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 | Commission file number 001-38286 |
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.) | |
4080, McGinnis Ferry Road, Suite | ||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (770) 935-4152
Not applicable
(Former name, former address, and former fiscal year, if changed since last report)
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, if any, every Interactive Data File required to be submitted 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, 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 | Accelerated |
| Non-accelerated | Smaller reporting |
| 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 November 6, 2019, 62,820,789August 12, 2020, 5,737,001 shares of the registrant’s common stock were issued and outstanding.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 2019
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| PART I - FINANCIAL INFORMATION | |||
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| 28 | |||
| 28 | |||
| PART II - OTHER INFORMATION | |||
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| ITEM 1. | FINANCIAL STATEMENTS |
September 30, 2019 | December 31, 2018 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 499,686 | $ | 1,371,331 | ||||
| Accounts receivable | 7,609,431 | 7,871,422 | ||||||
| Other current assets | 579,229 | 818,600 | ||||||
| Total current assets | 8,688,346 | 10,061,353 | ||||||
| Other assets: | ||||||||
| Property and equipment, net | 65,132 | 58,892 | ||||||
| Intangible assets, net | 4,132,964 | 5,778,036 | ||||||
| Goodwill | 13,729,770 | 13,729,770 | ||||||
| Deferred income tax assets, net | 40,097 | 9,399 | ||||||
| Total other assets | 17,967,963 | 19,576,097 | ||||||
| Total assets | $ | 26,656,309 | $ | 29,637,450 | ||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Line of credit | $ | 3,432,983 | $ | 3,950,681 | ||||
| Accounts payable | 4,713,113 | 4,377,794 | ||||||
| Other accrued expenses | 1,553,851 | 1,697,636 | ||||||
| Current portion - long-term notes | - | 6,450 | ||||||
| Convertible notes | 1,000,000 | 1,250,000 | ||||||
| Consideration payable – cash | 2,496,000 | 2,696,000 | ||||||
| Consideration payable – equity | - | 605,223 | ||||||
| Dividend payable – Preferred stock | 212,999 | 105,181 | ||||||
| Total current liabilities | 13,408,946 | 14,688,965 | ||||||
| Long-term liabilities: | ||||||||
| Warrant liability | - | 4,189,388 | ||||||
| Total long-term liabilities | - | 4,189,388 | ||||||
| Total liabilities | 13,408,946 | 18,878,353 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.01 par value; 1,000,000 authorized, 424,928 and 420,720 issued and outstanding as of September 30, 2019 and December 31, 2018 respectively. | 4,249 | 4,207 | ||||||
| Common stock, $0.01 par value; 100,000,000 shares authorized, 62,820,789 and 42,329,121 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively | 628,207 | 423,290 | ||||||
| Additional paid-in capital | 50,417,513 | 44,722,856 | ||||||
| Accumulated deficit | (37,872,197 | ) | (34,478,253 | ) | ||||
| Accumulated other comprehensive income (loss) | 69,591 | 86,997 | ||||||
| Total stockholders’ equity | 13,247,363 | 10,759,097 | ||||||
| Total liabilities and stockholders’ equity | $ | 26,656,309 | $ | 29,637,450 | ||||
| June 30, 2020 | December 31, 2019 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | 2,087,691 | 431,400 | ||||||
| Accounts receivable | 7,294,578 | 6,384,148 | ||||||
| Other current assets | 886,999 | 783,606 | ||||||
| Total current assets | 10,269,268 | 7,599,154 | ||||||
| Other assets: | ||||||||
| Property and equipment, net | 104,905 | 83,128 | ||||||
| Intangible assets, net | 2,487,316 | 3,584,221 | ||||||
| Acquired goodwill | 13,729,770 | 13,729,770 | ||||||
| Operating lease right of use asset, net | 906,995 | 286,163 | ||||||
| Deferred income tax assets, net | 8,170 | 8,879 | ||||||
| Total other assets | 17,237,156 | 17,692,161 | ||||||
| Total assets | 27,506,424 | 25,291,315 | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Line of credit | 2,337,246 | 2,881,061 | ||||||
| Accounts payable | 4,867,360 | 4,696,352 | ||||||
| Other accrued expenses | 1,924,468 | 1,989,894 | ||||||
| Operating lease liability | 208,663 | 120,052 | ||||||
| Paycheck Protection Program Loan | 1,729,600 | - | ||||||
| Convertible notes | 1,000,000 | |||||||
| Consideration payable – cash | - | 2,496,000 | ||||||
| Debenture Liability | 1,165,342 | - | ||||||
| Dividend payable | 535,968 | 320,298 | ||||||
| Total current liabilities | 12,768,647 | 13,503,657 | ||||||
| Long term liabilities: | ||||||||
| Operating lease liability, net | 708,237 | 169,897 | ||||||
| Economic Injury Disaster Loan | 149,900 | - | ||||||
| Short term Loans | 1,000,000 | 1,000,000 | ||||||
| Total long term liabilities | 1,858,137 | 1,169,897 | ||||||
| Total liabilities | 14,626,784 | 14,673,554 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.01 par value; 1,000,000 authorized, 424,938 issued and outstanding as of June 30, 2020 and December 31, 2019. | 4,249 | 4,249 | ||||||
| Common stock, $0.01 par value; 100,000,000 shares authorized, 5,163,265 and 2,522,095 issued and outstanding as of June 30, 2020 and December 31, 2019, respectively | 51,633 | 25,221 | ||||||
| Additional paid-in capital | 56,869,527 | 51,040,296 | ||||||
| Accumulated deficit | (44,085,632 | ) | (40,512,017 | ) | ||||
| Accumulated other comprehensive income (loss) | 39,863 | 60,012 | ||||||
| Total stockholders’ equity | 12,879,640 | 10,617,761 | ||||||
| Total liabilities and stockholders’ equity | 27,506,424 | 25,291,315 | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
Three Months Sep 30,2019 | Three Months Sep 30,2018 | Nine Months Sep 30,2019 | Nine Months Sep 30,2018 | |||||||||||||
| Revenue | 9,148,857 | 10,576,254 | 30,850,110 | 32,715,104 | ||||||||||||
| Cost of revenue | 7,249,406 | 8,230,456 | 24,428,520 | 25,637,422 | ||||||||||||
| Gross profit | 1,899,451 | 2,345,798 | 6,421,590 | 7,077,682 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling,General and administration | 2,902,401 | 2,655,902 | 9,075,751 | 8,059,432 | ||||||||||||
| Depreciation and amortization | 562,050 | 636,495 | 1,685,637 | 2,266,513 | ||||||||||||
| Acquisition related expenses | - | 227,952 | - | 237,952 | ||||||||||||
| Changes in estimates for consideration payable | - | (7,274,929 | ) | - | (7,140,310 | ) | ||||||||||
| Operating expenses | 3,464,451 | (3,754,580 | ) | 10,761,388 | 3,423,587 | |||||||||||
| Operating Income (loss) | (1,565,000 | ) | 6,100,378 | (4,339,798 | ) | 3,654,095 | ||||||||||
| Interest expenses | (252,648 | ) | (190,394 | ) | (551,862 | ) | (584,074 | ) | ||||||||
| Changes in fair value of warrant liability | 1,857,889 | (261,330 | ) | 1,796,174 | (261,330 | ) | ||||||||||
| Others, net | (9 | ) | 75,747 | 4,557 | 83,736 | |||||||||||
| Income (loss) before income taxes | 40,232 | 5,724,401 | (3,090,929 | ) | 2,892,427 | |||||||||||
| Income tax benefit | 1,067 | (24,934 | ) | 15,689 | (24,934 | ) | ||||||||||
| Income (loss) after income taxes | 41,299 | 5,699,467 | (3,075,240 | ) | 2,867,493 | |||||||||||
| Net income attributable to non-controlling interest | - | - | - | - | ||||||||||||
| Net Income (loss) attributable to the Company | 41,299 | 5,699,467 | (3,075,240 | ) | 2,867,493 | |||||||||||
| Dividend on preferred stock | (106,765 | ) | (1,816,452 | ) | (318,704 | ) | (2,478,005 | ) | ||||||||
| Net Income (loss) attributable to common stock holders | (65,466 | ) | 3,883,015 | (3,393,944 | ) | 389,488 | ||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
| Foreign exchange translation | (17,979 | ) | 1,719 | (17,406 | ) | (800 | ) | |||||||||
| Total Comprehensive Income (loss) | (83,445 | ) | 3,884,734 | (3,411,350 | ) | 388,688 | ||||||||||
| Basic income (loss) per share | (0.001 | ) | 0.18 | (0.07 | ) | 0.02 | ||||||||||
| Diluted income (loss) per share | (0.001 | ) | 0.16 | (0.07 | ) | 0.02 | ||||||||||
| Basic weighted average number of common shares outstanding | 53,776,825 | 21,657,181 | 49,984,757 | 19,683,610 | ||||||||||||
| Diluted weighted average number of common shares outstanding | 53,776,825 | 24,184,264 | 49,984,757 | 20,630,142 | ||||||||||||
| Three Months June 30, 2020 | Three Months June 30, 2019 | Six Months June 30, 2020 | Six Months June 30, 2019 | |||||||||||||
| Revenue | 8,254,941 | 11,015,057 | 17,857,469 | 21,701,253 | ||||||||||||
| Cost of revenue | 6,436,811 | 8,632,882 | 14,157,773 | 17,179,114 | ||||||||||||
| Gross profit | 1,818,130 | 2,382,175 | 3,699,696 | 4,522,139 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, General and administration | 2,470,723 | 3,296,041 | 5,395,241 | 6,173,350 | ||||||||||||
| Depreciation and amortization | 533,863 | 562,570 | 1,093,486 | 1,123,587 | ||||||||||||
| Operating expenses | 3,004,586 | 3,858,611 | 6,488,727 | 7,296,937 | ||||||||||||
| Operating Income (loss) | (1,186,456 | ) | (1,476,436 | ) | (2,789,031 | ) | (2,774,798 | ) | ||||||||
| Interest expenses | (372,288 | ) | (156,660 | ) | (532,348 | ) | (299,214 | ) | ||||||||
| Impairment on goodwill and Intangibles | ||||||||||||||||
| Changes in fair value of warrant liability | - | 388,552 | - | (61,715 | ) | |||||||||||
| Others, net | 2,811 | 4,566 | 2,811 | 4,566 | ||||||||||||
| Income (loss) before income taxes | (1,555,933 | ) | (1,239,978 | ) | (3,318,568 | ) | (3,131,161 | ) | ||||||||
| Income tax benefit(expenses) | (17,485 | ) | (16,590 | ) | (39,377 | ) | 14,621 | |||||||||
| Income (loss) after income taxes | (1,573,418 | ) | (1,256,568 | ) | (3,357,945 | ) | (3,116,540 | ) | ||||||||
| Net income attributable to non-controlling interest | ||||||||||||||||
| Net Income (loss) attributable to the Company | (1,573,418 | ) | (1,256,568 | ) | (3,357,945 | ) | (3,116,540 | ) | ||||||||
| Dividend on preferred stock | (107,835 | ) | (106,234 | ) | (215,670 | ) | (211,939 | ) | ||||||||
| Net Income (loss) attributable to common stock holders | (1,681,253 | ) | (1,362,802 | ) | (3,573,615 | ) | (3,328,479 | ) | ||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
| Foreign exchange translation | 15,354 | (18,141 | ) | (20,149 | ) | 573 | ||||||||||
| Total Comprehensive Income (loss) | (1,665,899 | ) | (1,380,943 | ) | (3,593,764 | ) | (3,327,906 | ) | ||||||||
| Basic income (loss) per share | (0.48 | ) | (0.67 | ) | (1.03 | ) | (1.73 | ) | ||||||||
| Diluted income (loss) per share | (0.48 | ) | (0.67 | ) | (1.03 | ) | (1.73 | ) | ||||||||
| Basic weighted average number of common shares outstanding | 3,518,118 | 2,027,095 | 3,482,286 | 1,925,009 | ||||||||||||
| Diluted weighted average number of common shares outstanding | 3,518,118 | 2,027,095 | 3,482,286 | 1,925,009 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
| 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, 2017 | 18,162,723 | $ | 181,625 | 405,395 | $ | 4,054 | $ | 34,223,181 | $ | 36,875 | $ | (14,997,552 | ) | $ | 19,448,183 | |||||||||||||||||
| Net Loss for the period | 389,488 | 389,488 | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (800 | ) | (800 | ) | ||||||||||||||||||||||||||||
| Warrants conversion to shares | 204,060 | 2,041 | 684,892 | 686,933 | ||||||||||||||||||||||||||||
| Shares Issued as consideration for acquisition of Subsidiary (ATCG) | 283,343 | 2,833 | 602,390 | 605,223 | ||||||||||||||||||||||||||||
| Shares Issued towards earnout | 389,027 | 3,890 | 638,960 | 642,850 | ||||||||||||||||||||||||||||
| Stock, Option, RSU and Warrant Expense | 890,276 | 890,276 | ||||||||||||||||||||||||||||||
| Compensation to Directors | 96,872 | 969 | (969 | ) | - | |||||||||||||||||||||||||||
| Conversion of Options | 560,000 | 5,600 | 800,800 | 806,400 | ||||||||||||||||||||||||||||
| Shares issued - Private Placement | 3,250,000 | 32,500 | 4,218,760 | 4,251,260 | ||||||||||||||||||||||||||||
| Issue of Preference shares for Q1 and Q2 dividend | 13,231 | 132 | 661,420 | 661,552 | ||||||||||||||||||||||||||||
| LSV - Preferred Dividend | 1,711,796 | 1,711,796 | ||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2018 | 22,946,025 | $ | 229,458 | 418,626 | $ | 4,186 | $ | 44,431,506 | $ | 36,075 | $ | (14,608,064 | ) | $ | 30,093,161 | |||||||||||||||||
| Balance at Dec 31, 2018 | 42,329,121 | $ | 423,290 | 420,720 | $ | 4,207 | $ | 44,722,856 | $ | 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 | 3,289,255 | 32,893 | 572,330 | 605,223 | ||||||||||||||||||||||||||||
| Exercise of Warrants (PIPE series A&B) | 17,202,413 | 172,024 | 4,344,791 | 4,516,815 | ||||||||||||||||||||||||||||
| Stock Compensation expenses | 566,692 | 566,692 | ||||||||||||||||||||||||||||||
| Preferred stock issued | 4,218 | 42 | 210,844 | 210,886 | ||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | 62,820,789 | $ | 628,207 | 424,938 | $ | 4,249 | $ | 50,417,513 | $ | 69,591 | $ | (37,872,197 | ) | $ | 13,247,363 | |||||||||||||||||
| 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 | (3,328,478 | ) | (3,328,478 | ) | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 573 | 573 | ||||||||||||||||||||||||||||||
| Shares Issued towards earnouts | 131,570 | 1,316 | 603,907 | 605,223 | ||||||||||||||||||||||||||||
| Exercise of Warrants (PIPE series A&B) | 271,972 | 2,720 | 2,331,590 | 2,334,310 | ||||||||||||||||||||||||||||
| Stock Compensation expenses | 490,175 | 490,175 | ||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | 2,096,708 | $ | 20,968 | 420,720 | $ | 4,207 | $ | 48,554,887 | $ | 87,570 | $ | (37,806,731 | ) | $ | 10,860,900 | |||||||||||||||||
| 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 | (3,573,615 | ) | (3,573,615 | ) | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (20,149 | ) | (20,149 | ) | ||||||||||||||||||||||||||||
| Stock Compensation expenses | 34,642 | 34,642 | ||||||||||||||||||||||||||||||
| Shares Issued for Extinguishment of liability | 1,778,640 | 17,786 | 4,078,214 | 4,096,000 | ||||||||||||||||||||||||||||
| Rights Issue of Shares | 862,500 | 8,625 | 1,716,375 | 1,725,000 | ||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 5,163,235 | $ | 51,633 | 424,938 | $ | 4,249 | $ | 56,869,527 | $ | 39,863 | $ | (44,085,632 | ) | $ | 12,879,640 | |||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 5 |
| September, 30 | ||||||||
| 2019 | 2018 | |||||||
| Cash flow from operating activities | ||||||||
| Net Income (loss) | (3,411,350 | ) | 388,688 | |||||
| Adjustment to reconcile comprehensive income/(loss) to net cash used in operating activities | ||||||||
| Depreciation and amortization | 1,685,637 | 2,266,513 | ||||||
| Provision for Preference dividend | 318,704 | 2,478,005 | ||||||
| Changes in fair value of warrants | (1,796,174 | ) | 261,330 | |||||
| Changes in estimate of contingent consideration | - | (7,140,310 | ) | |||||
| Stock, option, restricted stock unit and warrant expense | 566,692 | 890,276 | ||||||
| Foreign exchange translation adjustment | (17,406 | ) | (800 | ) | ||||
| Provision for Income taxes ( net off deferred income taxes) | (15,689 | ) | 24,934 | |||||
| Changes in assets and liabilities: | ||||||||
| Increase (decrease) in: | ||||||||
| Accounts receivable | 261,990 | 1,009,662 | ||||||
| Other current assets | 239,372 | 223,207 | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | 193,938 | (1,964,020 | ) | |||||
| Net cash provided by (used in) operating activities | (1,974,286 | ) | (1,562,515 | ) | ||||
| Cash flow from investing activities | ||||||||
| Purchase of fixed assets | (46,805 | ) | (11,560 | ) | ||||
| Acquisition consideration | (200,000 | ) | (3,645,666 | ) | ||||
| Net cash used in investing activities | (246,805 | ) | (3,657,226 | ) | ||||
| Cash flow from financing activities | ||||||||
| Proceeds from bank loan and convertible notes, net | (774,148 | ) | (2,324,606 | ) | ||||
| Contingent consideration for acquisitions | - | (1,582,667 | ) | |||||
| Proceeds from issuance of common shares, net | 2,123,594 | 6,308,620 | ||||||
| Net cash provided by financing activities | 1,349,446 | 2,401,347 | ||||||
| Net increase (decrease) in cash and cash equivalents | (871,645 | ) | (2,818,394 | ) | ||||
| Cash and cash equivalents as at beginning of the period | 1,371,331 | 4,882,084 | ||||||
| Cash at the end of the period | 499,686 | 2,063,690 | ||||||
| June 30 | ||||||||
| 2020 | 2019 | |||||||
| Cash flow from operating activities | ||||||||
| Net Income (Loss) | (3,593,764 | ) | (3,327,905 | ) | ||||
| Adjustment to reconcile comprehensive income/(loss) to net cash used in operating activities | ||||||||
| Depreciation and amortization | 1,093,486 | 1,123,587 | ||||||
| Non cash expenses | 6,117 | |||||||
| Provision for Preference dividend | 215,670 | 211,939 | ||||||
| Changes in fair value of warrants | - | 61,715 | ||||||
| Stock, option, restricted stock unit and warrant expense | 34,642 | 490,175 | ||||||
| Foreign exchange translation adjustment | (20,149 | ) | 573 | |||||
| Provision for Income taxes ( net off deferred income taxes) | 25,071 | (14,622 | ) | |||||
| Loss on sale of fixed assets | 21,611 | - | ||||||
| Changes in assets and liabilities: | ||||||||
| Increase (decrease) in: | ||||||||
| Accounts receivable | (910,430 | ) | (673,381 | ) | ||||
| Other current assets | (103,393 | ) | (1,388 | ) | ||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | 366,713 | 655,151 | ||||||
| Net cash provided by (used in) operating activities | (2,864,426 | ) | (1,474,156 | ) | ||||
| Cash flow from investing activities | ||||||||
| Purchase of fixed assets | (39,969 | ) | (27,698 | ) | ||||
| Acquisition consideration | - | (200,000 | ) | |||||
| Net cash used in investing activities | (39,969 | ) | (227,698 | ) | ||||
| Cash flow from financing activities | ||||||||
| Proceeds from bank loan and convertible notes, net | 2,835,685 | (191,762 | ) | |||||
| Proceeds from issuance of common shares, net | 1,725,000 | 2,123,425 | ||||||
| Net cash provided by financing activities | 4,560,685 | 1,931,663 | ||||||
| Net increase (decrease) in cash and cash equivalents | 1,656,291 | 229,809 | ||||||
| Cash and cash equivalents as at beginning of the period | 431,400 | 1,371,331 | ||||||
| Cash at the end of the period | 2,087,691 | 1,601,140 | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
JUNE 30, 2019
NOTE 1. DESCRIPTION OF BUSINESS:
AMERI Holdings, Inc. (“AMERI”, the “Company”, “we” or “our”) is a company that, through the operations of its eleven subsidiaries, provides SAPTM cloud and digital enterprise services to clients worldwide. Headquartered in Suwanee,Alpharetta, 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 Inc. (“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 Amalgamation Agreement.
Liquidity and Going Concern
The Company has incurred net losses from operations since inception. The net loss for the six months ended June 30, 2020 was $3.6 million and the accumulated deficit was $44 million as of June 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 the past for annual revenues of between five to seven million dollars. The impact on this quarter is a reduction of approximately $1.5 mm in revenue.
As a result of funding from the SBA as well as sales of shares, the Company has adequate cash reserves to cover expected working capital needs over the next 12 months.
Our financial statements as of June 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, 2018.
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.
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In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic718): Improvements to Be Implemented
In August 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. This ASU removed 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 may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU No. 2018-13 will be effective for fiscal years beginning after December 15, 2019 with early adoption permitted.
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 companyBased on the Company’s preliminary assessment of the foregoing update, it does not expect anyanticipate such update will have a material impact on its financial statements.
Standards Implemented
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue 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 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 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 No. 2016-02 “Leases“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. This
As part of the adoption the Company elected the practical expedients permitted under the transition guidance within the new standard, replaceswhich among other things, allowed the existingCompany 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 leasesits consolidated financial statements and requiresdisclosures.
In July 2017, the lessee to recognize a right-of-use assetFASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and a lease liabilityDerivatives and Hedging (Topic 815): I. Accounting for all leasesCertain Financial Instruments with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortizationDown Round Features; II. Replacement of the right-of-use asset,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 operating leases,certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the lessee would recognize total lease expensestrike price being reduced on a straight-line basis.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 standardpending 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 fiscal years, beginning on or after December 15, 2018. Upon adoption, entities will be required to use a modified retrospective transition which provides for certain practical expedients. Entities are required to apply the new standard at the beginning of the earliest comparative period presented. Early adoption of this new standard is permitted. The Company has adopted thisthe new standard during the current quarteryear ended December 31, 2019 and it doesthe 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, but no earlier than the Company’s adoption date of Topic 606, Revenue from Contracts with Customers (as described above under “Revenue Recognition”). 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.
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 are disclosed as subsequent events, while the financial statements are adjusted to reflect any material impact on its financial statements.
On November 20, 2015, we completed the acquisition of Bellsoft, Inc., a consulting company based in Lawrenceville, Georgia, which specializes in 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.
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The total purchase price of $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 in connection with the Ameri Georgia share purchase agreement, and we have no further payment obligations pursuant thereto.
Acquisition of Bigtech Software Private Limited
On June 23, 2016, we entered into a definitive agreement to purchase Bigtech Software Private Limited (“Bigtech”), a pure-play SAP services company providing a wide 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 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 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 an 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 for purposes of Regulation S-X.
The total purchase price of $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 $0.06 million in cash and 12,408 shares of common stock, which were delivered to the Sole Member during the twelve months ended December 31, 2017. As of January 23, 2018, we had resolved all remaining payments under the Virtuoso merger agreement with the Sole-Member and we have no further payment obligations pursuant thereto.
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 Chairman, respectively. In July 2017, the name of DC&M Partners, L.L.C. was changed to Ameri100 Arizona LLC. Ameri Arizona is an 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.
The aggregate purchase price for the acquisition of Ameri Arizona was $15.8 million, consisting of:
As of July 29, 2018, two former membersthe date of Ameri Arizona properly elected to receive anthis report, the aggregate of $2,496,000$1,000,000 in consideration payable by cash to Lucid Solutions Inc. and Houskens LLC in lieu of stock and such payment was due on or about September 28, 2018. The Company has not yet paid such cash payments (which represent deferred purchase price for Ameri Arizona) and company has negotiated for deferred payment termsconnection with the two former members of AmeriAmeri100 Arizona who elected such cash payments. On July 30, 2018, we issued 560,000 shares of common stockacquisition has been taken over as per the Exchange Agreement dated June 3, 2020. See Note 10 to the remaining former member of Ameri Arizona who had not elected to receive cash in lieu of stock. Such former member has asserted that he had properly elected to receive cash instead of stock prior to the deadlineour unaudited condensed consolidated financial statements for such election. additional information.
The Company has entered into a settlement agreement, dated February 4, 2019, in which the Company paid an amount of $200,000 to such member in four equal monthly installments starting from February 2019 and ending in May 2019, which settled such dispute in its entirety.
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, 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 $8.8 million, consisting of:
Presented below is the summary of the foregoing acquisitions:
| 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 | |||||||||||||||
| 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 | |||||||||||||||
NOTE 4. REVENUE 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 dateASC. 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. 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 reportupdate affect the Company owed an aggregate of $2,496,000guidance in consideration payable by cash.
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The Company adopted ASC 606 effective January 1, 2018 using the modified retrospective method which would require a cumulative effect adjustment for initially applying the new revenue standard as an adjustment to the opening balance of retained earnings and the comparative information would not require to be restated and continue to be reported under the accounting standards in effect for those periods.
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 amount reflecting the consideration to which we expect to be entitled.
To recognize revenues, we applyachieve this core principle, the Company applies the following five step approach: (1) identifysteps:
| 1) | Identify the contract with a customer |
A contract with a customer (2) identifyexists when (i) the performance obligations inCompany enters into an enforceable contract with a customer that defines each party’s rights regarding the contract, (3) determineservices to be transferred and identifies 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,related to these services, (ii) the contract has commercial substance and, collectability(iii) the Company determines that collection of substantially all consideration for services that are transferred is probable. We applyprobable 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.
| 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 capable of being distinct and distinct in the context of the contract. If these criteria are not 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 the 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 meets 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 sold 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 the related performance obligation is satisfied by transferring a promised service to a customer.
Disaggregation of Revenue from Entities. The following table disaggregates gross revenue by entity for the six months ended June 30, 2020 and 2019:
| For the Year Ended | ||||||||
| June 30, 2020 | June 30, 2019 | |||||||
| ATGC India | $ | 114,184 | $ | 177,105 | ||||
| Ameri 100 California | 6,733,692 | 5,684,839 | ||||||
| Ameri 100 Arizona | 1,843,565 | 4,852,187 | ||||||
| Ameri 100 Canada | 214,578 | 346,349 | ||||||
| Ameri 100 Georgia | 3,168,466 | 6,610,680 | ||||||
| Bigtech Software | 39,170 | 177,542 | ||||||
| Ameri 100 Consulting Pvt Ltd | 179,406 | 56,392 | ||||||
| Ameri Partners | 5,564,408 | 3,796,159 | ||||||
| Total revenue | $ | 17,857,469 | $ | 21,701,253 | ||||
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 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.
For the six months ended June 30, 2020 and June 30, 2019, sales to five major customers accounted for approximately 48% and 46% of our total revenue, as current or noncurrent based onrespectively. For the timingsix months ended June 30, 2020, five of when we expect to recognize the revenues. The noncurrent portionour customers contributed 19%, 10% ,7% and 6% of deferredour revenue, is included in “Other noncurrent liabilities” in our consolidated statements of financial position.
NOTE 5. INTANGIBLE ASSETS:
The Company’s intangible assets primarily consists of the customer lists it acquired through various acquisitions. We amortize our intangible assets that have finite lives using either the straight-line method or based on estimated future cash flows to approximate the pattern in which the economic benefit of the asset will be utilized. Amortization expense was $1.6 million and 2.2$1.1 million for the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018 respectively.2019. This amortization expense relates to customer lists which expire through 2022.
NOTE 6. GOODWILL:
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations. The total value of the Company’s goodwill was $13.7 million as of SeptemberJune 30, 20192020 and December 31, 2018.
As per Company policy, goodwill impairment tests are conducted on an annual basis and any impairment is reflected in the Company’s Statements 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 ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, 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 loss attributable to common stockholders and weighted average shares used in computing basic and diluted net loss per share is as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, 2018 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||||
| Numerator for basic and diluted income (loss) per share: | ||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | (65,466 | ) | $ | 3,883,015 | $ | (3,393,944 | ) | $ | 389,488 | ||||||
| Numerator for diluted income (loss) per share: | ||||||||||||||||
| Net income (loss) attributable to common stockholders - as reported | $ | (65,466 | ) | $ | 3,883,015 | $ | (3,393,944 | ) | $ | 389,488 | ||||||
| Interest expense on 2017 Notes, net of taxes | - | 25,000 | - | 25,000 | ||||||||||||
| Net income (loss) attributable to common stockholders - after assumed conversions of dilutive shares | $ | (65,466 | ) | $ | 3,908,015 | $ | (3,393,944 | ) | $ | 414,488 | ||||||
| Denominator for weighted average common shares outstanding: | ||||||||||||||||
| Basic shares | 53,776,825 | 21,657,181 | 49,984,757 | 19,683,610 | ||||||||||||
| Dilutive effect of Equity Awards | - | 2,080,654 | - | 946,532 | ||||||||||||
| Dilutive effect of 2017 Notes | - | 446,429 | — | — | ||||||||||||
| Diluted shares | 53,776,825 | 24,184,264 | 49,984,757 | 20,630,142 | ||||||||||||
| Income (loss) per share – basic: | ||||||||||||||||
| Net income (loss) | $ | (0.001 | ) | $ | 0.18 | $ | (0.07 | ) | $ | 0.02 | ||||||
| Income (loss) per share – diluted: | ||||||||||||||||
| Net income (loss) | $ | (0.001 | ) | $ | 0.16 | $ | (0.07 | ) | $ | 0.02 | ||||||
| For the Six Months Ended | ||||||||
| June 30, 2020 | June 30, 2019 | |||||||
| Numerator for basic and diluted income (loss) per share: | ||||||||
| Net income (loss) attributable to common stockholders | $ | (3,573,615 | ) | (3,328,479 | ) | |||
| Numerator for diluted income (loss) per share: | ||||||||
| Net income (loss) attributable to common stockholders - as reported | $ | (3,573,615 | ) | (3,328,479 | ) | |||
| Net income (loss) attributable to common stockholders - after assumed conversions of dilutive shares | $ | (3,573,615 | ) | (3,328,479 | ) | |||
| Denominator for weighted average common shares outstanding: | ||||||||
| Basic shares | 3,482,286 | 1,925,009 | ||||||
| Dilutive effect of Equity Awards | - | |||||||
| Dilutive effect of 2017 Notes | - | - | ||||||
| Diluted shares | 3,482,286 | 1,925,009 | ||||||
| Income (loss) per share – basic: | $ | (1.03 | ) | (1.73 | ) | |||
| Income (loss) per share – diluted: | $ | (1.03 | ) | (1.73 | ) | |||
NOTE 8. INCENTIVE PLAN ITEMS:
During the ninesix months ended SeptemberJune 30, 2019,2020, the Company has not granted any restricted stock units and stock options to purchase Company’s common stock to key employees or directors out of Company’s 2015 Equity Incentive Award Plan. The company has booked charges of $0.6 million$34,642 as stock compensation expenses for the ninesix months ended SeptemberJune 30 20192020 and $0.9$0.5 million for the ninesix months ended SeptemberJune 30, 2018.
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NOTE 9. BANK DEBT:
On 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 option, agrees in writing to extend the term for additional one year periods (the “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 has guaranteed the Borrower’s obligations under the Credit Facility and (ii) pursuant to a Security Agreement entered into between the Company and Lender (the “Security Agreement”), the Company granted a first-priority security interest in all of its assets to Lender.
The Borrowers received an initial advance on January 23, 2019 in an amount of approximately $2.85 million (the “Initial Advance”). Borrowings under the Credit Facility accrue interest at the prime rate (as designated by Wells Fargo Bank, National Association) plus one and three quarters percentage points (1.75%), but in no event shall the interest rate be less than seven and one-quarter percent (7.25%). Notwithstanding anything to the contrary contained in the Loan Documents, the minimum monthly interest payable by Borrower on the Advances (as defined in the Loan Agreement) in any month shall be calculated based on an average Daily Balance (as defined in the Loan Agreement) of Two Million Dollars ($2,000,000) for such month. For the first year of the Term, Borrower shall pay to Lender a facility fee equal to $50,000, due in equal monthly installments, with additional facility fees due to Lender in the event borrowings exceed certain thresholds and with additional facility fees due and payable in later years or upon later milestones. In addition, Borrower shall pay to Lender a monthly fee (the “Servicing Fee”) in an amount equal to one-eighth percent (.125%) of the average Daily Balance (as defined in the Loan Agreement) during each month on or before the first day of each calendar month during the Term.
Borrower also agreed to certain negative covenants in the Loan Agreement, including that they will not, without the prior written consent of Lender, enter into any extraordinary transactions, dispose of assets, merge, acquire, or consolidate with or into any other business organization or restructure.
As of SeptemberJune 30, 2019,2020, the principal balance and accrued interest under the Credit Facility amounted to $ 3.4$2.3 million.
NOTE 10. CONVERTIBLE NOTES:
On March 7, 2017, we completed the sale and issuance of 8% Convertible Unsecured Promissory Notes (the “2017 Notes”) for aggregate proceeds to us of $1.25 million from four accredited investors, including one of the Company’s then-directors, Dhruwa N. Rai, and David Luci, who became a director of the Company in February 2018. The 2017 Notes were issued pursuant to Securities Purchase Agreements between the Company and each investor. The 2017 Notes bear interest at 8% per annum until maturity in March 2020, with interest being paid annually on the first, second and third anniversaries of the issuance of the 2017 Notes beginning in March 2018. From and after an event of default and for so long as the event of default is continuing, the 2017 Notes will bear default interest at the rate of 10% per annum. The 2017 Notes can be prepaid by us at any time without penalty. As of March 31, 2019, all interest payments due on
During the 2017 Notes have been paid in full.
The 2017 Notes arewere convertible into shares of our common stock at a conversion price equal to $2.80. The holders of the 2017 Notes havehad the right, at their option, at any time and from time to time to convert, in part or in whole, the outstanding principal amount and all accrued and unpaid interest under the 2017 Notes into shares of the Company’s common stock at the conversion price.
On June 3, 2020, the Company entered into an exchange agreement (the “Exchange Agreement”) with the holder of certain of the 2017 Notes, rank junioramounting to our secured credit facility with Sterling National Bank. The$1 million. Pursuant to the Exchange Agreement, the holder agreed to exchange the 2017 Notes also include certain negative covenants including, withoutfor a new convertible 1% debenture (the “ 1% Debenture”), which 1% Debenture is convertible into shares of common stock of the investors’ approval, restrictionsCompany at a conversion price of $1.75 per share. After the exchange, there are no 2017 Notes outstanding. The principal amount of the 1% Debenture is equal to the principal amount of the 2017 Notes and the accrued interest thereon
On November 25, 2019, the Company entered into a securities purchase agreement with an institutional investor for the sale of a $1,000,000 convertible debenture (the “First Debenture”).
The First Debenture accrued interest at rate of 5% and was 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 sale of a $500,000 convertible debenture (the “Second Debenture” and collectively with the First Debenture, the “Debentures”).
The Second Debenture accrued interest at rate of 5% and was due on dividends and other restricted payments and reclassificationthe same date as the First Debenture. The Second Debenture was convertible at any time after the issue date into shares of its stock.
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During the six months ended June 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.
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 lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
The Company’s principal facility is located in Suwanee, Georgia. The Company also leases office space in various locations with expiration dates between 20192016 and 2021.2020. 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 $253,813$0.1 million and $199,579$0.17 million for the ninesix months ended SeptemberJune 30, 2020 and June 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 2018,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 $0.1 million and $0.17 million for the six months ended June 30, 2020 and June 30, 2019, respectively.
Year Six Months ended, | ||||
| Operating leases | 107,852 | |||
| Interest on lease liabilities | 6,117 | |||
| Total net lease cost | 113,969 | |||
| Year ending December 31, | Amount | |||
| 2019 | 47,893 | |||
| 2020 | 159,345 | |||
| 2021 | 47,362 | |||
| Total | $ | 254,600 | ||
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Supplemental balance sheet information related to leases was as follows:
| June 30, 2020 | ||||
| Operating leases: | ||||
| Operating lease ROU assets | $ | 906,995 | ||
| Current operating lease liabilities, included in current liabilities | $ | 208,663 | ||
| Noncurrent operating lease liabilities, included in long-term liabilities | 708,237 | |||
| Total operating lease liabilities | $ | 916,900 | ||
Supplemental cash flow and other information related to leases was as follows:
| Six Months Ended June 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 | $ | 906,995 | ||
| Weighted average remaining lease term (in years): | 7 | |||
| Operating leases | 2.3 | |||
| Weighted average discount rate: | ||||
| Operating leases | 7.25 | % | ||
Total future minimum payments required under the lease obligations as of June 30, 2020 are as follows:
| Six Months Ending June 30, | ||||
| 2020 | $ | 208,663 | ||
| 2021 | 192,470 | |||
| 2022 | 81,444 | |||
| 2023 | 91,140 | |||
| 2024 | 101,675 | |||
| Thereafter | 238,308 | |||
| Total lease payments | $ | 913,700 | ||
| Less: amounts representing interest | ||||
| Total lease obligations | $ | 913,700 | ||
NOTE 12. FAIR VALUE MEASUREMENT:
We utilize the following valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
| Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; 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.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Warrant liability: | $ | - | $ | - | $ | 4,189,388 | $ | 4,189,388 | ||||||||
| Contingent consideration | - | - | 605,223 | 605,223 | ||||||||||||
| Total | - | - | $ | 4,794,611 | $ | 4,794,611 | ||||||||||
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 Level 3 classification during the period ended SeptemberJune 30, 20192020 and year ended December 31, 2018.
NOTE 13. WARRANTS OUTSTANDING:
The following warrants, were outstanding as of June 30, 2020:
| Exercise Price | Number Outstanding | Weighted Average Remaining Contractual life (Years) | Number Exercisable | |||||||||||
| $ | 150.00 | 40,000 | 0.02 | 40,000 | ||||||||||
| $ | 102.88 | 3,902 | 0.03 | 3,902 | ||||||||||
| $ | 37.50 | 200,000 | 2.27 | 200,000 | ||||||||||
| $ | 102.88 | 48,975 | 0.42 | 48,975 | ||||||||||
| $ | 2.20 | 36,664 | 5 | 36,664 | ||||||||||
| Total | 329,542 | 329,542 | ||||||||||||
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NOTE 14- PREFERRED STOCK
On July 25, 2018, weDecember 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 June 30, 2020 and the company has 424,938 outstanding shares preferred stock.
A dividend of $106,234.50 due on April 1, 2020 has not yet been issued.
NOTE 15. SECURED NOTE:
Effective February 27, 2020, the “Company entered into a securitiesnote purchase and security agreement (the “Initial Securities Purchase“Purchase Agreement”) with certain institutional and accredited investors (“Initial Purchasers”)an investor for the sale of 5,000,000 shares of our common stock (“Initial Shares”) and warrants to purchase a total of 4,000,001 shares (“Initial Warrant Shares”) of our common stock (“Initial Purchaser Warrants”) for total consideration of approximately $6,000,000 (“Initial Investment”). On July 30, 2018, we issued an aggregate of 3,250,000 of the Initial Shares to the Initial Purchasers, with the remaining Initial Shares to be issued pursuant to pre-funded Warrants, subject to adjustment. The $6,000,000 purchase price paid by the Initial Purchasers on July 30, 2018 represents the entire purchase price for the Initial Shares and the Initial Purchaser Warrants (excluding the exercise price to be paid upon the exercise of Initial Purchaser Warrants), including upon the issuance of additional Shares (through the adjustment of a pre-funded warrant) and for additional Warrant Shares issuable upon the occurrence of certain events described below.
The Company granted to the investor a security interest (the “Security Interest”) in connection with, and substantiallylien on all of Company’s tangible and intangible assets owned now or acquired later by the same terms and using the same forms as, the private placementCompany of any nature whatsoever. The Security Interest is a second priority security interest, senior to all other indebtedness of the Initial SharesCompany other than with respect to the Company’s existing indebtedness to North Mill Capital LLC (“North Mill”) the priority of which is established pursuant to an Intercreditor and Initial Purchaser Warrants (such private placementDebt Subordination Agreement between the investor and North Mill.
NOTE 16. LOAN FROM PAYCHECK PROTECTION PROGRAM (PPP):
On May 11, 2020, we received proceeds from a loan in the Additional Investment,amount of $1,719,600 (the “PPP Loan”) from Sterling National Bank, as lender, pursuant to the “Private Placement”Small Business Association Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The $600,000 purchase price paidPPP Loan, which was in the form of a promissory note issued by the Additional PurchaserCompany, matures on August 21, 2018 representsMay 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 purchase pricePPP Loan amount for qualifying expenses. Under the Additional Shares andterms of the Additional Purchaser Warrants (excludingPPP, certain amounts of the exercise pricePPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
NOTE 17. 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 be paid upon the exercise of Additional Purchaser Warrants), including uponSmall Business Association Economic Injury Disaster Recovery Loan (the “EIDL Loan”) which was in the issuance of additional Shares (through the adjustmentform of a pre-funded warrant, all pre-funded warrants withLoan Authorization and Agreement executed by the Purchaser Warrants,company matures 30 years from the “Warrants”)promissory note and for additional Warrant Shares issuable upon the occurrencebears interest at a rate of certain events described below.
NOTE 18. EXCHANGE OF CONVERTIBLE NOTE AND PROMISSORY NOTES
On June 3, 2020, the Company entered into an Exchange Agreement with the holder of certain of the number of shares issuable upon2017 Notes, which notes were originally issued on or about March 7, 2017 amounting to $2 million. Pursuant to the exercise ofExchange Agreement, the warrant and ofholder agreed to exchange the exercise price2017 Notes for a new convertible 1% Debenture in the eventaggregate principal amount of stock dividends, splits, mergers, asset sales, tender or exchange offers, reclassifications, reorganizations or recapitalizations, combinations, or the like.
NOTE 19. REGISTERED DIRECT OFFERING
On June 30 2019, the Purchaser Warrants were reassessed to reflect the Price Adjustment and number of shares issuable upon exercise. The resulting increase in the fair value of the Purchaser Warrants of $61,715 was reflected as “Changes in Fair Value of Warrant Liability” within the accompanying consolidated statements of operations and comprehensive income (loss). Also, during the sixth months ended June 30, 2019,2, 2020, the Company issued 6,799,312 shares upon the exercise of certain Purchaser Warrants and received net cash proceeds of $2,123,425,
The June 2020 Registered Offering resulted in gross proceeds of approximately $1.725 million before deducting the placement agent’s fees and related offering expenses. The Shares were offered by the Company pursuant to a prospectus supplement to the PurchasersCompany’s effective shelf registration statement on Form S-3 (Registration No. 333-233260), which was initially filed with the Securities and Exchange Commission (the “Commission”) on August 14, 2019, and was declared effective on November 19, 2019.
The Company also agreed to issue to the Placement Agent, or its designees, warrants (the “Placement Agent’s Warrants”) to purchase up to 60,375 shares of Common Stock, which represents 7.0% of the Shares sold in the June 2020 Registered Offering. The Placement Agent’s Warrants have an exercise price of $2.20 per share, which represents 110% of the per share offering price of the Shares.
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NOTE 20. MATERIAL AGREEMENTS:
Maturity Extension and Forbearance Agreement
On May 6, 2020, the Company entered into a Maturity Extension and Forbearance Agreement (“Agreement”) with the holder of the First Debentures. Pursuant to the Agreement (i) the holder agreed to extend the Maturity Date of the Debentures to from May 26, 2020 to September 30, 2020, (ii) the Company may now prepay each Debenture at any time, with accrued interest to the date of such payment, but no other premium or penalty, and (iii) the parties changed the definition of “Permitted Indebtedness” in the Debentures so as to permit indebtedness issued pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act or related or similar governmental programs including disaster-relief or pandemic-relief programs designed to help businesses in the wake of the Coronavirus pandemic. In consideration for entering into the Agreement the Company agreed to issue to the holder a prepaid warrant (the “Prepaid Warrant”) to purchase up to 646,094 shares of the Company’s common stock. The Prepaid Warrant shall be exercisable, commencing on May 6, 2020 until exercised in full, at a price of $0.001 per share, and shall also be exercisable on a cashless basis.
Amalgamation Amendment Agreement
On May 6, 2020, the Company entered into an Amalgamation Amendment Agreement (the “Amendment”) to amend that certain Amalgamation Agreement dated January 10, 2020, by and between Ameri Holdings, Inc., Jay Pharma Merger Sub, Inc. (“Merger Sub”), Jay Pharma Inc. (“Jay Pharma”), Jay Pharma ExchangeCo, Inc. (“ExchangeCo”), and Barry Kostiner (the “Amalgamation Agreement”). Pursuant to the Amendment, the parties agreed that (i) at the Effective Time, Ameri Holdings, Inc. shall issue to the holder of a certain note issued by Jay Pharma, series B warrants (the “Series B Warrants”) to acquire 8,100,000 shares of common stock of the company resulting from the amalgamation, and (ii) providing for certain registration rights, pursuant to a Registration Statement on Form S-4, of the Series B Warrants and the shares issuable upon exercise of the Series B Warrants. The Series B Warrants shall be exercisable for a period of five years commencing on the ninetieth (90th) day after the later of the last day of the Lock-up Period and leak-out Period (accelerated or otherwise) set forth in the Lock-up agreement to be executed by the holders of Jay Pharma securities in connection with the Amalgamation, at a price of $0.01 per share, and shall also be exercisable on a cashless basis.
On August 12, 2020, the Company, Jay Pharma Inc. and 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, the Company will make a tender 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 the Company, on the terms and conditions set forth in the Tender Agreement. The Tender Agreement terminates and replaces in its entirety the Amalgamation Agreement, dated as of January 10, 2020, as amended on May 6, 2020, previously entered into by and among the parties thereto.
NOTE 21. 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, 2019:
| December 31, 2019 | ||||||||||||
| As Previously | ||||||||||||
| Reported | Adjustment | As Revised | ||||||||||
| Balance Sheet | ||||||||||||
| Other Assets | ||||||||||||
| Operating lease right of use asset, net | $ | - | $ | 286,161 | $ | 286,161 | ||||||
| Total Other Assets | 17,405,998 | 286,161 | 4,763,000 | |||||||||
| Total Assets | $ | 25,005,152 | $ | 286,161 | $ | 7,667,771 | ||||||
| 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 22. SUBSEQUENT EVENTS:
Entry into a Material Definitive Agreement.
On July 31, 2020, the Company entered into a securities purchase agreement (the “July 2020 Purchase Agreement”) with an accredited investor (the “Investor”) providing for the issuance of (i) 373,766 shares (the “Shares”) of the Company’s common stock, par value $0.01 (the “Common Stock”); (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 10,234,136150,000 shares of Common Stock at an exercise price of $0.01 per share, subject to customary adjustments thereunder; and (iii) warrants (the “Unregistered Warrants”), with a term of five (5) years, to purchase an aggregate of up to 340,448 shares of Common Stock (the “Exchange“Unregistered Warrant Shares”) in exchange for the cancellation and termination of all of the outstanding Purchaser Warrants (the “Exchange”). The Company also agreed to grant to the Purchasers certain participation rights in future financings for a period of twelve (12) months. In connection with the Exchange, the Company recognized an additional charge of $733,470 reflecting an adjustment to the fair value of the Purchaser Warrants. The remaining Warrant Liability at the time of the Exchange of $4,984,573 was reclassified to Stockholder’s Equity. As of September 30, 2019, there are no Purchaser Warrants outstanding.
Pursuant to the July 2020 Purchase Agreement, the Shares and Pre-Funded Warrants were issued to the Investors in a registered direct offering (the “July 2020 Registered Offering”) and registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a prospectus supplement to the Company’s currently effective registration statement on Form S-3 (File No. 333-233260).
Pursuant to the July 2020 Purchase Agreement, the Company also issued to the Investors in a concurrent private placement pursuant to an exemption from the dateregistration requirements of issuance. In the event thatSecurities Act provided in Section 4(a)(2) of the closing priceSecurities Act and/or Regulation D promulgated thereunder, the Unregistered Warrants.
Subject to the Company’s prior receipt of our common stock is $2.00 or higher for ten trading days out of a fifteen consecutive trading day period,shareholder approval under Nasdaq’s corporate governance rules, the CompanyInvestor shall have the option,right at any time prior to the exercise in its sole discretion, to elect to accelerate the termination date of the Amendment Warrants to such date that is 30 days (or more,whole or in the Company’s sole discretion) following the date of such election. Following such accelerated termination date, any unexercised Amendment Warrants shall automatically be canceled without any further obligations on the part of the Unregistered Warrant (as to the portion not exercised) to require the Company to repurchase the unexercised portion of the Unregistered Warrant for the sum of $0.60 per Unregistered Warrant Share, payable in cash or shares of common stock, at the holders of such Amendment Warrants. The Amendment Warrants were valued utilizing a Black-Scholes option pricing model with the following assumptions: expected term of 5 years; expected volatility of 111.8%; risk free interest rate of 2.37% and an expected dividend yield of zero.
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| ITEM 2. |
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, 2018.2019. 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 Suwanee,Alpharetta, Georgia.
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 SAP 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. Our model inverts the conventional global delivery model wherein offshore 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 and 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 SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, sales to five major customers accounted for 52%41% and 40%49% of our total revenue, respectively. For the three months ended SeptemberJune 30, 2019, twoone of our customers contributed 14% each and one of our customer contributed 12%13% of our revenue. For the comparable period in 2018, one2019, two of our customers contributed 13%14% and 12% of our revenue
For the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, sales to five major customers accounted for 47%48% and 38%46% of our total revenue, respectively. Two of our customers contributed 14%19% and 12%10% of our revenue for the ninesix months ended SeptemberJune 30, 2019.2020. For the comparable period in 2018,2019, two of our customers contributed 13%14% and 10%11% of our revenue.
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.
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 expand the geographic areasextent 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 Implemented work from home policies and procedures for all of its employees and consultants in the USA 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 normal business operations. At this time, none of our employees’ health has been impacted by COVID-19.
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 serve;
Discussion of Business Activity
The Company 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 iii) SuccessFactors, SAP’s human resources platform, in addition to the migration of enterprises from on-premises IT infrastructure to the cloud.
Key new business activities in April and May, 2020:
| ● | Awarded S/4HANA transformation for a spinoff in the midstream oil and gas industry: | |
| ● | Awarded S/4HANA private cloud transformation for US firearm and ammunition company | |
| ● | Completed go live on Hybris e-commerce implementation for lifestyle apparel and athletic company |
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| ● | Initiated Application Managed Services (AMS) contract with a transportation infrastructure construction and maintenance client | |
| ● | Initiated Application Managed Services (AMS) contract with a US manufacturer of industrial cooling equipment | |
| ● | Signed a new Master Services Agreement and commenced services for water treatment provider. |
In addition to attract competent, skilled professionalsclient initiatives, the Company has invested in continued development of its internal technology expertise and on-demand technology partnersbusiness 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 operations at acceptable prices to managebusiness will fall short of our overhead;
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended SeptemberJune 30, 20192020 Compared to the Three Months Ended SeptemberJune 30, 20182019 and for the NineSix Months Ended SeptemberJune 30, 20192020 Compared to the NineSix Months Ended SeptemberJune 30, 20182019
| Three Months June 30,2020 | Three Months June 30,2019 | Six Months June 30,2020 | Six Months June 30,2019 | |||||||||||||
| Revenue | 8,254,941 | 11,015,057 | 17,857,469 | 21,701,253 | ||||||||||||
| Cost of revenue | 6,436,811 | 8,632,882 | 14,157,773 | 17,179,114 | ||||||||||||
| Gross profit | 1,818,130 | 2,382,175 | 3,699,696 | 4,522,139 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, General and administration | 2,470,723 | 3,296,041 | 5,395,241 | 6,173,350 | ||||||||||||
| Depreciation and amortization | 533,863 | 562,570 | 1,093,486 | 1,123,587 | ||||||||||||
| Operating expenses | 3,004,586 | 3,858,611 | 6,488,727 | 7,296,937 | ||||||||||||
| Operating Income (loss) | (1,186,456 | ) | (1,476,436 | ) | (2,789,031 | ) | (2,774,798 | ) | ||||||||
| Interest expenses | (372,288 | ) | (156,660 | ) | (532,348 | ) | (299,214 | ) | ||||||||
| Impairment on goodwill and Intangibles | ||||||||||||||||
| Changes in fair value of warrant liability | - | 388,552 | - | (61,715 | ) | |||||||||||
| Others, net | 2,811 | 4,566 | 2,811 | 4,566 | ||||||||||||
| Income (loss) before income taxes | (1,555,933 | ) | (1,239,978 | ) | (3,318,568 | ) | (3,131,161 | ) | ||||||||
| Income tax benefit (expenses) | (17,485 | ) | (16,590 | ) | (39,377 | ) | 14,621 | |||||||||
| Income (loss) after income taxes | (1,573,418 | ) | (1,256,568 | ) | (3,357,945 | ) | (3,116,540 | ) | ||||||||
| Net income attributable to non-controlling interest | ||||||||||||||||
| Net Income (loss) attributable to the Company | (1,573,418 | ) | (1,256,568 | ) | (3,357,945 | ) | (3,116,540 | ) | ||||||||
| Dividend on preferred stock | (107,835 | ) | (106,234 | ) | (215,670 | ) | (211,939 | ) | ||||||||
| Net Income (loss) attributable to common stock holders | (1,681,253 | ) | (1,362,802 | ) | (3,573,615 | ) | (3,328,479 | ) | ||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
| Foreign exchange translation | 15,354 | (18,141 | ) | (20,149 | ) | 573 | ||||||||||
| Total Comprehensive Income (loss) | (1,665,899 | ) | (1,380,943 | ) | (3,593,764 | ) | (3,327,906 | ) | ||||||||
| Basic income (loss) per share | (0.48 | ) | (0.67 | ) | (1.03 | ) | (1.73 | ) | ||||||||
| Diluted income (loss) per share | (0.48 | ) | (0.67 | ) | (1.03 | ) | (1.73 | ) | ||||||||
| Basic weighted average number of common shares outstanding | 3,518,118 | 2,027,095 | 3,482,286 | 1,925,009 | ||||||||||||
| Diluted weighted average number of common shares outstanding | 3,518,118 | 2,027,095 | 3,482,286 | 1,925,009 | ||||||||||||
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Three Months Sep 30,2019 | Three Months Sep 30,2018 | Nine Months Sep 30,2019 | Nine Months Sep 30,2018 | |||||||||||||
| Revenue | 9,148,857 | 10,576,254 | 30,850,110 | 32,715,104 | ||||||||||||
| Cost of revenue | 7,249,406 | 8,230,456 | 24,428,520 | 25,637,422 | ||||||||||||
| Gross profit | 1,899,451 | 2,345,798 | 6,421,590 | 7,077,682 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling,General and administration | 2,902,401 | 2,655,902 | 9,075,751 | 8,059,432 | ||||||||||||
| Depreciation and amortization | 562,050 | 636,495 | 1,685,637 | 2,266,513 | ||||||||||||
| Impairment on goodwill | - | - | - | - | ||||||||||||
| Acquisition related expenses | - | 227,952 | - | 237,952 | ||||||||||||
| Changes in estimates for consideration payable | - | (7,274,929 | ) | - | (7,140,310 | ) | ||||||||||
| Operating expenses | 3,464,451 | (3,754,580 | ) | 10,761,388 | 3,423,587 | |||||||||||
| Operating Income (loss) | (1,565,000 | ) | 6,100,378 | (4,339,798 | ) | 3,654,095 | ||||||||||
| Interest expenses | (252,648 | ) | (190,394 | ) | (551,862 | ) | (584,074 | ) | ||||||||
| Impairment on goodwill and Intangibles | - | - | - | - | ||||||||||||
| Changes in fair value of warrant liability | 1,857,889 | (261,330 | ) | 1,796,174 | (261,330 | ) | ||||||||||
| Others, net | (9 | ) | 75,747 | 4,557 | 83,736 | |||||||||||
| Income (loss) before income taxes | 40,232 | 5,724,401 | (3,090,929 | ) | 2,892,427 | |||||||||||
| Income tax benefit | 1,067 | (24,934 | ) | 15,689 | (24,934 | ) | ||||||||||
| Income (loss) after income taxes | 41,299 | 5,699,467 | (3,075,240 | ) | 2,867,493 | |||||||||||
| Net income attributable to non-controlling interest | - | - | - | - | ||||||||||||
| Net Income (loss) attributable to the Company | 41,299 | 5,699,467 | (3,075,240 | ) | 2,867,493 | |||||||||||
| Dividend on preferred stock | (106,765 | ) | (1,816,452 | ) | (318,704 | ) | (2,478,005 | ) | ||||||||
| Net Income (loss) attributable to common stock holders | (65,466 | ) | 3,883,015 | (3,393,944 | ) | 389,488 | ||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
| Foreign exchange translation | (17,979 | ) | 1,719 | (17,406 | ) | (800 | ) | |||||||||
| Total Comprehensive Income (loss) | (83,445 | ) | 3,884,734 | (3,411,350 | ) | 388,688 | ||||||||||
| Basic income (loss) per share | (0.001 | ) | 0.18 | (0.07 | ) | 0.02 | ||||||||||
| Diluted income (loss) per share | (0.001 | ) | 0.16 | (0.07 | ) | 0.02 | ||||||||||
| Basic weighted average number of common shares outstanding | 53,776,825 | 21,657,181 | 49,984,757 | 19,683,610 | ||||||||||||
| Diluted weighted average number of common shares outstanding | 53,776,825 | 24,184,264 | 49,984,757 | 20,630,142 | ||||||||||||
Revenues for the three months ended SeptemberJune 30, 20192020 decreased by $1.4$2.8 million, or 13%26%, as compared to the three months ended SeptemberJune 30, 20182019 mainly due to completionloss of some of our major customer assignments, which had contributedrevenue from existing customers due to revenue during three months ended September 30, 2018.
For the three months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, sales to five major customers accounted for 52%41% and 40%49% of our total revenue, respectively. For the three months ended SeptemberJune 30, 2019, twoone of our customers contributed 14% each and one of our customer contributed 12%13% of our revenue. For the comparable period in 2018, one2019, two of our customers contributed 13%14% and 12% of our revenue
Revenues for the ninesix months ended SeptemberJune 30, 20192020 decreased by $1.9$3.8 million, or 6%22%, as compared to the ninesix months ended SeptemberJune 30, 2018,2019 mainly due to completionloss of some of our major customer assignment.
For the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, sales to five major customers accounted for 47%48% and 38%46% of our total revenue, respectively. Two of our customers contributed 14%19% and 12%10% of our revenue for the ninesix months ended SeptemberJune 30, 2019.2020. For the comparable period in 2018,2019, two of our customers contributed 13%14% and 10%11% of our revenue.
We are expecting a decrease in revenue from existing clients of approximately $3.5 million, as compared to full year revenue of 2019, during the next 12 months due to COVID-19.
Gross Margin
Our gross margin was 22% for the three months ended June 30, 2020 and for the comparable period in 2019.
Our gross margin was 21% for the threesix months ended SeptemberJune 30, 2019 and 22% for the comparable period in 2018.
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 administration (“SG&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-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. Facilities costs primarily include rent and communications costs.
SG&A expenses for the three months ended SeptemberJune 30, 20192020 were $2.9$2.5 million, as compared to $2.7$3.3 million for the three months ended SeptemberJune 30, 2018. The increase was mainly due to new sales initiatives taken by the company, including recruiting a new sales team.
SG&A expenses for the ninesix months ended SeptemberJune 30, 20192020 were $9.1$5.4 million, as compared to $8.1$6.2 million for the ninesix months ended SeptemberJune 30, 2018. The increase was mainly due to new sales initiatives taken by the company, including recruiting a new sales team.
Depreciation and Amortization
Depreciation and amortization expense amounted to $0.5 million for the three months ended June 30, 2020, as compared to $0.6 million for the three months ended SeptemberJune 30, 2019 and three months ended September 30 2018 and $1.7$1.1 million for the ninesix months ended SeptemberJune 30, 2019 as compared to $2.3 million for the nine months ended September2020 and June 30, 2018.2019. We capitalized 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.
Operating Income (Loss)
Our operating loss was $1.6$1.2 million for the three months ended SeptemberJune 30, 2019,2020, as compared to $6.1$1.5 million operating income for the three months ended SeptemberJune 30, 2018. The change was mainly due to changes in estimates for consideration payable to the effect of $7.3 million (income) taken in three months ended September 30 2018, which was not present in the current comparable period. Without the item described in the preceding sentence, the operating loss for the three months ended September 30, 2018 would have been $1.2 million, and the increased loss for the 2019 period was due to new sales initiatives taken by the company, including recruiting a new sales team.
Our operating loss was $4.3$2.8 million for the ninesix months ended SeptemberJune 30, 2019, as compared to $3.7 million operating income2020 and for the ninesix months ended SeptemberJune 30, 2018. The increase was mainly due2019.
We expect the COVID-19 pandemic to changes in estimates for consideration payable to the effect of $7.1 million (income) taken in the nine months ended September 30 2018, which was not present in the current comparable period. Without the item described in the preceding sentence, the operating lossnegatively impact our operations for the nine months ended September 30, 2018 would have been $3.5 million,remainder of the fiscal year and for the increased loss is due to new sales initiatives taken by the company, including recruiting a new sales team.next twelve months.
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Interest Expense
Our interest expense for the three months ended SeptemberJune 30, 20192020 was $0.25$0.37 million as compared to $0.2$0.16 million for the three months ended SeptemberJune 30, 2018.
Our interest expense six three months ended June 30, 2020 was $0.5 million as compared to $0.3 million for the ninesix months ended SeptemberJune 30, 2019 and nine months ended September 30, 20182019. The increase in interest expenses is mainly due to new debts obtained during the year 2020 which was $0.6 million.
Liquidity and Capital Resources
Our cash position was approximately $0.5$2.1 million as of SeptemberJune 30, 2019,2020, as compared to $1.4$0.4 million as of December 31, 2018.
Cash used for operating activities was $2$2.9 million during the ninesix months ended SeptemberJune 30, 20192020 and was primarily a result of net changes in working capital requirements. Cash used in investing activities was $0.2$0.04 million during the ninesix months ended SeptemberJune 30, 2019.2020. Cash provided by financing activities (predominantly by exercise of warrants)loans was $1.3$4.6 million during the ninesix months ended SeptemberJune 30, 2019.
As of SeptemberJune 30, 2019,2020, we had negative working capital of $4.7$2.5 million and cash of $0.5 million on hand. Historically, our$2.1 million. Our principal sources of cash have included bank borrowings, the private placement of shares and sales of securities. Ournet bank borrowings. 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.
Our financial statements as of SeptemberJune 30, 20192020 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. WeAlthough 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 givebe no assurances to that additional capital that we are able to obtain, if any, will be sufficient to meet our needs.effect. The foregoing conditions raise substantial doubt about our ability to continue our operations.
Available Credit Facility, Borrowings and Repayment of Debt
As 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 aJune 30, 2020, we had approximately $2.3 million in borrowings outstanding under our senior secured credit facility (the “Credit Facility”), which provided for up to $8 million in principal for revolving loans (the “Revolving Loans”) for general working capital purposes.
Effective February 27, 2020, we entered into a note purchase and security agreement with North Mill Capital LLC, as lender (the “Lender”). The Loan Agreement has an initial terminvestor for the sale of two years from the closing date, with renewal thereafter if Lender,a $1,000,000 secured promissory note, which accrues interest at its option, agrees in writing to extend the term for additional one year periods (the “Term”). The Loan Agreementrate of 7.25% and is collateralized by a first-priority security interest in all of the assets of Borrower. due on August 31, 2020.
In addition, (i) pursuant to a Corporate Guaranty entered into by the Companywe have an outstanding aggregate of $815,342.46 million in favor of the Lender1% convertible unsecured debentures (the “Corporate Guaranty”“1% Debentures”), the Company has guaranteed the Borrower’s obligations under the Credit Facility and (ii) pursuantwhich were issued to a Security Agreement entered into between the Company and Lender (the “Security Agreement”), the Company granted a first-priority security interest in all of its assets to Lender.
Accounts Receivable
Accounts receivable for the period ended SeptemberJune 30, 20192020 were $7.6$7.3 million as compared to $7.9$6.4 million as on December 31, 2018.
Accounts Payable
Accounts payable for the period ended SeptemberJune 30, 20192020 were $4.7$4.9 million as compared to $4.4$4.7 million as on December 31, 2018.
Accrued Expense
Accrued expenses for the period ended SeptemberJune 30, 20192020 were $1.5$1.9 million as compared to $1.7$2.1 million as on December 31, 2018.
Operating Activities
Our largest source of operating cash flows is cash collections from our 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 Policies
Revenue 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 transaction 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 revenuerevenues as we transfer control of deliverables (products, solutions and services) to our customers in accordancean 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 Accountingway 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 Codification 606 “Revenue Recognition.” Revenue ison January 1, 2018, revenues were earned and recognized when all of the following criteria arewere met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurredexisted, the price was fixed or determinable, the services havehad been rendered (3) the seller’s price to buyer is fixed and determinable, and (4) collectability iswas reasonably assured. We recognize revenue from information technology servicesContingent or incentive revenues were recognized when the contingency was satisfied and we concluded the amounts were earned. Volume discounts were recorded as the services are provided. Servicea reduction of revenues are recognized based on contracted hourly rates, as services are rendered or upon completionwere provided. Revenues also included the reimbursement of specified contracted servicesout-of-pocket expenses.
For the six months ended June 30, 2020 and acceptance byJune 30, 2019, sales to five major customers accounted for approximately 48% and 46% of our total revenue, respectively. For the customer.
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
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 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 credit-worthiness on an unsecured basis. We provide an allowance for uncollectible accounts based on historical experience and management evaluation of trend analysis. We include any balances that are determined to be uncollectible in allowance for doubtful accounts.
Business Combination. We account for business combinations using the acquisition method, which requires the identification of the acquirer, the determination 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 circumstances 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 and assumptions, including discount rates and projections of future cash flows. If an impairment is indicated, a write down to the implied fair value of goodwill or fair value of intangible asset is recorded.
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.
24Foreign Currency Translation
Special Note Regarding Forward-Looking Information
Some of the statements in this Quarterly Report on Form 10-Q and elsewhere constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors that may cause results, levels of activity, growth, performance, tax consequences or achievements to be materially different from any future results, levels of activity, growth, performance, tax consequences or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those listed below.
The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance, including statements concerning our 20192020 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.
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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’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Company’s management, including our Company’s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our company’s Chief Executive Officer and Chief Financial Officer concluded that our company’s disclosure controls and procedures are not yet effective as of the end of the period covered by this report as noted below in management’s report on internal control over financial reporting. This is largely due to the fact that we are acquiring privately held companies as part of our growth strategy and our control procedures over all acquired subsidiaries will not be effective until such time as we are able to fully integrate the acquisition with our company and set processes and procedures for the acquired entities. We are working to improve and harmonize our financial reporting 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 SeptemberJune 30, 2019,2020, 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 SeptemberJune 30, 2019,2020, 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 previously 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’s report was not subject to attestation by our independent auditors pursuant to temporary rules of the SEC that permit our company to provide only management’s report in this Quarterly Report 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 have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the third quarter ended in 2019 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.
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. 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 June 2, 2020, the Company issued warrants to purchase up to 60,375 shares of Common Stock to a FINRA-registered broker-dealer and certain individuals associated with the broker-dealer for services related to the June 2020 Registered Direct Offering.
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. |
None.
Not applicable.
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| * | 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 8th14 day of November, 2019.
| AMERI Holdings, Inc. | ||
| By: | /s/ Brent Kelton | |
| Brent Kelton | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ Barry Kostiner | |
| Barry Kostiner | ||
| Chief Financial Officer (Principal Accounting Officer) | ||
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