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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 January 31,
2011

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: 33,369,456
shares of common stock issued and outstanding as of March 9, 2011.

2

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COUNTERPATH CORPORATIONJANUARY 31, 2011 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
      4.  | Controls
      and Procedures.                                                               | 40  
|               | Part II                                                                                      |     
|Item
      1.  | Legal
      Proceedings.                                                                     | 41  
|Item
      1A. | Risk
      Factors.                                                                          | 41  
|Item
      2.  | Unregistered
      Sales of Equity Securities and Use of Proceeds.                           | 45  
|Item
      3.  | Defaults
      Upon Senior Securities.                                                       | 46  
|Item
      4.  | [Removed
      and Reserved.]                                                                | 46  
|Item
      5.  | Other
      Information.                                                                     | 46  
|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 January 31, 2011 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 CORPORATIONINDEX TO INTERIM
CONSOLIDATED FINANCIAL STATEMENTS January 31, 2011 (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)           

|                                                                                                                                                                                                              |   | January 31, |   |   | April 30,          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ------------------ | -
|                                                                                                                                                                                                              |   | 2011        |   |   | 2010               |  
|Assets                                                                                                                                                                                                        |   | (Unaudited) |   |   | Restated  Note 14 |  
|Current assets:                                                                                                                                                                                               |   |             |   |   |                    |  
|Cash                                                                                                                                                                                                          | $ | 1,710,007   |   | $ | 1,556,813          |  
|Accounts receivable (net of
      allowance for doubtful accounts of
                $1,212,100 and
      $1,116,119, respectively)                                                                           |   | 2,787,531   |   |   | 2,345,633          |  
|Investment tax
      credits recoverable                                                                                                                                                                      |   | 29,982      |   |   | 129,285            |  
|Other current assets                                                                                                                                                                                          |   | 155,452     |   |   | 221,041            |  
|Total current assets                                                                                                                                                                                          |   | 4,682,972   |   |   | 4,252,772          |  
|                                                                                                                                                                                                              |   |             |   |   |                    |  
|Deposits                                                                                                                                                                                                      |   | 152,316     |   |   | 101,994            |  
|Equipment                                                                                                                                                                                                     |   | 99,245      |   |   | 111,150            |  
|Intangible assets (net of
      accumulated amortization of $4,882,932 and
              $4,249,895, respectively) 
      Note 2(e)                                                                          |   | 1,035,351   |   |   | 1,674,359          |  
|Goodwill  Note 2(e)                                                                                                                                                                                          |   | 8,782,209   |   |   | 8,740,025          |  
|Other assets                                                                                                                                                                                                  |   | 47,522      |   |   | 58,817             |  
|Total Assets                                                                                                                                                                                                  | $ | 14,799,615  |   | $ | 14,939,117         |  
|                                                                                                                                                                                                              |   |             |   |   |                    |  
|Liabilities and Stockholders Equity                                                                                                                                                                          |   |             |   |   |                    |  
|Current liabilities:                                                                                                                                                                                          |   |             |   |   |                    |  
|Accounts payable and accrued
      liabilities                                                                                                                                                                | $ | 2,275,694   |   | $ | 2,313,688          |  
|Unearned revenue                                                                                                                                                                                              |   | 842,635     |   |   | 655,361            |  
|Customer deposits                                                                                                                                                                                             |   | 2,018       |   |   | 5,127              |  
|Accrued warranty                                                                                                                                                                                              |   | 148,561     |   |   | 120,963            |  
|Total current
      liabilities                                                                                                                                                                               |   | 3,268,908   |   |   | 3,095,139          |  
|                                                                                                                                                                                                              |   |             |   |   |                    |  
|Deferred lease inducements                                                                                                                                                                                    |   | 2,938       |   |   | 4,677              |  
|Convertible debentures  Note
      4                                                                                                                                                                         |   | 1,280,584   |   |   |                   |  
|Unrecognized tax benefit                                                                                                                                                                                      |   | 98,575      |   |   | 98,575             |  
|Total
      liabilities                                                                                                                                                                                       |   | 4,651,005   |   |   | 3,198,391          |  
|                                                                                                                                                                                                              |   |             |   |   |                    |  
|Stockholders equity:                                                                                                                                                                                         |   |             |   |   |                    |  
|Preferred stock, $0.001 par value
                Authorized:
      100,000,000          
      Issued and outstanding: January 31, 2011  1; April 30, 2010  1                                              |   |            |   |   |                   |  
|Common stock, $0.001 par value
       Note 6          
      Authorized: 83,076,900
                Issued and
      outstanding:          
      January 31, 2011  33,361,901; April 30, 2010  33,015,627 |   | 33,362      |   |   | 33,016             |  
|Additional paid-in capital                                                                                                                                                                                    |   | 53,222,408  |   |   | 51,902,471         |  
|Accumulated deficit                                                                                                                                                                                           |   | (42,548,595 | ) |   | (39,781,079        | )
|Accumulated other comprehensive loss  currency translation
      adjustment                                                                                                                                  |   | (558,565    | ) |   | (413,682           | )
|Total stockholders equity                                                                                                                                                                                    |   | 10,148,610  |   |   | 11,740,726         |  
|Liabilities and Stockholders Equity                                                                                                                                                                          | $ | 14,799,615  |   | $ | 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 |   |   | Nine Months Ended  |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | - | - | ------------------ | -
|                                                                                                                                                                                                                                                              |   | January 31,        |   |   | January 31,        |  
|                                                                                                                                                                                                                                                              |   | 2011               |   |   | 2010               |  
|                                                                                                                                                                                                                                                              |   |                    |   |   | Restated  Note 14 |  
|Revenue  Note 6:                                                                                                                                                                                                                                             |   |                    |   |   |                    |  
|Software                                                                                                                                                                                                                                                      | $ | 1,489,825          |   | $ | 1,030,004          |  
|Service                                                                                                                                                                                                                                                       |   | 1,532,277          |   |   | 333,414            |  
|Total
      revenue                                                                                                                                                                                                                                           |   | 3,022,102          |   |   | 1,363,418          |  
|Operating expenses:                                                                                                                                                                                                                                           |   |                    |   |   |                    |  
|Cost of sales (includes depreciation of $15,835 and
             $4,911 and amortization of
      intangible assets of        $633,038 and
      $647,559 for nine months ended       
      January 31, 2011 and 2010 respectively  Note
             2(e)) |   | 724,309            |   |   | 757,273            |  
|Sales and marketing                                                                                                                                                                                                                                           |   | 841,230            |   |   | 644,212            |  
|Research and development                                                                                                                                                                                                                                      |   | 1,157,581          |   |   | 797,162            |  
|General and administrative                                                                                                                                                                                                                                    |   | 986,003            |   |   | 915,302            |  
|Restructuring costs  Note 10                                                                                                                                                                                                                                 |   |                   |   |   |                   |  
|Total operating expenses                                                                                                                                                                                                                                      |   | 3,709,123          |   |   | 3,113,949          |  
|Loss from
      operations                                                                                                                                                                                                                                    |   | (687,021           | ) |   | (1,750,531         | )
|Interest and other income (expense), net:                                                                                                                                                                                                                     |   |                    |   |   |                    |  
|Interest and other income                                                                                                                                                                                                                                     |   | 96,505             |   |   | 53,239             |  
|Interest and other expense                                                                                                                                                                                                                                    |   | (42,152            | ) |   | (685               | )
|Foreign exchange gain (loss)                                                                                                                                                                                                                                  |   | 141,408            |   |   | (46,516            | )
|Gain on settlement of debt  Note 12                                                                                                                                                                                                                          |   |                   |   |   |                   |  
|Net loss for the period                                                                                                                                                                                                                                       | $ | (491,260           | ) | $ | (1,744,493         | )
|Other comprehensive income (loss):                                                                                                                                                                                                                            |   |                    |   |   |                    |  
|                                                                                                                                                                                                                                                              |   |                    |   |   |                    |  
|Foreign currency translation
      adjustments                                                                                                                                                                                                                |   | 55,697             |   |   | 71,716             |  
|Comprehensive loss                                                                                                                                                                                                                                            | $ | (435,563           | ) | $ | (1,672,777         | )
|Net loss per share:                                                                                                                                                                                                                                           |   |                    |   |   |                    |  
|Basic and diluted                                                                                                                                                                                                                                             | $ | (0.01              | ) | $ | (0.06              | )
|                                                                                                                                                                                                                                                              |   |                    |   |   |                    |  
|Weighted average common shares outstanding:                                                                                                                                                                                                                   |   | 33,206,905         |   |   | 30,710,069         |  

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)                                  

|                                                                                  |   | Nine Months Ended |  
|--------------------------------------------------------------------------------- | - | ----------------- | -
|                                                                                  |   | January 31,       |  
|                                                                                  |   | 2011              |  
|                                                                                  |   |                   |  
|Cash flows from operating
      activities:                                       |   |                   |  
|Net loss for the period                                                           | $ | (2,767,516        | )
|Adjustments to
      reconcile net loss to net cash used in operating activities: |   |                   |  
|Depreciation and
      amortization                                               |   | 104,647           |  
|Amortization of intangible assets                                                 |   | 633,038           |  
|Stock-based
      compensation  Note 6                                           |   | 691,595           |  
|Share purchase warrants  Note 6                                                  |   | 227,707           |  
|Shares issued as
      part of share purchase plan                                |   | 25,325            |  
|Accretion of convertible debenture discount                                       |   | 31,320            |  
|Foreign exchange
      loss (gain)                                                |   | (157,108          | )
|Changes in assets and
      liabilities:                                          |   |                   |  
|Accounts
      receivable                                                         |   | (347,317          | )
|Other current assets                                                              |   | 65,626            |  
|Increase in other
      assets                                                    |   | (10,729           | )
|Accounts payable and accrued liabilities                                          |   | (35,967           | )
|Unearned revenue                                                                  |   | 187,274           |  
|Customer deposits                                                                 |   | (3,109            | )
|Accrued warranty                                                                  |   | 27,598            |  
|Net cash used in operating activities                                             |   | (1,327,616        | )
|                                                                                  |   |                   |  
|Cash flows from investing
      activities:                                       |   |                   |  
|Purchase of equipment                                                             |   | (49,562           | )
|Deposits                                                                          |   | (48,111           | )
|Net cash used in investing activities                                             |   | (97,673           | )
|                                                                                  |   |                   |  
|Cash flows from financing activities:                                             |   |                   |  
|Common stock issued, net of
      transaction costs                               |   | 160,116           |  
|Convertible debentures issued                                                     |   | 1,464,800         |  
|Net cash provided by financing activities                                         |   | 1,624,916         |  
|                                                                                  |   |                   |  
|Foreign exchange effect on cash                                                   |   | (46,433           | )
|                                                                                  |   |                   |  
|Increase in cash                                                                  |   | 153,194           |  
|                                                                                  |   |                   |  
|Cash, beginning of the period                                                     |   | 1,556,813         |  
|Cash, end of the period                                                           | $ | 1,710,007         |  
|                                                                                  |   |                   |  
|Supplemental disclosure of cash flow information                                  |   |                   |  
|Cash paid for:                                                                    |   |                   |  
|Interest                                                                          | $ | 14,800            |  
|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 Nine Months Ended January 31, 2011                              
|(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                                                        |  | 233,837       |  |   | 234              |  |  | -      |  |   | -               |  |   | 109,856    |   |   | -                  |  
|Employee share purchase plan                                                     |  | 51,766        |  |   | 52               |  |  | -      |  |   | -               |  |   | 75,303     |   |   | -                  |  
|Exchange of subsidiary preferred shares 
      Note 5                           |  | 60,871        |  |   | 60               |  |  |       |  |   |                |  |   | (60        | ) |   |                   |  
|Stock-based compensation 
      Note 6                                          |  |              |  |   |                 |  |  |       |  |   |                |  |   | 691,595    |   |   |                   |  
|Discount on convertible debenture -
      beneficial conversion feature  Note 4 |  |              |  |   |                 |  |  |       |  |   |                |  |   | 227,707    |   |   |                   |  
|Share purchase warrants 
      Note 6                                           |  |              |  |   |                 |  |  |       |  |   |                |  |   | 215,536    |   |   |                   |  
|Net loss for the period                                                          |  |              |  |   |                 |  |  |       |  |   |                |  |   |           |   |   | (2,767,516         | )
|Foreign currency translation
      adjustment                                    |  |              |  |   |                 |  |  |       |  |   |                |  |   |           |   |   |                   |  
|Balance, January 31, 2011                                                        |  | 33,362,101    |  | $ | 33,362           |  |  | 1      |  | $ |                |  | $ | 53,222,408 |   | $ | (42,548,595        | )

See accompanying notes to the consolidated financial
statements

8

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|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(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 were
      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.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       | On November 1, 2010, the Company's wholly-owned
      subsidiary, FirstHand Technologies Inc. was amalgamated with CounterPath
      Technologies Inc. and carrying on as CounterPath Technologies Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       | 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

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|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(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
      January 31, 2011, the Company has not yet achieved profitable operations
      and had an accumulated deficit of $42,548,595 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 January 31, 2012. 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 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, 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. (which
      subsequently amalgamated with CounterPath 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 amended 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
|January 31, 2011                                            
|(Unaudited)                                                 

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

| | b) | Interim Reporting  (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Operating results for the nine months ended January 31,
      2011 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 adopted the provisions of ASU 2010-06
      and it did not have a material impact on the financial statements for the
      quarter ended January 31, 2011.                                                                                                                                                                                                                                                                                                                                                           

11

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(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 January 31, 2011 was
      $6,700,254 (CDN$6,704,947) (April 30, 2010-$6,668,070) and $2,081,955
      (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 nine months ended January 31,
      2011 and 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | 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
|January 31, 2011                                            
|(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
      January 31, 2011 is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                       |   |           |  |   |              |  |   | Accumulated |  |   |              | 
| | --------------------- | - | --------- |  | - | ------------ |  | - | ----------- |  | - | ------------ | 
| |                       |   |           |  |   | Accumulated  |  |   | Impairment  |  |   | Net Carrying | 
| |                       |   | Cost      |  |   | Amortization |  |   | Charge      |  |   | Amount       | 
| | Acquired technologies | $ | 6,298,600 |  | $ | 3,868,822    |  | $ | 1,888,658   |  | $ | 541,120      | 
| | Customer assets       |   | 2,724,369 |  |   | 1,014,110    |  |   | 1,216,028   |  |   | 494,231      | 
| | Intangible assets     | $ | 9,022,969 |  | $ | 4,882,932    |  | $ | 3,104,686   |  | $ | 1,035,351    | 

13

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(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 nine months ended January 31, 2011,
      pursuant to the terms of these agreements, was $136,803 and $399,128 (2010
      - $138,346 and $407,487), respectively.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | During the three and nine months ended January 31, 2011,
      the Company provided consulting services totalling $nil and $15,176 to
      Wesley Clover respectively, a company controlled by the Chairman of the
      Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | As at January 31, 2011, the Company had an accounts
      receivable balance from Mitel of $134,364 (April 30, 2010 - $170,802).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | During the three and nine months ended January 31, 2011,
      the Company through its wholly owned subsidiary, CounterPath Technologies
      Inc., paid $19,971 and $59,913 (2010 - $18,680 and $56,040) 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 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
      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 nine months ended January
      31, 2011, the Company paid interest of $3,711 and $3,792 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
|January 31, 2011                                            
|(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. During the three and nine
      months ended January 31, 2011, the Company accreted $31,320 and $31,320,
      respectively by way of discount on the debentures issued.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       | 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. On January 27, 2011, the Company issued 1,122 shares of
      common stock pursuant to the holders of 1,122 shares of exchangeable
      preferred shares of its subsidiary 6789722 Canada Inc. exercising their
      exchange rights.                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       | On January 28, 2011, the Company redeemed all of the
      remaining 9,749 exchangeable shares outstanding pursuant to the Company's
      redemption call right under the provisions attaching to the exchangeable
      shares of 6789722 Canada Inc. As a result there were no outstanding
      exchangeable shares as of January 31, 2011 (April 30, 2010  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.                                                                                                                                                                                                                                         

15

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(Unaudited)                                                 

|Note 6 | Common Stock  (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | 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 three and nine month period ended January 31, 2011 and 2010 in
      determining the expense recorded in the accompanying consolidated
      statement of operations.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | The weighted-average fair value of options granted during
      the nine months ended January 31, 2011 was $1.11 (2010 - $0.35). The
      weighted-average assumptions utilized to determine such values are
      presented in the following table:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                             |  | Nine Months Ended |  |  | Nine Months Ended | 
| | --------------------------- |  | ----------------- |  |  | ----------------- | 
| |                             |  | January 31, 2011  |  |  | January 31, 2010  | 
| | Risk-free interest rate     |  | 1.95%             |  |  | 2.30%             | 
| | Expected volatility         |  | 83.1%             |  |  | 84.6%             | 
| | Expected term               |  | 3.7 yrs           |  |  | 3.7 yrs           | 
| | Dividend yield              |  | 0%                |  |  | 0%                | 
| | Weighted average fair value |  | $1.12             |  |  | $0.35             | 

16

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(Unaudited)                                                 

|Note 6 | Common Stock  (contd)                                                                                                                                                                
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                        
|       | Stock Options                                                                                                                                                                          
|       |                                                                                                                                                                                        
|       | The following is a summary of the status of the
      Companys stock options as of January 31, 2011 and the stock option
      activity during the nine months ended January 31, 2011:

| |                                 |  |            |   |  | Weighted-average | 
| | ------------------------------- |  | ---------- | - |  | ---------------- | 
| |                                 |  | Number of  |   |  | Exercise Price   | 
| |                                 |  | Options    |   |  | per Share        | 
| | Outstanding at April 30, 2010   |  | 4,617,707  |   |  | $1.03            | 
| | Granted                         |  | 705,000    |   |  | $1.88            | 
| | Exercised                       |  | (233,837   | ) |  | $0.47            | 
| | Forfeited /Cancelled            |  | (1,060,728 | ) |  | $1.69            | 
| | Expired                         |  | (463,600   | ) |  | $1.77            | 
| | Outstanding at January 31, 2011 |  | 3,564,542  |   |  | $0.94            | 
| |                                 |  |            |   |  |                  | 
| | Exercisable at January 31, 2011 |  | 1,764,328  |   |  | $0.81            | 
| | Exercisable at April 30, 2010   |  | 2,602,619  |   |  | $1.32            | 

The following table summarizes
information regarding stock purchase options outstanding as of January 31, 2011:

Number of
    
    
    Aggregate
    
    
    
    
    
    Number of
    
    
    AggregateExercise
    
    Options
    
    
    Intrinsic
    
    
    
    
    
    Options
    
    
    IntrinsicPrice
    
    Outstanding
    
    
    Value
    
    
    Expiry Date
    
    
    Exercisable
    
    
    Value$0.44
    
    479,380
    
    $
    877,265
    
    
    December 15,
      2013
    
    
    240,350
    
    $
    439,841$0.47
    
    700,713
    
    
    1,261,283
    
    
    June 16, 2011 to September 26,
      2016
    
    
    672,335
    
    
    1,210,203$0.60
    
    520,980
    
    
    870,037
    
    
    December 14,
      2014
    
    
    151,299
    
    
    252,669$0.62
    
    850,000
    
    
    1,402,500
    
    
    April 17, 2014
    
    
    371,875
    
    
    613,594$0.65
    
    3,750
    
    
    6,075
    
    
    April 27, 2015
    
    
    3,750
    
    
    6,075$1.90
    
    751,719
    
    
    278,136
    
    
    March 8, 2015 to December 14,
      2015
    
    
    66,719
    
    
    24,686$2.00
    
    18,000
    
    
    4,860
    
    
    October 1, 2012
      to February 28, 2015
    
    
    18,000
    
    
    4,860$2.15
    
    240,000
    
    
    28,800
    
    
    September 7, 2016
    
    
    240,000
    
    
    28,800January 31, 2011
    
    3,564,542
    
    $
    4,728,956
    
    
    
    
    
    1,764,328
    
    $
    2,580,728April 30, 2010
    
    4,617,707
    
    $
    895,060
    
    
    
    
    
    2,602,619
    
    $
    404,859


The aggregate intrinsic value in the
preceding table represents the total intrinsic value, based on the Companys
closing stock price of $2.27 per share as of January 31, 2011 (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 January 31, 2011 was 1,764,328
(April 30, 2010 1,239,933). The total intrinsic value of options exercised
during the nine months ended January 31, 2011 was $420,683 (2010  $960). The
grant date fair value of options vested during the nine months ended January 31,
2011 was $258,778 (2010  $597,022).

17

---

|COUNTERPATH CORPORATION                               
|------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|January 31, 2011                                      
|(Unaudited)                                           

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

Stock Options  (contd)

The following table summarizes
information regarding the non-vested stock purchase options outstanding as of
January 31, 2011.

| |                                        |  |                   |   |  | Weighted Average | 
| | -------------------------------------- |  | ----------------- | - |  | ---------------- | 
| |                                        |  |                   |   |  | Grant-Date Fair  | 
| |                                        |  | Number of Options |   |  | Value            | 
| | Non-vested options at April 30, 2010   |  | 2,015,088         |   |  | $0.39            | 
| | Granted                                |  | 705,000           |   |  | $1.11            | 
| | Vested                                 |  | (567,000          | ) |  | $0.46            | 
| | Forfeited/Cancelled                    |  | (352,874          | ) |  | $0.49            | 
| | Non-vested options at January 31, 2011 |  | 1,800,214         |   |  | $0.64            | 

As of January 31, 2011 there was
$983,514 (2010  $736,752) 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 3.33 years (2010 
2.65 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 nine months ended
January 31, 2011 and 2010 are as follows:

| |                                |   | Three Months Ended |  |   | Nine Months Ended | 
| | ------------------------------ | - | ------------------ |  | - | ----------------- | 
| |                                |   | January 31,        |  |   | January 31,       | 
| |                                |   | 2011               |  |   | 2010              | 
| | Cost of sales                  | $ | 8,971              |  | $ | 9,748             | 
| | Sales and marketing            |   | 31,640             |  |   | 18,590            | 
| | Research and development       |   | 8,961              |  |   | 12,962            | 
| | General and administrative     |   | 28,003             |  |   | 116,897           | 
| | Total stock-based compensation | $ | 77,575             |  | $ | 158,197           | 

Warrants

During the nine months ended January
31, 2011, 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 software licensing 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 $3.00 invoiced and 50% of the warrants 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
nine months ended January 31, 2011. 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 455,717 stock purchase warrants that was charged to revenue
during the nine months ended January 31, 2011 was $227,707 (2010  $nil). The
remaining 544,283 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.

18

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(Unaudited)                                                 

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

| |                             |  | Nine Months Ended | 
| | --------------------------- |  | ----------------- | 
| |                             |  | January 31,       | 
| |                             |  | 2011              | 
| | Risk-free interest rate     |  | 0.34%             | 
| | Expected volatility         |  | 94.20%            | 
| | Expected term               |  | 1.75 yrs          | 
| | Dividend yield              |  | 0%                | 
| | Weighted average fair value |  | $0.64             | 

The following table summarizes
information regarding the warrants outstanding as of January 31, 2011:

WeightedNumber of
    
    
    AverageWarrants
    
    
    Exercise Price
    
    
    Expiry DatesWarrants at April 30, 2010
    
    2,932,088
    
    
    $1.50
    
    
    July 31, 2010 to October 29,
      2011Granted
    
    1,000,000
    
    
    $1.50
    
    
    July 30, 2012Expired
    
    (1,265,421
    )
    
    $2.25
    
    
    July 31, 2010 to October 28,
      2010Warrants at January 31, 2011
    
    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 January 31, 2011, a total of 560,226
shares were available for issuance under the ESPP. During the nine months ended
January 31, 2011, 51,766 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.

19

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(Unaudited)                                                 

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

Deferred Share Unit Plan 
(contd)

A total of 2,000,000 shares have been
reserved for issuance under the DSUP. During the nine months ended January 31,
2011, 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 January 31, 2011, 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 January 31, 2011, and changes during the period then ended:

| |                                       |  |                 |  |  | 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 January 31, 2011 |  | 1,342,661       |  |  | $0.65                    | 

As of January 31, 2011 there was
$240,338 (2010  $121,400) 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 2.24 years (2010
2.62) .

Employee and non-employee deferred
share unit based compensation amounts classified in the Companys consolidated
statements of operations for the three and nine months ended January 31, 2011
and 2010 are as follows:

| |                                              |   | Three Months Ended |  |   | Nine Months Ended | 
| | -------------------------------------------- | - | ------------------ |  | - | ----------------- | 
| |                                              |   | January 31,        |  |   | January 31,       | 
| |                                              |   | 2011               |  |   | 2010              | 
| | General and administrative                   | $ | 32,236             |  | $ | 178,600           | 
| | Total deferred share unit-based compensation | $ | 32,236             |  | $ | 178,600           | 

|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 nine months ended January 31, 2011 and
      2010:                                                                                                                                                                

| |                 |   | Three Months Ended |  |   | Nine Months Ended | 
| | --------------- | - | ------------------ |  | - | ----------------- | 
| |                 |   | January 31,        |  |   | January 31,       | 
| |                 |   | 2011               |  |   | 2010              | 
| | North America   | $ | 1,734,031          |  | $ | 676,666           | 
| | Europe          |   | 867,454            |  |   | 399,652           | 
| | Asia and Africa |   | 299,733            |  |   | 110,580           | 
| | Latin America   |   | 120,884            |  |   | 176,520           | 
| |                 | $ | 3,022,102          |  | $ | 1,363,418         | 

20

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(Unaudited)                                                 

|Note 7 | Segmented Information  (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       | Contained within the results of North America for the
      three and nine months ended January 31, 2011 are revenues from the United
      States of $869,702 and $3,303,109 (2010 - $508,416 and $2,588,256),
      respectively, and from Canada of $864,329 and $1,384,971 (2010 - $168,250
      and $484,742), respectively.                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       | Contained within the results of Europe for the three and
      nine months ended January 31, 2011 are revenues from the United Kingdom of
      $407,104 and $1,202,222 (2010 - $102,057 and $275,276), respectively, from
      Germany of $64,576 and $148,811 (2010 - $40,837 and $245,753),
      respectively, from the Netherlands of $110,417 and $138,855 (2010 -
      $10,601 and $146,257) respectively, and from Slovenia of $75,498 and
      $101,662 (2010 - $9,563 and $111,819) respectively.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       | Contained within the results of Asia and Africa for the
      three and nine months ended January 31, 2011 are revenues from Japan of
      $114,560 and $174,806 (2010 - $5,873 and $30,730) respectively, from Saudi
      Arabia of $85,119 and $85,278 (2010 - $Nil and $Nil), respectively, from
      Australia of $10,824 and $54,296 (2010 - $25,221 and $51,402),
      respectively, and from China of $2,165 and $43,468 (2010 - $8,495 and
      $25,558), respectively.                          
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       | Contained within the results of Latin America for the
      three and nine months ended January 31, 2011 are revenues from Mexico of
      $31,541 and $148,040 (2010 - $166,829 and $288,259) respectively, from
      Chile of $7,204 and $128,802 (2010 - $4,087 and $13,095), respectively,
      from Colombia of $46,376 and $69,869 (2010 - $5,899 and $37,912),
      respectively, and from Brazil of $18,175 and $39,472 (2010 - $3,607 and
      $31,189), 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            | 
| | ------------- | - | ---------------- | 
| |               |   | January 31, 2011 | 
| | Canada        | $ | 9,930,991        | 
| | United States |   | 33,336           | 
| | Total         | $ | 9,964,327        | 

Revenue from significant customers for
the three and nine months ended January 31, 2011 and 2010 is summarized as
follows:

| |            |  | Three Months Ended |  |  | Nine Months Ended | 
| | ---------- |  | ------------------ |  |  | ----------------- | 
| |            |  | January 31,        |  |  | January 31,       | 
| |            |  | 2011               |  |  | 2010              | 
| | Customer A |  | 18%                |  |  | -%                | 
| | Customer B |  | 11%                |  |  | -%                | 
| | Customer C |  | 9%                 |  |  | 1%                | 
| | Customer D |  | 5%                 |  |  | 10%               | 
| | Customer E |  | -%                 |  |  | 10%               | 
| |            |  | 43%                |  |  | 21%               | 

Accounts receivable balance for
Customer A was $704,357 as at January 31, 2011 (April 30, 2010 - $Nil). Accounts
receivable balance for Customer B was $384,300 as at January 31, 2011 (April 30,
2010 - $Nil). Accounts receivable balance for Customer C was $234,000 as at
January 31, 2011 (April 30, 2010 -$1,000,975). Accounts receivable balance for
Customer D was $135,364 as at January 31, 2011 (April 30, 2010 - $170,802).
Accounts receivable balance for Customer E was $nil as at January 31, 2011
(April 30, 2010 - $nil).

21

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(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 $9,921 was made. The monthly
      lease payment under this agreement is $9,921 plus $8,693 in operating
      costs. The Company is subleasing part of these premises for a monthly
      charge of $7,500. 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 $3,214 (CDN$3,216) plus $3,169 (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
      $82,768 was made. The monthly lease payment under this agreement is
      $23,322 plus $21,949 in operating costs. On January 11, 2010, the Company
      entered into a new agreement on this lease for which commences on October
      1, 2011 and expires September 30, 2014. The monthly lease payment under
      the agreement is $21,648 plus $17,463 in operating costs for the first
      year, $22,679 plus $17,463 for the second year, and $23,710 plus $17,463
      for the third year. 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 $6,657. 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 $494,654
      (CDN$495,000) over 45 months at a rate of CDN$11,000 per month and pay for
      health benefits for 33 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 LeasesOffice Leases 
    
    
     Unrelated
    
    
    Sub Lease
    
    
    Total Office
    
    
    SettlementRelated Party
    
    
    Party
    
    
    Income
    
    
    Leases
    
    
    Agreement2011
    $
    19,971
    
    $
    218,160
    
    $
    (52,142
    )
    $
    185,989
    
    $
    32,9772012
    
    79,884
    
    
    628,000
    
    
    (184,084
    )
    
    523,800
    
    
    131,9082013
    
    -
    
    
    569,620
    
    
    (69,415
    )
    
    500,205
    
    
    82,4422014
    
    -
    
    
    488,917
    
    
    -
    
    
    488,917
    
    
    -2015
    
    
    
    
    164,690
    
    
    -
    
    
    164,690
    
    
    -$
    99,855
    
    $
    2,069,387
    
    $
    (305,641
    )
    $
    1,863,601
    
    $
    247,327


22

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(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 nine months ended January 31, 2011. The Company incurred restructuring
      costs of $44,912 during the nine months ended January 31, 2010, 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 nine months ended January 31, 2011 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                 |   | Nine Months Ended | 
| | --------------- | - | ----------------- | 
| | In U.S. dollars |   | January 31,       | 
| |                 |   | 2011              | 
| | Canadian dollar | $ | -                 | 
| | Total           | $ | -                 | 

The fair value of forward contracts as
of January 31, 2011 was $nil, as all forward contracts have since been
settled.

23

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(Unaudited)                                                 

|Note 12 | Gain on Settlement of Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | During the nine month period ended January 31, 2011, 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 Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | On March 10, 2011, the Company granted 44,052 deferred share units, including 22,026 to an officer of the Company pursuant to its deferred share unit plan.  Each deferred share unit provides the holder thereof the right to exchange the unit into one share of common stock of the Company under the terms and conditions of the plan.   The deferred share units vest as to 1/3 of the deferred share units on the first, second and third anniversary of the date of the grant, at which time the deferred share units are fully vested.                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | On March 10, 2011, the Company granted 122,000 stock options to various employees pursuant to its 2010 Stock Option Plan.  Each stock option entitles the holder thereof the right to purchase one share of common stock at $ 2.27 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 nine-month period ended January 31, 2010 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 nine months ended January
      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
      $1,598 and $4,634 for the three and nine months ending January 31, 2010.
      The adjustments also result in a decrease in the foreign currency
      translation adjustment of $11,276 and $780,174 for the three and
      nine-month periods ended January 31, 2010. In addition the adjustments
      resulted in an increase in comprehensive loss of $12,874 and $784,808 for
      the three and nine months ended January 31, 2010.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 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 $38,689 and $85,214 for the three and nine-month
      periods ended January 31, 2010.                                                                                                                                                                                                                                                                                                                                                   

24

---

|COUNTERPATH CORPORATION                                     
|------------------------------------------------------------
|NOTES TO THE INTERIM CONSOLIDATED FINANCIAL
      STATEMENTS
|January 31, 2011                                            
|(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 nine-month periods ended January 31, 2010:

As Previously
    
    
    AdjustmentFor the nine
      months ended January 31, 2010
    
    Recorded
    
    
    (a)
    
    
    (b)
    
    
    As RestatedCost of sales
    $
    2,164,966
    
    $
    4,634
    
    $
    (85,215
    )
    $
    2,084,385Loss from operations
    
    (4,421,653
    )
    
    (4,634
    )
    
    85,215
    
    
    (4,341,072
    )Net loss for the period
    
    (4,777,473
    )
    
    (4,634
    )
    
    85,215
    
    
    (4,696,892
    )Foreign currency translation adjustment
    
    2,536,287
    
    
    (780,174
    )
    
    
    
    
    1,756,113Comprehensive loss
    
    (2,241,186
    )
    
    (784,808
    )
    
    85,215
    
    
    (2,940,779
    )


As Previously
    
    
    AdjustmentFor the three
      months ended January 31, 2010
    
    Recorded
    
    
    (a)
    
    
    (b)
    
    
    As RestatedCost of sales
    $
    794,364
    
    $
    1,598
    
    $
    (38,689
    )
    $
    757,273Loss from operations
    
    (1,787,622
    )
    
    (1,598
    )
    
    38,689
    
    
    (1,750,531
    )Net loss for the period
    
    (1,781,584
    )
    
    (1,598
    )
    
    38,689
    
    
    (1,744,493
    )Foreign currency translation adjustment
    
    82,992
    
    
    (11,276
    )
    
    
    
    
    71,716Comprehensive loss
    
    (1,698,592
    )
    
    (12,874
    )
    
    38,689
    
    
    (1,672,777
    )


25

---

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

---

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.

On November 1, 2010, our
company's wholly-owned subsidiary, FirstHand Technologies Inc. was amalgamated
with CounterPath Technologies Inc., carrying on under the name CounterPath
Technologies Inc.

On January 28, 2011, our company
redeemed all of the remaining 9,749 preferred shares of our subsidiary, which
were outstanding. The preferred shares are exchangeable by the holder, or
redeemable by our company, into shares of our common stock on the basis of one
share of our common stock for each preferred share exchanged or redeemed, as
applicable.

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.

27

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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.

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 January 31, 2011 we have a
restructuring accrual for severance of $nil.

28

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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.

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, 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. (which subsequently merged with
CounterPath 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 amended 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 nine
months ended January 31, 2011 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.

29

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A substantial percentage of our
revenue is generated by multiple-element arrangements, such as products,
maintenance and support, professional services and training. When arrangements
include multiple elements, we allocate the total fee among the various elements
using the residual method. Under the residual method, revenue is recognized when
vendor-specific objective evidence, or VSOE, of fair value exists for all of the
undelivered elements of the arrangement, but does not exist for one or more of
the delivered elements of the arrangement. Each arrangement requires us to
analyze the individual elements in the transaction and to estimate the fair
value of each undelivered element, which typically includes maintenance and
services. Revenue is allocated to each of the undelivered elements based on its
respective fair value, with the fair value determined by the price charged when
that element is sold separately.

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

In using the
percentage-of-completion method, revenues are generally recorded based on a
completion of milestones as described in the agreement. Profit estimates on
long-term contracts are revised periodically based on changes in circumstances
and any losses on contracts are recognized in the period that such losses become
known.

Post contract customer support
(PCS) services include e-mail and telephone support, unspecified rights to bug
fixes and product updates and upgrades and enhancements available on a
when-and-if available basis, and are recognized 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 nine months ended January 31, 2011 in determining the expense
recorded in our consolidated statement of operations.

30

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Cost of sales and operating
expenses include stock-based compensation expense, and deferred share unit plan
expense. For the nine months ended January 31, 2011, we recorded an expense of
$691,595 in connection with share-based payment awards. A future expense of
non-vested options of $983,514 is expected to be recognized over a
weighted-average period of 3.33 years. A future expense of non-vested deferred
share units of $240,338 is expected to be recognized over a weighted-average
period of 2.24 years.

Research and Development Expense for Software
Products

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

Accounts Receivable and Allowance for Doubtful Accounts

We extend credit to our customers
based on evaluation of an individual customer's financial condition and
collateral is generally not required. Accounts outstanding beyond the
contractual payment terms are considered past due. We determine our allowance
for doubtful accounts by considering a number of factors, including the length
of time accounts receivable are beyond the contractual payment terms, our
previous loss history, and a customer's current ability to pay its obligation to
us. We write-off accounts receivable when they are identified as uncollectible.
All outstanding accounts receivable 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.

31

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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 nine months ending January 31,
2011.

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 January 31, 2011, 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 nine months ended January 31, 2011 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.

32

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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
nine months ended January 31, 2011 and 2010, and as at January 31, 2011 and
April 30, 2010 has been derived from the consolidated unaudited financial
statements and accompanying notes for the three and nine months ended January
31, 2011 and 2010 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.

|Selected Consolidated Statements of Operations Data |   | Three Months Ended January 31, |  
|--------------------------------------------------- | - | ------------------------------ | -
|                                                    |   | 2011                           |  
|                                                    |   | (Unaudited)                    |  
|                                                    |   |                                |  
|                                                    |   |                                |  
|                                                    |   | Amount                         |  
|Revenue                                             | $ | 3,022,102                      |  
|                                                    |   |                                |  
|Non-GAAP operating expenses1                        |   | 3,384,666                      |  
|Stock-based compensation                            |   | 109,811                        |  
|Amortization of intangible assets                   |   | 214,646                        |  
|GAAP operating expenses                             |   | 3,709,123                      |  
|                                                    |   |                                |  
|Loss from operations                                |   | (687,021                       | )
|Interest and other income, net                      |   | 54,353                         |  
|Foreign exchange gain (loss)                        |   | 141,408                        |  
|Net loss                                            |   | ($491,260                      | )
|                                                    |   |                                |  
|Loss per share                                      |   | ($0.01                         | )
|                                                    |   |                                |  
|Weighted average common shares outstanding          |   | 33,206,905                     |  

|_________________
|-----------------
|1.               

|Selected Consolidated Statements of Operations Data |   | Nine Months Ended January 31, |  
|--------------------------------------------------- | - | ----------------------------- | -
|                                                    |   | 2011                          |  
|                                                    |   | (Unaudited)                   |  
|                                                    |   |                               |  
|                                                    |   |                               |  
|                                                    |   | Amount                        |  
|Revenue                                             | $ | 7,809,350                     |  
|                                                    |   |                               |  
|Non-GAAP operating expenses1                        |   | 9,802,444                     |  
|Stock-based compensation                            |   | 691,595                       |  
|Amortization of intangible assets                   |   | 633,038                       |  
|GAAP operating expenses                             |   | 11,127,077                    |  
|                                                    |   |                               |  
|Loss from operations                                |   | (3,317,727                    | )
|Interest and other income, net                      |   | 393,103                       |  
|Foreign exchange gain (loss)                        |   | 157,108                       |  
|Net loss                                            |   | ($2,767,516                   | )

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|Selected Consolidated Statements of Operations Data |  | Nine Months Ended January 31, |  
|--------------------------------------------------- |  | ----------------------------- | -
|                                                    |  | 2011                          |  
|                                                    |  | (Unaudited)                   |  
|                                                    |  |                               |  
|                                                    |  |                               |  
|                                                    |  | Amount                        |  
|Loss per share                                      |  | ($0.08                        | )
|                                                    |  |                               |  
|Weighted average common shares outstanding          |  | 33,128,861                    |  

|__________________
|------------------
|1.                

|                                         |   | January 31, 2011 |  |   |                | 
|---------------------------------------- | - | ---------------- |  | - | -------------- | 
|Selected Consolidated Balance Sheet Data |   | (Unaudited)      |  |   | April 30, 2010 | 
|Cash                                     | $ | 1,710,007        |  | $ | 1,556,813      | 
|Current assets                           |   | 4,682,972        |  |   | 4,252,772      | 
|Current liabilities                      |   | 3,268,908        |  |   | 3,095,139      | 
|Total liabilities                        |   | 4,651,005        |  |   | 3,198,391      | 
|Total assets                             |   | 14,799,615       |  |   | 14,939,117     | 

Revenue

|                  |   | **Three Months Ended January
      31,** |  |  |             |  |   |                         | 
|----------------- | - | ---------------------------------------- |  |  | ----------- |  | - | ----------------------- | 
|                  |   | 2011                                     |  |  | 2010        |  |   |                         | 
|                  |   | (Unaudited)                              |  |  | (Unaudited) |  |   | Period-to-Period Change | 
|                  |   |                                          |  |  | Percent     |  |   |                         | 
|                  |   |                                          |  |  | of Total    |  |   |                         | 
|                  |   | Amount                                   |  |  | Revenue     |  |   | Amount                  | 
|Revenue by Type   |   |                                          |  |  |             |  |   |                         | 
|Software          | $ | 1,489,825                                |  |  | 49%         |  | $ | 1,030,004               | 
|Service           |   | 1,532,277                                |  |  | 51%         |  |   | 333,414                 | 
|Total revenue     | $ | 3,022,102                                |  |  | 100%        |  | $ | 1,363,418               | 
|                  |   |                                          |  |  |             |  |   |                         | 
|Revenue by Region |   |                                          |  |  |             |  |   |                         | 
|International     | $ | 1,288,071                                |  |  | 43%         |  | $ | 686,752                 | 
|North America     |   | 1,734,031                                |  |  | 57%         |  |   | 676,666                 | 
|Total revenue     | $ | 3,022,102                                |  |  | 100%        |  | $ | 1,363,418               | 

For the three months ended
January 31, 2011, we generated $3,022,102 in revenue compared to $1,363,418 for
the three months ended January 31, 2010. This represents an increase of
$1,658,684 or 122 % from the same period last year. Revenues of $3,022,102 are
net of a $65,997 non-cash charge representing the fair value of 64,050 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 $1,489,825 in
software revenue for the three months ended January 31, 2011 compared to
$1,030,004 for the three months ended January 31, 2010, representing an increase
of $459,821 or 45%. The increase in software revenue was primarily due to
increases in retail sales of our products through our online store and increases
in sales of our products to original equipment manufacturers. For the three
months ended January 31, 2011, service revenue was $1,532,277 compared to
$333,414 for the three months ended January 31, 2010. The increase of $1,198,863
in service revenue was primarily due to the professional engineering and
customization work completed for two significant customers, which totalled
approximately $858,000 or 28% of total revenue for the three months ended
January 31, 2011. International revenue outside of North America increased by
88% during the three months ended January 31, 2011 compared to the three months
ended January 31, 2010, as a result of general growth in sales during the period. North American revenue
increased by 156%, compared to the three months ended January 31, 2010, as a
result of general growth in sales during the three months ended January 31,
2011.

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|                  |   | **Nine Months Ended January 31,** |  |  |             |  |   |                         | 
|----------------- | - | --------------------------------- |  |  | ----------- |  | - | ----------------------- | 
|                  |   | 2011                              |  |  | 2010        |  |   |                         | 
|                  |   | (Unaudited)                       |  |  | (Unaudited) |  |   | Period-to-Period Change | 
|                  |   |                                   |  |  | Percent     |  |   |                         | 
|                  |   |                                   |  |  | of Total    |  |   |                         | 
|                  |   | Amount                            |  |  | Revenue     |  |   | Amount                  | 
|Revenue by Type   |   |                                   |  |  |             |  |   |                         | 
|Software          | $ | 5,060,294                         |  |  | 65%         |  | $ | 3,623,173               | 
|Service           |   | 2,749,056                         |  |  | 35%         |  |   | 1,691,309               | 
|Total revenue     | $ | 7,809,350                         |  |  | 100%        |  | $ | 5,314,482               | 
|                  |   |                                   |  |  |             |  |   |                         | 
|Revenue by Region |   |                                   |  |  |             |  |   |                         | 
|International     | $ | 3,121,270                         |  |  | 40%         |  | $ | 2,241,484               | 
|North America     |   | 4,688,080                         |  |  | 60%         |  |   | 3,072,998               | 
|Total revenue     | $ | 7,809,350                         |  |  | 100%        |  | $ | 5,314,482               | 

For the nine months ended January
31, 2011, we generated $7,809,350 in revenue compared to $5,314,482 for the nine
months ended January 31, 2010. This represents an increase of $2,494,868 or 47%
from the same period last year. Revenues of $7,809,350 are net of a $227,707
non-cash charge representing the fair value of 455,717 warrants that were
charged against revenue during the nine months ended January 31, 2011. 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, 2011, 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 $5,060,294 in
software revenue for the nine months ended January 31, 2011 compared to
$3,623,173 for the nine months ended January 31, 2010, representing an increase
of $1,437,121 or 40%. The increase in software revenue was primarily due to
increases in retail sales of our products through our online store and an
increase in sales of our products to original equipment manufacturers. For the
nine months ended January 31, 2011, service revenue was $2,749,056 compared to
$1,691,309 for the nine months ended January 31, 2010. The increase of
$1,057,747 in service revenue was primarily due to the professional engineering
and customization work completed for two significant customers, which totalled
approximately $858,000 or 11% of total revenue for the nine months ended January
31, 2011. International revenue outside of North America increased by 39% during
the nine months ended January 31, 2011 compared to the nine months ended January
31, 2010, due primarily to increases in sales to Europe. North American revenue
increased by 53%, compared to the nine months ended January 31, 2010, due
primarily to general increases in sales.

Operating Expenses

Cost of Sales

Cost of sales for the three and nine
months ended January 31, 2011 and 2010 were as follows:

|                   |   |                  |  |  |                    |  |   | January 31, 2010        |  |  |         |  |   |         |  
|------------------ | - | ---------------- |  |  | ------------------ |  | - | ----------------------- |  |  | ------- |  | - | ------- | -
|                   |   | January 31, 2011 |  |  | Restated  Note 14 |  |   |                         |  |  |         | 
|                   |   | (Unaudited)      |  |  | (Unaudited)        |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent            |  |   |                         |  |  | Percent |  |   |         |  
|                   |   |                  |  |  | of                 |  |   |                         |  |  | of      |  |   |         |  
|                   |   | Amount           |  |  | Revenue            |  |   | Amount                  |  |  | Revenue |  |   | Amount  |  
|Three months ended | $ | 724,309          |  |  | 24%                |  | $ | 757,273                 |  |  | 56%     |  | $ | (32,964 | )
|Nine months ended  | $ | 2,168,993        |  |  | 28%                |  | $ | 2,084,385               |  |  | 39%     |  | $ | 84,608  |  

Cost of sales was $724,309 for
the three months ended January 31, 2011 compared to $757,273 for the three
months ended January 31, 2010. The decrease of $32,964 was primarily
attributable to a decrease in third party licence costs of approximately $54,000. This was offset
by increases in wages and benefits of approximately $19,000. Cost of sales for
the three months ended January 31, 2011 includes $214,646 (2010 - $221,968)
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

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Cost of sales was $2,168,993 for
the nine months ended January 31, 2011 compared to $2,084,385 for the nine
months ended January 31, 2010. The increase of $84,608 was primarily
attributable to an increase in wages and benefits of approximately $153,000 as
new employees were hired during the period. Additionally, there was an increase
in warranty expense of approximately $56,000 as a result of the overall increase
in revenue. The increase in cost of sales was offset by a decrease in third
party license costs of approximately $111,000, and a decrease of approximately
$28,000 in stock based compensation expense. Cost of sales for the nine months
ended January 31, 2011 includes $633,038 (2010 - $647,559) 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.

Sales and Marketing

Sales and marketing expenses for
the three and nine months ended January 31, 2011 and 2010 were as follows:

|                   |   | January 31, 2011 |  |  | January 31, 2010 |  |   |                         |  |  |         | 
|------------------ | - | ---------------- |  |  | ---------------- |  | - | ----------------------- |  |  | ------- | 
|                   |   | (Unaudited)      |  |  | (Unaudited)      |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent          |  |   |                         |  |  | Percent | 
|                   |   |                  |  |  | of               |  |   |                         |  |  | of      | 
|                   |   | Amount           |  |  | Revenue          |  |   | Amount                  |  |  | Revenue | 
|Three months ended | $ | 841,230          |  |  | 28%              |  | $ | 644,212                 |  |  | 47%     | 
|Nine months ended  | $ | 2,607,177        |  |  | 33%              |  | $ | 2,093,768               |  |  | 39%     | 

Sales and marketing expenses were
$841,230 for the three months ended January 31, 2011 compared to $644,212 for
the three months ended January 31, 2010. The increase of $197,018 was primarily
a result of an increase of approximately $85,000 in wages and benefits due to
new employees hired. There was also an increase in professional and consulting
fees of approximately $14,000. Other sales and marketing expenses, which include
office related expenses, increased by approximately $12,000 and stock based
compensation increased by approximately $13,000. There was also an increase in
commissions of approximately $74,000 as a result of higher sales for the
period.

Sales and marketing expenses were
$2,607,177 for the nine months ended January 31, 2011 compared to $2,093,768 for
the nine months ended January 31, 2010. The increase of $513,409 was primarily a
result of an increase of approximately $298,000 in wages and benefits due to new
employees hired. There was also an increase in professional and consulting fees
of approximately $57,000. Sales and marketing related travel expenses increased
by approximately $66,000 during the period. There was also an increase in
commissions of approximately $88,000 as a result of higher sales for the
period.

Research and Development

Research and development expenses
for the three and nine months ended January 31, 2011 and 2010 were as follows:

|                   |   | January 31, 2011 |  |  | January 31, 2010 |  |   |                         |  |  |         | 
|------------------ | - | ---------------- |  |  | ---------------- |  | - | ----------------------- |  |  | ------- | 
|                   |   | (Unaudited)      |  |  | (Unaudited)      |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent          |  |   |                         |  |  | Percent | 
|                   |   |                  |  |  | of               |  |   |                         |  |  | of      | 
|                   |   | Amount           |  |  | Revenue          |  |   | Amount                  |  |  | Revenue | 
|Three months ended | $ | 1,157,581        |  |  | 38%              |  | $ | 797,162                 |  |  | 58%     | 
|Nine months ended  | $ | 3,317,343        |  |  | 42%              |  | $ | 2,621,884               |  |  | 49%     | 

Research and development expenses
were $1,157,581 for the three months ended January 31, 2011 compared to $797,162
for the three months ended January 31, 2010. The increase of $360,419 was
primarily a result of an increase of approximately $124,000 in wages and
benefits as a result of new employee hires. There was also an increase of
approximately $169,000 in license costs related to research and development.
Professional services also increased by approximately $54,000 due to a
combination of new hires and consulting fee increases to the existing
consultants.

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Research and development expenses
were $3,317,343 for the nine months ended January 31, 2011 compared to
$2,621,884 for the nine months ended January 31, 2010. The increase of $695,459
was primarily a result of an increase of approximately $278,000 in wages and
benefits as new employees were hired during the period. Professional services
also increased by approximately $226,000 due to a combination of new hires and
consulting fee increases to the existing consultants. There was also an increase
of approximately $210,000 in license costs.

General and Administrative

General and administrative
expenses for the three and nine months ended January 31, 2011 and 2010 were as
follows:

|                   |   | January 31, 2011 |  |  | January 31, 2010 |  |   |                         |  |  |         | 
|------------------ | - | ---------------- |  |  | ---------------- |  | - | ----------------------- |  |  | ------- | 
|                   |   | (Unaudited)      |  |  | (Unaudited)      |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent          |  |   |                         |  |  | Percent | 
|                   |   |                  |  |  | of               |  |   |                         |  |  | of      | 
|                   |   | Amount           |  |  | Revenue          |  |   | Amount                  |  |  | Revenue | 
|Three months ended | $ | 986,003          |  |  | 33%              |  | $ | 915,302                 |  |  | 67%     | 
|Nine months ended  | $ | 3,033,564        |  |  | 39%              |  | $ | 2,810,605               |  |  | 53%     | 

General and administrative
expenses were $986,003 for the three months ended January 31, 2011 compared to
$915,302 for the three months ended January 31, 2010. The increase of $70,701 in
general and administrative expenses was primarily a result of an increase in bad
debts by approximately $117,000, increase in wages and benefits by approximately
$135,000, and an increase in professional fees by approximately $108,000. This
increase was partially offset by a decrease of approximately $235,000 in stock
based compensation, and $52,000 in other office related expenses.

General and administrative
expenses were $3,033,564 for the nine months ended January 31, 2011 compared to
$2,810,605 for the nine months ended January 31, 2010. The increase of $222,959
in general and administrative expenses was primarily a result of an increase of
approximately $179,000 in wages and benefits, $12,000 in stock based
compensation and approximately $108,000 in patent expenses. There was also an
increase in investor relations expenses of approximately $59,000. The above
mentioned increases were partially offset by a decrease of approximately
$133,000 in bad debts and approximately $10,000 in travel expenses.

Restructuring Charges

Restructuring charges for the three and nine months ended
January 31, 2011 and 2010 were as follows:

|                   |   | January 31, 2011 |  |  | January 31, 2010 |  |   |                         |  |  |         | 
|------------------ | - | ---------------- |  |  | ---------------- |  | - | ----------------------- |  |  | ------- | 
|                   |   | (Unaudited)      |  |  | (Unaudited)      |  |   | Period-to-Period Change | 
|                   |   |                  |  |  | Percent          |  |   |                         |  |  | Percent | 
|                   |   |                  |  |  | of               |  |   |                         |  |  | of      | 
|                   |   | Amount           |  |  | Revenue          |  |   | Amount                  |  |  | Revenue | 
|Three months ended | $ | nil              |  |  | n/a              |  | $ | nil                     |  |  | n/a     | 
|Nine months ended  | $ | nil              |  |  | n/a              |  | $ | 44,912                  |  |  | 1%      | 

There were no restructuring charges
for the three months ended January 31, 2011 ($nil - 2010).

Restructuring charges for the
nine months ended January 31, 2011 were $nil compared to $44,912 for the nine
months ended January 31, 2010. The restructuring charges for the nine months
ended January 31, 2010 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.

37

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Interest and Other Income

Interest and other income for the three months ended January 31, 2011 was $96,505 compared to $53,239 for the three months ended January 31, 2010, primarily due to additional income of $35,000 from  sub lease of office premises for the three months ended January 31, 2011.  Interest and other expense for the three months ended January 31, 2011 was $42,152 compared to $685 for the three months ended January 31, 2010 primarily due to the interest payable on the convertible debentures issued in July and October 2010, and accretion of convertible debenture discount.

Interest and other income for the nine months ended January 31, 2011 was $191,293 compared to $114,813 for the nine months ended January 31, 2010, primarily due to additional  income of $35,000 from sub lease of office premises.  Interest expense for the nine months ended January 31, 2011 was $44,905 compared to $2,356 for the nine months ended January 31, 2010, primarily due to  interest payable on the convertible debentures issued in July and October 2010, and accretion of convertible debenture discount.

Foreign exchange gain for the
three months ended January 31, 2011 was $141,408 compared to a loss of $46,516
for the three months ended January 31, 2010. Foreign exchange gain for the nine
months ended January 31, 2011 was $157,108 compared to a loss of $468,277 for
the nine months ended January 31, 2010. 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 nine months ended
January 31, 2011 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 January 31, 2011, we had
$1,710,007 in cash compared to $1,556,813 at April 30, 2010, representing an
increase of $153,194. Our working capital was $1,414,064 at January 31, 2011
compared to $1,157,633 at April 30, 2010, representing an increase of
$256,431.

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 January 31, 2011, we had cash
of approximately $1.71 million and working capital of approximately $1.41
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 and external financing.

Operating Activities

Our operating activities resulted
in a net cash outflow of $1,327,616 for the nine months ended January 31, 2011.
This compares to a net cash outflow of $2,530,689 for the same period last year
and represents a decrease of $1,203,073 in cash outflow from operations compared
to the same period last year. The net cash outflow from operating activities for
the nine months ended January 31, 2011 was primarily a result of a net loss of
$2,767,516 and a $347,317 increase in accounts receivable partially offset by a
$187,274 increase in unearned revenue. The net cash outflow was further offset
by adjustments for non-cash expenses including $691,595 for stock-based
compensation, $633,038 for amortization of intangible assets, $227,707 for a
warrants issued and $104,647 for depreciation and amortization.

The net cash outflow from
operating activities for the nine months ended January 31, 2010 was primarily a
result of a net loss of $4,696,892, a $529,867 decrease in other assets related
to a forward contract settlement, a $207,339 decrease in unearned revenue, and a
$236,327 decrease in accounts payable partially offset by a $1,066,118 decrease
in accounts receivable. 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 $747,198 for stock-based
compensation, $647,559 for amortization of intangible assets, $468,277 for
foreign exchange loss and $220,219 for depreciation and amortization.

38

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Investing Activities

Investing activities resulted in
a net cash outflow of $97,673 for the nine months ended January 31, 2011
primarily as a result of purchases of equipment and increases in deposits. This
compares with a net cash outflow from investing activities of $27,901 for the
same period last year primarily as a result of purchases of equipment offset by
return of deposits. At January 31, 2011, we did not have any material
commitments for future capital expenditures.

Financing Activities

Financing activities resulted in
a net cash inflow of $1,624,916 for the nine months ended January 31, 2011
compared to a net cash inflow of $1,881,854 for the nine months ended January
31, 2010.

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. Our company is currently assessing the impact of
adoption of ASU 2009-14 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. Our
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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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. Our company adopted the provisions of
ASU 2010-06 and it did not have a material impact on the financial statements
for the quarter ended January 31, 2011.

Item 4. 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.

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

During the quarter ended January
31, 2011 and, in connection with restatement described above and the steps to
remediate our disclosure controls and procedures, we made the following changes
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting: (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.

40

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PART II

Item 1. Legal Proceedings.

None.

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.

41

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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.

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.

42

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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;
- 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.

43

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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.

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.

44

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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.

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 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.

On January 28, 2011, we redeemed
all of the remaining 9,749 preferred shares of our subsidiary which were
outstanding. The preferred shares are exchangeable by the holder, or redeemable
by our company, into shares of our common stock as to one share of our common
stock for one preferred share. The shares of our common stock are issuable 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 provided certain other conditions are met.

45

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and Reserved.]

Item 5. Other Information.

None.

Item 6. Exhibits.

|(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).

46

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|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  | 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).                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                           
|10.10 | 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).                                                  
|      |                                                                                                                                                                                                                                                                                                                           
|10.11 | 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).                        
|      |                                                                                                                                                                                                                                                                                                                           
|10.12 | 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).                                           
|      |                                                                                                                                                                                                                                                                                                                           
|10.13 | 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).                                                   
|      |                                                                                                                                                                                                                                                                                                                           
|10.14 | 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).
|      |                                                                                                                                                                                                                                                                                                                           
|10.15 | 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).                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                           
|10.16 | 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).                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                           
|10.17 | 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).                                                                              
|      |                                                                                                                                                                                                                                                                                                                           
|10.18 | 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).                                                                                          
|      |                                                                                                                                                                                                                                                                                                                           
|10.19 | 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).                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                           
|10.20 | 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).                                                                                     
|      |                                                                                                                                                                                                                                                                                                                           
|10.21 | 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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|10.22 | Deferred Share
        Unit Plan effective October 22, 2009 (incorporated by reference from our
        Definitive Proxy Statement on Schedule 14A filed on September 8, 2009).                                   
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                   
|10.23 | 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).
|      |                                                                                                                                                                                                                   
|10.24 | 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).     
|      |                                                                                                                                                                                                                   
|10.25 | 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)                                                                                                                                                              
|      |                                                                                                                                                                                                                   
|      | 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: March 10, 2011                                   | 
|    |                                                        | 
|    |                                                        | 
|    | /s/
      David Karp                                   | 
|    | David Karp                                             | 
|    | Chief Financial Officer, Treasurer and
      Secretary | 
|    | Date: March 10, 2011                                   | 

49

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