We have audited the accompanying consolidated financial statements of Wi-LAN Inc. and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2014 and 2013 and the consolidated statements of operations and comprehensive earnings, shareholders’ equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory notes.

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with generally accepted accounting principles in the United States of America and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Wi-LAN Inc. and its subsidiaries as at December 31, 2014 and 2013 and their financial performance and their cash flows for the years then ended in accordance with generally accepted accounting principles in the United States of America.

	Year ended		Year ended
	December 31, 2014		December 31, 2013
Revenue
Royalties	$	98,311	$	88,209
Operating expenses
Cost of revenue		63,201		88,648
Research and development		2,416		2,858
Marketing, general and administration		10,565		13,065
Foreign exchange loss		2,038		2,538
Total operating expenses		78,220		107,109
Earnings (loss) from operations		20,091		(18,900	)

Investment income		533		728
Earnings (loss) before income taxes		20,624		(18,172	)
Provision for (recovery of) income tax expense (Note 3)
Current		4,623		5,980
Deferred		6,290		(6,059	)
		10,913		(79	)
Net and comprehensive earnings (loss)	$	9,711	$	(18,093	)

Earnings (loss) per share (Note 10(g))
Basic	$	0.08	$	(0.15	)
Diluted	$	0.08	$	(0.15	)

Weighted average number of common shares
Basic	120,103,422			120,856,511
Diluted		120,368,583		120,856,511

As at	December 31, 2014			December 31, 2013
Current assets
Cash and cash equivalents	$	126,311		$	130,394
Short-term investments		1,336			1,457
Accounts receivable (Note 11)		2,198			11,999
Prepaid expenses and deposits		494			593
		130,339			144,443

Loan receivable (Note 4)		1,268			1,075
Furniture and equipment, net (Note 5)		1,894			2,159
Patents, net (Note 6)		146,485			150,025
Deferred tax asset (Note 3)		20,585			26,876
Goodwill		12,623			12,623
	$	313,194		$	337,201

Current liabilities
Accounts payable and accrued liabilities (Note 9)	$	18,915		$	25,012
Current portion of patent finance obligations (Note 8)		17,418			19,480
		36,333			44,492

Patent finance obligations (Note 8)		27,465			32,552
Success fee obligation (Note 9)		3,639			7,048
		67,437			84,092

Commitments and contingencies (Note 12)

Shareholders' equity
Capital stock (Note 10 (c))		426,037			425,238
Additional paid-in capital (Note 10 (d))		16,375			14,635
Accumulated other comprehensive income		16,225			16,225
Deficit		(212,880	)		(202,989	)
		245,757			253,109
	$	313,194		$	337,201

	Year ended			Year ended
	December 31, 2014			December 31, 2013
Cash generated from (used in)
Operations
Net earnings (loss)	$	9,711		$	(18,093	)
Non-cash items
Stock-based compensation		2,081			4,192
Depreciation and amortization		35,139			29,682
Foreign exchange loss (gain)		1,082			(1,350	)
Disposal of assets		1			80
Disposal of patents		-			43
Deferred income tax expense recovery		6,290			(6,059	)
Accrued investment income		(193	)		(156	)
Change in non-cash working capital balances
Accounts receivable		9,801			(10,860	)
Prepaid expenses and deposits		98			(279	)
Payments associated with success fee obligation		(4,032	)		(3,897	)
Accounts payable and accrued liabilities		(1,349	)		(2,779	)
Cash (used in) generated from operations		58,629			(9,476	)
Financing
Dividends paid		(18,725	)		(18,370	)
Common shares repurchased under normal course issuer bid		(472	)		(7,134	)
Common shares issued for cash on the exercise of options		759			478
Common shares issued for cash from Employee Share Purchase Plan		171			196
Cash used in financing		(18,267	)		(24,830	)
Investing
Sale of short-term investments		121			160
Purchase of furniture and equipment		(422	)		(1,795	)
Purchase of patents		(43,062	)		(10,261	)
Cash used in investing		(43,363	)		(11,896	)
Foreign exchange (loss) gain on cash held in foreign currency		(1,082	)		1,350

Net cash and cash equivalents used in the year		(4,083	)		(44,852	)
Cash and cash equivalents, beginning of year		130,394			175,246
Cash and cash equivalents, end of year	$	126,311		$	130,394

	Capital Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income		Deficit			Total Equity

Balance - December 31, 2012		431,067			11,074			16,225		(166,104	)		292,262

Comprehensive loss:
Net loss		-			-			-		(18,093	)		(18,093	)
Shares issued:
Stock-based compensation expense (Note 10 (d))		-			4,192			-		-			4,192
Exercise of stock options (Note 10 (c))		721			(243	)		-		-			478
Sale of shares under Employee Share Purchase Plan (Note 10 (c))		196			-			-		-			196
Shares repurchased under normal course issuer bid (Note 10 (c))		(6,746	)		(388	)		-		-			(7,134	)
Dividends declared (Note 10 (c))		-			-			-		(18,792	)		(18,792	)
Balance - December 31, 2013	$	425,238		$	14,635		$	16,225	$	(202,989	)	$	253,109

Comprehensive earnings:
Net earnings		-			-			-		9,711			9,711
Shares issued:
Stock-based compensation expense (Note 10 (d))		-			2,081			-		-			2,081
Exercise of stock options (Note 10 (c))		1,160			(401	)		-		-			759
Sale of shares under Employee Share Purchase Plan (Note 10 (c))		171			-			-		-			171
Shares repurchased under normal course issuer bid (Note 10 (c))		(532	)		60			-		-			(472	)
Dividends declared (Note 10 (c))		-			-			-		(19,602	)		(19,602	)
Balance - December 31, 2014	$	426,037		$	16,375		$	16,225	$	(212,880	)	$	245,757

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Wi-LAN Inc. (“WiLAN” or the “Company”) is an intellectual property licensing company which develops, acquires, licenses and otherwise enforces a range of patented technologies which are utilized in products in the communications and consumer electronics markets. The Company generates revenue by licensing its patents to companies that sell products utilizing technologies including: Wi-Fi, WiMAX, LTE, CDMA, DSL, DOCSIS, Bluetooth and V-Chip. The Company also generates revenue by licensing patent portfolios on behalf of its partners and, if necessary, the enforcement of their patented technologies.

The accompanying consolidated financial statements have been prepared in accordance with the generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements of WiLAN include the accounts of WiLAN and its wholly owned subsidiaries. All inter-company transactions and balances have been eliminated in the consolidated financial statements.

Certain comparative figures have been reclassified to conform to the financial statement presentation adopted in the current year. None of these reclassifications had an impact on reported net earnings/ loss for any of the years presented.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the years. Actual results could differ from those estimates. The significant accounting policies contained herein include estimates and assumptions with respect to best estimate of selling price, determination of discount rates, recoverability of deferred tax assets, determination of indicators of impairment assessment, initial estimate of risk of concessions, timing of payments related to patent finance obligations, and the assumptions for the fair value of stock options granted.

The Company’s revenue consists principally of royalty revenue from licensing its own patent portfolio. The Company may also generate royalty revenue from licensing patent portfolios on behalf of its partners. The Company considers revenue to be earned when it has persuasive evidence of an arrangement, the obligation has been fulfilled in accordance with the terms of the licensing agreement, including delivery and acceptance, the amounts are fixed or determinable and collection is reasonably assured. The Company defers recognizing revenue until such time as all criteria are met. Determination of whether or not these criteria have been met may require the Company to make judgments, assumptions and estimates based upon current information and historical experience.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

The Company’s royalty revenues consist of fixed fee and running royalty payments.

Royalties from running royalty arrangements can be based on either a percentage of sales or number of units sold for which the Company earns royalties at the time the licensees’ sales occur. The licensees are obligated to provide the Company with quarterly or semi-annual royalty reports and these reports are typically received subsequent to the period in which the licensees underlying sales occurred. The Company’s licensees do not, however, report and pay royalties owed for sales in any given reporting period until after the conclusion of that reporting period. As the Company is unable to estimate the licensees’ sales in any given reporting period to determine the royalties due to it, the Company recognizes running royalty revenues based on royalties reported by the licensees during the quarter and when other revenue recognition criteria are met. The Company monitors the receipt of royalty reports to ensure that there is not a disproportionate number of months of revenue in any given fiscal year.

Royalties from fixed fee royalty arrangements may consist of one or more installments of cash. The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. Where agreements include multiple elements, the Company assesses if the deliverables have standalone value upon delivery, and if so, accounts for each deliverable separately. When multiple-deliverables included in an arrangement are separated into different units of accounting, the arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. WiLAN determines the relative selling price for a deliverable based on its best estimate of selling price (“BESP”). WiLAN determines BESP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into consideration include discounting practices, the size and volume of transactions, the customer demographic, the geographic area covered by licenses, price lists, licensing strategy, historical standalone licenses and contracted royalty rates. The determination of BESP is made through consultation with and approval by management, taking into consideration the licensing strategy.

As part of the partnering agreements with third parties, the Company is able to recover certain out-of-pocket expenses and legal costs. These amounts are included in revenue in the years which the aforementioned revenue criteria is met and the amounts become reimbursable.

Revenue arrangements with extended payment terms, where fees are fixed in one or more installments of cash and which contain terms that could impact the amounts ultimately collected, are generally recognized as collection becomes assured.

The Company has a share option plan (“Option Plan”) for certain employees, directors and consultants. The Company accounts for stock options using the fair value method. Compensation expense is measured at the estimated fair value of the options at the date of grant and charged to earnings on a straight-line basis over the vesting periods. The amount expensed is credited to additional paid-in capital in the period. Upon the exercise of stock options, cash received is credited to share capital together with any amount previously credited to additional paid-in capital related to the options exercised.

The Company has a DSU plan for certain employees and directors. The DSUs vest immediately and the Company has the right to settle the DSUs in either cash or by the issuance of common shares. The liability for outstanding units and related expense for the DSUs are adjusted to reflect the market value of the common shares at each balance sheet date.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

The Company has a RSU plan for certain employees and directors. Under the RSU plan, units are settled in cash based on the market value of WiLAN’s common shares on dates the RSUs vest. The RSUs vest over a three-year period. The accrued liability and related expense for the RSUs are adjusted to reflect the market value of the common shares at each balance sheet date.

The Company uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities are determined based on the difference between the accounting and tax bases of the assets and liabilities and measured using the substantively enacted tax rates that are expected to be in effect when the differences are estimated to be reversed. In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of deferred income tax assets is dependent upon the generation of sufficient future taxable income during the periods prior to the expiration of the associated tax attributes.

Cost of revenue includes patent licensing expenses, royalty obligations, staff costs (including stock-based compensation) and other costs incurred in conducting license negotiations as well as litigation, the expenses related to the management of the patent portfolio, contingent partner payments and legal fees and amortization expense related to acquired patents, are expensed as incurred.

R&D includes engineering expenses, staff costs (including stock-based compensation) and certain external consultants related to the development efforts, as well as, are expensed as incurred.

Basic earnings/loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted earnings/loss per share is computed using the treasury stock method.

The Company’s functional currency is the U.S. dollar; monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the balance sheet date. Revenue and expenses are translated at the average rate for the period. The gains and losses from foreign currency denominated transactions are included in foreign exchange gain/loss in the consolidated statement of operations and comprehensive earnings.

The Company enters into forward foreign exchange contracts, from time to time, to manage its exposure to currency rate fluctuations related primarily to future cash inflows and outflows of Canadian dollars. The Company does not hold or issue derivative financial instruments for trading or speculative purposes and it has chosen not to designate them as hedges. Therefore these contracts must be fair valued each quarter. The resulting gain or loss on the valuation of these financial instruments is included in foreign exchange gain/loss in the consolidated statement of operations and comprehensive earnings.

Cash and cash equivalents comprise cash in bank accounts, term deposits and Guaranteed Investment Certificates (“GICs”) with maturities of three months or less at the date of the investment.

Short-term investments are designated as “held to maturity” and accounted for at amortized cost using the effective interest rate method. Short-term investments comprise GICs with maturities of one-year or less at the date of investment and their carrying value approximates their fair value.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

The loan receivable is accounted for at amortized cost using the effective interest rate method.

Furniture and equipment is carried at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets as follows:

Patents include patents and patent rights (hereinafter, collectively “patents”) and are carried at cost less accumulated amortization. Amortization is calculated on the straight-line basis over the estimated useful life or the remaining term of the patent (up to 20 years), whichever is less. The carrying value of patents is reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. The need for impairment is assessed by comparing the carrying value to the estimated undiscounted future cash flows to be generated by those assets. If this assessment indicates that the carrying value of the patents is not recoverable, the carrying value is then compared with the estimated fair value of the assets and the carrying value is written down to the estimated fair value.

Goodwill is recorded as at the date of the business combination and represents the excess of the purchase price of acquired businesses over the fair value assigned to identifiable assets acquired and liabilities assumed. Goodwill is not amortized, but is tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired.

The impairment test is carried out in two steps. In the first step, the carrying value of the reporting unit including goodwill is compared with its fair value. When the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not to be impaired and the second step is unnecessary. The Company has one reporting unit.

In the event the fair value of the reporting unit, including goodwill, is less than the carrying value, the implied fair value of the reporting unit’s goodwill is compared with its carrying value to measure the amount of any impairment loss. When the carrying value of goodwill in the reporting unit exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.

Patent finance obligations have maturities beyond one year. Patent finance obligations, at inception, are recorded at their fair value using an estimated risk-adjusted discount rate and the carrying value is at amortized cost using the effective interest rate method.

The Company has one operating segment; Intellectual Property. The Company generates the majority of its revenues in U.S. dollars from several geographic regions; however it has allocated its revenues to the location in which the license originated. Licenses and revenue are substantially attributable to Canada, as are long-lived assets.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-9 “Revenue from Contracts with Customers.” The new accounting standards update requires an entity to apply a five step model to recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, as well as, a cohesive set of disclosure requirements that would result in an entity providing comprehensive information about the nature, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The standard becomes effective for reporting periods beginning after December 15, 2016, with no early adoption permitted. The Company is currently assessing the impact of this new standard.

The reconciliation of the expected provision for income tax expense/recovery to the actual provision for income tax recovery/expense reported in the consolidated statements of operations and comprehensive earnings/loss for the years ended December 31, 2014 and 2013 is as follows:

During the years ended December 31, 2014 and 2013, the reported loss before income taxes includes foreign losses of $7,940 and $3,239, respectively.

The significant components of the Company’s future income tax assets and liabilities as at December 31, 2014 and 2013 are as follows:

	2014			2013
Tax loss carryforwards	$	29,731		$	32,981
Scientific research and experimental development ("SR&ED") carryforwards		5,251			5,345
Share issue costs		213			497
Investment tax credits		4,571			4,571
Accounts payable and accrued liabilities		2,559			3,102
Difference between tax and book value of finance obligations		(693	)		(985	)
Difference between tax and book value of capital and intangible assets		(6,758	)		(7,694	)
Difference between tax and book value of loan receivable		36			42
Total future income tax asset		34,910			37,859
Valuation allowance		(14,323	)		(10,983	)
Net future income tax asset	$	20,587		$	26,876

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Management has assigned probabilities to the Company’s expected future taxable income based on significant risk factors, sensitivity analysis and timing of non-capital tax losses. The amount of the future income tax asset considered realizable could change materially in the near term, based on future taxable income during the carryforward period. The valuation allowance consists of $6,515 in Canada and $7,808 in the US.

As at December 31, 2014, the Company had unused non-capital tax losses of approximately $92,396 (2013 - $108,283) and SR&ED expenditure pool totaling $19,813 (2013 - $20,198) that are due to expire as follows:

	SR&ED Expenditure Pool		Tax Losses
2021	$	-	$	203
2022		-		603
2023		-		616
2024		-		-
2025		-		-
2026		-		-
2027		-		1
2028		-		10
2029		-		29,578
2030		-		5,468
2031		-		8,602
2032		-		35,755
2033		-		11,560
Indefinite		19,813		-
	$	19,813	$	92,396

The Company also has investment tax credits of $6,171, that expire in various amounts from 2017 to 2032, and $22,068 of capital losses carried forward with no expiry date. Investment tax credits, which are earned as a result of qualifying SR&ED expenditures, are recognized and applied to reduce income tax expense in the year in which the expenditures are made and their realization is reasonably assured.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

A reconciliation of the beginning and ending amounts of uncertain income tax benefits for the years ended December 31, 2014 and 2013 is as follows:

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax provision. In the years ended December 31, 2014 and 2013, there were no interest or penalties included in the income tax provision.

The Company files Canadian and U.S. federal and state income tax returns. The Company is subject to examination by the tax authorities for the tax years ended 2008 through 2013.

On October 19, 2012 (the “Closing Date”), the Company advanced a term loan facility in the amount of $1,000 to Montebello Technologies LLC (the “Borrower”). The loan bears interest at 15% per annum, compounded annually and a maturity date of October 18, 2017 at which time the outstanding principal and accrued interest is to be fully repaid. The term loan facility is collateralized by a general security agreement.

In accordance with the terms and conditions of the loan agreement the use of the funds is solely and exclusively for the purchase and monetization of patents and for the period commencing on the Closing Date to and including the tenth anniversary of the Closing Date, the Company will be entitled to receive (a) 15% of the first $10 million in gross revenue and (b) 10% of all gross revenue over the first $10 million realized by the Borrower from any patents acquired utilizing the term loan facility.

To estimate the fair value, at inception, the Company considered the estimated future cash flow projections using an effective interest rate of 18%.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

	Cost		Accumulated Depreciation		Net Book Value
As at December 31, 2014
Leasehold improvements	$	1,373	$	184	$	1,189
Computer equipment and software		2,825		2,545		280
Furniture and equipment		852		427		425
	$	5,050	$	3,156	$	1,894
As at December 31, 2013
Leasehold improvements	$	1,211	$	48	$	1,163
Computer equipment and software		2,632		2,130		502
Furniture and equipment		791		297		494
	$	4,634	$	2,475	$	2,159

The Company purchased furniture and equipment totaling $422 during 2013 (2013 - $1,795).

The Company purchased patents totaling $29,198 during 2014 (2013 - $61,020) and recorded amortization expense of $32,738 (2013 - $27,798). As of December 31, 2014, the estimated remaining economic useful lives of the patents range from one to fourteen years.

The estimated future amortization expense of patents as of December 31, 2014 is as follows:

At December 31, 2014 and 2013, the fair value of the reporting unit exceeded its carrying value. Accordingly, the Company determined that goodwill was not impaired and no further testing was performed.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

On January 27, 2011, the Company acquired certain patents for future considerations while entering into a licensing agreement with the same counter-party. The Company has accounted for the non-monetary transaction at fair value using the income approach to value the patents acquired. To estimate the fair value, the Company considered the estimated future royalties, related costs and applied a discount rate of 16.5%. The obligation is based on the quarterly discounted payment stream of $688 and an effective interest rate of 4.75%.

As at December 31, 2014, the current and long-term portion of this obligation is nil.On June 18, 2013, the Company acquired the right to license certain patents, the consideration for which is to be fully paid on or before June 18, 2023; however; the timing of the payments is subject to the Company entering into certain future license agreements with third-parties. The Company has set up the liability based on its expected payment schedule using a discount rate of 6.0%. The discount rate is an estimate of a risk-adjusted rate giving consideration to rates for revolving debt with no fixed payments.

As at December 31, 2014, the current and long-term portion of this obligation is $4,271 and $13,120, respectively.

On September 13, 2013, the Company acquired certain patents which were determined at a future date while entering into a licensing agreement with the same counter-party. The obligation was based on the quarterly payment stream of $1,389 using a discount rate of 4.5%. The discount rate is an estimate of a risk-adjusted rate giving consideration to rates for secured term debt with fixed payments over a five year term.

As at December 31, 2014, the current and long-term portion of this obligation is $4,792 and $14,345, respectively.

On June 26, 2014, the Company acquired certain patents for future considerations while entering into a licensing agreement with the same counter-party. The obligation was based on an initial payment of $2,143, a $12,000 payment in July 2014 and, beginning August 2014, six quarterly payments of $2,143 using a discount rate of 4.75%. The discount rate is based on interest rates for secured term debt with fixed payments over a two year term.

As at December 31, 2014, the current and long term portion of this obligation is $8,355 and nil, respectively.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

The current and long-term portions of these obligations are reflected as follows:

	Gross		Unamortized Discount			Net Carrying Amount
As at December 31, 2014
Patent finance obligation, due November 26, 2015	$	8,572	$	(217	)	$	8,355
Patent rights finance obligation, due June 18, 2023		18,000		(609	)		17,391
Patent finance obligation, due August 18, 2018		20,833		(1,696	)		19,137
		47,405		(2,522	)		44,883
Current portion							(17,418	)
						$	27,465

	Gross		Unamortized Discount			Net Carrying Amount
As at December 31, 2013
Patent finance obligation, due December 27, 2014	$	2,670	$	-		$	2,670
Patent rights finance obligation, due June 18, 2023		28,000		(979	)		27,021
Patent finance obligation, due August 18, 2018		25,000		(2,659	)		22,341
		55,670		(3,638	)		52,032
Current portion							(19,480	)
						$	32,552

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

	As at December 31,		As at December 31,
	2014		2013
Trade payables	$	2,522	$	4,326
Accrued compensation		3,883		2,918
Accrued legal costs		100		680
Dividends		5,196		4,527
Success fee obligation		3,736		4,358
Accrued partner program royalties		974		-
Patent acquisition liability		-		5,000
Accrued other		2,504		3,203
	$	18,915	$	25,012

The success fee obligation is pursuant to the Company’s engagement with a law firm, for which the firm is entitled to a percentage of proceeds actually received from certain license agreements signed by the Company related to certain litigation matters concluded in 2011 in which the firm was representing the Company. Should the Company collect these amounts as contemplated in the agreements, the firm will be entitled to the entire success fee of $27,986. For the year ended December 31, 2011, the Company accrued the full, undiscounted amount of the success fee obligation.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

The issued and outstanding common shares of WiLAN, along with equity instruments convertible into common shares, are as follows:

As at December 31, 2014, no preferred shares or special preferred shares were issued or outstanding.

	Number			Amount
December 31, 2012		121,540,562		$	431,067

Issued on exercise of stock options		205,254			478
Transfer from additional paid-in capital on exercise of options		-			243
Issued on sale of shares under Employee Share Purchase Plan		66,400			196
Repurchased under normal course issuer bid		(1,903,200	)		(6,746	)
December 31, 2013		119,909,016		$	425,238

Issued on exercise of stock options		423,031			759
Transfer from additional paid-in capital on exercise of options		-			401
Issued on sale of shares under Employee Share Purchase Plan		65,600			171
Repurchased under normal course issuer bid		(150,000	)		(532	)
December 31, 2014		120,247,647		$	426,037

	2014				2013
	Per Share		Total		Per Share		Total
1st Quarter	$	0.040	$	4,510	$	0.035	$	4,234
2nd Quarter		0.040		4,339		0.040		4,867
3rd Quarter		0.040		4,510		0.040		4,848
4th Quarter		0.050		5,366		0.040		4,421
	$	0.170	$	18,725	$	0.155	$	18,370

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

On March 7, 2013, the Company received regulatory approval to make a normal course issuer bid (the “2013 NCIB”) through the facilities of the TSX. Under the 2013 NCIB, the Company is permitted to purchase up to 11,846,843 common shares. The 2013 NCIB commenced on March 11, 2013 and was completed on March 10, 2014. The Company repurchased 1,903,200 common shares under the 2013 NCIB for a total of $7,134.

On May 27, 2014, the Company received regulatory approval to make a normal course issuer bid (the “2014 NCIB”) through the facilities of the Toronto Stock Exchange. Under the 2014 NCIB, the Company is permitted to purchase up to 11,676,510 common shares. The 2014 NCIB commenced on May 29, 2014 and is expected to be completed on May 28, 2015. The Company repurchased 150,000 common shares under the 2014 NCIB during the twelve months ended December 31, 2014 for a total of $532.

The Company records share repurchases as a reduction to shareholders’ equity. A portion of the purchase price of the repurchased shares is recorded as a decrease to additional paid-in capital when the price of the shares repurchased exceeds the average original price per share received from the issuance of Common Stock or an increase to additional paid-in capital when the prices of the shares repurchased is less than the average original price per share received from the issuance of Common Stock. During the year ended December 31, 2014, the cumulative price of the shares repurchased was less than the proceeds received from the issuance of the same number of shares. For the year ended December 31, 2014, $60 was recorded as an increase to additional paid-in capital). During the year ended December 31, 2013, the cumulative price of the shares repurchased exceeded the proceeds received from the issuance of the same number of shares. For the year ended December 31, 2014, $388 was recorded as a decrease to additional paid-in capital.

WiLAN has an Option Plan, a DSU plan, an Employee Stock Purchase Plan, and a RSU plan for its directors, employees and consultants. The current RSU plan calls for settlement only in cash. The Option Plan, the DSU plan and the Employee Stock Purchase Plan are considered “security based compensation arrangements” for the purposes of the TSX. The Company is authorized to issue up to an aggregate of 10% of its outstanding common shares under these “security based compensation arrangements”, with the common shares authorized for issuance under the DSU plan limited to 430,000 and under the Employee Purchase Plan limited to 500,000. The options vest at various times ranging from immediate vesting on grant to vesting over a three to four year period. Options generally have a six-year life.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

				Options Outstanding						Exercisable Options
	Number of Options			Price Range				Weighted Average Exercise Price		Number		Weighted Average Exercise Price
December 31, 2012		8,185,949		$	1.42	$	7.09	$	4.83		3,637,490	$	4.21

Granted		2,872,800			3.37		4.37		4.09
Exercised		(205,254	)		1.88		4.50		2.39
Forfeited		(512,527	)		3.33		7.09		5.87
December 31, 2013		10,340,968		$	1.88	$	7.09	$	4.62		5,314,786	$	4.61

Granted		555,000			3.25		4.23	$	3.57
Exercised		(423,031	)		1.42		2.53		1.95
Forfeited		(1,007,565	)		3.33		7.06		5.02
December 31, 2014		9,465,372		$	1.42	$	7.06	$	4.63		6,760,992	$	4.83

The Company uses the Black-Scholes model for estimating the fair value of options granted, with the following weighted average assumptions:

The weighted average fair value per option granted during the year ended December 31, 2014 was CDN $1.04 (2013 – CDN $1.15).

The intrinsic value of options exercised was CDN $610 for the year ended December 31, 2014 (2013 – CDN $465). Intrinsic value is the total value of exercised options based on the price of the Company’s common shares at the time of the exercise less the proceeds received from the employees to exercise the options.

The intrinsic value of the exercisable options was $544 as at December 31, 2014.

The total fair value of options vested was $3,891 for the year ended December 31, 2014.

As of December 31, 2014, there was $1,425 of total unrecognized stock-based compensation cost, net of expected forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plan. This cost is expected to be recognized over a weighted average period of 1.61 years.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Range of Exercise Prices				Outstanding Options at December 31, 2014		Remaining Term of Options in Years		Weighted Average Exercise Price		Exercisable Options at December 31, 2014		Weighted Average Exercise Price
$	-	$	3.00		638,868		0.96	$	2.53		638,868	$	2.53
	3.01		4.00		1,378,323		4.78		3.45		349,325		3.44
	4.01		7.09		7,448,181		2.93		5.03		5,772,799		5.17
$	1.88	$	7.09		9,465,372		3.07	$	4.63		6,760,992	$	4.83

Stock-based compensation expense for the year ended December 31, 2014 was $2,081 (2013 - $4,192). The following provides a summary of the stock-based compensation expense for the years ended December 31, 2014 and 2013:

During the year ended December 31, 2014, 1,007,565 stock options were forfeited as they related to former employees.

The Company has a Deferred Stock Unit (“DSU”) plan as a tool to assist in the retention of selected employees and directors and to help conserve the Company’s cash position. Under the DSU plan, DSUs may be awarded and will become due when the conditions of retention have been met and employment terminated or completed. The value of each DSU is determined in reference to the Company’s common share price, and the DSU value is payable in either cash or shares at the Company’s option.

DSUs issued and outstanding as at December 31, 2014 were 244,526 (2013 - 89,198). The liability recorded in respect of the outstanding DSUs was $742 as at December 31, 2014 (2013 - $301). The change in the liability is recorded as compensation expense.

During the year ended December 31, 2014, DSUs were granted to certain directors in lieu of cash for their quarterly fees earned and dividends paid during the year ended December 31, 2013.

The Company implemented a Restricted Share Unit (“RSU”) plan for certain employees and directors in January 2007. Under the RSU plan, units are settled in cash based on the market value of WiLAN’s common shares on the dates when the RSUs vest. The accrued liability and related expense for the RSUs are adjusted to reflect the market value of the common shares at each balance sheet date. The liability recorded in respect of the vested RSUs was $1,376 as at December 31, 2014 (2013 - $579). The change in the liability is recorded as compensation expense.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

During the year ended December 31, 2014, 203,041 RSUs (2013 – 32,248) were forfeited as they related to former employees.

The weighted average number of common shares outstanding used in the basic and diluted earnings per share (“EPS”) computation was:

The effect of options totaling 8,763,349 for fiscal 2014 (fiscal 2013 – 9,215,081), were anti-dilutive.

The Company is exposed to a number of risks related to changes in foreign currency exchange rates, interest rates, collection of accounts receivable and loan receivable, settlement of liabilities and management of cash and cash equivalents.

The Company uses various valuation techniques and assumptions when measuring fair value of its assets and liabilities. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. This guidance established a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates.

Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the company’s own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and cash equivalent, and short-term investments: The carrying amount approximates fair value because of the short maturity of those instruments.

Loan receivable: The fair value is estimated based on currently available market interest rates for instruments with similar terms.

Patent finance obligations: The fair values are estimated based on the quoted market prices for those or similar instruments or on the current rates offered to the Company for debt of similar terms.

Foreign exchange contracts: The fair value of foreign currency contracts is estimated by obtaining quotes from brokers.

The estimated fair values of the Company’s financial instruments are as follows:

			As at December 31, 2014						As at December 31, 2013
	Hierarchy Level		Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash and cash equivalents		1	$	126,311		$	126,311		$	130,394		$	130,394
Short-term investments		1		1,336			1,336			1,457			1,457
Loan receivable		2		1,268			1,268			1,075			1,075
Patent finance obligations		2		44,883			44,883			52,032			52,032
Foreign currency contracts		2		(732	)		(732	)		(668	)		(668	)

As of December 31, 2014, the Company held foreign exchange forward contracts totaling approximately $17,700 which mature at various dates through to October 2015. The Company uses quoted market prices for similar instruments in an active market and, therefore, the foreign exchange forward contracts are classified as Level 2 in the fair value hierarchy.

Credit risk is the risk of financial loss to the Company if a licensee or counter-party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable, loan receivable, and forward foreign exchange contracts.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

The Company’s cash and cash equivalents, and short-term investments consist primarily of deposit investments that are held only with Canadian chartered banks. Management does not expect any counter-parties to fail to meet their obligations.

The Company’s loan receivable is a term loan facility which is collateralized by a general security agreement. Management does not expect the borrower to fail to meet its obligations.

The Company’s exposure to credit risk with its accounts receivable from licensees is influenced mainly by the individual characteristics of each licensee. The Company’s licensees are for the most part, manufacturers and distributors of telecommunications and consumer electronics products primarily located in the United States, Canada, Taiwan, Korea, Japan, Hong Kong and China. Credit risk from accounts receivable encompasses the default risk of the Company’s licensees. Prior to entering into licensing agreements with new licensees the Company assesses the risk of default associated with the particular company. In addition, on an ongoing basis, management monitors the level of accounts receivable attributable to each licensee and the length of time taken for amounts to be settled and where necessary, takes appropriate action to follow up on those balances considered overdue. The Company has had no significant bad debts for any periods presented.

Two licensees individually accounted for 15% and 13%, respectively of revenues from royalties for the year ended December 31, 2014 (for the year ended December 31, 2013 – two licensees individually accounted for 20% and 14%, respectively). Management does not believe that there is significant credit risk arising from any of the Company’s licensees for which revenue has been recognized. However, should one of the Company’s major licensees be unable to settle amounts due, the impact on the Company could be significant. The maximum exposure to loss arising from accounts receivable is equal to their total carrying amounts. At December 31, 2014, one licensee individually accounted for 57% of total accounts receivable (December 31, 2013 – three licensees individually accounted for 58%, 17% and 10%, respectively of total accounts receivable).

The following table provides information regarding the aging and collectability of the Company’s accounts receivable balances as at December 31, 2014:

The definition of items that are past due is determined by reference to terms agreed with individual licensees. As at January 22, 2015, approximately $7 of past due amounts have been collected. None of the amounts outstanding have been challenged by the respective licensees and the Company continues to conduct business with them on an ongoing basis. Accordingly, management has no reason to believe that this balance is not fully collectable in the future.

The Company reviews financial assets past due on an ongoing basis with the objective of identifying potential matters which could delay the collection of funds at an early stage. Once items are identified as being past due, contact is made with the respective company to determine the reason for the delay in payment and to establish an agreement to rectify the breach of contractual terms. At December 31, 2014, the Company had a provision for doubtful accounts of $138 (2013 - $193) which was made against accounts receivable where collection efforts to date have been unsuccessful.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s objective in managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due.

At December 31, 2014, the Company had cash and cash equivalents and short-term investments of $127,647, credit facilities of $8,000 and accounts receivable of $2,198 available to meet its obligations.

The Company has a revolving credit facility available in the amount of CDN$8,000 or the equivalent in U.S. dollars for general corporate purposes and a further CDN$2,000 for foreign exchange facility. Canadian dollar or U.S. dollar amounts advanced under this credit facility are payable on demand and bear interest at the bank's Canadian prime rate plus 1.0% per annum or U.S. base rate plus 1.0% per annum. Borrowings under this facility are collateralized by a general security agreement over our cash and cash equivalents, receivables and present and future personal property. As at and during the twelve months ended December 31, 2014, the Company had no borrowings under this facility.

Market risk is the risk to the Company that the fair value of future cash flows from its financial instruments will fluctuate due to changes in interest rates and foreign currency exchange rates. Market risk arises as a result of the Company generating revenues in foreign currencies.

The only financial instruments that expose the Company to interest rate risk are its cash and cash equivalents and short-term investments. The Company’s objectives of managing its cash and cash equivalents and short-term investments are to ensure sufficient funds are maintained on hand at all times to meet day to day requirements and to place any amounts which are considered in excess of day to day requirements on short-term deposit with the Company’s banks so that they earn interest. When placing amounts of cash and cash equivalents into short-term investments, the Company only places investments with Canadian chartered banks and ensures that access to the amounts placed can be obtained on short-notice. A one percent increase/decrease in interest rates could have resulted in an approximate increase/decrease to investment income of $1,276.

A portion of WiLAN’s revenues and operating expenses are denominated in Canadian dollars. Because the Company reports its financial performance in US dollars, WiLAN’s operating results are subject to changes in the exchange rate of the Canadian dollar relative to the US dollar. Any decrease in the value of the Canadian dollar relative to the US dollar has an unfavourable impact on Canadian dollar denominated revenues and a favourable impact on Canadian dollar denominated operating expenses. Approximately 9% of the Company’s cash and cash equivalents and short term investments are denominated in Canadian dollars and are subject to changes in the exchange rate of the Canadian dollar relative to the US dollar.

For the year ended December 31, 2014, the Company had revenues and expenses denominated in Canadian dollars of approximately nil and $18,135, respectively. Fluctuations in foreign currency rates between the U.S. and Canadian dollars could impact the net exposure approximating $18,135 and adversely affect net earnings of the Company.

At December 31, 2014, the Company had Canadian dollar denominated cash and cash equivalents and short-term investments, and accounts receivable balances of approximately $14,523 and nil respectively, offset by accounts

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

payable and accrued liabilities totaling approximately $11,288. Fluctuations in foreign currency rates between the U.S. and Canadian dollars could impact the net exposure approximating $3,235 and adversely affect net earnings of the Company.

A one cent increase/decrease in foreign currency rates between the U.S. and Canadian dollars could have resulted in an approximate increase/decrease to net and comprehensive loss of $24.

The Company may manage the risk associated with foreign exchange rate fluctuations by, from time to time, entering into forward foreign exchange contracts and engaging in other hedging strategies. To the extent that WiLAN engages in risk management activities related to foreign exchange rates, it may be subject to credit risks associated with the counterparties with whom it contracts.

The Company’s objective in obtaining forward foreign exchange contracts is to manage its risk and exposure to currency rate fluctuations related primarily to future cash inflows and outflows of Canadian dollars. The Company does not use forward foreign exchange contracts for speculative or trading purposes.

As of December 31, 2014, the Company held foreign exchange forward contracts with a notional value totaling approximately $17,700 maturing at various dates through to October 2015. For the year ended December 31, 2014 the Company recorded approximately $732 of losses related to its foreign exchange forward contracts.

The Company has lease agreements for office space and equipment with terms extending to 2023. The aggregate minimum annual lease payments under these agreements are as follows:

In connection with the acquisition of certain patents and patent rights, the Company has agreed to future additional payments to the former owners of the respective patents or patent rights, based on future revenues (as defined in the respective agreements) generated as a result of licensing the respective patents or patent portfolios. For the year ended December 31, 2014, partner royalties have totaled $974 (year ended December 31, 2013 – Nil) all of which remains outstanding as at December 31, 2014.

On December 16, 2013, the Company engaged the services of an external law firm to represent the Company in certain patent infringement litigations. Pursuant to this engagement, in consideration for a discounted fixed fee arrangement, the Company has agreed to pay the firm a success fee which is based on a percentage of proceeds received (as defined in the respective agreements) pursuant to future license agreements resulting from these patent infringement litigations. As at December 31, 2014, the success fees are not yet determinable because the total proceeds have not yet been determined and therefore no amounts have been accrued.

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

Dr. Michel Fattouche, a member of the Company’s Board of Directors, has provided consulting services to the Company. For the year ended December 31, 2014, consulting services have totaled $76 (year ended December 31, 2013 – $98) all of which had been paid as at year end.

	2014				2,013
Earnings (loss) before income taxes	$	20,624		$	(18,172	)
Expected income tax expense (recovery) at Canadian statutory income tax rate of 26.5% (2013 - 26.5%)		5,465			(4,815	)
Permanent differences		2,814			1,126
Effect of change in tax rates		-			90
Effect of unused tax credits		-			667
Foreign withholding taxes paid		212			84
Foreign rate differential		(918	)		(588	)
Increase in valuation allowance		3,340			3,357
Provision for (recovery of) income tax expense	$	10,913		$	(79	)

	2014		2013
Balance at January 1	$	-	$	-
Tax postions related to current year:
Additions		-		-
Reductions		-		-
Tax postions related to prior years:
Additions		-		-
Reductions		-		-
Balance at December 31	$	-	$	-

Year ending December 31:	Amount
2015	$	31,290
2016		24,124
2017		13,516
2018		10,649
2019		9,582
	$	89,161

	Number of RSUs
December 31, 2012		523,186

Granted		143,365
Settled		(272,989	)
Forfeited		(32,248	)
December 31, 2013		361,314

Granted		1,251,522
Settled		(115,517	)
Forfeited		(203,041	)
December 31, 2014		1,294,278

Current	$	1,798
Past due 1 - 30 days		171
Past due 31 - 60 days		32
Past due 61 - 90 days		124
Over 91 days past due		211
Less allowance for doubtful accounts		(138	)
	$	2,198

Leasehold improvements		term of the lease
Computer equipment and software		3 years
Furniture and equipment		5 years

	Cost		Accumulated Amortization		Net Book Value
As at December 31, 2014
Patents	$	312,702	$	166,217	$	146,485

As at December 31, 2013
Patents	$	283,504	$	133,479	$	150,025

	2014			2013
Risk free interest rate		1.6	%		1.3	%
Volatility		49	%		43	%
Expected option life (in years)		4.7			3.6
Dividend yield		4.6	%		3.4	%
Forfeiture rate		8.9	%		4.5	%

	2014		2013
Basic weighted average common shares outstanding	120,103,422			120,856,511
Effect of options	265,161			-
Diluted weighted average common shares outstanding		120,368,583		120,856,511

	2014			2013
Net interest received in cash, included in operations	$	(352	)	$	(554	)
Taxes paid		5,045			3,082
Patents acquired under deferred financing arrangement		26,482			48,509
Patent acquisition liability		-			5,000


	FINANCIAL STATEMENTS


	FINANCIAL STATEMENTS


	FINANCIAL STATEMENTS


	FINANCIAL STATEMENTS