In this Quarterly Report on Form 10-Q (the "Form 10-Q"), we use the terms "AMERI," "AMERI HOLDINGS,Holdings," "we," "our Company," "the Company," "our" and "us" to refer to AMERI HOLDINGS,Holdings, Inc. and its wholly-owned subsidiaries, which are described in on the Current Report on Form 8-K aswe filed with the Securities and Exchange Commission (the "SEC") on June 1, 2015 (the "June 2015 Form 8-K").
The accompanying unaudited condensed consolidated financial statements have been prepared by AMERI pursuant to the rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to ensure the information presented is not misleading.
The accompanying unaudited condensed consolidated financial statements reflect all adjustments (which were of a normal, recurring nature) that, in the opinion of management, are necessary to present fairly our financial position, results of operations and cash flows as of and for the interim periods presented. All intercompany transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in June 2015 Form 8-K.
AMERI HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
thereto.
The results of operations for the three and six months ended JuneSeptember 30, 2015 are not necessarily indicative of the results to be expected for any future period or the full fiscal year. Our revenue and earnings may fluctuate from quarter-to-quarter based on factors within and outside our control, including variability in demand for information technology professional services, the length of the sales cycle associated with our service offerings, the number, size, and scope of our projects and the efficiency with which we utilize our employees. Substantially all of our revenue is generated within North America.
OtherOur comprehensive income (loss) consists of net income (loss) plus or minus any periodic currency translation adjustments.
Acquisition of Linear Logic Corporation:Bellsoft, Inc. Bellsoft, Inc. ("Bellsoft") is a consulting company based in Lawrenceville, Georgia with over 175 consultants specialized in the areas of SAP, business intelligence ("BI"), DW and other enterprise resource planning ("ERP") services. Bellsoft has operations in the United States and in India. On April 1,November 20, 2015, the Company acquired allcompleted the acquisition of Bellsoft for the consideration listed below. For financial accounting purposes, the Company recognizes September 1, 2015 as the effective date of the assets and liabilities of Linear Logics Corp. (referred to as "Linear" and "Linear Logics"), pursuant to the terms of a Share Purchase Agreement (the "Linear Acquisition"). Headquartered in Glen Mills, Philadelphia, Linear Logics Corporation is a leading provider of Supply Chain Management Solutions. Linear Logics was started by professionals with several decades of combined experience in Manufacturing, Planning, Logistics, and System Integration. The unique capability of bridging the gap between the business process and the use of appropriate technology has been a driver to extract value from the customer Supply chain. Linear Logics is a SAP partner and has co-developed solutions for Sales and Operations Planning and Demand Management using SAP technology.acquisition.
The Company determined the total allocable purchase price consideration to be $1.05 million. Purchase consideration is broken down into three parts namely, 1/3 cash, 1/3 stock, and 1/3 earn out. Outfor the acquisition of the purchase consideration, $1 million was agreed to be paid in three instalments, 34% of which was paid at the time of signing the agreement, 33% was paid in May 2015 and final 33% to be paid in Jan 2016.Bellsoft consisted of:
An earnout agreement was entered into in connection with the Linear Acquisition under which the former Linear shareholders are eligible to receive additional contingent consideration. Earnout consideration to be paid, if any, to Linear will be based upon the achievement of certain performance measures (and is not impacted by continued employment status) over two consecutive twelve-month earnout periods, concluding on April 1, 2017. | 1. | A cash payment in the amount of $3,000,000 at closing, |
In connection with the Linear Acquisition, the Company made certain estimates related to the fair value of assets acquired, liabilities assumed, contingent earnout consideration and identified intangibles. | 2. | 235,295 shares of AMERI's common stock issued at closing, |
| 3. | $250,000 quarterly cash payments to be paid on the last day of each calendar quarter of 2016, |
| 4. | A $1,000,000 cash reimbursement to be paid 5 days following closing to compensate Bellsoft for a portion of its approximate cash balance as of September 1, 2015, |
| 5. | Approximately $2,500,000 to be paid within 30 days of closing in connection with the excess of Bellsoft's accounts receivable over its accounts payable as of September 1, 2015, and |
| 6. | Earn-out payments of approximately $500,000 a year for 2016 and 2017, if earned through the achievement of annual revenue and EBITDA targets specified in the Bellsoft purchase agreement, subject to downward or upward adjustment depending on actual results. |
The Company performed a fair value allocation of the purchase price among assets, liabilities and identified intangible assets. The allocation of the purchase price was as follows:
| | | |
| | Total | |
| | (In Thousands) | |
Accounts receivable | | $ | 140,101 | |
Cash and cash equivalents | | | 317,970 | |
Rent Deposits | | | 2,500 | |
Accounts payable and accrued expenses | | | (219,968 | ) |
Products | | | 814,522 | |
| | | | |
Total purchase price | | $ | 1,055,125 | |
The Linear Acquisition was accounted for as a purchase transaction, and accordingly, the results of operations, commencing April 1, 2015, are included in the Company's accompanying consolidated statement of income.
AMERI HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes revenue primarily through the provision of consulting services.
We generate revenue by providing consulting services under written service contracts with our customers. The service contracts we enter into generally fall into two specific categories: time and materials and fixed-price.
We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is reasonably assured. We establish billing terms at the time at which the project deliverables and milestones are agreed. Our standard payment terms are 60 days from invoice date.
When a customer enters into a time and materials, fixed-price, or a periodic retainer-based contract, the Company recognizes revenue in accordance with its evaluation of the deliverables in each contract. If the deliverables represent separate units of accounting, the Company then measures and allocates the consideration from the arrangement to the separate units, based on vendor specific objective evidence ("VSOE") of the value for each deliverable.
The revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. We routinely evaluate whether revenue and profitability should be recognized in the current period. We estimate the proportional performance on our fixed-price contracts on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. This method is used because reasonably dependable estimates of costs and revenue earned can be made, based on historical experience and milestones identified in any particular contract. If we do not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion of performance, subject to any warranty provisions or other project management assessments as to the status of work performed.
Estimates of total project costs are continuously monitored during the term of an engagement. There are situations where the number of hours to complete projects may exceed our original estimate, as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. Accordingly, recorded revenues and costs are subject to revision throughout the life of a project based on current information and historical trends. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified.
If our initial estimates of the resources required or the scope of work to be performed on a contract are inaccurate, or we do not manage the project properly within the planned time period, a provision for estimated losses on incomplete projects may be made. Any known or probable losses on projects are charged to operations in the period in which such losses are determined. A formal project review process takes place quarterly, although projects are continuously evaluated throughout the period. Management reviews the estimated total direct costs on each contract to determine if the estimated amounts are accurate, and estimates are adjusted as needed in the period identified. No losses were recognized on contracts during the three- or six-month periods ended JuneSeptember 30, 2015 or 2014.
AMERI HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. | SHARE-BASED COMPENSATION: |
On April 20, 2015, our Board of Directors and the holder of a majority of our outstanding shares of common stock approved the adoption of our 2015 Equity Incentive Award Plan (the "Plan") and a grant of discretionary authority to the executive officers to implement and administer the Plan. The Plan allows for the issuance of up to 2,000,000 shares of our common stock for award grants (all of which can be incentive stock options). The Plan provides equity-based compensation through the grant of cash-based awards, nonqualified stock options, incentive stock options, stock appreciation rights, ("SARs"), restricted stock, restricted stock units, performance shares, performance units, and other stock-based awards. We believe that an adequate reserve of shares available for issuance under the Plan is necessary to enable us to attract, motivate and retain key employees and directors and to provide an additional incentive for such individuals through stock ownership and other rights that promote and recognize the financial success and growth of our Company. NoneDuring the three months ended September 30, 2015, we granted 83,189 restricted stock units to certain members of the shares were allocated during the period ended 30, June 2015.Board of Directors.
AMERI HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded a tax provision (benefit) of $43 thousand$(128,460) and $158 thousand$(62,444) for the three month periods ended JuneSeptember 30, 2015 and 2014, respectively, and $(84,971) and $95,792 for the six-month periods ended September 30, 2015 and 2014, respectively. The reported tax provision (benefit) for the three monththree- and six-month periods ended JuneSeptember 30, 2015 and 2014 are based upon an estimated annual effective tax rate of 28% and 28%, respectively.for all such periods. The effective tax rates reflected our combined federal and state income tax rates and the recognition of U.S. deferred tax liabilities for differences between the book and tax basis of goodwill.
We assess the realizability of our deferred tax assets and assess the need for a valuation allowance on an ongoing basis. The periodic assessment of the net carrying value of our deferred tax assets under the applicable accounting rules is highly judgmental. We are required to consider all available positive and negative evidence in evaluating the likelihood that we will be able to realize the benefit of our deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent operations. Since this evaluation requires consideration of events that may occur some years into the future, there is significant judgment involved, and our conclusion could be materially different should certain of our expectations not transpire.
As of both JuneSeptember 30, 2015 and March 31, 2015, no deferred tax asset valuation allowance balance was recorded.
We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open to examination by a taxing authority. As of JuneSeptember 30, 2015, the gross amount of unrecognized tax benefits exclusive of interest and penalties was zero. We have identified no other uncertain tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the twelve months ending JuneSeptember 30, 2016. We remain subject to examination until the statute of limitations expires for each respective tax jurisdiction.
We amortize our intangible assets that have finite lives using either the straight-line method or based on estimated future cash flows to approximate the pattern in which the economic benefit of the asset will be utilized. Amortization expense was $6,250 and $6,250 during the three monththree-month periods ended JuneSeptember 30, 2015 and 2014, respectively, and $12,500 and $12,500 for the six-month periods ended September 30, 2015 and 2014, respectively. This amortization expense relates to customer lists, which expire through 2019.
AMERI HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Estimated annual amortization expense (including amortization expense associated with capitalized software costs) for the current year and the following four years ending March 31, is as follows:
| | Amortization Expense | |
| | (in thousands) | |
| | |
2016 | | $ | 25 | |
2017 | | $ | 25 | |
2018 | | $ | 25 | |
2019 | | $ | 18 | |
| | Amortization Expense |
| | (In Thousands) |
| | |
| 2016 | $25 |
| 2017 | $25 |
| 2018 | $25 |
| 2019 | $18 |
| | |
As part of the Linear acquisition, the company acquired twoThe Company has its own software products, namely Simple APO, Langer Index, and IBP. The product was valued on the basis of the expected cash flow that will generated over its useful life. An amount of $814,522 has been recognised under Intangible assets. The acquired products are undergoing further enhancements and hence has not been subjected to amortization. The amortization for the products will commence once it is ready for use.
Apart from this, the company had its own product namely, Langer Index for which we are designing an App. CostTotal costs incurred for building the Appthese products during the three-month period ended JuneSeptember 30, 2015 was $ 163,893.$277,406.
Of the acquisition consideration paid for Bellsoft $1.81 million was for its customer list, which is considered an intangible asset that was acquired by the Company.
8. | ACCRUED EXPENSES AND OTHER LIABILITIES: |
Accrued expense and other liabilities as of June 30, 2015 consisted of the following:
| | | |
| | June 30, 2015 | |
| | | |
Accrued bonuses | | $ | 18,000 | |
Audit Fee Payable | | | 7,500 | |
Accrued payroll related liabilities | | | 7,024 | |
Other accrued expenses | | | 55,000 | |
Acquisition Instalment Payable | | | 330,000 | |
| | | | |
Total | | $ | 442,524 | |
| | | | |
AMERI HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. | ACCRUED EXPENSES AND OTHER LIABILITIES: |
Accrued expense and other liabilities as of September 30, 2015 consisted of the following:
| | | |
Audit Fee Payable | | $ | 7,500 | |
Other accrued expenses | | | 31,914 | |
Acquisition Installment Payable- Linear Logics | | | 330,000 | |
Acquisition Installment Payable- Bellsoft | | | 8,900,000 | |
Interest on Debt Payable | | | 61,806 | |
| | | | |
Total | | $ | 9,331,220 | |
9. | FAIR VALUE MEASUREMENT: |
We utilize the following valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
| · | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| · | Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. |
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.
| · | Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. |
A financial asset or liability's classification within the hierarchy is determined based upon the lowest level input that is significant to the fair value measurement.
As of Juneboth September 30, 2015 and 2014 our financial assets and liabilities required to be measured on a recurring basis were our money market investments.
The following table represents the Company's fair value hierarchy for its financial assets and liabilities required to be measured on a recurring basis:
| | | | | | | | |
| Basis of Fair Value Measurements | |
| Balance | | Quoted Prices in Active Markets for Identical Items (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
| (In Thousands) | |
Balance at June 30, 2015: | | | | | | | | |
Financial assets: | | | | | | | | |
Money market investment | | $ | 93 | | | $ | 93 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total financial assets | | $ | 93 | | | $ | 93 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| Basis of Fair Value Measurements | |
| Balance | | Quoted Prices in Active Markets for Identical Items (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
| (in thousands) | |
Balance at September 30, 2015: | | | | | | | | |
Financial assets: | | | | | | | | |
Money market investment | | $ | 194 | | | $ | 194 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total financial assets | | $ | 194 | | | $ | 194 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
No financial instruments were transferred into or out of Level 3 classification during the three month periods ended JuneSeptember 30, 2015 and 2014.
AMERI HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. NET INCOME (LOSS) PER SHARESHARE:
A reconciliation of net income and weighted average shares used in computing basic and diluted net income per share is as follows:
| | | | | | |
| | Three Months Ended June 30, | |
| | 2015 | | | 2014 | |
| | (In Thousands, Except Per Share Data) | |
| | | | | | |
Basic net income (loss) per share: | | | | | | |
Net income (loss) applicable to common shares | | $ | 111 | | | $ | 408 | |
| | | | | | | | |
Weighted average common shares outstanding | | | 11,055 | | | | 9,992 | |
| | | | | | | | |
Basic net income (loss) per share of common stock | | $ | 0.01 | | | $ | 0.04 | |
| | | | | | | | |
| | | | | | | | |
Diluted net income (loss) per share: | | | | | | | | |
Net income (loss) applicable to common shares | | $ | 111 | | | $ | 408 | |
| | | | | | | | |
Weighted average common shares outstanding | | | 11,055 | | | | 9,992 | |
Dilutive effects of convertible debt, stock options and warrants | | | 5,611 | | | | - | |
| | | | | | | | |
Weighted average common shares, assuming dilutive effect of stock options | | | 16,666 | | | | 9,992 | |
| | | | | | | | |
Diluted net income (loss) per share of common stock | | $ | 0.01 | | | $ | 0.04 | |
| | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| September 30, | | September 30, | |
| 2015 | | 2014 | | 2015 | | 2014 | |
| (in thousands, except per share data) | | (in thousands, except per share data) | |
| | | | | | | | |
Basic net income (loss) per share: | | | | | | | | |
Net income (loss) applicable to common shares | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | 0.00 | | | $ | 0.03 | |
Weighted average common shares outstanding | | | 11,639 | | | | 9,992 | | | | 11,347 | | | | 9,992 | |
Basic net income (loss) per share of common stock | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | 0.00 | | | $ | 0.03 | |
Diluted net income (loss) per share: | | | | | | | | | | | | | | | | |
Net income (loss) applicable to common shares | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | 0.00 | | | $ | 0.03 | |
Weighted average common shares outstanding | | | 11,639 | | | | 9,992 | | | | 11,347 | | | | 9,992 | |
Dilutive effects of convertible debt, stock options and warrants | | | - | | | | - | | | | - | | | | - | |
Weighted average common shares, assuming dilutive effect of stock options | | | 11,639 | | | | 9,992 | | | | 11,347 | | | | 9,992 | |
Diluted net income (loss) per share of common stock | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | 0.00 | | | $ | 0.03 | |
Share-based awards, inclusive of all grants made under the Company's equity plans, for which either the stock option exercise price or the fair value of the restricted share award exceeds the average market price over the period, have an anti-dilutive effect on earnings per share, and accordingly, are excluded from the diluted computations for all periods presented.
As of JuneSeptember 30, 2015, there were approximately one hundred thousand223,189 share-based awards outstanding, respectively, under the Company's equity plans. FollowingDuring the closing of the Merger and the Private Placement, the Board approved the grant of stock options to purchase a total of 100,000 shares of ourthree months ended September 30, 2015, we granted 83,189 restricted stock units, consisting of initial grants of stock optionsunits.
Due to purchase 25,000net loss, potential shares of restricted stock units to each of the four independent directors. The stock options vest on the first anniversary of the grant date and are exercisable at $2.00 per share, which is in excess of the intrinsic common stock price per sharewere not included in the Private Placement.
- 12 -
calculation of diluted EPS as it will have an antidilutive effect.
AMERI HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIESCONTINGENCIES:
Operating LeaseLeases
The Company's principal facility is located in Princeton, New Jersey. The Company also leases office space in various locations with expiration dates between 2015 and 2018.2018. The lease agreements often include leasehold improvement incentives, escalating lease payments, renewal provisions, and other provisions which require the Company to pay taxes, insurance, maintenance costs, or defined rent increases. All of the Company's leases are accounted for as operating leases. Rent expense is recorded over the lease terms on a straight-line basis. Rent expense was $10,812$19,545 and $3,312 for the three months ended JuneSeptember 30, 2015 and 2014.The2014, respectively, and $30,357 and $6,624 for the six-month periods ended September 30, 2015 and 2014, respectively. The increase during these periods is due to additionalnew office spacesspace that was added due toleased by the Company in Princeton, New Jersey on July 1, 2015 and the addition of office space through the acquisition of Linear Logics Corp.Bellsoft.
The Company has entered into an operating lease for its primary office facility expiring throughin Princeton, New Jersey, which expires in July 2017. The future minimum rental payments under these lease agreements are as follows:
Years ending March 31, | | (in thousands) | |
2016 | | $ | 90 | |
2017 | | | 60 | |
2018 | | | 20 | |
Total | | $ | 170 | |
Years ending March 31, | | (In Thousands) | |
| | | |
2016 | | $ | 60 | |
2017 | | | 60 | |
2018 | | | 20 | |
Total | | $ | 140 | |
AMERI HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. SUBSEQUENT EVENTS:
On November 16, 2015, the Company issued an option to purchase 50,000 shares of our common stock to an employee.
The Company completed the acquisition of Bellsoft on November 20, 2015, as described in Note 3 above.
Simultaneously with the Bellsoft acquisition, Bellsoft entered into a Revolving Credit and Security Agreement (the "Credit Facility") with Federal National Payables, Inc., a Delaware corporation doing business as Federal National Commercial Credit (the "Lender"). Up to $6 million principal amount of advances may be extended under the Credit Facility. The Credit Facility will be used to pay a portion of the costs associated with the acquisition of Bellsoft, with the balance being available for general working capital of Bellsoft. The Credit Facility has a term of two years, which will automatically renew unless a written notice of termination is given by Bellsoft or the Lender to the other at least 60 days prior to the end of the original or any renewed term. Interest under the Credit Facility will accrue on the higher of (a) the outstanding principal amount of advances under the Credit Facility and (b) $2,000,000 at a per annum rate equal to the Prime Rate plus 1.00%, which will be payable monthly in arrears. With each payment of interest, Bellsoft will also pay a servicing fee of 0.38% multiplied by the higher of (a) the average daily principal amount of advances under the Credit Facility for the previous calendar month or portion thereof and (b) $2,000,000. The Credit Facility is secured by substantially all of Bellsoft's assets. The amounts borrowed by Bellsoft under the Credit Facility are guaranteed by AMERI.
Prior to the closing of the acquisition, Bellsoft had a $2 million line of credit, of which Bellsoft had drawn $200,000. The line of credit was paid off and terminated prior to the closing.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the information contained in the Unaudited Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. See "Risk Factors" and "Special Note Regarding Forward-Looking Statements" included elsewhere herein. We use the terms "we," "our," "us," "AMERI" and "the Company" in this report to refer to AMERI HOLDINGS,Holdings, Inc. and its wholly-owned subsidiaries.
Business Overview
AMERI is a strategictechnology management consulting firm that brings a synergistic blend of specialty services to drive transformational change that (1) improves process,processes, (2) reduces costs, and (3) increases revenue. Our primary focus is to enable our customers to implement IT solutions are tailored to the C-leveloptimize their systems and operations. AMERI architects and delivers efficient technology solutions to senior executives in the upper mid-market and Global 2000.2000 companies. AMERI has also developed proprietary products and apps that assess IT readiness and assist clients in their business transformation processes and ongoing support needs. AMERI has developed a global ecosystem of specific product experts who partner with AMERI on a project-by-project basis to help solve critical technology challenges for clients.
We deliver our services across a broad range of industries. We work onsite/onsite and offshore with our clients, providing a full spectrum of services in the following areas: classic consulting and product-based consulting, primarily in enterprise performance management / Business Intelligence ("EPM/BI") and enterprise resource planning ("ERP").business intelligence.
The Company's business strategy is to seek to enhance the growth and profitability of its operations through organic growth and selective acquisitions of targets which it believes could increase stockholder value.
Our Services
Ameri has an expertise is an array of solutions/services for our clients:
· | Lean Enterprise Architecture Partner |
· | Sales and Operations Planning |
· | Business Process Management |
AMERI has the proven expertise to plan, deliver and manage integration services that improve performance and maximize business results.
We focus on deploying new systems and unlocking the value of the existing corporate assets. This expertise enables us to bring complex technologies and systems together while minimizing risk, leveraging our clients' technology investments and delivering tailored solutions.
Our consultants are expected to travel and to be onsite with the customer to provide the highest level of service and support in all of these endeavors. We provide varying degrees of customer project assistance and will incorporate customer resources for technology transfer or cost optimization purposes. Independent teams and proper project process and delineation provide conflict-free transition points among all key service offerings as well as independent entry points.
Factors Influencing Our Results of Operations
Revenue. The Company derives its service revenue from time and materials-based contracts and fixed-price contracts. Time and materials-based contracts represented 72.23%91% and 37.46%28% of service revenue for the three monththree-month periods ended JuneSeptember 30, 2015 and 2014, respectively, and 80% and 32% for the six-month periods ended September 30, 2015 and 2014, respectively. Revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Fixed-price contracts represented 27.77%9% and 62.5%72% of service revenue for the three monththree-month periods ended JuneSeptember 30, 2015 and 2014, respectively, and 20% and 68% for the six-month periods ended September 30, 2015 and 2014, respectively. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. Revenue from professional services are attributable to the time and material contracts that we secure and the project revenues are all on fixed price basis.
Estimates of total project costs are continuously monitored during the term of an engagement. There are situations where the number of hours to complete projects may exceed (or be less than) our original estimate, as a result of an increase (or decrease) in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. Accordingly, recorded revenues and costs are subject to revision throughout the life of a project based on current information and historical trends. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified.
We continueWith the acquisition of Bellsoft, we have a larger customer base which has given us an opportunity to expand our sales across each of our service offerings and have a number of engagements in the pipeline that will provide us with a healthy revenue increase visibility entering the thirdlast quarter of 2015.
Operating Expenses. The largest portion of our operating expenses consists of cash compensation and benefits associated with our project consulting personnel and related expenses. Project personnel expenses also consist of payroll costs and related benefits associated with our professional staff. Other related expenses include travel, subcontracting costs, third-party vendor payments and non-billable expenses associated with the delivery of services to our customers. We consider the relationship between project personnel expenses and service revenue to be an important measure of our operating performance. The relationship between project personnel expenses and service revenue is driven largely by the chargeability of our consultant base, the prices we charge our customers and the non-billable costs associated with securing new customer engagements and developing new service offerings. The remainder of our recurring operating expense is composed of expenses associated with the development of our business and the support of our customer-serving professionals, such as professional development and recruiting, marketing and sales, and management and administrative support. Professional development and recruiting expenses consist primarily of recruiting and training content development and delivery costs. Marketing and sales expenses consist primarily of the costs associated with the development and maintenance of our marketing materials and programs. Management and administrative support expenses consist primarily of the costs associated with operations, including finance, information systems, human resources, facilities (including the rent of office space), and other administrative support for project personnel.
We regularly review our fees for services, professional compensation, and overhead costs to ensure that our services and compensation are competitive within the industry and that our overhead costs are balanced with our revenue levels. In addition, we monitor the progress of customer projects with customer senior management. We manage the activities of our professionals by closely monitoring engagement schedules and staffing requirementsrequirements.
Company Performance Measurement Systems and Metrics. The Company's management monitors and assesses its operating performance by evaluating key metrics and indicators on an ongoing basis.
Results of Operations for the Three- and Six-Month Periods Ended September 30, 2015 and September 30, 2014.
The following discussion of our results of operations constitutes management's review of the factors that affected our financial and operating performance for the three and six months ended September 30, 2015 and 2014. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this report.
Results for the Three Months Ended JuneSeptember 30, 2015 Compared to Results for the Three Months Ended JuneSeptember 30, 2014
The financial information that follows has been rounded in order to simplify its presentation. The amounts and percentages below have been calculated using the detailed financial information contained in the unaudited condensed consolidated financial statements, the notes thereto, and the other financial data included in this Quarterly Report on Form 10-Q.
The following table sets forth the percentage of total revenue of items included in our unaudited condensed consolidated statements of operations:
| | | | | | |
| | Three Months Ended June 30, | |
| | 2015 | | | 2014 | |
Revenue: | | | | | | |
Projects revenue | | | 42.03 | % | | | 61.61 | % |
Professional & Enterprise Services revenue | | | 57.97 | % | | | 38.39 | % |
| | | | | | | | |
Total revenue | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | |
Cost of revenue: | | | | | | | | |
Consulting Services Paid | | | 75.00 | % | | | 72.96 | % |
| | | | | | | | |
Total cost of revenue | | | 75.00 | % | | | 72.96 | % |
| | | | | | | | |
Gross profit | | | 25.00 | % | | | 27.04 | % |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Selling, general and administrative | | | 12.46 | % | | | 12.95 | % |
Direct acquisition | | | 7.76 | % | | | — | % |
| | | | | | | | |
Total operating expenses | | | 20.22 | % | | | 12.95 | % |
| | | | | | | | |
Operating income (loss) | | | 4.77 | % | | | 14.40 | % |
| | | | | | | | |
Other expense (income), net | | | 0.85 | % | | | 0.21 | % |
| | | | | | | | |
Income (loss) before income taxes | | | 3.92 | % | | | 14.18 | % |
Income tax (benefit) provision | | | 1.10 | % | | | 1.36 | % |
| | | | | | | | |
Net income (loss) | | | 2.82 | % | | | 12.82 | % |
|
| | Three Months Ended September 30, | |
| | 2015 | | 2014 | |
Revenue: | | | | | | | | | |
Projects revenue | | | 9.00 | % | | | 72.00 | % | |
Professional & Enterprise Services revenue | | | 91.00 | % | | | 28.00 | % | |
| | | | | | | | | |
Total revenue | | | 100.00 | % | | | 100.00 | % | |
Cost of revenue: | | | | | | | | | |
Consulting Services Paid | | | 68.00 | % | | | 93.00 | % | |
| | | | | | | | | |
Total cost of revenue | | | 68.00 | % | | | 93.00 | % | |
| | | | | | | | | |
Gross profit | | | 32.00 | % | | | 7% | % | |
Operating expenses: | | | | | | | | | |
Selling, general and administrative | | | 33.55 | % | | | 11.21 | % | |
Direct acquisition | | | 5.58 | % | | | 0.29 | % | |
| | | | | | | | | |
Total operating expenses | | | 39.13 | % | | | 11.50 | % | |
| | | | | | | | | |
Operating income (loss) | | | (6.86) | % | | | (4.44) | % | |
| | | |
Other expense (income), net | | | 1.60 | % | | | 0.21 | % | |
Income (loss) before income taxes | | | (8.47) | % | | | (4.65) | % | |
Income tax (benefit) provision | | | (2.88) | % | | | (1.62) | % | |
| | | | | | | | | |
Net income (loss) | | | (3.57) | % | | | (3.03) | % | |
Revenue. Total revenue decreased marginallyincreased by $62,388,$611,478, to $3.93$4.46 million during the three-month period ended JuneSeptember 30, 2015, compared to total revenue of $3.99$3.85 million in the three-month period ended JuneSeptember 30, 2014.
The number of customers the Company served during the three-monththree-month period ended JuneSeptember 30, 2015 totalled to 12,totaled 23, as compared to 7 customers during the three-monththree-month period ended JuneSeptember 30, 2014. During the quarter three months ended JuneSeptember 30, 2015, we secured first-time engagements with a total of 2two new customers. AcquisitionThe acquisition of LinearBellsoft has brought in 314 new customers to serve during the quartersix-months ended JuneSeptember 30, 2015.2015.
Cost of Revenue.Cost of revenue primarily consists of consulting charges paid. CostThe cost of revenue increaseddecreased by a marginalsubstantial percentage dueas we brought in good synergies and cost efficiencies as compared to the increase in consulting services paid year over year.quarter ended September 30, 2014.
Gross Profit. During the three-month period ended JuneSeptember 30, 2015, total gross profit decreasedincreased by $97,315,$1.17 million, to $0.98$1.44 million compared to gross profit of $1.07$0.27 million in the three-month period ended JuneSeptember 30, 2014.
Selling, General and Administrative ("SG&A") Expenses. As a percentage of total revenue, SG&A expenses were 12.46%33.55% and 12.95%11.21% during the three-month periods ended JuneSeptember 30, 2015 and JuneSeptember 30, 2014 respectively.
Direct Acquisition Costs. During the quarter ended JuneSeptember 30, 2015, the Company was reverse merged into a public shell Companyinvolved in the acquisition of Bellsoft and also involved in the process of evaluating different companies for acquisition. Some expenses related to future fund raising activities and the cost of reverse merger amounted to $ 304,924.$248,911. Incurred expenses included
advisory and legal fees directly associated with completion of the reverse merger. No such costs wereacquisition. Expenses incurred byduring the Company during the corresponding period in 2014.quarter ended September 30, 2014 with respect to acquisition of Winhire Inc. ("Winhire") was $11,024.
Depreciation and Amortization Expense. Depreciation and amortization expense for the quarter ended JuneSeptember 30, 2015 was $ 8,048 as against $ 8,572 as$9,375 compared to $8,267 for depreciation expenses for the quarter ended JuneSeptember 30, 2014. Amortization expense for the quarterquarters ended JuneSeptember 30, 2015 and JuneSeptember 30, 2014 remained at $ 6250 towards$6,250 for the amortization of the value of customer list acquired from Winhire.
Operating Income. Operating incomeloss was $187,865 in$306,391 for the quarter Junethree-months ended September 30, 2015, compared to operating incomeloss of $575,173 in$170,987 for the comparative 2014 quarterly period.
three-months ended September 30, 2014. The 2015 second quarter and year-to-date decrease in operating metrics areincome is primarily attributable to the increase in acquisition expenses as compared to the year 2014.expenses.
Income Tax Provision. We recorded a provision (benefit) for income taxes of $43,489$(128,640) and $158,236$(62,444) during the three -month periodsthree-months ended JuneSeptember 30, 2015 and JuneSeptember 30, 2014, respectively. Our periodic income tax provision amounts are derived based upon an estimated annual effective income tax rate, inclusive of federal and state income taxes.
Net IncomeLoss. Net Loss of $(249,364) and $(116,810) was recorded during the three-month periods ended September 30, 2015 and September 30, 2014, respectively.
Results for the Six-Months Ended September 30, 2015 Compared to the Six-Months Ended September 30, 2014
| | | | | | | | | |
| | Six Months Ended September 30, | |
| | 2015 | | 2014 | |
Revenue: | | | | | | | | | |
Projects revenue | | | 20.57 | % | | | 67.52 | % | |
Professional & Enterprise Services revenue | | | 79.42 | % | | | 32.49 | % | |
| | | | | | | | | |
Total revenue | | | 100.00 | % | | | 100.00 | % | |
| | | |
Cost of revenue: | | | | | | | | | |
Consulting Services Paid | | | 71.13 | % | | | 82.77 | % | |
| | | | | | | | | |
Total cost of revenue | | | 71.13 | % | | | 82.77 | % | |
| | | | | | | | | |
Gross profit | | | 28.86 | % | | | 17.23 | % | |
| | | |
Operating expenses: | | | | | | | | | |
Selling, general and administrative | | | 23.67 | % | | | 11.94 | % | |
Direct acquisition | | | 6.60 | % | | | 0.14 | % | |
| | | | | | | | | |
Total operating expenses | | | 30.27 | % | | | 12.08 | % | |
| | | | | | | | | |
Operating income (loss) | | | (1.41) | % | | | 5.15 | % | |
| | | |
Other expense (income), net | | | 1.25 | % | | | 0.21 | % | |
| | | | | | | | | |
Income (loss) before income taxes | | | (2.66) | % | | | 4.94 | % | |
Income tax (benefit) provision | | | (1.01) | % | | | 1.22 | % | |
| | | | | | | | | |
Net income (loss) | | | (0.59) | % | | | 3.72 | % | |
Revenue. Total revenue increased by $549,089 to $8.39 million during the six-month period ended September 30, 2015, compared to total revenue of $7.84 million in the six-month period ended September 30, 2014.
The number of customers the Company served during the six-month period ended September 30, 2015 totaled 23, as compared to 7 customers during the six-month period ended September 30, 2014. The acquisition of Bellsoft has brought in 14 new customers during the six months ended September 30, 2015.
Cost of Revenue. Cost of revenue primarily consists of consulting charges paid. The cost of revenue decreased by a substantial percentage as we brought in good synergies and cost efficiencies as compared to the quarter ended September 30, 2014.
Gross Profit. During the six-month period ended September 30, 2015, total gross profit increased by $1.07 million, to $2.42 million compared to gross profit of $1.35 million in the six-month period ended September 30, 2014.
Selling, General and Administrative ("SG&A") Expenses. As a percentage of total revenue, SG&A expenses were 23.67% and 11.94% during the six-month periods ended September 30, 2015 and September 30, 2014, respectively. The increase is primarily attributable to added human resources and acquisitions.
Direct Acquisition Costs. During the six-months ended September 30, 2015, the Company was involved in the acquisition of Linear Logics Corp. ("Linear Acquisition"), reverse merged into a public company, and acquired Bellsoft.It was also involved in the process of evaluating different companies for acquisition. Some expenses related to future fund raising activities and the total cost amounted to $553,835. The Company incurred expenses included advisory and legal fees directly associated with completion of the acquisition. Expenses incurred during the six-months ended September 30, 2014 with respect to the Winhire acquisition was $11,024.
Depreciation and Amortization Expense. Depreciation and amortization expense for the six-months ended September 30, 2015 was $17,423 compared to $16,839 for depreciation expenses for the six-months ended September 30, 2014. Amortization expense for the six-months ended September 30, 2015 and September 30, 2014 remained at $12,500 for the amortization of the value of customer list acquired from Winhire.
Operating Income/Loss. Operating loss was $118,365 for the six-months ended September 30, 2015, compared to operating income of $404,187 for the six-months ended September 30, 2014. The decrease in operating income is primarily attributable to the increase in acquisition expenses.
Income Tax Provision.We generated netrecorded a provision (benefit) for income taxes of $(84,971) and $95,792 during the six-months ended September 30, 2015 and September 30, 2014, respectively. Our periodic income tax provision amounts are derived based upon an estimated annual effective income tax rate, inclusive of federal and state income taxes.
Net Income/Loss. Net Loss of $(48,572) and income of $ 110,969 and $ 408,365291,556 was recorded during the three- monthsix-month periods ended JuneSeptember 30, 2015 and JuneSeptember 30, 2014, respectively.
The following table summarizes our cash flow activities for the periods indicated:
We prepare our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We reaffirm the critical accounting policies and estimates as reported in our June 2015 Form 8-K, which was filed with the Securities and Exchange Commission on June 1, 2015.8-K. Additionally, we have added the following critical accounting policies and estimates during the first half of 2015:
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new guidance is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016; early adoption is not permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. This update could impact the timing and amounts of revenue recognized. The Company is currently evaluating the effect that implementation of this update will have on its consolidated financial position and results of operations upon adoption.
Some of the statements in this Quarterly Report on Form 10-Q and elsewhere constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties, and other factors that may cause results, levels of activity, growth, performance, tax consequences, or achievements to be materially different from any future results, levels of activity, growth, performance, tax consequences, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those listed below.