<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-QSB

[X]      Quarterly report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

For the quarterly period ended December 31, 2003 or

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

For the transition period from             to
                               -----------    ------------

Commission File Number: 0-27166

                                XATA Corporation
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

         Minnesota                                     41-1641815
-------------------------------          ---------------------------------------
(State or Other Jurisdiction of          (I.R.S. Employer Identification Number)
Incorporation or Organization)

            151 E. Cliff Road, Suite 10, Burnsville, Minnesota 55337
--------------------------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

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

--------------------------------------------------------------------------------
         (Former name, former address and former fiscal year, if changed
                               since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                         Yes  [X]     No [ ]


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

As of February 1, 2004, the following securities of the Registrant were
outstanding: 6,988,298 shares of Common Stock, $.01 par value per share, and
1,612,903 shares of Series B Preferred Stock.

                                       1
<PAGE>

                                XATA Corporation
                                      Index

<TABLE>
<CAPTION>
                                                                                          Page No.
                                                                                          --------
<S>                                                                                       <C>
PART I.      FINANCIAL INFORMATION

             Item 1.   Financial Statements:
                 Balance Sheets as of December 31, 2003
                 and September 30, 2003                                                       3

                 Statements of Operations for the Three
                 Months Ended December 31, 2003 and 2002                                      5

                 Statements of Cash Flows for the Three Months
                 Ended December 31, 2003 and 2002                                             6

                 Notes to Financial Statements                                                7

             Item 2.   Management's Discussion and Analysis
                       of Financial Condition and Results of Operations                      13

             Item 3.   Controls and Procedures                                               17

PART II.     OTHER INFORMATION

             Item 1.  Legal Proceedings                                                      18

             Item 2.  Changes in Securities                                                  18

             Item 3.  Defaults upon Senior Securities                                        18

             Item 4.  Submission of Matters to a Vote of Security Holders                    18

             Item 5.  Other Information                                                      18

             Item 6.  Exhibits and Reports on Form 8-K                                       18

SIGNATURES

EXHIBITS
</TABLE>


                                       2
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

XATA CORPORATION
BALANCE SHEETS
DECEMBER 31, 2003 AND SEPTEMBER 30, 2003

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,         September 30,
                                                                                    2003                  2003
                                                                                 (UNAUDITED)            (audited)
                                                                                 -----------          ------------
<S>                                                                              <C>                  <C>
ASSETS

Current Assets
     Cash and cash equivalents                                                   $ 4,184,106           $   607,754
     Accounts receivable, less allowances for doubtful accounts
         of $108,000 and $102,000                                                  2,652,966             3,758,938
     Inventories                                                                   1,178,908               943,153
     Deferred product costs                                                          259,367               305,411
     Prepaid expenses                                                                 82,758               123,023
                                                                                 -----------           -----------
                TOTAL CURRENT ASSETS                                               8,358,105             5,738,279

Equipment and Leasehold Improvements, at cost
     Engineering and manufacturing equipment                                         341,038               341,038
     Office furniture and equipment                                                  982,086               979,313
     Leasehold improvements                                                           24,948                24,948
                                                                                 -----------           -----------
                                                                                   1,348,072             1,345,299

     Less: accumulated depreciation and amortization                                (973,090)             (925,873)
                                                                                 -----------           -----------
                TOTAL EQUIPMENT AND LEASEHOLD IMPROVEMENTS                           374,982               419,426

Other Assets
     Capitalized software development costs, less accumulated
         amortization of $6,278,242 and $5,950,426                                   991,374             1,319,190
                                                                                 -----------           -----------
                TOTAL ASSETS                                                     $ 9,724,461           $ 7,476,895
                                                                                 ===========           ===========
</TABLE>

See Notes to Financial Statements

                                        3

<PAGE>

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,           September 30,
                                                                                      2003                    2003
                                                                                   (UNAUDITED)              (audited)
                                                                                   ------------           -------------
<S>                                                                                <C>                    <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
     Bank line of credit                                                           $   273,864             $   792,184
     Current maturities of long-term debt                                              225,026                 175,893
     Accounts payable                                                                  838,874               1,462,175
     Accrued expenses                                                                1,041,395               1,014,967
     Deferred revenue                                                                1,590,385               1,524,910
                                                                                   -----------             -----------
                TOTAL CURRENT LIABILITIES                                            3,969,544               4,970,129


Long-Term Debt, net of current maturities                                              194,742                 251,296
Deferred Revenue, non-current                                                          176,816                 221,424
                                                                                   -----------             -----------
                TOTAL LIABILITIES                                                    4,341,102               5,442,849

Commitments                                                                                  -                       -

Shareholders' Equity
     Preferred stock, 4% convertible, 5,000,000 shares
         authorized; 1,612,903 shares issued at December 31, 2003                    3,744,379                       -
     Common stock, par value $0.01 per share; 25,000,000 and 12,000,000
         shares authorized; 6,975,381 and 6,938,575 shares issued                       69,754                  69,386
     Additional paid-in capital                                                     18,466,603              17,767,539
     Accumulated deficit                                                           (16,897,377)            (15,802,879)
                                                                                   -----------             -----------
                TOTAL SHAREHOLDERS' EQUITY                                           5,383,359               2,034,046
                                                                                   -----------             -----------
                TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         $ 9,724,461             $ 7,476,895
                                                                                   ===========             ===========
</TABLE>

See Notes to Financial Statements

                                       4
<PAGE>

XATA CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                              DECEMBER 31,               December 31,
                                                                  2003                       2002
                                                              (UNAUDITED)                (unaudited)
                                                              ------------               ------------
<S>                                                           <C>                        <C>
Net sales                                                     $ 3,269,932                $ 2,984,707
Cost of goods sold                                              2,116,343                  1,992,197
                                                              -----------                -----------
         GROSS PROFIT                                           1,153,589                    992,510

Operating expenses
     Selling, general and administrative                        1,053,127                  1,304,924
     Research and development                                     533,446                    524,648
                                                              -----------                -----------
                                                                1,586,573                  1,829,572
                                                              -----------                -----------

         OPERATING LOSS                                          (432,984)                  (837,062)

Non-operating income (expense)
     Interest income                                                  713                      2,073
     Interest expense                                             (23,492)                    (9,312)
     Other                                                          1,172                     (9,737)
                                                              -----------                -----------
                                                                  (21,607)                   (16,976)
                                                              -----------                -----------

         NET LOSS BEFORE INCOME TAXES                            (454,591)                  (854,038)

Income taxes                                                            -                          -
                                                              -----------                -----------
         NET LOSS                                                (454,591)                  (854,038)

Preferred stock dividends and deemed dividend                    (639,907)                         -
                                                              -----------                -----------
         LOSS TO COMMON SHAREHOLDERS                          $(1,094,498)               $  (854,038)
                                                              ===========                ===========

Loss per common share - basic and diluted:

     Net loss                                                 $     (0.07)               $     (0.12)

     Loss to common shareholders                                    (0.16)                     (0.12)
                                                              ===========                ===========

Weighted average common shares outstanding                      6,950,376                  6,932,466
                                                              ===========                ===========
</TABLE>

See Notes to Financial Statements

                                       5
<PAGE>

XATA CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                                             Three Months Ended
                                                                                                December 31,
                                                                                     ---------------------------------
                                                                                        2003                  2002
                                                                                     (UNAUDITED)           (unaudited)
                                                                                     -----------           -----------
<S>                                                                                   <C>                  <C>
Cash provided by (used in) Operating Activities
Net loss                                                                             $  (454,591)          $  (854,038)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
     Depreciation and amortization of equipment and leasehold improvements                47,217                64,900
     Amortization of capitalized software development costs                              327,816               363,927
     Allowance for doubtful accounts                                                       6,000                15,000
     Changes in assets and liabilities:
         Accounts receivable                                                           1,099,972              (341,249)
         Inventories                                                                    (235,755)               81,369
         Accounts payable                                                               (623,301)               95,296
         Accrued expenses and deferred revenue                                            36,370               567,863
         Prepaid expenses and deferred product costs                                      86,309               (20,660)
                                                                                     -----------           -----------
                NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                      290,037               (27,592)

Cash used in Investing Activities
     Purchase of equipment                                                                (2,773)              (77,779)
                                                                                     -----------           -----------
                NET CASH USED IN INVESTING ACTIVITIES                                     (2,773)              (77,779)

Cash provided by Financing Activities
     Net borrowings (payments) on bank line of credit                                   (518,320)              500,611
     Payments on long-term debt                                                           (7,421)              (69,737)
     Net Proceeds from issuance of preferred stock                                     3,710,760                     -
     Proceeds from issuance of warrants                                                   56,403                     -
     Proceeds from options and warrants exercised                                         47,666                 5,781
                                                                                     -----------           -----------
                NET CASH PROVIDED BY FINANCING ACTIVITIES                              3,289,088               436,655
                                                                                     -----------           -----------

                INCREASE IN CASH AND CASH EQUIVALENTS                                  3,576,352               331,284

Cash and Cash Equivalents
     Beginning                                                                           607,754             1,058,119
                                                                                     -----------           -----------
     Ending                                                                          $ 4,184,106           $ 1,389,403
                                                                                     ===========           ===========

Supplemental Disclosures of Cash Flow Information
     Cash payments for interest                                                      $    23,492           $     9,312

Supplemental Schedule of Noncash Investing and Financing Activities
     Preferred stock dividends payable                                               $    10,925           $         -
                                                                                      ==========           ===========
</TABLE>

See Notes to Financial Statements

                                       6

<PAGE>

NOTES TO FINANCIAL STATEMENTS

NOTE 1. MANAGEMENT STATEMENT

In the opinion of management of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal,
recurring accruals) necessary to present fairly the financial position of the
Company as of December 31, 2003, and the results of operations and cash flows
for the three months ended December 31, 2003 and 2002. The results of operations
for any interim period are not necessarily indicative of the results for the
fiscal year ending September 30, 2004. These interim financial statements should
be read in conjunction with the Company's annual financial statements and
related notes thereto included in the Company's Form 10-KSB and Annual Report to
shareholders for the fiscal year ended September 30, 2003.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION: The Company derives its revenue from sales of hardware,
software and related services, and from application service contracts. The
Company recognizes revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition with Respect to Certain Transactions, and
Securities and Exchange Commission Staff Accounting Bulletin (SAB) 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 December 31, 2003, the Company had approximately $39,000 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.
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.

                                       7
<PAGE>

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 expected contract term, which to date has been
the minimum service contract - 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.

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, the Company
recorded an impairment loss of $49,000, 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.

BASIC AND DILUTED 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 period.

Common stock equivalent shares consist of convertible preferred stock (using the
if-converted method) and stock options and warrants (using the treasury stock
method). Common stock equivalents as of December 31, 2003 and 2002 included
11,227 and 31,560 shares related to stock options and warrants and included
1,612,903 shares related to convertible preferred stock at December 31, 2003.
There were no common stock equivalents as of December 31, 2002 related to
convertible preferred stock. Because the Company incurred losses for the three
months ended December 31, 2003 and 2002, the inclusion of common stock
equivalent shares in the calculation of diluted loss per common share would have
an antidilutive effect. Therefore, basic and diluted loss per common share
amounts are the same for the three month periods ending December 31, 2003 and
2002.

STOCK-BASED COMPENSATION: The Company has a stock-based employee compensation
plan. 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. 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, to its stock-based employee plan.

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                     December 31,
                                                             ---------------------------
                                                                 2003             2002
                                                             ---------------------------
<S>                                                          <C>              <C>
 Net loss, as reported                                       $ (454,591)      $ (854,038)
 Deduct: Total stock-based
      employee compensation expense
      determined under fair value based
      methods for all awards, net of
      related tax effects                                       (67,000)        (104,000)
                                                             -----------      -----------
 Pro forma net loss                                          $ (521,591)      $ (958,038)
                                                             ===========      ===========

 Basic and diluted net loss
 per common share
      As reported                                            $    (0.07)      $    (0.12)
      Pro forma                                                   (0.08)           (0.14)
</TABLE>

COMMON STOCK WARRANTS: The Company has, on occasion, issued warrants for the
purchase of common stock to directors and consultants. In the three month period
ending December 31, 2003, the Company issued various entities associated with
Trident Capital, Inc. ("Trident") warrants to purchase 451,226 shares of common
stock at an exercise price if $3.17 per share for an aggregate purchase price of
$56,403. This issuance of warrants was in connection with Trident's purchase of
1,612,903 shares of Series B Preferred Stock (see Note 6). Additionally, the
Company issued Cherry Tree Securities, LLC ("CTS"), who acted as placement agent
for the Trident transaction, warrants to purchase an aggregate of 163,264 shares
of common stock (130,612 shares at $2.54 per share and 32,652 shares at $3.17
per share).

At December 31, 2003 and 2002, warrants were outstanding to purchase a total of
637,821 and 47,478 shares of common stock at a weighted-average exercise price
of $3.04 and $2.19 per share, with a weighted-average remaining life of
approximately 4.81 years and 1.70 years.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Disclosures about Pensions and Other Postretirement Benefits

In December, 2003, the Financial Accounting Standards Board (FASB) revised SFAS
132, Employers' Disclosures about Pensions and Other Postretirement Benefits--an
amendment of FASB Statements No. 87, 88, and 106. This Statement revises
employers' disclosures about pension plans and other postretirement benefit
plans. It does not change the measurement or recognition of those plans required
by FASB Statements No. 87, Employers' Accounting for Pensions, No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. This Statement retains the
disclosure requirements contained in FASB Statement No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which it replaces.
It requires additional disclosures to those in the original Statement 132 about
the assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. This
Statement is generally effective for financial statements with fiscal years
ending after December 15, 2003. The interim-period disclosures

                                       9
<PAGE>

required by this Statement are effective for interim periods beginning after
December 15, 2003. Management does not believe the adoption of this revised
statement will have any immediate material impact on the Company.

NOTE 3. COMMITMENTS

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>
<CAPTION>
 Years ending September 30:
---------------------------
<S>                              <C>
              2004               $   440,000
              2005                 2,080,000
              2006                   770,000
                                 -----------
                                 $ 3,290,000
                                 ===========
</TABLE>

NOTE 4. CORPORATE LIQUIDITY

On December 6, 2003, the Company entered into a Common Stock Warrant and Series
B Preferred Stock Purchase Agreement with several entities associated with
Trident Capital, Inc. ("Trident"), under which Trident purchased 1,612,903
shares of Series B Preferred Stock for $4,096,774, or $2.54 per share (see Note
6).

On December 23, 2003, the Company renewed its line of credit under terms
comparable to its previous 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.

The Company believes its current cash balances, line of credit and vendor terms
will provide adequate cash to fund operating needs for the foreseeable future.
However, a protracted decline in revenue, significant revenue growth or an
increase in product development in the near term may require the Company to
obtain additional external funding. Moreover, it is possible that the Company's
cash needs may vary significantly from its predictions, due to failure to
generate anticipated cash flow or other reasons. No assurance can be given that
the Company's predictions regarding its cash needs will prove accurate, that the
Company will not require additional financing, that the Company will be able to
secure any required additional financing when needed, or that such financing, if
obtained at all, will be on terms favorable or acceptable to the Company. If
additional financing is required and the Company is unable to secure such
additional financing, the Company may need to implement measures to reduce
operating costs, including reductions to product development, marketing and
other operating activities.

                                       10
<PAGE>

NOTE 5. TRANSACTIONS WITH RELATED PARTY

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 $1,014,000 and $335,000 during the three month
periods ended December 31, 2003 and 2002. All transactions between Phoenix and
the Company have been and will be on terms negotiated at "arms length."

NOTE 6. 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 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 Company's Common Stock. The
price per share of Preferred Stock and the conversion price for the Common Stock
are equal to the "market value" of the Common Stock (as defined in the rules of
the Nasdaq Stock Market) on the date of execution of the definitive agreements.
The 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. However, the Company may
decline to redeem any or all of the Preferred Stock at its sole option and
discretion, and in such case the annual cumulative dividend on the Preferred
Stock will increase from 4% to 10%. 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."

                                       11
<PAGE>

In connection with this transaction, the Company recognized a non-cash deemed
dividend of $628,982. The deemed dividend was recorded as an addition to
preferred stock with a corresponding reduction of retained earnings. The
addition was recognized at the date of issuance of the preferred stock, the same
date at which the shares were eligible for conversion.

As required under the Stock Purchase Agreement, the Company filed a Registration
Statement on Form S-3 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.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       12
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis provides information we believe is
relevant to an assessment and understanding of our results of operations and
financial condition. This discussion should be read in conjunction with the
financial statements in Item 1 and our report on Form 10-KSB for the year ended
September 30, 2003.

CRITICAL ACCOUNTING POLICIES

Accounting policies, methods and estimates are an integral part of our financial
statements and are based upon management's current judgments. Certain accounting
policies, methods and estimates are particularly important because of their
significance to the financial statements. Note 2 of the Notes to Financial
Statements includes a summary of the significant accounting policies and methods
we use. The following is a discussion of what we believe to be the most critical
of these policies and methods.

Revenue recognition. We derive our revenue from sales of hardware, software and
related services, and from application service contracts. We recognize revenue
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 anticipated future gross revenues or the straight-line method
over the estimated economic life of the product.

                                       13
<PAGE>

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.

Recently issued accounting pronouncements. See Note 2 in Notes to Financial
Statements.

RESULTS OF OPERATIONS

Net Sales. Our net sales for the three months ended December 31, 2003 were $3.27
million, versus net sales of $2.98 million for the three months ended December
31, 2002. We believe the increase in sales in the current quarter was primarily
due to higher software maintenance, support and professional services revenues
resulting from activities related to new hours-of-service rules issued by the
Federal Motor Carrier Safety Administration.

Cost of Goods Sold. Cost of goods sold includes the direct product costs
associated with fulfilling customer orders as well as certain fixed expenses.
Such fixed expenses include costs relating to our system implementation and
support staff, expenses associated with the enhancement of released products,
and non-cash amortization expense of capitalized software development costs.
Product sales mix, order discounts and other variable and fixed expenses impact
cost of goods sold. Cost of goods sold in the three months ended December 31,
2003 was $2.12 million (65% of net sales), versus $1.99 million (67% of net
sales) for the comparable prior year period. Cost of sales as a percent of net
sales decreased in the first quarter compared to the first quarter of fiscal
2003 due primarily to a more favorable sales mix, including an increase in
software services revenue.

Operating Expenses. Operating expenses include research and development
expenses, as well as selling, general and administrative expenses. Total
operating expenses were $1.59 million (49% of net sales) for the three months
ended December 31, 2003 compared to $1.83 million (61% of net sales) for the
comparable prior year period.

Selling, general and administrative expenses were $1.05 million (32% of net
sales) for the three months ended December 31, 2003, compared to $1.30 million
(44% of net sales) for the comparable prior year period. These expenses
decreased in the current year quarter due to the implementation of several
initiatives to reduce our overall operating expenses.

                                       14
<PAGE>

Research and development expenses during the three months ended December 31,
2003 were $533,000, versus $525,000 in the comparable fiscal 2003 period. Costs
associated with research and development activities are expensed in the period
they are incurred. We capitalize software development expenditures after we
establish technological feasibility of new products, and later amortize these
capitalized amounts to cost of goods sold. In the three months ended December
31, 2003, we did not capitalize any software development costs because the
expenditures were primarily on products that have not attained technological
feasibility.

Overall product development expenses totaled $586,000 in the three months ended
December 31, 2003. These include $533,000 of research and development expense
associated with the development of new products, coupled with $53,000 expended
on the enhancement of released products (included as a component of cost of
goods sold).

Non-operating Income and Expense. Interest expense for the three months ended
December 31, 2003 was $23,000 compared to $9,000 in the same prior year period.
Interest expense in the prior year was less than the current year because our
current credit line was not established until late in the first fiscal quarter
of 2003. Interest expense for both periods also included interest on a note
payable. Interest income for the three months ended December 31, 2003 and 2002
was negligible due to a low average balance in our investment account.

Income Taxes. No income tax benefit or expense was recorded for the three-month
periods ended December 31, 2003 and 2002. We periodically review the valuation
allowance we have established for our deferred tax assets. Realization of
deferred tax assets is dependent upon sufficient future taxable income during
periods when deductible temporary differences and carryforwards are expected to
be available to reduce taxable income. The amount of the net deferred tax asset
considered realizable could be increased in the future if we return to
profitability and actual future taxable income is higher than currently
estimated.

Net Loss. Net loss for the three months ended December 31, 2003 was $455,000,
compared to a net loss of $854,000 for the three months ended December 31, 2002.
The decreased net loss in the current three-month period was primarily due to
higher revenue, lower cost of sales and reduced operating expenses.

Outlook. We have been awarded orders totaling approximately $8 million for our
OpCenter(TM) fleet management system related to the United States Postal Service
2004 cargo van purchase. We expect these orders to significantly contribute to
total fiscal 2004 revenue.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2003, our working capital totaled $4.39 million compared to
working capital of $768,000 at September 30, 2003. The increase in working
capital was primarily the result of the Trident investment in our Series B
Preferred Stock (see Note 6 in Notes to Financial Statements).

Cash provided by operating activities during the three months ended December 31,
2003 totaled $290,000 compared to cash used in operating activities of $28,000
for the same period last year. Cash provided by operating activities for the
three months ended December 31, 2003 resulted primarily from a $1.1 million
decrease in accounts receivable, non-cash amortization and depreciation expenses
totaling $375,000, and a $86,000 decrease in prepaid expenses and deferred
product costs. These increases were offset by a $236,000 increase in
inventories, a $587,000 decrease in accounts payable and other accrued expenses
and our $455,000 net loss. Deferred product costs relate to the manufacturing
costs of the system products for which revenue has been deferred. We expect
deferred revenue and deferred product costs to increase in

                                       15
<PAGE>

future periods due to anticipated growth in service contract sales related to
our XATANET(TM) system. We expect non-cash amortization expense to decrease over
the next two fiscal years as we complete the amortization of the majority of
previously capitalized software development costs.

Cash used in investing activities was $3,000 for purchases of equipment in the
three months ended December 31, 2003. During the same period last year, $78,000
was invested in equipment, primarily for the production of our XATA Application
Module mobile computing unit.

Cash provided by financing activities was $3.29 million in the three months
ended December 31, 2003 compared to $437,000 during the same period a year ago.
Cash provided by financing activities in the current period was due to the $3.82
million net proceeds from the Trident purchase of Series B Preferred Stock,
offset by $527,000 of principal payments on our bank credit line and long-term
debt.

On December 23, 2003, we renewed our line of credit under terms comparable to
our previous credit line agreement. Advances under the line of credit accrue
interest at prime rate plus 2.90 percent. The terms of the credit agreement
include a provision for minimum monthly interest payments. The line is subject
to borrowing base requirements, based on eligible accounts receivable, and is
collateralized by substantially all Company assets. On December 31, 2003, the
maximum borrowing availability on the line was approximately $850,000. The new
agreement expires on December 23, 2004 and may be automatically renewed for
successive thirty-day periods unless otherwise terminated by either us or the
lender.

On June 10, 2003, we amended our note payable to Deere & Company. The note,
which originated April 20, 2000 in the amount of $1,000,000, includes monthly
principal and interest payments to Deere. The amendment relieved our obligation
to make principal payments for six months. Principal and interest payments
resumed with our January 1, 2004 payment. As of December 31, 2003, the principal
balance owed on the note was $416,000.

We believe our current cash balances, line of credit and vendor terms will
provide adequate cash to fund operating needs for the foreseeable future.
However, a protracted decline in revenue, significant revenue growth or an
increase in product development in the near term may require us to obtain
external funding. Moreover, it is possible that our cash needs may vary
significantly from its 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 that such financing, if obtained at all, will be on terms favorable
or acceptable to us. If additional financing is required and we are unable to
secure such additional financing, we may need to implement measures to reduce
operating costs, including reductions to product development, marketing and
other operating activities.

TRANSACTIONS WITH RELATED PARTY

We purchase our new XATA Application Module (XAM) mobile computing and
communication devices from Phoenix International Corporation, a wholly owned
subsidiary of Deere & Company. Deere is our largest shareholder and is currently
represented by three individuals serving on our Board of Directors. Phoenix
International fabricates the XAM units to our detailed design specifications. We
retain full ownership to the intellectual property rights of the XAM design. Our
terms with Phoenix International are comparable to those we have with
non-affiliated vendors. Payments to Phoenix International in the three-month
period ended December 31, 2003 totaled $1.01 million. These amounts may increase
over time to the extent sales of our XAM units and related products increase. We
have no dependence on this vendor and are able to purchase the fabrication of
this product from other vendors if necessary or desirable.

                                       16
<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer have concluded, based on
their evaluation within 90 days of the filing date of this report, that our
disclosure controls and procedures are adequately designed to ensure that
information required to be disclosed by us in the reports we file or submit
under the Securities and Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported, within the time periods specified in
applicable rules and forms. There have not been any significant changes in our
internal controls or in other factors that could significantly affect those
controls, subsequent to the date of such evaluation, including any corrective
actions taken with regard to significant deficiencies and material weaknesses.

FORWARD-LOOKING STATEMENTS

This document includes forward-looking statements based on current expectations.
Actual results may differ materially. These forward-looking statements involve a
number of risks and uncertainties about us, our business, our customers, the
economy and the business environment in general. Risks and uncertainties about
us include, but are not limited to, the following:

         -        although we expect to incur operating losses in the current
                  fiscal year, these losses may continue beyond the expected
                  timeframe or in excess of the expected magnitude, and we may
                  be dependent upon external investment to support our
                  operations during periods in which we incur operating losses;

         -        we may be unable to adapt to technological change quickly
                  enough to grow or to retain our customer base;

         -        we will continue to be dependent upon positioning systems and
                  communication networks owned and controlled by others, and
                  accordingly, their problems may adversely impact us;

         -        for the foreseeable future, we are dependent upon the
                  continued receipt and fulfillment of new orders for our
                  current products;

         -        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.

You are encouraged to read more about the specific risks and uncertainties of
our business. We have described those that we currently consider most important
in our report on Form 10-KSB for our fiscal year ended September 30, 2003. We
undertake no obligation to update our disclosures in this regard.

                                       17
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         None

ITEM 2. CHANGES IN SECURITIES

         On December 6, 2003, the Company entered into a Common Stock Warrant
and Series B Preferred Stock Purchase Agreement with several entities associated
with Trident Capital, Inc. See Note 6 of Notes to Financial Statements in the
Report. These securities were issued without registration under the Securities
Act of 1933 in reliance upon the exemptions contained in Sections 4(2) and 4(6)
of the Act and Regulation D thereunder. The investors have represented that they
are "accredited" investors as defined in Regulation D. 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 163,264 shares of common stock (130,612
shares at $2.54 per share and 32,652 shares at $3.17 per share). These warrants
permit "cashless exercise" and provide the holders with piggyback registration
rights.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         None

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

         None

ITEM 5. OTHER INFORMATION

         None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
Exhibit
-------
<S>      <C>
4.2.1    Certificate of Amendment of Certificate of Designation of Preferences
         of Series B Preferred Stock

11       Earnings per share computation

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
</TABLE>

                                       18
<PAGE>

Reports on Form 8-K

1.       Report on Form 8-K dated November 24, 2003 concerning the press release
         for financial results for the 2003 fiscal year ending September 30,
         2003.

2.       Report on Form 8-K dated December 9, 2003 concerning the purchase by
         several entities associated with Trident Capital, Inc. of 1,612,903
         shares of Series B Preferred Stock from the Company.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

     Dated: February 13, 2004        XATA Corporation
                                     (Registrant)

                                      by:     /s/  John G. Lewis
                                          --------------------------------------
                                          John G. Lewis
                                          Chief Financial Officer
                                          (Signing as Principal Financial
                                          and Accounting Officer and as
                                          Authorized Signatory of Registrant)

                                       20