee. In the event of any such changes, adjustments shall include, where appropriate, changes in the aggregate number of shares subject to the Plan, the number of shares and the price per share subject to outstanding options and awards and the amount payable upon exercise of outstanding awards, in order to prevent dilution or enlargement of option or award rights.

15. Amendment or Discontinuance of Plan.

      The Board of Directors may amend or discontinue at any time. Subject to the provisions of Section 14 no amendment of the Plan, however, shall without shareholder approval: (i) increase the maximum number of shares under the Plan as provided in Section 2 herein, (ii) decrease the minimum price provided in Section 5 herein, (iii) extend the maximum term under Section 6, or (iv) modify the eligibility requirements for participation in the Plan. The Board of Directors shall not alter or impair any option or award theretofore granted under the Plan without the consent of the holder of the option or award.

16. Time of Granting.

     Nothing contained in the Plan or in any resolution adopted or to be adopted by the Board of Directors or by the shareholders of the Company, and no action taken by the Committee or the Board of Directors (other than the execution and delivery of an option or award agreement), shall constitute the granting of an option or award hereunder.

17. Income Tax Withholding and Tax Bonuses.

     (a) In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of an optionee or grantee under the Plan, are withheld or collected from such optionee or grantee. In order to assist an optionee or grantee in paying all federal and state taxes to be withheld or collected upon exercise of an option or award which does not qualify as an Incentive Stock Option hereunder, the Committee, in its absolute discretion and subject to such additional terms and conditions as it may adopt, shall permit the optionee or grantee to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the shares otherwise to be delivered upon exercise of such option or award with a fair market value, determined in accordance with Section 5 herein, equal to such taxes or (ii) delivering to the Company Common Shares other than the shares issuable upon exercise of such option or award with a fair market value, determined in accordance with Section 5, equal to such taxes.

     (b) The Committee shall have the authority, at the time of grant of an option under the Plan or at any time thereafter, to approve tax bonuses to designated optionee or grantees to be paid upon their exercise of options or awards granted hereunder. The amount of any such payment shall be determined

6

by the Committee. The Committee shall have full authority in its absolute discretion to determine the amount of any such tax bonus and the terms and conditions affecting the vesting and payment thereafter.

18. Effective Date and Termination of Plan.

     (a) The Plan was approved by the Board of Directors effective December 7, 2001 and by the shareholders of the Company on February 26, 2002.

     (b) Unless the Plan shall have been discontinued as provided in Section 14 hereof, the Plan shall terminate February 26, 2012. No option or award may be granted after such termination, but termination of the Plan shall not, without the consent of the optionee or grantee, alter or impair any rights or obligations under any option or award theretofore granted.

19. Automatic Grant of Non-Employee Director Options.

     Pursuant to this Section 19, each Non-Employee Director elected or re-elected to the Board on or after the date of the annual meeting of shareholders held in 2002 shall be granted automatically an option to purchase 5,000 Common Shares on the next business day following the annual shareholder meeting (as to each, a “Director Grant Date”) at which such director is elected or re-elected. Notwithstanding the foregoing, if on the scheduled Director Grant Date, the President determines, in his discretion, that the Company is in possession of material, undisclosed information, then the grant of options will be suspended until the third day after public dissemination of such information. The President may only suspend the grant; the amount and other terms of the grant will remain as set forth in the Plan, with the exercise price of the option to be determined in accordance with the Plan on the date the option is finally granted.

     Each option granted under this Section to a Non-Employee Director shall be evidenced by an agreement, in a form approved by the President. Such agreement shall contain the following terms and conditions:

a.	Term. Each option granted under Section 19 to a Non-Employee Director shall have a term of ten years and shall be immediately exercisable as to all Common Shares; provided, however that no shares of Common stock issued upon the exercise of an option may be sold or otherwise disposed of until six months after the Director Grant Date of the option.
b.	Exercise Price. The exercise price per share of options granted under Section 19 shall be 100% of the fair market value of one Common Share on the Director Grant Date. For these purposes, “fair market value” shall mean the average of the reported high and low sale prices of the Common Shares, as reported on the Nasdaq National Market or Nasdaq SmallCap Market on the Director Grant Date.
c.	Compliance with SEC Regulations. It is the Company’s intent that the provisions of Sections 19 and 19A comply in all respects with Section 16 of the Securities Exchange Act of 1934 (the “1934 Act”) and any regulations promulgated thereunder, including Rule 16b-3. If any provision of Section 19 is found not to be in compliance with the Rule, the provision shall be deemed null and void. All grants and exercises of options granted under Section 19 shall be executed in accordance with the requirements of Section 16 of the 1934 Act, as amended, and any regulations promulgated thereunder.

7

d. Tax Status. All options granted pursuant to Section 19 shall be nonqualified options which are not intended to be, and do not qualify as, incentive stock options described in Section 422 of the Internal Revenue Code of 1986, as amended.

8

EX-10.18

Exhibit 10.18

XATA CORPORATION

FORM OF
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR DIRECTORS

THIS AGREEMENT, made this ___day of ____________, ___, by and between XATA Corporation, a Minnesota corporation (the “Company”), and _________ (“Optionee”).

     WITNESSETH, THAT:

     WHEREAS, the Company pursuant to its 2007 Long-Term Incentive and Stock Option Plan wishes to grant this stock option to Optionee.

     NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto hereby agree as follows:

1. Grant of Option:

The Company hereby grants to Optionee, on the date set forth above the right and option (hereinafter called “the option”) to purchase all or any part an aggregate of ______ shares of Common Stock, par value $0.01 per share, at the price of $______ per share on the terms and conditions set forth herein. This option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 986, as amended (the “Code”).

2. Duration and Exercisability

(a)	This option shall in all events terminate ten (10) years after the date of grant, and subject to the other terms and conditions set forth herein, this option may be exercised by Optionee as to all ___shares on or after the date hereof until expiration at 5:00 p.m. Minneapolis, Minnesota time on the tenth anniversary of the date hereof.
(b)	During the lifetime of Optionee, the option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws of descent and distribution.

3. Manner of Exercise

(a)

The option can be exercised only by Optionee or other proper party by delivering within the option period written notice to the Company at its principal office. The notice shall state the number of shares as to which the option is being exercised and be accompanied by payment in full of the option price for all shares designated in the notice.

(b)

Optionee may pay the option price in cash, by check (bank check, certified check or personal check), by money order, or with the approval of the Company (i) by delivering to the Company for cancellation Common Shares of the Company with a fair market value as of the date of exercise equal to the option price or the portion thereof being paid by tendering such shares, or (ii) by delivering to the Company a combination of cash and Common Shares of the Company with an aggregate fair market value and a principal amount equal to the option

price. For these purposes, the fair market value of the Company’s Common Shares as of any date shall be reasonably determined by the Company pursuant to the Plan.

4. Miscellaneous

(a)	This option is issued pursuant to the Company’s 2007 Long-Term Incentive and Stock Option Plan and is subject to its terms. The terms of the Plan are available for inspection during business hours at the principal offices of the Company. Capitalized terms not defined in this option have the meanings assigned to them in the Plan.
(b)	Optionee shall have none of the rights of a shareholder with respect to shares subject to this option until such shares shall have been issued to Optionee upon exercise or this option.
(c)	The exercise of all or any parts of this option shall only be effective at such time that the sale of Common Shares pursuant to such exercise will not violate any state or federal securities or other laws.
(d)	If there shall be any change in the Common Shares of the Company through merger, consolidation, reorganization, recapitalization, dividend in the form of stock (of whatever amount), stock split or other change in the corporate structure of the Company, and all or any portion of the option shall then be unexercised and not yet expired, then appropriate adjustments in the outstanding option shall be made by the Company, in order to prevent dilution or enlargement of option rights. Such adjustments shall include, where appropriate, changes in the number of shares of Common Shares and the price per share subject to the outstanding option.
(e)	The Company shall at all times during the term of the option reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this Agreement.
(f)	In order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it upon the exercise of the option, and in order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to insure that, if necessary, all applicable federal or state payroll, withholding, income or other taxes are withheld or collected from Optionee. Optionee may elect to satisfy his federal and state income tax withholding obligations upon exercise of this option by (i) having the Company withhold a portion of the shares of Common Stock otherwise to be delivered upon exercise of such option having a fair market value equal to the amount of federal and state income tax required to be withheld upon such exercise, in accordance with the rules of the Committee, or (ii) delivering to the Company shares of its Common Stock other than the shares issuable upon exercise of such option with a fair market value equal to such taxes, in accordance with the rules of the Committee.

2

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.

XATA Corporation
By:
	Its:

Optionee:
 

3

EX-10.19

Exhibit 10.19

XATA CORPORATION

FORM OF
INCENTIVE STOCK OPTION AGREEMENT
FOR EMPLOYEES

THIS AGREEMENT, made this ___day of ____________, ___, by and between XATA Corporation, a Minnesota corporation (the “Company”), and ____________(“Optionee”).

WITNESSETH, THAT:

WHEREAS, the Company pursuant to its 2007 Long-Term Incentive and Stock Option Plan wishes to grant this stock option to Optionee.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto hereby agree as follows:

1. Grant of Option
The Company hereby grants to Optionee, on the date set forth above, the right and option (hereinafter called “the option”) to purchase all or any part of an aggregate of ___shares of Common Stock, par value $0.01 per share (the “Common Shares”), at the price of $______ per share on the terms and conditions set forth herein. This option is intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue code of 1986, as amended (the “Code”), except to the extent this option is disqualified from treatment as an incentive stock option under the Code. To the extent that all or any portion of this option is not treated as an incentive stock option, it shall be treated as a nonqualified stock option. For purposes of this option, employment by any subsidiary of the Company is equivalent to employment by the Company.

2. Duration and Exercisability

(a) This option shall in all events terminate at 5 p.m. Minneapolis, Minnesota time on ______, which is five (5) years after the date of grant. Subject to the other terms and conditions set forth herein, this option may be exercised by Optionee in cumulative installments as follows on the specified date(s):

	Cumulative number of
On or after each of	shares as to which
the following dates	option is exercisable

(b) During the lifetime of Optionee, the option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws of descent and distribution.

(c) In the event of (i) a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of a majority of the Company’s then outstanding

voting Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale or transfer of all or substantially all the Company’s assets, or (iii) a dissolution or liquidation of the Company (as to any of the foregoing, a “Covered Transaction”), the option shall terminate and cease to be exercisable as of the effective time of the Covered Transaction; provided, however, that immediately prior to the consummation of the Covered Transaction the option shall be exercisable in full as to all Common Shares, unless the Board of Directors provides for one or more substitute or replacement options or awards from, or the assumption of the option by, the acquiring entity (if any) or its affiliates.

Further, Optionee agrees that the Board of Directors may provide that the provisions of the preceding paragraph shall also apply to (i) mergers or consolidations involving the Company that do not constitute a Covered Transaction, or (ii) other transactions, not constituting a Covered Transaction, that involve the acquisition of the Company’s outstanding Common Stock. Optionee expressly consents to the modification of the option to conform with any such determination by the Board.

3. Effect of Termination of Employment

(a) In the event that Optionee shall cease to be employed by the Company or its subsidiaries, if any, for any reason other than Optionee’s serious misconduct or Optionee’s death or disability (as such term is defined in Section 3(c) hereof), Optionee shall have the right to exercise the option at any time within three (3) months after such termination of employment to the extent of the full number of shares Optionee was entitled to purchase under the option on the date of termination, subject to the condition that no option shall be exercisable after the expiration of the term of the option.

(b) In the event that Optionee shall cease to be employed by the Company or its subsidiaries, if any, by reason of Optionee’s serious misconduct during the course of employment, including but not limited to wrongful appropriation of the Company’s funds, or in the event that Optionee violates the covenants set forth in Section 5 hereof, the option shall be terminated as of the date of the misconduct.

(c) If Optionee shall die while in the employ of the Company or a subsidiary, if any, or within three (3) months after termination of employment for any reason other than serious misconduct or if employment is terminated because Optionee has become disabled (within the meaning of the Code Section 22(e)(3)) while in the employ of the Company or a subsidiary, if any, and Optionee shall not have fully exercised the option, such option may be exercised at any time within twelve (12) months after Optionee’s death or date of termination of employment for disability by Optionee, personal representatives or administrators, or guardians of Optionee, as applicable, or by any person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, to the extent of the full number of shares Optionee was entitled to purchase under the option on the date of death, termination of employment, if earlier, or date of termination for such disability and subject to the condition that no option shall be exercisable after the expiration of the term of the option.

4. Manner of Exercise

(a) The option can be exercised only by Optionee or other proper party by delivering within the option period written notice to the Company at its principal office. The notice shall state the number of shares as to which the option is being exercised and be accompanied by payment in full of the option price for all shares designated in the notice.

(b) Optionee may pay the option price in cash, by check (bank check, certified check or personal check), by money order, or with the approval of the Company by delivering to the Company or its designated agent an executed irrevocable option exercise form, together with irrevocable instructions to a securities broker-dealer approved by the Company (which approval shall not be unreasonable withheld) to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Company in payment of the exercise price in cash, by check, or by wire transfer, as the Company may direct.

5. Miscellaneous

(a) This option is issued pursuant to the Company’s 2007 Long-Term Incentive and Stock Option Plan and is subject to its terms. The terms of the Plan are available for inspection during business hours at the principal offices of the Company.

(b) This Agreement shall not confer on Optionee any right with respect to continuance of employment by the Company or any of its subsidiaries, nor will it interfere in any way with the right of the Company to terminate such employment at any time. Optionee shall have none of the rights of a shareholder with respect to shares subject to this option until such shares shall have been issued to Optionee upon exercise of this option.

(c) The exercise of all or any parts of this option shall only be effective at such time that the sale of Common Shares pursuant to such exercise will not violate any state or federal securities or other laws.

(d) If there shall be any change in the Common Shares of the Company through merger, consolidation, reorganization, recapitalization, dividend in the form of stock (of whatever amount), stock split or other change in the corporate structure of the Company, and all or any portion of the option shall then be unexercised and not yet expired, then appropriate adjustments in the outstanding option shall be made by the Company, in order to prevent dilution or enlargement of option rights. Such adjustments shall include, where appropriate, changes in the number of shares of Common Shares and the price per share subject to the outstanding option.

(e) The Company shall at all times during the term of the option reserve and keep available such number of shares as will be sufficient to satisfy the requirements of this Agreement.

(f) If Optionee shall dispose of any of the Common Shares of the Company acquired by Optionee pursuant to the exercise of the option within two (2) years from the date this option was granted or within one (1) year after the transfer of any such shares to Optionee upon exercise of this option, then, in order to provide the Company with the opportunity to claim the benefit of any

income tax deduction which may be available to it under the circumstances, Optionee shall promptly notify the Company of the dates of acquisition and disposition of such shares, the number of shares so disposed of, and the consideration, if any, received for such shares. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to insure (i) notice to the Company of any disposition of the Common Shares of the Company within the time periods described above and (ii) that, if necessary, all applicable federal or state payroll, withholding, income or other taxes are withheld or collected from Optionee.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.

XATA Corporation
By:
	Its:

Optionee
 

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

     We have issued our report dated December 13, 2007, accompanying the financial statements (which report expressed an unqualified opinion and contains an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment), included in the Annual Report of XATA Corporation on Form 10-K, for the year ended September 30, 2007. We hereby consent to the incorporation by reference of said report in the Registration Statements of XATA Corporation on Forms S-8 (File Nos. 333-140741, 333-113025, 333-85584, 333-59214, 333-28337, 333-03670, 33-94006, 33-89222, 33-74148 and 333-132247) and Forms S-3 and amendments (File Nos. 333-145279, 333-113016, 333-111797, 333-111798, 333-82905 and 333-132246).

/s/ Grant Thornton LLP

Minneapolis, Minnesota
December 13, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John J. Coughlan, certify that:

     1. I have reviewed this annual report on Form 10-K of XATA Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

December 13, 2007

Signature:	/s/ John J. Coughlan
Name:	John J. Coughlan
Print Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark E. Ties, certify that:

     1. I have reviewed this annual report on Form 10-K of XATA Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

December 13, 2007

Signature:	/s/ Mark E. Ties
Name:	Mark E. Ties
Print Title:	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of XATA Corporation (the “Company”) on Form 10-K for the period ending September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer of the Company hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that based on his knowledge: 1) the Report fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

     /s/ John J. Coughlan

     John J. Coughlan, Chief Executive Officer

Dated: December 13, 2007

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to XATA Corporation and will be retained by XATA Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of XATA Corporation (the “Company”) on Form 10-K for the period ending September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that based on his knowledge: 1) the Report fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

     /s/ Mark E. Ties

Mark E. Ties, Chief Financial Officer

Dated: December 13, 2007

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to XATA Corporation and will be retained by XATA Corporation and furnished to the Securities and Exchange Commission or its staff upon request.