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TMCNet:  COUNTERPATH CORP - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.

[July 10, 2014]

COUNTERPATH CORP - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis should be read in conjunction with the financial statements and related notes and the other financial information appearing elsewhere in this annual report. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions.


In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those identified below, in "Risk Factors" and elsewhere in this annual report. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. All references to "common shares" refer to our shares of common stock. As used in this annual report, the terms "we", "us" and "our" means CounterPath Corporation, unless otherwise indicated.

Overview Background We were incorporated under the laws of the State of Nevada on April 18, 2003.

On August 2, 2007, we acquired all of the shares of NewHeights Software Corporation through the issuance of 7,680,168 shares of our common stock and 369,836 preferred shares issued from a subsidiary of our company, which preferred shares were exchangeable into 369,836 shares of common stock.

On February 1, 2008, we acquired all of the shares of FirstHand Technologies Inc. through the issuance of 5.9 million shares of our common stock. On February 1, 2008, we acquired all of the issued and outstanding shares of BridgePort Networks, Inc. by way of merger in consideration for the assumption of all of the assets and liabilities of BridgePort Networks.

Business of CounterPath Our business focuses on the design, development, marketing and sales of personal computer and mobile application software, gateway server software and related professional services, such as pre and post sales, technical support and customization services. Our software products are sold into the telecommunications sector, specifically the Voice over Internet protocol (VoIP), unified communications and fixed-mobile convergence markets. VoIP, unified communications and fixed-mobile convergence are general terms for technologies that use Internet or mobile protocols for the transmission of packets of data which may include voice, video, text, fax, and other forms of information that have traditionally been carried over the dedicated circuit-switched connections of the public switched telephone network.

Our strategy is to sell our solutions to our customers, enabling them to offer advanced unified communication services to their employees, customers and other end users. Customers that we are targeting include: (1) small, medium and large sized businesses; (2) telecommunications service providers, Internet telephony service providers, (3) channel partners serving the telecommunication and enterprise market; and (4) end users.

Revenue We derive revenue from the sale of software licenses, software customization services, technical support services associated with the software licenses, implementation services, training services, and cloud based services.

We recognize software and services revenue at the time of delivery, provided all other revenue recognition criteria have been met.

22-------------------------------------------------------------------------------- Post contract customer support services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis, and are recognized rateably over the term of the service period, which is generally twelve months.

We offer our products and services directly through our sales force and indirectly through channel partners. Our channel partners include original equipment manufacturers (OEMs) in the telecommunications sector and value added dealers and resellers.

The amount of product configuration and customization required by a customer is reflected in the revenue generated from each customer. The number of software licenses purchased has a direct impact on the average selling price.

Services and pricing may vary depending upon a customer's requirements for technical support, implementation and training.

We believe that our revenue and results of operations may vary significantly from quarter-to-quarter as a result of long sales and deployment cycles, new product introductions and variations in customer ordering patterns.

Operating Expenses Operating expenses consist of cost of sales, sales and marketing, research and development, and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories.

Cost of sales primarily consists of: (a) salaries and benefits related to personnel, (b) related overhead, (c) amortization of intangible assets, (d) billable and non-billable travel, lodging, and other out-of-pocket expenses, (e) payments to third party vendors for compression/decompression software known as codecs, (f) amortization of capitalized software that is implemented into our products and (g) warranty expense. Amortization of intangible assets consists of the amortization expense related to the intangible assets acquired from NewHeights Software Corporation, FirstHand Technologies Inc. and BridgePort Networks, Inc. comprising acquired technologies and customer assets. The acquired technologies are amortized based on their estimated useful life of four years and the customer asset is amortized on the basis of management's estimate of the future cash flows from this asset over approximately five years from acquisition, which is management's estimate of the useful life of the customer asset. All the intangible assets were fully amortized as at April 30, 2013.

Sales and marketing expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) commissions, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs such as trade shows and (e) other related overhead. Commissions are recorded as expense when earned by the employee. We expect increases in sales and marketing expense for the foreseeable future as we further increase the number of sales professionals and increase our marketing activities with the intent to grow our revenue. We expect sales and marketing expense to decrease as a percentage of total revenue, however, as we leverage our current sales and marketing personnel as well as our distribution partnerships.

Research and development expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) payments to contractors for design and consulting services, (c) costs relating to the design and development of new products and enhancement of existing products, (d) quality assurance and testing and (e) other related overhead. To date, all of our research and development costs have been expensed as incurred.

General and administrative expense consists primarily of: (a) salaries and personnel costs including stock-based compensation related to our executive, finance, human resource and information technology functions, (b) accounting, legal, tax advisory and regulatory fees and (c) other related overhead.

Application of Critical Accounting Policies and Use of Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions.

There have been no material changes to these estimates for the periods presented in this annual report.

23 -------------------------------------------------------------------------------- We believe that of our significant accounting policies, which are described in Note 2 to our annual financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, the following policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition We recognize revenue in accordance with the American Institute of Certified Public Accountants ("AICPA") ASC 985-605 "Software Revenue Recognition", as amended by SOP 98-9 "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions." In all of our arrangements, we do not recognize any revenue until we can determine that persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and we deem collection to be probable. For distribution and reseller arrangements, fees are fixed or determinable and collection probable when there are no rights to exchange or return and fees are not dependable upon payment from the end-user. If any of these criteria are not met, revenue is deferred until such time that all criteria have been met.

A substantial percentage of our revenue is generated by multiple-element arrangements, such as products, maintenance and support, professional services and training. When arrangements include multiple elements, we allocate the total fee among the various elements using the residual method. Under the residual method, revenue is recognized when vendor-specific objective evidence, or VSOE, of fair value exists for all of the undelivered elements of the arrangement, but does not exist for one or more of the delivered elements of the arrangement.

Each arrangement requires us to analyze the individual elements in the transaction and to estimate the fair value of each undelivered element, which typically includes maintenance and services. Revenue is allocated to each of the undelivered elements based on its respective fair value, with the fair value determined by the price charged when that element is sold separately.

For contracts with elements related to customized network solutions and certain network build-outs, we apply FASB Emerging Issues Task Force Issue ASC 605-25, "Revenue Arrangements with Multiple Deliverables" and revenues are recognized under ASC 605-35, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts", generally using the percentage-of-completion method.

In using the percentage-of-completion method, revenues are generally recorded based on a completion of milestones as described in the agreement.

Profit estimates on long-term contracts are revised periodically based on changes in circumstances and any losses on contracts are recognized in the period that such losses become known.

Post contract customer support (PCS) services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis, and are recognized rateably over the term of the service period, which is generally twelve months.

PCS service revenue generally is deferred until the related product has been accepted and all other revenue recognition criteria have been met.

Professional services and training revenue is recognized as the related service is performed.

Stock-Based Compensation Stock options granted are accounted for under ASC 718 (prior authoritative literature: SFAS No. 123R) "Share-Based Payment" and are recognized at the fair value of the options as determined by an option pricing model as the related services are provided and the options earned. ASC 718 replaces existing requirements under FAS 123 and APB 25, and requires public companies to recognize the cost of employee services received in exchange for equity instruments, based on the fair value of those instruments on the measurement date which generally is the grant date, with limited exceptions.

24 -------------------------------------------------------------------------------- Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee consultants. We measure stock-based compensation cost at measurement date, based on the estimated fair value of the award, and generally recognize the cost as expense on a straight-line basis (net of estimated forfeitures) over the employee requisite service period or the period during which the related services are provided by the non-employee consultants and the options are earned. We estimate the fair value of stock options using a Black-Scholes option valuation model.

The expected volatility of options granted has been determined using the volatility of our company's stock. The expected life of options granted after April 30, 2006 has been determined based on analysis of historical data. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. In addition, ASC 718 requires companies to utilize an estimated forfeiture rate when calculating the expense for the period. We applied an estimated forfeiture rate of 15.0% in the year ended April 30, 2014 in determining the expense recorded in our consolidated statement of operations. Cost of sales and operating expenses include stock-based compensation expense, and deferred share unit plan expense. For the year ended April 30, 2014, we recorded an expense of $1,071,467 in connection with share-based payment awards. A future expense of non-vested options of $1,380,970 is expected to be recognized over a weighted-average period of 2.77 years. A future expense of non-vested deferred share units of $191,433 is expected to be recognized over a weighted-average period of 1.73 years.

Research and Development Expense for Software Products Research and development expense includes costs incurred to develop intellectual property. The costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. We have determined that technological feasibility is established at the time a working model of software is completed. Because we believe our current process for developing software will be essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date.

Accounts Receivable and Allowance for Doubtful Accounts We extend credit to our customers based on evaluation of an individual customer's financial condition and collateral is generally not required.

Accounts outstanding beyond the contractual payment terms are considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are beyond the contractual payment terms, our previous loss history, and a customer's current ability to pay its obligation to us. We write-off accounts receivable when they are identified as uncollectible. All outstanding accounts receivable are periodically reviewed for collectability on an individual basis.

Goodwill and Intangible Assets We have goodwill and had intangible assets on our balance sheet related to the acquisitions of NewHeights Software Corporation, FirstHand Technologies Inc.

and BridgePort Networks, Inc. Intangible assets are carried and reported at acquisition cost, net of accumulated amortization subsequent to acquisition. The intangible assets acquired were comprised of acquired technologies and customer assets relating to customer relationships. The acquired technologies were amortized based on their estimated useful life of four years and the customer asset was amortized on the basis of management's estimate of the future cash flows from this asset over approximately five years, which was management's estimate of the useful life of the customer assets. The intangible assets are reviewed for impairment whenever events or circumstances indicate impairment might exist in accordance with ASC 360, "Accounting for the Impairment or Disposal of Long-Lived Assets." Projected undiscounted net cash flows expected to be derived from the use of those assets are compared to the respective net carrying amounts to determine whether any impairment exists. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. All the intangible assets were fully amortized as at April 30, 2013.

The determination of the net carrying value of goodwill and intangible assets and the extent to which, if any, there is impairment, are dependent on material estimates and judgments on our part, including the useful life over which the intangible assets are to be amortized and the estimates of the value of future net cash flows, which are based upon further estimates of future revenues, expenses and operating margins.

25-------------------------------------------------------------------------------- Goodwill and Intangible Assets-Impairment Assessments We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with FASB ASC 350, Goodwill and Other Intangible Assets. The provisions of ASC 350 require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit's goodwill.

If the carrying value of our reporting unit's goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.

Determining the fair value of our reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for our reporting unit. Our most recent annual goodwill impairment analysis, which was performed at the end of the fourth quarter of fiscal 2014, did not result in an impairment charge for fiscal year 2014, nor did we record any goodwill impairment in fiscal 2013.

We make judgments about the recoverability of purchased intangible assets whenever events or changes in circumstances indicate that an other than temporary impairment may exist. Each period we evaluate the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization. In accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets, recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

Assumptions and estimates about future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and risk adjusted discounted rates and future economic and market conditions. Our updated long-term financial forecast represents the best estimate that our management has at this time and we believe that its underlying assumptions are reasonable.

Derivative Instruments On June 14, 2011, we issued an aggregate of 3,145,800 units under a brokered private placement for aggregate gross proceeds of $5,636,170 (CDN$5,505,150) at a price of $1.79 (CDN$1.75) per unit, with each unit consisting of one share of our common stock and one-half of one common share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of our common stock at an exercise price of CDN$2.25 per share until June 14, 2013. The remaining warrants expired unexercised on June 14, 2013. In connection with the offering, we issued an aggregate of 220,206 broker warrants, with each broker warrant entitling the holder thereof to purchase one share of our common stock at an exercise price of CDN$1.75 per share until December 14, 2012. We follow the guidance in ASC 815-40-15, and record the warrants issued as derivative instruments due to their exercise price being denominated in a currency other than our U.S. Dollar functional currency. The fair value of the derivative instruments is revalued at the end of each reporting period using the Binomial Model, and the change in fair value of the derivative liability is recorded as a gain or loss in our consolidated statements of operations. At April 30, 2014 the fair value of the derivative liability was $nil (2013: $93,057).

We periodically enter into foreign currency forward contracts, not designated as hedging instruments, to protect us from fluctuations in exchange rates. During the year ended April 30, 2014, we entered into various foreign currency forward contracts that matured through February 28, 2014. As of April 30, 2014, we had no foreign currency forward contracts. As of April 30, 2013, we had $2,000,000 of notional value foreign currency forward contracts that matured through October 1, 2013. Notional amounts do not quantify risk or represent assets or liabilities of our company, but are used in the calculation of cash settlements under the contracts. The fair value of forward contracts as of April 30, 2014 is $nil.

26 -------------------------------------------------------------------------------- Use of Estimates The preparation of our financial statements in conformity with generally accepted accounting principles in the United States requires our management to make estimates and assumptions which affect the amounts reported in these consolidated financial statements, the notes thereto, and the disclosure of contingent assets and liabilities at the date of the financial statements.

Actual results could differ from those estimates.

Results of Operations Our operating activities during the year ended April 30, 2014, consisted primarily of selling our IP telephony software and related services to telecom service providers, enterprises and channel partners serving the telecom and enterprise segments, and the continued development of our IP telephony software products.

Revenue Revenues for the year ended April 30, 2014 and 2013 were as follows: 2014 2013 Period-to-Period Change Percent Percent Percent of Total of Total Increase / Amount Revenue Amount Revenue Amount (Decrease) Revenue by Type Software $ 7,035,323 60% $ 9,164,107 60% ($2,128,784 ) (23% ) Service 4,646,625 40% 6,075,816 40% (1,429,191 ) (24% ) Total revenue $ 11,681,948 100% $ 15,239,923 100% ($3,557,975 ) (23% ) Revenue by Region International $ 3,224,462 28% $ 4,959,354 33% ($1,734,892 ) (35% ) North America 8,457,486 72% 10,280,569 67% (1,823,083 ) (18% ) Total revenue $ 11,681,948 100% $ 15,239,923 100% ($3,557,975 ) (23% ) For the year ended April 30, 2014, we generated $11,681,948 in revenue compared to $15,239,923 for the year ended April 30, 2013, representing a decrease of $3,557,975. We generated $7,035,323 in software revenue for the year ended April 30, 2014 compared to $9,164,107 for the year ended April 30, 2013, representing a decrease of $2,128,784. The decrease in software revenue for the year ended April 30, 2014 was primarily a result of a decrease in sales to service providers and channel partners offset by a slight increase in sales to enterprises. For the year ended April 30, 2014, service revenue was $4,646,625 compared to $6,075,816 for the year ended April 30, 2013, representing a decrease of $1,429,191. The decrease in service revenue for the year ended April 30, 2014, was primarily a result of a decrease in customization sales to service providers and channel partners. International revenue outside of North America decreased by 35% during the year ended April 30, 2014 compared to the year ended April 30, 2013, due primarily to significant decreases in sales in Europe and Latin America. North American revenue decreased by 18% during the year ended April 30, 2014 compared to year ended April 30, 2013, primarily as a result of a decrease in sales of software and services to North American service providers and channel partners.

27 -------------------------------------------------------------------------------- Operating Expenses Cost of Sales Cost of sales for the year ended April 30, 2014 and 2013 were as follows: April 30, 2014 April 30, 2013 Period-to-Period Change Percent Percent Percent of of Increase / Amount Revenue Amount Revenue Amount (Decrease) Year ended $ 2,231,222 19% $ 2,276,777 15% ($45,555 ) (2% ) Cost of sales was $2,231,222 for the year ended April 30, 2014 compared to $2,276,777 for the year ended April 30, 2013. The decrease of $45,555 was primarily attributable to a decrease in the cost of licenses and permits of approximately $128,000 due to lower sales of those licenses, a decrease in other expenses including travel costs of approximately $43,000 and a decrease in warranty expenses of approximately $27,000. These decreases were offset by an increase of approximately $155,000 in wages, benefits and consulting fees. Cost of sales expressed as a percent of revenue was 19% of revenue for the year ended April 30, 2014 as compared to 15% for the year ended April 30, 2013. This increase in percentage was the result of a decrease in revenue of $3,557,975 for the year ended April 30, 2014 compared to revenue for the year ended April 30, 2013 while cost of sales decreased by $45,555 year over year.

Sales and Marketing Sales and marketing expenses for the year ended April 30, 2014 and 2013 were as follows: April 30, 2014 April 30, 2013 Period-to-Period Change Percent Percent Percent of of Increase / Amount Revenue Amount Revenue Amount (Decrease) Year ended $ 5,112,026 44% $ 4,463,292 29% $ 648,734 15% Sales and marketing expenses were $5,112,026 for the year ended April 30, 2014 compared to $4,463,292 for the year ended April 30, 2013. The increase of $648,734 was primarily attributable to an increase in wages, benefits and consulting fees of approximately $422,000, an increase in travel and trade show expenses of approximately $94,000, an increase in stock based compensation of approximately $71,000 and an increase in other expenses of approximately $62,000.

Research and Development Research and development expenses for the year ended April 30, 2014 and 2013 were as follows: April 30, 2014 April 30, 2013 Period-to-Period Change Percent Percent Percent of of Increase / Amount Revenue Amount Revenue Amount (Decrease) Year ended $ 5,508,516 47% $ 5,503,928 36% $ 4,588 -% Research and development expenses were $5,508,516 for the year ended April 30, 2014 compared to $5,503,928 for the year ended April 30, 2013. The increase of $4,588 resulted primarily from an increase in stock based compensation of approximately $17,000 and wages, benefits and consulting fees of approximately $6,000, offset by a decrease in other expenses of approximately $18,000.

28-------------------------------------------------------------------------------- General and Administrative General and administrative expenses for the years ended April 30, 2014 and 2013 were as follows: April 30, 2014 April 30, 2013 Period-to-Period Change Percent Percent Percent of of Increase / Amount Revenue Amount Revenue Amount (Decrease) Year ended $ 4,033,984 35% $ 4,452,214 29% ($418,230 ) (9% ) General and administrative expenses for the year ended April 30, 2014 were $4,033,984 compared to $4,452,214 for the year ended April 30, 2013. The decrease of $418,230 in general and administrative expenses was primarily attributable to a decrease in licenses and permits of approximately $309,000, a decrease in legal, audit and professional fees of approximately $269,000, a decrease in unrecognized tax liability of approximately $73,000, a decrease in rent expense of approximately $70,000, a decrease in stock based compensation expense of approximately $54,000 and a decrease in other expenses of approximately $52,000. The decreases were partially offset by an increase in bad debts reserve of approximately $310,000, an increase in wages, benefits, consulting and human resource expenses of approximately $80,000 and an increase in depreciation of approximately $28,000.

Interest and Other Income Interest and other income for the year ended April 30, 2014 was $64,630 compared to $141,391 for the year ended April 30, 2013. Interest expense for the year ended April 30, 2014, was $1,732 compared to $1,135 for the year ended April 30, 2013.

Foreign exchange loss for the year ended April 30, 2014, was $670,570 compared to a foreign exchange gain of $2,539 for the year ended April 30, 2013.

The foreign exchange gain (loss) represents the gain (loss) on account of translation of the intercompany accounts of our subsidiaries which maintain their records in currencies other than U.S. dollars and transactional losses and gains. As well, the foreign exchange gain (loss) includes the translation of funds held in the parent company in currencies other than U.S. dollars.

Fair value adjustment on derivative instruments for the year ended April 30, 2014 resulted in a non-cash loss of $87,339 compared to a non-cash gain of $1,785,773 for the year ended April 30, 2013. On June 14, 2012, we issued 1,579,900 common share purchase warrants exercisable at CDN$2.25 per share and 220,206 broker warrants exercisable at CDN$1.75 per share under a brokered private placement. We recorded the warrants issued as a derivative instrument due to their exercise price being denominated in a currency other than our U.S.

dollar functional currency. The fair value of the derivative instruments is revalued at the end of each reporting period, and the change in fair value of the derivative instruments is recorded as a gain or loss in our consolidated statements of operations.

Liquidity and Capital Resources As of April 30, 2014, we had $7,172,798 in cash compared to $11,229,595 at April 30, 2013, representing a decrease of $4,056,797. Our working capital was $6,704,615 at April 30, 2014 compared to $12,010,223 at April 30, 2013, representing a decrease of $5,305,608. Management anticipates that, future capital requirements of our company will be funded through cash flows generated from operations and from working capital for the next twelve months and we may seek additional funding to meet ongoing operating expenses.

We have $6,498,423 in cash held outside of the United States, and there is no intent to repatriate at this time. Should we decide to repatriate in the future, taxes would need to be accrued and paid.

Operating Activities Our operating activities resulted in a net cash outflow of $2,651,967 for the year ended April 30, 2014. This compares with a net cash outflow of $604,466 for the year ended April 30, 2013, representing a $2,047,501 increase in cash outflows from operations. The net cash outflow from operating activities for the year ended April 30, 2014 was primarily a result of a net loss of $5,914,547.

The net cash outflow was offset by a decrease in accounts receivable of $1,235,500 and by adjustment for non-cash expenses including $1,071,467 for stock based compensation, $735,856 for foreign exchange losses and $236,443 of depreciation and amortization.

29 -------------------------------------------------------------------------------- The net cash outflow from operating activities of $604,466 for the year ended April 30, 2013 was primarily a result of an adjustment for a non-cash gain of $1,785,773 for change in fair value of derivative instruments, an increase in accounts receivable of $627,326 attributable to higher year-over-year revenue and an increase in other assets of $52,049. The net cash outflow was offset by net income of $472,280 and non-cash expenses including $1,008,004 for stock-based compensation, $187,023 for depreciation and amortization and $39,003 for amortization of intangible assets.

Investing Activities Investing activities resulted in a net cash outflow of $237,515 for the year ended April 30, 2014, primarily due to the purchase of equipment during the year. This compares with a net cash outflow of $296,555 for the year ended April 30, 2013, primarily due to the purchase of equipment and deposits. At April 30, 2014, we did not have any material commitments for future capital expenditures.

Financing Activities Financing activities resulted in a net cash outflow of $351,365 for the year ended April 30, 2014 compared to a net cash inflow of $3,979,006 for the year ended April 30, 2013.

On June 19, 2012, we issued an aggregate of 1,465,000 units under a non-brokered private placement for aggregate gross proceeds of $3,597,000 (CDN$3,662,500) at a price of $2.44 (CDN$2.50) per unit, with each unit consisting of one share of our common stock and one-half of one common share purchase warrant, with each whole warrant entitling the holder to purchase one additional common share of our common stock at an exercise price of $3.25 per share until June 19, 2014.

Pursuant to a normal course issuer bid ("NCIB") commencing on March 19, 2013 (expiring March 18, 2014) our company was authorized to purchase 2,462,365 of our shares of common stock through the facilities of the Toronto Stock Exchange (the "TSX") and other Canadian marketplaces. The NCIB was renewed on March 19, 2014 and our company was authorized to purchase 2,458,153 of our shares of common stock. Between August 20, 2012, the NCIB's commencement date, and March 18, 2013, we repurchased 72,292 shares of common stock at an average price of $1.99 (CDN$1.98) for a total of $143,861. During the period from March 19, 2013 to March 18, 2014, we repurchased 180,870 shares of common stock at an average price of $1.53 (CDN$1.61) for a total of $276,731, and during the period from March 19, 2014 to April 30, 2014, we repurchased 22,200 shares of common stock at an average price of $1.35 (CDN$1.49) for a total of $29,970. As of April 30, 2014, a total of 288,958 shares of common stock have been cancelled and the remaining 16,200 repurchased shares are in the process of being cancelled.

Off-Balance Sheet Arrangements We do not have, and do not have any present plans to implement, any off-balance sheet arrangements.

New Accounting Pronouncements In December 2011, the FASB issued Accounting Standards Update (ASU) 2011-11 that included new disclosure requirements that are intended to enhance current disclosures on offsetting financial assets and liabilities. The new disclosures require an entity to disclose both gross and net information about derivative instruments accounted for in accordance with the guidance on derivatives and hedging that are eligible for offset on the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. The provisions of the new disclosure requirements are effective for the company starting May 1, 2014. The adoption of this standard will not have a material impact on the presentation of the financial statements.

In July 2012, FASB issued ASU 2012-02, Intangibles - Goodwill and Other (Topic 350), Testing Indefinite Lived Intangible Assets for Impairments, that permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. An entity would continue to calculate the fair value of an indefinite-lived intangible asset if the asset fails the qualitative assessment, while no further analysis would be required if it passes. We have adopted this standard as of May 1, 2013 and it did not materially impact the consolidated financial statements.

30 -------------------------------------------------------------------------------- In February 2013, FASB issued ASU 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income, that requires an entity to disclose information showing the effect of items reclassified from accumulated other comprehensive income on the line items of net income. The provisions of this new guidance was effective prospectively from May 1, 2013. The adoption of the standard required our company to disclose the nature of changes in other comprehensive income that will have an impact on net income or loss in the future. We have accumulated other comprehensive income relating to the translation of our subsidiary's financial information into the presentation currency of our company's financial statements, which would reverse through net income or loss should the underlying assets and liabilities be disposed of.

In May 2014, FASB issued ASU 2014-09, Revenue From Contracts With Customers ("Topic 606"). Topic 606 removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The guidance in this update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Topic 606 is effective for public entities with reporting periods beginning after December 15, 2016. Early adoption is not permitted. We have not yet evaluated the impact of the adoption of this new standard.

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