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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-Q)

09/10/2020 | 07:54am EDT

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 uncertainties relating to the impact of COVID-19 on our business,
     operations and employees;

   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 the United States of America and Canada, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

References

In this quarterly report, (i) unless the context otherwise requires, references to "we", "our", "us", the "Company" or "CounterPath" mean CounterPath Corporation and its subsidiaries and (ii) all amounts are expressed in United States dollars, unless otherwise indicated.

Background

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


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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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q, 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.


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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.

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.

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.


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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 the United States of America. 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 quarterly report.

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 April 30, 2020.

Results of Operations

Our operating activities during the three months ended July 31, 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 three months ended July 31, 2020, we recorded increased (decreased) operating costs on translation of Canadian dollar costs as compared to the three months ended July 31, 2019 of approximately ($53,566).

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 months ended July 31, 2020 and 2019 has been derived from the consolidated unaudited financial statements and accompanying notes for the three months ended July 31, 2020 and 2019 and the audited consolidated financial statements for the fiscal year ended April 30, 2020. Each investor should read the following information in conjunction with those statements and the related notes thereto.


Selected Consolidated Statements
of Operations Data
                                                  Three Months Ended July 31,
                                               2020                         2019
                                                     Percent                      Percent
                                                    of Total                     of Total
                                       Amount        Revenue        Amount        Revenue
Revenue                            $  3,429,206          100%   $  2,573,668          100%

Operating expenses                   (3,148,919 )       (92%)     (3,258,314 )      (127%)
Income/(loss) from operations      $    280,287            8%      ($684,846 )       (27%)
Interest expense, net                   (71,205 )        (2%)        (70,573 )        (2%)
Foreign exchange loss                  (346,394 )       (10%)       (174,890 )        (7%)
Change in fair value of derivative
instruments                             161,926            5%            586            -%
Net income (loss)                  $     24,614            1%      ($929,723 )        (36% )



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Net income (loss) per share
-Basic and diluted                         $      0.00              ($0.16 )
Weighted average common shares outstanding
-Basic                                       6,273,833           5,952,122
-Diluted                                     7,224,184           5,952,122


Revenue

                             Three Months Ended July 31,
                           2020                       2019               Period-to-Period Change
                                Percent                    Percent                       Percent
                                of Total                   of Total                     Increase /
                   Amount       Revenue       Amount       Revenue        Amount        (Decrease)
Revenue by Type
Software        $   829,685          24%   $ 1,009,824          39%      ($180,139 )         (18%)
Subscription,
support and
maintenance       2,082,799          61%     1,421,862          55%        660,937             46%
Professional
services and
other               516,722          15%       141,982           6%        374,740            264%
Total revenue   $ 3,429,206         100%   $ 2,573,668         100%   $    855,538             33%

Revenue by
Region
  North America $ 2,616,331          76%   $ 1,744,753          68%   $    871,578             50%
  International     812,875          24%       828,915          32%        (16,040 )          (2%)
Total revenue   $ 3,429,206         100%   $ 2,573,668         100%   $    855,538             33%

For the three months ended July 31, 2020, we generated $3,429,206 in revenue compared to $2,573,668 for the three months ended July 31, 2019, representing an increase of $855,538 or 33%.

Software revenue decreased by $180,139 or 18% to $829,685 for the three months ended July 31, 2020 compared to $1,009,824 for the three months ended July 31, 2019. The decrease in software revenue was a result of decreased sales to enterprises and channel partners purchasing perpetual software licenses.

Subscription, support and maintenance revenue increased by $660,937 or 46% to $2,082,799 for the three months ended July 31, 2020 compared to $1,421,832 for the three months ended July 31, 2019. The increase in subscription, support and maintenance revenue was a result of increased subscription sales to enterprises, channel partners, and service providers as the Company is shifting its licensing model to subscription based licensing.

Professional services and other revenue increased by $374,740 or 264% to $516,722 for the three months ended July 31, 2020 compared to $141,982 for the three months ended July 31, 2019. The increase in professional services and other revenue was a result of increased sales to channel partners primarily related to the customization of software licenses.

North American revenue increased by $871,578 or 50% to $2,616,331 for the three months ended July 31, 2020 compared to $1,744,753 for the three months ended July 31, 2019, as a result of increased sales of service to channel partners, enterprises, and service providers. International revenue outside of North America decreased by $16,040 or 2% to $812,875 for the three months ended July 31, 2020 compared to $828,915 for the three months ended July 31, 2019, as a result of lower sales of software to international enterprises and channel partners.


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Operating Expenses

Cost of Sales

Cost of sales for the three months ended July 31, 2020 and 2019 were as follows:

                    July 31, 2020             July 31, 2019           Period-to-Period Change
                             Percent                   Percent                        Percent
                             of Total                  of Total                     Increase /
                 Amount      Revenue       Amount      Revenue       Amount         (Decrease)
Three months
ended         $  555,889          16%   $  511,360          20%   $   44,529                  9%

Cost of sales was $555,889 for the three months ended July 31, 2020 compared to $511,360 for the three months ended July 31, 2019. An increase of $44,529 or 9% was primarily attributable to an increase in costs related to license fees of approximately $28,000, an increase of wages and benefits expenses of approximately $13,000 and third-party service fees of approximately $3,400.

Sales and Marketing


Sales and marketing expenses for the three months ended July 31, 2020 and 2019
were as follows:

                      July 31, 2020             July 31, 2019          Period-to-Period Change
                               Percent                   Percent                       Percent
                               of Total                  of Total                     Increase /
                   Amount      Revenue       Amount      Revenue        Amount        (Decrease)
Three months
ended           $  852,974          25%   $  970,593          38%      ($117,619 )         (12%)

Sales and marketing expenses were $852,974 for the three months ended July 31, 2020 compared to $970,593 for the three months ended July 31, 2019. The decrease of $117,619 or 12% was primarily attributable to decreases in travel and trade show expenses of approximately $83,000, decreases in consulting expenses of approximately $12,000, and stock based compensation of approximately $22,000.

Research and Development

Research and development expenses for the three months ended July 31, 2020 and 2019 were as follows:


                    July 31, 2020              July 31, 2019           Period-to-Period Change
                              Percent                    Percent                       Percent
                              of Total                   of Total                     Increase /
                 Amount       Revenue       Amount       Revenue        Amount        (Decrease)
Three months
ended         $ 1,030,136          30%   $ 1,131,848          44%      ($101,712 )          (9%)

Research and development expenses were $1,030,136 for the three months ended July 31, 2020 compared to $1,131,848 for the three months ended July 31, 2019. The decrease of $101,712 or 9% was primarily attributable to the overall reduction in costs which resulted in decreases in third-party service fees of approximately $33,000, wages and benefits of approximately $74,000 offset by an increase in other expenses of approximately $5,000.

General and Administrative

General and administrative expenses for the three months ended July 31, 2020 and 2019 were as follows:

                    July 31, 2020             July 31, 2019           Period-to-Period Change
                             Percent                   Percent                        Percent
                             of Total                  of Total                     Increase /
                 Amount      Revenue       Amount      Revenue       Amount         (Decrease)
Three months
ended         $  709,920          21%   $  644,713          25%   $   65,207                 10%



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General and administrative expenses were $709,920 for the three months ended July 31, 2020 compared to $644,713 for the three months ended July 31, 2019. The increase of $65,207 or 10% in general and administrative expenses was primarily attributable to increases in bad debts expense of approximately $27,000, professional fees of approximately $19,000, and wages and benefits expense of approximately $24,000. This increase was offset by a decrease in communication expenses of approximately $6,000.

Interest and Other (Expense) Income, Net

Interest and other (expense) income, net was ($255,673) for the three months ended July 31, 2020, compared to ($244,877) for the same period in the prior year. The change of $10,796 or 4% is primarily due to increases in the foreign exchange loss of approximately $171,500, offset by a decrease due to a gain resulting from the change in fair value of derivative instruments of approximately $161,000.

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. The foreign exchange gain (loss) includes the translation of quarterly intercompany transfer pricing invoices from our Canadian subsidiary to us.

Liquidity and Capital Resources

The following is a summary of selected financial information as at the dates indicated:


Selected Consolidated Balance Sheet Data   July 31, 2020     April 30, 2020
Cash                                     $     2,674,216   $      2,433,266
Current assets                           $     5,093,159   $      5,450,228
Total assets                             $    13,487,002   $     13,655,953
Current liabilities                      $     8,768,577   $     10,499,343
Total liabilities                        $     9,839,913   $     11,611,636

As of July 31, 2020, we had $2,674,216 in cash compared to $2,433,266 as of April 30, 2020, representing an increase of $240,950. Our working capital deficit was $3,675,418 at July 31, 2020 compared to working capital deficit of $5,049,115 at April 30, 2020, representing a decrease of $1,373,697.

We have experienced recurring losses and have an accumulated deficit of $69,653,042 as of July 31, 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 quarter ended July 31, 2020, revenue has increased by approximately 33% compared to the quarter ended July 31, 2019. It is uncertain whether the Company would have sufficient cash flows to meet its current obligations to repay the related party loan payable of $2,000,000, which is due on April 11, 2021. 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 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.

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 the quarter ended July 31, 2020, recurring revenue as a percentage of total revenue increased from 55% in the prior year to 61% 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.


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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 July 31, 2020, the principal balance of the related party loan payable was $2,000,000 and total interest payable on the loan was $140,084. The unused portion of the loan principal to $3,000,000. See Notes to the Consolidated Financial Statements - Note 7 - 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 forgivable 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.

Our company has $2,119,162 in cash held outside of the United States, and there is no intent to repatriate such cash at this time. Should we decide to repatriate such cash in the future, taxes would need to be accrued and paid.

On August 28, 2020, we entered into a sales agreement with A.G.P./Alliance Global Partners, as sales agent, pursuant to which we may offer and sell, from time to time, through or to A.G.P./Alliance Global Partners, as sales agent and/or principal, up to $5,000,000 in shares of our common stock. Subject to the terms and conditions of the sales agreement, A.G.P./Alliance Global Partners agreed to use its commercially reasonable efforts to sell the shares from time to time, based upon our instructions. Under the sales agreement, A.G.P./Alliance Global Partners may sell the shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. We have no obligation to sell any of the shares, and may at any time suspend offers under the sales agreement. The offering will terminate upon (a) the election of A.G.P./Alliance Global Partners upon the occurrence of certain adverse events, (b) ten business days' advance notice from one party to the other, or (c) the sale of all of the shares. Under the terms of the sales agreement, A.G.P./Alliance Global Partners will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the sales agreement. We will also reimburse A.G.P./Alliance Global Partners for certain expenses incurred in connection with the sales agreement, and agreed to provide indemnification and contribution to A.G.P./Alliance Global Partners with respect to certain liabilities, including liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended.

Cash Flows

Our cash flows for the three months ended July 31, 2020 and 2019 are as follows:


                                           Three months ended     Three months ended
                                             July 31, 2020          July 31, 2019
Net cash provided by (used in) operating
activities                               $          1,003,886              ($630,508 )
Net cash used in investing activities                ($19,618 )             ($19,853 )
Net cash (used in) provided by financing
activities                                          ($794,503 ) $              5,263
Net increase (decrease) in cash          $            240,950              ($638,505 )



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Operating Activities

Our operating activities resulted in a net cash inflow of $1,003,886 for the three months ended July 31, 2020 compared to a net cash outflow of $630,508 for the same period in the prior year, representing an increase in net cash provided in operating activities of $1,634,394. The increase in net cash provided in operating activities for the three months ended July 31, 2020 was primarily due to an increase in net income of approximately $954,300, an increase in the change in accounts receivable of approximately $355,000, an increase to the change in unearned revenue of approximately $200,200, a decrease to the change in accounts payable and accrued liabilities of approximately $171,000, an increase in non-cash foreign exchange losses by approximately $93,600 and an increase in the provision for bad debts of approximately $27,400. This increase was primarily offset by the gain resulting from the change in fair value of derivative instruments of approximately $165,000 and a decrease in operating lease expense, net of accretion of approximately $27,500.

Investing Activities

Investing activities resulted in a net cash outflow of $19,618 for the three months ended July 31, 2020, compared to $19,853 for the same period in the prior year. The increase in net cash outflow from investing activities was primarily a result of an increase in investments in computer equipment. At July 31, 2020, we did not have any material commitments for future capital expenditures.

Financing Activities

Financing activities resulted in a net cash outflow of $794,503 for the three months ended July 31, 2020 compared to a net cash inflow of $5,263 for the three months ended July 31, 2019. The decrease in cash inflow from financing activities was primarily due to the repayment of the related party loan of $2,000,000, offset by cash inflows of approximately $1,000,000 related to the private placement completed on June 11, 2020 and an increase in the loan payable of $209,305.

Off-Balance Sheet Arrangements

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

Recently Adopted 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. We adopted the new standard effective May 1, 2020 and have concluded that there is no material impact on our consolidated interim financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies and eliminates certain exceptions to the general principles of ASC 740, Income taxes. The new standard is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating the impact of the 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. As a smaller reporting company, the amendment is effective for interim and annual periods beginning after December 15, 2021, and early adoption is permitted. We are currently evaluating the impact of this amendment on our consolidated financial statements and related disclosures.


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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 a 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 with a valuation provision. As a smaller reporting company, ASU 2016-13 and its subsequent updates are effective for fiscal years beginning after December 15, 2022. We are currently evaluating the impact of this amendment on our consolidated financial statements and related disclosures.

© Edgar Online, source Glimpses

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