DragonWave Inc.
Management's Discussion and Analysis
For the three and twelve months ended February 28, 2014
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 twelve months ended February 28, 2014. This MD&A is dated May 14, 2014 and should be read in conjunction with our audited consolidated financial statements and corresponding notes for the three and twelve months ended February 28, 2014 and the Annual Information Form for the year ended February 28, 2014 (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, 2014.

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 May 14, 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 (whose name was changed to Nokia Solutions and Networks in August 2013 in connection with the acquisition by Nokia Corporation of Siemen's 50% stake in Nokia Siemens Networks) now operates as Nokia (referred to herein as either: "Nokia" or "Nokia's Networks business"); 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 Nokia and our renewed operational framework with Nokia announced on April 10, 2013 are based on certain assumptions including:

Other risks relating to Nokia identified by Nokia Corporation are set out in Nokia Corporation's annual report on Form 20-F for the year ended December 31, 2013 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									Twelve Months Ended

		February 28, 2014			February 28, 2013			February 29, 2012			February 28, 2014			February 28, 2013			February 29, 2012
REVENUE			17,857			28,294			9,150			90,011			123,877			45,656
	Cost of sales		15,268			26,807			8,006			79,348			104,376			29,255

Gross profit			2,589			1,487			1,144			10,663			19,501			16,401

			14.5%			5.3%			12.5%			11.8%			15.7%			35.9%
EXPENSES
	Research and development		4,863			7,713			5,400			19,948			34,020			22,898
	Selling and marketing		3,165			4,138			3,585			13,201			16,088			15,307
	General and administrative		3,762			6,600			4,735			17,087			26,601			17,653
			—			—			—			—			—			(902	)

			11,790			18,451			13,720			50,236			76,709			54,956

Loss before amortization of intangible assets and other items			(9,201	)		(16,964	)		(12,576	)		(39,573	)		(57,208	)		(38,555	)
	Amortization of intangible assets		(404	)		(845	)		(373	)		(1,900	)		(3,748	)		(1,986	)
	Accretion expense		(48	)		(56	)		(38	)		(222	)		(124	)		(650	)
	Restructuring expense		—			(448	)		—			—			(2,085	)		—
	Interest (expense) revenue		(440	)		(451	)		85			(1,750	)		(1,662	)		460
	Impairment of intangible assets		—			(5,388	)		—			—			(13,812	)		(8,315	)
	Warrant issuance expenses		—			—			—			(662	)		—			—
	Gain/(loss) on change in estimate		(553	)		—			623			2,759			6,958			15,146
	Gain on contract amendment		—			—			—			5,702			—			—
	Gain on purchase of business		—			—			—			—			19,397			—
	Fair value adjustment — warrant liability		(352	)		—			—			3,235			—			—
	Loss on sale of assets		—			(2,827	)		—			—			(2,827	)		—
	Foreign exchange (loss) gain		(311	)		145			218			(1,530	)		23			100

Loss before income taxes			(11,309	)		(26,834	)		(12,061	)		(33,941	)		(55,088	)		(33,800	)
	Income tax expense (recovery)		128			428			1,354			398			(81	)		(104	)

Net Loss			(11,437	)		(27,262	)		(13,415	)		(34,339	)		(55,007	)		(33,696	)
	Net Loss Attributable to Non-Controlling Interest		(162	)		81			47			97			258			215

Net Loss applicable to shareholders			(11,599	)		(27,181	)		(13,368	)		(34,242	)		(54,749	)		(33,481	)
Net loss per share
	Basic & Diluted		(0.20	)		(0.71	)		(0.25	)		(0.83	)		(1.46	)		(0.94	)
Weighted Average Shares Outstanding
	Basic & Diluted		57,062,936			38,043,594			35,573,810			41,438,383			37,495,818			35,506,689

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



Assets
Current Assets
	Cash and cash equivalents	18,992		22,959
	Trade receivables	17,408		35,452
	Inventory	30,416		32,722
	Other current assets	5,909		6,077
	Contingent receivable	—		13,843
	Deferred tax asset	69		69

		72,794		111,122
Long Term Assets
	Property and equipment	3,168		7,444
	Deferred tax asset	1,536		1,581
	Deferred financing cost	60		149
	Intangible assets	1,635		2,771
	Goodwill	11,927		11,927

		18,326		23,872

Total Assets		91,120		134,994

Liabilities
Current Liabilities
	Accounts payable and accrued liabilities	29,964		56,962
	Debt facility	—		15,000
	Deferred revenue	984		1,163
	Capital lease obligation	1,795		3,251
	Contingent liabilities	—		255

		32,743		76,631
Long Term Liabilities
	Debt facility	15,000		—
	Capital lease obligation	—		1,451
	Warrant liability	1,360		—
	Other long term liabilities	574		783
	Contingent liabilities	—		519

		16,934		2,753
Shareholders' equity
	Capital stock	198,593		179,429
	Contributed surplus	7,118		6,047
	Deficit	(154,505	)	(120,197	)
	Accumulated other comprehensive loss	(9,682	)	(9,685	)

Total Shareholder's equity		41,524		55,594
	Non-controlling interests	(81	)	16

Total Equity		41,443		55,610
Total Liabilities and Shareholder's equity		91,120		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 Nokia. 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.

		FY13												FY14

		May 31 2012			Aug 31 2012			Nov 30 2012			Feb 28 2013			May 31 2013			Aug 31 2013			Nov 30 2013			Feb 28 2014
Revenue			12,974			44,157			38,452			28,294			24,532			25,453			22,169			17,857
Gross Profit			4,133			6,743			7,138			1,487			2,820			2,794			2,460			2,589
	Gross Profit %		31.9%			15.3%			18.6%			5.3%			11.5%			11.0%			11.1%			14.5%
Operating Expenses			13,327			25,009			19,922			18,451			13,432			12,391			12,623			11,790
Loss before other items — (gross profit less operating expenses)			(9,194	)		(18,266	)		(12,784	)		(16,964	)		(10,612	)		(9,597	)		(10,163	)		(9,201	)
Loss for the period			(12,637	)		(1,172	)		(13,936	)		(27,262	)		(6,679	)		(10,601	)		(5,622	)		(11,437	)
Loss per share
Basic and Diluted			(0.35	)		(0.03	)		(0.36	)		(0.71	)		(0.17	)		(0.28	)		(0.12	)		(0.20	)
Weighted average number of shares outstanding
	Basic & Diluted		35,931,347			37,992,859			38,033,222			38,043,594			38,059,919			38,112,887			47,329,275			57,062,936
Total Assets			109,616			164,099			152,433			134,994			104,254			89,221			98,113			91,120

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 fourth quarter and year ended February 28, 2014 when comparing those results to the same periods in the previous fiscal year include the following:

		Q4 ended			Full Year ended

		February 28			February 28
FY2013			18.5			76.7

Nokia's services agreements and amortization of "lease holiday" asset			(4.0	)		(17.6	)
Reduced size of workforce across all functional areas			(0.4	)		(3.8	)
Closure of the Israeli design and sales centre (formerly Axerra)			—			(3.3	)
Travel & Living — reduced spending primarily in senior head office and operations team members			(0.3	)		(1.3	)
Variable compensation			(0.2	)		(1.1	)
Depreciation — primarily on assets acquired through the Nokia acquisition			(0.8	)		(1.0	)
Impact of a stronger USD — impacts CAD based expenses			(0.4	)		(1.0	)
Legal, other professional services, bad debt expense and other			(0.6	)		(0.2	)
China Design Centre — opened for 12 months in FY2014, only 9 months in FY2013			—			2.8

	Total Changes		(6.7	)		(26.5	)

FY2014			11.8			50.2

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 warrants 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" (as defined in the form of warrant) we may be required to settle the warrants with a cash payment. ASC 815-40-25-8 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 it 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 fair value adjustment warrant liability in the Consolidated Statement of Operations. As at February 28, 2014, 3,171,000 warrants were outstanding and the liability for warrants was decreased to $1.4 million. In the twelve

months ended February 28, 2014 we increased our common stock value by $1.8 million which represented the value of warrants exercised and realized a gain in the amount of $3.2 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 200,000 warrants were exercised resulting in an issuance of 199,388 of our common shares.

On June 1, 2012 we announced the closing of the acquisition of Nokia'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 Nokia Siemens Networks B.V. ("NSN B.V." and together with its affiliates and subsidiaries, "NSN") dated May 3, 2012.

NSN's name was changed to Nokia Solutions and Networks in August 2013 in connection with the acquisition by Nokia Corporation of Siemen's 50% stake in NSN, and was recently renamed Nokia and now operates under the Nokia Corporation brand.

The results of operations for the year ended February 28, 2014 were impacted by changes announced on April 10, 2013 to our existing operational framework with Nokia.

The original purchase price for the acquisition of Nokia'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, Nokia paid $13.8 million to us on April 12, 2013 which settled the balance of our contingent receivable.

Nokia 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 Nokia 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. We also 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 for the year ended February 28, 2014.

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 February 28, 2014, this asset based credit facility was for a total of $40.0 million plus $4.0 million for letters of credit and foreign exchange facilities. Credit availability is subject to ongoing compliance with borrowing covenants and short term assets on hand.

The credit facility was extended on January 6, 2014, matures on June 1, 2016 and is secured by a first priority charge on all of the assets of DragonWave and its principal direct and indirect subsidiaries. The new terms of the credit facility include other customary terms, conditions, covenants, and representations and warranties, consistent with the facility already in place. Borrowing options under the credit facility include US dollar, Canadian dollar, 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. Direct costs associated with obtaining the debt facility such as closing fees, registration and legal expenses have been capitalized and will be amortized over the 30 month term of the facility. During the year ended February 28, 2014 the weighted average debt outstanding was $15.0 million (fiscal year 2013 — $15.0 million) and we recognized $1.0 million in interest expense related to the debt facility (fiscal year 2013 — $1.1 million) and expensed $0.6 million in deferred financing cost (fiscal year 2013 — $0.5 million).

As at February 28, 2014, 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 31, 2014 which eliminated any acceleration of repayment of our obligation.

We have been in breach of one or more covenants in the past and in each case we obtained waivers from our lenders prior to the release of our financial statements. As at February 28, 2013, we were in breach of one of the covenants then in place on the facility at that time. Prior to the release of our financial statements for fiscal year 2013, we obtained a waiver of the breach from our lenders for a period through May 31, 2013, which eliminated any acceleration of repayment of our obligation. As at August 31, 2013 the Company was in breach of two of the financial covenants under the credit facility. Both breaches were waived by our lenders.

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 year ended February 28, 2014, we reduced the contingent liability by $0.3 million based on a change in circumstance which is included in the consolidated statement of operations as a change in estimate. As at February 28, 2014, there is no longer any recorded liability on the balance sheet (February 28, 2013 — $0.8 million), nor is there any maximum potential liability to us at February 28, 2014 (fiscal year 2013 — $1.3 million).

Also, under the terms of a supply and services agreement, we have an opportunity to earn an additional $5.1 million (fiscal year 2013 — $5.3 million) based on business performance subsequent to the disposition for which we have recorded a receivable of $52 thousand (February 28, 2013 — $0.6 million) which represents our estimate of the amounts to be collected based on the discounted forecasted future cash inflows. Our revised estimate resulted in a $0.6 million expense to the consolidated statement of operations in the fourth quarter of fiscal 2014.

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.

In June 2013, we announced the appointment of Lori O'Neill to our Board of Directors. Lori O'Neill is a Chartered Accountant and Certified Public Accountant (Illinois). She retired from Deloitte in 2012 after over 24 years of service, 16 years as partner. She has experience with growth companies from startup to multinationals, supporting complex transactions, private and public equity offerings and mergers and acquisitions. Ms. O'Neill is currently serving as the Chair of our Audit Committee.

During the year ended February 28, 2014 we contributed an additional $0.2 million to DragonWave HFCL India Private Limited, in the form of a capital contribution. Subsequent to year end, the non-controlling interest which owns 49.9% of the subsidiary contributed its portion.

We believe that revenue growth will be achieved through both strategic partnerships and direct customer relationships. Throughout fiscal 2014 we have worked closely with Nokia to redefine our relationship and gain better visibility about future global opportunities with this partner. In the United States we are working with a Tier 1 operator on the design of a network and we believe this customer relationship holds opportunity for future hardware sales. In India we have been working closely with a major operator there to define their needs. Our first shipments to this customer began in the first quarter of fiscal 2015.

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		17,857		90,011
Cost of Sales		15,268		79,348

Gross Margin		2,589		10,663
Operating Expenses		11,790		50,236
Other Gains/Losses and Expenses		2,236		(5,234	)

Net Income (loss)		(11,437	)	(34,339	)
Reconciliation to Non-GAAP Measures
Net Income, under US GAAP		(11,437	)	(34,339	)
	Interest expense	440		1,750
	Tax expense	128		398
	Depreciation of fixed assets	780		4,648
	Amortization of intangible assets	404		1,900

EBITDA		(9,685	)	(25,643	)
Non-Cash and Normalizing Adjustments:
	Stock option expenses	324		1,278
	Equity issuance costs	—		662
	Fair value adjustments (loss)/gain	352		(3,235	)
	Gain on contract amendment	—		(5,702	)
	Loss/(Gain) on change in estimate	553		(2,759	)
	Accretion expense	48		222
	Inventory provision	493		1,078

Adjusted EBITDA		(7,915	)	(34,099	)

We consider that we have one operating segment, namely, broadband wireless backhaul equipment. We address this market through a variety of products that range in capability and price. We have products that have been internally developed as well as acquired through acquisitions, namely the acquisition of Nokia's microwave transport business. The vast majority of our sales come from the shipment of equipment (as opposed to services or software) either through direct sales, through 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.

The three main geographic regions that we examine are North America, Europe/Middle East & Africa ("EMEA") and Asia, India and Other, as well as the Nokia channel both in India and world-wide. During this fiscal year, we serviced Nokia through shipments to warehouse locations, and not to end-customer sites, and therefore it is difficult to determine accurately the exact geographical location of our products.

	For the three months ended						For the twelve months ended

	February 28, 2014			February 28, 2013			February 28, 2014			February 28, 2013
North America		3,037	17%		7,494	26%		23,608	26%		35,029	28%
Europe, Middle East and Africa		1,566	9%		2,707	10%		10,995	12%		9,404	8%
Nokia (through India)		2,127	12%		3,561	13%		9,240	10%		16,014	13%
Nokia (Rest of World)		7,880	44%		12,826	45%		38,076	43%		58,237	47%
Other Customers (Rest of World)		3,247	18%		1,706	6%		8,092	9%		5,193	4%
		17,857	100%		28,294	100%		90,011	100%		123,877	100%

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 several outsourced contract manufacturers with locations in India, Germany, China and Malaysia. During the past year, we have focused our outsourced manufacturers to two separate companies both located in Malaysia.

Research and development ("R&D") costs relate mainly to the compensation of our engineering group and the material consumption associated with prototyping activities. It also includes the costs associated with services agreements in place with Nokia for services delivered in Italy and China during fiscal year 2013. The Chinese services agreement came to an end on November 30, 2012 and after that date, our Chinese operations became a direct cost.

Selling and marketing expenses ("S&M") include the remuneration of sales staff, travel and trade show activities and customer support services. As well, it includes the costs associated with services agreements with Nokia delivered in fiscal 2013.

General and administrative expenses ("G&A") relate to the remuneration of related personnel, professional fees associated with tax, accounting and legal advice, and insurance costs. As well, it includes the costs associated with services agreements with Nokia delivered in fiscal 2013.

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 and twelve months ended February 28, 2014 and February 28, 2013

The largest contributor to our decrease in revenue was the reduction in the volume of business we secured through Nokia's Networks business. Revenue from the acquired Nokia channel was responsible for $26.9 million of the $33.8 million revenue reduction experienced over the last 12 months.

We continue to remain optimistic with regards to the revenue potential of the Nokia channel. This optimism is in part based on press releases which highlighted Nokia's renewed focus on the business of networks. This followed its acquisition of the remaining 50% of the Nokia joint venture from Siemens. Our positive outlook is also based on Nokia's position as the incumbent in many of the largest network operators in the world.

Other variations in sales volume included: 1) a reduction in the volume of product sold through our US based distribution channel which can be cyclical in nature, and 2) a reduction in our sales to our largest Tier 1 operator located in the United States, who underwent a capital re-organization during fiscal year 2013. We continue to see North America as an area of strength and growth in the coming years due to our historical position as one of the leading providers of carrier grade ethernet backhaul in this region.

Variance for three months ended February 28, 2014

Revenue — Three months ended February 28, 2013		28,294
Variances:
	Acquired Nokia channel outside of India	(4,946	)
	Sales in India through Nokia	(1,434	)
	US Based distribution	(1,203	)
	Sales of our Fusion based product line	(344	)
	European based integrators	(216	)
	Tier 1 Operator located in US serviced through OEM & direct	(2,012	)
	Tier 1 Operator located in Japan serviced through an OEM	1,042
	Other	(1,324	)

Revenue — Three months ended February 28, 2014		17,857

Variance for the twelve months ended February 28, 2014

Revenue — Twelve months ended February 28, 2013		123,877
Variances:
	Acquired Nokia channel outside of India	(20,161	)
	Sales in India through Nokia	(6,774	)
	US Based distribution	(6,663	)
	Sales of our Fusion based product line	(1,525	)
	European based integrator	2,885
	Tier 1 Operator located in US serviced through OEM & direct	(2,392	)
	Tier 1 Operator located in Japan serviced through an OEM	1,002
	Other	(238	)

Revenue — Twelve months ended February 28, 2014		90,011

The gross profit percentage in the fourth quarter of fiscal 2014 compared to the same period in the previous year relates to a number of factors including improved material costing with contract manufacturers. Pricing reductions scheduled in fiscal 2014 placed downward pressure on the gross margin percentage. Steps have been taken to reduce overhead costs including through the relocation of warehouse locations. 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 Nokia. 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.



Key Drivers:
Nokia's Italian service agreement	(2.6	)	(10.2	)
Lease Holiday — amortization of asset recognized on business combination	(0.2	)	(2.1	)
Israeli location; R&D resources no longer employed in Israel	(0.2	)	(1.6	)
Canadian compensation — reduced staff year over year	—		(1.6	)
Depreciation — assets acquired primarily through the Nokia Acquisition	(0.8	)	(1.0	)
Material spending and certification costs in Canada	0.3		(0.3	)
China — twelve months of activity in FY2014 vs. nine months in FY2013	0.3		2.8
Contracted Services and Other	0.3		(0.1	)

	(2.9	)	(14.1	)

Note: R&D Canadian compensation reductions include the benefit of an estimated $0.3 million due to the strength of the USD relative to the CAD in fiscal 2014 compared to fiscal 2013.

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



Key Drivers:
Compensation related spending — reductions in staff	(0.3	)	(0.7	)
Nokia's Italian service agreement	(0.3	)	(1.1	)
Variable compensation	(0.2	)	(0.7	)
Closure of the Israeli sales office	(0.1	)	(0.4	)
Travel & living, professional fees	(0.1	)	(0.3	)
Increased spending on external contracted resources			0.3

	(1.0	)	(2.9	)

General & Administrative ("G&A") expenses have decreased relative to the same three and twelve month periods in the previous year. Once again the changes relate predominantly to the Nokia services agreements and the restructuring efforts that took place in fiscal year 2013.



Key Drivers:
Lower variable compensation	—		(0.4	)
Compensation related spending — reductions in staff	(0.2	)	(2.1	)
Contractor and other professional services costs	(0.6	)	(0.7	)
Nokia's services agreements	(1.0	)	(4.2	)
Legal Fees	(0.3	)	(0.9	)
Production and warehousing costs not in COGs	(0.5	)	(0.3	)
Lower travel costs and other	(0.1	)	(0.8	)
Rent	(0.1	)	(0.1	)

	(2.8	)	(9.5	)

It should be noted that reductions in compensation related spending in Canada includes approximately $0.3 million in benefit from the strength of the USD in fiscal 2014 relative to fiscal year 2013. This change makes CAD expense relatively less expensive when translated for financial statement purposes to USD.

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 Nokia's microwave transport business is the asset associated with the favourable accounts receivable terms negotiated in the applied transaction documents. 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 February 28, 2014 associated with balances which arose on the acquisition of Nokia's microwave transport business.

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 located 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.

We capitalized the initial costs associated with the credit facility and amortize that into the statement of operations ratably each month.

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.

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 year ended February 28, 2014. The remainder of the total fees and expenses impacted equity directly.

There are four factors contributing to the gain on change in estimate during the three and twelve months ended February 28, 2014:

Impacting the twelve months ended February 28, 2013 was the change in estimate made related to a contingent liability calculated on the of sale of our Israeli subsidiary, DragonWave Ltd ($1.5 million), combined with an increase in a Nokia related contingent receivable for $5.5 million. The reduction in the liability and increase in contingent receivable resulted in a corresponding gain which totaled $6.0 million.

As described in the section entitled "Acquisition of Microwave Transport Business of Nokia Siemens Networks (now Nokia)", a number of factors make up the Gain on Contract Amendment as follows:

We recognized a gain of $19.4 million in the three and twelve months ended February 28, 2013 due to the difference between the cumulative tangible and intangible net assets and the purchase price of the acquisition of Nokia's microwave transport business.

The warrant liability 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.



Warrant liability estimated at September 23, 2013		6.4
Exercises of warrants in Q3 FY2014		(0.6	)
Exercises of warrants in Q4 FY2014		(1.2	)

		4.6

Fair value adjustment — warrant liability in Q3 FY2014		(3.6	)
Fair value adjustment — warrant liability in Q4 FY2014		0.4

	Fair value adjustment — warrant liability FY2014	(3.2	)

Value of warrant liability on the balance sheet at February 28, 2014		1.4

Subsequent to February 28, 2014, 200,000 warrants were exercised resulting in an issuance of 199,388 of our common shares.

The foreign exchange balance for the three and twelve months ended February 28, 2014 is driven by the valuation of our foreign denominated monetary balances, primarily the valuation of the EUR relative to the USD during this twelve month period. We do participate from time to time in forward exchange contracts which help to mitigate our exposure to these fluctuations.

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, 2014, we had cumulative tax loss carryforwards in the following jurisdictions: Canada — $89,914, United States — $8,271, Luxembourg — $54,469.



Key Balance Sheet Amounts and Ratios:
	Cash and Cash Equivalents	18,992	22,959
	Working Capital	40,051	34,491
	Long Term Assets	18,326	23,872
	Long Term Liabilities	16,934	2,753
	Working Capital Ratio	2.2: 1	1.5: 1
	Days Sales Outstanding in accounts receivable	81 days	102 days
	Inventory Turnover	1.9 times	2.4 times

As at February 28, 2014, we had $19.0 million in Cash and Cash Equivalents ("Cash"), representing a $4.0 million decrease from the Cash balance at February 28, 2013.

The following table explains the change in Cash in the three and twelve months ended February 28, 2014.



Beginning Cash Balance		23,545		22,959
Net Income adjusted for Non-Cash Items		(8,405	)	(36,035	)
	Change in inventory	1,226		2,306
	Change in accounts receivable, Nokia's contingent receivable and other current assets	612		31,041
	Change in accounts payable and other liabilities	2,849		(23,044	)

Working capital changes		4,687		10,303

	Capital asset acquisitions	(430	)	(1,764	)
	Principal payments on capital lease obligations	(230	)	(1,436	)

Non-working capital cash changes		(660	)	(3,200	)

Exercise of stock options and other		(175	)	2,531

Cash Outflow before Equity Offering		(4,553	)	(26,401	)

Net proceeds on Equity Offering				22,434

Ending Cash Balance		18,992		18,992

Operating losses were once again a significant driver in the use of Cash in the three and twelve months ended February 28, 2014.

In the year ended February 28, 2014, the Equity Offering increased cash resources by $22.4 million.

Many of the other significant changes in the twelve months ended February 28, 2014 relate to the renewed framework with Nokia, announced on April 10, 2013:

Inventory decreased in size relative both to the balance at November 30, 2013 and to the balance at February 28, 2013.

Changes in working capital

Beginning working capital balance	50,002		34,491
Cash and cash equivalents, restricted cash, and short term investments	(4,553	)	(3,967	)
Trade receivables	(1,601	)	(18,044	)
Inventory	(1,226	)	(2,306	)
Other current assets	989		(168	)
Contingent receivable			(13,843	)
Future income tax asset			—
Accounts payable and accrued liabilities	(3,480	)	26,998
Debt facility	—		15,000
Deferred revenue	(320	)	179
Capital lease obligation	190		1,456
Contingent liabilities	50		255

Net change in working capital	(9,951	)	5,560

Ending working capital balance	40,051		40,051

The trade receivables balance decreased by $18.0 million between February 28, 2013 and February 28, 2014 due primarily to the payment by Nokia of $19.4 million in receivables outstanding in the first quarter of fiscal 2014. The days sales outstanding fell from 102 days at February 28, 2013 to 81 days sales outstanding at February 28, 2014 which also contributed to a lower accounts receivable balance. In addition, the fourth quarter's sales were $10.4 million higher in fiscal 2013 than there were in fiscal 2014 which would also result in a higher trade receivables balance at February 28, 2013 than the year end twelve months later.

Our allowance for doubtful accounts continues to represent a small percentage of our total trade receivables outstanding (February 28, 2014 — 3.0%; February 28, 2013 — 0.7%).

As at February 28, 2014, one customer exceeded 10% of the total receivable balance. This customer represented 56% 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 $48 thousand related to bad debt expense for the three months ended February 28, 2014 and $0.5 million related to bad debt expenses for the twelve months ended February 28, 2014 (fourth quarter fiscal year 2013 — $0.2 million; full year fiscal year 2013 — $0.1 million).

The inventory balance decreased by $2.3 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 $27.0 million between February 28, 2013 and February 28, 2014. The primary driver for the decrease related to the renewed operational framework with Nokia which resulted in our payment to Nokia of outstanding accounts payable in the amount of $13.9 million, and the reduction in the payable balance to Nokia 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 $9.1 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 February 28, 2014.

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.

As previously disclosed we planned to use the 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 use of proceeds disclosed in the prospectus supplement dated September 18, 2013 (the "Intended Use of Proceeds") publicly filed in connection with the Equity Offering 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 twelve month periods February 28, 2014 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 three years, mainly attributable to expense base reductions that lagged reductions in sales volumes, and our acquisition and integration of Nokia's microwave transport business.

We have formulated a plan to return to cash break-even and to continue to operate as a going concern. Some of the significant assumptions and associated risks of our plan include:

While we believe that our assumptions are reasonable, actual events or circumstances may cause the assumptions to be incorrect and actual results may differ materially from the plan.

In addition, DragonWave as a publicly traded company has access to cash resources through the equity markets.

Future minimum operating lease payments as at February 28, 2014 per fiscal year relate to leases of office and warehouse space. They 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.

		Common Shares

Balance at February 28, 2013			38,048,297

Exercise of stock options			49,610
Other			9,547

Balance at May 31, 2013			38,107,454

Exercise of stock options			10,321
Other			6,105

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

Exercise of stock options			253,983
Exercise of warrants			4,920,267
Other			11,132

Balance at February 28, 2014			58,008,746

	Year ended February 28, 2014

	Options			Weighted Average Price (CAD)
Options outstanding at February 28, 2013		2,529,088		$	4.89

Granted		660,500		$	2.24
Exercised		(49,610	)	$	1.34
Forfeited		(275,961	)	$	5.31

Options outstanding at May 31, 2013		2,864,017		$	4.30

Granted		25,100		$	2.85
Exercised		(10,321	)	$	1.56
Forfeited		(78,681	)	$	5.40

Options outstanding at August 31, 2013		2,800,115		$	4.26

Granted		946,600		$	1.58
Exercised		—		$	—
Forfeited		(277,683	)	$	4.16

Options outstanding at November 30, 2013		3,469,032		$	3.54

Granted		17,350		$	1.68
Exercised		(253,983	)	$	1.34
Forfeited		(59,078	)	$	3.50

Options outstanding at February 28, 2014		3,173,321		$	3.71

As at February 28, 2014, there were 58,008,746 common shares issued and outstanding, options to purchase 3,173,321 common shares granted under our stock option plan, and 3,171,000 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 May 8, 2014 there were 58,215,055 common shares issued and outstanding, 3,173,321 options to purchase common shares outstanding under our stock option plan, and 2,971,000 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 February 28, 2014 a total of 8,905 common shares were purchased by employees at fair market value (full year fiscal 2014 — 29,221), while we issued 2,227 common shares as our matching contribution (full year fiscal 2014 — 7,305).

The fair value of the unearned ESPP shares as at February 28, 2014 was $13 thousand (February 28, 2013 — $23 thousand). The number of shares held for release, and still restricted under the ESPP at February 28, 2014 was 7,305 (February 28, 2013 — 7,760).

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	$	115,000
Shanghai	China	Caike Property (Shanghai) Co., Ltd	January, 2015	$	55,404
Herzlyia	Israel	Margalin Holdings Ltd.	Month to Month	$	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.

On January 21, 2014, we subleased a portion of our Kanata office space and as such we have recorded, during the year ended February 28, 2014, net rent expense of $84 thousand representing the present value of our estimated remaining rent expense for the duration of the lease after taking into account estimated future sublease income and deferred rent on the facility.

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 we take provisions against any portion of that inventory that we do not expect 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.

As at February 28, 2014 we have provisions totaling $0.2 million on inventory held by contract manufacturers that we do not expect to be fully used.

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.

We classify its fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The accounting standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The inputs fall into three levels that may be used to measure fair value:

Level 1 — Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs which are supported by little or no market activity.

Our foreign exchange forward contracts are classified within Level 2 as they are based on foreign currency rates quoted by banks and other public data sources. The fair values of the foreign exchange forward contracts are based upon the difference between the forward exchange rate and the contract rate with expected cash flows and effect on the consolidated statements of operations expected to occur upon settlement;

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;

The warrant is a liability and is classified as Level 3. We used a Monte-Carlo Simulation model to estimate the fair value of the warrants. Significant assumptions used at February 28, 2014 for the warrants include a

dividend yield of 0%, a 1% assumption that the fundamental transaction will happen every year, volatility of 60%, and a risk free spot rate term structure;

As at February 28, 2014, we held the following Level 2 and Level 3 financial instruments carried at fair value on the consolidated balance sheet.

As at February 28, 2013, we held the following Level 2 and Level 3 financial instruments carried at fair value on the consolidated balance sheet.

A reconciliation of the warrant liability measured at fair value with the use of significant unobservable inputs (Level 3) for the year ended February 28, 2014 follows:

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 related specifically to the long term debt of $0.3 million and $1.0 million respectively, was recognized during the three and twelve months ended February 28, 2014 (three and twelve months ended February 28, 2013 — $0.2 million and $1.1 million respectively). In each quarter a small amount of interest on bank accounts held internationally is recognized. It amounts to approximately $40 thousand each quarter.

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 March 2014 and have a notional value of $1.2 million. During the year ended February 28, 2014, we recorded approximately $19 thousand of gains related to its foreign exchange forward contracts. Our foreign exchange forward contracts are over-the-counter instruments. 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 February 28, 2014, 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 twelve months ended February 28, 2014 (three and twelve months ended February 28, 2013 — increase of $42 thousand), with an equal and opposite effect if the US dollar had depreciated 1% against all foreign currencies at February 28, 2014.

We were dependent on one key customer with respect to revenue in both the three and twelve months ended February 28, 2014 (Fourth quarter FY2014 — 68%; full year FY2014 — 59%); (Fourth quarter FY2013 — 61%; full year FY2013 — 63%).

At the end of the period covered by this MD&A (such period being the three months and twelve months ended February 28, 2014), 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 February 28, 2014 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 February 28, 2014.

Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements filed on SEDAR on May 14, 2014, has also audited the effectiveness of our internal control over financial reporting as of February 28, 2014, 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.

We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based on factors including our estimated forecast of product demand, the stage of the product life cycle and production requirements for the units in question.

We carry inventory for the purposes of supporting our product warranty. Standard warranty is typically 13 months but we earn revenue by providing enhanced and extended warranty and repair service during and beyond the standard warranty period. Customer service inventory consists of both component parts and finished units.

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 both for the undelivered items 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 on 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.

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 Nokia's microwave transport business. Shipping terms through the Nokia 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 are expensed as incurred unless we 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 our deferred tax assets when we believe 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 of this guidance did not have an impact on our consolidated financial statements.

Parent's Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity

In March 2013, the FASB issued ASU 2013-05, "Foreign Currency Matters." ASU 2013-05 resolves the diversity in practice about whether Subtopic 810-10, Consolidation-Overall, or Subtopic 830-30 "Foreign Currency Matters, Translation of Financial Statements", ASU 2013-05 applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a

foreign entity. In addition, the amendments in ASU 2013-05 resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. ASU 2013-05 became effective for the company prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company does not expect the adoption of this guidance to have a material effect on the Company's Consolidated Financial Statements.

Obligations Resulting From Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date

In February 2013, the FASB issued ASU No. 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date" ("ASU 2013-04"). ASU 2013-04 provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors as well as any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose the nature and amount of those obligations. The amendments in this ASU are effective for reporting periods beginning after December 15, 2013, with early adoption permitted. Retrospective application is required. The adoption of ASU 2013-04 is not expected to have a material impact on the Company's Consolidated Financial Statements.

Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists

In June 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11). The amendments provide guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this ASU are effective for reporting periods beginning after December 15, 2013, with early adoption permitted. Prospective application is required. The adoption of ASU 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.



Revaluation of the Indian lease obligation	(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	)

Three Months Ended						Twelve Months Ended

February 28 2014	February 28 2013		Variance			February 28 2014	February 28 2013		Variance
$	$		$			$	$		$
17,857		28,294		(10,437	)	90,011		123,877		(33,866	)

Three Months Ended			Twelve Months Ended

February 28 2014	February 28 2013	Variance	February 28 2014	February 28 2013	Variance
$	$	$	$	$	$
4,863	7,713	(2,850)	19,948	34,020	(14,072)

Three Months Ended			Twelve Months Ended

February 28 2014	February 28 2013	Variance	February 28 2014	February 28 2013	Variance
$	$	$	$	$	$
3,165	4,138	(973)	13,201	16,088	(2,887)

Three Months Ended			Twelve Months Ended

February 28 2014	February 28 2013	Variance	February 28 2014	February 28 2013	Variance
$	$	$	$	$	$
3,762	6,600	(2,838)	17,087	26,601	(9,514)


Closing inventory February 28, 2013	32.7

Flexipacket/Harmony product line increases	(1.1	)
Horizon Compact and Quantum products	(1.8	)
Horizon Compact Plus	1.9
Antennas, peripherals and other	(1.3	)

Ending inventory at February 28, 2014	30.4

Intended Use of Proceeds	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	$	2.4 million	General corporate purposes	$	2.4 million	No variance.

			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	$	3,876	$	1,689	$	2,187		—		—

Total	$	3,876	$	1,689	$	2,187		—		—



Assets held at fair value(1)	19,011	36,802
Loans and receivables(2)	21,363	37,519
Other financial liabilities(3)	45,838	74,435
Liabilities held at fair value(4)	1,360	255



Financial Assets
Foreign exchange forward contracts	19	—	19
Financial Liabilities
Warrant liability	—	1,360	1,360

	Year ended February 28, 2014

	Warrants			$
Balance at March 1, 2013		—			—
Issuance of warrants		8,932,500			6,425
Fair value adjustments — warrant liability		—			(3,235	)
Exercise of warrants		(5,761,500	)		1,830

Balance at February 28, 2014		3,171,000			1,360