[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 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 and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [
] No [x]
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable date: 5,005,645
shares of common stock issued and outstanding as of March 6, 2017.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
It is the opinion of management that the interim consolidated
financial statements for the quarter ended January 31, 2017 include all
adjustments necessary in order to ensure that the interim consolidated financial
statements are not misleading.
The interim consolidated financial statements are stated in
United States dollars and are prepared in accordance with generally accepted
accounting principles in the United States of America.
COUNTERPATH CORPORATION
INDEX TO INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
(Stated in U.S. Dollars)
4
COUNTERPATH CORPORATION
INTERIM CONSOLIDATED
BALANCE SHEETS
(Stated in U.S. Dollars)
|
|
January 31,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,521,698
|
|
$
|
2,159,738
|
|
Accounts receivable (net of allowance for doubtful accounts of $417,167
and $547,173, respectively)
|
|
2,815,232
|
|
|
3,209,279
|
|
Prepaid expenses and deposits
|
|
154,398
|
|
|
184,644
|
|
Total current assets
|
|
5,491,328
|
|
|
5,553,661
|
|
|
|
|
|
|
|
|
Deposits
|
|
94,816
|
|
|
93,868
|
|
Equipment
|
|
135,961
|
|
|
142,563
|
|
Goodwill Note 2(e)
|
|
6,719,855
|
|
|
7,001,228
|
|
Other assets
|
|
197,326
|
|
|
174,811
|
|
Total Assets
|
$
|
12,639,286
|
|
$
|
12,966,131
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
$
|
1,873,233
|
|
$
|
1,943,108
|
|
Accrued warranty
|
|
58,626
|
|
|
61,356
|
|
Customer
deposits
|
|
21,499
|
|
|
2,384
|
|
Unearned revenue
|
|
2,083,171
|
|
|
1,808,857
|
|
Total current liabilities
|
|
4,036,529
|
|
|
3,815,705
|
|
|
|
|
|
|
|
|
Deferred lease inducements
|
|
26,503
|
|
|
35,379
|
|
Unrecognized tax benefit
|
|
10,563
|
|
|
10,563
|
|
Total liabilities
|
|
4,073,595
|
|
|
3,861,647
|
|
|
|
|
|
|
|
|
Stockholders equity Note 5:
|
|
|
|
|
|
|
Preferred stock, $0.001 par value
Authorized:
100,000,000
Issued and outstanding: January 31, 2017 nil; April 30, 2016 nil
|
|
|
|
|
|
|
Common stock, $0.001 par value
Note 5
Authorized:
10,000,000
Issued and
outstanding:
January 31, 2017 5,006,545; April 30, 2016 4,542,348
|
|
5,007
|
|
|
4,542
|
|
Treasury stock
|
|
|
|
|
|
|
Additional paid-in capital
|
|
71,669,964
|
|
|
70,065,082
|
|
Accumulated deficit
|
|
(59,632,571
|
)
|
|
(58,022,500
|
)
|
Accumulated other
comprehensive loss currency translation adjustment
|
|
(3,476,709
|
)
|
|
(2,942,640
|
)
|
Total
stockholders equity
|
|
8,565,691
|
|
|
9,104,484
|
|
Liabilities and Stockholders Equity
|
$
|
12,639,286
|
|
$
|
12,966,131
|
|
|
|
|
|
|
|
|
Commitments Note 7
|
|
|
|
|
|
|
Contingencies Note 8
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial
statements
5
COUNTERPATH CORPORATION
INTERIM CONSOLIDATED
STATEMENTS OF OPERATIONS
(Stated in U.S. Dollars)
(Unaudited)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue Note 6:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
$
|
1,324,203
|
|
$
|
1,305,756
|
|
$
|
4,223,066
|
|
$
|
4,259,734
|
|
Subscription,
support and maintenance
|
|
1,031,162
|
|
|
886,343
|
|
|
2,944,349
|
|
|
2,600,382
|
|
Professional services and other
|
|
199,994
|
|
|
462,287
|
|
|
1,165,051
|
|
|
1,180,855
|
|
Total revenue
|
|
2,555,359
|
|
|
2,654,386
|
|
|
8,332,466
|
|
|
8,040,971
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
(includes depreciation of $4,975 (2016 $5,419))
|
|
360,722
|
|
|
464,102
|
|
|
1,334,385
|
|
|
1,441,667
|
|
Sales and marketing
|
|
819,958
|
|
|
955,801
|
|
|
2,770,367
|
|
|
3,177,183
|
|
Research and
development
|
|
1,215,783
|
|
|
1,119,046
|
|
|
3,524,959
|
|
|
3,519,692
|
|
General and administrative
|
|
678,243
|
|
|
708,062
|
|
|
2,531,322
|
|
|
2,419,825
|
|
Total operating expenses
|
|
3,074,706
|
|
|
3,247,011
|
|
|
10,161,033
|
|
|
10,558,367
|
|
Loss from operations
|
|
(519,347
|
)
|
|
(592,625
|
)
|
|
(1,828,567
|
)
|
|
(2,517,396
|
)
|
Interest and other income
(expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
36
|
|
|
1,323
|
|
|
222
|
|
|
4,097
|
|
Interest expense
|
|
|
|
|
(168
|
)
|
|
|
|
|
(2,253
|
)
|
Fair value adjustment on
derivative instruments Note 4
|
|
|
|
|
|
|
|
|
|
|
(47,690
|
)
|
Foreign exchange
(loss)/gain
|
|
(162,829
|
)
|
|
343,349
|
|
|
218,274
|
|
|
870,560
|
|
Net loss for the period
|
$
|
(682,140
|
)
|
$
|
(248,121
|
)
|
$
|
(1,610,071
|
)
|
$
|
(1,692,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted Note 9
|
$
|
(0.14
|
)
|
$
|
(0.05
|
)
|
$
|
(0.35
|
)
|
$
|
(0.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted Note 9
|
|
4,789,675
|
|
|
4,538,373
|
|
|
4,631,472
|
|
|
4,400,136
|
|
See accompanying notes to the interim consolidated financial
statements
COUNTERPATH CORPORATION
INTERIM CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(Stated in U.S. Dollars)
(Unaudited)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net loss for the period
|
$
|
(682,140
|
)
|
$
|
(248,121
|
)
|
$
|
(1,610,071
|
)
|
$
|
(1,692,682
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
318,210
|
|
|
(841,785
|
)
|
|
(534,069
|
)
|
|
(1,991,213
|
)
|
Comprehensive loss
|
$
|
(363,930
|
)
|
$
|
(1,089,906
|
)
|
$
|
(2,144,140
|
)
|
$
|
(3,683,895
|
)
|
See accompanying notes to the interim consolidated financial
statements
6
COUNTERPATH CORPORATION
INTERIM CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
January 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net loss for the
period
|
$
|
(1,610,071
|
)
|
$
|
(1,692,682
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
85,918
|
|
|
160,830
|
|
Stock-based compensation
|
|
701,515
|
|
|
746,782
|
|
Issuance of common stock for services
|
|
13,963
|
|
|
|
|
Foreign exchange gain
|
|
(267,383
|
)
|
|
(968,405
|
)
|
Changes in assets
and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
394,047
|
|
|
256,024
|
|
Prepaid expenses and deposits
|
|
31,366
|
|
|
7,491
|
|
Other assets
|
|
|
|
|
(12,454
|
)
|
Accounts payable and accrued liabilities
|
|
(33,730
|
)
|
|
(104,666
|
)
|
Unearned revenue
|
|
274,314
|
|
|
(6,127
|
)
|
Deferred lease inducements
|
|
(7,419
|
)
|
|
(7,436
|
)
|
Accrued warranty
|
|
(2,730
|
)
|
|
(10,429
|
)
|
Customer deposits
|
|
14,721
|
|
|
16,710
|
|
Net cash provided by (used
in) operating activities
|
|
(405,489
|
)
|
|
(1,614,362
|
)
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
Purchase of equipment
|
|
(81,678
|
)
|
|
(14,228
|
)
|
Purchase of other assets
|
|
(24,600
|
)
|
|
|
|
Net cash used in investing activities
|
|
(106,278
|
)
|
|
(14,228
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Common stock issued
|
|
898,693
|
|
|
1,520,571
|
|
Common stock repurchased
|
|
(8,824
|
)
|
|
(44,332
|
)
|
Net cash provided by (used
in) financing activities
|
|
889,869
|
|
|
1,476,239
|
|
|
|
|
|
|
|
|
Foreign exchange effect on
cash
|
|
(16,142
|
)
|
|
(93,543
|
)
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash
|
|
361,960
|
|
|
(245,894
|
)
|
|
|
|
|
|
|
|
Cash, beginning of the period
|
|
2,159,738
|
|
|
2,852,422
|
|
Cash, end of the period
|
$
|
2,521,698
|
|
$
|
2,606,528
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
Interest
|
$
|
|
|
$
|
2,253
|
|
Income taxes paid
|
$
|
|
|
$
|
|
|
See accompanying notes to the interim consolidated financial
statements
7
COUNTERPATH CORPORATION
INTERIM CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS EQUITY
for the Nine Months Ended January 31,
2017
(Stated in U.S. Dollars)
(Unaudited)
|
|
Common Shares
|
|
|
Treasury Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
Shares
|
|
|
Par
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
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 5
|
|
454,097
|
|
|
454
|
|
|
|
|
|
|
|
|
898,239
|
|
|
|
|
|
|
|
|
898,693
|
|
Share repurchase plan
|
|
|
|
|
|
|
|
(3,300
|
)
|
|
(3
|
)
|
|
(7,139
|
)
|
|
|
|
|
|
|
|
(7,142
|
)
|
Cancellation of shares Note 5
|
|
(3,400
|
)
|
|
(3
|
)
|
|
3,400
|
|
|
3
|
|
|
(1,682
|
)
|
|
|
|
|
|
|
|
(1,682
|
)
|
Stock-based compensation
Note 5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
701,515
|
|
|
|
|
|
|
|
|
701,515
|
|
Issuance of common stock for services Note
5
|
|
13,500
|
|
|
14
|
|
|
|
|
|
|
|
|
13,949
|
|
|
|
|
|
|
|
|
13,963
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,610,071
|
)
|
|
|
|
|
(1,610,071
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(534,069
|
)
|
|
(534,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2017 (unaudited)
|
|
5,006,545
|
|
$
|
5,007
|
|
|
(300
|
)
|
$
|
|
|
$
|
71,669,964
|
|
$
|
(59,632,571
|
)
|
$
|
(3,476,709
|
)
|
$
|
8,565,691
|
|
See
accompanying
notes to the interim
consolidated
financial
statements
8
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 1
|
Nature of Operations
|
|
|
|
CounterPath Corporation (the Company) was incorporated
in the State of Nevada on April 18, 2003. The shares of the Companys
common stock are listed for trading on the NASDAQ Capital Market in the
United States of America and on the Toronto Stock Exchange in Canada.
|
|
|
|
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 Companys 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
|
Significant Accounting Policies
|
|
|
|
These interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in
the United States of America and are stated in U.S. dollars except where
otherwise disclosed. Because a precise determination of many assets and
liabilities is dependent upon future events, the preparation of financial
statements for the period necessarily involves the use of estimates, which
have been made using careful judgment. Actual results may vary from these
estimates.
|
|
|
|
These interim 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. In the current period, service revenue was
separated into two categories, subscription, support and maintenance, and
professional and other services revenue. The comparative period has been
adjusted to conform to the current periods presentation (Note 2(g)).
|
|
a)
|
Basis of Presentation
|
|
|
|
|
|
These interim consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, CounterPath
Technologies Inc. (CounterPath Technologies), a company existing under
the laws of the province of British Columbia, Canada, and BridgePort
Networks, Inc. (BridgePort), incorporated under the laws of the state of
Delaware. All inter- company transactions and balances have been
eliminated.
|
9
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 2
|
Significant Accounting
Policies - (contd)
|
|
b)
|
Interim Reporting
|
|
|
|
|
|
The information presented in the accompanying interim
consolidated financial statements is without audit pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
|
|
|
|
|
|
These statements reflect all adjustments, which are, in
the opinion of management, necessary to present fairly the financial
position, results of operations and cash flows for the interim periods
presented in accordance with generally accepted accounting principles in
the United States of America. Except where noted, these interim financial
statements follow the same accounting policies and methods of their
application as the Companys April 30, 2016 annual audited consolidated
financial statements. All adjustments are of a normal recurring nature. It
is suggested that these interim financial statements be read in
conjunction with the Companys April 30, 2016 annual audited consolidated
financial statements.
|
|
|
|
|
|
Operating results for the nine months ended January 31,
2017 are not necessarily indicative of the results that can be expected
for the year ending April 30, 2017.
|
|
|
|
|
c)
|
New Accounting Pronouncements
|
|
|
|
|
|
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. Early adoption is not permitted. The
Company is currently evaluating the impact of the adoption of this new
standard.
|
|
|
|
|
|
In March 2016, the FASB issued ASU 2016-08, Revenue from
Contracts with Customers: Principal versus Agent Considerations (Reporting
Revenue Gross versus Net), which clarifies the guidance in the new revenue
standard on assessing whether an entity is a principal or an agent in a
revenue transaction. This conclusion impacts whether an entity reports
revenue on a gross or net basis. We are currently evaluating the impact of
this standard on our Consolidated Financial Statements and related
disclosures.
|
|
|
|
|
|
In April 2016, the FASB issued ASU 2016-10, Revenue from
Contracts with Customers: Identifying Performance Obligations and
Licensing, which clarifies the guidance in the new revenue standard
regarding an entitys identification of its performance obligations in a
contract, as well as an entitys evaluation of the nature of its promise
to grant a license of intellectual property and whether or not that
revenue is recognized over time or at a point in time. We are currently
evaluating the impact of this standard on our Consolidated Financial
Statements and related disclosures.
|
10
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 2
|
Significant Accounting
Policies
−
(contd)
|
|
c)
|
New Accounting Pronouncements (contd)
|
|
|
|
|
|
In May 2016, the FASB issued ASU 2016-11, Revenue
Recognition: Customer Payments and Incentives, which clarifies the
guidance in recognizing costs for consideration given by a vendor to a
customer as a component of cost of sales. We are currently evaluating the
impact of this standard on our Consolidated Financial Statements and
related disclosures.
|
|
|
|
|
|
In May 2016, the FASB issued ASU 2016-12, Revenue from
Contracts with Customers: Narrow- Scope Improvements and Practical
Expedients which amends the guidance in the new revenue standard on
collectability, noncash consideration, presentation of sales tax, and
transition. The amendments are intended to address implementation issues
and provide additional practical expedients to reduce the cost and
complexity of applying the new revenue standard. These amendments have the
same effective date as the new revenue standard. While we are currently
evaluating the method of adoption and the impact of the new revenue
standard, as amended, on our Consolidated Financial Statements and related
disclosures, we believe the adoption of the new standard may have a
significant impact on the accounting for certain transactions with
multiple elements or bundled arrangements because the requirement to
have VSOE for undelivered elements under current accounting standards is
eliminated under the new standard. Accordingly, we may be required to
recognize as revenue a portion of the sales price upon delivery of the
software, as compared to the current requirement of recognizing the entire
sales price ratably over an estimated offering period. We continue to
evaluate the impact of the new revenue standard on our Consolidated
Financial Statements and related disclosures.
|
|
|
|
|
|
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments: Measurement of Credit Losses on Financial Instruments which
amends the guidance on measuring credit losses on financial assets held at
amortized cost. The amendment is intended to address the issue that the
previous incurred loss methodology was restrictive for Companys 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 August 2014, FASB issued ASU 2014-15,
Presentation
of Financial Statements Going Concern
, which requires management to
evaluate whether there is substantial doubt about an entitys ability to
continue as a going concern and provide related footnote disclosures. The
guidance is effective for annual and interim reporting periods beginning
on or after December 15, 2016. Early adoption is permitted for financial
statements that have not been previously issued. The standard allows for
either a full retrospective or modified retrospective transition method.
The Company does not expect this standard to have a material impact on the
Companys consolidated financial statements upon adoption.
|
|
|
|
|
|
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.
|
11
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 2
|
Significant Accounting
Policies
−
(contd)
|
|
d)
|
Derivative Instruments
|
|
|
|
|
|
The Company accounts for derivative instruments,
consisting of foreign currency forward contracts, pursuant to the
provisions of ASC 815, Derivatives and Hedging (ASC 815). ASC 815
requires the Company to measure derivative instruments at fair value and
record them in the balance sheet as either an asset or liability and
expands financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entitys financial position, results of
operations and cash flows. The Company does not use derivative instruments
for trading purposes. ASC 815 also requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures
about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features
in derivative agreements.
|
|
|
|
|
|
The Company also routinely enters into foreign currency
forward contracts, not designated as hedging instruments, to protect the
Company from fluctuations in exchange rates. Gains or losses arising out
of marked to market fair value valuation of forward contracts, not
designated as hedges, are recognized in net income (see Note 4).
|
|
|
|
|
|
The Company records foreign currency forward contracts on
its Consolidated Balance Sheets as derivative instruments assets or
liabilities depending on whether the net fair value of such contracts is a
net asset or net liability, respectively (see Note 4 Derivative Financial
Instruments and Risk Management, of the Notes to the Consolidated
Financial Statements). The Company did not enter any foreign currency
derivatives designated as cash flow hedges in the three and nine months
ended January 31, 2017.
|
|
|
|
|
e)
|
Goodwill
|
|
|
|
|
|
Goodwill represents the excess purchase price over the
estimated fair value of net assets acquired as of the acquisition date.
ASC Topic 350 (ASC 350) 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 units 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 currently has
a single reporting unit which is CounterPath Corporation. If the recorded
value of the assets, including goodwill, and liabilities (net book
value) of the reporting unit exceeds its fair value, an impairment loss
may be required.
|
|
|
|
|
|
Goodwill of $6,339,717 (CDN$6,704,947) and $2,083,960
(CDN$2,083,752) was initially recorded as the Company was deemed to be the
acquirer of NewHeights Software Corporation (NewHeights) on August 2,
2007 and FirstHand Technologies Inc. (FirstHand) on February 1, 2008,
respectively. Translated to U.S. dollars using the period end rate, the
goodwill balance at January 31, 2017 was $5,126,812 (CDN$6,704,947) (April
30, 2016 - $5,341,481) in respect of NewHeights and $1,593,044
(CDN$2,083,414) (April 30, 2016 - $1,659,747) in respect of FirstHand.
Management will perform its annual impairment test in its fiscal fourth
quarter. No impairment charges were recorded for the nine months ended
January 31, 2017 and 2016.
|
12
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 2
|
Significant Accounting
Policies - (contd)
|
|
f)
|
Accounts Receivable and Allowance for Doubtful
Accounts
|
|
|
|
|
|
Accounts receivable are presented net of an allowance for
doubtful accounts.
|
|
|
|
January 31,
|
|
|
April 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Balance of allowance for
doubtful accounts, beginning of period/year
|
$
|
547,173
|
|
$
|
294,719
|
|
|
Bad debt provision
|
|
269,994
|
|
|
612,769
|
|
|
Write-off of receivables
|
|
(400,000
|
)
|
|
(360,315
|
)
|
|
Balance of allowance for doubtful accounts,
end of period/year
|
$
|
417,167
|
|
$
|
547,173
|
|
|
|
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 customers current ability to pay its obligation.
When the Company becomes aware of a specific customers inability to meet
its financial obligations to the Company, the Company records a charge to
the allowance to reduce the customers related accounts.
|
|
|
|
|
g)
|
Revenue Recognition
|
|
|
|
|
|
The Companys revenue is generated from the sale of
software license, subscription fees related to the cloud offering, support
and maintenance services and professional services. The Company recognizes
revenue in accordance with ASC 985-605 Software Revenue
Recognition.
|
|
|
|
|
|
Software license revenue is recognized for sales of
perpetual licenses.
|
|
|
|
|
|
Subscription, support and maintenance revenue is
generated from recurring fees purchased through the Companys cloud based
offerings, where the customer has no right to take possession of the
underlying software at any time and is recognized ratably as the service
is delivered.
|
|
|
|
|
|
Professional and other services includes software
customization, implementation, training, and dedicated engineering which
are recognized as the related service has been performed.
|
|
|
|
|
h)
|
Earnings Per Share
|
|
|
|
|
|
The Company computes net loss per share in accordance
with ASC Topics 260 and ASC 260-10. ASC Topics 260 requires presentation
of both basic and diluted earnings per share (EPS) on the face of the
consolidated statement of operations. 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 period is used in determining
the number of shares assumed to be purchased from the exercise of stock
options or warrants. For the nine months ended January 31, 2017 and 2016,
common share equivalents, consisting of common shares issuable, on
exercise or settlement, as applicable, of options, warrants and deferred
share units (DSUs) of 867,309 and 847,824, respectively, were not
included in the computation of diluted EPS because the effect was
anti-dilutive.
|
13
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 3
|
Related Party Transactions
|
|
|
|
During the three and nine months ended January 31, 2017,
the Company through its wholly owned subsidiary, CounterPath Technologies,
paid $19,750 and $59,250 (2016 - $18,476 and $55,427) to KRP Properties
(KRP) (previously known as Kanata Research Park Corporation) 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 $7,671 and $23,013 (2016 - $nil and $nil)
for the three and nine months ended January 31, 2017.
|
|
|
|
On July 31, 2015, the Company sold products and services
to Magor Corporation for consideration of $134,250. Magor Corporations
chairman of the board is also Chairman of the Company.
|
|
|
|
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 4
|
Derivative Financial Instruments and Risk
Management
|
|
|
|
In the normal course of business, the Company is exposed
to fluctuations in the exchange rates associated with foreign currencies.
The Companys primary objective for holding derivative financial
instruments is to manage foreign currency exchange rate risk.
|
|
|
|
Foreign Currency Exchange Rate Risk
|
|
|
|
A majority of the Companys revenue activities are
transacted in U.S. dollars. However, the Company is exposed to foreign
currency exchange rate risk inherent in conducting business globally in
numerous currencies, of which the most significant to the Companys
operations for the three and nine months ended January 31, 2017 is the
Canadian dollar as a majority of the Companys expenses are in Canadian
dollars. The Companys 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. During the three and nine months ended
January 31, 2017 and 2016, the Company did not enter into any cash flow
hedges.
|
|
|
|
The Company also routinely enters into foreign currency
forward contracts, not designated as hedging instruments, to protect it
from fluctuations in exchange rates. During the three and nine months
ended January 31, 2017, the Company had not entered into any foreign
currency forward contracts. On June 7, 2015, the Company entered into a
$1,000,000 notional value foreign currency forward contract that matured
on August 20, 2015. A loss of $nil and $nil (2016 - $nil and $47,690) was
recognized during the three and nine month period ended January 31, 2017
and 2016 respectively.
|
14
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 4
|
Derivative Financial Instruments and Risk
Management (contd)
|
|
|
|
Fair Value Measurement
|
|
|
|
When available, the Company uses quoted market prices to
determine fair value, and classifies such measurements within Level 1. In
some cases where market prices are not available, the Company makes use of
observable marketbased inputs to calculate fair value, in which case the
measurements are classified within Level 2. If quoted or observable market
prices are not available, fair value is based upon internally developed
models that use, where possible, current marketbased parameters such as
interest rates, yield curves and currency rates. These measurements are
classified within Level 3.
|
|
|
|
Fair value measurements are classified according to the
lowest level input or valuedriver that is significant to the valuation. A
measurement may therefore be classified within Level 3 even though there
may be significant inputs that are readily observable.
|
|
|
|
Fair value measurement includes the consideration of
nonperformance risk. Nonperformance risk refers to the risk that an
obligation (either by a counterparty or the Company) will not be
fulfilled. For financial assets traded in an active market (Level 1), the
nonperformance risk is included in the market price. For certain other
financial assets and liabilities (Level 2 and 3), the Companys fair value
calculations have been adjusted accordingly.
|
|
|
|
The following table presents the Companys assets and
liabilities that are measured at fair value on a recurring basis as of
January 31, 2017 and April 30, 2016.
|
|
|
|
Carrying
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
As at January
31, 2017
|
|
Amount
|
|
|
Fair Value
|
|
|
Levels
|
|
|
Reference
|
|
|
Cash and cash equivalents
|
$
|
2,521,698
|
|
$
|
2,521,698
|
|
|
1
|
|
|
N/A
|
|
|
|
|
Carrying
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
As at April
30, 2016
|
|
Amount
|
|
|
Fair Value
|
|
|
Levels
|
|
|
Reference
|
|
|
Cash and cash equivalents
|
$
|
2,159,738
|
|
$
|
2,159,738
|
|
|
1
|
|
|
N/A
|
|
|
Forward contracts
|
|
January 31,
|
|
|
April 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Opening balance at the beginning of the
period/year
|
$
|
−
|
|
$
|
−
|
|
|
Fair value of forward contract, at issuance
|
|
−
|
|
|
−
|
|
|
Change in fair value of forward contracts
since issuance
|
|
−
|
|
|
(47,690
|
)
|
|
Fair value of forward contracts settled during the
period/year
|
|
−
|
|
|
47,690
|
|
|
Fair value of forward contracts at end of
period/year
|
$
|
−
|
|
$
|
−
|
|
15
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 5
|
Common Stock
|
|
|
|
Private Placement
|
|
|
|
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 $32,206.
|
|
|
|
On April 4, 2016, the Company entered into an agreement
to issue 25,000 shares of the Companys common stock in exchange for
advisory services which was subsequently amended to 23,500 shares. The
shares were issued in three tranches: (i) the first tranche of 10,000
shares was issued on April 22, 2016; (ii) the second tranche of 10,000
shares was issued on May 25, 2016; (iii) and the third tranche of 3,500
shares was issued on June 30, 2016.
|
|
|
|
Stock Options
|
|
|
|
The Company has a stock option plan (the 2010 Stock
Option Plan) under which options to purchase shares of the Companys
common stock may be granted to employees, directors and consultants. Stock
options entitle the holder to purchase shares of the Companys common
stock at an exercise price determined by the board of directors (the
Board) 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.
|
|
|
|
On September 12, 2016, the maximum number of shares of
common stock authorized by the Companys stock holders and reserved for
issuance by the Board under the 2010 Stock Option Plan was increased from
786,000 to 986,000.
|
|
|
|
On September 12, 2016, the decrease in the exercise price
of certain outstanding stock options to $2.50 was authorized by the
Companys stock holders. Accordingly the exercise price of 319,822 stock
options with exercise prices ranging from $4.50 to $29.00 was decreased to
$2.50. The fair value of the options immediately prior to the modification
was compared to the fair value of the modified options. Stock based
compensation of $128,624 was recognized on the modification of the vested
options.
|
|
|
|
The Company uses the Black-Scholes option pricing model
to determine the fair value of stock options granted. Assumptions used to
determine the fair value of the modified options were a volatility of
88.55%, dividend yield of 0%, a risk free rate of 1.23% and an expected
life dependent on the remaining life of the specific stock options based
on an expected life of 3.7 years at grant date. The Company applied an
estimated forfeiture rate of 15% for the nine months ended January 31,
2017 and 2016 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. Although
these withheld shares are not issued or considered common stock
repurchases under our authorized plan they are treated as common stock
repurchases in our consolidated financial statements, as they reduce the
number of shares that would have been issued upon vesting.
|
16
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 5
|
Common Stock (contd)
|
|
|
|
Stock Options (contd)
|
|
|
|
The weighted-average fair value of options granted during
the three and nine months ended January 31, 2017 was $2.03 and $2.36,
respectively (2016 - $2.41 and $3.72). The weighted-average assumptions
utilized to determine such values are presented in the following table:
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Risk-free interest rate
|
|
2.10%
|
|
|
1.66%
|
|
|
1.20%
|
|
|
1.66%
|
|
|
Expected volatility
|
|
95.17%
|
|
|
94.77%
|
|
|
95.19%
|
|
|
92.48%
|
|
|
Expected term
|
|
3.7 years
|
|
|
3.7 years
|
|
|
3.7 years
|
|
|
3.7 years
|
|
|
Dividend yield
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
The following is a summary of the
status of the Companys stock options as of January 31, 2017 and the stock
option activity during the nine months ended January 31, 2017:
|
|
|
Weighted Average
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
|
Options
|
|
|
per Share
|
|
|
Outstanding at April 30, 2016
|
|
410,730
|
|
$
|
12.99
|
|
|
Granted
|
|
100,000
|
|
$
|
2.36
|
|
|
Forfeited/Cancelled
|
|
(45,773
|
)
|
$
|
4.28
|
|
|
Expired
|
|
(89,540
|
)
|
$
|
18.12
|
|
|
Outstanding at January 31, 2017
|
|
375,417
|
|
$
|
2.46
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 31, 2017
|
|
201,989
|
|
$
|
2.49
|
|
|
Exercisable at April 30, 2016
|
|
236,795
|
|
$
|
16.77
|
|
The following table summarizes stock
options outstanding as of January 31, 2017:
|
|
|
Number of
|
|
|
Aggregate
|
|
|
|
|
|
Number of
|
|
|
Aggregate
|
|
|
|
|
Options
|
|
|
Intrinsic
|
|
|
|
|
|
Options
|
|
|
Intrinsic
|
|
|
Exercise
Price
|
|
Outstanding
|
|
|
Value
|
|
|
Expiry Date
|
|
|
Exercisable
|
|
|
Value
|
|
|
$2.03
|
|
10,000
|
|
$
|
6,000
|
|
|
December 15, 2021
|
|
|
|
|
$
|
|
|
|
$2.40
|
|
60,000
|
|
|
13,800
|
|
|
July 15, 2021
|
|
|
7,500
|
|
|
1,725
|
|
|
$2.41
|
|
52,135
|
|
|
11,470
|
|
|
December 14,
2020
|
|
|
14,200
|
|
|
3,124
|
|
|
$2.50
|
|
253,282
|
|
|
32,927
|
|
|
July 19, 2017 to July 17, 2020
|
|
|
180,289
|
|
|
23,438
|
|
|
January 31, 2017
|
|
375,417
|
|
$
|
64,197
|
|
|
|
|
|
201,989
|
|
$
|
28,287
|
|
|
April 30, 2016
|
|
410,730
|
|
$
|
|
|
|
|
|
|
236,795
|
|
$
|
|
|
The aggregate intrinsic value in the
preceding table represents the total intrinsic value, based on the Companys
closing stock price of $2.63 per share as of January 31, 2017 (April 30, 2016
$2.12), 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 January 31, 2017 was 201,989
(April 30, 2016 nil). The total intrinsic value of options exercised during
the nine months ended January 31, 2017 was $nil (January 31, 2016 $nil). The
grant date fair value of options vested during the three and nine months ended
January 31, 2017 was $108,194 and $324,422, respectively (January 31, 2016 -
$155,756 and $463,724).
17
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 5
|
Common Stock
(contd)
|
|
|
|
Stock Options
−
(contd)
|
|
|
|
The following table summarizes
non-vested stock purchase options outstanding as of January 31, 2017:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number of
|
|
|
Average Grant
|
|
|
|
|
Options
|
|
|
Date Fair Value
|
|
|
Non-vested options at April
30, 2016
|
|
173,935
|
|
|
$4.15
|
|
|
Granted
|
|
100,000
|
|
|
$2.36
|
|
|
Vested
|
|
(64,948
|
)
|
|
$5.00
|
|
|
Forfeited/Cancelled
|
|
(35,559
|
)
|
|
$1.66
|
|
|
Non-vested options at January
31, 2017
|
|
173,428
|
|
|
$3.43
|
|
As of January 31, 2017, there was
$506,742 of total unrecognized compensation cost related to unvested share-based
compensation awards. This unrecognized compensation cost is expected to be
recognized over a weighted average period of 2.0 years.
Employee and non-employee stock-based
compensation amounts classified in the Companys consolidated statements of
operations for the three and nine months ended January 31, 2017 and 2016 are as
follows:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Cost of sales
|
$
|
23,388
|
|
$
|
18,536
|
|
$
|
77,441
|
|
$
|
49,815
|
|
|
Sales and marketing
|
|
27,906
|
|
|
63,316
|
|
|
147,324
|
|
|
198,677
|
|
|
Research and development
|
|
24,563
|
|
|
23,211
|
|
|
82,081
|
|
|
60,845
|
|
|
General and administrative
|
|
41,961
|
|
|
40,304
|
|
|
130,747
|
|
|
153,309
|
|
|
Total stock-option based compensation
|
$
|
117,818
|
|
$
|
145,367
|
|
$
|
437,593
|
|
$
|
462,646
|
|
Warrants
The following table summarizes
warrants outstanding and exercisable as of January 31, 2017:
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Expiry Dates
|
|
|
Warrants at April 30, 2016
|
|
146,500
|
|
|
$7.50
|
|
|
September 4, 2017
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
Warrants at January 31, 2017
|
|
146,500
|
|
|
$7.50
|
|
|
September 4, 2017
|
|
18
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 5
|
Common Stock (contd)
|
|
|
|
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 shares of the Companys common stock 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 employees
base salary in shares. During the nine months ended January 31, 2017, the
Company matched $26,461 (2016 - $30,617) in shares purchased by employees
under the ESPP. During the nine months ended January 31, 2017, 35,103
shares (2016 9,622) were purchased on the open market and no shares
(2016 14,618 shares) were issued from treasury under the ESPP.
|
|
|
|
A total of 120,000 shares have been reserved for issuance
under the ESPP. As of January 31, 2017, a total of 86,203 shares were
available for issuance under the ESPP.
|
|
|
|
Normal Course Issuer Bid Plan
|
|
|
|
Pursuant to a normal course issuer bid (NCIB)
commencing on March 19, 2016 and expiring March 18, 2017, the Company is
authorized to purchase 273,864 shares of the Companys common stock
through the facilities of the Toronto Stock Exchange (the TSX) and other
Canadian marketplaces or U.S. marketplaces. During the period from March
19, 2015 to March 18, 2016, the Company repurchased 11,360 shares at an
average price of $3.80 (CDN$4.97) for a total of $43,168 and during the
period March 19, 2016 to January 31, 2017, the Company repurchased 3,700
common shares at an average price of $2.16 (CDN$2.83) for a total of
$7,992. As of January 31, 2017, a total of 79,088 shares have been
cancelled and the remaining 300 repurchased shares are in the process of
being cancelled since the NCIB was initiated.
|
|
|
|
Deferred Share Unit Plan
|
|
|
|
Under the terms of the Deferred Share Unit Plan (the
DSUP), each DSU is equivalent to one share of the Companys common
stock. The maximum number of common shares 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
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 shares of the Companys common stock on
the date of grant, is recorded as compensation expense over the vesting
period.
|
|
|
|
On September 12, 2016, the maximum number of shares of
common stock authorized by the Companys stockholders reserved for
issuance under the DSUP was increased from 400,000 shares to 500,000
shares. During the nine months ended January 31, 2017, 90,453 (2016
55,034) DSUs were issued under the DSUP, of which 24,228 were granted to
officers or employees and 66,225 were granted to non-employee directors.
As of January 31, 2017, a total of 130,595 shares were available for
issuance under the DSUP.
|
19
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 5
|
Common Stock (contd)
|
|
|
|
Deferred Share Unit Plan - (contd)
|
|
|
|
The following table summarizes the Companys outstanding
DSU awards as of January 31, 2017, and changes during the period then
ended:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
|
|
|
|
Date Fair
|
|
|
|
|
Number of DSUs
|
|
|
Value Per DSU
|
|
|
DSUs outstanding at April 30, 2016
|
|
254,939
|
|
|
$9.79
|
|
|
Granted
|
|
90,453
|
|
|
$2.40
|
|
|
DSUs outstanding at January 31, 2017
|
|
345,392
|
|
|
$7.85
|
|
The following table summarizes
information regarding the non-vested DSUs outstanding as of January 31, 2017:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
|
|
|
|
Date Fair
|
|
|
|
|
Number of DSUs
|
|
|
Value Per DSU
|
|
|
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 January 31, 2017
|
|
46,217
|
|
|
$4.58
|
|
As of January 31, 2017, there was
$142,688 (2016 $229,365) 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 1.54 years (2016 1.80 years).
Employee and non-employee DSU based
compensation amounts classified in the Companys consolidated statements of
operations for the three and nine months ended January 31, 2017 and 2016 are as
follows:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Sales and marketing
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
1,633
|
|
|
General and administrative
|
|
32,507
|
|
|
39,842
|
|
|
263,922
|
|
|
282,503
|
|
|
Total DSU based compensation
|
$
|
32,507
|
|
$
|
39,842
|
|
$
|
263,922
|
|
$
|
284,136
|
|
20
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 6
|
Segmented
Information
|
|
|
|
The Companys 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 based on the country in which the customer
is located. The following is a summary of total revenues by geographic
area for the three and nine months ended January 31, 2017 and 2016:
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
North America
|
$
|
1,469,552
|
|
$
|
1,596,861
|
|
$
|
4,904,939
|
|
$
|
5,162,822
|
|
|
EMEA
|
|
704,788
|
|
|
783,488
|
|
|
2,394,724
|
|
|
1,894,315
|
|
|
Asia Pacific
|
|
172,140
|
|
|
167,361
|
|
|
642,262
|
|
|
497,192
|
|
|
Latin America
|
|
208,879
|
|
|
106,676
|
|
|
390,541
|
|
|
486,642
|
|
|
|
$
|
2,555,359
|
|
$
|
2,654,386
|
|
$
|
8,332,466
|
|
$
|
8,040,971
|
|
All of the Companys long-lived
assets, which include equipment, intangible assets, goodwill and other assets,
are located in Canada and the United States as follows:
|
|
|
As at
|
|
|
|
|
January 31, 2017
|
|
|
April 30, 2016
|
|
|
Canada
|
$
|
7,007,361
|
|
$
|
7,279,019
|
|
|
United States
|
|
45,781
|
|
|
39,583
|
|
|
|
$
|
7,053,142
|
|
$
|
7,318,602
|
|
Revenue from significant customers for
the three and nine months ended January 31, 2017 and 2016 is summarized as
follows:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Customer A
|
|
10%
|
|
|
13%
|
|
|
8%
|
|
|
5%
|
|
Accounts receivable balance for
Customer A was $743,600 as at January 31, 2017 (April 30, 2016 - $396,800).
21
COUNTERPATH CORPORATION
NOTES TO THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
(Unaudited)
Note 7
|
Commitments
|
|
|
|
Total payable over the term of
the agreements for the years ended April 30 are as follows:
|
|
|
|
Office Leases
|
|
|
Office Leases
|
|
|
Total Office
|
|
|
|
|
Related Party
|
|
|
Unrelated Party
|
|
|
Leases
|
|
|
2017
|
$
|
19,750
|
|
$
|
136,961
|
|
$
|
156,711
|
|
|
2018
|
|
79,000
|
|
|
527,302
|
|
|
606,302
|
|
|
2019
|
|
79,000
|
|
|
529,724
|
|
|
608,724
|
|
|
2020
|
|
−
|
|
|
251,815
|
|
|
251,815
|
|
|
2021
|
|
−
|
|
|
4,394
|
|
|
4,394
|
|
|
|
$
|
177,750
|
|
$
|
1,450,196
|
|
$
|
1,627,946
|
|
Note 8
|
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.
|
|
|
Note 9
|
Earnings (loss) per common
share (EPS)
|
|
|
|
Computation of basic and diluted
EPS:
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Net loss
|
$
|
(682,140
|
)
|
$
|
(248,121
|
)
|
$
|
(1,610,071
|
)
|
$
|
(1,692,682
|
)
|
|
Weighted average common shares outstanding basic and
diluted
|
|
4,789,675
|
|
|
4,538,373
|
|
|
4,631,472
|
|
|
4,400,136
|
|
|
Basic and diluted EPS
|
$
|
(0.14
|
)
|
$
|
(0.05
|
)
|
$
|
(0.35
|
)
|
$
|
(0.38
|
)
|
As at January 31, 2017 and 2016,
common share equivalents, consisting of common shares issuable, on exercise of
options, warrants and DSUs of 867,309 and 847,824, respectively, were not
included in the computation of diluted EPS because the effect was anti-dilutive.
22
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Forward-Looking Statements
This
quarterly report, including the documents incorporated herein and therein by
reference, contains forward-looking statements as that term is defined in
Section 27A of the United States Securities Act of 1933 and Section 21E of the
United States Securities Exchange Act of 1934. These statements relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may", "should", "expects",
"plans", "anticipates", "believes", "estimates", "predicts", "potential" or
"continue" or the negative of these terms or other comparable terminology.
Forward-looking statements in this quarterly report may include statements
about:
-
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;
-
the quality of our products and services, including any undetected errors
or bugs in our software; and
-
our ability to maintain proper and effective internal controls.
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.
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 our common stock.
On
February 1, 2008, we acquired all of the shares of FirstHand Technologies Inc.
through the issuance of 590,000 shares of our common stock. On February 1, 2008,
we acquired all of the issued and outstanding shares of BridgePort Networks, Inc. (BridgePort Networks) by way of
merger in consideration for the assumption of all of the assets and liabilities
of BridgePort Networks.
23
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.
-
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.
24
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
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 trade shows and
(e) other related overhead. Commissions are recorded as an 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
interim consolidated financial statements are prepared in accordance with
generally accepted accounting principles 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 quarterly report.
We
believe that of our significant accounting policies, 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.
Basis of Presentation
The
interim consolidated financial statements include the accounts of our company
and our wholly-owned subsidiaries, CounterPath Technologies, a company existing
under the laws of the province of British Columbia, Canada, and BridgePort
Networks, a company incorporated under the laws of the state of Delaware. All
inter-company transactions and balances have been eliminated.
Interim Reporting
The
information presented in the accompanying interim consolidated financial
statements is without audit pursuant to the rules and regulations of the SEC.
Certain information and footnote disclosures normally included in the interim
consolidated financial statements prepared in accordance with generally accepted
accounting principles in the United States have been condensed or omitted pursuant to
such rules and regulations, although we believe that the disclosures are
adequate to make the information presented not misleading.
25
These
statements reflect all adjustments, which are, in the opinion of management,
necessary to present fairly the financial position, results of operations and
cash flows for the interim periods presented in accordance with generally
accepted accounting principles in the United States. Except where noted, the
interim consolidated financial statements follow the same accounting policies
and methods of their application as our April 30, 2016 annual audited
consolidated financial statements. All adjustments are of a normal recurring
nature. It is suggested that these interim consolidated financial statements be
read in conjunction with our April 30, 2016 annual audited consolidated
financial statements.
Operating
results for the three and nine months ended January 31, 2017 are not necessarily
indicative of the results that can be expected for the year ending April 30,
2017.
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.
Professional
services and training revenue is recognized as the related service is performed.
26
Stock-Based Compensation
Stock
options granted are accounted for under ASC 718,
Share-Based Payment
, and
are recognized at the fair value of the options as determined by an option
pricing model as the related services are provided and the options earned. ASC
718 requires public companies to recognize the cost of employee services
received in exchange for equity instruments, based on the fair value of those
instruments on the measurement date which generally is the grant date, with
limited exceptions.
Stock-based
compensation represents the cost related to stock-based awards granted to
employees and non-employee consultants. We measure stock-based compensation cost
at measurement date, based on the estimated fair value of the award, and
generally recognize the cost as expense on a straight-line basis (net of
estimated forfeitures) over the employee requisite service period or the period
during which the related services are provided by the non-employee consultants
and the options are earned. We estimate the fair value of stock options using a
Black-Scholes option valuation model.
The
expected volatility of options granted has been determined using the volatility
of our company's stock. The expected life of options granted after April 30,
2006 has been determined based on analysis of historical data. We have not paid
and do not anticipate paying cash dividends on our shares of common stock;
therefore, the expected dividend yield is assumed to be zero. In addition, ASC
718 requires companies to utilize an estimated forfeiture rate when calculating
the expense for the period. We applied an estimated forfeiture rate of 15.0% for
the nine months ended January 31, 2017 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 nine months ended January 31, 2017, we recorded an expense of $701,515
in connection with share-based payment awards. A future expense of non-vested
options of $506,742 is expected to be recognized over a weighted-average period
of 1.97 years. A future expense of non-vested deferred share units of $142,688
is expected to be recognized over a weighted-average period of 1.54 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.
27
GoodwillImpairment 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
. 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 units goodwill. If the
carrying value of our reporting units goodwill exceeds its implied fair value,
then we would record an impairment loss equal to the difference.
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 2016, did not result in an
impairment charge, nor did we record any goodwill impairment for the three and
nine months ended January 31, 2017.
Derivative Instruments
We
periodically enter into foreign currency forward contracts, not designated as
hedging instruments, to protect us from fluctuations in exchange rates. As at
January 31, 2017, our company had no foreign currency forward contracts
outstanding. On June 7, 2015, we entered into a $1,000,000 notional value
foreign currency forward contract that matured on August 20, 2015. The fair
value marked to market loss of forward contracts for that foreign currency
contract for the three and nine months ended January 31, 2016 was $nil and
$47,690, respectively. 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 our interim
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 nine months ended January 31, 2017 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 nine months ended January 31, 2017, we
benefited by recording reduced operating costs on translation of Canadian dollar
costs as compared to the nine months ended January 31, 2016 of approximately
$13,000. But due to the strengthening Canadian dollar during the three months
ended January 31, 2017 compared to the three months ended January 31, 2016 we
recorded a loss of approximately $54,100.
28
Selected Consolidated Financial Information
The
following tables set out selected consolidated unaudited financial information
for the periods indicated. The selected consolidated financial information set
out below as at January 31, 2017 and April 30, 2016 and for the three and nine
months ended January 31, 2017 and 2016 has been derived from the consolidated
unaudited financial statements and accompanying notes for the nine months ended
January 31, 2017 and 2016 and the audited consolidated financial statements for
the fiscal year ended April 30, 2016. Each investor should read the following
information in conjunction with those statements and the related notes thereto.
Selected Consolidated Balance Sheet
Data
|
|
January 31, 2017
|
|
|
April 30, 2016
|
|
Cash and cash equivalents
|
$
|
2,521,698
|
|
$
|
2,159,738
|
|
Current assets
|
$
|
5,491,328
|
|
$
|
5,553,661
|
|
Current liabilities
|
$
|
4,036,529
|
|
$
|
3,815,705
|
|
Total liabilities
|
$
|
4,073,595
|
|
$
|
3,861,647
|
|
Total assets
|
$
|
12,639,286
|
|
$
|
12,966,131
|
|
Selected Consolidated Statements of Operations Data
|
|
Three Months Ended January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
of Total
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
Revenue
|
$
|
2,555,359
|
|
|
100%
|
|
$
|
2,654,386
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
$
|
3,074,706
|
|
|
120%
|
|
$
|
3,247,011
|
|
|
122%
|
|
Loss from operations
|
|
($519,347
|
)
|
|
(20%
|
)
|
|
($592,625
|
)
|
|
(22%
|
)
|
Interest and other income,
net
|
$
|
36
|
|
|
−%
|
|
$
|
1,155
|
|
|
−%
|
|
Fair value adjustment on derivative
instrument
|
|
−
|
|
|
−%
|
|
|
−
|
|
|
−%
|
|
Foreign exchange gain (loss)
|
|
($162,829
|
)
|
|
(6%
|
)
|
$
|
343,349
|
|
|
13%
|
|
Net loss
|
|
($682,140
|
)
|
|
(27%
|
)
|
|
($248,121
|
)
|
|
(9%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic and diluted
|
|
($0.14
|
)
|
|
|
|
|
($0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic and diluted
|
|
4,789,675
|
|
|
|
|
|
4,538,373
|
|
|
|
|
Selected Consolidated Statements of Operations Data
|
|
Nine Months Ended January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
of Total
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
Revenue
|
$
|
8,332,466
|
|
|
100%
|
|
$
|
8,040,971
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
$
|
10,161,033
|
|
|
122%
|
|
$
|
10,558,367
|
|
|
131%
|
|
Loss from operations
|
|
($1,828,567
|
)
|
|
(22%
|
)
|
|
($2,517,396
|
)
|
|
(31%
|
)
|
Interest and other income,
net
|
$
|
222
|
|
|
−%
|
|
$
|
1,844
|
|
|
−%
|
|
Fair value adjustment on derivative
instrument
|
|
−
|
|
|
−%
|
|
|
($47,690
|
)
|
|
(1%
|
)
|
Foreign exchange gain (loss)
|
$
|
218,274
|
|
|
3%
|
|
$
|
870,560
|
|
|
11%
|
|
Net loss
|
|
($1,610,071
|
)
|
|
(19%
|
)
|
|
($1,692,682
|
)
|
|
(21%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic and diluted
|
|
($0.35
|
)
|
|
|
|
|
($0.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic and diluted
|
|
4,631,472
|
|
|
|
|
|
4,400,136
|
|
|
|
|
29
Revenue
|
|
Three Months Ended January
31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Period-to-Period Change
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Total
|
|
|
|
|
|
of Total
|
|
|
|
|
|
Increase /
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
(Decrease)
|
|
Revenue by Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
$
|
1,324,203
|
|
|
52%
|
|
$
|
1,305,756
|
|
|
49%
|
|
$
|
18,447
|
|
|
1%
|
|
Subscription, support
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and maintenance
|
$
|
1,031,162
|
|
|
40%
|
|
$
|
886,343
|
|
|
34%
|
|
$
|
144,819
|
|
|
16%
|
|
Professional services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
$
|
199,994
|
|
|
8%
|
|
$
|
462,287
|
|
|
17%
|
|
|
($262,293
|
)
|
|
(57%
|
)
|
Total revenue
|
$
|
2,555,359
|
|
|
100%
|
|
$
|
2,654,386
|
|
|
100%
|
|
|
($99,027
|
)
|
|
(4%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,469,552
|
|
|
58%
|
|
$
|
1,596,861
|
|
|
60%
|
|
|
($127,309
|
)
|
|
(8%
|
)
|
International
|
$
|
1,085,807
|
|
|
42%
|
|
$
|
1,057,525
|
|
|
40%
|
|
$
|
28,282
|
|
|
3%
|
|
Total revenue
|
$
|
2,555,359
|
|
|
100%
|
|
$
|
2,654,386
|
|
|
100%
|
|
|
($99,027
|
)
|
|
(4%
|
)
|
For
the three months ended January 31, 2017, we generated $2,555,359 in revenue
compared to $2,654,386 for the three months ended January 31, 2016, representing
a decrease of $99,027 or 4%.
Software
revenue increased by $18,447 or 1% to $1,324,203 for the three months ended
January 31, 2017 compared to $1,305,756 for the three months ended January 31,
2016. The increase in software revenue was a result of increases in sales to
channel partners and service providers.
Subscription,
support and maintenance revenue increased by $144,819 or 16% to $1,031,162 for
the three months ended January 31, 2017 compared to $886,343 for the three
months ended January 31, 2016. The increase in subscription, support and
maintenance revenue was a result of increases in sales to channel partners and
enterprises.
Professional
services and other revenue decreased by $262,293 or 57% to $199,994 for the
three months ended January 31, 2017 compared to $462,287 for the three months
ended January 31, 2016. The decrease in professional services and other revenue
was a result of decreases in sales to channel partners and service providers.
North
American revenue decreased by $127,309 or 8% to $1,469,552 for the three months
ended January 31, 2017 compared to $1,596,861 for the three months ended January
31, 2016, as a result of lower sales of service to service providers and channel
partners. International revenue outside of North America increased by $28,282 or
3% to $1,085,807 for the three months ended January 31, 2017 compared to
$1,057,525 for the three months ended January 31, 2016, as a result of higher
sales of service to international channel partners, service providers, and
enterprises, partially offset by lower sales to European service providers.
|
|
Nine Months Ended January
31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Period-to-Period Change
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Total
|
|
|
|
|
|
of Total
|
|
|
|
|
|
Increase /
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
(Decrease)
|
|
Revenue by Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
$
|
4,223,066
|
|
|
51%
|
|
$
|
4,259,734
|
|
|
53%
|
|
|
($36,668
|
)
|
|
(1%
|
)
|
Subscription, support and maintenance
|
$
|
2,944,349
|
|
|
35%
|
|
$
|
2,600,382
|
|
|
32%
|
|
$
|
343,967
|
|
|
13%
|
|
Professional services and other
|
$
|
1,165,051
|
|
|
14%
|
|
$
|
1,180,855
|
|
|
15%
|
|
|
($15,804
|
)
|
|
(1%
|
)
|
Total revenue
|
$
|
8,332,466
|
|
|
100%
|
|
$
|
8,040,971
|
|
|
100%
|
|
$
|
291,495
|
|
|
4%
|
|
30
|
|
Nine Months Ended January
31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Period-to-Period Change
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Total
|
|
|
|
|
|
of Total
|
|
|
|
|
|
Increase /
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
(Decrease)
|
|
Revenue by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
4,904,939
|
|
|
59%
|
|
$
|
5,162,822
|
|
|
64%
|
|
|
($257,883
|
)
|
|
(5%
|
)
|
International
|
$
|
3,427,527
|
|
|
41%
|
|
$
|
2,878,149
|
|
|
36%
|
|
$
|
549,378
|
|
|
19%
|
|
Total revenue
|
$
|
8,332,466
|
|
|
100%
|
|
$
|
8,040,971
|
|
|
100%
|
|
$
|
291,495
|
|
|
4%
|
|
For the nine months ended January 31, 2017, we generated $8,332,466 in revenue
compared to $8,040,971 for the nine months ended January 31, 2016, representing
an increase of $291,495 or 4%.
Software
revenue decreased by $36,668 or 1% to $4,223,066 for the nine months ended
January 31, 2017 compared to $4,259,734 for the nine months ended January 31,
2016. The decrease in software revenue was a result of decreases in sales to
channel partners and enterprises partially offset by an increase in sales to
service providers.
Subscription,
support and maintenance revenue increased by $343,967 or 13% to $2,944,349 for
the nine months ended January 31, 2017 compared to $2,600,382 for the nine
months ended January 31, 2016. The increase in subscription, support and
maintenance revenue was a result of increases in sales to channel partners,
service providers, and enterprises.
Professional
services and other revenue decreased by $15,804 or 1% to $1,165,051 for the nine
months ended January 31, 2017 compared to $1,180,855 for the nine months ended
January 31, 2016. The decrease in professional services and other revenue was a
result of decreases in sales to channel partners, partially offset by increases
in sales to enterprises and service providers.
North
American revenue decreased by $257,883 or 5% to $4,904,939 for the nine months
ended January 31, 2017 compared to $5,162,822 for the nine months ended January
31, 2016, as a result of lower sales of service to channel partners.
International revenue outside of North America increased by $549,378 or 19% to
$3,427,527 for the nine months ended January 31, 2017 compared to $2,878,149 for
the nine months ended January 31, 2016, as a result of higher sales to
international service providers and enterprises.
Operating Expenses
Cost of Sales
Cost of sales for the three and nine months ended January 31, 2017 and 2016 were
as follows:
|
|
January 31, 2017
|
|
|
January 31, 2016
|
|
|
Period-to-Period Change
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
Increase /
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
(Decrease)
|
|
Three months ended
|
$
|
360,722
|
|
|
14%
|
|
$
|
464,102
|
|
|
17%
|
|
|
($103,380
|
)
|
|
(22%
|
)
|
Nine months ended
|
$
|
1,334,385
|
|
|
16%
|
|
$
|
1,441,667
|
|
|
18%
|
|
|
($107,282
|
)
|
|
(7%
|
)
|
Cost
of sales was $360,722 for the three months ended January 31, 2017 compared to
$464,102 for the three months ended January 31, 2016. The decrease of $103,380
was primarily attributable to a decrease in wages, benefits and consulting fees
of approximately $120,100. This decrease in cost of sales was offset by a net
increase in other expenses of approximately $16,700.
Cost
of sales was $1,334,385 for the nine months ended January 31, 2017 compared to
$1,441,667 for the nine months ended January 31, 2016. The slight decrease of
$107,282 was primarily attributable to a decrease in wages, benefits and
consulting fees of approximately $104,300, and a decrease in licenses and
permits of approximately $54,900 and. This decrease in cost of sales was
offset by a net increase in dues and subscriptions of approximately $39,200, and
a net increase in other expenses of approximately $12,700.
31
Sales and Marketing
Sales
and marketing expenses for the three and nine months ended January 31, 2017 and
2016 were as follows:
|
|
January 31, 2017
|
|
|
January 31, 2016
|
|
|
Period-to-Period Change
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
Increase /
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
(Decrease)
|
|
Three months ended
|
$
|
819,958
|
|
|
32%
|
|
$
|
955,801
|
|
|
36%
|
|
|
($135,843
|
)
|
|
(14%
|
)
|
Nine months ended
|
$
|
2,770,367
|
|
|
33%
|
|
$
|
3,177,183
|
|
|
40%
|
|
|
($406,816
|
)
|
|
(13%
|
)
|
Sales
and marketing expenses were $819,958 for the three months ended January 31, 2017
compared to $955,801 for the three months ended January 31, 2016. The decrease
of $135,843 was primarily attributable to a decrease in wages, benefits and
consulting fees of approximately $120,500 and a net decrease in other expenses
of approximately $15,300.
Sales
and marketing expenses were $2,770,367 for the nine months ended January 31,
2017 compared to $3,177,183 for the nine months ended January 31, 2016. The
decrease of $406,816 was primarily attributable to a decrease in wages, benefits
and consulting fees of approximately $366,400, and a decrease in travel expenses
of approximately $67,500. The decrease in sales and marketing expenses was
offset by a net increase in other expenses of approximately $27,100.
Research and Development
Research
and development expenses for the three and nine months ended January 31, 2017
and 2016 were as follows:
|
|
January 31, 2017
|
|
|
January 31, 2016
|
|
|
Period-to-Period Change
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
Increase /
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
(Decrease)
|
|
Three months ended
|
$
|
1,215,783
|
|
|
47%
|
|
$
|
1,119,046
|
|
|
42%
|
|
$
|
96,737
|
|
|
9%
|
|
Nine months ended
|
$
|
3,524,959
|
|
|
42%
|
|
$
|
3,519,692
|
|
|
44%
|
|
$
|
5,267
|
|
|
−%
|
|
Research
and development expenses were $1,215,783 for the three months ended January 31,
2017 compared to $1,119,046 for the three months ended January 31, 2016. The
increase of $96,737 was primarily attributable to an increase in wages, benefits
and consulting fees of approximately $115,300 which was offset by a net decrease
in other expenses of approximately $18,600.
Research
and development expenses were $3,524,959 for the nine months ended January 31,
2017 compared to $3,519,692 for the nine months ended January 31, 2016. The
increase of $5,267 was primarily attributable to an increase in wages, benefits
and consulting fees of approximately $46,200. This increase in research and
development was offset by a net decrease in other expenses of approximately
$26,000, and a decrease in telephone expenses of approximately $14,900.
32
General and Administrative
General
and administrative expenses for the three and nine months ended January 31, 2017
and 2016 were as follows:
|
|
January 31, 2017
|
|
|
January 31, 2016
|
|
|
Period-to-Period Change
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
Increase /
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
(Decrease)
|
|
Three months ended
|
$
|
678,243
|
|
|
27%
|
|
$
|
708,062
|
|
|
27%
|
|
|
($29,819
|
)
|
|
(4%
|
)
|
Nine months ended
|
$
|
2,531,322
|
|
|
30%
|
|
$
|
2,419,825
|
|
|
30%
|
|
$
|
111,497
|
|
|
5%
|
|
General
and administrative expenses were $678,243 for the three months ended January 31,
2017 compared to $708,062 for the three months ended January 31, 2016. The
decrease of $29,819 in general and administrative expenses was primarily
attributable to a decrease in wages, benefits and consulting fess of
approximately $20,700, a decrease in investor relations expenses of
approximately $12,900, and a decrease in a net decrease in other expenses of
approximately $11,400. This decrease in general and administrative expenses were
partially offset by an increase in audit, legal and other professional expenses
of approximately $15,100.
General
and administrative expenses were $2,531,322 for the nine months ended January
31, 2017 compared to $2,419,825 for the nine months ended January 31, 2016. The
increase of $111,497 in general and administrative expenses was primarily
attributable to an increase in bad debts reserve of approximately $132,700, an
increase in audit, legal and other professional expenses of approximately
$82,700, and a net increase in other expenses of approximately $28,200. The
increase in general and administrative expense was offset by a decrease in
amortization expense of approximately $74,500, a decrease in investor relations
expenses of approximately $45,900, and a decrease in wages, benefits and
consulting fees approximately $11,700.
Interest and Other Income
Interest
income for the three and nine months ended January 31, 2017 was $36 and $222,
respectively compared to $1,323 and $4,097, respectively, for the three and nine
months ended January 31, 2016. Interest expense for the three and nine months
ended January 31, 2017 was $nil for both periods, compared to $168 and $2,253,
respectively, for the three and nine months ended January 31, 2016.
Foreign
exchange gain (loss) for the three and nine months ended January 31, 2017 was
($162,829) and $218,274, respectively, compared to $343,349 and $870,560,
respectively, for the three and nine months ended January 31, 2016. The foreign
exchange gain (loss) represents the gain (loss) on account of translation of the
intercompany accounts of our subsidiary which maintains their records in
Canadian dollars and transactional gains and losses. The foreign exchange gain
(loss) includes the translation of quarterly intercompany transfer pricing
invoices from our Canadian subsidiary to us.
Fair
value adjustment on derivative instruments for the three and nine months ended
January 31, 2017 resulted in a non-cash loss of $nil for both periods, compared
$nil and $47,690, respectively, for the three and nine months ended January 31,
2016.
Liquidity and Capital Resources
As
of January 31, 2017, we had $2,521,698 in cash and cash equivalents compared to
$2,159,738 as of April 30, 2016, representing an increase of $361,960. Our
working capital was $1,454,799 at January 31, 2017 compared to $1,737,956 at
April 30, 2016, representing a decrease of $283,157. Management anticipates that
the future capital requirements of our company will be primarily funded through
cash flows generated from operations and from working capital, and we may seek
additional funding to meet ongoing operating expenses.
Our
company has $1,657,962 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.
33
Operating Activities
Our
operating activities resulted in a net cash outflow of $405,489 for the nine
months ended January 31, 2017. This compares to a net cash outflow of $1,614,362
for the same period last year representing a decrease of $1,208,873 in cash
outflow from operations compared to the same period last year. The net cash
outflow from operating activities for the nine months ended January 31, 2017 was
primarily a result of a net loss of $1,610,071 and a non-cash foreign exchange
gain of $267,383. The net cash outflow was offset by stock based compensation of
$701,515, accounts receivable of $394,047 and unearned revenue of $274,314.
Investing Activities
Investing
activities resulted in a net cash outflow of $106,278, for the nine months ended
January 31, 2017 primarily for purchases of computer equipment and intangible
assets. This compares with a net cash outflow from investing activities of
$14,228 for the same period last year primarily for purchases of computer
equipment. At January 31, 2017, we did not have any material commitments for
future capital expenditures.
Financing Activities
Financing
activities resulted in a net cash inflow of $889,869 for the nine months ended
January 31, 2017 compared to a net cash inflow of $1,476,239 for the nine months
ended January 31, 2016. The net cash inflow for the nine months ended January
31, 2017 was primarily a result of a non-brokered private placement under which
we issued 454,097 shares of common stock at a price of $2.05 per share raising
$930,899. The net cash inflow for the nine months ended January 31, 2016 was
primarily a result of a non-brokered private placement under which we issued
293,000 units at a price of $5.00 per unit raising $1,465,000.
Off-Balance Sheet Arrangements
We
do not have, and do not have any present plans to implement, any off-balance
sheet arrangements.
New Accounting Pronouncements
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. Early
adoption is not permitted. We are currently evaluating the impact of the
adoption of this new standard.
In
March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers:
Principal versus Agent Considerations (Reporting Revenue Gross versus Net),
which clarifies the guidance in the new revenue standard on assessing whether an
entity is a principal or an agent in a revenue transaction. This conclusion
impacts whether an entity reports revenue on a gross or net basis. We are
currently evaluating the impact of this standard on our consolidated financial
statements and related disclosures.
In
April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers:
Identifying Performance Obligations and Licensing, which clarifies the guidance
in the new revenue standard regarding an entitys identification of its
performance obligations in a contract, as well as an entitys evaluation of the
nature of its promise to grant a license of intellectual property and whether or
not that revenue is recognized over time or at a point in time. We are currently
evaluating the impact of this standard on our consolidated financial statements
and related disclosures.
34
In
May 2016, the FASB issued ASU 2016-11, Revenue Recognition: Customer Payments
and Incentives, which clarifies the guidance in recognizing costs for
consideration given by a vendor to a customer as a component of cost of sales.
We are currently evaluating the impact of this standard on our consolidated
financial statements and related disclosures.
In
May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers:
Narrow-Scope Improvements and Practical Expedients which amends the guidance in
the new revenue standard on collectability, noncash consideration, presentation
of sales tax, and transition. The amendments are intended to address
implementation issues and provide additional practical expedients to reduce the
cost and complexity of applying the new revenue standard. These amendments have
the same effective date as the new revenue standard. While we are currently
evaluating the method of adoption and the impact of the new revenue standard, as
amended, on our Consolidated Financial Statements and related disclosures, we
believe the adoption of the new standard may have a significant impact on the
accounting for certain transactions with multiple elements or bundled
arrangements because the requirement to have VSOE for undelivered elements under
current accounting standards is eliminated under the new standard. Accordingly,
we may be required to recognize as revenue a portion of the sales price upon
delivery of the software, as compared to the current requirement of recognizing
the entire sales price ratably over an estimated offering period. We continue to
evaluate the impact of the new revenue standard on our consolidated financial
statements and related disclosures.
In
August 2014, FASB issued ASU 2014-15, Presentation of Financial Statements
Going Concern, which requires management to evaluate whether there is
substantial doubt about an entitys ability to continue as a going concern and
provide related footnote disclosures. The guidance is effective for annual and
interim reporting periods beginning on or after December 15, 2016. Early
adoption is permitted for financial statements that have not been previously
issued. The standard allows for either a full retrospective or modified
retrospective transition method. We
do not expect this standard to have a material impact our consolidated financial
statements upon adoption.
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
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 Companys 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.
Item
3.
Quantitative and
Qualitative Disclosures About Market Risk.
Not
Applicable.
Item
4.
Controls and
Procedures.
Disclosure Controls and Procedures
Disclosure
controls and procedures are 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.
35
In
connection with this quarterly 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 company's Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation, our
company's Chief Executive Officer and Chief Financial Officer concluded that as
of January 31, 2017, our disclosure controls and procedures are effective as at
the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred
during the quarter ended January 31, 2017 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Much
of the information included in this quarterly 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
April 30, 2018.
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.
36
We
depend on a mix of revenues and outside capital to pay for the continued
development of our technology and the marketing of our products. Such outside
capital may include the sale of additional stock and/or commercial borrowing.
There can be no assurance that capital will continue to be available if
necessary to meet these continuing development costs or, if the capital is
available, that it will be on terms acceptable to us. Disruptions in financial
markets and challenging economic conditions have and may continue to affect our
ability to raise capital. The issuance of additional equity securities by us
would result in a dilution, possibly a significant dilution, in the equity
interests of our current stockholders. Obtaining commercial loans, assuming
those loans would be available, will increase our liabilities and future cash
commitments.
Our
revenue, operating results and gross margin can fluctuate significantly and
unpredictably from quarter-to-quarter and from year-to-year, and we expect that
they will continue to do so, which could have a material adverse effect on our
operating results.
The
rate at which our customers order our products, and the size of these orders,
are highly variable and difficult to predict. In the past, we have experienced
significant variability in our customer purchasing practices on a quarterly and
annual basis, and we expect that this variability will continue, as a result of
a number of factors, many of which are beyond our control, including:
-
demand for our products and the timing and size of customer orders;
-
length of sales cycles, which may be extended by selling our products
through channel partners;
-
length of time of deployment of our products by our customers;
-
customers budgetary constraints;
-
competitive pressures; and
-
general economic conditions.
As
a result of this volatility in our customers purchasing practices, our revenue
has historically fluctuated unpredictably on a quarterly and annual basis and we
expect this to continue for the foreseeable future. Our budgeted expense levels
depend in part on our expectations of future revenue. Because any substantial
adjustment to expenses to account for lower levels of revenue is difficult and
takes time, if our revenue declines, our operating expenses and general overhead
would likely be high relative to revenue, which could have a material adverse
effect on our operating margin and operating results.
We
may be unable to predict subscription renewal rates and the impact these rates
may have on our future revenue and operating results.
Some
of our products and services are sold on a subscription basis that are 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.
37
Operating
expenses of $3,074,706 exceeded revenue of $2,555,359 for the three months ended
January 31, 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.
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.
On
December 16, 2014, we received notice from NASDAQ that the closing bid price of
our shares for the last 30 consecutive business days no longer met the minimum
bid price requirement of $1.00 per share.
Effective
November 2, 2015, our company effected a one-for-ten reverse stock split of the
shares of our common stock. On November 16, 2015, we received notice from NASDAQ
that the closing bid price of our common stock has been $1.00 or greater for the
previous 30 consecutive business days and that we had regained compliance with
listing rule 5550(a)(2). There can be no assurance that the closing bid price of
our common stock will not fall below the minimum bid price requirement of $1.00
per share.
38
The
majority of our directors and officers are located outside the United States,
with the result that it may be difficult for investors to enforce within the
United States any judgments obtained against us or some of our directors or
officers.
The
majority of our directors and officers are nationals and/or residents of
countries other than the United States, and all or a substantial portion of such
persons' assets are located outside the United States. As a result, it may be
difficult for investors to enforce within the United States any judgments
obtained against us or our officers or directors, including judgments predicated
upon the civil liability provisions of the securities laws of the United States
or any state thereof. Consequently, investors may be effectively prevented from
pursuing remedies under United States federal securities laws against some of
our directors or officers.
We
may in the future be subject to damaging and disruptive intellectual property
litigation that could materially and adversely affect our business, results of
operations and financial condition, as well as the continued viability of our
company.
We
may be unaware of filed patent applications and issued patents that could relate
to our products and services. Intellectual property litigation, if determined
against us, could:
-
result in the loss of a substantial number of existing customers or
prohibit the acquisition of new customers;
-
cause us to lose access to key distribution channels;
-
result in substantial employee layoffs or risk the permanent loss of
highly-valued employees;
-
materially and adversely affect our brand in the market place and cause a
substantial loss of goodwill;
-
affect our ability to raise additional capital;
-
cause our stock price to decline significantly; and
-
lead to the bankruptcy or liquidation of our company.
Parties
making claims of infringement may be able to obtain injunctive or other
equitable relief that could effectively block our ability to provide our
products or services and could cause us to pay substantial royalties, licensing
fees or damages. The defense of any lawsuit could result in time-consuming and
expensive litigation, regardless of the merits of such claims.
We
could lose our competitive advantages if we are not able to protect any
proprietary technology and intellectual property rights against infringement,
and any related litigation could be time-consuming and costly.
Our
success and ability to compete depends to a significant degree on our
proprietary technology incorporated in our software. If any of our competitors'
copy or otherwise gain access to our proprietary technology or develops similar
technologies independently, we would not be able to compete as effectively. We
also consider our family of registered and unregistered trademarks including
CounterPath, Bria, 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.
39
Our
products may become obsolete and unmarketable if we are unable to respond
adequately to rapidly changing technology and customer demands.
Our
industry is characterized by rapid changes in technology and customer demands.
As a result, our products may quickly become obsolete and unmarketable. Our
future success will depend on our ability to adapt to technological advances,
anticipate customer demands, develop new products and enhance our current
products on a timely and cost-effective basis. Further, our products must remain
competitive with those of other companies with substantially greater resources.
We may experience technical or other difficulties that could delay or prevent
the development, introduction or marketing of new products or enhanced versions
of existing products. Also, we may not be able to adapt new or enhanced services
to emerging industry standards, and our new products may not be favorably
received.
Unless
we can establish broad market acceptance of our current products, our potential
revenues may be significantly reduced.
We
expect that a substantial portion of our future revenue will be derived from the
sale of our software products. We expect that these product offerings and their
extensions and derivatives will account for a majority of our revenue for the
foreseeable future. Broad market acceptance of our software products is,
therefore, critical to our future success and our ability to continue to
generate revenues. Failure to achieve broad market acceptance of our software
products as a result of competition, technological change, or otherwise, would
significantly harm our business. Our future financial performance will depend
primarily on the continued market acceptance of our current software product
offerings and on the development, introduction and market acceptance of any
future enhancements. There can be no assurance that we will be successful in
marketing our current product offerings or any new product offerings,
applications or enhancements, and any failure to do so would significantly harm
our business.
Our
use of open source software could impose limitations on our ability to
commercialize our products.
We
incorporate open source software into our products. Although we closely monitor
our use of open source software, the terms of many open source software licenses
have not been interpreted by U.S. courts, and there is a risk that such licenses
could be construed in a manner that could impose unanticipated conditions or
restrictions on our ability to sell our products. In such event, we could be
required to make our proprietary software generally available to third parties,
including competitors, at no cost, to seek licenses from third parties to
continue offering our products, to re-engineer our products or to discontinue
the sale of our products in the event re-engineering cannot be accomplished on a
timely basis or at all, any of which could adversely affect our revenues and
operating expenses.
We
may not be able to obtain necessary licenses of third-party technology on
acceptable terms, or at all, which could delay product sales and development and
adversely
impact product quality.
We
have incorporated third-party licensed technology into our current products. We
anticipate that we are also likely to need to license additional technology from
third-parties to develop new products or product enhancements in the future.
Third-party licenses may not be available or continue to be available to us on
commercially reasonable terms. The inability to retain any third-party licenses
required in our current products or to obtain any new third-party licenses to
develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at greater
cost, and delay or prevent us from making these products or enhancements, any of
which could seriously harm the competitive position of our products.
Our
products must interoperate with many different networks, software applications
and hardware products, and this interoperability will depend on the continued
prevalence of open standards.
40
Our
products are designed to interoperate with our customers existing and planned
networks, which have varied and complex specifications, utilize multiple
protocol standards, software applications and products from numerous vendors and
contain multiple products that have been added over time. As a result, we must
attempt to ensure that our products interoperate effectively with these existing
and planned networks. To meet these requirements, we have and must continue to
undertake development and testing efforts that require significant capital and
employee resources. We may not accomplish these development efforts quickly or
cost-effectively, or at all. If our products do not interoperate effectively,
installations could be delayed or orders for our products could be cancelled,
which would harm our revenue, gross margins and our reputation, potentially
resulting in the loss of existing and potential customers. The failure of our
products to interoperate effectively with our customers networks may result in
significant warranty, support and repair costs, divert the attention of our
engineering personnel from our software development efforts and cause
significant customer relations problems.
Additionally,
the interoperability of our products with multiple different networks is
significantly dependent on the continued prevalence of standards for IP
multimedia services, such as SIP or Session Initiation Protocol. Some of our
existing and potential competitors are network equipment providers who could
potentially benefit from the deployment of their own proprietary
non-standards-based architectures. If resistance to open standards by network
equipment providers becomes prevalent, it could make it more difficult for our
products to interoperate with our customers networks, which would have a
material adverse effect on our ability to sell our products to service
providers.
We
are subject to the credit risk of our customers, which could have a material
adverse effect on our financial condition, results of operations and
liquidity.
We
are subject to the credit risk of our customers. Businesses that are good credit
risks at the time of sale may become bad credit risks over time. In times of
economic recession, the number of our customers who default on payments owed to
us tends to increase. If we fail to adequately assess and monitor our credit
risks, we could experience longer payment cycles, increased collection costs and
higher bad debt expense.
We
are exposed to fluctuations in interest rates and exchange rates associated with
foreign currencies.
A
majority of our revenue activities are transacted in U.S. dollars. However, we
are exposed to foreign currency exchange rate risk inherent in conducting
business globally in numerous currencies, of which the most significant to our
operations for the three months ended January 31, 2017 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 companys 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. We did not enter into any forward contracts for hedging
purposes during the three months ended January 31, 2017 (2016 - none).
Risks Associated with our Common Stock
Our
directors control a substantial number of shares of our common stock, decreasing
your influence on stockholder decisions.
Based
on the 5,006,545 shares of common stock that were issued and outstanding as of
January 31, 2017, our directors owned approximately 31% 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.
41
We
do not expect to pay dividends in the foreseeable future.
We
do not intend to declare dividends for the foreseeable future, as we anticipate
that we will reinvest any future earnings in the development and growth of our
business. Therefore, investors will not receive any funds unless they sell their
common stock, and stockholders may be unable to sell their shares on favorable
terms. We cannot assure you of a positive return on investment or that you will
not lose the entire amount of your investment in our common stock.
The exercise of all or any number of outstanding stock options or the
issuance of other stock-based awards or any issuance of shares to raise funds
may dilute your holding of shares of our common stock.
If
the holders of outstanding stock options, warrants and deferred share units
exercise or settle all of their vested stock options, warrants and deferred
share units as at January 31, 2017, then we would be required to issue an
additional 647,663 shares of our common stock, which would represent
approximately 15% 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.
42
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 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and
Affiliated Purchasers
43
Issuer Purchases of Equity Securities
|
Period
|
Total number
of shares
purchased
|
Average price
paid per share
(Canadian
dollars)
|
Total number of
shares purchased
as part of publicly
announced plans
or programs
|
Maximum
number of
shares
that may yet be
purchased under
the plans or
programs
|
November 1, 2016 to
November 30, 2016
|
100
(1)
|
$2.59
|
100
|
270,864
|
December 1, 2016 to
December 31, 2016
|
400
(1)
|
$2.71
|
400
|
270,464
|
January 1, 2017 to January 31, 2017
|
300
(1)
|
$3.27
|
300
|
270,164
|
Total
|
800
|
$2.91
(2)
|
800
|
270,164
|
|
(1)
|
Purchased pursuant to a normal course issuer bid
announced on March 16, 2016, which commenced on March 19, 2016 and
expiring on March 18, 2017 to purchase up to 273,864 shares of our common
stock.
|
|
|
|
|
(2)
|
Weighted average price.
|
On
March 16, 2016, we announced our intention to purchase, by way of a normal
course issuer bid, for cancellation purposes, up to 273,864 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 the
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 21, 2016 and expiring on March 20, 2017. We
are permitted to make block purchases once per calendar week in accordance with
the rules of the TSX. The daily purchase restriction is 1,000 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 entered into an 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 self-imposed trading blackout periods, insider trading
rules or otherwise. The purchase plan has been approved by the TSX and was
implemented as of March 21, 2016. 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.
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.
44
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not
Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibits required by Item 601 of Regulation S-K
(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).
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|
|
4.3
|
Deferred Share Unit Plan (filed herewith).
|
45
(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
|
Form of Subscription Agreement dated October 29, 2009
between our company and various investors (incorporated by reference from
our Current Report on Form 8-K filed on November 4, 2009).
|
|
|
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).
|
|
|
(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)
|
|
|
(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).
|
46