---

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

FORM 10-K

(Mark One)

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

For the fiscal year ended April 30, 2018

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

For the transition period from ______________  to ______________

Commission file number 001-35592

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

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

Suite 300, One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada V7X 1M3
(Address of principal executive offices)	(Zip Code)

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

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

Title of each Class	Name of each exchange on which registered
Common Stock, par value $0.001	The NASDAQ Stock Market LLC

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

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

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

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

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

---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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

	Large accelerated filer [ ]		Accelerated filer [ ]
	Non-accelerated filer [ ]	(Do not check if a smaller reporting company)	Smaller reporting company [X]

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

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

Approximately $6,583,600 based on a price of $2.46 per share, being the average of bid and ask prices on October 31, 2017 as quoted on NASDAQ.

APPLICABLE ONLY TO CORPORATE REGISTRANTS:

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 5,932,640 shares of common stock issued and outstanding as of July 16, 2018.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to the registrant’s annual meeting of stockholders to be held on September 20, 2018 are incorporated by reference into Part III of this annual report on Form 10-K.

2

---

INDEX

		Page
	PART I
Item 1.	Business	5
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	20
Item 3.	Legal Proceedings	20
Item 4.	Mine Safety Disclosures	20
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	62
Item 9A.	Controls and Procedures	62
Item 9B.	Other Information	62
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	63
Item 11.	Executive Compensation	63
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	63
Item 13.	Certain Relationships and Related Transactions, and Director Independence	63
Item 14.	Principal Accountant Fees and Services	63
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	63
Item 16.	Form 10-K Summary	66

3

---

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

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

	•	any potential loss of or reductions in orders from certain significant customers;
	•	our dependence on our customers to sell our applications or services using our applications;
	•	our ability to protect our intellectual property;
	•	competitive factors, including, but not limited to, industry consolidation, entry of new competitors into our market, and new product and marketing initiatives by our competitors;
	•	our ability to predict our revenue, operating results and gross margin accurately;
	•	the length and unpredictability of our sales cycles;
	•	our ability to expand or enhance our product offerings including in response to industry demands or market trends;
	•	our ability to sell our products in certain markets;
	•	our ability to manage growth;
	•	the attraction and retention of qualified employees and key personnel;
	•	the interoperability of our products with service provider networks; and
	•	the quality of our products and services, including any undetected errors or bugs in our software.

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

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

References

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

4

---

PART I

Item 1.

Business.

Overview

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

Our business model is based on winning new customers, expanding sales of new and existing products and services to existing customers, and renewing subscriptions and software support agreements. We target business customers of all sizes and across a broad range of industries, including call centers, financial services, government, retail, technology and telecommunications. We have sold software and services to more than 716 different customers in over 73 countries, including some of the world’s largest businesses, global financial institutions and leading telecommunication service providers (where each customer has purchased at least $10,000 of software and services).

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

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

Industry

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

5

---

Enterprises are adopting mobile technology at a rapid pace. In fact, according to International Data Corporation, an industry research organization, 1.47 billion smartphones were shipped in 2017. We believe enterprises want to leverage mobile technology to increase employee productivity and to reduce certain costs. At the same time, bring-your-own-device to work programs are becoming common in the workplace, enabling enterprises to reduce up-front technology acquisition costs, while allowing employees to work on the device of their choice. This rapid penetration of mobile technology in the work place, coupled with need to support and manage an increasingly diverse set of mobile devices, creates new challenges for IT organizations, including the need to extend the corporate IT environment to the mobile device, the ability to provide and manage corporate applications remotely, and the need for secure communications. IT departments are often challenged to provide users with the benefits of mobility, while simultaneously satisfying enterprise security and compliance requirements. Our solutions address these issues by enabling enterprises to launch what we call “Enterprise OTT Services”. Our Bria mobile and tablet softphones allow mobile workers to leverage the full suite of corporate PBX (Private Branch Exchange) functionality as if they were in the office and connected to the secure enterprise network, while our Bria Desktop softphones enable users to cost-effectively replace or augment their traditional desk phones. Our Stretto Platform simplifies the IT manager’s job by enabling the efficient provisioning and management of the enterprise’s softphones.

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

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

Products

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

6

---

Softphones

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

	•	Bria Desktop (Windows, Mac), Bria Tablet (iPad, Android) and Bria Mobile (iPhone, Android)
		The Bria softphone suite enables consumers and business users to make VoIP audio and video calls, send Instant Messages and manage their presence, share their screen and collaborate with other users, all in an easy-to-use software application. The product suite works on desktop computers and laptops, smartphones and tablets (including Windows 2.1 tablet devices such as Microsoft Surface Pro), using various operating systems.
		Using the latest technology and SIP standards, our softphone applications provide business users with carrier-grade communication solutions that can be tailored to meet the needs of any size organization. For larger customers, we offer the ability to customize our softphone application by allowing our customers to include their corporate logos and branding, as well as to select specific features to be included. We have developed our on-line Branding Portal to allow customers to efficiently customize their applications.
	•	X-Lite
		X-Lite is a standards-based VoIP softphone application that runs on desktop computers. X-Lite interoperates with enterprise and carrier infrastructure equipment from major vendors, but excludes some key functionality offered in our commercial products, such as the ability to: brand the product, support multiple languages, import contacts, centrally provision the softphone, utilize premium codecs, or support multiple accounts.
		X-Lite is offered free of charge, is available for download on our website and may not be redistributed to third parties. We believe that offering X-Lite for free is an effective marketing tool for our company, as it allows potential customers to test and evaluate our software. We also believe offering X-Lite for free supports our business by encouraging companies that develop SIP compliant equipment, such as phones, video phones, network gateways, multipoint conference units and conference servers to test their equipment against our softphone. We believe this testing improves interoperability, facilitates our sales, and helps build positive brand recognition. The X-Lite graphical user interface supports advertising that could potentially be used to generate revenue in the future. While we advertise our commercial products on the X-Lite softphone user interface, we do not currently generate revenue from third-party advertising on X- Lite.
	•	Software Development Kit (SDK)
		Our SDK is targeted at developers that are seeking to build a unique communication application or incorporate advanced unified communications capabilities into their existing applications. For example, there is strong market demand within the healthcare vertical for adding unified communication capabilities to healthcare applications that were originally designed for managing prescriptions and tracking appointments for patients. We are targeting a number of industries, including the retail, healthcare and call- center verticals.
		Our SDK delivers standard-compliant voice, video and messaging capabilities for desktop, tablet and mobile devices, and can be integrated into existing customer applications with a minimal amount of development effort. Our SDK can also be deployed with our Stretto Platform for customers seeking to leverage Stretto capabilities such as centralized provisioning or other advanced softphone metrics. Our SDK is used in our own softphone products, thereby delivering the benefit of our experience in deploying millions of SIP softphone clients. As an important differentiator, we provide customers with direct access to our engineering team, to ensure technical issues are quickly resolved.

7

---

Stretto Platform

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

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

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

	o	Stretto Collaboration: Stretto Collaboration combines audio, video, screen-sharing, and messaging in one virtual meeting that extends the Bria softphone experience. Stretto Collaboration also offers the ability to manage video settings during a live session including the video layout, camera selection and video quality. Other features include convenient join, screen share, team messaging, and audio and video conferencing of up to 200 participants.
	o	Provisioning: The Provisioning module enables the IT or operations staff of an organization to deploy, provision, and manage ongoing configuration upgrades to Bria softphones. The organization can control over 250 settings, including default codec selection, NAT traversal settings and keep-alive timer values as specified by IT or operations staff. This module is responsible for authenticating end users, and includes integration with the enterprise’s existing directory services using protocols such as LDAP and OAuth.
	o	User Experience Metrics: The User Experience Metrics module enables the IT or operations staff of an organization to record and analyze critical analytics and Voice Quality Monitoring (VQM) data that summarizes service quality, device usage, feature usage, and device characteristics.
	o	Help Desk Assistant: The Help Desk Assistant module enables the IT help-desk staff of an organization to directly access an end-user’s Bria application for trouble shooting.
	o	Push Notification: The Push Notification module enables our Bria mobile applications to eliminate high battery drain during daily use, while ensuring that users never miss incoming calls or messages. The Push Notification module wakes our Bria softphone applications on the end user’s mobile device when an incoming call, message or voicemail is pushed from a network to the client. Push Notification is becoming increasingly important to our customers, as both Apple and Google become more aggressive in managing power consumption by applications.
	o	Call Continuity: The Call Continuity module provides a seamless handover of active calls between the user’s various devices (e.g. a call started on a desktop client can be seamlessly moved to the user’s mobile device) and can also move calls between WiFi and cellular networks.
	o	XMPP Messaging and Presence: The XMPP Messaging and Presence delivers standards- compliant secure messaging and presence services, and the ability to synchronize messages across all of the user’s devices.

Bria X and Cloud Solutions

Our Bria X and Cloud Solutions products combine the Bria Stretto™ client suite for desktops, smartphone and tablets with our cloud-hosted Stretto Platform™. Bria X was launched in 2016 as a subscription service, delivering centralized provisioning, messaging and screen sharing from the cloud, along with up to three Bria Softphones per user; this solution is available exclusively through our on-line store. For medium and large businesses, we offer Cloud Solutions, which is sold through channel partners and our direct sales team.

8

---

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

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

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

Our Cloud Solutions also provide customers with access to hosted messaging and hosted collaboration services.

Sales and Marketing

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

We focus on selling our software products to enterprises, to telecommunication service providers, and to channel partners who would then typically resell our products to enterprises or telecommunication service providers. Our customers include: (1) small, medium and large sized businesses; (2) telecommunications service providers and Internet telephony service providers; (3) channel partners, including original equipment manufacturers, value added distributors and value added resellers, serving the telecommunication market; and (4) end users who purchase our applications directly from our online store or from third party online stores. To date, we have sold software and services to more than 716 different customers in over 73 countries, including some of the world’s largest businesses, global financial institutions and leading telecommunication service providers (where each customer has purchased at least $10,000 of software and services).

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

9

---

Marketing

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

	•	our customers and partners;
	•	advertising on our website;
	•	direct market campaigns;
	•	co-marketing with our partners, suppliers and customers;
	•	offering trial use of X-Lite, our free softphone with fewer features than our commercial versions;
	•	attending industry trade shows; and
	•	attending developer conferences.

Intellectual Property

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

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

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

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

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

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

10

---

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

Research and Development

Development of our products is primarily done through our Canadian wholly-owned subsidiary, CounterPath Technologies Inc., and our U.S. wholly-owned subsidiary, BridgePort Networks, Inc. Our research and development team consists of a core software development department and a quality assurance department. Core software development is responsible for designing, developing and maintaining our software across our supported operating systems. Quality assurance is responsible for testing the software before release to customers on all of our platforms. Total research and development expenditures for the year ended April 30, 2018 were $5,506,887 (2017- $4,843,813).

After Sales Service and Support

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

Warranty

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

Audio and Video Codecs

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

11

---

Competition

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

Government Approval

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

Employees

As of April 30, 2018, we employed 102 people, comprised of 98 people employed full-time, 31 of whom are engaged in sales and marketing, 38 in research and development, 20 in services and support, and 9 in general and administration, and 4 people employed part-time engaged in sales and marketing, research and development and general and administration. We also contracted with 27 contractors. We are not subject to any collective bargaining agreements and we consider relations with our employees to be excellent.

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

12

---

Item 1A.

Risk Factors.

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

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

Risks Associated with our Business and Industry

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

Presently our operating cash flows are not sufficient to meet operating and capital expenses. Our business plan calls for continued research and development of our products and expansion of our market share. We will require additional financing to fund working capital and pay for operating expenses and capital requirements until we achieve a positive cash flow. However, our management projects that under our current operating plan that sufficient cash is available to meet our ongoing operating expenses and working capital requirements through July 31, 2019.

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

	•	we incur delays and additional expenses as a result of technology failure;
	•	we are unable to create a substantial market for our products; or
	•	we incur any significant unanticipated expenses.

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

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

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

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

13

---

	•	demand for our products and the timing and size of customer orders;
	•	length of sales cycles, which may be extended by selling our products through channel partners;
	•	length of time of deployment of our products by our customers;
	•	customers’ budgetary constraints;
	•	competitive pressures; and
	•	general economic conditions.

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

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

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

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

Operating expenses increased to $15,175,511 for the year ended April 30, 2018 from $13,639,207 for the year ended April 30, 2017 and our revenue increased to $12,381,741 for the year ended April 30, 2018 from $10,685,590 for the year ended April 30, 2017. Our ability to reach and maintain profitability is conditional upon our ability to manage our operating expenses. There is a risk that we will have to increase our operating expenses in the future. Factors that could cause our operating expenses to increase include our determination to spend more on sales and marketing in order to increase product sales or our determination that more research and development expenditures are required in order to keep our current software products competitive or in order to develop new products for the market. To the extent that our operating expenses increase without a corresponding increase in revenue, our financial condition would be adversely impacted.

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

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

	•	emphasizing their own size and perceived stability against our smaller size and narrower recognition;
	•	providing customers “one-stop shopping” options for the purchase of network equipment and application software;
	•	offering customers financing assistance;
	•	making early announcements of competing products and employing extensive marketing efforts; and
	•	asserting infringement of their intellectual property rights.

14

---

Such competition may potentially adversely affect our profitability.

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

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

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

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

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

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

	•	result in the loss of a substantial number of existing customers or prohibit the acquisition of new customers;
	•	cause us to lose access to key distribution channels;
	•	result in substantial employee layoffs or risk the permanent loss of highly-valued employees;
	•	materially and adversely affect our brand in the market place and cause a substantial loss of goodwill;
	•	affect our ability to raise additional capital;
	•	cause our stock price to decline significantly; and
	•	lead to the bankruptcy or liquidation of our company.

15

---

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

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

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

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

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

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

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

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

16

---

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

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

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

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

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

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

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

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

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

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

A majority of our revenue activities are transacted in U.S. dollars. However, we are exposed to foreign currency exchange rate risk inherent in conducting business globally in numerous currencies, of which the most significant to our operations for the year ended April 30, 2018 is the Canadian dollar. We are primarily exposed to a fluctuating Canadian dollar as our operating expenses are primarily denominated in Canadian dollars while our revenues are primarily denominated in U.S. dollars. We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. Our company’s foreign currency risk management program includes foreign currency derivatives with cash flow hedge accounting designation that utilizes foreign currency forward contracts to hedge exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S. dollar-denominated cash flows. These instruments generally have a maturity of less than one year. For these derivatives, our company reports the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) in stockholders’ equity and reclassifies it into earnings in the same period in which the hedged transaction affects earnings, and within the same line item on the consolidated statements of operations as the impact of the hedged transaction. There can be no assurance that our hedging program will not result in a negative impact on our earnings and earnings per share. During the years ended April 30, 2018 and 2017, we did not enter into any forward contracts for hedging purposes.

17

---

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

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

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

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

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

Risks Associated with our Common Stock

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

18

---

Based on the 5,930,468 shares of common stock that were issued and outstanding as of April 30, 2018, our directors owned approximately 51% of our outstanding common stock. As a result, our directors as a group could have a significant influence in delaying, deferring or preventing any potential change in control of our company; they will be able to strongly influence the actions of our board of directors even if they were to cease being directors of our company and can effectively control the outcome of actions brought to our stockholders for approval. Such a high level of ownership may adversely affect the exercise of your voting and other stockholder rights.

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

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

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

If the holders of outstanding stock options and deferred share units exercise or convert all of their vested stock options and vested deferred share units as at April 30, 2018, then we would be required to issue an additional 1,140,432 shares of our common stock, which would represent approximately 19% of our issued and outstanding common stock after such issuances. The exercise of any or all outstanding stock options that are exercisable below market price will result in dilution to the interests of other holders of our common stock.

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

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

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

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

19

---

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

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

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

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

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

Item 1B.

Unresolved Staff Comments.

Not Applicable.

Item 2.

Properties.

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

Item 3.

Legal Proceedings.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

20

---

PART II

Item 5.

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

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

The following table sets forth, for the periods indicated, the high and low sale prices for our common stock on the NASDAQ Capital Market and Toronto Stock Exchange based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions as reported by the NASDAQ Capital Market and the Toronto Stock Exchange, respectively.

	(1)	Since July 11, 2012, our stock has been trading on the NASDAQ Capital Market under the trading symbol “CPAH”.
	(2)	From August 20, 2012 to October 31, 2016, our stock traded on the Toronto Stock Exchange under the trading symbol “CCV”. Since November 1, 2016, our stock has been trading on the Toronto Stock Exchange under the trading symbol “PATH”.

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

Holders

On July 16, 2018, the shareholders' list of our shares of common stock showed 113 registered shareholders and 5,932,640 shares outstanding.

Dividends

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

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

21

---

	1.	we would not be able to pay our debts as they become due in the usual course of business; or
	2.	our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides a summary of the number of options granted, shares purchasable or deferred share units granted under our various compensation plans, the weighted average exercise price and the number of options remaining available for grant, shares purchasable or deferred share units available for grant all as at April 30, 2018.

2010 Stock Option Plan

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

As of April 30, 2018, there were 675,042 stock options outstanding entitling the holders thereof the right to purchase one share of common stock for each option held.

Employee Share Purchase Plan

On October 1, 2008, our shareholders approved the employee share purchase plan (the “ESPP”) for employees, directors, officers and consultants of our company and our subsidiaries. The purpose of the plan is to give employees access to an equity participation vehicle in addition to our stock option plans by way of an opportunity to purchase shares of our common stock through payroll deductions and encourage them to use their combined best efforts on behalf of our company to improve its profits through increased sales, reduction of costs and increased efficiency. Participation in the ESPP is voluntary. Within the limits of the ESPP, our company matches fifty percent (50%) of the aggregate number of shares purchased by the participants. We are permitted to issue up to 120,000 shares of our common stock under the ESPP. As of April 30, 2018, we have 61,331 shares of our common stock available for issuance under the ESPP.

22

---

Deferred Share Unit Plan

Under the terms of the deferred share unit plan (the “DSUP”) as approved by the shareholders on October 22, 2009, each deferred share unit (each, a “DSU”) is equivalent to one share of common stock. The maximum number of shares of common stock that may be reserved for issuance to any one participant pursuant to DSUs granted under the DSUP and any share compensation arrangement is 5% of the number of shares of common stock of our company outstanding at the time of reservation. A DSU granted to a participant who is a director of our company shall vest immediately on the award date. A DSU granted to a participant other than a director will generally vest as to one-third (1/3) of the number of DSUs granted on the first, second and third anniversaries of the award date. Fair value of the DSUs, which is based on the closing price of our company’s common stock on the date of grant, is recorded as compensation expense in the period of grant. As of April 30, 2018, we have issued and outstanding 465,390 DSUs under the DSUP. As of April 30, 2018, 24,014 previously issued DSUs have been converted to 24,014 shares of common stock.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

(1)

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

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

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

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

23

---

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

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

Recent Sales of Unregistered Securities

None.

Item 6.

Selected Financial Data.

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, 2018 and 2017, and as at April 30, 2018 and April 30, 2017, has been derived from the consolidated financial statements and accompanying notes for the fiscal years ended April 30, 2018 and 2017. Each investor should read the following information in conjunction with those statements and the related notes thereto.

		April 30,			April 30,
Selected Consolidated Balance Sheet Data		2018			2017
Cash	$	2,348,883		$	2,071,019
Current assets	$	6,049,138		$	4,375,341
Total assets	$	13,334,227		$	11,233,146
Current liabilities	$	5,068,939		$	4,021,052
Total liabilities	$	5,093,041		$	4,053,837

Selected Consolidated Statements of Operations Data		Years Ended April 30,
	2018						2017
					Percent						Percent
					of Total						of Total
		Amount			Revenue			Amount			Revenue
Revenue	$	12,381,741			100%		$	10,685,590			100%
Operating expenses		15,175,511			123%			13,639,207			128%
Loss from operations		($2,793,770	)		(23%	)		($2,953,617	)		(28%	)
Interest and other income (expense), net		(361	)		−%			(2,883	)		−%
Foreign exchange (loss) gain		(426,539	)		(3%	)		497,985			5%
Net loss		($3,220,670	)		(26%	)		($2,458,515	)		(23%	)
Net income/loss per share
-Basic and diluted	$	(0.59	)				$	(0.52	)
Weighted average common shares outstanding
-Basic and diluted (1)		5,496,201						4,722,724

(1)	As at April 30, 2018 and 2017 common share equivalents of 1,140,432 and 888,814, respectively, were not included in the computation of diluted weighted average common shares as the effect was anti-dilutive.

24

---

Item 7.

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

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

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

Overview

Background

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

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

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

Business of CounterPath

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

Revenue

Our total revenue consists of the following:

	•	Software
		We generate software revenue primarily on a single fee per perpetual software license basis. We recognize software revenue at the time of delivery, provided all revenue recognition criteria have been met. If the revenue recognition criteria has 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.

25

---

	•	Subscription, support and maintenance
		We generate recurring subscription revenue from subscriptions related to our software as a service offering. Recurring support and maintenance revenue is generated from annual software support and maintenance contracts for our perpetual software licenses. Both subscription revenue and support and maintenance revenue are typically billed annually in advance based on the terms of the arrangement.
		Support and maintenance services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis, and are recognized rateably over the term of the service period, which is generally twelve months.
	•	Professional services and other
		We generate professional services and other revenue through services including product configuration and customization, implementation, dedicated engineering and training. The amount of product configuration and customization required by a customer typically increases as the order size increases from a given customer. Services and pricing may vary depending upon a customer’s requirements for customization, implementation and training.

Operating Expenses

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

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

Sales and marketing expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) commissions, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs such as advertising, promotions and trade shows and (e) other related overhead. Commissions are recorded as expense when earned by the employee. We expect increases in sales and marketing expense for the foreseeable future as we further increase the number of sales professionals and increase our marketing activities with the intent to grow our revenue. We expect sales and marketing expense to decrease as a percentage of total revenue, however, as we leverage our current sales and marketing personnel as well as our distribution partnerships.

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

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

Application of Critical Accounting Policies and Use of Estimates

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

26

---

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

Revenue Recognition

We recognize revenue in accordance with ASC 985-605 “Software Revenue Recognition”.

In all of our arrangements, we do not recognize any revenue until we can determine that persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and we deem collection to be probable. For distribution and reseller arrangements, fees are fixed or determinable and collection probable when there are no rights to exchange or return and fees are not dependable upon payment from the end-user. If any of these criteria are not met, revenue is deferred until such time that all criteria have been met.

A substantial percentage of our revenue is generated by multiple-element arrangements, such as products, support and maintenance, and professional services. When arrangements include multiple elements, we allocate the total fee among the various elements using the residual method. Under the residual method, revenue is recognized when vendor-specific objective evidence, or VSOE, of fair value exists for all of the undelivered elements of the arrangement, but does not exist for one or more of the delivered elements of the arrangement. Each arrangement requires us to analyze the individual elements in the transaction and to estimate the fair value of each undelivered element, which typically includes maintenance and services. Revenue is allocated to each of the undelivered elements based on its respective fair value, with the fair value determined by the price charged when that element is sold separately. Revenue from multiple-element arrangements are recognized in software, subscription, support and maintenance, and professional services based on the items or services delivered.

For contracts with elements related to customized network solutions and certain network build-outs, we apply FASB Emerging Issues Task Force Issue ASC 605-25, “Revenue Arrangements with Multiple Deliverables” and revenues are recognized under ASC 605-35, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts”, generally using the percentage-of-completion method.

In using the percentage-of-completion method, revenues are generally recorded based on a 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.

Post contract customer support (PCS) 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. PCS service revenue generally is deferred until the related product has been delivered and all other revenue recognition criteria have been met. PCS revenues are recognized under support and maintenance revenues.

Subscription revenue generated from cloud-based services is typically billed annually in advance based on the terms of the arrangement and recognized over the term of the service contract.

Professional services and training revenue is recognized as the related service is performed.

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.

27

---

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, 2018 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, 2018, we recorded an expense of $604,566 in connection with share-based payment awards. A future expense of non-vested options of $589,702 is expected to be recognized over a weighted-average period of 3.07 years. A future expense of non-vested deferred share units of $73,615 is expected to be recognized over a weighted-average period of 1.98 years.

Research and Development Expense for Software Products

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

Accounts Receivable and Allowance for Doubtful Accounts

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

Goodwill

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

Goodwill—Impairment Assessments

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

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

28

---

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 2018, did not result in an impairment charge for fiscal year 2018, nor did we record any goodwill impairment in fiscal 2017.

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 no foreign currency forward contracts outstanding. 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.

Use of Estimates

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

Results of Operations

Our operating activities during the year ended April 30, 2018, 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, 2018, we recorded an increase in operating costs on translation of Canadian dollar costs as compared to the twelve months ended April 30, 2017 of approximately $87,600.

Revenue

Revenues for the year ended April 30, 2018 and 2017 were as follows:

		Twelve Months Ended April 30,
	2018						2017							Period-to-Period Change
					Percent						Percent						Percent
					of Total						of Total						Increase /
		Amount			Revenue			Amount			Revenue			Amount			(Decrease)
Revenue by Type
Software	$	6,338,512			51%		$	5,449,140			51%		$	889,372			16%
Subscription, support and maintenance	$	4,273,410			35%		$	3,909,326			37%		$	364,084			9%
Professional services and other	$	1,769,819			14%		$	1,327,124			12%		$	442,695			33%
Total revenue	$	12,381,741			100%		$	10,685,590			100%		$	1,696,151			16%
Revenue by Region
North America	$	6,916,556			56%		$	6,220,367			58%		$	696,189			11%
International	$	5,465,185			44%		$	4,465,223			42%		$	999,962			22%
Total revenue	$	12,381,741			100%		$	10,685,590			100%		$	1,696,151			16%

29

---

For the year ended April 30, 2018, we generated $12,381,741 in revenue compared to $10,685,590 for the year ended April 30, 2017, representing an increase of $1,696,151 or 16%.

Software revenue increased by $889,372 or 16% to $6,338,512 for the year ended April 30, 2018 compared to $5,449,140 for the year ended April 30, 2017. The increase in software revenue was primarily a result of increased sales to service providers and channel partners.

Subscription, support and maintenance revenue increased by $364,084 or 9% to $4,273,410 for the year ended April 30, 2018 compared to $3,909,326 for the year ended April 30, 2017. The increase in subscription, support and maintenance revenue was a result of increased sales to channel partners.

Professional services and other revenue increased by $442,695 or 33% to $1,769,819 for the year ended April 30, 2018 compared to $1,327,124 for the year ended April 30, 2017. The increase in professional services and other revenue was a result of increased sales to service providers and channel partners.

North American revenue increased by $696,189 or 11% to $6,916,556 for the year ended April 30, 2018 compared to $6,220,367 for the year ended April 30, 2017, as a result of higher sales of software and services to North American channel partners and service providers. International revenue outside of North America increased by $999,962 or 22% to $5,465,185 for the year ended April 30, 2018 compared to $4,465,223 for the year ended April 30, 2017, as a result of higher sales of software and services to international service providers and channel partners.

Operating Expenses

Cost of Sales

Twelve Months Ended April 30,    Cost of sales for the year ended April 30, 2018 and 2017 were as follows:

April 30, 2018

April 30, 2017

Period-to-Period Change

Percent

Percent

Percent

of

of

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Year ended

$

1,629,814

13%

$

1,729,930

16%

($100,116

)

(6%

)

Cost of sales was $1,629,814 for the year ended April 30, 2018 compared to $1,729,930 for the year ended April 30, 2017. The decrease of $100,116, or 6%, was primarily due to a decrease in wages, benefits and consulting fees of approximately $95,300 and decreases in other expenses of approximately $4,900. Cost of sales expressed as a percent of revenue was 13% of revenue for the year ended April 30, 2018 compared to 16% for the year ended April 30, 2017.

Sales and Marketing

Sales and marketing expenses for the year ended April 30, 2018 and 2017 were as follows:

Sales and marketing expenses were $4,155,132 for the year ended April 30, 2018 compared to $3,831,438 for the year ended April 30, 2017. The increase of $323,694, or 8%, was primarily attributable to increases of $192,100 in wages, benefits, commissions and consulting fees, $68,100 in promotions and advertising expenses, $39,000 related to dues and subscriptions and other expenses of approximately $24,400.

30

---

Research and Development

Research and development expenses for the year ended April 30, 2018 and 2017 were as follows:

April 30, 2018

April 30, 2017

Period-to-Period Change

Percent

Percent

Percent

of

of

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Year ended

$

5,506,887

44%

$

4,843,813

45%

$

663,074

14%

Research and development expenses were $5,506,887 for the year ended April 30, 2018 compared to $4,843,813 for the year ended April 30, 2017. The increase of $663,074, or 14%, resulted primarily from increases in wages, benefits and consulting fees of approximately $647,400 and other expenses of approximately $15,600.

General and Administrative

General and administrative expenses for the years ended April 30, 2018 and 2017 were as follows:

April 30, 2018

April 30, 2017

Period-to-Period Change

Percent

Percent

Percent

of

of

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Year ended

$

3,883,678

31%

$

3,234,026

30%

$

649,652

20%

General and administrative expenses for the year ended April 30, 2018 were $3,883,678 compared to $3,234,026 for the year ended April 30, 2017. The increase of $649,652, or 20%, in general and administrative expenses was primarily attributable to increases of $357,400 in non-income based tax accrual, $224,900 in bad debts reserve, $70,800 in investor relations expenses, $57,300 in wages, benefits, commissions, director fees and consulting fees and $87,000 in other general expenses. This increase was offset by a reversal of $120,600 related to a prior year accrual for third party license fees and an overall decrease in legal and professional fees of approximately $27,100.

Interest and Other Income (Expense), Net

Interest and other income (expense), net for the year ended April 30, 2018 was ($426,900) compared to $495,102 for the year ended April 30, 2017. The decrease of $922,002 was primarily due to a foreign exchange loss in the current year of approximately $426,500, compared to a foreign exchange gain of approximately $498,000 in the prior year as result of the strengthening of the Canadian dollar against the U.S. dollar during the year ended April 30, 2018. 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. This change was offset by a decrease in interest expense of approximately $2,700 in the current year.

Liquidity and Capital Resources

As at April 30, 2018, we had $2,348,883 in cash compared to $2,071,019 at April 30, 2017, representing an increase of $277,864. Our working capital was $980,199 at April 30, 2018 compared to $354,289 at April 30, 2017, representing an increase of $625,910. 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.

As at April 30, 2018, we had $971,070 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.

31

---

Operating Activities

Our operating activities resulted in a net cash outflow of $2,427,090 for the year ended April 30, 2018, compared to a net cash outflow of $702,732 for the year ended April 30, 2017, representing an increase of $1,724,358. This increase is primarily due to an increase in the change in accounts receivable by $2,451,400 and an increase in the net loss by approximately $762,200, offset by a decrease in the change in non-cash foreign exchange of approximately $1,030,500 and a decrease in the change in accounts payable and accrued liabilities by $508,100. The net cash flow outflow from operating activities for the year ended April 30, 2018 was primarily the result of a net loss of $3,220,700 and an increase in accounts receivable of $1,375,600. The net cash outflow was primarily offset by stock-based compensation of $604,600, unearned revenue of $430,900, non-cash foreign exchange loss of $468,400, increase in accounts payable of $561,700 and depreciation and amortization of $113,800.

Investing Activities

Investing activities resulted in a net cash outflow of $125,133 for the year ended April 30, 2018, related primarily to the purchase of equipment and trademarks during the year. This compares with a net cash outflow of $128,241 for the year ended April 30, 2017, primarily due to the purchase of equipment. At April 30, 2018, we did not have any material commitments for future capital expenditures.

Financing Activities

Financing activities resulted in a net cash inflow of $2,869,871 for the year ended April 30, 2018 compared to a net cash inflow of $766,015 for the year ended April 30, 2017. The net cash inflow for the year ended April 30, 2018 was primarily a result of two non-brokered private placements. On January 24, 2018, we issued an aggregate of 427,500 shares of common stock under a non-brokered private placement at a price of $4.01 per share for total gross proceeds of $1,714,275 less issuance costs of $48,325. On July 20, 2017, we issued an aggregate of 539,240 shares of common stock under a non-brokered private placement at a price of $2.20 per share for total gross proceeds of $1,186,328 less issuance costs of $19,832. In addition, the Company received $69,325 for shares issued under the employee stock purchase plan.

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

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Pronouncements

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

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

32

---

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

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

In May 2014, FASB issued ASU 2014-09, Revenue From Contracts With Customers (“Topic 606”). Topic 606 removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The guidance in this update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. In August 2015, ASU 2015-14 was issued which delayed the effective date for public entities to reporting periods beginning after December 15, 2017.

The new standard will be effective for us in the quarter ending July 31, 2018 and permits two methods of adoption: (1) the full retrospective method, which requires the standard to be applied to each prior period presented, or (2) the modified retrospective method, whereby ASU 2014-09 would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with the cumulative effect of adoption on contracts with remaining performance obligations to be recognized as an adjustment to opening retained earnings in the period of adoption. In 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers: Principal versus Agent Considerations”, ASU 2016-10 “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” ASU 2016-11 “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815)” and ASU 2016-12, “Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients” to provide supplemental adoption guidance and clarification to ASU 2014-09. The effective date for these new standards is the same as the effective date and transition requirements for ASU 2014-09. We anticipate adopting the standard using the modified retrospective method and are currently assessing the impact on our consolidated financial statements.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 8.

Financial Statements and Supplementary Data.

33

---

COUNTERPATH CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2018

	Page
Report of Independent Registered Public Accounting Firm	35
Consolidated Balance Sheets	37
Consolidated Statements of Operations	38
Consolidated Statements of Comprehensive Loss	38
Consolidated Statements of Cash Flows	39
Consolidated Statements of Changes in Stockholders' Equity	40
Notes to the Consolidated Financial Statements	41-61

34

---

 

	Tel: 604 688 5421	BDO Canada LLP
	Fax: 604 688 5132	600 Cathedral Place
	www.bdo.ca	925 West Georgia Street
		Vancouver BC V6C 3L2 Canada

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders
CounterPath Corporation
Las Vegas, Nevada

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CounterPath Corporation and subsidiaries (the “Company”) as of April 30, 2018 and 2017 the consolidated statements of operations and comprehensive loss, cash flows, and changes in stockholders’ equity, for each of the two years in the period ended April 30, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at April 30, 2018 and 2017, and the results of their operations and their cash flows for each of the two years in the period ended April 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

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

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

35

---

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

/s/ BDO Canada LLP

Chartered Professional Accountants

Vancouver, Canada
July 24, 2018

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

36

---

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

		April 30,			April 30,
		2018			2017
Assets
Current assets:
Cash	$	2,348,883		$	2,071,019
Accounts receivable (net of allowance for doubtful accounts of $322,638 (2017 - $80,232)) – Note 2		3,509,010			2,133,469
Prepaid expenses and deposits		191,245			170,853
Total current assets		6,049,138			4,375,341
Deposits		98,633			91,400
Equipment – Note 3		121,819			125,813
Goodwill – Note 2		6,843,575			6,440,955
Intangibles and other assets – Note 4		221,062			199,637
Total Assets	$	13,334,227		$	11,233,146
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities – Note 5	$	2,437,733		$	1,825,528
Unearned revenue		2,565,876			2,134,948
Customer deposits		2,200			6,211
Accrued warranty – Note 2		63,130			54,365
Total current liabilities		5,068,939			4,021,052
Deferred lease inducements		14,339			23,022
Unrecognized tax liability – Notes 9		9,763			9,763
Total liabilities		5,093,041			4,053,837
Stockholders’ equity:
Preferred stock, $0.001 par value           Authorized: 100,000,000           Issued and outstanding: April 30, 2018 – nil; April 30, 2017 – nil		–			–
Common stock, $0.001 par value – Note 8           Authorized: 100,000,000           Issued:           April 30, 2018 – 5,930,468; April 30, 2017 – 5,005,245		5,931			5,005
Treasury stock		–			(60	)
Additional paid-in capital		75,170,181			71,680,575
Accumulated deficit		(63,701,685	)		(60,481,015	)
Accumulated other comprehensive loss – currency translation adjustment		(3,233,241	)		(4,025,196	)
Total stockholders’ equity		8,241,186			7,179,309
Liabilities and Stockholders’ Equity	$	13,334,227		$	11,233,146
Commitments – Note 11
Contingencies – Note 12

See accompanying notes to the consolidated financial statements

37

---

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

		Years Ended
		April 30,
		2018			2017
Revenue – Note 10:
Software	$	6,338,512		$	5,449,140
Subscription, support and maintenance		4,273,410			3,909,326
Professional services and other		1,769,819			1,327,124
Total revenue		12,381,741			10,685,590
Operating expenses:
Cost of sales (includes depreciation of $6,337 (2017 - $6,559))		1,629,814			1,729,930
Sales and marketing		4,155,132			3,831,438
Research and development		5,506,887			4,843,813
General and administrative		3,883,678			3,234,026
Total operating expenses		15,175,511			13,639,207
Loss from operations		(2,793,770	)		(2,953,617	)
Interest and other (expense) income, net
Interest and other income		3			173
Interest expense		(364	)		(3,056	)
Foreign exchange (loss) gain		(426,539	)		497,985
Total interest and other (expense) income, net		(426,900	)		495,102
Net loss for the year	$	(3,220,670	)	$	(2,458,515	)
Net loss per share:
Basic and diluted – Note 13	$	(0.59	)	$	(0.52	)
Weighted average common shares outstanding:
Basic and diluted – Note 13		5,496,201			4,722,724

See accompanying notes to the consolidated financial statements

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

Net loss for the year	$	(3,220,670	)	$	(2,458,515	)
Other comprehensive loss:
Foreign currency translation adjustments		791,955			(1,082,556	)
Comprehensive loss	$	(2,428,715	)	$	(3,541,071	)

See accompanying notes to the consolidated financial statements

38

---

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

		Years Ended
		April 30,
		2018			2017
Cash flows from operating activities:
Net loss for the year	$	(3,220,670	)	$	(2,458,515	)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred lease inducements		(10,175	)		(9,861	)
Depreciation and amortization		113,805			113,880
Foreign exchange (gain) loss		468,354			(562,102	)
Stock-based compensation – Note 8		604,566			835,918
Issuance of common stock for services		16,156			13,963
Changes in assets and liabilities:
Accounts payable and accrued liabilities		561,703			(46,381	)
Accounts receivable		(1,375,552	)		1,075,810
Accrued warranty		8,765			(6,991	)
Customer deposits		(6,325	)		(567	)
Prepaid expenses and deposits		(18,645	)		16,023
Unearned revenue		430,928			326,091
Net cash used in operating activities		(2,427,090	)		(702,732	)
Cash flows from investing activities:
Purchases of equipment		(100,300	)		(99,939	)
Purchases of intangibles		(24,813	)		(28,302	)
Net cash used in investing activities		(125,113	)		(128,241	)
Cash flows from financing activities:
Net proceeds from issuance of common stock		2,902,990			898,693
Repurchases of common stock		(33,119	)		(132,678	)
Net cash used in by financing activities		2,869,871			766,015
Foreign exchange effect on cash		(39,804	)		(23,761	)
Increase (decrease) in cash		277,864			(88,719	)
Cash, beginning of the year		2,071,019			2,159,738
Cash, end of the year	$	2,348,883		$	2,071,019
Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	364		$	3,056
Taxes	$	–		$	–
Non cash transactions – Notes 7 and 8

See accompanying notes to the consolidated financial statements

39

---

COUNTERPATH CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
for the Years Ended April 30, 2018 and 2017
(Stated in U.S. Dollars)

>

		Common shares						Treasury Shares
																				Accumulated
		Number						Number						Additional						Other
		of						of						Paid-in			Accumulated			Comprehensive
		Shares			Par Value			Shares			Par Value			Capital			Deficit			Income (Loss)			Total
Balance, April 30, 2016		4,542,348		$	4,542			(400	)	$	–		$	70,065,082		$	(58,022,500	)	$	(2,942,640	)	$	9,104,484
Shares issued:
Private placement, net of share issuance costs – Note 8		454,097			454			–			–			898,239			–			–			898,693
Issuance of common stock for services – Note 8		13,500			14			–			–			13,949			–			–			13,963
Share repurchase plan		–			–			(64,200	)		(65	)		(133,417	)		–			–			(133,482	)
Cancellation of shares – Note 8		(4,700	)		(5	)		4,700			5			804			–			–			804
Stock-based compensation – Note 8		–			–			–			–			835,918			–			–			835,918
Net income (loss) for the year		–			–			–			–			–			(2,458,515	)		–			(2,458,515	)
Foreign currency translation adjustment		–			–			–			–			–			–			(1,082,556	)		(1,082,556	)
Balance, April 30, 2017		5,005,245		$	5,005			(59,900	)	$	(60	)	$	71,680,575		$	(60,481,015	)	$	(4,025,196	)	$	7,179,309
Shares issued:
Private placement, net of share issuance costs – Note 8		966,740			967			–			–			2,831,479			–			–			2,832,446
Issuance of common stock for services – Note 8		6,789			7			–			–			16,149			–			–			16,156
Share repurchase plan		–			–			(13,600	)		(14	)		(33,829	)		–			–			(33,843	)
Cancellation of shares Note 8		(73,500	)		(74	)		73,500			74			724			–			–			724
Stock-based compensation – Note 8		–			–			–			–			604,566			–			–			604,566
Employee share purchase program		24,699			25			–			–			69,300			–			–			69,325
Exercise of stock options		495			1			–			–			1,217			–			–			1,218
Net loss for the period		–			–			–			–			–			(3,220,670	)		–			(3,220,670	)
Foreign currency translation adjustment		–			–			–			–			–			–			791,955			791,955
Balance, April 30, 2018		5,930,468		$	5,931			–		$	–		$	75,170,181		$	(63,701,685	)	$	(3,233,241	)	$	8,241,186

See accompanying notes to the consolidated financial statements

40

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Note 1

Nature of Operations

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

Note 2

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

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

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

The Company has experienced flat to declining revenues as a result of a number of factors including its buildout of a cloud based subscription platform concurrent with the change of its licensing model to subscription based licensing and has not reached profitable operations which raises substantial doubt about its ability to continue operating as a going concern within one year of the date of the financial statements.

The Company has historically been able to manage liquidity requirements through cost management and cost reduction measures, supplemented with raising additional financing. To alleviate this situation, the Company has plans in place to improve its financial position and liquidity, while executing on its growth strategy, by managing and or reducing costs that is not expected to have an adverse impact on the ability to generate cash flows, as the transition to its software as a service platform and subscription licensing continues.

As of April 30, 2018, the Company does not have any commitments to raise funds; however, the Company has historically been able to raise additional financing to assist with the Company’s transition.

As of the date of these financial statements, and from the planned cost management and reduction measures, the Company has sufficient liquidity to meet the ongoing cash requirements of the Company for one year after the issuance date of the financial statements. Therefore, although substantial doubt has been raised, this has been alleviated by management’s plans.

41

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Use of Estimates

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

Concentrations of Credit Risk

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

The table below presents significant customers who accounted for greater than 10% of total accounts receivable and as of April 30, 2018 and 2017:

			April 30,
			2018			2017
	Customer A		18%			13%
	Customer B		13%			−%

Revenue Recognition

The Company recognizes revenue in accordance with the Accounting Standard Codification (“ASC”) 985-605 “Software Revenue Recognition”. In accordance with these standards, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection of the related accounts receivable is deemed probable. In making these judgments, management evaluates these criteria as follows:

	•	Persuasive evidence of an arrangement. The Company considers a noncancelable agreement signed by the Company and the customer to be representative of persuasive evidence of an arrangement.
	•	Delivery has occurred. The Company considers delivery to have occurred when the product has been delivered to the customer and no post-delivery obligations exist. In instances where customer acceptance is required, delivery is deemed to have occurred when customer acceptance has been achieved.
	•	Fees are fixed or determinable. The Company considers the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within normal payment terms. If the fee is subject to refund or adjustment, the Company recognizes revenue when the refund or adjustment right lapses. If offered payment terms exceed the Company’s normal terms, the Company recognizes revenue as the amounts become due and payable or upon the receipt of cash when extended payment terms beyond 180 days are offered.
	•	Collection is deemed probable. Collection is deemed probable if, based upon the Company’s evaluation, the Company expects that the customer will be able to pay amounts under the arrangement as payments become due. If the Company determines that collection is not probable, revenue is deferred and recognized upon the receipt of cash.

A substantial amount of the Company’s sales involve multiple element arrangements, such as products, support, professional services, and training. When arrangements include multiple elements, the Company allocates the total fee to delivered elements using the residual method when vendor specific objective evidence (VSOE) does not exist for the delivered element but VSOE for the undelivered item exists. Under the residual method, consideration is allocated to the undelivered items based on their respective VSOEs and is deferred, with the remaining portion of the arrangement consideration generally recognized upon delivery of the delivered item. The Company analyzes each arrangement to determine if VSOE exists for the undelivered element, typically support services, and if VSOE does not exist, all revenue is deferred until VSOE is established or the element has been delivered.

42

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Revenue is allocated to each of the undelivered elements based on its respective fair value.

For contracts with elements related to customized network solutions and certain network build-outs, for transactions accounted for as sales of products or services, we apply ASC Subtopic 605-25 “Revenue Recognition – Multiple-Element Arrangements” and revenues are recognized under ASC 605-35”Revenue Recognition – Construction type and Production type Contract”, for long-term transactions entered to supply software, or software systems, that require significant modification or customization, generally using the percentage-of-completion method.

For multi-element arrangements with deliverables that are non-software related, the Company allocates revenue to all deliverables based on their selling prices. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) VSOE, (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of selling price (“ESP”). VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis.

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.

Subscription revenue generated from cloud-based services is typically billed annually in advance based on the terms of the arrangement and recognized over the term of the service contract.

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.

Stock-Based Compensation

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

Stock options granted to non-employees were accounted for in accordance with ASC 718 and ASC 505-50 “Equity based payments to non-employees” and were measured at the fair value of the options as determined by an option pricing model on the measurement date and compensation expense is amortized over the vesting period or, if none exists, over the service period. With the adoption of ASC 718, the Company has elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted. The Company has estimated the fair value of option awards to employees and non-employees for the years ended April 30, 2018 and April 30, 2017 using the assumptions more fully described in Note 8.

43

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Equipment and Amortization

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

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

Research and Development

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

Website Development Costs

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

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

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

Goodwill

Goodwill represents the excess purchase price over the estimated fair value of net assets acquired and liabilities assumed as of the acquisition date. ASC Topic 350 “Intangibles – Goodwill” requires goodwill to be tested for impairment annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company's business enterprise below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit, which is measured based upon, among other factors, market multiples for comparable companies as well as a discounted cash flow analysis. Management has determined that the Company operates as a single operating segment and consequently a single reporting unit due to the similar economic characteristics of its components and the nature of the products and services offered by those components. If the recorded value of the Company’s assets, including goodwill, and liabilities (“net book value”) of the reporting unit exceeds its fair value, an impairment loss may be required.

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

44

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

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

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

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

									April 30,
			Acquisition Date						2018			2017
	NewHeights	$	6,339,717		CDN$	6,704,947		$	5,221,202		$	4,914,029
	FirstHand		2,083,960			2,083,752			1,622,373			1,526,926
		$	8,423,677		CDN$	8,788,699		$	6,843,575		$	6,440,955

The Company performed its annual impairment test during the fourth quarter for the years ended April 30, 2018 and 2017 and concluded that there has been no impairment to the carrying amount.

Intangible Assets

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

45

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Accounts Receivable and Allowance for Doubtful Accounts

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

			Years Ended April 30,
			2018			2017
	Balance of allowance for doubtful debts, beginning of year	$	80,232		$	547,173
	Bad debt provision		578,024			346,689
	Write-off of receivables		(335,618	)		(813,630	)
	Balance of allowance for doubtful debts, end of year	$	322,638		$	80,232

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

Foreign Currency Translation

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

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

Accrued Warranty

The Company’s warranty policy generally provides for one year of warranty for its products. The Company records a liability for estimated warranty obligations at the date products are sold. The estimated cost of warranty coverage is based on the Company’s actual historical experience with its current products or similar products. For new products, the required reserve is based on historical experience of similar products until such time as sufficient historical data has been collected on the new product. Estimated liabilities for warranty exposures, which relate to normal product warranties and a one-year obligation to provide for potential future liabilities for product sales for the years ended April 30, 2018 and 2017 were as follows:

			Years Ended April 30,
			2018			2017
	Balance, beginning of year	$	54,365		$	61,356
	Usage during the year		−			−
	Additions (reductions) during the year		8,765			(6,991	)
	Balance, end of year	$	63,130		$	54,365

46

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Fair Value of Financial Instruments

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

Derivative Instruments

Although a majority of the Company’s revenue activities are transacted in U.S. dollars, the Company is exposed to foreign currency exchange rate risk inherent in conducting business globally. A significant portion of the Company’s operations is conducted in Canadian dollars. To help manage exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S. dollar denominated cash flows, the Company may enter into foreign currency forward contracts.

The Company recognizes its derivative instruments as assets or liabilities at fair value in the consolidated balance sheets. Accounting for changes in the fair value of a derivative instrument depends on whether it has been designated as part of a hedging relationship. For derivative instruments that qualify and are designated as cash flow hedges, the effective portion of change in fair value of the derivative is reported as a component of other comprehensive loss, and is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of change in fair value is recorded as a component of net loss on the consolidated statements of operations. If hedge accounting is discontinued for any other reason, any previously deferred gain or loss will remain in other comprehensive loss and amortized into earnings as the hedged transaction affects future earnings. For undesignated derivative instruments, the change in fair value is reported as a component of net loss on the consolidated statements of operations.

As of April 30, 2018 and 2017, the Company did not enter into any derivative contracts.

Income Taxes

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

The Company has not recorded a deferred tax liability related to its investment in foreign subsidiaries. The Company has determined that its investment in these subsidiaries is permanent in nature and it does not intend to dispose of these investments in the foreseeable future. The amount of the deferred tax liability related to the Company’s investment in foreign subsidiaries is not reasonably determinable.

The Company has $971,070 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.

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

47

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Comprehensive Loss

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

Loss per Share

ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the year including stock options and warrants using the treasury stock method. In computing diluted EPS, the average stock price for the year is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. For the year ended April 30, 2018, income per share excludes 1,140,432 (April 30, 2017 – 888,814) potentially dilutive common shares (related to stock options, deferred share units and warrants) as their effect was anti-dilutive.

Investment tax credits

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

Recently Issued Accounting Pronouncements

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

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

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

48

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

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

In May 2014, FASB issued ASU 2014-09, Revenue From Contracts With Customers (“Topic 606”). Topic 606 removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. Topic 606, supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. In August 2015, ASU 2015-14 was issued which delayed the effective date for public entities to reporting periods beginning after December 15, 2017.

The new standard will be effective for the Company in the quarter ending July 31, 2018 and permits two methods of adoption: (1) the full retrospective method, which requires the standard to be applied to each prior period presented, or (2) the modified retrospective method, whereby ASU 2014-09 would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with the cumulative effect of adoption on contracts with remaining performance obligations to be recognized as an adjustment to opening retained earnings in the period of adoption. In 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers: Principal versus Agent Considerations”, ASU 2016-10 “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” ASU 2016-11 “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815)” and ASU 2016-12, “Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients” to provide supplemental adoption guidance and clarification to ASU 2014-09. The effective date for these new standards is the same as the effective date and transition requirements for ASU 2014-09. The Company anticipates adopting the standard using the modified retrospective method and is currently assessing the impact on its consolidated financial statements.

Note 3

Equipment

The following presents the categories within equipment:

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

49

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

			April 30, 2017
						Accumulated
			Cost			Depreciation			Net
	Computer hardware	$	1,036,217		$	967,681		$	68,536
	Computer software		993,425			986,560			6,865
	Leasehold improvements		230,730			200,434			30,296
	Office furniture		173,902			162,120			11,782
	Websites		118,772			110,438			8,334
		$	2,553,046		$	2,427,233		$	125,813

Note 4

Intangibles and Other Assets

The following tables presents the major components within intangibles and other assets for the years ended April 30, 2018 and 2017:

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

			April 30, 2017
						Accumulated
			Cost			Amortization			Net
	Patents	$	452,306		$	(408,287	)	$	44,019
	Trademarks		149,979			−			149,979
	Other assets		5,639			−			5,639
		$	607,924		$	(408,287	)	$	199,637

During the years ended April 30, 2018 and 2017, the Company recorded amortization expense related to patents of $3,500 and $3,319, respectively. The weighted average remaining amortization period for patents was 13.2 years and 12.0 years for the years ended April 30, 2018 and 2017, respectively.

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

	Years ended April 30,
	2019	$	5,355
	2020		4,248
	2021		4,248
	2022		4,248
	2023		4,248
	Thereafter		27,502
	Total	$	49,849

50

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Note 5

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities at April 30, 2018 and 2017 are comprised of the following:

			April 30,
			2018			2017
	Accounts payable – trade	$	678,760		$	404,234
	Accrued commissions		215,172			241,883
	Accrued vacation		744,108			607,238
	Third party software royalties		207,531			328,740
	Other accrued liabilities		592,162			243,433
		$	2,437,733		$	1,825,528

Note 6

Fair Value Measurements

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

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

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

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

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

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

Note 7

Related Party Transactions

During the year ended April 30, 2018, the Company through its wholly owned subsidiary, CounterPath Technologies Inc., paid $83,957 (2017 - $78,386) to Kanata Research Park Corporation (“KRP”) for leased office space. KRP is controlled by the Chairman of the Company.

On November 21, 2013, the Company, through its wholly owned subsidiary, CounterPath Technologies, entered into an agreement with 8007004 (Canada) Inc. (“8007004”) to lease office space. 8007004 is controlled by a member of the board of directors of the Company. CounterPath Technologies, paid $31,686 (2017 - $30,591) for the year ended April 30, 2018.

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

51

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

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

On December 15, 2016, the Company issued an aggregate of 454,097 shares of common stock under a non-brokered private placement (“Private Placement”) at a price of $2.05 per share for total gross proceeds of $930,899 less issuance costs of $32,207. In connection with the Private Placement, KRP, a company controlled by the Chairman of the Company, purchased 198,000 shares and a director and chief executive officer of the Company purchased 12,195 shares.

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

Note 8

Common Stock

Private Placements

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

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

On December 15, 2016, the Company issued an aggregate of 454,097 shares of common stock under a non-brokered private placement at a price of $2.05 per share for total gross proceeds of $930,899 less issuance costs of $32,207.

Shares Issued Pursuant to a Consulting Agreement

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

Normal Course Issuer Bid Plan

During the year ended April 30, 2018, the Company repurchased 13,600 shares of common stock at an average price of approximately $2.49 (CDN$3.18), for a total of approximately $33,119 (CDN$43,218) pursuant to a normal course issuer bid effective during the period. During the year ended April 30, 2017, the Company repurchased 64,200 shares of common stock at an average price of approximately $2.08 (CDN$2.74) for a total of approximately $133,417 (CDN$175,850) pursuant to the normal course issuer bid in effect at the time.

On March 27, 2018, the Company filed another normal course issuer bid commencing on March 29, 2018 and expiring March 28, 2019. Under this normal course issuer bid, the Company is authorized to purchase up to 284,278 shares of its common stock through the facilities of the TSX and other Canadian marketplaces or U.S. marketplaces. As of April 30, 2018, a total of 153,988 shares have been cancelled, of which 59,900 shares of common stock related to repurchases made during the year ended April 30, 2017.

52

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Stock Options

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

The maximum number of shares of common stock authorized by the stockholders and reserved for issuance by the Board under 2010 Stock Option Plan is 986,000.

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

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

For non-employees, based on the Company’s history, the expected term of the options approximates the full term of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. In addition, ASC 718 requires companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas prior to the adoption of ASC 718 the Company recorded forfeitures based on actual forfeitures and recorded a compensation expense recovery in the period when the awards were forfeited. As a result, based on the Company’s experience, the Company applied an estimated forfeiture rate of 15% for year ended April 30, 2018 and 2017 in determining the expense recorded in the accompanying consolidated statement of operations.

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

The weighted-average fair values of options granted during the years ended April 30, 2018 and 2017 were $1.90 and $1.54, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:

			Year Ended			Year Ended
			April 30, 2018			April 30, 2017
	Risk-free interest rate		2.14%			1.39%
	Expected volatility		95.55%			94.95%
	Expected term		3.7 years			3.7 years
	Dividend yield		0%			0%

53

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

The following is a summary of the status of the Company’s stock options as of April 30, 2018 and the stock option activity during the years ended April 30, 2018 and 2017:

			Number of			Weighted-Average
			Options			Exercise Price
	Outstanding at April 30, 2016		410,730		$	12.99
	Granted		125,000		$	2.38
	Exercised		−		$	−
	Forfeited / Cancelled		(49,268	)	$	4.16
	Expired		(89,540	)	$	7.59
	Outstanding at April 30, 2017		396,922		$	2.46
	Granted		324,000		$	2.89
	Exercised		(495	)	$	2.46
	Forfeited / Cancelled		(15,385	)	$	2.53
	Expired		(30,000	)	$	2.50
	Outstanding at April 30, 2018		675,042		$	2.66
	Exercisable at April 30, 2018		256,555		$	$2.47
	Exercisable at April 30, 2017		221,739		$	$2.49

The following table summarizes information regarding stock options outstanding as of April 30, 2018:

			Number of			Aggregate						Number of			Aggregate
	Exercise		Options			Intrinsic						Options			Intrinsic
	Price		Outstanding			Value			Expiry Date			Exercisable			Value
	$2.03		10,000		$	5,700			December 15, 2021			3,333		$	1,900
	$2.40		60,000		$	12,000			July 15, 2021			26,250		$	5,250
	$2.41		47,760		$	9,074			December 14, 2020			27,977		$	5,316
	$2.46		25,000		$	3,500			March 14, 2022			6,771		$	948
	$2.50		210,282		$	21,028			July 19, 2017 to July 17, 2020			192,224		$	19,222
	$2.89		322,000		$	–			December 14, 2022			–		$	–
	April 30, 2018		675,042		$	51,302						256,555		$	32,636
	April 30, 2017		396,922		$	–						221,739		$	–

The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of $2.60 per share as of April 30, 2018 (April 30, 2017 – $1.93), which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options vested and exercisable as of April 30, 2018 was 256,555 (April 30, 2017 – nil). The total intrinsic value of options exercised during the year ended April 30, 2018 was $1,742 (2017 – $nil). The grant date fair value of options vested during the year ended April 30, 2018 was $269,423 (April 30, 2017 – $412,602).

54

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

The following table summarizes information regarding the non-vested stock purchase options outstanding as of April 30, 2018:

						Weighted Average
			Number of			Grant-Date
			Options			Fair Value
	Non-vested options at April 30, 2016		173,935		$	4.15
	Granted		125,000		$	1.54
	Vested		(84,833	)	$	4.86
	Forfeited		(38,919	)	$	1.95
	Non-vested options at April 30, 2017		175,183		$	3.49
	Granted		324,000		$	1.90
	Vested		(73,965	)	$	3.64
	Forfeited		(6,731	)	$	1.98
	Non-vested options at April 30, 2018		418,487		$	1.91

As of April 30, 2018, there was $589,702 of total unrecognized compensation cost related to unvested stock options. This unrecognized compensation cost is expected to be recognized over a weighted average period of 3.07 years.

Employee and non-employee stock-based compensation amounts classified in the Company’s consolidated statements of operations for the year ended April 30, 2018 and 2017 were as follows:

			April 30,
			2018			2017
	Cost of sales	$	55,444		$	97,434
	Sales and marketing		84,685			172,367
	Research and development		60,964			102,975
	General and administrative		129,227			166,713
	Total stock-based compensation	$	330,320		$	539,489

Warrants

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

55

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

The following tables summarize information regarding the warrants outstanding as of April 30, 2018 and April 30, 2017.

			Number of			Average
			Warrants			Exercise Price			Expiry Dates
	Warrants at April 30, 2016		–		$	–			–
	Granted		146,500		$	7.50			September 4, 2017
	Exercised		–		$	–			–
	Expired		–		$	–			–
	Warrants at April 30, 2017		146,500		$	7.50			September 4, 2017
	Granted		–		$	–			–
	Exercised		–		$	–			–
	Expired		(146,500	)	$	7.50			September 4, 2017
	Warrants at April 30, 2018		–		$	–

Employee Stock Purchase Plan

Under the terms of the Employee Stock Purchase Plan (the “ESPP”) all regular salaried (non-probationary) employees can purchase up to 6% of their base salary in common shares of the Company at market price. The Company will match 50% of the shares purchased by issuing or purchasing in the market up to 3% of the respective employee’s base salary in shares. During the year ended April 30, 2018, the Company matched $43,614 (2017 - $35,028) in shares purchased by employees under the ESPP. During the year ended April 30, 2018, 24,699 shares (2017 – 45,956) were issued or purchased by employees on the open market under the ESPP.

A total of 120,000 shares have been reserved for issuance under the ESPP. As of April 30, 2018, a total of 61,331 shares were available for issuance under the ESPP.

Deferred Share Unit Plan

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

On September 12, 2017, the maximum number of shares of common stock authorized by the Company’s stockholders reserved for issuance under the DSUP was increased from 500,000 shares to 700,000 shares. During the year ended April 30, 2018, 119,998 (2017 - 90,453) DSUs were issued under the DSUP, of which 40,129 were granted to officers or employees and 79,869 were granted to non-employee directors. As of April 30, 2018, a total of 210,597 shares were available for issuance under the DSUP.

56

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

The following table summarizes the Company’s outstanding DSU awards as of April 30, 2018 and 2017, and changes during the period then ended:

						Weighted Average
			Number of			Grant Date Fair
			DSUs			Value
	DSUs at April 30, 2016		254,939		$	9.79
	Granted		90,453		$	2.40
	Conversions		–		$	–
	Outstanding at April 30, 2017		345,392		$	7.85
	Granted		119,998		$	2.21
	Conversions		–		$	–
	Outstanding at April 30, 2018		465,390		$	6.40

As of April 30, 2018, there was $73,615 (2017 – $110,181) of total unrecognized compensation cost related to unvested DSU awards. This unrecognized compensation cost is expected to be recognized over a weighted average period of 1.98 years (2017 – 1.44 years). The total fair value of DSUs that vested during the year was $308,163 (2017 – $319,577).

Employee and non-employee DSU based compensation amounts classified in the Company’s consolidated statements of operations for the year ended April 30, 2018 and 2017 are as follows:

			Year Ended
			April 30,
			2018			2017
	Sales and marketing	$	–		$	–
	Research and development		–			–
	General and administrative		274,246			296,429
	Total deferred share unit-based compensation	$	274,246		$	296,429

The following table summarizes information regarding the non-vested DSUs outstanding as of April 30, 2018:

						Weighted Average
			Number of			Grant Date Fair
			DSUs			Value per Unit
	Non-vested DSUs at April 30, 2016		38,522		$	8.15
	Granted		90,453		$	2.40
	Vested		(82,758	)	$	3.86
	Non-vested DSUs at April 30, 2017		46,217		$	4.58
	Granted		119,998		$	2.21
	Vested		(101,963	)	$	3.02
	Non-vested DSUs at April 30, 2018		64,252		$	2.62

57

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Note 9

Income Taxes

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

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

			Years Ended
			April 30,
			2018			2017
	Tax loss carry forwards	$	13,606,000		$	19,378,000
	Capital losses carried forward		242,000			227,000
	Equipment		133,000			164,000
	Other		12,000			39,000
	Bad debt		109,000			29,000
	Nondeductible research and development expenses		2,993,000			2,837,000
	Investment tax credits		439,000			413,000
	Other intangibles		431,000			405,000
	Acquired technology		(183,000	)		313,000
	Valuation allowance established by management		(17,782,000	)		(23,805,000	)
	Net deferred tax assets	$	–		$	–

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

			Years Ended
			April 30,
			2018			2017
	Tax (recovery) based on U.S. rates	$	(957,000	)	$	(836,000	)
	Foreign tax rate differential		(20,000	)		(38,000	)
	Non-deductible expenses		–			–
	Change in fair value of derivative instrument		–			–
	Non-deductible stock option compensation		182,000			289,000
	Effect of reduction (increase) in statutory rates		6,648,000			–
	Foreign exchange losses on revaluation of deferred tax balances		(464,000	)		(818,000	)
	Under provision relating to prior year		(72,000	)		2,000
	Expiry of non-operating losses		706,000			–
	Increase in valuation allowance		(6,023,000	)		1,401,000
	Income tax expense for year	$	–		$	–

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted, which significantly revises the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%. The Company recorded a deferred tax expense in respect of its U.S. operations in 2017 using the new federal rate of 21% (2016 – 34%; 2015 – 34%); however, there was no impact on tax expense as a valuation allowance is provided on all the deferred tax assets. The Tax Act also incorporates changes to certain international tax provisions, including the implementation of a territorial tax system that imposes a one-time tax on foreign unremitted earnings. The Company does not anticipate that the foreign provisions will have an impact to the Company’s taxes.

The Company has calculated its best estimate of the impact of the Tax Act in its year end income tax provision in accordance with its understanding of the Tax Act and guidance available as of the date of this filing. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was $6,648,000.

58

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company establishes its valuation allowance based on projected future operations. Management has determined that the allowance should be 100% of the net deferred tax assets. When circumstances cause a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance will be reflected in current income.

As at April 30, 2018, the Company had net operating loss carry-forwards available to reduce taxable income in future years as follows:

	Country			Amount			Expiration Dates
	United States – US$		$	47,754,000			2026 – 2037
	Canada – CDN$		$	13,513,000	(1)		2018 – 2033

⁽¹⁾These losses are subject to tax legislation that limits the use of the losses against future income of the Company’s Canadian subsidiaries.

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

Changes in the Company’s uncertain tax positions for the year ended April 30, 2018 and April 30, 2017 were as follows:

			Years Ended
			April 30,
			2018			2017
	Balance at beginning of year	$	9,763		$	10,563
	Increases related to prior year tax positions (interest and penalties)		–			–
	Increases related to current year tax positions (interest and penalties)		–			–
	Settlements		–			–
	Lapses in statute of limitations		–			(800	)
	Balance at end of year	$	9,763		$	9,763

59

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Note 10

Segmented Information

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

Revenues are categorized based on the country in which the customer is located. The following is a summary of total revenues by geographic area for the years ended April 30, 2018 and 2017:

			Years Ended
			April 30,
			2018			2017
	North America	$	6,916,556		$	6,220,367
	EMEA		3,961,595			2,802,629
	Asia Pacific		950,131			1,043,360
	Latin America		553,459			619,234
		$	12,381,741		$	10,685,590

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

			As at April 30,
			2018			2017
	Canada	$	7,150,537		$	6,731,644
	United States		35,919			34,761
		$	7,186,456		$	6,766,405

Note 11

Commitments

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

			Office			Office						Voice
			Leases –			Leases –			Total			Platform			Software
			Related			Unrelated			Office			Service			Development
			Party			Party			Leases			Contract			Contract
	2019	$	114,724		$	558,504		$	673,228		$	200,000		$	149,750
	2020		5,274			275,834			281,108			240,000			−
	2021		−			6,092			6,092			220,000			−
		$	119,998		$	840,430		$	960,428		$	660,000		$	149,750

Note 12

Contingencies

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

60

---

COUNTERPATH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars)

Note 13

Loss per share

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

			Year ended April 30,
			2018			2017
	Numerator
	Income available to common stockholders	$	(3,220,670	)	$	(2,458,515	)
	Denominator
	Weighted average shares outstanding		5,496,201			4,722,724
	Effect of dilutive securities (1) (2)		−			−
			5,496,201			4,722,724
	Basic and diluted loss per share	$	(0.59	)	$	(0.52	)

⁽¹⁾ For the years ended April 30, 2018 and 2017, potentially dilutive securities including stock options and deferred share units totalling 1,140,432 and 888,814, respectively, were excluded from the computation of diluted loss per share because their effect was anti-dilutive.

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

61

---

Item 9.

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

None.

Item 9A.

Controls and Procedures.

Disclosure Controls and Procedures

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

In connection with this annual report, as required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of April 30, 2018, our disclosure controls and procedures are effective as at the end of the period covered by this report.

Management’s Annual Report on Internal Control over Financial Reporting

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

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on certain criteria established in Internal Control - Integrated Framework (2013 edition) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting is effective as of April 30, 2018.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter of the year ended April 30, 2018 that have materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Item 9B.

Other Information.

None.

62

---

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after April 30, 2018.

Item 11.

Executive Compensation.

The information required by this Item, is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after April 30, 2018.

Item 12.

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

The information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after April 30, 2018.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after April 30, 2018.

Item 14.

Principal Accountant Fees and Services.

The information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders, to be filed with the SEC no later than 120 days after April 30, 2018.

PART IV

Item 15.

Exhibits and Financial Statement Schedules.

List of documents filed as part of the report

The following documents are filed as part of this report:

(a)(1)

Financial Statements:

	1.	Report of Independent Registered Public Accounting Firm;
	2.	Consolidated Balance Sheets;
	3.	Consolidated Statements of Operations;
	4.	Consolidated Statements of Comprehensive Loss;
	5.	Consolidated Statements of Cash Flows;
	6.	Consolidated Statements of Changes in Stockholders’ Equity; and
	7.	Notes to the Consolidated Financial Statements.

63

---

(a)(2)	Financial Statement Schedules:
	None.
(a)(3)	Exhibits:
(3)	Articles of Incorporation and By-laws
3.1	Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on July 16, 2003)
3.2	Bylaws (incorporated by reference from our Registration Statement on Form SB-2 filed on July 16, 2003)
3.3	Amended Bylaws (incorporated by reference from our Registration Statement on Form SB-2/A filed on September 3, 2003)
3.4	Articles of Merger (incorporated by reference from our Current Report on Form 8-K filed on September 15, 2005)
3.5	Amended Bylaws (incorporated by reference from our Current Report on Form 8-K filed on April 28, 2006)
3.6	Amended Bylaws (incorporated by reference from our Current Report on Form 8-K filed on April 22, 2008)
3.7	Amended Bylaws (incorporated by reference from our Current Report on Form 8-K filed on July 2, 2012)
3.8	Certificate of Amendment to Articles of Incorporation (incorporated by reference from our Quarterly Report in the Form 10-Q filed on December 12, 2013)
(4)	Instruments defining the rights of security holders, including indentures
4.1	Employee Share Purchase Plan (incorporated by reference from our Registration Statement on Form S- 8 filed on January 31, 2017)
4.2	Amended 2010 Stock Option Plan (incorporated by reference from our Registration Statement on Form S-8 filed on January 31, 2017)
4.3	Deferred Share Unit Plan (incorporated by reference from our Quarterly Report on Form 10-Q filed on March 13, 2017)
(10)	Material Contracts
10.1	Employment Agreement between CounterPath Solutions, Inc. and David Karp dated September 11, 2006 (incorporated by reference from our Quarterly Report on Form 10-QSB filed on September 14, 2006)
10.2	Piggyback Registrations Rights Agreement among our company and various shareholders, dated as of August 2, 2007 (incorporated by reference from our Current Report on Form 8-K filed on August 8, 2007)
10.3	Amended Employment Agreement between Donovan Jones and CounterPath Solutions R&D Inc., a wholly owned subsidiary of CounterPath Solutions, Inc. dated September 13, 2007 (incorporated by reference from our Quarterly Report on Form 10-QSB filed on September 14, 2007)

64

---

10.4	Form of Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on September 4, 2015 (incorporated by reference from our Current Report on Form 8-K filed on September 8, 2015)
10.5	Form of Warrant Certificate issued to various investors in connection with the non-brokered private placement completed on September 4, 2015 (incorporated by reference from our Current Report on Form 8-K filed on September 8, 2015)
10.6	Amended Employment Agreement between Donovan Jones and CounterPath Corporation and its wholly owned subsidiary, CounterPath Technologies Inc., dated February 17, 2016 (incorporated by reference from our Quarterly Report on Form 10-Q filed on March 15, 2016)
10.7	Form of Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on December 15, 2016 (incorporated by reference from our Current Report on Form 8-K filed on December 19, 2016)
10.8	Form of Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on July 20, 2017 (incorporated by reference from our Current Report on Form 10-Q filed on September 14, 2017)
10.9	Form of Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on January 24, 2018 (incorporated by reference from our Current Report on Form 8-K filed on January 26, 2018)
10.10	Amended Employment Agreement between David Karp and CounterPath Corporation and its wholly owned subsidiary, CounterPath Technologies Inc., dated March 7, 2018 (incorporated by reference from our Quarterly Report on Form 10-Q filed on March 13, 2018)
(14)	Code of Ethics
14.1	Code of Business Conduct and Ethics and Compliance Program (incorporated by reference from our Quarterly Report on Form 10-QSB filed on September 15, 2008).
(21)	Subsidiaries of CounterPath Corporation
	CounterPath Technologies Inc. (incorporated in the Province of British Columbia, Canada)
	BridgePort Networks, Inc. (incorporated in the state of Delaware)
(23)	Consent of Experts and Counsel
23.1	Consent of BDO Canada LLP, Independent Registered Public Accounting Firm (filed herewith).
(31)	Section 302 Certifications
31.1	Section 302 Certification of Donovan Jones (filed herewith).
31.2	Section 302 Certification of David Karp (filed herewith).
(32)	Section 906 Certifications
32.1	Section 906 Certification of Donovan Jones (filed herewith).
32.2	Section 906 Certification of David Karp (filed herewith).

65

---

Item 16.

Form 10-K Summary.

     None.

66

---

SIGNATURES

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

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

Signature	Title	Date
/s/ Terence Matthews
Terence Matthews	Chairman and Director	July 25, 2018
/s/ Donovan Jones
Donovan Jones	President, Chief Executive Officer and	July 25, 2018
	Director (Principal Executive Officer)
/s/ David Karp
David Karp	Chief Financial Officer, Treasurer and	July 25, 2018
	Secretary (Principal Financial Officer,
	Principal Accounting Officer)
/s/ Owen Matthews
Owen Matthews	Vice Chairman and Director	July 25, 2018
/s/ Steven Bruk
Steven Bruk	Director	July 25, 2018
/s/ Bruce Joyce
Bruce Joyce	Director	July 25, 2018
/s/ Chris Cooper
Chris Cooper	Director	July 25, 2018
/s/ Larry Timlick
Larry Timlick	Director	July 25, 2018

67

---