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

FORM 10-Q

(Mark One)

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

For the quarterly period endedJuly 31, ~~2017~~2018

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

For the transition period from ______________ to ______________

Commission file number001-35592

COUNTERPATH CORPORATION
(Exact name of registrant as specified in its charter)

Nevada	20-0004161
(State or other jurisdiction of incorporation or ~~organization)~~	(IRS Employer Identification No.)
organization)

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

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

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes [ ] No [ ]

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 issuer’s classes of common stock, as of the latest practicable date: ~~5,486,274~~5,941,909 shares of common stock issued and outstanding as of September ~~8, 2017.~~10, 2018.

COUNTERPATH CORPORATION
JULY 31, ~~2017~~2018 QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

It is the opinion of management that the interim consolidated financial statements for the quarter ended July 31, ~~2017~~2018 include all adjustments necessary in order to ensure that the interim consolidated financial statements are not misleading.

In the interim consolidated financial statements for the quarter ended July 31, ~~2017,~~2018, all amounts are expressed in United States dollars, unless otherwise indicated. The interim consolidated financial statements for the quarter ended July 31, ~~2017~~2018 are prepared in accordance with generally accepted accounting principles in the United States.

COUNTERPATH CORPORATION
INDEX TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, ~~2017~~2018
(Unaudited)
(Stated in U.S. Dollars)

	Page

Interim Consolidated Balance Sheets	5

Interim Consolidated Statements of Operations	6

Interim Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss	6

Interim Consolidated Statements of Cash Flows	7

Interim Consolidated Statement of Changes in Stockholders’ Equity	8

Notes to the Interim Consolidated Financial Statements	9

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

								July 31,			April 30,
		July 31,			April 30,			2018			2018
		2017			2017
Assets		(Unaudited)
Current assets:
Cash and cash equivalents	$	2,526,262		$	2,071,019
Accounts receivable (net of allowance for doubtful accounts of $138,196 and $80,232, respectively)		2,667,318			2,133,469
Cash							$	1,877,163		$	2,348,883
Accounts receivable (net of allowance for doubtful accounts of $401,787 (2018 - $322,638))								3,203,169			3,509,010
Deferred sales commission costs – current – Note 4								87,566			–
Derivative assets								15,720			–
Prepaid expenses and deposits		156,985			170,853			161,661			191,245
Total current assets		5,350,565			4,375,341			5,345,279			6,049,138

Deposits		99,497			91,400			97,389			98,633
Deferred sales commission costs – non-current – Note 4								70,449			–
Equipment		139,584			125,813			98,260			121,819
Goodwill – Note 2(e)		7,043,181			6,440,955
Other assets		206,022			199,637
Goodwill								6,744,713			6,843,575
Intangibles and other assets								218,666			221,062
Total Assets	$	12,838,849		$	11,233,146		$	12,574,756		$	13,334,227

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	2,038,941		$	1,825,528		$	2,490,403		$	2,437,733
Derivative liability								10,318			–
Unearned revenue		2,016,863			2,134,948			2,558,932			2,565,876
Customer deposits								2,200			2,200
Accrued warranty		54,920			54,365			59,839			63,130
Customer deposits		11,793			6,211
Total current liabilities		4,122,517			4,021,052			5,121,692			5,068,939

Deferred lease inducements		22,570			23,022			11,638			14,339
Unrecognized tax benefit		9,763			9,763
Unrecognized tax liability								9,763			9,763
Total liabilities		4,154,850			4,053,837			5,143,093			5,093,041

Stockholders’ equity:
Preferred stock, $0.001 par value Authorized: 100,000,000 Issued and outstanding: July 31, 2017 – nil; April 30, 2017 – nil		–			–
Common stock, $0.001 par value – Note 5 Authorized: 10,000,000 Issued and outstanding: July 31, 2017 – 5,485,808; April 30, 2017 – 5,005,245		5,486			5,005
Treasury stock		(3	)		(60	)
Preferred stock, $0.001 par value Authorized: 100,000,000 Issued and outstanding: July 31, 2018 – nil; April 30, 2018 – nil								–			–
Common stock, $0.001 par value – Note 7 Authorized: 100,000,000 Issued: July 31, 2018 – 5,939,598; April 30, 2018 – 5,930,468								5,940			5,931
Additional paid-in capital		73,140,707			71,680,575			75,440,528			75,170,181
Accumulated deficit		(61,633,548	)		(60,481,015	)
Accumulated deficit – Note 4								(64,578,599	)		(63,701,685	)
Accumulated other comprehensive loss – currency translation adjustment		(2,828,643	)		(4,025,196	)		(3,436,206	)		(3,233,241	)
Total stockholders’ equity		8,683,999			7,179,309			7,431,663			8,241,186
Liabilities and Stockholders’ Equity	$	12,838,849		$	11,233,146		$	12,574,756		$	13,334,227

Commitments – Note 7
Contingencies – Note 8
Commitments – Note 10
Contingencies – Note 11

See accompanying notes to the interim consolidated financial statements

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

		Three Months Ended						Three Months Ended
		July 31,						July 31,
		2017			2016			2018			2017
Revenue – Note 6:
Revenue – Note 9:
Software	$	1,698,893		$	1,656,003		$	1,356,002		$	1,698,893
Subscription, support and maintenance		967,062			955,296			1,251,020			967,062
Professional services and other		446,851			414,695			280,808			446,851
Total revenue		3,112,806			3,025,994			2,887,830			3,112,806
Operating expenses:
Cost of sales (includes depreciation of $1,584 (2016 – $1,806))		388,243			497,116
Cost of sales (includes depreciation of $528 (2017 - $1,584))								595,556			388,243
Sales and marketing		1,004,284			961,869			994,960			1,004,284
Research and development		1,361,473			1,158,661			1,402,956			1,361,473
General and administrative		892,587			981,471			991,638			892,587
Total operating expenses		3,646,587			3,599,117			3,985,110			3,646,587
Loss from operations		(533,781	)		(573,123	)		(1,097,280	)		(533,781	)
Interest and other income (expense), net:
Interest and other income		–			13
Interest expense		(53	)		–			(5	)		(53	)
Foreign exchange gain (loss)		(618,699	)		209,199			80,936			(618,699	)
Gain on change in fair value of derivative instruments								5,402			–
Total interest and other income (expense), net								86,333			(618,752	)
Net loss for the period	$	(1,152,533	)	$	(363,911	)	$	(1,010,947	)	$	(1,152,533	)

Net loss per share:
Basic and diluted – Note 9	$	(0.23	)	$	(0.08	)

Basic and diluted – Note 12							$	(0.17	)	$	(0.23	)
Weighted average common shares outstanding:
Basic and diluted – Note 9		5,036,954			4,550,516
Basic and diluted – Note 12								5,932,417			5,036,954

See accompanying notes to the interim consolidated financial statements

COUNTERPATH CORPORATION
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS
(Stated in U.S. Dollars)
(Unaudited)

		Three Months Ended						Three Months Ended
		July 31,						July 31,
		2017			2016			2018			2017
Net loss for the period	$	(1,152,533	)	$	(363,911	)	$	(1,010,947	)	$	(1,152,533	)
Other comprehensive loss:
Foreign currency translation adjustments		1,196,553			(495,352	)		(202,966	)		1,196,553
Comprehensive income/(loss)	$	44,020		$	(859,263	)
Comprehensive (loss) income							$	(1,213,913	)	$	44,020

See accompanying notes to the interim consolidated financial statements

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

								Three Months Ended
		Three Months Ended						July 31,
		July 31,						2018			2017
		2017			2016
Cash flows from operating activities:
Net loss for the period	$	(1,152,533	)	$	(363,911	)	$	(1,010,947	)	$	(1,152,533	)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred lease inducements		(2,461	)		(3,249	)		(2,494	)		(2,461	)
Depreciation and amortization		29,454			26,610			28,942			29,454
Foreign exchange (gain) loss		612,273			(247,979	)
Stock-based compensation		296,332			314,223
Issuance of common stock for services		–			13,963
Unrealized foreign exchange (gain) loss								(120,744	)		612,273
Stock-based compensation – Note 7								267,412			296,332
Change in fair value of derivative instruments								(5,402	)		–

Changes in assets and liabilities:
Accounts payable and accrued liabilities		137,892			98,182			66,822			137,892
Accounts receivable		(533,849	)		17,431			305,836			(533,849	)
Deferred sales commission costs – Note 4								(23,982	)		–
Accrued warranty		555			4,625			(3,291	)		555
Customer deposits		4,861			(421	)		–			4,861
Prepaid expenses and deposits		11,256			34,603			29,085			11,256
Unearned revenue		(118,085	)		178,634			(6,944	)		(118,085	)
Net cash provided by (used in) operating activities		(714,305	)		72,711
Net cash used in operating activities								(475,707	)		(714,305	)

Cash flows from investing activities:
Purchase of equipment		(34,592	)		(50,373	)
Purchase of other assets		(7,161	)		(2,868	)
Purchases of equipment								(3,911	)		(34,592	)
Purchases of intangibles								(265	)		(7,161	)
Net cash used in investing activities		(41,753	)		(53,241	)		(4,176	)		(41,753	)

Cash flows from financing activities:
Common stock issued		1,174,302			–
Common stock repurchased		(9,964	)		(3,328	)
Net cash provided by (used in) financing activities		1,164,338			(3,328	)
Net proceeds from issuance of common stock								2,944			1,174,302
Repurchases of common stock								–			(9,964	)
Net cash provided by financing activities								2,944			1,164,338

Foreign exchange effect on cash		46,963			(15,550	)		5,219			46,963

Net increase in cash		455,243			592
Increase (decrease) in cash								(471,720	)		455,243

Cash, beginning of the period		2,071,019			2,159,738			2,348,883			2,071,019
Cash, end of the period	$	2,526,262		$	2,160,330		$	1,877,163		$	2,526,262

Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	53		$	–		$	5		$	53
Income taxes paid	$	–		$	–
Taxes							$	–		$	–

Non cash transactions – Notes 7

See accompanying notes to the interim consolidated financial statements

COUNTERPATHCORPORATION
INTERIMCONSOLIDATEDSTATEMENT OFCHANGES INSTOCKHOLDERS’EQUITY
for the ThreeMonths Ended July 31, ~~2017~~2018
(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, 2017 5,005,245 $ 5,005 (59,900 ) $ (60 ) $ 71,680,575 $ (60,481,015 ) $ (4,025,196 ) $ 7,179,309

Shares issued:
Private placement, net of share
issuance costs – Note 5 539,240 539 – – 1,165,957 – – 1,166,496
Share repurchase plan – – (5,300 ) (5 ) (11,053 ) – – (11,058 )
Cancellation of shares Note 5 (62,600 ) (62 ) 62,600 62 1,095 – – 1,095
Stock-based compensation – Note 5 – – – – 296,332 – – 296,332
Employee share purchase program 3,923 4 – – 7.801 – – 7,805
Net loss for the period – – – – – (1,152,533 ) – (1,152,533 )
Foreign currency translation adjustment – – – – – – 1,196,553 1,196,553

Balance, July 31, 2017 (unaudited) 5,485,808 $ 5,486 (2,600 ) $ (3 ) $ 73,140,707 $ (61,633,548 ) $ (2,828,643 ) $ 8,683,999

	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, 2017	5,005,245		$	5,005		(59,900	)	$	(60	)	$	71,680,575		$	(60,481,015	)	$	(4,025,196	)	$	7,179,309

Shares issued:
Private placement, net of share issuance costs – Note 7	539,240			539		–			–			1,165,957			–			–			1,166,496
Share repurchase plan – Note 7	–			–		(5,300	)		(5	)		(11,053	)		–			–			(11,058	)
Cancellation of shares Note 7	(62,600	)		(62	)	62,600			62			1,095			–			–			1,095
Stock-based compensation – Note 7	–			–		–			–			296,332			–			–			296,332
Employee share purchase program – Note 7	3,923			4		–			–			7.801			–			–			7,805
Net loss for the period	–			–		–			–			–			(1,152,533	)		–			(1,152,533	)
Foreign currency translation adjustment	–			–		–			–			–			–			1,196,553			1,196,553
Balance, July 31, 2017	5,485,808		$	5,486		(2,600	)	$	(3	)	$	73,140,707		$	(61,633,548	)	$	(2,828,643	)	$	8,683,999

Balance, April 30, 2018	5,930,468		$	5,931		–		$	–		$	75,170,181		$	(63,701,685	)	$	(3,233,241	)	$	8,241,186
Adoption of ASC 606 – Note 4															134,033						134,033
Balance, May 1, 2018	5,930,468		$	5,931		–		$	–		$	75,170,181		$	(63,567,652	)	$	(3,233,241	)	$	8,375,219

Shares issued:
Stock-based compensation – Note 7	–			–		–			–			267,412			–			–			267,412
Employee share purchase program – Note 7	2,172			2		–			–			5,321			–			–			5,323
Exercise of stock options – Note 7	6,958			7		–			–			(2,386	)		–			–			(2,379	)
Net loss for the period	–			–		–			–			–			(1,010,947	)		–			(1,010,947	)
Foreign currency translation adjustment	–			–		–			–			–			–			(202,965	)		(202,965	)
Balance, July 31, 2018	5,939,598		$	5,940		–		$	–		$	75,440,528		$	(64,578,599	)	$	(3,436,206	)	$	7,431,663

Seeaccompanying notes to the interimconsolidatedfinancialstatements

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, ~~2017~~2018
(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 Company’s 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)~~(“UC”) services, including voice, video, messaging and collaboration functionality, over their Internet Protocol, or IP, based networks. The Company’s products are sold either directly or through channel partners, to small, medium and large businesses (“enterprises”) and telecom service providers, in North America, and in Europe, Middle East, Africa ~~(“collectively EMEA”~~(collectively “EMEA”), Asia Pacific and Latin America.

Note 2	~~Significant Accounting Policies~~Basis of Presentation and Principles of Consolidation

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

	These 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.

	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.Going Concern

		The Company has experienced recurring losses and has an accumulated deficit of $64,578,599 as of July 31, 2018, as a result of flat to declining revenues ~~as a result of~~resulting from a number of factors including its buildout of a cloud based subscription platform concurrent with the change of its licensing model to subscription based licensing and has not reached profitable operations which raises substantial doubt about its ability to continue operating as a going concern within one year of the date of the financial statements.

		The Company has historically been able to manage liquidity requirements through cost management and cost reduction measures, supplemented with raising additional financing. As of July 31, 2018, the Company does not have any commitments to raise funds.

	To alleviate this situation, the Company has plans in place to improve its financial position and liquidity, while executing on its growth strategy, by managing and or reducing costs that ~~are~~is not expected to have an adverse impact on the ability to generate cash ~~flows.~~flows, as the transition to its software as a service platform and subscription licensing continues.

		~~In addition, the Company has historically been able to raise additional financing to assist with the Company’s transition.~~

~~COUNTERPATH CORPORATION~~
~~NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS~~
~~July 31, 2017~~
~~(Unaudited)~~

~~Note 2~~

~~Significant Accounting Policies - (cont’d)~~

	a)	~~Basis of Presentation – (cont’d)~~

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

	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.~~Commission (“SEC”). Certain information and footnote disclosures normally included in the consolidated 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.

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2018
(Unaudited)


		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 Company’s April 30, ~~2017~~2018 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 Company’s April 30, ~~2017~~2018 annual audited consolidated financial statements.

		Operating results for the three months ended July 31, ~~2017~~2018 are not necessarily indicative of the results that can be expected for the year ending April 30, ~~2018.~~2019.

Note 3	Summary of Significant Accounting Policies

	The significant accounting policies used in preparation of these interim consolidated financial statements are disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2018 filed with the Securities Exchange Commission on July 25, 2018, and there have been no changes to the Company's significant accounting policies during the three months ended July 31, 2018, except for the revenue recognition policy, described inNote 4 – Revenue Recognition under ASC 606, that was updated as a result of adopting Accounting Standards Update (ASU) No. 2014-09,Revenue fromContracts with Customers: Topic 606(ASU 2014-09 or ASC 606). ASU 2014-09 also included Subtopic 340-40,Other Assets and Deferred Costs - Contracts with Customers. All amounts and disclosures set forth herein are in compliance with these standards.

	c)	~~New Accounting Pronouncements~~Concentrations of Credit Risk

		~~In May 2014, FASB issued ASU 2014-09,~~~~Revenue From Contracts With Customers~~~~(“Topic 606”). Topic 606 removes inconsistencies~~Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash 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 informationaccounts receivable. The Company has exposure to ~~users of financial statements through improved disclosure requirements and simplifies~~credit risk to the ~~preparation of financial statements~~extent cash balances exceed amounts covered by ~~reducing~~federal deposit insurance; however, 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 adoptionCompany believes that its credit risk on cash balances is ~~not permitted.~~immaterial. The Company is ~~currently evaluating the impact~~also subject to concentrations of ~~the adoption of this new standard.~~credit risk in its accounts receivable. The Company monitors and actively manages its receivables, and from time to time will insure certain receivables with higher credit risk and may require collateral or other securities to support its accounts receivable.

		~~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~~significant customers for the ~~guidance in the new revenue standard on assessing whether an entity~~three months ended July 31, 2018 and 2017 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.summarized below:

	Three Months Ended
	July 31,
	2018	2017
Customer A	10%	–%
Customer B	–%	11%

The table below presents significant customers who accounted for greater than 10% of total accounts receivable as of July 31, 2018 and April 30, 2018:

	July 31,	April 30,
	2018	2018
Customer C	19%	18%
Customer D	2%	13%

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, ~~2017~~2018
(Unaudited)

~~Note 2~~

~~Significant Accounting Policies~~−~~(cont’d)~~

	c)	~~New Accounting Pronouncements – (cont’d)~~

		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 entity’s identification of its performance obligations in a contract, as well as an entity’s 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.

		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 Company’s ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected will a valuation provision. The amendments will be effective for fiscal years beginning after December 15, 2019. We are evaluating the impact of this amendment on our consolidated financial statements and related disclosures.

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

11Accounts Receivable and Allowance for Doubtful Accounts

~~COUNTERPATH CORPORATION~~
~~NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS~~
~~July 31, 2017~~
~~(Unaudited)~~Accounts receivable are presented net of an allowance for doubtful accounts.

~~Note 2~~

~~Significant Accounting Policies~~−~~(cont’d)~~

	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 entity’s 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 months ended July 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 unit’s carrying amount, including goodwill, to the fair value of the reporting unit, which is measured based upon, among other factors, market multiples for comparable companies as well as a discounted cash flow analysis.

		Management has determined that the Company 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 July 31, 2017 was $5,373,488 (CDN$6,704,947) (April 30, 2017 - $4,914,029) in respect of NewHeights and $1,669,693 (CDN$2,083,414) (April 30, 2017 - $1,526,926) in respect of FirstHand. Management will perform its annual impairment test in its fiscal fourth quarter. No impairment charges were recorded for the three months ended July 31, 2017 and 2016.

~~COUNTERPATH CORPORATION~~
~~NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS~~
~~July 31, 2017~~
~~(Unaudited)~~

~~Note 2~~

~~Significant Accounting Policies - (cont’d)~~

	f)	~~Accounts Receivable and Allowance for Doubtful Accounts~~

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

July 31, April 30,
2017 2017
Balance of allowance for doubtful accounts, beginning of period/year $ 80,232 $ 547,173
Bad debt provision 59,894 346,689
Write-off of receivables (1,930 ) (813,630 )
Balance of allowance for doubtful accounts, end of period/year $ 138,196 $ 80,232

		July 31,		April 30,
		2018		2018
Balance of allowance for doubtful accounts, beginning of period	$	322,638	$	80,232
Bad debt provision		79,149		578,024
Write-off of receivables		–		(335,618	)
Balance of allowance for doubtful accounts, end of period	$	401,787	$	322,638

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

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 entity’s 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 non-designated forward contracts are recognized in net income.

The Company records foreign currency option and forward contracts on its Consolidated Balance Sheets as derivative assets or liabilities depending on whether the fair value of such contracts is a net asset or net liability, respectively.See Note 5 - Derivative Instrumentsfor further detail. The Company did not enter any foreign currency derivatives designated as cash flow hedges in the three months ended July 31, 2018.

Recently Adopted Accounting Pronouncements

In May 2014, FASB issued ASU 2014-09,Revenue From Contracts With Customers (“Topic 606”) which supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (“Topic 605”) and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. The Company adopted ASU 2014-09 as of May 1, 2018 using the modified retrospective transition method. SeeNote 4 – Revenue Recognition under ASC 606 for further details.

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2018
(Unaudited)

	g)Recently Issued Accounting Pronouncements

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

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

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

	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.

Note 4	Revenue Recognition under ASC 606

	On May 1, 2018, the Company adopted the new accounting standard,ASC 606 “Revenue fromContracts with Customers”and all related amendments to the new accounting standard to contracts using the modified retrospective method. The Company recognized the cumulative effect of initially applying the new revenue recognition standard to contracts with open performance obligations as of May 1, 2018, as an adjustment to the opening balance of retained earnings. Results of the reporting period beginning May 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under ASC 605.

	Revenues from contracts with customers are recognized when control of promised goods and services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

		~~The Company’s 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~~using the five-step model as prescribed by ASC 606:

	1)	Identification of the contract, or contracts, with ~~ASC 985-605 “Software Revenue Recognition”.~~a customer;
	2)	Identification of the performance obligations in the contract;

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2018
(Unaudited)

	3)	~~Software license revenue is recognized for sales~~Determination of ~~perpetual licenses.~~the transaction price;

	4)	~~Subscription, support and maintenance revenue is generated from recurring fees purchased through the Company’s cloud based offerings, where the customer has no right to take possession~~Allocation of the ~~underlying software at any time~~transaction price to the performance obligations in the contract; and ~~is recognized ratably as the service is delivered.~~

	5)	~~Professional and other services includes software customization, implementation, training, and dedicated engineering which are recognized~~Recognition of revenue when or 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 three months ended July 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 964,378 and 980,714, respectively, were not included in the computation of diluted EPS because the effect was anti-dilutive.satisfies a performance obligation.

When a contract with a customer is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company estimates the amount to reserve for uncollectible amounts at the end of each reporting period based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded against the related accounts receivable.

The transaction price is the consideration that the Company expects to receive from its customers in exchange for its products or services. In determining the allocation of the transaction price, the Company identifies performance obligations in contracts with customers, which may include products, subscriptions to software and services, support, professional services and training. The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis. The standalone selling price (SSP) is the price at which the Company would sell a promised product or service separately to a customer. The Company determines the SSP using information that may include market conditions or other observable inputs. In certain cases, the Company is able to establish a SSP based on observable prices for products or services sold separately. In these instances, the Company would use a single amount to estimate a SSP. If a SSP is not directly observable, for example when pricing is variable, the Company will use a range of SSP.

In certain circumstances, the Company may estimate SSP for a product or service by applying the residual approach. This approach has been most commonly used when certain perpetual software licenses are only sold bundled with one year of post-contract support or other services, and a price has not been established for the software.

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

Software Revenue

The Company generates software revenue primarily on a single fee per perpetual software license basis. The Company recognizes software revenue for perpetual licenses when control has transferred to the customer, which is generally at the time of delivery when the customer has the ability to deploy the licenses, provided all revenue recognition criteria have been met. If the revenue recognition criteria has not been met, the revenue is deferred or not recognized.

Subscription, support and maintenance

Revenue from the Company’s recurring subscription revenue from subscriptions related to our software as a service offering is recognized ratably over the contractual subscription term as control of the goods or services is transferred to the customer, beginning on the date that the subscription is made available to the customer. Support and maintenance revenue is generated from recurring annual software support and maintenance contracts for our perpetual software licenses and is recognized ratably over the term of the service period, which is generally twelve months. Support and maintenance services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis. Both subscription revenue and support and maintenance revenue are typically billed annually in advance based on the terms of the arrangement.

Professional services and other

Professional services and other revenue is generated 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. Depending on the services to be provided, revenue from professional services and other is generally recognized at the time of delivery when the services have been completed and control has been transferred.

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, ~~2017~~2018
(Unaudited)

~~Note 3~~

~~Related Party Transactions~~

For contracts with elements related to customized network solutions and certain network build-outs or software systems that require significant modification or customization, the Company will recognize revenue using the percentage-of-completion method. In using the percentage-of-completion method, revenues are generally recorded based on completion of milestones as described in the agreement. Profit estimates on long-term contracts are revised periodically based on changes in circumstances and any losses on contracts are recognized in the period that such losses become known.

Unearned Revenue

Unearned revenue represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual support and subscription services and professional services not yet provided as of the balance sheet date.

During the three months ended July 31, ~~2017,~~2018, the Company ~~through~~recognized $947,800 in revenue in its ~~wholly owned subsidiary, CounterPath Technologies, paid $20,700 (2016 - $19,798)~~consolidated statements of operations that was previously recognized as unearned revenue in the consolidated balance sheets.

Costs to ~~KRP Properties (“KRP”) (previously known as Kanata Research Park Corporation) for leased office space. KRP~~Obtain a Customer Contract

Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a systematic basis, consistent with the timing of revenue recognition over the anticipated benefit period of up to 3.5 years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is ~~controlled by~~recorded in sales and marketing expense within the ~~Chairman~~Company's consolidated statement of ~~the Company.~~

~~On November 21, 2013,~~operations. The Company has elected to apply a practical expedient that permits the Company ~~through its wholly owned subsidiary, CounterPath Technologies, entered into an agreement with 8007004 (Canada) Inc. (“8007004”)~~ to ~~lease office space. 8007004~~expense costs to obtain a contract as incurred, if the anticipated benefit period is ~~controlled by a member of~~one year or less. From time to time, management will revisit the ~~board of directors of~~estimates used in recognizing the ~~Company. CounterPath Technologies, paid $7,694 (2016 - $7,358) for the three months ended July 31, 2017. On July 27, 2017, the company formalized an existing lease agreement~~costs to cover the period of five years starting July 15, 2015 and ending June 30, 2020. Prior to July 27, 2017 the agreement was on a month to month basis. The monthly payment under the new agreement will be $2,673.obtain customer contracts.

On July 20, 2017, our company issued an aggregate of 539,240 shares of common stock under a non-brokered private placement at a price of $2.20 per share for total gross proceeds of $1,186,328. In connection with this private placement, Wesley Clover International Corporation (previously known as Kanata Research Park Corporation), a company controlled by the Chairman of our company, purchased 144,357 shares, the chief executive officer and a director of our company, purchased 11,368 shares, the chief financial officer of our company, purchased 4,511 shares, and the Executive Vice President, Sales and Marketing of our company, purchased 4,545 shares.

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

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

~~Note 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 Company’s primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk.

~~Foreign Currency Exchange Rate Risk~~

A majority of the Company’s 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 Company’s operations for the three months ended July 31, 2017 is the Canadian dollar as a majority of the Company’s expenses are in Canadian dollars. The Company’s foreign currency risk management program includes foreign currency derivatives with cash flow hedge accounting designation that utilizes foreign currency forward contracts to hedge exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S. dollar-denominated cash flows. During the three months ended July 31, ~~2017 and 2016,~~2018, the Company ~~did not enter into any cash flow hedges.~~

~~The Company also periodically enters into foreign currency forward~~capitalized approximately $41,800 of costs to obtain revenue contracts ~~not designated as hedging instruments,~~and amortized approximately $54,100 to ~~protect it from fluctuations in exchange rates. During~~marketing and sales expense. Capitalized costs to obtain a revenue contract on the ~~three months ended~~Company's condensed consolidated balance sheets totaled approximately $158,000 at July 31, ~~2017~~2018.

Costs to Fulfill a Customer Contract

Certain contract costs incurred to fulfill obligations under a contract are capitalized when such costs generate or enhance resources to be used in satisfying future performance obligations and ~~2016,~~ the ~~Company had not entered into~~costs are deemed recoverable. Judgement is used in determining whether certain contract costs can be capitalized. These costs are capitalized and amortized on a systematic basis to match the timing of revenue recognition over the anticipated benefit period of up to 3.5 years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any ~~foreign currency forward~~anticipated renewal periods. This amortization expense is recorded in cost of sales in the Company’s consolidated statement of operations. From time to time, management will review the capitalized costs for impairment and will also revisit the estimates used in recognizing the costs to fulfill customer contracts.

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, ~~2017~~2018
(Unaudited)

~~Note 4~~

~~Derivative Financial Instruments and Risk Management – (cont’d)~~

~~Fair Value Measurement~~Adoption Impact of ASC 606

~~When available,~~The Company recognized the ~~Company uses quoted market prices~~cumulative effect of initially applying ASC 606 as an adjustment 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 market–based 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 market–based 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 value–driver 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 non–performance risk. Non–performance 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 non–performance risk is includedretained earnings in the ~~market price. For certain other financial assets and liabilities (Level 2 and 3), the Company’s fair value calculations have been adjusted accordingly.~~condensed consolidated balance sheet as of May 1, 2018:

		Balance at			ASC 606		Balance at
		April 30, 2018			Adjustments		May 1, 2018
Current assets:
Deferred sales commissions costs	$	–		$	70,248	$	70,248
Non-current assets:
Deferred sales commissions costs	$	–		$	63,785	$	63,785
Stockholders’ equity:
Accumulated deficit	$	(63,701,685	)	$	134,033	$	(63,567,652	)

The following ~~table presents~~tables summarize the ~~Company’s assets and liabilities that are measured at fair value~~adoption impact of ASC 606 on ~~a recurring basis as of~~the Company's condensed consolidated financial statements for the three months ended July 31, ~~2017 and April 30, 2017.~~

Carrying Fair Value
As at July 31, 2017 Amount Fair Value Levels Reference
Cash and cash equivalents $ 2,526,262 $ 2,526,262 1 N/A

Carrying Fair Value
As at April 30, 2017 Amount Fair Value Levels Reference
Cash and cash equivalents $ 2,071,019 $ 2,071,019 1 N/A

~~Note 5~~

~~Common Stock~~

~~Private Placement~~2018.

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

		July 31, 2018
					ASC 606			(As Reported)
		ASC 605			Adjustments			ASC 606
Revenue:
Software	$	1,376,243		$	(20,241	)	$	1,356,002
Subscription, support and maintenance		1,251,197			(177	)		1,251,020
Professional services and other		254,928			25,880			280,808
Total revenue	$	2,882,368		$	5,462		$	2,887,830

Operating expenses:
Sales and marketing	$	1,018,942		$	(23,982	)	$	994,960
Loss from operations	$	(1,121,262	)	$	23,982		$	(1,097,280	)

Net loss per share:
Basic and diluted	$	(0.17	)	$	–		$	(0.17	)

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.Selected Condensed Consolidated Balance Line Items:

On April 4, 2016, the Company entered into an agreement to issue 25,000 shares of the Company’s 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.

		July 31, 2018
					ASC 606			(As Reported)
		ASC 605			Adjustments			ASC 606
Current assets:
Deferred sales commissions costs	$	–		$	87,566		$	87,566
Unearned revenue	$	2,564,394		$	(5,462	)	$	2,558,932
Non-current assets:
Deferred sales commissions costs	$	–		$	70,449		$	70,449
Stockholders’ equity:
Accumulated deficit	$	(64,731,152	)	$	152,553		$	(64,578,599	)

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, ~~2017~~2018
(Unaudited)

Selected Condensed Consolidated Statement of Cash Flows Line Items:

		July 31, 2018
					ASC 606			(As Reported)
		ASC 605			Adjustments			ASC 606
Net loss	$	(1,040,391	)	$	29,444		$	(1,010,947	)
Deferred sales commissions costs	$	–		$	(23,982	)	$	(23,982	)
Unearned revenue	$	(1,482	)	$	(5,462	)	$	(6,944	)
Net cash provided by operating activities	$	(475,707	)	$	–		$	(475,707	)

	Disaggregation of Revenue

	The Company disaggregates its revenue by geographic region. SeeNote 9 – Segmented Informationfor more information.

Note 5	~~Common Stock – (cont’d)~~Derivative Instruments

~~Stock Options~~

The Company has a stock option plan (the “2010 Stock Option Plan”) under which options to purchase shares of the Company’s common stock may be granted to employees, directors and consultants. Stock options entitle the holder to purchase shares of the Company’s 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.

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

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. The Company applied an estimated forfeiture rate of 15% for the three months ended July 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.

~~No options were granted~~

Foreign Currency Exchange Rate Risk

A majority of the Company’s 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 Company’s operations for the three months ended July 31, 2018 is the Canadian dollar as a majority of the Company’s expenses are in Canadian dollars. The Company’s foreign currency risk management program includes foreign currency derivatives with cash flow hedge accounting designation that utilizes foreign currency forward contracts to hedge exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S. dollar-denominated cash flows. During the three months ended July 31, 2018 and 2017, the Company did not enter into any cash flow hedges.

The Company also periodically enters into foreign currency forward contracts and foreign currency option contracts that are not designated as hedging instruments, to protect it from fluctuations in exchange rates. During the three months ended July 31, 2018, the Company entered into a foreign currency forward contract and two foreign currency option contracts. As of July 31, 2018, the Company had a $500,000 notional value foreign currency forward contract maturing September 28, 2018 (2017: nil). Notional amounts do not quantify risk or represent assets or liabilities of the Company, but are used in the calculation of cash settlements under the contracts. The fair value of the forward contract at July 31, 2018 was ($10,318) (2017: nil), and the Company recognized a marked to market loss on the forward contract for the three months ended July 31, 2018 of $10,318 and this loss was included in the fair value adjustment on derivative instruments. As of July 31, 2018, the Company had $1,000,000 of notional value foreign currency option contracts expiring through December 20, 2018 (2017: nil). The fair value of the option contracts at July 31, 2018 was $15,720 (2017: nil), and the Company recognized a marked to market gain on the option contracts for the three months ended July 31, 2018 of $15,720 and this gain is included in the fair value adjustment on derivative instruments. The Company did not enter into any forward or option contracts during the three months ended July 31, 2017.

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2018
(Unaudited)

Note 6	Fair Value Measurements

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

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

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

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

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

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

	The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of July 31, 2018 and April 30, 2018.

		Carrying			Fair Value
As at July 31, 2018		Amount		Fair Value	Levels	Reference
Assets
Cash	$	1,877,163	$	1,877,163	1	N/A
Foreign currency option contracts		15,270		15,270	2	Note 5
	$	1,892,433	$	1,892,433

Liabilities
Foreign currency forward contracts	$	10,318	$	10,318	2	Note 5

Carrying

Fair Value

As at April 30, 2018

Amount

Fair Value

Levels

Reference

Cash

2,348,883

N/A

Note 7	Common Stock

	Private Placement

	On July 20, 2017, the Company issued an aggregate of 539,240 shares of common stock under a non- brokered private placement at a price of $2.20 per share for total gross proceeds of $1,186,328 less issuance costs of $19,832. There were no private placements during the three months ended July 31, 2018.

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2018
(Unaudited)

Stock Options

During the three months ended July 31, 2018, the Company granted 7,500 stock options to an employee of the Company. No stock options were granted in the same period in the prior year. The weighted-average fair value of options granted during the three months ended July 31, ~~2016~~2018 was ~~$2.40.~~$2.47. The weighted-average assumptions utilized to determine such ~~values are~~value is presented in the following table:

Three Months Ended
July 31,
2017 2016
Risk-free interest rate – 1.10%
Expected volatility – 95.19%
Expected term – 3.7 years
Dividend yield – 0%

		Three Months Ended
		July 31, 2018
	Risk-free interest rate	2.86%
	Expected volatility	251.78%
	Expected term	3.7 years
	Dividend yield	0%

During the three months ended July 31, 2018, the Company issued 6,958 shares pursuant to cashless exercises of 35,500 stock options and remitted employee tax withholdings of approximately $2,386 on the behalf of its employees. No stock options were exercised in the same period in the prior year. The following is a summary of the status of the Company’s stock options as of July 31, ~~2017~~2018 and the stock option activity during the three months ended July 31, ~~2017:~~2018:

Weighted Average
Number of Exercise Price
Options per Share
Outstanding at April 30, 2017 396,922 $ 2.46
Forfeited/Cancelled (7,688 ) $ 2.49
Expired (30,000 ) $ 2.50
Outstanding at July 31, 2017 359,234 $ 2.45

Exercisable at July 31, 2017 208,021 $ 2.48
Exercisable at April 30, 2017 221,739 $ 2.49

~~COUNTERPATH CORPORATION~~
~~NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS~~
~~July 31, 2017~~
~~(Unaudited)~~

~~Note 5~~

~~Common Stock – (cont’d)~~

~~Stock Options – (cont’d)~~

~~The following table summarizes stock options outstanding as of July 31, 2017:~~

Number of Aggregate Number of Aggregate
Options Intrinsic Options Intrinsic
Exercise Price Outstanding Value Expiry Date Exercisable Value
$2.03 10,000 $ 5,500 December 15, 2021 1,458 $ 802
$2.40 60,000 10,800 July 15, 2021 15,000 2,700
$2.41 50,844 8,643 December 14, 2020 �� 20,340 3,458
$2.46 25,000 3,000 March 14, 2022 – –
$2.50 213,390 17,071 July 25, 2018 to
July 17, 2020 171,223 13,698
July 31, 2017 359,234 $ 45,014 208,021 $ 20,658
April 30, 2017 396,922 $ – 221,739 $ –

The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of $2.58 per share as of July 31, 2017 (April 30, 2017 – $1.93), which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options vested and exercisable as of July 31, 2017 was 208,021 (April 30, 2017 – nil). The total intrinsic value of options exercised during the three months ended July 31, 2017 was $nil (July 31, 2016 – $nil). The grant date fair value of options vested during the three months ended July 31, 2017 was $100,613 (July 31, 2016 - $124,833).

~~The following table summarizes non-vested stock purchase options outstanding as of July 31, 2017:~~

Weighted
Number of Average Grant
Options Date Fair Value
Non-vested options at April 30, 2017 175,183 $ 3.49
Vested (20,922 ) $ 4.81
Forfeited/Cancelled (3,048 ) $ 2.12
Non-vested options at July 31, 2017 151,213 $ 2.43

As of July 31, 2017, there was $343,058 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.

	Weighted Average
	Number of			Exercise Price
	Options			per Share
Outstanding at April 30, 2018	675,042		$	2.66
Granted	7,500		$	2.51
Forfeited/Cancelled	(4,391	)	$	2.69
Expired	(11,000	)	$	2.50
Exercised	(35,500	)	$	2.50
Outstanding at July 31, 2018	631,651		$	2.67

Exercisable at July 31, 2018	270,975		$	2.54
Exercisable at April 30, 2018	256,555		$	2.47

Employee and non-employee stock-based compensation amounts classified in the Company’s consolidated statements of operations for the three months ended July 31, ~~2017~~2018 and ~~2016~~2017 are as follows:

Three Months Ended
July 31,
2017 2016
Cost of sales $ 19,350 $ 18,749
Sales and marketing 25,730 48,407
Research and development 20,400 19,690
General and administrative 36,249 28,469
Total stock-option based compensation $ 101,729 $ 115,315

~~COUNTERPATH CORPORATION~~
~~NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS~~
~~July 31, 2017~~
~~(Unaudited)~~

~~Note 5~~

~~Common Stock – (cont’d)~~

~~Warrants~~

~~The following table summarizes warrants outstanding and exercisable as of July 31, 2017:~~

Number of Weighted Average
Warrants Exercise Price Expiry Dates
Warrants at April 30 and July 31, 2017 146,500 $ 7.50 September 4, 2017

		Three Months Ended
		July 31,
		2018		2017
Cost of sales	$	14,569	$	19,350
Sales and marketing		22,482		25,730
Research and development		15,031		20,400
General and administrative		26,648		36,249
Total stock-option based compensation	$	78,730	$	101,729

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 Company’s common stock at market price. The Company ~~will match~~matches 50% of the shares purchased by issuing or purchasing in the market up to 3% of the respective employee’s base salary in shares. During the three months ended July 31, ~~2017,~~2018, the Company matched ~~$7,924 (2016~~$7,890 (2017 - ~~$9,502)~~$7,924) in shares purchased by employees under the ESPP. During the three months ended July 31, ~~2017,~~2018, 5,960 shares (2017 – 4,162 ~~shares (2016 – 11,981)~~shares) were purchased on the open market and ~~3,923~~2,172 shares ~~(2016~~(2017 – ~~no shares)~~3,923) were issued from treasury under the ESPP.

A total of 120,000 shares have been reserved for issuance under the ESPP. As of July 31, ~~2017,~~2018, a total of ~~82,280~~59,332 shares were available for issuance under the ESPP.

~~Normal Course Issuer Bid Plan~~

Pursuant to a normal course issuer bid (“NCIB”) commencing on March 29, 2017 and expiring March 28, 2018, the Company is authorized to purchase 258,613 shares of the Company’s common stock through the facilities of the Toronto Stock Exchange (the “TSX”) and other Canadian marketplaces or U.S. marketplaces. During the period March 29, 2017 to July 31, 2017, the Company repurchased 65,200 common shares at an average price of $2.05 (CDN$2.73) for a total of $133,660. As of July 31, 2017, a total of 62,600 shares have been cancelled and another 2,600 repurchased shares are in the process of being cancelled since May 1, 2017.

~~Deferred Share Unit Plan~~

Under the terms of the Deferred Share Unit Plan (the “DSUP”), each DSU is equivalent to one share of the Company’s 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 Company’s common stock on the date of grant, is recorded as compensation expense over the vesting period.

A total of 500,000 shares have been reserved for issuance under the DSUP. During the three months ended July 31, 2017, 113,252 (2016 90,453) DSUs were issued under the DSUP, of which 40,129 were granted to officers or employees and 73,123 were granted to non-employee directors. As of July 31, 2017, a total of 17,343 shares were available for issuance under the DSUP.

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, ~~2017~~2018
(Unaudited)

~~Note 5~~

~~Common Stock – (cont’d)~~

Deferred Share Unit Plan ~~- (cont’d)~~

During the three months ended July 31, 2018, 136,981 (2017 113,252) deferred stock units (DSUs) were issued under the Deferred Stock Unit Plan (DSUP), of which 68,491 were granted to officers or employees and 68,490 were granted to non-employee directors. As of July 31, 2018, a total of 73,616 shares were available for issuance under the DSUP.

The following table summarizes the Company’s outstanding DSU awards as of July 31, ~~2017,~~2018, and changes during the period then ended:

Weighted
Average Grant
Date Fair
Number of DSUs Value Per DSU
DSUs outstanding at April 30, 2017 345,392 $ 7.85
Granted 113,252 $ 2.20
DSUs outstanding at July 31, 2017 458,644 $ 6.46

~~The following table summarizes information regarding the non-vested DSUs outstanding as of July 31, 2017:~~

Weighted
Average Grant
Date Fair
Number of DSUs Value Per DSU
Non-vested DSUs at April 30, 2017 46,217 $ 4.58
Granted 113,252 $ 2.40
Vested (95,217 ) $ 3.07
Non-vested DSUs at July 31, 2017 64,252 $ 2.62

As of July 31, 2017, there was $137,270 (2016 – $207,702) 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 2.30 years (2016 – 1.90 years).

			Weighted
			Average Grant
			Date Fair
	Number of DSUs		Value Per DSU
DSUs outstanding at April 30, 2018	465,390	$	6.40
Granted	136,981	$	2.51
DSUs outstanding at July 31, 2018	602,371	$	5.51

Employee and non-employee DSU based compensation amounts classified in the Company’s consolidated statements of operations for the three months ended July 31, ~~2017~~2018 and ~~2016~~2017 are as follows:

Three Months Ended
July 31,
2017 2016
Sales and marketing $ – $ –
Research and development – –
General and administrative 194,603 198,908
Total DSU based compensation $ 194,603 $ 198,908

		Three Months Ended
		July 31,
		2018		2017
General and administrative	$	188,682	$	194,603

	Normal Course Issuer Bid Plan

	Pursuant to a normal course issuer bid (“NCIB”) commencing on March 29, 2017 and expiring March 28, 2018, the Company was authorized to purchase 258,613 shares of the Company’s common stock through the facilities of the Toronto Stock Exchange (the “TSX”) and other Canadian marketplaces or U.S. marketplaces. During the period March 29, 2017 to July 31, 2017, the Company repurchased 65,200 common shares at an average price of $2.05 (CDN$2.73) for a total of $133,660. As of July 31, 2017, a total of 62,600 shares have been cancelled and another 2,600 repurchased shares were in the process of being cancelled since May 1, 2017.

	On March 27, 2018, the Company filed another normal course issuer bid commencing on March 29, 2018 and expiring March 28, 2019. Under this normal course issuer bid, the Company is authorized to purchase up to 284,278 shares of its common stock through the facilities of the TSX and other Canadian marketplaces or U.S. marketplaces. During the three months ended July 31, 2018, no shares were repurchased under the NCIB.

Note 8	Related Party Transactions

	During the three months ended July 31, 2018, the Company through its wholly owned subsidiary, CounterPath Technologies, paid $21,118 (2017 - $20,700) 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 $7,796 (2017 - $7,694) for the three months ended July 31, 2018, respectively.

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, ~~2017~~2018
(Unaudited)

	On July 20, 2017, our Company issued an aggregate of 539,240 shares of common stock under a non- brokered private placement at a price of $2.20 per share for total gross proceeds of $1,186,328 less issuance costs of $19,832. In connection with this private placement, Wesley Clover International Corporation, a company controlled by the Chairman of the Company, purchased 144,357 shares, KMB Trac Two Holdings Ltd., a company owned by the spouse of a director of the Company, purchased 180,446 shares, the chief executive officer and a director of the Company, purchased 11,368 shares, the chief financial officer of the Company, purchased 4,511 shares, and the executive vice president, sales and marketing of the Company, purchased 4,545 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 69	Segmented Information

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

	Revenues are categorized based on the country in which the customer is located. The following is a summary of total revenues by geographic area for the three months ended July 31, 2018 and 2017:

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

~~Revenues are based on the country in which the customer is located. The following is a summary of total revenues by geographic area for the three months ended July 31, 2017 and 2016:~~

Three Months Ended
July 31,
2017 2016
North America $ 1,754,074 $ 1,908,862
EMEA 944,129 831,222
Asia Pacific 298,384 196,279
Latin America 116,219 89,631
$ 3,112,806 $ 3,025,994

		Three Months Ended
		July 31,
		2018		2017
North America	$	1,738,303	$	1,754,074
EMEA		641,994		944,129
Asia Pacific		416,025		298,384
Latin America		91,508		116,219
	$	2,887,830	$	3,112,806

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

		July 31,		April 30,
		2018		2018
Canada	$	7,031,214	$	7,150,537
United States		30,425		35,919
	$	7,061,639	$	7,186,456

Note 10	Commitments

	Total payable over the term of the agreements for the period ended are as follows:

As at
July 31, 2017 April 30, 2017
Canada $ 7,337,793 $ 6,731,644
United States 50,994 34,761
$ 7,388,787 $ 6,766,405


		Office		Office				Voice
		Leases –		Leases –		Total		Platform		Software
		Related		Unrelated		Office		Service		Development
		Party		Party		Leases		Contract		Contract
2019	$	84,800	$	413,685	$	498,485	$	155,000	$	162,750
2020		5,198		272,904		278,102		240,000		−
2021		−		6,092		6,092		220,000		−
	$	89,998	$	692,681	$	782,679	$	615,000	$	162,750

~~Revenue from significant customers for the three months ended July 31, 2017 and 2016 is summarized as follows:~~

Three Months Ended
July 31,
2017 2016
Customer A 11% –%
Customer B 1% 13%

Accounts receivable balance for Customer A was $410,610 as at July 31, 2017 (April 30, 2017 - $nil). Accounts receivable balance for Customer B was $280,617 as at July 31, 2016 (April 30, 2017 - $682,018)

COUNTERPATH CORPORATION
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
July 31, ~~2017~~2018
(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
2018 $ 86,155 $ 426,982 $ 513,137
2019 114,874 572,703 687,577
2020 5,346 281,750 287,096
2021 − 6,092 6,092
$ 206,375 $ 1,287,527 $ 1,493,902

Note 811

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 912	~~Earnings (loss)~~Loss per ~~common~~ share ~~(“EPS”)~~

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

		Three months ended
		July 31,
		2018			2017
Numerator
Income available to common stockholders	$	(1,010,947	)	$	(1,152,533	)

Denominator
Weighted average shares outstanding		5,932,417			5,036,954
Effect of dilutive securities		−			−
		5,932,417			5,036,954

Basic and diluted loss per share	$	(0.17	)	$	(0.23	)

~~Computation of basic and diluted EPS:~~

Three Months Ended
July 31,
2017 2016
Net loss $ (1,152,533 ) $ (363,911 )
Weighted average common shares outstanding – basic and diluted 5,036,954 4,550,516
Basic and diluted EPS $ (0.23 ) $ (0.08 )

~~As at~~For the three months ended July 31, ~~2017~~2018 and ~~2016,~~2017, common share equivalents, consisting of common shares issuable, on exercise or settlement, as applicable, of options, warrants and ~~DSUs~~deferred share units (“DSUs”) of ~~964,378~~1,234,022 and ~~980,714,~~964,378, respectively, were not included in the computation of diluted EPS because the effect was anti-dilutive.

Item 2. Management’s 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;~~
		any potential loss of or reductions in orders from certain significant customers; our dependence on our customers to sell our applications or services using our applications; our ability to protect our intellectual property; competitive factors, including, but not limited to, industry consolidation, entry of new competitors into our market, and new product and marketing initiatives by our competitors; our ability to predict our revenue, operating results and gross margin accurately; the length and unpredictability of our sales cycles; our ability to expand or enhance our product offerings including in response to industry demands or market trends; our ability to sell our products in certain markets; our ability to manage growth; the attraction and retention of qualified employees and key personnel; the interoperability of our products with service provider networks; and the quality of our products and services, including any undetected errors or bugs in our software.
	•	~~our dependence on our customers to sell our applications or services using our applications;~~

	•	~~our ability to protect our intellectual property;~~

	•	~~competitive factors, including, but not limited to, industry consolidation, entry of new competitors into our market, and new product and marketing initiatives by our competitors;~~

	•	~~our ability to predict our revenue, operating results and gross margin accurately;~~

	•	~~the length and unpredictability of our sales cycles;~~

	•	~~our ability to expand or enhance our product offerings including in response to industry demands or market trends;~~

	•	~~our ability to sell our products in certain markets;~~

	•	~~our ability to manage growth;~~

	•	~~the attraction and retention of qualified employees and key personnel;~~

	•	~~the interoperability of our products with service provider networks; and~~

	•	~~the quality of our products and services, including any undetected errors or bugs in our software.~~

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

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

References

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

Background

~~Counterpath Corporation was~~ 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~~590,001 shares of our common stock. On February 1, 2008, we acquired all of the issued and outstanding shares of BridgePort Networks, Inc. (“BridgePort Networks”) by way of merger in consideration for the assumption of all of the assets and liabilities of BridgePort Networks.

Business of CounterPath

We design, develop and sell software and services that enable enterprises and telecommunication service providers to deliver Unified Communications (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 have not been met, the revenue is deferred or not recognized. The number of software licenses purchased has a direct impact on the average selling price. Our software revenue may vary significantly from quarter to quarter as a result of long sales and deployment cycles, new product introductions and variations in customer ordering practices.

	•	~~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.

Software

We generate software revenue primarily on a single fee per perpetual software license basis. We recognize software revenue for perpetual licenses when control has transferred to the customer, which is generally at the time of delivery, provided all revenue recognition criteria have been met. If the revenue recognition criteria have not been met, the revenue is deferred or not recognized. The number of software licenses purchased has a direct impact on the average selling price. Our software revenue may vary significantly from quarter to quarter as a result of long sales and deployment cycles, new product introductions and variations in customer ordering practices.
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
•
~~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.

We generate professional services and other revenue through services including product configuration and customization, implementation, dedicated engineering and training. The amount of product configuration and customization required by a customer typically increases as the order size increases from a given customer. Services and pricing may vary depending upon a customer's requirements for customization, implementation and training.

Operating Expenses

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

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

Sales and marketing expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) commissions, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs such as advertising, promotions and trade shows and (e) other related overhead. Commissions are ~~recorded~~considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a systematic basis to sales and marketing expense, over the anticipated benefit period of up to 3.5 years depending on the products or services. Sales commissions on contracts with an anticipated benefit period of one year or less are expensed as ~~an expense when earned by the employee.~~incurred. We expect increases in sales and marketing expense for the foreseeable future as we further increase the number of sales professionals and increase our marketing activities with the intent to grow our revenue. We expect sales and marketing expense to decrease as a percentage of total revenue, however, as we leverage our current sales and marketing personnel as well as our distribution partnerships.

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

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

Application of Critical Accounting Policies and Use of Estimates

Our interim consolidated financial statements are prepared in accordance with accounting principles 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 There have been ~~eliminated.~~

~~Interim Reporting~~

~~The information presented in the accompanying interim consolidated financial statements is without audit pursuant~~no significant changes to the rules and regulations of the Securities and Exchange Commission (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.

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 sameour critical accounting policies and ~~methods of their application as~~estimates previously disclosed in our Form 10-K for the fiscal year ended April 30, 2017 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, 2017 annual audited consolidated financial statements.

~~Operating results for~~2018, during the three months ended July 31, ~~2017 are not necessarily indicative~~2018 except for our adoption of ~~the results that can be expected for the year ending April 30, 2018.~~ASC 606 as described below:

Revenue Recognition

On May 1, 2018, we adopted the new accounting standard,ASC 606 “Revenue from Contracts with Customers” and all related amendments to the new accounting standard to contracts using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue recognition standard to contracts with open performance obligations as of May 1, 2018, as an adjustment to the opening balance of retained earnings. Results of the reporting period beginning May 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

Revenues from contracts with customers are recognized when control of promised goods and services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We recognize revenue using the five-step model as prescribed by ASC 606:

	1)	Identification of the contract, or contracts, with a customer;
	2)	Identification of the performance obligations in the contract;
	3)	Determination of the transaction price;
	4)	Allocation of the transaction price to the performance obligations in the contract; and
	5)	Recognition of revenue when or as, we satisfy a performance obligation.

When a contract with a customer is signed, we assess whether collection of the fees under the arrangement is probable. We estimate the amount to reserve for uncollectible amounts at the end of each reporting period based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded against the related accounts receivable.

The transaction price is the consideration that we expect to receive from our customers in ~~accordance~~exchange for our products and services. In determining the allocation of the transaction price, we identify performance obligations in contracts with ~~“Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 985-605 "Software Revenue Recognition"”.~~customers, which may include products, subscriptions to software and services, support, professional services and training. We allocate the transaction price to each performance obligation on a relative standalone selling price basis. The standalone selling price (SSP) is the price at which we would sell a promised product or service separately to a customer. We determine the SSP using information that may include market conditions or other observable inputs. In certain cases, we are able to establish a SSP based on observable prices for products or services sold separately. In these instances, we would use a single amount to estimate a SSP. If a SSP is not directly observable, for example when pricing is variable, we will use a range of SSP.

In ~~all~~certain circumstances, we may estimate SSP for a product or service by applying the residual approach. This approach has been most commonly used when certain perpetual software licenses are only sold bundled with one year of ~~our arrangements, we do~~post-contract support or other services and a price has not ~~recognize any revenue until we can~~been established for the software.

Significant judgement is used to determine SSP and to determine whether there is a variance that ~~persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and we deem collection~~needs to be ~~probable. For distribution~~allocated based on the relative SSP of the various products and ~~reseller arrangements, fees are fixed or determinable~~services. Estimating SSP is a formal process that includes review and ~~collection probable~~approval by management.

We recognize software revenue for perpetual licenses when ~~there are no rights~~control has transferred to ~~exchange or return and fees are not dependable upon payment from~~ the ~~end-user. If any~~customer, which is generally at the time of ~~these criteria are not met,~~delivery when the customer has the ability to deploy the licenses, provided all revenue ~~is deferred until such time that all~~recognition criteria have been met. If the revenue recognition criteria has not been met, the revenue is deferred or not recognized.

~~A substantial percentage~~ We recognize revenue from subscriptions related to our software as a service offering ratably over the contractual subscription term as control of ~~our~~the goods or services is transferred to the customer, beginning on the date that the subscription is made available to the customer. Support and maintenance revenue is generated ~~by multiple-element arrangements, such as products,~~from recurring annual software support and maintenance contracts for our perpetual software licenses 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~~ratably over the term 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~~service period, which is generally twelve months. Support and maintenance services include e-mail and telephone support, unspecified rights to ~~analyze the individual elements in the transaction~~bug fixes and ~~to estimate the fair value of each undelivered element, which typically includes maintenance~~product updates and ~~services. Revenue is allocated to each of the undelivered elements based~~upgrades and enhancements available 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 is recognized in software,~~a when-and-if available basis. Both subscription revenue and support and maintenance ~~and professional services~~revenue are typically billed annually in advance based on the ~~items or~~terms of the arrangement.

We recognize revenue from professional services ~~delivered.~~

and other revenue when control has transferred to the customer, which is generally at the time of delivery, and all other revenue recognition criteria have been met. For contracts with elements related to customized network solutions and certain network build-outs or software systems that require significant modification or customization, we ~~apply FASB Emerging Issues Task Force ASC 605-25, "Multiple-Element Arrangements" and revenues are recognized under ASC 605-35, "Construction-Type and Production-Type Contracts", generally~~will recognize revenue 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)~~ Depending on the 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 servicebe provided, 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~~from professional services and ~~training revenue~~other is ~~recognized as the related service is performed.~~

~~Stock-Based Compensation~~

~~Stock options granted are accounted for under ASC 718, “Compensation –~~~~Stock Compensation”~~~~, and are~~generally recognized at the ~~fair value~~time of delivery when the services have been completed and control has been transferred to the customer.

Unearned Revenue

Unearned revenue represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual support and subscription services and professional and training services not yet provided as of the ~~options as determined by an option pricing model as~~balance sheet date.

Costs to Obtain a Customer Contract

Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a systematic basis to match the ~~related services are provided~~timing of revenue recognition over the anticipated benefit period of up to 3.5 years depending on the products and ~~the options earned. ASC 718 requires public companies to recognize the cost of employee services received in exchange for equity instruments,~~services. The anticipated benefit period was estimated based on the ~~fair value~~average length of ~~those instruments on~~applicable customer contracts and includes the ~~measurement date which generally~~contract term and any anticipated renewal periods. This amortization expense 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 three months ended July 31, 2017 in determining the expense recorded in ~~our~~sales and marketing expense within the Company's consolidated statement of operations. ~~Cost of sales and operating expenses include stock-based compensation~~The Company has elected to apply a practical expedient that permits the Company to expense ~~and deferred share unit plan expense. For~~costs to obtain a contract as incurred, if the ~~three months ended July 31, 2017, we recorded an expense of $296,332~~anticipated benefit period is one year or less. From time to time, management will revisit the estimates used in ~~connection with share-based payment awards. A future expense of non-vested options of $343,058 is expected~~recognizing the costs to ~~be recognized over~~obtain customer contracts.

Costs to Fulfill a ~~weighted-average period of 2.00 years. A future expense of non-vested deferred share units of $137,270 is expected to be recognized over a weighted-average period of 2.30 years.~~Customer Contract

~~Research and Development Expense for Software Products~~

~~Research and development expense includes~~Certain contract costs incurred to ~~develop intellectual property.~~fulfill obligations under a contract are capitalized when such costs generate or enhance resources to be used in satisfying future performance obligations and the costs are deemed recoverable. Judgement is used in determining whether certain contract costs can be capitalized. These costs are capitalized and amortized on a systematic basis to match the timing of revenue recognition over the anticipated benefit period of up to 3.5 years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in cost of sales in the Company’s consolidated statement of operations. From time to time, management will review the capitalized costs for impairment and will also revisit the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. We have determined that technological feasibility is established at the time a working model of software is completed. Because we believe our current process for developing software will be essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date.

~~Accounts Receivable and Allowance for Doubtful Accounts~~

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

~~Goodwill~~

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

~~Goodwill—Impairment Assessments~~

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

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 quarter ended April 30, 2017, did not result in an impairment charge, nor did we record any goodwill impairment for the three months ended July 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 July 31, 2017, our company had no foreign currency forward contracts outstanding. Notional amounts do not quantify risk or represent assets or liabilities of our company, but are used in recognizing the ~~calculation of cash settlements under the~~costs to fulfill customer 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 three months ended July 31, ~~2017~~2018 consisted primarily of selling our IP telephony software and related services to telecom service providers, enterprises and channel partners serving the telecom and enterprise segments, and the continued development of our IP telephony software products.

We generate our revenue primarily in U.S. dollars and incur a majority of our expenses in Canadian dollars. As a result of the fluctuation in the Canadian dollar against the U.S. dollar over the three months ended July 31, ~~2017,~~2018, we ~~benefited by recording reduced~~recorded increased operating costs on translation of Canadian dollar costs as compared to the three months ended July 31, ~~2016~~2017 of approximately ~~$40,000.~~$27,000.

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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 July 31, 2017 and April 30, 2017 and~~ for the three months ended July 31, ~~2017~~2018 and ~~2016~~2017 has been derived from the consolidated unaudited financial statements and accompanying notes for the three months ended July 31, ~~2017~~2018 and ~~2016~~2017 and the audited consolidated financial statements for the fiscal year ended April 30, ~~2017.~~2018. Each investor should read the following information in conjunction with those statements and the related notes thereto.

Selected Consolidated Statements of Operations Data

		Three Months Ended July 31,										Three Months Ended July 31,
		2017					2016					2018					2017
				Percent of					Percent					Percent of					Percent
				Total					of Total					Total					of Total
		Amount		Revenue			Amount		Revenue			Amount		Revenue			Amount		Revenue
Revenue	$	3,112,806		100%		$	3,025,994		100%		$	2,887,830		100%		$	3,112,806		100%

Operating expenses	$	3,646,587		117%		$	3,599,117		119%			3,985,110		138%			3,646,587		117%
Loss from operations		($533,781	)	(17%	)		($573,123	)	(19%	)		($1,097,280	)	(38%	)		($533,781	)	(17%	)
Interest and other income, net		($53	)	−%		$	13		−%			(5	)	−%			(53	)	−%
Foreign exchange gain (loss)		($618,699	)	(20%	)	$	209,199		7%			80,936		(3%	)		(618,699	)	(20%	)
Gain on change in fair value of derivative instruments												5,402		−%			−		−%
Net loss		($1,152,533	)	(37%	)		($363,911	)	(12%	)		($1,010,947	)	(35%	)		($1,152,533	)	(37%	)

Net loss per share
-Basic and diluted		($0.23	)				($0.08	)				($0.17	)				($0.23	)

Weighted average common shares outstanding
-Basic and diluted		5,036,954					4,550,516					5,932,417					5,036,954

Revenue

		Three Months Ended July 31,											Three Months Ended July 31,
		2017			2016			Period-to-Period Change					2018			2017		Period-to-Period Change
			Percent			Percent				Percent				Percent			Percent			Percent
			of Total			of Total				Increase /				of Total			of Total			Increase /
		Amount	Revenue		Amount	Revenue		Amount		(Decrease)			Amount	Revenue		Amount	Revenue	Amount		(Decrease)
Revenue by Type
Software	$	1,698,893	55%	$	1,656,003	55%	$	42,890		3%		$	1,356,002	47%	$	1,698,893	55%	($342,891	)	(20%	)
Subscription, support and maintenance	$	967,062	31%	$	955,296	32%	$	11,766		1%			1,251,020	43%		967,062	31%	283,958		29%
Professional services and other	$	446,851	14%	$	414,695	13%	$	32,156		8%			280,808	10%		446,851	14%	(166,043	)	(37%	)
Total revenue	$	3,112,806	100%	$	3,025,994	100%	$	86,812		3%		$	2,887,830	100%	$	3,112,806	100%	($224,976	)	(7%	)

Revenue by Region
North America	$	1,754,074	56%	$	1,908,862	63%		($154,788	)	(8%	)	$	1,738,303	60%	$	1,754,074	56%	($15,771	)	(1%	)
All Other	$	1,358,732	44%	$	1,117,132	37%	$	241,600		22%
International													1,149,527	40%		1,358,732	44%	(209,205	)	(15%	)
Total revenue	$	3,112,806	100%	$	3,025,994	100%	$	86,812		3%		$	2,887,830	100%	$	3,112,806	100%	($224,946	)	(7%	)

For the three months ended July 31, ~~2017,~~2018, we generated ~~$3,112,806~~$2,887,830 in revenue compared to ~~$3,025,994~~$3,112,806 for the three months ended July 31, ~~2016,~~2017, representing ~~an increase~~a decrease of ~~$86,812~~$224,976 or 3%7%.

Software revenue ~~increased~~decreased by ~~$42,890~~$342,891 or 3%20% to $1,356,002 for the three months ended July 31, 2018 compared to $1,698,893 for the three months ended July 31, ~~2017 from $1,656,003~~2017. The decrease in software revenue was a result of decreased sales to service providers and enterprises, and was partially offset by an increase in sales to channel partners.

Subscription, support and maintenance revenue increased by $283,958 or 29% to $1,251,020 for the three months ended July 31, ~~2016. The increase in software revenue was a result of increase in sales to enterprises and service providers partially offset by a decrease in sales to channel partners.~~

~~Subscription, support and maintenance revenue increased by $11,766 or 1%~~2018 compared to $967,062 for the three months ended July 31, ~~2017 from $955,296 for the three months ended July 31, 2016.~~2017. The increase in subscription, support and maintenance revenue was a result of ~~an increase~~increases in sales to ~~enterprises and~~ channel partners, ~~partially offset by a decrease in sales to~~ service ~~providers.~~providers, and enterprises.

2827

Professional services and other revenue ~~increased~~decreased by ~~$32,156~~$166,043 or 8%37% to $280,808 for the three months ended July 31, 2018 compared to $446,851 for the three months ended July 31, ~~2017 from $414,695 for the three months ended July 31, 2016.~~2017. The ~~increase~~decrease in professional services and other revenue was a result of ~~an increase~~decreases in sales to ~~service providers partially offset by a decrease in sales to~~channel partners, enterprises, and ~~channel partners.~~service providers.

North American revenue decreased by ~~$154,788~~$15,771 or 8%1% to $1,738,303 for the three months ended July 31, 2018 compared to $1,754,074 for the three months ended July 31, 2017, ~~from $1,908,862 for the three months ended July 31, 2016,~~ as a result of lower sales of software and service to ~~North American channel partners~~enterprises and service providers. International revenue ~~from~~ outside of North America ~~increased~~decreased by ~~$241,600~~$209,205 or ~~22%~~16% to $1,149,527 for the three months ended July 31, 2018 compared to $1,358,732 for the three months ended July 31, 2017, ~~from $1,117,132 for the three months ended July 31, 2016, primarily~~ as a result of ~~higher~~lower sales of software and service to ~~international~~European service ~~providers.~~providers and enterprises.

Operating Expenses

Cost of Sales

Cost of sales for the three months ended July 31, ~~2017~~2018 and ~~2016~~2017 were as follows:

July 31, 2017 July 31, 2016 Period-to-Period Change
Percent Percent Percent
of of Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Three months ended $ 388,243 12% $ 497,116 16% ($108,873 ) (22% )

July 31, 2018

July 31, 2017

Period-to-Period Change

Percent

of Total

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Three months ended

595,556

21%

388,243

12%

207,313

53%

Cost of sales was $595,556 for the three months ended July 31, 2018 compared to $388,243 for the three months ended July 31, 2017 compared to $497,116 for the three months ended July 31, 2016. The decrease of $108,873 was primarily attributable to a decrease in wages, benefits and consulting fees of approximately $86,900. This decrease in cost of sales was partially offset by a net increase in other expenses of approximately $22,000.

~~Sales and Marketing~~

~~Sales and marketing expenses for the three months ended July 31, 2017 and 2016 were as follows:~~

July 31, 2017 July 31, 2016 Period-to-Period Change
Percent Percent Percent
of of Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Three months ended $ 1,004,284 32% $ 961,869 32% $ 42,415 4%

~~Sales and marketing expenses were $1,004,284 for the three months ended July 31, 2017 compared to $961,869 for the three months ended July 31, 2016.~~2017. The increase of ~~$42,415~~$207,313 or 53% was primarily attributable to an increase in wages, benefits and consulting fees of approximately ~~$36,500~~$143,700, an increase in licenses and ~~a net~~software expense of approximately $56,600 and an increase in other expenses of approximately ~~$5,900.~~$7,000.

~~Research~~Sales and ~~Development~~Marketing

~~Research~~ Sales and ~~development~~marketing expenses for the three months ended July 31, ~~2017~~2018 and ~~2016~~2017 were as follows:

July 31, 2017 July 31, 2016 Period-to-Period Change
Percent Percent Percent
of of Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Three months ended $ 1,361,473 44% $ 1,158,661 38% $ 202,812 18%

July 31, 2018

July 31, 2017

Period-to-Period Change

Percent

of Total

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Three months ended

994,960

34%

1,004,284

32%

($9,324

)

(1%

)

~~Research~~ Sales and ~~development~~marketing expenses were ~~$1,361,473~~$994,960 for the three months ended July 31, ~~2017~~2018 compared to ~~$1,158,661~~$1,004,284 for the three months ended July 31, ~~2016.~~2017. The ~~increase~~decrease of ~~$202,812~~$9,324 or 1% was primarily attributable to an increase in wages, benefits and consulting fees of approximately ~~$221,000 which was partially~~$17,700, offset by ~~a net decrease~~the amortization of capitalized sales commission costs of approximately $24,000. In addition, there was an increase in travel and trade show expenses of approximately $7,900 and an increase in other expenses of approximately ~~$18,200.~~$21,900, offset by a decrease in marketing expenses of approximately $32,800.

Research and Development

Research and development expenses for the three months ended July 31, 2018 and 2017 were as follows:

July 31, 2018

July 31, 2017

Period-to-Period Change

Percent

of Total

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Three months ended

1,402,956

49%

1,361,473

44%

41,483

Research and development expenses were $1,402,956 for the three months ended July 31, 2018 compared to $1,361,473 for the three months ended July 31, 2017. The increase of $41,483 or 3% was primarily attributable to an increase in wages, benefits and consulting fees of approximately $16,600, and an increase in other expenses of approximately $24,900.

General and Administrative

General and administrative expenses for the three months ended July 31, ~~2017~~2018 and ~~2016~~2017 were as follows:

July 31, 2017 July 31, 2016 Period-to-Period Change
Percent Percent Percent
of of Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Three months ended $ 892,587 29% $ 981,471 32% ($88,884 ) (9% )

July 31, 2018

July 31, 2017

Period-to-Period Change

Percent

of Total

Increase /

Amount

Revenue

Amount

Revenue

Amount

(Decrease)

Three months ended

991,638

34%

892,587

29%

99,051

11%

General and administrative expenses were $991,638 for the three months ended July 31, 2018 compared to $892,587 for the three months ended July 31, ~~2017 compared to $981,471 for the three months ended July 31, 2016.~~2017. The ~~decrease~~increase of ~~$88,884~~$99,051 or 11% in general and administrative expenses was primarily attributable to ~~a decrease in bad debt reserve of approximately $82,600 and a decrease~~an increase in audit, legal and other professional expenses of approximately ~~$14,900. This decrease~~$41,400, an increase in ~~general and administrative expenses was partially offset by a net~~bad debts expense of approximately $49,900, an increase in other expenses of approximately ~~$8,600.~~$19,600, offset by a decrease in wages, benefits and consulting fees of approximately $11,800.

Interest and Other Income (Expense), Net

~~Interest income~~ Foreign exchange gain for the three months ended July 31, ~~2017~~2018 was ~~$nil~~$80,936 compared to ~~$13,~~a foreign exchange loss of $618,699 for the three months ended July 31, ~~2016. Interest expense for the three months ended July 31, 2017 was $53 compared to $nil for the three months ended July 31, 2016.~~

~~Foreign exchange loss for the three months ended July 31, 2017 was $618,699 compared to a foreign exchange gain of $209,199 for the three months ended July 31, 2016.~~2017. The foreign exchange gain (loss) represents the gain (loss) on account of translation of the intercompany accounts of our subsidiary which maintains ~~its~~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 ~~Counterpath Corporation.~~us.

Liquidity and Capital Resources

Selected Consolidated Balance Sheet Data July 31, 2017 April 30, 2017
Cash and cash equivalents $ 2,526,262 $ 2,071,019
Current assets $ 5,350,565 $ 4,375,341
Current liabilities $ 4,122,517 $ 4,021,052
Total liabilities $ 4,154,850 $ 4,053,837
Total assets $ 12,838,849 $ 11,233,146

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

Selected Consolidated Balance Sheet Data	July 31, 2018	April 30, 2018
Cash	$1,877,163	$2,348,883
Current assets	$5,345,279	$6,049,138
Total assets	$12,574,756	$13,334,227
Current liabilities	$5,121,692	$5,068,939
Total liabilities	$5,143,093	$5,093,041

As of July 31, ~~2017,~~2018, we had ~~$2,526,262~~$1,877,163 in cash ~~and cash equivalents~~ compared to ~~$2,071,019~~$2,348,883 as of April 30, ~~2017,~~2018, representing ~~an increase~~a decrease of ~~$455,243.~~$471,720. Our working capital was ~~$1,228,048~~$223,587 at July 31, ~~2017~~2018 compared to ~~$354,289~~$980,199 at April 30, ~~2017,~~2018, representing a decrease of $756,612.

We have experienced recurring losses and an ~~increase~~accumulated deficit of ~~$873,759. Management anticipates that~~$64,578,599 as of July 31, 2018, as a result of flat to declining revenues resulting from a number of factors including our buildout of a cloud based subscription platform concurrent with the ~~future capital requirements~~change of our ~~company will be primarily funded~~licensing model to subscription based licensing and has not reached profitable operations which raises substantial doubt about its ability to continue operating as a going concern within one year of the date of the financial statements.

We have historically been able to manage liquidity requirements through cost management and cost reduction measures, supplemented with raising additional financing. As of July 31, 2018, we do not have any commitments to raise funds.

To alleviate this situation, we have plans in place to improve our financial position and liquidity, while executing on our growth strategy, by managing and or reducing costs that is not expected to have an adverse impact on the ability to generate cash flows, ~~generated from operations~~as the transition to our software as a service platform and ~~from working capital, and we may seek additional funding to meet ongoing operating expenses.~~subscription licensing continues.

~~As for July 31, 2017, we had $1,777,414~~29

Our company has $1,168,481 in cash held outside of the United ~~States. We do not intend~~States, and there is no intent to repatriate such cash at this time. Should we decide to repatriate such cash in the future, taxes would need to be accrued and paid.

30Cash Flows

Our cash flows for the three months ended July 31, 2018 and 2017 are as follows:

	Three months ended		Three months ended
	July 31, 2018		July 31, 2017
Net cash used in operating activities	($475,707	)	($714,303	)
Net cash used in investing activities	($4,176	)	($41,753	)
Net cash provided by financing activities	$2,944		$1,164,338
Net (decrease) increase in cash	($471,720	)	$455,243

~~Cash Flows from~~ Operating Activities

Our operating activities resulted in a net cash outflow of ~~$714,303~~$475,707 for the three months ended July 31, ~~2017,~~ compared to a net cash ~~inflow from operations~~outflow of ~~$72,711~~$714,303 for the ~~three months ended July 31, 2016.~~same period in the prior year, representing a decrease in net cash used in operating activities of $238,596. The decrease in net cash outflow from operating activities for the three months ended July 31, ~~2017~~2018 was primarily a result of a decrease in net loss of ~~$1,152,533,~~approximately $141,600, an increase in accounts receivable of ~~$533,849~~approximately $839,700 and ~~a decrease~~an increase in unearned revenue of ~~$118,085. The~~approximately $111,100. This decrease in net cash outflow from operating activities was primarily offset by the decrease in non-cash foreign exchange loss of ~~$612,273, stock based compensation of $296,332 and an increase~~approximately $733,000, a decrease in accounts payable of approximately$71,100, a decrease in stock-based compensation expense of approximately $28,900 and ~~accrued liabilities~~the decrease in deferred sales commissions costs of ~~$137,892.~~approximately $24,000.

~~Cash Flows from~~ Investing Activities

~~Our investing~~ Investing activities resulted in a net cash outflow of ~~$41,753~~$4,176 for the three months ended July 31, ~~2017, primarily~~2018, compared to $41,753 for ~~purchases of computer equipment and trademarks. This compares with a~~the same period in the prior year. The decrease in net cash outflow from investing activities was primarily a result of ~~$53,241 for the three months ended July 31, 2016, primarily for purchases of~~a decrease in investments in computer equipment and ~~trademarks.~~intangible assets. At July 31, ~~2017,~~2018, we did not have any material commitments for future capital expenditures.

~~Cash Flows from~~ Financing Activities

Financing activities resulted in a net cash inflow of $2,944 for the three months ended July 31, 2018 compared to a net cash inflow of $1,164,338 for the three months ended July 31, ~~2017, compared to a net cash outflow of $3,328 for the three months ended July 31, 2016.~~2017. The decrease in net cash inflow ~~for the three months ended July 31, 2017~~from financing activities was primarily ~~a result of a non-brokered~~due to the private placement ~~under which~~that occurred on July 20, 2017 where we issued an aggregate of 539,240 shares of common stock at a price of $2.20 per share ~~raising~~for total gross proceeds of $1,186,328 less issuance costs of $19,832. No financings took place in the current period. The net cash inflow for the three months ended July 31, 2018 was primarily related shares issued pursuant to our employee stock purchase plan.

Off-Balance Sheet Arrangements

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

~~New~~Recently Adopted Accounting Pronouncements

In May 2014, FASB issued ASU 2014-09, ~~“Revenue from~~Revenue From Contracts ~~with Customers”~~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 ~~ASC~~Topic 605 “Revenue Recognition”, (“Topic 605”) and ~~most industry-specific guidance throughout the Industry Topics~~requires entities to recognize revenue when control of the ~~Codification.~~promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. The Company adopted ASU 2014-09 as of May 1, 2018 using the modified retrospective transition method. SeeNote 4 – Revenue Recognitionunder ASC 606 in our notes to consolidated financial statements for further details.

Recently Issued Accounting Pronouncements

In August ~~2015,~~2017, the FASB issued ASU ~~2015-14 “Revenue from Contracts~~2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends the presentation and disclosure requirements and changes how companies assess effectiveness. The amendments are intended to more closely align hedge accounting with ~~Customers” was issued which delayed~~companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. This amendment is effective ~~date~~ for ~~public entities to reporting~~annual periods beginning after December 15, ~~2017.~~2018, including interim periods within those periods. Early ~~adoption~~application is ~~not~~ permitted. We are currently ~~evaluating~~assessing the future impact of ~~the adoption of~~ this ~~new standard.~~update on its consolidated financial statements and related disclosures.

In ~~March 2016,~~January 2017, the FASB issued ASU ~~2016-08, “Revenue~~2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, which amends the guidance to eliminate Step 2 from ~~Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, which clarifies~~ the ~~guidance~~goodwill impairment test. Instead, under the amendments in the new ~~revenue standard on assessing whether~~guidance, an entity isshould perform its annual, or interim, goodwill impairment test by comparing the fair value of a ~~principal~~reporting unit with its carrying amount. The entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The amendments will be effective for annual or ~~an agent~~any interim goodwill impairment tests in ~~a revenue transaction. This conclusion impacts whether an entity reports revenue on a gross or net basis.~~fiscal years beginning after December 15, 2019. We are ~~currently~~ evaluating the impact of this ~~standard~~amendment on our consolidated financial statements and related disclosures.

In April 2016, 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 entity’s identification of its performance obligations in a contract, as well as an entity’s 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.

In May 2016, 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, 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~~Financial Instruments: Measurement of Credit Losses on Financial ~~Instruments”~~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~~of our ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected will a valuation provision. The amendments will be effective for fiscal years beginning after December 15, 2019. We are evaluating the impact of this amendment on our consolidated financial statements and related disclosures.

In February 2016, FASB issued ASU 2016-02, “Leases”~~. The guidance~~ which 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.

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.

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 July 31, ~~2017,~~2018, our disclosure controls and procedures were effective.

3231

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended July 31, ~~2017~~2018 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 July 31, 2018.~~

~~However, there~~ 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 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.
	•	~~we are unable to create a substantial market for our products; or~~

	•	~~we incur any significant unanticipated expenses.~~

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

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

3332

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;~~
		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.
	•	~~length of sales cycles, which may be extended by selling our products through channel partners;~~

	•	~~length of time of deployment of our products by our customers;~~

	•	~~customers’ budgetary constraints;~~

	•	~~competitive pressures; and~~

	•	~~general economic conditions.~~

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

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

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

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

Operating expenses of ~~$3,646,587~~$3,985,110 exceeded revenue of ~~$3,112,806~~$2,887,830 for the three months ended July 31, ~~2017.~~2018. 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.

3433

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.~~

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.

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;

35cause us to lose access to key distribution channels;

	•	~~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.
	•	~~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, ~~Bria X,~~ eyebeam, X-Lite, and Softphone.com invaluable to our ability to continue to develop and maintain the goodwill and recognition associated with our brand. The measures we take to protect the proprietary technology software, and other intellectual property rights, which presently are based upon a combination of patents, patents pending, copyright, trade secret and trademark laws, may not be adequate to prevent their unauthorized use. Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights.

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

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

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

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

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

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

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

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

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

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

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

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

3736

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 July 31, ~~2017~~2018 is the Canadian dollar. We are primarily exposed to a fluctuating Canadian dollar as our operating expenses are primarily denominated in Canadian dollars while our revenues are primarily denominated in U.S. dollars. We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. Our company’s foreign currency risk management program includes foreign currency derivatives with cash flow hedge accounting designation that utilizes foreign currency forward contracts to hedge exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S. dollar-denominated cash flows. These instruments generally have a maturity of less than one year. For these derivatives, our company reports the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) in stockholders’ equity and reclassifies it into earnings in the same period in which the hedged transaction affects earnings, and within the same line item on the consolidated statements of operations as the impact of the hedged transaction. There can be no assurance that our hedging program will not result in a negative impact on our earnings and earnings per share. We did not enter into any forward contracts for hedging purposes during the three months ended July 31, ~~2017 (2016~~2018 (2017 - none).

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

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

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

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

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

Risks Associated with our Common Stock

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

Based on the ~~5,485,808~~5,939,598 shares of common stock that were issued and outstanding as of July 31, ~~2017,~~2018, our directors owned approximately ~~31%~~51% of our outstanding common stock. As a result, our directors as a group could have a significant influence in delaying, deferring or preventing any potential change in control of our company; they will be able to strongly influence the actions of our board of directors even if they were to cease being directors of our company and can effectively control the outcome of actions brought to our stockholders for approval. Such a high level of ownership may adversely affect the exercise of your voting and other stockholder rights.

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

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

The exercise of all or any number of outstanding stock options ~~or warrants~~ 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 July 31, ~~2017,~~2018, then we would be required to issue an additional ~~748,913~~1,234,022 shares of our common stock, which would represent approximately ~~14%~~21% of our issued and outstanding common stock after such issuances. The exercise of any or all outstanding stock options ~~or warrants~~ 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.

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

On July 20, 2017, our company issued an aggregate of 539,240 shares of common stock under a non-brokered private placement at a price of $2.20 per share for total gross proceeds of $1,186,328. We issued 532,423 shares to eight non-U.S. subscribers who represented that they were not U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in an offshore transaction pursuant to Regulation S and/or Section 4(a)(2) of the Securities Act of 1933, as amended. We issued 6,817 shares to two U.S. subscribers who represented that they were accredited investors pursuant to Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.39

In connection with the private placement, Wesley Clover International Corporation (previously known as Kanata Research Park Corporation), a company controlled by the Chairman of our company, purchased 144,357 shares, purchased 180,446 shares, the chief executive officer and a director of our company, purchased 11,368 shares, the chief financial officer of our company, purchased 4,511 shares, and the Executive Vice President, Sales and Marketing of our company, purchased 4,545 shares. None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities

Maximum
Total number of number of shares
Average price shares purchased that may yet be
Total number paid per share as part of publicly purchased under
of shares (Canadian announced plans the plans or
Period purchased dollars)⁽¹⁾ or programs programs
May 1, 2017 to May 31, 2017 1,100⁽²⁾ $2.98 1,100 196,713
June 1, 2017 to June 30, 2017 1,600⁽²⁾ $2.74 1,600 195,113
July 1, 2017 to July 31, 2017 2,600⁽²⁾ $2.67 2,600 192,513
Total 5,300 $2.75 5,300 192,513

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⁽¹⁾
5/1/2018 – 5/31/2018	−	−	−	284,278
6/1/2018 – 6/30/2018	−	−	−	284,278
7/1/2018 – 7/31/2018	−	−	−	284,278
Total	−	−	−	284,278

	⁽¹⁾	~~Weighted average price.~~
	⁽²⁾	~~Purchased pursuant~~Pursuant to a normal course issuer bid announced on March 27, ~~2017,~~2018, which commenced on March 29, ~~2017~~2018 and expires on March 28, ~~2018~~2019 to purchase up to ~~258,613~~284,278 shares of our common stock.

On March 27, ~~2017,~~2018, we announced our intention to purchase, by way of a normal course issuer bid, for cancellation purposes, up to ~~258,613~~284,278 shares of our common stock, representing approximately 10% of our then outstanding public float. We believe that our shares trade in a price range that does not adequately reflect their underlying value based on our business prospects.

Purchases will be made on the open market through the facilities of the TSX, NASDAQ Capital Market or such other stock exchange or quotation system upon which ~~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 29, ~~2017~~2018 and expiring on March 28, ~~2018.~~2019. We are permitted to make block purchases once per calendar week in accordance with the rules of the TSX. The daily purchase restriction is ~~1,000~~1,199 shares, subject to certain prescribed exemptions. All shares purchased by our company under the normal course issuer bid will be returned to treasury and cancelled.

In connection with the normal course issuer bid, we renewed our automatic share purchase plan with National Bank Financial Inc., in order to facilitate purchases of our shares. Under the purchase plan, National Bank may purchase shares on our behalf at times when we would ordinarily not be permitted to purchase shares due to internal trading blackout periods, insider trading rules or otherwise. The purchase plan has been approved by the TSX and was implemented as of March 28, ~~2017.~~2018. Purchases will be made by National Bank on the open market based upon the parameters prescribed by the TSX, applicable laws and the terms and conditions of the purchase plan.

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.

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~~https://www.sec.gov/Archives/edgar/data/1236997/000108503703000472/exhibit31.htm~~ (incorporated by reference from our Registration Statement on Form SB-2 filed on July 16, 2003)

3.2	Bylaws~~https://www.sec.gov/Archives/edgar/data/1236997/000108503703000472/exhibit32.htm~~ (incorporated by reference from our Registration Statement on Form SB-2 filed on July 16, 2003)

3.3	Amended Bylaws~~https://www.sec.gov/Archives/edgar/data/1236997/000108503703000600/exhibit33.htm~~ (incorporated by reference from our Registration Statement on Form SB-2/A filed on September 3, 2003)

~~3.4~~	~~Articles of Mergerhttps://www.sec.gov/Archives/edgar/data/1236997/000108503705001347/f8k091505ex31.htm~~

~~3.5~~ 3.4	~~Amended Bylaws~~ ~~https://www.sec.gov/Archives/edgar/data/1236997/000108503706000846/f8k042406ex301.htm~~Articles of Merger (incorporated by reference from our Current Report on Form 8-K filed on September 15, 2005)

~~3.6~~ 3.5	Amended Bylaws~~https://www.sec.gov/Archives/edgar/data/1236997/000108503708000427/ex3-1.htm~~ (incorporated by reference from our Current Report on Form 8-K filed on April 28, 2006)

~~3.7~~ 3.6	Amended Bylaws~~https://www.sec.gov/Archives/edgar/data/1236997/000106299312002329/exhibit3-1.htm~~ (incorporated by reference from our Current Report on Form 8-K filed on April 22, 2008)

~~3.8~~ 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~~https://www.sec.gov/Archives/edgar/data/1236997/000106299313006288/exhibit3-8.htm~~ (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~~https://www.sec.gov/Archives/edgar/data/1236997/000106299317000464/exhibit4-8.htm~~ (incorporated by reference from our Registration Statement on Form S-8 filed on January 31, 2017)

4.2	Amended 2010 Stock Option Plan~~https://www.sec.gov/Archives/edgar/data/1236997/000106299317000464/exhibit4-9.htm~~ (incorporated by reference from our Registration Statement on Form S-8 filed on January 31, 2017)

4.3	Deferred Share Unit Plan~~https://www.sec.gov/Archives/edgar/data/1236997/000106299317001323/exhibit4-3.htm~~ (incorporated by reference from our Quarterly Report on Form 10-Q filed on March 13, 2017)

(10)	Material Contracts

~~(10)~~ 10.1	~~Material Contracts~~

~~10.1~~	Employment Agreement between CounterPath Solutions, Inc. and David Karp dated September 11, 2006~~https://www.sec.gov/Archives/edgar/data/1236997/000108503706001801/f10qsb073106ex1017.htm~~ (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~~https://www.sec.gov/Archives/edgar/data/1236997/000108503707001796/piggybackagt.htm~~ (incorporated by reference from our Current Report on Form 8-K filed on August 8, 2007)

10.3	Amended Employment Agreement between Donovan Jones and CounterPath Solutions R&D Inc., a wholly owned subsidiary of CounterPath Solutions, Inc. dated September 13, 2007 (incorporated by reference from our Quarterly Report on Form ~~of Subscription Agreement dated October 29, 2009 between our company and various investorshttps://www.sec.gov/Archives/edgar/data/1236997/000108503709000596/ex10-1.htm~~10-QSB filed on September 14, 2007)

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~~https://www.sec.gov/Archives/edgar/data/1236997/000106299315004946/exhibit10-1.htm~~ (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~~https://www.sec.gov/Archives/edgar/data/1236997/000106299315004946/exhibit10-2.htm~~ (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~~https://www.sec.gov/Archives/edgar/data/1236997/000106299316008343/exhibit10-6.htm~~ (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~~https://www.sec.gov/Archives/edgar/data/1236997/000108503716000377/ex10.htm~~ (incorporated by reference from our Current Report on Form 8-K filed on December 19, 2016)


10.8	Form of Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on July 20, 2017 ~~(filed herewith).~~(incorporated by reference from our Current Report on Form 10-Q filed on September 14, 2017)

~~(14)~~ 10.9	~~Code~~ Form of ~~Ethics~~Subscription Agreement between our company and various investors in connection with the non-brokered private placement completed on January 24, 2018 (incorporated by reference from our Current Report on Form 8-K filed on January 26, 2018)

~~14.1~~ 10.10	Amended Employment Agreement between David Karp and CounterPath Corporation and its wholly owned subsidiary, CounterPath Technologies Inc., dated March 7, 2018 (incorporated by reference from our Quarterly Report on Form 10-Q filed on March 13, 2018)

(14)	Code of Ethics

14.1	Code of Business Conduct and Ethics and Compliance Program~~https://www.sec.gov/Archives/edgar/data/1236997/000106299308004111/exhibit14-2.htm~~ (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).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COUNTERPATH CORPORATION

By:	/s/ Donovan Jones
	Donovan Jones
	President, Chief Executive Officer and Director
	(Principal Executive Officer)

	Date: September ~~14, 2017~~	13, 2018



	/s/ David Karp
	David Karp
	Chief Financial Officer, Treasurer and Secretary
	(Principal Financial Officer and Principal Accounting Officer)

	Date: September ~~14, 2017~~	13, 2018

		Page

	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	3231

Item 4.	Controls and Procedures.	3231

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	3332

Item 1A.	Risk Factors.	3332

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	4039

Item 3.	Defaults Upon Senior Securities.	41

Item 4.	Mine Safety Disclosures.	41

Item 5.	Other Information.	41

Item 6.	Exhibits.	41

	Number of		Aggregate			Number of		Aggregate
	Options		Intrinsic			Options		Intrinsic
Exercise Price	Outstanding		Value	Expiry Date		Exercisable		Value
$2.03	10,000	$	5,500	December 15, 2021		1,458	$	802
$2.40	60,000		10,800	July 15, 2021		15,000		2,700
$2.41	50,844		8,643	December 14, 2020	��	20,340		3,458
$2.46	25,000		3,000	March 14, 2022		–		–
$2.50	213,390		17,071	July 25, 2018 to July 17, 2020		171,223		13,698
July 31, 2017	359,234	$	45,014			208,021	$	20,658
April 30, 2017	396,922	$	–			221,739	$	–

	Number of		Weighted Average
	Warrants		Exercise Price	Expiry Dates
Warrants at April 30 and July 31, 2017	146,500	$	7.50	September 4, 2017

		As at
		July 31, 2017		April 30, 2017
Canada	$	7,337,793	$	6,731,644
United States		50,994		34,761
	$	7,388,787	$	6,766,405

		Office Leases –		Office Leases –		Total Office
		Related Party		Unrelated Party		Leases
2018	$	86,155	$	426,982	$	513,137
2019		114,874		572,703		687,577
2020		5,346		281,750		287,096
2021		−		6,092		6,092
	$	206,375	$	1,287,527	$	1,493,902

	•	~~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.


Issuer Purchases of Equity Securities

				Maximum
			Total number of	number of shares
		Average price	shares purchased	that may yet be
	Total number	paid per share	as part of publicly	purchased under
	of shares	(Canadian	announced plans	the plans or
Period	purchased	dollars)⁽¹⁾	or programs	programs
May 1, 2017 to May 31, 2017	1,100⁽²⁾	$2.98	1,100	196,713
June 1, 2017 to June 30, 2017	1,600⁽²⁾	$2.74	1,600	195,113
July 1, 2017 to July 31, 2017	2,600⁽²⁾	$2.67	2,600	192,513
Total	5,300	$2.75	5,300	192,513