UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2009oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transaction period
from                                to


Commission file number:

XPLORE TECHNOLOGIES CORP.(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

26-0563295(IRS Employer Identification No.)14000 Summit Drive, Suite 900, Austin, Texas(Address of Principal Executive Offices)

78728(Zip Code)


(512) 336-7797(Registrant's Telephone Number, Including Area Code)

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

Securities
registered pursuant to Section 12(g) of the Act:Common Stock, $0.001 par value per share

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

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

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 ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files) Yes o    No o(Not currently
applicable to the Registrant)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting
company. See definition of "accelerated filer", "large accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company ý


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

As of September 30, 2008, the aggregate market value of the common equity held by non-affiliates of the registrant was $9,861,556 based on the
closing sale price of $0.17 on such date as reported on the Over the Counter Bulletin Board.

As
of August 1, 2009, the registrant had 104,127,574 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:None.



---





Table of Contents

PART I

1Item 1.

Business

1Item 1A.

Risk Factors

9Item 1B.

Unresolved Staff Comments

14Item 2.

Properties

14Item 3.

Legal Proceedings

14Item 4.

Submission of Matters to a Vote of Security

15PART II

16Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

16Item 6.

Selected Financial Data

17Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operation

17Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

26Item 8.

Financial Statements and Supplementary Data

26Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

26Item 9A.

Controls and Procedures

26Item 9A(T).

Controls and Procedures

26Item 9B.

Other Information

27PART III

28Item 10.

Directors, Executive Officers and Corporate Governance

28Item 11.

Executive Compensation

30Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

40Item 13.

Certain Relationships and Related Transactions, and Director Independence

43Item 14.

Principal Accounting Fees and Services

46PART IV

47Item 15.

Exhibits, Financial Statement Schedules

47


i

---





Forward-Looking Statements

From time to time, we may provide information, whether orally or in writing, including certain statements in this Annual Report on
Form 10-K, which are deemed to be "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Litigation Reform Act"). These forward-looking
statements and other information are based on our beliefs as well as assumptions made by us using information currently available.

The
words "believe," "plan," "expect," "intend," "anticipate," "estimate," "may," "will," "should" and similar expressions are intended to identify forward-looking statements. Such
statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended or using other similar
expressions. We do not intend to update these forward-looking statements, except as required by law.

In
accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their
very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Annual Report on
Form 10-K, any exhibits to this Form 10-K and other public statements we make. Such factors are discussed in the "Risk Factors" section of this Annual Report on
Form 10-K.

PART I

Item 1.    Business

Overview

Xplore engineers, develops, integrates and markets rugged, mobile computing systems. Our products are designed to enhance the ability
of persons to perform their jobs outside of traditional office settings. Our family of iX Tablet PC systems, which we refer to as the iX104 Systems, are designed to operate in challenging
work environments such as extreme temperatures, repeated vibrations or dirty and dusty conditions. The iX104 Systems can be fitted with a wide range of performance-matched accessories, including
multiple docking station solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard modules, as well as traditional peripherals like keyboards and cases.
Except as otherwise indicated by the context, all references in this Annual Report on Form 10-K to "Xplore," the "Company," "we," "us" and/or "our" are to Xplore Technologies Corp.,
a Delaware corporation, and its direct subsidiary.

Our
strategy is to become the leading developer and marketer of rugged mobile wireless computing systems. Our revenue is currently derived through the sale of our iX104 Systems in the
rugged, mobile Tablet PC market. Over the past several years, our iX104 Systems have been recognized for their ruggedness and versatility by Pen Computing ("Best Rugged Slate-Style Tablet PC"), Table
PC2 ("Editor's Choice Award for AllVue Screen") and Lap Top Magazine ("Editor's Choice Award").

Recent Developments

We believe Xplore is positioned for significant future revenue growth. Our key initiatives include the
following:



1

---





Significant
effort is being directed toward the development of several new products to expand our addressable market.

Our
iX104 remains a viable product based on its features and 10.4 inch screen size. An upgraded version of our iX104 Tablet PC offering, which we refer to as iX104, was released in
September 2008 and includes a more powerful processor and significant improvements to our award winning AllVue screen technology that delivers a bright picture both indoors and outdoors.

We
have made a significant investment to expand our presence in the U.S. military market, one of the world's largest consumers of rugged mobile computers. In addition to creating a team
focused on military opportunities, we recently completed developing what we believe is a state of the art rugged docking station that when combined with our iX104 creates an expandable multi-mission
tablet computer system for vehicle-mounted and dismounted applications. This product is named the Armadillo System and is built to function in harsh military environments. We believe our efforts
should position Xplore to compete more effectively in this market.

We
are very proud of our partner and reseller network and continue to expand and improve our network to reach new markets and new geographies and to lay the groundwork for our expanded
product offering. Our efforts have resulted in attracting new and significant Fortune 500 and Global 2000 companies.

We
have built a scalable infrastructure to support our growing business. Wistron Corporation (which we refer to as Wistron) continues to manufacture our iX104. Wistron is recognized as a
leading provider of computers and electronic components to some of the world's largest technology companies, including Dell, Inc. and Hewlett-Packard Company. We expect this alliance to support
our planned sales growth and product demand.

We
are a Delaware corporation. Shares of our common stock are quoted on the OTC Bulletin Board ("OTCBB") under the symbol XLRT.

Products

Our family of iX advanced rugged Tablet Personal Computers is comprised of:



iX104C4 Plus Tablet PCis available in the following models:



iX104C4 Lite Tablet PCis currently available in theDual Modemodel.

2

---



Our
line of iX Tablet PCs are designed to operate in challenging work environments, such as extreme temperatures, repeated vibrations or dirty and dusty conditions. Our
systems can be fitted with a wide range of performance-matched accessories, including multiple docking station solutions, wireless connectivity alternatives, Global Positioning System modules,
biometric and smartcard modules, as well as traditional peripherals like keyboards, mouses and cases.

Our
family of iX computers are based primarily on the following features:

RuggedAs opposed to some of our competitors, which have primarily placed non-rugged computers in rugged cases, we have built our devices
from the inside out, developing over 30 proprietary design elements that provide a heightened and proven level of durability. Some of our products meet some of the strictest specifications in the
world, such as those established by the U.S. military, including Military Standard Testing for Environmental Extremes. These specifications are designed to allow our products to withstand damage from
being dropped onto concrete from up to 4 feet, from being submerged for up to 30 minutes in up to 12 inches of water, and from being exposed to extreme temperatures that are as low as
-40° Fahrenheit and as high as 167° Fahrenheit. In addition, our products are designed to continue to function when subjected to vibration, sand storms and other
challenging outdoor work environments.

Screen TechnologyWe seek to be a leader of screen technology with award winning displays. We have designed the AllVue screen which is
viewable in virtually all challenging lighting conditions, including direct sunlight and dimly-lit environments, as well as the Dual Mode screen, which allows the use of a digitizer pen
and/or the finger to control the unit. The Dual Mode supports more precise inputs through the pen with more directional finger touch inputsall in a single unit with auto switching
capabilities.

Processing PowerWe have the ability to provide processing power alternatives on a timely and cost-effective basis. Our systems use Intel
Pentium M Centrino® processors and associated chipsets, as well as other performance enhancement technologies that we believe are essential in many field applications (such as mapping and
remote connectivity). In addition, Lithium ION batteries support usage times between 3-5 hours and a "warm" swap feature allows users to switch batteries in the field without having
to power down the system.

Remote ConnectivityOur family of iX104C Tablet PCs have a range of wireless options (wLAN, wWAN and PAN) as well as global positioning system
options.

AccessoriesWe offer a broad range of add-on modules and accessories that better enable customers to adapt our computers to their intended
use. In particular, we believe our functional, durable and reliable docking solutions are tailored to customer needs. Service, desktop, vehicle, forklift, armored vehicle, and mobile cart docking
systems have been deployed to customers.

Heightened Safety StandardsOur wireless-enabled Tablet PC systems have been tested and certified for use in hazardous locations both in North America
and in the European Union.

Our
computers are designed to be used as a mobile computing system. These systems are comprised of an Xplore hardware platform that is fully integrated with one or more software
applications. Through its wide feature set, we believe the iX family of products allows the customization of a platform that best suits a given application. Our computers combine
processing power, viewability, ruggedness and connectivity and are designed to operate in extreme environments.

Strategy

Our strategy is to become the leading developer and marketer of rugged mobile wireless computer systems. We currently compete in the
rugged tablet PC market. Leveraging our expertise and our

3

---



existing
infrastructure, we plan to penetrate other product market categories that are larger than our existing rugged tablet PC market.



We seek to continue to analyze the needs of the vertical markets we are involved in so that we can continue to grow our business. We
intend to continue to focus on customer specific applications by leveraging our core products and technology, as well as our key strategic alliances.

Our
strategy includes the following key elements:

Identifying and targeting vertical markets, major account and OEM opportunitiesTo achieve broad penetration of our products, we intend to continue to
focus on specific vertical market applications, major accounts and OEM relationships, such as Dell, Inc., Psion Teklogix Inc. and Peak Technologies.

Investment and nurturing of key relationshipsWe intend to continue to outsource our manufacturing so that we can continue to focus our efforts on our
technology and product development, customer application and project deployment activities, through our collaborations on engineering and manufacturing matters with our partner, Wistron, a leading
contract manufacturers located in Taiwan. In addition, we have a key relationship with VT Miltope in respect to our Armadillo System, an integrated tablet and active docking system. Our targeted
military market segments initially include ground and C4I (Command, Control, Communications, Computers and Intelligence) systems.

Flexible product design and customer-centric approachWe believe the design of our products provides us with the flexibility to respond to
customer-specific requirements. We involve our customers in product development and enhancements. This approach is intended to result in improved communication flow throughout the entire sales cycle
and is designed to position our products as the optimal mobile computing platform for our customers.

Delivery of high quality, reliable systemsWe measure and seek to improve product quality through rigorous quality assurance programs implemented with
our partners, in concert with performing our custom-designed test programs. Additionally, we utilize feedback provided by our customers.

Marketing and distribution relationshipsWithin each targeted vertical industry, we intend to focus on co-marketing relationships with key
application providers and systems integrators. This strategy allows us to define multiple channels of sale within a region while maintaining key strategic alliances.



We continue to consider other market opportunities, such as the growing need for rugged notebooks, which are broader in scope and
opportunity. We believe, based upon a white paper published by the Mobile and Wireless Practice of Venture Development Corporation (which we refer to as VDC) in July 2007, that an increasing number of
companies are requiring their employees to transmit data from the field or non-traditional office environments. The white paper projects worldwide sales in the rugged mobile computing
market to grow to over $6.3 billion by 2010 and the market for large form factor rugged devices to grow to $2.8 billion in 2010. We currently have one product in the large form factor
segment of the rugged mobile computer market.

We
believe our family of rugged tablet PCs are uniquely positioned to capitalize on the convergence of three current market trends:



4

---





We
believe companies recognize the total cost of ownership is improved by rugged computing solutions.

Sales

Our customers are distribution partners, such as large computer companies, specialized system integrators, software vendors,
distributors and value-added resellers, and to a lesser extent, end-users. For fiscal year 2009, approximately 80% of our total revenues were attributable to sales to our distribution
partners and approximately 20% of our total revenues were attributable to sales directly to our end-users. We currently have relationships with more than 60 distribution partners. Our
distribution partners generally have large sales organizations which in turn sell our products to entities that are the ultimate end-users of our products. Our distribution partners
include large computer companies such as Dell, Inc., specialized system integrators such as Moxx Mobility, Psion Teklogix Inc. and Peak Technologies, and software vendors such as
Environmental Systems Research Institute. In any given year, a single distribution partner can account for a significant portion of our revenue. In fiscal year 2009, we had one end-user,
National Express Corporation, located in Canada that accounted for over 12% of our revenue. We are not substantially dependent on any single one distribution partner or end-user.

As
of July 31, 2009, we have a sales team of 8 individuals that have geographic responsibilities for direct and indirect sales opportunities. Our sales team works closely with our
distribution partners in defined regions based upon a standard agreement. Our distribution partners are currently selling our products in the public safety, utility, field service, logistics and
military markets.

Our
total revenue decreased approximately 11% in fiscal 2009 from fiscal 2008. Our revenue outside of North America was approximately 28.8% of total revenue in fiscal year 2009 as
compared to approximately 35.4% of total revenue in fiscal year 2008.

Marketing

We have marketing programs aimed at increasing awareness of our products and services, product management and corporate communications.
Key elements of our marketing program include:



We
also market our products through a number of different industry participants, including independent software vendors with application software for a specific industry, systems
integrators that bring elements such as wireless communication systems to the project, agents that specialize in rugged mobile computing devices and other consultants. We believe one of the driving
forces behind these

5

---



relationships
is an active project where the combination of our systems with the application software and support services seeks to provide a tailored solution designed to meet customers' needs.

The
market pricing for rugged computers is higher than commercial grade computers used in traditional office settings. We believe the pricing reflects the theory that the total cost of
ownership of a rugged computer over a three to five year period can be significantly lower as compared to a non-rugged computer. In fact, several of our customers have disclosed in our
customer-based market research studies that they experienced firsthand higher direct costs using
non-rugged devices (e.g.more frequent damage, information retrieval costs, replacement costs), as well as higher indirect costs such
as prolonged downtime.

We
recognize that, as a small company, our key to success depends on our ability to provide a better product than our larger competitors and to be more responsive to our customers'
needs. Some of our accomplishments, such as the AllVue screen and the Dual Mode functionality, were the result of customer feedback. When embarking on the development of a new device or
an upgrade of an existing one, we devote resources to soliciting customer feedback. We believe this process, combined with our flexibility to make quick decisions and the support of our major
manufacturing partner, Wistron, have enabled us to deliver products and market leading technology ahead of our competitors.



We target a number of different sectors where we believe the deployment of rugged mobile computers can greatly improve operating
efficiencies and reduce related costs.

Logistics.We believe globalization, increased competition and heightened consumer expectations are contributing factors to the adoption
of mobile
computing technologies by many leading warehousing, distribution and retail entities. These operations typically require real time price modifications, product introductions and transitions, and
timely inventory management. We believe these sectors will continue to automate order fulfillment, inventory control and management systems as part of an overall effort to integrate enterprise
resource planning and supply chain management information systems. Our end-users in this sector include Daimler AG and Meijer Inc.

Utilities & Energy.Generally, utilities and energy related companies continuously have to respond to customers' requests and
power outages
expeditiously and efficiently to remain competitive. We believe the reliable and real-time movement of information to and from the field is vital to the success of any field automation
system. Hydro One in Canada and Essent in Europe are major end-users in this sector, as well as Shell Oil.

Public Safety.Given the focus in the U.S. on homeland security matters and the continued commitment by Federal, state and municipal
governments on
law enforcement, fire and emergency medical services, members of the public safety arena are searching for efficiencies that will better enable them to do their jobs. Rugged mobile computing devices
assist these groups in a variety of ways. For example,
having a reliable and durable Tablet PC provides law enforcement agencies with immediate and reliable access in the field to national and local criminal databases. In this market segment, our products
have been sold to over 300 public safety organizations in the U.S., including the Rochester, Santa Monica, Detroit and Cleveland Police Departments and NEC, and multiple international organizations,
including the Air Berlin.

Military.As the military continues to transition to commercial and industrial grade rugged mobile computing systems, we expect this
segment will
represent a significant opportunity. In particular, we believe the U.S. Department of Defense is generally moving away from full military specifications adherence, except for system-critical
operations, and instead, is increasing emphasis on purchasing commercial, off-the-shelf (COTS) equipment. Our end-users in this sector include the U.S. Air Force
and the Royal Dutch Air Force. In addition, we are working with VT Miltope on penetrating the

6

---



military
vertical with the Armadillo System, an expandable multi-mission tablet and active dock computer system for vehicle-mounted and dismounted applications. The targeted military market segments
initially include ground and C4I (Command, Control, Communications, Computers and Intelligence) systems.

Field Service.According to VDC, the second largest market segment for large form factor rugged mobile devices is the field service
industry. This
market segment includes mobile technicians from the telecommunications, cable and appliance sectors who typically must have real time access to mission critical data including work tickets,
schematics, manuals, customer service records, inventory levels and order status. We believe that companies in this market segment recognize that linking field service personnel through the entire
enterprise system can improve customer response, billing, inventory management and throughput metrics, thereby increasing operational efficiencies. Our end-users in this market segment
include Cincinnati Bell, Boeing and HydroChem.

Research and Development

We have assembled an experienced engineering and product development team. Through the collaboration of our employees, engineering and
manufacturing partner, Wistron, we believe we are able to bring significant resources to the research, development and design of our products.

We
seek to design and manage product life cycles through a controlled and structured process. We involve customers and industry experts from our target markets in the definition and
refinement of product development. Product development emphasis is placed on meeting industry standards and product specifications, ease of integration, ease of use, cost reduction,
design-for manufacturability, quality and reliability.

We
continue to invest in research and development to enhance and expand our rugged mobile computing systems. Additional form factors, operating systems and screen technologies are being
considered for integration into our rugged platform as we seek to expand into additional markets. During the fiscal years ended March 31, 2009 and 2008, we incurred $6,978,000 and $4,244,000,
respectively, on research and development activities.

Competition

Competition in our industry is intense and is characterized by rapidly changing technologies, evolving industry standards, frequent new
product introductions and rapid changes in customer requirements. To be competitive, we must continue to develop and introduce, on a timely and cost-effective basis, new products and
product features that keep pace with technological developments and emerging industry standards and address the increasingly sophisticated needs of our customers. We believe that the principal
competitive factors affecting the market for our products are the product's performance, features and reliability, price, customer service, reputation in the industry and brand loyalty. We believe
that our strongest competitive factors are our products' durability and reputation in the industry. In order to compete, we will be required to continue to respond promptly and effectively to the
challenges of technological changes and our competitors' innovations.

Our
primary competitors in the mobile rugged computer market include the following:

Panasonic.Panasonic is the largest provider of mobile rugged computers and offers a series of traditional and convertible notebooks.
Panasonic
promotes a rugged computer, known as the Toughbook, which is well known in the industry.

Itronix.Itronix markets its semi-rugged pen tablet computer systems as part of its mobile portfolio, which also includes rugged
notebooks. In September 2005, Itronix was acquired by General Dynamics Corp.

7

---





Walkabout.Walkabout promotes a Tablet PC as its main product. In June 2005, Walkabout was acquired by DRS Technologies, Inc., a
multibillion
dollar supplier to military agencies.

Our
primary competitors have greater financial, technical, and research and development resources and marketing capabilities than we do.

Manufacturing

We outsource the majority of our manufacturing services for our ruggedized mobile personal computer tablets to Wistron, including board
production, certain parts procurement, assembly, some quality assurance testing, warranty repair and service. We have a design and manufacturing agreement with Wistron. Wistron makes computers and
components for some of the world's largest technology companies, such as Dell, Inc. and Hewlett-Packard Company. Wistron collaborates with us on product specifications and provides us with the
flexibility to make changes to our products as market conditions change.

Under
the terms of our agreement with Wistron, which we entered into in July 2003, Wistron provides us with design, manufacturing and support services related to our ruggedized mobile
personal computer tablets. Our purchase price of the products produced by Wistron is determined based on the specific configuration of the tablet being produced and is subject to a cost reduction plan
and volume based discounts. At least quarterly, we meet with Wistron to develop a cost reduction plan. The plan takes into account alternative suppliers along with components, design, process changes
and other cost savings procedures. Each month we provide Wistron with a six month rolling forecast of the products we anticipate ordering. Wistron has 45 days after acceptance of the purchase
order to ship the product.
If products ordered during any quarter exceed the volume projected in the forecast, Wistron has agreed to use its reasonable best efforts to deliver the excess products within 20 days after
acceptance of the purchase order.

Wistron
has provided several warranties to us, including that Wistron has all necessary rights required to sell the products, that each product will be free from any material defect for
a period of 36 months, that the products will be free from any liens, encumbrances or defects in title and that the products will comply with all specifications. So long as we are meeting our
target volumes, Wistron agrees not to design, engineer, and manufacture or sell any rugged mobile tablet that is competitive with ours. The term of the agreement is for five years and automatically
renews for additional one year terms, unless either party provides written notice of its intent to terminate the agreement at least 120 days prior to the expiration of any renewal term. The
Wistron agreement automatically renewed for a one-year term in July 2009. In addition, the Wistron agreement contains a provision that allows for termination for any reason by either party
upon 120 days notice.

Intellectual Property

Our performance and ability to compete are dependent to a significant degree on our proprietary technology. We rely primarily upon a
combination of patent, copyright and trade secret laws and license agreements to establish and protect proprietary rights in our products and technology. We have four U.S. patents and one Canadian
patent, along with one U.S. patent application, one China patent application, one European application and one Canadian patent application. We are seeking to obtain patent protection for certain key
components of our technology. It may be possible for a third party to copy or otherwise obtain and use our products or technology without authorization or to develop similar technology independently.
In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries. We do not believe that our products infringe on the proprietary rights
of third parties. There can be no assurance, however, that third parties will not claim such infringement by us or our licensees with respect to current or future products. Any such claims, with or
without merit, could be time consuming, result in costly litigation, cause product

8

---



shipment
delays or require us to enter into a royalty or licensing agreement, any of which could delay the development and commercialization of our products.

Employees

As of July 31, 2009, we had 40 full-time employees, of which 26 were employed in the operations, engineering,
research and development and customer support areas, 6 were involved in corporate, finance and administrative areas, and 8 were employed in sales and marketing. Our employees are not represented by a
union or other collective bargaining unit and we have never experienced a work stoppage. We believe that our employee relations are good.

Trademarks and Service Marks

Trademarks or trade names of Xplore Technologies Corp. used in this annual report include: "iX" and "AllVue."
Each trademark, trade name or service mark of any other company appearing in this annual report belongs to its holder.

Principal Executive Offices

Our principal executive offices are located at 14000 Summit Drive, Suite 900, Austin, Texas 78728 and our telephone number is
(512) 336-7797. We maintain an Internet website atwww.xploretech.com. The information contained on our website is not included as a
part of, or incorporated by reference into, this annual report.

Available Information

We have filed a copy of this annual report with the Securities and Exchange Commission, which we refer to as the SEC. You may read and
copy this annual report at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this annual report by mail from the Public Reference
Section of the SEC at prescribed rates. To obtain information on the operation of the Public Reference Room, you can call the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers, including Xplore Technologies Corp., that file electronically with the
SEC. The address of the SEC's Internet website ishttp://www.sec.gov.

Item 1A.    Risk Factors

There are many risks that affect our business and results of operations, some of which are beyond our control. If any of the following
risks actually occur, our business, financial condition or operating results could be materially harmed. This could cause the trading price of our common stock to decline, and you may lose all or part
of your investment.

Risks Relating to our Business

We have a history of net losses, we anticipate additional losses and may never become profitable.

We have incurred net losses in each fiscal year since our inception. For our fiscal year ended March 31, 2009, we incurred a net
loss of approximately $10.8 million. In addition, as of March 31, 2009, our accumulated deficit was approximately $114 million. Our losses have resulted primarily from expenses
incurred in research and development of our technology and products and from selling and marketing our products. We expect to continue to incur additional operating losses through fiscal 2010 as we
continue our research and development efforts, introduce new products and expand our sales and marketing activities. We cannot assure you that our revenue will increase or that we will be profitable
in any future period.

9

---



If we fail to obtain additional financing when needed, we may be unable to complete the development and commercialization of our future products or may have to significantly
delay, scale back or discontinue the development or commercialization of one or more of our other products.

Our operations have consumed substantial amounts of cash since inception. From our inception in 1996, we have financed our operations
and met our capital expenditure requirements primarily from debt and equity financings totaling $100 million. We expect to continue to spend substantial amounts to complete the development and
commercialization of our future products and to continue our research and development programs, including those to advance our current product line. As at March 31, 2009, our working capital
was approximately $1.4 million and our cash and cash equivalents were approximately $0.8 million. We believe that cash flow from operations, together with borrowings from our credit
facility (including the refinancing thereof) and, if necessary, financial support from an affiliate of Phoenix Venture Fund LLC (together with affiliates "Phoenix"), our significant
shareholder, will be sufficient to fund our anticipated operations through the balance of fiscal 2010. However, we may seek to access the public or private markets before such time, whenever
conditions are favorable or appropriate, even if we do not have an immediate need for additional capital at that time. It is uncertain whether additional funding will be available when we need it on
terms that will be acceptable to us or at all. To the extent we raise additional funds by issuing equity our shareholders may experience significant dilution. Any debt financing, if available, may
require us to agree to restrictive covenants that could negatively impact our ability to conduct our business. If we are not able to obtain financing when needed or on acceptable terms, we would
likely be unable to carry out our business plan, and would have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products, the occurrence of
which could significantly harm our business and prospects and could cause our stock price to significantly decline.

Since our revenues are highly dependent on one product family, any significant reduction of sales of this product family would materially harm our operating results.

Because our revenues are derived substantially from sales of our iX104 Systems, we are highly dependent upon the continued market
acceptance of the iX104 product family. We cannot assure you that the iX104 product family will continue to achieve acceptance in the marketplace. Any significant reduction of sales of the iX104
product family would materially harm our operating results.

In fiscal year 2009, more than 10% of our revenue was derived from one of our customers. If we are unable to replace revenues generated from one of our major resellers or
end-user customers with revenues from others in future periods, our revenues may fluctuate and our growth would be limited.

Historically, in any given year a single customer, either reseller or end-user customer, could account for more than 10% of
our revenue. In fiscal year 2009, one end-user customer National Express Corporation, accounted for approximately 12% of our total revenue and in fiscal year 2008, one reseller customer,
Methec B.V. Industrielaan, accounted for approximately 10% of our total revenue. If we are unable to replace revenues generated from one of our major resellers or end-user customers
with revenues from others our revenues may fluctuate and our growth would be limited.

We experience lengthy sales cycles for our products and the delay of an expected large order could result in a significant unexpected revenue shortfall.

The purchase of an iX104 system is often an enterprise-wide decision for prospective end-user customers, which
requires us to engage in sales efforts over an extended period of time and provide a significant level of education to prospective end-user customers regarding the uses and benefits of
such systems. As a result, our products generally have a lengthy sales cycle ranging from several months to several years. Consequently, if forecasted sales from a specific end-user
customer are not realized, we may not be able to generate revenue from alternative sources in time to compensate for the shortfall.

10

---



The
loss or delay of an expected large order could result in a significant unexpected revenue shortfall. Moreover, to the extent that significant contracts, are entered into and performed earlier than
expected, operating results for subsequent periods may be adversely affected.

We are currently dependent on Wistron to manufacture our products and products under development and our reliance subjects us to significant operational risks, any of which
would impair our ability to deliver products to our customers should they occur.

We currently rely primarily on Wistron for the manufacture of our products. Our reliance involves a number of risks,
including:



Our
business is therefore dependent upon Wistron for their manufacturing abilities. During the fiscal years ended March 31, 2009 and 2008, we purchased approximately
$11.6 million and $11.3 million, respectively, from Wistron. The Wistron Agreement contains a provision that allows for termination for any reason. We cannot assure you that Wistron will
continue to work with us, that they will be able to meet our manufacturing needs in a satisfactory and timely manner, that Wistron has the required capacity to satisfy our manufacturing needs or that
we can obtain additional or alternative
manufacturers when and if needed. The availability of Wistron and the amount and timing of resources to be devoted by Wistron to our activities is not within our control, and we cannot assure you that
we will not encounter manufacturing problems that would materially harm our business. The loss of Wistron, a significant price increase, an interruption of supply or the inability to obtain additional
or an alternative manufacturer when and if needed would impair our ability to deliver our products to our customers.

We face competition from companies that have greater resources than we do and we may not be able to effectively compete against these companies.

We operate in a highly competitive industry. Many of our competitors, such as DRS Technologies, Inc. in the tablet area and
Panasonic in the notebook markets, have much greater financial, technical, research and development resources and production and marketing capabilities than we do. The principal competitive factors in
our industry include:



If
we are unable to successfully compete with our competitors our sales would suffer and as a result our financial condition will be adversely affected.

11

---



If we are unable to successfully protect our intellectual property, our competitive position will be harmed.

Our ability to compete is heavily affected by our ability to protect our intellectual property. We rely on a combination of patents,
copyright and trademark laws, trade secret, confidentiality procedures and contractual provisions to protect our proprietary rights. The steps we take to protect our technology may be inadequate.
Existing trade secret, trademark and copyright laws offer only limited protection. Unauthorized parties may attempt to copy aspects of our products or obtain and use information which we regard as
proprietary. Policing unauthorized use of our products is difficult, time consuming and costly. We cannot assure you that our means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop similar technology, the effect of either of which would harm our competitive position in the market.

Others could claim that we infringe on their intellectual property rights, which may result in costly and time consuming litigation and could delay or otherwise impair the
development and commercialization of our products.

We do not believe that our products infringe on the proprietary rights of third parties. There can be no assurance, however, that third
parties will not claim such infringement by us or our licensees with respect to current or future products. Any such claims, with or without merit, could be time consuming, result in costly
litigation, cause product shipment delays or require us to enter into a royalty or licensing agreement, any of which could delay the development and commercialization of our products. If we are unable
to obtain a required license, our ability to sell or use certain products may be impaired. In addition, if we fail to obtain a license, or if the terms of the license are burdensome to us, our
operations could be materially harmed.

We are subject to risks by doing business outside of the United States which could impair our ability to grow our revenues.

In the fiscal years ended March 31, 2009 and March 31, 2008, approximately 50% and 42%, respectively, of our revenue was
comprised of sales made outside of the United States. Our operations may be materially and adversely affected by many risks related to doing business outside of the United States,
including:



The
occurrence of any one these risks could impair our ability to grow our revenues.

If we are unable to retain key personnel we may not be able to execute our business strategy.

Our operations are dependent on the abilities, experience and efforts of a number of key personnel, including Philip S. Sassower, our
Chairman and Chief Executive Officer, Mark Holleran, our President and Chief Operating Officer, Michael J. Rapisand, our Chief Financial Officer and Corporate Secretary, and Bryan Bell, our Vice
President of Engineering. Should any of these persons or other key employees be unable or unwilling to continue in our employ, our ability to execute our business strategy may be adversely affected.
In addition, our success is highly dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified management, technical and sales and

12

---



marketing
personnel. Competition for such personnel is intense. We may be unable to attract and retain the personnel necessary for the development of our business. The inability to attract or retain
qualified personnel in the future or delays in hiring skilled personnel could harm our relations with our customers and our ability to respond to technological change which would prevent us from
executing our business strategy.

Risks Relating to Ownership of our Common Stock

Two of our shareholders, Philip S. Sassower and Phoenix Venture Fund LLC, beneficially own as of August 1, 2009 in the aggregate approximately 45.6% of our
voting securities and thus have effective control over matters requiring shareholder approval.

One of our shareholders, Phoenix Venture Fund LLC, is co-managed by Philip S. Sassower, our Chairman and Chief
Executive Officer, and Andrea Goren, one of our directors, and beneficially owns, in the aggregate, approximately 28.2% of our outstanding voting securities. In addition, Mr. Sassower, together
with entities controlled by him, beneficially own approximately 17.4%, in the aggregate, of our outstanding voting securities. Thus, Phoenix Venture Fund and Mr. Sassower together control
approximately 45.6% of our outstanding voting securities. Accordingly, Phoenix Venture Fund and Mr. Sassower have the ability to exercise significant influence (and have effective control) over
matters generally requiring shareholder approval, including the election of directors and the approval of significant corporate transactions, which could have the effect of delaying or preventing a
third party from acquiring control over us.

Some of the rights granted to the holders of our Series A Preferred Stock could prevent a potential acquirer from buying our company.

Holders of our Series A Preferred Stock, which include Phoenix Venture Fund and Mr. Sassower, have the right to block the
company from consummating a merger, consolidation, sale of substantially all of its assets or liquidation. Phoenix Venture Fund and Mr. Sassower together control approximately 70.7% of the
outstanding Series A Preferred Stock. Accordingly, the holders of our Series A Preferred Stock could prevent the consummation of a transaction in which our shareholders could receive a
substantial premium over the current market price for their shares.

The anti-takeover effect of certain of our charter provisions could adversely affect holders of our common stock.

Our authorized capital consists of preferred stock issuable in one or more series. Our board of directors has the authority to issue
preferred stock and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or
action by shareholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future.
The issuance of additional preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party
to acquire a majority of our outstanding voting shares, which could deprive our holders of common stock of a premium that they might otherwise realize in connection with a proposed acquisition of our
company.

Many factors can adversely affect the price of our common stock.

The trading price of our common stock has been highly volatile and may continue to fluctuate substantially. We believe that a variety
of factors have caused and could in the future cause the stock price of our common stock to fluctuate significantly, including:



13

---





In
addition, in recent years the stock market in general and the market for shares of small capitalization technology companies in particular, has experienced substantial price and
volume fluctuations, which have often been unrelated or disproportionate to the operating performance of
affected companies. Any fluctuations in the future could adversely affect the market price of our common stock and the market price of our common stock may decline.

Dividends are not expected to be paid on our common stock.

We have never paid cash dividends on our common stock. Our current policy is to retain any future earnings to finance the future
development and expansion of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, capital
requirements, operating and financial conditions and on such other factors the board of directors deems relevant. Under the terms of our certificate of incorporation, we are prohibited from paying
dividends on our common stock unless and until all accrued and unpaid dividends (which are paid in common stock) are paid on our shares of Series A, Series B, and Series C
Preferred Stock. Furthermore, under the terms of our loan agreement with a commercial bank, we are prohibited from paying cash dividends.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

We maintain our corporate functions along with sales support, marketing, finance, engineering and operating groups at a leased facility
totaling approximately 21,700 square feet at 14000 Summit Drive, Suite 900, Austin, Texas. The lease expires on August 31, 2014, and has a current annual base rent of approximately
$127,000. We also believe that our present facilities are suitable for our existing and planned operations.

Item 3.    Legal Proceedings

On November 9, 2006, we issued a Statement of Claim against Deloitte & Touché LLP (which we refer
to as Deloitte) in the Ontario Superior Court of Justice. In the Statement of Claim, we have alleged negligence against Deloitte with respect to the auditing services provided to us in connection with
its audit in accordance with Canadian generally accepted accounting principles of our 2002, 2003 and 2004 audited financial statements. The Statement of Claim seeks damages in the amount of Cdn.
$4,070,000 for direct and indirect losses. On December 22, 2006, Deloitte filed an answer to the Statement of Claim. On March 28, 2008, Deloitte filed an amended defense and counterclaim
against us, seeking indemnification for damages, costs and expenses (including legal fees and disbursements and personnel time) allegedly incurred by Deloitte in responding to regulatory inquiries,
requests, reviews or investigations relating to, arising out of or associated with Deloitte's review or audit

14

---



engagements
for or during our fiscal years 2002, 2003 and 2004. We do not expect the counterclaim to have a material adverse impact its financial condition or results of operations.

In
March 2008, Typhoon Touch Technologies, Inc. ("Typhoon") and Nova Mobility Systems, Inc. ("Nova") (collectively, the "Plaintiffs") filed Plaintiffs' First Amended
Complaint for Patent Infringement (the "Complaint") against us and several other defendants including Dell, Inc., Panasonic Corporation of North America, and Apple, Inc., in the United
States District Court for the Eastern District of Texas (the "Court"). The Complaint alleges that the defendants manufacture, sell, offer for sale and/or import products that infringe on two U.S.
patents owned by Typhoon and exclusively licensed to Nova (the "Patents"). In April 2009, we entered into a settlement agreement and covenant not to sue with the Plaintiffs in exchange for a $16,000
cash payment and 2,000,000 shares of our Series C Preferred Stock.

We
are involved in other various claims and legal actions arising in the ordinary course of business. We believe that the ultimate outcome of these matters would not have a material
adverse impact on our financial condition or the results of operations.

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

None

15

---





PART II

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

Market Information

Our common stock is quoted on the OTC Bulletin Board under the symbol "XLRT". Our common stock was formerly listed on the Toronto Stock
Exchange under the symbol "XPL." We voluntarily delisted from the Toronto Stock Exchange effective April 11, 2008. We have one class of common stock and three classes of preferred stock. As of
June 30, 2009, there were 382 holders of record of our common stock. The following table sets forth the high and low sales price of our common stock. For the fiscal year ended March 31,
2009, the prices are from the OTC Bulletin Board, as quoted in U.S. dollars, and for the fiscal year ended March 31, 2008 the prices are from the Toronto Stock Exchange, as quoted in Canadian
dollars. The Company discontinued trading its common stock on the Toronto Stock Exchange on April 11, 2008.

PERIOD

High

Low(US $)

(US $)Fiscal Year Ended March 31 2009:First Quarter


0.52


0.27Second Quarter


0.37


0.16Third Quarter


0.24


0.06Fourth Quarter


0.13


0.07(Cdn. $)


(Cdn. $)Fiscal Year Ended March 31, 2008:First Quarter


0.50


0.30Second Quarter


0.68


0.35Third Quarter


0.46


0.36Fourth Quarter


0.50


0.32


Dividend Policy

We have not declared or paid any dividends on our common stock during our last five fiscal years. Our outstanding shares of Preferred
Stock carry an annual 5% dividend, payable quarterly in shares of our common stock or, with respect to our Series A, Series B and Series C Preferred Stock, in cash at our option.

The
payment of dividends on our common stock in the future will depend on our earnings, capital requirements, operating and financial condition and such other factors as our board of
directors may consider appropriate. Under the terms of our certificate of incorporation, we are prohibited from paying dividends on our common stock unless and until all accrued and unpaid dividends
are paid on our Series A, Series B and Series C Preferred Stock. Furthermore, under the terms of our loan agreement with a commercial bank, we are prohibited from paying cash
dividends without the bank's prior written consent. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying
dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

During the three months ended March 31, 2009, we issued 200,000 shares of common stock to Martin E. Janis &
Company, Inc. in return for investor relations services provided to us from December 15, 2008 to April 14, 2009. The issuance of such common stock was exempt from the

16

---



registration
requirements of the Act pursuant to Section 4(2) as the transaction did not involve a public offering. The price per share was $0.175.

On
January 30, 2009, February 27, 2009 and March 5, 2009, we raised $900,000 in aggregate gross proceeds through private placements to accredited investors of an
aggregate 9,000,000 shares of our common stock and warrants to purchase 3,750,000 and 4,000,000 shares of our common stock at exercise prices of $0.13 and $0.10, respectively, per share. The warrants
issued to the investors are exercisable immediately and will expire three years from their date of issuance. The issuance of such common stock was exempt from the registration requirements of the Act
pursuant to Section 4(2) as the transaction did not involve a public offering.

On
February 27, 2009, March 5, 2009, March 11, 2009, May 26, 2009, June 15, 2009 and July 15, 2009, we issued secured subordinated promissory
notes in the aggregate principal amount of $1,090,000 and issued warrants to purchase up to 10,900,000 shares of our common stock at an exercise price of $0.10 per share to purchasers.

Item 6.    Selected Financial Data.

Not applicable.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operation.

You should read the following discussion and analysis in conjunction with our financial statements and notes included in this annual
report. This discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainty. Our actual results could differ materially from those
anticipated in the forward-looking statements, including those discussed in "Risk Factors" and elsewhere in this annual report.

General

We engineer, develop, integrate and market rugged, mobile computing systems. Our products and features are designed to enhance the
ability of persons to perform their jobs outside of traditional office settings. Our family of iX Tablet PC systems are designed to operate in challenging work environments, such as
extreme temperatures, repeated vibrations or dirty and dusty conditions. Our systems can be fitted with a wide range of performance-matched accessories, including multiple docking station solutions,
wireless connectivity alternatives, global positioning system modules, biometric and smartcard modules, as well as traditional peripherals like keyboards, mouses and cases.

Our
revenue is currently derived through the sale of our iX104 Systems in the rugged, mobile Tablet PC market. We believe this market is small relative to other rugged PC markets. We
therefore intend
to grow our revenue by entering into other rugged PC markets through the development of new rugged, mobile computing systems. We have been developing other new products, including the next generation
of our iX104 Tablet PC featuring, among other things, a dual core processor and a sunlight readable display, which became available in September 2008, as well as, the Armadillo System for military
markets, which became available in June 2009. In addition, we were developing a rugged, mobile notebook PC which required further design modifications. As a result, we are re-evaluating
our notebook development activities in light of the current market and economic conditions.

We
are dependent upon the market acceptance of our next generation of the iX104 Tablet PC system. We believe the markets initial response to our next generation of the iX104
has been favorable. However, the global economic conditions have caused many companies to sharply reduce their technology spending and we are experiencing a slow-down in our business.
During the three months ended December 31, 2008, we took cost reduction actions in response to the market conditions. We reduced our headcount by approximately 43% during that quarter, and the
impact of the headcount

17

---



reduction
began to be realized in the first calendar quarter of 2009. In early April 2009, we further reduced our headcount by approximately 17% to the current level of 40 employees. Our development
spending has been reduced and is generally limited solely to products we expect to introduce to the market in fiscal 2010. Further, we continue to evaluate all other operating costs with a view to
further reduce our operating expenses. Management estimates the cost reduction actions should decrease our calendar 2009 cash operating expenses.

Management
believes that if we can successfully penetrate the military markets with the Armadillo System we should expect to increase our revenues for fiscal 2010 as compared to fiscal
2009.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes included in this annual report are prepared in accordance with U.S.
generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management's application of accounting policies. Estimates are deemed critical
when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact our financial condition,
changes in financial condition or results of operations. Our significant accounting policies are discussed in Note 2 of the Notes to our Annual Consolidated Financial Statements as of
March 31, 2009 and 2008 and for each of years in the two year period ended March 31, 2009. On an ongoing basis, we evaluate our estimates, including those related to our revenue
recognition, allowance for doubtful accounts, inventory valuation, warranty reserves, tooling amortization, financial instruments, stock based compensation and income taxes. We base our estimates on
historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Our
critical accounting policies are as follows:

Revenue Recognition.Our revenue is derived from the sale of rugged, mobile technology which includes rugged mobile computers and
related
accessories. Our customers are predominantly resellers. However, we also sell directly to end-users. We follow the principles of Staff Accounting Bulletins 101 and 104, and other related
pronouncements. Revenue is recognized, net of an allowance for estimated returns, when title and risks of ownership are transferred to the customer, all significant contractual obligations have been
satisfied, the sales price is fixed or determinable and the ability to collect is reasonably assured. Our revenue recognition criteria have generally been met when the product has been shipped.
Shipments are based on firm purchase orders from our customers with stated terms. The shipping terms are F.O.B. shipping point. We do not have installation, training and other commitments subsequent
to shipment that are other than incidental. Our prices are determined based on negotiations with our customers and are not subject to adjustment. Generally, we do not hold inventory at our resellers
and we do not expect resellers to hold inventories of our products other than in limited circumstances where such inventory is monitored by us. As a result, we expect returns to be minimal. We have
not had material adjustments as our returns have been minimal.

Allowance for Doubtful Accounts.We regularly review and monitor collections of our accounts receivables and make estimated provisions,
generally
monthly, based on our experience, aging attributes, results of collection efforts and current market conditions. If our estimate for allowance for doubtful accounts is too low, additional charges will
be incurred in future periods and these additional charges could have a material adverse effect on our financial position and results of operations. Our estimates have not required significant
adjustment due to actual experience.

18

---



Warranty Reserves.Provisions are made at the time of sale for warranties, which are based on our experience and monitored regularly.
The revenue
related to warranty is recognized when our
obligations are covered by a warranty coverage agreement provided by a third party. All warranty obligations related to revenue recognized are covered by warranty coverage agreements provided by
Wistron. If our estimates for warranties and returns are too low, additional charges will be incurred in future periods and these additional charges could have a material adverse effect on our
financial position and results of operations. Our estimates have not required significant adjustment due to actual experience.

Inventory Valuation.We adjust our inventory values so that the carrying value does not exceed net realizable value. The valuation of
inventory at
the lower of average cost or net realizable value requires us to use estimates regarding the amount of current inventory that will be sold and the prices at which it will be sold and our assessment of
expected orders from our customers. Additionally, the estimates reflect changes in our products or changes in demand because of various factors, including the market for our products, obsolescence,
technology changes and competition. While the estimates are subject to revisions and actual results could differ, our experience is that the estimates overseen by current management have not been
required to be adjusted based on actual results. Accordingly, while any change to the estimates could have a material impact, there have been no material corrections to originally provided amounts.

Tooling Amortization.We amortize tooling costs over a two year period or estimated life, whichever is shorter. Those costs are recorded
as a cost of
revenue, subject to an assessment that future revenue will be sufficient to fully recover the cost of the tooling. This assessment requires an assessment of the market for our products and our future
revenue expectations. On a quarterly basis, this assessment is reviewed and the cost of tooling is written down to its net realizable value if its recoverability is not reasonably expected based on
estimates of future revenue for the periods covered by these financial statements. There have been no instances where we determined that useful life was significantly less than two years. Accordingly,
we have not recorded material adjustments.

Income Taxes.We have significant valuation allowances that we intend to maintain until it is more likely than not the deferred tax
assets will be
realized. Our income tax expense recorded in the future will be reduced to the extent of decreases in our valuation allowances. Changes in the tax laws and rates could also affect recorded deferred
tax assets and liabilities in the future. We are not aware of any such changes that would have a material effect on our results of operations, cash flows or financial position.

Financial Instruments.The warrants we issued in connection with the promissory notes have been valued separately using the
Black-Scholes
methodology. The notes originally reflected in our financial statements are at a discounted value and the difference between this discount amount and the face value of the notes, which is repayable at
maturity, is amortized as additional non-cash interest expense during the term of the notes. The determination of the value attributed to the
warrants and notes required the use of estimates and judgments particularly related to the assumptions used in the Black-Scholes calculation. In addition, options to acquire common stock issued to
employees have been valued using a Black-Scholes calculation and their valuation is impacted by the assumptions used in this calculation.

Recent Accounting Pronouncements

In December 2007, the FASB issued Financial Accounting Standard No. 141(R), "Business Combinations," or FAS 141(R).
FAS 141(R) requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial
acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and
restructuring costs;

19

---



and
requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination.
FAS 141(R) applies to all transactions or other events in which the reporting entity obtains control of one or more businesses, including those sometimes referred to as "true mergers" or
"mergers of equals" and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights. FAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of
FAS 141R did not have a material impact on our financial position or results of operations.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement
No. 115." This statement allows companies to elect to measure certain eligible financial instruments and other items at fair value. Companies may choose to measure items at fair value at a
specified election date, and subsequent unrealized gains and losses are recorded in income at each subsequent reporting date. SFAS No. 159 became effective for fiscal years beginning after
November 15, 2007, with earlier adoption permitted under certain circumstances. We were required to adopt SFAS No. 159 no later than the first quarter of fiscal 2009. The adoption of
SFAS No. 159 did not have a material impact on our financial position or results of operations.

In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." The statement clarifies the definition of fair value, establishes a framework for measuring fair value,
and expands the disclosure requirements regarding fair value measurements. SFAS No. 157 became effective for fiscal years beginning after November 15, 2007, with earlier adoption
permitted. We were required to adopt SFAS No. 157 no later than the first quarter of fiscal 2009. The adoption of SFAS No. 157 did not have a material impact on our financial position or
results of operations.

In
July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48)."
FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including
a decision on whether or not to file in a particular jurisdiction. Under FIN 48, a tax benefit from an uncertain position may be recognized only if it is "more likely than not" that the
position is sustainable based on its technical merits. FIN 48 became effective for fiscal years beginning after December 15, 2006, and we adopted FIN 48 in the first quarter of
fiscal 2008. The adoption of FIN 48 did not have a material impact on our financial position or results of operations.

Results of Operations

Revenue.We derive revenue from sales of our rugged wireless Tablet PC systems which encompass a family of active pen and touch Tablet
PC computers,
embedded wireless, desktop, vehicle, fork-lift or truck docking stations and a range of supporting performance matched accessories, peripherals and support services. Our revenue also
includes service revenue derived from out-of-warranty repairs.

Cost of Revenue.Cost of revenue consists of the costs associated with manufacturing, assembling and testing our products, related
overhead costs,
maintenance, compensation and other costs related to manufacturing support, including depreciation of tooling assets. We use contract manufacturers to manufacture our products and supporting
components, which represents a significant part of our cost of revenue. In addition, the costs associated with providing warranty repairs, as well as the costs associated with generating service
revenue, are included in cost of revenue.

20

---



Gross Profit.Gross profit has been, and will continue to be, affected by a variety of factors, including competition, product mix and
average
selling prices of products, maintenance, new product introductions and enhancements, the cost of components and manufacturing labor, fluctuations in manufacturing volumes, component shortages, the mix
of distribution channels through which our products are sold, and warranty costs.

Sales, Marketing and Support.Sales, marketing and support expenses include salaries, commissions, agent fees and costs associated with
co-operative marketing programs, as well as other personnel-related costs, travel expenses, advertising programs, trade shows and other promotional activities associated with the marketing
and selling of our products. We also believe part of our future success will be dependent upon establishing successful relationships with a variety of resellers.

Product Research, Development and Engineering.Product research, development and engineering expenses consist of salaries and related
expenses for
development and engineering personnel, and non-recurring engineering costs, including prototype costs, related to the design, development, testing and enhancement of our product families.
We expense our research and development costs as they are incurred. There may be components of our research and development efforts that require significant expenditures, the timing of which can cause
quarterly fluctuation in our expenses.

General Administration.General administration expenses consist of salaries and related expenses for finance, accounting, procurement
and information
technology personnel, professional fees, including legal fees for litigation defense as well as litigation settlement payments, corporate expenses, and costs associated with being a U.S. public
company, including regulatory compliance costs.

Interest.Interest expense includes interest on debenture and promissory note borrowings, interest on borrowings related to our bank
credit facility,
non-cash interest charges representing the amortization of the value assigned to warrants issued with promissory notes and discounts and amortization of deferred financing costs consisting
principally of legal fees and commission fees related to the financing transactions.

Other Income and Expense.Other income and expense includes gains and/or losses on dispositions of assets, foreign exchange and other
miscellaneous
income and expense.

Fiscal Year Ended March 31, 2009 vs. Fiscal Year Ended March 31, 2008

Revenue.Total revenue for the fiscal year ended March 31, 2009 was $22,627,000 as compared to $25,355,000 for the fiscal year
ended
March 31, 2008, a decrease of $2,728,000 or approximately 11%. The decrease in revenue was attributable to a decrease in our average selling prices of approximately 9% offset by an increase in
unit sales of approximately 2%. Revenue for the year ended March 31, 2009 includes our largest single order in our history which accounted for over $2,650,000 or approximately 11% of our
revenue. Due to its volume and unique customization, this single order had special pricing which accounted for the decline in our average selling prices. Excluding the impact of this single order, our
average selling prices increased by approximately 2% and our unit sales declined by approximately 19%. We introduced the next generation of our iX104 rugged Tablet PC in our 2009 third fiscal quarter
and we believe this new product accounted for the slight increase in our average selling prices. The decline in unit sales is principally due to the downturn in our business during the last six months
of fiscal year 2009 attributable to the current market and economic conditions.

We
operate in one segment, the sale of rugged mobile wireless Tablet PC computing systems. Approximately 50% of our revenue was derived from sales in the United States. Canada was the
only country outside of the United States that accounted for more than 10% of our revenue during the year ended March 31, 2009, with approximately 21% of the total revenue. The Netherlands was
the only country outside of the United States that accounted for more than 10% of our revenue during the year ended March 31, 2008 with approximately 11% of the total revenue. At
March 31, 2009, there was one

21

---



customer
with a receivable balance that was greater than 10% of the outstanding accounts receivables, PSC GROUP, LLC, which accounted for 23%. The receivable was collected subsequent to our
fiscal year end.

We
have a number of customers and in any year a single customer can account for a significant portion of our sales. For the fiscal year ended March 31, 2009, we had a customer
located in Canada who accounted for approximately 12% of our total revenue. For the fiscal year ended March 31, 2008, we had one customer located in the Netherlands who accounted for
approximately 10% of our total revenue.

Cost of Revenue.Total cost of revenue for the year ended March 31, 2009 was $16,245,000 compared to $17,924,000 for the year
ended
March 31, 2008, a decrease of $1,679,000 or approximately 9%. This decrease was principally attributable to the approximate 11% decrease in revenue and the product mix impact of our largest
single order.

We
rely on a single supplier for the majority of our finished goods. At March 31, 2009 and 2008, we owed this supplier $1,294,000 and $1,144,000, respectively, which was recorded
in accounts payable and accrued liabilities. The year to date inventory purchases and engineering services from this supplier at March 31, 2009 and 2008 were $11,539,000 and $11,286,000,
respectively.

Gross Profit.Total gross profit decreased by $1,049,000 to $6,382,000 (28.2% of revenue) for the year ended March 31, 2009 from
$7,431,000
(29.3% of revenue) for the year ended March 31, 2008. The decease in gross profit as a percentage of revenue for the year ended March 31, 2009 as compared to the prior year was primarily
attributable to the decrease in average selling prices arising from the product mix impact of our largest single order.

Sales, Marketing and Support Expenses.Sales, marketing and support expenses for the year ended March 31, 2009 were $4,041,000
compared to
$4,840,000 for the year ended March 31, 2008. The $799,000 reduction was in response to the current market and economic conditions. The reduction principally consisted of a decline of $516,000
in marketing activities, including trade show participation, co-op advertising, publications and print and electronic media. Additionally, headcount reductions accounted for $172,000 of
the decrease as well as a reduction in travel and entertainment and office expenses of $125,000, associated with the smaller head count, contributed to the reduction in the sales and marketing related
expenses.

Product Research, Development and Engineering Expenses.Product research, development and engineering expenses for year ended
March 31, 2009
were $6,978,000 compared to $4,244,000 for the year ended March 31, 2008. The increase of $2,734,000 in fiscal 2009 was due to an increase in development activities associated with investments
in major new products. These products included a rugged, mobile notebook PC, a rugged military tablet/docking system, referred to as the Armadillo System, and the next generation of our iX104 rugged
tablet, C4, which we introduced to the market in September 2008. Other new product development activities included new accessories such as our global positioning system and a vehicle economy dock. A
substantial portion of the expense increase, $2,077,000, was for non-recurring engineering costs that are generally non-headcount related expenses such as costs attributable to
the development of our rugged, mobile notebook PC, a one-time charge of $1,020,000 related to design changes for the notebook and an increase in depreciation expense of $507,000
principally related to development test chambers and other testing equipment. Headcount related costs accounted for $657,000 of the increase in fiscal 2009
expenses and are attributable to an increase in engineering staff for new products developed. These headcount cost increases included $280,000 of contract labor, $80,000 for relocation and recruiting
expense and $87,000 for employee stock compensation. We believe that our product research, development and engineering expenses in fiscal 2010 will be significantly less than fiscal 2009 due in part
to our completion of the C4 in fiscal 2009 and the completion of the Armadillo System in the first quarter of fiscal 2010.

22

---



General Administration Expenses.General administration expenses for the year ended March 31, 2009 were $5,351,000 compared to
$5,330,000 for
the year ended March 31, 2008, representing an increase of $21,000. Our legal expense for fiscal 2009 increased by $616,000 which principally related to professional fees associated with our
litigation defense and litigation settlement costs. In fiscal 2009, we settled a dispute with a value added reseller ("Reseller") related to the Reseller's servicing of products from 2001 to 2004. We
discontinued selling those products in 2004. Pursuant to the terms of the settlement, the Reseller was paid $100,00 in installments through June 15, 2009, was issued 1,334,000 shares of our
common stock and may receive up to $60,000 of discounts on future purchases of our products. Our warranty reserve for these products, included in accrued liabilities, was adequate to cover the cash
payments and the $240,000 fair value of the issued common stock. Legal defense fees that were in excess of the reserve in the amount of $207,000 were recorded as general administration expense. During
fiscal 2009, we were also defendants in a patent infringement claim. In April 2009, we entered into a settlement agreement with the plaintiff in exchange for a $16,000 cash payment and 2,000,000
shares of our Series C Preferred Stock. The cash payment and fair market value of the issued shares of $170,000, assuming conversion into common stock, was recorded as general administration
expense. The remainder of the legal expense increase was due to professional fees for legal defense. Excluding the increase in legal expense, our general administration costs for fiscal 2009 declined
by $595,000 when compared to fiscal 2008. The decrease reflects the impact of our cost reduction initiatives during the second half of fiscal 2009 and includes the effects of a fiscal 2008
non-recurring non-cash charge of $249,000 for the value assigned to warrants granted to a consultant, and a decrease of $188,000 related to public reporting costs, a decrease
of $189,000 in headcount related costs, a reduction of $136,000 for our allowance for doubtful accounts, a decline of $62,000 in general office expenses, a reduction of $34,000 in travel, a decline of
$26,000 in recruiting and a decline in stock compensation of $21,000. These decreases in fiscal 2009 were partially offset by increases in fiscal 2009 attributable to a non-cash charge for
the value of $160,000 assigned to warrants issued to SG Phoenix, an affiliate, for management advisory services in fiscal 2009 and an increase for upgrades and maintenance of our information systems
and training of $134,000. We believe our general administration expenses for fiscal 2010 will be less than fiscal 2009 based upon the impact of a full year of benefit from the cost reduction
initiatives implemented in fiscal 2009.

For
fiscal years 2009 and 2008, the fair value of employee stock-based compensation expense was $1,023,000 and $963,000, respectively. This expense was recorded in the employee related
functional classification.

Depreciation
and amortization expenses for fiscal years 2009 and 2008 were $944,000 and $604,000, respectively. Depreciation and amortization expense is recorded in the related
functional classification. There was an increase in depreciation expense in fiscal 2009 associated with additions for product development test chambers and other testing equipment.

Interest Expense.Interest expense for the year ended March 31, 2009 was $1,105,000 compared to $54,000 for the year ended
March 31,
2008. The increase of $1,051,000 was primarily attributable to increased borrowings in fiscal year 2009 as compared to fiscal year 2008. As a result of the net proceeds we received from the issuance
of the Series C Preferred Stock in September 2007, our outstanding borrowings under our revolving credit facility with a commercial bank were minimal in fiscal 2008. Additionally, we issued
promissory notes initially in the second quarter of our fiscal year 2009 which bear interest at a fixed 10% and account for $153,000 of the increase in interest expense. The interest on the promissory
notes issued in fiscal year 2009 has been paid in kind with shares of our common stock. To the extent we elect to pay the interest on the secured subordinated promissory notes with shares of our
common stock, the effective interest rate increases by 2.5%. The increase also includes non-cash interest expense of $571,000 representing the amortization of the value assigned to
warrants issued with the promissory notes issued in fiscal year, 2009, as well as, $99,000 of deferred financing costs related to the promissory notes issuances. There was no non-cash
interest expense for

23

---



the
year ended March 31, 2008. The increase in interest paid in cash was solely attributable to the interest on our revolving credit facility.

Other Expense.Other expense for the year ended March 31, 2009 was $124,000 compared to $41,000 for the year ended March 31,
2008.

Net Loss.The net loss for the year ended March 31, 2009 was $11,217,000 ($0.15 per share) compared to a net loss of $7,078,000
($0.11 per
share) for the year ended March 31, 2008. The increase in fiscal 2009 in our net loss of $4,139,000 and loss per share from the prior year was primarily due to the effects of increases in
research and development expenses of $2,734,000, and interest expense of $1,051,000 and a decrease in gross profit of $1,049,000 offset by a reduction in sales, marketing and support expense of
$799,000.

Net Loss Attributable to Common Shareholders.Net loss attributable to common shareholders for the year ended March 31, 2009 was
$12,830,000
compared to $10,855,000 for the year ended March 31, 2008. We have issued Series A, B and C Preferred Stock that earn a cumulative 5% dividend. The dividends attributable to these shares
for the years ended March 31, 2009 and 2008 were $1,613,000 and $1,449,000, respectively. The fiscal year 2009 amount is higher since it represents a full year of dividends on the
Series C Preferred Stock issued on September 21, 2007. Additionally, our Series C Preferred Stock had a beneficial conversion feature as a result of an
in-the-money conversion option at the date of commitment. For the issuance of the Series C Preferred Stock, the value of the beneficial conversion feature was determined
as the difference between the effective conversion price and the closing market price of our common stock as reported on the Toronto Stock Exchange as of the financing's commitment date multiplied by
the number of shares into which the Series C Preferred Stock are convertible. The value of the beneficial conversion features was presented as deemed dividends to the preferred stockholders
with an offsetting amount to additional paid-in capital. Since the Series C Preferred Stock was immediately convertible into common stock by the holders at any time, we recorded
non-cash charges (deemed dividends) in connection with the Series C Preferred Stock financing aggregating approximately $2,328,000 for the year ended March 31, 2008.

Liquidity and Capital Resources

The rate of growth in the tablet market for our products and our success in gaining market share has been less than we anticipated. We
have incurred net losses in each fiscal year since our inception and we expect to report operating losses through the end of our fiscal year ending March 31, 2010. As at March 31, 2009,
our working capital was $1,366,000 and our cash and cash equivalents were $794,000. From inception we have financed our operations and met our capital expenditure requirements primarily from the gross
proceeds of private and public sales of debt and equity securities totaling approximately $100 million.

Sources
of capital that are immediately available to us are a loan and security agreement with a commercial bank to finance eligible accounts receivables with a net borrowing capacity of
up to $4 million depending upon eligible assets and, our principal shareholder, Phoenix. An affiliate of Phoenix has agreed to provide or arrange to provide us with up to $1.5 million in
additional financing, to the extent necessary, to fund our planned operations through March 31, 2010.

From
March 30, 2009 through July 13, 2009, we amended our revolving credit facility six times to extend the maturity date of our borrowings under that facility until
August 15, 2009. We also reduced the maximum borrowings under our credit line from $8 million to $4 million, excluded inventory from our borrowing base and arranged for our lender
to provide up to $1 million of additional availability in excess of the borrowing base, based on a supporting irrevocable standby letter of credit issued by a commercial bank for the account of
Philip Sassower, our Chairman and Chief Executive Officer, and his wife Susan Sassower. During this time period, the interest rate under our facility increased from the

24

---



bank's
"prime rate" plus 2.25% to the greater of 6.25% or 2.25% above the bank's "prime rate". The minimum tangible net worth covenant, as defined, under the credit facility was also increased to
$1,575,000 and such minimum amount will increase quarterly by fifty percent of net income and/or fifty percent of issuances of equity or subordinated debt, as defined.

On
August 13, 2009, we entered into a non-binding term sheet with our existing lender to modify the existing loan and security agreement. Under the proposed terms of
the new agreement, we will finance certain eligible U.S. and Canadian accounts receivable, as defined, up to a maximum $4,000,000. Borrowings will bear interest at the bank's prime rate plus 3.42% per
annum. The interest rate may increase by approximately 0.72% if our monthly quick ratio is less than half percent. We will be obligated to repay each loan advance on the earliest of the date on which
the financed receivable payment is received or the date to which the financed receivable becomes ineligible or 90 days past due. The new agreement will have a maturity date of
February 5, 2010 which will be extended to March 31, 2010 if the expiration date of the letter of credit is extended to April 30, 2010 (or later) by no later than
December 31, 2009. The Supporting Letter of Credit Applicants have agreed to provide us with the extension of the expiration date of the letter of credit. The new agreement also has a
commitment fee of $17,500 and is subject to a minimum monthly interest fee of $4,000. Borrowings will be secured by all of our assets and intellectual property.

On
August 13, 2009, we extended the maturity date of borrowings under our revolving credit facility to September 15, 2009. We expect to enter into a new credit facility
with our lender on or prior to September 15, 2009.

As
of August 3, 2009, there were $2,394,000 borrowings outstanding under our amended credit facility.

We
believe that cash flow from operations, together with borrowings from our credit facility (including any refinancing thereof) and, if necessary, financial support from Phoenix will be
sufficient to fund our anticipated operations, working capital, capital spending and debt service for fiscal year 2010. However, we may seek to access the public or private markets whenever conditions
are favorable even if we do not have an immediate need for additional capital at that time.

Cash Flow Results

The table set forth below provides a summary statement of cash flows for the periods indicated:

Year Ended March 31,2009

2008(in thousands of
US dollars)Net cash used in operating activities

$
(6,239
)
$
(6,165
)Net cash used in investing activities


(242
)

(1,113
)Net cash provided by financing activities


6,542


6,300Cash and cash equivalents


794


733


Net
cash used in operating activities in fiscal year 2009 was $(6,239,000) as compared to $(6,165,000) in fiscal year 2008, an increase of $(74,000). The increase in our net loss of
$(4,139,000) in fiscal 2009 is offset by the net of items not affecting cash of $709,000 and the effects of favorable asset management through receivable collections of $1,956,000, timing of payables
of $923,000 and reduction of prepaid expenses of $386,000.

Net
cash used in investment activities consists of additions to fixed assets, principally tooling and test equipment for our new products and demonstration units.

25

---





Net cash provided by financing activities for the years ended March 31, 2009 and 2008 was $6,542,000 and $6,300,000, respectively. Net cash provided by financing activities for
the year ended March 31, 2009 consisted of net borrowings from the revolving credit facility and net proceeds from private placement issuances of secured promissory notes and common stock. For
the year ended March 31, 2008, net cash provided by financing activities represents funds from the private placement of the Series C Preferred Stock.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8.    Financial Statements and Supplementary Data.

The financial statements and other financial information required by this Item are listed in Item 15 of Part IV and are
contained on pages F-1 through F-28 of this annual report and incorporated in this Item 8 by reference.

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

None.

Item 9A.    Controls and Procedures.

Not applicable.

Item 9A(T).    Controls and Procedures.

As
of the end of the period covered by this Annual Report on Form 10-K, we conducted under the supervision and with the participation of our management, including our
chief executive officer and chief financial officer, an evaluation of the effectiveness of our "disclosure controls and procedures" (as that term is defined under the Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer concluded as of the period covered by
this report that our disclosure controls and procedures were effective in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified in the
Securities and Exchange Commissions rules and forms.

Management
of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S.
generally accepted accounting principles.

Our
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of assets; (ii) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company;
and (iii) provide reasonable assurance regarding

26

---



prevention
or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on our financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements.

Management
assessed the effectiveness of the Company's internal control over financial reporting as of March 31, 2009 based on the framework established in Internal ControlIntegrated Frameworkissued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that
assessment, management concluded that, as of March 31, 2009, the Company's internal control over financial reporting was effective based on the criteria established in Internal ControlIntegrated
Framework.

This
Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial
reporting. since temporary rules of the SEC permit the Company to provide only management's report on this Annual Report on Form 10-K.

As
of the end of the period covered by this report, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) during the quarter ended March 31, 2009 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B.    Other Information.

None

27

---



PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

The following table sets forth certain information concerning the directors and executive officers of our company as of
August 1, 2009:

Name

Age

Positions with our CompanyPhilip S. Sassower


69

Chairman of the Board of Directors and Chief Executive OfficerMark Holleran


51

President and Chief Operating OfficerMichael J. Rapisand


50

Chief Financial Officer and Corporate SecretaryBryan J. Bell


49

Vice President of EngineeringFrancis J. Elenio


43

DirectorAndrea Goren


41

DirectorBen Irwin


49

DirectorThomas F. Leonardis


64

DirectorBrian E. Usher-Jones


63

Director


Philip S. Sassowerhas served as our Chief Executive Officer since February 2006 and has been a director of our company and served as
Chairman of the Board of Directors since December 2004. Mr. Sassower is the Chief Executive Officer of SG Phoenix LLC, a private equity firm, and has served in that capacity since May
2003. Mr. Sassower has also been Chief Executive Officer of Phoenix Enterprises LLC, a private equity firm, and has served in that capacity since 1996. On May 13, 2008,
Mr. Sassower was named Chairman of the Board of The Fairchild Corporation (NYSE: FA), a motorcycle accessories and aerospace parts and services company. On March 18, 2009, The Fairchild
Corporation and 61 subsidiaries filed a petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court, District of Delaware. Mr. Sassower
served as Chairman of the Board of Communication Intelligence Corp., an electronic signature solution provider, from 1998 to 2002 and Chairman of the Board of Newpark Resources, Inc., an
environmental services company, from 1987 to 1996. Mr. Sassower is co-manager of the managing member of Phoenix Venture Fund LLC, our principal shareholder.

Mark Holleranhas served as our President and Chief Operating Officer since February 2006. Mr. Holleran served as Vice President of
Sales from April 2003 to February 2006. Prior to joining our company, Mr. Holleran was a consultant with the consulting firm of Cox Consulting Ltd. from 2002 to 2003. Prior to that,
Mr. Holleran served as President and Chief Executive Officer of Wavestat Wireless Inc., a developer of wireless products, from 2000 to 2002. Mr. Holleran served as
Vice-PresidentSales and Marketing at Cabletron Systems of Canada from 1996 to 1999.

Michael J. Rapisandhas served as our Chief Financial Officer and Corporate Secretary since August 2004. Prior to joining our company,
Mr. Rapisand served as Chief Financial Officer of TippingPoint Technologies, Inc., a network-based security hardware manufacturer, from October 2002 to March 2004. Prior to that,
Mr. Rapisand served as Chief Financial Officer and Vice President of ThinkWell Corporation, a publishing company, from October 2001 to September 2002. From March 1997 to July 2001,
Mr. Rapisand served as Finance Director of Dell Inc. Mr. Rapisand served as a director of DataMetrics Corporation, a designer and manufacturer of rugged electronic products from
October 2006 to March 2008.

Bryan J. Bellbecame our Vice President of Engineering in May 2008. Prior to joining our company, Mr. Bell was Vice President of
Operations at Sirific Wireless since February 2003. Sirific

28

---



develops
solutions for 3.5G multi-mode, multi-band mobile cellular and broadband data for notebook computers. From October 2000 to February 2003, he was DSL Engineering Team
Leader at Texas Instruments. From February 1997 to October 2000, Mr. Bell was the Vice President and General Manager of the notebook computer business of Acer Advanced Labs, Inc.

Francis J. Eleniohas been a director of our company since November 2007. Mr. Elenio is Financial Advisor to Premier Wealth
Management, Inc., a wealth management company focused on medium and
high net worth individuals, and has served in that position since September 2007. In addition, Mr. Elenio is Chief Financial Officer of Wilshire Enterprises, Inc., a real estate
investment and management company, and has served in that position since September 2006. Previously, Mr. Elenio was Chief Financial Officer of WebCollage, Inc., an internet content
integrator for manufacturers, from March 2006 through August 2006. From November 2005 through March 2006, Mr. Elenio was interim Chief Financial Officer of TWS Holdings, Inc., a business
process outsourcing company. From April 2004 until November 2005, Mr. Elenio was Chief Financial Officer and Director for Roomlinx, Inc., a provider of wireless high speed internet
access to hotels and conference centers.

Andrea Gorenhas been a director of our company since December 2004. Mr. Goren is a Managing Director of SG Phoenix LLC, a
private equity firm, and has served in that capacity since May 2003 and has been associated with Phoenix Enterprises LLC since January 2003. Prior to that, Mr. Goren served as Vice
President of Shamrock International, Ltd., a private equity firm, from June 1999 to December 2002. Mr. Goren is a Director of The Fairchild Corporation. On March 18, 2009, The
Fairchild Corporation and 61 subsidiaries filed a petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court, District of Delaware.
Mr. Goren is co-manager of the managing member of Phoenix Venture Fund LLC, our principal shareholder.

Ben Irwinhas been a director of our company since May 2009. Mr. Irwin has been President and Owner of Rejen Inc, a
re-manufacturer and retailer of inkjet and laser toner cartridges, since September 2005. Prior to that, Mr. Irwin served as Senior Vice President of Engineering of Itronix Corp., a
designer and manufacturer of rugged laptop and handheld computing products from July 2000 to February 2005.

Thomas F. Leonardishas been a director of our company since June 2005. Mr. Leonardis has been President and Chief Executive
Officer of Ember Industries, Inc., a contract electronics manufacture, since November 2001. Mr. Leonardis served as a director of DataMetrics Corporation, a designer and manufacturer of
rugged electronic products, from November 2001 to March 2008.

Brian E. Usher-Joneshas been a director of our company since 1996. Since 1992, Mr. Usher-Jones has been self-employed
as a merchant banker. Mr. Usher-Jones is currently a director of Wireless Age Communications Inc. From November 2000 to September 2006, Mr. Usher-Jones served as Chairman and
Chief Executive Officer of Oromonte Resources Inc., a mining exploration company. From November 2002 to September 2005, Mr. Usher-Jones served as Chairman of Greenshield
Resources Ltd., a mining exploration company. From April 1997 to June 2004, Mr. Usher-Jones served as a director of Calvalley Petroleum Inc., an oil exploration company. From June
2001 to July 2004, Mr. Usher-Jones served as a director of Pivotal Self-Service Technologies Inc., which installs ATM machines. From January 2001 to December 2003,
Mr. Usher-Jones served as Chairman of International Vision Direct, an internet seller of contact lenses. Mr. Usher-Jones served as Treasurer and Interim Chief Financial Officer of our
company from August 1996 to November 1997 and from August 2001 to December 2001.

There
are no family relationships between any director or executive officer of the Company.

29

---



Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own more than ten percent of a
registered class of our equity securities to file reports of changes in ownership of our common stock and other equity securities with the SEC. Based solely upon a review of Forms 3, 4 and 5
and amendments to these forms furnished to us, we believe all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed on a timely basis all such required
reports during and with respect to our 2009 fiscal year except for two late Form 4 filings for Mr. Sassower and one late Form 4 filing for each of Mr. Goren,
Mr. Holleran, Mr. Randy Paramore, Phoenix and Phoenix Enterprises Family Fund LLC.

Code of Ethics

We have adopted a code of ethics that applies to the members of our board of directors, our officers, including our principal executive
officer and principal financial officer, and all of our other employees. A copy of our code of ethics is available, without charge, upon written request directed to the Chief Financial Officer, Xplore
Technologies Corp., 14000 Summit Drive, Suite 900, Austin, Texas 78728.

Audit Committee

The members of our Audit Committee are Brian E. Usher-Jones, Francis J. Elenio and Thomas Leonardis. Our Board of Directors has
determined that Brian E. Usher-Jones meets the criteria of an "audit committee financial expert" as that term is defined in the rules and regulations promulgated under the Securities Exchange Act of
1934. Mr. Usher-Jones is an independent director as defined under the rules of The Nasdaq Stock Market. Mr. Usher-Jones' background and experience include being a chartered accountant
and Chief Financial Officer of Nesbitt Thomson and Company, LTD.

Item 11.    Executive Compensation

Executive Compensation

Summary Compensation Table

The following table sets forth the compensation earned by or awarded to, as applicable, our principal executive officer, principal
financial officer and other executive officers during our fiscal years ended March 31, 2009 and 2008, such officers are referred to herein as the "named executive officers."

Name and Principal Position

Year

Salary
US($)

Bonus
US($)

Option
Awards
US($)(1)

All Other
Compensation
US($)

Total
US($)Philip S. Sassower


2009








38,710
(3)




38,710Chief Executive Officer(2)


2008








54,000


7,500
(4)

61,500Mark Holleran


2009


250,000


113,385
(5)

337,281





700,666President and Chief Operating Officer


2008


250,000


148,940
(5)

296,689





694,787Michael J. Rapisand


2009


180,000





67,145





247,145Chief Financial Officer(6)


2008


180,000





105,723





285,723


---

30

---





The compensation of our executives is designed to attract, as needed, individuals with the skills necessary for us to achieve our
objectives, retain individuals who perform at or above our expectations and reward individuals fairly over time. Our executives' compensation has three primary components: base salary; an annual cash
incentive bonus; and equity-based compensation. In addition, we provide our executives with benefits that are generally available to our salaried employees.

As
a small company, we recognize that while we must pay salaries which help us to attract and retain talented executives who will help our company grow, we must do so within budgetary
constraints. We reward outstanding performance with cash bonuses which in large part are based on financial measures, such as revenue and EBITDA targets, and the achievement of strategic goals and
corporate milestones. In addition, we reward our executives with equity-based compensation as we believe equity compensation provides an incentive to our executive officers to build value for our
company over the long-term and aligns the interests of our executive officers and shareholders. Generally, we use stock options as our equity-based compensation because we believe that
options generate value to the recipient only if the price of our common stock increases during the term of the option. Other than in the event of a change of control, the stock options granted to our
executives generally vest
solely based on the passage of time. We believe these elements support our underlying philosophy of attracting and retaining talented executives while remaining within our budgetary constraints and
also creating cash incentives which reward company-wide and individual performance and aligning the interests of our executive officers with those of our shareholders by providing our
executive officers equity-based incentives to ensure motivation over the long-term.

31

---



The
individual elements of our compensation program are as follows:

Base Compensation.It is our policy that the base salaries paid to our executive officers should reflect the individual responsibility
and experience
of the executive officer and the contribution that is expected from the executive officer. Base salaries are reviewed by the compensation committee on an annual basis to satisfy these criteria.

There
were no changes in these salary amounts in our 2009 fiscal year.

Cash Incentive Bonuses.Our executive officers are eligible for annual incentive bonuses if they meet key financial and operational
objectives. The
payment of cash incentive bonuses to executive officers is within the discretion of our compensation committee and is based on our compensation committee's assessment of the performance of the company
and each executive officer measured in large part against financial objectives, strategic goals and corporate milestones. These financial, strategic and corporate objectives include revenue and EBITDA
targets, product development objectives and corporate milestones such as the completion of financings. Our compensation committee may in its discretion award a cash incentive bonus to an executive
officer for partial achievement of such executive officer's objectives. The total amount of the cash incentive bonus available to an executive officer is either based upon a percentage of such
executive officer's base salary or a fixed dollar amount. Bonuses are reviewed by the compensation committee on an annual basis. Furthermore, in recognition of an executive officer's exceptional
performance our board of directors may award a performance bonus in excess of that executive officer's maximum cash incentive bonus.

Each
of our named executive officers (other than Philip S. Sassower) participates in his own individual Management by Objectives plan, which we refer to as a MBO plan as discussed in
footnotes five and six in the summary compensation table for fiscal years 2009 and 2008.

Equity-Based Compensation.We use stock options to reward long-term performance and to ensure that our executive officers have a
continuing stake in our long-term success. Authority to make stock option grants to our executive officers rests with our board of directors. In determining the size of stock option
grants, our board of directors considers our actual performance against our strategic plan, individual performance, the extent to which shares subject to previously granted options are vested and the
recommendations of our Chief Executive Officer and other members of senior management.

We
do not have any program, plan or obligation that requires us to grant equity compensation on specified dates. We grant stock options at regularly scheduled meetings of our board of
directors or at special meetings. The authority to make equity grants to our executive officers rests with our board of directors, although, as noted above, our board of directors does, in determining
the grants of equity awards, consider the recommendations of our Chief Executive Officer and other members of senior management and our compensation committee. All stock options granted have an
exercise price equal to or greater than the closing price of our common stock on the date that the grant action occurs.

With
respect to establishing compensation for our executive officers, we do not have any formal policies in determining how specific forms of compensation are structured or implemented
to reflect the individual performances and/or individual contributions to the specific items of our company's performance. In addition, we have no policies regarding the adjustment or recovery of
awards or payments if the relevant performance measures, upon which such award or payment was based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment.

With
respect to newly hired employees, our practice is typically to make stock grants at the first meeting of our board of directors following such employee's hire date. We do not have
any program, plan or practice to time stock options grants with the release of material non-public information. We

32

---



do
not time, nor do we plan to time, the release of material non-public information for the purposes of affecting the value of executive compensation.

On
December 19, 2007, our board of directors awarded options to purchase 3,400,664 shares of common stock to our employees. The award was intended to align such executive's equity
compensation with market levels based upon a compensation study performed by an independent third party for the compensation committee of the board.

On
April 30, 2009, our board of directors granted options to executive officers to purchase an aggregate of 3,084,731 shares of common stock, to our other employees to purchase an
aggregate of 1,780,406 shares of common stock and to our directors to purchase an aggregate of 496,478 shares of common stock. The options are exercisable for five years, have an exercise price of
$0.10 per share and vest annually in equal installments over three years beginning on the first anniversary of the date of grant. The award was intended to adjust the equity compensation for dilution
and to align the equity compensation of certain employees with market levels based upon the same market study.



On June 30, 2006, we entered into an employment agreement with Mark Holleran, our President and Chief Operating Officer. The
agreement was for a period of two years, and is renewable for additional one year periods. It was renewed in June 2009 for an additional year. In consideration for his services, during the term
Mr. Holleran is entitled to receive a base salary, currently of $250,000 per year, subject to any increase as may be approved by our board of directors. Mr. Holleran is also entitled to
receive a performance bonus of up to 100% of his base salary based on his achievement of objectives in the following categories: revenues, hiring new employees, product development, retention of
staff, EBITDA performance and additional financing. In addition, we may award, in our sole discretion, Mr. Holleran additional performance bonuses in recognition of his performance. In
connection with entering into the employment agreement, Mr. Holleran received options to purchase 1.2 million shares of common stock with an exercise price of $0.34 per share. The
options received vest in equal annual installments over a period of three years commencing on June 30, 2006. As part of this grant, Mr. Holleran agreed to the extinguishment of any
options previously granted to him that did not vest on or before June 22, 2006.

Mr. Holleran
is also eligible to participate in a transaction bonus pool in the event of the sale of our company during the term of Mr. Holleran's employment agreement. The
amount of the transaction bonus pool will be based upon the total consideration received by our shareholders from the sale of our company, less our transaction expenses. Mr. Holleran will be
entitled to receive 50% of the total amount of the transaction bonus pool.

As
part of the employment agreement, we agreed that if we terminate Mr. Holleran's employment without cause during the term of his employment agreement, in addition to any
payments due to him under the terms of the agreement, we will reimburse Mr. Holleran up to $80,000 of his expenses incurred in connection with his relocation back to Canada. The employment
agreement also contains
customary non-compete, non-solicitation, non-disparagement and confidentiality provisions.



Mark Holleran, our President and Chief Operating Officer, has a provision in his employment agreement that gives him severance benefits
if his employment is terminated without cause. In addition, his employment agreement provides for the acceleration of his then unvested options following a change in control of our company.
Mr. Holleran will also receive a transaction bonus if our company is sold during the term of his employment. The amount of the transaction bonus will be based upon the

33

---



total
consideration received by our shareholders from the sale of our company, less our transaction expenses. Mr. Holleran will be entitled to receive 50% of the total amount of the transaction
bonus pool that is eligible to be paid to our executives. In addition, under the terms of our transaction bonus pool, if our company is sold during the term of their employment, our Chief Financial
Officer, Michael J. Rapisand, will receive 30%, our Vice President of Engineering, Bryan J. Bell, will receive 5% and the remaining 15% will be distributed among our senior management team as
decided by our board of directors.

We
have chosen to provide these benefits to our executives because we believe we must remain competitive in the marketplace. These severance and acceleration provisions and estimates of
these change of control and severance benefits are described in the section entitled "Estimated Payments and Benefits Upon Termination or Change in Control" below.



We do not sponsor any qualified or non-qualified defined benefit plans. We do maintain a 401(k) plan for our employees,
including our executive officers; however, we do not match contributions made by our employees, including contributions made by our executive officers.



We do not maintain any non-qualified defined contribution or deferred compensation plans. Our board of directors may elect
to provide our executive officers and employees with non-qualified defined contribution or deferred compensation benefits if it determines that doing so is in our best interests.



Our executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life
and disability insurance and our 401(k) plan, in each case on the same basis as our other employees.



Deductibility of Executive Compensation.Our executive officers' MBO plans and our stock option plan do not currently provide
compensation that
qualifies as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. Accordingly, compensation in excess of $1 million
paid to a named executive officer during any one year that is attributable to one of those arrangements would not currently be deductible for U.S. federal income tax purposes. We may, in the future,
reevaluate those plans and redesign them so that compensation attributable to one or both of those plans would qualify as "performance-based compensation" within the meaning of Section 162(m)
and would be deductible for U.S. federal income tax consequences.

Accounting for Stock-Based Compensation.We began accounting for stock-based payments in accordance with the requirements of FASB
Statement 123(R)
for the fiscal year ended March 31, 2004.



We do not currently have any requirements or guidelines relating to the level of ownership of our common stock by our directors or
executive officers.

34

---





Outstanding Equity Awards at 2009 Fiscal Year-End

The following table sets forth the equity awards outstanding at March 31, 2009 for each of the named executive officers.

Name

Number of
Securities
Underlying
Unexercised
Option (#)
Exercisable

Number of
Securities
Underlying
Unexercised
Option (#)
Unexercisable

Option
Exercise
Price C($)

Option
Expiration
DatePhilip S. Sassower


150,000




$
0.93


06/21/2010Chief Executive Officer(2)


150,000


50,000
(1)
$
0.44


08/29/2011Mark Holleran


78,334




$
0.56


01/06/2010President and Chief Operating Officer


113,334




$
0.93


06/21/20101,200,000




$
0.38


06/30/20111,044,446


522,222
(3)
$
0.44


08/29/2011622,221


1,244,442
(4)
$
0.50
(4)

12/19/2012Michael J. Rapisand


64,459




$
1.12


08/11/2009Chief Financial Officer


372,701




$
0.56


01/06/2010414,685


245,869
(5)
$
0.44


08/29/2011


---



The following table describes the potential payments and benefits payable to Mr. Holleran, our President and Chief Operating
Officer, upon termination of his employment by us without cause, as if his employment terminated as of the March 31, 2009, the last business day of our last fiscal year. If
Mr. Holleran's employment is terminated by us without cause, as a result of his death or disability, by us for cause or voluntary by Mr. Holleran, he is entitled to receive any earned or
accrued, but unpaid, base compensation and bonus and all accrued but unused vacation days through the termination date.

Payments and Benefits

Termination
by Company
Without Cause(1)Compensation:Base salary(2)

$
250,000
(4)Performance bonus(3)

$
131,163
(5)Benefits and Perquisites:

$
92,024
(6)






35

---





Under the terms of our Amended Share Option Plan, which we also refer to as our Amended Plan, upon a change in control of our company
all outstanding options will immediately vest and become exercisable. A "change of control" means the occurrence of (i) a person, including the person's affiliates and any other person acting
jointly or in concert with that person, becoming the beneficial owner of, or exercising control over, more than 50.1% of the total voting power of our common stock; or (ii) our company
consolidating with, or merging with or into, another person or selling, transferring, leasing or otherwise disposing of all or substantially all of our assets to any person, or any person
consolidating with, or merging with or into, our company, in any such event pursuant to a transaction in which our outstanding shares of common stock are converted into or exchanged for cash,
securities or other property, except for any such transaction in which the holders of our then outstanding common stock receive voting securities, or securities exchangeable at the option of the
holder into voting securities, of the surviving person which constitute a majority of the voting securities.

The
following table sets forth the potential payments to our named executive officers as if we had a change of control as of the March 31, 2009, the last business day of our 2009
fiscal year.

Name

Transaction Bonus Pool(1)

Market Value of Accelerated OptionsPhilip S. SassowerChief Executive Officer



(2)


(3)Mark HolleranPresident and Chief Operating Officer

$
369,889
(4)


(5)Michael J. RapisandChief Financial Officer

$
221,933
(6)


(7)


---

36

---





Director Compensation

In June 2006, our board of directors approved a director compensation plan pursuant to which we will pay our directors a fee to attend
board meetings. Under the plan, each director receives $1,500 for each board meeting he attends in person and $750 for each board meeting he attends by teleconference. In addition, from time to time,
we grant options to our directors to purchase shares of our common stock. We also reimburse our directors for out-of-pocket expenses incurred in connection with attending our
board and board committee meetings. Compensation for our directors, including cash and equity compensation, is determined, and remains subject to adjustment, by our board of directors. For the year
ended March 31, 2009, we did not pay our board of directors their cash fees to attend meetings. Our board of directors elected to accept stock options in lieu of cash payments. On
June 10, 2009, each director was granted options to purchase 150,000 shares of common stock at an

37

---



exercise
price of $0.15 per share, which options were fully vested as of the date of grant and are exercisable for five years. On June 10, 2009, each director was also granted options to
purchase 150,000 shares of common stock at an exercise price of $0.15 per share, for services to be rendered to us for the 2010 fiscal year. Those options fully vest on March 31, 2010 and are
exercisable for five years.

Fiscal Year 2009 Director Compensation

The following table sets forth compensation information for the Company's directors, who are not named executive officers, for our
fiscal year ended March 31, 2009.

Name

Fees Earned
or Paid
in Cash ($)

Option
Awards ($)

Total ($)Brian E. Usher-Jones





32,542
(1)

32,542Andrea Goren





38,710
(2)

38,710Thomas F. Leonardis





38,710
(3)

38,710Frank Elenio





29,120
(4)

29,120


---

2009 Stock Incentive Plan

On July 28, 2009, we adopted the 2009 Stock Incentive Plan, which we refer to as the 2009 Stock Plan. The 2009 Stock Plan
provides for equity-based awards in the form of incentive stock options and non-statutory options, restricted shares, stock appreciation rights and restricted stock units. Awards are made
to selected employees, directors and consultants to promote stock ownership among award recipients, to encourage their focus on strategic long-range corporate objectives, and to attract
and retain exceptionally qualified personnel. Up to 19.4 million shares of common stock may be issued under the 2009 Stock Plan. The 2009 Stock Plan became effective retroactively as of
June 10, 2009, subject to shareholder approval.

Generally,
the vesting of options and the retention of restricted shares granted under the plan are conditioned on a period or successive periods of continuous service of the award
recipient. Expired options that remain unexercised and shares forfeited to or repurchased by us will become available for future grant under the 2009 Stock Plan.

Employee Stock Purchase Plan

On November 5, 2008, we adopted the Employee Stock Purchase Plan, which we refer to as the ESPP. The ESPP establishes a series
of offering periods during which most of our employees have an opportunity to purchase our common stock through payroll deductions. To be eligible, an employee must have completed one year of
employment and regularly work over 20 hours per week and over 5 months per year. Prior to each offering period, a participant elects to have between 1% and 20% of his or her base
compensation set aside for the purchase of the shares upon purchase dates, which occur

38

---



at
the end of each calendar quarter. The purchase price is 95% of the fair market value per share of our common stock on the start date of the offering period, which initially was $0.096 per share.

The
initial offering period began on January 1, 2009 and will terminate on March 31, 2010. Approximately 46% of our employees have elected to participate in the ESPP during
the initial offering period.

Up
to 5,000,000 shares are reserved for purchase under the ESPP. The ESPP may have additional offering periods until the shares reserved for the ESPP have been exhausted or the ESPP is
terminated. It is intended that shares purchased under the ESPP qualify for special tax treatment under Section 423 of the Internal Revenue Code.

Amended Stock Option Plan

We also maintain an amended and restated stock option plan (which we refer to as the Amended Plan), the purpose of which is to attract,
retain and motivate eligible persons whose contributions are important to our success and to advance the interests of our company by providing such persons with the opportunity, through stock options,
to acquire a proprietary interest in our company.

Pursuant
to the Amended Plan, our board of directors is authorized, from time to time in its discretion, to issue to directors, officers, employees and consultants of our company and its
affiliates options to acquire common stock of our company at such prices as may be fixed by our board of directors at that time; provided, however, that the option exercise price will in no
circumstances be lower than the market price of our common stock at the date the option is granted. Options granted under the Amended Plan are generally non-assignable, are exercisable for
a term not exceeding 10 years and generally vest over a three year period in three annual installments, as determined by our board of directors.

The
number of shares of common stock issuable upon exercise of options granted to insiders at any time pursuant to the Amended Plan cannot exceed 10% of our total issued and outstanding
shares of common and preferred stock, and the number of shares issued to insiders, within any one year period, under the Amended Plan cannot exceed 10% of our total issued and outstanding shares.

Subject
to certain specific listed exceptions and to any express resolution passed by our board of directors with respect to an option granted under the Amended Plan, an option and all
rights to purchase common stock shall expire and terminate immediately upon the person who holds such option ceasing to be a director, officer, employee or consultant of our company and its
affiliates.

In
July 2009, our board of directors adopted the 2009 Stock Plan. Accordingly, no additional options will be issued under the Amended Plan. The number of shares issuable under the
Amended Plan is limited to 16,301,615 shares, which represent the total number of shares covered by options outstanding on the date the 2009 Stock Plan was adopted.

We
currently have 16,301,615 shares of common stock reserved for issuance under the Amended Plan, which represents approximately 8.4% of our total issued and outstanding shares of common
and preferred stock.

39

---





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

Equity Compensation Plan Information

The following table sets out information with respect to compensation plans under which equity securities of our company were
authorized for issuance as of March 31, 2009.

Plan Category

Number of Securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(a)

Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)

Number of securities
remaining available
for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
(c)Equity compensation plans approved by security holders


11,562,667

$
0.43


18,665,948Equity compensation plans not approved by security holders


N/A


N/A


Total


11,562,667

$
0.43


18,665,948


40

---



SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of our capital stock as of August 1, 2009
by (i) each person known by us to be the beneficial owner of more than 5% of any class of our voting securities, (ii) each of our directors, (iii) each of our "named executive
officers" and (iv) our directors and executive officers as a group.

Common Stock
Beneficially Owned

Series A
Preferred Stock
Beneficially Owned

Series B
Preferred Stock
Beneficially Owned

Series C
Preferred Stock
Beneficially OwnedName of Beneficial Owner(1)

Number
of
Shares of
Common
Stock(2)

Percentage
of
Class(3)

Number
of
Shares of
Series A
Preferred
Stock

Percentage
of
Class(4)

Number
of
Share of
Series B
Preferred
Stock

Percentage
of
Class(5)

Number
of
Shares of
Series C
Preferred
Stock

Percentage
of
Class(6)

Percentage
of
Combined
Classes(7)Philip S. Sassower


22,645,021
(8)

18.9
%

13,676,370
(26)

21.6
%













17.4
%Mark Holleran


3,580,557
(9)

3.3
%



















*Michael J. Rapisand


1,141,525
(10)

1.1
%

147,059


*














*Bryan J. Bell


416,667
(11)

*




















*Brian E. Usher-Jones


713,750
(12)

*




















*Andrea Goren


2,670,000
(13)

2.5
%



















1.4
%Thomas F. Leonardis


500,000
(14)

*




















*Frank Elenio


216,667
(15)

*




















*Ben Irwin



(16)






















Phoenix Venture Fund LLC


23,564,140
(17)

20.3
%

31,032,014
(27)

49.1
%







3,320,000


19.3
%

28.2
%110 East 59th StreetNew York, NY 10022Alex and James Goren


12,572,365
(18)

11.2
%

4,357,708
(28)

6.9
%













8.4
%150 East 52nd StreetNew York, NY 10022Typhoon Touch Technologies, Inc.


115,376


*














2,000,000


11.6
%

1.1
%530 Fifth Avenue
New York, NY 10036JAM Capital Assoc. LLC


2,872,282
(19)

2.7
%

1,130,137


1.8
%







1,000,000


5.8
%

2.6
%112 W 56thNew York, NY 10019William Freas


870,437


*








2,941,177


33.9
%







2.0
%c/o Joseph Gunnar & Co.30 Broad StreetNew York, NY 10004James J O'Donnell


3,866,305
(20)

3.6
%

780,655


1.2
%







900,000


5.2
%

2.8
%845 UN PlazaNew York, NY 10017Keith Guenther


1,427,174
(21)

1.4
%













840,000


4.9
%

1.2
%25391 CommercenterDr Ste 200Lake Forest, CA 92630Harmir Realty Co


1,135,357
(22)

1.1
%













1,070,000


6.2
%

1.1
%12 E 49thNew York, NY 10017Fifty-Ninth StreetInvestors LLC


848,676
(23)

*














1,000,000


5.8
%

1.0
%110 E 59th StreetNew York, NY 10022Ross Irvine


414,793
(24)

*








1,000,000


11.5
%







*c/o Sky Capital LLC110 Wall StreetNew York, NY 10005Adrian Maginnis


127,758


*








500,000


5.8
%







*21 Ravranet RdLisburn, CountryAtrium BT27 5NBAll directors and executive officers as a group (10 persons)(25)


29,724,187


23.5
%

13,823,429


21.9
%













19.6
%


---

41

---



42

---



Item 13.   Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

In September 2007, we issued 3,320,000 shares of Series C Preferred Stock and warrants to purchase 1,660,000 shares of our
common stock to Phoenix for $1,660,000. The shares of Series C Preferred Stock are convertible at any time at the option of the holder, subject to adjustment for stock dividends, splits,
combinations and similar events. Additionally, we issued warrants to purchase 660,000 shares of our common stock to SG Phoenix LLC, an affiliate of Phoenix. The warrants were exercisable upon
issuance, at an exercise price of $0.50 per share, and will expire on September 21, 2009.

On
September 5, 2008, we entered into a note purchase agreement (the "Fall 2008 Note Purchase Agreement") with Phoenix and the purchasers listed from time to time on
Schedule II thereto, pursuant to which we issued to Phoenix a secured subordinated promissory note in the aggregate principal amount of $1,000,000 and a warrant to purchase 3,703,704 shares of
our common stock at an exercise price of $0.27 per share. Pursuant to the terms of the Fall 2008 Note Purchase Agreement, we agreed to issue up to an additional $2,000,000 of secured subordinated
promissory notes (together with the note issued to Phoenix referred to herein as the "Fall 2008 Notes"), and warrants to purchase up to and additional 7,407,407 shares of our common stock (together
with the warrant issued to Phoenix referred to herein as the "Fall 2008 Warrants")

The
Fall 2008 Notes were initially due and payable in full on August 5, 2009 and bear interest at the rate of 10% per annum. Interest on the Fall 2008 Notes may be paid in cash
or, at our option, in shares of our common stock. The Fall 2008 Notes are secured by all of our assets and the right of repayment of principal and interest on the Fall 2008 Notes and the security
interest granted by us to the holders of the Fall 2008 Notes is subordinated to the rights and security interest of our commercial lender, in connection with the loan and security agreement between us
and the commercial lender dated as of September 15, 2005, as amended (the "Loan Agreement"). In connection with providing its consent to the Fall 2008 Note Purchase Agreement and the
transaction contemplated therein, our commercial lender required us to enter into a Security Agreement and an Intellectual Property Security

43

---



Agreement
whereby the lender obtained a first priority security interest in all of our assets. Upon an event of default, as set forth in the Fall 2008 Note Purchase Agreement and the Fall 2008 Notes,
the holders of the Fall 2008 Notes may declare all amounts outstanding under the Fall 2008 Notes immediately due and payable and exercise other remedies permitted by the Fall 2008 Note Purchase
Agreement and the Fall 2008 Notes or at law or in equity, subject to the subordination agreement with the our commercial lender.

The
Fall 2008 Warrants were initially set to expire on September 5, 2011. The Fall 2008 Warrants were initially exercisable in whole or in part prior to September 5, 2011
and contain a cashless exercise provision.

On
October 21, 2008, pursuant to the Fall 2008 Note Purchase Agreement, we issued Fall 2008 Notes in the aggregate principal amount of $2,000,000 and issued Fall 2008 Warrants to
purchase up to 16,666,667 shares of our common stock at an exercise price of $0.12 per share to the purchasers listed on Schedule II to the Fall 2008 Note Purchase Agreement. As part of the
Fall 2008 Note issuance, we issued to Phoenix Enterprises Family Fund LLC, an entity controlled by Philip Sassower, our Chairman and Chief Executive Officer, a Fall 2008 Note in the principal
amount of $717,500 and Fall 2008 Warrants to purchase 5,979,167 shares of our common stock and to JAG Multi Investments LLC, a principal stockholder controlled by Alex and James Goren, a Fall
2008 Note in the principal amount of $717,500 and Fall 2008 Warrants to purchase 5,979,167 shares of our common stock. In addition, on October 21, 2008 we and all purchasers listed on
Schedule II to the Fall 2008 Note Purchase Agreement entered into an amendment to the Fall 2008 Note Purchase Agreement reducing the exercise price of the Fall 2008 Warrants previously granted
to Phoenix on September 5, 2008 from $0.27 per share to $0.12 per share and increasing the number of shares of common stock Phoenix could purchase from 3,703,704 to 8,333,333 shares of our
common stock in order to provide the same terms to all of the note purchasers.

On
February 27, 2009, we entered into another amendment to the Fall Note Purchase Agreement reducing the exercise price of Fall 2008 Warrants previously issued on
September 5, 2008 and October 21, 2008 from $0.12 per share to $0.10 per share and increasing the number of shares of common stock issued to Phoenix and the October 21, 2008
purchasers from 25,000,000 to 30,000,000 shares of our common stock in order to provide the note purchasers with the same terms, including the extension of the maturity date of the September 5,
2008 and October 21, 2008 promissory notes from August 5, 2009 to December 31, 2010. As a result of these amendments, the number of shares of common stock issuable under the Fall
2008 Warrants to Phoenix, Phoenix Enterprises Family Fund LLC and JAG Multi Investments LLC is 9,400,000, 7,175,000 and 7,175,000, respectively.

In
connection with our private placements, we paid an affiliate of Phoenix an administration fee of $135,000 related to the total placement of $4,090,000 of subordinated secured
promissory notes and $900,000 of common stock.

On
April 30, 2009, our board of directors granted options to executive officers to purchase an aggregate of 3,084,731 shares of common stock, to our other employees to purchase an
aggregate of 1,780,406 shares of common stock and to our directors to purchase an aggregate of 496,478 shares of common stock. The options are exercisable for five years, have an exercise price of
$0.10 per share and vest annually in equal installments over three years beginning on the first anniversary of the date of grant.

On
May 29, 2009, we entered into the twelfth amendment (the "Twelfth Amendment") to the Loan Agreement with our commercial lender.
Pursuant to the Twelfth Amendment, among other things, we arranged for our commercial lender to provide up to $1 million of additional availability in excess of our borrowing base, based on a
supporting irrevocable standby letter of credit issued by a bank (the "Issuing Bank"), for the account of Philip Sassower, the Company's Chairman and Chief Executive

44

---



Officer,
and Susan Sassower, the wife of Philip Sassower (the "Supporting Letter of Credit Applicants") in favor of the commercial lender, in the amount
of $1,000,000 (the "Supporting Letter of Credit").

In
order to induce the Supporting Letter of Credit Applicants to cause the Issuing Bank to issue the Supporting Letter of Credit, we entered into the Credit Reimbursement, Compensation
and Security Agreement, dated as of May 29, 2009 (the "Letter of Credit Agreement"), with the Supporting Letter of Credit Applicants whereby we
agreed to (i) reimburse the Supporting Letter of Credit Applicants for all costs and expenses incurred by the Supporting Letter of Credit Applicants in connection with the issuance of the
Supporting Letter of Credit and the entry into the Letter of Credit Agreement and the Twelfth Amendment, (ii) reimburse the Supporting Letter of Credit Applicants for all payments made by the
Supporting Letter of Credit Applicants to the Issuing Bank in connection with any drawings made our lender under the Supporting Letter of Credit; (iii) provide certain compensation to the
Supporting Letter of Credit Applicants in connection with the issuance of the Supporting Letter of Credit, including the issuance by us to the Supporting Letter of Credit Applicants of a
three-year warrant to purchase 5,000,000 shares of our common stock at an exercise price of $0.10 per share; and (iv) grants to the Supporting Letter of Credit Applicants a security
interest in all of our assets to secure our obligations to the Supporting Letter of Credit Applicants. The security interest granted by us to the Supporting Letter of Credit Applicants is subordinated
to the rights and security interest of our commercial lender under the Loan Agreement and senior to the rights and security interest of the holders of the Fall 2008 Note Purchase Agreement dated, as
amended and the Note Purchase Agreement dated February 27, 2009, as amended (collectively, the "Note Purchasers").. Upon an event of default, as set forth in the Letter of Credit Agreement, the
Supporting Letter of Credit Applicants may exercise all remedies permitted by the Letter of Credit Agreement or at law or in equity, subject to the subordination agreement with our commercial lender.

On
June 10, 2009, we granted to each of our directors options to purchase 150,000 shares of common stock at an exercise price of $0.15 per share, in lieu of cash compensation
payable to the directors for their service to us for the fiscal year ended March 31, 2009. Such options were fully vested as of the date of grant and are exercisable for five years. On
June 10, 2009, we also granted to each director options to purchase 150,000 shares of common stock at an exercise price of $0.15 per share, for services to be rendered to us for the 2010 fiscal
year. Those options fully vest on March 31, 2010 and are exercisable for five years.

On
June 10, 2009, we issued to SG Phoenix LLC, an affiliate of Phoenix, a warrant to purchase up to 1,500,000 shares of our common stock, with an exercise price of $0.15
per share, in lieu of cash compensation payable to SG Phoenix LLC for its services to us for the fiscal year ended March 31, 2009. Such warrant was fully vested on the date of grant. On
June 10, 2009, we also issued to SG Phoenix LLC a warrant to purchase up to 1,500,000 shares of our common stock, with an exercise price of $0.15 per
share, for services to be rendered to us for the 2010 fiscal year. Such warrant will fully vest on March 31, 2010. Mr. Sassower and Mr. Goren share voting and dispositive power
over the shares held by SG Phoenix LLC.

On
July 27, 2009, we issued to the Note Purchasers three-year warrants to purchase an aggregate of up to 4,909,000 shares of our common stock at an exercise price of
$0.10 per share as consideration for the Note Purchasers subordinating their security interests in favor of the Supporting Letter of Credit Applicants. As a result, Phoenix received a warrant to
purchase an additional 940,000 shares of our common stock, Phoenix Enterprises Family Fund LLC received a warrant to purchase an additional 717,500 shares of our common stock and JAG Multi
Investments LLC received a warrant to purchase an additional 717,500 shares of our common stock. The warrants are fully vested.

45

---



Director Independence

We undertook a review of the independence of our directors and, using the definitions and independence standards for directors provided
in the rules of The Nasdaq Stock Market, considered whether any director has a material relationship with us that could interfere with his ability to exercise independent judgment in carrying out his
responsibilities. As a result of this review, we determined that Thomas Leonardis, Frank Elenio, Ben Irwin and Brian Usher-Jones are "independent directors" as defined under the rules of The Nasdaq
Stock Market.

Item 14.    Principal Accounting Fees and Services.



Fee Category

Fiscal
Year 2009

% of
Total

Fiscal
Year 2008

% of
TotalAudit Fees(1)

$
129,950


100
%
$
137,292


100
%Audit-Related Fees(2)








Tax Fees








All Other Fees(3)








Total Fees

$
129,950


100
%
$
137,292


100
%


---



Consistent with SEC and PCAOB requirements regarding auditor independence, the Audit Committee has responsibility for appointing,
setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to
pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. During the year, if it becomes necessary to engage the
independent registered public accounting firm for services, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm. In
accordance with that policy, our audit committee may delegate to one of its members the approval of such services. In such cases, the items approved will be reported to the audit committee at its next
scheduled meeting following such pre-approval. All of the audit and other fees paid to PMB Helin Donovan and Mintz & Partners for fiscal years 2009 and 2008 were approved by our
audit committee.

46

---





PART IV

Item 15.    Exhibits, Financial Statement Schedules.

Index to Consolidated Financial Statements

Annual Financial StatementsReports of Independent Registered Public Accountants


F-2Consolidated Balance Sheets as of March 31, 2009 and 2008


F-3Consolidated Statements of Loss for the years ended March 31, 2009 and 2008


F-4Consolidated Statement of Stockholder's Deficit for the years ended March 31, 2009 and 2008


F-5Consolidated Statements of Cash Flows for the years ended March 31, 2009 and 2008


F-6Notes to the Consolidated Financial Statements


F-7


Exhibit
Number

Description3.1

Certificate of Incorporation of Xplore Technologies Corp. (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form 8-A, filed on June 22, 2007, Commission File
No. 000-52697)3.2

By-Laws of Xplore Technologies Corp. (incorporated by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K, filed on July 6, 2007)3.3

Certificate of Designation of Series C Convertible Preferred Stock of Xplore Technologies Corp (incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K, filed on
August 13, 2007)4.1

Specimen Stock Certificate for Registrant's Common Stock (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-4, filed on February 8, 2007, Registration Statement
No. 333-138675)4.2

Specimen Stock Certificate for Registrant's Series A Preferred Stock (incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-4, filed on February 8, 2007,
Registration Statement No. 333-138675)4.3

Specimen Stock Certificate for Registrant's Series B Preferred Stock (incorporated by reference to Exhibit 4.3 of the Company's Registration Statement on Form S-4, filed on February 8, 2007,
Registration Statement No. 333-138675)4.4

Specimen Stock Certificate for Registrant's Series C Preferred Stock (incorporated by reference to Exhibit 4.4 of the Company's Registration Statement on Form S-1, filed on October 10, 2007,
Registration Statement No. 333-146611)10.1

Turnkey Design and Manufacturing Agreement, by and between Xplore Technologies Corp. and Wistron Corporation (incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-4,
filed on February 8, 2007, Registration Statement No. 333-138675)10.2

Intercreditor, Trade Credit Restructuring and Security Agreement, dated December 17, 2004, by and among Xplore Technologies Corp., Phoenix Venture Fund LLC, The Philip S. Sassower 1996 Charitable Remainder
Annuity Trust and Wistron Corporation (incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)


47

---



Exhibit
Number

Description10.3

December 2004 Debenture Purchase Agreement, dated December 17, 2004, by and among Xplore Technologies Corp., Phoenix Venture Fund LLC and each of the Lenders listed on Schedule 1 attached thereto
(incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)10.4

Loan and Security Agreement, dated September 15, 2005, as amended, between Silicon Valley Bank and Xplore Technologies Corporation of America (incorporated by reference to Exhibit 10.4 of the Company's
Registration Statement on Form S-4, filed on March 19, 2007, Registration Statement No. 333-138675)10.5

Fourth Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on April 3, 2008)10.6

Fifth Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K, filed on June 5, 2008)10.7

Sixth Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on August 6, 2008)10.8

Seventh Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on August 29, 2008)10.9

Eighth Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on September 30, 2009)10.10

Ninth Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on March 30, 2009)10.11

Tenth Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on April 10, 2009)10.12

Eleventh Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on April 24, 2009)10.13

Twelfth Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on May 29, 2009)10.14

Thirteenth Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on June 29, 2009)10.15

Fourteenth Amendment to the Loan and Security Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on July 16, 2009)10.16
*
Fifteenth Amendment to the Loan and Security Agreement10.17

September 2005 Debenture Purchase Agreement, dated September 15, 2005, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, Phoenix Venture Fund LLC and each of the Lenders
listed on Schedule 1 attached thereto (incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)10.18

April 2006 Debenture Purchase Agreement, dated April 20, 2006, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, Phoenix Venture Fund LLC and each of the Lenders listed on
Schedule 1 attached thereto (incorporated by reference to Exhibit 10.6 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)


48

---



Exhibit
Number

Description10.19

Exchange and Purchase Agreement, dated April 21, 2006, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, Phoenix Venture Fund LLC and each of the Lenders listed on
Schedule 1 attached thereto (incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)10.20

Relocation Agreement, dated September 6, 2005, by and between Xplore Technologies Corporation of America and Brian Groh (incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on
Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)10.21

Employment Agreement, dated as of June 30, 2006, by and between Xplore Technologies Corp. and Mark Holleran (incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on
Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)10.22

Lease Agreement, dated April 10, 2003, between Summit Tech L.P. and Xplore Technologies Corp. (incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-4, filed
on November 14, 2006, Registration Statement No. 333-138675)10.23
*
Fourth Amendment to Lease Agreement, dated April 10, 2003, between Bailard Austin II, Limited Partnership. and Xplore Technologies Corp.10.24

Amended and Restated Share Option Plan (incorporated by reference to Exhibit A of the Company's Proxy Statement on Schedule 14A, filed on December 21, 2007).10.25

Purchase and Distribution Agreement between Xplore Technologies Corp. and Pegatron Corporation dated as of December 7, 2007 (incorporated by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K, filed on June 5, 2008).10.26

Form of Warrant to purchase shares of Company's common stock (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on September 25, 2007).10.27

Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on September 25, 2007).10.28

Note Purchase Agreement dated September 5, 2008 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on September 11, 2008)10.29

Amendment to Note Purchase Agreement dated September 5, 2008 (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on October 27, 2008)10.30

Note Purchase Agreement dated February 27, 2009 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on March 5, 2009)10.31
*
Xplore Technologies Corp. 2009 Stock Incentive Plan10.32

Xplore Technologies Corp. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q, filed on February 13, 2009.)21.1

Subsidiaries of Xplore Technologies Corp. (incorporated by reference to Exhibit 21.1 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement
No. 333-138675)31.1
*
Certification of Philip S. Sassower, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934


49

---



Exhibit
Number

Description31.2
*
Certification of Michael J. Rapisand, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193432.1
*
Certifications of Philip S. Sassower, Chief Executive Officer, and Michael J. Rapisand, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350


---

50

---





SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 14th day of August 2009.

XPLORE TECHNOLOGIES CORP.By:

/s/ MICHAEL J. RAPISAND Name: Michael J. Rapisand
Title:Chief Financial 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 registrant and in the capacities and on
the dates indicated.

/s/ PHILIP S. SASSOWER Philip S. Sassower

Chief Executive Officer (Principal Executive Officer) and Director

August 14, 2009/s/ MICHAEL J. RAPISAND Michael J. Rapisand

Chief Financial Officer (Principal Financial and Accounting Officer)

August 14, 2009/s/ BRIAN E. USHER-JONES Brian E. Usher-Jones

Director

August 14, 2009/s/ ANDREA GOREN Andrea Goren

Director

August 14, 2009/s/ THOMAS F. LEONARDIS Thomas F. Leonardis

Director

August 14, 2009/s/ FRANK ELENIO Frank Elenio

Director

August 14, 2009/s/ F. BEN IRWIN F. Ben Irwin

Director

August 14, 2009


51

---





INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS OF  XPLORE TECHNOLOGIES CORP.



Annual Financial StatementsReports of Independent Registered Public Accountants

F-2Consolidated Balance Sheets

F-3Consolidated Statements of Loss

F-4Consolidated Statements of Stockholders' Equity (Deficit)

F-5Consolidated Statements of Cash Flows

F-6Notes to the Consolidated Financial Statements

F-7


F-1

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

To
the Board of Directors and
Stockholders of Xplore Technologies Corp.

We
have audited the accompanying consolidated balance sheets of Xplore Technologies Corp. and subsidiary as of March 31, 2009 and 2008 and the related consolidated statements of
loss, stockholders' equity (deficit) and cash flows for the years ended March 31, 2009 and 2008. These consolidated 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 audit provides a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Xplore Technologies Corp. and subsidiary as of March 31,
2009 and 2008, and the
results of its operations and its cash flows for the years ended March 31, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.

/s/
PMB Helin Donovan

Austin,
TX
August 13, 2009

F-2

---





XPLORE TECHNOLOGIES CORP.        Consolidated Balance Sheets        (in thousands)

March 31,
2009

March 31,
2008ASSETSCURRENT ASSETS:Cash and cash equivalents

$
794

$
733Accounts receivable, net


2,898


4,936Inventory


3,351


3,408Prepaid expenses and other current assets


910


658Total current assets


7,953


9,735Fixed assets, net


392


1,094Deferred charges


243


$
8,588

$
10,829LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)CURRENT LIABILITIES:Bank indebtedness

$
2,052


Accounts payable and accrued liabilities


4,535


4,634Total current liabilities


6,587


4,634Promissory notes


2,934


9,521


4,634Commitments and contingenciesSHAREHOLDERS' EQUITY (DEFICIT):Series A Preferred Stock, par value $0.001 per share; authorized 64,000; shares issued 63,179 and 63,179, respectively


63


63Series B Preferred Stock, par value $0.001 per share; authorized 10,000; shares issued 8,706 and 9,589, respectively


9


10Series C Preferred Stock, par value $0.001 per share; authorized 20,000; shares issued 15,274 and 15,274, respectively


15


15Common Stock, par value $0.001 per share; authorized 300,000; shares issued 95,502 and 70,010, respectively


96


70Additional paid-in capital


113,271


107,594Accumulated deficit


(114,387
)

(101,557
)(933
)

6,195$
8,588

$
10,829


See
accompanying notes to consolidated financial statements.

F-3

---





XPLORE TECHNOLOGIES CORP.        Consolidated Statements of Loss        (in thousands, except shares and per share amounts)

For the year endedMarch 31,
2009

March 31,
2008Revenue

$
22,627

$
25,355Cost of revenue


16,245


17,924Gross profit


6,382


7,431Expenses:Sales, marketing and support


4,041


4,840Product research, development and engineering


6,978


4,244General administration


5,351


5,33016,370


14,414Loss from operations


(9,988
)

(6,983
)Other expenses:Interest expense


(1,105
)

(54
)Other


(124
)

(41
)(1,229
)

(95
)Net loss

$
(11,217
)
$
(7,078
)Deemed dividends related to beneficial conversion feature of convertible Preferred Stock





(2,328
)Dividends attributable to Preferred Stock


(1,613
)

(1,449
)Net loss attributable to common shareholders

$
(12,830
)
$
(10,855
)Loss per common share

$
(0.15
)
$
(0.11
)Deemed dividends related to beneficial conversion feature of convertible Preferred Stock





(0.04
)Dividends attributable to Preferred Stock


(0.02
)

(0.02
)Loss per share attributable to common shareholders, basic and fully diluted

$
(0.17
)
$
(0.17
)Weighted average number of common shares outstanding, basic and fully diluted


76,218,948


66,257,655


See
accompanying notes to consolidated financial statements.

F-4

---





XPLORE TECHNOLOGIES CORP.        Consolidated Statements of Stockholders' Equity (Deficit)        (in thousands, except share amounts)

Preferred Series A

Preferred Series B

Preferred Series C

Common SharesAdditional
Paid-in
Capital

Accumulated
DeficitNumber

Amount

Number

Amount

Number

Amount

Number

Amount

TotalBalances, March 31, 2007


63,472,895

$
63


9,988,513

$
10








64,099,000

$
64

$
98,469

$
(93,061
)
$
5,545Warrants issued for services


























152





152Shares issued for services




















280,812





110





110Stock-based compensation


























963





963Issuance of Preferred Series C for debt conversion














500,000


1








249





250Issuance of Preferred Series C, net of cash issuance costs of $1,087














14,774,000


14








6,286





6,300Preferred Series A dividends




















3,674,096


4


1,041


(1,079
)

(34
)Preferred Series B dividends




















546,367


1


156


(168
)

(11
)Preferred Series C dividends




















715,308


1


168


(171
)

(2
)Conversion of Series A Preferred Stock into Common Stock


(294,118
)
















294,118











Conversion of Series B Preferred Stock into Common Stock








(400,000
)










400,000











Net loss





























(7,078
)

(7,078
)Balances, March 31, 2008


63,178,777

$
63


9,588,513

$
10


15,274,000

$
15


70,009,701

$
70

$
107,594

$
(101,557
)
$
6,195Warrants exercised on cashless basis




















4,663











Value assigned to warrants issued


























1,592





1,592Shares issued for services




















1,861,419


2


538





540Shares issued for interest on promissory notes




















936,196


1


71





72Stock-based compensation


























1,023





1,023Options exercised




















150,000





68





68Issuance of common shares, net of issuance costs $83




















9,000,000


9


808





817Preferred Series A dividends




















8,485,177


9


1,055


(1,074
)

(10
)Preferred Series B dividends




















1,160,941


1


148


(157
)

(8
)Preferred Series C dividends




















3,011,781


3


374


(382
)

(5
)Conversion of Series B Preferred Stock into Common Stock








(882,354
)

(1
)







882,354


1








Net loss





























(11,217
)

(11,217
)Balances, March 31, 2009


63,178,777

$
63


8,706,159

$
9


15,274,000

$
15


95,502,232

$
96

$
113,271

$
(114,387
)
$
(933
)


See accompany notes to consolidated financial statements.

F-5

---





XPLORE TECHNOLOGIES CORP.        Consolidated Statements of Cash Flows (in thousands)

Years Ended March 31,2009

2008CASH FLOWS FROM OPERATING ACTIVITIES:Cash used in operations:Net loss

$
(11,217
)
$
(7,078
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


944


604Provision for doubtful accounts


66


366Amortization of deferred financing costs


571


Stock-based compensation expense


1,023


963Equity instruments issued in exchange for services


540


262Changes in operating assets and liabilities:Accounts receivable


1,972


(894
)Inventory


57


231Prepaid expenses and other current assets


(386
)

114Accounts payable and accrued liabilities


191


(733
)Net cash used in operating activities


(6,239
)

(6,165
)CASH FLOWS FROM INVESTING ACTIVITIES:Additions to fixed assets


(242
)

(1,113
)Net cash used in investing activities


(242
)

(1,113
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from bank borrowings


25,470


4,750Repayment of bank indebtedness


(23,418
)

(4,750
)Net proceeds on issuance of promissory notes


3,605


Net proceeds on issuance of Common Shares


817


Net proceeds from issuance of Series C Preferred Stock





6,300Proceeds from exercise of stock options


68


Net cash provided by financing activities


6,542


6,300CHANGE IN CASH AND CASH EQUIVALENTS


61


(978
)CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


733


1,711CASH AND CASH EQUIVALENTS, END OF PERIOD

$
794

$
733SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:Payments for interest

$
189

$
75Payments for income taxes

$


$
Preferred Stock dividends issued in the form of Common Shares

$
1,577

$
1,365Payments for interest satisfied with issuance of Common Shares

$
72

$
The Company issued 4,633 shares of Common Stock in a cashless exercise of warrants.


See
accompanying notes to consolidated financial statements.

F-6

---





XPLORE TECHNOLOGIES CORP.        Notes to the Consolidated Financial Statements        (in thousands, except share and per share amounts)

1. DESCRIPTION OF BUSINESS

Xplore Technologies Corp. (the "Company"), incorporated under the laws of the State of Delaware, is engaged in the business of the development, integration and marketing of rugged mobile
wireless PC computing systems. The Company's products enable the extension of traditional computing systems to a range of field and on-site personnel, regardless of location or
environment. Using a range of wireless communication mediums together with the Company's rugged computing products, the Company's end-users are able to receive, collect, analyze,
manipulate and transmit information in a variety of environments not suited to traditional non-rugged computing devices. The Company's end-users are in the following markets:
utility, warehousing/logistics, public safety, field service, transportation, manufacturing, route delivery, military and homeland security.

On
June 20, 2007, the Company effected a domestication under Section 388 of the Delaware General Corporation Law pursuant to which the Company's jurisdiction of
incorporation became the State of Delaware. Prior to June 20, 2007, the Company was incorporated under the federal laws of Canada.

2. SIGNIFICANT ACCOUNTING POLICIES

The financial statements were prepared using accounting principles generally accepted in the United States of America and reflect the following significant accounting
policies:



The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Xplore Technologies Corporation of America.

The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has accumulated significant losses as it has been developing its current and next generation rugged computer products. The Company has had recurring losses and expects to
report operating losses for fiscal 2010. The Company believes that cash flow from operations, together with borrowings from its senior lender and financial support from Phoenix Venture Fund LLC
(together with affiliates "Phoenix"), a significant shareholder, will be sufficient to fund the anticipated operations for fiscal 2010. These financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going
concern for a reasonable period of time.

Preparing
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure
of contingent assets and liabilities. These estimates and assumptions are affected by management's application of accounting policies. Estimates are deemed critical when a different estimate could
have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact the Company's financial condition, changes in financial
condition or results of operations. On an ongoing basis, the Company evaluates the estimates, including those related to its revenue recognition, allowance for doubtful accounts, inventory valuation,
warranty reserves, tooling amortization, financial instruments, stock-based compensation and income taxes. The estimates are based on historical experience and on various other assumptions that are
believed to be reasonable

F-7

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from management's estimates and assumptions.



Cash
and cash equivalents comprise cash and highly liquid investments with original maturities of less than ninety days.



Inventory
is recorded at the lower of average cost determined on a first-in-first-out basis or net realizable value. The valuation of inventory
requires the use of estimates regarding the amount of current inventory that will be sold and the prices at which it will be sold based on an assessment of expected orders for these products from the
Company's customers. Additionally, the estimates reflect changes in the Company's products or changes in demand because of various factors including the market for the Company's products,
obsolescence, product discontinuation, technology changes and competition.



Fixed
assets are recorded at cost. The straight line depreciation method is used to depreciate the recorded value of fixed assets over their estimated useful lives.

Fixed Asset

Estimated Useful LivesTooling and fixtures

2 yearsOffice equipment

5 yearsMachine equipment

2 yearsLeasehold improvements

lesser of 5 years or remaining lease termComputer equipment

2 yearsComputer software

2 yearsDemonstration units

6 months


The
Company performs reviews for the impairment of fixed assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.



The
Company's revenue is derived from the sale of rugged, mobile technology which includes rugged mobile computers and related accessories. The Company's customers are predominantly
resellers. However, the Company also sells directly to end-users. The Company follows the principles of Staff Accounting Bulletins 101 and 104, and other related pronouncements. Revenue is
recognized, net of an allowance for estimated returns, when title and risks of ownership are transferred to the customer, and all significant contractual obligations have been satisfied, the sales
price is fixed or determinable and the ability to collect is reasonably assured. The Company's revenue recognition criteria have generally been met when the product has been shipped. Shipments are
based on firm purchase orders from its customers with stated terms. The shipping terms are F.O.B. shipping point. The Company does not have installation, training and other commitments subsequent to
shipment that

F-8

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

are
other than incidental. Prices are determined based on negotiations with the Company's customers and are not subject to adjustment. Generally, the Company does not hold inventory at its resellers
and does not expect resellers to hold inventories of the Company's products other than in limited circumstances where such inventory is monitored by the Company. As a result, the Company expects
returns to be minimal. The allowance for returns is calculated and regularly reviewed based on historical experience. The Company has not had material adjustments as returns have been minimal. All
warranty obligations related to recognized revenue are covered by warranty coverage agreements provided by a third party.



The
Company's cost of revenue consists of the costs associated with manufacturing, assembling and testing its products, related overhead costs, maintenance, compensation and other costs
related to manufacturing support, including the depreciation of tooling assets. The Company uses contract manufacturers to manufacture the its products and supporting components, and a significant
portion of the Company's cost of revenue is attributable to component costs and payments to these contract manufacturers.

Cost
of revenue also includes warranty costs. The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under its warranty. The specific
warranty terms and conditions generally included are technical support, repair parts, and labor for a period that is generally three years. The Company re-evaluates its estimates to assess
the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary and any change, based on current information, is recorded as a change in estimate.



The
Company accounts for income taxes in accordance with the liability method. The determination of future tax assets and liabilities is based on the difference between financial
statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the period in which the differences are expected to occur. Future tax assets are recorded to recognize
tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized.



The
Company applies the fair value method of accounting for all of its employee stock-based compensation. The Company uses the Black-Scholes option pricing model to determine the fair
value of stock option awards at the date of the issuance of the award. The value is expensed over the vesting period which is generally three years. See Note 9 to these consolidated financial
statements for required disclosures.



Financial
instruments that potentially subject the Company to credit risk include cash and cash equivalents, accounts receivable and unbilled receivables from customers. Cash is
deposited in demand accounts in federally insured domestic institutions to minimize risk. Accounts receivables are generally unsecured. With respect to accounts receivables, the Company performs
ongoing credit evaluations of customers and generally does not require collateral.

F-9

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Receivables
are concentrated with a small number of customers. The Company maintains allowance for doubtful accounts when deemed necessary. The allowances for doubtful accounts at
March 31, 2009 and March 31, 2008 were $345 and $411, respectively.

The
amounts reported for cash equivalents, accounts receivables, accounts payable, accrued liabilities, bank indebtedness and promissory notes payable are considered to approximate their
market values based on comparable market information available at the respective balance sheet dates and their short-term nature.



Loss
per share has been computed based on the weighted-average number of common shares issued and outstanding during the period, and is calculated by dividing net loss by the weighted
average number of common shares outstanding during the period. The effects of the options granted under the Company's share option plan, the exercise of outstanding options, the exercise of
outstanding warrants and the conversion of the convertible Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock were excluded from the loss per share
calculations for the years presented as their inclusion is anti-dilutive. Accordingly, diluted loss per share has not been presented. The following securities were not considered in the
earnings per share calculation:

March 31, 2009

March 31, 2008Series A Preferred Stock


63,178,777


63,178,777Series B Preferred Stock


8,706,159


9,588,513Series C Preferred Stock


15,274,000


15,274,000Warrants


59,587,622


26,642,465Options


11,562,667


14,329,668158,309,225


129,013,423




In
December 2007, the FASB issued Financial Accounting Standard No. 141(R), "Business Combinations," or FAS 141(R). FAS 141(R) requires the acquiring entity in a
business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the
acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the
acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. FAS 141(R) applies to all
transactions or other events in which the reporting entity obtains control of one or more businesses, including those sometimes referred to as "true mergers" or "mergers of equals" and combinations
achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights. FAS 141(R) applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of FAS 141R did not have a material impact on
the Company's financial position or results of operations.

F-10

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement
No. 115." This statement allows companies to elect to measure certain eligible financial instruments and other items at fair value. Companies may choose to measure items at fair value at a
specified election date, and subsequent unrealized gains and losses are recorded in income at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007, with earlier adoption permitted under certain circumstances. The Company was required to adopt SFAS No. 159 no later than the first quarter of fiscal 2009. The
adoption of SFAS No. 159 did not have a material impact on the Company's financial position or results of operations.

In
September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements
No. 87, 88, 106 and 132R." The statement requires companies to report the funded status of their defined benefit pension plans on the balance sheet. Changes in the funded status in the year in
which the changes occur are recorded through other comprehensive income. The statement requires that companies measure plan assets and obligations as of the end of their fiscal year. The statement
also requires enhanced disclosures related to defined benefit pension plans. SFAS No. 158 was effective as of the end of the Company's first fiscal year ended after December 15, 2006.
The adoption of SFAS No. 158 did not have a material impact on the Company's financial position or results of operations.

In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." The statement clarifies the definition of fair value, establishes a framework for measuring fair value,
and expands the disclosure requirements regarding fair value measurements. SFAS No. 157 became effective for fiscal years beginning after November 15, 2007, with earlier adoption
permitted. The Company was required to adopt SFAS No. 157 no later than the first quarter of fiscal 2009. The adoption of SFAS No. 157 did not have a material impact on the Company's
financial position or results of operations.

In
July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48)."
FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including
a decision on whether or not to file in a particular jurisdiction. Under FIN 48, a tax benefit from an uncertain position may be recognized only if it is "more likely than not" that the
position is sustainable based on its technical merits. FIN 48 became effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 beginning in the
first quarter of fiscal 2008. The adoption of FIN 48 did not have a material impact on the Company's financial position or results of operations.

3. INVENTORY

March 31,2009

2008Finished goods

$
2,526

$
2,658Computer components


825


750Total inventory

$
3,351

$
3,408


F-11

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

3. INVENTORY (Continued)

Inventory
sent to end-users for which revenue recognition attributes have not been completed is included in "other current assets" on the Company's consolidated balance
sheets and was $743 at March 31, 2009 and $141 at March 31, 2008.

Prepaid
expenses and other current assets at March 31, 2008 include $250 representing advances to a supplier to secure the supply of components delivered in fiscal 2009.

4. FIXED ASSETS

March 31,2009

2008CostTooling and fixtures

$
1,697

$
1,697Office equipment and leasehold improvements


1,397


1,386Computer equipment and demonstration units


1,357


1,208Computer software


835


7535,286


5,044Accumulated depreciationTooling and fixtures


1,697


1,435Office equipment and leasehold improvements


1,137


682Computer equipment and demonstration units


1,304


1,180Computer software


756


6534,894


3,950Total fixed assets, net

$
392

$
1,094


5. BANK INDEBTEDNESS

On September 15, 2005, the Company entered into a two-year loan and security agreement with a commercial bank replacing a similar agreement with the same bank. Under
the terms of this agreement, the Company could finance certain eligible accounts receivable up to a maximum of $5,000. Borrowings under the facility bore interest at the bank's prime rate plus 2.25%.
The Company was obligated to repay each loan advance on the earliest of the date on the financed receivable payment is received or the date the financed receivable becomes ineligible or 90 days
past due. The Company is committed to pay a fee equal to .25% of the unused portion of the credit facility.

On
February 28, 2007, the Company modified its credit facility. Under the terms of the amended facility, the borrowings formula was increased to the lesser of $8,000 or 80% of the
Company's U.S. and Canadian accounts receivable outstanding for 90 days or less, plus 80% of the Company's foreign accounts receivable (up to $2,500) plus 25% of eligible inventory (up to
$1,750). The interest rate on the borrowings remained at the bank's prime rate plus 2.25% (or prime plus 2.5% in the case of borrowings related to its inventory). On August 6, 2008, the Company
and the bank amended the loan and security agreement to, among other things, waive the Company's default under the tangible net worth covenant. On August 29, 2008, the Company and the bank
amended the loan and security

F-12

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

5. BANK INDEBTEDNESS (Continued)

agreement
to, among other things, reduce the minimum tangible net worth requirement to $750 for the measuring periods ended August 31, 2008 and September 30, 2008 and, thereafter, to
reset the minimum tangible net worth covenant, effective beginning with the measuring period ended October 31, 2008, based on an agreed forecast. On September 30, 2008, the Company and
the bank further amended the loan and security agreement to reduce the maximum borrowings under the credit facility to $4,500 until the Company had received $3,000 in proceeds from the issuance of
subordinated debt. The Company received the $3,000 in proceeds by October 21, 2008. The Company and the bank have further amended the loan and security agreement, from time to time, in 2009 to,
among other things, reduce the maximum amount of borrowings to $4,000, increase the interest rate applicable to such borrowings and extend the maturity date of the borrowings under the credit
facility. The current maturity date for borrowings under the loan and security agreement is September 15, 2009 (see subsequent event Note 15(d)).

Borrowings
are secured by all assets and intellectual property of the Company. Pursuant to the terms of various subordination agreements between the commercial bank, and one of the
Company's suppliers, the commercial bank has a first priority security interest in all of the assets of the Company, except that under certain circumstances the supplier has a priority security
interest in certain trade debts of the Company. As of March 31, 2009, there were $2,052 in borrowings outstanding under this amended credit facility.

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

March 31,2009

2008Accounts payable

$
2,529

$
2,321Engineering accrual


425


722Other accrued liabilities


1,581


1,591Total

$
4,535

$
4,634


7. PROMISSORY NOTES

Promissory Note
Issuance Date

Balance
March 31,
2008

New
Issuances

Value
Assigned
to Warrants

Payments

Accretion
of Non-Cash
Interest

Balance
March 31,
2009September 5, 2008

$


$
1,000

$
(406
)
$


$
202

$
796October 21, 2008





2,000


(813
)




352


1,539February 27, 2009





555


(217
)




10


348March 5, 2009





100


( 39
)




2


63March 11, 2009





300


(117
)




5


188$


$
3,955

$
(1,592
)
$


$
571

$
2,934


F-13

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

7. PROMISSORY NOTES (Continued)

On September 5, 2008, the Company and its wholly owned subsidiary, together with the Company, referred to as the "Borrowers", issued to Phoenix a secured subordinated promissory
note in the
aggregate principal amount of $1,000,000 and warrants to Phoenix to purchase up to 3,703,704 shares of common stock of the Company at an exercise price of $0.27. The secured subordinated promissory
note was due and payable in full on August 5, 2009 and bears interest at the rate of 10% per annum. Interest on the note is payable quarterly commencing December 31, 2008 and may be paid
in cash or, at the option of the Company, in shares of the Company's common stock. To the extent the Company elects to pay the interest on the promissory notes with shares of common stock, the
effective interest rate increases by 2.5%.

On
October 21, 2008, the Borrowers issued secured subordinated promissory notes in the aggregate principal amount of $2,000,000 and issued warrants to purchase up to 16,666,667
shares of common stock of the Company at an exercise price of $0.12 per share to purchasers, including affiliates of the Company. The secured promissory notes were due and payable on August 5,
2009. In addition, on October 21, 2008 the Borrowers and all purchasers entered into an amendment to the Note Purchase Agreement reducing the exercise price of warrants previously granted to
Phoenix on September 5, 2008 from $0.27 per share to $0.12 per share and increasing the number of shares of common stock Phoenix could purchase from 3,703,704 to 8,333,333 shares of the
Company's common stock in order to provide the same terms to all of the note purchasers.

On
February 27, 2009, March 5, 2009 and March 11, 2009, the Borrowers issued secured subordinated promissory notes in the aggregate principal amount of $955,000 and
issued warrants to purchase up to 9,550,000 shares of common stock of the Company at an exercise price of $0.10 per share to purchasers, including affiliates of the Company. The secured promissory
notes were due and payable in December 31, 2010. In addition, on February 27, 2009 the Borrowers and all purchasers entered into an amendment to the Note Purchase Agreement reducing the
exercise price of warrants previously granted to the note purchasers on September 5, 2008 and October 21, 2008 from $0.12 per share to $0.10 per share and increasing the number of shares
of common stock Phoenix and the October 21, 2008 purchasers may purchase from 25,000,000 to 30,000,000 shares of the Company's common stock in order to provide the note purchasers with the same
terms, including the extension of the maturity date of the September 5, 2008 and October 21, 2008 promissory notes from August 5, 2009 to December 31, 2010.

The
secured subordinated promissory notes issued to the purchasers are due and payable in full on December 31, 2010 and bear interest at the rate of 10% per annum. Interest on the
notes is payable quarterly and may be paid in cash or, at the option of the Company, in shares of the Company's common stock. Interest expense for the fiscal year ended March 31, 2009 was
approximately $153,000 and was paid with the issuance of 936,196 shares of common stock in January 2009 and 1,109,127 shares of common stock issued subsequent to March 31, 2009. The notes are
secured by the assets of the Borrowers and the right of repayment of principal and interest on the notes and the security interest granted by the Borrowers to the holders of the notes is subordinated
to the rights and security interests of the Company's senior lender.

The
warrants issued to Phoenix and the purchasers expire on February 27, 2012. The warrants may be exercised in whole or in part at any time prior to February 27, 2012.

F-14

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

7. PROMISSORY NOTES (Continued)

The
warrants have been valued separately using the Black Scholes methodology. The fair value calculations assumed a discount rate of approximately 1.40%, volatility of approximately 104%
, no dividends and that all of the shares will vest. The relative fair value of the warrants as compared to the notes resulted in a value of $1,592 assigned to the warrants issued to the promissory
noteholders that was recorded as additional paid-in capital and a discount of the promissory notes. The modification of the September 5, 2008 and October 21, 2008 warrants
resulted in a recalculation of fair value which is reflected in the value of $1,592. The discounts are amortized over the term of the promissory notes. During the fiscal year ended March 31,
2009, $571 was recognized as interest expense.

8. SHARE CAPITAL

The Company is authorized to issue 410,000,000 shares of capital stock consisting of 300,000,000 shares of common stock, $.001 par value, and 110,000,000 shares of preferred stock, $.001
par value.

Year-ended March 31, 2009

On November 5, 2008, the Company's Board approved an employee stock purchase plan that was implemented on January 1, 2009
subject to shareholder approval. The initial offering period is from January 1, 2009 to March 31, 2010, the purchases of shares of common stock will occur quarterly at a price of $0.096
per share and 46% of the Company's employees participated in the first offering period.

In
multiple dates during the fourth quarter of fiscal 2009, the Company raised $900 in gross proceeds through private placements to accredited investors of 9,000,000 shares of its common
stock and warrants to purchase 3,750,000 and 4,000,000 shares of its common stock at exercise prices of $0.13 and $0.10, respectively, per share. The warrants issued to the investors are exercisable
immediately and will terminate three years from their date of issuance.

During
the year ended March 31, 2009, 882,354 shares of Series B Preferred Stock were exchanged for 882,354 shares of common stock.

Year-ended March 31, 2008

On September 21, 2007, the Company raised $7,387 in gross proceeds through a private placement to accredited investors of
14,774,000 shares of its Series C Convertible Preferred Stock and warrants to purchase 7,387,000 shares of its common stock. The Company sold the shares of Series C Preferred Stock and
warrants to the investors in Units, at a price of $0.50 per Unit. Each Unit consisted of one share of Series C Preferred Stock and one warrant to purchase one-half of one share of
the Company's common stock. Phoenix, the Company's largest stockholder, purchased an aggregate of 3,320,000 Units for an aggregate purchase price of $1,660.

The
Series C Preferred Stock is pari passu with the Company's Series A and Series B Convertible Preferred Stock in terms of dividends, liquidation and voting. The
Series C Preferred Stock carries a 5% cumulative dividend that may be paid, at the option of the Company, in either cash or common stock. The shares of Series C Preferred Stock are
convertible initially on a one-for-one basis into shares of common stock at any time at the option of the holder, subject to adjustment for stock dividends, splits,
combinations and similar events. The warrants issued to the investors are exercisable immediately, at an exercise price of $0.50 per share, and will terminate on September 21, 2009.

F-15

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

8. SHARE CAPITAL (Continued)

In
connection with the private placement, the Company paid to its selling agents and a standby purchaser that is an affiliate of Phoenix aggregate fees of $443 and issued warrants to
purchase an aggregate of 886,440 shares of its common stock. The warrants issued are exercisable immediately, at an exercise price of $0.50 per share, and will expire on September 21, 2009.
Other Series C Preferred Stock issuance costs as of September 30, 2007 were $844 and include a non-cash charge of $200 representing the value of warrants issued to selling
agents and the standby purchaser. The
remaining charges of $644 represents costs associated with the private placement and obtaining shareholder approval of the private placement, including the preparation, printing and mailing of the
consent statement and registering the shares of common stock issuable upon conversion of the Series C Preferred Stock and exercise of the warrants.

On
July 18, 2007, the Company entered into an agreement with a financial advisory firm to serve as a financial and strategic advisor to the Company and assist the Company in
obtaining financing for its growth and product development. In exchange for these services, the Company issued to the advisor a warrant to purchase 2,500,000 shares of the Company's common stock at an
exercise price of $0.45. The warrant expires on August 8, 2010. Under the terms of the agreement, as amended, 500,000 warrant shares vested upon stockholder approval (which was received on
January 15, 2008) and the remaining 2,000,000 warrant shares will vest in the sole discretion of the Company.

The
warrants have been valued separately at fair value using the Black-Scholes methodology. The fair value calculations assumed a discount rate of approximately 4.0%, volatility of
approximately 104% and no dividends. The values of $1,669 and $51 assigned to the warrants issued to the private placement investors and a converting debenture holder, respectively, were recorded as
additional paid-in capital. The value of $241 assigned to the warrants issued to the selling agents and the standby purchaser was recorded as Series C Preferred Stock issuance cost.
The value of $739 assigned to the warrants issued to the financial services firm was recorded as a separate component of shareholders' equity and as a deferred charge that is amortized over the
warrant's vesting term. For the year ended March 31, 2008, $152 of amortization of the deferred charge was recorded as general administration expenses.

The
convertible Series A, Series B and Series C Preferred Stock have beneficial conversion features as a result of an in-the-money conversion
option at the respective dates of commitment. For each issuance of these shares of Series A, Series B and Series C Preferred Stock, the value of the beneficial conversion feature
was determined as the difference between the conversion price and the Toronto Stock Exchange closing market price of the Company's common stock as of the related financing's commitment date multiplied
by the number of shares into which the Series A, Series B and Series C Preferred Stock are convertible. The value of the beneficial conversion features are presented as deemed
dividends to the Series A, Series B and Series C Preferred stockholders with an offsetting amount to additional paid-in capital. Since the Series A,
Series B and Series C Preferred Stock is immediately convertible into common stock by the holders at any time, the Company recognized non-cash charges (deemed dividends) in
connection with the Series A, Series B and Series C Preferred Stock financings. For the year ended March 31, 2008 there were non-cash charges (deemed dividends)
aggregating approximately $2,328. During the year ended March 31, 2008, 294,118 shares of Series A and 400,000 shares of Series B Preferred Stock were exchanged for an aggregate
of 694,118 shares of common stock.

F-16

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

8. SHARE CAPITAL (Continued)

During
fiscal 2008, one debenture in the amount of $250 was outstanding and bore interest at 10% per annum. On August 8, 2007, pursuant to a debenture exchange agreement dated
July 25, 2007 between the debenture holder and the Company, the $250 debenture was exchanged for 500,000 shares of Series C Preferred Stock that ispari
passuwith the Series A and Series B Preferred Stock in terms of dividends, liquidation and voting, and a two-year warrant to purchase 250,000 shares
of common stock, at an exercise price of $0.50 per share.

Dividends

For the year ended March 31, 2009, there were paid common stock dividends of $1,074 for the Series A Preferred Stock,
$157 for the Series B Preferred Stock and $382 for the Series C Preferred Stock. For the year ended March 31, 2008, there were paid common stock dividends of $1,079 for the
Series A Preferred Stock, $168 for the Series B Preferred Stock and $171 for the Series C Preferred Stock. As of March 31, 2009 and 2008, there were accrued and unpaid
common stock dividends of $91 and $91 respectively, for the Series A Preferred Stock, $13 and $14, respectively, for the Series B Preferred Stock and $32 and $32, respectively, for the
Series C Preferred Stock. The liquidation preference values of the Series A, Series B and Series C Preferred Stock was $21,481, $2,960 and $7,637, respectively. Each series
of preferred stock ranks on parity with each other series of preferred stock with respect to dividends and liquidation.

Warrants outstanding

There were warrants to purchase 59,587,622 shares of common stock outstanding at March 31, 2009 as detailed in the table below:

Number of Warrants/Number Exercisable

Exercise Price

Expiration Date250,000/250,000

US$
0.50


August 8, 2009
(1)998,854/998,854

US$
0.58


August 9, 2009
(1)7,387,000/7,387,000

US$
0.50


September 21, 2009886,440/886,440

US$
0.50


September 21, 2009265,328/265,328

US$
0.35


September 22, 20092,500,000/500,000

US$
0.45


August 8, 201043,550,000/43,550,000

US$
0.10


February 27, 20123,750,000/3,750,000

US$
0.13


January 30, 2013


---

9. STOCK-BASED COMPENSATION PLAN

In 1995, the Board of Directors approved a share option plan, which was amended and restated in December 2004, and amended thereafter (the "Amended Plan"). The Amended Plan is
administered by the Board of Directors and provides that options may be granted to employees, officers, directors and consultants to the Company. The exercise price of an option is determined at the
time of grant and is to be based on the closing price of the common stock on the stock exchange or quotation system where the common stock is listed or traded, on the day preceding the grant. Unless
otherwise provided, the

F-17

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

9. STOCK-BASED COMPENSATION PLAN (Continued)

options
are exercisable only during the term of engagement of the employee, officer or consultant or during the period of service as a director of the Company. The maximum aggregate number of shares
of common stock reserved for issuance upon the exercise of all options granted under the Amended Plan is not to exceed 30,900,000. The options under the plan generally vest over a 3-year
period in equal annual amounts. In fiscal 2010, the Company adopted a new stock option plan (see Note 15).

The
options have been valued separately using the Black-Scholes methodology and the calculations for issuances in fiscal 2009 and 2008 assumed discount rates of approximately 2.6% and
3.3% respectively, and volatility of approximately 106% and 104% respectively, and no dividends for both years. The Company recorded compensation cost of $1,023 in fiscal 2009 and $963 fiscal 2008 for
option grants issued since April 1, 2003. This expense was recorded in the employee related functional classification.

A
summary of the activity in the Company's Amended Plan during the years ended March 31, 2009 and 2008 is as follows:

Year ended March 31,2009

2008Options

Weighted
Average
Exercise Price
(USD$)

Options

Weighted
Average
Exercise Price
(USD$)Outstanding at beginning of year


14,329,668

$
0.42


10,660,337

$
0.51Granted


1,615,000

$
0.45


4,113,664

$
0.50Exercised


150,000

$
0.37





Forfeited


4,232,001

$
0.50


444,333

$
052Outstanding at end of year


11,562,667

$
0.43


14,329,668

$
0.51


At
March 31, 2009, the total number of shares of common stock issued in connection with the exercise of options is 671,385 since the inception of the Amended Plan.

A
summary of the options outstanding and exercisable as at March 31, 2009 is as follows:

Options Outstanding

Options ExercisableRange of Exercise Prices Cdn$

Number Outstanding

Weighted Average
Remaining
Contractual Life

Number Exercisable

Weighted Average
Remaining
Contractual Life$0.14 - 0.38


5,723,335


2.6


3,622,450


2.4$0.39 - 0.49


2,479,668


2.8


1,052,003


1.0$0.50 - 0.56


2,518,330


3.7


857,220


3.7$0.62 - 1.18


749,334


1.1


749,334


1.1$1.24 - 1.85


92,000


0.1


92,000


0.111,562,667


2.7


6,373,007


2.2


Prior
to June 20, 2007, the Company was incorporated under the laws in Canada and the exercise prices for stock grant awards were in Canadian dollars; thus the majority of the
exercise prices for the

F-18

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

9. STOCK-BASED COMPENSATION PLAN (Continued)

current
options outstanding are in Canadian dollars. The range of stock grant awards is subject to changes in the exchange rates between the Canadian dollar and United States of America dollar.

During
the year ended March 31, 2009, grants in the amount of 365,000 shares of common stock were issued to non-executive employees of the Company at an average
exercise price of $0.33 and a grant in the amount of 1,250,000 shares of common stock was issued to an executive of the Company at an exercise price of $0.49. The fair value of these grants totaling
1,615,000 shares was $462 and will be recognized as future stock compensation expense.

Compensation
expense for the Amended Plan has been determined based on the fair value at the grant date for options granted in the current fiscal year. The aggregate intrinsic value of
options exercisable at March 31, 2009 was zero as the fair value of the Company's common stock is less than the exercise prices of the options. The future compensation expense to be recognized
for unvested option grants at March 31, 2009 was $784 to be recognized over the next three years.

10. INCOME TAXES

The tax effect of temporary differences that give rise to future income tax assets are as follows:

Year ended March 31,2009

2008Deferred income tax assets:Net operating losses

$
27,859

$
24,324Accrued liabilities


443


401Inventory allowance


150


333Other items


121


144Valuation allowance


(28,572
)

(25,202
)Deferred tax asset

$


$



The
provision for income taxes varies from the expected provision at statutory rates for the following reasons:

Year ended March 31,2009

2008Combined basic US and Canadian statutory rates, respectively


35
%

35
%Recovery of income taxes based on the above rates

$
(3,926
)
$
(2,477
)Increase in income taxes resulting from:Permanent differencestock compensation


358


337Permanent differencefinancing fees


200


53Expiration of net operating losses





630Change in valuation allowance


3,368


1,457Provision for income taxes

$


$



F-19

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

10. INCOME TAXES (Continued)

The
Company has accumulated net operating losses for income tax purposes totaling approximately $79,598, which under certain conditions, may be carried forward and applied to reduce
future year's taxable income. The potential benefit associated with these losses is not reflected in these statements as management does not believe that recovery is more likely than not. The right to
claim these losses expires as follows:

Expiry Year

Canada

United States

Total2010

$
3,195

$


$
3,1952011


4,823





4,8232015


2,889





2,8892016





1,282


1,2822017





737


7372018





5,293


5,2932019





2,978


2,9782020





1,486


1,4862021





3,116


3,1162022





6,412


6,4122023





10,746


10,7462024





4,433


4,4332025





7,764


7,7642026


1,707


3,660


5,3672027


936


2,813


3,7492028


67


5,159


5,2262029





10,102


10,102$
13,617

$
65,981

$
79,598


11. FINANCIAL INSTRUMENTS



At March 31, 2009, all of the Company's promissory notes bear interest at a fixed rate of 10%. The Company's loan and security
agreement with a commercial bank has an interest rate with a variable component based on bank's prime rate. If the Company borrowed 100% of the facility's available line for a full year and the bank's
prime rate increased by 1%, the Company's borrowing costs would increase by $50,000.



Approximately 50% of the Company's revenues and a majority of the Company's expenses are in United States dollars, and foreign exchange
is limited to non-U.S. dollar denominated revenues and net expenditures in Canadian dollars, which are immaterial in each of the years ended March 31, 2009 and 2008, respectively.

F-20

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

11. FINANCIAL INSTRUMENTS (Continued)



Information regarding the Company's accounts receivable credit risk is as follows:

As of
March 31,

Accounts
Receivable
(in millions)

Number of Customers with
Receivable Balance >10%
of Total Receivables

Customer Share as a
Percent of Total
Receivables

Percentage Share of Total
Receivables2009

$
2.8


1

23%


23
%2008

$
4.9


2

30% and 13%


43
%


The
receivables representing 23% of the accounts receivable balance at March 31, 2009 were subsequently collected.



The Company relies on a single supplier for the majority of its finished goods. At March 31, 2009 and 2008, the Company owed
this supplier $1,294 and $1,144, respectively, recorded as accounts payable and accrued liabilities. The inventory purchases and engineering services from this supplier for the years ended
March 31, 2009 and 2008 were $11,539 and $11,286, respectively.

12. SEGMENTED INFORMATION

The Company operates in one segment, the sale of rugged mobile wireless PC computing systems. Approximately 49% of the Company's revenue for fiscal 2009 was derived from sales in the
United States. Canada had approximately 21% of total revenue for fiscal 2009. Canada was the only country outside of the United States which accounted for more than 10% of the Company's revenue for
the fiscal year ended March 31, 2009. For the fiscal year ended March 31, 2008, the Netherlands accounted for 10% of the total revenue.

The
distribution of revenue by country is segmented as follows:

Year ended
March 31,2009

2008Revenue by country:United States

$
11,397

$
14,485Canada


4,709


1,892Netherlands


1,125


2,544All other countries


5,396


6,434$
22,627

$
25,355


The
Company has a variety of customers and in any given year a single customer can account for a significant portion of sales. For the year ended March 31, 2009, the Company had
one customer that had sales that were greater than 10% of total revenue and the customer was located in Canada. For the year ended March 31, 2008, the Company had one customer that had sales
that were greater than

F-21

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

12. SEGMENTED INFORMATION (Continued)

10%
of total revenue and the customer was located in the Netherlands. The percentages of total revenue from these customers are as follows:

Fiscal Year

Total
Revenue
(in millions)

Number of Customers
with Revenue of 10%
or greater
of Total Revenue

Customer
Share as a
Percent of
Total Revenue

Percentage Share of
Total Revenue2009

$
22.6


1


12
%

12
%2008

$
25.4


1


10
%

10
%


13. COMMITMENTS AND CONTINGENT LIABILITIES



The
Company leases facilities in Austin, Texas. The current annual lease commitment is $191 and the lease maturity date was extended from September 1, 2009 to August 31,
2014.

Minimum
annual payments by fiscal year required under all of the Company's operating leases are:

2010

$
1912011

$
1942012

$
2282013

$
2362013

$
240$
1,089




At
March 31, 2009, the Company had purchase obligations extending into fiscal 2010 of approximately $4,466 related to inventory and product development items.



During
the year ended March 31, 2009, the Company settled a dispute with a value added reseller ("Reseller") related to the Reseller's servicing of products from 2001 to 2004. The
Company discontinued selling these products in 2004. Pursuant to the terms of the settlement, the Reseller was paid $50 in December 2008, and received $50 over the first six months of 2009 in equal
installments of $8,333 per month. In addition, the Reseller was issued 1,334,000 shares of the Company's common stock and may receive up to $60 of discounts on future purchases of the Company's
products. The Company's warranty reserve for these products, included in accrued liabilities, was adequate to cover the cash payments and the $240 value of the common stock. Legal fees which were in
excess of the reserve in the amount of $207 have been recorded as general administration expense for the year ended March 31, 2009.

The
Company and its subsidiaries are involved in litigation, arising in the ordinary course of business. None of these actions, individually or in the aggregate, are expected to have a
material adverse effect on the Company's consolidated financial position or results of operations.

F-22

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

14. RELATED PARTY TRANSACTIONS

In connection with the Company's private placements through the end of fiscal 2009 the Company paid an affiliate of Phoenix an administration fee of $128 related to the total placement
of $3,955 of subordinated secured promissory notes (see Note 7) and $900 of common stock (see Note 8).

Interest
expense for the fiscal years ended 2009 and 2008 was $121 and none, respectively, related to borrowings from Phoenix. At March 31, 2009, outstanding promissory notes to
such affiliates were $2,375. There were no outstanding promissory notes to such affiliates at March 31, 2008.

In
connection with the Company's private placement of Series C Preferred Stock, the Company entered into a standby letter of commitment with SG Phoenix LLC ("SG Phoenix"),
an affiliate of Phoenix, whereby SG Phoenix agreed to purchase or caused to be purchased up to 14 million Units, at the offering price of $0.50 per Unit, less the aggregate amount of Units sold
by the Company's selling agents in the private placement. In connection with the private placement, SG Phoenix purchased or caused to be purchased 11,000,000 Units at an aggregate purchase price of
$5,500 and the Company paid to SG Phoenix a fee of $330 and issued warrants to SG Phoenix to purchase an aggregate of 660,000 shares of its common stock. The warrants issued are exercisable
immediately, at an exercise price of $0.50 per share, and will terminate on September 21, 2009.

15. SUBSEQUENT EVENTS

From
May to July 2009, the Company raised $150 in a private placement through the issuance of common stock, promissory notes and warrants to purchase up to 1,500,000 shares of the
Company's common stock at $0.10 per share. The terms of the warrants are consistent with the terms of the warrants issued to the purchasers of the secured promissory notes.

In
March 2008, Typhoon Touch Technologies, Inc. ("Typhoon") and Nova Mobility Systems, Inc. ("Nova") (collectively, the "Plaintiffs") filed Plaintiffs' First Amended
Complaint for Patent Infringement (the "Complaint") against the Company and several other defendants including Dell, Inc., Panasonic Corporation of North America, and Apple, Inc., in the
United States District Court for the Eastern District of Texas (the "Court"). The Complaint alleges that the defendants manufacture, sell, offer for sale and/or import products that infringe on two
U.S. patents owned by Typhoon and exclusively licensed to Nova (the "Patents"). In April 2009, the Company entered into a settlement agreement and covenant not to sue with the Plaintiffs in exchange
for a $16 cash payment and 2,000,000 shares of our Series C Preferred Stock. The cash payment and fair market value of the shares of $170, assuming conversion into common stock, were recorded
as an accrued liability and general administration expense as of March 31, 2009.

On
April 30, 2009, the Company's board of directors granted options to executive officers to purchase an aggregate of 3,084,731 shares of common stock, to other employees to
purchase an aggregate of 1,780,409 shares of common stock and to the directors to purchase an aggregate of 496,477 shares of common stock. The options are exercisable for five years, with an exercise
price of $0.10 per share and vest annually in equal installments over three years beginning on the first

F-23

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

15. SUBSEQUENT EVENTS (Continued)

anniversary
of the date of grant. The future compensation expense for these grants was $390 to be recognized over the next three years.

On
June 10, 2009, the Company's board of directors granted options to each director, in lieu of cash compensation otherwise payable to them in connection with their service as
board members. The board of directors granted options to each director to purchase 150,000 shares of common stock at an exercise price of $0.15 per share, which options were fully vested as of the
date of grant, for services provided during the fiscal year ended March 31, 2009 and 150,000 shares of common stock at an exercise price of $0.15 per share, which options will fully vest on
March 31, 2010, for services to be provided during the fiscal year ending March 31, 2010. The compensation expense related to the grants for fiscal 2009 was $82 and was recorded as a
general administration expense. The future compensation expense to be recognized in fiscal 2010 is $98.

On
June 10, 2009, the Company's board of directors approved the issuance to SG Phoenix LLC, an affiliate, of a warrant to purchase 1,500,000 shares of common stock at an
exercise price of $0.15 per share, which warrant was fully vested on the date of issuance, for services rendered for the year ended March 31, 2009 and a warrant to purchase 1,500,000 shares of
common stock at an exercise price of $0.15 per share, which warrant will fully vest on March 31, 2010, for services to be rendered for the year ending March 31, 2010. The fair value of
each warrant is $160 and reflected as a payment for services in general administration in the respective years.

On
July 28, 2009, the Company's board of directors adopted the 2009 Stock Incentive Plan, which is referred to as the 2009 Stock Plan. The 2009 Stock Plan provides for
equity-based awards in the form of incentive stock options and non-statutory options, restricted shares, stock appreciation rights and restricted stock units. Awards are made to selected
employees, directors and consultants to promote stock ownership among award recipients, to encourage their focus on strategic long-range corporate objectives, and to attract and retain
exceptionally qualified personnel. Up to 19,400,000 shares of common stock may be issued under the 2009 Stock Plan. The 2009 Stock Plan became effective retroactive to June 10, 2009, subject to
shareholder approval.

On
April 24, 2009, the Company amended the loan and security agreement with the commercial bank to extend the maturity date of borrowings under the agreement to May 29,
2009 and reduce the maximum amount of borrowings permitted under the loan and security agreement to $5,000,000. On May 29, 2009, the maturity date was extended to June 30, 2009 and the
lender agreed to provide up to $1 million of additional availability in excess of the borrowing base, based on a supporting irrevocable standby letter of credit issued by the Philip Sassower,
the Company's Chairman and Chief Executive Officer, and Susan Sassower, his wife ("Supporting Letter of Credit Applicants"). In addition, the interest rate was increased from the bank's "prime rate"
plus 2.25% to the greater of (A) 6.25% or (B) 2.25% above the bank's "prime rate" and the minimum tangible net worth covenant was amended to require the Company to have a minimum
tangible net worth of at least One Million Five Hundred Seventy Five Thousand Dollars ($1,575) increasing quarterly by fifty percent (50%) of net income and fifty percent (50%) of issuances of equity
or subordinated debt after May 29, 2009.

In
order to induce the Supporting Letter of Credit Applicants to issue the letter of credit, the Company entered into the Credit Reimbursement, Compensation and Security Agreement, dated
as of

F-24

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

15. SUBSEQUENT EVENTS (Continued)

May 29,
2009 (the "Letter of Credit Agreement"), with the Supporting Letter of Credit Applicants whereby it (i) agreed to reimburse the Supporting Letter of Credit Applicants for all
costs and expenses incurred by the Supporting Letter of Credit Applicants in connection with the issuance of the letter of credit, (ii) agreed to reimburse the Supporting Letter of Credit
Applicants for all payments made by the Supporting Letter of Credit Applicants to the issuing bank in connection with any drawings made by the bank under the letter of credit; (iii) agreed to
provide certain compensation to the Supporting Letter of Credit Applicants in connection with the issuance of the letter of credit, including the issuance to the Supporting Letter of Credit Applicants
of a three-year warrant to purchase 5,000,000 shares of common stock at an exercise price of $0.10 per share; and (iv) granted to the Supporting Letter of Credit Applicants a
security interest in all of its assets to secure their obligations to the Supporting Letter of Credit Applicants. The security interest granted by the Company and its wholly owned subsidiary to the
Supporting Letter of Credit Applicants is subordinated to the rights and security interest of the bank in connection with the loan and security agreement and senior to the rights and security interest
of the purchasers of the promissory notes. Upon an event of default, as defined, the Supporting Letter of Credit Applicants may exercise all remedies permitted by the letter of credit agreement or at
law or in equity, subject to a subordination agreement with the bank. In consideration for the promissory noteholders subordinating their security interests in collateral of the Company in favor of
Supporting Letter of Credit Applicants, the Company issued to the promissory note holders warrants to purchase an aggregate of 4,090,000 shares of common stock at an exercise price of $0.10 per share.
The warrants to the Supporting Letter of Credit Applicants and the promissory note holders will expire in May 2012.

On
June 29, 2009, the Company amended the loan and security agreement with the commercial bank to extend the maturity date to July 14, 2009. On July 13, 2009, the
maturity date was further amended to August 14, 2009 and the credit limit was reduced to $4,000.

On
August 13, 2009, the Company entered into a non-binding term sheet with the Company's existing lender to modify the existing loan and security agreement. Under the
proposed terms of the new agreement, the Company will finance certain eligible U.S. and Canadian accounts receivable, as defined, up to a maximum $4,000. Borrowings will bear interest at the bank's
prime rate plus 3.42% per annum. The interest rate may increase by approximately 0.72% if the Company's monthly quick ratio is less than half percent. The Company will be obligated to repay each loan
advance on the earliest of the date on which the financed receivable payment is received or the date to which the financed receivable becomes ineligible or 90 days past due. The new agreement
will have a maturity date of February 5, 2010 which will be extended to March 31, 2010 if the expiration date of the letter of credit is extended to April 30, 2010 (or later) by
no later than December 31, 2009. The Supporting Letter of Credit Applicants have agreed to provide the Company with the extension of the expiration date of the letter of credit. The new
agreement also has a commitment fee of $17.5 and is subject to a minimum monthly interest fee of $4. Borrowings will be secured by all assets and intellectual property of the Company.

On
August 13, 2009, the maturity date of borrowings under the existing agreement was extended to September 15, 2009. The Company expects to complete the new agreement on or
before September 15, 2009.

F-25

---