Consolidated Financial Statements - DDS Wireless Dec 2012 FS - FINAL FOR... · The consolidated...

DDS WIRELESS INTERNATIONAL INC.

Consolidated Financial Statements For the years ended December 31, 2012 and 2011

PricewaterhouseCoopers LLPPricewaterhouseCoopers Place, 250 Howe Street, Vancouver, British Columbia, Canada V6C 3S7T: +1 604 806 7000, F: +1 604 806 7806

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

Independent Auditor’s Report

To the Shareholders of DDS Wireless International Inc.

We have audited the accompanying consolidated financial statements of DDS Wireless International Inc and its

subsidiaries, which comprise the balance sheets, and statements of changes in equity as at December 31, 2012

and 2011 and the consolidated statements of operations and comprehensive income and statements of cash

flows for the years then ended, and the related notes, which comprise a summary of significant accounting

policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements

in accordance with International Financial Reporting Standards, and for such internal control as management

determines is necessary to enable the preparation of consolidated financial statements that are free from

material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We

conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards

require that we comply with ethical requirements and plan and perform the audit to obtain reasonable

assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the

assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud

or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s

preparation and fair presentation of the consolidated financial statements in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness

of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used

and the reasonableness of accounting estimates made by management, as well as evaluating the overall

presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis

for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial

position of DDS Wireless International Inc and its subsidiaries as at December 31, 2012 and December 31, 2011

and their financial performance and their cash flows for the years then ended in accordance with International

Financial Reporting Standards as issued by the International Accounting Standards Board.

Signed PricewaterhouseCoopers LLP

Chartered Accountants

Vancouver, B.C.

March 4, 2013

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DDS WIRELESS INTERNATIONAL INC. Consolidated Statements of Operations (In thousands of Canadian dollars, except per share amounts)

December 31, 2012 December 31, 2011 Revenue (note 20) $ 40,670 $ 45,691Cost of sales (note 4) 23,127 24,032 Gross margin 17,543 21,659 Operating expenses:

Research and development (note 4) 6,023 5,943Sales and marketing (note 4) 4,557 5,450General and administrative (note 4) 5,206 5,750Other expenses - 28

Total operating expenses 15,786 17,171 Profit from operating activities 1,757 4,488 Net finance expense (note 5) 237 435

Income before income taxes 1,520 4,053

Income tax expense (recovery) (note 17) Current tax expense 1,040 1,937Deferred tax (recovery) (1,099) (354) (59) 1,583

Net income $ 1,579 $ 2,470

Net income per common share - basic and diluted $ 0.11 $ 0.18

Weighted average number of common shares outstanding (thousands) 13,827 13,791

Consolidated Statements of Comprehensive Income (In thousands of Canadian dollars)

December 31, 2012 December 31, 2011 Net income $ 1,579 $ 2,470Other comprehensive gain (loss) on translation of foreign

subsidiaries 72 (207)

Comprehensive income $ 1,651 $ 2,263

See accompanying notes to consolidated financial statements.

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DDS WIRELESS INTERNATIONAL INC. Consolidated Balance Sheets (In thousands of Canadian dollars) December 31, 2012 December 31, 2011 Assets Current assets:

Cash and cash equivalents $ 5,252 $ 6,778 Trade and other receivables (note 6) 5,932 7,145 Contract work-in-progress 7,597 5,468 Income taxes receivable 357 59 Inventory (note 8) 2,404 2,718 Prepaid expenses 426 494 Investments (note 10) 1,974 1,053

Total current assets 23,942 23,715

Plant and equipment (note 9) 677 1,022 Long-term receivables (note 7) 1,417 740 Investment tax credit receivable (note 17) 4,792 3,276 Deferred tax assets (note 17) 855 2,326 Intangible assets (note 11) 1,715 3,341 Goodwill (note 12) 2,970 2,992 Investments (note 10) 103 103 Total assets $ 36,471 $ 37,515

Liabilities and Shareholders' Equity Current liabilities:

Trade payables and accrued liabilities 5,576 6,392 Income taxes payable 27 79 Deferred revenue 1,806 2,103 Provisions (note 13) 52 135

Total current liabilities 7,461 8,709

Deferred tax liabilities (note 17) 1,232 1,722 Total current and long-term liabilities 8,693 10,431

Shareholders’ equity:

Share capital (note 16(b)) 24,686 24,611 Share-based payments reserve (note 16(d)) 1,890 1,816 Retained earnings 1,928 1,455 Accumulated other comprehensive loss (726) (798)

Total shareholders’ equity 27,778 27,084

Total liabilities and shareholders’ equity $ 36,471 $ 37,515

Subsequent events (note 23) Commitments and contingencies (note 19) See accompanying notes to consolidated financial statements. Approved on behalf of the Board:

“Vari Ghai” Director “James Topham” Director

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DDS WIRELESS INTERNATIONAL INC. Consolidated Statements of Changes in Equity (In thousands of Canadian dollars)

December 31, 2012 December 31, 2011

Share capital

Balance – beginning of year $ 24,611 $ 24,608

Exercise of options 75 3

Balance - end of year 24,686 24,611

Share-based payments reserve

Balance - beginning of year 1,816 1,465

Share-based compensation 84 354

Exercise of options (10) (3)

Balance - end of year 1,890 1,816

Retained earnings (deficit)

Balance - beginning of year 1,455 (1,015))

Dividend (1,106) -

Net income 1,579 2,470

Balance – end of year 1,928 1,455

Accumulated other comprehensive loss

Beginning – beginning of year (798) (591)Other comprehensive gain (loss) on translation of foreign

subsidiaries 72 (207)

Balance - end of year (726) (798)

Total shareholders' equity $ 27,778 $ 27,084


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DDS WIRELESS INTERNATIONAL INC. Consolidated Statements of Cash Flows (In thousands of Canadian dollars)


Cash provided by (used in):

Operations:

Net income $ 1,579 $ 2,470

Items not involving cash:

Amortization of plant and equipment 522 650

Amortization of intangibles 1,705 1,733

Deferred tax expense (1,099) (354)

Unrealized foreign exchange loss 388 41

Unrealized loss on investment (note 5) 73 126

Interest (income) on long-term receivables (112) (116)

Imputed interest on debt - 21

Investment tax credits recorded in the year (683) (894)

Current tax expense 1,040 1,937

Share-based compensation 84 354

3,497 5,968

Taxes paid (141) (292)

Change in non-cash operating working capital (note 22) (2,009) (1,999)

1,347 3,677

Investing:

Purchase of investment (997) (1,177)Purchase of plant and equipment and definite lived

intangibles (317) (430)

(1,314) (1,607)

Financing: Repayment of debt - (104)

Net (advance) receipt of long-term receivables (754) 659

Dividends paid (830) -

Exercise of stock options 75 3

(1,509) 558

Effect of foreign currency exchange rates on cash and cash equivalents (50) (28)

Increase (decrease) in cash and cash equivalents (1,526) 2,600

Cash and cash equivalents, beginning of period 6,778 4,178

Cash and cash equivalents, end of period $ 5,252 $ 6,778

Non-cash transactions:

Transfer of plant and equipment to inventory $ 10 $ (46)

Transfer of long-term receivables to trade and other receivables $ 750 $ 563


DDS WIRELESS INTERNATIONAL INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2012 and 2011 (Tabular amounts in thousands of Canadian dollars) ______________________________________________________________________________________

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1. Nature of operations:

DDS Wireless International Inc. (the “Company”) operates in the wireless mobile data industry and is engaged in the design, development and deployment of turnkey solutions including application software, mobile devices, infrastructure products, professional services and maintenance. The Company is incorporated under the laws of the Province of British Columbia, Canada and is listed on the Toronto Stock Exchange under the symbol DD. The Company’s registered offices are located at Suite 530 North Office Tower, Oakridge Centre, 650 West 41st Avenue, Vancouver, British Columbia, Canada.

2. Consolidated financial statement presentation: (a) Statement of compliance

The Company prepares its consolidated financial statements in accordance with the International Financial Reporting Standards (“IFRS”) and IFRIC interpretations as set out in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). The consolidated financial statements were authorized for issue by the Board of Directors on March 4, 2013.

(b) Use of estimates:

The Company makes estimates and assumptions concerning the future that will, by definition, seldom equal actual results. Significant areas requiring the use of estimates relate to the determination of percentage of completion and estimated project costs for contract revenue recognition; the recoverability or valuation of trade receivables; provision for obsolete inventory; goodwill and intangible asset recoverability; and the recoverability of deferred tax assets at the date of the financial statements. The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

Note 3 (h) - Revenue recognition Note 17 - Income taxes

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

Note 12 - Goodwill Note 17 - Income taxes


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3. Significant accounting policies:

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated.

The accounting policies have been applied consistently by Group entities. (a) Basis of consolidation:

The consolidated financial statements include the accounts of the Company and all of its subsidiaries. The main subsidiaries include Digital Dispatch Limited Partnership, DW Digital Wireless Limited Partnership and DDS eFleet Services Limited Partnership in Canada; StrataGen Systems Inc., Digitial Wireless Corporation and Digital Dispatch Ltd. in the United States; Digital Dispatch (Intl) Ltd. in the United Kingdom; MobiSoft Oy in Finland and Digital Dispatch Scandinavia AB in Sweden. The Company has a 100% ownership interest in all subsidiaries. All inter-company balances and transactions have been eliminated on consolidation. Subsidiaries are fully consolidated from the date on which control is transferred to the group.

(b) Presentation currency and translation of foreign currencies:

The Company uses the Canadian dollar as its presentation currency. Revenue and expense transactions that are denominated in foreign currencies and entered into directly by the Company are translated into Canadian dollars at the exchange rates prevailing at the time of the transactions. Monetary assets which are receivable or payable in foreign currencies are stated in Canadian dollars at the rates of exchange prevailing at the balance sheet dates, and the resulting foreign exchange gains and losses are recognized in net income (loss) for the year. For consolidation purposes, the assets and liabilities of subsidiary entities whose functional currencies differ from that of the Company are translated at the exchange rate prevailing at the balance sheet date. Income statements of such entities are translated at average rates of exchange during the year. All resulting exchange differences, including exchange differences arising from the translation of borrowings and other financial instruments are recognized directly in accumulated other comprehensive income (loss). Should a foreign operation be sold, the cumulative exchange differences recognized in accumulated other comprehensive income (loss) since January 1, 2010 would be recognized in the income statement as part of the profit or loss on sale.

(c) Cash and cash equivalents:

Cash and cash equivalents consist of cash on deposit and highly liquid short-term interest bearing securities with maturities at the date of purchase of three months or less.

(d) Inventory:

Inventory consists of electronic components (raw materials) and finished goods and is valued at the lower of cost and estimated net realizable value. Net realizable value is estimated with reference to estimated selling prices less costs to sell. The cost of finished goods includes the cost of materials, direct labour, and an allocation of overhead costs such as amortization. Occasionally, the Company will accept trade-ins of previously sold goods, in part, for the purchase of new goods. The trade-ins are valued at fair value.


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3. Significant accounting policies (continued):

(e) Plant and equipment: Plant and equipment are recorded at cost less accumulated amortization. Amortization is provided over the estimated useful lives of the assets at the following rates: Asset Rate

Furniture and equipment 5 years Computer equipment 3 years Leasehold improvements Over the terms of the lease The carrying amounts of the Company’s plant and equipment is reviewed at each balance sheet date to determine whether there is any indication of impairment as required by IAS 36, Impairment of Assets (“IAS 36”). If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the statements of operations. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risk specific to the asset.

(f) Goodwill:

Goodwill is reviewed for impairment annually or at any time if an indicator of impairment exists. Goodwill acquired through a business combination is allocated to each cash-generating unit (“CGU”), or group of CGUs, that are expected to benefit from the related business combination. A group of CGUs represents the lowest level within the Company at which the goodwill is monitored for internal management purposes, which is not higher than an operating segment.

(g) Intangible assets:

Intangible assets acquired in a business combination that meet the specified criteria for recognition, apart from goodwill, are initially recognized and measured at fair value. Intangible assets with finite useful lives, including acquired software and customer relationships, are amortized on a straight-line basis over their estimated useful lives of six years. The amortization methods and estimated useful lives of intangible assets are reviewed annually. The carrying amounts of the Company’s intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment as required by IAS 36. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of the intangible assets or their cash-generating unit exceeds their recoverable amount. Impairment losses are recognized in the statement of operations. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.


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(g) Intangible assets (continued):

Software development costs include the costs to customize aspects of the Company's product offering for specific customers as well as the cost of generating and maintaining the Company's software used in the Company’s products and software sold to customers. Costs to customize aspects of the Company’s software for customers are charged to expense when incurred. For costs incurred to generate software used in the Company’s product offerings or sold to customers, the Company records such costs as research and development expense when incurred.

(h) Revenue recognition:

The Company’s revenues come from the following primary sources: Contracts for complete wireless dispatch, routing and scheduling, and fleet management

systems; Provision of software as a service (“SaaS”) subscriptions for mobile fleet management solutions; Sales of mobile fleet management software licenses; Maintenance and support services related thereto; Transaction based revenues arising from credit card and debit processing transactions as well

as revenue earned in respect of certain telephone service fees earned by the Company; Sales of additional and replacement devices; and Software development and customization. Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Company’s activities. Revenue is shown net of taxes, returns, rebates and discounts and after eliminating sales within the Company. The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Company’s activities as described below. Product sales Revenue from product sales is recorded on shipment or delivery dependent on shipping terms, when all significant contractual obligations have been satisfied. Maintenance contracts are sold separately from the product and the associated revenue is recognized over the term of the agreement. Fixed-price contracts Revenue from fixed-price contracts for delivering services is recognized using the percentage-of-completion method. Revenue is recognized based on the services performed to date as a percentage of the total services to be performed. These services are with contract terms generally ranging from less than one year to three years. The stage of completion is measured on the basis of labour hours delivered as a percentage of total hours to be delivered. If circumstances arise that change the original estimates of revenues, costs or extent of progress toward completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and are reflected in income in the period in which the circumstances that give rise to the revision become known by management. Provisions for estimated losses, if any, are recognized in the year or period in which the loss is determined. Contract losses are measured as the amount by which the estimated costs of the contract exceed the estimated total revenue from the contract.


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(h) Revenue recognition (continued): Progress billings are recorded as deferred revenue to the extent that the billings exceed revenue recognized. Contract work-in-progress revenue is recorded to the extent that revenue has been recognized, but not yet billed to the customer. Contracts with multiple deliverables For contracts involving multiple elements, the Company evaluates each element to determine whether the revenue recognition in respect of each separable component of a transaction is measured at fair value. The fair value is usually the selling price of each element when sold separately. If elements are considered linked and are not separable, the elements are combined and recognized as one whole transaction. Revenue for the provision of SaaS service offerings is recognized proportionately over the term of the contract. Software licenses are recognized upon delivery where there is evidence of an arrangement, the selling price is fixed or determinable and there is no significant further involvement. Software licenses sold to SaaS customers are deferred and recognized over the related term of the SaaS service agreement. Revenues from sales of additional and replacement devices are net of trade discounts and allowances and recognized upon shipment when all significant contractual obligations have been satisfied and collection is reasonably assured. Maintenance and support service revenues are recognized proportionately over the term of the contract in the case of long-term contracts and at the time of performance for other services.

Interest income is recognized using the effective interest method.

(i) Investment tax credits:

Investment tax credits are accounted for using the cost reduction method, whereby the benefit is recognized as a reduction in the cost of the related expenditure when there is reasonable assurance the tax credits will be utilized to reduce taxes payable.

(j) Share-based payments: The Company grants share options to directors and certain employees of the Company as an element of compensation. The cost of the service received as consideration is measured based on an estimate of fair value at the date of the grant. The grant-date fair value is recognized as compensation expense over the related service period based on the number of grants expected to vest with a corresponding increase in the Company’s share-based payments reserve. The Company’s stock options are subject to graded vesting and thus each tranche in the award is considered a separate grant, with a different vesting date and fair value for the purposes of recognizing compensation expense. On exercise of stock options, the Company issues common shares from treasury and the consideration received together with the compensation expense previously recorded to the share-based payments reserve is credited to share capital.


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(j) Share-based payments (continued):

The Company uses the Black-Scholes option pricing model to estimate the fair value of each stock option. The Black-Scholes option pricing model requires the Company to estimate the expected term of the options granted, the volatility of the Company’s common shares and an expected dividend yield. The Company estimates the expected term of the options granted by calculating the average term after considering the Company’s historical experience involving stock option exercise; cancellations, forfeitures and expiries; volatility is estimated with reference to historical volatility data. The Company estimates expected dividend yield based on the dividend policy in place at the time of the grant. The Black-Scholes model also requires the Company to input a risk-free interest rate; the Company uses the Bank of Canada marketable bond rates.

(k) Income taxes:

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided in full, using the balance sheet liability method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date that are expected to apply when the deferred tax asset or liability is settled. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(l) Income (loss) per share:

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per share is calculated by adjusting the weighted average number of common shares outstanding using the treasury stock method, to reflect the potential dilution of securities that could result from the exercise of “in the money” stock options.


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(m) Financial instruments:

Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

At initial recognition, the Company classifies its financial instruments in the following categories depending on the purpose for which the instruments were acquired:

(i) Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is

classified in this category if acquired principally for the purpose of selling or repurchasing in the short-term. Derivatives are also included in this category unless they are designated as hedges.

Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are expensed in the statement of operations. Gains and losses arising from changes in fair value are presented in the statement of operations within net finance expense.

Financial assets and liabilities at fair value through profit or loss are classified as current except for the portion expected to be realized or paid beyond twelve months of the balance sheet date, which is classified as non-current.

(ii) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The company’s loans and receivables are comprised of trade and other receivables, contract work-in-progress, and cash and cash equivalents, and are included in current assets due to their short-term nature.

Loans and receivables are initially recognized at the amount expected to be received less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less a provision for impairment.

(iii) Financial liabilities at amortized cost: Financial liabilities at amortized cost include trade payables and accrued liabilities and debt. Financial liabilities are initially recognized at the amount required to be paid less, when material, a discount to reduce the payables to fair value. Subsequently, financial liabilities are measured at amortized cost using the effective interest method.

Financial liabilities are classified as current liabilities if payment is due within twelve months. Otherwise, they are presented as non-current liabilities.

(n) Provisions:

A provision is recognized in the balance sheet when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount has been reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at an appropriate pre-tax discount rate.


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(n) Provisions (continued):

A provision for warranties is recognized when the underlying products and services are sold. The provision is based on anticipated costs to be incurred during the warranty period. A provision for restructuring is recognized when the Company has approved a detailed formal plan for the restructuring and there is a valid expectation in those affected that the Company will carry out the restructuring.

(o) Cost of sales:

Cost of sales includes personnel and materials costs relating to the provision of services and sale of goods as described in note 3(h). In addition, cost of sales includes an allocation of amortization expense relating to plant and equipment and intangible assets as well as share-based compensation where these expenses relate to provision of services and sale of goods.

(p) Trade and other receivables:

Trade and other receivables are stated at their fair value less impairment losses. A provision for impairment is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the customer, probability that the customer will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. Receivables with a short-term duration are not discounted.

(q) Dividends: Dividends on ordinary share capital are recognized as a liability in the period in which they are declared. Dividends are recorded directly through retained earnings.

(r) Segment reporting: Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. In the case of the Company, the chief operating decision maker is identified as the Chief Executive Officer and other members of the senior management team.

(s) Future accounting pronouncements:

All accounting standards effective for periods beginning on or after January 1, 2012 have been adopted. The following new accounting pronouncements have been issued but are not effective and may have an impact on the Company:

As of January 1, 2015 (deferred from the previously announced effective date of January 1, 2013), the Company will be required to adopt IFRS 9, Financial Instruments (“IFRS 9”), which is the result of the first phase of the IASB’s project to replace IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.


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(q) Future accounting pronouncements (continued): As of January 1, 2013, the Company will be required to adopt IFRS 10, Consolidated Financial Statements (“IFRS 10”). IFRS 10 replaces the consolidation requirements in SIC-12 Consolidation—Special Purpose Entities (“SIC-12”) and IAS 27, Consolidated and Separate Financial Statements (“IAS 27”). Earlier application of this standard is permitted. IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control. The adoption of this standard is not expected to have a material impact on the Company’s financial statements. As of January 1, 2013, the Company will be required to adopt IFRS 11, Joint Arrangements (“IFRS 11”). The new standard replaces the requirements of IAS 31, Interests in Joint Ventures (“IAS 31”) and SIC-13, Jointly Controlled Entities – Non-Monetary Contributions by Venturers (“SIC-13”) and removes the ability to proportionately consolidate interests in joint ventures, requiring instead use of the equity method to account for such interests. The adoption of this standard is not expected to have a material impact on the Company’s financial statements. As of January 1, 2013, the Company will be required to adopt IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”). This standard replaces the requirements previously included in IAS 27, IAS 31, and IAS 28, Investments in Associates (“IAS 28”), and requires disclosure for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The adoption of this standard is not expected to have a material impact on the Company’s disclosures.

As of January 1, 2013, the Company will be required to adopt IFRS 13, Fair Value Measurement (“IFRS 13”). This standard establishes a single framework for all fair value measurements where fair value is required or permitted by IFRSs. The adoption of this standard is not expected to have a material impact on the Company’s financial statements. As of January 1, 2013, the Company will be required to adopt the amendments to IAS 1, Presentation of Financial Statements (“IAS 1”) as it relates to the presentation of other comprehensive income (OCI). The amendments to this standard do not change the nature of the items that are currently recognized in OCI, but requires presentational changes. The adoption of this standard is not expected to have a material impact on the Company’s financial statements. As of January 1, 2013, the Company will be required to adopt the amendments to IFRS 7, Financial Instruments: Disclosures (“IFRS 7”). The amendment requires new disclosures relating to the offset of financial assets and financial liabilities that will enable the users of financial statements better compare financial statements prepared in accordance with IFRS and US Generally Accepted Accounting Principles. The adoption of the amended standard is not expected to have a material impact on the Company’s financial statements.


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4. Cost of sales and operating expenses:

Within cost of sales and operating expenses, the Company includes charges relating to amortization of

plant and equipment, amortization of intangible assets and share-based compensation. These costs are

identified below in their relevant statement of operations caption.

For the year ended December 31, 2012

Per statement of operations

Amortization of plant and

equipment Amortization of

intangible assets Share-based

compensation

Excluding amortization and

share-based compensation

Cost of sales $ 23,127 196 1,588 6 $ 21,337 Operating expenses

Research and development 6,023 122 34 11 5,856 Sales and marketing 4,557 28 8 32 4,489

General and administrative 5,206 176 75 35 4,920 Other - - - - -

Total operating expenses 15,786 326 117 78 15,265 $ 38,913 522 1,705 84 $ 36,602 For the year ended December 30, 2011

Per statement of operations

Amortization of plant and

equipment Amortization of

intangible assets Share-based

compensation

Excluding amortization and

share-based compensation

Cost of sales $ 24,032 315 1,662 23 $ 22,032 Operating expenses

Research and development 5,943 96 38 47 5,762 Sales and marketing 5,450 33 15 134 5,268 General and administrative 5,750 206 18 150 5,376 Other 28 - - - 28

Total operating expenses 17,171 335 71 331 16,434 $ 41,203 650 1,733 354 $ 38,466

The Company also includes within costs of sales and operating expenses costs relating to remuneration

of employees throughout the period as follows:

Remuneration of all employees during the year ended December 31, 2012 December 31, 2011

Wages and salaries $ 15,319 $ 15,833 Employee benefits 3,343 4,019

Share-based payments 84 354

$ 18,746 $ 20,206


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5. Net finance expense

For the year ended

December 31,

2012 December 31,

2011 Net interest (income) $ (53) $ (43) Net foreign exchange loss 217 352 Net loss on re-measurement of investments at fair value through profit or loss 73 126 Net finance expense $ 237 $ 435

6. Trade and other receivables:


Trade and other receivables $ 5,397 $ 7,039

Current portion of long-term receivables 750 564

Less: allowance for doubtful accounts (215) (458)

$ 5,932 $ 7,145

The aging of trade and other receivables, excluding the current portion of long-term receivables, as at

December 31, 2012 and December 31, 2011 is as follows:

December 31, 2012 Current 30-60 Days 61-90 Days Over 90 Days Total

Trade receivables $ 3,688 234 243 850 $ 5,015

Other receivables, including vendor prepayments 382 - - - 382

Less: allowance for doubtful accounts (74) (3) (8) (130) (215)

Net trade and other receivables $ 3,996 231 235 720 $ 5,182

December 31, 2011 Current 30-60 Days 61-90 Days Over 90 Days Total

Trade receivables $ 4,606 385 582 1,113 $ 6,686

Other receivables, including vendor prepayments 353 - - - 353

Less: allowance for doubtful accounts (11) (54) (73) (320) (458)

Net trade and other receivables $ 4,948 331 509 793 $ 6,581


17

6. Trade and other receivables: (continued)

Changes in the allowance for doubtful accounts and charges to bad debt expense for the years ended

December 31, 2012 and 2011, respectively, are as follows:

December 31, 2012 December 31, 2011 Allowance for doubtful accounts Beginning of period $ 458 $ 494 Increase in allowance for doubtful accounts 72 426 Other adjustments - (27) Bad debts written off (315) (435) End of period $ 215 $ 458

Bad debt expense Bad debts written off $ - $ 4 Allowance for doubtful accounts 72 426 Adjustments and recoveries (1) (34) $ 71 $ 396

7. Long-term receivables: Long-term receivables relate to equipment sold to customers under long-term payment arrangements as follows:

December 31, 2012 December 31, 2011 Long-term receivables $ 2,439 $ 1,451

Less: unearned finance income 272 147 Net long-term receivables 2,167 1,304

Current portion 750 564 Long-term receivables $ 1,417 $ 740

Future minimum payments in respect of long-term receivables are as follows: Within one year $ 750 Between one and five years 1,231 After five years 186 $ 2,167

8. Inventory: Details of inventory are as follows:


Raw materials $ 1,876 $ 2,011

Finished goods 528 707

Total inventory $ 2,404 $ 2,718

During the year ended December 31, 2012, the Company charged $5.9 million (2011: $7.4 million) of inventory related amounts to cost of sales.


18

8. Inventory: (continued) During the year ended December 31, 2012, the Company recognized $129,000 of write-downs to inventory (2011: $nil). At December 31, 2012, inventory is carried at cost. At December 31, 2011, inventory was also carried at cost, with the exception certain inventories totalling $61,000 which were carried at net realizable value. No inventory was pledged as security for liabilities other than under the Company’s line of credit (refer to note 14).

9. Plant and equipment:

Furniture and

equipment Computer equipment

Leasehold improvements Total

Cost At January 1, 2011 $ 2,580 7,692 548 $ 10,820

Currency translation adjustments (3) (18) - (21) Additions 67 145 22 234 Disposals / write-offs / transfers to inventory and

other reclassifications 122 (1,997) (96) (1,971)

At December 31, 2011 $ 2,766 5,822 474 $ 9,062

At January 1, 2012 $ 2,766 5,822 474 $ 9,062

Currency translation adjustments (5) (2) (1) (8) Additions 32 168 - 200 Disposals / write-offs / transfers to inventory and

other reclassifications - (651) - (651)

At December 31, 2012 $ 2,793 5,337 473 $ 8,603

Accumulated Amortization At January 1, 2011 $ 2,392 6,829 220 $ 9,441

Currency translation adjustments (1) (16) - (17) Amortization charge for the year 124 420 106 650 Disposals / write-offs / transfers to inventory and

other reclassifications (2) (2,007) (25) (2,034)

At December 31, 2011 $ 2,513 5,226 301 $ 8,040

At January 1, 2012 $ 2,513 5,226 301 $ 8,040 Currency translation adjustments (3) (1) (1) (5) Amortization charge for the year 99 318 105 522

Disposals / write-offs / transfers to inventory and other reclassifications (2) (629) - (631)

At December 31, 2012 $ 2,607 4,914 405 $ 7,926

Carrying value – December 31, 2011 $ 1,022 Carrying value – December 31, 2012 $ 677


19

10. Investments:

During the year ended December 31, 2008, the Company acquired shares in a third party, private company for total consideration of $103,000, made up of $77,000 in services and $26,000 in cash. This investment is carried at fair value in accordance with IAS 39. In the previous year, the Company acquired $1.2 million of financial assets which were designated as financial assets at fair value through profit or loss. During 2012, the Company acquired a further $1.0 million of these assets similarly designated. The financial assets are equity securities, listed on a public stock exchange and are recorded at a fair value of $2.0 million as at December 31, 2012, (2011: $1.1 million) with any movements in fair value recorded through the statement of operations.

11. Intangible assets:

Intangible assets include amounts acquired as part of the MobiSoft OY and StrataGen Systems Inc.

acquisitions in 2007. In addition, intangible assets include software and other assets qualifying for

recognition as intangible assets in accordance with IAS 38, Intangible assets (“IAS 38”). Intangible

assets which are perpetual in nature are not amortized.

Acquired software

Customer Relation

ships

Trademarks and brand

Non-compete

Agreement

Dispatch service

agreements

Patent

portfolio

Customer

Obligations

Software

Perpetual software licenses

Total Cost

At January 1, 2011 $ 6,952 $ 1,964 $ 231 $ 469 $ 1,048 $ 318 $ 169 $ 1,255 $ 152 $ 12,558 Currency translation adjustments

53

24

(1)

5

(10)

7

4

(1)

-

81

Additions - - - - - - - 196 - 196 Reclassifications - - - - - - - (59) - (59) At December 31, 2011 $ 7,005 $ 1,988 $ 230 $ 474 $ 1,038 $ 325 $ 173 $ 1,391 $ 152 $ 12,776 Cost

At January 2012 $ 7,005 $ 1,988 $ 230 $ 474 $ 1,038 $ 325 $ 173 $ 1,391 $ 152 $ 12,776 Currency translation adjustments

(98)

(33)

(4)

(8)

(6)

(7)

(4)

(2)

-

(162)

Additions - - - - - - - 117 - 117 Reclassifications - - - - - - - - - - At December 31, 2012 $ 6,907 $ 1,955 $ 226 $ 466 $ 1,032 $ 318 $ 169 $ 1,506 $ 152 $ 12,731 Accumulated Amortization

At January 1, 2011 $ 3,643 $ 1,021 $ 183 $ 354 $ 1,048 $ 163 $ 169 $ 1,142 $ - $ 7,723 Currency translation adjustments 20 14 (2) 4 (10) 5 4 2 $ - 37 Amortization charge for the year 1,173 330 47 59 - 53 - 71 $ - 1,733 Reclassifications - - - - - - - (58) - (58) At December 31, 2011 $ 4,836 $ 1,365 $ 228 $ 417 $ 1,038 $ 221 $ 173 $ 1,157 $ - $ 9,435 Accumulated Amortization

At January 1, 2012 $ 4,836 $ 1,365 $ 228 $ 417 $ 1,038 $ 221 $ 173 $ 1,157 $ - $ 9,435 Currency translation adjustments (62) (22) (2) (6) (6) (5) (4) (17) $ - (124) Amortization charge for the year 1,144 326 - 55 - 53 - 127 $ - 1,705 Reclassifications - - - - - - - - - - At December 31, 2012 $ 5,918 $ 1,669 $ 226 $ 466 $ 1,032 $ 269 $ 169 $ 1,267 $ - $ 11,016

Remaining useful life (yrs) 0.9 0.9 - - - 0.9 - 3.0 Perpetual

Carrying value – December 31, 2011 $ 3,341 Carrying value – December 31, 2012 $ 1,715

Refer to note 12 for disclosure of the impairment analysis performed in relation to the MobiSoft OY and StrataGen Systems Inc. cash-generating units to which these assets primarily relate.


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12. Goodwill: Goodwill arose as a result of the acquisitions of MobiSoft OY and StrataGen Systems Inc. in 2007. Goodwill consists of the following amounts:

Goodwill - January 1, 2011 $ 3,007 Currency translation adjustments (15)Goodwill - December 31, 2011 $ 2,992

Goodwill - January 1, 2012 $ 2,992Currency translation adjustments (22)Goodwill - December 31, 2012 $ 2,970

Impairment testing for cash-generating units containing goodwill

For the purpose of impairment testing, goodwill is allocated to the MobiSoft OY and StrataGen Systems Inc. operating entities. These entities represent the lowest level within the Company at which goodwill is monitored for internal management purposes.

The aggregate carrying amounts of goodwill allocated to each entity are as follows:

2012 2011

MobiSoft OY $ 2,573 $ 2,587StrataGen Systems Inc. 397 405

$ 2,970 $ 2,992

The impairment tests performed for both MobiSoft OY and StrataGen Systems Inc. were based on their

value in use and were determined by discounting the estimated future cash flows generated from the continuing use of these units. Unless indicated otherwise, value in use for 2012 was determined similarly as in 2011. The calculation of value in use was based on the following key assumptions:

Cashflows were projected based on past experience, actual operating results and planned results for

the near term. Terminal value calculations for each business were extrapolated using a constant growth rate of 0.3% to 2.2%, which does not exceed the long-term average growth rate for the countries in which these units operate.

Management has applied internally determined pre-tax discount rates in determining the recoverable amount for these units. As these discount rates are not risk-adjusted, management has performed sensitivity analysis over the discount rates used to identify each CGU’s sensitivity to discount rates. As noted, risks specific to the assets of these units have not been included within the calculation of the discount rates used except as they relate to country and specific risks, but have been factored into the cash flow projections.

The net present value of the future expected cash flows was compared to the carrying value of the Company’s investment in these units, including goodwill, at year-end. Based on management’s analysis, there is no impairment of goodwill, or for these cash generating units, as at December 31, 2012 and 2011.


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13. Provisions:

Warranty Restructuring Total

At January 1, 2011 $ 111 $ 37 $ 148

Provisions created during the year 118 - 118

Provisions reversed during the year - - -

Provisions utilized during the year (94) (37) (131)

At December 31, 2011 $ 135 $ - $ 135

At January 1, 2012 $ 135 $ - $ 135

Provisions created during the year 61 - 61

Provisions reversed during the year (121) - (121)

Provisions utilized during the year (23) - (23)

At December 31, 2012 $ 52 $ - $ 52

All of the Company’s provisions are current in nature. Warranty provisions relate to warranties provided on the Company’s mobile data terminals with warranty periods varying from 6 to 12 months. The restructuring provision related to the Company’s phase-out of its participation in its Taxicab Technology Enhancement Agreement with the Taxi and Limousine Commission of New York City (“NY TLC”).

14. Loans and borrowings: The Company’s line of credit provides financing of up to a maximum of $4.0 million and bears interest at prime plus 1.5%. The Company’s borrowings under the line of credit from time to time are limited to the aggregate of 75% of the book value of accounts receivable and 50% of the book value of inventories (up to a maximum of $1.2 million). The assets of the Company are provided as collateral for the line of credit. As of December 31, 2012, the Company was not drawn on this credit facility (2011: $nil). Pursuant to the line of credit facility agreement, the Company is required to maintain a tangible net worth of not less than $6.5 million, a ratio between net liabilities to net tangible net worth of not greater than 2:1 and a ratio between funded debt to earnings before interest, income tax, depreciation and amortization of not greater than 2.0 times. The Company’s subsidiary, MobiSoft Oy, has a $198,000 (€150,000) operating line of credit available as at December 31, 2012, which bears interest at one month Euribor rate plus 1%. As at December 31, 2012, MobiSoft Oy was not drawn on this line of credit (2011: $nil). A general security agreement covering substantially all of Mobisoft Oy's assets has been provided as collateral for the line of credit.

The Company is in compliance with its financial covenants as of December 31, 2012.


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15. Financial instruments and capital management: The Company’s financial instruments consist of cash and cash equivalents, trade receivables, income taxes receivable, contract work-in-progress, long-term receivables, investments, accounts payable and accrued liabilities, income taxes payable, deferred revenue and lines of credit. Cash and cash equivalents, trade receivables, contract work-in-progress and long-term receivables are designated as “loans and receivables” and are measured at amortized cost. Accounts payable and accrued liabilities and lines of credit are designated as “other financial liabilities” and are measured at amortized cost. The carrying value of trade receivables, contract work-in-progress, income taxes payable and receivable, certain investments, accounts payable and accrued liabilities, deferred revenue and lines of credit approximate their fair values due to their immediate or short-term maturity. The Company’s investments are carried at fair value with any changes in the fair value of the investment being recorded through income. The carrying values and fair values of financial assets and liabilities as at December 31, 2012 and December 31, 2011 are as follows:


($ thousands)

Carrying value

Fair value

Carrying Value

Fair Value

Financial assets At fair value through profit or loss Investments $ 2,077 $ 2,077 $ 1,053 $ 1,053 Loans and receivables Cash and cash equivalents $ 5,252 $ 5,252 $ 6,778 $ 6,778Trade and other receivables $ 5,932 $ 5,932 $ 7,145 $ 7,145 Contract work-in-progress $ 7,597 $ 7,597 $ 5,468 $ 5,468 Long-term receivables $ 1,417 1,417 $ 740 $ 740Income taxes receivable $ 357 $ 357 $ 59 $ 59 Financial liabilities Other financial liabilities

Trade payables and accrued liabilities $ 5,576 $ 5,576 $ 6,392 $ 6,392 Deferred revenue $ 1,806 $ 1,806 $ 2,103 $ 2,103 Income taxes payable $ 27 $ 27 $ 79 $ 79


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15. Financial instruments and capital management (continued):

The following financial assets and liabilities are measured at fair value on a recurring basis using quoted prices in active markets for identifiable assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

December 31, 2012 Fair Value ($ thousands) Carrying Value Level 1 Level 2 Level 3

Financial assets

Investments at fair value through profit or loss

$ 2,077 $ 2,077 $ - $ -

December 31, 2011 Fair Value ($ thousands) Carrying Value Level 1 Level 2 Level 3

Financial assets

Investments at fair value through profit or loss $ 1,156 $ 1,156 $ - $ -

The Company periodically enters into foreign exchange contracts to manage foreign exchange risk and into cash swap contracts to manage interest rate risk. The Company uses derivative financial instruments only in connection with managing related risk positions and does not use them for trading or speculative purposes. As at December 31, 2012 and 2011, the Company had no foreign exchange contracts outstanding.

The Company is exposed to risks of varying degrees of significance that could affect its ability to achieve strategic objectives for growth and shareholder returns. The principal financial risks to which the Company is exposed are described below: Credit risk The Company’s maximum exposure to credit risk consists of the carrying value of its cash and cash equivalents, trade receivables, contract work-in-progress and long-term receivables. The Company’s exposure to credit risk associated with its trade receivable, contract work-in-progress and long-term receivables is the risk that a client will be unable to pay amounts due to the Company. Allowances are provided for potential losses that have been incurred at the balance sheet date. The Company takes into consideration the customer’s payment history, credit worthiness and the current economic environment in which the customer operates to assess impairment. The Company recognizes a specific bad debt provision when management considers that the expected recovery is less than the actual accounts receivable. All bad debt write-offs are charged to general and administration expenses. The following factors affect the credit risk of the Company’s accounts receivable:


24

15. Financial instruments and capital management (continued): Credit risk (continued) (a) A broad customer base dispersed across various geographic locations. The Company’s customer

base is concentrated in the taxi segment of the market; however, it may be affected by economic downturns due to prevailing economic conditions in any given geography.

(b) 84% of the Company’s accounts receivable at December 31, 2012 (2011: 84%) are outstanding for

less than 90 days. The Company retains security interests on certain products that are shipped until these products are paid for or accepted by the customer.

(c) During the year ended December 31, 2012, no one customer represented greater than 10% of total revenues (2011: None).

All of the Company’s accounts receivable have been reviewed for collectability. Allowances are provided for potential losses that have been incurred at the balance sheet date. See note 6 for details of accounts receivable and allowance for doubtful accounts. The credit risk on cash and cash equivalents and forward exchange and swap contracts is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

Currency risk The Company is exposed to foreign currency fluctuations through its operations because a substantial amount of its revenues and operating expenditures are incurred in US Dollars, Euros, Great British Pounds, and Swedish Krona. Changes in the currency exchange rates of the Canadian dollar against these currencies will affect the results presented in the Company’s financial statements and will cause its earnings to fluctuate. The Company partly mitigates this risk by matching the denomination of its revenues and expenditures.

At December 31, 2012, the Company is exposed to translation foreign currency risk in its Canadian and foreign subsidiaries through the following financial assets and liabilities denominated in Euro, Great British Pounds and US Dollars:

2012 2011

(EUR) (USD) (GBP) (EUR) (USD) (GBP)

Cash and cash equivalents $ 322 $ 2,120 $ 158 $ 1,224 $ 391 $ 121

Accounts receivable 568 3,850 319 1,863 3,877 350

Contract work in progress 855 4,247 879 714 3,602 375 Long-term receivables - 867 - - 208 - Income taxes receivable - 53 - - 53 - Accounts payable &

accrued liabilities (1,067) (1,683) (337)

(1,222)

(2,199)

(328) Deferred Revenue (127) (259) (138) (4) (1,273) (411) Income taxes payable (2) - (16) (24) - (30) $ 549 $ 9,195 $ 865 $ 2,551 $ 4,659 $ 77


25


Currency risk (continued)

At December 31, 2012, with other variables unchanged, a +/- 10% change in the USD/CAD exchange rate would result in net decrease/increase pre-tax translation loss for the year by +/- $915,000 (2011: +/- $473,000), the impact of a fluctuation in the GBP/CAD exchange rate by the same percentage would be +/- $140,000 (2011: +/- $12,000), and the impact of a fluctuation in the EUR/CAD exchange rate by the same percentage would be +/- $72,000 (2011: +/- $337,000). The impact of fluctuations in Swedish Krona is immaterial.

Interest rate risk The Company is exposed to interest rate risk on cash balances earning interest income and to the extent that it draws on its operating lines of credit which calculate interest as a function of variable interest rates. Based on no amount being drawn on the Company’s line of credit facilities at December 31, 2012, a hypothetical 100 basis point change in interest rates would have no material impact on net income for the reporting periods.

Liquidity risk

Liquidity risk is the risk that the Company is not able to meet its financial obligations as they become due or can do so only at excessive cost. The Company’s growth is financed through a combination of its cash flows from operations, borrowing under the existing credit facilities and the issuance of equity. One of management’s primary goals is to maintain an optimal level of liquidity through the active management of the assets and liabilities as well as the cash flows. The Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company ensures that there are sufficient committed loan facilities to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash. All financial liabilities are current and due in the current fiscal year.

The following table summarizes the relative maturities of the financial liabilities of the Company: Maturity (expressed in $’000s of Canadian dollars) Less than one year One to two yearsTrade payables and accrued liabilities $ 5,576 $ -Deferred revenue 1,806 -Income taxes payable 27 -Provisions 52 -

$ 7,461 $ -


26


Capital management

The Company considers its net debt and shareholder’s equity to be its capital for the purposes of capital management, the total book value of which is $27.8 million at December 31, 2012 (2011: $27.1 million). The Company manages its capital structure with the objective of providing sufficient resources to meet day-to-day operating requirements: and to allow it to enhance product offering as well as develop new ones; and to have the financial ability to expand the size of its operations by taking on new customers. In managing its capital structure, the Company takes into consideration various factors, including the growth of its business and related infrastructure and the up-front cost of taking on new customers. The Company’s officers and senior management are responsible for managing the Company’s capital and do so through quarterly meetings and regular review of financial information. The Company’s Board of Directors is responsible for overseeing this process. The Company manages its capital to ensure that there are adequate capital resources while maximizing the return on shareholders through the optimization of debt and equity balances. The Company is not subject to any externally imposed capital requirements.

16. Share capital:

(a) Authorized:

200,000,000 common shares, without par value

50,000,000 preferred shares, without par value

(b) Issued and outstanding:

Number of

common shares Amount Balance – January 1, 2011 13,789,746 $ 24,608 Exercise of options 1,875 3

Balance – December 31, 2011 13,791,621 $ 24,611

Balance – January 1, 2012 13,791,621 $ 24,611

Exercise of options 39,000 75

Balance – December 31, 2012 13,830,621 $ 24,686


27

16. Share capital (continued):

(c) Stock options: The Company has granted stock options to a wide group of management, directors and employees. Under the approved stock option plan, options may be granted for up to 2,000,000 shares of common stock in aggregate. Options generally vest over a three-year term, and have a 37 month life with one-sixth of the option grant vesting at the end of each six-month interval. Options are equity settled. Stock option activity since January 1, 2012 is presented below:

Number of

options

Weighted average

exercise price

Outstanding, January 1, 2012 1,112,750 $ 2.07

Granted 40,000 2.10

Forfeited (442,500) (2.06)

Expired (66,750) (1.65)

Exercised (39,000) (1.65)

Outstanding, December 31, 2012 604,500 2.15 The following table summarizes the stock options outstanding and exercisable at December 31, 2012:

Exercise price Number of

Options

Weighted average

remaining life (years)

Number exercisable

$1.65 229,500 0.52 188,250

$1.72 95,000 0.08 95,000$1.91 11,000 1.67 3,667$2.10 40,000 2.25 6,667$2.75 167,500 1.25 83,750$3.10 61,500 1.42 30,750

604,500 0.88 408,084

The options outstanding at December 31, 2012 expire between January 2013 and April 2015. The share-based compensation in the year ended December 31, 2012 was $84,000 (2011: $354,000).


28

16. Share capital (continued):

(c) Stock options (continued): The weighted average fair value of the options per share granted in the year and three months ended December 31, 2012 was $0.733 per share (2011: $1.033 and $0.906, respectively) determined using the Black-Scholes option pricing model at the date of the grant with the following assumptions:

Year ended

2012 2011

Share price 2.10 1.23 – 1.69

Expected life 3.0 Years 3.0 Years

Risk-free interest rate 0.97 – 1.18% 0.95 – 2.18%

Expected dividend yield 3.81% 0%

Expected stock price volatility 72 - 91% 83 - 114%

(d) Share-based payments reserve:

Balance – January 1, 2011 $ 1,465

Share-based compensation 354

Exercise of options (3)

Balance – December 31, 2011 $ 1,816

Balance - January 1, 2012 $ 1,816

Share-based compensation 84

Exercise of options (10)

Balance – December 31, 2012 $ 1,890


29

17. Income taxes:

Income tax expense varies from the amounts that would be computed by applying the combined

Canadian federal and provincial income tax rate of 25.0% (2011: 26.5%) to income before income taxes

as shown in the following table: (expressed in $’000s of Canadian dollars) 2012 2011Net income before tax $ 1,594 $ 4,053Combined income taxes at statutory tax rate $ 399 $ 1,074 Non-deductible and non-taxable items 79 102Foreign income taxed at different rates 47 (7)Current year tax losses not recognized - 98Utilization of previously unrecognized losses (141) (4)Change in enacted rates (39) 87Adjustments in respect of prior years (156) 234Change in tax filing position (236) -Permanent differences - 18Other (12) (19)

$ (59) $ 1,583 Tax expense as per statement of operations $ (59) $ 1,583

The Company is subject to corporate income tax rates in varying jurisdictions, ranging from approximately 17% to 35.7%. The tax effects of temporary differences and other items that give rise to deferred tax assets and liabilities as of December 31 are presented below:

Deferred Tax Assets

Deferred Tax Liabilities

Net Balance at December 31

(expressed in $’000s of Canadian dollars) 2012 2011 2012 2011 2012 2011 Plant and equipment $ 3 $ 47 $ (100) $ (327) $ (97) $ (280)Acquired intangibles 731 823 (213) (514) 518 309Research and development

expenditures 174 1,431 - - 174 1,431Investment tax credits - - (1,021) (881) (1,021) (881)Other 49 25 - - 49 25

Deferred tax assets/liabilities $ 957 $ 2,326 $(1,334) $(1,722) $ (377) $ 604Right of set-off (102) - 102 - - -Net deferred tax assets/liabilities $ 855 $ 2,326 $(1,232) $(1,722) $ (377) $ 604 Investment tax credits receivable $ 4,792 $ 3,276 $ - $ - $ 4,792 $ 3,276


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17. Income taxes (continued): An estimate of the Company’s deferred tax assets and liabilities which will be realized or recovered in the next twelve months are as follows: 2012 Deferred income tax assets Deferred tax assets to be recovered within 12 months $ 99Deferred tax assets to be recovered after more than 12 months 756 $ 855Deferred income tax liabilities Deferred tax liabilities to be recovered within 12 months $ 211Deferred tax liabilities to be recovered after more than 12 months 1,021 $ 1,232 Deferred income tax liabilities, net $ (377)

The Company’s deduction for research and development expenditures can be carried forward indefinitely. The Company's non-capital losses and suspended losses, which have not been recognized as deferred tax assets, are within the following jurisdictions: the United States, Singapore and India. These losses can be used to reduce future taxable income. The amounts expire as follows: 2020 to 2021 $ 272028 to 2032 3,137Indefinite 246 $ 3,410

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. This assumption is based on management’s best estimate of future circumstances and events. If these estimates and assumptions changed in the future, the value of the deferred tax assets could increase, resulting in an income tax recovery. No taxes have been provided for liabilities which may arise on the distribution of unremitted earnings of subsidiaries, except where distributions of such profits are planned.

18. Related party transactions: The Company is party to an operating lease agreement with Viksun Enterprise Inc., a company controlled by the Company’s Chairman, Chief Executive Officer and majority shareholder. The lease expires in September 2013. Rent and management fees paid under the agreement for the year ended December 31, 2012 amounted to $739,000 (2011: $714,000). In addition, the same company provided promotional items totalling $750 (2011: $2,000). The balance owing to this company as at December 31, 2012 was $nil. (2011: $2,000).


31

18. Related party transactions (continued): The Company sells products and services to customers that are related to two directors of the Company. In the year ended December 31, 2012 the total sales and services provided to these customers were $1,310,000 (2011: $736,000). As at December 31, 2012, the Company has trade receivables from these customers amounting to $232,000 (2011: $52,000). One of the vendors utilized by the Company was related to one of the Directors of the Company. The total value of services purchased from this vendor during the year was $1,097,000 (2011: $208,000). As at December 31, 2012, the Company has trade payables to this vendor amounting to $886,000 (2011: $750,000). These transactions are priced based on normal contract terms and are settled on normal trade terms. In addition to the above, the Company employs one individual who is related to a director of the Company. A director of the Company is also a director of an investment held by the Company. Key management compensation Key management includes the Company’s directors and members of the senior management team, including the senior management of the Company’s three distinct business units. Compensation awarded to key management included:

For the year ended


Salaries and short-term employee benefits $ 1,339 $ 1,634

Share-based payments 38 197

$ 1,377 $ 1,831

Subsidiary undertakings The listing below sets out the principal subsidiaries of the Company. These subsidiaries engage in intercompany transactions, all of which are eliminated on consolidation within these accounts. The following table sets out the direct operating wholly-owned subsidiaries of the Company as at December 31, 2012.

Name Jurisdiction of Incorporation Digital Dispatch (Intl) Ltd. United Kingdom Digital Dispatch (Intl) Pte Ltd. Singapore Digital Dispatch (Scandinavia) AB Sweden Digital Dispatch (India) Pvt. Ltd. India Digital Dispatch Systems Inc. British Columbia, Canada DDS eFleet Services Inc. British Columbia, Canada DW Digital Wireless Inc. British Columbia, Canada DDS Wireless (US Sales) Ltd. British Columbia, Canada DDS Wireless (NA) Ltd. Washington, USA


32

18. Related party transactions (continued):

The following table sets out any direct wholly-owned subsidiaries of the above noted companies as at December 31, 2012.

Name Subsidiary Jurisdiction of Incorporation Digital Dispatch (Intl) Ltd. Mobisoft Oy Finland DDS Wireless (NA) Ltd. Stratagen Systems Inc. Washington, USA Digital Wireless Corp. Washington, USA Digital Dispatch Ltd. Washington, USA Digital Dispatch Systems Inc. Digital Dispatch Limited

Partnership British Columbia

DDS eFleet Services Inc. DDS eFleet Services Limited Partnership

British Columbia

DW Digital Wireless Inc. DW Digital Wireless Limited Partnership

British Columbia

DDS Wireless (US Sales) Ltd. DDS Wireless (US Sales) Limited Partnership

British Columbia

19. Commitments and contingencies:

(a) Operating leases:

The Company has entered into various operating lease agreements for leased premises, with remaining terms of up to six years. Of the total lease obligations, approximately 32% relates to a lease agreement with a company controlled by the Company’s majority shareholder for the land and building occupied by the Company expiring September 2013. The consolidated minimum lease payments for all lease agreements in each of the next five years and thereafter are as follows:

Within one year $ 902 Between one and five years 894 After five years - $ 1,796

During the year ended December 31, 2012, payments made under various operating lease

agreements totaled $1.4 million (2011: $1.3 million).

(b) Performance bonds: For certain contracts, the Company was required to post performance bonds totalling $0.7 million (USD $0.7 million). The Company arranged the bonds with a surety company and has agreed to indemnify the surety company arranging the bonds.

(c) Purchase obligations:

The Company has outstanding purchase obligations at December 31, 2012 as follows:

Within one year $ 1,783 Between one and five years - After five years - $ 1,783


33

20. Segmented information: The Company operates in the wireless mobile data industry and all sales of its products and services are made in this industry. The revenues relating to geographic segments based on customer location are as follows:


Revenues:

United States $ 21,303 $ 17,916

Canada 4,611 3,707

Europe 14,590 23,784

Other 166 284

$ 40,670 $ 45,691


34

20. Segmented information (continued): The Company’s plant and equipment, intangibles, goodwill and current liabilities are located in the following geographic regions:


Plant and equipment:

Canada $ 389 $ 676

United States 155 187

Europe 129 155

Other 4 4

$ 677 $ 1,022

Intangibles:

Canada $ 248 $ 275

United States 847 1,832

Europe 620 1,234

Other - -

$ 1,715 $ 3,341

Goodwill:

United States $ 397 $ 406

Europe 2,573 2,586

$ 2,970 $ 2,992

Current liabilities:

Canada $ 2,516 $ 3,006

United States 2,456 2,953

Europe 2,456 2,730

Other 33 20

$ 7,461 $ 8,709

Current Assets:

Canada $ 9,979 $ 11,074

United States 8,718 6,194

Europe 5,043 6,290

Other 202 157

$ 23,942 $ 23,715


35

20. Segmented information (continued):

During the year, the Company made certain operational changes which impacted the name and function of its previously identified operating segments. The Company now has three distinct business units: Taxi, Transit and New Markets (previously "eFleet"). Its hardware and corporate divisions operate as cost centres and have also been presented below within the operating segment labeled "Other". 2011 comparative information has not been restated as the transition to the new naming convention has not had a material impact on the presentation of operating segments. Year ended December 31, 2012

Taxi Transit New Markets Other Total

Revenue $ 26,003 $ 12,533 $ 2,014 $ 118 $ 40,670

Amortization of plant and equipment and sales related assets

181 63 126 152 522

Amortization of intangibles 624 1,037 2 42 1,705Net income (loss) before income taxes 2,333 (325) (287) (201) 1,520Expenditures for plant and equipment and Intangibles

118 85 41 73 317

Year ended December 31, 2011

Taxi Transit New Markets Other Total

Revenue $ 33,341 $ 10,945 $ 1,067 $ 338 $ 45,691

Amortization of plant and equipment and sales related assets

240 96 138 176 650

Amortization of intangibles 724 975 1 33 1,733

Net income (loss) before income taxes 5,869 (993) (337) (486) 4,053Expenditures for plant and equipment and Intangibles

224 65 14 127 430

The Company does not allocate interest revenue and expenses and non-cash stock based compensation to individual segments; these are presented as part of “Other”.

21. Supplementary cash flow information:

For the year ended


Change in non-cash working capital:

Trade and other receivables $ 1,220 $ (1,275)

Contract work-in-progress (2,128) 56

Inventory 303 (1,138)

Prepaid expenses 68 (74)

Accounts payable and accrued liabilities (1,092) 707

Deferred revenue (297) (262)

Provisions (83) (13)

$ (2,009) $ (1,999)


36

23. Subsequent Events

On March 4, 2013, the board of directors declared a cash dividend on its issued and outstanding common shares. The cash dividend, in the amount of $0.02 per common share, will be paid on or about April 15, 2013 to shareholders of record as of the close of business on March 29, 2013.

On the same date, the board of directors also approved a normal course issuer bid to purchase outstanding Shares of the Company. Further information relating to the normal course issuer bid may be found in the Company’s annual filings including its management discussion and analysis.

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