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EXCEL - IDEA: XBRL DOCUMENT - XPLORE TECHNOLOGIES CORPFinancial_Report.xls
EX-32.1 - EXHIBIT. 32.1 - XPLORE TECHNOLOGIES CORPex32-1.htm
EX-31.2 - EXHIBIT 31.2 - XPLORE TECHNOLOGIES CORPex31-2.htm
EX-31.1 - EXHIBIT 31.1 - XPLORE TECHNOLOGIES CORPex31-1.htm


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

FORM 10-Q

(Mark One)

 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2012

or

 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission file number: 000-52697

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

Delaware
 
26-0563295
(State or Other Jurisdiction of Incorporation
 
(IRS Employer Identification No.)
or Organization)
   

14000 Summit Drive, Suite 900, Austin, Texas
 
78728
(Address of Principal Executive Offices)
 
(Zip Code)

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

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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 January 31, 2013, the registrant had 8,389,363 shares of common stock outstanding.
 


 
 

 
 
Xplore Technologies Corp.
FORM 10-Q
For the Quarterly Period Ended December 31, 2012
Table of Contents

   
Page
     
Part I.
Financial Information
 
     
 
Item 1. Financial Statements
 
     
 
a) Consolidated Balance Sheets as at December 31, 2012 and March 31, 2012                                                                                                                                        
3
     
 
b) Consolidated Statements of Income (Loss) for the Three and Nine Months Ended December 31, 2012 and 2011
4
     
 
c) Consolidated Statements of Cash Flows for the Three and Nine Months Ended December 31, 2012 and 2011
5
     
 
d) Notes to the Unaudited Consolidated Financial Statements                                                                                                                                        
6
     
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
     
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                        
22
     
 
Item 4. Controls and Procedures                                                                                                                                        
22
     
Part II.
Other Information
 
     
 
Item 1. Legal Proceedings                                                                                                                                        
22
     
 
Item 1A. Risk Factors                                                                                                                                        
22
     
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                        
22
     
 
Item 3. Defaults Upon Senior Securities                                                                                                                                        
22
     
 
Item 4. (Removed and Reserved)                                                                                                                                        
23
     
 
Item 5. Other Information                                                                                                                                        
23
     
 
Item 6. Exhibits                                                                                                                                        
23
     
 
Signature                                                                                                                                        
24
 
 
2

 
 
PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements

XPLORE TECHNOLOGIES CORP.
Consolidated Balance Sheets
(in thousands)

   
December 31,
2012
   
March 31,
2012
 
   
(unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 10,318     $ 199  
Accounts receivable, net
    3,376       8,393  
Inventory, net
    3,871       3,969  
Prepaid expenses and other current assets
    227       99  
Total current assets
    17,792       12,660  
Fixed assets, net
    632       363  
    $ 18,424     $ 13,023  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Short-term indebtedness
  $     $  
Accounts payable and accrued liabilities
    2,897       6,583  
Total current liabilities
    2,897       6,583  
                 
Commitments and contingencies
           
                 
STOCKHOLDERS’ EQUITY:
               
Series A Preferred Stock, par value $0.001 per share; authorized none and 64,000, respectively; shares issued none and 62,874, respectively
          63  
Series B Preferred Stock, par value $0.001 per share; authorized none and 10,000, respectively; shares issued none and 7,732, respectively
          8  
Series C Preferred Stock, par value $0.001 per share; authorized none and 20,000, respectively; shares issued none and 17,074 respectively
          17  
Series D Preferred Stock, par value $0.001 per share; authorized none and 20,000, respectively; shares issued none and 14,334 respectively
          14  
Common Stock, par value $0.001 per share; authorized 15,000; shares issued 8,389 and 588, respectively
    8       1  
Additional paid-in capital
    153,445       141,957  
Accumulated deficit
    (137,926 )     (135,620 )
      15,527       6,440  
    $ 18,424     $ 13,023  

See accompanying notes to unaudited consolidated financial statements.
 
 
3

 
 
XPLORE TECHNOLOGIES CORP.
Consolidated Statements of Income (Loss)—Unaudited
(in thousands of dollars, except share and per share amounts)

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
2012
   
December 31,
2011
   
December 31,
2012
   
December 31,
2011
 
                         
Revenue
  $ 5,927     $ 8,918     $ 23,350     $ 16,696  
Cost of revenue
    3,864       6,182       15,676       11,758  
Gross profit
    2,063       2,736       7,674       4,938  
                                 
Expenses:
                               
Sales, marketing and support
    1,022       976       2,840       2,791  
Product research, development and engineering
    695       487       1,609       1,420  
General administration
    965       914       2,655       2,377  
      2,682       2,377       7,104       6,588  
Income (loss) from operations
    (619 )     359       570       (1,650 )
                                 
Other expenses:
                               
Interest expense
    (1 )     (64 )     (65 )     (155 )
Other
    (6 )     (11 )     (35 )     (43 )
      (7 )     (75 )     (100 )     (198 )
Net income (loss)
  $ (626 )   $ 284     $ 470     $ (1,848 )
Dividends attributable to Preferred Stock
    (281 )     (1,372 )     (2,292 )     (3,353 )
Net loss attributable to common stockholders
    (907 )     (1,088 )     (1,822 )     (5,201 )
Income (loss) per common share
    (0.11 )     0.53       0.20       (3.74 )
Dividends attributable to Preferred Stock
    (0.05 )     (2.57 )     (0.97 )     (6.78 )
Loss per share attributable to common stockholders, basic and fully diluted
  $ (0.16 )   $ (2.04 )   $ (0.77 )   $ (10.52 )
Weighted average number of common shares outstanding, basic and fully diluted
    5,816,851       533,796       2,372,678       494,570  

See accompanying notes to unaudited consolidated financial statements.
 
 
4

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

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2012
   
2011
   
2012
   
2011
 
                         
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Cash provided by (used in) operations:
                       
Net income (loss)
  $ (626 )   $ 284     $ 470     $ (1,848 )
Items not affecting cash:
                               
Depreciation and amortization
    129       156       380       524  
Allowance for doubtful accounts
    11       28       14       18  
Stock-based compensation expense
    164       222       531       641  
Equity instruments issued in exchange for services
          51             163  
                                 
Changes in operating assets and liabilities:
                               
Accounts receivable
    (118 )     (4,464 )     5,003       (4,238 )
Inventory
    449       473       98       1,036  
Prepaid expenses and other current assets
    977       30       (128 )     69  
Accounts payable and accrued liabilities
    (757 )     2,952       (3,482 )     3,213  
Net cash provided by (used in) operating activities
    229       (268 )     2,886       (422 )
                                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                               
Additions to fixed assets
    (238 )     (111 )     (649 )     (469 )
Net cash used in investing activities
    (238 )     (111 )     (649 )     (469 )
                                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Proceeds from short-term borrowings
          920       9,455       9,180  
Repayment of short-term indebtedness
          (1,932 )     (9,455 )     (9,746 )
Net proceeds from issuance of Series D Preferred Stock
          2,182             2,182  
Net proceeds from issuance of Common Stock
    7,856       12       7,882       24  
Net cash provided by financing activities
    7,856       1,182       7,882       1,640  
                                 
CHANGE IN CASH AND CASH EQUIVALENTS
    7,847       803       10,119       749  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    2,471       114       199       168  
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 10,318     $ 917     $ 10,318     $ 917  
                                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
                               
Payments for interest
  $ 1     $ 64     $ 65     $ 155  
Payments for income taxes
  $     $     $     $  
Payments of liabilities through issuance of stock
  $     $     $ 204     $  
Preferred Stock dividends issued in the form of stock
  $ 717     $ 1,287     $ 2,776     $ 3,581  

See accompanying notes to unaudited consolidated financial statements.
 
 
5

 


XPLORE TECHNOLOGIES CORP.
Notes to the Unaudited Consolidated Financial Statements
(In thousands of dollars, except share and per share amounts)

1. DESCRIPTION OF BUSINESS

Xplore Technologies Corp. (the “Company”), incorporated under the laws of the State of Delaware, is engaged in the development, integration and marketing of rugged mobile personal computer (“PC”) systems. The Company’s rugged tablet PCs are designed to withstand hazardous conditions such as extreme temperatures, driving rain, repeated vibrations, dirt, dust and concussive shocks.  The intrinsically safe, ruggedized and reliable nature of the Company’s products enable the extension of traditional computing systems to a range of field personnel, including oil field pipeline inspectors, public safety personnel, warehouse workers and pharmaceutical scientists. The Company’s tablets are fitted with a 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, such as keyboards and cases. Additionally, the tablets are waterproof for up to 30 minutes up to a depth of three feet, impervious to drops from as high as seven feet, readable in direct sunlight, can be mounted on vehicles and include LTE and WiFi connectivity options for real-time data access. The Company’s customers include major utility companies, leading heavy equipment manufacturers, oil and gas companies, the military and first responders.

2. SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results for the three and nine month periods ended December 31, 2012 are not necessarily indicative of the results to be expected for the full year.
 
The consolidated balance sheet at March 31, 2012 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These accompanying unaudited consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and related notes included in the Company’s fiscal 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 25, 2012.
 
Basis of consolidation and presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Xplore Technologies Corporation of America.
 
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has accumulated significant losses as it has been developing its current and next generation rugged computer products. The Company has had recurring losses. Management believes that the Company’s current cash and cash flow from operations, together with proceeds from the recently completed public offering of the Company’s common stock and borrowings from its senior lender will be sufficient to fund its anticipated operations, working capital and capital spending for the next 12 months. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time.
 
Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact the Company’s financial condition, changes in financial condition or results of operations. On an ongoing basis, the Company evaluates the estimates, including those related to its revenue recognition, allowance for doubtful accounts, inventory valuation, warranty reserves, tooling amortization, financial instruments, stock-based compensation and income taxes. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management’s estimates and assumptions.
 
 
6

 
 
3. INVENTORY

   
December 31,
2012
   
March 31,
2012
 
Finished goods
  $ 2,487     $ 2,915  
Computer components
    1,384       1,054  
Total inventory
  $ 3,871     $ 3,969  

4. LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

Loss per share attributable to common stockholders has been computed based on the weighted-average number of shares of common stock issued and outstanding during the period, and is calculated by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. The effects of the options granted under the Company’s option plans, the exercise of outstanding options, the exercise of outstanding warrants and the conversion of the convertible Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock prior to their actual conversion on October 31, 2012 were excluded from the loss per share attributable to common stockholders calculations for the periods presented as their inclusion is anti-dilutive. Accordingly, diluted loss per share attributable to common stockholders has not been presented.
 
The following securities were not considered in the loss per share attributable to common stockholders calculations for the three and nine months ended:

   
December 31,
2012
   
December 31,
2011
 
Series A Preferred Shares
          382,696  
Series B Preferred Shares
          41,404  
Series C Preferred Shares
          87,760  
Series D Preferred Shares
          874,076  
Warrants
    529,731       440,486  
Options
    150,089       155,622  
Other Common Stock Equivalents
          13,125  
      679,820       1,995,169  

5. SHORT-TERM INDEBTEDNESS

On December 10, 2009, the Company’s wholly-owned subsidiary entered into an Accounts Receivable Purchasing Agreement (as amended to date, the “ARPA”) with DSCH Capital Partners, LLC d/b/a Far West Capital (“FWC”). Pursuant to the ARPA, FWC may purchase, in its sole discretion, eligible accounts receivable of the Company’s subsidiary on a revolving basis, up to a maximum of $8,500. Under the terms of the ARPA, FWC purchases eligible receivables from the subsidiary with full recourse for the face amount of such eligible receivables. FWC retains 15% of the purchase price of the purchased receivables as a reserve amount. The subsidiary is required to pay FWC a monthly cost of funds fee equal to the net funds employed by FWC (i.e., the daily balance of the purchase price of all purchased receivables less the reserve amount, plus 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 10.00%, which fees accrue daily. In June 2012, in connection with the reduction of the cost of funds rate from 11.50% and the elimination of a 0.52% discount to the amount FWC paid in connection with its purchase of eligible receivables, the Company agreed to a financial covenant requiring that, as of the last day of each fiscal quarter, the Company’s subsidiary’s net worth (defined as assets minus liabilities) will not be less than $4,000. In the event the Company is unable to maintain the minimum net worth requirement, the monthly cost of funds fee required to be paid to FWC will be increased to equal the net funds employed by FWC multiplied by the lesser of (a) the maximum rate allowed under applicable law and (b) the annual prime lending rate reported in The Wall Street Journal plus 16.0%, which fees accrue daily. On August 26, 2011, the Company’s subsidiary and FWC entered into an inventory finance rider to the ARPA (the “Rider”) to provide for advances up to $700 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 the Company’s subsidiary the ability to receive advances on its inventory, FWC had the ability to purchase eligible purchase orders from the subsidiary, less a discount of 1.00%, under the ARPA.
 
 
7

 
 
The ARPA also provides that FWC has the right to require the subsidiary to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such receivable by the account debtor, (b) if certain covenants, warranties or representations made by the subsidiary with respect to such receivables are breached, (c) upon and during the continuance of an event of default under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date. The ARPA has an initial term of one year with automatic renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 150 days prior written notice or without prior notice upon and during the continuance of an event of default.
 
The ARPA contains standard representations, warranties, covenants, indemnities and releases for agreements governing financing arrangements of this type. The Company has guaranteed the obligations of its subsidiary under the ARPA pursuant to a corporate guaranty and suretyship. In addition, pursuant to the ARPA, the subsidiary’s obligations under the ARPA are secured by a first priority security interest on all assets of the subsidiary. On December 31, 2012, there were no borrowings under the ARPA.

6. SHARE CAPITAL

On December 16, 2010, the Company filed an amended and restated certificate of incorporation with the Secretary of State of the State of Delaware. As a result, the Company was authorized to issue 1,500,000,000 shares of capital stock, consisting of 1,350,000,000 shares of common stock, $0.001 par value, and 150,000,000 shares of preferred stock, $0.001 par value.
 
On July 26, 2012, the Company filed a Registration Statement on Form S-1 with respect to a firm commitment public offering of $10 million in shares of its common stock, excluding the underwriters’ over-allotment option.
 
On September 12, 2012, the Company held a special meeting of stockholders to consider and vote upon proposals to approve, among other matters, (i)  an amendment to the amended and restated certificate of incorporation to effect a reverse stock split of outstanding common stock in a range of not less than 1-for-325 and not more than 1-for-425 and (ii) amendments to the amended and restated certificate of incorporation to (a) reduce the conversion price of each series of Preferred Stock and (b) make inapplicable an anti-dilution adjustment that may otherwise be triggered by the reduction of the conversion price of each other series of Preferred Stock. Each of the proposals was approved by the requisite number of the Company’s stockholders entitled to vote thereon.

On September 13, 2012, the Company filed a certificate of amendment to the amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a 1-for-400 reverse split of common stock. The reverse split became effective at 12:01 a.m. on September 13, 2012. In addition, on September 13, 2012, the Company received a written consent from holders representing a majority of the voting power of the outstanding shares of the Company’s Series A Preferred Stock agreeing to the conversion, upon the consummation of the public offering, of each share of Series A Preferred Stock then outstanding into shares of common stock.
 
All of the historical common stock share numbers, common stock share prices and exercise prices with respect to options and warrants to purchase common stock have been adjusted within these consolidated financial statements, on a retroactive basis, to reflect the 1-for-400 reverse split of common stock.
 
On October 31, 2012, the Company completed the closing of the public offering of 2,000,000 shares of common stock at an offering price of $5.00 per share and received gross proceeds of $10,000.  The Company had also granted the underwriters of the offering a 45-day option to purchase up to an additional 300,000 shares of common stock to cover over-allotments, if any, which was not exercised by the underwriters. The Company issued to the underwriters warrants to purchase up to a total of 100,000 shares of common stock at an exercise price of $6.25 per share.  The warrants expire on October 24, 2017.  In connection with the closing of the public offering, each series of outstanding Preferred Stock was automatically converted into shares of the Company’s common stock at the following conversion rates: 1-to-0.0327 for the Series A Preferred Stock; 1-to-0.0327 for the Series B Preferred Stock; 1-to-0.0481 for the Series C Preferred Stock and 1-to-0.1543 for the Series D Preferred Stock.

The Company incurred costs of $2,144 associated with the public offering of the Company’s common stock, the special meeting of stockholders needed to effect the reverse stock split, the amended conversion prices of the Preferred Stock and the mandatory conversion of the Preferred Stock, and the listing of the Company’s common stock on the NASDAQ Capital Market.  The costs consist of the underwriting discount, professional fees, primarily legal, SEC and NASDAQ fees, printing and mailing charges and costs associated with marketing the public offering, primarily travel.  These costs were charged against the gross proceeds of the public offering of the Company’s common stock.

 On October 26, 2012, the Company’s common stock began trading on the NASDAQ Capital Market under the symbol “XPLR.”
 
 
8

 

On November 1, 2012, the Company filed its second amended and restated certificate of incorporation with the Secretary of State of the State of Delaware which integrated the then-in-effect provisions of the Company’s amended and restated certificate of incorporation and further amended those provisions by decreasing the Company’s authorized common and preferred stock.  The second amended and restated certificate of incorporation became effective on the date of filing.  As a result of the second amended and restated certificate of incorporation, the number of authorized shares of common stock of the Company was reduced from 1,350,000,000 to 15,000,000 and the number of authorized shares of preferred stock of the Company was reduced from 150,000,000 to 5,000,000.
 
Preferred Stock Dividends

Prior to its conversion on October 31, 2012, the Company’s outstanding shares of Preferred Stock accrued cumulative dividends which were paid quarterly on the first day of June, September, December and March, with the exception of the last dividends, which were paid upon conversion on October 31, 2012. The dividend rate for the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock was 7.5% per annum of the original issue price of the Preferred Stock. 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 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 was 10% per annum of the original issue price of the Series D Preferred Stock. The dividends for the Series D Preferred Stock were paid at the Company’s option in cash or additional shares of Series D Preferred Stock valued at $1.00 per share. The Company paid the dividends in shares of Series D Preferred Stock.
 
The values for dividends paid and dividends accrued and unpaid were determined based on the market prices of the Company’s common stock as of the dates of share issuances and accrual multiplied by the respective equivalent common shares.
 
A summary of paid dividends for the three and nine months ended December 31, 2012 and 2011, and accrued and unpaid dividends as of December 31, 2012 and 2011, is as follows:

   
Dividends
 
   
Paid For Qtr Ended
December 31,
   
Paid For Nine Months
Ended December 31,
   
Accrued and Unpaid as
of
December 31,
 
   
2012
   
2011
   
2012
   
2011
   
2012
   
2011
 
Series A Preferred Stock
  $ 350     $ 511     $ 1,365     $ 1,498     $     $ 148  
Series B Preferred Stock
    43       63       168       189             18  
Series C Preferred Stock
    140       204       545       598             59  
Series D Preferred Stock
    184       509       698       1,296             119  

On October 31, 2012, all of the Company’s outstanding shares of Preferred Stock were converted into shares of the Company’s common stock in the following amounts:
 
   
Number of Shares of Common Stock
Converted Into
 
Series A Preferred Stock
    2,055,448  
Series B Preferred Stock
    252,769  
Series C Preferred Stock
    820,837  
Series D Preferred Stock
    2,395,961  

In addition, during the nine months ended December 31, 2012, 2,706 shares of Series D Preferred Stock were converted into 169 shares of the Company’s common stock. During the nine months ended December 31, 2011, 500,000 shares of Series B Preferred Stock were converted into 2,533 shares of the Company’s common stock.
 
 
9

 

Warrants Outstanding

There were warrants to purchase an aggregate of 529,731 shares of common stock outstanding and fully exercisable at December 31, 2012 as detailed in the table below:

Number of Warrants
   
Exercise Price(1)
 
Expiration Date
186,503     $ 16.51  
January 14, 2013
9,375     $ 18.11  
January 30, 2013
10,000     $ 16.51  
February 27, 2013
375     $ 16.51  
May 26, 2013
205,978     $ 11.86  
December 15, 2013
6,250     $ 11.86  
October 13, 2014
7,500     $ 19.98  
June 10, 2014
3,750     $ 17.33  
May 13, 2015
100,000     $ 6.25  
October 24, 2017

 
(1)
Exercise price may change subject to anti-dilutive terms.

7. STOCK-BASED COMPENSATION PLAN

a)  Stock Options

In 1995, the Board of Directors approved a Share Option Plan, which was amended and restated in December 2004, and amended thereafter, which is referred to as the Amended Share Option Plan. The Amended Share Option Plan is administered by the Board of Directors and provides that options may be granted to employees, officers, directors and consultants to the Company. The exercise price of an option is determined at the date of grant and is based on the closing price of the common stock on the stock exchange or quotation system where the common stock is listed or traded, on the day preceding the grant. Unless otherwise provided for, the options are exercisable only during the term of engagement of the employee, officer or consultant or during the period of service as a director of the Company.
 
On July 28, 2009, the Board of Directors adopted the 2009 Stock Incentive Plan, which is referred to as the 2009 Stock Plan. The 2009 Stock Plan provides for equity-based awards in the form of incentive stock options and non-statutory options, restricted shares, stock appreciation rights and restricted stock units. Awards are made to selected employees, directors and consultants to promote stock ownership among award recipients, encourage their focus on strategic long-range corporate objectives, and attract and retain exceptionally qualified personnel. The 2009 Stock Plan became effective as of June 10, 2009 and was approved by the Company’s stockholders on January 14, 2010.
 
At December 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 190,759 shares. This amount consists of 187,500 shares under the 2009 Stock Plan and 3,259 under the Amended Share Option Plan, which shares are issuable under outstanding options under the Amended Share Option Plan on the date the 2009 Stock Plan was adopted. The options under the plans generally vest over a 3-year period in equal annual amounts and expire five years after the issuance date.
 
A summary of the activity in the Company’s Amended Share Option Plan and 2009 Stock Plan during the nine months ended December 31, 2012 is as follows:
   
Nine months ended December 31, 2012
 
   
Options
   
Weighted
Average
Exercise Price
(US$)
 
Outstanding at March 31, 2012
    140,870     $ 28.00  
Granted
    15,250       7.29  
Exercised
           
Forfeited
    (6,031 )     53.79  
Outstanding at end of period
    150,089     $ 24.28  

At December 31, 2012, the total number of shares of common stock issued in connection with the exercise of options since the inception of the Amended Share Option Plan is 1,678.
 
 
10

 
 
A summary of the options outstanding and exercisable as at December 31, 2012 is as follows:

     
Options Outstanding and Expected to Vest
   
Options Exercisable
 
Range of Exercise Prices US$
   
Number Outstanding
   
Weighted Average
Remaining
Contractual Life
   
Number Exercisable
   
Weighted Average
Remaining
Contractual Life
 
$ 5.92 23.99       30,813       4.1       5,368       3.5  
$ 24.00 26.99       108,493       3.2       55,463       3.2  
$ 27.00 184.00       10,783       1.8       9,290       1.5  
              150,089       3.3       70,121       3.0  

The weighted average exercise price of options exercisable at December 31, 2012 was $28.49.

On June 12, 2012, July 17, 2012, September 12, 2012 and October 3, 2012, the Board of Directors approved the grant of options to purchase 1,375 shares, 125 shares, 10,000, shares and 3,750 shares, respectively, of the Company’s common stock to employees with exercise prices of $15.20, $15.20, $5.92 and $7.50 per share, respectively.  The fair value of these option grants to be recognized as stock compensation expense is $46.
 
The options have been valued separately using the Black-Scholes methodology and the calculations for issuances in fiscal 2013 and 2012 assumed discount rates of approximately 0.35% and 0.81%, respectively, and volatility of approximately 62% and 184%, respectively, expected terms of approximately three years and no dividends for both years. The Company recorded stock compensation cost of $164 and $222 for the three months ended December 31, 2012 and 2011, respectively, and $531 and $641 for the nine months ended December 31, 2012 and 2011, respectively. This expense was recorded in the employee related functional classification.
 
Compensation expense has been determined based on the fair value at the grant date for options granted in the current fiscal year. The aggregate intrinsic value of options exercisable at December 31, 2012 was zero as the fair value of the Company’s common stock was less than the exercise prices of the options. The future compensation expense to be recognized for unvested option grants at December 31, 2012 was $917, which is to be recognized over the next three years.

b)  Stock Compensation

On August 4, 2011, the Board of Directors approved an award of 10,000 shares of the Company’s Series D Preferred Stock, which fully vested on March 31, 2012 and were issued in November 2011 and April 2012, to each director for services rendered during the year ended March 31, 2012.  The total fair value of the Series D Preferred Stock was $60 and stock compensation expense of $15 and $45 was recorded for the three and nine months ended December 31, 2011, respectively.

c)  2009 Employee Stock Purchase Plan

The Board of Directors approved an employee stock purchase plan that was implemented on January 1, 2009 and approved by the Company’s stockholders on November 4, 2009 (the “ESPP”). The offering price per common share and number of common shares purchased for the periods ended December 31, 2012 and 2011are as follows:
 
   
Three Months Ended December 31,
 
   
2012
   
2011
 
Offering Price per Common Share
 
$
22.23
   
$
28.50
 
Common Shares Purchased
   
     
477
 
 
8. RELATED PARTY TRANSACTIONS

On August 4, 2011, the 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 of the Company’s principal stockholder, for services rendered for the year ended March 31, 2012. The fair value of the Series D Preferred Stock was $150 and the Company recorded stock compensation expense of $38 and $113 for the three and nine months ended December 31, 2011, respectively.
 
On October 14, 2011, the Company raised net proceeds of $2,182 in a private placement through the issuance of 2,320,000 shares of its Series D Preferred Stock. Philip S. Sassower, the Company’s Chairman of the Board and Chief Executive Officer, purchased 500,000 shares of Series D Preferred Stock in the private placement. In connection with the private placement of the Series D Preferred Stock, the Company paid SG Phoenix LLC, an affiliate of the Company’s principal stockholder, an administrative fee of $100 in cash and a warrant to purchase 6,250 shares of common stock at an initial exercise price of $16.00 per share.
 
 
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On October 14, 2011, The Kent A. Misemer Revocable Trust (12/24/92), for which Mr. Misemer, a member of the Board of Directors, is a trustee, purchased in a private placement 175,000 shares of the Series D Preferred Stock for an aggregate purchase price of $175.
 
On June 12, 2012, the Board of Directors approved $10 of fees, to be paid quarterly in the amount of $2.5, to each director for services rendered and to be rendered during the year ending March 31, 2013. General administration expense includes an expense of $15 and $45 for the three and nine months ended December 31, 2012, respectively.
 
On June 12, 2012, the Board of Directors approved $150 of fees, to be paid monthly in the amount of $12.5, to SG Phoenix LLC, an affiliate of the Company’s principal stockholder, for services to be rendered during the year ending March 31, 2013. General administration expense includes an expense of $37.5 and $112.5 for the three months and nine months ended December 31, 2012, respectively.
 
During the nine months ended December 31, 2012 and 2011, the Company purchased approximately $231 and $179, respectively, in components for the Company’s tablet PCs from Ember Industries, Inc., a contract manufacturer.  Thomas F. Leonardis, a member of the Board of Directors, is the Chief Executive Officer and the majority shareholder of Ember Industries.  The Company purchased the components from Ember Industries pursuant to standard purchase orders at Ember Industries’ standard prices.  The disinterested members of the Board of Directors reviewed, approved and ratified the Company’s purchase of component parts from Ember Industries on the described terms.

9. SEGMENTED INFORMATION

The Company operates in one segment, the sale of rugged mobile tablet PC systems. The United States, Germany and England accounted for approximately 51%, 13% and 10%, respectively, of the Company’s total revenue for the three months ended December 31, 2012. The United States and Canada accounted for approximately 65% and 14%, respectively, of the Company’s total revenue for the nine months ended December 31, 2012. The United States, Germany and Canada accounted for approximately 67%, 11% and 10%, respectively, of the Company’s total revenue for the three months ended December 30, 2011. The United States, Germany and Canada accounted for approximately 57%, 12% and 11%, respectively, of the Company’s total revenue for the nine months ended December 31, 2011.

The distribution of revenue by country is segmented as follows:

   
Three Months Ended
   
Nine Months Ended
 
   
December 31,
2012
   
December 31,
2011
   
December 31,
2012
   
December 31,
2011
 
Revenue by country:
                       
United States
  $ 3,044     $ 5,939     $ 15,083     $ 9,441  
Canada
    377       911       3,159       1,836  
Germany
    754       955       1,621       2,066  
England
    610       96       956       464  
Other
    1,142       1,017       2,531       2,889  
    $ 5,927     $ 8,918     $ 23,350     $ 16,696  

The Company has a variety of customers, and in any given year a single customer can account for a significant portion of sales. For the three months ended December 31, 2012, the Company had two customers located in the United States and one customer located in Germany who accounted for more than 10% of total revenue. For the nine months ended December 31, 2012, the Company had one customer located in the United States who accounted for more than 10% of total revenue. For the three months ended December 31, 2011, the Company had one customer located in the United States who accounted for more than 10% of total revenue. For the nine months ended December 31, 2011, the Company had two customers located in the United States and Germany who accounted for more than 10% of total revenue.
 
 
12

 
 
Three Months Ended
 
Total
Revenue
(in millions)
   
Number of
Customers with
Revenue
> 10% of Total
Revenue
   
Customer
Share as a
Percent of Total
Revenue
 
December 31, 2012
  $ 5.9       3       38 %
December 31, 2011
  $ 8.9       1       43 %

Nine Months Ended
 
Total
Revenue
(in millions)
   
Number of
Customers with
Revenue
> 10% of Total
Revenue
   
Customer
Share as a
Percent of Total
Revenue
 
December 31, 2012
  $ 23.4       1       36 %
December 31, 2011
  $ 16.7       2       37 %

At December 31, 2012, the Company had two customers that accounted for more than 10% of the outstanding net receivables.

Nine Months Ended
 
Accounts
Receivable
(in millions)
   
Number of
Customers with
Account Balance
> 10% of Total
Receivables
   
Customer
Share as a
Percent of Total
Receivables
 
December 31, 2012
  $ 3.4       2       40 %

The Company relies on a single supplier for the majority of its finished goods. At December 31, 2012 and 2011, the Company owed this supplier $1,302 and $3,199, respectively, which is recorded in accounts payable and accrued liabilities.

Substantially all of the Company’s capital assets are owned by its wholly-owned subsidiary, Xplore Technologies Corporation of America, a Delaware corporation. No more than 10% of the Company’s assets were located in any country, other than the United States, during each of the nine months ended December 31, 2012 and 2011.

10. COMMITMENTS AND CONTINGENT LIABILITIES

a)            Premises

The Company leases facilities in Austin, Texas. The current annual lease commitment is $228 and the lease expires on August 31, 2014. Rent expense for the three months ended December 31, 2012 and 2011, was $64 and $62, respectively. Rent expense for the nine months ended December 31, 2012 and 2011, was $195 and $174, respectively.

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

2013
 
$
65
 
2014
 
264
 
2015
 
124
 
2016
 
16
 
   
$
469
 

b)
Purchase commitment

At December 31, 2012, the Company had purchase obligations in fiscal 2012 of approximately $8,871 related to inventory and product development items.

c)
Litigation

The Company and its subsidiaries are involved in various claims and legal actions arising in the ordinary course of business. None of these actions, individually or in the aggregate, are expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
 
 
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11. SUBSEQUENT EVENTS
 
On February 6, 2013, the Board of Directors approved an increase from $150 to $200 in the annual fees to SG Phoenix LLC, an affiliate of the Company’s principal stockholder, effective February 1, 2013, for additional services to be rendered. The Board of Directors also approved a one-time payment of $50 to SG Phoenix LLC for past services rendered.

Item  2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 and elsewhere in this Form 10-Q. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

We are engaged in the development, integration and marketing of rugged mobile PC systems. Our rugged tablet PCs are designed to withstand hazardous conditions such as extreme temperatures, driving rain, repeated vibrations, dirt, dust and concussive shocks. The intrinsically safe, ruggedized and reliable nature of our products enable the extension of traditional computing systems to a range of field personnel, including energy pipeline inspectors, public safety responders, warehouse workers and pharmaceutical  scientists. Our tablets are fitted with a range of performance-matched accessories, including multiple docking solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard options, as well as traditional peripherals, such as keyboards and cases. Additionally, our tablets are waterproof for up to 30 minutes up to a depth of three feet, impervious to drops from as high as seven feet, are readable in direct sunlight, can be mounted on vehicles and include LTE and WiFi connectivity options for real-time data access. Our end user customers include major utility companies, leading heavy equipment manufacturers, oil and gas companies, the military and first responders.

Our revenue is derived through the sale of our iX104 systems in the rugged, tablet PC market. We are dependent upon the market acceptance of our iX104 systems. Our iX104C5TM introduced what we believe are “industry firsts” and differentiating features, including a tool-less removable dual solid state drive module, tool-less access to the SIM and MicroSD ports and an ingress protection rating of IP 67 for submersion in water. The C5 family also features an Intel® Core™ i7 processor and Windows® 7 operating system. Our specially designed AllVueTM screen is viewable in challenging lighting conditions, including direct sunlight and dimly lit environments, and also features a superior screen contrast ratio of 600:1.
 
We launched our fifth generation iX104C line of rugged tablet PCs in May 2011 and have received favorable responses from our end user customers. From fiscal 2011 to fiscal 2012, our revenue increased by approximately 55%, primarily due to $17.5 million in purchase orders received during the last half of fiscal 2012 from AT&T. Shipment of those orders occurred in the third and fourth quarters of fiscal 2012 and in the first and second quarters of fiscal 2013. On October 15, 2012 we announced receipt of a $1.1 million purchase order from a leading medical device company and on December 7, 2012 we announced the receipt of a multi-million dollar purchase order for the U.S. military. The military purchase order was for over 900 of our iX104C5M rugged military tablets, which are scheduled for delivery over several quarters. These recent orders were our most significant orders from the medical device and military markets and we believe represent significant milestones. For the 12- month period ended December 31, 2012, we had revenue of $34.2 million and net income of $1.8 million.  Our revenue for the quarter ended December 31, 2012 was approximately 34% less than the prior year period, in which shipments to AT&T accounted for approximately 43% of that quarter’s revenue.  The fluctuation in quarterly revenue reflects the variability in our business associated with the timing of large orders and the related shipping of the products. While we may experience some variability in our quarterly operating results as a consequence, we believe our year-over-year business is growing, as reflected by our fiscal year-to-date revenue numbers.
 
On October 31, 2012, we completed the closing of an underwritten public offering of two million shares of our common stock, from which we received gross proceeds of $10 million.  In connection with the closing of the public offering, each series of our outstanding preferred stock was automatically converted into shares of our common stock.  In addition, our common stock began trading on the NASDAQ Capital Market under the symbol “XPLR.”
 
 
14

 
 
These actions strengthened our financial position and we believe improved the liquidity of our common stock.  We intend to use the net proceeds from the offering to expand our sales and marketing efforts, increase our product offerings to broaden our addressable markets and for working capital and general corporate purposes.  Consequently, we expect our operating expenses to increase based on these investments, and we may continue to incur operating losses, at least until we have completed the development of several new products.  We currently estimate that development of those products will be completed, and the products will be launched, from mid 2013, through 2014.
 
Looking forward, our strategy is to build increased marketplace awareness of our iX104 and new product families, in an effort that we believe will enable us to continue increasing our revenue and to expand our market share.
 
You should read the following discussion and analysis in conjunction with our financial statements and notes included in this quarterly report on Form 10-Q.

Critical Accounting Policies

Our unaudited interim consolidated financial statements and accompanying notes included in this quarterly report are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact our financial condition, changes in financial condition or results of operations. Our significant accounting policies are discussed in Note 2 of the Notes to our unaudited consolidated financial statements as of December 31, 2012 and March 31, 2012 and for the three months and nine months ended December 31, 2012 and 2011. 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 Corporation, our contract manufacturer; 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.
 
 
15

 
 
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 7 to our 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 required new accounting pronouncements in effect that may impact our consolidated financial statements. We do not believe any such new accounting pronouncements might have a material impact on our consolidated financial position or results of operations.
 
Results of Operations

Revenue.  We derive revenue from sales of our rugged 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.
 
 
16

 
 
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.
 
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 litigation legal fees and settlement payments, corporate expenses, and costs associated with being a U.S. public company, including regulatory compliance costs.
 
Interest.  Interest expense includes interest on borrowings related to our credit facility.
 
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.
 
Inflation.  During the three and nine month periods ended December 31, 2012 and 2011, we believe inflation and changing prices have not had a material impact on our net revenue, or on income (loss) from continuing operations.
 
Three and Nine Months Ended December 31, 2012 vs. Three and Nine Months Ended December 31, 2011

Revenue.  Total revenue for the three months ended December 31, 2012 was $5,927,000, as compared to $8,918,000 for the three months ended December 31, 2011, a decrease of $2,991,000, or approximately 34%.  A decrease in unit sales accounted for a decrease in revenue of approximately 35% for the three months ended December 31, 2012, compared to the three months ended December 31, 2011, a period in which shipments to AT&T accounted for approximately 43% of revenue. The decrease in unit sales was partially offset by an increase in our average sales price of approximately 1% due to favorable changes in the product mix sold.  The fluctuation in quarterly revenue reflects the variability in our business associated with the timing of the deployment of large orders. While we may experience some variability in our quarterly operating results, we believe our business is growing as reflected by our revenue growth of approximately 40% for the nine months ended December 31, 2012 as compared to the prior year period. Revenue for the nine months ended December 31, 2012 was $23,350,000, as compared to $16,696,000 for the nine months ended December 31, 2011, an increase of $6,654,000.  An increase in unit sales accounted for an increase in revenue of approximate 32% for the nine months ended December 31, 2012, compared to the nine months ended December 31, 2011, along with an increase in our average sales price of approximately 8% due to favorable changes in the product mix sold.  The increase in unit sales was principally attributable to the fulfillment of a portion of the significant purchase orders discussed above.

We operate in one segment, the sale of rugged mobile tablet PC systems. The United States, Germany and England accounted for approximately 51%, 13%, and 10%, respectively, of our total revenue for the three months ended December 31, 2012.  The United States, Germany and Canada accounted for approximately 67%, 11% and 10%, respectively, of our total revenue for the three months ended December 31, 2011.  The United States and Canada accounted for approximately 65% and 14%, respectively, of our total revenue for the nine months ended December 31, 2012.  The United States, Germany and Canada accounted for approximately 57%, 12%, and 11%, respectively, of our total revenue for the nine months ended December 31, 2011.
 
 
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We have a number of customers, and in any given period a single customer can account for a significant portion of our sales.  For the three months ended December 31, 2012, we had two customers located in the United States, and one customer located in Germany who accounted for approximately 27% and 11%, respectively, of our revenue.  For the nine months ended December 31, 2012, we had one customer located in the United States who accounted for approximately 36% of our revenue.  For the three months ended December 31, 2011, we had one customer located in the United States who accounted for approximately 43% of our revenue.  For the nine months ended December 31, 2011, we had two customers located in the United States and Germany who accounted for approximately 27% and 10%, respectively, of our revenue.  At December 31, 2012, we had two customers with receivable balances that totaled approximately 40% of our outstanding receivables.  At December 31, 2011, we had one customer with receivable balances that totaled approximately 54% of our outstanding receivables, which balances were subsequently collected.

Cost of Revenue.  Total cost of revenue for the three months ended December 31, 2012 was $3,864,000, compared to $6,182,000 for the three months ended December, 2011, a decrease of $2,318,000, or approximately 37%.  A decrease in unit sales accounted for a decrease of approximately 32% in cost of revenue, along with a decrease in average unit cost of approximately 5% due to changes in the product mix sold.  Total cost of revenue for the nine months ended December 31, 2012 was $15,676,000, compared to $11,758,000 for the nine months ended December 31, 2011, an increase of $3,918,000, or approximately 33%.  An increase in unit sales accounted for an increase of approximately 30% in cost of revenue, along with an increase in average cost per unit of approximately 3% due to changes in the product mix sold.

We rely on a single supplier for the majority of our finished goods.  The inventory purchases and engineering services from this supplier for the nine months ended December 31, 2012 and 2011 were $12,094,000 and $8,096,000, respectively.  At December 31, 2012 and 2011, we owed this supplier $1,302,000 and $3,199,000, respectively, which is recorded in accounts payable and accrued liabilities.

Gross Profit.  Total gross profit decreased by $673,000 to $2,063,000 (34.8% of revenue) for the three months ended December 31, 2012 from $2,736,000 (30.7% of revenue) for the three months ended December 31, 2011.  The decrease in gross profit for the three months ended December 31, 2012 was due primarily to the decreases in unit sales and revenue and the increase in gross profit as a percentage of revenue was attributable to more favorable product mix.  Total gross profit increased by $2,736,000 to $7,674,000 (32.9% of revenue) for the nine months ended December 31, 2012 from $4,938,000 (29.6% of revenue) for the nine months ended December 31, 2011.  The increase in gross profit for the nine months ended December 31, 2012 was due primarily to the increase in unit sales and revenue and the increase in gross profit as a percentage of revenue was due to a more favorable product mix, as well as the favorable impact of spreading indirect labor and logistics costs, which are predominately fixed in nature, over more revenue.

Sales, Marketing and Support Expenses.  Sales, marketing and support expenses for the three months ended December 31, 2012 were $1,022,000, compared to $976,000 for the three months ended December 31, 2011.  The increase of $46,000, or approximately 5%, was primarily due to an increase in headcount related costs of $68,000 for new sales and marketing personnel as well as incentive compensation paid to sales and marketing personnel for meeting performance objectives and an increase in marketing expenses of $47,000, primarily related to lead generation activities.  These increases were partially offset by a decrease in costs related to demonstration units of $58,000, which were higher in the prior year due to the product launch of the C5 in May 2011, and a reduction in stock compensation of $18,000.  Sales, marketing and support expenses for the nine months ended December 31, 2012 were $2,840,000, compared to $2,791,000 for the nine months ended December 31, 2011, an increase of $49,000.  The increase was primarily due to an increase in commission expense of $204,000 commensurate with the increase in revenue, an increase in headcount related costs of $104,000 due to the aforementioned factors and an increase in marketing expenses of $14,000, partially offset by a decrease in costs related to demonstration units of $197,000, a reduction in stock compensation of $46,000 and a decrease in travel and office related expenses of $32,000.

Product Research, Development and Engineering Expenses.  Product research, development and engineering expenses for the three months ended December 31, 2012 were $695,000, an increase of $208,000, or approximately 43%, compared to $487,000 for the three months ended December 31, 2011.  The increase was due primarily to an increase in product development costs of $170,000 associated with three new products and an increase in headcount related expenses of $69,000 for new engineering personnel as well as incentive compensation paid to engineering personnel for meeting performance objectives, offset by a decrease in patent filing expenses of $33,000, in comparison to the prior year that included new patent filings associated with the C5 feature set.  Product research, development and engineering expenses for the nine months ended December 31, 2012 were $1,609,000, an increase of $189,000, or approximately 13%, compared to $1,420,000 for the nine months ended December 31, 2011.  The increase was primarily due to an increase in headcount related expenses of $146,000 and an increase in product development expenses of $133,000, offset by a decrease in patent filing expenses of $87,000.  The reasons for the fluctuations for the nine months ended December 31, 2012 are the same as those described for the three months ended December 31, 2012.  For our fiscal year ending March 31, 2013, we expect our product research, development and engineering expenses to increase primarily due to the development of the additional products and, to a lesser extent, the non-recurrence of a $398,000 reduction in fiscal year 2012 engineering expenses arising from the elimination of an accrual in the fourth quarter.
 
 
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General Administration Expenses.  General administration expenses for the three months ended December 31, 2012 were $965,000, compared to $914,000 for the three months ended December 31, 2011, an increase of $51,000, or approximately 6%.  The increase primarily consists of an increase in incentive compensation of $122,000 paid to administrative personnel for meeting performance objectives, an increase in investor and public relations related expenses of $47,000, primarily associated with the up-listing of our common stock to NASDAQ, an increase in our professional fees of $21,000, primarily legal, and an increase in depreciation of $14,000, partially offset by the non-recurrence of a prior year charge of $100,000 for patent infringement claims, reductions in stock compensation of $17,000 and the general allowance for doubtful accounts of $17,000 associated with the decrease in accounts receivable and a decrease in business personal property tax of $11,000.  General administration expenses for the nine months ended December 31, 2012 were $2,655,000, compared to $2,377,000 for the nine months ended December 31, 2011, an increase of $278,000, or approximately 12%.  The increase was primarily due to an increase in headcount related expenses of $205,000, consisting primarily of incentive compensation paid to administrative personnel for meeting revenue and cash flow performance objectives, as compared to the prior year period in which all incentive compensation was accrued in the fourth quarter, an increase in investor and public relations related expenses of $69,000, an increase in information systems of $34,000 due to a system upgrade and an increase in depreciation of $11,000, partially offset by a decrease in business personal property tax of $23,000 and a decrease in the general allowance for doubtful accounts of $11,000.

For the three months ended December 31, 2012 and 2011, the fair value of employee stock-based compensation expense was $164,000 and $222,000, respectively.  For the nine months ended December 31, 2012 and 2011, the recorded employee stock-based compensation expense was $531,000 and $641,000, respectively.  The fluctuation in expense is attributable to the timing of the granting of new awards and employee turnover.  Stock compensation expense was recorded in the employee related functional classification.

Depreciation and amortization expenses for the three months ended December 31, 2012 and 2011 were $129,000 and $156,000, respectively.  Depreciation and amortization expenses for the nine months ended December 31, 2012 and 2011 were $380,000 and $524,000, respectively.  The decrease in depreciation expense is principally due to the aforementioned reduction of demonstration units of $53,000 and $190,000, respectively, partially offset by the tooling amortization associated with the C5 of approximately $12,000 and $34,000, and depreciation of internal units and office equipment of $14,000 and $12,000, respectively, for the three and nine months ended December 31, 2012.  Depreciation and amortization is recorded in the related functional classification.

Interest Expense.  Interest expense for the three months ended December 31, 2012 was $1,000 compared to $64,000 for the three months ended December 31, 2011, a decrease of $63,000.  Interest expense for the nine months ended December 31, 2012 was $65,000, compared to $155,000 for the nine months ended December, 2011, a decrease of $90,000.  The decreases in both periods are attributable primarily to no outstanding borrowings under our credit facility for the three months ended December, 2012 and a reduction in outstanding borrowings under that facility for the nine months ended December 31, 2012.

Other Expenses.  Other expenses for the three months ended December 31, 2012 were $6,000, compared to $11,000 for the three months ended December 31, 2011.  Other expenses for the nine months ended December 31, 2012 were $35,000, compared to $43,000 for the nine months ended December 31, 2011.

Net Income (Loss). Our net loss for the three months ended December 31, 2012 was $626,000, as compared to a net income of $284,000 for the three months ended December 31, 2011, a decrease in income of $910,000.  The decrease was due to a decrease in revenue and an increase in operating expenses.  The net income for the nine months ended December 31, 2012 was $470,000 as compared to a net loss of $1,848,000 for the nine months ended December 31, 2011, an increase in income of $2,318,000.  The increase was due to increases in revenue, partially offset by an increase in operating expenses.

Net Loss Attributable to Common Stockholders.  Net loss attributable to common stockholders for the three months ended December 31, 2012 was $907,000, compared to $1,088,000 for the three months ended December 31, 2011, a decrease of $181,000, due primarily to the decrease of $1,091,000 in the dividends attributable to Preferred Stock, as the Preferred Stock was outstanding for one month in the current year as compared to three months in the prior year, partially offset by the decrease in net income of $910,000. In connection with the closing of the public offering on October 31, 2012, each series of our outstanding preferred stock was automatically converted into common stock.  Net loss attributable to common stockholders for the nine months ended December 31, 2012 was $1,822,000, compared to $5,201,000 for the nine months ended December 31, 2011, a decrease of $3,379,000, attributable to a decrease in the net loss of $2,318,000 and a decrease in dividends attributable to preferred stock of $1,061,000, as the preferred stock was outstanding only through October 31, 2012.  The outstanding shares of preferred stock accrued cumulative dividends that were paid in shares of stock quarterly on the first day of June, September, December and March, with the exception of the last dividends, which were paid upon conversion on October 31, 2012.   The dividends attributable to these shares for the three months ended December 31, 2012 and 2011 were $281,000 and $1,372,000, respectively.  The dividends attributable to these shares for the nine months ended December 31, 2012 and 2011 were $2,292,000 and $3,353,000, respectively.  The dividend rate for the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock was 7.5% per annum, and were paid in 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.  The dividend rate for the Series D Preferred Stock was 10% per annum, payable in additional shares of Series D Preferred Stock valued at $1.00 per share.  The values for dividends paid and dividends accrued and unpaid were 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.
 
 
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A summary of paid dividends for the three months ended December 31, 2012 and 2011 and accrued and unpaid dividends as of December 31, 2012 and 2011 is as follows:

   
Dividends
 
   
Paid For Qtr Ended
December 31,
   
Paid For Nine Months
Ended December  31,
   
Accrued and Unpaid as
of
December 31,
 
   
2012
   
2011
   
2012
   
2011
   
2012
   
2011
 
Series A Preferred Stock
  $ 350,000     $ 511,000     $ 1,365,000     $ 1,498,000     $     $ 148,000  
Series B Preferred Stock
    43,000       63,000       168,000       189,000             18,000  
Series C Preferred Stock
    140,000       204,000       545,000       598,000             59,000  
Series D Preferred Stock
    184,000       509,000       698,000       1,296,000             119,000  

Liquidity and Capital Resources

We have incurred net losses in each fiscal year since our inception and we may report a net loss for our fiscal year ending March 31, 2013.  As of December 31, 2012, our working capital was $14,895,000 and our cash and cash equivalents were $10,318,000.  From inception, we have financed our operations and met our capital expenditure requirements primarily from the gross proceeds of private and public sales of debt and equity securities totaling approximately $112.8 million.

Sources of capital available to us are a credit facility with a specialty finance company.

On December 10, 2009, we entered into an Accounts Receivable Purchasing Agreement (as amended, the “ARPA”) with DSCH Capital Partners, LLC d/b/a Far West Capital (“FWC”). Pursuant to the ARPA, FWC may purchase, in its sole discretion, our eligible accounts receivable on a revolving basis, up to a maximum of $8,500,000. Under the terms of the ARPA, FWC purchases eligible receivables from our subsidiary with full recourse for the face amount of such eligible receivables. FWC retains 15% of the purchase price of the purchased receivables as a reserve amount. We are 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 to FWC under the ARPA) multiplied by the annual prime lending rate reported in The Wall Street Journal plus 10.00%, which fees accrue daily. In June 2012, in connection with the reduction of our cost of funds rate and the elimination of the discount to FWC in connection with its purchase of eligible receivables, we agreed to a net worth financial covenant requiring, as of the last day of each fiscal quarter, our subsidiary to have a net worth (defined as assets minus liabilities) of not less than $4,000,000. In the event we are unable to maintain the minimum net worth requirement, the monthly cost of funds fee required to be paid to FWC will be increased to equal the net funds employed by FWC multiplied by the lesser of (a) the maximum rate allowed under applicable law and (b) the annual prime lending rate reported in The Wall Street Journal plus 16.0%, which fees accrue daily. On August 26, 2011, we entered into an amendment 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 will 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.
 
The ARPA also provides that FWC has the right to require the subsidiary to repurchase any purchased accounts receivable: (a) if there is a dispute as to the validity of such receivable by the account debtor, (b) if certain covenants, warranties or representations made by the subsidiary with respect to such receivables are breached, (c) upon and during the continuance of an event of default under the ARPA or upon the termination of the ARPA, or (d) if such receivable remains unpaid 90 days after the invoice date. The ARPA has an initial term of one year with automatic renewals for successive one-year periods. Notwithstanding that, FWC may terminate the ARPA at any time upon 150 days prior written notice or without prior notice upon and during the continuance of an event of default.
 
The ARPA contains standard representations, warranties, covenants, indemnities and releases for agreements governing financing arrangements of this type. We have guaranteed the obligations of our subsidiary under the ARPA pursuant to 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 our assets.
 
 
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As of February 6, 2013, there were no borrowings outstanding under the ARPA.

On October 31, 2012, we completed the closing of the public offering of 2,000,000 shares of common stock at an offering price of $5.00 per share and received gross proceeds of $10,000,000, before deducting the underwriting discount and offering expenses of $2,144,000.  In connection with the closing of the public offering, each series of our outstanding preferred stock was automatically converted into common stock in accordance with the terms and provisions of our amended and restated certificate of incorporation.

We believe that our current cash and cash flow from operations, including proceeds from our recent public offering, together with borrowings under the ARPA, will be sufficient to fund our anticipated operations, working capital and capital spending for the next 12 months.

Cash Flow Results

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

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2012
   
2011
   
2012
 
2011
 
   
(in thousands of dollars)
 
Net cash provided by (used in) operating activities
  $ 229,000     $ (268,000 )   $ 2,886,000     $ (422,000 )
Net cash used in investing activities
    (238,000 )     (111,000 )     (649,000 )     (469,000 )
Net cash provided by financing activities
    7,856,000       1,182,000       7,882,000       1,640,000  
Cash and cash equivalents, end of period
    10,318,000       917,000       10,318,000       917,000  

Our operating activities provided $229,000 of net cash for the three months ended December 31, 2012, as compared to $268,000 of net cash used by operating activities for the three months ended December 31, 2011, a favorable improvement of $497,000.  The increase in net cash provided by operating activities was primarily due to a favorable variance resulting from the timing of accounts receivable billings and collections of $4,346,000 and a favorable decrease in the prepaid expenses of $947,000, partially offset by an unfavorable increase in the use of cash arising from the timing of payables of $3,709,000 and an increase in net loss and the reduction in net income, net of items not affecting cash, of $1,063,000.  Our operating activities provided $2,886,000 of net cash for the nine months ended December 31, 2012, as compared to $422,000 of net cash used in operating activities for the nine months ended December 31, 2011, a favorable improvement of $3,308,000.  The increase in net cash provided by operating activities was primarily due to an increase from favorable timing of accounts receivable billings and collections of $9,241,000, and an increase from our net income and the reduction in net loss, net of items not affecting cash, of $1,897,000, partially offset by an unfavorable increase in the use of cash arising from the timing of accounts payable of $6,695,000, an unfavorable decrease in the net cash provided by inventory of $938,000 and an unfavorable increase in prepaid expenses and other current assets of $197,000.

Net cash used in investment activities for the three months ended December 31, 2012 consists primarily of investments in tooling costs related to new products being developed.  Net cash used in investment activities for the nine months ended December 31, 2012 consists of tooling costs of $472,000, investments in demonstration units of $150,000 and $27,000 for a new phone system and other assets.  For the three and nine months ended December 31, 2011, the net cash used in investment activities consisted primarily of investments in demonstration units of our newly launched C5 tablet PCs of $111, 000 and $469,000, respectively.

Our financing activities provided $7,856,000 of net cash for the three months ended December 31, 2012, as compared to $1,182,000 of net cash provided in financing activities for the three months ended December 31, 2011.  For the nine months ended December 31, 2012 our financing activities provided $7,882,000 of net cash, compared to $1,640,000 of net cash for the nine months ended December 31, 2011.  Net cash provided by financing activities for the three and nine months ended December 31, 2012, consisted of net proceeds from the public offering of our common stock of $7,856,000 and the issuance of capital stock by the employee stock purchase plan of $0 and $26,000, respectively.  For the three and nine months ended December 31, 2011, net cash provided by financing activities consisted of the net proceeds of $2,182,000 from the issuance of our Series D Preferred Stock in a private placement and proceeds from the issuance of capital stock by the employee stock purchase plan of $12,000 and $24,000, respectively, partially offset by net repayments of our working capital facility of $1,012,000 and $566,000, respectively.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.
 
 
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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4.  Controls and Procedures.

(a)
Evaluation of disclosure controls and procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, 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)          Changes in internal control over financial reporting.

During the three months ended December 31, 2012, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.  Legal Proceedings.

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

Item 1A.  Risk Factors

Our Annual Report on Form 10-K for the year ended March 31, 2012 includes a detailed discussion of our risk factors. The information presented below updates and should be read in conjunction with the risk factors and information disclosed in the Annual Report on Form 10-K for the year ended March 31, 2012.

Risks Relating to our Business

For the three months ended December 31, 2012, we had three customers that accounted for more than 10% of our total revenue.  If we are unable to replace revenue generated from one of our major resellers or end-user customers with revenue from others in future periods, our revenue may decrease and our growth would be limited.

Historically, in any given quarter a single customer, either reseller or end-user customer, could account for more than 10% of our revenue. For the three months ended December, 2012, two customers located in the United States and one customer located in Germany who accounted for approximately 38% of our total revenue.  If we are unable to replace revenue generated from our major customers, including resellers, with revenue from others our revenue may decrease and our growth would be limited.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

None.

Item 3.  Defaults Upon Senior Securities.

None.
 
 
22

 

Item 4.  (Removed and Reserved)

Item 5.  Other Information.

None.

Item 6.  Exhibits.

Exhibit
Number
 
Description of Exhibit
     
31.1*
 
Certification of Philip S. Sassower, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
 
Certification of Michael J. Rapisand, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
 
Certifications of Philip S. Sassower, Chief Executive Officer, and Michael J. Rapisand, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
101.INS*
 
XBRL Instance Document
101.SCH*
 
XBRL Taxonomy Extension Schema Document
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document


*Filed herewith.
 
 
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SIGNATURE

Pursuant to the requirements of 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.

 
XPLORE TECHNOLOGIES CORP.
   
   
Dated: February 11, 2013
By:
/s/ MICHAEL J. RAPISAND
   
Michael J. Rapisand
   
Chief Financial Officer
   
(Principal Financial Officer and Duly Authorized Officer)

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