DragonWave Inc.
Management's Discussion and Analysis
For the three and nine months ended November 30, 2013
Tables are expressed in USD $000's except share and per share amounts unless otherwise indicated

The following is management's discussion and analysis ("MD&A") of DragonWave Inc.'s consolidated results of operations and financial condition for the three and nine months ended November 30, 2013. This MD&A is dated January 13, 2014 and should be read in conjunction with our unaudited consolidated interim financial statements and corresponding notes for the three and nine months ended November 30, 2013 and the Annual Information Form for the year ended February 28, 2013 (the "AIF") which is available at www.sedar.com (SEDAR) and at www.sec.gov/edgar/searchedgar/companysearch.html (EDGAR) as an exhibit to our Annual Report on Form 40-F for the year ended February 28, 2013.

The consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) and are reported in United States dollars ("USD"). The information contained herein is dated as of January 13, 2014 and is current to that date, unless otherwise stated. Our fiscal year commences on March 1 of each year and ends on the last day of February of the following year.

In this document, unless the context requires otherwise, "we", "us", "our", the "Company" and "DragonWave" all refer to DragonWave Inc. collectively with its direct and indirect subsidiaries. The content of this MD&A has been approved by our Board of Directors, on the recommendation of its Audit Committee.

Unless otherwise indicated, all currency amounts referenced in this MD&A are denominated in USD.

This MD&A contains "forward-looking information" and "forward-looking statements" within the meaning of applicable Canadian and US securities laws. All statements in this MD&A, other than statements that are reporting results or statements of historical fact, are forward-looking statements which involve assumptions and describe our future plans, strategies and expectations. Forward-looking statements are generally identifiable by use of the words "may", "will", "should", "continue", "expect", "anticipate", "estimate", "believe", "intend", "plan" or "project" or the negative of these words or other variations of these words or comparable terminology. Forward-looking statements include, without limitation, statements regarding: our strategic plans and objectives; growth strategy; customer diversification and expansion initiatives; our expectations with respect to the results of the acquisition by us of the microwave transport business of Nokia Siemens Networks (now Nokia Solutions and Networks)("NSN"); our expectations with respect to end-customer demand for our products; our expectations regarding the development of our target markets; and our plans, objectives and targets for operating cost reductions, revenue growth and margin performance. There can be no assurance that forward-looking statements will prove to be accurate and actual results or outcomes could differ materially from those expressed or implied in such statements. Important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements are discussed in this MD&A under the heading "Risks and Uncertainties". Forward-looking statements are provided to assist external stakeholders in understanding management's expectations and plans relating to the future as of the date of this MD&A and may not be appropriate for other purposes. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements are made as of the date of this MD&A and we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent expressly required by law.

There can be no assurance that forward-looking statements will prove to be accurate and actual results and outcomes could differ materially from those expressed or implied in such statements. The following are some of the important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements:

In particular, forward-looking statements relating to the acquisition and integration by us of the microwave transport business of NSN and our renewed operational framework with NSN announced on April 10, 2013 are based on certain assumptions including:

Other risks relating to NSN, identified by Nokia Corporation, its controlling parent, are set out in Nokia Corporation's annual report on Form 20-F for the fiscal year ended December 31, 2012 under item 3D "Risk Factors".

Also see the discussion under "Liquidity and Capital Resources—Liquidity Discussion" in this MD&A, as well as the discussion under "Risk Factors" contained in our most recently filed AIF. Although we have attempted to identify important factors that could cause our actual results to differ materially from expectations, intentions, estimates or forecasts, there may be other factors that could cause our results to differ from what we currently anticipate, estimate or intend. Ongoing global economic uncertainty could impact forward-looking statements contained in this MD&A in an unpredictable and possibly detrimental manner. In light of these risks, uncertainties and assumptions, the forward-looking events described in this MD&A might not occur or might not occur when stated.

		Three Months Ended									Nine Months Ended

		November 30, 2013			November 30, 2012			November 30, 2011			November 30, 2013			November 30, 2012			November 30, 2011
REVENUE			22,169			38,452			11,830			72,154			95,583			36,506
	Cost of sales		19,709			31,314			6,992			64,080			77,569			21,249

Gross profit			2,460			7,138			4,838			8,074			18,014			15,257

			11%			19%			41%			11.2%			18.8%			41.8%
EXPENSES
	Research and development		5,000			9,769			5,380			15,085			26,307			17,751
	Selling and marketing		3,479			3,935			3,793			10,036			11,950			11,722
	General and administrative		4,144			6,218			4,985			13,325			20,001			12,665

			12,623			19,922			13,893			38,446			58,258			41,236

Income (loss) before other items			(10,163	)		(12,784	)		(9,055	)		(30,372	)		(40,244	)		(25,979	)
	Amortization of intangible assets		(500	)		(1,162	)		(404	)		(1,496	)		(2,903	)		(1,613	)
	Accretion expense		(53	)		(16	)		(60	)		(174	)		(68	)		(612	)
	Interest income/(expense)		(392	)		(500	)		144			(1,310	)		(1,211	)		375
	Equity issuance expenses		(662	)		—			—			(662	)		—			—
	Gain on change in estimate		2,970			5,416			1,362			3,312			6,958			14,523
	Gain on contact amendment		417			—			—			5,702			—			—
	Gain on purchase of business		—			—			—			—			19,397			—
	Fair value adjustment—warrant liability		3,587			—			—			3,587			—			—
	Foreign exchange gain (loss)		(724	)		419			(202	)		(1,219	)		(122	)		(118	)

Net Income (Loss) befire income taxes			(5,520	)		(13,873	)		(8,215	)		(22,632	)		(28,254	)		(21,739	)
	Income tax expense (recovery)		102			63			(157	)		270			(509	)		(1,458	)

Net Income (Loss)			(5,622	)		(13,936	)		(8,058	)		(22,902	)		(27,745	)		(20,281	)
	Net Loss Attributable to Non-Controlling Interest		113			69			41			259			177			168

Net Income (Loss) applicable to shareholders			(5,509	)		(13,867	)		(8,017	)		(22,643	)		(27,568	)		(20,113	)

Basic income (loss) per share			(0.12	)		(0.36	)		(0.23	)		(0.55	)		(0.74	)		(0.57	)
Diluted income (loss) per share			(0.12	)		(0.36	)		(0.23	)		(0.55	)		(0.74	)		(0.57	)
Basic weighted average shares outstanding			47,329,275			38,033,222			35,542,247			41,144,953			37,313,926			35,486,924
Diluted weighted average shares outstanding			47,329,275			38,033,222			35,542,247			41,144,953			37,313,926			35,486,924

The changes in the results between fiscal years 2014, 2013 and 2012 can be attributed to a number of factors including:



Assets:
Cash and cash equivalents		23,545	22,959
	Trade receivables	19,009	35,452
	Inventory	31,642	32,722
	Contingent receivable	—	13,843
	Other Assets	4,989	6,146

Total Current Assets		79,185	111,122

Long Term Assets		18,928	23,872

Total Assets		98,113	134,994

Liabilities:
	Accounts Payable & Accrued Liabilities	26,484	56,962
	Debt facility	—	15,000
	Other Short Term Liabilities	2,699	4,669

Total Short Term Liabilities		29,183	76,631

Long Term Liabilities		17,885	2,753

Total Liabilities		47,068	79,384

Total Equity		51,045	55,610

Total Liabilities and Shareholder's equity		98,113	134,994

The following table sets out selected financial information for each of our most recently completed eight fiscal quarters. In the opinion of management, this information has been prepared on the same basis as our audited consolidated financial statements, and all necessary adjustments have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with our consolidated financial statements and related notes thereto.

Historically, our operating results have fluctuated on a quarterly basis and we expect that quarterly financial results will continue to fluctuate in the future. The results of operations for interim periods should not be relied upon as an indication of the results to be expected or achieved in any future period or any fiscal year as a whole. Fluctuations in results relate to the project nature of the network installations of our end-customers including end-customers we supply through NSN. In addition, results may vary as a result of the timing of staffing, infrastructure additions required to support growth, and material costs required to support design initiatives. Operating results may not follow past trends for other reasons, including the repercussions of our strategic decisions with respect to, among other things, acquisitions of complementary products or businesses.



		FY12		FY13								FY14

Revenue		9,150		12,974		44,157		38,452		28,294		24,532		25,453		22,169
Gross Profit		1,144		4,133		6,743		7,138		1,487		2,820		2,794		2,460
	Gross Profit %	13%		32%		15%		19%		5%		11%		11%		11%
Operating Expenses		13,720		13,327		25,009		19,922		18,451		13,432		12,391		12,623
Income (loss) before other items		(12,576	)	(9,194	)	(18,266	)	(12,784	)	(16,964	)	(10,612	)	(9,597	)	(10,163	)
Net income (loss) for the period		(13,415	)	(12,637	)	(1,172	)	(13,936	)	(27,262	)	(6,679	)	(10,601	)	(5,622	)
Net income (loss) per share
	Basic	(0.38	)	(0.35	)	(0.03	)	(0.36	)	(0.71	)	(0.17	)	(0.28	)	(0.12	)
	Diluted	(0.38	)	(0.35	)	(0.03	)	(0.36	)	(0.71	)	(0.17	)	(0.28	)	(0.12	)
Weighted average number of shares outstanding
	Basic	35,573,810		35,931,347		37,992,859		38,033,222		38,043,594		38,059,919		38,112,887		47,329,275
	Diluted	35,573,810		35,931,347		37,992,859		38,033,222		38,043,594		38,059,919		38,112,887		47,329,275
Total Assets		120,121		109,616		164,099		152,433		134,994		104,254		89,221		98,113

DragonWave is a leading provider of high-capacity packet microwave solutions that drive next-generation IP networks. DragonWave's carrier-grade point- to-point packet microwave systems transmit broadband voice, video and data, enabling service providers, government agencies, enterprises and other organizations to meet their increasing bandwidth requirements rapidly and affordably. The principal application of DragonWave's products is mobile network backhaul. Additional applications include leased line replacement, last mile fiber extension and enterprise networks.

Key points on our results of operations for the third quarter ended November 30, 2013 when comparing those results to the same period in the previous fiscal year include the following:

Changes in Operating Expenses (USD Millions)

FY2014		12.6		38.4
FY2013		19.9		58.3

	Variance	(7.3	)	(19.9	)

Key Drivers:
NSN Services agreements and Lease holiday amortization		(5.7	)	(13.6	)
Compensation related spending (primarily related to decreases in staffing levels in Ottawa)		(0.6	)	(3.4	)
Closure of the Israeli design centre		(0.9	)	(3.2	)
Travel & Living costs; cost reduction programs introduced to reduce costs		(0.1	)	(1.1	)
Variable compensation		(0.2	)	(1.0	)
Chinese Government R&D incentive		(0.2	)	(0.2	)
DragonWave HFCL increased spending		0.2		0.2
Software relating spending		0.1		0.2
Shanghai Design Centre—Operating for 3 quarters in FY2014; only 2 quarters in FY2013		0.1		2.2

		(7.3	)	(19.9	)

Our primary operational objective is to achieve cash flow break-even from operations. We plan to accomplish this objective largely by focusing on the new revenue opportunities we are now working to close on and by continuing to decrease our costs of direct materials and overhead.

On September 23, 2013, pursuant to the Equity Offering of units we issued 11,910,000 common shares and 8,932,500 warrants for proceeds, before deducting fees and expenses, of approximately $25.0 million. After deducting fees and expenses, we realized net proceeds of $22.4 million. The units were offered at a price of $2.10 per unit. Each unit consisted of one common share and three quarters of one warrant. Each whole warrant entitles the holder to purchase one common share at an exercise price of $2.70 per share until September 23, 2018, subject to certain adjustments. As at September 23, 2013 we recognized a liability in the amount of $6.4 million for the warrants.

The terms of the warrants allow holders of the warrants to exercise the warrants on a cashless basis. A holder of may, in its sole discretion, exercise the warrant in whole or in part and, in lieu of making the cash

payment on account of the aggregate exercise price, elect instead to receive upon such exercise the net number of common shares determined according to the formula set forth in the form of warrant and defined in the form of warrant as the "Net Number". The warrants also provide that holders may exercise on a cashless basis and receive 133¹/3% of the common shares they would otherwise be entitled to receive upon exercise of the warrants, if such exercise (1) occurs after November 12, 2013 and before the October 12, 2014, and (2) the "Market Price" (as defined in the form of warrant) is less than $2.10 (as adjusted for stock splits, stock dividends, recapitalizations and similar events).

The terms of the warrants also provide that in the event of a fundamental transaction we may be required to settle the warrants with a cash payment. ASC 815-40 states that if an event that is not within the entity's control could require net cash settlement, then the contract shall be classified as a liability. As such we recognized a liability for $6.4 million which represented the fair value of the liability as at September 23, 2013. As the liability is a derivative, it is required to be presented at its fair value as at each Balance Sheet date. Increases or decreases in fair value of the warrants are included as a component of other income (expense) in the Consolidated Statement of Operations. As at November 30, 2013, 7,112,500 warrants were outstanding and the liability for warrants was decreased to $2.3 million. In the three and nine months ended November 30, 2013 we increased our common stock value by $0.6 million which represented the value of warrants exercised and realized a gain in the amount of $3.6 million in the Consolidated Statement of Operations which represented the change in fair value of the remaining warrant liability.

Subsequent to the Consolidated Balance Sheet date a further 3,329,000 warrants were exercised resulting in an issuance of 4,473,344 of our common shares.

On June 1, 2012 we announced the closing of the acquisition of NSN's microwave transport business, including its associated operational support system (OSS) and related support functions. The acquisition was effected pursuant to the Amended and Restated Master Acquisition Agreement between DragonWave Inc., its wholly-owned subsidiary DragonWave S.à r.l and NSN dated May 3, 2012.

The results of operations for the nine months ended November 30, 2013 were impacted by changes announced on April 10, 2013 to our existing operational framework with NSN.

The original purchase price for the acquisition of NSN's microwave transport business included a contingent receivable based on business performance in the eighteen months following closing. Under the terms of the renewed framework, NSN paid $13.8 million to us on April 12, 2013 which settled the balance of our contingent receivable.

NSN also took on additional commitments and costs so that we can continue to develop and supply microwave products. The Italian services agreement, pursuant to which NSN provided research & development and certain other services to DragonWave since June 1, 2012, was terminated. As a result, we were able to reduce our accounts payable by $13.3 million. We also eliminated the capital assets and the corresponding capital lease obligation associated with the Italian operations. Finally, we recorded an estimated termination fee of $8.7 million to be paid in several tranches. Finally, a liability recorded related to an Indian lease obligation was amended and a gain of $0.4 million was recognized.

The net impact of these items results in a gain of $5.7 million which was recognized in the statement of operations (three months ended November 30, 2013—$0.4 million; nine months ended November 30, 2013—$5.7 million).

Overdue balances recorded in accounts receivable and payable as at February 28, 2013 between the two companies were settled in the first quarter of fiscal 2014 in the amount of $19.4 million and $13.8 million respectively.

We have established a long term credit facility with Comerica Bank and Export Development Canada. As at November 30, 2013, this asset based credit facility was for a total of $20.0 million plus $2.5 million for letters of credit and foreign exchange facilities. As at November 30, 2013, we had drawn $15.0 million on this facility.

During the three and nine months ended November 30, 2013 the weighted average debt outstanding was $15.0 million (three and nine months ended November 31, 2012—$15.0 million and $16.4 million, respectively) and we recognized $0.4 million and $1.2 million respectively in interest expense related to the debt facility (three and nine months ended November 30, 2012—$0.3 million and $0.8 million respectively).

As at February 28, 2013, we were in breach of one of the covenants then in place on the facility. However, we obtained a waiver of the breach from our lenders for a period through May 30, 2013, which eliminated any acceleration of repayment of our obligation.

On January 6, 2014, we extended the credit facility which was set to mature on May 31, 2014. The revised line has been increased to $40.0 million plus $4.0 million for letters of credit and foreign exchange facilities and will expire on June 1, 2016. The new terms of the credit facility include customary terms, conditions, covenants, and representations and warranties, consistent with the facility which was already in place. Credit availability is subject to ongoing compliance with borrowing covenants and short term assets on hand. We currently have $15 million USD drawn on this facility, and access to additional available funds is geared to future growth in accounts receivable. The credit facility is secured by a first priority charge on all of our assets and principal direct and indirect subsidiaries. Borrowing options under the credit facility

include US dollars, Canadian dollars and Euro loans. Interest rates vary with market rate fluctuations, with loans bearing interest in the range of 3% to 4% above the applicable base rates.

On January 22, 2013 we sold all of our shares of DragonWave Ltd ("DWL"), incorporated in Israel. The shares were sold for a nominal amount. Under the share purchase agreement, we have a liability to pay certain future obligations. During the nine month period ended November 30, 2013 we reduced the contingent liability by $0.3 million based on a change in circumstance and therefore, as at November 30, 2013, we have recorded a discounted liability of $50 thousand (February 28, 2013—$0.8 million). The maximum potential liability to us, as at November 30, 2013 is $50 thousand as well (February 28, 2013—$1.3 million). Also, under the terms of a supply and services agreement, we have an opportunity to earn an additional $5.3 million (February 28, 2013—$5.3 million) based on business performance subsequent to the disposition for which we have recorded a receivable of $0.6 million (February 28, 2013—$0.6 million) which represents our estimate of the amounts to be collected based on the discounted forecasted future cash inflows.

In December, 2013 we announced the addition of Mr. Robert Pons to our Board of Directors. Mr. Pons is a veteran of the telecommunications industry and is based in the United States. He brings a rich combination of senior operating and board governance experience to DragonWave including expertise in developing and implementing Sales, Marketing and Distribution strategies.

We believe that revenue growth will be achieved through both strategic partnerships and direct customer relationships. Our strategic partnerships include DragonWave-HFCL in India where we continue to be excited about near term opportunities. DragonWave is also successfully pursuing direct customer opportunities around the world. For example, we recently announced an agreement with Saab, a defense and security company, to work collaboratively on the expansion and enhancement of a national security communication network in Sweden, Norway, Finland, Denmark and Iceland.

We are also working very hard with key customers in the United States, to define our role in certain network expansions in that country.

This MD&A contains certain information that is not consistent with financial measures prescribed under GAAP. We use earnings before interest, taxes, depreciation and amortization ("EBITDA") as this measure allows management to evaluate our operational performance and the performance of our assets. EBITDA does not have any standardized meaning prescribed by GAAP, and is not designed to replace other measures of financial performance or the statement of cash flows as an indicator of liquid assets. This measure should not be considered in isolation or as a substitute for other measures of performance calculated according to GAAP. We use this non-GAAP measure because it provides additional information on our existing and active commercial operations performance.

Adjusted EBITDA corresponds to EBITDA as defined above less elements that are non-cash in nature. We believe that this metric is necessary in order to isolate the commercial operations from certain non-cash costs. Consistent improvement in adjusted EBITDA is one of management's primary objectives. These measures are used by us because we believe they provide useful information regarding performance. The definitions of the measures that we adopted may differ from those of other businesses. We calculate EBITDA and adjusted EBITDA consistently over each fiscal period.



Summarized US GAAP Income Statement
Revenue		22,169		72,154
Cost of Sales		19,709		64,080

Gross Margin		2,460		8,074
Operating Expenses		12,623		38,446
Other Gains/Losses		(4,541	)	(7,470	)

Net Income (loss)		(5,622	)	(22,902	)
Reconciliation to Non-GAAP Measures
Net Income, under US GAAP		(5,622	)	(22,902	)
	Interest expense	392		1,310
	Tax expense	102		270
	Depreciation of fixed assets	1,072		3,868
	Amortization of intangible assets	500		1,496

EBITDA		(3,556	)	(15,958	)
Non-Cash and Normalizing Adjustments:
	Stock option expenses	312		954
	Equity issuance costs	662		662
	Fair value adjustments	(3,587	)	(3,587	)
	Gain on contract amendment	(417	)	(5,702	)
	Gain on change in estimate	(2,970	)	(3,312	)
	Accretion expense	53		174
	Inventory provision	389		552

Adjusted EBITDA		(9,114	)	(26,217	)

We continue to have one reportable segment, broadband wireless backhaul equipment. The vast majority of our sales come from the shipment of equipment (as opposed to services or software) either through direct sales, sales to distributors, or through OEMs.

We also analyze our sales according to geographic region and target product development and sales strategies to meet the special requirements of each region. North America and Europe, the Middle East and Africa remain the largest regions for us, but we have increasingly been achieving wins, and shipping product to other regions including Asia. Recently we have been excited by increased customer interest in Central and Latin America as well. It remains difficult for us to determine an accurate geographic breakdown for shipments to NSN outside of India because our products are primarily shipped to an NSN warehouse in the Netherlands and not directly to customer sites.

A large component of our cost of sales is the cost of product purchased from outsourced manufacturers. Final test and assembly for the links sold by us is carried on both at our premises and at the premises of our contract manufacturers. Additional costs for logistics and warranty activities are included in cost of sales. We use the services of a number of outsourced contract manufacturers with locations in Germany, China and Malaysia.

Research and development ("R&D") costs relate mainly to the compensation of our engineering group and the material consumption associated with prototyping activities.

Selling and marketing ("S&M") expenses include the remuneration of sales staff, travel and trade show activities and customer support services.

General and administrative ("G&A") expenses relate to the remuneration of related personnel, professional fees associated with tax, accounting and legal advice, and insurance costs.

Occupancy and information systems costs are related to our leasing costs and communications networks and are accumulated and allocated, based on headcount, to all functional areas in our business. We continue to lease premises from a real estate company controlled by an individual who was a member of the Board of Directors until June 12, 2012. On June 12, 2012, following our Annual General Meeting of shareholders, that director ceased to be a member of the Board but our lease continues to remain in effect. Our management believes the terms of the lease reflect fair market terms and payment provisions.

Comparison of the three months ended November 30, 2013 and November 30, 2012

The business we acquired from NSN began to generate revenue for us in the second quarter of fiscal 2013. Consistent with the variance descriptions in previous quarters in fiscal 2014, decreases in sales through the NSN sales channel are the largest single driver for the change in revenue in the three months ended November 30, 2013 compared to the same period in the previous fiscal year. We also saw both

positive and negative variances related to project based deployments to resellers located in Europe and the United States.

Variance for three months ended November 30, 2013

Revenue—Three months ended November 30, 2012		38,452
Variances:
	New Global NSN Strategic Relationship	(13,298	)
	Sales in India through NSN	(2,859	)
	US Based distribution	(596	)
	Sales of our Fusion based product line	(297	)
	European based integrators	1,162
	Tier 1 Operator located in US serviced through OEM & direct	(938	)
	Other	543

Revenue—Three months ended November 30, 2013		22,169

Variance for the nine months ended November 30, 2013

Revenue—Nine months ended November 30, 2012		95,583
Variances:
	New Global NSN Strategic Relationship	(15,215	)
	Sales in India through NSN	(5,358	)
	US Based distribution	(5,460	)
	Sales of our Fusion based product line	(1,478	)
	European based integrator	3,101
	Tier 1 Operator located in US serviced through OEM & direct	(380	)
	Other	1,361

Revenue—Nine months ended November 30, 2013		72,154

The lower gross profit percentage in the third quarter of fiscal 2014 compared to the same period in the previous year relates to a number of factors including a shift in the sales mix through our OEM channel, and reduced sales volumes. Reduced sales volumes place downward pressure on the gross margin

percentage as semi-variable and fixed costs need to be absorbed over fewer sales dollars and volume based material purchasing is challenged. Our initiative to close our warehouse in the Netherlands and open less expensive warehouses closer to our customer base was successfully completed in the third quarter, with the result that freight costs, for example, decreased by 46% over the same period in the previous fiscal year. We continue to work toward negotiating more favorable pricing with component suppliers and contract manufacturers.

The R&D expenses were impacted by changes announced on April 10, 2013 to our existing operational framework with NSN. The termination of the Italian services agreement, in particular, resulted in a significant reduction to our expense profile. In addition, substantial cost reduction actions including the closure of our Israeli design centre and the reduction in staff levels primarily in Canada further reduced expenses.



NSN Italian services agreement	(3.0	)	(7.7	)
Lease holiday—amortization of asset recognized on business combination	(1.0	)	(1.9	)
Depreciation—assets acquired primarily through NSN Acquisition	(0.6	)	—
Israeli location; R&D resources no longer employed in Israel	(0.3	)	(1.8	)
Canadian compensation—reduced staff year over year	(0.2	)	(1.5	)
Government assistance—China	(0.2	)	(0.2	)
Material and software spending	0.3		(0.3	)
Contracted services and other	0.2		0.1
Shanghai office—nine months of activity in FY2014 vs. six months in FY2013	—		2.1

	(4.8	)	(11.2	)

Similar to the factors described for R&D, the termination of the Italian services agreement impacted the expense base for S&M. In addition, reductions in staff levels globally further reduced spending for the sales and marketing organizations.

G&A expenses have decreased relative to the same three and nine month periods in the previous year. Once again the changes relate predominantly to the NSN services agreements and the restructuring efforts that took place in fiscal year 2013.



NSN transitional services agreement and Italian services contract	(1.5	)	(3.2	)
Compensation related spending—reductions in staff	(0.4	)	(1.5	)
Closure of the DragonWave Israeli subsidiary	—		(1.2	)
Lower travel costs and other	(0.2	)	(0.6	)
Professional fees and contractors including legal fees which have decreased	(0.2	)	(0.5	)
Lower variable compensation	—		(0.4	)
Higher costs incurred at DragonWave HFCL	0.2		0.2
Warehousing costs—portion not in Margin—(nine months in FY2014 vs. six months in FY2013)	—		0.5

	(2.1	)	(6.7	)

The amortization of technology and customer relationships acquired as part of our acquisition of DragonWave Ltd. (formerly known as Axerra Networks Ltd.) and the related Office of the Chief Scientist of the Ministry of Industry and Trade in Israel ("OCS") liability ended with the write off of DragonWave Ltd. Acquisition-related intangibles on August 31, 2012. As a result, there were no expenses associated with the amortization of these balances in fiscal year 2014. The only remaining intangible asset associated with the acquisition of the NSN microwave transport business is the asset associated with the favourable accounts receivable terms negotiated in the contract. Amortization of computer software and infrastructure software has grown modestly over the past year with new software purchases.

The accretion expense in the prior fiscal year related primarily to the accretion of the Israeli OCS liability. The value of the OCS liability was reduced to zero at August 31, 2012. A small accretion expense was recognized in the three months ended November 30, 2013 associated with balances which arose on the acquisition of the NSN microwave transport business related balances.

The restructuring expenses in fiscal year 2013 related to the announcements in that year of the elimination of positions across all functional areas of the business, which were primarily borne in Canada and Israel.

On June 4, 2012, we borrowed against our credit facility with Comerica Bank and Export Development Canada. As discussed above, on January 6, 2014 the line of credit was increased and extended. The revised line has been increased to $40.0 million plus $4.0 million for letters of credit and foreign exchange facilities and will expire on June 1, 2016.

As of the date of this MD&A, $15.0 million is outstanding on the line. Interest rates vary with market rate fluctuations, with loans bearing interest in the range of 3% to 4% above the applicable base rates. The terms of the credit facility include other customary terms, conditions, covenants, and representations and warranties.

During the previous fiscal year, in the three months ended August 31, 2012, we performed an analysis of our intangible assets in order to determine whether the carrying value of those assets exceeded the estimated future cash flows expected to result from their use or disposition. Based upon this analysis, we wrote the assets down to their fair value and recorded a corresponding impairment charge as outlined in the table above in fiscal year 2013.

The total costs associated with the Equity Offering in September, 2013, including fees and expenses approximated $2.6 million. Because of the existence of the warrant liability, a prorated portion of the total fees and expenses was reported on the Statement of Operations for the three month period ended November 30, 2013. The remainder of the total fees and expenses impacted equity directly.

There are three factors contributing to the gain on change in estimate during the three months and nine months ended November 30, 2013

Impacting the nine months ended November 30, 2012 was the change in estimate made related to the contingent liability estimated on the of sale of DragonWave Ltd. The reduction in the liability resulted in a corresponding gain.

As described in the section entitled "Acquisition of NSN's Microwave Transport Business", a number of factors make up the Gain on Contract Amendment as follows:

We recognized a one-time gain of $19.4 million in the three and nine months ended November 30, 2012 due to the difference between the cumulative tangible and intangible net assets and the purchase price of the acquisition of NSN's microwave transport business.

As the warrant liability is a derivative, it is required to be presented at its estimated fair value as at each Balance Sheet date. Increases or decreases in fair value of the warrants are included as a component of other income (expense) in the Consolidated Statement of Operations.

Subsequent November 30, 2013, 3,329,000 warrants were exercised resulting in an issuance of 4,473,344 of the Company's common shares.

The foreign exchange balance for the three and nine months ended November 30, 2013 is driven by the valuation of our foreign denominated monetary balances, primarily the valuation of the EUR relative to the USD during this nine month period. We do participate from time to time in forward exchange contracts which help to mitigate our exposure to these fluctuations. Included in the $0.7 million loss in the three months ended November 30, 2013 is a small gain of $14 thousand on the contracts in place at November 30, 2013.

The year-over-year change in income tax expense relates primarily to the write down of the deferred tax assets associated with the impairment of certain DragonWave Ltd. (Israeli entity) related balance sheet items. The expense in fiscal year 2014 relates to the anticipated payment of taxes in entities that provide either R&D or sales and customer support services to the rest of DragonWave and have no tax losses available.

As at February 28, 2013, we had cumulative operating tax loss-carry forwards in the following jurisdictions: Canada—$72.3 million, United States—$8.8 million, Luxembourg—$33.0 million. We also had capital loss carry forwards in the following jurisdictions: Canada—$16.3 million, United States—$36.5 million. In addition, we had $14.6 million of investment tax credits available to reduce future federal Canadian income taxes payable and $2.3 million available to reduce future provincial income taxes payable.



Key Balance Sheet Amounts and Ratios:
	Cash and Cash Equivalents	23,545	22,959
	Working Capital	50,002	34,491
	Long Term Assets	18,928	23,872
	Long Term Liabilities	17,885	2,753
	Working Capital Ratio	2.7 : 1	1.5 : 1
	Days Sales Outstanding in accounts receivable	57 days	107 days
	Inventory Turnover	1.8 times	0.2 times

As at November 30, 2013, we had $23.5 million in Cash and Cash Equivalents ("Cash"), representing a $0.6 million increase from the Cash balance at February 28, 2013.

The following table explains the change in Cash in the three and nine months ended November 30, 2013.



Beginning Cash Balance		9,826		22,959
Net Income adjusted for Non-Cash Items		(9,513	)	(26,901	)
	Change in inventory	886		528
	Change in accounts receivable, NSN contingent receivable and other current assets	2,178		30,637
	Change in accounts payable and other liabilities	(1,612	)	(23,127	)

Working capital changes		1,452		8,038

	Capital asset acquisitions	(558	)	(1,334	)
	Principal payments on capital lease obligations	(280	)	(1,206	)

Non-working capital cash changes		(838	)	(2,540	)

Other (including foreign exchange on bank accounts)		184		(445	)

Cash Outflow before Equity Offering		(8,715	)	(21,848	)

Net proceeds on Equity Offering		22,434		22,434

Ending Cash Balance		23,545		23,545

Operating losses were once again a significant driver in the use of Cash in the three and nine months ended November 30, 2013

In the third quarter of fiscal 2013 the Equity Offering increased cash resources by $22.4 million

Many of the other significant changes in the nine months ended November 30, 2013 relate to the renewed framework with NSN, announced on April 10, 2013:

Inventory decreased in size relative to the balance at August 31, 2013 and decreased as well relative to the balance at February 28, 2013 thereby minimizing the cash resources required for its procurement.



Changes in working capital
Beginning working capital balance	34,491
Cash and cash equivalents, restricted cash, and short term investments	586
Trade receivables	(16,443	)
Inventory	(1,080	)
Other current assets	(1,157	)
Contingent receivable	(13,843	)
Future income tax asset	0
Accounts payable and accrued liabilities	30,478
Debt facility	15,000
Deferred revenue	499
Capital lease obligation	1,266
Contingent royalty	205

Net change in working capital	15,511

Ending working capital balance	50,002

The trade receivables balance decreased by $16.4 million between February 28, 2013 and November 30, 2013 due primarily to the payment by NSN of $19.4 million in receivables outstanding. The days sales outstanding fell from 107 days at February 28, 2013 to 57 days sales outstanding at November 30, 2013 which also contributed to a lower accounts receivable balance.

Our allowance for doubtful accounts continues to represent a small percentage of our total trade receivables outstanding (November 30, 2013—2.0%; February 28, 2013—0.7%).

As at November 30, 2013, one customer exceeded 10% of the total receivable balance. This customer represented 41% of the trade receivables balance (February 28, 2013—one customer represented 67% of the trade receivables balance).

Included in G&A expenses is an expense of $0.2 million related to bad debt expense for the three months ended November 30, 2013 and $0.5 million related to bad debt expenses for the nine months ended November 30, 2013 (three and nine months ended November 30, 2012—recovery of $ 0.2 million and $0.1 million).

The inventory balance decreased by $1.1 million relative to the closing balance at February 28, 2013. By product category the decreases and increases in inventory may be described as follows:

The accounts payable and accrued liabilities balance decreased by $30.5 million between February 28, 2013 and November 30, 2013. The primary driver for the decrease related to the renewed operational framework with NSN which resulted in our payment to NSN of outstanding accounts payable in the amount of $13.9 million, and the reduction in the payable balance to NSN associated with the termination of the Italian services agreement of $13.3 million. Offsetting these reductions was the recognition of an estimated termination fee, currently valued at $8.9 million, relating to the termination of the Italian services agreement. The amount recorded is an estimate subject to measurement uncertainty as to the timing and amount that could have a material impact on our financial statements should actual results differ from those estimated.

It should be noted that the debt facility is included in the working capital table above because it moved from short term at February 28, 2013 to long term at November 30, 2013.

Our net proceeds from the Equity Offering, after payment of the underwriters' fee and deducting the expenses of the Equity Offering were $22.4 million.

We intend to use the net proceeds we received from the Equity Offering as follows: approximately $15.0 million to strengthen our balance sheet, approximately $5.0 million to fund working capital and approximately $2.4 million for general corporate purposes. In our industry, a strong balance sheet (in the sense of a cushion of available cash) is attractive to customers as it demonstrates the capacity to ramp up and support higher production levels. In some longer term and larger deployments, a certain amount of cash on the balance sheet is a pre-condition to qualifying to supply products. To the extent we are successful in winning more business funds allocated to strengthening our balance sheet may be re-allocated to supporting higher levels of production, including purchases of component inventory to support our supply chain. Any amounts for general working capital remain unallocated and will be expended at the discretion of management.

Although we intend to use the net proceeds from the Equity Offering for the purposes set forth above, we reserve the right to use such net proceeds for other purposes to the extent that circumstances, including unforeseen events and other sound business reasons, make such use necessary or prudent.

The following table sets out a comparison of the intended and actual use of proceeds from the Equity Offering (other than working capital), along with an explanation of the variances and the impact of the variances on our ability to achieve our business objectives and milestones:

Our consolidated financial statements for the three and nine month periods November 30, 2013 have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the disbursement of liabilities in the normal course of business. We have consumed a significant amount of cash resources during the past two and a half years, mainly attributable to expense base reductions that lagged reductions in sales volumes, and our acquisition and integration of the NSN microwave transport business.

As stated in our MD&A dated May 8, 2013 for the fiscal year ended February 28, 2013, we have formulated a plan to return to cash flow break-even and to continue to operate as a going concern. Some of the significant assumptions and associated risks that were considered in our planning process as well as some of the steps we have taken to implement our plan included:

We continue to seek growth in sales levels both to NSN and other direct customers, as well as improvements in our gross margins through various ongoing initiatives. While we believe that our plans and assumptions are reasonable, actual events or circumstances may cause the assumptions to be incorrect and actual results may differ materially from the plan.

Future minimum operating lease payments as at November 30, 2013 per fiscal year are as follows:

In the normal course of our business activities, we are subject to claims and legal actions. We recognize a provision for estimated loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In management's opinion, adequate provisions have been made for all current and future claims.

Our common shares are listed on the Toronto Stock Exchange under the symbol DWI and on the NASDAQ under the symbol DRWI.

As at November 30, 2013, there were 52,823,364 common shares issued and outstanding, options to purchase 3,464,032 common shares granted under our stock option plan, and 7,144,062 warrants exercisable for common shares, with the number of common shares issuable upon exercise subject to adjustment in accordance with terms of the warrants.

As of January 8, 2014 there were 57,300,155 common shares issued and outstanding, options to purchase 3,455,447 common shares outstanding under our stock option plan, and 3,815,062 warrants exercisable for common shares, with the number of common shares issuable upon exercise subject to adjustment in accordance with terms of the warrants. See "Our Priorities—Equity Offering".

We launched an Employee Share Purchase Plan ("ESPP") on October 20, 2008. The plan includes provisions to allow employees to purchase common shares. We will match the employees' contribution at a rate of 25%. During the three months ended November 30, 2013 a total of 7,794 common shares were purchased by employees at fair market value, while we issued 1,948 common shares as our matching contribution. During the nine months ended November 30, 2013 a total of 20,316 common shares were purchased by employees at fair market value, while we issued 5,078 common shares as our matching contribution. The shares contributed by us will vest 12 months after issuance.

The fair value of the unearned ESPP shares as at November 30, 2013 was $13 thousand (February 28, 2013—$23 thousand). The number of shares held for release, and still restricted under the ESPP at November 30, 2013 was 6,391 (February 28, 2013—7,760). The total fair value of the shares earned during the three and nine months ended November 30, 2013 was $4 thousand and $20 thousand, respectively (three and nine months ended November 30, 2012—$12 thousand and $38 thousand, respectively).

City	Country	Lessor	Lease Expiry	Cost per Month

Roswell, Georgia	United States	A-COLONIAL 100/200 OWNER, LLC	March, 2014	$	5,000
Luxembourg City	Luxembourg	FPS Offïce Center S.A.R.L.	Month to Month	$	1,500
Singapore	Singapore	APBC Pte Ltd	August, 2014	$	3,200
Ottawa (Warehouse & Operations at Terry Fox Drive + Office Space at 411 Legget Drive)	Canada	Kanata Research Park	November, 2016	$	125,000
Shanghai	China	Caike Property (Shanghai) Co., Ltd	January, 2015	$	55,404
Herzlyia	Israel	Margalin Holdings Ltd.	Nov 30, 2013	$	2,289

The leases listed above are arranged at market pricing levels in all jurisdictions and the lease periods listed above represent a commitment for the time period indicated. We are actively seeking sub-lease arrangements in a number of locations as part of our efforts to reduce costs. There can be no assurance that we will secure sub-leases or that sub-lease terms will be favourable.

We use an outsourced manufacturing model in which most of the component acquisition and assembly of our products is executed by third parties. Generally, we provide the supplier with a purchase order 90 days in advance of expected delivery. We are responsible for the financial impact of any changes to the product requirements within this period. In some cases when a product has been purchased by a contract manufacturer but not pulled on for a build after a certain amount of time, we provide a deposit against that inventory, but do not take ownership of it.

Our contract manufacturers currently have inventory intended for use in the production of our products, and we have purchase orders in place for raw materials and manufactured products with these contract manufacturers as well. All of this material is considered to be part of the normal production process and is expected to be fully used based on current forecasts and projections. As mentioned previously, we would generally be responsible for the cost of the material approved to be purchased on our behalf by our contract manufacturers should those forecasts or projections change.

Financial instruments are classified into one of the following categories: held-for-trading, held-to-maturity, available-for-sale, loans and receivables, and other financial liabilities.

The following table summarizes the carrying values of our financial instruments:

Cash and cash equivalents, restricted cash, trade receivables, other receivables, accounts payable, accrued liabilities, debt facility, contingent liabilities and lease obligations are short term financial instruments whose fair value approximates the carrying amount. As at the consolidated balance sheet dates, there are no significant differences between the carrying values of these items and their estimated fair values. All financial instruments have been measured using Level 1 inputs with the exception of our contingent receivable and contingent liabilities which have been measured using a Level 3 input, a discounted cash flow model that values the underlying assets and liabilities based on expected timing of payments and receipts. Our warrant liability has been measured using a Monte Carlo simulation that used Level 3 inputs including risk free rates and market volatilities.

Cash and cash equivalents and our debt facility which has interest rates with market rate fluctuations expose us to interest rate risk on these financial instruments. Net interest expense of $0.4 million and $1.3 million respectively, was recognized during three and nine months ended November 30, 2013 on our cash, cash equivalents, and debt facility (three and nine months ended November 30, 2012—income of $0.5 million and $1.2 million respectively).

In addition to trade receivables and other receivables, we are exposed to credit risk on our cash and cash equivalents, and restricted cash in the event that our counterparties do not meet their obligations. We do not use credit derivatives or similar instruments to mitigate this risk and, as such, the maximum exposure is the full carrying value or fair value of the financial instrument. We minimize credit risk on cash and cash equivalents by transacting with only reputable financial institutions and customers.

Foreign exchange risk arises because of fluctuations in exchange rates. To mitigate exchange risk, we utilize forward contracts to secure exchange rates with the objective of offsetting fluctuations in our operating expenses incurred in foreign currencies with gains or losses on the forward contracts. Our foreign exchange forward contracts mature at various dates through January 2014 and have an aggregate notional amount of $1.0 million. During the three months ended November 30, 2013 we recorded approximately $14 thousand in gains related to these foreign exchange forward contracts. Our foreign exchange forward contracts are over-the-counter instruments. There is an active market for this instrument and, therefore, it is classified as Level 1 in the fair value hierarchy. All foreign currency gains and losses related to forward contracts are included in Foreign exchange gain (loss) in the Consolidated Statements of Operations.

As of November 30, 2013, if the US dollar had appreciated 1% against all foreign currencies, with all other variables held constant, the impact of this foreign currency change on our foreign denominated financial instruments would have resulted in a decrease in after-tax net income (loss) of $0.1 million for the three and nine months ended November 30, 2013 (three and nine months ended November 30, 2012—decrease of $0.2 million), with an equal and opposite effect if the US dollar had depreciated 1% against all foreign currencies at November 30, 2013.

We were dependent on one key customer with respect to revenue in the three months ended November 30, 2013. This customer represented approximately 51% of sales for the three months ended November 30, 2013 (three months ended November 30, 2012—one customer representing 70%).

We were dependent on two key customers with respect to revenue in the nine months ended November 30, 2013. These customers represented approximately 66% of sales for the nine months ended November 30, 2013 (nine months ended November 30, 2012—one customer representing 63%).

At the end of the period covered by this MD&A (such period being the three month and nine months ended November 30, 2013), an evaluation was carried out under the supervision of, and with the participation of, our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, which are our principal executive officer and principal financial officer, respectively, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as at November 30, 2013 to give reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act and/or applicable Canadian securities legislation is (i) recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission's as well as in accordance with applicable Canadian securities legislation rules and forms, and (ii) accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Our management is also responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) as well as National Instrument 52-109 of the Canadian Securities Administrators. These controls are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. Under the supervision and with the participation of our management, including our principal executive officer, our CEO, and principal financial officer, our CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of November 30, 2013.

Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements filed on SEDAR on May 8, 2013, has also audited the effectiveness of our internal control over financial reporting as of February 28, 2013, as stated in their report which is included in the annual audited financial statements.

During the period covered by this report, no changes occurred in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inventory is valued at the lower of cost and net realizable value ("NRV"). The cost of inventory is calculated on a standard cost basis, which approximates average actual cost. NRV is determined as the market value for finished goods, replacement cost for raw materials, and finished goods market value less cost to complete for work in progress inventory. Indirect manufacturing costs and direct labour expenses are allocated systematically to the total production inventory.

We derive revenue from the sale of broadband wireless backhaul equipment which includes embedded software and a license to use said software and extended product warranties. Software is considered to be incidental to the product. Services range from installation and training to basic consulting. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and there are no significant remaining vendor obligations, collection of receivables is reasonably assured and the fee is fixed and determinable. Where final acceptance of the product is specified by the customer, revenue is deferred until acceptance criteria have been met.

Our business agreements may also contain multiple elements. Accordingly, we are required to determine the appropriate accounting, including whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes, the fair

value of these separate units of accounting and when to recognize revenue for each element. For arrangements involving multiple elements, we allocate revenues to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence ("VSOE") if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available. In multiple element arrangements, revenues are allocated to each separate unit of accounting for each of the deliverables using the relative estimated selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. We have determined the selling price for the undelivered items using VSOE and the delivered items using ESP.

We generate revenue through direct sales and sales to distributors. We defer the recognition of a portion of sales to distributors based estimated sale returns and stock rotation granted to customers on products in the same period the related revenues are recorded. These estimates are based on historical sales returns; stock rotations and other known factors. During the previous fiscal year we determined that there was sufficient history on which to base our estimates and, adapted our policy accordingly.

Revenue associated with extended warranty and advanced replacement warranty is recognized ratably over the life of the contracted service.

Revenue from engineering services or development agreements is recognized according to the specific terms and acceptance criteria as services are rendered.

We accrue estimated potential product liability as warranty costs when revenue on the sale of equipment is recognized. Warranty costs are calculated on a percentage of revenue per month based on current actual warranty costs and return experience.

Shipping and handling costs borne by us are recorded in cost of sales. Shipping and handling costs charged to customers are recorded as revenue, if billed at the time of shipment. Costs charged to customers after delivery are recorded in cost of sales.

We generate revenue through royalty agreements as a result of the use of our intellectual property. Royalty revenue is recognized as it is earned.

Advanced replacement and extended warranty contracts are services offered by us to our customers as an option to purchase either at the time the goods are shipped or at any time after shipment takes place. Many customers wait to purchase extended warranty coverage until their standard warranty period ends.

Advanced replacement is a service we sell which provides to customers the benefit of having a replacement radio or modem shipped to them when a unit they own has been confirmed by us to be malfunctioning. When the customer receives the replacement radio or modem, they ship the malfunctioning unit back to us. We repair and keep the returned unit.

Our standard warranty for customers generally varies between 12 and 39 months. Our extended warranty programs enable customers to continue to have repairs and customer support guidance beyond the standard warranty period.

We earn a minimal portion of our total revenue from the sale of training services primarily to installation companies. Only in rare circumstances do we provide or sub-contract installation services (see below), as the customers to whom we sell microwave equipment outsource the installation to specialized companies. As a result, installation training revenue is generally not sold as a bundled service because it is sold to a different customer base. Further, any training that is provided is not essential to the functionality of our product offerings, and is thus considered an insignificant deliverable to the overall arrangement and not considered a separate unit of accounting.

We do not offer installation services. Periodically, a customer may request that we arrange for the installation of the equipment through a third party service provider as a condition of the sale. In this case, a separate services agreement is created between us and the end-user of our equipment, and we sub—contract the installation to a qualified installer. Evidence that the revenue associated with the installation service represents the fair value of the offering is provided by the sub-contracted value of the installation.

The revenue recognition concepts highlighted above have not changed as a result of our acquisition of the NSN microwave transport business. Shipping terms through the NSN OEM sales channel follow the Incoterms used by our other customers and do not include acceptance criteria.

Our research costs are expensed as incurred. Our development costs other than property and equipment are expensed as incurred unless they meet generally accepted accounting criteria for deferral and amortization. Development costs incurred prior to establishment of technological feasibility do not meet these criteria, and are expensed as incurred.

Income taxes are accounted for using the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes that are more likely than not to be realized. Deferred income tax assets and liabilities are measured using enacted tax rates that apply to taxable income in the years in which temporary differences are expected to be recovered or settled. We provide a valuation allowance against its deferred tax assets when it believes that it is more likely than not that the assets will not be realized.

We determine whether it is more likely than not that an uncertain tax position will be sustained upon examination by the tax authorities. The tax benefit of any uncertain tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon successful resolution. To the extent a full benefit is not expected to be realized, an income tax liability is effectively established. We recognize accrued interest and penalties on unrecognized tax benefits as interest expense.

We periodically review our provision for income taxes and valuation allowance to determine whether the overall tax estimates are reasonable. When we perform our quarterly assessments of the provision and valuation allowance, it may be determined that an adjustment is required. This adjustment may have a material impact on our financial position and results of operations.

In December 2011, the FASB issued ASU 2011-11, "Disclosures about Offsetting Assets and Liabilities," which creates new disclosure requirements about the nature of an entity's rights of offset and related arrangements associated with its financial instruments and derivative instruments. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods therein, with retrospective application required. The new disclosures are designed to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under International Financial Reporting Standards. The adoption did not have an impact on our consolidated financial statements.

In January 2013, the FASB issued ASU 2013-01, "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities" ("ASU 2013-01"), which clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with ASU Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. The adoption did not have an impact on our consolidated financial statements.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued ASU 2013-02, Topic 220—Comprehensive Income: Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income ("ASU 2013-02"). ASU 2013-02 changes the presentation requirements of significant reclassifications out of accumulated other comprehensive income in their entirety and their corresponding effect on net income. For other significant amounts that are not required to be reclassified in their entirety, the standard requires the company to cross-reference to related footnote disclosures. ASU 2013-02 became effective for the company on March 1, 2013. The adoption did not have an impact on our consolidated financial statements.



Revaluation of the Indian Lease Obligation (recognized in Q3 FY2014)	(0.4	)
Reduction in accounts payable balance	(13.3	)
Reduction in capital assets	0.6
Elimination of the capital lease obligation	(1.3	)
Recognition of the termination fee	8.7

Gain on Contract Amendment	(5.7	)

	For the three months ended

	November 30, 2013			November 30, 2012
North America		6,526	30%		8,850	23%
Europe, Middle East and Africa		3,778	17%		2,415	6%
NSN (through India)		3,435	15%		6,294	17%
NSN (through Asia)		1,925	9%		1,201	3%
NSN (Rest of World)		5,991	27%		19,289	50%
Other Customers (Rest of World)		514	2%		403	1%

Total		22,169	100%		38,452	100%

	For the nine months ended

	November 30, 2013			November 30, 2012
North America		20,571	28%		27,566	29%
Europe, Middle East and Africa		9,429	13%		5,257	5%
NSN (through India)		7,113	10%		12,471	13%
NSN (through Asia)		3,549	5%		3,589	4%
NSN (Rest of World)		30,196	42%		45,411	48%
Other Customers (Rest of World)		1,296	2%		1,289	1%

Total		72,154	100%		95,583	100%



Revaluation of the Indian Lease Obligation (recognized in Q3 FY2014)	(0.4	)
Reduction in accounts payable balance	(13.3	)
Reduction in capital assets	0.6
Elimination of the capital lease obligation	(1.3	)
Recognition of the termination fee	8.7

Gain on Contract Amendment	(5.7	)



Warrant liability estimated at September 23, 2013		6.4
Exercises of warrants in Q3 FY2014		(0.6	)

	Warranty liability before quarter end revaluation	5.8
Less: Estimated warrant liability at November 30, 2013 (warrants outstanding multipled by value per warrant)		2.3

Fair value adjustment—warrant liability on the Statement of Operations		3.6



NSN Italian services agreement	(0.3	)	(0.8	)
Lower variable compensation	(0.1	)	(0.5	)
Compensation related spending—reductions in staff	(0.2	)	(0.4	)
Israeli location; resources no longer employed in Israel	(0.1	)	(0.3	)
Professional fees, contract costs & Other	0.2		0.1

	(0.5	)	(1.9	)


Closing inventory February 28, 2013	32.7

Flexipacket/Harmony product line increases	1.2
Horizon Compact and Quantum products	(2.9	)
Horizon Compact Plus	1.9
Antennas, peripherals and other	(1.3	)

Ending inventory at November 30, 2013	31.6

	Estimated Amount		Actual Use of Proceeds	Actual Amount		Variances

Strengthen our balance sheet	$	15.0 million	Strengthen our balance sheet	$	15.0 million	No variance.
General corporate purposes	$	2.5 million	General corporate purposes	$	2.4 million	This minor variance can be explained by additional expenses related to the Equity Offering. This variance will not have an impact on the Company's ability to achieve its business objectives and milestones.

			Payment due by period (Figures are in thousands of U.S. Dollars)

Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Lease Obligations	$	4,566	$	517	$	4,049		—		—

Total	$	4,566	$	517	$	4,049		—		—


Balance at August 31, 2013		38,123,880

	Public offering	11,910,000
	Exercise of warrants	2,779,742
	Other	9,742

Balance at November 30, 2013		52,823,364

	Three months ended November 30, 2013

	Options			Weighted Average Price (CAD)
Opening Balance		2,800,115		$	4.26
Granted		941,600		$	1.59
Exercised		—		$	—
Forfeited		(277,683	)	$	4.16

Closing Balance		3,464,032		$	3.54



Held-for-trading(1)	23,742	22,959
Loans and receivables(2)	21,550	51,362
Other financial liabilities(3)	47,095	75,690