UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY |
 AMERI Holdings, Inc. (Exact name of registrant as specified in its charter)
Registrant's telephone number, including area Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value per share ( Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐☐ No ☑
AMERI Holdings, Inc.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017
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| PART II - OTHER INFORMATION | |||||
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PART I – FINANCIAL INFORMATION
AMERI HOLDINGS, INC.
March 31, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,812,600 | $ | 1,379,887 | ||||
| Accounts receivable | 9,590,446 | 8,059,910 | ||||||
| Investments | 82,908 | 82,908 | ||||||
| Other current assets | 866,505 | 542,237 | ||||||
| Total current assets | 12,352,459 | 10,064,942 | ||||||
| Other assets: | ||||||||
| Property and equipment, net | 113,505 | 100,241 | ||||||
| Intangible assets, net | 11,845,910 | 8,764,704 | ||||||
| Acquired goodwill | 21,879,572 | 17,089,076 | ||||||
| Deferred income tax assets, net | 3,488,960 | 3,488,960 | ||||||
| Total other assets | 37,327,947 | 29,442,981 | ||||||
| Total assets | $ | 49,680,406 | $ | 39,507,923 | ||||
| Current liabilities: | ||||||||
| Line of credit | 3,956,494 | 3,088,890 | ||||||
| Accounts payable | 4,468,533 | 5,130,817 | ||||||
| Other accrued expenses | 3,147,210 | 2,165,088 | ||||||
| Bank Term Loan | 399,996 | 405,376 | ||||||
| Consideration payable – Cash | 4,199,238 | 1,854,397 | ||||||
| Consideration payable – Equity | 596,763 | 64,384 | ||||||
| Dividend Payable | 499,965 | - | ||||||
| Total current liabilities | 17,268,199 | 12,708,952 | ||||||
| Long term liabilities: | ||||||||
| Convertible notes | 1,250,000 | - | ||||||
| Bank Term Loan – Net of Current Portion | 1,023,474 | 1,536,191 | ||||||
| Consideration payable – Cash | 3,375,000 | 2,711,717 | ||||||
| Consideration payable – Equity | 11,993,723 | 10,887,360 | ||||||
| Total Long-term Liabilities | 17,642,197 | 15,135,268 | ||||||
| Total liabilities | 34,910,396 | 27,844,220 | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $0.01 par value; 1,000,000 authorized, 363,611 issued and outstanding as of March 31, 2017 and as of December 31, 2016 | 3,636 | 3,636 | ||||||
| Common stock, $0.01 par value; 100,000,000 shares authorized, 14,579,417 and 13,885,972 issued and outstanding as of March 31, 2017 and December 31, 2016 respectively. | 145,794 | 138,860 | ||||||
| Additional paid-in capital | 19,850,002 | 15,358,839 | ||||||
| Accumulated deficit | (5,226,646 | ) | (3,833,588 | ) | ||||
| Accumulated other comprehensive income (loss) | 740 | (7,426 | ) | |||||
| Non-Controlling Interest | (3,516 | ) | 3,382 | |||||
| Total stockholders' equity | 14,770,010 | 11,663,703 | ||||||
| Total liabilities and stockholders' equity | $ | 49,680,406 | $ | 39,507,923 | ||||
September 30, 2016 | December 31, 2015 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 2,913,834 | $ | 1,878,034 | ||||
| Accounts receivable | 7,724,860 | 4,872,082 | ||||||
| Investments | - | 82,908 | ||||||
| Other current assets | 629,640 | 343,809 | ||||||
| Total current assets | 11,268,334 | 7,176,833 | ||||||
| Other assets | ||||||||
| Property and equipment, net | 115,355 | 73,066 | ||||||
| Intangible assets, net | 9,359,571 | 3,114,513 | ||||||
| Acquired goodwill | 17,379,031 | 3,470,522 | ||||||
| Total other assets | 26,853,957 | 6,658,101 | ||||||
| Total assets | $ | 38,122,291 | $ | 13,834,934 | ||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 4,906,959 | $ | 2,597,385 | ||||
| Other accrued expenses | 1,345,561 | 1,093,814 | ||||||
| Consideration payable | 3,225,093 | 3,649,267 | ||||||
| Short-term notes | 4,137,143 | 1,235,935 | ||||||
| Total current liabilities | 13,614,756 | 8,576,401 | ||||||
| Long-term liabilities | ||||||||
| Convertible notes | 5,000,000 | 5,000,000 | ||||||
| Long-term notes | 1,566,671 | - | ||||||
Long-term consideration payable | 13,188,260 | - | ||||||
| Total long-term liabilities | 19,754,931 | 5,000,000 | ||||||
| Total liabilities | 33,369,687 | 13,576,401 | ||||||
| Stockholders' equity | ||||||||
| Preferred stock, $0.01 par value; 1,000,000 authorized, none issued and outstanding | - | - | ||||||
| Common stock, $0.01 par value; 100,000,000 shares authorized, 13,885,972 and 11,639,066 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively | 138,861 | 118,743 | ||||||
| Additional paid-in capital | 10,042,992 | 1,192,692 | ||||||
| Accumulated other comprehensive income (loss) | (287,722 | ) | - | |||||
| Accumulated deficit | (5,141,527 | ) | (1,052,902 | ) | ||||
| Total stockholders' equity | 4,752,604 | 258,533 | ||||||
| Total liabilities and stockholders' equity | $ | 38,122,291 | $ | 13,834,934 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
AMERI HOLDINGS, INC.
Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Net revenue | $ | 12,340,927 | $ | 7,012,964 | ||||
| Cost of revenue | 9,039,577 | 5,365,561 | ||||||
| Gross profit | 3,301,350 | 1,647,403 | ||||||
| Operating expenses: | ||||||||
| Selling and marketing | 332,310 | 31,350 | ||||||
| General and administration | 2,701,145 | 2,110,336 | ||||||
| Acquisition related expenses | 209,344 | 375,405 | ||||||
| Depreciation and amortization | 689,100 | 111,628 | ||||||
| Operating expenses | 3,931,899 | 2,628,719 | ||||||
| Operating income (loss): | (630,549 | ) | (981,316 | ) | ||||
| Interest expense | (90,806 | ) | (113,746 | ) | ||||
| Interest income/other income | - | 2,005 | ||||||
| Other expense | (4,149 | ) | (2,304 | ) | ||||
| Total other income (expenses) | (94,955 | ) | (114, 045 | ) | ||||
| Income (loss) before income taxes | (725,504 | ) | (1,095,361 | ) | ||||
| Income tax benefit (provision) | (2,020 | ) | ||||||
| Net income (loss) after tax | (725,504 | ) | (1,097,381 | ) | ||||
| Dividend on Preference Shares | (499,965 | ) | - | |||||
| Net income (loss) attributable to the Company | (1,225,469 | ) | (1,097,381 | ) | ||||
| Non-Controlling Interest | 3,516 | |||||||
| Foreign exchange translation adjustment | 5,335 | (62,890 | ) | |||||
| Net income (loss) | $ | (1,216,618 | ) | (1,160,271 | ) | |||
| Basic income (loss) per share attributable to the Company | $ | (0.09 | ) | $ | (0.09 | ) | ||
| Diluted income (loss) per share attributable to the Company | $ | (0.09 | ) | $ | (0.09 | ) | ||
| Basic weighted average number of shares | 14,094,536 | 11,874,361 | ||||||
| Diluted weighted average number of shares | 14,094,536 | 11,874,361 | ||||||
Three Months Ended September 30, 2016 | Three Months Ended September 30, 2015 | Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 | |||||||||||||
| Net revenue | $ | 10,058,558 | $ | 4,463,125 | $ | 23,758,460 | $ | 12,678,813 | ||||||||
| Cost of services | 8,361,960 | 3,023,208 | 19,288,805 | 9,137,563 | ||||||||||||
| Gross profit | 1,696,598 | 1,439,917 | 4,469,655 | 3,541,250 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 137,024 | - | 401,487 | - | ||||||||||||
| General and administration | 1,326,327 | 1,497,396 | 4,924,644 | 2,020,835 | ||||||||||||
| Nonrecurring expenditures | 1,015,558 | 248,911 | 1,630,778 | 553,835 | ||||||||||||
| Depreciation and amortization | 509,376 | 9,375 | 722,390 | 25,690 | ||||||||||||
| Operating expenses | 2,988,285 | 1,755,682 | 7,679,299 | 2,600,360 | ||||||||||||
| Operating income (loss) | (1,291,687 | ) | (315,765 | ) | (3,209,644 | ) | 940,890 | |||||||||
| Interest expense | (290,423 | ) | (62,113 | ) | (674,683 | ) | (87,655 | ) | ||||||||
| Interest income/other income | 2,205 | 54 | 44 | 82 | ||||||||||||
| Other expense/loss | (197,723 | ) | - | (197,723 | ) | - | ||||||||||
| Income before income taxes | (1,777,628 | ) | (377,824 | ) | (4,082,006 | ) | 853,317 | |||||||||
| Tax benefit / (provision) | - | 128,460 | - | 84,971 | ||||||||||||
| Foreign exchange translation | 59,079 | 89,818 | (6,619 | ) | 89,818 | |||||||||||
| Net income (loss) | $ | (1,718,549 | ) | $ | (159,546 | ) | $ | (4,088,625 | ) | $ | 1,028,106 | |||||
| Net and comprehensive income (loss) for the period | $ | (1,718,549 | ) | $ | (159,546 | ) | $ | (4,088,625 | ) | $ | 1,028,106 | |||||
| Basic income (loss) per share | $ | (0.13 | ) | $ | (0.02 | ) | $ | (0.32 | ) | $ | 0.10 | |||||
| Diluted income (loss) per share | $ | (0.13 | ) | $ | (0.02 | ) | $ | (0.32 | ) | $ | 0.10 | |||||
| Basic weighted average number of shares | 13,653,586 | 9,992,828 | 12,794,149 | 9,992,828 | ||||||||||||
| Diluted weighted average number of shares | 13,653,586 | 9,992,828 | 12,794,149 | 9,992,828 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
AMERI HOLDINGS, INC.
Three Months Ended March 31, | ||||||||||||||||
| 2017 | 2016 | |||||||||||||||
Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 | |||||||||||||||
| Cash flow from operating activities | ||||||||||||||||
| Net income/(loss) | $ | (4,088,625 | ) | $ | 1,028,106 | $ | (1,216,618 | ) | $ | (1,160,271 | ) | |||||
| Adjustment to reconcile net income/(loss) to net cash used in operating activities | ||||||||||||||||
| Depreciation | 722,390 | 25,690 | ||||||||||||||
| Adjustment to reconcile income/(loss) to net cash used in operating activities | ||||||||||||||||
| Depreciation and amortization | 689,100 | 111,628 | ||||||||||||||
| Provision for Preference dividend | 499,965 | - | ||||||||||||||
| Stock, option, restricted stock unit and warrant expense | 945,959 | - | 566,427 | 101,677 | ||||||||||||
| Changes in assets and liabilities | ||||||||||||||||
| Foreign exchange translation adjustment | 5,335 | (62,890 | ) | |||||||||||||
| Changes in assets and liabilities: | ||||||||||||||||
| Increase (decrease) in: | ||||||||||||||||
| Accounts receivable | (2,852,778 | ) | (7,221,074 | ) | (1,530,536 | ) | (57,216 | ) | ||||||||
| Security deposits | (16,837 | ) | ||||||||||||||
| Other current assets | (285,831 | ) | (278,512 | ) | (324,267 | ) | 24,983 | |||||||||
| Increase (decrease) in: | ||||||||||||||||
| Accounts payable and accrued expenses | 2,561,321 | 555,782 | 472,661 | 1,195,226 | ||||||||||||
| Other current liabilities | - | 1,670,333 | ||||||||||||||
| Taxes payable | - | (84,971 | ) | |||||||||||||
| Net cash used in operating activities | (2,997,564 | ) | (4,321,483 | ) | ||||||||||||
| Net cash provided by (used in) operating activities | (837,933 | ) | 153,137 | |||||||||||||
| Cash flow from investing activities | ||||||||||||||||
| Purchase of intangible and fixed assets | 3,261,617 | (3,131,972 | ) | |||||||||||||
| Goodwill | - | (3,470,522 | ) | |||||||||||||
| Acquisition of intangible and fixed assets | (10,493 | ) | (131,580 | ) | ||||||||||||
| Acquisition consideration payable | (8,779,040 | ) | 9,200,000 | (311,470 | ) | (1,718,777 | ) | |||||||||
| Investments | 82,908 | - | - | 82,908 | ||||||||||||
| Net cash provided by (used in) investing activities | (5,434,515 | ) | 2,597,506 | |||||||||||||
| Net cash used in investing activities | (321,963 | ) | (1,767,449 | ) | ||||||||||||
| Cash flow from financing activities | ||||||||||||||||
| Net proceeds from debt issuance | 2,501,212 | 5,000,000 | ||||||||||||||
| Net proceeds from term loan | 1,966,667 | - | ||||||||||||||
| Increase in line of credit | - | 250,000 | ||||||||||||||
| Additional stock issued | 5,000,000 | 159,521 | ||||||||||||||
| Proceeds from bank and convertible notes | 1,599,507 | 241,451 | ||||||||||||||
| Non-Controlling Interests | (6,898 | ) | ||||||||||||||
| Net cash provided by financing activities | 9,467,879 | 5,409,521 | 1,592,609 | 241,451 | ||||||||||||
| Net change in cash and cash equivalents | 1,035,800 | 3,685,544 | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 432,713 | (1,372,861 | ) | |||||||||||||
| Cash and cash equivalents as at beginning of the period | 1,878,034 | 1,381,058 | 1,379,887 | 1,878,034 | ||||||||||||
| Cash at the end of the period | $ | 2,913,834 | $ | 5,066,602 | $ | 1,812,600 | $ | 505,173 | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
AMERI HOLDINGS, INC.
MARCH 31, 2017
| NOTE 1. | ORGANIZATION: |
AMERI Holdings, Inc., along with its wholly owned subsidiaries ("AMERI", the "Company", "we", or "our"), is a strategic consulting firm that brings a synergistic blend of classic consultingfast-growing technology services company which provides SAP cloud, digital and product-based consultingenterprise services to its customer base.clients worldwide. Headquartered in Princeton, New Jersey we typically goAmeri100 has offices in New York, Atlanta, Dallas, Phoenix, Kansas City, Folsom, and Toronto. The Company additionally has global delivery centers in India. With its bespoke engagement model, Ameri100 delivers transformational value to market both vertically byits clients across industry and horizontally by product/technology specialties and provide our customers with a wide range of business and technology offerings. We work with customers, primarily within North America, to improve process, reduce costs and increase revenue through the judicious use of technology.
verticals.| NOTE 2. | BASIS OF PRESENTATION: |
The accompanying unaudited condensed consolidated financial statements have been prepared by AMERI pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosuresdisclosure notes 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 unaudited financial statements and notes thereto.
Our comprehensive income (loss) consists of net income (loss) plus or minus any periodic currency translation adjustments.
The Company's year-end is December 31. Ameri and Partners Inc, the Company's wholly-owned operating subsidiary that was the accounting acquirer in connection with the Company's May 2015 reverse merger, changed its fiscal year end from March 31 to December 31 pursuant to the merger, so that all of the Company's subsidiaries' year-ends are consistent with the year-end of the Company.
During first quarter of 2016, the Company erroneously classified approximately $1.5 million of expenses as general and administrative expenses which should have been classified as cost of revenue. The Company has corrected this error in the current filing. The reclassification did not change the Company’s net income or loss for the period reported.
| NOTE 3. | BUSINESS COMBINATIONS: |
Acquisition of Bellsoft, Inc.
On November 20, 2015, we completed the acquisition of Bellsoft, Inc. ("Bellsoft") isInc., a consulting company based in Lawrenceville, Georgia with over 175 consultants specialized in the areas of SAP software, business intelligence, data warehousing and other enterprise resource planning services. Following the acquisition, the name of Bellsoft, Inc. was changed to Ameri100 Georgia Inc. (“Ameri Georgia”). Ameri Georgia has operations in the United States, Canada and in India. On November 20, 2015, the Company completed the acquisition of Bellsoft for the consideration listed below. For financial accounting purposes, the Companywe recognized September 1, 2015 as the effective date of the acquisition. The total consideration payable for the acquisition of Bellsoft includes:Ameri Georgia was $9,910,817, consisting of:
| (a) | A cash payment in the amount of $3,000,000, which was paid at |
| (b) | 235,295 shares of |
| (c) | $250,000 quarterly cash payments |
| (d) | A $1,000,000 cash reimbursement |
| (e) | Approximately |
| (f) | Earn-out payments of approximately $500,000 a year for 2016 and 2017, if earned through the achievement of annual revenue and |
The earn-out for 2016 was 30% higher than the previously agreed targets, resulting in a higher than anticipated earn-out payment, and the excess of the 2016 earn-out payment over what was planned was made as an adjustment to our income statement.
The valuation of Ameri Georgia was made on the basis of its projected revenues. The accounting acquisition date for Ameri Georgia was determined on the basis of the date when the Company acquired control of Ameri Georgia, in accordance with FASB codification ASU 805-10-25-6 for business combinations. That ASU provides that the date on which the acquirer obtains control of the acquiree generally is the date on which the acquirer legally transfers the consideration, acquires the assets, and assumes the liabilities of the acquiree—the closing date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date. For example, the acquisition date precedes the closing date if a written agreement provides that the acquirer obtains control of the acquiree on a date before the closing date. An acquirer shall consider all pertinent facts and circumstances in identifying the acquisition date. The term sheet and the Share Purchase Agreement that were entered into by the Company and Ameri Georgia contained agreements by the parties that the Company acquired control of Ameri Georgia's accounts payable, accounts receivable and business decisions as of September 1, 2015. In addition, on that date, the Company became responsible for performance of Ameri Georgia's existing contracts. Accordingly, the Company has recognized September 1, 2015 as the accounting acquisition date.
The total purchase price of $9,910,817 was allocated to net working capital of $4.6 million, intangibles of $1.8 million, taking into consideration projected revenue from the acquired list of Ameri Georgia customers over a period of three years, and goodwill. The excess of total purchase price over the net working capital and intangibles allocations has been allocated to goodwill.
On June 23, 2016, the Companywe entered into a definitive agreement to purchase Bigtech Software Private Limited ("Bigtech"), a pure-play SAP services company providing a complete range of SAP services including turnkey implementations, application management, training and basis ABAP support. Bigtech has been in operation since 2000. Based in Bangalore, India, Bigtech offers SAP services to bring effectiveness inimprove business operations toat companies of all sizes and verticals. AtThe acquisition of Bigtech was effective as of July 1, 2016, and the end of June 2016, the Ministry of External Affairs (India) completed the initial validation process for the Bigtech. As of September 30, 2016, the transaction is pending final approval from the Ministry of External Affairs (India). Thetotal consideration to be paid for the acquisition of Bigtech is:was $850,000, consisting of:
| A cash payment in the amount of $340,000 which was due within 90 days of closing and was paid on September 22, |
| (b) | Warrants for the purchase of 51,000 shares of |
| (c) | $255,000, which may become payable in cash |
Acquisition of Virtuoso
On July 22, 2015, the Company,2016, we, through its wholly-owned acquisition subsidiaries, acquired all of the outstanding membership interests of Virtuoso, L.L.C. ("Virtuoso"), a Kansas limited liability company, pursuant to the terms of an Agreement of Merger and Plan of Reorganization, by and among the Company,us, Virtuoso Acquisition Inc., Ameri100 Virtuoso Inc., Virtuoso and thethe sole member of Virtuoso (the "Sole Member"). Virtuoso is ana SAP consulting firm specialized in providing services on SAP S/4 HANA finance, enterprise mobility and cloud migration and is based in Leawood, Kansas. In connection with the merger, Virtuoso'sVirtuoso’s name was changed to Ameri100 Virtuoso Inc. The Virtuoso acquisition did not constitute a significant acquisition for the Company.
The total purchase price paid to the Sole Member for the acquisition of Virtuoso consistedwas $1,831,881consisting of: (a) a
| (a) | A cash payment in the amount of $675,000 which was due within 90 days of closing and was paid on October 21, 2016; |
| (b) | 101,250 shares of our common stock at closing; and |
| (c) | Earn-out payments in cash and stock of $450,000 and approximately $560,807, respectively, to be paid, if earned, in 2017, 2018 and 2019. |
The valuation of Virtuoso was made on the basis of its projected revenues. The Virtuoso earn-out payment in the amount of $675,000 which was due within 90 days of closing and was paid on October 21,for 2016 (b) $659,138 or 101,250 shares of the Company's common stock at closing at a market price of $6.51 on July 22, 2016 , and (c) earn-out paymentsamounted to $64,736 in cash and stock12,408 shares of $225,000 and approximately $280,744, respectively, to be paid, if earned, in 2016, 2017 and 2018.
The total purchase price of - 7 -$1,831,881
Acquisition of DC&M
On July 29, 2016, the Companywe acquired 100% of the membership interests of DC&M Partners, L.L.C. ("DCM"), an Arizona limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement by and among the Company,us, DCM, all of the members of DCM, Giri Devanur and Srinidhi "Dev" Devanur.“Dev” Devanur, our President and Chief Executive Officer and Executive Vice Chairman, respectively. DCM is a providerSAP consulting company headquartered in Chandler, Arizona. DCM provides its clients with a wide range of information technology development, consultingconsultancy and management services with an emphasis on the design, build and rollout of SAP implementations and related products. DCM is locatedalso a SAP-certified software partner, having launched its SAP reporting, extraction and distribution tool called “IRIS”. DCM services clients in Chandler, Arizona.diverse industries, including retail, apparel/footwear, third-party logistics providers, chemicals, consumer goods, energy, high-tech electronics, media/entertainment and aerospace.
The aggregate purchase price for the acquisition of DCM consistedwas $15,816,000 consisting of: (a) a cash payment in the amount of $3,000,000 at closing, (b) 1,600,000 shares of the Company's
| (a) | A cash payment in the amount of $3,000,000 at closing; |
| (b) | 1,600,000 shares of our common stock, which are to be issued on July 29, 2018 or upon a change of control of our company (whichever occurs earlier); and |
| (c) | Earn-out payments of $1,500,000 payable in cash each year to be paid, if earned, in 2017 and 2018. |
The total purchase price of $15,816,000 was allocated to intangibles of $5.4 million, taking into consideration projected revenue from the acquired list of DCM customers over a period of three years, and goodwill. The excess of total purchase price over the intangibles allocation has been allocated to goodwill.
Payment of the DCM earn-out for 2016 was due on April 10, 2017 but has not yet been paid. We are currently in discussions with the former members of DCM regarding the timing and amount of the earn-out payment. The valuation of DCM was made on the basis of its projected revenues.
Acquisition of ATCG
On March 10, 2017, we acquired 100% of the shares of ATCG Technology Solutions, Inc. ("ATCG"), a Delaware corporation, pursuant to the terms of a Share Purchase Agreement among the Company, ATCG, all of the stockholders of ATCG (the "Stockholders"), and the Stockholders' representative. ATCG provides U.S. domestic, offshore and onsite SAP consulting services and has its main office in Folsom, California. ATCG specializes in providing SAP Hybris, SAP Success Factors and business intelligence services.
The aggregate purchase price for the acquisition of ATCG of $8,784,533, consisting of:
| (a) | 576,923 shares of our common stock; |
| (b) | Unsecured promissory notes issued to ATCG's selling Stockholders for the aggregate amount of $3,750,000 (which notes bear interest at a rate of 6% per annum with a payment schedule of 50% on December 31, 2017 and 50% on June 30, 2018); |
| (c) | Earn-out payments in shares of our common stock (up to an aggregate value of $1,200,000 worth of shares) to be paid, if earned, in each of 2018 and 2019; and |
| (d) | An additional cash payment of $55,687 for cash that was left in ATCG at closing. |
The total purchase price of $8,784,533 was allocated to intangibles of $3.75 million, taking into consideration projected revenue from the acquired list of ATCG customers over a period of three years, and goodwill. The excess of total purchase price over the intangibles allocation has been allocated to goodwill.
ATCG's financial statements will be filed by amendment of the Current Report on Form 8-K filed on March 13, 2017 to disclose the closing of the acquisition.
The Company has $20,164,724, in total towards consideration payable including contingent consideration payable for its acquisitions, consisting of $7,574,238 in cash obligations and $12,590,486 worth of common stock to be issued (assuming a per share price of $6.51). Out of $20,164,724, $5,743,724 is towards contingent consideration payable on July 29, 2018 or upon a change of control of the Company (whichever occurs earlier), and (c) earn-out payments of $1,500,000 payable in cash each year to be paid, if earned, in 2017 and 2018. Consideration payable for DC&M for the earn out to be paid is $3 million in cash and amounts to be paid in stock for DC&M is $10.416 million as of September 30, 2016.outs.
| NOTE 4. | REVENUE RECOGNITION: |
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(1) time-and-materials contracts and materials and fixed-price.(2) fixed-price contracts.
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,time-and-materials or fixed-price or(or a periodic retainer-basedretainer-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 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 period ended September 30, 2016.
| NOTE 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).grants. The Plan provides equity-based compensation through the grant of cash-based awards, nonqualified stock options, incentive stock options, stock appreciation rights, 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. During the ninethree months ended September 30, 2016,March 31, 2017, we granted our directors and employees60,000 options to purchase 970,700 shares of our common stock and restricted stock units for 590,869 shares of our common stock.employees. As of September 30, 2016,March 31, 2017, aggregate grants under the Plan total 1,661,569to 1,614,898 shares of our common stock.
stock, of which 1,024,029 were granted as options, 590,869 were granted as restricted stock units. Share based compensation expense for the period ended March 31, 2017 was $502,254.| NOTE 6. |
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.method. Amortization expense was $705,046 and $18,750$667,296 during the ninethree months ended September 30, 2016 and 2015, respectively.March 31, 2017. This amortization expense relates to customer lists and products capitalized on our balance sheet, which expire through 2020.
March 31, 2017 | December 31, 2016 | |||||||
| Capitalized intangible assets | $ | 12,513,206 | $ | 10,074,546 | ||||
| Accumulated amortization | 667,296 | 1,309,842 | ||||||
| Total intangible assets | $ | 11,845,910 | $ | 8,764,704 | ||||
Our amortization schedule is as follows:
Years ending December 31, | Amount | |||
| 2017 | $ | 2,258,388 | ||
| 2018 | 2,955,873 | |||
| 2019 | 2,727,968 | |||
| 2020 | 2,652,000 | |||
| 2021 | 1,251,681 | |||
| Total | $ | 11,845,910 | ||
The Company has its own software products, namely Simple APO, Langer Index and IBP. Total costs incurred for developing these products during the ninethree months ended September 30, 2016March 31, 2017 was $55,104$0 and have an expectedbeen capitalized and are being amortized over the useful life of two years.the software products.
September 30, 2016 | December 31, 2015 | |||||||
| Capitalized intangible assets | $ | 9,533,867 | $ | 3,279,263 | ||||
| Accumulated amortization | 174,296 | 164,750 | ||||||
| Total intangible assets | $ | 9,359,571 | $ | 3,114,513 | ||||
| NOTE 7. | GOODWILL: |
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2016 | 2015 | |||||||
(in thousands, except per share data) | ||||||||
| Basic net income (loss) per share: | ||||||||
| Net income (loss) applicable to common shares | $ | (0.32 | ) | $ | 0.10 | |||
| Weighted average and common shares outstanding | 12,794,149 | 9,992,828 | ||||||
| Basic net income (loss) per share of common stock | $ | (0.32 | ) | $ | 0.10 | |||
| Diluted net income (loss) per share: | ||||||||
| Net income (loss) applicable to common shares | $ | (0.32 | ) | $ | 0.10 | |||
| Weighted average and common shares outstanding | 12,794,149 | 9,992,828 | ||||||
| Dilutive effects of convertible debt, stock options and warrants | - | - | ||||||
| Weighted average common shares, assuming dilutive effect of stock options | 12,794,149 | 9,992,828 | ||||||
| Diluted net income (loss) per share of common stock | $ | (0.32 | ) | $ | 0.10 | |||
March 31, 2017 | December 31, 2016 | |||||||
| Virtuoso | $ | 939,881 | $ | 939,881 | ||||
| DCM | 10,416,000 | 10,416,000 | ||||||
| Bigtech | 292,808 | 314,555 | ||||||
| Ameri Consulting Service Pvt. Ltd. | 1,948,118 | 1,948,118 | ||||||
| Ameri Georgia | 3,470,522 | 3,470,522 | ||||||
| ATCG | 4,812,243 | - | ||||||
| Total | $ | 21,879,572 | $ | 17,089,076 | ||||
As per Company policy, goodwill impairment tests will be conducted on an annual basis and any impairment will be reflected in the Company’s statements of September 30, 2016, there were approximately options to purchase 1,070,700 shares of the Company's common stock and restricted stock units for 590,869 shares of the Company's common stock, resulting in share-based awards for a total of 1,661,569 shares of our common stock, outstanding under the Plan leaving 338,431share-based units available under the Plan. During the nine months ended September 30, 2016, we granted our directors and employees options to purchase 970,700 shares of our common stock and restricted stock units for 590,869 shares of our common stock. As of September 30, 2016, aggregate grants under the Plan total 1,661,569 shares of our common stock.operations.
| NOTE 8. | EARNINGS (LOSS) PER SHARE: |
Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Net income (loss) attributable to the Company | $ | (1,225,469 | ) | $ | (1,097,381 | ) | ||
| Weighted average common shares outstanding | 14,094,536 | 11,874,361 | ||||||
| Basic net income (loss) per share of common stock | $ | (0.09 | ) | $ | (0.09 | ) | ||
| Diluted net income (loss) per share of common stock | $ | (0.09 | ) | $ | (0.09 | ) | ||
Due to the Company's net loss, potential dilutive shares were not included in the calculation of diluted EPS on September 30,earnings per share for the periods ended March 31, 2017 and March 31 2016, as it willthey would have an antidilutive effect.
| NOTE 9. |
On September 8, 2016,January 27, 2017, the Company issued options to employees related to acquisitions to purchase 215,20033,333 shares of ourits common stock. These option grants vest over 3 years at an exercise price of $6.51 and expires on September 8, 2021. The options are valued using the Black-Scholes pricing model. Significant assumptions usedstock to its legal counsel, Olshan Frome Wolosky LLP ("Olshan"), in the valuation include expected term of 4 years, expected volatility of 50%, date of issue risk free interest rate of 0.57%, and expected dividend yield of 0%. The value on the grant date of the options was $546,318 and the option expense for September 30, 2016 and 2015 was determined to be $3,704 and $0, respectively. As of September 30, 2016, no options have been exercised.
| Number of Shares | Weighted Avg. Exercise Price | |||||||
| Options outstanding at December 31, 2015 | 150,000 | 2.67 | ||||||
| Granted | 975,700 | $ | 6.79 | |||||
| Exercised | - | - | ||||||
| Cancelled / Expired | (55,000 | ) | 4.19 | |||||
| Outstanding at September 30, 2016 | 1,070,700 | $ | 6.34 | |||||
Average Exercise Price | Number of Shares | Remaining Average Contractual Life (in years) | Exercise Price times number of Shares | Weighted Average Exercise Price | Intrinsic Value | ||||||||||||||||||
| $ | 2.00 | 100,000 | 3.65 | $ | 200,000 | $ | 2.00 | $ | 500,000 | ||||||||||||||
| Weighted Avg. | ||||||||||||||||
| Number of | Weighted Avg. | Remaining | Intrinsic | |||||||||||||
| Shares | Exercise Price | Term | Value | |||||||||||||
| Outstanding at December 31, 2015 | 2,777,777 | 1.80 | 4.41 | $ | 13,333,330 | |||||||||||
| Granted | 1,007,000 | 6.00 | — | — | ||||||||||||
| Exercised | 1,111,111 | 1.80 | — | — | ||||||||||||
| Outstanding at September 30, 2016 | 2,673,666 | 1.8 | 3.66 | $ | 15,444,440 | |||||||||||
The Company has entered into an operating lease foris yet to make the dividend payment on its primary office facility in Princeton, New Jersey, which expires in JulySeries A Preferred Stock that was payable on March 31, 2017. The future minimum rental payments under these lease agreements are as follows:Company will pay the sole holder of the Series A Preferred Stock, the accrued dividend in-kind (common stock of AMRH) pursuant to the terms of the Certificate of Designation contemporaneously with the filing of the Quarterly Report of Form 10-Q for the quarter ended March 31, 2017.
| Years ending December 31, | (in thousands) | |||
| 2016 | $ | 26 | ||
| 2017 | 60 | |||
| 2018 | 20 | |||
| Total | $ | 106 | ||
| NOTE |
On July 1, 2016, the Company entered into that certain Loan and Security Agreement (the "Loan Agreement"), with its wholly-owned subsidiaries Ameri and Partners Inc and Bellsoft, Inc., as borrowers (the "Borrowers"), the Company and its wholly-owned subsidiaries Linear Logics, Corp. and WinhireWinHire Inc serving as guarantors, the Company's Chief Executive Officer, Giri Devanur, serving as a validity guarantor, and Sterling National Bank, N.A. (as lender and as agent, "Sterling"). The Company joined DC&MDCM, Virtuoso and VirtuosoATCG as borrowers under the Loan Agreement following their respective acquisition.
Under the Loan Agreement, the Borrowers are able tocan borrow up to an aggregate of $10 million, which includes up to $8 million in principal for revolving loans (the "Revolving Loans") for general working capital purposes, up to $2 million in principal pursuant to a term loan (the "Term Loan") for the purpose of a permitted business acquisition and up to $200,000 for letters of credit. A portion of the proceeds of the Loan Agreement were also used to repay the November 20, 2015 credit facility that was entered into amongbetween the Company, its wholly-owned subsidiary Bellsoft, Inc. (Ameri Georgia) and Federal National Payables, Inc.
The maturity of the loans under the Loan Agreement has a termare as follows:
Revolving Loan Maturity Date: July 1, 2019; provided, however, that the Revolving Loan Maturity Date will extend and renew automatically for successive one-year terms on each anniversary of three years, which will automatically renewthe initial Revolving Loan Maturity Date (each an "Anniversary Date") thereafter, unless anot less than sixty (60) days prior to any such Anniversary Date, written notice of terminationnon-renewal is given by the Borrowers or Sterlingeither party to the other, at least 60 days prior toin which case the endRevolving Loan Maturity Date will be such next Anniversary Date.
Term Loan Maturity Date: The earliest of (a) the date following acceleration of the original Term Loan and/or any renewed term.the Revolving Loans; (b) the Revolving Loan Maturity Date; or (c) July 1, 2019.
| (a) | in the case of Revolving Loans, a rate per annum equal to the sum of (i) the Wall Street Journal Prime Rate plus (ii) 2.00%; |
| (b) | in the case of the Term Loan, a rate per annum equal to the sum of (i) the Wall Street Journal Prime Rate plus (ii) 3.75%; and |
| (c) | in the case of other obligations of the Borrowers, a rate per annum equal to the sum of (i) the greater of (A) 3.25% or (B) Wall Street Journal Prime Rate plus (ii) 3.75%. |
The Loan Agreement also requires the payment of certain fees, including, but not limited to letter of credit fees and an unused Revolving Loans fee.
The Loan Agreement contains financial and other covenant requirements, including, but not limited to, financial covenants that require the Borrowers to not permit capital expenditures above $150,000 in any fiscal year, maintain a fixed charge coverage ratio of not less than 2.00 to 1.00 and maintain certain debt to EBITDA ratios. The Loan Agreement also requires the Company and Borrowers to obtain Sterling's consent before making any permitted acquisitions. The amounts borrowed by the Borrowers under the Loan Agreement are guaranteed by the guarantors, and the Loan Agreement is secured by substantially all of the Borrowers’ assets.
The principal amount of the Term Loan will be repaid as follows: (i) equal consecutive monthly installments in the amount of $33,333.33 each, paid on the first day of each calendar month and (ii) one final payment of the entire remaining principal balance, together with all accrued unpaid interest on the Term Loan maturity date.
To date, the Company is not in conformance with the financial covenants contained in its Loan Agreement with Sterling National Bank. The Company received a waiver from Sterling National Bank for its non-compliance with the Loan Agreement through March 31, 2017 in exchange for the payment of a fee of $5,000. The Company is currently negotiating a waiver with Sterling National Bank to waive the Company's compliance with the Loan Agreement during the second quarter of 2017 in exchange for the Termpayment of an additional fee that is to be determined. The Company does not expect to be in compliance with the terms of the Loan Agreement following the conclusion of the terms of the waivers granted by Sterling National Bank. The Company is continuing to work with Sterling National Bank to address its non-compliance.
Interest paid during the period ended March 31, 2017 amounted to $79,933 Principal repaid on the term loan during the period ended March 31, 2017 was $100,000.The short term and Revolving Loans was $1,966,667 and $3,338,106, respectively,long term loan outstanding balances on the term loan as of September 30, 2016.March 31, 2017 is $399,996 and $1,023,474 respectively. The revolving line of credit outstanding balance as of March 31, 2017 was $2,440,971.
Bigtech, which was acquired as of July 1, 2016, had a term loan of $17,637 and a line of credit for $373,040 as of March 31, 2017. The Bigtech line of credit is with an Indian bank, HDFC Bank Limited and was entered into on June 3, 2015 for Bigtech’s working capital requirements. The line of credit is for up to $416,667 with an interest rate of 11.85% per annum and maturity in June 2020. The Bigtech term loan accrues interest at the rate of 10.30% per annum and matures in 2020. Both the term loan and the line of credit were already in place when the Company acquired Bigtech. Interest paid during the period ended March 31,2017 amounted to $10,873 for the term loan and line of credit held by Bigtech.
| NOTE |
On March 7, 2017, we completed the sale and issuance of 8% Convertible Unsecured Promissory Notes (the “2017 Notes”)for aggregate proceeds to us of $1,250,000 from four accredited investors, including one of the Company's directors, Dhruwa N. Rai. The 2017 Notes were issued pursuant to Securities Purchase Agreements between the Company and each investor. The 2017 Notes bear interest at 8% per annum until maturity in March 2020, with interest being paid annually on the first, second and third anniversaries of the issuance of the 2017 Notes beginning in March 2018. From and after an event of default and for so long as the event of default is continuing, the 2017 Notes will bear default interest at the rate of 10% per annum. The 2017 Notes can be prepaid by us at any time without penalty.
The 2017 Notes are convertible into shares of our common stock at a conversion price of (i) in the event that any registration statement for the public offering of common stock filed by the Company with the SEC in connection with an uplisting to a national stock exchange is declared effective by the SEC on or prior to December 31, 2017, such price per share that is equal to 68% of the price per share of common stock offered and sold pursuant to such registration statement, or (ii) if no material subsequent events after September 30,such registration statement is declared effective by December 31, 2017, such price per share that is equal to the weighted average closing price per share of the Company's common stock for the 20 trading days immediately preceding December 31, 2017, subject to adjustment under certain circumstances. The 2017 Notes rank junior to our secured credit facility with Sterling National Bank. The 2017 Notes also include certain negative covenants including, without the investors' approval, restrictions on dividends and other restricted payments and reclassification of its stock.
| NOTE 12. | COMMITMENTS AND CONTINGENCIES: |
Operating Leases
The Company's principal facility is located in Princeton, New Jersey. The Company also leases office space in various locations with expiration dates between 2016 and 2020. 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 $62,878 and $26,222 for the three months ended March 31, 2017 and 2016, respectively. The increase during the comparative periods is due to the addition of office space through the dateacquisition of this periodic report on Form 10-Q.
| 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, Inc. and its wholly-owned subsidiaries.
Company History
We were incorporated under the laws of the State of Delaware in February 1994 as Spatializer Audio Laboratories, Inc., which had beenwas a shell company until May of 2015.immediately prior to the Merger. On May 26, 2015, we completed a "reverse merger" transaction,the Merger, in which we caused Ameri100 Acquisition, Inc., a Delaware corporation and our newly created, wholly owned subsidiary, to be merged with and into Ameri and Partners (doing business as(dba Ameri100), a Delaware corporation (the "Merger").corporation. As a result of the Merger, Ameri and Partners became our wholly owned subsidiary with Ameri and Partners' former stockholders acquiring a majority of the outstanding shares of our common stock.operating subsidiary. The Merger was consummated under Delaware law, pursuant to anthe Merger Agreement, of Merger and Plan of Reorganization, dated as of May 26, 2015. Sincein connection with the Merger we have been an active holding companychanged our name to AMERI Holdings, Inc. We are headquartered in Princeton, New Jersey.
Overview
We are a next generation technology-management solutions firm. We have built productsspecialize in delivering SAPTM cloud, digital and enterprise services to assist global 2000 companies by architectingclients worldwide. Our SAP focus allows us to provide technological solutions to a broad and delivering the best technology solutions enabling customers to transform their business processes.growing base of clients. We have built a new method of measuring the effectiveness of technology deployments across largeare headquartered in Princeton, NJ, and medium size companies. Through acquisitions, we have built deep consulting expertiseoffices across the United States, which are supported by offices in business process management,India. Our model inverts the conventional global delivery model wherein offshore information technology ("IT") service providers are based abroad and maintain a minimal presence in the United States. With a strong SAP focus, our client partnerships anchor around SAP cloud services, artificial intelligence, internet of things and robotic process automation, digital transformation services and enterprise resource planning particularly surrounding SAP software and technology.automation. We pursue an acquisition strategy that seeks to disrupt the established business model of offshore IT service providers.
When a customer enters into a time and materials,time-and-materials or fixed-price or(or a periodic retainer-basedretainer-based) contract, we recognizethe revenue is recognized in accordance with its evaluation of the deliverables inof each contract. If the deliverables representinvolve separate units of accounting, we then measure and allocate the consideration from the arrangement is measured and allocated to the separate units, based on vendor specific objective evidence 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.
For the three months ended March 31, 2017 and March 31,2016, sales to five major customers, accounted for 38.51% and 60.15% of our total revenue, respectively.
We continue to explore strategic alternatives to improve the market position and profitability of our product and service offerings in the marketplace, generate additional liquidity for the Company, and enhance our valuation. We expect to pursue our goals during the next twelve months principally through organic growth and through other strategic alternatives. Some of these alternatives have included, and could continue to include, selective acquisitions. The Company has obtained financing and additional capital from the sale of equity and incurrence of indebtedness in the past, and continues to consider capital raising and financing from the sale of various types of equity and incurrence of indebtedness to provide capital for our business plans and operations in the future. The Company has also provided, and may from time to time in the future provide, information to interested parties.
The main challenges and trends that could affect or are affecting our financial results include:
| · | Our ability to enter into additional technology-management and consulting agreements, to diversify our client base and to expand the geographic areas we serve; |
| · | Our ability to attract competent, skilled professionals and on-demand technology partners for our operations at acceptable prices to manage our overhead; |
| · | Our ability to acquire other technology services companies and integrate them with our existing business; |
| · | Our ability to raise additional equity capital, if and when we needed; and |
| · | Our ability to control our costs of operation as we expand our organization and capabilities. |
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended September 30, 2016March 31, 2017 Compared to the Three Months Ended September 30, 2015March 31, 2016
Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Net revenue | $ | 12,340,927 | $ | 7,012,964 | ||||
| Cost of revenue | 9,039,577 | 5,365,561 | ||||||
| Gross profit | 3,301,350 | 1,647,403 | ||||||
| Operating expenses: | ||||||||
| Selling and marketing | 332,310 | 31,350 | ||||||
| General and administration | 2,701,145 | 2,110,336 | ||||||
| Acquisition related expenses | 209,344 | 375,405 | ||||||
| Depreciation and amortization | 689,100 | 111,628 | ||||||
| Operating expenses | 3,931,899 | 2,628,719 | ||||||
| Operating income (loss): | (630,549 | ) | (981,316 | ) | ||||
| Interest expense | (90,806 | ) | (113,746 | ) | ||||
| Interest income/other income | - | 2,005 | ||||||
| Other expense | (4,149 | ) | (2,304 | ) | ||||
| Total other income (expenses) | (94,955 | ) | (114, 045 | ) | ||||
| Income (loss) before income taxes | (725,504 | ) | (1,095,361 | ) | ||||
| Income tax benefit (provision) | (2,020 | ) | ||||||
| Net income (loss) after tax | (725,504 | ) | (1,097,381 | ) | ||||
| Dividend on Preference Shares | (499,965 | ) | - | |||||
| Net income (loss) attributable to the Company | (1,225,469 | ) | (1,097,381 | ) | ||||
| Non-Controlling Interest | 3,516 | |||||||
| Foreign exchange translation adjustment | 5,335 | (62,890 | ) | |||||
| Net income (loss) | $ | (1,216,618 | ) | (1,160,271 | ) | |||
| Basic income (loss) per share attributable to the Company | $ | (0.09 | ) | $ | (0.09 | ) | ||
| Diluted income (loss) per share attributable to the Company | $ | (0.09 | ) | $ | (0.09 | ) | ||
| Basic weighted average number of shares | 14,094,536 | 11,874,361 | ||||||
| Diluted weighted average number of shares | 14,094,536 | 11,874,361 | ||||||
Three Months Ended September 30, | Three Months Ended September 30, | |||||||
| 2016 | 2015 | |||||||
| Net Revenue | $ | 10,058,558 | $ | 4,463,125 | ||||
| Cost of revenue | 8,361,960 | 3,023,208 | ||||||
| Gross profit | $ | 1,696,598 | $ | 1,439,917 | ||||
| Operating expenses | ||||||||
| Selling and Marketing | $ | 137,024 | $ | - | ||||
| General and administrative | 1,326,327 | 1,497,396 | ||||||
| Nonrecurring expenditures | 1,015,558 | 248,911 | ||||||
| Depreciation and amortization | 509,376 | 9,375 | ||||||
| Operating expenses | $ | 2,988,285 | $ | 1,755,682 | ||||
| Income from operations | (1,291,687 | ) | (315,765 | ) | ||||
| Interest expense | $ | (290,423 | ) | $ | (62,113 | ) | ||
| Interest income | 2,205 | 54 | ||||||
| Other income/(expense) | - | - | ||||||
| Loss on the sale of fixed asset | (197,723 | ) | - | |||||
| Tax benefit/(provision) | - | 128,460 | ||||||
| Foreign exchange translation | 59,079 | 89,818 | ||||||
| Net income | $ | (1,718,549 | ) | $ | (159,546 | ) | ||
Revenues
Revenues for the three months ended September 30, 2016March 31, 2017 increased $5,595 million or 125.4% fromby 76% as compared to the three months ended September 30, 2015.March 31, 2016. The increase in revenue is directlywas primarily attributable to additional revenues from our acquisitionacquisitions, with DCM contributing 73% percent of DCM,the total increase and ATCG, Virtuoso and Bigtech.Bigtech contributing 15%, 4% and 4%, respectively, of the total increase. Our existing customers accounted for the remaining 4% of the total increase in revenues.
Gross marginMargin
Our gross margin percentage (gross margin as percentage of revenues) was 16.9%27% for the three months ended September 30, 2016March 31, 2017, as compared to 32.3%23% for the three months ended September 30, 2015 as a resultMarch 31, 2016. The improved gross margin is due to additional project based revenues. Our target gross margins are anticipated in the range of lower margins for professional services in 2016 than25% -30% based on the mix of project revenues for 2015.and professional service revenues. However, there is no assurance that we will achieve the anticipated gross margin.
Selling and Marketing Expenses
Selling and marketing expenses were $332,310 for the three months ended March 31, 2017, compared to $31,350 for the three months ended March 31, 2016. The increase in selling and marketing expenses was directly attributable to our acquisitions, with 82% of the increase attributable to DCM, 6% to ATCG and the remaining 12% of the total increase attributable to increased marketing expenses of Ameri and Partners and Ameri Georgia.
General and Administration Expenses
General and Administration ("SGG&A") expenses include all costs, including rent costs, which are not directly associated with revenue-generating activities.activities, as well as the non-cash expense for stock based compensation. These include employee costs, corporate costs and facilities costs. Employee costs include selling, marketing and administrative salaries and related employee benefits, travel, recruiting and training costs. Corporate costs include costs such as reorganization costs, legal, accounting and outside consulting fees. Facilities costs primarily include rent and communications costs. Also included is the non-cash expense for stock based compensation.
Acquisition related expenditures of $1,015,558 were incurred$209,344 and $375,405 occurred during the three months ended September 30,March 31, 2017 and March 31, 2016, and were primarily costs and expenses that are unlikely to occur again in the normal course of business.respectively. These expenditures included an increaselegal fees, integration expenses and other acquisition related costs. The decrease is due to the decline in acquisition related activities in the previously calculated earn-out estimate, restructuring costs and legal fees.
Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 | |||||||
| Net Revenue | $ | 23,758,460 | $ | 12,678,813 | ||||
| Cost of revenue | 19,288,805 | 9,137,563 | ||||||
| Gross profit | $ | 4,469,655 | $ | 3,541,250 | ||||
| Operating expenses | ||||||||
| Selling and Marketing | $ | 401,487 | $ | - | ||||
| General and administrative | 4,924,644 | 2,020,835 | ||||||
| Nonrecurring expenditures | 1,630,778 | 553,835 | ||||||
| Depreciation and amortization | 722,390 | 25,690 | ||||||
| Operating expenses | $ | 7,679,299 | $ | 2,600,360 | ||||
| Income from operations | (3,209,644) | 940,890 | ||||||
| Interest expense | $ | (674,683) | $ | (87,655) | ||||
| Interest income | 44 | 82 | ||||||
| Other income/(expense) | - | - | ||||||
| Loss on the sale of fixed asset | (197,723) | |||||||
| Tax benefit/(provision) | - | 84,971 | ||||||
| Foreign exchange translation | (6,619) | 89,818 | ||||||
| Net income | $ | (4,088,625) | $ | 1,028,106 | ||||
Depreciation and amortization costsAmortization
Depreciation and amortization expense amounted to $722,390$689,100 for the ninethree months ended September 30, 2016,March 31, 2017, as compared to $25,690$111,628 for the nine-monththree months ended March 31, 2016. We capitalized the customer lists acquired during various acquisitions between April 2016 and March 31 2017, resulting in increased amortization costs. The customer lists from each acquisition are amortized over a period ended September 30, 2015. The increase in depreciation and amortization costs was primarily due to the addition of assets and the acquisitions of DCM, Virtuoso and Bigtech customer lists.
60 months.Operating incomeIncome
Our operating income percentage(loss) was (13.5)%(630,549) for the ninethree months ended September 30, 2016,March 31, 2017, as compared to 7.4%(981,316) for the ninethree months ended September 30, 2015.March 31, 2016. This changereduction was mainly due to an increase in SG&A expenses and nonrecurring expenditures.increased gross margins.
Interest Expense
Our provision for income taxesinterest expense for the ninethree months ended September 30, 2016 and nineMarch 31, 2017 was $90,806 as compared to $113,746 for the three months ended September 30, 2015, amountedMarch 31, 2016. The decrease is mainly due to approximately 0 and $84,971, respectively.
changes in interest rates charged by our lenders.Liquidity and Capital Resources
Our cash position was $2,913,834$1,812,600 as of September 30, 2016March 31, 2017, as compared to $1,878,034$1,379,887 as of December 31, 2015, a change2016, an increase of $1,035,800$432,713 primarily asdue to the sale and issuance of the 2017 Notes.
Cash used for operating activities was $837,933 during the three months ended March 31, 2017 and was primarily a result of net changes in working capital requirements. Cash used in investing activities was $321,963 during the three months ended March 31, 2017 primarily due to acquisitions of ATCG. Cash provided by financing activities includingwas $1,592,609 during the salethree months ended March 31, 2017 and was attributable to the issuance of additional shares for our common stockATCG acquisition, the 2017 Notes and increased borrowing under our line of $3 million, the partial exercise of an outstanding warrant of $2 million, net proceeds from a term loan of $1.967 million and net funding from asset based loans of $2.5 million. credit with Sterling National Bank.
On July 1, 2016, the Company entered into thethat certain Loan and Security Agreement (the "Loan Agreement"), with its wholly-owned subsidiaries Ameri and Partners Inc and Bellsoft,Ameri Georgia, as borrowers (the "Borrowers"), the Company and its wholly-owned subsidiaries Linear Logics, Corp. and WinhireWinHire Inc serving as guarantors, the Company's Chief Executive Officer, Giri Devanur, serving as a validity guarantor, and Sterling National Bank, N.A. (as lender and as agent)agent, "Sterling"). The Company joined DC&MDCM, Virtuoso and VirtuosoATCG as borrowers under the Loan Agreement following their respective acquisition.
Under the Loan Agreement, the Borrowers are able tocan borrow up to an aggregate of $10 million, which includes up to $8 million in principal for revolving loans (the "Revolving Loans") for general working capital purposes, up to $2 million in principal pursuant to a term loan (the "Term Loan") for the purpose of a permitted business acquisition and up to $200,000 for letters of credit. A portion of the proceeds of the Loan Agreement were also used to repay the November 20, 2015 credit facility that was entered into amongbetween the Company, its wholly-owned subsidiary Bellsoft, Inc. (Ameri Georgia) and Federal National Payables, Inc.
The maturity of the loans under the Loan Agreement are as follows:
Revolving Loan Maturity Date: July 1, 2019; provided, however, that the Revolving Loan Maturity Date will extend and renew automatically for successive one-year terms on each anniversary of the initial Revolving Loan Maturity Date (each an "Anniversary Date") thereafter, unless not less than sixty (60) days prior to any such Anniversary Date, written notice of non-renewal is given by either party to the other, in which case the Revolving Loan Maturity Date will be such next Anniversary Date.
Term Loan Maturity Date: The earliest of (a) the date following acceleration of the Term Loan and/or the Revolving Loans; (b) the Revolving Loan Maturity Date; or (c) July 1, 2019.
Interest under the Loan Agreement is payable monthly in arrears and accrues as follows:
| (a) | in the case of Revolving Loans, a rate per annum equal to the sum of (i) the Wall Street Journal Prime Rate plus (ii) 2.00%; |
| (b) | in the case of the Term Loan, a rate per annum equal to the sum of (i) the Wall Street Journal Prime Rate plus (ii) 3.75%; and |
| (c) | in the case of other obligations of the Borrowers, a rate per annum equal to the sum of (i) the greater of (A) 3.25% or (B) Wall Street Journal Prime Rate plus (ii) 3.75%. |
The Loan Agreement also requires the payment of certain fees, including, but not limited to letter of credit fees and an unused Revolving Loans fee.
The Loan Agreement contains financial and other covenant requirements, including, but not limited to, financial covenants that require the Borrowers to not permit capital expenditures above $150,000 in any fiscal year, maintain a fixed charge coverage ratio of not less than 2.00 to 1.00 and maintain certain debt to EBITDA ratios. The Loan Agreement also requires the Company and Borrowers to obtain Sterling's consent before making any permitted acquisitions. The amounts borrowed by the Borrowers under the Loan Agreement are guaranteed by the guarantors, and the Loan Agreement is secured by substantially all of the Borrowers’ assets.
The principal amount of the Term Loan will be repaid as follows: (i) equal consecutive monthly installments in the amount of $33,333.33 each, paid on the first day of each calendar month and (ii) one final payment of the entire remaining principal balance, together with all accrued unpaid interest on the Term Loan maturity date.
Principal repaid on the term loan during the period ended March 31, 2017 was $100,000. The short term and Revolving Loans was $1,966,667 and $3,338,106, respectively,long term loan outstanding balances on the term loan as of September 30, 2016.March 31,2017 are $399,996 and $1,023,474, respectively. The revolving line of credit outstanding balance as of March 31, 2017 was $2,440,971.
On March 7, 2017, we completed the sale and issuance of the 2017 Notes for aggregate proceeds to us of $1,250,000 from four accredited investors, including one of the Company's directors, Dhruwa N. Rai. The 2017 Notes were issued pursuant to Securities Purchase Agreements between the Company and each investor. The 2017 Notes bear interest at 8% per annum until maturity in March 2020, with interest being paid annually on the first, second and third anniversaries of the issuance of the 2017 Notes beginning in March 2018. From and after an event of default and for so long as the event of default is continuing, the 2017 Notes will bear default interest at the rate of 10% per annum. The 2017 Notes can be prepaid by operating activities was $(2,997,564)us at any time without penalty.
The 2017 Notes are convertible into shares of our common stock at a conversion price of (i) in the event that any registration statement for the public offering of common stock filed by the Company with the SEC in connection with an uplisting to a national stock exchange is declared effective by the SEC on or prior to December 31, 2017, such price per share that is equal to 68% of the price per share of common stock offered and sold pursuant to such registration statement, or (ii) if no such registration statement is declared effective by December 31, 2017, such price per share that is equal to the weighted average closing price per share of the Company's common stock for the 20 trading days immediately preceding December 31, 2017, subject to adjustment under certain circumstances. The 2017 Notes rank junior to our secured credit facility with Sterling. The 2017 Notes also include certain negative covenants including, without the investors' approval, restrictions on dividends and other restricted payments and reclassification of its stock.
Accounts Receivable
Accounts receivable for the period ended March 31, 2017 were $9,590,446 as compared to $8,059,910 as on December 31,2016. The increase is due to acquisition of ATCG during the nine monthsperiod ended September 30, 2016 andMarch 31, 2017.
Accounts Payable
Accounts payable for the period ended March 31, 2017 was primarily a result of remittances towards accounts receivables and increased accounts payables. Cash used in investing activities was $(5,434,515) during the nine months ended September 30, 2016 was$4,468,533 as compared to $5,130,817 as on December 31,2016. The decrease is primarily due to acquisitions and assets purchasedthe payoff of accumulated accounts payable during the three months ended March 31, 2017.
Accrued Expenses
Accrued expenses for the purposeperiod ended March 31, 2017 was $3,147,210 as compared to $2,165,088 as on December 31,2016. Our acquisition of providing future revenues. Cash provided by financing activities was $9,467,879 during the nine months ended September 30, 2016 and was attributableATCG led to additional stock issuancesand proceeds from asset based loans and the Term Loan.an increase of accrued expenses of $819,574.
Operating Activities
Our largest source of operating cash flows is cash collections from our customers for different information technology services we render under various statements of work. Our primary uses of cash fromfor operating activities are for personnel-related expenditures, leased facilities and taxes.
Critical Accounting Policies
Purchase Price Allocation.We allocate the purchase price of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Some of the items, including accounts receivable, property and equipment, other intangible assets, certain accrued liabilities and other reserves require a degree of management judgment. Certain estimates may change as additional information becomes available. Goodwill is assigned at the enterprise level and is deductible for tax purposes for certain types of acquisitions. Management finalizes the purchase price allocation within the defined measurement period of the acquisition date as certain initial accounting estimates are resolved.
Valuation of Contingent Earn-out ConsiderationConsideration.. Acquisitions may include contingent consideration payments based on the achievement of certain future financial performance measures of the acquired company. Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable, however, there is significant judgment involved. We evaluate, on a routine, periodic basis, the estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value estimate at the time of the acquisition, will be reflected in income or expense in the consolidated statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. Any changes in the estimated fair value of contingent consideration may have a material impact on our operating results.
Revenue Recognition. We recognize revenue in accordance with the Accounting Standard Codification 605 "Revenue Recognition." Revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller's price to buyer is fixed and determinable, and (4) collectability is reasonably assured. We recognize revenue from information technology services as the services are provided. Service revenues are recognized based on contracted hourly rates, as services are rendered or upon completion of specified contracted services and acceptance by the customer.
Accounts Receivable. We extend credit to clients based upon management's assessment of their credit-worthiness on an unsecured basis. We provide an allowance for uncollectible accounts based on historical experience and management evaluation of trend analysis. We include any balances that are determined to be uncollectible in allowance for doubtful accounts.
Intangible Assets. We capitalize the customer lists received from each of our acquisition considering projected revenue from the top 8 to 10 customers over a period of three years. The allowances for uncollectible accounts ascustomer lists from each acquisition are amortized over a period of September 30, 2016 and September 30, 2015 was $0. Based on60 months.
Goodwill. We capitalize the information available, management believes our accounts receivable, netexcess of allowance for doubtful accounts, are collectible.
per Company policy.
Recent Accounting Pronouncements
On November 17, 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The Companynew standard requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is reviewingeffective for annual periods beginning after December 15, 2017 including interim periods within those fiscal years, but earlier adoption is permitted. We do not believe the effectsadoption of following recent updates. The Company has no expectation that any of these itemsthis new standard will have a material effect uponimpact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which clarifies and provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively on or after the effective date. This update is effective for annual periods beginning after December 15, 2017 and interim periods within those periods. Early adoption is permitted for acquisition or deconsolidation transactions occurring before the issuance date or effective date and only when the transactions have not been reported in issued or made available for issuance financial statements. We do not believe the adoption of this new standard will have a material impact on our consolidated financial statements.
19
Special Note Regarding Forward-Looking Information
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.
The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance, including statements concerning our 20162017 outlook, future revenue and growth, customer spending outlook, general economic trends, IT service demand, future revenue and revenue mix, utilization, new service offerings, significant customers, competitive and strategic initiatives, growth plans, potential stock repurchases, future results, tax consequences and liquidity needs. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "believe," "anticipate," "anticipated," "expectation," "continued," "future," "forward," "potential," "estimate," "estimated," "forecast," "project," "encourage," "opportunity," "goal," "objective," "could," "expect," "expected," "intend," "plan," "planned," or the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on our current plans or assessments which are believed to be reasonable as of the date of this Form 10-Q. Factors that may cause actual results, goals, targets or objectives to differ materially from those contemplated, projected, forecasted, estimated, anticipated, planned or budgeted in such forward-looking statements include, among others, the following possibilities: (1) failure to obtain new customers or retain significant existing customers; (2) the loss of one or more key executives and/or employees; (3) changes in industry trends, such as a decline in the demand for Enterprise Resource Planning and Enterprise Performance Management solutions, custom development and system integration services and/or declines in industry-wide information technology spending, whether on a temporary or permanent basis and/or delays by customers in initiating new projects or existing project milestones; (4) inability to execute upon growth objectives, including new services and growth in entities acquired by our Company; (5) adverse developments and volatility involving geopolitical or technology market conditions; (6) unanticipated events or the occurrence of fluctuations or variability in the matters identified as delays in, or the failure of, our sales pipeline being converted to billable work and recorded as revenue; (8) termination by clients of their contracts with us or inability or unwillingness of clients to pay for our services, which may impact our accounting assumptions; (9) inability to recruit and retain professionals with the high level of information technology skills and experience needed to provide our services; (10) failure to expand outsourcing services to generate additional revenue; (11) any changes in ownership of the Company or otherwise that would result in a limitation of the net operating loss carry forward under applicable tax laws; (12) the failure of the marketplace to embrace advisory and product-based consulting services; and (13) changes in our utilization levels. In evaluating these statements, you should specifically consider various factors described above. These factors may cause our actual results to differ materially from those contemplated, projected, anticipated, planned or budgeted in any such forward-looking statements.
Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, growth, earnings per share or achievements. However, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Except as otherwise required, we undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results.
Not applicable.
Management's Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report,Quarterly Report, being September 30, 2016,March 31, 2017, we have carried out an evaluation of the effectiveness of the design and operation of our Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Company's management, including our Company's Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our company's Chief Executive Officer and Chief Financial Officer concluded that our company's disclosure controls and procedures are not yet effective as atof the end of the period covered by this report as noted below in management's report on internal control over financial reporting. This is largely due to the fact that we are acquiring privately held companies as part of our growth strategy and our control procedures over all acquired subsidiaries will not be effective until such time as we are able to fully integrate the acquisition with our company and set processes and procedures for the acquired entities. We are working to improve and harmonize our financial reporting butcontrols and procedures across all of our companies. There have been corrected. There have beenno changes in our internal controls over financial reporting to resolve certain internal control inadequacies, due to the privately held nature of acquired subsidiaries that were corrected that occurred during the period covered by this report that have not materially affected, or are not reasonably likely to materially affect our internal controls over financial reporting.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2016,March 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made in accordance with authorizations of management and our directors; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. As a result of this assessment, our management concluded that, as of September 30, 2016,March 31, 2017, our internal control over financial reporting was not yet effective in providing reasonable assurance due to certain internal control inadequacies, due to the privately held nature of acquired subsidiaries that were corrected, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. This is largely due to the fact that we are acquiring privately held companies as part of our growth strategy and our control procedures over all acquired subsidiaries will not be effective until such time as we are able to fully integrate the acquisition with our company and set processes and procedures for the acquired entities. We are working to improve and harmonize our financial reporting controls and procedures across all of our companies.
This Quarterly Report does not include an attestation report of our independent auditors regarding internal control over financial reporting. Management's report was not subject to attestation by our independent auditors pursuant to temporary rules of the SEC that permit our company to provide only management's report in this Quarterly Report.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization and personnel factors. Internal control over financial reporting is a process, which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were changes to correct certain internal control inadequacies, due to the privately held nature of acquired subsidiaries in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the period covered by this report that have not materially affected, or are not reasonably likely to materially affect, our internal control over financial reporting.
PART II –- OTHER INFORMATION
None.
Investors should carefully review and our common stock, we urge you to carefully consider the risksinformation regarding certain factors which could materially affect our business, operating results, cash flows and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed infinancial condition set forth under Item 1A, of theRisk Factors, in our fiscal 2017 Annual Report on Form 10-KT, which we10-K filed with the SEC on March 15, 2016. There31, 2017.
We do not believe that there have been noany other material additions or changes to the risk factors previously disclosed in our 2015fiscal 2017 Annual Report on Form 10-KT.10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
The issuance of shares of common stock to the Sole Memberformer shareholders of Virtuoso wasATCG and the issuance of the 2017 Notes were each previously disclosed on our Current ReportReports on Form 8-K, filed with the SEC on July 27, 2016March 13, 2017 and wasMarch 8, 2017, respectively, and such issuances were made in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), provided by Section 4(a)(2) of the Securities Act as a private offering. Such issuanceissuances of the 2017 Notes and the shares to the Sole Memberformer shareholders of ATCG did not involve a public offering, and each was made without general solicitation or advertising.
To date, the Company is not in conformance with the financial covenants contained in its Loan Agreement with Sterling National Bank. The Company received a waiver from Sterling National Bank for its non-compliance with the Loan Agreement through March 31, 2017 in exchange for the payment of a fee of $5,000. The Company is currently negotiating a waiver with Sterling National Bank to waive the Company's compliance with the Loan Agreement during the second quarter of 2017 in exchange for the payment of an additional fee that is to be determined. The Company does not expect to be in compliance with the terms of the Loan Agreement following the conclusion of the terms of the waivers granted by Sterling National Bank. The Company is continuing to work with Sterling National Bank to address its non-compliance.
Not applicable.
| Exhibit | Description | |
| 2.1 | Agreement of Merger and Plan of Reorganization, dated as of May 26, 2015, among Spatializer Audio Laboratories, Inc., Ameri100 Acquisition, Inc. and Ameri and Partners Inc. (filed as Exhibit 2.1 to AMERI Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on May 26, 2015 and incorporated herein by reference). | |
| 2.2 | Stock Purchase Agreement by and between Ameri Holdings, Inc. and the shareholders of Ameri Consulting Service Private Limited. (filed as Exhibit 10.3 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on June 1, 2015 and incorporated herein by reference). | |
| 2.3 | Share Purchase Agreement, dated as of November 20, 2015, by and among Ameri Holdings, Inc., Bellsoft, Inc., and all of the shareholders of Bellsoft, Inc. (filed as Exhibit 10.1 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on November 23, 2015 and incorporated herein by reference). | |
| 2.4 | Agreement of Merger and Plan of Reorganization, dated as of July 22, 2016, by and among | |
| Membership Interest Purchase Agreement, dated as of July 29, 2016, by and among | ||
| 2.6 | Share Purchase Agreement, dated as of March 10, 2017, by and among Ameri Holdings, Inc., ATCG Technology Solutions, Inc., all of the stockholders of ATCG, and the Stockholders' representative (filed as Exhibit 2.1 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on March 13, 2017 and incorporated herein by reference). | |
| 3.1 | Amended and Restated Certificate of Incorporation of Ameri Holdings, Inc. (filed as Exhibit 3.1 to | |
| 3.2 | Certificate of Designation of Rights and Preferences of 9.00% Series A Cumulative Preferred Stock (filed as Exhibit 3.1 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on January 4, 2017 and incorporated herein by reference). | |
| Corrected Certificate of Designation of Rights and Preferences of 9.00% Series A Cumulative Preferred Stock (filed as Exhibit 3.3 to Ameri Holdings, Inc.’s Registration Statement on Form S-1, Amendment No. 1, filed with the SEC on April 18, 2017 and incorporated herein by reference). | ||
| 3.4 | Amended and Restated Bylaws of Ameri Holdings, Inc. (filed as Exhibit 3.2 to | |
| 4.1 | Form of | |
| 4.2 | Form of common stock Purchase Warrant issued by | |
| . | ||
| 4.3 | Common Stock Purchase Warrant, dated May 12, 2016, issued by | |
| 4.4 | ||
| 4.5 | Form of 8% Convertible Unsecured Promissory Note due March 2020 (filed as Exhibit 10.2 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on March 8, 2017 and incorporated herein by reference). | |
| 4.6 | Form of Registration Rights Agreement for 2017 Notes Investors (filed as Exhibit 10.3 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on March 8, 2017 and incorporated herein by reference). | |
| 4.7 | Form of 6% Unsecured Promissory Note (filed as Exhibit 10.1 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on March 13, 2017 and incorporated herein by reference). | |
| 10.1 | Employment Agreement, dated as of May 26, 2015, between Giri Devanur and Ameri Holdings, Inc. (filed as Exhibit 10.4 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on June 1, 2015 and incorporated herein by reference). |
| 10.2 | Employment Agreement, dated as of May 26, 2015, between Srinidhi "Dev" Devanur and Ameri Holdings, Inc. (filed as Exhibit 10.5 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on June 1, 2015 and incorporated herein by reference). | |
| 10.3 | Employment Letter, dated April 24, 2016, between Ameri and Partners Inc and Viraj Patel (filed as Exhibit 10.1 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on April 25, 2017 and incorporated herein by reference). | |
| 10.4 | Form of Securities Purchase Agreement for 2017 Notes Investors (filed as Exhibit 10.1 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on March 8, 2017 and incorporated herein by reference). | |
| 10.5 | Exchange Agreement, dated as of December 30, 2016, between Ameri Holdings, Inc. and Lone Star Value Investors, LP (filed as Exhibit 10.1 to Ameri Holdings, Inc.'s Current Report on Form 8-K filed with the SEC on January 4, 2017 and incorporated herein by reference). | |
| 10.6 | Loan and Security Agreement, dated as of July 1, 2016, by and among Ameri and Partners Inc, | |
| Section 302 Certification of Principal Executive Officer | ||
| Section 906 Certification of Principal Executive Officer | ||
| Principal Financial and Accounting Officer | ||
| 101** | The following materials from Ameri Holdings, Inc.'s Quarterly Report on Form 10-Q for the three months ended March 31, 2017 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Stockholders' Equity (Deficit), (iv) the Consolidated Statements of Cash Flow, and (iv) Notes to the Consolidated Financial Statements. |
| * | Furnished herewith. |
| ** | In accordance with |
Pursuant to the requirements of the Section 13 or 15 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.authorized on the 12th day of May 2017.
| AMERI Holdings, Inc. | ||||
| By: | /s/ Giri Devanur | |||
| Giri Devanur | ||||
President and Chief Executive Officer | ||||
| By: | /s/ Viraj Patel | |||
Chief Financial Officer | ||||