Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the other financial information appearing elsewhere in this annual report.
Our consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. All references to "common shares" refer to our shares of common stock. As used in this annual report, the terms "we", "us" and "our" means CounterPath Corporation, unless otherwise indicated.
Overview
Background
We were incorporated under the laws of the State of Nevada on April 18, 2003.
On August 2, 2007, we acquired all of the shares of NewHeights Software Corporation through the issuance of 768,017 shares of our common stock and 36,984 preferred shares issued from a subsidiary of our company, which preferred shares were exchangeable into 36,984 shares of common stock.
On February 1, 2008, we acquired all of the shares of FirstHand Technologies Inc. through the issuance of 590,001 shares of our common stock. On February 1, 2008, we acquired all of the issued and outstanding shares of BridgePort Networks, Inc. ("BridgePort Networks") by way of merger in consideration for the assumption of all of the assets and liabilities of BridgePort Networks.
Business of CounterPath
We design, develop and sell software and services that enable enterprises and telecommunication service providers to deliver Unified Communications & Collaborations (UCC) solutions to their end users. Our offerings include softphones that support HD voice/video calling, messaging, and presence from a wide range of call services and VoIP services, as well as hosted services for team voice, messaging, presence, video conferencing and screen sharing functionality, over Internet Protocol (IP) based networks. We are capitalizing upon several industry trends, including the rapid adoption of mobile technology, the proliferation of work-from-home programs, the growth of video conferencing, the increasing requirements for secure business communications, centralized cloud-based provisioning, and the migration towards all IP networks. We are also capitalizing on a trend where communication services such as Google Meet, Slack, Zoom, and WhatsApp are becoming more available over-the-top (OTT) of the incumbent operators' networks or enterprise networks (a.k.a. Internet OTT providers). We consolidate Internet OTT application capabilities into a single application that, we believe, provides more value at less than our competitors' cost. Our solutions are offered under perpetual license agreements that generate one-time license revenue and under subscription license agreements that generate recurring license revenue. Our solutions are available for sale through our online store, directly using our in-house sales team, original equipment manufacturers (OEM) partners, and through traditional value added reseller (VAR) and value added distributer (VAD) channel partners. Enterprises typically leverage our solutions to increase employee productivity and to reduce communication costs while leveraging, leading call servers provided by companies such as Cisco, Avaya, Sangoma, and others. Telecommunication service providers typically deploy our solutions to supplement and add value to their traditional services that compete directly with the Internet OTT providers. Our OEM and VAR customers typically integrate our solutions into their products and then sell a bundled solution to their end customers, which include both telecommunication service providers and enterprises.
COVID-19 Pandemic
On January 30, 2020, the World Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus, COVID-19 originating in Wuhan, China (and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this Annual Report on Form 10-K. As such, it is uncertain as to the full magnitude that the pandemic will have on our financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation and its impact on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects that the COVID-19 outbreak will have on our results of operations, financial condition, or liquidity for fiscal year 2021. As of the date of this Annual Report on Form 10-K, we have not experienced meaningful delays in securing new customers and related revenues, cancellations of existing contracts, or meaningful delays in payments from existing customers, however, the longer this pandemic continues there may be additional impacts. Although we cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on our results of future operations, financial position, liquidity, and capital resources, and those of the third parties on which we rely on in fiscal year 2021.
Revenue
Our total revenue consists of the following:
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, access to our technical assistance center, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis, and are recognized rateably over the term of the service period, which is generally twelve months.
-
Professional services and other
We generate professional services and other revenue through services including product configuration and customization, implementation, dedicated engineering and training. The amount of product configuration and customization required by a customer typically increases as the order size increases from a given customer. Services and pricing may vary depending upon a customer's requirements for customization, implementation and training.
Operating Expenses
Operating expenses consist of cost of sales, sales and marketing, research and development, and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories.
Cost of sales primarily consists of: (a) salaries and benefits related to personnel, (b) related overhead, (c) billable and non-billable travel, lodging, and other out-of-pocket expenses, (d) payments to third party vendors for development and hosted communication services and compression/decompression software known as codecs, (e) amortization of capitalized software that is implemented into our products and (f) warranty expense.
Sales and marketing expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) commissions, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs such as advertising, promotions and trade shows and (e) other related overhead. Commissions are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a systematic basis to sales and marketing expense, over the anticipated benefit period of up to 3.5 years depending on the products or services. Sales commissions on contracts with an anticipated benefit period of one year or less are expensed as incurred. We expect increases in sales and marketing expense for the foreseeable future as we further increase the number of sales professionals and increase our marketing activities with the intent to grow our revenue. We expect sales and marketing expense to decrease as a percentage of total revenue, however, as we leverage our current sales and marketing personnel as well as our distribution partnerships.
Research and development expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) payments to contractors for design and consulting services, (c) costs relating to the design and development of new products and enhancement of existing products, (d) quality assurance and testing and (e) other related overhead. To date, all of our research and development costs have been expensed as incurred.
General and administrative expense consists primarily of: (a) salaries and personnel costs including stock-based compensation related to our executive, finance, human resource and information technology functions, (b) accounting, legal, tax advisory and regulatory fees and (c) other related overhead.
Application of Critical Accounting Policies and Use of Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions. There have been no material changes to these estimates for the periods presented in this annual report.
We believe that of our significant accounting policies, which are described in Note 2 to our annual consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, the following policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Revenue Recognition
On May 1, 2018, we adopted the new accounting standard, ASC 606 "Revenue from Contracts with Customers" and all related amendments to the new accounting standard to contracts using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue recognition standard to contracts with open performance obligations as of May 1, 2018, as an adjustment to the opening balance of retained earnings.
Revenues from contracts with customers are recognized when control of promised goods and services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We recognize revenue using the five-step model as prescribed by ASC 606:
1) Identification of the contract, or contracts, with a customer;
2) Identification of the performance obligations in the contract;
3) Determination of the transaction price;
4) Allocation of the transaction price to the performance obligations in the contract; and
5) Recognition of revenue when or as, we satisfy a performance obligation.
When a contract with a customer is signed, we assess whether collection of the fees under the arrangement is probable. We estimate the amount to reserve for uncollectible amounts at the end of each reporting period based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded against the related accounts receivable.
The transaction price is the consideration that we expect to receive from our customers in exchange for our products and services. In determining the allocation of the transaction price, we identify performance obligations in contracts with customers, which may include products, subscriptions to software and services, support, professional services and training. We allocate the transaction price to each performance obligation on a relative standalone selling price basis. The standalone selling price (SSP) is the price at which we would sell a promised product or service separately to a customer. We determine the SSP using information that may include market conditions or other observable inputs. In certain cases, we are able to establish a SSP based on observable prices for products or services sold separately. In these instances, we would use a single amount to estimate a SSP. If a SSP is not directly observable, for example when pricing is variable, we will use a range of SSP.
In certain circumstances, we may estimate SSP for a product or service by applying the residual approach. This approach has been most commonly used when certain perpetual software licenses are only sold bundled with one year of post-contract support or other services and a price has not been established for the software.
Significant judgement is used to determine SSP and to determine whether there is a variance that needs to be allocated based on the relative SSP of the various products and services. Estimating SSP is a formal process that includes review and approval by management.
In practice, we do not offer extended payment terms beyond one year to customers. As such, we do not adjust our consideration for financing arrangements.
We recognize software revenue for perpetual licenses when control has transferred to the customer, which is generally at the time of delivery when the customer has the ability to deploy the licenses, provided all revenue recognition criteria have been met. If the revenue recognition criteria has not been met, the revenue is deferred or not recognized.
We recognize revenue from subscriptions related to our software as a service offering ratably over the contractual subscription term as control of the goods or services is transferred to the customer, beginning on the date that the subscription is made available to the customer. Support and maintenance revenue is generated from recurring annual software support and maintenance contracts for our perpetual software licenses and is recognized ratably over the term of the service period, which is generally twelve months. Support and maintenance services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis. Both subscription revenue and support and maintenance revenue are typically billed annually in advance based on the terms of the arrangement.
We recognize revenue from professional services and other revenue when control has transferred to the customer, which is generally at the time of delivery, and all other revenue recognition criteria have been met. For contracts with elements related to customized network solutions and certain network build-outs or software systems that require significant modification or customization, we will recognize revenue using the percentage-of-completion method. In using the percentage-of-completion method, revenues are generally recorded based on completion of milestones as described in the agreement. Profit estimates on long-term contracts are revised periodically based on changes in circumstances and any losses on contracts are recognized in the period that such losses become known. Depending on the services to be provided, revenue from professional services and other revenue is generally recognized at the time of delivery when the services have been completed and control has been transferred to the customer.
Unearned Revenue
Unearned revenue represents billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual support and subscription services and professional and training services not yet provided as of the balance sheet date.
Costs to Obtain a Customer Contract
Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized and amortized on a systematic basis to match the timing of revenue recognition over the anticipated benefit period of up to 3.5 years depending on the products and services. The anticipated benefit period was estimated using management judgment after reviewing customer contracts from fiscal years 2004 - 2018, and is based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in sales and marketing expense within our consolidated statement of operations. We have elected to apply a practical expedient that permits our company to expense costs to obtain a contract as incurred, if the anticipated benefit period is one year or less. From time to time, management will revisit the estimates used in recognizing the costs to obtain customer contracts.
Costs to Fulfill a Customer Contract
Certain contract costs incurred to fulfill obligations under a contract are capitalized when such costs generate or enhance resources to be used in satisfying future performance obligations and the costs are deemed recoverable. Judgement is used in determining whether certain contract costs can be capitalized. These costs are capitalized and amortized on a systematic basis to match the timing of revenue recognition over the anticipated benefit period of up to 3.5 years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in cost of sales in our consolidated statement of operations. From time to time, management will review the capitalized costs for impairment and will also revisit the estimates used in recognizing the costs to fulfill customer contracts.
Stock-Based Compensation
Stock options granted are accounted for under ASC 718 "Share-Based Payment" and are recognized at the fair value of the options as determined by an option pricing model as the related services are provided and the options earned. ASC 718 requires public companies to recognize the cost of employee services received in exchange for equity instruments, based on the fair value of those instruments on the measurement date which generally is the grant date, with limited exceptions.
Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee consultants. We measure stock-based compensation cost at measurement date, based on the estimated fair value of the award, and generally recognize the cost as expense on a straight-line basis (net of estimated forfeitures) over the employee requisite service period or the period during which the related services are provided by the non-employee consultants and the options are earned. We estimate the fair value of stock options using a Black-Scholes option valuation model.
The expected volatility of options granted has been determined using the volatility of our company's stock. The expected life of options granted after April 30, 2006 has been determined based on analysis of historical data. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. In addition, ASC 718 requires companies to utilize an estimated forfeiture rate when calculating the expense for the period. We applied an estimated forfeiture rate of 15.0% in the year ended April 30, 2020 in determining the expense recorded in our consolidated statement of operations. Cost of sales and operating expenses include stock-based compensation expense, and deferred share unit plan expense. For the year ended April 30, 2020, we recorded an expense of $382,584 in connection with share-based payment awards. A future expense of non-vested options of $271,728 is expected to be recognized over a weighted-average period of 2.3 years. A future expense of non-vested deferred share units of $233,058 is expected to be recognized over a weighted-average period of 2.1 years.
Accounts Receivable and Allowance for Doubtful Accounts
We extend credit to our customers based on evaluation of an individual customer's financial condition and collateral is generally not required. Accounts outstanding beyond the contractual payment terms are considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are beyond the contractual payment terms, our previous loss history, and a customer's current ability to pay its obligation to us. We write-off accounts receivable when they are identified as uncollectible. All outstanding accounts receivable are periodically reviewed for collectability on an individual basis.
Goodwill
We have goodwill related to the acquisitions of NewHeights Software Corporation and FirstHand Technologies Inc. The determination of the net carrying value of goodwill and the extent to which, if any, there is impairment, are dependent on material estimates and judgments on our part, including the estimate of the value of future net cash flows, which are based upon further estimates of future revenues, expenses and operating margins.
Goodwill-Impairment Assessments
We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with FASB ASC 350, Goodwill and Other Intangible Assets ("ASC 350"). The provisions of ASC 350 require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit's goodwill. If the carrying value of our reporting unit's goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.
In September of 2011, FASB issued Accounting Standards Update 2011-08, "Intangibles-Goodwill and Other (Topic 350)". Under the amendments of this update, an entity may first assess certain qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
Determining the fair value of our reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. Our most recent annual goodwill impairment analysis, which was performed at the end of the fourth quarter of fiscal 2020, did not result in an impairment charge for fiscal year 2020, nor did we record any goodwill impairment in fiscal 2019.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases, as amended by subsequent standards updates, which requires lessees to recognize right-of-use (ROU) assets and lease liabilities for all leases, with the exception of short term leases, at the commencement date of each lease. A ROU asset represents our right to use an identified asset for the lease term and lease liability represents our obligation to make payments as set forth in the lease arrangement. We adopted the new standard effective May 1, 2019 using a modified retrospective approach and did not restate comparative periods. As a result, we recorded $1,708,129 of ROU assets and operating lease liabilities on May 1, 2019. There was no cumulative-effect adjustment for the adoption and the adoption did not have a significant impact on our consolidated statements of operations.
Management has elected to apply the practical expedient to not reassess initial direct costs related to leases, whether any expired or existing contracts contained leases and to carryforward historical lease classification. As a result, all leases identified by management will continue to be classified as operating leases. In addition, management elected to not record short-term leases with an initial term of 12 months or less on its consolidated balance sheets. See Note 14- Leases for more information.
We determine if an arrangement is a lease at contract inception by evaluating if the contract conveys the right to control the use of an identified asset during the period of use. A right-of-use (ROU) asset represents our right to use an identified asset for the lease term and lease liability represents our obligation to make payments as set forth in the lease arrangement. ROU assets and lease liabilities are included on our consolidated balance sheets beginning May 1, 2019 and are recognized based on the present value of the future minimum lease payments at lease commencement date. The interest rate used to determine the present value of the future lease payments is our estimated incremental borrowing rate, because the interest rate implicit in the lease is generally not readily determinable. A ROU asset initially equals the lease liability, adjusted for any lease payments made prior to lease commencement and any lease incentives. All leases are recorded on the consolidated balance sheets except for leases with an initial term of less than 12 months. All of the our leases are operating leases.
We have lease agreements with lease and non-lease components. The lease component is comprised of minimum lease payments which includes base rent and estimated property taxes and insurance. Non-lease components primarily include payments for maintenance and are expensed as incurred.
Derivative Instruments
We periodically enter into foreign currency forward contracts, not designated as hedging instruments, to protect us from fluctuations in exchange rates. During the year, we had two foreign currency option contracts with an aggregate notional value of $1,000,000 and three foreign currency forward contracts with an aggregate notional value of $1,300,667, all maturing in the period ending July 31, 2020. We also had two foreign currency forward contracts with an aggregate notional value of $900,000, maturing in the period ending October 31, 2020. Notional amounts do not quantify risk or represent assets or liabilities of our company, but are used in the calculation of cash settlements under the contracts. During the year ended April 30, 2020 we recognized a loss of $132,377 as a result of the change in fair value of derivative instruments.
Results of Operations
Our operating activities during the year ended April 30, 2020 consisted primarily of selling our IP telephony software and related services to telecom service providers, enterprises and channel partners serving the telecom and enterprise segments, and the continued development of our IP telephony software products.
We generate our revenue primarily in U.S. dollars and incur a majority of our expenses in Canadian dollars. As a result of the fluctuation in the Canadian dollar against the U.S. dollar over the twelve months ended April 30, 2020, we recorded a decrease in operating costs on translation of Canadian dollar costs as compared to the twelve months ended April 30, 2019 of approximately $98,300.
Selected Consolidated Financial Information
The following tables set out selected consolidated audited financial information for the periods indicated. The selected consolidated financial information set out below for the fiscal years ended April 30, 2020 and 2019, and as at April 30, 2020 and April 30, 2019, has been derived from the consolidated financial statements and accompanying notes for the fiscal years ended April 30, 2020 and 2019. Each investor should read the following information in conjunction with those statements and the related notes thereto.
Selected Consolidated Balance Sheet Data
|
|
April 30, 2020
|
|
|
April 30, 2019
|
|
Cash
|
$
|
2,433,266
|
|
$
|
1,862,458
|
|
Current assets
|
$
|
5,450,228
|
|
$
|
4,126,387
|
|
Total assets
|
$
|
13,655,953
|
|
$
|
11,124,786
|
|
Current liabilities
|
$
|
10,499,343
|
|
$
|
4,885,095
|
|
Total liabilities
|
$
|
11,611,636
|
|
$
|
7,898,889
|
|
Selected Consolidated Statements of Operations Data
|
|
Years Ended April 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Amount
|
|
|
Percent
of Total
Revenue
|
|
|
Amount
|
|
|
Percent
of Total
Revenue
|
|
Revenue
|
$
|
12,101,326
|
|
|
100%
|
|
$
|
10,764,904
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
$
|
12,900,893
|
|
|
107%
|
|
|
15,931,665
|
|
|
148%
|
|
Loss from operations
|
|
($799,567
|
)
|
|
(7%
|
)
|
|
($5,166,761
|
)
|
|
(48%
|
)
|
Interest and other income (expense), net
|
|
(465,584
|
)
|
|
(4%
|
)
|
|
(103,443
|
)
|
|
(1%
|
)
|
Foreign exchange gain
|
|
168,586
|
|
|
2%
|
|
|
256,765
|
|
|
2%
|
|
Net loss
|
|
($1,096,565
|
)
|
|
(9%
|
)
|
|
($5,013,439
|
)
|
|
(47%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic and diluted
|
|
($0.18
|
)
|
|
|
|
|
($0.84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic and diluted (1)
|
|
6,010,006
|
|
|
|
|
|
5,942,096
|
|
|
|
|
(1)
|
As at April 30, 2020 and 2019 common share equivalents of 1,371,469 and 1,249,940, respectively, were not included in the computation of diluted weighted average common shares as the effect was anti-dilutive.
|
Revenue
Revenues for the year ended April 30, 2020 and 2019 were as follows:
|
|
Twelve Months Ended April 30,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Period-to-Period Change
|
|
|
|
Amount
|
|
|
Percent
of Total
Revenue
|
|
|
Amount
|
|
|
Percent
of Total
Revenue
|
|
|
Amount
|
|
|
Percent
Increase /
(Decrease)
|
|
Revenue by Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
$
|
5,154,513
|
|
|
42%
|
|
$
|
4,660,660
|
|
|
43%
|
|
$
|
493,853
|
|
|
11%
|
|
Subscription, support and maintenance
|
$
|
6,257,854
|
|
|
52%
|
|
$
|
5,366,290
|
|
|
50%
|
|
$
|
891,564
|
|
|
17%
|
|
Professional services and other
|
$
|
688,959
|
|
|
6%
|
|
$
|
737,954
|
|
|
7%
|
|
|
($48,995
|
)
|
|
(7%
|
)
|
Total revenue
|
$
|
12,101,326
|
|
|
100%
|
|
$
|
10,764,904
|
|
|
100%
|
|
$
|
1,336,422
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
8,391,465
|
|
|
69%
|
|
$
|
6,768,821
|
|
|
63%
|
|
$
|
1,622,644
|
|
|
24%
|
|
International
|
$
|
3,709,861
|
|
|
31%
|
|
$
|
3,996,083
|
|
|
37%
|
|
|
($286,222
|
)
|
|
(7%
|
)
|
Total revenue
|
$
|
12,101,326
|
|
|
100%
|
|
$
|
10,764,904
|
|
|
100%
|
|
$
|
1,336,422
|
|
|
12%
|
|
For the year ended April 30, 2020, we generated $12,101,326 in revenue compared to $10,764,904 for the year ended April 30, 2019, representing an increase of $1,336,422 or 12%.
Software revenue increased by $493,853 or 11% to $5,154,513 for the year ended April 30, 2020 compared to $4,660,660 for the year ended April 30, 2019. The increase in software revenue was primarily a result of increased sales to enterprises and channel partners.
Subscription, support and maintenance revenue increased by $891,564 or 17% to $6,257,854 for the year ended April 30, 2020 compared to $5,366,290 for the year ended April 30, 2019. The increase in subscription, support and maintenance revenue was a result of increased sales to channel partners, service providers, and enterprises.
Professional services and other revenue decreased by $48,995 or 7% to $688,959 for the year ended April 30, 2020 compared to $737,954 for the year ended April 30, 2019. The decrease in professional services and other revenue was a result of decreased sales to service providers and enterprises.
North American revenue increased by $1,622,644 or 24% to $8,391,465 for the year ended April 30, 2020 compared to $6,768,821 for the year ended April 30, 2019, as a result of higher sales of software and services to North American enterprises, service providers, and channel partners. International revenue outside of North America decreased by $286,222 or 7% to $3,709,861 for the year ended April 30, 2020 compared to $3,996,083 for the year ended April 30, 2019, as a result of lower sales of software and services to international service providers, slightly offset by increased sales of software and service to international channel partners and enterprises.
Operating Expenses
Cost of Sales
Cost of sales for the year ended April 30, 2020 and 2019 were as follows:
|
|
April 30, 2020
|
|
|
April 30, 2019
|
|
|
Period-to-Period Change
|
|
|
|
Amount
|
|
|
Percent
of
Revenue
|
|
|
Amount
|
|
|
Percent
of
Revenue
|
|
|
Amount
|
|
|
Percent
Increase /
(Decrease)
|
|
Year ended
|
$
|
2,124,948
|
|
|
18%
|
|
$
|
2,223,984
|
|
|
21%
|
|
|
($99,036
|
)
|
|
(4%
|
)
|
Cost of sales was $2,124,948 for the year ended April 30, 2020 compared to $2,223,984 for the year ended April 30, 2019. The decrease of $99,036, or 4%, was primarily due to decreases of approximately $153,200 in wages and benefits and approximately $347,500 in consulting fees, offset by increases of approximately $204,900 in communication services expenses, approximately $184,400 in licenses and permits and approximately $12,300 in other expenses. Cost of sales expressed as a percent of revenue was 18% of revenue for the year ended April 30, 2020 compared to 21% for the year ended April 30, 2019. The decrease in cost of sales as a percentage of revenue is primarily due to the decrease in headcount in our effort to reduce costs.
Sales and Marketing
Sales and marketing expenses for the year ended April 30, 2020 and 2019 were as follows:
|
|
April 30, 2020
|
|
|
April 30, 2019
|
|
|
Period-to-Period Change
|
|
|
|
Amount
|
|
|
Percent
of
Revenue
|
|
|
Amount
|
|
|
Percent
of
Revenue
|
|
|
Amount
|
|
|
Percent
Increase /
(Decrease)
|
|
Year ended
|
$
|
3,831,866
|
|
|
32%
|
|
$
|
4,061,921
|
|
|
38%
|
|
|
($230,055
|
)
|
|
(6%
|
)
|
Sales and marketing expenses were $3,831,866 for the year ended April 30, 2020 compared to $4,061,921 for the year ended April 30, 2019. The decrease of $230,055, or 6%, was primarily attributable to decreases of approximately $164,500 in wages, benefits and commissions expenses, approximately $77,900 in consulting fees and approximately $6,500 in marketing and travel expenses, offset by an increase of approximately $18,900 in other expenses.
Research and Development
Research and development expenses for the year ended April 30, 2020 and 2019 were as follows:
|
|
April 30, 2020
|
|
|
April 30, 2019
|
|
|
Period-to-Period Change
|
|
|
|
Amount
|
|
|
Percent
of
Revenue
|
|
|
Amount
|
|
|
Percent
of
Revenue
|
|
|
Amount
|
|
|
Percent
Increase /
(Decrease)
|
|
Year ended
|
$
|
4,398,814
|
|
|
36%
|
|
$
|
5,547,587
|
|
|
52%
|
|
|
($1,148,773
|
)
|
|
(21%
|
)
|
Research and development expenses were $4,398,814 for the year ended April 30, 2020 compared to $5,547,587 for the year ended April 30, 2019. The decrease of $1,148,773, or 21%, resulted primarily from decreases of approximately $648,200 in wages and benefits expenses due to the decrease in headcount in our effort to reduce costs, approximately $454,700 in consulting expenses and approximately $45,800 in other expenses.
General and Administrative
General and administrative expenses for the years ended April 30, 2020 and 2019 were as follows:
|
|
April 30, 2020
|
|
|
April 30, 2019
|
|
|
Period-to-Period Change
|
|
|
|
Amount
|
|
|
Percent
of
Revenue
|
|
|
Amount
|
|
|
Percent
of
Revenue
|
|
|
Amount
|
|
|
Percent
Increase /
(Decrease)
|
|
Year ended
|
$
|
2,545,265
|
|
|
21%
|
|
$
|
4,098,173
|
|
|
38%
|
|
|
($1,552,908
|
)
|
|
(38%
|
)
|
General and administrative expenses for the year ended April 30, 2020 were $2,545,265 compared to $4,098,173 for the year ended April 30, 2019. The decrease of $1,552,908, or 38%, in general and administrative expenses was primarily attributable to decreases of approximately $933,000 in the allowance for bad debts provision as a result of one time provisions recorded for several customer accounts in the prior year. In addition, we recorded a decrease of approximately $396,600 in wages and benefits expenses, primarily related to a one time accrual of $321,000 recorded in the prior year, associated with the departure of our former chief executive officer, a decrease of approximately $226,100 in legal and professional charges and a decrease of approximately $49,100 in consulting expenses. This decrease was offset by an increase of approximately $51,500 in other expenses.
Interest and Other Income (Expense), Net
Interest and other income (expense), net for the year ended April 30, 2020 was ($296,998) compared to $153,322 for the year ended April 30, 2019. The change of ($450,320) or (294%) was primarily due to an increase in interest expense related to the related party loan payable of approximately $228,000, a loss resulting from the change in fair value of derivative instruments of approximately $134,100 and an increase in the foreign exchange loss in the current year of approximately $88,200 as result of the weakening of the Canadian dollar against the U.S. dollar during the year ended April 30, 2020.
The foreign exchange gain (loss) represents the gain (loss) on account of translation of the intercompany accounts of our subsidiary which maintains their records in Canadian dollars and transactional gains and losses. This also includes the translation of quarterly intercompany transfer pricing invoices from our Canadian subsidiary to us.
Liquidity and Capital Resources
As at April 30, 2020, we had $2,433,266 in cash compared to $1,862,458 at April 30, 2019, representing an increase of $570,808. As of April 30, 2020, we had a working capital deficit of $5,049,115 compared to working capital deficit of $758,708 at April 30, 2019, representing a decrease of $4,290,407. Management anticipates that future capital requirements of our company will be funded through cash flows generated from operations and from working capital for the next twelve months and we may seek additional funding to meet ongoing operating expenses.
We have experienced recurring losses and have an accumulated deficit of $69,677,656 as of April 30, 2020, as a result of revenues being historically lower than expenses, resulting from a number of factors including our buildout of a cloud based subscription platform concurrent with the change of our licensing model to subscription based licensing and have not reached profitable operations on a consistent basis. However, during the year ended April 30, 2020, revenue has increased by approximately 12% compared to the year ended April 30, 2019. Despite the increase in revenue, we saw an increase in current liabilities primarily related to the reclassification of the related party loan payable of $4,000,000 outstanding as of April 30, 2020, from long-term liabilities, which is due on April 11, 2021. It is uncertain whether we would be able to maintain sufficient cash flows to meet our current obligations. Further, due to the recent and ongoing outbreak of COVID-19, the spread of COVID-19 has severely impacted many economies around the world, including those in which our customers operate. Management has taken steps to help mitigate any potential negative impact on operations including having reduced operating costs through fiscal year ended April 30, 2020 and obtaining financial assistance made available from the US government under the Paycheck Protection Program; however, we are unable to determine the future impact on our financial position and operating results. Together, these factors raise substantial doubt about our ability to continue operating as a going concern within one year of the date of issuance of the consolidated financial statements.
To alleviate this situation, we have plans in place to improve our financial position and liquidity through additional financing, while executing on our growth strategy, and by managing and or reducing costs that are not expected to have an adverse impact on the ability to generate cash flows, as the transition to our software as a service platform and subscription licensing continues. During fiscal 2020, recurring revenue as a percentage of total revenue increased from 50% in the prior year to 52% of total revenue. We believe that increasing recurring revenue will stabilize the volatility of revenue over time, and enable our company to grow revenue from our extensive customer base. To increase our recurring revenue, we introduced Bria Solo and Bria Teams which are subscription based unified communication services. In addition, we advanced our Channel Partner Program which enables us to leverage our sales force in regions outside of North America. The Channel Partner Program is administered through a partner portal enabling our partners to order and manage their customers and end users in an automated and scalable fashion. Software sold through the Channel Partner Program is extensively licensed on a subscription basis. In addition, as a result of managements efforts to reduce costs, operating expenses decreased by approximately 19% to $12,900,893 during the year ended April 30, 2020, compared to $15,931,665 in the prior year.
We have historically been able to manage liquidity requirements through cost management and cost reduction measures, supplemented with raising additional financing. In October 2018, we entered into a loan agreement for an aggregate principal amount of up to $3,000,000, which was subsequently increased to $5,000,000 on July 10, 2019. As of April 30, 2020, the principal balance of the related party loan payable was $4,000,000 and interest payable on the loan was $79,459. Subsequent to year end, on June 15, 2020, we repaid $2,000,000 of the outstanding loan balance to our Lenders, increasing the unused portion of the loan principal to $3,000,000. See Notes to the Consolidated Financial Statements - Note 9 - Related Party Loan Payable for more information.
On May 1, 2020, through our subsidiary, CounterPath LLC, we entered into a promissory note with Bank of America for a term loan in the amount of $209,035 (the "Loan"). The Loan is made pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act. (the "CARES Act"). The Loan is forgiveable if used to retain workers and maintain payroll or to make lease payments and utility payments as specified under the Paycheck Protection Rule. The remaining loan balance that is not forgiven will bear interest at a rate of 1% per annum after a six-month deferment period, with a maturity date of two years from the funding date of the loan. We expect the loan to be fully forgiven during the fiscal year ended April 30, 2021.
In addition, on June 10, 2020, we issued an aggregate of 284,902 shares of common stock under a non-brokered private placement at a price of $3.51 per share for total gross proceeds of $1,000,006. We do not have any other commitments to raise funds as of the date of this annual report on Form 10-K.
As at April 30, 2020 we had $1,267,712 in cash held outside of the United States, and there is no intent to repatriate at this time. Should we decide to repatriate in the future, taxes would need to be accrued and paid. The 2017 Tax Cuts and Jobs Act incorporated changes to certain international tax provisions, including the implementation of a territorial tax system that imposes a one-time tax on foreign unremitted earnings. We do not anticipate that the foreign provisions would have an impact on our taxes.
Operating Activities
Our operating activities resulted in a net cash outflow of $310,116 for the year ended April 30, 2020, compared to a net cash outflow of $3,443,379 for the year ended April 30, 2019, representing a decrease of $3,113,263. This decrease is primarily due to a decrease in the net loss by approximately $3,916,900, an increase in the change in unearned revenue of approximately $1,160,800, an increase in operating lease expenses of approximately $514,600 related to the adoption of the new lease accounting standard, an increase in the loss resulting from the change in fair value of derivative instruments of approximately $127,400, an increase to the change in accounts payable and accrued liabilities of approximately $192,700, a decrease in non-cash foreign exchange losses of approximately $72,000 and a decrease in the change in deferred sales commissions costs of approximately $44,400. This is offset by an increase in the change in accounts receivable of approximately $1,376,000, a decrease in non-cash bad debts expense of approximately $933,000, the adoption of the new lease accounting standard resulting in operating lease liabilities of approximately $498,700, a decrease in non-cash stock-based compensation expense of approximately $92,100 and a decrease in non-cash depreciation and amortization of approximately $32,500.
Investing Activities
Investing activities resulted in a net cash outflow of $125,842 for the year ended April 30, 2020, compared to a net cash outflow of $49,732 for the year ended April 30, 2019, representing an increase of $76,110. This decrease is primarily due to an increase of approximately $80,300 in purchases of equipment, offset by a decrease of $4,200 in costs related to our trademarks. At April 30, 2020, we did not have any material commitments for future capital expenditures.
Financing Activities
Financing activities resulted in a net cash inflow of $1,016,967 for the year ended April 30, 2020 compared to a net cash inflow of $3,022,645 for the year ended April 30, 2019, representing a decrease of $2,005,678. The decrease was primarily due to proceeds of $3,000,000 received under the loan agreement during the year ended April 30, 2019 compared to proceeds of 1,000,000 in the current year. In addition, proceeds received related to shares issued pursuant to our employee stock purchase plan decreased by approximately $5,700.
Off-Balance Sheet Arrangements
We do not have, and do not have any present plans to implement, any off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13 Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements under ASC 820. This ASU is to be applied on a prospective basis for certain modified or new disclosure requirements, and all other amendments in the standard are to be applied on a retrospective basis. The new standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of adoption on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which amends the guidance to eliminate Step 2 from the goodwill impairment test. Instead, under the amendments in the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The amendments will be effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We do not expect a significant impact on our consolidated financial statements and related disclosures resulting from the pending adoption of this amendment.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Measurement of Credit Losses on Financial Instruments, which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous "incurred loss" methodology was restrictive for Company's ability to record credit losses based on not yet meeting the "probable" threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected will a valuation provision. The amendments will be effective for fiscal years beginning after December 15, 2022. We do not expect a significant impact on our consolidated financial statements and related disclosures resulting from the pending adoption of this amendment.
Item 8. Financial Statements and Supplementary Data.
COUNTERPATH CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2020
|
Tel: 604 688 5421
Fax: 604 688 5132
www.bdo.ca
|
BDO Canada LLP
600 Cathedral Place
925 West Georgia Street
Vancouver BC V6C 3L2 Canada
|
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
CounterPath Corporation
Las Vegas, Nevada
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of CounterPath Corporation and its subsidiaries (the "Company") as of April 30, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows for each of the two years in the period ended April 30, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred losses and has an accumulated deficit of $69,677,656 as of April 30, 2020. As stated in Note 2, these events and conditions, along with other matters as set forth in Note 2, raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Change in Accounting Method related to Leases
As discussed in Notes 2 and 14 to the consolidated financial statements, the Company has changed its method of accounting for leases during the year ended April 30, 2020 due to the adoption of the Accounting Standards Codification ("ASC") - Leases ("ASC 842").
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO Canada LLP
Chartered Professional Accountants
We have served as the Company's auditor since 2006.
Vancouver, British Columbia
July 16, 2020
COUNTERPATH CORPORATION
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. dollars, except number of shares)
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
$
|
2,433,266
|
|
$
|
1,862,458
|
|
Accounts receivable (net of allowance for doubtful accounts of $317,230 (2019 - $619,514))
|
|
2,553,714
|
|
|
1,876,896
|
|
Deferred sales commission costs - current - Note 3
|
|
129,946
|
|
|
122,777
|
|
Derivative assets
|
|
6,381
|
|
|
1,178
|
|
Prepaid expenses and other current assets
|
|
326,921
|
|
|
263,078
|
|
Total current assets
|
|
5,450,228
|
|
|
4,126,387
|
|
|
|
|
|
|
|
|
Deposits
|
|
82,039
|
|
|
94,829
|
|
Deferred sales commission costs - non-current - Note 3
|
|
92,644
|
|
|
77,571
|
|
Equipment, net - Note 4
|
|
111,672
|
|
|
59,914
|
|
Operating lease right-of-use assets - Note 14
|
|
1,370,035
|
|
|
-
|
|
Goodwill
|
|
6,323,390
|
|
|
6,541,290
|
|
Intangibles and other assets
|
|
225,945
|
|
|
224,795
|
|
Total Assets
|
$
|
13,655,953
|
|
$
|
11,124,786
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
2,231,777
|
|
$
|
2,233,875
|
|
Related party loan payable - current - Note 9
|
|
4,000,000
|
|
|
-
|
|
Derivative liability
|
|
140,299
|
|
|
4,512
|
|
Unearned revenue
|
|
3,782,400
|
|
|
2,593,726
|
|
Operating lease liabilities - current - Note 14
|
|
293,322
|
|
|
-
|
|
Customer deposits
|
|
-
|
|
|
947
|
|
Accrued warranty
|
|
51,545
|
|
|
52,035
|
|
Total current liabilities
|
|
10,499,343
|
|
|
4,885,095
|
|
|
|
|
|
|
|
|
Deferred lease inducements
|
|
-
|
|
|
4,031
|
|
Related party loan payable - non-current - Note 9
|
|
-
|
|
|
3,000,000
|
|
Operating lease liabilities - non-current - Note 14
|
|
1,102,530
|
|
|
-
|
|
Unrecognized tax liability
|
|
9,763
|
|
|
9,763
|
|
Total liabilities
|
|
11,611,636
|
|
|
7,898,889
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
Preferred stock, $0.001 par value
|
|
|
|
|
|
|
Authorized: 100,000,000
|
|
|
|
|
|
|
Issued and outstanding: April 30, 2020 - nil; April 30, 2019 - nil
|
|
-
|
|
|
-
|
|
Common stock, $0.001 par value - Note 10
|
|
|
|
|
|
|
Authorized: 10,000,000
|
|
|
|
|
|
|
Issued:
|
|
|
|
|
|
|
April 30, 2020 - 6,103,612; April 30, 2019 - 5,950,246
|
|
6,104
|
|
|
5,950
|
|
Additional paid-in capital
|
|
76,066,930
|
|
|
75,667,533
|
|
Accumulated deficit - Note 2
|
|
(69,677,656
|
)
|
|
(68,581,091
|
)
|
Accumulated other comprehensive loss - currency translation adjustment
|
|
(4,351,061
|
)
|
|
(3,866,495
|
)
|
Total stockholders' equity
|
|
2,044,317
|
|
|
3,225,897
|
|
Liabilities and Stockholders' Equity
|
$
|
13,655,953
|
|
$
|
11,124,786
|
|
|
|
|
|
|
|
|
Commitments - Note 15
|
|
|
|
|
|
|
Contingencies - Note 16
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
COUNTERPATH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in U.S. dollars, except number of shares)
|
|
Years Ended
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue - Note 13:
|
|
|
|
|
|
|
Software
|
$
|
5,154,513
|
|
$
|
4,660,660
|
|
Subscription, support and maintenance
|
|
6,257,854
|
|
|
5,366,290
|
|
Professional services and other
|
|
688,959
|
|
|
737,954
|
|
Total revenue
|
|
12,101,326
|
|
|
10,764,904
|
|
Operating expenses:
|
|
|
|
|
|
|
Cost of sales (includes depreciation of $nil (2019 - $529))
|
|
2,124,948
|
|
|
2,223,984
|
|
Sales and marketing
|
|
3,831,866
|
|
|
4,061,921
|
|
Research and development
|
|
4,398,814
|
|
|
5,547,587
|
|
General and administrative
|
|
2,545,265
|
|
|
4,098,173
|
|
Total operating expenses
|
|
12,900,893
|
|
|
15,931,665
|
|
Loss from operations
|
|
(799,567
|
)
|
|
(5,166,761
|
)
|
Interest and other (expense) income, net
|
|
|
|
|
|
|
Interest and other income
|
|
10,890
|
|
|
2,145
|
|
Interest expense
|
|
(335,351
|
)
|
|
(107,323
|
)
|
Foreign exchange gain
|
|
168,586
|
|
|
256,765
|
|
Change in fair value of derivative instruments
|
|
(132,377
|
)
|
|
1,735
|
|
Loss on lease termination
|
|
(8,746
|
)
|
|
-
|
|
Total interest and other (expense) income, net
|
|
(296,998
|
)
|
|
153,322
|
|
Net loss for the year
|
$
|
(1,096,565
|
)
|
$
|
(5,013,439
|
)
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
Basic and diluted - Note 17
|
$
|
(0.18
|
)
|
$
|
(0.84
|
)
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
Basic and diluted - Note 17
|
|
6,010,006
|
|
|
5,942,096
|
|
See accompanying notes to the consolidated financial statements
COUNTERPATH CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Stated in U.S. dollars, except number of shares)
Net loss for the year
|
$
|
(1,096,565
|
)
|
$
|
(5,013,439
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(484,566
|
)
|
|
(633,254
|
)
|
Comprehensive loss
|
$
|
(1,581,131
|
)
|
$
|
(5,646,693
|
)
|
See accompanying notes to the consolidated financial statements
COUNTERPATH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. dollars, except number of shares)
|
|
Years Ended
|
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss for the year
|
$
|
(1,096,565
|
)
|
$
|
(5,013,439
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Bad debt expense
|
|
149,481
|
|
|
1,082,440
|
|
Deferred lease inducements
|
|
(3,897
|
)
|
|
(9,675
|
)
|
Depreciation and amortization
|
|
72,947
|
|
|
105,464
|
|
Operating lease expense - Note 14
|
|
514,556
|
|
|
-
|
|
Unrealized foreign exchange gain
|
|
(283,761
|
)
|
|
(355,739
|
)
|
Stock-based compensation - Note 10
|
|
382,584
|
|
|
474,726
|
|
Change in fair value of derivative instruments
|
|
130,774
|
|
|
3,334
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
32,162
|
|
|
(160,586
|
)
|
Accounts receivable
|
|
(826,299
|
)
|
|
549,658
|
|
Deferred sales commission costs - Note 3
|
|
(17,275
|
)
|
|
(61,705
|
)
|
Prepaid expenses and other current assets
|
|
(63,387
|
)
|
|
(73,359
|
)
|
Accrued warranty
|
|
(490
|
)
|
|
(11,095
|
)
|
Operating lease liabilities - Note 14
|
|
(498,721
|
)
|
|
-
|
|
Operating lease deposits
|
|
10,048
|
|
|
-
|
|
Unearned revenue - Note 3
|
|
1,188,674
|
|
|
27,850
|
|
Other current liabilities
|
|
(947
|
)
|
|
(1,253
|
)
|
Net cash used in operating activities
|
|
(310,116
|
)
|
|
(3,443,379
|
)
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Purchases of equipment
|
|
(120,384
|
)
|
|
(40,094
|
)
|
Purchases of intangibles
|
|
(5,458
|
)
|
|
(9,638
|
)
|
Net cash used in investing activities
|
|
(125,842
|
)
|
|
(49,732
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
16,967
|
|
|
22,645
|
|
Proceeds received from related party loan payable - Note 9
|
|
1,000,000
|
|
|
3,000,000
|
|
Net cash provided by financing activities
|
|
1,016,967
|
|
|
3,022,645
|
|
|
|
|
|
|
|
|
Foreign exchange effect on cash
|
|
(10,201
|
)
|
|
(15,959
|
)
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
570,808
|
|
|
(486,425
|
)
|
|
|
|
|
|
|
|
Cash, beginning of the year
|
|
1,862,458
|
|
|
2,348,883
|
|
Cash, end of the year
|
$
|
2,433,266
|
|
$
|
1,862,458
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
Interest
|
$
|
229,480
|
|
$
|
52,603
|
|
Taxes
|
$
|
-
|
|
$
|
-
|
|
See accompanying notes to the consolidated financial statements
COUNTERPATH CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the Years Ended April 30, 2020 and 2019
(Stated in U.S. dollars, except number of shares)
|
|
Common shares
|
|
|
Treasury Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Par Value
|
|
|
Number
of
Shares
|
|
|
Par Value
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 3
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
134,033
|
|
|
-
|
|
|
134,033
|
|
Stock-based compensation - Note 10
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
474,726
|
|
|
-
|
|
|
-
|
|
|
474,726
|
|
Employee share purchase program - Note 10
|
|
12,820
|
|
|
12
|
|
|
-
|
|
|
-
|
|
|
25,012
|
|
|
-
|
|
|
-
|
|
|
25,024
|
|
Exercise of stock options- Note 10
|
|
6,958
|
|
|
7
|
|
|
-
|
|
|
-
|
|
|
(2,386
|
)
|
|
-
|
|
|
-
|
|
|
(2,379
|
)
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,013,439
|
)
|
|
-
|
|
|
(5,013,439
|
)
|
Foreign currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(633,254
|
)
|
|
(633,254
|
)
|
Balance, April 30, 2019
|
|
5,950,246
|
|
$
|
5,950
|
|
|
-
|
|
$
|
-
|
|
$
|
75,667,533
|
|
$
|
(68,581,091
|
)
|
$
|
(3,866,495
|
)
|
$
|
3,225,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation - Note 10
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
382,584
|
|
|
-
|
|
|
-
|
|
|
382,584
|
|
Employee share purchase program - Note 10
|
|
13,949
|
|
|
14
|
|
|
-
|
|
|
-
|
|
|
20,001
|
|
|
-
|
|
|
-
|
|
|
20,015
|
|
Exercise of stock options- Note 10
|
|
1,710
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
(3,050
|
)
|
|
-
|
|
|
-
|
|
|
(3,048
|
)
|
Conversion of deferred share units - Note 10
|
|
137,707
|
|
|
138
|
|
|
-
|
|
|
-
|
|
|
(138
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,096,565
|
)
|
|
-
|
|
|
(1,096,565
|
)
|
Foreign currency translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(484,566
|
)
|
|
(484,566
|
)
|
Balance, April 30, 2020
|
|
6,103,612
|
|
$
|
6,104
|
|
|
-
|
|
$
|
-
|
|
$
|
76,066,930
|
|
$
|
(69,677,656
|
)
|
$
|
(4,351,061
|
)
|
$
|
2,044,317
|
|
See accompanying notes to the consolidated financial statements
Note 1
|
Nature of Operations
|
|
|
|
CounterPath Corporation (the "Company") was incorporated in the State of Nevada on April 18, 2003. The Company focuses on the design, development, marketing and sales of software applications and related services, such as pre and post sales technical support and customization services, that enable enterprises and telecommunication service providers to deliver Unified Communications (UC) services, including voice, video, messaging and collaboration functionality, over their Internet Protocol, or IP, based networks. The Company's products are sold either directly or through channel partners, to small, medium and large businesses ("enterprises") and telecom service providers in North America, and in Europe, Middle East, Africa ("collectively EMEA"), Asia Pacific and Latin America.
COVID-19 Pandemic
On January 30, 2020, the World Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus, COVID-19 originating in Wuhan, China (and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this Annual Report on Form 10-K. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company's financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation and its impact on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects that the COVID-19 outbreak will have on its results of operations, financial condition, or liquidity for fiscal year 2021. As of the date of this Annual Report on Form 10-K the Company has not experienced meaningful delays in securing new customers and related revenues, significant cancellations of existing contracts, or meaningful delays in payments from existing customers, however, the longer this pandemic continues there may be additional impacts. Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on the Company's results of future operations, financial position, liquidity, and capital resources, and those of the third parties on which Company's relies in fiscal year 2021.
|
|
|
Note 2
|
Summary of Significant Accounting Policies
|
|
|
|
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America ("U.S. GAAP") and are stated in U.S. dollars, except where otherwise disclosed.
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, CounterPath Technologies Inc., a company existing under the laws of the province of British Columbia, Canada, and BridgePort Networks, Inc. ("BridgePort"), a company incorporated under the laws of the state of Delaware and CounterPath LLC, a company formed on August 27, 2018, under the laws of the state of Delaware. The results of NewHeights Software Corporation ("NewHeights"), which subsequently was amalgamated with another subsidiary to become CounterPath Technologies Inc., are included from August 2, 2007, the date of acquisition. The results of FirstHand Technologies Inc. ("FirstHand"), which subsequently was amalgamated with CounterPath Technologies Inc., and BridgePort are included from February 1, 2008, the date of acquisition. All inter-company transactions and balances have been eliminated.
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business.
|
|
Going Concern
The Company has experienced recurring losses and has an accumulated deficit of $69,677,656 as of April 30, 2020, as a result of revenues being historically lower than expenses, resulting from a number of factors including 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 on a consistent basis. However, during the year ended April 30, 2020, revenue has increased by approximately 12%, compared to the year ended April 30, 2019. Despite the increase in revenue, the Company saw an increase in current liabilities primarily related to the reclassification of the related party loan payable of $4,000,000 outstanding as of April 30, 2020, from long-term liabilities, which is due on April 11, 2021. It is uncertain whether the Company would have sufficient cash flows to meet its current obligations. Further, due to the recent and ongoing outbreak of COVID-19, the spread of COVID-19 has severely impacted many economies around the world, including those in which the Company's customers operate. Management has taken steps to help mitigate any potential negative impact on operations including having reduced operating costs through fiscal year ended April 30, 2020 and obtaining financial assistance made available through the U.S. government through the Paycheck Protection Program. However, the Company is unable to determine the future impact on its financial position and operating results. Together, these factors raise substantial doubt about the Company's ability to continue operating as a going concern within one year of the date of issuance of the consolidated financial statements.
|
|
Under the existing loan agreement, as of April 30, 2020, the unused portion of the loan principal was $1,000,000. On June 15, 2020, the Company repaid $2,000,000 of the outstanding loan balance to the lenders, increasing the unused portion of the loan principal to $3,000,000. See Note 9 - Related Party Loan Payable for more information.
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 not expected to have an adverse impact on the ability to generate cash flows, as the transition to its software as a service platform and subscription licensing continues. During the year ended April 30, 2020, as a result of managements efforts to reduce costs, operating expenses decreased by approximately 19% to $12,900,893 compared to $15,931,665 in the prior year. The Company has historically been able to manage liquidity requirements through cost management and cost reduction measures, supplemented with raising additional financing. If the Company is unable to maintain sufficient cash flows, the Company will not be able to meet its present obligations.
The Company has taken steps to obtain financial assistance made available from the U.S. government to help mitigate the impact of COVID-19 on its operations. On May 1, 2020, the Company, through its subsidiary, CounterPath LLC, entered into a promissory note with Bank of America for a term loan in the amount of $209,035 (the "Loan"). The Loan is made pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act. (the "CARES Act"). See Note 18 - Subsequent Events for more information.
|
|
|
|
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which affect the amounts reported in these consolidated financial statements, the notes thereto, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.
|
|
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company has exposure to credit risk to the extent cash balances exceed amounts covered by federal deposit insurance; however, the Company believes that its credit risk on cash balances is immaterial. The Company is also subject to concentrations of credit risk in its accounts receivable. The Company monitors and actively manages its receivables, and from time to time will insure certain receivables with higher credit risk and may require collateral or other securities to support its accounts receivable.
|
The table below presents significant customers who accounted for greater than 10% of total accounts receivable as of April 30, 2020 and 2019:
|
|
April 30,
2020
|
|
|
April 30,
2019
|
|
Customer A
|
|
10%
|
|
|
10%
|
|
Customer B
|
|
3%
|
|
|
13%
|
|
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are presented net of an allowance for doubtful accounts.
|
|
Years Ended April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Balance of allowance for doubtful accounts, beginning of year
|
$
|
619,514
|
|
$
|
322,638
|
|
Bad debt provision
|
|
266,043
|
|
|
1,082,440
|
|
Recoveries
|
|
(115,997
|
)
|
|
–
|
|
Write-off of receivables
|
|
(452,330
|
)
|
|
(785,564
|
)
|
Balance of allowance for doubtful accounts, end of year
|
$
|
317,230
|
|
$
|
619,514
|
|
|
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. The Company records an allowance for doubtful accounts at the end of each reporting period based on 2% of amounts invoiced or the aggregate specified customer accounts, whichever is higher.
|
|
|
|
Stock-Based Compensation
The Company adopted ASC 718 "Compensation - Stock Compensation", using the modified prospective method on May 1, 2006. Under this application, the Company is required to record compensation expense, based on the fair value of the awards, for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding as at the date of adoption. In accordance with ASC 718, the compensation expense is amortized on a straight-line basis over the requisite service period, which approximates the vesting period.
Stock options granted to non-employees were accounted for in accordance with ASC 718 and ASC 505-50 "Equity based payments to non-employees" and were measured at the fair value of the options as determined by an option pricing model on the measurement date and compensation expense is amortized over the vesting period or, if none exists, over the service period. With the adoption of ASC 718, the Company has elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted. The Company has estimated the fair value of option awards to employees and non-employees for the years ended April 30, 2020 and April 30, 2019 using the assumptions more fully described in Note 10.
|
|
Equipment and Amortization
Equipment is recorded at cost. Depreciation is provided for using the straight-line method over the estimated useful lives as follows:
|
Computer hardware
|
Two years
|
Computer software
|
Two years
|
Leasehold improvements
|
Shorter of lease term or estimated economic life
|
Office furniture
|
Five years
|
Website
|
Three years
|
|
Research and Development
Research and development expense includes costs incurred to develop intellectual property. The costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. Management has determined that technological feasibility is established at the time a working model of software is completed. Because management believes that the current process for developing software will be essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date.
|
|
|
|
Website Development Costs
The Company recognizes the costs associated with developing a website in accordance with ASC Topic 350-40 "Intangibles - Internal Use Software".
Internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Training costs are not internal-use software development costs and, if incurred during this stage, are expensed as incurred.
These capitalized costs are amortized based on their estimated useful life over three years. Payroll and other related costs are not capitalized, as the amounts principally relate to maintenance.
Impairment of Long-Lived Assets
Long-lived assets are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable in accordance with FASB ASC 360, "Property, Plant and Equipment". In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with FASB ASC 360-10-15. To the extent that estimated future, undiscounted cash inflows attributable to the asset, less estimated future, undiscounted cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell. There was no impairment loss recognized for the year ended April 30, 2020 and 2019.
Goodwill
Goodwill represents the excess purchase price over the estimated fair value of net assets acquired and liabilities assumed as of the acquisition date. ASC Topic 350 "Intangibles - Goodwill" requires goodwill to be tested for impairment annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company's business enterprise below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the fair value of the reporting unit, which is measured based upon, among other factors, market multiples for comparable companies as well as a discounted cash flow analysis.
Management has determined that the Company operates as a single operating segment and consequently a single reporting unit due to the similar economic characteristics of its components and the nature of the products and services offered by those components. If the recorded value of the Company's assets, including goodwill, and liabilities ("net book value") of the reporting unit exceeds its fair value, an impairment loss may be required.
|
|
|
|
The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with FASB ASC 350, Goodwill and Other Intangible Assets. The provisions of ASC 350 require that a two-step impairment test be performed on goodwill. In the first step, the Company compares the fair value of its reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit's goodwill. If the carrying value of our reporting unit's goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.
In September of 2011, FASB issued Accounting Standards Update 2011-08, "Intangibles-Goodwill and Other (Topic 350)". Under the amendments of this update, an entity may first assess certain qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
Determining the fair value of the reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include future economic and market conditions and determination of appropriate market comparables. The Company bases its fair value estimates on assumptions management believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
Goodwill was initially recorded upon the acquisition of NewHeights on August 2, 2007 and FirstHand on February 1, 2008. At the time of each acquisition and as of the date of the consolidated financial statements, the Company recognized the following:
|
|
|
Acquisition Date
|
|
|
April 30,
|
|
|
2020
|
|
|
2019
|
|
NewHeights
|
$
|
6,339,717
|
|
|
CDN$6,704,947
|
|
$
|
4,824,335
|
|
$
|
4,990,578
|
|
FirstHand
|
|
2,083,960
|
|
|
2,083,752
|
|
|
1,499,055
|
|
|
1,550,712
|
|
|
$
|
8,423,677
|
|
|
CDN$8,788,699
|
|
$
|
6,323,390
|
|
$
|
6,541,290
|
|
The Company performed its annual impairment test during the fourth quarter for the years ended April 30, 2020 and 2019 and concluded that there has been no impairment to the carrying amount.
Intangible Assets
The Company's intangible assets consists of patents and trademarks. Costs related to granted patents are capitalized and amortized over the expected life of the patent which ranges from 16 to 20 years. Costs related to patent applications are expensed as incurred. Costs related to trademarks are capitalized and are not amortized as the Company expects such trademarks to be used indefinitely.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases, as amended by subsequent standards updates, which requires lessees to recognize right-if-use (ROU) assets and lease liabilities for all leases, with the exception of short term leases, at the commencement date of each lease. The Company adopted the new standard effective May 1, 2019 using a modified retrospective approach and did not restate comparative periods. As a result, the Company recorded $1,708,129 of ROU assets and operating lease liabilities on May 1, 2019. There was no cumulative-effect adjustment for the adoption and the adoption did not have a significant impact on the Company's consolidated statements of operations.
|
The Company has elected to apply the practical expedient package to not reassess initial direct costs related to leases, whether any expired or existing contracts contained leases and to carryforward historical lease classification. As a result, all leases identified by the Company will continue to be classified as operating leases. In addition, the Company elected to not record short-term leases with an initial term of 12 months or less on its consolidated balance sheets. See Note 14- Leases for more information.
The Company determines if an arrangement is a lease at contract inception by evaluating if the contract conveys the right to control the use of an identified asset during the period of use. A ROU asset represents the Company's right to use an identified asset for the lease term and lease liability represents the Company's obligation to make payments as set forth in the lease arrangement. ROU assets and lease liabilities are included on the Company's consolidated balance sheets beginning May 1, 2019 and are recognized based on the present value of the future minimum lease payments at lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company's estimated incremental borrowing rate, because the interest rate implicit in the lease is generally not readily determinable. A ROU asset initially equals the lease liability, adjusted for any lease payments made prior to lease commencement and any lease incentives. All leases are recorded on the consolidated balance sheets except for leases with an initial term of less than 12 months. All of the Company's leases are operating leases.
The Company has lease agreements with lease and non-lease components. The lease component is comprised of minimum lease payments which includes base rent and estimated property taxes and insurance. Non-lease components primarily include payments for maintenance and are expensed as incurred.
Foreign Currency Translation
The Company's functional currency is the U.S. dollar. The Company's wholly-owned subsidiaries with a functional currency other than the U.S. dollar are translated into amounts in the reporting currency, U.S. dollars, in accordance with ASC Topic 830 "Foreign Currency Matters". Revenues and expenses are translated at the average exchange rate prevailing during the periods. At each balance sheet date, assets and liabilities that are denominated in a currency other than U.S. dollars are adjusted to reflect the current exchange rate which may give rise to a foreign currency translation adjustment accounted for as a separate component of stockholders' equity and included in comprehensive loss.
For transactions undertaken by the Company in foreign currencies, monetary assets and liabilities are translated into the functional currency at the exchange rate in effect at the end of the year. Non-monetary assets and liabilities are translated at the exchange rate prevailing when the assets were acquired or the liabilities assumed (2020 - $nil; 2019 - $nil). Revenues and expenses are translated at the rate approximating the rate of exchange on the transaction date. Exchange gains and losses are included in the determination of net income (loss) for the year.
Accrued Warranty
The Company provides assurance type warranties for its products. A warranty is considered an assurance type warranty if it provides the customer with assurance that the product will function as intended. The Company’s warranty policy generally provides for one year of warranty for its products. The Company records a liability for estimated warranty obligations at the date products are sold. The estimated cost of warranty coverage is based on the Company’s actual historical experience with its current products or similar products. For new products, the required reserve is based on historical experience of similar products until such time as sufficient historical data has been collected on the new product.
|
Estimated liabilities for warranty exposures, which relate to normal product warranties and a one-year obligation to provide for potential future liabilities for product sales for the years ended April 30, 2020 and 2019 were as follows:
|
|
Years Ended April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Balance, beginning of year
|
$
|
52,035
|
|
$
|
63,130
|
|
Usage during the year
|
|
–
|
|
|
–
|
|
Additions (reductions) during the year
|
|
(490
|
)
|
|
(11,095
|
)
|
Balance, end of year
|
$
|
51,545
|
|
$
|
52,035
|
|
|
|
|
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements, defines fair value as the price at which an asset could be exchanged or a liability transferred in an orderly transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or derived from such prices. Where observable prices or inputs are not available, valuation models are applied which may involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments' complexity.
|
|
|
|
Derivative Instruments
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 7 - Derivative Instruments for further detail. The Company did not enter any foreign currency derivatives designated as cash flow hedges during the years ended April 30, 2020 and 2019.
|
|
|
|
Income Taxes
The Company accounts for income taxes by the asset and liability method in accordance with ASC Topic 740 "Income Taxes". Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Deferred income tax assets and liabilities are recognized in the current year for temporary differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.
|
|
|
|
Under ASC 740, the Company also adopted a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made.
|
|
Comprehensive Loss
Comprehensive loss is comprised of net profit or loss, and foreign currency translation adjustments.
|
|
|
|
Segments and Related Information
Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker, the chief executive officer, 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.
|
|
Loss per Share
ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the year including stock options and warrants using the treasury stock method. In computing diluted EPS, the average stock price for the year is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. For the year ended April 30, 2020, income per share excludes 1,371,469 (April 30, 2019 - 1,249,940) potentially dilutive common shares (related to stock options, deferred share units and warrants) as their effect was anti-dilutive.
Investment tax credits
Investment tax credits are accounted for under the cost reduction method whereby they are netted against the expense or property and equipment to which they relate. Investment tax credits are recorded when the qualifying expenditures have been incurred and if it is more likely than not that the tax credits will be realized.
|
|
Recently Issued Accounting Pronouncements
|
|
|
|
In August 2018, the FASB issued ASU 2018-13 Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds, and modifies certain disclosure requirements for fair value measurements under ASC 820. This ASU is to be applied on a prospective basis for certain modified or new disclosure requirements, and all other amendments in the standard are to be applied on a retrospective basis. The new standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adoption on the Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which amends the guidance to eliminate Step 2 from the goodwill impairment test. Instead, under the amendments in the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The amendments will be effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company does not expect a significant impact on our consolidated financial statements and related disclosures resulting from the pending adoption of this amendment.
|
|
In June 2016, the FASB issued ASU 2016-13, Financial Instruments: Measurement of Credit Losses on Financial Instruments, which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous "incurred loss" methodology was restrictive for Company's ability to record credit losses based on not yet meeting the "probable" threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected will a valuation provision. The amendments will be effective for fiscal years beginning after December 15, 2022. The Company does not expect a significant impact on our consolidated financial statements and related disclosures resulting from the pending adoption of this amendment.
|
|
|
Note 3
|
Revenue Recognition under ASC 606
|
|
|
|
On May 1, 2018, the Company 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. 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.
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 recognizes 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, the Company 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.
In practice, the Company does not offer extended payment terms beyond one year to customers. As such, the Company does not adjust our consideration for financing arrangements.
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 have 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, access to the Company's technical assistance center, 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.
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 year ended April 30, 2020 and 2019, the Company recognized $2,483,332 and $2,364,378, respectively, in revenue in its consolidated statements of operations that was previously recognized as unearned revenue in the consolidated balance sheets at May 1, 2019 and 2018, respectively.
|
|
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, 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 using management judgment after reviewing customer contracts from fiscal years 2004 - 2018, and is based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in sales and marketing expense within the Company's consolidated statement of operations. The Company has elected to apply a practical expedient that permits the Company to expense costs to obtain a contract as incurred, if the anticipated benefit period is one year or less. From time to time, management will revisit the estimates used in recognizing the costs to obtain customer contracts.
During the year ended April 30, 2020 and 2019, the Company capitalized approximately $347,421 and $607,166, respectively, of costs to obtain revenue contracts and amortized approximately $336,662 and $272,785, respectively, of commissions to sales and marketing expense. Capitalized costs to obtain a revenue contract on the Company's consolidated balance sheets totaled approximately $222,590 and $200,348 at April 30, 2020 and 2019, respectively.
Costs to Fulfill a Customer Contract
Certain contract costs incurred to fulfill obligations under a contract are capitalized when such costs generate or enhance resources to be used in satisfying future performance obligations and the costs are deemed recoverable. Judgement is used in determining whether certain contract costs can be capitalized. These costs are capitalized and amortized on a systematic basis to match the timing of revenue recognition over the anticipated benefit period of up to 3.5 years, depending on the products and services. The anticipated benefit period was estimated based on the average length of applicable customer contracts and includes the contract term and any anticipated renewal periods. This amortization expense is recorded in cost of sales in 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 (2020 - $nil; 2019 - $nil).
Transaction Price Allocated to the Remaining Performance Obligations
The Company expects to recognize approximately $3,824,573, $32,277, $17,777 and $7,773 in revenue during the years ended April 30, 2021, 2022, 2023 and 2024, respectively, under its customer contracts relating to fixed consideration associated with remaining performance obligations.
|
|
|
|
Disaggregation of Revenue
The Company disaggregates its revenue by geographic region. See Note 13 - Segmented Information for more information.
|
Note 4
|
Equipment
|
|
|
|
The following presents the categories within equipment:
|
|
|
|
|
|
April 30, 2020
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Computer hardware
|
$
|
1,326,162
|
|
$
|
(1,245,936
|
)
|
$
|
80,226
|
|
Computer software
|
|
1,013,277
|
|
|
(1,013,277
|
)
|
|
–
|
|
Leasehold improvements
|
|
263,774
|
|
|
(262,747
|
)
|
|
1,027
|
|
Office furniture
|
|
222,545
|
|
|
(192,126
|
)
|
|
30,419
|
|
Websites
|
|
120,339
|
|
|
(120,339
|
)
|
|
–
|
|
|
$
|
2,946,097
|
|
$
|
(2,834,425
|
)
|
$
|
111,672
|
|
|
|
|
|
|
|
April 30, 2019
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Computer hardware
|
$
|
1,233,621
|
|
$
|
(1,186,210)
|
|
$
|
47,411
|
|
Computer software
|
|
1,013,277
|
|
|
(1,013,277)
|
|
|
–
|
|
Leasehold improvements
|
|
263,774
|
|
|
(256,911)
|
|
|
6,863
|
|
Office furniture
|
|
194,702
|
|
|
(189,062)
|
|
|
5,640
|
|
Websites
|
|
120,339
|
|
|
(120,339)
|
|
|
–
|
|
|
$
|
2,825,713
|
|
$
|
(2,765,799)
|
|
$
|
59,914
|
Note 5
|
Intangibles and Other Assets
|
|
|
|
The following tables presents the major components within intangibles and other assets for the years ended April 30, 2020 and 2019:
|
|
|
|
|
|
|
April 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Patents
|
$
|
461,636
|
|
$
|
(421,856
|
)
|
$
|
39,780
|
|
|
Trademarks
|
|
180,558
|
|
|
–
|
|
|
180,558
|
|
|
Other assets
|
|
5,607
|
|
|
–
|
|
|
5,607
|
|
|
|
$
|
647,801
|
|
$
|
(421,856
|
)
|
$
|
225,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Patents
|
$
|
461,637
|
|
$
|
(417,609
|
)
|
$
|
44,028
|
|
|
Trademarks
|
|
175,100
|
|
|
–
|
|
|
175,100
|
|
|
Other assets
|
|
5,667
|
|
|
–
|
|
|
5,667
|
|
|
|
$
|
642,404
|
|
$
|
(417,609
|
)
|
$
|
224,795
|
|
|
During the years ended April 30, 2020 and 2019, the Company recorded amortization expense related to patents of $4,247 and $5,821, respectively. The weighted average remaining amortization period for patents was 11.0 years and 11.9 years for the years ended April 30, 2020 and 2019, respectively.
|
The following table presents estimated future patent amortization for the next five years:
Years ended April 30,
2021
|
$
|
4,248
|
|
2022
|
|
4,248
|
|
2023
|
|
4,248
|
|
2024
|
|
4,248
|
|
2025
|
|
4,248
|
|
Thereafter
|
|
18,540
|
|
|
$
|
39,780
|
|
Note 6
|
Accounts Payable and Accrued Liabilities
|
|
|
|
Accounts payable and accrued liabilities at April 30, 2020 and 2019 are comprised of the following:
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts payable - trade
|
$
|
706,435
|
|
$
|
739,051
|
|
Accrued commissions
|
|
285,915
|
|
|
180,200
|
|
Accrued vacation
|
|
546,965
|
|
|
590,328
|
|
Interest on related party loan payable
|
|
79,459
|
|
|
16,219
|
|
Third party software royalties
|
|
59,723
|
|
|
59,723
|
|
Other accrued liabilities
|
|
553,280
|
|
|
648,354
|
|
|
$
|
2,231,777
|
|
$
|
2,233,875
|
|
Note 7
|
Derivative Instruments
|
|
|
|
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 multiple currencies, primarily from its business operations in Canada.
The Company's foreign currency risk management program includes entering into foreign currency derivatives at various times to mitigate the currency exchange rate risk on Canadian dollar denominated cash flows. These foreign currency forward and option contracts are considered non-designated derivative instruments and are not used for trading or speculative purposes. As these foreign currency derivative contracts are considered economic hedges, we do not elect hedge accounting. The changes in fair value and settlements are recorded in change in fair value of derivative instruments, net in the consolidated statement of operations.
During years ended April 30, 2020 and 2019, the Company did not enter into any designated cash flow hedge contracts.
The following table summarizes the notional amounts of the Company's outstanding derivative instruments:
|
Fair value of Undesignated Derivatives
|
|
|
April 30,
2020
|
|
|
April 30,
2019
|
|
Foreign currency option contracts
|
|
$
|
1,000,000
|
|
$
|
1,500,000
|
|
Foreign currency forward contracts
|
|
$
|
2,200,667
|
|
$
|
–
|
|
The following tables present the fair values of the Company's derivative instruments on a gross basis as reflected on the Company's consolidated balance sheets.
|
|
|
April 30, 2020
|
|
Fair value of Undesignated Derivatives
|
|
|
Derivative
Assets
|
|
|
Derivative
Liabilities
|
|
Foreign currency option contracts
|
|
$
|
–
|
|
$
|
76,617
|
|
Foreign currency forward contracts
|
|
|
6,381
|
|
|
63,682
|
|
|
|
$
|
6,381
|
|
$
|
140,299
|
|
|
|
|
April 30, 2019
|
|
Fair value of Undesignated Derivatives
|
|
|
Derivative
Assets
|
|
|
Derivative
Liabilities
|
|
Foreign currency option contracts
|
|
$
|
1,178
|
|
$
|
4,512
|
|
During the year ended April 30, 2020 and 2019, the Company recorded a (loss)/gain of ($132,377) and $1,735, respectively, resulting from the change in fair value of derivative instruments.
Note 8
|
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 consolidated financial statements at carrying cost.
|
As at April 30, 2020
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Fair Value
Levels
|
|
|
Reference
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,433,266
|
|
$
|
2,433,266
|
|
|
1
|
|
|
N/A
|
|
Foreign currency derivative contracts
|
|
|
6,381
|
|
|
6,381
|
|
|
2
|
|
|
Note 7
|
|
|
|
$
|
2,439,647
|
|
$
|
2,439,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative contracts
|
|
$
|
140,299
|
|
$
|
140,299
|
|
|
2
|
|
|
Note 7
|
|
As at April 30, 2019
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Fair Value
Levels
|
|
|
Reference
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,862,458
|
|
$
|
1,862,458
|
|
|
1
|
|
|
N/A
|
|
Foreign currency option contracts
|
|
|
1,178
|
|
|
1,178
|
|
|
2
|
|
|
Note 7
|
|
|
|
$
|
1,863,636
|
|
$
|
1,863,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
|
$
|
4,512
|
|
$
|
4,512
|
|
|
2
|
|
|
Note 7
|
|
|
Financial Instruments Not Measured at Fair Value
The following table presents the Company's liability that is not measured at fair value as of April 30, 2020, but for which fair value is available:
|
As at April 30, 2020
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Fair Value Levels
|
|
|
Reference
|
|
Related party loan payable
|
|
$
|
4,000,000
|
|
$
|
3,780,370
|
|
|
2
|
|
|
Note 9
|
|
Related party loan payable is presented on the consolidated balance sheets at carrying cost. The fair value of the fixed interest rate loan is estimated based on observable market prices or inputs. Where observable prices or inputs are not available, valuation models are applied using the net present value of cash flow streams over the term, using estimated market rates for similar instruments and remaining terms.
Note 9
|
Related Party Loan Payable
|
|
|
|
On October 10, 2018, the Company entered into a loan agreement (the "Loan Agreement") with Wesley Clover International Corporation and KMB Trac Two Holdings Ltd (collectively referred to as the "Lenders") for an aggregate principal amount of up to $3,000,000. Pursuant to the terms of the Loan Agreement, the loan is unsecured and will be made available in multiple advances at the discretion of the Company and will bear interest at a rate of 8% per year, payable monthly. The outstanding principal and any accrued interest may be prepaid without penalty and is to be fully repaid on the second anniversary of the first advance. There are no financial covenants for this loan.
On July 10, 2019, the Company entered into an amended loan agreement (the "Amendment Agreement") with the Lenders, pursuant to which to Lenders have agreed to amend the Loan Agreement, together with the Amendment Agreement, to increase the maximum amount of the loan from $3,000,000 to $5,000,000 and to extend the term of the loan such that all outstanding principal and accrued interest is due on April 11, 2021. On January 25, 2020, the Company entered into an amended loan agreement (the "Second Amendment Agreement") with the Lenders such that the interest on the principal amount of the Loan will accrue and be paid at the time of repayment of the outstanding principal. Accrued interest will be calculated at a rate of 8%, compounded daily. The Second Amendment Agreement is effective February 1, 2020.
As of April 30, 2020, the principal balance of the related party loan payable was $4,000,000. This balance is to be repaid on or before April 11, 2021. During the year ended April 30, 2020 and 2019, the Company recognized interest expense of $292,719 and $68,822, respectively, in the consolidated statement of operations. On June 15, 2020, the Company repaid $2,000,000 of the principle balance of the related party loan payable to the two lenders. See Note 11 - Related Party Transactions and Note 18 - Subsequent Events for further detail.
|
|
|
|
Stock Options
|
|
|
|
The Company has a stock option plan (the "2010 Stock Option Plan") under which options to purchase common shares of the Company may be granted to employees, directors and consultants. The 2010 Stock Option Plan is effectively a merging of the Company's 2004 and 2005 stock option plans. Stock options entitle the holder to purchase common stock at a subscription price determined by the Board of Directors of the Company at the time of the grant. The options generally vest in the amount of 12.5% on the date which is six months from the date of grant and then beginning in the seventh month at 1/42 per month for 42 months, at which time the options are fully vested.
|
|
|
|
The maximum number of shares of common stock authorized by the stockholders and reserved for issuance by the Board under 2010 Stock Option Plan is 1,186,000.
|
|
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. In accordance with ASC 718 "Share-Based Payment" for employees, the compensation expense is amortized on a straight-line basis over the requisite service period which approximates the vesting period. Compensation expense for stock options granted to non-employees is amortized over the vesting period or, if none exists, over the service period. Stock options granted to non-employees are measured at fair value on the date of grant, using the Black-Scholes option pricing model, similar to employee share-based payment equity awards.
The expected volatility of options granted has been determined using the method described under ASC 718 using the historical stock price. The expected term of options granted to employees in the current fiscal period has been determined utilizing historic data as prescribed by ASC 718.
For non-employees, based on the Company's history, the expected term of the options approximates the full term of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. In addition, ASC 718 allows companies to utilize an estimated forfeiture rate when calculating the expense for the period, whereas prior to the adoption of ASC 718 the Company recorded forfeitures based on actual forfeitures and recorded a compensation expense recovery in the period when the awards were forfeited. As a result, based on the Company's experience, the Company applied an estimated forfeiture rate of 15% for year ended April 30, 2020 and 2019 in determining the expense recorded in the accompanying consolidated statement of operations.
For the majority of the stock options granted, the number of shares issued on the date the stock options are exercised is net of the minimum statutory withholding requirements that the Company pays in cash to the appropriate taxing authorities on behalf of its employees. These withheld shares are not issued or considered common stock repurchases under the Company's authorized plan and are not included in the common stock repurchase totals. In the consolidated financial statements, these withheld shares are netted against the number of shares that would have been issued upon vesting.
The weighted-average fair values of options granted during the years ended April 30, 2020 and 2019 were $0.47 and $0.82, respectively. The weighted-average assumptions utilized to determine such values are presented in the following table:
|
|
Year Ended
|
|
Year Ended
|
|
April 30, 2020
|
|
April 30, 2019
|
Risk-free interest rate
|
1.7%
|
|
2.7%
|
Expected volatility
|
66.0%
|
|
77.2%
|
Expected term
|
3.7 years
|
|
3.7 years
|
Dividend yield
|
0%
|
|
0%
|
The following is a summary of the status of the Company's stock options as of April 30, 2020 and the stock option activity during the years ended April 30, 2020 and 2019:
|
|
Number of
Options
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at April 30, 2018
|
|
675,042
|
|
$
|
2.66
|
|
Granted
|
|
221,000
|
|
$
|
1.45
|
|
Exercised
|
|
(35,500
|
)
|
$
|
2.50
|
|
Forfeited / Cancelled
|
|
(173,093
|
)
|
$
|
2.62
|
|
Expired
|
|
(71,000
|
)
|
$
|
2.50
|
|
Outstanding at April 30, 2019
|
|
616,449
|
|
$
|
2.27
|
|
Granted
|
|
199,500
|
|
$
|
0.96
|
|
Exercised
|
|
(9,688
|
)
|
$
|
2.46
|
|
Forfeited / Cancelled
|
|
(83,593
|
)
|
$
|
1.92
|
|
Expired
|
|
(50,382
|
)
|
$
|
2.50
|
|
Outstanding at April 30, 2020
|
|
672,286
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2020
|
|
282,358
|
|
$
|
2.43
|
|
Exercisable at April 30, 2019
|
|
239,551
|
|
$
|
2.58
|
|
The following table summarizes information regarding stock options outstanding as of April 30, 2020:
|
Number of
|
|
Aggregate
|
|
Number of
|
|
Aggregate
|
Exercise
|
Options
|
|
Intrinsic
|
|
Options
|
|
Intrinsic
|
Price
|
Outstanding
|
|
Value
|
Expiry Date
|
Exercisable
|
|
Value
|
$0.96 - $0.96
|
195,500
|
$
|
379,270
|
12/12/2024
|
-
|
$
|
-
|
$1.41 - $1.42
|
154,105
|
$
|
229,596
|
12/14/2023 - 1/22/2024
|
51,603
|
$
|
76,882
|
$2.03 - $2.41
|
66,500
|
$
|
36,585
|
12/14/2020 - 12/15/2021
|
63,583
|
$
|
34,980
|
$2.46 - $2.50
|
50,400
|
$
|
20,560
|
7/17/2020 - 3/14/2022
|
48,108
|
$
|
19,625
|
$2.51 - $2.89
|
205,781
|
$
|
4,908
|
12/14/2022 - 7/26/2023
|
119,064
|
$
|
2,840
|
April 30, 2020
|
672,286
|
$
|
670,919
|
|
282,358
|
$
|
134,327
|
|
|
|
|
|
|
April 30, 2019
|
616,449
|
$
|
88,795
|
|
239,551
|
$
|
-
|
|
The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company's closing stock price of $2.90 per share as of April 30, 2020 (April 30, 2019 - $1.86), which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options vested and exercisable as of April 30, 2020 was $134,327 (April 30, 2019 - zero). The total intrinsic value of options exercised during the year ended April 30, 2020 was $8,816 (2019 - $24,765). The grant date fair value of options vested during the year ended April 30, 2020 was $183,716 (April 30, 2019 - $276,391).
The following table summarizes information regarding the non-vested stock purchase options outstanding as of April 30, 2020:
|
|
|
Number of Options
|
|
|
Weighted Average
Grant-Date
Fair Value
|
|
Non-vested options at April 30, 2018
|
|
418,487
|
|
$
|
1.91
|
|
Granted
|
|
221,000
|
|
$
|
0.82
|
|
Vested
|
|
(136,323
|
)
|
$
|
2.03
|
|
Forfeited
|
|
(126,266
|
)
|
$
|
1.72
|
|
Non-vested options at April 30, 2019
|
|
376,898
|
|
$
|
1.30
|
|
Granted
|
|
199,500
|
|
$
|
0.47
|
|
Vested
|
|
(133,103
|
)
|
$
|
1.38
|
|
Forfeited
|
|
(53,367
|
)
|
$
|
1.02
|
|
Non-vested options at April 30, 2020
|
|
389,928
|
|
$
|
0.88
|
|
|
As of April 30, 2020, there was $271,728 of total unrecognized compensation cost related to unvested stock options. This unrecognized compensation cost is expected to be recognized over a weighted average period of 2.3 years.
|
|
|
|
Employee and non-employee stock-based compensation amounts classified in the Company's consolidated statements of operations for the year ended April 30, 2020 and 2019 were as follows:
|
|
|
Years Ended
|
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cost of sales
|
$
|
39,826
|
|
$
|
48,608
|
|
Sales and marketing
|
|
59,343
|
|
|
71,811
|
|
Research and development
|
|
41,341
|
|
|
48,405
|
|
General and administrative
|
|
44,474
|
|
|
65,755
|
|
Total stock-based compensation
|
$
|
184,984
|
|
$
|
234,579
|
|
|
Employee Stock Purchase Plan
|
|
|
|
Under the terms of the Employee Stock Purchase Plan (the "ESPP") all regular salaried (non-probationary) employees can purchase up to 6% of their base salary in common shares of the Company at market price. The Company will match 50% of the shares purchased by issuing or purchasing in the market up to 3% of the respective employee's base salary in shares. During the year ended April 30, 2020, the Company matched $20,001 (2019 - $25,012) in shares purchased by employees under the ESPP. During the year ended April 30, 2020, 28,283 shares (2019 - 26,945) were purchased on the open market and 13,949 shares (2019 - 12,820) were issued from treasury under the ESPP.
A total of 220,000 shares have been reserved for issuance under the ESPP. As of April 30, 2020, a total of 134,766 shares were available for issuance under the ESPP.
|
|
|
|
Deferred Share Unit Plan
|
|
|
|
Under the terms of the DSUP which is effective as at October 22, 2009, each deferred share unit (each, a "DSU") is equivalent to one share of common stock. The maximum number of shares of common stock that may be reserved for issuance to any one participant pursuant to DSUs granted under the DSUP and any share compensation arrangement is 5% of the number of shares of common stock of the Company outstanding at the time of reservation. A DSU granted to a participant who is a director of the Company shall vest immediately on the award date. A DSU granted to a participant other than a director will generally vest as to one-third (1/3) of the number of DSUs granted on the first, second and third anniversaries of the award date. Fair value of the DSUs, which is based on the closing price of the Company's common stock on the date of grant, is recorded as compensation expense over the vesting period.
On September 19, 2019, the maximum number of shares of common stock authorized by the Company's stockholders reserved for issuance under the DSUP was increased from 700,000 shares to 900,000 shares. During the year ended April 30, 2020, 203,399 (2019 - 236,981) DSUs were issued under the DSUP, of which 115,000 were granted to officers or employees and 88,399 were granted to non-employee directors. As of April 30, 2020, a total of 39,097 shares were available for issuance under the DSUP.
The following table summarizes the Company's outstanding DSU awards as of April 30, 2020 and 2019, and changes during the period then ended:
|
|
|
Number of DSUs
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
DSUs at April 30, 2018
|
|
465,390
|
|
$
|
6.40
|
|
Granted
|
|
236,981
|
|
$
|
2.05
|
|
Forfeited
|
|
(68,880
|
)
|
$
|
2.42
|
|
Outstanding at April 30, 2019
|
|
633,491
|
|
$
|
5.20
|
|
Granted
|
|
203,399
|
|
$
|
1.24
|
|
Converted
|
|
(137,707
|
)
|
$
|
7.28
|
|
Outstanding at April 30, 2020
|
|
699,183
|
|
$
|
2.21
|
|
|
As of April 30, 2020, there was $233,058 (2019 - $178,984) 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 2.1 years (2019 - 2.4 years). The total fair value of DSUs that vested during the year was $183,146 (2019 - $262,165). The total intrinsic value of DSUs that converted during the year ended April 30, 2020 was $136,330 (2019 - $nil).
|
Employee and non-employee DSU based compensation amounts classified in the Company's consolidated statements of operations for the year ended April 30, 2020 and 2019 are as follows:
|
|
Year Ended
|
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cost of sales
|
$
|
159,333
|
|
$
|
-
|
|
Sales and marketing
|
|
24,005
|
|
|
-
|
|
Research and development
|
|
7,131
|
|
|
-
|
|
General and administrative
|
|
7,131
|
|
|
240,147
|
|
|
$
|
197,600
|
|
$
|
240,147
|
|
The following table summarizes information regarding the non-vested DSUs outstanding as of April 30, 2020:
|
|
|
|
|
Weighted Average
|
|
|
|
Number of DSUs
|
|
|
Grant Date Fair
Value per Unit
|
|
Non-vested DSUs at April 30, 2018
|
|
64,252
|
|
$
|
2.62
|
|
Granted
|
|
236,981
|
|
$
|
2.05
|
|
Vested
|
|
(97,913
|
)
|
$
|
2.68
|
|
Forfeited
|
|
(68,880
|
)
|
$
|
2.41
|
|
Non-vested DSUs at April 30, 2019
|
|
134,440
|
|
$
|
1.67
|
|
Granted
|
|
203,399
|
|
$
|
1.24
|
|
Vested
|
|
(136,493
|
)
|
$
|
1.34
|
|
Non-vested DSUs at April 30, 2020
|
|
201,346
|
|
$
|
1.45
|
|
Note 11
|
Related Party Transactions
|
|
|
|
On October 10, 2018, the Company entered into a loan agreement (the "Loan Agreement") with Wesley Clover International Corporation ("Wesley Clover"), a company controlled by the Chairman of the Company, and KMB Trac Two Holdings Ltd. ("KMB Trac Two Holdings"), a company owned by the spouse of a director of the Company. As of April 30, 2020, the principal balance of the related party loan payable due to Wesley Clover and KMB Trac Two Holdings was $2,000,000 and $2,000,000 (2019 - $1,500,000 and $1,500,000), respectively. During the year ended April 30, 2020, the Company paid $114,740 (2019 - $26,301) in interest to each of Wesley Clover and KMB Trac Two Holdings. As of April 30, 2020, the Company owed $39,729 (2019 - $8,110) in interest payable to each party.
|
|
|
|
During the year ended April 30, 2020, the Company through its wholly owned subsidiary, CounterPath Technologies Inc., paid $60,314 (2019 - $83,551) to Kanata Research Park Corporation ("KRP") for leased office space. KRP is controlled by the Chairman of the Company.
|
|
|
|
On November 21, 2013, the Company, through its wholly owned subsidiary, CounterPath Technologies, entered into an agreement with 8007004 (Canada) Inc. ("8007004") to lease office space. 8007004 was controlled by a member of the board of directors of the Company. On May 1, 2019, the office space was sold to a third party. For the year ended April 30, 2019, CounterPath Technologies, paid $30,846 to 8007004 for leased office space.
During the year ended April 30, 2020, the Company sold $105,262 (2019 - $41,600) in subscription services to Wesley Clover Systems Europe ("WCS Europe"), a company controlled by the Chairman of the Company.
|
|
On November 8, 2019, the Company entered into an agreement with WCS Europe to hire a dedicated resource to assist with business development in the EMEA region. The initial term of the agreement is for six months, invoiced quarterly in advance at 3,500 euros per month. The services shall renew for another six months subject to mutual agreement with 30 day notice. For the year ended April 30, 2020, the Company paid $23,300 to WCS Europe.
On November 26, 2019, the Company, through its wholly owned subsidiary, CounterPath Technologies Inc., entered into an agreement with ThinkRF Corp. ("ThinkRF") to lease office space beginning January 1, 2020. During the year ended April 30, 2020, CounterPath Technologies Inc. paid $9,932 to ThinkRF. ThinkRF is a company controlled by the Chairman of the Company.
The above transactions are in the normal course of operations and are recorded at amounts established and agreed to between the related parties.
|
|
|
Note 12
|
Income Taxes
|
|
|
|
Deferred tax assets and liabilities are recognized for temporary differences between the carrying amount of the balance sheet items and their corresponding tax values as well as for the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized.
Significant components of the Company's deferred tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:
|
|
|
Years Ended
|
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Tax loss carry forwards
|
$
|
15,285,000
|
|
$
|
14,806,000
|
|
Capital losses carried forward
|
|
232,000
|
|
|
240,000
|
|
Equipment
|
|
552,000
|
|
|
570,000
|
|
Other
|
|
3,000
|
|
|
7,000
|
|
Bad debt
|
|
67,000
|
|
|
227,000
|
|
Nondeductible research and development expenses
|
|
2,872,000
|
|
|
2,971,000
|
|
Investment tax credits
|
|
422,000
|
|
|
436,000
|
|
Acquired technology
|
|
(577,000
|
)
|
|
(383,000
|
)
|
Valuation allowance established by management
|
|
(18,856,000
|
)
|
|
(18,874,000
|
)
|
Net deferred tax assets
|
$
|
-
|
|
$
|
-
|
|
The provision for income taxes differ from the amount calculated using the U.S. federal and state statutory income tax rates as follows:
|
|
Years Ended
|
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Tax (recovery) based on U.S. rates
|
$
|
(230,000
|
)
|
$
|
(1,053,000
|
)
|
Foreign tax rate differential
|
|
30,000
|
|
|
32,000
|
|
Non-deductible stock option compensation
|
|
118,000
|
|
|
101,000
|
|
Effect of reduction (increase) in statutory rates
|
|
-
|
|
|
(203,000
|
)
|
Foreign exchange losses on revaluation of deferred tax balances
|
|
223,000
|
|
|
411,000
|
|
Under provision relating to prior year
|
|
(123,000
|
)
|
|
(380,000
|
)
|
Expiry of non-operating losses
|
|
-
|
|
|
-
|
|
Increase in valuation allowance
|
|
(18,000
|
)
|
|
1,092,000
|
|
Income tax expense for year
|
$
|
-
|
|
$
|
-
|
|
|
On March 27, 2020, President Trump signed into law the CARES Act, which provides relief to taxpayers affected by the COVID-19. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company continues to examine the provisions of the CARES Act and similar laws enacted internationally but does not anticipate that it will have a material impact on its business. On May 1, 2020, the Company, entered into a promissory note with Bank of America for a term loan in the amount of $209,035, pursuant to the Paycheck Protection Program under the CARES Act. See Note 18 - Subsequent Events for further detail.
|
|
On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was enacted, which significantly revised the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%. The Tax Act also incorporated changes to certain international tax provisions, including the implementation of a territorial tax system that imposed a one-time tax on foreign unremitted earnings. The Company did not anticipate that the foreign provisions would have an impact to the Company's taxes. However, guidance on how provisions of the U.S. Tax Act will be applied or otherwise administered are still being issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies. Adjustments to amounts that we have previously recorded that may materially impact our provision for income taxes may be made as future guidance is issued.
As at April 30, 2020, the Company had net operating loss carry-forwards available to reduce taxable income in future years as follows:
|
Country
|
|
|
Amount
|
|
|
Expiration Dates
|
United States - US$
|
|
$
|
51,885,000
|
|
|
2025 - 2037
|
United States - US$
|
|
$
|
9,302,000
|
(1)
|
|
Indefinite
|
Canada - CDN$
|
|
$
|
12,546,000
|
(2)
|
|
2024 - 2040
|
|
(1) Net operating losses arising in tax year beginning after December 31, 2017 can be carried forward indefinitely instead of 20 years and carrybacks are no longer permitted. However, the net operating loss carryforward is limited and can only offset 80% of taxable income.
(2) These losses are subject to tax legislation that limits the use of the losses against future income of the Company's Canadian subsidiaries.
The Company is subject to taxation in the U.S. and Canada. It is subject to tax examinations by tax authorities for all taxation years commencing in or after 2002. The Company does not expect any material increase or decrease in its income tax expense in the next twelve months related to examinations or changes in uncertain tax positions.
|
|
Changes in the Company's uncertain tax positions for the year ended April 30, 2020 and April 30, 2019 were as follows:
|
|
|
Years Ended
|
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Balance at beginning of year
|
$
|
9,763
|
|
$
|
9,763
|
|
Increases related to prior year tax positions (interest and penalties)
|
|
-
|
|
|
-
|
|
Increases related to current year tax positions (interest and penalties)
|
|
-
|
|
|
-
|
|
Settlements
|
|
-
|
|
|
-
|
|
Lapses in statute of limitations
|
|
-
|
|
|
-
|
|
Balance at end of year
|
$
|
9,763
|
|
$
|
9,763
|
|
Note 13
|
Segmented Information
|
|
|
|
The Company's chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. Accordingly, the Company has concluded that it has one reportable operating segment.
|
|
Revenues are categorized based on the country in which the customer is located. The following is a summary of total revenues by geographic area for the years ended April 30, 2020 and 2019:
|
|
|
Years Ended
|
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
North America
|
$
|
8,391,465
|
|
$
|
6,768,821
|
|
EMEA
|
|
2,395,778
|
|
|
2,505,828
|
|
Asia Pacific
|
|
819,027
|
|
|
1,042,197
|
|
Latin America
|
|
495,056
|
|
|
448,058
|
|
|
$
|
12,101,326
|
|
$
|
10,764,904
|
|
All of the Company's long-lived assets, which includes equipment, goodwill and intangibles and other assets are located in Canada and the United States as follows:
|
|
As at April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Canada
|
$
|
7,785,682
|
|
$
|
6,798,083
|
|
United States
|
|
106,704
|
|
|
27,916
|
|
|
$
|
7,892,386
|
|
$
|
6,825,999
|
|
Note 14
|
Leases
|
|
|
|
The Company has operating leases for its corporate offices located in Canada and the United States. The leases have remaining terms of approximately one month to 4.4 years, some of which may include the option to extend the lease for one to five years. For leases with a term greater than 12 months, the Company recognizes a right-of-use asset and a lease liability based on the present value of the minimum lease payments over the lease term. If the Company is reasonably certain that it will exercise the extension option, the extended period will be included in the calculation of the right-of-use asset and lease liability. In the initial calculation of the right-of-use asset and lease liability, the Company included a five-year extension on one of its operating leases, as it was reasonably certain to exercise the extension option. The lease agreements do not contain any variable payments, residual value guarantees or restrictive covenants.
As the Company's leases do not provide a readily determinable implicit rate, the Company uses the incremental borrowing rate at lease commencement, which was determined using a portfolio approach, based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the implicit rate when a rate is readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term.
Leases with an initial term of 12 months or less are not recognized on the balance sheet and payments are expensed as incurred over the lease term. Common area maintenance fees and other charges associated with these leases are expensed as incurred. Property tax and insurance payments paid to the lessors are included in the calculation of minimum lease payments.
During the year ended April 30, 2020, operating lease expense was approximately $514,556 and the cash paid for amounts included in the measurement of the operating lease liabilities was $498,721.
The following table presents the Company's operating lease right-of-use assets and liabilities as of April 30, 2020:
|
|
|
April 30, 2020
|
|
Assets
|
|
|
|
Operating lease right-of-use assets
|
$
|
1,370,035
|
|
|
|
|
|
Liabilities
|
|
|
|
Operating lease liabilities - current
|
$
|
293,322
|
|
Operating lease liabilities - non-current
|
|
1,102,530
|
|
Total operating lease liabilities
|
$
|
1,395,852
|
|
As of April 30, 2020, total right-of-use assets and lease liabilities recognized on the consolidated balance sheets attributable to related parties was $44,382.
The following table presents supplemental information for the year ended April 30, 2020:
|
Weighted average remaining lease term
|
|
4.22 years
|
|
Weighted average discount rate
|
|
9.8%
|
|
Operating cash flow from operating leases
|
|
($498,721
|
)
|
As of April 30, 2020, estimated undiscounted cash flows related to operating leases were as follows:
2021
|
$
|
410,739
|
|
2022
|
|
394,476
|
|
2023
|
|
361,966
|
|
2024
|
|
373,471
|
|
2025
|
|
157,932
|
|
Thereafter
|
|
−
|
|
Less: imputed interest
|
|
(302,732
|
)
|
Operating lease liabilities
|
$
|
1,395,852
|
|
Note 15
|
Commitments
|
|
|
|
Total payable over the term of the service agreements for the years ended April 30, are as follows:
|
|
|
Voice
Platform
Service
Contract
|
|
|
Marketing
Service
Contract
|
|
|
Total
|
|
2021
|
$
|
220,000
|
|
$
|
44,402
|
|
$
|
264,402
|
|
2022
|
|
−
|
|
|
44,928
|
|
|
44,928
|
|
2023
|
|
−
|
|
|
33,696
|
|
|
33,696
|
|
Thereafter
|
|
−
|
|
|
−
|
|
|
−
|
|
|
$
|
220,000
|
|
$
|
123,026
|
|
$
|
343,026
|
|
Note 16
|
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 17
|
Loss per share
|
|
|
|
The following table shows the computation of basic and diluted loss per share:
|
|
|
Year ended April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Numerator
|
|
|
|
|
|
|
Income available to common stockholders
|
$
|
(1,096,565
|
)
|
$
|
(5,013,439
|
)
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
6,010,006
|
|
|
5,942,096
|
|
Effect of dilutive securities (1) (2)
|
|
−
|
|
|
−
|
|
|
|
6,010,006
|
|
|
5,942,096
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
(0.18
|
)
|
$
|
(0.84
|
)
|
|
(1) For the years ended April 30, 2020 and 2019, potentially dilutive securities including stock options and deferred share units totalling 1,371,469 and 1,249,940, respectively, were excluded from the computation of diluted loss per share because their effect was anti-dilutive.
(2) Diluted by assumed exercise of outstanding common share equivalents using the treasury stock method.
|
Note 18
|
Subsequent Events
|
|
|
|
On June 15, 2020, the Company repaid $2,000,000 of the principle balance of the related party loan payable to Wesley Clover and KMB Trac Two Holdings, increasing the unused portion of the loan principle to $3,000,000.
On June 10, 2020, the Company issued an aggregate of 284,902 shares of common stock under a non-brokered private placement at a price of $3.51 per share for total gross proceeds of $1,000,006. In connection with the private placement, Wesley Clover purchased 142,451 shares and KMB Trac Two Holdings purchased 142,451 shares.
On May 1, 2020, the Company, through its subsidiary, CounterPath LLC, entered into a promissory note with Bank of America for a term loan in the amount of $209,035 (the "Loan"). The Loan is made pursuant to the Paycheck Protection Program under the CARES Act. The Loan is forgiveable if used to retain workers and maintain payroll or to make lease payments and utility payments as specified under the Paycheck Protection Rule. The remaining loan balance that is not forgiven will bear interest at a rate of 1% per annum after a six-month deferment period, with a maturity date of two years from the funding date of the loan.
|