COUNTERPATH CORP (Form: 10-K, Received: 07/11/2019 08:23:46)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2019

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 001-35592

COUNTERPATH CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Nevada	20-0004161
(State or Other Jurisdiction of Incorporation or	(IRS Employer Identification No.)
Organization)

Suite 300, One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada V7X 1M3

(Address of principal executive offices) (Zip Code)

(604) 320-3344
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001	CPAH	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Smaller reporting company [X]
Non-accelerated filer [ ]	Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Approximately $5,459,478 based on the last trading price of the common stock reported on the NASDAQ Stock Market on October 31, 2018.

APPLICABLE ONLY TO CORPORATE REGISTRANTS:

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 5,953,380 shares of common stock issued and outstanding as of July 5, 2019.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to the registrant’s annual meeting of stockholders to be held on September 19, 2019 are incorporated by reference into Part III of this annual report on Form 10-K.

INDEX

		Page

	PART I

Item 1.	Business	5

Item 1A.	Risk Factors	13

Item 1B.	Unresolved Staff Comments	21

Item 2.	Properties	21

Item 3.	Legal Proceedings	21

Item 4.	Mine Safety Disclosures	21

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22

Item 6.	Selected Financial Data	24

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 8.	Financial Statements and Supplementary Data	36

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	67

Item 9A.	Controls and Procedures	67

Item 9B.	Other Information	67

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	68

Item 11.	Executive Compensation	68

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	68

Item 13.	Certain Relationships and Related Transactions, and Director Independence	68

Item 14.	Principal Accountant Fees and Services	68

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	68

Item 16.	Form 10-K Summary	71

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including the documents incorporated herein and therein by reference, contains forward-looking statements as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements in this annual report may include statements about:

	•	any potential loss of or reductions in orders from certain significant customers;

	•	our dependence on our customers to sell our applications or services using our applications;

	•	our ability to protect our intellectual property;

	•	competitive factors, including, but not limited to, industry consolidation, entry of new competitors into our market, and new product and marketing initiatives by our competitors;

	•	our ability to predict our revenue, operating results and gross margin accurately;

	•	the length and unpredictability of our sales cycles;

	•	our ability to expand or enhance our product offerings including in response to industry demands or market trends;

	•	our ability to sell our products in certain markets;

	•	our ability to manage growth;

	•	the attraction and retention of qualified employees and key personnel;

	•	the interoperability of our products with service provider networks; and

	•	the quality of our products and services, including any undetected errors or bugs in our software.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including securities laws of the United States and Canada, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

References

In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to our shares of common stock. Unless otherwise indicated, the terms “we”, “us” and “our” as used in this annual report refer to CounterPath Corporation and its wholly-owned subsidiaries.

PART I

Item 1. Business.

Overview

We design, develop and sell software and services that enable enterprises and telecommunication service providers to deliver Unified Communications (UC) services, including voice, video, messaging and collaboration functionality, over their Internet Protocol, or IP, based networks. We are capitalizing upon numerous industry trends, including the rapid adoption of mobile technology, the proliferation of bring-your-own-device to work programs, the need for secure business communications, the need for centralized provisioning, the migration towards cloud-based services and the migration towards all IP networks. We are also capitalizing on a trend where communication services such as Skype and WhatsApp are becoming more available over-the-top (OTT) of the incumbent operators’ networks or enterprise networks (a.k.a. Internet OTT providers). We offer our solutions under perpetual license agreements that generate one-time license revenue and under subscription license agreements that generate recurring license revenue. We sell our solutions through our own online store, through third-party online stores, directly using our in-house sales team and through channel partners. Our channel partners include original equipment manufacturers, value added distributers and value added resellers. Enterprises typically leverage our solutions to increase employee productivity and to reduce certain communication costs. Telecommunication service providers typically deploy our solutions to supplement and add value to their traditional services. Our original equipment manufacturers and value added resellers typically integrate our solutions into their products and then sell a bundled solution to their end customers, which include both telecommunication service providers and enterprises.

Our business model is based on winning new customers, expanding sales of new and existing products and services to existing customers, and renewing subscriptions and software support agreements. We target business customers of all sizes and across a broad range of industries, including call centers, financial services, government, retail, technology and telecommunications. We have sold software and services to more than 700 different customers in over 73 countries, including some of the world’s largest businesses, global financial institutions and leading telecommunication service providers (where each customer has purchased at least $10,000 of software and services).

We were incorporated under the laws of the State of Nevada on April 18, 2003.

Our principal executive offices are located at Suite 300, 505 Burrard Street, Vancouver, British Columbia, Canada V7X 1M3. Our telephone number is (604) 320-3344. Our website address is www.counterpath.com. Through a link on the investor relations section of our website, we make available the following filings after they are electronically filed with or furnished to the SEC: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. All such filings are available free of charge. The information contained in our website does not form part of this annual report.

Industry

The telecommunication industry is undergoing a fundamental transition from legacy circuit switched networks to packet switched networks that are more flexible and economical to operate. At the same time, consumers and businesses are rapidly adopting new mobile and cloud communication technologies. We believe enterprises want to capitalize upon these trends by launching innovative OTT services to increase employee mobility, increase employee productivity, and reduce certain communication costs. At the same time, telecommunication service providers are facing a number of threats, including the commoditization of their legacy voice businesses, the decline in short message service (SMS) revenues, regulatory changes that increase competition in certain areas and reduce certain revenues, and the proliferation of third party OTT services such as Skype, WhatsApp and Zoom that are intermediating customer relationships and reducing certain revenue streams. Given these factors, some telecommunication service providers are looking to defend their businesses by launching their own innovative OTT services to counter some of the threats they are facing, and to possibly create new revenue streams. In addition, both enterprises and telecommunication service providers are looking to simplify their IT operations by procuring cloud-based services rather than purchasing systems outright and running them independently. The migration towards cloud-based services typically reduces up-front capital expenditures and simplifies IT operations.

Enterprises are adopting mobile technology at a rapid pace. In fact, according to International Data Corporation, an industry research organization, 1.4 billion smartphones were shipped in 2018. We believe enterprises want to leverage mobile technology to increase employee productivity and to reduce certain costs. At the same time, bring-your-own-device to work programs are becoming common in the workplace, enabling enterprises to reduce up-front technology acquisition costs, while allowing employees to work on the device of their choice. This rapid penetration of mobile technology in the work place, coupled with need to support and manage an increasingly diverse set of mobile devices, creates new challenges for IT organizations, including the need to extend the corporate IT environment to the mobile device, the ability to provide and manage corporate applications remotely, and the need for secure communications. IT departments are often challenged to provide users with the benefits of mobility, while simultaneously satisfying enterprise security and compliance requirements. Our solutions address these issues by enabling enterprises to launch what we call “Enterprise OTT Services”. Our Bria ^® mobile and tablet softphones allow mobile workers to leverage the full suite of corporate PBX (Private Branch Exchange) functionality as if they were in the office and connected to the secure enterprise network, while our Bria Desktop softphones enable users to cost-effectively replace or augment their traditional desk phones. Our Stretto Platform™ simplifies the IT manager’s job by enabling the efficient provisioning and management of the enterprise’s softphones.

Enterprises are also adapting to the new and increasingly complex environment by shifting away from purchasing stand-alone software applications and running them on in-house servers, to purchasing cloud-based services. This typically reduces capital spending and simplifies operations by reducing the number of servers and applications IT staff must install, configure, manage and support. Our Stretto Platform can be purchased as cloud based services that generate recurring revenue for our company. We also offer a complete cloud-based solution to small, medium and large businesses. For small businesses, we launched a subscription service known as Bria Teams, delivering centralized provisioning, messaging and screen sharing from the cloud, along with up to three Bria softphones per user; this solution is available exclusively through our on-line store. For the medium and large-sized businesses we offer Brio Stretto ^TM which is sold through channel partners and our direct sales team under a subscription licensing agreement and includes our Bria softphones and access to our Stretto Platform Provisioning Module. Brio Stretto enables enterprises to quickly launch unified communications services using our solutions, without deploying additional server hardware in the datacenter.

Telecommunication service providers, including cable, wireless and Voice over IP operators are also facing a shifting landscape driven by new technology and changing subscriber habits. Some wireline and cable subscribers are “cutting the cord” and cancelling their home-phone service in favour of cellular service. At the same time, video OTT services such as Apple TV and Netflix are gaining significant traction, leading some subscribers to cancel their television service or down grade to less expensive bundles, placing additional pressure on top-line revenues at some service providers. Mobile subscribers, on the other hand, are scaling back their use of certain services such as SMS and international long-distance voice in favour of third-party OTT services such as WhatsApp and WeChat. We believe many telecommunication service providers aim to strengthen subscriber relationships, reduce churn and prevent or slow revenue erosion by launching their own, superior, white labelled “Operator OTT Services” with unique value added features that are difficult for third-parties to replicate. Our Operator Solutions enable service providers to provision single identity, one number services that increase a subscriber’s usage of their home or cellular phone number, convergence services that facilitate call handoff between different access networks, Voice over IP services for inexpensive long-distance calling when roaming, and messaging services for efficient communications.

Products

Our solutions range from software products to cloud based services. Our software products include applications for smartphones, tablets and desktop computers, a Software Development Kit (SDK) for software developers seeking to add voice, video and messaging capabilities to their existing applications, and server-based software solutions for provisioning, managing and supporting softphones and for deploying advanced messaging and collaboration services. Many of these software products are also available to customers in the form of cloud based hosted services.

Softphones

Our softphone applications support voice, video, messaging, presence and collaboration services over IP networks. Our softphone applications have undergone rigorous interoperability testing against leading PBXs, SIP (Session Initiation Protocol) application servers and IMS (IP Multimedia Subsystem) cores, ensuring that our softphone applications can be readily deployed in our customers’ networks. In addition to maintaining certification with leading SIP infrastructure vendors (such as Cisco, Avaya and Genesys), our softphones are tightly integrated with solutions from Salesforce.com, Microsoft, Oracle, AirWatch (a VMware company), and Blackberry (formerly Good Technologies), to name a few. We have performed integration with leading USB headset and Bluetooth device vendors, including Poly, Jabra, Logitech and Sennheiser, to provide advanced levels of functionality when deployed in conjunction with CounterPath products.

•	Bria Desktop (Windows, Mac) and Bria Mobile (iOS, Android)

	The Bria softphone suite enables consumers and business users to make VoIP audio and video calls, send Instant Messages and manage their presence, share their screen and collaborate with other users, all in an easy-to-use software application. The product suite works on desktop computers and laptops, smartphones, Chromebooks and tablets (including Windows tablet devices such as Microsoft Surface Pro), using various operating systems.

	Using the latest technology and SIP standards, our softphone applications provide business users with carrier-grade communication solutions that can be tailored to meet the needs of any size organization. For larger customers, we offer the ability to customize our softphone application by allowing our customers to include their corporate logos and branding, as well as to select specific features to be included. We have developed our on-line Branding Portal to allow customers to efficiently customize their applications.

•	X-Lite

	X-Lite is a standards-based VoIP softphone application that runs on desktop computers. X-Lite interoperates with enterprise and carrier infrastructure equipment from major vendors, but excludes some key functionality offered in our commercial products, such as the ability to: brand the product, support multiple languages, import contacts, centrally provision the softphone, utilize premium codecs, or support multiple accounts.

	X-Lite is offered free of charge, is available for download on our website and may not be redistributed to third parties. We believe that offering X-Lite for free is an effective marketing tool for our company, as it allows potential customers to test and evaluate our software. We also believe offering X-Lite for free supports our business by encouraging companies that develop SIP compliant equipment, such as phones, video phones, network gateways, multipoint conference units and conference servers to test their equipment against our softphone. We believe this testing improves interoperability, facilitates our sales, and helps build positive brand recognition. The X-Lite graphical user interface supports advertising that could potentially be used to generate revenue in the future. While we advertise our commercial products on the X-Lite softphone user interface, we do not currently generate revenue from third-party advertising on X- Lite.

•	Software Development Kit (SDK)

	Our SDK is targeted at developers that are seeking to build a unique communication application or incorporate advanced unified communications capabilities into their existing applications. For example, there is market demand within the healthcare vertical for adding unified communication capabilities to healthcare applications that were originally designed for managing prescriptions and tracking appointments for patients. We are targeting a number of industries, including the retail, healthcare and call- center verticals.

Our SDK delivers standards-compliant voice, video and messaging capabilities for desktop, tablet and mobile devices, and can be integrated into existing customer applications with a minimal amount of development effort. Our SDK can also be deployed with our Stretto Platform for customers seeking to leverage Stretto capabilities such as centralized provisioning or other advanced softphone metrics. Our SDK is used in our own softphone products, thereby delivering the benefit of our experience in deploying millions of SIP softphone clients. As an important differentiator, we provide customers with direct access to our engineering team, to ensure technical issues are quickly resolved.

Stretto Platform

The Stretto Platform (Stretto) is a carrier-grade software platform for enterprises and service providers; it is also a key component of our Stretto Collaboration, Bria Teams and Brio Stretto products.

The Stretto Platform is agnostic to existing network elements, enabling deployments to be made on top of existing session border controllers, IMS components, VoIP switches, PBXs and cloud communication services.

The Stretto Platform includes a number of modules that can be separately purchased by customers, including:

	o	Stretto Collaboration: Stretto Collaboration combines audio, video, screen-sharing, and messaging in one virtual meeting that extends the Bria softphone experience. Stretto Collaboration also offers the ability to manage video settings during a live session including the video layout, camera selection and video quality. Other features include convenient join, screen share, team messaging, and audio and video conferencing.

	o	Provisioning: The Provisioning module enables the IT or operations staff of an organization to deploy, provision, and manage ongoing configuration upgrades to Bria softphones. The organization can control over 250 settings, including default codec selection, NAT traversal settings and keep-alive timer values as specified by IT or operations staff. This module is responsible for authenticating end users, and includes integration with the enterprise’s existing directory services using protocols such as LDAP and OAuth.

	o	User Experience Metrics: The User Experience Metrics module enables the IT or operations staff of an organization to record and analyze critical analytics and Voice Quality Monitoring (VQM) data that summarizes service quality, device usage, feature usage, and device characteristics.

	o	Help Desk Assistant: The Help Desk Assistant module enables the IT help-desk staff of an organization to directly access an end-user’s Bria application for trouble shooting.

	o	Push Notification: The Push Notification module enables our Bria mobile application to eliminate high battery drain during daily use, while ensuring that users never miss incoming calls or messages. The Push Notification module wakes our Bria softphone application on the end user’s mobile device when an incoming call, message or voicemail is pushed from a network to the client. Push Notification is becoming increasingly important to our customers, as both Apple and Google become more aggressive in managing power consumption by applications.

	o	XMPP Messaging and Presence: The XMPP Messaging and Presence delivers standards- compliant secure messaging and presence services, and the ability to synchronize messages across all of the user’s devices.

Bria Teams and Brio Stretto

Our Bria Teams and Brio Stretto products combine the Bria client suite for desktops, Chromebooks, smartphones, and tablets with our cloud-hosted Stretto Platform. Bria Teams was launched in 2018 as a subscription service, delivering centralized provisioning, messaging and screen sharing from the cloud, along with up to three Bria Softphones per user; this solution is available exclusively through our on-line store. For medium and large businesses, we offer Brio Stretto, which is sold through channel partners and our direct sales team.

Bria Teams is a solution targeted at small businesses allowing them to cost effectively extend the benefits of unified communications softphone technology to all employees, across all devices and networks with the aim of increasing the productivity and responsiveness of every employee. By simplifying the provisioning process, team administrators can quickly and easily configure team members via the cloud; users simply download our Bria Teams application to each of their devices, enter their credentials and within seconds, can start collaborating with fellow employees, partners and customers. Bria Teams delivers a suite of hosted collaboration services including Instant Messaging and Presence, Screen Sharing and Virtual Meeting Room capabilities to broaden our value beyond traditional softphones. Bria Teams was the recent recipient of Corp America’s North American Excellence award for “Best Unified Communications Provider – North America & Unified Communications-as-a-Service (UCaaS) Product of the Year.”

Using our Brio Stretto, enterprises, service providers and telecommunication channel partners are able to leverage the Stretto Platform for procuring, distributing, provisioning and managing Bria Stretto clients from the cloud, as well as offering hosted messaging and collaboration solutions. The Stretto Platform provides customers with an easy-to-use system accessible through either the Stretto Administrator web interface or an API. Most softphone settings, outside of some user preferences, are hidden; instead the softphone relies on our Provisioning Module to provision these settings remotely. This enables administrators to centrally manage all of their communications across all device platforms.

The softphone clients in our Bria Teams and Brio Stretto offerings are updated with the most current release and available as a free download from the Apple iTunes store, Google Play, or direct download links (for desktop). Our softphone offers high-quality VoIP communications, delivered in an intuitive user interface, and includes premium features such as video calling, messaging and presence and premium audio and video codecs.

Brio Stretto also provides customers with access to hosted messaging and hosted collaboration services.

Sales and Marketing

We derive revenue from the sale of software licenses, software customization services, technical support services associated with the software licenses, implementation services, training services, and cloud based services. We recognize perpetual software and services revenue at the time of delivery, provided all other revenue recognition criteria have been met. We recognize software as a service revenue over the term of the service contract, which is generally twelve months.

We focus on selling our software products to enterprises, to telecommunication service providers, and to channel partners who would then typically resell our products to enterprises or telecommunication service providers. Our customers include: (1) small, medium and large sized businesses; (2) telecommunications service providers and Internet telephony service providers; (3) channel partners, including original equipment manufacturers, value added distributors and value added resellers, serving the telecommunication market; and (4) end users who purchase our applications directly from our online store or from third party online stores. To date, we have sold software and services to more than 700 different customers in over 73 countries, including some of the world’s largest businesses, global financial institutions and leading telecommunication service providers (where each customer has purchased at least $10,000 of software and services).

We typically work with our larger customers to streamline the process of delivering our software to their end users. This includes customization and pre-configuring the information required to connect to the customer’s network and enabling or disabling certain features of our products. Our software products are typically co-labelled with our brand and our customer's brand, or privately labelled with our customer’s brand. Co-labelling of our products means that the user interface that displays on the device screen for the end user to see remains as is, but the customer’s brand is also placed on the user interface. Private labelling of our products means that the customer can request that we change any and all features of the user interface and can remove all references to our company from the user interface. We receive professional service revenue for configuration and customization of our software.

Marketing

Our products are marketed through a variety of means including by:

•	our customers and partners;

•	advertising on our website, social media channels and search engines;

•	direct market campaigns;

•	co-marketing with our partners, suppliers and customers;

•	offering trial use of X-Lite, our free softphone with fewer features than our commercial versions;

•	attending industry trade shows; and

•	attending developer conferences.

Intellectual Property

We rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, as well as customary contractual protections to protect our intellectual property.

We own or hold the exclusive license to 22 U.S. patents with counterparts granted or pending in other jurisdictions around the world. In addition, we are pursuing two in-house developed patent applications with counterparts pending in other jurisdictions around the world.

We also hold a number of registered trademarks in the United States.

In addition to the protections described above, we generally control access to, and use of our proprietary software and other confidential information through the use of internal and external controls. These controls include contractual protections with employees, contractors, customers and partners. Our software is protected by U.S. and certain international copyright laws.

We have acquired certain patent rights from Inception Holdings including a patent for maintaining Internet voice communication to mobile devices where the IP address changes from location to location. We also hold exclusive rights to a patent which is a continuation to previously granted patents. This patent explains communication methods between mobile and packet networks using a gateway connected to both networks preserving single identity on both networks. We also hold the exclusive right to certain technologies developed at Columbia University for which we pay a license fee of 5% of net revenues where the technologies are incorporated into the products we sell. We incorporate a number of third party software programs into our software applications pursuant to license agreements.

We may not receive competitive advantages from the rights granted under our patents and other intellectual property rights. Our competitors may develop technologies that are similar or superior to our proprietary technologies, duplicate our proprietary technologies or design around the patents owned or licensed by us. Our existing and future patents may be circumvented, blocked, licensed to others or challenged as to inventorship, ownership, scope, validity or enforceability. Furthermore, our pending and future patent applications may not be issued with the scope of claims sought by us, if at all, or the scope of claims we are seeking may not be sufficiently broad to protect our proprietary technologies. Moreover, we have adopted a strategy of seeking limited patent protection with respect to the technologies used in or relating to our products. If our products, patents or patent applications are found to conflict with any patents held by third parties, we could be prevented from selling our products, our patents may be declared invalid or our patent applications may not result in issued patents. In foreign countries, we may not receive effective patent, copyright and trademark protection. We may be required to initiate litigation in order to enforce any patents issued to us, or to determine the scope or validity of a third party’s patent or other proprietary rights. In addition, in the future we may be subject to lawsuits by third parties seeking to enforce their own intellectual property rights, as described in “Risk Factors - Risks Associated with our Business and Industry” – “We may in the future be subject to damaging and disruptive intellectual property litigation that could materially and adversely affect our business, results of operations and financial condition, as well as the continued viability of our company” and “We could lose our competitive advantages if we are not able to protect any proprietary technology and intellectual property rights against infringement, and any related litigation could be time consuming and costly”.

We license our software pursuant to agreements that impose restrictions on customers’ ability to use the software, such as prohibiting reverse engineering and limiting the use of copies. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute nondisclosure and assignment of intellectual property agreements and by restricting access to our source code. Other parties may not comply with the terms of their agreements with us, and we may not be able to enforce our rights adequately against these parties.

Research and Development

Development of our products is primarily done through our Canadian wholly-owned subsidiary, CounterPath Technologies Inc., and our U.S. wholly-owned subsidiary, CounterPath, LLC. Our research and development team consists of a core software development department and a quality assurance department. Core software development is responsible for designing, developing and maintaining our software across our supported operating systems. Quality assurance is responsible for testing the software before release to customers on all of our platforms. Total research and development expenditures for the year ended April 30, 2019 were $5,547,587 (2018- $5,506,887).

After Sales Service and Support

We sell our software on an as-is or limited warranty basis to end users, and we are not required to update or upgrade the software nor are we generally responsible for failure of our software to work on our customer’s computer network; however, we offer two levels of renewable annual support to our non-end user customers for a specified percentage of the software license fees. Basic support includes product bug-fixes, eight (8) a.m. to eight (8) p.m. (Eastern Time), telephone support and email support during the one-year period following the date of sale. Bug-fixes are software updates which fix a known deficiency in the software product. Our extended support includes basic support and product upgrades. Product upgrades are separate from bug-fixes and include new or enhanced product features. For additional fees, we provide professional services, which include assisting our customers in customizing, deploying and implementing our applications. We currently maintain a support forum on the Internet at www.support.counterpath.com and product user manuals are available online at www.counterpath.com.

Warranty

In circumstances where we provide a warranty on our software, we warrant that our software will perform substantially in accordance with the materials accompanying the software for periods of up to twelve months from the date of sale to cover defects in workmanship.

Audio and Video Codecs

Our softphone applications are integrated with audio and video codecs, which are licensed by third-parties either as free open source software or under a royalty bearing license. A codec is a software application that encodes and decodes audio or video data according to a specification.

Competition

There are numerous developers that compete with our company for market share. Small software development companies typically compete on the basis of price, while large original equipment manufacturers typically compete by selling their proprietary software applications as a component to an overall proprietary communications system. We compete by offering applications with extensive features that are compatible with a broad spectrum of communication systems and with various devices and operating systems.

Government Approval

We have obtained Export Commodity Classification Numbers from the United States government for our software that contains encryption technology. We use these classifications to determine whether export licenses are required to export our software to foreign countries. We are not aware of any permits that are specific to our industry which are required in order for our company to operate or to sell our products and services in such jurisdictions.

Employees

As of April 30, 2019, we employed 93 people, comprised of 88 people employed full-time, 30 of whom are engaged in sales and marketing, 31 in research and development, 19 in services and support, and 8 in general and administration, and 5 individuals employed part-time in research and development. We also contracted with 22 contractors. We are not subject to any collective bargaining agreements and we consider relations with our employees to be excellent.

We hire full-time employees and contractors who are authorized to work in the United States through our wholly-owned subsidiary, CounterPath, LLC. Our wholly-owned subsidiary, CounterPath Technologies Inc. employs full-time employees and contractors who are authorized to work in Canada.

Item 1A. Risk Factors.

Much of the information included in this annual report includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumption or other future performance suggested herein.

Such estimates, projections or other “forward looking statements” involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward looking statements”.

Risks Associated with our Business and Industry

Lack of cash flow which may affect our ability to continue as a going concern.

Presently our operating cash flows are not sufficient to meet operating and capital expenses. Our business plan calls for continued research and development of our products and expansion of our market share. We will require additional financing to fund working capital and pay for operating expenses and capital requirements until we achieve a positive cash flow.

There is no assurance that actual cash requirements will not exceed our estimates. In particular, additional capital may be required in the event that:

•	we incur delays and additional expenses as a result of technology failure;

•	we are unable to create a substantial market for our products; or

•	we incur any significant unanticipated expenses.

The occurrence of any of the aforementioned events could adversely affect our ability to meet our proposed business plans.

We depend on a mix of revenues and outside capital to pay for the continued development of our technology and the marketing of our products. Such outside capital may include the sale of additional stock and/or commercial borrowing. There can be no assurance that capital will continue to be available if necessary to meet these continuing development costs or, if the capital is available, that it will be on terms acceptable to us. Disruptions in financial markets and challenging economic conditions have and may continue to affect our ability to raise capital. The issuance of additional equity securities by us would result in a dilution, possibly a significant dilution, in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

Our revenue, operating results and gross margin can fluctuate significantly and unpredictably from quarter - to - quarter and from year - to - year, and we expect that they will continue to do so, which could have a material adverse effect on our operating results.

The rate at which our customers order our products, and the size of these orders, are highly variable and difficult to predict. In the past, we have experienced significant variability in our customer purchasing practices on a quarterly and annual basis, and we expect that this variability will continue, as a result of a number of factors, many of which are beyond our control, including:

•	demand for our products and the timing and size of customer orders;

•	length of sales cycles, which may be extended by selling our products through channel partners;

•	length of time of deployment of our products by our customers;

•	customers’ budgetary constraints;

•	competitive pressures; and

•	general economic conditions.

As a result of this volatility in our customers’ purchasing practices, our revenue has historically fluctuated unpredictably on a quarterly and annual basis and we expect this to continue for the foreseeable future. Our budgeted expense levels depend in part on our expectations of future revenue. Because any substantial adjustment to expenses to account for lower levels of revenue is difficult and takes time, if our revenue declines, our operating expenses and general overhead would likely be high relative to revenue, which could have a material adverse effect on our operating margin and operating results.

We may be unable to predict subscription renewal rates and the impact these rates may have on our future revenue and operating results.

Some of our products and services are sold on a subscription basis that is generally month-to-month or one year in length. Our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period, and some customers elect not to renew. We cannot provide assurance that our subscriptions will be renewed at the same or higher level of service, for the same number of licenses or for the same duration of time, if at all. We cannot provide assurance that we will be able to accurately predict future customer renewal rates. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our services, our ability to continue to regularly add features and functionality, the reliability (including uptime) of our subscription services, the prices of our services, the prices of services offered by our competitors, mergers and acquisitions affecting our customer base, reductions in our customers’ spending levels or declines in customer activity as a result of economic downturns or uncertainty in financial markets. If our customers do not renew their subscriptions for our services or if they renew on terms less favorable to us, our revenue may decline.

If we are not able to manage our operating expenses, then our financial condition may be adversely affected.

Operating expenses increased to $15,931,665 for the year ended April 30, 2019 from $15,175,511 for the year ended April 30, 2018 and our revenue decreased to $10,764,904 for the year ended April 30, 2019 from $12,381,741 for the year ended April 30, 2018. Our ability to reach and maintain profitability is conditional upon our ability to manage our operating expenses. There is a risk that we will have to increase our operating expenses in the future. Factors that could cause our operating expenses to increase include our determination to spend more on sales and marketing in order to increase product sales or our determination that more research and development expenditures are required in order to keep our current software products competitive or in order to develop new products for the market. To the extent that our operating expenses increase without a corresponding increase in revenue, our financial condition would be adversely impacted.

Our level of indebtedness and debt service obligations could adversely affect our financial condition and may make it more difficult for us to fund our operations.

On October 10, 2018, as amended on July 10, 2019, our company entered into a loan agreement (the “Loan Agreement”) with Wesley Clover International Corporation and KMB Trac Two Holdings Ltd. (collectively, the “Lenders”), pursuant to which the Lenders agreed to loan to our company an aggregate principal amount of up to $5,000,000. Wesley Clover International Corporation owns approximately 25.3% of our common shares and is controlled by the Chairman of our company, Terence Matthews and KMB Trac Two Holdings Ltd. is represented by Steven Bruk, a director of our company and Karen Bruk, Mr. Bruk’s spouse. KMB Trac Two Holdings Ltd., Steven Bruk and Karen Bruk own approximately 20.5% of the Company’s common shares. Pursuant to the terms of the Loan Agreement, the loan is unsecured and will be made available in multiple advances at the discretion of our company and will bear interest at a rate of 8% per year, payable monthly. The outstanding principal and any accrued interest may be prepaid without penalty and is to be fully repaid on the date that is 30 months after the first advance.

The loan is intended to be used for general working capital purposes. As of April 30, 2019, the principal balance of the loan payable was $3,000,000. This balance is to be repaid on or before April 11, 2021.

This indebtedness may create additional financing risk for us, particularly if our business or prevailing financial market conditions are not conducive to paying off or refinancing our outstanding debt obligations at maturity. This indebtedness could also have important negative consequences, including the fact that we will need to repay our indebtedness by making payments of interest and principal, which will reduce the amount of money available to finance our operations, our research and development efforts and other general corporate activities. To the extent additional debt (including without limitation the additional advances) is added to our current debt levels, the risks described above could increase.

We may not have cash available to us in an amount sufficient to enable us to make interest or principal payments on our indebtedness when due.

Failure to satisfy our current and future debt obligations under the Loan Agreement, could result in an event of default and, as a result, the Lenders could accelerate all of the amounts due. In the event of an acceleration of amounts due under the Loan Agreement, as a result of an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness.

We face larger and better-financed competitors, which may affect our ability to achieve or maintain profitability.

Management is aware of similar products which compete directly with our products and some of the companies developing these similar products are larger and better-financed than us and may develop products superior to those of our company. In addition to price competition, increased competition may result in other aggressive business tactics from our competitors, such as:

•	emphasizing their own size and perceived stability against our smaller size and narrower recognition;

•	providing customers “one-stop shopping” options for the purchase of network equipment and application software;

•	offering customers financing assistance;

•	making early announcements of competing products and employing extensive marketing efforts; and

•	asserting infringement of their intellectual property rights.

Such competition may potentially adversely affect our profitability.

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital, or a delisting from a stock exchange on which our common stock trades. Because our operations have been partially financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new products and continue our current operations. If our stock price declines, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations.

The majority of our directors and officers are located outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or some of our directors or officers.

The majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, investors may be effectively prevented from pursuing remedies under United States federal securities laws against some of our directors or officers.

We may in the future be subject to damaging and disruptive intellectual property litigation that could materially and adversely affect our business, results of operations and financial condition, as well as the continued viability of our company.

We may be unaware of filed patent applications and issued patents that could relate to our products and services. Intellectual property litigation, if determined against us, could:

•	result in the loss of a substantial number of existing customers or prohibit the acquisition of new customers;

•	cause us to lose access to key distribution channels;

•	result in substantial employee layoffs or risk the permanent loss of highly-valued employees;

•	materially and adversely affect our brand in the market place and cause a substantial loss of goodwill;

•	affect our ability to raise additional capital;

•	cause our stock price to decline significantly; and

•	lead to the bankruptcy or liquidation of our company.

Parties making claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to provide our products or services and could cause us to pay substantial royalties, licensing fees or damages. The defense of any lawsuit could result in time-consuming and expensive litigation, regardless of the merits of such claims.

We could lose our competitive advantages if we are not able to protect any proprietary technology and intellectual property rights against infringement, and any related litigation could be time-consuming and costly.

Our success and ability to compete depends to a significant degree on our proprietary technology incorporated in our software. If any of our competitors’ copy or otherwise gain access to our proprietary technology or develops similar technologies independently, we would not be able to compete as effectively. We also consider our family of registered and unregistered trademarks including CounterPath, Bria, X-Lite, and Softphone.com invaluable to our ability to continue to develop and maintain the goodwill and recognition associated with our brand. The measures we take to protect the proprietary technology software, and other intellectual property rights, which presently are based upon a combination of patents, patents pending, copyright, trade secret and trademark laws, may not be adequate to prevent their unauthorized use. Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights.

We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and divert resources from intended uses. In addition, notwithstanding any rights we have secured in our intellectual property, other persons may bring claims against us that we have infringed on their intellectual property rights, including claims based upon the content we license from third parties or claims that our intellectual property right interests are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our service marks or require us to make changes to our website or other of our technologies.

Our products may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands.

Our industry is characterized by rapid changes in technology and customer demands. As a result, our products may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, our products must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced services to emerging industry standards, and our new products may not be favorably received.

Unless we can establish broad market acceptance of our current products, our potential revenues may be significantly reduced.

We expect that a substantial portion of our future revenue will be derived from the sale of our software products. We expect that these product offerings and their extensions and derivatives will account for a majority of our revenue for the foreseeable future. Broad market acceptance of our software products is, therefore, critical to our future success and our ability to continue to generate revenues. Failure to achieve broad market acceptance of our software products as a result of competition, technological change, or otherwise, would significantly harm our business. Our future financial performance will depend primarily on the continued market acceptance of our current software product offerings and on the development, introduction and market acceptance of any future enhancements. There can be no assurance that we will be successful in marketing our current product offerings or any new product offerings, applications or enhancements, and any failure to do so would significantly harm our business.

Our use of open source software could impose limitations on our ability to commercialize our products.

We incorporate open source software into our products. Although we closely monitor our use of open source software, the terms of many open source software licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to sell our products. In such event, we could be required to make our proprietary software generally available to third parties, including competitors, at no cost, to seek licenses from third parties to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could adversely affect our revenues and operating expenses.

We may not be able to obtain necessary licenses of third-party technology on acceptable terms, or at all, which could delay product sales and development and adversely impact product quality.

We have incorporated third-party licensed technology into our current products. We anticipate that we are also likely to need to license additional technology from third-parties to develop new products or product enhancements in the future. Third-party licenses may not be available or continue to be available to us on commercially reasonable terms. The inability to retain any third-party licenses required in our current products or to obtain any new third-party licenses to develop new products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost, and delay or prevent us from making these products or enhancements, any of which could seriously harm the competitive position of our products.

Our products must interoperate with many different networks, software applications and hardware products, and this interoperability will depend on the continued prevalence of open standards.

Our products are designed to interoperate with our customers’ existing and planned networks, which have varied and complex specifications, utilize multiple protocol standards, software applications and products from numerous vendors and contain multiple products that have been added over time. As a result, we must attempt to ensure that our products interoperate effectively with these existing and planned networks. To meet these requirements, we have and must continue to undertake development and testing efforts that require significant capital and employee resources. We may not accomplish these development efforts quickly or cost-effectively, or at all. If our products do not interoperate effectively, installations could be delayed or orders for our products could be cancelled, which would harm our revenue, gross margins and our reputation, potentially resulting in the loss of existing and potential customers. The failure of our products to interoperate effectively with our customers’ networks may result in significant warranty, support and repair costs, divert the attention of our engineering personnel from our software development efforts and cause significant customer relations problems.

Additionally, the interoperability of our products with multiple different networks is significantly dependent on the continued prevalence of standards for IP multimedia services, such as SIP or Session Initiation Protocol. Some of our existing and potential competitors are network equipment providers who could potentially benefit from the deployment of their own proprietary non-standards-based architectures. If resistance to open standards by network equipment providers becomes prevalent, it could make it more difficult for our products to interoperate with our customers’ networks, which would have a material adverse effect on our ability to sell our products to service providers.

We are subject to the credit risk of our customers, which could have a material adverse effect on our financial condition, results of operations and liquidity.

We are subject to the credit risk of our customers. Businesses that are good credit risks at the time of sale may become bad credit risks over time. In times of economic recession, the number of our customers who default on payments owed to us tends to increase. If we fail to adequately assess and monitor our credit risks, we could experience longer payment cycles, increased collection costs and higher bad debt expense.

We are exposed to fluctuations in interest rates and exchange rates associated with foreign currencies.

A majority of our revenue activities are transacted in U.S. dollars. However, we are exposed to foreign currency exchange rate risk inherent in conducting business globally in numerous currencies, of which the most significant to our operations for the year ended April 30, 2019 is the Canadian dollar. We are primarily exposed to a fluctuating Canadian dollar as our operating expenses are primarily denominated in Canadian dollars while our revenues are primarily denominated in U.S. dollars. We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. Our company’s foreign currency risk management program includes foreign currency derivatives with cash flow hedge accounting designation that utilizes foreign currency forward contracts to hedge exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S. dollar-denominated cash flows. These instruments generally have a maturity of less than one year. For these derivatives, our company reports the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) in stockholders’ equity and reclassifies it into earnings in the same period in which the hedged transaction affects earnings, and within the same line item on the consolidated statements of operations as the impact of the hedged transaction. There can be no assurance that our hedging program will not result in a negative impact on our earnings and earnings per share. During the years ended April 30, 2019 and 2018, we did not enter into any forward contracts for hedging purposes.

Tax matters, including changes in tax rates, disagreements with taxing authorities and imposition of new taxes could impact our results of operations and financial condition.

We are subject to income taxes as well as non-income-based taxes, such as payroll, sales, use, value added, net worth, property, withholding and franchise taxes in both the U.S. and various foreign jurisdictions. From time to time, we are also subject to reviews, examinations and audits by taxing authorities with respect to such income and non-income-based taxes inside and outside of the U.S. When a taxing authority disagrees with our tax positions, we could face additional tax liabilities, including interest and penalties. Payment of such additional amounts upon final settlement or adjudication of any disputes could have a material impact on our results of operations and financial position.

In addition, we are directly and indirectly affected by new tax legislation and regulation and the interpretation of tax laws and regulations worldwide. Changes in legislation, regulation or interpretation of existing laws and regulations in the U.S. and other jurisdictions where we are subject to taxation could increase our taxes and have an adverse effect on our operating results and financial condition.

If a security breach or cyberattack of our IT networks and systems, or any of our products, occurs, our operations could be interrupted, our products and services may be perceived as vulnerable, and our brand and reputation could be damaged, which could reduce revenue, increase expenses, and expose us to legal claims or regulatory actions.

Cybersecurity refers to the combination of technologies, processes, and procedures established to protect information technology systems and data from unauthorized access, attack, or damage. We are subject to cybersecurity risks. Information cybersecurity risks have significantly increased in recent years and, while we have not experienced any material losses relating to cyber-attacks or other information security breaches, we could suffer such losses in the future. Our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize confidential and other information, including nonpublic personal information and sensitive business data, processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. This could result in significant losses, reputational damage, litigation, regulatory fines or penalties, or otherwise adversely affect our business, financial condition or results of operations. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In the future, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. In addition, we may be subject to litigation and financial losses that are not fully insured.

Risks Associated with our Common Stock

Our directors control a substantial number of shares of our common stock, decreasing your influence on stockholder decisions.

Based on the 5,950,246 shares of common stock that were issued and outstanding as of April 30, 2019, our directors owned approximately 50% of our outstanding common stock. As a result, our directors as a group could have a significant influence in delaying, deferring or preventing any potential change in control of our company; they will be able to strongly influence the actions of our board of directors even if they were to cease being directors of our company and can effectively control the outcome of actions brought to our stockholders for approval. Such a high level of ownership may adversely affect the exercise of your voting and other stockholder rights.

We do not expect to pay dividends in the foreseeable future.

We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms. We cannot assure you of a positive return on investment or that you will not lose the entire amount of your investment in our common stock.

The exercise of all or any number of outstanding stock options or the issuance of other stock-based awards or any issuance of shares to raise funds may dilute your holding of shares of our common stock.

If the holders of outstanding stock options and deferred share units exercise or settle all of their vested stock options and deferred share units as at April 30, 2019, then we would be required to issue an additional 1,249,940 shares of our common stock, which would represent approximately 21% of our issued and outstanding common stock after such issuances. The exercise of any or all outstanding stock options that are exercisable below market price will result in dilution to the interests of other holders of our common stock.

We may in the future grant to certain or all of our directors, officers, insiders and key employees stock options to purchase the shares of our common stock, bonus shares and other stock based compensation as non-cash incentives to such persons. Subject to applicable stock exchange rules, if any, we may grant these stock options and other stock based compensation at exercise prices equal to or less than market prices, and we may grant them when the market for our securities is depressed. The issuance of any additional shares of common stock or securities convertible into common stock will cause our existing shareholders to experience dilution of their holding of our common stock.

In addition, shareholders could suffer dilution in their net book value per share depending on the price at which such securities are sold. Such issuance may cause a reduction in the proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the price of our shares of common stock or a change in the control of our company.

We may be considered a “penny stock.” Penny stock rules will limit the ability of our stockholders to sell their shares of common stock.

The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. In addition, since our common stock commenced trading on the NASDAQ Capital Market below the $4.00 minimum bid price per share requirement, our common stock would be considered a penny stock if we fail to satisfy the net tangible assets and revenue tests in Rule 3a51-1 under the Securities Exchange Act of 1934. Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements, which may limit a stockholder’s ability to buy and/or sell shares of our common stock.

The FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for its shares.

Securities analysts may not publish favorable research or reports about our business or may publish no information which could cause our stock price or trading volume to decline.

The trading market for our common stock will be influenced by the research and reports that industry or financial analysts publish about us and our business. We do not control these analyst reports. As a relatively small public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. If any of the analysts who cover us issue an adverse opinion regarding our stock price, our stock price may decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports covering us, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

Item 1B. Unresolved Staff Comments.

Not Applicable.

Item 2. Properties.

We do not own any real property. Our Canadian operations are conducted in three leased offices respectively located in Vancouver and Victoria, British Columbia and Ottawa, Ontario. Our U.S. operations are conducted in two leased offices respectively located in Chicago, Illinois, and Dedham, Massachusetts. Our head office is located at Suite 300, One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X 1M3.

Item 3. Legal Proceedings.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on the NASDAQ Capital Market under the symbol “CPAH” and the Toronto Stock Exchange under the symbol “PATH”.

Our shares of common stock are issued in registered form. Computershare located at 510 Burrard St., 3 ^rd Floor, Vancouver, BC, Canada V6C 3B9 (Telephone: 604.661.9400; Facsimile: 604.661.9549) is the registrar and transfer agent for our shares of common stock.

Holders

On July 5, 2019, the shareholders' list of our shares of common stock showed 110 registered shareholders and 5,953,380 shares outstanding.

Dividends

To date, we have not declared or paid any dividends on our shares of common stock and do not expect to declare or pay any dividends on our shares of common stock in the foreseeable future. Payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors as deemed relevant by our board of directors. Our intention is to retain future earnings for use in our operations and the expansion of our business.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides a summary of the number of options granted, shares purchasable or deferred share units granted under our various compensation plans, the weighted average exercise price and the number of options remaining available for grant, shares purchasable or deferred share units available for grant all as at April 30, 2019.

Equity Compensation Plan Information
Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-Average exercise price of outstanding options, warrants and rights	Number of Securities remaining available for future issuance under equity compensation plans
Equity compensation
plans approved by
security holders:
2010 Stock Option
Plan	616,449	$2.27	269,629
Employee Share
Purchase Plan	−	N/A	147,802
Deferred Share Unit
Plan	633,491	N/A	42,495
Equity compensation plans not approved by security holders	N/A	N/A	N/A
Total	1,249,940	$2.27	459,926

2010 Stock Option Plan

The purpose of the 2010 Stock Option Plan is to retain the services of valued key employees, directors, officers and consultants and to encourage such persons with an increased initiative to make contributions to our company. Under the 2010 Stock Option Plan, eligible employees, consultants and certain other persons who are not eligible employees, may receive awards of “non-qualified stock options”. Individuals, who, at the time of the option grant, are employees of our company or any related company (as defined in the 2010 Stock Option Plan) who are subject to tax in the United States may receive “incentive stock options” or “non-qualified stock options”, and stock options granted to non-United States residents may receive awards of “options”.

As of April 30, 2019, there were 616,449 stock options outstanding entitling the holders thereof the right to purchase one share of common stock for each option held.

Employee Share Purchase Plan

On October 1, 2008, our shareholders approved the employee share purchase plan (the “ESPP”) for employees, directors, officers and consultants of our company and our subsidiaries. The purpose of the plan is to give employees access to an equity participation vehicle in addition to our stock option plans by way of an opportunity to purchase shares of our common stock through payroll deductions and encourage them to use their combined best efforts on behalf of our company to improve its profits through increased sales, reduction of costs and increased efficiency. Participation in the ESPP is voluntary. Within the limits of the ESPP, our company matches fifty percent (50%) of the aggregate number of shares purchased by the participants. We are permitted to issue up to 220,000 shares of our common stock under the ESPP. As of April 30, 2019, we have 147,802 shares of our common stock available for issuance under the ESPP.

Deferred Share Unit Plan

Under the terms of the deferred share unit plan (the “DSUP”) as approved by the shareholders on October 22, 2009, each deferred share unit (each, a “DSU”) is equivalent to one share of common stock. The maximum number of shares of common stock that may be reserved for issuance to any one participant pursuant to DSUs granted under the DSUP and any share compensation arrangement is 5% of the number of shares of common stock of our company outstanding at the time of reservation. A DSU granted to a participant who is a director of our company shall vest immediately on the award date. A DSU granted to a participant other than a director will generally vest as to one-third (1/3) of the number of DSUs granted on the first, second and third anniversaries of the award date. Fair value of the DSUs, which is based on the closing price of our company’s common stock on the date of grant, is recorded as compensation expense in the period of grant. We have issued a cumulative total of 726,385 under the DSUP with 633,491 DSUs outstanding as of April 30, 2019. Of the total DSUs issued, 68,880 units have been cancelled and 24,014 units have been converted to 24,014 shares of common stock.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities
	Total number of shares purchased	Average price paid per share (Canadian dollars) ⁽¹⁾	Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs ⁽¹⁾
2/1/2019 – 2/28/2019	−	−	−	284,278
3/1/2019 – 3/31/2019	−	−	−	−
4/1/2019 – 4/30/2019	−	−	−	−
Total	−	−	−	−

⁽¹⁾	Pursuant to a normal course issuer bid announced on March 27, 2018, which commenced on March 29, 2018 and expired on March 28, 2019 to purchase up to 284,278 shares of our common stock.

On March 27, 2018, we announced our intention to purchase, by way of a normal course issuer bid, for cancellation purposes, up to 284,278 shares of our common stock, representing approximately 10% of our then outstanding public float. We believe that our shares trade in a price range that does not adequately reflect their underlying value based on our business prospects.

Purchases were to be made on the open market through the facilities of the TSX, NASDAQ Capital Market or such other stock exchange or quotation system upon which our shares are then listed or quoted, including other Canadian marketplaces, at market prices prevailing at the time of purchase and would take place over a 12-month period beginning on March 29, 2018 and expiring on March 28, 2019. We were permitted to make block purchases once per calendar week in accordance with the rules of the TSX. The daily purchase restriction was 1,199 shares, subject to certain prescribed exemptions. All shares purchased by our company under the normal course issuer bid were returned to treasury and cancelled.

In connection with the normal course issuer bid, we renewed our automatic share purchase plan with National Bank Financial Inc., in order to facilitate purchases of our shares. Under the purchase plan, National Bank could purchase shares on our behalf at times when we would ordinarily not be permitted to purchase shares due to internal trading blackout periods, insider trading rules or otherwise. The purchase plan was approved by the TSX and was implemented as of March 28, 2018. Purchases made by National Bank on the open market were based upon the parameters prescribed by the TSX, applicable laws and the terms and conditions of the purchase plan.

To our knowledge, none of our directors, senior officers or other insiders (as defined in the TSX Company Manual) sold any shares under the normal course issuer bid. However, sales by such persons through the facilities of the TSX may occur if the personal circumstances of any such person change or if any such person makes a decision unrelated to these normal course purchases. The benefits to any such person whose shares are purchased would be the same as the benefits available to all other holders whose shares are purchased.

Stockholders may obtain a copy of the notice submitted to the TSX with respect to the normal course issuer bid, without charge, by contacting our Chief Financial Officer.

Recent Sales of Unregistered Securities

None.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the financial statements and related notes and the other financial information appearing elsewhere in this annual report.

Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. All references to “common shares” refer to our shares of common stock. As used in this annual report, the terms “we”, “us” and “our” means CounterPath Corporation, unless otherwise indicated.

Overview

Background

We were incorporated under the laws of the State of Nevada on April 18, 2003.

On August 2, 2007, we acquired all of the shares of NewHeights Software Corporation through the issuance of 768,017 shares of our common stock and 36,984 preferred shares issued from a subsidiary of our company, which preferred shares were exchangeable into 36,984 shares of common stock.

On February 1, 2008, we acquired all of the shares of FirstHand Technologies Inc. through the issuance of 590,001 shares of our common stock. On February 1, 2008, we acquired all of the issued and outstanding shares of BridgePort Networks, Inc. (“BridgePort Networks”) by way of merger in consideration for the assumption of all of the assets and liabilities of BridgePort Networks.

Business of CounterPath

We design, develop and sell software and services that enable enterprises and telecommunication service providers to deliver Unified Communications (UC) services, including voice, video, messaging and collaboration functionality, over their Internet Protocol, or IP, based networks. We are capitalizing upon numerous industry trends, including the rapid adoption of mobile technology, the proliferation of bring-your-own-device to work programs, the need for secure business communications, the need for centralized provisioning, the migration towards cloud-based services and the migration towards all IP networks. We are also capitalizing on a trend where communication services such as Skype and WhatsApp are becoming more available over-the-top (OTT) of the incumbent operators’ networks or enterprise networks (a.k.a. Internet OTT providers). We offer our solutions under perpetual license agreements that generate one-time license revenue and under subscription license agreements that generate recurring license revenue. We sell our solutions through our own online store, through third-party online stores, directly using our in-house sales team and through channel partners. Our channel partners include original equipment manufacturers, value added distributers and value added resellers. Enterprises typically leverage our Enterprise OTT solutions to increase employee productivity and to reduce certain costs. Telecommunication service providers typically deploy our Operator OTT solutions as part of a broad strategy to defend their subscriber base from competitive threats by offering innovative new services. Our original equipment manufacturers and value added resellers typically integrate our solutions into their products and then sell a bundled solution to their end customers, which include both telecommunication service providers and enterprises.

Revenue

Our total revenue consists of the following:

•	Software

	We generate software revenue primarily on a single fee per perpetual software license basis. We recognize software revenue for perpetual licenses when control has transferred to the customer, which is generally at the time of delivery, provided all revenue recognition criteria have been met. If the revenue recognition criteria have not been met, the revenue is deferred or not recognized. The number of software licenses purchased has a direct impact on the average selling price. Our software revenue may vary significantly from quarter to quarter as a result of long sales and deployment cycles, new product introductions and variations in customer ordering practices.

•	Subscription, support and maintenance

	We generate recurring subscription revenue from subscriptions related to our software as a service offering. Recurring support and maintenance revenue is generated from annual software support and maintenance contracts for our perpetual software licenses. Both subscription revenue and support and maintenance revenue are typically billed annually in advance based on the terms of the arrangement.

	Support and maintenance services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis, and are recognized rateably over the term of the service period, which is generally twelve months.

•	Professional services and other

	We generate professional services and other revenue through services including product configuration and customization, implementation, dedicated engineering and training. The amount of product configuration and customization required by a customer typically increases as the order size increases from a given customer. Services and pricing may vary depending upon a customer’s requirements for customization, implementation and training.

Operating Expenses

Operating expenses consist of cost of sales, sales and marketing, research and development, and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories.

Cost of sales primarily consists of: (a) salaries and benefits related to personnel, (b) related overhead, (c) billable and non-billable travel, lodging, and other out-of-pocket expenses, (d) payments to third party vendors for development and hosted services and compression/decompression software known as codecs, (e) amortization of capitalized software that is implemented into our products and (f) warranty expense.

Sales and marketing expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) commissions, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs such as advertising, promotions and trade shows and (e) other related overhead. Commissions are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a systematic basis to sales and marketing expense, over the anticipated benefit period of up to 3.5 years depending on the products or services. Sales commissions on contracts with an anticipated benefit period of one year or less are expensed as incurred. We expect increases in sales and marketing expense for the foreseeable future as we further increase the number of sales professionals and increase our marketing activities with the intent to grow our revenue. We expect sales and marketing expense to decrease as a percentage of total revenue, however, as we leverage our current sales and marketing personnel as well as our distribution partnerships.

Research and development expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) payments to contractors for design and consulting services, (c) costs relating to the design and development of new products and enhancement of existing products, (d) quality assurance and testing and (e) other related overhead. To date, all of our research and development costs have been expensed as incurred.

General and administrative expense consists primarily of: (a) salaries and personnel costs including stock-based compensation related to our executive, finance, human resource and information technology functions, (b) accounting, legal, tax advisory and regulatory fees and (c) other related overhead.

Application of Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions. There have been no material changes to these estimates for the periods presented in this annual report.

We believe that of our significant accounting policies, which are described in Note 2 to our annual financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, the following policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

On May 1, 2018, we adopted the new accounting standard, ASC 606 “Revenue from Contracts with Customers” and all related amendments to the new accounting standard to contracts using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue recognition standard to contracts with open performance obligations as of May 1, 2018, as an adjustment to the opening balance of retained earnings. Results of the reporting period beginning May 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

Revenues from contracts with customers are recognized when control of promised goods and services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We recognize revenue using the five-step model as prescribed by ASC 606:

	1)	Identification of the contract, or contracts, with a customer;
	2)	Identification of the performance obligations in the contract;
	3)	Determination of the transaction price;
	4)	Allocation of the transaction price to the performance obligations in the contract; and
	5)	Recognition of revenue when or as, we satisfy a performance obligation.

When a contract with a customer is signed, we assess whether collection of the fees under the arrangement is probable. We estimate the amount to reserve for uncollectible amounts at the end of each reporting period based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded against the related accounts receivable.

The transaction price is the consideration that we expect to receive from our customers in exchange for our products and services. In determining the allocation of the transaction price, we identify performance obligations in contracts with customers, which may include products, subscriptions to software and services, support, professional services and training. We allocate the transaction price to each performance obligation on a relative standalone selling price basis. The standalone selling price (SSP) is the price at which we would sell a promised product or service separately to a customer. We determine the SSP using information that may include market conditions or other observable inputs. In certain cases, we are able to establish a SSP based on observable prices for products or services sold separately. In these instances, we would use a single amount to estimate a SSP. If a SSP is not directly observable, for example when pricing is variable, we will use a range of SSP.

In certain circumstances, we may estimate SSP for a product or service by applying the residual approach. This approach has been most commonly used when certain perpetual software licenses are only sold bundled with one year of post-contract support or other services and a price has not been established for the software.

Significant judgement is used to determine SSP and to determine the allocation of the transaction price based on the relative SSP of the various products and services. Estimating SSP is a formal process that includes review and approval by management.

We recognize software revenue for perpetual licenses when control has transferred to the customer, which is generally at the time of delivery when the customer has the ability to deploy the licenses, provided all revenue recognition criteria have been met. If the revenue recognition criteria has not been met, the revenue is deferred or not recognized.

We recognize revenue from subscriptions related to our software as a service offering ratably over the contractual subscription term as control of the goods or services is transferred to the customer, beginning on the date that the subscription is made available to the customer. Support and maintenance revenue is generated from recurring annual software support and maintenance contracts for our perpetual software licenses and is recognized ratably over the term of the service period, which is generally twelve months. Support and maintenance services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis. Both subscription revenue and support and maintenance revenue are typically billed annually in advance based on the terms of the arrangement.

We recognize revenue from professional services and other revenue when control has transferred to the customer, which is generally at the time of delivery, and all other revenue recognition criteria have been met. For contracts with elements related to customized network solutions and certain network build-outs or software systems that require significant modification or customization, we will recognize revenue using the percentage-of-completion method. In using the percentage-of-completion method, revenues are generally recorded based on completion of milestones as described in the agreement. Profit estimates on long-term contracts are revised periodically based on changes in circumstances and any losses on contracts are recognized in the period that such losses become known. Depending on the services to be provided, revenue from professional services and other is generally recognized at the time of delivery when the services have been completed and control has been transferred to the customer.

Unearned Revenue

Unearned revenue represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual support and subscription services and professional and training services not yet provided as of the balance sheet date.

Costs to Obtain a Customer Contract

Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a systematic basis to match the timing of revenue recognition over the anticipated benefit period of up to 3.5 years depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in sales and marketing expense within our consolidated statement of operations. We have elected to apply a practical expedient that permits our company to expense costs to obtain a contract as incurred, if the anticipated benefit period is one year or less. From time to time, management will revisit the estimates used in recognizing the costs to obtain customer contracts.

Costs to Fulfill a Customer Contract

Certain contract costs incurred to fulfill obligations under a contract are capitalized when such costs generate or enhance resources to be used in satisfying future performance obligations and the costs are deemed recoverable. Judgement is used in determining whether certain contract costs can be capitalized. These costs are capitalized and amortized on a systematic basis to match the timing of revenue recognition over the anticipated benefit period of up to 3.5 years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in cost of sales in our consolidated statement of operations. From time to time, management will review the capitalized costs for impairment and will also revisit the estimates used in recognizing the costs to fulfill customer contracts.

Stock-Based Compensation

Stock options granted are accounted for under ASC 718 “Share-Based Payment” and are recognized at the fair value of the options as determined by an option pricing model as the related services are provided and the options earned. ASC 718 requires public companies to recognize the cost of employee services received in exchange for equity instruments, based on the fair value of those instruments on the measurement date which generally is the grant date, with limited exceptions.

Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee consultants. We measure stock-based compensation cost at measurement date, based on the estimated fair value of the award, and generally recognize the cost as expense on a straight-line basis (net of estimated forfeitures) over the employee requisite service period or the period during which the related services are provided by the non-employee consultants and the options are earned. We estimate the fair value of stock options using a Black-Scholes option valuation model.

The expected volatility of options granted has been determined using the volatility of our company’s stock. The expected life of options granted after April 30, 2006 has been determined based on analysis of historical data. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. In addition, ASC 718 requires companies to utilize an estimated forfeiture rate when calculating the expense for the period. We applied an estimated forfeiture rate of 15.0% in the year ended April 30, 2019 in determining the expense recorded in our consolidated statement of operations. Cost of sales and operating expenses include stock-based compensation expense, and deferred share unit plan expense. For the year ended April 30, 2019, we recorded an expense of $474,726 in connection with share-based payment awards. A future expense of non-vested options of $373,324 is expected to be recognized over a weighted-average period of 2.9 years. A future expense of non-vested deferred share units of $178,984 is expected to be recognized over a weighted-average period of 2.4 years.

Research and Development Expense for Software Products

Research and development expense includes costs incurred to develop intellectual property. The costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. We have determined that technological feasibility is established at the time a working model of software is completed. Because we believe our current process for developing software will be essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date.

Accounts Receivable and Allowance for Doubtful Accounts

We extend credit to our customers based on evaluation of an individual customer’s financial condition and collateral is generally not required. Accounts outstanding beyond the contractual payment terms are considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are beyond the contractual payment terms, our previous loss history, and a customer’s current ability to pay its obligation to us. We write-off accounts receivable when they are identified as uncollectible. All outstanding accounts receivable are periodically reviewed for collectability on an individual basis.

Goodwill

We have goodwill related to the acquisitions of NewHeights Software Corporation and FirstHand Technologies Inc. The determination of the net carrying value of goodwill and the extent to which, if any, there is impairment, are dependent on material estimates and judgments on our part, including the estimate of the value of future net cash flows, which are based upon further estimates of future revenues, expenses and operating margins.

Goodwill—Impairment Assessments

We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with FASB ASC 350, Goodwill and Other Intangible Assets (“ASC 350”). The provisions of ASC 350 require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of our reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.

In September of 2011, FASB issued Accounting Standards Update 2011-08, “Intangibles—Goodwill and Other (Topic 350)” . Under the amendments of this update, an entity may first assess certain qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.

Determining the fair value of our reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. Our most recent annual goodwill impairment analysis, which was performed at the end of the fourth quarter of fiscal 2019, did not result in an impairment charge for fiscal year 2019, nor did we record any goodwill impairment in fiscal 2018.

Derivative Instruments

We periodically enter into foreign currency forward contracts, not designated as hedging instruments, to protect us from fluctuations in exchange rates. During the year, we had three foreign currency option contracts with an aggregate notional value of $1,500,000, maturing in the period ending July 31, 2019. Notional amounts do not quantify risk or represent assets or liabilities of our company, but are used in the calculation of cash settlements under the contracts. During the year ended April 30, 2019, we recognized a gain of $1,735 as a result of the change in fair value of derivative instruments.

Use of Estimates

The preparation of our financial statements in conformity with generally accepted accounting principles in the United States requires our management to make estimates and assumptions which affect the amounts reported in these consolidated financial statements, the notes thereto, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Results of Operations

Our operating activities during the year ended April 30, 2019 consisted primarily of selling our IP telephony software and related services to telecom service providers, enterprises and channel partners serving the telecom and enterprise segments, and the continued development of our IP telephony software products.

We generate our revenue primarily in U.S. dollars and incur a majority of our expenses in Canadian dollars. As a result of the fluctuation in the Canadian dollar against the U.S. dollar over the twelve months ended April 30, 2019, we recorded a decrease in operating costs on translation of Canadian dollar costs as compared to the twelve months ended April 30, 2018 of approximately $256,600.

Selected Consolidated Financial Information

The following tables set out selected consolidated audited financial information for the periods indicated. The selected consolidated financial information set out below for the fiscal years ended April 30, 2019 and 2018, and as at April 30, 2019 and April 30, 2018, has been derived from the consolidated financial statements and accompanying notes for the fiscal years ended April 30, 2019 and 2018. Each investor should read the following information in conjunction with those statements and the related notes thereto.

		April 30,		April 30,
Selected Consolidated Balance Sheet Data		2019		2018
Cash	$	1,862,458	$	2,348,883
Current assets	$	4,126,387	$	6,049,138
Total assets	$	11,124,786	$	13,334,227
Current liabilities	$	4,885,095	$	5,068,939
Total liabilities	$	7,898,889	$	5,093,041

Selected Consolidated Statements of Operations
Data		Years Ended April 30,
		20 19					20 18
				Percent					Percent
				of Total					of Total
		Amount		Revenue			Amount		Revenue
Revenue	$	10,764,904		100%		$	12,381,741		100%

Operating expenses		15,931,665		148%			15,175,511		123%
Loss from operations		($5,166,761	)	(48%	)		($2,793,770	)	(23%	)
Interest and other income (expense), net		(103,443	)	(1%	)		(361	)	−%
Foreign exchange (loss) gain		256,765		2%			(426,539	)	(3%	)
Net loss		($5,013,439	)	(47%	)		($3,220,670	)	(26%	)

Net loss per share
-Basic and diluted		($0.84	)				($0.59	)

Weighted average common shares outstanding
-Basic and diluted ⁽¹⁾		5,942,096					5,496,201

⁽¹⁾	As at April 30, 2019 and 2018 common share equivalents of 1,249,940 and 1,140,432, respectively, were not included in the computation of diluted weighted average common shares as the effect was anti-dilutive.

Revenue

Revenues for the year ended April 30, 2019 and 2018 were as follows:

		Twelve Months Ended April 30,
		2 019			20 18			Period-to- Peri od Change
			Percent			Percent				Percent
			of Total			of Total				Increase /
		Amount	Revenue		Amount	Revenue		Amount		(Decrease)
Revenue by Type
Software	$	4,660,660	43%	$	6,338,512	51%		($1,677,852	)	(26%	)
Subscription, support and maintenance	$	5,366,290	50%	$	4,273,410	35%	$	1,092,880		26%
Professional services and other	$	737,954	7%	$	1,769,819	14%		($1,031,865	)	(58%	)
Total revenue	$	10,764,904	100%	$	12,381,741	100%		($1,616,837	)	(13%	)

Revenue by Region
North America	$	6,768,821	63%	$	6,916,556	56%		($147,735	)	(2%	)
International	$	3,996,083	37%	$	5,465,185	44%		($1,469,102	)	(27%	)
Total revenue	$	10,764,904	100%	$	12,381,741	100%		($1,616,837	)	(13%	)

For the year ended April 30, 2019, we generated $10,764,904 in revenue compared to $12,381,741 for the year ended April 30, 2018, representing a decrease of $1,616,837 or 13%.

Software revenue decreased by $1,677,852 or 26% to $4,660,660 for the year ended April 30, 2019 compared to $6,338,512 for the year ended April 30, 2018. The decrease in software revenue was primarily a result of decreased sales to service providers, channel partners, and enterprises.

Subscription, support and maintenance revenue increased by $1,092,880 or 26% to $5,366,290 for the year ended April 30, 2019 compared to $4,273,410 for the year ended April 30, 2018. The increase in subscription, support and maintenance revenue was a result of increased sales to channel partners and service providers.

Professional services and other revenue decreased by $1,031,865 or 58% to $737,954 for the year ended April 30, 2019 compared to $1,769,819 for the year ended April 30, 2018. The decrease in professional services and other revenue was a result of decreased sales to service providers, channel partners, and enterprises.

North American revenue decreased by $147,735 or 2% to $6,768,821 for the year ended April 30, 2019 compared to $6,916,556 for the year ended April 30, 2018, as a result of lower sales of software and services to North American channel partners, service providers, and enterprises slightly offset by higher sales of service to channel partners and service providers. International revenue outside of North America decreased by $1,469,102 or 27% to $3,996,083 for the year ended April 30, 2019 compared to $5,465,185 for the year ended April 30, 2018, as a result of lower sales of software and services to international service providers, channel partners, and enterprises.

Operating Expenses

Cost of Sales

Cost of sales for the year ended April 30, 2019 and 2018 were as follows:

April 3 0, 2 019

April 3 0, 2 018

Period-to- Peri od Change

Percent

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Year ended

2,223,984

21%

1,629,814

13%

594,170

36%

Cost of sales was $2,223,984 for the year ended April 30, 2019 compared to $1,629,814 for the year ended April 30, 2018. The increase of $594,170, or 36%, was primarily due to increases of approximately $195,700 in wages and benefits, $257,500 in consulting fees, $208,200 in communication services expenses, $18,200 in licenses and permits and approximately $56,200 in other expenses. This increase was offset by a one time reversal of $141,600 in third-party software accruals. Cost of sales expressed as a percent of revenue was 21% of revenue for the year ended April 30, 2019 compared to 13% for the year ended April 30, 2018.

Sales and Marketing

Sales and marketing expenses for the year ended April 30, 2019 and 2018 were as follows:

April 3 0, 2 019

April 3 0, 2 018

Period-to- Peri od Change

Percent

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Year ended

4,061,921

38%

4,266,716

34%

($204,795

)

(5%

)

Sales and marketing expenses were $4,061,921 for the year ended April 30, 2019 compared to $4,266,716 for the year ended April 30, 2018. The decrease of $204,795, or 5%, was primarily attributable to decreases of $129,000 in consulting fees and $67,400 in marketing and travel expenses and $57,900 in wages, benefits and commissions expenses, offset by an increase of $49,500 in other expenses.

Research and Development

Research and development expenses for the year ended April 30, 2019 and 2018 were as follows:

April 3 0, 2 019

April 3 0, 2 018

Period-to- Peri od Change

Percent

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Year ended

5,547,587

52%

5,506,887

44%

40,700

Research and development expenses were $5,547,587 for the year ended April 30, 2019 compared to $5,506,887 for the year ended April 30, 2018. The increase of $40,700, or 1%, resulted primarily from increases in wages, benefits and consulting fees of approximately $25,900 and other expenses of approximately $14,800.

General and Administrative

General and administrative expenses for the years ended April 30, 2019 and 2018 were as follows:

April 3 0, 2 019

April 3 0, 2 018

Period-to- Peri od Change

Percent

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Year ended

4,098,173

38%

3,772,094

30%

326,079

General and administrative expenses for the year ended April 30, 2019 were $4,098,173 compared to $3,772,094 for the year ended April 30, 2018. The increase of $326,079, or 9%, in general and administrative expenses was primarily attributable to increases of approximately $510,900 in bad debts reserve, $166,900 in legal and professional fees, $71,900 in consulting fees and approximately $101,900 in other expenses. This increase was offset by decreases of approximately $357,400 in non-income tax based accrual, $168,100 in wages, benefits and commissions expenses.

Interest and Other Income (Expense), Net

Interest and other income (expense), net for the year ended April 30, 2019 was $147,824 compared to ($426,900) for the year ended April 30, 2018. The increase of $574,724 was primarily due to a foreign exchange gain in the current year of approximately $256,800, compared to a foreign exchange loss of approximately $426,500 in the prior year as result of the weakening of the Canadian dollar against the U.S. dollar during the year ended April 30, 2019. This foreign exchange gain was offset by an increase in interest expense of approximately $107,000 which was largely related to the loan payable.

The foreign exchange gain (loss) represents the gain (loss) on account of translation of the intercompany accounts of our subsidiary which maintains their records in Canadian dollars and transactional gains and losses. This also includes the translation of quarterly intercompany transfer pricing invoices from our Canadian subsidiary to us.

Liquidity and Capital Resources

As at April 30, 2019, we had $1,862,458 in cash compared to $2,348,883 at April 30, 2018, representing a decrease of $486,425. As of April 30, 2019, we had a working capital deficit of $758,708 compared to working capital of $980,199 at April 30, 2018, representing a decrease of $1,738,907. Management anticipates that future capital requirements of our company will be funded through cash flows generated from operations and from working capital for the next twelve months and we may seek additional funding to meet ongoing operating expenses.

We have experienced recurring losses and an accumulated deficit of $68,581,091 as of April 30, 2019. This is a result of flat to declining revenues due to a number of factors including an increased focus on building out the Company’s cloud-based subscription platform and a change from the current licensing model to subscription-based licensing which has not reached profitable operations, resulting in substantial doubt about the Company’s ability to continue operating as a going concern within one year of the date of issuance of the consolidated financial statements.

To alleviate this situation, we have plans in place to improve our financial position and liquidity through additional financing, while executing on our growth strategy, and by managing and or reducing costs that are not expected to have an adverse impact on the ability to generate cash flows, as the transition to our software as a service platform and subscription licensing continues. During fiscal 2019, recurring revenue as a percentage of total revenue increased from 35% in the prior year to 50% of total revenue. We believe that increasing recurring revenue will stabilize the volatility of revenue over time, enabling our company to grow revenue from our extensive customer base. To increase our recurring revenue, we introduced Bria Teams and Bria Teams Pro which is a subscription based unified communication service. In addition, we advanced our Channel Partner Program which enables us to leverage our sales force in regions outside of North America. The Channel Partner Program is administered through a partner portal enabling our partners to order and manage their customers and end users in an automated and scalable fashion. Software sold through the Channel Partner Program is extensively licensed on a subscription basis.

We have historically been able to manage liquidity requirements through cost management and cost reduction measures, supplemented with raising additional financing. In October 2018, we entered into a loan agreement for an aggregate principal amount of up to $3,000,000. As of April 30, 2019, the principal balance of the loan payable was $3,000,000. On July 10, 2019, we entered into an amendment to this loan agreement to increase the aggregate principal amount of the loan that we can borrow to $5,000,000. We do not have any other commitments to raise funds as of the date of this annual report on Form 10-K.

As at April 30, 2019, we had $1,352,995 in cash held outside of the United States, and there is no intent to repatriate at this time. Should we decide to repatriate in the future, taxes would need to be accrued and paid.

Operating Activities

Our operating activities resulted in a net cash outflow of $3,443,379 for the year ended April 30, 2019, compared to a net cash outflow of $2,427,090 for the year ended April 30, 2018, representing an increase of $1,016,289. This increase is primarily due to an increase in the net loss by approximately $1,792,800, a decrease in non-cash foreign exchange losses of approximately $824,100 in addition to decreases in accounts payable and accrued liabilities by approximately $722,300, non-cash stock-based compensation expense of approximately $129,800, deferred sales commissions costs of approximately $61,700, prepaid expenses of approximately $54,700 and warranty payable of approximately $19,900. The increase in next cash outflow was primarily offset by the changes in accounts receivable of approximately $1,925,210 as a result of decreased revenue experienced during the year and write-off of certain amounts deemed uncollectible, non-cash bad debts expense of $504,400 and unearned revenue of $174,900.

For the year ended April 30, 2018, the change in net cash outflow was primarily due to an increase in accounts receivable of $2,451,400 and an increase in the net loss of approximately $762,200, offset by a decrease in non-cash foreign exchange of approximately $1,030,500 and a decrease in accounts payable and accrued liabilities of $508,100. The net cash flow outflow from operating activities for the year ended April 30, 2018 was primarily the result of a net loss of $3,220,700 and an increase in accounts receivable of $1,375,600. The net cash outflow was primarily offset by stock-based compensation of $604,600, unearned revenue of $430,900, non-cash foreign exchange loss of $468,400, increase in accounts payable of $561,700 and depreciation and amortization of $113,800.

Investing Activities

Investing activities resulted in a net cash outflow of $49,732 for the year ended April 30, 2019, compared to a net cash outflow of $125,113 for the year ended April 30, 2018, representing a decrease of $75,381. This decrease is primarily due to a decrease of approximately $60,200 in purchases of equipment and $15,200 in costs related to our trademarks. At April 30, 2019, we did not have any material commitments for future capital expenditures.

Financing Activities

Financing activities resulted in a net cash inflow of $3,022,645 for the year ended April 30, 2019 compared to a net cash inflow of $2,869,871 for the year ended April 30, 2018, representing an increase of $152,774. The net cash inflow for the year ended April 30, 2019 was primarily due to proceeds of $3,000,000 received under a loan agreement, in addition to proceeds of $22,645 received related to shares issued pursuant to our employee stock purchase plan. The net cash inflow for the year ended April 30, 2018 was primarily a result of two non-brokered private placements. On January 24, 2018, we issued an aggregate of 427,500 shares of common stock under a non-brokered private placement at a price of $4.01 per share for total gross proceeds of $1,714,275 less issuance costs of $48,325. On July 20, 2017, we issued an aggregate of 539,240 shares of common stock under a non-brokered private placement at a price of $2.20 per share for total gross proceeds of $1,186,328 less issuance costs of $19,832. In addition, we received $69,325 for shares issued under the employee stock purchase plan in the prior year.

During the year ended April 30, 2018, we also repurchased 13,600 shares of common stock at an average price of approximately $2.49 (CDN$3.18), for a total of approximately $33,119 (CDN$43,218) pursuant to a normal course issuer bid effective during the period March 29, 2017 to March 28, 2018. On March 29, 2018, we filed another normal course issuer bid commencing on March 29, 2018 and expired on March 28, 2019. Under this normal course issuer bid, we were authorized to purchase up to 284,278 shares of our common stock through the facilities of the TSX and other Canadian marketplaces or U.S. marketplaces. As of April 30, 2019, a total of 153,988 shares have been repurchased and cancelled since the normal issuer bid plan was initiated.

Off-Balance Sheet Arrangements

We do not have, and do not have any present plans to implement, any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends the presentation and disclosure requirements and changes how companies assess effectiveness. The amendments are intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. This amendment is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early application is permitted. We are currently assessing the future impact of this update on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, which amends the guidance to eliminate Step 2 from the goodwill impairment test. Instead, under the amendments in the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The amendments will be effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are evaluating the impact of this amendment on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Measurement of Credit Losses on Financial Instruments which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive for Company’s ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected will a valuation provision. The amendments will be effective for fiscal years beginning after December 15, 2019. We are evaluating the impact of this amendment on our consolidated financial statements and related disclosures.

In February 2016, FASB issued ASU 2016-02, Leases. The guidance would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2018. We are currently evaluating the impact of its pending adoption of ASU 2016-02 on our consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, Revenue From Contracts With Customers (“Topic 606”) which supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (“Topic 605”) and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. We adopted ASU 2014-09 as of May 1, 2018 using the modified retrospective transition method. See Note 3 – Revenue Recognition under ASC 606 in our notes to consolidated financial statements for further details.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

COUNTERPATH CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2019

	Page

Report of Independent Registered Public Accounting Firm	38

Consolidated Balance Sheets	39

Consolidated Statements of Operations	40

Consolidated Statements of Comprehensive Loss	40

Consolidated Statements of Cash Flows	41

Consolidated Statements of Changes in Stockholders' Equity	42

Notes to the Consolidated Financial Statements	43-66

Tel: 604 688 5421
Fax: 604 688 5132
www.bdo.ca

BDO Canada LLP
600 Cathedral Place
925 West Georgia Street
Vancouver BC V6C 3L2 Canada

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
CounterPath Corporation
Las Vegas, Nevada

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CounterPath Corporation (the “Company”) as of April 30, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended April 30, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2019 , in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred losses and has an accumulated deficit of $68,581,091 as of April 30, 2019. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ “BDO CANADA LLP”

Chartered Professional Accountants

We have served as the Group’s auditor since 2006.

Vancouver, British Columbia
July 10, 2019

COUNTERPATH CORPORATION
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)

		April 30,			April 30,
		2019			2018

Assets
Current assets:
Cash	$	1,862,458		$	2,348,883
Accounts receivable (net of allowance for doubtful accounts of $619,514 (2018 - $322,638))		1,876,896			3,509,010
Deferred sales commission costs – current – Note 3		122,777			–
Derivative assets		1,178			–
Prepaid expenses and other current assets		263,078			191,245
Total current assets		4,126,387			6,049,138

Deposits		94,829			98,633
Deferred sales commission costs – non-current – Note 3		77,571			–
Equipment		59,914			121,819
Goodwill		6,541,290			6,843,575
Intangibles and other assets		224,795			221,062
Total Assets	$	11,124,786		$	13,334,227

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	2,233,875		$	2,437,733
Derivative liability		4,512			–
Unearned revenue		2,593,726			2,565,876
Customer deposits		947			2,200
Accrued warranty		52,035			63,130
Total current liabilities		4,885,095			5,068,939

Deferred lease inducements		4,031			14,339
Loan payable – Note 9		3,000,000			–
Unrecognized tax liability		9,763			9,763
Total liabilities		7,898,889			5,093,041

Stockholders’ equity:
Preferred stock, $0.001 par value Authorized: 100,000,000 Issued and outstanding: April 30, 2019 – nil; April 30, 2018 – nil		–			–
Common stock, $0.001 par value – Note 10 Authorized: 100,000,000 Issued: April 30, 2019 – 5,950,246; April 30, 2018 – 5,930,468		5,950			5,931
Additional paid-in capital		75,667,533			75,170,181
Accumulated deficit – Note 3		(68,581,091	)		(63,701,685	)
Accumulated other comprehensive loss – currency translation adjustment		(3,866,495	)		(3,233,241	)
Total stockholders’ equity		3,225,897			8,241,186
Liabilities and Stockholders’ Equity	$	11,124,786		$	13,334,227

Commitments – Note 14
Contingencies – Note 15
Going concern – Note 2

See accompanying notes to the consolidated financial statements

COUNTERPATH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in U.S. Dollars)

		Years Ended
		April 30,
		2019			2018

Revenue – Note 13:
Software	$	4,660,660		$	6,338,512
Subscription, support and maintenance		5,366,290			4,273,410
Professional services and other		737,954			1,769,819
Total revenue		10,764,904			12,381,741
Operating expenses:
Cost of sales (includes depreciation of $529 (2018 - $6,337))		2,223,984			1,629,814
Sales and marketing		4,061,921			4,266,716
Research and development		5,547,587			5,506,887
General and administrative		4,098,173			3,772,094
Total operating expenses		15,931,665			15,175,511
Loss from operations		(5,166,761	)		(2,793,770	)
Interest and other (expense) income, net
Interest and other income		2,145			3
Interest expense		(107,323	)		(364	)
Foreign exchange (loss) gain		256,765			(426,539	)
Change in fair value of derivative instruments		1,735			–
Total interest and other (expense) income, net		153,322			(426,900	)
Net loss for the year	$	(5,013,439	)	$	(3,220,670	)

Net loss per share:
Basic and diluted – Note 16	$	(0.84	)	$	(0.59	)

Weighted average common shares outstanding:
Basic and diluted – Note 16		5,942,096			5,496,201

See accompanying notes to the consolidated financial statements

COUNTERPATH CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Stated in U.S. Dollars)

Net loss for the year	$	(5,013,439	)	$	(3,220,670	)
Other comprehensive loss:
Foreign currency translation adjustments		(633,254	)		791,955
Comprehensive loss	$	(5,646,693	)	$	(2,428,715	)

See accompanying notes to the consolidated financial statements

COUNTERPATH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)

		Years Ended
		April 30,
		2019			2018

Cash flows from operating activities:
Net loss for the year	$	(5,013,439	)	$	(3,220,670	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense		1,082,440			578,024
Deferred lease inducements		(9,675	)		(10,175	)
Depreciation and amortization		105,464			113,805
Unrealized foreign exchange (gain) loss		(355,739	)		468,354
Stock-based compensation – Note 10		474,726			604,566
Issuance of common stock for services		–			16,156
Change in fair value of derivative instruments		3,334			–

Changes in assets and liabilities:
Accounts payable and accrued liabilities		(160,586	)		561,703
Accounts receivable		549,658			(1,375,552	)
Deferred sales commission costs – Note 3		(61,705	)		–
Accrued warranty		(11,095	)		8,765
Customer deposits		(1,253	)		(6,325	)
Prepaid expenses and other current assets		(73,359	)		(18,645	)
Unearned revenue – Note 3		27,850			(147,096	)
Net cash used in operating activities		(3,443,379	)		(2,427,090	)

Cash flows from investing activities:
Purchases of equipment		(40,094	)		(100,300	)
Purchases of intangibles		(9,638	)		(24,813	)
Net cash used in investing activities		(49,732	)		(125,113	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		22,645			2,902,990
Repurchases of common stock		–			(33,119	)
Proceeds received from loan payable – Note 9		3,000,000			–
Net cash provided by financing activities		3,022,645			2,869,871

Foreign exchange effect on cash		(15,959	)		(39,804	)

(Decrease) increase in cash		(486,425	)		277,864

Cash, beginning of the period		2,348,883			2,071,019
Cash, end of the period	$	1,862,458		$	2,348,883

Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	52,603		$	364
Taxes	$	–		$	–

Non cash transactions – Note 10

See accompanying notes to the consolidated financial statements

COUNTERPATH CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
for the Years Ended April 30, 2019 and 2018
(Stated in U.S. Dollars)

	Common shares					Treasury Shares
																		Accumulated
	Number					Number						Additional						Other
	of					of						Paid-in			Accumulated			Comprehensive
	Shares			Par Value		Shares			Par Value			Capital			Deficit			Income (Loss)			Total

Balance, April 30, 2017	5,005,245		$	5,005		(59,900	)	$	(60	)	$	71,680,575		$	(60,481,015	)	$	(4,025,196	)	$	7,179,309

Shares issued – Note 10
Private placement, net of share issuance costs	966,740			967		–			–			2,831,479			–			–			2,832,446
Issuance of common stock for services	6,789			7		–			–			16,149			–			–			16,156
Share repurchase plan	–			–		(13,600	)		(14	)		(33,829	)		–			–			(33,843	)
Cancellation of shares	(73,500	)		(74	)	73,500			74			724			–			–			724
						–
Stock-based compensation	–			–					–			604,566			–			–			604,566
						–
						–
Employee share purchase program	24,699			25					–			69,300			–			–			69,325
						–
Exercise of stock options	495			1		–			–			1,217			–			–			1,218
Net loss for the period	–			–		–			–			–			(3,220,670	)		–			(3,220,670	)
Foreign currency translation adjustment	–			–		–			–			–			–			791,955			791,955
Balance, April 30, 2018	5,930,468		$	5,931		–		$	–		$	75,170,181		$	(63,701,685	)	$	(3,233,241	)	$	8,241,186

Adoption of ASC 606 – Note 3	–			–		–			–			–			134,033			–			134,033
Stock-based compensation – Note 10	–			–		–			–			474,726			–			–			474,726
Employee share purchase program – Note 10	12,820			12		–			–			25,012			–			–			25,024
Exercise of stock options– Note 10	6,958			7		–			–			(2,386	)		–			–			(2,379	)
Net loss for the period	–			–		–			–			–			(5,013,439	)		–			(5,013,439	)
Foreign currency translation adjustment	–			–		–			–			–			–			(633,254	)		(633,254	)
Balance, April 30, 2019	5,950,246		$	5,950		–		$	–		$	75,667,533		$	(68,581,091	)	$	(3,866,495	)	$	3,225,897

See accompanying notes to the consolidated financial statements

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Note 1	Nature of Operations

	CounterPath Corporation (the “Company”) was incorporated in the State of Nevada on April 18, 2003. The Company focuses on the design, development, marketing and sales of software applications and related services, such as pre and post sales technical support and customization services, that enable enterprises and telecommunication service providers to deliver Unified Communications (UC) services, including voice, video, messaging and collaboration functionality, over their Internet Protocol, or IP, based networks. The Company’s products are sold either directly or through channel partners, to small, medium and large businesses (“enterprises”) and telecom service providers in North America, and in Europe, Middle East, Africa (“collectively EMEA”), Asia Pacific and Latin America.

Note 2	Summary of Significant Accounting Policies

	Basis of Presentation and Principles of Consolidation

	The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are stated in U.S. dollars, except where otherwise disclosed.

	These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, CounterPath Technologies Inc., a company existing under the laws of the province of British Columbia, Canada, and BridgePort Networks, Inc. (“BridgePort”), a company incorporated under the laws of the state of Delaware and CounterPath LLC, a company formed on August 27, 2018, under the laws of the state of Delaware. The results of NewHeights Software Corporation (“NewHeights”), which subsequently was amalgamated with another subsidiary to become CounterPath Technologies Inc., are included from August 2, 2007, the date of acquisition. The results of FirstHand Technologies Inc. (“FirstHand”), which subsequently was amalgamated with CounterPath Technologies Inc., and BridgePort are included from February 1, 2008, the date of acquisition. All inter-company transactions and balances have been eliminated.

	These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business.

	Going Concern

	The Company has experienced recurring losses and has an accumulated deficit of $68,581,091 as of April 30, 2019. This is a result of flat to declining revenues due to a number of factors including an increased focus on building out the Company’s cloud-based subscription platform and a change from the current licensing model to subscription- based licensing which has not reached profitable operations resulting in substantial doubt about the Company’s ability to continue operating as a going concern.

	To alleviate this situation, the Company has plans in place to improve its financial position and liquidity through additional financing, while executing on its growth strategy, and by managing and or reducing costs that are not expected to have an adverse impact on the ability to generate cash flows, as the transition to its software as a service platform and subscription licensing continues.

	The Company has historically been able to manage liquidity requirements through cost management and cost reduction measures, supplemented with raising additional financing. On October 10, 2018, the Company entered into a loan agreement for an aggregate principal amount of up to $3,000,000 which was fully drawn as of April 30, 2019. See Note 9 – Loan Payable for further detail. On July 10, 2019, the Company entered into an amended loan agreement to increase the maximum amount of the loan to $5,000,000. See Note 17 – Subsequent Events for further detail. The Company does not have any other commitments to raise funds.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions which affect the amounts reported in these consolidated financial statements, the notes thereto, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Reclassification

Certain prior period balances have been reclassified to conform to the current period presentation in the Company’s consolidated financial statements and the accompanying notes.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company has exposure to credit risk to the extent cash balances exceed amounts covered by federal deposit insurance; however, the Company believes that its credit risk on cash balances is immaterial. The Company is also subject to concentrations of credit risk in its accounts receivable. The Company monitors and actively manages its receivables, and from time to time will insure certain receivables with higher credit risk and may require collateral or other securities to support its accounts receivable.

The table below presents significant customers who accounted for greater than 10% of total accounts receivable as of April 30, 2019 and 2018:

	April 30,	April 30,
	2019	2018
Customer A	13%	2%
Customer B	7%	13%
Customer C	–%	18%

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are presented net of an allowance for doubtful accounts.

		Years Ended April 30,
		2019			2018
Balance of allowance for doubtful accounts, beginning of year	$	322,638		$	80,232
Bad debt provision		1,082,440			578,024
Write-off of receivables		(785,564	)		(335,618	)
Balance of allowance for doubtful accounts, end of year	$	619,514		$	322,638

The Company determines the allowance for doubtful accounts by considering a number of factors, including the length of time the accounts receivable are beyond the contractual payment terms, previous loss history, and the customer’s current ability to pay its obligation. When the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, the Company records a charge to the allowance to reduce the customer’s related accounts.

Stock-Based Compensation

The Company adopted ASC 718 “Compensation – Stock Compensation”, using the modified prospective method on May 1, 2006. Under this application, the Company is required to record compensation expense, based on the fair value of the awards, for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding as at the date of adoption. In accordance with ASC 718, the compensation expense is amortized on a straight-line basis over the requisite service period which approximates the vesting period.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Stock options granted to non-employees were accounted for in accordance with ASC 718 and ASC 505-50 “Equity based payments to non-employees” and were measured at the fair value of the options as determined by an option pricing model on the measurement date and compensation expense is amortized over the vesting period or, if none exists, over the service period. With the adoption of ASC 718, the Company has elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted. The Company has estimated the fair value of option awards to employees and non-employees for the years ended April 30, 2019 and April 30, 2018 using the assumptions more fully described in Note 10.

Equipment and Amortization

Equipment is recorded at cost. Depreciation is provided for using the straight-line method over the estimated useful lives as follows:

	Computer hardware	Two years
	Computer software	Two years
	Leasehold improvements	Shorter of lease term or estimated economic life
	Office furniture	Five years
	Website	Three years

Research and Development

Research and development expense includes costs incurred to develop intellectual property. The costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. Management has determined that technological feasibility is established at the time a working model of software is completed. Because management believes that the current process for developing software will be essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date.

Website Development Costs

The Company recognizes the costs associated with developing a website in accordance with ASC Topic 350-40 “Intangibles – Internal Use Software”.

Internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Training costs are not internal-use software development costs and, if incurred during this stage, are expensed as incurred.

These capitalized costs are amortized based on their estimated useful life over three years. Payroll and other related costs are not capitalized, as the amounts principally relate to maintenance.

Goodwill

Goodwill represents the excess purchase price over the estimated fair value of net assets acquired and liabilities assumed as of the acquisition date. ASC Topic 350 “Intangibles – Goodwill” requires goodwill to be tested for impairment annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company's business enterprise below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit, which is measured based upon, among other factors, market multiples for comparable companies as well as a discounted cash flow analysis.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Management has determined that the Company operates as a single operating segment and consequently a single reporting unit due to the similar economic characteristics of its components and the nature of the products and services offered by those components. If the recorded value of the Company’s assets, including goodwill, and liabilities (“net book value”) of the reporting unit exceeds its fair value, an impairment loss may be required.

The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with FASB ASC 350, Goodwill and Other Intangible Assets . The provisions of ASC 350 require that a two-step impairment test be performed on goodwill. In the first step, the Company compares the fair value of its reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of our reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.

In September of 2011, FASB issued Accounting Standards Update 2011-08, “Intangibles—Goodwill and Other (Topic 350)” . Under the amendments of this update, an entity may first assess certain qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.

Determining the fair value of the reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include future economic and market conditions and determination of appropriate market comparables. The Company bases its fair value estimates on assumptions management believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

Goodwill was initially recorded upon the acquisition of NewHeights on August 2, 2007 and FirstHand on February 1, 2008. At the time of each acquisition and as of the date of the consolidated financial statements, the Company recognized the following:

						Ap ril 30,
		Acquisition Date				2019		2018
NewHeights	$	6,339,717	CDN$	6,704,947	$	4,990,578	$	5,221,202
FirstHand		2,083,960		2,083,752		1,550,712		1,622,373
	$	8,423,677	CDN$	8,788,699	$	6,541,290	$	6,843,575

The Company performed its annual impairment test during the fourth quarter for the years ended April 30, 2019 and 2018 and concluded that there has been no impairment to the carrying amount.

Intangible Assets

The Company’s intangible assets consists of patents and trademarks. Costs related to granted patents are capitalized and amortized over the expected life of the patent which ranges from 16 to 20 years. Costs related to patent applications are expensed as incurred. Costs related to trademarks are capitalized and are not amortized as the Company expects such trademarks to be used indefinitely.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Foreign Currency Translation

The Company’s functional currency is the U.S. dollar. The Company’s wholly-owned subsidiaries with a functional currency other than the U.S. dollar are translated into amounts in the reporting currency, U.S. dollars, in accordance with ASC Topic 830 “Foreign Currency Matters”. Revenues and expenses are translated at the average exchange rate prevailing during the periods. At each balance sheet date, assets and liabilities that are denominated in a currency other than U.S. dollars are adjusted to reflect the current exchange rate which may give rise to a foreign currency translation adjustment accounted for as a separate component of stockholders’ equity and included in comprehensive loss.

For transactions undertaken by the Company in foreign currencies, monetary assets and liabilities are translated into the functional currency at the exchange rate in effect at the end of the year. Non-monetary assets and liabilities are translated at the exchange rate prevailing when the assets were acquired or the liabilities assumed. Revenues and expenses are translated at the rate approximating the rate of exchange on the transaction date. Exchange gains and losses are included in the determination of net income (loss) for the year.

Accrued Warranty

The Company’s warranty policy generally provides for one year of warranty for its products. The Company records a liability for estimated warranty obligations at the date products are sold. The estimated cost of warranty coverage is based on the Company’s actual historical experience with its current products or similar products. For new products, the required reserve is based on historical experience of similar products until such time as sufficient historical data has been collected on the new product. Estimated liabilities for warranty exposures, which relate to normal product warranties and a one-year obligation to provide for potential future liabilities for product sales for the years ended April 30, 2019 and 2018 were as follows:

		Years En de d April 30,
		2019			2018
Balance, beginning of year	$	63,130		$	54,365
Usage during the year		–			–
Additions (reductions) during the year		(11,095	)		8,765
Balance, end of year	$	52,035		$	63,130

Fair Value of Financial Instruments

ASC 820, Fair Value Measurements, defines fair value as the price at which an asset could be exchanged or a liability transferred in an orderly transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or derived from such prices. Where observable prices or inputs are not available, valuation models are applied which may involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Derivative Instruments

The Company accounts for derivative instruments, consisting of foreign currency forward contracts, pursuant to the provisions of ASC 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires the Company to measure derivative instruments at fair value and record them in the balance sheet as either an asset or liability and expands financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, results of operations and cash flows. The Company does not use derivative instruments for trading purposes. ASC 815 also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

The Company also routinely enters into foreign currency forward contracts, not designated as hedging instruments, to protect the Company from fluctuations in exchange rates. Gains or losses arising out of marked to market fair value valuation of non-designated forward contracts are recognized in net income.

The Company records foreign currency option and forward contracts on its Consolidated Balance Sheets as derivative assets or liabilities depending on whether the fair value of such contracts is a net asset or net liability, respectively. See Note 7 - Derivative Instruments for further detail. The Company did not enter any foreign currency derivatives designated as cash flow hedges during the years ended April 30, 2019 and 2018.

Income Taxes

The Company accounts for income taxes by the asset and liability method in accordance with ASC Topic 740 “Income Taxes”. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Deferred income tax assets and liabilities are recognized in the current year for temporary differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

Under ASC 740, the Company also adopted a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made.

Comprehensive Loss

Comprehensive loss is comprised of net profit or loss, and foreign currency translation adjustments.

Loss per Share

ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the year including stock options and warrants using the treasury stock method. In computing diluted EPS, the average stock price for the year is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. For the year ended April 30, 2019, income per share excludes 1,249,940 (April 30, 2018 – 1,140,432) potentially dilutive common shares (related to stock options, deferred share units and warrants) as their effect was anti-dilutive.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Investment tax credits

Investment tax credits are accounted for under the cost reduction method whereby they are netted against the expense or property and equipment to which they relate. Investment tax credits are recorded when the qualifying expenditures have been incurred and if it is more likely than not that the tax credits will be realized.

Recently Issued Accounting Pronouncements

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends the presentation and disclosure requirements and changes how companies assess effectiveness. The amendments are intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. This amendment is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early application is permitted. The Company is currently assessing the future impact of this update on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, which amends the guidance to eliminate Step 2 from the goodwill impairment test. Instead, under the amendments in the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The amendments will be effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is evaluating the impact of this amendment on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Measurement of Credit Losses on Financial Instruments, which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive for Company’s ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected will a valuation provision. The amendments will be effective for fiscal years beginning after December 15, 2019. The Company is evaluating the impact of this amendment on our consolidated financial statements and related disclosures.

In February 2016, FASB issued ASU 2016-02, Leases . The guidance would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2018. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Note 3	Revenue Recognition under ASC 606

	On May 1, 2018, the Company adopted the new accounting standard, ASC 606 “Revenue from Contracts with Customers” and all related amendments to the new accounting standard to contracts using the modified retrospective method. The Company recognized the cumulative effect of initially applying the new revenue recognition standard to contracts with open performance obligations as of May 1, 2018, as an adjustment to the opening balance of retained earnings. Results of the reporting period beginning May 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under ASC 605.

	Revenues from contracts with customers are recognized when control of promised goods and services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

	The Company recognizes revenue using the five-step model as prescribed by ASC 606:

	1)	Identification of the contract, or contracts, with a customer;
	2)	Identification of the performance obligations in the contract;
	3)	Determination of the transaction price;
	4)	Allocation of the transaction price to the performance obligations in the contract; and
	5)	Recognition of revenue when or as, the Company satisfies a performance obligation.

When a contract with a customer is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company estimates the amount to reserve for uncollectible amounts at the end of each reporting period based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded against the related accounts receivable.

The transaction price is the consideration that the Company expects to receive from its customers in exchange for its products or services. In determining the allocation of the transaction price, the Company identifies performance obligations in contracts with customers, which may include products, subscriptions to software and services, support, professional services and training. The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis. The standalone selling price (“SSP”) is the price at which the Company would sell a promised product or service separately to a customer. The Company determines the SSP using information that may include market conditions or other observable inputs. In certain cases, the Company is able to establish a SSP based on observable prices for products or services sold separately. In these instances, the Company would use a single amount to estimate a SSP. If a SSP is not directly observable, for example when pricing is variable, the Company will use a range of SSP.

In certain circumstances, the Company may estimate SSP for a product or service by applying the residual approach. This approach has been most commonly used when certain perpetual software licenses are only sold bundled with one year of post-contract support or other services, and a price has not been established for the software.

Software Revenue

The Company generates software revenue on a single fee per perpetual software license basis. The Company recognizes software revenue for perpetual licenses when control has transferred to the customer, which is generally at the time of delivery when the customer has the ability to deploy the licenses, provided all revenue recognition criteria have been met. If the revenue recognition criteria has not been met, the revenue is deferred or not recognized.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Subscription, support and maintenance

Revenue from the Company’s recurring subscription revenue from subscriptions related to our software as a service offering is recognized ratably over the contractual subscription term as control of the goods or services is transferred to the customer, beginning on the date that the subscription is made available to the customer. Support and maintenance revenue is generated from recurring annual software support and maintenance contracts for our perpetual software licenses and is recognized ratably over the term of the service period, which is generally twelve months. Support and maintenance services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis. Both subscription revenue and support and maintenance revenue are typically billed annually in advance based on the terms of the arrangement.

Professional services and other

Professional services and other revenue is generated through services including product configuration and customization, implementation, dedicated engineering and training. The amount of product configuration and customization required by a customer typically increases as the order size increases from a given customer. Services and pricing may vary depending upon a customer’s requirements for customization, implementation and training. Depending on the services to be provided, revenue from professional services and other is generally recognized at the time of delivery when the services have been completed and control has been transferred.

For contracts with elements related to customized network solutions and certain network build-outs or software systems that require significant modification or customization, the Company will recognize revenue using the percentage-of-completion method. In using the percentage-of-completion method, revenues are generally recorded based on completion of milestones as described in the agreement. Profit estimates on long-term contracts are revised periodically based on changes in circumstances and any losses on contracts are recognized in the period that such losses become known.

Unearned Revenue

Unearned revenue represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual support and subscription services and professional services not yet provided as of the balance sheet date.

During the year ended April 30, 2019, the Company recognized $2,364,378 in revenue in its consolidated statements of operations that was previously recognized as unearned revenue in the consolidated balance sheets at May 1, 2018.

Costs to Obtain a Customer Contract

Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a systematic basis, consistent with the timing of revenue recognition over the anticipated benefit period of up to 3.5 years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in sales and marketing expense within the Company's consolidated statement of operations. The Company has elected to apply a practical expedient that permits the Company to expense costs to obtain a contract as incurred, if the anticipated benefit period is one year or less. From time to time, management will revisit the estimates used in recognizing the costs to obtain customer contracts.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

During the year ended April 30, 2019, the Company capitalized approximately $607,166 of costs to obtain revenue contracts of which $134,033 was recorded as an adjustment to opening retained earnings at the adoption of ASC 606 and amortized approximately $272,785 of commissions to sales and marketing expense. Capitalized costs to obtain a revenue contract on the Company's condensed consolidated balance sheets totaled approximately $200,348 at April 30, 2019.

Costs to Fulfill a Customer Contract

Certain contract costs incurred to fulfill obligations under a contract are capitalized when such costs generate or enhance resources to be used in satisfying future performance obligations and the costs are deemed recoverable. Judgement is used in determining whether certain contract costs can be capitalized. These costs are capitalized and amortized on a systematic basis to match the timing of revenue recognition over the anticipated benefit period of up to 3.5 years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in cost of sales in the Company’s consolidated statement of operations. From time to time, management will review the capitalized costs for impairment and will also revisit the estimates used in recognizing the costs to fulfill customer contracts.

Transaction Price Allocated to the Remaining Performance Obligations

The Company expects to recognize approximately $2,966,102 and $156,528 in revenue during the years ended April 30, 2020 and April 30, 2021 respectively, under its customer contracts relating to fixed consideration associated with remaining performance obligations.

Adoption Impact of ASC 606

The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to retained earnings in the consolidated balance sheet as of May 1, 2018:

		Balance at			ASC 606		Balance at
		April 30, 2018			Adjustments		May 1, 2018
Current assets:
Deferred sales commissions costs	$	–		$	70,248	$	70,248
Non-current assets:
Deferred sales commissions costs	$	–		$	63,785	$	63,785
Stockholders’ equity:
Accumulated deficit	$	(63,701,685	)	$	134,033	$	(63,567,652	)

The following tables summarize the adoption impact of ASC 606 on the Company's consolidated financial statements for the year ended April 30, 2019.

Selected Consolidated Income Statement Line Items:

		Ye ar ended April 30, 2 019
				ASC 606			(As Reported)
		ASC 605		Adjustments			ASC 606
Revenue:
Software	$	4,696,266	$	(35,606	)	$	4,660,660
Subscription, support and maintenance		5,371,408		(5,118	)		5,366,290
Professional services and other		690,274		47,680			737,954
Total revenue	$	10,757,948	$	6,956		$	10,764,904

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Operating expenses:
Sales and marketing	$	4,128,113		$	(66,192	)	$	4,061,921
Loss from operations	$	(5,239,909	)	$	73,148		$	(5,166,761	)

Net loss per share:
Basic and diluted	$	(0.85	)	$	0.01		$	(0.84	)

Selected Consolidated Balance Line Items:

		April 30, 2019
					ASC 606			(As Reported)
		ASC 605			Adjustments			ASC 606
Current assets:
Deferred sales commissions costs	$	–		$	122,777		$	122,777
Current liabilities:
Unearned revenue	$	2,600,682		$	(6,956	)	$	2,593,726
Non-current assets:
Deferred sales commissions costs	$	–		$	77,571		$	77,571
Stockholders’ equity:
Accumulated deficit	$	(68,774,483	)	$	193,392		$	(68,581,091	)

Selected Consolidated Statement of Cash Flows Line Items:

		Y ear ended April 30, 20 19
					ASC 606			(As Reported)
		ASC 605			Adjustments			ASC 606
Net loss	$	(5,086,587	)	$	73,148		$	(5,013,439	)
Deferred sales commissions costs	$	–		$	(61,705	)	$	(61,705	)
Unearned revenue	$	34,806		$	(6,956	)	$	27,850
Net cash provided by operating activities	$	(3,447,866	)	$	4,487		$	(3,443,379	)

Disaggregation of Revenue

The Company disaggregates its revenue by geographic region. See Note 13 – Segmented Information for more information.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Note 4	Equipment

	The following presents the categories within equipment:

		April 30, 2019
				Accumulated
		Cost		Depreciation			Net
Computer hardware	$	1,233,621	$	(1,186,210	)	$	47,411
Computer software		1,013,277		(1,013,277	)		–
Leasehold improvements		263,774		(256,911	)		6,863
Office furniture		194,702		(189,062	)		5,640
Websites		120,339		(120,339	)		–
	$	2,825,713	$	(2,765,799	)	$	59,914

		April 30, 2018
				Accumulated
		Cost		Depreciation		Net
Computer hardware	$	1,193,527	$	1,109,268	$	84,259
Computer software		1,013,277		1,012,749		528
Leasehold improvements		263,774		236,112		27,662
Office furniture		194,702		185,332		9,370
Websites		120,339		120,339		–
	$	2,785,619	$	2,663,800	$	121,819

Note 5	Intangibles and Other Assets

	The following tables presents the major components within intangibles and other assets for the years ended April 30, 2019 and 2018:

		April 30, 2019
				Accumulated
		Cost		Amortization			Net
Patents	$	461,637	$	(417,609	)	$	44,028
Trademarks		175,100		–			175,100
Other assets		5,667		–			5,667
	$	642,404	$	(417,609	)	$	224,795

		April 30, 2018
				Accumulated
		Cost		Amortization			Net
Patents	$	461,637	$	(411,788	)	$	49,849
Trademarks		165,462		–			165,462
Other assets		5,751		–			5,751
	$	632,850	$	(411,788	)	$	221,062

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

During the years ended April 30, 2019 and 2018, the Company recorded amortization expense related to patents of $5,821 and $3,500, respectively. The weighted average remaining amortization period for patents was 11.9 years and 13.2 years for the years ended April 30, 2019 and 2018, respectively.

The following table presents estimated future patent amortization for the next five years:

Years ended April 30,
2020	$	4,248
2021		4,248
2022		4,248
2023		4,248
2024		4,248
Thereafter		22,788
	$	44,028

Note 6	Accounts Payable and Accrued Liabilities

	Accounts payable and accrued liabilities at April 30, 2019 and 2018 are comprised of the following:

		A pril 30,
		2019		2018
Accounts payable – trade	$	739,051	$	678,760
Accrued commissions		180,200		215,172
Accrued vacation		590,328		744,108
Third party software royalties		59,723		207,531
Other accrued liabilities		664,573		592,162
	$	2,233,875	$	2,437,733

Note 7	Derivative Instruments

	In the normal course of business, the Company is exposed to fluctuations in the exchange rates associated with foreign currencies. The Company’s primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk.

	Foreign Currency Exchange Rate Risk

	A majority of the Company’s revenue activities are transacted in U.S. dollars. However, the Company is exposed to foreign currency exchange rate risk, inherent in conducting business globally in multiple currencies, primarily from its business operations in Canada.

	The Company’s foreign currency risk management program includes entering into foreign currency derivatives at various times to mitigate the currency exchange rate risk on Canadian dollar denominated cash flows. These foreign currency forward and option contracts are considered non-designated derivative instruments and are not used for trading or speculative purposes. The changes in fair value and settlements are recorded in change in fair value of derivative instruments, net in the consolidated statement of operations.

	During years ended April 30, 2019 and 2018, the Company did not enter into any designated cash flow hedge contracts.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

The following table summarizes the notional amounts of the Company’s outstanding derivative instruments:

		April 30,		April 30,
Fair value of Undesignated Derivatives		2019		2018
Foreign currency option contracts	$	1,500,000	$	–

The following table presents the fair values of the Company’s derivative instruments on a gross basis as reflected on the Company’s consolidated balance sheets. The Company did not have any outstanding derivative contracts as of April 30, 2018.

		April 30 , 2019
		Derivative		Derivative
Fair value of Undesignated Derivatives		Assets		Liabilities
Foreign currency option contracts	$	1,178	$	4,512

	During the year ended April 30, 2019, the Company recorded a gain of $3,334 resulting from the change in fair value of derivative instruments. No such gains or losses were recorded in the prior year as the Company did not enter into any forward and option contracts.

Note 8	Fair Value Measurements

	Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to valuation of these assets or liabilities are set forth below. Transfers between levels are recognized at the end of each quarter. The Company did not recognize any transfers between levels during the periods presented.

	Level 1—Inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.

	Level 2—Inputs (other than quoted prices included in Level 1) are observable for the asset or liability, either directly or indirectly such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

	Level 3— unobservable inputs for the asset or liability which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

	Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

	The carrying values of financial instruments classified as current assets and current liabilities approximates their fair values, based on the nature and short maturity of these instruments, and are presented in the Company’s financial statements at carrying cost.

		Carrying			Fair Value
As at April 30, 2019		Amount		Fair Value	Levels	Reference
Assets
Cash	$	1,862,458	$	1,862,458	1	N/A
Foreign currency option contracts		1,178		1,178	2	Note 7
	$	1,863,636	$	1,863,636

Liabilities
Foreign currency option contracts	$	4,512	$	4,512	2	Note 7

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Carrying

Fair Value

As at April 30, 2018

Amount

Fair Value

Levels

Reference

Cash

2,348,883

N/A

Financial Instruments Not Measured at Fair Value

The following table presents the Company’s liability that is not measured at fair value as of April 30, 2019, but for which fair value is available:

Carrying

Fair Value

As at April 30, 2019

Amount

Fair Value

Levels

Reference

Loan payable

3,000,000

2,934,538

Note 9

	Loan payable is presented on the consolidated balance sheets at carrying cost. The fair value of the fixed interest rate loan is estimated based on observable market prices or inputs. Where observable prices or inputs are not available, valuation models are applied using the net present value of cash flow streams over the term, using estimated market rates for similar instruments and remaining terms.

Note 9	Loan Payable

	On October 10, 2018, the Company entered into a loan agreement (the “Loan Agreement”) with Wesley Clover International Corporation and KMB Trac Two Holdings Ltd for an aggregate principal amount of up to $3,000,000. Pursuant to the terms of the Loan Agreement, the loan is unsecured and will be made available in multiple advances at the discretion of the Company and will bear interest at a rate of 8% per year, payable monthly. The outstanding principal and any accrued interest may be prepaid without penalty and is to be fully repaid on the second anniversary of the first advance.

	As of April 30, 2019, the principal balance of the loan payable was $3,000,000. This balance is to be repaid on or before October 11, 2020. During the year ended April 30, 2019, the Company recognized interest expense of $68,822 in the consolidated statement of operations. See Note 11 – Related Party Transactions and Note 17 – Subsequent Event s for further detail.

Note 10	Common Stock

	Private Placements

	On January 24, 2018, the Company issued an aggregate of 427,500 shares of common stock under a non-brokered private placement at a price of $4.01 per share for total gross proceeds of $1,714,275 less issuance costs of $48,325.

	On July 20, 2017, the Company issued an aggregate of 539,240 shares of common stock under a non-brokered private placement at a price of $2.20 per share for total gross proceeds of $1,186,328 less issuance costs of $19,832.

	Shares Issued Pursuant to a Consulting Agreement

	On October 16, 2017, the Company entered into an agreement to issue 14,000 shares of the Company’s common stock in exchange for investor relation services. The agreement was terminated on April 8, 2018 as the services were no longer required. Pursuant to the terms of the agreement, upon termination, 7,211 shares of common stock were returned to the Company.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Normal Course Issuer Bid Plan

During the year ended April 30, 2018, the Company repurchased 13,600 shares of common stock at an average price of approximately $2.49 (CDN$3.18), for a total of approximately $33,119 (CDN$43,218) pursuant to a normal course issuer bid effective during the period.

On March 27, 2018, the Company filed a normal course issuer bid commencing on March 29, 2018 which expired on March 28, 2019. Under this normal course issuer bid, the Company was authorized to purchase up to 284,278 shares of its common stock through the facilities of the TSX and other Canadian marketplaces or U.S. marketplaces. As of April 30, 2019, a total of 153,988 shares have been cancelled.

Stock Options

The Company has a stock option plan (the “2010 Stock Option Plan”) under which options to purchase common shares of the Company may be granted to employees, directors and consultants. The 2010 Stock Option Plan is effectively a merging of the Company’s 2004 and 2005 stock option plans. Stock options entitle the holder to purchase common stock at a subscription price determined by the Board of Directors of the Company at the time of the grant. The options generally vest in the amount of 12.5% on the date which is six months from the date of grant and then beginning in the seventh month at 1/42 per month for 42 months, at which time the options are fully vested.

The maximum number of shares of common stock authorized by the stockholders and reserved for issuance by the Board under 2010 Stock Option Plan is 1,186,000.

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. In accordance with ASC 718 “Share-Based Payment” for employees, the compensation expense is amortized on a straight-line basis over the requisite service period which approximates the vesting period. Compensation expense for stock options granted to non-employees is amortized over the vesting period or, if none exists, over the service period. Compensation associated with unvested options granted to non-employees is re-measured on each balance sheet date using the Black-Scholes option pricing model.

The expected volatility of options granted has been determined using the method described under ASC 718 using the historical stock price. The expected term of options granted to employees in the current fiscal period has been determined utilizing historic data as prescribed by ASC 718.

For non-employees, based on the Company’s history, the expected term of the options approximates the full term of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. In addition, ASC 718 requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas prior to the adoption of ASC 718 the Company recorded forfeitures based on actual forfeitures and recorded a compensation expense recovery in the period when the awards were forfeited. As a result, based on the Company’s experience, the Company applied an estimated forfeiture rate of 15% for year ended April 30, 2019 and 2018 in determining the expense recorded in the accompanying consolidated statement of operations.

For the majority of the stock options granted, the number of shares issued on the date the stock options are exercised is net of the minimum statutory withholding requirements that the Company pays in cash to the appropriate taxing authorities on behalf of its employees. These withheld shares are not issued or considered common stock repurchases under the Company’s authorized plan and are not included in the common stock repurchase totals. In the consolidated financial statements, these withheld shares are netted against the number of shares that would have been issued upon vesting.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

The weighted-average fair values of options granted during the years ended April 30, 2019 and 2018 were $0.82 and $1.90, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:

	Year Ended	Year Ended
	April 30, 2019	April 30, 2018
Risk-free interest rate	2.7%	2.14%
Expected volatility	77.2%	95.55%
Expected term	3.7 years	3.7 years
Dividend yield	0%	0%

The following is a summary of the status of the Company’s stock options as of April 30, 2019 and the stock option activity during the years ended April 30, 2019 and 2018:

	Number of			Weighted-Average
	Options			Exercise Price
Outstanding at April 30, 2017	396,922		$	2.46
Granted	324,000		$	2.89
Exercised	(495	)	$	2.46
Forfeited / Cancelled	(15,385	)	$	2.53
Expired	(30,000	)	$	2.50
Outstanding at April 30, 2018	675,042		$	2.66
Granted	221,000		$	1.45
Exercised	(35,500	)	$	2.50
Forfeited / Cancelled	(173,093	)	$	2.62
Expired	(71,000	)	$	2.50
Outstanding at April 30, 2019	616,449		$	2.27

Exercisable at April 30, 2019	239,551		$	$2.58
Exercisable at April 30, 2018	256,555		$	$2.47

The following table summarizes information regarding stock options outstanding as of April 30, 2019:

Number of

Aggregate

Number of

Aggregate

Exercise

Options

Intrinsic

Options

Intrinsic

Price

Outstanding

Value

Expiry Date

Exercisable

Value

$1.41 – $1.42

197,500

88,795

12/14/2023 – 1/22/2024

–

$2.03 – $2.41

74,272

–

12/14/2020 – 12/15/2021

56,947

–

$2.46 – $2.50

123,582

–

7/17/2020 – 3/14/2022

108,932

–

$2.51 – $2.89

221,095

–

12/14/2022 – 7/26/2023

73,672

–

April 30, 2019

616,449

88,795

239,551

–

April 30, 2018

675,042

51,302

256,555

32,636

The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of $1.86 per share as of April 30, 2019 (April 30, 2018 – $2.60), which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options vested and exercisable as of April 30, 2019 was zero (April 30, 2018 – 256,555). The total intrinsic value of options exercised during the year ended April 30, 2019 was $24,765 (2018 – $1,742). The grant date fair value of options vested during the year ended April 30, 2019 was $276,391 (April 30, 2018 – $269,423).

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

The following table summarizes information regarding the non-vested stock purchase options outstanding as of April 30, 2019:

	Number of			Grant-Date
	Options			Fair Value
Non-vested options at April 30, 2017	175,183		$	3.49
Granted	324,000		$	1.90
Vested	(73,965	)	$	3.64
Forfeited	(6,731	)	$	1.98
Non-vested options at April 30, 2018	418,487		$	1.91
Granted	221,000		$	0.82
Vested	(136,323	)	$	2.03
Forfeited	(126,266	)	$	1.72
Non-vested options at April 30, 2019	376,898		$	1.30

As of April 30, 2019, there was $373,324 of total unrecognized compensation cost related to unvested stock options. This unrecognized compensation cost is expected to be recognized over a weighted average period of 2.9 years.

Employee and non-employee stock-based compensation amounts classified in the Company’s consolidated statements of operations for the year ended April 30, 2019 and 2018 were as follows:

		Years Ended
		April 30,
		2019		2018
Cost of sales	$	48,608	$	55,444
Sales and marketing		71,811		84,685
Research and development		48,405		60,964
General and administrative		65,755		129,227
Total stock-based compensation	$	234,579	$	330,320

Warrants

On September 4, 2015, the Company completed a non-brokered private placement (the “Private Placement”) of 293,000 units, at a price of $5.00 per unit, for gross aggregate proceeds of $1,465,000 less stock issuance costs of $23,161. Each unit consists of one share of common stock and one-half of one non-transferable common share purchase warrant. Each whole warrant entitled the holder to purchase one additional share of the Company’s common stock at an exercise price of $7.50 per share until September 4, 2017.

The following tables summarize information regarding the warrants outstanding as of April 30, 2019 and April 30, 2018.

				Weighted
	Number of			Average
	Warrants			Exercise Price	Expiry Dates
Warrants at April 30, 2017	146,500		$	7.50	September 4, 2017
Granted	–		$	–	–
Exercised	–		$	–	–
Expired	(146,500	)	$	7.50	September 4, 2017
Warrants at April 30, 2018	–		$	–	–
Granted	–		$	–	–
Exercised	–		$	–	–
Expired	–		$	–	–
Warrants at April 30, 2019	–		$	–	–

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Employee Stock Purchase Plan

Under the terms of the Employee Stock Purchase Plan (the “ESPP”) all regular salaried (non-probationary) employees can purchase up to 6% of their base salary in common shares of the Company at market price. The Company will match 50% of the shares purchased by issuing or purchasing in the market up to 3% of the respective employee’s base salary in shares. During the year ended April 30, 2019, the Company matched $25,012 (2018 - $43,614) in shares purchased by employees under the ESPP. During the year ended April 30, 2019, 26,945 shares (2018 – 16,696) were purchased on the open market and 12,820 shares (2018 – 24,699) were issued from treasury under the ESPP.

A total of 220,000 shares have been reserved for issuance under the ESPP. As of April 30, 2019, a total of 147,802 shares were available for issuance under the ESPP.

Deferred Share Unit Plan

Under the terms of the DSUP which is effective as at October 22, 2009, each deferred share unit (each, a “DSU”) is equivalent to one share of common stock. The maximum number of shares of common stock that may be reserved for issuance to any one participant pursuant to DSUs granted under the DSUP and any share compensation arrangement is 5% of the number of shares of common stock of the Company outstanding at the time of reservation. A DSU granted to a participant who is a director of the Company shall vest immediately on the award date. A DSU granted to a participant other than a director will generally vest as to one-third (1/3) of the number of DSUs granted on the first, second and third anniversaries of the award date. Fair value of the DSUs, which is based on the closing price of the Company’s common stock on the date of grant, is recorded as compensation expense over the vesting period.

On September 12, 2017, the maximum number of shares of common stock authorized by the Company’s stockholders reserved for issuance under the DSUP was increased from 500,000 shares to 700,000 shares. During the year ended April 30, 2019, 236,981 (2018 — 119,998) DSUs were issued under the DSUP, of which 168,491 were granted to officers or employees and 68,490 were granted to non-employee directors. Of the 236,981 granted to officers and employees, 45,661 was forfeited during the year. As of April 30, 2019, a total of 42,495 shares were available for issuance under the DSUP.

The following table summarizes the Company’s outstanding DSU awards as of April 30, 2019 and 2018, and changes during the period then ended:

				Weighted Average
				Grant Date Fair
	Number of DSUs			Value
DSUs at April 30, 2017	345,392		$	7.85
Granted	119,998		$	2.21
Conversions	–		$	–
Outstanding at April 30, 2018	465,390		$	6.40
Granted	236,981		$	2.05
Forfeited	(68,880	)	$	2.42
Outstanding at April 30, 2019	633,491		$	5.20

As of April 30, 2019, there was $178,984 (2018 – $73,615) of total unrecognized compensation cost related to unvested DSU awards. This unrecognized compensation cost is expected to be recognized over a weighted average period of 2.42 years (2018 – 1.98 years). The total fair value of DSUs that vested during the year was $262,165 (2018 – $308,163).

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Employee and non-employee DSU based compensation amounts classified in the Company’s consolidated statements of operations for the year ended April 30, 2019 and 2018 are as follows:

		Year Ended
		April 30,
		2019		2018
General and administrative	$	240,147	$	274,246

The following table summarizes information regarding the non-vested DSUs outstanding as of April 30, 2019:

				Weighted Average
	Number of			Grant Date Fair
	DSUs			Value per Unit
Non-vested DSUs at April 30, 2017	46,217		$	4.58
Granted	119,998		$	2.21
Vested	(101,963	)	$	3.02
Non-vested DSUs at April 30, 2018	64,252		$	2.62
Granted	236,981		$	2.05
Vested	(97,913	)	$	2.68
Forfeited	(68,880	)	$	2.41
Non-vested DSUs at April 30, 2019	134,440		$	1.67

Note 11	Related Party Transactions

	On October 10, 2018, the Company entered into a loan agreement (the “Loan Agreement”) with Wesley Clover International Corporation (“Wesley Clover”), a company controlled by the Chairman of the Company, and KMB Trac Two Holdings Ltd. (“KMB Trac Two Holdings”), a company owned by the spouse of a director of the Company. As of April 30, 2019, the principal balance of the loan payable due to Wesley Clover and KMB Trac Two Holdings was $1,500,000 and $1,500,000, respectively. During the year ended April 30, 2019, the Company paid $26,301 in interest to each of Wesley Clover and KMB Trac Two Holdings. As of April 30, 2019, the Company owed $8,110 in interest payable to each party.

	During the year ended April 30, 2019, the Company through its wholly owned subsidiary, CounterPath Technologies Inc., paid $83,551 (2018 - $83,957) to Kanata Research Park Corporation (“KRP”) for leased office space. KRP is controlled by the Chairman of the Company.

	On November 21, 2013, the Company, through its wholly owned subsidiary, CounterPath Technologies, entered into an agreement with 8007004 (Canada) Inc. (“8007004”) to lease office space. 8007004 was controlled by a member of the board of directors of the Company. CounterPath Technologies, paid $30,846 (2018 - $31,686) for the year ended April 30, 2019.

	On January 24, 2018, the Company issued an aggregate of 427,500 shares of common stock under a non-brokered private placement (“Private Placement”) at a price of $4.01 per share for total gross proceeds of $1,714,275 less issuance costs of $48,325. In connection with the Private Placement, Wesley Clover purchased 125,000 shares and KMB Trac Two Holdings purchased 125,000 shares.

	On July 20, 2017, our Company issued an aggregate of 539,240 shares of common stock under a non-brokered private placement at a price of $2.20 per share for total gross proceeds of $1,186,328 less issuance costs of $19,832. In connection with this private placement, Wesley Clover purchased 144,357 shares, KMB Trac Two Holdings purchased 180,446 shares, the former chief executive officer and a director of the Company, purchased 11,368 shares, the chief financial officer of the Company, purchased 4,511 shares, and the executive vice president, sales and marketing of the Company, purchased 4,545 shares.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

	The above transactions are in the normal course of operations and are recorded at amounts established and agreed to between the related parties.

Note 12	Income Taxes

	Deferred tax assets and liabilities are recognized for temporary differences between the carrying amount of the balance sheet items and their corresponding tax values as well as for the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized.

	Significant components of the Company’s deferred tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:

		Years Ended
		April 30,
		2019			2018
Tax loss carry forwards	$	14,805,000		$	13,606,000
Capital losses carried forward		240,000			242,000
Equipment		142,000			133,000
Other		7,000			12,000
Bad debt		227,000			109,000
Nondeductible research and development expenses		2,971,000			2,993,000
Investment tax credits		436,000			439,000
Other intangibles		428,000			431,000
Acquired technology		(383,000	)		(183,000	)
Valuation allowance established by management		(18,874,000	)		(17,782,000	)
Net deferred tax assets	$	–		$	–

The provision for income taxes differ from the amount calculated using the U.S. federal and state statutory income tax rates as follows:

		Years Ended
		April 30,
		2019			2018
Tax (recovery) based on U.S. rates	$	(1,053,000	)	$	(957,000	)
Foreign tax rate differential		32,000			(20,000	)
Non-deductible stock option compensation		101,000			182,000
Effect of reduction (increase) in statutory rates		(203,000	)		6,648,000
Foreign exchange losses on revaluation of deferred tax balances		411,000			(464,000	)
Under provision relating to prior year		(380,000	)		(72,000	)
Expiry of non-operating losses		–			706,000
Increase in valuation allowance		1,092,000			(6,023,000	)
Income tax expense for year	$	–		$	–

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted, which significantly revised the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%. The Tax Act also incorporated changes to certain international tax provisions, including the implementation of a territorial tax system that imposed a one-time tax on foreign unremitted earnings. The Company did not anticipate that the foreign provisions would have an impact to the Company’s taxes. However, guidance on how provisions of the U.S. Tax Act will be applied or otherwise administered are still being issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies. Adjustments to amounts that we have previously recorded that may materially impact our provision for income taxes may be made as future guidance is issued.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

As at April 30, 2019, the Company had net operating loss carry-forwards available to reduce taxable income in future years as follows:

Country		Amount		Expiration Dates
United States – US$	$	51,886,000		2027 – 2039
United States – US$	$	5,757,000	⁽¹⁾	Indefinite
Canada – CDN$	$	13,437,000	⁽²⁾	2023 – 2039

⁽¹⁾ Net operating losses arising in tax year beginning after December 31, 2017 can be carried forward indefinitely instead of 20 years and carrybacks are no longer permitted. However, the net operating loss carryforward is limited and can only offset 80% of taxable income.

⁽²⁾ These losses are subject to tax legislation that limits the use of the losses against future income of the Company’s Canadian subsidiaries.

The Company is subject to taxation in the U.S. and Canada. It is subject to tax examinations by tax authorities for all taxation years commencing in or after 2002. The Company does not expect any material increase or decrease in its income tax expense in the next twelve months related to examinations or changes in uncertain tax positions.

Changes in the Company’s uncertain tax positions for the year ended April 30, 2019 and April 30, 2018 were as follows:

		Years Ended
		April 30,
		2019		2018
Balance at beginning of year	$	9,763	$	9,763
Increases related to prior year tax positions (interest and penalties)		–		–
Increases related to current year tax positions (interest and penalties)		–		–
Settlements		–		–
Lapses in statute of limitations		–		–
Balance at end of year	$	9,763	$	9,763

Note 13	Segmented Information

	The Company’s chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. Accordingly, the Company has concluded that it has one reportable operating segment.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Revenues are categorized based on the country in which the customer is located. The following is a summary of total revenues by geographic area for the years ended April 30, 2019 and 2018:

		Years Ended
		April 30,
		2019		2018
North America	$	6,768,821	$	6,916,556
EMEA		2,505,828		3,961,595
Asia Pacific		1,042,197		950,131
Latin America		448,058		553,459
	$	10,764,904	$	12,381,741

All of the Company’s long-lived assets, which includes equipment, goodwill and intangibles and other assets are located in Canada and the United States as follows:

		As at April 30 ,
		2019		2018
Canada	$	6,798,083	$	7,150,537
United States		27,916		35,919
	$	6,825,999	$	7,186,456

Note 14	Commitments

	Total payable over the term of the lease agreements for the years ended April 30, are as follows:

		Office		Office				Voice
		Leases –		Leases –		Total		Platform
		Related		Unrelated		Office		Service
		Party		Party		Leases		Contract		Total
2020	$	83,791	$	622,513	$	706,304	$	240,000	$	946,304
2021		83,791		550,035		633,826		220,000		853,826
2022		83,791		533,693		617,484		–		617,484
Thereafter		167,582		1,256,923		1,424,505		–		1,424,505
	$	418,955	$	2,963,164	$	3,382,119	$	460,000	$	3,842,119

Note 15	Contingencies

	The Company is party to legal claims from time to time which arise in the normal course of business. These claims are not expected to have a material adverse effect on the financial position, results of operations or cash flows of the Company.

COUNTERPATH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Stated in U.S. Dollars)

Note 16	Loss per share

	The following table shows the computation of basic and diluted loss per share:

		Year end ed April 30,
		2019			2018
Numerator
Income available to common stockholders	$	(5,013,439	)	$	(3,220,670	)

Denominator
Weighted average shares outstanding		5,942,096			5,496,201
Effect of dilutive securities ⁽¹⁾ (2)		−			−
		5,942,096			5,496,201

Basic and diluted loss per share	$	(0.84	)	$	(0.59	)

⁽¹⁾ For the years ended April 30, 2019 and 2018, potentially dilutive securities including stock options and deferred share units totalling 1,249,940 and 1,140,432, respectively, were excluded from the computation of diluted loss per share because their effect was anti-dilutive.

⁽²⁾ Diluted by assumed exercise of outstanding common share equivalents using the treasury stock method.

Note 17	Subsequent Events

	On July 10, 2019, the Company entered into an amended loan agreement (the “Amendment Agreement”) with Wesley Clover International Corporation and KMB Trac Two Holdings Ltd. (collectively, the “Lenders”), pursuant to which to Lenders have agreed to amend the existing loan agreement (the “Loan Agreement”), together with the Amendment Agreement, to increase the maximum amount of the loan from $3,000,000 to $5,000,000 and to extend the term of the loan such that all outstanding principal and accrued interest is due on April 11, 2021.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our Interim Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

In connection with this annual report, as required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our Interim Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Interim Chief Executive Officer and Chief Financial Officer concluded that as of April 30, 2019, our disclosure controls and procedures are effective as at the end of the period covered by this report.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Under the supervision and with the participation of our management, including our Interim Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on certain criteria established in Internal Control - Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting is effective as of April 30, 2019.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter of the year ended April 30, 2019 that have materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after April 30, 2019.

Item 11. Executive Compensation.

The information required by this Item, is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after April 30, 2019.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accountant Fees and Services.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

List of documents filed as part of the report

The following documents are filed as part of this report:

(a)(1)

Financial Statements:

	1.	Report of Independent Registered Public Accounting Firm;

	2.	Consolidated Balance Sheets;

	3.	Consolidated Statements of Operations;

	4.	Consolidated Statements of Comprehensive Loss;

	5.	Consolidated Statements of Cash Flows;

	6.	Consolidated Statements of Changes in Stockholders’ Equity; and

	7.	Notes to the Consolidated Financial Statements.

(a)(2)	Financial Statement Schedules:

	None.

(a)(3)	Exhibits:

(3)	Articles of Incorporation and By-laws

3.1	Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on July 16, 2003)

3.2	Certificate of Designation (incorporated by reference from our Registration Statement on Form S-8 filed on January 31, 2017)

3.3	Articles of Merger (incorporated by reference from our Current Report on Form 8-K filed on September 15, 2005)

3.4	Articles of Merger (incorporated by reference from our Registration Statement on Form S-8 filed on January 31, 2017)

3.5	Certificate of Amendment (incorporated by reference from our Quarterly Report in the Form 10-Q filed on December 12, 2013)

3.6	Certificate of Change (incorporated by reference from our Registration Statement on Form S-8 filed on January 31, 2017)

3.7	Amended Bylaws (incorporated by reference from our Current Report on Form 8-K filed on July 2, 2012)

(4)	Instruments defining the rights of security holders, including indentures

4.1	Employee Share Purchase Plan (incorporated by reference from our Registration Statement on Form S-8 filed on January 31, 2019)

4.2	Amended 2010 Stock Option Plan (incorporated by reference from our Registration Statement on Form S-8 filed on January 31, 2019)

4.3	Deferred Share Unit Plan (incorporated by reference from our Quarterly Report on Form 10-Q filed on March 13, 2017)

(10)	Material Contracts

10.1	Employment Agreement between CounterPath Solutions, Inc. and David Karp dated September 11, 2006 (incorporated by reference from our Quarterly Report on Form 10-QSB filed on September 14, 2006)

10.2	Piggyback Registrations Rights Agreement among our company and various shareholders, dated as of August 2, 2007 (incorporated by reference from our Current Report on Form 8-K filed on August 8, 2007)

10.3	Amended Employment Agreement between Donovan Jones and CounterPath Solutions R&D Inc., a wholly owned subsidiary of CounterPath Solutions, Inc. dated September 13, 2007 (incorporated by reference from our Quarterly Report on Form 10-QSB filed on September 14, 2007)

10.4	Form of Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on September 4, 2015 (incorporated by reference from our Current Report on Form 8-K filed on September 8, 2015)

10.5	Form of Warrant Certificate issued to various investors in connection with the non-brokered private placement completed on September 4, 2015 (incorporated by reference from our Current Report on Form 8-K filed on September 8, 2015)

10.6	Amended Employment Agreement between Donovan Jones and CounterPath Corporation and its wholly owned subsidiary, CounterPath Technologies Inc., dated February 17, 2016 (incorporated by reference from our Quarterly Report on Form 10-Q filed on March 15, 2016)

10.7	Form of Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on December 15, 2016 (incorporated by reference from our Current Report on Form 8-K filed on December 19, 2016)

10.8	Form of Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on July 20, 2017 (incorporated by reference from our Current Report on Form 10-Q filed on September 14, 2017)

10.9	Form of Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on January 24, 2018 (incorporated by reference from our Current Report on Form 8-K filed on January 26, 2018)

10.10	Amended Employment Agreement between David Karp and CounterPath Corporation and its wholly owned subsidiary, CounterPath Technologies Inc., dated March 7, 2018 (incorporated by reference from our Quarterly Report on Form 10-Q filed on March 13, 2018)

10.11	Loan Agreement between Wesley Clover International Corporation, KMB Trac Two Holdings Ltd. and CounterPath Corporation dated October 10, 2018 (incorporated by reference from our Current Report on Form 8-K filed on October 12, 2018)

10.12	Separation Agreement between Donovan Jones and CounterPath Corporation and CounterPath Technologies Inc. dated September 17, 2018 (incorporated by reference from our Quarterly Report on Form 10-Q filed on December 12, 2018)

10.13*	Amendment Agreement dated July 10, 2019 to the Loan Agreement dated October 10, 2018 between Wesley Clover International Corporation, KMB Trac Two Holdings Ltd. and CounterPath Corporation

(14)	Code of Ethics

14.1	Code of Business Conduct and Ethics and Compliance Program (incorporated by reference from our Quarterly Report on Form 10-QSB filed on September 15, 2008)

(21)	Subsidiaries of CounterPath Corporation

	CounterPath Technologies Inc. (incorporated in the Province of British Columbia, Canada)

	BridgePort Networks, Inc. (incorporated in the State of Delaware)

	CounterPath, LLC (formed in the State of Delaware)

(23)	Consent of Experts and Counsel

23.1*	Consent of BDO Canada LLP, Independent Registered Public Accounting Firm

(31)	Section 302 Certifications

31.1*	Section 302 Certification of David Karp

(32)	Section 906 Certifications

32.1*	Section 906 Certification of David Karp

(101)	Interactive Data File

101.INS*	XBRL Instance Document

101.SCH*	XBRL Taxonomy Extension Schema

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase

101.DEF*	XBRL Taxonomy Extension Definition Linkbase

101.LAB*	XBRL Taxonomy Extension Label Linkbase

101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

*Filed herewith.

Item 16. Form 10-K Summary.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COUNTERPATH CORPORATION

By:	/s/ David Karp
	David Karp
	Interim Chief Executive Officer, Chief Financial
	Officer, Treasurer and Secretary
	(Principal Executive Officer, Principal Financial
	Officer and Principal Accounting Officer)

Date:	July 11, 2019

Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Terence Matthews
Terence Matthews	Chairman and Director	July 11, 2019

/s/ David Karp
David Karp	President, Interim Chief Executive Officer	July 11, 2019
	and Director (Principal Executive Officer)
	Chief Financial Officer, Treasurer and
	Secretary (Principal Financial Officer,
	Principal Accounting Officer)
/s/ Owen Matthews
Owen Matthews	Vice Chairman and Director	July 11, 2019

/s/ Steven Bruk
Steven Bruk	Director	July 11, 2019

/s/ Bruce Joyce
Bruce Joyce	Director	July 11, 2019

/s/ Chris Cooper
Chris Cooper	Director	July 11, 2019

/s/ Larry Timlick
Larry Timlick	Director	July 11, 2019

AMENDMENT AGREEMENT

THIS AGREEMENT dated for reference the __10th___ day of July, 2019,

AMONG:

WESLEY CLOVER INTERNATIONAL CORPORATION , a corporation incorporated under the laws of Canada;

and

KMB TRAC TWO HOLDINGS LTD. , a corporation incorporated under the laws of the Province of British Columbia;

(together, the “ Lenders ”)

AND:

COUNTERPATH CORPORATION , a corporation incorporated under the laws of the State of Nevada;

(the “ Borrower ”)

WHEREAS:

A. The Borrower and the Lenders (each, a “ Party ” and together, the “ Parties ”) entered into a Loan Agreement dated October 10, 2018 (the “ Loan Agreement ”) pursuant to which the Lenders agreed to loan (the “ Loan ”) to the Borrower up to US$3,000,000 on the terms and conditions of the Loan Agreement;

B. The Parties have agreed to enter into this Agreement to amend the Loan Agreement to increase the maximum amount of the Loan from US$3,000,000 to US$5,000,000 and to extend the term of the Loan such that all outstanding principal and accrued interest is due on the date that is 30 months after the date of the first advance under the Loan; and

C. Accordingly, the Parties wish to amend the Loan Agreement on the terms and conditions set out herein.

THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants and promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the Parties, the Parties agree as follows:

1.1 Amendment to Loan Agreement

Each of the Parties agree to the following amendments:

(a)

Recital A is deleted in its entirety and replaced with the following:

“A

The Borrower has applied to the Lenders for a loan in the aggregate principal amount of up to US$5,000,000 to be utilized by the Borrower for the purposes described in Section 3.”

- 2 -

(b)

Section 1.1(l) is deleted in its entirety and replaced with the following:

“(l)

“ Loan ” means the revolving loan not exceeding US$5,000,000 established by the Lenders in favour of the Borrower pursuant to this Agreement;”

(c)

Section 4.2 is deleted in its entirety and replaced with the following:

“4.2

The aggregate principal amount advanced and outstanding under the Loan will at no time exceed US$5,000,000.”

(d)

Section 7.1(b) is deleted in its entirety and replaced with the following:

“7.1(b)

all outstanding principal and accrued interest on the Loan on the date that is 30 months after the date of the first Advance Date.”

1.2 Amendments.

This Agreement may only be amended, supplemented or otherwise modified by written agreement signed by all of the Parties.

1.3 Entire Agreement.

Except as amended hereby, each of the Borrower and the Lenders agree that the Loan Agreement continues to be binding, unchanged, and in full force and effect. Upon execution of this Agreement by each of the Parties, the Loan Agreement and this Agreement will be read and construed as one agreement (together, the “ Amended Loan Agreement ”). The Amended Loan Agreement contains the entire understanding of the Parties with respect to the subject matter of this Agreement and the Loan Agreement and cancels and supersedes any prior understandings, agreements, negotiations and discussions, whether written or oral, between the Parties.

1.4 Further Assurances.

The Parties agree to execute and deliver such further and other papers, cause such meetings to be held and resolutions passed enacted, exercise their vote and influence, and do and perform and cause to be done and performed, such further and other acts and things that may be necessary or desirable in order to give full effect to this Agreement and every part thereof.

1.5 Governing Law.

This Agreement will be construed and enforced in accordance with, and the rights of the Parties will be governed by the laws of the Province of British Columbia and applicable federal laws thereto. The Lenders and the Borrower hereby attorn to the courts of competent jurisdiction located in the Province of British Columbia in any proceedings hereunder.

1.6 Counterparts.

This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, and it will not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. This Agreement may be executed by delivery of executed signature pages by fax or other form of electronic transmission and such transmission will be effective for all purposes.

IN WITNESS WHEREOF , the Parties have caused this Agreement to be duly executed and delivered by their respective authorized signatories on the 10 ^th day of July, 2019.

- 3 -

The Lenders hereby acknowledge and agree that they have been requested to and given an opportunity to obtain independent legal advice with respect to the subject matter of this Agreement and its sufficiency for their purposes, and further, the Lenders hereby represent and warrant to the Borrower that it fully understands the terms and limitations of this Agreement.

BORROWER

COUNTERPATH CORPORATION , by
its authorized signatory:

Per: /s/ David Karp
Authorized Signatory

LENDERS

WESLEY CLOVER INTERNATIONAL CORPORATION , by
its authorized signatory:

Per: /s/ Paul Chiarelli
Authorized Signatory

KMB TRAC TWO HOLDINGS LTD. , by
its authorized signatory:

Per: /s/ Karen Bruk
Authorized Signatory

Exhibit 21.1

LIST OF SUBSIDIARIES OF COUNTERPATH CORPORATION

Name	State/Jurisdiction of	Name Under Which Subsidiary
	Incorporation	Does Business

CounterPath Technologies Inc.	British Columbia, Canada	CounterPath Technologies Inc.

BridgePort Networks, Inc.	Delaware, USA	BridgePort Networks, Inc.

CounterPath, LLC	Delaware, USA	CounterPath, LLC

Tel: 604 688 5421
Fax: 604 688 5132
www.bdo.ca

BDO Canada LLP
600 Cathedral Place
925 West Georgia Street
Vancouver BC V6C 3L2 Canada

Consent of Independent Registered Public Accounting Firm

CounterPath Corporation
Las Vegas, Nevada

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3A (No. 333-200993) and Form S-8 (No.333-229458) of CounterPath Corporation of our report dated July 10, 2019 relating to the consolidated financial statements which appears in this Form 10-K.

/s/ BDO Canada LLP

Vancouver, Canada
July 10, 2019

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

Exhibit 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David Karp, certify that:

1.	I have reviewed this annual report on Form 10-K of CounterPath Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

July 11, 2019	/s/ David Karp
	David Karp
	Interim Chief Executive Officer, Chief Financial Officer,
	Treasurer and Secretary
	(Principal Executive Officer, Principal Financial Officer
	and Principal Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, David Karp, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

1.	the annual report on Form 10-K of CounterPath Corporation for the year ended April 30, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of CounterPath Corporation.

July 11, 2019	/s/ David Karp
	David Karp
	Interim Chief Executive Officer, Chief Financial Officer,
	Treasurer and Secretary
	(Principal Executive Officer, Principal Financial Officer
	and Principal Accounting Officer)