10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2008
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from                                to

Commission file number:            

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

Delaware (State or Other Jurisdiction of Incorporation or Organization)	74-2809234 (IRS Employer Identification No.)
14000 Summit Drive, Suite 900, Austin, Texas (Address of Principal Executive Offices)	78728 (Zip Code)
(512) 336-7797 (Registrant's Telephone Number, Including Area Code)

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

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

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

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

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

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

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company ý

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE: None.

Table of Contents

PART I			1
	Item 1.	Business	1
	Item 1A.	Risk Factors	9
	Item 1B.	Unresolved Staff Comments	15
	Item 2.	Properties	15
	Item 3.	Legal Proceedings	15
	Item 4.	Submission of Matters to a Vote of Security	16
PART II			17
	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
	Item 6.	Selected Financial Data	17
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operation	18
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	26
	Item 8.	Financial Statements and Supplementary Data	26
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	26
	Item 9A.	Controls and Procedures	26
	Item 9A(T).	Controls and Procedures	26
	Item 9B.	Other Information	27
PART III			28
	Item 10.	Directors, Executive Officers and Corporate Governance	28
	Item 11.	Executive Compensation	30
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	42
	Item 14.	Principal Accounting Fees and Services	43
PART IV			44
	Item 15.	Exhibits, Financial Statement Schedules	44

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Forward-Looking Statements

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

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

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

PART I

Item 1.    Business

Overview

        Xplore engineers, develops, integrates and markets rugged, mobile computing systems. Our products are designed to enhance the ability of persons to perform their jobs outside of traditional office settings. Our family of iX™ Tablet PCs systems, which we refer to as the iX104 Systems, are designed to operate in challenging work environments such as extreme temperatures, repeated vibrations or dirty and dusty conditions. The iX104 Systems can be fitted with a wide range of performance-matched accessories, including multiple docking station solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard modules, as well as traditional peripherals like keyboards and cases.

        Our strategy is to become the leading developer and marketer of rugged mobile wireless computing systems. Our revenue is currently derived through the sale of our iX104 Systems in the rugged, mobile Tablet PC market. Over the past several years, our iX104 Systems have been recognized for their ruggedness and versatility by Pen Computing ("Best Rugged Slate-Style Tablet PC"), Table PC2 ("Editor's Choice Award for AllVue™ Screen") and Lap Top Magazine ("Editor's Choice Award"). We intend to grow our revenue by entering into other larger rugged, mobile computer markets through the development of new rugged, mobile computing systems. Currently we are developing numerous new products, including a rugged, mobile notebook PC. In addition, we are developing the next generation of our iX Tablet PC. We expect that these products will be available in fiscal year 2009.

Recent Developments

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

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New product development



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Enhanced focus on military markets



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Continued penetration into the Fortune 500/Global 2000 markets



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Establishment of key relationships with new suppliers

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

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

        We have made a significant investment to expand our presence in the U.S. military market, one of the world's largest consumers of rugged mobile computers. In addition to creating a team focused on military opportunities, we are developing what we believe is a state of the art rugged docking station that when combined with our iX104 creates a highly flexible and functional system. We believe our efforts should position Xplore to compete more effectively in this market.

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

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

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

Products

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

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the iX104C³ Plus Tablet PC with durable finger print reader and user accessible hard drive and PC card bay; and



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the iX104C² Tablet PC with Intel Centrino® technology.

        Each of these tablets is available in the following models:

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the Dual Mode with Intel Centrino® technology and both active stylus and finger touch inputs;



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the AllVue™ with Intel Centrino® technology and AllVue™ LCD technology for enhanced viewability in all lighting conditions; and



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the Dual Mode with AllVue™ with Intel Centrino® technology, Dual Mode input capability and AllVue™ LCD technology for enhanced viewability in all lighting conditions.

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

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

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

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

        Processing Power—We have the ability to provide processing power alternatives on a timely and cost-effective basis. Our systems use Intel Pentium M Centrino® processors and associated chipsets, as

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well as other performance enhancement technologies that we believe are essential in many field applications (such as mapping and remote connectivity). In addition, Lithium ION batteries support usage times between 3-5 hours and a "warm" swap feature allows users to switch batteries in the field without having to power down the system.

        Remote Connectivity—Our current products provide a complete range of wireless options (wLAN, wWAN and PAN) as well as global positioning system options.

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

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

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

Strategy

        Our strategy is to become the leading developer and marketer of rugged mobile wireless computer systems. We currently compete in the rugged tablet PC market. Leveraging our expertise and our existing infrastructure, we plan to penetrate other product market categories, such as rugged notebooks, which are larger than our existing rugged tablet PC market.

Leverage Existing Markets

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

        Our strategy includes the following key elements:

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

        Investment and nurturing of key relationships—We intend to continue to outsource our manufacturing so that we can continue to focus our efforts on our technology and product development, customer application and project deployment activities, through our collaborations on engineering and manufacturing matters with our partners, such as Wistron and Pegatron, leading contract manufacturers located in Taiwan. In addition, we are working with VT Miltope on an integrated tablet and active docking system. The initial targeted military market segments include ground and C4I (Command, Control, Communications, Computers and Intelligence) systems.

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

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

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

Expand into New Rugged Product Markets

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

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

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the expanding wireless data movement;



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the transition toward rugged computing solutions in non-traditional office environments; and



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the adoption of more rugged mobile computers in the face of the failure rates for office-oriented computers that have been deployed into challenging operating environments.

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

Sales

        Our customers are distribution partners, such as large computer companies, specialized system integrators, software vendors, distributors and value-added resellers, and to a lesser extent, end-users. For fiscal year 2008 approximately 83% of our total revenues were attributable to sales to our distribution partners and approximately 17% of our total revenues were attributable to sales directly to our end-users. We currently have more than 60 distribution partners. Our distribution partners generally have large sales organizations which in turn sell our products to entities that are the ultimate end-users of our products. Our distribution partners include large computer companies such as Dell, Inc., specialized system integrators such as Methec B.V. Industrielaan, Psion Teklogix Inc. and Peak Technologies, and software vendors such as Environmental Systems Research Institute. In any given year, a single distribution partner can account for a significant portion of our revenue. In fiscal year 2008, we had one distribution partner located in the Netherlands that accounted for approximately 10% of our revenue and we did not have any single end-user that accounted for over 10% of our revenue. We are not substantially dependent on any single one distribution partner or end-user. Our end-users include Daimler Chrysler, Hydro One, the City of Cleveland Police Department, Shell Oil UK, Proctor & Gamble, the Royal Netherlands Air Force, the Rome Fire Department and the U.S. Federal Emergency Management Agency. Proctor & Gamble and Burlington Northern Santa Fe Railway have adopted our Tablet PC as their standard rugged tablet computer.

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

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upon a standard agreement. Our distribution partners are currently selling our products in the public safety, utility, field service, logistics and military markets.

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

Marketing

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

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Participation in targeted industry trade shows and conferences;



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Editorial coverage and advertisements placed in targeted vertical market, technology and business mediums, including specific industry publications;



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Product marketing refinement by obtaining customer feedback through data collected by our customer support team, as well as through surveys;



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Use of our web site for communications, as well as customer and channel support capabilities;



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Inclusion of customers, industry experts and others in the product development and testing cycles; and



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Development of proven case studies or application papers for specific vertical market applications.

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

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

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

Market Segments

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

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

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

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

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

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

Research and Development

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

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

        We continue to invest in research and development to enhance and expand our rugged mobile computing systems. Additional form factors, operating systems and screen technologies are all considered for integration into our rugged platform as we seek to expand into additional markets. During the fiscal years ended March 31, 2008 and 2007, we incurred $4,244,000 and $2,935,000, respectively, on research and development activities.

Competition

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

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

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

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

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

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

Manufacturing

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

        Under the terms of our agreement with Wistron, which we entered into on July 1, 2003, Wistron provides us with design, manufacturing and support services related to our ruggedized mobile personal computer tablets. Our purchase price of the products produced by Wistron is determined based on the specific configuration of the tablet being produced and is subject to a cost reduction plan and volume

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based discounts. At least quarterly, we meet with Wistron to develop the cost reduction plan. The plan takes into account alternative suppliers along with components, design, process changes and other cost savings procedures. Each month we provide Wistron with a six month rolling forecast of the products we anticipate ordering. Wistron has 45 days after acceptance of the purchase order to ship the product. If products ordered during any quarter exceed the volume projected in the forecast, Wistron has agreed to use its reasonable best efforts to deliver the excess products within 20 days after acceptance of the purchase order.

        Wistron has provided several warranties to us, including that Wistron has all necessary rights required to sell the products, that each product will be free from any material defect for a period of 36 months, that the products will be free from any liens, encumbrances or defects in title and that the products will comply with all specifications. So long as we are meeting our target volumes, Wistron agrees not to design, engineer, and manufacture or sell any rugged mobile tablet that is competitive with ours. The term of the agreement is for five years and automatically renews for additional one year terms, unless either party provides written notice of its intent to terminate the agreement at least 120 days prior to the expiration of any renewal term. The Wistron agreement is expected to automatically renew for a one-year term on July 1, 2008. In addition, the Wistron agreement contains a provision that allows for termination for any reason by either party upon 120 days notice.

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

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

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

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

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

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Intellectual Property

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

Employees

        As at May 31, 2008, we had 73 full-time employees, of which 44 were employed in the operations, engineering, research and development and customer support areas, 10 were involved in corporate and administrative areas, and 19 were employed in sales and marketing. Our employees are not represented by a union or other collective bargaining unit and we have never experienced a work stoppage. We believe that our employee relations are good.

Trademarks and Service Marks

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

Principal Executive Offices

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

Available Information

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

Item 1A.    Risk Factors

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

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Risks Relating to our Business

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

        We have incurred net losses in each fiscal year since our inception. For our fiscal year ended March 31, 2008, we incurred a net loss of approximately $7.1 million. In addition, as of March 31, 2008, our accumulated deficit was approximately $100 million. Our losses have resulted primarily from expenses incurred in research and development of our technology and products and from selling and marketing our products. We expect to continue to incur additional operating losses through fiscal 2009 as we continue our research and development efforts, introduce new products and expand our sales and marketing activities. We cannot assure you that our revenue will increase or that we will be profitable in any future period.

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

        Our operations have consumed substantial amounts of cash since inception. From our inception in 1996, we have financed our operations and met our capital expenditure requirements primarily from debt and equity financings totaling $95 million. We expect to continue to spend substantial amounts to complete the development and commercialization of our rugged notebook and rugged convertible notebook and to continue our research and development programs, including those to advance our current product line. As at March 31, 2008, our working capital was approximately $5.1 million and our cash and cash equivalents were approximately $0.7 million. We believe that cash flow from operations, together with borrowings from our credit facility and, if necessary, financial support from Phoenix Venture Fund LLC ("Phoenix"), our significant shareholder, and its affiliates will be sufficient to fund our anticipated operations for the next 12 months. However, we may seek to access the public or private markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. It is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us or at all. To the extent we raise additional funds by issuing equity our shareholders may experience significant dilution. Any debt financing, if available, may require us to agree to restrictive covenants that could negatively impact our ability to conduct our business. If we are not able to obtain financing when needed or on acceptable terms, we would likely be unable to carry out our business plan, and would have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products, the occurrence of which could significantly harm our business and prospects and could cause our stock price to decline.

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

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

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

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

10

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

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

        Historically, in any given year a single value-added reseller (or VAR) customer could account for more than 10% of our revenue. In fiscal year 2008, one VAR customer, Methec B.V. Industrielaan, accounted for approximately 10% of our total revenue and in fiscal year 2007, no one VAR customer accounted for over 10% of our total revenue. If we are unable to replace revenues generated from one of our major resellers with revenues from others our revenues may fluctuate and our growth would be limited.

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

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

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

        We currently rely primarily on Wistron for the manufacture of our products and Pegatron to manufacture products under development and expect to continue to do so for the foreseeable future. Our reliance involves a number of risks, including:

•

reduced management and control of component purchases;



•

reduced control over delivery schedule and quality assurance;



•

reduced control over manufacturing yields;



•

lack of adequate capacity during periods of excess demand;



•

limited warranties on products supplied to us;



•

potential increases in prices;



•

interruption of supplies from assemblers as a result of fire, natural calamity, strike or other significant events; and



•

misappropriation of our intellectual property.

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

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needs in a satisfactory and timely manner, that Wistron or Pegatron has the required capacity to satisfy our manufacturing needs or that we can obtain additional or alternative manufacturers when and if needed. The availability to us of Wistron or Pegatron, and the amount and timing of resources to be devoted to these activities is not within our control, and we cannot assure you that we will not encounter manufacturing problems that would materially harm our business. The loss of Wistron or Pegatron, a significant price increase, an interruption of supply or the inability to obtain additional or an alternative manufacturer when and if needed would impair our ability to deliver our products to our customers.

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

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

•

product performance, features and reliability;



•

price;



•

name recognition in the marketplace; and



•

product availability and lead times.

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

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

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

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

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

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

        In the fiscal years ended March 31, 2008 and March 31, 2007, approximately 42% and 44%, respectively, of our revenue was comprised of sales made outside of the United States. Our operations may be materially and adversely affected by many risks related to doing business outside of the United States, including:

•

increases in duty rates, exchange or price controls;



•

governmental currency controls;



•

import restrictions;



•

political, social and economic changes and disruptions;



•

in certain jurisdictions, reduced protection for our intellectual property rights; and



•

difficulty in enforcing contracts or legal rights under foreign legal systems.

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

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

        Our operations are dependent on the abilities, experience and efforts of a number of key personnel, including our Chairman, Philip S. Sassower, Mark Holleran, our President and Chief Operating Officer, Michael J. Rapisand, our Chief Financial Officer, Bryan Bell, our Vice President of Engineering, Randy Paramore, our Vice President of Supply Chain and Gregory E. Arends, our Chief Technology Officer. Should any of these persons or other key employees be unable or unwilling to continue in our employ, our ability to execute our business strategy may be adversely affected. In addition, our success is highly dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified management, technical and sales and marketing personnel. Competition for such personnel is intense. We may be unable to attract and retain the personnel necessary for the development of our business. The inability to attract or retain qualified personnel in the future or delays in hiring skilled personnel could harm our relations with our customers and our ability to respond to technological change which would prevent us from executing our business strategy.

Risks Relating to Ownership of our Common Stock

Two of our shareholders, Philip S. Sassower and Phoenix Venture Fund LLC, own in the aggregate approximately 36.0% of our voting securities and thus have effective control over matters requiring shareholder approval.

        One of our shareholders, Phoenix Venture Fund LLC, is co-managed by Philip S. Sassower, our Chairman and Chief Executive Officer, and Andrea Goren, one of our directors, and beneficially owns, in the aggregate, approximately 24.6% of our outstanding voting securities. In addition, Mr. Sassower, together with entities controlled by him, beneficially own approximately 11.4%, in the aggregate, of our outstanding voting securities. Thus, Phoenix Venture Fund and Mr. Sassower together control approximately 36.0% of our outstanding voting securities. Accordingly, Phoenix Venture Fund and Mr. Sassower have the ability to exercise significant influence (and have effective control) over matters generally requiring shareholder approval, including the election of directors and the approval of significant corporate transactions, which could have the effect of delaying or preventing a third party from acquiring control over us.

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

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

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

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

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

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

•

announcements of developments related to our business;



•

quarterly fluctuations in our actual or anticipated operating results;



•

announcements of technological innovations;



•

new products or product enhancements introduced by us or by our competitors;



•

developments in patents and other intellectual property rights and litigation;



•

developments in our relationships with our third party manufacturers and/or strategic partners;



•

developments in our relationships with our customers and/or suppliers; and



•

general conditions in the worldwide economy.

        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

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and will depend upon our earnings, capital requirements, operating and financial conditions and on such other factors the board of directors deems relevant. Under the terms of our certificate of incorporation, we are prohibited from paying dividends on our common stock unless and until all accrued and unpaid dividends (which are paid in common stock) are paid on our shares of Series A, Series B, and Series C Preferred Stock. Furthermore, under the terms of our loan agreement with a commercial bank, we are prohibited from paying cash dividends.

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        We maintain our corporate functions along with sales support, marketing, finance, engineering and operating groups at a leased facility totaling approximately 21,700 square feet at 14000 Summit Drive, Suite 900, Austin, Texas. The lease expires on August 31, 2009, and has a current annual base rent of approximately $251,000. We have the option to renew this lease for an additional three years. We also lease a satellite office in Helsinki, Finland, on a three-month renewable basis. We believe that our existing leases will be renegotiated as they expire or that alternative properties can be leased on acceptable terms. We also believe that our present facilities are suitable for continuing our existing and planned operations.

Item 3.    Legal Proceedings

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

        In March 2008, Typhoon Touch Technologies, Inc. ("Typhoon") and Nova Mobility Systems, Inc. ("Nova") (collectively, the "Plaintiffs") filed Plaintiffs' First Amended Complaint for Patent Infringement (the "Complaint") against the Company and several other defendants including Dell, Inc., in the United States District Court for the Eastern District of Texas (the "Court"). The Complaint alleges that the defendants manufacture, sell, offer for sale and/or import products that infringe on two U.S. patents owned by Typhoon and exclusively licensed to Nova (the "Patents"). In April 2008, the Company filed its Answer, Defenses and Counterclaim in response to the Complaint, denying the allegations of infringement and requesting the Court to dismiss the Complaint and award judgment in favor of the Company, including recovery of the Company's attorneys' fees and costs. In May 2008, Plaintiffs filed Plaintiffs' Reply to the Company's Counterclaims in which Plaintiffs deny any allegation that any claim relating to the Patents is invalid. The Court has not issued a scheduling order. The Company believes the Plaintiff's claims are without merit and will continue to defend against such claims. The Company does not expect this matter to have a material adverse impact on its financial condition or results of operations.

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

Item 4.    Submission of Matters to a Vote of Security

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

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

For	Against	Abstain	Broker Non-Vote	% of Shares Voting For
79,558,690	775	62,467	—	99.9	%

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

For	Against	Abstain	Broker Non-Vote	% of Shares Voting For
22,124,317	3,463,492	61,895	—	86.2	%

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

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

For	Against	Abstain	Broker Non-Vote	% of Shares Voting For
78,796,353	340,910	161,674	—	99.3	%

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

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

For	Against	Abstain	Broker Non-Vote	% of Shares Voting For
79,306,054	153,458	162,240	—	99.6	%

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PART II

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

Market Information

        Our common stock is quoted on the OTC Bulletin Board under the symbol "XLRT". Our common stock was formerly listed on the Toronto Stock Exchange under the symbol "XPL." We voluntarily delisted from the Toronto Stock Exchange effective April 11, 2008. We have one class of common stock and three classes of preferred stock. As of May 31, 2008, there were 589 holders of record of our common stock. The following table sets forth, for the periods indicated, the high and low sales price of our common stock on the Toronto Stock Exchange.

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

Dividend Policy

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

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

Recent Sales of Unregistered Securities

        On January 17, 2008, we issued 65,484 shares of common stock to Martin E. Janis & Company, Inc. in return for investor relations services provided to us by Martin Janis. The issuance of such common stock was exempt from the registration requirements of the Act pursuant to Section 4(2) as the transaction did not involve a public offering. The price per share was $0.31.

Item 6.    Selected Financial Data.

        Not applicable.

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

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

General

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

        Our revenue is currently derived through the sale of our iX104 Systems in the rugged, mobile Tablet PC market. We believe this market is small relative to other rugged PC markets. Therefore, we intend to grow our revenue by entering into other larger rugged, mobile computer markets through the development of new rugged, mobile computing systems. Currently we are developing numerous new products, including a rugged, mobile notebook PC. In addition, we are developing the next generation of our iX Tablet PC. We expect that these products will be available in fiscal 2009.

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

Critical Accounting Policies

        Our consolidated financial statements and accompanying notes included in this annual report are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management's application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact our financial condition, changes in financial condition or results of operations. Our significant accounting policies are discussed in Note 2 of the Notes to our Annual Consolidated Financial Statements as of March 31, 2008 and 2007 and for each of years in the two year period ended March 31, 2008. On an ongoing basis, we evaluate our estimates, including those related to our revenue recognition, inventory valuation, warranty reserves, tooling amortization, financial instruments and income taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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        Our critical accounting policies are as follows:

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

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

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

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

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

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

Recent Accounting Pronouncements

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

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

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

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

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

Results of Operations

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

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

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

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

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

        General Administration.    General administration expenses consist of salaries and related expenses for finance, accounting, legal, human resources and information technology personnel, professional fees and corporate expenses, and costs associated with being a public company, including regulatory compliance costs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

23

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

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

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

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

        Net Loss Attributable to Common Shareholders.    Net loss attributable to common shareholders for the year ended March 31, 2008 was $10,855,000 compared to $10,881,000 for the year ended March 31, 2007. We have issued Series A, B and C Preferred Stock that earn a cumulative 5% dividend. The dividends attributable to these shares for the years ended March 31, 2008 and 2007 were $1,449,000 and $885,000, respectively. The current year amount is higher since it represents a full year of dividends on both the Series A and Series B Preferred Stock which were issued in the first and second quarters of fiscal 2007, as well as includes dividends for the Series C Preferred Stock issued September 21, 2007. Additionally, our convertible Series A, Series B and Series C Preferred Stock have beneficial conversion features as a result of an in-the-money conversion option at the respective dates of commitment. For each issuance of the Series A, Series B and Series C Preferred Stock, the value of the beneficial conversion feature was determined as the difference between the effective conversion price and the closing market price of our common stock as reported on the Toronto Stock Exchange as of the related financing's commitment date multiplied by the number of shares into which the Preferred Stock are convertible. The value of the beneficial conversion features was presented as deemed dividends to the preferred stockholders with an offsetting amount to additional paid-in capital. Since the Preferred Stock was immediately convertible into common stock by the holders at any time, we recorded non-cash charges (deemed dividends) in connection with the Preferred Stock financings aggregating approximately $2,328,000 and $3,381,000 for the years ended March 31, 2008 and 2007, respectively.

Liquidity and Capital Resources

        The rate of growth in the tablet market for our products and our success in gaining market share has been less than we anticipated. We have incurred net losses in each fiscal year since our inception and we expect to report operating losses through the end of our fiscal year ending March 31, 2009. As at March 31, 2008, our working capital was $5,101,000 and our cash and cash equivalents were $733,000. From inception we have financed our operations and met our capital expenditure requirements primarily from the gross proceeds of private and public sales of debt and equity securities totaling approximately $95 million.

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

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

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

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

        We believe that cash flow from operations, together with borrowings from our credit facility and, if necessary, financial support from Phoenix and its affiliates will be sufficient to fund our anticipated operations, working capital, capital spending and debt service for the next 12 months. However, we may seek to access the public or private markets whenever conditions are favorable even if we do not have an immediate need for additional capital at that time.

Cash Flow Results

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

	Year Ended March 31,
	2008			2007
	(in thousands of US dollars)
Cash used in operating activities	$	(6,165	)	$	(3,339	)
Cash used in investing activities		(1,113	)		(567	)
Cash provided by financing activities		6,300			5,561
Cash and cash equivalents		733			1,711

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

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

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

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March 31, 2007, cash provided by financing activities was from the private placements of Series A and Series B Preferred Stock and common stock, a reduction of borrowings from our revolving credit facility and also included proceeds from the issuance of debentures subsequently exchanged for Series A Preferred Stock.

Off-Balance Sheet Arrangements

        We have no off-balance sheet arrangements.

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

        Not applicable.

Item 8.    Financial Statements and Supplementary Data.

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

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

        None.

Item 9A.    Controls and Procedures.

        Not applicable.

Item 9A(T).    Controls and Procedures.

(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 Commissions rules and forms.

(b)

Management's report on internal control over financial reporting.

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

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

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that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

        Management assessed the effectiveness of the Company's internal control over financial reporting as of March 31, 2008 based on the framework established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, management concluded that, as of March 31, 2008, the Company's internal control over financial reporting was effective based on the criteria established in Internal Control—Integrated Framework.

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

(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, 2008 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B.    Other Information.

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

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

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

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

        The following table sets forth certain information concerning the directors and executive officers of our company as of May 31, 2008:

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

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

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

Michael J. Rapisand has 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. Bell became our Vice President of Engineering in May 2008. Prior to joining our company, Mr. Bell was Vice President of Operations at Sirific Wireless since February 2003. Sirific develops solutions for 3.5G multi-mode, multi-band mobile cellular and broadband data for notebook computers. From October 2000 to February 2003, he was DSL Engineering Team Leader at Texas Instruments. From February 1997 to October 2000, Mr. Bell was the Vice President and General Manager of the notebook computer business of Acer Advanced Labs, Inc.

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

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

Francis J. Elenio has been a director of our company since November 2007. Mr. Elenio is Chief Financial Officer of Premier Wealth Management, Inc., a wealth management company focused on medium and high net worth individuals, and has served in that position since September 2007. In addition, Mr. Elenio is Chief Financial Officer of Wilshire Enterprises, Inc., a real estate investment and management company, and has served in that position since September 2006. Previously, Mr. Elenio was Chief Financial Officer of WebCollage, Inc., an internet content integrator for manufacturers, from March 2006 through August 2006. From November 2005 through March 2006, Mr. Elenio was interim Chief Financial Officer of TWS Holdings, Inc., a business process outsourcing company. From April 2004 until November 2005, Mr. Elenio was Chief Financial Officer and Director for Roomlinx, Inc., a provider of wireless high speed internet access to hotels and conference centers. From January 1999 to August 2003, Mr. Elenio served as Chief Financial Officer, Secretary and Treasurer of GoAmerica, Inc., a provider of wireless communications products and services.

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

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

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

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Section 16(a) Beneficial Ownership Reporting Compliance

        Based solely upon a review of Forms 3, 4 and 5 and amendments to these forms furnished to us, we believe all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed on a timely basis all such required reports during and with respect to our 2008 fiscal year.

Code of Ethics

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

Audit Committee

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

Item 11.    Executive Compensation

Executive Compensation

Summary Compensation Table

        The following table sets forth the compensation earned by or awarded to, as applicable, our principal executive officer, principal financial officer and other executive officers during our fiscal years ended March 31, 2008 and 2007, such officers are referred to herein as the "named executive officers."

Name and Principal Position	Year	Salary US($)	Bonus US($)		Option Awards US($)(1)	All Other Compensation US($)		Total US($)
Philip S. Sassower— Chief Executive Officer(2)	2008 2007	— —	— —		54,000 47,542	7,500 3,750	(3) (3)	61,500 51,292
Mark Holleran— President and Chief Operating Officer	2008 2007	250,000 230,743	148,940 147,934	(4) (4)	296,689 211,661	— 60,059	(5)	694,787 650,397
Michael J. Rapisand— Chief Financial Officer	2008 2007	180,000 167,010	— 50,400	(6)	105,723 47,542	— —		285,723 264,952

(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 SFAS 123(R) 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)

Represents fees paid to Mr. Sassower for attending meetings of our Board of Directors

(4)

Under the terms of Mr. Holleran's Management by Objective (MBO) plan, in fiscal years 2008 and 2007, he had the opportunity to earn a cash bonus of up to 100% of his base salary ($250,000) based on the achievement of objectives in the following weighted categories: revenues (40%), EBITDA performance (20%), new product development (15%), additional financings (10%), retention of staff (7.5%) and hiring new employees (7.5%). For purposes of our named executive officers' MBO plans, we define EBITDA as earnings before, interest, taxes, depreciation,

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amortization and non-cash transactions (such as stock compensation expense, services paid with stock and amortization of values assigned to warrants issued in financings). Mr. Holleran's bonuses in fiscal years 2008 and 2007 were based on his efforts in managing our sales team and he did not earn any compensation under his MBO plan.

(5)

Represents reimbursement for actual out-of-pocket relocation costs incurred by Mr. Holleran.

(6)

Represents bonus compensation earned by Mr. Rapisand pursuant to his MBO plan. Under the terms of Mr. Rapisand's MBO plan in fiscal year 2008, he had the opportunity to earn a cash bonus of up to 40% of his base salary ($72,000) based on his achievement of objectives in the following weighted categories: revenues (50%), EBITDA performance (25%) and additional financings (25%). The objectives under Mr. Rapisand's MBO plan were not achieved in fiscal 2008 and no bonus was earned. Under the terms of Mr. Rapisand's MBO plan in fiscal year 2007, he had the opportunity to earn a cash bonus of up to 40% of his base salary ($72,000) based on his achievement of objectives in the following weighted categories: revenues (40%), EBITDA performance (20%), additional financings (20%) and completion of our corporate migration (20%). In fiscal 2007, objectives under his MBO plan were partially achieved and a partial bonus was earned.

Elements of Our Compensation Program

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

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

        The individual elements of our compensation program are as follows:

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

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

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

        Each of our named executive officers (other than Philip S. Sassower) participates in his own individual Management by Objectives plan, which we refer to as a MBO plan as discussed in footnotes four and six in the summary compensation table for fiscal years 2008 and 2007.

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

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

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

        With respect to newly hired employees, our practice is typically to make stock grants at the first meeting of our board of directors following such employee's hire date. We do not have any program, plan or practice to time stock options grants with the release of material non-public information. We do not time, nor do we plan to time, the release of material non-public information for the purposes of affecting the value of executive compensation.

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

        On December 19, 2007, our board of directors awarded options to purchase 3,400,664 shares of common stock to our employees. The award was intended to align such executive's equity compensation

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

Employment Agreements

Mark Holleran

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

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

        As part of the employment agreement, we agreed to reimburse Mr. Holleran up to $80,000 of his expenses incurred in connection with his relocation from Toronto, Canada to Austin, Texas. The actual amount incurred was $60,059, which was paid in fiscal 2007. We also agreed that if we terminate Mr. Holleran's employment without cause during the term of his employment agreement, in addition to any payments due to him under the terms of the agreement, we will reimburse Mr. Holleran up to $80,000 of his expenses incurred in connection with his relocation back to Canada. The employment agreement also contains customary non-compete, non-solicitation, non-disparagement and confidentiality provisions.

Severance and Change in Control Benefits

        Mark Holleran, our President and Chief Operating Officer, has a provision in his employment agreement that gives him severance benefits if his employment is terminated without cause. In addition, his employment agreement provides for the acceleration of his then unvested options following a change in control of our company. Mr. Holleran will also receive a transaction bonus if our company is sold during the term of his employment. The amount of the transaction bonus will be based upon the total consideration received by our shareholders from the sale of our company, less our transaction expenses. Mr. Holleran will be entitled to receive 50% of the total amount of the transaction bonus pool that is eligible to be paid to our executives. In addition, under the terms of our transaction bonus pool, if our company is sold during the term of their employment, our Chief Financial Officer, Michael J. Rapisand, will receive 30%, our Vice President of Engineering, Bryan J. Bell, will receive 5% and the remaining 15% will be distributed among our senior management team as decided by our board of directors.

        We have chosen to provide these benefits to our executives because we believe we must remain competitive in the marketplace. These severance and acceleration provisions and estimates of these

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change of control and severance benefits are described in the section entitled "—Estimated Payments and Benefits Upon Termination or Change in Control" below.

Pension Benefits

        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.

Nonqualified Deferred Compensation

        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.

Other Benefits

        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.

Impact of Regulatory Requirements

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

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

Stock Ownership Requirements

        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.

Role of the Executive Officers in Determining Executive Compensation

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

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Outstanding Equity Awards at 2008 Fiscal Year-End

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

Name	Number of Securities Exercisable	Number of Securities Unexercisable		Option Exercise Price C($)			Option Expiration Date
Philip S. Sassower— Chief Executive Officer	100,000 100,000	50,000 100,000	(1) (2)	$ $	0.93 0.44		06/21/2010 08/29/2011
Mark Holleran— President and Chief Operating Officer	175,000 78,334 113,334 400,000 522,22355 —	— — — 800,000 1,044,445 1,866,664	(3) (4) (5) (6)	$ $ $ $ $ $	0.46 0.56 0.93 0.38 0.44 0.50	(6)	05/20/2008 01/06/2010 06/21/2010 06/30/2011 08/29/2011 12/19/2012
Michael J. Rapisand— Chief Financial Officer	64,459 372,701 91,717	476,362	(7)	$ $ $	1.12 0.56 0.44		08/11/2009 01/06/2010 08/29/2011

(1)

50,000 options vest on June 21, 2008.

(2)

50,000 options vest on August 29, 2008 and 50,000 options vest on August 29, 2009.

(3)

Such options expired, unexercised, on May 20, 2008.

(4)

400,000 options vest on June 30, 2008 and 400,000 options vest on June 30, 2009.

(5)

522,223 options vest on August 29, 2008 and 522,222 options vest on August 29, 2009.

(6)

622,222 options vest on December 19, 2008, 622,221 options vest on December 19, 2009 and 622,221 options vest on December 19, 2010. The exercise price for these options is in United States dollars.

(7)

230,493 options vest on August 29, 2008 and 245,869 options vest on August 29, 2009.

Estimated Payments and Benefits Upon Termination or Change in Control

Holleran Employment Agreement

        The following table describes the potential payments and benefits payable to Mr. Holleran, our President and Chief Operating Officer, upon termination of his employment by us without cause, as if his employment terminated as of the March 31, 2008, the last business day of our last fiscal year. If Mr. Holleran's employment is terminated by us without cause, as a result of his death or disability, by us for cause or voluntary by Mr. Holleran, he is entitled to receive any earned or accrued, but unpaid, base compensation and bonus and all accrued but unused vacation days through the termination date.

Payments and Benefits		Termination by Company Without Cause(1)
Compensation:
	Base salary(2)	$	250,000	(4)
	Performance bonus(3)	$	148,437	(5)
Benefits and Perquisites:		$	92,024	(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

35

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 $1,002 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.

Change in Control Benefits

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

        The following table sets forth the potential payments to our named executive officers as if we had a change of control as of the March 31, 2008, the last business day of our 2008 fiscal year.

Name	Transaction Bonus Pool(1)			Market Value of Accelerated Options
Philip S. Sassower—Chief Executive Officer		—	(2)	—	(3)
Mark Holleran—President and Chief Operating Officer	$	1,000,462	(4)	—	(5)
Michael J. Rapisand—Chief Financial Officer	$	600,277	(6)	—	(7)

(1)

Our named executive officers (except for Philip S. Sassower) are eligible to participate in a transaction bonus pool designed to incentivize 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% to Mark Holleran, our President and Chief Operating Officer, 30% to Michael J. Rapisand, our Chief Financial Officer, 5% to Bryan J. Bell, our Vice President of Engineering and the balance to our then current senior management team, as decided by our board of directors, in consultation with Mr. Holleran.

(2)

Mr. Sassower is not eligible to participate in the transaction bonus pool.

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(3)

Pursuant to the terms of our Share Option Plan, all outstanding options shall immediately vest upon the occurrence of a change of control of our company. Assuming a market price of $0.28 per share, which represents the closing price of our common stock on March 31, 2008 as reported by the Toronto Stock Exchange, converted into U.S. dollars based upon the Bank of Canada's closing exchange rate, the exercise price of all of the options held by such executive officer would be below the market price and thus the accelerated options would have a value of nil.

(4)

Assuming (i) a per share sales price of $0.28, which represents the closing price of our common stock on March 31, 2008 as reported by the Toronto Stock Exchange, converted into U.S. dollars based upon the Bank of Canada's closing exchange rate, and (ii) transaction costs of 10% of the total proceeds, the aggregate transaction bonus pool would be $2,000,923. Mr. Holleran would be entitled to receive 50% of the transaction bonus pool.

(5)

Pursuant to the terms of our Share Option Plan, all outstanding options shall immediately vest upon the occurrence of a change of control of our company. Assuming a market price of $0.28 per share, which represents the closing price of our common stock on March 31, 2008 as reported by the Toronto Stock Exchange, converted into U.S. dollars based upon the Bank of Canada's closing exchange rate, the exercise price of all of the options held by such executive officer would be at or below the market price and thus the accelerated options would have a value of nil.

(6)

Assuming (i) a per share sales price of $0.28, which represents the closing price of our common stock on March 31, 2008 as reported by the Toronto Stock Exchange, converted into U.S. dollars based upon the Bank of Canada's closing exchange rate, and (ii) transaction costs of 10% of the total proceeds, the aggregate transaction bonus pool would be $2,000,923. Mr. Rapisand would be entitled to receive 30% of the transaction bonus pool.

(7)

Pursuant to the terms of our Share Option Plan, all outstanding options shall immediately vest upon the occurrence of a change of control of our company. Assuming a market price of $0.28 per share, which represents the closing price of our common stock on March 31, 2008 as reported by the Toronto Stock Exchange, converted into U.S. dollars based upon the Bank of Canada's closing exchange rate, the exercise price of all of the options held by such executive officer would be below the market price and thus the accelerated options would have a value of nil.

Director Compensation

        In June 2006, our board of directors approved a director compensation plan pursuant to which we will pay our directors a fee to attend board meetings. Under the plan, each director receives $1,500 for each board meeting he attends in person and $750 for each board meeting he attends by teleconference. In addition, from time to time, we grant options to our directors to purchase shares of our common stock. We also reimburse our directors for out-of-pocket expenses incurred in connection with attending our board and board committee meetings. Compensation for our directors, including cash and equity compensation, is determined, and remains subject to adjustment, by our board of directors.

Fiscal Year 2008 Director Compensation

        The following table sets forth compensation information for the Company's directors, who are not named executive officers, for our fiscal year ended March 31, 2008.

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

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Stock Option Plan

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

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

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

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

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

•

changing the eligibility for and limitations on participation in the Plan;



•

changing the terms on which options may be granted and exercised including, the provisions relating to exercise price, vesting, expiration, assignment and certain other adjustments;



•

making any addition to, deletion from or alteration of the provisions of the Plan that is necessary to comply with applicable law or the requirements of any regulatory authority or stock exchange;



•

correcting or rectifying any ambiguity, defective provision, error or omission in the Plan; and



•

changing the provisions relating to the administration of the Plan;

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

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

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

Equity Compensation Plan Information

        The following table sets out information with respect to compensation plans under which equity securities of our company were authorized for issuance as of March 31, 2008.

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	14,329,668	C$	0.51	16,048,947
Equity compensation plans not approved by security holders	N/A		N/A	—
Total	14,329,668	C$	0.51	16,048,947

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information regarding beneficially ownership of our capital stock as of May 31, 2008 by (i) each person known by us to be the beneficial owner of more than 5% of any class of our voting securities, (ii) each of our directors, (iii) each of our"named executive officers" and (iv) our directors and executive officers as a group.

					Series A Preferred Stock Beneficially Owned				Series B Preferred Stock Beneficially Owned		Series B Preferred Stock Beneficially Owned
	Common Stock Beneficially Owned
					Number of Shares of Series A Preferred Stock				Number of Share of Series B Preferred Stock		Number of Shares of Series B Preferred Stock
Name 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	4,539,386	(8)	6.4	%	13,676,370	(24)	21.6	%	—	—	—	—		11.4	%
Mark Holleran	1,513,891	(9)	2.1	%	—		—		—	—	—	—		*
Michael J. Rapisand	635,001	(10)	*		147,059		*		—	—	—	—		*
Bryan J. Bell	—		—		—		—		—	—	—	—		—
Gregory E. Arends	500,000	(11)	*		—		—		—	—	—	—		*
Randy Paramore	300,000	(12)	*		—		—		—	—	—	—		*
Brian E. Usher-Jones	513,750	(13)	*		—		—		—	—	—	—		*
Andrea Goren	920,000	(14)	*		—		—		—	—	—	—		*
Thomas F. Leonardis	250,000	(15)	*		—		—		—	—	—	—		*
Frank Elenio	—		—		—		—		—	—	—	—		—
Phoenix Venture Fund LLC 110 East 59th Street New York, NY 10022	5,008,337	(16)	7.0	%	31,032,014	(25)	49.1	%	—	—	3,320,000	21.7	%	24.6	%
Alex and James Goren 150 East 52nd Street New York, NY 10022	3,247,496	(17)	4.6	%	4,357,708	(26)	6.9	%	—	—	—	—		4.8	%
JAM Capital Assoc. LLC 112 W 56th New York, NY 10019	1,459,461	(18)	2.1	%	1,130,137		1.8	%	—	—	1,000,000	6.5	%	2.3	%

39

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

*

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.

(2)

Options and warrants exercisable within 60 days of May 31, 2008 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 70,140,669 shares of common stock issued and outstanding as of May 31, 2008.

(4)

Based on 63,178,777 shares of Series A Preferred Stock issued and outstanding as of May 31, 2008.

(5)

Based 9,588,513 shares of Series B Preferred Stock issued and outstanding as of May 31, 2008.

(6)

Based 15,274,000 shares of Series C Preferred Stock issued and outstanding as of May 31, 2008.

(7)

Based on 70,140,669 shares of common stock, 63,178,777 shares of Series A Preferred Stock, 9,588,513 shares of Series B Preferred Stock and 15,274,000 shares of Series C Preferred Stock issued and outstanding as of May 31, 2008.

(8)

Includes 2,229,676 shares of common stock owned of record by Phoenix Enterprises Family Fund, LLC, an entity controlled by Mr. Sassower, 250,000 shares of common stock that Mr. Sassower has the right to acquire under outstanding options exercisable within 60 days after May 31, 2008, 660,000 shares of common stock that Mr. Sassower has the right to control

40

under outstanding warrants exercisable within 60 days after May 31, 2008, 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 330,414 shares of common stock owned of record by The Philip S. Sassower 1996 Charitable Remainder Annuity Trust. Does not include 5,008,337 shares of common 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 1,513,891 shares of common stock that Mr. Holleran has the right to acquire under outstanding options exercisable within 60 days after May 31, 2008.

(10)

Includes 621,352 shares of common stock that Mr. Rapisand has the right to acquire under outstanding options exercisable within 60 days after May 31, 2008.

(11)

Includes 500,000 shares of common stock that Mr. Arends has the right to acquire under outstanding options exercisable within 60 days after May 31, 2008.

(12)

Includes 300,000 shares of common stock that Mr. Paramore has the right to acquire under outstanding options exercisable within 60 days after May 31, 2008.

(13)

Includes 100,000 shares of common stock that Mr. Usher-Jones has the right to acquire under outstanding options exercisable within 60 days after May 31, 2008.

(14)

Includes 250,000 shares of common stock that Mr. Goren has the right to acquire under outstanding options exercisable within 60 days after May 31, 2008 and 660,000 common shares that Mr. Goren has the right to acquire under outstanding warrants exercisable within 60 days after May 31, 2008, 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 5,008,337 shares of common 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.

(15)

Includes 250,000 shares of common stock that Mr. Leonardis has the right to acquire under outstanding options exercisable within 60 days after May 31, 2008.

(16)

Includes 1,660,000 shares of common stock that Phoenix Venture Fund LLC has the right to acquire under outstanding warrants exercisable within 60 days after May 31, 2008. 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.

(17)

Consists of 2,018,643 shares of common stock owned of record by JAG Multi Investment LLC and 1,228,853 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.

(18)

Includes 500,000 shares of common stock that JAM Capital Associates LLC has the right to acquire under outstanding warrants exercisable within 60 days after May 31, 2008.

(19)

Includes 450,000 shares of common stock that James O'Donnell has the right to acquire under outstanding warrants exercisable within 60 days after May 31, 2008.

(20)

Includes 420,000 shares of common stock that Keith Guenther has the right to acquire under outstanding warrants exercisable within 60 days after May 31, 2008.

(21)

Includes 535,000 shares of common stock that Hamir Realty Co. has the right to acquire under outstanding warrants exercisable within 60 days after May 31, 2008.

(22)

Includes 500,000 shares of common stock that Fifty-Ninth Street Investors has the right to acquire under outstanding warrants exercisable within 60 days after May 31, 2008.

(23)

Includes 3,692,768 shares of common stock our directors and executive officers have the right to acquire under outstanding options exercisable within 60 days after May 31, 2008 and 660,000 shares of common stock our directors and executive officers have the right to acquire under outstanding warrants exercisable within 60 days after May 31, 2008. Does not include 5,008,337 shares of common 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.

(24)

Includes 5,171,847 shares of Series A Preferred Stock owned of record by Phoenix Enterprises Family Fund, LLC and 7,135,973 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

41

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.

(25)

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.

(26)

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.

(27)

Does not include 31,032,014 shares of Series A 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.

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

Certain Relationships and Related Transactions

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

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

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

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

42

Director Independence

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

Item 14.    Principal Accounting Fees and Services.

Principal Accountant Fees

Fee Category	Fiscal Year 2008		% of Total		Fiscal Year 2007		% of Total
Audit Fees(1)	$	137,292	100	%	$	202,447	63	%
Audit-Related Fees(2)		—				—	—
Tax Fees(3)		—				22,252	7	%
All Other Fees(4)		—				98,905	30	%
Total Fees	$	137,292	100	%	$	323,604	100	%

(1)

Audit Fees consist of amounts for professional services performed for the audit of our company's 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 audit of the Company's annual consolidated financial statements for the year ended March 31, 2008 and have fees of $117,800. All of the fees were for professional services performed for the audit of our company's annual financial statements and review of quarterly financial statements for our third quarter ended December 31, 2007, and services that are normally provided in connection with statutory and regulatory filings or engagements. Mintz & Partners performed the review of our quarterly financial statements for our first and second quarters ended June 30, 2007 and September 30, 2007 and were paid fees of $19,492. Mintz & Partners performed the audit of our annual consolidated financial statements for the year ended March 31, 2007 and were paid fees of $202,447, this amount includes $10,000 for the reissuance of their report in connection with the filing of the Form 10-K for the fiscal year ended March 31, 2008. All of the fees were for professional services performed for the audit of our company's annual financial statements and reviews of all fiscal 2007 quarterly financial statements, and services that are normally provided in connection with statutory and regulatory filings or engagements.

(2)

No fees were paid to PMB Helin Donovan or Mintz & Partners for assurance and related services reasonably related to the performance of the audit or review of our company's quarterly financial statements, other than Audit Fees, during the two years ended March 31, 2008.

(3)

Consists of professional services rendered by Mintz & Partners for tax compliance, tax advice and tax planning.

(4)

Mintz & Partners billed us $98,905 for services rendered with respect to our domestication.

Pre-Approval Policy

        Consistent with SEC and PCAOB requirements regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. During the year, if it becomes necessary to engage the independent registered public accounting firm for services, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm. In accordance with that policy, our audit committee may delegate to one of its members the approval of such services. In such cases, the items approved will be reported to the audit committee at its next scheduled meeting following such pre-approval. All of the audit and other fees paid to PMB Helin Donovan or Mintz & Partners for fiscal years 2008 and 2007 were approved by our audit committee.

43

PART IV

Item 15.    Exhibits, Financial Statement Schedules.

(1)

Financial Statements

Index to Consolidated Financial Statements

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

(2)

Exhibits

Exhibit Number	Description
3.1	Certificate of Incorporation of Xplore Technologies Corp. (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form 8-A, filed on June 22, 2007, Commission File No. 000-52697)
3.2	By-Laws of Xplore Technologies Corp. (incorporated by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K, filed on July 6, 2007)
3.3	Certificate of Designation of Series C Convertible Preferred Stock of Xplore Technologies Corp (incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K, filed on August 13, 2007)
4.1	Specimen Stock Certificate for Registrant's Common Stock (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-4, filed on February 8, 2007, Registration Statement No. 333-138675)
4.2	Specimen Stock Certificate for Registrant's Series A Preferred Stock (incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-4, filed on February 8, 2007, Registration Statement No. 333-138675)
4.3	Specimen Stock Certificate for Registrant's Series B Preferred Stock (incorporated by reference to Exhibit 4.3 of the Company's Registration Statement on Form S-4, filed on February 8, 2007, Registration Statement No. 333-138675)
4.4	Specimen Stock Certificate for Registrant's Series C Preferred Stock (incorporated by reference to Exhibit 4.4 of the Company's Registration Statement on Form S-1, filed on October 10, 2007, Registration Statement No. 333-146611)
10.1††	Turnkey Design and Manufacturing Agreement, by and between Xplore Technologies Corp. and Wistron Corporation (incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-4, filed on February 8, 2007, Registration Statement No. 333-138675)

44

10.2	Intercreditor, Trade Credit Restructuring and Security Agreement, dated December 17, 2004, by and among Xplore Technologies Corp., Phoenix Venture Fund LLC, The Philip S. Sassower 1996 Charitable Remainder Annuity Trust and Wistron Corporation (incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)
10.3	December 2004 Debenture Purchase Agreement, dated December 17, 2004, by and among Xplore Technologies Corp., Phoenix Venture Fund LLC and each of the Lenders listed on Schedule 1 attached thereto (incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)
10.4	Loan and Security Agreement, dated September 15, 2005, as amended, between Silicon Valley Bank and Xplore Technologies Corporation of America (incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-4, filed on March 19, 2007, Registration Statement No. 333-138675)
10.5	Fourth Amendment to the Loan and Security Agreement (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on April 3, 2008)
10.6*	Fifth Amendment to the Loan and Security Agreement
10.7	September 2005 Debenture Purchase Agreement, dated September 15, 2005, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, Phoenix Venture Fund LLC and each of the Lenders listed on Schedule 1 attached thereto (incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)
10.8	April 2006 Debenture Purchase Agreement, dated April 20, 2006, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, Phoenix Venture Fund LLC and each of the Lenders listed on Schedule 1 attached thereto (incorporated by reference to Exhibit 10.6 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)
10.9	Exchange and Purchase Agreement, dated April 21, 2006, by and among Xplore Technologies Corp., Xplore Technologies Corporation of America, Phoenix Venture Fund LLC and each of the Lenders listed on Schedule 1 attached thereto (incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)
10.10	Relocation Agreement, dated September 6, 2005, by and between Xplore Technologies Corporation of America and Brian Groh (incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)
10.11	Employment Agreement, dated as of June 30, 2006, by and between Xplore Technologies Corp. and Mark Holleran (incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)
10.12	Lease Agreement, dated April 10, 2003, between Summit Tech L.P. and Xplore Technologies Corp. (incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)

45

10.13		Amended and Restated Share Option Plan (incorporated by reference to Exhibit A of the Company's Proxy Statement on Schedule 14A, filed on December 21, 2007).
10.14	*†	Purchase and Distribution Agreement between Xplore Technologies Corp. and Pegatron Corporation dated as of December 7, 2007.
10.15		Form of Warrant to purchase shares of Company's common stock (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on September 25, 2007).
10.16		Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on September 25, 2007).
21.1		Subsidiaries of Xplore Technologies Corp. (incorporated by reference to Exhibit 21.1 of the Company's Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)
31.1*		Certification of Philip S. Sassower, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*		Certification of Michael J. Rapisand, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*		Certifications of Philip S. Sassower, Chief Executive Officer, and Michael J. Rapisand, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350

*

Filed herewith.

†

Portions of this agreement have been omitted pursuant to a request for confidential treatment.

††

Portions of this agreement have been omitted pursuant to a request for confidential treatment, which was granted by the SEC on May 14, 2007.

46

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 5th day of June 2008.

XPLORE TECHNOLOGIES CORP.
By:	/s/  MICHAEL J. RAPISAND
	Name:	Michael J. Rapisand
	Title:	Chief Financial Officer

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

/s/  PHILIP S. SASSOWER Philip S. Sassower	Chief Executive Officer (Principal Executive Officer) and Director	June 5, 2008
/s/  MICHAEL J. RAPISAND Michael J. Rapisand	Chief Financial Officer (Principal Financial and Accounting Officer)	June 5, 2008
/s/  BRIAN E. USHER-JONES Brian E. Usher-Jones	Director	June 5, 2008
/s/  ANDREA GOREN Andrea Goren	Director	June 5, 2008
/s/  THOMAS F. LEONARDIS Thomas F. Leonardis	Director	June 5, 2008
/s/  FRANK ELENIO Frank Elenio	Director	June 5, 2008

47

INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS OF

XPLORE TECHNOLOGIES CORP.

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

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

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

        We have audited the accompanying consolidated balance sheet of Xplore Technologies Corp. and subsidiary as of March 31, 2008 and the related consolidated statements of loss, stockholders' deficiency and cash flows for the year ended March 31, 2008. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

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

/s/ PMB Helin Donovan

Austin, TX
June 2, 2008

F-2

REPORT OF INDEPENDENT REGISTERED AUDITORS

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

        We have audited the accompanying consolidated balance sheet of Xplore Technologies Corp. and subsidiary as of March 31, 2007 and the related consolidated statements of loss, stockholders' deficiency and cash flows for the year ended March 31, 2007. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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

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

North York, Ontario
June 20, 2007

F-3

XPLORE TECHNOLOGIES CORP.

Consolidated Balance Sheets

(in thousands)

		March 31, 2008			March 31, 2007
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents	$	733		$	1,711
	Accounts receivable, net		4,936			4,408
	Inventory		3,408			3,639
	Prepaid expenses and other current assets		658			771
Total current assets			9,735			10,529
Fixed assets, net			1,094			585
		$	10,829		$	11,114
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable and accrued liabilities	$	4,634		$	5,319
Total current liabilities			4,634			5,319
Debenture			—			250
			4,634			5,569
Commitments and contingencies
SHAREHOLDERS' EQUITY:
	Series A Preferred Stock, par value $0.001 per share; authorized 64,000; shares issued 63,179 and 63,473, respectively		63			63
	Series B Preferred Stock, par value $0.001 per share; authorized 10,000; shares issued 9,589 and 9,989, respectively		10			10
	Series C Preferred Stock, par value $0.001 per share; authorized 20,000; shares issued 15,274 and none, respectively		15			—
	Common Stock, par value $0.001 per share; authorized 300,000; shares issued 70,010 and 64,099, respectively		70			64
	Additional paid-in capital		107,594			98,469
	Accumulated deficit		(101,557	)		(93,061	)
			6,195			5,545
		$	10,829		$	11,114

See accompanying notes to consolidated financial statements.

F-4

XPLORE TECHNOLOGIES CORP.

Consolidated Statements of Loss

(in thousands, except shares and per share amounts)

	March 31, 2008			March 31, 2007
Revenue	$	25,355		$	34,534
Cost of revenue		17,924			24,723
Gross profit		7,431			9,811
Expenses:
Sales, marketing and support		4,840			6,094
Product research, development and engineering		4,244			2,935
General administration		5,330			5,058
		14,414			14,087
Loss from operations		(6,983	)		(4,276	)
Other expenses:
Interest expense		(54	)		(1,467	)
Loss on extinguishment of debt		—			(832	)
Other		(41	)		(40	)
		(95	)		(2,339	)
Net loss	$	(7,078	)	$	(6,615	)
Deemed dividends related to beneficial conversion feature of convertible Preferred Stock		(2,328	)		(3,381	)
Dividends attributable to Preferred Stock		(1,449	)		(885	)
Net loss attributable to common shareholders	$	(10,855	)	$	(10,881	)
Loss per common share	$	(0.11	)	$	(0.11	)
Deemed dividends related to beneficial conversion feature of convertible Preferred Stock		(0.04	)		(0.06	)
Dividends attributable to Preferred Stock		(0.02	)		(0.01	)
Loss per share attributable to common shareholders, basic and fully diluted	$	(0.17	)	$	(0.18	)
Weighted average number of common shares outstanding, basic and fully diluted		66,257,655			59,616,950

See accompanying notes to consolidated financial statements.

F-5

XPLORE TECHNOLOGIES CORP.

Consolidated Statements of Stockholders' Deficiency

(in thousands of United States dollars)

	Preferred Series A				Preferred Series B				Preferred Series C			Common Shares
															Additional Paid- in Capital			Accumulated Deficit
	Number		Amount		Number		Amount		Number	Amount		Number	Amount								Total
Balances, March 31, 2006	—		$	—	—		$	—	—	$	—	57,468,387	$	57	$	71,491		$	(85,561	)	$	(14,013	)
Warrants exercised	—			—	—			—	—		—	454,546		1		129			—			130
Warrants issued for services	—			—	—			—	—		—	—		—		471			—			471
Issuance of common shares, net of issuance costs $38	—			—	—			—	—		—	2,848,253		3		906			—			909
Shares issued for services	—			—	—			—	—		—	244,483		—		96			—			96
Stock-based compensation	—			—	—			—	—		—	—		—		819			—			819
Issuance of Preferred Series A for debt conversion, net of issuance costs of $364	55,520,542			55	—			—	—		—	—		—		18,458			—			18,513
Issuance of Preferred Series A, net of issuance costs of $89	7,952,353			8	—			—	—		—	—		—		2,607			—			2,615
Issuance of Preferred Series B, net of issuance costs of $488	—			—	9,988,513			10	—		—	—		—		2,697			—			2,707
Preferred Series A dividend	—			—	—			—	—		—	2,766,887		3		712			(790	)		(75	)
Preferred Series B dividends	—			—	—			—	—		—	316,444		—		83			(95	)		(12	)
Beneficial conversion feature on issuance of Series A & B redeemable convertible Preferred Shares	—			—	—			—	—		—	—		—		3,381			—			3,381
Deemed dividends related to beneficial conversion feature of convertible Preferred Shares	—			—	—			—	—		—	—		—		(3,381	)		—			(3,381	)
Net loss	—			—	—			—	—		—	—		—		—			(6,615	)		(6,615	)
Balances, March 31, 2007	63,472,895			63	9,988,513			10	—		—	64,099,000		64		98,469			(93,061	)		5,545
Warrants issued for services	—			—	—			—	—		—	—		—		152			—			152
Shares issued for services	—			—	—			—	—		—	280,812		—		110			—			110
Stock-based compensation	—			—	—			—	—		—	—		—		963			—			963
Issuance of Preferred Series C for debt conversion	—			—	—			—	500,000		1	—		—		249						250
Issuance of Preferred Series C, net of cash issuance costs of $1,087	—			—	—			—	14,774,000		14	—		—		6,286			—			6,300
Preferred Series A dividends	—			—	—			—	—		—	3,674,096		4		1,041			(1,079	)		(34	)
Preferred Series B dividends	—			—	—			—	—		—	546,367		1		156			(168	)		(11	)
Preferred Series C dividends	—			—	—			—	—		—	715,308		1		168			(171	)		(2	)
Conversion of Series A Preferred Stock into Common Stock	(294,118	)		—	—			—	—		—	294,118		—		—						—
Conversion of Series B Preferred Stock into Common Stock	—			—	(400,000	)		—	—		—	400,000		—		—			—			—
Net loss	—			—	—			—	—		—	—		—		—			(7,078	)		(7,078	)
Balances, March 31, 2008	63,178,777		$	63	9,588,513		$	10	15,274,000	$	15	70,009,701	$	70	$	107,594		$	(101,557	)	$	6,195

See accompany notes to consolidated financial statements.

F-6

XPLORE TECHNOLOGIES CORP.

Consolidated Statements of Cash Flows

(in thousands of US dollars)

				Year Ended March 31,
				2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash used in operations:
	Net loss			$	(7,078	)	$	(6,615	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization			604			579
		Provision for doubtful accounts			366			(39	)
		Amortization of deferred financing costs			—			979
		Loss on extinguishment of debt			—			832
		Stock-based compensation expense			963			819
		Equity instruments issued in exchange for services			262			332
Changes in operating assets and liabilities:
	Accounts receivable				(894	)		244
	Inventory				231			74
	Prepaid expenses and other current assets				114			55
	Accounts payable and accrued liabilities				(733	)		(599	)
			Net cash used in operating activities		(6,165	)		(3,339	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Additions to fixed assets				(1,113	)		(567	)
			Net cash used in investing activities		(1,113	)		(567	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from bank borrowings				4,750			21,325
	Repayment of bank indebtedness				(4,750	)		(22,997	)
	Proceeds on issuance of debentures				—			1,000
	Proceeds on issuance of Common Shares				—			944
	Net proceeds from issuance of Series A Preferred Stock				—			2,251
	Net proceeds from issuance of Series B Preferred Stock				—			2,908
	Net proceeds from issuance of Series C Preferred Stock				6,300			—
	Proceeds from exercise of warrants				—			130
			Net cash provided by financing activities		6,300			5,561
CHANGE IN CASH AND CASH EQUIVALENTS					(978	)		1,655
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					1,711			56
CASH AND CASH EQUIVALENTS, END OF PERIOD				$	733		$	1,711
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
	Payments for interest			$	75		$	339
	Payments for income taxes			$	—		$	—

See accompanying notes to consolidated financial statements.

F-7

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements

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

1. DESCRIPTION OF BUSINESS

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

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

2. SIGNIFICANT ACCOUNTING POLICIES

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

a)

Basis of consolidation and presentation

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

        The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has accumulated significant losses as it has been developing its current and next generation rugged computer products. The Company has had recurring losses and expects to report operating losses for fiscal 2009. The Company believes that cash flow from operations, together with borrowings from its senior lender and financial support from Phoenix Venture Fund LLC ("Phoenix"), a significant shareholder, and its affiliates, if necessary, will be sufficient to fund the anticipated operations for the next 12 months. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time.

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

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

F-8

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

warranty reserves, tooling amortization, financial instruments, stock-based compensation and income taxes. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management's estimates and assumptions.

b)

Cash and cash equivalents

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

c)

Inventory

        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.

d)

Fixed assets

        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 Lives
Tooling and fixtures	2 years
Office equipment	5 years
Machine equipment	2 years
Leasehold improvements	lesser of 5 years or remaining lease term
Computer equipment	2 years
Computer software	2 years
Demonstration 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.

e)

Foreign currency translation

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

f)

Revenue recognition

        The Company's revenue is derived from the sale of rugged, mobile technology which includes rugged mobile computers and related accessories. The Company's customers are predominantly

F-9

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

resellers. However, in limited circumstances the Company sells directly to end-users. The Company follows the principles of Staff Accounting Bulletins 101 and 104, and other related pronouncements. Revenue is recognized, net of an allowance for estimated returns, when title and risks of ownership are transferred to the customer, and all significant contractual obligations have been satisfied, the sales price is fixed or determinable and the ability to collect is reasonably assured. The Company's revenue recognition criteria have generally been met when the product has been shipped. Shipments are based on firm purchase orders from its customers with stated terms. The shipping terms are F.O.B. shipping point. The Company does not have installation, training and other commitments subsequent to shipment that are other than incidental. Prices are determined based on negotiation with the Company's customers and are not subject to adjustment. Generally, the Company does not hold inventory at its resellers and does not expect resellers to hold inventories of the Company's products other than in limited circumstances where such inventory is monitored by the Company. As a result, the Company expects returns to be minimal. The allowance for returns is calculated and regularly reviewed based on historical experience. The Company has not had material adjustments as returns have been minimal. All warranty obligations related to recognized revenue are covered by warranty coverage agreements provided by a third party.

g)

Cost of revenue

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

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

h)

Income taxes

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

i)

Stock-based compensation

        The Company applies the fair value method of accounting for all of its employee stock-based compensation. The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards at the date of the issuance of the award. The value is expensed over the vesting

F-10

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

period which is generally three years. See Note 9 to these consolidated financial statements for required disclosures.

j)

Financial instruments and credit risk

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

        Receivables are concentrated with a small number of customers. The Company maintains allowance for doubtful accounts when deemed necessary. The allowances for doubtful accounts at March 31, 2008 and March 31, 2007 were $411 and $59, respectively.

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

k)

Loss per share

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

        The following securities were not considered in the earnings per share calculation:

	March 31, 2008	March 31, 2007
Series A Preferred Shares	63,178,777	63,472,895
Series B Preferred Shares	9,588,513	9,988,513
Series C Preferred Shares	15,274,000	—
Warrants	26,642,465	15,619,025
Options	14,329,668	10,660,337
	129,013,423	99,740,770

l)

Recent Accounting Pronouncements

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

F-11

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

applies to all transactions or other events in which the reporting entity obtains control of one or more businesses, including those sometimes referred to as "true mergers" or "mergers of equals" and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights. FAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect that FAS 141R will have a material impact on its financial position or results of operations.

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

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

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

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

F-12

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

3. INVENTORY

	March 31,
	2008		2007
Finished goods	$	2,658	$	3,174
Computer components		750		465
Total inventory	$	3,408	$	3,639

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

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

4. FIXED ASSETS

	March 31,
	2008		2007
Cost
Tooling and fixtures	$	1,697	$	1,421
Office equipment and leasehold improvements		1,386		686
Computer equipment and demonstration units		1,208		1,204
Computer software		753		665
		5,044		3,976
Accumulated depreciation
Tooling and fixtures		1,435		1,258
Office equipment and leasehold improvements		682		450
Computer equipment and demonstration units		1,180		1,108
Computer software		653		575
		3,950		3,391
Total fixed assets, net	$	1,094	$	585

5. BANK INDEBTEDNESS

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

        On February 28, 2007, the Company agreed with its senior lender to modify the existing credit facility. Under the terms of the amended facility, the borrowings formula was increased to the lesser of $8,000 or 80% of the Company's U.S. and Canadian accounts receivable outstanding for 90 days or

F-13

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

5. BANK INDEBTEDNESS (Continued)

less, plus 80% of the Company's foreign accounts receivable (up to $2,500) plus 25% of eligible inventory (up to $1,750). The interest rate on the borrowings remained at prime plus 2.25% (or prime plus 2.5% in the case of borrowings related to its inventory). The Company is obligated to pay a fee equal to .25% of the unused portion of the credit facility. The amended agreement includes financial covenants that require the Company to have a minimum tangible net worth of at least $3,750 at all times and a minimum excess availability of $750. Borrowings are secured by all assets and intellectual property of the Company. Pursuant to the terms of various subordination agreements between the commercial bank, and one of the Company's suppliers, the commercial bank has a first priority security interest in all of the assets of the Company, except that under certain circumstances the supplier has a priority security interest in certain trade debts of the Company. On March 28, 2008 the maturity date for borrowings under this amended facility was extended to March 30, 2009. The loan agreement contains a number of financial and operational covenants. As of March 31, 2008, the Company was in full compliance with these covenants. As of March 31, 2008, there were no borrowings outstanding under the amended facility.

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	March 31,
	2008		2007
Accounts payable	$	2,321	$	2,778
Engineering accrual		722		645
Other accrued liabilities		1,591		1,896
Total	$	4,634	$	5,319

7. DEBENTURES

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

Short-term Debentures:

Debenture Issuance Date	Balance		New Issuances		Value Assigned to Warrants		Payments		Accretion of Non-cash Interest		Converted to Series A Preferred Shares			Balance
	March 31, 2006													March 31, 2007
September 15, 2005	$	3,000	$	—	$	—	$	—	$	—	$	(3,000	)	$	—
September 29,2005		750		—		—		—		—		(750	)		—
November 7, 2005		1,250		—		—		—		—		(1,250	)		—
April 21, 2006		—		1,000		—		—		—		(1,000	)		—
	$	5,000	$	1,000	$	—	$	—	$	—	$	(6,000	)	$	—

F-14

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

7. DEBENTURES (Continued)

Long-Term Debentures:

Debenture Issuance Date	Balance		New Issuances		Value Assigned to Warrants		Payments		Accretion of Non-cash Interest		Converted to Shares			Balance
	March 31, 2006													March 31, 2007
	(Restated)
November 5, 2002	$	4,590	$	—	$	—	$	—	$	—	$	(4,590	)	$	—
December 6, 2002		970		—		—		—		—		(720	)		250
April 9, 2003		725		—		—		—		—		(725	)		—
April 29, 2003		720		—		—		—		—		(720	)		—
December 17, 2004		4,518		—		—		—		482		(5,000	)		—
	$	11,523	$	—	$	—	$	—	$	482	$	(11,755	)	$	250

	March 31, 2007													March 31, 2008
December 6, 2002	$	250	$	—	$	—	$	—	$	—	$	(250	)	$	—
	$	250	$	—	$	—	$	—	$	—	$	(250	)	$	—

Fiscal 2007 Debenture Issuances and Exchange of Debentures for Equity

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

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

F-15

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

7. DEBENTURES (Continued)

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

        One debenture in the amount of $250 and related accrued interest was not exchanged on May 30, 2006. The debenture continued to bear interest at 10% per annum and the interest was payable semi-annually on June 30 and December 31. In connection with the recapitalization, the maturity of the debenture was extended to April 30, 2009. On August 8, 2007, pursuant to a debenture exchange agreement dated July 25, 2007 between the debenture holder and the Company, the $250 debenture was exchanged for 500,000 shares of Series C Preferred Stock that is pari passu with the Series A and Series B Preferred Stock in terms of dividends, liquidation and voting, and a two-year warrant to purchase 250,000 shares of common stock, at an exercise price of $0.50 per share.

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

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

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

Other Information Pertaining to the Debentures

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

F-16

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

7. DEBENTURES (Continued)

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

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

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

8. SHARE CAPITAL

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

Year-ended March 31, 2008

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

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

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

F-17

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

8. SHARE CAPITAL (Continued)

        During the year ended March 31, 2008, the Company issued warrants to the investors in the private placement, certain parties in connection with the private placement and a debenture holder. In addition, on July 18, 2007, the Company entered into an agreement with a financial advisory firm to serve as a financial and strategic advisor to the Company and assist the Company in obtaining financing for its growth and product development. In exchange for these services, the Company issued to the advisor a warrant to purchase 2,500,000 shares of the Company's common stock at an exercise price of $0.45. The warrant expires on August 8, 2010. Under the terms of the agreement, as amended, 500,000 warrant shares vested upon stockholder approval (which was received on January 15, 2008) and the remaining 2,000,000 warrant shares will vest in the sole discretion of the Company.

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

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

Year-ended March 31, 2007

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

F-18

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

8. SHARE CAPITAL (Continued)

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

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

        The convertible Series A and Series B Preferred Stock have beneficial conversion features as a result of an in-the-money conversion option at the respective dates of commitment. For each issuance of these Series of Preferred Stock, the value of the beneficial conversion feature was determined as the difference between the conversion price and the Toronto Stock Exchange closing market price of the Company's common stock as of the related financing's commitment date multiplied by the number of shares into which the Preferred Stock are convertible. The value of the beneficial conversion features are presented as deemed dividends to the shareholders of the Preferred Stock with an offsetting amount to additional paid-in capital. Since the Preferred Stock are immediately convertible into common stock by the holders at any time, the Company recognized non-cash charges (deemed dividends) in connection with the Preferred Stock financings aggregating approximately $3,381 during the year ended March 31, 2007.

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

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

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

Dividends

        For the year ended March 31, 2008, there were paid common stock dividends of $1,079 for the Series A Preferred Stock, $168 for the Series B Preferred Stock and $171 for the Series C Preferred Stock. For the year ended March 31, 2007, there were paid common stock dividends of $790 for the Series A Preferred Stock and $95 for the Series B Preferred Stock. As of March 31, 2008 and 2007,

F-19

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

8. SHARE CAPITAL (Continued)

there were accrued and unpaid common stock dividends of $91 and $92, respectively, for the Series A Preferred Stock, $14 and $14, respectively, for the Series B Preferred Stock and $32 and none, respectively, for the Series C Preferred Stock. The liquidation preference values of the Series A, Series B and Series C Preferred Stock was $21,481, $3,260 and $7,637, respectively. Each series of preferred stock ranks on parity with each other series of preferred stock with respect to a liquidation.

Warrants outstanding

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

Number of Warrants/Number Exercisable	Exercise Price		Expiration Date
9,100,000/9,100,000	US$	0.55	May 30, 2008	(1)
5,235,343/5,235,343	C$	0.45	April 10, 2008	(1)
998,854/998,854	US$	0.58	August 9, 2009
250,000/250,000	US$	0.50	August 8, 2009
284,828/284,828	US$	0.35	September 22, 2009
7,387,000/7,387,000	US$	0.50	September 21, 2009
886,440/886,440	US$	0.50	September 21, 2009
2,500,000/500,000	US$	0.45	August 8, 2010

(1)

Warrants were not exercised and expired.

9. STOCK-BASED COMPENSATION PLAN

        In 1995, the Board of Directors approved a Share Option Plan, which was amended and restated in December 2004, and amended thereafter. The Share Option Plan is administered by the Board of Directors and provides that options may be granted to employees, officers, Directors and consultants to the Company. The exercise price of an option is determined at the time of grant and is to be based on the closing price of the common stock on the stock exchange or quotation system where the common stock is listed or traded, on the day preceding the grant. Unless otherwise provided for, the options are exercisable only during the term of engagement of the employee, officer or consultant or during the period of service as a Director of the Company. The maximum aggregate number of shares of common stock reserved for issuance upon the exercise of all options granted under the Share Option Plan, as amended, is not to exceed 30,900,000. The options under the plan generally vest over a 3-year period in equal annual amounts.

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

F-20

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

9. STOCK-BASED COMPENSATION PLAN (Continued)

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

	Year ended March 31,
	2008			2007
	Options	Weighted Average Exercise Price (Cdn$)		Options	Weighted Average Exercise Price (Cdn$)
Outstanding at beginning of year	10,660,337	$	0.51	5,531,350	$	0.91
Granted	4,113,664	$	0.50	7,935,168	$	0.44
Exercised	—		—	—		—
Forfeited	444,333	$	0.52	2,806,181	$	1.05
Outstanding at end of year	14,329,668	$	0.51	10,660,337	$	0.51

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

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

	Options Outstanding		Options Exercisable
Range of Exercise Prices Cdn$	Number Outstanding	Weighted Average Remaining Contractual Life	Number Exercisable	Weighted Average Remaining Contractual Life
$0.23–0.38	2,364,000	3.2	675,335	3.2
$0.40–0.49	5,906,002	2.8	2,352,912	2.8
$0.50–0.56	4,956,832	1.8	1,274,171	1.8
$0.65–1.18	833,834	2.0	651,837	2.0
$1.24–1.85	269,000	0.7	269,000	0.7
	14,329,668	3.4	5,223,255	2.4

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

        Compensation expense for the stock plan has been determined based on the fair value at the grant date for options granted in the current fiscal year. The aggregate intrinsic value of options exercisable at March 31, 2008 was zero as the fair value of the Company's common stock is less than the exercise prices of the options. The future compensation expense to be recognized for unvested option grants at March 31, 2008 was $1,710 to be recognized over the next three years.

F-21

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

10. INCOME TAXES

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

		Year ended March 31,
		2008			2007
Deferred income tax assets:
	Net operating losses	$	24,324		$	23,144
	Accrued liabilities		401			177
	Inventory allowance		333			403
	Other items		144			21
Valuation allowance			(25,202	)		(23,745	)
Deferred tax asset		$	—		$	—

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

		Year ended March 31,
		2008			2007
Combined basic US and Canadian statutory rates, respectively			35	%		37	%
Recovery of income taxes based on the above rates		$	(2,477	)	$	(2,448	)
Increase in income taxes resulting from:
	Permanent difference—stock compensation		337			303
	Permanent difference—financing fees		53			671
	Effect of differences between US and foreign tax rates		—			30
	Expiration of net operating losses		630			—
	Change in valuation allowance		1,457			1,444
Provision for income taxes		$	—		$	—

        The Company has accumulated net operating losses for income tax purposes totaling approximately $69,496, which under certain conditions, may be carried forward and applied to reduce future year's taxable income. The potential benefit associated with these losses is not reflected in these statements as

F-22

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

10. INCOME TAXES (Continued)

management does not believe that recovery is more likely than not. The right to claim these losses expires as follows:

Expiry Year	Canada		United States		Total
2010	$	3,195	$	—	$	3,195
2011		4,823		—		4,823
2015		2,889		—		2,889
2016		—		1,282		1,282
2017		—		737		737
2018		—		5,293		5,293
2019		—		2,978		2,978
2020		—		1,486		1,486
2021		—		3,116		3,116
2022		—		6,412		6,412
2023		—		10,746		10,746
2024		—		4,433		4,433
2025		—		7,764		7,764
2026		1,707		3,660		5,367
2027		936		2,813		3,749
2028		67		5,159		5,226
	$	13,617	$	55,879	$	69,496

11. FINANCIAL INSTRUMENTS

Interest rate risk

        At March 31, 2008, all of the Company's debentures bear interest at a fixed rate of 10% per annum and the Company is not exposed to future fluctuations in interest rates. At March 28, 2008, the Company entered into a loan and security agreement with a commercial bank and the interest rate has a variable component based on bank's prime rate. If the Company borrowed 100% of the facility's available line for a full year and the bank's prime rate increased by 1%, the Company's borrowing costs would increase by $80,000.

Foreign exchange risk

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

F-23

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

11. FINANCIAL INSTRUMENTS (Continued)

Credit risk

        The Company's exposure to accounts receivable credit risk is as follows:

As of March 31,	Accounts Receivable (in millions)		Number of Customers with Receivable Balance >10% of Total Receivables	Customer Share as a Percent of Total Receivables	Percentage Share of Total Receivables
2008	$	4.9	2	30% and 13%	43	%
2007	$	4.4	2	23% and 18%	41	%

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

Supplier Risk

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

12. SEGMENTED INFORMATION

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

        The distribution of revenue by country is segmented as follows:

		Year ended March 31,
		2008		2007
Revenue by country:
	United States of America	$	14,485	$	20,069
	Netherlands	$	2,544	$	3,427
	Canada	$	1,892	$	3,682
	All other countries		6,434		7,356
		$	25,355	$	34,534

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

F-24

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

12. SEGMENTED INFORMATION (Continued)

Netherlands. For the year ended March 31, 2007, the Company had no customers who accounted for more than 10% of total revenue. The percentages of total revenue from these customers are as follows:

Fiscal Year	Total Revenue (in millions)		Number of Customers with Revenue of 10% or greater of Total Revenue	Customer Share as a Percent of Total Revenue		Percentage Share of Total Revenue
2008	$	25.4	1	10	%	10	%
2007	$	34.5	None	—		—

13. COMMITMENTS AND CONTINGENT LIABILITIES

a)

Premises

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

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

2009	$	306
2010	$	158
2011	$	54
	$	518

b)

Purchase commitment

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

c)

Litigation

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

14. RELATED PARTY TRANSACTIONS

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

F-25

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

14. RELATED PARTY TRANSACTIONS (Continued)

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

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

15. QUARTERLY OPERATING RESULTS

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

Quarter ended	June 30, 2007			September 30, 2007			December 31, 2007			March 31, 2008
Revenue	$	7,722		$	5,187		$	5,394		$	7,052
Gross profit		2,305			1,623			1,622			1,881
Operating expenses		3,407			3,298			3,927			3,782
Loss from operations		(1,102	)		(1,675	)		(2,305	)		(1,901	)
Other income (expenses)		(5	)		(76	)		18			(32	)
Net loss	$	(1,107	)	$	(1,751	)	$	(2,287	)	$	(1,933	)
Loss per common share	$	(0.02	)	$	(0.03	)	$	(0.03	)	$	(0.03	)
Average shares outstanding (000s)		64,219			65,215			66,893			67,796

Quarter ended	June 30, 2006			September 30, 2006			December 31, 2006			March 31, 2007
Revenue	$	9,179		$	8,660		$	8,114		$	8,581
Gross profit		2,508			2,414			2,243			2,646
Operating expenses		2,974			3,132			3,749			4,232
Loss from operations		(466	)		(718	)		(1,506	)		(1,586	)
Other expenses		(2,175	)		(36	)		(19	)		(109	)
Net loss	$	(2,641	)	$	(754	)	$	(1,525	)	$	(1,695	)
Loss per common share	$	(0.04	)	$	(0.01	)	$	(0.03	)	$	(0.03	)
Average shares outstanding (000s)		57,855			58,155			60,897			61,586

F-26

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

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

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

a)

Valuation of Common Share Purchase Warrants

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

b)

Recognition of Beneficial Conversion Feature

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

c)

Recognition of Unamortized Discounts Upon Extension of Debenture Maturity Date

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

RECONCILIATION TO CANADIAN GAAP

Consolidated Balance Sheet

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

Consolidated Balance Sheet as of March 31, 2007

Line Item	U.S. GAAP			Difference			Canadian GAAP
Additional paid-in capital (Contributed surplus)	$	8,959		$	(6,374	)	$	2,585
Warrants		—			2,319			2,319
Accumulated other comprehensive loss		(1,104	)		1,104			—
Accumulated deficit		(91,957	)		2,951			(89,006	)
Total shareholders' deficiency		5,545			—			5,545
Total liabilities and shareholders' deficiency		11,114			—			11,114

F-27

XPLORE TECHNOLOGIES CORP.

Notes to the Consolidated Financial Statements (Continued)

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

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

Consolidated Statements of Loss as of March 31, 2007

Line Item	U.S. GAAP			Difference			Canadian GAAP
Interest expense	$	(1,467	)	$	482		$	985
Total other expenses		(2,339	)		482			(1,857	)
Net loss		(6,615	)		482			(6,133	)
Loss per share		(0.11	)		(0.01	)		(0.12	)

Quarterly Results

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

17. SUBSEQUENT EVENTS

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

F-28

QuickLinks

Table of Contents
Forward-Looking Statements
PART I

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9A(T). Controls and Procedures.
Item 9B. Other Information.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation

Summary Compensation Table
Outstanding Equity Awards at 2008 Fiscal Year-End
Fiscal Year 2008 Director Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

Index to Consolidated Financial Statements
SIGNATURES
INDEX TO FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS OF XPLORE TECHNOLOGIES CORP.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED AUDITORS
XPLORE TECHNOLOGIES CORP. Consolidated Balance Sheets (in thousands)
XPLORE TECHNOLOGIES CORP. Consolidated Statements of Loss (in thousands, except shares and per share amounts)
XPLORE TECHNOLOGIES CORP. Consolidated Statements of Stockholders' Deficiency (in thousands of United States dollars)
XPLORE TECHNOLOGIES CORP. Consolidated Statements of Cash Flows (in thousands of US dollars)
XPLORE TECHNOLOGIES CORP. Notes to the Consolidated Financial Statements (in thousands of United States dollars, except share and per share amounts)

EX-10.6

Exhibit 10.6

FIFTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT

THIS FIFTH AMENDMENT to Loan and Security Agreement (this “Amendment”) is entered into this 27th day of May, 2008, by and between Silicon Valley Bank (“Bank”) and XPLORE TECHNOLOGIES CORPORATION OF AMERICA, a Delaware corporation (“Borrower”) whose address is 14000 Summit Drive, Suite 900, Austin, Texas 78728.

RECITALS

A.Bank and Borrower have entered into that certain Loan and Security Agreement dated as of September 15, 2005, as amended by that certain First Amendment to Loan and Security Agreement by and between Bank and Borrower dated as of November 28, 2005, that certain Letter amending Loan and Security Agreement by and between Bank and Borrower dated as of March 30, 2006, that certain Second Amendment to Loan and Security Agreement by and between Bank and Borrower dated as of May 15, 2006, that certain Third Amendment to Loan and Security Agreement by and between Bank and Borrower dated as of February 28, 2007 and that certain Fourth Amendment to Loan and Security Agreement by and between Bank and Borrower dated as of March 28, 2008 (as the same may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”).

B.Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

C.Borrower has requested that Bank amend the Loan Agreement to make certain revisions to the Loan Agreement as more fully set forth herein.

D.Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1.Definitions.  Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2.Amendments to Loan Agreement.

2.1Schedule Section 5 (FINANCIAL COVENANTS (Section 5.1)).  The paragraph regarding Subordinated Debt prior to the “Definitions” portion of Section 

5 of the Schedule to the Loan Agreement is hereby amended and restated to read as follows:

“Subordinated Debt.  Borrower shall have received at least Two Million Dollars ($2,000,000) in proceeds from the issuance of Subordinated Debt or equity securities no later than July 31, 2008.”

3.Limitation of Amendments.

3.1The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

3.2This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4.Representations and Warranties.  To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:

4.1Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

4.2Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

4.3The organizational documents of Borrower delivered to Bank herewith, remain true, accurate and complete and have not been amended, supplemented or restated since August 8, 2007 and are and continue to be in full force and effect;

4.4The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

4.5The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or

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authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

4.6The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

4.7This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

5.Counterparts.  This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

6.Effectiveness.  This Amendment shall be deemed effective upon the due execution and delivery to Bank of this Amendment by each party hereto.

[Signature page follows.]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

BANK		BORROWER
SILICON VALLEY BANK		XPLORE TECHNOLOGIES
		CORPORATION OF AMERICA
By: /s/ Regina Perkins		By: /s/ Michael J. Rapisand
Name:	Regina Perkins	Name:	Michael J. Rapisand
Title:	Relationships Manager	Title:	Chief Financial Officer

EX-10.14

Exhibit 10.14

Xplore Technologies Confidential

PURCHASE AND DISTRIBUTION AGREEMENT

BETWEEN

XPLORE TECHNOLOGIES CORP.

AND

PEGATRON CORPORATION

This Purchase and Distribution Agreement (“Agreement”) is made by Xplore Technologies Corp. (“Buyer”) and Pegatron Corporation, (“Seller”) and is effective as of December 7, 2007 (Effective Date).  The terms and conditions contained in this Agreement shall govern the development, production, purchase, sale, service and distribution of the Products listed and described in Exhibit A (“Products and Pricing”).  In the event of any conflict between this Agreement and the terms and conditions of an Order, as defined below, this Agreement shall govern.  Any reference to Buyer or Seller, as the case may be, shall include Buyer’s Subsidiaries and Seller’s Subsidiaries, respectively.  “Subsidiaries” shall mean any entity of which more than fifty percent (50%) of the voting rights are owned or controlled, directly or indirectly, by Buyer or Seller, as the case may be, provided, however, that such entity shall be deemed to be a Subsidiary only for so long as such ownership or control exists. All terms shall have the meanings as set forth below or as defined in this Agreement.

DEFINITIONS:

“Build to Order” shall mean standard Products built upon receipt of an actual purchase order from Buyer.  Manufacturing build is only initiated after a purchase order is received.

“Configure to Order” shall mean Products with a flexible configuration for a broad set of commonly requested hardware and software combinations.

“Customers” shall mean Buyer’s customers, including its authorized resellers and distributors, including end customers.

“Mass Production” shall mean volume production quantities after all milestones have been successfully completed and Buyer has formally released Seller to production.

“Order Cycle Time” shall mean the time between Buyer’s receipt of a customer Order and fulfillment of the Order to an end customer.

“Product Process Order Cycle Time” shall mean the time between Seller’s receipt of the Order and the Product shipment either to Buyer or an end customer.

“Products” shall mean all items listed in Exhibit A “Products and Pricing” which may include ruggedized mobile computing devices, options, subassemblies, or components, in multiple configurations for different countries, packaged and including documentation.

“Ship to First Commit” shall mean Seller’s shipment performance against the first commitment made to Buyer.

“Planning Horizon” shall mean the time period for which Buyer furnishes Seller forecasted requirements in either daily, weekly, monthly or quarterly periods.

“Epidemic Failure” shall mean a greater than [Confidential Treatment has been requested] failure within the warranty period for the same cause in any [Confidential Treatment has been requested], provided that such failures shall not include those failures that are the result of a software defect or bug that is contained in the third party software itself but shall include defects and bugs in the software image created by Seller.

“Buyer Unique Materials” shall mean any obsolete or excess materials without a marketable value purchased to support the forecast will be considered a Buyer Unique Material, including those items defined in Section 19C referred to as Buyer Specific materials.

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“Buyer Specific Materials” shall mean product purchased within lead-time that is specific only to the Buyer’s Product.

“Confidential Information” shall mean means any non-public or proprietary information relating to a Party, whether now in existence or hereafter developed, that (a) is designated or identified as being “Confidential”, “Proprietary” or of some similar designation, or (b) a Party knows or should know is considered to be highly sensitive and confidential.  The term “Confidential Information” includes, without limitation, any non-public or proprietary information relating to a Party’s secrets, trade secrets, copyrights, trademarks, patents, patent applications, record of inventions, current and proposed business arrangements and dealings with third parties, business operations, financial information, equipment, samples, samples’ configuration, samples’ concept, procedures, purchases, accounting, bookkeeping, marketing, merchandising, selling, leasing, servicing, finances, infrastructure, business systems, business techniques or operational techniques.  The term “Confidential Information” does not include any information that is or becomes publicly known through no fault of a Party or the Party’s agents, employees or representatives.

“Buyer Deliverable” shall mean any materials solely developed by Buyer for use in the Product.

1.INTENT

A.Buyer intends to purchase Product from Seller.  As such, Seller agrees to cooperate with Buyer to further mutual long-term goals, by sharing Product road map and technology directions.  Seller agrees to cooperate to achieve Buyer’s program goals, which include, but are not limited to, shortening Product lead-times, increasing volume flexibility, achieving Just-in-Time delivery, direct ship logistics, meeting corporate re-engineering and supply chain objectives, achieving ongoing cost reductions and specific quality goals, and continuous quality improvement.

B.This Agreement is not a requirements contract and does not obligate Buyer to purchase any minimum quantity of Product but only establishes the terms and conditions for such purchases if and when they occur.

C.The Parties agree to execute all the Exhibits outlined in the Index of Exhibits of this Purchase and Distribution Agreement.

2.FORECAST/LIABILITY/PURCHASE ORDER

A.Buyer shall furnish Seller with a forecast of the quantity and required delivery dates of Product that Buyer anticipates purchasing under this Agreement commencing on a date in the current week as specified by Buyer in such forecast through the end of the Planning Horizon. The planning horizon will extend to a minimum of a six (6) month time period.  Such forecast may at times be communicated to Seller via a mutually agreed upon EDI protocol. This forecast shall be used only by Seller for material positioning, and not for manufacturing Product.  Product shall only be built to Orders.  The forecasted “Planning Horizon” which is the six (6) month time period for which Buyer furnishes Seller forecasted requirements in weekly, monthly and quarterly time periods.  Buyer’s forecast shall include Buyer’s part number, quantity and required ship date.  The forecast may include components, configure-to-order (CTO) modules, subassemblies, or finished build-to-order (BTO) Product.  Within two (2) business day of Seller’s receipt of Buyer’s forecast, Seller shall send to Buyer a forecast response report, such report may at times be referred to herein as “Seller’s Acceptance Report”, indicating Seller’s commitments to supply Product as requested in Buyer’s forecast. The acceptance report must be received in accordance within a mutually agreed upon format.  Seller shall use its best efforts to ensure that the quantity and delivery dates specified in its acceptance report are equal to those specified in Buyer’s forecast. Failure to respond as stated in Section 2.A shall commit Seller to Buyer’s forecast and upside as defined in Exhibit D, Flexibility Exhibit.  The acceptance report must comprehend capacity, materials, and any other limitations to supply.  The quantity set forth in Seller’s acceptance report for any particular period is referred to herein as the “Maximum Quantity”. Although Seller has no obligation to meet requested increases or decreases beyond the levels indicated in Exhibit D, Flexibility Exhibit, Seller agrees to make

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best efforts to meet increased or decreased schedules in accordance with Buyer’s forecast updates.  Seller must notify Buyer of any and all excess within five (5) business days of the caused change or Buyer bears no liability for such materials or Product.

B.Buyer’s maximum liability for the volumes specified in the forecast shall be no greater than the percentage numbers as stated in the Flexibility Exhibit, except as otherwise agreed through written letters of authorization executed by the parties.

C.Seller agrees to work with its material suppliers to enable Seller to either return materials to such suppliers or delay the ship date of such materials in order to minimize Buyer’s liabilities.  Any materials or units that Buyer is liable for in accordance with the Flexibility Exhibit and which Buyer pays Seller as stated above shall belong to Buyer.  At Buyer’s request, Seller shall build out the materials into completed Product.  Further, at Buyer’s request, Seller shall either store the materials or finished Product, at Seller’s facilities, or ship the materials or finished Product to Buyer or a location designated by Buyer at Buyer’s cost.

In no event shall Buyer’s liability extend to any excess materials that Seller may have in inventory or on order which are beyond required lead times for such materials based on the forecast or which are the result of Seller’s inaccurate inventory planning.

D.Buyer may purchase Products by issuing from time to time a purchase order to Seller (the purchase order may be referred to herein as the “Order”).   The Order shall set forth the quantity of Product, price of Product, ship date for the Product, ship to location, and part number(s). This Order may contain multiple configurable line items.  The Order may be sent to Seller utilizing a mutually agreed upon EDI protocol.   Manufacturing build is only initiated upon Seller receiving a Purchase Order for units or options.  Seller shall acknowledge and commit to Buyer using an “ Order Acknowledgement”, including multiple line items if designated on the original Purchase Order.  All Purchase Orders must be processed within 24 hours of receipt. Seller shall accept any Order that materially conforms to the terms of this Agreement. No additional or different provisions proposed by Seller in any acceptance, confirmation or acknowledgment shall apply unless expressly agreed to in writing by Buyer.  Buyer hereby gives notice of its objection to any additional or different terms.  Subject to any change orders that may be entered into in accordance with this Agreement, the Order represents the obligation of Buyer to buy and Seller to sell the aggregate quantity of Products specified in the Order in accordance with and subject to the terms of this Agreement and at the price or prices specified in such Order (which prices will be established in accordance with the other provisions of this Agreement).  At no time will Buyer be liable for Product built in excess of the current open orders.

E.Buyer will deliver to Seller an Order based upon customer orders.  These Orders may be configure-to-order (CTO) Product, subassemblies with one or more line items.  The Order will contain, at a minimum, the following items:  (i) Buyer Purchase Order Number; (ii) Configuration/Model/Revision Level; (iii) Quantity; (iv) Address for Delivery; (v) Delivery Date; (vi) Price; (vii) Ship to Location; and (viii) Indication of ship complete or particles accepted.

F.Seller will provide Buyer with a “Sales Order/Shipping Status Report”, as a basis for reconciliation of purchase order backlog between the parties.

G.All Orders shall be issued, submitted or communicated, as applicable manually or by a mutually agreed upon electronic data exchange (“EDI”). It is Buyers intent to transition to electronic communications as soon as the volume of business transactions necessitates.

H.Seller agrees that all Buyer sites, and subsidiaries, shall be entitled to make purchases under this Agreement.

I.The ordering, billing, and shipping/distribution process for all Products to be manufactured by Seller and shipped to Buyer’s destination of choice hereunder shall be as follows:

(i)Purchase Order under this Agreement shall be sent to Seller by the authorized purchasing representative of Buyer, Seller shall acknowledge and commit to Buyer using an “ Order Acknowledgement

3

(ii)Upon delivery of Product by Seller to Buyer’s authorized carrier at Seller’s manufacturing center, Seller shall notify Buyer of product shipment via the agreed upon method, referred to herein as the “Ship Notice”.  The Ship Notice may require multiple line items to be transmitted on a single Order. Seller agrees to automate the Ship Notice such that the Ship Notice is transmitted at the time the Product is tendered to the freight carrier. Seller shall have a process to electronically confirm (i.e. bar code process) that Product has been tendered to the freight carrier and Seller shall develop a verification process to ensure an Ship Notice transaction is not duplicated.  In the event duplicate Ship Notice transactions are sent for the same shipment, resulting in overpayments to the supplier, Buyer has the right to receive immediate reimbursement for the value of the Product overpayment.

(iii)Seller shall invoice Buyer via the “Invoice”.  Seller agrees to use best efforts to transact matching invoices for all individual ship notifications sent, including multiple line items. At no time shall an invoice reflect two or more ship notification transactions.  In the event an invoice does not match a ship notification, Buyer will withhold payment on that invoice until exceptions have been reconciled.

(iv)Buyer will pay Seller for the amounts invoiced in accordance with the terms of this Agreement.  Invoices shall reflect the prices specified in the Order.

J.Buyer shall be designated as Seller’s most preferred customer.  As such, Seller will provide Buyer with all necessary support with Seller’s most experienced and talented resources.  In addition, Seller agrees to meet all of Buyer’s Product development and purchase/distribution requirements on a priority basis before any of its other customers.

3.CHANGE REPORTS, COMMITS AND OTHER COMMUNICATIONS

A.Changes to delivery dates may only be made by Buyer’s authorized representatives either designated in writing from time to time or in the form of an EDI 860 transaction, referred to as a Purchase Order Change /Cancellation/Redirect Request”.  Buyer may issue change requests for Product quantities and schedule dates, subject to Buyer’s liability obligations, in accordance with the Flexibility Exhibit attached as Exhibit D (“Flexibility Exhibit”).  Any such change request by Buyer shall be subject to Seller’s written confirmation, referred to as a “Purchase Order Change Acknowledgement/Request”, within one (1) business day following receipt of the change request.

4.TERM OF AGREEMENT

The term of this Agreement shall be three (3) years, commencing on the date this Agreement is signed by both parties (“Effective Date”). This Agreement will be automatically renewed at the conclusion of the initial three (3) year period for successive one (1) year periods unless one of the parties indicates by written notice to the other party not less than ninety (90) days prior to the end of the term that it does not intend to renew the Agreement.  Notwithstanding the foregoing, the Agreement shall remain in full force and effect and shall be applicable to any Order(s) issued by Buyer to Seller during the term of this Agreement until any and all obligations of the parties under such Order(s) have been fulfilled.  This Agreement may be amended within the 3 years as required.

5.PRICING

A.The prices for the Products shall be set forth in Exhibit A and shall be fixed for the period set forth therein (the “Pricing Period”) and shall not be contingent on purchased volumes.

B.Prices shall include all charges for materials such as packaging, packing, crating, storage, forwarding agent or brokerage fees, freight shipping charges, document fees, duties, and any and all sales, use, excise and similar taxes necessary to deliver materials to the appropriate

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Seller’s manufacturing center. Seller will not be responsible for the freight, insurance costs, all governmental duties/charges and other relevant expenses in connection with the shipment of Product from Seller’s manufacturing center to Buyer’s destination of choice.  Buyer shall reimburse Seller for any applicable sales, use, excise and similar taxes actually paid by Seller in completing the sales transaction to Buyer for the Product.

C.Seller shall maintain a vigorous cost reduction program to ensure that pricing is competitive at all times. Seller is able and willing to drive automatic cost reductions of [Confidential Treatment has been requested] for materials managed by Seller and [Confidential Treatment has been requested] for non-materials to Buyer. In addition Buyer and Seller agree to determine the material cost impact to future component cost reductions based on forecast and order volume changes. Not withstanding the foregoing, Buyer and Seller shall each have the right to require an immediate review with the other party of the pricing of the Product because of significant changes in the marketplace and the parties agree to work together to reach a mutually acceptable price for the Product to achieve best pricing.

D.Notwithstanding any other requirements in this Agreement, including section 5E below, and to the extent permitted by applicable law, Seller shall offer Buyer the lowest prices and most favorable terms net of any discounts or rebates that it affords or intends to afford to its other customers for similar product. Seller’s execution and delivery of any pricing schedule shall be its representation that the prices and other terms reflected therein (the “Subject Terms”) comply with the preceding sentence and that, except as disclosed by Seller to Buyer prior to entering into a pricing schedule, the Prices and subject terms are the lowest and most favorable offered by Seller to any of its other customers for similar Product, regardless of quantity purchased. In the event Seller discloses that the prices and subject terms are the lowest and most favorable permitted by law but are not the lowest and most favorable offered to any of its other customers, Seller shall furnish Buyer with such evidence as Buyer requests, to confirm the basis on which prices and terms more favorable than those offered to Buyer are being offered to any of Seller’s other customers.

E.In order to reduce the cost of components for the production of Products, Buyer has requested in some instances that suppliers extend Buyer’s pricing to Seller solely for components used in the manufacture of Products.  In certain instances suppliers will sell to Seller at prices equal to prices charged to Buyer.  In other instances, suppliers will sell to Seller at pricing that will include an uplift to Buyer’s standard pricing.  This uplift will be included as part of the pricing offered to Seller solely to protect the confidentiality of Buyer’s pricing on such components.  This pricing shall apply only to components sold to Seller for use in Buyer’s Products and should not in any way affect pricing for any components which may be sold to Seller outside of Buyer’s program.  Furthermore, suppliers offering such pricing to Buyer have been instructed not to represent that this pricing is anything other than pricing for supplier components to be used exclusively in Products.  Suppliers have been given permission to provide Seller with any and all technical information required by Seller concerning the operation of supplier materials or their integration into Products.  All pricing offered by suppliers to Seller, as well as the terms of this program, are subject to the terms of Section 30.

F.Seller shall submit to Buyer a vendor list for materials used in the Product.  In addition, Seller shall notify and provide samples to Buyer of any changes in the vendor list forty-five (45) days prior to implementing the change.

G.Seller shall provide Buyer proposed pricing, (by Buyer unique part number), and a forecast of proposed future pricing by quarter per each geographic regional configuration site, no later than the fifth business day of the last month of each quarter end in accordance with Exhibit A.

H.Seller shall provide all necessary resources to support the procurement activity required to acquire all materials and services to support the Product.

I.Buyer sets target cost goals for each of the components included in the Product manufactured by Seller for Buyer.  From time to time Seller may provide cost reduction incentives to Buyer to approve AVL changes for mutual financial benefit.

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J.All quotes for mass production product must be finalized and electronically provided to Buyer, three (3) days before the first calendar day of each month, provided Buyer has extended pricing on components as agreed upon between the parties at least one (1) week prior to the end of the previous month. The effective date of each quote is to be the first calendar day of each month. If Seller fails to provide finalized, mutually agreed upon pricing prior to this date then Buyer shall have the right to recover the difference in the current costs and the new agreed upon costs by offsetting Seller’s payables.

The quote format itself has two distinct parts, the upper part of the format contains strictly material costs, and the lower part of the quote contains strictly non-material costs.  Seller agrees to utilize commercially reasonable efforts to adhere to this quote format as a means to communicate actual Seller material and non-material costs to Buyer. If Seller fails to provide the quote as defined above, Buyer shall have the right to recover any financial impact by offsetting Seller payables.

6.AGED INVENTORY

A.Aged Inventory is defined as any critical component that is carried in inventory through a pricing period change. All components shall be costed at current market price.  Seller agrees that it shall comply with the terms of Section 17 and Exhibit I, ODM Requirements.

7.EXCLUSIVITY AND MANUFACTURING RIGHTS

A.Seller agrees that the Product listed in Exhibit A shall be manufactured by Seller solely for purchase by Buyer and distribution to Buyer and or Buyer’s customers.  Seller will preinstall the software specified by Buyer for each model of the Product at Seller’s manufacturing, distribution, and/or HUB centers. Seller will maintain control, in its Taiwan location, of the master copy of the software to be preinstalled on the Products. Seller shall also ensure adequate controls of all software in its configuration sites.

B.Buyer shall own all rights to the Product hardware and software created by Seller specifically for Buyer, to the extent defined under the Product specification Exhibit. To the extent that Buyer does not own the rights to the Product hardware and software, Buyer shall have the right to manufacture or have manufactured the Products if Seller becomes unable or unwilling to support the terms of this agreement. Seller hereby grants to Buyer the right necessary for Buyer to use, produce, manufacture and/or have manufactured quantities of such Product for distribution of the Product by Buyer.  Seller shall provide to Buyer access to and use of all items that are necessary and/or useful in the manufacture of the Products for distribution by Buyer, including but not limited to, Seller’s drawings, software download images, bills of materials, processes, tools, and vendors list, to enable Buyer to manufacture and/or have manufactured Products for distribution by Buyer and create improvements to the Products.  Seller shall also provide to Buyer, at Buyer’s request and on a commercially reasonable basis, telephone and on-site personnel support as Buyer may request from Seller to assist and enable Buyer to manufacture or have manufactured and/or distribute such Products in commercial quantities. Buyer agrees to pay Seller reasonable expenses for such support.  Buyer reserves the right to manufacture internally or have manufactured at alternative sites such Products at their discretion. The parties agree that all costs for first sets of tooling shall be specified into Product Tooling Exhibit, as specifically set forth in this Agreement.    In the event of termination of this Agreement or if Seller files for bankruptcy or voluntary liquidation, Buyer shall have the right to purchase all tooling by paying the remaining tooling costs.

The IP rights of, in, and to, the work product created prior to this project shall be owned by the respective Party. Seller shall be allowed to use the IP rights created for this project provided that Seller requests approval in writing from Buyer. Buyer shall not unreasonably withhold approval of Seller’s written request.

C.Except to the limited extent expressly stated in Section 19.D.2, Seller agrees that it will not produce, manufacture, or sell for itself or for any of its other customers any product that has the look and feel with regards to physical styling of the Buyer Products.  All software images created by Buyer or specifically created or developed by Seller for Buyer Products shall be used by Seller solely for Buyer Products and for no other purpose.

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D.If Seller becomes unable to support the planning / procurement / manufacturing and distribution practices that are acceptable to Buyer, then Buyer reserves the right, with advance notification, to support this Product by installing a management team utilizing Seller’s facilities and resources until Seller is once again able to support the Product adequately.  Seller shall bear all costs associated with the implementation of Buyer’s management team, including, but not limited to, travel, lodging, and salary for each team member.  In addition, Seller shall bear all costs associated with Buyer’s support requested by Seller.

E.Buyer shall have the right to manufacture or have manufactured the Products if Seller becomes unable or unwilling to support the terms of this agreement. Seller hereby grants to Buyer a license under trade secrets, copyrights and patents to access and use all of Seller’s drawings, bill of material, and vendors to make and have made Products and create improvements to the Products.  Seller agrees that any improvements created by Buyer shall be owned by Buyer.  Seller agrees that presentation of this Agreement by Buyer to Seller’s successors and assigns shall be sufficient for such successors and assigns to make Seller’s drawings, bills of materials, and vendor lists accessible to Buyer. Buyer may perform or have others perform any or all final assembly and regional configuration of the Products.

8.DELIVERY

A.Seller understands that time shall be of the essence in meeting Buyer’s requirements and agrees that Buyer may be irreparably damaged should Seller not meet Buyer’s specified delivery requirements.  Delivery performance shall be measured by Seller’s ability to ship pursuant to the performance metrics in Exhibit I.

B.Unless otherwise set forth in the Order, title and risk of loss shall pass to Buyer upon Seller’s delivery to Buyer’s authorized carrier / or freight forwarder.

C.Each week Seller will provide a report of potential material shortages for the next six (6) week period.  Seller shall notify Buyer in writing immediately if Seller has knowledge of any event that could result in any change to the agreed delivery plan.

D.Seller shall be responsible for shipping Product on the date and in the quantities identified in the Order from Buyer and acknowledged by Seller, including any upsides identified in Exhibit D, or as otherwise agreed to by the parties in writing.  In the event that Product committed for delivery by Seller does not meet the original committed date, Buyer may request that such Product be shipped and delivered via a different mode of transportation at Seller’s expense. In the event that Buyer requests expedited delivery of Product at its expense, Buyer shall do so in writing.

E.If Seller is unable to provide Product as specified within the forecasts and the Order, then Buyer has the right to either cancel the specified Orders or allow them to roll into the next manufacturing period, at Buyer’s discretion. Unless otherwise specified by Buyer, Seller shall be liable for any Product not delivered by the confirmed ship to first commit date prior to the stated production end date for each program as specified in the Order where such failure is solely attributable to Seller. Seller may dispose of the excess Product in accordance with Section 16.

F.If Seller ships Product in advance of the ship date, Buyer may, at its option, either (i) return such Product to Seller at Seller’s risk and expense (in which case Seller, at its expense, shall redeliver such Product to Buyer on the correct ship commit date) or (ii) retain such Product and make payment on the date payment would have been due based on the correct ship date.

9.PACKING, MARKING, AND SHIPPING INSTRUCTIONS

A.All Product shall be prepared and packed in a commercially reasonably manner so as to secure the lowest reasonable transportation rates and meet carrier’s requirements or those set forth in the Product specification Exhibit B (“Specification”).

B.Each pallet in each shipping container shall be marked to show Buyer’s Order number, part number, revision level, lot number, quantity contained therein, and appropriate country of origin

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marking.  In addition, Seller and Buyer will agree on a bar code specification which shall govern the marking on the Product, including the serial numbering scheme.  A packing list showing the Order number shall be included in each shipment.

10.QUALITY AND SERVICE

A.Seller shall establish and/or maintain a quality improvement plan and a service and support plan acceptable to Buyer.  The Quality Agreement and Service and Support Agreement are incorporated into this Agreement as Exhibit C and Exhibit E, respectively.

B.At Buyer’s request, Seller shall facilitate on-site visits and inspections by Buyer during normal business hours and upon prior notice.  Buyer’s inspections shall in no way relieve Seller of its obligation to deliver conforming Product or waive Buyer’s or Buyer’s customers’ right of inspection and acceptance at the time the Products are delivered.

C.Seller agrees to provide relevant outgoing inspection, quality, and reliability data upon Buyer’s request and in accordance with the Quality Agreement.

D.Seller agrees to ship Product that conforms to the formally released revision level as stated on Buyer’s Order and acknowledged by Seller.  Buyer’s revision levels will not be effective unless mutually agreed to between Buyer and Seller utilizing a completed Engineering Change Request (ECR) by written confirmation.

E.Seller agrees to advise Buyer of any changes at least forty-five (45) days, (or as otherwise agreed to in writing by the parties), prior to process, materials, or sources of supply and ensure that such changes do not compromise specifications, quality, reliability, or the delivery times of Products ordered by Buyer.

F.Any form of rework requested by Buyer shall be at Buyer’s expense, provided that such request is authorized in writing via a purchase order by an authorized Buyer representative. If Seller does not secure written authorization for the expense prior to the rework, then the parties agree that the rework will be at Seller’s expense. The format of the estimate of rework costs from Seller shall be agreed upon by the parties. All estimates of rework costs will include but are not limited to the following; materials, freight, labor, profit, overhead, duties and any other subject that the parties may agree upon.

11.INSPECTION, ACCEPTANCE, AND RETURNS

A.Products purchased/distributed pursuant to this Agreement shall be subject to inspection and test by Buyer or Buyer’s Customers, as the case may be, including during the period of manufacture or development.  “Customers” as used in this Section shall mean Buyer’s customers, including its authorized resellers and distributors, and end users.  Unless otherwise specified in the Order, final inspection and acceptance of Product by Buyer or Buyer’s Customers shall be at Seller’s manufacturing, configuration, distribution, and/or HUB center or Buyer’s Customers’ location.  Buyer and/or Buyer’s Customers reserve the right to reject Product which does not conform to the specifications, drawings, samples or other descriptions specified by Buyer.  The time period covering DOA of Product will be within [Confidential Treatment has been requested] from date of receipt. All rejections of Product by Buyer or Buyer’s Customers shall be returned to a location mutually determined by the parties for processing in accordance with Section 11.B below.

CLASSIFICATION BY BUYER	DISPOSITION BY BUYER	[Confidential Treatment has been requested]	[Confidential Treatment has been requested]
New/Functional	Return to Seller	[Confidential Treatment has been requested]	[Confidential Treatment has been requested]

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New/Nonfunctional	Return to Seller	[Confidential Treatment has been requested]	[Confidential Treatment has been requested]
Used/Functional	Treat as used equipment	[Confidential Treatment has been requested]	[Confidential Treatment has been requested]
Used/Nonfunctional	Treat as used equipment	[Confidential Treatment has been requested]	[Confidential Treatment has been requested]

B.Buyer and Seller agree that the following shall apply to Product returns, including but not limited to:  (i) refused shipment returns; (ii) service returns; (iii) dead on arrival (“DOA”) returns;  (iv) factory fallout.

(1) Buyer will inform its Customers that all returns of Product shall be delivered to Buyer by Buyer’s Customers.  Buyer shall screen all returned Product to determine whether the Product is new or used, and functional or nonfunctional.  Buyer will classify each returned Product unit as either (a) New/Functional; (b) New/Nonfunctional; (c) Used/Functional; or (d) Used/Nonfunctional.

(2) Following Buyer’s classification of whole unit returns, the units will be dispositioned based upon the terms outlined in Exhibit E. If Seller determines that Buyer misclassified any returned New/Functional Product as New/Nonfunctional Product, such returned Product shall be handled as a New/Functional Product provided that Buyer has verified that the Product was misclassified.  Product required to be corrected or replaced shall be subject to the same inspection and warranty provisions of this Agreement as Product originally delivered under any Order.

C.In the event that Buyer returns new Product to Seller for correction or replacement, Seller shall repair or replace all such defective Product within five (5) days of receipt of such Product. Buyer shall obtain a “Return Material Authorization” (RMA) from Seller for all returns that Buyer ships to Seller.  Seller will issue an RMA immediately on telephone contact.  Buyer will issue a debit memo for each Product returned by Buyer based on the price of the Product in the calendar quarter that the Product is returned by Buyer.  The next Buyer Order released will be at the same cost as the debited Product. Seller agrees to provide failure analysis of rejected material within ten (10) days after receipt of reject materials.  Seller shall provide a written corrective action report addressing the steps that will be taken to eliminate the cause of the problem.  All FRU returns shall be handled in accordance with the Service Agreement.

D.Seller represents and warrants that it will use only new materials or components to correct or replace defective Product that will be sold as new Product to Buyer.

E.The parties agree that at the Product’s end of life Buyer shall not ship such Product to Seller for restocking purposes unless mutually agreed.

12.WARRANTY

A.Seller warrants that title to all Products delivered to Buyer and Buyer’s customers under this Agreement shall be free and clear of all liens, encumbrances, security interests or other claims and that for a period of [Confidential Treatment has been requested], as identified for the applicable Product in Exhibit B and Exhibit E, beginning on the date the Order is shipped, in accordance with the Order, that all Products shall be free from defects in material, workmanship, and design and that they shall function for their intended purpose.  Seller further warrants that all Products shall conform to applicable specifications, drawings, samples, and descriptions referred to in this Agreement.  The warranty for replaced or repaired Product will be the same as the original Product, or as required by law.

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The warranties in this Section will not apply to any Product (i) has been improperly installed or altered by Buyer, (ii) has been subjected to misuse, abuse, negligence or accident, (iii) has been used in a manner contrary to agreed Specifications (iv) whose component is supplied by Buyer, (v) whose defect is caused by 1) Buyer’s design(s), 2)  modifications to the Products not by Seller or 3) Buyer’s combination with other product(s) not supplied by Seller.

B.Notwithstanding the provisions of Sections 10.B or 11.A of this Agreement, Seller agrees that in case of Epidemic Failure, as defined below, Seller shall provide correction or replacement, which may include design, component, or subassembly changes, within ten (10) days of Seller’s issuance of the failure analysis report provided to Buyer as required by this Section 12.B.  Epidemic Failure shall mean a greater than [Confidential Treatment has been requested] failure within the warranty period for the same cause in any [Confidential Treatment has been requested], provided that such failures shall not include those failures that are the result of a software defect or bug that is contained in the third party software itself but shall include defects and bugs in the software image created by Seller.  In the event such Epidemic Failure is solely attributable to Seller, Seller shall bear all risk and costs for such correction, replacement, or changes including but not limited to labor, material, inspection, and shipping to and from Buyer’s facilities or designated location, provided that Seller may use its best reasonable judgment in determining the appropriate method of correction or replacement with approval by Buyer.  If Buyer incurs any such costs, it may either recover them directly from Seller or set-off via a debit note any amounts due to Seller.  Seller agrees to provide failure analysis of rejected material within ten (10) days after receipt of reject materials.  Seller will also provide a written 8D corrective action report addressing the steps that will be taken to eliminate the root cause of the problem.

C.Seller agrees that in the event of an Epidemic Failure solely attributable to Seller, Seller shall bear all expenses necessary to refurbish or replace all Products affected by the root causes identified as being Seller’s fault.  Seller shall have the option of designating whether the defective Product shall be refurbished or replaced.  The direct expenses to be borne by the Seller shall include, but are not limited to the following:

a)[Confidential Treatment has been requested]

b)[Confidential Treatment has been requested]

c)[Confidential Treatment has been requested]

d)[Confidential Treatment has been requested]

e)[Confidential Treatment has been requested]

f)[Confidential Treatment has been requested]

g)[Confidential Treatment has been requested]

D.Seller represents and warrants that the materials and components used in the Product shall be new, including those materials and components obtained from its vendors and subcontractors.

13.IN WARRANTY AND OUT OF WARRANTY SERVICE AND SUPPORT

A.In warranty and out of warranty service and support shall be as provided for in Exhibit E.

14.PAYMENT AND SET-OFF

A.Payment terms shall be OA [Confidential Treatment has been requested] from date of invoice, provided that Products have been confirmed as having been delivered by Seller to Buyer’s authorized carrier at Seller’s configuration centers.  Payment of invoices shall not constitute final acceptance of the Product.  Payment shall be made by Automated Clearing House (ACH) to the U.S. bank account designated by Seller.

B.Buyer retains the right to immediately setoff rejections of Product or discrepancies on invoices against current or future invoices for all RMAs, and any other circumstances that Buyer deems appropriate.

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C.Buyer will pay Seller for the amounts invoiced in accordance with the terms of this Agreement.  Invoices shall reflect the prices specified in the Orders. Unless otherwise specified in Exhibit A or agreed to in writing by the parties, payment shall be in U.S. dollars unless prohibited by regional legal code.

D.[Confidential Treatment has been requested.]

15.CHANGES

A.Buyer may from time to time change the specifications for the Products and Products’ FRUs, and Seller agrees to make best efforts to comply.  Buyer shall be responsible for the costs of implementing the engineering changes requested by Buyer.  If changes result in a change in Seller’s costs or in the time for performance, an adjustment will be made subject to mutual written agreement of the parties.  Any adjustment must be in writing and must be requested within ten (10) days of receipt by Seller of the notice of change.

B.No changes shall be made by Seller in the form, fit, function or compatibility of Products purchased hereunder without Buyer’s prior written approval.  In the event of a request for change (regardless of who initiates such request), Seller shall issue an “Engineering Change Request” form, and Buyer shall respond within five (5) business days.  If changes are necessary to correct design defects, Seller shall bear risk of correction.  If Buyer incurs any costs for such corrections, it may either recover them directly from Seller or set-off via a credit note any amounts due to Seller.  Seller shall be liable for any and all loss or damage incurred to Buyer if an ECN is implemented without Buyer’s prior written approval.

C.Upon request by Buyer, and in accordance with the Service and Support Agreement, and Quality Agreement, Seller will provide test procedures and test results to Buyer’s Product Engineer indicating that there will be no adverse consequences resulting from the Engineering Change Request.

16.OBSOLETE AND EXCESS MATERIALS

A.From time to time Buyer may, at its option, in accordance with Exhibit D, request Seller to change manufacturing schedules to support the changing market requirements.  As a result of these requested changes from Buyer, Seller may have materials on hand or on order that either cannot be rescheduled for delivery at a later date, or that cannot be returned to the component supplier for restocking. This impact of the schedule changes could become obsolete or excess to the program requirements.  Seller agrees to inform Buyer in writing each week of any potential obsolete or excess materials based upon the Forecast received. Buyer will advise Seller in writing of the proper disposition of such materials based on the information provided by Seller.  Seller also agrees to comply with the terms of Section 16, as they apply to obsolescence of materials.  Buyer bears no liability if written notification is not received within five (5) business days of the change.

B.Seller agrees, as stated in Section 2(C) to work with its suppliers to return all materials or delay shipments in order to minimize Buyer’s liabilities.  Buyer shall only be liable for materials that were purchased inside lead-time and which are necessary to support Buyer’s Orders and the forecast.   After Seller has exhausted all efforts to limit Buyer’s liability, Buyer may, at its option, request Seller to dispose of the excess or obsolete materials at Buyer’s cost. The process / procedures to be utilized for disposition of this material shall be mutually agreed upon by the parties, with the appropriate level of authorization from Buyer and Seller.

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C.Seller shall be prohibited from selling any Buyer Specific Materials, as set forth in Section 19C, to any third party unless approved in writing by Buyer.

D.The parties intend that Seller shall reduce liability for obsolete materials by implementing the supply chain reengineering processes and ODM initiatives as defined in Exhibit I.  Therefore Buyer shall only be responsible for Buyer Unique Materials. Any obsolete or excess materials without a marketable value purchased to support the forecast will be considered a Buyer Unique Material, including those items defined in Section 19C referred to as Buyer Specific materials.  Buyer shall provide commercially reasonable assistance to Seller in order to implement the requirements of Exhibit I.  Notwithstanding the foregoing, the parties agree that certain obsolescence may be created by certain unique program requirements, including without limitation, engineering changes, program cancellations, or quantity decreases over and above the flex model in Exhibit D.  In such instances, the parties shall agree on the appropriate amount of reimbursement pursuant to the procedures described in Section 16A and 16B above.

E.The parties shall collaboratively reach agreement on the timing and remaining volumes available for EOL of the Product. The Product EOL shall be documented and included in the forecast communicated to Seller. Seller shall provide commitment for the Product EOL forecast based on the forecast process described in Section Two (2).

17.ODM REQUIREMENTS AND METRICS

The parties agree that Seller shall implement ODM requirement pursuant to the milestones and implementation dates set forth in Exhibit I.

18.ALTERNATIVE DISPUTE RESOLUTION

The parties agree that disputes shall be resolved pursuant to the Dispute Resolution Procedures set forth in Exhibit G.

19.TERMINATION FOR CAUSE

A.Seller may terminate this Agreement and/or any Order issued hereunder at any time by written notice in the event that Buyer:

1.Fails to comply with any material provision of this Agreement or any Order issued hereunder, and, in the case of a breach which is capable of remedy, fails to remedy same within thirty (30) days of notification of said breach, or

2.Becomes insolvent or makes an assignment for the benefit of creditors, or a receiver or similar officer is appointed to take charge of all or a part of Buyer’s assets and such condition is not cured within thirty (30) days.

B.Buyer may terminate this Agreement and/or any Order issued hereunder at any time by written notice in the event Seller:

1.Fails to comply with any material provision of this Agreement or any Order issued hereunder, and in the case of a breach which is capable of remedy, fails to remedy same within thirty(30) days of notification of said breach, or

2.Becomes insolvent or makes an assignment for the benefit of creditors, or a receiver or similar officer is appointed to take charge of all or a part of Seller’s assets and such condition is not cured within thirty (30) days, or

3.Seller shall not assign or attempts to assign, or subcontracts or attempts to subcontract, any or all of its rights or obligations under this Agreement or any Orders issued hereunder to a third party without Buyer’s prior written approval.

C.Upon termination by Seller of the Agreement and/or any Order issued under 19A above, Buyer’s entire liability shall be to purchase all materials, including Buyer Specific Materials and

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finished goods that have been purchased within lead time by Seller to fulfill Buyer’s Order(s) in accordance with the Flexibility Agreement.

D.Upon termination by Buyer of the Agreement and/or any Order issued under 19B above:

1.Buyer shall have the option to purchase any materials, work in progress or finished goods, which Seller may have purchased or processed for the fulfillment of any Order, at Seller’s cost plus a reasonable amount for any value already added by Seller; and

2.Seller shall not use any of the Buyer Specific Materials in any other product or resell any of the Buyer Specific Materials.  Other than the Buyer Specific Materials, Seller may use, resell or otherwise dispose of all other materials as it deems appropriate; and

3.Buyer shall have no liability beyond payment for any balance due for Products delivered by Seller before notice of termination.

20.TERMINATION FOR CONVENIENCE

A.Either party(“Terminating Party”) may terminate this Agreement at any time for any reason upon giving a three (3) months written notice of termination to the other party (“Terminated Party”).  Upon receipt of such notice, the Terminated Party shall immediately cease to incur expenses pursuant to this Agreement that has been terminated unless otherwise directed in the termination notice.  The Terminated Party shall also take all reasonable steps to mitigate the cost to the Terminating Party for terminating this Agreement and/or any Order.  Within thirty (30) days from the date of notice, Seller shall notify Buyer of costs incurred up to the date of termination.  In no event shall such cost exceed the unpaid balance, per the Flexibility Agreement.

B.In addition to the foregoing, in the event that this Agreement is terminated by Buyer pursuant to this Section, Buyer’s entire liability shall be to purchase all finished goods, work in progress, and materials, including Buyer Specific Materials that have been purchased within lead time by Seller to fulfill Buyer’s Order(s), in accordance with the Flexibility Agreement, provided that Seller shall also take all reasonable steps to mitigate the cost to Buyer for terminating this Agreement and/or any Order.

21.LIMITATION OF LIABILITY

EXCEPT FOR A BREACH OF SECTION 21, 25 OR 29 OF THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL (INCLUDING, WITHOUT LIMITATION, LOST PROFITS, UNLIQUIDATED INVENTORY, ETC.), INCIDENTAL, INDIRECT, SPECIAL, OR PUNITIVE DAMAGES EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

BUYER’S TOTAL LIABILITY UNDER THIS AGREEMENT SHALL BE LIMITED TO [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED].

SELLER’S TOTAL LIABILITY UNDER THIS AGREEMENT SHALL BE LIMITED TO [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED].

EXCEPT AS SPECIFICALLY SET FORTH IN THE PURCHASE AND DISTRIBUTION AGREEMENT FOR THE PRODUCTS, NEITHER PARTY SHALL HAVE LIABILITY FOR EXPENSE INCURRED BY THE OTHER PARTY, INCLUDING WITHOUT LIMITATION EXPENSES ARISING FROM THE DEVELOPMENT, MANUFACTURING OR DISTRIBUTION OF THE PRODUCT.

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22.FORCE MAJEURE

A.Neither party shall be liable for its failure to perform any of its obligations hereunder during any period in which performance is delayed by fire, flood, war, embargo, riot, labor strike, or the intervention of any government authority (“Force Majeure”), provided that the party suffering such delay immediately notifies the other party of the delay.  If, however, the Party’s performance is delayed for reasons set forth above for a cumulative period of fourteen (14) calendar days or more, the other Party, notwithstanding any other provision of this Agreement to the contrary, may terminate this Agreement and/or any Order issued hereunder by notice to Seller.  In the event of such termination, Buyer’s sole liability hereunder will be for the payment to Seller of any balance due and owing for conforming Product delivered by Seller prior to Seller’s notification of delay to Buyer.  In the event the parties do not terminate this Agreement and/or Order due to a Force Majeure, the time for performance or cure will be extended for a period equal to the duration of the Force Majeure.

23.NOTICES

Any notice given under this Agreement shall be in writing and will be effective when delivered personally or deposited in the mail, postage prepaid and addressed to the parties at their respective addresses set forth below, or at any new address subsequently designated in writing by either party to the other:

If to Seller :	Pegatron Corporation.
	5th F No. 76 LI-GONG STREET
	TAIPEI, TAIWAN 112 R.O.C.
	ATT: STEVE HWANG
with a copy to:
	Pegatron Corporation.
	5th F No. 76 LI-GONG STREET
	TAIPEI, TAIWAN 112 R.O.C.
	ATT: LEGAL DEPARTMENT
If to Buyer:
	XPLORE TECHNOLOGIES CORPORATION
	14000 SUMMIT DRIVE SUITE 920
	AUSTIN, TEXAS 78728
	ATT: RANDY PARAMORE
with a copy to:
	XPLORE TECHNOLOGIES CORPORATION
	14000 SUMMIT DRIVE SUITE 920
	AUSTIN, TEXAS 78728
	ATT: MICHAEL RAPISAND

24.COMPLIANCE WITH LAWS

A.All Product supplied and work performed under this Agreement shall comply with the applicable laws and regulations in the regions specified in Exhibit B.  In particular, Seller agrees that its performance under this Agreement shall comply with all laws governing its relationship with its employees, agents or subcontractors and with the chlorofluorocarbon labeling requirements of the U.S. Clean Air Act of 1990, and the RoHS requirements for Product shipping into Europe.  Upon request, Seller agrees to certify compliance with such applicable laws and regulations.

B.The parties agree that amendments to this Agreement may be required to satisfy local or national legal requirements.

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25.PATENT, COPYRIGHT AND TRADEMARK INDEMNITY

A.Except for any claims which may arise from Buyer Deliverables, Seller shall defend, at its expense, any claim against Buyer alleging that Products furnished under this Agreement infringe any patent, copyright, trade secret, trademark, or other intellectual property right and shall pay all costs, including attorney’s fees, expenses and damages, provided Seller is notified in writing of such claim and permitted to defend and compromise such claim.  “Buyer Deliverables” shall mean materials solely developed by Buyer and all third party titles licensed to Buyer for the Products.

Notwithstanding foregoing, the Seller shall not be liable for any claim arising out of (I) the modification of the Product not by Seller; (II) the use of the Product in combination with other hardware or software not made by the Seller ; (III) component(s) or part(s) provided by Buyer.

Except for any claims which may arise from Seller Deliverables, Buyer shall defend, at its expense, any claim against Seller alleging that Buyer Deliverables furnished under this Agreement or any claim arising out of (I) the modification of the Product or any unauthorized combination by Buyer; (II) component(s) or part(s) provided by Buyer infringing on any patent, copyright, trade secret, trademark, or other intellectual property right and shall pay all costs, including attorney’s fees, expenses and damages, provided Buyer is notified in writing of such claim and permitted to defend and compromise such claim.  “Seller Deliverables” shall mean materials used by Seller or solely developed by Seller for use in Buyer’s Product.

B.If, subject to the foregoing, during the term of this agreement, an injunction or exclusion order issues that precludes Buyer’s use, sale, manufacture or importation of any Product (or, if Buyer reasonably believes such an injunction or exclusion order is likely, with the exception of Buyer Deliverables) Seller shall, at its expense, and at Buyer’s request, use commercially reasonable efforts to obtain for Buyer the rights necessary to permit Buyer to use make, have made, sell and import such Product.  In the event that Seller cannot obtain such rights for Buyer, Seller shall repurchase all such Products from Buyer at the purchase price.

C.Seller warrants that there are no claims of infringement with respect to the Product.

D.Seller shall be authorized to use Buyer logo and trademark only to the extent necessary to meet the required specification for the Product(s). No other rights with respect to Buyer’s trademarks, trade names or brand names are conferred, either expressly or by implication, upon Seller.

26.CAPACITY

A.As specified in this Agreement, Buyer will provide Seller with six (6) month forecasts of Buyer’s quantity requirements.  Seller will commit to be able to meet all of Buyer’s forecasts by putting in place plans for capacity, materials supply, mother boards, chassis, manufacturing centers and software download capability.  In addition, upon four (4) months prior notice by Buyer, Seller will have the capability to increase manufacturing capacity by 100% of Buyer’s forecasts in order to meet Buyer’s increased quantity requirements.  Seller agrees to review forecasts provided by Buyer and advise Buyer if Seller anticipates that it will be unable to achieve the requested volumes.  Buyer volume forecasts will be provided to Seller in accordance with Exhibit A.  Seller may from time to time request Buyer to review Buyer’s forecast and advise of any changes.

B.Seller commits to Buyer that Seller shall have enough capacity and sufficient materials allocated to the appropriate manufacturing centers to be able to meet the forecast and provisions of the Flexibility Exhibit, if required by Orders. From time to time, as reasonably necessary due to critical material shortages, Buyer may provide Seller with a reasonable amount of assistance to procure such materials.

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27.GRATUITIES

Each party represents that it has not offered nor given and will not offer nor give any employee, agent, or representative of the other party any gratuity with a view toward securing any business from the other party or influencing such person with respect to the business between the parties.

28.INSURANCE AND STATUTORY OBLIGATIONS

A.If any party’s work under this Agreement requires access by such party to any of the other party’s premises or the premises of the other party’s customers or subcontractor, or locations where the other party conducts business, or with material or equipment furnished by the party, such party shall take all necessary precautions to prevent the occurrence of any injury to persons or property during the progress of such work and, except to the extent that such injury is due solely and directly to the other party’s acts or negligence. Such party shall indemnify the other party against all loss which may result in any way from any act or negligence of such party, its employees, servants, agents or subcontractors.

B.Seller agrees to observe commercially reasonable loss prevention practices to prevent accidental loss or damage to inventory, whether in the form of raw material, WIP, or finished goods, that Seller has in its possession for the purpose of fulfilling Buyer’s Orders.

29.INDEMNIFICATION

Except for any claims which may arise from Buyer Deliverables, Seller agrees to protect, defend, indemnify and save Buyer harmless from all sums, costs and expense which Buyer may incur or be obliged to pay as a result of any and all loss, expense, damage, liability, claims, demands, either at law or in equity, of every nature whatsoever in favor of any person, including both Seller’s and Buyer’s employees, resulting from any personal injury or death resulting from the use of any product sold to Buyer by Seller hereunder, irrespective of whether Buyer or any other party is found to have been negligent or strictly liable in connection with such personal injury or death.

The foregoing liabilities and indemnification do not include any loss, damage, liability when the Product (i) have been improperly installed or altered, (ii) have been subjected to misuse, abuse, (iii) component is designated or supplied by Buyer (iv) whose defect is caused by Buyer’s Deliverables (v) unauthorized modifications to the Products or (vi) combination with other product(s) not supplied by the Seller.

Subject to the foregoing, the Buyer agrees to indemnify and hold Seller harmless against all expense, losses, costs, damages and liabilities including reasonable attorney’s fees arising out of or in connection with (1) Buyer’s unauthorized use, modification or combination; (2) the defect of the Product caused by Buyer’s Deliverable or materials or components supplied by Buyer.

30.CONFIDENTIAL INFORMATION

A.Each party recognizes that it may have previously entered or will in the future enter into various agreements with the other party which obligates it to maintain as confidential certain information disclosed to it by the other party. To the extent that such information or any further confidential information, which might include but is not limited to business plans, forecasts, capacity, pricing, inventory levels, trade secrets, product specifications, manufacturing processes, etc., (collectively referred to hereinafter as “Information”) is disclosed in furtherance of this Agreement or any Order issued hereunder, such Information shall be so disclosed pursuant to the minimum terms and conditions listed below; provided, however, the minimum terms and conditions listed below shall in no way relieve the parties from any obligation or modify such obligations previously agreed to in other agreements. Both parties agree that this Agreement and its terms and conditions shall be confidential.

B.Maintain confidentiality for the term of Agreement. Upon termination return information or destroy it.

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C.Each party shall protect the other party’s Information to the same extent that it protects it own confidential and proprietary information and shall take all reasonable precautions to prevent unauthorized disclosure to third parties.

D.The parties acknowledge that the unauthorized disclosure of such Information will cause irreparable harm. Accordingly, the parties agree that the injured party shall have the right to seek immediate injunctive relief enjoining such unauthorized disclosure. In the event an unauthorized disclosure occurs, the breaching party shall conduct an immediate investigation to determine the source of such disclosure, including the individuals responsible. All individuals found responsible for such disclosure shall be promptly reprimanded and potentially terminated. Within ten (10) days notice that such breach of confidentiality has occurred, the breaching party shall provide a detailed report specifying the cause of the unauthorized disclosure and the remedial measures that will be implemented to prevent such disclosures in the future.

In addition to the foregoing, the breaching party shall pay for liquidated damages in the event of any unauthorized disclosure of information inoculation of this section as follows:

Unauthorized disclosure of information Liquidated Damages

First	[Confidential Treatment has been requested]
Second	[Confidential Treatment has been requested]
Third	[Confidential Treatment has been requested]
Any additional	[Confidential Treatment has been requested]

The parties agree that non-breaching party shall have the right to offset such liquidated damages against any amounts owed to the breaching party. The rights set forth under this section 30 shall not otherwise limit Non-breaching Party’s rights under this Agreement or law or equity.

Seller agrees that it shall promptly implement all measures necessary to satisfy compliance standards identified by Buyer, including but not limited to those related to confidentiality.

E This provision shall not apply to information (1) known to the receiving party at the time of receipt from the other party, (2) generally known or available to the public through no act or failure to act by the receiving party, (3) furnished to third parties by the disclosing party without restriction on disclosure, (4) furnished to the receiving party by a third party as a matter of right and without restriction on disclosure, or required by operation of law or court order, or (6) disclosed for audit or accounting purposes.

F. Immediately upon termination of this Agreement or at the request of the other party, each of the parties shall promptly return all materials in its possession containing Information of the other Party.

31.COUNTRY OF ORIGIN

AFor each Product purchased under this Agreement, Seller shall furnish Buyer with the applicable country of origin (manufacture), by quantity and part number (Buyer’s and Seller’s) if necessary.  All Product shipped by Seller will comply with all applicable country of origin requirements of the destination country of the Product.

B.Seller agrees to provide the necessary export documents and to facilitate export of Product.  Seller further agrees to assist Buyer’s import of Product as reasonably requested by Buyer.

32.PROPERTY FURNISHED BY BUYER

A.The parties anticipate that, from time to time, Buyer shall sell to Seller certain material to be used in manufacturing Product (the “Buyer Furnished Material”). Seller agrees that each item of

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Buyer Furnished Material shall be used solely for the purpose of manufacturing Product ordered by Buyer under this Agreement.

B.Seller shall issue a Purchase Order for the purchase price of the material sold by Buyer to Seller.

C. Any drawings, specifications, or other materials furnished by Buyer or purchased by Seller for Buyer for use by Seller in its performance under this Agreement or any Order issued hereunder shall be identified and shall remain the property of Buyer and shall be used by Seller only in its performance hereunder.  Such property shall be delivered, upon request, to destination specified by Buyer in good condition, except for normal wear and tear.

D.Any consigned Buyer Furnished Material will be physically isolated and segregated from all other materials. Seller will ensure through normal cycle counting and other procedures that on-hand physical quantities are accurately reflected in the perpetual inventory system and balances reported to Buyer on a monthly basis or more frequently, as business conditions require.

E.Buyer reserves the right to immediately debit Seller for the cost of Microsoft Products, including the cost of the royalty, if any Microsoft Certificates of Authenticity (COAs) can not be accounted for either through perpetual inventory records or shipments made to Buyer’s customers.  Seller agrees to record all COAs shipped with the Product and be able to provide such information to Buyer upon twenty-four (24) hours notice for all shipments.  Such COA tracking process shall be incorporated in Seller’s manufacturing verification system (MVS) and Product verification system (PVS) process.

33.SOFTWARE HANDLING

A.Seller agrees to comply with the terms of the Installation Agreement set forth in Exhibit F.

34.AUDIT RIGHTS

A.Buyer shall have the right to have third party auditor to audit Seller to ensure that services in support of the Product are being adequately performed,  that adequate controls and security measures are being maintained, and Seller billings to Buyer are accurate. Buyer shall provide five (5) business days prior notice.

B.With the exception of audits for Seller billings to Buyer, Buyer may, subject to Seller’s prior approval, conduct audits at its discretion and expense, no more than twice per Product program and no later than six (6) months following the later of the last shipment of Product or the last invoice received by Buyer for such program.  In connection with the foregoing, Seller will provide to Buyer, their third party auditors that Buyer designates in writing, access to (i) any part of any facility in which Seller or its subcontractors is providing any of the services in support of the Product, (ii) data and records relating to support of the Product; and (iii) individuals who are familiar with Seller support of the Product and any other supporting information which relates to the audited transaction.

C.Buyer agrees that it shall comply with all applicable legal requirements in its use of information obtained pursuant to such audit.  However, Seller shall not be required to provide information pursuant to an audit when it may cause the breach of its confidential obligations to a third party or is otherwise prohibited by law.

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D.All confidential information disclosed to Buyer’s third party auditors shall be subjected to the items of Section 30 and Buyer shall cause all third party auditors to execute a non-disclosure agreement, reasonably determined by the parties.

E.Failure to comply with the provisions set forth in this Section 35 shall constitute a material breach of this Agreement.

35.QUARTERLY BUSINESS REVIEW

A.The parties agree that they will hold a Quarterly Business Review.  These meetings shall be used by the Buyer to set expectations and provide feedback on performance. Seller will use the Quarterly Business Review to understand performance expectations, and their performance to the expectations, share information regarding Company activities, and the Company’s strategic direction. In conjunction with this effort, Buyer has established a rating system to be used to evaluate Seller on its performance in the preceding quarter.

B.Seller’s performance will be evaluated on the following elements: Quality & Reliability, Responsiveness, Cost / Delivery Performance, and Customer Service.  In addition Seller’s progress on supply chain reengineering and ODM shall be assessed. Other performance areas may be added or current performance metrics modified as agreed in writing by the Parties.

C.Failure to demonstrate continued improvements in the Quarterly Business Review ratings shall constitute a material breach of this agreement.

36.GENERAL

A.Seller understands that Buyer is engaged in a corporate re-engineering and ODM effort and agrees that it will use commercially reasonable efforts to adjust its business and design processes for order placement, product manufacturing, product delivery mechanisms and processes, quality plan definition and goals, and service mechanisms, in order to meet Buyer’s re-engineering goals as communicated to Seller by Buyer from time to time.

B.If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable, such provision shall be enforced to the fullest extent permitted by applicable law and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

C.No action, except those regarding claims by third parties, or claims with respect to patents, copyrights, trademarks or trade names or the unauthorized disclosure of Confidential Information, regardless of form, arising out of this Agreement may be brought by either party more than two (2) years after the cause of action has arisen, or, in the case of non-payment, more than two (2) years from the date the payment was due.

D.Any waiver of any kind by a party of a breach of this Agreement must be in writing, shall be effective only to the extent set forth in such writing and shall not operate or be construed as a waiver of any subsequent breach.  Any delay or omission in exercising any right, power or remedy pursuant to a breach or default by a party shall not impair any right, power or remedy which either party may have with respect to a future breach or default.

E.Seller hereby gives assurance to Buyer that it shall not export, re-export or otherwise disclose, directly or indirectly, technical data received from Buyer or the direct product of such technical data to any person or destination when such export, re-export or disclosure is prohibited by the laws of the United States or regulations of a Department of the United States.

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FThis Agreement is considered to be Confidential.  The Parties will keep the terms and existence of this Agreement confidential.  Either Party will not publicly disclose or issue any statement or press release that references this Agreement or the other Party without the other Parties prior written approval.

G.Reporting requirements associated with this agreement will be summarized in Exhibit K, “Reporting Requirements”.  The summary identifies the report content, report frequency, responsibility, and due date.

H.The entire Agreement between the parties is incorporated in this Agreement and Appendices attached hereto, and it supersedes all prior discussions and agreements between the parties relating to the subject matter hereof.  The parties, upon mutual agreement, may from time to time amend or modify this Agreement.  This Agreement can be modified only by a written amendment duly signed by persons authorized to sign agreements on behalf of both parties, and shall not be supplemented or modified by any course of dealing or trade usage.  Variance from or addition to the terms and conditions of this Agreement in any Order, or other written notification from Seller will be of no effect.

I.THE CONSTRUCTION, VALIDITY, AND PERFORMANCE OF THIS AGREEMENT AND ANY ORDER ISSUED UNDER IT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, U.S.A. AND THE LAWS OF THE UNITED STATES OF AMERICA, AND IN THE EVENT OF ANY CONFLICT UNDER THIS AGREEMENT, THE PARTIES AGREE TO SUBMIT TO THE JURISDICTION OF THE TEXAS STATE COURTS IN TRAVIS COUNTY, TEXAS AND THE FEDERAL COURTS OF THE SOUTHERN DISTRICT OF TEXAS.

J.Sections 12, 13, 14, 19, 20, 21, 23, 25, 29, 30, 32, 33,  and Exhibit E shall survive termination (for any reason) or expiration of this Agreement.

IN WITNESS WHEREOF, THE AUTHORIZED REPRESENTATIVES OF THE PARTIES HAVE EXECUTED THIS AGREEMENT.

For Buyer		For Seller
/s/ Randy Paramore		/s/ Dixon Cheng
Randy Paramore	(date)	Dixon Cheng	(date)
Vice President Supply Chain		Vice Chairman
Xplore Technologies Corp.		Pegatron Corporation

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EXHIBIT SUMMARY

·	Exhibit A	Products and Pricing
·	Exhibit B	Specifications / Milestones
·	Exhibit C	Quality Exhibit
·	Exhibit D	Flexibility / Liability
·	Exhibit E	Service & Support
·	Exhibit F	Installation Agreement for Microsoft Products
·	Exhibit G	Dispute Resolution Procedures
·	Exhibit H	Tooling Exhibit
·	Exhibit I	ODM Requirements
·	Exhibit J	EDI Transactions
·	Exhibit K	Product Reporting Requirements

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EXHIBIT A

PRODUCTS AND PRICING

Products shall mean current and future personal computer systems or subsystems that Xplore may purchase from Pegatron pursuant to this Agreement and shall include all software and hardware that Xplore specifies for inclusion with each Product shipped. Xplore shall be responsible for the applicable software royalties payable to the third party software suppliers.

Pegatron and Xplore agree to determine the manner in which main components for the Products will be purchased to optimize resulting total cost to Xplore.  At Xplore’s request and expense, Pegatron will source certain critical components from vendors specified by Xplore and in such situations, Xplore may assist Pegatron, where appropriate, to obtain improved allocation, capacity, and pricing terms from vendors for such critical components to be used in Products for Xplore. Pegatron ‘s cost reduction goals are to deliver [Confidential Treatment has been requested] material cost reduction, [Confidential Treatment has been requested] for the material that Pegatron controls and a [Confidential Treatment has been requested] non material cost reduction.

Pegatron agrees that the prices specified below are firm until the end of the quarter. Day five (5^th day of the last month of the quarter)  and each subsequent quarter thereafter, Xplore and Pegatron will meet to negotiate firm prices for the immediately following quarter and projected not to exceed prices for the next quarter thereafter.  Pegatron Xplore and Pegatron will agree to work together to determine the category in which each major material component will reside.  Each material category shall be defined as listed below;

a)category 1 - Xplore secures pricing, allocation and supports the program requirements by utilizing Xplore planning and procurement systems.  Xplore ships components to each individual Pegatron demand location, or has the product drop shipped by the individual component supplier.  Xplore supplies a weekly material summary sheet which details the time phased requirements, material deliveries to each Pegatron demand location, and the Pegatron purchase orders to support the deliveries.  Pegatron agrees to validate each weekly material summary sheets accuracy, and purchase 100% of the category 1 material from Xplore, (unless agreed by the parties in writing). If Pegatron purchases any of the category 1 material from a source other than Xplore, (without authorization in writing), Xplore shall have the right to offset Pegatron payables for 100% of the material cost and ship the Category 1 material to Pegatron.

b)category 2 - Xplore secures allocation and pricing, Pegatron performs all planning, forecasting, and procurement activities to support the program.  Pegatron agrees to provide a written order status on a regular basis, at least once per month, or more frequent if business conditions require. Pegatron agrees to utilize appropriate planning time fences, forecasting techniques, and procurement practices to support the program, and any 3-way agreements reached between the parties and any component supplier.  If Pegatron fails to support the 3 way agreements, by utilizing the aforementioned processes, Xplore will have the right to recover any financial impact by offsetting Pegatron’s payables.  Pegatron agrees that it shall not use any Category 2 components in any other products.

c)category 3 - Any components Pegatron utilizes within the manufacturing process of any Xplore Product that does not fit into the category 1 or 2 as defined above.  Pegatron agrees to source and support the planning / forecasting and logistical movement of the component to support the project

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Attachment One (1)

Unit Cost Quotation

DATE: Jan. 16, 2008

ver: 01

[Confidential Treatment has been requested.]

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Unit Cost Quotation

DATE: Jan. 16, 2008

ver: 01

[Confidential Treatment has been requested.]

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Attachment Two (2)

Component Cost Exceptions

Buyer and Seller shall maintain a vigorous cost reduction program to ensure that pricing is competitive at all times. Seller is able and willing to drive automatic cost reductions of [Confidential Treatment has been requested] for materials managed by Seller and [Confidential Treatment has been requested] for non-materials to Buyer. Initially there are a small number of unique components that need to be managed using an exception process for cost reduction purposes. The small number of unique material components are outlined in the table below. Buyer and Seller agree that the intent of the cost reduction program is to include all components in the standard process and that mutual efforts will be required to migrate the components listed below to the standard cost reduction process. This table will be amended as progress is made to migrate each component to the standard cost reduction process.

[Confidential Treatment has been requested.]

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EXHIBIT B

SPECIFICATIONS / MILESTONES

[Confidential Treatment has been requested for pages 26-108.]

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EXHIBIT C – QUALITY

Introduction

This Exhibit defines the quality system and product quality requirements for the products and / or support provided by the Seller to the Buyer.  In the event that additional issues arise during the design, manufacture, quality evaluations, and support of the product, the Seller agrees to implement additional requirements that both Parties deem necessary to improve or assure the product quality and customer satisfaction.  Seller agrees to consolidate all data collected regarding quality without limitation, including production and materials issues from all the Seller’s production facilities and supplier base.  Seller will provide reports to Buyer that shows the current status of product quality and related activities defined in this Exhibit in the time intervals and format agreed to in Exhibit K “Reporting Requirements”.  The format of the report will be agreed to by the Seller and Buyer Quality Representatives.  Buyer and Seller will meet on a monthly basis or more frequently as needed to review the consolidated quality data for the previous month or agreed time period to identify appropriate actions required to improve the overall product quality and customer satisfaction of the Seller’s products and support.

REVISION HISTORY

Revision	Date	Description of Change
[Confidential Treatment has been requested]	[Confidential Treatment has been requested]	[Confidential Treatment has been requested]

1.0Scope

This Exhibit is applicable to all parties of the attached procurement agreement.  The following are example activities required to reduce the opportunity for incidents of non-conforming product, reduced production tool life, and customer dissatisfaction.  Other actions may be required of the Seller depending on the circumstances:

a)Product Qualification & Issues Tracking

b)Annual Quality & Reliability Assurance Plan

c)Product Quality & Process Yield Rate Management Plan

d)Product and Process Documentation Requirements

e)Procured Product & Production Tooling Qualification & Management

f)Critical Performance Metrics Definition and Reporting

g)Production Process Capability Study & Planned Quality Control Checks

h)Closed Loop Corrective Action process, including closure verification methods

2.0References

·The Contract Agreement

·Buyer’s Service and Support Exhibit

·Buyer’s Product Visual Quality Requirements

·Seller’s Quality & Reliability Assurance Plan

·Seller’s Product Qualification & Product Release Plan

·Seller’s Product Reliability Test Procedure, including ORT

·Seller’s Product Reliability Failure Prediction Procedure

·Seller’s Product Test Matrix (Production, ORT, & OBA)

·Seller’s Defective Product Return Procedure

·Seller’s Product Workmanship Standard

·Seller’s Production Tool Management Plan

3.0Definitions

3.1CLOSED LOOP CORRECTIVE ACTION (CLCA).  Process resulting in the identification of the root cause of a problem and activities that both corrects the condition and ensures measures are taken to prevent the possibility for recurrence of the same condition.

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3.2CRITICAL PRODUCT PARAMETER.  Product feature, attribute, or function that directly impacts the form, fit, function, or visual quality requirements of the product.

3.3CUSTOMER INDUCED DAMAGE (CID).  A condition created by the Buyer or Buyer’s customer by using the product in a manner other than its’ design intended usage.  This would include damage caused by handling, transportation, and / or storage.

3.4DEAD ON ARRIVAL (DOA).  Product that is less than [Confidential Treatment has been requested] old from the date shipped plus transportation time by the Seller and has been identified as defective by the Buyer or Buyer’s customer, depending on the original ship to address from the Seller.  This defective condition may be cosmetic, workmanship, configuration, or functional in nature.

3.5DEFECTIVE PRODUCT.  Product that has been identified as not conforming to 100% of the Buyer’s product Engineering and / or Quality form, fit, functional, and visual requirements.  Also, any product that is grouped in lots / shipment, if defective product is found in a lot sample the entire lot is deemed defective product and is subject to rejection.

3.6DEMO PRODUCT.  Product supplied to the Buyer or Buyer’s customer for evaluation.  This type unit is typically used in connection with a future sales opportunity / order.

3.7DEVIATION REQUEST.  A process for the Seller to request a deviation from the Buyer to deviate from an approved Engineering or Quality product or process requirement.

3.8FIRST PASS YIELD (FPY).  The total number of disruptions in the Buyer’s configuration process cause by defective product divided by the total number of new starts on the Buyer’s configuration line.  Product shipped by the Seller under prior Buyer approved deviation will not be counted when calculating FPY rate during a configuration process.

3.9MISSING, WRONG, or DAMAGED (MWD).  This is a product quality condition whereas the product is missing items on the BOM, including literature, the wrong product or configuration, or has been damaged prior to or during shipment to its’ intended destination.

3.10PRODUCT QUALIFICATION.  The process of validation and verification that the product meets all defined Engineering and Quality requirements.

3.11PRODUCTION TOOLING.  Any tool, jig, or fixture, including software that is used by the Seller or a sub-supplier to produce, inspect, or test an individual piece part, sub-assembly, or the final product for use in the Seller’s production or shipment to the Buyer.

3.12QUALITY ALERT.  A process used by the Seller or Buyer to communicate product quality related issues prior to discovery by the other party.

3.13QUALITY PRODUCT.  100% conformance to the Buyer’s approved Engineering drawings / specifications and Quality requirements.

3.14QUARTERLY BUSINESS REVIEW (QBR).  A meeting to communicate information related to the Seller’s performance for a given time period (usually 1 business quarter).

3.15REPEAT FAILURE.  Any time [Confidential Treatment has been requested] occurrences of the same type product defect or process error occurs within a rolling [Confidential Treatment has been requested] period.

3.16SPECIAL PROCESS.  A process or procedure that the quality of work or product can not be verified during the actual process.  Examples of special processes are; welding, plating, painting, adhesive bonding, coating, injection molding, sheet metal stamping, etc.

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3.17SUPPLIER CORRECTIVE ACTION REQUEST (SCAR).  A form used by the Buyer to document a formal request for CLCA be taken by the Seller to resolve a defined issue impacting product delivery, quality, cost, or customer satisfaction.

3.18SUPPLIER SCORECARD.  A document used by the Buyer to communicate to the Seller their overall performance for a defined period of time related to the contract requirements and any other agreed upon activity to be performed by the Seller during the period.

3.19TOOL LIFE.  The total number of “shots” or “cycles” a production tool is capable of exercising over its’ life.  Product quality and the yield rate of a product will diminish as the tool ages over time.  It should also be noted that welding on a production tool will reduce the expected tool life and must be controlled and minimized by the Seller.

3.20VALIDATION.  A method used to validate that something has been completed, such as a piece part has been physically replaced or a process has been changed.  This is not intended to verify that it was done correctly or effectively only that it did or did not occur.

3.21VERIFICATION.  A process or activity that will objectively demonstrate that a product or process change has been implemented per the defined requirements through the use of representative samples of the product.  This should also determine its’ effectiveness.

3.22WARRANTY COST.  Buyer’s total cost of addressing customer complaints and / or repairing a product returned by the Buyer’s customer for repair, replacement, or credit.

4.0Quality System Requirements

4.1General.  The Seller’s quality management system will be in full compliance with ISO 9001-2000.  Any exceptions to the requirements defined in ISO 9001-2000 Standard must be approved by the Buyer or they are not valid exceptions for this agreement.  If the Seller is registered under the ISO 9001-2000 Standard, the Seller will provide a copy of their current registration certificate to the Buyer’s QA Representative.  The Seller will be responsible to update the certificate each year with the Buyer.  The Seller will also notify the Buyer in writing within 15 calendar days if the Seller’s quality system is determined to no longer be in full compliance with the ISO 9001-2000 Standard and identify a date when the quality system will return to full compliance.

4.2Product Quality Performance Requirements.

4.2.1Seller’s Production & Configuration Process.  The Seller will maintain up-to-date performance metrics, which shows current performance measurements for the quality metrics / goals defined in this section.  The Seller will implement a Quality Alert process whereas product is segregated and verified in compliance before shipment to the Buyer whenever their internal yield rate drops below [Confidential Treatment has been requested].  If the Seller’s product yield rate is below [Confidential Treatment has been requested] for a period of [Confidential Treatment has been requested] or the Seller has “stopped production or shipments” of the product the Buyer’s QA and Purchasing representatives will be notified.

4.2.2Product Direct Shipped   The Buyer will provide feedback to the Seller with regard to the product’s quality as received by Buyer’s Customers.  The acceptable quality level for product delivered to the Buyer’s customers is [Confidential Treatment has been requested] for a [Confidential Treatment has been requested].  This will be calculated by the number of defective units divided by the number of nonconforming products returned or failed during source inspection

4.2.3Demo Product Ship Direct to Customer.  If the Seller is required to supply a “demo” unit for customer evaluation, the Seller will be responsible to supply 100% defect free product for all customer demonstration units.  A copy of all inspection and test reports for each demo unit will be provided to the Buyer’s QA representative at the time of the shipment from the Seller’s facility.

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4.2.4Continual Improvement.  Continual improvement activities will be identified at each QBR and during periodic Quality Performance Reviews.  The Seller will be responsible to complete these improvement activities in a timely manner and report to the Buyer when requested the status of each item, including providing verification evidence that the activities have been properly addressed.

4.3Advanced Product Quality Planning (APQP).  The Seller will provide an annual Quality & Reliability Assurance Plan (QP), which identifies how the Seller will achieve the Buyer’s quality goals for the products, services, and support provided by the Seller or Seller’s supply chain.  The revised QP will be provided to the Buyer’s QA Representative whenever it is updated.  The Buyer has the right to modify or offer recommendations to the goals, priorities, and activities in the QP to ensure that the QP is in full support of the Buyer’s business needs.  Some of the areas that should be addressed in the QP are;

·Annual quality objectives necessary for achievement of FPY rate

·New product qualification requirements

·Design tolerance evaluations to assure no mismatches in mating parts exist

·Product quality requirement definitions, including cosmetic

·Product quality requirements for production release

·Production tool identification, tracking, and reporting requirements

·Nonconforming product control and material purge requirements

·Product inspection and test requirements, including burn-in time

·Inspection and test sampling plans, IQC, in-process, final, OBA, and ORT

·Product test matrix management and verification requirements

·Quality Alert process definition, escalation, and closure criteria

·Product change control verification and validation requirements

·Customer complaint response, escalation, and closure requirements

·Sub-supplier part qualification and production release requirements

4.4Document and Change Control.  The Seller will maintain an up-to-date document control system for all products produced for the Buyer.  No changes to the product will be made without documented approval of those changes on an ECR or ECO by the Buyer.  The Seller assumes all financial responsibility for product changes made by the Seller without an approved ECR or ECO by the Buyer.  The Seller will provide to the Buyer’s QA representative a Product Change Status Report, which identifies all current and proposed changes to the product, their current status, and description of verification activity used to verify the change during production by the 5^th day of each month.

4.4.1Engineering Change Control.  The Seller will maintain an up-to-date Bill of Materials (BOM) for all products produced for the Buyer.  The BOM will contain all part numbers of the individual piece parts and sub-assemblies required to produce the product for the Buyer, including any documentation, such as labels, operating manual, product literature, software, etc.  Copies of the BOM, engineering specifications and drawings, and other product documentation will be made available to the Buyer in English within 24 hours of the time requested.

4.4.2Records Management.  The Seller will maintain accurate records of all product drawings, specifications, standards, and BOMs for a period of 12 calendar months after end of support life.  The end of manufacturing and support product life will be set by the Buyer.  Copies of all product records will be made available to the Buyer in English upon request.

4.4.3Working Documents.  Working documents, such as production SOPs, inspection & test work instructions, production test procedures, product test matrix, etc. will be revision controlled by the Seller.  All documents will be made available to the Buyer in English upon request.

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4.4.4Product / Material Certifications.  When required by the Buyer, the Seller will provide material / product certifications (Certificate of Compliance) to the Buyer for products shipped to the Buyer or the Buyer’s customer.  The Seller will retain a copy of all material / product certification documents for a period of 12 months past the end of support life of the product.

4.5Production Process Controls.  The Seller will maintain documented production assembly & test work instructions (SOPs).  A complete set of all production SOPs, including test procedures will be made available in English to the Buyer’s Quality Representative upon request.  The Seller will also perform process capability studies for their internal and critical Tier 1 sub-supplier’s production processes to ensure the process is capable of producing product at [Confidential Treatment has been requested] FPY quality level.  The Seller will review the results of these process evaluations with the Buyer’s QA Representative and identify areas of concern related to product quality and production capacity limitations.

4.6Inspection & Test

4.6.1Incoming Quality Control (IQC).  The Seller will ensure that all materials used in the production of the Buyer’s product(s) meets 100% of the Engineering and Quality requirements prior to releasing the material for use in production or shipment to the Buyer.  The Seller will maintain documented Inspection Procedures which defines the quality requirements for each part number procured from their supplier base for delivery to the Buyer.  In addition, any functional testing performed by the Seller or a sub-supplier will have product test work instructions defining how the test is performed and the detailed acceptance criteria for the test.

4.6.2In-Process Quality Control (IPC).  The Seller will ensure that there are adequate internal controls in place and at sub-suppliers to detect defective product during the production process and prevent it from being released for shipment to the Buyer.  The Seller will also establish minimum acceptable yield rates for the production of the product and define escalation criteria when the yield rate is not being achieved.  These yield rate requirements and escalation criteria will also include the Seller’s sub-supplier base.

4.6.3Final Inspection & Test.  All products shipped to the Buyer or Buyer’s customer will be verified that it is in 100% compliance with the Buyer’s Engineering and Quality requirements prior to release for shipment.  The Seller is not relieved of this responsibility if the product is shipped directly from a sub-supplier to the Buyer.  The Seller will also verify that all functional testing of the product internally and at sub-suppliers meets the Buyer’s Engineering and Quality requirements.  Any product that is not in 100% compliance with these requirements will be rejected and the Seller does not have the authority to apply a “USE AS IS” disposition to the product without an approved Deviation Request from the Buyer.  All final inspection results will be documented and made available in English to the Buyer.

4.6.4Source Inspection.  The Buyer reserves the right to perform on-site inspection of product at the Seller’s production location(s).  This inspection activity may be performed by the Buyer or an authorized Buyer representative.  The sample plan / size for source inspection and acceptance criteria will be at the discretion of the Buyer.  Whenever the Buyer elects to perform source inspection, the Seller will ensure adequate space, tools, and support for performing this activity.  Any product found to be nonconforming as a result of the source inspection activity will be the responsibility of the Seller to bring to a state of acceptance.

4.6.5Out of Box Audits (OBA).  The Seller will establish a process for performing OBA of the Buyer’s products.  This process will include sample size, acceptance criteria, minimum yield rates, and escalation criteria.  The Seller

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will correlate the functional testing of the product with their internal production line and the Buyer’s OBA requirements.  Each product feature on the product test matrix and Buyer’s Product Requirements Document (PRD) will be evaluated during OBA testing.  The Seller will maintain OBA procedures, test matrix, and records.  The Seller will provide these records in English to the Buyer upon request.

4.6.6On-Going Reliability Testing (ORT).  The Seller will implement an ORT plan for the Buyer’s products and submit this plan to the Buyer for approval prior to production release of the product.  The Seller will maintain records of such testing for a period of 12 months past the product end of manufacturing life.

4.7Control of Inspection & Test Devices.  The Seller will implement a documented equipment identification and calibration program that is in full compliance with ISO 9001-2000.  This program will include all devices used by the Seller to determine the acceptability of the product to the Buyer’s Engineering and Quality requirements, including software, production fixtures, and visual aides or templates.  Any devices provided to a sub-supplier by the Seller will be subject to the requirements of this program.  Any product inspected or tested with a device under the control of this program during the time the device is in a state of “out of calibration” the product will be deemed unacceptable until the Seller re-inspects / test the product with a measurement device that is deemed to be “in a state of calibration”.

4.8Nonconforming Product Control.  The Seller will have a documented process defining how nonconforming product is identified, segregated, dispositioned, and controlled.  The Seller does not have the authority to disposition any nonconforming product “Use As Is” without an approved Deviation Request from the Buyer.  The Seller will maintain records of such activity for 12 months past the end of support life of the product.

4.8.1Inventory Control.  The Seller will manage their inventory such that they have the capability to segregate nonconforming product to prevent its’ usage, purge existing inventory by part number and revision level, and identify materials that have special requirements, such as shelf life, storage temperature requirements, ESD, or light exposure risk.  The Seller will have a material purge procedure, which includes their sub-suppliers and control of inventory until final disposition.

4.8.2Buyer Quality Alerts.  The Seller will develop and obtain the Buyer’s approval for a Quality Alert process for the Buyer’s products.  The process will include severity classifications of problem levels, escalation criteria, and the identification of key points of contact within both the Seller’s and Buyer’s organizations.

4.9Production Tooling Management.  The production tooling paid for by the Buyer, either through direct payment (NRE), amortized through the product, or otherwise is the property of the Buyer when paid.  The Seller is responsible to manage these tools to ensure the maximum tool life is achieved to support both the Seller’s and Buyer’s business needs.  All tool design, qualification, maintenance, and repair records of each tool are to be maintained by the Seller and presented to the Buyer in English upon request.  Each production tool will have a unique tool identification number assigned by the Seller clearly marked on the tool prior to the tool being released for production.  The Seller or its’ sub-supplier is not authorized to make changes to the tool after tool qualification without documented approval from the Buyer.

4.9.1Production Tool Qualification.  The Seller will have a documented process for qualification of production tooling approved by the Buyer’s Engineering and Quality Representatives.  If a tool produces multiple parts, such as a multiple cavity mold then each cavity must be qualified independently.  The tool qualification records will be provided to the Buyer in English upon request.

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4.9.2Tool Life Maintenance.  The Seller will have a documented process that defines how the tool life of each production tool is tracked.  There will be a defined escalation process to notify the Buyer whenever a tool’s condition changes such that the support of production is at risk or the first pass yield rate drops below [Confidential Treatment has been requested] from the tool and / or [Confidential Treatment has been requested] for the overall production process.

4.9.3Tool Tracking.  The Seller will maintain an up-to-date list of all production tools used to produce product for the Buyer.  This tool list will include the minimum information and be provided to the Buyer in English upon request;

·Seller’s unique tool identification number

·Part number and revision level produced by the tool

·Number of cavities in the tool

·Part description of the part produced by the tool

·Buyer’s product name(s) the tool supports

·Supplier’s name, address, and contact person where the tool is located

·Date the tool was initially qualified

·Cost of tool (billed to Buyer)

·Expected tool life from date of qualification

·Date last First Article Inspection (FAI) was perform on each cavity

·Estimated number of shots or cycles remaining on the tool’s life per cavity

·Actual FPY rate of the tool

·Actual overall FPY rate of the supplier’s overall process to produce the part

·Date of next schedule formal tool examination and part FAI

5.0New Product Assurance & Production Release

5.1General.  All product intended for shipment to the Buyer will be qualified by the Seller prior to shipment to the Buyer.  The Seller will be responsible to maintain documented records of the product’s qualification in English, such as FAI Reports, regulatory compliance test reports, product test reports, ECOs, mother board qualification test reports, RoHS material qualification records, UL test reports, etc. and provide them to the Buyer upon request.  The Seller and Buyer’s Quality representatives will agree on the product specific qualification criteria prior to beginning qualification inspection & test activities.

5.2Product Assurance and Design Reviews.

5.2.1General.  The Seller will present to the Buyer’s Quality representative a documented QP that defines how the Seller will assure that product qualified for use in the Seller’s production process and shipped to the Buyer will be in full compliance with the Buyer’s approved engineering specifications / drawings and applicable quality requirements.

5.2.2Product Design Reviews.  The Seller’s Quality representative will participate in product design reviews which involves the Seller and identifies product related quality risk that will or may impact the quality or reliability of the product provided to the Buyer.  The Seller will rank all identified quality risk in order of severity with regard to their impact to the product’s quality & reliability.  After the product or part(s) have been qualified, the Seller’s Quality representative will track all product deviations requested by the Seller’s engineering functions with regard to product testing, qualification, and production pilot builds.

5.2.3Design for Manufacturability.  The Seller will perform a review of the product’s design with regard to its’ impact on the current plan for assembly and test of the product in the Seller’s production facilities.  The Seller’s Quality representative will provide to the Buyer’s Quality representative a list of all issues and improvements that may negatively impact the assembly, test, or quality of the product.

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5.2.4Product Test Correlation.  The Seller will provide a plan to the Buyer’s Quality representative for assuring that there is adequate correlation between the Seller’s and Buyer’s production and configuration facilities with regard to product acceptance testing, both during production, burn-in, and OBA activities.  The Seller will provide upon request a complete product test matrix to the Buyer showing how each requirement of the Buyer’s Product Requirement Document are tested, during the Seller’s production process.  If required, the Seller will provide “golden” units to validate test correlation between the Seller’s and Buyer’s facilities.

5.2.5Warranty Cost Predictions.  Prior to Engineering product qualification, the Seller’s Quality representative will provide a list of all major components of the Buyer’s product and identify each components expected warranty life prediction in operating hours.  Some of the typical major components on the list are;

·Motherboard (MLB)

·Display (LCD)

·Mechanical assembly

·Keypad or keyboard (number of key strokes)

·Battery Life

·External connectors (number of insertions)

5.3Product Qualification

5.3.1New Product Qualification.  Each component of a new product will bequalified individually and in the product / system prior to release forproduction.  A record of the qualification and the specification it was qualified to will be retained by the Seller as a quality record of the activity.  The Buyer and Seller agree to collaborate to define the product qualification documentation requirements for each new product project performed with the Seller.

5.3.2Product Re-Qualification.  The Buyer has the right to require full or partial re-qualification of the product if there has been a significant change to the product, there has been a high rate of product changes within a 12 month period, the quality of the product is suspect, or the Seller and Buyer mutually agree to perform such activities due to other business issues.  If the re-qualification is due to poor quality performance or changes made by the Seller without the Buyer’s approval then the Seller will be responsible for the total cost of product re-qualification.

5.4Production Part Approval Process (PPAP).  The Seller will have a documented production part approval process, which clearly defines how a piece part or sub-assembly is qualified within their supply chain, how the activity is documented, the allowable tolerance usages, the allowable dispositions, and how deviations or waivers are addressed with regard to the Engineering and Quality requirements.  The records from these activities will be maintained by the Seller for a period of 12 months after the end of business with the sub-supplier supplying the part to the Seller.  These records will be made available to the Buyer in English upon request.

5.5Product Compliance & Regulatory Compliance.

5.5.1New Product Compliance.  The Buyer will be responsible to ensue there is documented evidence that product regulatory compliance requirements have been satisfied prior to release for the first production build by the Seller.

5.5.2Certificate of Compliance (CofC).  The Seller will provide a CofC in English if required by the Buyer.  The acceptable format of the CofC will be provided to the Seller by the Buyer’s Quality Representative.

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5.6Production Release.  Production release of a product will only occur when both the Seller and Buyer agree that the product design and quality requirements have been achieved.

5.6.1Quality Criteria.  The quality criteria for production release will be as follows:

·All individual part numbers on the BOM have been fully qualified

·All sub-assemblies produced by suppliers have been qualified

·The packaging has been defined and qualified, including labels

·All production tools have been qualified and properly identified

·The Seller’s production SOPs have been released and verified

·The production test matrix has been verified to meet the Buyer’s PRD

·The product cosmetic and final inspection criteria has been defined and agreed to by the Buyer’s Quality representative

·A copy of the up-to-date indented BOM with manufacturer part numbers and descriptions has been provided to the Buyer

   All product regulatory requirements have been satisfied

·All Severity 1 issues on the Quality Action Register have been closed

·All Severity 2 issues on the Quality Action Register have a plan for closure within 30 days from release to production

·The Seller has produced a pilot build of >[Confidential Treatment has been requested] with a FPY [Confidential Treatment has been requested]

·A copy of all deviations or waivers for the engineering qualification build has been provided to and approved by the Buyer

5.6.2Product Quality Verification & Validation Requirements.  The Seller is responsible to perform both product verification and validation activities to ensure that the product design and quality requirements have been satisfied during the pilot production build.  The Seller will review the results with the Buyer’s Engineering and Quality representatives within 5 days of production release.  A copy of all documentation will be provided to the Buyer’s representatives in English two (2) working days prior to the review.

5.6.3New Product Quality Information Package.  The Buyer’s Quality representative will identify to the Seller the content requirements of the Quality Information Package.  Below is a list of the typical items (in English) in this package, but additional items may be added:

·List of all open and closed deviations / waivers during the design process

·Production tooling list, including identify those amortized in the part

·Complete complex indented BOM of product

·List of options provided by the Seller, ie. Battery, HDD, memory, etc.

·Copy of Seller’s Production SOPs with quality requirements

·Copy of Seller’s product production test matrix (functional test & burn-in)

·Process map of Seller’s production process with quality check points

·Seller’s cosmetic and dimensional requirements for production

·Copy of all mechanical FAIs for parts produced from production tooling

·OBA and ORT quality requirements, including sample plans

·Warranty failure predictions for all major components

6.0Sub-Supplier Quality Management Requirements

6.1General.  The Seller will have a Supplier Quality Management program and make the details of the program available to the Buyer upon request.  The Seller will have a defined process to verify and validate that their Tier 1 suppliers are in full compliance with the requirements of the Supplier Management Program.

6.2Supplier Qualification.  The Seller will maintain a revision controlled Approved Vendors List (AVL) that identifies all approved suppliers for the Buyer’s parts / product(s).

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6.3Product Qualification.  All qualifications will be documented and made available in English to the Buyer upon request.  The specification the part, sub-assembly, or product was qualified to will also be made available to the Buyer upon request.  If there is a tolerance applied to a specific dimension or requirement, the Buyer has the right to specify specific acceptance limits within that tolerance range for final acceptance.  If there are multiple suppliers for the same part number, the Seller will ensure that each supplier is qualified to the same requirements and there is no difference in the performance of the parts in the Buyer’s product.

6.4Production Tool Qualification & Management.  Each production tool used to produce product to be delivered to the Buyer will be qualified, prior to production release of the part being produced by the tool.  The tool will also be qualified and evidence in English of the tool qualification with copies of the piece part engineering specification / drawing will be supplied for acceptance to the Buyer’s Quality and Engineering representatives, prior to the Buyer paying for the tool.

6.4.1Tool Identification.  Each tool will have a unique identification number applied to the tool in a location that it is visible to the Buyer without opening the tool.  If there is more than one cavity in a single tool then the number of cavities will also be identified below the identification number on the tool.  If there is more than one cavity, then each cavity will have a unique cavity number in a location that the number will appear in a “none cosmetic” location of the finished part.

6.4.2Tool Maintenance.  The Seller will maintain an up-to-date Tool Log, per Section 4.9.3 of this Exhibit.  The format for this log will be provided to the Seller by the Buyer’s Quality representative.  The Seller will have a defined escalation process to notify the Buyer any time a production tool violates a requirement of Section 4.9.3 of this Exhibit.  Any violation by the Seller or Seller’s supplier of these production tooling requirements and the Buyer has the right to delay or defer payment of the tooling until all the requirements have been satisfied.

6.5Supplier Surveillance.  The Seller will ensure their supply base is operating continually within the requirements of this Exhibit.  The Seller is responsible to identify, segregate, and manage any product identified or suspect as nonconforming at their supplier.  The Seller will also have a defined process for purging, sorting, segregating, and dispositioning sub-supplier materials / products and prevent the product from being used in the Seller’s production process or shipped to the Buyer.  The Seller is not authorized to disposition any suspect or nonconforming product located at a sub-supplier “Use As Is” without a documented and approved Deviation request from the Buyer.

6.6Supplier Records.  The Seller will ensure that there are adequate records of their supplier management program.  These records will be made available to the Buyer in English when requested.  The records will be retained for a period of 12 months past the end of life of the product being produced by the supplier.  If the Seller discontinues business with the sub-supplier, the Seller is responsible to obtain all the records and production tools from the supplier prior to discontinuing the business and retaining those records for 12 months from the date of discontinuance of business.

7.0Product End of Life (EOL) Quality Requirements

7.1General.  The Seller is responsible to meet all the requirements of this Exhibit for the full term of the products life cycle.  The Seller is responsible to track and report to the Buyer the required performance metrics for the full term of the product’s life cycle.

7.2Quality Planning.  The Seller will create a documented “End of Support Life” (EOSL) Quality Plan and present it to the Buyer for approval within 30 days from the written notification from the Buyer for a product’s scheduled end of life.  This plan will include those topics defined by the Buyer’s Quality representative.  The plan will include how

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the Seller will ensure the quality of the product for both the shipment of product to the Buyer and the quality of spare parts for service provider facilities.

7.3Quality Records.  The Seller agrees to retain a copy and make available in English upon request for a term of 12 months past the EOL of a product to the Buyer all records defined or implies in the Exhibit.  These records will be retained in such a manner as to prevent damage by storage or hazardous conditions over time.

7.4Product Quality Package.  The Seller will provide a complete Product EOL Quality Package to the Buyer within 90 days from the date of request.  This package is intended to provide historical evidence of the product’s quality over the term of the product’s life.  The Buyer’s Quality representative will provide to the Seller a list of documents (information) related to this agreement within 60 days from the notification of a product’s end of life that will make up the Product Quality Package.  Some examples of documents in this package are;

·Performance metrics for last 12 months of product’s life

·List of current status and location of all production tooling, including software

·Seller’s End of Manufacturing & Support Life Plan

·List of all know outstanding (open) quality issues with the product

·List of all known nonconforming product that requires disposition by the Buyer

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EXHIBIT D

FLEXIBILITY AGREEMENT

Buyer will provide Seller with a forecast as specified in this Agreement.  Buyer’s liabilities to Seller for Product units specified in the forecast are as follows:

Number of weeks prior to requested ship dates	Buyer’s liability	% increase without additional Buyer liability *	% decrease without Buyer liability
0-3 weeks	[Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]
4-7 weeks	[Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]
8-11 weeks	[Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]
12 weeks	[Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]

EXAMPLES:

A.Buyer shall be permitted to increase quantities set forth in the forecast pursuant to the Flexibility Model set forth above.  For example, if there are 100 units committed during the next 0-3 week period, Buyer will have the ability to increase this amount during the same 0-3 week period by [Confidential Treatment has been requested] or [Confidential Treatment has been requested] without any additional cost. Example for calculating liability would be as follows:  [Confidential Treatment has been requested]

[Confidential Treatment has been requested.]

B.Additional example: For instance, if there are 4000 units committed during the 4-7 week period, Buyer will have the ability to increase this amount during the same 4-7 week period by [Confidential Treatment has been requested] or [Confidential Treatment has been requested] without any additional cost. Example for calculating liability would be as follows;

[Confidential Treatment has been requested.]

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EXHIBIT E

SERVICE AND SUPPORT

1.DEFINITIONS.  In addition to the capitalized terms set forth in Article 1 of the Agreement, the following capitalized terms as used in this Exhibit shall have the meaning assigned to such term as set forth below:

1.A.“Core(s)” means a defective or nonconforming Spare.

1.B.“Core Price” means the value of the raw FRU, CRU, or DRU assumed to be in a defective state, excluding the cost of packaging, labeling, kitting, documentation, and software.

1.C.“Advanced Exchange” means a process whereby the Seller shall ship to Buyer or Buyer’s customer a replacement Spare before the receipt of a defective Spare.

1.D.“Advanced Exchange Pricing” means Repair cost plus a mutually agreed upon cost markup to cover the cost of handling and other administrative expenses as set forth on Attachment 1 hereto.

1.E.“FRUs” means field-replaceable units up to and including the whole product, but not limited to, products, documentation, packaging, and software, kitted, labeled, packaged, and ready for shipment to dealers.

1.F.“CRUs” means Customer Replaceable Units, which is a spare that can be easily replaced by an end user customer.

1.G.“DRUs” means Depot Replaceable Units, which is a spare which can only be replaced /repaired in a controlled, depot environment.

1.H.“Rush” means shipment within four (4) hours of request by Buyer’s authorized agent.  Buyer shall designate its agents before production.

1.I.“Spare(s)” means FRUs, CRUs, and DRUs.

1.J.“Field Return Rate” or “FRR” means the current month’s number of Spares returned, divided by the installed base of that FRU up to the current month, as determined by the quantity of the Seller’s product shipped to Buyer or Buyer’s customers.

1.K.“Like New” condition means meeting Buyer’s current engineering and quality specifications at the time of submission for repair.

1.L.“Refurbish” means replacement of parts that do not conform to Buyer’s specifications.

1.M.“Refurbish Cost” means Seller’s total incurred costs for Refurbishing Spares in warranty.

1.N.“Repairs” means the process to restore a defective Spare to a working condition that meets all buyers’ Engineering and Quality specifications.

1.O.“Repair Cost” means Seller’s total incurred costs during out-of-warranty, including, but not limited to a charge for refurbishing the units if needed.

1.P.“New Orders” means orders for additional new, repaired, or refurbished Spares.

1.Q.“De-coupled Flow” means the return to Seller of Spares without obligation to repurchase.

1.R.“Supplier Fulfillment Center” or “SFC” means a Buyer zero inventory ownership

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support methodology, whereby Seller’s service and support of Spares requires Seller to repair, warehouse, distribute and receive defective field spares in support of Buyer’s customers.  The SFC methodology is discussed in more detail in Attachment 2 hereto.

2.PAYMENT TERMS

2.A.Payment terms hereunder shall be net [Confidential Treatment has been requested] (T/T) from the date of invoice, provided that Spares have been confirmed as having been delivered by the Seller to Buyer’s Preferred Carrier at Seller’s service and support centers. Payment terms shall be the same as is indicated in the base Agreement. Payment of invoices shall not constitute final acceptance of the Spares.

2.B.Buyer retains the right to immediately set off cost of nonconforming Spares or discrepancies on invoices against current or future invoices for all RMA’s and any other circumstances that Buyer deems appropriate.

2.C.Buyer shall pay Seller for the amounts invoiced in accordance with the terms of this Agreement. Invoices shall reflect the prices specified in Buyer’s orders. Unless otherwise specified in an attachment quarterly pricing sheet or agreed to in writing by the parties, payment shall be in U.S. dollars.

3.IN WARRANTY SERVICE

3.A.PRICING

3.A.1Spares/Advanced Exchange pricing is set forth in the attached pricing sheet. Pricing shall remain fixed for the contract pricing period as set forth herein of ninety (90) days.  Thirty (30) days before the end of the then current contract pricing period, Buyer and Seller shall meet to review the pricing of Spares.

3.A.2The Spares List with pricing must be submitted thirty (30) days prior to first customer shipment.

3.A.3If agreement is reached, an amendment to this Agreement shall be executed, memorializing said agreement.

3.A.4The sum of all Spares pricing on the Product’s RSL (Recommended Spares List) shall not exceed [Confidential Treatment has been requested] of the total Product price.

3.A.5Following expiration or termination of the Agreement, said Agreement shall be governed by the terms as stipulated in the Spares Term of Availability clause herein. The terms that govern pricing during this period are set forth below;

3.A.6For two (2) years from the date of the last shipment of Product, Spares/ Advanced Exchange Pricing shall not exceed the then current Spares/ Advanced Exchange Pricing as listed in the attached pricing sheet.  However, if such a case arises that requires an increase in pricing then it will discussed between both Buyer and Seller and mutually agreed. For the remainder of the term of availability, which is three (3) years, Seller and Buyer will negotiate in good faith to ensure spares pricing is competitive. Justification for all pricing increases must be substantiated in writing by Seller, and Buyer must agree with all substantiation before implementation of all new pricing.

3.A.7Buyer and Seller will collaboratively pursue aggressive pricing for spare parts, and will allow Buyer to take advantage of these opportunities

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when they are available..

3.A.8Seller shall maintain a vigorous cost reduction program to ensure that the prices charged to Buyer are aggressive and competitive at all times.

3.B.TERM OF AVAILABILITY

3.B.1Seller shall make commercially reasonable efforts to make Spares available for purchase by Buyer, for at least five (5) years after the last delivery of a Product by Seller. Seller and Buyer will use commercially reasonable efforts to extend this support based on market requirements. The commencement of such five (5)  year period shall be defined and communicated to Seller by Buyer’s Program management.  Delivery shall be as stated on Buyer’s Order. Seller shall have the option to make available a functionally equivalent or better Spare during such five (5)  year period so long as such Spare is compatible and subject to the terms of Section 4.G (Engineering Changes).

3.B.2Grant to Buyer a royalty-free, nonexclusive, worldwide manufacturing license to have made, use, sell or otherwise dispose of the Spares, and furnish Buyer all necessary documentation, requirements, drawings, and other data, including its sources for raw materials necessary to make such Spares. If Buyer elects this option, Seller shall in addition;

3.B.2.aImplement an end of life plan to be mutually agreed upon.

3.B.2.bSell Buyer sufficient quantities of Spares, as Buyer deems necessary on a one time purchase basis. Buyer and Seller will collaborate to find alternative methods to support the customer.

3.C.WARRANTY TERMS

3.C.1Seller hereby warrants that for [Confidential Treatment has been requested] from date of acceptance of Spares by Buyer and/or Buyer’s customers, that Spares shall be free from all defects in material, workmanship and design and shall conform to applicable specifications, drawings, samples, and descriptions referred to in this Agreement, and shall be suitable for the purpose for which they were intended. Cosmetic damage to mechanical parts such as scratches to the A and D panels are excluded from the standard warranty after the initial DOA period. Seller further represents and warrants that Spares purchased hereunder shall:

3.C.1.avest in Buyer good and valid title to said Spares free and clear of all liens, security interests, encumbrances, burdens, and other claims, and

3.C.1.bthat Spares do not infringe on any intellectual property interest.

3.C.2Buyer or Buyer’s customer(s) shall return in-warranty Spares to Seller for full credit or replacement (less packing material) at Buyers option for non conforming spares. Cosmetic damage to mechanical parts such as scratches to the A and D panels are excluded from the standard warranty after the initial DOA period. Seller shall issue credit

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at receipt of Spare at current negotiated prices under the terms of Seller’s warranty. Buyer may elect to utilize a debit system for this transaction.

3.C.3Buyer or Buyer’s customer(s) shall return items to Seller for legitimate warranty return as determined by Buyer or Buyer’s customer(s). Buyer or Buyer’s customer(s) cannot arbitrarily return items under the guise of “warranty return” unless substantiated. Buyer and Seller agree to collaborate to ensure the NTF rate of returned Product stays below an acceptable level. The goal for the NTF level should not exceed a maximum of [Confidential Treatment has been requested.]

3.C.4Except as stated otherwise in this Agreement, all charges Buyer and Seller agree to pay one leg of freight for logistical movement of Product.

3.C.5Spares shall be date coded indicating date of repair or refurbishment, to include human readable characters, in English and host country language where applicable and in plain sight.

3.C.6Seller shall provide flow-through warranty for Spares that are sold to Buyer from Seller utilizing 3rd party suppliers.  This warranty passed to Buyer from Seller shall be no less than the warranty provided by the Seller.

3.C.7Buyer may appoint a network of authorized service providers to administer the warranty process.   Seller shall recognize said appointment and shall assist Buyer’s authorized service agent, as required by Buyer, to maintain the warranty process described herein.

3.C.8Seller shall notify Buyer within three (3) working days after receipt of materials if any non-functional Spares are attributable to customer abuse, and therefore not the responsibility of Seller.  Upon notification, Buyer retains the right to audit the Spare, and shall provide disposition either by return to Buyer or repair at Buyer’s expense within three (3) working days.

3.C.9Seller agrees to maintain a buffer stock of Spares that Seller deems adequate at each geographical location to meet fill rate performance commitments as defined in this Exhibit. Seller and Buyer agree that Spares shall be owned and held by Seller until requested by Buyer. Buyer and Seller shall use commercially reasonable efforts to effectively manage the consigned inventory at each mutually agreed geographic location.

3.C.10Seller agrees that in order to minimize the Buyer’s customer’s down time, requests labeled “Rush” shall have worldwide priority over production shipments.  “Rush” orders shall be placed only if one or more customers are unable to utilize their Product for its intended purpose until the Spare arrives.  Seller agrees to use commercially reasonable efforts to ship Buyer designated “Rush” orders within same business day the Rush order is received of receipt assuming material is available anywhere in the pipeline. Invoices for “Rush” orders must be accompanied by a copy of the waybill(s) for the shipment(s).

3.C.11Buyer or Buyer’s customer(s) shall make best efforts not to assert a claim of in-warranty return for Spares, that are not covered by a repair warranty or that have been obviously subjected to user negligence or abuse.  In the event that a Spare submitted for return has been damaged beyond repair, Seller shall not be obligated to make in-warranty repairs or provide a credit for the return due to customer abuse.

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3.D.ADMINISTRATION

3.D.1Buyer and Seller shall create the initial Spares List, which shall be based on Seller’s Product design and annualized projected field return rates.  Buyer and Seller shall complete the first pass Spares List and estimated annualized projected Field Return Rates within [Confidential Treatment has been requested] after Buyer’s receipt of engineering samples, or [Confidential Treatment has been requested] prior to first customer ship from the buyer.

3.D.2Seller agrees that during the term of this Agreement, it shall designate a spares manager for each Seller Service Center who shall act as Buyer’s primary contact for issues regarding parts procurement, engineering changes, quality issues and part exchanges.

3.E.IN WARRANTY METRICS

3.E.1Fill Rate – Seller shall ship spares by the second business day, as long as the spare is included in the mutually agreed upon spares list.  Performance goal is [Confidential Treatment has been requested] on time and shall be measured by Buyer weekly based on system documented shipments and customer orders from SFC finished goods stock.

3.E.2In support of the metrics referenced above, both parties agree to have a monthly meeting with management representation, to review critical parameters affecting the attainment of these metrics.  This should include a three (3) month non-binding forecast, purges, holds, buffer stock, and performance to date against these established metrics.

3.E.3Compliance with these metrics shall be assessed on a quarterly basis and presented at the quarterly business review.

3.E.4For performance goals not met, Buyer may immediately escalate to Seller management with weekly review sessions until performance returns to the agreed performance metrics.

3.E.5Seller does not have the obligation to provide Buyer credit for spare returns passed [Confidential Treatment has been requested.]

3.F.DELIVERY

3.F.1Buyer and Seller agree to utilize the Supplier Fulfillment Center (SFC) methodology to meet Buyer’s delivery requirements.  The SFC is a program which obligates Seller to stock Seller owned inventory to meet Buyer’s requirements. Requirements shall be met by Seller by storing Seller owned inventory located within each designated geographic area.. Seller shall utilize Buyer Spares forecasts, in combination with Seller’s failure data or other information available to Seller, known only to Seller as manufacturer of said material, to establish the stocking levels to meet the aforementioned Buyer requirements.  Buyer and Seller shall work together to create a process for transmitting and receiving orders via electronic transmission.

3.F.2Delivery of warranty Spares shall be per the SFC process as stated above coupled with the utilization of a periodic Advanced Exchange delivery methodology if needed, the steps of which are described below;

3.F.3Once a Spare has been determined by Buyer or Buyer’s Customer to be defective, Buyer shall generate an order to Seller for a replacement spare

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3.F.4Seller shall pick, pack, inspect, and ship order to Buyer as per SFC delivery metrics and packaging specifications.

3.F.5Seller shall invoice Buyer at the Advanced Exchange Price as stated in the attached pricing exhibit, upon shipment of replacement unit.

3.F.6Buyer shall measure Seller’s performance based upon the date stated on Buyer’s order, for the purpose of establishing Seller’s rate of timely shipment.

3.F.7Seller understands that TIME IS OF THE ESSENCE in meeting Buyer’s requirements and agrees that Buyer may be irreparably damaged should Seller not meet specified shipment requirements.  Shipping performance shall be measured by Seller’s ability to ship pursuant to the performance metrics defined in this Exhibit.

3.F.8Spares listed in the attached pricing attachment as expendable shall not be returned to Seller.

3.F.9Seller agrees to notify Buyer’s service organization within two (2) working days of receipt of material if there are discrepancies in quantities, part numbers, or freight damage.

3.F.10Buyer agrees to notify Seller within two (2) working days of receipt of Spares if there are discrepancies in quantities, part numbers, or freight damage.

3.F.11Seller agrees to use the Quality Alert process defined in the Quality Exhibit to notify Buyer whenever the quality of Spare parts is suspect or is discovered to be nonconforming after shipment by the Seller.

3.G.RIGHTS AND ASSISTANCE TO REPAIR

3.G.1Seller grants to Buyer the right to repair or have repaired Spares and that Seller shall provide Buyer, at Buyer’s request, a list of related components and the list of Seller approved suppliers for those components. The components that are not available to Buyer from sources other than Seller are to be listed and unit prices identified with quantity discounts, if any. Those components having generic industry identification (not proprietary to Seller) and available to Buyer, shall be cross-referenced to generic part numbers. Seller further agrees to provide Buyer with the applicable test specifications, applicable diagnostic programs, test procedures and drawings required for testing the finished Spares, and/or Repairs, along with a full description, manufacturer’s model numbers, etc, of the test equipment involved/required to perform such tests.  Seller shall provide all requested information to the Buyer within forty-five (45) days from such written requests by Buyer and insure updates to the publication are provided for two years after the date of last product shipment.

3.G.2Buyer reserves the right to have Spares repaired by the Seller, its authorized repair center or to select a third (3^rd) party repair centers for such repairs.  In any event Seller shall agree to support Buyer’s selected repair centers.

3.G.3Upon Buyer’s request, Seller agrees to assist, provide and support Buyer or Buyer’s selected authorized third (3rd) parties, with respect to the repair and refurbishment process development, including.  This support shall continue for a period of three (3) years after the last delivery of a Product, (as stated in the Agreement) by Seller.

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3.H.Engineering Changes

3.H.1No changes shall be made by Seller in the form, fit, or function, including cosmetic, reliability and compatibility, of Spares without Buyer’s prior written approval initiated by an Engineering Change (EC) approved by Buyer.  Seller shall perform appropriate test(s) to establish conformity with the specifications and quality of Spares as required under the Agreement.  Seller shall issue a “Supplier Change Request” form and shall provide to Buyer the test documentation and results, documenting that the appropriate tests were performed in English.  Buyer’s authorized representative shall respond within two (2) business days of Buyer’s receipt of the Supplier’s Change Request form and test documentation and results.

3.H.2Approved ECs that affect form, fit, or function, including cosmetic, reliability, and compatibility of any Spare must be implemented on all of those Spares before delivery to Buyer. Unless otherwise specified by Buyer, all approved ECs that affect form, fit, or function, including cosmetic, compatibility or reliability, for the purpose of addressing design defects shall require a hold and purge of all such Spares.  All costs incurred by Buyer or Seller relating to any such hold and purge shall be borne by Seller, provided such change to the form, fit, or function was solely attributable to Seller’s design or workmanship or a change made by Seller without Buyer’s written approval.

3.H.3ECs must not create incompatibilities among Spares of various revision levels.

3.H.4Copies of all ECs shall be provided by Seller to Buyer, shall include necessary rework instructions, any specific quality specifications, and shall be in English.

3.H.5All holds and purges that are caused by Seller’s workmanship and/or design defects shall be performed at Seller’s expense.  Seller agrees to provide the rework instructions in English and replenish all Spare stock with conforming stock as soon as reworked stock is available.  Unless otherwise specified by Buyer the replenishment of Spare stock due to holds and purges shall have worldwide priority over production shipments.

3.I.REFURBISHMENT OF SPARES

3.I.1Seller agrees to refurbish to “Like New” condition, any in-warranty Spare that is requested by Buyer or Buyer’s customer in writing, at the agreed Refurbish Cost. This includes upgrade to the latest engineering revision then in effect.  This obligation shall be satisfied by either refurbishing the Spare submitted by Buyer or replacing such Spare with a refurbished Spare of the same part number.

3.I.2Spares submitted by Buyer or Buyer’s customer for refurbishment, or credit shall, in Buyer’s opinion, be in reasonably good condition.  In the event Spare submitted for refurbishment has been damaged beyond repair, Seller shall not be obligated to refurbish.

4.OUT OF WARRANTY SERVICE

4.A.PRICING

4.A.1Spares/Advanced Exchange pricing is set forth in the attached pricing

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sheet.  Pricing shall remain fixed for the contract pricing period as set forth herein of ninety (90) days.  Thirty (30) days before the end of the then current contract pricing period, Buyer and Seller shall meet to review the pricing of Spares.

4.A.2The new agreed pricing sheet shall be included by reference to this exhibit.

4.A.3If Buyer and Seller cannot agree upon a pricing schedule for a subsequent Contract Pricing Period during the aforementioned thirty (30) day period, those items of Spare(s) for which pricing cannot be agreed upon shall remain the same as in the previous pricing period.

4.A.4Following expiration or termination of the Agreement, said Agreement shall be governed by the terms as stipulated in the Spares Term of Availability clause herein. The terms that govern pricing during this period are set forth below;

4.A.5For two (2) years from the date of the last shipment of Product, Spares/Advanced Exchange pricing shall not exceed the then current Spares/Advanced Exchange pricing as listed in the attached pricing sheet.  For the remainder of the term of availability, which is three (3) years, Seller and Buyer will negotiate in good faith to ensure the spares price is competitive. Justification for all pricing increases must be substantiated in writing by Seller, and Buyer must agree with all substantiation before implementation of all new pricing.

4.A.6Buyer and Seller will collaboratively pursue aggressive pricing for spare parts, and will allow Buyer to take advantage of these opportunities when they are available..

4.A.7Seller shall maintain a vigorous cost reduction program to ensure that the prices charged to Buyer are aggressive and competitive at all times.

4.B.TERM OF AVAILABILITY

4.B.1Seller shall make commercially reasonable efforts to make Spares available for purchase by Buyer, Spares for at least [Confidential Treatment has been requested] after the last delivery of a Product by Seller. The commencement of such [Confidential Treatment has been requested] shall be defined and communicated to Seller by Buyer’s Program management.  Delivery shall be as stated on a Buyer’s order. Seller shall have the option to make available a functionally equivalent or better Spare during such [Confidential Treatment has been requested] period so long as such Spare is compatible and subject to the terms of Section 4.G (ECs). Seller and Buyer will use commercially reasonable efforts to extend this support based on market requirement.

4.B.2Thereafter, Seller may discontinue availability of Spares by giving Buyer six (6) months or as long as commercially reasonable efforts will allow prior written notice or a backward compatible replacement is available, provided that, at Buyer’s option, Seller shall:

4.B.2.aGrant to Buyer a royalty-free, nonexclusive, worldwide manufacturing license to have made, use, sell or otherwise dispose of the Spares, and furnish Buyer all necessary documentation, requirements, drawings, and other data, including its sources for raw materials necessary to make such Spares. If Buyer elects this option, Seller shall in addition;

4.B.2.bImplement an end of life plan to be mutually agreed upon.

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4.B.2.cSell Buyer sufficient quantities of Spares, as Buyer deems necessary on a one-time purchase basis. Buyer and Seller agree to collaborate to ensure support of the customer is adequate.

4.C.WARRANTY TERMS

4.C.1Seller hereby warrants that for [Confidential Treatment has been requested] from date of acceptance of Spares by Buyer and/or Buyer’s customers, that Spares shall be free from all defects in material, workmanship and design, and shall conform to applicable specifications, drawings, samples, and descriptions referred to in this Agreement, and shall be suitable for the purpose for which they were intended. Cosmetic damage to mechanical parts such as scratches to the A and D panels are excluded from the standard warranty after the initial DOA period. Seller further represents and warrants that Spares purchased hereunder shall:

4.C.1.avest in Buyer good and valid title to said Spares free and clear of all liens, security interests, encumbrances, burdens, and other claims, and

4.C.1.bthat Spares do not infringe on any intellectual property interest.

4.C.2Non conforming spares shall be returned by Buyer or Buyer’s customers for repair or replacement.

4.C.3Except as stated otherwise in this Agreement, all charges necessary to ship or return Spares shall be paid by Buyer.

4.C.4Spares shall be date coded indicating date of manufacture, repair or refurbishment, to include human readable characters, in English and host country language where applicable and in plain sight.

4.C.5Seller shall insure that all serialized spares are tracked in a “closed loop” tracking system to ensure failure analysis of individual spares as needed.

4.C.6Seller shall notify Buyer within three (3) working days if any non-functional Cores are attributable to customer abuse.  Upon notification, Buyer retains the right to audit the Cores, and shall provide disposition either by return to Buyer or repair at Buyer’s expense within three (3) working days.

4.C.7Seller agrees to maintain a buffer stock of Spares that Seller deems adequate at each geographical location to meet the agreed upon metrics. Seller and Buyer agree that Spares shall be owned and held by Seller until requested by Buyer. Buyer and Seller shall use commercially reasonable efforts to effectively manage the consigned inventory at each mutually agreed geographic location.

4.C.8Seller agrees that in order to minimize the Buyer’s customer’s down time, requests labeled “Rush” shall have worldwide priority over production shipments.  “Rush” orders shall be placed only if one or more customers are unable to utilize their Product for its intended purpose until the Spare arrives.  Seller agrees to use commercially reasonable efforts to ship Buyer designated “Rush” orders within same business day the Rush order is received of receipt assuming material is available anywhere in the pipeline. Invoices for “Rush” orders must be accompanied by a copy of the waybill(s) for the shipment(s).

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4.D.Out of Warranty Metrics

4.D.1Seller shall ship spares by the second business day, as long as the spare is included in the mutually agreed upon spares list. Seller performance metric is [Confidential Treatment has been requested] on time and shall be measured by Buyer weekly based on system documented shipments and customer orders from SFC finished goods stock.

4.D.2In support of the metrics referenced above, both parties agree to have a monthly meeting with management representation, to review critical parameters affecting the attainment of these metrics.  This should include a [Confidential Treatment has been requested] non-binding forecast, purges, holds, buffer stock, and performance to date against these established metrics.

4.D.3Compliance with this metric shall be assessed on a quarterly basis and presented at the quarterly business review.

4.D.4For the goals not met, Buyer may immediately escalate to Seller management with weekly review sessions until performance returns to the agreed performance metrics.

4.D.5All costs solely attributable to defects in Seller’s design, material, and workmanship shall be borne by Seller.  These costs shall include the cost of holds/purges, result of reworks, fees charged by third parties for reworks/repairs, and account recovery program fees incurred due to epidemic failures.

4.D.6Seller does not have the obligation to provide Buyer credit for returns not processed within [Confidential Treatment has been requested.]

4.E.Delivery

4.E.1Buyer and Seller agree to utilize the Supplier Fulfillment Center methodology to meet Buyer’s delivery requirements.  The SFC is a program which obligates Seller to stock Seller owned inventory to meet Buyer’s requirements. Requirements shall be met by Seller by storing Seller owned inventory located within each designated geographic area.. Seller shall utilize Buyer Spares forecasts, in combination with Seller’s failure data or other information available to Seller, known only to Seller as manufacturer of said material, to establish the stocking levels to meet the aforementioned Buyer requirements.. Buyer and Seller shall work together to create a process for transmitting and receiving orders via electronic transmission.

4.E.2Delivery of out of warranty Spares shall be per the SFC process as stated above coupled with the utilization of a periodic Advanced Exchange delivery methodology if needed, the steps of which are described below;

4.E.2.aOnce a Spare has been determined by Buyer or Buyer’s Customer to be nonconforming, Buyer shall generate an order to Seller for a replacement spare. At Buyer’s option, Seller shall accept a blanket purchase order for authorization of these transactions.

4.E.2.bSeller shall pick, pack and ship order to Buyer as per SFC delivery metrics and packaging standards.

4.E.2.cSeller shall invoice Buyer at the Advanced Exchange Price as stated in the attached pricing sheet, upon shipment of

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replacement unit.

4.E.2.dBuyer shall have thirty (30) days from Seller’s ship date to return a Core.  Cores submitted by Buyer for repair or replacement shall be in reasonably good condition and repairable.   Cores submitted for repair or replacement that have been damaged beyond repair as determined by Seller shall not be considered for credit.  A non-repairable core is defined as: assemblies, sub assemblies or options received at Sellers site with missing, misused, cannibalized or mishandled components.  Non repairable Cores received at Seller’s site require Buyer’s review and approval before Core reconciliation. Seller agrees to notify Buyer’s Service Organization within two (2) business days of receipt of discrepant Cores.

4.E.3Buyer shall measure Seller’s performance based upon the date stated on Buyer’s order, for the purpose of establishing Seller’s rate of timely shipment.

4.E.4Seller understands that TIME IS OF THE ESSENCE in meeting Buyer’s requirements and agrees that Buyer may be irreparably damaged should Seller not meet specified shipment requirements.  Shipping performance shall be measured by Seller’s ability to ship pursuant to the performance metrics defined in this Exhibit.

4.E.5Spares listed in the attached pricing sheet as expendable shall not be returned to Seller.

4.E.6Seller agrees to notify Buyer’s Service organization within two (2) working days of receipt of material if there are discrepancies in quantities, part numbers, or freight damage.

4.E.7Buyer agrees to notify Seller within two (2) working days of receipt of Spares if there are discrepancies in quantities, part numbers, or freight damage.

4.F.RIGHTS AND ASSISTANCE TO REPAIR

4.F.1Seller grants to Buyer the right to repair or have repaired Spares and that Seller shall provide Buyer, at Buyer’s request, a list of related components and the list of Seller approved suppliers for those components. The components that are not available to Buyer from sources other than Seller are to be listed and unit prices identified with quantity discounts, if any. Those components having generic industry identification (not proprietary to Seller) and available to Buyer shall be cross-referenced to generic part numbers. Seller further agrees to provide Buyer with the applicable test specifications, test procedures and drawings required for testing the finished Spares, and/or Repairs, along with a full description, manufacturer’s model numbers, etc, of the test equipment involved/required to perform such tests.  Seller shall provide all requested information to the Buyer within forty-five (45) days from such written requests by Buyer.

4.F.2Buyer reserves the right to have Spares repaired by the Seller, its authorized repair centers or to select and qualify third (3^rd) party repair centers.  In any event Seller shall agree to support Buyer’s selected repair centers.

4.F.3Upon Buyer’s request Seller agrees to assist, provide and support Buyer or Buyer’s selected authorized third (3rd) parties with respect to the repair and refurbishment process development including

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documentation Spare parts within seven (7) calendar days.  This support shall continue for a period of three (3) years after the last delivery of a Product (as stated in the Agreement) by Seller.

4.G.EC

4.G.1No changes shall be made by Seller in the form, fit, or function, including cosmetic, reliability and compatibility, of Spares without Buyer’s prior written approval initiated by an Engineering Change (EC) approved by Buyer.  Seller shall perform appropriate test(s) to establish conformity with the specifications and quality of Spares as required under the Development Agreement and Purchase Agreement.  Seller shall issue a “Supplier Change Request” form and shall provide to Buyer the test documentation and results, documenting that the appropriate tests were performed.  Buyer’s authorized representative shall respond within two (2) business days of Buyer’s receipt of the Supplier’s Change Request form and test documentation and results.

4.G.2Approved ECs that affect form, fit, or function, including cosmetic, reliability and compatibility of any Spare must be implemented on all Spares before delivery to Buyer.  Unless otherwise specified by Buyer, all approved ECs that affect form, fit, or function, including cosmetic, compatibility or reliability, for the purpose of addressing design defects shall require a hold and purge of all Spares.  All costs incurred by Buyer or Seller relating to any such hold and purge shall be borne by Seller, provided such change to the form, fit, or function was solely attributable to Seller’s design or workmanship

4.G.3ECs must not create incompatibilities among Spares of various revision levels.

4.G.4Copies of all ECs shall be provided by Seller to Buyer, shall include necessary rework instructions, quality specifications and shall be in English.

4.G.5All holds and purges that are caused by Seller’s workmanship and design defects shall be performed at Seller’s expense.  Seller agrees to replenish all Spare stock with conforming stock as soon as reworked stock is available.  Unless otherwise specified by Buyer the replenishment of Spare stock due to holds and purges shall have worldwide priority over production shipments.

4.H.REFURBISHMENT OF SPARES

4.H.1Seller agrees to refurbish to “Like New” condition any in-warranty Spare that is requested by Buyer or Buyer’s customer in writing, at the Refurbish Cost listed in the attached pricing sheet.  This includes upgrade to the latest engineering revision then in effect.  This obligation shall be satisfied by either refurbishing the Spare submitted by Buyer or replacing such Spare with a refurbished Spare of the same part number.

4.H.2Spares submitted by Buyer or Buyer’s customer for refurbishment shall, in Buyer’s opinion, be in reasonably good condition.  In the event Spare submitted for refurbishment has been damaged beyond repair, Seller shall not be obligated to Refurbish.

5.DOCUMENTATION

5.A.Buyer shall develop the Maintenance Service Guide (“MSG”).  Seller agrees to provide to Buyer the input required to develop the MSG, including all assembly

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drawings in paper and electronic format not later than thirty (30) days prior to anticipated First Customer Shipment (FCS).

5.B.Seller shall write the first draft of the Technical Reference Guide (“TRG”) for the Products and transmit it in electronic form to Buyer as soon as possible, but no later than one (1) month after Seller’s first shipment of Design Verification build two Products to Buyer.

5.C.Seller shall provide Buyer with specifications for all Spares listed in Attachment 1A not later than 30 days prior to anticipated FCS.

6.BUYER’S ADDITIONAL REQUIREMENTS

6.A.Any other services that Buyer requests Seller to do shall be done at prices quoted by Seller and mutually agreed upon by both parties.

6.B.The SFC operational model shall begin when the product launches in North America and shall be implemented in other geographies according to a schedule that is mutually agreed between Buyer and Seller.

6.C.Before implementation of SFC operational model Seller and Buyer will operate under the existing operational model.

6.D.In selected geographies Seller and Buyer may mutually agree to Seller providing a level of consigned Spares inventory that equals the Field Return Rate in place of SFC operating model.

7.ESCALATION

7.A.Technical Escalation:

7.A.1Seller agrees that during the term of this Agreement, it shall designate a Seller Representative who shall act as Buyer’s primary contact for any service issues regarding parts procurement, exchange, repair or quality.  Seller must prepare and present to Buyer an internal written escalation process.

7.A.2Seller shall provide third (3rd) level technical support to Buyer for duration of this Agreement including the three (3) calendar years after Buyer shipment of last end unit product.  Buyer shall provide First (1st), Second (2nd), and Third (3rd) level technical support to its customers.  Seller shall resolve all issues deemed to be product “bugs”, correct any problems with production, and provide a service solution to Buyer for its customers.  Seller shall acknowledge escalated cases within one (1) business day and both parties shall agree to provide a resolution within a mutually acceptable time to be decided on a case by case basis.  At Buyer’s request, and if available locally, on-site technical support by Seller shall be made available to Buyer or its authorized third (3rd) party.  This shall be determined on a case by case basis.

8.TRAINING

8.A.Seller shall provide to Buyer personnel a “Train the Trainer” Engineering Seminar taught by Seller and Buyer engineers in accordance with criteria and locations upon mutual agreement, not to exceed one (1) seminar or as mutually agreed upon not less than 45 days prior to anticipated FCS.

8.B.Each party shall bear its own expenses for this training seminar. Seller’s training hardware requirements will include one functioning unit per student and shall be the responsibility of Seller.

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9.MARKING

9.A.Seller shall mark all Spares indicated on the attached spares price sheet with Buyer’s human-readable part number, in English, and the bar-code containing part number (which shall be specified in Buyer’s Packaging Specification as communicated by Buyer to Seller), revision level, date code, Spare description, and serial number (where applicable).  This Buyer human-readable part number and the bar-code shall also be marked on the equivalent Spare within production units of Product for Buyer.

Seller shall mark all Product production units and Whole Units with a serial number as defined in the Product specifications.

10.TERMINATION

10.A.In the event of termination of Agreement, Buyer and Seller shall cooperate with each other in good faith on the formulation of a transition plan for Repairs.  Upon completion and mutual agreement of the transition plan, Buyer and Seller shall begin transition of the Repairs operation.  The transition shall not exceed six (6) months from the date of a written termination notification as provided above.

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ATTACHMENT 1

Spares Pricing

The parties agree to incorporate by reference the Product and Spare pricing as set forth in the Spare Pricing Sheet.  Seller agrees that the prices specified are firm for the current quarter.  Thirty (30) days before the end of current quarter and each subsequent quarter thereafter, Buyer and Seller shall meet to negotiate firm prices for the immediate following quarter and projected not to exceed prices for the next quarter thereafter.

PART 
NUMBER DESCRIPTION PROGRAM Launch
date EXPENDABLE ADVANCE
EXCHANGE
PRICE CORE
PRICE

Buyer may also purchase from Seller [Confidential Treatment has been requested] and [Confidential Treatment has been requested] warranties on all Product at an additional cost of TBD (USD) and TBD (USD) respectively, except for the Product battery which warranty, in all cases, will not exceed one (1) year. 

135

Attachment 2

Service Fulfillment Center (SFC) - Scope of Work

The Service Fulfillment Center concept has been developed to enhance the overall efficiency and cost effectiveness of Buyer’s service material distribution structure.  The concept removes Buyer from direct involvement in the material handling and distribution process.  Within this concept, Buyer will manage the field contact and customer interface activities, process customer material orders and communicate those orders to the ODM partners electronically in a medium to be mutually agreed among the parties.  The ODM partner may have a Service Fulfillment Center in each of Buyer’s geographic business areas; North America (NA), and Europe (EMEA).  Material transactions may be performed within an Advance Exchange model where replacement materials are sent before the receipt of defective cores

The scope of work of the SFC involves all of the activity to kit, inventory, warehouse, ship, and receives materials in support of Buyer’s customer service and warranty programs.  The ODM partner will receive nonconforming material directly from Buyer’s end customer and authorized service provider (ASP) base.  These materials must be received and have the transaction validated by verifying the shipment content against the appropriate system transaction.  Incomplete, or shipments containing the wrong product, will be returned to the shipper freight collect within two (2) working days.

Orders will be shipped directly from the ODM partner’s local geography shipping facility to the destination designated on the order provided by Buyer.  The ODM partner will be expected to maintain sufficient spares inventory to support a two (2) business day fill rate.

Figure 1 SFC Order Flow

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Attachment 3

Component Warranty Time Period

The overall warranty period for the Product from Pegatron is for a [Confidential Treatment has been requested] time period, this time period starts from the ship date of the Product. Not withstanding the foregoing there are a small number of unique components that may not initially support this time period as defined below. It is Buyer and Seller’s understanding that mutual efforts will be required to assist the selected source’s for these unique components to provide the required warranty time period support in the future. As the failure rates become known for these unique components a review session with the Parties concerned will be held with the mutual goal of migrating each to the required [Confidential Treatment has been requested] warranty time period. This table will be amended as progress is made to migrate each component to the required warranty support time period.

The following table outlines the warranty time period exceptions that deviate from the standard [Confidential Treatment has been requested] as of the execution of this agreement.

Component	Current Warranty Period
1)  [Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]
2)  [Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]
3)  [Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]
4)  [Confidential Treatment has been requested.]	[Confidential Treatment has been requested.]

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EXHIBIT F

MICROSOFT INSTALLATION AGREEMENT

Placeholder Only

138

EXHIBIT G

DISPUTE RESOLUTION PROCEDURES

All Disputes (as defined below) between Seller and Buyer shall be resolved exclusively as provided in this Exhibit G.

1.Informal Dispute Resolution.  Prior to the initiation of formal dispute resolution procedures, the Parties shall first use the informal means set forth below in a good faith attempt to resolve any disputes, controversies, claims, or differences arising out of, relating to, or having any connection with this Agreement, including any question relating to its existence, validity, interpretation, performance, breach or termination, (hereafter “Dispute”):

(a)Normal Channels.  Every effort should be made to resolve all Disputes through normal channels and procedures at the lowest possible level of authority.  If this is unsuccessful, then the Parties shall attempt to resolve the Dispute in the following manner:

(b)Authorized Representatives.  Either Party may make a written request for a conference call with the other Parties’ representatives with respect to a Dispute, which shall be defined with reasonable particularity.  Within seventy-two (72) hours of the receipt of such written request, each Party shall designate a representative with full authority to resolve and compromise the Dispute (hereafter “Authorized Representative”).  The Authorized Representatives shall communicate promptly to endeavor to resolve the Dispute in question.  Pursuant to this subsection (b), the Parties agree that the following escalation path shall be used in order to resolve such dispute:

Buyer:

1.Program Manager

2.Vice President Supply Chain

Seller:

1.Program Manager

2.Vice President Operations

The Parties agree that time is of the essence with respect to the resolution of such Disputes.

(c)Procedures for Authorized Representative Meetings.  The Authorized Representatives shall communicate as often as is reasonably necessary to discuss the problem and negotiate in good faith in an effort to resolve the Dispute without the necessity of any formal proceeding.  The specific format for the discussions will be left to the discretion of the Authorized Representatives, but may include the preparation of agreed-upon statements of fact or written statements of position.  During the course of discussions between the Authorized Representatives, all reasonable requests made by one Party to the other for non-privileged information, reasonably related to resolution of the Dispute in question, will be honored.

(d)Vice Presidents.  If the Authorized Representatives fail to resolve disputes within thirty (30) calendar days of the initiation of the dispute resolution process set forth in sub-paragraphs 1(b) and (c) above, the Vice-President of Buyer and the President of Seller shall attempt to resolve the Dispute.  Upon the written request of either Party, the said Vice President and President shall meet in person [or, in extraordinary cases, by telephone,] within 10 days of the date of such written request.

(e)Mediation.  Should the Vice President of Buyer and the President of Seller fail to reach agreement on the resolution of the Dispute within thirty (30) calendar days of the written request referred to in sub-paragraph 1(d) above, then the Parties shall attempt to resolve the Dispute by mediation in accordance with the [CPR Model Mediation Procedures for Business Disputes.] upon the written request of either Party, the parties shall within ten (10) calendar days of the date of such written request jointly select a mediator from one of the CPR Panels of Neutrals to assist in resolution of the Dispute.  If the parties are unable to jointly select a mediator within this period, either Party may in

139

writing request CPR to initiate a selection process.  CPR shall select a neutral mediator within ten (10) calendar days of receipt of such written request; the mediator so selected shall promptly confirm his or her acceptance of the selection.  The mediation shall be conducted in (Austin, Texas, U.S.A.] The Parties shall cooperate with the mediator in order to assure that he or she shall have every reasonable opportunity to facilitate resolution of the Dispute within 60 days of his or her written acceptance of selection.

(f)Confidentiality.  The Parties acknowledge that any statements (oral or written), including written statements of position and any materials provided in the course of procedures under sub-paragraphs 1(b)-(e) above will be prepared in connection with settlement and compromise negotiations, and as such will be privileged and confidential settlement materials.  No such statements or materials shall be admissible or used in any formal proceedings, except that documents which were otherwise admissible and in the possession of the Party seeking to make use thereof shall not be inadmissible by virtue of this sub-paragraph.

(g)Commencement of Formal Proceedings.  Formal proceedings for the resolution of a Dispute pursuant to Section 2, below, may be commenced after the earlier of:

(I)the Authorized Representatives or Vice Presidents jointly concluding in good faith that amicable resolution of the Dispute through continued negotiation does not appear likely; or

 (II)sixty (60) calendar days after the Dispute has been referred to the mediator referred to in paragraph l(e) above.

(III)Nothing in this Exhibit is intended to, or should be construed to, prevent a Party from instituting, and each Party is authorized to institute, formal proceedings pursuant to Section [2] below with respect to any Dispute at any time in order to avoid the expiration of any applicable limitations period, to preserve a superior position with respect to other creditors, or otherwise to prevent irreparable or serious injury to its interests.

2.Arbitration.  If the Parties are unable to resolve any Dispute after making use of the procedures contemplated by Section I above, then such Dispute shall be referred to and finally resolved by binding arbitration as follows:

(a)Arbitration Rules and Procedures.  The arbitration shall be conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce with (the “ICC Rules”).

(b)Number and Selection of Arbitrators.  Unless otherwise agreed by the Parties, the number of arbitrators shall be three.  Each Party shall nominate one arbitrator in accordance with the ICC Rules.  The two party-appointed arbitrators shall jointly nominate a third arbitrator.  In the event that the two party-appointed arbitrators cannot agree, the third arbitrator shall be appointed by the International Court of Arbitration of the International Chamber of Commerce in accordance with the ICC Rules.

(c)Site of Arbitration.  Unless otherwise agreed by the Parties, the sites of the arbitration shall be Austin, Texas.

(d)Applicable Law.  All Disputes shall be resolved exclusively under the laws of the State of (Texas) (without reference to the choice of law principles thereof).  The Agreement, including this Exhibit 1, shall be governed exclusively by and interpreted exclusively in accordance with, the laws of the State of [Texas] (without reference to the choice of law principles thereof).  The arbitrators shall have no power or authority to (i) decide ex aequo et bono, (ii) amend or disregard any provision of the Agreement or applicable law, (iii) award punitive, exemplary or comparable damages, or (iv) award consequential damages (except as specifically provided for in the Agreement), The arbitrator(s) shall allow reasonable discovery between the parties in the forms permitted by the Federal Rules of Civil Procedure.

(e)Conduct of Arbitration.  The arbitration hearing shall be commenced promptly and conducted expeditiously, with Buyer and Seller each being allocated one-half of the time for the presentation of its case.  Each Party agrees to use all reasonable efforts to conclude the arbitration

140

within [one hundred twenty (120) calendar days] from the date of submission of the dispute to arbitration.  Unless otherwise agreed to by the Parties, an arbitration hearing shall be conducted on consecutive days.  The language of the arbitration shall be English.

(f)Award.  The arbitrators shall make a reasoned award setting forth their findings of fact and conclusions of law.  The arbitrators) shall use all reasonable efforts to make their award within fifteen (15) calendar days following the conclusion of the arbitration hearings.  The arbitrator(s) award shall be final and binding on the Parties, and judgment thereon may be entered in a court of competent jurisdiction.  The parties waive any rights to appeal or challenge such award to the fullest extent permitted by law.

(g)Time of the Essence.  Time is of the essence in the arbitration, and the arbitrator(s) shall have the right and authority to issue monetary and/or other sanctions against either of the Parties if, upon a showing of good cause, that Party is unreasonably delaying the proceeding.

(h)Legal Expenses.  Except in cases involving one Party’s unreasonable delay, each Party shall bear its own attorneys’ fees and related expenses.

3.Litigation.

(a)Immediate Injunctive Relief. In circumstances involving irreparable, immediate, and severe damage to a Party, not capable of redress after the fact, it may seek interim injunctive relief or other provisional measures in aid of arbitration from a court of competent jurisdiction.  If a party seeks injunctive relief or other provisional measures from a court of competent jurisdiction, and is not successful, then it shall pay all of the attorneys’ fees, expenses and other costs relating thereto.

 (b)Forum Selection.  Any actions seeking injunctive relief or other provisional measures pursuant to subparagraph 3(a) above shall be litigated solely and exclusively in Austin, Texas, provided that enforcement of any relief, judgment or order of a court in Austin, Texas may be sought in any Court of competent jurisdiction.

3.Continued Performance.  Each Party shall continue performing its obligations under this Agreement while any Dispute is being resolved unless and until such obligations are terminated by the termination or expiration of this Agreement.  The covenant of Seller to meet its obligations are terminated by the termination or expiration of this Agreement.  The covenant of Seller is independent of Buyer’s covenants under this Agreement, and Seller assures that it will not discontinue or threaten to discontinue provision of any of its obligations as a means to force resolution of any Dispute hereunder.

141

EXHIBIT H

Tooling Exhibit

QUOTATION FOR COBRA TOOLING

[Confidential Treatment has been requested.]

142

[Confidential Treatment has been requested.]

143

EXHIBIT I

ODM REQUIREMENTS

Seller’s performance is critical to the success of Buyer’s Optimized Distribution Model (ODM).  Buyer has created a new distribution model designed to meet customers’ comprehensive needs for products and service in the most cost effective, efficient means possible. The Buyer Optimized Distribution Model (ODM) incorporates the manufacturing efficiencies of the direct model with the value-added services and expertise provided by resellers (the indirect model).  Buyer is committed to ensuring that our customers can order the products they want, configured exactly the way they want them, in partnership with our channels.  As such, Seller agrees to use best efforts to support the following ODM requirements.  In the event any of these requirements are not currently in place, Seller is expected to have a fully documented plan of action with milestones to achieve each of these.

REQUIREMENTS:

1)  Electronic Commerce Model – Electronic Data Interface will be used to communicate between the parties.  This will enable high frequency data interfacing and eliminating the need for manual interactions.

2)  Forecasting – Seller must be able to forecast and plan for a combination of CTO SKU’s, and Component/Subassembly Parts.  Buyer’s Forecast should have the capability to be processed systematically, without manual intervention, to enable rapid responses on materials, and capacity utilization.  This includes interfaces to Seller’s shop floor control systems and MRP.  Seller’s data integrity and timeliness is critical to Buyer’s business execution.  As such, best efforts shall be taken to insure the signals exchanged are accurate and timely.  All Forecast Responses that do not meet the baseline or upside quantities must be verified and confirmed by Seller prior to sending the Forecast Response to Buyer. All forecasts exchanged between the parties shall be used for positioning material and not for building Product.

3)  Production Scheduling – Seller must have the shop floor control systems and flexibility to process orders on a FIFO basis with component material visibility for the next 6 weeks.

4)  Supply Planning – Establish supplier owned warehouses (HUBS) when volume demand necessitates with price protection for all major components and insure all other components are delivered just-in-time.  Guarantee supply availability through the use of contractual flexibility models and buffer stocks with Seller suppliers.

5)  Direct Ship – Seller must be able to direct ship to Buyer’s end customers utilizing Buyer’s carriers.

6)  Performance Metrics – Seller’s delivery performance is critical to Buyer’s ability to meet customer demand with a predictable, on-time supply.  As such, Seller’s delivery performance will be measured and evaluated by the following table detailed below.

Delivery Model

Fulfillment Model	Ship to First Commit (STFC)	Ship to Requested Date (STRD)	Product Process Order Cycle Time (PPOCT)
BTO Product	100%	100%	XX hours
CTO Product	100%	100%	XX hours

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EXHIBIT J

EDI TRANSACTIONS

All EDI orders, verifications, forecasts, responses, acknowledgments and other communications shall reference and be subject to the terms and conditions of this Agreement and be in an industry standard format. In the event any or all of these transactions do not exist at the execution of this Agreement, the parties will agree upon a manual process to compensate in the interim until such transactions can be implemented.  The following represents the required transaction sets by site, but may be changed from time to time.   A schedule shall be mutually agreed upon if other Seller sites require EDI capabilities. Seller agrees to adhere to the agreed upon EDI 856 signal cut-off times as described below. Buyer and Seller agree to a 12 hour response reply to the 860 and 865 and Buyer will use commercially reasonable efforts to provide a 36 hour advance notification prior to Product shipment. Buyer and Seller agree to a response reply of 72 hours to the 870 transaction.

Signal Cut-Off Time (local time)

Transaction	Description	Taiwan	US
EDI 830	Forecast			Future Add
EDI 997	Technical Confirmation
EDI 870	Forecast Response			Future Add
EDI 997	Technical Confirmation
EDI 850	Purchase Order
EDI 855	Purchase Order Acknowledgement & Ship Date Confirmation
EDI 870	Sales Order/Shipment Status			Future Add
EDI 860	Purchase Order Change
EDI 865	Purchase Order Change Acknowledgement.
EDI 856	Ship Notice
EDI 824	Shipment Confirmation
EDI 810	Invoice
EDI 824	Invoice Confirmation

1.EDI 997 Technical acknowledgements will be used by both parties to ensure that delivery of the EDI transactions have occurred. The technical acknowledgements do not indicate the success or failure of processing the intended document but are used to validate that the document has been successfully delivered. Other responses will be utilized to acknowledge the success or failure of processing EDI documents by the recipient system.

2.Seller will take the steps necessary to ensure that the EDI 856 is sent to Buyer on the same dates as the shipment is physically conveyed to the carrier.  Seller will ensure that each EDI 856 contains a Seller world wide unique shipment ID according to the numbering definition as stated in the mapping of the document.

3.Seller will take the steps necessary to ensure that the EDI 856 is sent once and only once, unless specifically requested by Buyer. Additionally, Seller will ensure that the serial numbers transmitted in the EDI 856 match Buyer’s required numbering scheme and are unique, with no duplication of serial numbers. Seller will provide soft copies of all daily shipping reports.

4.Seller will ensure that all required fields in all transactions are consistently and accurately populated.

5.Sellers EDI 870  must be received prior to XXX CST and as often as agreed upon between the parties.

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EXHIBIT K

PRODUCT REPORTING REQUIREMENTS

Placeholder Only

Report Title Report Content Report
Frequency Responsibility Due Date

146

EX-31.1

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Exhibit 31.1

CERTIFICATION

I, Philip S. Sassower, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Xplore Technologies Corp.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrants' fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: June 5, 2008

By: /s/  PHILIP S. SASSOWER Philip S. Sassower
Chief Executive Officer

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Exhibit 31.1

CERTIFICATION

EX-31.2

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Exhibit 31.2

CERTIFICATION

I, Michael J. Rapisand, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Xplore Technologies Corp.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrants' fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: June 5, 2008

By: /s/  MICHAEL J. RAPISAND Michael J. Rapisand
Chief Financial Officer

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Exhibit 31.2

CERTIFICATION

EX-32.1

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Exhibit 32.1

Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

        In connection with the Annual Report on Form 10-K of Xplore Technologies Corp. (the "Company") for the fiscal year ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Philip S. Sassower, as Chief Executive Office of the Company, and Michael J. Rapisand, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of each such officer's knowledge:

        (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

        (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By: /s/  PHILIP S. SASSOWER Philip S. Sassower
Chief Executive Officer

Date: June 5, 2008

By: /s/  MICHAEL J. RAPISAND Michael J. Rapisand
Chief Financial Officer

Date: June 5, 2008

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Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002