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    PATH   US22228P3029

COUNTERPATH CORPORATION

(PATH)
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COUNTERPATH : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

07/20/2020 | 07:55am EDT

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

Our consolidated 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 &
Collaborations (UCC) solutions to their end users. Our offerings include
softphones that support HD voice/video calling, messaging, and presence from a
wide range of call services and VoIP services, as well as hosted services for
team voice, messaging, presence, video conferencing and screen sharing
functionality, over Internet Protocol (IP) based networks. We are capitalizing
upon several industry trends, including the rapid adoption of mobile technology,
the proliferation of work-from-home programs, the growth of video conferencing,
the increasing requirements for secure business communications, centralized
cloud-based provisioning, and the migration towards all IP networks. We are also
capitalizing on a trend where communication services such as Google Meet, Slack,
Zoom, 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 consolidate Internet OTT application capabilities into a single
application that, we believe, provides more value at less than our competitors'
cost. Our solutions are offered under perpetual license agreements that generate
one-time license revenue and under subscription license agreements that generate
recurring license revenue. Our solutions are available for sale through our
online store, directly using our in-house sales team, original equipment
manufacturers (OEM) partners, and through traditional value added reseller (VAR)
and value added distributer (VAD) channel partners. Enterprises typically
leverage our solutions to increase employee productivity and to reduce
communication costs while leveraging, leading call servers provided by companies
such as Cisco, Avaya, Sangoma, and others. Telecommunication service providers
typically deploy our solutions to supplement and add value to their traditional
services that compete directly with the Internet OTT providers.  Our OEM and VAR
customers 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.

COVID-19 Pandemic


On January 30, 2020, the World Health Organization ("WHO") announced a global
health emergency because of a new strain of coronavirus, COVID-19 originating in
Wuhan, China (and the risks to the international community as the virus spread
globally beyond its point of origin. In March 2020, the WHO classified the
COVID-19 outbreak as a pandemic, based on the rapid increase in exposure
globally. The full impact of the COVID-19 outbreak continues to evolve as of the
date of this Annual Report on Form 10-K. As such, it is uncertain as to the full
magnitude that the pandemic will have on our financial condition, liquidity, and
future results of operations. Management is actively monitoring the global
situation and its impact on our financial condition, liquidity, operations,
suppliers, industry, and workforce. Given the daily evolution of the COVID-19
outbreak and the global responses to curb its spread, we are not able to
estimate the effects that the COVID-19 outbreak will have on our results of
operations, financial condition, or liquidity for fiscal year 2021. As of the
date of this Annual Report on Form 10-K, we have not experienced meaningful
delays in securing new customers and related revenues, cancellations of existing
contracts, or meaningful delays in payments from existing customers, however,
the longer this pandemic continues there may be additional impacts. Although we
cannot estimate the length or gravity of the impact of the COVID-19 outbreak at
this time, if the pandemic continues, it may have a material adverse effect on
our results of future operations, financial position, liquidity, and capital
resources, and those of the third parties on which we rely on in fiscal year
2021.

                                       25

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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, access to
our technical assistance center, 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.

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 communication services and compression/decompression software known as codecs, (e) amortization of capitalized software that is implemented into our products and (f) warranty expense.

                                       26

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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
consolidated 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 consolidated
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 consolidated 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.

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.

                                       27

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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 whether there is
a variance that needs to be allocated based on the relative SSP of the various
products and services. Estimating SSP is a formal process that includes review
and approval by management.

In practice, we do not offer extended payment terms beyond one year to customers. As such, we do not adjust our consideration for financing arrangements.


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 revenue 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 represents 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.

                                       28

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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 using management
judgment after reviewing customer contracts from fiscal years 2004 - 2018, and
is 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, 2020 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, 2020, we recorded an expense of
$382,584 in connection with share-based payment awards. A future expense of
non-vested options of $271,728 is expected to be recognized over a
weighted-average period of 2.3 years. A future expense of non-vested deferred
share units of $233,058 is expected to be recognized over a weighted-average
period of 2.1 years.

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.

                                       29

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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 determine 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 2020, did not result in an impairment charge for fiscal year 2020, nor
did we record any goodwill impairment in fiscal 2019.

Leases


In February 2016, the FASB issued ASU 2016-02, Leases, as amended by subsequent
standards updates, which requires lessees to recognize right-of-use (ROU) assets
and lease liabilities for all leases, with the exception of short term leases,
at the commencement date of each lease. A 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. We adopted
the new standard effective May 1, 2019 using a modified retrospective approach
and did not restate comparative periods. As a result, we recorded $1,708,129 of
ROU assets and operating lease liabilities on May 1, 2019. There was no
cumulative-effect adjustment for the adoption and the adoption did not have a
significant impact on our consolidated statements of operations.

Management has elected to apply the practical expedient to not reassess initial
direct costs related to leases, whether any expired or existing contracts
contained leases and to carryforward historical lease classification. As a
result, all leases identified by management will continue to be classified as
operating leases. In addition, management elected to not record short-term
leases with an initial term of 12 months or less on its consolidated balance
sheets. See Note 14- Leases for more information.

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
May 1, 2019 and are recognized based on the present value of the future minimum
lease payments at lease commencement date. The interest rate used to determine
the present value of the future lease payments is our estimated incremental
borrowing rate, because the interest rate implicit in the lease is generally not
readily determinable. A ROU asset initially equals the lease liability, adjusted
for any lease payments made prior to lease commencement and any lease
incentives. All leases are recorded on the consolidated balance sheets except
for leases with an initial term of less than 12 months. All of the our leases
are operating leases.

                                       30
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We have lease agreements with lease and non-lease components. The lease
component is comprised of minimum lease payments which includes base rent and
estimated property taxes and insurance. Non-lease components primarily include
payments for maintenance and are expensed as incurred.

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 two foreign currency option contracts with an aggregate
notional value of $1,000,000 and three foreign currency forward contracts with
an aggregate notional value of $1,300,667, all maturing in the period ending
July 31, 2020. We also had two foreign currency forward contracts with an
aggregate notional value of $900,000, maturing in the period ending October 31,
2020. 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, 2020 we recognized a loss of $132,377
as a result of the change in fair value of derivative instruments.

Results of Operations


Our operating activities during the year ended April 30, 2020 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, 2020, we
recorded a decrease in operating costs on translation of Canadian dollar costs
as compared to the twelve months ended April 30, 2019 of approximately $98,300.

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, 2020 and 2019, and as at April
30, 2020 and April 30, 2019, has been derived from the consolidated financial
statements and accompanying notes for the fiscal years ended April 30, 2020 and
2019. Each investor should read the following information in conjunction with
those statements and the related notes thereto.

Selected Consolidated Balance Sheet Data   April 30, 2020     April 30, 2019
Cash                                     $      2,433,266   $      1,862,458
Current assets                           $      5,450,228   $      4,126,387
Total assets                             $     13,655,953   $     11,124,786
Current liabilities                      $     10,499,343   $      4,885,095
Total liabilities                        $     11,611,636   $      7,898,889



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Selected Consolidated Statements
of Operations Data                                  Years Ended April 30,
                                             2020                          2019
                                                    Percent                       Percent
                                                   of Total                      of Total
                                     Amount         Revenue        Amount         Revenue
Revenue                          $  12,101,326          100%   $  10,764,904          100%

Operating expenses               $  12,900,893          107%      15,931,665          148%
Loss from operations                 ($799,567 )         (7% )   ($5,166,761 )        (48% )
Interest and other income
(expense), net                        (465,584 )         (4% )      (103,443 )         (1% )
Foreign exchange gain                  168,586            2%         256,765            2%
Net loss                           ($1,096,565 )         (9% )   ($5,013,439 )        (47% )

Net loss per share
-Basic and diluted                      ($0.18 )                      ($0.84 )

Weighted average common shares
outstanding
-Basic and diluted (1)               6,010,006                     5,942,096



(1)  As at April 30, 2020 and 2019 common share equivalents of 1,371,469 and

1,249,940, 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, 2020 and 2019 were as follows:


                             Twelve Months Ended April 30,
                           2020                        2019                Period-to-Period Change
                                 Percent                     Percent                       Percent
                                 of Total                    of Total                     Increase /
                    Amount       Revenue        Amount       Revenue        Amount        (Decrease)
Revenue by Type
Software        $  5,154,513          42%   $  4,660,660          43%   $    493,853             11%
Subscription,
support and
maintenance     $  6,257,854          52%   $  5,366,290          50%   $    891,564             17%
Professional
services and
other           $    688,959           6%   $    737,954           7%       ($48,995 )           (7% )
Total revenue   $ 12,101,326         100%   $ 10,764,904         100%   $  1,336,422             12%

Revenue by
Region
  North America $  8,391,465          69%   $  6,768,821          63%   $  1,622,644             24%
  International $  3,709,861          31%   $  3,996,083          37%      ($286,222 )           (7% )
Total revenue   $ 12,101,326         100%   $ 10,764,904         100%   $  1,336,422             12%


For the year ended April 30, 2020, we generated $12,101,326 in revenue compared
to $10,764,904 for the year ended April 30, 2019, representing an increase of
$1,336,422 or 12%.

Software revenue increased by $493,853 or 11% to $5,154,513 for the year ended
April 30, 2020 compared to $4,660,660 for the year ended April 30, 2019. The
increase in software revenue was primarily a result of increased sales to
enterprises and channel partners.

Subscription, support and maintenance revenue increased by $891,564 or 17% to
$6,257,854 for the year ended April 30, 2020 compared to $5,366,290 for the year
ended April 30, 2019. The increase in subscription, support and maintenance
revenue was a result of increased sales to channel partners, service providers,
and enterprises.

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Professional services and other revenue decreased by $48,995 or 7% to $688,959
for the year ended April 30, 2020 compared to $737,954 for the year ended April
30, 2019. The decrease in professional services and other revenue was a result
of decreased sales to service providers and enterprises.

North American revenue increased by $1,622,644 or 24% to $8,391,465 for the year
ended April 30, 2020 compared to $6,768,821 for the year ended April 30, 2019,
as a result of higher sales of software and services to North American
enterprises, service providers, and channel partners. International revenue
outside of North America decreased by $286,222 or 7% to $3,709,861 for the year
ended April 30, 2020 compared to $3,996,083 for the year ended April 30, 2019,
as a result of lower sales of software and services to international service
providers, slightly offset by increased sales of software and service to
international channel partners and enterprises.

Operating Expenses

Cost of Sales

Cost of sales for the year ended April 30, 2020 and 2019 were as follows:


                 April 30, 2020             April 30, 2019          

Period-to-Period Change

                           Percent                    Percent                       Percent
                              of                         of                        Increase /
              Amount       Revenue       Amount       Revenue        Amount        (Decrease)
Year ended $ 2,124,948          18%   $ 2,223,984          21%       ($99,036 )           (4% )


Cost of sales was $2,124,948 for the year ended April 30, 2020 compared to
$2,223,984 for the year ended April 30, 2019.  The decrease of $99,036, or 4%,
was primarily due to decreases of approximately $153,200 in wages and benefits
and approximately $347,500 in consulting fees, offset by increases of
approximately $204,900 in communication services expenses, approximately
$184,400 in licenses and permits and approximately $12,300 in other expenses.
Cost of sales expressed as a percent of revenue was 18% of revenue for the year
ended April 30, 2020 compared to 21% for the year ended April 30, 2019. The
decrease in cost of sales as a percentage of revenue is primarily due to the
decrease in headcount in our effort to reduce costs.

Sales and Marketing

Sales and marketing expenses for the year ended April 30, 2020 and 2019 were as follows:


                 April 30, 2020             April 30, 2019          Period-to-Period Change
                           Percent                    Percent                       Percent
                              of                         of                        Increase /
              Amount       Revenue       Amount       Revenue        Amount        (Decrease)
Year ended $ 3,831,866          32%   $ 4,061,921          38%      ($230,055 )           (6% )


Sales and marketing expenses were $3,831,866 for the year ended April 30, 2020
compared to $4,061,921 for the year ended April 30, 2019. The decrease of
$230,055, or 6%, was primarily attributable to decreases of approximately
$164,500 in wages, benefits and commissions expenses, approximately $77,900 in
consulting fees and approximately $6,500 in marketing and travel expenses,
offset by an increase of approximately $18,900 in other expenses.

Research and Development

Research and development expenses for the year ended April 30, 2020 and 2019 were as follows:


                 April 30, 2020             April 30, 2019          Period-to-Period Change
                           Percent                    Percent                       Percent
                              of                         of                        Increase /
              Amount       Revenue       Amount       Revenue        Amount        (Decrease)
Year ended $ 4,398,814          36%   $ 5,547,587          52%     ($1,148,773 )         (21% )



                                       33
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Research and development expenses were $4,398,814 for the year ended April 30,
2020 compared to $5,547,587 for the year ended April 30, 2019. The decrease of
$1,148,773, or 21%, resulted primarily from decreases of approximately $648,200
in wages and benefits expenses due to the decrease in headcount in our effort to
reduce costs, approximately $454,700 in consulting expenses and approximately
$45,800 in other expenses.

General and Administrative

General and administrative expenses for the years ended April 30, 2020 and 2019 were as follows:


                 April 30, 2020            April 30, 2019          Period-to-Period Change
                           Percent                    Percent                      Percent
                              of                        of                        Increase /
              Amount       Revenue       Amount       Revenue       Amount        (Decrease)
Year ended $ 2,545,265          21%   $ 4,098,173         38%     ($1,552,908 )         (38% )


General and administrative expenses for the year ended April 30, 2020 were
$2,545,265 compared to $4,098,173 for the year ended April 30, 2019. The
decrease of $1,552,908, or 38%, in general and administrative expenses was
primarily attributable to decreases of approximately $933,000 in the allowance
for bad debts provision as a result of one time provisions recorded for several
customer accounts in the prior year. In addition, we recorded a decrease of
approximately $396,600 in wages and benefits expenses, primarily related to a
one time accrual of $321,000 recorded in the prior year, associated with the
departure of our former chief executive officer, a decrease of approximately
$226,100 in legal and professional charges and a decrease of approximately
$49,100 in consulting expenses. This decrease was offset by an increase of
approximately $51,500 in other expenses.

Interest and Other Income (Expense), Net


Interest and other income (expense), net for the year ended April 30, 2020 was
($296,998) compared to $153,322 for the year ended April 30, 2019. The change of
($450,320) or (294%) was primarily due to an increase in interest expense
related to the related party loan payable of approximately $228,000, a loss
resulting from the change in fair value of derivative instruments of
approximately $134,100 and an increase in the foreign exchange loss in the
current year of approximately $88,200 as result of the weakening of the Canadian
dollar against the U.S. dollar during the year ended April 30, 2020.

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, 2020, we had $2,433,266 in cash compared to $1,862,458 at April
30, 2019, representing an increase of $570,808. As of April 30, 2020, we had a
working capital deficit of $5,049,115 compared to working capital deficit of
$758,708 at April 30, 2019, representing a decrease of $4,290,407.  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 have an accumulated deficit of
$69,677,656 as of April 30, 2020, as a result of revenues being historically
lower than expenses, resulting from a number of factors including our buildout
of a cloud based subscription platform concurrent with the change of our
licensing model to subscription based licensing and have not reached profitable
operations on a consistent basis. However, during the year ended April 30, 2020,
revenue has increased by approximately 12% compared to the year ended April 30,
2019. Despite the increase in revenue, we saw an increase in current liabilities
primarily related to the reclassification of the related party loan payable of
$4,000,000 outstanding as of April 30, 2020, from long-term liabilities, which
is due on April 11, 2021. It is uncertain whether we would be able to maintain
sufficient cash flows to meet our current obligations. Further, due to the
recent and ongoing outbreak of COVID-19, the spread of COVID-19 has severely
impacted many economies around the world, including those in which our customers
operate. Management has taken steps to help mitigate any potential negative
impact on operations including having reduced operating costs through fiscal
year ended April 30, 2020 and obtaining financial assistance made available from
the US government under the Paycheck Protection Program; however, we are unable
to determine the future impact on our financial position and operating results.
Together, these factors raise substantial doubt about our ability to continue
operating as a going concern within one year of the date of issuance of the
consolidated financial statements.

                                       34

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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 2020, recurring revenue as a percentage of total revenue increased
from 50% in the prior year to 52% of total revenue. We believe that increasing
recurring revenue will stabilize the volatility of revenue over time, and enable
our company to grow revenue from our extensive customer base. To increase our
recurring revenue, we introduced Bria Solo and Bria Teams which are subscription
based unified communication services.  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. In addition, as a
result of managements efforts to reduce costs, operating expenses decreased by
approximately 19% to $12,900,893 during the year ended April 30, 2020, compared
to $15,931,665 in the prior year.

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, which was subsequently increased to
$5,000,000 on July 10, 2019. As of April 30, 2020, the principal balance of the
related party loan payable was $4,000,000 and interest payable on the loan was
$79,459. Subsequent to year end, on June 15, 2020, we repaid $2,000,000 of the
outstanding loan balance to our Lenders, increasing the unused portion of the
loan principal to $3,000,000. See Notes to the Consolidated Financial Statements
- Note 9 - Related Party Loan Payable for more information.

On May 1, 2020, through our subsidiary, CounterPath LLC, we entered into a
promissory note with Bank of America for a term loan in the amount of $209,035
(the "Loan"). The Loan is made pursuant to the Paycheck Protection Program under
the Coronavirus Aid, Relief, and Economic Security Act. (the "CARES Act"). The
Loan is forgiveable if used to retain workers and maintain payroll or to make
lease payments and utility payments as specified under the Paycheck Protection
Rule. The remaining loan balance that is not forgiven will bear interest at a
rate of 1% per annum after a six-month deferment period, with a maturity date of
two years from the funding date of the loan. We expect the loan to be fully
forgiven during the fiscal year ended April 30, 2021.

In addition, on June 10, 2020, we issued an aggregate of 284,902 shares of common stock under a non-brokered private placement at a price of $3.51 per share for total gross proceeds of $1,000,006. 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, 2020 we had $1,267,712 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. The 2017 Tax
Cuts and Jobs Act incorporated changes to certain international tax provisions,
including the implementation of a territorial tax system that imposes a one-time
tax on foreign unremitted earnings. We do not anticipate that the foreign
provisions would have an impact on our taxes.

Operating Activities


Our operating activities resulted in a net cash outflow of $310,116 for the year
ended April 30, 2020, compared to a net cash outflow of $3,443,379 for the year
ended April 30, 2019, representing a decrease of $3,113,263. This decrease is
primarily due to a decrease in the net loss by approximately $3,916,900, an
increase in the change in unearned revenue of approximately $1,160,800, an
increase in operating lease expenses of approximately $514,600 related to the
adoption of the new lease accounting standard, an increase in the loss resulting
from the change in fair value of derivative instruments of approximately
$127,400, an increase to the change in accounts payable and accrued liabilities
of approximately $192,700, a decrease in non-cash foreign exchange losses of
approximately $72,000 and a decrease in the change in deferred sales commissions
costs of approximately $44,400. This is offset by an increase in the change in
accounts receivable of approximately $1,376,000, a decrease in non-cash bad
debts expense of approximately $933,000, the adoption of the new lease
accounting standard resulting in operating lease liabilities of approximately
$498,700, a decrease in non-cash stock-based compensation expense of
approximately $92,100 and a decrease in non-cash depreciation and amortization
of approximately $32,500.

                                       35

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Investing Activities


Investing activities resulted in a net cash outflow of $125,842 for the year
ended April 30, 2020, compared to a net cash outflow of $49,732 for the year
ended April 30, 2019, representing an increase of $76,110. This decrease is
primarily due to an increase of approximately $80,300 in purchases of equipment,
offset by a decrease of $4,200 in costs related to our trademarks. At April 30,
2020, we did not have any material commitments for future capital expenditures.

Financing Activities


Financing activities resulted in a net cash inflow of $1,016,967 for the year
ended April 30, 2020 compared to a net cash inflow of $3,022,645 for the year
ended April 30, 2019, representing a decrease of $2,005,678. The decrease was
primarily due to proceeds of $3,000,000 received under the loan agreement during
the year ended April 30, 2019 compared to proceeds of 1,000,000 in the current
year. In addition, proceeds received related to shares issued pursuant to our
employee stock purchase plan decreased by approximately $5,700.

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 2018, the FASB issued ASU 2018-13 Disclosure Framework - Changes to
the Disclosure Requirements for Fair Value Measurement, which eliminates, adds,
and modifies certain disclosure requirements for fair value measurements under
ASC 820. This ASU is to be applied on a prospective basis for certain modified
or new disclosure requirements, and all other amendments in the standard are to
be applied on a retrospective basis. The new standard is effective for interim
and annual periods beginning after December 15, 2019, with early adoption
permitted. We are currently evaluating the impact of adoption on our
consolidated financial statements.

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 do not expect a
significant impact on our consolidated financial statements and related
disclosures resulting from the pending adoption of this amendment.

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, 2022. We do not expect a significant impact on our
consolidated financial statements and related disclosures resulting from the
pending adoption of this amendment.

                                       36

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