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                                   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, 2003

[ ]      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. [ ]

State issuer's revenues for its most recent fiscal year: $ 11,350,000

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The aggregate market value of the voting stock held by non-affiliates of the
registrant was $10,055,000 as of December 15, 2003, 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 6,977,381 shares of the registrant's Common Stock issued and
outstanding as of December 15, 2003.

                       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
February 17, 2004 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 15, 2004. In addition, there are incorporated by reference in this
Report certain previously filed exhibits identified in Part III, Item 13.

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                                TABLE OF CONTENTS

<TABLE>
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PART I

Item 1.    Description of Business                                                    1

Item 2.    Description of Property                                                   16

Item 3.    Legal Proceedings                                                         16

Item 4.    Submission of Matters to a Vote of Security Holders                       16

PART II

Item 5.    Market for Common Equity and Related Stockholder Matters                  17

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                            24

Item 13.   Exhibits and Reports on Form 8-K                                          24

Item 14.   Controls and Procedures                                                   28

Item 15.   Principal Accountant Fees and Services                                    28

SIGNATURES
</TABLE>

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                           FORWARD LOOKING STATEMENTS

This document includes forward-looking statements based on current expectations.
Actual results may differ materially. These forward-looking statements involve a
number of risks and uncertainties about us, our business, our customers, 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 this expected time frame.

     -   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.

     -   We have made certain volume purchase commitments for satellite
         communication services that may exceed our customer demand
         requirements.

     -   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 onboard fleet management systems for the private
fleet trucking market. Our products seamlessly combine global positioning,
wireless communications and fleet management software to provide an enterprise
fleet management system for many of North America's largest trucking fleets.

Our systems provide mobile two-way messaging and real-time vehicle location.
Additionally, our products automate Department of Transportation (DOT) driver
log requirements and state fuel tax reporting, as well as collect data for
vehicle diagnostics, driver performance and mileage. Our proven solutions enable
our customers to reduce fuel costs, increase operational efficiencies, improve
safety and enhance customer service.

Our products are powerful, advanced, yet user-friendly computer systems used by
manufacturing, distribution, hazardous chemical and other operators of trucking
fleets. Our 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
managers to measure fleet performance, resolve exception conditions, monitor

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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.

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

Our systems have been installed in over 30,000 commercial trucks at over 1,000
customer locations. Our customers include Fortune 500 companies and other large
organizations, including Allegiance Healthcare Corporation, Baxter Healthcare
Corporation, Bi-Lo, LLC, The BOC Group plc, Coca-Cola Enterprises, Inc., CVS
Pharmacy, 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 Worldwide, Inc., United
Natural Foods, Inc., 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
bring our Web-based XATANET solution to market, as well as 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 large private trucking fleets, we believe that there is significant
growth potential for our next-generation Web-based XATANET 2.0 solution, which
we began shipping in fiscal 2003.

Our products perform the following functions to enable fleet operators to
control costs and maximize vehicle and driver performance:

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

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

         -  Comprehensive vehicle and driver performance reporting.

         -  Efficient routing, trip optimization and stop activity scheduling.

         -  Diagnostic and accident data capture.

In early fiscal 2003, we announced our new XATANET 2.0 Web-based fleet
management system utilizing the satellite communication network of ORBCOMM LLC,
and began unit shipments in our second fiscal quarter of 2003. 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 application packages 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 because we
host the central management system over the Web, enabling our customers to avoid


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a complicated host system implementation. In addition, many of the XATANET
applications do not require driver involvement, which eliminates driver training
and improves data integrity.

We market our products to operators of 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. Private fleets (our current market focus) 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 have
recently established distribution relationships with 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 2003 we secured two new distribution partners, Penske Truck Leasing Co., L.P.
(a partnership of Penske Corporation and GE Capital) and NationaLease (National
Truck Leasing System). Under our agreement with Penske, we expect Penske to
integrate XATANET 2.0 into its full-service lease option and to make it
available to a large portion of its substantial customer base. NationaLease will
also offer XATANET to its large base of lease customers in a joint go-to-market
strategy with us. As we continue to evolve the XATANET system, we anticipate
that offering our product through major truck leasing companies and other new
distribution channels will drive substantial additional sales.

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,
Deere has provided debt financing and made two equity investments in XATA and
now owns approximately 25% of our company.

In December 2003, Trident Capital invested approximately $4.2 million in our
company by acquiring 1,612,903 shares of convertible preferred stock. On an
as-converted basis, Trident now owns approximately 19% of our company (the
details of this transaction is further disclosed in Part II, Item 5). Trident, a
private equity firm with more than $1.2 billion under management, focuses on
investments in the information services and enterprise software sectors. The
additional capital will allow us to continue expanding our product development,
distribution and marketing efforts while offering a strong endorsement of our
plans for future growth.

We continue to emphasize product development focused on open, modular
information solutions. We continue to migrate the applications originally
developed for our OpCenter system to our new XATANET Web-based platform. Our
product development initiatives generally adhere to the following principles:

     -   develop Web-, Windows- 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;

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     -   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 that
do not require significant installation time or employee training.

THE TRUCKING INDUSTRY

Commercial trucking fleets are characterized by considerable investment in
equipment, high operating costs, significant annual mileage per vehicle and
extensive federal and state compliance reporting requirements. Costs for
equipment, 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
reduce operating costs. We believe there is, and will continue to be,
significant demand in the trucking industry for onboard fleet management
systems, 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 continue to impact the private fleet trucking
industry and result in increasing competitive pressures and demand for mobile
information technology:

         -  New technologies: Historical barriers to purchase are diminishing
            with the affordability, simplicity and acceptance of new wireless
            communication and internet technologies.

         -  Increased operating costs: As the public has become increasingly
            concerned about the safety of large trucks, legislators have
            proposed laws 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 control costs and more effectively manage their fleets.

         -  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.

         -  Government regulations: Increasing government regulations have
            tightened DOT driver log requirements. We believe computer generated
            driver logs may eventually be mandated by federal or state
            governments.

         -  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 adopting technology to comply with the operating
            processes and systems of their customers. This trend encourages
            integration of onboard computers with the host information systems
            of trucking companies.

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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 may
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.

TARGET MARKETS

There are approximately 7.4 million commercial trucks operating in the United
States, of which 6 million are operated by private fleets and 1.4 million are
operated by for-hire carriers. While most of our current customers fall into a
portion of the private fleet category, we believe that our new 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 a host system implementation. As a result,
we target our OpCenter solution to private fleets that operate over 30
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 a much larger portion of the private fleet sector, including smaller
fleets and additional vertical markets. Specifically, smaller fleets are able to
purchase individual XATANET software application packages 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, with
particular emphasis on fleets operating the approximately 3.5 million heavy duty
trucks.

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.

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Other Markets

We believe our new XATANET system can be introduced successfully into other
markets because of its open system architecture. For example, we believe that
with modest modifications our XATANET applications could be marketed
successfully in the agricultural market, the 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 onboard fleet management systems to the private
fleet truck operators 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 currently focus our sales and marketing efforts on transportation and
logistics companies operating fleets of 30 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, retail/wholesale delivery, and the United States
Postal Service.

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. Our early sales cycle experience with our newer XATANET system
has been approximately two to six months, due to its simpler Web-based
architecture and our focus towards smaller fleet centers. Customers often
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 have recently established distribution relationships with two leading truck
leasing companies to provide an important new sales channel for our new XATANET
product to more easily penetrate the small and mid-size private fleets that our
direct sales force cannot address in a cost-effective manner. Under our
agreement with Penske, we expect Penske to integrate XATANET 2.0 into its
full-service lease option and to make it available to a large portion of its
substantial customer base. NationaLease will also offer XATANET to its large
base of lease customers in a joint go-to-market strategy with us. As we continue
to evolve the XATANET system, we anticipate that offering our product through
major truck leasing companies and other new distribution channels will drive
substantial additional sales.

COMPETITION

Our traditional competition for our OpCenter system has included onboard system
providers such as Cadec Corporation, Traxis, Inc. and Tripmaster Corporation.
These companies provide hardware and software that connect to the truck and

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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 because the satellite networks utilized
required complex, expensive equipment and high airtime charges. 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 few 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. They have focused on
adding fleet management applications to their communication capabilities. Fleet
managers require such applications to reduce operating costs, 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.

Relatively new entrants into the market include 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 to enhance the system's functionality. Traditionally,
fleets have been forced to buy a complete package. XATANET has an advantage due
to its scalable, Web-based architecture, satellite coverage and 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,

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including others who we may consider to be competitors in one or more lines of
our business.

OUR PRODUCTS AND SERVICES

XATANET Fleet Management System

Our newest product line, XATANET, is the evolution of our most successful
software applications to a Java and Internet based architecture. XATANET allows
our customers to install only the specific application packages initially
desired 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.

The XATANET system consists of the following components:

         -  XATANET Mobile - An onboard 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 mobile computing and communication
            device.

         -  XATANET Gateway - A PC-based system that is located at fleet
            specified sites to exchange data with drivers and vehicles that
            choose to utilize yard-based 802.11b wireless communication
            capability. The XATANET Gateway connects to yard antennas 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.

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

A typical XATANET customer purchases a XATA Application Module with micro
display for each vehicle, and enters into a 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.

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OpCenter(TM) Fleet Management System

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

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 incorporates the ORBCOMM satellite, Cingular Mobitex or 802.11b
spread spectrum wireless communications. The 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.

XATA Application Module

The XATA Application Module is our latest generation mobile computing and
communication platform for both our OpCenter 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 802.11b 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 and our OpCenter 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


                                        9

<PAGE>

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 including training and support of ongoing operations.
Our XATAServ program is in addition to the limited hardware 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 has provided XATA exclusivity versus key competitors as well as
favorable pricing. XATA believes that ORBCOMM's LEO service provides the same
full-coverage service with greater data throughput than the leading
geo-synchronous earth orbit (GEO) satellite service at a much lower up-front
cost. The agreed upon subscription pricing is cost competitive with inferior
terrestrial wireless service, which typically has sporadic coverage concentrated
in high population regions.

Penske Truck Leasing

In April 2003, we entered into an agreement with Penske Truck Leasing Co., L.P.
(a partnership of Penske Corporation and GE Capital) under which we provide
Penske a private labeled version of our XATANET web-based fleet management
system, wireless communication services, managed hosting services and technical
support. Penske is integrating the private labeled XATANET system as an option
to its full-service truck lease package and plans to make it available to a
large portion of its customer base beginning in 2004. In total, Penske Truck
Leasing has approximately 200,000 vehicles under management.

NationaLease

In March 2003, we entered into a relationship with NationaLease Purchasing
Corporation, an affiliate of National Truck Leasing System, whereby NationaLease
will offer XATANET to its truck leasing customers in a joint go-to-market
strategy with us. NationaLease is a consortium of approximately 120 independent
truck leasing companies with a total fleet of 65,000 vehicles.

                                       10

<PAGE>

MAJOR CUSTOMERS

Sales to The Kroger Company accounted for approximately 17% of fiscal 2003
revenue. McLane Company accounted for 26% of fiscal 2002 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 Corporation, a
subsidiary of Deere & Company. John Deere Special Technologies Group, Inc., our
largest shareholder, is also 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 severe 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 was approximately $1.88 million in fiscal 2003 and $2.16
million for fiscal 2002. No software development costs were capitalized in
either fiscal 2003 or fiscal 2002.

EMPLOYEES

As of September 30, 2003, our staff included 59 employees and 5 independent
contractors whose primary assignments are approximately as follows: 21 in
product design, development and testing; 12 in sales and marketing; 18 in
customer support; 10 in administrative, finance and IS; and 3 in purchasing and
warehousing.

                                       11

<PAGE>

EXECUTIVE OFFICERS

Craig S. Fawcett, President & Chief Executive Officer, Director

Mr. Fawcett, age 37, has been President and Chief Executive Officer since
joining XATA in February 2002. He is a graduate of Harvard Business School with
an MBA and has a Bachelor of Science degree in Engineering from Ohio State
University. Before joining XATA, Mr. Fawcett was Vice President of the Global
Agriculture Division of Deere & Company where he held numerous leadership
positions involving mergers and acquisitions, operations, special technologies,
business development, and served on several boards of Deere-owned technology
companies. Prior to that, he was a strategic management consultant for Arthur
Andersen (now Accenture), where he led a series of international technology
project engagements for Global-1000 clients.

John G. Lewis, Chief Financial Officer, Secretary

Mr. Lewis, age 38, joined XATA in January 2001 as Chief Financial Officer.
Before joining XATA, Mr. Lewis was Chief Financial Officer of St. Paul-based
PrimeYield Systems, Inc., a manufacturer of high-performance semiconductor test
devices, where he managed the sale of the company to a strategic buyer and
directed the post-sale integration process. Prior to that, Mr. Lewis was
President of a Minneapolis-based manufacturing company, which he merged into a
larger competitor and managed the post-merger integration. Mr. Lewis began his
career with Price Waterhouse as a Senior Consultant in the Strategy
Implementation Group in Newport Beach, Ca. He is the Managing Member of Legend
Holdings, LLC, a real estate holding company, and a member of the Twin Cities
Chapter of Financial Executives International. Mr. Lewis has an MBA from the J.
L. Kellogg Graduate School of Management at Northwestern University and a
Bachelor of Science degree in Engineering from Northwestern University.

Thomas N. Flies, Vice President - Business Development

Mr. Flies, age 34, leads our business development group with focus on
introducing our new XATANET system to truck leasing companies and truck
manufacturers, and also serves as Product Manager for XATANET. Mr. Flies joined
XATA 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, founder
of XATA and currently a director on our board.

J. Perry McGahan, Vice President - Product Development

Mr. McGahan, age 45, joined XATA in 2001 as Vice President - Software
Engineering, and was promoted to Vice President - Product Development in 2003.
Prior to XATA, Mr. McGahan was a project manager and software architect for the
Global Vehicle Communication (GVC) group in Deere & Company where he managed
several wireless communication and Web-based data management software projects.
As a former Maryland-based consultant with RWD Technologies and AmDyne
Corporation, Mr. McGahan was technical lead for Deere's Wireless Link
Communication Server project (WLCS), and a senior engineer for Deere's
Application Information Management System (AIMS) and AmDyne's Gecko unmanned
ground vehicle project. Mr. McGahan is a graduate of the University of Maryland
with a Bachelor of Science degree in Computer Science.

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 our 2001 and 2002 fiscal years, we
incurred net

                                       12

<PAGE>

losses of $2.21 million and $4.15 million respectively due to increased product
development, operating and amortization expenses. In the fiscal year ended
September 30, 2003 we incurred a net loss of $3.78 million due to lower net
sales and continued high product development and amortization 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, 2003, ten customers, together, accounted for approximately
54% 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
has historically been up to a year or longer. The length of the sales cycle may
result in quarter-to-quarter fluctuations in revenue. Our systems are
technically complex, which means the customer has to make an advance budget
decision. The availability of new and other technologies also complicates and
delays buying decisions.

WE HAVE 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 to
establish strategic alliances with other companies who may be competitors.

WE HAVE A LIMITED NUMBER OF PRODUCTS AND THOSE PRODUCTS ARE CONCENTRATED IN ONE
INDUSTRY. Although our systems have potential applications in a number of
industries, to date we have targeted only the private fleet trucking segment of
the transportation industry. If this market segment experiences a downturn that
decreases our sales, the development of new applications and markets could take
several months or longer, and could require substantial funding. In addition,
our future success is dependent in part on developing and marketing new software
applications. We cannot assure that new applications can be successfully
developed or marketed in a timely manner.

OUR TARGET MARKET IS HIGHLY CYCLICAL. The fleet trucking segment of the
transportation industry is subject to fluctuations and business cycles. We
cannot predict to what extent these business cycles may result in increases or
decreases in capital purchases by fleet managers. A significant downturn in the
prospects of the fleet trucking segment of the transportation industry could
have a material, adverse affect on us.

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

                                       13

<PAGE>

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.

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 AND TRIDENT CAPITAL, WHO ARE REPRESENTED ON OUR BOARD OF DIRECTORS, AND
THE COMPANY'S FOUNDER, WHO IS ALSO A DIRECTOR, INDIVIDUALLY AND TOGETHER OWN
ENOUGH STOCK TO EXERT SIGNIFICANT INFLUENCE OVER XATA. As of December 15, 2003,
JDSTG, Trident Capital and William P. Flies, our founder, owned approximately
25%, 19% and 11%, respectively, of our Common Stock on an as-converted basis,
and Trident has the ability to increase its ownership significantly through
exercising warrants. In addition, JDSTG is entitled to name up to three
representatives to our Board of Directors and Trident is entitled to name up to
two representatives. Trident is entitled to vote its Preferred Stock as if

                                       14

<PAGE>

converted to Common Stock and to vote as a separate class (to the exclusion of
the holders of Common Stock) on the election of its two director nominees. Both
JDSTG and Trident benefit from certain restrictive covenants of XATA in
connection with their equity investments in the Company. The combination of
stock ownership and Board of Director representation enables these persons,
individually and together, to a greater degree, to exercise significant
influence over the Company. Mr. Flies and JDSTG have granted a right of first
refusal on the sale of their shares to Trident.

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 recent investment by Trident Capital 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. 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 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
25,000,000 shares of common stock, of which 6,977,381 shares were issued and
outstanding as of December 15, 2003. 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 5,000,000 shares of preferred
stock, of which 1,612,903 shares were issued and outstanding as of December 15,
2003. The Board of Directors can issue additional preferred stock in one or more
series and fix the terms of such stock without shareholder approval. Preferred
stock may include the right to vote as a series on particular matters,
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. The issuance of preferred stock could adversely
affect the rights of the holders of common stock and reduce the value of the
common stock. In addition, specific rights granted to holders of preferred stock
could be used to restrict our ability to merge with or sell our assets to a
third party.

OUR DIRECTORS' LIABILITY IS LIMITED UNDER MINNESOTA LAW AND UNDER CERTAIN
AGREEMENTS. Our Articles of Incorporation, as amended and restated, state that
our directors are not liable for monetary damages for breach of fiduciary duty,
except for a breach of the duty of loyalty, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, for
dividend payments or stock repurchases illegal under Minnesota law or for any
transaction in which the director derived an improper personal benefit. In
addition, our bylaws provide that we shall indemnify our officers and directors
to the

                                       15

<PAGE>

fullest extent permitted by Minnesota law for all expenses incurred in the
settlement of any actions against them in connection with their service as
officers or directors of the Company. In addition, we have entered into
indemnification agreements with the Trident investors and its representatives
who serve as directors on our Board which may supplement the indemnification
provisions available to them under Minnesota law.

ANTI-TAKEOVER PROVISIONS. Minnesota law provides Minnesota corporations with
anti-takeover protections. These protective provisions could delay or prevent a
change in control of our company by requiring shareholder approval of
significant acquisitions of our voting stock. These provisions operate even when
many shareholders may think a takeover would be in their best interests.

ITEM 2. DESCRIPTION OF PROPERTY

On April 4, 1997, we leased 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. In May, 2003 we extended this lease through November 2006.
Effective with this extension, our leased space was reduced to the 20,588 square
feet that we initially occupied, and our base rent was reduced to $12,541 per
month. 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.

                                       16

<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 2002 and 2003.

<TABLE>
<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>

<TABLE>
<CAPTION>
                                        SALE PRICE
                                        ----------
FISCAL YEAR 2003                      LOW        HIGH
                                      ---        ----
<S>                                 <C>         <C>
First Quarter                       $ 2.920     $ 4.110
Second Quarter                        2.680       3.540
Third Quarter                         3.010       4.250
Fourth Quarter                        2.200       3.340
</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 approximately 1,500.

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.

On December 6, 2003, we issued 1,612,903 shares of Series B Preferred Stock
which pays an annual cumulative dividend of 4% of the original issue price
(payable in additional shares of Preferred Stock rather than cash, at the option
of the holders). The Series B Preferred Stock provides that we cannot pay
dividends to the holders of any other capital stock unless and until we have
paid dividends accrued on the Series B Preferred Stock.

RECENT SALE OF UNREGISTERED SECURITIES

On December 6, 2003, we entered into a Common Stock Warrant and Series B
Preferred Stock Purchase Agreement (the "Stock Purchase Agreement") with the
following entities associated with Trident Capital, Inc. (collectively
"Trident"):

     -   Trident Capital Fund-V, L.P.

                                       17

<PAGE>

     -   Trident Capital Fund-V Affiliates Fund, L.P.

     -   Trident Capital Fund-V Affiliates Fund (Q), L.P.

     -   Trident Capital Fund-V Principals Fund, L.P.

     -   Trident Capital Fund-V, C.V.

Under the Stock Purchase Agreement, Trident purchased 1,612,903 shares of Series
B Preferred Stock for $4,096,774, or $2.54 per share. Each share of the
Preferred Stock is convertible into one share of our Common Stock. The price per
share of Preferred Stock and the conversion price for the Common Stock is equal
to the "market value" of the Common Stock (as defined in the rules of the Nasdaq
Stock Market) on the date of execution of the definitive agreements. The
Preferred Stock pays an annual cumulative dividend of 4% of the original issue
price (payable in additional shares of Preferred Stock rather than cash, at the
option of the holders) and has a non-participating preferred liquidation right
equal to the original issue price, plus accrued unpaid dividends.

The Preferred Stock is redeemable at the option of Trident at 100% of the
original purchase price plus accrued and unpaid dividends at any time after five
years from the date of issuance, or at any time if there is a significant
adverse judgment against us, we default on our debts or file for bankruptcy, or
in the event of a change of control. We may redeem the Preferred Stock at our
option after five years from the date of issuance if the market price of our
Common Stock is greater than three times the conversion price on each of the
sixty consecutive days prior to the redemption date.

Additionally, we issued Trident 5-year warrants to purchase 451,226 shares of
its Common Stock at an exercise price of $3.17 per share. The aggregate purchase
price of the warrants was $56,403. The warrants permit "cashless exercise."

Under the Stock Purchase Agreement, we must file a Registration Statement on
Form S-3 no later than February 4, 2004 to register the resale, from time to
time, of the Common Stock to be issued pursuant to conversion of the Preferred
Stock and exercise of the warrants, and a reasonable estimate of any Common
Stock to be issued as dividends on the Preferred Stock.

Cherry Tree Securities, LLC acted as placement agent in consideration of a
$320,000 cash fee and 7-year warrants for purchase of an aggregate of 163,265
shares of common stock (130,612 shares at $2.54 per share and 32,653 shares at
$3.17 per share). These warrants permit "cashless exercise" and provide the
holders with piggyback registration rights.

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.

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.

On December 10, 2003, three directors of the company exercised warrants for the
purchase of an aggregate of 20,139 shares of Common Stock. These warrants were
issued in December 1998 for service as directors.

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. A Form D was filed with respect to the Trident investment.

                                       18

<PAGE>

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, and from application service contracts. We recognize revenue
for hardware and software revenue, in accordance with Statement of Position 97-2
and Securities and Exchange Commission Staff Accounting Bulletin 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, we recognize revenue for completed systems held at our warehouse
pending the receipt of delivery instructions from the customer. We defer
recognition of revenue on products sold in conjunction with application service
contracts, as discussed below.

Many of our customers purchase software 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. When
invoiced in advance, fees for professional services are recognized as they are
performed.

Application service revenue, which is composed of monthly fees, is recognized
ratably over the minimum service contract period, which commences upon the
activation of the mobile application module. When system products are sold in
conjunction with an application service contract, we defer the product revenue
and associated production costs, and recognize both ratably over the minimum
service contract term (generally one to five years) rather than upon shipment of
the product. Our application service revenue relates to sales of our XATANET
fleet management system, a new product with which we have limited market
experience. Once we gain additional experience with this product, it is possible
that we may conclude it to be appropriate to recognize product revenue and
associated product costs over a term that is longer than the minimum service
contract term. Because we expect the proportion of sales treated under this
policy, including sales of XATANET, to increase relative to sales of other
products, we expect deferred revenue to increase over time. This will have the
effect of delaying revenue recognition of XATANET system sales to future
periods, and thus will lower the amount of revenue recognized in earlier
periods.

Capitalized software development costs. We capitalize software development costs
incurred after establishing technological feasibility. These costs are later
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

                                       19

<PAGE>

anticipated future gross revenues or the straight-line method over the estimated
economic life of the product. Capitalization of software development costs has
the effect of reducing operating costs and increasing reported profitability in
the period in which such costs occur. Amortization of these costs increases cost
of goods sold in the periods over which such amortization takes place, thus
decreasing reported profitability in those periods. We are currently amortizing
previously capitalized software development costs, which increased our reported
net loss in the current period.

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 the assets, including cash flows
from disposition. If the sum of the expected future cash flows is less than the
carrying value, we will recognize an impairment loss equal to the amount by
which the carrying value exceeds the fair value of the long-lived assets.

Research and development costs. We charge expenditures for research and
development activities to operations as incurred. If we expend funds on the
development of software, including software development salaries, for projects
or products that we deem to have achieved technological feasibility, such costs
would be capitalized, which would have the effect of reducing research and
development costs in the current period.

RESULTS OF OPERATIONS FOR THE YEARS ENDING SEPTEMBER 30, 2003 AND 2002

Net Sales. Our net sales decreased 13.9% to $11.35 million in fiscal 2003
compared to $13.18 million in fiscal 2002. Revenue from system sales fell to
$9.67 million in 2003 from $11.75 million in 2002, a decrease of 17.7%. Service
and other revenue increased slightly to $1.68 million in 2003 from $1.43 million
in 2002. We attribute the decline in revenue in fiscal 2003 to the depressed
demand for technology products resulting from difficult economic conditions.
This primarily impacted us in the second quarter of fiscal 2003.

Cost of Goods Sold. Total cost of goods sold was $8.53 million, or 75% of net
sales, in fiscal 2003 compared to $9.31 million, or 71% of net sales, in fiscal
2002. 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 fixed, non-cash expense component of cost of goods sold,
decreased to $1.42 million in 2003 from $1.86 million in 2002, as the
capitalized development costs for certain products became fully amortized. Cost
of goods sold also included a one-time, non-cash impairment charge of $49,000 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.

Operating Expenses. Operating expenses include research and development
expenses, as well as selling, general and administrative expenses. Total
operating expenses were $6.54 million, or 58% of net sales, in fiscal 2003
compared to $7.39 million, or 56% of net sales, in fiscal 2002. The reduced
operating expense was due to decreases in both research and development expenses
as well as selling, general and administrative expenses.

Research and development expenses were $1.88 million in fiscal 2003 compared to
$2.16 million in fiscal 2002. 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 each product is determined based upon its
anticipated future net revenues. In fiscal 2003 and 2002, no software
development costs were capitalized because the expenditures were on products
that had not fully attained technological feasibility. We anticipate that total
expenditures for

                                       20

<PAGE>

research and development in fiscal 2004 will exceed the fiscal 2003 research and
development expenditures.

Selling, general and administrative expenses were $4.67 million in fiscal 2003
compared to $5.23 million in fiscal 2002, a decrease of approximately $560,000.
This decrease was primarily due to lower selling expenses and a reduction in
overall salary expense. As a percentage of net sales, these expenses increased
to 41% in fiscal 2003 from 40% in fiscal 2002 due to our decrease in net sales.

Non-operating Income (Expense). Interest income totaled $7,000 in fiscal 2003
compared to $37,000 for fiscal 2002. The decrease in interest income in the
current year was due to a reduced cash balance and lower investment interest
rates. Interest expense was $78,000 in fiscal 2003 compared to $69,000 in fiscal
2002. The higher interest expense in fiscal 2003 was the result of slightly
higher bank credit line borrowings during the year.

Income Taxes. No income tax benefit or expense was recorded in fiscal 2003.
Income tax expense of $600,000 was recorded in fiscal 2002 in connection with
the increase of the valuation allowance of the deferred tax assets. 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 increase in the
allowance was appropriate. Realization of deferred tax assets is dependent on
future taxable income during the periods when deductible temporary differences
and carryforwards are expected to be available to reduce taxable income. The
amount of the net deferred tax asset considered realizable could be increased in
the future if we return to profitability and actual future taxable income is
higher than currently estimated. At September 30, 2003, we had federal net
operating loss carryforwards of approximately $16.10 million. See Note 5 to the
financial statements.

Net Loss. We incurred a net loss in fiscal 2003 of $3.78 million compared to a
net loss of $4.15 million in fiscal 2002. The decrease in net loss was due to
reduced research and development expenditures, lower selling, general and
administrative expenses, and no additional valuation allowance on deferred tax
assets, offset by decreased net sales and a higher percentage cost of sales.

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 2004.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at the end of fiscal 2003 totaled $768,000 compared to working
capital of $2.94 million at the end of fiscal 2002. The $2.17 million decrease
in working capital was due to the fiscal 2003 net loss, reduction in long-term
debt and equipment purchases, partially offset by non-cash amortization and
depreciation.

Net cash used in operating activities during fiscal 2003 was $950,000, resulting
primarily from the $3.78 million net loss for the fiscal year, an increase in
accounts receivable of $494,000 and increased prepaid expenses and deferred
product costs of $317,000. These uses of cash were partially offset by
amortization and depreciation expense totaling $1.67 million, a decrease in
inventory of $251,000, an increase in accounts payables of $540,000, and a $1.16
million increase in accrued expenses and deferred revenue. We reduced our
allowance for doubtful accounts in both fiscal 2003 and fiscal 2002 because of
improved management of customer collections and decreased occurrence of bad
debts. We anticipate that future growth of our business will result in increases
in accounts receivable, accounts payable, inventories and deferred revenue.

                                       21

<PAGE>

Net cash used in investing activities of $97,000 in fiscal 2003 resulted from
fixed asset expenditures primarily for tooling to be used for the production of
our new XATA Application Module.

Net cash provided in financing activities of $596,000 during fiscal 2003
included net credit line advances of $792,000 and stock option exercises
totaling $19,000, offset by $215,000 in principal repayment of long-term debt.

We believe financing recently provided by Trident Capital, our line of credit
and vendor terms will be adequate to fund our operating needs for the
foreseeable future. However, any significant new product development in the near
term may require additional 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. See also Note 10 in the Notes to
Financial Statements.

SUBSEQUENT EVENTS

On December 23, 2003, we renewed our $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, 2004 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 10 in Notes to Financial Statements.

On December 6, 2003, we entered into a Common Stock Warrant and Series B
Preferred Stock Purchase Agreement with various entities associated with Trident
Capital, Inc. See Note 10 in Notes to Financial Statements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Accounting for Certain Financial Instruments

In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
The changes in this statement will result in a more complete depiction of an
entity's liabilities and equity and will, thereby, assist investors and
creditors in assessing the amount, timing, and likelihood of potential future
cash outflows and equity share issuances. Reliability of accounting information
will be improved by providing a portrayal of an entity's capital structure that
is unbiased, verifiable, and more representationally faithful than information
reported prior to issuance of this statement. This statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. Management does not believe the adoption of this statement will have
any immediate material impact on the Company.

Derivative Instruments and Hedging Activities

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and

                                       22

<PAGE>

Hedging Activities. This statement amends SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, to clarify financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. The changes in this statement improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly, resulting in more consistent reporting of contracts as either
derivatives or hybrid instruments. This statement is effective for contracts
entered into or modified after June 30, 2003. Because the Company does not
currently utilize derivative instruments or engage in hedging activities,
management does not believe the adoption of this statement will have any
immediate material impact on the Company.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation 46 (FIN 46), Consolidation
of Variable Interest Entities. This Interpretation states that variable interest
entities within the scope of FIN 46 will be required to be consolidated by their
primary beneficiary. The primary beneficiary of a variable interest entity is
determined to be the party that absorbs a majority of the entity's expected
losses, receives a majority of the expected returns, or both. FIN 46 is
effective for the Company beginning October 1, 2004. Management does not believe
the adoption of this pronouncement will have a material effect on the Company.

Guarantor's Accounting

In November 2002, the FASB issued FASB Interpretation 45 (FIN 45), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This Interpretation states that a
guarantor is required to measure and recognize the fair value of the guarantee
at inception. It must also provide new disclosures regarding the nature of any
guarantees and certain other items, including product warranties. The disclosure
requirements are effective for the Company for the year ending September 30,
2003. The initial recognition and measurement provisions are effective
prospectively, that is, for guarantees issued or modified on or after January 1,
2003. Management does not believe the adoption of this pronouncement will have a
material effect on the Company. The Company has disclosed the required
information in the "Product Warranties" section of Note 1 in Notes to Financial
Statements.

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-20
</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, 2003 and 2002 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, 2003 and 2002 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, 2003 (except for Note 10 as to
 which the date is December 23, 2003)

                                       F-1

<PAGE>

XATA CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                    2003             2002
                                                                 -----------      -----------
<S>                                                              <C>              <C>
ASSETS

Current Assets
  Cash and cash equivalents                                      $   607,754      $ 1,058,119
  Accounts receivable, less allowances for doubtful accounts
    of $102,000 and $122,000                                       3,758,938        3,244,576
  Inventories                                                        943,153        1,193,871
  Deferred product costs                                             305,411                -
  Prepaid expenses                                                   123,023          111,468
                                                                 -----------      -----------
            TOTAL CURRENT ASSETS                                   5,738,279        5,608,034

Equipment and Leasehold Improvements, at cost
  Engineering and manufacturing equipment                            341,038          258,289
  Office furniture and equipment                                     979,313          968,568
  Leasehold improvements                                              24,948           24,948
                                                                 -----------      -----------
                                                                   1,345,299        1,251,805

  Less: accumulated depreciation and amortization                   (925,873)        (682,769)
                                                                 -----------      -----------
            TOTAL EQUIPMENT AND LEASEHOLD IMPROVEMENTS               419,426          569,036

Other Assets
  Capitalized software development costs, less accumulated
    amortization of $5,950,426 and $4,478,001                      1,319,190        2,791,615
                                                                 -----------      -----------
            TOTAL ASSETS                                         $ 7,476,895      $ 8,968,685
                                                                 ===========      ===========
</TABLE>

See Notes to Financial Statements

                                       F-2

<PAGE>

<TABLE>
<CAPTION>
                                                                    2003             2002
                                                                 -----------      -----------
<S>                                                              <C>              <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
  Bank line of credit                                            $   792,184      $         -
  Current maturities of long-term debt                               175,893          269,331
  Accounts payable                                                 1,462,175          922,625
  Accrued expenses                                                 1,014,967          567,375
  Deferred revenue                                                 1,524,910          910,328
                                                                 -----------      -----------
            TOTAL CURRENT LIABILITIES                              4,970,129        2,669,659

Long-Term Debt, net of current maturities                            251,296          373,176
Deferred Revenue, non-current                                        221,424          127,142
                                                                 -----------      -----------
            TOTAL LIABILITIES                                      5,442,849        3,169,977

Commitments                                                                -                -

Shareholders' Equity
  Common stock, par value $0.01 per share; 25,000,000 and
    12,000,000 shares authorized; 6,938,575 and 6,928,825
    shares issued                                                     69,386           69,288
  Additional paid-in capital                                      17,767,539       17,748,440
  Accumulated deficit                                            (15,802,879)     (12,019,020)
                                                                 -----------      -----------
            TOTAL SHAREHOLDERS' EQUITY                             2,034,046        5,798,708
                                                                 -----------      -----------
            TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $ 7,476,895      $ 8,968,685
                                                                 ===========      ===========
</TABLE>

                                       F-3

<PAGE>

XATA CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                    2003             2002
                                                                 -----------      -----------
<S>                                                              <C>              <C>
Net sales                                                        $11,350,492      $13,181,447
Cost of goods sold                                                 8,531,760        9,308,557
                                                                 -----------      -----------
        GROSS PROFIT                                               2,818,732        3,872,890

Operating expenses
  Selling, general and administrative                              4,665,262        5,230,658
  Research and development                                         1,877,914        2,155,450
                                                                 -----------      -----------
                                                                   6,543,176        7,386,108
                                                                 -----------      -----------

        OPERATING LOSS                                            (3,724,444)      (3,513,218)

Non-operating income (expense)
  Interest income                                                      6,697           37,343
  Interest expense                                                   (78,314)         (69,397)
  Other                                                               12,202           (2,476)
                                                                 -----------      -----------
                                                                     (59,415)         (34,530)
                                                                 -----------      -----------

        NET LOSS BEFORE INCOME TAXES                              (3,783,859)      (3,547,748)

Income taxes                                                               -          600,000
                                                                 -----------      -----------
        NET LOSS                                                 $(3,783,859)     $(4,147,748)
                                                                 ===========      ===========

Net loss per common share
  Basic & Diluted                                                $     (0.55)     $     (0.60)
                                                                 ===========      ===========

Weighted average common and
common share equivalents
  Basic & Diluted                                                  6,934,416        6,912,788
                                                                 ===========      ===========
</TABLE>

See Notes to Financial Statements

                                       F-4

<PAGE>

XATA CORPORATION

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>
                                                 Common Stock            Additional
                                            -----------------------       Paid-In        Accumulated
                                             Shares        Amount         Capital          Deficit            Total
                                            ---------     ---------     ------------     ------------      ------------
<S>                                         <C>           <C>           <C>              <C>               <C>
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
  Common stock issued on exercise of
    options                                     9,750            98           19,099                -            19,197
  Net loss                                          -             -                -       (3,783,859)       (3,783,859)
                                            ---------     ---------     ------------     ------------      ------------
Balance, September 30, 2003                 6,938,575     $  69,386     $ 17,767,539     $(15,802,879)     $  2,034,046
                                            =========     =========     ============     ============      ============
</TABLE>

See Notes to Financial Statements.

                                       F-5

<PAGE>

XATA CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                                2003            2002
                                                                            -----------      -----------
<S>                                                                         <C>              <C>
Cash used in Operating Activities
Net loss                                                                     (3,783,859)      (4,147,748)
Adjustments to reconcile net loss to net cash
used in operating activities:
  Depreciation and amortization of equipment and leasehold improvements         246,151          211,953
  Amortization of capitalized software development costs                      1,423,831        1,855,928
  Deferred income taxes                                                               -          600,000
  Reversal of allowance for doubtful accounts                                   (20,000)        (123,000)
  Write-off of software product                                                  48,594          126,643
  Changes in assets and liabilities:
     Accounts receivable                                                       (494,362)         809,005
     Inventories                                                                250,718          194,628
     Accounts payable                                                           539,550         (598,353)
     Accrued expenses and deferred revenue                                    1,156,456          583,723
     Prepaid expenses and deferred product costs                               (316,966)          79,326
                                                                            -----------      -----------
            NET CASH USED IN OPERATING ACTIVITIES                              (949,887)        (407,895)

Cash used in Investing Activities
  Purchase of equipment                                                         (96,541)        (415,084)
                                                                            -----------      -----------
            NET CASH USED IN INVESTING ACTIVITIES                               (96,541)        (415,084)

Cash provided by (used in) Financing Activities
  Net borrowings on bank line of credit                                         792,184                -
  Payments on long-term debt                                                   (215,318)        (241,419)
  Proceeds from options and warrants exercised                                   19,197           91,085
                                                                            -----------      -----------
            NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                 596,063         (150,334)
                                                                            -----------      -----------

            DECREASE IN CASH AND CASH EQUIVALENTS                              (450,365)        (973,313)

Cash and Cash Equivalents
  Beginning of year                                                           1,058,119        2,031,432
                                                                            -----------      -----------
  End of year                                                                   607,754        1,058,119
                                                                            ===========      ===========
Supplemental Disclosures of Cash Flow Information
  Cash payments for interest                                                $    78,314      $    69,397
</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, and from application service contracts. The
Company recognizes revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition with Respect to Certain Transactions, and
Securities and Exchange Commission Staff Accounting Bulletin (SAB) 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. As of September 30, 2003, the Company had approximately $42,000 of
systems on hand that had been billed to those customers awaiting specific
delivery instructions.

Many of the Company's customers purchase software 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.
When billed in advance, fees for professional services are recognized as they
are performed.

With regard to software arrangements involving multiple elements, the Company
allocates revenue to each element based on the relative fair value of each
element. The Company's determination of fair value of each element in
multiple-element arrangements is based on vendor-specific objective evidence
(VSOE). The Company limits its assessment of VSOE for each element to the price
charged when the same element is sold separately. The Company has analyzed all
of the elements included in its multiple-element arrangements and has determined
that it has sufficient VSOE to allocate revenue to post-contract customer
support (PCS) components of its license arrangements. VSOE for PCS is determined
based upon the customer's annual renewal rates for these elements. Accordingly,
assuming all other revenue recognition criteria are met, revenue from perpetual
licenses is recognized upon delivery, and revenue from PCS is recognized ratably
over the applicable term, typically one year.

                                       F-7

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

Application service revenue, which is composed of monthly fees, is recognized
ratably over the minimum service contract period, which commences upon the
activation of the mobile application module. When system products are sold in
conjunction with an application service contract, the Company defers the product
revenue and associated production costs (deferred product costs) at shipment and
recognizes both ratably over the minimum service contract, which is generally a
one to five year period.

The Company accounts for the resale of certain satellite and other wireless
communication services in conjunction with its products based on the gross
amount billed to customers.

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, 2003 and 2002, 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.

ACCOUNTS RECEIVABLE: The Company grants credit to customers in the normal course
of business. The majority of the Company's accounts receivables are due from
companies with fleet trucking operations in a variety of industries. Credit is
extended based on evaluation of a customer's financial condition and, generally,
collateral is not required. Accounts receivable are typically due from customers
within 30 days and are stated at amounts due from customers net of an allowance
for doubtful accounts. Accounts outstanding longer than the contractual payment
terms are considered past due. The Company determines its allowances by
considering a number of factors, including the length of time trade receivables
are past due, the Company's previous loss history, the customer's current
ability to pay its obligation to the Company, and the condition of the general
economy and the industry as a whole. The Company writes-off accounts receivable
when they become uncollectible, and payments subsequently received on such
receivables are credited to the allowance for doubtful accounts.

Changes in the Company's allowance for doubtful accounts are as follows:

<TABLE>
<CAPTION>
                                              2003             2002
                                            ---------        ---------
<S>                                         <C>              <C>
Beginning balance                           $ 122,000        $ 245,000
Bad debt expense                               35,199           65,853
Accounts write-off                            (55,199)        (188,853)
                                            ---------        ---------
Ending balance                              $ 102,000        $ 122,000
                                            =========        =========
</TABLE>

                                       F-8

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

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 2003 and 2002, the
Company recorded an impairment loss of $49,000 and $127,000, included in cost of
goods sold, 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 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.
Factors affecting the Company's product warranty liability include the number of
units sold, historical and anticipated rates of claims and cost per claim. The
Company periodically assesses the adequacy of its product warranty liability
based on changes in these factors.

                                       F-9

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

In fiscal 2003, the Company incurred warranty claims in connection with the
initial deployment of its XATANET 2.0 fleet management system. Warranty claims
in fiscal 2002 primarily related to the failure of third party mobile hardware
product no longer offered by the Company. The changes in the Company's product
warranty liability are as follows:

<TABLE>
<CAPTION>
                                     2003          2002
                                   ---------     ---------
<S>                                <C>           <C>
Liability, beginning of year       $  15,000     $  15,000
Expense for new
 warranties issued                   315,000       119,000
Warranty claims                     (260,000)     (119,000)
                                   ---------     ---------
Liability, end of year             $  70,000     $  15,000
                                   =========     =========
</TABLE>

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, 2003 and 2002 totaled
$52,000 and $45,400. Prior to January 1, 2002, the Company made annual
contributions to the plan at the discretion of the Board of Directors.

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, 2003 and 2002, the Company had options and warrants outstanding
to purchase a total of 875,593 and 916,589 shares of common stock, at a
weighted-average exercise price of $3.49 and $3.58. Because the Company incurred
a net loss in both fiscal 2003 and 2002, the inclusion of potential common
shares in the calculation of diluted net loss per common share would have an
antidilutive effect. Therefore, basic and diluted net loss per common share
amounts are the same in fiscal 2003 and 2002.

                                      F-10

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

STOCK-BASED COMPENSATION: The Company has a stock-based employee compensation
plan, which is described more fully in Note 7. The Company applied Accounting
Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for its plan. Under this method,
compensation expense is recognized for the amount by which the market price of
the common stock on the date of grant exceeds the exercise price of an option.
No compensation costs related to stock option grants have been recognized in the
consolidated Statements of Operations (see Note 7). The following table
illustrates the effect on net loss if the Company had applied the fair value
recognition provisions of Financial Accounting Standards Board (FASB) Statement
123, Accounting for Stock-Based Compensation, using the assumptions described in
Note 7, to its stock-based employee plan.

<TABLE>
<CAPTION>
                                                            2003             2002
                                                        ------------     ------------
<S>                                                     <C>              <C>
Net loss, as reported                                   $ (3,783,859)    $ (4,147,748)
Deduct: Total stock-based
        employee compensation expense
        determined under fair value based
        methods for all awards, net of
        related tax benefits                                (481,000)        (419,000)
                                                        ------------     ------------
Pro forma net loss                                      $ (4,264,859)    $ (4,566,748)
                                                        ============     ============
Basic and diluted net loss
per common share
        As reported                                     $      (0.55)    $      (0.60)
        Pro forma                                              (0.62)           (0.66)
</TABLE>

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 2002 amounts have been reclassified to conform to the
2003 presentation.

                                      F-11

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

Accounting for Certain Financial Instruments

In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
The changes in this statement will result in a more complete depiction of an
entity's liabilities and equity and will, thereby, assist investors and
creditors in assessing the amount, timing, and likelihood of potential future
cash outflows and equity share issuances. Reliability of accounting information
will be improved by providing a portrayal of an entity's capital structure that
is unbiased, verifiable, and more representationally faithful than information
reported prior to issuance of this statement. This statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. Management does not believe the adoption of this statement will have
any immediate material impact on the Company.

Derivative Instruments and Hedging Activities

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, to clarify
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The changes in this statement improve
financial reporting by requiring that contracts with comparable characteristics
be accounted for similarly, resulting in more consistent reporting of contracts
as either derivatives or hybrid instruments. This statement is effective for
contracts entered into or modified after June 30, 2003. Because the Company does
not currently utilize derivative instruments or engage in hedging activities,
management does not believe the adoption of this statement will have any
immediate material impact on the Company

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation 46 (FIN 46), Consolidation
of Variable Interest Entities. This Interpretation states that variable interest
entities within the scope of FIN 46 will be required to be consolidated by their
primary beneficiary. The primary beneficiary of a variable interest entity is
determined to be the party that absorbs a majority of the entity's expected
losses, receives a majority of the expected returns, or both. FIN 46 is
effective for the Company beginning October 1, 2004. Management does not believe
the adoption of this pronouncement will have a material effect on the Company.

                                      F-12

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

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

Guarantor's Accounting

In November 2002, the FASB issued FASB Interpretation 45 (FIN 45), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This Interpretation states that a
guarantor is required to measure and recognize the fair value of the guarantee
at inception. It must also provide new disclosures regarding the nature of any
guarantees and certain other items, including product warranties. The disclosure
requirements are effective for the Company for the year ending September 30,
2003. The initial recognition and measurement provisions are effective
prospectively, that is, for guarantees issued or modified on or after January 1,
2003. Management does not believe the adoption of this pronouncement will have a
material effect on the Company. The Company has disclosed the required
information in the "Product Warranties" section of this Note 1.

NOTE 2.  INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                September 30
                                        ---------------------------
                                           2003             2002
                                        -----------     -----------
<S>                                     <C>             <C>
Raw materials and subassemblies         $   454,146     $   586,031
Finished goods                              489,007         607,840
                                        -----------     -----------
Total inventories                       $   943,153     $ 1,193,871
                                        ===========     ===========
</TABLE>

NOTE 3.  BANK LINE OF CREDIT

On December 23, 2002, the Company established 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%. The line is subject to borrowing base requirements and
is collateralized by substantially all the assets of the Company. On December
23, 2003, the Company renewed this line of credit for an additional twelve
months (see Note 10).

                                      F-13

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 4. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                             September 30
                                                                        -----------------------
                                                                          2003          2002
                                                                        ---------     ---------
<S>                                                                     <C>           <C>
Note payable, due in monthly installments of $20,014
  including interest at prime plus 2% (6.00% and 6.75% at
  September 30, 2003 and 2002) through October 2005,
  collateralized by all inventories, equipment and intellectual
  property rights to XATANET software                                   $ 415,968     $ 571,462
Other                                                                      11,221        71,045
                                                                        ---------     ---------
                                                                          427,189       642,507

Less current maturities                                                   175,893       269,331
                                                                        ---------     ---------
                                                                        $ 251,296     $ 373,176
                                                                        =========     =========
</TABLE>

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

<TABLE>
<S>                <C>
2004               $ 175,893
2005                 231,397
2006                  19,899
                   ---------
                   $ 427,189
                   =========
</TABLE>

                                      F-14

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 5. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                       September 30
                                               ----------------------------
                                                  2003             2002
                                               -----------      -----------
<S>                                            <C>              <C>
Inventory and warranty reserve                 $   121,000      $   120,000
Accrued expenses and deferred revenue              151,000           94,000
Accounts receivable and sales reserve              119,000           60,000
Research and development credits                   817,000          663,000
Net operating loss carryforwards                 5,933,000        5,213,000
                                               -----------      -----------
Gross deferred tax assets                        7,141,000        6,150,000

Valuation allowance on deferred tax assets      (6,604,000)      (5,065,000)
                                               -----------      -----------
Net deferred tax assets                            537,000        1,085,000

Software development costs                        (488,000)      (1,033,000)
Depreciation                                       (49,000)         (52,000)
                                               -----------      -----------
Gross deferred tax liabilities                    (537,000)      (1,085,000)
                                               -----------      -----------
Net deferred tax asset                         $         -      $         -
                                               ===========      ===========
</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 increase of the valuation allowance of the deferred
tax assets. 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 increase of the allowance 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 the Company returns to
profitability and actual future taxable income is higher than currently
estimated.

                                      F-15

<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
                                                               ----------------------------
                                                                  2003             2002
                                                               -----------      -----------
<S>                                                            <C>              <C>
Statutory federal rate applied to loss before income taxes     $(1,287,000)     $(1,206,000)
State income tax benefit                                          (114,000)        (106,000)
Permanent differences                                               14,000           16,000
Change in valuation allowance                                    1,539,000        2,209,000
Change in tax rate used on net deferred tax assets                       -         (133,000)
Research and development credit                                   (154,000)        (157,000)
Other                                                                2,000          (23,000)
                                                               -----------      -----------
                                                               $         -      $   600,000
                                                               ===========      ===========

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

At September 30, 2003, the Company had federal net operating loss carryforwards
of approximately $16.1 million, which will begin to expire in 2009.

At September 30, 2003, the Company had research and development credit
carryforwards of approximately $817,000, 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 non-cancelable operating leases, are:

<TABLE>
<S>                                    <C>
Years ending September 30:
           2004                           180,000
           2005                           180,000
           2006                           180,000
           2007                            54,000
           2008                             2,000
                                       ----------
                                       $  596,000
                                       ==========
</TABLE>

                                      F-16

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

Rental expense, including common area costs and net of rental income, was
approximately $252,000 and $299,000 for the fiscal years ended September 30,
2003 and 2002.

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 has committed
to certain volume minimums. On March 27, 2003, the Company and ORBCOMM amended
this agreement by revising certain commitment dates. Approximate future minimum
purchases in excess of units already activated under customer agreements are as
follows:

<TABLE>
<S>                                    <C>
Years ending September 30:
           2004                        $  470,000
           2005                         2,140,000
           2006                           785,000
                                       ----------
                                       $3,395,000
                                       ==========
</TABLE>

NOTE 7.  CAPITAL STOCK

The Company is authorized to issue up to 25,000,000 shares of Common Stock and
5,000,000 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.

On August 31, 2000, John Deere Special Technologies Group, Inc. ("JDSTG")
purchased 630,000 shares of Common Stock from the Company and 200,000 shares of
common stock from an entity owned in part by a Director of the Company ("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. 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.

On December 6, 2003, the Company entered into a Common Stock Warrant and Series
B Preferred Stock Purchase Agreement with entities associated with Trident
Capital, Inc. (see Note 10).

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 expired, in accordance
with its terms, on December 31, 2002. Expiration of the Interim Plan did 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

                                      F-17

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

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.

The following tables summarize information relating to outstanding stock options
as of September 30, 2003 and 2002:

<TABLE>
<CAPTION>
                                                      2003                       2002
                                            -------------------------   ------------------------
                                                         Weighted-                  Weighted-
                                                          Average                    Average
                                             Shares    Exercise Price    Shares   Exercise Price
                                            --------   --------------   -------   --------------
<S>                                          <C>       <C>              <C>       <C>
Options outstanding at beginning of year     863,111   $         3.64   619,834   $         3.47
        Options granted                      251,932             3.75   318,167             3.99
        Options exercised                     (9,750)            1.97   (35,474)            2.45
        Options canceled                    (277,178)            4.13   (39,416)            4.82
                                            --------   --------------   -------   --------------
Options outstanding at end of year           828,115   $         3.56   863,111   $         3.64
                                            ========   ==============   =======   ==============
</TABLE>

<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        2003         Life (Years)   Exercise Price       2003         Exercise Price
-----------------------    --------------   ------------   --------------   --------------   --------------
<S>                        <C>              <C>            <C>              <C>              <C>
$1.16 - $1.72                      32,751           0.27   $         1.51           32,751   $         1.51
$1.75 - $2.38                      25,509           0.38             2.10           25,092             2.10
$2.66 - $3.99                     541,665           2.66             3.41          317,001             3.27
$4.00 - $5.88                     228,190           3.12             4.40          109,416             4.53
                           --------------                  --------------   --------------   --------------
                                  828,115           2.62   $         3.56          484,260   $         3.38
                           ==============                  ==============   ==============   ==============
</TABLE>

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 2003 and 2002: dividend rate of zero for both years;
price volatility of 46% for 2003 and 38% for 2002; risk-free interest rate of
2.75% for 2003 and 2.6% for 2002; and expected life of five years for 2003 and
2002. The weighted-average fair value per option of options granted in 2003 and
2002 was $1.57 and $1.51.

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, 2003, warrants were outstanding to purchase a total of 47,478
shares of common stock at a weighted-average exercise price of $2.19 per share,
with a weighted-average remaining life of approximately .95 years.

                                      F-18

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 8. 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
                                     ------------------------
                                       2003            2002
                                     ---------       --------
<S>                                  <C>             <C>
Revenue percentage:
  The Kroger Company                        17%             *
  McLane Company                             *             26%

Ending receivable balance:
  The Kroger Company                 $ 437,000       $      *
  McLane Company                             *         24,000
</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. 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.

NOTE 9. RELATED PARTY TRANSACTIONS

The Company purchases a significant portion of the hardware components for its
products from Phoenix International Corporation (Phoenix), a wholly-owned
subsidiary of Deere & Company. John Deere Special Technologies Group, Inc., our
largest shareholder, is also a subsidiary of Deere & Company. Payments by the
Company to Phoenix totaled $1,541,000 during the Company's fiscal year ended
September 30, 2003 and $713,000 during the fiscal year ended September 30, 2002.
All transactions between Phoenix and the Company have been and will be on terms
negotiated at "arms length."

NOTE 10. SUBSEQUENT EVENTS

On December 6, 2003, the Company entered into a Common Stock Warrant and Series
B Preferred Stock Purchase Agreement (the "Stock Purchase Agreement") with the
following entities associated with Trident Capital, Inc. (collectively
"Trident"):

     -   Trident Capital Fund-V, L.P.

     -   Trident Capital Fund-V Affiliates Fund, L.P.

     -   Trident Capital Fund-V Affiliates Fund (Q), L.P.

     -   Trident Capital Fund-V Principals Fund, L.P.

     -   Trident Capital Fund-V, C.V.

Under the Stock Purchase Agreement, Trident purchased 1,612,903 shares of Series
B Preferred Stock for $4,096,774, or $2.54 per share. Each share of the
Preferred Stock is convertible into one share of the

                                      F-19

<PAGE>

XATA CORPORATION

NOTES TO FINANCIAL STATEMENTS

Company's Common Stock. The price per share of Preferred Stock and the
conversion price for the Common Stock is equal to the "market value" of the
Common Stock (as defined in the rules of the Nasdaq Stock Market) on the date of
execution of the definitive agreements. The Preferred Stock pays an annual
cumulative dividend of 4% of the original issue price (payable in additional
shares of Preferred Stock rather than cash, at the option of the holders) and
has a non-participating preferred liquidation right equal to the original issue
price, plus accrued unpaid dividends.

The Preferred Stock is redeemable at the option of Trident at 100% of the
original purchase price plus accrued and unpaid dividends at any time after five
years from the date of issuance, or at any time if there is a significant
adverse judgment against the Company, the Company defaults on its debts or files
for bankruptcy, or in the event of a change of control. The Company may redeem
the Preferred Stock at its option after five years from the date of issuance if
the market price of its Common Stock is greater than three times the conversion
price on each of the sixty consecutive days prior to the redemption date.

Additionally, the Company issued Trident 5-year warrants to purchase 451,226
shares of its Common Stock at an exercise price of $3.17 per share. The
aggregate purchase price of the warrants was $56,403. The warrants permit
"cashless exercise."

Under the Stock Purchase Agreement, the Company must file a Registration
Statement on Form S-3 no later than February 4, 2004 to register the resale,
from time to time, of the Common Stock to be issued pursuant to conversion of
the Preferred Stock and exercise of the warrants, and a reasonable estimate of
any Common Stock to be issued as dividends on the Preferred Stock.

The placement agent for the Trident investment received as consideration a
$320,000 cash fee and 7-year warrants for purchase of an aggregate of 163,265
shares of Common Stock (130,612 shares at $2.54 per share and 32,653 shares at
$3.17 per share). These warrants permit "cashless exercise" and provide the
holders with piggyback registration rights.

On December 23, 2003 the Company renewed its line of credit with the same
financial institution and under terms comparable to the original credit line
agreement. The new agreement expires on December 23, 2004 and may be
automatically renewed for successive thirty day periods unless otherwise
terminated by either the Company or the lender.

                                      F-20

<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").

We have adopted a Code of Ethics applicable to our principal executive,
financial and accounting officers. The Code is filed as Exhibit 14 to this
Report and will be provided without charge, upon request, to any person.

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

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 July 24, 2003 concerning the press
               release for financial results for the three month period ending
               June 30, 2003.

         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)

4.2         Certificate of Designation of Preferences of Series B Preferred
            Stock (17)

4.3         Form of Trident Warrants (17)

4.4         Form of Cherry Tree Warrants (17)

                                       24

<PAGE>

9.0         Voting Agreement (17)

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 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 (13)

10.26       Form of Warrant issued to directors as equity compensation (13),
            (14)

10.27       Employment Agreement dated October 1, 2002 with William P. Flies,
            Chief Technical Officer (15)

10.28       First Lease Amendment dated May 5, 2003 which amends Lease dated
            December 27, 1996 with Hoyt Properties for Burnsville, Minnesota
            corporate headquarters (15)

10.29       Separation Agreement and Release dated June 11, 2003 with William P.
            Flies, Chief Technical Officer (16)

10.30       Trident Investor Indemnification Agreement (17)

10.31       Trident Director Indemnification Agreement (17)

10.32       Common Stock Warrant and Series B Preferred Stock Purchase Agreement
            (17)

10.33       First Amendment to Financing Agreement and Restated Revolving Note
            with

                                       25

<PAGE>

            Itasca Business Credit, Inc. *

14          Code Of Ethics For Principal Executive Officer And Senior Financial
            Officers *

23          Consent of Grant Thornton LLP, independent certified public
            accountants *

31.1        Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
            2002 *

31.2        Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
            2002 *

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

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

99.1        Fiscal Year 2003 Definitive Proxy Materials (portions of which are
            incorporated herein by reference) (18)

-------------------
*        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 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 filed as part of Report on Form
         10-QSB for the fiscal quarter ended March 31, 2001.

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

(13)     Incorporated by reference to exhibit filed as part of Report on Form
         10-KSB for the fiscal year ended September 30, 2002.

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

                                       26

<PAGE>

<TABLE>
<CAPTION>
Holder                       Date of Issuance     Exercise Price       Number of Shares
------                       ----------------     --------------       ----------------
<S>                          <C>                  <C>                  <C>
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>

(15)     Incorporated by reference to exhibit filed as part of Report on Form
         10-QSB for the fiscal quarter ended March 31, 2003.

(16)     Incorporated by reference to exhibit filed as part of Report on Form
         10-QSB for the fiscal quarter ended June 30, 2003.

(17)     Incorporated by reference to exhibit filed as part of Report on Form
         8-K on December 9, 2003.

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

                                       27

<PAGE>

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.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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.

                                       28

<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 29, 2003      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 29, 2003      By:          /s/ Richard L. Bogen
                                  ----------------------------------------------
                                   Richard L. Bogen, Director

Dated: December 29, 2003      By:          /s/ Craig S. Fawcett
                                  ----------------------------------------------
                                   Craig S. Fawcett, Director

Dated:                        By:
                                  ----------------------------------------------
                                   William P. Flies, Director

Dated: December 29, 2003      By:          /s/ Carl M. Fredericks
                                  ----------------------------------------------
                                   Carl M. Fredericks, Director

Dated: December 29, 2003      By:          /s/ James E. Heerin
                                  ----------------------------------------------
                                   James E. Heerin, Director

Dated: December 29, 2003      By:          /s/ Roger W. Kleppe
                                  ----------------------------------------------
                                   Roger W. Kleppe, Director

Dated: December 29, 2003      By:          /s/ Stephen A. Lawrence
                                  ----------------------------------------------
                                   Stephen A. Lawrence, Director (Chairman)

Dated: December 29, 2003      By:          /s/ John G. Lewis
                                  ----------------------------------------------
                                   John G. Lewis, Chief Financial Officer
                                   (Principal accounting and financial officer)

Dated: December 29, 2003      By:          /s/ Christopher P. Marshall
                                  ----------------------------------------------
                                   Christopher P. Marshall, Director

Dated: December 29, 2003      By:          /s/ Robert C. McCormack, Jr.
                                  ----------------------------------------------
                                   Robert C. McCormack, Jr., Director

Dated: December 29, 2003      By:          /s/ Charles R. Stamp, Jr.
                                  ----------------------------------------------
                                   Charles R. Stamp, Jr., Director

<PAGE>

INDEX TO EXHIBITS

INDEX
NUMBER      DESCRIPTION
------      -----------
10.33       First Amendment to Financing Agreement and Restated Revolving Note
            with Itasca Business Credit, Inc.

14          Code of Ethics for Principal Executive Officer and Senior Financial
            Officers

23          Consent of Grant Thornton LLP

31.1        Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
            2002

31.2        Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
            2002

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

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