---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 31,
2010

OR

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

For the transition period from ______________to
______________

Commission file number 000-50346

COUNTERPATH
CORPORATION(Exact name of registrant as specified in its
charter)

|Nevada                                           | 20-0004161                       
|------------------------------------------------ | ---------------------------------
|(State or other jurisdiction of incorporation or | (IRS Employer Identification No.)
|organization)                                    |                                  

Suite 300, One Bentall Centre, 505 Burrard Street,
Vancouver, British Columbia, Canada V7X 1M3(Address, including zip
code, of principal executive offices)

(604) 320-3344(Registrants telephone number,
including area code)

Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x]     No
[ ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [ ]     No [ ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

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

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

---

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable date: 33,161,802
shares of common stock issued and outstanding as of December 13, 2010.

2

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|COUNTERPATH CORPORATION                       
|----------------------------------------------
|OCTOBER 31, 2010 QUARTERLY REPORT ON FORM 10-Q
|                                              
|INDEX                                         

|               |                                                                                              | Page
|-------------- | -------------------------------------------------------------------------------------------- | ----
|               | Part I                                                                                       |     
|Item
      1.  | Financial
      Statements.                                                                  | 4   
|               |                                                                                              |     
|Item
      2.  | Managements
      Discussion and Analysis of Financial Condition and Results of Operations. | 26  
|               |                                                                                              |     
|Item
      4T. | Controls
      and Procedures.                                                               | 40  
|               | Part II                                                                                      |     
|Item
      1.  | Legal
      Proceedings.                                                                     | 40  
|               |                                                                                              |     
|Item
      1A. | Risk
      Factors.                                                                          | 41  
|               |                                                                                              |     
|Item
      2.  | Unregistered
      Sales of Equity Securities and Use of Proceeds.                           | 45  
|               |                                                                                              |     
|Item
      3.  | Defaults
      Upon Senior Securities.                                                       | 45  
|               |                                                                                              |     
|Item
      4.  | Removed
      and Reserved.                                                                  | 45  
|               |                                                                                              |     
|Item
      5.  | Other
      Information.                                                                     | 45  
|               |                                                                                              |     
|Item
      6.  | Exhibits.                                                                                    | 46  

3

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PART I

Item 1. Financial Statements.

It is the opinion of management that the interim consolidated
financial statements for the quarter ended October 31, 2010 include all
adjustments necessary in order to ensure that the interim consolidated financial
statements are not misleading.

The interim consolidated financial statements are stated in
United States dollars and are prepared in accordance with generally accepted
accounting principles in the United States of America.



|COUNTERPATH CORPORATION                           
|--------------------------------------------------
|INDEX TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|October 31, 2010                                  
|(Unaudited)                                       
|(Stated in U.S. Dollars)                          

|                                                                           | Page        
|-------------------------------------------------------------------------- | ------------
|                                                                           |             
|Interim
      Consolidated Balance Sheets                                  | 5           
|                                                                           |             
|Interim
      Consolidated Statements of Operations and Comprehensive Loss | 6           
|                                                                           |             
|Interim
      Consolidated Statements of Cash Flows                        | 7           
|                                                                           |             
|Interim
      Consolidated Statements of Changes in Stockholders Equity   | 8           
|                                                                           |             
|Notes
      to the Interim Consolidated Financial Statements               | 9
      - 25

4

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|COUNTERPATH CORPORATION            
|-----------------------------------
|INTERIM CONSOLIDATED BALANCE SHEETS
|(Stated in U.S. Dollars)           

|                                                                                                                                                                                                                          |   | October 31, |   |   | April 30,          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ------------------ | -
|                                                                                                                                                                                                                          |   | 2010        |   |   | 2010               |  
|Assets                                                                                                                                                                                                                    |   | (Unaudited) |   |   | Restated  Note 14 |  
|Current assets:                                                                                                                                                                                                           |   |             |   |   |                    |  
|Cash                                                                                                                                                                                                                      | $ | 2,184,011   |   | $ | 1,556,813          |  
|Accounts
      receivable (net of allowance for doubtful accounts of
      
             $1,103,468 and $1,116,119,
      respectively)                                                                                   |   | 2,311,842   |   |   | 2,345,633          |  
|Investment tax credits recoverable                                                                                                                                                                                        |   | 29,445      |   |   | 129,285            |  
|Other current
      assets                                                                                                                                                                                                |   | 179,419     |   |   | 221,041            |  
|Total current assets                                                                                                                                                                                                      |   | 4,704,717   |   |   | 4,252,772          |  
|                                                                                                                                                                                                                          |   |             |   |   |                    |  
|Deposits                                                                                                                                                                                                                  |   | 100,943     |   |   | 101,994            |  
|Equipment                                                                                                                                                                                                                 |   | 113,782     |   |   | 111,150            |  
|Intangible
      assets (net of accumulated amortization of $4,668,285 and 
        
      $4,249,895, respectively)  Note 2(e)                                                                                          |   | 1,173,519   |   |   | 1,674,359          |  
|Goodwill  Note 2(e)                                                                                                                                                                                                      |   | 8,625,777   |   |   | 8,740,025          |  
|Other assets                                                                                                                                                                                                              |   | 43,910      |   |   | 58,817             |  
|Total Assets                                                                                                                                                                                                              | $ | 14,762,648  |   | $ | 14,939,117         |  
|                                                                                                                                                                                                                          |   |             |   |   |                    |  
|Liabilities and Stockholders Equity                                                                                                                                                                                      |   |             |   |   |                    |  
|Current
      liabilities:                                                                                                                                                                                                |   |             |   |   |                    |  
|Accounts payable
      and accrued liabilities                                                                                                                                                                            | $ | 2,211,092   |   | $ | 2,313,688          |  
|Unearned revenue                                                                                                                                                                                                          |   | 766,912     |   |   | 655,361            |  
|Customer deposits                                                                                                                                                                                                         |   | 2,018       |   |   | 5,127              |  
|Accrued warranty                                                                                                                                                                                                          |   | 136,325     |   |   | 120,963            |  
|Total current liabilities                                                                                                                                                                                                 |   | 3,116,347   |   |   | 3,095,139          |  
|                                                                                                                                                                                                                          |   |             |   |   |                    |  
|Deferred lease inducements                                                                                                                                                                                                |   | 3,462       |   |   | 4,677              |  
|Convertible
      debentures  Note 4                                                                                                                                                                                     |   | 1,249,264   |   |   |                   |  
|Unrecognized tax benefit                                                                                                                                                                                                  |   | 98,575      |   |   | 98,575             |  
|Total liabilities                                                                                                                                                                                                         |   | 4,467,648   |   |   | 3,198,391          |  
|                                                                                                                                                                                                                          |   |             |   |   |                    |  
|Stockholders
      equity:                                                                                                                                                                                               |   |             |   |   |                    |  
|Preferred stock, $0.001
      par value 
               Authorized:
      100,000,000          
      Issued and outstanding: October 31, 2010  1; April 30, 2010  1                                                    |   |            |   |   |                   |  
|Common
      stock, $0.001 par value  Note 6
      
                Authorized:
      83,076,900          
      Issued and outstanding:
                October 31,
      2010 33,149,969; April 30, 2010  33,015,627 |   | 33,150      |   |   | 33,016             |  
|Additional paid-in capital                                                                                                                                                                                                |   | 52,933,447  |   |   | 51,902,471         |  
|Accumulated
      deficit                                                                                                                                                                                                 |   | (42,057,335 | ) |   | (39,781,079        | )
|Accumulated other comprehensive loss 
      currency translation adjustment                                                                                                                                              |   | (614,262    | ) |   | (413,682           | )
|Total stockholders
      equity                                                                                                                                                                                          |   | 10,295,000  |   |   | 11,740,726         |  
|Liabilities and Stockholders Equity                                                                                                                                                                                      | $ | 14,762,648  |   | $ | 14,939,117         |  

Going concern  Note 2 Commitments and contingent liability
 Notes 8 and 9

See accompanying notes to the consolidated financial
statements

5

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|COUNTERPATH CORPORATION                          
|-------------------------------------------------
|INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND
|COMPREHENSIVE LOSS                               
|(Stated in U.S. Dollars)                         
|(Unaudited)                                      

|                                                                                                                                                                                                                                                                  |   | Three Months Ended |   |   | Six Months Ended   |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | - | - | ------------------ | -
|                                                                                                                                                                                                                                                                  |   | October 31,        |   |   | October 31,        |  
|                                                                                                                                                                                                                                                                  |   | 2010               |   |   | 2009               |  
|                                                                                                                                                                                                                                                                  |   |                    |   |   | Restated  Note 14 |  
|Revenue  Note 6:                                                                                                                                                                                                                                                 |   |                    |   |   |                    |  
|Software                                                                                                                                                                                                                                                          | $ | 1,751,317          |   | $ | 1,451,826          |  
|Service                                                                                                                                                                                                                                                           |   | 816,346            |   |   | 448,781            |  
|Total revenue                                                                                                                                                                                                                                                     |   | 2,567,663          |   |   | 1,900,607          |  
|Operating expenses: 
         Cost of
      sales (includes depreciation of $9,654 and    $2,925 and
      amortization of intangible assets of    $418,392 and
      $425,591 for six months ended    October 31, 2010 and 2009
    respectively  Note    2(e)) |   | 695,822            |   |   | 701,391            |  
|Sales and marketing                                                                                                                                                                                                                                               |   | 900,264            |   |   | 690,551            |  
|Research and development                                                                                                                                                                                                                                          |   | 1,096,115          |   |   | 1,004,594          |  
|General and
      administrative                                                                                                                                                                                                                                  |   | 1,052,099          |   |   | 1,272,904          |  
|Restructuring costs  Note 10                                                                                                                                                                                                                                     |   | −                  |   |   |                   |  
|Total operating expenses                                                                                                                                                                                                                                          |   | 3,744,300          |   |   | 3,669,440          |  
|Loss from operations                                                                                                                                                                                                                                              |   | (1,176,637         | ) |   | (1,768,833         | )
|Interest and other income
      (expense), net:                                                                                                                                                                                                                   |   |                    |   |   |                    |  
|Interest income                                                                                                                                                                                                                                                   |   | 42,709             |   |   | 33,816             |  
|Interest expense                                                                                                                                                                                                                                                  |   | (2,532             | ) |   | (5                 | )
|Foreign exchange gain (loss)                                                                                                                                                                                                                                      |   | 43,746             |   |   | 7,952              |  
|Gain on settlement of
      debt  Note 12                                                                                                                                                                                                                        |   | 246,715            |   |   |                   |  
|Net loss for the period                                                                                                                                                                                                                                           | $ | (845,999)          |   | $ | (1,727,070)        |  
|Other comprehensive income
      (loss):                                                                                                                                                                                                                          |   |                    |   |   |                    |  
|                                                                                                                                                                                                                                                                  |   |                    |   |   |                    |  
|Foreign currency
      translation adjustments                                                                                                                                                                                                                    |   | 16,429             |   |   | 254,725            |  
|Comprehensive loss                                                                                                                                                                                                                                                | $ | (829,570)          |   | $ | (1,472,345)        |  
|Net loss per share:                                                                                                                                                                                                                                               |   |                    |   |   |                    |  
|Basic and diluted                                                                                                                                                                                                                                                 | $ | (0.03)             |   | $ | (0.06)             |  
|                                                                                                                                                                                                                                                                  |   |                    |   |   |                    |  
|Weighted average common shares
      outstanding:                                                                                                                                                                                                                 |   | 33,113,474         |   |   | 29,526,663         |  

See accompanying notes to the consolidated financial
statements

6

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|COUNTERPATH CORPORATION                      
|---------------------------------------------
|INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
|(Stated in U.S. Dollars)                     
|(Unaudited)                                  

|                                                            |   | Six Months Ended |  
|----------------------------------------------------------- | - | ---------------- | -
|                                                            |   | October 31,      |  
|                                                            |   | 2010             |  
|                                                            |   |                  |  
|Cash flows from operating activities:                       |   |                  |  
|Net loss for the
      period                               | $ | (2,276,256       | )
|Adjustments to reconcile net loss to
      net cash used in |   |                  |  
|operating activities:                                       |   |                  |  
|Depreciation and
      amortization                         |   | 69,311           |  
|Amortization of intangible assets                           |   | 418,392          |  
|Stock-based
      compensation  Note 6                     |   | 581,784          |  
|Share purchase warrants  Note 6                            |   | 161,710          |  
|Shares issued as
      part of share purchase plan          |   | 16,647           |  
|Foreign exchange loss (gain)                                |   | (15,700          | )
|Changes in assets and liabilities:                          |   |                  |  
|Accounts receivable                                         |   | 125,409          |  
|Other current
      assets                                  |   | 40,473           |  
|Increase in other assets                                    |   | (7,117           | )
|Accounts payable
      and accrued liabilities              |   | (80,623          | )
|Unearned revenue                                            |   | 111,551          |  
|Customer deposits                                           |   | (3,109           | )
|Accrued warranty                                            |   | 15,362           |  
|Net cash used in operating activities                       |   | (842,166         | )
|                                                            |   |                  |  
|Cash flows from investing activities:                       |   |                  |  
|Purchase of equipment                                       |   | (49,562          | )
|Deposits                                                    |   | 665              |  
|Net cash used in investing activities                       |   | (48,897          | )
|                                                            |   |                  |  
|Cash flows from financing
      activities:                 |   |                  |  
|Common stock issued, net of transaction costs               |   | 55,433           |  
|Convertible debentures issued                               |   | 1,464,800        |  
|Net cash provided by financing activities                   |   | 1,520,233        |  
|                                                            |   |                  |  
|Foreign exchange effect on cash                             |   | (1,972           | )
|                                                            |   |                  |  
|Increase in cash                                            |   | 627,198          |  
|                                                            |   |                  |  
|Cash, beginning of the period                               |   | 1,556,813        |  
|Cash, end of the period                                     | $ | 2,184,011        |  
|                                                            |   |                  |  
|Supplemental disclosure of cash flow
      information      |   |                  |  
|Cash paid for:                                              |   |                  |  
|Interest                                                    | $ | 2,753            |  
|Taxes                                                       |   |                 |  

See accompanying notes to the consolidated financial
statements

7

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|COUNTERPATH CORPORATION                                                 
|------------------------------------------------------------------------
|INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN
      STOCKHOLDERS EQUITY
|for the Six Months Ended October 31, 2010                               
|(Stated in U.S. Dollars)                                                
|(Unaudited)                                                             

|                                                       |  | Common shares |  |   | Preferred Shares |  |  |        |  |   |                 |  |   |            |   |   |                    | 
|------------------------------------------------------ |  | ------------- |  | - | ---------------- |  |  | ------ |  | - | --------------- |  | - | ---------- | - | - | ------------------ | 
|                                                       |  |               |  |   |                  |  |  |        |  |   |                 |  |   |            |   |   |                    | 
|                                                       |  | Number        |  |   |                  |  |  | Number |  |   |                 |  |   | Additional |   |   |                    | 
|                                                       |  | of            |  |   |                  |  |  | of     |  |   |                 |  |   | Paid-in    |   |   | Accumulated        | 
|                                                       |  | Shares        |  |   | Par
      Value  |  |  | Shares |  |   | Par
      Value |  |   | Capital    |   |   | Deficit            | 
|                                                       |  |               |  |   |                  |  |  |        |  |   |                 |  |   |            |   |   | Restated  Note 14 | 
|Balance, May 1, 2010                                   |  | 33,015,627    |  | $ | 33,016           |  |  | 1      |  | $ |                |  | $ | 51,902,471 |   | $ | (39,781,079)       | 
|                                                       |  |               |  |   |                  |  |  |        |  |   |                 |  |   |            |   |   |                    | 
|Shares issued:                                         |  |               |  |   |                  |  |  |        |  |   |                 |  |   |            |   |   |                    | 
|Exercise of stock options                              |  | 47,920        |  |   | 48               |  |  |        |  |   |                 |  |   | 22,516     |   |   |                    | 
|Employee share purchase plan                           |  | 36,422        |  |   | 36               |  |  | −      |  |   | −               |  |   | 49,480     |   |   | −                  | 
|Exchange of subsidiary preferred shares 
      Note 5 |  | 50,000        |  |   | 50               |  |  |       |  |   |                |  |   | (50        | ) |   |                   | 
|Stock-based compensation 
      Note 6                |  |              |  |   |                 |  |  |       |  |   |                |  |   | 581,784    |   |   |                   | 
|Discount on convertible debenture -                    |  |               |  |   |                  |  |  |        |  |   |                 |  |   |            |   |   |                    | 
|beneficial conversion feature
       Note 4           |  |              |  |   |                 |  |  |       |  |   |                |  |   | 215,536    |   |   |                   | 
|Share purchase warrants  Note 6                       |  |              |  |   |                 |  |  |       |  |   |                |  |   | 161,710    |   |   |                   | 
|Net loss for the period                                |  |              |  |   |                 |  |  |       |  |   |                |  |   |           |   |   | (2,276,256)        | 
|Foreign currency translation adjustment                |  |              |  |   |                 |  |  |       |  |   |                |  |   |           |   |   |                   | 
|Balance, October 31, 2010
      (Unaudited)            |  | 33,149,969    |  | $ | 33,150           |  |  | 1      |  | $ |                |  | $ | 52,933,447 |   | $ | (42,057,335)       | 

See accompanying notes to the consolidated financial
statements

8

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|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 1 | Nature of Operations
|------ | --------------------

CounterPath Corporation (the
Company) was incorporated in the State of Nevada on April 18, 2003. The
Company changed its name from CounterPath Solutions, Inc. to CounterPath
Corporation on October 17, 2007. The Companys common shares are quoted for
trading on the Over-The-Counter Bulletin Board in the United States of America
and on the TSX Venture Exchange in Canada.

On August 2, 2007, the Company
acquired of all of the shares of NewHeights Software Corporation (NewHeights)
through the issuance of 7,680,168 shares of the Companys common stock and
369,836 preferred shares issued from a subsidiary of the Company that are
exchangeable into 369,836 shares of common stock of the Company. For accounting
purposes, the Company was deemed to be the acquirer of NewHeights based on
certain factors including the number of common shares issued in the transaction
as a proportion of the total common shares outstanding, and the composition of
the board after the transaction.

On February 1, 2008, the Company
acquired FirstHand Technologies Inc. (FirstHand), a private Ontario, Canada
corporation, through the issuance of 5,900,014 shares of the Companys common
stock. For accounting purposes, the Company was deemed to be the acquirer of
FirstHand based on certain factors including the number of common shares issued
in the transaction as a proportion of the total common shares outstanding, and
the composition of the board after the transaction.

On February 1, 2008, the Company
acquired BridgePort Networks, Inc. (BridgePort), a private Delaware
corporation, by way of merger in consideration for the assumption of all of the
assets and liabilities of BridgePort. For accounting purposes, the Company was
deemed to be the acquirer of BridgePort based on certain factors primarily being
the composition of the board after the transaction.

On February 5, 2008, the Company's
wholly-owned subsidiaries, NewHeights and CounterPath Solutions R&D Inc.
were merged as a wholly-owned subsidiary of the Company under the name
CounterPath Technologies Inc.

On March 19, 2008, the Companys Board
of Directors approved a five for one common stock consolidation. As a result,
the Company's authorized capital decreased from 415,384,500 shares of common
stock to 83,076,900 shares of common stock. The par value of the common stock
was unaffected by the stock consolidation and remains at $0.001 per share. All
per share amounts and outstanding shares, including all common stock equivalents
(stock options and warrants) have been retroactively adjusted in the
Consolidated Financial Statements and in the Notes to the Consolidated Financial
Statements for all periods presented to reflect the stock consolidation.

The Company focuses on the design,
development, marketing and sales of desktop and mobile communications
application software, gateway (server) software and related professional
services, such as pre and post sales technical support and customization
services. The Companys products are sold into the Voice over Internet Protocol
(VoIP) market primarily to carriers, original equipment manufacturers and
businesses in North America, Central and South America, Europe and Asia.

|Note 2 | Significant Accounting Policies and Going
      Concern
|------ | -------------------------------------------------------

These interim consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States of America and are stated in U.S. dollars except
where otherwise disclosed. Because a precise determination of many assets and
liabilities is dependent upon future events, the preparation of financial
statements for the period necessarily involves the use of estimates, which have
been made using careful judgment. Actual results may vary from these estimates.

9

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 2 | Significant Accounting Policies and Going
      Concern - (contd)
|------ | ------------------------------------------------------------------

These interim consolidated financial
statements have been prepared on a going concern basis, which implies the
Company will continue to realize its assets and discharge its liabilities and
commitments in the normal course of business. The continuation of the Company as
a going concern is dependent upon the continued financial support from its
stockholders, the ability of the Company to obtain necessary debt and equity
financing to continue operations and to generate sustainable significant
revenue. There is no guarantee that the Company will be able to raise any equity
financing or generate profitable operations. As at October 31, 2010, the Company
has not yet achieved profitable operations and had an accumulated deficit of
$42,057,335 since incorporation. These factors raise substantial doubt regarding
the Companys ability to continue as a going concern.

Under its current operating plan the
Company will require approximately $12-$13 million to fund ongoing operations
and working capital requirements through October 31, 2011. Management is
implementing a plan to address these uncertainties to enable the Company to
continue as a going concern through the end of fiscal 2011 and beyond. This plan
includes new equity financing in amounts sufficient to sustain operations, such
as the private placement discussed in Note 3, and to increase revenues and
decrease costs from operations.

Realizable values may be substantially
different from carrying values as shown in these financial statements should the
Company be unable to continue as a going concern. These financial statements do
not include any adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The consolidated financial
statements have been properly prepared within the framework of the significant
accounting policies as follows:

| | a) | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | These consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiaries, CounterPath
      Technologies Inc., a company existing under the laws of the province of
      British Columbia, Canada, FirstHand Technologies Inc., continued under
      laws of the province of British Columbia, BridgePort Networks, Inc.
      incorporated under the laws of the state of Delaware and 6789722 Canada
      Inc., incorporated under the Canada Business Corporations Act. The results
      of NewHeights Software Corporation (which subsequently merged with another
      subsidiary to become CounterPath Technologies Inc.) are included from
      August 2, 2007, the date of acquisition. The results of FirstHand
      Technologies Inc. and BridgePort Networks, Inc. are included from February
      1, 2008, the date of acquisition. All inter-company transactions and
      balances have been eliminated.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | b) | Interim Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The information presented in the accompanying interim
      consolidated financial statements is without audit pursuant to the rules
      and regulations of the Securities and Exchange Commission. Certain
      information and footnote disclosures normally included in the financial
      statements prepared in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to such rules and
      regulations, although the Company believes that the disclosures are
      adequate to make the information presented not misleading.                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | These statements reflect all adjustments, which are, in
      the opinion of management, necessary to present fairly the financial
      position, results of operations and cash flows for the interim periods
      presented in accordance with accounting principles generally accepted in
      the United States of America. Except where noted, these interim financial
      statements follow the same accounting policies and methods of their
      application as the Companys April 30, 2010 annual consolidated financial
      statements. All adjustments are of a normal recurring nature. It is
      suggested that these interim financial statements be read in conjunction
      with the Companys amended April 30, 2010 annual consolidated financial
      statements.                                                                                                                                                                         

10

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 2 | Significant Accounting Policies and Going
      Concern - (contd)
|------ | ------------------------------------------------------------------

| | b) | Interim Reporting  (contd)                                                                                                                                                                                          
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                       
| |    | Operating results for the six months ended October 31,
      2010 are not necessarily indicative of the results that can be expected
      for the year ending April 30, 2011.                                        
| |    |                                                                                                                                                                                                                       
| | c) | New Accounting Pronouncements                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                       
| |    | The Company has evaluated subsequent events for potential
      recognition and disclosure in the financial statements. This date
      represents the date the financial statements are available to be
      issued.

In October 2009, the FASB issued
Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue
Arrangements a consensus of the FASB Emerging Issues Task Force, (ASU
2009-13). ASU 2009-13 addresses the accounting for multiple-deliverable
arrangements and requires that the overall arrangement consideration be
allocated to each deliverable in a revenue arrangement based on an estimated
selling price when vendor specific objective evidence or third-party evidence of
fair value is not available. This guidance also eliminates the residual method
of allocation and requires that arrangement consideration be allocated to all
deliverables using the relative selling price method. This will result in more
revenue arrangements being separated into separate units of accounting. ASU
2009-13 is effective for fiscal years beginning on or after June 15, 2010.
Companies can elect to apply this guidance (1) prospectively to new or
materially modified arrangements after the effective date or (2) retrospectively
for all periods presented. The Company is currently assessing the impact of
adoption of ASU 2009-13 and does not currently plan to early adopt.

In October 2009, the FASB issued ASU
No. 2009-14, Certain Revenue Arrangements That Include Software Elements,
(ASU 2009-14). ASU 2009-14 changes the accounting model for revenue
arrangements that include both tangible products and software elements. Tangible
products containing both software and non-software components that function
together to deliver the products essential functionality will no longer be
within the scope of ASC 985-605 Software Revenue Recognition (ASC 985-605).
The entire product (including the software and non-software deliverables) will
therefore be accounted for under accounting literature found in ASC 605. ASU
2009-14 is effective for fiscal years beginning on or after June 15, 2010.
Companies can elect to apply this guidance (1) prospectively to new or
materially modified arrangements after the effective date or (2) retrospectively
for all periods presented. The Company is currently assessing the impact of
adoption of ASU 2009-14 and does not currently plan to early adopt.

In January 2010, the FASB issued ASU
2010-06, Improving Disclosures about Fair Value Measurements,which is
included in the ASC in Topic 820 (Fair Value Measurements and Disclosures). ASU
2010-06 requires new disclosures on the amount and reason for transfers in and
out of Level 1 and 2 fair value measurements. ASU 2010-06 also requires
disclosure of activities, including purchases, sales, issuances, and settlements
within the Level 3 fair value measurements and clarifies existing disclosure
requirements on levels of disaggregation and disclosures about inputs and
valuation techniques. ASU 2010-06 is effective for interim and annual reporting
periods beginning after December 15, 2009. The Company is currently assessing
the impact of adoption of ASU 2009-14 and does not currently plan to early
adopt.

11

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 2 | Significant Accounting Policies and Going
      Concern - (contd)
|------ | ------------------------------------------------------------------

| | d) | Derivative Instruments and Hedging
    Activities
| | -- | -------------------------------------------------

ASC 815: The Company adopted the
provisions of Statement of Financial Accounting Standards No. 161, Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB
Statement No. 133 (SFAS 161), effective at the beginning of the first quarter
of fiscal year 2010. SFAS No. 161 was incorporated into ASC 815, Derivatives
and Hedging(ASC 815). ASC 815 expands financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entitys financial
position, results of operations and cash flows. ASC 815 also requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. Because ASC 815 only requires additional
disclosure, the adoption of ASC 815 did not impact the Companys financial
position, results of operations, and cash flows (see Note 11, Derivative
Instruments and Hedging Activities, of the Notes to Interim Consolidated
Financial Statements).

| | e) | Goodwill and Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Goodwill represents the excess purchase price over the
      estimated fair value of net assets acquired as of the acquisition date.
      Statement of Financial Accounting Standards ASC 350, Goodwill and Other
      Intangible Assets (SFAS ASC 350) ASC 350 requires goodwill to be tested
      for impairment annually or more frequently if an event occurs or
      circumstances change that would more likely than not reduce the fair value
      of the Company's business enterprise below its carrying value. The
      impairment test requires management to estimate the fair value of the
      Company's overall business enterprise down to the reporting unit level
      which is CounterPath Corporation.                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Goodwill of $6,339,717 (CDN$6,704,947), and $2,083,960
      (CDN$2,083,752) was initially recorded in connection with the acquisition
      of NewHeights Software Corporation on August 2, 2007 and FirstHand
      Technologies Inc. on February 1, 2008. Translated to U.S. dollars using
      the period end rate, the goodwill balance at October 31, 2010 was
      $6,580,906 (CDN$6,704,947) (April 30, 2010-$6,668,070) and $2,044,871
      (CDN$2,083,752) (April 30, 2010-$2,071,955), respectively. Management will
      perform its annual impairment test in its fiscal fourth quarter. No
      impairment charges were recorded for the six months ended October 31, 2010
      and 2009.                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The Company also evaluates goodwill for impairment
      whenever events or changes in circumstances indicate that the carrying
      amount may not be recoverable. These events or circumstances could include
      a significant change in the business climate, legal factors, operating
      performance indicators, competition, or sale or disposition of a
      significant portion of a reporting unit.                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Recoverability of goodwill is measured at the reporting
      unit level by comparing the reporting units carrying amount, including
      goodwill, to the fair value of the reporting unit, which is measured based
      upon, among other factors, market multiples for comparable companies as
      well as a discounted cash flow analysis. Reporting units represent
      components of the Company for which discrete financial information is
      available that is regularly reviewed by management. Management has
      determined that the Company currently has one reporting unit. If the
      recorded value of the assets, including goodwill, and liabilities (net
      book value) of the reporting unit exceeds its fair value, an impairment
      loss may be required.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | In accordance with Financial Accounting Standards Board
      (FASB) Statement of Financial Accounting Standards ASC 360, Accounting
      for the Impairment or Disposal of Long-Lived Assets, the carrying value
      of intangible assets and other long-lived assets are reviewed on a regular
      basis for the existence of facts or circumstances that may suggest
      impairment.                                                                                                                                                                                                                                                                                                                                                                                                    

12

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 2 | Significant Accounting Policies and Going
      Concern - (contd)
|------ | ------------------------------------------------------------------

| | e) | Goodwill and Intangible Assets 
(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The Company recognizes impairment when the sum of the
      expected undiscounted future cash flows is less than the carrying amount
      of the asset. Impairment losses, if any, are measured as the excess of the
      carrying amount of the asset over its estimated fair value.                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Intangible assets include the intangibles purchased in
      connection with the acquisition of NewHeights Software Corporation on
      August 2, 2007 and FirstHand Technologies Inc. and BridgePort Networks,
      Inc. on February 1, 2008.                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The intangible assets of NewHeights are reported at
      acquisition cost and include amounts initially allocated to acquired
      technologies of $3,454,839 (CDN$3,678,100) and customer asset of
      $2,283,908 (CDN$2,431,500). 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, which is Managements
      estimate of the useful life of the customer asset.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The intangible assets of FirstHand are reported at
      acquisition cost and include amounts initially allocated to acquired
      technologies of $2,804,700 (CDN$2,804,700) and customer asset of $587,000
      (CDN$587,000). 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, which is Managements estimate of the
      useful life of the customer asset.     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The intangible assets of BridgePort are being carried and
      reported at acquisition cost and include amounts initially allocated to
      acquired technologies of $476,703 and customer asset of $43,594.                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | 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, which is Managements estimate of the
      useful life of the customer asset.                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | A summary of the Companys intangible assets, net, at
      October 31, 2010 is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                       |   |           |  |   |              |  |   | Accumulated |  |   |              | 
| | --------------------- | - | --------- |  | - | ------------ |  | - | ----------- |  | - | ------------ | 
| |                       |   |           |  |   | Accumulated  |  |   | Impairment  |  |   | Net Carrying | 
| |                       |   | Cost      |  |   | Amortization |  |   | Charge      |  |   | Amount       | 
| | Acquired technologies | $ | 6,288,163 |  | $ | 3,699,640    |  | $ | 1,888,658   |  | $ | 699,865      | 
| | Customer assets       |   | 2,658,327 |  |   | 968,645      |  |   | 1,216,028   |  |   | 473,658      | 
| | Intangible assets     | $ | 8,946,490 |  | $ | 4,668,285    |  | $ | 3,104,686   |  | $ | 1,173,519    | 

13

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 3 | Related Party Transactions
|------ | --------------------------

The Companys Chairman is the Chairman
and founding shareholder of Mitel Networks Corporation (Mitel). On July 31,
2008 the Company entered into a source code license agreement whereby the
Company licensed to Mitel the source code for the Your Assistant product in
consideration of a payment of $650,000. Associated with the agreement are
ongoing license fees to be paid by Mitel of $13.50 per copy deployed, declining
to $9.00 per copy deployed after two years and declining from $9.00 to nil after
four years. In addition, the agreement provides Mitel with a first right to
match any third party offer to purchase the source code software and related
intellectual property. The Companys software license revenue for the three and
six months ended October 31, 2010, pursuant to the terms of these agreements,
was $109,580 and $262,325 (2009 - $134,903 and $269,141), respectively.

During the three and six months ended
October 31, 2010, the Company provided consulting services totalling $15,176 to
Wesley Clover, a company controlled by the Chairman of the Company.

As at October 31, 2010, the Company
had an accounts receivable balance from Mitel of $98,979 (April 30, 2010 -
$170,802).

During the three and six months ended
October 31, 2010, the Company through its wholly owned subsidiary, FirstHand
Technologies Inc., paid $19,615 and $39,231 (2009 - $18,642 and $37,284) to
Kanata Research Park Corporation (KRP) for leased office space. KRP is
controlled by the Companys Chairman.

In connection with a non-brokered
private placement which closed on October 29, 2010, the Company issued a
convertible debenture in the principal amount of $490,750 (CDN$500,000) to
Wesley Clover, a company controlled by the Chairman of the Company. The
debentures are convertible by the holder at any time prior to maturity, in whole
or in part into common shares of the Company at a conversion price of $1.37 per
share. The convertible debenture is unsecured, bearing interest at the prime
bank rate as quoted by the Bank of Montreal with interest payable monthly and
maturing on July 30, 2012. During the three and six months ended October 31,
2010, the Company paid interest of $81 and $81 to Wesley Clover towards interest
on convertible debentures.

In connection with a non-brokered
private placement of 3,333,334 units which closed on October 29, 2009, Wesley
Clover Corporation, a company controlled by the Chairman of the Company,
purchased 1,666,667 units, at a price of $0.56 (CDN$0.60) per unit, for
aggregate proceeds of $933,881 (CDN$1,000,000). Each unit consisted of one share
of common stock and one-half of one non-transferable common share purchase
warrant. Each whole warrant entitles the holder to purchase one share of common
stock at a price of $0.90 for a period of two years from the closing of the
private placement.

The above transactions are in the
normal course of operations and are recorded at amounts established and agreed
to between the related parties.

|Note 4 | Convertible Debentures
|------ | ----------------------

On July 30, 2010 and October 29, 2010,
the Company issued two convertible debentures in the principal amounts of
$483,300 and $490,750, respectively, to an investor. The debentures are
convertible by the holder, at any time prior to maturity, in whole or in part
into common shares of the Company at a conversion price of $1.00 per share. On
October 29, 2010, the Company issued a third convertible debenture in the
principal amount of $490,750 to a company controlled by the Chairman of the
Company. The debenture is convertible by the holder at any time prior to
maturity, in whole or in part into common shares of the Company at a conversion
price of $1.37 per share. The three convertible debentures are unsecured,
bearing interest at the prime bank rate as quoted by the Bank of Montreal with
interest payable monthly and maturing on July 30, 2012.

14

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 4 | Convertible Debentures  (contd)
|------ | ---------------------------------

The convertible debentures may all be
prepaid in whole or in part by the Company by paying 105% of the principal to be
prepaid together with accrued and unpaid interest on or before July 30, 2011, or
by paying 102.5% of the principal to be prepaid together with accrued and unpaid
interest between July 31, 2011 and April 30, 2012, or by paying 100% of the
principal to be prepaid together with accrued and unpaid interest between May 1,
2012 and July 30, 2012.

The Company has considered the
guidance in the Debt topic of the FASB Codification, and has determined that the
convertible debentures issued on October 29, 2010 contain a beneficial
conversion feature, as the fair value of the Companys common stock on the date
of issuance was greater than the initial conversion price. Accordingly, the
Company allocated $765,964 to the convertible debentures and $215,536 to the
beneficial conversion feature. The amounts allocated to the beneficial
conversion feature represent a discount on the debt financing which is accreted
to income over the term of the debt.

The convertible debentures issued on
July 30, 2010 did not contain a beneficial conversion feature, as the fair value
of the Companys common stock on the date of issuance was equal to or less than
the initial conversion price.

|Note 5 | Exchangeable Shares
|------ | -------------------

On August 2, 2007, the Company entered
into a voting and exchange trust agreement among its subsidiary, 6789722 Canada
Inc., and Valiant Trust Company whereby the Company issued and deposited with
Valiant Trust a special preferred voting share of the Company in order to enable
Valiant Trust to execute certain voting and exchange rights as trustee from time
to time for and on behalf of the registered holders of the preferred shares of
6789722 Canada Inc. Each preferred share of 6789722 Canada Inc. is exchangeable
into one share of common stock of the Company at the election of the
shareholder, or, in certain circumstances, of the Company.

On April 27, 2010, the Company issued
4,424 shares of common stock pursuant to a holder of 4,424 shares of
exchangeable preferred shares of its subsidiary 6789722 Canada Inc. exercising
their exchange rights. On May 14, 2010, the Company issued 50,000 shares of
common stock pursuant to a holder of 50,000 shares of exchangeable preferred
shares of its subsidiary 6789722 Canada Inc. exercising their exchange
rights.

There were 10,871 outstanding
exchangeable shares as of October 31, 2010 (April 30, 2009  60,871). As the
exchangeable shares have already been recognized in connection with the
acquisition of NewHeights, the value ascribed to these shares on exchange is
$nil.

|Note 6 | Common Stock
|------ | ------------

On March 19, 2008, the Companys Board
of Directors approved a five for one common stock consolidation. As a result,
the Company's authorized capital decreased from 415,384,500 shares of common
stock to 83,076,900 shares of common stock. All per share amounts and
outstanding shares, including all common stock equivalents (stock options and
warrants) have been retroactively adjusted in the Consolidated Financial
Statements and in the Notes to the Consolidated Financial Statements for all
periods presented to reflect the stock consolidation.

Stock Options

The Company has a stock option plan
under which options to purchase common shares of the Company may be granted to
employees, directors and consultants. Stock options entitle the holder to
purchase common stock at a subscription price determined by the Board of
Directors of the Company at the time of the grant. The options generally vest in
the amount of 12.5% on the date which is six months from the date of grant and
then beginning in the seventh month at 1/42 per month for 42 months, at which
time the options are fully vested.

The maximum number of shares of common
stock authorized by the stockholders and reserved for issuance by the Board of
Directors of the Company under the 2010 Stock Option Plan is 5,860,000.

15

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 6 | Common Stock  (contd)
|------ | -----------------------

Stock Options (contd)

The Company has elected to use the
Black-Scholes option pricing model to determine the fair value of stock options
granted. In accordance with ASC 718 for employees, the compensation expense is
amortized on a straight-line basis over the requisite service period which
approximates the vesting period. Compensation expense for stock options granted
to non-employees is amortized over the vesting period or, if none exists, over
the service period. Compensation associated with unvested options granted to
non-employees is remeasured on each balance sheet date using the Black-Scholes
option pricing model.

The expected volatility of options
granted has been determined using the method described under ASC 718 using the
historical stock price. The expected term of options granted to employees in the
current fiscal period has been determined utilizing the simplified method as
prescribed by ASC 718 Share-Based Payment. For non-employees, the expected term
of the options approximates the full term of the options. The risk-free interest
rate is based on a treasury instrument whose term is consistent with the
expected term of the stock options. The Company has not paid and does not
anticipate paying dividends on its 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, whereas prior to the adoption of ASC 718 the Company recorded
forfeitures based on actual forfeitures and recorded a compensation expense
recovery in the period when the awards were forfeited. As a result, based on the
Companys experience, the Company applied an estimated forfeiture rate of 15%
for the six month period ended October 31, 2010 and 2009 in determining the
expense recorded in the accompanying consolidated statement of operations.

The weighted-average fair value of
options granted during the six months ended October 31, 2010 was $0.66 (2009 -
$nil). The weighted-average assumptions utilized to determine such values are
presented in the following table:

| |                             |   | Six Months Ended |  |  | Six Months Ended | 
| | --------------------------- | - | ---------------- |  |  | ---------------- | 
| |                             |   | October 31, 2010 |  |  | October 31, 2009 | 
| | Risk-free interest rate     |   | 1.60%            |  |  | n/a              | 
| | Expected volatility         |   | 84.7%            |  |  | n/a              | 
| | Expected term               |   | 3.7 yrs          |  |  | n/a              | 
| | Dividend yield              |   | 0%               |  |  | n/a              | 
| | Weighted average fair value | $ | 0.66             |  |  | n/a              | 

The following is a summary of the
status of the Companys stock options as of October 31, 2010 and the stock
option activity during the six months ended October 31, 2010:

| |                                 |  |           |   |   | Weighted-average | 
| | ------------------------------- |  | --------- | - | - | ---------------- | 
| |                                 |  | Number of |   |   | Exercise Price   | 
| |                                 |  | Options   |   |   | per Share        | 
| | Outstanding at April 30, 2010   |  | 4,617,707 |   | $ | 1.03             | 
| | Granted                         |  | 20,000    |   | $ | 1.10             | 
| | Exercised                       |  | (47,920   | ) | $ | 0.47             | 
| | Forfeited/Cancelled             |  | (754,728  | ) | $ | 1.75             | 
| | Expired                         |  | (95,000   | ) | $ | 1.09             | 
| | Outstanding at October 31, 2010 |  | 3,740,059 |   | $ | 0.89             | 
| |                                 |  |           |   |   |                  | 
| | Exercisable at October 31, 2010 |  | 2,358,566 |   | $ | 1.08             | 
| | Exercisable at April 30, 2010   |  | 2,602,619 |   | $ | 1.32             | 

16

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 6 | Common Stock  (contd)
|------ | -----------------------

Stock Options  (contd)

The following table summarizes
information regarding stock purchase options outstanding as of October 31,
2010:



| |                  |  |  | Number of   |  |   | Aggregate |  |  |                                             |  |  | Number of   |  |   | Aggregate | 
| | ---------------- |  |  | ----------- |  | - | --------- |  |  | ------------------------------------------- |  |  | ----------- |  | - | --------- | 
| | Exercise         |  |  | Options     |  |   | Intrinsic |  |  |                                             |  |  | Options     |  |   | Intrinsic | 
| | Price            |  |  | Outstanding |  |   | Value     |  |  | Expiry Date                                 |  |  | Exercisable |  |   | Value     | 
| | $ 0.44           |  |  | 507,122     |  | $ | 491,908   |  |  | December 15, 2013                           |  |  | 231,500     |  | $ | 224,555   | 
| | $ 0.45           |  |  | 66,667      |  |   | 64,000    |  |  | February 9, 2015                            |  |  | 33,333      |  |   | 32,000    | 
| | $ 0.47           |  |  | 778,363     |  |   | 731,661   |  |  | January 1, 2011 to September
      26, 2016 |  |  | 742,175     |  |   | 697,645   | 
| | $ 0.49           |  |  | 20,000      |  |   | 18,400    |  |  | March 11, 2015                              |  |  | 2,917       |  |   | 2,684     | 
| | $ 0.60           |  |  | 576,188     |  |   | 466,712   |  |  | December 14, 2014                           |  |  | 134,422     |  |   | 108,882   | 
| | $ 0.62           |  |  | 850,000     |  |   | 671,500   |  |  | April 17, 2014                              |  |  | 318,750     |  |   | 251,813   | 
| | $ 0.65           |  |  | 30,000      |  |   | 22,800    |  |  | April 27, 2015                              |  |  | 3,750       |  |   | 2,850     | 
| | $ 1.10           |  |  | 20,000      |  |   | 6,200     |  |  | July 23, 2015                               |  |  |            |  |   |          | 
| | $ 1.90           |  |  | 66,719      |  |   |          |  |  | March 8, 2015                               |  |  | 66,719      |  |   |          | 
| | $ 1.95           |  |  | 339,000     |  |   |          |  |  | September 7, 2010 to January 10, 2016       |  |  | 339,000     |  |   |          | 
| | $ 2.00           |  |  | 246,000     |  |   |          |  |  | January 1, 2011 to February
      28, 2015  |  |  | 246,000     |  |   |          | 
| | $ 2.15           |  |  | 240,000     |  |   |          |  |  | September 7, 2016                           |  |  | 240,000     |  |   |          | 
| |                  |  |  |             |  |   |           |  |  |                                             |  |  |             |  |   |           | 
| | October 31, 2010 |  |  | 3,740,059   |  | $ | 2,473,181 |  |  |                                             |  |  | 2,358,566   |  | $ | 1,320,429 | 
| |                  |  |  |             |  |   |           |  |  |                                             |  |  |             |  |   |           | 
| | April 30, 2010   |  |  | 4,617,707   |  | $ | 895,060   |  |  |                                             |  |  | 2,602,619   |  | $ | 404,859   | 

The aggregate intrinsic value in the
precedin g table represents the total intrinsic value, based on the Companys
closing stock price of $1.41 per share as of October 31, 2010 (April 30, 2010 
$0.82), which would have been received by the option holders had all option
holders exercised their options as of that date. The total number of
in-the-money options vested and exercisable as of October 31, 2010 was 1,466,847
(April 30, 2010 1,239,933). The total intrinsic value of options exercised
during the six months ended October 31, 2010 was $45,052 (2009  $3,289). The
grant date fair value of options vested during the six months ended October 31,
2010 was $204,364 (2009  $208,931).

The following table summarizes
information regarding the non-vested stock purchase options outstanding as of
October 31, 2010.

| |                                              |  |                   |   |   | Weighted Average | 
| | -------------------------------------------- |  | ----------------- | - | - | ---------------- | 
| |                                              |  |                   |   |   | Grant-Date Fair  | 
| |                                              |  | Number of Options |   |   | Value            | 
| | Non-vested options at April
      30, 2010   |  | 2,015,088         |   | $ | 0.39             | 
| | Granted                                      |  | 20,000            |   | $ | 0.66             | 
| | Vested                                       |  | (406,469          | ) | $ | 0.50             | 
| | Forfeited/Cancelled                          |  | (247,126          | ) | $ | 0.52             | 
| | Non-vested options at October
      31, 2010 |  | 1,381,493         |   | $ | 0.34             | 

17

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 6 | Common Stock  (contd)
|------ | -----------------------

Stock Options  (contd)

As of October 31, 2010 there was
$421,189 (2009  $711,974 of total unrecognized compensation cost related to
unvested share-based compensation awards. This unrecognized compensation cost is
expected to be recognized over a weighted average period of 2.61 years (2009 
1.15 years).

Employee and non-employee stock-based
compensation amounts in respect of stock options classified in the Companys
consolidated statements of operations for the three and six months ended October
31, 2010 and 2009 are as follows:

| |                                |   | Three Months Ended |  |   | Six Months Ended | 
| | ------------------------------ | - | ------------------ |  | - | ---------------- | 
| |                                |   | October 31,        |  |   | October 31,      | 
| |                                |   | 2010               |  |   | 2009             | 
| | Cost of sales                  | $ | 3,590              |  | $ | 17,411           | 
| | Sales and marketing            |   | 16,450             |  |   | 17,724           | 
| | Research and development       |   | 8,091              |  |   | 23,896           | 
| | General and administrative     |   | 39,819             |  |   | 131,756          | 
| | Total stock-based compensation | $ | 67,950             |  | $ | 190,787          | 

Warrants

During the six months ended October
31, 2010, the Company entered into a warrant agreement, as amended with a
customer whereby the Company issued 1,000,000 stock purchase warrants as part of
a contract that the Company entered into with the customer. The warrants enable
the holder thereof the right to purchase up to 1,000,000 shares of the Companys
common stock, exercisable for two years at a price of $1.50 per share until July
30, 2012. Under an amendment agreement, 50% of the warrants vest on a
proportional basis to invoices delivered by the Company at the rate of one
warrant for every $3 invoiced and 50% vest on a change of control of the
Company. As the likelihood of a change of control was not determinable at the
time of revenue recognition, the value of the applicable warrants subject to
vesting on change of control was deemed to be nil during the three months ended
October 31, 2010. The warrants are held in trust and delivered once vested and
payment, as applicable, has been received by the Company. The fair value of the
372,222 stock purchase warrants that was charged to revenue during the six
months ended October 31, 2010 was $161,710 (2009 $nil). The remaining 627,778
warrants will be valued and charged against revenue pro rata as the remaining
revenue under the contract is recognized, or as a change of control of the
Company occurs, as applicable. The assumptions utilized to determine such value
of warrants issuable on a proportional basis to invoices delivered by the
Company are presented in the following table:

| |                             |   | Six Months Ended | 
| | --------------------------- | - | ---------------- | 
| |                             |   | October 31,      | 
| |                             |   | 2010             | 
| | Risk-free interest rate     |   | 0.34%            | 
| | Expected volatility         |   | 94.20%           | 
| | Expected term               |   | 1.75 yrs         | 
| | Dividend yield              |   | 0%               | 
| | Weighted average fair value | $ | 0.64             | 

18

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 6 | Common Stock  (contd)
|------ | -----------------------

Warrants (contd)

The following table summarizes
information regarding the warrants outstanding as of October 31, 2010:

| |                              |  |  |            |   |   | Weighted       |  |  |                                         | 
| | ---------------------------- |  |  | ---------- | - | - | -------------- |  |  | --------------------------------------- | 
| |                              |  |  | Number of  |   |   | Average        |  |  |                                         | 
| |                              |  |  | Warrants   |   |   | Exercise Price |  |  | Expiry Dates                            | 
| | Warrants at April 30, 2010   |  |  | 2,932,088  |   | $ | 1.50           |  |  | July 31, 2010 to October 29,
      2011 | 
| | Granted                      |  |  | 1,000,000  |   | $ | 1.50           |  |  | July 30, 2012                           | 
| | Expired                      |  |  | (1,265,421 | ) | $ | 2.25           |  |  | July 31, 2010 to October 28,
      2010 | 
| | Warrants at October 31, 2010 |  |  | 2,666,667  |   | $ | 1.12           |  |  | October 29, 2011 to July 30, 2012       | 

Employee Stock Purchase
Plan

Under the terms of the Employee Stock
Purchase Plan (ESPP), all regular salaried (non-probationary) employees may
purchase up to 6% of their base salary in shares of common stock of the Company
at market price. The Company matches 50% of the shares purchased by issuing up
to 3% of the respective employees base salary in shares.

A total of 700,000 shares have been
reserved for issuance under the ESPP. As of October 31, 2010, a total of 575,570
shares were available for issuance under the ESPP. During the six months ended
October 31, 2010, 36,422 shares were sold or issued to employees under the
ESPP.

Deferred Share Unit Plan

Under the terms of the Deferred Share
Unit Plan (DSUP), each deferred share unit is equivalent to one share of common
stock. The maximum number of shares of common stock that may be reserved for
issuance to any one participant pursuant to deferred share units granted under
the DSUP and any share compensation arrangement is 5% of the number of shares of
common stock of the Company outstanding at the time of reservation and, as
applicable, any grants of deferred share units to any one participant may not
exceed a value of $100,000 per annum on the date of grant without prior approval
of the TSX Venture Exchange. A deferred share unit (DSU) granted to a
participant who is a director of the board of the Company vests immediately on
the award date. A deferred share unit granted to a participant other than a
director generally vests as to one-third (1/3) of the number of deferred share
units granted on the first, second and third anniversaries of the award date.
Fair value of the DSUs, which is based on the closing price of the Companys
common stock on the date of grant, is recorded as compensation expense in the
period of grant.

A total of 2,000,000 shares have been
reserved for issuance under the DSUP. During the six months ended October 31,
2010, 822,500 deferred share units were issued under the DSUP, of which 650,000
were granted to officers and 172,500 were granted to non-employee directors. As
of October 31, 2010, a total of 657,339 shares were available for issuance under
the DSUP.

The following table summarizes the
Companys outstanding DSU awards as of October 31, 2010, and changes during the
period then ended:

19

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 6 | Common Stock  (contd)            
|------ | -----------------------------------
|       |                                    
|       | Deferred Share Unit Plan  (contd)

| |                                             |  |                 |  |   | Weighted Average Grant   | 
| | ------------------------------------------- |  | --------------- |  | - | ------------------------ | 
| |                                             |  | Number of DSUs |  |   | Date Fair Value Per Unit | 
| | DSUs outstanding at April
      30, 2010   |  | 520,161         |  | $ | 0.60                     | 
| | Granted                                     |  | 822,500         |  | $ | 0.68                     | 
| | DSUs outstanding at October
      31, 2010 |  | 1,342,661       |  | $ | 0.65                     | 

As of October 31, 2010 there was
$272,574 (2009  $nil) of total unrecognized compensation cost related to
unvested deferred share units awards. This unrecognized compensation cost is
expected to be recognized over a weighted average period of 2.49 years (2009 
nil).

Employee and non-employee deferred
share unit based compensation amounts classified in the Companys consolidated
statements of operations for the three and six months ended October 31, 2010 and
2009 are as follows:

| |                                              |   | Three Months Ended |  |   | Six Months Ended | 
| | -------------------------------------------- | - | ------------------ |  | - | ---------------- | 
| |                                              |   | October 31,        |  |   | October 31,      | 
| |                                              |   | 2010               |  |   | 2009             | 
| | General and administrative                   | $ | 213,349            |  | $ |                 | 
| | Total deferred share unit-based compensation | $ | 213,349            |  | $ |                 | 

|Note 7 | Segmented Information                                                                                                                                                                                                                                                                                                                                                                       
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                             
|       | The Companys chief operating decision maker reviews
      financial information presented on a consolidated basis, accompanied by
      desegregated information about revenues by geographic region for purposes
      of making operating decisions and assessing financial performance.
      Accordingly, the Company has concluded that it has one reportable
      operating segment.
|       |                                                                                                                                                                                                                                                                                                                                                                                             
|       | Foreign revenues are based on the country in which the
      customer is located. The following is a summary of  total
      revenues by geographic area for the three and six months ended October 31,
      2010 and 2009:                                                                                                                                                                

| |                 |   | Three Months Ended |  |   | Six Months Ended | 
| | --------------- | - | ------------------ |  | - | ---------------- | 
| |                 |   | October 31,        |  |   | October 31,      | 
| |                 |   | 2010               |  |   | 2009             | 
| | North America   | $ | 1,576,454          |  | $ | 1,147,134        | 
| | Europe          |   | 640,810            |  |   | 509,036          | 
| | Asia and Africa |   | 117,337            |  |   | 138,561          | 
| | Latin America   |   | 233,062            |  |   | 105,876          | 
| |                 | $ | 2,567,663          |  | $ | 1,900,607        | 

20

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 7 | Segmented Information  (contd)
|------ | --------------------------------

Contained within the results of North
America for the three and six months ended October 31, 2010 are revenues from
the United States of $1,260,862 and $2,433,408 (2009 - $992,735 and $2,079,841)
respectively and from Canada of $315,592 and $520,642 (2009 - $154,399 and
$316,492) respectively.

Contained within the results of Europe
for the three and six months ended October 31, 2010 are revenues from the United
Kingdom of $386,705 and $795,118 (2009 - $114,942 and $173,219) respectively,
from Germany of $33,549 and $84,235 (2009 - $72,054 and $204,916) respectively,
and from Italy of $45,527 and $55,808 (2009 - $22,784 and $32,646)
respectively.

Contained within the results of Asia
and Africa for the three and six months ended October 31, 2010 are revenues from
Japan of $57,423 and $60,246 (2009 - $14,645 and $24,858) respectively, from
Australia of $20,792 and $43,473 (2009 - $14,917 and $26,181) respectively, and
from China of $1,760 and $41,303 (2009 - $8,288 and $17,063) respectively.

Contained within the results of Latin
America for the three and six months ended October 31, 2010 are revenues from
Chile of $115,527 and $121,598 (2009 - $3,926 and $9,008) respectively, from
Mexico of $78,428 and $116,499 (2009 - $49,689 and $121,431) respectively, and
from Colombia of $11,982 and $23,493 (2009 - $11,387 and $32,013)
respectively.

All of the Companys long-lived
assets, which include equipment, intangible assets, goodwill and other assets,
are located in Canada and the United States as follows:

| |               |   | As at            | 
| | ------------- | - | ---------------- | 
| |               |   | October 31, 2010 | 
| | Canada        | $ | 9,915,388        | 
| | United States |   | 41,600           | 
| | Total         | $ | 9,956,988        | 

Revenue from significant customers for
the three months ended October 31, 2010 and 2009 is summarized as follows:

| |            |  | Three Months Ended |  |  | Six Months Ended | 
| | ---------- |  | ------------------ |  |  | ---------------- | 
| |            |  | October 31,        |  |  | October 31,      | 
| |            |  | 2010               |  |  | 2009             | 
| | Customer A |  | 17%                |  |  | 2%               | 
| | Customer B |  | 13%                |  |  | −%               | 
| | Customer C |  | 8%                 |  |  | 16%              | 
| |            |  | 38%                |  |  | 18%              | 

Accounts receivable balance for
Customer A was $453,279 as at October 31, 2010 (April 30, 2010 -$1,000,975).
Accounts receivable balance for Customer B was $350,000 as at October 31, 2010
(April 30, 2010 - $nil). Accounts receivable balance for Customer C was $235,000
as at October 31, 2010 (April 30, 2010 - $30,000).

21

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 8 | Commitments
|------ | -----------

| | a) | On March 14, 2008 the Company entered into a lease for
      accommodation which commenced on April 1, 2008 and expired on March 31,
      2009. On January 14, 2010, the Company entered into extension agreement on
      this lease for the third time which commenced on April 1, 2010 and expires
      March 31, 2011. The monthly lease payment under the extension agreement is
      $2,339.                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | b) | On April 29, 2005, the Company entered into a lease for
      office premises, which commenced on October 1, 2005 and expires on
      September 30, 2012 for which a deposit of $9,745 was made. The monthly
      lease payment under this agreement is $9,745 plus $8,538 in operating
      costs. The Company is subleasing part of these premises for a monthly
      charge of $7,367. The sublease commenced on August 1, 2007 and expires on
      September 30, 2012. On July 17, 2009, the Company signed a new subleasing
      agreement for another part of these premises, which commenced on August 1,
      2009 and expires September 30, 2012. The monthly charge under this
      subleasing agreement is $3,156 (CDN$3,216) plus $3,112 (CDN$3,171) in
      operating costs.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | c) | On July 10, 2006, the Company entered into a lease for
      our head office premises of 15,559 square feet, which commenced on
      December 1, 2006 and expires on September 29, 2011 for which a deposit of
      $81,293 was made. The monthly lease payment under this agreement is
      $22,907 plus $21,558 in operating costs. Management believes that this
      office space is adequate for the operations of the Company for the
      foreseeable future.                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | d) | On May 1, 2009 the Company modified its existing lease
      agreement for office premises, as a result of which it surrendered a
      substantial part of the previously leased area. The new agreement
      commenced on May 1, 2009 and expires on April 20, 2012. The monthly lease
      payment under this agreement is $6,538. This lease expense is a related
      party transaction as it was incurred with a company with a director in
      common with the Company.                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | e) | On March 12, 2009, the Company and its wholly-owned
      subsidiary, CounterPath Technologies Inc., entered into a settlement
      agreement with a founder and former officer of the Company. Under the
      settlement agreement, the Company will pay a total of $485,843
      (CDN$495,000) over 45 months at a rate of CDN$11,000 per month and pay for
      health benefits for 21 months from the date of the agreement.                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | f) | On July 29, 2010, the Company entered into extension of
      an existing lease agreement which commenced on August 1, 2010 and expires
      on July 31, 2011. The monthly lease payment under the new extension
      agreement is $7,275.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Total payable over the term of the agreements for the
      years ended April 30 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |      |   |                 |  |   | Office Leases |  |   |           |   |   |              |  |   |            | 
| | ---- | - | --------------- |  | - | ------------- |  | - | --------- | - | - | ------------ |  | - | ---------- | 
| |      |   | Office Leases  |  |   |  Unrelated   |  |   | Sub Lease |   |   | Total Office |  |   | Settlement | 
| |      |   | Related Party   |  |   | Party         |  |   | Income    |   |   | Leases       |  |   | Agreement  | 
| | 2011 | $ | 39,231          |  | $ | 431,831       |  | $ | (81,815   | ) | $ | 389,247      |  | $ | 64,779     | 
| | 2012 |   | 78,461          |  |   | 463,546       |  |   | (163,629  | ) |   | 378,378      |  |   | 129,558    | 
| | 2013 |   |                |  |   | 91,416        |  |   | (68,179   | ) |   | 23,237       |  |   | 80,974     | 
| |      | $ | 117,692         |  | $ | 986,793       |  | $ | (313,623  | ) | $ | 790,862      |  | $ | 275,311    | 

22

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 9 | Contingent Liability
|------ | --------------------

On February 17, 2006, a competitor
filed a statement of claim in the Supreme Court of British Columbia claiming
among other things, general, punitive and aggravated damages of unspecified
amounts with respect to alleged business ethics matters. Management of the
Company believes that the claim is without foundation or merit. Any loss as a
result of this claim will be recorded in the period that the loss is probable
and measurable.

|Note 10 | Restructuring
|------- | -------------

The Company incurred no restructuring
costs for the three and six months ended October 31, 2010. The Company incurred
restructuring costs of $44,912 during the six months ended October 31, 2009, as
a result of the Companys post acquisition activities. Restructuring costs were
related to employee severance arrangements as a result of the consolidation of
administrative, sales, marketing, and research and development departments after
the close of acquisitions of NewHeights Software Corporation, FirstHand
Technologies Inc. and BridgePort Networks, Inc. These charges are shown as a
separate line item in the consolidated statement of operations.

|Note 11 | Derivative Instruments and Hedging
      Activities
|------- | ---------------------------------------------------

In the normal course of business, the
Company is exposed to fluctuations in interest rates and the exchange rates
associated with foreign currencies. The Companys primary objective for holding
derivative financial instruments is to manage foreign currency exchange rate
risk.

Foreign Currency Exchange Rate
Risk

A majority of the Companys revenue
activities are transacted in U.S. dollars. However, the Company is exposed to
foreign currency exchange rate risk inherent in conducting business globally in
numerous currencies, of which the most significant to its operations for the six
months ended October 31, 2010 is the Canadian dollar. The Company is primarily
exposed to a strengthening Canadian dollar as its operating expenses are
primarily denominated in Canadian dollars while its revenues are primarily
denominated in U.S. dollars. The Companys foreign currency risk management
program includes foreign currency derivatives with cash flow hedge accounting
designation that utilizes foreign currency forward contracts to hedge exposures
to the variability in the U.S. dollar equivalent of anticipated non-U.S.
dollar-denominated cash flows. These instruments generally have a maturity of
less than one year. For these derivatives, the Company reports the after-tax
gain or loss from the effective portion of the hedge as a component of
accumulated other comprehensive income (loss) in stockholders equity and
reclassifies it into earnings in the same period in which the hedged transaction
affects earnings, and within the same line item on the consolidated statements
of operations as the impact of the hedged transaction.

Volume of Derivative
Activity

Total gross notional amounts for
foreign currency forward contracts, presented by currency, are as follows:

| |                 |   | Six Months Ended | 
| | --------------- | - | ---------------- | 
| | In U.S. dollars |   | October 31,      | 
| |                 |   | 2010             | 
| | Canadian dollar | $ | −                | 
| | Total           | $ | −                | 

The fair value of forward contracts as
of October 31, 2010 was $nil, as all forward contracts have since been
settled.

23

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 12 | Gain on Settlement of Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | During the six-month period ended October 31, 2010, the
      Company recorded a gain on settlement of debt of $246,715 as a result of
      the transfer of certain of non-core intellectual property rights licensed
      from an institution (having no book value) in settlement of a $246,715
      liability for research fees performed by the institution.                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Note 13 | Subsequent Event                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | On December 14, 2010, the Company granted 685,000 stock
      options pursuant to its 2010 Stock Option Plan. Of the stock options,
      40,000 options were issued each to two directors and a total of 605,000
      options were issued to various employees and contractors. Each stock option
      entitles the holder thereof the right to purchase one share of common
      stock at $ 1.90 under the terms and conditions of the plan. The options
      vest in the amount of 12.5% on the date which is six months from the date
      of grant and then beginning in the seventh month at 1/42 per month for 42
      months, at which time the options are fully vested.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Note 14 | Restatement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

As a result of an internal review by
the management, audit committee and auditors, the Company has restated its
annual audited consolidated financial statements as at April 30, 2009 and 2010
and for the years then ended and its unaudited interim consolidated financial
statements for the three and six-month period ended October 31, 2009 to correct
a computational error in accounting for intangible assets and the accounting for
the over-accrual for certain estimated costs. These combined changes did not affect the basic and diluted loss per share, and the cash flow of the Company for the three and six months ended October 31, 2010.

| | a) | Foreign Currency Translation of Intangible
      Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Subsequent to the issue of the April 30, 2010
      consolidated financial statements, the Company has corrected a
      computational error in translating Canadian dollar denominated intangible
      assets to United States dollar denominated assets and the related revision
      to the impairment of intangible assets charge taken in fiscal year 2009.
      These adjustments result in an increase in cost of sales and net loss of
      $1,560 and $3,035 for the three and six months ending October 31, 2009.
      The adjustments also result in a decrease in the foreign currency
      translation adjustment of $87,674 and $768,898 for the three and six-month
      periods ended October 31, 2009. In addition the adjustments resulted in an
      increase in comprehensive loss of $89,234 and $771,933 for the three and
      six months ended October 31, 2009.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | b) | Overstatement of Accrued Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Subsequent to the issue of the April 30, 2010
      consolidated financial statements, the Company determined that it
      overstated the accrual of its estimated royalty costs for certain third
      party software. Therefore, the Company has corrected the error in
      recording the cost of sales and the related accrued liabilities. These
      adjustments result in a decrease in cost of sales, net loss and
      comprehensive loss of $28,043 and $46,525 for the three and six-month
      periods ended October 31, 2009.                                                                                                                                                                                                                                                                                                                                                 

24

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|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|October 31, 2010                                            
|(Unaudited)                                                 

|Note 14 | Restatement  (contd)
|------- | ----------------------

The following represents the effect of
the restatements to the interim consolidated statements of operations and
comprehensive loss for the three and six-month periods ended October 31,
2009:

| |                                                 |  |   | As Previously |   |   | Adjustment |   |   |         |  
| | ----------------------------------------------- |  | - | ------------- | - | - | ---------- | - | - | ------- | -
| | For the six
      months ended October 31, 2009 |  |   | Recorded      |   |   | (a)        |   |   | (b)     |  
| | Cost of sales                                   |  | $ | 1,370,602     |   | $ | 3,035      |   | $ | (46,525 | )
| | Loss from operations                            |  |   | (2,634,031    | ) |   | (3,035     | ) |   | 46,525  |  
| | Net loss for the period                         |  |   | (2,995,889    | ) |   | (3,035     | ) |   | 46,525  |  
| | Foreign currency translation adjustment         |  |   | 2,453,295     |   |   | (768,898   | ) |   |        |  
| | Comprehensive loss                              |  |   | (542,594      | ) |   | (771,933   | ) |   | 46,525  |  

| |                                                   |  |   | As Previously |   |   | Adjustment |   |   |         |  
| | ------------------------------------------------- |  | - | ------------- | - | - | ---------- | - | - | ------- | -
| | For the three
      months ended October 31, 2009 |  |   | Recorded      |   |   | (a)        |   |   | (b)     |  
| | Cost of sales                                     |  | $ | 727,874       |   | $ | 1,560      |   | $ | (28,043 | )
| | Loss from operations                              |  |   | (1,795,316    | ) |   | (1,560     | ) |   | 28,043  |  
| | Net loss for the period                           |  |   | (1,753,553    | ) |   | (1,560     | ) |   | 28,043  |  
| | Foreign currency translation adjustment           |  |   | 342,399       |   |   | (87,674    | ) |   |        |  
| | Comprehensive loss                                |  |   | (1,411,154    | ) |   | (89,234    | ) |   | 28,043  |  

25

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

Forward-Looking Statements

This quarterly report contains
forward-looking statements as that term is defined in Section 27A of the United
States Securities Act of 1933 and Section 21E of the United States Securities
Exchange Act of 1934. These statements relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as may, should, intends, expects,
plans, anticipates, believes, estimates, predicts, potential, or
continue or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
Risk Factors, which may cause our or our industrys actual results, levels of
activity or performance to be materially different from any future results,
levels of activity or performance expressed or implied by these forward-looking
statements.

Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity or performance. 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 quarterly report,
the terms we, us and our means CounterPath Corporation, unless otherwise
indicated.

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 quarterly
report. This discussion and analysis contains forward-looking statements that
involve risk, uncertainties and assumptions.

Background

We were incorporated under the
laws of the State of Nevada on April 18, 2003. Following incorporation, we
commenced the business of operating an entertainment advertising website. On
April 30, 2004, we changed our business following the merger of our company with
Xten Networks, Inc., a private Nevada company. Xten Networks was incorporated
under the laws of the State of Nevada on October 28, 2002. As a result of the
merger, we acquired all of the issued and outstanding shares in Xten Networks in
exchange for agreeing to issue 3,600,000 shares of our common stock to the
stockholders of Xten Networks. The stockholders of Xten Networks were entitled
to receive two shares of our common stock for each one share of Xten
Networks.

On August 26, 2005, we entered
into an agreement and plan of merger with Ineen, Inc., our wholly-owned
subsidiary, whereby Ineen merged with and into our company, with our company
carrying on as the surviving corporation under the name CounterPath Solutions,
Inc.

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 are exchangeable into 369,836
shares of common stock. For accounting purposes, our company was deemed to be
the acquirer of NewHeights based on certain factors including the number of
common shares issued in the transaction as a proportion of the total common
shares outstanding, and the composition of the board after the transaction.

On October 17, 2007, we changed our name from CounterPath
Solutions, Inc. to CounterPath Corporation.

On February 1, 2008, we acquired
all of the shares of FirstHand Technologies Inc. through the issuance of
5,900,014 shares of our common stock. For accounting purposes, our company was
deemed to be the acquirer of FirstHand based on certain factors including the
number of common shares issued in the transaction as a proportion of the total
common shares outstanding, and the composition of the board after the
transaction.

26

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On February 1, 2008, we acquired
BridgePort Networks, Inc. a private Delaware corporation, by way of merger in
consideration for the assumption of all of the assets and liabilities of
BridgePort. For accounting purposes, our company was deemed to be the acquirer
of BridgePort based on certain factors primarily being the composition of the
board after the transaction.

On February 5, 2008, our
company's wholly-owned subsidiaries, NewHeights and CounterPath Solutions
R&D Inc. were merged as a wholly-owned subsidiary of our company under the
name CounterPath Technologies Inc.

On March 19, 2008, our board of
directors approved a five for one common stock consolidation. As a result, our
authorized capital decreased from 415,384,500 shares of common stock to
83,076,900 shares of common stock. The par value of the common stock was
unaffected by the stock consolidation and remains at $0.001 per share. All per
share amounts and outstanding shares, including all common stock equivalents
(stock options and warrants) have been retroactively adjusted in the
consolidated financial statements and in the notes to the consolidated financial
statements for all periods presented to reflect the stock consolidation.

Our common shares are quoted for
trading on the Over-The-Counter Bulletin Board in the United States of America
and on the TSX Venture Exchange in Canada.

Business of CounterPath

Our business focuses on the
design, development, marketing and sales of desktop 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 primarily to carriers, original equipment manufacturers and
businesses in North America, Central and South America, Europe and Asia. 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
software to our customers to allow such customers to deliver session initiation
protocol and voice over Internet protocol (VoIP) services. Customers that we are
targeting include: (1) large incumbent telecommunications service providers,
Internet telephony service providers and content providers, (2) original
equipment manufacturers serving the telecommunication market, (3) small, medium
and large sized businesses and (4) end users. Our software enables voice
communication from the end user through the network to another end user and
enables the service provider to deliver other streaming content to end users
such as video, radio or the weather. Our acquisitions of FirstHand Technologies
Inc. and BridgePort Networks, Inc. in February 2008 expanded our product
portfolio of our company to include fixed-mobile-convergence applications for
the enterprise and telecom service provider markets.

Revenue

We derive revenue from the sale
of software licenses and software customization and services associated with
software such as technical support services, implementation and training. We
recognize software and services revenue at the time of delivery, provided all
other revenue recognition criteria have been met.

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 ratably 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 distribution
partners. Our distribution partners include networking and telecommunications
equipment vendors throughout the world.

27

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The amount of product
configuration and customization, which reflects the requested features,
determines the price for each sale. The number of software licenses purchased
will have a direct impact on the average selling price. Services 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, general and
administrative expenses, and restructuring costs. Personnel-related costs are
generally the most significant component of each of these expense categories.

Cost of sales primarily consists
of: (a) salaries and related personnel costs including stock-based compensation,
(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, which is management's
estimate of the useful life of the customer asset.

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 suppliers 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 related personnel costs
including stock-based compensation related to our executive, finance, human
resource and information technology functions, (b) accounting, legal and
regulatory fees and (c) other related overhead.

Restructuring costs are post
acquisition activities related to the acquisition of NewHeights Software
Corporation, FirstHand Technologies Inc. and Bridgeport Networks, Inc. We
incurred restructuring costs related to employee severance agreements as a
result of post acquisition consolidation of administration, sales and marketing
and research and development departments. At October 31, 2010 we have a
restructuring accrual for severance of $nil.

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 quarterly report.

28

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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.

Basis of Presentation

The consolidated financial
statements include the accounts of our company and our wholly-owned
subsidiaries, CounterPath Technologies Inc., a company existing under the laws
of the province of British Columbia, Canada, FirstHand Technologies Inc.,
continued under laws of the province of British Columbia, BridgePort Networks,
Inc. incorporated under the laws of the state of Delaware and 6789722 Canada
Inc., incorporated under the Canada Business Corporations Act. The results of
NewHeights Software Corporation (which subsequently merged with another
subsidiary to become CounterPath Technologies Inc.) are included from August 2,
2007, the date of acquisition. The results of FirstHand Technologies Inc. and
BridgePort Networks, Inc. are included from February 1, 2008, the date of
acquisition. All inter-company transactions and balances have been
eliminated.

Interim Reporting

The information presented in the
accompanying interim consolidated financial statements is without audit pursuant
to the rules and regulations of the SEC. Certain information and footnote
disclosures normally included in the interim consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although we believe
that the disclosures are adequate to make the information presented not
misleading.

These statements reflect all
adjustments, which are, in the opinion of management, necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods presented in accordance with accounting principles generally
accepted in the United States of America. Except where noted, the interim
consolidated financial statements follow the same accounting policies and
methods of their application as our April 30, 2010 annual consolidated financial
statements. All adjustments are of a normal recurring nature. It is suggested
that these interim consolidated financial statements be read in conjunction with
our April 30, 2010 amended annual consolidated financial statements.

Operating results for the six
months ended October 31, 2010 are not necessarily indicative of the results that
can be expected for the year ending April 30, 2011.

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.

29

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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 ratably 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.

We have set up a warranty
provision in the amount of 2% of software sales, which is amortized over a
twelve-month term. We recognize this deferred revenue evenly over a twelve-month
period from the date of the sale.

Stock-Based Compensation

Stock options granted are
accounted for under ASC 718 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 178 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.

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
utilizing the simplified method as prescribed by the SEC's Staff Accounting
Bulletin No. 107, Share-Based Payment. 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 six months ended
October 31, 2010 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 six months ended October 31, 2010, we recorded an expense of
$581,784 in connection with share-based payment awards. A future expense of
non-vested options of $421,189 is expected to be recognized over a
weighted-average period of 2.61 years. A future expense of non-vested deferred
share units of $272,574 is expected to be recognized over a weighted-average
period of 2.49 years.

30

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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 accounts are periodically reviewed for
collectability on an individual basis.

Goodwill and Intangible Assets

We have a significant amount of
goodwill and 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 are comprised of acquired technologies and customer assets relating to
customer relationships. 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, which is 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.

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.

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 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 during the
fourth quarter of fiscal 2010, did not result in an impairment charge, nor did
we record any goodwill impairment for the six months ending October 31,
2010.

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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. During the fourth
quarter of fiscal 2009, we recorded an impairment charge of $3.10 million
consisting of $2.01 million for the intangible assets of NewHeights and $1.09
million for the intangible assets of FirstHand. During the fiscal year ended
April 30, 2010 and the most recent quarter ended October 31, 2010, management
concluded that there was no further impairment charge related to our intangible
assets.

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 three and six months ended October 31, 2010 consisted primarily of selling
our IP telephony software and related services to service providers and original
equipment manufacturers serving the telecom industry, and the continued
development of our IP telephony software products.

Selected Consolidated Financial Information

The following tables set out
selected consolidated unaudited financial information for the periods indicated.
The selected consolidated financial information set out below for the three and
six months ended October 31, 2010 and 2009, and as at October 31, 2010 and April
30, 2010 has been derived from the consolidated unaudited financial statements
and accompanying notes for the three and six months ended October 31, 2010 and
2009 and fiscal year ended April 30, 2010. Each investor should read the
following information in conjunction with those statements and the related notes
thereto. We believe the presentation of non-GAAP operating expenses provides
useful information to our investors. In particular, we disclose that we utilize
non-GAAP operating expenses to internally measure our operating performance and
also present such measure to allow investors to analyze our operating
performance utilizing the same measure as used by our management.

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|Selected Consolidated Statements of
      Operations Data |   |             |   |  | Three Months Ended October 31, |   |   |             |  
|--------------------------------------------------------- | - | ----------- | - |  | ------------------------------ | - | - | ----------- | -
|                                                          |   | 2010        |   |  | 2009                           |  
|                                                          |   | (Unaudited) |   |  | (Unaudited)                    |  
|                                                          |   |             |   |  | Percent of                     |   |   |             |  
|                                                          |   |             |   |  | Total                          |   |   |             |  
|                                                          |   | Amount      |   |  | Revenue                        |   |   | Amount      |  
|Revenue                                                   | $ | 2,567,663   |   |  | 100%                           |   | $ | 1,900,607   |  
|                                                          |   |             |   |  |                                |   |   |             |  
|Non-GAAP operating
      expenses1                        |   | 3,253,081   |   |  | 127%                           |   |   | 3,260,509   |  
|Stock-based compensation                                  |   | 281,299     |   |  | 11%                            |   |   | 190,787     |  
|Amortization of intangible
      assets                   |   | 209,920     |   |  | 8%                             |   |   | 218,144     |  
|GAAP operating expenses                                   |   | 3,744,300   |   |  | 146%                           |   |   | 3,669,440   |  
|                                                          |   |             |   |  |                                |   |   |             |  
|Loss from operations                                      |   | (1,176,637  | ) |  | (46%                           | ) |   | (1,768,833  | )
|Interest and other income,
      net                      |   | 286,892     |   |  | 11%                            |   |   | 33,811      |  
|Foreign exchange gain (loss)                              |   | 43,746      |   |  | 2%                             |   |   | 7,952       |  
|Net loss                                                  |   | ($845,999   | ) |  | (33%                           | ) |   | ($1,727,070 | )
|                                                          |   |             |   |  |                                |   |   |             |  
|Loss per share                                            |   | ($0.03      | ) |  |                                |   |   | ($0.06      | )
|                                                          |   |             |   |  |                                |   |   |             |  
|Weighted average common
      shares outstanding          |   | 33,113,474  |   |  |                                |   |   | 29,526,663  |  

| | 1. | Non-GAAP operating expense is equal to GAAP operating
      expense less stock-based compensation and amortization of intangible
      assets.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------

|Selected Consolidated Statements of
      Operations Data |   |             |   |  | Six Months Ended October 31, |  |   |             |  
|--------------------------------------------------------- | - | ----------- | - |  | ---------------------------- |  | - | ----------- | -
|                                                          |   | 2010        |   |  | 2009                         | 
|                                                          |   | (Unaudited) |   |  | (Unaudited)                  | 
|                                                          |   |             |   |  | Percent of                   |  |   |             |  
|                                                          |   |             |   |  | Total                        |  |   |             |  
|                                                          |   | Amount      |   |  | Revenue                      |  |   | Amount      |  
|Revenue                                                   | $ | 4,787,248   |   |  | 100%                         |  | $ | 3,951,064   |  
|                                                          |   |             |   |  |                              |  |   |             |  
|Non-GAAP operating
      expenses1                        |   | 6,417,778   |   |  | 134%                         |  |   | 5,705,612   |  
|Stock-based compensation                                  |   | 581,784     |   |  | 12%                          |  |   | 410,402     |  
|Amortization of intangible
      assets                   |   | 418,392     |   |  | 9%                           |  |   | 425,591     |  
|GAAP operating expenses                                   |   | 7,417,954   |   |  | 155%                         |  |   | 6,541,605   |  
|                                                          |   |             |   |  |                              |  |   |             |  
|Loss from operations                                      |   | (2,630,706  | ) |  | 55%                          |  |   | (2,590,541  | )
|Interest and other income,
      net                      |   | 338,750     |   |  | 7%                           |  |   | 59,903      |  
|Foreign exchange gain (loss)                              |   | 15,700      |   |  | −%                           |  |   | (421,761    | )
|Net loss                                                  |   | ($2,276,256 | ) |  | 48%                          |  |   | ($2,952,399 | )
|                                                          |   |             |   |  |                              |  |   |             |  
|Loss per share                                            |   | ($0.07      | ) |  |                              |  |   | ($0.10      | )
|                                                          |   |             |   |  |                              |  |   |             |  
|Weighted average common
      shares outstanding          |   | 33,089,839  |   |  |                              |  |   | 29,247,497  |  

| | 1. | Non-GAAP operating expense is equal to GAAP operating
      expense less stock-based compensation and amortization of intangible
      assets.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------

33

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|                                         |   | October 31, 2010 |  |   |                | 
|---------------------------------------- | - | ---------------- |  | - | -------------- | 
|Selected Consolidated Balance Sheet Data |   | (Unaudited)      |  |   | April 30, 2010 | 
|Cash                                     | $ | 2,184,011        |  | $ | 1,556,813      | 
|Current assets                           |   | 4,704,717        |  |   | 4,252,772      | 
|Current liabilities                      |   | 3,116,347        |  |   | 3,095,139      | 
|Total liabilities                        |   | 4,467,648        |  |   | 3,198,391      | 
|Total assets                             | $ | 14,762,648       |  | $ | 14,939,117     | 

Revenue

|                  |   | **Three Months Ended October 31,** |  |  |             |  |   |                         | 
|----------------- | - | ---------------------------------- |  |  | ----------- |  | - | ----------------------- | 
|                  |   | 2010                               |  |  | 2009        |  |   |                         | 
|                  |   | (Unaudited)                        |  |  | (Unaudited) |  |   | Period-to-Period Change | 
|                  |   |                                    |  |  | Percent     |  |   |                         | 
|                  |   |                                    |  |  | of Total    |  |   |                         | 
|                  |   | Amount                             |  |  | Revenue     |  |   | Amount                  | 
|Revenue by Type   |   |                                    |  |  |             |  |   |                         | 
|Software          | $ | 1,751,317                          |  |  | 68%         |  | $ | 1,451,826               | 
|Service           |   | 816,346                            |  |  | 32%         |  |   | 448,781                 | 
|Total revenue     | $ | 2,567,663                          |  |  | 100%        |  | $ | 1,900,607               | 
|                  |   |                                    |  |  |             |  |   |                         | 
|Revenue by Region |   |                                    |  |  |             |  |   |                         | 
|International     | $ | 991,209                            |  |  | 39%         |  | $ | 753,473                 | 
|North America     |   | 1,576,454                          |  |  | 61%         |  |   | 1,147,134               | 
|Total revenue     | $ | 2,567,663                          |  |  | 100%        |  | $ | 1,900,607               | 

For the three months ended
October 31, 2010, we generated $2,567,663 in revenue compared to $1,900,607 for
the three months ended October 31, 2009. This represents an increase of $667,056
or 35% from the same period last year. Revenues of $2,567,663 are net of a
$24,776 non-cash charge representing the fair value of 38,889 warrants that were
charged against revenue during the quarter. In total, 1,000,000 warrants with a
term of two years were issued to a customer as part of a contract entered into
on July 30, 2010, enabling the customer to acquire shares of common stock for a
period of up to two years at an exercise price of $1.50 per share of common
stock. The warrants were valued using methodology as outlined in note 6 to the
consolidated unaudited financial statements. We generated $1,751,317 in software
revenue for the three months ended October 31, 2010 compared to $1,451,826 for
the three months ended October 31, 2009, representing an increase of $299,491 or
21%. The increase in software revenue was primarily due to increases in sales of
our products to original equipment manufacturers. For the three months ended
October 31, 2010, service revenue was $816,346 compared to $448,781 for the
three months ended October 31, 2009. The increase of $367,565 in service revenue
was primarily due to the increase in sales of professional engineering and
customization work which typically grows as software sales grow. In addition, we
provided professional engineering services worth approximately $325,000 to one
customer during the three months ended October 31, 2010. International revenue
outside of North America increased by 32% during the three months ended October
31, 2010 compared to the three months ended October 31, 2009, due to an overall
increase in sales in the period. North American revenue increased by 37%,
compared to the three months ended October 31, 2009, due primarily to an
increase in sales of software and services to North American original equipment
manufacturers.

|                |   | **Six Months Ended October 31,** |  |  |             |  |   |                         | 
|--------------- | - | -------------------------------- |  |  | ----------- |  | - | ----------------------- | 
|                |   | 2010                             |  |  | 2009        |  |   |                         | 
|                |   | (Unaudited)                      |  |  | (Unaudited) |  |   | Period-to-Period Change | 
|                |   |                                  |  |  | Percent     |  |   |                         | 
|                |   |                                  |  |  | of Total    |  |   |                         | 
|                |   | Amount                           |  |  | Revenue     |  |   | Amount                  | 
|Revenue by Type |   |                                  |  |  |             |  |   |                         | 
|Software        | $ | 3,570,469                        |  |  | 75%         |  | $ | 2,593,169               | 
|Service         |   | 1,216,779                        |  |  | 25%         |  |   | 1,357,895               | 
|Total revenue   | $ | 4,787,248                        |  |  | 100%        |  | $ | 3,951,064               | 

34

---

|                  |   | **Six Months Ended October 31,** |  |  |             |  |   |                         | 
|----------------- | - | -------------------------------- |  |  | ----------- |  | - | ----------------------- | 
|                  |   | 2010                             |  |  | 2009        |  |   |                         | 
|                  |   | (Unaudited)                      |  |  | (Unaudited) |  |   | Period-to-Period Change | 
|                  |   |                                  |  |  | Percent     |  |   |                         | 
|                  |   |                                  |  |  | of Total    |  |   |                         | 
|                  |   | Amount                           |  |  | Revenue     |  |   | Amount                  | 
|Revenue by Region |   |                                  |  |  |             |  |   |                         | 
|International     | $ | 1,833,198                        |  |  | 38%         |  | $ | 1,554,731               | 
|North America     |   | 2,954,050                        |  |  | 62%         |  |   | 2,396,333               | 
|Total revenue     | $ | 4,787,248                        |  |  | 100%        |  | $ | 3,951,064               | 

For the six months ended October
31, 2010, we generated $4,787,248 in revenue compared to $3,951,064 for the six
months ended October 31, 2009. This represents an increase of $836,184 or 21%
from the same period last year. Revenues of $4,787,248 are net of a $161,710
non-cash charge representing the fair value of 372,222 warrants that were
charged against revenue during the six months ended October 31, 2010. In total,
1,000,000 warrants with a term of two years were issued to a customer as part of
a contract entered into on July 30, 2010, enabling the customer to acquire
shares of common stock for a period of up to two years at an exercise price of
$1.50 per share of common stock. The warrants were valued using the methodology
as outlined in note 6 to the consolidated unaudited financial statements. We
generated $3,570,469 in software revenue for the six months ended October 31,
2010 compared to $2,593,169 for the six months ended October 31, 2009,
representing an increase of $977,300 or 38%. The increase in software revenue
was primarily due to increases in sales of our products to original equipment
manufacturers. For the six months ended October 31, 2010, service revenue was
$1,216,779 compared to $1,357,895 for the six months ended October 31, 2009. The
decrease of $141,116 in service revenue was primarily due to the
disproportionately high amount of professional engineering and customization
work incurred in the first quarter of fiscal 2009, relative to software sales.
International revenue outside of North America increased by 18% during the six
months ended October 31, 2010 compared to the six months ended October 31, 2009,
due to an overall increase in sales in the period. North American revenue
increased by 23%, compared to the six months ended October 31, 2009, due
primarily to an increase in sales of software and services to North American
original equipment manufacturers.

Operating Expenses

Cost of Sales

Cost of sales for the three and six months ended October 31,
2010 and 2009 were as follows:

|                   |   |                  |  |  |                    |  |   | October 31, 2009        |  |  |         |  |   |         |  
|------------------ | - | ---------------- |  |  | ------------------ |  | - | ----------------------- |  |  | ------- |  | - | ------- | -
|                   |   | October 31, 2010 |  |  | Restated  Note 14 |  |   |                         |  |  |         | 
|                   |   | (Unaudited)      |  |  | (Unaudited)        |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent            |  |   |                         |  |  | Percent |  |   |         |  
|                   |   |                  |  |  | of                 |  |   |                         |  |  | of      |  |   |         |  
|                   |   | Amount           |  |  | Revenue            |  |   | Amount                  |  |  | Revenue |  |   | Amount  |  
|Three months ended | $ | 695,822          |  |  | 27%                |  | $ | 701,391                 |  |  | 37%     |  |   | ($5,569 | )
|Six months ended   | $ | 1,444,684        |  |  | 30%                |  | $ | 1,327,112               |  |  | 34%     |  | $ | 117,572 |  

Cost of sales was $695,822 for
the three months ended October 31, 2010 compared to $701,391 for the three
months ended October 31, 2009. The decrease of $5,569 was primarily attributable
to a decrease in licences and permits of approximately $92,000. This was offset
by increases in wages and benefits of approximately $72,000. Cost of sales for
the three months ended October 31, 2010 includes $209,920 (2009 − $218,144)
representing the non-cash amortization of the intangible assets as a result of
the acquisitions of NewHeights Software in August 2007 and FirstHand
Technologies in February 2008.

Cost of sales was $1,444,684 for
the six months ended October 31, 2010 compared to $1,327,112 for the six months
ended October 31, 2009. The increase of $117,572 was primarily attributable to
an increase in wages and benefits of approximately $109,000 as new employees
were hired during the period. Additionally, there was an increase in warranty
expense of approximately $44,000 as a result of the overall increase in revenue.
Office rent increased by approximately $10,000. This was offset by a
decrease in license costs of approximately $56,000 as fewer royalty bearing
codecs and USB sticks were sold. Cost of sales for the six months ended October
31, 2010 includes $418,392 (2009 − $425,591) representing the non-cash
amortization of the intangible assets as a result of the acquisitions of
NewHeights Software in August 2007 and FirstHand Technologies in February
2008.

35

---

Sales and Marketing

Sales and marketing expenses for
the three and six months ended October 31, 2010 and 2009 were as follows:

|                   |   | October 31, 2010 |  |  | October 31, 2009 |  |   |                         |  |  |         | 
|------------------ | - | ---------------- |  |  | ---------------- |  | - | ----------------------- |  |  | ------- | 
|                   |   | (Unaudited)      |  |  | (Unaudited)      |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent          |  |   |                         |  |  | Percent | 
|                   |   |                  |  |  | of               |  |   |                         |  |  | of      | 
|                   |   | Amount           |  |  | Revenue          |  |   | Amount                  |  |  | Revenue | 
|Three months ended | $ | 900,264          |  |  | 35%              |  | $ | 690,551                 |  |  | 36%     | 
|Six months ended   | $ | 1,765,947        |  |  | 37%              |  | $ | 1,449,556               |  |  | 37%     | 

Sales and marketing expenses were
$900,264 for the three months ended October 31, 2010 compared to $690,551 for
the three months ended October 31, 2009. The increase of $209,713 was primarily
a result of an increase of approximately $165,000 in wages and benefits due to
new employees hired. There was also an increase in professional and consulting
fees of approximately $21,000 resulting from a combination of new hires and
consulting fee increases to the existing consultants. Other sales and marketing
expenses, which include office related expenses, increased by approximately
$21,000.

Sales and marketing expenses were
$1,765,947 for the six months ended October 31, 2010 compared to $1,449,556 for
the six months ended October 31, 2009. The increase of $316,391 was primarily a
result of an increase of approximately $217,000 in wages in benefits due to new
employees hired. There was also an increase in professional and consulting fees
of approximately $44,000 resulting from a combination of new hires and
consulting fee increases to the existing consultants. Sales and marketing
related travel expenses increased by approximately $44,000 during the period.
There was also an increase in commissions of approximately $14,000 as a result
of higher sales for the period.

Research and Development

Research and development expenses
for the three and six months ended October 31, 2010 and 2009 were as follows:

|                   |   | October 31, 2010 |  |  | October 31, 2009 |  |   |                         |  |  |         | 
|------------------ | - | ---------------- |  |  | ---------------- |  | - | ----------------------- |  |  | ------- | 
|                   |   | (Unaudited)      |  |  | (Unaudited)      |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent          |  |   |                         |  |  | Percent | 
|                   |   |                  |  |  | of               |  |   |                         |  |  | of      | 
|                   |   | Amount           |  |  | Revenue          |  |   | Amount                  |  |  | Revenue | 
|Three months ended | $ | 1,096,115        |  |  | 43%              |  | $ | 1,004,594               |  |  | 53%     | 
|Six months ended   | $ | 2,159,762        |  |  | 45%              |  | $ | 1,824,722               |  |  | 46%     | 

Research and development expenses
were $1,096,115 for the three months ended October 31, 2010 compared to
$1,004,594 for the three months ended October 31, 2009. The increase of $91,521
was primarily a result of an increase of approximately $53,000 in wages and
benefits as a result of new employee hires. There was also an increase of
approximately $32,000 in license costs related to research and development.
Professional services also increased by approximately $7,000 due to a
combination of new hires and consulting fee increases to the existing
consultants.

Research and development expenses
were $2,159,762 for the six months ended October 31, 2010 compared to $1,824,722
for the six months ended October 31, 2009. The increase of $335,040 was
primarily a result of an increase of approximately $146,000 in wages and
benefits as new employees were hired during the period. Professional services
also increased by approximately $26,000 due to a combination of new hires and
consulting fee increases to the existing consultants. There was also an
increase of approximately $36,000 in license costs and $147,000 in dues and
subscriptions.

36

---

General and Administrative

General and administrative
expenses for the three and six months ended October 31, 2010 and 2009 were as
follows:

|                   |   | October 31, 2010 |  |  | October 31, 2009 |  |   |                         |  |  |         | 
|------------------ | - | ---------------- |  |  | ---------------- |  | - | ----------------------- |  |  | ------- | 
|                   |   | (Unaudited)      |  |  | (Unaudited       |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent          |  |   |                         |  |  | Percent | 
|                   |   |                  |  |  | of               |  |   |                         |  |  | of      | 
|                   |   | Amount           |  |  | Revenue          |  |   | Amount                  |  |  | Revenue | 
|Three months ended | $ | 1,052,099        |  |  | 41%              |  | $ | 1,272,904               |  |  | 67%     | 
|Six months ended   | $ | 2,047,561        |  |  | 43%              |  | $ | 1,895,303               |  |  | 48%     | 

General and administrative
expenses were $1,052,099 for the three months ended October 31, 2010 compared to
$1,272,904 for the three months ended October 31, 2009. The decrease of $220,805
in general and administrative expenses was primarily a result of a decrease in
bad debts by $400,000. This decrease was partially offset by an increase of
approximately $121,000 in stock based compensation, $26,000 in patent expenses,
$29,000 in investor relations expenses, and $33,000 in other office related
expenses.

General and administrative
expenses were $2,047,561 for the six months ended October 31, 2010 compared to
$1,895,303 for the six months ended October 31, 2009. The increase of $152,258
in general and administrative expenses was primarily a result of an increase of
approximately $247,000 in stock based compensation and approximately $113,000 in
patent expenses. There was also an increase in investor relations expenses of
approximately $51,000. The above mentioned increases were partially offset by a
decrease of approximately $250,000 in bad debts.

Restructuring Charges

Restructuring charges for the three and six months ended
October 31, 2010 and 2009 were as follows:

|                   |   | October 31, 2010 |  |  | October 31, 2009 |  |   |                         |  |  |         | 
|------------------ | - | ---------------- |  |  | ---------------- |  | - | ----------------------- |  |  | ------- | 
|                   |   | (Unaudited)      |  |  | (Unaudited)      |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent          |  |   |                         |  |  | Percent | 
|                   |   |                  |  |  | of               |  |   |                         |  |  | of      | 
|                   |   | Amount           |  |  | Revenue          |  |   | Amount                  |  |  | Revenue | 
|Three months ended | $ | nil              |  |  | n/a              |  | $ | nil                     |  |  | n/a     | 
|Six months ended   | $ | nil              |  |  | n/a              |  | $ | 44,912                  |  |  | 1%      | 

There were no restructuring charges for the three months ended
October 31, 2010 ($nil - 2009).

Restructuring charges for the six
months ended October 31, 2010 were $nil compared to $44,912 for the six months
ended October 31, 2009. The restructuring charges for the six months ended
October 31, 2009 pertain to the employee restructuring activity as a result of
the consolidation of administrative, sales, marketing, research and development
departments after the close of acquisitions of NewHeights, FirstHand and
BridgePort.

Interest and Other Income

Interest income for the three
months ended October 31, 2010 was $42,079 compared to $33,816 for the three
months ended October 31, 2009. Interest expense for the three months ended
October 31, 2010 was $2,532 compared to $5 for the three months ended October
31, 2009.

37

---

Interest income for the six
months ended October 31, 2010 was $94,788 compared to $61,574 for the six months
ended October 31, 2009. Interest expense for the six months ended October 31,
2010 was $2,753 compared to $1,671 for the six months ended October 31,
2009.

Foreign exchange gain for the
three months ended October 31, 2010 was $43,746 compared to a gain of $7,952 for
the three months ended October 31, 2009. The foreign exchange gain or loss
represents the gain or loss on account of translation of the inter company
accounts of our subsidiaries who maintain their records in currencies other than
U.S. dollars as well as transactional losses and gains.

Foreign exchange gain for the six
months ended October 31, 2010 was $15,700 compared to a loss of $421,761 for the
six months ended October 31, 2009. The foreign exchange gain or loss represents
the gain or loss on account of translation of the inter company accounts of our
subsidiaries who maintain their records in currencies other than U.S. dollars as
well as transactional losses and gains.

During the six months ended
October 31, 2010 we recorded a gain on settlement of debt of $246,715 as a
result of the transfer of certain of our non-core intellectual property rights
licensed from an institution in settlement of a $246,715 liability for research
fees performed by the institution.

Liquidity and Capital Resources

As of October 31, 2010, we had
$2,184,011 in cash compared to $1,556,813 at April 30, 2010, representing an
increase of $627,198. Our working capital was $1,588,370 at October 31, 2010
compared to $1,157,633 at April 30, 2010, representing an increase of
$430,737.

Presently, our cash flow
generated from operations is not sufficient to meet our operating and capital
expenses. We have incurred operating losses since inception, and we project this
to continue for the next nine to twelve months. At October 31, 2010, we had cash
of approximately $2.18 million and working capital of approximately $1.59
million; however, our management projects that under our current operating plan,
we will require approximately $12-13 million to fund our ongoing operating
expenses and working capital requirements for the next twelve months. We
anticipate that this will be funded through cash flow generated from operations,
working capital, external financing and potential rationalization.

Operating Activities

Our operating activities resulted
in a net cash outflow of $842,166 for the six months ended October 31, 2010.
This compares to a net cash outflow of $1,488,420 for the same period last year
and represents a decrease of $646,254 in cash outflow from operations compared
to the same period last year. The net cash outflow from operating activities for
the six months ended October 31, 2010 was primarily a result of a net loss of
$2,276,256 and an $80,623 decrease in accounts payable and accrued liabilities
partially offset by a $125,409 decrease in accounts receivable and a $111,551
increase in unearned revenue. The net cash outflow was further offset by
adjustments for non-cash expenses including $581,784 for stock-based
compensation, $418,392 for amortization of intangible assets, $161,710 for a
warrants issued and $69,311 for depreciation and amortization.

The net cash outflow from
operating activities for the six months ended October 31, 2009 was primarily a
result of a net loss of $2,952,399, a $492,291 decrease in other assets related
to a forward contract settlement and a $185,608 decrease in unearned revenue
partially offset by a $687,217 decrease in accounts receivable and an $84,593
increase in accounts payable. Included in the accounts payable was a $496,707
cash inflow related to a forward contract settlement. The net cash outflow was
further offset by adjustments for non-cash expenses including $421,761 for
foreign exchange loss, $410,402 for stock-based compensation, $422,591 for
amortization of intangible assets and $154,209 for depreciation and
amortization.

Investing Activities

Investing activities resulted in
a net cash outflow of $48,897 for the six months ended October 31, 2010
primarily as a result of purchases of equipment. This compares with a net cash
outflow from investing activities of $17,208 for the same period last year primarily as a result of
equipment. At October 31, 2010, we did not have any material commitments for
future capital expenditures.

38

---

Financing Activities

Financing activities resulted in
a net cash inflow of $1,520,233 for the six months ended October 31, 2010
compared to a net cash inflow of $1,865,104 for the six months ended October 31,
2009.

On July 30, 2010 and October 29,
2010, we issued two convertible debentures in the principal amount of $483,300
and $490,500, respectively. The debentures are convertible by the holder, at any
time prior to maturity, in whole or in part into common shares of our Company at
a conversion price of $1.00 per share. On October 29, 2010, we issued a third
convertible debenture in the principal amount of $490,750. The debenture is
convertible by the holder at any time prior to maturity, in whole or in part
into common shares of our Company at a conversion price of $1.37 per share.

We intend to seek additional
funding through public or private financings to fund our operations through
fiscal 2011 and beyond. However, if we are unable to raise additional capital
when required or on acceptable terms, or achieve cash flow positive operations,
we may have to significantly delay product development and scale back operations
both of which may affect our ability to continue as a going concern. There is no
assurance that we will be able to obtain financing on terms deemed acceptable to
our company.

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 October 2009, the FASB issued
Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue
Arrangements a consensus of the FASB Emerging Issues Task Force, (ASU
2009-13). ASU 2009-13 addresses the accounting for multiple-deliverable
arrangements and requires that the overall arrangement consideration be
allocated to each deliverable in a revenue arrangement based on an estimated
selling price when vendor specific objective evidence or third-party evidence of
fair value is not available. This guidance also eliminates the residual method
of allocation and requires that arrangement consideration be allocated to all
deliverables using the relative selling price method. This will result in more
revenue arrangements being separated into separate units of accounting. ASU
2009-13 is effective for fiscal years beginning on or after June 15, 2010.
Companies can elect to apply this guidance (1) prospectively to new or
materially modified arrangements after the effective date or (2) retrospectively
for all periods presented. The Company is currently assessing the impact of
adoption of ASU 2009-13 and does not currently plan to early adopt.

In October 2009, the FASB issued
ASU No. 2009-14, Certain Revenue Arrangements That Include Software Elements,
(ASU 2009-14). ASU 2009-14 changes the accounting model for revenue
arrangements that include both tangible products and software elements. Tangible
products containing both software and non-software components that function
together to deliver the products essential functionality will no longer be
within the scope of ASC 985-605 Software Revenue Recognition (ASC 985-605).
The entire product (including the software and non-software deliverables) will
therefore be accounted for under accounting literature found in ASC 605. ASU
2009-14 is effective for fiscal years beginning on or after June 15, 2010.
Companies can elect to apply this guidance (1) prospectively to new or
materially modified arrangements after the effective date or (2) retrospectively
for all periods presented. The Company is currently assessing the impact of
adoption of ASU 2009-14 and does not currently plan to early adopt.

In January 2010, the FASB issued
ASU 2010-06, Improving Disclosures about Fair Value Measurements,which
is included in the ASC in Topic 820 (Fair Value Measurements and Disclosures).
ASU 2010-06 requires new disclosures on the amount and reason for transfers in
and out of Level 1 and 2 fair value measurements. ASU 2010-06 also requires
disclosure of activities, including purchases, sales, issuances, and settlements
within the Level 3 fair value measurements and clarifies existing disclosure
requirements on levels of disaggregation and disclosures about inputs and
valuation techniques. ASU 2010-06 is effective for interim and annual reporting
periods beginning after December 15, 2009. The Company is currently assessing the
impact of adoption of ASU 2009-14 and does not currently plan to early
adopt.

39

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Item 4T. Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and
procedures and other procedures that are designed to ensure that information
required to be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time period
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management including our Chief Executive
Officer and Chief Financial Officer as appropriate, to allow timely decisions
regarding required disclosure.

In connection with this quarterly
report, as required by Rule 13a-15 under the Securities Exchange Act of 1934, we
have carried out an evaluation of the effectiveness of the design and operation
of our company's disclosure controls and procedures. This evaluation was carried
out under the supervision and with the participation of our company's
management, including our company's Chief Executive Officer and Chief Financial
Officer. Based upon that evaluation, our company's Chief Executive Officer and
Chief Financial Officer concluded that as of October 31, 2010, our disclosure
controls and procedures were not effective as at the end of the period covered
by this report.

On December 3, 2010, our company
announced that following an internal review by our company and our auditors, our
company would restate certain of its historical financial statements. Our
conclusion to restate such financial statements resulted in the company
recognizing that its disclosure controls and procedures, and, as a result, its
internal control over financial reporting, were not effective as of the period
ended July 31, 2009 and 2010 and constituted a material weakness.

To address this material
weakness, we performed additional analyses and other procedures to ensure that
our financial statements fairly present, in all material respects, our financial
position, results of operations and cash flows for the periods presented.

To remediate the material
weakness in our disclosure controls and procedures, and the resultant deficiency
in our internal control over financial reporting, identified above, in addition
to working with our independent auditors, we have continued to refine our
internal procedures to alleviate this weakness and have added human resources
with experience in generally accepted accounting principles (GAAP) and are
committed to ongoing education in this area as a well as a defined process to
prepare such calculations.

Changes in Internal Control over Financial
Reporting

There were no changes in our
internal control over financial reporting that occurred during the quarter ended
October 31, 2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

Subsequent to the quarter ended
October 31, 2010, in connection with restatement described above and the steps
to remediate our disclosure controls and procedures, we made the following
changes: (i) we added human resources with experience in generally accepted
accounting principles and made a commitment for ongoing education in this area;
and (ii) we implemented a defined process to prepare calculations. The changes
are designed to, among other things, address the material weakness in our
internal control over financial reporting.

PART II

Item 1. Legal Proceedings.

None.

40

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Item 1A. Risk Factors.

Much of the information included
in this quarterly report includes or is based upon estimates, projections or
other forward looking statements. Such forward looking statements include any
projections or estimates made by us and our management in connection with our
business operations. While these forward-looking statements, and any assumptions
upon which they are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results will almost
always vary, sometimes materially, from any estimates, predictions, projections,
assumption or other future performance suggested herein.

Such estimates, projections or
other forward looking statements involve various risks and uncertainties as
outlined below. We caution the reader that important factors in some cases have
affected and, in the future, could materially affect actual results and cause
actual results to differ materially from the results expressed in any such
estimates, projections or other forward looking statements.

Risks Associated with our Business and Industry

Lack of cash flow which may affect our ability to continue
as a going concern.

Since inception, our company has
had negative cash flows from operations. Our business plan calls for continued
research and development of our products and expansion of our market share. We
will require additional financing to finance working capital and pay for
operating expenses and capital requirements until we achieve a positive cash
flow. However, there is no assurance that actual cash requirements will not
exceed our estimates. In particular, additional capital may be required in the
event that:

- we incur delays and additional expenses as a result of technology failure;
- we are unable to create a substantial market for our products; or
- we incur any significant unanticipated expenses.

The occurrence of any of the
aforementioned events could adversely affect our ability to meet our proposed
business plans.

We depend on a mix of revenues
and outside capital to pay for the continued development of our technology and
the marketing of our products. Such outside capital may include the sale of
additional stock and/or commercial borrowing. There can be no assurance that
capital will continue to be available if necessary to meet these continuing
development costs or, if the capital is available, that it will be on terms
acceptable to us. Disruptions in financial markets and challenging economic
conditions have and may continue to affect our ability to raise capital. The
issuance of additional equity securities by us would result in a dilution,
possibly a significant dilution, in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.

If we are unable to obtain
financing in the amounts and on terms deemed acceptable to us, our business and
future success may be adversely affected and, as indicated in the audit report
included in our amended annual report on Form 10-K/A for the year ended April
30, 2010 filed with the SEC on December 3, 2010, raise substantial doubt on our
ability to continue as a going concern. Our financial statements included in
this Form 10-Q do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should we be unable to continue as a going concern.

The current economic
environment has adversely affected business spending patterns, which may have an
adverse effect on our business.

The disruptions in the financial
markets and challenging economic conditions have adversely affected the United
States and world economy, and in particular, reduced consumer spending and
reduced spending by businesses. Turmoil in global credit markets and recent
turmoil in the geopolitical environment in many parts of the world and other disruptions, such as changes in energy costs
are and may continue to put pressure on global economic conditions. Our
operating results in one or more segments may also be affected by uncertain or
changing economic conditions particularly germane to that segment or to
particular customer markets within that segment. The challenges we have seen in
the United States have expanded overseas. If our customers delay or cancel
spending on their IT infrastructure, that decision could result in reductions in
sales of our products, longer sales cycles and increased price competition.
There can be no assurances that government responses to the disruptions in the
financial markets will restore spending to previous levels. If global economic
and market conditions, or economic conditions in the United States or other key
markets, remain uncertain or persist, spread, or deteriorate further, we may
experience material impacts on our business, operating results, and financial
condition.

41

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We are subject to the credit
risk of our customers, which could have a material adverse effect on our
financial condition, results of operations and liquidity.

We are subject to the credit risk
of our customers. Businesses that are good credit risks at the time of sale may
become bad credit risks over time. In times of economic recession, the number of
our customers who default on payments owed to us tends to increase. If we fail
to adequately assess and monitor our credit risks, we could experience longer
payment cycles, increased collection costs and higher bad debt expense.
Additionally, to the degree that the ongoing turmoil in the credit markets makes
it more difficult for some customers to obtain financing, those customers
ability to pay could be adversely impacted, which in turn could have a material
adverse impact on our business, operating results, and financial condition.

A decline in the price of our
common stock could affect our ability to raise further working capital and
adversely impact our operations.

A prolonged decline in the price
of our common stock could result in a reduction in the liquidity of our common
stock and a reduction in our ability to raise capital. Because our operations
have been partially financed through the sale of equity securities, a decline in
the price of our common stock could be especially detrimental to our liquidity
and our continued operations. Any reduction in our ability to raise equity
capital in the future would force us to reallocate funds from other planned uses
and would have a significant negative effect on our business plans and
operations, including our ability to develop new products and continue our
current operations. If our stock price declines, there can be no assurance that
we can raise additional capital or generate funds from operations sufficient to
meet our obligations.

The majority of our directors
and officers are located outside the United States, with the result that it may
be difficult for investors to enforce within the United States any judgments
obtained against us or some of our directors or officers.

The majority of our directors and
officers are nationals and/or residents of countries other than the United
States, and all or a substantial portion of such persons' assets are located
outside the United States. As a result, it may be difficult for investors to
enforce within the United States any judgments obtained against us or our
officers or directors, including judgments predicated upon the civil liability
provisions of the securities laws of the United States or any state thereof.
Consequently, investors may be effectively prevented from pursuing remedies
under United States federal securities laws against some of our directors or
officers.

We may in the future be
subject to damaging and disruptive intellectual property litigation that could
materially and adversely affect our business, results of operations and
financial condition, as well as the continued viability of our company.

We may be unaware of filed patent
applications and issued patents that could relate to our products and services.
Intellectual property litigation, if determined against us, could:

- result in the loss of a substantial number of existing customers or
  prohibit the acquisition of new customers;
- cause us to lose access to key distribution channels;

42

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- result in substantial employee layoffs or risk the permanent loss of
  highly-valued employees;
- materially and adversely affect our brand in the market place and cause a
  substantial loss of goodwill;
- cause our stock price to decline significantly; and
- lead to the bankruptcy or liquidation of our company.

Parties making claims of
infringement may be able to obtain injunctive or other equitable relief that
could effectively block our ability to provide our services and could cause us
to pay substantial royalties, licensing fees or damages. The defense of any
lawsuit could result in time-consuming and expensive litigation, regardless of
the merits of such claims.

We could lose our competitive
advantages if we are not able to protect any proprietary technology and
intellectual property rights against infringement, and any related litigation
could be time-consuming and costly.

Our success and ability to
compete depends to a significant degree on our proprietary technology
incorporated in our software. If any of our competitors' copies or otherwise
gains access to our proprietary technology or develops similar technologies
independently, we would not be able to compete as effectively. We also consider
our family of registered and unregistered trademarks including CounterPath,
Bria, eyeBeam, X-Pro and X-Lite, invaluable to our ability to continue to
develop and maintain the goodwill and recognition associated with our brand. The
measures we take to protect the proprietary technology software, and other
intellectual property rights, which presently are based upon a combination of
patents, patents pending, copyright, trade secret and trademark laws, may not be
adequate to prevent their unauthorized use. Further, the laws of foreign
countries may provide inadequate protection of such intellectual property
rights.

We may need to bring legal claims
to enforce or protect such intellectual property rights. Any litigation, whether
successful or unsuccessful, could result in substantial costs and diversions of
resources. In addition, notwithstanding any rights we have secured in our
intellectual property, other persons may bring claims against us that we have
infringed on their intellectual property rights, including claims based upon the
content we license from third parties or claims that our intellectual property
right interests are not valid. Any claims against us, with or without merit,
could be time consuming and costly to defend or litigate, divert our attention
and resources, result in the loss of goodwill associated with our service marks
or require us to make changes to our website or other of our technologies.

Our products may become
obsolete and unmarketable if we are unable to respond adequately to rapidly
changing technology and customer demands.

Our industry is characterized by
rapid changes in technology and customer demands. As a result, our products may
quickly become obsolete and unmarketable. Our future success will depend on our
ability to adapt to technological advances, anticipate customer demands, develop
new products and enhance our current products on a timely and cost-effective
basis. Further, our products must remain competitive with those of other
companies with substantially greater resources. We may experience technical or
other difficulties that could delay or prevent the development, introduction or
marketing of new products or enhanced versions of existing products. Also, we
may not be able to adapt new or enhanced services to emerging industry
standards, and our new products may not be favorably received.

Unless we can establish market
acceptance of our current products, our potential revenues may be significantly
reduced.

We expect that a substantial
portion of our future revenue will be derived from the sale of our software
products. We expect that these product offerings and their extensions and
derivatives will account for a majority of our revenue for the foreseeable
future. Broad market acceptance of our software products is, therefore, critical
to our future success and our ability to continue to generate revenues. Failure
to achieve broad market acceptance of our software products as a result of competition, technological
change, or otherwise, would significantly harm our business. Our future
financial performance will depend primarily on the continued market acceptance
of our current software product offerings and on the development, introduction
and market acceptance of any future enhancements. There can be no assurance that
we will be successful in marketing our current product offerings or any new
product offerings, applications or enhancements, and any failure to do so would
significantly harm our business.

43

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We face larger and
better-financed competitors, which may affect our ability to operate our
business and achieve profitability.

Management is aware of similar
products which compete directly with our products and some of the companies
developing these similar products are larger and better-financed than us and may
develop products superior to those of our company. Such competition will
potentially affect our chances of achieving profitability and ultimately
adversely affect our ability to continue as a going concern.

Any prolonged activity in
respect of the integration of the recently acquired businesses with our business
could be time consuming and costly and adversely affect our financial results
and stock price.

We completed the acquisition of
NewHeights Software Corporation, a private Canada corporation, FirstHand
Technologies Inc., a private Ontario corporation, and BridgePort Networks, Inc.,
a private Delaware corporation. The integration of the business of each
respective company with our business has been, and will continue to be, a time
consuming and expensive process. Any prolonged activity in respect of the
integration of the acquired businesses with our business could divert financial
and other resources from our planned operations, which could negatively affect
our results of operations, lower employee morale, and result in customers
cancelling existing orders or choosing not to place new ones. In addition, the
combined operations of our company and the acquired businesses may not achieve
anticipated synergies or other benefits. If the anticipated benefits of the
combined operations are not realized or do not meet the expectations of
financial or industry analysts, the market price of our common stock may
decline.

Risks Associated with our Common Stock

If we issue additional shares
of common stock in the future this may result in dilution to our existing
stockholders.

We are authorized to issue
83,076,900 shares of common stock. Our board of directors has the authority to
issue additional shares of common stock up to the authorized capital stated in
the certificate of incorporation. Our board of directors may choose to issue
some or all of such shares to acquire one or more businesses or to provide
additional financing in the future. The issuance of any such shares may result
in a reduction of the book value or market price of the outstanding shares of
our common stock. If we do issue any such additional shares, such issuance will
cause a reduction in the proportionate ownership and voting power of all other
stockholders. Further, any such issuance may result in a change of control of
our corporation.

Penny stock rules will limit the ability of our stockholders
to sell their shares of common stock.

The SEC has adopted regulations
which generally define penny stock to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Our securities are covered by
the penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors. The term accredited investor refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation.

44

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In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.

The Financial Industry
Regulatory Authority, or FINRA, has adopted sales practice requirements, which
may limit a stockholder's ability to buy and/or sell shares of our common
stock.

In addition to the penny stock
rules described above, the FINRA has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, the FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for its shares.

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

On July 30, 2010, we issued
warrants to a customer to purchase 1,000,000 shares of our common stock at an
exercise price of $1.50 per share, exercisable for a period of two years. The
warrants were issued from the available option pool under the 2010 Stock Option
Plan. On October 30, 2010, we amended the terms of the warrants such that
500,000 warrants vest on a change of control of our company and 500,000 warrants
vest on a proportional basis to invoices delivered by our company and the
warrants will be held in trust and delivered once payment has been received by
our company. We issued the warrants to a non-U.S. person (as that term is
defined in Regulation S of the Securities Act of 1933) in an offshore
transaction relying on Regulation S and/or Section 4(2) of the Securities Act of
1933.

On December 14, 2010, we granted
stock options to employees and to two non-employee directors to purchase an
aggregate of 685,000 shares of our common stock at an exercise price of $1.90
per share, exercisable for a period of five years pursuant to our 2010 Stock
Option Plan. The options vest in the amount of 12.5% on the date which is six
months from the date of grant and then beginning in the seventh month at 1/42
per month for 42 months, at which time the options are fully vested. We issued
195,000 of the stock options to U.S. persons (as that term is defined in
Regulation S of the Securities Act of 1933) in reliance upon Rule 506 of
Regulation D and/or Section 4(2) of the Securities Act of 1933, as applicable.
We issued 490,000 of the stock options to non-U.S. persons (as that term is
defined in Regulation S of the Securities Act of 1933) in an offshore
transaction relying on Regulation S and/or Section 4(2) of the Securities Act of
1933.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and Reserved]

Item 5. Other Information.

None.

45

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Item 6. Exhibits.

Exhibits required by Item 601 of Regulation
S-B

|(3)  | Articles of Incorporation
      and By-laws                                                                                                                                                                                                                                                                         
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                     
|3.1  | Articles of Incorporation
      (incorporated by reference from our Registration Statement on Form SB-2
      filed on July 16, 2003).                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                     
|3.2  | Bylaws (incorporated by
      reference from our Registration Statement on Form SB-2 filed on July 16,
      2003).                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                     
|3.3  | Amended Bylaws (incorporated by
      reference from our Registration Statement on Form SB-2/A filed on
      September 3, 2003).                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                     
|3.4  | Articles of Merger
      (incorporated by reference from our Current Report on Form 8-K filed on
      September 15, 2005).                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                     
|3.5  | Amended Bylaws (incorporated by
      reference from our Current Report on Form 8-K filed on April 28, 2006).                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                     
|3.6  | Amended Bylaws (incorporated by
      reference from our Current Report on Form 8-K filed on April 22, 2008).                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                     
|(10) | Material Contracts                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                     
|10.1 | 2004 Stock Option Plan
      effective May 18, 2004 (incorporated by reference from our Registration
      Statement on Form S-8 filed on June 14, 2005).                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                     
|10.2 | Form of Stock Option Agreement
      for 2004 Stock Option Plan (incorporated by reference from our
      Registration Statement on Form S-8 filed on June 14, 2005).                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                     
|10.3 | 2005 Stock Option Plan
      effective March 4, 2005 (incorporated by reference from our Registration
      Statement on Form S-8 filed on June 14, 2005).                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                     
|10.4 | Form of Stock Option Agreement
      for 2005 Stock Option Plan (incorporated by reference from our
      Registration Statement on Form S-8 filed on June 14, 2005).                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                     
|10.5 | Form of Amended & Restated
      Stock Option and Subscription Agreement (Canadian) (incorporated by
      reference from our Current Report on Form 8-K filed On October 14, 2005).                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                     
|10.6 | Form of Amended & Restated
      Stock Option and Subscription Agreement (US) (incorporated by reference
      from our Current Report on Form 8-K filed On October 14, 2005).                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                     
|10.7 | Employment Agreement between
      CounterPath Solutions, Inc. and David Karp dated September 11, 2006
      (incorporated by reference from our Quarterly Report on Form 10-QSB filed
      on September 14, 2006).                                                                                                
|     |                                                                                                                                                                                                                                                                                                                     
|10.8 | Arrangement Agreement among
      CounterPath Solutions, Inc., 6789722 Canada Inc., a wholly owned
      subsidiary of CounterPath Solutions, Inc. and NewHeights Software
      Corporation dated as of June 15, 2007 (incorporated by reference from our
      Current Report on Form 8-K filed on June 18, 2007).
|     |                                                                                                                                                                                                                                                                                                                     
|10.9 | Exchangeable Share Support
      Agreement between CounterPath Solutions, Inc. and 6789722
      Canada  Inc., a wholly owned subsidiary of CounterPath
      Solutions, Inc. dated as of August 2, 2007  (incorporated by
      reference from our Current Report on Form 8-K filed on August 8, 2007).            

46

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|10.10 | Voting and Exchange Trust Agreement among CounterPath
      Solutions, Inc., 6789722 Canada Inc., a wholly owned subsidiary of
      CounterPath Solutions, Inc. and Valiant Trust Company dated as of August
      2, 2007 (incorporated by reference from our Current Report on Form 8-K
      filed on August 8, 2007).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                           
|10.11 | Piggyback Registrations Rights Agreement among our
      company and various shareholders, dated as of August 2, 2007 (incorporated
      by reference from our Current Report on Form 8-K filed on August 8,
      2007).                                                                                                
|      |                                                                                                                                                                                                                                                                                                                           
|10.12 | Form of Stock Option and Subscription Agreement dated
      August 2, 2007, between our company and each of the former optionees of
      NewHeights Software Corporation (incorporated by reference from our
      Current Report on Form 8-K filed on August 8, 2007).                                                  
|      |                                                                                                                                                                                                                                                                                                                           
|10.13 | Amended Employment Agreement between Donovan Jones and
      CounterPath Solutions R&D Inc., a wholly owned subsidiary of
      CounterPath Solutions, Inc. dated September 13, 2007 (incorporated by
      reference from our Quarterly Report on Form 10-QSB filed on September 14,
      2007).                        
|      |                                                                                                                                                                                                                                                                                                                           
|10.14 | Share Exchange Agreement dated January 28, 2008 among
      CounterPath Corporation, FirstHand Technologies Inc. and certain
      shareholders of FirstHand Technologies Inc. (incorporated by reference
      from our Current Report on Form 8-K filed on January 29, 2008).                                           
|      |                                                                                                                                                                                                                                                                                                                           
|10.15 | Escrow Agreement dated February 1, 2008 among CounterPath
      Corporation, FirstHand Technologies Inc. and certain shareholders of
      FirstHand Technologies Inc. (incorporated by reference from our Current
      Report on Form 8-K filed on February 5, 2008).                                                   
|      |                                                                                                                                                                                                                                                                                                                           
|10.16 | Agreement of Merger and Plan of Reorganization dated
      February 1, 2008 among our company, CounterPath Acquisition Corp.,
      BridgePort Networks, Inc. and certain shareholders of BridgePort Networks,
      Inc. (incorporated by reference from our Current Report on Form 8-K filed
      on February 5, 2008).
|      |                                                                                                                                                                                                                                                                                                                           
|10.17 | Form of Subscription Agreement dated July 31, 2008
      between our company and various investors (incorporated by reference from
      our Quarterly Report on Form 10-Q filed on September 15, 2008).                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                           
|10.18 | Form of Subscription Agreement dated October 28, 2008
      between our company and an investor (incorporated by reference from our
      Quarterly Report on Form 10-Q filed on December 15, 2008).                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                           
|10.19 | Settlement Agreement amongst Greg Pelling, CounterPath
      Corporation and CounterPath Technologies Inc. dated October 31, 2008
      (incorporated by reference from our Quarterly Report on Form 10-Q filed on
      December 15, 2008).                                                                              
|      |                                                                                                                                                                                                                                                                                                                           
|10.20 | 2005 Amended and Restated Stock Option Plan effective
      January 10, 2006 (incorporated by reference from our Post-Effective
      Amendment No.1 to the Registration Statement on Form S-8 filed on January
      30, 2009).                                                                                          
|      |                                                                                                                                                                                                                                                                                                                           
|10.21 | Employee Share Purchase Plan adopted October 1, 2008, and
      amended November 6, 2008 (incorporated by reference from our Registration
      Statement on Form S-8 filed on January 30, 2009).                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                           
|10.22 | Settlement Agreement amongst Mark Bruk, CounterPath
      Corporation, and CounterPath Technologies Inc. dated March 12, 2009
      (incorporated by reference from our Quarterly Report on Form 10-Q filed on
      March 12, 2009).                                                                                     
|      |                                                                                                                                                                                                                                                                                                                           
|10.23 | Form of Debt Conversion Agreement dated July 17, 2009
      between our company and The Trustees of Columbia University in the City of
      New York (incorporated by reference from our Annual Report on Form 10-K
      filed on July 28, 2009).                                                                       

47

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|10.24 | Deferred Share Unit Plan
      effective October 22, 2009 (incorporated by reference from our Definitive
      Proxy Statement on Schedule 14A filed on September 8, 2009).                                                                                                                                                                                                                                                                     
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.25 | Form of Subscription Agreement
      dated October 29, 2009 between our company and various investors
      (incorporated by reference from our Current Report on Form 8-K filed on
      November 4, 2009).                                                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.26 | Form of Subscription Agreement
      dated July 30, 2010 between our company and various
      investors  (incorporated by reference from our Current Report on
      Form 8-K filed on August 4, 2010).                                                                                                                                                                                                                                        
|     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.27 | 2010 Stock Option Plan
      effective September 27, 2010 (incorporated by reference from our
      Definitive Proxy Statement filed on August 31, 2010).                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(14)  | Code of Ethics                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|14.1  | Code of Business Conduct and
      Ethics (incorporated by reference from our Annual Report on Form 10-KSB
      filed on July 29, 2004).                                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|14.2  | Code of Business Conduct and
      Ethics and Compliance Program (incorporated by reference from our
      Quarterly Report on Form 10-QSB filed on September 15, 2008).                                                                                                                                                                                                                                                                        
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(21)  | Subsidiaries of CounterPath
      Corporation CounterPath Technologies Inc. (incorporated in the
      Province of British Columbia, Canada) 6789722 Canada Inc.
      (incorporated in Canada) FirstHand Technologies Inc. (continued
      into the Province of British Columbia, Canada) BridgePort
      Networks, Inc. (incorporated in the state of Delaware) BridgePort
      Networks (Europe) Ltd. (incorporated in the United Kingdom)
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(31)  | Section 302
      Certifications                                                                                                                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|31.1  | Section 302 Certification of
      Donovan Jones (filed herewith).                                                                                                                                                                                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|31.2  | Section 302 Certification of
      David Karp (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(32)  | Section 906
      Certifications                                                                                                                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      | Section 906 Certification of
      Donovan Jones (filed herewith).                                                                                                                                                                                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      | Section 906 Certification of
      David Karp (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                 

48

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SIGNATURES

In accordance with Section 13 or
15(d) of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

COUNTERPATH CORPORATION

|By: | /s/
      Donovan Jones                                | 
|--- | ------------------------------------------------------ | 
|    | Donovan Jones                                          | 
|    | President, Chief Executive Officer and Director        | 
|    | Date: December 14, 2010                                | 
|    |                                                        | 
|    |                                                        | 
|    | /s/
      David Karp                                   | 
|    | David Karp                                             | 
|    | Chief Financial Officer, Treasurer and
      Secretary | 
|    | Date: December 14, 2010                                | 

49

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