COUNTERPATH CORPORATION Forward-Looking Statements
This quarterly report, including the documents incorporated herein and therein by reference, contains forward-looking statements as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. Forward-looking statements in this quarterly report may include statements about:
º any potential loss of or reductions in orders from certain significant
customers;
º our dependence on our customers to sell our applications or services using
our applications;
º our ability to protect our intellectual property;
º competitive factors, including, but not limited to, industry consolidation,
entry of new competitors into our market, and new product and marketing
initiatives by our competitors;
º our ability to predict our revenue, operating results and gross margin
accurately;
º the length and unpredictability of our sales cycles;
º our ability to expand or enhance our product offerings including in
response to industry demands or market trends;
º our ability to sell our products in certain markets;
º our ability to manage growth;
º the attraction and retention of qualified employees and key personnel;
º the interoperability of our products with service provider networks; and
º the quality of our products and services, including any undetected errors
or bugs in our software.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including securities laws ofthe United States of America andCanada , we do not intend to update any of the forward-looking statements to conform these statements to actual results.
References
In this quarterly report, (i) unless the context otherwise requires, references to "we", "our", "us", the "Company" or "CounterPath" meanCounterPath Corporation and its subsidiaries and (ii) all amounts are expressed inUnited States dollars, unless otherwise indicated.
Background
We were incorporated under the laws of the
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On
OnFebruary 1, 2008 , we acquired all of the shares ofFirstHand Technologies Inc. through the issuance of 590,001 shares of our common stock. OnFebruary 1, 2008 , we acquired all of the issued and outstanding shares ofBridgePort 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
We design, develop and sell software and services that enable enterprises and telecommunication service providers to deliverUnified Communications (UC) services, including voice, video, messaging and collaboration functionality, over their Internet Protocol, or IP, based networks. We are capitalizing upon numerous industry trends, including the rapid adoption of mobile technology, the proliferation of bring-your-own-device to work programs, the need for secure business communications, the need for centralized provisioning, the migration towards cloud-based services and the migration towards all IP networks. We are also capitalizing on a trend where communication services such asSkype and WhatsApp are becoming more available over-the-top (OTT) of the incumbent operators' networks or enterprise networks (a.k.a. Internet OTT providers). We offer our solutions under perpetual license agreements that generate one-time license revenue and under subscription license agreements that generate recurring license revenue. We sell our solutions through our own online store, through third-party online stores, directly using our in-house sales team and through channel partners. Our channel partners include original equipment manufacturers, value added distributers and value added resellers. Enterprises typically leverage our Enterprise OTT solutions to increase employee productivity and to reduce certain costs. Telecommunication service providers typically deploy our Operator OTT solutions as part of a broad strategy to defend their subscriber base from competitive threats by offering innovative new services. Our original equipment manufacturers and value added resellers typically integrate our solutions into their products and then sell a bundled solution to their end customers, which include both telecommunication service providers and enterprises. Revenue
Our total revenue consists of the following:
º Software
We generate software revenue primarily on a single fee per perpetual software license basis. We recognize software revenue for perpetual licenses when control has transferred to the customer, which is generally at the time of delivery, provided all revenue recognition criteria have been met. If the revenue recognition criteria have not been met, the revenue is deferred or not recognized. The number of software licenses purchased has a direct impact on the average selling price. Our software revenue may vary significantly from quarter to quarter as a result of long sales and deployment cycles, new product introductions and variations in customer ordering practices.
º Subscription, support and maintenance
We generate recurring subscription revenue from subscriptions related to our software as a service offering. Recurring support and maintenance revenue is generated from annual software support and maintenance contracts for our perpetual software licenses. Both subscription revenue and support and maintenance revenue are typically billed annually in advance based on the terms of the arrangement.
Support and maintenance services include e-mail and telephone support, unspecified rights to bug fixes and product updates and upgrades and enhancements available on a when-and-if available basis, and are recognized rateably over the term of the service period, which is generally twelve months.
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º Professional services and other
We generate professional services and other revenue through services including product configuration and customization, implementation, dedicated engineering and training. The amount of product configuration and customization required by a customer typically increases as the order size increases from a given customer. Services and pricing may vary depending upon a customer's requirements for customization, implementation and training.
Operating Expenses
Operating expenses consist of cost of sales, sales and marketing, research and development, and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories. Cost of sales primarily consists of: (a) salaries and benefits related to personnel, (b) related overhead, (c) billable and non-billable travel, lodging, and other out-of-pocket expenses, (d) payments to third party vendors for development and hosted services and compression/decompression software known as codecs, (e) amortization of capitalized software that is implemented into our products and (f) warranty expense. Sales and marketing expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) commissions, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs such as advertising, promotions and trade shows and (e) other related overhead. Commissions are 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. Research and development expense consists primarily of: (a) salaries and related personnel costs including stock-based compensation, (b) payments to contractors for design and consulting services, (c) costs relating to the design and development of new products and enhancement of existing products, (d) quality assurance and testing and (e) other related overhead. To date, all of our research and development costs have been expensed as incurred. General and administrative expense consists primarily of: (a) salaries and personnel costs including stock-based compensation related to our executive, finance, human resource and information technology functions, (b) accounting, legal, tax advisory and regulatory fees and (c) other related overhead.
Application of Critical Accounting Policies and Use of Estimates
Our interim consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions. There have been no material changes to these estimates for the periods presented in this quarterly report. There have been no significant changes to our critical accounting policies and estimates previously disclosed in our Form 10-K for the fiscal year endedApril 30, 2019 , during the three and six months endedOctober 31, 2019 except for our adoption of ASU 2016-02 Leases or ASC 842 Leases as described below: 25
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Leases
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 2019 and are recognized based on the present value of the remaining future
lease payments at lease commencement date. The interest rate used to determine
the present value of the future lease payments is our incremental borrowing rate
as we have determined that the interest rate implicit in the leases to which we
are a party of is 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 sheet except for leases with an initial term less of than
12 months. All of our leases are operating leases. Lease expense is recognized
on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components. Non-lease components primarily include payments for maintenance. We account for lease components and non-lease components separately.
Results of Operations
Our operating activities during the three and six months endedOctober 31, 2019 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 inU.S. dollars and incur a majority of our expenses in Canadian dollars. As a result of the fluctuation in the Canadian dollar against theU.S. dollar over the three and six months endedOctober 31, 2019 , we recorded decreased operating costs on translation of Canadian dollar costs as compared to the three and six months endedOctober 31, 2018 of approximately$29,342 and$63,258 , respectively.
Key Business Metrics
The following table sets out our billings for the three and six months endedOctober 31, 2019 and 2018. We consider billings to be a useful metric for management and investors because billings drive deferred revenue balances, which are an important indicator of our future revenues and a key factor affecting our long-term performance. We define billings as revenue recognized plus the change in deferred revenue from the beginning to the end of the applicable period. There are certain limitations related to the use of billings versus revenue calculated in accordance with GAAP. Billings include amounts that have not yet been recognized as revenue. In addition, our calculation of billings may differ from other peer companies that report similar financial measures, making comparisons between companies difficult. Accordingly, we compensate for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with revenue calculated in accordance with GAAP. Three Months Ended Six Months Ended October 31, October 31, 2019 2018 2019 2018 Billings: Revenue$ 2,700,922 $ 2,441,261 $ 5,274,590 $ 5,329,091 Add: Deferred revenue, end of period 2,813,753 2,597,465 2,813,753 2,597,465 Less: Deferred revenue, beginning of period (2,553,510 ) (2,558,932 ) (2,593,726 ) (2,565,876 ) Non-GAAP Billings$ 2,961,165 $ 2,479,794 $ 5,494,617 $ 5,360,680 26
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Selected Consolidated Financial Information
The following tables set out selected consolidated unaudited financial information for the periods indicated. The selected consolidated financial information set out below for the three and six months endedOctober 31, 2019 and 2018 has been derived from the consolidated unaudited financial statements and accompanying notes for the three and six months endedOctober 31, 2019 and 2018 and the audited consolidated financial statements for the fiscal year endedApril 30, 2019 . Each investor should read the following information in conjunction with those statements and the related notes thereto. Selected Consolidated Statements of Operations Data Three Months Ended October 31, 2019 2018 Percent Percent of Total of Total Amount Revenue Amount Revenue Revenue$ 2,700,922 100%$ 2,441,261 100% Operating expenses (3,406,896 ) (126% ) (4,533,338 ) (186% ) Loss from operations ($705,974 ) (26% ) ($2,092,077 ) (86% ) Interest expense (82,217 ) (3% ) (4,661 ) -% Foreign exchange (loss) gain (14,620 ) (1% ) 43,535 1% Change in fair value of derivative instruments 9,608 -% (10,554 ) -% Loss on lease termination (8,746 ) -% - -% Other income 700 -% - -% Net loss ($801,249 ) (30% ) ($2,063,757 ) (85% ) Net loss per share -Basic and diluted ($0.13 ) ($0.35 ) Weighted average common shares outstanding -Basic and diluted 5,955,954 5,941,812 Selected Consolidated Statements of Operations Data Six Months Ended October 31, 2019 2018 Percent Percent of Total of Total Amount Revenue Amount Revenue Revenue$ 5,274,590 100%$ 5,329,091 100% Operating expenses (6,665,410 ) (126% ) (8,518,448 ) (160% ) Loss from operations ($1,390,820 ) (26% ) ($3,189,357 ) (60% ) Interest and other expense, net (152,790 ) (3% ) (4,666 ) -% Foreign exchange (loss) gain (189,510 ) (4% ) 124,471 2% Change in fair value of derivative instruments 10,194 -% (5,152 ) -% Loss on lease termination (8,746 ) -% - -% Other income 700 -% - -% Net loss (1,730,972 ) (33% ) ($3,074,704 ) (58% ) Net loss per share -Basic and diluted ($0.29 ) ($0.52 ) Weighted average common shares outstanding -Basic and diluted 5,954,038 5,937,115 27
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Revenue
Three Months Ended October 31,
Period-to-Period
2019 2018 Change
Percent Percent
of of Percent
Total Total Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Revenue by Type
Software $ 1,042,208 38% $ 923,416 38% $ 118,792 13%
Subscription,
support and
maintenance 1,502,944 56% 1,319,840 54% 183,104 14%
Professional
services and other 155,770 6% 198,005 8% (42,235 ) (21%)
Total revenue $ 2,700,922 100% $ 2,441,261 100% $ 259,661 11%
Revenue by Region
North America $ 1,739,961 64% $ 1,642,703 67% $ 97,258 6%
International 960,961 36% 798,558 33% 162,403 20%
Total revenue $ 2,700,922 100% $ 2,441,261 100% $ 259,661 11%
For the three months ended October 31, 2019 , we generated $2,700,922 in revenue
compared to $2,441,261 for the three months ended October 31, 2018 , representing
an increase of $259,661 or 11%.
Software revenue increased by $118,792 or 13% to $1,042,208 for the three months
ended October 31, 2019 compared to $923,416 for the three months ended October
31, 2018 . The increase in software revenue was a result of increased sales to
service providers, and enterprises.
Subscription, support and maintenance revenue increased by $183,104 or 14% to
$1,502,944 for the three months ended October 31, 2019 compared to $1,319,840
for the three months ended October 31, 2018 . The increase in subscription,
support and maintenance revenue was a result of increased sales to channel
partners, and service providers.
Professional services and other revenue decreased by $42,235 or 21% to $155,770
for the three months ended October 31, 2019 compared to $198,005 for the three
months ended October 31, 2018 . The decrease in professional services and other
revenue was a result of decreased sales to service providers and enterprises.
North American revenue increased by $97,258 or 6% to $1,739,961 for the three
months ended October 31, 2019 compared to $1,642,703 for the three months ended
October 31, 2018 , as a result of increased sales of software and service to
channel partners, and service providers. International revenue outside of North
America increased by $162,403 or 20% to $960,961 for the three months ended
October 31, 2019 compared to $798,558 for the three months ended October 31,
2018 , as a result of higher sales of software and service to international
channel partners, and enterprises.
Six Months Ended October 31,
2019 2018 Period-to-Period Change
Percent Percent
of of Percent
Total Total Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Revenue by Type
Software $ 2,052,032 39% $ 2,279,418 43% ($227,386 ) (10%)
Subscription,
support and
maintenance 2,924,806 55% 2,570,860 48% 353,946 14%
Professional
services and
other 297,752 6% 478,813 9% (181,061 ) (38%)
Total revenue $ 5,274,590 100% $ 5,329,091 100% ($54,501 ) (1%)
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Six Months Ended October 31,
2019 2018 Period-to-Period Change
Percent Percent
of of Percent
Total Total Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Revenue by Region
North America $ 3,484,713 66% $ 3,381,006 63% $ 103,707 3%
International 1,789,877 34% 1,948,085 37% (158,208 ) (8%)
Total revenue $ 5,274,590 100% $ 5,329,091 100% ($54,501 ) (1%)
For the six months ended October 31, 2019 , we generated $5,274,590 in revenue
compared to $5,329,091 for the six months ended October 31, 2018 , representing a
decrease of $54,501 or 1%.
Software revenue decreased by $227,386 or 10% to $2,052,032 for the six months
ended October 31, 2019 compared to $2,279,418 for the six months ended October
31, 2018 . The decrease in software revenue was a result of decreased sales to
channel partners, and service providers.
Subscription, support and maintenance revenue increased by $353,946 or 14% to
$2,924,806 for the six months ended October 31, 2019 compared to $2,570,860 for
the six months ended October 31, 2018 . The increase in subscription, support and
maintenance revenue was a result of increased sales to channel partners, and
service providers.
Professional services and other revenue decreased by $181,061 or 38% to $297,752
for the six months ended October 31, 2019 compared to $478,813 for the six
months ended October 31, 2018 . The decrease in professional services and other
revenue was a result of decreased sales to service providers, and enterprises.
North American revenue increased by $103,707 or 3% to $3,484,713 for the six
months ended October 31, 2019 compared to $3,381,006 for the six months ended
October 31, 2018 , as a result of increased sales of software and service to
service providers, and channel partners. International revenue outside of North
America decreased by $158,208 or 8% to $1,789,877 for the six months ended
October 31, 2019 compared to $1,948,085 for the six months ended October 31,
2018 , as a result of lower sales of software and service to international
service providers.
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Operating Expenses
Cost of Sales
Cost of sales for the three and six months endedOctober 31, 2019 and 2018 were as follows: October 31, 2019 October 31, 2018 Period-to-Period Change
Percent Percent
of of
Total Total Percent Increase /
Amount Revenue Amount Revenue Amount (Decrease)Three months ended$ 562,619 21%$ 623,811 26% ($61,192 ) (10%) Six months ended$ 1,073,979 20%$ 1,219,367 23% ($145,388 ) (12%) Cost of sales was$562,619 for the three months endedOctober 31, 2019 compared to$623,811 for the three months endedOctober 31, 2018 . The decrease of$61,192 or 10% was primarily attributable to our overall cost reduction strategy which resulted in decreases in third-party service fees of approximately$157,400 , offset by increases in communication services and license fees of approximately$80,800 and other expenses of approximately$15,400 . Cost of sales was$1,073,979 for the six months endedOctober 31, 2019 compared to$1,219,367 for the six months endedOctober 31, 2018 . The decrease of$145,388 or 12% was primarily attributable to our overall cost reduction strategy which resulted in decreases in third-party service fees of approximately$270,500 and wages and benefits expenses of approximately$9,700 , offset by increases in communication services and license fees of approximately$83,400 , license fees of approximately$27,100 and other expenses of approximately$24,400 .
Sales and Marketing
Sales and marketing expenses for the three and six months ended
October 31, 2019 October 31, 2018 Period-to-Period Change
Percent Percent
of of Percent
Total Total Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Three months ended $ 955,010 35% $ 967,689 40% ($12,679 ) (1%)
Six months ended $ 1,925,603 37% $ 1,962,649 37% ($37,046 ) (2%)
Sales and marketing expenses were $955,010 for the three months ended October
31, 2019 compared to $967,689 for the three months ended October 31, 2018 . The
decrease of $12,679 or 1% was primarily attributable to decreases in commissions
and consulting expenses of approximately $16,900 , decreases in marketing, travel
and trade show expenses of approximately $17,600 . This decrease was offset by
increases in wages and benefits expenses of approximately $16,300 and other
expenses of approximately $5,500 .
Sales and marketing expenses were $1,925,603 for the six months ended October
31, 2019 compared to $1,962,649 for the six months ended October 31, 2018 . The
decrease of $37,046 or 2% was primarily attributable to decreases in commissions
and consulting expenses of approximately $58,400 and decreases in marketing,
travel and trade show expenses of approximately $9,300 . This decrease was offset
by increases in wages and benefits expenses of approximately $21,600 and other
expenses of approximately $9,000 .
Research and Development
Research and development expenses for the three and six months ended
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October 31, 2019 October 31, 2018 Period-to-Period Change
Percent Percent
of of Percent
Total Total Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Three months
ended $ 1,233,994 46% $ 1,391,737 57% ($157,743 ) (11%)
Six months ended $ 2,365,842 45% $ 2,794,693 52% ($428,851 ) (15%)
Research and development expenses were $1,233,994 for the three months ended
October 31, 2019 compared to $1,391,737 for the three months ended October 31,
2018 . The decrease of $157,743 or 11% was primarily attributable to our overall
cost reduction strategy which resulted in decreases in third-party service fees
of approximately $75,000 , wages and benefits of approximately $66,700 and other
expenses of approximately $16,000 .
Research and development expenses were $2,365,842 for the six months ended
October 31, 2019 compared to $2,794,693 for the six months ended October 31,
2018 . The decrease of $428,851 or 15% was primarily attributable to our overall
cost reduction strategy which resulted in decreases in third-party service fees
of approximately $172,400 , wages and benefits of approximately $221,600 and
other expenses of approximately $34,800 .
General and Administrative
General and administrative expenses for the three and six months ended
October 31, 2019 October 31, 2018 Period-to-Period Change
Percent Percent
of of Percent
Total Total Increase /
Amount Revenue Amount Revenue Amount (Decrease)
Three months
ended $ 655,273 24% $ 1,550,101 63% ($894,828 ) (58%)
Six months
ended $ 1,299,986 25% $ 2,541,739 48% ($1,241,753 ) (49%)
General and administrative expenses were $655,273 for the three months ended
October 31, 2019 compared to $1,550,101 for the three months ended October 31,
2018 . The decrease of $894,828 or 58% in general and administrative expenses was
primarily attributable to decreases in bad debts expense of approximately
$595,900 , wages and benefits of approximately $204,000 , consulting expenses of
approximately $41,200 , professional fees of approximately $41,900 and other
expenses of approximately $11,900 .
General and administrative expenses were $1,299,986 for the six months ended
October 31, 2019 compared to $2,541,739 for the six months ended October 31,
2018 . The decrease of $1,241,753 or 49% in general and administrative expenses
was primarily attributable to decreases in bad debts expense of approximately
$646,900 , wages and benefits of approximately $477,600 , consulting expenses of
approximately $47,000 , professional fees of approximately $46,600 and other
expenses of approximately $23,800 .
Interest and Other (Expense) Income, Net
Interest and other (expense) income, net was ($95,275 ) for the three months endedOctober 31, 2019 , respectively, compared to$28,320 for the same period in the prior year. The change of$123,595 or 436% is primarily due to increases of approximately$77,600 in interest expense related to our loan payable and foreign exchange losses of approximately$58,200 in addition to a one time loss on lease termination of$8,700 . This is offset by a gain on change in fair value of derivative instruments of approximately$20,200 . Interest and other (expense) income, net was ($340,152 ) for the six months endedOctober 31, 2019 , respectively, compared to$114,653 for the same period in the prior year. The change of$454,805 or 397% is primarily due to an increase of approximately$148,100 in interest expense related to our loan payable and foreign exchange losses of approximately$314,000 in addition to a one time loss on lease termination of$8,700 . This is offset by a gain on change in fair value of derivative instruments of approximately$15,300 . 31 -------------------------------------------------------------------------------- The foreign exchange gain (loss) represents the gain (loss) on account of translation of the intercompany accounts of our subsidiary which maintains their records in Canadian dollars and transactional gains and losses. The foreign exchange gain (loss) includes the translation of quarterly intercompany transfer pricing invoices from our Canadian subsidiary to us.
Liquidity and Capital Resources
The following is a summary of selected financial information as at the dates indicated:
Selected Consolidated Balance Sheet Data October 31, 2019 April 30, 2019 Cash$ 1,853,216 $ 1,862,458 Current assets$ 3,651,673 $ 4,126,387 Total assets$ 12,354,798 $ 11,124,786 Current liabilities$ 5,106,683 $ 4,885,095 Total liabilities$ 10,432,123 $ 7,898,889 As ofOctober 31, 2019 , we had$1,853,216 in cash compared to$1,862,458 as ofApril 30, 2019 , representing a decrease of$9,242 . Our working capital deficit was$1,455,010 atOctober 31, 2019 compared to working capital deficit of$758,708 atApril 30, 2019 , representing a decrease of$696,302 . We have experienced recurring losses and an accumulated deficit of$70,312,063 as ofOctober 31, 2019 . This is a result of flat to declining revenues due to a number of factors including an increased focus on building out our 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 our ability to continue operating as a going concern within one year of the date of issuance of the consolidated financial statements. To mitigate 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 the six months endedOctober 31, 2019 , recurring revenue as a percentage of total revenue increased from 48% in the prior year to 55% of total revenue. We believe that increasing recurring revenue will stabilize the volatility of revenue over time, enabling our company to grow revenue from our extensive customer base. To increase our recurring revenue, we introduced Bria Teams and Bria Teams Pro which is a subscription based unified communication service.
In
addition, we advanced our Channel Partner Program which enables us to leverage our sales force in regions outside ofNorth 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. We have historically been able to manage liquidity requirements through cost management and cost reduction measures, supplemented with raising additional financing. If we are unable to maintain sufficient cash flows, we will not be able to meet our present obligations. However Management believes that we have access to sufficient capital to meet our obligations through continued collection of receivables and increases to the existing loan, if needed, as described below. OnJuly 10, 2019 , we entered into an amendment to our loan agreement to increase the aggregate principal amount of the loan that we can borrow to$5,000,000 . As ofOctober 31, 2019 , the principal balance of the loan payable was$4,000,000 and the unused portion of the loan was$1,000,000 . We do not have any other commitments to raise funds as of the date of this quarterly report on Form 10-Q.
Our company has
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Cash Flows
Our cash flows for the six months ended
Six months ended October 31, 2019 Six months ended October 31, 2018
Net cash
used in
operating
activities ($970,719 ) ($1,481,323 )
Net cash
used in
investing
activities ($43,706 ) ($21,283 )
Net cash
provided
by
financing
activities $ 1,010,656 $ 1,010,439
Net
decrease
in cash ($9,242 ) ($500,253 )
Operating Activities
Our operating activities resulted in a net cash outflow of $970,719 for the six
months ended October 31, 2019 compared to a net cash outflow of $1,481,323 for
the same period in the prior year, representing a decrease in net cash used in
operating activities of $510,604 . The decrease in net cash used in operating
activities for the six months ended October 31, 2019 was primarily due to a
decrease in net loss of approximately $1,343,700 , an increase in foreign
exchange losses by approximately $356,600 , an increase in operating lease
expense of approximately $275,900 related to the adoption of the new lease
accounting standard and an increase in unearned revenue of approximately
$188,400 . This decrease was offset by decreases in the change in accounts
receivable by approximately $838,800 , increases in the payments of accounts
payable and accrued liabilities of approximately $365,600 , increases in
operating lease liabilities of approximately $257,300 and a decrease in
stock-based compensation expense of approximately $215,500 .
Investing Activities
Investing activities resulted in a net cash outflow of$43,706 for the six months endedOctober 31, 2019 , compared to$21,283 for the same period in the prior year. The increase in net cash outflow from investing activities was primarily a result of an increase in investments in computer equipment and intangible assets. AtOctober 31, 2019 , we did not have any material commitments for future capital expenditures.
Financing Activities
Financing activities resulted in a net cash inflow of$1,010,656 for the six months endedOctober 31, 2019 compared to a net cash inflow of$1,010,439 for the six months endedOctober 31, 2018 . The cash inflow from financing activities was primarily related to the$1,000,000 increase in loan payable and$10,655 in proceeds received for the issuance of shares through our employee share purchase program.
Off-Balance Sheet Arrangements
We do not have, and do not have any present plans to implement, any off-balance sheet arrangements.
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Recently Adopted Accounting Pronouncements
InFebruary 2016 , the FASB issued ASU 2016-02, Leases, as amended by subsequent standards updates, which requires lessees to recognize ROU assets and lease liabilities for all leases, with the exception of short term leases, at the commencement date of each lease. We adopted the new standard effectiveMay 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 onMay 1, 2019 . There was no cumulative-effect adjustment for the adoption and the adoption did not have a significant impact on our interim consolidated statements of operations. We 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 management will continue to be classified as operating leases. In addition, we elected to not record short-term leases with an initial term of 12 months or less on its consolidated balance sheets.
Recently Issued Accounting Pronouncements
InJanuary 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 afterDecember 15, 2019 . We are evaluating the impact of this amendment on our consolidated financial statements and related disclosures. InJune 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 of our ability to record credit losses based on not yet meeting the "probable" threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected will a valuation provision. The amendments will be effective for fiscal years beginning afterDecember 15, 2019 . We are evaluating the impact of this amendment on our consolidated financial statements and related disclosures.
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