Use these links to rapidly review the documentTable of Contents PART IV INDEX TO FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS OF XPLORE TECHNOLOGIES CORP.

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

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2010oro

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


Commission file number: 00-52697

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

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

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

78728(Zip Code)


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

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

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files) Yes o    No o

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

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

Large accelerated filer o

Accelerated filer o

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

Smaller reporting company ý


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

As of September 30, 2009, the aggregate market value of the common equity held by non-affiliates of the registrant was $5,561,076 based on the
closing sale price of $0.07 as reported on the Over the Counter Bulletin Board.

As
of May 15, 2010, the registrant had 134,081,695 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:None.



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PART I

1Item 1.

Business

1Item 1A.

Risk Factors

10Item 1B.

Unresolved Staff Comments

17Item 2.

Properties

17Item 3.

Legal Proceedings

17Item 4.

Removed and Reserved

17PART II

17Item 5.

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

17Item 6.

Selected Financial Data

18Item 7.

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

19Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

29Item 8.

Financial Statements and Supplementary Data

29Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

29Item 9A.

Controls and Procedures

29Item 9A (T).

Controls and Procedures

29Item 9B.

Other Information

30PART III

31Item 10.

Directors, Executive Officers and Corporate Governance

31Item 11.

Executive Compensation

34Item 12.

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

43Item 13.

Certain Relationships and Related Transactions, and Director Independence

46Item 14.

Principal Accounting Fees and Services

48PART IV

49Item 15.

Exhibits, Financial Statement Schedules

49


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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 Annual Report on Form 10-K and other public statements we make. Such factors are discussed in the "Risk Factors" section of this
Annual Report on Form 10-K.

PART I

Item 1.    Business

Overview

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

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 our AllVue Screen") and Lap Top Magazine ("Editor's Choice Award").

Recent Developments

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



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

Our
iX104 remains a viable product based on its features and 10.4 inch screen size. An upgraded version of our iX104 tablet PC offering, which we refer to as the iX104C4, was released in
September 2008 and includes a more powerful processor and significant improvements to our award winning AllVue screen technology that delivers a bright picture both indoors and outdoors. Our next
generation of the iX104 is under development and management estimates the iX104C5 will be released in the fourth quarter of our fiscal 2011.

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, in fiscal 2010 we completed developing what we believe is a state of the art rugged docking station that when combined with our iX104 creates an expandable
multi-mission tablet computer system for vehicle-mounted and dismounted applications. This product is named the Armadillo System and is built to function in harsh military environments. We believe our
efforts should position Xplore to compete more effectively in this market.

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

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

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

Products

Our family of iX advanced rugged tablet PCs is comprised of:



The iX104C4 Plus Tablet PCis available in the following models:



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The iX104C4 Lite Tablet PCis currently available in theDual Modemodel.

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

Screen TechnologyWe seek to be a leader of screen technology with award winning displays. We have designed the AllVue screen which is
viewable in virtually all challenging lighting conditions, including direct sunlight and dimly-lit environments, as well as the Dual Mode screen, which allows for simultaneous of a digital
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
processors and associated chipsets, as well as other performance enhancement technologies that we believe are essential in many field applications (such as mapping and remote connectivity). In
addition, Lithium ION batteries support usage times between 3-5 hours and a "warm" swap feature allows users to switch batteries in the field without having to power down the
system.

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

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

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

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 our iX family of products allows the

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customization
of a platform that best suits a given application. Our computers combine processing power, viewability, ruggedness and connectivity and are designed to operate in extreme environments.

Strategy

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



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 market penetration by 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 contract manufacturer, Wistron,
a leading contract manufacturer located in Taiwan. In addition, we have a key relationship with VT Miltope with respect to our Armadillo System, an integrated tablet and active docking system. Our
targeted military market segments initially included ground and C4I (Command, Control, Communications, Computers and Intelligence) systems.

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

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

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



We continue to consider other market opportunities which are broader in scope and opportunity. We believe, based upon an annual white
paper published by the Mobile and Wireless Practice of Venture Development Corporation (which we refer to as VDC), that an increasing number of companies are requiring their employees to transact
business in the field and/or non-traditional office environments. The research paper published by VDC projects worldwide sales in the rugged mobile computing market to grow to over
$6.8 billion by the end of 2013 and the market for large form factor rugged devices to grow to $3.5 billion by the end of 2013. We currently have three products in the large form factor
segment of the rugged mobile computer market.

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We
believe our family of rugged tablet PCs are uniquely positioned to capitalize on the convergence of four 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 2010, approximately 60% of our total revenues were attributable to sales to our distribution
partners and approximately 40% of our total revenues were attributable to sales directly to our end-users. We currently have relationships with more than 60 distribution partners. Our
distribution partners generally have large sales organizations which in turn sell our products to entities that are the ultimate end-users of our products. Our distribution partners
include large computer companies such as Dell, Inc., specialized system integrators such as Moxx Mobility, Psion Teklogix Inc. and Peak Technologies, and software vendors such as
Environmental Systems Research Institute. In any given year, a single distribution partner can account for a significant portion of our revenue. In fiscal year 2010, we had one end-user,
Dycom Industries, Inc., located in United States that accounted for over 29% of our revenue. We are not substantially dependent on any single one distribution partner or end-user.

As
of March 31, 2010, we had a sales team of 7 individuals that have geographic responsibilities for direct and indirect sales opportunities. Our sales team works closely with our
distribution partners in defined regions based upon a standard agreement. Our distribution partners are currently selling our products in the public safety, utility, telecom, field service, logistics
and military markets.

Our
total revenue decreased approximately 3% in fiscal 2010 from fiscal 2009. Our revenue outside of North America was approximately 23% of total revenue in fiscal year 2010 as compared
to approximately 29% of total revenue in fiscal year 2009. The decline in revenue outside of North America from fiscal year 2009 to fiscal year 2010 was attributable to a 48% decline in shipments to
Europe which management believes was attributable to the depressed European economic market.

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:



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We
also market our products through a number of different industry participants, including independent software vendors with application software for a specific industry, systems
integrators that bring elements such as wireless communication systems to the project, agents that specialize in rugged mobile computing devices and other consultants. We believe one of the driving
forces behind these relationships is an active project where the combination of our systems with the application software and support services seeks to provide a tailored solution designed to meet
customers' needs.

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

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



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

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

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

Telecommunications.Generally, telecom related companies continuously have to respond to customers' requests for service and
infrastructure
maintenance 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. Cincinnati Bell in Ohio is major end-user in this sector.

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

Military.As the military continues to transition to commercial and industrial grade rugged mobile computing systems, we expect this
segment will
represent a significant opportunity. In particular, we believe the U.S. Department of Defense is generally moving away from full military specifications adherence, except for system-critical
operations, and instead, is increasing emphasis on purchasing commercial, off-the-shelf (COTS) equipment. Our end-users in this sector include the U.S. Air Force
and the Royal Dutch Air Force. In addition, we are working with VT Miltope on penetrating the military vertical with our iX104C4M Series and the Armadillo System, an expandable multi-mission tablet
and active dock computer system for vehicle-mounted and dismounted applications. The military market segments initially include ground and C4I (Command, Control, Communications, Computers and
Intelligence) systems.

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

Research and Development

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

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

We
continue to invest in research and development to enhance and expand our rugged mobile computing systems. Additional form factors, operating systems and screen technologies are being
considered for integration into our rugged platform as we seek to expand into additional markets. During the fiscal years ended March 31, 2010 and 2009, we expended $2,710,000 and $6,978,000,
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

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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.

GD/Itronix.GD/Itronix markets its semi-rugged pen tablet computer systems as part of its mobile portfolio, which also includes rugged
notebooks.

DRS.DRS promotes a tablet PC as its main product in the rugged space and has a solution that competes with the iX104C4M in the
military market.

We
also face competition from manufacturers of nonrugged mobile computers, such as Dell, Inc., Hewlett-Packard Company, Apple Computer, Inc., Sony and Toshiba, to the
extent customers decide to
purchase less expensive traditional computers for use in environments better suited for mobile rugged computers.

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

Under
the terms of our agreement with Wistron, which we entered into in July 2003, Wistron provides us with design, manufacturing and support services related to our ruggedized mobile
personal computer tablets. Our purchase price of the products produced by Wistron is determined based on the specific configuration of the tablet PCs being produced and is subject to a cost reduction
plan and volume based discounts. At least quarterly, we meet with Wistron to develop a cost reduction plan. The plan takes into account alternative suppliers along with components, design, process
changes and other cost savings procedures. Each month we provide Wistron with a six month rolling forecast of the products we anticipate ordering. Generally, Wistron has 45 days after
acceptance of our 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 applicable 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. The term of the agreement is
for one year and automatically renews for additional one year term, unless either party provides written notice of its

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intent
to terminate the agreement at least 120 days prior to the expiration of any renewal term. The Wistron agreement automatically renewed for a one-year term in July 2009. In
addition, the Wistron agreement contains a provision that allows for termination for any reason by either party upon 120 days notice.

We
purchase materials, supplies and product subassemblies for our ruggedized mobile personal computer tablets from a number of vendors. Some key components included in our line of
products are currently available only from single or limited sources. In the past, we have experienced significant price increases and limited availability of certain components that are not available
from multiple sources. We are dependent upon Microsoft Corporation for various software products, including products included in our ruggedized mobile personal computer tablets.

Like
other participants in the computer manufacturing industry, we ordinarily acquire materials and components through a combination of blanket and scheduled purchase orders to support
our requirements for periods averaging 90 to 120 days. At times, we have been constrained by parts availability in meeting our product orders. From time to time, we have obtained scarce
components for somewhat higher prices on the open market, which may have an impact on gross margins but does not disrupt production. On occasion, we have also acquired component inventory in
anticipation of supply constraints.

Intellectual Property

Our performance and ability to compete are dependent to a significant degree on our proprietary technology. We rely primarily upon a
combination of patent, copyright and trade secret laws and license agreements to establish and protect proprietary rights in our products and technology. We have four U.S. patents and one Canadian
patent, along with one U.S. patent application, one China patent application, one European patent application and one Canadian patent application. We are seeking to obtain additional 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 any 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. In
the past we have had third parties assert exclusive patent, copyright, trademark or other intellectual property right to technologies or marks that are important to our business. 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.

We
work closely with our contract manufacturer, Wistron, to stay abreast of the latest developments in rugged mobile computer technology. We obtain patent licenses for some technologies,
some of which require significant royalty payments, when we believe those licenses are necessary or advantageous to our business. We have entered into non-exclusive licensing arrangements
with Microsoft and other software suppliers for various operating systems and application software that we sell with our rugged tablet PCs.

Government Regulation

Our business is subject to regulation by various federal and state governmental agencies. Such regulation includes the radio frequency
emission regulatory activities of the U.S. Federal Communications Commission, the anti-trust regulatory activities of the U.S. Federal Trade Commission and Department of Justice, the
consumer protection laws of the Federal Trade Commission, the import/export regulatory activities of the U.S. Department of Commerce, the product safety regulatory

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activities
of the U.S. Consumer Products Safety Commission and environmental regulation by a variety of regulatory authorities in each of the areas in which we conduct business.

Employees

As of March 31, 2010, we had 37 full-time employees, of which 23 were employed in the operations, engineering,
research and development and customer support areas, 6 were involved in corporate, finance and administrative areas, and 8 were employed in sales and marketing. Our employees are not represented by a
union or other collective bargaining unit and we have never experienced a work stoppage. We believe that our employee relations are good.

Trademarks and Service Marks

Trademarks or trade names of Xplore used in this Annual Report on Form 10-K include: "iX" and
"AllVue." Each trademark, trade name or service mark of any other company appearing in this Annual Report on Form 10-K belongs to its holder.

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. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.

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, 2010, we incurred a net
loss of approximately $5.6 million. In addition, as of March 31, 2010, our accumulated deficit was approximately $121.6 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 at least through fiscal 2011
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 future products or may have to significantly
delay, scale back or discontinue the development or commercialization of one or more of our other products.

Our operations have consumed substantial amounts of cash since inception. From our inception in 1996, we have financed our operations
and met our capital expenditure requirements primarily from debt and equity financings totaling $103.2 million. We expect to continue to spend substantial amounts to complete the development
and commercialization of our future products and to continue our research and development programs, including those to advance our current product line. As of March 31, 2010, our working
capital was approximately $2.6 million and our cash and cash equivalents were approximately $0.4 million. We believe that cash flow from operations, together with advances under our
financing agreement and, if necessary, financial support from an affiliate of Phoenix Venture Fund LLC (together with affiliates "Phoenix"), our significant stockholder, will be sufficient to
fund our anticipated operations through the balance of fiscal 2011. However, we may seek to access the public or private markets before such time, whenever conditions are favorable or appropriate,
even if we do not have an immediate need for additional capital at that time. It is uncertain whether additional funding

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will
be available when we need it on terms that will be acceptable to us or at all. We have not entered into an agreement with Phoenix or any other potential investors regarding the terms of any
additional financing. 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. Due to the recent volatility of the U.S. equity markets, particularly for smaller technology companies, we may
not have access to new capital when we need to raise additional funds. If we are not able to obtain financing when needed or on acceptable terms, we would likely be unable to carry out our business
plan, and would have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products, the occurrence of which could significantly harm our
business and prospects and could cause our stock price to significantly decline.

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

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

In fiscal year 2010, more than 10% of our revenue was derived from one of our customers. If we are unable to replace revenues generated from one of our major resellers or
end-user customers with revenues from others in future periods, our revenues may fluctuate and our growth would be limited.

Historically, in any given year a single customer, either reseller or end-user customer, could account for more than 10% of
our revenue. In fiscal year 2010, one end-user customer, Dycom Industries, Inc., accounted for approximately 29% of our total revenue and in fiscal year 2009, one
end-user customer, National Express Corporation, accounted for approximately 12% of our total revenue. If we are unable to replace revenues generated from one of our major resellers or
end-user customers with revenues from others, our revenues may fluctuate and our growth would be limited.

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

The purchase of an iX104 system is often an enterprise-wide decision for prospective end-user customers, which
requires us to engage in sales efforts over an extended period of time and provide a significant level of education to prospective end-user customers regarding the uses and benefits of
such systems. As a result, our products generally have a lengthy sales cycle ranging from several months to several years. Consequently, if forecasted sales from a specific end-user
customer are not realized, we may not be able to generate revenue from alternative sources in time to compensate for the shortfall. The loss or delay of an expected large order could result in a
significant unexpected revenue shortfall. Moreover, to the extent that significant contracts, are entered into and performed earlier than expected, operating results for subsequent periods may be
adversely affected.

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

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



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Our
business is therefore dependent upon Wistron for their manufacturing abilities. During the fiscal years ended March 31, 2010 and 2009, we purchased approximately
$9.7 million and $11.6 million, respectively, from Wistron. Our agreement with Wistron contains a provision that allows for termination for any reason. We cannot assure you that Wistron
will continue to work with us, that they
will be able to meet our manufacturing needs in a satisfactory and timely manner, that Wistron has the required capacity to satisfy our manufacturing needs or that we can obtain additional or
alternative manufacturers when and if needed. The availability of Wistron and the amount and timing of resources to be devoted by Wistron to our activities is not within our control, and we cannot
assure you that we will not encounter manufacturing problems that would materially harm our business. The loss of Wistron, a significant price increase, an interruption of supply or the inability to
obtain additional or an alternative manufacturer when and if needed would impair our ability to deliver our products to our customers.

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

We operate in a highly competitive industry. Many of our competitors, such as DRS Technologies, Inc. and General Dynamics Corp.
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. We also enter, and plan to continue to enter, into confidentiality
or license agreements with our employees, consultants and other parties with whom we contract, and control access to and distribution of our software, documentation and other proprietary information.
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, particularly in foreign countries where
the laws may not protect our proprietary rights as fully as in the United States. We

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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.

In recent years, there has been a significant increase in litigation in the United States involving patents and other intellectual
property rights. 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. Claims for alleged infringement and any resulting lawsuit, if successful, could subject us to significant liability for damages and
invalidation of our intellectual property rights. Any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter
into a royalty or licensing agreement, any of which could delay the development and commercialization of our products. If we are unable to obtain a required license, our ability to sell or use certain
products may be impaired. In addition, if we fail to obtain a license, or if the terms of the license are burdensome to us, our operations could be materially harmed.

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

In the fiscal years ended March 31, 2010 and March 31, 2009, approximately 28% and 50%, respectively, of our revenue was
comprised of sales made outside of the United States. Our operations may be materially and adversely affected by many risks related to doing business outside of the United States,
including:



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

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

Our operations are dependent on the abilities, experience and efforts of a number of key personnel, including Philip S. Sassower, our
Chairman and Chief Executive Officer, Mark Holleran, our President and Chief Operating Officer, Michael J. Rapisand, our Chief Financial Officer and Corporate Secretary, and Bryan Bell, our Vice
President of Engineering. Should any of these persons or other key employees be unable or unwilling to continue in our employ, our ability to execute our business strategy may be adversely affected.
In addition, our success is highly dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified management, technical and sales and 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. Because we have experienced operating losses, we have
recently implemented a reduction in workforce and because our common stock is not traded on a recognized national market, we may have a more difficult time in attracting and retaining the employees we
need. Our relationships with most of our key employees are "at will."

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Also,
we do not have "key person" life insurance policies covering any of our employees. 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.

If we are unable to acquire key components or are unable to acquire them on favorable terms, our business will suffer.

Some key components included in our line of products are currently available only from single or limited sources. In addition, some of
the suppliers of these components are also supplying certain of our competitors. We cannot be certain that our suppliers will be able to meet our demand for components in a timely and
cost-effective manner. We expect to carry little inventory of some of our products and product components, and we will rely on our suppliers to deliver necessary components to us or our
contract manufacturers in a timely manner based upon forecasts we provide. We may not be able to develop an alternative source of supply in a timely manner, which could hurt our ability to deliver our
products to our customers. If we are unable to buy these components on a timely and a cost-efficient basis, we may not be able to deliver products to our customers, or the margins we
receive for our products may suffer, which would negatively impact our future financial performance and, in turn, seriously harm our business.

At
various times, some of the key components for our products have been in short supply. Delays in receiving components would harm our ability to deliver our products on a timely basis.
In addition, because we expect to rely on purchase orders rather than long-term contracts with our
suppliers, we cannot predict with certainty our ability to procure components in the longer term. If we receive a smaller allocation of components than is necessary to manufacture products in
quantities sufficient to meet our customers' demand, those customers could choose to purchase competing products.

If we fail to predict our manufacturing requirements accurately, we could incur additional costs or experience manufacturing delays, which could reduce our gross margins or
cause us to lose sales.

We provide, and will continue to provide, forecasts of our demand to our contract manufacturers prior to the scheduled delivery of
products to our customers. If we overestimate our requirements, our contract manufacturer may have excess component inventory, which could increase our costs. If we underestimate our requirements, our
contract manufacturer may have an inadequate component inventory, which could interrupt the manufacturing of our products and result in delays in shipments and revenues. In addition, lead times for
materials and components that we order vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. We may also experience
shortages of components from time to time, which also could delay the manufacturing of our products or increase the costs of our products.

Our inability to obtain any third-party license required to develop new products and product enhancements could seriously harm our business, financial condition and results
of operations.

From time to time, we are required to license technology from third parties to develop new products or product enhancements.
Third-party licenses may not be available to us on commercially reasonable terms, or at all. Our inability to obtain any third-party license necessary to develop new products or product enhancements
could require us to obtain substitute technology of lower quality or performance standards, or at greater cost, which could seriously harm our business, financial condition and results of operations.

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Risks Relating to Ownership of our Common Stock

Two of our stockholders, Philip S. Sassower and Phoenix Venture Fund LLC, beneficially own as of May 15, 2010 in the aggregate approximately 49.6% of our
voting securities and thus have effective control over matters requiring stockholder approval.

One of our stockholders, 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 29.2% of our outstanding voting securities. In addition, Mr. Sassower, together
with other entities controlled by him, beneficially own approximately 20.4%, in the aggregate, of our outstanding voting securities. Thus, Phoenix Venture Fund and Mr. Sassower together control
approximately 49.6% of our outstanding voting securities. Accordingly, Phoenix Venture Fund and Mr. Sassower have the ability to exercise significant influence (and have effective control) over
matters generally requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, which could have the effect of delaying or preventing a
third party from acquiring control over us.

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

Holders of our Series A Preferred Stock, which include Phoenix Venture Fund and Mr. Sassower, have the right to block the
company from consummating a merger, consolidation, sale of substantially all of its assets or liquidation. Phoenix Venture Fund and Mr. Sassower together control approximately 71.2% 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 stockholders 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 stockholders. 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.

There may not be an active market for shares of our common stock, which may cause our shares to trade at a discount and may make it difficult for you to sell your shares.

Our common stock is listed on the Over-the-Counter Bulletin Board market, which is viewed by most investors as
a less desirable, and less liquid, marketplace. Trading in our common stock has been somewhat limited. There can be no assurance that an active trading market for our common stock will develop and
continue. As a result, you may find it more difficult to purchase, dispose of and obtain accurate quotations as to the value of our common stock.

In
addition, since the trading price of our common stock is less than $5.00 per share, trading in our common stock is also subject to the requirements of Rule 15g-9 of
the Exchange Act. Our common stock is also considered a penny stock under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, which defines a penny stock, generally, as any equity
security not traded on an

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exchange
or quoted on the Nasdaq SmallCap Market that has a market price of less than $5.00 per share. Under Rule 15g-9, brokers who recommend our common stock to persons who are
not established customers and accredited investors, as defined in the Exchange Act, must satisfy special sales practice requirements, including requirements that they:



The
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosures in connection with any trades involving a penny stock, including the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated with that market. Such requirements may severely limit the market liquidity of
our common stock and the ability of purchasers of our equity securities to sell their securities in the secondary market. For all of these reasons, an investment in our equity securities may not be
attractive to potential investors.

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 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 financing agreement with our senior lender, we are prohibited from paying cash dividends to holders of our common stock.

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Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

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

Item 3.    Legal Proceedings

On November 9, 2006, we issued a Statement of Claim against Deloitte & Touché LLP (which we refer
to as Deloitte) in the Ontario Superior Court of Justice. In the Statement of Claim, we have alleged negligence against Deloitte with respect to the auditing services provided to us in connection with
its audit in accordance with Canadian generally accepted accounting principles of our 2002, 2003 and 2004 audited financial statements. The Statement of Claim seeks damages in the amount of Cdn.
$4,070,000 for direct and indirect losses. On December 22, 2006, Deloitte filed an answer to the Statement of Claim. On March 28, 2008, Deloitte filed an amended defense and counterclaim
against us, seeking indemnification for damages, costs and expenses (including legal fees and disbursements and personnel time) allegedly incurred by Deloitte in responding to regulatory inquiries,
requests, reviews or investigations relating to, arising out of or associated with Deloitte's review or audit engagements for or during our fiscal years 2002, 2003 and 2004. We do not expect the
counterclaim to have a material adverse impact on our financial condition or results of operations.

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

Item 4.    (Removed and Reserved)

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". We have one class of common stock and three classes of
preferred stock. As of May 15, 2010, there were 286 holders of record of our common stock, and the closing price on the OTC Bulletin Board as of May 14, 2010 was $0.11. The following
table sets forth the high and low sales price of our common stock on the OTC

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Bulletin
Board for each quarterly period during the fiscal years ended March 31, 2010 and 2009 as quoted in U.S. dollars.

PERIOD

High

Low(US $)

(US $)Fiscal Year Ended March 31 2010:First Quarter


0.38


0.08Second Quarter


0.25


0.07Third Quarter


0.20


0.07Fourth Quarter


0.14


0.04Fiscal Year Ended March 31, 2009:First Quarter


0.52


0.27Second Quarter


0.37


0.16Third Quarter


0.24


0.06Fourth Quarter


0.13


0.07


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 financing agreement with our senior lender, we are prohibited from paying cash
dividends without the senior lender's prior written consent. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying
dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

During the three months ended March 31, 2010, we issued 309,092 shares of common stock to a consultant who we reasonably believe
is an "accredited investor," as such term is defined in Rule 501 under the Securities Act, in return for approximately $34,000 in investor relations services provided to us from
December 15, 2009 to April 14, 2010. The offer and issuance was made without registration under the Securities Act, or the securities laws of certain states, in reliance on the
exemptions provided by Section 4(2) of the Securities Act and Regulation D under the Securities Act and in reliance on similar exemptions under applicable state laws. No general
solicitation or general advertising was used in connection with the offering of the shares. We disclosed to the consultant that the common stock could not be sold unless they are registered under the
Securities Act or unless an exemption from registration is available, and the certificates representing the common stock included a legend to that effect.

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 on Form 10-K. 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 on Form 10-K.

General

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

Our
revenue is currently derived through the sale of our iX104 systems in the rugged, mobile tablet PC market. We believe this market is small relative to other rugged PC markets. We
therefore intend to grow our revenue by entering into other rugged PC markets through the development of new rugged, mobile computing systems. We have developed new products, including the next
generation of our iX104 tablet PC featuring, among other things, a dual core processor and a sunlight readable display, which became available in September 2008, as well as, the Armadillo System for
military markets, which became available in June 2009. In addition, we were developing a rugged, mobile notebook PC that requires further design modifications. While we continued to work on our rugged
notebook in the early part of fiscal year 2010, we ceased its development to reduce costs during this period of economic
malaise and devote our limited resources to our established core business of the iX104 family of rugged, mobile tablet PCs.

We
are dependent upon the market acceptance of our current generation of the iX104 tablet PC system. We believe the markets initial response to our iX104 has been favorable.
However, current global economic conditions have caused many companies to sharply reduce their technology spending and we are experiencing a slow-down in our business. During the three
months ended December 31, 2008, we took cost reduction actions in response to market conditions. We reduced our headcount by approximately 43% during that quarter, and in April 2009, we further
reduced our headcount by another 17%, setting our current number of employees at 38. In addition, we reduced our development spending which is now generally limited to products we expect to introduce
to the market in fiscal 2011.

Our
response to the current economic conditions was to significantly reduce our operating expenses and cash burn and maintain or attain sufficient revenue to be self funding. In the
difficult economic environment for fiscal 2010, our revenues declined approximately 3% when compared to fiscal 2009; however, our operating expenses and the net cash used by operating activities for
the year ended March 31, 2010 declined by approximately 46% and 69%, respectively, when compared to the year ended March 31, 2009. We believe we have positioned our operating expense
structure to enable us to become self funding in the future. Further, we continue to evaluate all other operating costs with a view toward further reducing our operating expenses.

Management
believes that if we can successfully penetrate the military markets with the Armadillo System we should expect to increase our future revenues.

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Critical Accounting Policies

Our consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K 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, 2010 and 2009
and for each of the years in the two year period ended March 31, 2010. On an ongoing basis, we evaluate our estimates, including those related to our revenue recognition, allowance for doubtful
accounts, inventory valuation, warranty reserves, tooling amortization, financial instruments, stock based compensation and income taxes. We base our estimates on historical experience and on various
other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates.

Our
critical accounting policies are as follows:

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

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

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.

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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 used by current management have not been required
to be adjusted based on actual results. Accordingly, while any change to the estimates could have a material impact, there have been no material corrections to originally provided amounts.

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

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

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

Recent Accounting Pronouncements

In May 2009, the FASB amended ASC 855, "Subsequent Events," effective for reporting periods ending after June 15, 2009, to
establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption
of the amendment did not have a material impact on our consolidated financial statements.

In
June 2009, the Codification was released, changing the way accounting standards are organized from a standards-based model (with thousands of individual standards) to a topically
based model (with roughly 90 topics). The 90 topics are organized by ASC number and are updated with an Accounting Standards Update ("ASU"). The ASU will replace accounting changes that historically
were issued as FASB Statements, FASB Interpretations, FASB Staff Positions, or other types of FASB standards. The FASB considers the ASU an update to the Codification but not as authoritative in its
own right. The Codification serves as the single source of nongovernmental authoritative U.S. GAAP for interim and

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annual
periods ending after September 15, 2009. Accordingly, all accounting references included in this report are provided in accordance with the Codification. Effective July 1, 2009,
we adopted the FASB Codification and its adoption did not have a material impact on our consolidated financial statements.

In
January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-01"Equity Topic 505Accounting for Distributions to
Shareholders with Components of Stock and Cash", which clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with
a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock
dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share ("EPS")). Those distributions should be accounted for and included in EPS calculations in accordance with
paragraphs 480-10-25- 14 and 260-10-45-45 through 45-47 of the FASB Accounting Standards codification. The
amendments in this Update also provide a technical correction to the Accounting Standards Codification. The correction moves guidance that was
previously included in the Overview and Background Section to the definition of a stock dividend in the Master Glossary. That guidance indicates that a stock dividend takes nothing from the property
of the corporation and adds nothing to the interests of the stockholders. It also indicates that the proportional interest of each shareholder remains the same, and is a key factor to consider in
determining whether a distribution is a stock dividend.

Results of Operations

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

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

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

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

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

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

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

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

Fiscal Year Ended March 31, 2010 vs. Fiscal Year Ended March 31, 2009

Revenue.Total revenue for the fiscal year ended March 31, 2010 was $21,940,000 as compared to $22,627,000 for the fiscal year
ended
March 31, 2009, a decrease of $687,000 or approximately 3%. The decrease in revenue was attributable to a decrease in unit sales of approximately 11% offset by an increase in our average
selling prices of approximately 8%. The decline in unit sales is principally attributable to the market and economic conditions during fiscal 2010. The increase in average selling prices was
principally due to a more favorable product mix in fiscal 2010 as compared to fiscal 2009. Revenue for the year ended March 31, 2009 includes the largest single order in our history which
accounted for over $2,650,000 or approximately 12% of our revenue. Due to its volume and unique customization, this single order had special pricing which accounted for the lower average selling price
during the year ended March 31, 2009.

We
operate in one segment, the sale of rugged mobile wireless Tablet PC computing systems. Approximately 72% of our revenue was derived from sales in the United States. No other country
outside of the United States accounted for more than 10% of our revenue during the year ended March 31, 2010. Canada was the only country outside of the United States that accounted for more
than 10% of our revenue during the year ended March 31, 2009 with approximately 21% of the total revenue. At March 31, 2010, there were two customers with a receivable balance that was
greater than 10% of the outstanding accounts receivables, Dycom Industries, Inc. and PSC GROUP, LLC, which accounted for 46% and 15% respectively. These receivables were collected
subsequent to our fiscal year end.

We
have a number of customers and in any year a single customer can account for a significant portion of our sales. For the fiscal year ended March 31, 2010, we had a customer
located in the United Stated who accounted for approximately 29% of our total revenue. For the fiscal year ended March 31, 2009, we had one customer located in Canada who accounted for
approximately 12% of our total revenue.

Cost of Revenue.Total cost of revenue for the year ended March 31, 2010 was $16,177,000 compared to $16,245,000 for the year ended
March 31, 2009, a decrease of $68,000 or approximately 0.4%. The slight decrease was primarily due to the decline in unit sales offset by an increase in average unit cost associated with the
product mix impact of our largest single order in fiscal 2009.

We
rely on a single supplier for the majority of our finished goods. At March 31, 2010 and 2009, we owed this supplier $1,117,000 and $1,294,000, respectively, which was recorded
in accounts payable and
accrued liabilities. The year to date inventory purchases and engineering services from this supplier at March 31, 2010 and 2009 were $9,697,000 and $11,539,000, respectively.

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Gross Profit.Total gross profit decreased by $619,000 to $5,763,000 (26.3% of revenue) for the year ended March 31, 2010 from
$6,382,000
(28.2% of revenue) for the year ended March 31, 2009. The decrease in gross profit as a percentage of revenue for the year ended March 31, 2010 as compared to the prior year was
primarily attributable to the increase in average unit cost arising from the product mix impact of our largest single order occurring in fiscal 2009.

Sales, Marketing and Support Expenses.Sales, marketing and support expenses for the year ended March 31, 2010 were $2,457,000
compared to
$4,041,000 for the year ended March 31, 2009. The $1,584,000 reduction, or approximately 39%, was in response to the current market and economic conditions. The reduction consisted primarily of
declines in headcount related costs of $1,120,000, lower marketing expenses of $179,000, reduced travel and entertainment expenses of $176,000 and a reduction in office expenses of $64,000 associated
with the lower head count.

Product Research, Development and Engineering Expenses.Product research, development and engineering expenses for year ended
March 31, 2010
were $2,710,000 as compared to $6,978,000 for the year ended March 31, 2009, a decrease of $4,268,000, or approximately 61%. Fewer new major product development activities in fiscal 2010 as
compared to the prior year accounted for the reductions in product development expenses. In our fiscal year ended March 31, 2009, our major development activities included the Armadillo System,
a rugged military tablet/dock system, as well as the next generation of our iX104 rugged tablet, C4, which we introduced to the market in September 2008, and a new rugged, mobile notebook PC. Other
product development activities in fiscal 2009 included new accessories such as our global positioning system and a vehicle economy dock. During the fiscal year ended March 31, 2010, our product
development focus was predominantly on the Armadillo System, which was completed in fiscal 2010, and to a lesser extent on the next generation of our iX104 rugged tablet, C5, and the rugged notebook
PC. Other expense reductions primarily consisted of declines in headcount related costs of $1,584,000 for the year ended March 31, 2010, attributable to a decrease in engineering staff
associated with fewer development projects and $2,684,000 in reductions in non-recurring engineering costs that were non-headcount related expenses for the year ended
March 31, 2010. A substantial portion of the non-headcount related expenses for the year ended March 31, 2009, were costs attributable to the development of a rugged, mobile
notebook PC, and included a one-time charge of $1,200,000 related to design changes for the notebook and increases in depreciation expense of $433,000, principally related
to development test chambers and other testing equipment. There were declines in other non-headcount related expenses of $1,140,000 reflecting lower development spend attributable to fewer
projects in fiscal 2010.

General Administration Expenses.General administration expenses for the year ended March 31, 2010 were $3,408,000 compared to
$5,351,000 for
the year ended March 31, 2009, a decrease of $1,943,000, or approximately 36%. Our legal expense for fiscal 2010 decreased by $660,000, which principally reflected a reduction in professional
fees associated with our litigation defense and litigation settlement costs. In fiscal 2009, we settled a dispute with a value added reseller ("Reseller") related to the Reseller's servicing of our
products from 2001 to 2004. We discontinued selling those products in 2004. Pursuant to the terms of the settlement, the Reseller was paid $100,000 in installments through June 15, 2009 and was
issued 1,334,000 shares of our common stock. Our warranty reserve for these products, included in accrued liabilities, was adequate to cover the cash payments and the $240,000 fair value of the issued
common stock. Legal defense fees that were in excess of the reserve in the amount of $207,000 were recorded as general administration expense. During fiscal 2009, we were also defendants in a patent
infringement claim. In April 2009, we entered into a settlement agreement with the plaintiff in exchange for a $16,000 cash payment and 2,000,000 shares of our Series C Preferred Stock. The
cash payment and fair market value of the issued shares of $170,000, assuming conversion into common stock, was recorded as general administration expense in fiscal 2009. The remainder of the legal
expense decrease was due to lower professional fees related to the legal defense. Excluding the decrease in legal expense, our general administration costs for fiscal 2010 declined by $1,283,000

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when
compared to fiscal 2009. The decrease principally consisted of lower headcount related costs of $480,000 arising from our cost reduction efforts, a decline in the allowance for doubtful accounts
of $311,000 attributable to favorable accounts receivable collections during fiscal 2010, a reduction in the upgrades and training related to our information systems of $208,000, reductions in various
corporate related expenses, including travel, rent and office expenses of $156,000 also attributable to our cost reduction efforts, a reduction in fixed assets depreciation of $92,000 and a decrease
in costs associated with our public filings of $36,000.

For
fiscal years 2010 and 2009, the fair value of employee stock-based compensation expense was $920,000 and $1,023,000, respectively. The decline in expense of $103,000 for fiscal
2010was principally due to declines attributable to the reduction in our headcount associated with the cost reduction initiatives, as well as lower Black-Scholes valuations of recent stock awards
arising from declines in the market value of our common stock. These declines were offset by increases in expense for options granted during the year ended March 31, 2010 and the value of
restricted share grants of $179,000 associated with salary reductions effective April 1, 2009. Stock compensation expense was recorded in the employee related functional classification.

Depreciation
and amortization expenses for fiscal years 2010 and 2009 were $511,000 and $944,000, respectively. The majority of our fixed assets are fully depreciated and there has been
an aggregate of $456,000 of fixed asset additions in the last two fiscal years, most of which were for marketing
demonstration units which are amortized over six months. In addition, fiscal 2009 included $260,000 related to product testing equipment used for the development of the rugged, mobile notebook PC,
which was expensed on an accelerated basis These factors account for the decline in depreciation and amortization expense in fiscal 2010 as compared to fiscal 2009. Depreciation and amortization
expense is recorded in the related functional classification.

Interest Expense.Interest expense for the year ended March 31, 2010 was $2,680,000 compared to $1,105,000 for the year ended
March 31,
2009. The increase of $1,575,000 was primarily attributable to increased borrowings in fiscal year 2010 as compared to fiscal year 2009. The issuance of senior secured subordinated promissory notes in
the aggregate principal amount of $3,210,000 in November 2009 (the "Senior Notes") and $4,090,000 of secured promissory notes at various dates beginning on September 5, 2008 through
November 9, 2009 and the timing of our standby letter of credit financing accounted for the majority of the increase in interest expense for the year ended March 31, 2010. The standby
letter of credit financing was established in June 2009 and was terminated in connection with the November 2009 Senior Notes financing. The increases in interest expense for the year ended
March 31, 2010 were primarily attributable to increases in non-cash charges for the amortization of values assigned to warrants issued with promissory notes and the standby letter
of credit of $867,000 for the year ended March 31, 2010. Included in these amounts was the recognition of $264,000 of unamortized deferred charges associated with the early termination of the
standby letter of credit. The interest on the Senior Notes and secured promissory notes increased by $469,000 for the year ended March 31, 2010 attributable to the increase in outstanding debt.
At March 31, 2009, there was $3,000,000 of secured promissory notes outstanding as compared to an aggregate of $7,300,000 of similar debt at March 31, 2010. The interest on the Senior
Notes and the secured promissory notes for the year ended March 31, 2010 was paid in kind with the issuance of an aggregate of 6,915,554 shares of common stock in July and October 2009 and
January and April 2010. The interest on the secured promissory notes for the year ended March 31, 2009 was paid in kind with the issuance of an aggregate of 2,045,323 shares of common stock in
January and April 2009. These non-cash related charges comprised approximately 77% of the interest expense for the year ended March 31, 2010 as compared to approximately 66% of the
interest expense for the year ended March 31, 2009. Also contributing to increases in interest expense for the year ended March 31, 2010 were increases in the amortization of deferred
financing costs, comprised primarily of commissions and legal fees, of $216,000. The average

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outstanding
balance of our working capital facilities increased during the year ended March 31, 2010 as compared to the year ended March 31, 2009, resulting in an increase in interest
expense of $23,000.

Other Expense.Other expense for the year ended March 31, 2010 was $77,000 compared to $124,000 for the year ended March 31,
2009.

Net Loss.The net loss for the year ended March 31, 2010 was $5,569,000 ($0.05 per share) compared to a net loss of $11,217,000
($0.15 per
share) for the year ended March 31, 2009. The decrease in fiscal 2010 in our net loss of $5,648,000 and loss per share, was primarily due to the cost reduction initiatives which resulted in a
reduction of approximately $7,795,000 of operating expenses. These operating expense reductions were offset by a decrease in gross profit of $619,000 and an increase in interest expense of $1,575,000.

Net Loss Attributable to Common Shareholders.Net loss attributable to common shareholders for the year ended March 31, 2010 was
$7,207,000
compared to $12,830,000 for the year ended March 31, 2009. 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, 2010 and 2009 were $1,638,000 and $1,613,000, respectively. The increase in dividends is attributable to the issuance of 2,000,000 shares of Series C
Preferred Stock in April 2009.

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 at least the end of our fiscal year ending March 31, 2011. As of
March 31, 2010, our working capital was $2.6 million and our cash and cash equivalents were $0.4 million. 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 $103.2 million.

Sources
of capital that are immediately available to us are through a new financing agreement with a specialty finance company to finance eligible accounts receivables with a maximum
limit of up to $4 million depending upon eligible assets, and our principal shareholder, Phoenix.

From
March 30, 2009 through July 13, 2009, we amended our revolving credit facility with a commercial bank six times to extend the maturity date of our borrowings under
that facility until August 14, 2009. We also reduced the maximum borrowings under our credit line from $8 million to $4 million, excluded inventory from our borrowing base and
arranged for our lender to provide us with up to $1 million of additional availability in excess of the borrowing base, which we referred to as non-formula loans, based on a
supporting irrevocable standby letter of credit issued by a commercial bank for the account of Philip Sassower, our Chairman and Chief Executive Officer, and his wife Susan Sassower.

On
September 15, 2009, we entered into a new agreement with the senior lender to replace the then existing loan and security agreement. Under the terms of the new agreement, we
borrowed against certain eligible U.S. and Canadian accounts receivable, as defined, up to a maximum $4,000,000. Borrowings bore interest at the bank's prime rate plus 3.42% per annum, subject to a
minimum monthly interest fee of $4,000. We were obligated to repay each loan advance on the earliest of the date on which the financed receivable payment was received or the date to which the financed
receivable became ineligible or 90 days past due. The maturity date of the new agreement was February 5, 2010.

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On
September 30, 2009, we raised $300,000 in a private placement with JAG Multi Investments LLC through the issuance of a secured demand note and warrants to purchase up to
1,500,000 shares of our common stock at $0.10 per share.

On
October 13, 2009, we raised $170,000 in a private placement with Philip Sassower, our Chairman and Chief Executive Officer, through the issuance of a secured demand note (the
"Sassower Demand Note") and warrants to purchase up to 850,000 shares of our common stock at $0.10 per share.

On
November 5, 2009, we entered into a note purchase agreement (the "Note Purchase Agreement") pursuant to which we could issue up to $3,300,000 of senior secured subordinated
promissory notes (the "Senior Notes") and warrants (the "Warrants") to purchase up to 33,000,000 shares of our common stock at an exercise price of $0.10 per share. Pursuant to the Note Purchase
Agreement, we issued Senior Notes in the aggregate principal amount of $3,210,000 and Warrants to purchase 32,100,000 shares of our common stock in two separate closings on November 5, 2009 and
November 9, 2009. The Senior Notes are due and payable in full on December 31, 2011 and bear interest at the rate of 10% per annum. Interest on the Senior Notes may be paid in cash or,
at our option, in shares of our common stock. The Senior Notes are secured by all of our assets. The indebtedness under the Senior Notes and the security interest granted to the holders of the Senior
Notes are subordinated to the rights and security interest of our senior lender, but are senior to the indebtedness held by the purchasers who purchased notes under our note purchase agreement, dated
September 5, 2008, as amended (the "Fall 2008 Agreement"), and note purchase agreement, dated as of February 27, 2009, as amended (the "Spring 2009 Agreement"). The Warrants issued to
the Senior Note purchasers are exercisable beginning on January 15, 2010 and expire on January 14, 2013.

Mr. Sassower
purchased $1,000,000 of the Senior Notes and Warrants to purchase 10,000,000 shares of common stock in the November 2009 private placement of Senior Notes. The Senior
Note and Warrant issued to Mr. Sassower were purchased with $830,000 in cash and the conversion of the Sassower Demand Note.

In
addition, on November 5, 2009, we and a majority-in-interest of the purchasers under the Fall 2008 Agreement and Spring 2009 Agreement agreed to extend
the maturity date of the secured subordinated promissory notes issued under the note purchase agreements from December 31, 2010 to December 31, 2011 and extend the expiration date of
warrants to purchase 40,090,000 shares of our common stock issued in connection with such notes from February 27, 2012 to January 14, 2013.

We
used a portion of the net proceeds from the November 2009 private placement of Senior Notes to repay $931,000 in indebtedness to our senior lender under non-formula loans,
and we entered into an amendment to the loan and security agreement with the senior lender to terminate our ability to borrow $1,000,000 in non-formula loans. In connection with the
amendment, the senior lender returned the $1,000,000 standby letter of credit used as collateral for such borrowings.

In
addition, on November 5, 2009, Philip S. Sassower and Susan Sassower reduced the total number of warrants issued to them in connection with the letter of credit reimbursement,
compensation and security agreement from 5,000,000 warrants to 1,400,000 warrants. In addition, on November 5, 2009, Mr. Sassower reduced the total number of warrants issued to him in
connection with the Sassower Demand Note from 850,000 warrants to 50,000 warrants. On November 5, 2009, JAG Multi Investments LLC also reduced the total number of warrants issued to it
in connection with a secured demand note in the principal amount of $300,000 issued to it on September 30, 2009 from 1,500,000 warrants to 150,000 warrants.

On
December 10, 2009, our wholly-owned subsidiary entered into an Accounts Receivable Purchasing Agreement (the "ARPA") with DSCH Capital Partners, LLC d/b/a Far West
Capital ("FWC"), a specialty finance company. Pursuant to the ARPA, FWC may purchase, in its sole

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discretion,
our eligible accounts receivable on a revolving basis up to a maximum of $4,750,000. Under the terms of the ARPA, FWC may purchase our eligible receivables with full recourse for the face
amount of such eligible receivables less a discount of 0.52%. In addition, we are required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC multiplied by the annual rate
ofThe Wall Street Journalprime lending rate plus 11.50%, which fees accrue daily. FWC retains 15% of the purchase price of the receivables as a
reserve amount.

The
ARPA also provides that FWC has the right to require us to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such receivable by the
account debtor, (b) if certain covenants, warranties or our representations with respect to such receivables are breached, (c) upon and during the continuance of an event of default
under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date. The ARPA has an initial term of one year with automatic
renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 150 days prior written notice or without prior notice upon and during the
continuance of an event of default.

The
ARPA contains standard representations, warranties, covenants, indemnities and releases for transactions of this type. We have guaranteed the obligations of our subsidiary under the
ARPA pursuant to the terms and provisions of a corporate guaranty and suretyship. In addition, pursuant to the ARPA, our obligations under the ARPA are secured by a first priority security interest on
all of our assets.

As
of June 2, 2010, there were no borrowings outstanding under the ARPA.

We
believe that cash flow from operations, together with borrowings under the ARPA and, if necessary, continued financial support from an affiliate of Phoenix will be sufficient to fund
our anticipated operations, working capital, capital spending and debt service for fiscal year 2011. 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 31,2010

2009(in thousands
of US dollars)Net cash used in operating activities

$
(1,927
)
$
(6,239
)Net cash used in investing activities


(214
)

(242
)Net cash provided by financing activities


1,736


6,542Cash and cash equivalents at year end


389


794


Net
cash used in operating activities in fiscal year 2010 was $1,927,000 as compared to $6,239,000 in fiscal year 2009, a decrease of $4,312,000, or approximately 69%. The decrease was
principally due to a decline in our net loss net of items not affecting cash of $5,917,000, due primarily to our reduction of our operating expenses by 46% combined with favorable reductions in
inventory levels of $1,000,000 and prepaid expenses and other assets of $1,146,000 offset by an unfavorable timing of accounts receivable billings and collections of $3,399,000 and unfavorable
reduction arising from the timing of accounts payable of $352,000.

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

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Net
cash provided by financing activities for the years ended March 31, 2010and 2009 was $1,736,000 and $6,542,000, respectively. Net cash provided by financing activities for the
year ended March 31, 2010 consists of net proceeds from the private placement issuances of Senior Notes, secured promissory notes and warrants of $3,148,000 plus aggregate proceeds from the
issuance of common stock through our employee stock purchase plan and a private placement of $85,000 less net repayments of $1,497,000 of our working capital credit facility. Net cash provided by
financing activities for the year ended March 31, 2009 consisted of net borrowings of $2,052,000 from our working capital credit facilities and net proceeds from private placement issuances of
secured promissory notes and common stock of $4,422,000, as well as proceeds from the exercise of stock options of $68,000.

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.

(a)   Evaluation of disclosure 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 Commission's rules and forms. Also to ensure that information required to be disclosed in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer to allow timely decisions regarding the required disclosure.

(b)   Management's report on internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our 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.

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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 our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial
statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Our
management assessed the effectiveness of our internal control over financial reporting as of March 31, 2010 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, 2010, our 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 our registered public accounting firm regarding internal control over financial reporting
since temporary rules of the SEC permit us to provide only management's report on this Annual Report on Form 10-K.

(c)   Changes in internal control over financial reporting.

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, 2010 that materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

Item 9B.    Other Information.

Our stockholders voted on five matters at our annual meeting of stockholders held on January 14, 2010. Our stockholders
(i) approved the election of Francis J. Elenio, F. Ben Irwin, Thomas F. Leonardis, Brian Usher-Jones, Philip Sassower, and Andrea Goren to our board of directors, (ii) ratified the
appointment of PMB Helin Donovan, LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2010, (iii) approved an amendment to our
Certificate of Incorporation to increase the number of shares of common stock authorized for issuance to 450,000,000 shares of common stock, (iv) approved an amendment to our Certificate of
Incorporation to increase the number of shares of preferred stock authorized for issuance to 150,000,000 shares of preferred stock and (v) adopted our 2009 Stock Incentive Plan. Voting
tabulations for the election of the above directors were as follows:

Name

Votes For

Votes WithheldFrancis J. Elenio


110,986,133


72,970F. Ben Irwin


110,986,133


60,970Thomas F. Leonardis


110,986,133


60,970Brian Usher-Jones


110,986,133


60,970Philip S. Sassower


110,986,133


792,838Andrea Goren


110,986,133


792,838


The
voting tabulation for the ratification of PMB Helin Donovan as our independent registered public accounting firm for the fiscal year ending March 31, 2010 was as follows:

Votes For

Votes Against

Abstentions

Unvoted113,040,337

15,737

353,522

0


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The voting tabulation for the approval of an amendment to our Certificate of Incorporation to increase the number of shares of common stock authorized for
issuance to 450,000,000 shares of common stock was as follows:

Votes For

Votes Against

Abstentions

Unvoted131,985,814

1,386,557

37,255

0


The
voting tabulation for the approval of an amendment to our Certificate of Incorporation to increase the number of shares of preferred stock authorized for issuance to 150,000,000
shares of preferred stock was as follows:

Votes For

Votes Against

Abstentions

Unvoted109,268,830

1,753,198

37,075

22,350,493


The
voting tabulation for the adoption of our 2009 Stock Incentive Plan was as follows:

Votes For

Votes Against

Abstentions

Unvoted108,533,219

2,452,634

73,250

22,350,493


Reference
is made to our Schedule 14A, dated November 25, 2009, containing a definitive Proxy Statement, which we distributed to our stockholders of record as of
November 23, 2009.

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,
2010:

Name

Age

Positions with our CompanyPhilip S. Sassower


70

Chairman of the Board of Directors and Chief Executive OfficerMark Holleran


52

President and Chief Operating OfficerMichael J. Rapisand


50

Chief Financial Officer and Corporate SecretaryBryan J. Bell


49

Vice President of EngineeringFrancis J. Elenio


44

DirectorAndrea Goren


42

DirectorBen Irwin


50

DirectorThomas F. Leonardis


65

DirectorBrian E. Usher-Jones


64

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 and Acting Chief Executive Officer of The Fairchild Corporation (NYSE: FA), a motorcycle accessories and aerospace parts and services company. On
March 18, 2009, The Fairchild Corporation and 61 subsidiaries filed a petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court, District of
Delaware. Mr. Sassower is co-manager of the managing member of Phoenix Venture Fund LLC, our principal shareholder.

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Mark Holleranhas served as our President and Chief Operating Officer since February 2006. Mr. Holleran served as our 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 joining us, 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 us, Mr. Bell was Vice President of Operations
at Sirific Wireless a developer of solutions for 3.5G multi-mode, multi-band mobile cellular and broadband data for notebook
computers, since February 2003. From October 2000 to February 2003, he was DSL Engineering Team Leader at Texas Instruments. From February 1997 to October 2000, Mr. Bell was the Vice President
and General Manager of the notebook computer business of Acer Advanced Labs, Inc.

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

Andrea Gorenhas been a director of our company since December 2004. Mr. Goren is a Managing Director of SG Phoenix LLC, a
private equity firm, and has served in that capacity since May 2003 and has been associated with Phoenix Enterprises LLC since January 2003. Prior to that, Mr. Goren served as Vice
President of Shamrock International, Ltd., a private equity firm, from June 1999 to December 2002. Mr. Goren is co-manager of the managing member of Phoenix Venture
Fund LLC, our principal shareholder.

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

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

Brian E. Usher-Joneshas been a director of our company since 1996. Since 1992, Mr. Usher-Jones has been self-employed
as a merchant banker. Mr. Usher-Jones is currently a director of Wireless Age

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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 our Treasurer and Interim Chief Financial Officer from August 1996 to November
1997 and again from August 2001 to December 2001.

There
are no family relationships between any of our directors or executive officers.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than ten percent (10%) of
a registered class of our equity securities to file reports of ownership and changes in ownership of our common stock and other equity securities with the SEC on a timely basis. 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 2010 fiscal year except for one late Form 4 filing for each of Mr. Sassower, Mr. Goren, Mr. Elenio,
Mr. Irwin, Mr. Leonardis and Mr. Usher-Jones.

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 our 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.

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Item 11.    Executive Compensation

Executive Compensation

Summary Compensation Table

The following table sets forth the compensation for our fiscal years ended March 31, 2010 and 2009 earned by or awarded to, as
applicable, our principal executive officer, principal financial officer and our other most highly compensated executive officers as of March 31, 2010. In this Annual Report on
Form 10-K we refer to such officers as our "named executive officers."

Name and Principal Position

Year

Salary
US($)

Bonus
US($)

Option
Awards
US($)(1)

Total
US($)Philip S. Sassower


2010








41,588
(3)

41,588Chief Executive Officer(2)


2009








38,710
(3)

38,710Mark Holleran


2010


250,000
(4)

90,232
(5)

244,989


585,221President and Chief Operating Officer


2009


250,000


113,385
(5)

337,281


700,666Michael J. Rapisand


2010


180,000
(6)




43,116


223,116Chief Financial Officer(7)


2009


180,000





67,145


247,145


(1)Option
award amounts included in this table reflect the compensation cost for the fiscal year ended, related to all options granted to the named executive
officer, calculated in accordance with FASB ASC Topic 718 and using a Black-Scholes valuation model.(2)Mr. Sassower
does not receive a salary in connection with his services as our Chief Executive Officer. Mr. Sassower is the Chairman of our
Board of Directors.(3)Mr. Sassower
was entitled to receive fees for fiscal years 2010 and 2009 in connection with being a member of our Board of Directors. For each year,
Mr. Sassower accepted options to purchase 150,000 shares of our common stock in lieu of such fees. Such amount includes those options.(4)Mr. Holleran
accepted 500,000 shares of our common stock in April 2010 in lieu of $50,000 of cash compensation for fiscal 2010. Mr. Holleran
surrendered 169,750 shares to us to satisfy income tax obligations.(5)Under
the terms of Mr. Holleran's Management by Objective (MBO) plan, in fiscal years 2010 and 2009 he had the opportunity to earn a cash bonus of up
to 100% of his base salary ($250,000) based on the achievement of revenue objectives. Mr. Holleran's bonuses in fiscal years 2010 and 2009 were based on his efforts in managing our sales team
and he did not earn any compensation under his MBO plans as the objectives were not achieved.(6)Mr. Rapisand
accepted 300,000 shares of our common stock in April 2010 in lieu of $30,000 of cash compensation for fiscal 2010. Mr. Rapisand
surrendered 120,450 shares to us to satisfy income tax obligations.(7)Under
the terms of Mr. Rapisand's MBO plan in fiscal years 2010 and 2009, he had the opportunity to earn a cash bonus of up to 40% of his base salary
($72,000) based on his achievement of revenue objectives. The objectives under Mr. Rapisand's MBO plan were not achieved in fiscal years 2010 and 2009 and no bonus was earned.




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:

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base
salary; an annual cash incentive bonus; and equity-based compensation. In addition, we provide our executives with benefits that are generally available to our salaried employees.

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

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.

Our
executive officers who receive a cash salary accepted shares of common stock in lieu of cash for reductions in cash salaries in fiscal 2010.

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 5 and 7 in the summary compensation table for fiscal years 2010 and 2009.

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.

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

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

With
respect to newly hired employees, our practice is typically to make stock grants at the first meeting of our board of directors following such employee's hire date. We do not have
any program, plan or practice to time stock options grants with the release of material non-public information. We 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
April 30, 2009, our board of directors granted options to executive officers to purchase an aggregate of 3,084,731 shares of common stock, to our other employees to purchase an
aggregate of 1,780,406 shares of common stock and to our directors to purchase an aggregate of 496,478 shares of common stock. The options are exercisable for five years, have an exercise price of
$0.10 per share and vest annually in equal installments over three years beginning on the first anniversary of the date of grant. The award was intended to adjust the equity compensation for dilution
and to align the equity compensation of certain employees with market levels based upon the same market study.



On June 30, 2006, we entered into an employment agreement with Mark Holleran, our President and Chief Operating Officer. The
agreement was for a period of two years, and is renewable for additional one year periods. It was renewed in June 2010 for an additional year. In consideration for his services, during the term
Mr. Holleran is entitled to receive a base salary of $250,000 per year of which $200,000 is paid in cash and $50,000 is paid through a restricted stock award, 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 he received
vested 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 stockholders 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.

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



Mark Holleran, our President and Chief Operating Officer, has a provision in his employment agreement that gives him severance benefits
if his employment is terminated without cause. In addition, his employment agreement provides for the acceleration of his then unvested options following a change in control of our company.
Mr. Holleran will also receive a transaction bonus if our company is sold during the term of his employment. The amount of the transaction bonus will be based upon the total consideration
received by our stockholders 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% of the pool, our Vice President of Engineering, Bryan J. Bell, will receive 5% of the pool and the remaining 15% of the pool will be distributed among our
senior management team as determined by our board of directors.

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



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



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



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



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

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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.

Outstanding Equity Awards at 2010 Fiscal Year-End

The following table sets forth the equity awards outstanding at March 31, 2010 for each of the named executive officers.

Name

Number of
Securities
Underlying
Unexercised
Options (#)

Equity Incentive
Plan Awards
Number of
Securities
Underlying
Unearned Options
(#)

Option
Exercise
Price ($)

Option
Expiration
DatePhilip S. Sassower


150,000




$
0.93


06/21/2010Chief Executive Officer


200,000




$
0.44


08/29/2011


39,946
(1)
$
0.10


04/30/2014150,000




$
0.15


06/10/2014150,000




$
0.15


06/10/2014Mark Holleran


113,334




$
0.93


06/21/2010President and Chief Operating Officer


1,200,000




$
0.38


06/30/20111,566,668




$
0.44


08/29/20111,244,443


622,221
(2)
$
0.50


12/19/2012


1,886,992
(3)
$
0.10


12/19/2012Michael J. Rapisand


660,554




$
0.44


08/29/2011Chief Financial Officer





568,381
(4)
$
0.10


04/30/2014


(1)13,316
options vest on April 30, 2010, 13,315 options vest on April 30, 2011 and 13,315 options vest on April 20, 2012.(2)622,221
options vest on December 19, 2010.(3)628,997
options vest on April 30, 2010, 628,997 options vest on April 30, 2011 and 628,998 options vest on April 20, 2012.(4)189,460
options vest on April 30, 2010, 189,460 options vest on April 30, 2011 and 189,461 options vest on April 20, 2012.




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, 2010, 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

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us
for cause or voluntary by Mr. Holleran, he is entitled to receive any earned or accrued, but unpaid, base compensation and bonus and all accrued but unused vacation days through the
termination date.

Payments and Benefits

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

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

$
101,809
(5)Benefits and Perquisites:

$
95,738
(6)


(1)For
purposes of Mr. Holleran's employment agreement, "cause" includes, among other things, (i) his willful failure to perform his duties under
his employment agreement, (ii) any intentional act of fraud, embezzlement or theft involving more than a nominal amount of our assets or property, (iii) any material damage to our
assets, business or reputation resulting from his intentional or grossly negligent conduct, (iv) his intentional wrongful disclosure of material confidential information, (v) his
intentional engagement in competitive activity which would constitute a breach of his employment agreement and/or his duty of loyalty, (vi) his intentional breach of any material employment
policy, or (vii) his ineligibility for any reason to work lawfully in the United States for a period of four consecutive months.(2)Assumes
that there is no earned but unpaid base salary at the time of termination.(3)Assumes
that there is no earned but unpaid bonus at the time of termination.(4)Mr. Holleran
is entitled to receive his base salary in effect immediately prior to his termination of employment for a period of
12-months commencing on the termination date, subject to reduction by any amounts he earns during the 12-month period.(5)Under
the terms of Mr. Holleran's employment agreement, he is entitled to receive as severance an amount equal to the average of his performance
bonuses paid to him during the two calendar years preceding his termination.(6)Represents
payments of $1,315 a month to pay the cost of Mr. Holleran's continued participation in our group health plans under COBRA during the
12-month severance period and a maximum of $80,000 which Mr. Holleran is entitled to be reimbursed for his relocation costs back to Canada.




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

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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, 2010, the last business day of our 2010
fiscal year.

Name

Transaction
Bonus Pool(1)

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



(2)

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

$
472,319
(4)

(3
)Michael J. RapisandChief Financial Officer

$
283,391
(5)

(3
)


(1)Our
named executive officers (except for Philip S. Sassower) are eligible to participate in a transaction bonus pool designed to incent and reward our
executives who are employed by us upon the sale of our company. Under the transaction bonus pool, an amount equal to 5% of the per share sales consideration up to $0.34 and 10% of the remaining per
share consideration received through such sale, in each case after deducting the transaction expenses, will be allocated to the transaction bonus pool. For example, if a sale of our company is
completed and each holder of our common stock will receive $1.00 per share after transaction expenses, the transaction bonus pool will be equal to 5% on the first $0.34 per share and 10% on the
balance per share ($0.66 per share). The participation in the transaction bonus pool will be allocated as follows: 50% of the pool to Mark Holleran, our President and Chief Operating Officer, 30% of
the pool to Michael J. Rapisand, our Chief Financial Officer, 5% of the pool to Bryan J. Bell, our Vice President of Engineering and the balance to our then current senior management team, as
determined by our board of directors, in consultation with Mr. Holleran.(2)Mr. Sassower
is not eligible to participate in the transaction bonus pool.(3)Pursuant
to the terms of our Amended Plan, all outstanding options shall immediately vest upon the occurrence of a change of control of our company.
Assuming a market price of $0.085 per share, which represents the closing price of our common stock on March 31, 2010 as reported by the OTC Bulletin Board, the exercise price of all of the
options held by such executive officer would be above the market price and thus the accelerated options would have a value of nil.(4)Assuming
(i) a per share sales price of $0.085, which represents the closing price of our common stock on March 31, 2010 as reported by the
OTC Bulletin Board and (ii) transaction costs of 10% of the total proceeds, the aggregate transaction bonus pool would be $472,260. Mr. Holleran would be entitled to receive 50% of the
transaction bonus pool.(5)Assuming
(i) a per share sales price of $0.085, which represents the closing price of our common stock on March 31, 2010 as reported by the
OTC Bulletin Board, and (ii) transaction costs of 10% of the total proceeds, the aggregate transaction bonus pool would be $283,356. Mr. Rapisand would be entitled to receive 30% of the
transaction bonus pool.


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

40

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Table of Contents

cash
and equity compensation, is determined, and remains subject to adjustment, by our board of directors. For the fiscal years ended March 31, 2010 and 2009, we did not pay our board of
directors their cash fees to attend meetings. Our board of directors elected to accept stock options in lieu of cash payments. On June 10, 2009, each director was granted options to purchase
150,000 shares of common stock at an exercise price of $0.15 per share, for each of the fiscal years 2010 and 2009, which options for fiscal 2009 were fully vested as of the date of grant and are
exercisable for five years, and options for fiscal 2010 were fully vested on March 31, 2010 and are exercisable for five years.

Fiscal Year 2010 Director Compensation

The following table sets forth compensation information for our directors who are not named executive officers for our fiscal year
ended March 31, 2010.

Name

Aggregate
Option
Awards
Outstanding
(#)

Option
Awards ($)

Total ($)Brian E. Usher-Jones


568,480


40,442


40,442Andrea Goren


769,839


41,588


41,588Thomas F. Leonardis


769,839


41,588


41,588Frank Elenio


568,480


50,085


50,085Ben Irwin


150,000


16,363


16,363


There
were no fees paid to our directors in cash during the fiscal year ended March 31, 2010.

2009 Stock Incentive Plan

On July 28, 2009, we adopted the 2009 Stock Incentive Plan, which we refer to as the 2009 Stock Plan. The 2009 Stock Plan
provides for equity-based awards in the form of incentive stock options and non-statutory options, restricted shares, stock appreciation rights and restricted stock units. Awards are made
to selected employees, directors and consultants to promote stock ownership among award recipients, to encourage their focus on strategic long-range corporate objectives, and to attract
and retain exceptionally qualified personnel. Up to 25.1 million shares of common stock may be issued under the 2009 Stock Plan, which represents approximately 10% of our total issued and
outstanding shares of common and convertible preferred stock. The 2009 Stock Plan became effective retroactively as of June 10, 2009 upon the shareholder approval on January 14, 2010.

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

Employee Stock Purchase Plan

On November 5, 2008, we adopted the Employee Stock Purchase Plan, which we refer to as the ESPP. The ESPP establishes a series
of offering periods during which most of our employees have an opportunity to purchase our common stock through payroll deductions. To be eligible, an employee must have completed one year of
employment and regularly work over 20 hours per week and over 5 months per year. Prior to each offering period, a participant elects to have between 1% and 20% of his or her base
compensation set aside for the purchase of the shares upon purchase dates, which occur at the end of each calendar quarter. The purchase price is 95% of the fair market value per share of our common
stock on the start date of the offering period.

41

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Table of Contents

The
initial offering period began on January 1, 2009 and terminated on March 31, 2010 and had a purchase price of $0.096 per share. The offering period for the fiscal year
2011 began on April 1, 2010 and will terminate on March 31, 2011 and has a purchase price of $0.08075 per share.

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

Amended Stock Option Plan

We also maintain an amended and restated stock option plan (which we refer to as the Amended Share Option Plan), the purpose of which
was 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. This plan was superseded by the 2009 Stock Incentive Plan and will continue until the expiration of current outstanding options
issued under the plan.

Pursuant
to the Amended Share Option Plan, our board of directors was 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 was
in no circumstances be lower than the market price of our common stock at the date the option is granted. Options granted under the Amended Share Option Plan are generally non-assignable,
are exercisable for a term not exceeding 10 years and generally vest over a three year period in three annual installments, as determined by our board of directors.

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

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

In
July 2009, our board of directors adopted the 2009 Stock Plan. Accordingly, no additional options will be issued under the Amended Share Option Plan. The number of shares issuable
under the Amended Share Option Plan is limited to 16,301,615 shares, which represent the total number of shares covered by options outstanding on the date the 2009 Stock Plan was adopted. At
March 31, 2010, 15,350,892 shares are covered by options outstanding.

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Table of Contents

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, 2010.

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


17,100,892

$
0.32


23,350,000Equity compensation plans not approved by security holders


N/A


N/A


Total


17,100,892

$
0.32


23,350,000


43

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Table of Contents

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of our capital stock as of May 15, 2010 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 C
Preferred Stock
Beneficially OwnedCommon Stock
Beneficially OwnedNumber
of
Shares of
Series A
Preferred
Stock



Number
of
Share of
Series B
Preferred
Stock



Number
of
Shares of
Series C
Preferred
StockName of Beneficial Owner(1)

Number
of
Shares of
Common
Stock(2)

Percentage
of
Class(3)

Percentage
of
Class(4)

Percentage
of
Class(5)

Percentage
of
Class(6)

Percentage
of
Combined
Classes(7)Philip S. Sassower


36,322,342
(8)

23.0
%

13,676,370
(23)

21.8
%







1,000,000


5.9
%

20.4
%Mark Holleran


5,409,213
(9)

3.9
%



















2.1
%Michael J. Rapisand


1,300,918
(10)

1.0
%

147,059


*














*Bryan J. Bell


1,353,132
(11)

*




















*Brian E. Usher-Jones


936,577
(12)

*




















*Andrea Goren


4,655,670
(13)

3.4
%













200,000
(26)

1.2
%

1.9
%Thomas F. Leonardis


689,946
(14)

*




















*Frank Elenio


456,160
(15)

*




















*Ben Irwin


150,000
(16)






















Phoenix Venture Fund LLC


30,371,585
(17)

21.0
%

31,032,014
(24)

49.4
%







3,320,000


19.4
%

29.2
%110 East 59th StreetNew York, NY 10022Alex and James Goren


17,394,419
(18)

12.0
%

4,357,708
(25)

6.9
%







800,000
(27)

4.7
%

9.3
%150 East 52nd StreetNew York, NY 10022JAM Capital Assoc. LLC


5,082,604
(19)

3.7
%

1,130,137


1.8
%







1,000,000


5.9
%

3.1
%112 W 56thNew York, NY 10019William Freas


1,475,866


1.1
%







2,941,177


35.3
%







2.2
%c/o Joseph Gunnar & Co.30 Broad StreetNew York, NY 10004James J O'Donnell


5,133,154
(20)

3.7
%

780,655


1.2
%







900,000


5.3
%

2.9
%845 UN PlazaNew York, NY 10017Keith Guenther


2,316,517
(21)

1.7
%













840,000


4.9
%

1.3
%25391 CommercenterDr Ste 200 Lake Forest,CA 92630Harmir Realty Co


924,262


0.7
%













1,070,000


6.3
%

*12 E 49thNew York, NY 10017Fifty-Ninth Street Investors LLC


651,391


*














1,000,000


5.9
%

*110 E 59th StreetNew York, NY 10022Ross Irvine


541,223


*








1,000,000


12.0
%







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


169,061


*








500,000


6.0
%







*21 Ravranet RdLisburn, Country Atrium BT27 5NBAll directors and executiveofficers as a group(10 persons)(22)


47,613,958


28.5
%

13,823,429


22.0
%













23.8
%


*Represents
less than 1% of class or combined classes.(1)Except
as otherwise indicated above, the address of each shareholder identified is c/o Xplore Technologies Corp., 14000 Summit Drive, Suite 900,
Austin, Texas 78728. Except as indicated in the other footnotes to this table, each person named in this table has sole voting and investment power with respect to all shares of stock beneficially
owned by that person.


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Table of Contents

(2)Options
and warrants exercisable within 60 days of May 15, 2010 are deemed outstanding for the purposes of computing the percentage of shares
owned by that person, but are not deemed outstanding for purposes of computing the percentage of shares owned by any other person.(3)Based
on 134,081,695 shares of common stock issued and outstanding as of May 15, 2010.(4)Based
on 62,873,781 shares of Series A Preferred Stock issued and outstanding as of May 15, 2010 that is convertible into common stock at a
conversion ratio of 1.34.(5)Based
8,334,982 shares of Series B Preferred Stock issued and outstanding as of May 15, 2010 that are convertible into common stock at a
conversion ratio of 1.33.(6)Based
17,074,000 shares of Series C Preferred Stock issued and outstanding as of May 15, 2010 that are convertible into common stock at a
conversion ratio of 1.25.(7)Based
on 134,081,695 shares of common stock, 62,873,781 shares of Series A Preferred Stock, convertible into 84,420,625 shares of common stock,
8,334,982 shares of Series B Preferred Stock, convertible into 11,113,031shares of common stock, and 17,074,000 shares of Series C Preferred Stock, convertible into 21,342,500 shares of
common stock, issued and outstanding as of May 15, 2010.(8)Includes
5,691,989 shares of common stock owned of record by Phoenix Enterprises Family Fund, LLC, an entity controlled by Mr. Sassower,
7,892,500 shares of common stock that Phoenix Enterprises Family Fund LLC has the right to acquire under outstanding warrants exercisable within 60 days after May 15, 2010,
1,450,000 shares of common stock that Mr. Sassower has the right to acquire under an outstanding warrant exercisable within 60 days after May 15, 2010, 689,946 shares of common
stock that Mr. Sassower has the right to acquire under outstanding options exercisable within 60 days after May 15, 2010, 3,660,000 shares of common stock that Mr. Sassower
has the right to control under outstanding warrants exercisable within 60 days after May 15, 2010, owned of record by SG Phoenix LLC, an entity in which Mr. Sassower and
Mr. Goren share the voting and dispositive power with respect to these shares, and 3,406,962 shares of common stock owned of record by The Philip S. Sassower 1996 Charitable Remainder Annuity
Trust. Does not include 76,186,815 shares of common and preferred stock beneficially owned by Phoenix Venture Fund LLC, in which Mr. Sassower and Mr. Goren are the
co-managers of the managing member. Mr. Sassower disclaims any beneficial ownership of the shares held by Phoenix Venture Fund LLC.(9)Includes
4,753,442 shares of common stock that Mr. Holleran has the right to acquire under outstanding options exercisable within 60 days
after May 15, 2010.(10)Includes
850,014 shares of common stock that Mr. Rapisand has the right to acquire under outstanding options exercisable within 60 days after
May 15, 2010.(11)Includes
1,043,120 shares of common stock that Mr. Bell has the right to acquire under outstanding options exercisable within 60 days after
May 15, 2010.(12)Includes
522,827 shares of common stock that Mr. Usher-Jones has the right to acquire under outstanding options exercisable within 60 days
after May 15, 2010.(13)Includes
689,946 shares of common stock that Mr. Goren has the right to acquire under outstanding options exercisable within 60 days after
May 15, 2010, 250,000 common shares that Mr. Goren has the right to acquire under outstanding warrant exercisable within 60 days after May 15, 2010, owned of record by
Andax LLC, in which Mr. Goren is the manager, and 3,660,000 common shares that Mr. Goren has the right to acquire under outstanding warrants exercisable within 60 days
after May 15, 2010, owned of record by SG Phoenix LLC, an entity in which Mr. Sassower and Mr. Goren share the voting and dispositive power with respect to these shares.
Does not include 76,186,815 shares of common and preferred stock beneficially owned by Phoenix Venture Fund LLC, in which Mr. Sassower and Mr. Goren are the
co-managers of the managing member. Mr. Goren disclaims any beneficial ownership of the shares held by Phoenix Venture Fund LLC.(14)Includes
689,946 shares of common stock that Mr. Leonardis has the right to acquire under outstanding options exercisable within 60 days
after May 15, 2010.(15)Includes
456,160 shares of common stock that Mr. Elenio has the right to acquire under outstanding options exercisable within 60 days after
May 15, 2010.(16)Includes
150,000 shares of common stock that Mr. Irwin has the right to acquire under outstanding options exercisable within 60 days after
May 15, 2010.(17)Includes
10,340,000 shares of common stock that Phoenix Venture Fund LLC has the right to acquire under outstanding warrants exercisable within
60 days after May 15, 2010. Voting and investment power over these shares is held equally by Philip Sassower and Andrea Goren. Messrs. Sassower and Goren disclaim any beneficial
ownership of the shares held by Phoenix Venture Fund LLC.(18)Consists
of 4,791,992 shares of common stock owned of record by JAG Multi Investment LLC, 11,042,500 shares of common stock that JAG Multi
Investment LLC has the right to acquire under outstanding warrants exercisable within 60 days after May 15, 2010 and 1,559,927 shares of common stock owned of record by Goren
Brothers LP. Voting and investment power over these shares is held equally by Alex Goren and James Goren.(19)Includes
2,795,000 shares of common stock that JAM Capital Associates LLC has the right to acquire under outstanding warrants exercisable within
60 days after May 15, 2010.(20)Includes
3,200,000 shares of common stock that James O'Donnell has the right to acquire under outstanding warrants exercisable within 60 days after
May 15, 2010.


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Table of Contents

(21)Includes
1,000,000 shares of common stock that Keith Guenther has the right to acquire under outstanding warrants exercisable within 60 days after
May 15, 2010.(22)Includes
9,845,401 shares of common stock our directors and executive officers have the right to acquire under outstanding options exercisable within
60 days after May 15, 2010 and 23,252,500 shares of common stock our directors and executive officers have the right to acquire under outstanding warrants exercisable within
60 days after May 15, 2010. Does not include 76,186,815shares of common and preferred stock beneficially owned by Phoenix Venture Fund LLC, in which Philip S. Sassower and Andrea
Goren are the co-managers of the managing member. Mr. Sassower and Mr. Goren each disclaim any beneficial ownership of the shares held by Phoenix Venture Fund LLC.(23)Includes
5,171,847 shares of Series A Preferred Stock owned of record by Phoenix Enterprises Family Fund, LLC and 3,079,546 shares of
Series A Preferred Stock owned of record by The Philip S. Sassower 1996 Charitable Remainder Annuity Trust, entities controlled by Mr. Sassower. Does not include 31,032,014 shares of
Series A Preferred Stock beneficially owned by Phoenix Venture Fund LLC, in which Mr. Sassower is the co-manager of the managing member. Mr. Sassower disclaims
any beneficial ownership of the shares held by Phoenix Venture Fund LLC.(24)Voting
and investment power over these shares is held equally by Philip Sassower and Andrea Goren. Messrs. Sassower and Goren disclaim any
beneficial ownership of the shares held by Phoenix Venture Fund LLC.(25)Consists
of 3,259,723 shares of Series A Preferred Stock owned of record by JAG Multi Investment LLC and 1,097,985 shares of Series A
Preferred Stock owned of record by Goren Brothers LP. Voting and investment power over these shares is held equally by Alex Goren and James Goren.(26)Consists
of 200,000 shares of Series C Preferred Stock owned of record by Andax LLC, in which Mr. Goren is the manager.(27)Consists
of 800,000 shares of Series C Preferred Stock owned of record by JAG Multi Investment LLC. Voting and investment power over these
shares is held equally by Alex Goren and James Goren.


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

Certain Relationships and Related Transactions

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

On
May 29, 2009, we entered into the twelfth amendment to our revolving credit facility with our commercial lender at the time. Pursuant to the Twelfth Amendment, among other
things, we arranged for our commercial lender to provide up to $1 million of additional availability in excess of our borrowing base, based on a supporting irrevocable standby letter of credit
issued by a bank (the "Issuing Bank"), for the account of Philip Sassower, our Chairman and Chief Executive Officer, and Susan Sassower, the wife of Philip Sassower (the "Supporting Letter of Credit
Applicants") in favor of the commercial lender, in the amount of $1,000,000 (the "Supporting Letter of Credit").

In
order to induce the Supporting Letter of Credit Applicants to cause the Issuing Bank to issue the Supporting Letter of Credit, we entered into the Credit Reimbursement, Compensation
and Security Agreement, dated as of May 29, 2009 (the "Letter of Credit Agreement"), with the Supporting Letter of Credit Applicants whereby we agreed to (i) reimburse the Supporting
Letter of Credit Applicants for all costs and expenses incurred by the Supporting Letter of Credit Applicants in connection with the issuance of the Supporting Letter of Credit and the entry into the
Letter of Credit Agreement and the Twelfth Amendment, (ii) reimburse the Supporting Letter of Credit Applicants for all payments made by the Supporting Letter of Credit Applicants to the
Issuing Bank in connection with any drawings made our lender under the Supporting Letter of Credit; (iii) provide certain compensation to the Supporting Letter of Credit Applicants in
connection with the issuance of the Supporting Letter of Credit, including the issuance by us to the Supporting Letter of Credit Applicants of a three-year warrant to purchase 5,000,000
shares of our common stock at an exercise price of $0.10 per share; and (iv) grants to the Supporting Letter of Credit Applicants a security interest in all of our assets to secure our
obligations to the Supporting Letter of Credit Applicants. The security interest granted by us to the Supporting Letter of Credit Applicants is subordinated to the rights and security

46

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Table of Contents

interest
of our commercial lender under the Loan Agreement and senior to the rights and security interest of the holders of the Fall 2008 Agreement dated, as amended and the Spring 2009 Agreement
(collectively, the "Note Purchasers"). Upon an event of default, as set forth in the Letter of Credit Agreement, the Supporting Letter of Credit Applicants could exercise all remedies permitted by the
Letter of Credit Agreement or at law or in equity, subject to the subordination agreement with our commercial lender.

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

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

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

On
September 30, 2009, we raised $300,000 in a private placement with JAG Multi Investments LLC through the issuance of a secured demand note and warrants to purchase up to
1,500,000 shares of our common stock at $0.10 per share.

On
October 13, 2009, we raised $170,000 in a private placement with Philip Sassower, our Chairman and Chief Executive Officer, through the issuance of a secured demand note (the
"Sassower Demand Note") and warrants to purchase up to 850,000 shares of our common stock at $0.10 per share.

On
November 5, 2009, we entered into a note purchase agreement (the "Note Purchase Agreement") pursuant to which we could issue up to $3,300,000 of senior secured subordinated
promissory notes (the "Senior Notes") and warrants (the "Warrants") to purchase up to 33,000,000 shares of our common stock at an exercise price of $0.10 per share. Pursuant to the Note Purchase
Agreement, we issued Senior Notes in the aggregate principal amount of $3,210,000 and Warrants to purchase 32,100,000 shares of our common stock in two separate closings on November 5, 2009 and
November 9, 2009. The Senior Notes are due and payable in full on December 31, 2011 and bear interest at the rate of 10% per annum. Interest on the Senior Notes may be paid in cash or,
at our option, in shares of our common stock. The Senior Notes are secured by all of our assets. The indebtedness under the Senior Notes and the security interest granted to the holders of the Senior
Notes were subordinated to the rights and security interest of our senior lender at the time, but are senior to the indebtedness held by the purchasers who purchased notes under the Fall 2008
Agreement, and the Spring 2009 Agreement. The Warrants issued to the Senior Note purchasers are exercisable beginning on January 15, 2010 and expire on January 14, 2013.

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Table of Contents

Mr. Sassower purchased $1,000,000 of the Senior Notes and Warrants to purchase 10,000,000 shares of common stock in the November 2009 private placement of
Senior Notes. The Senior Note and Warrant issued to Mr. Sassower were purchased with $830,000 in cash and the conversion of the Sassower Demand Note.

In
addition, on November 5, 2009, we and a majority-in-interest of the purchasers under the Fall 2008 Agreement and Spring 2009Agreement, including
Phoenix, agreed to extend the maturity date of the secured subordinated promissory notes issued under the note purchase agreements from December 31, 2010 to December 31, 2011 and extend
the expiration date of warrants to purchase 40,090,000 shares of our common stock issued in connection with such notes from February 27, 2012 to January 14, 2013.

In
addition, on November 5, 2009, Philip S. Sassower and Susan Sassower reduced the total number of warrants issued to them in connection with the letter of credit reimbursement,
compensation and security agreement from 5,000,000 warrants to 1,400,000 warrants. In addition, on November 5, 2009, Mr. Sassower reduced the total number of warrants issued to him in
connection with the Sassower Demand Note from 850,000 warrants to 50,000 warrants. On November 5, 2009, JAG Multi Investments LLC also reduced the total number of warrants issued to it
in connection with a secured demand note in the principal amount of $300,000 issued to it on September 30, 2009 from 1,500,000 warrants to 150,000 warrants.

At
March 31, 2010, outstanding promissory notes to Phoenix were $3,700,000. For the years ended March 31, 2010 and 2009, interest expense of $340,000 and $121,000,
respectively, was recognized and paid through the issuance of 3,754,896 and 1,613,212, respectively, shares of our common stock issued quarterly.

Director Independence

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

Item 14.    Principal Accounting Fees and Services.



Fee Category

Fiscal
Year 2010

% of
Total

Fiscal
Year 2009

% of
TotalAudit Fees(1)

$
126,000


95
%
$
129,950


100
%Audit-Related Fees(2)








Tax Fees

$
7,000


5
%

All Other Fees








Total Fees

$
134,000


100
%
$
129,950


100
%


(1)Audit
Fees consist of amounts for professional services performed for the audit of our annual financial statements and review of quarterly financial
statements, and services that are normally provided in connection with statutory and regulatory filings or engagements. PMB Helin Donovan are our current auditors and performed the audits of our
annual consolidated financial statements for both of the years ended March 31, 2010 and 2009 and have fees of $126,000 and $129,950, respectively.


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Table of Contents

(2)No
fees were paid to PMB Helin Donovan for assurance and related services reasonably related to the performance of the audit or review of our quarterly
consolidated financial statements, other than Audit Fees, during the two years ended March 31, 2010.




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 tax fees paid to PMB Helin Donovan for fiscal
years 2010 and 2009 were approved by our audit committee.

PART IV

Item 15.    Exhibits, Financial Statement Schedules.

(1)   Financial Statements

Index to Consolidated Financial Statements



Annual Financial StatementsReport of Independent Registered Public Accountants

F-2Consolidated Balance Sheets as of March 31, 2010 and 2009

F-3Consolidated Statements of Loss for the years ended March 31, 2010 and 2009

F-4Consolidated Statement of Stockholder's Deficit for the years ended March 31, 2010 and 2009

F-5Consolidated Statements of Cash Flows for the years ended March 31, 2010 and 2009

F-6Notes to the Consolidated Financial Statements

F-7


(2)   Financial Statement Schedules:



(3)   Management Contract or Compensatory Plan:

See Index to Exhibits. Each of the following Exhibits described on the Index to Exhibits is a management contract or compensatory plan: Exhibits 10.27
through 10.30.

See
Index to Exhibits.



49

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Table of Contents

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 9th day of June 2010.

XPLORE TECHNOLOGIES CORP.By:

/s/ MICHAEL J. RAPISANDName:

Michael J. RapisandTitle:

Chief Financial Officer


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

/s/ PHILIP S. SASSOWER Philip S. Sassower

Chief Executive Officer (Principal Executive Officer) and Director

June 9, 2010/s/ MICHAEL J. RAPISAND Michael J. Rapisand

Chief Financial Officer (Principal Financial and Accounting Officer)

June 9, 2010/s/ BRIAN E. USHER-JONES Brian E. Usher-Jones

Director

June 9, 2010/s/ ANDREA GOREN Andrea Goren

Director

June 9, 2010/s/ THOMAS F. LEONARDIS Thomas F. Leonardis

Director

June 9, 2010/s/ FRANK ELENIO Frank Elenio

Director

June 9, 2010/s/ F. BEN IRWIN F. Ben Irwin

Director

June 9, 2010


50

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Table of Contents

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



Annual Financial StatementsReport of Independent Registered Public Accountants

F-2Consolidated Balance Sheets

F-3Consolidated Statements of Loss

F-4Consolidated Statements of Stockholders' Deficit

F-5Consolidated Statements of Cash Flows

F-6Notes to the Consolidated Financial Statements

F-7


F-1

---





Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

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

We
have audited the accompanying consolidated balance sheets of Xplore Technologies Corp. (the "Company") and its subsidiary as of March 31, 2010 and 2009 as well as the related
consolidated statements of loss, stockholders' deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 its subsidiary as of
March 31, 2010 and 2009, including the results of its operations and its cash flows for the years ended, and are in conformity with accounting principles generally accepted in the United States
of America.

/s/
PMB Helin Donovan, LLP

Austin,
TX
June 2, 2010

F-2

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Table of Contents

XPLORE TECHNOLOGIES CORP.        Consolidated Balance Sheets        (in thousands)

March 31,
2010

March 31,
2009ASSETSCURRENT ASSETS:Cash and cash equivalents

$
389

$
794Accounts receivable, net


4,072


2,898Inventory, net


2,294


3,351Prepaid expenses and other current assets


158


910Total current assets


6,913


7,953Fixed assets, net


95


392Deferred charges


432


243$
7,440

$
8,588LIABILITIES AND SHAREHOLDERS' DEFICITCURRENT LIABILITIES:Short-term indebtedness

$
555

$
2,052Accounts payable and accrued liabilities


3,748


4,535Total current liabilities


4,303


6,587Promissory notes


5,356


2,9349,659


9,521Commitments and contingenciesSHAREHOLDERS' DEFICIT:Series A Preferred Stock, par value $0.001 per share; authorized 64,000; shares issued 62,874 and 63,179, respectively


63


63Series B Preferred Stock, par value $0.001 per share; authorized 10,000; shares issued 8,382 and 8,706, respectively


8


9Series C Preferred Stock, par value $0.001 per share; authorized 20,000; shares issued 17,124 and 15,274, respectively


17


15Common Stock, par value $0.001 per share; authorized 450,000; shares issued 129,963 and 95,502, respectively


130


96Additional paid-in capital


119,157


113,271Accumulated deficit


(121,594
)

(114,387
)(2,219
)

(933
)$
7,440

$
8,588


See
accompanying notes to consolidated financial statements.

F-3

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Table of Contents

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

Year EndedMarch 31,
2010

March 31,
2009Revenue

$
21,940

$
22,627Cost of revenue


16,177


16,245Gross profit


5,763


6,382Expenses:Sales, marketing and support


2,457


4,041Product research, development and engineering


2,710


6,978General administration


3,408


5,3518,575


16,370Loss from operations


(2,812
)

(9,988
)Other expenses:Interest expense


(2,680
)

(1,105
)Other


(77
)

(124
)(2,757
)

(1,229
)Net loss

$
(5,569
)
$
(11,217
)Dividends attributable to Preferred Stock


(1,638
)

(1,613
)Net loss attributable to common shareholders

$
(7,207
)
$
(12,830
)Loss per common share

$
(0.05
)
$
(0.15
)Dividends attributable to Preferred Stock


(0.01
)

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

$
(0.06
)
$
(0.17
)Weighted average number of common shares outstanding, basic and fully diluted


110,432,586


76,218,948


See
accompanying notes to consolidated financial statements.

F-4

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Table of Contents

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

Preferred Series A

Preferred Series B

Preferred Series C

Common SharesAdditional
Paid-in
Capital

Accumulated
DeficitNumber

Amount

Number

Amount

Number

Amount

Number

Amount

TotalBalances, March 31, 2008


63,178,777

$
63


9,588,513

$
10


15,274,000

$
15


70,009,701

$
70

$
107,594

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




















4,663











Value assigned to warrants issued


























1,592





1,592Shares issued for services




















1,861,419


2


538





540Shares issued for interest on promissory notes




















936,196


1


71





72Stock-based compensation


























1,023





1,023Options exercised




















150,000





68





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




















9,000,000


9


808





817Preferred Series A dividends




















8,485,177


9


1,055


(1,074
)

(10
)Preferred Series B dividends




















1,160,941


1


148


(157
)

(8
)Preferred Series C dividends




















3,011,781


3


374


(382
)

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








(882,354
)

(1
)







882,354


1








Net loss





























(11,217
)

(11,217
)Balances, March 31, 2009


63,178,777

$
63


8,706,159

$
9


15,274,000

$
15


95,502,232

$
96

$
113,271

$
(114,387
)
$
(933
)Value assigned to warrants issued


























2,412





2,412Shares issued for services




















709,092


1


256





257Shares issued in settlement of liability














2,000,000


2








168





170Shares issued for ESPP




















746,708


1


70





71Stock-based compensation, net of income tax withholding of $44


























876





876Issuance of common shares,




















150,000





14





14Preferred Series A dividends




















17,148,838


17


1,042


(1,070
)

(11
)Preferred Series B dividends




















2,202,269


2


134


(144
)

(8
)Preferred Series C dividends




















6,794,271


7


412


(424
)

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


(304,996
)
















379,279











Conversion of Series B Preferred Stock into Common Stock








324,118
)

(1
)







433,332


1








Conversion of Series C Preferred Stock into Common Stock














(150,000
)




187,205











Net loss





























(5,569
)

(5,569
)Balances, March 31, 2010


62,873,781

$
63


8,382,041

$
8


17,124,000

$
17


129,962,717

$
130

$
119,157

$
(121,594
)
$
(2,219
)


See accompany notes to consolidated financial statements.

F-5

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Table of Contents

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

Years Ended March 31,2010

2009CASH FLOWS FROM OPERATING ACTIVITIES:Cash used in operations:Net loss

$
(5,569
)
$
(11,217
)Items not affecting cash:Depreciation and amortization


511


944Provision for doubtful accounts


253


66Amortization of deferred financing costs


1,489


571Stock-based compensation expense


920


1,023Equity instruments issued in exchange for services


257


540Changes in operating assets and liabilities:Accounts receivable


(1,427
)

1,972Inventory


1,057


57Prepaid expenses and other current assets


760


(386
)Accounts payable and accrued liabilities


(178
)

191Net cash used in operating activities


(1,927
)

(6,239
)CASH FLOWS FROM INVESTING ACTIVITIES:Additions to fixed assets


(214
)

(242
)Net cash used in investing activities


(214
)

(242
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from short-term borrowings


17,982


25,470Repayment of short-term indebtedness


(19,479
)

(23,418
)Net proceeds on issuance of promissory notes


3,148


3,605Net proceeds on issuance of Common Stock


85


817Proceeds from exercise of stock options





68Net cash provided by financing activities


1,736


6,542CHANGE IN CASH AND CASH EQUIVALENTS


(405
)

61CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


794


733CASH AND CASH EQUIVALENTS, END OF PERIOD

$
389

$
794SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:Payments for interest

$
258

$
189Payments for income taxes

$


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

$
1,614

$
1,577Payments for interest satisfied with issuance of Common Stock

$
507

$
72In fiscal 2009, the Company issued 4,633 shares of Common Stock in a cashless exercise of warrants.


See
accompanying notes to consolidated financial statements.

F-6

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Table of Contents

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

1. DESCRIPTION OF BUSINESS

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

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

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated 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 losses for fiscal 2011. The Company believes that cash flow from operations, together with borrowings from its senior lender and financial support from Phoenix Venture Fund LLC (together
with affiliates, "Phoenix"), a significant shareholder, will be sufficient to fund the anticipated operations for fiscal 2011. These financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a
reasonable period of time.

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

F-7

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 Company's revenue is derived from the sale of rugged, mobile technology which includes rugged mobile computers and related
accessories. The Company's customers are predominantly resellers. However, the Company also sells directly to end-users. The Company follows the principles of Staff Accounting Bulletins
101 and 104, and other related pronouncements. Revenue is recognized, net of an allowance for estimated returns, when title and risks of ownership are transferred to the customer, and all significant
contractual obligations have been satisfied, the sales price is fixed or determinable and the ability to collect is reasonably assured. The Company's revenue recognition

F-8

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

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



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

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



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



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

F-9

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)



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, 2010 and March 31, 2009 were $47 and $345, respectively.

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



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

March 31, 2010

March 31, 2009Series A Preferred Stock


84,420,625


63,178,777Series B Preferred Stock


11,175,775


8,706,159Series C Preferred Stock


21,405,000


15,274,000Warrants


91,193,440


59,587,622Options


17,100,892


11,562,667225,295,732


158,309,225




In May 2009, the FASB amended ASC 855, "Subsequent Events," effective for reporting periods ending after June 15, 2009, to
establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption
of the amendment did not have a material impact on the Company's financial statements.

In
June 2009, the Codification was released, changing the way accounting standards are organized from a standards-based model (with thousands of individual standards) to a topically
based model (with

F-10

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

roughly
90 topics). The 90 topics are organized by ASC number and are updated with an Accounting Standards Update ("ASU"). The ASU will replace accounting changes that historically were issued as FASB
Statements, FASB Interpretations, FASB Staff Positions, or other types of FASB standards. The FASB considers the ASU an update to the Codification but not as authoritative in its own right. The
Codification serves as the single source of nongovernmental authoritative U.S. GAAP for interim and annual periods ending after September 15, 2009. Accordingly, all accounting references
included in this report are provided in accordance with the Codification. Effective July 1, 2009, the Company adopted the FASB Codification and its adoption did not have a material impact on
its consolidated financial statements.

In
January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-01"Equity Topic 505Accounting for Distributions to
Shareholders with Components of Stock and Cash", which clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock
with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share ("EPS")). Those distributions should be accounted for and included in EPS calculations in accordance with
paragraphs 480-10-25-14 and 260-10-45-45 through 45-47 of the FASB Accounting Standards codification. The
amendments in this Update also provide a technical correction to the Accounting Standards Codification. The correction moves guidance that was previously included in the Overview and Background
Section to the definition of a stock dividend in the Master Glossary. That guidance indicates that a stock dividend takes nothing from the property of the corporation and adds nothing to the interests
of the stockholders. It also indicates that the proportional interest of each shareholder remains the same, and is a key factor to consider in determining whether a distribution is a stock dividend.

In
January, 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements("ASU 2010-06"). Reporting entities will have to provide information about movements of assets among Levels 1 and 2; and a reconciliation of
purchases, sales, issuance, and settlements of activity valued with a Level 3 method, of the three-tier fair value hierarchy established by SFAS No. 157, Fair Value
Measurements (ASC 820). The ASU 2010-06 also clarifies the existing guidance to require fair value measurement disclosures for each class of assets and liabilities. ASU
2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 for Level 1 and 2 disclosure requirements and after December 15, 2010
for Level 3 disclosure requirements. The Company adopted the guidance in its fiscal quarter ended June 30, 2009. The adoption did not have a material impact on its consolidated financial
statements.

F-11

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

3. INVENTORY

March 31,2010

2009Finished goods

$
1,469

$
2,526Computer components


825


825Total inventory

$
2,294

$
3,351


Inventory
sent to end-users for which revenue recognition attributes have not been completed is included in "other current assets" on the Company's consolidated balance
sheets and was $48 at March 31, 2010 and $743 at March 31, 2009.

4. FIXED ASSETS

March 31,2010

2009CostTooling and fixtures

$
1,697

$
1,697Office equipment and leasehold improvements


1,397


1,397Computer equipment and demonstration units


1,571


1,357Computer software


835


8355,500


5,286Accumulated depreciationTooling and fixtures


1,697


1,697Office equipment and leasehold improvements


1,393


1,137Computer equipment and demonstration units


1,512


1,304Computer software


803


7565,405


4,894Total fixed assets, net

$
95

$
392


5. SHORT-TERM INDEBTEDNESS

On December 10, 2009, the Company's wholly-owned subsidiary entered into an Accounts Receivable Purchasing Agreement (the "ARPA") with DSCH Capital Partners, LLC d/b/a Far
West Capital ("FWC"). Pursuant to the ARPA, FWC may purchase, in its sole discretion, eligible accounts receivable of the Company's subsidiary on a revolving basis, up to a maximum of $4,750. Under
the terms of the ARPA, FWC may purchase eligible receivables from the subsidiary with full recourse for the face amount of such eligible receivables less a discount of 0.52%. In addition, the
subsidiary is required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC (i.e., the daily balance of the purchase price of all purchased receivables less the reserve
amount, plus the amount of the reserve shortfall plus any unpaid fees and expenses due from the subsidiary to FWC under the ARPA) multiplied by the annual rate ofThe Wall
Street Journalprime lending rate plus

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

5. SHORT-TERM INDEBTEDNESS (Continued)

11.50%,
which fees accrue daily. FWC also retains 15% of the purchase price of the purchased receivables as a reserve amount.

The
ARPA also provides that FWC has the right to require the subsidiary to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such
receivable by the account debtor, (b) if certain covenants, warranties or representations made by the subsidiary with respect to such receivables are breached, (c) upon and during the
continuance of an event of default under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date. The ARPA has an initial
term of one year with automatic renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 150 days prior written notice or without
prior notice upon and during the continuance of an event of default.

The
ARPA contains standard representations, warranties, covenants, indemnities and releases for transactions of this type. The Company has guaranteed the obligations of its subsidiary
under the ARPA pursuant to the terms and provisions of a corporate guaranty and surety ship. In addition, pursuant to a subordination agreement between the subsidiary and FWC, the subsidiary's
obligations
under the ARPA are secured by a first priority security interest on all assets of the subsidiary. As of March 31, 2010, there was $555 in borrowings outstanding under the ARPA.

Prior
to December 10, 2009, the Company had a loan and security agreement with a commercial bank. Under the terms of this agreement, the Company could finance certain eligible
accounts receivable, and during a limited period eligible inventory, up to a maximum ranging from $4,000 to $8,000 at various times during the agreement. Borrowings under the facility bore interest at
the bank's prime rate plus 2.25% (or prime plus 2.5% in the case of borrowings related to its inventory). The Company was obligated to repay each loan advance on the earliest of the date the financed
receivable payment was received or the date the financed receivable became ineligible or 90 days past due. The Company was committed to pay a fee equal to 0.25% of the unused portion of the
credit facility.

In
connection with the extension of the maturity date of the agreement with the bank, on May 29, 2009, the lender agreed to provide up to $1,000 of additional availability in
excess of the borrowing base, based on a supporting irrevocable standby letter of credit issued by Philip Sassower, the Company's Chairman and Chief Executive Officer, and Susan Sassower, his wife
("Supporting Letter of Credit Applicants"). In addition, the interest rate was increased from the bank's "prime rate" plus 2.25% to the greater of 6.25% or 2.25% above the bank's "prime rate". The
standby letter of credit was scheduled to expire on March 5, 2010. In order to induce the Supporting Letter of Credit Applicants to issue the letter of credit, the Company entered into the
Credit Reimbursement, Compensation and Security Agreement, dated as of May 29, 2009 (the "Letter of Credit Agreement"), with the Supporting Letter of Credit Applicants whereby it agreed to
(i) reimburse the Supporting Letter of Credit Applicants for all costs and expenses incurred by the Supporting Letter of Credit Applicants in connection with the issuance of the letter of
credit, (ii) reimburse the Supporting Letter of Credit Applicants for all payments made by the Supporting Letter of Credit Applicants to the issuing bank in connection with any drawings made by
the bank under the letter of credit; (iii) provide certain compensation to the Supporting Letter of Credit Applicants in connection with the issuance of the letter of credit, including the
issuance to the Supporting Letter of Credit Applicants of a three-year warrant to purchase 5,000,000 shares of common stock at an exercise price of $0.10 per share; and

F-13

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

5. SHORT-TERM INDEBTEDNESS (Continued)

(iv) grant
to the Supporting Letter of Credit Applicants a security interest in all of its assets to secure their obligations to the Supporting Letter of Credit Applicants. The security
interest granted by the Company and its wholly owned subsidiary to the Supporting Letter of Credit Applicants was subordinated to the rights and security interest of the bank in connection with the
loan and security agreement and senior to the rights and security interests of the holders of the Company's secured promissory notes. In consideration for the promissory note holders subordinating
their security interests in collateral of the Company in favor of Supporting Letter of Credit Applicants, the Company issued to the promissory note holders warrants to purchase an aggregate of
4,090,000 shares of common stock at an exercise price of $0.10 per share. The warrants issued to the Supporting Letter of Credit Applicants were scheduled to expire in May 2012 and the warrants issued
to the promissory note holders will expire on July 27, 2012.

On
September 15, 2009, the Company entered into a new agreement with the commercial bank to replace the then existing loan and security agreement. Under the terms of that
agreement, the Company could finance certain eligible U.S. and Canadian accounts receivable up to a maximum of $4,000. Borrowings bore interest at the bank's prime rate plus 3.42% per annum. The
Company was obligated to repay each loan advance on the earliest of the date on which the financed receivable payment was received or the date to which the financed receivable became ineligible or
90 days past due. The maturity date of that agreement was February 5, 2010 and the new agreement was subject to a minimum monthly interest fee of $4. The credit agreement with the
commercial bank to finance up to $4,000 in accounts receivable was terminated on December 10, 2009.

On
November 5, 2009, the Company used a portion of the net proceeds from the private placement of senior secured subordinated promissory notes to repay $931 in indebtedness to the
Company's senior lender under non-formula loans, and the Company and the senior lender entered into an amendment to the loan and security agreement to terminate the Company's ability to
borrow $1,000 in non-formula loans. In connection with the amendment, the senior lender returned the $1,000 standby letter of credit used as collateral for such borrowings. In addition,
Philip S. Sassower and Susan Sassower reduced the total number of warrants issued to them in connection with the letter of credit reimbursement, compensation and security agreement from 5,000,000
warrants to 1,400,000 warrants and the Company extended the expiration date of those warrants to January 14, 2013.

The
warrants issued to the Supporting Letter of Credit Applicants and the promissory note holders have been valued separately using the Black Scholes methodology. The fair value
calculations assumed a discount rate of approximately 1.40%, volatility of approximately 125% , no dividends and that all of the shares will vest. The fair value of the warrants of $661 was recorded
as a deferred charge and as additional paid-in capital that was being amortized over the initial term of the letter of credit. Upon termination of the letter of credit, the unamortized
deferred charges associated with the letter of credit of $264 were expensed. During the year ended March 31, 2010, $661 was recognized as interest expense.

F-14

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

March 31,2010

2009Accounts payable

$
1,858

$
2,529Engineering accrual


458


425Other accrued liabilities


1,432


1,581Total

$
3,748

$
4,535


7. PROMISSORY NOTES

Promissory Note
Issuance Date

Balance
March 31,
2009

New
Issuances

Value
Assigned
to Warrants

Payments
or
Conversions

Accretion
of Non-Cash
Interest

Balance
March 31,
2010September 5, 2008

$
796

$


$
(81
)
$


$
110

$
825October 21, 2008


1,539





(162
)




247


1,624February 27, 2009


348





(45
)




107


410March 5, 2009


63





(8
)




19


74March 11, 2009


188





(24
)




57


221May 26, 2009





100


(50
)




19


69June 15, 2009





20


(10
)




3


13July 1, 2009





15


(8
)




3


10September 30, 2009





300


(29
)

(271
)




October 13, 2009





170


(15
)

(155
)




November 5, 2009





3,210


(1,351
)




251


2,110$
2,934

$
3,815

$
(1,783
)
$
(426
)
$
816

$
5,356


On
September 5, 2008, the Company's wholly owned subsidiary, together with the Company, (referred to as the "Borrowers") issued to Phoenix a secured subordinated promissory note
in the principal amount of $1,000 and warrants to purchase up to 3,703,704 shares of common stock of the Company at an exercise price of $0.27 per share. The principal amount was subsequently reduced
to $940. The secured subordinated promissory note was due and payable in full on August 5, 2009.

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

On
February 27, 2009, March 5, 2009 and March 11, 2009, the Borrowers issued secured subordinated promissory notes in the aggregate principal amount of $955 and
issued warrants to purchase up to 9,550,000 shares of common stock of the Company at an exercise price of $0.10 per

F-15

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

7. PROMISSORY NOTES (Continued)

share
to purchasers. The secured promissory notes were due and payable in December 31, 2010. In addition, on February 27, 2009 the Borrowers and all purchasers entered into an amendment
to the note purchase agreement reducing the exercise price of warrants previously granted to the note purchasers on September 5, 2008 and October 21, 2008 from $0.12 per share to $0.10
per share and increasing the number of shares of common stock the note holders may purchase from 25,000,000 to 30,000,000 shares of the Company's common stock in order to provide the note purchasers
with the same terms, including the extension of the maturity date of the September 5, 2008 and October 21, 2008 promissory notes from August 5, 2009 to December 31, 2010.

On
May 27, 2009 and June 15, 2009, the Borrowers issued secured subordinated promissory notes in the aggregate principal amount of $120 and issued warrants to purchase up
to 1,200,000 shares of common stock of the Company at an exercise price of $0.10 per share. The secured promissory notes were due and payable in full on December 31, 2010.

On
July 1, 2009, the Borrowers issued a secured subordinated promissory note in the aggregate principal amount of $15 and issued a warrant to purchase up to 150,000 shares of
common stock of the Company at an exercise price of $0.10 per share. The secured promissory note was due and payable in full on December 31, 2010.

On
September 30, 2009, the Company raised $300 in a private placement with JAG Multi Investments LLC ("JAG"), an affiliate, through the issuance of a secured demand note
and warrants to purchase up to 1,500,000 shares of the Company's common stock at $0.10 per share. The terms of the warrants are consistent with the terms of the warrants issued to the purchasers of
the secured subordinated promissory notes and the warrants were scheduled to expire on September 30, 2012.

On
October 13, 2009, the Company raised $170 in a private placement with Philip Sassower, an affiliate, through the issuance of a secured demand note (the "Sassower Demand Note")
and warrants to purchase up to 850,000 shares of the Company's common stock at $0.10 per share. The terms of the warrants are consistent with the terms of the warrants issued to the purchasers of the
secured subordinated promissory notes and the warrants were scheduled to expire on October 13, 2012.

On
November 5, 2009, the Company entered into a note purchase agreement (the "Note Purchase Agreement") pursuant to which the Company could issue up to $3,300 of senior secured
subordinated promissory notes (the "Senior Notes") and warrants (the "Warrants") to purchase up to 33,000,000 shares of the Company's common stock at an exercise price of $0.10 per share. Pursuant to
the Note Purchase Agreement, the Company issued Senior Notes in the aggregate principal amount of $3,210
and Warrants to purchase 32,100,000 shares of the Company's common stock in two separate closings on November 5, 2009 and November 9, 2009. The Senior Notes are secured by all of the
assets of the Company. The indebtedness under the Senior Notes and the security interest granted to the holders of the Senior Notes are subordinated to the rights and security interest of the
Company's senior lender, but are senior to the indebtedness held by the purchasers who purchased notes under the Company's note purchase agreement, dated September 5, 2008, as amended (the
"Fall 2008 Note Agreement"), and note purchase agreement, dated as of February 27, 2009, as amended (the "Spring 2009 Note Agreement"). The Warrants issued to the purchasers are exercisable
beginning on January 15, 2010 and will expire on January 14, 2013.

F-16

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

7. PROMISSORY NOTES (Continued)

Mr. Sassower
purchased $1,000 of the Senior Notes and Warrants to purchase 10,000,000 shares of common stock in the private placement. The Senior Note and Warrant issued to
Mr. Sassower were purchased with $830 in cash and the conversion of the Sassower Demand Note. In addition, Mr. Sassower reduced the total number of warrants issued to him in connection
with the Sassower Demand Note from 850,000 warrants to 50,000 warrants and the expiration date of the warrants was extended from October 13, 2012 to January 14, 2013.

JAG
purchased $300 of the Senior Notes and Warrants to purchase 3,000,000 shares of common stock in the private placement with the conversion of its secured demand note. In addition, the
total numbers of warrants issued to JAG in connection with the secured demand note were reduced from 1,500,000 warrants to 150,000 warrants and the expiration date of the warrants was extended from
September 30, 2012 to January 14, 2013.

In
addition, on November 5, 2009, the Company and a majority-in-interest of the purchasers under the Fall 2008 Note Agreement and Spring 2009 Note
Agreement agreed to extend the maturity date of the secured subordinated promissory notes issued under those agreements from December 31, 2010 to December 31, 2011 and extend the
expiration date of warrants to purchase 40,090,000 shares of the Company's common stock issued in connection with such agreements from February 27, 2012 to January 14, 2013.

The
Senior Notes and secured subordinated promissory notes bear interest at the rate of 10% per annum. Interest is payable quarterly and may be paid in cash or, at the option of the
Company, in shares of the Company's common stock. If the Company elects to pay the interest on the promissory notes with shares of common stock, the effective interest rate under the notes is
increased by approximately 2.5%. Interest expense for the fiscal years ended March 31, 2010 and 2009 was approximately $623 and $154, respectively. [Payment was rendered with the
issuance of 2,253,615shares of common stock in January 2010 and an aggregate of 5,709,492 shares of common stock in July 2009 and October 2009 and January 2010, respectively.]

The
warrants have been valued separately using the Black Scholes methodology. The fair value calculations assumed a discount rate of approximately 1.40%, volatility of approximately 125%
, no dividends and that all of the shares will vest. The relative fair value of the warrants as compared to the notes resulted in a value of $3,333 assigned to the warrants issued to the promissory
note holders that was recorded as additional paid-in capital and a discount of the promissory notes. The modifications of the expiration dates of the warrants resulted in recalculations of
fair value which are reflected in the value of $3,333. The discounts are amortized over the terms of the Senior Notes and secured subordinated promissory notes. During the fiscal years ended
March 31, 2010 and 2009, $818 and $571, respectively, was recognized as interest expense.

8. SHARE CAPITAL

The Company is authorized to issue 600,000,000 shares of capital stock consisting of 450,000,000 shares of common stock, $.001 par value, and 150,000,000 shares of preferred stock, $.001
par value.

F-17

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

8. SHARE CAPITAL (Continued)

Year-ended March 31, 2010

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

On
September 30, 2009, the Company raised $300 in a private placement through the issuance of a secured demand note and warrants to purchase up to 1,500,000 shares of the
Company's common stock at $0.10 per share. The terms of the warrants are consistent with the terms of the warrants issued to the purchasers of the secured promissory notes.

On
October 13, 2009, the Company raised $170 in a private placement through the issuance of a secured demand note and warrants to purchase up to 850,000 shares of the Company's
common stock at $0.10 per share. The terms of the warrants are consistent with the terms of the warrants issued to the purchasers of the secured promissory notes.

On
November 5, 2009 and November 9, 2009, the Company raised $3,210 in private placements through the issuance of senior secured subordinated promissory notes and warrants
to purchase up to 32,100,000 shares of the Company's common stock at $0.10 per share. The secured demand notes were converted into senior secured subordinated promissory notes and the aggregate
warrants of 2,350,000 shares issued with the secured demand notes were reduced to an aggregate 200,000 shares and the warrant expiration dates were extended to January 14, 2013.

The
Board of Directors approved an employee stock purchase plan that was implemented on January 1, 2009 and approved by shareholders on November 4, 2009 (the "ESPP"). The
initial offering period was from January 1, 2009 to March 31, 2010. The Company issued shares quarterly to participants at a price of $0.096 per share during the initial offering period.
On September 14, 2009, the Company issued 479,395 shares of common stock for the six months ended June 30, 2009, on October 1, 2009, the Company issued 156,919 shares of common
stock for the three months ended September 30, 2009, on January 1, 2010, the Company issued 110,394 shares of common stock for the three months ended December 31, 2009 and on
April 1, 2010, the Company issued 281,251 shares of common stock for the three months ended March 31, 2010.

During
the year ended March 31, 2010, 304,996 shares of Series A Preferred Stock were exchanged for 379,279 shares of common stock, 324,118 shares of Series B
Preferred Stock were exchanged for 433,332 shares of common stock and 150,000 shares of Series C Preferred Stock were exchanged for 187,205 shares of common stock.

Year-ended March 31, 2009

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

F-18

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

8. SHARE CAPITAL (Continued)

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

Dividends

For the year ended March 31, 2010, there were paid dividends of shares of common stock of $1,072 for the Series A
Preferred Stock, $144 for the Series B Preferred Stock and $422 for the Series C Preferred Stock. For the year ended March 31, 2009, there were paid dividends of shares of common
stock of $1,074 for the Series A Preferred Stock, $157 for the Series B Preferred Stock and $382 for the Series C Preferred Stock. As of March 31, 2010 and 2009, there were
accrued and unpaid dividends of $91 and $91 respectively, for the Series A Preferred Stock, $12 and $13, respectively, for the Series B Preferred Stock and $36 and $32, respectively, for
the Series C Preferred Stock. At March 31, 2010, the conversion rates into common stock for the Series A Preferred stock, Series B Preferred Stock and Series C
Preferred Stock were 1.34, 1.33, and 1.25, respectively. The liquidation preference values of the Series A, Series B and Series C Preferred Stock were $21,377, $2,850 and $8,562,
respectively. Each series of Preferred Stock ranks on parity with each other series of Preferred Stock with respect to dividends and liquidation.

Warrants outstanding

There were warrants to purchase 91,193,440 shares of common stock outstanding at March 31, 2010 as detailed in the table below:

Number of Warrants/Number Exercisable

Exercise Price

Expiration Date2,500,000/500,000

US$
0.45


August 8, 2010886,440/886,440

US$
0.50


September 21, 20104,367,000/4,367,000

US$
0.10


February 27, 20124,090,000/4,090,000

US$
0.10


July 27, 20123,750,000/3,750,000

US$
0.13


January 30, 201374,600,000/74,600,000

US$
0.10


January 14, 20133,000,000/3,000,000

US$
0.15


June 10, 2014


9. STOCK-BASED COMPENSATION PLAN

In 1995, the Board of Directors approved a Share Option Plan, which was amended and restated in December 2004, and amended thereafter (the "Amended Share Option Plan"). The Amended 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 date of grant and is 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.

On
July 28, 2009, the Board of Directors adopted the 2009 Stock Incentive Plan (the "2009 Stock Plan"). The 2009 Stock Plan provides for equity-based awards in the form of
incentive stock options and non-statutory options, restricted shares, stock appreciation rights and restricted stock units. Awards

F-19

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

9. STOCK-BASED COMPENSATION PLAN (Continued)

are
made to selected employees, directors and consultants to promote stock ownership among award recipients, to encourage their focus on strategic long-range corporate objectives, and to
attract and retain exceptionally qualified personnel. The 2009 Stock Plan became effective on June 10, 2009 and was approved by the Company's stockholders on January 14, 2010.

At
March 31, 2010, the maximum aggregate number of shares of common stock reserved for issuance upon the exercise of all options granted under the Amended Share Option Plan and
2009 Stock Plan is not to exceed 41,401,615. The options under the plans generally vest over a 3-year period in equal annual amounts and have a five year life.

A
summary of the activity in the Company's Amended Share Option Plan and 2009 Stock Plan during the years ended March 31, 2010 and 2009 is as follows:

Year ended March 31,2010

2009Options

Weighted
Average
Exercise Price
(USD$)

Options

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


11,562,667

$
0.43


14,329,668

$
0.42Granted


7,415,586

$
0.12


1,615,000

$
0.45Exercised




$
0.00


150,000

$
0.37Forfeited


1,877,361

$
0.56


4,232,001

$
0.50Outstanding at end of year


17,100,892

$
0.32


11,562,667

$
0.43


At
March 31, 2010, the total number of shares of common stock issued in connection with the exercise of options is 671,385 since the inception of the Amended Share Option Plan.

A
summary of the options outstanding and exercisable as at March 31, 2010 is as follows:

Options Outstanding

Options ExercisableRange of Exercise Prices

Number Outstanding

Weighted Average
Remaining
Contractual Life

Number Exercisable

Weighted Average
Remaining
Contractual Life$0.09 - 0.13


5,389,257


4.1





$0.14 - 0.38


3,569,969


3.1


3,085,999


3.0$0.39 - 0.49


5,173,668


1.9


4,278,668


1.6$0.50 - 0.56


2,374,664


2.7


1,607,443


2.7$0.57 - 0.92


593,334


0.2


593,334


0.217,100,892


2.9


9,565,444


2.1


Prior
to June 20, 2007, the Company was incorporated under the laws in Canada and the exercise prices for stock grant awards were in Canadian dollars; thus the exercise prices for
6,021,002 options outstanding are in Canadian dollars. The range of stock grant awards is subject to changes in the exchange rates between the Canadian dollar and United States dollar.

F-20

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

9. STOCK-BASED COMPENSATION PLAN (Continued)

On
July 28, 2009, the Company's board of directors granted an aggregate of 2,011,000 restricted share awards to certain employees, including all of the Company's executive
officers other than the Chief Executive Officer, in lieu of a portion of their cash compensation for fiscal year 2010. Effective April 1, 2009, the salaries of the employees were reduced by a
total of $267. On March 31, 2010, 1,787,420 shares of common stock fully vested. The market value of the common stock was $0.10 and the intrinsic value of the restricted shares of approximately
$179 was recognized as compensation expense in fiscal 2010.

The
options have been valued separately using the Black-Scholes methodology and the calculations for issuances in fiscal 2010 and 2009 assumed discount rates of approximately 2.6% and
3.3%, respectively, and volatility of approximately 125% and 106%, respectively, and no dividends for both years. The Company recorded compensation cost of $920 and $1,023 for the years ended
March 31, 2010 and 2009, respectively. This expense was recorded in the employee related functional classification.

Compensation
expense 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, 2010 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, 2010 was $655 which is to be recognized over the next three years.

10. INCOME TAXES

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

Year ended March 31,2010

2009Deferred income tax assets:Net operating losses

$
28,292

$
27,859Accrued liabilities


329


443Inventory allowance


211


150Other items


16


121Valuation allowance


(28,848
)

(28,572
)Deferred tax asset

$


$



F-21

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

10. INCOME TAXES (Continued)

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

Year ended
March 31,2010

2009Combined basic US and Canadian statutory rates, respectively


35
%

35
%Recovery of income taxes based on the above rates

$
(1,949
)
$
(3,926
)Increase in income taxes resulting from:Permanent differencestock compensation


322


358Permanent differencefinancing fees


286


200Change in valuation allowance


1,341


3,368Provision for income taxes

$


$



The
Company has accumulated net operating losses for income tax purposes totaling approximately $80,834, which under certain conditions, may be carried forward and applied to reduce
future year's taxable income. The potential benefit associated with these losses is not reflected in these statements as management does not believe that recovery is more likely than not. The right to
claim these losses expires as follows:

Expiry Year

Canada

United States

Total2011

$
4,823




$
4,8232015


2,889





2,8892016





1,282


1,2822017





737


7372018





5,293


5,2932019





2,978


2,9782020





1,486


1,4862021





3,116


3,1162022





6,412


6,4122023





10,746


10,7462024





4,433


4,4332025





7,764


7,7642026


1,707


3,660


5,3672027


936


2,813


3,7492028


67


5,159


5,2262029





10,102


10,1822030





4,431


4,431$
10,422

$
70,412

$
80,834


F-22

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

11. FINANCIAL INSTRUMENTS



At March 31, 2010, all of the Company's promissory notes bear interest at a fixed rate of 10%. The ARPA with FWC has a cost of
funds fee interest rate with a variable component based on the Wall Street Journal's prime rate. If the Company borrowed 100% of the facility's available line for a full year and the bank's prime
lending rate increased by 1%, the Company's costs under the ARPA will increase by approximately $40.



All of the Company's revenues and the significant majority of the Company's expenses are in United States dollars, and foreign exchange
is limited to non-U.S. dollar denominated expenditures in Canadian dollars, which are immaterial in each of the years ended March 31, 2010 and 2009, respectively.



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

As of March 31,

Accounts
Receivable
(in millions)

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

Customer Share as a
Percent of Total
Receivables

Percentage Share of Total
Receivables2010

$
4.1


2


61
%

61
%2009

$
2.9


1


23
%

23
%


The
receivables representing 61% of the accounts receivable balance at March 31, 2010 were subsequently collected.



The Company relies on a single supplier for the majority of its finished goods. At March 31, 2010 and 2009, the Company owed
this supplier $1,186 and $1,294, respectively, recorded as accounts payable and accrued liabilities. The inventory purchases and engineering services from this supplier for the years ended
March 31, 2010 and 2009 were $9,697 and $11,539, respectively.

12. SEGMENTED INFORMATION

The Company operates in one segment, the sale of rugged mobile wireless PC computing systems. Approximately 72% of the Company's revenue for fiscal 2010 was derived from sales in the
United States. There was no other country outside of the United States which accounted for more than 10% of the Company's revenue for the fiscal year ended March 31, 2010. For the fiscal year
ended March 31, 2009, the United States accounted for 50% of the revenue and Canada accounted for 21% of the revenue.

F-23

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

12. SEGMENTED INFORMATION (Continued)

The
distribution of revenue by country is segmented as follows:

Year ended
March 31,2010

2009Revenue by country:United States

$
15,690

$
11,397Canada


1,145


4,709All other countries


5,105


6,521$
21,940

$
22,627


The
Company has a variety of customers and in any given year a single customer can account for a significant portion of sales. For the year ended March 31, 2010, the Company had
one customer that had sales that were greater than 10% of total revenue and the customer was located in United States. For the year ended March 31, 2009, the Company had one customer that had
sales that were greater than 10% of total revenue and the customer was located in Canada. 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 Revenue2010

$
21.9


1


29
%

29
%2009

$
22.6


1


12
%

12
%


13. COMMITMENTS AND CONTINGENT LIABILITIES



The
Company leases facilities in Austin, Texas. The current annual lease commitment is $194 and the lease maturity date was extended from September 1, 2009 to August 31,
2014. Rent expense for the years ended March 31, 2010 and 2009 was $220 and $311, respectively.

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

2011

$
1942012


2282013


2362014


2402015


100$
998




At
March 31, 2010, the Company had purchase obligations extending into fiscal 2011 of approximately $3,864 related to inventory and product development items.

F-24

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

13. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)



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

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

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 May 29, 2009, the Company's senior lender at the time agreed to provide up to $1,000 of additional availability in excess of the Company's then eligible borrowing base, based
on a supporting irrevocable standby letter of credit issued by Philip Sassower and Susan Sassower, his wife ("Supporting Letter of Credit Applicants"). In order to induce the Supporting Letter of
Credit Applicants to issue the letter of credit, the Company entered into the Letter of Credit Agreement, with the Supporting Letter of Credit Applicants whereby it agreed to (i) reimburse the
Supporting Letter of Credit Applicants for all costs and expenses incurred by the Supporting Letter of Credit Applicants in connection with the issuance of the letter of credit, (ii) reimburse
the Supporting Letter of Credit Applicants for all payments made by the Supporting Letter of Credit Applicants to the issuing bank in connection with any drawings made by the bank under the letter of
credit; (iii) provide certain compensation to the Supporting Letter of Credit Applicants in connection with the issuance of the letter of credit, including the issuance to the Supporting Letter
of Credit Applicants of a three-year warrant to purchase 5,000,000 shares of common stock at an exercise price of $0.10 per share; and (iv) grant to the Supporting Letter of Credit
Applicants a security interest in all of its assets to secure their obligations to the Supporting Letter of Credit Applicants. In consideration for the promissory

F-25

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

14. RELATED PARTY TRANSACTIONS (Continued)

note
holders subordinating their security interests in collateral of the Company in favor of Supporting Letter of Credit Applicants, the Company issued to the promissory note holders warrants to
purchase an aggregate of 4,090,000 shares, 2,375,000 of these shares to affiliates, of common stock at an exercise price of $0.10 per share. The warrants issued to the Supporting Letter of Credit
Applicants were scheduled to expire in May 2012 and the warrants issued to the promissory note holders will expire in May 2012. Then on November 5, 2009, the Company used a portion of the net
proceeds from the private placement of senior secured subordinated promissory notes to repay $931 in indebtedness to the Company's senior lender under non-formula loans, and the Company
and the senior lender entered into an amendment to the loan and security agreement to terminate the Company's ability to borrow $1,000 in non-formula loans. In connection with the
amendment, the senior lender returned the $1,000 standby letter of credit used as collateral for such borrowings. In addition, Philip S. Sassower and Susan Sassower reduced the total number of
warrants issued to them in connection with the letter of credit reimbursement, compensation and security agreement from 5,000,000 warrants to 1,400,000 warrants and the expiration date of the warrants
was extended to January 14, 2013.

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

On
September 30, 2009, the Company raised $300 in a private placement with JAG through the issuance of a secured demand note and warrants to purchase up to 1,500,000 shares of the
Company's common stock at $0.10 per share. The terms of the warrants are consistent with the terms of the warrants issued to the purchasers of the secured promissory notes and the warrants were
scheduled to expire on September 30, 2012.

On
October 13, 2009, the Company raised $170 in a private placement with Mr. Sassower through the issuance of a secured demand note (the "Sassower Demand Note") and
warrants to purchase up to 850,000 shares of the Company's common stock at $0.10 per share. The terms of the warrants are consistent with the terms of the warrants issued to the purchasers of the
secured promissory notes and the warrants were scheduled to expire on October 13, 2012.

On
November 5 and November 9, 2009, the Company raised $3,210 in private placements through the issuance of senior secured subordinated promissory notes and warrants to
purchase up to 32,100,000 shares of the Company's common stock at $0.10 per share. Mr. Sassower purchased $1,000 of the Senior Notes and Warrants to purchase 10,000,000 shares of common stock
in the private placement. The Senior Note and Warrant issued to Mr. Sassower were purchased with $830 in cash and the conversion of the Sassower Demand Note. In addition, Mr. Sassower
reduced the total number of warrants issued to him in connection with the Sassower Demand Note from 850,000 to 50,000 warrants and the expiration date of the warrants was extended from
October 13, 2012 to January 14, 2013. JAG purchased $300 of the Senior Notes and Warrants to purchase 3,000,000 shares of common stock in the private placement with the conversion of the
secured demand note issued to it. In addition, JAG

F-26

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

14. RELATED PARTY TRANSACTIONS (Continued)

reduced
the total number of warrants issued to it in connection with the JAG secured demand note from 1,500,000 warrants to 150,000 warrants and the expiration date of the warrants was extended from
September 30, 2012 to January 14, 2013.

In
connection with the Company's private placements through the years ended March 31, 2010 and 2009, the Company paid an affiliate of Phoenix administration fees of $161 and $128,
respectively, related to the placement of $3,210 of Senior Notes and the total placement of $3,955 of subordinated secured promissory notes (see Note 7) and $900 of common stock (see
Note 8).

At
March 31, 2010, outstanding promissory notes to Phoenix were $3,700. For the years ended March 31, 2010 and 2009, interest expense of $340 and $121, respectively, was
recognized and paid through the issuance of 3,754,896 and 1,613,212, respectively, shares of the Company's common stock issued quarterly.

15. SUBSEQUENT EVENTS

On
April 29, 2010, the ARPA was amended to enable the Company to obtain advances based on bona fide purchase orders received from the Company's customers for products the Company
has not shipped, referred to as the "P.O." The senior lender will advance up to 100% of the value of eligible P.O.'s provided total funds advanced on P.O.'s does not exceed thirty percent of the total
eligible accounts under the ARPA, without the prior written consent of the senior lender. P.O. advances bear interest by the annual rate ofThe Wall Street
Journalprime lending rate plus 11.50%, which fees accrues daily, in addition to a discount fee of one percent of the P.O. advance.

On
May 14, 2010, the Company's board of directors granted options to each director, in lieu of cash compensation otherwise payable to them in connection with their service as
board members. The board
of directors granted options to each director to purchase 150,000 shares of common stock at an exercise price of $0.11 per share, which options will fully vest on March 31, 2011 for services to
be provided during the fiscal year ending March 31, 2011. The future compensation expense to be recognized in fiscal 2011 is $82.

On
May 14, 2010, the Company's board of directors approved the issuance to SG Phoenix LLC, an affiliate, of a warrant to purchase 1,500,000 shares of common stock at an
exercise price of $0.11 per share which warrant will fully vest on March 31, 2011, for services to be rendered for the year ending March 31, 2011. The fair value of the warrant is $137
and will be reflected as a payment for services in general administration.

On
May 14, 2010, the Company's board of directors granted an aggregate of 1,425,000 restricted share awards to certain employees, including all of the Company's executive officers
other than the Chief Executive Officer, in lieu of a portion of their cash compensation for fiscal year 2010. Effective April 1, 2009, the salaries of the employees were reduced by a total of
$222 and the reductions will continue during fiscal 2011. The shares of common stock will fully vest on March 31, 2011. The market value of the common stock was $0.11 and the intrinsic value of
the restricted shares of approximately

F-27

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Table of Contents

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

(in thousands, except share and per share amounts)

15. SUBSEQUENT EVENTS (Continued)

$157
will be recognized as compensation expense in fiscal 2011. In addition, the Company's board of directors granted an aggregate of 480,000 restricted share awards to certain employees, none which
were to executive officers. The shares of common stock will fully vest on March 31, 2011. The market value of the common stock was $0.11 and the intrinsic value of the restricted shares of
approximately $53 will be recognized as compensation expense in fiscal 2011.

F-28

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Table of Contents

INDEX TO EXHIBITS

Exhibit Number

Description3.1

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

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

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

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

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

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

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

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

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)10.5

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)


---



Table of Contents

Exhibit Number

Description10.6

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)10.7

Note Purchase Agreement, dated September 5, 2008, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, and Phoenix Venture Fund LLC (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on September 11, 2008)10.8

Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on September 25, 2007)10.9

Form of Secured Subordinated Promissory Note (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on September 11, 2008)10.10

Form of Warrant to purchase shares of Company's common stock (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on September 11, 2008)10.11

Side Letter Amending Note Purchase Agreement dated September 5, 2008 (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on October 27, 2008)10.12

Side Letter Amending Note Purchase Agreement dated September 5, 2008 (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on March 5, 2009)10.13

Amendment No. 2 to Note Purchase Agreement dated September 5, 2008 (incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K, filed on November 10, 2009)10.14

Note Purchase Agreement, dated February 27, 2009, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, and the purchasers listed on Schedule I and Schedule II attached
thereto (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on March 5, 2009)10.15

Form of Secured Subordinated Promissory Note (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on March 5, 2009)10.16

Form of Warrant to purchase shares of Company's common stock (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on March 5, 2009)10.17

Amendment No. 2 to Note Purchase Agreement dated February 27, 2009 (incorporated by reference to Exhibit 10.5 of the Company's Current Report on Form 8-K, filed on November 10, 2009)10.18

Note Purchase Agreement, dated November 5, 2009, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, and the purchasers listed on Schedule I and Schedule II attached
thereto (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on November 10, 2009)10.19

Form of Secured Subordinated Promissory Note (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on November 10, 2009)10.20

Form of Warrant to purchase shares of Company's common stock (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on November 10, 2009)


---



Table of Contents

Exhibit Number

Description10.21

Accounts Receivable Purchase Agreement, dated December 10, 2009, by and between Xplore Technologies Corporation of America and DSCH Capital Partners, LLC d/b/a Far West Capital (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on December 15, 2009)10.22

Corporate Guaranty and Surety ship, dated December 10, 2009, by and between Xplore Technologies Corp. and DSCH Capital Partners, LLC d/b/a Far West Capital (incorporated by reference to Exhibit 10.2 of
the Company's Current Report on Form 8-K, filed on December 15, 2009)10.23
*
First Amendment and Purchase Order Finance Rider to Accounts Receivable Purchase Agreement, dated December 10, 2009, by and between Xplore Technologies Corporation of America and DSCH Capital Partners, LLC
d/b/a Far West Capital10.24

Lease Agreement, dated April 10, 2003, between Summit Tech L.P. and Xplore Technologies Corp. (incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-4, filed
on November 14, 2006, Registration Statement No. 333-138675)10.25

Fourth Amendment to Lease Agreement, dated April 10, 2003, between Bailard Austin II, Limited Partnership. and Xplore Technologies Corp. (incorporated by reference to Exhibit 10.23 of the Company's Annual
Report on Form 10-K, filed on August 14, 2009)10.26

Purchase and Distribution Agreement between Xplore Technologies Corp. and Pegatron Corporation dated as of December 7, 2007 (incorporated by reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K, filed on June 5, 2008)10.27

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)10.28

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)10.29

Xplore Technologies Corp. 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.31 of the Company's Annual Report on Form 10-K, filed on August 14, 2009)10.30

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

Subsidiaries of Xplore Technologies Corp. (incorporated by reference to Exhibit 21.1 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement
No. 333-138675)23.1
*
Consent of Independent Registered Public Accounting Firm31.1
*
Certification of Philip S. Sassower, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193431.2
*
Certification of Michael J. Rapisand, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193432.1
*
Certifications of Philip S. Sassower, Chief Executive Officer, and Michael J. Rapisand, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350


*Filed
herewith.Portions
of this agreement have been omitted pursuant to a request for confidential treatment, which was granted by the SEC on May 14,
2007.Portions
of this agreement have been omitted pursuant to a request for confidential treatment, which was granted by the SEC on
July 24, 2008.


---