Management s Discussion & Analysis

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Management’s Discussion & Analysis

For the fiscal years ended

December 31, 2014 and 2013

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The following Management’s Discussion and Analysis of Financial Conditions and Results of Operations (“MD&A”) prepared as at March 26, 2015 supplements, but does not form part of the audited Consolidated Financial Statements and notes of Medworxx Solutions Inc. (“Medworxx”, or “the Company”) for the year ended December 31, 2014 and the year 2013.

The Company prepares its Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as set out in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). All financial information contained in this MD&A and in the consolidated financial statements has been prepared in accordance with IFRS except for certain “Non-IFRS Measures” on page 27 of this MD&A.

COMPANY PROFILE

Founded in 2004 and based in Toronto, Ontario, Medworxx Solutions Inc. (Medworxx) delivers health information technology solutions to hospitals primarily in Canada, the United States, United Kingdom, and France. Medworxx helps more than 350 hospitals meet daily challenges in patient flow and requirements in compliance and education.

Powered by principles of utilization management, Medworxx Patient Flow Solution is based on clinical evaluations of every patient, every day from admission to discharge. Medworxx Patient Flow data enables hospitals to assess and analyze patient flow barriers, interruptions and delays – to optimize care intensity, advance care plans and to gain insight into strategic indicators of quality and performance. Medworxx Patient Flow serves more than 34% of acute care beds in Canada.

Medworxx Compliance and Education platform enables healthcare organizations to create and deploy relevant content, and to support regulatory and compliance requirements. Hospitals engage the power of knowledge to increase competency, improve quality, reduce costs and simplify distribution of information to staff.

Medworxx’s Management Team is comprised of experienced leaders in healthcare, sales, marketing, IT development, and finance.

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• The Company was profitable with net income of $55,634 for the three months ended December 31, 2014 as

compared to a net loss of $330,721 for the three months ended December 31, 2013.

• Revenue from the Patient Flow Platform for the three months ended December 31, 2014 increased to $1.3M

from revenues of $1.1M for the three months ended December 31, 2013 an increase of $0.3M representing a growth of 23.8%.

• Revenue from the Compliance and Education Platform for the three months ended December 31, 2014

decreased to $0.4M from revenues of $0.5M for the three months ended December 31, 2013, a decrease of 8.0%.

• Groupe hospitalier Paris Saint-Joseph and Capio Group has selected Medworxx as their Patient Flow software

provider in France. Groupe hospitalier Paris Saint-Joseph is the first hospital in France to license the Medworxx Clinical Criteria module for operational use. The hospitals’ decision to implement the Medworxx solution for operational use comes as a result of conducting the PTR program.

• The Company defines Annualized Contract Value (“ACV”) of recurring revenue as the contracted annual

renewable software licence fees, maintenance services and hosting fees. The ACV of recurring revenue at December 31, 2014 was $5.4M as compared to $4.8M at December 31, 2013, an increase of 12.5%.

• Revenue for the year ended December 31, 2014 was $6.2M, representing an increase of 4.1% over revenues

of $5.9M for the year ended December 31, 2013. Revenue for the three months ended December 31, 2014 was $1.8M, representing an increase of 14.0% over revenues of $1.5M for the same period last year.

• Revenue from the Patient Flow Platform for the year ended December 31, 2014 increased to $4.5M from

revenues of $4.1M for the year ended December 31, 2013 an increase of $0.5M representing a growth of 11.4%.

• Revenue from the Compliance and Education Platform for the year ended December 31, 2014 decreased to

$1.6M from revenues of $1.8M for the year ended December 31, 2013, a decrease of $0.2M or 12.1%.

• Average revenue generated per bed for the three months ended December 31, 2014 was $135.37,

representing a 10.7% increase from average revenue per bed of $122.24 for the same period last year.

• International deployment of the Medworxx Patient Throughput Review (“PTR”) program (previously referred

to as the Appropriate Length Stay Audit “ALSA”) is underway. Since the official launch of the program, forty three PTRs have been delivered in several hospital in five countries; Australia, Canada, France, the United States and the United Kingdom. For the year ended December 31, 2014, twenty four PTR’s were delivered: twelve were in the United Kingdom, six in Canada, three in the United States, and three in France.

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• William Osler Health System (Osler) selected the Medworxx Patient Flow Platform to improve patient flow

across its two hospital sites to support its vision of patient-inspired health care without boundaries and to help monitor, plan and implement processes to improve inpatient resource utilization.

• NHS England introduced a substantial Commissioning for Quality and Innovation scheme (CQUIN) to support

providers in adopting clinical utilisation review (CUR) technology for specialised admitted patient care and critical care in 2015/16. The CQUIN demonstrates NHS England’s commitment to CUR as an essential tool to effective patient flow within provider organisations and across local health economies and provides NHS Hospital Trusts with set-up funding and ongoing financial support and incentives to develop and embed recognised Clinical Utilisation Review systems. The goal is to improve patient flow, enhance quality and ensure patients are treated in the most appropriate clinical settings, freeing up staff time and hospital resources. Medworxx contributed to the event by showcasing user experience from acute care providers using the Medworxx clinical utilisation solution. Over the last 12 months more than 20 UK hospitals and their commissioners have used the Medworxx Clinical Utilisation Review capability through embedded and diagnostic applications. Medworxx is the leading clinical utilization vendor in the UK and Canada with a combined total of over 28,500 licensed beds using Medworxx patient flow software.

• Medworxx appointed Mr. Har Grover and Mr. Steve Garrington to the Medworxx Board of Directors.

• The Company also created a Corporate Advisory Committee to assist with the ongoing expansion strategy into international markets.

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Medworxx strategy is highlighted as follows:

• To become the de facto standard platform for patient flow management

• To expand distribution channels by developing relationships with healthcare management consulting

organizations in new and existing markets

• To continuously develop or acquire synergistic products

• To enter new healthcare related markets in international geographies using existing technologies

• To leverage the Medworxx Patient Flow software – Patient Throughput Review program as a review and

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Operating Results

Medworxx Solutions Inc., Summary Financial Analysis:

Three months ended December 31 2014 $ Three months ended December 31 2013 $

% Change For the year

ended December 31

2014 $

For the year ended December 31 2013 $ % Change Revenues 1,766,075 1,549,808 14.0% 6,172,758 5,927,790 4.1% Cost of sales 161,264 148,643 (7.8%) 681,702 592,345 (13.1%)

Selling, marketing and administrative

expenses 1,075,936 1,282,368 19.2% 4,758,578 4,908,834 3.2% Research and development expenses 467,734 450,486 (3.7%) 1,902,157 1,811,772 (4.8%)

Net income (loss) 55,634 (330,721) (1,140,337) (1,342,479)

SUMMARY OF OPERATING RESULTS

This report analyses the results for the year ended December 31, 2014, with comparisons to the same period for the prior year. The audited consolidated financial statements for the year ended December 31, 2014 (the Financial Statements) form an integral part of this Management’s Discussion and Analysis. The Financial Statements can be found at www.sedar.com.

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Annual Results

For the year

2014 $

For the year ended December 31

2013 $

Revenue 6,172,758 5,927,790

Net income (loss) (1,140,337) (1,342,479)

Net loss per share basic (0.042) (0.051)

Weighted average number of shares

outstanding - basic 26,924,688 26,372,545 Net loss per share fully diluted (0.042) (0.051)

Weighted average number of shares

outstanding - diluted 28,035,709 26,372,545 Total assets 4,114,971 4,856,260 Long term liabilities 131,104 174,395 Deferred revenues 3,137,738 2,614,489 Highlights for 2014 compared to 2013

• Revenue for the year ended December 31, 2014 was $6,172,758, representing an increase of 4.1% over

revenues of $5,927,790 for the previous year. The increase is attributable to an 11.4% growth in the Patient Flow Platform, and offset by the decrease in Compliance and Education of 12.1%.

• Cost of sales – which include: amortization, commission, hosting and salaries – for the year ended December

31, 2014 were $681,702 or 11.0% versus cost of sales of $592,345 or 10.0% for the previous year. The increase is primarily due to the 52.0% increase in lower margin consulting services revenue and the cost to deliver the services.

• Sales, marketing and administrative expenses for the year ended December 31, 2014 were $4,758,578

representing a 3.2% decrease over expenses of $4,908,834 for the same period last year.

• Research and Development expenses for the year ended December 31, 2014 were $1,902,157 representing a

5.0% increase over expenses of $1,811,772 for the same period last year. The increase in spending has been primarily due to the investment in development, to convert the product to the new Medworxx 5.0 platform.

• Net loss for the year ended December 31, 2014 was $1,140,337 as compared to a net loss of $1,342,479 for

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• Total assets as at December 31, 2014 were $4,114,971 representing a decrease of $741,289 over total assets

as at December 31, 2013 of $4,856,260. This is primarily due to the decrease in cash of $1,002,5879, to fund operating activities of $1,020,300.

• Long-term liabilities as at December 31, 2014 were $131,104 representing a decrease of $43,291 over long

term liabilities of $174,395 at December 31, 2013.

• Deferred revenues as at December 31, 2014 were $3,137,738 representing an increase of $523,249 over

deferred revenues of $2,614,489 as at December 31, 2013. The increase is a direct result of increased sales of annual renewable software and maintenance services which are deferred and the revenue recognized on a straight-line basis over the term of the agreement.

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Types of Revenue

The Company generates revenue from the sale of software perpetual licences, sale of annual renewable software licences, maintenance and hosting services, and consulting services. Certain agreements provide for the delivery of application software and continuing post-contract services (PCS), such as support and maintenance for the application software sold. Revenue is allocated to multiple elements using the relative fair value method.

For the year ended December 31, 2014, the Company generated total revenue of $6,172,758, representing an increase of 4.1% over revenue of $5,927,790 for the same period last year.

Medworxx generates its revenue from four main sources:

Software perpetual licences:

Software perpetual licences are accounted for as sales of products, as the customer has a perpetual right to use the software freely and the Company has no remaining obligations to perform after delivery of the software. The revenue from these products is recognized when the Company has transferred to the customer the significant risks and rewards of ownership of the software, the Company does not retain continuing managerial involvement with or effective control over the software, the amount of revenue can be measured reliably, it is probable the economic benefits associated with the sale will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. These conditions generally are met when the application software has been delivered.

Term software licences:

Term or annual renewable software licences include the right to use the software for a year, technical support and maintenance services. These services are similar in substance to a subscription as the Company does not sell one-year licences without technical support and maintenance services and the revenue is recognized on a straight line basis over the term of the agreement from the date the licence term commences.

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Post Contract Service (“PCS”) maintenance, support and hosting services:

PCS maintenance, support and hosting services revenue are accounted for as services. As part of the sale of either a perpetual or an annual renewable licence, a client can acquire, for a separate fee, maintenance and support services for the software. These maintenance and support services are renewable by the client on an annual basis as of the anniversary date of software purchase. The client may also acquire hosting services from the Company whereby the software is hosted on the Company’s servers and the client is charged a recurring monthly fee for these services. Given the nature of this revenue stream and high probabilities of renewals, management classifies this revenue stream as recurring. Revenue is recognized when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity, the stage of completion of the transaction at the end of the reporting period can be measured reliably and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. These arrangements include an indeterminable number of acts over a specified period of time with revenue recognized on a straight-line basis over the term of the arrangement.

Maintenance, support and hosting revenue for the year ended December 31, 2014 were $1,947,063, representing a 5.7% increase over revenue of $1,842,317 in the prior year. For the three months ended December 31, 2014, the Company generated $519,478 in maintenance, support and hosting revenue, representing an 11.0% increase over revenue of $468,056 in the same period last year.

Consulting, professional services and other:

Consulting, professional services and other are accounted for as services. They include installation, implementation, training, and integration related to Medworxx software. They are charged on a time and materials basis. Revenue is recognized when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity, the stage of completion of the transaction at the end of the reporting period can be measured reliably and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

Consulting services and other revenue for the year ended December 31, 2014 were $779,120 representing a 52.0% increase from $512,619 for the prior year, primarily due to an increase in Patient Flow implementations. For the three months ended December 31, 2014, revenue was $219,160 representing a 68.3% increase in revenue $130,239 for the three months ended December 31, 2013.

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© 2015 • Management’s Discussion and Analysis • Page 12 Recurring revenue includes annual renewable software licence fees, maintenance services and hosting fees. Recurring revenue comprised of 80% (2013 – 80%) of total revenue for the year ended December 31, 2014. Recurring revenue is a non-IFRS measure.

REVENUE BY PRODUCT

Medworxx revenues are earned from two major product lines:

Medworxx Patient Flow Solution: Powered by principles of Utilization Management – leveraging clinical

evaluations to assess, analyze and advance patient flow challenges for every patient, every day.

• Medworxx Patient Flow Engine:

• Medworxx Clinical Criteria (formerly Utilization Management (“UM”)) – a clinically based solution to access, analyze and advance patient flow.

• Medworxx Bed Management (formerly Bed Board (“BB”)) – an electronic bed board that presents

status indicators for every bed and every patient, including clinical readiness for discharge, and provides staff with up-to-date information to drive bed huddles, bullet rounds and discharge planning.

• Medworxx Forms and Assessments (formerly Assessments (“AS”)) – add specialized or ‘independent’ reporting areas to daily patient assessments that are being conducted as part of Medworxx Clinical Criteria.

Medworxx Compliance & Education Solution: To easily create and deploy relevant content, enterprise wide – supporting regulatory and other compliance requirements.

• Medworxx Learning Management System (“LMS”) supports the development, management and delivery of

classroom and online learning, with associated reporting and compliance tracking capabilities.

• Medworxx Content Management System (“CMS”) – is a robust, highly scalable, full-featured and easy-to-use

content management system that is used by hospitals to improve the functionality and content of Intranet and Internet websites at reduced cost.

• Medworxx Policy and Documentation Management System (“PDMS”) enable healthcare organizations to

automate and simplify the management and publication of policies and procedures in a web-based environment.

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Revenue by Product Three months

ended December 31 2014 $ Three months ended December 31 2013 $ Increase/ (Decrease) $ Increase/ (Decrease) %

Compliance & Education 433,963 471,613 (37,650) (8.0%)

Patient Flow 1,318,211 1,064,800 253,411 23.8%

Other 13,901 13,396 505 3.8%

Total 1,766,075 1,549,808 216,266 14.0%

Revenue by Product For the year

2014 $

For the year ended December 31 2013 $ Increase/ (Decrease) $ Increase/ (Decrease) %

Compliance & Education 1,569,819 1,786,779 (216,960) (12.1%)

Patient Flow 4,533,829 4,068,962 464,867 11.4%

Other 69,110 72,049 (2,939) (4.1%)

Total 6,172,758 5,927,790 244,968 4.1%

The following table highlights Revenue by product information for the eight consecutive quarters ended December 31, 2014:

Revenue by Product 2014

Q4 2014 Q3 2014 Q2 2014 Q1 2013 Q4 2013 Q3 2013 Q2 2013 Q1

Compliance & Education ($) 433,963 370,115 362,765 402,977 471,613 439,664 369,343 506,159 Growth on Prior Year's Quarter (8.0%) (15.8%) (1.8%) (20.4%) 23.0% (62.6%) (27.7%) 28.4% Growth on Prior Quarter 17.3% 2.0% (10.0%) (14.6%) 7.3% 19.0% (27.0%) 32.0% Patient Flow ($) 1,318,211 984,980 1,043,200 1,187,438 1,064,800 919,436 1,160,951 923,775 Growth on Prior Year's Quarter 23.8% 7.1% (10.1%) 28.5% 25.0% 3.9% 35.0% 13.6% Growth on Prior Quarter 33.8% (5.6%) (12.1%) 11.5% 15.8% (20.8%) 25.7% 8.4% Other ($) 13,901 9,277 37,042 8,890 13,396 27,428 8,353 22,872 Growth on Prior Year's Quarter 3.8% (66.2%) 343.5% (61.1%) (83.5%) 8.4% (79.9%) (53.6%) Growth on Prior Quarter 49.8% (75.0%) 316.7% (33.6%) (51.2%) 228.4% (63.5%) (71.8%) Total ($) 1,766,075 1,364,371 1,443,006 1,599,305 1,549,808 1,386,529 1,538,647 1,452,806 Growth on Prior Year's Quarter 14.0% (1.6%) (6.2%) 10.1% 17.7% (33.5%) 8.9% 15.6% Growth on Prior Quarter 29.4% (5.4%) (9.8%) 3.2% 11.8% (9.9%) 5.9% 10.3%

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© 2015 • Management’s Discussion and Analysis • Page 14 The revenue increase in 2014 was primarily due to the growth of the Patient Flow platform and offset by the decrease in the Compliance and Education platform. The patient flow platform grew by 23.8% from $1,064,800 to $1,318,211 for the three months ended December 31, 2014 and 11.4% year over year from $4,068,962 for the year ended December 31, 2013 to $4,533,829 for the year ended December 31, 2014. While revenue from the Compliance and Education Platform for the year ended December 31, 2014 decreased by 12.1% to $1,569,819

from revenues of $1,786,779 for the year ended December 31, 2013. Revenue for the three months ended

December 31, 2014 decreased by 8.0% to $433,963 from revenues of $471,613 for the three months ended

December 31, 2013.

The success and revenue growth of the Company is represented by growth in the Patient Flow platform across multiple geographies. Medworxx is working to build its distribution channels in Canada, the United States, the United Kingdom, Australia and France. Revenue for the year ended December 31, 2014 was approximately 82.1% (78.4% - 2013) from Canadian customers, 6.7% (11.2% - 2013) from United States customers, 9.1% (10.1% - 2013) from the United Kingdom customers, and 2.1% (nil – 2013) from France customers. The Company’s revenue by geographic region is as follows:

Three months ended December 31 2014 $ Three months ended December 31 2013 $

2014 $

For the year ended December 31 2013 $ Canada 1,308,063 1,197,020 5,065,478 4,646,844 UK 224,279 135,018 561,836 595,835 USA 140,458 217,771 413,986 664,112 Australia - - - 21,000 France 93,274 - 131,457 -

The Company defines Annualized Contract Value (“ACV”) of recurring revenue as the contracted annual renewable software licence fees, maintenance services and hosting fees. The ACV of recurring revenue at December 31, 2014 with existing clients was $5,367,543 as compared to $4,793,123 at December 31, 2014, an increase of 12.0% and as compared to $4,974,738 at September 30, 2014, a 7.9% increase. The growth in ACV of recurring revenue for the year is comprised of growth of 16.3%, $576,175 for the Patient Flow platform, 0.4%, $4,885 for the Compliance and Education platform and 5.6%, $2,360 for the Other products. As the full value of such contracts is recognized

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Medworxx Patient Flow platform, consisting of three modules – Critical Criteria, Bed Management, and Forms and Assessment, is licensed on a per bed basis and the revenue generated per bed is primarily dependent on a number of factors such as the number of beds licensed, modules purchased, price increases and support upgrades. The following table highlights:

• the Annualized Contract Value (“ACV”) of Patient Flow recurring revenue – the contracted annual

renewable software licence fees, maintenance services and hosting fees related to the Patient Flow platform;

• the revenue generated per bed – the ACV, less revenue generated from Patient Throughput Reviews,

related to the number of beds licensed; and

• modules licensed – represents the total number of modules sold for the eight consecutive quarters ended December 31, 2014:

Revenue Generating Units 2014

Q4 2014 Q3 2014 Q2 2014 Q1 2013 Q4 2013 Q3 2013 Q2 2013 Q1

ACV of Patient Flow recurring revenue 4,088,079 3,712,768 3,661,849 3,634,342 3,520,904 3,479,080 3,414,488 3,208,550 Growth on Prior Years Quarter 16.1% 6.7% 7.2% 13.3% 19.1% 17.7% 18.1% 28.0%

Growth on Prior Quarter 10.1% 1.4% 0.8% 3.2% 1.2% 1.9% 6.4% 8.5%

Total beds under licensed 29,306 28,657 28,358 28,358 27,816 27,598 27,598 27,578 Growth on Prior Years Quarter 5.4% 3.8% 2.8% 2.8% 5.1% 3.8% 6.2% 26.8%

Average revenue generated per bed ($) 135.37 125.34 124.87 123.90 122.24 121.69 119.35 116.34 Growth on Prior Years Quarter 10.7% 3.0% 4.6% 6.5% 9.4% 9.4% 7.3% 1.0%

Total modules licensed 43,789 42,588 40,025 40,025 38,773 37,754 34,678 34,548 Growth on Prior Years Quarter 12.9% 12.8% 15.4% 15.9% 21.1% 17.5% 10.5% 27.3%

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Results of Operations

The following table highlights selected financial information for the eight consecutive quarters ended December 31, 2014:

2014

Q4 2014 Q3 2014 Q2 2014 Q1 2013 Q4 2013 Q3 2013 Q2 2013 Q1

Revenues ($) 1,766,075 1,364,371 1,443,007 1,599,305 1,549,809 1,386,529 1,538,648 1,452,806 Net income (loss) ($) 55,634 (453,784) (430,238) (311,948) (330,723) (453,623) (236,319) (321,815)

EBITDA ($) 106,831 (409,301) (390,213) (275,304) (243,337) (426,874) (210,649) (298,212)

Adjusted EBITDA ($) 143,665 (369,332) (352,928) (262,896) (221,722) (377,534) (161,110) (244,064)

Net income (loss) per share - basic ($) 0.002 (0.017) (0.016) (0.012) (0.012) (0.017) (0.009) (0.012)

Weighted average number of shares outstanding

- basic 26,997,040 26,983,889 26,937,587 26,682,125 26,470,321 26,343,278 26,330,127 26,265,158 Net income (loss) per share - diluted ($) 0.002 (0.017) (0.016) (0.012) (0.012) (0.017) (0.009) (0.012)

Weighted average number of shares outstanding

- diluted 28,046,692 28,226,640 28,090,336 27,790,374 27,707,366 27,726,268 27,540,208 27,658,884

For the three months ended December 31, 2014, the Company made net income of $55,634 on revenue of

$1,766,075 versus a net loss of $330,723 on revenue of $1,549,809 for the same period last year. This change is a

result of the Company’s growth in the Patient Flow Solution while building product enhancements and controlled investment in sales, marketing and channel development.

EBITDA, defined as Earnings Before Interest, Taxation, Depreciation and Amortization, a non-IFRS measure, for the three months ended December 31, 2014 was $106,831 as compared to an EBITDA of ($243,337) for the same period last year, as described in the Reconciliation and Definition of Non-IFRS Measures section of this MD&A.

Adjusted EBITDA, defined as Earnings Before Interest, Taxation, Depreciation, Amortization and Stock Option Expense, a non-IFRS measure, for the three months ended December 31, 2014 was $143,665 as compared to an Adjusted EBITDA of ($221,722) for the same period last year, as described in the Reconciliation and Definition of Non-IFRS Measures section of this MD&A.

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Financial Condition

A discussion of the significant changes in our Consolidated Balance Sheets:

December 31,

2014 December 31, 2013 $ Change

Cash 1,898,070 2,900,649 (1,002,579)

Trade and other receivables 1,487,430 1,174,336 313,094 Deferred revenue 3,137,738 2,614,489 523,249

• Cash was $1,898,070, a decrease of $1,002,579 from December 31, 2013. The primary reason for the decrease in cash is the funding of operating activities of $1,020,300.

• Trade and other receivables were $1,487,430, an increase of $313,094 which is a direct result of increased

sales of annual renewable software and maintenance services and therefore growth in the customer base.

• Deferred revenues were $3,137,738 representing an increase of $523,249 from December 31, 2013. The

increase is a direct result of increased sales of annual renewable software and maintenance services which are deferred and the revenue recognized on a straight-line basis over the term of the agreement.

Obligations and Commitments

COMMITMENTS

The Company’s contractual obligations and commitments consist of its lease on its head office facilities located in Toronto, ON. The lease provides for payment of utilities, property taxes and operating costs. In addition, the Company is committed to operating lease payments for computer software, equipment and office furniture.

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© 2015 • Management’s Discussion and Analysis • Page 18 The future minimum lease payments for our head office premises as at December 31, 2014 are approximately as follows: Year $ 2015 130,350 2016 133,312 2017 134,300 2018 38,798 Total 436,760

FINANCE LEASE OBLIGATIONS

The Company has also entered into a lease agreement with Royal Bank of Canada, effective June 12, 2013. RBC has agreed to acquire, for the purpose of leasing to the Company, office furniture and equipment (see Credit Facilities section).

The following is a schedule of the future minimum lease payments under finance leases:

Year 2014 2013 2014 - 65,027 2015 52,172 52,172 2016 47,686 47,686 2017 47,686 47,686 2018 47,686 47,686

Total minimum payments 195,230 260,257 Amount representing interest (20,835) (32,686) Balance of obligation 174,395 227,571

Current portion 43,291 53,176

Long-term portion 131,104 174,395

STOCK BASED PAYMENTS

During the year ended December 31, 2007 and prior to the reverse takeover transaction with Medworxx Inc., the board of directors approved loans totalling $79,887 to members of the Company’s senior executive, for the purpose of exercising 998,215 vested stock options. These loans are secured by the shares acquired. The loans bear simple interest at 5% per annum. To the extent that these loans receivable by the Company from related parties are secured against shares of the Company, these shares are excluded from outstanding shares for the

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© 2015 • Management’s Discussion and Analysis • Page 19 purposes of calculating basic earnings per share and are considered contingently returnable for the purposes of calculating diluted earnings per shares.

A summary of changes in the vested stock options related to the approved loan during the years ended December 31, 2014 and 2013 is as follows: 2014 2013 Number of options outstanding and exercisable Exercise

price $ Number of options outstanding

and exercisable

Exercise price $

Outstanding, beginning of year 307,259 0.08 359,864 0.08 Stock options exercised in the year (52,604) 0.08 (52,605) 0.08 Outstanding, end of year 254,655 0.08 307,259 0.08 Exercisable, end of year 254,655 0.08 307,259 0.08

The following table summarizes information about the Company’s vested share options outstanding relating to the loan as at December 31, 2014: Exercise price $ outstanding Number at December 31, 2014 Weighted average remaining contractual life (years) Weighted average exercise price $ Number exercisable at December 31, 2014 Weighted average exercise price $ 0.08 254,655 0.833 0.08 307,259 0.08

The loans and interest are to be repaid quarterly over the following 10 months and are repayable in full by October 12, 2015, due to an extension granted by the board of directors. At December 31, 2014 the outstanding loans

receivable of $33,678 (December 31, 2013 - $40,618) and accrued interest was included in contributed surplus and

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a) Provision for income taxes

Major items causing the Company’s income tax rate to differ from the Canadian combined federal and provincial statutory rate of approximately 26.5% (2013 – 26.5%) are as follows.

December

31, 2014 December 31, 2013

Net income (loss) before income taxes (1,131,140) (1,340,837) Expected income tax provision (recovery) based on statutory rate (299,752) (355,300) Adjustments to provision (recovery) resulting from: Non-deductible meals & entertainment 7,241 - Non-deductible share option compensation 33,521 48,500

Other (62,375) (88,000)

Change in unrecognized deferred taxes 330,561 396,442

9,196 1,642

b) Deferred tax balances

The tax effects of temporary differences that give rise to deferred tax assets and liabilities at December 31 are as follows:

2014 2013

Future income tax assets (liabilities)

Non-capital losses 1,358,876 1,441,600

Share issue costs 20,730 62,200

Property and equipment and licenses 170,088 177,200

SR&ED pool 502,474 394,900

Reserves 415,609 157,300

Future Lease Obligation 46,215 - Deferred Rent Incentive 8,676 - Unrecognized deferred tax asset (2,522,668) (2,233,200)

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The Company has approximately $5,127,834 (2013 - $5,440,033) of non-capital losses in Canada, which can be used to reduce taxable income in future years.

Year 2014 2013 2026 4,574 4,574 2027 956,109 956,865 2028 1,539,267 1,539,267 2029 507,472 507,472 2030 250,066 250,066 2031 232,510 232,510 2032 230,916 230,916 2033 1,173,328 1,718,363 2034 233,592 - Total 5,127,834 5,440,033

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Liquidity and Capital Assets

The Company’s cash position at December 31, 2014 was $1,898,070 and $2,900,649 at December 31, 2013. The

Company believes that ongoing operation, working capital and associated cash flows in addition to a revolving demand facility provide sufficient liquidity to support the Company’s ongoing business operations and satisfy its obligations as they come due.

Trade and other receivables were $1,487,430 at December 31, 2014, an increase of $313,094 from $1,174,336 at December 31, 2013.

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

For the year

2014 $

For the year ended December 31 2013 $ Change $ Net loss (1,140,337) (1,342,479) 202,142

Items not affecting cash 287,123 380,980 (93,857) Net change in non-cash working capital (167,085) 304,624 (471,710) Cash used in operating activities (1,020,300) (656,874) (363,425)

• The company incurred a net loss of $1,140,337 for the year ended December 31, 2014 compared to a net loss of $1,342,479 in the same period last year, as described in the Operating Results section of this MD&A.

• Items not affecting cash decreased by $93,857 represented by the decrease in stock-based compensation of $48,146 and in the impairment charge on the Company’s Coreport cash generating unit of $45,852 taken on December 31, 2013.

• Changes in non-cash working capital decreased $471,710 in comparison to prior year. This is primarily due to the decrease in accounts payable and accrued liabilities from 2013 to 2014 of $760,450 offset by the increase deferred revenue from 2013 to 2014 of $297,023 which is a direct result of increased sales of annual

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For the year

2014 $

For the year ended December 31 2013 $ Favourable (Unfavourable) $ Favourable (Unfavourable) %

Cash used in investing activities (93,158) (71,583) (21,575) 30.1%

Cash used in investing activities relates to the purchase of equipment and intangible assets (software) for the year ended December 31, 2014.

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

For the year

2014 $

For the year ended December 31 2013 $ Favourable (Unfavourable) $ Favourable (Unfavourable) %

Cash provided (used) in financing

activities 110,879 (414,092) 524,971 (126.8%)

Cash provided by financing activities was $110,879 for the year ended December 31, 2014 and the cash used in financing activities was $414,092 for the same period in the prior year. In the year ended December 31, 2013, the Company repaid the convertible debentures ($407,050 including interest). In the year ended December 31, 2014, broker warrants were exercised realizing $149,299 of cash.

CREDIT FACILITIES

The Company signed an agreement with Royal Bank of Canada, dated July 27, 2012, to provide a $500,000

revolving demand facility, bearing interest at the Royal Bank prime rate plus 3.5%. This borrowing cannot exceed the aggregate of 75% of certain accounts receivable. The bank has a first ranking security interest in all property of the Company.

As the company did not borrow against this demand facility, there was no interest incurred and paid on the Royal Bank loan for the year ended December 31, 2014 and 2013.

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© 2015 • Management’s Discussion and Analysis • Page 24 The Company entered into a performance based loan agreement with the Health Technology Exchange, effective March 31, 2011. The Health Technology Exchange is a program that supports the Government of Ontario to accelerate innovation, commercialization and growth of Ontario’s medical and assistive technologies sector. The Company distributes and sells the Medworxx Patient Flow Solution platform in the United Kingdom (the project). The loan is a non-revolving term loan in the maximum principal amount of up to $50,000 to assist the Company with partial financing of the project. Interest is payable at 4.25% per annum. Repayment is based on the commercialization of the project. Each payment shall be equal to 10% of the gross revenue derived from the Continuum Solutions licence for the preceding fiscal year. Repayment will be required on June 30, 2015 for sales occurring within the 2014 fiscal year and annually, thereafter, until the obligations are repaid. At January 9, 2012, the company received $45,000 under the loan. The first repayment of $7,474 was made on the performance based loan on August 15, 2013 and as at December 31, 2014, $37,526 is outstanding.

The Company has entered into a lease agreement with Royal Bank of Canada, effective June 12, 2013. RBC has acquired and leased to the Company, property and equipment. Interest is payable at 6.00% per annum with a lease term of 60 months and an option to purchase the equipment for $1.00. At December 31, 2013, the company

received $206,770 and accounted for it as a finance lease.

SHARE CAPITAL STRUCTURE

The share capital of the Company consists of the following: Authorized

Unlimited number of non-cumulative, Class A common shares

Unlimited number of non-cumulative, non-voting, Class B common shares

Unlimited number of non-cumulative, undesignated, Class C shares, issuable in series

December 31, 2014 December 31, 2013 Issued Class A Common Shares # Amount $ Common Class A Shares # Amount $ Opening Balance _26,777,581 _6,030,065 _26,573,260 _5,967,277 Issuance of common shares _439,114 _265,603 _90,429 _31,650 Stock Options exercised _35,000 _13,222 _113,892 _31,138 Ending Balance _27,251,695 _6,308,890 _26,777,581 _6,030,065

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© 2015 • Management’s Discussion and Analysis • Page 25 On May 24, 2012, the Company completed a brokered private placement of 9,136,754 units with each unit priced at $0.34 and each unit composed of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder thereof to acquire one common share of the company at a price of $0.40 for a period of 48 months following the closing of the offering, subject to early expiry at the option of the company in the event that, at any time following the date that is 24 months from their issuance date, the closing price of the company's common shares on any nationally recognized stock exchange is greater than 85 cents for a period of 20 trading days in any consecutive two-month period. Each subscriber of the units will also be granted a pre-emptive right that will allow it to maintain its percentage holding of the company's common shares by allowing it to participate in subsequent offerings of securities by the company, if the subscriber holds more than 5 per cent of the outstanding common shares of the company at the time of any such future offering.

The private placement yielded gross proceeds of $3,106,496. Net proceeds from the issuance were $2,715,379 after issuance costs comprised of agents commission of $243,595 and other issuance costs of $147,522. The Company allocated $832,006 of the net proceeds to the fair value of the share purchase warrants.

During the year ended December 31, 2014, 439,114 broker warrants were exercised, where each unit was priced at $0.34. Each unit comprises of one common share and one-half of one common share purchase warrant. Each whole warrant has the same terms as those issued on May 24, 2012 as describe above.

CONTINGENT OFF-BALANCE SHEET AND OTHER ARRANGEMENTS

The Company has obligations with respect to licence, maintenance and support arrangements for any 12 month period. This obligation is reflected on the Company’s balance sheet through its deferred revenue balance. Outside of deferred revenue, the Company has no material obligations or contingencies, other than described below.

On October 19, 2011 and September 26, 2014, two former employees filed suits against the Company claiming wrongful dismissal and breach of contract in the amount of $538,471. The Company believes that both of the claims are without merit and the Company will take such action as is advised to protect the Company’s interests. The proceedings are ongoing and, as such, there is uncertainty surrounding the final outcome. However, the Company does not believe that the final outcome will have a material adverse effect on the consolidated financial position and results of operations.

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Critical Accounting Policies and Estimates

A description of the Company’s accounting estimates that are critical to determining the Company’s financial results and changes to accounting policies.

The Company’s interim consolidated financial statements are prepared in accordance with IFRS, which require the Company to make estimates and assumptions that affect the amounts reported in its consolidated interim financial statements. It has identified several policies as critical to the business operations and essential for an understanding of the results of operations. The application of these and other accounting policies are described in Note 3 of the Company’s consolidated financial statements. There have been no significant changes in its critical accounting estimates from what was previously disclosed in its MD&A for the year ended December 31, 2014. These policies are incorporated herein by reference. Preparation of the consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could vary significantly from those estimates. Significant areas requiring the Company to make estimates include: intangible assets impairment testing, royalty liabilities, accounts receivable and convertible debentures.

The preparation of Consolidated Financial Statements requires management to use judgment in applying its accounting policies and estimates and assumptions about the future. Estimates and other judgments are continuously evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates. Significant areas requiring the Company to make judgments include: cash generating units (CGUs) and impairment testing.

CASH GENERATING UNIT (CGU) IMPAIRMENT TESTING

Under IFRS and International Accounting Standard (“IAS”) 36, Impairment of Assets, the Company has performed tests on the impairment of its CGUs containing acquired software licences at December 31, 2013. The Company’s assumptions used in testing CGUs for impairment are affected by current market conditions, which may affect expected revenue. The recoverable amounts of the CGUs were estimated based on an assessment of value in use using a discounted cash flow approach. This approach uses cash flow projections based on financial budgets approved by management. It is reasonably possible that future changes in assumptions may negatively impact

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During the year ended December 31, 2013, the Company performed an impairment test on its Coreport CGU. A pre-tax discount rate of 20% was used in the value in use model. There was no impairment required for the year ended December 31, 2014 (December 31, 2013 – loss of $45,852). The remaining useful life of the Coreport-acquired licence is one year.

Current Market Environment

INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes that are likely to affect or materially affect the internal control over the Company’s financial reporting.

RECONCILIATION AND DEFINITION OF NON-IFRS MEASURES

A description and calculation of certain measures used by management

Recurring Revenue

Recurring revenue is defined as annual renewable software licence fees, maintenance services and hosting fees. The Company defines annualized contract value of deferred revenue as the contracted annual renewable software licence fees, maintenance services and hosting fees.

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© 2015 • Management’s Discussion and Analysis • Page 28 The following charts reflect the Company’s revenue composition as reported in the condensed consolidated statements of operations and comprehensive loss:

Three months ended December 31 2014

$ Term or Annual

Renewable (Licences and

Other)

Maintenance

and support (Licences and Perpetual Other)

Consulting

Services Balance as per Ending Financial Statement

Term licences, maintenance and support 804,042 519,478 - - 1,323,520 Perpetual Licences - - 218,974 - 218,974 Services and other - - 4,421 219,160 223,580 Ending balance as per MD&A 804,042 519,478 223,395 219,160 1,766,075

Three months ended December 31 2013

Other)

Maintenance

Consulting

Term licences, maintenance and support 766,243 468,056 - - 1,234,299 Perpetual Licences - - 179,408 - 179,408 Services and other 5,862 - - 130,239 136,101 Ending balance as per MD&A 772,105 468,056 179,408 130,239 1,549,808

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Other)

Maintenance

Consulting

Term licences, maintenance and support 2,980,085 1,947,063 - - 4,927,148 Perpetual Licences - - 433,494 - 433,494 Services and other 749 - 32,246 779,120 812,115 Ending balance as per MD&A 2,980,834 1,947,063 465,741 779,120 6,172,758

For the year ended December 31 2013

Other)

Maintenance

Consulting

Term licences, maintenance and support 2,906,509 1,842,317 - - 4,748,826 Perpetual Licences - - 629,288 - 629,288 Services and other 7,362 - 29,696 512,619 549,677 Ending balance as per MD&A 2,913,871 1,842,317 658,983 512,619 5,927,790

Earnings before interest, taxation, depreciation and amortization (“EBITDA”)

EBITDA is a measure used by management to evaluate operational performance. It is also a common measure that is reported on and used by investors in determining a company’s ability to incur and service debt as well as a valuation methodology. Management believes that EBITDA enhances the information provided in the consolidated interim financial statements. EBITDA is a non-IFRS measure and should not be considered an alternative to operatingincome or net income (loss) in measuring the Company’s performance. EBITDA should not be used as an exclusive measure of cash flows because it does not consider the impact of working capital growth, capital expenditures, debt principal reductions and other sources and uses of cash which are disclosed in the consolidated interim statements of cash flows.

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EBITDA Three months

ended December 31 2014 $ Three months ended December 31 2013 $

2014 $

2013 $

Net income (loss) 55,634 (330,721) (1,140,337) (1,342,479)

Add: Interest 1,173 (509) 2,527 (15,873)

Add: Amortization and impairment 40,950 86,251 160,626 177,638 Add: Tax expense (recovery) 9,074 1,642 9,196 1,642

EBITDA 106,830 (243,337) (967,988) (1,179,072)

Adjusted EBITDA

Adjusted EBITDA, defined as Earnings before Interest, Taxation, Depreciation, Amortization, and Stock Option Expense is an additional measure used by management to evaluate cash flows and the Company’s ability to service debt. Adjusted EBITDA is a non-IFRS measure and should not be considered an alternative to operating income or net income (loss) in measuring the Company’s performance.

The following chart reflects the Company’s calculation of Adjusted EBITDA:

Adjusted EBITDA Three months

ended December 31 2014 $ Three months ended December 31 2013 $

2014 $

2013 $

EBITDA as above 106,830 (243,337) (967,988) (1,179,072)

Add: Stock option expense 36,835 21,615 126,496 174,642 Adjusted EBITDA 143,665 (221,721) (841,491) (1,004,430)

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Risks and Uncertainties

The Company operates in a dynamic environment that exposes it to a number of risks and uncertainties. The following section describes some, but not all, of the risks and uncertainties that may adversely impact Medworxx business, financial condition, and/or results of operations. If any of these risks actually occur, the Company’s business, financial condition and/or results of operations could be materially harmed.

The quarterly revenue and operating results of Medworxx can be difficult to predict and can fluctuate substantially, which may harm or distort results of operations.

Medworxx’ revenue is difficult to forecast and is likely to fluctuate significantly from quarter to quarter. In addition, operating results may not follow any past trends. The factors affecting revenue and results, many of which are outside of Medworxx’ control, include:

• Competitive conditions in the industry, including new products, product announcements and special pricing

offered by competitors

• Market acceptance of products

• Ability to hire, train and retain sufficient qualified sales and professional services staff

• Ability to complete service obligations related to product sales in a timely manner

• Varying size, timing and contractual terms of orders for products, which may delay the recognition of revenue

• Ability to maintain existing relationships and to create new relationships to assist with sales and marketing efforts

• The discretionary nature of hospital purchase and budget cycles and changes in their budgets for, and timing of, software and related purchases

• The length and variability of the sales cycles

• Strategic decisions by Medworxx or competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy

• General weakening of the economy resulting in a decrease in the overall demand for computer software and

services

• Changes in Medworxx pricing policies and the pricing policies of Medworxx’ competitors;

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• Changes in the mix of revenue attributable to substantially lower-margin service revenue as opposed to higher margin product licence revenues

• Cancellation of recurring monthly software contracts

Because Medworxx’ quarterly revenue is dependent upon a relatively small number of transactions, even minor variations in the rate and timing of conversion of sales prospects into revenue could cause the plan or budget to be inaccurate, and those variations could adversely affect financial results. Delays, reductions in the amount, or cancellations of customers’ purchases would adversely affect Medworxx revenues, results of operations and financial condition.

The industry in which Medworxx operates is highly competitive and competition could intensify, or any technological advantages held by Medworxx may be reduced or lost, as a result of technological advances by its competitors. If Medworxx does not compete effectively with these competitors, its revenue may not grow.

Medworxx has experienced competition from a number of software companies, and expects it to continue in the future. Medworxx’ competitors may announce new products, services or enhancements that better meet the needs of customers or changing industry standards. Increased competition may cause price reductions, reduced gross margins and reduced growth in sales, any of which could have a material adverse effect on the business, results of operations and financial condition of Medworxx. Medworxx faces substantial competition from established competitors, many of which have greater financial, engineering, manufacturing and marketing resources than it does. Many of these companies also have a larger installed base of users, have longer operating histories or have greater name recognition than Medworxx does. There can be no assurance that Medworxx will successfully differentiate its current and proposed products from the products of its competitors, or that the marketplace will consider the products of Medworxx, to be superior to competing products.

To maintain Medworxx’ competitive position, it is believed that Medworxx will be required to continue a high level of investment in engineering, research and development, marketing and customer service and support. There can be no assurance that Medworxx will have sufficient resources to continue to make these investments, that it will be able to make the technological advances necessary to maintain its competitive position, or that its products will receive market acceptance. Medworxx’ competitors may be able to respond more quickly to changes in customer requirements and devote greater resources to the enhancement, promotion and sale of their products. Medworxx may not be able to compete successfully in the future, and increased competition may result in price reductions,

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© 2015 • Management’s Discussion and Analysis • Page 33 reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand its development of new products.

The success of the business of Medworxx is dependent upon its ability to develop new products and enhance existing products.

To keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance, Medworxx must enhance and improve existing products and must also continue to introduce new products and services. If Medworxx is unable to successfully develop new products or enhance and improve existing products or it fails to position and/or price its products to meet market demand, the business and operating results of Medworxx will be adversely affected. Accelerated product introductions and short product life cycles require high levels of expenditures for research and development that could adversely affect operating results. Further, any new products could require long development and testing periods and may not be introduced in a timely manner or may not achieve the broad market acceptance necessary to generate significant revenue.

If Medworxx is required to change its pricing models to compete successfully, margins and operating results may be adversely affected.

The intensely competitive market in which Medworxx operates may require that prices be reduced. If competitors offer deep discounts on certain products or services in an effort to recapture or gain market share or to sell other software products, Medworxx may be required to lower prices or offer other favourable terms to compete successfully. Any such changes would be likely to reduce margins and could adversely affect operating results. Some competitors may bundle software products that compete with Medworxx products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, limit the prices that Medworxx can charge for its products. If Medworxx cannot offset price reductions with a corresponding increase in the number of sales or with lower spending, then the reduced software licence revenue resulting from lower prices would adversely affect margins and operating results.

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Medworxx may not able to successfully develop and maintain strategic relationships to sell and implement its products.

Medworxx has or is developing relationships with third-party systems integrators, software and hardware vendors. These third parties may provide Medworxx with customer referrals, cooperate in marketing Medworxx’ products and provide its customers with systems implementation services or additional complementary products. However, Medworxx does not have formal agreements governing ongoing relationships with certain of these third-party providers and the agreements in place generally do not include obligations with respect to generating sales opportunities or co-operating on future business. Should any of these third parties go out of business or choose not to work with Medworxx, the company may be forced to increase the development of those capabilities internally, incurring significant expense and adversely affecting operating margins. These third-party providers may work with other companies which have products that compete with the Medworxx products. Medworxx could lose sales opportunities if it fails to work effectively with these parties or they choose not to work with Medworxx.

The operations of Medworxx could be negatively affected if it loses key executives or employees or is unable to attract and retain skilled executives and employees as needed.

The business and future operating results of Medworxx depend in part upon its ability to attract and retain qualified management, technical, sales, marketing, and support personnel. This is crucial to the ability of Medworxx to develop, market, and support its products and services. The loss of key personnel could negatively impact Medworxx’ business, results of operations, and financial condition. The success of Medworxx is also highly dependent on its continuing ability to identify, hire, train, motivate and retain highly qualified management, technical, sales and marketing personnel. Competition for such personnel can be intense, and no assurance can be made that Medworxx will be able to attract or retain highly qualified technical and managerial personnel in the future. The inability to attract and retain the necessary management, technical, sales and marketing personnel may adversely affect the future growth and profitability of Medworxx. It may be necessary to increase the level of compensation paid to existing or new employees to a degree that operating expenses could be materially increased.