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Cricket Media Group Ltd. Annual Report December 31, 2014

Consolidated Financial Statements

Cricket Media Group Ltd. (formerly ePals Corporation)

For the years ended December 31, 2014 and 2013



December 31, 2014 and 2013

Contents Page Independent Auditor’s Report 1


Consolidated Statements of Financial Position 2 Consolidated Statements of Comprehensive Loss 3 Consolidated Statements of Changes in Equity (Deficit) 4 Consolidated Statements of Cash Flows 5 - 6 Notes to the Consolidated Financial Statements 7 - 50

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BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Independent Auditor’s Report

To the Board of Directors Cricket Media Group, Ltd. (formerly ePals Corporation) Herndon, Virginia, USA

We have audited the accompanying consolidated financial statements of Cricket Media Group, Ltd. (formerly ePals Corporation) (“Cricket Media”), which comprise the consolidated statements of financial position at December 31, 2014 and 2013, and the consolidated statements of comprehensive loss, statements of changes in equity (deficit), and statements of cash flows for the years ended December 31, 2014 and 2013, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with International Standards on Auditing. 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 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.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Cricket Media Group, Ltd (formerly ePals Corporation) at December 31, 2014 and 2013, and its financial performance and its cash flows for the years ended December 31, 2014 and 2013 in accordance with International Financial Reporting Standards.

Emphasis of Matter

The consolidated financial statements have been prepared assuming Cricket Media will continue as a going concern. Cricket Media has incurred significant operating losses and negative cash flows from operations in recent years and as described in Note 2, Going Concern and Liquidity, Cricket Media has insufficient cash to fund its expected net operating shortfall and obligations for the year ended December 31, 2015. Cricket Media needs to obtain sufficient capital or make reductions to its expenditures in order to fund future operations. These material uncertainties may cast significant doubt upon Cricket Media’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that may result from this uncertainty.

Richmond, Virginia, USA April 28, 2015

The accompanying notes are an integral part of these consolidated financial statements.

2


Consolidated Statements of Financial Position

December 31, 2014 and 2013

December 31,

2014 December 31,

2013

Assets Current assets

Cash & cash equivalents $ 912,565 $ 3,641,985Accounts receivable, net of allowance for doubtful accounts (Note 6) 968,678 672,191Inventory (Note 7) 448,770 337,626Other current assets 915,231 952,754Current assets held for sale (Note 4) 676,399 980,881

Total current assets 3,921,643 6,585,437 Property and equipment, net (Note 8) 261,824 449,208Investment in NeuPals (as defined in Note 10) 540,266 811,929Goodwill (Note 9) 13,519,899 14,419,953Other intangible assets, net (Note 9) 4,375,055 7,392,152Restricted cash (Note 5) 76,277 75,966Other assets 63,231 62,227Long-term assets held for sale (Note 4) 1,275 485,465

Total assets $ 22,759,470 $ 30,282,337

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities Accounts payable and accrued expenses (Note 11) $ 5,785,970 $ 5,420,122Accrued interest 1,010,689 712,591Acquisition consideration liabilities (Note 5) - 584,178Deferred revenue, current 6,267,928 6,422,165Bank line-of-credit (Note 12) 1,470,000 1,500,000Notes payable to related parties (Note 12) 1,050,118 1,500,000Finance lease obligations, current (Note 20) 46,554 65,716Other current liabilities 168,992 90,795Current liabilities held for sale (Note 4) 565,127 796,853

Total current liabilities 16,365,378 17,092,420 Secured convertible debentures (Note 12) 18,710,994 18,399,596Deferred revenue, less current portion 689,875 851,854Finance lease obligations, less current portion (Note 20) 70,953 117,507Other liabilities 11,440 11,440

Total liabilities 35,848,640 36,472,817

Commitments and contingencies Stockholders’ equity (deficit)

Share capital (Note 13) 115,057,827 104,912,731 Additional paid-in capital 12,744,057 7,352,232 Accumulated deficit (139,259,881) (116,809,681) Unvested voting common stock (Note 13) - (1,876) Accumulated other comprehensive loss (139,125) (151,838) Less: Treasury stock (28,800 shares) (Note 13) (1,492,048) (1,492,048)

Total stockholders’ equity (deficit) (13,089,170) (6,190,480) Total liabilities and stockholders’ equity (deficit) $ 22,759,470 $ 30,282,337


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2014 2013

Revenue (Note 15) 14,596,684$ 14,661,869$

Operating expenses:9,229,608 9,353,463

Technology, research & development costs 4,347,276 5,350,347 3,001,607 4,903,345

General and administrative expenses 6,281,655 6,253,392 Marketing and promotion expenses 7,000,359 8,442,427 Stock-based compensation (Note 14) 356,881 1,490,826 Depreciation & amortization 968,263 1,007,982 Loss on investment in NeuPals (Note 10) 271,663 352,594

(181,042) 278,877

3,716,858 - Total operating expenses 34,993,128 37,433,253

Loss from operations (20,396,444) (22,771,384)

Other income (expense):Gain from change in fair value of derivatives (Note 5) 63,750 3,130,000 Interest expense, net (3,662,847) (3,444,090)

52,571 6,400 Net foreign currency exchange gains 1,831,254 664,750

Loss from continuing operations (22,111,716) (22,414,324)

Loss from discontinued operations (Note 4) (338,484) (99,714)

Net Loss (22,450,200) (22,514,038)

Other comprehensive income (loss):Items that may be subsequently reclassfied into net income/loss

Foreign currency translation 12,713 (2,612)

Total comprehensive loss (22,437,487)$ (22,516,650)$

Net loss per common share - basic and diluted:Continuing operations (1.22) (3.00) Discontinued operations (0.02) (0.01)

Net loss per share - basic and diluted (1.24)$ (3.01)$

Weighted average number of common shares:Basic and diluted 18,130,478 7,474,776

Year Ended December 31,

Change in estimated fair value of acquisition share consideration (Note 5)

Impairment of goodwill and intangible assets (Note 9)

Other income

Cost of sales

Operations and support expenses

Cricket Media Group Ltd.

(formerly ePals Corporation)

Consolidated Statements of Comprehensive Loss

Years Ended December 31, 2014 and 2013


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Consolidated Statements of Changes in Equity (Deficit)


Shares Dollars Shares Dollars Shares DollarsBalance at December 31, 2013 4,311,397 59,651,648$ 7,672,744 45,261,083$ (28,800) (1,492,048)$ 7,352,232$ (116,809,681)$ (1,876)$ (151,838)$ (6,190,480)$ Conversion from restricted to voting common stock 87,738 98,199 (87,738) (98,199) - - - - - - - Warrants exercised - - 235,834 403,542 - - - - - 403,542 Issuance of common stock to satisfy liabilities - 10,780,358 6,715,178 - - 3,463,118 - - - 10,178,296 Issuance of common stock in private placement, net 1,108,803 945,482 4,355,499 2,235,761 - - 1,657,866 - - - 4,839,109

Stock compensation: stock options - - - - - - 196,561 - - - 196,561 Stock compensation: restricted share units 19,059 22,859 46,312 30,042 - - 68,826 - - - 121,727 Stock compensation: warrants - - - - - - 10,026 - - - 10,026 Share issuance costs (24,131) (179,132) - - - - - - (203,263) Vesting of restricted common stock - - - - - - - - 1,876 - 1,876

Net loss - - - - - - - (22,450,200) - - (22,450,200) Foreign currency translation - (4,505) - - - - (4,572) - - 12,713 3,636 Balance at December 31, 2014 5,526,997 60,689,552$ 23,003,009 54,368,275$ (28,800) (1,492,048)$ 12,744,057$ (139,259,881)$ -$ (139,125)$ (13,089,170)$

Balance at December 31, 2012 3,880,745 57,057,864$ 2,537,598 37,551,974$ (28,800) (1,492,048)$ 5,312,802$ (94,295,643)$ (3,752)$ (149,226)$ 3,981,971 Conversion from restricted to voting common stock 371,800 5,962,628 (371,800) (5,962,628) - - - - - - - Conversion from voting to restricted common stock (266,757) (3,934,673) 266,757 3,934,673 - - - - - - - Issuance of common stock to satisfy debt obligations - - 992,064 1,984,128 - - 1,168,512 - - 3,152,640 Issuance of common stock in private placement 325,359 576,651 4,043,153 7,257,769 - - - - - 7,834,420 Issuance of warrants in private placement - - - - - - 189,491 - - 189,491 Share issuance costs - (8,745) - (116,187) - - - - - (124,932)

Stock compensation: stock options - - - - - - 400,505 - - - 400,505 Stock compensation: restricted share units 250 2,377 204,972 611,354 - - 265,174 - - - 878,905 Stock compensation: warrants - - - - - - 20,052 - - - 20,052 Vesting of restricted common stock - - - - - - - - 1,876 - 1,876

Net loss - - - - - - - (22,514,038) - - (22,514,038) Foreign currency translation - (4,454) - - - - (4,304) - - (2,612) (11,370) Balance at December 31, 2013 4,311,397 59,651,648$ 7,672,744 45,261,083$ (28,800) (1,492,048)$ 7,352,232$ (116,809,681)$ (1,876)$ (151,838)$ (6,190,480)$

Total Stockholders' (Deficit) EquityVoting Common Stock

Restricted Voting Common Stock Treasury Stock

Additional Paid-In Capital

Accumulated Deficit

Unvested Voting Common Stock

Accumulated Other

Comprehensive Loss

The accompanying notes are an integral part of these consolidated financial statements. 5


Consolidated Statements of Cash Flows


2014 2013Cash flows from operating activities:

Net loss from continuing operations $ (22,111,716) $ (22,414,324) Adjustments to reconcile net loss to net cash used in operating activities:

Gain from change in fair value of derivatives (Note 5) (63,750) (3,130,000) Depreciation and amortization 968,263 1,007,982 Stock-based compensation (Note 14) 356,881 1,490,826 Bad debt recovery, net (101,124) 11,018 Loss on investment in NeuPals (Note 10) 271,663 352,594 Amortization of financing costs from debentures (see Note 12) 2,019,285 1,949,160 Write-off of abandoned patents (Note 9) 196,270 - Net foreign currency exchange gains (1,831,254) (664,750) Restricted share vesting 1,876 1,876 Change in estimated fair value of acquisition consideration (Note 5) (181,042) 278,877 Increase in restricted cash 311 303 Impairment of goodwill and intangible assets (Note 9) 3,716,858 - Income tax provision (Note 16) 21,389 - Changes in operating assets and liabilities:

Accounts receivable (271,897) 655,133 Inventory (111,144) (91,703) Other current assets 37,523 (362,048) Accounts payable and accrued expenses 663,946 (203,511) Deferred revenue (316,216) 170,511 Other 279,158 952

Total adjustments 5,656,996 1,467,220

Net cash used in continuing operations (16,454,720) (20,947,104) Net cash provided by discontinued operations 221,223 323,577 Net cash used in operating activities (16,233,497) (20,623,527)

Cash flows from investing activities:Cash paid for acquisitions (301,362) - Purchases of equipment (51,277) (383,952) Cash paid for patents and owned permissions (682,808) (696,058)

Net cash used in investing activities (1,035,447) (1,080,010)

Cash flows from financing activities:Proceeds from secured convertible debentures, net of expenses (see Note 12) - 9,282,672 Proceeds from related party line of credit (see Note 12) 9,700,118 6,500,000 Proceeds from private placement, net of expenses 4,640,712 7,536,729 Repayments on related party line of credit (100,000) (2,000,000) Repayments on bank line of credit (30,000) - Payments on finance lease obligations (65,716) (78,342) Proceeds from finance lease obligations - 163,742 Proceeds from exercise of stock warrants 399,882 -

Net cash provided by financing activities 14,544,996 21,404,801

Decrease in cash and equivalents (2,723,948) (298,736)

Effect of exchange rates on cash (5,472) (7,778)

Cash & cash equivalents at the beginning of the period 3,641,985 3,948,499 Cash & cash equivalents at the end of the period $ 912,565 $ 3,641,985

Year Ended December 31,

The accompanying notes are an integral part of these consolidated financial statements. 6


Consolidated Statements of Cash Flows


Year Ended December 31, 2014 2013

Non-cash financing activities: Issuance of common shares in connection with acquisition consideration liabilities (Note 13)

$ 150,000 $ -

Issuance of common shares to repay credit facility from insider (Note 13) 10,050,000 3,000,000 Issuance of warrants in connection with private placement 11,978 189,491 Supplemental disclosures of cash flow information: Cash paid for interest $ 1,322,800 $ 864,875 Cash paid for income taxes 13,390 48,208

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Cricket Media Group Ltd.

(formerly ePals Corporation)

Notes to the Consolidated Financial Statements

December 31, 2014 and 2013 NOTE 1 - Organization and Significant Accounting Policies Cricket Media Group Ltd. (“Cricket Media” or the “Company”), formerly ePals Corporation, was incorporated under the laws of the Province of Alberta on July 14, 2010. Previously classified as a Capital Pool Company as defined in Policy 2.4 of the TSX Venture Exchange (“TSX-V”), the Company completed a “qualifying transaction” as defined under the policies of the TSX-V on July 26, 2011 when it acquired Cricket Media, Inc. (formerly “ePals, Inc.”) pursuant to a statutory procedure to form “ePals Corporation” (“Merger”). In connection with the Merger, the Company continued under the laws of the Province of Ontario. On April 16, 2014, the Company announced it would rebrand the company under the name Cricket Media in order to reflect its core business of providing award-winning content on a safe and secure learning network for children, families and teachers across the world. In connection with the rebranding, the Company’s voting common shares began trading on the TSX-V under the new stock symbol “CKT” beginning on April 21, 2014. In July 2014, the TSX-V approved the consolidation of the Company’s issued and outstanding voting and restricted voting common shares, each on the basis of one post-consolidation share for every 25 pre-consolidation shares. The post-consolidation voting common shares commenced trading on the TSX-V as of July 10, 2014. This adjustment has been reflected for all periods presented in the financial statements. Concurrent with the share consolidation, the Company changed its legal name from ePals Corporation to Cricket Media Group Ltd. Cricket Media is an education media company that provides award-winning content on a safe and secure learning network for children, families and teachers across the world. Cricket Media’s popular media brands for toddlers to teens include Babybug®, Ladybug®, Cricket® and Cobblestone® with multiple language editions and apps in English, Spanish and Mandarin. In addition to activities associated with the sale of print and digital content, the Company licenses its content and innovative technology associated with its collaborative social media platform. The Company’s digital K-12 products for school and home include the ePals global community (the Company’s network of classrooms that allows teachers and students to safely connect and collaborate with other classrooms around the world) as well as In2Books®, a Common Core eMentoring program that builds reading, writing and critical thinking skills. Basis of presentation These consolidated financial statements and the notes thereto have been prepared on a going concern basis (see Note 2) in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, are presented in United States dollars (“USD”) (unless otherwise noted). The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair value, as explained in the accounting policies below. The Company adopted IFRS on January 1, 2009. During the fourth quarter of 2014, the Company determined its Nexify advertising business and Open Court commerce business no longer fit the Company’s overall strategy. As a result, the Company began actively marketing these businesses for sale with the expectation that these businesses would be sold during 2015. As such, the Company has classified the assets and liabilities associated with these businesses as held for sale and the operations as discontinued operations. Prior period statements have been updated for comparative purposes to reflect this classification. Principles of consolidation These consolidated financial statements include the accounts of Cricket Media, its wholly-owned subsidiaries, Cricket Media, Inc., Carus Publishing Company (“Carus”), and ePals-Nexify, Inc., and ePals

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Foundation which is an entity in which Cricket Media, Inc. holds a controlling interest. All material intercompany balances and transactions have been eliminated in consolidation. The Company assesses control over its investees when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The usual condition for controlling financial interest is ownership of a majority of the voting interest of a subsidiary and therefore, as a general rule, ownership of more than fifty percent of the outstanding voting shares is a condition of consolidation. Since ePals Foundation is a U.S. non-stock corporation, controlling financial interest must be based on other factors. Cricket Media, Inc. is the sole member of ePals Foundation, has full control over the election of the ePals Foundation’s Board of Directors, and manages, controls and directs the affairs and property of ePals Foundation, including general management, accounting, finance, human resources, and fund raising. Therefore, ePals Foundation is consolidated with Cricket Media. Business combinations The Company accounts for business combinations in accordance with IFRS 3, Business Combinations (2008), (“IFRS 3”). All business combinations are accounted for by applying the acquisition method. The acquisition date is the date on which control is transferred to the acquirer. Judgment is applied in determining the acquisition date and determining whether control is transferred from one party to another. Goodwill is initially measured as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured at the acquisition date. To the extent that the fair value exceeds the consideration transferred, the excess is recognized in profit. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Company from the previous owners of the acquiree and equity interests issued by the Company. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination. A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event and its fair value can be measured reliably. Non-controlling interest is measured at its proportionate interest in the fair value of the identifiable net assets of the acquiree. Transaction costs incurred in connection with a business combination, such as legal fees, due diligence fees and other professional and consulting fees are expensed as incurred, unless the costs are related to debt. Transaction costs that are directly attributable to debt instruments related to business acquisitions are capitalized and netted with the outstanding balance associated with the debt instruments on the consolidated balance sheet. If the Company obtains control over one or more entities that are not businesses, then the bringing together of any one of those entities and the Company is not a business combination. The cost of acquisition is allocated among the individual identifiable assets and liabilities of such entities, based on their relative fair values at the date of acquisition. Such transactions do not give rise to goodwill and no non-controlling interest is recognized. Revenue recognition Revenue represents the fair value of consideration received or receivable from clients for goods and services provided by the Company. Media subscription revenues include print and digital subscriptions of children’s magazines. Revenue is deferred and recognized ratably over the subscription period as the magazine issues are delivered or made available on the Company’s digital platforms. When digital magazine subscriptions are sold bundled with print magazine subscriptions, the price of the bundle is bifurcated between the regular price

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of print magazine subscriptions, which is attributed to the print magazine, and the incremental revenue attributed to digital magazine subscription. Revenues for digital apps are recognized ratably over the subscription period. Media subscription revenues from the sale of children’s magazines under buy-sell arrangements with distributors are recorded based on the net amount received from the distributor, whereas subscription revenues under fee-based delivery arrangements with distributors are recorded based on the amount received from the subscriber. Revenues from book and consumer product sales are recognized when orders are shipped to the customers. Revenue recognized includes amounts billed to customers in a sales transaction for shipping and handling, as well as an allowance for customer returns. The Company earns revenues for the licensing of articles and content in its books and magazines. Licensing revenue is recorded at the time the licensed materials are available to the licensee and collections are reasonably assured and no further performance is required by the Company. Revenues from third-party media distributors are accrued based on estimated sales net of estimated returns, and the revenues are adjusted to the actual amounts upon receipt of the third-party distributor reports. Revenues from software as a service (“SAAS”)-based subscription license agreements are recognized ratably over the contract term beginning on the commencement date of each contract. Operating Expenses Cost of sales Costs of sales consists of the direct costs incurred to provide our services and sell our products, which primarily consists of the following: sales commissions and salaries related to our media and platform business; costs incurred to produce, distribute and store the Company’s print and digital media products; and licensing and editorial expenses. Technology, research and development costs Research costs are expensed as incurred. Development costs are capitalized when a specific product is determined to be technically feasible, when there is an intention to produce the product in a clearly defined future market and adequate resources exist to complete the project. Based on the Company’s product development process, technological feasibility generally occurs on completion of a working model of the Company’s product. To date, development costs incurred between the completion of a working model of the Company’s product and the general release of the product have been minimal. As a result, the Company has not capitalized development costs as of December 31, 2014 or 2013. For the years ended December 31, 2014 and 2013, the Company expensed research and product development costs of $1,861,754 and $1,649,011, respectively, as classified in technology, research and development on the Consolidated Statements of Comprehensive Loss. Operations and support costs Operations and support costs consist of expenses related to the ongoing day-to-day operations of the international division, education / global community, customer support and internal technology support functions. Marketing and promotion expense Marketing and promotion costs related to ongoing marketing activities are expensed as incurred. Stock-based compensation Equity-settled share-based payments to employees and directors including stock options, stock warrants and restricted share units are generally measured at the fair value of the equity instruments at the grant date. The Company uses the Black-Scholes Option Pricing Model to determine the fair value of

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employee stock options and stock warrants and uses the Company’s closing share price on the grant date as the fair value of restricted share units. The fair value determined at the grant date of employee stock options, stock warrants, and restricted share units is expensed on a straight-line basis over the vesting period, based on the Company's estimate of equity instruments that will eventually vest, with a corresponding increase in equity. On each balance sheet date, the Company revises its estimates of the number of stock options, stock warrants, and restricted share units that are expected to become exercisable. The impact of the revision of original estimates, if any, is recognized immediately in the Consolidated Statement of Comprehensive Loss, with a corresponding adjustment to equity. Transactions involving equity-settled service warrants, stock options and restricted stock units with parties other than employees are measured in accordance with IFRS 2 by the fair value of the service received, and recognized over the period that the counterparty renders the service. If the Company cannot estimate reliably the fair value of services received, the Company measures the service received and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, measured at the date the counterparty renders the service. In 2014 and 2013, the Company issued equity-settled stock options with parties other than employees, which were measured indirectly at the fair value of the equity instruments granted, recognized over the period that the counterparty rendered the service. The fair value of the services specifically covered by the stock options could not be reliably estimated. Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In evaluating the amount of deferred tax asset to recognize, the Company considered all available evidence, including past operating results, the reversal of temporary differences, the forecasts of future taxable income and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income. Comprehensive income (loss) In accordance with IAS 1 Presentation of Financial Statements, the Company classifies items of other comprehensive income (loss) by their nature in the Consolidated Statement of Comprehensive Loss and Consolidated Statements of Changes in Equity and discloses the accumulated balance of other comprehensive income (loss) separately in the stockholders’ equity (deficit) section of the Consolidated Statements of Financial Position. Earnings (loss) per share Cricket Media Group Ltd. and Cricket Media, Inc.’s outstanding stock options and warrants to acquire shares of the Company‘s restricted voting and voting common shares, convertible debentures, unvested restricted share units have been excluded in the basic and diluted net loss per common share calculations due to their anti-dilutive effect on earnings per share. The weighted average number of common shares outstanding, (which includes voting common shares and restricted voting common shares) for the year ended December 31, 2013 excludes 965 voting common shares that are restricted.

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Cash & cash equivalents Cash & cash equivalents include cash and short-term investments with original maturities of three months or less and are presented at their nominal value. Accounts receivable Included in “Accounts receivable, net of allowance for doubtful accounts” on the Company’s consolidated balance sheets are amounts primarily related to customer, book / magazine distributors, licensing and credit card processor receivables. Accounts receivable are recorded net of allowances for doubtful accounts. The Company generally requires customers to prepay for subscriptions, licensing and commerce related products, although, in cases related to our children’s magazines, customers can choose to be billed later. In the event the customer chooses to be billed later, the Company extends credit to customers without requiring collateral. After two magazines have been shipped and no payment is received, these customers are deemed “non-paying” and shipment of magazine is suspended and further collection attempts are made. We maintain an allowance for doubtful accounts at an amount estimated to be sufficient to provide adequate protection against losses resulting from collecting less than full payment on accounts receivable. A considerable amount of judgment is required when evaluating the adequacy of allowances. We analyze accounts receivable including assessing the probability of collections, analyze current economic conditions and trends, historical bad debt write-offs, customer credit worthiness and changes in customer payment terms. We write off customer accounts receivable balances to the allowance for doubtful accounts in the period in which we determine they are uncollectible.

Accounts receivable also include credit card receivables for the credit card transaction batches that took place during the last two to three days of the period, but have not yet settled/credited the Company’s bank account.

Inventory Inventories are valued at the lower of cost, determined using the first-in, first-out method, and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. The Company records a reserve for inventory based on estimated obsolescence and/or excess or damaged inventory. The Company uses estimates in determining the level of reserves required to state inventory at the lower of cost or net realizable value. These estimates are based on management’s current assessment of the marketplace, industry trends and projected product demand as compared to the number of units currently on hand. Changes in any of these factors may result in adjustments to the carrying value of inventory. Property and equipment Property and equipment is stated at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of three to seven years. Expenditures for major renewals and betterments that extend the useful lives of fixed assets are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. Investments in associates and joint ventures The Company accounts for associates using the equity method. The definition of an associate is based on the Company’s ability to exercise significant influence, which is the power to participate in the financial and operating policies of the entity. Significant influence is assumed to exist if the Company owns between 20 to 50 percent of the voting rights. However, exercise of judgment may lead to the conclusion of significant influence at ownership levels less than 20 percent or a lack of significant influence at ownership percentages greater than 20 percent. At December 31, 2014 and 2013, the Company’s only associate was NeuPals (as defined herein—see Note 10 for more information). A joint venture is an entity, asset or operation that is subject to contractually established joint control which exists only when the strategic, financial and operating decisions relating to the activity require the unanimous consent of the venturers.

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The equity method involves the investment in an associate recognised at cost on initial recognition, and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. The investor’s share of the investee’s profit or loss is recognised in the investor’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Unrealized gains and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate. The financial statements of associates are prepared for the same reporting year as the Company. Where necessary, adjustments are made to those financial statements to bring the accounting policies used into line with those of the Company. The Company reviews investments in associates, NeuPals Dalian Educational Information Technologies Co., Ltd. (“NeuPals”) specifically, for impairment when indicators of a possible loss in value are identified. At the end of each reporting period, the Company assesses whether there is any objective evidence that an investment in an associate is impaired. Impairment indicators include such items as operating losses or adverse market conditions. As the Company’s investees are not listed on a stock exchange or regularly traded, the Company’s impairment review for such investees are not based on market prices. Should the Company need to value its investment, the fair value of the investment would be estimated based on valuation model techniques. If the recoverable amount (the higher of value in use and fair value less costs to sell) of the investee is below the Company’s carrying value and the impairment is considered to be prolonged, the investment is written down as impaired. Impairment losses are reversed if the impairment situation is deemed to no longer exist. While operating losses have been incurred by NeuPals, management believes these losses are a function of the stage of the business and are not an indication of loss of value. NeuPals initiated the commercial launch of online communities that connect Chinese students and families to native English speaking families and classrooms in order to facilitate cross-culture learning through English language learning activities, at home and in the classroom, to various schools in the fourth quarter of 2013 and during 2014 after a successful pilot period. NeuPals also launched new products that provide Chinese schools with curricula, media products and collaborative experiences with other schools around the world. In addition, there has been interest in the Company’s products and management continues to evaluate optimal ways to monetize our assets through the joint venture. Lastly, substantially all of the joint venture’s net assets consist of cash as of December 31. 2014. Upon taking these factors under consideration, management determined no impairment indicators were present for this investment and therefore no review for impairment was deemed necessary for this associate at December 31, 2014. Goodwill Goodwill represents the excess of the purchase price of a company acquired over the fair value of the net assets acquired, net of subsequent impairment charges. Other intangible assets Internally generated intangible assets with finite useful lives (patents, owned permissions and copyrights) are carried at cost less accumulated amortization. The legal and other costs incurred to obtain internally generated patents that are expected to provide future economic benefits to the Company are capitalized and amortized over the lesser of their legal or estimated useful life. Owned permissions are capitalized at the costs incurred to purchase the right to use or sell content produced by independent authors or artists and are amortized using the straight-line method. If the useful life of an owned permission is determined to be less than one year, those costs are expensed in the year purchased. Acquired intangible assets with finite useful lives (acquired customer, technology and artistic intangibles) are carried at their fair value on the acquisition date, less accumulated amortization. Customer intangibles and artistic intangibles are amortized using an accelerated amortization method based on the asset’s estimated free cash flows over the useful lives. Technology assets are amortized using the straight-line method over the useful life.

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The estimated useful lives and amortization methods of intangibles with finite useful lives are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Internally generated intangible assets with indefinite useful lives (trademarks) are carried at cost as they are not amortized. The legal and other costs incurred to obtain trademarks that are expected to provide future economic benefits to the Company are capitalized. Acquired intangible assets with indefinite useful lives (acquired marketing intangibles and brands) are carried at their fair value on the acquisition date as determined by an independent source. Those assets are not amortized. Impairment of assets For assessing impairment, assets are grouped in cash-generating units (“CGUs”), which represent the lowest levels for which there are separately identifiable cash flows generated by those assets. Goodwill is allocated on the date of each business acquisition to the CGU that is expected to benefit from the synergies of the business acquisition. Each CGU represents the lowest level within the Company at which goodwill is monitored for internal management purposes and is not larger than an operating segment. When the Company determines that indicators of impairment of long-lived assets with finite useful lives, goodwill, or assets with indefinite useful lives exist based on recent events and circumstances, the Company tests the asset to determine if its carrying amount exceeds its recoverable amount. The Company considers information from external and internal sources to determine if impairment indicators exist. Goodwill and assets with indefinite useful lives must be tested for impairment at least annually even if no impairment indicators exist. The Company performs annual impairment testing on November 30 of each financial year. If there is an indication that an asset may be impaired, the recoverable amount of the asset (or, if appropriate, the CGU) is determined. The recoverable amount is determined for individual assets. However, if an asset does not generate cash inflows that are largely independent of those from other assets, the recoverable amount is determined for the CGU to which the asset belongs. The recoverable amount is the higher of the ‘fair value less costs to sell’ and the ‘value in use’ of the asset or CGU. In assessing the ‘fair value less costs to sell’, the estimated future cash flows, based on assumptions consistent with those that a market participant would make, are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. The value in use represents the present value of the future cash flows expected to be derived from the asset or the CGU. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss on goodwill is not reversed. For other assets, an impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized in previous periods. The Company recognized an impairment loss of $3,716,858 during the year ended December 31, 2014 related to the “ePals” brand name, goodwill associated with our legacy platform business, a write down of artistic related intangibles and owned permissions related to our media business and a previously acquired Spanish magazine business. See Note 9 for additional information on these impairment losses. Debt In accordance with IAS 23 Borrowing Costs, the Company recognizes interest and other costs incurred in connection with the bank line-of-credit as an expense in the period in which they are incurred.

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Convertible debentures are assessed to determine if the conversion feature constitutes a separate equity or liability instrument. Convertible debentures issued in currencies other than the Company’s functional currency of USD fail the ‘fixed-for-fixed’ criteria for equity classification under IFRS. Therefore, the conversion feature of the debentures are accounted for as an embedded derivative and recorded as a liability at fair value with subsequent changes in fair value recognized through profit or loss. The conversion feature is measured first at its fair value and recorded separately, with the debt host component measured at the residual after deducting the fair value attributable to the conversion feature from the fair value of the convertible debenture as a whole.

Transaction costs related to the issue of convertible debentures are allocated to the debt and conversion feature components in proportion to the allocation of the gross proceeds. Transaction costs relating to the conversion feature component are recognized as expenses immediately. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortized over the life of the convertible debenture using the effective interest method. Derivatives Derivatives are initially recognized in the consolidated statement of financial position at fair value on the date a derivative contract is entered into, including those derivatives that are embedded in financial or non-financial contracts and which are not closely related to the host contract. Changes in the fair value of derivative instruments, including embedded derivatives, which are not designated as hedges for accounting purposes, are recognized in the consolidated statement of comprehensive loss consistent with the underlying nature and purpose of the derivative instrument. Attributable transaction costs are recognized in profit or loss as incurred. The Company obtains valuations of the derivative instruments from third parties that rely on assumptions regarding future interest and exchange rates as well as other economic indicators, which at the time of establishing the fair value for disclosure, have a high degree of uncertainty. Changes in the fair value of derivative instruments, including embedded derivatives, which are not designated as hedges for accounting purposes, are recognized in other income and expense on the Consolidated Statements of Comprehensive Loss. The Company’s only derivatives are the convertible debenture conversion options described in Note 5 with fair value adjustments recorded to net earnings at each period end. Leases

Contracts to lease assets are classified as finance leases if they transfer substantially all the risks and rewards of ownership of the asset to the Company. The assets are included in property and equipment and the capital elements of the leasing commitments are shown as finance lease obligations in the Consolidated Statements of Financial Position. The assets are depreciated on a basis consistent with similar owned assets or the lease term if shorter. The interest element of the lease rental is included in the Consolidated Statements of Comprehensive Loss.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. In accordance with current accounting guidance, the Company recognizes rent expense from operating lease agreements based on the total minimum future lease payments on a straight-line basis over the life of the lease (see Note 20).

Equity The Company’s common stock is recorded as equity instruments in accordance with IAS 32 Financial Instruments: Presentation. Treasury stock is presented at the value of the consideration paid or received for the shares in accordance with IAS 32 Financial Instruments: Presentation. No gain or loss is recognised on the acquisition or cancellation of the Company’s own equity instruments.

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Foreign currency The Company’s consolidated financial statements are maintained in USD which is its functional currency. Certain transactions are denominated in Canadian dollars (“CAD”) and are converted monthly by the Company into USD. Translation into USD is made in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates. All non-monetary assets and liabilities of subsidiaries denominated in CAD are translated into USD at exchange rates in effect at the end of each fiscal period. Adjustments resulting from the translation of financial statements of CAD subsidiaries into USD are included in the “foreign currency translation” lines of the accompanying consolidated statements of changes in equity and consolidated statements of comprehensive loss and the “effect of exchange rates on cash” line in the accompanying Consolidated Statements of Cash Flows. The “net foreign currency exchange gains (losses)” line in the consolidated statements of comprehensive loss represents actual foreign currency exchange losses from cash received in CAD as opposed to the Company’s functional currency, USD and the translation of assets and liabilities denominated in CAD from transactions to be settled in that currency. Use of estimates and judgement In the application of the Company's accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed by the Company on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Management has made judgements with respect to applying the Company’s accounting policies, including judgements regarding materiality and the classification of certain operations and disposal groups as discontinued operations and held for sale, respectively. The Company does not believe there are any circumstances impacting key judgements that would result in material changes to its financial statements. New accounting standards During 2013, the IASB amended disclosure requirements within IAS 36 – Impairment of Assets related to recoverable amounts for non-financial assets. Under the amendments, the requirement to disclose the recoverable amount of non-financial assets irrespective of whether or not an impairment has taken place has been removed. Additionally, the amendments require entities to make disclosures for fair value less costs of disposal that are consistent with those required for an asset (or cash generating unit) where the recoverable amount has been determined on the basis of value in use. Amended guidance also requires entities to disclose the following: (i) the level of the fair value hierarchy within which the fair value measurement of the asset (or cash generating unit) is categorized in its entirety (without taking into account whether costs of disposable are observable); (ii) a description of the valuation technique(s) used to measure fair value less costs of disposal for fair value measurements categorized within Level 2 or Level 3 of the fair value hierarchy, including any changes to valuation techniques and the reason for the change; (iii) key assumptions on which management has based its determination of fair value less costs of disposal for fair value measurements categorised within Level 2 and Level 3 of the hierarchy; and (iv) the discount rate(s) used in the current measurement and previous measurement if fair value less costs of disposal is measured using a present value technique. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014 and the Company has updated its disclosures in accordance with this amendment. See Note 9 in these consolidated financial statements for the Company’s disclosures on the impairment of assets. During 2012, the IASB amended IFRS 10 – Consolidated Financial Statements, in connection with amendments to IFRS 12 and IAS 27 to introduce an exception to the principle that all subsidiaries are required to be consolidated. The amendments define an investment entity and require a parent that is an

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investment entity to measure its investments in particular subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. Additionally, the amendments introduced new disclosure requirements for investment entities. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014. These amendments did not have a material effect on the Company’s financial statements. During 2011, the IASB amended IAS 32 – Offsetting Financial Assets and Financial Liabilities to clarify the accounting requirements for offsetting financial instruments. This amendment clarifies the legally enforceable right to set off recognized amounts in connection with the offset financial assets and liabilities must not be contingent on a future event and must be legally enforceable in all of the following circumstances: (i) the normal course of business; (ii) the event of default; and (iii) the event of insolvency or bankruptcy of the entity and all of the counterparties. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014. These amendments did not have a material effect on the Company’s financial statements. During 2013, the IASB amended IAS 39 – Financial Instruments: Recognition and Measurement to introduce a narrow scope exception that would allow the continuation of hedge accounting under IAS 39 and IFRS 9 when a derivative is novated under the following conditions: (i) the novation comes as a consequence of laws or regulations (or the introduction of laws or regulations) and (ii) the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty of each party. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014. The Company does not have any derivative instruments applicable to these requirements and there for the amendments did not have an effect on the Company’s financial statements. During 2013, the IASB issued IFRIC 21 – Levies which provides guidance on when to recognise a liability for a government imposed levy. IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, and that the preparation of the financial statements under the going concern principle and economic compulsion of the entity do not create or imply the existence of an obligating event. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014. These amendments did not have a material effect on the Company’s financial statements. New IFRS standards issued but not yet effective or adopted by ePals

In May 2014, IFRS 15, Revenue from Contracts with Customers, was issued. IFRS 15 was issued to converge standards with U.S. GAAP guidance, as well as clarify recognition for various revenues generated from contracts with customers. IFRS 15 is effective on January 1, 2017 with early application permitted. The Company is evaluating any future impacts of implementing this standard.

In July 2014, the IASB issued an amendment to IFRS 9 – Financial Instruments to include new impairment requirements for all financial assets that are not measured at fair value through profit or loss and amendments to previously finalised classification and measurement requirements for financial assets. Mandatory adoption begins in periods beginning on or after January 1, 2018 with early adoption permitted. The Company is evaluating any future impacts of implementing this standard.

Subsequent events The Company evaluated its December 31, 2014 consolidated financial statements for subsequent events through April 28, 2015. The Company’s Board of Directors approved the Consolidated Financial Statements and accompanying notes on April 24, 2015. The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements other than those disclosed in Note 22. NOTE 2 – Going Concern and Liquidity The consolidated financial statements of the Company for the year ended December 31, 2014 and the notes thereto have been prepared on a going concern basis even though the Company currently has insufficient cash to fund its net operating shortfall for the next 12 months. In assessing whether the going concern assumption was appropriate, management took into account all relevant information available to

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it about the future, which was at least, but not limited to, the twelve month period following December 31, 2014. In order to fund its operating shortfall, the Company and a special committee of the board have been exploring various financing strategies and strategic alternatives including corporate-based, financial investor-based and private equity-based financings, strategic combinations, cost reduction initiatives, and other alternatives. The Company believes that based on the financial strength of its existing shareholder base and previous success in raising capital, any shortfall in its operating plan may be met through one or more of these strategies. During the year ended December 31, 2014, the Company had a net loss of $22,450,200, negative cash flow from operations of $16,233,497 and a negative working capital of $12,443,735. Historically the Company has had operating losses, negative cash flows from operations, and working capital deficiencies. The Company is subject to liquidity risks generally associated with early-stage media and technology companies, which include fluctuations in operating expenses and revenues, and challenges in securing further equity or debt financing which is subject to prevailing market conditions at that time. If it does not raise alternative financing before exhausting its cash reserves, the Company could be forced to alter its current business plan and expenditure levels. As a positive operating cash flow position has yet to be achieved, the Company currently has insufficient cash to cover its known operating expenditures for the next 12 months and will continue to evaluate its financing alternatives. There can be no assurance that management will be successful in raising the necessary capital required to fund planned operations, or that financing with acceptable terms will be available. These uncertainties may cast significant doubt upon the Company’s ability to continue as a going concern and/or uncertainty related to the capital structure of the Company. However, as described above, management has a reasonable expectation that the Company will continue for the foreseeable future. If for any reason, the Company is unable to continue as a going concern, it could have an adverse effect on the Company’s ability to realize assets at their recognized values, in particular goodwill and intangible assets, and to extinguish liabilities in the normal course of business at the amounts stated in the consolidated financial statements.

During the year ended December 31, 2014, the Company borrowed approximately $9.7 million under its related party line of credit and issued shares valued at approximately $10.1 million to repay amounts outstanding. The Company also issued approximately 5.5 million units of the Company (each, a “Unit”) for net proceeds of approximately $4.6 million under a non-brokered private placement. Each Unit consisted of one common share of the Company and one-third of Warrant. Additionally, the Company raised approximately $400,000 in connection with the exercise of stock warrants previously issued as part of its private placement transactions. See Note 13 for additional information on these transactions.

The Company actively manages its liquidity through cash, debt and capital stock management strategies to fulfill obligations associated with financial liabilities, mainly accounts payable, accrued liabilities and the debentures. Settling financial obligations out of cash without issuing additional debt or equity or drawing down on existing credit facilities relies on the Company’s ability to generate cash from operations and timely collect accounts receivable and by maintaining sufficient cash on hand. To manage liquidity risk, the Company, among other things, prepares budgets and cash forecasts and monitors its performance against these projections. Management also monitors cash and working capital efficiency given current sales levels and seasonal variability. At December 31, 2014, the Company had $912,565 in cash and a $2,500,000 revolving line of credit with an insider, as discussed in Note 12. The Company had $1,050,118 outstanding under the $2,500,000 revolving line of credit as of December 31, 2014. See Note 22 for additional information on the revolving line of credit. The Company manages the liquidity risk associated with the 2012 Debentures and 2013 Debentures (defined in Note 12) by carefully monitoring its working capital to ensure it has sufficient capital to fund the interest payments on the debt. The 2012 Debentures and 2013 Debentures had a maturity date of October 31, 2014; however, the maturity date was extended to October 31, 2016 at the discretion of the Company. Semi-annual interest payments on the 2012 Debentures of CAD$390,000 are due on April 30 and October 31 of each year until the final maturity. The annual interest payment of $1,000,000 for the 2013 Debentures is due on April 30 of each year until the final maturity. In April and October 2014, the Company paid the CAD$390,000 in interest related to the 2012 Debentures and in April 2014 paid interest on CAD$6,500,000 of principal of the outstanding 2013 Debentures. The Company also entered into an agreement with one of the holders of its 2013 Debentures to defer the interest payment of approximately CAD$348,000 with respect to CAD$3,500,000 of principal of the 2013 Debentures that was due on April 30, 2014. The interest payment has been deferred and will be converted into new debt principal as part of the debt restructuring taking place during 2015. See “Subsequent Events” for

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additional information on the Company’s debt restructuring. The funds associated with the interest paid on CAD$6,250,000 of principal of the 2013 Debentures were reinvested into the Company’s private placement Units by the holders of those debentures. The Company’s ongoing operations in China are expected to increase the future funding needs. Pursuant to a definite joint venture agreement with NeuEdu Tianjin, the Company was required to contribute the remaining registered capital of $1,225,000 to NeuPals (as defined in Note 10) by October 2014. Both parties in the joint venture have agreed to postpone contributing these additional funds into the joint venture. A definitive date for further funding the joint venture has not been established. Future capital requirements will depend on many factors, including, without limitation, the rate of revenue growth, the expansion of marketing and sales activities, the timing and extent of spending to support product development efforts and expansion into new territories, the timing of the release of new products and services and enhancements to existing products and services, acquisition activity, the timing of capital expenditures and the continuing market acceptance of the Company’s products and services. NOTE 3 – Business Acquisitions Asset Purchases In March 2014, the Company acquired the assets of a company with services related to digital rights and permissions for a purchase price of $100,000. The Company paid $48,226 in cash related to this acquisition during the year ended December 31, 2014 and the remaining balance due is reflected in other current liabilities on the consolidated statement of financial position as of December 31, 2014. The fair value at the acquisition date of the assets acquired is estimated at approximately $44,000 consisting of $5,000 related to equipment, $15,000 associated with customer related intangibles and approximately $24,000 related to receivables for services performed but not billed as of the acquisition date. The goodwill related to this acquisition is $55,854 at December 31, 2014. NOTE 4 – Discontinued Operations and Disposal Groups Held For Sale Nexify The Company’s Nexify business, whose Newstogram widget is installed on a network of partner sites, is a service that provides internet publishers and media companies with “smart” aggregation of content and data and predictive personalization services with respect to advertising to cultivate user relationships and enhance audience engagement. Newstogram develops an understanding of each unique user’s interests and affinities by observing user behavior and performing analysis of web content viewed. Newstogram then identifies and presents advertising content that is relevant to each user based on statistical models and dedicated matching functions. The following is key financial information related to the Nexify business as of and for the years ended December 31, 2014 and December 31, 2013:

2014 2013Total current assets 158,420$ 349,718$ Total long-term assets 1,275 485,465 Total current liabilities 34,000 221,671

Total revenue 634,297 1,006,467 Total operating expenses (936,480) (1,195,481) Loss from discontinued operations (302,183)$ (189,014)$

Years Ended December 31,

Current assets for Nexify consist of accounts receivable and long-term assets consist of Nexify’s technology intangible asset and immaterial deposits. Nexify’s current liabilities consist of accrued expenses. Operating expenses for the year ended December 31, 2014 includes an impairment loss of approximately $215,000 related to Nexify’s technology intangible asset. This impairment loss reflects a full write off of that asset.

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While the Nexify business has been a source of advertising revenue for the Company since its acquisition, upon recent evaluation of the business management determined Nexify’s business activities were no longer in line with the Company’s key strategic initiatives. As a result, the Company began actively marketing the business for sale at the end of 2014. The Company is seeking to dispose of the Nexify business during 2015. Open Court Publishing The Company’s Open Court Publishing business generates revenues through the sale of books, primarily related to nonfiction and philosophy based content. Open Court has published more than 400 titles primarily for academics, philosophers and students, as well as a number of titles bringing high-quality philosophy to general readers. The following is key financial information related to the Open Court business as of and for the years ended December 31, 2014 and December 31, 2013:

2014 2013Total current assets 517,979$ 631,163$ Total current liabilities 531,127 575,182

Total revenue 421,439 743,920 Total operating expenses (457,740) (654,620) Income (loss) from discontinued operations (36,301)$ 89,300$

Years Ended December 31,

Current assets for Open Court consist of accounts receivable, inventory and prepaid royalties that will offset future royalty obligations related to book content. Open Court’s current liabilities consist of accrued expenses. Upon recent evaluation of the business management determined Open Court’s business activities were no longer in line with the Company’s key strategic initiatives. As a result, the Company began actively marketing the business for sale at the end of 2014. The Company is seeking to dispose of the Open Court business during 2015. NOTE 5 – Fair Value Measurements

Certain assets and liabilities are recorded at fair value. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on assumptions market participants would make in pricing the asset or liability. Generally, fair value is based on observable quoted market prices or derived from observable market data when such market prices or data are available. When such prices or inputs are not available, the reporting entity should use valuation models. The Company’s assets and liabilities measured at fair value on a recurring basis are categorized based on the priority of the inputs used to measure fair value. The inputs used in measuring fair value are categorized into three levels under authoritative guidance as follows: Level 1 - Inputs that are based upon quoted prices for identical instruments traded in active

markets. The Company does not have any Level 1 instruments at December 31, 2014. Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets,

quoted prices for identical or similar investments in markets that are not active, or models based on valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the investment.

Level 3 - Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

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The following section describes the valuation methodologies the Company uses to measure its financial assets and liabilities at fair value. Assets and liabilities measured at fair value on a recurring basis are summarized below: As of December 31, 2014 Measured at Fair Value Hierarchy Level Description Fair Value Level 1 Level 2 Level 3

Restricted cash - certificate of deposit $ 76,277 $ - $ 76,277 $ -

Consideration liabilities1: Acquisition consideration

liabilities - Carus Earn Out (defined below) - - - -

Derivative liabilities1,2: Derivative liability for the holders’

conversion option in the 2013 Debentures 3,000 - - 3,000

Derivative liability for the Company’s forced conversion option in the 2013 Debentures 1,000 - - 1,000

Derivative liability for the holders’ conversion option in the 2012 Debentures (defined in Note 10) 250 - - 250

Derivative liability for the Company’s forced conversion option in the 2012 Debentures (defined in Note 10) - - - -

As of December 31, 2013 Measured at Fair Value Hierarchy Level Description Fair Value Level 1 Level 2 Level 3

Restricted cash - certificate of deposit $ 75,966 $ - $ 75,966 $ -

Consideration liabilities1: Acquisition consideration

liabilities - Carus Earn Out 584,178 - - 584,178 Derivative liabilities1,2: Derivative liability for the holders’

conversion option in the 2013 Debentures 38,000 - - 38,000

Derivative liability for the Company’s forced conversion option in the 2013 Debentures 18,000 - - 18,000

Derivative liability for the holders’ conversion option in the 2012 Debentures (defined in Note 10) 12,000 - - 12,000

Derivative liability for the Company’s forced conversion option in the 2012 Debentures (defined in Note 10) - - - -

Notes: (1) On the basis of its analysis of the nature, characteristics and risks of the financial instruments, the Company has determined that presenting the financial instruments by their nature is appropriate.

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(2) The derivative liabilities related to the 2012 Debentures and 2013 Debentures are included in secured convertible debentures on the consolidated statements of financial position.

Changes in the fair value of Level 3 financial instruments were as follows for the year ended December 31, 2014:

Derivative liability for the holders’

conversion option in the 2012 Debentures

Acquisition consideration

liabilities - Carus Earn Out

Derivative liability for the

holders’ conversion

option in the 2013

Debentures

Derivative liability for the

Company’s forced

conversion option in the 2013 Debentures

Balance at 12/31/13 $ 12,000 $584,178 $38,000 $18,000 Satisfaction of liability - (403,136) - - Increase (reduction) in fair value

(11,750) (181,042) (35,000) (17,000)

Balance at 12/31/14 $ 250 $ - $ 3,000 $ 1,000

The effect of the fair value measurement on profit or loss for the year ended December 31, 2014 for Level 3 financial instruments was a gain of $63,750, which represents the unrealized gain on the derivative liabilities, and an adjustment of $181,042 related to the estimated Carus earn out obligation. This gain is classified as the gain from change in fair value of derivatives and change in estimated fair value of acquisition share consideration, respectively, on the consolidated statements of comprehensive loss. There was no effect of the fair value measurement of Level 3 financial instruments on Other Comprehensive Income/Loss for the year ended December 31, 2014. The valuation processes and results for Level 3 financial instruments are reviewed and approved by the Company’s Controller and Chief Financial Officer at least each quarter in line with the Company’s quarterly reporting dates. Valuation results are discussed with the Audit Committee as part of its quarterly review of the Company’s financial statements. Acquisition consideration – Carus Earn Out As additional purchase consideration from the 2011 acquisition of Carus, and subject to meeting or exceeding increasing revenue growth targets (19% to 24% per year) in the Company’s media business (which the Agreement and Plan of Merger, dated November 29, 2011, between, among others, the Company and the former shareholders of Carus), for each of 2012, 2013 and 2014, the Company could be required to pay to the former shareholders of Carus a cash earn out payment (“Carus Earn Out”) of up to a maximum of $3.5 million (up to $10.5 million in the aggregate). At December 31, 2013, $584,178 represented the estimated fair value of the remaining Carus Earn Out and the entire amount was classified as a current liability. There was no liability as of December 31, 2014, as the revenue growth targets were not met. The methodology for the calculation of the fair value of the future Carus Earn Out was originated by a third-party valuation expert and that calculation is updated by the Company each quarter for current and future periods. The only key unobservable inputs for the valuation of the Carus Earn Out are management’s estimated probabilities of the Company’s “At Home” business achieving the specific gross revenue targets in each of the applicable years. The inter-relationship between management’s estimated probabilities and the fair value of the Carus Earn Out is that higher probabilities of achieving the gross revenue targets generate higher estimates for the Carus Earn Out fair value. During 2013, the Company and the representative of former Carus shareholders entered into an agreement to satisfy certain earn out payments related to the 2012 Carus Earn Out calculation. This agreement resolved previous interpretation discrepancies associated with definitions and terms governing the earn out calculations. As a result of the agreement, the Company agreed to pay $253,136 in cash and issue an aggregate of 126,653 restricted voting common shares to satisfy an aggregate earn out payment of approximately $403,136. The restricted voting common shares, valued at $150,000, were issued during the year ended December 31, 2014. The Company paid the $253,136 related to this obligation during the year ended December 31, 2014. No further earn out payments are expected based on the Company’s calculation under the agreement.

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Debenture Derivatives In September 2012, the Company entered into an agreement to sell, on a “bought deal” private placement basis, an aggregate principal amount of CAD$12,000,000 of secured convertible debentures (the "2012 Debentures"). In March 2013, the Company entered into a trust indenture providing for the issuance, on a private placement basis, of up to an aggregate principal amount of CAD$10,000,000 of senior secured convertible debentures (the "2013 Debentures"). The 2012 Debentures and 2013 Debentures have two conversion features:

each CAD $1,000 principal amount of 2012 Debentures may be converted into approximately 67 voting common shares of the Company at the option of the holder and each CAD$1,000 principal amount of the 2013 Debentures is convertible into 100 voting common shares of the Company, at the option of the holder (“Conversion at Option of Holder”); and

on or after October 31, 2014, the Company may, at its option, convert the 2012 Debentures and 2013 Debentures into voting common shares at the conversion price, provided that the weighted average closing price of the Company’s voting common shares for the preceding ten trading days is not less than 200% of the conversion price (“Forced Conversion”). The Company has not exercised its right to convert the 2012 Debentures and 2013 Debentures into voting common shares as of December 31, 2014.

During the first half of 2014, the Company used a Monte Carlo model to value the derivative liabilities associated with the 2012 Debentures and 2013 Debentures. No changes were recorded to the fair value of these conversion features during the second half of 2014. These conversion features were accounted for as embedded derivatives and recorded as liabilities at their fair values on the issuance date of the 2012 Debentures and 2013 Debentures. The Company utilized a third-party valuation expert that used the Monte Carlo model to value these derivative liabilities at December 31, 2013. The key assumptions used in the model at December 31, 2013 for the 2012 Debentures and 2013 Debentures are as follows: 2012 Debentures:

December 31, 2013

Share price CAD$0.06 Principal outstanding1 CAD$12,000,000 Term2 2.8 years Volatility3 60% Risk-free rate4 0.71% 2013 Debentures:

December 31, 2013

Share price CAD$0.06 Principal outstanding1 CAD$10,000,000 Term2 2.8 years Volatility3 60% Risk-free rate4 0.71% Notes: (1) Represents the value that the underlying asset must exceed for the conversion option to have value and is equal to the face value of the debentures. (2) Assumes that the Company will opt to extend the maturity of the 2012 Debentures and 2013 Debentures to October 31, 2016. (3) In estimating the volatility, the third-party valuation expert analyzed the daily closing stock price of guideline companies and derived the annualized stock volatility for the latest four-year period (utilizing daily returns). The Company does not have sufficient trading history to rely on its volatility. (4) Represented by the current yield on the U.S. Treasury Bond with the closest time to maturity to the term of the debentures. As such, the Company utilized rates of return based on the four-year Treasury notes. The price of the Company’s stock is a key observable input for the valuation of the conversion features. The only key unobservable input for the valuation of the conversion features of the 2012 Debentures and 2013 Debentures is the volatility. The inter-relationship between the volatility and the fair value of the derivatives is that the higher the volatility of the underlying stock, the higher the fair value of the conversion feature.

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Restricted cash The Company is required to maintain a security deposit for one of its office leases, which is held in the form of a letter-of-credit. At December 31, 2014 and 2013, the Company had a certificate of deposit with a bank as collateral for an irrevocable standby letter-of-credit totaling $76,277 and $75,966, respectively. The fair value of the certificate of deposit is based on quotes from the bank. Non-recurring fair value measurements Certain financial statement items are measured at fair value when required on a non-recurring basis such as intangibles when impaired. See Note 9 for addition information regarding the impairment of goodwill and intangible assets. NOTE 6 – Financial Instruments Fair value of financial instruments At December 31, 2014, the Company’s financial instruments consist of cash, accounts receivable, a line of credit with a related party, a bank line-of-credit, accounts payable and accrued expenses, convertible debentures and the derivatives related to the convertible debentures. The Company has determined that the fair value of its cash, accounts receivable and financial liabilities approximates their respective carrying amounts as at the balance sheet dates due to their short-term nature. As of December 31, 2014, management considers that no events have occurred subsequent to the inception of the convertible debentures that would indicate that the fair value differs substantially from the carrying value. During April 2015 the Company signed a binding memorandum of understanding to restructure the outstanding debt related to its outstanding debentures. See Note 22 for additional information on the debt restructuring. Risk management The Company, through its financial assets and liabilities, is exposed to risks of varying degrees of significance that could impact its ability to achieve its strategic growth objectives. The main objective of the Company’s risk management process is to ensure that risks are properly identified and addressed. The Company has exposure to credit risk, liquidity risk, currency risk and interest rate risk. Credit risk Credit risk is the risk of financial loss to the Company if a customer to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from customers. Generally, the carrying amount on the Consolidated Statements of Financial Position of the Company’s financial assets exposed to credit risk represent the Company’s maximum exposure to credit risk. No additional credit risk disclosure is provided, unless the maximum potential loss exposed to credit risk for certain financial assets differs significantly from their carrying amount. The Company’s main credit risk exposure is from accounts receivables, cash and restricted cash. Credit risk from accounts receivable encompasses the default risk of its customers. For the Company, accounts receivables are comprised principally of amounts related to the sale of magazine subscriptions, educational books and consumer products to consumers and subscription license agreements, support and professional services for the deployment of customer subscriptions, and contract work around product customization for school systems and educational institutions.

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Our accounts receivable consisted of the following as of December 31, 2014 and December 31, 2013:

December 31, 2014

% of Total

December 31, 2013

% of Total

Accounts receivable, gross $ 1,062,633 $ 790,736 Allowance for doubtful accounts (93,955) (118,545) Accounts receivable, net $ 968,678 $ 672,191

Analysis: Less than 31 days $ 529,537 50% $ 340,864 43% 31 – 60 days 117,908 11% 170,271 22% 61 – 90 days 205,267 19% 125,520 16% 90+ days 209,921 20% 154,081 19% Less: allowance for doubtful accounts

(93,955)

(118,545)

Total accounts receivable, net $ 968,678 $ 672,191

The details of the December 31, 2014 gross accounts receivable balance are shown below:

50% due from customers for the sale of subscriptions of children’s magazines, educational books and consumer products;

50% due from licensing of content.

The details of the December 31, 2013 gross accounts receivable balance are shown below: 80% due from customers for the sale of subscriptions of children’s magazines, educational books

and consumer products; 20% due from licensing of content.

Of the receivable balance of $209,921 that is over 90 days past due at December 31, 2014, an allowance for doubtful accounts balance of $86,348 has been recorded. The rollforward of the allowance for doubtful accounts consisted of the following for the years ended December 31, 2014 and 2013: Balance at December 31, 2012 $ 357,881 Provision 41,789 Reduction in allowance/ write-offs (24,446) Allowance reclassification (256,679)

Balance at December 31, 2013 $ 118,545 Provision 29,672 Reduction in allowance/ write-offs (54,262)

Balance at December 31, 2014 $ 93,955

A total of $93,453 of the allowance for doubtful accounts balance at December 31, 2014 is for the sale of subscriptions of children’s magazines, educational books and consumer products, compared to an allowance of $68,565 at December 31, 2013. There was an allowance of $502 for receivables from license agreements, support and professional services at December 31, 2014 compared to a $49,980 allowance at December 31, 2013. Sponsorship customers have historically paid their respective balances due in a timely manner, therefore, an allowance of $0 was recorded at December 31, 2014. At December 31, 2014, one content licensing customer accounted for approximately 30% of the Company’s net accounts receivable balance. During the twelve months ended December 31, 2014 and 2013, no single media distribution agent accounted for more than 10% of the Company’s revenue.

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Interest rate risk Interest rate risk is defined as the risk that the fair value or future cash flows of a financial instrument held by the Company will fluctuate because of changes in interest rates. The 2012 Debentures have a fixed interest rate of 6.50% per annum and the 2013 Debentures have a fixed interest rate of 10.00% per annum. The Company’s only exposure to interest rate risk from these debentures is from a cost of funds perspective. If interest rates rise, the value of the convertible debentures decreases. The Company is exposed to interest rate risk on its $1,500,000 bank line-of-credit discussed in Note 12 as amounts borrowed accrue interest at the Wall Street Journal prime rate minus 0.50%, but not less than 4.5% per annum. Due to the low interest rates on the line of credit, exposure to interest rate risk is minimal. Currency risk Currency risk is defined as the risk that the fair value of future cash flows will fluctuate because of changes in foreign exchange rates. The Company incurs almost all of its revenues and expenses in USD, but does have several transactions in CAD, including the proceeds from the 2012 Debentures and 2013 Debentures. The historical currency risk between USD and CAD has increased slightly during 2014 since the foreign exchanges rates have varied more than historical exchange rates during 2013. The Company is examining the cost effectiveness of potential hedging strategies to partially mitigate this risk in future transactions. The Company is required to pay the principal and interest payments on the 2013 Debentures and the 2012 Debentures in CAD which creates an exposure to currency risk between CAD and the Company’s functional currency of USD. The related debenture agreements specify that for the computation of the principal and interest payments, any currency other than Canadian dollars shall be converted into Canadian dollars at the applicable Bank of Canada noon rate of exchange on the date which such computation is to be made. The Company does not bear currency risk on transactions with NeuPals as all remittance of profits and other sums payable to the Company out of China shall be made to a foreign bank account designated by the Company in USD in accordance with the foreign exchange regulations of China. In April 2015 the Company entered into a binding memorandum of understanding to restructure its debenture debt into debt denominated in US dollars. See Note 22 for additional information on the debt restructuring. Liquidity risk See discussion of going concern and liquidity at Note 2. NOTE 7 – Inventory Inventory at December 31, 2014 and 2013 consisted of the following: December 31, 2014 2013Finished goods $ 463,340 $ 380,524 Work-in-process 165,424 94,394 Total gross 628,764 474,918 Less: reserve (179,994) (137,292) Balance $ 448,770 $ 337,626 The amount of inventory cost recognized in cost of sales on the Consolidated Statements of Comprehensive Loss was $2,255,516 and $2,196,026 for the year ended December 31, 2014 and 2013, respectively. An expense of $42,702 and $53,518 was recognized during the years ended December 31, 2014 and 2013, respectively for changes in reserves to bring the value of the inventory to the lower of cost or net realizable value.

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NOTE 8 – Property and equipment The table below shows the rollforward of the cost and accumulated depreciation for the Company’s property and equipment:

Cost rollforward:

Computer & office

equipment Software

Equipment under finance

lease obligations

Leasehold improve-

ments

Furniture & fixtures Total

Balance at 12/31/12 $ 1,027,562 $ 593,590 $ 352,568 $ 6,476 $ 128,281 $ 2,108,477 Additions 257,066 109,882 17,004 - - 383,952 Disposals (11,893) - - - (17,698) (29,591) Foreign currency translation - - - - - - Balance at 12/31/13 1,272,735 703,472 369,572 6,476 110,583 2,462,838 Additions 49,278 1,999 - - - 51,277 Disposals - (235,259) - (6,476) - (241,735) Foreign currency translation (3,749) (658) - - - (4,407) Balance at 12/31/14 $ 1,318,264 $ 469,554 $ 369,572 $ - $ 110,583 $ 2,267,973 Accumulated depreciation rollforward:

Balance at 12/31/12 $ (819,778) $ (412,819) $ (259,888) $ (2,628) $ (112,416) $ (1,607,529) Depreciation expense (144,273) (208,753) (64,986) (2,569) (12,212) (432,793) Disposals 11,612 - - - 15,080 26,692 Foreign currency translation - - - - - - Balance at 12/31/13 (952,439) (621,572) (324,874) (5,197) (109,548) (2,013.630) Depreciation expense (150,326) (54,607) (31,414) (1,277) (1,035) (238,659) Disposals - 235,259 - 6,474 - 241,733 Foreign currency translation 3,749 658 - - - 4,407 Balance at 12/31/14 $ (1,099,016) (440,262) (356,288) - (110.583) (2,006,149) Net book value at 12/31/13 $ 320,296 $ 81,900 $ 44,698 $ 1,279 $ 1,035 $ 449,208 Net book value at 12/31/14 $ 219,248 $ 29,292 $ 13,284 $ - $ - $ 261,824

NOTE 9 – Goodwill & Other Intangible Assets

During 2014, the Company reevaluated the structure of its CGUs with respect to its current operations as an integrated media business. As a result, the Company made minor changes to the composition of its CGUs during 2014 to allocate certain operational costs across the ePals and Carus CGUs. The aforementioned changes did not result in any reclassification of goodwill or other intangible assets between CGUs. Goodwill For the years ended December 31, 2014 and 2013, changes in the carrying amount of goodwill by CGU are as follows:

Rollforward: Former ePals

CGU Media CGU Nexify CGU Total

Balance at December 31, 2012 $955,908 $13,464,045 $ - $14,419,953 Business acquisition - - - - Impairment loss - - - - Balance at December 31, 2013 955,908 13,464,045 - 14,419,953 Business acquisition - 55,854 - 55,854 Impairment loss (955,908) - - (955,908) Balance at December 31, 2014 $ - $13,519,899 $ - $13,519,899

Goodwill of $55,854 was recorded from an immaterial business acquisition in 2014. Impairment testing of goodwill and indefinite lived intangibles 2014 Goodwill Impairment Test An impairment test for the Media CGU was performed at November 30, 2014. The recoverable amount of the CGU for the goodwill and indefinite lived intangible impairment test was determined based on the fair value less costs to sell (“FVLCS”). Aside from goodwill, the Media CGU has a marketing intangible

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generated from the 2011 acquisition of Carus Publishing Company. The Company used a public company analysis to determine the FVLCS for the Media CGU. To obtain the FVLCS, three comparable public companies in the educational publishing industry were evaluated based on various factors including revenue, revenue growth (both historical and forecasted) and EBITDA. Ultimately, the use of a revenue multiple was selected as the Company and CGU has generated losses in the current year and revenue is considered a more reliable indication of value. As a result of the analysis, implied multiples were calculated with respect to total enterprise value as a function of revenue. Upon evaluating the multiples of the public companies included in the analysis, it was determined that a multiple of 0.75x should be applied to the Media CGU’s last twelve months of revenue. Due to the Company’s historical operating performance and subjective nature of the forecast resulting from the current stage the Company’s business, the implied multiple of 0.75x is consistent with the low end of the implied multiples range of 0.66x to 2.22x. The application of this multiple resulted in an implied enterprise value of approximately $10.9 million. If the implied multiple were to fall below 0.66x the recoverable amount would have been lower than the carrying amount, resulting in an impairment of goodwill. The recoverable amount of the Media CGU at November 30, 2014 of $10.6 million exceeded the carrying value of the assets assigned to that CGU by $1.1 million using the revenue multiple methodology; therefore, no impairment charge was recorded to the Media CGU for goodwill or its marketing related indefinite lived intangible asset. During the year ended December 31, 2014, management determined the Company would suspend the expansion of sponsorship and global community activities in an attempt to shift resources to more profitable areas of the business. As a result, the goodwill generated by the 2006 merger of In2Books and ePals Classroom to form the legacy platform business was evaluated for impairment. Upon completing the evaluation, the Company determined the value of the goodwill was no longer recoverable. An impairment loss of $902,178 was recognized during the year ended December 31, 2014 related to the goodwill, which represents a full write off. During the year ended December 31, 2014, the Company determined it would discontinue its Iguana business that was acquired in 2012. As a result, an additional goodwill impairment charge of $53,730 was recorded during 2014. 2013 Goodwill Impairment Test Impairment tests for all CGUs containing goodwill were performed at November 30, 2013. The recoverable amounts of the CGUs for the goodwill impairment testing were determined based on the ‘fair value less costs to sell’ (“FVLCS”). The Company used the discounted cash flow method to estimate the FVLCS for the ePals CGU and Carus CGU. These inputs, consisting of future after-tax cash flow projections derived from the Company’s annual operating budget for the first year of projections and from the most recent set of base case four-year consolidated projections approved by the Company’s management and presented to the Board of Directors, are considered to be Level 3 inputs on the fair value hierarchy. These forecasts considered the Company’s past operating performance, industry trends, and corporate strategies and include revenue and expenses to improve or enhance the Company’s assets’ performance. A range of growth rates was used for revenue projections beyond the four-year period. Growth in ePals CGU revenues was projected to range from 5% to 242% and gradually decrease to a sustainable growth rate of 3% by 2022, primarily driven by the addition of new products. Growth in Carus CGU revenues was projected to range from 5% to 54%, and gradually decrease to a sustainable growth rate of 3% by 2022. The discount rate applied to the valuation calculation was based on what a normal market participant would consider as the (i) time value of money, and (ii) the risk specific to the assets. The following key assumptions were used to determine recoverable amounts in the most recent impairment test performed on November 30, 2013:

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Discount

rate1

Terminal growth

rate2 ePals CGU 26% - 28% 3% Carus CGU 35% - 70% 3% Notes: (1) The discount rates are based on a weighted average cost of capital and reflect specific risks in relation to the CGU. The decrease in the discount rate for the ePals CGU and the increase in discount rate for the Carus CGU compared to the prior year impairment test are primarily due to a decrease and increase in risk, respectively. (2) The terminal growth rates used are the best estimate of expected long term growth at current capacity. A terminal growth rate of 3% was considered reasonable based on the June 2012 Federal Reserve of Philadelphia Livingston Survey forecasted on average, real GDP growth of 2.6% for the next ten years. The recoverable amount of the ePals CGU at November 30, 2013 of $7.1 million exceeded the carrying value of the assets assigned to that CGU by $1.4 million using the base case scenario using the discount rate of 28%; therefore, no impairment charge was recorded to the ePals CGU. As of November 30, 2013, the estimated Enterprise Value of the ePals CGU was based on a discounted cash flow analysis. If the discount rate applied in the discounted cash flow analysis increased to above 30%, the estimated Enterprise Value of the ePals CGU would have been below the estimated carrying value of $5.7 million and may have resulted in an impairment loss. The recoverable amount of the Carus CGU at November 30, 2013 of $14.1 million exceeded the carrying value of the assets assigned to that CGU by $3.9 million using the base case scenario with a discount rate of 70%; therefore, no impairment charge was recorded to the Carus CGU. No reasonable changes to key assumptions would have resulted in the carrying value of the Carus CGU exceeding the recoverable amount. Other intangible assets Other intangible assets include marketing, customer, technology and artistic intangibles from business acquisitions, brands acquired in the merger between In2Books and ePals Classroom Exchange in 2006, and internally generated trademarks, patents and owned permissions. The carrying basis in the tables below is adjusted for any impairment losses incurred. Other intangible assets consist of the following at December 31, 2014:

Useful life

Adjusted carrying

basis

Accumulated amortization

Net book value

Acquired artistic intangibles and owned permissions

5-11 years $4,004,398 $(1,645,581) $2,358,817

Acquired technology intangibles 3 to 4 years 109,000 (109,000) -Acquired customer intangibles 10 years 588,690 (412,274) 176,416Patents1 remaining life of patent 378,957 (7,299) 371,658Domain names 3 years 54,618 (45,547) 9,071 Total finite life intangibles 5,135,663 (2,219,701) 2,915,962Trademarks/brands/acquired marketing intangibles2 indefinite

1,459,093 - 1,459,093

Total other intangible assets, net $6,594,756 $(2,219,701) $4,375,055Notes: (1) Primarily represents legal costs related to pending patent applications. (2) Includes $214,993 of internally generated trademarks. The remainder represents brands acquired in the merger between In2Books and ePals Classroom Exchange in 2006 and the marketing intangibles acquired from Carus.

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Other intangible assets consist of the following at December 31, 2013:

Useful life

Adjusted carrying

basis

Accumulated amortization

Net book value


5 - 11 years $4,183,265 $(1,018,858) $3,164,407

Acquired technology intangibles 3 to 4 years 132,000 (93,903) 38,097Acquired customer intangibles 10 years 573,690 (359,139) 214,551Patents1 remaining life of patent 482,339 (3,272) 479,067Domain names 3 years 50,403 (40,418) 9,985 Total finite life intangibles 5,421,697 (1,515,590) 3,906,107Trademarks/brands/acquired marketing intangibles2 indefinite

3,486,045 -

3,486,045

Total other intangible assets, net $8,907,742 $(1,515,590) $7,392,152 Notes: (1) Primarily represents legal costs related to pending patent applications. (2) Includes $181,653 of internally generated trademarks. The remainder represents brands acquired in the merger between In2Books and ePals Classroom Exchange in 2006 and the marketing intangibles acquired from Carus. The rollforward of intangibles from December 31, 2013 to December 31, 2014 is shown below:

Net book value at 12/31/13

Additions Amortization

Impairment losses and write-

offs



$ 3,164,407 $ 521,790 $ (626,722) $ (700,658) $ 2,358,817

Acquired technology intangibles 38,097 - (38,097) - -Acquired customer intangibles 214,551 15,000 (53,135) - 176,416Patents 479,067 92,888 (4,027) (196,270) 371,658Domain Names 9,985 6,730 (7,644) - 9,071Total finite life intangibles 3,906,107 636,408 (729,625) (896,928) 2,915,962Trademarks/brands/acquired marketing intangibles 3,486,045 33,340 - (2,060,292) 1,459,093Total other intangible assets, net $7,392,152 $ 669,748 $ (729,625) $ (2,957,220) $4,375,055

Notes: (1) Amortization of intangibles is classified in “depreciation & amortization” on the Consolidated Statements of Comprehensive Loss. (2) Primarily represents legal costs related to pending patent applications. The rollforward of intangibles from December 31, 2012 to December 31, 2013 is shown below:


Additions Amortization1



$ 3,115,115 $ 579,220 $ (529,928) $ 3,164,407

Acquired technology intangibles 80,180 - (42,083) 38,097Acquired customer intangibles 215,271 - (720) 214,551Patents2 370,634 108,433 - 479,067Domain Names 14,550 1,250 (5,815) 9,985Total finite life intangibles 3,795,750 688,903 (578,546) 3,906,107Trademarks/brands/acquired marketing intangibles 3,457,874 28,171 - 3,486,045Total other intangible assets, net $ 7,253,624 $ 717,074 $ (578,546) $7,392,152

Notes: (1) Amortization of intangibles is classified in “depreciation & amortization” on the Consolidated Statements of Comprehensive Loss. (2) Primarily represents legal costs related to pending patent applications.

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The net carrying amount of intangibles with indefinite lives as of December 31, 2014 and 2013 is allocated to the following CGUs:

December 31,

2014 December 31,

2013 Former ePals CGU $ 227,093 $2,253,945 Media CGU 1,232,000 1,232,100 Balance $1,459,093 $3,486,045

Cricket Media obtained artistic-related, customer-related, technology-related and marketing-related intangibles from its acquisition of Carus in December 2011. The artistic-related intangibles, primarily in the form of owned permissions, are specifically Carus’ book and magazine content to which it retains ownership rights, with the fair value determined using a relief-from-royalty valuation method. As of December 31, 2014, the artistic-related intangibles will continue to be amortized over their remaining useful life to 2022. The technology-based intangible assets are primarily Carus’ developed app technology for the iPhone, iPad and iPod Touch which leverage Carus’ existing magazines and content. The marketing-related intangible assets are primarily the acquired trade names for Carus and its magazines. Amortization on patents begins upon issuance and the Company has four issued patents as of December 31, 2014. The Company recognized amortization expense of approximately $4,000 related to these intangible assets for the year ended December 31, 2014. No amortization expense was recognized during the year ended December 31, 2013. The Company wrote off patent legal fees of $196,270 during the year ended December 31, 2014 related to abandoned patents. There were no patent write offs during the year ended December 31, 2013. Impairment testing of other intangibles The Company performed impairment analyses for intangibles with finite lives on November 30, 2014 when impairment indicators were determined to be present. Impairment indicators were present for the Media CGU during the fourth quarter of 2014, therefore the definite-lived acquired artistic intangibles and owned permission intangibles assigned to this CGU were tested for impairment. The fair value analysis of the Media CGU’s artistic-related and owned permission intangible assets was updated on November 30, 2014 and the recoverable amount of those assets was compared to their carrying amounts on that date. The recoverable amount, which was determined by calculating fair value less cost to sell, was determined using a discounted cash flow method using forecasted revenue information provided by management and applying royalty percentage to determine the ultimate cash flows attributable to the recoverability of the intangibles. Income expected to be generated by these intangibles in future periods was calculated using a relief from royalty method utilizing a relief from royalty of 7.5%. The analysis concluded that the recoverable amount of the artistic related intangibles and owned permissions was $2,357,790 as of November 30, 2014, which was calculated by discounting management’s ten year revenue forecast at a discount rate of 40%. The inputs utilized in the calculation of fair value less cost to sell, which include management forecast, the royalty rate and the discount rate deemed to be appropriate, constitute Level 3 inputs on the fair value hierarchy. Based on this testing, an impairment loss of $700,658 was booked to the acquired artistic intangibles and owned permissions in the Media CGU. No impairment loss was booked to the acquired technology-based intangible assets or the acquired customer intangibles. During the year ended December 31, 2014, management determined the Company would suspend the expansion of sponsorship and global community activities in an attempt to shift resources to more profitable areas of the business. As a result, the Company’s intangible assets supported by sponsorship activities, which include the ePals brand name indefinite lived intangible asset, was evaluated for impairment. Upon completing the evaluation, the Company determined the value of the brand name was no longer recoverable. An impairment loss of $2,060,292 was recognized during the year ended December 31, 2014 related to the brand name intangible, which represents a full write off of the aforementioned asset. Below is the estimated amortization expense for other intangibles, excluding patents, for each of the next five years. The amortization expense for patents cannot be estimated because that number is based on

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when the Company’s patents are approved. The Company starts amortizing patents when they receive final approval.

Amortization expense2015 593,157 2016 583,175 2017 495,042 2018 361,228 2019 222,440 Total 2,255,042

NOTE 10 – Investment in NeuPals In March 2012, the Company signed a definitive Joint Venture Contract with NeuEdu Tianjin (“NeuEdu”) for a 20-year term whereby the parties agreed to form a partnership named NeuPals Dalian Educational Information Technologies Co., Ltd. (“NeuPals”) to create and launch a Chinese version of ePals’ Global Community and products. For accounting purposes, the Company does not meet the requirements of having joint control, but instead meets the requirements for having significant influence over NeuPals based on how strategic financial and operating decisions are approved by NeuPals’ board of directors. Therefore, NeuPals is being accounted for as an associate of the Company under the equity method of accounting in accordance with IFRS. The table below shows the activity during the years ended December 31, 2014 and 2013 in the Investment in NeuPals account on the consolidated statements of financial position at December 31, 2014: Investment in NeuPals at December 31, 2012 $1,164,523 ePals share of 2013 loss (352,594)

Investment in NeuPals at December 31, 2013 811,929 ePals share of 2014 loss (271,663) Investment in NeuPals at December 31, 2014 $540,266

The following table summarizes key financial information for NeuPals as of and for the years ended December 31, 2014 and December 31, 2013:

December 31,

2014 December 31,

2013 Current assets $1,133,910 $1,713,192 Non-current assets 26,169 42,162 Current liabilities 1,938 27,516 Total revenues - 16,431 Net loss (554,446) (712,627) The total amount of the registered capital of NeuPals is currently $5,000,000, of which the contributions from the Company and NeuEdu are expected to be $2,450,000 and $2,550,000, respectively, accounting for 49% and 51%, respectively, of the registered capital. NeuEdu and the Company were required to fund 50% of their portion of the registered capital within 90 days of the issuance of the business license and, prior to the third quarter of 2014, the remaining portion was required to be funded by October 2014. During the third quarter of 2014, the Company and NeuEdu agreed that neither party would make the capital payments initially required by October 2014. The agreement was reached by both parties primarily as the result of an evaluation of the Company and joint venture’s current cash position as it relates to the joint venture’s current operating strategy. These and other factors will continue to be reviewed by the Company and NeuEdu to determine capital contributions to be made to the joint venture in the future.

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NOTE 11 – Accrued expenses and other current liabilities The following is a summary of accrued expenses and other liabilities as of December 31, 2014 and December 31, 2013:

December 31, 2014

% of TotalDecember

31, 2013 % of Total

Accounts payable, trade $ 4,289,058 74% $ 4,310,705 80%Accrued wages 520,661 9% 483,735 9%Accrued liabilites, general 976,251 17% 625,682 11%Accounts payable andaccrued liabilities

$ 5,785,970 $ 5,420,122

As of December 31, 2014, approximately $3.3 million of the trade accounts payable was attributable to the ongoing operations of the media business and the remaining amount was attributable to general corporate matters. As of December 31, 2013, approximately $3.6 million of the trade accounts payable was attributable to the ongoing operations of the media business and the remaining amount was attributable to general corporate matters. Accrued liabilities, which relate to costs incurred but not invoiced as of the end of the period, consists primarily of professional services, legal fees and outsourced third party services. NOTE 12 - Debt Debentures At December 31, 2014, the Company had a principal amount of approximately CAD$22 million secured convertible debentures outstanding. A rollfoward of the secured convertible debentures line in the consolidated statements of financial position is shown below, which is made up of the host debt liability, the derivative liabilities for the Forced Conversion and Conversion at Option of Holder, net of the transaction costs apportioned to the host debt liability component that are being amortized over the estimated term of the debentures under the effective interest method. Balance of secured convertible debentures at December 31, 2013 $18,399,596 Accretion of the 2012 Debentures and 2013 Debentures 1,845,823 Reduction in fair value of conversion option derivatives (2012 and 2013 Debentures) (63,750) Foreign currency translation (1,470,675) Balance of secured convertible debentures at December 31, 2014 $18,710,994

In April 2015, the Company restructured the outstanding debt balance associated with the 2012 Debentures and 2013 Debentures. See Note 22, Subsequent Events, for additional information on the debt restructuring. Terms of the 2013 Debentures During 2013, the Company issued the 2013 Debentures in an aggregate principal amount of CAD$10,000,000. A total of CAD$9,750,000 of the 2013 Debentures were collectively held by existing investors and an affiliate of two members of the Company’s Board of Directors. Each CAD$1,000 principal amount of the 2013 Debentures is convertible into 100 voting common shares of the Company, at the option of the holder, representing a conversion price of CAD$10.00 per share (the “2013 Conversion Price”). The 2013 Debentures rank senior to other indebtedness of the Company, including the 2012 Debentures, and bear interest at a rate of 10.0% per annum, payable annually in arrears on April 30 each year, with the initial interest payment date on April 30, 2014. In April 2014, the Company paid interest on CAD$6,500,000 in principal of the outstanding 2013 Debentures, of which interest on CAD$6,250,000 in principal was invested by the holders of the debentures in the Company through a private placement transaction. The Company also entered into an agreement with one of the holders of its 2013 Debentures to defer the interest payment of approximately CAD$348,000 with respect to CAD$3,500,000 of principal that was due on April 30, 2014 until March 31, 2015. In April 2015, the interest due was incorporated into

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the expected debt restructuring under a binding memorandum of understanding. See Note 22 for additional information on the debt restructuring. The 2013 Debentures had an original maturity date of October 31, 2014, which was extended to October 31, 2016 at the Company’s option. The holders of the 2013 Debentures have a senior security interest in all of the present and subsequently acquired tangible and intangible personal property of the Company. The 2013 Debentures will not be redeemable prior to October 31, 2015. On or after October 31, 2015, under certain conditions, the Company may, at its option, redeem the 2013 Debentures, at par plus accrued and unpaid interest thereon to the redemption date. Further, on or after October 31, 2014, the Company may, at its option, convert the 2013 Debentures into the Company’s voting common shares at the 2013 Conversion Price, provided that the volume weighted average trading price of the Company’s voting common shares for the preceding 10 trading days is not less than 200% of the 2013 Conversion Price. Holders of converted 2013 Debentures will receive, in cash, accrued and unpaid interest thereon to the conversion date. Terms of the 2012 Debentures The 2012 Debentures were issued with substantially the same terms as the 2013 Debentures with the exception of the conversion price and interest rate. Each CAD$1,000 in principal of the 2012 Debentures may be converted into approximately 67 voting common shares of the Company at the option of the holder representing a conversion price of CAD$15.00 per share. The maturity date of the 2012 Debentures was also extended to October 31, 2016 at the Company’s option. Restrictions on the 2012 Debentures The agreements for the 2012 Debentures prohibited the Company from incurring senior indebtedness over CAD$10,000,000. As of December 31, 2014, the Company had issued the maximum amount of senior indebtedness permitted under the trust indenture governing the terms of the 2012 Debentures through the issuance of the 2013 Debentures. The agreements for the 2012 Debentures prohibit the Company from the following:

(i) incurring additional indebtedness senior or pari passu to the 2013 Debentures exceeding the combined specified limit of CAD$10,000,000 minus any amount of debt issued under the 2013 agreements;

(ii) creating or assuming any security interests on any of its assets, other than encumbrances specifically permitted under the debenture agreements;

(iii) making payments to, entering into, making, purchasing or acquiring any investments other than investments specifically permitted under the debenture agreements (which include investments made in cash or joint ventures up to a permitted investment limit of CAD$5,000,000 plus an amount equal to the Company’s proceeds from any future equity raise or debt financing transactions);

(iv) making any payment to, selling, leasing or transferring, or otherwise disposing of any of its properties or assets to, or purchase any assets or property from, any affiliate under terms and conditions which are no less favorable to the Company than those that would be been obtained in an arms-length transaction.

Accounting for the 2012 Debentures and 2013 Debentures Since the Company’s debentures were issued in a currency other than the Company’s functional currency of USD, these debentures fail the ‘fixed-for-fixed’ criteria for equity classification under IFRS. The two conversion features (Forced Conversion and Conversion at Option of Holder) of the 2012 Debentures and 2013 Debentures were accounted for as embedded derivatives and recorded as liabilities at their fair values on the debentures issuance date. The conversion features were measured first at their fair values and recorded separately, with the host debt liability component measured at the residual after deducting the fair value attributable to the conversion features from the convertible debenture as a whole. The proceeds from the debenture tranches were bifurcated between the host debt liability and these conversion features on their respective issuance dates.

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Transaction costs were apportioned to the host debt liability component and are being amortized over the estimated term of the convertible debenture using the effective interest method. The host debt liability component, net of the transaction costs, is being accreted to the face value of the liability using the effective interest method. As of December 31, 2014, the accretion of the liability is charged at a weighted average effective interest rate of 10.3% for the 2013 Debentures and 7.3% for the 2012 Debentures such that at maturity, the liability component is equal to the face value of the outstanding debentures. During the fourth quarter of 2014, the Company adjusted the accretion schedule to reflect the exercise of its option to extend the maturity date of the 2012 Debentures and 2013 Debentures to October 31, 2016. The Company remeasured the fair value of the two conversion features in the outstanding debentures and recognized a gain of $63,750 to adjust the conversion features to their fair value during the year ended December 31, 2014. See Note 5 for additional information on the fair value of these conversion features. In February 2013, the TSX-V approved the 2012 Debentures to be listed and posted for trading on that exchange. Trading commenced on February 21, 2013 and now trade under the symbol CKT.DB. In April and October 2013, the Company made the interest payments totaling $408,573 and $372,699, respectively to the holders of the 2012 Debentures. Upon issuance of the 2013 Debentures, the proceeds from the 2013 Debenture tranches were bifurcated between the host debt liability and these conversion features as follows on their respective issuance dates: US$ CAD$ Host debt liability $9,052,232 $9,287,424 Conversion at option of holder (derivative liability) 553,000 566,160 Forced conversion (derivative liability) 143,000 146,416 Total liabilities $9,748,232 $10,000,000

The key assumptions used in the model to determine the fair value of the conversion features upon issuance of the 2013 Debentures issued during the year ended December 31, 2013 are as follows:

March 2013 Tranche

April 2013 Tranche

May 10, 2013 Tranche

May 31, 2013 Tranche

Share price CAD$0.16 CAD$0.16 CAD$0.12 CAD$0.09 Principal outstanding1 CAD$3,000,000 CAD$2,000,000 CAD$1,500,000 CAD$1,250,000 Term2 3.6 years 3.5 years 3.5 years 3.4 years Volatility3 60% 60% 60% 60% Risk-free rate4 0.95% 0.44% 0.49% 0.63%

August 6, 2013 Tranche



Share price CAD$0.11 CAD$0.08 CAD$0.08 Principal outstanding1 CAD$1,250,000 CAD$650,000 CAD$350,000 Term2 3.2 years 3.2 years 3.2 years Volatility3 60% 60% 60% Risk-free rate4 0.71% 0.81% 0.84% Notes: (1) Represents the value that the underlying asset must exceed for the conversion option to have value and is equal to the face value of the 2013 Debentures. (2) Assumes that the Company will opt to extend the maturity of the 2013 Debentures to October 31, 2016. (3) In estimating the volatility, the third-party valuation expert analyzed the daily closing stock price of guideline companies and derived the annualized stock volatility for the latest four-year period (utilizing daily returns). The Company does not have sufficient trading history to rely on its historical volatility. (4) Represented by the current yield on the U.S. Treasury Bond with the closest time to maturity to the term of the debentures. As such, the Company utilized rates of return based on the four-year Treasury notes. Transaction costs of $316,832 were apportioned to the host debt liability component and are being amortized over the estimated term of the convertible debenture using the effective interest method. Transaction costs of $26,824 were apportioned to the embedded derivative conversion features and were

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expensed during the year ended December 31, 2013. The host debt liability component, net of the transaction costs, is being accreted to the face value of the liability using the effective interest method. During 2013, the accretion of the liability is charged at a weighted average effective interest rate of 18% such that at maturity, the liability component is equal to the face value of the outstanding 2013 Debentures. The table below shows the net host debt liability balance on the debentures’ issuance date. US$ CAD$ Host debt liability $9,052,232 $9,287,424 Transaction costs (316,832) (326,261) Net host debt liability $8,735,400 $8,961,163

The Company remeasured the fair value of the two conversion features in the 2013 Debentures as of December 31, 2013 and recognized a gain of $640,000 to adjust the conversion features to their fair value of $56,000 during the year ended December 31, 2013. See Note 4 for additional information on the fair value of these conversion features as of December 31, 2013. Credit agreements with insiders As of December 31, 2014, the Company had a $2,500,000 revolving line of credit with ZG Ventures, LLC ("ZG"), an affiliate of two members of the Company’s Board of Directors, to provide funding for the Company’s strategic initiatives and working capital needs. During the year ended December 31, 2014, the Company repaid $10.1 million outstanding under the facility with the issuance of 10.7 million restricted common shares. See Note 19 for additional information on this transaction. As of December 31, 2014, the Company had $1,050,118 outstanding under the revolving line of credit with ZG, an affiliate of two members of the Company’s Board of Directors. Bank line-of-credit In April 2014, the Company renewed the $1,500,000 bank line-of-credit agreement with the same local bank for a one-year term. The line-of-credit agreement was renewed under terms that were substantially similar to the previous agreement, including the interest rate. Amounts borrowed accrue interest at the Wall Street Journal Prime rate minus 0.50%, but not less than 4.5% per annum (the Wall Street Journal Prime rate is 3.25% at December 31, 2014 and December 31, 2013, therefore the Company is currently paying 4.5% on this loan). This line-of-credit is personally guaranteed by two members of the Company’s Board of Directors at December 31, 2014 and December 31, 2013, and the Company is in compliance with all covenants in the bank line-of-credit agreement. At December 31, 2014 and December 31, 2013, the Company had $1,470,000 and $1,500,000 outstanding on a bank line-of-credit, respectively. The outstanding balances under the lines-of-credit are classified as current liabilities at December 31, 2014 and December 31, 2013. Due to the low interest rates on the lines of credit, exposure to interest rate risk is minimal. See Note 22 for additional information on this line-of-credit. In April 2015, the Company restructured its bank line-of-credit to extend the maturity date to five years at an interest rate of 5.0%. See Note 22, Subsequent Events, for additional information on the new bank line-of-credit. NOTE 13 – Share Capital Authorized share capital An unlimited number of voting common shares and an unlimited number of restricted voting common shares without par value are authorized at December 31, 2014. An unlimited number of preferred shares without par value are authorized at December 31, 2014, issuable in series. On July 9, 2014, the Company announced that the TSX-V approved the consolidation of the Company’s issued and outstanding voting common shares and the Company’s issued and outstanding restricted voting common shares, each on the basis of one post-consolidation share for every 25 outstanding pre-consolidation shares. Effective at the opening of trading on July 10, 2014, the voting common shares commenced trading on the TSX-V on a consolidated basis and continued to trade under the symbol

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“CKT”. The outstanding convertible securities of the Company were adjusted in accordance with the terms to reflect the consolidated capital structure of the Company. Voting common shares During the year ended December 31, 2014, the Company issued equity instruments through a previously announced non-brokered private placement transaction. Under this private placement, the Company issued approximately 1.1 million Units at prices ranging between CAD$0.65 and CAD$1.875 per Unit for gross proceeds of approximately $1.1 million, of which approximately 400,000 units were issued to a related party. Each Unit consists of one voting common share of the Company and one-third of one common share purchase warrant (each whole warrant, a “Warrant”). Each Warrant entitled the holder to purchase one additional voting common share of the Company at prices ranging between CAD$0.65 and CAD$1.875. During the year ended December 31, 2013, the Company issued equity instruments through multiple tranches of a non-brokered private placement transactions. Under this private placement, the Company issued approximately four million units of the Company (each, a “Unit”) at a price of CAD$1.875 per Unit for net proceeds of approximately $7.5 million, of which approximately two million units were issued to two members of the Company’s Board of Directors. Each Unit consisted of one common share of the Company and one-third of one common share purchase warrant (each whole warrant, a “Warrant”). Each Warrant entitled the holder to purchase one additional common share of the Company at a price of CAD$1.875 until April 30, 2014. The holders of the Company’s voting common shares are entitled to the following:

a. to receive notice of and to attend all meetings of the Company’s shareholders; b. one vote per share at meetings of the Company’s shareholders, except for the election of

directors when the voting common shares carry cumulative voting rights; c. to receive dividends as and when declared by the Company’s Board of Directors, as long as the

same dividend is declared and paid on the Company’s restricted voting common shares; and d. in the event of any voluntary or involuntary liquidation, dissolution or winding up, or any other

distribution of assets among the Company’s shareholders for the purpose of winding up its affairs, to share ratably, together with the holders of restricted voting common shares, in the assets of the Company available for distribution.

The voting common shares of the Company trade on the TSX-V. All voting common shares outstanding are fully paid and non-assessable and not subject to any pre-emptive rights, conversion or exchange rights, redemption, retraction or surrender provisions, sinking or purchase fund provisions, provisions permitting or restricting the issuance of additional securities or provisions requiring a shareholder to contribute additional capital. The rights, privileges, restrictions and conditions attached to the voting common shares may not be added to, changed or removed without the prior approval of two-thirds of the holders of the restricted voting common shares and the voting common shares voting separately. Restricted voting common shares In March 2014, the Company issued 126,653 restricted voting common shares to satisfy $150,000 of the outstanding obligation associated with the Carus Earn Out. The restricted voting common shares of the Company issued under this transaction are subject to resale restrictions for a period of four months from the issue date. See Note 5 for additional information on the Carus Earn Out. During the year ended December 31, 2014, 10,653,763 restricted voting common shares were issued to repay a total of $10.1 million of funds previously borrowed under the Company’s revolving line of credit with an affiliate of two members of the Company’s Board of Directors. The shares were issued at a weighted average price of CAD$1.04 per share. The shares were issued at an agreed upon price that differed from the market price on the day of the transaction. The difference in market value was recorded to additional paid-in-capital on the Company’s consolidated balance sheet. During the year ended December 31, 2014, the Company issued equity instruments through a non-brokered private placement transaction. Under this private placement, the Company issued approximately four million Units at prices ranging between CAD$0.65 CAD$1.875 per Unit for gross proceeds of approximately $3.5 million, of which approximately 1.6 million Units were issued to an affiliate of two

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members of the Company’s Board of Directors and affiliates. Each Unit consisted of one restricted voting common share of the Company and one-third of one common share purchase warrant (each whole warrant, a “Warrant”). Each Warrant entitled the holder to purchase one additional restricted voting common share of the Company at prices ranging between CAD$0.65 and CAD$1.875. No value was assigned to these warrants as of December 31, 2014. In June 2013, approximately 0.3 million shares of voting common shares owned by a related party were converted into an equal number of restricted voting common shares. In August 2013, approximately one million restricted voting common shares were issued to repay the balance of $3,000,000 outstanding under the Company’s revolving line of credit with an affiliate of two members of the Company’s Board of Directors. The shares were issued at an agreed upon price of CAD$3.125 per share, which differed from the market price for the stock of CAD$2.00 on the day of the transaction. The difference in market value was recorded to additional paid-in-capital on the Company’s consolidated balance sheet. During the fourth quarter of 2013, the Company issued approximately four million restricted voting common shares in connection with the 2013 non-brokered private placement discussed. The holders of the Company’s restricted voting common shares are entitled to the following:

a. to receive notice of and to attend all meetings of the Company’s shareholders; b. one vote per share at all meetings of the Company’s shareholders except for the election of

directors where there are no voting rights; c. to receive dividends as and when declared by the Company’s Board of Directors, as long as the

same dividend is declared and paid on the Company’s voting common shares; d. in the event of any voluntary or involuntary liquidation, dissolution or winding up, or any other

distribution of assets among the Company’s shareholders for the purpose of winding up its affairs, to share ratably, together with the holders of voting common shares, in the assets of the Company available for distribution;

e. each restricted voting common share may be converted into one voting common share of Cricket Media for no additional consideration; and

f. in connection with an offer to purchase the Company’s common shares which is made to all or substantially all of the Company’s shareholders, the restricted voting common shares are redeemable (at a price per share equal to the value of the consideration offered, which in the case of non-cash consideration, shall be determined by the Company’s Board of Directors) at the option of the holder.

The restricted voting common shares of the Company do not trade on the TSX-V. The rights, privileges, restrictions and conditions attached to the restricted voting common shares may not be added to, changed or removed without the prior approval of two-thirds of the holders of restricted voting common shares, and without the prior approval of holders of voting common shares. Preferred shares Cricket Media Group Ltd. had no preferred shares issued or outstanding at December 31, 2014 or 2013. Escrow All of the voting common shares and restricted voting common shares held by former shareholders of ePals, Inc., all options and warrants issued by ePals, Inc. prior to the completion of the Merger, and all options, warrants and vested restricted share units issued by the Company after the Merger were subject to escrow (“ePals Escrow”) based on restrictions imposed by the Company in connection with the Merger. The initial 50% of such securities were released from the ePals Escrow on November 30, 2012 and on January 28, 2013, the remaining 50% were released. In addition, pursuant to the policies of the TSX-V, all securities held by or issued to the Company’s directors and senior management upon completion of the Merger were held in escrow (“TSX-V Escrow”). Securities were released from the TSX-V Escrow in accordance with the release schedule applicable to Tier 1 issuers, being 25% on the issuance of the Final Exchange Bulletin (issued August 5, 2011) and an additional 25% on each of the dates being six, twelve and eighteen months thereafter. On February 5, 2013, all securities subject to the TSX-V Escrow were released.

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Unvested voting common stock During the year ended December 31, 2014, 965 voting common shares of the Company were released from restriction in accordance with the Company’s February 2009 cooperative agreement with Gabriel Piedrahita Uribe Foundation. The value of the unvested portion of the voting common shares at December 31, 2013 was $1,876 and is classified as a contra-equity account on the accompanying consolidated statements of financial position and the consolidated statements of changes in equity (deficit). Treasury stock ePals Foundation owns 28,800 common shares of Cricket Media Group Ltd. at December 31, 2014 and 2013. The treasury stock is presented on the balance sheet at the value of the assets and liabilities of In2Books, Inc. on June 2008 when ePals Foundation assumed those assets and liabilities in exchange for the shares. NOTE 14 – Share-Based Compensation 2006 Incentive Stock Option Plan ePals, Inc. adopted an incentive stock option plan in 2006 (the “2006 Stock Option Plan”). Under the terms of the 2006 Stock Option Plan, ePals, Inc. could grant options for up to 640,430 common shares. The 2006 Stock Option Plan remains in place and options issued prior to the Merger will continue to be governed by this plan; however, no further options will be issued pursuant to this plan. Employees with options issued by ePals, Inc. continued to hold the options and such securities continued to represent the right to receive shares of ePals, Inc. Upon exercise of the stock options, each share of ePals, Inc. can be exchanged for 0.377 voting common shares and 0.623 restricted voting common shares of ePals, subject to adjustment based on stock splits, etc. (the holder exercising the stock option may elect to receive ePals, Inc. shares in lieu of ePals shares and the ePals, Inc. shares may be exchanged at the option of the holder, at any time, for shares of ePals). 2011 Incentive Stock Option Plan As a result of the Merger, the Company established the 2011 Incentive Stock Option Plan (the “2011 Stock Option Plan”). All stock options issued after the Merger are issued under this plan. The aggregate number of common shares that may be reserved for issuance pursuant to the 2011 Stock Option Plan and any of the Company’s other share compensation arrangements, including the Restricted Share Unit Plan and the 2006 Stock Option Plan, shall not exceed 10% of the outstanding common shares at the time of the granting of an option. This plan was amended in 2014 to exclude restricted stock units from the aforementioned threshold. Stock options issued under the 2011 Stock Option Plan may be settled either by the optionees’ payment of cash for the Company’s common shares or the Company’s purchase of the options from the optionee for the in-the-money value for cash. That option is only permitted by the 2011 Stock Option Plan as long as the Company is designated as a Tier 1 issuer on the TSX-V and the Company’s Board of Directors has full discretionary authority to accept or reject such request. It is not the intent of the Company to permit such requests. The Company’s Board of Directors determines the manner, if any, in which options under the 2011 Stock Option Plan vest and become exercisable. Each option granted under the 2011 Stock Option Plan terminates upon the expiration of 10 years from the grant date. In the event that a grantee is a 10% shareholder, the option price for an “incentive stock option” (within the meaning of the United States Internal Revenue Code of 1986) granted should not be less than 110% of the fair market value of a common share on the grant date and the option granted is not exercisable after the expiration of five years from its grant date.

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Stock options Presented below is a summary of the stock option activity for the year ended December 31, 2014 and 2013: Weighted Weighted Average Number Average Remaining of Exercise Contractual Options Price Term (Years)

Outstanding at January 1, 2013 393,313 $ 7.00 Granted 199,039 3.79 Exercised - - Forfeited or expired (139,051) 17.65

Outstanding at December 31, 2013 453,301 $ 8.67 7.80 Exercisable at December 31, 2013 281,639 $ 10.52 7.15 Outstanding at January 1, 2014 453,301 $ 8.67

Granted 519,239 1.22 Exercised - - Forfeited or expired (189,182) 6.68

Outstanding at December 31, 2014 783,358 $ 4.07 7.16 Exercisable at December 31, 2014 461,596 $ 5.72 6.41

The following table summarizes the range of exercise prices for the stock options outstanding at December 31, 2014:

Exercise price Options

outstanding Options vested

$0.84 - $1.13 451,880 209,908 $2.39 – $5.54 130,744 59,496

$10.00 - $12.60 181,166 172,624 $13.61 - $18.42 14,204 14,204 $23.95 - $32.00 5,364 5,364

783,358 461,596

At December 31, 2014 and December 31, 2013, the Company’s total outstanding and total exercisable stock options had no intrinsic value. The fair value of options granted during the year ended December 31, 2014 and 2013 was $248,710 and $149,817, respectively, and is being expensed over the vesting period. The Company charged to operations stock compensation expense for stock options totaling $198,979 and $402,381 for the year ended December 31, 2014 and 2013, respectively. The weighted-average grant date fair value of options granted during the years ended December 31, 2014 and 2013 was $0.48 and $1.00, respectively. As of December 31, 2014, there was approximately $84,000 of total unrecognized compensation cost related to stock option compensation arrangements.

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During the year ended December 31, 2014, the Company issued 12,000 stock options to a consultant for services to be provided between January 2014 and April 2014. The fair value of $50,000 attributed to these options was based on the fair value of the services received. The fair value of each stock option award to employees is estimated from the date of grant using the Black-Scholes Option Pricing Model with assumption ranges for the years ended December 31, 2014 and 2013 noted in the following table:

December 31, 2014

December 31, 2013

Expected volatility 45.00 – 57.00% 53.00 – 62.00% Expected dividends 0.00% 0.00% Expected term (in years) 1.25 – 4.00 1.00 – 5.13 Risk-free interest rate 0.17 – 1.36% 0.15 – 1.11%

The expected volatility of the options granted was estimated using the historical volatility of share prices of publicly traded companies within the technology and education industry as a substitute for the historical volatility of the Company’s common shares, which is not determinable without an active external or internal market with a sufficient amount of history. The expected dividends are based on the Company’s historical estimated issuance and management’s expectations for dividend issuance in the future. The expected term for options that vest on a graded/step basis used in the Black-Scholes calculation is derived from analyzing the options as separate tranches based on increments in which they vest. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Restricted share units As part of the Merger, the Company adopted the 2011 Restricted Share Unit Plan (the “Restricted Share Unit Plan”), which was amended in 2014. Each restricted share unit (“RSU”) represents the right to receive one restricted voting common share of the Company on the vesting date without monetary consideration paid to the Company. There are no standard vesting terms for RSUs as the terms vary by grant, with some RSUs vesting immediately upon grant. Awards of RSUs under the Restricted Share Unit Plan are granted to the Company’s directors, officers, employees and consultants, with the timing and amounts of such issuances determined by the Compensation Committee of the Company’s Board of Directors. Under the 2014 amendment to the plan, the maximum number of common shares reserved for issuance is 21,511,169. Prior to the amendment, the aggregate number of common shares that may be reserved for issuance pursuant to the Restricted Share Unit Plan and any of the Company’s other share compensation arrangements, including the Company’s stock option plans, shall not exceed 10% of the outstanding common shares at the time of the granting of an award. Additionally, the aggregate number of common shares issued to all persons within any consecutive twelve months shall not exceed the greatest of: (i) $1,000,000; (ii) 15% of total assets of the Corporation, measured at its most recent annual balance sheet date; or (iii) 15% of outstanding common shares, measured at the Company’s most recent annual balance sheet date. The fair value of the RSUs granted to the Company’s officers and employees is equal to the market price of the common shares of the Company at the time of grant. During 2012, RSUs granted to parties other than employees were measured at the fair value of the service received and were recognized on the date the counterparty rendered the service. The fair value of the services received was based on the monthly retainer usually charged by the counterparty. The fair value of RSUs granted in 2014 and 2013 were $47,397 and $747,346, respectively. Stock-based compensation for RSUs of $147,874 and $878,906 was recorded during the year ended December 31, 2014 and 2013, respectively. As of December 31, 2014 and December 31, 2013, there was $14,010 and $89,789 of total unrecognized compensation cost related to RSUs, respectively. The stock-based compensation for the RSUs that were granted to consultants during the year ended December 31, 2013 was based on the value of the Company’s shares on the grant date since the fair value of the services received could not be estimated.

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Presented below is a summary of the restricted share unit activity for the years ended December 31, 2014 and 2013: Weighted Number Average of Grant Date RSUs Fair Value

Outstanding at January 1, 2013 74,413 $ 11.25Granted 204,398 3.75Vested (204,319) 5.50Forfeited (19,913) 12.50

Outstanding at December 31, 2013 54,579 4.00Granted 42,000 1.25Vested (68,812) 3.16Forfeited (7,600) 1.70

Outstanding at December 31, 2014 20,167 $ 2.06

All of the 42,000 RSUs awarded in 2014 were to directors, officers and employees of the Company. Of the 204,398 RSUs awarded in 2013, 10,986 RSUs were to consultants and 193,412 RSUs were to directors, officers and employees of the Company. Stock warrants Warrants issued by Cricket Media Group Ltd. During the year ended December 31, 2014, the Company issued stock warrants through a non-brokered private placement. The Company issued approximately 1.8 million stock warrants with a weighted average strike price of CAD$0.98 per warrant. There were certain dilution events that could have potentially changed the strike price of these warrants, including: (i) the issuance of common shares, or securities exchangeable for or convertible into restricted voting common shares, issued to all or substantially all shareholders as a stock dividend; (ii) any distribution on its outstanding or voting common shares; (iii) the occurrence of a stock split; or (iv) the occurrence of a reverse stock split. The fair value of the stock warrants was derived using a Monte-Carlo simulation model and the Company recognized a reduction to common stock on the consolidated balance sheet of $45,962. The assumptions used in the Monte-Carlo simulation and include various dilution scenarios, which were weighted based on the chance of occurrence. These stock warrants expired in August 2014 and therefore no liability was recorded as of December 31, 2014. The value of warrants outstanding as of December 31, 2014 was immaterial. As discussed in Note 13, the Company issued stock warrants through a non-brokered private placement during the fourth quarter of 2013. The Company issued approximately 1.5 million stock warrants with a strike price of $1.875 per warrant. There are certain dilution events that could potentially change the strike price of these warrants, including: (i) the issuance of restricted voting common shares, or securities exchangeable for or convertible into restricted voting common shares, issued to all or substantially all shareholders as a stock dividend; (ii) any distribution on its outstanding restricted voting or voting common shares; (iii) the occurrence of a stock split; or (iv) the occurrence of a reverse stock split. The fair value of the stock warrants was derived using a Monte-Carlo simulation model and the Company recognized compensation cost of $189,491 related to the issuance of 1.5 million warrants in connection with the non-brokered private placement. The assumptions used in the Monte-Carlo simulation include the strike price of $1.875 and various dilution scenarios, which were weighted based on the chance of occurrence. These stock warrants expired in April 2014 and therefore no liability was recorded as of December 31, 2014.

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Presented below is a summary of the warrant activity for the years ended December 31, 2014 and 2013: Weighted Number Weighted Average of Average Remaining Warrant Exercise Contractual Shares Price Term (Years)

Outstanding at January 1, 2013 550,924 $ 8.75 Granted 1,456,162 2.00 Exercised - - Forfeited or expired (229,720) 3.00

Outstanding at December 31, 2013 1,777,366 3.75 0.89Granted 1,821,426 0.98 Exercised (235,834) 1.88 Forfeited or expired (1,875,714) 3.00

Outstanding at December 31, 2014 1,487,244 $ 4.69 0.78 The following table summarizes the range of exercise prices for the warrants outstanding at December 31, 2014:

Exercise price Warrants

outstanding Warrants

vested CAD$0.65 1,323,706 1,323,706

$10.00 35,880 35,880 $16.75 9,114 9,114 $49.50 118,544 118,544

1,487,244 1,487,244

NOTE 15 – Revenue The Company sub-classifies revenue within the following categories: (1) subscriptions, (2) licensing, (3) commerce and (4) sponsorship. Subscription revenue is comprised of subscriptions of children’s magazines and digital content. Licensing includes revenue generated from content licensing, agreements related to the Company’s application programming interfaces (“APIs”), licensing the Company’s platform to third parties and the licensing of school suite solutions. Commerce revenues are comprised of the sales of back magazine issues, educational digital apps, games, books and other physical and digital products directly to consumers and through partnerships. Sponsorship revenues include revenue from the Company’s sponsorship agreements with corporate and non-profit sponsors. Presented below is the Company’s revenue from continuing operations broken out between goods and services for the years ended December 31, 2014 and 2013:

2014 2013Goods: media products & commerce revenue $12,594,806 $12,866,502Services revenue: licensing & sponsorship 2,001,878 1,795,367Total revenue $14,596,684 $14,661,869

Year ended December 31,

Presented below is the Company’s revenue from continuing operations by category for the years ended December 31, 2014 and 2013:

2014 2013Subscriptions $10,911,918 $11,033,975Licensing 1,876,282 1,763,994 Commerce 1,683,328 1,862,984 Sponsorship 125,156 916 Total revenue $14,596,684 $14,661,869

Year ended December 31,

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NOTE 16 – Income Taxes The income provision (benefit) for income taxes from continuing operations consists of the following:

For the years ended December 31,

2014 2013

Current provision $21,389 $3,776 Deferred provision - -

Total provision $21,389 $3,776

The provision is a minimum tax amount that is not based on profit or loss from the Company’s ordinary activities. The expense is classified in “general & administrative expenses” on the Consolidated Statements of Comprehensive Loss. The income tax provision (benefit) varies from the income taxes provided based on the U.S. statutory rate as follows for the years ended December 31, 2014 and 2013:


2014 2013

Current statutory income tax rate 34% 34%

Tax (benefit) provision at Federal statutory rate $(7,510,711) $ (7,811,028)

State taxes (552,199) (563,536)

Permanent differences 295,198 938,880 Changes in net deferred tax assets not recognized 7,598,312 7,305,474

Foreign rate differential 190,789 133,986

Income tax expense (benefit) $ 21,389 $ 3,776

The income tax provision (benefit) is reconciled to the applicable U.S. statutory rate since the Company is taxed primarily in the United States on its consolidated income. The Company assessed the likelihood that it’s U.S. and foreign deferred tax assets will be recovered based on all available information, and management concluded that it is not probable that these assets will be recovered. Accordingly, a deferred tax asset has not been recorded. As of December 31, 2014 and 2013, the Company did not recognize deferred tax assets of approximately $49 million and $40 million, respectively.

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Net deferred taxes have not been recognized for the following assets (liabilities):

December 31,

2014 2013

Accrued expenses 247,935 306,195

Allowance for doubtful accounts 43,416 48,744

Deferred rent 43,064 33,199

Unrealized gain/loss - (1,510,853)

Depreciation and amortization (1,401,442) (1,323,062)

Inventory reserve 74,043 50,200

Prepaid expenses (55,802) (86,285)

Share-based compensation - 28,400

Other 314,798 256,249

Net operating losses – U.S. 46,596,937 39,888,461

Net operating losses - foreign 3,297,079 2,608,498

Unrecognized deferred tax asset, net $49,160,028 $40,299,746

The net operating losses carryforwards begin to expire in various years beginning in 2018 through 2034, with most carryforwards expiring after 2026. The use of these net operating loss carryforwards may be subject to limitation under the rules regarding a change of ownership as determined by the Internal Revenue Service. The effects of potential ownership changes, if any, have been analyzed by the Company and would not have a material impact to the financial statements since the deferred tax asset related to the net operating loss carryforwards has not been recognized. NOTE 17 – Segments At the direction of its new CEO, the Company closely examined its business model and made several modifications including a focus on the media side of the business, integrating it more tightly with its platform capabilities to power collaborative learning with content, while shifting away from offering platform services as a standalone product on an enterprise basis to schools and other institutions within the United States. As a result of these changes, during the first quarter of 2014 management determined it no longer believed the distinction between the media business and platform business is meaningful. Additionally, the Company’s chief operating decision maker evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis. There are no executives who are held accountable by the chief operating decision maker function, or anyone else, for an operating measure of profit or loss for any operating unit below the consolidated unit level. Accordingly, management has determined that the Company has one segment as of and for the year ended December 31, 2014. The Company’s geographic area of operation is currently predominantly the United States. Exports or foreign sales to locations outside the United States are currently not significant. NOTE 18 – Retirement Plans Effective January 1, 2013, the Company combined its previously existing 401(k) Savings Plan (“Carus Savings Plan”) for all employees of Carus Publishing Company and the retirement savings plan (the “Cricket Media Savings Plan”) for all other employees (the “Plan”). The Plan allows elective and Roth 401(k) employee contributions of between one percent and 90% of eligible compensation subject to the maximum allowed under federal tax provisions. The Company recorded no contributions to the Cricket Media Savings Plan or the Carus Savings Plan for the years ended December 31, 2014 and 2013. The Company does not sponsor any post-retirement and/or post-employment benefit plan. NOTE 19 – Transactions with Related Parties

Of the CAD$10,000,000 in 2013 Debentures outstanding as of December 31, 2014, CAD$9,750,000 are held by existing investors and an affiliate of two members of the Company’s Board of Directors.

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During the year ended December 31, 2014, the Company issued approximately 1.7 million shares to affiliates of two members of the Company’s Board of Directors in connection with its non-brokered private placement activity. See Note 13 for additional information on the Company’s private placement transactions.

During the year ended December 31, 2014, the Company settled $10,050,000 outstanding under the revolving line of credit with an affiliate of two members of the Company’s Board of Directors through the issuance of approximately 10.7 million restricted voting common shares at a weighted average price of CAD$1.04 per share. The Company had a short-term agreement to reimburse an affiliate of two members of the Company’s Board of Directors for a percentage of the rent on shared office space up to $5,000 per month that expired on March 31, 2014. In 2013, the Company entered into a publishing agreement with NeuPals for the translation and publication of Chinese language versions of the Company’s children’s magazines and content. NeuPals will pay royalty payments to the Company based on a percentage of NeuPals’ gross sales revenue from the sale of Chinese-translated magazines, books and back issues it translates (the “Derivatives”). The Company will pay to NeuPals royalty payments calculated as a percentage of the Company’s gross sales revenue from Derivatives sold outside of China. No revenues were earned and no royalties were incurred under this agreement during the year ended December 31, 2014. NeuPals and NeuEdu are affiliated with Neusoft Holdings. See Note 10 for more information about NeuEdu’s relationship with the Company. The Company extended its agreement through October 2014 for financial advisory services with a company that invested in the 2012 Debentures and the 2013 Debentures. The agreement provides for a service fee of $25,000 per month. The Company incurred a total expenses of $250,000 in 2014 related to this agreement. The Company’s $1,500,000 bank line-of-credit through ePals Foundation is personally guaranteed by two members of the Company’s Board of Directors. During 2015 the Company reached an agreement to transfer the loan to Cricket Media and restructure the terms to a five year maturity period and an annual interest rate of 5%. See Note 22 for additional information on this restructuring. Key management personnel compensation IAS 24 defines key management personnel as those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. Based on that definition, the key management personnel of the Company during the year ended December 31, 2014 were the President, Chief Executive Officer, Chief Financial Officer, Chief Technology Officer, Chief Operating Officer, EVP & General Manager, and the Company’s Board of Directors. The key management personnel of the Company during the year ended December 31, 2013 were the President, Chief Executive Officer, Chief Financial Officer, Chief Technology Officer, EVP & General Manager, and the Company’s Board of Directors. During the years ended December 31, 2014 and 2013, key management personnel compensation was comprised of the following benefits:

Year ended December 31, 2014 2013

Short-term employee benefits1 $1,154,896 $1,236,381 Post-employment benefits - - Other long-term benefits - - Termination benefits 693,013 1,013,198 Share-based payments2 67,628 453,058

Total $1,915,537 $2,702,637

Notes: (1) Short-term benefits include wages, annual incentives, and bonuses payable within twelve months of the end of the period. (2) Represents the total expense of RSUs granted and does not take into account each RSUs’ vesting schedule.

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NOTE 20 – Commitments As of December 31, 2014, the Company leases office space under two noncancelable operating lease agreements, which expire at various dates ranging from December 2015 to January 2024. Operating leases for office space In February 2014, the Company signed an extension to its noncancelable operating lease for corporate office space in Virginia that was originally scheduled to expire in April 2014. That lease now has an expiration date of December 31, 2015. The lease agreement and amendments require the Company to pay its proportionate share of the operating expenses and real estate taxes during the lease period. The Company is required to maintain a security deposit for this lease, which it holds in the form of a letter-of-credit. At December 31, 2014 and December 31, 2013, the Company has a certificate of deposit ("CD”) held at a bank as collateral for an irrevocable standby letter-of-credit totaling $76,277 and $75,966, respectively. In accordance with the operating lease agreement, the Company must maintain the balance of the CD at a minimum of $68,743. This CD expires on November 13, 2015. During 2013, the Company extended the agreement to reimburse ZG for a percentage of the rent on shared office space (up to $5,000 per month) under the same terms as the original agreement. This agreement expired on March 31, 2014. Operating leases for equipment The Company also leases computer equipment under a noncancelable operating lease agreements which expire in 2015. Finance leases for equipment In March 2013, the Company entered into a 5-year noncancelable finance lease agreement for furniture that has a $1 end of lease purchase option. The balance of the finance lease obligation related to this new lease at December 31, 2014 is $103,700. In March 2012 and June 2012, the Company entered into noncancelable finance lease agreements for computer equipment, bringing the total to five finance lease agreements for computer equipment with a net carrying amount of $13,807 at December 31, 2014. The Company’s finance lease agreements for computer equipment had a net carrying amount of $46,775 at December 31, 2013. All of the finance lease agreements have 36 month terms with a $1 end of lease purchase option.

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Future minimum lease payments The following table is a schedule by year of the future minimum lease payments required under the noncancelable finance and operating leases, which have an initial or remaining term in excess of one year at December 31, 2014.

Years ending December 31, Finance Leases

OperatingLeases

2015 $51,596 $604,942 2016 37,344 231,567 2017 37,344 234,691 2018 6,220 219,003 2019 - 195,003 Thereafter - 715,535

Total future minimum lease payments $132,504 $2,200,741

Less: interest (14,997) Present value of minimum lease payments 117,507 Less: current portion of obligations under finance leases (46,554) Noncurrent portion of obligations under finance leases $70,953 Rent expense aggregated $764,190 and $804,123 for the years ended December 31, 2014 and 2013, respectively. Rent expense is recorded straight-line over the term of the lease period. NOTE 21 – Capital Management

The Company's objective is to develop a strong capital base to ensure sufficient liquidity to pursue its strategy of organic growth combined with strategic acquisitions. The Company manages its capital with the objective of ensuring that there are adequate capital resources. The capital structure of the Company consists of cash, debt and components of shareholders' equity including retained earnings and common shares. The Company also intends to increase its capital base by continuing to issue shares and related equity instruments and debt as allowed under the agreements related to the 2012 Debentures and 2013 Debentures.

The Company makes adjustments to its capital structure in light of general economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Board of Directors reviews and approves any material transactions not in the ordinary course of business, including significant acquisitions or other major investments.

It is not anticipated that the Company will pay dividends for the foreseeable future. See Note 12 under the heading “Restrictions on the October 2012 Debentures” and Note 12 under the heading “Senior secured convertible debentures” for the Company’s externally imposed capital requirements. The Company complied with these restrictions during 2014 and 2013. See Note 22 for additional information on the Company’s capital structure. NOTE 22 – Subsequent Events Private Placement During the first quarter of 2015, the Company completed two additional tranches of its previously announced non-brokered private placement and issued 2,194,723 units of the Company (each a “Unit”) at a price of CAD$0.65 per Unit for gross proceeds of CAD$1,426,570. Each Unit consisted of one voting common share of the Company and one-third of one voting common share purchase warrant (each whole warrant, a “Warrant”). Each Warrant entitled the holder to purchase one additional voting common share of the Company at a price of CAD$0.65 until March 31, 2015.

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Debt Restructuring In March 2015, ZG Ventures, LLC (“ZG”) forgave an aggregate of $1,000,000 of indebtedness owing by Cricket Media, Inc., a wholly-owned subsidiary of the Company, to ZG under a loan facility pursuant to which Cricket Media, Inc. was entitled to borrow up to a maximum of $2,500,000 on a revolving basis (the “Note”). As partial consideration for the forgiveness of debt, Cricket Media, Inc. has agreed, subject to certain conditions, to indemnify Miles Gilburne and Nina Zolt, the principals of ZG, from all payment obligations that may be incurred by them in connection with a personal guarantee they have provided in connection with the Company’s bank line-of-credit with The National Capital Bank of Washington, whereby they have guaranteed the repayment by ePals Foundation Inc., an entity which Cricket Media, Inc. controls, of $1,500,000 of indebtedness incurred by ePals Foundation pursuant to a commercial line of credit with The National Capital Bank of Washington. In April 2015, the Company reached an agreement to restructure its ePals Foundation bank line-of-credit. The Company is expected to restructure the line-of-credit to carry a 5.0% interest rate with repayment due five years from the date the agreement is reached. The Company expects to formally execute the contract for this restructuring during the second quarter of 2015. On April 6, 2015, the Company announced that it has entered into a binding memorandum of understanding with certain holders of the 2012 Debentures (the “Junior Indebtedness”) issued pursuant to a trust indenture dated October 19, 2012 and certain holders of the 2013 Debentures (the “Senior Indebtedness”) issued pursuant to a trust indenture dated March 20, 2013, pursuant to which the Junior Indebtedness and the Senior Indebtedness will be restructured as more fully described below (the “Debt Restructuring”). The Debt Restructuring requires the approval of holders of 66 2/3% of the aggregate principal amount of Junior Indebtedness and holders of 66 2/3% of the aggregate principal amount of Senior Indebtedness. The Company is proceeding with the definitive documents necessary to fully effect the Debt Restructuring. Implementation of the Debt Restructuring is subject to the acceptance by the TSX Venture Exchange (“TSXV”). After the implementation of the Debt Restructuring and assuming the Company raises a minimum of $10 million pursuant to the Financing and the Bridge Loan (each as defined below), collectively, the Company’s long term debt will be reduced from approximately $22 million to approximately $11 million.

The proposed Debt Restructuring includes the following principal terms:

Treatment of Junior Indebtedness and Senior Indebtedness

The Junior Indebtedness and the Senior Indebtedness will be consolidated into a single class of U.S. dollar senior indebtedness (“New Senior Indebtedness”) evidenced by secured convertible debentures (“New Secured Debentures”) having principal terms as more fully discussed below.

Current holders of Junior Indebtedness will receive New Senior Indebtedness in a principal amount equal to 65% of the aggregate principal amount of Junior Indebtedness outstanding plus all accrued and unpaid interest thereon.

Current holders of Senior Indebtedness will receive New Senior Indebtedness in a principal amount equal to 75% of the aggregate principal amount of Senior Indebtedness outstanding plus all accrued and unpaid interest thereon.

Principal Terms of New Senior Indebtedness

The New Secured Debentures will mature four (4) years following the date of closing of the Debt Restructuring and will bear interest at a rate of 5% per annum payable annually in arrears. The Company will be entitled to pay interest accrued during the initial two (2) years that the New Senior Indebtedness is outstanding by issuing, at a holder’s option, either: (i) voting common shares or restricted voting common shares of the Company at a price equal to the weighted average closing price of the voting common shares of the Company on the TSX-V for the ten (10) trading days preceding the date of settlement (“Market Price”); or (ii) preferred shares of the

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Company (“Preferred Shares”) to be created in connection with the Financing (as defined and described in greater detail below).

The New Senior Indebtedness will be denominated in U.S. dollars and the New Secured Debentures will not be listed for trading on the TSX-V or any other public marketplace.

The New Secured Debentures will be convertible into voting common shares or restricted voting common shares of the Company, at the option of the holder, at a conversion price equal to the greater of (i) US$3.33 per share; and (ii) the amount per share equal to US$100,000,000 divided by the total number of issued and outstanding voting common shares and restricted voting common shares of the Company.

The Company will be entitled to satisfy payment obligations under bank indebtedness in the principal amount of approximately US$1.5 million, subject to a maximum payment of principal and interest, collectively, of US$400,000 per year and subject to reduced permitted payments until such time as the Company raises sufficient funds pursuant to the Financing.

The Company will be permitted to dissolve or wind-up dormant or inactive subsidiaries and dispose of certain non-core or immaterial portions of its business at fair market value.

Annual mandatory prepayment of principal shall be made on the New Secured Debentures to holders on a pro rata basis, in an amount equal to 20% of the free cash flow of the Company in respect of such fiscal year.

The indenture governing the New Senior Indebtedness will include covenants of the Company in respect of cash flow and minimum cash balance.

Cricket Media will be entitled to incur additional secured indebtedness under a Bridge Loan (as defined below) in a principal amount of up to US$5 million, up to the first US$4 million of which shall rank senior to the New Senior Indebtedness (the “Senior Bridge Funds”) and a further US$1 million of which, if any, shall rank subordinate to the New Senior Indebtedness (the “Junior Bridge Funds”).

Other than in respect of the Senior Bridge Funds, the Company will be prohibited from incurring additional indebtedness ranking senior to or pari passu with the New Senior Indebtedness.

Bridge Loan and Conversion of Indebtedness to Preferred Shares

The Company is expected to seek bridge financing up to an aggregate principal amount of US$5 million (the “Bridge Loan”). The Bridge Loan will mature on April 30, 2016 and will bear interest at a rate of 5% per annum. The Company will have the option to pay accrued interest in cash, or by issuing the lenders under the Bridge Loan voting common shares or restricted voting common shares at a price equal to the Market Price at the time of settlement. The indebtedness under the Bridge Loan will be convertible into voting common shares or restricted voting common shares of the Company at the option of the holder, at a conversion price of US$0.32 per share.

In the event of the winding up or liquidation of the Company or a sale of all or substantially all of the assets or capital stock of the Company, the principal amount of the Bridge Loan outstanding at such time will be deemed to have increased by 100%, which increased amount will form a secured debt obligation of the Company which will rank subordinate to the Senior Bridge Funds and the New Senior Indebtedness and pari passu with the Junior Bridge Funds and the Company’s bank indebtedness.

In the event that Cricket Media receives Senior Bridge Funds from any person, certain amounts of New Senior Indebtedness as applicable, held by insiders of the Company will convert to Preferred Shares.

In the event that the Company raises aggregate gross proceeds of a minimum of US$10 million pursuant to an equity financing of Preferred Shares (the “Financing”) and the Bridge Loan, collectively: (i) all New Senior Indebtedness held by insiders of the Company will convert to Preferred Shares at a price per share to be determined (the “Issue Price”); and (ii) all outstanding indebtedness under the Bridge Loan will convert into, at the option of the holder and subject to TSX-V approval: (A) New Preferred Shares at a conversion price equal to the lesser of (y) 80% of the Issue Price; and (z) US$0.81; or (B) voting common shares or restricted voting common

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shares of the Company at a price of US$0.32 per share, or a combination of (A) and (B) at the holder’s option.

The Company’s wholly-owned subsidiary, Cricket Media, Inc. (a Delaware corporation) has amended the terms of its Note with ZG Ventures, LLC (“ZG”). Under the prior terms of the Note, Cricket Media, Inc. was entitled to borrow up to a maximum of US$2,500,000 and payment of all outstanding principal and interest was due March 31, 2015. The Note has been amended to (i) increase the principal amount that may be borrowed and outstanding from time to time thereunder to a maximum of US$3,500,000; (ii) extend the repayment date to April 30, 2015; (iii) provide that borrowings that result in the principal amount outstanding exceeding US$2,500,000 will be at the sole discretion of ZG; and (iv) provide for conversion of the principal outstanding under the Note into indebtedness owing under the Bridge Loan at the option of ZG.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF CRICKET MEDIA GROUP LTD.

(FORMERLY EPALS CORPORATION) FOR THE YEAR ENDED DECEMBER 31, 2014

DATE OF REPORT: APRIL 28, 2015

The Management’s Discussion and Analysis (“MD&A”) of Cricket Media Group Ltd. (“Cricket Media”, “Company”, “we”, “us” and “our”), formerly ePals Corporation, was prepared by management of the Company and should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the years ended December 31, 2014 and 2013. Previously classified as a Capital Pool Company as defined in Policy 2.4 of the TSX Venture Exchange (“TSX-V”), the Company completed a “qualifying transaction” as defined under the policies of the TSX-V on July 26, 2011 when it acquired ePals, Inc. pursuant to a statutory procedure to form “ePals Corporation” (“Merger”). The Company changed its name to “Cricket Media Group Ltd.” on July 10, 2014. Additional information about the Company and the Merger may be found under the Company’s SEDAR profile at www.sedar.com. The Company’s financial statements for the years ended December 31, 2014 and 2013, (the “Annual Financial Statements”) and this MD&A are presented in United States dollars (unless otherwise noted) and were prepared in accordance with International Financial Reporting Standards (“IFRS”), which are generally accepted accounting principles (“GAAP”) in Canada. The Company’s transition date to IFRS was January 1, 2009. This MD&A was reviewed by the Company’s Audit Committee and approved by Cricket Media’s Board of Directors. Forward-Looking Statements

Certain statements contained in this MD&A constitute forward-looking information within the meaning of applicable securities laws, including statements with respect to customers, ventures in China, partnerships; contributions and/or prospects of one or more of the Company’s business lines; the Company’s strategy, prospects and success in pursuing domestic or international markets and the composition of its leadership teams to be established in connection therewith; and the Company’s anticipated plans to increase its subscriptions, revenue, sales and average revenue per user (“ARPU”) through its media and platform businesses. These statements relate to future events or future performance. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or statements formed in the future tense or indicating that certain actions, events or results “may”, “could”, “would”, “might” or “will” (or other variations of the forgoing) be taken, occur, be achieved, or come to pass. Forward-looking information is necessarily based upon a number of assumptions and factors that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking information. Those assumptions and factors are based on information currently available to the Company. Such material factors and assumptions include, but are not limited to: the Company’s ability to execute on its business plan, including the acceptance of the Company’s products and services by customers globally; that the Company’s affiliated entities will be able to secure distribution partners for sale of the Company’s products and services; the Company’s subjective assessment of the likelihood of success of a sales lead or opportunity, and the price and other obligations associated therewith; that sales will be completed at or above the Company’s estimated margins; that the demand for collaboration, as well as education media related products domestically, in Canada, in Europe, in China and elsewhere will continue to grow; that the demand for the Company’s products and services globally will develop and grow; the receipt of all requisite regulatory approvals including throughout venture territories for the sale of the Company’s products and services; the availability of additional financing, if and when required, and market conditions generally. Although the Company has attempted to identify factors that could cause actual actions, events or results to differ

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materially from those described in forward-looking information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. The Company expressly disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Because of the risks, uncertainties and assumptions contained herein, investors should not place undue reliance on forward-looking information. The foregoing statements expressly qualify any forward-looking information contained herein. Any and all forward-looking information contained in this MD&A is expressly qualified by this cautionary statement.

Many factors could cause the actual results of the Company to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements, including, without limitation, those factors under the heading “Risk Factors” included herein. The industry and statistical data presented in this MD&A have been compiled from sources and participants which, although not independently verified by the Company, are considered by the Company to be reliable sources of information. References in this MD&A to research reports or to articles and publications should not be construed as depicting the complete findings of the entire referenced report, article or publication. Core Business & Strategy Core Business Cricket Media is an education media company that provides award-winning content on a safe and secure learning network for children, families and teachers across the world. Cricket Media’s popular media brands for toddlers to teens include Babybug®, Ladybug®, Cricket® and Cobblestone® with multiple language editions and apps in English, Spanish and Mandarin. In addition to activities associated with the sale of print and digital content, the Company licenses its content and innovative technology associated with its collaborative social media platform. The Company’s digital K-12 products for school and home include the ePals Global Community (the Company’s network of classrooms that allows teachers and students to safely connect and collaborate with other classrooms around the world) as well as In2Books®, a Common Core eMentoring program that builds reading, writing and critical thinking skills. Cricket Media serves approximately one million classrooms and millions of teachers, students and parents in over 200 countries and territories through its products and services. The expansion of product offerings into Mandarin and bilingual English-Mandarin is an important part of the Company’s business activities in China as the Company continues to expand its international reach. The Company’s mission is to create and power collaborative products and experiences that enlighten, educate, and entertain children, connecting them to their families, friends, and the world around them. Our vision is to create the opportunity for every student to build the skills and gain the knowledge needed for success in a networked, global economy and to assist educators and parents in helping students achieve those goals.

The cornerstone of the Company’s business strategy is to deliver high quality content that is paired with safe social networking and tailored to the specific needs of toddlers to teens at home, K-12 students, schools, educators, and parents. Specifically, the Company aims to produce and distribute high-quality children’s content, digital media and interactive learning apps for sale in home and school markets, as well as to provide an environment and tools through which third party publishers and developers can distribute new digital learning products and services to its users. The markets for our products are both highly competitive and still at an early stage of development in North America and globally. We deliver a variety of online and offline media products and collaboration services producing multiple revenue streams.

In the past year, the Company has been increasing its focus on the media side of the business, integrating it more tightly with the Company’s platform capabilities to combine collaborative learning with content, and shifting away from offering enterprise services as standalone products to schools and other institutions in the U.S. As of 2014, management no longer believes the distinction between the media business and

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platform business is meaningful given these changes. The Company manages its business based on its four primary revenue-generating activities: subscriptions, commerce, licensing and sponsorship.

Subscription Revenue The Company’s subscription revenues are generated through the sale of annual subscriptions to its print and digital products to consumer and institutional purchasers.

Commerce Revenue Commerce revenue consists of revenues related to the sale of digital apps, games, books and other non-subscription-based physical and digital products directly to consumers and through channel partnerships.

Licensing Revenue Licensing revenues consist of the licensing of the Company’s media content and the licensing of the Company’s technology and collaborative framework to third parties. While the Company has moved away from selling enterprise tools on the legacy ePals platform as a stand-alone product and service in the U.S., this category includes residual licensing revenues associated with contracts for the 2013 – 2014 school year. Sponsorship Revenue

Sponsorship revenue includes revenues from the Company’s sponsorship agreements with corporate and non-profit sponsors. Advertising revenue is generated through the Company’s Nexify business, which is classified as held for sale and discontinued operations as of and for the year ended December 31, 2014. See the Company’s notes to the Annual Financial Statements for additional information on the Company’s discontinued operations.

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Strategy

The following table summarizes the Company’s strategic objectives and its current initiatives to achieve those objectives.

Strategic Objectives Initiatives

further grow and monetize content

value invest in scalable content production

infrastructure create high quality content that meets or

exceeds market demands and enhances the Company’s digital library

increase subscriptions increase focus on digital marketing channels

add channel partners to drive consumer growth at a lower cost basis through the use of more cost effective marketing

increase licensing revenue continue to strengthen, grow and improve access to digital library to support licensing business and product innovation

expansion in China create additional media products and digital products for English language practice and culture exchange in homes and in schools

broaden customer offerings rapidly expand digital product portfolio to support physical media via Cricket Story Bug platform and the Fingerprint network

create products to foster global collaborative learning

grow global community and engagement with sponsored challenges

develop additional language learning partnerships in China

development of strategic partnerships to productize and monetize new collaborative environments

Overall Performance Recent Developments Media Product Developments: The Company continues to see growth in the number of digital and bundle (print and digital) subscriptions. While total subscription circulation is down 3% year-over-year, the increased adoption of digital products is aligned with the Company’s strategy to increase its digital presence in response to increased demands for digital content. Total subscription circulation containing a digital component (either digital only or a bundle) more than doubled as of the end of 2014 compared to the prior year and increased approximately 30% since the end of the third quarter of 2014. In addition to growth in the total number of subscriptions containing a digital component, the Company continues to actively improve user engagement associated with our digital products through various outlets. The Company continues to expand its media product offerings through various partnerships. During the first half of 2014, the Company entered into a partnership with Pearson Online Learning Exchange (“OLE”) to license for use the Company’s digital content to the OLE platform. During the third quarter of 2014, the Company signed umbrella content licensing agreements with key education publishing companies pursuant

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to which Cricket Media will supply content for the publishers’ use throughout various curriculum materials for K-12 students. During 2014, the Company began to monetize its agreement with company specializing in the compilation of licensable content that coordinates the selection of content to be used in various standardized tests used across the United States. The Company earned revenues of approximately $450,000 for the period ending December 31, 2014. The Company created the Story Bug app through a partnership with Kindoma, a recognized creator of mobile apps, which combines shared reading experiences with video chat capabilities. The app, which launched during the third quarter of 2014, allows users to access the Company’s content and experience shared reading of that content. Additionally, the Company entered into an agreement with Fingerprint, a global mobile technology company, to develop a custom mobile learning network that enables family members and other parent-approved users to communicate and collaborate around the Company’s content while providing parents with informative dashboards about their child’s activity and performance. These strategic partnerships, which provide new outlets through which the Company delivers content, are expected to drive growth in the Company’s consumer subscription and e-commerce revenue. The Company continues to focus on initiatives associated with the content licensing business. During 2014, the Company implemented a digital asset management system (“DAM”) to house licensable content. The DAM, which was launched to B2B customers in February 2015 and contains content in which the Company has cleared rights and permissions on, allows other businesses to more quickly and efficiently identify and purchase content to license. The Company currently has over 50 licensing customers and continues to focus on broadening the population of channel partners through which to license its content. Expense Reduction Initiatives: The Company’s financial results reflect the cost savings associated with the Company’s cost containment measures implemented in 2014. Core operating expenses, which refer to cost of sales, technology, research and development, operations and support, general and administrative and marketing and promotion costs, decreased approximately $4.5 million for the year ended December 31, 2014 compared to the prior year period primarily as a result of the Company’s initiatives to eliminate costs that are not driving near-term revenue. These decreases are also the result of management’s decision to cut additional costs due to the ongoing challenges associated with funding the Company in its growth stage. Given these challenges, the Company may continue to implement additional cost containment measures until operations are cash flow positive. The Company has focused on outsourcing as a way to further reduce costs. During 2014, the Company entered into an agreement with NeuEdu Tianjin (“NeuEdu”), a Chinese company affiliated with its NeuPals joint venture and Neusoft Holdings, wherein NeuEdu will perform development work for the Company. The outsourcing of the technology development work has resulted in significant cost savings and is expected to continue to result in significant cost savings and improved product quality. The continued expansion of the relationship with Neusoft Holdings and its related operating affiliates is expected to provide additional opportunities for cost containment initiatives. As part of the evaluation of its lines of business in an effort to streamline the business and identify additional opportunities to create cost efficiencies, the Company made the decision to market for sale its Nexify business, which generates revenues through advertising activities, and its Open Court business, a business focused on the sale of nonfiction and philosophy related books and materials. As a result, the assets and liabilities of these businesses are classified as held for sale as of December 31, 2014 and their results of operations are classified as discontinued operations within the statements of comprehensive income. See the Annual Financial Statements and accompanying notes for additional information on these businesses. As the Company focuses on reducing overhead costs and other expenses that are not targeted to enhancing revenue growth, management continues to evaluate the Company’s current product offerings in an effort to determine the optimal path to becoming cash flow positive. As a result, management may decide to reduce or reallocate resources associated with certain products and services. These strategic changes may result in a reduction of revenue and expenses generated from the Company’s current mix of products and services.

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Expansion of China Operations: As discussed above, the Company continues to expand the relationship with Neusoft Holdings and its related operating affiliates. During April 2014, the Company entered into an agreement with Neumedias to develop and distribute interactive digital media products throughout China based on the Company’s award winning magazines for children. Under this agreement, four publication brands of dual English-Chinese language apps and content for toddlers and young children will be offered on smartphones, tablets and smart TVs through Neumedias’ digital media platform, with the potential to expand to additional publication brands. There are currently over 20 Cricket Media publications translated and available for sale in the Neustore children’s’ app store (Nezha Bookstore), and the Company expects additional versions to be available for sale in 2015. The translated content created through this agreement is expected to expand the reach of the Company’s media products internationally through distribution directly to users and to third party publishers. In conjunction with the Company’s strategy to concentrate resources on products that are expected to generate near-term revenue, the Company continues to closely evaluate its products and initiatives, including those associated with its NeuPals joint venture. Market conditions and changes in management’s overall strategy may result in a shift in the Company’s key initiatives. Financing Activities The Company recently signed a binding memorandum of understanding (“MOU”) related to the restructuring of its 2012 Debentures and 2013 Debentures. Under the binding MOU the two classes of debt will be consolidated into a single class with a reduced face value denominated in US dollars. In addition, the Company also expects to borrow up to $5 million under a bridge loan and expects to issue a new class of preferred equity securities. See “Subsequent Events” for additional information on these transactions. Results of Operations – 2014 vs. 2013

2014 2013 %

(dollars in thousands, except per share data)Revenue:

Subscription 10,912$ 11,034$ (122)$ -1%Licensing 1,876 1,764 112 6%Commerce 1,684 1,863 (179) -10%Sponsorship 125 1 124 NM

Total: 14,597 14,662 (65) 0%Less: Operating expenses 34,993 37,433 (2,440) -7%Loss from Operations (20,396) (22,771) (2,375) -10%Other income (expense):Gain from change in fair value of derivatives 64 3,130 (3,066) -98%Interest expense, net (3,663) (3,444) 219 6%Other income 52 6 46 767%Net foreign currency exchange gains 1,831 665 1,166 175%Loss from continuing operations (22,112)$ (22,414)$ (302)$ -1%Loss from discontinued operations (338)$ (100)$ 238$ 238%Net loss (22,450)$ (22,514)$ (64)$ 0%Basic and diluted loss per share:

Basic and diluted loss per share from continuing operation (1.22)$ (3.00)$ Basic and diluted loss per share from discontinued operat (0.02) (0.01)

Basic and diluted net loss per share (1.24)$ (3.01)$

Weighted average shares outstanding - basic and diluted 18,130 7,475

Year ended December 31, Increase (Decrease)

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Revenue Commerce revenue decreased by 10% during the year ended December 31, 2014 compared to the prior year period due primarily to a decrease in merchandise sales resulting from lower sales of third party products generated from the holiday catalog. Subscription revenues for the year ended December 31, 2014 decreased slightly compared to the prior year period due to a lower average subscription price. The lower average subscription price is the result of a strategy to more aggressively acquire new subscribers in an effort to increase exposure to the Company’s full portfolio of products. Licensing revenues increased by 6% during the year ended December 31, 2014 compared to the prior year period primarily due to increased revenues generated from the use of the Company’s content in standardized testing, partially offset by a decline in legacy enterprise licensing revenue as a result of a shift in strategy. The year-over-year increase in sponsorship and advertising revenue is due to increased sponsorship revenues from global community initiatives with third parties. Deferred Revenue Advance payments for the sale of children’s publication subscriptions are deferred and included in revenue on a pro-rata basis over the term of the subscriptions as issues are delivered. Of the $6,267,928 in current deferred revenue at December 31, 2014, $6,226,973 was for advance payments of media subscriptions. The Company had $689,875 in long-term deferred revenue at December 31, 2014, with $591,958 for advance payments of media subscriptions. Of the $6,422,165 in current deferred revenue at December 31, 2013, $6,279,980 was for advance payments of media subscriptions. The Company had $851,854 in long-term deferred revenue at December 31, 2013, with $707,104 for advance payments of media subscriptions. The remainder of deferred revenue is primarily from the Company’s contracts for platform licensing and subscriptions. Deferred revenue is typically highest during the holidays at year-end from renewals on existing media subscriptions and new media subscriptions. Operating Expenses

The following table is a summary of operating expenses for the years ended December 31, 2014 and 2013:

Operation and support expenses, which consist of expenses related to the ongoing day-to-day operations of the international division, education / global community, customer support and internal technology support functions, decreased approximately $1,902,000 during the year ended December 31, 2014 compared to the prior year period as a result of reduced expenses relating to consultants and other contractors primarily related to the de-emphasis of the Company’s European operations.

Operating Expense Detail 2014 2013 %

(dollars in thousands)Cost of sales 9,230$ 9,353$ (123)$ -1%Technology, research and development 4,347 5,350 (1,003) -19%Operations and support 3,001 4,903 (1,902) -39%General and administrative 6,282 6,253 29 0%Marketing and promotion expenses 7,000 8,443 (1,443) -17%Stock-based compensation 357 1,491 (1,134) -76%Depreciation & amortization 968 1,008 (40) -4%Change in estimated fair value of acquisition share consideration (181) 279 (460) -165%Impairment of goodwill and intangible assets 3,717 - 3,717 N/ALoss on investment in NeuPals 272 353 (81) -23%Total operating expenses 34,993$ 37,433$ (2,440)$ -7%

Year ended December 31, Increase (Decrease)

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Marketing and promotion expenses decreased approximately $1,443,000 during the year ended December 31, 2014 compared to the prior year due to a reduction in headcount resulting from the Company’s cost containment initiatives, including employees and consultants and a decrease in event related expenses resulting from the elimination of trade shows that previously supported the Company’s legacy enterprise licensing initiatives, partially offset by an increase in distribution costs associated with the Company’s current year direct marketing campaign.

Stock-based compensation decreased approximately $1,134,000 for the year ended December 31, 2014 compared to the prior year period due primarily to a reduction in number and fair value of awards vested.

Technology, research and development decreased approximately $1,003,000 during the year ended December 31, 2014 compared to the prior year period due primarily to a reduction in headcount and lower expenses related to external professional services for technology development resulting from the outsourcing of these services. These costs reductions are mainly due to cost reduction initiatives implemented by management.

During the year ended December 31, 2014, the Company recognized an impairment loss of approximately $3,717,000, which represents a full write off of the ePals brand name intangible asset of approximately $2.1 million, a full write off of the goodwill within the cash generating unit formerly known as ePals of approximately $1.0 million and an approximate $700,000 write-off of artistic related and owned permission intangibles. The impairment of goodwill and intangible assets for the cash generating unit formerly known as ePals cash generating unit was the result of management’s qualitative analysis of the assets as a result of recent changes in the Company’s operating strategy upon reviewing historical results of its platform and sponsorship activities. No impairment loss was recognized during the year ended December 31, 2013.

The Company recorded a loss of $278,877 during the year ended December 31, 2013 related to adjustments to our obligation associated with the acquisition share consideration due to the former Carus shareholders in connection with the Carus acquisition in 2011. Adjustments made to the liability include those related to the settlement of the 2012 obligations and updates to the projections for 2013 and 2014, respectively. Subsequent adjustments were made during the year ended December 31, 2014 as final actuals associated with the revenue targets tied to the payout were determined, resulting in a reversal of the previously recorded obligation remaining of $181,042.

Gain from Change in Fair Value of Derivatives Gains from the change in fair value of derivatives, which is comprised of the change in fair value of the conversion features associated with the 6.5% secured convertible debentures issued in 2012 with the principal amount of CAD $12,000,000 (the “2012 Debentures”) and the 2013 Debentures, decreased $3,066,000 for the year ended December 31, 2014 compared to the prior year period due primarily to a smaller fluctuation in stock prices used to calculate the fair value compared to fluctuations in the prior year period. Interest Expense Interest expense increased approximately $219,000 during the year ended December 31, 2014 compared to the prior year period primarily due to the 2013 Debentures outstanding interest for the full year in 2014 compared to being outstanding for a portion of the year in 2013, offset partially by timing of accretion and interest under the effective interest method.

Net Foreign Currency Exchange Gains

The net foreign currency exchange gain for the year ended December 31, 2014 was approximately $1,831,000 compared to $665,000 during the prior year period. This year-over-year fluctuation is due to changes in the exchange rate for CAD to USD.

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Loss from Discontinued Operations The loss from discontinued operations increased approximately $239,000 for the year ended December 31, 2014 due primarily to declines in the Nexify advertising business resulting from the removal of our widget from major publications and a decrease in income generated from the sale of books through Open Court. The loss from discontinued operations for the year ended December 31, 2014 includes an impairment of approximately $215,000 related to Nexify’s technology intangible, which represents a full write off. Results of Operations – Fourth Quarter 2014 vs. Fourth Quarter 2013 (unaudited)

Revenue Commerce revenue decreased by 13% during the three months ended December 31, 2014 compared to the prior year period due primarily to a decrease in merchandise sales partially driven by lower sales of third party products generated from the holiday catalog. Subscription revenues for the year ended December 31, 2014 decreased slightly compared to the prior year period due to a lower average subscription price in the current period. Licensing revenues increased by 74% during the three months ended December 31, 2014 compared to the prior year period primarily due to increased revenues generated from the use of the Company’s content in standardized testing. Operating Expenses

2014 2013 %

(dollars in thousands, except per share data)Revenue:

Subscription 2,396$ 2,523$ (127)$ -5%Licensing 697 401 296 74%Commerce 1,125 1,288 (163) -13%Sponsorship - - - N/A

Total: 4,218 4,212 6 0%Less: Operating expenses 9,526 9,349 177 2%Loss from Operations (5,308) (5,137) 171 3%Other income (expense):Gain from change in fair value of derivatives - 77 (77) -100%Interest expense, net (408) (1,045) (637) -61%Other income - 6 (6) -100%Net foreign currency exchange gain (loss) 887 530 357 67%Loss from continuing operations (4,829)$ (5,569)$ (740)$ -13%Loss from discontinued operations (346)$ 24$ 370$ 1542%Net loss (5,175)$ (5,545)$ (370)$ -7%Basic and diluted loss per share:

Basic and diluted loss per share from continuing operations (0.19)$ (0.56)$ Basic and diluted loss per share from discontinued operations (0.01) -

Basic and diluted net loss per share (0.20)$ (0.56)$

Weighted average shares outstanding - basic and diluted 25,956 9,978

Three months ended December 31, Increase

(Decrease)

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Cost of sales increased approximately $196,000 for the three months ended December 31, 2014 compared to the prior year period primarily due to increased costs associated with converting the Company’s content to digital formats in connection with its digital asset management system initiative.

Technology, research and development decreased approximately $237,000 during the three months ended December 31, 2014 compared to the prior year period due primarily to a reduction in headcount and lower expenses related to external professional services for technology development resulting from the outsourcing of these services.

Operation and support expenses decreased approximately $649,000 during the three months ended December 31, 2014 compared to the prior year period as a result of reduced expenses relating to consultants and other contractors primarily related to the de-emphasis of various areas within the business and management implemented cost reduction initiatives to better align the Company’s activities and resource allocation with its overall strategy.

Stock-based compensation decreased approximately $189,000 for the three months ended December 31, 2014 compared to the prior year period due primarily to a reduction in number and fair value of awards vested.

The Company recorded a loss of $278,877 during the three months ended December 31, 2013 related to adjustments to our obligation associated with the acquisition share consideration due to the former Carus shareholders in connection with the Carus acquisition in 2011. Adjustments made to the liability include those related to the settlement of the 2012 obligations and updates to the projections for 2013 and 2014, respectively. Subsequent adjustments were made during the year ended December 31, 2014 as final actuals associated with the revenue targets tied to the payout were determined, resulting in a reversal of the previously recorded obligation.

During the three months ended December 31, 2014, the Company wrote off approximately $54,000 of goodwill associated with the Iguana business acquired in 2012 to pursue Spanish language content and approximately $700,000 of artistic related and owned permission intangibles associated with the Carus acquisition and Media CGU.

Marketing and promotion expenses increased approximately $480,000 for the three months ended December 31, 2014 due primarily to an increase in distribution costs associated with the Company’s current year direct marketing campaign.

Operating Expense Detail 2014 2013 %

(dollars in thousands)Cost of sales 3,019$ 2,823$ 196$ 7%Technology, research and development 906 1,143 (237) -21%Operations and support 627 1,276 (649) -51%General and administrative 1,485 1,291 194 15%Marketing and promotion expenses 2,427 1,947 480 25%Stock-based compensation 66 255 (189) -74%Depreciation & amortization 243 252 (9) -4%Change in estimated fair value of acquisition share consideration (45) 279 (324) -116%Impairment of goodwill and intangible assets 754 - 754 N/ALoss on investment in NeuPals 44 83 (39) -47%Total operating expenses 9,526$ 9,349$ 177$ 2%

Three months ended December 31, Increase

(Decrease)

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Interest Expense Interest expense decreased approximately $637,000 during the three months ended December 31, 2014 compared to the prior year period due to a lower impact of the effective interest method application in the current year related to the Company’s 2012 Debentures and 2013 Debentures, which was primarily caused to lower accretion of interest in connection with the extension of the maturity dates to October 31, 2016.

Net Foreign Currency Exchange Gains

The net foreign currency exchange gain for the three months ended December 31, 2014 was approximately $887,000 compared to a gain of $530,000 during the prior year period. This year-over-year fluctuation is due to the Company’s 2012 Debentures and 2013 Debentures, which are denominated in CAD, and the associated changes in the exchange rate for CAD to USD.

Summary of Quarterly Results

The following table sets forth certain unaudited information for each of the Company’s eight most recent quarters. The quarterly information has been derived from the unaudited interim consolidated financial statements of the Company that have been prepared in accordance with IFRS and include all adjustments necessary for the fair presentation of the information presented.

Second and third quarter 2013 revenues were lower than the first quarter of 2013 because our media business ships two subscription issues in the second and third quarter of each year compared to three subscription issues in the first quarter of each year. The net loss for the second quarter of 2013 increased compared to the first quarter of 2013 primarily due to lower revenues, a decrease in the gain recognized during the second quarter related to the change in fair value of the derivatives and higher interest expense in the second quarter related to the 2013 Debentures. The net loss for the third quarter of 2013 increased compared to the second quarter of 2013 primarily due to higher sales and marketing expenses and the impact of the foreign currency exchange losses. Revenues during the fourth quarter of 2013 increased compared to the previous quarter due to the seasonal spike in commerce sales. The net loss for the fourth quarter of 2013 decreased compared to the third quarter of 2013 primarily due to higher foreign currency gains and a decrease in the gain recognized on the change in fair value of the derivatives associated with the 2012 Debentures and the 2013 Debentures. Weighted average shares increased during the fourth quarter of 2013 compared to previous quarters due to the non-brokered private placement transactions completed during the period. The net loss for the first quarter of 2014 decreased from the fourth quarter of 2013 primarily due to an increase in foreign currency gains and a decrease in operating expenses. Operating expenses for the first quarter of 2014 decreased compared to the prior quarter primarily due to the Company’s cost containment initiatives. Second quarter 2014 revenues were lower than the first quarter of 2014 because our media business ships two subscription issues in the second quarter of each year compared to three subscription issues in the first quarter of each year. The increase in net loss for the second quarter of 2014 compared

(in thousands, except per share data) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Revenue 4,225$ 2,983$ 3,242$ 4,212$ 4,343$ 3,193$ 2,843$ 4,218$ Net loss (3,374)$ (6,017)$ (7,579)$ (5,545)$ (3,114)$ (5,481)$ (8,680)$ (5,175)$ Net loss per common share (0.52)$ (0.93)$ (1.09)$ (0.56)$ (0.25)$ (0.37)$ (0.45)$ (0.20)$

Weighted average common shares 6,443 6,498 6,947 9,978 12,322 14,833 19,249 25,956

2013

(1) Weighted average common shares outstanding have been adjusted for the 25:1 share consolidation that took place in July 2014.

2014

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to the first quarter of 2014 is primarily due to the decrease in revenue and foreign currency loss in the second quarter compared to foreign currency gains during the first quarter. The decreases in total revenues and increase in net loss for the third quarter of 2014 compared to the second quarter of 2014 were due to decreases in licensing, commerce and sponsorship revenues, partially offset by a slight increase in subscription revenue. The increase in net loss was also due to increases in marketing and promotion expenses and the recognition of impairment losses related to the Company’s ePals brand name intangible and goodwill associated with its ePals cash generating unit, partially offset by decreases in costs of sales, technology costs and general and administrative expenses. Weighted average common shares outstanding have increased throughout 2014 due primarily to private placement transactions and the issuance of shares to settle amounts outstanding under the Company’s revolving line of credit. The increase in revenues in the fourth quarter of 2014 compared to the third quarter of 2014 primarily relate to seasonal fluctuations in the Company’s revenue related to sales during the holiday season and revenue recognized in connection with use of the Company’s content within standardized testing throughout the US. The net loss for the fourth quarter of 2014 decreased compared to the third quarter of 2014 due primarily to the increases in revenues previously discussed, higher foreign currency gains in the fourth quarter and lower impairment related charges in the fourth quarter. Selected Annual Information

For the year ended December 31, 2014 2013 2012(dollars in thousands, except share and per share data)

Revenue $ 14,597 $ 14,662 $ 13,970 Net loss (22,450) (22,514) (26,821) Net loss per common share (1.24) (3.01) (4.94) Weighted average common shares

18,130,478 7,474,776 5,431,880

December 31, 2014 2013 2012Total assets $ 22,759 $ 30,282 $ 31,101 Total non-current financial liabilities

18,782 18,517 11,150

The selected annual information for 2014, 2013 and 2012 was prepared in accordance with IFRS. The Company did not declare dividends during the years ended December 31, 2014, 2013 and 2012. Net loss per common share decreased for the year ended December 31, 2014 compared to the prior year due to a lower net loss as well as an increase in the weighted average shares outstanding. Weighted average shares outstanding for the year ended December 31, 2014 increased compared to the prior year primarily due to the issuance of approximately 10.7 million restricted voting shares issued to repay amounts outstanding under the related party line of credit and non-brokered private placement transactions that resulted in the issuance of approximately 5.5 million common shares. Total non-current financial liabilities increased during the year ended December 31, 2014 compared to the prior year due to amortization under the effective interest method related to the principal value of our 2012 Debentures and 2013 Debentures. Financial Condition

Total assets at December 31, 2014 compared to December 31, 2013 decreased $7,522,867 primarily due to the $2.7 million decrease in cash and write off of the goodwill, brand name and artistic and owned permission related intangible assets in 2014 of $3.7 million. Total liabilities of $35,848,640 represented a decrease of $624,177 from December 31, 2013 to December 31, 2014 due to a decrease in the Company’s acquisition consideration liability related to the Carus

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acquisition based on actual revenue results, as well as a decrease in balances outstanding under the Company’s lines of credit due to repayments primarily through the issuance of common shares. These decreases were offset by increases in accounts payable and accrued liabilities due to ongoing operations, an increase in the balance of the Company’s convertible debentures related to amortization associated with the effective interest method and an increase in accrued interest associated with the Company’s 2013 Debentures. Stockholders’ equity (deficit) decreased by $6,898,690 during the year ended December 31, 2014 primarily due to the net loss of $22,450,200, which was mostly offset by the issuance of shares associated with non-brokered private placement transactions that occurred in 2014, as well as shares issued to satisfy an outstanding debt obligation and the award of stock options and restricted share units. Liquidity and Capital Resources

At December 31, 2014, the Company had $912,565 in cash and a $2,500,000 revolving line of credit with insiders of the Company. As of December 31, 2014, $1,050,118 was outstanding under the revolving line of credit. During the year ended December 31, 2014, the Company received net proceeds of approximately $9.7 million from the revolving line of credit.

The Company, through ePals Foundation, an entity in which the Company holds a controlling interest, renewed its $1,500,000 bank line-of-credit in April 2014 for an additional year. The line-of-credit agreement was renewed under terms where the Company will repay $10,000 of principal per month from October through December 2014 and $15,000 per month from January 2015 through March 2015. Interest rate terms were substantially similar to the previous agreement. This line-of-credit is personally guaranteed by two members of the Company’s Board of Directors. See “Subsequent Events” for additional information on this line of credit. On March 18, 2014, Cricket Media, Inc. entered into an amended and restated revolving promissory note with ZG Ventures, LLC, an affiliate of two members of the Company’s Board of Directors. The note was capped at an amount of $2,500,000, an increase of $1,000,000 from the previously existing credit facility. The note provided that interest accrues on any unpaid balance at a rate of one percent (1.00%) per annum and, subject to certain prepayment options, all principal and interest under the note was payable on March 31, 2015. During the first quarter of 2015, the Company entered into an agreement with ZG Ventures, LLC to forgive $1,000,000 outstanding under the credit facility and to amend certain terms of the note. See “Subsequent Events” for more information on this transaction.

During the year ended December 31, 2014, the Company issued approximately 5.5 million units of the Company (“Units”) through a non-brokered private placement at prices ranging from CAD$0.65 to CAD$1.875 per Unit for net proceeds of approximately $4.6 million. Each Unit issued consisted of one common share of the Company and one-third of one common share purchase warrant (each whole warrant, a “Warrant”). Each Warrant entitled the holder to purchase one additional common share of the Company at prices ranging from CAD$0.65 to CAD$1.875.

In April 2014, the Company paid CAD$390,000 in interest related to the 2012 Debentures and paid interest on CAD$6,500,000 of principal of the outstanding 2013 Debentures. The interest paid on $6,250,000 of principal of the 2013 Debentures was reinvested under the Company’s private placement of units by the holders of those debentures. The Company also entered into an agreement with one of the holders of its 2013 Debentures to defer the interest payment of approximately CAD$348,000 with respect to CAD$3,500,000 of principal that was due on April 30, 2014. This interest payment has been further deferred and the obligation will be incorporated into the principal as part of the restructuring of the Company’s debt taking place in 2015. See “Subsequent Events” for additional information on the Company’s debt restructuring.

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The table below shows the net changes in cash flows for the years ended December 31, 2014 and 2013:

The decrease in cash flows used in operating activities for the year ended December 31, 2014 compared to the prior year was primarily due to a reduction in operating expenses. Cash flows used in investing activities for the year ended December 31, 2014 decreased compared to the prior year period due primarily to lower capital expenditures and expenditures related to the creation and acquisition of intangibles and other assets that occurred in the prior year period, offset by an increase in cash paid related to acquisitions resulting from an acquisition in the form of an asset purchase in 2014 and 2014 payments related to the Carus acquisition earn out. Cash flows provided by financing activities for the year ended December 31, 2014 decreased compared to the prior year period as a result of the proceeds from the issuance of the 2013 Debentures in the prior year period with no corresponding proceeds in the current period and a reduction in proceeds from private placements, partially offset by increased draws on the related party line of credit in 2014, an increase in cash from the exercise of stock warrants and a decrease in cash repayments on the related party line of credit. In lieu of cash repayments, the company repaid approximately $10 million of balances outstanding under the related party line of credit through the issuance of restricted voting common shares. Bank Line-of-Credit and Debt Covenants At December 31, 2014 and December 31, 2013, the Company is in compliance with all requirements related to its bank line-of-credit agreement and the 2012 Debentures and 2013 Debentures. Future Working Capital and Capital Expenditure Needs The consolidated financial statements of the Company for the year ended December 31, 2014 and the notes thereto have been prepared on a going concern basis even though the Company currently has insufficient cash to fund its net operating shortfall for the next 12 months. In assessing whether the going concern assumption was appropriate, management took into account all relevant information available to it about the future, which was at least, but not limited to, the twelve month period following December 31, 2014. In order to fund its operating shortfall, the Company and a special committee of the board have been exploring various financing strategies and strategic alternatives including corporate-based, financial investor-based and private equity-based financings, strategic combinations, cost reduction initiatives, and other alternatives. The Company believes that based on the financial strength of its existing shareholder base and previous success in raising capital, any shortfall in its operating plan may be met through one or more of these strategies. During the year ended December 31, 2014, the Company had a net loss of $22,450,200, negative cash flow from operations of $16,233,497 and a negative working capital of $12,443,735. Historically the Company has had operating losses, negative cash flows from operations, and working capital deficiencies. The Company is subject to liquidity risks generally associated with early-stage media and technology companies, which include fluctuations in operating expenses and revenues, and challenges in securing further equity or debt financing which is subject to prevailing market conditions at that time. If it does not raise alternative financing before exhausting its cash reserves, the Company could be forced to alter its current business plan and expenditure levels. As a positive operating cash flow position has yet to be

2014 2013

(dollars in thousands)

Net cash used in operating activities (16,234)$ (20,624)$ Net cash used in investing activities (1,035) (1,080) Net cash provided by financing activities 14,545 21,405 Decrease in cash & cash equivalents (2,724) (299)


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achieved, the Company currently has insufficient cash to cover its known operating expenditures for the next 12 months and will continue to evaluate its financing alternatives. There can be no assurance that management will be successful in raising the necessary capital required to fund planned operations, or that financing with acceptable terms will be available. These uncertainties may cast significant doubt upon the Company’s ability to continue as a going concern and/or uncertainty related to the capital structure of the Company. However, as described above, management has a reasonable expectation that the Company will continue for the foreseeable future. If for any reason, the Company is unable to continue as a going concern, it could have an adverse effect on the Company’s ability to realize assets at their recognized values, in particular goodwill and intangible assets, and to extinguish liabilities in the normal course of business at the amounts stated in the consolidated financial statements.

During the year ended December 31, 2014, the Company borrowed approximately $9.7 million under its related party line of credit and issued shares valued at approximately $10.1 million to repay amounts outstanding. The Company also issued approximately 5.5 million Units at prices ranging from CAD$0.65 to CAD$1.875 per Unit for net proceeds of approximately $4.6 million under a non-brokered private placement. Each Unit consisted of one common share of the Company and one-third of Warrant. Each Warrant entitled the holder to purchase one additional common share of the Company at prices ranging from CAD$0.65 to CAD$1.875 with the most recent issuances expiring on March 31, 2015. Additionally, the Company raised approximately $400,000 in connection with the exercise of stock warrants previously issued as part of its private placement transactions. See Note 13 in the Annual Financial Statements for additional information on these transactions.

The Company actively manages its liquidity through cash, debt and capital stock management strategies to fulfill obligations associated with financial liabilities, mainly accounts payable, accrued liabilities and the debentures. Settling financial obligations out of cash without issuing additional debt or equity or drawing down on existing credit facilities relies on the Company’s ability to generate cash from operations and in a timely fashion collect accounts receivable and by maintaining sufficient cash on hand. To manage liquidity risk, the Company, among other things, prepares budgets and cash forecasts and monitors its performance against these projections. Management also monitors cash and working capital efficiency given current sales levels and seasonal variability. At December 31, 2014, the Company had $912,565 in cash and a $2,500,000 revolving line of credit with an insider, as discussed in Note 12 in the Annual Financial Statements. The Company had $1,050,118 outstanding under the $2,500,000 revolving line of credit as of December 31, 2014. See “Subsequent Events” for additional information on the revolving line of credit. The Company manages the liquidity risk associated with the 2012 Debentures and 2013 Debentures by carefully monitoring its working capital to ensure it has sufficient capital to fund the interest payments on the debt. The 2012 Debentures and 2013 Debentures had a maturity date of October 31, 2014; however, the maturity date was extended to October 31, 2016 at the discretion of the Company. Semi-annual interest payments on the 2012 Debentures of CAD$390,000 are due on April 30 and October 31 of each year until the final maturity. The annual interest payment of $1,000,000 for the 2013 Debentures is due on April 30 of each year until the final maturity. In April 2014, the Company paid the CAD$390,000 in interest related to the 2012 Debentures and paid interest on CAD$6,500,000 of principal of the outstanding 2013 Debentures. The Company also entered into an agreement with one of the holders of its 2013 Debentures to defer the interest payment of approximately CAD$348,000 with respect to CAD$3,500,000 of principal of the 2013 Debentures that was due on April 30, 2014. The interest payment has been deferred and will be included in the principal amount of the debt restructuring taking place during 2015. See “Subsequent Events” for additional information on the Company’s debt restructuring. The funds associated with the interest paid on CAD$6,250,000 of principal of the 2013 Debentures were reinvested into the Company’s private placement Units by the holders of those debentures. Future capital requirements will depend on many factors, including, without limitation, the rate of revenue growth, the expansion of marketing and sales activities, the timing and extent of spending to support product development efforts and expansion into new territories, the timing of the release of new products and services and enhancements to existing products and services, acquisition activity, the timing of capital expenditures and the continuing market acceptance of the Company’s products and services.

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Escrow All of the voting common shares and restricted voting common shares held by former shareholders of Cricket Media, Inc., all options and warrants issued by Cricket Media, Inc. prior to the completion of the Merger, and all options, warrants and vested restricted share units issued by the Company after the Merger were subject to escrow (“Cricket Media Escrow”) based on restrictions imposed by the Company in connection with the Merger. The initial 50% of such securities were released from the Cricket Media Escrow on November 30, 2013 and on January 28, 2014, the remaining 50% were released. In addition, pursuant to the policies of the TSX-V, all securities held by or issued to the Company’s directors and senior management upon completion of the Merger were held in escrow (“TSX-V Escrow”). Securities were released from the TSX-V Escrow in accordance with the release schedule applicable to Tier 1 issuers, being 25% on the issuance of the Final Exchange Bulletin (issued August 5, 2011) and an additional 25% on each of the dates being six, twelve and eighteen months thereafter. On February 5, 2014, all securities subject to the TSX-V Escrow were released. Off-Balance Sheet Arrangements The Company’s off-balance sheet arrangements are comprised of operating leases entered into in the normal course of business. The Company has no other off-balance sheet arrangements and does not anticipate entering into any such arrangements other than in the normal course of business. Transactions with Related Parties

Of the CAD$10,000,000 in 2013 Debentures outstanding as of December 31, 2014, CAD$9,750,000 are held by existing investors and an affiliate of two members of the Company’s Board of Directors. See “Subsequent Events” for additional information regarding these debentures.

During the year ended December 31, 2014, the Company settled $10,050,000 outstanding under the revolving line of credit with an affiliate of two members of the Company’s Board of Directors through the issuance of approximately 10.7 million restricted voting common shares at a weighted average price of CAD$1.04 per share. See “Subsequent Events” for additional information regarding this line of credit. The Company had a short-term agreement to reimburse an affiliate of two members of the Company’s Board of Directors for a percentage of the rent on shared office space up to $5,000 per month that expired on March 31, 2014.

In 2013, the Company entered into a publishing agreement with NeuPals for the translation and publication of Chinese language versions of the Company’s children’s magazines and content. NeuPals will pay royalty payments to the Company based on a percentage of NeuPals’ gross sales revenue from the sale of Chinese-translated magazines, books and back issues it translates (the “Derivatives”). The Company will pay to NeuPals royalty payments calculated as a percentage of the Company’s gross sales revenue from Derivatives sold outside of China. No revenues were earned and no royalties were incurred under this agreement during the year ended December 31, 2014. NeuPals and NeuEdu are affiliated with Neusoft Holdings. The Company extended its agreement through October 2014 for financial advisory services with a company that invested in the 2012 Debentures and the 2013 Debentures. The agreement provides for a service fee of $25,000 per month. The Company incurred a total expenses of $250,000 in 2014 related to this agreement. The Company’s $1,500,000 bank line-of-credit through ePals Foundation is personally guaranteed by two members of the Company’s Board of Directors. See “Subsequent Events” for additional information regarding this line of credit.

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Changes in Accounting Policies New accounting standards During 2013, the IASB amended disclosure requirements within IAS 36 – Impairment of Assets related to recoverable amounts for non-financial assets. Under the amendments, the requirement to disclose the recoverable amount of non-financial assets irrespective of whether or not an impairment has taken place has been removed. Additionally, the amendments require entities to make disclosures for fair value less costs of disposal that are consistent with those required for an asset (or cash generating unit) where the recoverable amount has been determined on the basis of value in use. Amended guidance also requires entities to disclose the following: (i) the level of the fair value hierarchy within which the fair value measurement of the asset (or cash generating unit) is categorized in its entirety (without taking into account whether costs of disposable are observable); (ii) a description of the valuation technique(s) used to measure fair value less costs of disposal for fair value measurements categorized within Level 2 or Level 3 of the fair value hierarchy, including any changes to valuation techniques and the reason for the change; (iii) key assumptions on which management has based its determination of fair value less costs of disposal for fair value measurements categorised within Level 2 and Level 3 of the hierarchy; and (iv) the discount rate(s) used in the current measurement and previous measurement if fair value less costs of disposal is measured using a present value technique. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014 and the Company has updated its disclosures in accordance with this amendment. See Note 9 in these consolidated financial statements for the Company’s disclosures on the impairment of assets. During 2012, the IASB amended IFRS 10 – Consolidated Financial Statements, in connection with amendments to IFRS 12 and IAS 27 to introduce an exception to the principle that all subsidiaries are required to be consolidated. The amendments define an investment entity and require a parent that is an investment entity to measure its investments in particular subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. Additionally, the amendments introduced new disclosure requirements for investment entities. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014. These amendments did not have a material effect on the Company’s financial statements. During 2011, the IASB amended IAS 32 – Offsetting Financial Assets and Financial Liabilities to clarify the accounting requirements for offsetting financial instruments. This amendment clarifies the legally enforceable right to set off recognized amounts in connection with the offset financial assets and liabilities must not be contingent on a future event and must be legally enforceable in all of the following circumstances: (i) the normal course of business; (ii) the event of default; and (iii) the event of insolvency or bankruptcy of the entity and all of the counterparties. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014. These amendments did not have a material effect on the Company’s financial statements. During 2013, the IASB amended IAS 39 – Financial Instruments: Recognition and Measurement to introduce a narrow scope exception that would allow the continuation of hedge accounting under IAS 39 and IFRS 9 when a derivative is novated under the following conditions: (i) the novation comes as a consequence of laws or regulations (or the introduction of laws or regulations) and (ii) the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty of each party. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014. The Company does not have any derivative instruments applicable to these requirements and there for the amendments did not have an effect on the Company’s financial statements.

During 2013, the IASB issued IFRIC 21 – Levies which provides guidance on when to recognise a liability for a government imposed levy. IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, and that the preparation of the financial

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statements under the going concern principle and economic compulsion of the entity do not create or imply the existence of an obligating event. Companies were required to adopt these amendments for periods beginning on or after January 1, 2014. These amendments did not have a material effect on the Company’s financial statements.

New IFRS standards issued but not yet effective or adopted by Cricket Media In May 2014, IFRS 15, Revenue from Contracts with Customers, was issued. IFRS 15 was issued to converge standards with U.S. GAAP guidance, as well as clarify recognition for various revenues generated from contracts with customers. IFRS 15 is effective on January 1, 2017 with early application permitted. The Company is evaluating any future impacts of implementing this standard. In July 2014, the IASB issued an amendment to IFRS 9 – Financial Instruments to include new impairment requirements for all financial assets that are not measured at fair value through profit or loss and amendments to previously finalised classification and measurement requirements for financial assets. Mandatory adoption begins in periods beginning on or after January 1, 2018 with early adoption permitted. The Company is evaluating any future impacts of implementing this standard. Financial Instruments and Other Instruments The Company holds various forms of financial instruments, including cash, certificates of deposit, accounts receivable, convertible debentures, a line of credit with related parties, accounts payable, finance leases and a bank line-of-credit. The nature of these instruments and its operations expose the Company to currency risk, credit risk, interest rate risk and liquidity risk. Liquidity risk See “Future Working Capital and Capital Expenditure Needs” in this MD&A for information about the Company’s liquidity risk. Interest rate risk Interest rate risk is defined as the risk that the fair value or future cash flows of a financial instrument held by the Company will fluctuate because of changes in interest rates. The 2012 Debentures have a fixed interest rate of 6.50% per annum and the 2013 Debentures have a fixed interest rate of 10.00% per annum. The Company’s only exposure to interest rate risk from these debentures is from a cost of funds perspective. If interest rates rise, the value of the convertible debentures decreases. The Company is exposed to interest rate risk on its $1,500,000 bank line-of-credit as amounts borrowed accrue interest at the Wall Street Journal prime rate minus 0.50%, but not less than 4.5% per annum. Due to the low current market interest rates, exposure to interest rate risk is minimal. Currency risk The Company is required to pay the principal and interest payments on the 2012 Debentures and the 2013 Debentures in CAD and also has outstanding payables with vendors in Canada, which creates an exposure to currency risk between CAD and the Company’s functional currency of USD. The related debenture agreements specify that for the computation of the principal and interest payments, any currency other than Canadian dollars shall be converted into Canadian dollars at the applicable Bank of Canada noon rate of exchange on the date which such computation is to be made. The Company is examining the cost effectiveness of potential hedging strategies to partially mitigate this risk. Risk Factors The following risk factors should be considered carefully. These risk factors could materially and adversely affect the Company’s future operating results and could cause actual events to differ materially from those

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described in forward-looking statements relating to the Company. The directors of the Company consider the risks set forth below to be the most significant, but do not consider them to be all of the risks associated with an investment in securities of the Company. Risks specific to our media business Static Market for Print Media Products Children’s magazines, like most print media, are not a growth market, making company growth from the print media part of the business largely dependent on taking market share from current competitors and finding new international markets where the Company does not currently operate, as well as expanding into digital products that further monetize the Company’s media assets. The Company is taking steps to grow the media business, including introducing digital-only and hybrid offerings and digital editions while de-emphasizing the print-only products, and bringing on affiliates and new channels such as the ePals Global Community and our Chinese partner. Sales and marketing efforts are being redirected and focused on the digital offerings. Magazines face increasing competition from alternative forms of media and entertainment. As a result, sales of magazines through subscriptions could materially decline. As publishers compete for subscribers, subscription prices could decrease and marketing expenditures may increase. Risks Related to Digital Subscriptions The success of our media business is partially dependent on the integration of traditional and new media assets and strategies to create and deliver learning experiences with greater reach, scale and adaptability, but at less cost than traditional learning products. If we are unable to exploit our technologies to distinguish our products and services from those of our competitors, our business, financial condition, and prospects may be adversely affected. We believe that the trend toward a digital distribution model will accelerate as children become more technologically savvy and mobile devices continue to saturate in and out of the classroom. Customer acquisition costs decrease in digital products as compared to print products. In order for our digital subscription business to succeed, we must significantly invest time and resources in them, including to:

• continue to adapt our organization and operating model to successfully provide a diverse product set with multiple digital formats; • continue to develop and upgrade our technologies and supporting processes; • successfully digitize new and existing physical assets in our global content library; • build an e-commerce revenue profit stream by engaging visitors in product purchasing on our websites; • initiate paid membership models in our digital businesses; and • continuously advance our digital offerings based on fast-moving trends that may pose opportunities as well as risks (e.g., e-readers and mobile applications).

We may not be successful in achieving these and other necessary objectives. In addition, we may not deliver digital content in a way that drives a significant increase in the use of our digital products. Increased digital usage is important for upselling and cross marketing opportunities. If we are not successful in driving increased usage of our new digital products, it could adversely impact our results and future growth. Further, our failure to adapt to new technology or delivery methods, or our choice of one technological innovation over another, may have a material adverse impact on our ability to compete

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for new customers or to meet the demands of our existing customers which could have an adverse impact on digital product adoption and usage. Reduction in Customer Renewal Rates Could Significantly Reduce Revenues Cricket Media’s customers have no obligation to renew their subscriptions after the expiration of the initial contract period which is typically one year. A decline in renewal rates would adversely affect revenues and operating results. Cricket Media’s subscription renewal rates may decline or fluctuate widely because of a number of factors, including changes in customer satisfaction with products, services, pricing, support, competitive products, Cricket Media’s ability to update its products to maintain their attractiveness in the market, or budgetary constraints or changes in budget priorities faced by its customers. Cricket Media is focused on programs to improve the renewal rates and reduce customer churn. Cricket Media’s channel partners face similar risks and Cricket Media’s revenue from such partners is similarly challenged. Increased Costs of Physical Manufacturing and Delivery

Paper and postage currently represent significant components of our total cost to produce, distribute, and market our printed products. Paper is a commodity and its price has been subject to significant volatility. The Company has begun sourcing its own paper in order to take advantage of current downward trends in paper prices and, where possible, have locked in favorable short-term (1 year) rates. Postage costs have increased drastically for bulk mailers as the system attempts to replace the revenue from first class mail volumes that have disappeared with email and electronic bill payments. In order to offset this continuously upward pricing pressure, in January 2014, the Company renegotiated substantially lower pricing on co-mail postage costs supplied by our print vendor, resulting in overall postage savings. The United States Postal Service (“USPS”) distributes substantially all of our magazines and many of our marketing materials. Postal rates are dependent on the operating efficiency of the USPS and on legislative mandates imposed upon the USPS. We cannot predict with certainty the magnitude of future price changes for paper and postage. Further, our revenues could be negatively affected if we pass such increases on to our customers, which could make the pricing of our product less attractive. Uncertain Market for Foreign Language Products in the U.S. and Internationally To better leverage its owned content assets, the Company is focusing on offering multiple language and dual language versions of its digital products, particularly products in Mandarin and/or for the China market. The potential market for these products is large but is also untested as a children’s media and publishing market. It is possible that the Company may not successfully sell and/or monetize its core English language brands, develop the necessary distribution channels and partners, or attract a large enough audience in the international marketplace to offset initial costs of entering this market and sustain meaningful revenue.

Growth Depends on Significantly Increasing User Engagement and Usage of Cricket Media’s Media Business Products, and Monetizing Use Domestically and Internationally

Cricket Media needs to increase engagement from users (educators, students and parents) and develop a strong base of engaged users in order to drive the success of our collaborative products and attract Global Community partners. The ability to sustain engagement will require developing a strong brand and market position and the regular and effective release of new content and collaboration-based products to be successful. There can be no assurance that the number and level of engaged users will continue to grow at all, or to the levels and in the ways needed to attract future e-commerce, advertising and sponsorship, product sales and other media business revenue. Neither the characteristics of engagement with Cricket Media products nor number of users are currently sufficient to support a large global media business given size, usage, demography, consumption and other characteristics of its user base, including the fact that much of the user base does not possess spending authority and is not effectively monetizable directly given

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regulatory and social limitations on advertising in schools and to children. User acquisition depends on Cricket Media achieving “network effects” (the effect that one user of a good or service has on the value of that product to other people) for its K-12 safe social network from successfully growing virally and through enterprise and partner deployments domestically and internationally, and this may not occur.

In addition, monetizing the user base depends upon the base of users having sufficient purchase influence (directly for e-commerce and product sales, and indirectly for sponsorship and advertising) and engagement characteristics in sufficient aggregated scale not yet present in Cricket Media’s products which may not occur. Unlike consumer-based media and social networks, for example, usage currently: (i) depends on engaging multiple constituents for significant usage to occur (e.g. teacher needs to permit student use and integrate into his or her lessons); (ii) is more “required use” and task-oriented than wholly user-desired; (iii) competes directly with other required activities for teacher, instructional and parental time; (iv) is time segmented and seasonal (school day; school year); and (v) is not yet habitual and repetitive in ways typical of internet consumer use (monthly/weekly unique use, etc.). Some factors such as marketing, product appeal and repetitive use are determined in part by the success of Cricket Media in continuing to improve its products and their marketing and support, which may not occur, while other factors, such as access to computers in the classroom and their integration into daily learning activities at school or home, are beyond the ability of Cricket Media to meaningfully influence. Marketing, product appeal and consumer use factors are impacted by the Company’s ability to create compelling offerings on our Global Community in order to attract sponsors. If Cricket Media’s engagement by its users does not significantly grow or platform offerings do not attract sponsors as expected, Cricket Media will be unable to execute its media business as planned. Even if such growth in engagement occurs, Cricket Media may still be unable to effectively monetize that usage sufficiently to generate meaningful sponsorship revenues.

In addition to developing a solid user base, generating sponsorship revenue is dependent on developing relationships with institutional customers and partners who are subject to variations in the economic climate and may reduce spending on non-essential projects. Specifically, the ability to generate revenues associated with corporate sponsorships and institutions promoting educational causes could be adversely impacted by unfavorable economic conditions. Additionally, the sales process for completing sponsorship sales is long and may require significant investment of human capital and other resources for significant periods before results are realized. There is limited visibility into the sponsorship opportunity and the opportunity might not develop as expected.

Growth Depends on Success in Generating Revenues Associated with Content Licensing

In connection with initiatives to move towards a business model that revolves around the development of quality digital content, content licensing to third party partners is expected to be a significant source of revenue in the future. The Company has experienced significant growth in content licensing revenue and expects that trend to continue. Our success in generating revenue from the licensing of our media products will depend on growth in creation and adoption of digital content for kids, curricula and learning experiences across a range of partners including education publishers, assessment companies, common core curriculum companies and others, both domestically and internationally. Growth of these partners and their markets is dependent on a number of factors outside of the Company’s control, including education budgets, curricula preferences of governments, teachers and administrators, adoption by parents and kids of digital media products, success of potential licensees in growing their businesses, and the growth in kids’ media in general. If increased adoption of digital content and curricula does not occur to the extent expected by the Company, this could have a significant impact on the ability to generate the anticipated growth in media licensing revenues.

In addition to the adoption of digital content and curricula, the ability to realize growth in content licensing revenues depends on the ability of the company to continue to create new and desirable content for consumption. The Company must also continue to transition its content to digital formats including the implementation of infrastructure improvements such as utilization of a digital asset manager and other means to efficiently distribute the content. The Company has a considerable library of physical content which requires digitization which may take longer than anticipated to convert or require greater resources

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to convert than currently anticipated which could have an adverse effect on the business. The Company is committed to the development of quality content that is attractive to schools, districts and educational organizations, both domestically and internationally. While the Company feels its media products offer media companies, educational publishers and content providers, schools, districts and other educational organizations highly attractive content that will significantly enhance learning experiences, growth in this area is dependent on these groups adopting our products over products offered by competitors. If our content is not adopted to the degree anticipated by management, or if we have difficulty with digital asset management implementation and related infrastructure, growth in future content licensing could be impacted significantly.

Additionally the Company’s licensing model will require that it has the necessary rights in its licensable content to provide this content to third parties across different media, platforms and geographies. While the Company believes it generally has broad rights in its content, and will continue to focus on maintaining such rights in any new content developed, across our library there will be instances where we do not have the necessary rights desired by partners which could limit the growth of our content licensing business. The extent of this issue is difficult to measure since it will depend on particular demand that evolves with partners and any unforeseen issues we uncover in our content as we as we transition elements of it to the digital format and digital asset management.

Risks specific to our online collaboration products

Breaches of Safety, User Privacy or Other Incidents (Actual or Perceived) From Use of Cricket Media Products Could Harm Cricket Media’s Business The nature of Cricket Media’s primary and secondary school age focused business means that its products are used by educators, school staff, adults (such as parents, mentors, alumni and others) and kids of all ages. In connection with use of its hosted services, Cricket Media obtains, processes, stores for periods of time, displays to users and otherwise uses in connection with its and customers’ use of Cricket Media’s products potentially personal, sensitive and other information about the user, their uses of the products, and information created by the user or other users. Depending on the online product being used, this may include sensitive and personal information, student-related information, personally identifiable information, proprietary and confidential data, educational records and data that may be subject to collection, use and handling in accordance with legislative or regulatory compliance and oversight pertaining to privacy, children, educational records and security. In addition, because a primary value of Cricket Media’s products lies in the educational benefits of communication and collaboration among heterogeneous groups of users in a managed way inside and outside the four walls of a classroom, users interact online with other users who, depending on the circumstances, may be other students, their educators, and, if permitted by a school’s or a partner’s policies, other adults. Where such information and interaction involves students (especially children under the age of 13), there is heightened sensitivity and scrutiny generally and due to press coverage concerning child predators and online bullying. Regulations and legislation are also applicable in the U.S. and various countries and territories around the world that carry penalties and liabilities for noncompliance. Consequently, although Cricket Media believes it has highly advanced technologies, techniques and procedures in place to protect users, comply with applicable law, and provide a safe and secure, policy managed environment for (and configurable by) its users, it must be recognized that despite best efforts there may still be vulnerability to potential unauthorized accesses, uses, inadvertent disclosures, and security breaches that compromise data security and user safety, and incidents of inappropriate interaction between users of its products that lead to unwanted consequences (collectively “Incidents”). Such Incidents, real or perceived and single or multiple, could harm Cricket Media’s business, potentially irreparably, and subject Cricket Media to negative publicity, curtailment and/or cessation of one or more services with one or more users and customers, regulatory scrutiny and review, and potential liability of various kinds with consequences that could include curtailment of services, damages and/or fines of an uncertain and potentially catastrophic nature. Allegations of an Incident, even if untrue and/or without liability, could

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impose significant burden on Cricket Media to respond to and/or address the alleged Incident including imposing significant additional cost on Cricket Media or distraction from other business operations, and harm Cricket Media, potentially irreparably in the minds of users and customers. Furthermore, Incidents involving third parties (and not involving Cricket Media, its partners or customers) may still harm Cricket Media’s business and operating results if such Incidents impede growth or adoption of services like Cricket Media’s on the Internet or other platforms, or result in legislative, regulatory or legal developments that expose Cricket Media or its partners and customers to substantial compliance costs and liabilities. Adoption and Compatibility of Cricket Media’s Products with Third-Party Products and Services The Company continues to focus on improving the quality of platform products to enhance the channel strategy of enabling third party content providers to enhance their products using our platform and tools. We are doing this primarily by developing application programming interfaces (“APIs”) to further enable third-party developers to build products on top of our platform and/or making use of our collaboration tools and social graph. The success of our platform and APIs depends on the Company’s ability to effectively build out usable APIs that make our tools easy to integrate and highly compatible, as well as the ability to deliver these APIs in a timely manner. It also depends on our ability to provide underlying collaborative tools (enabled by the APIs) that are attractive to partners in enhancing their products and services. While Cricket Media believes that its product approach and channel-based strategy has distinct advantages in reach, cost of sales, length of sales cycle, and, ultimately, profitability, a risk of this strategy involves the necessity that Cricket Media solutions not compete with partner solutions and that the Cricket Media solutions accommodate complementary products and services to be sold along with Cricket Media products and/or with Cricket Media products as an integral element. Cricket Media believes this situation greatly broadens its market and allows the Cricket Media model to align with existing partner models. In certain instances this compatibility is with third party products embedded within Cricket Media’s products and tools, which presents an additional layer of complexity. The risk around our API and platform licensing strategy also results from the fact that it is early in the market for collaborative education making use of online, mobile and other networks and it is not clear what the level of adoption of collaborative tools will be in the market or what collaborative tools will be found to be most compelling. This provides a distinct product challenge for Cricket Media and failure to meet the market and evolve its tools, APIs and platform presents a significant risk. Reduction in Customer Renewal Rates or the Failure to Expand Sales in Customer Sites Could Significantly Reduce Revenues In general Cricket Media expects to license its products on its platform and APIs on a recurring license and fee structure. Customers will have no obligation to renew these licensing agreements after the expiration of any initial or subsequent contract period. A decline in renewal rates would adversely affect revenues and operating results. Cricket Media’s renewal rates may decline or fluctuate widely because of a number of factors, including changes in customer satisfaction with products, services, pricing, support, competitive products, Cricket Media’s ability to update its products to maintain their attractiveness in the market, or budgetary constraints or changes in budget priorities faced by its customers. Sales Fluctuations Not Fully Reflected in Operating Results until Future Periods. Cricket Media expects to recognize most of its revenues from customers monthly over the terms of their agreements, which are typically 12 months. As a result, much of the revenue Cricket Media will report each quarter is attributable to agreements entered into during previous quarters. Consequently, a decline in sales, client renewals, or market acceptance of Cricket Media’s products in any one quarter would not necessarily be fully reflected in the revenues in that quarter, and would negatively affect its revenues and profitability in future quarters as well. This ratable revenue recognition also makes it difficult for Cricket Media to rapidly increase its revenues through additional sales in any period, as revenues from new clients generally are recognized over the applicable agreement term. In the media business, the foregoing applies

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to certain Cricket Media’s subscription and licensing revenue, but may not apply to E-commerce, advertising and product sales. Risks specific to our international business Risks Related to our International Operations and Sales As our international operations increase, we face a number of risks, including: the difficulty of effectively managing our global operations; changes in regulatory requirements; dependency on international partners in China to monitor for intellectual property infringement and attendant risks; tariffs and other trade barriers; political and economic instability in foreign markets; and fluctuations in foreign currencies which may make our products less competitive in countries in which local currencies decline in value relative to the U.S. dollar. Risks Associated with International Expansion One of Cricket Media’s key growth strategies is to pursue international expansion, including the international expansion of its media products. Expansion of its international operations and media products may require significant expenditure of financial and management resources and result in increased administrative and compliance costs. The success of Cricket Media’s international expansion depends on its ability to identify, structure and formalize relationships with leading companies to assist in the launch of media products and platform products and tools that are appropriate to different countries and regions. In addition, Cricket Media will need to attract, retain and motivate highly-skilled key employees and/or partners abroad to nurture such partnerships and bring them to fruition. As a result of such expansion, and the indirect nature of the go-to-market strategy, Cricket Media will be subject to execution and revenue risks similar to its channel strategy for sales, and, at the same time, be increasingly subject to the risks inherent in conducting business internationally, including:

foreign currency fluctuations, which could result in reduced revenues and increased operating expenses;

potentially longer payment and sales cycles;

difficulty in collecting accounts receivable;

the effect of applicable foreign tax structures, including tax rates that may be higher than tax rates

in the United States or taxes that may be duplicative of those imposed in the United States;

general economic and political conditions in each country;

inadequate intellectual property protection in foreign countries;

uncertainty regarding liability of Cricket Media’s services abroad as they launch and scale;

the difficulties and increased expenses in complying with a variety of foreign laws, regulations and trade standards; and

unexpected changes in regulatory requirements, especially in China given sensitivity in the media

and education sectors there.

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Risks Associated with our International Joint Venture The Company commenced operations of its platform and media businesses in China through the Company’s joint venture (“NeuPals”) with NeuEdu Tianjin (“NeuEdu”). The launch of business operations in China came after the completion of the initial technology transfer, product adaptation and localization, as well as establishment of facilities in China. While revenues generated by NeuPals do not have an impact on Cricket Media’s revenues due to the accounting treatment for the results of the joint venture, results from the operations of NeuPals do have an impact on Cricket Media’s net income. In addition to viral adoption of its products by schools and individual teachers, NeuPals needs to substantially increase the number of schools, districts and educational organizations and others that license its premium platform products for use by large groups of users to grow its business. While a number of pilots to implement these products were active during 2014, NeuPals has not yet attracted, and may not in the future be able to attract, a sufficient number of schools and districts to drive the desired amount of growth from this source of large scale customer acquisition. The inability to do so could have an adverse impact on the results of the joint venture and consequently to Cricket Media’s net income. NeuPals’ customers include primary and secondary schools, each of whom depend heavily on availability of government funding for the NeuPals solutions. Whether in response to budget crises or changing priorities, if funds available from governments to spend on education generally decrease, or the classes of services into which NeuPals products fit specifically decrease, then NeuPals could lose substantial revenue in that jurisdiction or for that product. Risks specific to our overall business

Limited Operating History and Unproven Revenue Model Our short operating history in a new and rapidly evolving market and unproven business model makes it difficult to evaluate future prospects and increases the risk that we will not be successful. In addition, revenue models associated with digital media products models are new, unproven and may not generate sufficient revenue for us to be successful. Due to competition from new market entrants offering free solutions and by the continued evolution of social learning technologies and the strategies of channel partners addressing the school market, the Company deemphasized platform subscriptions in 2013 as it reconfigured and enhanced its enterprise product and channels in response to these competitive conditions and rapidly changing indirect sales channels in the global K-12 market. We have recently introduced new digital products that leverage existing media content assets, but there is no assurance that we will be successful in establishing these products in the market place. Accordingly, our revenue models need further validation and maturation and may dramatically change.

History of Losses Means Cricket Media May Not Achieve or Maintain Profitability in the Future

We have experienced operating losses since inception, and expect to incur significant losses in the future. Our current expense levels are based, in significant part, on estimates of future revenues that have limited visibility. Expense levels, other than printing costs for our magazine subscriptions, are relatively fixed and are based, in part, on expectations regarding future revenues. If revenue levels fall below expectations, our net loss will increase because only a portion of our expenses varies with revenues. We may never achieve profitability, and if we do, there is no assurance that we will sustain or increase profitability.

Maintenance and Growth of Strategic Partner and Channel Relationships Domestically and Internationally is Key to Cricket Media’s Success and May Not Occur

Cricket Media’s growth depends in large part on the success of its strategic relationships and channel partner deals with third parties. Relationships with leading providers of services to schools, districts and educational organizations, cloud-based services providers, and providers of educational content and

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curriculum are critical to Cricket Media’s success. Given the importance of international growth to Cricket Media’s ability to earn significant revenue and achieve profitability in the short and long term, these partner relationships must be established, grown and maintained in important markets throughout the world. Cricket Media may fail in establishing, growing and maintaining the relationships necessary for its success and, even if Cricket Media is able to establish, grow and maintain such relationships, its business and operating results would still be harmed to the extent that such providers fail, in whole or in material part, to:

develop and deploy channels and value-added services based on Cricket Media’s products or technology;

develop and support sales, delivery and other infrastructure needed for adoption of Cricket Media’s products by customers;

generate transaction fees from the sale of Cricket Media’s products; and

promote brand preference for Cricket Media’s products in relation with other products sold by such providers.

Cricket Media has established reseller and channel distribution agreements with certain strategic partners in the platform business. The loss of these relationships or the inability of these companies to market Cricket Media’s products and services effectively could have a material negative impact on the results of Cricket Media’s operations and anticipated revenue growth as Cricket Media is depending on these relationships both directly to expand the business and generate revenues and indirectly to serve as reference accounts for new partners. In addition, Cricket Media’s operating results may vary widely from period to period due to significant nonrecurring payments from its partners or other factors. Growth Depends on the Success of Major Customers Cricket Media has established relationships with certain significant customers who are either revenue producing or of strategic significance. For the year ended December 31, 2014, one customer accounted for over 25% of content licensing revenue. In addition, in early markets such as this, the visible success of major customers is important to retaining and expanding relationships with other customers, attracting new customers, solidifying pricing and shortening sales cycles. The loss or substantial delay of deployments with any of these major customers could have a material negative impact on the results of Cricket Media’s operations and growth of its user base. Legislative, Regulatory and Legal Developments Could Negatively Impact Cricket Media’s Prospects Cricket Media’s business, especially as it concerns children, online communication, privacy and educational records, is subject to a variety of U.S. and foreign laws. These laws include the Children’s Online Privacy Protection Act, The Family Educational Rights and Privacy Act, and various European Union (“EU”) and other directives in China and other countries and territories around the world. In many jurisdictions the regulatory, legislative and legal landscape potentially impacting Cricket Media and/or its partners’ and customers’ ability to do business and conduct their affairs (and the cost and effort of doing so) is unsettled and still developing. Failure to comply or the costs of compliance could subject Cricket Media or its partners and customers to claims, costs for compliance or potential liabilities that now or in the future may harm Cricket Media’s business. For example, public scrutiny of Internet privacy and children’s safety – in the US or in potential markets around the world -- may result in increased regulation and different industry standards, including laws which could deter or prevent Cricket Media, its partners and its customers from providing its current or future products and services to users and customers (as applicable), thereby harming Cricket Media’s business.

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Market Acceptance or Market Development May Be Slower or Different Than Anticipated by Cricket Media Cricket Media’s success depends on its ability to generate revenues by selling its products (directly and through channels) to schools, districts and educational organizations and other education providers and by user adoption of Cricket Media’s media business products. The market for online, interactive learning and safe, collaborative products is at an early stage, and the viability and profitability of this market is unproven and may not develop or continue to expand as expected. Cricket Media’s digital content, platform business and Global Community business depends, in particular, on accelerating demand for, and use by, educators and students at scale of safe, online collaboration and communication systems. Cricket Media’s media business depends, in particular, on continuing the transition of education content and curriculum markets from physical to digital. Cricket Media’s business will suffer if schools, districts and educational organizations and other customers do not increasingly deploy its platform and help create a market for the media business products. Cricket Media’s business will be negatively affected and Cricket Media may never earn material revenues or achieve profitability if the pace of transformation of education publishing, adoption of online collaboration and communication systems for student use, or mapping Cricket Media products to future demand is too slow. Many potential customers may resist working with Cricket Media, or take materially longer than expected to make purchase decisions given the early stage of market acceptance for our type of products and services. Furthermore, there are a number of potential scenarios where Cricket Media’s business and prospects could suffer even if the transition to digital interaction in education publishing occurs as expected by Cricket Media. These include:

the market develops too quickly and Cricket Media has trouble scaling its products and services in a profitable manner;

competitors – existing or new – build “network effects” (the effect that one user of a good or service has on the value of that product to other people) before Cricket Media does;

the durable value point in the market shifts to a layer in the set of aggregated services different

than anticipated by Cricket Media and to which Cricket Media has difficulty adapting or competing;

customers and users prefer one “soup to nuts” solution as opposed to core infrastructure and support for a variety of different services as required by Cricket Media’s channel-based sales model; and

customer implementations require extensive customization, preventing Cricket Media from

attaining profitable, product based scale. Competition Cricket Media is engaged in a competitive industry that is evolving and characterized by technological and business change. Accordingly, it is difficult for Cricket Media to predict whether, when and by whom new competing content and technologies may be introduced or when new competitors may enter the market. Cricket Media faces increased competition from businesses with strong positions in certain markets it currently serves and in new markets and regions it may enter. Large, established media companies not historically in education are now pursuing the market (News Corp, Google) and small, innovative companies are entering the market with digitally native products and disruptive business models. Cricket Media competes with a wide variety of technology and platform providers, providers of community, communication and collaboration solutions, and content and curriculum businesses. Many of its current and potential future competitors have significantly greater financial and other resources than Cricket Media does and may spend significant amounts of resources to try to enter the market. Cricket Media cannot assure that it will be able to compete effectively against current and future competitors. In addition, increased competition or other competitive pressures may result in price reductions, reduced margins or loss of market share, any

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of which could have a material adverse effect on Cricket Media’s business, financial condition or results of operations. Competitors may be able to respond to new or emerging technologies and changes in customer requirements more effectively than Cricket Media can, or devote greater resources to the development, promotion and sale of products. Current and potential competitors may establish cooperative relationships among themselves or with third parties, including through mergers or acquisitions, to increase the ability of their products to address the needs of Cricket Media’s current or prospective customers. If these competitors were to acquire significantly increased market share, it could have a material adverse effect on Cricket Media’s business, financial condition or results of operations.

In addition, Cricket Media’s partners and licensees might in the future adopt products of other companies, including products that may compete with Cricket Media’s products. Some current and future partners and licensees may also decide to develop products that compete with Cricket Media’s products. They could give higher priority to the products of other companies or to their own products than they give to Cricket Media’s products. Moreover, Cricket Media may not be able to establish relationships with important potential customers and partners if they already have established relationships with Cricket Media’s competitors.

Failure to Adapt Products and Services to Changes in Technology or the Marketplace

Cricket Media uses many different technologies to develop and deploy strategic solutions for its customers. These technologies are rapidly changing and the market for interactive learning and collaboration products has only recently developed. The viability and profitability of this market is unproven. While Cricket Media researches and evaluates the tools it uses, there is no assurance that these technologies and the expertise it builds around them will continue to be applicable in the future. Cricket Media’s success will depend on its ability to adapt to rapidly changing technologies, to enhance existing solutions and to develop and introduce a variety of new solutions to address its customers’ and partners’ changing demands. If it fails to keep pace with such developments on a cost-effective basis, Cricket Media’s expenses could increase and it could lose customers. There can be no assurance that Cricket Media will be successful in identifying, developing, manufacturing and marketing new products or enhancing its existing products. Its business will be adversely affected if it incurs delays in developing new products or enhancements or if such products or enhancements do not gain market acceptance. In addition, there can be no assurance that products or technologies developed by others will not render Cricket Media’s products or technologies non-competitive or obsolete. Lost Sales Due to Product Problems Cricket Media’s Global Community and media business that sit on top of the platform are complex, access a host of web services interfaces and implement a host of complicated functions like role-based policy management. They may contain undetected errors or defects despite product testing and other quality control efforts. Cricket Media has frequent platform, product and functionality releases, and those releases may be delayed from their scheduled date due to a wide range of factors. Cricket Media’s service offerings may be disrupted causing delays or interruptions in the services provided to its customers and partners overall and in windows such as “back to school” when new services get significantly deployed or in the fall and winter when purchasing decisions and funding applications to subsidization programs such as E-Rate occur. Product problems and delays could lead to:

delays in or loss of market acceptance of Cricket Media’s products;

diversion of Cricket Media’s resources;

a lower rate of license renewals or upgrades;

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injury to Cricket Media’s reputation; and

increased service expenses or payment of damages.

Cricket Media’s products often contain service level agreements and other provisions pursuant to which product problems, service interruptions, data loss and other items could be grounds for cancelation, or it may subject Cricket Media to significant liability claims. Such claims could result in significant expenses, disrupt sales and affect Cricket Media’s reputation and that of its products. Cricket Media cannot be certain that limitations of liability set forth in its licenses and agreements would be enforceable or would otherwise protect it from liability, and its insurance may not cover all or any of the claims. A material liability claim against Cricket Media, regardless of its merit or its outcome, could result in substantial costs, significantly harm its business reputation and divert management’s attention from its operations. Operational Failures in Cricket Media’s Network Infrastructure Cricket Media hosts its products over the Internet. Unanticipated problems affecting Cricket Media’s network systems could cause interruptions or delays in the delivery of the hosting services and other services it provides. Cricket Media provides many of its services through the use of data centers and cloud services provided by third parties, such as Amazon S3 services and Microsoft’s Live infrastructure. Cricket Media does not control the operation of these third party services and data centers. Lengthy interruptions or security or other problems in these services could occur through failure to meet service level requirements including by the occurrence of a natural disaster and other problems that occur without adequate notice or with notice but where Cricket Media still cannot avoid the issue. Cricket Media has developed redundancies in some but not all of its systems, and cannot be assured its backup and disaster recovery plans will be adequate for all customers under all circumstances. As Cricket Media dramatically expanded its business in the past, it experienced some slower response times and related problems that it believes it has fully addressed, although no assurances can be given in this regard. If it encounters such problems, Cricket Media may lose users and customers, and may lose sales to potential clients. If Cricket Media determines that it needs additional systems and infrastructure, it may be required to make further investments in them, reducing operating margins and diverting capital from other efforts. Management of Growth As revenues are generated by Cricket Media and its user base expands, and Cricket Media continues to expand to meet anticipated research and development, sales, marketing, and delivery requirements, its future success will depend on its ability to establish and maintain an appropriate infrastructure and to adequately administer and manage its financial and human resources.

Cricket Media’s current and planned personnel, systems, procedures and controls may not be adequate to support its future operations. Cricket Media must continue to effectively hire, train and manage new employees. If Cricket Media new hires perform below expectations, if it is unsuccessful in hiring, training, managing and integrating these new employees, or if it is not successful in retaining its existing employees, Cricket Media’s business may be harmed. To manage any significant growth of its operations and personnel, Cricket Media will need to improve its operational and financial systems, procedures and controls and may need to obtain additional systems. Cricket Media’s current growth also creates difficulties in budgeting expenses and forecasting demand for its products. This can lead to delays in managing the production and shipment of its products and to difficulties in managing cash flows. In addition, the difficulties and risks associated with its growth could be exacerbated by Cricket Media’s expansion into foreign markets. If Cricket Media is unable to manage its growth rate, the business could be harmed and its results of operations and financial condition could be materially adversely affected.

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Dependence on Key Personnel Cricket Media’s success depends to a great extent upon the continued services of its senior management group and its ability to identify, attract, retain and motivate highly skilled and dedicated key employees and other personnel in a competitive career environment. If it loses key personnel or is unable to hire additional qualified personnel, or if its management team is unable to perform effectively, Cricket Media will not be able to implement its growth plans or operate its business effectively. Effecting and Integrating Acquisitions Could Impair Cricket Media’s Operating Results Another aspect of Cricket Media’s growth plan is potentially to acquire products or businesses that it believes are complementary to its business plan. Mergers involve a number of risks, including: diversion of management’s attention from current operations; disruption of the ongoing business; difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired company’s internal controls and procedures. The individual or combined effect of these risks could have a material adverse effect on the business. Furthermore, in paying for an acquisition, Cricket Media may deplete its cash resources, affect its profitability through “earn outs” or dilute its shareholder base by issuing additional securities. There is also a risk that the valuation assumptions, customer retention expectations and its models for an acquired product or business may be erroneous or inappropriate due to unforeseen circumstances and thereby causing an overvaluation of an acquisition target. There is also a risk that the contemplated benefits of an acquisition may not materialize as planned or may not materialize within the time period or to the extent anticipated. In addition, difficulties in integrating acquired businesses with Cricket Media’s business could result in the unexpected loss of customers and revenue and have a material adverse effect on operating results. Dependence on Limited Protection Proprietary Technology If Cricket Media is unable to protect its intellectual property, competitors could use Cricket Media’s intellectual property to market products similar to its products, which could decrease demand for Cricket Media products. In addition, Cricket Media may be unable to prevent the use of its products by persons who have not paid the required license fee, which could reduce revenues. Cricket Media relies on a combination of patent, copyright, trademark and trade secret laws, as well as licensing agreements, third-party nondisclosure agreements and other contractual provisions and technical measures, to protect its intellectual property rights. These protections may not be adequate to prevent competitors from copying or reverse-engineering Cricket Media’s products. In addition, patents might not be granted to Cricket Media to protect its intellectual property. Its competitors may independently develop products and technologies that are substantially equivalent or superior to Cricket Media’s products and technology. To protect its trade secrets and other proprietary information, Cricket Media requires employees, consultants, advisors and collaborators to enter into confidentiality agreements. These agreements may not provide meaningful protection for trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. The protective mechanisms included in its products may not be sufficient to prevent unauthorized copying. Existing copyright laws afford only limited protection for Cricket Media’s intellectual property rights and may not protect such rights in the event competitors independently develop products similar to its products. In addition, the laws of some countries in which Cricket Media’s products are or may be licensed do not protect its products and intellectual property rights to the same extent as the laws of the United States. Infringement on the Proprietary Rights of Others

A third party may assert that Cricket Media’s products and technologies violate its intellectual property rights. As the number of hosted services, safe communication, online collaboration and other aspects of

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online products related to education increase, and the functionality of these products further overlap, infringement claims could become more common. Any claims, regardless of their merit, could:

be expensive and time consuming to defend;

force Cricket Media to stop licensing its products that incorporate the challenged intellectual property;

require Cricket Media to redesign its products;

divert management’s attention and other company resources; and

require Cricket Media to enter into royalty or licensing agreements to obtain the right to use

necessary technologies, which may not be available on terms acceptable to Cricket Media, if at all. Protection of Domain Names and Trademarks Cricket Media has registered various domain names and trademarks relating to its brands. If it fails to maintain these registrations or a third party acquires domain names or trademarks similar to those of Cricket Media and engages in a business that may be harmful to Cricket Media’s reputation or confusing to its users and customers, Cricket Media’s revenues may decline and it may incur additional expenses in maintaining its brand and defending its reputation. Goodwill and Intangible Asset Impairment Charges

We have incurred and may in the future incur goodwill and intangible asset impairment charges. Acquisitions recorded as purchases for accounting purposes have resulted, and in the future may result, in the recognition of significant amounts of goodwill and other purchased intangibles. The amortization and impairment of these assets has reduced and could further reduce our net income in the future. Asset Location and Legal Proceedings Substantially all of our assets are located outside of Canada, and there may therefore be difficulties in enforcing judgments obtained by the Company in foreign jurisdictions by Canadian courts. Similarly, to the extent that the Company’s assets are located outside of Canada, investors may have difficulty collecting from the Company any judgments obtained in Canadian courts and predicated on the civil liability provisions of applicable securities legislation. Furthermore, the Company may be subject to legal proceedings and judgments in foreign jurisdictions. U.S. Tax Risk The Company is operating under the assumption that anticipated Final United States Treasury Regulations will qualify it under Section 7874(b) of the United States Internal Revenue Code of 1986 (the “Code”) as a U.S. domestic corporation for U.S. federal income tax purposes. If, as anticipated, Section 7874(b) were to apply, the Company would be subject to U.S. federal income tax as a U.S. domestic corporation on its worldwide income and any dividends paid by the Company to “Non-U.S. Holders” would be subject to U.S. federal income tax withholding at a 30% rate or such lower rate as provided in an applicable treaty. The Company currently does not intend to pay any dividends on its securities in the immediate or foreseeable future.

Moreover, because the voting common shares and restricted voting common shares will be treated as shares of a U.S. domestic corporation, the U.S. gift, estate and generation-skipping transfer tax rules generally apply to a “Non-U.S. Holder” of voting common shares and restricted voting common shares.

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Risks related to our debt and equity Future Capital Needs; Uncertainty of Additional Funding Cricket Media believes that, depending on circumstances and assumptions, for the next 12 months and potentially longer it will need to seek equity and/or debt financings to finance working capital requirements, continue its expansion, develop new products and execute on its business plan because existing working capital, expected cash flow from operations and other available cash resources will not fully cover such expenditures during such period. In addition, if Cricket Media’s business plans change; general economic, financial or political conditions in its industry change; or other circumstances arise that have a material effect on its cash flow, the anticipated cash needs of its business, as well as its conclusions as to the adequacy of its available sources of capital, could change significantly. Any of these events or circumstances could result in significant additional funding needs, requiring Cricket Media to raise additional capital. To the extent that Cricket Media raises additional capital through the sale of equity or convertible debt securities, the issuance of shares would result in existing shareholders experiencing dilution in their shareholdings. If additional funds are raised through the issuance of shares or debt securities, such securities may provide the holders with certain rights, preferences, and privileges that could impose restrictions on its operations. If financing is not available on satisfactory terms, or at all, Cricket Media may be unable to expand its business or to develop new business at the rate desired and its operations may suffer. Volatility in our Common Share Price

The market price of the Company’s voting common shares may be subject to wide fluctuations in response to many factors, including variations in the operating results of the Company and its subsidiaries, divergence in financial results from analysts’ expectations, changes in earnings estimates by stock market analysts, changes in the business prospects for the Company and its subsidiaries, general economic conditions, legislative changes, and other events and factors outside of the Company’s control. In addition, stock markets have from time to time experienced extreme price and volume fluctuations, which, as well as general economic and political conditions, could adversely affect the market price for the Company’s voting common shares. Our results of operations and financial performance in future quarters may not meet the expectations of public market securities analysts and investors which could cause significant volatility in the price of our voting common shares.

Limited Market for Securities The Company’s voting common shares are listed on the TSX-V, however, there can be no assurance that an active and liquid market for the Company’s voting common shares will be maintained and an investor may find it difficult to resell any of the Company’s securities.

Dividends

The Company has no earnings or dividend record, and does not anticipate paying any dividends on its shares in the foreseeable future. Dividends paid by the Company would be subject to tax under both the Income Tax Act and the Code.

Public Market May Not Develop for the October 2012 Debentures In February 2013, the TSX-V approved the October 2012 Debentures to be listed and posted for trading on that exchange. The October 2012 Debentures could trade at prices that may be higher or lower than their initial price. We cannot assure you that the market for the October 2012 Debentures will be maintained. If an active market for the October 2012 Debentures fails to be sustained, the trading price of the October 2012 Debentures could decline significantly.

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Debt Service and Repayment Under the agreements related to the October 2012 Debentures, the debenture holders have a security interest over substantially all of Cricket Media’s assets. In addition, the 2013 Debentures rank senior to other indebtedness of the Company, including the October 2012 Debentures. There is no assurance that the Company will not default under the October 2012 Debentures or the 2013 Debentures or that any such default will be waived. If an event of default (as defined under the agreements related to the October 2012 Debentures and the 2013 Debentures) occurs, the lenders may demand repayment and exercise rights under the security, including sale of the secured assets. Further, an obligation to pay the amounts owed under the October 2012 Debentures and 2013 Debentures before the stated maturity could have an adverse effect on the Company’s financial position. Cricket Media must meet certain ongoing financial and other customary covenants and restrictions related to its operations under the October 2012 Debentures and the 2013 Debentures that could negatively affect Cricket Media’s operations. In addition, Cricket Media is not permitted to incur senior indebtedness or pari passu indebtedness, in each case, over CAD$10,000,000; create or assume security interests on any of its assets, other than encumbrances specifically permitted under the October 2012 Debentures and the 2013 Debentures agreements; make payments to, enter into, make, purchase or acquire investments other than investments specifically permitted under the October 2012 Debentures and the 2013 Debentures agreements; or make any payment to, sell, lease or transfer, or otherwise dispose of any of its properties or assets to, or purchase any assets or property from, any affiliate under terms and conditions which are no less favorable to the Company than those that would be been obtained in an arms-length transaction. The Company may from time to time enter into other arrangements to borrow money to fund its operations and expansion plans and such arrangements may include similar or additional covenants and restrict Cricket Media in some way. These covenants and restrictions could negatively affect Cricket Media’s operations.

Variations in the Canadian/U.S. currency exchange rate could result in a significant increase in the amount of the interest and principal payments under the October 2012 Debentures and the 2013 Debentures.

Subsequent Events

Private Placement During the first quarter of 2015, the Company completed two additional tranches of its previously announced non-brokered private placement and issued 2,194,723 units of the Company (each a “Unit”) at a price of C$0.65 per Unit for gross proceeds of CAD$1,426,570. Each Unit consisted of one voting common share of the Company and one-third of one voting common share purchase warrant (each whole warrant, a “Warrant”). Each Warrant entitled the holder to purchase one additional voting common share of the Company at a price of C$0.65 until March 31, 2015. Debt Restructuring In March 2015, ZG Ventures, LLC (“ZG”) forgave an aggregate of $1,000,000 of indebtedness owing by Cricket Media, Inc., a wholly-owned subsidiary of the Company, to ZG under a loan facility pursuant to which Cricket Media, Inc. was entitled to borrow up to a maximum of $2,500,000 on a revolving basis (the “Note”). As partial consideration for the forgiveness of debt, Cricket Media, Inc. has agreed, subject to certain conditions, to indemnify Miles Gilburne and Nina Zolt, the principals of ZG, from all payment obligations that may be incurred by them in connection with a personal guarantee they have provided in connection with the Company’s bank line-of-credit with The National Capital Bank of Washington, whereby they have guaranteed the repayment by ePals Foundation Inc., an entity which Cricket Media, Inc. controls, of $1,500,000 of indebtedness incurred by ePals Foundation pursuant to a commercial line of credit with The National Capital Bank of Washington.

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In April 2015, the Company reached an agreement to restructure its ePals Foundation bank line-of-credit. The Company is expected to restructure the line-of-credit to carry a 5.0% interest rate with repayment due five years from the date the agreement is reached. The Company expects to formally execute the contract for this restructuring during the second quarter of 2015. On April 6, 2015, the Company announced that it has entered into a binding memorandum of understanding with certain holders of the 2012 Debentures (the “Junior Indebtedness”) issued pursuant to a trust indenture dated October 19, 2012 and certain holders of the 2013 Debentures (the “Senior Indebtedness”) issued pursuant to a trust indenture dated March 20, 2013, pursuant to which the Junior Indebtedness and the Senior Indebtedness will be restructured as more fully described below (the “Debt Restructuring”). The Debt Restructuring requires the approval of holders of 66 2/3% of the aggregate principal amount of Junior Indebtedness and holders of 66 2/3% of the aggregate principal amount of Senior Indebtedness. The Company is proceeding with the definitive documents necessary to fully effect the Debt Restructuring. Implementation of the Debt Restructuring is subject to the acceptance by the TSX Venture Exchange (“TSXV”). After the implementation of the Debt Restructuring and assuming the Company raises a minimum of $10 million pursuant to the Financing and the Bridge Loan (each as defined below), collectively, the Company’s long term debt will be reduced from approximately $22 million to approximately $11 million.

The proposed Debt Restructuring includes the following principal terms:

Treatment of Junior Indebtedness and Senior Indebtedness

The Junior Indebtedness and the Senior Indebtedness will be consolidated into a single class of U.S. dollar senior indebtedness (“New Senior Indebtedness”) evidenced by secured convertible debentures (“New Secured Debentures”) having principal terms as more fully discussed below.

Current holders of Junior Indebtedness will receive New Senior Indebtedness in a principal amount equal to 65% of the aggregate principal amount of Junior Indebtedness outstanding plus all accrued and unpaid interest thereon.

Current holders of Senior Indebtedness will receive New Senior Indebtedness in a principal amount equal to 75% of the aggregate principal amount of Senior Indebtedness outstanding plus all accrued and unpaid interest thereon.

Principal Terms of New Senior Indebtedness

The New Secured Debentures will mature four (4) years following the date of closing of the Debt Restructuring and will bear interest at a rate of 5% per annum payable annually in arrears. The Company will be entitled to pay interest accrued during the initial two (2) years that the New Senior Indebtedness is outstanding by issuing, at a holder’s option, either: (i) voting common shares or restricted voting common shares of the Company at a price equal to the weighted average closing price of the voting common shares of the Company on the TSX-V for the ten (10) trading days preceding the date of settlement (“Market Price”); or (ii) preferred shares of the Company (“Preferred Shares”) to be created in connection with the Financing (as defined and described in greater detail below).

The New Senior Indebtedness will be denominated in U.S. dollars and the New Secured Debentures will not be listed for trading on the TSX-V or any other public marketplace.

The New Secured Debentures will be convertible into voting common shares or restricted voting common shares of the Company, at the option of the holder, at a conversion price equal to the greater of (i) US$3.33 per share; and (ii) the amount per share equal to US$100,000,000 divided by the total number of issued and outstanding voting common shares and restricted voting common shares of the Company.

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The Company will be entitled to satisfy payment obligations under bank indebtedness in the principal amount of approximately US$1.5 million, subject to a maximum payment of principal and interest, collectively, of US$400,000 per year and subject to reduced permitted payments until such time as the Company raises sufficient funds pursuant to the Financing.

The Company will be permitted to dissolve or wind-up dormant or inactive subsidiaries and dispose of certain non-core or immaterial portions of its business at fair market value.

Annual mandatory prepayment of principal shall be made on the New Secured Debentures to holders on a pro rata basis, in an amount equal to 20% of the free cash flow of the Company in respect of such fiscal year.

The indenture governing the New Senior Indebtedness will include covenants of the Company in respect of cash flow and minimum cash balance.

Cricket Media will be entitled to incur additional secured indebtedness under a Bridge Loan (as defined below) in a principal amount of up to US$5 million, up to the first US$4 million of which shall rank senior to the New Senior Indebtedness (the “Senior Bridge Funds”) and a further US$1 million of which, if any, shall rank subordinate to the New Senior Indebtedness (the “Junior Bridge Funds”).

Other than in respect of the Senior Bridge Funds, the Company will be prohibited from incurring additional indebtedness ranking senior to or pari passu with the New Senior Indebtedness.

Bridge Loan and Conversion of Indebtedness to Preferred Shares

The Company is expected to seek bridge financing up to an aggregate principal amount of US$5 million (the “Bridge Loan”). The Bridge Loan will mature on April 30, 2016 and will bear interest at a rate of 5% per annum. The Company will have the option to pay accrued interest in cash, or by issuing the lenders under the Bridge Loan voting common shares or restricted voting common shares at a price equal to the Market Price at the time of settlement. The indebtedness under the Bridge Loan will be convertible into voting common shares or restricted voting common shares of the Company at the option of the holder, at a conversion price of US$0.32 per share.

In the event of the winding up or liquidation of the Company or a sale of all or substantially all of the assets or capital stock of the Company, the principal amount of the Bridge Loan outstanding at such time will be deemed to have increased by 100%, which increased amount will form a secured debt obligation of the Company which will rank subordinate to the Senior Bridge Funds and the New Senior Indebtedness and pari passu with the Junior Bridge Funds and the Company’s bank indebtedness.

In the event that Cricket Media receives Senior Bridge Funds from any person, certain amounts of New Senior Indebtedness as applicable, held by insiders of the Company will convert to Preferred Shares.

In the event that the Company raises aggregate gross proceeds of a minimum of US$10 million pursuant to an equity financing of Preferred Shares (the “Financing”) and the Bridge Loan, collectively: (i) all New Senior Indebtedness held by insiders of the Company will convert to Preferred Shares at a price per share to be determined (the “Issue Price”); and (ii) all outstanding indebtedness under the Bridge Loan will convert into, at the option of the holder and subject to TSX-V approval: (A) New Preferred Shares at a conversion price equal to the lesser of (y) 80% of the Issue Price; and (z) US$0.81; or (B) voting common shares or restricted voting common shares of the Company at a price of US$0.32 per share, or a combination of (A) and (B) at the holder’s option.

The Company’s wholly-owned subsidiary, Cricket Media, Inc. (a Delaware corporation) has amended the terms of its Note with ZG Ventures, LLC (“ZG”). Under the prior terms of the Note, Cricket Media, Inc. was entitled to borrow up to a maximum of US$2,500,000 and payment of all outstanding principal and interest

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was due March 31, 2015. The Note has been amended to (i) increase the principal amount that may be borrowed and outstanding from time to time thereunder to a maximum of US$3,500,000; (ii) extend the repayment date to April 30, 2015; (iii) provide that borrowings that result in the principal amount outstanding exceeding US$2,500,000 will be at the sole discretion of ZG; and (iv) provide for conversion of the principal outstanding under the Note into indebtedness owing under the Bridge Loan at the option of ZG.

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Outstanding Share Data The Company is authorized to issue an unlimited number of voting common shares, an unlimited number of restricted voting common shares and an unlimited number of preferred shares, issuable in series. The following table sets forth the details of voting common shares and restricted voting common shares outstanding as of April 15, 2015 and securities that are exercisable or convertible into voting common shares or restricted voting common shares. No preferred shares of the Company are outstanding as of April 15, 2015.

Type Number of

Shares Voting common shares 7,837,105 Restricted voting common shares(1) 23,110,701 Outstanding securities convertible into voting common shares and/or restricted voting common shares:

Cricket Media, Inc. stock options Number of voting common shares and/or restricted voting common shares issuable upon exercise of stock options

123,900

Cricket Media Corporation stock options Number of voting common shares and/or restricted voting common shares issuable upon exercise of stock options

2,438,776

Total Cricket Media Corporation common shares that would be issued upon conversion of Cricket Media, Inc.’s stock options and Cricket Media Corporation’s stock options

2,562,676

Cricket Media, Inc. warrants(2) Number of voting common shares and/or restricted voting common shares issuable upon exercise of warrants

154,424

Cricket Media Corporation warrants Number of voting common shares and/or restricted voting common shares issuable upon exercise of warrants

9,114

Total Cricket Media Corporation common shares that would be issued upon conversion of Cricket Media, Inc.’s common and preferred warrants and Cricket Media Corporation’s warrants

163,538

2012 Debentures Number of voting common shares issuable upon conversion of 2012 Debentures 800,000 2013 Debentures(3) Number of voting common shares issuable upon conversion of 2013 Debentures 1,000,000 Total voting common shares that would be issued upon conversion of 2012 and 2013 Debentures 1,800,000 Restricted stock units 243,244

Notes:

(1) Each restricted voting common share is convertible into one voting common share. (2) Common and preferred stock warrants issued by Cricket Media, Inc. are convertible into common shares of the Company

on a one-for-one basis, subject to adjustment based on stock splits, etc. These warrants are exercisable at the option of the holder and expire at various dates, depending on when they were issued, or the effective date of the first registration statement filed with the Securities and Exchange Commission, or the consummation of an acquisition or asset sale.

(3) Shares issuable upon conversion of the 2013 Debentures issued as of April 15, 2015 are as follows: 300,000 voting common shares for the conversion of the CAD$3,000,000 tranche of the 2013 Debentures issued

in March 2013 200,000 voting common shares for the conversion of the CAD$2,000,000 tranche of the 2013 Debentures issued

in April 2013 150,000 voting common shares for the conversion of the CAD$1,500,000 tranche of the 2013 Debentures issued

on May,10 2013 125,000 voting common shares for the conversion of the CAD$1,250,000 tranche of the 2013 Debentures issued

on May 31, 2013

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225,000 voting common shares for the conversion of the CAD$2,250,000 tranche of the 2013 Debentures issued in August 2013.

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