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 1934    
|For the fiscal year ended March 31, 2008                         
|or                                                               
|o                                                                 | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For 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)               |  | 74-2809234(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 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. ý

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 29, 2007, the aggregate market value of the common equity held by non-affiliates of the registrant was Cdn. $24,651,068 based on
the closing sale price of Cdn. $0.43 on such date as reported on the Toronto Stock Exchange.

As
of May 31, 2008, the registrant had 70,290,669, shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:None.



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Table of Contents

|PART I   |             | 1 
|-------- | ----------- | --
|         | Item 1.     |   
|         | Item 1A.    |   
|         | Item 1B.    |   
|         | Item 2.     |   
|         | Item 3.     |   
|         | Item 4.     |   
|PART II  |             | 17
|         | Item 5.     |   
|         | Item 6.     |   
|         | Item 7.     |   
|         | Item 7A.    |   
|         | Item 8.     |   
|         | Item 9.     |   
|         | Item 9A.    |   
|         | Item 9A(T). |   
|         | Item 9B.    |   
|PART III |             | 28
|         | Item 10.    |   
|         | Item 11.    |   
|         | Item 12.    |   
|         | Item 13.    |   
|         | Item 14.    |   
|PART IV  |             | 44
|         | Item 15.    |   

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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.

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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 PCs 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.

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"). We intend to grow our revenue by entering into other larger rugged, mobile computer markets
through the development of new rugged, mobile computing systems. Currently we are developing numerous new products, including a rugged, mobile notebook PC. In addition, we are developing the next
generation of our iX Tablet PC. We expect that these products will be available in fiscal year 2009.

Recent Developments

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



Significant
effort is being directed toward the development of several new products to expand our addressable market. The first two products, which we plan to release during our current
fiscal year, include a rugged notebook and a rugged convertible notebook. Both devices will share a similar form factor and unique casing and design features which should enable these devices to be
among the lightest, most technologically advanced rugged mobile computers available.

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, will include 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 are developing what we believe is a state of the art rugged docking station that when combined with our iX104 creates a highly flexible and functional system. 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.

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We
have built a scalable infrastructure to support our growing business. Wistron Corporation (which we refer to as Wistron) continues to manufacture our iX104. We engaged Pegatron
Corporation (which we refer to as Pegatron), the contracting manufacturing service spin-off from Taiwan-based ASUS. Both Pegatron and Wistron are recognized as leading providers of
computers and electronic components to some of the world's largest technology companies, including Dell, Inc. and Hewlett-Packard Company. We expect these alliances 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:



Each
of these tablets is available in the following models:



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. Our products meet some of 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 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 its Dual Mode screen that
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

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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 current products provide a complete 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All of 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 that can perform 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 existing infrastructure, we plan to penetrate other product market categories, such as rugged notebooks, which 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
partners, such as Wistron and Pegatron, leading contract manufacturers located in Taiwan. In addition, we are working with VT Miltope on an integrated tablet and active docking system. The initial
targeted military market segments 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.

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Delivery of high quality, reliable systemsWe measure and 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 are evaluating 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:



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 2008 approximately 83% of our total revenues were attributable to sales to our distribution partners and approximately 17% of
our total revenues were attributable to sales directly to our end-users. We currently have 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 Methec B.V. Industrielaan, 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 2008, we had one distribution partner located in the
Netherlands that accounted for approximately 10% of our revenue and we did not have any single end-user that accounted for over 10% of our revenue. We are not substantially dependent on
any single one distribution partner or end-user. Our end-users include Daimler Chrysler, Hydro One, the City of Cleveland Police Department, Shell Oil UK, Proctor &
Gamble, the Royal Netherlands Air Force, the Rome Fire Department and the U.S. Federal Emergency Management Agency. Proctor & Gamble and Burlington Northern Santa Fe Railway have adopted our
Tablet PC as their standard rugged tablet computer.

We
have a sales team of 15 individuals that have geographic responsibilities for direct and indirect sales opportunities. Our sales team works closely with our distribution partners in
defined regions based

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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 27% from fiscal 2007 to fiscal 2008. Our revenue outside of North America was 35% of total revenue in fiscal year 2008 as compared to 33% of total revenue in
fiscal year 2007.

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 the driving force
behind these 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 used non-rugged devices and experienced firsthand the direct costs of this decision
(e.g.more frequent damage, information retrieval costs, replacement costs), as well as the 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 major
manufacturing partners like Wistron and Pegatron, has 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.

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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 Chrysler, Meijer, Andersen Windows and Clare Rose.

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 issues 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 multiple international organizations, including the Rome Fire Department.

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 an integrated tablet and active docking system. The initial targeted military market segments 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 partners,
including Wistron and Pegatron, we believe we are able to bring significant resources to the research, development and design of our products.

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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 all
considered for integration into our rugged platform as we seek to expand into additional markets. During the fiscal years ended March 31, 2008 and 2007, we incurred $4,244,000 and $2,935,000,
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.

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 on July 1, 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

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based
discounts. At least quarterly, we meet with Wistron to develop the 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 is expected to
automatically renew for a one-year term on July 1, 2008. In addition, the Wistron agreement contains a provision that allows for termination for any reason by either party upon
120 days notice.

During
our fourth quarter of fiscal 2008, we entered into a purchase and distribution agreement with Pegatron, the multi-billion dollar spin-off of Taiwan-based ASUS.

Under
the terms of our agreement with Pegatron, Pegatron provides us with design, manufacturing, distribution and support services related to our ruggedized mobile personal computer
notebooks. Our purchase price of the products produced by Pegatron is determined based on the specific configuration of the notebook being produced and is subject to a cost reduction program. We
provide Pegatron with a six month rolling forecast of the products we anticipate ordering and the required delivery dates. Pegatron is responsible for shipping the product on the date and in the
quantities identified in the purchase order. Although Pegatron has no obligation to meet requested increases in excess of certain stated percentages, if products ordered during any quarter exceed the
volume projected in the forecast, Pegatron has agreed to use its best efforts to meet such increased orders in accordance with our forecast updates.

Pegatron
has provided several warranties to us, including that the materials and components used in the product are new (including those materials and components obtained from Pegatron's
vendors and subcontractors), that each product is free from defects in material, workmanship and design, that the product is free from any liens, encumbrances or defects in title and that the product
complies with all specifications, drawings, samples and descriptions. Under the terms of our agreement with Pegatron, Pegatron agrees not to produce, manufacture or sell for itself or for any of its
other customers any product that has the look and feel, with regards to physical styling, of our products.

The
term of the agreement is for three years and expires on December 6, 2010, but automatically renews for additional one year terms, unless either party provides written notice
of its intent to terminate the agreement at least 90 days prior to the expiration of any renewal term. The Pegatron agreement contains a provision that allows for termination for any reason by
either party upon three months notice.

We
maintain build-to-order capabilities and quality control functions in-house, which are the responsibility of our production and engineering teams.
This includes manufacture engineering, development of production and assembly test procedures, definition of quality assurance program and development of test fixtures,
build-to-order production and "out-of-box" quality assurance testing.

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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 two
U.S. patent applications 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 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 at May 31, 2008, we had 73 full-time employees, of which 44 were employed in the operations, engineering, research and development and
customer support areas, 10 were involved in corporate and administrative areas, and 19 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.

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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, 2008, we incurred a net loss of approximately
$7.1 million. In addition, as of March 31, 2008, our accumulated deficit was approximately $100 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 2009 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.

If we fail to obtain additional financing when needed, we may be unable to complete the development and commercialization of our rugged notebook and 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 $95 million. We expect to continue to spend substantial amounts to complete the development and commercialization of
our rugged notebook and rugged convertible notebook and to continue our research and development programs, including those to advance our current product line. As at March 31, 2008, our working
capital was approximately $5.1 million and our cash and cash equivalents were approximately $0.7 million. We believe that cash flow from operations, together with borrowings from our
credit facility and, if necessary, financial support from Phoenix Venture Fund LLC ("Phoenix"), our significant shareholder, and its affiliates will be sufficient to fund our anticipated
operations for the next 12 months. 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. 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 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.

We may not be able to develop a rugged notebook or a convertible rugged notebook or develop a notebook that is accepted by the market, in which case our planned future growth
would be negatively affected.

We do not currently have a product in the rugged notebook market; however, we are developing a rugged notebook and a convertible rugged notebook. Our future
growth is based in part upon these products. We cannot assure you that we will be able to develop a rugged notebook or a convertible rugged notebook or that any notebook we develop will be able to
compete or have any success in the marketplace. If we are unable to develop a rugged notebook or a convertible rugged notebook or if we

10

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do
develop a rugged notebook or a convertible rugged notebook but it is not accepted by the market, our planned future growth would be negatively affected.

In fiscal year 2008, approximately 10% of our revenue was derived from one of our value-added resellers. If we are unable to replace revenues generated from one of our major
resellers with revenues from others in future periods, our revenues may fluctuate and our growth would be limited.

Historically, in any given year a single value-added reseller (or VAR) customer could account for more than 10% of our revenue. In fiscal year 2008, one VAR
customer, Methec B.V. Industrielaan, accounted for approximately 10% of our total revenue and in fiscal year 2007, no one VAR customer accounted for over 10% of our total revenue. If we are
unable to replace revenues generated from one of our major resellers 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. 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 and Pegatron 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 and Pegatron to manufacture products under development and expect to continue to do so
for the foreseeable future. Our reliance involves a number of risks, including:



Our
business is therefore dependent upon Wistron and Pegatron for their manufacturing abilities. During the fiscal years ended March 31, 2008 and 2007, we purchased approximately
$11.3 million and $16.3 million, respectively, from Wistron. Both the Wistron Agreement and the Pegatron Agreement contain a provision that allows for termination for any reason,
accordingly, we cannot assure you that Wistron and Pegatron will continue to work with us, that they will be able to meet our manufacturing

11

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needs
in a satisfactory and timely manner, that Wistron or Pegatron has the required capacity to satisfy our manufacturing needs or that we can obtain additional or alternative manufacturers when and
if needed. The availability to us of Wistron or Pegatron, and the amount and timing of resources to be devoted to these 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 or Pegatron, 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.

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.

12

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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, 2008 and March 31, 2007, approximately 42% and 44%, 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 our Chairman, Philip S. Sassower, Mark Holleran, our
President and Chief Operating Officer, Michael J. Rapisand, our Chief Financial Officer, Bryan Bell, our Vice President of Engineering, Randy Paramore, our Vice President of Supply Chain and Gregory
E. Arends, our Chief Technology Officer. 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 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, own in the aggregate approximately 36.0% 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 24.6% of our outstanding voting securities. In addition, Mr. Sassower, together with entities controlled by
him, beneficially own approximately 11.4%, in the aggregate, of our outstanding voting securities. Thus, Phoenix Venture Fund and Mr. Sassower together control approximately 36.0% 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.

13

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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 more than 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:



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

14

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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, 2009, and has a current annual base rent of approximately $251,000. We have the option
to renew this lease for an additional three years. We also lease a satellite office in Helsinki, Finland, on a three-month renewable basis. We believe that our existing leases will be renegotiated as
they expire or that alternative properties can be leased on acceptable terms. We also believe that our present facilities are suitable for continuing our existing and planned operations.

Item 3.    Legal Proceedings

On November 9, 2006, we issued a Statement of Claim against Deloitte & Touche 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 the Company, 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 engagements for or during the Company's fiscal years 2002, 2003 and 2004. The Company does 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 the Company and several other defendants including Dell, 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 2008, the Company filed its Answer, Defenses and Counterclaim in response to the Complaint, denying the allegations of infringement and requesting the Court to dismiss the
Complaint and award judgment in favor of the Company, including recovery of the Company's attorneys' fees and costs. In May 2008, Plaintiffs filed Plaintiffs' Reply to the Company's Counterclaims in
which Plaintiffs deny any allegation that any claim relating to the Patents is invalid. The Court has not issued a scheduling order. The Company believes the Plaintiff's claims are without merit and
will continue to defend against such claims. The Company does not expect this matter to have a material adverse impact on its financial condition or results of operations.

15

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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 the Company's financial condition or the results of operations.

Item 4.    Submission of Matters to a Vote of Security

The Annual Meeting of shareholders was held on January 15, 2008. At the Annual Meeting, the board of directors was re-elected in its entirety
and the following proposals were adopted by the vote specified below:

Proposal
No.1:    Ratification of the appointment of PMB Helin Donovan, LLP as our independent registered public accounting firm for the fiscal year ending
March 31, 2008:

For

Against

Abstain

Broker
Non-Vote

% of Shares
Voting For79,558,690

775

62,467



99.9
%


Proposal
No.2:    Ratification and approval of an amendment to our Amended and Restated Share Option Plan increasing the total number of shares of common stock issuable
thereunder from 26,800,000 shares to 30,900,000 shares:

For

Against

Abstain

Broker
Non-Vote

% of Shares
Voting For22,124,317

3,463,492

61,895



86.2
%


Does
not include 53,972,228 shares beneficially owned by insiders and their associates.

Proposal
No.3:    The approval of the issuance of up to 392,903 shares of common stock to Martin E. Janis & Company Inc. for services to be rendered to us:

For

Against

Abstain

Broker
Non-Vote

% of Shares
Voting For78,796,353

340,910

161,674



99.3
%


Does
not include 322,995 shares beneficially owned by Martin E. Janis & Company, Inc.

Proposal
No.4:    Approval of the issuance of a warrant to purchase up to 2,500,000 shares of common stock to Legend Merchant Group for services to be rendered to us:

For

Against

Abstain

Broker
Non-Vote

% of Shares
Voting For79,306,054

153,458

162,240



99.6
%


16

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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 May 31, 2008, there
were 589 holders of record of our common stock. The following table sets forth, for the periods indicated, the high and low sales price of our common stock on the Toronto Stock Exchange.

|PERIOD                            |  | High |  | Low 
|--------------------------------- |  | ---- |  | ----
|
|Fiscal Year Ended March 31 2007:  |  |      |  |     
|First Quarter                     |  | 0.50 |  | 0.30
|Second Quarter                    |  | 0.68 |  | 0.35
|Third Quarter                     |  | 0.46 |  | 0.36
|Fourth Quarter                    |  | 0.50 |  | 0.32
|Fiscal Year Ended March 31, 2008: |  |      |  |     
|First Quarter                     |  | 0.64 |  | 0.32
|Second Quarter                    |  | 0.68 |  | 0.41
|Third Quarter                     |  | 0.49 |  | 0.21
|Fourth Quarter                    |  | 0.37 |  | 0.19

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

On January 17, 2008, we issued 65,484 shares of common stock to Martin E. Janis & Company, Inc. in return for investor relations services
provided to us by Martin Janis. 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. The price per share was $0.31.

Item 6.    Selected Financial Data.

Not applicable.

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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 job outside of traditional office settings. 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. Further, these 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.
Therefore, we intend to grow our revenue by entering into other larger rugged, mobile computer markets through the development of new rugged, mobile computing systems. Currently we are developing
numerous new products, including a rugged, mobile notebook PC. In addition, we are developing the next generation of our iX Tablet PC. We expect that these products will be available in fiscal 2009.

We
expect to grow our revenue with the introduction of these new products. In the next several quarters, we are dependent upon the market acceptance of our current family of
iX Tablet PCs systems. Until such time as we introduce our new products, our revenue may not be comparable with prior year periods. Additionally, we are expanding our research,
development and engineering resources in connection with our new products and expect these expenses to significantly increase over prior periods.

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, 2008 and 2007 and for each
of years in the two year period ended March 31, 2008. On an ongoing basis, we evaluate our estimates, including those related to our revenue recognition, inventory valuation, warranty reserves,
tooling amortization, financial instruments 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.

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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, in limited circumstances we 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, and 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 negotiation 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. Our allowance for returns is calculated and regularly reviewed based on historical experience. We have not had material adjustments as our returns have been minimal.

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. 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.

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Financial Instruments.The debentures and the warrants we issued have been valued separately using the Black-Scholes
methodology. The debentures were originally reflected in our financial statements at their discounted value and the difference between this discount amount and the face value of the debentures, which
is repayable at maturity, has been amortized as additional non-cash interest expense during the term of the debentures. The determination of the value attributed to the warrants and
debentures 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; 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. We do not expect that FAS 141R will 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 is effective for fiscal years beginning after
November 15, 2007, with earlier adoption permitted under certain circumstances. We are required to adopt SFAS No. 159 no later than the first quarter of fiscal 2009. We do not expect the
new standard to have a material impact on our 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 companies to measure plan assets and obligations as of the end of the fiscal year. The statement also
requires enhanced disclosures related to defined benefit pension plans. SFAS No. 158 was effective as of the end of our first fiscal year ended after December 15, 2006. The adoption of
SFAS No. 158 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 is 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. We do not expect the adoption of SFAS No. 157 to have a material impact on our financial position
or results of operations.

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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 is effective for fiscal years beginning after December 15, 2006, and we adopted FIN 48 beginning 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 truck docking stations and a range of supporting performance matched accessories, peripherals and support services. Our revenue
also includes service revenue principally 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.

Gross Profit.Gross profit has been, and will continue to be, affected by a variety of factors, including competition, the
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 marketing and selling our products. We are expanding our sales operations in order to increase awareness and sales 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 products. 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,
legal, human resources and information technology personnel, professional fees
and corporate expenses, and costs associated with being a public company, including regulatory compliance costs.

Interest.Interest expense includes interest on all debentures and borrowings related to the bank revolving credit facility,
non-cash interest charges representing the amortization of the debenture discount and amortization of commitment fees related to the revolving credit facility. Debentures issued

21

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in
fiscal 2005 were originally reflected in the financial statements at their discounted value and the difference between this discount amount and the face value of the debentures, which is repayable
at maturity, has been amortized as additional non-cash interest expense during the term of the debentures.

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

Fiscal Year Ended March 31, 2008 vs. Fiscal Year Ended March 31, 2007

Revenue.Total revenue for the fiscal year ended March 31, 2008 was $25,355,000 as compared to $34,534,000 for the
fiscal year ended March 31, 2007, a decrease of $9,179,000 or 27%. The decrease in revenue was attributable to a decline in unit sales of approximately 28% which was partially offset by an
average selling price increase of approximately 2%. While we did have one order account for approximately 5% of our revenue for the fiscal year ended March 31, 2008 the decrease in revenue was
primarily due to a decrease in the number of and revenue from large orders.

We
operate in one segment, the sale of rugged mobile wireless Tablet PC computing systems. The majority of our revenue was derived from sales in the United States. 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 10.0% of the total revenue. 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, 2007 with 10.7% of the total revenue. At March 31, 2008, there
were two customers with a receivable balances that were greater than 10% of the outstanding receivables, Hewlett Packard Company accounted for 30% and Methec B.V. Industrielaan accounted for
13%. Both receivables were collected subsequent to our fiscal year end.

We
have a number of customers, however, in a given year a single customer can account for a significant portion of our sales. For the fiscal year ended March 31, 2008, we had one
customer located in the Netherlands, Methec B.V. Industrielaan, who accounted for approximately 10% of our total revenue. For the fiscal year ended March 31, 2007, there were no
customers that accounted for more than 10% of our total revenue.

Cost of Revenue.Total cost of revenue for the year ended March 31, 2008 was $17,924,000 compared to $24,723,000 for
the year ended March 31, 2007, a decrease of $6,799,000 or 28%. This decrease was principally attributable to the approximately 27% decrease in revenue. The remainder was due to a decrease in
the average unit cost resulting from cost reduction initiatives principally related to component pricing and freight.

We
rely on a single supplier for the majority of our finished goods. At March 31, 2008 and 2007, we owed $1,144,000 and $2,095,000, respectively, recorded in accounts payable and
accrued liabilities. The year to date inventory purchases and engineering services from this supplier at March 31, 2008 and 2007 were $11,286,000 and $16,275,000, respectively.

Gross Profit.Total gross profit decreased by $2,380,000 to $7,431,000 (29.3% of revenue) for the year ended March 31,
2008 from $9,811,000 (28.4% of revenue) for the year ended March 31, 2007. The improvement in gross profit as a percentage of revenue for the year ended March 31, 2008 as compared to the
prior year was attributable to the cost reduction initiatives principally related to component pricing and freight.

22

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Sales, Marketing and Support Expenses.Sales, marketing and support expenses for the year ended March 31, 2008 were
$4,840,000 compared to $6,094,000 for the year ended March 31, 2007. This $1,254,000 reduction principally consisted of declines of $627,000 related to marketing co-op allowances
and sales commissions due to the decline in revenue, $265,000 of non-cash stock option compensation expense attributable to the timing of grants and a reduction in marketing costs of
$147,000 related to demonstration units. In addition, a reduction of travel related expenses of $180,000 contributed to the decrease of sales and marketing expenses for the year ended March 31,
2008.

Product Research, Development and Engineering Expenses.Product research, development and engineering expenses for the year
ended March 31, 2008 increased by $1,309,000 to $4,244,000 as compared to $2,935,000 for the year ended March 31, 2007. Headcount related costs accounted for $416,000 of the increase of
which $72,000 was stock compensation, for additional engineering staff required for new product developments. Our non-headcount related development costs increased by $845,000. The
majority of the research and development activities and associated expenses for the year ended March 31, 2008 related to the development of our new products, including our rugged notebook PC,
the next generation of our iX104 rugged tablet, referred to as the C4, and rugged docking station. The projects for the year ended March 31, 2007 principally included initial development
activities related to the rugged notebook and modifications of existing product offerings principally related to the C3 tablet (which is RoHs compliant) that was released in the second quarter of
fiscal 2007. We expect our research and development costs to continue to increase during our fiscal 2009 as we move to complete the development of our new products.

General Administration Expenses.General administration expenses for the year ended March 31, 2008 were $5,330,000
compared to $5,058,000 for the year ended March 31, 2007. For the year ended March 31, 2008, we had an increase in our provision for doubtful accounts of $456,000 principally related to
one reseller for which we have initiated legal collection activities. Other increases for fiscal 2008 included non-cash stock option compensation charges of $323,000, operating costs,
utilities and facilities of $55,000, legal and accounting professional fees of $34,000 and upgrades to our information systems and related training of $22,000. The increases were offset by reductions
of $444,000 of charges related to our corporate migration to the United States, employee acquisition related expenses for 2007 hires of $144,000 and a $48,000 reduction of benefit related costs
associated with the implementation of a new cost saving plan. These combined factors resulted in the $272,000 increase in general administration expenses.

For
fiscal years 2008 and 2007, the fair value of employee stock-based compensation expense was $963,000 and $819,000, respectively. This expense was recorded in the employee related
functional
classification. The increase in expense was primarily attributable to an option grant to all of our employees in August 2006.

Depreciation
and amortization expenses for fiscal years 2008 and 2007 were $604,000 and $579,000, respectively. Depreciation and amortization expense is recorded in the related
functional classification. There was an increase in depreciation expense in fiscal 2008 associated with additions for new product testing equipment that was offset by a decline in depreciation
associated with demonstration units for our older products.

Interest Expense.Interest expense for the year ended March 31, 2008 was $54,000 compared to $1,467,000 for the year
ended March 31, 2007. The decrease was primarily made up of non-cash interest expense of $979,000, included in interest expense, associated with the amortization of deferred
financing costs and debenture discounts for the year ended March 31, 2007. In connection with our recapitalization on May 30, 2006, all of our outstanding debentures, other than one in
the principal amount of $250,000, were exchanged for shares of Series A Preferred Stock and accordingly there was no further recognition of the amortization of the related deferred financing
costs and debenture

23

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discounts.
On August 8, 2007, the remaining debenture holder exchanged the debenture for shares of Series C Preferred Stock and warrants. There was no non-cash interest
expense for the year ended March 31, 2008. The decrease in interest paid in cash was attributable to our recapitalization completed in May 2006 and the reduction in working capital borrowings
since we raised capital through private placements in both of the second quarters of fiscal years 2008 and 2007.

Loss on Extinguishment of Debt.In connection with our recapitalization on May 30, 2006, all of our outstanding
debentures, other than one in the principal amount of $250,000, were exchanged for shares of Series A Preferred Stock and accordingly the remaining unamortized values assigned to the related
warrants and beneficial conversion feature of $832,000 were recorded as a loss on extinguishment of debt during the year ended March 31, 2007. There was no debt extinguishment for the year
ended March 31, 2008.

Other Expense.Other expense for the year ended March 31, 2008 was ($41,000) compared to ($40,000) for the year ended
March 31, 2007.

Net Loss.The net loss for the year ended March 31, 2008 was $7,078,000 ($0.11 per share) compared to a net loss of
$6,615,000 ($0.11 per share) for the year ended March 31, 2007.

Net Loss Attributable to Common Shareholders.Net loss attributable to common shareholders for the year ended
March 31, 2008 was $10,855,000 compared to $10,881,000 for the year ended March 31, 2007. 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, 2008 and 2007 were $1,449,000 and $885,000, respectively. The current year amount is higher since it represents a full year of
dividends on both the Series A and Series B Preferred Stock which were issued in the first and second quarters of fiscal 2007, as well as includes dividends for the Series C
Preferred Stock issued September 21, 2007. Additionally, our 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 the Series A, Series B and 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 related financing's commitment date multiplied by the number of shares into which the 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 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 Preferred Stock financings aggregating approximately $2,328,000 and $3,381,000 for the years ended
March 31, 2008 and 2007, respectively.

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, 2009. As at March 31, 2008, our working capital was
$5,101,000 and our cash and cash equivalents were $733,000. 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 $95 million.

Sources
of capital that are immediately available to us are an asset-backed loan and security agreement with a commercial bank with a net borrowing capacity of up to $8 million
depending upon eligible assets and, our principal shareholder, Phoenix, which agreed to provide or arrange to provide

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us
with additional financing, to the extent necessary, to fund our planned operations through March 31, 2009.

In
September 2005, we entered into a two-year $5 million credit facility with a commercial bank. In February 2007, we amended the terms of this credit facility. Under
the amended terms, we may finance up to the lesser of $8 million or 80% of our U.S. and Canadian accounts receivable outstanding for 90 days or less, plus 80% of our foreign accounts
receivable (up to $2.5 million) plus 25% of eligible inventory (up to $1,750,000). Borrowings under the amended credit facility bear interest at prime rate plus 2.25% (or prime plus 2.5% in the
case of borrowings related to our inventory). On March 28, 2008, the maturity date for borrowings was extended to March 30, 2009. Borrowings are secured by all our assets and
intellectual property. Pursuant to the terms of various
subordination agreements between us and the commercial bank, and one of our suppliers, the commercial bank has a first priority security interest in all of our assets and the supplier has a priority
security interest in certain of our trade debts. The loan agreement contains a number of financial and operational covenants, including that we have a minimum tangible net worth of at least $3,750,000
at all times and a minimum excess availability of $750,000. As of June 2, 2008, we were in compliance with such covenants. As of June 2, 2008, there were $445,000 borrowings outstanding
under this amended credit facility.

In
September 2007, we issued 14,774,000 shares of Series C Convertible Preferred Stock resulting in gross proceeds of $7,387,000 and warrants to purchase 7,387,000 shares of our
common stock. The proceeds from this offering are being used for working capital and general corporate purposes.

We
believe that cash flow from operations, together with borrowings from our credit facility and, if necessary, financial support from Phoenix and its affiliates will be sufficient to
fund our anticipated operations, working capital, capital spending and debt service for the next 12 months. 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 31,2008

2007(in thousands
of US dollars)Cash used in operating activities

$
(6,165
)
$
(3,339
)Cash used in investing activities


(1,113
)

(567
)Cash provided by financing activities


6,300


5,561Cash and cash equivalents


733


1,711


Cash
used in operating activities in fiscal year 2008 was $(6,165,000) as compared to $(3,339,000) in fiscal 2007, an increase of $(2,826,000). The increase in the use of
cash for the year ended March 31, 2008, as compared to the prior period, was primarily due to an increase in the net loss, net of items not affecting cash, of $(1,820,000) and less favorable
timing of receivable collections of $(1,124,000).

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

Cash
provided by financing activities for the years ended March 31, 2008 and 2007 was $6,300,000 and $5,561,000, respectively. Cash provided by financing activities for the year
ended March 31, 2008 consisted of net proceeds from the private placement of Series C Preferred Stock. For the year ended

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March 31,
2007, cash provided by financing activities was from the private placements of Series A and Series B Preferred Stock and common stock, a reduction of borrowings from our
revolving credit facility and also included proceeds from the issuance of debentures subsequently exchanged for Series A 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 prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets

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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, 2008 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, 2008, the Company's
internal control over financial reporting was effective based on the criteria established inInternal 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, 2008 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B.    Other Information.

During our fourth quarter of fiscal 2008, we entered into a purchase and distribution agreement with Pegatron, the multi-billion dollar spin-off of
Taiwan-based ASUS. Under the terms of our agreement with Pegatron, Pegatron provides us with design, manufacturing, distribution and support services related to our ruggedized mobile personal computer
notebooks. Our purchase price of the products produced by Pegatron is determined based on the specific configuration of the notebook being produced and is subject to a cost reduction program. We
provide Pegatron with a six month rolling forecast of the products we anticipate ordering and the required delivery dates. Pegatron is responsible for shipping the product on the date and in the
quantities identified in the purchase order. Although Pegatron has no obligation to meet requested increases in excess of certain stated percentages, if products ordered during any quarter exceed the
volume projected in the forecast, Pegatron has agreed to use its best efforts to meet such increased orders in accordance with our forecast updates.

Pegatron
has provided several warranties to us, including that the materials and components used in the product are new (including those materials and components obtained from Pegatron's
vendors and subcontractors), that each product is free from defects in material, workmanship and design, that the product is free from any liens, encumbrances or defects in title and that the product
complies with all specifications, drawings, samples and descriptions. Under the terms of our agreement with Pegatron, Pegatron agrees not to produce, manufacture or sell for itself or for any of its
other customers any product that has the look and feel, with regards to physical styling, of our products.

The
term of the agreement is for three years and expires on December 6, 2010, but automatically renews for additional one year terms, unless either party provides written notice
of its intent to terminate the agreement at least 90 days prior to the expiration of any renewal term. Either party may terminate the Pegatron Agreement at any time for any reason upon three
months notice to the other party.

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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 May 31, 2008:

|Name                 |  | Age |  | Positions with our Company                                    
|-------------------- |  | --- |  | --------------------------------------------------------------
|Philip S. Sassower   |  | 68  |  | Chairman of the Board of Directors and Chief Executive Officer
|Mark Holleran        |  | 50  |  | President and Chief Operating Officer                         
|Michael J. Rapisand  |  | 48  |  | Chief Financial Officer and Corporate Secretary               
|Bryan J. Bell        |  | 47  |  | Vice President of Engineering                                 
|Gregory E. Arends    |  | 49  |  | Chief Technology Officer                                      
|Randy Paramore       |  | 51  |  | Vice President of Supply Chain                                
|Francis J. Elenio    |  | 41  |  | Director                                                      
|Andrea Goren         |  | 40  |  | Director                                                      
|Thomas F. Leonardis  |  | 63  |  | Director                                                      
|Brian E. Usher-Jones |  | 62  |  | 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. 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 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.

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Gregory E. Arendswas appointed as our Chief Technology Officer in May, 2008 and prior to such appointment, served as our Vice President
of Engineering since March 2006. Prior to joining our company, Mr. Arends was Engineering Manager at Grayhill, Inc., a manufacturer of switches, keypads and mobile computers, from
February 2002 to March 2006.

Randy Paramorehas served as our Vice President of Supply Chain since December 2007. Mr. Paramore joined us in June 2006 as our
Director of Supply. Prior to joining us, Mr. Paramore was Vice President of Supply Chain and Customer Service Operations at Alienware, a manufacturer of high-performance computer
gaming systems, from 2004 to 2006. Mr. Paramore started his career in 1989 at Compaq Computer Corp., which was subsequently acquired by The Hewlett-Packard Company in 2002. Mr. Paramore
rose to the level of Senior Manager of Service Project Management and Hardware Delivery at Hewlett-Packard and served in that position from 2003 to 2004.

Francis J. Eleniohas been a director of our company since November 2007. Mr. Elenio is Chief Financial Officer of 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. From January 1999 to August 2003, Mr. Elenio served as Chief Financial Officer,
Secretary and Treasurer of GoAmerica, Inc., a provider of wireless communications products and services.

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. Mr. Goren is
co-manager of the managing member of Phoenix Venture Fund LLC, our principal shareholder.

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.

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Section 16(a) Beneficial Ownership Reporting Compliance

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 2008 fiscal year.

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, 2008 and 2007, 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
Chief Executive Officer(2)       |  | 2008
2007 |  | 
             |  | 
             |        | 54,000
47,542          |  | 7,500
3,750                  | (3)(3) | 61,500
51,292  
|Mark Holleran
President and Chief Operating Officer |  | 2008
2007 |  | 250,000
230,743 |  | 148,940
147,934 | (4)(4) | 296,689
211,661        |  | 
60,059                     | (5)    | 694,787
650,397
|Michael J. Rapisand
Chief Financial Officer         |  | 2008
2007 |  | 180,000
167,010 |  | 
50,400        | (6)    | 105,723
47,542         |  | 
                          |        | 285,723
264,952

---

30

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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 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.

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.

During
our 2007 fiscal year, the base salary of Mark Holleran, our President and Chief Operating Officer, was increased from $200,000 to $250,000 after his relocation from Canada to
Austin, Texas, pursuant to the terms of his employment agreement. Also during our 2007 fiscal year, Michael J. Rapisand, our Chief Financial Officer, received a merit increase in his base
salary from $145,000 to $180,000. There were no changes in these salary amounts in our 2008 fiscal year.

31

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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 four and six in the summary compensation table for fiscal years 2008 and 2007.

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. 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 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
August 29, 2006, our board of directors awarded to our named executive officers and directors a grant of options intended to compensate them for the dilution to their previous
issued options which occurred as a result of our May 2006 recapitalization, pursuant to which we issued over 55.5 million shares of Series A Preferred Stock in exchange for approximately
$18.9 million of debt.

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

32

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with
market levels based upon a compensation study performed by an independent third party for the compensation committee of the board.



On June 30, 2006, we entered into an employment agreement with Mark Holleran, our President and Chief Operating Officer. The agreement is for a period of
two years, and may be renewed for additional one year periods. 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 to reimburse Mr. Holleran up to $80,000 of his expenses incurred in connection with his relocation from Toronto, Canada to Austin,
Texas. The actual amount incurred was $60,059, which was paid in fiscal 2007. We also 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 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

33

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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.



The compensation of our Chief Executive Officer (Philip S. Sassower) and President and Chief Operating Officer (Mark Holleran) is determined by our compensation
committee. Mr. Sassower does not receive a salary in connection with his services as Chief Executive Officer. Mr. Holleran has no role in determining his own compensation. Our
compensation committee consults with Mr. Sassower in connection with Mr. Holleran's compensation and with Mr. Sassower and Mr. Holleran with respect to the compensation for
our other executive officers.

34

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Outstanding Equity Awards at 2008 Fiscal Year-End

The following table sets forth the equity awards outstanding at March 31, 2008 for each of the named executive officers.

|Name                                                 |  | Number of
Securities
Exercisable           |  | Number of
Securities
Unexercisable |              | Option
Exercise
Price C($) |                               | Option
Expiration
Date
|---------------------------------------------------- |  | ------------------------------------------ |  | ---------------------------------- | ------------ | -------------------------- | ----------------------------- | ----------------------
|Philip S. Sassower
Chief Executive Officer          |  | 100,000
100,000                            |  | 50,000
100,000                     | (1)(2)       | $$                         | 0.93
0.44                     |                       
|Mark Holleran
President and Chief Operating Officer |  | 175,000
78,334
113,334
400,000
522,22355
 |  | 


800,000
1,044,445
1,866,664  | (3)(4)(5)(6) | $$$$$$                     | 0.46
0.56
0.93
0.38
0.44
0.50 | (6)                   
|Michael J. Rapisand
Chief Financial Officer         |  | 64,459
372,701
91,717                      |  | 476,362                            | (7)          | $$$                        | 1.12
0.56
0.44                |                       

---



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, 2008, 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)       |                                         | $     
|                          | Performance bonus(3) |                                         | $     
|Benefits and Perquisites: |                      | $                                       | 92,024

---

35

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Under the terms of our Share Option Plan, which we also refer to as our 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, 2008, the last business day of our 2008
fiscal year.

|Name                                                |  | Transaction Bonus Pool(1) |           | Market Value of Accelerated Options |  
|--------------------------------------------------- |  | ------------------------- | --------- | ----------------------------------- | -
|Philip S. SassowerChief Executive Officer          |  |                           |          | (2)                                 | 
|Mark HolleranPresident and Chief Operating Officer |  | $                         | 1,000,462 | (4)                                 | 
|Michael J. RapisandChief Financial Officer         |  | $                         | 600,277   | (6)                                 | 

---

36

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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.

Fiscal Year 2008 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, 2008.

|Name                 |  | Fees Earned
or Paid
in Cash ($) |  | Option
Awards ($) |  | Total ($)
|-------------------- |  | ------------------------------- |  | ----------------- |  | ---------
|Brian E. Usher-Jones |  | 7,500                           |  | 15,500            |  | 23,000   
|Andrea Goren         |  | 7,500                           |  | 54,000            |  | 61,500   
|Thomas F. Leonardis  |  | 7,500                           |  | 54,000            |  | 61,500   
|Frank Elenio         |  | 2,250                           |  | 6,667             |  | 8,917    

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Stock Option Plan

We maintain a stock option plan (which we refer to as the 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 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 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 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 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 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.

Our
board of directors may amend the Plan at any time, provided, however, that no such amendment may materially and adversely affect any option previously granted under the Plan without
the consent of the holder of the option, except to the extent required by law. Without limiting the generality of the foregoing, our board of directors may, without shareholder approval, make
amendments to the Plan for any of the following purposes:



provided,
that if any such amendment would lead to a significant or unreasonable dilution of our outstanding common stock or provide additional material benefits to insiders, shareholder approval of
such amendment must be obtained.

We
currently have 30,900,000 shares of common stock reserved for issuance under the Plan, which represents approximately 19.5% of our total issued and outstanding shares of common
and preferred stock.

38

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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, 2008.

|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     |  | 14,329,668                                                                                      |  | C$                                                                              | 0.51 |                                                                                                                                                
|Equity compensation plans not approved by security holders |  | N/A                                                                                             |  |                                                                                 | N/A  |                                                                                                                                                
|Total                                                      |  | 14,329,668                                                                                      |  | C$                                                                              | 0.51 |                                                                                                                                                

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficially ownership of our capital stock as of May 31, 2008 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.

|                                                                 |  |           |      |     |   | Series A
Preferred Stock
Beneficially Owned |      | Series B
Preferred Stock
Beneficially Owned |   | Series B
Preferred Stock
Beneficially Owned |  |   | 
|---------------------------------------------------------------- |  | --------- | ---- | --- | - | ------------------------------------------- | ---- | ------------------------------------------- | - | ------------------------------------------- |  | - | 
|
|
|
|Philip S. Sassower                                               |  | 4,539,386 | (8)  | 6.4 | % | 13,676,370                                  | (24) | 21.6                                        | % |                                            |  |  | 
|Mark Holleran                                                    |  | 1,513,891 | (9)  | 2.1 | % |                                            |      |                                            |   |                                            |  |  | 
|Michael J. Rapisand                                              |  | 635,001   | (10) | *   |   | 147,059                                     |      | *                                           |   |                                            |  |  | 
|Bryan J. Bell                                                    |  |          |      |    |   |                                            |      |                                            |   |                                            |  |  | 
|Gregory E. Arends                                                |  | 500,000   | (11) | *   |   |                                            |      |                                            |   |                                            |  |  | 
|Randy Paramore                                                   |  | 300,000   | (12) | *   |   |                                            |      |                                            |   |                                            |  |  | 
|Brian E. Usher-Jones                                             |  | 513,750   | (13) | *   |   |                                            |      |                                            |   |                                            |  |  | 
|Andrea Goren                                                     |  | 920,000   | (14) | *   |   |                                            |      |                                            |   |                                            |  |  | 
|Thomas F. Leonardis                                              |  | 250,000   | (15) | *   |   |                                            |      |                                            |   |                                            |  |  | 
|Frank Elenio                                                     |  |          |      |    |   |                                            |      |                                            |   |                                            |  |  | 
|Phoenix Venture Fund LLC
110 East 59th Street
New York, NY 10022 |  | 5,008,337 | (16) | 7.0 | % | 31,032,014                                  | (25) | 49.1                                        | % |                                            |  |  | 
|Alex and James Goren
150 East 52nd Street
New York, NY 10022     |  | 3,247,496 | (17) | 4.6 | % | 4,357,708                                   | (26) | 6.9                                         | % |                                            |  |  | 
|JAM Capital Assoc. LLC
112 W 56th
New York, NY 10019             |  | 1,459,461 | (18) | 2.1 | % | 1,130,137                                   |      | 1.8                                         | % |                                            |  |  | 

39

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|William Freas
c/o Joseph Gunnar & Co.
30 Broad Street
New York, NY 10004 |  | 267,208   |      | *    |   |           |      |     |   | 2,941,177 |  | 30.7 | % |          |  |    |   | 2.0  | %
|------------------------------------------------------------------------ |  | --------- | ---- | ---- | - | ---------- | ---- | ---- | - | --------- |  | ---- | - | --------- |  | --- | - | ---- | -
|James J O'Donnell
845 UN Plaza
New York, NY 10017                        |  | 1,137,116 | (19) | 1.6  | % | 780,655    |      | 1.2  | % |          |  |     |   | 900,000   |  | 5.9 | % | 1.8  | %
|Keith Guenther
25391 Commercenter Dr Ste 200
Lake Forest, CA 92630       |  | 1,173,817 | (20) | 1.7  | % |           |      |     |   |          |  |     |   | 840,000   |  | 5.5 | % | 1.3  | %
|Harmir Realty Co
12 E 49th
New York, NY 10017                            |  | 812,628   | (21) | 1.1  | % |           |      |     |   |          |  |     |   | 1,070,000 |  | 7.0 | % | 1.2  | %
|Fifty-Ninth Street Investors LLC
110 E 59th Street
New York, NY 10022    |  | 547,061   | (22) | *    |   |           |      |     |   |          |  |     |   | 1,000,000 |  | 6.5 | % | 1.0  | %
|Ross Irvine
c/o Sky Capital LLC
110 Wall Street
New York, NY 10005       |  | 189,184   |      | *    |   |           |      |     |   | 1,000,000 |  | 10.4 | % |          |  |    |   | *    |  
|Adrian Maginnis
21 Ravranet Rd
Lisburn, Country Atrium BT27 5NB          |  | 40,591    |      | *    |   |           |      |     |   | 500,000   |  | 5.2  | % |          |  |    |   | *    |  
|All directors and executive officers as a group (10 persons)             |  | 8,512,028 | (23) | 11.4 | % | 13,823,429 | (27) | 21.9 | % |          |  |     |   |          |  |    |   | 13.6 | %

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40

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41

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

Certain Relationships and Related Transactions

On April 21, 2006, we entered into a financing agreement with Phoenix pursuant to which Phoenix agreed, at its sole discretion, to provide us with up to
$5 million in financing. In connection with this financing, we issued a $1 million 10% secured debenture to Phoenix, which had a maturity date of June 30, 2006. The debenture
(including accrued and unpaid interest) was exchanged for 2,970,185 shares of Series A Preferred Stock in connection with the completion of our May 2006 recapitalization. The remaining
$4 million balance under the financing could be funded at any time through June 30, 2006
(subsequently amended to July 31, 2006), in Phoenix's sole discretion, through the issuance of additional shares of Series A Preferred Stock, at a purchase price of $0.34 per share, to
Phoenix and /or its assigns. Phoenix later assigned its right to purchase $2,703,800 of the remaining $4 million debentures to non-affiliated third parties (except for $50,000 which
was assigned to Michael J. Rapisand, our Chief Financial Officer). In connection with our May 2006 recapitalization, these debentures were subsequently exchanged for 7,952,353 Series A
Preferred Stock, including 147,059 shares of Series A Preferred Stock issued to Mr. Rapisand.

On
April 21, 2006, we entered into a purchase and exchange agreement with Phoenix and other debenture holders, whereby the debenture holders agreed to exchange their outstanding
debentures for our Series A Preferred Stock at the rate of one share for every $0.34 of principal and accrued and unpaid interest. On May 30, 2006, we completed a recapitalization,
pursuant to which approximately $18.9 million of indebtedness, representing all of our outstanding 10% secured debentures, including accrued interest (except for one debenture in the aggregate
principal amount of $250,000), was exchanged for 55,520,542 shares of our Series A Preferred Stock. Pursuant to this recapitalization, we issued 45,012,677 shares of
Series A Preferred Stock to Phoenix, the Sassower Trust, Mr. Sassower and Phoenix Enterprises Family Fund LLC, another entity controlled by Mr. Sassower, in exchange for
debentures in the aggregate principal amount of $14,307,500, and 2,497,976 shares of Series A Preferred Stock to JAG Multi Investments LLC (which we refer to as JAG), an entity
affiliated with Alex Goren, the father of Andrea Goren, in exchange for debentures in the aggregate principal amount of $820,000. Furthermore, as part of the recapitalization, we issued
1,097,985 shares of Series A Preferred Stock to Goren Brothers LP, an affiliated entity of Alex Goren, in exchange for debentures in the aggregate principal amount of $360,000,
which debentures were originally issued in November 2002.

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.

In
March 2008, Phoenix agreed to provide or arrange to provide us with additional financing, to the extent necessary, to fund our planned operations through March 31, 2009.

42

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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 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 2008 |         | % of
Total |     | Fiscal
Year 2007 |   | % of
Total | 
|--------------------- |  | ---------------- | ------- | ---------- | --- | ---------------- | - | ---------- | 
|Audit Fees(1)         |  | $                | 137,292 |            | 100 | %                | $ | 202,447    | 
|Audit-Related Fees(2) |  |                  |        |            |     |                  |   |           | 
|Tax Fees(3)           |  |                  |        |            |     |                  |   | 22,252     | 
|All Other Fees(4)     |  |                  |        |            |     |                  |   | 98,905     | 
|                      |  |                  |         |            |     |                  |   |            | 
|Total Fees            |  | $                | 137,292 |            | 100 | %                | $ | 323,604    | 
|                      |  |                  |         |            |     |                  |   |            | 

---



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 or Mintz & Partners for fiscal years 2008 and 2007 were approved by our audit committee.

43

---





PART IV

Item 15.    Exhibits, Financial Statement Schedules.

Index to Consolidated Financial Statements

|Annual Financial Statements                                                                    |  |    
|---------------------------------------------------------------------------------------------- |  | ---
|Reports of Independent Registered Auditors                                                     |  | F-2
|Consolidated Balance Sheets as at March 31, 2008 and 2007                                      |  | F-4
|Consolidated Statements of Loss for the years ended March 31, 2008 and 2007                    |  | F-5
|Consolidated Statement of Stockholder's Deficiency for the years ended March 31, 2008
and 2007 |  | F-6
|Consolidated Statements of Cash Flows for the years ended March 31, 2008 and 2007              |  | F-7
|Notes to the Consolidated Financial Statements                                                 |  | F-8

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                   
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | 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)

44

---



|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)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3  |  | 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                                                                                                                                                                                                                                                                                                                                                                    
|10.7  |  | 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)  
|10.8  |  | 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)          
|10.9  |  | 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)                  
|10.10 |  | 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)                                                                                                                            
|10.11 |  | 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)                                                                                                                                       
|10.12 |  | 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)                                                                                                                                                     

45

---



|10.13 |    | 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).                                               
|----- | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14 | * | Purchase and Distribution Agreement between Xplore Technologies Corp. and Pegatron Corporation dated as of December 7, 2007.                                                                                
|10.15 |    | 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).                          
|10.16 |    | 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).                                                 
|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                                                                          
|31.2* |    | Certification of Michael J. Rapisand, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934                                                                         
|32.1* |    | Certifications of Philip S. Sassower, Chief Executive Officer, and Michael J. Rapisand, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350                                                         

---

46

---





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 5th day of June 2008.

| | XPLORE TECHNOLOGIES CORP.
| | -------------------------
| | By:                      
| |                          
| |                          

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. SASSOWERPhilip S. Sassower     |  | Chief Executive Officer (Principal Executive Officer) and Director   |  | June 5, 2008
|------------------------------------------- |  | -------------------------------------------------------------------- |  | ------------
|/s/MICHAEL J. RAPISANDMichael J. Rapisand   |  | Chief Financial Officer (Principal Financial and Accounting Officer) |  | June 5, 2008
|/s/BRIAN E. USHER-JONESBrian E. Usher-Jones |  | Director                                                             |  | June 5, 2008
|/s/ANDREA GORENAndrea Goren                 |  | Director                                                             |  | June 5, 2008
|/s/THOMAS F. LEONARDISThomas F. Leonardis   |  | Director                                                             |  | June 5, 2008
|/s/FRANK ELENIOFrank Elenio                 |  | Director                                                             |  | June 5, 2008

47

---





INDEX TO FINANCIAL STATEMENTS        CONSOLIDATED FINANCIAL STATEMENTS OF        XPLORE TECHNOLOGIES CORP.

|Annual Financial Statements                         |  |    
|--------------------------------------------------- |  | ---
|Reports of Independent Registered Auditors          |  | F-2
|Consolidated Balance Sheets                         |  | F-4
|Consolidated Statements of Loss                     |  | F-5
|Consolidated Statements of Stockholders' Deficiency |  | F-6
|Consolidated Statements of Cash Flows               |  | F-7
|Notes to the Consolidated Financial Statements      |  | F-8

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 sheet of Xplore Technologies Corp. and subsidiary as of March 31, 2008 and the related consolidated statements of loss,
stockholders' deficiency and cash flows for the year ended March 31, 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,
2008, and the results of its operations and its cash flows for the year ended March 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

/s/
PMB Helin Donovan

Austin,
TX
June 2, 2008

F-2

---



REPORT OF INDEPENDENT REGISTERED AUDITORS

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

We
have audited the accompanying consolidated balance sheet of Xplore Technologies Corp. and subsidiary as of March 31, 2007 and the related consolidated statements of loss,
stockholders' deficiency and cash flows for the year ended March 31, 2007. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Xplore Technologies Corp. and subsidiary as of March 31,
2007, and the results of its operations and its cash flows for the year ended March 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

/s/
MINTZ & PARTNERS LLP
CHARTERED ACCOUNTANTS
Licensed Public Accountants

North
York, Ontario
June 20, 2007

F-3

---





XPLORE TECHNOLOGIES CORP.        Consolidated Balance Sheets        (in thousands)

|                                     |                                                                                                                        | March 31,
2008 |        | March 31,
2007 |  
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------- | -------------- | ------ | -------------- | -
|ASSETS                               |                                                                                                                        |                |        |                |  
|CURRENT ASSETS:                      |                                                                                                                        |                |        |                |  
|                                     | Cash and cash equivalents                                                                                              |                | $      | 733            |  
|                                     | Accounts receivable, net                                                                                               |                |        | 4,936          |  
|                                     | Inventory                                                                                                              |                |        | 3,408          |  
|                                     | Prepaid expenses and other current assets                                                                              |                |        | 658            |  
|                                     |                                                                                                                        |                |        |                |  
|Total current assets                 |                                                                                                                        |                | 9,735  |                |  
|Fixed assets, net                    |                                                                                                                        |                | 1,094  |                |  
|                                     |                                                                                                                        |                |        |                |  
|                                     |                                                                                                                        | $              | 10,829 |                | $
|                                     |                                                                                                                        |                |        |                |  
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                                                        |                |        |                |  
|CURRENT LIABILITIES:                 |                                                                                                                        |                |        |                |  
|                                     | Accounts payable and accrued liabilities                                                                               |                | $      | 4,634          |  
|                                     |                                                                                                                        |                |        |                |  
|Total current liabilities            |                                                                                                                        |                | 4,634  |                |  
|Debenture                            |                                                                                                                        |                |       |                |  
|                                     |                                                                                                                        |                |        |                |  
|                                     |                                                                                                                        |                | 4,634  |                |  
|                                     |                                                                                                                        |                |        |                |  
|Commitments and contingencies        |                                                                                                                        |                |        |                |  
|                                     |                                                                                                                        |                |        |                |  
|SHAREHOLDERS' EQUITY:                |                                                                                                                        |                |        |                |  
|                                     | Series A Preferred Stock, par value $0.001 per share; authorized 64,000; shares issued 63,179 and 63,473, respectively |                |        | 63             |  
|                                     | Series B Preferred Stock, par value $0.001 per share; authorized 10,000; shares issued 9,589 and 9,989, respectively   |                |        | 10             |  
|                                     | Series C Preferred Stock, par value $0.001 per share; authorized 20,000; shares issued 15,274 and none, respectively   |                |        | 15             |  
|                                     | Common Stock, par value $0.001 per share; authorized 300,000; shares issued 70,010 and 64,099, respectively            |                |        | 70             |  
|                                     | Additional paid-in capital                                                                                             |                |        | 107,594        |  
|                                     | Accumulated deficit                                                                                                    |                |        | (101,557       | )
|                                     |                                                                                                                        |                |        |                |  
|                                     |                                                                                                                        |                | 6,195  |                |  
|                                     |                                                                                                                        |                |        |                |  
|                                     |                                                                                                                        | $              | 10,829 |                | $
|                                     |                                                                                                                        |                |        |                |  

See
accompanying notes to consolidated financial statements.

F-4

---



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

|                                                                                         |  | March 31,
2008 |            | March 31,
2007 |  
|---------------------------------------------------------------------------------------- |  | -------------- | ---------- | -------------- | -
|Revenue                                                                                  |  | $              | 25,355     |                | $
|Cost of revenue                                                                          |  |                | 17,924     |                |  
|                                                                                         |  |                |            |                |  
|Gross profit                                                                             |  |                | 7,431      |                |  
|                                                                                         |  |                |            |                |  
|Expenses:                                                                                |  |                |            |                |  
|Sales, marketing and support                                                             |  |                | 4,840      |                |  
|Product research, development and engineering                                            |  |                | 4,244      |                |  
|General administration                                                                   |  |                | 5,330      |                |  
|                                                                                         |  |                |            |                |  
|                                                                                         |  |                | 14,414     |                |  
|                                                                                         |  |                |            |                |  
|Loss from operations                                                                     |  |                | (6,983     | )              |  
|                                                                                         |  |                |            |                |  
|Other expenses:                                                                          |  |                |            |                |  
|Interest expense                                                                         |  |                | (54        | )              |  
|Loss on extinguishment of debt                                                           |  |                |           |                |  
|Other                                                                                    |  |                | (41        | )              |  
|                                                                                         |  |                |            |                |  
|                                                                                         |  |                | (95        | )              |  
|                                                                                         |  |                |            |                |  
|Net loss                                                                                 |  | $              | (7,078     | )              | $
|Deemed dividends related to beneficial conversion feature of convertible Preferred Stock |  |                | (2,328     | )              |  
|Dividends attributable to Preferred Stock                                                |  |                | (1,449     | )              |  
|                                                                                         |  |                |            |                |  
|Net loss attributable to common shareholders                                             |  | $              | (10,855    | )              | $
|                                                                                         |  |                |            |                |  
|Loss per common share                                                                    |  | $              | (0.11      | )              | $
|Deemed dividends related to beneficial conversion feature of convertible Preferred Stock |  |                | (0.04      | )              |  
|Dividends attributable to Preferred Stock                                                |  |                | (0.02      | )              |  
|                                                                                         |  |                |            |                |  
|Loss per share attributable to common shareholders, basic and fully diluted              |  | $              | (0.17      | )              | $
|                                                                                         |  |                |            |                |  
|Weighted average number of common shares outstanding, basic and fully diluted            |  |                | 66,257,655 |                |  
|                                                                                         |  |                |            |                |  

See
accompanying notes to consolidated financial statements.

F-5

---





XPLORE TECHNOLOGIES CORP.        Consolidated Statements of Stockholders' Deficiency        (in thousands of United States dollars)

|                                                                                                  |  | Preferred Series A |   | Preferred Series B |    | Preferred Series C |           | Common Shares |   |    |  |            |  |   |   
|------------------------------------------------------------------------------------------------- |  | ------------------ | - | ------------------ | -- | ------------------ | --------- | ------------- | - | -- |  | ---------- |  | - | --
|
|
|Balances, March 31, 2006                                                                          |  |                   |   | $                  |   |                    |          |               | $ |   |  |           |  | $ |  
|                                                                                                  |  |                    |   |                    |    |                    |           |               |   |    |  |            |  |   |   
|Warrants exercised                                                                                |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Warrants issued for services                                                                      |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Issuance of common shares, net of issuance costs $38                                              |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Shares issued for services                                                                        |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Stock-based compensation                                                                          |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Issuance of Preferred Series A for debt conversion, net of issuance costs of $364                 |  | 55,520,542         |   |                    | 55 |                    |          |               |   |   |  |           |  |   |  
|Issuance of Preferred Series A, net of issuance costs of $89                                      |  | 7,952,353          |   |                    | 8  |                    |          |               |   |   |  |           |  |   |  
|Issuance of Preferred Series B, net of issuance costs of $488                                     |  |                   |   |                    |   |                    | 9,988,513 |               |   | 10 |  |           |  |   |  
|Preferred Series A dividend                                                                       |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Preferred Series B dividends                                                                      |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Beneficial conversion feature on issuance of Series A & B redeemable convertible Preferred Shares |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Deemed dividends related to beneficial conversion feature of convertible Preferred Shares         |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Net loss                                                                                          |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|                                                                                                  |  |                    |   |                    |    |                    |           |               |   |    |  |            |  |   |   
|Balances, March 31, 2007                                                                          |  | 63,472,895         |   |                    | 63 |                    | 9,988,513 |               |   | 10 |  |           |  |   |  
|                                                                                                  |  |                    |   |                    |    |                    |           |               |   |    |  |            |  |   |   
|Warrants issued for services                                                                      |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Shares issued for services                                                                        |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Stock-based compensation                                                                          |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Issuance of Preferred Series C for debt conversion                                                |  |                   |   |                    |   |                    |          |               |   |   |  | 500,000    |  |   | 1 
|Issuance of Preferred Series C, net of cash issuance costs of $1,087                              |  |                   |   |                    |   |                    |          |               |   |   |  | 14,774,000 |  |   | 14
|Preferred Series A dividends                                                                      |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Preferred Series B dividends                                                                      |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Preferred Series C dividends                                                                      |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|Conversion of Series A Preferred Stock into Common Stock                                          |  | (294,118           | ) |                    |   |                    |          |               |   |   |  |           |  |   |  
|Conversion of Series B Preferred Stock into Common Stock                                          |  |                   |   |                    |   |                    | (400,000  | )             |   |   |  |           |  |   |  
|Net loss                                                                                          |  |                   |   |                    |   |                    |          |               |   |   |  |           |  |   |  
|                                                                                                  |  |                    |   |                    |    |                    |           |               |   |    |  |            |  |   |   
|Balances, March 31, 2008                                                                          |  | 63,178,777         |   | $                  | 63 |                    | 9,588,513 |               | $ | 10 |  | 15,274,000 |  | $ | 15
|                                                                                                  |  |                    |   |                    |    |                    |           |               |   |    |  |            |  |   |   

See accompany notes to consolidated financial statements.

F-6

---





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

|                                               |                                                                             | Year Ended March 31,                               |                                          
|---------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------- | -----------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                             |                                                    |                                          
|Cash used in operations:                       |                                                                             |                                                    |                                          
|                                               | Net loss                                                                    |                                                    | $                                        
|                                               | Adjustments to reconcile net loss to net cash used in operating activities: |                                                    |                                          
|                                               |                                                                             | Depreciation and amortization                      |                                          
|                                               |                                                                             | Provision for doubtful accounts                    |                                          
|                                               |                                                                             | Amortization of deferred financing costs           |                                          
|                                               |                                                                             | Loss on extinguishment of debt                     |                                          
|                                               |                                                                             | Stock-based compensation expense                   |                                          
|                                               |                                                                             | Equity instruments issued in exchange for services |                                          
|Changes in operating assets and liabilities:   |                                                                             |                                                    |                                          
|                                               | Accounts receivable                                                         |                                                    |                                          
|                                               | Inventory                                                                   |                                                    |                                          
|                                               | Prepaid expenses and other current assets                                   |                                                    |                                          
|                                               | Accounts payable and accrued liabilities                                    |                                                    |                                          
|                                               |                                                                             |                                                    |                                          
|                                               |                                                                             |                                                    | Net cash used in operating activities    
|                                               |                                                                             |                                                    |                                          
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                             |                                                    |                                          
|                                               | Additions to fixed assets                                                   |                                                    |                                          
|                                               |                                                                             |                                                    |                                          
|                                               |                                                                             |                                                    | Net cash used in investing activities    
|                                               |                                                                             |                                                    |                                          
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                             |                                                    |                                          
|                                               | Proceeds from bank borrowings                                               |                                                    |                                          
|                                               | Repayment of bank indebtedness                                              |                                                    |                                          
|                                               | Proceeds on issuance of debentures                                          |                                                    |                                          
|                                               | Proceeds on issuance of Common Shares                                       |                                                    |                                          
|                                               | Net proceeds from issuance of Series A Preferred Stock                      |                                                    |                                          
|                                               | Net proceeds from issuance of Series B Preferred Stock                      |                                                    |                                          
|                                               | Net proceeds from issuance of Series C Preferred Stock                      |                                                    |                                          
|                                               | Proceeds from exercise of warrants                                          |                                                    |                                          
|                                               |                                                                             |                                                    |                                          
|                                               |                                                                             |                                                    | Net cash provided by financing activities
|                                               |                                                                             |                                                    |                                          
|CHANGE IN CASH AND CASH EQUIVALENTS            |                                                                             |                                                    | (978                                     
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |                                                                             |                                                    | 1,711                                    
|                                               |                                                                             |                                                    |                                          
|CASH AND CASH EQUIVALENTS, END OF PERIOD       |                                                                             | $                                                  | 733                                      
|                                               |                                                                             |                                                    |                                          
|SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:         |                                                                             |                                                    |                                          
|                                               | Payments for interest                                                       |                                                    | $                                        
|                                               |                                                                             |                                                    |                                          
|                                               | Payments for income taxes                                                   |                                                    | $                                        
|                                               |                                                                             |                                                    |                                          

See
accompanying notes to consolidated financial statements.

F-7

---





XPLORE TECHNOLOGIES CORP.        Notes to the Consolidated Financial Statements        (in thousands of United States dollars, 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 environment 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 2009. The Company believes that cash flow from operations, together with borrowings from its senior lender and financial support from Phoenix Venture Fund LLC
("Phoenix"), a significant shareholder, and its affiliates, if necessary, will be sufficient to fund the anticipated operations for the next 12 months. 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.

Comparative
amounts are reclassified to conform to the current year's financial statement presentation.

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, inventory valuation,

F-8

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 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
assets and liabilities of the Company's foreign subsidiaries have been translated to U.S. dollars using the exchange rate in effect at the balance sheet date. Results of operations
have been translated using the average exchange rate during the year. Resulting translation adjustments have been recorded as a separate component of stockholders' equity as accumulated other
comprehensive loss. Foreign currency transaction gains and losses are included in the consolidated statement of operations as they occur.



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

F-9

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

resellers.
However, in limited circumstances the Company 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 are other than incidental. Prices are determined based on negotiation 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 Company's 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 reverse. 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

F-10

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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, 2008 and March 31, 2007 were $411 and $59, respectively.

The
amounts reported for cash equivalents, accounts receivables, accounts payable, accrued liabilities and 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 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, 2008

March 31, 2007Series A Preferred Shares

63,178,777

63,472,895Series B Preferred Shares

9,588,513

9,988,513Series C Preferred Shares

15,274,000

Warrants

26,642,465

15,619,025Options

14,329,668

10,660,337129,013,423

99,740,770




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)

F-11

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 Company does not expect that
FAS 141R will have a material impact on its 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 is effective for fiscal years beginning after
November 15, 2007, with earlier adoption permitted under certain circumstances. The Company is required to adopt SFAS No. 159 no later than the first quarter of fiscal 2009. The Company
does not expect the new standard to have a material impact on its 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 is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted.
The Company is required to adopt SFAS No. 157 no later than the first quarter of fiscal 2009. The Company does not expect the adoption of SFAS No. 157 to have a material impact on its
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 is 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 its financial position or results of operations.

F-12

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

3. INVENTORY

March 31,2008

2007Finished goods

$
2,658

$
3,174Computer components


750


465Total inventory

$
3,408

$
3,639


Inventory
sent to end-users for which revenue recognition attributes have not been completed is included in "prepaid expenses and other current assets" on the
Company's consolidated balance sheets and was $141 at March 31, 2008 and $464 at March 31, 2007.

Prepaid
expenses and other current assets at March 31, 2008 include $250 representing advances to a supplier to secure the supply of components to be delivered in fiscal 2009.
There were no such advances at March 31, 2007.

4. FIXED ASSETS

March 31,2008

2007CostTooling and fixtures

$
1,697

$
1,421Office equipment and leasehold improvements


1,386


686Computer equipment and demonstration units


1,208


1,204Computer software


753


6655,044


3,976Accumulated depreciationTooling and fixtures


1,435


1,258Office equipment and leasehold improvements


682


450Computer equipment and demonstration units


1,180


1,108Computer software


653


5753,950


3,391Total fixed assets, net

$
1,094

$
585


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 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 agreed with its senior lender to modify the existing 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

F-13

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

5. BANK INDEBTEDNESS (Continued)

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 prime plus 2.25% (or prime
plus 2.5% in the case of borrowings related to its inventory). The Company is obligated to pay a fee equal to .25% of the unused portion of the credit facility. The amended agreement includes
financial covenants that require the Company to have a minimum tangible net worth of at least $3,750 at all times and a minimum excess availability of $750. 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. On
March 28, 2008 the maturity date for borrowings under this amended facility was extended to March 30, 2009. The loan agreement contains a number of financial and operational covenants.
As of March 31, 2008, the Company was in full compliance with these covenants. As of March 31, 2008, there were no borrowings outstanding under the amended facility.

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

March 31,2008

2007Accounts payable

$
2,321

$
2,778Engineering accrual


722


645Other accrued liabilities


1,591


1,896Total

$
4,634

$
5,319


7. DEBENTURES

The Company had issued and outstanding debentures at March 31, 2008 and March 31, 2007 as detailed in the tables below.

Short-term Debentures:

|Debenture Issuance Date |  | Balance |       | New
Issuances |   | Value
Assigned to
Warrants |  | Payments |   | Accretion of
Non-cash
Interest |   | Converted to
Series A
Preferred
Shares |  | Balance
|----------------------- |  | ------- | ----- | ------------- | - | -------------------------- |  | -------- | - | ------------------------------ | - | -------------------------------------- |  | -------
|
|September 15, 2005      |  | $       | 3,000 |               | $ |                           |  | $        |  |                                | $ |                                       |  | $      
|September 29,2005       |  |         | 750   |               |   |                           |  |          |  |                                |   |                                       |  |        
|November 7, 2005        |  |         | 1,250 |               |   |                           |  |          |  |                                |   |                                       |  |        
|April 21, 2006          |  |         |      |               |   | 1,000                      |  |          |  |                                |   |                                       |  |        
|                        |  |         |       |               |   |                            |  |          |   |                                |   |                                        |  |        
|                        |  | $       | 5,000 |               | $ | 1,000                      |  | $        |  |                                | $ |                                       |  | $      
|                        |  |         |       |               |   |                            |  |          |   |                                |   |                                        |  |        

F-14

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

7. DEBENTURES (Continued)

Long-Term Debentures:

|Debenture Issuance Date |  | Balance |        | New
Issuances |   | Value
Assigned to
Warrants |  | Payments |   | Accretion of
Non-cash
Interest |   | Converted to
Shares |  | Balance
|----------------------- |  | ------- | ------ | ------------- | - | -------------------------- |  | -------- | - | ------------------------------ | - | ------------------- |  | -------
|
|
|November 5, 2002        |  | $       | 4,590  |               | $ |                           |  | $        |  |                                | $ |                    |  | $      
|December 6, 2002        |  |         | 970    |               |   |                           |  |          |  |                                |   |                    |  |        
|April 9, 2003           |  |         | 725    |               |   |                           |  |          |  |                                |   |                    |  |        
|April 29, 2003          |  |         | 720    |               |   |                           |  |          |  |                                |   |                    |  |        
|December 17, 2004       |  |         | 4,518  |               |   |                           |  |          |  |                                |   |                    |  |        
|                        |  |         |        |               |   |                            |  |          |   |                                |   |                     |  |        
|                        |  | $       | 11,523 |               | $ |                           |  | $        |  |                                | $ |                    |  | $      
|                        |  |         |        |               |   |                            |  |          |   |                                |   |                     |  |        

|
|

|                 |  | March 31, 2007 |     |  |   |   |  |   |   |  |   |   |  | March 31, 2008
|---------------- |  | -------------- | --- |  | - | - |  | - | - |  | - | - |  | --------------
|December 6, 2002 |  | $              | 250 |  | $ |  |  | $ |  |  | $ |  |  | $             
|                 |  |                |     |  |   |   |  |   |   |  |   |   |  |               
|                 |  | $              | 250 |  | $ |  |  | $ |  |  | $ |  |  | $             
|                 |  |                |     |  |   |   |  |   |   |  |   |   |  |               

Fiscal 2007 Debenture Issuances and Exchange of Debentures for Equity

On April 21, 2006, the Company entered into a financing agreement with Phoenix. The Chairman and Chief Executive Officer and another Director of the
Company are co-managers of the managing member of Phoenix. Under this agreement, Phoenix agreed, in its sole discretion, to provide up to $5,000 in financing to the Company through the
issuance of debentures or Series A Preferred Stock. In connection with the financing on April 21, 2006, the Company initially issued a 10% secured debenture in the aggregate principal
amount of $1,000 to Phoenix, which had a maturity date of
June 30, 2006. The debenture and related accrued and unpaid interest were exchanged for 2,970,185 shares of Series A Preferred Stock in connection with the Company's recapitalization
discussed below. Of the remaining $4,000 of available financing, the Company received gross proceeds of approximately $800 in June 2006 and approximately $1,904 in July 2006 in exchange for a total of
7,952,353 shares of Series A Preferred Stock issued to certain investors, designated by Phoenix.

On
May 30, 2006, the Company completed a recapitalization pursuant to which approximately $18,877 of indebtedness, represented by 10% secured debentures in the original principal
amount of $17,755 and accrued interest of $1,122, was exchanged for 55,520,542 shares of Series A Preferred Stock. The shares of Series A Preferred Stock are convertible initially on a
one-for-one basis into shares of common stock of the Company at any time at the option of the holder and will convert upon the occurrence of specified events. The conversion
rate is subject to adjustment for stock dividends, splits, combinations and similar events. In the event that the Company issues additional securities at a purchase price less than the then current
Series A Preferred Stock conversion price, such conversion price will be adjusted in accordance with the formula specified in the Company's Certificate of Incorporation. The shares of
Series A Preferred Stock are entitled to one vote per share at meetings of the Company's shareholders, have a cumulative 5% dividend that is paid quarterly in shares of common stock, have
certain protective provisions, and contain a liquidation preference over the common stock.

F-15

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

7. DEBENTURES (Continued)

Series A
Preferred Stock issuance costs incurred was $453 and principally consisted of charges associated with a special shareholders' meeting and legal fees.

One
debenture in the amount of $250 and related accrued interest was not exchanged on May 30, 2006. The debenture continued to bear interest at 10% per annum and the interest was
payable semi-annually on June 30 and December 31. In connection with the recapitalization, the maturity of the debenture was extended to April 30, 2009. 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 is pari passu with 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.

As
of March 31, 2006, the Company had unpaid interest of approximately $400 owed to Phoenix that was due on December 31, 2005. On May 30, 2006, this unpaid interest
and interest accrued since December 31, 2005 was exchanged for Series A Preferred Stock.

On
September 15, 2005, the Company entered into a debenture purchase agreement with Phoenix and other lenders, including an affiliate of Phoenix (collectively, the "Lenders"),
whereby the Lenders provided an aggregate of $5,000 of financing to the Company through the issuance of short-term debentures. All of the short-term debentures issued under the
purchase agreement had an original maturity date of March 31, 2006 and borrowings under the short-term debentures bore interest at 10% per annum. Borrowings were secured by all
of the Company's assets and were subordinated to the Company's commercial bank credit facility and certain trade debts.

If
any of the short-term debentures issued under the September 15, 2005 purchase agreement were not paid in full on or prior to March 31, 2006, the Company
agreed to issue common share purchase warrants to the holders of such short-term debentures. The short-term debentures were not repaid and on April 10, 2006 the Company
issued to the Lenders 5,235,343 warrants with an exercise price of C$0.45. The warrants were exercisable through April 10, 2008 and expired unexercised. The exercise price of the warrants was
based on the average current market price of the Company's common shares for the five days before the date of issuance. The warrants have been valued separately at fair value using the Black-Scholes
methodology. The fair value calculations assumed a discount rate of approximately 4.8%, volatility of approximately 127% and no dividends. The value of $1,329 assigned to these warrants was reflected
as a separate component of shareholders' deficiency and as a deferred charge to be amortized as non-cash interest expense during the remaining term of the debentures. In connection with
the Company's recapitalization, the maturity date of the short-term debentures was extended to June 30, 2006. These short-term debentures and accrued interest were
exchanged for shares of Series A Preferred Stock on May 30, 2006. From the date of the modification of the short-term debentures' maturity date through May 30, 2006,
non-cash interest expense of $905 was recorded to reflect the amortization of the deferred financing costs. The remaining unamortized deferred financing cost of $424 was recorded as a loss
on extinguishment of debt in connection with the Company's recapitalization on May 30, 2006.

Other Information Pertaining to the Debentures

The values assigned to warrants or the beneficial conversion features issued in connection with the debentures have been reflected as additional
paid-in capital. Upon exercise of the warrants, the related value assigned to such warrants will be reclassified into share capital.

F-16

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

7. DEBENTURES (Continued)

The discounts related to the values assigned to the warrants and the beneficial conversion features were amortized as non-cash interest expense over
the term of the debentures.

The
discounts related to the values assigned to the warrants and the beneficial conversion features were amortized as non-cash interest expense over the term of the
debentures. On May 30, 2006, all of the debentures and accrued interest, except for one debenture with an outstanding principal balance of $250, were exchanged for shares of Series A
Preferred Stock and the remaining unamortized discounts of $408 were recorded as a loss on extinguishment of debt in connection with the Company's recapitalization.

For
the year ended March 31, 2007, non-cash interest expense of $979 was recorded relating to the amortization of debentures discounts. There was no
non-cash interest for the year ended March 31, 2008.

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, 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.

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 cash 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, 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.

F-17

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

8. SHARE CAPITAL (Continued)

During
the year ended March 31, 2008, the Company issued warrants to the investors in the private placement, certain parties in connection with the private placement and a
debenture holder. In addition, 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 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.

Year-ended March 31, 2007

On August 10, 2006, the Company issued 9,988,513 Series B Preferred Stock in a private placement for gross proceeds to the Company of approximately
$3,396. The Series B Preferred Stock generally have the rights and preferences similar to the Series A Preferred Stock. The Series B Preferred Stock are convertible initially on a
one-for-one basis into common stock of the Company at any time at the option of the holder, subject to adjustment for stock dividends, splits, combinations and similar events.
The Series B Preferred Stock are entitled to one vote per share at meetings of the

F-18

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

8. SHARE CAPITAL (Continued)

Company's
shareholders, are entitled to a cumulative 5% dividend paid quarterly in common shares, have certain protective provisions, and contain a liquidation preference over the common shares.

For
the year ended March 31, 2007, there were accrued dividends of $2,767 for the Series A Preferred Stock and $316 for the Series B Preferred Stock. The liquidation
preference values of the Series A and Series B Preferred Stock was $21,581 and $3,396, respectively. The Series B Preferred Stock ranks on parity with the Series A
Preferred Stock with respect to a liquidation.

The
convertible Series A and Series B 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 Series of 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 Preferred Stock are
convertible. The value of the beneficial conversion features are presented as deemed dividends to the shareholders of the Preferred Stock with an offsetting amount to additional paid-in
capital. Since the Preferred Stock are immediately convertible into common stock by the holders at any time, the Company recognized non-cash charges (deemed dividends) in connection with
the Preferred Stock financings aggregating approximately $3,381 during the year ended March 31, 2007.

On
September 25, 2006, the Company issued 2,848,253 shares of common stock on a private placement basis for gross proceeds to the Company of approximately $997.

In
connection with the Series B Preferred Stock and common stock private placements, the Company issued to a sales agent warrants to purchase 499,425 shares of common stock at an
exercise price of $0.58 per share and an expiration date of August 9, 2009 and warrants to purchase 142,412 shares of common stock at an exercise price of $0.35 per share and an expiration date
of September 23, 2009. The non-cash charge of $239 for the value of these warrants was recorded as issuance costs. The Company also entered into a six-month agreement
with the sales agent to provide consulting services related to the Company's corporate migration to the U.S. and future financings. As part of the agreement terms, the Company issued to the sales
agent warrants to purchase 499,429 shares of common stock at an exercise price of $0.58 per share and an expiration date of August 9, 2009 and warrants to purchase 142,416 shares of common
stock at an exercise price of $0.35 per share and an expiration date of September 23, 2009. The non-cash charge of $239 for the value of these warrants and other cash compensation
of $220 are recorded as general administration expenses over the term of the agreement.

The
warrants issued to the sales agent have been valued separately at fair value using the Black-Scholes methodology. The fair value calculations relating to the warrants assumed a
volatility of approximately 113%, a life of three years and no dividends.

Dividends

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. For the year ended March 31, 2007, there were paid common stock dividends of $790 for the Series A Preferred Stock and
$95 for the Series B Preferred Stock. As of March 31, 2008 and 2007,

F-19

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

8. SHARE CAPITAL (Continued)

there
were accrued and unpaid common stock dividends of $91 and $92, respectively, for the Series A Preferred Stock, $14 and $14, respectively, for the Series B Preferred Stock and $32
and none, 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, $3,260 and
$7,637, respectively. Each series of preferred stock ranks on parity with each other series of preferred stock with respect to a liquidation.

Warrants outstanding

There were warrants to purchase 26,642,465 shares of common stock outstanding at March 31, 2008 as detailed in the table below:

|Number of Warrants/Number Exercisable |  | Exercise Price |      | Expiration Date |                   
|------------------------------------- |  | -------------- | ---- | --------------- | ------------------
|9,100,000/9,100,000                   |  | US$            | 0.55 |                 | May 30, 2008      
|5,235,343/5,235,343                   |  | C$             | 0.45 |                 | April 10, 2008    
|998,854/998,854                       |  | US$            | 0.58 |                 | August 9, 2009    
|250,000/250,000                       |  | US$            | 0.50 |                 | August 8, 2009    
|284,828/284,828                       |  | US$            | 0.35 |                 | September 22, 2009
|7,387,000/7,387,000                   |  | US$            | 0.50 |                 | September 21, 2009
|886,440/886,440                       |  | US$            | 0.50 |                 | September 21, 2009
|2,500,000/500,000                     |  | US$            | 0.45 |                 | August 8, 2010    

---

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 Share Option 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 for, the 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 Share Option Plan, as amended, is not to exceed 30,900,000. The options under the
plan generally vest over a 3-year period in equal annual amounts.

The
options have been valued separately using the Black-Scholes methodology and the calculations for issuances in fiscal 2008 and 2007 assumed discount rates of approximately 3.3% and
4.8%, respectively, and volatility of approximately 104% and 113%, respectively, and no dividends for both years. The Company recorded compensation cost of $963 in fiscal 2008 and $819 in fiscal 2007
for option grants issued since April 1, 2003. This expense was recorded in the employee related functional classification.

F-20

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

9. STOCK-BASED COMPENSATION PLAN (Continued)

A summary of the activity in the Company's Share Option Plan during the years ended March 31, 2008 and 2007 is as follows:

Year ended March 31,2008

2007Options

Weighted
Average
Exercise Price
(Cdn$)

Options

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

10,660,337

$
0.51

5,531,350

$
0.91Granted

4,113,664

$
0.50

7,935,168

$
0.44Exercised









Forfeited

444,333

$
0.52

2,806,181

$
1.05Outstanding at end of year

14,329,668

$
0.51

10,660,337

$
0.51


At
March 31, 2008, the total number of shares of common stock issued in connection with the exercise of options is 521,385 since the inception of the Share Option Plan.

A
summary of the options outstanding and exercisable as at March 31, 2008 is as follows:

|           |  | Options Outstanding |  | Options Exercisable
|---------- |  | ------------------- |  | -------------------
|
|$0.230.38 |  | 2,364,000           |  | 3.2                
|$0.400.49 |  | 5,906,002           |  | 2.8                
|$0.500.56 |  | 4,956,832           |  | 1.8                
|$0.651.18 |  | 833,834             |  | 2.0                
|$1.241.85 |  | 269,000             |  | 0.7                
|           |  |                     |  |                    
|           |  | 14,329,668          |  | 3.4                
|           |  |                     |  |                    

During
the year ended March 31, 2008, grants in the amount of 200,000 shares of common stock were issued to non-executive Directors of the Company at an exercise price
of C$0.37. During the year ended March 31, 2007, grants in the amount of 600,000 shares of common stock were issued to non-executive Directors of the Company at an exercise price of
C$0.44. The fair value of these shares were expensed during the period issued.

Compensation
expense for the stock 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, 2008 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, 2008 was $1,710 to be recognized over the next three years.

F-21

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

10. INCOME TAXES

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

Year ended March 31,2008

2007Deferred income tax assets:Net operating losses

$
24,324

$
23,144Accrued liabilities


401


177Inventory allowance


333


403Other items


144


21Valuation allowance


(25,202
)

(23,745
)Deferred tax asset

$


$



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

Year ended March 31,2008

2007Combined basic US and Canadian statutory rates, respectively


35
%

37
%Recovery of income taxes based on the above rates

$
(2,477
)
$
(2,448
)Increase in income taxes resulting from:Permanent differencestock compensation


337


303Permanent differencefinancing fees


53


671Effect of differences between US and foreign tax rates





30Expiration of net operating losses


630


Change in valuation allowance


1,457


1,444Provision for income taxes

$


$



The
Company has accumulated net operating losses for income tax purposes totaling approximately $69,496, 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

F-22

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

10. INCOME TAXES (Continued)

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


5,226$
13,617

$
55,879

$
69,496


11. FINANCIAL INSTRUMENTS



At March 31, 2008, all of the Company's debentures bear interest at a fixed rate of 10% per annum and the Company is not exposed to future fluctuations in
interest rates. At March 28, 2008, the Company entered into a loan and security agreement with a commercial bank and the interest rate has 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 $80,000.



The majority of the Company's revenues and expenses are in United States dollars, foreign exchange is limited to non-U.S. dollar denominated revenues and net
expenditures in Canadian dollars, which represents none and 2% of revenues and less than 1% and 3% of net expenditures in each of the years ended March 31, 2008 and 2007, respectively.

F-23

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

11. FINANCIAL INSTRUMENTS (Continued)



The Company's exposure to 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
Receivables |   
|--------------- |  | --------------------------------- | --- | --------------------------------------------------------------------- | - | ------------------------------------------------ | ----------- | ------------------------------------- | --
|2008            |  | $                                 | 4.9 |                                                                       | 2 |                                                  | 30% and 13% |                                       | 43
|2007            |  | $                                 | 4.4 |                                                                       | 2 |                                                  | 23% and 18% |                                       | 41

The
receivables representing 30% and 13% of the accounts receivable balance at March 31, 2008 were subsequently collected.



The Company relies on a single supplier for the majority of its finished goods. At March 31, 2008 and 2007, the Company owed $1,144 and $2,095,
respectively, recorded as accounts payable and accrued liabilities. The inventory purchases and engineering services from this supplier for the years ended March 31, 2008 and 2007 were $11,286
and $16,275, respectively.

12. SEGMENTED INFORMATION

The Company operates in one segment, the sale of rugged mobile wireless PC computing systems. The majority of the Company's revenue is derived from sales in the
United States of America. Other than the Netherlands with 10% of the total revenue, no other country outside of the United States of America accounted for more than 10% of the Company's revenue for
the year ended March 31, 2008. For the year ended March 31, 2007, Canada accounted for 10.7% of the total revenue.

The
distribution of revenue by country is segmented as follows:

Year ended March 31,2008

2007Revenue by country:United States of America

$
14,485

$
20,069Netherlands

$
2,544

$
3,427Canada

$
1,892

$
3,682All other countries


6,434


7,356$
25,355

$
34,534


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

F-24

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

12. SEGMENTED INFORMATION (Continued)

Netherlands.
For the year ended March 31, 2007, the Company had no customers who accounted for more than 10% of total revenue. 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 Revenue |   
|----------- |  | --------------------------- | ---- | ------------------------------------------------------------------- | ---- | -------------------------------------------- | -- | --------------------------------- | --
|2008        |  | $                           | 25.4 |                                                                     | 1    |                                              | 10 | %                                 | 10
|2007        |  | $                           | 34.5 |                                                                     | None |                                              |   |                                   |  

13. COMMITMENTS AND CONTINGENT LIABILITIES



The
Company leases facilities in Austin, Texas. The annual lease commitment is $251 and the lease maturity date was extended from May 31, 2007 to August 31, 2009. The
Company also leases a satellite office in Helsinki, Finland, on a 3-month renewable basis, and a branch office in Taipei, Taiwan with a one year lease.

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

2009

$
3062010

$
1582011

$
54$
518




At
March 31, 2008, the Company had purchase obligations extending into fiscal 2009 of approximately $1,487 related to inventory and product development items.



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.

14. RELATED PARTY TRANSACTIONS

On April 21, 2006, the Company entered into a financing agreement with Phoenix, a significant shareholder, pursuant to which Phoenix agreed, at its sole
discretion, to provide up to $5,000 in financing to the Company. In connection with the financing, the Company initially issued a $1,000 10% secured debenture to Phoenix, which had a maturity date of
June 30, 2006. The debenture and related accrued and unpaid interest were exchanged for 2,970,185 shares of Series A Preferred Stock as part of the Company's recapitalization. Of the
remaining $4,000 of available financing, the Company received gross proceeds of approximately $800 in June 2006 and approximately $1,904 in July 2006 in exchange for a total of 7,952,353 shares of
Series A Preferred Stock issued to certain investors, designated by Phoenix.

F-25

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

14. RELATED PARTY TRANSACTIONS (Continued)

Interest
expense for the fiscal years ended 2008 and 2007 was none and $230, respectively, related to borrowings from Phoenix and its affiliates. There were no outstanding debentures
issued to such affiliates at March 31, 2008 and 2007.

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 to SG Phoenix are
exercisable immediately, at an exercise price of $0.50 per share, and will terminate on September 21, 2009.

15. QUARTERLY OPERATING RESULTS

The following tables provide a summary of the Company's unaudited operating results for each of the quarters ended on the date indicated:

|Quarter ended                     |  | June 30, 2007 |        | September 30, 2007 |   | December 31, 2007 |   | March 31, 2008 |       
|--------------------------------- |  | ------------- | ------ | ------------------ | - | ----------------- | - | -------------- | ------
|Revenue                           |  | $             | 7,722  |                    | $ | 5,187             |   | $              | 5,394 
|Gross profit                      |  |               | 2,305  |                    |   | 1,623             |   |                | 1,622 
|Operating expenses                |  |               | 3,407  |                    |   | 3,298             |   |                | 3,927 
|Loss from operations              |  |               | (1,102 | )                  |   | (1,675            | ) |                | (2,305
|Other income (expenses)           |  |               | (5     | )                  |   | (76               | ) |                | 18    
|Net loss                          |  | $             | (1,107 | )                  | $ | (1,751            | ) | $              | (2,287
|Loss per common share             |  | $             | (0.02  | )                  | $ | (0.03             | ) | $              | (0.03 
|Average shares outstanding (000s) |  |               | 64,219 |                    |   | 65,215            |   |                | 66,893

|
|

|Quarter ended                     |  | June 30, 2006 |        | September 30, 2006 |   | December 31, 2006 |   | March 31, 2007 |       
|--------------------------------- |  | ------------- | ------ | ------------------ | - | ----------------- | - | -------------- | ------
|Revenue                           |  | $             | 9,179  |                    | $ | 8,660             |   | $              | 8,114 
|Gross profit                      |  |               | 2,508  |                    |   | 2,414             |   |                | 2,243 
|Operating expenses                |  |               | 2,974  |                    |   | 3,132             |   |                | 3,749 
|Loss from operations              |  |               | (466   | )                  |   | (718              | ) |                | (1,506
|Other expenses                    |  |               | (2,175 | )                  |   | (36               | ) |                | (19   
|Net loss                          |  | $             | (2,641 | )                  | $ | (754              | ) | $              | (1,525
|Loss per common share             |  | $             | (0.04  | )                  | $ | (0.01             | ) | $              | (0.03 
|Average shares outstanding (000s) |  |               | 57,855 |                    |   | 58,155            |   |                | 60,897

F-26

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

16. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA

These
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"), which differ in certain
respects from generally accepted accounting principles in Canada ("Canadian GAAP"). Under Canadian securities regulations, the Company is required to provide a reconciliation setting out the
differences between U.S. GAAP and Canadian GAAP as applied to the Company's financial statements. There were no differences for the year ended March 31, 2008. The significant differences
for the year ended March 31, 2007 are summarized below:

The
common share purchase warrants issued with the December 17, 2004 debentures were assigned a value of $2,234 under U.S. GAAP as compared to $945 under Canadian GAAP. The
difference is attributable to different valuation methodologies.

The
conversion feature related to the December 17, 2004 debentures was deemed a beneficial conversion feature with a value of $2,766 under U.S. GAAP. Under Canadian GAAP,
the conversion feature was not deemed a beneficial conversion feature and accordingly was not assigned a value.

Under
U.S. GAAP, the extensions of the maturity dates of debentures were accounted for as modifications and the remaining unamortized discounts at the time of the restructurings
were recognized ratably over the new term of the debentures. Under Canadian GAAP, these transactions were accounted for as settlements of the original debts and related unamortized discounts were
immediately expensed. The sum of the differences noted above are reflected in other income (expense) as either interest expense or loss on extinguishment of debt.

RECONCILIATION TO CANADIAN GAAP

Consolidated Balance Sheet

The
following is a reconciliation of the balance sheet reflecting the differences between US and Canadian GAAP:

Consolidated Balance Sheet as of March 31, 2007

|Line Item                                        |  | U.S. GAAP |         | Difference |   | Canadian GAAP |  
|------------------------------------------------ |  | --------- | ------- | ---------- | - | ------------- | -
|Additional paid-in capital (Contributed surplus) |  | $         | 8,959   |            | $ | (6,374        | )
|Warrants                                         |  |           |        |            |   | 2,319         |  
|Accumulated other comprehensive loss             |  |           | (1,104  | )          |   | 1,104         |  
|Accumulated deficit                              |  |           | (91,957 | )          |   | 2,951         |  
|Total shareholders' deficiency                   |  |           | 5,545   |            |   |              |  
|Total liabilities and shareholders' deficiency   |  |           | 11,114  |            |   |              |  

F-27

---



XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands of United States dollars, except share and per share amounts)

16. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA (Continued)

Consolidated Statements of Loss as of March 31, 2007

|Line Item            |  | U.S. GAAP |        | Difference |   | Canadian GAAP |  
|-------------------- |  | --------- | ------ | ---------- | - | ------------- | -
|Interest expense     |  | $         | (1,467 | )          | $ | 482           |  
|Total other expenses |  |           | (2,339 | )          |   | 482           |  
|Net loss             |  |           | (6,615 | )          |   | 482           |  
|Loss per share       |  |           | (0.11  | )          |   | (0.01         | )

Quarterly Results

The
Company has prepared these consolidated financial statements in accordance with US GAAP for the interim periods as described in note 16. There were no differences
between U.S. and Canadian GAAP for the interim periods in fiscal year 2008.

17. SUBSEQUENT EVENTS

On March 10, 2008, the Company's common stock was quoted on the OTC Bulletin Board under the symbol "XLRT". The Company voluntarily delisted the trading of
its shares of common stock on the Toronto Stock Exchange and the delisting was effective Friday, April 11, 2008.

F-28

---



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