XTSX:XPL Annual Report 10-K Filing - 3/31/2012

Effective Date 3/31/2012

XPL Fair Value Estimate
Premium
XPL Consider Buying
Premium
XPL Consider Selling
Premium
XPL Fair Value Uncertainty
Premium
XPL Economic Moat
Premium
XPL Stewardship
Premium
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2012
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:    00-52697
 
XPLORE TECHNOLOGIES CORP.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction of Incorporation or
Organization)
 
26-0563295
(IRS Employer Identification No.)
14000 Summit Drive, Suite 900, Austin, Texas
(Address of Principal Executive Offices)
78728
(Zip Code)
(512) 336-7797
(Registrant’s Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value per share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x
 
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 x
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes x  No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes o  No x
 
As of September 30, 2011, the aggregate market value of the common equity held by non-affiliates of the registrant was $5,828,721 based on the closing sale price of $0.05, as reported on the OTC Markets Group Inc.’s OTCQB Link.
 
As of May 31, 2012, the registrant 235,475,389 shares of common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE: None.
 


 
 

 
 
Table of Contents
 
PART I  
2
Item 1.
Business
2
Item 1A.
Risk Factors
9
Item 1B.
Unresolved Staff Comments
15
Item 2.
Properties
15
Item 3.
Legal Proceedings
16
Item 4.
Removed and Reserved
16
PART II  
16
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
16
Item 6.
Selected Financial Data
17
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
17
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
24
Item 8.
Financial Statements and Supplementary Data
24
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
24
Item 9A.
Controls and Procedures
25
Item 9B.
Other Information
25
PART III  
26
Item 10.
Directors, Executive Officers and Corporate Governance
26
Item 11.
Executive Compensation
28
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
37
Item 13.
Certain Relationships and Related Transactions, and Director Independence
41
Item 14.
Principal Accounting Fees and Services
41
PART IV  
43
Item 15.
Exhibits, Financial Statement Schedules
43
 
 
i

 
 
Forward-Looking Statements
 
From time to time, we may provide information, whether orally or in writing, including certain statements in this Annual Report on Form 10-K, which are deemed to be “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”). These forward- looking statements and other information are based on our beliefs as well as assumptions made by us using information currently available.
 
The words “believe,” “plan,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “should” and similar expressions are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended or using other similar expressions. We do not intend to update these forward-looking statements, except as required by law.
 
In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Annual Report on Form 10-K, any exhibits to this Annual Report on Form 10-K and other public statements we make. Such factors are discussed in the “Risk Factors” section of this Annual Report on Form 10-K.
 
PART I
 
Item 1.  Business
 
Overview
 
Xplore engineers, develops, integrates and markets rugged, mobile computing systems. Our products are designed to enhance the ability of persons to perform their jobs outside of traditional office settings. Our family of iX™ tablet personal computer (PC) systems, which we refer to as iX104, are designed to operate in challenging work environments such as extreme temperatures, repeated vibrations or dirty and dusty conditions. The iX104 systems can be fitted with a wide range of performance matched accessories, including multiple docking station solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard modules, as well as traditional peripherals like keyboards and cases. Except as otherwise indicated by the context, all references in this Annual Report on Form 10-K to “Xplore,” the “Company,” “we,” “us” and/or “our” are to Xplore Technologies Corp., a Delaware corporation, and its direct wholly-owned subsidiary, Xplore Technologies Corporation of America.
 
Our strategy is to become the leading developer and marketer of rugged mobile wireless computing systems. Our revenue is currently derived through the sale of our iX104 systems in the rugged, mobile tablet PC market. Over the past several years, our iX104 systems have been recognized for their ruggedness and versatility by Pen Computing (“Best Rugged Slate-Style Tablet PC”), Table PC2 (“Editor’s Choice Award for our AllVue™ Screen”) and Lap Top Magazine (“Editor’s Choice Award”).

Recent Developments
 
We believe that Xplore is well positioned for future revenue growth in our markets with the launch of our fifth generation iX104C line of rugged tablet PCs in May 2011.  At a time when we believe awareness and demand for tablet computers is significantly increasing, Xplore has introduced a family of computers that, based upon third-party certifications, surpasses the performance standards and specifications that have been the accepted measuring sticks for rugged tablet computers in today’s marketplace.

Our key initiatives for future revenue growth include the following:
 
 
New product development – based on customer and key industry participant inputs
 
 
Focus on military/government markets
 
 
Continued penetration into the Fortune 500/Global 2000 markets
 
 
Establishment of key relationships with new distributors
 
 
2

 
 
We have spent more than a decade on research, development and product improvements with each generation of our iX104.  Among our industry “firsts” is that we were the first manufacturer to incorporate dual-mode inputs with active pen and finger touch capabilities.  Xplore also pioneered what we believe are the best outdoor-readable display and wLAN wireless solutions.  Xplore’s signature iX104 computers have consistently been recognized for their ruggedness, versatility and best-in-class technologies.

Our new iX104C5 continues to introduce “industry firsts” and differentiating features, including a tool-less removable dual solid state drive (SSD) module, tool-less access to the SIM and MicroSD ports, and an ingress protection rating of IP 67 for submersion in water.  Our new C5 family also features the latest Intel® Core™ i7 processor and runs on the Windows® 7 operating system.
 
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.  We have made product enhancements and increased the functionality of our military docking system.  Together with the new C5 military tablet, our specialized MDock provides a rugged state-of-the-art computing system with improved power and versatility for harsh, military environments.
 
We are very proud of our reseller network and continue to expand and improve our network to reach new markets and new geographies, as well as to create demand for our expanded product offering in our existing markets.  Our efforts have resulted in attracting new and significant relationships with Fortune 500 and Global 2000 companies.  On November 10, 2011, we announced that we had received purchase orders representing over $14 million in aggregate sales orders from one of the world’s largest utility companies.  Further, on January 31, 2012, we announced the receipt of a purchase order of over $2.8 million from one of the largest conventional oil and natural gas producers in North America.  On February 16, 2012, we announced the receipt of a follow-on $3.5 million purchase order from the major utility.  Partial shipment of these orders began in the third and fourth quarters of our fiscal year ended March 31, 2012.
 
We have built a scalable manufacturing infrastructure to support our growing business.  Wistron Corporation, our contract manufacturer located in Taiwan (which we refer to as Wistron), continues to manufacture the iX104.  Wistron is recognized as a leading provider of computers and electronic components to some of the world’s largest technology companies, including Dell, Inc. and Hewlett-Packard Company.  We expect this alliance with Wistron to support our planned sales growth and product demand for the foreseeable future.
 
We are a Delaware corporation. Shares of our common stock are quoted on the OTC Markets Group Inc.'s OTCQB Link™ quotation platform under the symbol XLRT.
 
Products
 
Our new product line consists of five different models developed for use in specific environments and applications:

 
iX104C5 DMSR™ – Dual-Mode Sunlight-Readable Xtreme Tablet

 
iX104C5 DM™ – Dual-Mode Xtreme Tablet

 
iX104C5 DML™ – Dual-Mode Lite Xtreme Tablet

 
iX104C5 M™ – Military Xtreme Tablet

 
iX104C5 DMCR™ – Dual-Mode Clean Room Xtreme Tablet

 
Armadillo System, which is an iX104C5M paired with an expandable active mounting dock for military applications.
 
Our line of iX tablet PCs is designed to operate in challenging work environments, including extreme temperatures, constant vibrations, rain, blowing dirt 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 (GPS) modules, biometric and smartcard modules, as well as traditional peripherals like keyboards, mice and cases.
 
 
3

 
 
Our family of iX computers offers the following features:
 
Rugged—We have designed and built our products from the inside out, developing over 30 proprietary design elements that provide a heightened and proven level of durability.  Some of our products meet some of the strictest specifications in the world, such as those established by the U.S. military, including Military Standard Testing for Environmental Extremes.  Being designed to meet these specifications allows our products to withstand damage from being dropped onto concrete from up to four 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 −49° Fahrenheit and as high as 160° Fahrenheit.  In addition, our products are designed to continue to function when subjected to vibration, sand storms and other challenging outdoor work environments.
 
Screen Technology —We strive to be a leader of screen technology with award winning displays.  We have designed our AllVue screen to be viewable in virtually all challenging lighting conditions, including direct sunlight and dimly-lit environments, with our latest models featuring an improved contrast ratio of 600:1.  Our screens also offer Dual Mode inputs – simultaneous use of a digital pen and/or 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 for our products on a timely and cost-effective basis.  Our systems use Intel processors and associated chipsets, as well as other performance enhancement technologies that we believe are essential in many field applications (such as mapping and remote connectivity).  In addition, we provide Lithium ION batteries that support usage times of between three and five hours and our products include a “warm” swap feature allowing users to switch batteries in the field without having to power down the system.
 
Remote Connectivity—Our family of iX104C tablet PCs has a range of wireless communications options (wLAN, wWAN, Bluetooth, and PAN) as well as GPS options.
 
Accessories—We offer a broad range of add-on modules and accessories that we believe better enable our 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.  We have supplied service, desktop, vehicle, forklift, armored vehicle, and mobile cart docking systems to our customers.
 
Heightened Safety Standards—Our wireless-enabled tablet PC systems have been tested and certified both in North America and in the European Union for use in hazardous locations.
 
Our computers are designed to be used as a mobile computing system.  These systems are comprised of an Xplore hardware platform that is fully integrated with one or more software applications.  Through its wide feature set, we believe our iX family of products allows the customization of a platform that best suits a given application.  Our computers combine processing power, viewability, ruggedness and connectivity, and are designed to operate in extreme environments.
 
Strategy
 
Our strategy is to become the leading developer and marketer of rugged mobile wireless computer systems.  We currently compete in the rugged tablet PC market.
 
Leverage Existing Markets
 
We seek to continue to analyze the needs of the vertical markets that we are currently selling to so that we can continue to grow our business.  We intend to continue to focus on customer specific applications by leveraging our core products and technology, as well as our key strategic alliances.
 
Our strategy includes the following key elements:
 
Identifying and targeting vertical markets, major account and OEM opportunities—To achieve broad market penetration by our products, we intend to continue to focus on specific vertical market applications, major accounts and OEM relationships, such as Dell, Inc., Psion Teklogix Inc. and Peak Technologies.
 
 
4

 
 
Investment and nurturing of key relationships—We intend to continue to outsource our manufacturing function so that we can continue to focus our efforts on our technology and product development, customer application and project deployment activities, through our collaborations on engineering and manufacturing matters with our contract manufacturer, Wistron.  In addition, we have a key relationship with VT Miltope with respect to our Armadillo System, an integrated tablet and active docking system.  Our targeted military market segments initially included ground and C4I (Command, Control, Communications, Computers and Intelligence) systems.
 
Flexible product design and customer-centric approach—We believe that 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 throughout the entire sales cycle and is designed to position our products as the optimal mobile computing platform for our customers.
 
Delivery of high quality, reliable systems—We measure and seek to improve product quality through rigorous quality assurance programs implemented with our strategic alliances, in concert with performing our custom-designed test programs.  Additionally, we utilize feedback provided by our customers.
 
Marketing and distribution relationships—Within each targeted vertical industry, we intend to focus on co-marketing relationships with key application providers and systems integrators.  This strategy will allow us to define multiple channels of sale within a region while maintaining key strategic alliances.
 
Expand into New Rugged Product Markets
 
We continue to consider other market opportunities that are broader in scope and opportunity.  We believe, based upon an annual white paper published by the Mobile and Wireless Practice of Venture Development Corporation (which we refer to as VDC), that an increasing number of companies are requiring their employees to transact business in the field and/or other non-traditional office environments.  The research paper published by VDC projects worldwide sales in the rugged mobile computing market to grow to over $6.8 billion by the end of 2013, and for the market for large form factor rugged devices to grow to $3.5 billion by the end of 2013.  We currently have five products 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 four current market trends:
 
 
the expanding wireless data movement;
 
 
the surge in consumer tablet offerings, spurred by the success of Apple’s iPad;
 
 
the transition toward rugged computing solutions in non-traditional office environments; and
 
 
the increasing awareness and adoption of more rugged mobile computers, such as tablet PCs, in the face of the failure rates for office-oriented computers that have been deployed into challenging operating environments.
 
We believe that many companies recognize that the total cost of computer ownership is improved by using rugged computing solutions.
 
Sales
 
Our customers primarily consist of distribution companies, 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 2012, approximately 97% of our total revenues were attributable to sales through our distribution channels and approximately 3% of our total revenues were attributable to sales directly to our end-users.  We currently have relationships with more than 120 distributors.  Our distributors generally have large sales organizations that in turn sell our products to entities that are the ultimate end-users.  Our distributors include large computer companies such as Dell, Inc., specialized system integrators such as Moxx Mobility, Psion Teklogix Inc. and Peak Technologies, and software vendors such as Environmental Systems Research Institute.  In any given year, a single distributor may account for a significant portion of our revenue.  In fiscal year 2012, we had one reseller located in the United States, Prosys Information Systems Inc., that accounted for approximately 37% of our revenue.
 
 
5

 
 
As of March 31, 2012, we had a sales team of ten individuals that have geographic responsibilities for direct and indirect sales opportunities.  Our sales team works closely with our distributors in defined regions.  Our distributors are currently selling our products into the public safety, utility, telecom, field service, warehousing logistics, transportation, oil and gas, manufacturing, route delivery, military and homeland security markets.
 
Our total revenue increased significantly, by approximately 55%, in fiscal 2012 from fiscal 2011 on the strength of the large orders discussed above.  Our North American revenue was approximately 74% of total revenue in fiscal year 2012, as compared to approximately 52% of total revenue in fiscal year 2011.  The increase in North American revenue from fiscal year 2011 to fiscal year 2012 was primarily attributable to the large volume orders from our large utility customer in the United States.
 
Marketing
 
We have various marketing programs aimed at increasing awareness of our products and services, product management and corporate communications.  Key elements of our marketing programs include:
 
 
Participation in targeted industry trade shows and conferences;
 
 
Editorial coverage and advertisements placed in targeted vertical market, technology and business mediums, including specific industry publications;
 
 
Product marketing refinement by obtaining customer feedback through data collected by our customer support team, as well as through surveys;
 
 
Use of our web site for communications, as well as customer and channel support capabilities;
 
 
Inclusion of customers, industry experts and others in the product development and testing cycles; and
 
 
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 communications systems to a project, agents that specialize in rugged mobile computing devices and other consultants.  We believe that one of the driving forces behind these relationships is to produce an active project in which the combination of our systems with the application software and support services seeks to provide a tailored solution designed to meet specific customer needs.
 
The market pricing for rugged computers is higher than that for commercial grade computers used in traditional office settings.  We believe that the higher pricing reflects our theory that the total cost of ownership of a rugged computer over a three to five year period can be significantly lower than the cost of a non-rugged computer.  In fact, several of our customers have disclosed in our customer-based market research studies that they experienced higher direct costs using non-rugged devices (e.g. more frequent damage, information retrieval costs, replacement costs), as well as higher indirect costs, such as prolonged downtime.
 
We recognize that, as a small company, our key to success depends on our ability to provide better products than our larger competitors and to be more responsive to our customers’ needs.  Some of our product innovations, such as the AllVue screen and the Dual Mode functionality, were the result of customer feedback.  When embarking on the development of a new product or an upgrade of an existing one, we devote resources to engaging customers in the design process.  We believe that this process, combined with our flexibility to make quick decisions with the support of our contract manufacturer, Wistron, has enabled us to deliver products and market leading technology ahead of our competitors.
 
Market Segments
 
We target a number of different sectors in which we believe the deployment of rugged mobile computers can greatly improve operating efficiencies and reduce related costs.
 
Logistics.  We believe globalization, increased competition and heightened consumer expectations are contributing factors to the adoption of mobile computing technologies by many leading warehousing, distribution and retail entities.  These operations typically require real time price modifications, product introductions and transitions, and timely inventory management.  We believe that this sector will continue to automate order fulfillment, inventory control and management systems as part of an overall effort to integrate enterprise resource planning and supply chain management information systems.  Our end-users in this sector include Daimler AG.
 
 
6

 
 
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 that 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 end-users of our products in this sector.
 
Telecommunications.  Generally, telecom related companies continuously have to respond to customers’ requests for service and infrastructure maintenance expeditiously and efficiently to remain competitive.  We believe the reliable and real-time movement of information to and from the field is vital to the success of any field automation system.  Arkansas Utility is an end-user of our products in this sector.
 
Public Safety.  Given the focus in the U.S. on homeland security matters and the continued commitment by Federal, state and municipal governments on law enforcement, fire and emergency medical services, members of the public safety sector are searching for efficiencies that will better enable them to do their jobs. Rugged mobile computing devices assist these groups in a variety of ways.  For example, having a reliable and durable tablet PC provides law enforcement agencies with immediate and reliable access in the field to national and local criminal databases.  In this market segment, our products have been sold to over 300 public safety organizations in the U.S., including the Rochester, Santa Monica, Detroit and Cleveland Police Departments, and multiple international organizations, including Air Berlin.
 
Military.  As the military continues to transition to commercial and industrial grade rugged mobile computing systems, we expect this sector will represent a significant opportunity for our products.  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.  The military market sector includes ground and C4I (Command, Control, Communications, Computers and Intelligence) systems.  Our end-users in this sector include the U.S. Air Force and the Royal Dutch Air Force.  In addition, we are working with VT Miltope on penetrating the military vertical with our iX104C4M Series and the Armadillo System, an expandable multi-mission tablet and active dock computer system for vehicle-mounted and dismounted applications.
 
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 sector recognizes that linking field service personnel through the entire enterprise system can improve customer response, billing, inventory management and throughput metrics, thereby increasing operational efficiencies.  Our end-users in this market segment include Dycom, Boeing and HydroChem.
 
Research and Development
 
We have assembled an experienced engineering and product development team.  Through the collaboration of our employees and the engineering team of our contract manufacturer, Wistron, we believe we are able to bring significant resources to the research, development and design of our products.
 
We seek to design and manage product life cycles through a controlled and structured process.  We involve customers and industry experts from our target markets in the definition and refinement of our product development.  Product development emphasis is placed on meeting industry standards and product specifications, ease of integration, ease of use, cost reduction, design-for manufacturability, quality and reliability.
 
We continue to invest in research and development to enhance and expand our rugged mobile computing systems.  Additional form factors, operating systems and screen technologies are being considered for integration into our rugged platform as we seek to expand into additional markets.  During the fiscal years ended March 31, 2012 and 2011, we expended $1,923,000 and $2,063,000, respectively, on research and development activities, none of which is borne by our customers.
 
 
7

 
 
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 advantages are our products’ durability and reputation in the industry.  In order to compete, we will be required to continue to respond promptly and effectively to the challenges of technological changes and our competitors’ innovations.
 
Our primary competitors in the mobile rugged computer market include the following:
 
Panasonic.  Panasonic is the largest provider of mobile rugged computers and offers a series of traditional and convertible notebooks.  Panasonic promotes a rugged computer, known as the Toughbook, which is well known in the industry.
 
GD/Itronix.  GD/Itronix markets its semi-rugged pen tablet computer systems as part of its mobile portfolio, which also includes rugged notebooks.
 
DRS.  DRS promotes a tablet PC as its main product in the rugged space and has a solution that competes with our iX104C5M in the military market.
 
We also face competition from manufacturers of nonrugged mobile computers, such as Dell, Inc., Hewlett-Packard Company, Apple Computer, Inc., Sony and Toshiba, to the extent customers decide to purchase less expensive traditional computers for use in environments better suited for mobile rugged computers.
 
Our primary competitors have greater financial, technical, and research and development resources and marketing capabilities than we do.
 
Manufacturing
 
We outsource the majority of our manufacturing services for our ruggedized mobile PC tablets to Wistron, including board production, parts procurement, assembly, some quality assurance testing, warranty repair and service.  We have a design and manufacturing agreement with Wistron.  Wistron makes computers and components for some of the world’s largest technology companies, such as Dell, Inc. and Hewlett-Packard Company.  Wistron collaborates with us on product specifications and provides us with the flexibility to make changes to our products as market conditions change.
 
Under the terms of our agreement with Wistron, which we entered into in July 2003, Wistron provides us with design, manufacturing and support services related to our ruggedized mobile PC tablets.  Our purchase price of the products produced by Wistron is determined based on the specific configuration of the tablet PCs being produced and is subject to a cost reduction plan and volume based discounts.  At least quarterly, we meet with Wistron to develop a cost reduction plan.  The plan takes into account alternative suppliers along with components, design, process changes and other cost savings procedures.  Each month we provide Wistron with a six month rolling forecast of the products we anticipate ordering.  Generally, Wistron has 45 days after its acceptance of our purchase order to ship the product.  If products ordered during any quarter exceed the volume projected in the forecast, Wistron has agreed to use its reasonable best efforts to deliver the excess products within 20 days after its acceptance of the applicable purchase order.
 
Wistron has provided several warranties to us, including that Wistron has all necessary rights required to sell the products, that each product will be free from any material defect for a period of 36 months, that the products will be free from any liens, encumbrances or defects in title and that the products will comply with all specifications.  The initial term of our agreement with Wistron was for one year 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 most recently automatically renewed for a one-year term in July 2011.  In addition, the Wistron agreement contains a provision that allows for termination for any reason by either party upon 120 days notice.
 
We purchase materials, supplies and product subassemblies for our ruggedized mobile personal computer tablets from a number of vendors.  Some key components included in our line of products are currently available only from single or limited sources.  In the past, we have experienced significant price increases and limited availability of certain components that are not available from multiple sources.  We are dependent upon Microsoft Corporation for various software products, including products included in our ruggedized mobile PC tablets.
 
 
8

 
 
Like other participants in the computer manufacturing industry, we ordinarily acquire materials and components through a combination of blanket and scheduled purchase orders to support our requirements for periods averaging 90 to 120 days.  At times, we have been constrained by parts availability in meeting our product orders.  From time to time, we have obtained scarce components for somewhat higher prices on the open market, which may have an impact on gross margins but does not disrupt production.  On occasion, we have also acquired component inventory from our suppliers in anticipation of supply constraints.
 
Intellectual Property
 
Our performance and ability to compete are dependent to a significant degree on our proprietary technology.  We rely primarily upon a combination of patent, copyright and trade secret laws and license agreements to establish and protect proprietary rights in our products and technology.  We have four U.S. patents and one Canadian patent, along with four U.S. patent applications related to proprietary elements of our new iX104C5 family of products and one patent application for our wireless dock.  We are seeking to obtain additional patent protection for certain key components of our technology, as well as obtaining protection in certain other international jurisdictions.  Even with patent protection, it may be possible for a third party to copy or otherwise obtain and use our products or technology without authorization or to develop similar technology independently.  In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries.
 
We do not believe that our products infringe on the proprietary rights of any third parties.  There can be no assurance, however, that third parties will not claim such infringement by us or our licensees with respect to current or future products.  In the past, we have had third parties assert exclusive patent, copyright, trademark or other intellectual property right to technologies or marks that are important to our business.  Any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into a royalty or licensing agreement, any of which could delay the development and commercialization of our products.
 
We work closely with our contract manufacturer, Wistron, to stay abreast of the latest developments in rugged mobile computer technology.  We obtain patent licenses for some technologies, some of which require significant royalty payments, when we believe those licenses are necessary or advantageous to our business.  We have entered into non-exclusive licensing arrangements with Microsoft and other software suppliers for various operating systems and application software that we sell with our rugged tablet PCs.
 
Government Regulation
 
Our business is subject to regulation by various federal and state governmental agencies.  Such regulation includes the radio frequency emission regulatory activities of the U.S. Federal Communications Commission, the anti-trust regulatory activities of the U.S. Federal Trade Commission and Department of Justice, the consumer protection laws of the Federal Trade Commission, the import/export regulatory activities of the U.S. Department of Commerce, the product safety regulatory activities of the U.S. Consumer Products Safety Commission and environmental regulation by a variety of regulatory authorities in each of the areas in which we conduct business.
 
Employees
 
As of March 31, 2012, we had 40 full-time employees, of which 24 were employed in the operations, engineering, research and development and customer support areas, six were involved in corporate, finance and administrative areas and ten were employed in sales and marketing.  Our employees are not represented by a union or other collective bargaining unit and we have never experienced a work stoppage.  We believe that our employee relations are good.
 
Trademarks and Service Marks
 
Trademarks or trade names of Xplore used in this Annual Report on Form 10-K include: “iX™” and “AllVue™.” Each trademark, trade name or service mark of any other company appearing in this Annual Report on Form 10-K belongs to its holder.
 
Item 1A.  Risk Factors
 
There are many risks that affect our business and results of operations, some of which are beyond our control. If any of the following risks actually occur, our business, financial condition or operating results could be materially harmed. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment.  Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.
 
 
9

 
 
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, 2012, we incurred a net loss of approximately $500,000.  In addition, as of March 31, 2012, our accumulated deficit was approximately $135.6 million.  Our losses have resulted primarily from expenses incurred in research and development of our technology and products and from selling and marketing our products.  We may continue to incur additional operating losses at least through our fiscal year 2013, as we continue our research and development efforts, introduce new products and expand our sales and marketing activities.  We cannot assure you that our revenue will increase or that we will be profitable in any future period.
 
If we fail to obtain additional financing when needed, we may be unable to complete the development and commercialization of our future products or may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our other products.
 
Our operations have consumed substantial amounts of cash since inception.  From our inception in 1996, we have financed our operations and met our capital expenditure requirements primarily from debt and equity financings totaling approximately $108.5 million.  We expect to continue to spend substantial amounts to complete the development and commercialization of our future products and to continue our research and development efforts, including those to advance our current product line.  As of March 31, 2012, our working capital was approximately $6.1 million and our cash and cash equivalents were approximately $200,000.  We believe that cash flow from operations, together with advances under our financing arrangement with a specialty finance company and, if necessary, financial support from Phoenix Venture Fund LLC and its affiliates (together “Phoenix”), our significant stockholder, will be sufficient to fund our anticipated operations through the balance of our fiscal year 2013.  However, we may seek to access the public or private markets before such time, whenever conditions are favorable or appropriate, even if we do not have an immediate need for additional capital at that time.  It is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all.  To the extent we raise additional funds by issuing equity, our current stockholders may experience significant dilution.  Any debt financing, if available, may require us to agree to restrictive covenants that could negatively impact our ability to manage our business.  Any additional debt financing would also result in a reduction in amounts payable to our stockholders upon a sale or liquidation of our business.  Due to the volatility of the U.S. equity markets, particularly for smaller technology companies, we may not have access to new capital when we need to raise additional funds.  If we are not able to obtain financing when needed or on acceptable terms, we would likely be unable to carry out our business plan, and would have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products, the occurrence of which could significantly harm our business and prospects and could cause our stock price to significantly decline.
 
Since our revenues are highly dependent on one product family, any significant reduction of sales of this product family would materially harm our operating results.
 
Because our revenues are derived substantially from sales of our iX104 systems, we are highly dependent upon the continued market acceptance of the iX104 product family.  We cannot assure you that the iX104 product family will continue to achieve acceptance in the marketplace.  Any significant reduction of sales of the iX104 product family would materially harm our operating results.
 
In fiscal year 2012, more than 10% of our revenue was derived from one of our customers.  If we are unable to replace revenues generated from one of our major resellers or end-user customers with revenues from others in future periods, our revenues may decline and our growth would be limited.
 
Historically, in any given year a single customer, either reseller or end-user customer, could account for more than 10% of our revenue.  In fiscal year 2012, one reseller, Prosys Information Systems, Inc., accounted for approximately 37% of our total revenue, for one end-user customer, and in fiscal year 2011, one reseller, ID Sys Int’l Systems Consult GMB, accounted for approximately 11% of our total revenue.  If we are unable to replace revenues generated from one of our major resellers or end-user customers with revenues from others, our revenues may decline and our growth could be limited.
 
 
10

 
 
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 fall below expectations.
 
We are currently dependent on Wistron to manufacture our products and products under development and our reliance on Wistron subjects us to significant operational risks, any of which would impair our ability to deliver products to our customers should they occur.
 
We currently rely primarily on Wistron for the manufacture of our products. Our reliance involves a number of risks, including:
 
 
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 for their manufacturing abilities.  During the fiscal years ended March 31, 2012 and 2011, we purchased inventory and engineering services of approximately $13.7 million and $10.5 million, respectively, from Wistron.  Our agreement with Wistron contains a provision that allows for termination for any reason.  We cannot assure you that Wistron will continue to work with us, that they will be able to meet our manufacturing needs in a satisfactory and timely manner, that Wistron has the required capacity to satisfy our manufacturing needs or that we can obtain additional or alternative manufacturers when and if needed.  The availability of Wistron and the amount and timing of resources to be devoted by Wistron to our activities is not within our control, and we cannot assure you that we will not encounter manufacturing problems that would materially harm our business.  The loss of Wistron, a significant price increase, an interruption of supply or the inability to obtain additional or an alternative manufacturer when and if needed would impair our ability to deliver our products to our customers.
 
We face competition from companies that have greater resources than we do and we may not be able to effectively compete against these companies.
 
We operate in a highly competitive industry.  Our primary competitors in the mobile rugged computer market include DRS Technologies, Inc. and GD/Itronix in the tablet PC market and Panasonic in the notebook market.  We also face competition from manufacturers of nonrugged mobile computers, such as Dell, Inc., Hewlett-Packard Company, Apple Computer, Inc., Sony and Toshiba, to the extent customers decide to purchase less expensive traditional computers for use in environments we believe are better suited for mobile rugged computers. The principal competitive factors in our industry include:
 
 
product performance, features and reliability;
 
 
price;
 
 
name recognition; and
 
 
product availability and lead times.
 
 
11

 
 
Most of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we do.  In addition, because of the higher volume of components that many of our competitors purchase from their suppliers, they are able to keep their costs of supply relatively low and, as a result, may be able to recognize higher margins on their product sales than we do.  Many of our competitors may also have existing relationships with the resellers who we use to sell our products, or with our potential customers.  This competition may result in reduced prices, reduced margins and longer sales cycles for our products.  The introduction of lower-priced personal computers, combined with the brand strength, extensive distribution channels and financial resources of the larger vendors, would cause us to lose market share and would reduce our margins on those personal computers we sell.  If any of our larger competitors were to commit greater technical, sales, marketing and other resources to our markets, our ability to compete would be adversely affected.  If we are unable to successfully compete with our competitors our sales would suffer and as a result our financial condition will be adversely affected.
 
If we are unable to successfully protect our intellectual property, our competitive position will be harmed.
 
Our ability to compete is heavily affected by our ability to protect our intellectual property.  We rely on a combination of patents, copyright and trademark laws, trade secret, confidentiality procedures and contractual provisions to protect our proprietary rights.  We also enter, and plan to continue to enter, into confidentiality or license agreements with our employees, consultants and other parties with whom we contract, and control access to and distribution of our software, documentation and other proprietary information.  The steps we take to protect our technology may be inadequate.  Existing trade secret, trademark and copyright laws offer only limited protection.  Unauthorized parties may attempt to copy aspects of our products or obtain and use information which we regard as proprietary.  Policing unauthorized use of our products is difficult, time consuming and costly, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.  We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology, the effect of either of which would harm our competitive position in the market.
 
Others could claim that we infringe on their intellectual property rights, which may result in costly and time consuming litigation and could delay or otherwise impair the development and commercialization of our products.
 
In recent years, there has been a significant increase in litigation in the United States involving patents and other intellectual property rights.  We do not believe that our products infringe on the proprietary rights of third parties.  There can be no assurance, however, that third parties will not claim such infringement by us or our licensees with respect to current or future products.  Claims for alleged infringement and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation of our intellectual property rights.  Any such claims, with or without merit, could be time consuming, expensive to defend, 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 or reduce our margins.  If we are unable to obtain a required license, our ability to sell or use certain products may be impaired.  In addition, if we fail to obtain a license, or if the terms of the license are burdensome to us, our operations could be materially harmed.
 
We are subject to risks by doing business outside of the United States that could impair our ability to grow our revenues.
 
In the fiscal years ended March 31, 2012 and March 31, 2011, approximately 37% and 60%, 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.
 
 
12

 
 
The occurrence of any one these risks could impair our ability to grow our revenues.
 
If we are unable to retain key personnel we may not be able to execute our business strategy.
 
Our operations are dependent on the abilities, experience and efforts of a number of key personnel, including Philip S. Sassower, our chairman and chief executive officer, Mark Holleran, our president and chief operating officer, Michael J. Rapisand, our chief financial officer and corporate secretary, and Bryan Bell, our vice president of engineering.  Should any of these persons or other key employees be unable or unwilling to continue in our employ, our ability to execute our business strategy may be adversely affected.  In addition, our success is highly dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified management, technical and sales and marketing personnel.  Competition for such personnel is intense.  We may be unable to attract and retain the personnel necessary for the development of our business.  Because we have experienced operating losses, which resulted in a reduction in workforce in the past, and because our common stock is not traded on a recognized national market, we may have a more difficult time in attracting and retaining the employees we need.  Our relationships with most of our key employees are “at will.”  Also, we do not have “key person” life insurance policies covering any of our employees.  The inability to attract or retain qualified personnel in the future or delays in hiring skilled personnel could harm our relations with our customers and our ability to respond to technological change which would prevent us from executing our business strategy.

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

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

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

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

Our inability to obtain any third-party license required to develop new products and product enhancements could seriously harm our business, financial condition and results of operations.
 
From time to time, we are required to license technology from third parties to develop new products or product enhancements.  Third-party licenses may not be available to us on commercially reasonable terms, or at all.  Our inability to obtain any third-party license necessary to develop new products or product enhancements could require us to obtain substitute technology of lower quality or performance standards, or at greater cost, which could seriously harm our business, financial condition and results of operations.
 
 
13

 
 
Risks Relating to Ownership of our Common Stock
 
As of May 31, 2012, two of our stockholders, Philip S. Sassower and Phoenix Venture Fund LLC, and other entities controlled by Mr. Sassower, own voting securities representing approximately 37.4% of the voting power of all of our voting securities, and thus have effective control over matters requiring stockholder approval.
 
One of our stockholders, Phoenix Venture Fund LLC, which is co-managed by Philip S. Sassower, our chairman and chief executive officer, and Andrea Goren, one of our directors, owns voting securities representing approximately 24.0% of the total voting power of our outstanding voting securities.  In addition, Mr. Sassower, personally and through other entities controlled by him, controls, in the aggregate, voting securities representing approximately 13.4% of the total voting power of our outstanding voting securities. Thus, Phoenix Venture Fund and Mr. Sassower, together, control in the aggregate, approximately 37.4% of the total voting power of our outstanding voting securities.  Accordingly, Phoenix Venture Fund and Mr. Sassower have the ability to exercise significant influence (and have effective control) over matters generally requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, which could have the effect of delaying or preventing a third party from acquiring control over us.
 
Some of the rights granted to the holders of our Series A Preferred Stock could prevent a potential acquirer from buying our company.
 
Holders of our Series A Preferred Stock, which include Phoenix Venture Fund and Mr. Sassower, have the right to block us from consummating a merger, consolidation, sale of substantially all of our assets or liquidation.  Phoenix Venture Fund and Mr. Sassower together control approximately 71.1% of the outstanding Series A Preferred Stock.  Accordingly, these holders of our Series A Preferred Stock could prevent the consummation of a transaction in which our stockholders could receive a substantial premium over the current market price for their shares.
 
The anti-takeover effect of certain of our charter provisions could adversely affect holders of our common stock.
 
Our authorized capital consists of preferred stock issuable in one or more series. Our board of directors has the authority to issue preferred stock and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or action by stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. The issuance of additional preferred stock, while providing desirable flexibility in connection with possible financings and acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the voting power of our outstanding voting securities, which could deprive our holders of common stock of a premium that they might otherwise realize in connection with a proposed acquisition of our company.
 
There may not be an active market for shares of our common stock, which may cause our shares to trade at a discount and may make it difficult for you to sell your shares.

Our common stock is quoted on the OTC Markets Group Inc.'s OTCQB Link quotation platform.  Trading in our common stock has been somewhat limited. There can be no assurance that an active trading market for our common stock will develop and continue.  As a result, you may find it more difficult to purchase, dispose of and obtain accurate quotations as to the value of our common stock.

In addition, since the trading price of our common stock is less than $5.00 per share, trading in our common stock is also subject to the requirements of Rule 15g-9 of the Exchange Act.  Our common stock is also considered a penny stock under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, which defines a penny stock, generally, as any equity security not traded on an exchange or quoted on the Nasdaq SmallCap Market that has a market price of less than $5.00 per share.  Under Rule 15g-9, brokers who recommend our common stock to persons who are not established customers and accredited investors, as defined in the Exchange Act, must satisfy special sales practice requirements, including requirements that they:
 
 
· 
make an individualized written suitability determination for the purchaser; and
 
 
· 
receive the purchaser’s written consent prior to the transaction.
 
 
14

 
 
The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosures in connection with any trades involving a penny stock, including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated with that market.  Such requirements may severely limit the market liquidity of our common stock and the ability of purchasers of our equity securities to sell their securities in the secondary market.  For all of these reasons, an investment in our equity securities may not be attractive to potential investors.
 
Many factors can adversely affect the price of our common stock.
 
The trading price of our common stock has been highly volatile and may continue to fluctuate substantially.  We believe that a variety of factors have caused and could in the future cause the stock price of our common stock to fluctuate significantly, including:
 
 
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 economy worldwide.
 
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.
 
We do not expect to pay dividends on our common stock.
 
We have never paid cash dividends on our common stock.  Our current policy is to retain any future earnings to finance the future development and expansion of our business.  Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, capital requirements, operating and financial conditions and on such other factors the board of directors deems relevant.  Under the terms of our amended and restated 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 shares of Series A, Series B, Series C and Series D Preferred Stock.  Furthermore, under the terms of our financing agreement with our senior lender, we are prohibited from paying cash dividends to holders of our common stock.
 
Item 1B.  Unresolved Staff Comments
 
None.
 
Item 2.  Properties
 
We maintain our corporate functions, along with sales support, marketing, finance, engineering and operating groups, at a leased facility totaling approximately 21,700 square feet at 14000 Summit Drive, Suite 900, Austin, Texas. The lease expires on August 31, 2014, and has a current annual base rent, before reimbursable operating expenses, of approximately $165,000.  We believe that our present facilities are suitable for our existing and planned operations.
 
 
15

 
 
Item 3.  Legal Proceedings
 
On November 9, 2006, we issued a Statement of Claim against Deloitte & Touché LLP (which we refer to as Deloitte) in the Ontario Superior Court of Justice.  In the Statement of Claim, we have alleged negligence against Deloitte with respect to the auditing services provided to us in connection with its audit in accordance with Canadian generally accepted accounting principles of our 2002, 2003 and 2004 audited financial statements.  The Statement of Claim seeks damages in the amount of Cdn. $4,070,000 for direct and indirect losses.  On December 22, 2006, Deloitte filed an answer to the Statement of Claim.  On March 28, 2008, Deloitte filed an amended defense and counterclaim against us, seeking indemnification for damages, costs and expenses (including legal fees and disbursements and personnel time) allegedly incurred by Deloitte in responding to regulatory inquiries, requests, reviews or investigations relating to, arising out of or associated with Deloitte’s review or audit engagements for or during our fiscal years 2002, 2003 and 2004.  We do not expect the counterclaim to have a material adverse impact on our financial condition or results of operations.
 
We are involved in other various claims and legal actions arising in the ordinary course of business.  We believe that the ultimate outcome of these matters would not have a material adverse impact on our financial condition or the results of operations.
 
Item 4.  (Removed and Reserved)
 
PART II
 
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Market Information
 
Our common stock is quoted on the OTC Markets Group Inc.'s OTCQB Link quotation platform under the symbol “XLRT”. We have one class of common stock and four classes of preferred stock. As of May 31, 2012, there were 248 registered holders of record of our common stock, and the closing price of our common stock on the OTCQB Link was $0.036.  The following table sets forth the high and low sales price of our common stock, on the OTCQB Link since February 17, 2011 and on the OTC Bulletin Board prior to February 17, 2011, for each quarterly period during the fiscal years ended March 31, 2012 and 2011 as quoted in U.S. dollars.
 
   
US $
 
PERIOD
 
High
   
Low
 
           
Fiscal Year Ended March 31 2012:
         
First Quarter
  0.14       0.04  
Second Quarter
  0.15       0.04  
Third Quarter
  0.08       0.03  
Fourth Quarter
  0.08       0.04  
Fiscal Year Ended March 31, 2011:
             
First Quarter
  0.25       0.07  
Second Quarter
  0.08       0.06  
Third Quarter
  0.16       0.01  
Fourth Quarter
  0.14       0.03  
 
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 accrue cumulative dividends which are paid quarterly on the first day of June, September, December and March.
 
The dividend rate for our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock was 5% of the original issue price of those series through November 30, 2010 and the dividend rate was increased to 7.5% of the original issue price for periods after November 30, 2010.  The dividends for the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are paid, at our option, in cash or the number of shares of common stock determined by dividing (i) the aggregate amount of the dividend then payable by (ii) the volume weighted average trading price of the common stock over the 10 trading days ending on the third trading day immediately preceding the dividend payment date, less a discount of 25% of the volume weighted average trading price of the common stock.
 
 
16

 
 
The dividend rate for our Series D Preferred Stock is 10% of the original issue price of the Series D Preferred Stock.  The dividends for the Series D Preferred Stock are paid, at our option, in cash or additional shares of Series D Preferred Stock valued at $1.00 per share. No dividends may be paid on our Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or common stock so long as any dividends on the Series D Preferred Stock remain unpaid.
 
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 amended and restated 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, Series C and Series D Preferred Stock. Furthermore, under the terms of our financing agreement with our senior lender, we are prohibited from paying cash dividends without the senior lender’s prior written consent. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future.
 
Recent Sales of Unregistered Securities
 
None.
 
Item 6.  Selected Financial Data.
 
Not applicable.
 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation.
 
You should read the following discussion and analysis in conjunction with our financial statements and notes included in this Annual Report on Form 10-K. This discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainty. Our actual results could differ materially from those anticipated in the forward-looking statements, including those discussed in “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
 
General
 
We engineer, develop, integrate and market rugged, mobile computing systems.  Our line of iX tablet PCs is designed to operate in challenging work environments, including extreme temperatures, constant vibrations, rain, blowing dirt 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, mice and cases.
 
Our revenue is currently derived through the sale of our iX104 systems in the rugged, mobile tablet PC market.  We believe we are positioned for future revenue growth in our addressable markets with the launch of our fifth generation iX104C line of rugged tablet PCs in May 2011.  At a time when we believe awareness and demand for tablet computers is significantly increasing, we have introduced a family of computers that, based upon third-party certifications, surpasses the standards and specifications that have been the accepted measuring sticks for rugged tablet computers in today’s marketplace.

We are dependent upon the market acceptance of our newest generation of the iX104 tablet PC system.  Our iX104C5 introduces “industry firsts” and differentiating features, including a tool-less removable dual solid state drive (SSD) module, tool-less access to the SIM and MicroSD ports and an ingress protection rating of IP 67 for submersion in water.  The new C5 family also features the latest Intel® Core™ i7 processor and Windows® 7 operating system.  Our specially designed AllVue screen is viewable in virtually all challenging lighting conditions, including direct sunlight and dimly-lit environments, and features an improved screen contrast ratio of 600:1.
 
 
17

 
 
We believe that the market’s response to our iX104 has been favorable as evidenced by our revenue growth of approximately 55% from fiscal 2011 to fiscal 2012.  The growth in revenue was principally due to significant orders received during the third and fourth quarter of our 2012 fiscal year.  On November 10, 2011, we announced that we had received purchase orders representing over $14 million in aggregate sales orders from one of the world’s largest utility companies.  Further, on January 31, 2012, we announced the receipt of a purchase order of over $2.8 million from one of the largest conventional oil and natural gas producers in North America.  On February 16, 2012, we announced the receipt of a follow-on $3.5 million purchase order from the major utility.  Partial shipment of these orders began in the third and fourth quarters of our fiscal year ended March 31, 2012.  As a result, our revenue for the three months ended March 31, 2012 was $10,832,000, representing the largest dollar amount of revenue for any quarter in our history.  For the three months ended March 31, 2012 we also had net income of $1,325,000.  We ended our fiscal year 2012 with two consecutive quarters of net income for the first time in our history.

Management believes that if we can gain more marketplace awareness of our iX104 tablet PC family of products, we should also be able to increase our future revenue.

Critical Accounting Policies
 
Our consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact our financial condition, changes in financial condition or results of operations. Our significant accounting policies are discussed in Note 2 of the Notes to our Annual Consolidated Financial Statements as of March 31, 2012 and 2011 and for each of years in the two year period ended March 31, 2012. On an ongoing basis, we evaluate our estimates, including those related to our revenue recognition, allowance for doubtful accounts, inventory valuation, warranty reserves, tooling amortization, financial instruments, stock based compensation and income taxes.  We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
 
Our critical accounting policies are as follows:

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

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

Warranty Reserves.  Provisions are made at the time of sale for warranties, which are based on our experience and monitored regularly.  The revenue related to warranty is recognized when our obligations are generally covered by a warranty coverage agreement provided by a third party.  Warranty obligations related to revenue recognized are primarily covered by warranty coverage agreements provided by Wistron; however, we also provide the coverage on some of our obligations for which we establish related reserves at the time of sale.  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, production discontinuation, technology changes and competition.  While the estimates are subject to revisions and actual results could differ, our experience is that the estimates used by current management have not been required to be adjusted based on actual results.  Accordingly, while any change to the estimates could have a material impact, there have been no material adjustments to originally provided amounts.
 
 
18

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

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

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

Stock-Based Compensation Expense. We apply the fair value method of accounting for all of our employee stock-based compensation. We use the Black-Scholes option pricing model to determine the fair value of stock option awards at the date of the issuance of the award. The value is expensed over the vesting period which is generally three years. See Note 9 to these consolidated financial statements for required disclosures.

Our estimates of stock-based compensation expense require a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns, future forfeitures, dividend yield, related tax effects and the selection of an appropriate fair value model. We estimate expected share price volatility based on historical volatility using daily prices over the term of past options. We use historical data to estimate pre-vesting forfeitures, and we record stock -based compensation expense only for those awards that are expected to vest. The dividend yield assumption is based on the Company's history and future expectations of dividend payouts.

The assumptions used in calculating the fair value of stock-based compensation expense and related tax effects represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, or if we decide to use a different valuation model, our stock-based compensation expense could be materially different in the future from what we have recorded in the current period, which could materially affect our results of operations.

Recent Accounting Pronouncements

We have implemented all new accounting pronouncements that are in effect and that may impact our consolidated financial statements.  We do not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations.

Results of Operations

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

Cost of Revenue.  Cost of revenue consists of the costs associated with manufacturing, assembling and testing our products, related overhead costs, maintenance, compensation, freight and other costs related to manufacturing support, including depreciation of tooling assets and logistics.  We use contract manufacturers to manufacture our products and supporting components, which represents a significant majority 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.
 
 
19

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

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

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

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

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

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

Fiscal Year Ended March 31, 2012 vs. Fiscal Year Ended March 31, 2011
 
Revenue.  Total revenue for the fiscal year ended March 31, 2012 was $27,528,000, as compared to $17,759,000 for the fiscal year ended March 31, 2011, an increase of $9,769,000, or approximately 55%.  The increase in revenue was attributable to an increase in unit sales of approximately 54%, along with an increase in our average selling prices of approximately 1%.  The increase in unit sales was principally attributable to the fulfillment of a portion of the previously announced purchase orders we received in the second half of our fiscal year 2012, approximating $20,300,000.  The increase in average selling prices was principally due to a more favorable product mix.
 
We operate in one segment, the sale of rugged mobile wireless tablet PC computing systems.  Approximately 63% of our revenue in the year ended March 31, 2012 was derived from sales in the United States and approximately 11% of that revenue was derived from sales in Canada.  The United States, Germany and Canada accounted for approximately 40%, 13% and 12%, respectively, of our revenue during the year ended March 31, 2011.  At March 31, 2012, we had one reseller customer, Prosys Information Systems Inc., who had a receivable balance accounting for approximately 71% of our total outstanding accounts receivables.  We collected the receivable balance with this reseller subsequent to our fiscal year end.
 
In any year a single customer may account for a significant portion of our sales.  For the fiscal year ended March 31, 2012, we had a reseller customer located in the United States who accounted for approximately 37% of our total revenue, all of which was for sales to one end-user.  For the fiscal year ended March 31, 2011, we had one customer located in Germany who accounted for approximately 11% of our total revenue.
 
Cost of Revenue.  Total cost of revenue for the year ended March 31, 2012 was $19,140,000, compared to $12,338,000 for the year ended March 31, 2011, representing an increase of $6,802,000, or approximately 55%.  The increase was primarily due to the aforementioned increase in unit sales.
 
 
20

 
 
We rely on a single supplier for the majority of our finished goods.  At March 31, 2012 and 2011, we owed this supplier $3,858,000 and $971,000, respectively, which we recorded in accounts payable and accrued liabilities.  The inventory purchases and engineering services from this supplier during the years ended March 31, 2012 and 2011 were $13,687,000 and $10,453,000, respectively.
 
Gross Profit.  Total gross profit increased by $2,967,000, to $8,388,000 (30.5% of revenue) for the year ended March 31, 2012 from $5,421,000 (30.5% of revenue) for the year ended March 31, 2011.  The increase in gross profit for the year ended March 31, 2012 as compared to the prior year was attributable to the increase in revenue and unit sales.
 
Sales, Marketing and Support Expenses.  Sales, marketing and support expenses for the year ended March 31, 2012 were $3,763,000, compared to $2,995,000 for the year ended March 31, 2011.  The increase of $768,000, or approximately 26%, was due to an increase in sales commissions of $221,000 associated with the increase in revenue, an increase in expenses related to demonstration units of $216,000 associated with the product launch and marketing of our iX104C5, an increase in our headcount related costs of $207,000 for increases in sales and marketing staffing, which included the hiring of a vice president of marketing, in addition to an increase in travel costs of $112,000 associated with the higher sales level, partially offset by a decrease in stock compensation of $35,000.
 
Product Research, Development and Engineering Expenses.  Product research, development and engineering expenses for year ended March 31, 2012 were $1,525,000, as compared to $2,063,000 for the year ended March 31, 2011, a decrease of $538,000, or approximately 26%.  Our accrued liabilities as of March 31, 2011 included an estimated $398,000 in engineering services related to the development of a rugged notebook PC by an outside supplier during fiscal 2009.  We were never billed for these services, and the related statutory period for collection lapsed in fiscal 2012.  In the fourth quarter of fiscal 2012, we eliminated the engineering accrual of $398,000, resulting in a reduction in product research, development and engineering expense in that amount.  Excluding the elimination of the accrual related to the development of our rugged notebook, engineering expenses declined by $140,000, or approximately 7%.  During the year ended March 31, 2012, our product development focus was very limited, with our primary focus on the completion and testing of the C5, which was launched in May 2011, and the development of new docking accessories, including a wireless docking system.  In contrast, during the year ended March 31, 2011, our major development activities related to the C5 occurred and were completed and, as such, the scope of such work was greater.  The decrease in product development related expenses arising from reduced activities was $325,000 and the decline in stock compensation was $74,000.  These declines were offset by an increase in headcount related costs of $145,000, primarily associated with the hiring of employees for positions that were open in fiscal 2011, new incentive compensation of $71,000 for meeting product enhancement and revenue performance objectives and an increase in patent filing costs of $43,000 for C5 patents.
 
General Administration Expenses.  General administration expenses for the year ended March 31, 2012 were $3,337,000, compared to $2,974,000 for the year ended March 31, 2011, an increase of $363,000, or approximately 12%.  The increase consists of new incentive compensation of $221,000 for meeting revenue and cash flow performance objectives, charges of $165,000 for settlement of patent infringement claims and an increase in headcount related costs of $151,000 for staffing upgrades and the hiring of a vice president of operations.  These increases were offset by a decrease in stock compensation of $143,000, a decrease in professional fees of $16,000 and other various expense reductions of $15,000.

For our fiscal years 2012 and 2011, the fair value of employee stock-based compensation expense was $790,000 and $1,055,000, respectively.  The decrease in expense of $265,000 for fiscal year 2012 primarily results from differences in the timing of the issuances of grants and the value of our common stock at respective issuance dates.  Of the current grants outstanding, approximately 85% were issued on March 29, 2011, when our board of directors granted options to purchase an aggregate of 47,685,000 shares of common stock, at an exercise price of $0.06 per share, to all employees, directors and certain consultants.  One-fourth of each granted option vested immediately, with the remainder vesting annually over three years.  In connection with the grant, all of our executive officers other than our chief executive officer voluntarily terminated all of their rights to outstanding option grants aggregating 6,201,395 shares of common stock.  The fair value of the option grants with immediate vesting, reduced by the voluntarily terminated shares that were not vested, resulted in the recognition of approximately $466,000 of stock compensation expense in the fourth quarter of the year ended March 31, 2011.  We recorded stock-based compensation expense in the employee related functional classification.
 
Depreciation and amortization expenses for fiscal years 2012 and 2011 were $647,000 and $310,000, respectively, an increase of $337,000.  The increase in depreciation and amortization expense was due to the tooling amortization associated with the C5 of approximately $169,000 and the depreciation of our new C5 tablet PC demonstration units of $167,000.  We recorded depreciation and amortization expense in the related functional classification.
 
 
21

 
 
Interest Expense.  Interest expense for the year ended March 31, 2012 was $221,000, compared to $3,735,000 for the year ended March 31, 2011.  The decrease of $3,514,000 was attributable primarily to the reduction in outstanding borrowings resulting from the exchange of all of our outstanding secured subordinated promissory notes for shares of our Series D Preferred Stock on December 16, 2010.  This decrease was partially offset by interest expense of $202,000 attributable to borrowings associated with our working capital facility in fiscal 2012, as compared to $145,000 in interest expense from the same credit facility for the previous year.

Other Expense.  Other expense for the year ended March 31, 2012 was $65,000, compared to $43,000 for the year ended March 31, 2011.
 
Net Loss.  The net loss for the year ended March 31, 2012 was $523,000 ($0.00 per common share) compared to a net loss of $6,389,000 ($0.04 per common share) for the year ended March 31, 2011.  The $5,866,000 decrease in our net loss in fiscal 2012, and the decrease in the loss per common share, was primarily due to the decrease in interest expense of $3,514,000 and the reduction in our operating loss of $2,374,000 primarily attributable to the increase in revenue.
 
Net Loss Attributable to Common Stockholders.  Net loss attributable to common stockholders for the year ended March 31, 2012 was $5,124,000, compared to $9,247,000 for the year ended March 31, 2011, a decrease of $4,123,000.  This decrease was due to a decrease in net loss of $5,866,000 offset by an increase in dividends to our preferred stockholders of $1,743,000.  Our outstanding shares of preferred stock accrue cumulative dividends that are paid quarterly on the first day of June, September, December and March.  The dividends attributable to these shares for the years ended March 31, 2012 and 2011 were $4,601,000 and $2,858,000, respectively.  The increase in dividends was attributable to the increase in the dividend rates on our existing preferred stock and the issuance of our Series D Preferred Stock on December 16, 2010 in connection with our recapitalization, and the issuance of additional shares of our Series D Preferred Stock on February 23, 2011 and October 14, 2011 in connection with two private placements.  The dividend rate for the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock was 5% per annum through November 30, 2010 and was increased to 7.5% per annum for periods after November 30, 2010 in our recapitalization.  The dividends for the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock were paid in the number of shares of our common stock determined by dividing (i) the aggregate amount of the dividend then payable by (ii) the volume weighted average trading price of the common stock over the 10 trading days ending on the third trading day immediately preceding the dividend payment date, less a discount of 25% of the volume weighted average trading price of the common stock.  The dividend rate for the Series D Preferred Stock is 10% per annum, payable in additional shares of Series D Preferred Stock valued at $1.00 per share.  The values for dividends paid in shares of our common stock and related dividends accrued and unpaid are determined based on the market prices of our common stock as of the dates of share issuances or accrual multiplied by the equivalent common shares.
 
A summary of paid dividends for the years ended March 31, 2012 and 2011 and accrued and unpaid dividends as of March 31, 2012 and 2011 are as follows (in thousands of US dollars):

   
Dividends
 
   
Paid For Years Ended
March 31
   
Accrued and Unpaid as of March 31
 
   
2012
   
2011
   
2012
   
2011
 
Series A Preferred Stock
  $ 1,940     $ 1,330     $ 201     $ 262  
Series B Preferred Stock
    243       176       25       35  
Series C Preferred Stock
    774       531       80       105  
Series D Preferred Stock
    1,732       388       178       170  
 
Liquidity and Capital Resources
 
Until recently, the rate of growth in the market for our tablet 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 may report operating losses through at least the end of our fiscal year ending March 31, 2013.  As of March 31, 2012, our working capital was $6.1 million and our cash and cash equivalents were approximately $200,000.  From inception, we have financed our operations and met our capital expenditure requirements primarily with proceeds from private and public sales of debt and equity securities totaling approximately $108.5 million.  We believe the strength of our iX104C5 product family combined with the growing tablet PC market and acceptance of the tablet form factor accounted for our recent revenue growth and improved profitability.  We ended fiscal 2012 with two consecutive quarters of net income for the first time in our history, due to revenue growth attributable to the fulfillment of a portion of the previously announced purchase orders we received in our third and fourth quarter of fiscal 2012, approximating $20,300,000.
 
 
22

 
 
Sources of capital that are immediately available to us are through a credit facility with a specialty finance company and through Phoenix, our principal stockholder.

On December 10, 2009, our wholly-owned subsidiary entered into an Accounts Receivable Purchasing Agreement, or the ARPA, with DSCH Capital Partners, LLC d/b/a Far West Capital, or FWC.  Pursuant to the ARPA, as amended to date, FWC may purchase, in its sole discretion, eligible accounts receivable of our subsidiary on a revolving basis, up to a maximum of $8,500,000.  Under the terms of the ARPA, FWC purchases eligible receivables from the subsidiary with full recourse for the face amount of such eligible receivables or, less a discount of 0.52%.  In addition, our subsidiary is required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC (i.e., the daily balance of the purchase price of all purchased receivables less the reserve amount, plus any unpaid fees and expenses due from the subsidiary to FWC under the ARPA) multiplied by the annual prime lending rate reported in The Wall Street Journal plus 11.50%, which fees accrue daily.  FWC also retains 15% of the purchase price of the purchased receivables and as a reserve amount.  The ARPA provides that advances of up to $1,200,000 may be based upon eligible accounts receivable resulting from sales outside North America, provided that total funds advanced on such accounts receivable does not exceed 55% of total funds advanced by FWC under the facility and provided further that no single account balance with our subsidiary for an account debtor outside North America may exceed $60,000 unless the subsidiary purchases credit insurance to cover the amount exceeding $60,000 for such account debtor.  On August 26, 2011, our subsidiary and FWC entered into an inventory finance rider to the ARPA to provide for advances up to $700,000 based upon eligible finished goods Tablet PC inventory, provided that total funds advanced on such inventory does not exceed 30% of all eligible inventory and provided further that the advances shall at no time exceed 40% of the sum of (1) total funds advanced by FWC under the ARPA and (2) products scheduled to be shipped in satisfaction of customer purchase orders within 90 days.  Eligible inventory is valued at the lower of cost or market value.  Prior to the execution of the rider, which gave our subsidiary the ability to receive advances on its inventory, FWC had the ability to purchase eligible purchase orders from our subsidiary, less a discount of 1.00%, under the ARPA.  In the December 30, 2011 amendment to the ARPA, the maximum amount of the eligible accounts receivable that FWC may purchase was increased from $4,750,000 to $8,500,000.

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

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

As of June 12, 2012, there were no borrowings outstanding under the ARPA.

On October 14, 2011, we raised net proceeds of $2,182,000 in a private placement through the issuance of 2,320,000 shares of our Series D Preferred Stock.  Philip Sassower, our chairman of the board and chief executive officer, purchased 500,000 shares of our Series D Preferred Stock in the private placement.

We believe that cash flow from operations, together with borrowings under the ARPA will be sufficient to fund our anticipated operations, working capital, capital spending and debt service for fiscal year 2013.  If necessary, we may also seek continued financial support from our significant stockholder, Phoenix Venture Fund LLC and its affiliates (together, “Phoenix”).  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.

 
23

 
 
Cash Flow Results
 
The table set forth below provides a summary statement of cash flows for the periods indicated:
 
   
Year Ended March 31,
 
   
2012
   
2011
 
   
(in thousands
of US dollars)
 
Net cash used in operating activities
  $ (1,079 )   $ (2,108 )
Net cash used in investing activities
    (543 )     (682 )
Net cash provided by financing activities
    1,653       2,569  
Cash and cash equivalents at year end
    199       168  
 
Net cash used in operating activities in fiscal year 2012 was $1,079,000, as compared to $2,108,000 in fiscal year 2011, a favorable decrease of $1,029,000, or approximately 49%.  The decrease was principally due to a favorable decrease in our net loss, net of items not affecting cash, of $3,561,000, a favorable decrease in the use of cash arising from the timing of accounts payable of $3,718,000, a favorable reduction in the use of cash for purchases of inventory of $1,245,000, offset by a reduction in cash resulting from the timing of accounts receivable billings and collections of $7,207,000, primarily due to a significant increase in billings in the last month of fiscal year 2012 and an unfavorable reduction of cash provided by prepaid expenses of $288,000.
 
Net cash used in investment activities consists of additions to fixed assets and demonstration units.  For the year ended March 31, 2012, the cash used in investing activities principally consist of demonstration units of our newly launched C5 tablet PC’s.  For the year ended March 31, 2011, the cash used in investing activities consisted primarily of tooling equipment of $478,000 related to the C5 and demonstration units.

Net cash provided by financing activities for the years ended March 31, 2012 and 2011 was $1,653,000 and $2,569,000, respectively.  Net cash provided by financing activities for the year ended March 31, 2012 consists of net proceeds from the issuance of Series D Preferred Stock of $2,182,000 in a private placement, plus aggregate proceeds from the issuance of common stock through our employee stock purchase plan of $37,000, less net repayments of our working capital credit facility of $566,000.  Net cash provided by financing activities for the year ended March 31, 2011 consisted of net proceeds from the issuance of promissory notes in a private placement of $1,593,000, which notes were subsequently exchanged for Series D Preferred Stock and warrants, net proceeds from issuance of Series D Preferred Stock in a private placement of $937,000, plus aggregate proceeds from the issuance of common stock through our employee stock purchase plan and a private placement of $28,000 plus net borrowings of $11,000 of our working capital credit facility.
 
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-20 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.
 
 
24

 
 
Item 9A.  Controls and Procedures.
 
(a)
Evaluation of disclosure controls and procedures.
 
As of the end of the period covered by this Annual Report on Form 10-K, we conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, an evaluation of the effectiveness of our “disclosure controls and procedures” (as that term is defined under the Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer concluded as of the period covered by this report that our disclosure controls and procedures were effective in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure.
 
(b)
Management’s report on internal control over financial reporting.
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
 
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 assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
 
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2012 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, 2012, our 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 our registered public accounting firm regarding internal control over financial reporting since rules of the SEC permit us to provide only management’s report on this Annual Report on Form 10-K.
 
(c)
Changes in internal control over financial reporting.
 
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, 2012 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
(d)
Limitations on Effectiveness of Controls.
 
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system are met.  Furthermore, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our organization have been detected.

Item 9B.  Other Information.
 
None

 
25

 
 
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, 2012:
 
Name
 
Age
Positions with our Company
Philip S. Sassower
72
Chairman of the Board of Directors and Chief Executive Officer
Mark Holleran
54
President and Chief Operating Officer
Michael J. Rapisand
52
Chief Financial Officer and Corporate Secretary
Bryan J. Bell
51
Vice President of Engineering
Steven C. Linahan
Kent Misemer
59
63
Vice President of Operations
Director
Andrea Goren
44
Director
Ben Irwin
52
Director
Thomas F. Leonardis
67
Director
Brian E. Usher-Jones
66
Director
 
Philip S. Sassower has served as our Chief Executive Officer since February 2006 and has served as a member of our 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.  From January 10, 2008 to January 7, 2010, Mr. Sassower served as a director of The Fairchild Corporation, a motorcycle accessories and aerospace parts and services company, and from May 13, 2008 to January 7, 2010, Mr. Sassower served as Chairman of the Board and Acting Chief Executive Officer of The Fairchild Corporation.  On March 18, 2009, The Fairchild Corporation and 61 subsidiaries filed a petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court, District of Delaware.  On August 5, 2010, Mr. Sassower became Chairman of the Board and Chief Executive Officer of Communication Intelligence Corporation (OTCQB: CICI), an electronic signature solutions and biometric signature verification company.  Mr. Sassower is co-manager of the managing member of Phoenix Venture Fund LLC, our principal stockholder, which we refer to in this proxy statement as Phoenix.  Mr. Sassower’s qualifications to serve on our board of directors include more than 40 years of business and investment experience.  Mr. Sassower has extensive experience working with management teams and boards of directors, and in acquiring, investing in and building companies and implementing new business strategies.

Mark Holleran has served as our President and Chief Operating Officer since February 2006.  Mr. Holleran served as our Vice President of Sales from April 2003 to February 2006.

Michael J. Rapisand has served as our Chief Financial Officer and Corporate Secretary since August 2004.  Prior to joining us, Mr. Rapisand served as Chief Financial Officer of TippingPoint Technologies, Inc., a network-based security hardware manufacturer, from October 2002 to March 2004.

Bryan J. Bell became our Vice President of Engineering in May 2008.  Prior to joining us, Mr. Bell was Vice President of Operations at Sirific Wireless, a developer of solutions for 3.5G multi-mode, multi-band mobile cellular and broadband data for notebook computers, since February 2003.

Steven C. Linahan became our Vice President of Operations in May 2011.  Prior to joining us, Mr. Linahan was a self employed Manufacturing and Supply Chain consultant since January 2009.  Prior to becoming a consultant, Mr. Linahan was Vice President, Operations/Supply Chain at TippingPoint Technologies, Inc., a network-based security hardware manufacturer, from July 2007 to December 2009.  Prior to joining TippingPoint, Mr. Linahan was Director, Supply Chain at ClearCube Technology, Inc., a manufacturer of centralized computing and virtual desktop solutions.
 
 
26

 
 
Andrea Goren has served as a member of our board of directors 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.  On August 11, 2011, Mr. Goren was appointed as Chief Financial Officer of Communication Intelligence Corporation (OTCQB: CICI), for whom he had served as Chief Financial Officer since December 2010.  Mr. Goren has also served as a director of Communication Intelligence Corporation since August 5, 2010.  Prior to joining SG Phoenix LLC, Mr. Goren served as Vice President of Shamrock International, Ltd., a private equity firm, from June 1999 to December 2002.  From January 10, 2008 to January 7, 2010, Mr. Goren served as a director of The Fairchild Corporation.  Mr. Goren is co-manager of the managing member of Phoenix, our principal stockholder.  Mr. Goren’s qualifications to serve on our board of directors include his experience and knowledge acquired in more than 12 years of private equity investing.  Mr. Goren has played a significant role in SG Phoenix LLC’s private equity investments and has developed extensive experience working with management teams and boards of directors, including at numerous public companies in which SG Phoenix LLC has invested.

F. Ben Irwin has served as a member of our board of directors since May 2009.  Mr. Irwin has been President and Owner of Rejen Inc, a re-manufacturer and retailer of inkjet and laser toner cartridges, since September 2005.  Prior to that, Mr. Irwin served as Senior Vice President of Engineering of Itronix Corp., a designer and manufacturer of rugged laptop and handheld computing products, from July 2000 to February 2005.  Mr. Irwin’s qualifications to serve on our board of directors include his industry experience and knowledge acquired while he was with Itronix Corp.

Thomas F. Leonardis has served as a member of our board of directors since June 2005. Mr. Leonardis has been Chief Executive Officer of Ember Industries, Inc., a contract electronics manufacturer, 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.  Mr. Leonardis’ qualifications to serve on our board of directors include his industry experience and knowledge acquired during the nine years he has served at Ember Industries, Inc. and while serving as a director of DataMetrics Corporation.

Kent Misemer has served as a member of our board of directors since November 2011.  From 2003 through 2009, Mr. Misemer was the Chief Executive Officer and President of Liberty Propane, LLC, a portfolio company of Sterling Capital Partners, an independent retail propane company, which was sold in December 2009.  Previously, Mr. Misemer was the President and Chief Executive Officer of Propane Continental.  In addition to being a co-founder of Liberty Propane, Mr. Misemer was also involved in the creation of Propane Continental and Tri-Power Fuels, Inc.  Mr. Misemer serves as a director and member of the audit committee of Cornerstone Records Management, LLC, a private data storage and offsite data management company.  Mr. Misemer formerly served as a director of Pro-Tech Industries, Inc. (OTCQB: PTCK) through January 2012, a regional leader in design/build services for the Fire Life Safety, alarm/detection, electrical and voice/data communications infrastructure segments.  Mr. Misemer’s qualifications to serve on our board of directors include his over 30 years of executive management experience in the propane industry supply chain, as well as other industries.

Brian E. Usher-Jones has served as a member of our board of directors since 1996.  Since 1992, Mr. Usher-Jones has been self-employed as a merchant banker.  Mr. Usher-Jones is currently a director of Newlook Industries Corp. and 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.  Mr. Usher-Jones served as our Treasurer and Interim Chief Financial Officer from August 1996 to November 1997 and again from August 2001 to December 2001.  Mr. Usher-Jones’ qualifications to serve on our board of directors include his service as our Treasurer and Interim Chief Financial Officer and his significant executive-level and financial management experience at private and public companies.

There are no family relationships between any of our directors or executive officers.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than ten percent (10%) of a registered class of our equity securities to file reports of ownership and changes in ownership of our common stock and other equity securities with the SEC on a timely basis.  Based solely upon a review of Forms 3, 4 and 5 and amendments to these forms furnished to us, we believe all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed on a timely basis all such required reports during and with respect to our 2012 fiscal year except for one late Form 4 filing for Phoenix Venture Fund LLC.
 
Code of Ethics
 
We have adopted a code of ethics that applies to the members of our board of directors, our officers, including our principal executive officer and principal financial officer, and all of our other employees.  A copy of our code of ethics is available, without charge, upon written request directed to our Chief Financial Officer, Xplore Technologies Corp., 14000 Summit Drive, Suite 900, Austin, Texas 78728.
 
 
27

 
 
Audit Committee
 
The members of our Audit Committee are Brian E. Usher-Jones, Kent Misemer 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 for our fiscal years ended March 31, 2012 and 2011 earned by or awarded to, as applicable, our principal executive officer, principal financial officer and our other most highly compensated executive officers as of March 31, 2012.  In this Annual Report on Form 10-K we refer to such officers as our “named executive officers.”
 
Name and Principal Position
 
Year
 
Salary
US($)
 
Bonus
US($)
 
Stock
Awards
US($)(1)
 
Option
Awards
US($)(1)
 
Total
US($)
Philip S. Sassower—
Chief Executive Officer(2)
2012
2011
 
 
 
10,000(3)
 
20,281(3)
29,881(3)
 
30,281
29,881
Mark Holleran—
President and Chief Operating Officer
2012
2011
 
250,000
200,000(4)
 
204,283(6)
84,683(6)
 
50,000(4)
 
173,759
259,587
 
628,042
594,270
Michael J. Rapisand—
Chief Financial Officer and Corporate Secretary
2012
2011
 
180,000
150,000(7)
 
54,000(8)
—(8)
 
30,000(7)
 
66,830
68,471
 
300,830
248,471

(1)
Option award amounts included in this table reflect the compensation cost for the fiscal year ended, related to all options granted to the named executive officer, calculated in accordance with FASB ASC Topic 718 and using a Black-Scholes valuation model.
 
(2)
Mr. Sassower does not receive a salary in connection with his services as our Chief Executive Officer. Mr. Sassower is also the Chairman of our Board of Directors.
 
(3)
Mr. Sassower was entitled to receive fees for fiscal years 2012 and 2011 in connection with being a member of our Board of Directors.  For fiscal year 2012, Mr. Sassower accepted Series D Preferred Stock of 10,000 shares.  For fiscal year 2011, Mr. Sassower accepted options to purchase 150,000 shares of our common stock in lieu of such fees.  Such amount includes those options.
 
(4)
Mr. Holleran accepted 50,000 shares of our Series D Preferred Stock in April 2011 in lieu of $50,000 of cash compensation for fiscal 2011.
 
(6)
Under the terms of Mr. Holleran’s employment agreement, in fiscal years 2012 and 2011 he had the opportunity to earn a cash performance bonus of up to 100% of his base salary ($250,000) based on the achievement of various objectives, including revenue, cash flow and profitability objectives.  Mr. Holleran’s bonuses of $92,283 and $84,683 paid in fiscal years 2012 and 2011, respectively, were based on his efforts in managing our sales team.  Further, in fiscal 2012, Mr. Holleran earned $112,000 of the performance bonus under his employment agreement as certain revenue, cash flow and profitability objectives were achieved.  In fiscal 2011, Mr. Holleran did not receive any performance bonus under his employment agreement as the objectives were not achieved.
 
(7)
Mr. Rapisand accepted 30,000 shares of our Series D Preferred Stock in April 2011 in lieu of $30,000 of cash compensation for fiscal 2011.
 
 
28

 
 
(8)
Under the terms of Mr. Rapisand’s Management by Objective (MBO) bonus plan, in fiscal years 2012 and 2011, he had the opportunity to earn a cash bonus of up to 40% of his base salary ($72,000) based on his achievement of revenue, cash flow and profitability objectives.  In fiscal 2012, Mr. Rapisand earned $54,000 of the performance bonus as certain revenue, cash flow and profitability objectives were achieved.  The objectives under Mr. Rapisand’s MBO plan were not achieved in fiscal year 2011 and no bonus was earned or paid.
 
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 other 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 us 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 us over the long-term and aligns the interests of our executive officers and stockholders.  Generally, we use stock options as our equity-based compensation because we believe that options generate value to the recipient only if the price of our common stock increases during the term of the option.  Other than in the event of a change of control, the stock options granted to our executives generally vest solely based on the passage of time.  We believe these elements support our underlying philosophy of attracting and retaining talented executives while remaining within our budgetary constraints and also creating cash incentives which reward company-wide and individual performance and aligning the interests of our executive officers with those of our stockholders by providing our executive officers equity-based incentives to ensure motivation over the long-term.
 
The individual elements of our compensation program are as follows:
 
Base Compensation.  It is our policy that the base salaries paid to our executive officers should reflect the individual responsibility and experience of the executive officer and the contribution that is expected from the executive officer.  Base salaries are reviewed by the compensation committee on an annual basis to satisfy these criteria.
 
Our Chief Executive Officer does not receive a salary in connection with his services.  Our President and Chief Operating Officer and our Chief Financial Officer received an aggregate of 80,000 shares of our Series D Preferred Stock in lieu of a total of $80,000 in cash salaries in fiscal 2011.
 
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 our performance and the performance of 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 6 and 8 in the summary compensation table for fiscal years 2012 and 2011.  The MBO plan of our President and Chief Operating Officer is set forth in his employment agreement discussed below.
 
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.
 
 
29

 
 
We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates.  We grant stock options at regularly scheduled meetings of our board of directors or at special meetings.  The authority to make equity grants to our executive officers rests with our board of directors, although, as noted above, our board of directors does, in determining the grants of equity awards, consider the recommendations of our Chief Executive Officer and other members of senior management and our compensation committee.  All stock options granted have an exercise price equal to or greater than the closing price of our common stock on the date that the grant action occurs.
 
With respect to establishing compensation for our executive officers, we do not have any formal policies in determining how specific forms of compensation are structured or implemented to reflect the individual performances and/or individual contributions to the specific items of our 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 May 14, 2010, our board of directors granted an aggregate of 1,835,000 restricted share awards, which vested on March 31, 2011, to certain employees, including an aggregate of 1,100,000 share awards granted to our executive officers other than our Chief Executive Officer, in lieu of cash compensation for fiscal year 2011.  On February 23, 2011, our board of directors modified awards to the executive officers and replaced the 1,100,000 shares of common stock with 110,000 shares of our Series D Preferred Stock.  On March 31, 2011, 525,625 shares of our common stock and 110,000 shares of our Series D Preferred Stock that were granted became fully vested.  The market value of the common stock was $0.11 on the date of grant, and the intrinsic value of the restricted shares of approximately $149,000 was recognized as compensation expense in fiscal 2011.
 
On March 29, 2011, our board of directors granted options to purchase an aggregate of 47,685,000 shares of common stock to all employees, directors and certain consultants at an exercise price of $0.06 per share.  One-fourth of each grant vested immediately with the remainder vesting annually over the following three years.  In connection with the grant, all of our executive officers other than our Chief Executive Officer voluntarily terminated all rights to outstanding option grants aggregating 6,201,395 shares of common stock.  The fair value of the grants with immediate vesting reduced by the voluntarily terminated shares that were not vested resulted in the recognition of approximately $466,000 of stock compensation expense in the fourth quarter of the year ended March 31, 2011.
 
On August 4, 2011, our board of directors granted preferred stock to each director, in lieu of cash compensation otherwise payable to them in connection with their service as board members.  Our board of directors granted to each director 10,000 shares of our Series D Preferred stock, which fully vested on March 31, 2012, for services provided during the fiscal year ended March 31, 2012.
 
On August 4, 2011, our board of directors approved the issuance to SG Phoenix LLC, an entity controlled by Philip Sassower (our Chief Executive Officer) and Andrea Goren (a director), of 150,000 shares of our Series D Preferred stock, which award fully vested on March 31, 2012, for services rendered for the year ended March 31, 2012.
 
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 was for a period of two years, and is automatically renewable for additional one year periods unless either party gives written notice that it or he does not wish to extend the term, in which case the agreement terminates on June 30 of the next year.  The agreement was renewed in June 2012 for an additional year.  In consideration for his services, during the term Mr. Holleran is entitled to receive a base salary of $250,000 per year, subject to any increase as may be approved by our board of directors.  In fiscal 2011, Mr. Holleran agreed to take $50,000 of his salary through a stock award.  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.
 
 
30

 
 
Mr. Holleran is also eligible to participate in a transaction bonus pool in the event of the sale of our company during the term of Mr. Holleran’s employment agreement.  The amount of the transaction bonus pool will be based upon the total consideration received by our stockholders from the sale of our company, less our transaction expenses.  Mr. Holleran will be entitled to receive 50% of the total amount of the transaction bonus pool.
 
As part of the employment agreement, we agreed that if we terminate Mr. Holleran’s employment without cause during the term of his employment agreement, Mr. Holleran would receive his base salary for one year, commencing on the termination date, reduced by the amount earned by Mr. Holleran from other employment during that period, plus an additional amount equal to the average of the performances bonuses paid to Mr. Holleran during the prior two calendar years.  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 described above if his employment is terminated without cause.
 
We have established a transaction bonus pool for our executive officers and senior management team upon the sale of our company.  The amount of the transaction bonus pool is based upon the total consideration received by our stockholders from the sale of our business, less our transaction expenses. Under the terms of his employment agreement, Mr. Holleran is entitled to receive 50% of the total amount of the transaction bonus pool if our company is sold during the term of his employment.  In addition, under the terms of our transaction bonus pool, if our company is sold during the term of their employment, our Chief Financial Officer, Michael J. Rapisand, will receive 30% of the pool, our Vice President of Engineering, Bryan J. Bell, will receive 5% of the pool and the remaining 15% of the pool will be distributed among our senior management team as determined by our board of directors.
 
We have chosen to provide these benefits to our executives because we believe we must remain competitive in the marketplace.  These severance and acceleration provisions and estimates of these change of control and severance benefits are described in the section entitled “Estimated Payments and Benefits Upon Termination or Change in Control” below.
 
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 amended and restated share 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.  Our 2009 Stock Incentive Plan provides for compensation that does qualify as “performance-based compensation.”
 
 
31

 
 
Accounting for Stock-Based Compensation.  We account for stock-based payments in accordance with the requirements of Accounting Standards Codification (“ASC”) 718.
 
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.
 
Outstanding Equity Awards at 2012 Fiscal Year-End
 
The following table sets forth the equity awards outstanding at March 31, 2012 for each of the named executive officers.
 
Name
 
Number of
Securities
Underlying
Unexercised
Options (#)
 
Equity Incentive
Plan Awards
Number of
Securities
Underlying
Unearned
Options (#)
 
Option
Exercise
Price ($)
 
Option
Expiration
Date
Philip S. Sassower—
79,893
 
39,946(1)
 
$0.10
 
04/30/2014
Chief Executive Officer
150,000
 
 
$0.15
 
06/10/2014
 
150,000
 
 
$0.15
 
06/10/2014
 
150,000
 
 
$0.11
 
05/14/2015
 
650,000
 
650,000(2)
 
$0.06
 
03/29/2016
               
Mark Holleran—                                                                            
6,500,000
 
6,500,000(3)
 
$0.06
 
03/29/2016
President and Chief Operating Officer
             
               
Michael J. Rapisand—                                                                            
2,500,000
 
2,500,000(4)
 
$0.06
 
03/29/2016
Chief Financial Officer and Corporate Secretary
             
 
 

(1)
39,946 options vest on April 20, 2012.
 
(2)
325,000 options vest on March 31, 2013 and 325,000 options vest on March 31, 2014.
 
(3)
3,250,000 options vest on March 31, 2013 and 3,250,000 options vest on March 31, 2014.
 
(4)
1,250,000 options vest on March 31, 2013 and 1,250,000 options vest on March 31, 2014.
 
   
STOCK VESTED
 
   
Stock Awards
 
Name
 
Number of Shares Acquired on Vesting (#)
   
Value Realized on Vesting ($)
 
Philip S. Sassower
  10,000       10,000  
Mark Holleran
         
Michael J. Rapisand
         
 
 
32

 
 
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 had terminated as of the March 31, 2012, the last business day of our last fiscal year.  If Mr. Holleran’s employment is terminated by us as a result of his death or disability or 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)
$ 56,250 (5)
Benefits and Perquisites:
$ 15,936 (6)

 
(1)
For purposes of Mr. Holleran’s employment agreement, “cause” includes, among other things, (i) his willful failure to perform his duties under his employment agreement, (ii) any intentional act of fraud, embezzlement or theft involving more than a nominal amount of our assets or property, (iii) any material damage to our assets, business or reputation resulting from his intentional or grossly negligent conduct, (iv) his intentional wrongful disclosure of material confidential information, (v) his intentional engagement in competitive activity which would constitute a breach of his employment agreement and/or his duty of loyalty, (vi) his intentional breach of any material employment policy, or (vii) his ineligibility for any reason to work lawfully in the United States for a period of four consecutive months.
 
 
(2)
Assumes that there is no earned but unpaid base salary at the time of termination.
 
 
(3)
Assumes that there is no earned but unpaid bonus at the time of termination.
 
 
(4)
If Mr. Holleran is terminated without cause, 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, if Mr. Holleran is terminated without cause, 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.  Mr. Holleran did not receive a performance bonus in fiscal 2011 and received a performance bonus of $112,500 in fiscal 2012.
 
 
(6)
Represents payments of $1,328 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.
 
Change in Control Benefits
 
Under the terms of our Amended and Restated Share Option Plan, which we also refer to as our Amended Plan, upon a change in control of our company all outstanding options will immediately vest and become exercisable.  A “change of control” means the occurrence of (i) a person, including the person’s affiliates and any other person acting jointly or in concert with that person, becoming the beneficial owner of, or exercising control over, more than 50.1% of the total voting power of our common stock; or (ii) our company consolidating with, or merging with or into, another person or selling, transferring, leasing or otherwise disposing of all or substantially all of our assets to any person, or any person consolidating with, or merging with or into, our company, in any such event pursuant to a transaction in which our outstanding shares of common stock are converted into or exchanged for cash, securities or other property, except for any such transaction in which the holders of our then outstanding common stock receive voting securities, or securities exchangeable at the option of the holder into voting securities, of the surviving person which constitute a majority of the voting securities.
 
 
33

 
 
Under our 2009 Stock Incentive Plan, in the event of certain business combinations, including the sale or lease of all or substantially all of our assets, or a merger or consolidation involving us in which all or substantially all of the beneficial owners of our capital stock prior to such business combination own 50% or less of the outstanding shares of common stock after the business combination or a similar transaction, each of which we refer to as a “corporate transaction”, and subject to any vesting acceleration provisions in an award agreement, outstanding awards will be treated in the manner provided in the agreement relating to the corporate transaction (including as the same may be amended).  The corporate transaction agreement will not be required to treat all awards or individual types of awards similarly in the corporate transaction; provided, however, that the corporate transaction agreement will provide for one of the following with respect to all outstanding awards (as applicable):
 
 
the continuation of the outstanding award by us, if we are a surviving company;
 
 
the assumption of the outstanding award by the surviving company or its parent or subsidiary;
 
 
the substitution by the surviving company or its parent or subsidiary of its own award for the outstanding award;
 
 
full exercisability or vesting and accelerated expiration of the outstanding award, followed by the cancellation of such award;
 
 
the cancellation of an outstanding option or stock appreciation right and a payment to the optionee equal to the excess of (x) the fair market value of the shares subject to such option or stock appreciation right (whether or not such option or stock appreciation right is then exercisable or such shares are then vested) as of the closing date of such corporate transaction over (y) its aggregate exercise price; or
 
 
the cancellation of an outstanding restricted stock unit and a payment to the participant equal to the fair market value of the shares subject to such restricted stock unit (whether or not such restricted stock unit is then vested) as of the closing date of such corporate transaction.
 
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, 2012, the last business day of our 2012 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
$ 1,050,904 (4)     (3)
Michael J. Rapisand—Chief Financial Officer
$ 630,542 (5)     (3)

 
(1)
Our named executive officers (except for Philip S. Sassower) are eligible to participate in a transaction bonus pool designed to incent and reward our executives who are employed by us upon the sale of our Company.  Under the transaction bonus pool, an amount equal to 5% of the per share sales consideration up to $0.34 and 10% of the remaining per share consideration received through such sale, in each case after deducting the transaction expenses, will be allocated to the transaction bonus pool.  For example, if a sale of our company is completed and the holders 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 ($0.66 per share).  The participation in the transaction bonus pool will be allocated as follows: 50% of the pool to Mark Holleran, our President and Chief Operating Officer, 30% of the pool to Michael J. Rapisand, our Chief Financial Officer, 5% of the pool to Bryan J. Bell, our Vice President of Engineering and the balance to our then current senior management team, as determined by our board of directors, in consultation with Mr. Holleran.
 
 
(2)
Mr. Sassower is not eligible to participate in the transaction bonus pool.
 
 
(3)
Pursuant to the terms of our Amended Plan, certain outstanding options shall immediately vest upon the occurrence of a change of control of our company.  Assuming a market price of $0.0585 per share, which represents the closing price of our common stock on March 31, 2012 as reported by the OTCQB Link, the exercise price of all of these options held by such executive officer would be above the market price and thus the accelerated options would have a value of nil.  Pursuant to our 2009 Plan, our board of directors may determine, at the time of grant or thereafter, that the vesting of options granted under that plan may accelerate upon a change in control of our company.  Currently, no such options have such acceleration provisions, and we assume that our board of directors will not determine to accelerate the vesting of the options with exercise prices below $0.0585 per share in the future.
 
 
34

 
 
 
(4)
Assuming (i) a sale in which the holders of our common stock receive per share sales consideration of $0.0585, which represents the closing price of our common stock on March 31, 2012 as reported by the OTCQB Link and (ii) transaction costs of 10% of the total proceeds, the aggregate transaction bonus pool would be $2,101,807. Mr. Holleran would be entitled to receive 50% of the transaction bonus pool.
 
 
(5)
Assuming (i) a sale in which the holders of our common stock receive per share sales consideration of $0.0585, which represents the closing price of our common stock on March 31, 2012 as reported by the OTCQB Link, and (ii) transaction costs of 10% of the total proceeds, the aggregate transaction bonus pool would be $2,101,807.  Mr. Rapisand would be entitled to receive 30% of the transaction bonus pool.
 
Director Compensation
 
In June 2006, our board of directors approved a director compensation plan pursuant to which we will pay each of our directors a fee to attend board meetings.  Under the plan, each director receives $1,500 for each board meeting he attends in person and $750 for each board meeting he attends by teleconference.  In addition, from time to time, we grant options to our directors to purchase shares of our common stock.  We also reimburse our directors for out-of-pocket expenses incurred in connection with attending our board and board committee meetings.  Compensation for our directors, including cash and equity compensation, is determined, and remains subject to adjustment, by our board of directors.  For the fiscal years ended March 31, 2012 and 2011, we did not pay our directors their cash fees to attend meetings and our directors elected to accept Series D Preferred Stock and common stock options, respectively, in lieu of cash payments.  On August 4, 2011, our board of directors approved an award of 10,000 shares of our Series D Preferred Stock, which fully vested on March 31, 2012, to each director for services to be rendered during the year ended March 31, 2012.  On March 29, 2011, each director was granted options to purchase 1,300,000 shares of common stock at exercise prices of $0.06 per share, exercisable for five years.  One-fourth of each option vested immediately, with the remainder vesting annually over three years.  On May 14, 2010, each director was granted options to purchase 150,000 shares of common stock at exercise prices of $0.11 per share for service for fiscal year 2011, which options were fully vested on March 31, 2011 and are exercisable for five years. On June 12, 2012, our board of directors approved $10,000 of fees, to be paid quarterly in the amount of $2,500, to each director for services to be rendered during the year ending March 31, 2013. 

 
Fiscal Year 2012 Director Compensation
 
The following table sets forth compensation information for our directors who are not named executive officers for our fiscal year ended March 31, 2012.
 
Name
 
Fees Earned
or Paid
in Cash ($)
   
Stock
Awards ($)
   
Option
Awards ($)
   
Total ($)
   
Aggregate Option Share Awards
 
Brian E. Usher-Jones
        10,000       29,036       29,036       1,818,480  
Andrea Goren
        10,000       30,281       30,281       1,869,839  
Thomas F. Leonardis
        10,000       30,281       30,281       1,869,839  
Kent Misemer
        4,000       2,937       6,937       500,000  
F. Ben Irwin
        10,000       27,376       27,376       1,600,000  
 
 
35

 
 
2009 Stock Incentive Plan
 
On July 28, 2009, we adopted the 2009 Stock Incentive Plan, which we refer to as the 2009 Stock Plan.  The 2009 Stock Plan provides for equity-based awards in the form of incentive stock options and non-statutory options, restricted shares, stock appreciation rights and restricted stock units.  Awards are made to selected employees, directors and consultants to promote stock ownership among award recipients, to encourage their focus on strategic long-range corporate objectives, and to attract and retain exceptionally qualified personnel.  Upon the original approval and adoption of the 2009 Stock Plan by our stockholders, up to 25,100,000 shares of our common stock were issuable under the 2009 Stock Plan.  On December 16, 2010, our stockholders approved an increase in the number of shares of our common stock available for issuance under the 2009 Stock Plan from 25,100,000 to 75,000,000.  At March 31, 2012, the maximum aggregate number of shares of common stock reserved for issuance upon the exercise of all options granted under the Amended Share Option Plan and 2009 Stock Plan may not exceed an aggregate of 76,739,301 shares.  This amount consists of 75,000,000 shares under the 2009 Stock Plan and 1,739,301 under the Amended Share Option Plan.  The options under the plans generally vest over a 3-year period in equal annual amounts and expire five years after the issuance date.
 
Generally, the vesting of options and the retention of restricted shares granted under the 2009 Stock Plan are conditioned on a period or successive periods of continuous service of the award recipient.  Expired options that remain unexercised and shares forfeited to or repurchased by us will become available for future grant under the 2009 Stock Plan.  As of March 31, 2012, options to purchase 56,324,937 shares of our common stock were outstanding and 525,625 shares of our common stock had been awarded pursuant to restricted stock grants under the 2009 Stock Plan.
 
Employee Stock Purchase Plan
 
On November 5, 2008, we adopted the 2009 Employee Stock Purchase Plan, which we refer to as the ESPP.  The ESPP establishes a series of offering periods during which most of our employees have an opportunity to purchase our common stock through payroll deductions.  To be eligible, an employee must have completed one year of employment and regularly work over 20 hours per week and over 5 months per year.  Prior to each offering period, a participant elects to have between 1% and 20% of his or her base compensation set aside for the purchase of the shares upon purchase dates, which occur at the end of each calendar quarter.  The purchase price is 95% of the fair market value per share of our common stock on the start date of the offering period.
 
The offering period for the fiscal year 2012 began on April 1, 2011 and terminated on March 31, 2012, and had a purchase price of $0.07125 per share.
 
Up to 5,000,000 shares are reserved for purchase under the ESPP.  As of March 31, 2012, 1,906,740 shares of our common stock had been purchased under the ESPP.  The ESPP may have additional offering periods until the shares reserved for the ESPP have been exhausted or the ESPP is terminated.  It is intended that shares purchased under the ESPP qualify for special tax treatment under Section 423 of the Internal Revenue Code.
 
Amended Share Option Plan
 
We also maintain an amended and restated stock option plan (which we refer to as the Amended Share Option Plan), the purpose of which was to attract, retain and motivate eligible persons whose contributions are important to our success and to advance our interests by providing such persons with the opportunity, through stock options, to acquire a proprietary interest in our company.  The Amended Share Option Plan was superseded by the 2009 Stock Plan and will continue until the expiration of current outstanding options issued under the Amended Share Option Plan.
 
Pursuant to the Amended Share Option Plan, our board of directors was authorized, from time to time in its discretion, to issue to our directors, officers, employees and consultants options to acquire our common stock at such prices as might be fixed by our board of directors at that time; provided, however, that the option exercise price was in no circumstances be lower than the market price of our common stock at the date the option was granted.  Options granted under the Amended Share Option Plan are generally non-assignable, are exercisable for a term not exceeding ten years and generally vest over a three year period in three annual installments, as determined by our board of directors.
 
Subject to certain specific listed exceptions and to any express resolution passed by our board of directors with respect to an option granted under the Amended Share Option Plan, an option and all rights to purchase common stock shall expire and terminate immediately upon the person who holds such option ceasing to serve as our director, officer, employee or consultant.
 
In July 2009, our board of directors adopted the 2009 Stock Plan.  Accordingly, no additional options will be issued under the Amended Share Option Plan.  The number of shares issuable under the Amended Share Option Plan is limited to 16,301,615 shares, which represents the total number of shares covered by options outstanding on the date the 2009 Stock Plan was adopted.  As of the March 31, 2012, 1,739,301 shares were covered by options outstanding under the Amended Share Option Plan.
 
 
36

 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
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, 2012.
 
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
  56,324,937     $ 0.10       19,888,739  
Equity compensation plans not approved by security holders
  N/A       N/A        
Total
  56,324,937     $ 0.10       19,888,739  
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth certain information regarding the beneficial ownership of our capital stock as of May 31, 2012 by (i) each person known by us to be the beneficial owner of more than 5% of any class of our voting securities, (ii) each of our directors, (iii) each of our “named executive officers” and (iv) our directors and executive officers as a group.
 
         
Series A
Preferred Stock
Beneficially Owned
   
Series B
Preferred Stock
Beneficially Owned
   
Series C
Preferred Stock
Beneficially Owned
   
Series D
Preferred Stock
Beneficially Owned
 
   
Common Stock
Beneficially Owned
   
Number
of
Shares of
         
Number
Of
Shares of
         
Number
of
Shares of
         
Number
of
Shares of
       
Name of Beneficial Owner(1)
 
Number
of
Shares(2)
   
Percentage
of
Class(3)
   
Series A
Preferred
Stock
   
Percentage
of
Class(4)
   
Series B
Preferred
Stock
   
Percentage
of
Class(5)
   
Series C
Preferred
Stock
   
Percentage
of
Class(6)
   
Series D
Preferred
Stock
   
Percentage
of
Class(7)
 
Philip S. Sassower
    369,218,845 (8)     44.0 %     44,708,384 (22)     71.1 %                 4,320,000 (25)     25.3 %     4,973,078 (29)     34.2 %
Mark Holleran
    9,893,824 (9)     1.2 %                                         54,746       *  
Michael J. Rapisand
    5,034,334 (10)     *       147,059       *                               32,848       *  
Bryan J. Bell
    3,788,499 (11)     *                                           25,670       *  
Brian E. Usher-Jones
    6,682,505 (12)     *                                           120,561       *  
Andrea Goren
    246,208,088 (13)     29.4 %     31,032,014 (23)     49.4 %                 3,520,000 (26)     20.6 %     2,442,643 (30)     16.8 %
Thomas F. Leonardis
    1,469,839 (14)     *                                           10,000       *  
Kent Misemer
    4,643,025 (15)     *                                           185,721       1.2 %
F. Ben Irwin
    1,200,000 (16)                                               10,000       *  
Phoenix Venture Fund LLC
    227,855,778 (17)     27.2 %     31,032,014 (23)     49.4 %                 3,320,000 (27)     19.4 %     2,227,929 (31)     15.3 %
110 East 59th Street
                                                                               
New York, NY 10022
                                                                               
Alex and James Goren
    71,421,023 (18)     8.7 %     4,357,708 (24)     6.9 %                 800,000 (28)     4.7 %     1,364,60 (32)     9.4 %
150 East 52nd Street
                                                                               
New York, NY 10022
                                                                               
Leonard Pearlman, JAM Capital Assoc. LLC and New Giles LLC
    20,331,634 (19)     2.5 %     1,130,137       1.8 %                 1,000,000       5.9 %     310,563       2.1 %
112 W 56th
                                                                               
New York, NY 10019
                                                                               
William Freas
    10,219,211       1.3 %                 2,941,177       38.0 %                        
c/o Joseph Gunnar & Co.
                                                                               
30 Broad Street
                                                                               
New York, NY 10004
                                                                               
James J. O’Donnell
    32,980,686 (20)     4.1 %     780,655       1.2 %                 900,000       5.3 %     674,207       4.6 %
845 UN Plaza
                                                                               
New York, NY 10017
                                                                               
Hamir Realty Co.
    4,593,735       *                               1,070,000       6.3 %            
12 E 49th
                                                                               
New York, NY 10017
                                                                               
Fifty-Ninth Street Investors LLC
    4,080,807       *                               1,000,000       5.9 %            
110 E 59th Street
                                                                               
New York, NY 10022
                                                                               
Ross Irvine
    4,345,179       *                   1,000,000       12.9 %     200,000       1.2 %            
c/o Sky Capital LLC
                                                                               
110 Wall Street
                                                                               
New York, NY 10005
                                                                               
All directors and executive officers as a group (9 persons)(21)
    405,783,181       47.9 %     44,855,443       71.3 %                 4,520,000       26.5 %     5,477,338       37.7 %

 
 
37

 
 
*
Represents less than 1% of class or combined classes.
 
(1)
Except as otherwise indicated above, the address of each stockholder 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)
Shares issuable pursuant to options and warrants that are exercisable, or convertible securities that are convertible, within 60 days of May 31, 2012 are deemed outstanding for the purposes of computing the percentage of shares owned by the beneficial owner, but are not deemed outstanding for purposes of computing the percentage of shares owned by any other person.

(3)
Based upon 803,664,522 shares of our common stock, including 235,475,389 shares outstanding as of the May 31, 2012 and assuming the conversion of 62,873,781 shares of our Series A Preferred Stock that are convertible into common stock at a conversion ratio of approximately 2.4347 as of the May 31, 2012, 7,732,040 shares of our Series B Preferred Stock that is convertible into common stock at a conversion ratio of approximately 2.1419 as of the May 31, 2012, 17,074,000 shares of  our Series C Preferred Stock that is convertible into common stock at a conversion ratio of 2.0560 as of the May 31, 2012 and 14,537,798 shares of our Series D Preferred Stock that is convertible into common stock at a conversion ratio of 25 as of the May 31, 2012, each issued and outstanding as of the May 31, 2012. The shares of our preferred stock vote with our common stock on an as converted basis.

(4)
Based on 62,873,781 shares of Series A Preferred Stock issued and outstanding as of the May 31, 2012.

(5)
Based on 7,732,040 shares of Series B Preferred Stock issued and outstanding as of the May 31, 2012.

(6)
Based on 17,074,000 shares of Series C Preferred Stock issued and outstanding as of the May 31, 2012.

(7)
Based on 14,537,798 shares of Series D Preferred Stock issued and outstanding as of the May 31, 2012.

(8)
Includes 20,705,928 shares of common stock issuable upon conversion of shares of Series A Preferred Stock, 2,055,999 shares of common stock issuable upon conversion of shares of Series C Preferred Stock and 41,986,475 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Mr. Sassower, 11,450,000 shares of common stock that Mr. Sassower has the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012, 854,893 shares of common stock that Mr. Sassower has the right to acquire upon exercise of outstanding options within 60 days after the May 31, 2012, 1,374,127 shares of common stock owned of record, 12,591,875 shares of common stock issuable upon conversion of shares of Series A Preferred Stock and 22,892,250 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Phoenix Enterprises Family Fund, LLC, an entity controlled by Mr. Sassower, 9,936,250 shares of common stock that Phoenix Enterprises Family Fund LLC has the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012, 3,750,000 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by SG Phoenix LLC, an entity in which Mr. Sassower and Mr. Goren share voting and dispositive power,  and 10,750,000 shares of common stock that SG Phoenix LLC has the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012. Also includes 227,855,778 shares of common stock beneficially owned by Phoenix, for 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, except to the extent of his pecuniary interest, if any, in such shares.

(9)
Includes 6,500,000 shares of common stock that Mr. Holleran has the right to acquire upon exercise of outstanding options within 60 days after the May 31, 2012, 1,250,000 shares of common stock that Mr. Holleran has the right to acquire upon exercise of an outstanding warrant within 60 days after the May 31, 2012 and 1,368,650 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Mr. Holleran.

(10)
Includes 2,500,000 shares of common stock that Mr. Rapisand has the right to acquire upon exercise of outstanding options within 60 days after the May 31, 2012, 750,000 shares of common stock that Mr. Rapisand has the right to acquire upon exercise of an outstanding warrant within 60 days after the May 31, 2012, 358,044 shares of common stock issuable upon conversion of shares of Series A Preferred Stock owned of record by Mr. Rapisand and 821,200 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Mr. Rapisand.
 
 
38

 
 
(11)
Includes 2,000,000 shares of common stock that Mr. Bell has the right to acquire upon exercise of outstanding options within 60 days after the May 31, 2012, 750,000 shares of common stock that Mr. Bell has the right to acquire upon exercise of an outstanding warrant within 60 days after the May 31, 2012 and 641,750 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Mr. Bell.

(12)
Includes 1,168,480 shares of common stock that Mr. Usher-Jones has the right to acquire upon exercise of outstanding options within 60 days after the May 31, 2012, 2,500,000 shares of common stock that Mr. Usher-Jones has the right to acquire upon exercise of an outstanding warrant within 60 days after the May 31, 2012 and 2,764,025 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Mr. Usher-Jones.

(13)
Includes 343,421 shares of common stock owned of record, 411,200 shares of common stock issuable upon conversion of shares of Series C Preferred Stock and 1,367,850 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Andax, LLC, for which Mr. Goren is the manager, 250,000 shares of common stock that Andax LLC has the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012, 1,219,839 shares of common stock that Mr. Goren has the right to acquire upon exercise of outstanding options within 60 days after the May 31, 2012, 3,750,000 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by SG Phoenix LLC, an entity in which Mr. Sassower and Mr. Goren share voting and dispositive power,  and 10,750,000 shares of common stock that SG Phoenix LLC has the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012. Also includes 227,855,778 shares of common stock beneficially owned by Phoenix, for 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, except to the extent of his pecuniary interest, if any, in such shares.

(14)
Includes 1,219,839 shares of common stock that Mr. Leonardis has the right to acquire upon exercise of outstanding options within 60 days after the May 31, 2012.

(15)
Includes 4,543,025 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by The Kent A. Misemer Revocable Trust (12/24/92), for which Mr. Misemer is a trustee.

(16)
Includes 950,000 shares of common stock that Mr. Irwin has the right to acquire upon exercise of outstanding options within 60 days after the May 31, 2012.

(17)
Includes 35,340,000 shares of common stock that Phoenix has the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012, 75,553,520 shares of common stock issuable upon conversion of shares of Series A Preferred Stock, 6,825,915 shares of common stock issuable upon conversion of shares of Series C Preferred Stock and 55,698,225 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Phoenix. Voting and dispositive 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, except to the extent of their respective pecuniary interest, if any, in such shares.

(18)
Consists of 9,379,819 shares of common stock owned of record, 7,936,435 shares of common stock issuable upon conversion of shares of Series A Preferred Stock owned of record, 1,644,799 shares of common stock issuable upon conversion of shares of Series C Preferred Stock and 34,115,100 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by JAG Multi Investment LLC, 13,086,250 shares of common stock that JAG Multi Investment LLC has the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012 and 2,585,361 shares of common stock owned of record and 2,673,260 shares of common stock issuable upon conversion of shares of Series A Preferred Stock owned of record by Goren Brothers LP. Voting and dispositive power over these shares is held equally by Alex Goren and James Goren.

(19)
Includes 2,795,000 shares of common stock that Mr. Pearlman and JAM Capital Associates LLC, an entity controlled by Mr. Pearlman, have the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012, 2,751,540 shares of common stock issuable upon conversion of shares of Series A Preferred Stock owned of record by Mr. Pearlman 2,055,999 shares of common stock issuable upon conversion of shares of Series C Preferred Stock owned of record by Mr. Pearlman and 7,764,075 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Mr. Pearlman and JAM Capital Associates LLC.

(20)
Includes 8,200,000 shares of common stock that Mr. O’Donnell has the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012, 1,900,658 shares of common stock issuable upon conversion of shares of Series A Preferred Stock, 1,850,399 shares of common stock issuable upon conversion of shares of Series C Preferred Stock and 16,855,175 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by Mr. O’Donnell.
 
 
39

 
 
(21)
Includes 16,777,997 shares of common stock our directors and executive officers have the right to acquire upon exercise of outstanding options within 60 days after the May 31, 2012, 35,136,250 shares of common stock our directors and executive officers have the right to acquire upon exercise of outstanding warrants within 60 days after the May 31, 2012, 33,655,847 shares of common stock issuable upon conversion of shares of Series A Preferred Stock owned of record by our directors and executive officers, or entities controlled by them, 2,467,198 shares of common stock issuable upon conversion of shares of Series C Preferred Stock owned of record by our directors and executive officers, or entities controlled by them and 80,135,225 shares of common stock issuable upon conversion of shares of Series D Preferred Stock owned of record by our directors and executive officers, or entities controlled by them. Also includes 227,855,778 shares of common stock beneficially owned by Phoenix, in which Mr. Sassower and Mr. 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, except to the extent of their respective pecuniary interest, if any, in such shares.

(22)
Includes 5,171,847 shares of Series A Preferred Stock owned of record by Phoenix Enterprises Family Fund, LLC, an entity controlled by Mr. Sassower. Also includes 31,032,014 shares of Series A Preferred Stock owned of record by Phoenix, in which Mr. Sassower is the co-manager of the managing member. Mr. Sassower disclaims any beneficial ownership of the shares held by Phoenix, except to the extent of his pecuniary interest, if any, in such shares.
 
(23)
Consists of 31,032,014 shares of Series A Preferred Stock owned of record by Phoenix. Voting and dispositive 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, except to the extent of their respective pecuniary interest, if any, in such shares.

(24)
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 dispositive power over these shares is held equally by Alex Goren and James Goren.

(25)
Consists of 3,320,000 shares of Series C Preferred Stock owned of record by Phoenix, for which Mr. Sassower is the co-manager of the managing member. Mr. Sassower disclaims any beneficial ownership of the shares held by Phoenix, except to the extent of his pecuniary interest, if any, in such shares.

(26)
Consists of 200,000 shares of Series C Preferred Stock owned of record by Andax LLC, for which Mr. Goren is the manager. Also includes 3,320,000 shares of Series C Preferred Stock owned of record by Phoenix, for which Mr. Goren is the co-manager of the managing member. Mr. Goren disclaims any beneficial ownership of the shares held by Phoenix, except to the extent of his pecuniary interest, if any, in such shares.

(27)
Consists of 3,320,000 shares of Series C Preferred Stock owned of record by Phoenix. Voting and dispositive 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, except to the extent of their respective pecuniary interest, if any, in such shares.

(28)
Consists of 800,000 shares of Series C Preferred Stock owned of record by JAG Multi Investment LLC. Voting and dispositive power over these shares is held equally by Alex Goren and James Goren.

(29)
Includes 915,690 shares of Series D Preferred Stock owned of record by Phoenix Enterprises Family Fund, LLC, an entity controlled by Mr. Sassower, and 150,000 shares of Series D Preferred Stock owned of record by SG Phoenix LLC, an entity in which Mr. Sassower and Mr. Goren share voting and dispositive power. Also includes 2,227,929 shares of Series D Preferred Stock owned of record by Phoenix, for which Mr. Sassower is the co-manager of the managing member. Mr. Sassower disclaims any beneficial ownership of the shares held by Phoenix, except to the extent of his pecuniary interest, if any, in such shares.

(30)
Consists of 54,714 shares of Series D Preferred Stock owned of record by Andax LLC, for which Mr. Goren is the manager, and 150,000 shares of Series D Preferred Stock owned of record by SG Phoenix LLC, an entity in which Mr. Sassower and Mr. Goren share voting and dispositive power.. Also includes 2,227,929 shares of Series D Preferred Stock owned of record by Phoenix, for which Mr. Goren is the co-manager of the managing member. Mr. Goren disclaims any beneficial ownership of the shares held by Phoenix, except to the extent of his pecuniary interest, if any, in such shares.
 
 
40

 
 
(31)
Consists of 181,721 shares of Series D Preferred Stock owned of record by The Kent A. Misemer Revocable Trust (12/24/92), for which Mr. Misemer is a trustee.

(32)
Consists of 2,227,929 shares of Series D Preferred Stock owned of record by Phoenix. Voting and dispositive power over these shares held equally by Philip Sassower and Andrea Goren. Messrs. Sassower and Goren disclaim any beneficial ownership of the shares held by Phoenix, except to the extent of their respective pecuniary interest, if any, in such shares.

(33)
Consists of 1,364,604 shares of Series D Preferred Stock owned of record by JAG Multi Investment LLC. Voting and dispositive power over these shares is held equally by Alex Goren and James Goren.

Item 13.  Certain Relationships and Related Transactions, and Director Independence
 
Certain Relationships and Related Transactions
 
On August 4, 2011, our board of directors approved an award of 150,000 shares of Series D Preferred Stock, which fully vested on March 31, 2012, to SG Phoenix LLC, an affiliate, for services rendered during the year ended March 31, 2012.  The fair value of the Series D Preferred Stock was $150,000 and stock compensation expense of $150,000 was recorded for the year ended March 31, 2012.

On October 14, 2011, we raised net proceeds of $2,182,000 in a private placement through the issuance of 2,320,000 shares of our Series D Preferred Stock.  Philip Sassower, our Chairman of the Board and Chief Executive Officer, purchased 500,000 shares of our Series D Preferred Stock in the private placement and The Kent A. Misemer Revocable Trust (12/24/92) for which Kent Misemer, who became a member of our board of directors in November 2011, serves as trustee purchased 175,000 shares of our Series D Preferred Stock in the private placement.  In connection with the private placement of the Series D Preferred Stock, we paid SG Phoenix LLC, an affiliate, an administrative fee of $100,000 in cash and a warrant to purchase 2,500,000 shares of our common stock at an initial exercise price of $0.04 per share.  The warrant is substantially similar to the warrants issued with the private placement of 1,000,000 shares of the Series D Preferred Stock on February 23, 2011, except that the warrant expires on October 13, 2014 rather than December 15, 2013.

During the fiscal year ended March 31, 2012, we purchased approximately $503,000 in components for our tablet PCs from Ember Industries, Inc., a contract manufacturer.  Thomas F. Leonardis, a member of our board of directors, is the Chief Executive Officer, and the majority shareholder, of Ember Industries.    We purchase the components from Ember Industries pursuant to standard purchase orders at Ember Industries’ standard prices.  A special committee of disinterested members of our board of directors reviewed, approved and ratified our purchase of component parts from Ember Industries on the described terms.

On June 12, 2012, our board of directors approved $150,000 of fees, to be paid monthly in the amount of $12,500, to SG Phoenix LLC, an affiliate, for services to be rendered during the year ending March 31, 2013. 

Item 14.  Principal Accounting Fees and Services.
 
Principal Accountant Fees
 
Fee Category
 
Fiscal
Year 2012
   
% of
Total
   
Fiscal
Year 2011
   
% of
Total
 
Audit Fees(1)
$ 91,687       97 %   $ 140,000       95 %
Audit-Related Fees(2)
                         
Tax Fees(3)
$ 3,000       3 %   $ 33,000       5 %
All Other Fees
                         
Total Fees
$ 94,687       100 %   $ 173,000       100 %

(1)
Audit Fees consist of amounts for professional services performed for the audit of our annual financial statements and review of quarterly financial statements, and services that are normally provided in connection with statutory and regulatory filings or engagements. PMB Helin Donovan are our current auditors and performed the audits of our annual consolidated financial statements for both of the years ended March 31, 2012 and 2011 and have fees of $91,687 and $140,000, respectively.
 
 
41

 
 
(2)
No fees were paid to PMB Helin Donovan for assurance and related services reasonably related to the performance of the audit or review of our quarterly consolidated financial statements, other than Audit Fees, during the two years ended March 31, 2012.
 
(3)
Includes fees incurred for income tax compliance.
 
Pre-Approval Policy
 
Consistent with SEC and PCAOB requirements regarding auditor independence, our audit committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, our 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, our audit committee requires specific pre-approval before engaging the independent registered public accounting firm. In accordance with that policy, our audit committee may delegate to one of its members the approval of such services. In such cases, the items approved will be reported to the audit committee at its next scheduled meeting following such pre-approval. All of the audit and tax fees paid to PMB Helin Donovan for fiscal years 2012 and 2011 were approved by our audit committee.
 
 
42

 
 
PART IV
 
Item 15.  Exhibits, Financial Statement Schedules.
 
 
(a)
The following documents are filed as part of this report:

(1)
Financial Statements
 
Index to Consolidated Financial Statements
 
Annual Financial Statements
 
Report of Independent Registered Public Accountants
F-2
Consolidated Balance Sheets as of March 31, 2012 and 2011
F-3
Consolidated Statements of Operations for the years ended March 31, 2012 and 2011
F-4
Consolidated Statement of Stockholders’ Equity (Deficit) for the years ended March 31, 2012 and 2011
F-5
Consolidated Statements of Cash Flows for the years ended March 31, 2012 and 2011
F-6
Notes to the Consolidated Financial Statements
F-7
 
 
(2)           Financial Statement Schedules:

None

(3)           Management Contract or Compensatory Plan:

See Index to Exhibits.  Each of the following Exhibits described on the Index to Exhibits is a management contract or compensatory plan: Exhibits 10.17 through 10.20.

(b)           Exhibits:

See Index to Exhibits.

(d)           Schedules:
 
 
See financial statements and the accompanying notes.
 
 
43

 
 
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 25nd day of June 2012.
 
 
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
Chief Executive Officer (Principal Executive Officer) and Director
June 25, 2012
Philip S. Sassower
   
     
/s/ Michael J. Rapisand
Chief Financial Officer (Principal Financial and Accounting Officer)
June 25, 2012
Michael J. Rapisand    
     
/s/ Brian E. Usher-Jones
Director
June 25, 2012
Brian E. Usher-Jones    
     
/s/ Andrea Goren
Director
June 25, 2012
Andrea Goren
   
     
/s/ Thomas F. Leonardis
Director
June 25, 2012
Thomas F. Leonardis
   
     
/s/ Kent Misemer
Director
June 25, 2012
Kent Misemer    
     
/s/ F. Ben Irwin
Director
June 25, 2012
F. Ben Irwin    
 
 
44

 
 
INDEX TO FINANCIAL STATEMENTS
 
CONSOLIDATED FINANCIAL STATEMENTS OF
 
XPLORE TECHNOLOGIES CORP.
 
Annual Financial Statements
 
Report of Independent Registered Public Accountants
F-2
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statements of Stockholders’ Equity (Deficit)
F-5
Consolidated Statements of Cash Flows
F-6
Notes to the Consolidated Financial Statements
F-7
 
 
F-1

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
 
To the Board of Directors and
Stockholders of Xplore Technologies Corp.:
 
We have audited the accompanying consolidated balance sheets of Xplore Technologies Corp. and its subsidiary (collectively the “Company”) as of March 31, 2012 and 2011 as well as the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Xplore Technologies Corp. and its subsidiary as of March 31, 2012 and 2011, including the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
/s/ PMB Helin Donovan, LLP
 
Austin, TX
June 25, 2012
 
 
F-2

 
 
XPLORE TECHNOLOGIES CORP.
 
Consolidated Balance Sheets
 
(in thousands)
 
   
March 31,
2012
   
March 31,
2011
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 199     $ 168  
Accounts receivable, net
    8,393       2,682  
Inventory, net
    3,969       3,754  
Prepaid expenses and other current assets
    99       201  
Total current assets
    12,660       6,805  
Fixed assets, net
    363       467  
    $ 13,023     $ 7,272  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
CURRENT LIABILITIES:
               
Short-term indebtedness
  $     $ 566  
Accounts payable and accrued liabilities
    6,583       2,908  
Total current liabilities
    6,583       3,474  
Commitments and contingencies
           
STOCKHOLDERS’ EQUITY (DEFICIT):
               
Series A Preferred Stock, par value $0.001 per share; authorized 64,000; shares issued 62,874 and 62,874, respectively
    63       63  
Series B Preferred Stock, par value $0.001 per share; authorized 10,000; shares issued 7,732 and 8,232, respectively
    8       8  
Series C Preferred Stock, par value $0.001 per share; authorized 20,000; shares issued 17,074 and 17,074, respectively
    17       17  
Series D Preferred Stock, par value $0.001 per share; authorized 20,000; shares issued 14,334 and 10,692, respectively
    14       11  
Common Stock, par value $0.001 per share; authorized 1,350,000; shares issued 235,318 and 178,471, respectively
    235       178  
Additional paid-in capital
    141,723       133,929  
Accumulated deficit
    (135,620 )     (130,408 )
      6,440       3,798  
    $ 13,023     $ 7,272  
 
See accompanying notes to consolidated financial statements.
 
 
F-3

 
 
XPLORE TECHNOLOGIES CORP.
 
Consolidated Statements of Operations
 
(in thousands, except shares and per share amounts)
 
   
Year Ended March 31,
 
   
2012
   
2011
 
Revenue
  $ 27,528     $ 17,759  
Cost of revenue
    19,140       12,338  
Gross profit
    8,388       5,421  
Expenses:
               
Sales, marketing and support
    3,763       2,995  
Product research, development and engineering
    1,525       2,063  
General administration
    3,337       2,974  
      8,625       8,032  
Loss from operations
    (237 )     (2,611 )
Other expenses:
               
Interest expense
    (221 )     (3,735 )
Other
    (65 )     (43 )
      (286 )     (3,778 )
Net loss
  $ (523 )