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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended **July 31, 2007**

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

For the transition period from ______________ to
______________

Commission file number **000-50346**

COUNTERPATH SOLUTIONS, INC.(Name of small business issuer as 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 of principal
executive offices)

(604) 320-3344(Issuers telephone number)

Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 is a shell company
(as defined in Rule 12b-2 of the Exchange Act). (Check one): Yes
[   ]   No [X]

As of September 12, 2007, there were 89,591,803 shares of the
issuers common stock issued and outstanding, par value $0.001.

Transitional Small Business Disclosure Format (Check one): Yes
[   ]   No [X]

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COUNTERPATH SOLUTIONS, INC.JULY 31, 2007
QUARTERLY REPORT ON FORM 10-QSB

INDEX

|                  |                                                                                        | Page
|----------------- | -------------------------------------------------------------------------------------- | ----
|                  |                                                                                        |     
|                  | Part
      I                                                                           |     
|Item
      1.     | Consolidated
      Financial Statements                                                | 3   
|Item
      2.     | Managements
      Discussion and Analysis or Plan of Operations                       | 18  
|Item
      3(A)T. | Controls
      and Procedures                                                          | 29  
|                  | Part
      II                                                                          |     
|Item
      1.     | Legal
      Proceedings                                                                | 30  
|Item
      2.     | Unregistered
      Sales of Equity Securities and Use of Proceeds                      | 30  
|Item
      3.     | Defaults
      Upon Senior Securities                                                  | 30  
|Item
      4.     | Submission
      of Matters to a Vote of Security Holders                              | 30  
|Item
      5.     | Other
      Information                                                                | 30  
|Item
      6.     | Exhibits
      and Reports on Form 8-K                                                 | 30  
|                  | Exhibits                                                                               |     
|31                | Section
      302 Certification of Chief Executive Officer and Chief Financial Officer |     
|32                | Certification Pursuant
      to U.S.C. 18 Section 1350                                 |     

2

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

COUNTERPATH SOLUTIONS, INC.INDEX TO INTERIM
CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2007 (Unaudited)(Stated in U.S. Dollars)

|                                                                           | Page  
|-------------------------------------------------------------------------- | ------
|                                                                           |       
|Interim Consolidated
      Balance Sheets                                  | 4     
|                                                                           |       
|Interim Consolidated
      Statements of Operations and Comprehensive Loss | 5     
|                                                                           |       
|Interim Consolidated
      Statements of Cash Flows                        | 6     
|                                                                           |       
|Interim Consolidated
      Statement of Changes in Capital Deficit         | 7     
|                                                                           |       
|Notes to the Interim
      Consolidated Financial Statements               | 8  17

3

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COUNTERPATH SOLUTIONS, INC. INTERIM CONSOLIDATED BALANCE
SHEETS(Stated in U.S. Dollars)

|                                                                     |   | July 31,    |   |   | April 30,  |  
|-------------------------------------------------------------------- | - | ----------- | - | - | ---------- | -
|                                                                     |   | 2007        |   |   | 2007       |  
|                                                                     |   | (Unaudited) |   |   |            |  
|Assets                                                               |   |             |   |   |            |  
|Current assets:                                                      |   |             |   |   |            |  
|Cash                                                                 | $ | 1,411,173   |   | $ | 1,680,220  |  
|Accounts receivable (net of allowance
      for doubtful accounts of |   |             |   |   |            |  
|$57,984 and $56,817
      respectively)                              |   | 1,619,383   |   |   | 1,924,899  |  
|Prepaid expenses and deposits                                        |   | 103,002     |   |   | 129,534    |  
|Total current assets                                                 |   | 3,133,558   |   |   | 3,734,653  |  
|                                                                     |   |             |   |   |            |  
|Deposits - Note 7                                                    |   | 78,084      |   |   | 74,613     |  
|Equipment                                                            |   | 227,032     |   |   | 276,599    |  
|Deferred income tax asset                                            |   | 173,385     |   |   |           |  
|Other assets                                                         |   | 105,649     |   |   | 25,716     |  
|Total Assets                                                         | $ | 3,717,708   |   | $ | 4,111,581  |  
|                                                                     |   |             |   |   |            |  
|Liabilities and Capital Deficit                                      |   |             |   |   |            |  
|Current liabilities:                                                 |   |             |   |   |            |  
|Accounts payable and
      accrued liabilities                       | $ | 1,392,728   |   | $ | 1,314,083  |  
|Due to related parties                                               |   | 25,417      |   |   | 25,417     |  
|Unearned revenue                                                     |   | 607,521     |   |   | 408,188    |  
|Customer deposits                                                    |   | 39,206      |   |   | 5,615      |  
|Warranty payable                                                     |   | 69,173      |   |   | 83,769     |  
|Total
      current liabilities                                      |   | 2,134,045   |   |   | 1,837,072  |  
|                                                                     |   |             |   |   |            |  
|Convertible debentures  Note 4                                      |   | 3,459,800   |   |   | 3,369,230  |  
|Unrecognized tax benefit  Note 2(c)                                 |   | 271,960     |   |   |           |  
|Total
      liabilities                                              |   | 5,865,805   |   |   | 5,206,302  |  
|                                                                     |   |             |   |   |            |  
|Stockholders equity (capital deficit):                              |   |             |   |   |            |  
|Common stock, $0.001 par value  Note
      5                        |   |             |   |   |            |  
|Authorized: 415,384,500                                              |   |             |   |   |            |  
|Issued and outstanding:                                              |   |             |   |   |            |  
|July 31, 2007  37,940,983; April 30,
      2007  37,940,983        |   | 37,941      |   |   | 37,941     |  
|Additional paid-in capital                                           |   | 5,050,343   |   |   | 4,820,069  |  
|Accumulated deficit                                                  |   | (7,149,861  | ) |   | (5,872,151 | )
|Accumulated other comprehensive loss
       currency translation    |   |             |   |   |            |  
|adjustment                                                           |   | (86,520     | ) |   | (80,580    | )
|Total capital deficit                                                |   | (2,148,097  | ) |   | (1,094,721 | )
|Liabilities and Capital Deficit                                      | $ | 3,717,708   |   | $ | 4,111,581  |  
|                                                                     |   |             |   |   |            |  
|Going concern (Note 2)                                               |   |             |   |   |            |  
|New accounting pronouncement (Note 2(c))                             |   |             |   |   |            |  
|Commitments and Contingent Liability (Notes 7 and 8)                 |   |             |   |   |            |  
|Subsequent events (Note 9)                                           |   |             |   |   |            |  

See accompanying notes to the consolidated financial
statements

4

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COUNTERPATH SOLUTIONS, INC. INTERIM CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(Stated in U.S. Dollars)
(Unaudited)

|                                         |   | Three Months Ended |  
|---------------------------------------- | - | ------------------ | -
|                                         |   | July
      31,     |  
|                                         |   | 2007               |  
|                                         |   |                    |  
|Revenue  Note 6:                        |   |                    |  
|Software                                 | $ | 769,008            |  
|Service                                  |   | 457,783            |  
|Total revenue                            |   | 1,226,791          |  
|Cost of revenue:                         |   |                    |  
|Software                                 |   | 134,415            |  
|Service                                  |   | 226,743            |  
|Total cost of revenue                    |   | 361,158            |  
|Gross
      profit                       |   | 865,633            |  
|Operating expenses:                      |   |                    |  
|Sales and marketing                      |   | 454,883            |  
|Research and development                 |   | 766,468            |  
|General and administrative               |   | 724,527            |  
|Total operating expenses                 |   | 1,945,878          |  
|Loss
      from operations               |   | (1,080,245         | )
|Interest and other income (expense), net |   |                    |  
|Interest income                          |   | 15,524             |  
|Interest expense - Notes 3 and 4         |   | (140,576           | )
|Net loss for the period                  | $ | (1,205,297         | )
|Other comprehensive loss:                |   |                    |  
|Foreign currency translation adjustments |   | (5,940             | )
|Comprehensive loss                       | $ | (1,211,237         | )
|Net loss per share:                      |   |                    |  
|Basic and diluted                        | $ | (0.03              | )
|Weighted average common                  |   |                    |  
|shares outstanding:                      |   | 37,940,983         |  

See accompanying notes to the consolidated financial statements

5

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COUNTERPATH SOLUTIONS, INC.INTERIM CONSOLIDATED
STATEMENTS OF CASH FLOWS(Stated in U.S. Dollars) (Unaudited)

|                                                            |   | Three Months Ended |  
|----------------------------------------------------------- | - | ------------------ | -
|                                                            |   | July
      31,     |  
|                                                            |   | 2007               |  
|Cash flows from operating activities:                       |   |                    |  
|Net loss for the period                                     | $ | (1,205,297         | )
|Adjustments to reconcile
      net loss to net cash used in |   |                    |  
|operating activities:                                       |   |                    |  
|Depreciation
      and amortization                         |   | 64,224             |  
|Stock-based compensation
      -Note 5                      |   | 230,274            |  
|Accretion
      of convertible debenture discount - Note 4  |   | 90,570             |  
|Cumulative-effect adjustment
       Note 2(c)              |   | (72,413            | )
|Changes in assets and liabilities:                          |   |                    |  
|Accounts receivable                                         |   | 307,255            |  
|Prepaid expenses
      and deposits                         |   | 27,086             |  
|Deferred income taxes                                       |   | (173,385           | )
|Accounts
      payable and accrued liabilities              |   | 50,004             |  
|Unearned revenue                                            |   | 199,333            |  
|Customer
      deposits                                     |   | 33,591             |  
|Unrecognized tax benefit
       Note 2(c)                  |   | 271,960            |  
|Warranty
      payable                                      |   | (14,596            | )
|Net cash used in operating activities                       |   | (191,394           | )
|                                                            |   |                    |  
|Cash flows from investing activities:                       |   |                    |  
|Purchase of equipment                                       |   | (14,658            | )
|Deposits                                                    |   | -                  |  
|Increase in other assets                                    |   | (79,933            | )
|Net cash used in investing activities                       |   | (94,591            | )
|                                                            |   |                    |  
|Cash flows from financing activities:                       |   |                    |  
|Common stock issued                                         |   | -                  |  
|Decrease in due to related parties                          |   | -                  |  
|Net cash used in financing activities                       |   | -                  |  
|                                                            |   |                    |  
|Foreign currency translation effect on cash                 |   | 16,938             |  
|                                                            |   |                    |  
|Decrease in cash during the year                            |   | (269,047           | )
|                                                            |   |                    |  
|Cash, beginning of the period                               |   | 1,680,220          |  
|Cash, end of the period                                     | $ | 1,411,173          |  
|                                                            |   |                    |  
|Supplemental disclosure of cash flow information            |   |                    |  
|Cash paid for:                                              |   |                    |  
|Interest                                                    | $ | 50,006             |  

See accompanying notes to the consolidated financial statements

6

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COUNTERPATHSOLUTIONS,INC.CONSOLIDATEDSTATEMENTSOFCHANGESINCAPITALDEFICITfor the ThreeMonthsEnded July 31, 2007(Stated in U.S. Dollars)

AccumulatedNumber
      
      
      
      
      
      Additional
      
      
      
      
      
      OtherOf
      
      
      
      
      
      Paid-in
      
      
      Accumulated
      
      
      ComprehensiveShares
      
      
      Par
        Value
      
      
      Capital
      
      
      Deficit
      
      
      Loss
      
      
      TotalBalance, May 1, 2007
      37,940,983
      
      $
      37,941
      
      $
      4,820,069
      
      $
      (5,872,151
      )
      $
      (80,580
      )
      $
      (1,094,721
      )Stock-based compensation - Note 5
      -
      
      
      -
      
      
      230,274
      
      
      -
      
      
      -
      
      
      230,274Net loss for the period
      -
      
      
      -
      
      
      -
      
      
      (1,205,297
      )
      
      -
      
      
      (1,205,297
      )Foreign currency translation adjustment
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (5,940
      )
      
      (5,940
      )Cumulative-effect adjustment  Note
        2(c)
      -
      
      
      -
      
      
      -
      
      
      (72,413
      )
      
      -
      
      
      (72,413
      )Balance, July 31, 2007 (Unaudited)
      37,940,983
      
      $
      37,941
      
      $
      5,050,343
      
      $
      (7,149,861
      )
      $
      (86,520
      )
      $
      (2,148,097
      )


Seeaccompanyingnotes to theconsolidatedfinancialstatements

7

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COUNTERPATH SOLUTIONS, INC.NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Stated in U.S. Dollars)
(Unaudited)

|Note 1 | Nature of
      Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | CounterPath Solutions, Inc. was incorporated in the State
      of Nevada on April 18, 2003. The Companys common shares are quoted for
      trading on the NASD Over-The-Counter Bulletin Board in the United States
      of America. On August 2, 2007, the Company completed the acquisition of
      all of the shares of NewHeights Software Corporation through the issuance
      of 38,400,820 shares of the Companys common stock and 1,849,180 preferred
      shares issued from a wholly-owned subsidiary of the Company that are
      exchangeable into 1,849,180 shares of common stock of the Company (see 
      Note 9 (b)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | The Company provides Voice over Internet Protocol
      software and related services to customers in North America, South
      America, Europe, Asia and other areas of the world including Australia,
      New Zealand and Africa.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Note 2 | Significant Accounting Policies, Going Concern and
      Change in Accounting Policy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | 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
      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 judgement. Actual results may vary from these
      estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       | 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 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 July 31, 2007,
      the Company has not yet achieved profitable operations and has generated
      an accumulated deficit of $7,149,861 since incorporation. These factors
      raise substantial doubt regarding the Companys ability to continue as a
      going concern. 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
      interim consolidated financial statements have, in managements opinion,
      been properly prepared within the framework of the significant accounting
      policies summarized below:

| | a) | Basis of Presentation                                                                                                                                                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                   
| |    | These interim consolidated financial statements include
      the accounts of the Company and its wholly owned subsidiary, CounterPath
      Solutions R&D Inc., a company incorporated by the Company on May 10,
      2004 in British Columbia, Canada. All inter-company transactions and
      balances have been eliminated.

8

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**COUNTERPATH SOLUTIONS, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS**(Stated in U.S. Dollars)
(Unaudited)

|Note 2 | Significant Accounting
      Policies, Going Concern and Change in Accounting Policy
      (contd)
|------ | ----------------------------------------------------------------------------------------------------

| | b) | Interim Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The information presented in the accompanying interim
      consolidated financial statements is without audit pursuant to the rules
      and regulations of the Securities and Exchange Commission. Certain
      information and footnote disclosures normally included in the financial
      statements prepared in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to such rules and
      regulations, although the Company believes that the disclosures are
      adequate to make the information presented not misleading.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | These statements reflect all adjustments, which are, in
      the opinion of management, necessary to present fairly the financial
      position, results of operations and cash flows for the interim periods
      presented in accordance with accounting principles generally accepted in
      the United States of America. Except where noted, these interim financial
      statements follow the same accounting policies and methods of their
      application as the Companys April 30, 2007 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 April 30, 2007 annual consolidated financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Operating results for the three months ended July 31,
      2007 are not necessarily indicative of the results that can be expected
      for the year ending April 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | c) | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In July 2006, the FASB issued Interpretation No. 48,
      "Accounting for Uncertainty in Income Taxes, an Interpretation of FAS 109
      ("FIN 48") which clarifies the accounting for uncertainty in income taxes
      recognized in accordance with FAS 109, "Accounting For Income Taxes." FIN
      48 clarifies the accounting for uncertainty in income taxes by prescribing
      a minimum recognition threshold for a tax position taken or expected to be
      taken in a tax return that is required to be met before being recognized
      in the financial statements. FIN 48 also provides guidance on
      derecognition, measurement, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. Additionally,
      companies are required to accrue interest and related penalties, if
      applicable, on all tax exposures consistent with jurisdictional tax laws.
      This interpretation is effective for fiscal years beginning December 15,
      2006. The Company adopted the provisions of FIN 48 on May 1, 2007. The
      cumulative effect of adopting FIN 48 of $72,413 was recorded as a
      reduction to retained earnings. The total amount of unrecognized tax
      benefits as of the date of adoption was $245,362. Of this amount, $245,362
      represents the amount that would reduce the Companys effective income tax
      rate, if recognized in future periods.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company recognizes interest and penalties accrued on
      unrecognized tax benefits within income tax expense. As of the date of
      adoption, we had $100,813 of interest and penalties accrued associated
      with unrecognized tax benefits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company is subject to taxation in the U.S. and
      Canada. It is subject to tax examinations by tax authorities for all
      taxation years commencing in or after 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | As of July 31, 2007, the amount of unrecognized tax
      benefits has increased by $26,598                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | d) | Comparative Figures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Certain comparative figures have been reclassified to
      conform to the current periods presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

9

---

**COUNTERPATH SOLUTIONS, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS**(Stated in U.S. Dollars)
(Unaudited)

|Note 3 | Related Party
      Transactions                                                                                                                                                                                                                                  
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                   
|       | During the three months ended July 31, 2007 and 2006, the
      Company incurred the following expenses to a company with a director in
      common with the Company and to a company controlled by the spouse of a
      significant shareholder of the Company:

| |                                   |   | Three Months Ended | 
| | --------------------------------- | - | ------------------ | 
| |                                   |   | July 31, 2007      | 
| |                                   |   | 2007               | 
| |                                   |   |                    | 
| | Interest on convertible debenture | $ | 38,333             | 

|       | The above transactions are in the normal course of
      operations and are recorded at amounts established and agreed to between
      the related parties. The amounts due to these related parties at July 31,
      2007 are unsecured, non-interest bearing and have no stated terms of
      repayment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Note 4 | Convertible Debenture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       | On November 30, 2006, the Company completed the issuance
      of convertible debentures in the principal amount of $4,000,000 to a group
      of investors including a company controlled by the spouse of a significant
      shareholder of the Company. The debentures are unsecured, bear interest at
      5% per annum with interest payable quarterly and mature on November 30,
      2008. The investors may convert the debentures at any time, and from time
      to time, in whole or in part into common shares of the Company at a
      conversion price of $0.40 per share. Consideration for $2,000,000 of the
      new convertible debenture was the cancellation of the $2,000,000 debenture
      originally issued on December 13, 2005. In addition, the outstanding share
      purchase warrants for the purchase of up to 2,500,000 shares of common
      stock at a price of $0.80 per share, which were issued in connection with
      the December 2005 debenture were cancelled on closing. The new debentures
      rank senior to the Companys other existing and future indebtedness as
      long as they remain outstanding. Under the terms of the private placement,
      the investors also received share purchase warrants for the purchase of up
      to 5,000,000 shares of the Companys common stock, exercisable for three
      years at a price of $0.80 per share.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       | The new convertible debenture was recorded on the date of
      issuance at its fair value which is estimated to approximate its face
      value with the proceeds raised allocated between the convertible
      debenture, share purchase warrants (based on their relative fair values)
      and beneficial conversion feature on the basis of their relative fair
      values in accordance with EITF 00-27, Application of Issue No. 98-5 to
      Certain Convertible Instruments (EITF 00-27). The Company used the
      Black-Scholes option pricing model to determine the fair value of the
      share purchase warrants using the Companys historical prices and the
      following assumptions (i) risk-free interest rate of 4.52%, (ii) expected
      volatility of 82.02%, (iii) expected life of 3 years, and (iv) a dividend
      yield of nil. At the date of issuance of the new debenture, the Company
      allocated $3,227,590 to the convertible debenture $336,205 to the share
      purchase warrants and $436,206 to the beneficial conversion feature. The
      amounts allocated to the share purchase warrants and beneficial conversion
      feature represents a discount on the debt financing which is accreted to
      income over the term of the debt.                                                                                                              

10

---

**COUNTERPATH SOLUTIONS, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS**(Stated in U.S. Dollars)
(Unaudited)

|Note 4 | Convertible Debenture (contd)                                             
|------ | ----------------------------------------------------------------------------
|       |                                                                             
|       | The convertible debenture and
      debt discount are summarized as follows:

| |                                         |   | Face      |  |   |          |   |   | Carrying  | 
| | --------------------------------------- | - | --------- |  | - | -------- | - | - | --------- | 
| |                                         |   | Amount    |  |   | Discount |   |   | Value     | 
| |                                         |   |           |  |   |          |   |   |           | 
| | Convertible debenture at April 30, 2007 | $ | 4,000,000 |  | $ | 630,770  |   | $ | 3,369,230 | 
| | Accretion of debt discount              |   | -         |  |   | (90,570  | ) |   | 90,570    | 
| | Convertible debenture at July 31, 2007  | $ | 4,000,000 |  | $ | 540,200  |   | $ | 3,459,800 | 

|       | During the three months ended July 31, 2007, the Company
      recorded an accretion expense of $90,570 (2006  $17,102)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Note 5 | Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       | 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
      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 under the stock option plans are 4,000,000 under 2004
      Stock option plan and 12,000,000 under the 2005 Stock option plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       | Effective May 1, 2006, with the adoption of SFAS No.
      123R, the Company has elected to use the Black-Scholes option pricing
      model to determine the fair value of stock options granted. In accordance
      with SFAS No. 123R 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 contract services period or, if none
      exists, from the date of grant until the options vest. 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 SFAS No. 123R using the
      historical stock price. The expected term of options granted to employees
      in the current fiscal year has been determined utilizing the simplified
      method as prescribed by SAB No. 107, 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, SFAS No. 123R requires companies to utilize an
      estimated forfeiture rate when calculating the expense for the period,
      whereas prior to the adoption of SFAS No. 123R the Company recorded
      forfeitures based on actual forfeitures and recorded 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% in fiscal 2007 in
      determining the expense recorded in the accompanying consolidated
      statement of operations.

11

---

**COUNTERPATH SOLUTIONS, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS**(Stated in U.S. Dollars)
(Unaudited)

|Note 5 | Common Stock
      (contd)                                                                                                                                                                                                        
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                     
|       | Stock Options (contd)                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                     
|       | The weighted-average fair value of options granted during
      the three months ended July 31, 2007 was $0.18. The weighted-average
      assumptions utilized to determine such values are presented in the
      following table:

Three Months EndedJuly 31, 2007Risk-free interest rate
    
    4.78%Expected volatility
    
    70.0%Expected term
    
    3.7 yrsDividend yield
    
    0%Weighted average fair value
    $
    0.18


The following is a summary of the
status of the Companys stock options as of July 31, 2007 and the stock option
activity during the three months ended July 31, 2007:

Weighted-averageNumber of
    
    Exercise PriceOptions
    
    per ShareOutstanding at April 30, 2007
    13,468,100
    
    $0.46Granted
    575,000
    
    $0.34Forfeited
    (256,250)
    
    $0.38Cancelled
    (63,750)
    
    $0.38Outstanding at July 31, 2007
    13,723,100
    
    $0.46Exercisable at July 31, 2007
    5,400,220
    
    $0.52Exercisable at April 30, 2007
    4,664,437
    
    $0.54


12

---

**COUNTERPATH SOLUTIONS, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS**(Stated in U.S. Dollars)
(Unaudited)

|Note 5 | Common Stock
      (contd)                                                                                      
|------ | ------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                   
|       | Stock Options (contd)                                                                                           
|       |                                                                                                                   
|       | The following table summarizes information regarding
      stock purchase options outstanding as of July 31, 2007.

| |                | Number of   | Aggregate |                                        | Number of   | Aggregate
| | -------------- | ----------- | --------- | -------------------------------------- | ----------- | ---------
| | Exercise       | Options     | Intrinsic |                                        | Options     | Intrinsic
| | Price          | Outstanding | Value     | Expiry Date                            | Exercisable | Value    
| | $0.30          | 255,000     | $25,500   | August 1, 2016                         | 58,438      | $5,844   
| | $0.34          | 575,000     | 34,500    | May 1, 2012                            |            |         
| | $0.38          | 340,000     | 6,800     | October 1, 2011                        | 63,750      | 1,275    
| | $0.39          | 8,820,000   | 88,200    | Sept. 7, 2010 to January 10, 2016      | 3,829,835   | 38,298   
| | $0.43          | 1,200,000   |          | September 7, 2016                      | 250,000     |         
| | $0.56          | 250,000     |          | February 20, 2016                      | 88,542      |         
| | $0.59          | 300,000     |          | July 26, 2016                          | 75,000      |         
| | $0.61          | 983,100     |          | May 23, 2016                           | 286,738     |         
| | $0.67          | 275,000     |          | June 13, 2010 to July 11,
        2016 | 125,000     |         
| | $0.68          | 100,000     |          | April 10, 2016                         | 31,250      |         
| | $0.75          | 50,000      |          | March 3, 2016                          | 16,667      |         
| | $1.07          | 150,000     |          | March 29, 2010                         | 150,000     |         
| | $1.17          | 175,000     |          | February 22, 2010                      | 175,000     |         
| | $1.58          | 150,000     |          | October 24, 2009                       | 150,000     |         
| | $1.87          | 100,000     |          | July 21, 2009                          | 100,000     |         
| |                |             |           |                                        |             |          
| | July 31, 2007  | 13,723,100  | $155,000  |                                        | 5,400,220   | $45,417  
| |                |             |           |                                        |             |          
| | April 30, 2007 | 13,468,100  | $10,200   |                                        | 4,664,437   | $1,700   

The aggregate intrinsic value in the
preceding table represents the total intrinsic value, based on the Companys
closing stock price of $0.40 per share as of July 31, 2007 (April 30, 2007 
$0.34), 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 July 31, 2007 was 3,952,023
(April 30, 2007  42,500). As of July 31, 2007, approximately 5.4 million
outstanding options (April 30, 2007  4.7 million) were vested and exercisable,
and the weighted average exercise price was $0.52 (April 30, 2007  $0.54) . The
total intrinsic value of options exercised during the three months ended July
31, 2007 was $nil (April 30, 2007  $nil). The grant date fair value of options
vested during the three months ended July 31, 2007 was $4,180,005 (April 30,
2007  $1,323,055).

13

---

**COUNTERPATH SOLUTIONS, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS**(Stated in U.S. Dollars)
(Unaudited)

Note 5
    Common Stock
      (contd)Stock Options (contd)The following table summarizes information regarding the
      non-vested stock purchase options outstanding as of July 31, 2007.


| |                                            |                   |  | Weighted Average     
| | ------------------------------------------ | ----------------- |  | ---------------------
| |                                            | Number of Options |  | Grant-Date Fair Value
| | Non-vested options at April
      30, 2007 | 8,806,663         |  | $0.32                
| | Granted                                    | 575,000           |  | $0.18                
| | Vested                                     | (802,533)         |  | $0.32                
| | Forfeited                                  | (256,250)         |  | $0.26                
| | Non-vested options at July
      31, 2007  | 8,322,880         |  | $0.31                

As of July 31, 2007 there was
$2,202,430 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 1.4 years.

Employee and non-employee stock-based
compensation amounts classified in the Companys consolidated statements of
operations for the three months ended July 31, 2007 and 2006 are as follows:

| |                                      | Three Months  |  | Three Months 
| | ------------------------------------ | ------------- |  | -------------
| |                                      | Ended         |  | Ended        
| |                                      | July 31, 2007 |  | July 31, 2006
| |                                      |               |  |              
| | Cost of revenue                      | $ 14,224      |  | $ 13,944     
| | Sales and marketing                  | 22,690        |  | 19,249       
| | Research and development             | 64,550        |  | 76,610       
| | General and administrative           | 128,810       |  | 156,626      
| | Total stock-based
      compensation | $ 230,274     |  | $ 266,429    

14

---

**COUNTERPATH SOLUTIONS, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS**(Stated in U.S. Dollars)
(Unaudited)

|Note 5 | Common Stock (contd)                                                                                                                                                                                                                                                                                                                                                                                               
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | Warrants                                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                      
|       | The fair value of stock purchase warrants granted during
      the year ended April 30, 2007 was $0.16. The warrants enable the holders
      the right to purchase up to 5,000,000 shares of the Companys common
      stock, exercisable for three years from November 30, 2006 at a price of
      $0.80 per share. The assumptions utilized to determine such values are
      presented in the following table:

| |                             |   | Three Months Ended |  |   | Year Ended     | 
| | --------------------------- | - | ------------------ |  | - | -------------- | 
| |                             |   | July 31, 2007      |  |   | April 30, 2007 | 
| | Risk-free interest rate     |   | -%                 |  |   | 4.52%          | 
| | Expected volatility         |   | -%                 |  |   | 82.02%         | 
| | Expected term               |   | Nil                |  |   | 3 yrs          | 
| | Dividend yield              |   | Nil%               |  |   | 0%             | 
| | Weighted average fair value | $ | -                  |  | $ | 0.16           | 
| | Total warrants outstanding  |   | 5,000,000          |  |   | 5,000,000      | 

|Note 6 | Segmented Information                                                                                                                                                                                                                                                                                                                                                
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                      
|       | Our 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, we
      have concluded that we have 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 months ended July 31, 2007 and 2006:                                                                                                                                                           

| |               |   | Three Months Ended |  |   | Three Months Ended | 
| | ------------- | - | ------------------ |  | - | ------------------ | 
| |               |   | July 31, 2007      |  |   | July 31, 2006      | 
| | North America | $ | 446,554            |  | $ | 813,308            | 
| | Europe        |   | 531,384            |  |   | 875,997            | 
| | Asia          |   | 43,518             |  |   | 46,950             | 
| | South America |   | 192,326            |  |   | 19,092             | 
| | Other         |   | 13,009             |  |   | 5,534              | 
| |               | $ | 1,226,791          |  | $ | 1,760,881          | 

Contained within the results for North
America are revenues from the United States of $349,952 and $510,129 for the
three months ended July 31, 2007 and 2006, respectively. Contained within the
results of Europe are revenues from the United Kingdom of $352,379 and $696,421
for the three months ended July 31, 2007 and 2006, respectively.

All of the Companys long-lived assets
are located in Canada.

15

---

**COUNTERPATH SOLUTIONS, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS**(Stated in U.S. Dollars)
(Unaudited)

|Note 6 | Segmented Information (contd)                                                                                     
|------ | --------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                     
|       | Revenue from significant customers for the three months
      ended July 31, 2007 and 2006 is summarized as follows:

Three Months
    
    
    Three MonthsEnded July 31,
    
    
    Ended July 31,2007
    
    
    2006Customer A
    
    26%
    
    
    26%Customer B
    
    
    
    
    14%Customer C
    
    
    
    
    12%Customer D
    
    
    
    
    10%26%
    
    
    62%


|       | Accounts receivable balances for Customer A were $250,000
      as at July 31, 2007 and $419,874 as at July 31, 2006. Accounts receivable
      balances for Customer B were $347,222 as at July 31, 2007 and $242,334 as
      at July 31, 2006. Accounts receivable balances for Customer C were $nil as
      at July 31, 2007 and $158,333 as at July 31, 2006. Accounts receivable
      balances for Customer D were $320,416 as at July 31, 2007 and $161,460 as
      at July 31, 2006.
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Note 7 | Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | a) | On July 10, 2006, the Company entered into a lease for
      office premises, which commenced on December 1, 2006 and expires on
      September 29, 2011 for which a deposit of $78,084 was made.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                   
| | b) | On June 7, 2007, the Company entered into an agreement
      for investor relations consulting services which commenced on June 7, 2007
      and expires on December 7, 2007.                    
| |    |                                                                                                                                                                                                   
| | c) | On February 8, 2007, the Company entered into an
      agreement for public relations consulting services which commenced on
      February 2007 and expires on January 31, 2008.                 

Total rent and consultancy fees
payable over the term of the agreements for the years ended April 30 is as
follows:

Investor
    
    
    PublicOffice Lease
    
    
    Relations
    
    
    Relations2008
    $
    358,044
    
    $
    37,800
    
    $
    22,5072009
    
    480,635
    
    
    
    
    
    2010
    
    497,658
    
    
    
    
    
    2011
    
    509,818
    
    
    
    
    
    2012
    
    212,424
    
    
    
    
    
    $
    2,058,579
    
    $
    37,800
    
    $
    22,507


| | d) | The Company has entered an employment agreement with an
      officer of the Company in which the Company is committed to pay severance
      totalling up to $844,020 if certain events occur including a change in
      control of the Company or change of duty of the officer followed by the
      resignation of the officer.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---

**COUNTERPATH SOLUTIONS, INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS**(Stated in U.S. Dollars)
(Unaudited)

|Note 8 | 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 the loss is probable
      and measurable.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Note 9 | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | a) | On June 14, 2007, the Board of Directors unanimously
      ratified and approved the amendment to the Companys Articles to create
      100,000,000 preferred shares in the capital of the Company. Subsequent to
      our Board of Directors approval of the amendment, the holders of the
      majority of the outstanding shares of the Company provided their written
      consent to the amendment to the Companys Articles on June 20, 2007. In
      order to create the rights of the preferred shares, the Company filed the
      Articles of Amendment to amend the Companys Articles with the Secretary
      of State of the State of Nevada which became effective on August 9,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | b) | On August 2, 2007 the Company announced that it had
      acquired all of the shares of NewHeights Software Corporation
      (NewHeights) through the issuance of 38,400,820 shares of the Companys
      common stock and 1,849,180 preferred shares issued from 6789722 Canada
      Inc., a wholly-owned subsidiary of the Company, that are exchangeable into
      1,849,180 shares of common stock of the Company. Upon closing, the
      Companys convertible debenture holders converted their existing
      debentures in the amount of $4 million into 10 million shares of common
      stock as per the terms of the convertible debenture agreement. In
      addition, the Company completed a private placement of $1.3 million
      issuing 3.25 million shares of common stock at $0.40 and entered into
      subscription agreements to raise an additional $4.2 million through the
      issuance of 10.5 million shares of common stock at $0.40 per share to
      investors. The additional commitment of $4.2 million is scheduled to be
      invested through a series of closings over a seven month period ending
      March 2, 2008. Concurrent with the transaction, the Company issued
      4,279,882 replacement employee options to former optionees of NewHeights.
      These options entitle the holders thereof the right to purchase one common
      share for each option held at $0.40 per share. These options expire over
      various periods ending on June 15, 2015 and generally vest over three
      years from original issuance. Concurrent with the issuance of the options,
      the Board of Directors of the Company amended the Companys 2005 Stock
      option plan to increase the amount of stock options available for grant
      under the plan from 12,000,000 to 15,000,000.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | c) | On August 9, 2007, the Company granted 235,000 employee
      stock options entitling the holders thereof the right to purchase one
      common share for each option held at $0.40 per share. These options expire
      on August 9, 2012. These options vest over four years, 12.5% after six
      months with the remaining 87.5% vesting 1/42nd each month
    thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

17

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Item 2. Managements Discussion and Analysis or Plan of
Operation.

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

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

Our
financial statements are stated in United States dollars and are prepared in
accordance with United States Generally Accepted Accounting Principles. All
references to common shares refer to our shares of common stock. As used in
this annual report, the terms we, us and our means CounterPath Solutions,
Inc., unless otherwise indicated.

Overview

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 9,000,000 issued and outstanding shares in Xten
Networks in exchange for agreeing to issue 18,000,000 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, the Company announced that it had acquired all of the shares of
NewHeights Software Corporation through the issuance of 38,400,820 shares of the
Companys common stock and 1,849,180 preferred shares issued from a wholly-owned
subsidiary of the Company, which preferred shares are exchangeable into
1,849,180 shares of common stock of the Company.

Business of CounterPath Solutions

Our
business focuses on the design, development and sale of multimedia application
software. Our software applications are based on session initiation protocol
which is the recognized standard for interactive end points that involve
multimedia elements such as voice, video, instant messaging, and presence (the
ability to monitor a person's availability). Users of our software in
combination with voice over internet protocol service are able to communicate
and make voice and video calls from a device running our software. Our software
has been designed to run in multiple operating environments such as Windows
2000, Windows XP, Mac OS X, Linux and Windows Mobile 5 (used for personal
digital assistants or PDA's).

We
are focused on the development of technology that takes advantage of the market
known as the voice over internet protocol (VoIP) market. VoIP is a general term
for technologies that use internet protocol for transmission of packets of data
which 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 (PSTN). 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 large incumbent telecom providers, telecom original equipment
manufacturers, large equipment providers and internet telephony

18

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service providers. 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.

Revenue

We
derive revenue from the sale of software licenses and software development kits
(SDKs), USB sticks on which our software operates and services associated with
software such as technical support services, implementation and training. We
recognize software and services revenue at the time of delivery, provided all
other revenue recognition criteria have been met.

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

We
offer our products and services directly through our sales force and indirectly
through distribution partners. Our distribution partners include networking and
telecommunications equipment vendors throughout the world. Our distribution
partners generally purchase our products after they have received a purchase
order from their customers and do not maintain an inventory of our products in
anticipation of sales to their customers.

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.

Cost of Revenue

Cost
of product revenue primarily consists of (a) payments to third party vendors for
compression/decompression software known as codecs, (b) salaries and benefits
related to personnel including stock based compensation, (c) related overhead,
(d) costs of USB sticks on which our software resides and (d) amortization of
capitalized software that is implemented into our products.

Cost
of service revenue primarily consists of (a) salaries and benefits related to
professional services and technical support personnel, (b) billable and
non-billable travel, lodging, and other out-of-pocket expenses, (c) related
overhead, and (d) warranty expense.

Gross Profit

Our
gross profit has been, and will be, affected by many factors, including (a) the
demand for our products and services, (b) the average selling price of our
products, which in turn depends in part on the type and volume of products sold,
(c) new product introductions, (d) the costs of our software products, and (e)
the costs of our professional services and technical support.

Operating Expenses

Operating
expenses consist of sales and marketing, research and development, and general
and administrative expenses. Personnel-related costs are the most significant
component of each of these expense categories. We expect to continue to hire a
number of new employees to support our growth.

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

19

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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 expense has been expensed as incurred. We intend to continue to
invest in our research and development efforts, which we believe are essential
to maintaining our competitive position. We expect research and development
expense to increase for the foreseeable future and to decrease as a percentage
of total revenue in the future.

General
and administrative expense consists primarily of (a) salaries and personnel
costs including stock-based compensation related to our executive, finance,
human resource and information technology organizations, (b) accounting, legal
and regulatory fees, and (c) other related overhead. We expect general and
administrative expense to continue to increase for the foreseeable future as we
invest in personnel to support continued growth and incur expenses related to
being a publicly traded company.

Application of Critical Accounting Policies and Use of
Estimates

Our
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires that we make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. We evaluate our estimates and
assumptions on an ongoing basis. Our actual results may differ significantly
from these estimates under different assumptions or conditions. There have been
no material changes to these estimates for the periods presented in this annual
report.

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, these are the policies
we believe are the most critical to aid in fully understanding and evaluating
our financial condition and results of operations.

Revenue Recognition

We
recognize revenue in accordance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2 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
reseller arrangements, fees are fixed or determinable and collection probable as
there are no rights to exchange or return and fees are not dependable upon
payment from the end-user. If any of these criteria are not met, revenue is
deferred until such time that all criteria have been met.

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

For
contracts with elements related to customized network solutions and certain
network build-outs, we apply FASB Emerging Issues Task Force (EITF) Issue No.
00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21) and
revenues are recognized under SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, generally using the
percentage-of-completion method.

20

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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
provide a one year warranty on software products. 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.

Our
products and services are distributed indirectly through distribution partners
and directly through our sales force. Revenue arrangements with distribution
partners are recognized when the above criteria are met and only when we receive
evidence that the distribution partner has an order from an end-user customer or
an irrevocable purchase by the distribution partner.

Stock-Based Compensation

Stock
options granted are accounted for under SFAS No. 123R Share-Based Payment and
are recognized at the fair value of the options as determined by an option
pricing model as the related services are provided and the options earned. SFAS
No.123R 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. We
have adopted SFAS No. 123R as of May 1, 2006 using the modified prospective
method of adoption. The adoption of SFAS No. 123R did not have a material effect
on our financial position or cash flow for any period.

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 volatility for options granted during the
three months ended July 31, 2007 was 70.02% . 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. The expected term of options granted during the
three months ended July 31, 2007 was 3.7 years. For the three months ended July
31, 2007, the weighted-average risk free interest rate used was 4.78% . The
risk-free interest rate is based on a treasury instrument whose term is
consistent with the expected term of the stock options. 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, SFAS No. 123R
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
three months ended July 31, 2007 in determining the expense recorded in our
consolidated statement of operations.

Cost
of revenue and operating expenses include stock-based compensation expense. For
the three months ended July 31, 2007, we recorded an expense of $230,274 in
connection with share-based payment awards. A future expense of non-vested
options of $2,202,460 is expected to be recognized over a weighted-average
period of 1.4 years.

21

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Research and Development Expense for Software
Products

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

Accounts Receivable and Allowance for Doubtful Accounts

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

Results of Operations

Our
operating activities during the three months ended July 31, 2007 consisted
primarily of selling our IP telephony software to telecom companies and IP
telephony service providers, which provide IP telephony services to end users,
and the continued development of our IP telephony software products.

Revenue

Three Months Ended July 31,2007
      
      
      2006
      
      
      Period-to-Period
        ChangePercent of
      
      
      
      
      
      Percent
      
      
      
      
      
      PercentTotal
      
      
      
      
      
      of Total
      
      
      
      
      
      Increase /Amount
      
      
      Revenue
      
      
      Amount
      
      
      Revenue
      
      
      Amount
      
      
      (Decrease)Revenue by TypeSoftware
      $
      769,008
      
      
      63%
      
      $
      1,409,719
      
      
      80%
      
      
      ($640,711
      )
      
      (45%
      )Service
      
      457,783
      
      
      37%
      
      
      351,162
      
      
      20%
      
      
      106,621
      
      
      30%Total revenue
      $
      1,226,791
      
      
      100%
      
      $
      1,760,881
      
      
      100%
      
      
      ($534,090
      )
      
      (30%
      )Revenue by RegionInternational
      $
      780,237
      
      
      64%
      
      $
      947,573
      
      
      54%
      
      
      ($167,336
      )
      
      (18%
      )North America
      
      446,554
      
      
      36%
      
      
      813,308
      
      
      46%
      
      
      (366,754
      )
      
      (45%
      )Total revenue
      $
      1,226,791
      
      
      100%
      
      $
      1,760,881
      
      
      100%
      
      
      ($534,090
      )
      
      (30%
      )


For
the three months ended July 31, 2007, we recognized $1,226,791 in revenue
compared to $1,760,881 for the three months ended July 31, 2006. This represents
a decrease of $534,090 or 30% from the same period last year. We recognized
$769,008 in software revenue for the three months ended July 31, 2007 compared
to $1,409,719 for the three months ended July 31, 2006, representing a decrease
of $640,711 or 45%. The decrease in software revenue was due to fewer large
sales to major telecom companies compared to the same period last year. For the
three months ended July 31, 2007, service revenue was $457,783 compared to
$351,162 for the three months ended July 31, 2006. The increase of $106,621 in
service revenue reflects the increase in services we provide primarily to our
larger customers to support their deployed software. International revenue
outside of North America declined by 18% during the three months ended July 31,
2007 compared to the three months ended July 31, 2006, being most impacted by
fewer European software sales. North American revenue decreased by 45%, compared
to the three months ended July 31, 2006, as a result of both lower software
sales and service revenues in this region.

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Cost of Revenue and Gross Profit

Three Months Ended July 31,2007
      
      
      2006
      
      
      Period-to-Period
        ChangePercent
      
      
      
      
      
      Percentof
      
      
      
      
      
      of
      
      
      
      
      
      PercentRelated
      
      
      
      
      
      Related
      
      
      
      
      
      Increase /Amount
      
      
      Revenue
      
      
      Amount
      
      
      Revenue
      
      
      Amount
      
      
      (Decrease)Cost of RevenueSoftware
      $
      134,415
      
      
      17%
      
      $
      253,877
      
      
      18%
      
      
      ($119,462
      )
      
      (47%
      )Service
      
      226,743
      
      
      50%
      
      
      190,971
      
      
      54%
      
      
      35,772
      
      
      19%Total cost of revenue
      $
      361,158
      
      
      29%
      
      $
      444,848
      
      
      25%
      
      
      ($83,690
      )
      
      (19%
      )Gross ProfitSoftware
      $
      634,593
      
      
      83%
      
      $
      1,155,842
      
      
      82%
      
      
      ($521,249
      )
      
      (45%
      )Service
      
      231,040
      
      
      50%
      
      
      160,191
      
      
      46%
      
      
      70,849
      
      
      44%Total gross profit
      $
      865,633
      
      
      71%
      
      $
      1,316,033
      
      
      75%
      
      
      ($450,400
      )
      
      (34%
      )


Cost
of revenue was $361,158 for the three months ended July 31, 2007 compared to
$444,848 recorded for the three months ended July 31, 2006. The total gross
profit margin was 71% for the three months ended July 31, 2007 compared to 75%
for the three months ended July 31, 2006 as lower margin service revenue
represented a larger portion of revenues compared to the same quarter of last
year. Cost of software was $134,415 for the three months ended July 31, 2007,
resulting in a gross profit margin on software of 83% compared to 82% for the
three months ended July 31, 2006. Cost of service was $226,743 during the three
months ended July 31, 2007, resulting in a gross profit margin on service of 50%
compared to 46% for the three months ended July 31, 2006.

Operating Expenses

Sales and Marketing

Sales
and marketing expenses for the three months ended July 31, 2007 and 2006 were as
follows:

July
        31, 2007
      
      
      July
        31, 2006
      
      
      Period-to-Period
        ChangePercent
      
      
      
      
      
      Percent
      
      
      
      
      
      Percentof
      
      
      
      
      
      of
      
      
      
      
      
      Increase /Amount
      
      
      Revenue
      
      
      Amount
      
      
      Revenue
      
      
      Amount
      
      
      (Decrease)Year ended
      $
      454,883
      
      
      37%
      
      $
      318,608
      
      
      18%
      
      $
      136,275
      
      
      43%


Sales and marketing expenses were $454,883 for the three months
ended July 31, 2007 compared to $318,608 recorded for the three months ended
July 31, 2006. The increase of $136,275 was primarily attributable to increases
in consulting fees, wages and travel related expenses of marketing personnel and
strengthening of the Canadian dollar vis-à-vis the US dollar.

Research and Development

Research
and development expenses for the three months ended July 31, 2007 and 2006 were
as follows:

July
        31, 2007
      
      
      July
        31, 2006
      
      
      Period-to-Period
        ChangePercent
      
      
      
      
      
      Percent
      
      
      
      
      
      Percentof
      
      
      
      
      
      of
      
      
      
      
      
      Increase /Amount
      
      
      Revenue
      
      
      Amount
      
      
      Revenue
      
      
      Amount
      
      
      (Decrease)Year ended
      $
      766,468
      
      
      62%
      
      $
      754,934
      
      
      43%
      
      $
      11,534
      
      
      2%


Research and development expenses were $766,468 for the three
months ended July 31, 2007 compared to $754,934 for the three months ended July
31, 2006. Research and development personnel and related wages and benefits
remained relatively constant period over period regardless of the amount of
revenue recognized in the period.

23

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General and Administrative

General
and administrative expenses for the three months ended July 31, 2007 and 2006
were as follows:

July
        31, 2007
      
      
      July
        31, 2006
      
      
      Period-to-Period
        ChangePercent
      
      
      
      
      
      Percent
      
      
      
      
      
      Percentof
      
      
      
      
      
      of
      
      
      
      
      
      Increase /Amount
      
      
      Revenue
      
      
      Amount
      
      
      Revenue
      
      
      Amount
      
      
      (Decrease)Year ended
      $
      724,527
      
      
      59%
      
      $
      689,672
      
      
      39%
      
      $
      34,855
      
      
      5%


General
and administrative expenses for the three months ended July 31, 2007 were
$724,527 compared to $689,672 for the three months ended July 31, 2006.

The
increase of $34,855 in general and administrative expenses was primarily
attributable to an increase in personnel and the associated compensation of
personnel.

Interest and Other Income

Interest
income for the three months ended July 31, 2007 was $15,524 compared to $12,035
for the same respective period in 2006. The increase relates to higher average
cash balances. Interest expense for the three months ended July 31, 2007 was
$140,576 compared to $42,996 for the same respective period in 2006. Interest
expense during fiscal 2008 includes both a cash interest component of $50,006
and a non-cash component of $90,570 relating to the accretion of the discount on
the convertible debenture.

Liquidity and Capital Resources

As
of July 31, 2007, we had $1,411,173 in cash compared to $1,680,220 at April 30,
2007, representing a decrease of $269,047. Our working capital was $999,513 at
July 31, 2007 compared to $1,897,581 at April 30, 2007, representing a decrease
of $898,068. Current assets declined by $601,095, during the three months ended
July 31, 2007, while current liabilities increased by $296,973.

Operating Activities

Our
operating activities resulted in a net cash outflow of $191,394 for the three
months ended July 31, 2007. This compares with a net cash outflow of $1,037,336
for the same period last year and represents a $845,972 decrease in cash
outflows from operations compared to the same period last year. The net cash
outflow from operating activities for the three months ended July 31, 2007 was
primarily a result of a net loss of $1,205,297 offset by a decrease in accounts
receivable of $307,255. The decrease in accounts receivable is attributable to a
decline in sales and a corresponding increase in collections from customers. The
net cash outflow was also offset by an increase in accounts payable and accrued
liabilities of $50,004, as well as an increase of $199,333 for unearned revenue
and adjustments for non-cash expenses including $230,724 for stock-based
compensation, $90,570 for accretion of convertible debenture discount and
$64,224 for depreciation and amortization.

The
net cash outflow from operating activities for the three months ended July 31,
2006 of $ 1,037,336 was primarily a result of a net loss of $478,142 and an
increase in accounts receivable of $1,187,044, partially offset by an increase
in accounts payable and accrued liabilities of $230,188 and adjustments for
non-cash expenses including $266,429 for stock based compensation and $75,005
for depreciation and amortization.

Investing Activities

Investing
activities resulted in a net cash outflow of $94,591 for the three months ended
July 31, 2007 primarily from purchases of equipment and an increase in other
assets consisting of costs related to the NewHeights Software transaction. This
compares with a net cash outflow from investing activities of $194,306 for the
same period last year which was primarily for purchases of equipment and
deposits. At July 31, 2007, we did not have any material commitments for future
capital expenditures.

24

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Financing Activities

Financing
activities resulted in a net cash inflow of $nil for the three months ended July
31, 2007 as there were no financings in the quarter compared to a net cash
outflow of $3,264 for the same period last year.

On
August 2, 2007, we announced the closing of the acquisition of NewHeights
Software Corp. As part of the transaction, our convertible debenture holders
completed an investment of $1,300,000 for 3.25 million shares of common stock at
$0.40 per share, and entered into subscription agreements to raise an additional
$4.2 million through the issuance of 10.5 million shares of common stock at
$0.40 per share to investors. The additional commitment of $4.2 million is
scheduled to be invested through a series of closings over a seven month period
ending March 2, 2008.

We
believe that our current working capital and anticipated proceeds from the
investments as part of the NewHeights transaction and our cash flows will be
sufficient to fund our combined operations for the next eighteen months.However, our forecast of the period of time through which our financial
resources will be adequate to support our operations is a forward-looking
statement that involves risks and uncertainties, and actual results could vary
materially. 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.

We
intend to seek additional funding through public or private financings, but our
business and shareholders investment are at risk if we are unable to obtain
additional financing on acceptable terms or at all which raise substantial doubt
on our ability to continue as a going concern.

Long Term Obligations

As
at July 31, 2007, our company had $4 million of convertible debentures
outstanding, convertible at $0.40 per share of common stock. On August 2, 2007
we announced that concurrent with the acquisition of NewHeights Software, the
convertible debenture holders converted their existing convertible debentures in
the amount of $4,000,000 into 10,000,000 shares of common stock resulting in the
extinguishment of all of our long term obligations.

On
July 10, 2006, we entered into a lease for office premises, which commenced on
December 1, 2006 and expires on September 29, 2011 for which a deposit of
$78,084 was made. On June 7, 2007, we entered into an agreement for investor
relations consulting services, which commenced on June 7, 2007 and expires on
December 7, 2007. On February 8, 2007, we entered into an agreement for public
relations consulting services, which commenced on February 2007 and expires on
January 31, 2008.

Total
rent and consultancy fees payable over the term of the agreements for the years
ended April 30 is as follows:

Office
    
    
    Investor
    
    
    PublicLease
    
    
    Relations
    
    
    Relations2008
    $
    358,044
    
    $
    37,800
    
    $
    22,5072009
    
    480,635
    
    
    
    
    
    2010
    
    497,658
    
    
    
    
    
    2011
    
    509,818
    
    
    
    
    
    2012
    
    212,424
    
    
    
    
    
    $
    2,058,579
    
    $
    37,800
    
    $
    22,507


We
have entered into an employment agreement with an officer in which we are
committed to pay severance totalling up to $844,020 as a result of certain
events including a change in control of our company or change of duty of the
officer followed by the resignation of the officer.

25

---

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
July 2006, FASB issued interpretation No. 48, Accounting for Uncertainty in
Income Taxes-an Interpretation of FASB Statement No. 109 (FAS No. 109)
(FIN 48). This interpretation prescribes a recognition threshold and
measurement attribute for tax positions taken or expected to be taken in a tax
return. This interpretation also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The evaluation of a tax position in accordance with
this interpretation is a two-step process. In the first step, recognition, our
company determines whether it is more-likely-than-not that a tax position will
be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. The second
step addresses measurement of a tax position that meets the more-likely-than-not
criteria. The tax position is measured at the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate settlement.
Differences between tax positions taken in a tax return and amounts recognized
in the financial statements will generally result in a) an increase in a
liability for income taxes payable or a reduction of an income tax refund
receivable, b) a reduction in a deferred tax asset or an increase in a deferred
tax liability or c) both a and b. Tax positions that previously failed to meet
the more-likely-than-not recognition threshold should be recognized in the first
subsequent financial reporting period in which that threshold is met. Previously
recognized tax positions that no longer meet the more-likely-than-not
recognition threshold should be de-recognized in the first subsequent financial
reporting period in which that threshold is no longer met. Use of a valuation
allowance as described in FAS No. 109 is not an appropriate substitute for the
de-recognition of a tax position. The requirement to assess the need for a
valuation allowance for deferred tax assets based on sufficiency of future
taxable income is unchanged by this interpretation. This interpretation is
effective for fiscal years beginning after December 15, 2006. The cumulative
effect of adopting FIN 48 of $72,413 was recorded as a reduction to retained
earnings. The total amount of unrecognized tax benefits as of the date of
adoption was $245,362. Of this amount, $245,362 represents the amount that would
reduce the Companys effective income tax rate, if recognized in future periods.
We recognize interest and penalties accrued on unrecognized tax benefits within
income tax expense. As of the date of adoption, we had $100,813 of interest and
penalties accrued associated with unrecognized tax benefits. We are subject to
taxation in the U.S. and Canada. We are subject to tax examinations by tax
authorities for all taxation years commencing in or after 2002. As of July 31,
2007, the amount of unrecognized tax benefits has increased by $26,598.

Off-Balance Sheet Arrangements

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

RISK FACTORS

Much
of the information included in this annual 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.

26

---

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 may 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. 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 raise
substantial doubt on our ability to continue as a going concern.

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

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

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

We
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. Other than registering the
domain names: www.counterpath.com and www.xten.com, among others, applying to
register the trademarks eyeBeamTM and BriaTM, among
others, and filing one patent on a process for configuring audio and video
devices with a softphone, we have not taken any action to protect our
proprietary technology. 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

27

---

family of registered and unregistered trademarks including
CounterPath, Bria, eyeBeam, X-Pro, X-Lite, X-Web, X-Tunnels, X-Look, X-Cipher
and X.Net, 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 copyright, trade secret
and trademark laws, may not be adequate to prevent their unauthorized use.
Further, the laws of foreign countries may provide inadequate protection of such
intellectual property rights.

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

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

Our
industry is characterized by rapid changes in technology and customer demands.
As a result, our products may quickly become obsolete and unmarketable. Our
future success will depend on our ability to adapt to technological advances,
anticipate customer demands, develop new products and enhance our current
products on a timely and cost-effective basis. Further, our products must remain
competitive with those of other companies with substantially greater
resources.

We
may experience technical or other difficulties that could delay or prevent the
development, introduction or marketing of new products or enhanced versions of
existing products. Also, we may not be able to adapt new or enhanced services to
emerging industry standards, and our new products may not be favorably
received.

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

We
expect that a substantial portion of our future revenue will be derived from the
sale of our software products. We expect that these product offerings and their
extensions and derivatives will account for a majority 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.

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 415,384,500 shares of common stock and 100,000,000
shares of preferred 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

28

---

result in a reduction of the book value or market price of the
outstanding shares of our common stock. If we do issue any such additional
shares, such issuance will cause a reduction in the proportionate ownership and
voting power of all other stockholders. Further, any such issuance may result in
a change of control of our corporation.

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

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

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
Sales Practice Requirements of the National Association of Securities Dealers
Inc., or NASD, may also limit a stockholder's ability to buy and sell our
stock.

In
addition to the "penny stock" rules described above, the NASD 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 NASD
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. The NASD 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 3(A)T. Controls and Procedures

As
required by Rule 13a-15 under the Exchange Act, we have carried out an
evaluation of the effectiveness of the design and operation of our companys
disclosure controls and procedures as of the end of the period covered by this
quarterly report, being July 31, 2007. 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 our companys disclosure controls and procedures are
effective as at the end of the period covered by this report. There have been no
significant changes in our internal controls over financial reporting that
occurred during our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect our internal controls over financial
reporting.

Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our companys reports filed
or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission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 companys reports filed under the

29

---

Exchange Act is accumulated and communicated to management,
including our companys president as appropriate, to allow timely decisions
regarding required disclosure.

PART II

Item 1. Legal Proceedings.

Except
as set out below, we know of no material, active, or pending legal proceeding
against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation where such claims or action involves damages
for a value of more than 10% of our assets as of July 31, 2007, or any
proceeding in which any of our company's directors, officers, or affiliates, or
any registered or beneficial shareholders, is an adverse party or has a material
interest advance to our company's interest.

On
February 17, 2006, Eyeball Networks Inc., filed a statement of claim in the
Supreme Court of British Columbia (Action No. S-061080, Vancouver Registry)
against our company, Mr. Mark Bruk, and two employees, alleging breach of (i)
confidentiality, and (ii) previous employment agreements between the two
employees (Dr. Joseph Vass and Mark Klagenberg) and Eyeball. Eyeball is seeking
an injunction requiring our company, Mr. Bruk, and the two employees, to deliver
to Eyeball any confidential information they have in their possession, power or
control relating to Eyeball and its business, restraining our company from
developing, manufacturing or marketing power meters, although we do not
currently develop, manufacture or market power meters. Among other things,
Eyeball is claiming general, punitive and aggravated damages of unspecified
amounts. Management of our company has filed a Statement of Defence denying all
allegations, and strongly believes that any allegations made by Eyeball in
connection with our company's current business operations are without foundation
or merit. We intend to continue to vigorously defend these proceedings.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

On July 19, 2007, we filed an information statement on Schedule
14C advising shareholders that we received the written consent of our
shareholders to the amendment of our Articles of Incorporation to permit our
company to create up to 100,000,000 preferred shares with the rights and
restrictions of such shares to be designated by our Board of Directors from time
to time. Shareholders holding 19,197,251 shares of our common stock,
representing 50.6% of our issued and outstanding shares of common stock,
provided their consent in favour of the amendment

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits Required by Item 601 of Regulation S-B

|(3) | Articles of
      Incorporation and By-laws                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                 
|3.1 | Articles of Incorporation (incorporated by reference from
      our Registration Statement on Form SB-2 filed on July 16, 2003).
|    |                                                                                                                                 
|3.2 | Bylaws
      (incorporated by reference from our Registration Statement on Form SB-2
      filed on July 16, 2003).             

30

---

|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  | Certificate of Amendment to the Articles of
      Incorporation, dated August 9, 2007.                                                                                                                                                    
|     |                                                                                                                                                                                                                                           
|3.7  | Certificate of Designation, dated August 9, 2007.                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                           
|(4)  | Instruments defining the rights of security holders,
      including indentures                                                                                                                                                           
|     |                                                                                                                                                                                                                                           
|4.1  | 2004 Stock Option Plan effective May 18, 2004
      (incorporated by reference from our Registration Statement on Form S-8
      filed on June 14, 2005).                                                                                 
|     |                                                                                                                                                                                                                                           
|4.2  | 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).                                                                     
|     |                                                                                                                                                                                                                                           
|4.3  | 2005 Stock Option Plan effective March 4, 2005
      (incorporated by reference from our Registration Statement on Form S-8
      filed on June 14, 2005).                                                                                
|     |                                                                                                                                                                                                                                           
|4.4  | 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).                                                                     
|     |                                                                                                                                                                                                                                           
|4.5  | 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).                                                      
|     |                                                                                                                                                                                                                                           
|4.6  | 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) | Material Contracts                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                           
|10.1 | Domain Name Assignment Agreement, dated May 2, 2003,
      between Broad Scope Enterprises, Inc. and Hon Kit Ng (incorporated by
      reference from our Registration Statement on Form SB-2 filed on July 16,
      2003).              
|     |                                                                                                                                                                                                                                           
|10.2 | Subscription Agreement, dated April 20, 2003, between
      Broad Scope Enterprises Inc. and Hon Kit Ng (incorporated by reference
      from our Registration Statement on Form SB-2 filed on July 16, 2003).                            
|     |                                                                                                                                                                                                                                           
|10.3 | Subscription Agreement, dated May 1, 2003, between Broad
      Scope Enterprises Inc. and Hon Kit Ng (incorporated by reference from our
      Registration Statement on Form SB-2 filed on July 16, 2003).                               
|     |                                                                                                                                                                                                                                           
|10.4 | Subscription Agreement, dated May 2, 2003, between Broad
      Scope Enterprises Inc. and Simon Au (incorporated by reference from our
      Registration Statement on Form SB-2 filed on July 16, 2003).                                 
|     |                                                                                                                                                                                                                                           
|10.5 | Form of Subscription Agreement between Broad Scope
      Enterprises Inc. and various private placement placees (incorporated by
      reference from our Registration Statement on Form SB-2 filed on July 16,
      2003).              
|     |                                                                                                                                                                                                                                           
|10.6 | Agreement and Plan of Merger among Broad Scope
      Enterprises Inc., Xten Networks, Inc., Broad Scope Acquisition Corp. and
      Mark Bruk (incorporated by reference from our Current Report on Form 8-K
      filed on May 10, 2004).
|     |                                                                                                                                                                                                                                           
|10.7 | Agreement and Plan of Merger between Broad Scope
      Enterprises Inc. and Xten Networks, Inc. (incorporated by reference from
      our Current Report on Form 8-K filed on May 10, 2004).                                              

31

---

|10.8  | Software Development Agreement between Xten Networks,
      Inc. (formerly Evove, Inc.) and Xten Networks (Canada) Inc. (formerly Xten
      Networks Inc.) (incorporated by reference from our Current Report on Form
      8-K filed on May 10, 2004).                                                          
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                   
|10.9  | Debt Settlement and Subscription Agreement dated April
      19, 2005 between Xten Networks, Inc. and Steven Bruk (incorporated by
      reference from our Annual Report on Form 10-KSB filed on July 29,
      2005).                                                                                           
|      |                                                                                                                                                                                                                                                                                                                   
|10.10 | Employment Agreement dated June 16, 2005 between Xten
      Networks R&D Inc. and Larry Timlick (incorporated by reference from
      our Annual Report on Form 10-KSB filed on July 29, 2005).                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                   
|10.11 | Settlement Agreement and Release dated June 29, 2005
      between Xtend Communications Corp. and Xten Networks, Inc. (incorporated
      by reference from our Annual Report on Form 10-KSB filed on July 29,
      2005).                                                                                       
|      |                                                                                                                                                                                                                                                                                                                   
|10.12 | Form of Amendment to Stock Option and Subscription
      Agreement (incorporated by reference from our Current Report on Form 8-K
      filed on July 17, 2006).                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                   
|10.13 | Form of Stock Option and Subscription Agreement for U.S.
      Persons (incorporated by reference from our Current Report on Form 8-K
      filed on July 17, 2006).                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                   
|10.14 | Form of Stock Option and Subscription Agreement for
      Non-U.S. Persons (incorporated by reference from our Current Report on
      Form 8-K filed on July 17, 2006).                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                   
|10.15 | Employment Agreement between CounterPath Solutions, Inc.
      and Jason Fischl dated August 29, 2005 (incorporated by reference from our
      Annual Report on Form 10-KSB filed on July 31, 2006).                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                   
|10.16 | Employment Agreement between CounterPath Solutions, Inc.
      and Donovan Jones dated June 1, 2005 (incorporated by reference from our
      Annual Report on Form 10-KSB filed on July 31, 2006).                                                                                                               
|      |                                                                                                                                                                                                                                                                                                                   
|10.17 | Employment Agreement between CounterPath Solutions, Inc.
      and David Karp dated September 11, 2006 (incorporated by reference from
      our Quarterly Report on Form 10-QSB filed on September 14,
2006).                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                   
|10.18 | Form of Subscription Agreement dated November 30, 2006,
      between our company and various investors (incorporated by reference from
      our Current Report on Form 8-K filed on December 7, 2006).                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                   
|10.19 | Form of Subscription Agreement dated November 30, 2006,
      between our company and KMB Trac Two Holdings Ltd (incorporated by
      reference from our Current Report on Form 8-K filed on December 7,
      2006).                                                                                            
|      |                                                                                                                                                                                                                                                                                                                   
|10.20 | Form of Convertible Note dated November 30, 2006
      (incorporated by reference from our Current Report on Form 8-K filed on
      December 7, 2006).                                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                   
|10.21 | Form of Warrant Certificate dated November 30, 2006
      (incorporated by reference from our Current Report on Form 8-K filed on
      December 7, 2006).                                                                                                                                                        
|      |                                                                                                                                                                                                                                                                                                                   
|10.22 | Amended Employment Agreement between Donovan Jones and
      CounterPath Solutions R&D Inc., a wholly owned subsidiary of
      CounterPath Solutions, Inc. dated January 1, 2007 (incorporated by
      reference from our Quarterly Report on Form 10-QSB filed on March 9,
      2007).                        
|      |                                                                                                                                                                                                                                                                                                                   
|10.23 | Employment Agreement between Mark Bruk and CounterPath
      Solutions R&D Inc., a wholly owned subsidiary of CounterPath
      Solutions, Inc. dated March 8, 2007 (incorporated by reference from our
      Quarterly Report on Form 10-QSB filed on March 9, 2007).                                            
|      |                                                                                                                                                                                                                                                                                                                   
|10.24 | 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 8K filed on
      June 18, 2007)

32

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|10.25  | Support and
        Lock Up Agreements between CounterPath Solutions, Inc and each of Owen
        Matthews and Wesley Clover dated as of June 15, 2007 (incorporated by
        reference from our Current Report on Form 8K filed on June 18, 2007)                                                                             
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                   
|10.26  | Subscription
        Agreement between CounterPath Solutions, Inc and Wesley Clover dated as
        of June 15, 2007 (incorporated by reference from our Current Report on
        Form 8K filed on June 18, 2007)                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                   
|10.27  | Amended Employment
        Agreement between Mark Bruk and CounterPath Solutions R&D Inc., a
        wholly owned subsidiary of CounterPath Solutions, Inc. dated July 24,
        2007.                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                   
|10.28  | Exchangeable
        Share Support Agreement between CounterPath Solutions, Inc. and 6789722
        Canada Inc., a wholly owned subsidiary of CounterPath Solutions, Inc.
        dated as of August 2, 2007 (incorporated by reference from our Current
        Report on Form 8-K filed on August 8, 2007).                    
|       |                                                                                                                                                                                                                                                                                                                                   
|10.29  | Voting and Exchange
        Trust Agreement among CounterPath Solutions, Inc., 6789722 Canada Inc.,
        a wholly owned subsidiary of CounterPath Solutions, Inc. and Valiant Trust
        Company dated as of August 2, 2007 (incorporated by reference from our
        Current Report on Form 8-K filed on August 8, 2007).
|       |                                                                                                                                                                                                                                                                                                                                   
|10.30  | 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).                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                   
|10.31  | Form of Subscription
        Agreement dated August 2, 2007, between our company and various investors
        (incorporated by reference from our Current Report on Form 8-K filed on
        August 8, 2007).                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                   
|10.32  | Installment
        Subscription Agreement dated August 2, 2007, between our company and various
        investors (incorporated by reference from our Current Report on Form 8-K
        filed on August 8, 2007).                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                   
|10.33  | Loan Conversion
        Agreement dated August 2, 2007, between our company and various investors
        (incorporated by reference from our Current Report on Form 8-K filed on
        August 8, 2007).                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                   
|10.34  | Form of Stock
        Option and Subscription Agreement dated August 2, 2007, between our company
        and each of the former optionees of NewHeights Software Corp. (incorporated
        by reference from our Current Report on Form 8-K filed on August 8, 2007).                                                          
|       |                                                                                                                                                                                                                                                                                                                                   
|10.35  | Escrow Agreement
        among our company, Owen Matthews, Wesley Clover and Clark Wilson LLP dated
        as of August 2, 2007 (incorporated by reference from our Current Report
        on Form 8-K filed on August 8, 2007).                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                   
|10.36* | Employment
        Agreement between Greg Pelling and CounterPath Solutions R&D Inc.,
        a wholly owned subsidiary of CounterPath Solutions, Inc. dated September
        13, 2007.                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                   
|10.37* | Amended
        Employment Agreement between Donovan Jones and CounterPath Solutions R&D
        Inc., a wholly owned subsidiary of CounterPath Solutions, Inc. dated September
        13, 2007.                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                   
|(21)   | Subsidiaries
        of CounterPath Solutions, Inc.                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                   
|       | CounterPath
        Solutions R&D Inc. (incorporated in the Province of British Columbia,
        Canada)                                                                                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                                                                                   
|       | NewHeights Software
        Corporation (incorporated in the Province of British Columbia, Canada)                                                                                                                                                                                                                                
|       |                                                                                                                                                                                                                                                                                                                                   
|       | 6789722 Canada
        Inc. (incorporated under the Canadian Business Corporations Act)                                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                   
|(31)   | Section 302
        Certification                                                                                                                                                                                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                   
|31.1*  | Section
        302 Certification of Chief Executive Officer.                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                   
|31.2*  | Section
        302 Certification of Chief Financial Officer.                                                                                                                                                                                                                                                                     

33

---

|(32)  | Section 906 Certification                                  
|----- | -----------------------------------------------------------
|      |                                                            
|32.1* | Section 906 Certification
      of Chief Executive Officer.
|      |                                                            
|32.2* | Section 906 Certification
      of Chief Financial Officer.

*          
filed herewith

34

---

SIGNATURES

In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



COUNTERPATH SOLUTIONS, INC.



|By: | /s/Greg
      Pelling                                               
|--- | --------------------------------------------------------------------
|    | Greg Pelling                                                        
|    | Chief Executive Officer &
      Director                            
|    | (Principal Executive Officer)                                       
|    | Date: September 14, 2007                                            
|    |                                                                     
|    |                                                                     
|By: | /s/David
      Karp                                                 
|    | David Karp                                                          
|    | Chief Financial Officer,
      Secretary & Treasurer                
|    | (Principal Financial Officer and
      Principal Accounting Officer)
|    | Date: September 14, 2007                                            

35

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