10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2008

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 0-14843

DPAC TECHNOLOGIES CORP.

(Exact Name of Registrant as Specified in Its Charter)

CALIFORNIA	33-0033759
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)
5675 HUDSON INDUSTRIAL PARK, HUDSON, OHIO	44236
(Address of Principal Executive Offices)	(Zip Code)

(800) 553-1170
(Issuer’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 þ 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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):

Large Accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller Reporting Company þ
		(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 þ

The number of shares of common stock, no par value, outstanding as of October 30, 2008 was 96,557,480.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements	4
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 4T — Controls and Procedures	23
PART II—OTHER INFORMATION
Item 1 — Legal Proceedings	24
Item 6 — Exhibits	24
SIGNATURES	25
EXHIBIT INDEX	26
Exhibit 4.1
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 32.1

2

CAUTIONARY STATEMENT RELATED TO FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to revenue, revenue composition, market conditions, demand and pricing trends, future expense levels, competition in our industry, trends in average selling prices and gross margins, product and infrastructure development, market demand and acceptance, the timing of and demand for next generation products, customer relationships, employee relations, and the level of expected future capital and research and development expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to DPAC Technologies Corp.’s (“DPAC” or the “Company”) management and are subject to certain risks, uncertainties and assumptions. Any other statements contained herein (including without limitation statements to the effect that DPAC or management “estimates,” “expects,” “anticipates,” “plans,” “believes,” “projects,” “continues,” “may,” “will,” “could,” or “would” or statements concerning “potential” or “opportunity” or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact are also forward-looking statements. The actual results of DPAC may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors, including those discussed under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Because of these and other factors that may affect DPAC’s operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that DPAC files from time to time with the Securities and Exchange Commission, including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q or 10-QSB and Annual Reports on Form 10-K or 10-KSB.

HOW TO OBTAIN DPAC’S SEC FILINGS

All reports filed by DPAC with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by the Company with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, DC 20549. DPAC also provides copies of its Forms 8-K, 10-K and 10-Q at no charge to investors upon request and makes electronic copies of its most recently filed reports available through its website at www.dpactech.com as soon as reasonably practicable after filing such material with the SEC.

3

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DPAC Technologies Corp.
Condensed Consolidated Balance Sheets

	September 30,			December 31,
	2008			2007
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,942		$	257,189
Accounts receivable, net		862,304			1,645,540
Inventories		1,466,749			1,337,591
Prepaid expenses and other current assets		67,968			66,893
Total current assets		2,412,963			3,307,213
PROPERTY, Net		328,837			356,516
FINANCING COSTS, Net		145,978			31,667
TRADEMARKS		2,583,000			2,583,000
GOODWILL		3,822,503			3,822,503
OTHER INTANGIBLE ASSETS, Net		1,272,063			1,551,724
OTHER ASSETS		18,048			18,048
TOTAL	$	10,583,392		$	11,670,671
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving credit facility	$	1,365,000		$	1,982,000
Current portion of long-term debt		125,000			2,237,699
Current portion of capital lease obligations		12,333			11,910
Accounts payable		1,231,658			1,866,052
Accrued restructuring costs — current		92,141			268,988
Put warrant liability		193,500			129,000
Other accrued liabilities		436,697			556,128
Total current liabilities		3,456,329			7,051,777
LONG-TERM LIABILITIES:
Accrued restructuring costs, less current portion		—			51,692
Capital lease obligations, less current portion		12,341			21,619
Ohio Development loan, less current portion		2,060,105			2,119,633
Subordinated debt, less current portion		1,168,252			—
Total long-term liabilities		3,240,698			2,192,944
STOCKHOLDERS’ EQUITY:
Convertible, voting, cumulative, 9% series A preferred stock, $100 par value; 30,000 shares authorized; 21,250 and 0 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		2,014,203			—
Common stock, no par value; 120,000,000 shares authorized; 96,557,480 and 92,890,836 shares outstanding at September 30, 2008 and December 31, 2007, respectively		5,308,994			5,062,528
Preferred stock dividends distributable in common stock; 1,448,164 common shares		47,813			—
Accumulated deficit		(3,484,645	)		(2,636,578	)
Total stockholders’ equity		3,886,365			2,425,950
TOTAL	$	10,583,392		$	11,670,671

See accompanying notes to consolidated financial statements.

4

DPAC Technologies Corp.
Condensed Consolidated Statements of Operations
(Unaudited)

	For the quarter ended:						For the nine months ended:
	September 30,			September 30,			September 30,			September 30,
	2008			2007			2008			2007
NET SALES	$	1,737,094		$	3,093,479		$	7,325,547		$	8,828,246
COST OF GOODS SOLD		1,022,366			1,676,851			4,230,533			5,045,377
GROSS PROFIT		714,728			1,416,628			3,095,014			3,782,869
OPERATING EXPENSES
Sales and marketing		274,054			327,641			910,358			1,099,834
Research and development		116,207			297,694			676,253			908,993
General and administrative		319,984			396,719			1,218,474			1,348,412
Amortization of intangible assets		122,505			122,505			367,515			367,515
Total operating expenses		832,750			1,144,559			3,172,600			3,724,754
INCOME (LOSS) FROM OPERATIONS		(118,022	)		272,069			(77,586	)		58,115
OTHER (INCOME) EXPENSE:
Interest expense		152,509			363,990			574,012			1,121,246
Fair value adjustment for put warrant liability		—			(163,300	)		64,500			(217,700	)
Total other expenses		152,509			200,690			638,512			903,546
INCOME (LOSS) BEFORE INCOME TAXES		(270,531	)		71,379			(716,098	)		(845,431	)
INCOME TAX PROVISION		—			800			5,755			5,000
NET INCOME (LOSS)	$	(270,531	)	$	70,579		$	(721,853	)	$	(850,431	)
PREFERRED STOCK DIVIDENDS		47,813			—			126,214			—
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(318,344	)	$	70,579		$	(848,067	)	$	(850,431	)
NET INCOME (LOSS) PER SHARE:
Net Loss — Basic and diluted	$	0.00		$	0.00		$	(0.01	)	$	(0.01	)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		96,043,000			92,844,000			94,178,000			92,832,000
Diluted		96,043,000			97,171,000			94,178,000			92,832,000

See accompanying notes to consolidated financial statements.

5

DPAC Technologies Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	For the nine months ended
	September 30,			September 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(721,853	)	$	(850,431	)
Adjustments to reconcile net loss from operations to net cash used in operating activities:
Depreciation and amortization		451,265			472,885
Provision for bad debts		25,000			(841	)
Provision for obsolete inventory		39,000			28,000
Accretion of discount and success fees on debt		66,274			497,580
Amortization of deferred financing costs		38,368			96,305
Adjustment to put warrant liability		64,500			(217,700	)
Non-cash compensation expense		54,265			50,424
Changes in operating assets and liabilities:
Accounts receivable		758,236			(400,162	)
Inventories		(168,158	)		196,441
Prepaid expenses and other assets		(1,075	)		10,489
Accounts payable		(634,394	)		162,607
Accrued restructuring charges		(228,539	)		(295,226	)
Other accrued liabilities		(119,431	)		137,672
Net cash used in operating activities		(376,542	)		(111,957	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(56,071	)		(42,920	)
Capitalized software development costs		(87,854	)		—
Net cash used in investing activities:		(143,925	)		(42,920	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) under revolving credit facility		(617,000	)		621,000
Net borrowing under short term notes		—			15,791
Repayments on bank term loan		(112,699	)		(133,336	)
Repayments on Ohio Development loan		(93,750	)		(72,916	)
Proceeds from Subordinated term debt		1,200,000			—
Repayment of Subordinated Debt		(2,000,000	)		—
Financing costs incurred		(152,679	)		—
Principal payments on capital lease obligations		(8,855	)		(60,429	)
Net proceeds from issuance of preferred stock		2,064,203			—
Proceeds from issuance of common stock		—			4,136
Net cash provided by financing activities		279,220			374,246
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(241,247	)		219,369
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD		257,189			37,929
CASH & CASH EQUIVALENTS, END OF PERIOD	$	15,942		$	257,298
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	432,119		$	530,319
Income taxes paid	$	5,755		$	5,000
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of property under capital leases	$	—		$	13,769
Preferred stock fees and dividends paid in common stock	$	176,214		$	—

See accompanying notes to consolidated financial statements.

6

DPAC TECHNOLOGIES CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 — Summary of Significant Accounting Policies

Nature of Operations

DPAC Technologies Corp., (“DPAC”) through its wholly owned subsidiary, QuaTech Inc., (“QuaTech”) designs, manufactures, and sells device connectivity and device networking solutions for a broad market. QuaTech sells its products through a global network of distributors, system integrators, value added resellers, and original equipment manufacturers (“OEM”). QuaTech designs and manufactures communication and data acquisition products for personal computer based systems. The Company sells to customers in both domestic and foreign markets.

Basis of Presentation

On April 28, 2005, DPAC entered into a merger agreement, as amended, with QuaTech for a transaction to be accounted for as a purchase under accounting principles generally accepted in the United States of America. The merger was approved by both QuaTech and DPAC shareholders on February 23, 2006 and was consummated on February 28, 2006. For accounting purposes, the transaction is considered a “reverse merger” under which QuaTech is considered the acquirer of DPAC. Accordingly, the purchase price was allocated among the fair values of the assets and liabilities of DPAC, while the historical results of QuaTech are reflected in the results of the combined company (the “Company”). The results of operations are those of QuaTech through the merger date, and combined QuaTech and DPAC after the merger date of February 28, 2006. All intercompany transactions and balances have been eliminated in consolidation.

Some historical amounts have been reclassified to be consistent with the current financial presentation.

Interim financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

For further information, refer to the audited financial statements and footnotes thereto of DPAC for the year ended December 31, 2007 which was filed on Form 10-KSB on March 31, 2008.

Use of Estimates

In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to recording net revenue, collectibility of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.

7

New Accounting Pronouncements

In December 2007 the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (FAS 141(R)) and No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160)”. FAS 141(R) will change how business acquisitions are accounted for and FAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. FAS 141(R) and FAS 160 are effective for fiscal years beginning on or after December 15, 2008 (January 1, 2009 for the Company). The adoption of FAS 141(R) and FAS 160 are not expected to have a material impact on the Company’s consolidated financial statements.

SFAS No. 157, “Fair Value Measurements,” was adopted on January 1, 2008. SFAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosure about fair value measurements. SFAS 157 does not expand or require any new fair value measures, but is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. In February 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. 157-2, “Effective Date of FASB Statement No. 157,” which amends SFAS No. 157 by delaying the adoption of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. The FASB also amended SFAS 157 to exclude SFAS No. 13 and its related interpretive accounting pronouncements that address leasing transactions. Accordingly, the adoption of this Standard in 2008 was limited to financial assets and liabilities, which affects the disclosure of our put warrant liability and our subordinated debt success fee. The adoption of SFAS 157, as amended, did not have a material impact on the Company’s financial condition, results of operations or cash flows.

SFAS 157 includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1 —	Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 —	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 —	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following table represents our financial assets and liabilities measured at fair value on a recurring basis and the basis for that measurement:

			Fair Value Measurement at September 30, 2008 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total		Active Markets		Observable		Unobservable
	Fair Value		for Identical Assets		Inputs		Inputs
	Measurement		(Level 1)		(Level 2)		(Level 3)
Put Warrant Liability	$	193,500		—	$	193,500		—
Subordinated Debt Success Fee	$	23,548		—	$	23,548		—

The Company values the put warrant liability by calculating the difference between the Company’s closing stock price at the end of a reporting period and the exercise price per share multiplied by the number of warrants granted. In accordance with Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity,” (“SFAS 150”), the Company has classified the fair value of the warrants as a liability and changes in the fair value of the warrants are recognized in the earnings of the Company. The Company recognized no gain or loss in the third quarter 2008 and a charge of $64,500 for the nine months ended September 30, 2008. The Company recognized gains of $163,000 and $217,700 for the three and nine months ended September 30, 2007, respectively, related to the change in value of the put warrant liability. In addition, the actual settlement amount of the put warrant liability could differ materially from the value determined based on the Company’s stock price. There was no change in the valuation technique used by the Company since the last reporting period.

8

The Subordinated Debt Agreement, which funded on January 31, 2008, provides for a formula driven success fee equal to 7.0 times the trailing twelve months EBITDA minus indebtedness plus cash, times 5.5%, to be paid at maturity or a triggering event. The success fee is being accounted for in accordance with SFAS 133 “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”), as a separate contingent component of the note and will be revalued at each reporting period. The success fee is calculated at the end of each reporting period based on the trailing twelve months EBITDA, with the resultant amount multiplied times the percentage of the loan period remaining at each measurement date. As such, the liability is trued up at each reporting period based on the time elapsed, with the remaining unamortized portion of the success fee accreted monthly as additional interest expense over the remaining term of the loan. The Company recorded a charge to earnings of $8,913 during the quarter ended September 30, 2008 as an increase to the success fee liability. There was no change in the valuation technique used by the Company since the last reporting period.

Note 2 — Liquidity

As of September 30, 2008 we had a cash balance of $16,000 and a deficit in working capital of $1.0 million. This compares to a cash balance of $257,000 and a deficit in working capital of $3.7 million at the end of 2007. During the quarter ended March 31, 2008, the Company consummated an equity and financing transaction that provided $491,000 in net cash after paying off the then due existing debt. These funds were used for working capital purposes and to bring our payables to a more current position. In October 2008, the Company secured additional Senior Subordinated Debt financing for $250,000, which is due and payable on February 15, 2009, and which maturity date can be extended by the Company until January 31, 2013 upon payment of an extension fee of $25,000. Going forward, the Company is dependent on financing its operations through the use of its bank line of credit and the contribution from future revenues. A continued downturn in our revenue levels can severely impact the availability under our line of credit and limit our ability to meet our obligations on a timely basis and finance our operations as needed. At September 30, 2008, we had remaining net availability under our line of credit of $198,000. However, availability may be impacted by the amount of qualifying receivables and there is no assurance that the Company will be able to obtain additional funding if and when it may need it.

NOTE 3 — Inventories

Inventories consist of the following:

	September 30,			December 31,
	2008			2007
Raw materials and sub-assemblies	$	956,720		$	850,798
Finished goods		682,706			695,531
Less: reserve for excess and obsolete inventories		(172,677	)		(208,738	)
Total net inventories	$	1,466,749		$	1,337,591

NOTE 4 — Debt

At September 30, 2008 and December 31, 2007, outstanding debt is comprised of the following:

	September 30,			December 31,
	2008			2007
Revolving credit facility	$	1,365,000		$	1,982,000
Long term debt:
Bank term debt	$	—		$	112,699
Less: current portion		—			(112,699	)
Net long-term portion	$	—		$	—
Ohio Development Loan	$	2,185,108		$	2,244,633
Less: current portion		(125,000	)		(125,000	)
Net long-term portion	$	2,060,105		$	2,119,633
Subordinated debt	$	1,200,000		$	1,500,000
Accretion of success fees		23,548			500,000
Less: Unamortized discount for stock warrants		(55,296	)		—
		1,168,252			2,000,000
Less: current portion		—			(2,000,000	)
Net long-term portion	$	1,168,252		$	—
Total Current Portion of Long-term Debt	$	125,000		$	2,237,699
Total Net Long-term Debt	$	3,228,357		$	2,119,633
Put warrant liability	$	193,500		$	129,000

9

On January 31, 2008, the Company consummated an equity and financing transaction which consisted of an issuance of preferred stock and the funding of a new senior bank line of credit and subordinated term loan. In conjunction with the closing on January 31, 2008, the Company terminated its lending relationships with and paid in full its debt obligations with National City Bank and the Subordinated Loan Agreement with the Hillstreet Fund, notwithstanding the put warrant liability for the Hillstreet Fund.

Revolving Credit Facility

The Company has a revolving line of credit with a bank providing for a maximum $3,000,000 working capital line of credit, with a floating interest rate at the bank’s prime rate (4.5% at September 30, 2008) plus 1.5%. Availability under the line of credit is formula driven based on applicable balances of the Company’s accounts receivable and inventories. Based on the formula, at September 30, 2008 the Company had availability to draw up to a maximum of approximately $1,563,000. The line of credit contains certain financial and other covenants that the Company was in compliance with at September 30, 2008. The Credit Facility is secured by substantially all the assets of the Company and expires on January 31, 2009.

Ohio Development Loan

On January 27, 2006 QuaTech entered into a Loan Agreement with the Director of Development of the State of Ohio pursuant to which QuaTech borrowed $2,267,000 for certain eligible project financing. The State of Ohio debt accrues interest at the rate of 8.0% per year. Payments of interest only were due and payable monthly from March 2006 through February 2007. Thereafter, QuaTech is obligated to make 48 consecutive monthly principal payments of $10,417 plus interest with the balance due on February 1, 2011. On February 1, 2011 QuaTech must also pay the State of Ohio a participation fee equal to the lesser of 10% of the maximum principal amount borrowed or $250,000. The State of Ohio debt is secured by all the assets of QuaTech which security interest is subordinated to the interest of the Bank. The participation fee is being accrued as additional interest each month over the term of the loan.

Subordinated Debt

On January 31, 2008, the Company entered into a Senior Subordinated Note and Warrant Purchase Agreement (“Agreement”) with Canal Mezzanine Partners, L.P. (“Canal”), for $1,200,000. The subordinated note has a stated annual interest rate of 13% and a five year maturity date. Interest only payments are payable monthly during the first five years of the note with all principal due and payable on the fifth anniversary of the note. The Agreement also provides for a formula driven success fee based on a multiple of the trailing twelve months EBITDA, to be paid at maturity or a triggering event, and for issuance of warrants entitling Canal to purchase 3% of the Company’s fully diluted shares at time of exercise at a nominal purchase price.

The warrants have a 10 year life and are exercisable at any time. The subordinated note has been discounted by the fair value of the detachable warrants, with a corresponding contribution to capital. The discount, calculated to be $63,800 at time of issuance, is amortized as additional interest expense and accretes the note to face value at maturity. The Company determined the fair value of the warrant by using the Black-Scholes pricing model and calculating 3% of fully diluted shares at time of issuance, including a potential 50 million common shares for the conversion of the outstanding Series A preferred stock, which equated to approximately 4.9 million shares and using the closing stock price on the date of the transaction of $0.014 per share.

The success fee is defined as equal to 7.0 times the trailing twelve months EBITDA minus indebtedness plus cash, times 5.5%, to be paid at maturity or a triggering event. The success fee is being accounted for in accordance with SFAS 133 “Accounting for Derivative Instruments and Hedging Activities” as a separate contingent component of the note and will be revalued at each reporting period. The success fee is calculated at the end of each reporting period based on the trailing twelve months EBITDA, with the resultant amount multiplied times the percentage of the loan period remaining at each measurement date. As such, the liability is trued up at each reporting period based on the time elapsed, with the remaining unamortized portion of the success fee accreted monthly as additional interest expense over the remaining term of the loan.

In October 2008, the Company entered into an Amendment to the Canal Agreement and funded an additional $250,000 in Senior Subordinated Debt financing, which is due and payable on February 15, 2009, and which maturity date can be extended by the Company until January 31, 2013 upon payment of an extension fee of $25,000. The additional debt bears interest at 13% per annum, payable monthly. In connection with the Amendment, if the additional debt is not paid in full on or by February 15, 2009, Canal is entitled to exercise an additional warrant to purchase the common stock of the Company in an amount representing 0.75% of the Company’s fully diluted common stock on the date of exercise, and to increase the multiplier in the success fee, as described above, from 5.5% to 6.0%.

10

Put Warrant Liability

In connection with the Subordinated Loan Agreement between the Company and the Hillstreet Fund, entered into on February 28, 2006 and which was paid in full on January 31, 2008, the Company issued 5,443,457, and per certain default provisions is obligated to issue 1,006,000 additional, 10-year warrants (“Put Warrants”) at an exercise price of $0.00001 per share. The warrants expire on February 28, 2016. The Put Warrants continue to remain outstanding and can be “put” to the Company at any time based on criteria set forth in the warrant agreement at a price equal to the greatest of (i) the fair market value as established by a capital transaction or public offering; (ii) six times the Company’s EBITDA for the trailing 12 month period; and (iii) an appraised value. The Company has determined to value the put warrant liability by calculating the difference between the Company’s closing stock price at the end of a reporting period and the exercise price per share multiplied by the number of warrants granted. In accordance with Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity,” (“SFAS 150”), the Company has classified the fair value of the warrants as a liability and changes in the fair value of the warrants are recognized in the earnings of the Company. The Company recognized no gain or loss for the three months ended September 30, 2008 and a net charge to earnings of $64,500 for the nine months ended September 30, 2008. The Company recognized gains of $163,000 and $217,700 for the three and nine months ended September 30, 2007, respectively, related to the change in value of the put warrant liability. In addition, the actual settlement amount of the put warrant liability could differ materially from the value determined based on the Company’s stock price.

The aggregate amounts of combined long term debt, excluding the put warrant liability, maturing as of September 30th in future years is $125,000 in 2009, $125,000 in 2010, $1,944,000 in 2011, $0 in 2012, and $1,200,000 in 2013.

NOTE 5 — Concentration of Customers

No single customer accounted for more than 10% of net sales for the three or nine months ended September 31, 2008 and 2007, respectively. Accounts receivable from one customer accounted for 10% of net accounts receivable at September 30, 2008. The Company has and will have customers ranging from large OEM’s to startup operations. Any inability to collect receivables from any such customers could have a material adverse effect on the Company’s financial position and liquidity.

NOTE 6 — Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with SFAS No. 128, “Earnings Per Share.” Basic income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities by including other common stock equivalents, such as stock options and warrants, in the weighted-average number of shares outstanding for a period. Common stock equivalents are excluded from the calculation in loss periods, as the effect is anti-dilutive.

The tables below set forth the reconciliation of the denominator of the income (loss) per share calculations:

	Three-months ended
	September 30,
	2008		2007
Shares used in computing basic net income per share		96,043,000		92,884,000
Dilutive effect of stock options and warrants(1)		—		4,327,000
Shares used in computing diluted net income per share		96,043,000		97,171,000

	Nine-months ended
	September 30,
	2008		2007
Shares used in computing basic net income per share		94,178,000		92,832,000
Dilutive effect of stock options and warrants(2)		—		—
Shares used in computing diluted net income per share		94,178,000		92,832,000

(1)	Potential common shares of 7,923,000 have been excluded from diluted weighted average common shares for the three month period ended September 30, 2008, as the effect would be anti-dilutive.
(2)	Potential common shares of 7,813,000 and 4,595,000 have been excluded from diluted weighted average common shares for the nine month periods ended September 30, 2008 and 2007, respectively, as the effect would be anti-dilutive.

11

The number of shares of common stock, no par value, outstanding at September 30, 2008 was 96,557,480.

At September 30, 2008 the Company had outstanding 21,250 shares of convertible, voting, cumulative, 9% Series A preferred stock. Dividends accrue and are payable quarterly in arrears at the annual rate of 9% of the Original Issue Price of $100 per share, either in cash or common stock, at the decision of the Company. If the Company is not listed for trading on the American Stock Exchange, a NASDAQ Stock Market or the New York Stock Exchange on December 31, 2009, effective beginning January 1, 2010 dividends shall accrue and be paid quarterly in arrears at the annual rate of 15%. For purposes of valuing the common stock payable to holders of Series A Preferred in lieu of cash with respect to such quarterly dividends, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 10 day period ending the day prior the dividend payment date. To date, the Company has elected to pay such dividends in common stock. At September 30, 2008, accrued dividends of $47,813 equate to 1,448,164 common shares issuable. During the quarter ended September 30, 2008, the Company issued 1,542,339 common shares in payment of the accrued dividends of $47,813 at June 30, 2008.

Series A preferred stock can, at the option of the holder, be converted into fully paid shares of common stock. The number of shares of common stock into which shares of Series A preferred may be converted shall be obtained by multiplying the number of shares of Series A preferred to be converted by the Original Issue Price of $100 and dividing the result by the product of $0.034 (the “Reference Price”) times 1.25, which equates to 50 million common shares should the total number of outstanding preferred shares be converted. After December 31, 2009, the Company can redeem the Series A preferred shares at a price per share equal to the Original Issue Price. The holders of preferred stock have preference in the event of liquidation or dissolution of the Company over the holders of common stock.

NOTE 7 — Stock Options

Stock-Based Compensation

The Company follows Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (or “SFAS 123R”). SFAS 123R requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options and stock issued under our employee stock plans. SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our consolidated statements of operations. We adopted SFAS 123R using the modified prospective transition method, which requires that compensation expense be recognized in the financial statements for all awards granted after the date of adoption as well as for existing awards which have not vested as of the date of adoption.

Under the terms of the Company’s 1996 Stock Option Plan, (the “Plan”), qualified and nonqualified options to purchase shares of the Company’s common stock are available for issuance to employees, officers, directors, and consultants. As amended on February 23, 2006, the Plan initially calls for options to purchase 15,000,000 shares with an increase to the total number of options available in the plan by 4% of the number of outstanding shares of common stock each year until the end of the option plan. On February 23, 2006, the termination date for the plan was extended to January 11, 2011. At September 30, 2008, 9,885,000 shares were available for future grants under the Plan.

Options issued under this Plan are granted with exercise prices at fair market value and generally vest immediately for options granted to directors and at a rate of 25% per year for options granted to employees, and expire within 10 years from the date of grant or 90 days after termination of employment.

During the nine-month periods ended September, 2008 and 2007, the Company recognized compensation expense for stock options of $54,265 and $50,424 respectively. The expense is included in the consolidated statement of operations as general and administrative expense. Total unamortized compensation expense related to non-vested stock option awards at September 30, 2008 was $228,000, which is expected to be recognized over a weighted-average period of 1.8 years. The Company’s calculations were made using the Black-Scholes option-pricing model, with the following weighted average assumptions:

	For the Nine
	Months Ended September 30,
	2008			2007
Expected life		6.5 Years			3.5 Years
Volatility		195	%		131	%
Interest rate		2.8	%		4.7	%
Dividend yield		None			None

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Expected volatilities are based on historical volatility of the Company’s stock. The Company used historical experience with exercise and post employment termination behavior to determine the options’ expected lives. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield.

The following table summarizes stock option activity under DPAC’s 1996 Stock Option Plans for the nine months ended September 30, 2008:

				Weighted-
				Average		Weighted-Average		Aggregate
	Number of			Exercise		Remaining		Intrinsic
	Shares			Price		Contractual Life		Value
Outstanding — December 31, 2007		10,545,001		$	0.68
Granted (weighted-average fair value of $0.03)		3,250,000		$	0.04
Exercised		—			—
Canceled		(912,876	)	$	0.91
Outstanding — September 30, 2008		12,882,125		$	0.50		6.5 Years	$	13,680
Exercisable — September 30, 2008		8,119,625		$	0.76		5.0 Years	$	13,680

NOTE 8 — Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company’s chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer reviews financial information and makes operational decisions based upon the Company as a whole. Therefore, the Company reports as a single segment.

The Company had export sales of 37% and 28% of net sales for the three and nine months ended September 30, 2008 and 30% and 25% of net sales for the three and nine months ended September 30, 2007, respectively. Export sales were primarily to Canada, Brazil, Singapore, and Western European countries. Foreign sales are made in U.S. dollars. All long-lived assets are located in the United States.

NOTE 9 — Income Taxes

The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying values and the tax bases of assets and liabilities. The Company exercises significant judgment relating to the projection of future taxable income to determine the recoverability of any tax assets recorded on the balance sheet. DPAC regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. To the extent that recovery is not believed to be more likely than not, a valuation allowance is established. The Company has established a valuation allowance associated with its net deferred tax assets.

The valuation allowance was calculated in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance. Evidence evaluated by management included operating results during the most recent three-year period and future projections, with more weight given to historical results than expectations of future profitability, which are inherently uncertain. The Company’s net losses in recent periods represented sufficient negative evidence to require a full valuation allowance against its net deferred tax assets under SFAS No. 109. This valuation allowance will be evaluated periodically and could be reversed partially or totally if business results have sufficiently improved to support realization of deferred tax assets.

13

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (or “FIN 48”) as of January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. This Interpretation defines the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The implementation of FIN 48 did not have a material impact on the Company’s financial statements. There were no unrecognized tax benefits as of the date of adoption of FIN 48 and therefore, there is no anticipated effect upon the Company’s effective tax rate. Interest, if any, under FIN 48 will be classified in the financial statements as a component of interest expense and statutory penalties, if any, will be classified as a component of general and administrative expense.

NOTE 10 — Commitments and Contingencies

Legal Proceedings

We are subject to various legal proceedings and threatened legal proceedings from time to time as part of our business. We are not currently party to any legal proceedings nor are we aware of any threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, we believe would have a material adverse effect on our business, financial condition and results of operations. However, any potential litigation, regardless of its merits, could result in substantial costs to us and divert management’s attention from our operations. Such diversions could have an adverse impact on our business, results of operations and financial condition.

Other Contingent Contractual Obligations

Over time, the Company has made and continues to make certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include: indemnities to past, present and future directors, officers, employees and other agents pursuant to the Company’s Articles, Bylaws, resolutions, agreements or otherwise; indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease; indemnities to vendors and service providers pertaining to claims based on the negligence or willful misconduct of the Company; and indemnities pursuant to contracts involving protection of selling security holders against claims by third parties arising from any alleged inaccuracy of information in registration statements filed by the Company with the SEC or involving indemnification of the other parties to contracts from any damages arising from misrepresentations made by the Company. The Company may also issue a guarantee in the form of a standby letter of credit as security for contingent liabilities under certain customer contracts. The duration of these indemnities, commitments and guarantees varies and, in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees may not provide for any limitation of the future payments that the Company could potentially be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying balance sheets.

The Company is party to severance agreements with the current CEO and CFO that provide for compensation equivalent to one year of compensation and six months of compensation, respectively, should either individual be terminated for any reason other than cause.

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

Please refer to the Cautionary Statement Related to Forward-Looking Statements set forth on page 2 of this Report, which is incorporated herein by reference. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed financial statements and notes to those statements included elsewhere in this Report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction/Business Overview

DPAC, through its wholly-owned subsidiary, QuaTech, designs, manufactures, and sells device connectivity and device networking solutions for a broad market. QuaTech sells its products through a global network of distributors, system integrators, value added resellers, and original equipment manufacturers (“OEM”). QuaTech also offers data acquisition products to a limited number of OEM customers and resellers.

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QuaTech products can be categorized into two broad product lines:

Our Device Connectivity products include:

• Multi-port serial boards that add ports to desktop computers to allow for the connection of multiple peripherals with standard interfaces. These products are used in a variety of industries including banking, transportation management, kiosks, satellite communications, and retail point of sale.

• Mobile products that add ports for laptop and handheld computers. These products include multi-port serial adapters, parallel port adapters, and Bluetooth products.

• USB to Serial products that add standard serial ports to any computing environment through a USB port. These products address the need to add connectivity through a solution that is external to the computer. These products are used in several markets including retail point of sale and kiosks.

Our Device Networking products include:

• Serial device server products that connect peripherals to a local area network through a standard TCP/IP interface. This product line was introduced in 2003 and was extended in 2004 through the introduction of product models that connect to the local area network through a wireless 802.11 interface.

• Industrial rated, embedded wireless modules that enable OEM customers to add standard 802.11 connectivity capabilities to their products. These modules address the needs of a number of industries including transportation, telematics, warehouse and logistic, and point of sale.

This overview of our business reflects DPAC’s acquisition of QuaTech, which was completed by way of a reverse merger (the “Merger”) in which QuaTech became a wholly-owned subsidiary of DPAC. The Merger, as previously reported, was consummated on February 28, 2006.

Risks

Period-to-period comparisons of our financial results are not necessarily meaningful and should not be relied upon as indications of future performance. It is likely that from time to time our operating results will be below the expectations of some investors and not above the expectations of enough investors. In such events, the market price of our common stock would be adversely affected, in some proportion, and perhaps disproportionately. We ourselves have difficulties forecasting, and there are numerous risks and uncertainties concerning the timing of our customers’ initiating their production orders and the amounts of such orders, fluctuating market demand for and declines in the selling prices of similar products, decreases or increases in the costs of the components, uncertain market acceptance, our competitors, delays, or other problems with new products, software, manufacturing, inefficiencies, cost overruns, fixed overhead costs, competition from new wireless products using 802.11 with newer technology, and challenges managing production from overseas suppliers, among other factors, each of which will make it more difficult for us to meet expectations.

Other primary factors that may in the future affect our results of operations include our efforts to reduce our operating expenses and our fixed overhead. Our costs in any particular period could include higher costs associated with stock-based compensation and /or higher costs associated with adjusting the liability for warrants to their fair value through earnings at each reporting period.

These risks should be read in connection with the detailed risks associated with DPAC and QuaTech set forth under the captions “Risk Factors” in Form 10-KSB filed with the SEC on March 31, 2008 and “Risk Factors—Industry and Business Risks Related to DPAC and Its Business” and “Risk Factors—Industry and Business Risks Related to QuaTech and Its Business” in the registration statement of Form S-4/A filed with the SEC on January 9, 2006.

15

Results of Operations and Financial Condition

Three Months Ended September 30, 2008 and 2007

The following table sets forth certain Condensed Consolidated Statement of Operations data in total dollars, as a percentage of net revenues and as a percentage change from the same period in the prior year. This information should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Form 10-Q.

	For the Three Months Ended:
	September 30, 2008						September 30, 2007						Change
	Results			% of Sales			Results			% of Sales			Dollars			%
NET SALES	$	1,737,094			100	%	$	3,093,479			100	%	$	(1,356,385	)		-44	%
COST OF GOODS SOLD		1,022,366			59	%		1,676,851			54	%		(654,485	)		-39	%
GROSS PROFIT		714,728			41	%		1,416,628			46	%		(701,900	)		-50	%
OPERATING EXPENSES
Sales and marketing		274,054			16	%		327,641			11	%		(53,587	)		-16	%
Research and development		116,207			7	%		297,694			10	%		(181,487	)		-61	%
General and administrative		319,984			18	%		396,719			13	%		(76,735	)		-19	%
Amortization of intangible assets		122,505			7	%		122,505			4	%		—			0	%
Total operating expenses		832,750			48	%		1,144,559			37	%		(311,809	)		-27	%
INCOME (LOSS) FROM OPERATIONS		(118,022	)		-7	%		272,069			9	%		(390,091	)		-143	%
OTHER (INCOME) EXPENSE:
Interest expense		152,509			9	%		363,990			12	%		(211,481	)		-58	%
Fair value adjustment for warrant liability		—			0	%		(163,300	)		-5	%		163,300			-100	%
Total other expenses		152,509			9	%		200,690			6	%		(48,181	)		-24	%
LOSS BEFORE INCOME TAXES		(270,531	)		-16	%		71,379			2	%		(341,910	)		-479	%
INCOME TAX PROVISION		—			0	%		800			0	%		(800	)		-100	%
NET LOSS	$	(270,531	)		-16	%	$	70,579			2	%	$	(341,110	)		-483	%
PREFERRED STOCK DIVIDENDS		47,813			3	%		—			0	%		47,813			—
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(318,344	)		-18	%	$	70,579			2	%	$	(388,923	)		-551	%

Net Sales. Net sales of $1.7 million for the quarter ended September 30, 2008 decreased by $1.4 million or 44% as compared to net sales for the prior year third quarter. Net sales related to the Company’s Device Connectivity products decreased $730,000, or 39% from the quarter ended September 30, 2007, and net sales related to the Company’s Device Networking products, including the Airborne wireless product line, decreased by $626,000, or 52% from the prior year period.

Gross Profit. Gross profit decreased by $702,000 or 50% as a result of the decrease in net sales. Gross profit as a percentage of net sales decreased from 46% to 41% due to the decrease in net sales and absorbing fixed overhead expenses over a lower revenue base.

Sales and Marketing Expenses. Sales and marketing expenses for the quarter ended September 30, 2008 of $274,000 decreased by $54,000 or 16% from the prior year third quarter. The decrease is due primarily to a decrease in personnel costs, including benefits and travel related costs, of $37,000 and a decrease in advertising costs of $25,000.

16

Research and Development Expenses. Research and development expenses of $116,000 for the third quarter of 2008 decreased by $181,000 or 61% as compared to the third quarter of 2007. During the third quarter of 2008, approximately $88,000 of payroll related expenses were capitalized as software development costs, in accordance with SFAS 86, reducing development expense by the amount capitalized. Additionally, there was an $85,000 decrease in personnel and outside consulting costs incurred in the third quarter of 2008 as compared to 2007. The Company will continue to invest in research and development to expand and develop new wireless products. See “Forward-Looking Statements.”

General and Administrative Expenses. General and administrative expenses of $320,000 incurred for the third quarter of 2008 decreased by $77,000 or 19% from the prior year period. The decrease was due primarily to a reduction in headcount resulting in a decrease in salary and benefits.

Amortization of Intangible Assets. Amortization expense is related to the amortization of purchased intangible assets acquired in the Merger on February 28, 2006 being amortized over 5 years.

Interest Expense. The Company incurred interest and financing costs of $152,000 during the third quarter of 2008, as compared to $364,000 incurred in the same period of the prior year. The decrease is due to lower average debt balances and lower effective interest rates. The following non-cash charges are included in interest expense for the third quarter of 2008: accretion of success fees of $20,000, amortization of deferred financing costs of $17,000, and amortization of the discount for warrants of $3,000. The following non-cash charges are included in interest expense for the third quarter of 2007: accretion of success fees of $67,000 amortization of deferred financing costs of $24,000, and amortization of the discount for warrants of $60,000.

Fair Value Adjustment of Put Warrant Liability. During the third quarter of 2008, the company recorded no gain or loss related to the adjustment of the liability for the warrant associated with the Hillstreet Fund. Under SFAS 150, the Company is required to adjust the warrant to its fair value through earnings at the end of each reporting period. At September 30, 2008, based on the Company’s common stock share price of $0.03, the Company calculated the fair value of the warrant to be $193,500, which was the same value as calculated on June 30, 2008.

Income Taxes. The Company has recorded a full valuation allowance against the Company’s related deferred tax assets. Recent net operating losses represent sufficiently negative evidence to require a continued valuation allowance against the net deferred tax assets. This valuation allowance will be evaluated periodically and could be reversed partially or totally if business results have sufficiently improved to support realization of our deferred tax assets.

Preferred Stock Dividends. During the quarter ended March 31, 2008, the Company issued 21,250 shares of convertible, cumulative, 9% series A preferred stock, $100 par value.

17

Nine Months Ended September 30, 2008 and 2007

The following table sets forth certain Condensed Consolidated Statement of Operations data in total dollars, as a percentage of net revenues and as a percentage change from the same period in the prior year. This information should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Form 10-Q.

	For the Nine Months Ended:
	September 30, 2008						September 30, 2007						Change
	Results			% of Sales			Results			% of Sales			Dollars			%
NET SALES	$	7,325,547			100	%	$	8,828,246			100	%	$	(1,502,699	)		-17	%
COST OF GOODS SOLD		4,230,533			58	%		5,045,377			57	%		(814,844	)		-16	%
GROSS PROFIT		3,095,014			42	%		3,782,869			43	%		(687,855	)		-18	%
OPERATING EXPENSES
Sales and marketing		910,358			12	%		1,099,834			12	%		(189,476	)		-17	%
Research and development		676,253			9	%		908,993			10	%		(232,740	)		-26	%
General and administrative		1,218,474			17	%		1,348,412			15	%		(129,938	)		-10	%
Amortization of intangible assets		367,515			5	%		367,515			4	%		—			0	%
Total operating expenses		3,172,600			43	%		3,724,754			42	%		(552,154	)		-15	%
INCOME (LOSS) FROM OPERATIONS		(77,586	)		-1	%		58,115			1	%		(135,701	)		-234	%
OTHER (INCOME) EXPENSE:
Interest expense		574,012			8	%		1,121,246			13	%		(547,234	)		-49	%
Fair value adjustment for warrant liability		64,500			1	%		(217,700	)		-2	%		282,200			-130	%
Total other expenses		638,512			9	%		903,546			10	%		(265,034	)		-29	%
LOSS BEFORE INCOME TAXES		(716,098	)		-10	%		(845,431	)		-10	%		129,333			-15	%
INCOME TAX PROVISION		5,755			0	%		5,000			0	%		755			15	%
NET LOSS	$	(721,853	)		-10	%	$	(850,431	)		-10	%	$	128,578			-15	%
PREFERRED STOCK DIVIDENDS		126,214			2	%		—			0	%		126,214			—
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(848,067	)		-12	%	$	(850,431	)		-10	%	$	2,364			0	%

Net Sales. Net sales of $7.3 million for the nine month period ended September 30, 2008 decreased by $1.5 million or 17% as compared to net sales for the comparable prior year period. Net sales related to the Company’s Device Connectivity products decreased $1.4 million, or 24% from the nine months ended September 30, 2007, and net sales related to the Company’s Device Networking products, including the Airborne wireless product line, decreased by $129,000, or 4% from the prior year period.

Gross Profit. Gross profit decreased by $688,000 or 18% from the prior year period as a result of the decrease in net sales. Gross profit as a percentage of net sales decreased from 43% to 42% due to absorbing fixed overhead costs over a lower revenue base

Sales and Marketing Expenses. Sales and marketing expenses for the nine months ended September 30, 2008 of $910,000 decreased by $189,000 or 17% from the prior year period. The decrease is due primarily to a decrease in personnel costs, including benefits and travel related costs. These cost reductions are the result of the Company’s efforts to integrate the sales and marketing departments of DPAC and Quatech during 2007.

Research and Development Expenses. Research and development expenses of $676,000 for the first nine months of 2008 decreased by $233,000 or 26% as compared to the comparable period of 2007. The decrease is due primarily to a decrease in personnel and consulting costs incurred, including benefits and travel related costs, of $149,000. Additionally, during the first nine months of 2008, $88,000 of total payroll related expenses were capitalized as software development costs, in accordance with SFAS 86, reducing development expense by the same amount capitalized. The Company will continue to invest in research and development to expand and develop new wireless products. See “Forward-Looking Statements.”

General and Administrative Expenses. General and administrative expenses incurred for the nine months ended September 30, 2008 of $1.2 million decreased by $130,000 or 10% from the prior year period. The decrease was due primarily to decreases in salaries and benefits of $65,000 and in facilities rent and utilities of $67,000 related to the Company’s Southern California facility. Effective April 1, 2007, the Company terminated its lease and relocated out of its Garden Grove, CA facility into office space sized appropriately for the Company’s needs.

18

Amortization of Intangible Assets. Amortization expense is related to the amortization of purchased intangible assets acquired in the Merger on February 28, 2006 being amortized over 5 years.

Interest Expense. The Company incurred interest and financing costs of $574,000 for the first nine months of 2008 as compared to $1.1 million incurred in the same period of the prior year. The decrease is due to lower average debt balances and lower effective interest rates. Interest expense in the current year period included the payment and write-off of deferred financing fees in the amount of $50,000 due to the termination of a financing placement agreement. The following non-cash charges are included in interest expense during the first nine months of 2008: accretion of success fees of $58,000, amortization of deferred financing costs of $38,000, and amortization of the discount for warrants of $9,000. The following non-cash charges are included in interest expense during the first nine months of 2007: accretion of success fees of $256,000, amortization of deferred financing costs of $96,000, and amortization of the discount for warrants of $242,000.

Fair Value Adjustment of Put Warrant Liability. For the nine months ended September 30, 2008, the company recorded a $64,500 charge to earnings related to the adjustment of the liability for the warrant associated with the Hillstreet Fund. Under SFAS 150, the Company is required to adjust the warrant to its fair value through earnings at the end of each reporting period. At September 30, 2008, based on the Company’s common stock share price of $0.03, the Company calculated the fair value of the warrant to be $193,500.

Income Taxes. The Company has recorded a full valuation allowance against the Company’s related deferred tax assets. Recent net operating losses represent sufficiently negative evidence to require a continued valuation allowance against the net deferred tax assets. This valuation allowance will be evaluated periodically and could be reversed partially or totally if business results have sufficiently improved to support realization of our deferred tax assets.

Preferred Stock Dividends. During the quarter ended March 31, 2008, the Company issued 21,250 shares of convertible, cumulative, 9% series A preferred stock, $100 par value.

Liquidity and Capital Resources

As of September 30, 2008 we had a cash balance of $16,000 and a deficit in working capital of $1.0 million. This compares to a cash balance of $257,000 and a deficit in working capital of $3.7 million at the end of 2007. During the quarter ended March 31, 2008, the Company consummated an equity and financing transaction that provided $491,000 in net cash after paying off the then due existing debt. These funds were used for working capital purposes and to bring our payables to a more current position. In October 2008, the Company secured additional Senior Subordinated Debt financing for $250,000, which is due and payable on February 15, 2009, and which maturity date can be extended by the Company until January 31, 2013 upon payment of an extension fee of $25,000. Going forward, the Company is dependent on financing its operations through the use of its bank line of credit and the contribution from future revenues. A downturn in our revenue levels can severely impact the availability under our line of credit and limit our ability to meet our obligations on a timely basis and finance our operations as needed. At September 30, 2008, we had remaining net availability under our line of credit of $198,000. However, availability may be impacted by the amount of qualifying receivables and there is no assurance that the Company will be able to obtain additional funding if and when it may need it.

The equity and financing transaction consummated during the quarter ended March 31, 2008, consisted of an issuance of convertible preferred stock and the funding of a new senior bank line of credit and subordinated term debt. The preferred stock issuance for $2.1 million consists of 21,250 shares of Series A Preferred shares. The Preferred shares carry an initial annual dividend rate of 9% and contain conversion rights allowing the preferred shares to be converted into Company’s common stock. The senior debt is a $3.0 million working capital line of credit from Fifth Third Bank in Cincinnati, OH, with a floating interest rate of the bank’s prime rate plus 1.5%. Availability under the line of credit is formula-driven based on applicable balances of the Company’s accounts receivable and inventories. At September 30, 2008, based on the formula-driven calculation, the Company had available under the line a maximum of approximately $1.6 million, of which the Company had drawn $1.4 million. The line of credit contains certain financial and other covenants that the Company must comply with. Additionally, on January 31, 2008, the Company entered into a Senior Subordinated Note and Warrant Purchase Agreement (“Agreement”) with Canal Mezzanine Partners, L.P. (“Canal”), providing the Company with approximately $1.1 million in net funding. The note contained in the Agreement has a stated principal balance of $1.2 million with an annual interest rate of 13% and a five-year maturity date. Interest-only payments are payable monthly during the first five years of the note with all principal due and payable on the fifth anniversary of the note. The Agreement also provides for a formula-driven success fee based on a multiple of the trailing twelve months EBITDA to be paid at maturity and for issuance of a warrant entitling Canal to purchase 3% of the Company’s fully diluted shares at time of exercise at a nominal purchase price.

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In October 2008, the Company entered into an Amendment to the Canal Agreement and funded an additional $250,000 in Senior Subordinated Debt financing which is due and payable on February 15, 2009, and which maturity date can be extended by the Company until January 31, 2013 upon payment of an extension fee of $25,000. The additional debt bears interest at 13% per annum, payable monthly. In connection with the Amendment, if the additional debt is not paid in full on or by February 15, 2009, Canal is entitled to exercise an additional warrant to purchase the common stock of the Company in an amount representing 0.75% of the Company’s fully diluted common stock on the date of exercise, and to increase the multiplier in the success fee, as described above, from 5.5% to 6.0%.

In conjunction with the closing of the foregoing transactions on January 31, 2008, the Company terminated its lending relationship with and paid in full its debt obligations with National City Bank and the Hillstreet Fund, notwithstanding the warrant liability for the Hillstreet Fund.

Although the rate at which cash will be consumed is dependent on the amount of revenues realized during each period and on the amount of costs incurred, management believes that our cash position and borrowings available under our line of credit will be adequate to continue to maintain liquidity to support our operating activities for the near term.

The actual amount and timing of working capital and capital expenditures that we may incur in future periods may vary significantly and will depend upon many factors, including the amount and timing of the receipt of revenues from operations, any potential acquisitions or divestitures, an increase in manufacturing capabilities, the reduction of liabilities, the timing and extent of the introduction of new products and services and growth in personnel and operations. If needed, there can be no assurance that additional financing will be available on terms favorable to the Company, if at all. If internally generated funds are inadequate, we may scale back expenditures or seek other financing, which might include sales of equity securities that could dilute existing shareholders. See “Cautionary Statements.”

Net cash used in operating activities for the nine months ended September 30, 2008 was $377,000 as compared to $112,000 used in the first nine months of 2007. The net loss of $722,000 incurred in the first nine months of 2008 was off-set by non-cash items, including depreciation, amortization, accretion of success fees and warrant liability, totaling $739,000. Cash was primarily used to fund an increase in inventory of $168,000, pay down accounts payable by $634,000 and accrued restructuring costs and other accrued liabilities by $348,000. A reduction in accounts receivable contributed $758,000 to cash.

Net cash used in investing activities in the nine months ended September 30, 2008 consisted of capitalized software costs of $88,000 and property additions of $56,000.

Net cash provided by financing activities for the nine months ended September 30, 2008 was $279,000 as compared to $374,000 provided during the nine months of 2007. Cash provided in the current year period consisted of proceeds from the issuance of preferred stock of $2.1 million and proceeds from new subordinated term debt of $1.2 million. These amounts were partially offset by the principal pay-off of the previously existing subordinated term debt of $2.0 million, net repayments under revolving credit facilities of $617,000, pay-off of bank term debt of $113,000, principal payments on the Ohio Development loan of $94,000, and deferred financing costs incurred of $153,000.

As of September 30, 2008, we were in compliance with our bank financial covenants.

The Company operates at leased premises in Hudson, Ohio and leased executive offices in Seal Beach, California, which are adequate for the Company’s needs for the near term.

The Company does not expect to acquire more than $100,000 in capital equipment during the remainder of the fiscal year.

Off Balance Sheet Arrangements

Our off-balance sheet arrangements consist primarily of conventional operating leases, purchase commitments and other commitments arising in the normal course of business, as further discussed below under “Contractual Obligations and Commercial Commitments.” As of September 30, 2008, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

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Contractual Obligations and Commercial Commitments

Purchase Commitments with Contract Manufacturers. We generally issue purchase orders to our contract manufacturers with delivery dates from four to eight weeks from the purchase order date. In addition, we regularly provide such contract manufacturers with rolling six-month forecasts of material and finished goods requirements for planning and long-lead time parts procurement purposes only. We are committed to accept delivery of materials pursuant to our purchase orders subject to various contract provisions which may in certain limited circumstances allow us to delay receipt of such orders or cancel orders beyond certain agreed lead times. Such cancellations, if any, may or may not result in cancellation costs payable by us. Cancellation without contractual permission to do so would result in additional potential losses, damages and costs. In the past, we have been required to take delivery of materials from our suppliers that were in excess of our actual requirements at the time of delivery, and we have previously recognized charges and expenses related to such excess material. If we are unable to adequately manage our commitments to contract manufacturers and adjust such commitments for changes in demand, we may incur additional costs and expenses, including without limitation inventory expenses related to excess and obsolete inventory. Such costs and expenses could have a material adverse effect on our business, financial condition and results of operations.

Other Purchase Commitments. We also incur various purchase obligations with other vendors and suppliers for the purchase of inventory, as well as other goods and services, in the normal course of business. These obligations are generally evidenced by purchase orders with delivery dates from four to six weeks from the purchase order date, and in certain cases, supply agreements that contain the terms and conditions associated with these purchase arrangements. We are committed to accept delivery of such materials pursuant to such purchase orders subject to various contract provisions which allow us to delay receipt of such orders or cancel orders beyond certain agreed lead times. Such cancellations may or may not result in cancellation costs payable by us. In the past, we have been required to take delivery of materials from our suppliers that were in excess of our requirements and we have previously recognized charges and expenses related to such excess material. If we are not able to adequately manage our supply chain and adjust such commitments for changes in demand, we may incur additional inventory expenses related to excess and obsolete inventory. Such expenses could have a material adverse effect on our business, financial condition and results of operations.

Severance Agreement Commitments. The Company is party to severance agreements with former employees and is obligated to continue payments under these agreements, with the latest obligation being due in April 2009. The balance due from these arrangements at September 30, 2008 is $92,000 in short-term obligations. The severance liability primarily arose from the accrued restructuring costs assumed at time of the merger and is included in accrued restructuring costs in the financial statements.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America and the Company’s discussion and analysis of its financial condition and results of operations requires the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported in its financial statements and accompanying notes. Note 1 of the notes to DPAC’s audited financial statements, filed on Form 10-KSB, describes the significant accounting policies and methods used in the preparation of the Company’s financial statements. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.

Management believes the Company’s critical accounting policies are those related to revenue recognition, allowance for doubtful accounts, warranty reserves, inventory valuation, valuation of long-lived assets including acquired intangibles, goodwill and trademarks, accounting for costs associated with business combinations, accrual of income tax liability estimates, accounting for our put warrant liability, and accounting for stock-based compensation. Management believes these policies to be critical because they are both important to the portrayal of the Company’s financial condition and results of operations, and they require management to make judgments and estimates about matters that are inherently uncertain.

We recognize product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable and there are no post–delivery obligations other than warranty. In those instances where customers have right of return, which typically would be for initial stocking orders for distributors, revenue is deferred until confirmation has been received from the customer indicting that the product has shipped and completed the sales cycle. Some distributors have annual stock rotation or return provisions which are typically limited to 5% of the previous twelve months of shipments. In these situations, we reserve the appropriate percentage against shipments throughout the period as deferred revenue. We do not typically have any post delivery obligations other than warranty. The Company also offers marketing incentives to certain customers. These incentives are incurred based on the level of expenses the customers incur and are charged to operations as expenses in the same period. Development revenue is recognized when services are performed and was not material for any of the periods presented.

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We establish an allowance for doubtful accounts and a warranty reserve based on historical experience and believe the collection of revenues, net of these reserves, is reasonably assured.

The allowance for doubtful accounts is an estimate for potential non-collection of accounts receivable based on historical experience and known circumstances regarding collectibility of customer accounts. Accounts will be written off as uncollectible if the company determines the amount cannot be collected. The Company has not experienced a non-collection of accounts receivable materially affecting its financial position or results of operations. If the financial condition of the Company’s customers were to deteriorate causing an impairment of their ability to make payments, additional provisions for bad debts may be required in future periods.

The Company records a warranty reserve as a charge against earnings based on historical warranty claims and estimated costs. If actual returns are not consistent with the historical data used to calculate these estimates, additional warranty reserves could be required.

Inventories consist principally of raw materials, sub-assemblies and finished goods, which are stated at the lower of average cost or market. The Company records an inventory reserve as a charge against earnings for potential slow-moving or obsolete inventory. The reserve is evaluated quarterly utilizing both historical movement over a three year period as compared to quantities on-hand and qualitative factors related to the age of product lines. Significant changes in market conditions, including potential changes in technology, in the future may require additional inventory reserves.

We capitalize certain software development costs after a product becomes technologically feasible and before its general release to customers. Significant judgment is required in determining when a product becomes ‘‘technologically feasible.’’ Capitalized development costs are then amortized over the product’s estimated life beginning upon general release of the product. Periodically, we compare a product’s unamortized capitalized cost to the product’s net realizable value. To the extent unamortized capitalized cost exceeds net realizable value based on the product’s estimated future gross revenues (reduced by the estimated future costs of completing and selling the product) the excess is written off. This analysis requires us to estimate future gross revenues associated with certain products and the future costs of completing and selling certain products. Changes in these estimates could result in write-offs of capitalized software costs. As of September 30, 2008, certain development costs of the Company met the criteria of SFAS 86 for the capitalization of software development costs. Accordingly, $87,854 of software development costs are capitalized as of September 30, 2008.

In accordance with SFAS No. 142, goodwill is subject to an impairment assessment at least annually which may result in a charge to operations if the fair value of the reporting unit in which the goodwill is reported declines. The Company tests goodwill and trademarks on at least an annual basis at the end of the fourth quarter, and more often if circumstances should dictate, for impairment. Other intangible assets are amortized over their estimated useful lives. The determination of related estimated useful lives of other intangible assets and whether goodwill and trademarks are impaired involves judgments based upon long-term projections of future performance. The Company operates in a single business segment as a single business unit and annually reviews the recoverability of the carrying value of goodwill using the methodology prescribed in SFAS No. 142. Recoverability of goodwill is determined by comparing the fair value of the entire Company to the accounting value of the underlying net assets. Based on the results of the most recently completed analysis, the Company’s goodwill and trademarks were not impaired as of December 31, 2007. No event has occurred as of or since the period ended December 31, 2007 that would give management an indication that an impairment charge was necessary that would adversely affect the Company’s financial position or results of operations.

Deferred tax assets and liabilities are recorded based on SFAS 109. The Company records an estimated income tax liability to recognize the amount of income taxes payable or refundable for the current year and deferred income tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or income tax returns. Judgment is required in estimating the future income tax consequences of events that have been recognized in the Company’s financial statements or the income tax returns. The Company estimates and provides an allowance for deferred tax assets based on estimated realization of the asset utilizing information related to historical taxable income and projected taxable income.

Effective January 1, 2006, the Company adopted SFAS No. 123R using the modified prospective method. Under this method, compensation cost recognized includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 amortized over the options’ vesting period, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R amortized on a straight-line basis over the options’ vesting period.

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The Company values the put warrant liability by calculating the difference between the Company’s closing stock price at the end of a reporting period and the exercise price per share multiplied by the number of warrants granted. In accordance with Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity,” (“SFAS 150”), the Company has classified the fair value of the put warrants as a liability and changes in the fair value of the warrants are recognized in the earnings of the Company. Changes in our stock price can have a material impact to the put warrant valuation and, therefore, to our financial statements. Additionally, the actual settlement amount of the put warrant liability could differ materially from the value determined based on the Company’s stock price.

The Company amortizes deferred debt issuance costs using the effective interest method.

Item 4T — Controls and Procedures.

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2008, the end of the period covered by this report, as required by Exchange Act Rule 13a–15(b). The Company’s disclosure controls were designed to provide reasonable assurance that information required to be disclosed in reports filed or furnished under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the Company’s disclosure controls have been designed to provide reasonable assurance of achieving the controls’ stated goals. Based on the foregoing evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1 — Legal Proceedings.

We are or could be subject to various legal proceedings and threatened legal proceedings from time to time as part of the conduct of our business. We believe we are not currently party to any material legal proceedings nor are we aware of any threatened material legal proceedings, the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on our business, financial condition and results of operations. However, any potential litigation, regardless of its merits, could result in substantial costs to us and divert management’s attention from our operations. Such costs and diversions could have a material adverse impact on our business, results of operations and financial condition.

Item 5 — Other Information.

In connection with the Amendment to the Canal Agreement during October, 2008 discussed above in Note 4 to the unaudited condensed consolidated financial statements of the Company, the Company previously filed with the Securities and Exchange Commission a current report on Form 8-K on October 16, 2008 and furnished as exhibits certain agreements related to such Amendment. The Company is furnishing with this quarterly report copies of such exhibits conforming to the parties’ subsequent understanding with respect to the date of execution.

Item 6 — Exhibits.

Exhibit No.		Description
	4.1	Warrant to Purchase Common Stock of DPAC Technologies Corp., issued to Canal Mezzanine Partners, L.P., dated as of October 22, 2008.
	10.1	Amendment No. 1 to Senior Subordinated Note and Warrant Purchase Agreement and Amendment No. 1 to Security Agreement, by and among DPAC Technologies Corp., QuaTech, Inc. and Canal Mezzanine Partners L.P., dated October 22, 2008.
	10.2	Senior Subordinated Note made by DPAC Technologies Corp. and QuaTech, Inc. in favor of Canal Mezzanine Partners L.P., dated October 22, 2008.
	31.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a).
	32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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.

	DPAC TECHNOLOGIES CORP.    (Registrant)
Date: November 14, 2008	By:	/s/ STEVEN D. RUNKEL
		Steven D. Runkel,
		Chief Executive Officer
Date: November 14, 2008	By:	/s/ STEPHEN J. VUKADINOVICH
		Stephen J. Vukadinovich,
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.		Description
	4.1	Warrant to Purchase Common Stock of DPAC Technologies Corp., issued to Canal Mezzanine Partners, L.P., dated as of October 22, 2008.
	10.1	Amendment No. 1 to Senior Subordinated Note and Warrant Purchase Agreement and Amendment No. 1 to Security Agreement, by and among DPAC Technologies Corp., QuaTech, Inc. and Canal Mezzanine Partners L.P., dated October 22, 2008.
	10.2	Senior Subordinated Note made by DPAC Technologies Corp. and QuaTech, Inc. in favor of Canal Mezzanine Partners L.P., dated October 22, 2008.
	31.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a).
	32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EX-4.1

Exhibit 4.1

EXECUTION COPY

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL THAT SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS.

DPAC Technologies Corp.
Warrant Certificate
Common Stock Purchase Warrant
of
Canal Mezzanine Partners, L.P.

Dated as of October 22, 2008

Warrant Certificate

Dated as of October 22, 2008

This Warrant Certificate certifies that, for value received, Canal Mezzanine Partners, L.P. (together with its successors and assigns, the “Holder”), is entitled to purchase from DPAC Technologies Corp., a California corporation (together with its successors and assigns, the “Company”), that number of shares of common stock of the Company that will equal seventy five one hundredths percent (0.75%) of the Fully Diluted Shares of the Company on the date of exercise, at an aggregate exercise price of One Dollar ($1) (the “Warrant Purchase Price”) (such number of shares of common stock purchasable hereunder being subject to adjustment as provided herein), and to exercise the other rights, powers and privileges hereinafter provided, all on the terms and subject to the conditions hereinafter set forth. This Warrant Certificate is being issued by the Company pursuant to the Senior Subordinated Note and Warrant Purchase Agreement dated as of January 31, 2008 by and between the Company, as seller, Quatech, Inc., an Ohio corporation and wholly owned subsidiary of the Company, and the Holder, as purchaser (as amended from time to time, the “Purchase Agreement”). Reference is hereby made to the Purchase Agreement and that certain Registration Rights Agreement, dated of January 31, 2008, by and among the Company and the Holder (as amended, modified and supplemented from time to time, the “Registration Rights Agreement”), for a description of, among other things, certain terms relating to the Warrant and the Warrant Shares and certain rights of the Holder hereof and thereof, including, without limitation, the rights of the Holder to require the registration of the Warrant Shares. The Holder is entitled to the applicable benefits of the Purchase Agreement, the Registration Rights Agreement and the other Related Documents and may enforce the applicable agreements contained therein, all in accordance with the terms thereof, notwithstanding any payment or prepayment or redemption or acquisition of any of the other Securities issued pursuant to the Purchase Agreement.

Section 1. Definitions. All capitalized terms not otherwise defined herein shall have the definitions set forth in the Glossary of Defined Terms attached to the Purchase Agreement, which definitions are, to the extent applicable, incorporated in this Warrant Certificate by reference.

Section 2. Exercise of Warrant.

2.1 Warrant Exercise. The Warrant shall be exercisable either as to some or as to all of the Warrant Shares at any time after January 31, 2008 if that certain Senior Subordinated due February 15, 2009 in the principal amount of $250,000 (the “Note”) is not repaid in full on or before the Maturity Date (as defined in the Note), or from time to time, after the date hereof; provided, that if any exercise of this Warrant by the Holder is a partial exercise, any calculation of Fully Diluted Shares upon a subsequent exercise by the Holder shall not be deemed to include the Warrant Shares issued to the Holder as a result of the previous partial exercise(s). Upon a partial exercise of the Warrant by the Holder, the Warrant Purchase Price shall be pro-rated to reflect the proportionate amount of Warrant Shares being exercised upon such partial exercise in relation to the full amount of Warrant Shares exerciseable for hereunder.

2.2 Manner of Exercise. To exercise this Warrant, the Holder shall deliver to the Company: (a) this Warrant Certificate, (b) a notice of exercise (substantially in the form attached hereto) (the “Notice of Exercise”) specifying the Warrant Shares to be purchased, executed by a duly authorized officer of the Holder (or its attorney), and (c) an amount equal to the Warrant Purchase Price for all Warrant Shares as to which this Warrant is then being exercised.

2.3 Effectiveness of Exercise. The exercise of the Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant Certificate, the Notice of Exercise and the Warrant Purchase Price shall have been delivered and immediately prior to the close of business on such Business Day the Holder shall be deemed to have become the holder of record of the Warrant Shares.

2.4 Delivery of Certificates. As soon as practicable after the exercise of the Warrant, and in any event within five (5) Business Days thereafter, the Company, at its expense (including any applicable issue Taxes), will cause to be issued in the name of and delivered to the Holder a certificate or certificates representing the number of Warrant Shares to which the Holder shall be entitled upon such exercise. If the exercise of the Warrant is for less than all of the Warrant Shares, the Company shall issue a new Warrant Certificate of like tenor for the balance of the Warrant Shares issuable upon exercise of the Warrant.

2.5 Certain Adjustments.

(a) Reorganization Event. Upon the occurrence of each Reorganization Event, there shall thereafter be issuable upon the exercise of the Warrant (in lieu of the Warrant Shares), as appropriate, the number of shares of common stock, other securities or property to which the Holder would have been entitled had the Holder exercised the Warrant immediately prior to such Reorganization Event. Prior to and as a condition of the consummation of each Reorganization Event, the Company shall cause effective provisions to be made to effect the purposes of this paragraph, including, if appropriate, an agreement among the Company, any successor to the Company and the Holder. Adjustments for events subsequent to the effective date of such Reorganization Event shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. In any such event, effective provisions shall be made in the Charter Documents of the resulting or surviving Person, in any contract of sale, conveyance, lease or transfer, or otherwise so that the provisions set forth herein for the protection of the rights of the Holder shall thereafter continue to be applicable; and any such resulting or surviving Person shall expressly assume the obligation to deliver, upon exercise, such shares of stock, other securities, or other property. The provisions of this Section 2.5(a) shall similarly apply to successive Reorganization Events.

(b) Other Event. In case any event shall occur as to which the other provisions of this Section 2.5 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by the Warrant in accordance with the essential intent and principles hereof, then the Holder may require in writing within ninety (90) days after the occurrence of such event that the Company examine the propriety of an adjustment to the number of Warrant Shares issuable upon exercise of the Warrant. Unless the Company and the Holder shall have mutually agreed upon an adjustment, or that no adjustment is required, within thirty (30) days after the receipt of such request, the Company shall appoint a firm of independent certified public accountants of recognized national standing (which may be the Company’s then current accountants), to give an opinion regarding an adjustment, if any, necessary to preserve the purchase rights represented by the Warrant. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holder and shall make the adjustments, if any, described therein. The Company shall pay the cost and expense of such opinion.

-2-

Section 3. Preemptive Rights. At any time after the Holder partially or completely exercises the Warrant and until the termination of its rights under this Section 3, the Holder shall have the right to participate in any Preemption Offering upon the terms and subject to the conditions set forth in this Section 3.

3.1 Notice of Preemption Offering. The Company shall give the Holder at least thirty (30) days prior written notice of each Preemption Offering. Such notice shall set forth: (i) the proposed commencement date for such Preemption Offering; (ii) the number and description of the securities to be offered in the Preemption Offering; (iii) the purchase price for such securities and (iv) other material terms of the Preemption Offering.

3.2 Participation by Holder. The Holder may, in the sole exercise of its discretion, elect to participate in the Preemption Offering by giving written notice to the Company of its election to participate at least five (5) Business Days prior to the proposed commencement date of the Preemption Offering. If it elects to participate in the Preemption Offering, the Holder shall have the right to purchase, upon the same terms and conditions as those in such Preemption Offering, securities of each type issued in the Preemption Offering in a maximum number or amount equal to the Holder’s Prorata Share of the total number or amount of each such type of security offered.

3.3 Unsold Securities. The Company may, for a period of not more than ninety (90) days after the commencement date of any Preemption Offering, offer and sell the securities subject to the Preemption Offering that were not sold to the Holder upon the terms and subject to the conditions of the Preemption Offering.

3.4 Termination of Preemptive Rights. The rights of the Holder under this Section 3 shall survive the partial and complete exercise of the Warrant and shall terminate upon the earliest to occur of the following events: (i) a Qualified Public Offering; or (ii) when the Holder ceases to own Holder’s Shares.

Section 4. Restrictions on Transfer.

4.1 Restrictive Legends. Except as otherwise permitted herein, this Warrant Certificate, each Warrant Certificate issued in exchange or substitution for any Warrant Certificate, each Warrant Certificate issued upon the registration of Transfer of any Warrant, each certificate representing the Warrant Shares and each certificate issued upon the registration of Transfer of any Warrant Shares, shall be stamped or otherwise imprinted with a legend in substantially the following form:

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL THAT SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS.”

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4.2 Notice of Proposed Transfer; Opinion of Counsel. Except with respect to a Transfer by the Holder to any Affiliate or equity owner of Holder, prior to any Transfer of any Restricted Securities, the Holder will give written notice to the Company of its intention to effect such Transfer. Each such notice (i) shall describe the manner and circumstances of the proposed Transfer in sufficient detail to enable counsel to render the opinion referred to below, and (ii) shall designate counsel for the Holder. The Holder will submit a copy of such notice to its counsel and the Company will promptly submit a copy of the notice to its counsel. The following provisions shall then apply:

(a) If in the opinion of counsel to the Company the proposed Transfer may be effected without registration under the Securities Act, the Company will promptly notify the Holder and the Holder shall thereupon be entitled to Transfer such Restricted Securities in accordance with the terms of the notice delivered to the Company. Each Warrant Certificate or certificate for Warrant Shares, if any, issued upon or in connection with such Transfer shall bear the applicable restrictive legend set forth above, unless in the opinion of such counsel, such legend is no longer required. If counsel for the Company (after having been furnished with the information required by this Section 4) shall fail to deliver an opinion to the Company, or the Company shall fail to notify the Holder as aforesaid, within thirty (30) days after receipt of notice of the Holder’s intention to effect a Transfer, then the opinion of counsel for the Holder shall be sufficient to authorize the proposed Transfer and the opinion of counsel for the Company shall not be required in connection with such proposed Transfer.

(b) If, in the opinion of counsel to the Company, the proposed Transfer may not be effected without registration under the Securities Act, the Company will promptly so notify the Holder and the Holder shall not be entitled to effect the proposed Transfer until receipt of a further notice from the Company under clause (i) above or until registration under the Securities Act has become effective.

Section 5. Availability of Information. To the extent applicable, the Company will comply with the reporting requirements of Sections 13 and 15(d) of the Securities Exchange Act and all other public information reporting requirements of the Commission (including the requirements of Rule 144 promulgated under the Securities Act) from time to time in effect. The Company will cooperate with the Holder at the Holder’s expense to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the Transfer of any Restricted Securities or the Transfer of Restricted Securities by Affiliates of the Company.

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Section 6. Reservation of Shares. The Company shall at all times reserve and keep available out of its authorized but unissued shares of common stock, solely for issuance and delivery upon the exercise of the Warrant and free from preemptive rights, a sufficient number of shares of common stock to cover the Warrant Shares issuable upon the exercise of the Warrant. All such shares of common stock shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable.

Section 7. Ownership; Registration of Transfer; Exchange and Substitution of Warrant.

7.1 Ownership of Warrant. Until due presentment for Transfer, the Company may treat the Person in whose name this Warrant Certificate is registered on the register kept at the Company’s principal office as the owner and holder hereof for all purposes, notwithstanding any notice to the contrary, provided that when the Warrant has been properly Transferred (whether in whole or in part), the Company shall treat such transferee as the owner of the Warrant for all purposes, notwithstanding any notice to the contrary. Subject to the foregoing provisions and to the Transfer restrictions set forth herein, the Warrant, if properly Transferred, may be exercised by the transferee(s) without first having a new Warrant Certificate issued.

7.2 Registration of Transfers. Subject to the terms of this Warrant Certificate, the Company shall register the Transfer of the Warrant permitted under the terms hereof upon records to be maintained by the Company for that purpose upon surrender of this Warrant Certificate to the Company at the Company’s principal office, together with the Form of Assignment attached hereto duly completed and executed. Upon any such registration of Transfer, a new Warrant Certificate in substantially the form of this Warrant Certificate, shall be issued to the transferee(s).

7.3 Replacement of Warrant Certificate. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant Certificate and of an indemnification or surety bond reasonably satisfactory to the Company, or, in the case of mutilation, upon surrender of this Warrant Certificate for cancellation at the Company’s principal office, the Company at its expense will promptly execute and deliver, in lieu thereof, a new Warrant Certificate of like tenor.

7.4 Expenses. The Company will pay all expenses, Taxes (other than transfer and income Taxes) and other charges in connection with the preparation, issuance and delivery from time to time of this Warrant Certificate or the Warrant Shares.

7.5 Anti-Dilution Provisions. If the Company, after the date upon which this Warrant Certificate has been issued, issues any warrants, options or other rights to subscribe for, purchase or otherwise acquire any common stock or any Convertible Securities, either immediately or upon the arrival of a specified date or the happening of a specified event, or Convertible Securities or other securities containing provisions protecting the holder or holders thereof against dilution in any manner more favorable to such holder or holders thereof than those set forth in this Warrant, such provisions (or any more favorable portion thereof) shall be deemed to be incorporated herein as if fully set forth in this Warrant and, to the extent inconsistent with any provision of this Warrant, shall be deemed to be substituted therefor.

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7.6 Dividends. The Holder shall be entitled to receive, simultaneously with the shareholders of the Company, any and all dividends paid in cash or other property (other than common stock) by the Company on its common stock equal to the amount of any such dividend(s) that otherwise would be payable on the shares of common stock issuable upon exercise of this Warrant as if this Warrant had been exercised in full.

Section 8. Other Rights of Holder. The Warrant Shares shall be subject to the terms and conditions of the Co-Sale Agreement and the Registration Rights Agreement. Nothing contained in this Warrant Certificate shall be construed as conferring upon the Holder any rights as an equityholder of the Company prior to the exercise of the Warrant or as imposing any obligation on the Holder to purchase any shares of common stock of the Company.

Section 9. Repayment in Full of the Note. Upon the repayment in full of the Note on or before the Maturity Date (as defined in the Note) this Warrant Certificate shall be null and void.

Section 10. Miscellaneous. The provisions of Section 12 of the Purchase Agreement are applicable to this Warrant Certificate and are incorporated by reference in this Warrant Certificate.

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IN WITNESS WHEREOF, the undersigned has executed and delivered this Warrant Certificate effective as of the date first written above.

DPAC TECHNOLOGIES CORP. a California corporation
By:	/s/ Steven D. Runkel
	Steven D. Runkel, Chief Executive
	Officer and President

Signature Page to
Warrant Certificate

NOTICE OF EXERCISE

The undersigned hereby elects to exercise the Warrant evidenced by this Warrant Certificate, and requests that certificates for                      Warrant Shares be issued in the name of and delivered to                                         , whose address is                                                              .

Name of

Holder (Print):

Dated:

By:

Title:

FORM OF ASSIGNMENT

FOR VALUED RECEIVED,                                          hereby sells, assigns and transfers to                                          (“Transferee”) all/a portion of the rights of the undersigned in and to the Warrant and the Warrant Certificate, and sells, assigns and transfers to Transferee                     of the Warrant Shares issuable upon exercise of said Warrant.

Name of

Holder (Print):

Dated:

By:

Title:

EX-10.1

EXHIBIT 10.1

EXECUTION COPY

AMENDMENT NO. 1
TO SENIOR SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT
AND
AMENDMENT NO. 1 TO SECURITY AGREEMENT

THIS AMENDMENT NO. 1 TO SENIOR SUBORDINATED NOTE AND WARRANT PURCHASE AND AMENDMENT NO. 1 TO SECURITY AGREEMENT (this “Amendment”), is made as of October 22, 2008, by and among QuaTech, Inc., an Ohio corporation (the “QuaTech”), DPAC Technologies Corp., a California corporation (“DPAC” and together with QuaTech, the “Companies”) and Canal Mezzanine Partners, L.P., a Delaware limited partnership (the “Purchaser”).

WITNESSETH:

WHEREAS, the Companies and the Purchaser have entered into that certain Senior Subordinated Note and Warrant Agreement, dated as of January 31, 2008 (as may be amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”), pursuant to which the Purchaser have made certain financial accommodations available to the Companies;

WHEREAS, the Companies have requested, and the Purchaser has agreed, subject to the terms of this Amendment, to purchase a $250,000 senior subordinated note issued by the Companies;

WHEREAS, the Companies and the Purchaser desire to amend the Purchase Agreement as set forth herein;

NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Companies and the Purchaser do hereby agree as follows:

SECTION 1. DEFINED TERMS.

Each defined term used herein and not otherwise defined herein shall have the meaning ascribed to such term in the Purchase Agreement.

SECTION 2. AMENDMENT TO THE PURCHASE AGREEMENT.

The Companies and the Purchaser hereby agree that the Purchase Agreement shall be amended, effective upon the satisfaction of the conditions precedent set forth in this Amendment, as follows:

2.1 Amendment to Recitals. Subpart (A) of the Recitals to the Purchase Agreement shall be amended in its entirety to read as follows:

A. Purchase and Sale.

Upon the terms and subject to the conditions set forth in this Purchase Agreement, the Companies shall issue and sell to the Purchaser (i) a Senior Subordinated Note in the aggregate principal amount of $1,200,000 due January 31, 2013 (the “Initial Note”), (ii) a Senior Subordinated Note in the aggregate principal amount of $250,000 due February 15, 2009 (the “New Note” and together with the Initial Note, the “Note”) and (iii) in the case of DPAC, a warrant to purchase the common stock of DPAC representing 3% of the Fully Diluted Common Stock of DPAC on the date of exercise (the “Common Stock Warrant” and together with the Note, and where applicable, the Warrant Shares, the “Securities”).

2.2 Amendment to Exhibit A. Exhibit A to the Purchase Agreement shall be amended by amending the definition of “Note,” “Warrant Certificate” and “Warrant” contained therein in their entireties to read as follows:

“Note” means together (i) the Senior Subordinated Note due January 31, 2013 in the principal amount of $1,200,000 issued and sold to the Purchaser by the Companies pursuant to the terms of the Purchase Agreement, and (ii) the Senior Subordinated Note due February 15, 2009 in the principal amount of $250,000 issued and sold to the Purchaser by the Companies pursuant to the terms of the Purchase Agreement, in each case as amended, modified or restated from time to time, and all notes issued in exchange or substitution therefor.

“Success Fee” means a fee equal to 7.0 times EBITDA for the twelve-month period ended immediately prior to the Success Fee Triggering Event minus Indebtedness plus Cash, times 6.0%.

“Warrant Certificate” shall mean any certificate representing a Warrant.

“Warrant” means together the Warrant issued on the Closing Date and the Warrant issued on October 22, 2008, each purchased from DPAC by Purchaser pursuant to the Purchase Agreement.

SECTION 3. AMENDMENT TO SECURITY AGREEMENT

Upon the Satisfaction of the conditions to this Amendment, the Security Agreement shall be amended by amending the definition of “Secured Obligations” in its entirety to read as follows:

“Secured Obligations” means (a) all principal, interest and other amounts due and payable under the Note Purchase Agreement, the Related Documents and the Note (as defined in the Note Purchase Agreement (as amended), (b) all costs and expenses incurred by Secured Party in the realization upon the Collateral, including without limitation reasonable attorneys’ fees and legal expenses, and (c) each and every liability owed by any Debtor to Secured Party however created, direct or contingent, due or to become due, whether now existing or hereafter arising, including without limitation the Success Fee.

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SECTION 4. REPRESENTATIONS AND WARRANTIES.

Each of the Companies hereby represents and warrants to the Purchaser as follows:

4.1 The Amendment. This Amendment has been duly and validly executed by an authorized executive officer of each of the Companies and constitutes the legal, valid and binding obligation of each of the Companies enforceable against each of the Companies in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally, and to general principles of equity.

4.2 Purchase Agreement. Each of the Purchase Agreement, as amended by this Amendment, the Note, the Security Agreement, the Warrant and the other Related Documents remains in full force and effect and remains the valid and binding obligation of each of the Companies party thereto enforceable against each of the Companies party thereto in accordance with its terms. Each of the Companies hereby ratifies and confirms the Purchase Agreement as amended by this Amendment and each of the other Related Documents. The representations and warranties contained in the Purchase Agreement are in all material respects correct on and as of the date hereof as if made on such date (except as a result of transactions permitted under the Purchase Agreement or as otherwise set forth in the revised Schedule of Exceptions delivered by the Companies contemporaneously herewith) and no Default or Event of Default exists, in each case after giving effect to this Amendment.

4.3 Nonwaiver. The execution, delivery, performance and effectiveness of this Amendment shall not operate nor be deemed to be nor construed as a waiver (i) of any right, power or remedy of the Purchaser under the Purchase Agreement or any of the other Related Documents, nor (ii) of any term, provision, representation, warranty or covenant contained in the Purchase Agreement or any of the other Related Documents. Further, none of the provisions of this Amendment shall constitute, be deemed to be or construed as, a waiver of any Default or Event of Default under the Purchase Agreement, as amended by this Amendment, or any of the other Related Documents.

4.4 Reference to and Effect on the Purchase Agreement. Upon the effectiveness of this Amendment, each reference in the Purchase Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import shall mean and be a reference to the Purchase Agreement, as amended hereby, and each reference to the Purchase Agreement in any of the other Related Documents shall mean and be a reference to the Purchase Agreement, as amended hereby.

4.5 Claims and Defenses. To the knowledge of each Company, as of the date of this Amendment, no Company has any defenses, claims, counterclaims or setoffs with respect to the Purchase Agreement or any other of the Related Documents or its Obligations under any Related Documents or with respect to any actions of the Purchaser or any of its officers, directors, shareholders, employees, agents or attorneys, and each of the Companies irrevocably and absolutely waives any such known defenses, claims, counterclaims and setoffs and releases the Purchaser and each of its officers, directors, shareholders, employees, agents and attorneys from the same.

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SECTION 5. CONDITION PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT.

In addition to all of the other conditions and agreements set forth herein, the effectiveness of this Amendment is subject to the following condition precedent:

5.1 Amendment to Purchase Agreement. The Purchaser shall have received a counterpart of this Amendment No. 1 to Senior Subordinated Note and Warrant Purchase Agreement and Amendment No. 1 to Security Agreement, executed and delivered by a duly authorized officer of each of the Companies and the Purchaser.

5.2 Executed Note and Warrant. The Purchaser shall have received an original $250,000 Senior Subordinated Note and Warrant Agreement and an original Warrant, in each case executed and delivered by a duly authorized officer of each of the Companies.

5.3 Consent Under Senior Loan Agreement. The Purchaser shall have received executed copies of a consent under the Senior Loan Agreement pursuant to which the Senior Lender consents to this Amendment, which consent shall be in form and substance satisfactory to the Purchaser.

5.4 Amendment to Subordination Agreement. The Purchaser shall have received a fully executed copy of an amendment to the subordination agreement with respect to the Senior Loan Agreement, which amendment shall be in form and substance satisfactory to the Purchaser.

5.5 Authorizing Resolutions. The Purchaser shall have received a copy of resolutions of the board of directors of each of the Companies authorizing the execution and delivery of this Amendment and the Note and with respect to DPAC, the Warrant, each in form and substance satisfactory to the Purchaser.

5.6 Amendment Fee. The Purchaser shall have received a $3,000 amendment fee in immediately available funds.

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SECTION 6. MISCELLANEOUS

6.1 Governing Law. This Amendment shall be governed by and construed in accordance with the law of the State of Ohio, without regard to principles of conflict of law.

6.2 Costs and Expenses. The Companies hereby acknowledge and agree to reimburse (on a joint and several basis) the Purchaser for all costs and expenses incurred by or on behalf of the Purchaser in connection with the documentation and negotiation of Amendment including, without limitation, reasonable legal fees and expenses of counsel to the Purchaser.

6.3 Severability. In the event any provision of this Amendment should be invalid, the validity of the other provisions hereof and of the Purchase Agreement shall not be affected thereby.

6.4 Counterparts. This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute but one and the same agreement.

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IN WITNESS WHEREOF, each of the Companies has caused this Amendment No. 1 to Senior Subordinated Note and Warrant Purchase Agreement to be duly executed and delivered by its duly authorized officer as of the date first above written.

COMPANIES:

DPAC TECHNOLOGIES CORP.
a California corporation
By:	/s/ Steve Runkel
	Steve Runkel, Chief Executive Officer
QUATECH, INC.
an Ohio corporation
By:	/s/ Steve Runkel
	Steve Runkel, Chief Executive Officer

S-1

Accepted as of October 22, 2008.
CANAL MEZZANINE PARTNERS, L.P.
a Delaware limited partnership
By:	Canal Mezzanine Management, LLC,
	an Ohio limited liability company
Title:	General Partner
By:	Canal Holdings, LLC
	an Ohio limited liability company
Title:	Managing Member

By:	/s/ Shawn M. Wynne
Name:	Shawn M. Wynne
Title:	Authorized Signer

S-2

EX-10.2

EXHIBIT 10.2

EXECUTION COPY

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

Senior Subordinated Note
due February 15, 2009 (except as provided herein)

Makers Corp.	QuaTech, Inc. and DPAC Technologies
Payee	Canal Mezzanine Partners, L.P.
Principal Amount	$250,000
Stated Interest Rate	13% per annum
Default Interest Rate	16% per annum
Date of Note	October 22, 2008
Made At	Hudson, Ohio
Maturity Date	February 15, 2009 (except as provided herein)
Payment Dates	Interest : Last day of each month beginning October 31, 2008
	Principal: February 15, 2009 (except as provided herein)

This is the Senior Subordinated Note due February 15, 2009 (the “Note”) provided for in the Senior Subordinated Note and Warrant Purchase Agreement dated as of February 15, 2008 (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”) by and between the Payee, as purchaser, and the Makers, as sellers.

This Note is one of the Related Documents referred to in the Purchase Agreement.

FOR VALUE RECEIVED, the Makers hereby promises to pay to the order of the Payee the Principal Amount of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000), together with Interest, Prepayment Premium, if any, and Assessments (each as defined herein or in the Purchase Agreement), upon the terms and subject to the conditions set forth in this Note.

Section 1. Definitions and Miscellaneous Provisions

Any capitalized term used but not otherwise defined in this Note shall have the definition given such term as set forth in the Purchase Agreement, which definition is, to the extent applicable, incorporated herein by reference. The provisions of Section 12 of the Purchase Agreement are applicable to this Note and are incorporated herein by reference.

Section 2. Maturity and Pay Off

The unpaid Principal Amount of this Note, together with all accrued but unpaid Interest and Assessments, shall be due and payable in full on the Maturity Date, provided that if such unpaid Principal and Interest shall not have been refinanced pursuant to a transaction with Payee or any affiliate thereof, or otherwise repaid, on or before the Maturity Date (a “Refinancing”), then such Principal Amount shall become due and payable in full on the Maturity Date set forth in the Initial Note (January 31, 2013) and the Makers shall pay to the Payee a $25,000 extension fee on the February 15, 2009 (such fee shall be the joint and several liability of each of the Makers). Payment of the Principal Amount and all accrued but unpaid Interest and Assessments may be Accelerated upon the occurrence of an Event of Default as provided for in this Note. Upon request of the Makers, the Payee will furnish to the Makers a letter setting forth the amount of Principal Amount, Interest, Prepayment Premium and Assessments required to pay this Note in full as of a specified Pay Off Date.

Section 3. Interest

Interest shall accrue on the unpaid Principal Amount from the date of this Note through and including the Pay Off Date at the applicable interest rate (“Interest”). All accrued but unpaid Interest shall be paid monthly in arrears on each Payment Date specified above, commencing October 31, 2008.

At all times that the Default Interest Rate is not in effect, the interest rate on this Note shall be a fixed rate per annum equal to the Stated Interest Rate. Upon the occurrence of an Event of Default, this Note shall accrue interest at a rate per annum equal to the Default Interest Rate unless the Payee elects, in the sole exercise of its discretion, to waive imposition of the Default Interest Rate by giving written notice of such election to the Makers (a “Default Rate Waiver”). Absent a Default Rate Waiver, the interest rate on this Note shall be a fixed rate per annum equal to the Default Interest Rate, and the Default Interest Rate shall continue to be the interest rate on this Note until the Event of Default has been remedied or waived and no other Default or Event of Default is continuing, unremedied or unwaived, provided that the Note has not been Accelerated.

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Notwithstanding any provision of this Note to the contrary: (i) in no event shall the interest rate on this Note be a rate per annum in excess of the maximum interest rate permissible under Applicable Law (including any applicable interest rate ceiling imposed by United States Small Business Administration regulations as applicable), and (ii) to the extent that Interest (or other amounts paid with respect to this Note that are deemed to be Interest under Applicable Law) results in Interest payments in excess of those permitted under Applicable Law, such excess payments shall be applied first to the payment of the unpaid Principal Amount, second to the payment of any other amounts due from the Makers to the Payee, and third, if no other obligations are owing to the Payee, then refunded to the Makers. The Makers agree that if such excess payments are applied in the manner provided for in this paragraph, then to the fullest extent permitted by Applicable Law, Payee shall not be subject to any penalty provided for by any Applicable Law relating to charging or collecting Interest in excess of that permitted by Applicable Law.

Interest shall accrue based upon: (i) the actual number of days elapsed over each month, including any additional days elapsed because the scheduled Payment Date fell on a day other than a Business Day; (ii) months consisting of thirty (30) days each; (iii) quarters consisting of three (3) 30-day months, and (iv) monthly compounding of any Interest or Assessment accrued but unpaid as of each Payment Date.

Section 4. Principal Amount

The Principal Amount shall be paid in full on the Maturity Date Date (except as set forth in Section 2 above).

Section 5. Prepayments

The Makers may prepay the Principal Amount in whole at any time; provided that (i) the Makers deliver irrevocable written notice to the Payee at least thirty (30) days prior to such prepayment, which notice shall include written confirmation from the Makers that such prepayment is permissible under the Senior Loan Agreement and (ii) each partial prepayment of Principal Amount shall be equal to $100,000 or an integral multiple thereof.

If the Principal Amount is paid on or prior to the Maturity Date of Note, the Makers shall pay all accrued but unpaid Interest.

If notice of prepayment is given, the Principal Amount to be prepaid as stated in the notice, together with Interest accrued thereon through the date of prepayment with respect to the Principal Amount prepaid and all unpaid Assessments shall become due and payable on the date specified in the notice.

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Section 6. Late Payments

A payment of Principal Amount, Interest or Assessment shall be deemed to be a Payment Default if such payment is not received prior to 2:00 p.m., Hudson, Ohio time on the fifth day after such payment is due. The Payee may, in the sole exercise of its discretion, by written notice to the Makers, assess a fee of $500 for each Payment Date with respect to which there is a late payment to reimburse the Payee for the cost of processing such late payment. Such late fee shall be deemed to be an Assessment for purposes of this Note. The Payee may not assess a late fee with respect to any Payment Date after payment of this Note is Accelerated.

Section 7. Payments

Unless otherwise agreed by the Payee, all payments in connection with this Note shall be made by wire transfer of immediately available funds to the account of the Payee at or before 2:00 p.m. Hudson, Ohio time on each Payment Date. Any wire transfer received by the Payee after 2:00 p.m. Hudson, Ohio time shall be deemed to have been received by the Payee prior to such time on the next Business Day.

Unless otherwise specified in writing by the Payee to the Makers, all such payments shall be wired as follows:

Morgan Bank, N.A.
10 West Streetsboro Street
Hudson, Ohio 44236

ABA # 041202702
Account # 128075483

In the event that any scheduled Payment Date falls on a day other than a Business Day, the Payment Date shall be deemed to be the following Business Day, and such additional days shall be deemed to have elapsed for purposes of computing Interest payable on such Payment Date.

Section 8. Events of Default

(a) Enumeration of Defaults. The occurrence of each of the following events shall be an “Event of Default” for the purposes of this Note. An Event of Default shall be deemed to continue until waived by written notice by the Payee to the Makers or remedied by action of the Makers.

(b) Payment Default. The Makers default in the payment when due of any Principal Amount, Interest or Assessment, and such default is not remedied (including the payment of any Assessment) within the grace period provided for in Section 6 of this Note (a “Payment Default”). A Payment Default shall be deemed to have occurred notwithstanding the fact that the Payment Default results from compliance with or enforcement of the Subordination Agreement.

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(c) Covenant Default. The Makers fail to observe or perform any affirmative covenant, negative covenant (other than those described in clause 8(e) below), reporting requirement or any other agreement set forth in the Purchase Agreement or the Related Documents and such default is either (i) not remedied within thirty (30) days after written notice of such default by the Payee or the Makers, or (ii) is the third instance of a default under applicable subsection of the Purchase Agreement or the Related Documents.

(d) Warranty Default. Any representation or warranty made by the Makers in the Purchase Agreement or the Related Documents proves to have been untrue, incomplete or misleading in any material respect when made or when deemed to have been made and such breach is not remedied (if it is capable of being remedied) within thirty (30) days after written notice of such default by the Payee or the Makers.

(e) Financial Test Default; Certain Negative Covenants. (i) As of any applicable date of determination, the Makers fail to satisfy any of the Financial Tests, or (ii) the Makers fails to observe or perform any of the negative covenants set forth in Sections 8.1 through 8.11 of the Purchase Agreement.

(f) Cross Default. The holder of any Indebtedness accelerates the payment of such Indebtedness for any reason or the Makers default in the payment of any Indebtedness with an unpaid principal amount in excess of $50,000, and such default remains unremedied beyond the applicable grace period therefor, regardless of whether (i) such default is waived by the obligee, (ii) payment of any Indebtedness of the Makers is accelerated, (iii) the right of the Makers to borrow money is suspended as a result of any such default, or (iv) any action to enforce payment of any Indebtedness is commenced against the Makers or with respect to any collateral securing such Indebtedness.

(g) Subordination Default. Any document with respect to the Senior Indebtedness is amended or modified in violation of the Subordination Agreement, a blocking period provided for in the Subordination Agreement is commenced, payment of any amount due under this Note is prevented due to compliance with or enforcement of the Subordination Agreement, any amounts previously paid to the Payee must be repaid or held in trust by the Payee due to compliance with or enforcement of the Subordination Agreement, or the Makers obtain forbearance with respect to the payment of any principal or interest due under the Senior Indebtedness.

(h) Insolvency Default. The Makers: (i) discontinue the conduct of their business; (ii) apply for or consents to the imposition of any Insolvency Relief; (iii) voluntarily commence or consent to the commencement of an Insolvency Proceeding; (iv) file an answer admitting the material allegations of any involuntary commencement of an Insolvency Proceeding; (v) make a general assignment for the benefit of its creditors; (vi) are unable or admits in writing their inability to pay their debts as they become due; or (vii) have an Insolvency Order entered against such Makers and such Insolvency Order is not dismissed within thirty (30) days of its entry (each, an “Insolvency Default”).

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(i) Fraudulent Conveyance Default. The Makers: (i) conceal, remove or permit to be concealed or removed all or any part of their property with the intent to hinder, delay or defraud any of their creditors; (ii) make or permit any conveyance of their material properties that would be deemed fraudulent to creditors under any Insolvency Law or other Applicable Law; or (iii) have, while such Makers are insolvent, cause or permit any of their creditors to obtain a Lien on any of their property by legal proceedings or otherwise which is not vacated within thirty (30) days.

(j) Judgments. A final, nonappealable judgment or judgments is or are entered against the Makers in the aggregate amount of $50,000 or more on a claim or claims not covered by insurance.

(k) Material Adverse Change. In the reasonable judgment of the Payee, any material adverse change occurs in the financial condition or results of operations of the Makers or the Makers’ ability to perform its obligations under this Note, the Purchase Agreement or the Related Documents.

(l) Change in Control. A Change in Control of the Makers occurs.

(m) Failure of Enforceability. (i) The Makers shall contest or challenge the validity or enforceability of this Note, the Purchase Agreement or the Related Documents or (ii) this Note, the Purchase Agreement or the Related Documents shall be declared in whole or in part invalid, void or unenforceable which declaration would, individually or in the aggregate, materially reduce the principal benefits of any breach of, or security provided by, this Note, the Purchase Agreement or any Related Document to the Payee, or make the remedies generally afforded thereby inadequate for the practical realization thereof.

Section 9. Remedies and Acceleration

(a) Remedies. Upon the occurrence of an Event of Default, the Payee shall have (i) all rights and remedies granted to it under this Note, the Purchase Agreement and the Related Documents, and (ii) all rights of a creditor under Applicable Law (including the UCC). All such rights and remedies and the exercise thereof shall be cumulative. No exercise of any such rights and remedies shall be deemed to be exclusive or constitute an election of remedies.

(b) Purchase of Senior Indebtedness. If an event of default shall have occurred and be continuing in respect of any Senior Indebtedness of the Makers, the Payee shall have the option (but not the obligation), at any time, to purchase all, but not less than all, of such Senior Indebtedness for an amount equal to the then outstanding principal amount, plus accrued but unpaid interest with respect thereto as of the date of such purchase, plus any unpaid fees and expenses then owing with respect thereto. The purchase price so paid by the Payee shall constitute an additional advance hereunder and shall be subject to the terms and conditions of this Note, the Purchase Agreement and the Related Documents.

(c) Acceleration of Payment. Upon the occurrence of an Insolvency Default, payment of this Note shall be Accelerated automatically and without notice. Upon the occurrence and during the continuation of any other Event of Default, the Payee may, in the sole exercise of its discretion, elect to cause payment of this Note to be Accelerated by giving written notice of such election to the Makers. Once payment of this Note has been Accelerated, such Acceleration may be revoked only by the Payee, in the sole exercise of its discretion, by giving written notice of revocation to the Makers.

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(d) Waiver of Default. No Default or Event of Default may be waived or shall be deemed to have been waived except by written notice by the Payee to the Makers, and any such waiver shall be applicable only to the specific Defaults or Events of Default expressly identified in such notice and shall not be deemed to apply to any other or subsequent Default or Event of Default. The Payee may grant or withhold any such waiver in the sole exercise of its discretion, and may condition such waiver upon the payment by the Makers of a premium, the grant of additional security interests or the acceptance of other terms and conditions under this Note or the Purchase Agreement. No course of dealing by the Payee, or the failure, forbearance or delay by the Payee in exercising any of its rights or remedies under this Note, the Purchase Agreement or any Related Document shall operate as a waiver of any Default or Event of Default or of any right of the Payee under this Note.

Section 10. Waivers

To the fullest extent permitted by Applicable Law, each Maker waives with respect to this Note: presentment; demand and protest; and notice of presentment, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal; and diligence in collection. Each Maker agrees that the Payee may release all or any part of the Collateral securing the payment of this Note; any guarantor or surety with respect to this Note, or any other Maker from its obligation with respect to this Note, all without notice to such Maker and without affecting in any way the obligation of such Maker under this Note.

Section 11. Security for Payment

Payment of this Note is secured under the terms and subject to the conditions of certain of the Related Documents. Nothing in this Note shall be deemed to preclude the Payee from obtaining other or additional security for the payment of this Note, to require the Payee to elect remedies or proceed against any Collateral or guaranty before Accelerating payment of this Note or to take any legal or other action to collect payment of this Note.

Section 12. Subordination Agreement

It is anticipated that the Payee and the Senior Lender will enter into a Subordination Agreement in connection with the Senior Loan Agreement, pursuant to which certain of the Payee’s rights under this Note and the Related Documents will be subordinated to the Senior Lender. Nothing in this Note, the Purchase Agreement or the Subordination Agreement shall grant to the Makers any rights as a beneficiary under the Subordination Agreement nor any right to enforce any provision of such agreement.

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Section 13. Collection and Assessment for Costs

The Makers shall reimburse the Payee for all reasonable costs and expenses (including reasonable legal fees and disbursements) incurred by the Payee in connection with the collection or attempted collection of the payment of this Note through legal proceedings or otherwise following an Event of Default. All such amounts shall be deemed to be Assessments for purposes of this Note.

Section 14. Amendment

This Note may not be amended, restated, supplemented or otherwise modified except by an express written agreement executed and delivered by each Maker and the Payee. Compliance with the covenants and other provisions of this Note may not be waived or modified except by an express written consent signed and delivered by the Payee.

Section 15. Governing Law

This Note was negotiated in the State of Ohio and accepted by the Payee in the State of Ohio, and the purchase price for the Note shall be disbursed from the State of Ohio. Each Maker agrees that the State of Ohio has a substantial relationship to the transactions evidenced hereby and further agrees that this Note shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to conflicts of laws principles.

Section 16. Waiver of Jury Trial

The Payee and each Maker, after consulting or having had the opportunity to consult with legal counsel, knowingly, voluntarily and intentionally waive any right any of them may have to a trial by jury in any Litigation. Neither the Payee nor any Maker shall seek to consolidate, by counterclaim or otherwise, any Litigation in which a jury trial has been waived with any other Litigation in which a jury trial cannot be or has not been waived.

Section 17. Consent to Jurisdiction, Venue and Service of Process

The Payee and the Makers, each after having consulted or having had the opportunity to consult with legal counsel, hereby knowingly, voluntarily, intentionally, and irrevocably: (i) consents to the jurisdiction of the Common Pleas Court of Summit County, Ohio and the United States District Court for the Northern District of Ohio, Eastern Division with respect to any Litigation; (ii) waives any objections to the venue of any Litigation in either such court; (iii) agrees not to commence any Litigation except in either of such courts and agrees not to contest the removal of any Litigation commenced in any other court to either of such courts; (iv) agrees not to seek to remove, by consolidation or otherwise, any Litigation commenced in either of such courts to any other court; and (v) waives personal service of process in connection with any Litigation and consents to service of process by registered or certified mail, postage prepaid, addressed as provided in the Purchase Agreement.

Section 18. Confession of Judgment

Each Maker hereby authorizes any attorney at law to appear in any court of record of the State of Ohio or any other state in the United States of America at any time after this Note becomes due, whether by acceleration or otherwise, and to waive the issuing and service of process and confess a judgment in favor of the legal holder hereof against such Maker, or either or any one or more of them, for the amount then appearing due upon this Note, together with costs of suit and to release all errors and waive all right of appeal.

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IN WITNESS WHEREOF, this Note has been executed and delivered by and on behalf each Maker, effective as of the Date of Note set forth above.

WARNING — BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON THE CREDITOR’S PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.

Maker: QUATECH, INC.
By:	/s/ Steve Runkel
	Steve Runkel,
	Chief Executive Officer
Maker: DPAC TECHNOLOGIES CORP.
By:	/s/ Steve Runkel
	Steve Runkel,
	Chief Executive Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Steven D. Runkel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of DPAC Technologies Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2008

/s/ STEVEN D. RUNKEL

Steven D. Runkel
Chief Executive Officer  

CERTIFICATIONS

I, Stephen J. Vukadinovich, certify that:

1. I have reviewed this quarterly report on Form 10-Q of DPAC Technologies Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2008

/s/ STEPHEN J. VUKADINOVICH

Stephen J. Vukadinovich
Chief Financial Officer  

EX-32.1

EXHIBIT 32.1

Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

I, Steven D. Runkel, Chief Executive Officer of DPAC Technologies Corp. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge the Quarterly Report of DPAC Technologies Corp. on Form 10-Q for the quarterly period ended September 30, 2008 as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ STEVEN D. RUNKEL

Steven D. Runkel

Chief Executive Officer

November 14, 2008

I, Stephen J. Vukadinovich, Chief Financial Officer of DPAC Technologies Corp. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge the Quarterly Report of DPAC Technologies Corp. on Form 10-Q for the quarterly period ended September 30, 2008, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ STEPHEN J. VUKADINOVICH

Stephen J. Vukadinovich

Chief Financial Officer

November 14, 2008