<PAGE>

                                   FORM 10-KSB

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)

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

         For the fiscal year ended: September 30, 2002

|_|      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

         For the transition period from ________________ to _________________

         Commission file number: 0-27166


                                XATA CORPORATION
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

          Minnesota                                     41-1641815
--------------------------------------------------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

151 East Cliff Road, Suite 10, Burnsville, Minnesota               55337
--------------------------------------------------------------------------------
    (Address of principal executive offices)                     (Zip Code)

Issuer's telephone number:  (952) 707-5600

Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.01 par value
--------------------------------------------------------------------------------
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X|    No |_|

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|



State issuer's revenues for its most recent fiscal year:  $ 13,181,000





<PAGE>


The aggregate market value of the voting stock held by non-affiliates of the
registrant was $14,832,000 as of December 16, 2002, based upon the closing sale
price on the Nasdaq Small Cap Market reported for such date. Shares of Common
Stock held by each officer and director and by each person who owns 10% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

There were 6,933,825 shares of the registrant's Common Stock issued and
outstanding as of December 16, 2002.


                       DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-KSB incorporates information by reference from the
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
March 4, 2003 to the extent stated herein. Except with respect to information
specifically incorporated by reference in this Form 10-KSB, the Proxy Statement
is not deemed to be filed as a part of this Report. It is anticipated that the
Proxy Statement will be filed with the Commission not later than January 28,
2003. In addition, there are incorporated by reference in this Report certain
previously filed exhibits identified in Part III, Item 13.











                                       ii
<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                               Page
                                                                                                               ----
<S>                                                                                                        <C>
PART I

Item 1.    Description of Business                                                                               1

Item 2.    Description of Property                                                                              17

Item 3.    Legal Proceedings                                                                                    17

Item 4.    Submission of Matters to a Vote of Security Holders                                                  17

PART II

Item 5.    Market for Common Equity and Related Stockholder Matters                                             18

Item 6.    Management's Discussion and Analysis or Plan of Operation                                            19

Item 7.    Financial Statements                                                                                 23

Item 8.    Changes In and Disagreement with Accountants on Accounting and
           Financial Disclosure                                                                                 23

PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons, Compliance with
           Section 16(a) of the Exchange Act                                                                    24

Item 10.   Executive Compensation                                                                               24

Item 11.   Security Ownership of Certain Beneficial Owners and Management and
           Related Stockholder Matters                                                                          24

Item 12.   Certain Relationships and Related Transactions                                                       25

Item 13.   Exhibits and Reports on Form 8-K                                                                     25

Item 14.   Controls and Procedures                                                                              27

SIGNATURES

CERTIFICATIONS

</TABLE>



                                      iii
<PAGE>


                           FORWARD LOOKING STATEMENTS

This document includes forward-looking statements based on current expectations.
Actual results may differ materially. These forward-looking statements involve a
number of risks and uncertainties about us, our business, our customers, and the
economy and business environment in general. Risks and uncertainties about us
include, for example, the following:

-        Although we expect to incur operating losses in the next fiscal year,
         these losses may continue beyond the expected time frame or in excess
         of the expected magnitude, and we may be dependent upon external
         investment to support our growth during periods in which we incur
         operating losses.
-        We may be unable to adapt to technological change quickly enough to
         grow or to retain our customer base.
-        We will continue to be dependent upon positioning systems and
         communication networks owned and controlled by others, and accordingly,
         their problems may adversely impact us.
-        For the foreseeable future, we are dependent upon the continued receipt
         and fulfillment of new orders for our current products.
-        Our growth and profitability depend on our timely introduction and
         market acceptance of new products, our ability to continue to fund
         research and development activities, and our ability to establish and
         maintain strategic partner relationships.


                                TRADEMARK NOTICE

XATA(R), OpCenter(TM), SmartCom(TM), Position Plus(TM), Yard Express(TM) and
XATANET(TM) are all trademarks of XATA Corporation. XATA(R) is registered with
the U.S. Patent and Trademark Office.


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

ABOUT XATA

We are a leading provider of mobile information solutions to the commercial
trucking industry. Our innovative technologies and value-added services enable
customers to optimize the utilization of their transportation assets - vehicles,
trailers, drivers and cargo - resulting in decreased cost, increased
productivity and improved customer service. We offer systems incorporating both
mobile and desktop applications which collect, analyze and communicate
information that can be used to enhance driver productivity, improve asset
utilization, comply with regulatory requirements and improve operating
efficiency. Our products seamlessly combine enterprise software, onboard
computing, wireless communications and global positioning to provide an
enterprise-wide logistics management solution for many of North America's
largest trucking fleets. We believe we offer the most technologically advanced
and value-added solutions for the commercial trucking industry.

Our products are powerful, advanced, yet user-friendly computer systems used by
commercial trucking fleets. The systems automatically collect data for drivers'
electronic log records, fuel consumption, mileage and location. Our systems
integrate data generated within the truck as well as data received via GPS
(Global Positioning System) into either a Windows- or Web-based user interface,
enabling fleet




                                       1
<PAGE>

managers to measure fleet performance, resolve exception conditions, monitor
ongoing operations and perform detailed analyses. XATA was the first to provide
completely paperless electronic logs, exception-based management and learned
standards for accurate fleet intelligence.

Founded in 1985, XATA was formed to address the demand for onboard information
systems for the commercial trucking industry. Our product offerings consist of
OpCenter(TM), our comprehensive, Windows-based fleet management solution, and
XATANET(TM), our next-generation, Web-based fleet management solution.

Our systems have been installed in approximately 30,000 commercial trucks at
approximately 1,000 customer locations. Our customers include Fortune 500
companies and other large organizations, including Allegiance Healthcare
Corporation, Baxter Healthcare Corporation, The BOC Group plc, Coca-Cola
Enterprises, Inc., Eby-Brown Company, The Kroger Co., McLane Company, Publix
Super Markets, Inc., Penske Corporation, Ryder System Inc., Safeway, Inc.,
Supervalu, Inc., Toys "R" Us, Inc., Tree of Life, Inc., Unisource (a division of
the Georgia-Pacific Group), the United States Postal Service, Whirlpool
Corporation and xpedx (a division of International Paper Company).

Over the past several years we have invested heavily in product development to
transform our products from closed, hardware-based systems to open,
platform-independent software-based solutions, and to develop additional
software applications for monitoring and controlling trucks and fleet
operations. Our first generation products, introduced in the early 1990's,
included our revolutionary Driver Computer and Fleet Management System software.
Valuable data was downloaded from Driver Computers to the Fleet Management
System host software in batch mode via our patented Driver Key. In the late
1990's we integrated wireless communications enabling real-time data exchange
with the mobile units and upgraded our host software to OpCenter, an advanced
Windows-based platform. While our OpCenter system continues to be a leading
solution for larger private trucking fleets, we believe that there is
significant growth potential for our next-generation Web-based XATANET solution.
We have been developing XATANET for several years and are now launching XATANET
2.0 to market.

Our products address ten basic functions for fleet operators and provide
information and other tools to control costs and maximize performance:

         -        Fleet Management: Improve productivity, increase profitability
                  and move cargo through distribution channels in a timely and
                  cost effective manner.

         -        Dispatch: Efficient routing, trip optimization and stop
                  activity scheduling.

         -        Compliance: Record keeping required by federal and state
                  agencies pertaining to state border crossings and fuel
                  purchase information.

         -        Safety: Assure drivers adhere to fleet and government safety
                  guidelines, as well as provide driving habit and performance
                  information, including speeding and braking operations.

         -        Customer Service: Communicate scheduled and actual pick-up and
                  delivery times.

         -        Maintenance: Capture engine warning diagnostics, monitor
                  engine factors, schedule preventive maintenance and predict
                  potential problems.





                                       2
<PAGE>


         -        Invoicing: Provide mileage, weight and other data required for
                  customer invoicing.

         -        Payroll: Provide mileage, stop, cargo, layover, delay and
                  other data for processing payroll.

         -        Drivers: Provide performance feedback, eliminate paperwork,
                  validate scheduled activities, record unplanned events and
                  conditions, and implement driver incentive programs.

         -        Management Information Systems: Exchange information with
                  existing corporate mainframe applications, such as billing,
                  payroll, maintenance and customer records.

In October, 2002 we announced the upcoming availability of our new XATANET 2.0
Web-based fleet management system utilizing the satellite communication network
of ORBCOMM LLC. Our product development efforts are focused on continued
development of XATANET, a modular Java-based suite of software applications that
can be used with different types of computing hardware, communication networks
and peripheral devices. This product line allows customers to buy only the
XATANET applications that best match their current needs, and offers them the
flexibility to purchase additional XATANET applications as their needs evolve.
When combined with our new XATA Application Module mobile computing and
communication device, XATANET overcomes the major impediments typically
associated with implementing onboard computer systems, including costly and time
consuming hardware installation and extensive training of drivers and system
operators. XATANET significantly reduces the time required for deployment of an
initial vehicle system and subsequent application upgrades since software can be
downloaded to trucks in the field over a wireless network. In addition, many of
the XATANET applications do not require driver involvement, which eliminates
driver training and improves data integrity. XATANET is the first system to
allow embedded computers and in-dash displays installed by truck manufacturers
to communicate with the computer systems used by fleet operators, truck owners
and leasing companies.

We market our products to operators of commercial trucking fleets primarily
through our nationwide direct sales force. We offer continuing comprehensive
service and technical support to our customers through our XATAServ maintenance
and support program. We believe the level of service we provide to our customers
is unique in the industry and a key competitive advantage in securing new
customers and retaining existing accounts.

We believe that our new software and hardware products will enable us to
significantly broaden our penetration of the commercial trucking market. Private
fleets and for-hire carriers comprise the two major fleet categories within the
commercial trucking industry. Our current market focus is the private fleet
category. Private fleets include manufacturers, wholesalers, merchants and other
companies who transport their own goods using equipment they own or lease.
For-hire carriers include less-than-truckload carriers and truckload carriers
whose primary business is the trucking and transportation of freight that
belongs to others. We are working to establish distribution relationships with
several leading truck leasing companies to provide an important new sales
channel for our new XATANET product and to penetrate the vast number of small
and mid-size private fleets that our direct sales force cannot penetrate in a
cost-effective manner.

In 2000 we formed a strategic alliance with John Deere Special Technologies
Group, Inc. ("JDSTG"), a subsidiary of Deere & Company, to enable us to
accelerate our product development initiatives and more effectively distribute
our new products to both new and existing markets. As part of the relationship,





                                       3
<PAGE>

Deere has provided debt financing and made two equity investments in XATA and
now owns approximately 31% of our company. We believe the relationship with
Deere benefits us in the following ways:

         -        it has provided funds to accelerate new product development,
                  which will enable us to enter new segments of the commercial
                  trucking market and other non-trucking markets; and

         -        it may assist us in establishing additional distribution
                  channels for our products;

         -        it may assist us in penetrating Deere's core markets,
                  including agriculture and construction equipment.

We continue to emphasize product development focused on open, modular
information solutions. We continue to migrate our line of XATA ONBOARD systems
to our new XATANET open system environment. Our product development initiatives
generally adhere to the following principles:

         -        develop Web- and Java-based software applications to enable
                  fleet-wide communications, enhance driver productivity and
                  improve fleet management capabilities;

         -        develop applications that maximize customer return on
                  investment and ease-of-use;

         -        integrate leading satellite and tower-based wireless
                  communication networks to provide our customers with a choice
                  of wireless data communications options;

         -        develop modular mobile hardware products when not available
                  from other sources; and

         -        offer a clear migration path for users of older generation
                  products to our latest systems.

We believe this strategy will position our company for growth and will allow us
to offer our customers modular hardware and multiple software applications
within open system environments that do not require significant installation
time or employee training.


THE TRUCKING INDUSTRY

Commercial trucking fleets are characterized by significant investment in
equipment, high operating costs, significant annual mileage per vehicle and
extensive federal and state compliance reporting requirements. Costs for
equipment, fuel, drivers, insurance, maintenance, dispatchers, safety directors,
clerical support and support equipment 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
sustain and increase profitability. We believe there is, and will continue to
be, significant demand in the trucking industry for mobile information
solutions, principally because the use of this technology enables truck
operators to reduce expenses, respond to competitive pressures and improve
customer service.

We believe the following trends significantly impact the commercial trucking
industry and result in increasing competitive pressures and an accelerated
demand for information technology:

         -        Deregulation of prices. The deregulation of prices in the
                  trucking industry has resulted in increased competition and
                  declining prices. This drives both industry consolidation and
                  technology implementation, as trucking companies strive to
                  become more efficient to remain competitive.






                                       4
<PAGE>

         -        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 hazardous
                  loads.

         -        Increased operating costs. As the public has become
                  increasingly concerned about the safety of large trucks,
                  legislators have proposed legislation to regulate truck and
                  driver safety. Industry leaders have proposed using electronic
                  monitoring to ensure safe operation, in lieu of new
                  legislation. In addition, fuel, insurance, driver salaries and
                  other operating costs continue to increase. These trends
                  encourage operators to utilize onboard information solutions
                  to manage their fleets.

         -        E-commerce. As companies increasingly rely on just-in-time
                  inventory management and seek to control and monitor
                  inventories throughout their entire supply chain, they demand
                  better service and increased capabilities from their trucking
                  operators and vendors. In addition, as companies increasingly
                  adopt Internet technologies to reduce communication costs,
                  paperwork and processing times, trucking operators are forced
                  to adopt technology to comply with the operating processes and
                  systems of their customers. This trend encourages integration
                  of onboard computers with the host information system of
                  trucking companies.

In addition to management information needs, extensive operational data
collection and reporting is mandated by federal and state agencies. For example,
the Federal Highway Administration (FHWA) imposes strict work hour rules on
drivers and requires maintenance of driver logs. Drivers of hazardous loads are
subject to additional regulation and documentation requirements. Failure to
maintain legally required driver logs may result in permanent license
revocation, substantial fines and, in the case of an accident, potential
liability for the trucking company and its management. Although insurance
companies, truck operators, industry leaders, the National Transportation Safety
Board, manufacturers and leasing companies are in agreement that mandated
electronic logs improve the accuracy of record keeping, FHWA regulations do not
yet require onboard electronic driver logs. We believe federal regulations will
eventually mandate electronic driver logs.

Extensive federal regulation is compounded by additional regulation in each of
the 50 states. In general, states require trucks to pay state fuel taxes based
on the amount of fuel consumed in their state. To comply with these regulations,
drivers must record state border crossing and fuel purchase information. Many
long haul vehicles cross up to 25 state borders per week, resulting in
significant paperwork for the driver, the clerical staff of the carrier and the
processor of the carrier's fuel tax returns. To complicate an already large
paperwork requirement, these records must be maintained at the fleet home base
as well as at the carrier's headquarters. Records must also be readily available
for federal regulators to review driver log compliance.

The commercial trucking industry is increasingly utilizing mobile information
solutions to respond to these competitive and regulatory pressures. As
information technology plays a larger role in commercial trucking operations,
the industry is trending away from proprietary, closed systems to standardized,
platform independent, open systems that efficiently communicate, manipulate,
transfer and store information while using computing hardware from different
manufacturers. In order to complete the evolution to an open architecture for
onboard information systems, truck manufacturers, hardware manufacturers and
communications companies are developing hardware based on standardized operating
systems. Also, technology suppliers to the trucking industry are adding
capabilities to their systems,




                                       5
<PAGE>

which blurs the traditional lines of competition for suppliers in the existing
onboard computer market. Suppliers of onboard computers have added
communications to their existing closed systems to enable trucks in the field to
communicate with their home offices. Similarly, traditional communications
providers are adding applications to provide some of the functionality of the
traditional suppliers of onboard computers. We provide the applications required
by hardware manufacturers and communications providers by integrating our
XATANET applications across different hardware platforms and operating systems.
This is possible because our XATANET system "floats" over the hardware's
operating system, making it platform independent. In addition, XATANET
represents the first onboard computing solution capable of integrating the
information gathered from individual trucks to the host systems used by fleet
operators, asset owners and truck manufacturers.


TARGET MARKETS

There are approximately 7.4 million commercial trucks operating in the United
States, of which 6 million are in private fleets. While most of our current
customers fall into a portion of the private fleet category, we believe that our
new software and hardware products enable us to enter other segments of the
commercial trucking industry.

Private Fleets

Private fleets include the 6 million commercial trucks operated by
manufacturers, wholesalers, merchants 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 solution for onboard
computing, including our OpCenter solution, required a minimum fleet size in
order to recover the fixed costs of the investment. As a result, we have
targeted our OpCenter solution to private fleets that operate over 15 heavy-duty
trucks in select vertical markets. We believe our historic target market segment
has comprised approximately 300,000 vehicles. We believe our introduction of
XATANET will allow us to significantly expand our addressable market to the full
private fleet sector, including smaller fleets and additional vertical markets.
Specifically, smaller fleets are able to purchase individual XATANET software
applications that target their specific information needs and will use our
Internet based host system to collect, process, and present their data. We
believe these smaller fleets represent a significant new market opportunity. We
view the total 6 million commercial trucks in this segment as our target market
going forward.

For-Hire Carriers

For-hire carriers include less-than-truckload (LTL) carriers and truckload
carriers whose primary business is the trucking and transportation of freight
that belongs to others. There are approximately 1.4 million commercial trucks in
the for-hire carrier market segment. Qualcomm Incorporated has been successful
at penetrating this market segment with its satellite communications system, and
we believe it currently provides service to 20%-25% of the vehicles in this
segment. We view the for-hire carriers as a very attractive future opportunity,
particularly as Qualcomm's older units begin to reach obsolescence.

Other Markets

We believe our new XATANET system can be introduced successfully into other
markets because of its open system architecture and platform independence. For
example, we believe that with modest modifications our XATANET applications
could be marketed successfully in the agricultural market, the




                                       6
<PAGE>

off-road construction market, the rail and container market, the transit market,
and many opportunities internationally.


DISTRIBUTION CHANNELS

Direct Sales

Our direct sales force sells our mobile information systems to the private fleet
trucking industry and logistics providers. The efforts of our direct sales force
are supported by our systems engineering staff, which has a strong working
knowledge of the hardware and software configurations required by fleet
operations, and by our technical support representatives, who have experience
integrating our systems into fleets.

We are currently focusing our sales and marketing efforts on transportation and
logistics companies operating fleets of 15 or more vehicles within vertical
markets that have experienced significant benefits from our systems. These
vertical markets include food distribution, petroleum production and marketing,
manufacturing and processing, and retail/wholesale delivery.

We also use a combination of integrated marketing activities, including
advertising, trade shows, the Internet, and direct mail, to gain exposure within
our target markets. We exhibit our products at selected industry conferences to
promote brand awareness. We actively pursue speaking opportunities at industry
trade shows for our management staff, as well as for customers who have gained
efficiencies in fleet operations using our technology.

We have found the average sales cycle for our OpCenter solutions to be six to
twelve months, but expect the sales cycle for our XATANET solution to be
shorter. Customers typically compare multiple competing systems by conducting
in-vehicle product evaluations before making a purchase commitment. Customers
typically view a system purchase as a five-year technology commitment.

Truck Leasing Companies

We are working to establish distribution relationships with several of the
leading truck leasing companies to provide an important new sales channel for
our new XATANET product to penetrate a vast number of small and mid-size private
fleets that our direct sales force cannot penetrate in a cost-effective manner.


COMPETITION

XATA's traditional competition has been onboard trip recorder companies such as
Cadec Corporation, Traxis, Inc., Tripmaster Corporation and FleetAdvisor (a
product recently acquired by Qualcomm from Eaton Corporation). These companies
provide hardware and software that connect to the truck and operate in the
dispatch office in a client-server architecture. All of the onboard systems
monitor fleet productivity in terms of miles, speed, fuel economy, idle time,
time at stop and engine performance, and can automate processes within the fleet
operation such as driver logs, fuel tax reports and payroll. These companies
have expanded their offerings over the years to allow the addition of GPS and
wide area wireless communications, but at a typical cost of $3,000 to $5,000 per
truck. Although these communication capabilities have long been desired for
providing better customer service, the high initial price of these systems
significantly limits their market potential. These companies have taken the
approach of partnering with terrestrial wireless communication providers, all of
which offer competitive pricing but with coverage generally restricted to urban
areas. Satellite communication capabilities have also been offered to improve
coverage, but the costs have been prohibitive for much of the market





                                       7
<PAGE>

because the satellite networks utilized required complex, expensive equipment
and airtime charges were high. Implementation costs, such as driver training and
office training, have also been an obstacle. Due to these issues, significant
penetration into the private fleet market by these products has been limited to
what we estimate to be approximately $50 million annually over the past five
years.

Over the past two years, communication providers, who traditionally targeted the
over-the-road, for-hire segment of the trucking industry, have begun to target
the largely untapped private fleet segment due to its size. However, they have
realized that selling communication capabilities without fleet management
software applications was ineffective. Fleet managers need these applications to
drive down their cost of operations, eliminate paperwork, streamline information
flow, monitor driver productivity, and monitor vehicle performance for
maintenance and fuel consumption efficiency. To address these needs, the
communication providers have started to offer software applications to automate
driver logs, fuel tax reporting, and other fleet management tasks, but they
typically lack the deep industry knowledge to offer a comprehensive package for
the trucking industry. Companies that have entered this market include Aether
Systems, Inc., Qualcomm, Wireless Matrix Corporation, Highway Master (now part
of Aether) and PeopleNet Communications Corporation. While these companies can
and do offer satellite and terrestrial communications capabilities, their
terrestrial options have limited coverage and their satellite solutions are
relatively expensive.

A new effort in the market is coming from companies that provide low-cost,
low-end solutions with GPS capabilities for vehicle positioning and analog
communications for two way messaging. These players include At Road, Inc.,
FleetBoss Global Positioning Solutions Inc., AirIQ, Inc. and Teletrac, Inc. They
all have systems that we believe provide limited functionality and limited
scalability. Their success has come mainly from route delivery operations and
smaller class vehicles in high-coverage urban areas. Although they are in the
process of adding additional applications to their systems, they typically do
not have the industry experience or advanced technology on which to run those
applications. We believe that they will require more expensive hardware
solutions and improved wireless communication options to be successful in the
larger-class private fleet market.

XATANET's advantages include a complete fleet management offering, availability
over the Web, low-cost satellite communications and true scalability.
Scalability allows customers the flexibility to purchase a low-cost system that
requires no driver training, can automate many of the manual processes within a
fleet, and can provide the needed metrics for improving fleet productivity. As
the needs of the customer expand, applications, handheld devices, and driver
displays can be added on an ala carte basis to enhance the system's
functionality. Traditionally, fleets have been forced to buy a complete package.
Thus, XATANET will have a significant advantage due to having a scalable,
Web-based offering, satellite coverage and very competitive pricing.

We believe the nature and sources of competition in our industry are rapidly
evolving and, in the future, that these changes will require us to adapt our
existing products and to develop new products which facilitate the collection,
processing and communication of onboard information throughout the
transportation network and the entire supply chain. This will likely involve the
development of new technologies and the adaptation of new and existing products
to be compatible with products and services provided by others in the industry,
including others who we may consider to be competitors in one or more lines of
our business.





                                       8
<PAGE>


OUR PRODUCTS AND SERVICES

The XATANET System

Our newest product line, XATANET, is the evolution of our most successful
software applications to a Java and Internet based open system architecture that
is independent of any hardware platform and communications network. XATANET
allows our customers to install only the specific solutions needed and to scale
their system configurations to their specific needs. Also, XATANET dramatically
reduces training time and expense because the system allows information from
certain applications to be automatically sent to the host system without driver
involvement and allows additional applications to be downloaded via wireless
communications to trucks in the field.

The XATANET system is an integrated network of platform managers that exist on
vehicles, at yard data exchange sites, at any authorized user "browser" access
site, and in our centralized server and solutions site. Specifically, the major
components of the XATANET system are:

         -        XATANET Mobile - An onboard platform-independent operating
                  system that manages the vehicle data network interface, GPS,
                  wireless communication, application management, driver
                  interfaces and other peripheral devices. It supports, via a
                  Java virtual machine, any mix of Java-based independent
                  software applications. This system operates on our XATA
                  Application Module, as well as other leading mobile hardware
                  platforms.

         -        XATANET Gateway - A PC-based system that is located at fleet
                  specified sites to exchange data with drivers and vehicles
                  that choose to utilize a yard based communication capability
                  and/or portable data devices. The XATANET Gateway connects to
                  yard antennas and/or portable data devices to exchange data
                  with drivers or vehicles. The gateway is also connected to the
                  Internet which allows data exchange with the XATANET Server
                  and directly with authorized system users. This system
                  component is not required if the enterprise chooses to use
                  wide area wireless communication networks for data exchange.

         -        XATANET Server - An Internet-based server that collects
                  information from XATANET Mobile and XATANET Gateway systems,
                  processes and stores that information, and presents the
                  information to users on demand and by automatic exception
                  communication. This server is designed to handle large
                  enterprises, multiple fleets, and multiple carriers in a
                  single centralized, XATA-managed system while allowing secure
                  access to specific data by users that can use an Internet
                  browser from any PC at any location.

         -        XATANET Store - This Internet-based system is an electronic
                  store containing applications software that can be selected by
                  fleet operators for wireless distribution to selected vehicles
                  and enabled for fleet management use. Customer system
                  administrators can access the XATANET Store to review the
                  available software solutions, select applications for trial
                  use, and purchase licenses for production use.

The underlying philosophies of our XATANET product line are modularity, platform
independence, economy to match customers' requirements, and user managed system
evolution. We currently offer Vehicle Application and Driver Application
Packages that include a roof-mounted XATA Application Module containing the
XATANET Mobile system and selected applications. No driver training is required
for the Vehicle Package because these applications do not require a driver
interface. This




                                       9
<PAGE>

immediately benefits vehicle owners and provides for the future expansion of
software applications and hardware components as future requirements unfold.

XATANET allows customers to transmit additional applications in real-time
directly to vehicles on the road by using the XATANET wireless application
management system. This centrally managed software capability is a major
improvement over historical methods that required technicians to physically
connect to each truck for system upgrades. XATANET will provide significant
benefits to our customers in the form of scalable, customer specific solutions
for fleet operators, truck leasing companies and truck manufacturers.

A typical XATANET customer purchases a XATA Application Module with micro
display for each vehicle, and enters into a multi-year service agreement with
XATA providing access to the Web-based XATANET Server hosted by XATA as well
online and telephone support for use of XATANET.

XATA ONBOARD System and OpCenter(TM) Fleet Management Software

Our XATA ONBOARD system enables managers to achieve measurable fleet performance
and productivity improvements by integrating onboard technology into the fleet
management process. The XATA ONBOARD system consists of a Driver Computer,
Driver Key, Data Station and our OpCenter(TM) Fleet Management Software hosted
and managed by the customer.

The Driver Computer has a large, touch-sensitive, easy-to-read, user-friendly
screen that provides instant feedback to the driver. Our Driver Computer is well
accepted by drivers because it is easy to use and acts as an onboard information
advisor. Each driver has an electronic Driver Key that stores his identity, log,
dispatch, and trip data and is a means of electronically transferring
information to and from the Driver Computer and Data Station. Data Stations
consist of the same hardware as the Driver Computer, but utilize different
software. Data Stations are located where drivers begin and end their trips, and
provide dispatch data on a Driver Key at the beginning of each trip and offload
actual trip data from the Driver Key at the end of each trip.

Our OpCenter Fleet Management Software operates in a multi-user, Windows NT
environment and is capable of managing multiple fleets over a wide area network
and optionally incorporateseither the ORBCOMM satellite or Cingular tower-based
communications network. This software collects, validates and processes data
recorded by a fleet's network of Driver Computers and Data Stations. OpCenter
provides a decision support system for the entire distribution team. This
system reduces operating costs, improves safety, streamlines compliance
reporting and automates data collection for other systems. By integrating all
fleet operations under one Windows NT-based desktop workstation, our suite of
intelligent applications help users efficiently measure fleet performance,
resolve exception conditions, monitor ongoing operations and perform detailed
analysis. Using OpCenter on a desktop workstation, the operations manager can
access the information stored on the fleet's Driver Computers and Data Stations
, which store the information in SQL databases.

When integrated with optional real-time wireless communications, OpCenter
provides immediate access to critical onboard information. Its real-time
notification is triggered by user-defined onboard conditions, ensuring that only
critical information is reported to fleet management. Detecting and processing
of exception conditions only improves operating efficiency while minimizing
recurring communication charges.






                                       10
<PAGE>


XATA Application Module

The XATA Application Module is our newest mobile computing and communication
platform for both our XATA ONBOARD and XATANET systems. It incorporates a
powerful, rugged microprocessor with a twelve channel GPS receiver to process
data and record vehicle location and is housed in a UV resistant plastic dome
and a rugged aluminum base. The module's optional communication features can
transfer data wirelessly via spread spectrum or through either the ORBCOMM
satellite or CINGULAR Mobitex communication networks. It can be mounted on a
mirror strut, faring strut, or any other location that has a clear GPS signal
path. The self-locking sealed cable connector requires no screws or bolts and
seals the module and cable from outside elements.

When coupled with a Driver Computer in a XATA ONBOARD system, the XATA
Application Module and Driver Computer form a client/server system which can
execute multiple onboard applications in a multi-tasking real-time environment
while providing extensive connectivity to vehicle networks, peripheral devices
and other servers. In this configuration, the XATA Application Module enables
processing and memory resources for more advanced applications, connectivity to
multiple peripheral devices, GPS positioning, optional wireless communications,
increased systems integration in the vehicle, and an architecture that is
modular, scalable and expandable.

XATAServ

XATAServ is our comprehensive customer service and technical support program,
offering a wide range of support options designed to provide customer-focused
solutions for operation of any of our mobile information solutions. Our customer
service mission is to develop, communicate and deliver a comprehensive goal
attainment and support program that ensures our customers' success with our
applications by providing the tools, training and knowledge necessary to
identify and maximize their return on investment. XATAServ is typically
purchased at the time of the initial order and provides assistance in all areas,
beginning with rollout and installation, and including training and support of
ongoing operations. Our XATAServ program is in addition to the limited warranty
included in the base price of the system. We also offer management-level
consulting services to provide our customers with information and advice on how
to improve their usage of our products. These advanced training services are
different from the basic training and support service for front-line staff. Our
consultants advise the customers' management on use of the advanced capabilities
of our systems to reduce operating costs and increase savings. They help answer
critical questions about interpreting data and detecting trends that require
more extensive experience and expertise than technical support.


ALLIANCES

ORBCOMM

In October 2002, we entered into a Value Added Reseller relationship with
ORBCOMM LLC, the leading provider of low earth orbit (LEO) satellite service.
The initial contract term is for three years and is extendable at XATA's option
for an additional three years. In exchange for certain volume commitments, the
agreement provides XATA exclusivity versus key competitors and favorable
pricing. XATA believes that ORBCOMM's LEO service provides the same ubiquitous
service with greater data throughput than the leading GEO satellite service at a
much lower up-front cost. The agreed subscription pricing is cost competitive
with inferior terrestrial wireless service, which generally has sporadic
coverage concentrated in high population regions.




                                       11
<PAGE>

Mack Trucks

Our partnership with Mack Trucks, Inc., in conjunction with the Federal Highway
Administration's Intelligent Vehicle Initiative, enables advanced research and
development opportunities for the Company and enables us to develop and
field-test innovative technologies in a cost-sharing environment. The
relationship, originated in 1998, allows Mack to enhance the functionality of
its factory installed vehicle information system with our hardware modules and
XATANET software applications. End customers of truck manufacturers will thus
bypass the installation process, since vehicles will be delivered from the
factory with an onboard information system already installed.


MAJOR CUSTOMERS

Sales to McLane Company accounted for 26% of fiscal 2002 revenue. Eby-Brown
Company accounted for 10% of fiscal 2001 revenue. No other customer accounted
for 10% or more of revenue in either of these fiscal years.


MANUFACTURING, PRODUCTION, AND QUALITY CONTROL

We subcontract the manufacture and assembly of our hardware products pursuant to
our detailed specifications and quality requirements. One of our primary
subcontract manufacturing vendors is Phoenix International, a subsidiary of
Deere & Company. All such suppliers have entered into confidentiality agreements
with respect to our proprietary technology. We believe our current suppliers can
provide production volumes to meet our anticipated increases in product demand
and are not aware of any difficulty experienced by our suppliers in obtaining
raw materials for manufacture. We believe that we would be able to access
alternative sources of supply without material difficulty or disruption in our
business if any of our suppliers failed in their commitments to us.


PATENTS, TRADEMARKS, AND COPYRIGHTS

"XATA" is a trademark 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: OpCenter, SmartCom, Position Plus, Yard Express
and XATANET. We protect and defend our intellectual property rights vigorously.


RESEARCH AND DEVELOPMENT

Our market position is based on our strong research and development capability
and our market technology leadership. We believe product development must
continue in order to maintain this market position, integrate industry
requirements, respond to market opportunities and keep abreast of technological
change, which we expect to continue at a rapid pace. Along with customer-driven
requirements, much of the impetus to adopt new technologies comes from logistics
providers, suppliers, shippers, government, and other non-industry influences
that encourage the use of reliable, low-cost technologies to increase overall
industry efficiency. These new technologies include GPS and advanced mobile
communications (cellular, satellite, wireless and paging). Research and
development expense




                                       12
<PAGE>

was approximately $2.16 million in fiscal 2002 and $1.77 million for fiscal
2001. No software development costs were capitalized in fiscal 2002. In fiscal
2001, $1.09 million of software development costs were capitalized


EMPLOYEES

As of September 30, 2002, our staff included approximately 68 employees and 5
independent contractors whose primary assignments are approximately as follows:
10 in administrative, finance, and IS; 31 in sales, marketing, and customer
support; 5 in logistics; and 27 in engineering, product design, and development.


EXECUTIVE OFFICERS

Biographies of our executive officers are as follows:

Craig S. Fawcett, President & Chief Executive Officer, Director
Mr. Fawcett, age 36, joined XATA in February 2002 as President and Chief
Executive Officer. Before joining XATA, Mr. Fawcett was Vice President of the
Global Agriculture Division for John Deere. At Deere & Company, Mr. Fawcett held
numerous leadership positions involving mergers and acquisitions, special
technologies and operations. Prior to that he was a managing consultant for
Arthur Andersen, now Accenture. Mr. Fawcett is a graduate of the Harvard
Business School with an MBA and also has a Bachelor of Science degree in
Engineering from The Ohio State University.

William P. Flies, Chief Technology Officer, Chairman
Mr. Flies, age 60, is the founder, Chief Technology Officer, Chairman of the
Board, and a principal shareholder of XATA. Mr. Flies has served as Chief
Technology Officer from 1993 until September 2000, and from February 2002 until
present. He served as Chief Executive Officer from 1985 until December 1993, and
from September 2000 until February 2002. Mr. Flies founded Datakey, Inc. and
served as its Chief Executive Officer from 1978 to 1984 and as its Chairman from
1978 through 1991. While at Datakey, he was granted numerous U.S. and foreign
patents in portable data electronics. From 1969 to 1978, he was with Technalysis
Corporation, a computer consulting firm, as Vice President of Systems Products
and as President of KET, Inc., a subsidiary that produced mainframe memory and
peripheral subsystems. Mr. Flies joined Univac in 1964 as a systems engineer
after receiving degrees in mathematics, physics, and business administration
from Minnesota State University.

John G. Lewis, Chief Financial Officer, Secretary
Mr. Lewis, age 37, joined our company in January 2001 as Chief Financial
Officer. Before joining XATA, Mr. Lewis was Chief Financial Officer of St.
Paul-based PrimeYield Systems, Inc., a company that designed and manufactured
high-performance components used in the testing of semiconductor devices. Prior
to that Mr. Lewis was President of Lewis Engineering Company, Chaska, MN. Lewis
Engineering manufactured products for the highway construction industry. Mr.
Lewis graduated from Northwestern University with a BS in Industrial
Engineering. He also earned an MBA from the J. L. Kellogg Graduate School of
Management at Northwestern University.

Joel G. Jorgenson, General Manager - Private Fleet Operations
Mr. Jorgenson, age 34, joined our company in 1991 as an Account Executive. Mr.
Jorgenson held various positions in sales and sales support prior to being
promoted to Director of Sales in 1997. Mr. Jorgenson was appointed Vice
President, Sales in September 1999, and named General Manager, Private Fleet
Operations in 2002. Mr. Jorgenson has extensive experience with trucking
industry software and onboard technology for private fleet operations. He has
presented at many industry conferences, including NPTC, ATA and FDI. Mr.
Jorgenson holds a bachelors degree in business from Augsburg College.





                                       13
<PAGE>

Thomas N. Flies, Vice President - Business Development
Mr. Flies, age 33, currently leads our business development group with focus on
introducing our new XATANET system to asset owners and truck manufacturers. Mr.
Flies joined the Company in 1990 and has served in various roles in product
development, sales, marketing and operations. He holds degrees in business and
computer science from the University of St. Thomas. Mr. Flies is the son of
William P. Flies, Chief Technology Officer.


INVESTMENT CONSIDERATIONS

WE DO NOT HAVE A LONG OR STABLE HISTORY OF PROFITABLE OPERATIONS. From inception
in 1985 through fiscal year 1994, we focused our efforts primarily on product
development. During this time we had limited product marketing and distribution
and incurred a cumulative loss of $5.81 million. We had operating profits in
fiscal years 1995 and 1996. However, we experienced a combined net loss of $6.67
million in our fiscal years 1997 and 1998. These losses resulted in large part
from the re-valuation and expensing of certain software acquired in 1996
business acquisitions. We generated net profits of $493,000 and $520,000 for
fiscal years 1999 and 2000 respectively. In the fiscal year ended September 30,
2001 we incurred a net loss of $2.21 million due to increased product
development and operating expenses. In the fiscal year ended September 30, 2002
we incurred a net loss of $4.15 million due to increased amortization of
capitalized software, and increased product development and operating expenses.
We cannot with any certainty predict if our operations will be profitable or
generate positive cash flow in the future.

WE ARE DEPENDENT ON KEY CUSTOMERS. We sell large orders to individual fleets and
may be dependent upon a few major customers each year whose volume of purchases
is significantly greater than that of other customers. During the fiscal year
ended September 30, 2002, five customers, together, accounted for approximately
52% of net sales. Although we have experienced growth in our customer base, we
are still dependent on continued purchases by present customers who continue to
equip and upgrade their fleets. Loss of any significant current customers or an
inability to further expand our customer base would adversely affect us.

OUR SALES CYCLE IS LONG. The period required to complete a sale of our systems
can be 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 SEVERAL LARGER COMPETITORS. 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



                                       14
<PAGE>

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 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. Although we had a backlog of
approximately $862,000 on December 1, 2002, which we believe to be firm, this
backlog could decrease as a result of cancellations or reductions of orders in
response to adverse economic conditions in the industry or other factors.

THE EFFECTIVENESS OF OUR SELLING EFFORTS DEPENDS ON KNOWLEDGEABLE STAFF. 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 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 the Driver Computer, but our
software programs have not been patented. 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
our customers do not have continued access to sufficient capacity on reliable
networks, we may be unable to deliver communication services and our revenues
could decrease. Our ability to grow and achieve profitability depends on the
ability of satellite and tower-based wireless carriers to provide sufficient
network capacity, reliability and security to our customers. Even where wireless
carriers provide coverage to entire regions, there are occasional lapses in
coverage, for example due to man-made or natural obstructions blocking the
transmission of data. These effects could make our services less reliable and
less useful, and customer satisfaction could suffer. Our financial condition
could be seriously harmed if our wireless carriers were to increase the prices
of their services, or to suffer operational or technical failures. We have made
certain volume commitments to ORBCOMM LLC. Our ability to satisfy these
commitments depends not only on our ability to sell a specified number of
ORBCOMM enabled systems, but also on ORBCOMM's ability to provide reliable data
communication services to our customers.






                                       15
<PAGE>


OUR PRODUCTS MAY QUICKLY BECOME OBSOLETE. Our systems utilize proprietary
software and an onboard touch-screen computer. 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 system 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 system 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, WHO IS REPRESENTED ON OUR BOARD OF DIRECTORS, AND OUR CURRENT CHAIRMAN,
WHO IS ALSO A DIRECTOR, INDIVIDUALLY AND TOGETHER OWN ENOUGH STOCK TO EXERT
SIGNIFICANT INFLUENCE OVER XATA. As of September 30, 2002, JDSTG and William P.
Flies, our Chairman, owned approximately 31% and 15%, respectively, of our
outstanding common stock. JDSTG has the ability to increase its ownership
significantly through exercise of an option. In addition, JDSTG is entitled to
name up to three representatives on our Board of Directors and benefits from
certain restrictive covenants of XATA in connection with JDSTG's equity
investments in the Company. The combination of stock ownership and management
positions of these persons enables them, 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,
the debt and equity investment agreements with JDSTG and our $2 million line of
credit will be sufficient to meet capital requirements for the foreseeable
future, our cash needs may vary significantly from predictions. For example, if
we do not generate anticipated cash flow, or if we grow at a rate faster than we
anticipate, our predictions regarding cash needs may prove inaccurate and we may
require additional financing. Our inability to obtain needed financing could
have a material adverse effect on operating results. We cannot assure that we
will be able to secure additional financing when needed or that financing, if
obtained, will be on terms favorable or acceptable to us. Moreover, future
financing may result in dilution to holders of our common stock.

NEW BUSINESS PLAN. We have adopted a new business plan focused on additional
truck market segments that provide larger volume and recurring revenue
opportunities. In order to pursue these opportunities, we determined that
additional equity and a strategic partner were needed. To this end, JDSTG made
an initial equity investment in August 2000 and an additional investment in July
2001. We believe we are positioned to pursue high volume truck market
opportunities with our new software and hardware products. Although we believe
that our financing, partnering and product line will position us to pursue new
markets, implementation of this plan entails the development and
commercialization of new, leading-edge technology, which may encounter lack of
customer acceptance, competition, problems in



                                       16
<PAGE>

large-scale implementation, or other setbacks frequently encountered in
commercialization of new products. Accordingly, there can be no assurance that
this business plan will be successful.

WE MAY ISSUE ADDITIONAL STOCK WITHOUT SHAREHOLDER CONSENT. We have authorized
12,000,000 shares of common stock, of which 6,933,825 shares were issued and
outstanding as of December 16, 2002. 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 283,333 shares of preferred stock.
The Board of Directors can issue preferred stock in one or more series and fix
the terms of such stock without shareholder approval. Preferred stock may
include the right to vote as a series on particular matters, preferences as to
dividends and liquidation, conversion and redemption rights and sinking fund
provisions. 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. We
anticipate seeking shareholder approval for an increase in our authorized common
stock and preferred stock at the annual meeting in March 2003.

OUR DIRECTORS' LIABILITY IS LIMITED UNDER MINNESOTA LAW. 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.

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.


ITEM 2.  DESCRIPTION OF PROPERTY

On April 4, 1997, we took occupancy of 20,588 square feet of office and
warehouse space at 151 East Cliff Road in Burnsville, Minnesota. We signed a
seven year, non-cancelable operating lease for this space, with initial rental
payments of $12,010 per month, plus a pro rata share of the building operating
expenses commencing June 1, 1997. The base rent increased to $14,810 on February
1, 1999, in part due to occupancy of an additional 4,800 square feet of
warehouse space adjacent to the originally occupied space. Base rent increased
to $16,291 on June 1, 2002. We believe our current space is adequate for our
needs for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.





                                       17
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Effective June 1, 1999 our common stock began trading under the symbol "XATA" on
the NASDAQ SmallCap Market. Prior to June 1, 1999, our common stock traded on
the NASDAQ National Market, also under the symbol "XATA".

The following table sets forth the quarterly high and low sales prices as
reported by the NASDAQ SmallCap Market for fiscal years 2001 and 2002.

<TABLE>
<CAPTION>

                                                     SALE PRICE
                                                     ----------
           FISCAL YEAR 2001                      LOW           HIGH
                                                 ---           ----
         <S>                                  <C>           <C>
           First Quarter                       $ 2.125       $ 4.750
           Second Quarter                        2.250         4.000
           Third Quarter                         2.500         4.450
           Fourth Quarter                        3.000         3.950

<CAPTION>
                                                     SALE PRICE
                                                     ----------
           FISCAL YEAR 2002                      LOW           HIGH
                                                 ---           ----
         <S>                                  <C>           <C>
           First Quarter                       $ 3.000       $ 5.200
           Second Quarter                        3.900         5.200
           Third Quarter                         3.500         5.200
           Fourth Quarter                        3.250         4.500
</TABLE>


Our common stock is held by approximately 90 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 1,700.

DIVIDEND POLICY

Except for dividends paid to the holders of Series A 8% Convertible Preferred
Stock (from issuance in May 1999 until conversion in full in August 2000), we
have never paid cash dividends on any of our securities. We have retained any
earnings for use in our operations. Future dividend payments will be determined
by our Board of Directors based upon our earnings, if any, our capital needs and
other relevant factors.

RECENT SALE OF UNREGISTERED SECURITIES

In August 2000, we entered into a Stock Purchase Agreement with JDSTG and issued
an aggregate of 630,000 shares of common stock at $3.805 per share. A second
purchase of 1,314,060 shares at $3.805 per share took place in July 2001. Until
December 31, 2002, JDSTG may acquire up to an additional 1,202,940 shares at a
price equal to 82% of the market value of the shares during the 30 days
preceding JDSTG's election to purchase. We have been advised by JDSTG that it
does not intend to exercise this option to acquire additional shares.

On September 7, 2001, we issued a warrant for the purchase of 10,000 shares of
common stock exercisable at $3.69 per share to Stephen A. Lawrence. This warrant
was in consideration for his service as chairman of our board of directors.




                                       18
<PAGE>

All such securities have been issued in reliance upon the exemption from
registration under Section 4(2) and/or Section 4(6) of the Securities Act of
1933.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion should be read in conjunction with the financial
statements and the related notes included in this Report. This Report contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those in such forward-looking statements as
a result of many factors, including those discussed in "Investment
Considerations" and elsewhere in this Report.

CRITICAL ACCOUNTING POLICIES

Accounting policies, methods and estimates are an integral part of our financial
statements and are based upon management's current judgments. Certain accounting
policies, methods and estimates are particularly important because of their
significance to the financial statements. Note 1 of the Notes to Financial
Statements includes a summary of the significant accounting policies and methods
we use. The following is a discussion of what we believe to be the most critical
of these policies and methods.

Revenue recognition. We derive our revenue from sales of hardware, software and
related services. 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) 101,
Revenue Recognition in Financial Statements.

Hardware and software revenue is recognized under SOP 97-2 and SAB 101 when (i)
persuasive evidence of an arrangement exists, for example a signed agreement or
purchase order, (ii) delivery has occurred, as evidenced by shipping documents
and customer acceptance, (iii) the fee is fixed or determinable and payable
within twelve months, and (iv) collectibility is probable and supported by
credit checks or past payment history. Pursuant to certain contractual
arrangements, revenues are recognized for completed systems held at our
warehouse pending the receipt of delivery instructions from the customer.

Our customers typically purchase maintenance agreements annually. Customers may
also purchase extended warranty and service support contracts. Revenue from
maintenance agreements, extended warranty and service support contracts are
deferred and recognized ratably over the contract period. In addition, fees for
professional services are recognized as they are performed, regardless of when
billed to the customer.

Capitalized software development costs. Software development costs incurred
after establishing technological feasibility are capitalized. These costs 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).

We review our long-lived assets periodically to determine potential impairment
by comparing the carrying value of the long-lived assets with estimated future
cash flows expected to result from the use of




                                       19
<PAGE>

the assets, including cash flows from disposition. Should the sum of the
expected future cash flows be less than the carrying value, we would recognize
an impairment loss. An impairment loss would be measured by comparing the amount
by which the carrying value exceeds the fair value of the long-lived assets. In
fiscal 2002, we recorded an impairment loss of $127,000, included in cost of
sales, to write off the net balance of capitalized software development costs
related to a product line for which revenue is not expected to be realized in
the foreseeable future.

Research and development costs. Expenditures for research and development
activities are charged to operations as incurred.

Estimates. Preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

RESULTS OF OPERATIONS FOR THE YEARS ENDING SEPTEMBER 30, 2002 AND 2001

Net Sales. Our net sales decreased 5.8% to $13.18 million in fiscal 2002
compared to $13.99 million in fiscal 2001. Revenue from system sales fell to
$11.75 million in 2002 from $12.54 million in 2001, a decrease of 6.3%. Service
and other revenue declined slightly to $1.43 million in 2002 from $1.45 million
in 2001. We attribute the decline in revenue in fiscal 2002 to the depressed
demand for technology products resulting from difficult economic conditions. We
anticipate that our total revenue for fiscal 2003 will exceed that of fiscal
2002 due to our anticipation of improved market conditions for our current
products and the expected introduction of new products.

Cost of Goods Sold. Total cost of goods sold was $9.31 million, or 71% of net
sales, in fiscal 2002 compared to $9.53 million, or 68% of net sales, in fiscal
2001. Cost of goods sold is impacted by product sales mix, order discounts and
other variable and fixed expenses. Amortization of capitalized software
development costs, a non-cash expense component of cost of goods sold, increased
to $1.86 million in 2002 from $1.33 million in 2001, due primarily to
amortization of costs capitalized in the development of our new XATANET
products. Other non-cash cost of goods sold expenses for fiscal 2002 included a
one-time impairment charge of $127,000 to write off the net balance of
capitalized software development costs related to a product line for which
revenue is not expected to be realized in the foreseeable future. Excluding
amortization of capitalized software and the one-time charges, cost of goods
sold totaled $7.33 million or 56% of net sales in 2002, versus $8.20 million or
59% of net sales in 2001. This improvement was due to reduced manufacturing
costs of certain system components as well as a shift in sales mix to higher
margin items.

Operating Expenses. Operating expenses include research and development
expenses, as well as selling, general and administrative expenses. Total
operating expenses were $7.39 million, or 56% of net sales, in fiscal 2002
compared to $6.13 million, or 44% of net sales, in fiscal 2001. The increase in
total operating expenses was due to increases in both research and development
expenses as well as selling, general and administrative expenses.

Research and development expenses were $2.16 million in fiscal 2002 compared to
$1.77 million in fiscal 2001. As planned, we are utilizing proceeds from the
August 2000 and July 2001 equity investments by JDSTG for development of our
XATANET and OpCenter products. Software development costs are capitalized after
the establishment of technological feasibility of new products and later
amortized to cost of goods sold based on the anticipated useful life of the
product. The useful life of




                                       20
<PAGE>

each product is determined based upon its anticipated future net revenues. In
fiscal 2002, no software development costs were capitalized because the
expenditures were on products that had not fully attained technological
feasibility. In fiscal 2001, $1.09 million of software development expenditures
were capitalized. We anticipate total expenditures for research and development
in fiscal 2003 will be at approximately the same level as that incurred in
fiscal 2002.

Selling, general and administrative expenses were $5.23 million in fiscal 2002
compared to $4.36 million in fiscal 2001, an increase of approximately $870,000.
As a percentage of net sales, these expenses increased to 40% in fiscal 2002
from 31% in fiscal 2001. This increase was primarily due to higher staffing
levels in several areas. However, selling, general and administrative expenses
for fiscal 2003 are expected to be lower than in fiscal 2002 as a result of
expense reduction initiatives implemented in late fiscal 2002.

Non-operating Income (Expense). Interest income totaled $37,000 in fiscal 2002
compared to $57,000 for fiscal 2001. The decrease in interest income in the
current year was due to a reduced cash balance and lower investment interest
rates. Interest expense was $69,000 in fiscal 2002 compared to $226,000 in
fiscal 2001. The lower interest expense in fiscal 2002 was the result of not
having any bank credit line borrowings during the year. Other non-operating
expenses for fiscal 2001 included a one-time charge of $400,000 to write off
Desktop Dispatch Pro(TM) (DDPro), a non-core software product remaining from the
fiscal 1999 Payne and Associates divestiture.

Income Taxes. Income tax expense of $600,000 was recorded in fiscal 2002 in
connection with the write-off of a deferred tax asset. No income tax benefit or
expense was recorded in fiscal 2001. Because we have had continued operating
losses and do not have objectively verifiable positive evidence of future
taxable income as prescribed by Financial Accounting Standards Board (FASB)
Statement No. 109, we concluded that the write-off of the deferred tax asset 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, 2002, we had federal net operating
loss carryforwards of approximately $14.09 million. See Note 5 to the financial
statements.

Net Loss. We incurred a net loss in fiscal 2002 of $4.15 million compared to net
a net loss of $2.21 million in fiscal 2001. The increase in net loss was due to
the decrease in net sales, higher operating expenses, higher amortization
expenses related to capitalized software development costs, and the $600,000 tax
expense.

Due to the planned high level of research and development expense, non-cash
amortization expense and expenses associated with the launch of new products, we
expect to report a net loss for fiscal 2003.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at the end of fiscal 2002 totaled $2.81 million compared to
working capital of $5.35 million at the end of fiscal 2001. The $2.54 million
decrease in working capital was due to the fiscal 2002 net loss, reduction in
long-term debt and equipment purchases, partially offset by non-cash
amortization, depreciation and tax expenses included in the net loss amount.

Net cash used in operating activities during fiscal 2002 was $408,000 resulting
primarily from the $4.15 net loss for the fiscal year, a $598,000 reduction in
accounts payable and a $123,000 reversal of allowance for doubtful accounts.
This was offset by amortization and depreciation expense totaling




                                       21
<PAGE>

$2.07 million, accrued expenses and deferred revenue totaling $584,000, a
decrease in accounts receivable of $809,000, a decrease in inventories of
$195,000 and other non-cash charges totaling $727,000. We anticipate that future
growth of our business will result in increases in accounts receivable, accounts
payable, inventories and deferred revenue.

Net cash used in investing activities of $415,000 in fiscal 2002 resulted from
fixed asset expenditures primarily for tooling to be used for the production of
our new XATA Application Module.

Net cash used in financing activities of $150,000 during fiscal 2002 included
$241,000 in principal repayment of long-term debt offset by $91,000 in proceeds
from the exercise of stock options.

We believe our current financing, line of credit and vendor terms will provide
adequate cash to fund our operating needs for the foreseeable future. However,
any significant new product development in the near term will require external
funding. Moreover, it is possible that our cash needs may vary significantly
from our predictions due to failure to generate anticipated cash flow or other
reasons. No assurance can be given that our predictions regarding our cash needs
will prove accurate, that we will not require additional financing, that we will
be able to secure any required additional financing when needed or at all, or
that such financing, if obtained, will be on terms favorable or acceptable to
us.

SUBSEQUENT EVENTS

On December 23, 2002, we obtained a $2 million line of credit with a commercial
lender. The line of credit is subject to borrowing eligibility based on
eligible accounts receivable and is collateralized by substantially all the
assets of the Company. Under the agreement, all amounts owed under the line
of credit must be repaid to the lender not later than the December 23, 2003
final due date. However, such final due date may be automatically extended for
successive 30 day periods unless the agreement is otherwise terminated by us or
the lender. (See Note 3 to the financial statements).

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Accounting for Asset Retirement Obligations
In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. This pronouncement establishes standards for recognition and
measurement of legal obligations associated with the retirement of a tangible
long-lived asset that results from the acquisition, construction, or development
and (or) normal operation of a long-lived asset. SFAS 143 does not apply to
obligations that arise solely from a plan to dispose of a long-lived asset. This
statement is effective for us beginning October 1, 2002. Management does not
believe the adoption of this pronouncement will have a material effect on the
Company.

Rescission of FASB Statements on Extinguishment of Debt and Accounting
for Leases
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44,
and 64, Amendment of FASB Statement 13, and Technical Corrections. This
pronouncement rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of
Debt, and SFAS 64, Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements. Accordingly, a gain or loss from a debt extinguishment should not
be classified as an extraordinary item unless it meets the criteria for
extraordinary item classification in APB Opinion 30, Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions. This
pronouncement also rescinds SFAS 44, Accounting for Intangible Assets of Motor
Carriers, because transition to the Motor Carrier Act of 1980 is complete and
intrastate operating rights have been deregulated.





                                       22
<PAGE>

SFAS 145 amends SFAS 13, Accounting for Leases, to require a capital lease that
is modified so that the new agreement is classified as an operating lease be
accounted for under the sale-leaseback provisions of SFAS 98, Accounting for
Leases: Sale-Leaseback Transactions Involving Real Estate; Sales-Type Leases of
Real Estate; Definition of the Lease Term; Initial Direct Costs of Direct
Financing Leases, if the lease involves real estate. If the lease does not
involve real estate, SFAS 28, Accounting for Sales with Leasebacks, is
applicable. These provisions are effective for certain transactions occurring
after May 15, 2002 and for financial statements issued after May 15, 2002.
Management does not believe the adoption of this pronouncement will have a
material effect on the Company.

Accounting for Costs Associated with Exit or Disposal Activities
In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. This pronouncement provides financial accounting
and reporting guidance for costs associated with exit or disposal activities,
including one-time termination benefits, contract termination costs other than
for a capital lease, and costs to consolidate facilities or relocate employees.
SFAS 146 nullifies EITF Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring).

A liability for a cost associated with an exit or disposal activity should be
recognized and measured initially at its fair value in the period in which the
liability is incurred, except for a liability for one-time termination benefits
that is incurred over time. Accounting for one-time termination benefits depends
on whether the employee will be providing future services. If employees are
required to provide service until terminated and will be retained to provide
service beyond a minimum retention period, a liability should be initially
measured at the communication date based on the fair value of the liability as
of the termination date. The liability should be recognized ratably over the
future service period. If employees are not required to provide service or will
not be retained to provide service beyond a minimum retention period, a
liability for termination benefits should be recognized and measured at fair
value at the communication date.

A liability for costs to terminate a contract before the end of its term should
be recognized and measured at its fair value at the time the entity terminates
the contract in accordance with its terms. A liability for costs that will
continue to be incurred under the contract for its remaining term without
economic benefit to the entity should be recognized and measured at its fair
value when the entity ceases to use the right conveyed by the contract. This
statement is effective for us for exit and disposal activities initiated after
December 31, 2002. Management does not believe the adoption of this
pronouncement will have a material effect on the Company.


ITEM 7.  FINANCIAL STATEMENTS
<TABLE>
         <S>                                                         <C>
         Report of Independent Certified Public Accountants          F-1
         Balance Sheets                                              F-2 - F-3
         Statements of Operations                                    F-4
         Statements of Changes in Shareholders' Equity               F-5
         Statements of Cash Flows                                    F-6
         Notes to Financial Statements                               F-7 - F-17
</TABLE>
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.






                                       23
<PAGE>




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
XATA Corporation

                We have audited the accompanying balance sheets of XATA
Corporation (the Company) as of September 30, 2002 and 2001, and the related
statements of operations, changes in shareholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

                We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

                In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of XATA
Corporation as of September 30, 2002 and 2001, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.





                                                      /s/ GRANT THORNTON LLP

Minneapolis, Minnesota
November 1, 2002 (except for Note 3 as to
   which the date is December 23, 2002)








                                      F-1



<PAGE>
XATA CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 2002 AND 2001

<TABLE>
<CAPTION>
ASSETS                                                                              2002                    2001
---------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                       <C>
Current Assets
     Cash and cash equivalents                                                     $ 1,058,119           $ 2,031,432
     Accounts receivable, less allowances for doubtful accounts
         of $122,000 in 2002, and $245,000 in 2001                                   3,244,576             3,930,581
     Inventories                                                                     1,193,871             1,388,499
     Prepaid expenses                                                                  111,468               190,794
     Deferred income taxes                                                                   -               600,000
                                                                               --------------------------------------
                TOTAL CURRENT ASSETS                                                 5,608,034             8,141,306

Equipment and Leasehold Improvements, at cost
     Engineering and manufacturing equipment                                           258,289                26,924
     Office furniture and equipment                                                    968,568               784,849
     Leasehold improvements                                                             24,948                24,948
                                                                               --------------------------------------
                                                                                     1,251,805               836,721


     Less: accumulated depreciation and amortization                                  (682,769)             (470,816)
                                                                               --------------------------------------
                TOTAL EQUIPMENT AND LEASEHOLD IMPROVEMENTS                             569,036               365,905

Other Assets
     Capitalized software development costs, less accumulated
         amortization of $4,478,001 in 2002, and $2,735,394 in 2001                  2,791,615            4,774,186
                                                                               --------------------------------------
                TOTAL ASSETS                                                       $ 8,968,685           $13,281,397
                                                                               ======================================
</TABLE>


See Notes to Financial Statements


                                      F-2
<PAGE>

<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY                                                      2002                     2001
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                          <C>
Current Liabilities
     Current maturities of long-term debt                                           $     269,331            $     253,990
     Accounts payable                                                                     922,625                1,520,978
     Accrued expenses                                                                     567,375                  402,318
     Deferred revenue                                                                   1,037,470                  618,804
                                                                               --------------------------------------------
                TOTAL CURRENT LIABILITIES                                               2,796,801                2,796,090


Long-Term Debt, Net of Current Maturities                                                 373,176                  629,936
                                                                               --------------------------------------------
                TOTAL LIABILITIES                                                       3,169,977                3,426,026

Commitments
                                                                                                -                        -

Shareholders' Equity
     Common stock, par value $0.01 per share; 12,000,000
         shares authorized; 6,928,825 and 6,893,351 shares
         issued in 2002 and 2001                                                           69,288                   68,933
     Additional paid-in capital                                                        17,748,440               17,657,710
     Accumulated deficit                                                              (12,019,020)              (7,871,272)
                                                                               --------------------------------------------
                TOTAL SHAREHOLDERS' EQUITY                                              5,798,708                9,855,371
                                                                               --------------------------------------------
                TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                          $   8,968,685            $  13,281,397
                                                                               ============================================

</TABLE>


See Notes to Financial Statements


                                      F-3


<PAGE>



XATA CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2002 AND 2001




<TABLE>
<CAPTION>
                                                                            2002                     2001
                                                                -----------------------------------------------
<S>                                                             <C>                            <C>
Net sales                                                             $    13,181,447          $    13,992,601
Cost of goods sold                                                          9,308,557                9,531,486
                                                                -----------------------------------------------
                GROSS PROFIT                                                3,872,890                4,461,115

Operating expenses
     Selling, general and administrative                                    5,230,658                4,358,638
     Research and development                                               2,155,450                1,773,404
                                                                -----------------------------------------------
                                                                            7,386,108                6,132,042
                                                                -----------------------------------------------

                OPERATING LOSS                                             (3,513,218)             (1,670,927)

Non-operating income (expense)
     Interest income                                                           37,343                   56,913
     Interest expense                                                         (69,397)                (226,157)
     Other                                                                     (2,476)                (365,505)
                                                                -----------------------------------------------
                                                                              (34,530)                (534,749)
                                                                -----------------------------------------------

                LOSS BEFORE INCOME TAXES                                   (3,547,748)              (2,205,676)

Income taxes                                                                  600,000                       -
                                                                -----------------------------------------------
                NET LOSS                                              $    (4,147,748)         $    (2,205,676)
                                                                ===============================================

Net loss per common share
     Basic and Diluted                                                $         (0.60)         $         (0.37)

Weighted average common and common
share equivalents
     Basic and Diluted                                                      6,912,788                5,898,768
</TABLE>



See Notes to Financial Statements


                                      F-4

<PAGE>


XATA CORPORATION

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2002 AND 2001

<TABLE>
<CAPTION>
                                                       Common Stock             Additional
                                                ---------------------------       Paid-In       Accumulated
                                                  Shares        Amount            Capital         Deficit            Total
-------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>             <C>             <C>                <C>
Balance, September 30, 2000                         5,580,179     $ 55,802      $ 12,708,245    $ (5,665,596)      $ 7,098,451
     Common stock issued on exercise of
        options                                        11,267          113            23,764               -            23,877
     Issuance of common stock                       1,314,060       13,140         4,986,860               -         5,000,000
     Redemption of common stock                       (12,155)        (122)          (61,159)              -           (61,281)
     Net loss                                               -            -                 -      (2,205,676)       (2,205,676)
                                                -------------------------------------------------------------------------------
Balance, September 30, 2001                         6,893,351       68,933        17,657,710      (7,871,272)        9,855,371
     Common stock issued on exercise of
        options                                        35,474          355            90,730               -            91,085
     Net loss                                               -            -                 -      (4,147,748)       (4,147,748)
                                                -------------------------------------------------------------------------------
Balance, September 30, 2002                         6,928,825     $ 69,288      $ 17,748,440    $(12,019,020)      $ 5,798,708
                                                ===============================================================================

</TABLE>


See Notes to Financial Statements.




                                      F-5


<PAGE>


XATA CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                                                      2002                   2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                      <C>
Cash used in Operating Activities
Net loss                                                                                           $(4,147,748)         $(2,205,676)
Adjustments to reconcile net loss to net cash used in
operating activities:
     Depreciation and amortization of equipment and leasehold improvements                             211,953              225,031
     Amortization of capitalized software development costs                                          1,855,928            1,331,918
     Reversal of allowance for doubtful accounts                                                      (123,000)             (81,000)
     Deferred income taxes                                                                             600,000                    -
     Write-off of software product and other non-cash items                                            126,643              406,387
     Changes in assets and liabilities:
         Accounts receivable                                                                           809,005              136,896
         Inventories                                                                                   194,628             (861,044)
         Accounts payable                                                                             (598,353)            (273,462)
         Accrued expenses and deferred revenue                                                         583,723             (548,320)
         Prepaid expenses and other assets                                                              79,326              (87,336)
                                                                                               -------------------------------------
                NET CASH USED IN OPERATING ACTIVITIES                                                 (407,895)          (1,956,606)
                                                                                               -------------------------------------

Cash used in Investing Activities
     Purchases of equipment                                                                           (415,084)            (212,566)
     Addition to software development costs                                                                  -           (1,091,905)
                                                                                               -------------------------------------
                NET CASH USED IN INVESTING ACTIVITIES                                                 (415,084)          (1,304,471)
                                                                                               -------------------------------------

Cash provided by (used in) Financing Activities
     Net payments on bank line of credit                                                                     -             (586,365)
     Proceeds from borrowing on long-term debt                                                               -              152,356
     Payments on long-term debt                                                                       (241,419)            (225,856)
     Proceeds from common stock issued                                                                       -            5,000,000
     Proceeds from options exercised                                                                    91,085               23,877
                                                                                               -------------------------------------
                NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                   (150,334)           4,364,012
                                                                                               -------------------------------------

                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      (973,313)           1,102,935

Cash and Cash Equivalents
     Beginning                                                                                       2,031,432              928,497
                                                                                               -------------------------------------
     Ending                                                                                        $ 1,058,119          $ 2,031,432
                                                                                               =====================================

Supplemental Disclosures of Cash Flow Information
     Cash payments for interest                                                                    $    69,397          $   229,652

Supplemental Schedule of Noncash Investing and Financing Activities
     Redemption of common stock in exchange for release of note receivable                         $         -          $    61,281
                                                                                               =====================================
</TABLE>



See Notes to Financial Statements



                                      F-6

<PAGE>


XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS: XATA Corporation ("XATA" or the "Company") develops, markets
and services fully integrated, mobile information systems for the fleet trucking
segment of the transportation industry in the United States of America and
Canada. XATA systems utilize proprietary software, onboard touch-screen
computers, and related hardware components and accessories to capture, analyze,
and communicate operating information that assists fleet management in improving
productivity and profitability.

The majority of the Company's sales are on a credit basis to customers located
throughout the United States of America.

A summary of the Company's significant accounting policies follows:

REVENUE RECOGNITION: The Company derives its revenue from sales of hardware,
software and related services. The Company recognizes revenue in accordance with
Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by
SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with Respect to
Certain Transactions, and Securities and Exchange Commission Staff Accounting
Bulletin (SAB) 101, Revenue Recognition in Financial Statements.

Hardware and software revenue is recognized under SOP 97-2 and SAB 101 when (i)
persuasive evidence of an arrangement exists, for example a signed agreement or
purchase order, (ii) delivery has occurred, as evidenced by shipping documents
and customer acceptance, (iii) the fee is fixed or determinable and payable
within twelve months, and (iv) collectibility is probable and supported by
credit checks or past payment history. Pursuant to certain contractual
arrangements, revenues are recognized for completed systems held at the
Company's warehouse pending the receipt of delivery instructions from the
customer. At September 30, 2002, the Company had approximately $129,000 of
systems on hand that had been billed to those customers awaiting specific
delivery instructions.

The Company's customers typically purchase maintenance agreements annually.
Customers may also purchase extended warranty and service support contracts.
Revenue from maintenance agreements, extended warranty and service support
contracts are deferred and recognized ratably over the contract period. In
addition, fees for professional services are recognized as they are performed,
regardless of when billed to the customer.

CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all highly liquid temporary investments with an original maturity of
three months or less to be cash equivalents. The Company maintains its cash in
bank deposit and money market accounts, which, at times, exceed federally
insured limits. The Company has not experienced any losses in such accounts.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The financial statements include the
following financial instruments: cash and cash equivalents, accounts receivable,
accounts payable and notes payable. At September 30, 2002 and 2001, no separate
comparison of fair values versus carrying values is presented for the
aforementioned financial instruments since their fair values are not
significantly different than their balance sheet carrying amounts.


                                      F-7

<PAGE>
XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS


NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTS RECEIVABLE: The Company grants credit to customers in the normal course
of business. Management performs on-going credit evaluations of customers and
maintains allowances for potential credit losses which, when realized, have
generally been within management expectations.

INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined on the standard cost method, which approximates the first-in,
first-out method.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS: Software development costs incurred
after establishing technological feasibility are capitalized. These costs 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).

The Company reviews its long-lived assets periodically to determine potential
impairment by comparing the carrying value of the long-lived assets with
estimated future cash flows expected to result from the use of the assets,
including cash flows from disposition. Should the sum of the expected future
cash flows be less than the carrying value, the Company would recognize an
impairment loss. An impairment loss would be measured by comparing the amount by
which the carrying value exceeds the fair value of the long-lived assets. In
fiscal 2002, the Company recorded an impairment loss of $127,000, included in
cost of sales, to write off the net balance of capitalized software development
costs related to a product line for which revenue is not expected to be realized
in the foreseeable future. In fiscal 2001, the Company recorded a charge of
$400,000, included in non-operating expense, to write off Desktop Dispatch
Pro(TM) (DDPro), a non-core software product remaining from the fiscal 1999
Payne and Associates divestiture. The Company took this action because it no
longer offers the product to customers and determined the DDPro product line to
have limited value to any potential acquirer. The DDPro asset was considered
"held for sale" and was included in capitalized software development costs.

RESEARCH AND DEVELOPMENT COSTS: Expenditures for research and development
activities performed by the Company are charged to operations as incurred.

DEPRECIATION AND AMORTIZATION: Depreciation and amortization for financial
reporting purposes are computed using the straight-line method based on the
estimated useful lives of individual assets. Depreciation and amortization for
income tax reporting purposes are computed using accelerated methods.
Depreciable lives are as follows:

<TABLE>
<CAPTION>
                                                                  Years
                                                                  -----
<S>                                                               <C>
        Engineering and manufacturing equipment                    3-7
        Office furniture and equipment                             3-7
        Leasehold improvements                                    3-15
</TABLE>

PRODUCT WARRANTIES: The Company sells its hardware products with a limited
warranty, with an option to purchase extended warranties. The Company provides
for estimated warranty costs at the time of sale and for other costs associated
with specific items at the time their existence and amount are determinable.


                                      F-8

<PAGE>
XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS


NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES: Deferred income taxes are provided on the liability method whereby
deferred tax assets and deferred tax liabilities are recognized for the effects
of taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.

401(k) PLAN: The Company has a 401(k) plan covering substantially all employees
and is operated on a calendar year basis. Effective January 1, 2002 the Company
implemented an employer matching contribution equal to 25% of an employee's
contribution for employee deferrals of up to 6% of their compensation. Matching
contributions for the fiscal year ending September 30, 2002 totaled $45,400.
Prior to January 1, 2002, the Company made annual contributions to the plan at
the discretion of the Board of Directors. The expense for the discretionary
contribution for the fiscal year ended September 30, 2001 was $10,800.

NET LOSS PER SHARE: Basic and diluted net loss per common share is computed by
dividing the net loss by the weighted average common shares outstanding for the
year.

At September 30, 2002 and 2001, the Company had options and warrants outstanding
to purchase a total of 916,589 and 673,312 shares of common stock, at a
weighted-average exercise price of $3.58 and $3.40. Because the Company incurred
a loss in both fiscal 2002 and 2001, the inclusion of potential common shares in
the calculation of diluted loss per common share would have an antidilutive
effect. Therefore, basic and diluted loss per common share amounts are the same
in both fiscal 2002 and 2001.

STOCK-BASED COMPENSATION: The Company utilizes the intrinsic value method of
accounting for its employee stock-based compensation plans. Pro forma
information related to the fair value based method of accounting is disclosed in
Note 7.

ESTIMATES: Preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

RECLASSIFICATIONS: Certain 2001 amounts have been reclassified to conform to the
2002 presentation.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

Accounting for Asset Retirement Obligations
In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. This pronouncement establishes standards for recognition and
measurement of legal obligations associated with the retirement of a tangible
long-lived asset that results from the acquisition, construction, or development
and (or) normal operation of a long-lived asset. SFAS 143 does not apply to
obligations that arise solely from a plan to dispose of a long-lived asset. This
statement is effective for the Company beginning October 1, 2002. Management
does not believe the adoption of this pronouncement will have a material effect
on the Company.


                                      F-9

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Rescission of FASB Statements on Extinguishment of Debt and Accounting for
Leases
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44,
and 64, Amendment of FASB Statement 13, and Technical Corrections. This
pronouncement rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of
Debt, and SFAS 64, Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements. Accordingly, a gain or loss from a debt extinguishment should not
be classified as an extraordinary item unless it meets the criteria for
extraordinary item classification in APB Opinion 30, Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions. This
pronouncement also rescinds SFAS 44, Accounting for Intangible Assets of Motor
Carriers, because transition to the Motor Carrier Act of 1980 is complete and
intrastate operating rights have been deregulated.

SFAS 145 amends SFAS 13, Accounting for Leases, to require a capital lease that
is modified so that the new agreement is classified as an operating lease be
accounted for under the sale-leaseback provisions of SFAS 98, Accounting for
Leases: Sale-Leaseback Transactions Involving Real Estate; Sales-Type Leases of
Real Estate; Definition of the Lease Term; Initial Direct Costs of Direct
Financing Leases, if the lease involves real estate. If the lease does not
involve real estate, SFAS 28, Accounting for Sales with Leasebacks, is
applicable. These provisions are effective for certain transactions occurring
after May 15, 2002 and for financial statements issued after May 15, 2002.
Management does not believe the adoption of this pronouncement will have a
material effect on the Company.

Accounting for Costs Associated with Exit or Disposal Activities
In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. This pronouncement provides financial accounting
and reporting guidance for costs associated with exit or disposal activities,
including one-time termination benefits, contract termination costs other than
for a capital lease, and costs to consolidate facilities or relocate employees.
SFAS 146 nullifies EITF Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring).

A liability for a cost associated with an exit or disposal activity should be
recognized and measured initially at its fair value in the period in which the
liability is incurred, except for a liability for one-time termination benefits
that is incurred over time. Accounting for one-time termination benefits depends
on whether the employee will be providing future services. If employees are
required to provide service until terminated and will be retained to provide
service beyond a minimum retention period, a liability should be initially
measured at the communication date based on the fair value of the liability as
of the termination date. The liability should be recognized ratably over the
future service period. If employees are not required to provide service or will
not be retained to provide service beyond a minimum retention period, a
liability for termination benefits should be recognized and measured at fair
value at the communication date.

A liability for costs to terminate a contract before the end of its term should
be recognized and measured at its fair value at the time the entity terminates
the contract in accordance with its terms. A liability for costs that will
continue to be incurred under the contract for its remaining term without
economic benefit to the entity should be recognized and measured at its fair
value when the entity ceases to use the right conveyed by the contract. This
statement is effective for the Company for exit and disposal activities


                                      F-10
<PAGE>
XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS


NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

initiated after December 31, 2002. Management does not believe the adoption of
this pronouncement will have a material effect on the Company.


NOTE 2.  INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                    September 30
                                                         ---------------------------------------
                                                                  2002                2001
                                                         -------------------  ------------------
<S>                                                      <C>                  <C>
 Raw materials and subassemblies                         $          586,031   $         311,519
 Finished goods                                                     607,840           1,076,980
                                                         -------------------  ------------------
 Total inventories                                       $        1,193,871   $       1,388,499
                                                         ===================  ==================
</TABLE>

NOTE 3.  BANK LINE OF CREDIT

Effective December 23, 2002, the Company has a $2,000,000 credit line agreement
with a financial institution. Advances under the line of credit accrue interest
at prime rate plus 2.90 percent. The line is subject to borrowing base
requirements and is collateralized by substantially all the assets of the
Company. The agreement expires in December 2003 and may be automatically renewed
for successive thirty day periods unless otherwise terminated by either the
Company or the lender. As of September 30, 2002 the Company did not have a line
of credit in place.


NOTE 4.  LONG-TERM DEBT

Long-term debt consists of the following:


<TABLE>
<CAPTION>
                                                                                       September 30
                                                                           ----------------------------------------
                                                                                  2002                 2001
                                                                           -------------------  -------------------
<S>                                                                        <C>                  <C>
 Note payable, due in monthly installments of $20,140
      including interest at Prime plus 2% (6.75% and 8.0% at
      September 30, 2002 and 2001) through April 2005,
      collateralized by all inventories, equipment and intellectual
      property rights to XATANET software                                          $  571,462           $  751,332

 Other                                                                                 71,045              132,594
                                                                           -------------------  -------------------
                                                                                      642,507              883,926

 Less current maturities                                                              269,331              253,990
                                                                           -------------------  -------------------
                                                                                   $  373,176           $  629,936
                                                                           ===================  ===================

</TABLE>


                                      F-11
<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS


The schedule of principal repayments of long-term debt is as follows for the
fiscal years ending September 30:

<TABLE>
<S>                                <C>
                   2003            $   269,331
                   2004                235,316
                   2005                137,860
                                   -----------
                                   $   642,507
</TABLE>


NOTE 5.  INCOME TAXES

The Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                        September 30
                                                                           ----------------------------------------
                                                                                  2002                 2001
                                                                           -------------------  -------------------
<S>                                                                        <C>                  <C>
 Inventory and warranty reserve                                             $         120,000    $          78,000
 Accrued expenses and deferred revenue                                                 94,000               71,000
 Accounts receivable and sales reserve                                                 60,000              117,000
 Research and development credit                                                      663,000              506,000
 Net operating loss carryforwards                                                   5,213,000            4,723,000
                                                                           -------------------  -------------------
 Gross deferred tax assets                                                          6,150,000            5,495,000

 Valuation allowance on deferred tax assets                                       (5,065,000)          (2,856,000)
                                                                           -------------------  -------------------
 Net deferred tax assets                                                            1,085,000            2,639,000

 Software development costs                                                       (1,033,000)          (1,910,000)
 Depreciation                                                                        (52,000)            (129,000)
                                                                           -------------------  -------------------
 Gross deferred tax liabilities                                                   (1,085,000)          (2,039,000)
                                                                           -------------------  -------------------
 Net deferred tax asset                                                     $               -    $         600,000
                                                                           ===================  ===================
</TABLE>


The Company periodically reviews the valuation allowance it has established on
its deferred tax assets. Income tax expense of $600,000 was recorded in fiscal
2002 in connection with the write-off of its deferred tax asset. Because the
Company has experienced continued operating losses and does not have objectively
verifiable positive evidence of future taxable income as prescribed by Financial
Accounting Standards Board (FASB) Statement No. 109, it concluded that the
write-off of the deferred tax asset was appropriate. 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 we return to profitability and
actual future taxable income is higher than currently estimated.




                                      F-12
<PAGE>
XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS


The Company's income tax expense (benefit) differed from the statutory federal
rate as follows:

<TABLE>
<CAPTION>
                                                                                       September 30
                                                                             ----------------------------------
                                                                                  2002                 2001
                                                                             -----------            -----------

<S>                                                                          <C>                    <C>
Statutory federal rate applied to loss before income taxes                   $(1,206,000)           $  (750,000)
State income tax benefit                                                        (106,000)               (94,000)
Permanent differences                                                             16,000                 21,000
Change in valuation allowance                                                  2,209,000                891,000
Change in tax rate used on net deferred tax assets                              (133,000)                     -
Research and development credit                                                 (157,000)               (81,000)
Other                                                                            (23,000)                13,000
                                                                             -----------            -----------
                                                                             $   600,000            $         -
                                                                             ===========            ===========

Current                                                                      $         -            $         -
Deferred                                                                         600,000                      -
                                                                             -----------            -----------
                                                                             $   600,000            $         -
                                                                             ===========            ===========
</TABLE>

At September 30, 2002, the Company had federal net operating loss carryforwards
of approximately $14.1 million, which will begin to expire in 2009.

At September 30, 2002, the Company has research and development credit
carryforwards of approximately $663,000, which will begin to expire in 2009.

NOTE 6.  COMMITMENTS

Leases

The Company leases its office, warehouse, and certain office equipment under
noncancelable operating leases. The facility lease requires that the Company pay
a portion of the real estate taxes, maintenance, utilities and insurance.

Approximate future minimum rental commitments, excluding common area costs under
these noncancelable operating leases, are:

<TABLE>
<CAPTION>
Years ending September 30:
---------------------------------------
<S>                                            <C>
      2003                                               223,000
      2004                                               159,000
      2005                                                29,000
      2006                                                29,000
      2007                                                29,000
      Thereafter                                           2,000
                                               ------------------
                                                       $ 471,000
                                               ==================
</TABLE>


                                      F-13

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS


Rental expense, including common area costs and net of rental income, was
approximately $299,000 and $331,000 for the years ended September 30, 2002 and
the year ended September 30, 2001.

Reseller Commitment

On October 11, 2002 the Company entered into a U.S. Value Added Reseller
Agreement with ORBCOMM LLC. Pursuant to this agreement the Company is authorized
to resell certain satellite communication services in conjunction with its
products. In exchange for favorable pricing, the Company committed to certain
volume minimums. Approximate future minimum purchases are as follows:

<TABLE>
<CAPTION>
Years ending September 30:
-----------------------------------
<S>                                            <C>
      2003                                           $         -
      2004                                             1,200,000
      2005                                             3,000,000
                                               ------------------
                                                     $ 4,200,000
                                               ==================
</TABLE>


NOTE 7.  STOCK OPTIONS AND WARRANTS

STOCK OPTION PLANS: In February 2002 the Company adopted the 2002 Long Term
Incentive and Stock Option Plan (the 2002 Plan), to replace its 2001 Interim
Incentive and Stock Option Plan (the Interim Plan) which expires, in accordance
with its terms, on December 31, 2002. Expiration of the Interim Plan does not
affect the options previously issued and outstanding under that plan; however,
no additional options or awards may be granted under the Interim Plan after the
date of expiration.

The 2002 Plan permits the granting of "incentive stock options" meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended,
and nonqualified options that do not meet the requirements of Section 422. Stock
appreciation rights and restricted stock awards may also be granted under the
2002 Plan. A total of 400,000 shares of the Company's common stock have been
reserved for issuance pursuant to options granted or shares awarded under the
2002 Plan. Generally, the options that are granted under the 2002 Plan are
exercisable for a period of five years from the date of grant and vest over a
period of up to three years from the date of grant.

All stock options have been granted at fair market value at the date of grant,
and accordingly, no compensation expense has been recorded for all periods
presented. Had compensation expense for the plan been determined based on the
fair values of options granted (the method described in FASB Statement No. 123),
reported net loss and basic and diluted net loss per common share on a pro forma
basis as compared to reported results would have been as follows:


                                      F-14
<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                    2002                  2001
                                                                               --------------        -------------
<S>                                                                            <C>                   <C>
Net loss
     As reported                                                               $  (4,147,748)         $(2,205,676)
     Pro forma                                                                    (4,566,748)          (2,711,676)
Basic and diluted net loss per common share:
     As reported                                                               $       (0.60)         $     (0.37)
     Pro forma                                                                         (0.66)               (0.46)
</TABLE>


For purposes of the aforementioned pro forma information, the fair value of each
option is estimated at the grant date using the Black-Scholes option-pricing
model with the following weighted-average assumptions for grants in 2002 and
2001: dividend rate of zero for both years; price volatility of 38% for 2002 and
66% for 2001; risk-free interest rate of 2.6% for 2002 and 4.0% for 2001; and
expected life of five years for 2002 and 2001. The weighted-average fair value
per option of options granted in 2002 and 2001 was $1.51 and $1.90.

Additional information relating to all outstanding options as of September 30,
2002 and 2001 is as follows:

<TABLE>
<CAPTION>
                                                             2002                                2001
                                               ---------------------------------  ---------------------------------

                                                                   Weighted-                          Weighted-
                                                                    Average                            Average
                                                     Shares      Exercise Price       Shares        Exercise Price
                                               ---------------- ----------------  ---------------- ----------------
<S>                                            <C>              <C>               <C>              <C>
Options outstanding at beginning of year             619,834         $   3.47            544,670         $   3.96
          Options granted                            318,167             3.99            248,500             3.26
          Options exercised                          (35,474)            2.45            (11,267)            2.12
          Options canceled                           (39,416)            4.82           (162,069)            4.89
                                                 -----------         --------        -----------         --------
Options outstanding at end of year                   863,111         $   3.64            619,834         $   3.47
                                                 ===========         ========        ===========         ========
</TABLE>


The following table further summarizes information about stock options
outstanding at September 30, 2002:

<TABLE>
<CAPTION>
                                                Options Outstanding                            Options Exercisable
                                 -------------------------------------------------------  ----------------------------------
                                                        Weighted-
                                      Number             Average                             Number
                                   Outstanding at       Remaining          Weighted       Exercisable at       Weighted
                                    September 30,      Contractual         Average         September 30,       Average
 Range of exercise price                2002            Life (Years)      Exercise Price       2002          Exercise Price
-------------------------------  -------------------------------------------------------  ----------------------------------
<S>                              <C>                   <C>                <C>             <C>                <C>
 $1.16 - $1.75                             45,085            1.26            1.51             45,085            1.51
 $1.84 - $2.70                             29,675            1.33            2.35             27,843            2.33
 $2.87 - $4.30                            668,767            3.28            3.61            268,679            3.42
 $4.38 - $6.56                            105,834            2.92            4.74             85,554            4.78
 $6.75 - $6.78                             13,750            0.04            6.76             13,750            6.76
                                 -------------------------------------------------------  ----------------------------------
                                          863,111            3.01            3.64            440,911            3.52
                                 =======================================================  ==================================
</TABLE>




                                      F-15
<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

COMMON STOCK WARRANTS: The Company has, on occasion, issued warrants for the
purchase of common stock to directors, consultants and placement agents.
Compensation expense associated with the warrants has not been material. At
September 30, 2002, warrants were outstanding to purchase a total of 53,478
shares of common stock at a weighted-average exercise price of $2.54 per share,
with a weighted-average remaining life of approximately 1.75 years.


NOTE 8.  CAPITAL STOCK

PREFERRED STOCK
The Company is authorized to issue up to 283,333 shares of preferred stock. The
Board of Directors can issue preferred stock in one or more series and fix the
terms of such stock without shareholder approval. Preferred stock may include
the right to vote as a series on particular matters, preferences as to dividends
and liquidation, conversion and redemption rights and sinking fund provisions.
As of September 30, 2002, there were no outstanding shares of preferred stock.

COMMON STOCK
On August 30, 2000, the Company entered into a Stock Purchase Agreement ("the
Agreement") with John Deere Special Technologies Group, Inc. ("JDSTG") which
provided for the purchase by JDSTG of up to 1,944,060 new shares of the
Company's common stock at $3.805 per share, the purchase of 200,000 shares of
existing common stock at $3.805 from an entity owned in part by a Director of
the Company ("XIP"), the optional conversion before August 1, 2002, at $3.805
per share, of a 5-year promissory note in the original amount of $1 million, for
new shares of the Company's common stock, and the optional purchase of up to
1,202,940 new shares of common stock on or before December 31, 2002, pursuant to
a share option, at a price equal to 82% of the market value of the shares.
Repayment of the promissory note is collateralized by all inventories, equipment
and the intellectual rights to XATANET software.

On August 31, 2000, JDSTG purchased 630,000 shares of common stock from the
Company and 200,000 shares of common stock from XIP, each at $3.805 per share.
On July 5, 2001, JDSTG purchased an additional 1,314,060 shares of common stock
from the Company at $3.805 per share. JDSTG did not exercise its option to
convert the promissory note for new shares of the Company's common stock. JDSTG
has advised the Company that it does not intend to exercise its option expiring
December 31, 2002 to acquire additional shares.

In connection with the Agreement, the Company is subject to certain
restrictions, including the payment of dividends on its common stock (except for
stock dividends) and the redemption of its capital stock.


                                      F-16
<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS


NOTE 9.  MAJOR CUSTOMERS

The Company operates in a single reporting segment. Net sales include sales to
major customers as follows:

<TABLE>
<CAPTION>
                                             Year Ended September 30
                                       -------------------------------------
                                            2002               2001
                                       ------------------  -----------------
<S>                                    <C>                 <C>
Revenue percentage:
   McLane Company                                26%                   *
   Eby-Brown Company                               *                 10%

Ending receivable balance:
   McLane Company                      $      24,000       $           *
   Eby-Brown Company                               *               2,000
</TABLE>

     * Net sales were less than 10 percent of total net sales.

The Company sells large orders to individual fleets and may be dependent upon a
few major customers each year whose volume of purchases is significantly greater
than that of other customers. During the fiscal year ended September 30, 2002,
five customers, together, accounted for approximately 52% of net sales. 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.



                                      F-17
<PAGE>

                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

Certain information about our executive officers called for by this Item is
contained in Part II of this Report, and other information is incorporated by
reference to our definitive proxy statement which will be filed within 120 days
after the end of our fiscal year pursuant to Regulation 14A (the "Proxy
Statement").

ITEM 10.  EXECUTIVE COMPENSATION

Information called for by this Item is incorporated by reference to our
definitive proxy statement which will be filed within 120 days after the end of
our fiscal year pursuant to Regulation 14A.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table sets forth information about our equity compensation plans.
Only common stock is issuable pursuant to these plans. Separate disclosure is
made for plans approved by our shareholders and plans which have not been
approved by our shareholders.

<TABLE>
<CAPTION>
                                Number of securities to be    Weighted-average exercise      Number of securities
                                  issued upon exercise of       price of outstanding        remaining available for
                                   outstanding options,         options, warrants and        future issuance under
                                    warrants and rights                rights              equity compensation plans
                                                                                             (excluding securities
                                                                                           reflected in column (a))
                                            (a)                          (b)                          (c)
<S>                             <C>                           <C>                          <C>
Equity compensation plans               863,111 (1)                     $3.64                     238,000 (2)
approved by security holders
Equity compensation plans not            53,478 (3)                     $2.54                        Zero
approved by security holders
                         Total            916,589                       $3.58                       238,000
</TABLE>

     (1)  Consists of options (expressed as number of shares) outstanding under
          the following plans:

            1991 Long-Term Incentive and Stock Option Plan - 511,111
            2001 Interim Incentive and Stock Option Plan - 190,000
            2002 Long-Term Incentive and Stock Option Plan - 162,000



                                       24
<PAGE>



     (2)  Consists of shares available for future option grants as follows:
                  1991 Long-Term Incentive and Stock Option Plan - Zero
                  2001 Interim Incentive and Stock Option Plan - Zero
                  2002 Long-Term Incentive and Stock Option Plan - 238,000

     (3)  Consists of 5-year warrants, exercisable at market value at the time
          of grant, issued to directors of the Company in consideration of
          service on the Board of Directors. The warrants contain a "cashless
          exercise" feature which allows the holder to exercise for shares in an
          amount equal to the excess of aggregate current market value over the
          aggregate exercise price, divided by the current market value per
          share. A form of the warrant is attached as an exhibit to this report.

Other information called for by this Item is incorporated by reference to our
definitive proxy statement which will be filed within 120 days after the end of
our fiscal year pursuant to Regulation 14A.


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information called for by this Item is incorporated by reference to our
definitive proxy statement which will be filed within 120 days after the end of
our fiscal year pursuant to Regulation 14A.


ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K

            REPORTS ON FORM 8-K

                  1.       Report on Form 8-K dated September 19, 2002
                           concerning changes in our Board of Directors.
                  2.       Report on Form 8-K dated February 25, 2002 concerning
                           changes in executive management.

            EXHIBITS

            EXHIBIT
                NO.              DESCRIPTION OF EXHIBITS
         ----------------------------------------------------

               3.1            Restated Articles of Incorporation, as amended (1)
               3.2            Bylaws (1)
               3.3            Amended and Restated Bylaws, effective February
                              26, 2002 (12)
               4.1            Form of certificate representing the Common Stock
                              (1)
               10.1           Lease (for Office and Manufacturing Facilities),
                              dated September 11, 1986, Letter Agreement and
                              Amendment No. 1 to lease dated July 10, 1992, and
                              Amendment No. 2 to Lease (1)
               10.2           Agreements with Dennis R. Johnson regarding
                              employment (1)
               10.3           Agreements with William P. Flies regarding
                              employment (1)
               10.4           1991 Long-Term Incentive and Stock Option Plan, as
                              amended by the Board of Directors in May 1997
                              subject to ratification by the shareholders
               10.5           Purchase Agreement with Ryder Dedicated Logistics,
                              Inc. dated December 31, 1994, with supplemental
                              agreement dated September 1, 1995 (2)
               10.7           Lease dated December 26, 1996 with Hoyt
                              Properties, Inc. for new corporate



                                       25

<PAGE>

                              headquarters (3)
               10.8           Letter of Agreement with William Callahan
                              regarding compensation (4)
               10.9           Credit Agreement with Norwest Business Credit,
                              Inc., dated October 23, 1998 and Amendments dated
                              November 30, 1998 and January 8, 1999 (5)
               10.10          Master Security Agreement and Promissory Note with
                              GE Capital Corporation Commercial Asset Funding,
                              dated August 6, 1998 (5)
               10.11          Separation Agreement with Dennis R. Johnson (6)
               10.12          Separation Agreement with William Callahan (6)
               10.13          Amendment to Credit Agreement with Norwest Bank
                              dated December 1, 1999 (6)
               10.14          Sublease Agreement with Kavoras, Inc. dated
                              September 1, 1999 (6)
               10.15          Stock Purchase Agreement with JDSTG, dated August
                              30, 2000 (7)
               10.16          Registration Rights Agreement with JDSTG dated
                              August 30, 2000 (7)
               10.17          Amendment No. 1, dated October 31, 2000, to Stock
                              Purchase Agreement with JDSTG (9)
               10.18          Side Agreement with JDSTG dated December 28, 2000
                              (8)
               10.19          Employment Agreement dated October 1, 2000 with
                              William P. Flies, Chief Executive Officer (10)
               10.20          Employment Agreement dated January 15, 2001 with
                              John G. Lewis, Chief Financial Officer (10)
               10.21          Employment Agreement dated October 1, 2000 with
                              Thomas N. Flies, Senior Vice President of Product
                              Development (10)
               10.22          Employment Agreement dated October 1, 2000 with
                              Joel G. Jorgenson, Senior Vice President of Sales
                              (10)
               10.23          Employment Agreement dated February 5, 2001 with
                              J. Perry McGahan, Vice President of Software
                              Engineering (11)
               10.24          Employment Agreement dated February 20, 2002 with
                              Craig S. Fawcett, Chief Executive Officer (12)
               10.25          Financing Agreement and Revolving Note with Itasca
                              Business Credit, Inc. dated December 23, 2002 *
               10.26          Form of Warrant issued to directors as equity
                              compensation * (14)
               23             Consent of Grant Thornton LLP, independent
                              certified public accountants *
               99.1           Fiscal Year 2002 Definitive Proxy Materials
                              (portions of which are incorporated herein by
                              reference) (12)
               99.2           Certification pursuant to 18 U.S.C. Section 1350,
                              as adopted pursuant to Section 906 of the
                              Sarbanes-Oxley Act of 2002 *
               99.3           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 a part of
               Registration Statement on Form S-2 (Commission File No.
               33-98932).

(2)            Incorporated by reference to exhibit filed as a part of Report on
               Form 10-QSB for the fiscal quarter ended March 31, 1995. Certain
               segments have been granted confidential treatment.

(3)            Incorporated by reference to exhibit filed as a part of Report on
               Form 10-QSB for the fiscal quarter ended March 31, 1997.

(4)            Incorporated by reference to exhibit filed as a part of Report on
               Form 10-KSB for fiscal year ended



                                       26

<PAGE>

               September 30, 1997.

(5)            Incorporated by reference to exhibit filed as a part of Report on
               Form 10-KSB for fiscal year ended September 30, 1998.

(6)            Incorporated by reference to exhibit filed as a part of Report on
               Form 10-KSB for fiscal year ended September 30, 1999.

(7)            Incorporated by reference to exhibit filed as a part of Report on
               Form 8-K on September 7, 2000.

(8)            Incorporated by reference to exhibit filed as a part of Report on
               Form 10-KSB for the fiscal year ended September 30, 2000.

(9)            Incorporated by reference to exhibit filed as a part of Report on
               Form 8-K on November 2, 2000.

(10)           Incorporated by reference to exhibit filed as part of Report on
               Form 10-QSB for the fiscal quarter ended December 31, 2000.

(11)           Incorporated by reference to exhibit files as part of Report on
               Form 10-QSB for the fiscal quarter ended March 31, 2001.

(12)           Incorporated by reference to exhibit files as part of Report on
               Form 10-QSB for the fiscal quarter ended March 31, 2002.

(13)           To be filed in definitive form not later than January 28, 2003.

(14)           Warrants substantially identical to the warrant filed as Exhibit
               10.26 have been issued as follows:

<TABLE>
<CAPTION>
         Holder                       Date of Issuance     Exercise Price       Number of Shares
         ------                       ----------------     --------------       ----------------
<S>                                   <C>                  <C>                    <C>
         Edward Michalek                  11/18/97            $5.25                  6,000
         Roger Kleppe                     12/11/98             1.23                  8,049
         Carl Fredericks                  12/11/98             1.23                  8,049
         Stephen Lawrence                 12/11/98             1.23                  8,049
         Roger Kleppe                     2/17/99              1.80                  2,777
         Carl Fredericks                  2/17/99              1.80                  2,777
         Stephen Lawrence                 2/17/99              1.80                  2,777
         Richard Bogen                    5/14/00              4.50                  5,000
         Stephen Lawrence                 9/17/01              3.69                 10,000
</TABLE>


ITEM 14.  CONTROLS AND PROCEDURES

     EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company's chief
     executive officer and chief financial officer (collectively, the
     "Certifying Officers") are responsible for establishing and maintaining
     disclosure controls and procedures for the Company. Such officers have
     concluded that the Company's disclosure controls and procedures (as defined
     in Exchange Act Rule 13a-14(c)) are sufficiently effective to ensure that
     the information required to be disclosed by the Company in this report is
     gathered, analyzed and disclosed with adequate timeliness, accuracy and
     completeness, based on an evaluation of such controls and procedures
     conducted within 90 days prior to the date hereof.

     CHANGES IN INTERNAL CONTROLS. The Certifying Officers also have indicated
     that there have been no significant changes in the Company's internal
     controls or in other factors that could significantly affect such controls
     subsequent to the date of their evaluation and there were no corrective
     actions with regard to significant deficiencies and material weaknesses.



                                       27
<PAGE>


                                   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 27, 2002              By:      /s/ Craig S. Fawcett
                                            ------------------------------------
                                            Craig S. Fawcett, President and
                                            Chief Executive Officer
                                            (Principal executive officer)

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.


Dated:  December 27, 2002              By:      /s/ Richard L. Bogen
                                            ------------------------------------
                                            Richard L. Bogen, Director


Dated:  December 27, 2002              By:      /s/ Craig S. Fawcett
                                            ------------------------------------
                                            Craig S. Fawcett, Director


Dated:  December 27, 2002              By:      /s/ William P. Flies
                                            ------------------------------------
                                            William P. Flies, Director
                                            (Chairman), Chief Technology Officer

Dated:  December 27, 2002              By:      /s/ Carl M. Fredericks
                                            ------------------------------------
                                            Carl M. Fredericks, Director


Dated:  December 27, 2002              By:      /s/ James E. Heerin
                                            ------------------------------------
                                            James E. Heerin, Director


Dated:  December 27, 2002              By:      /s/ Roger W. Kleppe
                                            ------------------------------------
                                            Roger W. Kleppe, Director


Dated:  December 27, 2002              By:      /s/ Stephen A. Lawrence
                                            ------------------------------------
                                            Stephen A. Lawrence, Director


Dated:  December 27, 2002              By:      /s/ John G. Lewis
                                            ------------------------------------
                                            John G. Lewis, Chief Financial
                                            Officer (Principal  accounting and
                                            financial officer)

Dated:                                 By:
                                            ------------------------------------
                                            David M. Purvis, Director


Dated:  December 27, 2002              By:      /s/ Charles R. Stamp, Jr.
                                            ------------------------------------
                                            Charles R. Stamp, Jr., Director






<PAGE>
                                  CERTIFICATION

I, Craig S. Fawcett, certify that:

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

2.       Based on my knowledge, this annual 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 annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly represent 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 annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)       Designed such disclosure controls and procedures 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 annual report is being prepared;

         b)       Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       Presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors:

         a)       All significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

December 27, 2002


Signature:    /s/ Craig S. Fawcett
              -----------------------------------
Name:         Craig S. Fawcett
              -----------------------------------
Print Title:  Chief Executive Officer
              -----------------------------------



<PAGE>
                                  CERTIFICATION

I, John G. Lewis, certify that:

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

2.       Based on my knowledge, this annual 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 annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly represent 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 annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)       Designed such disclosure controls and procedures 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 annual report is being prepared;

         b)       Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       Presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors:

         a)       All significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.


December 27, 2002


Signature:    /s/ John G. Lewis
              ----------------------------------
Name:         John G. Lewis
              ----------------------------------
Print Title:  Chief Financial Officer
              ----------------------------------



<PAGE>
INDEX TO EXHIBITS


INDEX
NUMBER     DESCRIPTION
--------------------------------------------------------------------------------


10.25      Financing Agreement and Revolving Note with Itasca Business
           Credit, Inc.

10.26      Form of Warrant for purchase of common stock issued to directors
           of the Company

23         Consent of Grant Thornton LLP

99.2       Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002

99.3       Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
           to Section 906 of the Sarbanes-Oxley Act of 2002