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MarketScreener Homepage  >  Equities  >  Nasdaq  >  AMERI Holdings, Inc.    AMRH

AMERI HOLDINGS, INC.

(AMRH)
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AMERI : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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03/25/2020 | 03:19pm EDT

Special Note Regarding Forward-Looking Information

The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our consolidated financial statements and related notes included elsewhere in this report. Historical results and percentage relationships among any amounts in these financial statements are not necessarily indicative of trends in operating results for any future period. This report contains "forward-looking statements." The statements, which are not historical facts contained in this report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, and notes to our consolidated financial statements, particularly those that utilize terminology such as "may" "will," "should," "expects," "anticipates," "estimates," "believes," or "plans" or comparable terminology are forward-looking statements. Such statements are based on currently available operating, financial and competitive information, and are subject to various risks and uncertainties. Future events and our actual results may differ materially from the results reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, our ability to raise additional funding, our ability to maintain and grow our business, variability of operating results, our ability to maintain and enhance our brand, our development and introduction of new products and services, the successful integration of acquired companies, technologies and assets into our portfolio of software and services, marketing and other business development initiatives, competition in the industry, general government regulation, economic conditions, dependence on key personnel, the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service requirements of our clients, our ability to protect our intellectual property, the potential liability with respect to actions taken by our existing and past employees, risks associated with international sales and other risks described herein and in our other filings with the SEC.

All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Company History

We were incorporated under the laws of the State of Delaware in February 1994 as Spatializer Audio Laboratories, Inc., which had been a shell company until May of 2015. On May 26, 2015, we completed a "reverse merger" transaction, in which we caused Ameri100 Acquisition, Inc., a Delaware corporation as 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 subsidiary with Ameri and Partners' former stockholders acquiring a majority of the outstanding shares of our common stock. The Merger was consummated under Delaware law, pursuant to the Merger Agreement, and in connection with the Merger we changed our name to AMERI Holdings, Inc. Since the Merger, we have been an active holding company headquartered in Suwanee, Georgia, with offices across the United States that are supported by offices in India.

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 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.

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.


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Table of Contents For the years ended December 31, 2019 and December 31, 2018, sales to five major customers accounted for approximately 48% and 39% of our total revenue, respectively. For the year ended December 31, 2019, three of our customers contributed 14%, 13% and 10% of our revenue, and for the year ended December 31, 2018, two of our customers contributed 14% and 10% of our revenue.

We have obtained financing and additional capital from the sale of equity and incurrence of indebtedness in the past, and we continue 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.

Matters that May or Are Currently Affecting Our Business

The main challenges and trends that could affect or are affecting our financial results include:

  • Our ability to enter into additional technology-management and consulting
    agreements, to diversify our client base and to expand the geographic areas we
    serve;



  • Our ability to attract competent, skilled professionals and on-demand
    technology partners for our operations at acceptable prices to manage our
    overhead;



  • Our ability to acquire other technology services companies and integrate them
    with our existing business;



  • Our ability to raise additional equity capital, if and when we needed;



  • We may incur an impairment of the goodwill acquired from our prior business
    acquisitions if our acquired entities do not experience growth; and



  • Our ability to control our costs of operation as we expand our organization
    and capabilities.


We have incurred significant and recurring operational losses as a result of our ongoing acquisition strategy. We have outstanding cash payment obligations related to our past acquisitions of approximately $2.5 million. Notwithstanding our working capital constraints, we are current in all payments to all our unsecured noteholders. We are working with certain of our unsecured noteholders to negotiate payment terms until we are able to raise more capital.

There can be no assurance that we will be able to secure additional sources of capital or that cost savings will provide sufficient working capital. If we continue to be unable to pay all outstanding payments under our unsecured notes, the unpaid noteholders may take legal action against us, they may accelerate the payment of the principal under the applicable notes, and our senior secured lender may call a cross-default under our existing credit facility, which could result in the acceleration of the obligations thereunder and have a negative impact on our revenue and financial results. Should we be unable to raise sufficient debt or equity capital, we could be forced to cease operations. Our plan regarding these matters is to work to raise additional debt and/or equity financing to allow us the ability to cover our current cash flow requirements and meet our obligations as they become due. There can be no assurances that financing will be available or if available, that such financing will be available under favorable terms.

Recent Developments

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. See "Business-Recent Developments" on page 2 above.


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  Table of Contents
Result of Operations

Results of Operations for the Year Ended December 31, 2019 Compared to the Year
Ended December 31, 2018

                                                                            Twelve Months
                                                                          Ended December 31,
                                                                        2019              2018

Net revenue                                                         $ 39,914,675$  42,998,280
Cost of revenue                                                       31,763,955        34,014,776
Gross profit                                                           8,150,720         8,983,504

Operating expenses:
Selling, general and administration                                   12,210,317        10,794,822
Depreciation and amortization                                          2,265,297         2,903,662
Acquisition related expenses                                                   -           333,237
Changes in estimate for consideration payable                                  -        (6,940,310 )
Impairment charges on goodwill and intangible assets                           -         9,038,553
Operating expenses                                                    14,475,614        16,129,964
Operating Income (loss):                                              (6,324,894 )      (7,146,460 )

Interest expense                                                        (691,138 )        (729,896 )
Other income                                                               4,540            88,161
Change in fair value of warrant liability                              1,796,174        (2,760,819 )
Total other income /(expenses)                                         1,109,576        (3,402,554 )
Income (loss) before income taxes                                     (5,215,318 )     (10,549,014 )
Income tax benefit                                                      (388,657 )      (6,348,502 )
Net Income (loss)                                                     (5,603,975 )     (16,897,516 )
Dividend on preferred stock                                             (426,003 )      (2,583,185 )
Net (loss) attributable to common stock holders                       (6,029,978 )     (19,480,701 )
Other comprehensive income/ (loss), net of tax:
Foreign exchange translation adjustment                                  (26,985 )          50,122
Total comprehensive income (loss)                                   $ (6,056,963 )     (19,430,579 )
Comprehensive (loss) attributable to the Company                      (6,056,963 )     (19,430,579 )
Comprehensive (loss) attributable to the non-controlling interest              -                 -
                                                                      (6,056,963 )     (19,430,579 )
Basic income (loss) per share                                       $      (2.83 )$      (20.47 )
Diluted income (loss) per share                                     $      (2.83 )$      (20.47 )

Basic weighted average number of shares                                2,128,806           951,601
Diluted weighted average number of shares                              2,128,806           951,601



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  Table of Contents
Revenues

Revenues for the year ended December 31, 2019 decreased by $3.1 million, or 6%, as compared to the year ended December 31, 2018, mainly because we did not pursue certain low margin professional services business during the year ended December 31, 2019.

For the years ended December 31, 2019 and December 31, 2018, sales to five major customers accounted for approximately 48% and 39% of our total revenue, respectively. For the year ended December 31, 2019, three of our customers contributed 14%, 13% and 10% of our revenue, and for the year ended December 31, 2018, two of our customers contributed 14% and 10% of our revenue.

We derived most of our revenues from our customers located in North America for the years ended December 31, 2019 and December 31, 2018.

Gross Margin

Our gross margin was 20% and 21% for the year ended December 31, 2019 and December 31 2018 respectively.

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 Expenses

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 year ended December 31, 2019 were $12.2 million, as compared to $10.8 million for the year ended December 31, 2018. SG&A expenses increased by $1.4 million. The increase was mainly due to new sales initiatives taken by the company, including recruiting and compensating a new sales team.

Depreciation and Amortization

Depreciation and amortization expense amounted to $2.3 million for the year ended December 31, 2019, as compared to $2.9 million for the year ended December 31, 2018. 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. Our amortization schedule is as follows:


Year ending December 31,          Amount
2020                           2,075,610
2021                           1,383,611
2022                             125,000
Total                        $ 3,584,221



Changes in Estimates

During the year ended December 30, 2018 the Company recognized a one-time non-cash gain in the amount of $6.9 million as a result of the Company's change in estimate of its consideration payable related to its acquisition of Ameri Arizona. The Company had previously accounted for total equity consideration payable of $10.4 million, which was reduced to $3.3 million as a result of two former members of Ameri Arizona electing to receive approximately $2.5 million in cash and the issuance of equity valued at $0.8 million to the third former member Ameri Arizona who had not elected to receive cash.

Impairment on goodwill and intangibles

As a result of our annual impairment testing on goodwill and of triggering events identified with respect to certain intangible assets, we recorded impairment charges of $0 and $9.0 million for the year ended December 31, 2019 and December 31, 2018 respectively with respect to the goodwill of certain of our reporting units and certain customer lists.


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  Table of Contents
Operating Income (loss)

Our operating loss was $6.3 million for the year ended December 31, 2019, as compared to $7.2 million for the year ended December 31, 2018. This decrease was mainly due to the decrease in Impairment charges on goodwill and intangibles.

Interest Expense

Our interest expense for the year ended December 31, 2019 and December 31, 2018 was $0.7 million.

Changes in fair value of warrant liability

In connection with a private placement transaction during 2018 as described further below, we issued warrants that were determined to be derivative financial instruments, and accordingly require adjustments to remeasure them to fair value upon certain events as described below. During the year ended December 31, 2019 and December 31, 2018, we recognized $1.8 million and $(2.8) Million in changes in fair value from the initial issuance date through the end of the year.

Income Taxes

The total tax expenses were $(0.4) million and $(6.3) million for the year ended December 31, 2019 and December 31, 2018 respectively.

Acquisition Related Expenses

We had acquisition related expenditures of $0 and $0.3 million during the years ended December 31, 2019 and December 31, 2018, respectively. These expenses included legal, professional services, valuation and due diligence services and other acquisition related fees incurred in connection with our acquisitions. The decrease was due to the decline in acquisition related activities in the year ended December 31, 2019 as compared to the year ended December 31, 2018.

Liquidity and Capital Resources

Our cash position was $0.4 million as of December 31, 2019, as compared to $1.4 million as of December 31, 2018.

Cash used for operating activities was $2.4 million during the years ended December 31, 2019 and $2.6 million during the year ended December 31, 2018. We were able to control the level of cash used for operating activities from year to year through cost-cutting measures that reduced working capital requirements. Cash used in investing activities was $0.3 million during the year ended December 31, 2019. Cash provided by financing activities was $1.8 million during the year ended December 31, 2019 and was attributable to the exercise of series A warrants , issue of debentures and net bank borrowings.

Liquidity Concerns

As of December 31, 2019, we had negative working capital of $6.8 million and cash of $0.4 million. Our principal sources of cash have included bank borrowings, the private placement of shares and net 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 December 31, 2019 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. We can give no assurances that additional capital that we are able to obtain, if any, will be sufficient to meet our needs. The foregoing conditions raise substantial doubt about our ability to continue as a going concern.


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  Table of Contents
Available Credit Facility, Borrowings and Repayment of Debt

As of December 31, 2019, we had approximately $2.9 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.

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"), 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.

The Company used approximately $2.75 million of the Initial Advance to repay all of its outstanding obligations under the Credit Facility of Sterling National Bank. Upon payment, the Company's obligations under the erstwhile credit facility were terminated.

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.

If an Event of Default (as defined in the Loan Agreement) occurs, Lender may, among other things, (i) declare all obligations immediately due and payable in full; (ii) cease advancing money or extending credit to or for the benefit of Borrower; and/or (iii) terminate the Loan Agreement as to any future liability or obligation of Lender, without affecting Lender's right to repayment of all obligations and Lender's security interests.

In addition, we have an outstanding aggregate of $1.5 million in 5% Convertible Unsecured Debentures (the "Debentures"), which were issued to one of accredited investors. The Debentures bear interest at 5% per annum and are convertible at $2.70 per share.

Effective February 27, 2020, we entered into a note purchase and security agreement with an investor for the sale of a $1,000,000 secured promissory note, which accrues interest at rate of 7.25% and is due on August 31, 2020.

In addition, as of December 31, 2019, we have an outstanding aggregate of $1 million in 8% Convertible Unsecured Promissory Notes (the "2017 Notes"), which were issued to one of our accredited investor, 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 bear interest at 8% per annum and became due in March 2020. We have not repaid the 2017 Notes and do not currently have sufficient funds available to meet these obligations.

Future Sources of Liquidity

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.


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  Table of Contents
Accounts Receivable

Accounts receivable for the year ended December 31, 2019 were $6.4 million as compared to $7.9 million as on December 31, 2018 due to decrease in revenue.

Accounts Payable

Accounts payable for the year ended December 31, 2019 were $4.7 million as compared to $4.4 million as on December 31, 2018.

Foreign Currency Risk

Overall, we believe that we have limited currency risk resulting from movement in foreign currency exchange rates as most of our revenues are derived from customers located in North America.

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.

Critical Accounting Policies

Revenue Recognition. We recognize revenue in accordance with the Accounting Standard Codification 606 "Revenue Recognition." Revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller's price to buyer is fixed and determinable, and (4) collectability is reasonably assured. We recognize revenue from information technology services as the services are provided. Service revenues are recognized based on contracted hourly rates, as services are rendered or upon completion of specified contracted services and acceptance by the customer.

Stock-Based Compensation. Stock-based compensation expense for awards of equity instruments to employees and non-employee directors is determined based on the grant-date fair value of those awards. We recognize these compensation costs net of an estimated forfeiture rate over the requisite service period of the award. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original estimates.

Warrant Liability

The Company accounts for the warrants issued in July 2018 in accordance with the guidance on Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which provides that the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company's statement of operations. The fair value of warrants issued by the Company in connection with private placements of securities has been estimated using the warrants quoted market price.

Impairment. Long-lived assets, which include property, plant and equipment, and certain other assets to be held and used by us, are reviewed when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable based on estimated future cash flows. If this assessment indicates that the carrying values will not be recoverable, as determined based on undiscounted cash flows over the remaining useful lives, an impairment loss is recognized based on the fair value of the asset.

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.


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Table of Contents 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.

Foreign Currency Translation

The Company translates the foreign currency financial statements into U.S. Dollars using the year or reporting period end or average exchange rates in accordance with the requirements of ASC 830, Foreign Currency Matters. Assets and liabilities are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented. The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within stockholders' equity (deficit).

Recent Accounting Pronouncements

a. 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 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 September 30, 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.

New Standards to Be Implemented

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". This new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. This standard 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 is currently evaluating the effect this new standard will have on its consolidated financial statements and related disclosures. The Company does not expect the requirement to recognize a right-of-use asset and a lease liability for operating leases to have a material impact on the presentation of its consolidated statements of financial position.


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Table of Contents On November 17, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. This new standard requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017 including interim periods within those fiscal years, but earlier adoption is permitted. The Company does not believe the adoption of this new standard will have a material impact on its consolidated financial statements.

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. Based on the Company's preliminary assessment of the foregoing update, it does not anticipate such update will have a material impact its financial statements.

Standards Implemented

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The company has implemented the above standard effective this quarter and has made the respective disclosures in Statement of Cash Flow.

In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("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.

© Edgar Online, source Glimpses

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