Forward-Looking Statements
This quarterly report, 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 quarterly report may include statements about:
º any potential loss of or reductions in orders from certain significant customers; º our dependence on our customers to sell our applications or services using our applications; º our ability to protect our intellectual property; º 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; º our ability to predict our revenue, operating results and gross margin accurately; º the length and unpredictability of our sales cycles; º our ability to expand or enhance our product offerings including in response to industry demands or market trends; º our ability to sell our products in certain markets; º our ability to manage growth; º the attraction and retention of qualified employees and key personnel; º the interoperability of our products with service provider networks; and º 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
References
In this quarterly report, (i) unless the context otherwise requires, references
to "we", "our", "us", the "Company" or "CounterPath" mean
Background
We were incorporated under the laws of the
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COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2020 (Unaudited)
On
On
Business of
We design, develop and sell software and services that enable enterprises and
telecommunication service providers to deliver
Revenue
Our total revenue consists of the following:
º 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.
º 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.
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COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2020 (Unaudited) º 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.
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 interim consolidated financial statements are prepared in accordance with
accounting principles generally accepted in
There have been no significant changes to our critical accounting policies and
estimates previously disclosed in our Form 10-K for the fiscal year ended
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COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2020 (Unaudited) Leases
We determine if an arrangement is a lease at contract inception by evaluating if
the contract conveys the right to control the use of an identified asset during
the period of use. A right-of-use ("ROU") asset represents our right to use an
identified asset for the lease term and lease liability represents our
obligation to make payments as set forth in the lease arrangement. ROU assets
and lease liabilities are included on our consolidated balance sheets beginning
We have lease agreements with lease and non-lease components. Non-lease components primarily include payments for maintenance. We account for lease components and non-lease components separately.
Results of Operations
Our operating activities during the three and nine months ended
We generate our revenue primarily in
Selected Consolidated Financial Information
The following tables set out selected consolidated unaudited financial
information for the periods indicated. The selected consolidated financial
information set out below for the three and nine months ended
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