2010 ANNUAL REPORT - Webtech Wireless

webtechwireless.com

2010 ANNUAL REPORT - Webtech Wireless

CORPORATE OVERVIEWNextBus ®NextBus represents a breakthrough in the way that people usetransit. NextBus is a real-time passenger information system utilizingWebtech patented technology that predicts transit vehiclearrival times in real-time, based upon the transit vehicles’ actualGPS location. NextBus provides this information to transit usersvia electronic digital signs, mobile phones, enabled personalcomputers, or NextBus’ automated Telephone InformationSystem, accessible from any phone. Users can also sign up forautomatic email or text alerts that can be sent minutes beforetheir bus is predicted to arrive; giving them time to meet theirbus and reduce wait times. NextBus also provides transit authoritieswith numerous fleet management tools designed to improveoperating efficiency, enhance service and meet governmentreporting requirements.NextBus is in use by dozens of transit agencies, educational institutionsand other transit operators across North America, includingSan Francisco MUNI, Washington DC WMATA, MIT, and theToronto Transit Commission.Telematics for the Planet ®Webtech’s Telematics for the Planet initiatives are a commitmentto developing and providing technology that protects our environment,as well as making good business sense for fleet operators,by reducing fossil fuel use and expense, and reducing theresultant production of CO2 and noxious emissions.Telematics for the Planet includes a suite of technological applicationsthat provide detailed vehicle diagnostics and reportingregarding vehicle contaminant and CO2 emissions. With thisinformation in-hand, fleet managers can reduce their emissionsthrough optimized routing, reduced idling times and by promotingeco-friendlier driving habits. By adopting and embracing thistechnology, customers not only reduce costs, they also enhancetheir public image against competitors as well as comply with andexceed government regulatory standards.Our PurposeAt Webtech we are committed to providing custom made solutionsfor a variety of organizations, public and private, thatdepend on efficient and effective mobile people and resourcemanagement. We have invested in maintaining our technologyleadership through research and development, as well as a proventeam of dedicated professionals that share in the vision that:“One day, every vehicle will be equipped with LBS and telematicstechnology in order to provide Fleet Intelligence Anywhere.”Responding to the Needs of Individual CustomersEach of these Business Units is intimately familiar with the needs andcomplexities of their individual customers and can respond with customizedsolutions, whether it’s Quadrant, InterFleet or NextBus.Even within these segments, there is often great variation incustomer needs, as vehicle fleets vary greatly by size, type andpurpose, as well as the need to comply with local operationaland regulatory requirements. While our competitors offer pointsolutions that solve a small part of customer’s needs, Webtechprovides integrated solutions that meet the complete operationaland management requirements of organizations.These solutions, along with a host of support services, help organizationsmanage their mobile assets like never before. Theyrepresent the latest and most innovative telematics technologyavailable today, and through our commitment to continuousresearch and development, we have maintained our leadership inthe industry.7


MANAGEMENT’S DISCUSSION & ANALYSISManagement’s Discussion & AnalysisFor the year ended December 31, 2010This document is dated March 23, 2011GENERALCertain statements in this document, including statements which maycontain words such as “could”, “expect”, “believe”, “will”, and similarexpressions and statements related to matters that are not historical facts,are forward-looking statements. These forward-looking statements relateto, among other things, financial results, product plans, timing, contentand pricing of products, market and industry expectations, and generaleconomic, business and political conditions. All forward-looking statementsin this document are based on management’s beliefs, intentionsand expectations with respect to future events. Such forward-lookingstatements involve known and unknown risks and uncertainties, includingthose set out below under the heading Additional Risks and described ingreater detail under Risk Factors in the Annual Information Form (“AIF”)of WebTech Wireless Inc. (the “Company”), which may cause the actualresults, performances, or achievements of the Company to be materiallydifferent from any future results, performance, or achievements expressedor implied by such forward-looking statements.In light of the many risks and uncertainties that may cause future resultsto differ materially from those expected, the Company cannot give assurancesthat the forward-looking statements contained in this documentwill be realized. Forward-looking statements are not guarantees of futureperformance.The financial data contained in this report and in the auditedConsolidated Financial Statements of the Company for the year endedDecember 31, 2010 have been prepared in accordance with GenerallyAccepted Accounting Principles (“GAAP”) in Canada and are stated inCanadian dollars, unless otherwise noted.OVERVIEWFounded in 1999, the Company is a leading provider of telematics andvehicle fleet location-based services (“LBS”) in the Machine to Machine(“M2M”) industry, that help organizations efficiently measure, monitor andmanage the performance of their mobile assets in real-time. On October26, 2009, the Company acquired all of the issued and outstanding commonshares of the former Grey Island Systems Inc, a company listedon the TSX (the “Exchange”) and subsequently renamed the companyInterfleet Inc. (“Interfleet”). Interfleet is also a provider of telematics hardware,subscriber and other services in the LBS industry.The Company’s hardware and software products and services enablecustomers to improve the productivity, profitability, environmental complianceand safety and security of their fleet operations through bothclient server and hosted applications offered on an enterprise license, orSoftware as a Service (“SaaS”) basis.Through a combination of organic growth and acquisitions, theCompany now serves customers of all sizes in the transport, government,service, transit, insurance and original equipment manufacturer(“OEM”) markets, with sales in over forty countries. Products include:Quadrant ® fleet management software for industry, InterFleet solutionsfor government, and NextBus real-time passenger informationservices (“RTPIS”) for transit fleets.The Company develops, manufactures and supports its own hardwareproducts, as well as offering hosted and enterprise applications.A typical sale involves the installation of a WebTech LocatorTM orTrackerTM in-vehicle device, which functions using advanced globalposition system (“GPS”) and general packet radio service (“GPRS”)technology. An annual subscription connects the locator to theCompany’s internet-based Quadrant or InterFleet portals, whichprovide detailed mapping, reporting, dispatching, and operationalanalysis capabilities. These services are offered through an applicationservice provider (“ASP”) layer, or SaaS, or on an enterprise basis forlarge customers with their own IT infrastructure and complex fleets.Under the enterprise basis, the Company licenses its software on astand-alone basis through a form of enterprise license which attractsa one-time licensing fee plus recurring annual maintenance fees. TheCompany’s NextBus solution is also offered on an ASP/SaaS basis, aswell as providing real-time predictions to handhelds and to signs intransit customers’ bus stops or via SMS messaging technology.The Company sells its hardware, software and services through a combinationof direct and indirect sales channels. By working with qualifiedlocal partners, the Company has been able to penetrate internationalmarkets, making it one of the few truly global telematics and LBS providersin the industry.Statement of operations, comprehensive loss and deficitYear EndedDecember 31, 2010Year EndedDecember 31, 2009Five-month PeriodEnded December31, 2008Revenue 41,377 27,217 11,401Net loss 14,289 10,725 5,589Net loss per share 0.16 0.17 0.10Financial positionTotal assets 45,315 59,275 25,363Total long-term financial liabilities 916 2,626 642This information was prepared in accordance with Canadian GAAP and all amounts are in Canadian dollars.8 (Dollar amounts in 000’s except number of shares and per share amounts)


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011v. Province of Manitoba’s Vehicle and EquipmentManagement Agency (“VEMA”) commenced its roll-outof InterFleet solution for Emergency Response Vehicles(“ERVs”) on over 170 vehicles, primarily ambulances;vi.The Alberta Department of Transportation renewed anexisting five-year contract with the Company, selectingInterFleet for its innovative automatic vehicle location-basedsnowplow project, after an open competition; and,vii. The Company was awarded a single-source contractextension for its InterFleet ® technology by the City ofVaughan, Ontario. The agreement is for a period offive years for the supply of Global Positioning System/Automated Vehicle Locator (“AVL”) services.Significant Nextbus sales announced, included:i. A contract from the City of Welland, ON for the Company’sNextBus real-time passenger information solution. Thiscontract also includes the first sale of the Company’sNextBus Stop Annunciation System, which provides riderswith audio and visual information related to the bus routeand next stop;ii. A full implementation of the NextBus real-time passengerinformation solution including three years of service andhosting fees to enhance rural transit in Amador County, CA;iii. Three separate five-year contracts for its NextBus Real-TimePassenger Information Service with the University of Iowa,Iowa City Transit and Coralville Transit;iv.A RTPIS umbrella contract with a group of affiliated transitauthorities called Triad Transit Systems. The Triad TransitSystems is comprised of Greensboro Transit Authority,Piedmont Authority for Regional Transportation, High PointTransit Authority and Winston-Salem Transit Authority inNorth Carolina. This contract required funding from each ofthe underlying municipal regions and provisional approvalwas subsequently overturned by one of the city councils. Asa result, the implementation has been delayed until suchtime as the funding is reapproved; and;v. The Company signed a three-year RTPIS contract with CentralMaryland Regional Transit . As part of the contract, theCompany will receive fees for service and installation of newhardware on 82 buses, and an additional annual fee in the finaltwo years of the agreement, as service revenue. The contracthas an additional two-year option to extend these services.iv. the Company also worked together with AT&T to helpHanford, California-based Kings Area Rural Transit (“KART”),improve its rural transportation services by providing awireless vehicle tracking and management solution thatsupports KART’s goals of safety, efficiency and cleaner air;v. An agreement with Cascade Sierra Solutions, an Oregonbasednon-profit organization which promotes andadministers federal and state-funded clean air and fuel usereduction programs, for the distribution of its Quadrant ®transportation solution to their truck fleet customers; and,vi. The Company will be providing Texas-based StrikeConstruction LLC, a leading pipeline construction andmaintenance services company, with Quadrant remoteasset management for over 270 units in its heavy equipmentyellow iron fleet. Installation of Quadrant WT5000 Locators,including Roadvault environmental enclosures will becompleted by year end.The Company sells its telematics and LBS solutions around theworld. The global market for telematics and LBS is expected togrow between 15% and 20% per year based on independentresearch. Factors driving the worldwide increase in the use andapplication of telematics include:• Continuing need to improve efficiencies and operationalcontrol;• Requirements to comply with regulatory reporting of driveractivity;• Increased awareness of the benefits of telematics by truckingcompanies, service providers, insurance companies,automobile manufacturers and consumers, including as atheft reduction tool;• Growing acknowledgement by consumers, regulators andmanufacturers of the enabling contributions which telematicscan make in reducing carbon emissions and to enablethe emerging “carbon credit economy”;• New wireless networks and reduced costs for hardware andairtime;• More comprehensive and better subscriber services at similarprices;• Trends toward safety and security of mobile workers andassets; and,• Homeland security concerns in the US.Significant Quadrant sales included:i. A location-based services agreement with Hino Trucks, aToyota Group Company, for the delivery of 1,000 QuadrantWT7000E locators, supported by an enhanced version of theQuadrant web-based, fleet management portal;ii. The selection of the WebTech Wireless Quadrant remotefleet management solution by Kuwait Oil Company for morethan 500 vehicles, and Projects Supply Company in SaudiArabia for approximately 300 trucks operating throughoutthe Middle East;iii. A further deployment of over 650 Quadrant in-vehiclelocators with a major Canadian waste disposal company;(Dollar amounts in 000’s except number of shares and per share amounts)Industry factors are more fully described in the Company’s mostrecently filed AIF which is available on SEDAR at www.sedar.com.EconomicBased on the Company’s analysis, the Company expects the paceof global economic recovery to continue to be slow, gradual andvaried across worldwide economies. Domestically generateddemand and demand for commodities in emerging economiesis increasing while demand from industrialized economies haslost momentum and the inventory restocking cycle has slowedas consumers and governments implement austerity measures11


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011Summary Of Results Of OperationsDecember 31,2010December 31,2009Variance($)Variance(%)Hardware $14,576 $12,439 $2,137 17%Recurring services, software and other 26,801 14,778 12,023 81%Total Revenue 41,377 27,217 14,160 52%Cost of goods sold 20,763 13,057 7,706 59%Gross margin 20,614 14,160 6,454 46%50% 52%ExpensesSales and marketing 8,931 7,665 1,266 17%Research and development 8,644 5,945 2,699 45%General and administrative 8,415 7,657 758 10%Amortization 3,072 1,052 2,020 192%29,062 22,319 6,743 30%Loss before other expenses(earnings) and income tax(8,448) (8,159) (289) 4%Other expenses (earnings)Interest and other expenses (earnings) 44 (81) 125 -154%Foreign exchange loss on operations 533 1,141 (608) -53%Stock-based compensation from cancelled stock options 620 - 620 100%Restructuring costs 1,550 1,461 89 6%Impairment of Intangible Assets 4,183 - 4,183 100%Loss on sale of long term investments - 50 (50) -100%Loss before income taxes (15,378) (10,730) (4,648) 43%Income tax expense (recovery)Current 30 153 (123) -80%Future (1,119) (158) (961) 608%(1,089) (5) (1,084) 21680%Net and comprehenisve loss for the period $(14,289) $(10,725) $(3,564) 33%EBITDAS $(5,525) $(7,742) $2,217 -29%EBITDAS is a non-GAAP measure and is therefore not universally defined. EBITDAS differs from Earnings in precisely the way itsname suggests and in addition excludes foreign exchange loss on operations; impairment of intangible assets, gain on restructuringof long term investments and loss on sale of long term investments.(Dollar amounts in 000’s except number of shares and per share amounts)13


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011Revenue Increase/(Decrease) By Geography:December 31, 2010 December 31, 2009 Variance$ % $ % %United States $21,221 51% $13,004 48% 63%Canada 13,340 32% 6,922 25% 93%Europe 4,476 11% 3,387 12% 32%Mexico & Latin America 1,635 4% 2,625 10% -38%Rest of the world 705 2% 1,279 5% -45%$41,377 100% $27,217 100% 52%Revenues from sales in the US increased by 63% over the prioryear, driven by sales associated with the Company’s NextBussolutions, the one-time sales of Quadrant enterprise licenses to asecond operating division of the Company’s marquee US couriercustomer and also to the City of Chicago in the third and fourthquarters respectively, and recurring subscriptions and shipmentsof locators under a distribution agreement with AT&T. Sales inCanada increased 93% over the prior year, primarily as a resultof sales of Interfleet and Nextbus products and services andadditional recurring subscription revenues arising from sales ofQuadrant locators in previous quarters. Sales in Europe increasedby 32% over the comparable period due to several large salesof WT5000 Locators to the Company’s distributors, Cybit, andOverview. Sales in Mexico and Latin America, and the rest of theworld declined by a combined 40% as a result of the continuedeffects of the global economic downturn and a diminished focuson the Middle East and closure of operations in Brazil due to collectionsand operational issues in the past. In these geographies,the Company tends to make intermittent but large volume sales.The Company continues to focus on existing distribution channelsin Europe, Asia, Mexico and Latin America.Revenues By CategoryThe Company expects continued revenue growth in 2011, withthe strongest growth expected in the US and Mexico and LatinAmerica.December 31, 2010 December 31, 2009 Variance$ % $ % %Hardware $14,576 35% $12,439 46% 17%Recurring, software, services and other 26,801 65% 14,778 54% 81%$41,377 100% $27,217 100% 52%(Dollar amounts in 000’s except number of shares and per share amounts)15


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011Recurring revenue and services and other revenue (including thesale of enterprise licenses discussed below) for the year endedDecember 31, 2010 was 49% and 16% respectively of overall revenue,continuing the revenue trend towards a higher mix of nonhardwarerevenue. This shift away from hardware to a majority ofsubscription, software and services revenue, which commenced inthe quarter ended March 31, 2010, reflects management’s focuson developing the SaaS model, and is expected to continue.Recurring SaaS revenue is highly predictable and generates significantmargins.Recurring revenue increased by 77% over the prior year as a resultof a growing subscriber base generated from hardware sales inprior periods and by the addition of subscription revenue fromInterFleet and NextBus. The subscriptions to the Quadrant,Interfleet and Nextbus web portal reporting solutions are growingin all geographic segments. Services and other revenue was alsoup 97% due to one-time sales of Quadrant ® enterprise licensesto a second operating division of the Company’s marquee UScourier customer and to the City of Chicago. In addition, the saleof software and reporting development services associated withincreases in subscription revenue earned from the Quadrant andInterfleet solutions as well as from sales of implementation servicesfor NextBus solutions, which often do not include hardwaredeployments.At December 31, 2010, the subscriber base of over 85,000 subscribersincludes more than 60,000 North American and 25,000international Quadrant and InterFleet subscribers. The subscriberbase is expected to continue to grow as the Company activatessubscription services ordered under existing and developing contractsand expands its international presence.(‘000)Full service subscribers 77Data pump subscribers 8Total 85The Company’s hardware revenue for the year ended December31, 2010 of $14,576 increased by 17% compared to the prior yearas a result of large shipments of locators to customers in Europeand the US, as well as the largest deployment in Canada to dateof the Company’s NextBus electronic display bus stop signs tothe Toronto Transit Commission.Revenues By CategoryDecember 31, 2010 December 31, 2009 (1) Variance$ % $ % %Government $18,224 44% n/a n/a n/aNon-government 23,153 56% n/a n/a n/a$41,377 100% $- 0% 0%(1)Revenue by sector is a new reporting segment for the Company, effective January 1, 2010.16 (Dollar amounts in 000’s except number of shares and per share amounts)


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011In the year ended December 31, 2010 the Company derived$23,153 of its revenue from the non-government sector in its OEM,insurance and fleet services verticals primarily through subscriptionrevenues and shipments of locators to customers in Europeand the US. Sales to customers in the government sector, totaling$18,224, were driven by subscription revenues and sales of servicesassociated with the sale of Quadrant Enterprise License to the Cityof Chicago and sales of the Company’s NextBus predictive arrivalsystem and InterFleet solutions. Sales to the government sectorare generally stable, predictable as upon successful completionof the sales cycle government customers tend to engage in longterm relationships with the Company.The Company expects to achieve continued growth in the governmentsector in the coming years as a portion of its sales force isdedicated to this market segment and is building an awarenessof the InterFleet brand as a solution for public sector service functionand fleet managers. The Interfleet brand encompasses functionspecific solutions for operators of snow plows, salt spreaders,waste management vehicles, emergency medical services (“EMS”),police vehicles and other government functions. The Companyintends to continue to develop and add to these solutions andexpand its customer base through both direct and indirect salesefforts. In the short term, the warranty issues with the Interfleetproduct previously discussed may have an impact on governmentsales. The Company has taken a number of proactive steps toresolve these issues and avoid any impact on sales.The Company also expects to see continued growth in the nongovernmentsector driven by increasing regulation in the transportationsector (Hours of Service, and related driver reporting), theadoption of telematics to improve efficiencies and the beginningof adoption of telematics solutions by insurance companies servingindividual drivers and fleet owners.Gross Profit and Gross Profit MarginsIn the year ended December 31, 2010, gross profit increased 46%due to the sales of the Interfleet and Nextbus products and services.However, gross profit margin decreased two percentage pointsor 4% from 52% to 50%. In 2009, the gross margin percentagewas positively impacted by the one-time sale of a very large highmargin software license. In the current year, the Company took aone-time charge against cost of goods sold arising from its yearendreview of inventory as the book value of inventory held by theCompany at its Toronto manufacturing facility was overstated by$529. The Company also recorded an increase in it obsolescenceprovision related to the Toronto inventory totaling $287. In addition,there were significant sales of hardware products that arenearing the end of their product lifecycle at lower than typicalmargins in the fourth quarter. Lastly, the Company experiencedone-time technology issues with one of its Quadrant customersand a number of its Interfleet Inc. customers related to devicessold during the year, and as a result, has accrued an additionalwarranty expense totaling $510. Quadrant expense was $118 andInterfleet expense was $392. These events negatively impactedthe gross profit margin. The negative impacts were partially offsetby the previously mentioned one-time high margin sales ofQuadrant enterprise licenses, and the mix of high margin recurringservices revenues. Assuming sales prices and the product mixbetween hardware and non-hardware revenue remains consistent,the Company expects gross margins to remain above 50% in thefuture.Operating ExpensesOperating expenses which include large non-cash charges foramortization related to the Interfleet Inc. acquisition increased by30% over the prior year, primarily as a result of the acquisition ofInterfleet Inc. including the aforementioned amortization attributableto the intangible assets acquired, legal fees, and increasedspending on research and development efforts as the Companyconsolidates its three internet portals and develop replacementhardware products for products at the end of their product lifecycle.Excluding the impact of Interfleet Inc., operating expensesdecreased by 13% over the prior year. The decrease is largely dueto reduced salary costs as a result of headcount reductions relatedto restructuring reduced bad debt expense and litigation settlementcosts in 2009.Sales and MarketingIn the year ended December 31, 2010, marketing and salesexpenses increased 17% over the prior comparable period, primarilyas a result of the addition of Interfleet Inc. marketing and salesexpense. Excluding the impact of Interfleet Inc., marketing andsales expenses decreased by 9% over the prior comparable periodas a result of reduced spending on travel, less spending on consultants,lower commissions on sales arising from a revised compensationplan and lower sales of hardware than the prior comparableperiod.Research and DevelopmentThe Company continues to invest in research and developmentactivities to maintain technical leadership in automotive and transportationmarkets. Research and development costs increased45% over the prior year through the addition of Interfleet Inc.expenses. Excluding the impact of Interfleet Inc., research anddevelopment spending declined 5% over the prior year as theCompany reduced its reliance on external consultants to completeresearch and development projects, but increased its staffing tosupport the enhancement of the Company’s product portfolio andservice offerings, and the integration of its three product lines.(Dollar amounts in 000’s except number of shares and per share amounts)17


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011During the year ended December 31, 2010 the Company releasedthe following new and custom products, as well as next generationproducts:• Enabling the interoperability of Quadrant locators as part ofthe InterFleet ® solution;• Several major Quadrant ® enhancements including:o A full job management system from initial state to completion,via job definition and driver/vehicle assignmentcapabilities;o Door unlock service allowing searches for vehicles byname, vehicle identification number or serial number andunlocking of the door with one click;o Upgrades to the graphic user interface to facilitate easeof use through drag and drop capabilities, and group anddriver administration;o A customizable user interface including mapping, dashboard,specific reports and alert manager, and a customizableapplication footer;o A posted speed limit report to assist fleet managers anddrivers achieve fleet safety requirements;o Enhanced universal performance reports to facilitatemixed fleet operational efficiencies;o Additional long term trending reports for “Telematics forthe Planet” to facilitate more efficient fleet operations;o Installation test tools to support fully automated accelerometertesting and configuration;o Enhancement of Quadrant 9.0 releases with a number ofimprovements in the areas of usability, Messaging andJob Management. Also introduced support on universalperformance reports and Accelerometer events on allactivity reports;o Completed the release the Enterprise version ofQuadrant 9e;o Released the WT-7000H for supporting 3G network andcompleted the first customer shipments; and,o Provided support for roadside assistance, job managementand supporting key customers on in-vehicle devicesfrom Garmin International Inc.• Several InterFleet software releases including:o Full French translation of the InterFleet application,including the reports module and the adminframe tool;o Route service report enhancements to allow for colourgradient representation to define different routes,and shading of route layers for better visual analysis.Additionally, a legend can be placed on the map to assistwith spatial data analysis;o Modification of the live material monitoring tool to allowclients to define up to five live status scenarios combiningrate and/or input data in conjunction with GPS databehaviour; and,o Provided diagnostic reporting through the WT7000 onthe Interfleet system.• NextBus software enhancements including:o A user friendly interface that allows the client to selfadministerthe configuration of the prediction page forLCD screens;o The ability to show headway in real-time on the agencymap and to colour vehicles by their adherence to scheduledheadway. Additionally, the agency map shows passengerload for vehicles that have automatic passengercounters installed, allowing for speedier dispatch of additionalvehicles as required;o Schedule for route reports that work for complicatedroutes with many trip patterns;oCreation of an additional public XML Feed that allows,with specific agency permission, data to be used bythird-party developers to build applications;o The addition of extent routes to the XML Feed to makeit easier to create mapping applications, and a new“Messages for Route” command so that the user candetermine current messages and all of their essentialdetails such as start time, end time, originator and ID;o Smartphone site additions including: AndroidSmartphone users now have same map capability asiPhone users. A full Google map is provided that showsthe user’s location, location of the stop, the route, andthe location of the buses. And the map can be pannedand zoomed. In addition, system wide messages for theagency are shown on the main page, and also displayedon the route selector page so that users see them immediately.Agency Website enhancements including Frenchtranslation, memory usage reductions panning improvementsto allow dispatchers to quickly pan the map whenmany routes are being displayed;o A Schedule Optimizer report that allows one to see howa schedule can be optimized so that vehicles can betteradhere to the schedule; and,o Passenger counting refinements.The Company also made several new patent applications with theUS Patent and Trademark Office to increase the value of its intellectualproperty portfolio that consists of eight approved patents,four new filed trademark applications, three trademarks registrationcertificates issued, and sixty-three internet domain namesregistered company-wide.General and AdministrationGeneral and administration spending increased by 10% over theprior year, as a result of the addition of Interfleet Inc. related generaland administration spending, and increased severance andlegal costs. Excluding the impact of Interfleet Inc., general andadministration expenses decreased 24% over the prior year as aresult of reduced salary costs due to headcount reductions and adecrease in bad debts expense and the 2009 litigation settlementcosts.18 (Dollar amounts in 000’s except number of shares and per share amounts)


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011AmortizationAmortization increased by 192% over the prior comparable ninemonths, primarily as a result of amortization of non-competeagreements, technology and customer relationships acquiredthrough the acquisition of Interfleet Inc., which was completed inOctober 2009.Write down of Intangible AssetsManagement determined that there were indicators of impairmentof the customer list and technology acquired in the acquisition ofInterfleet Inc. due to a current period operating loss, and weakerthan anticipated results. An impairment test was carried out tocompare the fair value of the intangible assets to their carryingvalue, which resulted in an impairment charge of $4,102 againstthe customer list and $81 against the technology.Restructuring ChargesThe Company restructured its sales, research and development,and finance departments in Vancouver during the year. In addition,Interfleet operations have been significantly restructuredas previously discussed. These changes resulted in significantseverance and legal costs. These changes will ultimately lead toimproved integration with Interfleet, lower costs and improvedprofitability.Stock Option CancellationThe Company informed staff of the option to retire a number of“out of the money” Stock Options, which resulted in a charge of$620.Net Loss and Comprehensive LossThe Company is reporting a net loss and comprehensive loss of$14,289 for the year ended December 31, 2010 compared with anet loss and comprehensive loss of $10,725 for the prior year.Loss per share for the year ended December 31, 2010 is $0.16,compared with $0.17 earnings per share in the prior comparableyear ended December 31, 2009.Earnings Before Interest, Tax, Depreciation, Amortization And Stock Based Compensation Expense (“EBITDAS”)December 31, 2010 December 31, 2009Net loss reported $(14,289) $(10,725)Add/(Deduct)Amortization 3,072 1,052Interest and other expenses (earnings) 44 (81)Impairment of intangible assets 4,183 -Stock based compensation 2,021 826Tax recovery (1,089) (5)Foreign exchange loss 533 1,141Loss on sale of investments - 50$(5,525) (7,742)EBITDAS in the year amounted to a loss of $5,525 and improvement from a loss of $7,742 in 2009. This loss includes restructuringcharges of $1,115, a one time warranty expenses of $510, Interfleet inventory charges of $816 and legal expenses related to intellectualproperty litigation of $850 that are not expected to continue in future. EBITDAS is a non-GAAP measure and is therefore not universallydefined. EBITDAS differs from Earnings in precisely the way its name suggests, and in addition excludes foreign exchange loss on operations;impairment of intangible assets, gain on restructuring of long term investments and loss of sale of long term investments.(Dollar amounts in 000’s except number of shares and per share amounts)19


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011SUMMARY OF QUARTERLY RESULTSSelected Quarterly Financial Information (unaudited)(in thousands exceptshare amounts)Threemonthsended Mar31, 2009Threemonthsended Jun30, 2009Threemonthsended Sep30, 2009Threemonthsended Dec31, 2009Threemonthsended Mar31, 2010Threemonthsended Jun30, 2010Threemonthsended Sep30, 2010Threemonthsended Dec31, 2010Revenue $6,669 $7,249 $4,965 $8,334 $10,462 $9,607 $10,334 $10,974Gross Profit $3,731 $4,516 $2,929 $2,984 $5,632 $4,888 $6,368 $3,725Gross Margin % 56% 62% 59% 36% 54% 51% 62% 34%Expenses $4,108 $4,340 $4,152 $9,719 $7,371 $6,957 $7,664 $7,069Other Items $(492) $345 $987 $1,886 $133 $(535) $(15) $6,258Net earnings (loss) $115 $(169) $(2,210) $(8,619) $(1,872) $(1,534) $(1,281) $(9,602)EPS (Basic) $ – $ – $(0.04) $(0.13) $(0.02) $(0.02) $(0.01) $(0.16)EPS (Diluted) $ – $ – $(0.04) $(0.13) $(0.02) $(0.02) $(0.02) $(0.11)Total Assets $27,982 $26,772 $22,495 $57,570 $56,092 $55,093 $53,029 $45,314Total Long Term Liabilities $2,541 $2,792 $1,043 $3,264 $2,783 $2,557 $3,711 $1,601This information was prepared in accordance with Canadian GAAP and all amounts are in Canadian dollars.The Company’s sales cycle to customers depends upon the complexityof the products and services provided and can vary from afew weeks to many months. In addition, the Company continues toseed the market by providing product to large potential customersfor use on a trial basis. Some of these trials may last for overone year. Consequently, results may vary from quarter to quarteras sales cycles or trials may close in a particular quarter or slipinto a later quarter. Quarterly results are also affected by factorssuch as the seasonality of the buying patterns of customers whoramp up operations for winter (snow removal) and to meet budgetedspending levels (government) prior to fiscal year ends andfluctuations in the US-Canadian dollar and GBP-Canadian dollarexchange rates. To mitigate the impact of these long lead timesales efforts, the Company has developed relationships with largedistributors who generate both small and medium sized leads aswell as larger sales leads. The Company has also recently developedan inside sales and sales support group to assist in developingand closing small and medium sized opportunities in aneffort to accelerate revenue growth and smooth out some of theCompany’s hardware sales revenues quarter over quarter and yearover year. The Company has also modified its sales compensationplans and its sales team focus to seek out and to encourage continuouslyrepeated sales to customers rather than large one timesales, in part to improve customer satisfaction, but also to smoothrevenue capture.During the year, sales revenues continued to grow throughincreased direct sales to small and medium sized customers aswell as larger government and commercial clients. To furtherextend its reach, the Company also has distribution agreementswith wireless carriers such as AT&T in the US, Rogers Wireless inCanada and Cable & Wireless in Panama, to distribute and sellits products through the carriers’ networks of sales agents anddistributors. The Company also maintains a network of distributorsaround the world, which contribute a significant portion of theCompany’s sales, primarily in the UK. Additionally, the Companyestablished a base for more substantial future growth, through theacquisition of Interfleet Inc. in 2009.20 (Dollar amounts in 000’s except number of shares and per share amounts)


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011LIQUIDITY AND CAPITAL RESOURCESDecember 31, 2010 December 31, 2009 Variance$Variance%Cash and cash equivalents 4,020 7,212 (3,192) -44%Accounts receivable, net of allowance 9,302 9,260 42 0%Inventory, net of allowance 7,154 9,362 (2,208) -24%Prepaid expenses and deposits 475 533 (58) -11%Total current assets 20,951 26,367 (5,416) -21%Bank indebtedness 1,370 - 1,370 100%Accounts payable and accrued liabilities 5,969 7,384 (1,415) -19%Capital lease obligation 108 124 (16) -13%Current portion of deferred revenue 1,744 2,152 (408) -19%Other current liabilities 1,500 - 1,500 100%Total current liabilities 10,691 9,660 1,031 11%Working Capital 10,260 16,707 (6,447) -39%Working capitalAt December 31, 2010, the Company had working capital of$10,260. In addition to the impact of operating results, workingcapital decreased as the retention bonus of $1,500 discussedabove became current and increased accounts receivable due toseveral large sales were recorded in December but not collecteduntil 2011 (City of Chicago Enterprise License, OEM and Insurancelocator sales). Inventory was also reduced due to a large OEMsale and a large Insurance sale in December as well as the increasein the obsolescence provision mentioned elsewhere. In additionto operating results, the net cash position deteriorated due todeferred revenue recognition, and pay down of accounts payable.In addition, the strengthening Canadian dollar impacted the USdollar denominated accounts receivable balances from December31, 2009 that were collected subsequent to 2009.The Company has historically invested in product and marketdevelopment and carries significant inventory to meet customerrequirements. As a result, the Company has historically had negativecash flows. However, it has taken steps to improve its abilityto generate cash from operations in the future as previouslydiscussed. The March 1, 2011 financing substantially improvedthe Company’s working capital position, which will assist in thisprocess. The Company also has a revolving demand credit facilitywith a Canadian Chartered Bank of up to $3 million. At December31, 2010 the Company had an available balance on this facility of$1,630. The Company has historically grown organically and morerecently through the acquisition of Interfleet Inc. At December31, 2010, the Company had accounts payable and accruals totaling$5,969, of which $2,758 or 46% had been paid as of March 21,2011. The Company completed a $6,000 financing on March 1,2011. The proceeds are used for working capital and general corporateneeds. The Company does not anticipate any large capitalor other cash outlays in the near term which would require it toseek financing.Subject to the factors set out elsewhere in this document, includingunder the header “Risks and Uncertainties” and under theheading “Risk Factors” in the Company’s AIF, the Companydoes not currently foresee any working capital deficiencies.Notwithstanding the Company’s positive working capital position,the Company may require future financing in order to satisfy futuregrowth activities. The Company may also need additional capitalto fund specific growth projects or acquisitions in the future, andwhile no such projects are planned at this time, a change in circumstancescould result in the need for additional capital.Current assetsThe Company’s current assets at December 31, 2010 totaled$20,951. The decrease in current assets was primarily driven bythe use of cash to pay for costs associated with the managementrestructuring planned in 2009 and executed in 2010, an increase inthe inventory obsolescence provision and one-time costs relatedto a consolidation of the Company’s sales force and certain otherpositions, and to fund operating activities.Cash and cash equivalentsAt December 31, 2010, the Company had cash and cash equivalentsof $4,020.(Dollar amounts in 000’s except number of shares and per share amounts)21


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011The Company used net cash of $3,192 in the year endedDecember 31, 2010 (December 31, 2009 - $3,323). Cash movementsin the quarter were attributable to the following: theCompany used cash of $6,146 to fund its operating activities. TheCompany also used cash of $105 to repay capital lease obligationsand $196 to purchase capital and intangible assets, and generatedcash of $485 from a non-brokered private placement of shares tocertain members of senior management and the Company’s Boardof Directors, the draw up of a line of credit $1,370 and the releaseof restricted cash of $1,500. The foreign exchange impacted cashnegatively in the amount of $82.At December 31, 2009 $1,500 was included in restricted cashrelated to the retention bonus of the former founders of Interfleet.This amount was subsequently released in a deferral arrangementand now is due and payable as previously discussed.Accounts receivableAt December 31, 2010 the Company had accounts receivable of$9,302. Of which $4,662 was past due. Of these past due amounts$2,917 or 63%, has been collected as of March 21, 2010. TheCompany continues to manage its customers’ payment terms, particularlygovernment customers who tend to delay payment, butare ultimately low collections risk.From time to time, the Company may avail itself of growth opportunitiesby granting extended credit terms to its resellers and distributorswith large volume orders, reducing accounts receivableturnover and contributing to larger accounts receivable balancesand increased credit risk.InventoryInventory decreased to $7,154 at December 31, 2010 as theCompany executed on sales orders and made the strategic decisionto reduce its investment in inventory particularly at the Vancouverfacility. The Company continues to purchase inventory to meetcertain specific short term customer needs, and as a result of supplierlead times, expects to maintain inventory equivalent to sixmonths of hardware sales. The Company also took a one-timecharge against cost of goods sold arising from its year-end reviewof inventory as the book value of inventory held by the Companyat its Interfleet Toronto manufacturing facility was overstated by$529. The difference is attributable to a number of factors, includingwarranty returns and replacements, replacement inventory held incustomer locations and service vehicles, and manufacturing shrinkage.The Company also recorded an increase in its obsolescenceprovision related to the Toronto inventory totaling $287 such thatthe total provision is now $604 or 8%. The Company is reducing itsinvestment in inventory of products nearing the end of their productlifecycles in order to free up cash and reduce obsolesce risk.Owen Moore and Andrew Moore, who were co-founders ofInterfleet Inc. when that company was acquired by WebTechWireless in the fall of 2009, and who held the titles of COO andCTO respectively of the Company, left the Company in January2011. The Company accrued their severance costs of approximately$594, due under the relevant employment agreements.The Company experienced technology issues with one of itsQuadrant customers and a number of its Interfleet Inc. customersrelated to devices sold during the year. As a result, the Companyaccrued an additional warranty reserve totaling $510.Other Current LiabilitiesAs part of their employment agreements, there exists an obligationto pay each of Owen and Andrew Moore as well as one otherfounder of Interfleet Inc. a retention bonus of $500 each (totaling$1,500) negotiated as part of the sale Interfleet Inc. On theMoore’s departure, this amount became payable and has beenrecorded as current liability.LITIGATIONIn August 2009 the Company was served notice of a lawsuitfiled by HTI Inc./Networkfleet (“HTI”) in the Eastern District ofTexas, alleging patent infringement by the Company. In August2010, the Company received notice from the U.S. district court,Eastern District of Texas, that the Company’s application to havethe patent infringement lawsuit moved from the Texas court tothe Southern District of California court, had been granted. TheCompany believes this suit to be without merit. No damages arespecified in the lawsuit and the Company is unable to estimate thedollar value of any such claim which may be made by the Plaintiffin the future.The Company has filed a number of lawsuits in Brazil against aformer value-added reseller in Brazil, Crown Telecom (“Crown”),the principal of Crown and certain companies related to Crown.The Company has also been sued by Crown for business interferencein Brazil. In July 2009, the Company received notice thatthe courts in Brazil had granted the Company’s appeal of a lowercourt judgment under which Crown had won an early stage judgmentin favor of possible damages to be paid for business interference.Records were sent to Belo Horizonte’s 24th Civil Courtin November 29, 2010 and proceedings such as production ofevidence in the case by both parties will follow in due course –requiring a proper trial proceeding before any judgment is rendered.It is not known at this time how Crown will respond as it iscurrently in bankruptcy proceedings. The Company believes thissuit to be without merit.Accounts payable and accrued liabilitiesThe Company’s accounts payable and accrued liabilities atDecember 31, 2010 totaled $5,969, decreasing due to theCompany’s strategy to pay down accounts payable to improvevendor relations.22 (Dollar amounts in 000’s except number of shares and per share amounts)


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011COMMITMENTSCapital lease Rent AcquisitionTotalliabilities2011 $107 $987 $1,500 2,5942012 114 904 - 1,0182013 112 840 - 9522014 through 2018 4 3,324 - 3,328Total $337 $6,055 $1,500 $7,892The Company has no commitments outside the normal course not described above.TRANSACTIONS WITH RELATED PARTIESIn October 2009, the Company acquired 100% of the shares ofa Toronto based telematics company, Interfleet Inc. (formerlyGrey Island Systems International Inc.). Under the terms of theacquisition agreement, which closed on October 26, 2009, threeInterfleet Inc. executives were entitled to a retention bonus in theamount of $500 each, totaling $1,500 to be paid in January 2011.In September 2010, the three Interfleet Inc. executives agreed todefer the bonus payments to May 2012, converting accounts payableto a long term loan and releasing $1,500 of the Company’srestricted cash for general use. In January of 2011, two of theexecutives left the Company and as a result, the $1,500 becamedue and payable.CRITICAL ACCOUNTING ESTIMATESCritical accounting estimates are defined as estimates andassumptions required to be made by management, which affectthe reported amounts of assets and liabilities and the disclosureof contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expensesduring the reported periods. The underlying assumptions arebased on historical experience and other factors that managementbelieves to be reasonable under the circumstances, and aresubject to change as new events occur, as more industry experienceis acquired, as additional information is obtained and as theCompany’s operating environment changes. Critical accountingestimates are reviewed quarterly by the Audit Committee of theBoard of Directors. Significant areas where management’s judgmentis applied are: purchase price allocations in business combinations,valuation of intangible assets, assessment of asset andgoodwill impairment, allowances for doubtful accounts, net realizablevalue of inventory, warranty provisions, revenue recognitionfor multi-element arrangements, useful economic life of propertyand equipment and intangibles, stock based compensation, contingenciesand future income tax valuation reserves.Purchase price allocation and valuation of intangible assetsBusiness acquisitions are accounted for by the purchase methodof accounting. Under this method, the purchase price is allocatedto the assets acquired and the liabilities assumed based on thefair value at the time of the acquisition. The excess purchase priceover the fair value of identifiable assets and liabilities acquired isgoodwill. The determination of fair value often requires managementto make assumptions and estimates about future events. Theassumptions and estimates with respect to determining the fairvalue of technology and customer relationships acquired generallyrequire the most judgment and include estimates related toremaining useful life, speed of innovation, competitive pressuresand evolving new technologies. Changes in any of the assumptionsor estimates used in determining the fair value of acquiredassets and liabilities could impact the amounts assigned to assets,liabilities and goodwill in the purchase price allocation. Future netearnings can be affected as a result of changes in future depreciationand amortization, asset impairment or goodwill impairment.Management determined that there were indicators of impairmentof the customer list and technology acquired in the acquisition ofInterfleet Inc. at December 31, 2010 due to a current period operatingloss. An impairment test was carried out to compare the fairvalue of the intangible assets to their carrying value, which resultedin an impairment charge of $4,102 against the customer list and$81 against the technology.Asset and Goodwill impairmentProperty, equipment, intangible assets and goodwill are assessedfor potential impairment as economic events dictate. Impairmentis assessed by comparing the fair market value and/or the estimatednet undiscounted future cash flows with the carrying valueof the asset. The cash flows used in the impairment assessmentrequire management to make assumptions and estimates aboutthe saleability of assets, commodity and component prices, foreignexchange fluctuations and. operating costs and the appropriatediscount rate to apply. Changes in any of the assumptions,such as a downward revision of sales estimates, an increase inoperating costs or change in the discount rate could result in animpairment of an asset’s carrying value. In all cases the Companyhas used its best estimates of these projected amounts and values.Given the inherent uncertainty regarding the continued effects ofthe gradual global economic recovery, foreign exchange rates andcustomer demand, it is possible that the Company’s estimates willbe adjusted in the future and that these adjusted estimates couldresult in the future impairment of assets.(Dollar amounts in 000’s except number of shares and per share amounts)23


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011The Company completed its annual impairment testing of goodwillassociated with the acquisition of Interfleet Inc. on December31, 2010. As a result of the procedures performed, it was determinedthat there was no impairment of goodwill. The testing ofgoodwill impairment involves significant estimates including theallocation of goodwill to the individual reporting units and theassumption of a control premium in determining the reporting unitfair value. A 5% change in the estimated fair value of a reportingunit would result in the recognition of an impairment charge. Itis possible that the Company’s estimates will be adjusted in thefuture and that these adjusted estimates could result in the futureimpairment of goodwill.ContingenciesThe company is involved in litigation and is required to providesurety bonds for performance and materials in the normal courseof operations. The determination of contingent liabilities relatingto litigation and claims is a complex process that involves judgmentsas to the outcomes and interpretation of laws and regulations.Changes in the judgments or interpretations may result in anincrease or decrease in the Company’s contingent liabilities in thefuture.Income taxesThe Company follows the liability method of accounting forincome taxes, whereby future income taxes are recognized basedon the differences between the carrying amounts of assets andliabilities reported in the financial statements and their respectivetax bases. The determination of the income tax provision is aninherently complex process, requiring management to interpretcontinually changing regulations and to make certain judgments.While income tax filings are subject to audits and reassessments,management believes adequate provision has been made for allincome tax obligations. However, changes in the interpretations orjudgments may result in an increase or decrease in the company’sincome tax provision in the future.Actual results could differ materially from these estimates.NEW ACCOUNTING PRONOUNCEMENTSThe CICA has issued the following standards, which may affect thefinancial disclosures and results of operations of the Company forinterim and annual periods beginning on or after January 1, 2010.The Company will adopt the requirements commencing in thefinancial year ending December 31, 2010. These new standardsare described below.Transition to International Financial Reporting StandardsIn 2006, Canada’s Accounting Standards Board ratified a strategicplan that will result in Canadian GAAP, as used by public companies,being evolved and converged with International FinancialReporting Standards (“IFRS”) over a transitional period throughout2010 to be complete by 2011 such that 2010 comparative amountsare available for 2011 reporting. The Company will be requiredto report using the converged standards effective for interim andannual financial statements relating to fiscal years beginning onor after January 1, 2011. The transition date of January 1, 2011 willrequire the restatement, for comparative purposes, of amountsreported by the Company for the year ended December 31, 2010.The Company will issue its first annual and interim consolidatedfinancial statements prepared under IFRS for its fiscal year endedDecember 31, 2011 and three months ended March 31, 2011,respectively, with restatement of comparative information presented.The Company has established an IFRS transition plan whichincludes the following phases: raising awareness (phase 1), assessment(phase 2), design (phase 3) and implementation (phase 4).With the consultation of the Company’s auditors, phases 1 and2 have been completed. Phase 3 is underway for those areaswith the most significant differences between Canadian GAAPand IFRS applicable to the Company, including share based payments,reporting currency, fixed assets and intangible assets. TheCompany has commenced preparation of a number of positionpapers in support of its January 1, 2010 opening balance sheetand its 2010 interim comparative financial statements.The Company continues to be involved in the design phase of itstransition plan for the identified differences between CanadianGAAP and IFRS which have not yet been completed. This phaseinvolves issue-specific work teams generating options and makingrecommendations in identified areas and developing draft systemscontrols, processes and methods to allow the Company to meetits implementation targets. The Company continues to ensurekey staff members attend IFRS update and training sessions asrequired.To date, a reconciliation of the Company’s 2010 Canadian GAAPfinancial statements to IFRS has not been finalized. Accordingly,the impact of adopting IFRS on the Company’s financial positionand results of operations as at and for the year ended December31, 2010 will be disclosed in the first quarter financial statements.Additional conclusions resulting from the changeover plan to dateare as follows:• The current accounting system is adequate for the transitionto IFRS.• There was no need to maintain dual recordkeeping during2010. The information required for the presentation of comparativefinancial information will be available from the currentsystem. Where necessary, the Company can reconcilethe differences between GAAP and IFRS using tools such asspreadsheets.• None of the Company’s current contracts and employmentarrangements are impacted by the upcoming changeover toIFRS.24 (Dollar amounts in 000’s except number of shares and per share amounts)


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011Based on the results of the Company’s analysis of its accountingpolicies under IFRS to date, the Company does not expect thatthe transition to IFRS will have a significant impact on its financialresults, internal control over financial reporting, disclosure controlsand procedures and business activities. As part of its IFRS transitionplan, the Company will continue to review the impact onits disclosure controls and procedures and internal control overfinancial reporting which will result from future changes to IFRSstandards.First-Time Adoption of IFRSIFRS 1 “First-Time Adoption of International Financial ReportingStandards” provides entities adopting IFRS for the first time anumber of optional exemptions and mandatory exemptions in certainareas to the general requirement for full retrospective applicationof IFRS. The Company has chosen the following exemptions:• The Company has followed all mandatory exemptions.• Business Combinations – IFRS 1 allows the use of IFRS rulesfor business combinations on a prospective basis and theCompany will adopt the IFRS rules prospectively.• Property Plant and Equipment (“PP&E) – IFRS 1 provides theoption to value PP&E assets as their deemed costs being thecosts assigned under Canadian GAAP, net of depreciationand amortization, at the time of transition (net book value) oruse fair value to determine the deemed cost of PP&E. TheCompany plans to use the net book value under CanadianGAAP as its deemed value under IFRS.• Share-based payments – IFRS 1 allows the first time adopterthe option not to apply for IFRS 2 to equity instrumentswhich have vested prior to the date of transition. TheCompany plans to apply the exemption.Status of IFRS Changeover PlanThe following is a summary of the status of the key activities inthe Company’s IFRS changeover plan as at December 31, 2010.Additional information will be provided as we progress towardsthe changeover date.IFRS Impact Area Key Activities Current StatusAccounting policies and financial statementpreparationInformation technology and data systemsInternal control over financial reporting (“ICFR”)/Disclosure controls and procedures (“DC&P”)Training and communicationBusiness activitiesIdentify differences between Canadian GAAPand IFRS accounting policies that impact theCompanyIdentify changes required in note disclosureIdentify changes required to financial systems.Determine and implement processes for capturingfinancial information under IFRS in 2010 forcomparative information and complete reconciliationswhere required for transition.Determine and implement processes for capturingfinancial information under IFRS in 2010 forcomparative information and ensuring internalcontrols over process and reporting are amendedwhere necessaryEducation of management, accounting staff andAudit Committee.External communication regarding IFRS statusIdentify impact of changeover on contractualarrangements and employee compensationplans.The review is in progress and will be finalized intime to report the Company’s fiscal year 2011first quarter results. The only significant GAAPdifference identified to date is the accountingfor Stock Compensation, the impact of whichhas not quantified as of the date of filing.The review of note disclosure is in progress.Completed – no changes required.Completed.Processes have been designed and will beimplemented for Q1 2011 certificationTraining complete for financial reporting team.Communication in quarterly and year endMD&A.Review of current contracts and compensationplans has been completed(Dollar amounts in 000’s except number of shares and per share amounts)25


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011Financial InstrumentsThe Company is exposed to a number of risks related to changes inforeign currency exchange rates, interest rates, collection of accountsreceivable, settlement of liabilities and management of cash and cashequivalents.The Company has established policies and procedures to managethese risks, with the objective of minimizing the adverse effects thatchanges in these variables could have on the Company’s consolidatedfinancial statements.a) Fair Value of Financial Instruments:The fair value of the Company’s financial instruments approximatestheir carrying amount due to their short term nature.b) Credit risk:Credit risk is the risk that a counter-party will not meet its obligationsunder a financial instrument or customer contract, leading to a financialloss being incurred by the Company. Although the global economicrecovery has entered a more mature phase, recent events in Europehave impacted the global economic environment and recovery continuesto progress at slower, varying rates within different economies.These events are not directly related to the Company or the industry inwhich it operates, however, there may be an impact on the Companyover the course of time. It is possible that reduced or variable economicactivity may adversely affect the Company’s operating resultsand financial condition through increased credit risk associated with theCompany’s financial instruments. Financial instruments that potentiallysubject the Company to concentrations of credit risk consist of cashand cash equivalents, capital lease obligations and accounts receivable.The Company limits its exposure to credit loss by maintaining its cashand cash equivalents with high credit quality financial institutions inCanada, the United States and the United Kingdom. The Company’sCanadian banks are members of the Canadian Deposit InsuranceCorporation. The Canadian Deposit Insurance Corporation providesinsurance coverage up to a maximum of $100 on chequing and savingsaccounts with these banks. The Company’s US banks are covered bythe United States Federal Deposit Insurance Corporation, which providesinsurance coverage up to a maximum of $250 for each depositorwith these banks. Of the amounts held on deposit with financial institutions,$200 is covered by the Canadian Deposit Insurance Corporationand $530 is covered by the United States Federal Deposit InsuranceCorporation, meaning that in the event that the financial institutionswith which the deposits are held cease trading, $4,020 of theCompany’s cash and cash equivalents would be at risk. The Companyconsiders the likelihood of such a loss to be remote.The Company provides credit to its clients in the normal course ofoperations. The Company minimizes its credit risk associated with itsaccounts receivable by performing credit evaluations on customers,maintaining regular and ongoing contact with customers, routinelyreviewing the status of individual accounts receivable balances andfollowing up on overdue amounts. Concentration of credit risk withrespect to accounts receivable, is considered to be limited as theCompany deals with many hundreds of customers in multiple jurisdictions.From time to time, however, the Company does enter intoagreements with very large customers that, due to the size of the transaction,will result in some concentration of credit risk. The Companyestimates, on a continuing basis, the probable losses on its accountsand records a provision for losses based on the estimated realizablevalue of the accounts. During the period ended December 31, 2010, noindividual customer comprised greater than 10% of sales. Managementdoes not believe that there is significant credit risk arising from any ofthe Company’s customers; however, should one of the Company’smain customers be unable to settle amounts due, the impact on theCompany could be significant. The maximum exposure to loss arisingfrom accounts receivable is equal to their total carrying amounts.c) Financial assets past due:The following table provides information regarding the aging of financialassets that are past due but which are not impaired:Financial assets, net of provision for doubtful debtsNeither past due norimpairedPast due31-60 daysPast due61-90 daysPast due91 days +Carrying value onthe balance sheetTrade accounts receivable $4,588 $1,636 $703 $2,323 $9,250Other accounts receivable 52 N/A N/A N/A 52Total $4,640 $1,636 $703 $2,323 $9,302Allowance for doubtful accounts December 31, 2010 December 31, 2009Opening doubtful debts provision $2,674 $636Increase/(decrease) in provision (307) 1,969Bad debts written off (767) 69$1,600 $2,67426 (Dollar amounts in 000’s except number of shares and per share amounts)


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011As at December 31, 2010, $4,662 of the Company’s net accountsreceivable balance of $9,305 was past due. The definition of itemsthat are past due is determined by reference to terms agreed withindividual customers, net of any provisions for losses. Amounts pastdue in excess of 90 days are attributable to government contractssubject to payment delays inherent in government payment reviewprocesses. None of the amounts outstanding, net of provisions fordoubtful accounts, have been challenged by customers and theCompany continues to provide services and products to them.Of the overdue balances at December 31, 2011, $2,917 or 63% ofthe net amount overdue had been collected as of March 21, 2011.Management has no reason to believe that the remaining outstandingbalance is not fully collectible.The Company reviews financial assets past due on an ongoing basiswith the objective of identifying potential matters which could delay thecollection of funds at an early stage. Ongoing contact is made with customersand once items are identified as being past due, further contactis made with the respective debtor to determine the reason for thedelay in payment and to establish an agreement to rectify the breachof contractual terms.d) Liquidity riskLiquidity risk is the risk that the Company will not be able to meet itsfinancial obligations as they fall due.The Company manages liquidity risk through ongoing review ofaccounts receivable balances, following up on amounts past due; managementof cash and cash equivalents, including allocation betweencash-on-hand and call deposits; and use of credit facilities to bridgetiming differences between cash outflows and cash inflows.The Company has a revolving demand credit facility with a CanadianChartered Bank of up to $3 million which can be drawn as directadvances or letters of guarantee, subject to margin criteria, bearinginterest at the lender’s prime lending rate plus 1.50%. The credit facilityis collateralized by a general charge on the assets of the Company. AtDecember 31, 2010 the Company carried a $1,370 balance on this facilityand letters of guarantee of $333.The Company also has a lease credit facility with a Canadian Charteredbank for $500. At December 31, the Company carried a $337 balanceon this facility.At December 31, 2010, the Company’s trade accounts payable andaccrued liabilities were $5,939, all of which will become due for paymentwithin the normal terms of trade, generally between 30 and 90days.Historically, the Company has relied on growth in hardware sales and agrowing customer base generating recurring revenue to fund operatingactivity, its credit facilities to bridge the timing differences betweencash outflows and inflows and several rounds of financing through publicequity markets to fund specific growth initiatives. Recent developmentsin global credit markets have significantly reduced the ability ofcompanies to obtain debt financing or raise capital through public marketsand while management does not plan on raising any additionalfunds externally, should circumstances change, the Company’s abilityto access such capital may be impaired. The Company does not at thistime anticipate the need to raise external sources of capital.e) Market riskMarket risk is the risk to the Company of adverse financial impactdue to changes in the fair value or future cash flows of financial instrumentsas a result of fluctuations in interest rates and foreign currencyexchange rates. Market risk arises as a result of the Company generatingrevenues and incurring expenses in foreign currencies, holding cashand cash equivalents which earn interest and having operations basedin the United Kingdom, the United States and Brazil in the form of itswholly owned subsidiaries.f) Interest rate riskThe Company is exposed to interest rate risk by virtue of holding cashand cash equivalents, bank indebtedness and capital lease obligations.The Company’s objective in managing its cash and cash equivalents isto provide sufficient funds to meet day-to-day requirements, drawingon its lines of credit only at times when there are timing differencesbetween cash outflows and cash inflows and placing excess cashin short-term deposits. When placing cash and cash equivalents onshort-term deposit, the Company’s policy is to deal only with high qualitycommercial banks and to ensure that access to the funds can beobtained on short-notice.Accrued interest payable on the credit facilities at December 31, 2010was nil (December 31, 2009 – $nil). Total interest expense for the yearended December 31, 2010 was $45 (December 31, 2009 - $5).The Company’s estimates of the impact of a 2% change in interestrates on its debt affected by variable interest rates, is +/- $26.g) Foreign currency riskThe Company’s financial results are reported in Canadian dollars. TheCompany’s exposure to foreign currency risk is primarily related tofluctuations in the value of the Canadian dollar relative to the USD, asa majority of the Company’s revenues are earned in USD. During theyear ended December 31, 2010, 56% of the Company’s revenue wasin USD and 12% was in GBP (December 31, 2009 – 62% and 12%). TheCompany periodically estimates its obligations payable in these foreigncurrencies and converts excess foreign funds into Canadian currencyto mitigate the risks associated with changes in foreign currency rates.The Company does not currently have any derivative instruments. AtDecember 31, 2010, the Company held net current monetary assets inUSD and GBP equal to $5,987 and $1,326, respectively (December 31,2009 - $5,630 USD and $909 GBP).(Dollar amounts in 000’s except number of shares and per share amounts)27


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011The Company’s estimates of the impact of a 10% change in exchangerates on its revenues and net current monetary assets, during the yearwas $3,618 (2009 $2,706).The financial position of the Company may vary at the time that achange in exchange rates occurs, causing the impact of the Company’sresults to differ from those shown above.Capital managementThe Company considers its share capital and contributed surplus as capital,the total book value of which was $101,084 at December 31, 2010.The Company manages its capital structure in order to provide sufficientresources to meet day-to-day operating requirements, toallow it to enhance existing product offerings as well as develop newones, and to have the financial ability to expand the size of its operationsby taking on new customers. In managing its capital structure,the Company takes into consideration various factors, including thegrowth of its business and related infrastructure and the upfront costof taking on new clients.The Company’s officers and senior management are responsible formanaging the Company’s capital and do so through quarterly meetingsand regular review of financial information. The Company’s Boardof Directors oversees this process.The Company manages its capital through the issuance of new sharecapital to the public.The Company is not subject to any externally imposed capitalrequirements.DISCLOSURE CONTROLS AND PROCEDURESAND INTERNAL CONTROL OVERFINANCIAL REPORTINGDisclosure controls and proceduresThe Company’s management is responsible for designing disclosurecontrols and procedures to provide reasonable assurance that: (a) materialinformation relating to the Company is made known to managementso as to allow for timely decisions to be made regarding disclosure, and(b) information required to be disclosed by the Company is recorded,processed, summarized and reported within the time periods specifiedin applicable securities legislation.The Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)of the Company have evaluated, or caused to be evaluated under theirsupervision, the effectiveness of the Company’s disclosure controls andprocedures as at December 31, 2010. Based on this evaluation, theCEO and CFO of the Company have concluded that the Company’sdisclosure controls and procedures in place as at December 31, 2010 areeffective to provide reasonable assurance that information required tobe disclosed by the Company in its annual filings, interim filings or otherreports filed or submitted by the Company under securities legislation isrecorded, processed, summarized and reported within the time periodsspecified in the securities legislation and that such information is accumulatedand communicated to the Company’s management, includingthe CEO and CFO, as appropriate to allow for timely decisions regardingrequired disclosure.Internal control over financial reportingManagement is responsible for designing, establishing and maintainingan adequate system of internal control over financial reporting.The Company’s internal control system was designed based on theRisk Management and Governance: Guidance on Control (COCOFramework), published by the Canadian Institute of CharteredAccountants, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with Canadian generally accepted accountingprinciples.The CEO and CFO of the Company have evaluated, or caused to beevaluated under their supervision, the effectiveness of the Company’sinternal control over financial reporting as at December 31, 2010, basedon a framework recommended by the CICA. Based on this evaluation,the CEO and CFO have concluded that as at December 31, 2010,with the exception of internal controls in place in Interfleet Inc., theCompany’s internal control over financial reporting is effective to providereasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordancewith Canadian GAAP. For Interfleet Inc., management has concludedthat, as of December 31, 2010, a material weakness existed in thedesign of internal control over financial reporting caused by a lack of segregationof duties between (a) the authorization, recording, review andreconciliation of purchases, receiving and inventory in the Toronto location.In addition, certain controls over purchasing, receiving, inventorymovements and the management of repairs to units returned by customerswere being overridden or circumvented as a result of certain operatingprocedures. These material weaknesses have the potential to resultin material misstatements in inventory and cost of sales in the company’sfinancial statements, and should be considered a material weakness inthe internal controls over financial reporting. As announced January31, 2011, the Company performed a detailed review of this matter andengaged a third party auditing firm to perform further procedures specificallyrelated to fraud risk in the purchasing process. Additional staff havealso been hired and roles and responsibilities have been changed. See“Summary financial information for Interfleet Inc.” for additional informationregarding Interfleet Inc.There were no changes in the Company’s internal control over financialreporting during the period ended December 31, 2010 that have materiallyaffected, or are reasonably likely to materially affect, its internal controlover financial reporting.28 (Dollar amounts in 000’s except number of shares and per share amounts)


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011Summary financial information for Interfleet Inc.As we have concluded that a weakness existed in the design of internalcontrol over financial reporting for Interfleet Inc. we have set out certainfinancial information with respect to Interfleet Inc to indicate theimpact of Interfleet Inc. on the consolidated financial statements of theCompany.Summary financial information regarding Interfleet Inc. for the yearended December 31, 2010, is outlined in the table below:Statement of operations December 31,2010December 31,2009Revenue 19,492 4,998Gross profit 8,556 2,281Gross margin % 43.89% 45.64%Expenses 9,946 1,734Other items (1,437) (85)Net profit/(loss) (2,827) 462Financial position December 31,2010December 31,2009Current assets 7,519 10,308Total assets 14,220 16,963Current liabilities 5,620 5,072Long term liabilities 374 781ADDITIONAL RISKSIn addition to those risks and uncertainties described elsewherein this document, the Company is subject to the following risksand uncertainties which are described in greater detail in theCompany’s AIF:• Goodwood Inc., a management company representing fourfunds holding 13.7% of the issued and outstanding sharesof the Company, has requisitioned a general meeting of theshareholders of the Company for the purpose of taking controlof the board of directors. A sudden change in managementand/or the operating plan of the Company could disruptthe sales cycle, operations and customer and employeerelations of the Company. Such a disruption could have anadverse impact on the Company’s performance, profitabilityand cash resources. Any time and resources expended inrelation to this general meeting of the shareholders of theCompany will be time and resources that the Company isnot able to expend on its normal business operations.• The Company has grown quickly and expects to continuegrowing. If the Company is unable to effectively manage thisgrowth its ability to operate effectively would be impaired.• The Company may not be able to achieve profitability fromoperations for the current fiscal year and beyond.• The Company operates in a rapidly evolving technologymarket. Its continued success depends on its ability to keeppace with these technology changes.• The Company may not be able to continue to protect itsintellectual property from unauthorized exploitation by othersand to protect itself from claims of infringement by others.• The Company may require further financing to fund itsgrowth and such financing may not be available on acceptableterms, or at all.• The Company’s industry is very competitive and includesseveral competitors with greater resources than theCompany.• The Company depends on several suppliers and serviceproviders to provide critical components for its products andservices.• The Company relies on distributors to sell its products in variouscountries around the world. There is a risk that certainof these distributors may terminate their relationship with theCompany. If such relationships are terminated, alternate distributorsmay not be available in those regions.• The Company may be subject to product liability claims arisingfrom the use of its products and services which could, ifsuccessful, adversely impact the Company’s business.• The Company provides credit to its customers in the normalcourse of operations. The Company estimates, on a continuingbasis, the probable losses, and records a provision forsuch losses based on the estimated realizable value. There isno assurance that this provision will be adequate.• The Company may have significant inventory volumes thatcould be subject to write down due to obsolescence.• Insurance to cover the risks to which the Company’s activitieswill be subject may not be available at economically feasiblepremiums or at all. There is no assurance that in the event ofclaim or loss that the Company will have adequate insurancecoverage.• The Company provides its customers with a limited warrantyon its products. Despite quality control procedures, there isno assurance that the Company’s provision for this warrantyis adequate.• The Company’s success depends on its ability to attractand retain highly skilled engineering, managerial, marketingand sales personnel. Competition for qualified personnelin the wireless and wireless data industries is intense. TheCompany believes that there are only a limited number ofpersons with the requisite skills to serve in many key positionsand the Company may not be able to hire and retainthese persons.• Fluctuations in the exchange rate between the Canadian andUS dollars, Canadian dollars and UK pounds and betweenCanadian dollars and Brazilian reals affect the Company byimpacting revenue, expenses and the balance sheet.(Dollar amounts in 000’s except number of shares and per share amounts)29


MANAGEMENT’S DISCUSSION & ANALYSISFor the year ended December 31, 2010This document is dated March 23, 2011• The Company’s stock price may experience significant fluctuationsdue to operating performance, performance relativeto analysts’ estimates, disposition or acquisition by a largeshareholder, a law suit against the Company, the loss oracquisition of a significant customer or distributor, industrywidefactors and factors other than the operating performanceof the Company. These factors, among others, maycause decreases in the value of the Common Shares.• The Company operates in a global marketplace with sales innumerous countries and is exposed to numerous regulatoryregimes.• The Company’s operations are dependent upon its abilityto protect its network infrastructure, portal system and customers’equipment against damage from human error, fire,earthquakes, floods, power loss, telecommunications failures,power failure, sabotage, intentional acts of vandalism andsimilar events.• The Company’s success is dependent on its ability to marketits products and services.• The Company’s results could be adversely affected bychanging economic conditions in the countries in which itoperates.• The Company has five foreign subsidiaries, one is incorporatedand operating in the United Kingdom, one is incorporatedand operating in Brazil and three are incorporatedand operating in the US. Such subsidiaries are subject to thelaws of their jurisdiction of incorporation and any changes tosuch laws.• The Company’s portal system is subject to failure due to lossof power, connectivity or human error. In the event that theCompany’s systems become inoperative for a period of time,the Company could be adversely affected by a reduction incustomer satisfaction, loss of business and litigation.• The Company depends on signals from GPS satellitesbuilt and maintained by the US Department of Defense.Availability of these satellites is dependent on the USDepartment of Defense continuing to maintain the satellitesand could be affected by future government regulation.• Revenues and earnings of the Company may fluctuate fromquarter to quarter, which could affect the market price of theCompany’s Common Shares.• The Company depends on a small number of customers fora significant portion of its revenue. The Company sells primarilyto fleet managers and other high volume users of fuel,who are exposed to changes in the price of oil and relateddistillates. As such, its customers may be adversely affectedby the volatility and increases in such prices, and thus reducingtheir capacity to purchase the Company’s products.• Future growth of the Company depends in part on the successfuldeployment of next generation wireless data andvoice networks by third parties for which the Company isdeveloping products. If these network operators cease tooffer effective and reliable service, or fail to market their serviceseffectively, sales of the Company’s products will declineand revenues will decrease.• As part of the business strategy of the Company, theCompany may acquire additional assets and businessesprincipally relating to or complementary to the Company’scurrent operations. Any acquisitions and/or mergers will beaccompanied by the risks commonly encountered in acquisitionsof companies.• The Company’s recently completed acquisition of GreyIsland Systems International Inc. brings with it risks related tothe successful amalgamation of the two companies, includingsystems risk, sales channel conflict, customer risk and therisk that hoped for operational efficiencies and manufacturingsavings may not materialize.OUTSTANDING SHARE DATAAs at March 21, 2010, the Company had 105,424,265 commonshares outstanding. The Company has 6,226,124 share purchaseoptions outstanding entitling the holders to purchase one commonshare for each option held at prices from $0.37 to $1.50 pershare expiring on various dates up to December 15, 2015.SEDARAdditional information relating to the Company, including theCompany’s AIF, is available on SEDAR at www.sedar.com.30 (Dollar amounts in 000’s except number of shares and per share amounts)


AUTIDOR’S REPORT(Dollar amounts in 000’s except number of shares and per share amounts)31


AUTIDOR’S REPORT32 (Dollar amounts in 000’s except number of shares and per share amounts)


CONSOLIDATED BALANCE SHEETDecember 31, 2010 December 31, 2009ASSETSCurrentCash and cash equivalents $4,020 $7,212Accounts receivable (note 5) 9,302 9,260Inventory (note 7) 7,154 9,362Prepaid expenses and deposits 475 533Total current assets 20,951 26,367Restricted cash (note 2) 455 1,955Property and equipment (note 8) 1,804 2,331Intangibles (note 9) 8,088 14,606Goodwill (note 4) 14,016 14,016Total assets $45,314 $59,275LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilitiesBank indebtedness (note 10) $1,370 $–Accounts payable and accrued liabilities 5,969 7,384Capital lease obligation (note 11) 108 124Current portion of deferred revenue 1,744 2,152Acquisition liabilities (note 12) 1,500 –Total current liabilities 10,691 9,660Deferred lease inducement 687 808Capital lease obligations (Note 11) 229 318Deferred revenue 258 638Long term acquisition liabilities (note 12) – 1,500Future income tax 428 1,547Total liabilities 12,292 14,471SHAREHOLDERS’ EQUITYShare capital (Note 13) 94,170 93,685Contributed surplus (Note 14) 6,914 4,893Deficit (68,062) (53,774)Total shareholders’ equity 33,022 44,804Total liabilities and shareholders’ equity $45,314 $59,275Commitments, contingencies and guarantees (notes 18 and 21)See accompanying notes to the consolidated financial statements“signed”“signed”On behalf of the Board: Scott Edmonds Peter W. Roberts(Dollar amounts in 000’s except number of shares and per share amounts)33


CONSOLIDATED STATEMENT OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICITYear endedDecember 31, 2010Year endedDecember 31, 2009Revenue $41,377 $27,217Cost of sales 20,763 13,05720,614 14,160ExpensesSales and marketing 8,931 7,665Research and development 8,644 5,945General and administration 8,415 7,657Amortization 3,072 1,05229,062 22,319Loss before the undernoted (8,448) (8,159)Other expenses/(income)Interest and other expense/(income) 44 (81)Foreign exchange loss 533 1,141Stock-based compensation from stock option cancellation (note 13) 620 –Restructuring costs (note 16) 1,550 1,461Impairment of intangibles 4,183 –Loss on sale of investments – 50Loss before income taxes (15,378) (10,730)Income tax expense/(recovery)Current 30 153Future (1,119) (158)(1,089) (5)Net and comprehensive loss for the year $(14,289) $(10,725)Deficit, beginning of the year (53,774) (43,049)Deficit, end of year (68,062) (53,774)Loss per share (basic and diluted) $(0.16) $(0.17)Weighted average number of shares outstanding 90,218,787 63,910,423See accompanying notes to the consolidated financial statements34 (Dollar amounts in 000’s except number of shares and per share amounts)


CONSOLIDATED STATEMENT OF CASH FLOWSYear ended December31, 2010Year ended December31, 2009Operating ActivitiesNet loss for the period $(14,289) $ (10,725)Items not involving cash:Amortization 3,072 1,052Stock-based compensation 1,401 826Stock-based compensation from stock option cancellation 620 –Future income tax recovery (1,088) (158)Impairment of intangibles 4,183 –Amortization of leasehold inducement (122) (120)Unrealized foreign exchange loss 305 364Inventory impairment 330 777Loss on impairment of investments – 259Changes in non-cash working capital items related to operations:Accounts receivable (450) 3,061Inventory 1,816 706Prepaid expense and deposits 52 51Accounts payable and accrued liabilities (1,100) 2,419Deferred Revenue (875) 198Cash used in operating activities (6,146) (1,290)Financing ActivitiesCommon shares issued, net of issuance costs 485 75Repayment of bank loan – (1,000)Repayment - bank line – (1,710)Borrowing - bank line 1,370 1,710Repayment of capital lease obligation (105) (29)Allowance for deferred lease inducement – 244Cash provided by/ (used in) financing activities 1,750 (710)Investing ActivitiesPurchase of capital assets (196) (264)Purchase of intangible assets (18) –Restricted cash 1,500 (1,955)Proceeds from sale of long term investments – 2,741Cash acquired from acquisition, net of cash paid – 4,964Cash provided by investing activities 1,286 5,486Effects of exchange rate changes on cash and cash equivalents (82) (163)Net(decrease)/increase in cash and cash equivalents (3,192) 3,323Cash and cash equivalents, beginning of year 7,212 3,889Cash and cash equivalants, end of year $4,020 $ 7,212Cash and cash equivalants consist of:Balances with financial institutions $3,120 $5,412Cash equivalents $900 $1,800See accompanying notes to the consolidated financial statements(Dollar amounts in 000’s except number of shares and per share amounts)35


Notes To The Consolidated Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Note 1Basis of presentationWebtech Wireless Inc. (the “Company”) is a global provider ofTelematics and Location Based Services (“LBS”) delivering servicesand hardware to both government and commercial fleets.WebTech is a British Columbia corporation having first beenincorporated under the laws of the Yukon Territory on May 12,1999. The Company was continued to Alberta on July 24, 2000before its continuance to British Columbia on August 1, 2006.The Company’s shares are listed for trading on the Toronto StockExchanges (“TSX”) under the symbol WEW.These consolidated financial statements have been prepared bymanagement in accordance with Canadian generally acceptedaccounting principles (“Canadian GAAP”). The significantaccounting policies used in the preparation of these consolidatedfinancial statements are summarized below.Note 2Summary of significant accounting policiesBasis of consolidationThe consolidated financial statements include the accounts of theCompany and its wholly owned subsidiaries. All inter-companybalances and transactions have been eliminated upon consolidation.Use of estimatesIn conformity with Canadian GAAP, the preparation of thesefinancial statements requires management to make estimatesand assumptions which affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts ofrevenues and expenses during the reported periods. The underlyingassumptions are based on historical experience and otherfactors that management believes to be reasonable under thecircumstances, and are subject to change as new events occur, asmore industry experience is acquired, as additional information isobtained and as the Company’s operating environment changes.Significant areas where management’s judgment is applied are:purchase price allocations in business combinations, valuation ofintangible assets, assessment of asset impairment, net realizablevalue of accounts receivable, net realizable value of inventory,useful economic life of capital assets, revenue recognition, stockbased compensation, contingencies and future income tax valuationreserves. Actual results could differ materially from theseestimates.Foreign currency translationMonetary assets and liabilities denominated in foreign currenciesare translated into Canadian dollars at exchange rates prevailingat the balance sheet dates and non-monetary assets andliabilities are translated at historical exchange rates prevailing atthe transaction dates. Foreign currency denominated revenuesand expenses are translated at exchange rates that approximateexchange rates prevailing at the transaction dates. Gains orlosses arising from the translations are recognized in the currentperiod in the statement of operations. Foreign currency amountsheld and reported by the Company’s US, UK and Brazilian subsidiariesare translated according to the temporal method as theyare integrated operations.Cash and cash equivalentsCash and cash equivalents consist of cash on deposit and callableshort-term interest bearing investments, with original maturities ofthree months or less.Restricted cash represents cash that has been pledged as collateralfor a foreign exchange facility and a credit card facility.InventoryInventory is comprised primarily of parts, work in progress andfinished goods, and is valued at the lower of cost and net realizablevalue. Work in progress includes the cost of parts, labourand third party services. Parts and finished goods cost is determinedusing the weighted average method. Inventory is regularlyreviewed for obsolescence and is recorded net of any obsolescenceprovisions. When there is a significant change in economiccircumstances, inventory that had been previously written downbelow cost may be written back up provided the reversal doesnot exceed the original write down.Property and equipmentProperty and equipment are recorded at cost when acquired.Amortization is charged on a straight line using the followingterms:Computer equipmentFurniture and fixturesLeasehold improvementsOffice and other equipmentVehicles4 years4 yearsLease term4 years4 yearsIntangible assetsIntangible assets are initially measured at cost which is comprisedof its purchase price, including duties, taxes, legal costs, professionalfees and any directly attributable cost of preparing theasset for its intended use. Intangible assets acquired in a businesscombination that meet the specified criteria for recognition,apart from goodwill, are initially recognized and measured at fairvalue. Intangible assets with finite useful lives, including computersoftware and acquired technology and customer relationships, areamortized as described below:Computer software Straight line 2 yearsNon-compete agreements Straight line 3 yearsAcquired technology Declining balance 15% or 25%Acquired customer relationships Declining balance 10% or 15%36 (Dollar amounts in 000’s except number of shares and per share amounts)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008GoodwillGoodwill represents the excess of the purchase price of acquiredbusinesses over the estimated fair value of net identifiable assetsacquired. Goodwill is not subject to amortization but is tested forimpairment on an annual basis, or more frequently, if events orcircumstances indicate that it might be impaired. If the carryingamount exceeds the fair value of the goodwill, an impairment lossis recognized equal to that excess through a charge to the consolidatedstatement of operations.Impairment of long-lived assetsLong-lived assets are assessed for future recoverability whenevents or circumstances indicate that they might be impaired.When the net carrying amount of a capital asset exceeds its estimatednet recoverable amount determined using undiscountedcash flows, the asset is written down to its fair value with a chargeto the consolidated statement of operations.Warranty provisionGenerally, a one-year warranty on hardware sales is providedby the Company. A warranty provision equal to 1% of 12-monthtrailing hardware sales is provided in the financial statements.The Company periodically reviews the adequacy of this warrantyprovision.LeasesLeases entered into are classified as either capital or operatingleases. Leases that transfer substantially all of the benefits andrisks of ownership of property to the Company are accountedfor as capital leases. Assets acquired under capital leases arerecorded as an asset on the balance sheet with a correspondingincrease to the capital lease obligation and amortized over thelife of the lease.Leases in which a significant portion of the risk and rewards ofownership are retained by the lessor are classified as operatingleases. Payments made under operating leases are charged tooperations on a straight-line basis over the term of the lease. Thebenefits of lease inducements provided to the Company are recognizedon a straight-line basis over the term of the lease agreement.Income taxesThe Company accounts for income taxes using the asset andliability method. Under this method, current income taxes are recognizedfor the estimated income taxes payable for the currentyear. Future income taxes and liabilities are recognized for temporarydifferences between the tax and accounting basis of assetsand liabilities as well as for the benefit of losses available to becarried forward to future years for tax purposes. Future incometax assets and liabilities are measured using substantively enactedtax rates expected to apply to taxable income in the year in whichthose temporary differences are expected to be recovered orsettled. The effect on future income tax assets and liabilities of achange in tax rates is recognized in operations in the period thatsuch rates are substantively enacted. Any future income tax assetis reduced by a valuation allowance to the extent that it is morelikely than not that some portion or all of the asset will not berealized.Revenue recognitionThe Company derives revenue from the sale of telematics hardwareand software, as well as professional services associated with customizingits product. License, maintenance and subscription revenueis derived from location-based software and software services.Revenue from hardware and software license sales is recognizedwhen persuasive evidence of an arrangement exists, the fee isfixed or determinable, the hardware is shipped or the softwareis delivered and when management has determined that therevenue is collectible. Revenue from professional services isrecognized as earned, based on performance according to specificterms of the contract or on the basis of the percentage ofcompletion method where the revenue is reconcilable to workcompleted as a proportion of total work to be completed, whenthe fee is fixed and determinable, and management has determinedthat the revenue is collectible. All foreseeable losses areincluded in earnings when it is determined that such foreseeablelosses are estimated to be likely to occur. Revenue from subscriptionservices is invoiced in advance and deferred and recognizedon a monthly basis as the services are provided.Revenue arrangements with multiple elements are reviewed inorder to determine whether the multiple elements can be dividedinto separate units of accounting. If separable, the considerationreceived is allocated among the separate units of accountingbased on their respective fair values, and the applicable revenuerecognition criteria are applied to each of the separate units.Otherwise, the applicable revenue recognition criteria are appliedto the revenue arrangement as a single unit.Research and developmentResearch expenditures are expensed when incurred.Development costs are capitalized in the event they meet capitalizationcriteria under Canadian GAAP, otherwise they areexpensed as incurred. To date, no development costs have beencapitalized.Government assistanceScientific research tax credits are accrued at the time the relatedcosts are incurred provided that their recovery is reasonablyassured. Scientific research tax credits arising from capital expendituresare applied to the cost of the assets and refundable creditsarising from other expenditures are applied as a reduction ofsuch expenses.Stock-based compensationThe fair value of employee share purchase option grants is calculatedat the grant date and amortized over the vesting period ofthe grant with a corresponding increase to contributed surplus.The fair value of stock-based payments to non-employees is remeasuredat each balance sheet date until the earlier of the com-37


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008pletion of the performance commitment or when vesting occursand any changes therein are recognized over the period and inthe same manner as if the Company had paid cash instead ofpaying with equity instruments. Upon exercise of share purchaseoptions, the consideration paid by the option holder, togetherwith the amount previously recognized in contributed surplus, isrecorded as an increase in share capital.The Company uses the Black-Scholes option valuation model tocalculate the fair value of share purchase options which requiresthe use of highly subjective assumptions.Basic and diluted earnings (loss) per shareBasic earnings (loss) per share are calculated by dividing net earnings(loss) for the period by the weighted average number ofcommon shares outstanding during the period. Diluted earnings(loss) per share reflect the dilution that would occur if potentiallydilutive securities were exercised or converted into commonshares at the beginning of the period. The dilutive effect ofoptions and warrants and their equivalent is computed by applicationof the treasury stock method and the effect of convertiblesecurities by the “if converted” method.Financial instrumentsThe Company’s financial instruments consist of cash and cashequivalents, restricted cash, accounts receivable, bank indebtedness,accounts payable, , acquisition liabilities and capital leaseobligations. Financial instruments are initially recognized at fairvalue with subsequent measurement depending on classificationas described below. Classification of financial instrumentsdepends on the purpose for which the financial instruments wereacquired or issued, their characteristics, and the Company’s designationof such instruments.The Company has made the following classifications for its financialinstruments:• Cash and cash equivalents and restricted cash are classifiedas “Assets held for trading” and are measured at fair valueat the end of each period with any resulting gains or lossesrecognized in operations;• Accounts receivable are classified as “Receivables andloans” and are recorded at amortized cost using the effectiveinterest rate method, which upon their initial measurementis equal to their fair value. Subsequent measurementof trade receivables is at amortized cost, which usually correspondsto the amount initially recorded less any allowancefor doubtful accounts;• Long-term investments are classified as “Held-for-Trading”and are accounted for at fair value: and;• Accounts payable, acquisition liabilities, bank indebtedness,capital lease obligations and other liabilities are classified as“Other financial liabilities” and are measured at amortizedcost using the effective interest rate method.Comparative FiguresThe Company has reclassified certain balances to conform to thepresentation adopted in the current year.Note 3Recent accounting pronouncementsThe accounting framework under which financial statementsare prepared in Canada for all publicly accountable enterpriseschanges to International Financial Reporting Standards (“IFRS”)on January 1, 2011. Generally accepted accounting principles(“GAAP”) in Canada will cease to apply and will be replaced byIFRS. The Company will issue its initial Consolidated FinancialStatements under IFRS, including comparative information, for thequarter ended March 31, 2011. The Company is on schedule tomeet the required reporting date.Note 4AcquisitionOn October 26, 2009 the Company acquired all of the issued andoutstanding common shares of the former Grey Island SystemsInternational, Inc. (“GIS”), a provider of telematics hardware, subscriberand other services to government fleets. Consideration paid to acquirethe shares of GIS, which was listed on the Toronto Venture Exchange,consisted of 31.3 million common shares of the Company, 205,625of the Company’s stock options to replace outstanding GIS options,and $4.5 million in cash and cash commitments to the GIS founders. Inaddition, direct transaction costs of $1,004 were incurred and includedas part of the purchase price. The acquisition has been accounted forusing the purchase method in accordance with Canadian Institute ofChartered Accountants (“CICA”) section 1581. Accordingly, assetsacquired and liabilities assumed were recorded at their estimated fairvalues as of October 26, 2009, and the results of GIS have been includedin the Company’s consolidated operations from that date.Purchase considerationThe 31.3 million of the Company’s shares were valued at $33.8 millionusing the average closing price of the Company’s shares for a range oftrading days around the September 2, 2009 date the final terms of theacquisition (the “arrangement”)were agreed to and announced.The arrangement provided that $4.5 million would be paid to GISfounders. $1.5 million owing under the terms of non-competeagreements was paid at closing and a further $1.5 million inDecember 2009. The remaining $1.5 million, payable in January2011, is shown as a current liability (note 12).Also, under the terms of the arrangement, each GIS stock option thatwas outstanding and unexercised at the date of the acquisition wasexchanged for 0.35 of the Company’s stock options. These replacementoptions had a per share exercise price equal to the exercise price of theGIS options divided by 0.35. The estimated fair value of the replacementoptions issued was $91 as determined using the Black Scholes optionpricing model.38 (Dollar amounts in 000’s except number of shares and per share amounts)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Purchase considerationShares exchanged $33,766Additional cash consideration 4,500Transaction costs 1,004Stock options issued 91$39,361Net assets acquiredCash and cash equivalents 8,968Other net current assets 4,085Property and equipment 1,201Intangible assets - non-compete agreements 1,500Intangible assets - technology 2,669Intangible assets - customer relationships 10,731Deferred revenue (1,633)Capital lease obligation (471)Future income taxes (1,705)Goodwill 14,016$39,361Identifiable finite life intangible assetsA fair value of $14.9 million was allocated to finite life intangibleassets, comprised of the non-compete agreements, completeand in-process product technologies and customer relationships.Management, with the assistance of a third party valuation specialist,used an income approach to determine the fair value ofthe technology and customer relationships intangible assets. Thisapproach estimated fair values as the present value of the aftertax excess earnings attributable to the technologies and customerrelationships. Calculations of these fair values were basedon management’s estimates of future revenues and margins,and used discount rates that reflect estimates of the relative risksrelated to each asset. The fair value assigned to the non-competeagreements was the amount negotiated between the parties.Future income taxManagement has estimated that the future tax liability arisingfrom the difference between the value assigned to the acquiredintangibles and their related tax values is approximately $1,705.GoodwillThe factors that contributed to the recognition of goodwill are:securing access to additional markets and revenue streams, theassembled workforce acquired, technology development and distributionsynergies, and cost saving opportunities.Note 5Financial instrumentsThe Company is exposed to a number of risks related to changesin foreign currency exchange rates, interest rates, collection ofaccounts receivable, settlement of liabilities and management ofcash and cash equivalents.The Company has established policies and procedures to managethese risks, with the objective of minimizing the adverse effectsthat changes in these variables could have on the Company’sconsolidated financial statements.Fair value of financial instrumentsThe carrying value of the Company’s financial assets and liabilitiesis considered to be a reasonable approximation of fair valuedue to the short-term nature of these instruments. Cash and cashequivalents are considered level 1 financial assets whose fair valuesare determined by reference to quoted prices in active marketsfor identical assets and liabilities.The carrying values and fair values of financial assets and liabilities as atDecember 31, 2010 and December 31, 2009 are summarized as follows:December 31, 2010 December 31, 2009Carrying Value Fair Value Carrying Value Fair ValueHeld-for-trading $4,475 $4,475 $9,167 $9,167Loans and receivables 9,302 9,302 9,260 9,260Held-to-maturity investments - - - -Other financial liabilities 9,176 9,176 9,326 9,326$4,601 $4,601 $9,101 $9,101(Dollar amounts in 000’s except number of shares and per share amounts)39


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Credit riskCredit risk is the risk that a counter-party will not meet its obligationsunder a financial instrument or customer contract, leading toa financial loss being incurred by the Company. Financial instrumentsthat potentially subject the Company to concentrations ofcredit risk consist of cash and cash equivalents, accounts receivable,bank indebtedness, and capital lease obligations.The Company limits its exposure to credit loss by maintaining itscash and cash equivalents with high credit quality financial institutionsin Canada, the United States and the United Kingdom. TheCompany’s United States banks are covered by the United StatesFederal Deposit Insurance Corporation. In the event that the financialinstitutions with which the deposits are held cease trading,$3,778 of the Company’s cash and cash equivalents would be at risk.The Company considers the likelihood of such a loss to be remote.The Company provides credit to its customers in the normalcourse of operations. The Company minimizes its credit risk associatedwith its accounts receivable by performing credit evaluationson customers, maintaining regular and ongoing contact withcustomers, routinely reviewing the status of individual accountsreceivable balances and following up on overdue amounts.Concentration of credit risk with respect to accounts receivable isconsidered to be limited as the Company deals with many hundredsof customers in multiple jurisdictions. From time to time,however, the Company does enter into agreements with verylarge customers that, due to the size of the transaction, will resultin some concentration of credit risk. The Company estimates,on a continuing basis, the probable losses on its accounts andrecords a provision for losses based on the estimated realizablevalue of the accounts. Management does not believe that thereis significant credit risk arising from any of the Company’s customers;however, should one of the Company’s main customersbe unable to settle amounts due, the impact on the Companycould be significant. The maximum exposure to loss arising fromaccounts receivable is equal to their total carrying amounts.Economic DependenceDuring the year ended December 31, 2010, there were no customerscomprising greater than 10% of sales (2009: one customer).Financial assets past dueThe following table provides information regarding the aging offinancial assets that are past due but which are not impaired:Financial assets, net of provision for doubtful debtsNeither past due norimpairedPast due31-60 daysPast due61-90 daysPast due91 days +Carrying value onthe balance sheetTrade accounts receivable $4,588 $1,636 $703 $2,323 $9,250Other accounts receivable 52 N/A N/A N/A 52Total $4,640 $1,636 $703 $2,323 $9,302Allowance for doubtful accounts December 31, 2010 December 31, 2009Opening doubtful debts provision $2,674 $636Increase/(decrease) in provision (307) 1,969Bad debts written off (767) 69Total $1,600 $2,674As at December 31, 2010, $4,662 (2009: $4,359), net of a provisionfor doubtful accounts of $1,600 (2009: $2,674), of the Company’saccounts receivable balance of $9,302 (2009: $9,260) was pastdue. The definition of items that are past due is determined byreference to terms agreed with individual customers, net of anyprovisions for losses. Amounts past due in excess of 90 daysare attributable to government contracts. None of the amountsoutstanding, net of provisions for doubtful accounts, have beenchallenged by customers and the Company continues to provideservices and products to them. Of the overdue balances atDecember 31, 2010, $2,917 or 63% (2009: $4,308 or 99%) of thenet amount overdue had been collected as of March 21, 2011.Consequently, management believes that the remaining outstandingbalance is fully collectible.The Company reviews financial assets past due on an ongoingbasis with the objective of identifying potential matters whichcould delay the collection of funds at an early stage. Ongoingcontact is made with customers and once items are identifiedas being past due, further contact is made with the respectivedebtor to determine the reason for the delay in payment and toestablish an agreement to rectify the breach of contractual terms.40 (Dollar amounts in 000’s except number of shares and per share amounts)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Liquidity riskLiquidity risk is the risk that the Company will not be able to meetits financial obligations as they become due.The Company manages liquidity risk through budgeting, ongoing managementand forecasting of operating cash flows, review of accountsreceivable balances, management of cash and cash equivalents, anduse of credit facilities and equity financings when appropriate.As at December 31, 2010, the Company had a revolving demandcredit facility with a Canadian Chartered Bank of up to $3 millionwhich can be drawn as direct advances or letters of guarantee,subject to margin criteria, bearing interest at the lender’s primelending rate plus 1.50%. The credit facility is collateralized bya general charge on the assets of the Company. At December31, 2010 the Company carried a balance on this facility of $1,370(2009: Nil) and Letters of Guarantee of $333 (2009: $215).The Company also had a revolving lease credit facility with aCanadian Chartered bank for $500. At December 31, 2010 theCompany carried a $337 (2009: $442) balance on this facility.At December 31, 2010, the Company’s trade accounts payableand accrued liabilities were $5,969 (2009: $7,384), All of whichbecame due and payable within the normal terms of trade, generallybetween 30 and 90 days.The Company relies on growth in hardware sales and a growingcustomer base generating recurring revenue to fund operatingactivity. In addition, the Company utilizes its credit facilities tobridge the timing differences between cash outflows and inflows,as well as several rounds of financing through public equity marketsto fund specific growth initiatives.Market riskMarket risk is the risk to the Company of adverse financial impactdue to changes in the fair value or future cash flows of financialinstruments as a result of fluctuations in interest rates and foreigncurrency exchange rates. Market risk arises as a result of theCompany generating revenues and incurring expenses in foreigncurrencies, holding cash and cash equivalents which earn interestand having operations based in the United Kingdom and theUnited States in the form of its wholly owned subsidiaries.Interest rate riskThe Company is exposed to interest rate risk by virtue of holdingcash and cash equivalents and having capital lease obligationsThe Company’s objective in managing its cash and cash equivalentsis to provide sufficient funds to meet day-to-day requirements,drawing on the lines of credit only at times when there aretiming differences between cash outflows and cash inflows andplacing excess cash in short-term deposits. When placing cashand cash equivalents on short-term deposit, the Company’s policyis to deal only with high quality commercial banks, which ensuresthat access to the funds can be obtained on short-notice.(Dollar amounts in 000’s except number of shares and per share amounts)Accrued interest payable on the credit facilities at December 31,2010 was nil (2009 – nil). Total interest expense for the year endedDecember 31, 2010 was $45 (2009 - $5). The Company estimatesthe impact of a 2% change in interest rates on its debt affected byvariable interest rates to be $26 (2009 - $10).Foreign currency riskThe Company’s financial results are reported in Canadian dollars. TheCompany’s exposure to foreign currency risk is primarily related tofluctuations in the value of the Canadian dollar relative to the US dollar(“USD”), as a majority of the Company’s revenues are earned in USD.During the year ended December 31, 2010, 56% of the Company’srevenue was in USD and 12% was in British Pounds (“GBP”) (2009 –62% and 12%). The Company periodically estimates its obligationspayable in these foreign currencies and converts excess foreign fundsinto Canadian currency to mitigate the risks associated with changesin foreign currency rates. The Company does not currently have anyderivative instruments At December 31, 2010, the Company heldnet current monetary assets in USD and in GBP equal to $5,987 and$1,326, respectively (2009 - $5,630 USD and $909 GBP).Sensitivity analysisThe Company estimates the impact of a 10% change in exchangerates on its revenues and net current monetary assets to be$3,618 (2009 - $2,706).The financial position of the Company may vary at the time thata change in exchange rates occurs, causing the impact of theCompany’s results to differ from those shown above.Note 6Capital managementThe Company considers its share capital and contributed surplusas capital, the total book value of which totaled $101,084 atDecember 31, 2010 (2009 – $98,578).The Company manages its capital structure in order to providesufficient resources to meet day-to-day operating requirements;to allow it to enhance existing product offerings as well as developnew ones, and to have the financial ability to expand the sizeof its operations by taking on new customers. In managing itscapital structure, the Company takes into consideration variousfactors, including the growth of its business and related infrastructureand the upfront cost of taking on new clients. The Company’sofficers and senior management are responsible for managingthe Company’s capital and do so through regular meetings andregular review of financial information. The Company’s Board ofDirectors is responsible for overseeing this process.The Company manages its capital through the issuance of newshare capital to the public.The Company is not subject to any externally imposed capitalrequirements.41


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Note 7InventoryDecember 31, 2010 December 31, 2009Parts $2,340 $2,060Work in progress 4,104 5,886Finished goods in transit 271 936Finished goods 439 480$7,154 $9,362During the year ended December 31, 2010 inventory was reviewed for obsolescence and the Company recognized an inventory impairmentof $330 (2009 - $777) which is recorded in cost of sales.Note 8Property and equipmentDecember 31, 2010CostAccumulatedamortizationNet book valueComputer equipment $2,239 $1,862 $377Furniture and fixtures 515 363 152Leasehold improvements 1,092 355 737Office and other equipment 938 400 538$4,784 $2,980 $1,804December 31, 2009CostAccumulatedamortizationNet book valueComputer equipment $2,139 $1,563 $576Furniture and fixtures 504 271 233Leasehold improvements 1,071 215 856Office and other equipment 876 210 666$4,590 $2,259 $2,33142 (Dollar amounts in 000’s except number of shares and per share amounts)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Note 9IntangiblesDecember 31, 2010CostAccumulatedamortizationNet book valueComputer software $951 $883 $68Non-compete agreements (Note 4) 1,500 560 940Acquired technology (Note 4) 2,668 717 1,951Acquired customer relationships (Note 4) 10,731 5,602 5,129$15,850 $7,762 $8,088December 31, 2009CostAccumulatedamortizationNet book valueComputer software $933 $805 $128Non-compete agreements 1,500 90 1,410Acquired technology 2,668 99 2,569Acquired customer relationships 10,731 232 10,499$15,832 $1,226 $14,606For the year ended December 31, 2010, certain external factorsresulted in changes to cash flow projections associated with atechnology asset and a customer relationship asset which hadbeen recognized in connection with the acquisition of GIS in 2009.As a result, the Company concluded there was an indicator ofimpairment present. The Company used a present value techniqueto discount a series of expected future cash flows for the technologyand customer relationship assets in order to estimate the fairvalue. When compared to the carrying value it was determinedthat a non-cash impairment charge of $4,102 was required to berecorded against the customer relationship asset and $81 againstthe technology asset as at December 31, 2010.Note 10Bank indebtednessThe Company has a demand credit facility of a maximum of $3,000in the form of a secured revolving line of credit with a Canadianchartered bank. The facility bears interest at the Canadian primerate plus 1.5% and is secured by certain of the Company’s assets.As at December 31, 2010, the interest rate on the credit facility was4.5% (2009: 3.75%) and the unused portion of the facility amountedto $1,630 (2009:$3,000). The facility contains a covenant thatrequires the subsidiary to maintain certain financial ratios. As atDecember 31, 2010, the subsidiary had met its obligations underthis credit facility.Note 11Capital lease obligationsThe Company has capital lease obligations for certain manufacturingequipment and a security system. The lease obligationsare secured exclusively by the manufacturing equipment andsecurity system, bear interest at rates between 4.74% and 12.15%per annum with blended monthly payments of $10, and maturebetween November 2013 and April 2014. Total interest paid forthe year ended December 31, 2010 was $21 (2009 - $5).The manufacturing equipment and security system are includedin property and equipment and have been capitalized at their fairvalue of $544. Amortization charged during the year totaled $196for the manufacturing equipment and security system.Future minimum lease payments under the capital lease are outlinedin note 18.(Dollar amounts in 000’s except number of shares and per share amounts)43


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Note 12Acquisition liabilitiesUnder the terms of the acquisition agreement with GIS, three GISexecutives were entitled to retention bonuses in the amount of$1,000 each, totaling $3,000. $1,500 was paid in January 2010 withthe balance to be paid in January 2011. In August 2010, the threeGIS executives agreed to defer the remaining payments to May2012, converting accounts payable to a long term loan and releasing$1,500 of the Company’s restricted cash for general use. Uponthe termination of the employment contracts of two of the executives,the remaining liabilities became immediately due and payablein January 2011.Note 13Share capitalAuthorized:Authorized:Unlimited common shares with no par valueUnlimited preferred shares issuable in seriesNumber of SharesAmountBalance December 31, 2008 $57,962,185 $59,689Issued for cash:On exercise of Stock Options for cash 130,830 76On exercise of Stock Options issued on cashless exercise (1) 164,557 –Transfer from contributed surplus on exercise of stock options – 155Exchanged in acquisition 31,333,364 33,766Less: Share issue costs – (1)Balance December 31, 2009 $89,590,936 $93,685Issued for cash:Private placement (2) 833,329 500Less: Share issue costs – (15)Balance December 31, 2010 $90,424,265 $94,170(1) During the year ended December 31, 2009, the Company issued 164,557 shares in exchange for 546,334 stock options in a cashless exercise transaction.(2) On April 1, 2010, the Company closed a non-brokered private placement to certain members of senior management and the Company’s Board of Directors (the “PrivatePlacement”). Pursuant to the Private Placement, the Company issued 833,329 common shares at the then market price of $0.60 per common share to certain members of seniormanagement and the Company’s Board of Directors for gross proceeds of $500.Stock option planThe Company has two Stock Option Plans from which it makesawards to employees, directors and consultants.On December 14, 2005, the Company adopted a Stock Option Plan(Old Plan). Under the Old Plan, the Company was authorized to grantup to a total of 8,020,135 share purchase options. With the introductionof a new plan in 2008, no further share purchase options weregranted under the Old Plan. At December 31, 2010, the Companyhad 306,002 share purchase options issued and outstanding.On December 8, 2008, the Company implemented a new StockOption Plan (New Plan). Under the terms of the New Plan, theBoard of Directors may grant share purchase options to employees,directors and consultants equal to the lesser of; (i) 10% of theissued and outstanding common shares as determined from timeto time, or (ii) 10 million share purchase options. At December 31,2010, the Company was authorized to grant 8,753,469 share purchaseoptions under the New Plan, of which it had 6,895,461 sharepurchase options issued and outstanding, leaving 2,164,010 sharepurchase options available for future issue.Share purchase options are awarded at a Canadian dollars exerciseprice equal to the closing market price of the Company’scommon shares on the day prior to the date of grant. The sharepurchase options generally vest over three years with one-third ofthe options vesting on each of the first, second and third anniversariesof the grant date. The share purchase options have a fiveyearterm from date of grant.A summary of the activity in the Company’s Stock Option Plans ispresented below:44 (Dollar amounts in 000’s except number of shares and per share amounts)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Old stock option planNumber ofoptionsWeighted averageexercise priceOptions outstanding December 31, 2008 1,491,869 $0.86Forfeited (75,000) $1.42Cashless exercise (1) (546,334) $0.58Exercised (124,500) $0.56Options outstanding December 31, 2009 746,035 $1.06Forfeited (138,533) $1.19Expired (282,000) $0.80Cancelled (19,500) $1.32Options outstanding December 31, 2010 306,002 $1.22(1) The Company issued 164,557 shares in exchange for 546,334 stock options in a cashless exercise transaction.New stock option planNumber ofoptionsWeighted averageexercise priceOptions outstanding December 31, 2008 213,000 $1.06Granted (1) 5,691,982 $0.98Forfeited (196,009) $0.95Exercised (6,330) $0.75Options outstanding December 31, 2009 5,702,643 $0.99Granted 3,243,470 $0.44Forfeited (374,712) $0.96Cancelled (1,981,942) $0.98Options outstanding December 31, 2010 6,589,459 $0.69(1) The Company issued 841,805 options to GIS management and employees, of which 205,625 options were issued in exchange for 0.35 GIS options held by GIS management.The following weighted average assumptions were used in calculating the fair value of stock options granted during the period using theBlack-Scholes model:December 31, 2010 December 31, 2009Risk free rate 2.20% 2.10%Dividend yield 0% 0%Expected volatility 79% 83%Weighted average expected option life 3 years 3 yearsWeighted average fair value of options granted $0.25 $0.51During the year ended December 31, 2010, the Company recordedstock compensation expense of $2,021 (2009 - $826). Of thestock compensation expense recognized, $620 related to the cancellationof 2,001,442 stock options on December 15, 2010. Theremaining $1,401 in stock compensation expense is included in theoperating expenses of the related department on the statement ofoperations.As at December 31, 2010, the Company had 6,895,461 (2009– 6,448,678) share purchase options outstanding, entitling theholders to purchase one common share for each option held asfollows:(Dollar amounts in 000’s except number of shares and per share amounts)45


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Exercise pricerangeQuantityOptions outstandingWeighted averageremainingcontractual life(Years)Weighted averageexercise priceQuantityExercisable optionsWeighted averageremainingcontractual life(Years)Weighted averageexercise price$0.37- $0.46 2,240,900 4.72 $0.37 - 4.98 $0.37$0.47- $0.71 978,570 4.23 $0.58 25,405 4.41 $0.48$0.72- $0.75 1,758,682 3.21 $0.75 1,062,200 3.21 $0.75$0.76- $1.10 770,487 3.29 $0.93 437,318 2.87 $0.96$1.11- $1.19 72,000 3.00 $1.15 72,000 3.00 $1.15$1.20- $1.50 1,070,322 3.56 $1.27 1,048,982 3.56 $1.27$1.51- $1.65 4,500 3.47 $1.65 1,500 3.47 $1.656,895,461 3.91 $0.71 2,647,405 3.30 $1.00Note 14Contributed surplusAmountBalance December 31, 2008 $4,131Stock option expense 826Options granted on acquisition 91Stock options exercised (155)Balance December 31, 2009 $4,893Stock option expense 1,401Stock option expense - cancelled options 620Balance December 30, 2010 $6,91446 (Dollar amounts in 000’s except number of shares and per share amounts)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Note 15Segmented informationThe Company operates in a single business segment - telematics,and has sales in Canada, the United States, Europe, Mexico, andin other areas of the world. Revenues are split into two categories:non-recurring hardware and software sales and recurring softwareas a service revenue. As at December 31, 2010, 93%(2009 – 95%) of the Company’s property and equipment werelocated in Canada and 7% (2009 – 5%) were located in Europe andthe United States where they are held by the Company’s whollyowned subsidiaries.Revenue by geographic segment is as follows:December 31, 2010 December 31, 2009United States $21,221 $13,004Canada 13,340 6,922Europe 4,476 3,387Mexico & Latin America 1,635 2,625Rest of the world 705 1,279$41,377 $27,217Revenue by category as follows:December 31, 2010 December 31, 2009Hardware $14,576 $15,796Recurring, software, services and other 26,801 11,421$41,377 $27,217Note 16Restructuring costsIn December 2010, the Company determined to make managementchanges which led to certain restructuring activities. Thesewere in addition, to management changes made in December2009. Restructuring costs related to severance, legal fees andstock based compensation totaled $1,550 (2009: $1,461). Of therestructuring costs incurred, $630 is included in accounts payableand accruals as at December 31, 2010 (2009: $ 1,282).(Dollar amounts in 000’s except number of shares and per share amounts)47


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008Note 17Income taxesComponents of income tax provisionIncome taxes vary from the amount that would be computed byapplying the combined federal and provincial tax rates of approximately28.5% (December 31, 2009 – 30%);for the following reasons:Rate reconciliation December 31, 2010 December 31, 2009Income tax at statutory rates $(4,142) $(3,219)Non-deductible stock based compensation and other expenses 591 254Change in valuation allowance 4,132 2,256Reduction in future statutory tax rates 245 575Tax return finalization entries (566) -Foreign tax rate differential 97 129Other (387) -$(30) $(5)Future tax assets and liabilities are recognized for temporary differences between the carrying amounts of balance sheet items and theircorresponding tax values as well as for the benefit of losses or credits available to be carried forward to future years that are likely to berealized.Significant components of the Company’s future tax assets and liabilities, after applying substantively enacted corporate income taxrates, are as follows:Analysis of future income taxes December 31, 2010 December 31, 2009Non-capital losses carried forward $17,454 $13,842Share issuance costs 8 298Scientific Research and Experimental Development 447 447Investment tax credits 589 589Capital assets and intangibles (260) (4,513)Accrued liabilities 170 183Other 1,903 1,773Less: Valuation allowance (20,739) (14,166)$(428) $(1,547)48 (Dollar amounts in 000’s except number of shares and per share amounts)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the twelve months ended December 31, 2010 and December 31, 2009and the five-month period ended December 31, 2008The Company has recorded a valuation allowance against itsfuture income tax assets as management believes it is not morelikely than not that future income tax assets will be realized withinthe carry-forward period.Canadian investment tax credits of $589 can be carried forwardand applied against future income taxes payable, and will expire in2026 and 2027.Scientific research and experimental development expendituresof $1,582 can be carried forward indefinitely and applied againstfuture income.Canadian non-capital loss carry forwards of $43,917 expiring in2025, 2026, 2027, 2028, 2029 and 2030 can be carried forward andapplied against future taxable income.The Company also has UK operating loss carry forwards of $12,802which can be carried forward indefinitely and applied againstfuture UK taxable income.The Company also has US operating loss carry forwards of $4,763which can be carried forward indefinitely and applied againstfuture US taxable income.Note 18CommitmentsCapital leaseRentAcquisitionliabilities2011 $107 $987 $1,500 $2,5942012 114 904 - 1,0182013 112 840 - 9522014 through 2018 4 3,324 - 3,328Total $337 $6,055 $1,500 $7,892TotalNote 19LitigationIn August 2009 the Company was served notice of a lawsuit filedby HTI Inc./NetworkFleet (“HTI”) in the Eastern District of Texas,alleging patent infringement by the Company. In August 2010,the Company received notice that its application to have thelawsuit moved from the Texas court to the Southern District ofCalifornia court had been granted. In January 2010, the Companyreceived notice from the US Patent and Trademark Office that theCompany’s application to have a number of the patents in questionre-examined had also been granted. The Company believesthis suit to be without merit. No damages are specified in the lawsuitand the Company is unable to estimate the dollar value of anysuch claim which may be made by HTI in the future.The Company has filed a number of lawsuits in Brazil against aformer reseller, Crown Telecom (Crown) and its founder. Crown,now bankrupt and in the hands of a receiver, obtained a judgmentagainst the Company for business interference which was subsequentlyappealed and reversed in July 2009 by a higher court. Thematter is now back before the civil court and undergoing pre-trialproceedings, the outcome of which cannot be practicably determined.The Company believes the claim to be without merit andwill vigorously defend the claim.Note 20Related Party TransactionsIncluded within current liabilities are retention bonuses in theamount of $1,500 owed to a current and two former executives ofInterFleet. Refer to note 12 for details.Note 21Contingencies and guaranteesIn the normal course of business, the Company provides suretybonds under standard contractual terms in service agreementswith its government customers, for performance and materialsand wages requirements. At December 31, 2010 the Companyheld three surety bonds totaling $1,470 (2009 - $1,470) in favor oftwo customers. One of the bonds covered materials and wagesrequirements of $700 and the balance of $770 covered performanceunder two bonds. TheCompany also carries letters of guarantee of $333.Note 22Subsequent eventsOn March 1, 2011, the Company closed a private placement to sell15,000,000 common shares at a price of $0.40 per share for grossproceeds of $6,000.(Dollar amounts in 000’s except number of shares and per share amounts)49


Corporate InformationCORPORATE HEADQUARTERSWebtech Wireless Inc.Suite 215 – 4299 Canada WayBurnaby, BC Canada V5G 1H3Telephone: 604 434-7337Facsimile: 604 434-5270webtechwireless.comDIRECTORS & OFFICERSScott Edmonds President, Chief Executive Officer and DirectorJohn Gildner DirectorAndrew Gutman Director, Chair of the BoardRobert KittelDirector, Audit Committee ChairLeonard Metcalfe DirectorLarry JubaChief Operating OfficerAndrew Morden Chief Financial OfficerREGISTRAR & TRANSFER AGENTComputershare Investor Services Inc.510 Burrard Street, 3rd FloorVancouver, BC Canada V6C 3B9LEGAL COUNSEL & REGISTERED OFFICEBlake, Cassels & Graydon LLPBarristers & Solicitors595 Burrard Street, P.O. Box 49314Suite 2600, Three Bentall CentreVancouver, BC Canada V7X 1L3AUDITORSPricewaterhouseCoopers LLPSuite 700 – 250 Howe StreetVancouver, BC Canada V6C 3S750 (Dollar amounts in 000’s except number of shares and per share amounts)


CORPORATE HEADQUARTERSWebtech Wireless Inc.Suite 215 – 4299 Canada WayBurnaby, BC Canada V5G 1H3Telephone: +1 604 434 7337Facsimile: +1 604 434 5270Email: info@webtechwireless.comwebtechwireless.comTelephone: +1 604 434 7337Toll-free (N. America): +1 866 287 0135Email: info@webtechwireless.cominterfleet.comTelephone: +1 416 348 9991Toll-free (N. America): +1 877 434 4844Email: info@interfleet.comnextbus.comTelephone: +1 510 995 3200Email: info@nextbus.com© 2011 Webtech Wireless Inc. All rights reserved. Webtech Wireless, Quadrant, InterFleet, NextBus and Telematics for the Planetare registered trademarks of Webtech Wireless Inc. All other trademarks are the property of their respective owners.

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