• Filing Date: 2019-07-11
  • Form Type: 10-K
  • Description: Annual report
v3.19.2
Summary of Significant Accounting Policies (Policies)
12 Months Ended
Apr. 30, 2019
Basis of Presentation and Principles of Consolidation [Policy Text Block]
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 [Policy Text Block]
Going Concern
 
The Company has experienced recurring losses and has an accumulated deficit of $68,581,091 as of April 30, 2019. This is a result of flat to declining revenues due to a number of factors including an increased focus on building out the Company’s cloud-based subscription platform and a change from the current licensing model to subscription- based licensing which has not reached profitable operations resulting in substantial doubt about the Company’s ability to continue operating as a going concern.

To alleviate this situation, the Company has plans in place to improve its financial position and liquidity through additional financing, while executing on its 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 its software as a service platform and subscription licensing continues.

The Company has historically been able to manage liquidity requirements through cost management and cost reduction measures, supplemented with raising additional financing. On October 10, 2018, the Company entered into a loan agreement for an aggregate principal amount of up to $3,000,000 which was fully drawn as of April 30, 2019. See Note 9 – Loan Payable for further detail. On July 10, 2019, the Company entered into an amended loan agreement to increase the maximum amount of the loan to $5,000,000. See Note 17 – Subsequent Events for further detail. The Company does not have any other commitments to raise funds.

Use of Estimates [Policy Text Block]

Use of Estimates

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

Reclassification [Policy Text Block]

Reclassification

Certain prior period balances have been reclassified to conform to the current period presentation in the Company’s consolidated financial statements and the accompanying notes.

Concentrations of Credit Risk [Policy Text Block]

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, 2019 and 2018:

      April 30,     April 30,  
      2019     2018  
  Customer A   13%     2%  
  Customer B   7%     13%  
  Customer C   –%     18%  
Accounts Receivable and Allowance for Doubtful Accounts [Policy Text Block]

Accounts Receivable and Allowance for Doubtful Accounts

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

      Years Ended April 30,  
      2019     2018  
  Balance of allowance for doubtful accounts, beginning of year $  322,638   $  80,232  
  Bad debt provision   1,082,440     578,024  
  Write-off of receivables   (785,564 )   (335,618 )
  Balance of allowance for doubtful accounts, end of year $  619,514   $  322,638  

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

Stock-Based Compensation [Policy Text Block]

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, 2019 and April 30, 2018 using the assumptions more fully described in Note 10.

Equipment and Amortization [Policy Text Block]

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 [Policy Text Block]

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 [Policy Text Block]

Website Development Costs

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

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

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

Goodwill [Policy Text Block]

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:

                  April 30,  
      Acquisition Date     2019     2018  
  NewHeights $  6,339,717   CDN$ 6,704,947   $  4,990,578   $  5,221,202  
  FirstHand   2,083,960     2,083,752     1,550,712     1,622,373  
    $  8,423,677   CDN$ 8,788,699   $  6,541,290   $  6,843,575  

The Company performed its annual impairment test during the fourth quarter for the years ended April 30, 2019 and 2018 and concluded that there has been no impairment to the carrying amount.

Intangible Assets [Policy Text Block]

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.

Foreign Currency Translation [Policy Text Block]

Foreign Currency Translation

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

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

Accrued Warranty [Policy Text Block]

Accrued Warranty

The Company’s warranty policy generally provides for one year of warranty for its products. The Company records a liability for estimated warranty obligations at the date products are sold. The estimated cost of warranty coverage is based on the Company’s actual historical experience with its current products or similar products. For new products, the required reserve is based on historical experience of similar products until such time as sufficient historical data has been collected on the new product. Estimated liabilities for warranty exposures, which relate to normal product warranties and a one-year obligation to provide for potential future liabilities for product sales for the years ended April 30, 2019 and 2018 were as follows:

      Years Ended April 30,  
      2019     2018  
  Balance, beginning of year $  63,130   $  54,365  
  Usage during the year        
  Additions (reductions) during the year   (11,095 )   8,765  
  Balance, end of year $  52,035   $  63,130  
Fair Value of Financial Instruments [Policy Text Block]

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 [Policy Text Block]

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, 2019 and 2018.

Income Taxes [Policy Text Block]

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 [Policy Text Block]

Comprehensive Loss

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

Loss per Share [Policy Text Block]

Loss per Share

ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the year including stock options and warrants using the treasury stock method. In computing diluted EPS, the average stock price for the year is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. For the year ended April 30, 2019, income per share excludes 1,249,940 (April 30, 2018 – 1,140,432) potentially dilutive common shares (related to stock options, deferred share units and warrants) as their effect was anti-dilutive.

Investment tax credits [Policy Text Block]

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 [Policy Text Block]

Recently Issued Accounting Pronouncements

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

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

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

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