UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period ended September 30, | Commission file number |
AMERI Holdings, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 95-4484725 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:(770) 935-4152
732-243-9250Not applicable
(Title of class)
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 ☑[X] 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 ☑[X] No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [X] | Smaller reporting company [X] |
Emerging growth company [ ] |
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 ☑
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| Common Stock $0.01 par value per share | AMRH | The NASDAQ Stock Market LLC | ||
| Warrants to Purchase Common Stock | AMRHW | The NASDAQ Stock Market LLC |
As of October 30, 2017, 15,856,249November 13, 2020, 7,491,544 shares of the registrant’s common stock were issued and outstanding.
AMERI Holdings, Inc.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| 3 | ||
| 3 | ||
| 4 | ||
| Unaudited Condensed Statement of Changes in Stockholder Equity for the Nine Months Ended September 30, | ||
| PART II - OTHER INFORMATION | | |
| 2 |
| ITEM 1. |
AMERI HOLDINGS, INC.
September 30, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 844,104 | $ | 1,379,887 | ||||
| Accounts receivable | 9,167,088 | 8,059,910 | ||||||
| Investments | 82,908 | 82,908 | ||||||
| Other current assets | 1,321,334 | 542,237 | ||||||
| Total current assets | 11,415,434 | 10,064,942 | ||||||
| Other assets: | ||||||||
| Property and equipment, net | 92,870 | 100,241 | ||||||
| Intangible assets, net | 10,253,381 | 8,764,704 | ||||||
| Acquired goodwill | 21,886,567 | 17,089,076 | ||||||
| Deferred income tax assets, net | 3,488,960 | 3,488,960 | ||||||
| Total other assets | 35,721,778 | 29,442,981 | ||||||
| Total assets | $ | 47,137,212 | $ | 39,507,923 | ||||
| Current liabilities: | ||||||||
| Line of credit | $ | 3,765,391 | 3,088,890 | |||||
| Accounts payable | 4,126,323 | 5,130,817 | ||||||
| Other accrued expenses | 3,947,293 | 2,165,088 | ||||||
| Bank term loan | 406,156 | 405,376 | ||||||
| Consideration payable – cash | 7,129,238 | 1,854,397 | ||||||
| Consideration payable – equity | 11,589,973 | 64,384 | ||||||
| Dividend payable | 527,979 | - | ||||||
| Total current liabilities | 31,492,353 | 12,708,952 | ||||||
| Long- term Liabilities: | ||||||||
| Convertible notes | 1,250,000 | - | ||||||
| Bank term loan | 1,575,206 | 1,536,191 | ||||||
| Consideration payable – cash | - | 2,711,717 | ||||||
| Consideration payable – equity | 600,000 | 10,887,360 | ||||||
| Total long-term liabilities | 3,425,206 | 15,135,268 | ||||||
| Total liabilities | 34,917,559 | 27,844,220 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.01 par value; 1,000,000 authorized, 383,985 issued and outstanding as of September 30, 2017 and 363,611 as of December 31, 2016 | 3,840 | 3,636 | ||||||
| Common stock, $0.01 par value; 100,000,000 shares authorized, 15,856,249 and 13,885,972 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 158,561 | 138,860 | ||||||
| Additional paid-in capital | 25,487,970 | 15,358,839 | ||||||
| Accumulated deficit | (13,430,711 | ) | (3,833,588 | ) | ||||
| Accumulated other comprehensive income (loss) | (18,511 | ) | (7,426 | ) | ||||
| Non-controlling interest | 18,504 | 3,382 | ||||||
| Total stockholders’ equity | 12,219,653 | 11,663,703 | ||||||
| Total liabilities and stockholders’ equity | $ | 47,137,212 | $ | 39,507,923 | ||||
| September 30, 2020 | December 31, 2019 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | 2,840,097 | 431,400 | ||||||
| Accounts receivable | 7,563,451 | 6,384,148 | ||||||
| Other current assets | 901,451 | 783,606 | ||||||
| Total current assets | 11,304,999 | 7,599,154 | ||||||
| Other assets: | ||||||||
| Property and equipment, net | 91,289 | 83,128 | ||||||
| Intangible assets, net | 1,950,766 | 3,584,221 | ||||||
| Acquired goodwill | 13,729,770 | 13,729,770 | ||||||
| Operating lease right of use asset, net | 874,606 | 286,163 | ||||||
| Deferred income tax assets, net | 42,181 | 8,879 | ||||||
| Total other assets | 16,688,612 | 17,692,161 | ||||||
| Total assets | 27,993,611 | 25,291,315 | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Line of credit | 3,097,009 | 2,881,061 | ||||||
| Accounts payable | 4,580,079 | 4,696,352 | ||||||
| Other accrued expenses | 1,910,601 | 1,989,894 | ||||||
| Operating lease liability | 208,663 | 120,052 | ||||||
| PPP Loan | 1,729,600 | - | ||||||
| EID Loan, current portion | 2,924 | - | ||||||
| Convertible notes | 1,000,000 | |||||||
| Consideration payable – cash | - | 2,496,000 | ||||||
| Debenture Liability | 1,818,321 | - | ||||||
| Dividend payable | 645,425 | 320,298 | ||||||
| Total current liabilities | 13,992,622 | 13,503,657 | ||||||
| Long term liabilities: | ||||||||
| Operating lease liability, net | 678,272 | 169,897 | ||||||
| EID Loan, net of current portion | 146,976 | - | ||||||
| Short term Loans | - | 1,000,000 | ||||||
| Total long term liabilities | 825,248 | 1,169,897 | ||||||
| Total liabilities | 14,817,870 | 14,673,554 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.01 par value; 1,000,000 authorized, 424,938 issued and outstanding as of September 30, 2020 and December 31, 2019. | 4,249 | 4,249 | ||||||
| Common stock, $0.01 par value; 100,000,000 shares authorized, 5,737,001 and 2,522,095 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 57,370 | 25,221 | ||||||
| Additional paid-in capital | 58,218,620 | 51,040,296 | ||||||
| Accumulated deficit | (45,156,263 | ) | (40,512,017 | ) | ||||
| Accumulated other comprehensive income (loss) | 51,765 | 60,012 | ||||||
| Total stockholders’ equity | 13,175,741 | 10,617,761 | ||||||
| Total liabilities and stockholders’ equity | 27,993,611 | 25,291,315 | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||
| Revenue | $ | 12,529,928 | $ | 10,058,558 | $ | 37,139,114 | $ | 23,758,460 | ||||||||
| Cost of revenue | 9,966,490 | 8,361,960 | 28,941,535 | 18,897,059 | ||||||||||||
| Gross profit | 2,563,438 | 1,696,598 | 8,197,579 | 4,861,401 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 402,846 | 137,024 | 1,170,051 | 401,487 | ||||||||||||
| General and administration | 5,283,059 | 1,326,327 | 12,389,581 | 5,316,390 | ||||||||||||
| Acquisition related expenses | 5,694 | 1,015,558 | 390,174 | 1,630,778 | ||||||||||||
| Depreciation and amortization | 817,284 | 509,377 | 2,332,041 | 722,390 | ||||||||||||
| Operating expenses | 6,508,883 | 2,988,286 | 16,281,847 | 8,071,045 | ||||||||||||
| Operating income (loss) | (3,945,445 | ) | (1,291,688 | ) | (8,084,268 | ) | (3,209,644 | ) | ||||||||
| Interest expenses | (132,973 | ) | (290,423 | ) | (388,122 | ) | (674,683 | ) | ||||||||
| Changes in estimates | - | - | 400,000 | - | ||||||||||||
| Others, net | 17,446 | (195,518 | ) | 21,921 | (197,679 | ) | ||||||||||
| Income (loss) before income taxes | (4,060,972 | ) | (1,777,629 | ) | (8,050,469 | ) | (4,082,006 | ) | ||||||||
| Tax benefit / (provision) | - | - | - | - | ||||||||||||
| Income after income taxes | (4,060,972 | ) | (1,777,629 | ) | (8,050,469 | ) | (4,082,006 | ) | ||||||||
| Net income attributable to non-controlling interest | (6,632 | ) | - | (18,504 | ) | - | ||||||||||
| Net income (loss) attributable to the Company | (4,067,604 | ) | (1,777,629 | ) | (8,068,973 | ) | (4,082,006 | ) | ||||||||
| Dividend on preferred stock | (541,864 | ) | - | (1,546,655 | ) | - | ||||||||||
| Net loss attributable to common stock holders | (4,609,468 | ) | (1,777,629 | ) | (9,615,628 | ) | (4,082,006 | ) | ||||||||
| Other comprehensive income (loss), net of tax | - | - | - | - | ||||||||||||
| Foreign exchange translation | (14,234 | ) | 59,079 | (11,084 | ) | (6,619 | ) | |||||||||
| Comprehensive income/(loss) | $ | (4,623,702 | ) | $ | (1,718,550 | ) | $ | (9,626,712 | ) | $ | (4,088,625 | ) | ||||
| Comprehensive income/(loss) attributable to the Company | (4,617,070 | ) | (1,718,550 | ) | (9,608,208 | ) | (4,088,625 | ) | ||||||||
| Comprehensive income/(loss) attributable to the non-controlling interest | (6,632 | ) | - | (18,504 | ) | - | ||||||||||
| $ | (4,623,702 | ) | $ | (1,718,550 | ) | $ | (9,626,712 | ) | $ | (4,088,625 | ) | |||||
| Basic income (loss) per share | $ | (0.31 | ) | $ | (0.13 | ) | $ | (0.66 | ) | $ | (0.32 | ) | ||||
| Diluted income (loss) per share | $ | (0.31 | ) | $ | (0.13 | ) | $ | (0.66 | ) | $ | (0.32 | ) | ||||
| Basic weighted average number of common shares outstanding | 14,715,947 | 13,653,586 | 14,472,322 | 12,794,149 | ||||||||||||
| Diluted weighted average number of common shares outstanding | 14,715,947 | 13,653,586 | 14,472,322 | 12,794,149 | ||||||||||||
| Three Months Sep 30,2020 | Three Months Sep 30,2019 | Nine Months Sep 30,2020 | Nine Months Sep 30,2019 | |||||||||||||
| Revenue | 8,483,030 | 9,148,857 | 26,340,499 | 30,850,110 | ||||||||||||
| Cost of revenue | 6,595,533 | 7,249,406 | 20,753,306 | 24,428,520 | ||||||||||||
| Gross profit | 1,887,497 | 1,899,451 | 5,587,193 | 6,421,590 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, General and administration | 2,449,919 | 2,902,401 | 7,845,160 | 9,075,751 | ||||||||||||
| Depreciation and amortization | 556,333 | 562,050 | 1,649,819 | 1,685,637 | ||||||||||||
| Operating expenses | 3,006,252 | 3,464,451 | 9,494,979 | 10,761,388 | ||||||||||||
| Operating Income (loss) | (1,118,755 | ) | (1,565,000 | ) | (3,907,786 | ) | (4,339,798 | ) | ||||||||
| Interest benefit (expenses) | 128,842 | (252,648 | ) | (403,506 | ) | (551,862 | ) | |||||||||
| Changes in fair value of warrant liability | - | 1,857,889 | - | 1,796,174 | ||||||||||||
| Others, net | 882 | (9 | ) | 3,693 | 4,557 | |||||||||||
| Income (loss) before income taxes | (989,031 | ) | 40,232 | (4,307,599 | ) | (3,090,929 | ) | |||||||||
| Income tax benefit (expenses) | 27,857 | 1,067 | (11,520 | ) | 15,688 | |||||||||||
| Income (loss) after income taxes | (961,174 | ) | 41,299 | (4,319,119 | ) | (3,075,241 | ) | |||||||||
| Net income attributable to non-controlling interest | ||||||||||||||||
| Net Income (loss) attributable to the Company | (961,174 | ) | 41,299 | (4,319,119 | ) | (3,075,241 | ) | |||||||||
| Dividend on preferred stock | (109,457 | ) | (106,765 | ) | (325,127 | ) | (318,704 | ) | ||||||||
| Net Income (loss) attributable to common stock holders | (1,070,631 | ) | (65,466 | ) | (4,644,246 | ) | (3,393,945 | ) | ||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
| Foreign exchange translation | 11,902 | (17,979 | ) | (8,247 | ) | (17,406 | ) | |||||||||
| Total Comprehensive Income (loss) | (1,058,729 | ) | (83,445 | ) | (4,652,493 | ) | (3,411,351 | ) | ||||||||
| Basic income (loss) per share | (0.20 | ) | (0.03 | ) | (1.11 | ) | (1.70 | ) | ||||||||
| Diluted income (loss) per share | (0.20 | ) | (0.03 | ) | (1.11 | ) | (1.70 | ) | ||||||||
| Basic weighted average number of common shares outstanding | 5,289,099 | 2,113,227 | 4,172,526 | 1,999,390 | ||||||||||||
| Diluted weighted average number of common shares outstanding | 5,289,099 | 2,113,227 | 4,172,526 | 1,999,390 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
STATEMENT OF CHANGES IN STOCKHOLDER EQUITY
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
| Shares | Par Value at $0.01 | Shares | Par Value at $0.01 | Additional paid-in capital | Foreign Currency Translation Reserve | Retained earnings | Total stockholders’ equity | |||||||||||||||||||||||||
| Balance at Dec 31, 2018 | 1,693,165 | $ | 16,932 | 420,720 | $ | 4,207 | $ | 45,129,214 | $ | 86,997 | $ | (34,478,253 | ) | $ | 10,759,097 | |||||||||||||||||
| Net Loss for the period | (3,393,944 | ) | (3,393,944 | ) | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (17,406 | ) | (17,406 | ) | ||||||||||||||||||||||||||||
| Shares Issued towards earnouts | 131,570 | 1,316 | 603,907 | 605,223 | ||||||||||||||||||||||||||||
| Exercise of Warrants (PIPE series A&B) | 688,096 | 6,881 | 4,586,936 | 4,593,817 | ||||||||||||||||||||||||||||
| Preferred stock issued | 4,208 | 42 | 210,358 | 210,400 | ||||||||||||||||||||||||||||
| Stock Compensation expenses | 490,175 | 490,175 | ||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | 2,512,832 | $ | 25,129 | 424,928 | $ | 4,249 | $ | 51,020,591 | $ | 69,591 | $ | (37,872,197 | ) | $ | 13,247,363 | |||||||||||||||||
| Balance at December 31, 2019 | 2,522,095 | $ | 25,221 | 424,938 | $ | 4,249 | $ | 51,040,296 | $ | 60,012 | $ | (40,512,017 | ) | $ | 10,617,761 | |||||||||||||||||
| Net Loss for the period | (4,644,246 | ) | (4,644,246 | ) | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (8,247 | ) | (8,247 | ) | ||||||||||||||||||||||||||||
| Stock Compensation expenses | 49,474 | 49,474 | ||||||||||||||||||||||||||||||
| Shares Issued for Extinguishment of liability | 2,352,406 | 23,524 | 5,412,475 | 5,435,999 | ||||||||||||||||||||||||||||
| Rights Issue of Shares | 862,500 | 8,625 | 1,716,375 | 1,725,000 | ||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 5,737,001 | $ | 57,370 | 424,938 | $ | 4,249 | $ | 58,218,620 | $ | 51,765 | $ | (45,156,263 | ) | $ | 13,175,741 | |||||||||||||||||
| 5 |
AMERI HOLDINGS, INC.
Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flow from operating activities | ||||||||
| Comprehensive income/(loss) | $ | (9,626,712 | ) | $ | (4,088,625 | ) | ||
| Adjustment to reconcile comprehensive income/(loss) to net cash used in operating activities | ||||||||
| Depreciation and amortization | 2,332,041 | 722,390 | ||||||
| Provision for Preference dividend | 1,546,655 | - | ||||||
| Changes in estimate of contingent consideration | (400,000 | ) | - | |||||
| Stock, option, restricted stock unit and warrant expense | 5,167,358 | 945,959 | ||||||
| Foreign exchange translation adjustment | 11,085 | - | ||||||
| Changes in assets and liabilities: | ||||||||
| Increase (decrease) in: | ||||||||
| Accounts receivable | (1,107,178 | ) | (2,852,778 | ) | ||||
| Other current assets | (779,097 | ) | (285,831 | ) | ||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | 1,056,277 | 2,561,321 | ||||||
| Net cash provided by (used in) operating activities | (1,799,571 | ) | (2,997,564 | ) | ||||
| Cash flow from investing activities | ||||||||
| Purchase of fixed assets | (7,797 | ) | 3,261,617 | |||||
| Acquisition consideration | (694,711 | ) | (8,779,040 | ) | ||||
| Investments | - | 82,908 | ||||||
| Net cash used in investing activities | (702,508 | ) | (5,434,515 | ) | ||||
| Cash flow from financing activities | ||||||||
| Proceeds from bank loan and convertible notes, net | 1,966,296 | 4,467,879 | ||||||
| Additional stock issued | - | 5,000,000 | ||||||
| Net cash provided by financing activities | 1,966,296 | 9,467,879 | ||||||
| Net increase (decrease) in cash and cash equivalents | (535,783 | ) | 1,035,800 | |||||
| Cash and cash equivalents as at beginning of the period | 1,379,887 | 1,878,034 | ||||||
| Cash at the end of the period | $ | 844,104 | $ | 2,913,834 | ||||
| September 30 | ||||||||
| 2020 | 2019 | |||||||
| Cash flow from operating activities | ||||||||
| Net Income (Loss) | (4,652,493 | ) | (3,327,905 | ) | ||||
| Adjustment to reconcile comprehensive income/(loss) to net cash used in operating activities | ||||||||
| Depreciation and amortization | 1,649,819 | 1,123,587 | ||||||
| Non-cash expenses | 6,117 | |||||||
| Provision for Preference dividend | 325,127 | 211,939 | ||||||
| Changes in fair value of warrants | - | 61,715 | ||||||
| Stock, option, restricted stock unit and warrant expense | 49,474 | 490,175 | ||||||
| Foreign exchange translation adjustment | (8,247 | ) | 573 | |||||
| Provision for Income taxes ( net of deferred income taxes) | (8,940 | ) | (14,622 | ) | ||||
| Loss on sale of fixed assets | 21,611 | - | ||||||
| Changes in assets and liabilities: | ||||||||
| Increase (decrease) in: | ||||||||
| Accounts receivable | (1,179,303 | ) | (673,381 | ) | ||||
| Other current assets | (117,845 | ) | (1,388 | ) | ||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | 56,085 | 655,151 | ||||||
| Net cash provided by (used in) operating activities | (3,858,595 | ) | (1,474,156 | ) | ||||
| Cash flow from investing activities | ||||||||
| Purchase of fixed assets | (46,136 | ) | (27,698 | ) | ||||
| Acquisition consideration | - | (200,000 | ) | |||||
| Net cash used in investing activities | (46,136 | ) | (227,698 | ) | ||||
| Cash flow from financing activities | ||||||||
| Proceeds from bank loan and convertible notes, net | 4,588,427 | (191,762 | ) | |||||
| Proceeds from issuance of common shares, net | 1,725,000 | 2,123,425 | ||||||
| Net cash provided by financing activities | 6,313,427 | 1,931,663 | ||||||
| Net increase (decrease) in cash and cash equivalents | 2,408,697 | 229,809 | ||||||
| Cash and cash equivalents as at beginning of the period | 431,400 | 1,371,331 | ||||||
| Cash at the end of the period | 2,840,097 | 1,601,140 | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
SEPTEMBER 30, 2017
NOTE 1. DESCRIPTION OF BUSINESS:
AMERI Holdings, Inc. (“AMERI”, the “Company”, “we” or “our”) is a fast-growing technology services company whichthat, through the operations of its eleven subsidiaries, provides SAP TMcloud and digital and enterprise services to clients worldwide. Headquartered in Princeton, New JerseyAlpharetta, Georgia, we typically go to market both vertically by 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. The Company earns almost all of its revenue from North America. The Company takes the position that all of its businesses operate as a single segment.
On January 10, 2020, we and Ameri100 has officesInc. (“Buyer”) entered into a Stock Purchase Agreement (the “Agreement”) pursuant to which, among other things and subject to the satisfaction or waiver of specified conditions, the Company will sell to Buyer and Buyer will purchase from the Company one hundred percent (100%) of the outstanding equity interests (the “Purchased Shares”) of Ameri100 Holdco, Inc. (“Holdco”) (the “Spin-Off”).
On January 10, 2020, the Company entered into an Amalgamation Agreement (as amended on May 6, 2020, the “Amalgamation Agreement”) with Jay Pharma Merger Sub, Inc., a company organized under the laws of Canada and a wholly-owned subsidiary of the Company (“Merger Sub”), Jay Pharma Inc., a company organized under the laws of Canada (“Jay Pharma”), Jay Pharma ExchangeCo., Inc. a company organized under the laws of British Columbia and a wholly-owned subsidiary of the Company (“ExchangeCo”), and Barry Kostiner, as the Company Representative, which provides that, among other things, Merger Sub and Jay Pharma will be amalgamated and will continue as one corporation (“Amalco”), with Amalco continuing as a direct wholly-owned subsidiary of ExchangeCo and an indirect wholly-owned subsidiary of Ameri, on the terms and conditions set forth in the U.S.Amalgamation Agreement. On August 12, 2020, the Company, Jay Pharma and Canada. certain other signatories thereto entered into a tender agreement (as may be amended from time to time, the “Tender Agreement”), which provides that, among other things, Ameri will make a tender offer (such offer, as it may be amended or supplemented from time to time as permitted under the Tender Agreement, the “Offer”) to purchase all of the outstanding common shares of Jay Pharma for the number of shares of Resulting Issuer common stock equal to the exchange ratio set forth in the Tender Agreement, and Jay Pharma will become a wholly-owned subsidiary of Ameri, on the terms and conditions set forth in the Tender Agreement. The Tender Agreement terminates and replaces in its entirety the Amalgamation Agreement.
Liquidity and Going Concern
The Company additionally has global delivery centersincurred net losses from operations since inception. The net loss for the nine months ended September 30, 2020 was $4.6 million and the accumulated deficit was $45.1 million as of September 30, 2020. The Company’s ongoing losses have had a significant negative impact on the Company’s financial position and liquidity. The Company has also been historically reliant on loans from related parties, loans from third parties and sales of equity securities to fund operations, working capital and complete acquisitions. To increase revenues, our operating expenses are likely to continue to grow and, as a result, we will need to generate significant additional revenues to cover such expenses. We expect our primary sources of cash to be customer collections and external financing. We also continue to work on cost reductions, and we have initiated steps to reduce our overhead to improve cash savings. We may raise additional capital through the sale of equity or debt securities or borrowings from financial institutions or third parties or a combination of the foregoing. Capital raised will be used to implement our business plan, grow current operations, make acquisitions or start new vertical businesses among some of the possible uses.
One of the Company’s largest customers has terminated the majority of its work as a result of COVID-19. This customer has accounted in India. With its bespoke engagement model, Ameri100 delivers transformational valuethe past for annual revenues of between $5 to its clients across industry verticals.
As a result of funding from the Small Business Association as well as sales of securities, the Company believes it has adequate cash reserves to cover expected working capital needs over the next 12 months.
Our financial statements as of September 30, 2020 have been prepared under the assumption that we will continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise additional funding through the issuance of equity or debt securities, as well as to attain further operating efficiencies and, ultimately, to generate additional revenues. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Although the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise additional funds if necessary, there can be no assurances to that effect. The foregoing conditions raise substantial doubt about our ability to continue as a going concern.
NOTE 2. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Certain information and disclosure 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.
Our comprehensive income (loss) consists of net income (loss) plus or minus any periodic currency translation adjustments.
The results for the interim periods presented are not necessarily indicative of the results expected for any future period. The following information should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019.
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Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019 with early adoption permitted, and requires adoption using a modified retrospective approach, with certain exceptions. Based on the composition of the Company’s investment portfolio as of December 31, 2019, current market conditions and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements. Additionally, for trade receivables, due to their short duration and the credit profile of the Company’s customers, the effect of transitioning from the incurred losses model to the expected losses model is not expected to be material.
In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic718): Improvements to Be Implemented
In May 2014,August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with CustomersASU No. 2018-13, “Fair Value Measurement (Topic 606)820),” which supersedes Disclosure Framework – Changes to the revenue recognition requirements in “Revenue Recognition (Topic 605)Disclosure Requirements for Fair Value Measurement”.” This ASU requiresremoved the following disclosure requirements: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. Additionally, this update added the following disclosure requirements:
(1) the changes in unrealized gains and losses for the period included in other comprehensive income and loss for recurring Level 3 fair value measurements held at the end of the reporting period; (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity to recognize revenue when goods are transferredmay disclose other quantitative information (such as the median or services are provided to customersarithmetic average) in an amount that reflectslieu of the consideration to whichweighted average if the entity expectsdetermines that other quantitative information would be a more reasonable and rational method to be entitledreflect the distribution of unobservable inputs used to in exchange for those goods or services. This ASU also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606), deferral of the Effective Date.” With the issuance of ASU 2015-14, the new revenue guidance ASU 2014-09 will be effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, using one of two prescribed retrospective methods. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customer (Topic 606), Identifying Performance Obligations and Licensing.” The guidance is applicable from the date of applicability of ASU 2014-09. This ASU finalizes the amendments to the guidance on the new revenue standard on the identification of performance obligations and accounting for licenses of intellectual property. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements (Topic 606)” which is applicable from the date of applicability of ASU 2014-09. This guidance provides optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. In May 2016, FASB issueddevelop Level 3 fair value measurements. ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients”. This amendment clarified certain aspects of Topic 606 and2018-13 will be applicable from the date of applicability of ASU 2014-09. The Company is in process of evaluating the impact of the foregoing updates.
In January 2017, the FASB issued ASU No. 2017-04, simplifying the Test for Goodwill Impairment. Under this new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment test performed on testing dates after January 1, 2017. The Company is in processBased on the Company’s preliminary assessment of evaluating the foregoing update, it does not anticipate such update will have a material impact of these updates.
Standards Implemented
In January 2017,May 2014, the FASB issued ASU No. 2017-01, clarifying2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the Definitionrevenue recognition requirements in “Revenue Recognition (Topic 605).” This ASU requires an entity to recognize revenue when goods are transferred, or services are provided to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU also requires disclosures enabling users of a Business, which clarifiesfinancial statements to understand the nature, amount, timing, and provides a more robust framework to use in determining when a setuncertainty of assetsrevenue and activities is a business. The amendments in this update shouldcash flows arising from contracts with customers.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606), deferral of the Effective Date.” With the issuance of ASU 2015-14, the new revenue guidance ASU 2014-09 will be applied prospectively on or after the effective date. This update is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, using one of two prescribed retrospective methods. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customer (Topic 606), Identifying Performance Obligations and Licensing.” The guidance is applicable from the date of applicability of ASU 2014-09. This ASU finalizes the amendments to the guidance on the new revenue standard on the identification of performance obligations and accounting for licenses of intellectual property. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements (Topic 606)” which is applicable from the date of applicability of ASU 2014-09. This guidance provides optional exemptions from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate variable consideration to recognize revenue. In May 2016, FASB issued ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients”. This amendment clarified certain aspects of Topic 606 and will be applicable from the date of applicability of ASU 2014-09. The Company has implemented the above standard.
In February 2016, the FASB issued ASU 2016-02 “Leases” (Topic 842) which amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing activities. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as ASC 842. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements.
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On January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and analyzed the lease for a right of use (“ROU”) asset and liability to be recorded on the consolidated balance sheet related to the operating lease for its office space. Results for the year ended December 31, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the legacy accounting guidance under ASC Topic 840, Leases.
As part of the adoption the Company elected the practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to:
| 1. | Not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. | |
| 2. | Not to apply the recognition requirements in ASC 842 to short-term leases. | |
| 3. | Not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial. Refer to Note 15 of our consolidated financial statements for additional disclosures required by ASC 842. |
In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This standard is required to be adopted in the first quarter of 2018. The Company adopted the standard during the year ended December 31, 2018 and the adoption did not have a material effect on its consolidated financial statements and disclosures.
In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those periods.years, beginning after December 15, 2018. The Company adopted the new standard during the year ended December 31, 2019 and the adoption did not have a material effect on the consolidated financial statements and related disclosures.
In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic718): Improvements to Nonemployee Share-Based Payment Accounting. Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07 is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted, for acquisition or deconsolidation transactions occurring beforebut no earlier than the issuanceCompany’s adoption date or effective date and only when the transactions have not been reported in issued or made available for issuance financial statements.of Topic 606, Revenue from Contracts with Customers (as described above under “Revenue Recognition”). The Company does not believeadopted the new standard during the year ended December 31, 2019 and the adoption of this new standard willdid not have a material impacteffect on itsthe consolidated financial statements.
Recent issued accounting pronouncements
In September 2015,August 2020, the FASB issued ASU No. 2015-16, “Simplifying the 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Measurement-Period Adjustments”Convertible Instruments and Contracts in an Entity’s Own Equity. The guidance eliminatesamendments in Update No. 2020-06 simplify the requirement that an acquirer in a business combination accountcomplexity associated with applying U.S. GAAP for a measurement period adjustment retrospectively. Instead, an acquirer will recognize a measurement period adjustment duringcertain financial instruments with characteristics of liabilities and equity. More specifically, the period in which the amount of the adjustment is determined. In addition, the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date should be presented separatelyamendments focus on the face of the income statement or disclosedguidance for convertible instruments and derivative scope exception for contracts in the notes. This guidance wasan entity’s own equity. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2015,2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently in the process of determining the effect that the adoption will have on its financial position and results of operations.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. The amendments of ASU No. 2020-04 are effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company is evaluating the impact that the amendments of this standard would have on the Company’s consolidated financial statements
In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance dideliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.
Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the Company’s consolidated financial results.
Subsequent Events. The Company evaluates subsequent events and transactions that occur after the balance sheet date for potential recognition or disclosure. Any material events that occur between the balance sheet date and the date that the financial statements were issued ASU No. 2016-09, “Compensation – Stock Compensation”. The new guidance changesare disclosed as subsequent events, while the accounting for share based payment transactions, includingfinancial statements are adjusted to reflect any conditions that existed at the income tax consequences, classification of awards as either equity or liabilities and classification in the Consolidated Statement of Cash Flows. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. This guidance did not have a material impact on the Company’s consolidated financial results.
Acquisition of Ameri Georgia
On November 20, 2015, we completed the acquisition of Bellsoft, Inc., a consulting company based in Lawrenceville, Georgia, with over 175 consultants specializedwhich specializes 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 India. For financial accounting purposes, we recognized September 1, 2015 as the effective date of the acquisition. The total consideration for the acquisition of Ameri Georgia was $9,910,817, consisting of:
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The total purchase price of $9,910,817$9.9 million 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 January 17, 2018, we completed all payment obligations to the former shareholders of Ameri Georgia as earn-out payments duringin connection with the nine months ended September 30, 2017.
Acquisition of Bigtech Software Private Limited
On June 23, 2016, we entered into a definitive agreement to acquirepurchase Bigtech Software Private Limited (“Bigtech”), a pure-play SAP services company providing a completewide range of SAP services including turnkey implementations, application management, training and basis ABAP support. Based in Bangalore, India, Bigtech offers SAP services to improve business operations at companies of all sizes and verticals.
The acquisition of Bigtech was effective as of July 1, 2016, and the total consideration for the acquisition of Bigtech was $850,000, consisting of:
Bigtech’s financial results are included in our condensed consolidated financial results starting July 1, 2016. The Bigtech acquisition did not constitute a significant acquisition for the Company.Company for purposes of Regulation S-X. The valuation of Bigtech was made on the basis of its projected revenues.
Acquisition of Virtuoso
On July 22, 2016, we through 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 us, Virtuoso Acquisition Inc., Ameri100 Virtuoso Inc., Virtuoso and the sole member of Virtuoso (the “Sole Member”). Virtuoso is aan 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’s name was changed to Ameri100 Virtuoso Inc. The Virtuoso acquisition did not constitute a significant acquisition for the Company.
The total purchase price of $1,831,881$1.8 million was allocated to intangibles of $0.9 million, taking into consideration projected revenue from the acquired list of Virtuoso customers over a period of three years, and the balance was allocated to goodwill. The Virtuoso earn-out payments for 2016 amounted to $64,736$0.06 million in cash and 12,408 shares of common stock, which were delivered to the Sole Member during the ninetwelve months ended September 30,December 31, 2017.
Acquisition of Ameri Arizona
On July 29, 2016, we acquired 100% of the membership interests of DC&M Partners, L.L.C. (“Ameri Arizona”), an Arizona limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement by and among us, Ameri Arizona, all of the members of Ameri Arizona, Giri Devanur and Srinidhi “Dev” Devanur, our former President and Chief Executive Officer and current Executive Vice Chairman, respectively. In July 2017, the name of DC&M Partners, L.L.C. was changed to Ameri100 Arizona LLC. Ameri Arizona is aan SAP consulting company headquartered in Chandler, Arizona. Ameri Arizona provides its clients with a wide range of information technology development, consultancy and management services with an emphasis on the design, build and rollout of SAP implementations and related products. Ameri Arizona is also a SAP-certified software partner, having launched its SAP reporting, extraction and distribution tool called “IRIS”. Ameri Arizona services clients in 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 Ameri Arizona was $15,816,000 consisting of:
As of the date of this report, the aggregate of $1,000,000 in earn-out payments duringconsideration payable by cash to Lucid Solutions Inc. and Houskens LLC in connection with the nine months ended September 30, 2017Ameri100 Arizona acquisition has been taken over as per the Exchange Agreement dated June 3, 2020. See Note 10 to our unaudited condensed consolidated financial statements for earn-out amounts earned prior to such date.
Acquisition of Ameri California
On March 10, 2017, we acquired 100% of the shares of ATCG Technology Solutions, Inc. (“Ameri California”), a Delaware corporation, pursuant to the terms of a Share Purchase Agreement among the Company, ATCG,Ameri California, all of the stockholders of Ameri California (the “Stockholders”), and the Stockholders’ representative. In July 2017, the name of ATCG Technology Solutions, Inc. was changed to Ameri100 California Inc. Ameri California provides U.S. domestic, offshore and onsite SAP consulting services and has its main office in Folsom, California. Ameri California specializes in providing SAP Hybris, SAP Success Factors and business intelligence services.
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The aggregate purchase price for the acquisition of Ameri California was $8,784,533, consisting of:
Presented below is the summary of the foregoing acquisitions:
Allocation of purchase price in millions of U.S. dollars
| Asset Component | Ameri Georgia | Bigtech | Virtuoso | Ameri Arizona | Ameri California | |||||||||||||||
| Intangible Assets | 1.8 | 0.6 | 0.9 | 5.4 | 3.8 | |||||||||||||||
| Goodwill | 3.5 | 0.3 | 0.9 | 10.4 | 5.0 | |||||||||||||||
Working Capital | ||||||||||||||||||||
| Current Assets | ||||||||||||||||||||
| Cash | 1.4 | - | - | - | - | |||||||||||||||
| Accounts Receivable | 5.6 | - | - | - | - | |||||||||||||||
| Other Assets | 0.2 | - | - | - | - | |||||||||||||||
| 7.3 | - | - | - | - | ||||||||||||||||
| Current Liabilities | ||||||||||||||||||||
| Accounts Payable | 1.3 | - | - | - | - | |||||||||||||||
| Accrued Expenses & Other Current Liabilities | 1.3 | - | - | - | - | |||||||||||||||
| 2.7 | - | - | - | - | ||||||||||||||||
| Net Working Capital Acquired | 4.6 | - | - | - | - | |||||||||||||||
| Total Purchase Price | 9.9 | 0.9 | 1.8 | 15.8 | 8.8 | |||||||||||||||
| Ameri | Ameri | Ameri | ||||||||||||||||||
| Asset Component | Georgia | Bigtech | Virtuoso | Arizona | California | |||||||||||||||
| Intangible Assets | 1.8 | 0.6 | 0.9 | 5.4 | 3.8 | |||||||||||||||
| Goodwill | 3.5 | 0.3 | 0.9 | 10.4 | 5.0 | |||||||||||||||
| Working Capital | ||||||||||||||||||||
| Current Assets | ||||||||||||||||||||
| Cash | 1.4 | - | - | - | - | |||||||||||||||
| Accounts Receivable | 5.6 | - | - | - | - | |||||||||||||||
| Other Assets | 0.2 | - | - | - | - | |||||||||||||||
| 7.3 | - | - | - | - | ||||||||||||||||
| Current Liabilities | ||||||||||||||||||||
| Accounts Payable | 1.3 | - | - | - | - | |||||||||||||||
| Accrued Expenses & Other Current Liabilities | 1.3 | - | - | - | - | |||||||||||||||
| 2.7 | - | - | - | - | ||||||||||||||||
| Net Working Capital Acquired | 4.6 | - | - | - | - | |||||||||||||||
| Total Purchase Price | 9.9 | 0.9 | 1.8 | 15.8 | 8.8 | |||||||||||||||
10NOTE 4. REVENUE RECOGNITION:
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The Company recognizesadopted ASC 606 effective January 1, 2018 using the modified retrospective method which would require a cumulative effect adjustment for initially applying the new revenue primarily throughstandard as an adjustment to the provisionopening balance of consulting services. We generate revenue by providing consulting services under written service contracts with our customers. The service contracts we enter generally fall into two categories: (1) time-and-materials contractsretained earnings and (2) fixed-price contracts.
The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. We recognize revenues as we transfer control of deliverables (products, solutions and services) to our customers in an arrangementamount reflecting the consideration to which we expect to be entitled.
To achieve this core principle, the Company applies the following five steps:
| 1) | Identify the contract with a customer |
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has been obtained,commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
| 2) | Identify the performance obligations in the contract |
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are delivered, feescapable of being distinct and distinct in the context of the contract. If these criteria are fixednot met the promised services are accounted for as a combined performance obligation.
| 3) | Determine the transaction price |
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or determinablethe most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of December 31, 2019 contained a significant financing component.
| 4) | Allocate the transaction price to performance obligations in the contract |
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and collectabilitymeets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is reasonably assured. We establish billing termssold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
| 5) | Recognize revenue when or as the Company satisfies a performance obligation |
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time at which the project deliverables and milestones are agreed. Our standard payment terms are 60 daysrelated performance obligation is satisfied by transferring a promised service to a customer.
Disaggregation of Revenue from invoice date.
| For Nine Months Ended | ||||||||
| September 30, 2020 | September 30, 2019 | |||||||
| ATGC India | $ | 117,043 | $ | 246,594 | ||||
| Ameri 100 California | 10,025,993 | 8,270,065 | ||||||
| Ameri 100 Arizona | 2,728,199 | 6,202,325 | ||||||
| Ameri 100 Canada | 275,508 | 516,372 | ||||||
| Ameri 100 Georgia | 3,897,277 | 9,901,456 | ||||||
| Bigtech Software | 39,138 | 228,767 | ||||||
| Ameri 100 Consulting Pvt Ltd | 260,439 | 82,129 | ||||||
| Ameri Partners | 8,896,902 | 5,402,402 | ||||||
| Total revenue | $ | 26,340,499 | $ | 30,850,110 | ||||
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For performance obligations where control is transferred over time, revenues are recognized based compensation expenseon the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided.
Revenues related to fixed-price contracts for application development and systems integration services, consulting or other technology services are recognized as the service is performed using the cost to cost method, under which the total value of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected labor costs. Revenues related to fixed-price application maintenance, testing and business process services are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above. The cost to cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately.
Revenues related to our time-and-materials, transaction-based or volume-based contracts are recognized over the period the services are provided either using an output method such as labor hours, or a method that is otherwise consistent with the way in which value is delivered to the customer.
Revenues also include the reimbursement of out-of-pocket expenses.
We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change.
We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees paid upfront by our customers to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from early termination of the contract.
Prior to the adoption of the New Revenue Standard on January 1, 2018, revenues were earned and recognized when all of the following criteria were met: evidence of an arrangement existed, the price was fixed or determinable, the services had been rendered and collectability was reasonably assured. Contingent or incentive revenues were recognized when the contingency was satisfied and we concluded the amounts were earned. Volume discounts were recorded as a reduction of revenues as services were provided. Revenues also included the reimbursement of out-of-pocket expenses.
For the three months ended September 30, 2020 and September 30, 2019, sales to five major customers accounted for approximately 54% and 52% of our total revenue, respectively. For the three months ended September 30, 2020, five of our customers contributed 23%,10%,9%,7% and 6% of our revenue.
For the nine months ended September 30, 2017 was $5,167,354. During the quarter ended2020 and September 30, 2017, Lone Star Value Investors, LP exercised on a cashless basis a warrant which resulted in the issuance of 1,205,837 shares2019, sales to five major customers accounted for approximately 47% of our total revenue, respectively.
NOTE 5. INTANGIBLE ASSETS:common stock and we recorded a corresponding charge to stock based compensation expense of $2,170,506.
The Company’s intangible assets primarily consists of the 2,000,000 shares available under the Plan, aggregate grants of 1,607,758 shares of our common stock had been granted as options and restricted stock units.
September 30, 2017 | December 31, 2016 | |||||||
| Capitalized intangible assets | $ | 12,517,628 | $ | 10,074,546 | ||||
| Accumulated amortization | 2,264,247 | 1,309,842 | ||||||
| Total intangible assets | $ | 10,253,381 | $ | 8,764,704 | ||||
Years ending December 31, | Amount | |||
| 2017 | $ | 665,859 | ||
| 2018 | 2,955,873 | |||
| 2019 | 2,727,968 | |||
| 2020 | 2,652,000 | |||
| 2021 | 1,251,681 | |||
| Total | $ | 10,253,381 | ||
NOTE 6. GOODWILL:
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations. Goodwill was comprisedThe total value of the following amounts:
September 30, 2017 | December 31, 2016 | |||||||
| Virtuoso | $ | 939,881 | $ | 939,881 | ||||
| Ameri Arizona | 10,416,000 | 10,416,000 | ||||||
| Bigtech | 299,803 | 314,555 | ||||||
| Ameri Consulting Service Pvt. Ltd. | 1,948,118 | 1,948,118 | ||||||
| Ameri Georgia | 3,470,522 | 3,470,522 | ||||||
| Ameri California | 4,812,243 | - | ||||||
| Total | $ | 21,886,567 | $ | 17,089,076 | ||||
As per Company policy, goodwill impairment tests will beare conducted on an annual basis and any impairment will beis reflected in the Company’s statementsStatements of operations.
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NOTE 7. EARNINGS (LOSS) PER SHARE:
Basic income (loss) per share is computed based upon the weighted average number of common shares outstanding for the period. When applicable, diluted income (loss) per share is calculated using two approaches. The first approach, the treasury stock method, reflects the potential dilution that could occur if outstanding stock options, warrants, restricted stock units and outstanding shares to be awarded to satisfy contingent consideration for the business combinations (collectively, the “Equity Awards”) were exercised and issued. The second approach, the if converted method, reflects the potential dilution of the Equity Awards, the 8% Convertible Unsecured Promissory Notes (the “2017 Notes”) described in Note 10 being exchanged for common stock. Under this method, interest expense, net of tax, if any, associated with the 2017 Notes, up through redemption, is added back to net income attributable to common stockholders and the shares outstanding are increased by the underlying 2017 Notes are considered to be issued.
For the nine months ended September 30, 2020 and 2019, no shares related to the issuance of common stock upon exercise of the Equity Awards or the exchange of the 2017 Notes for common stock were considered in the calculation of diluted loss per share, as the effect would be anti-dilutive due to net losses attributable to common stockholders for both periods.
A reconciliation of net incomeloss attributable to common stockholders and weighted average shares used in computing basic and diluted net incomeloss per share is as follows:
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||
| Net income (loss) attributable to common stock holders | $ | (9,615,628 | ) | $ | (4,082,006 | ) | ||
| Weighted average common shares outstanding | 14,472,322 | 12,794,149 | ||||||
| Basic net income (loss) per share of common stock | $ | (0.66 | ) | $ | (0.32 | ) | ||
| Diluted net income (loss) per share of common stock | $ | (0.66 | ) | $ | (0.32 | ) | ||
| For the Nine Months Ended | ||||||||
| September 30, 2020 | September 30, 2019 | |||||||
| Numerator for basic and diluted income (loss) per share: | ||||||||
| Net income (loss) attributable to common stockholders | $ | (4,644,246 | ) | (3,393,945 | ) | |||
| Numerator for diluted income (loss) per share: | ||||||||
| Net income (loss) attributable to common stockholders - as reported | $ | (4,644,246 | ) | (3,393,945 | ) | |||
| Net income (loss) attributable to common stockholders - after assumed conversions of dilutive | ||||||||
| Shares | $ | (4,644,246 | ) | (3,393,945 | ) | |||
| Denominator for weighted average common shares outstanding: | ||||||||
| Basic shares | 4,172,526 | 1,999,390 | ||||||
| Dilutive effect of Equity Awards | ||||||||
| Dilutive effect of 2017 Notes | - | |||||||
| Diluted shares | 4,172,526 | 1,999,390 | ||||||
| Income (loss) per share – basic: | $ | (1.11 | ) | (1.70 | ) | |||
| Income (loss) per share – diluted: | $ | (1.11 | ) | (1.70 | ) | |||
NOTE 8. INCENTIVE PLAN ITEMS:
During the Plan, for which either the stock option exercise price or the fair value of the restricted share award exceeds the average market price over the period, have an anti- dilutive effect on earnings per share, and accordingly, are excluded from the diluted computations for all periods presented.
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NOTE 9. BANK DEBT:
On July 1, 2016,January 23, 2019, certain subsidiaries of the Company, including Ameri100 Arizona LLC, Ameri100 Georgia, Inc., Ameri100 California, Inc. and Ameri and Partners, Inc., as borrowers (individually and collectively, “Borrower”) entered into a Loan and Security Agreement (the “Loan Agreement”), for a credit facility (the “Credit Facility”) with North Mill Capital LLC, as lender (the “Lender”). The Loan Agreement has an initial term of two years from the closing date, with renewal thereafter if Lender, at its wholly-owned subsidiaries Ameri and Partners Inc and Ameri Georgia, as borrowersoption, agrees in writing to extend the term for additional one year periods (the “Borrowers”“Term”). The Loan Agreement is collateralized by a first-priority security interest in all of the assets of Borrower. In addition, (i) pursuant to a Corporate Guaranty entered into by the Company in favor of the Lender (the “Corporate Guaranty”), the Company and its wholly-owned subsidiary Linear Logics, Corp. serving as guarantors,has guaranteed 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 Ameri Arizona, Virtuoso and Ameri California as borrowersBorrower’s obligations under the Loan Agreement following their respective acquisition.
The maturityBorrowers received an initial advance on January 23, 2019 in an amount of the loansapproximately $2.85 million (the “Initial Advance”). Borrowings under the Loan Agreement are as follows:
Borrower also agreed to certain of its subsidiaries obtained an incremental term loan from Sterling National Banknegative covenants in the amount of $343,200.58, which amount shall be an addition to and comprise a part of the existing term loan under the existing Loan Agreement.
As of September 30, 2020, the principal balance and accrued interest under the Credit Facility amounted to $3.1 million.
NOTE 10. CONVERTIBLE NOTES:
On November 25, 2019, the Company entered into a securities purchase agreement with an institutional investor for the quarters ended March 31, 2017, June 30, 2017sale of a $1,000,000 convertible debenture (the “First Debenture”).
The First Debenture accrued interest at rate of 5% and September 30, 2017 in exchangewas due six (6) months from the issue date. The First Debenture was convertible at any time after the issue date into shares of Company’s Common Stock at a price equal to $2.725.
On January 14, 2020, the Company entered into a securities purchase agreement (with the same institutional investor for the paymentsale of a fee of $5,000 for each quarterly waiver. The Company does not expect to be in compliance$500,000 convertible debenture (the “Second Debenture” and collectively with the termsFirst Debenture, the “Debentures”).
The Second Debenture accrued interest at rate 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.
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During the nine months ended September 30, 2020 the holders of First Debenture and Second Debenture exercised their rights for conversion into common shares for which the company issued 550,458 common shares. After the conversion, there are no First Debentures or Second Debentures outstanding.
On June 3, 2020 Ameri entered into an Exchange Agreement with Alpha Capital Ansalt (“Alpha”), the holder of certain 8% unsecured convertible notes, which notes were originally issued on or about March 7, 2017 amounted(the “2017 Prior Notes”). Pursuant to $108,206. Principal repaidsuch Exchange Agreement, Alpha agreed to exchange the 2017 Prior Notes for a new convertible 1% debenture (the “June Debenture”) in the aggregate principal amount of $2,265,342.46, which June Debenture is convertible into shares of common stock of Ameri at a conversion price of $1.75 per share. The June Debenture is due on the Term Loan during the nine months ended September 30, 2017 was $304,144. The short term and long-term outstanding balances on the Term Loan asDecember 31, 2020. As of September 30, 2017 was $406,156 and $1,575,206, respectively. The outstanding balance2020, 828,572 shares of common stock have been issued upon conversions of the Revolving Loans as ofJune Debenture.
On September 30, 2017 was $3,765,391.
NOTE 11. LEASES:
The Company determines if an arrangement contains a lease at inception. Right of use (“ROU”) assets represent the right to use an underlying asset for the 20 trading days immediately preceding December 31, 2017, subjectlease term and lease liabilities represent the obligation 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, withoutmake lease payments arising from the investors’ approval, restrictionslease. ROU assets and liabilities are recognized at the lease commencement date based on dividends and other restrictedthe estimated present value of lease payments and reclassification of its stock.
The Company’s principal facility is located in Princeton, New Jersey.Alpharetta, Georgia. The Company also leases office space in various locations with expiration dates between 2016 and 2020. In January 2020, the Company entered into a lease agreement for its Dallas office with expiration date 2027. 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 $232,022$0.2 million and $125,883$0.25 million for the nine months ended September 30, 20172020 and 2016,September 30, 2019, respectively.
The Company utilized a portfolio approach in determining the discount rate. The portfolio approach takes into consideration the range of the term, the range of the lease payments, the category of the underlying asset and the Company’s estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company also considered its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating the incremental borrowing rates.
The lease terms include options to extend the leases when it is reasonably certain that the Company will exercise that option. These operating leases contain renewal options for periods ranging from three to five years that expire at various dates with no residual value guarantees. Future obligations relating to the exercise of renewal options is included in the measurement if, based on the judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating lease liabilities.
Leases with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient noted above.
The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company recognizes variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred. Rent expense was $0.2 million and $0.25 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The increase during the comparative periods is duecomponents of lease expense were as follows:
Nine Months ended, Sep 30, 2020 | ||||
| Operating leases | 107,852 | |||
| Interest on lease liabilities | 6,117 | |||
| Total net lease cost | 113,969 | |||
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Supplemental balance sheet information related to the addition of office space through the acquisition of Ameri Arizona, Virtuoso, Bigtechleases was as follows:
| September 30, 2020 | ||||
| Operating leases: | ||||
| Operating lease ROU assets | $ | 874,606 | ||
| Current operating lease liabilities, included in current liabilities | $ | 208,663 | ||
| Noncurrent operating lease liabilities, included in long-term liabilities | 678,272 | |||
Total operating lease liabilities | $ | 886,935 | ||
Supplemental cash flow and Ameri California.
| Nine Months Ended | ||||
| September 30, 2020 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows from operating leases | $ | - | ||
| ROU assets obtained in exchange for lease liabilities: | ||||
| Operating leases | $ | 874,606 | ||
| Weighted average remaining lease term (in years): | 6.75 | |||
| Operating leases | 2.3 | |||
| Weighted average discount rate: | ||||
| Operating leases | 7.25 | % |
Total future minimum rental payments required under thesethe lease agreementsobligations as of September 30, 2020 are as follows:
| Year ending December 31, | Amount | |||
| 2017 | $ | 68,360 | ||
| 2018 | 189,428 | |||
| 2019 | 123,083 | |||
| 2020 | 70,333 | |||
| 2021 | 7,371 | |||
| Total | $ | 458,575 | ||
| Nine Months Ending September 30, | ||||
| 2020 | $ | 181,898 | ||
| 2021 | 192,470 | |||
| 2022 | 81,444 | |||
| 2023 | 91,140 | |||
| 2024 | 101,675 | |||
| Thereafter | 238,308 | |||
| Total lease payments | $ | 886,935 | ||
| Less: amounts representing interest | ||||
| Total lease obligations | $ | 886,935 | ||
NOTE 12. FAIR VALUE MEASUREMENT:
We utilize the following valuation hierarchy for disclosure of cash and cash equivalent, accounts receivable, accounts payable, contingent consideration liability and accrued liabilities. The carrying amounts of accounts receivable, accounts payable, cash and cash equivalents and accrued liabilities are consideredthe inputs to be the same as their fair value, due to their short-term nature.
| ● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
| ● | Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and | |
| ● | Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. |
A financial asset or liability’s classification within the hierarchy is determined based upon the lowest level input that is significant to the fair value measurement.
September 30, 2017 | December 31, 2016 | |||||||
| Level 3 | ||||||||
| Contingent consideration | $ | 5,346,688 | $ | 5,266,488 | ||||
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | |||||||
| Opening balance | 5,346,688 | 5,266,488 | ||||||
| Additions during the period | $ | - | $ | 1,200,000 | ||||
| Paid/settlements | - | (719,800 | ) | |||||
| Total gains recognized in Statement of Operations | - | (400,000 | ) | |||||
| Closing balance | 5,346,688 | 5,346,688 | ||||||
The fair value of the contingent consideration was estimated using a discounted cash flow technique with significant inputs that are not observable in the market. The significant inputs not supported by market activity included our probability assessments of expected future cash flows related to the acquisitions during the earn-out period, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the respective terms of the share purchase agreements.
No financial instruments were transferred into or out of total gains/(losses) included in our Statement of Operations and Comprehensive Income/(Loss) is attributable to change in fair value of contingent consideration arising fromLevel 3 classification during the acquisition of Ameri Arizona were $400,000 and $0 for the nine monthsperiod ended September 30, 20172020 and year ended December 31, 2019.
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NOTE 13. WARRANTS OUTSTANDING:
The following warrants were outstanding as of September 30, 2020:
| Exercise Price ($) | Outstanding Warrants | Weighted Average Remaining Contractual life (Years) | Number Exercisable | ||||||||||
| 102.88 | 52,877 | 0.02 | 52,877 | ||||||||||
| 150.00 | 40,000 | 0.03 | 40,000 | ||||||||||
| 37.50 | 200,000 | 2.02 | 200,000 | ||||||||||
| 55.00 | 60,375 | 4.68 | 60,375 | ||||||||||
| 45.75 | 36,665 | 4.85 | 36,665 | ||||||||||
1.83 | 340,448 | 4.85 | 340,448 | ||||||||||
0.001 | 646,094 | 0.25 | 646,094 | ||||||||||
| Total | 1,376.459 | 1,376,459 | |||||||||||
NOTE 14- PREFERRED STOCK
On December 30, 2016, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Lone Star Value Investors, LP (“LSVI”), pursuant to which a Convertible Note was returned to the Company and cancelled in exchange for 363,611 shares of the Company’s Series A Preferred Stock, which is non-convertible and perpetual preferred stock of the Company. We have issued 61,327 shares as preferred dividends as of September 30, 2020 and the company has 424,938 outstanding shares preferred stock.
A dividend of $217,291 has become due and has not yet been paid.
NOTE 15. LOAN FROM PAYCHECK PROTECTION PROGRAM (PPP):
On May 11, 2020, we received proceeds from a loan in the amount of $1,719,600 (the “PPP Loan”) from Sterling National Bank, as lender, pursuant to the Small Business Association Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan, which was in the form of a promissory note issued by the Company, matures on May 6, 2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 6, 2020. The note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before July 12, 2020. The Company intends to use the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
NOTE 16. LOAN FROM U.S. SMALL BUSINESS ADMINISTRATION (EIDL)
On June 18,2020, we have received proceeds from a loan in the amount of $ 149,900 (the “EIDL Loan”) from U.S.Small Business Administration as EIDL Loan pursuant to the Small Business Association Economic Injury Disaster Recovery Loan (the “EIDL Loan”) which was in the form of a Loan Authorization and Agreement executed by the company matures 30 years from the promissory note and bears interest at a rate of 3.75% per annum, Installment payments, including principal and interest of $731 monthly will begin 12 months from the date of promissory note. The balance of principal and interest will be payable 30 years from the date of the promissory note.
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NOTE 17. REVISION OF PRIOR YEAR FINANCIAL STATEMENTS
The Company’s corrections of the financial statements as of December 31, 2019 and the year then ended were a result of the adoption of FASB ASU 2016-02 “Leases” (Topic 842) and the implementation of the guidance for a lease that was executed as of April 1, 2019.
In accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements the Company determined that previously issued financial statements be revised to reflect the correction of these errors.
As a result of the aforementioned correction of accounting errors, the relevant financial statements have been revised as follows:
The following tables summarize the effects of the revisions on the specific items presented in the Company’s historical consolidated financial statements previously included in the Company’s Annual Report for the year ended December 31, 2016, respectively.
| December 31, 2019 | ||||||||||||
| As Previously | ||||||||||||
| Reported | Adjustment | As Revised | ||||||||||
| Balance Sheet | ||||||||||||
| Other Assets | ||||||||||||
| Operating lease right of use asset, net | $ | - | $ | 286,163 | $ | 286,163 | ||||||
| Total Other Assets | 17,405,998 | 286,163 | 17,692,161 | |||||||||
| Total Assets | $ | 25,005,152 | $ | 286,163 | $ | 25,291,315 | ||||||
| Current Liabilities | ||||||||||||
| Current portion – operating lease liability | $ | - | $ | 120,052 | $ | 120,052 | ||||||
| Total Current Liabilities | 14,383,605 | 120,052 | 14,503,657 | |||||||||
| Long-term Liabilities | ||||||||||||
| Operating lease liability, net | - | 169,897 | 169,897 | |||||||||
| Total Long-term Liabilities | - | 169,897 | 169,897 | |||||||||
| Total Liabilities | $ | 14,383,605 | $ | 289,949 | $ | 14,673,554 | ||||||
| Stockholders’ Equity | ||||||||||||
| Accumulated Deficit | $ | (40,508,231 | ) | $ | (3,788 | ) | $ | (40,512,019 | ) | |||
| Total Stockholders’ Equity | 10,621,547 | (3,788 | ) | 10,617,764 | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | 25,005,152 | 286,163 | 25,291,315 | ||||||||
| For the year ended December 31, 2019 | ||||||||||||
| As Previously | ||||||||||||
| Reported | Adjustments | As Revised | ||||||||||
| Statement of Operations | ||||||||||||
| Interest expense | $ | (691,138 | ) | $ | (3,788 | ) | $ | (694,926 | ) | |||
| Total other income (expenses) | 1,109,576 | (3,788 | ) | 1,105,788 | ||||||||
| Loss before income taxes | (5,215,318 | ) | (3,788 | ) | (5,219,106 | ) | ||||||
| Net loss | (5,603,975 | ) | (3,788 | ) | (5,607,763 | ) | ||||||
| Net loss attributable to common stockholders | (6,029,978 | ) | (3,788 | ) | (6,033,766 | ) | ||||||
| Total comprehensive loss | (6,056,963 | ) | (3,788 | ) | (6,060,751 | ) | ||||||
| Comprehensive loss attributable to Company | $ | (6,056,963 | ) | $ | (3,788 | ) | $ | (6,060,751 | ) | |||
| Basic and diluted loss per share | $ | (2.83 | ) | $ | - | $ | (2.83 | ) | ||||
| Statements of Cash Flows | ||||||||||||
| Net loss | $ | (6,029,978 | ) | $ | (3,788 | ) | $ | (6,033,766 | ) | |||
| Amortization of right of use asset | - | 3,788 | 3,788 | |||||||||
| Net Cash Used in Operating Activities | $ | (2,453,123 | ) | $ | - | $ | (2,453,123 | ) | ||||
| For the year ended December 31, 2019 | ||||||||||||
| As Previously | ||||||||||||
| Reported | Adjustments | As Revised | ||||||||||
| Statement of Stockholders’ Deficit | ||||||||||||
| Net loss | $ | (6,029,978 | ) | $ | (3,788 | ) | $ | (6,033,766 | ) | |||
| Accumulated deficit ending balance | $ | (40,508,231 | ) | $ | (3,788 | ) | $ | (40,512,019 | ) | |||
| Total stockholders’ equity ending balance | $ | 10,621,547 | $ | (3,788 | ) | $ | 10,617,764 | |||||
NOTE 18. SUBSEQUENT EVENTS:
As of November 13, 2020, 908,723 shares of common stock have been issued upon conversions of the September Debentures.
As of November 13,2020, 50,224 shares of common stock have been issued upon conversions of the June Debentures
As of November 13, 2020, 646,094 shares of common stock have been issued upon exercise of the Pre-Funded Warrants.
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The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in our Annual Report on Form 10-K for the year ended December 31, 2016.2019. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. See “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 was a shell company immediately prior to our completion of a “reverse merger” transaction on May 26, 2015, 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 Inc (“Ameri and Partners”), a Delaware corporation (the “Merger”). On May 26, 2015, we completed 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 Ameri100), a Delaware corporation. As a result of the Merger, Ameri and Partners became our wholly owned operating subsidiary. The Merger was consummated under Delaware law, pursuant to an Agreement of Merger and Plan of Reorganization, dated as of May 26, 2015 (the “Merger Agreement”), and in connection with the Merger we changed our name to AMERI Holdings, Inc. We are headquartered in Princeton, New Jersey.
On January 10, 2020, we entered into the Stock Purchase Agreement with respect to the Spin-Off and the Amalgamation Agreement with respect to the Amalgamation. There is no assurance when or if the amalgamation will be completed. Any delay in completing the amalgamation may substantially reduce the intended benefits that Ameri and Jay Pharma expect to obtain from the amalgamation.
Completion of the amalgamation and spin-off is subject to the satisfaction or waiver of a number of conditions as set forth in the Amalgamation Agreement and spin-off agreements, including the approval by Ameri’s stockholders and Jay Pharma’s shareholders, approval by NASDAQ of Ameri’s application for the listing of common stock in connection with the amalgamation, and other customary closing conditions. There can be no assurance that Ameri and Jay Pharma will be able to satisfy the closing conditions or that closing conditions of the amalgamation or spin-off beyond their control will be satisfied or waived. If such conditions are not satisfied or waived, the amalgamation and spin-off may not occur or will be delayed, and Ameri and Jay Pharma each may lose some or all of the intended benefits of the amalgamation. In addition, if the Amalgamation Agreement is terminated under certain circumstances, Ameri or Jay Pharma may be required to pay a termination fee of $500,000. Moreover, each of Ameri and Jay Pharma has incurred and expect to continue to incur significant expenses related to the amalgamation, such as legal and accounting fees, some of which must be paid even if the amalgamation is not completed.
Overview
We specialize in delivering SAPTM cloud, digital and enterprise services to clients worldwide. Our SAP focus allows us to provide technological solutions to a broad and growing base of clients. We are headquartered in Princeton, NJ, and we have offices across the United States, which are supported by offices in India. Our model inverts the conventional global delivery model wherein offshore information technology (“IT”)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 services. We pursue an acquisition strategy that seeks to disrupt the established business model of offshore IT service providers.
We generate revenue by providing consulting services under written service contracts with our customers. The service contracts we enter into generally fall into two categories: (1) time-and-materials contracts and (2) fixed-price contracts.
When a customer enters into a time-and-materials or fixed-price (or a periodic retainer-based) contract, the revenue is recognized in accordance with the deliverables of each contract. If the deliverables involve separate units of accounting, 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.
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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 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 September 30, 20172020 and September 30, 2016,2019, sales to five major customers accounted for 43%54% and 45%52% of our total revenue, respectively. One of our customers contributed 14% of our revenue forFor the three months ended September 30, 2017.2019, two of our customers have contributed 23% and 10% of our revenue. For the comparable period in 2016, two customers each contributed 15% and 12%2019, one of our revenue, respectively.
For the nine months ended September 30, 20172020 and September 30, 2016,2019, sales to five major customers accounted for 39%47% and 54%48% of our total revenue, respectively. OneTwo of our customers contributed 11%20% and 10% of our revenue for the nine months ended September 30, 2017.2020. For the comparable period in 2016, two2019, Two of our customers each contributed 19% and 14%10% of our 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 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.
Business Update Regarding COVID-19
During the first quarter of 2020, the spread of a new strain of coronavirus and the disease created by that virus, COVID-19, has created a global pandemic presenting substantial public health and economic challenges around the world. The global pandemic is affecting our employees, communities and business operations, as well as the global economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
The disclosure in the remainder of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is qualified by the disclosure in this section on the impacts of COVID-19 and, to the extent that the disclosure in the remainder of this MD&A refers to a financial or performance metric that has been affected by a trend or activity, that reference is in addition to any impact discussed in this section of the impacts of the COVID-19 pandemic. The effect of the COVID-19 pandemic is rapidly evolving and, as such, the information contained herein is accurate as of the date hereof, but may become outdated due to changing circumstances beyond our present awareness or control.
The Company has also provided,Implemented work from home policies and may from time to timeprocedures for all of its employees and consultants in the future provide, informationUSA and India. These policies and procedures will remain in place until such time that the local regulatory authorities in each of our locations approves the return to interested parties.
No clients have gone out of business or filed for bankruptcy, and although there has been a reduction in staffing, no active clients have completely ceased using our services as a result of COVID-19. As a direct result of COVID-19 we had significant consultant roll-offs from one of the top US airlines that May or Are Currently Affecting Ourhas been one of our top five revenue clients over the last several years. We expect a portion of that business to come back when the US airline business recovers. Additionally, we have seen minor consultant roll-offs from other clients related to COVID-19. One of the Company’s largest customers has terminated the majority of its work as a result of COVID-19. This customer has accounted in the past for annual revenues of between $5 to $7 million dollars. The impact on this quarter is a reduction of approximately $1.5 million in revenue. We have had no projects cancelled due to COVID-19 although we have had some new projects put on hold. We have also had clients notify us they will be slow to pay our bills and have some reduced billable hours per week until the economy reopens further. We are at the beginning stages of rebuilding our sales pipeline for a post-COVID economy.
Discussion of Business
The main challengesCompany has recently been awarded enterprise IT solutions projects include implementations of i) S/4HANA, SAP’s new enterprise IT platform, ii) Hybris, SAP’s e-commerce platform, and trends that could affect or are affecting our financial results include:
Key new business activities in July to September 2020:
| ● | Awarded greenfield S/4HANA transformation for a leader in HVAC technology and manufacturing: | |
| ● | Awarded, implemented and successful go-live of Ariba and Concur functionalities at the largest American supplemental insurance company | |
| ● | Engaged to architect, manage, and help implement C4 solutions at a large Japanese multinational conglomerate corporation | |
| ● | Awarded global template design, build and rollout of S/4HANA and other supporting SAP products at a large tire and rubber products company based in Japan | |
| ● | Signed Ameri100’s first Qualtrics EX project | |
| ● | Opened a new account with SAP related billing at one of the largest chocolate manufacturers in the world | |
| ● | Complete 2 SAP software transactions as a SAP certified CCP reseller – Ameri100’s first 2 revenue generating SAP software transactions |
In addition to client initiatives, the Company has invested in continued development of its internal technology expertise and business process efficiency. We have initiated the internal implementation of a Professional Services Automation suite that we hope will significantly streamline our business operations.
There is a continued near-term expectation of negative cashflow as a result of high Selling, General and Administrative expenses and significant expenses associated with building solutions, sales and resource recruiting capabilities. Also, SAP has pushed out its deadline for mandatory migration to S/4HANA past 2025, which is expected to have a near-term negative impact on the expansion of the solutions business. Due to the foregoing and COVID-19 Pandemic, it is expected that our business will fall short of our 2020 revenue goals.
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended September 30, 20172020 Compared to the Three Months Ended September 30, 20162019 and for the Nine Months Ended September 30, 20172020 Compared to the Nine Months Ended September 30, 2016
Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||
| Revenue | $ | 12,529,928 | $ | 10,058,558 | $ | 37,139,114 | 23,758,460 | |||||||||
| Cost of revenue | 9,966,490 | 8,361,960 | 28,941,535 | 18,897,059 | ||||||||||||
| Gross profit | 2,563,438 | 1,696,598 | 8,197,579 | 4,861,401 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling and marketing | 402,846 | 137,024 | 1,170,051 | 401,487 | ||||||||||||
| General and administration | 5,283,059 | 1,326,327 | 12,389,581 | 5,316,390 | ||||||||||||
| Acquisition related expenses | 5,694 | 1,015,558 | 390,174 | 1,630,778 | ||||||||||||
| Depreciation and amortization | 817,284 | 509,377 | 2,332,041 | 722,390 | ||||||||||||
| Operating expenses | 6,508,883 | 2,988,286 | 16,281,847 | 8,071,045 | ||||||||||||
| Operating income (loss) | (3,945,445 | ) | (1,291,688 | ) | (8,084,268 | ) | (3,209,644 | ) | ||||||||
| Interest expenses | (132,973 | ) | (290,423 | ) | (388,122 | ) | (674,683 | ) | ||||||||
| Changes in estimates | - | - | 400,000 | - | ||||||||||||
| Others, net | 17,446 | (195,518 | ) | 21,921 | (197,679 | ) | ||||||||||
| Income (loss) before income taxes | (4,060,972 | ) | (1,777,629 | ) | (8,050,469 | ) | (4,082,006 | ) | ||||||||
| Tax benefit / (provision) | - | - | - | - | ||||||||||||
| Income after income taxes | (4,060,972 | ) | (1,777,629 | ) | (8,050,469 | ) | (4,082,006 | ) | ||||||||
| Net income attributable to non-controlling interest | (6,632 | ) | - | (18,504 | ) | - | ||||||||||
| Net income (loss) attributable to the Company | (4,067,604 | ) | (1,777,629 | ) | (8,068,973 | ) | (4,082,006 | ) | ||||||||
| Dividend on preferred stock | (541,864 | ) | - | (1,546,655 | ) | - | ||||||||||
| Net loss attributable to common stock holders | (4,609,468 | ) | (1,777,629 | ) | (9,615,628 | ) | (4,082,006 | ) | ||||||||
| Other comprehensive income (loss), net of tax | - | - | - | - | ||||||||||||
| Foreign exchange translation | (14,234 | ) | 59,079 | (11,084 | ) | (6,619 | ) | |||||||||
| Comprehensive income/(loss) | $ | (4,623,702 | ) | $ | (1,718,550 | ) | $ | (9,626,712 | ) | $ | (4,088,625 | ) | ||||
| Comprehensive income/(loss) attributable to the Company | (4,617,070 | ) | (1,718,550 | ) | (9,608,208 | ) | (4,088,625 | ) | ||||||||
| Comprehensive income/(loss) attributable to the non-controlling interest | (6,632 | ) | - | (18,504 | ) | - | ||||||||||
| $ | (4,623,702 | ) | $ | (1,718,550 | ) | $ | (9,626,712 | ) | $ | (4,088,625 | ) | |||||
| Basic income (loss) per share | $ | (0.31 | ) | $ | (0.13 | ) | $ | (0.66 | ) | $ | (0.32 | ) | ||||
| Diluted income (loss) per share | $ | (0.31 | ) | $ | (0.13 | ) | $ | (0.66 | ) | $ | (0.32 | ) | ||||
| Basic weighted average number of common shares outstanding | 14,715,947 | 13,653,586 | 14,472,322 | 12,794,149 | ||||||||||||
| Diluted weighted average number of common shares outstanding | 14,715,947 | 13,653,586 | 14,472,322 | 12,794,149 | ||||||||||||
| Three Months Sep 30,2020 | Three Months Sep 30,2019 | Nine Months Sep 30,2020 | Nine Months Sep 30,2019 | |||||||||||||
| Revenue | 8,483,030 | 9,148,857 | 26,340,499 | 30,850,110 | ||||||||||||
| Cost of revenue | 6,595,533 | 7,249,406 | 20,753,306 | 24,428,520 | ||||||||||||
| Gross profit | 1,887,497 | 1,899,451 | 5,587,193 | 6,421,590 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, General and administration | 2,449,919 | 2,902,401 | 7,845,160 | 9,075,751 | ||||||||||||
| Depreciation and amortization | 556,333 | 562,050 | 1,649,819 | 1,685,637 | ||||||||||||
| Operating expenses | 3,006,252 | 3,464,451 | 9,494,979 | 10,761,388 | ||||||||||||
| Operating Income (loss) | (1,118,755 | ) | (1,565,000 | ) | (3,907,786 | ) | (4,339,798 | ) | ||||||||
| Interest benefit (expenses) | 128,842 | (252,648 | ) | (403,506 | ) | (551,862 | ) | |||||||||
| Changes in fair value of warrant liability | - | 1,857,889 | - | 1,796,174 | ||||||||||||
| Others, net | 882 | (9 | ) | 3,693 | 4,557 | |||||||||||
| Income (loss) before income taxes | (989,031 | ) | 40,232 | (4,307,599 | ) | (3,090,929 | ) | |||||||||
| Income tax benefit (expenses) | 27,857 | 1,067 | (11,520 | ) | 15,688 | |||||||||||
| Income (loss) after income taxes | (961,174 | ) | 41,299 | (4,319,119 | ) | (3,075,241 | ) | |||||||||
| Net income attributable to non-controlling interest | ||||||||||||||||
| Net Income (loss) attributable to the Company | (961,174 | ) | 41,299 | (4,319,119 | ) | (3,075,241 | ) | |||||||||
| Dividend on preferred stock | (109,457 | ) | (106,765 | ) | (325,127 | ) | (318,704 | ) | ||||||||
| Net Income (loss) attributable to common stock holders | (1,070,631 | ) | (65,466 | ) | (4,644,246 | ) | (3,393,945 | ) | ||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
| Foreign exchange translation | 11,902 | (17,979 | ) | (8,247 | ) | (17,406 | ) | |||||||||
| Total Comprehensive Income (loss) | (1,058,729 | ) | (83,445 | ) | (4,652,493 | ) | (3,411,351 | ) | ||||||||
| Basic income (loss) per share | (0.20 | ) | (0.03 | ) | (1.11 | ) | (1.70 | ) | ||||||||
| Diluted income (loss) per share | (0.20 | ) | (0.03 | ) | (1.11 | ) | (1.70 | ) | ||||||||
| Basic weighted average number of common shares outstanding | 5,289,099 | 2,113,227 | 4,172,526 | 1,999,390 | ||||||||||||
| Diluted weighted average number of common shares outstanding | 5,289,099 | 2,113,227 | 4,172,526 | 1,999,390 | ||||||||||||
18Revenues
Revenues for the three months ended September 30, 2017 increased2020 decreased by approximately $2.47$0.7 million, or 7%, as compared to the three months ended September 30, 2016. This increase was primarily attributable2019 mainly due to loss of revenue from existing customers due to COVID-19.
For the three months ended September 30, 2020 and September 30, 2019, sales to five major customers accounted for 54% and 52% of our acquisitiontotal revenue, respectively. For the three months ended September 30, 2019, two of Ameri California.our customers have contributed 23% and 10% of our revenue. For changesthe comparable period in revenue by entity please refer to2019, one of our customers contributed 13% of our revenue. We derived most of our revenues from our customers located in North America for the table below.three months ended September 30, 2020 and September 30, 2019.
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One of the Company
Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | Increase (Decrease) | |||||
| Ameri & Partners | 1.41 | 2.07 | (0.66) | ||||
| Ameri Georgia | 4.64 | 4.38 | 0.26 | ||||
| Bigtech | 0.31 | 0.31 | 0.00 | ||||
| Ameri Arizona | 3.09 | 3.28 | (0.19) | ||||
| Ameri California | 3.07 | - | 3.07 | ||||
| Total | 12.53 | 10.06 | 2.47 |
Revenues for the nine months ended September 30, 2017 increased2020 decreased by approximately $13.38$4.5 million, or 15%, as compared to the nine months ended September 30, 2016. Of this increase in revenue, $6.60 million was attributable2019 mainly due to our acquisition of Ameri California and $7.35 million was attributable to increasesloss of revenue from Ameri Arizona and Bigtech for which we hadexisting customers due to COVID-19.
For the benefit of a full nine months ended September 30, 2020 and September 30, 2019, sales to five major customers accounted for 47% and 48% of our total revenue, respectively. Two of our customers contributed 20% and 10% of our revenue for the nine months ended September 30, 2020. For the comparable period in 2017 while2019, two of our customers contributed 19% and 10% of our revenue. We derived most of our revenues from our customers located in 2016 each company was not acquired until July of 2016. ChangesNorth America for the nine months ended September 30, 2020 and September 30, 2019.
We are expecting a decrease in revenue by entity werefrom existing clients of approximately $3.5 million, as follows.
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | Increase (Decrease) | |||||
| Ameri & Partners | 4.77 | 5.53 | (0.76) | ||||
| Ameri Georgia | 14.82 | 14.62 | 0.20 | ||||
| Bigtech | 0.82 | 0.31 | 0.51 | ||||
| Ameri Arizona | 10.12 | 3.28 | 6.84 | ||||
| Ameri California | 6.60 | - | 6.60 | ||||
| Total | 37.14 | 23.76 | 13.38 |
Gross Margin
Our gross margin was 20%22% for the three months ended September 30, 2017, as compared to 17%2020 and 21% for the three months ended September 30, 2016. Gross margin from Ameri California, which was acquired comparable period in March 2017, was 28%; without that acquisition our gross margin would have been 18%.
Our gross margin was 22%21% for the nine months ended September 30, 2017, as compared to 20%2020 and for the nine months ended September 30, 2016. Gross margin from Ameri California was 29%; without this acquisition our gross margin would have been 21%.
Our target gross margins in future periods are anticipated to be in the range of 20% to 25% based on a mix of project revenues and professional service revenues. However, there is no assurance that we will achieve such anticipated gross margins.
Selling, general and Administrationadministration (“GSG&A”) expenses include all costs, including rent costs, which are not directly associated with revenue-generating activities, as well as the non-cash expense for stock basedstock-based compensation. These include employee costs, corporate costs and facilities costs. Employee costs include administrative salaries and related employee benefits, travel, recruiting and training costs. Corporate costs include reorganization costs, legal, accounting and outside consulting fees. FacilityFacilities costs primarily include rent and communications costs.
SG&A expenses for the three months ended September 30, 20172020 were $5,283,059$2.4 million, as compared to $1,326,327$2.9 million for the three months ended September 30, 2016. G&A expenses increased by $3,956,732 of which $2,194,121 was attributable to stock based compensation expenses. our acquisition of Ameri California and Ameri Arizona added an additional $740,198 to our G&A expenses for the three months ended September 30, 2017 as compared to the same period in 2016.
SG&A expenses for the nine months ended September 30, 20172020 were $12,389,581$7.8 million, as compared to $5,316,389$9.1 million for the nine months ended September 30, 2016. G&A expenses increased by $7,073,192, of which $4,221,395 was attributable2019.
Depreciation and Amortization
Depreciation and amortization expense amounted to our stock based compensation expense due to grants made to our employees, accelerated expenses upon cancellation of restricted stock units in$0.6 million for the second quarter of 2017 and a charge related to a warrant exercised by Lone star Value Investors, LP during the quarterthree months ended September 30, 2017. Our acquisition of Ameri California2020 and Ameri Arizona added an additional $2,477,041 to our G&A expensesthree months ended September 30, 2019 and $1.6 million for the nine months ended September 30, 2017 as compared to the same period in 2016.
Operating Income (Loss)
Our operating loss was $1.1 million for the three months ended September 30, 2020, as compared to $2,332,041$1.6 million for the three months ended September 30, 2019.
Our operating loss was $3.9 million for the nine months ended September 30, 2017, as compared to $722,3902020 and $4.3 million for the nine months ended September 30, 2016. 2019.
We capitalizedexpect the customer lists acquired during various acquisitions, resulting in increased amortization costs. The customer lists from each acquisition are amortized over a period of 60 months.
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Interest Expense
Our interest expense for the three months ended September 30, 20172020 was $132,973$(0.1) million as compared to $290,423$0.3 million for the three months ended September 30, 2016. The decrease is mainly due to changes in interest rates charged by our lenders.
Our interest expense for nine months ended September 30, 2020 was $0.4 million as compared to $0.6 million for the nine months ended September 30, 20172019.
Liquidity and Capital Resources
Our cash position was $388,122approximately $2.8 million as of September 30, 2020, as compared to $674,683$0.4 million as of December 31, 2019.
Cash used for the nine months ended September 30, 2016. The decrease is mainly due to changes in interest rates charged by our lenders.
Liquidity Concerns
As of credit with Sterling National Bank and the issuance of convertible notes.
Our financial statements as of themSeptember 30, 2020 have threatened legal action against us. We are currently working with these vendorsbeen prepared under the assumption that we will continue as a going concern. Our ability to negotiate longer payment terms until we are ablecontinue as a going concern is dependent upon our ability to raise more capital;additional funding through the issuance of equity or debt securities, as well as to attain further operating efficiencies and, ultimately, to generate additional revenues. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Although the Company is tryingbelieves in the viability of management’s strategy to mitigate these efforts by raising more capitalgenerate sufficient revenue, control costs and through streamlining its operations which will provide cash savings going forward, howeverthe ability to raise additional funds if necessary, there can be no assuranceassurances to that the Company will be ableeffect. The foregoing conditions raise substantial doubt about our ability to secure additional sources of capital. In case we are unable to pay these vendors, they can take legal action against us or stop doing business with us which may have an impact on our revenue.
Available Credit Facility, Borrowings and Sterling National Bank, N.A. (as lender and as agent, “Sterling”). The Company joined Ameri Arizona, Virtuoso and Ameri California as borrowersRepayment of Debt
As of September 30, 2020, we had approximately $3.1 million in borrowings outstanding under the Loan Agreement following their respective acquisition.
In addition, we have an outstanding aggregate of $815,342.46 million in principal pursuant1% convertible unsecured debentures (the “1% Debentures”), which were issued to a term loan (the “Term Loan”) for the purposeone 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 between the Company, its wholly-owned subsidiary Ameri Georgia and Federal National Payables, Inc.
Accounts receivable for the period ended September 30, 20172020 were $9,167,088$7.6 million as compared to $8,059,910$6.4 million as on December 31, 2016. The2019 the increase was mainly due to acquisition of Ameri California.
Accounts Payable
Accounts payable for the period ended September 30, 20172020 were $4,126,323$4.6 million as compared to $5,130,817$4.7 million as on December 31, 2016.2019. The decrease was primarilyincrease in Accounts payable is due to the payoff of accumulated accounts payable during the nine months ended September 30, 2017.
Accrued Expenses
Accrued expenses for the period ended September 30, 20172020 were $3,947,294$1.9 million as compared to $2,165,088$2.1 million as on December 31, 2016. Our acquisition of Ameri California led to an increase of accrued2019. These expenses of $754,257reflect obligations associated with work that has been performed but not yet billed, and will be paid in the balance was attributable to our existing entities.
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.customers. Our primary uses of cash for operating activities are for personnel-related expenditures, leased facilities and taxes.
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Off- Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Impact of Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. On an ongoing basis, we attempt to minimize any effects of inflation on our operating results by controlling operating costs and, whenever possible, seeking to ensure that billing rates reflect increases in costs due to inflation.
For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each period end. Statements of Operations accounts are translated at the exchange rate prevailing as of the date of the transaction. The gains or losses resulting from such translation are reported under accumulated other comprehensive income (loss) as a separate component of equity. Realized gains and losses from foreign currency transactions are included in other income, net for the periods presented.
Recent Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements for additional information.
Critical Accounting Estimates
Purchase Price Allocation. WeRevenue Recognition. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements under Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the purchasetransaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)— Narrow-Scope Improvements and Practical Expedients. This update clarifies the objectives of collectability, sales and other taxes, noncash consideration, contract modifications at transition, completed contracts at transition and technical correction. The amendments in this update affect the guidance in ASU 2014-09. In September 2017, the FASB issued additional amendments providing clarification and implementation guidance.
The Company adopted this guidance and related amendments as of the first quarter of fiscal 2018, applying the full retrospective transition method. As the underlying principles of the new standard, relating to the measurement of revenue and the timing of recognition, are closely aligned with the Company’s current business model and practices, the adoption of ASU 2014-09 did not have a material impact on the consolidated financial statements. In addition, the adoption of ASC 606 did not impact the previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.
We recognize revenues as we transfer control of deliverables (products, solutions and services) to our customers in an amount reflecting the consideration to which we expect to be entitled. To recognize revenues, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. We account for a contract when it has approval and commitment from all parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We apply judgment in determining the customer’s ability and intention to pay based on a variety of factors including the customer’s historical payment experience.
For performance obligations where control is transferred over time, revenues are recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided.
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Revenues related to fixed-price contracts for application development and systems integration services, consulting or other technology services are recognized as the service is performed using the cost to cost method, under which the total value of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected labor costs. Revenues related to fixed-price application maintenance, testing and business process services are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above. The cost to cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately.
Revenues related to our time-and-materials, transaction-based or volume-based contracts are recognized over the period the services are provided either using an output method such as labor hours, or a method that is otherwise consistent with the way in which value is delivered to the customer.
Revenues also include the reimbursement of out-of-pocket expenses.
We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of our acquisitionsdeliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change.
We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to customers. We do not consider set up or transition fees paid upfront by our customers to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from early termination of the contract.
Prior to the adoption of the New Revenue Standard on January 1, 2018, revenues were earned and recognized when all of the following criteria were met: evidence of an arrangement existed, the price was fixed or determinable, the services had been rendered and collectability was reasonably assured. Contingent or incentive revenues were recognized when the contingency was satisfied and we concluded the amounts were earned. Volume discounts were recorded as a reduction of revenues as services were provided. Revenues also included the reimbursement of out-of-pocket expenses.
For the nine months ended September 30, 2020 and September 30, 2019, sales to five major customers accounted for 47% and 48% of our total revenue, respectively. Two of our customers contributed 20% and 10% of our revenue for the nine months ended September 30, 2020. For the comparable period in 2019, Two of our customers contributed 19% and 10% of our revenue.
Stock-Based Compensation. Stock-based compensation expense for awards of equity instruments to employees and non-employee directors is determined based on the grant-date fair value of those awards. We recognize these compensation costs net of an estimated forfeiture rate over the requisite service period of the award. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates.
Warrant Liability. The Company accounts for the warrants issued in July 2018 in accordance with the guidance on Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which provides that the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations. The fair value of warrants issued by the Company in connection with private placements of securities has been estimated using the warrants quoted market price.
Impairment. Long-lived assets, which include property, plant and equipment, and certain other assets to be held and used by us, are reviewed when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable based on estimated future cash flows. If this assessment indicates that the carrying values will not be recoverable, as determined based on undiscounted cash flows over the remaining useful lives, an impairment loss is recognized based on the fair value of the asset.
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Income Taxes. We provide for income taxes utilizing the asset and liability method of accounting. Under this method, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities acquired, including identifiable intangible assets,and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely than not that future tax benefits associated with a deferred income tax asset will not be realized, a valuation allowance is provided. The effect on deferred income tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date. Tax benefits earned on employee stock awards in excess of recorded stock-based compensation expense are credited to additional paid-in capital. Our provision for income taxes also includes the impact of provisions established for uncertain income tax positions, as well as the related interest.
Accounts Receivable. We extend credit to clients based upon management’s assessment of their respective fair values atcredit-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.
Business Combination. We account for business combinations using the date of acquisition. Someacquisition method, which requires the identification 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 atacquirer, the enterprise level and is deductible for tax purposes for certain types of acquisitions. Management finalizes the purchase price allocation within the defined measurement perioddetermination of the acquisition date and the allocation of the purchase price paid by the acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent consideration and any non-controlling interest in the acquiree at their acquisition date fair values. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in our consolidated financial statements from the acquisition date.
Goodwill and Purchased Intangibles. We evaluate goodwill and purchased intangible assets for impairment at least annually, or as certain initial accountingcircumstances warrant. Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit with its carrying amount. For purchased intangible assets, if our annual qualitative assessment indicates possible impairment, we test the assets for impairment by comparing the fair value of such assets to their carrying value. In determining the fair value, we utilize various estimates are resolved.
Valuation of Contingent Earn-out Consideration.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.
The Company translates the foreign currency financial statements into U.S. Dollars using the year or reporting period end or average exchange rates in accordance with the Accounting Standard Codification 605 “Revenue Recognition.” Revenue is recognized when allrequirements of ASC 830, Foreign Currency Matters. Assets and liabilities are translated at exchange rates as of the following criteriabalance sheet date. Revenues and expenses are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3)translated at average rates in effect for the seller’s price to buyerperiods presented. The cumulative translation adjustment 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.
Goodwill. We capitalize the excess of capitalized intangible assets of an acquisition over the purchase consideration as goodwill in for each of our acquisitions. Impairment of goodwill is analyzed on an annual basis as per Company policy.
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 20172020 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; (13) changes in our utilization levels; (14) competition in our markets; (15) our ability to grow and manage growth profitably; our ability to access additional capital; (16) changes in applicable laws or regulations; (17) the failure to fully integrate acquired businesses; and (18) poor performance of acquired businesses following the closing of the acquisition. 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.
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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 on Form 10-Q, we have carried out an evaluation of the effectiveness of the design and operation of our Company'sCompany’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Company'sCompany’s management, including our Company'sCompany’s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our company'scompany’s Chief Executive Officer and Chief Financial Officer concluded that our company'scompany’s disclosure controls and procedures are not yet effectiveimproving in terms of effectiveness as of the end of the period covered by this report as noted below in management'smanagement’s report on internal control over financial reporting. This isIn the past, there were effectiveness issues largely due to the fact that we arewere acquiring privately held companies as a part of our growth strategy and our control procedures over all acquired subsidiaries will not be effective until such time aswere largely manual in nature. However we are able to fully integratehave deployed all of our business on a consolidated professional services automation platform in the acquisition with our company and set processes and procedures for the acquired entities.quarter concluding 30-Sep-2020. We are working to improve and harmonize our financial reporting controls and procedures across all of our companies. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are 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, 2017,2020, 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, 2017,2020, our internal control over financial reporting was not yet effective in providing reasonable assurance 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 acquiringpreviously acquired multiple 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.
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This Quarterly Report on Form 10-Q does not include an attestation report of our independent auditors regarding internal control over financial reporting. Management'sManagement’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'smanagement’s report in this Quarterly Report on Form 10-Q.
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 werehave been no changes to correct certain internal control inadequacies, due toin the privately held nature of acquired subsidiaries in ourCompany’s internal control over financial reporting as such term is definedidentified in Rules 13a-15(f) and 15d-15(f) underconnection with the Exchange Act,evaluation that occurred during the period covered by this reportthird quarter ended in 2020 that have not materially affected, or are not reasonably likely to materially affect, ourthe internal control over financial reporting.
| ITEM 1. | LEGAL PROCEEDINGS |
We are not currently a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business.
| ITEM 1A. | RISK FACTORS |
Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our Form 10-K, the occurrence of any one of which could have a material adverse effect on our actual results.
There have been no material changes to the Risk Factors previously disclosed in our Form 10-K, except as noted below.
Our results of operations could in the future be materially adversely affected by the global coronavirus pandemic (COVID-19).
The global coronavirus pandemic (COVID-19) has created significant volatility in the price of our common stock, uncertainty in customer demand for our services, and widespread economic disruption. The extent to which the coronavirus pandemic will impact our business, operations and financial results will depend on numerous factors that are frequently changing or unknown, and that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ responses or planned responses to the pandemic; the impact of the pandemic on economic activity and any interventions intended to mitigate decreased economic activity; the effect on our customers and customer demand for our products, services, and solutions; our ability to sell and provide our products, services, and solutions, including as a result of travel restrictions, personnel working from home or with diminished technology and communication abilities, and social distancing; the ability of our customers to pay timely, if at all, for our services and solutions with or without discounts requested by our customers; and closures of our and our customers’ offices and facilities. The closure of our customers’ facilities, restrictions that prevent our customers from accessing those facilities or their own customers, and broad disruptions in our customers’ markets and customer base, has disrupted, and could in the future disrupt the demand for our products, services, and solutions and result in, among other things, termination of customer contracts, delays or interruptions in the performance of contracts, losses of revenues, and an increase in bad debts. Customers may also slow or halt decision making, delay planned work, or suspend, terminate, or reduce existing contracts or services. Indeed, one of the Company’s largest customers has terminated the majority of its work as a result of COVID-19. This customer has accounted in the past for annual revenues of between $5 to $7 million dollars. The impact on this quarter is a reduction of approximately $1.5 million in revenue. Travel and immigration restrictions may delay or prevent our personnel from accessing worksites, and work-from-home or remote working arrangements could reduce profitability or increase information security and connectivity vulnerabilities. In addition, when COVID-19-related restrictions on business are eased, our ability to deliver services to our customers could be affected by any outbreak of illness among employees returning to our facilities or to our customers’ facilities. Moreover, there may be additional costs that we will have to incur in connection with further changes to, or a return to, normal operating conditions. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the risk factors included in the Annual Report on Form 10-K for the year ended December 31, 2019, including, but not limited to, those relating to our operations in emerging markets, our ability to execute on our growth strategy through strategic acquisitions, our dependency on third parties for network infrastructure, attracting, hiring, and retaining personnel, the effects on movements in foreign currency exchange rates, and the effects that changes to fiscal, political, regulatory and other federal policies may have on our operations, each of which could materially adversely affect our business, financial condition, results of operations and/or stock price.
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Table of Contents |
Except as set forth below or previously reported on a Current Report on Form 8-K, we had no unregistered sales of equity securities during the three month period ended June 30, 2020.
On August 14, 2020, the Company issued warrants to purchase up to 36,664 shares of Common Stock to a FINRA-registered broker-dealer and certain individuals associated with the broker-dealer for services related to our August 2020 financing.
The warrants were issued in reliance on an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) thereof.
| ITEM 3. |
Not applicable.
| Section 302 Certification of Principal Executive Officer | |
| Section 302 Certification of Principal Financial and Accounting Officer | |
| Section 906 Certification of Principal Executive Officer | |
| Section 906 Certification of 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 September 30, |
| * | Furnished herewith. |
| ** | In accordance with Item 601of Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933. |
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Pursuant to the requirements of the Section 13 or 15 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 13th16 day of November, 2017.
| AMERI Holdings, Inc. | ||
| By: | /s/ | |
| By: | /s/ | |
| Chief Financial Officer (Principal Accounting Officer) |
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