Notes to Consolidated Financial Statements
(Unaudited)
(All amounts are in thousands of US Dollars except per share data and as stated otherwise)
1.
|
DESCRIPTION OF BUSINESS
|
Majesco is a global
provider of core insurance platform solutions, consulting services and other insurance solutions for business transformation for
the insurance industry. Majesco offers core insurance platform solutions for property and casualty/general insurance (“P&C”),
and life, annuities, pensions and group/benefits (“L&A and Group”) providers, enabling them to automate and manage
business processes across the end-to-end insurance value chain and comply with policies and regulations across their organizations.
In addition, Majesco offers a variety of other technology-based solutions for distribution management, digital, data and cloud.
Our portfolio of solutions enable our customers to respond to evolving market needs, growth and innovation opportunities
and regulatory changes, which enables agility, innovation and speed while improving the effectiveness and efficiency of their business
operations.
Majesco’s customers
are insurers, managing general agents and other risk providers from the P&C, L&A and Group insurance segments worldwide.
Majesco delivers proven platform solutions for policy, rating, underwriting, billing, claims, distribution management, digital
and data and analytics as well as consulting services for enterprise consulting, digital, data, testing and application development
and maintenance.
Majesco was previously
100% owned (directly or indirectly) by Mastek Ltd., a publicly traded limited company domiciled in India whose equity shares are
listed on the Bombay Stock Exchange and the National Stock Exchange (India). Mastek Ltd. underwent a demerger through a scheme
of arrangement under India’s Companies Act, 1956, pursuant to which its insurance related business was separated from Mastek
Ltd.’s non-insurance related business and the insurance related operations of Mastek Ltd. that were not previously directly
owned by Majesco were contributed to Majesco (the “Reorganization”). The Reorganization was completed on June 1,
2015.
Majesco, along
with its subsidiaries (hereinafter referred to collectively
as the “Group”), operates in the United States, Canada, Mexico, the United Kingdom, Malaysia, Singapore, Thailand and
India.
Merger with Cover-All Technologies
Inc.
On June 26, 2015,
Cover-All Technologies Inc. (“Cover-All”), an insurance software company listed on the NYSE American, merged with and
into Majesco in a 100% stock-for-stock merger, with Majesco surviving the merger.
In connection with
the merger, Majesco’s common stock was listed on the NYSE American and began trading on the NYSE American on June 29,
2015. Pursuant to the merger, Cover-All’s stockholders and holders of its options and restricted stock units received equity
or equity interests in Majesco representing approximately 16.5% of the total capitalization of the combined company in the merger.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The accompanying unaudited consolidated
financial statements were prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC Regulation
S-X. The March 31, 2018 consolidated balance sheet was derived from our audited consolidated financial statements included in our
Annual Report on Form 10-K for the fiscal year ended March 31, 2018 filed with the SEC on June 22, 2018 (the “Annual Report”),
but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments except as otherwise noted, considered necessary for a fair statement of results of operations and financial
position have been included. 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.
Mastek Ltd. maintained
benefit and stock-based compensation programs at the parent company level. After the demerger from Mastek Ltd., which became effective
on June 1, 2015, the Group employees who participated in those programs were allotted options of Majesco’s parent company,
Majesco Limited, in the same proportion in addition to the existing options of Mastek Ltd., which these employees already had.
The consolidated balance sheets do not include any outstanding equity related to the stock-based compensation programs of Mastek
Ltd., but include outstanding equity related to the equity-based compensation programs of Majesco Limited.
|
b.
|
Significant Accounting Policies
|
For a description of
all significant accounting policies, see Note 2, Summary of Significant Accounting Policies, of the notes to the consolidated financial
statements included in our Annual Report. There have been no material changes to our significant accounting policies since the
filing of the Annual Report.
|
c.
|
Principles of Consolidation
|
The Group’s consolidated financial
statements include the accounts of Majesco and its wholly-owned subsidiaries, Cover-All Systems, Inc.,
Majesco Canada Ltd., Majesco Software and Solutions Inc. (“MSSI”), Majesco Sdn. Bhd., Majesco UK Limited, Majesco (Thailand)
Co., Ltd., Majesco Software and Solutions India Private Limited (“MSSIPL”) and Majesco Asia Pacific Pte Ltd. as of
June 30, 2018. All material intercompany balances and transactions have been eliminated in consolidation.
The preparation of
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
On an on-going basis, we evaluate our estimates, including those related to revenue recognition, cash equivalents and marketable
securities, accounts receivable, income taxes, goodwill, and stock-based compensation.
3.
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
Recent Accounting and Auditing Development
Revenue from Contracts with Customers
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which provides guidance
for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services
or enters into contracts for the transfer of non-financial assets. This ASU supersedes the revenue recognition requirements in
Topic 605, Revenue Recognition, and most industry-specific guidance and was effective for the Company for its fiscal year beginning
April 1, 2018.
The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers
in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a
five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required
within the revenue recognition process than are required under prior U.S. GAAP, including identifying performance obligations
in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction
price to each separate performance obligation, among others. Topic 606 also provides guidance on the recognition of costs related
to obtaining customer contracts.
The Company
adopted these ASUs (collectively, Topic 606) on April 1, 2018. Topic 606 permits two methods of adoption: retrospectively to each
prior reporting period presented (the “Full Retrospective Method”), or retrospectively with the cumulative effect of
initially applying the guidance recognized at the date of initial application (the “Modified Retrospective Method”).
The Company applied the Modified Retrospective Method. The adoption of this update did not have a material impact on the Company’s
consolidated financial statements.
Business Combinations (Topic 805):
Clarifying the Definition of a Business
In January
2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”, which
provides a more robust framework to use in determining when a set of assets and activities is a business. The standard was effective
for the Company beginning April 1, 2018. The adoption of this update did not have a material impact on the Company’s consolidated
financial statements.
Financial Instruments
In January
2016, the FASB issued ASU 2016-01, “Financial Instruments”, which impacts certain aspects of recognition, measurement,
presentation and disclosure of financial instruments. The standard was effective for the Company beginning April 1, 2018. The adoption
of this update did not have a material impact on the Company’s consolidated financial statements.
Statement of Cash Flows (Topic
230): Restricted Cash
In November
2016, the FASB issued ASU 2016-18,” Statement of Cash Flows (Topic 230): Restricted Cash”, which requires the statement
of cash flows to report changes in cash, cash equivalents, and restricted cash. The standard was effective for the Company beginning
April 1, 2018. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.
Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
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 standard was effective for the Company beginning April 1, 2018. The adoption of this update did not have a material
impact on the Company’s consolidated financial statements.
Income Tax Consequences of an
Intra-Entity Transfer of Assets Other Than Inventory (Topic 740)
In October
2016, the FASB issued ASU 2016-16, “Income Taxes — Intra-Entity Transfers of Assets Other Than Inventory (Topic 740)”,
which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when
the transfer occurs. The new standard must be adopted using a modified retrospective transition method which is a cumulative-effective
adjustment to retained earnings as of the beginning of the first effective reporting period. The standard was effective for the
Company beginning April 1, 2018. The adoption of this update did not have a material impact on the Company’s consolidated
financial statements.
Scope of Modification Accounting
In May
2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting (Topic 718) (“ASU 2017-09”), which amends
the scope of modification accounting for share-based payment arrangements. ASU 2017-09 provides guidance on the types of
changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification
accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting
conditions, and classification of the awards are the same immediately before and after the modification. The new standard is
effective for annual periods beginning after December 15, 2017 and interim periods within those years. Early adoption is
permitted. The standard was effective for the Company beginning April 1, 2018. The adoption of this update did not have a
material impact on the Company’s consolidated financial statements.
Accounting
for Leases (Topic 842)
In February
2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to
put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice.
ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use
asset for the right to use the underlying asset for the lease term. The standard will become effective for the Company beginning
April 1, 2019. Based on its current assessment, the Company does not expect the adoption of this update to have a material impact
on its consolidated financial statements.
Simplifying the Test for Goodwill
Impairment (Topic 350)
In January
2017, the FASB issued Accounting Standards Update No. 2017-04, “Intangibles — Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment”, which removes the requirement for an entity to calculate the implied fair value of goodwill
(as part of step 2 of the current goodwill impairment test) in measuring a goodwill impairment loss. The standard will be effective
for the Company beginning April 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. Based on its current assessment, the Company does not expect the adoption of this update
to have a material impact on its consolidated financial statements.
Income Statement,
Reporting Comprehensive Income (Topic 220): Reclassification of Certain Effects from Accumulated Other Comprehensive Income
In February 2018,
the FASB issued ASU No. 2018-02, Income Statement, Reporting Comprehensive Income (Topic 220): Reclassification of Certain Effects
from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows a reclassification of stranded tax effects
from accumulated other comprehensive income to retained earnings, as a result of the Tax Cuts and Jobs Act (“Tax Act”).
ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early
adoption permitted. The Company is currently evaluating the impact of adopting the new standard for its 2020 fiscal year and subsequent
periods.
Emerging Growth
Company
We
are an “emerging growth company” under the federal securities laws and are subject to reduced public company reporting
requirements. In addition, Section 107 of the Jumpstart Our Business Startups (“JOBS”) Act also provides that an emerging
growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933,
as amended. for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption
of certain accounting standards until those standards would otherwise apply to private companies. We have taken advantage of the
extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not
be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting
standards.
4.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The Group’s financial
instruments consist primarily of cash and cash equivalents, short term investments in time deposits, restricted cash, derivative
financial instruments, accounts receivable, unbilled accounts receivable, accounts payable, contingent consideration liability
and accrued liabilities. The carrying amounts of cash and cash equivalents, short term investments in time deposits, restricted
cash, accounts receivable, unbilled accounts receivable, accounts payable and accrued liabilities as of the reporting date approximate
their fair market value due to the relatively short period of time of original maturity tenure of these instruments.
Basis of Fair Value Measurement
Fair value is defined
as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation
techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The
current accounting guidance for fair value measurements defines a three-level valuation hierarchy for disclosures as follows:
|
Level 1:
|
Unadjusted quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
Level 2:
|
Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
|
|
Level 3:
|
Unobservable inputs that are supported by little or no market activity, which require the Group to develop its own assumptions.
|
The following table sets forth
the financial assets, measured at fair value, by level within the fair value hierarchy as of June 30, 2018 and March 31, 2018:
|
|
As of
|
|
|
|
June 30, 2018
|
|
|
March 31, 2018
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
|
|
|
|
|
|
Derivative financial instruments (included in the following line items in the Consolidated Balance Sheets)
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
-
|
|
|
$
|
194
|
|
Other assets
|
|
|
-
|
|
|
|
46
|
|
Other liabilities
|
|
|
(335
|
)
|
|
|
(17
|
)
|
Accrued expenses and other liabilities
|
|
|
(498
|
)
|
|
|
(127
|
)
|
|
|
$
|
(833
|
)
|
|
$
|
96
|
|
Level 3
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
(835
|
)
|
|
$
|
(835
|
)
|
|
|
$
|
(835
|
)
|
|
$
|
(835
|
)
|
Total
|
|
$
|
(1,668
|
)
|
|
$
|
(739
|
)
|
The following table presents the
change in level 3 instruments:
|
|
As of and for the three months ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Opening balance
|
|
$
|
(835
|
)
|
|
$
|
(756
|
)
|
Additions
|
|
|
-
|
|
|
|
-
|
|
Total losses recognized in Statement of Operations
|
|
|
(-
|
)
|
|
|
(18
|
)
|
Settlements
|
|
|
-
|
|
|
|
-
|
|
Closing balance
|
|
$
|
(835
|
)
|
|
$
|
(774
|
)
|
Contingent consideration
pertaining to the acquisition of the consulting business of Agile Technologies, LLC, a New Jersey limited liability company (“Agile”),
as of December 31, 2015 has been classified under level 3 as the fair valuation of such contingent consideration has been
calculated using one or more of the significant inputs which are not based on observable market data. 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 the Group’s probability assessments of expected future cash
flows related to its acquisition of the consulting business of Agile during the earn-out period, appropriately discounted considering
the uncertainties associated with the obligation, and calculated in accordance with the terms of the asset purchase agreement (the
“Agile Agreement”) dated December 12, 2014, as amended on January 26, 2016.
The total losses attributable
to changes in the estimated contingent consideration payable for the acquisition of the consulting business of Agile were $0 for
the three months ended June 30, 2018 and $(79) for the fiscal year ended March 31, 2018. The Group paid $11,000 to Agile
as earn-out consideration in the fiscal year ended March 31, 2018. The Group paid $11,000 to Agile as earn-out consideration
in the fiscal year ended March 31, 2017.
We use foreign currency
forward contracts and par forward contracts to hedge our risks associated with foreign currency fluctuations related to certain
commitments and forecasted transactions. The use of hedging instruments is governed by our policies which are approved by our Board
of Directors. We designate these hedging instruments as cash flow hedges. Derivative financial instruments we enter into that are
not designated as hedging instruments in hedge relationships are classified as financial instruments at fair value in the statement
of operations.
The fair value of derivative
financial instruments is determined based on observable market inputs and valuation models. The derivative financial instruments
are valued based on valuations received from the relevant counter-party (i.e., bank). The fair value of the foreign exchange forward
contract and foreign exchange par forward contract not valued by a bank has been determined as the difference between the forward
rate on the reporting date and the forward rate on the original transaction, multiplied by the transaction’s notional amount
(with currency matching).
5.
|
software HIRE purchase agreementS
|
The Group acquired
software under a hire purchase arrangement which is stated at the present value of the minimum instalment payments. The gross stated
amount for such software is $429 and $430 and related accumulated depreciation is $128 and $107, respectively, as of June 30, 2018
and March 31, 2018.
Depreciation expenses
in respect of assets held under hire purchase were $21 for the three months ended June 30, 2018, compared to $22 for the three
months ended June 30, 2017.
The following is a
schedule of the future minimum installment payments under hire purchase, together with the present value of the net minimum installment
payments as of June 30, 2018.
Period ended June 30,
|
|
Amount
|
|
2019
|
|
$
|
139
|
|
Total minimum installment payments of hire purchase
|
|
$
|
139
|
|
Less: Interest portion
|
|
|
3
|
|
Present value of net minimum installments of hire purchase
|
|
$
|
136
|
|
MSSIPL Facilities
On June 30, 2015,
the Group’s subsidiary, MSSIPL, entered into a secured Pre Shipment in Foreign Currency and Post Shipment in Foreign Currency
(“PCFC”) facility with Yes Bank under which MSSIPL may request three months pre-export advances and advances against
export collection bills. The maximum borrowing limit was initially 300 million Indian rupees. The interest rate on this PCFC facility
was initially three months LIBOR plus 275 basis points. The interest rate on this PCFC facility is determined at the time of each
advance. This PCFC facility is secured by a first pari passu charge over the current assets of MSSIPL. Excess outstanding beyond
100 million Indian rupees is to be backed by 100% fixed deposit receipts in MSSIPL or Majesco Limited. On September 27, 2016,
MSSIPL extended this PCFC facility to June 17, 2017.
On September 13, 2017,
MSSIPL entered into an addendum facility letter (the “2017 Addendum”) to its addendum facility letter dated September
27, 2016 with respect to the PCFC facility with Yes Bank dated June 30, 2015. The 2017 Addendum further extended the maturity date
of the PCFC facility to May 22, 2018 and reduced the maximum borrowing limit from 300 million Indian rupees to 130 million Indian
rupees, or approximately $1,896 based upon the exchange rate on June 30, 2018. There is no outstanding balance against this loan
as of June 30, 2018. The Group is currently in discussions to extend the term of this facility.
In addition, the 2017 Addendum also amended
the interest rate of the PCFC facility to LIBOR plus 150 basis points plus 2%. The interest rate on the PCFC facility is determined
at the time of each advance.
As of June 30,
2018, the Group was in compliance with the terms of this facility.
On May 9, 2017, MSSIPL
and Standard Chartered Bank entered into an Export Invoice Financing Facility, Working Capital Overdraft Facility, Short Term Loans
Facility, Bonds and Guarantees Facility and Pre Shipment Financing Under Export Orders Facility (collectively, the “Combined
Facility”) pursuant to which Standard Chartered Bank agreed to a Combined Facility of up to 200 million Indian rupees (or
approximately $2,917 based upon the exchange rate on June 30, 2018). The Export Invoice Financing Facility is for the financing
of MSSIPL’s sale of goods, as evidenced by MSSIPL’s invoice to the customer. Each amount drawn is required to be repaid
within 90 days. The interest on this facility is based on the marginal cost of funds based lending rate (“MCLR”) plus
a margin to be agreed with Standard Chartered Bank at the time of each drawdown. The MCLR is to be determined on the date of each
disbursement and be effective until repayment or maturity date. Interest will accrue from the utilization date to the date of repayment
or payment of that utilization. The Working Capital Overdraft Facility and the Short Term Loans Facility are for working capital
purposes and subject to sub-limits. The interest on these facilities is based on the MCLR plus a margin to be agreed with Standard
Chartered Bank at the time of each borrowing. The MCLR is to be determined on the date of each disbursement and be effective until
repayment or maturity. Interest will accrue from the draw down date up to the repayment or maturity date. The Bonds and Guarantees
Facility is for the issuance of guarantees and subject to commissions as agreed with Standard Chartered Bank from time to time.
The Pre Shipment Financing Under Export Orders Facility is for the purchase of raw material, processing, packing, transportation,
warehousing and other expenses and overheads incurred by MSSIPL to ready goods for sale. The interest on this facility is based
on the MCLR plus a margin to be agreed with Standard Chartered Bank at the time of each borrowing. The MCLR is to be determined
on the date of utilization and be effective until repayment. Interest will accrue from the utilization date up to the repayment
date.
The interest under
the Combined Facility may be changed by Standard Chartered Bank upon the occurrence of certain market disruption events. The Combined
Facility is secured by a first pari passu security interest over the current assets of MSSIPL. MSSIPL was in compliance under the
terms of this Combined Facility as of June 30, 2018.
There are no outstanding loans under this
Combined Facility as of June 30, 2018.
Term Loan Facility
On March 23, 2016,
Majesco entered into a Loan Agreement (the “Loan Agreement”) with HSBC pursuant to which HSBC agreed to extend loans
to Majesco in the amount of up to $10,000 and Majesco issued a promissory note to HSBC in the maximum principal amount of $10,000
or any lesser amount borrowed under the Loan Agreement (the “Note”, and together with the “Loan Agreement”,
the “Facility”). The outstanding principal balance of the loan bears interest based on LIBOR plus a margin in effect
on the first day of the relevant interest period. Until January 1, 2018, only interest was payable under the loan. Commencing
on January 1, 2018, and on each January 1 and July 1 thereafter until July 1, 2020, installments of principal
in the amount of $1,667 will be due and payable semi-annually. All principal and interest outstanding under the Note is
due and payable on March 1, 2021. The Facility is unsecured and supported by a letter of credit issued by a bank of $10,000,
which is secured by a cash pledge of the Group’s parent company, Majesco Limited. As of June 30, 2018, the Group had $8,333
outstanding under this Facility. As of June 30, 2018, the Group was in compliance with the terms of this Facility.
The Facility
contains affirmative covenants that require Majesco to furnish financial statements to HSBC and cause Majesco Limited to
maintain (1) a Net Debt-to-EBITDA Ratio (as defined in the Loan Agreement) of not more than (a) 5.00 to 1.00 as of the last
day of its 2017 fiscal year and (b) 2.50 to 1.00 as of the last day of each fiscal year thereafter, and (2) a Debt Service
Coverage Ratio (as defined in the Loan Agreement) of not less than 1.50 to 1.00 as of the last day of each fiscal year. The
Facility contains restrictive covenants on Majesco, including restrictions on declaring or paying dividends upon and during
the continuation of an event of default, incurring additional indebtedness, selling material portions of its assets or
undertaking other substantial changes to the business, purchasing or holding securities for investment, and extending credit
to any person outside the ordinary course of business. The Facility also restricts any transfer or change in, or assignment
or pledge of the ownership or control of Majesco which would cause Majesco Limited to directly own less than 51% of the
issued and outstanding equity interests in Majesco. The Facility also restricts Majesco Limited from incurring any Net Debt
(as defined in the Loan Agreement) in excess of $25,000 at any time prior to April 1, 2017. The Facility also
contains a customary events of default provision and indemnification provisions whereby Majesco will indemnify HSBC against
all losses or damages related to the Facility; provided, however, that Majesco shall not have any indemnification obligations
to HSBC for any claims caused by HSBC’s gross negligence or willful misconduct. Majesco used the loan proceeds to repay
existing indebtedness and for capital expenditures, working capital and other general corporate purposes.
Receivable Purchase Facility
On January 13,
2017, Majesco and its subsidiaries MSSI and Cover-
All Systems
jointly and severally entered
into a Receivable Purchase Agreement with HSBC pursuant to which HSBC may advance funds against receivables at an agreed advance
rate. The outstanding aggregate amount of all advances may not exceed a $10,000 facility limit. The facility bears
interest
at two (2%) per cent plus the ninety (90) day LIBOR rate. HSBC will also receive an arrangement fee equal to 0.20% of the facility
limit and a facility review fee equal to 0.20% of the facility limit. Majesco will serve as HSBC’s agent for the collection
of receivables, and Majesco will collect and otherwise enforce payment of the receivables. HSBC has a security interest in accounts
of MSSI and Cover-All Systems. The term of the Receivable Purchase Agreement is for a minimum period of twelve (12) months and
shall continue unless terminated by either party. Either party may terminate the Receivable Purchase Agreement at any time upon
sixty (60) days’ prior
written notice to the other party. The Receivable Purchase Agreement will provide additional
liquidity to the Group for working capital and other general corporate purposes. As of June 30, 2018, Majesco had $4,927 outstanding
under this facility. Majesco used proceeds from this facility to refinance the ICICI facility described above, to fund capital
expenditures and for working capital and other general corporate purposes.
Auto loan
MSSIPL
has obtained an auto loan from HDFC Bank for the purchase of a vehicle. This loan is secured by the hypothecation of the vehicle.
The outstanding balance of the auto loan as of June 30, 2018 is $51.
7.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
The following table provides information
of fair values of derivative financial instruments:
|
|
Asset
|
|
|
Liability
|
|
|
|
Noncurrent*
|
|
|
Current*
|
|
|
Noncurrent*
|
|
|
Current*
|
|
As of June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated as hedging instruments under Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
335
|
|
|
$
|
498
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
335
|
|
|
$
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated as hedging instruments under Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
46
|
|
|
$
|
194
|
|
|
$
|
17
|
|
|
$
|
127
|
|
|
|
$
|
46
|
|
|
$
|
194
|
|
|
$
|
17
|
|
|
$
|
127
|
|
The noncurrent and
current portions of derivative assets are included in ‘Other assets’ and ‘Prepaid expenses and other current
assets,’ respectively, and the noncurrent and current portions of derivative liabilities are included in ‘Other liabilities’
and ‘Accrued expenses and other current liabilities,’ respectively, in the consolidated balance sheet.
Cash Flow Hedges and Other Derivatives
We use foreign currency
forward contracts and par forward contracts to hedge our risks associated with foreign currency fluctuations related to certain
commitments and forecasted transactions. The use of hedging instruments is governed by our policies which are approved by our Board
of Directors. We designate these hedging instruments as cash flow hedges. Derivative financial instruments we enter into that are
not designated as hedging instruments in hedge relationships are classified as financial instruments at fair value in the statement
of operations.
The aggregate contracted
USD notional amounts of the Group’s foreign exchange forward contracts (sell) outstanding amounted to $28,000 and $18,250
as of June 30, 2018 and March 31, 2018, respectively. The aggregate contracted Great Britain Pound (“GBP”) notional
amounts of the Group’s foreign exchange forward contracts (sell) outstanding amounted to GBP 825 and GBP 1,155 as of
June 30, 2018 and March 31, 2018, respectively.
The outstanding forward
contracts as of June 30, 2018 mature between one month and 36 months. As of June 30, 2018, the Group estimates that $(591), net
of tax, of the net gains related to derivatives designated as cash flow hedges recorded in accumulated other comprehensive income
(loss) is expected to be reclassified into earnings within the next 36 months.
The related cash flow
impacts of all of our derivative activities are reflected as cash flows from operating activities.
The following table
provides information on the amounts of pre-tax gains/(losses) recognized in and reclassified from Accumulated Other Comprehensive
Income “AOCI” of derivative instruments designated as cash flow hedges:
|
|
Amount of
Gain/(Loss)
recognized in
AOCI (effective
portion)
|
|
|
Amount of
Gain/(Loss)
reclassified
from AOCI to
Statement of
Operations
(Revenue)
|
|
For the three months ended June 30, 2018
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(991
|
)
|
|
$
|
61
|
|
Total
|
|
$
|
(991
|
)
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2017
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(14
|
)
|
|
$
|
(21
|
)
|
Total
|
|
$
|
(14
|
)
|
|
$
|
(21
|
)
|
8.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME
|
Changes in accumulated other comprehensive
income by component were as follows:
|
|
Three months ended
June 30, 2018
|
|
|
Three months ended
June 30, 2017
|
|
|
|
Before
tax
|
|
|
Tax
effect
|
|
|
Net of
Tax
|
|
|
Before
tax
|
|
|
Tax
effect
|
|
|
Net of
Tax
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
293
|
|
|
$
|
-
|
|
|
$
|
293
|
|
|
$
|
(345
|
)
|
|
$
|
-
|
|
|
$
|
(345
|
)
|
Change in foreign currency translation adjustments
|
|
|
(580
|
)
|
|
|
-
|
|
|
|
(580
|
)
|
|
|
189
|
|
|
|
-
|
|
|
|
189
|
|
Closing balance
|
|
$
|
(287
|
)
|
|
$
|
-
|
|
|
$
|
(287
|
)
|
|
$
|
(156
|
)
|
|
$
|
-
|
|
|
$
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains/(losses) on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
96
|
|
|
$
|
(28
|
)
|
|
$
|
68
|
|
|
$
|
89
|
|
|
$
|
(30
|
)
|
|
$
|
59
|
|
Unrealized gains/(losses) on cash flow hedges
|
|
|
(868
|
)
|
|
|
253
|
|
|
|
(615
|
)
|
|
|
(7
|
)
|
|
|
3
|
|
|
|
(4
|
)
|
Reclassified to Revenue
|
|
|
(62
|
)
|
|
|
18
|
|
|
|
(44
|
)
|
|
|
21
|
|
|
|
(7
|
)
|
|
|
14
|
|
Net change
|
|
$
|
(930
|
)
|
|
$
|
271
|
|
|
$
|
(659
|
)
|
|
$
|
14
|
|
|
$
|
(4
|
)
|
|
$
|
10
|
|
Closing balance
|
|
$
|
(834
|
)
|
|
$
|
243
|
|
|
$
|
(591
|
)
|
|
$
|
103
|
|
|
$
|
(34
|
)
|
|
$
|
69
|
|
The Group recognized
income tax provisions of $792 for the three months ended June 30, 2018 and recognized income tax benefits of $(844)
for the three months ended June 30, 2017.
The effective tax rate
is 43% for the three months ended June 30, 2018, which differs from the statutory U.S. federal income tax rate of 21% mainly due
to equity-based compensation, the impact of different tax jurisdictions and under accruals of prior periods.
10.
|
EMPLOYEE STOCK OPTION PLAN
|
Majesco 2015 Equity Incentive Plan
In the three months ended June 30, 2018,
we recognized $452, in equity-based compensation expense in our consolidated financial statements compared to $355 in the three
months ended June 30, 2017.
In June 2015, Majesco
adopted the Majesco 2015 Equity Incentive Plan (the “2015 Plan”). Under the 2015 Plan, options and stock awards for
the purchase of up to 3,877,263 shares may be granted by the Compensation Committee of the Board of Directors to our employees,
consultants and directors at an exercise or grant price determined by the Compensation Committee of the Board of Directors on the
date of grant. Options may be granted as incentive or nonqualified stock options with a term of not more than ten years. The 2015
Plan allows the grant of restricted or unrestricted stock awards or awards denominated in stock equivalent units or any combination
of the foregoing, which may be paid in common stock or other securities, in cash, or in a combination of common stock or other
securities and cash. On June 30, 2018, an aggregate of 569,874 shares were available for grant under the 2015 Plan. On May 9, 2018,
the Board of Directors of Majesco approved an increase of 2,000,000 shares in the amount of shares available for issuance under
the 2015 Plan from 3,877,263 shares to 5,877,263 shares. This increase is currently being submitted for approval by the shareholders
of Majesco at their upcoming 2018 annual meeting.
Majesco uses the Black-Scholes-Merton
option-pricing model (“Black-Scholes”) to measure fair value of the share-based awards. The Black-Scholes model requires
us to make significant judgments regarding the assumptions used within the model, the most significant of which are the expected
stock price volatility, the expected life of the option award, the risk-free interest rate of return and dividends during the expected
term.
-
|
Expected volatility is based on peer entities as historical volatility data for
Majesco’s common stock is limited.
|
-
|
In accordance with ASC 718, Majesco uses the simplified method for estimating the expected term when measuring the fair value of employee stock options using the Black-Scholes option pricing model. Majesco believes the use of the simplified method is appropriate due to the employee stock options qualifying as “plain-vanilla” options under the criteria established by SAB Topic 14.
|
-
|
The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yields for an equivalent term at the time of grant.
|
-
|
Majesco does not anticipate paying dividends during the expected term.
|
|
|
As of June 30,
|
|
Variables (range)
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
41%–50
|
%
|
|
|
41%–50
|
%
|
Weighted-average volatility
|
|
|
41
|
%
|
|
|
41
|
%
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
3-5
|
|
|
|
3-5
|
|
Risk-free interest rate
|
|
|
0.71
|
%
|
|
|
0.46
|
%
|
As of June 30, 2018,
there was $3,553 of total unrecognized compensation costs related to non-vested share-based compensation arrangements previously
granted by Majesco. That cost is expected to be recognized over a weighted-average period of 2.3 years.
A summary of the outstanding
common stock options under the 2015 Plan is as follows:
|
|
Shares
|
|
|
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
|
|
|
Weighted-Average
Exercise Price
|
|
Balance, April 1, 2018
|
|
|
3,278,143
|
|
|
$
|
4.79 – 7.72
|
|
|
|
7.69 years
|
|
|
$
|
5.27
|
|
Granted
|
|
|
10,000
|
|
|
|
5.25
|
|
|
|
9.85 years
|
|
|
|
5.25
|
|
Exercised
|
|
|
(12,500
|
)
|
|
|
4.92
|
|
|
|
-
|
|
|
|
4.92
|
|
Cancelled
|
|
|
(36,250
|
)
|
|
|
4.81 – 6.22
|
|
|
|
-
|
|
|
|
5.26
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance, June 30, 2018
|
|
|
3,239,393
|
|
|
$
|
4.79 – 7.72
|
|
|
|
7.61 years
|
|
|
$
|
5.27
|
|
Of the stock options
outstanding, an aggregate of 1,559,250 were exercisable as of June 30, 2018.
The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected
stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion,
the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.
We follow FASB Accounting
Standards Codification (“ASC”) 718, Accounting for Stock Options and Other Stock-Based Compensation. Among other items,
ASC 718 requires companies to record the compensation expense for share-based awards issued to employees and directors in exchange
for services provided. The amount of the compensation expense is based on the estimated fair value of the awards on their grant
dates and is recognized over the required service periods. Our share-based awards include stock options and restricted stock awards.
For restricted stock awards, the calculation of compensation expense under ASC 718 is based on the intrinsic value of the grant.
Warrants
As of June 30, 2018,
there were warrants to purchase 25,000 shares of common stock outstanding. A summary of the terms of the outstanding warrants as
of June 30, 2018 is as follows:
|
|
Outstanding
and Exercisable
Warrants
|
|
|
Exercise Price
Per Warrant
|
|
|
Weighted-Average
Remaining
Contractual Life
|
|
|
Weighted-Average
Exercise Price
|
|
Balance, June 30, 2018
|
|
|
25,000
|
|
|
$
|
7.00
|
|
|
|
2.3 years
|
|
|
$
|
7.00
|
|
On September 1, 2015,
Majesco issued to Maxim Partners LLC a five year warrant to purchase 25,000 shares of common stock of Majesco at an exercise price
of $7.00 per share. The warrant was issued in connection with the engagement of the holder to perform certain advisory services
to the Group. The number of shares issuable upon exercise of the warrant may be reduced under certain circumstances of non-performance
under the services agreement. The warrant may be exercised at any time after September 1, 2016 and will expire, if unexercised,
on September 1, 2020. The warrant contains certain anti-dilution adjustment protection in case of certain future issuances of securities,
stock dividends, split and other transactions affecting Majesco’s securities. The holder of the warrant is entitled to piggyback
registration rights in case of certain registered securities offerings by Majesco
.
Employee Stock Option
Scheme of Majesco Limited — Plan 1
Certain employees of
the Group participate in the Group’s parent company, Majesco Limited’s, employee stock option plan. The plan, termed
as “ESOP plan 1,” became effective June 1, 2015, the effective date of the demerger from Mastek Ltd. Group employees
who were issued options in the earlier ESOP plans of Mastek Ltd. were given options of Majesco Limited following the demerger.
Under the plan, Majesco Limited also grants newly issued options to the employees of MSSIPL from time to time. During the three
months ended June 30, 2018, options to purchase36,000 shares of common stock were granted under ESOP plan 1 of Majesco Limited.
The options were granted at the market price on the grant date.
As of June 30, 2018,
the total future compensation cost related to non-vested options not yet recognized in the Statement of Operations was $866, and
the weighted average period over which these awards are expected to be recognized was 1.98 years. The weighted average remaining
contractual life of options expected to vest as of June 30, 2018 is 8.98 years.
Majesco Limited calculated
the fair value of each option grant on the date of grant using the Black-Scholes option-pricing method with the following assumptions:
|
|
As of June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Weighted-average volatility
|
|
|
46.64
|
%
|
|
|
51.02
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term (in years)
|
|
|
5.6 Years
|
|
|
|
6 Years
|
|
Risk-free interest rate
|
|
|
7.88
|
%
|
|
|
7.46
|
%
|
The summary of outstanding options of Majesco
Limited as of June 30, 2018 is as follows:
|
|
No of Options
Outstanding
|
|
|
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
|
|
|
Weighted-Average
Exercise Price
|
|
Balance, June 30, 2018
|
|
|
855,757
|
|
|
|
$0.10 - $3.00
|
|
|
|
6.30
|
|
|
|
2.34
|
|
|
|
|
620,684
|
|
|
|
$3.10 - $6.00
|
|
|
|
8.22
|
|
|
|
6.88
|
|
|
|
|
85,500
|
|
|
|
$6.10 - $9.00
|
|
|
|
8.32
|
|
|
|
24.81
|
|
|
|
|
1,561,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the stock options of Majesco Limited
outstanding and held by Group employees, an aggregate of 1,057,941 are exercisable as of June 30, 2018.
Majesco Performance Bonus Plan
Majesco established
the Majesco Performance Bonus Plan (the “Performance Bonus Plan”). The Performance Bonus Plan is administered by the
Compensation Committee of the Board of Directors of Majesco. The purpose of the Performance Bonus Plan is to benefit and advance
the interests of the Group by rewarding selected employees of the Group for their contributions to the Group’s financial
success and thereby motivate them to continue to make such contributions in the future by granting them performance-based awards
that are fully tax deductible to the Group.
During the three months
ended June 30, 2018, we accrued $3,054 in incentive compensation expense in our consolidated financial statements compared to $(5)
during the three months ended June 30, 2017.
Majesco Employee Stock Purchase Plan
Majesco established
the Majesco Employee Stock Purchase Plan (the “ESPP”). The ESPP is intended to be qualified under Section 423 of the
Internal Revenue Code. If a plan is qualified under Section 423, employees who participate in the ESPP enjoy certain tax advantages.
The ESPP allows employees to purchase shares of Majesco common stock at a discount, without being subject to tax until they sell
the shares, and without having to pay any brokerage commissions with respect to the purchases.
The purpose of the
ESPP is to encourage the purchase of Majesco common stock by our employees, to provide employees with a personal stake in our business
and to help us retain our employees by providing a long range inducement for such employees to remain in our employ.
The ESPP provides employees with the right to purchase shares
of common stock through payroll deductions. The total number of shares available for purchase under the ESPP is 2,000,000. The
ESPP Plan became effective January 1, 2016. As of June 30, 2018, we had issued and sold 104,465 shares under the ESPP.
The basic and diluted earnings/ (loss) per
share were as follows:
|
|
Three months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net Income/ (Loss)
|
|
$
|
1,035
|
|
|
$
|
(1,650
|
)
|
|
|
|
|
|
|
|
|
|
Basic weighted average outstanding equity shares
|
|
|
36,600,811
|
|
|
|
36,509,773
|
|
Adjustment for dilutive potential ordinary shares
|
|
|
|
|
|
|
|
|
Options under Majesco 2015 Equity Incentive Plan
|
|
|
2,188,914
|
|
|
|
0
|
|
Dilutive weighted average outstanding equity shares
|
|
|
38,789,725
|
|
|
|
36,509,773
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
(0.05
|
)
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
(0.05
|
)
|
Basic earnings per
share amounts are calculated by dividing net income for the three months ended June 30, 2018 and 2017 attributable to common shareholders
by the weighted average number of ordinary shares outstanding during the same periods.
Diluted earnings per
share amounts are calculated by dividing the net income attributable to common shareholders by the sum of the weighted average
number of shares of common stock outstanding during the three months periods plus the weighted average number of shares of common
stock that would be issued upon the conversion of all the dilutive potential shares of common stock into shares of common stock.
The calculation of
diluted earnings per share excluded 754,816 shares and options for the three months ended June 30, 2018 and 2,813,559 shares and
options for the three months ended June 30, 2017 granted to employees, as their inclusion would have been antidilutive.
12.
|
RELATED PARTIES TRANSACTIONS
|
Reimbursement of Expenses
The Group reimburses
expenses incurred by Majesco Limited attributable to shared resources with Majesco Limited that are in the process of being separated
after the Reorganization, including air travel, travel insurance, telephone costs, water charges, insurance costs, administrative
personnel costs, software and hardware costs and third party license costs, less receivables from Majesco Limited for similar expenses.
The amount receivable from Majesco Limited for reimbursement of expenses as on June 30, 2018 and June 30, 2017 is $0 and $134 respectively.
Leases
MSSIPL entered into
an operating lease for its operation facilities in Mahape, India, as lessee, with Majesco Limited, Majesco’ s parent company,
as lessor. The approximate aggregate annual rent payable to Majesco Limited under this lease agreement is $1,384. The lease became
effective on June 1, 2015 and expires on May 31, 2020.
MSSIPL also entered
into a lease for facilities for its operations in Pune, India, with Mastek Ltd. as lessor. The lease became effective on June 1,
2015 and expires on May 31, 2020. MSSIPL has also entered into a supplementary lease for its operations in Pune, India, with
Mastek Ltd. as lessor. The supplementary lease became effective on April 1, 2016 and expires on May 31, 2020. The approximate
aggregate annual rent payable to Mastek Ltd. under the foregoing lease agreements is $404. On June 1, 2018, MSSIPL gave notice
to Mastek Ltd. of its termination of both leases.
|
|
As of
June 30, 2018
|
|
|
As of
June
30,
2017
|
|
Security deposits paid to Majesco Limited by MSSIPL for use of Mahape premises
|
|
$
|
613
|
|
|
$
|
650
|
|
Security deposits paid to Mastek Ltd. by MSSIPL for use of Pune premises
|
|
$
|
193
|
|
|
$
|
225
|
|
Rental expenses paid
by MSSIPL to Majesco Limited for the use of premises for the three months ended June 30, 2018 was $326. Rental expenses paid
by MSSIPL to Mastek Ltd. for the use of premises for the three months ended June 30, 2018 was $101.
Joint Venture Agreement
On September 24,
2015, MSSIPL and Mastek (UK) Limited, a wholly-owned subsidiary of Mastek Ltd. (“Mastek UK”), entered into a Joint
Venture Agreement (the “Joint Venture Agreement”) pursuant to which the two companies agreed to work together to deliver
services to third parties, which services comprise the delivery of development, integration and support services to third parties
by use of Mastek Ltd.’s development, integration and support methodologies and tools. The Joint Venture Agreement became
effective on September 24, 2015 and will remain in force, unless terminated by either party upon three months’ notice
in writing to the other of its intention to terminate the Joint Venture Agreement. The consideration for each party’s performance
of its obligations under the Joint Venture Agreement is the performance of the other’s obligations under the same agreement,
being services to the other. The services comprise, in the case of Mastek Ltd., Mastek Ltd.’s development, integration and
support methodologies and tools and business development services. In the case of MSSIPL, the services comprise the provision of
leading edge technical expertise and advice. The parties will also exchange technical and business information.
Services Agreements
On March 1, 2016,
Majesco and Digility Inc., a Delaware corporation (“Digility”) wholly-owned by Mastek UK, entered into a Services
Agreement (the “Digility Services Agreement”) pursuant to which Majesco provided certain management and operational
support services to Digility, including managed office accommodation and facilities, managed office IT infrastructure and networks,
and corporate support services. The charges for these services consisted of an initial set-up fee of $1, a monthly fee
of $4 and a pass through of actual costs of providing the services incurred in excess of the monthly fee. The Digility
Services Agreement was effective as of March 1, 2016 and was terminated on August 31, 2017. Service charges received from
Digility for the three months ended June 30, 2018 were $0 and $11 for the three months ended June 30, 2017.
On August 2,
2016, Majesco Limited and MSSIPL entered into a master service agreement, effective as of June 30, 2016, pursuant to which
MSSIPL will provide software development services to Majesco Limited. Under this agreement, MSSIPL will charge Majesco Limited
cost plus a margin for the services rendered. Software development charges charged by MSSIPL under the agreement for the three
months ended June 30, 2018 were $335 and $261 for the three months ended June 30, 2017.
On July 25, 2018,
Majesco Limited and MSSIPL entered into an Intra Group Services Agreement (the “Intra-Group Agreement”). Pursuant
to the terms of the Intra-Group Agreement, Majesco Limited will provide certain sales and marketing services to MSSIPL in the
Asia Pacific region (collectively, the “Services”). In consideration for the Services, MSSIPL will pay Majesco Limited
all direct and indirect operating costs of Majesco Limited incurred for the provision of the Services and which shall be allocated
to MSSIPL on the basis of gross revenues plus a 10% mark-up. The mark-up will be subject to a periodic review. The Intra Group
Agreement will be effective as of April 1, 2018 and will remain in effect until terminated. Each party may terminate the Intra
Group Agreement at any time upon sixty days prior written notice to the other. Expenses charged by Majesco Limited under the Intra
Group Agreement for the three months ended June 30, 2018 were $57 and $0 for the three months ended June 30, 2017.
Sublease
On March 1, 2016,
Majesco and Digility entered into a Sublease Agreement (the “Sublease Agreement”), pursuant to which Majesco sublets
the premises located on the first floor of 685 Route 202/206, Bridgewater, New Jersey to Digility. Digility will pay monthly $1
for rent to Majesco during the term of the Sublease Agreement. Digility will also reimburse Majesco for any costs charged by the
landlord, Route 206 Associates, a New Jersey partnership, for additional services requested by Digility. The term of the Sublease
Agreement commenced on March 1, 2016 and expired on July 31, 2017. Rental charges received from Digility for the three
months ended June 30, 2018 were $0 and for the three months ended June 30, 2017 were $4.
Guarantee
During the three months
ended June 30, 2018, Majesco paid $10 to Majesco Limited as arrangement fees and guarantee commission for the guarantee given
by Majesco Limited to HSBC for the facilities taken by Majesco and its subsidiaries. During the three months ended June 30, 2017,
Majesco paid $12 to Majesco Limited as arrangement fees and guarantee commission for the guarantee given by Majesco Limited to
HSBC and ICICI Bank for the facilities taken by Majesco and its subsidiaries.
The Group operates
in one segment as software solutions provider for the insurance industry. The Group’s chief operating decision maker (the
“CODM”) is its Chief Executive Officer. The CODM manages the Group’s operations on a consolidated basis for purposes
of allocating resources. When evaluating the Group’s financial performance, the CODM reviews all financial information on
a consolidated basis. A majority of the Group’s principal operations and decision-making functions are located in the United
States.
The following table sets forth
revenues by country based on the billing address of the customer:
|
|
Three months
ended
June 30, 2018
|
|
|
Three months
ended
June 30, 2017
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
29,870
|
|
|
$
|
24,382
|
|
UK
|
|
|
1,428
|
|
|
|
1,480
|
|
Canada
|
|
|
162
|
|
|
|
223
|
|
Malaysia
|
|
|
1,399
|
|
|
|
1,102
|
|
Others
|
|
|
690
|
|
|
|
735
|
|
|
|
$
|
33,549
|
|
|
$
|
27,922
|
|
The following table sets forth the Group’s property
and equipment, net by geographic region:
|
|
As of
June 30, 2018
|
|
|
As of
March 31, 2018
|
|
USA
|
|
$
|
1,049
|
|
|
$
|
1,195
|
|
India
|
|
|
1,169
|
|
|
|
1,332
|
|
Canada
|
|
|
13
|
|
|
|
16
|
|
UK
|
|
|
5
|
|
|
|
7
|
|
Malaysia
|
|
|
181
|
|
|
|
205
|
|
|
|
$
|
2,417
|
|
|
$
|
2,755
|
|
We provide a significant
volume of services to a number of significant customers. Therefore, the loss of a significant customer could materially reduce
our revenues. The Group had one customer for the three months ended June 30, 2018, and no customers for the months ended June 30,
2017 that accounted for 10% or more of total revenue. The Group had one customer as of June 30, 2018 and no customers as of June
30, 2017 that accounted for 10% or more of total accounts receivable and unbilled accounts receivable. Presented in the table below
is information about our major customers:
|
|
Three months ended
June 30, 2018
|
|
|
Three months ended
June 30, 2017
|
|
|
|
Amount
|
|
|
% of
combined
revenue
|
|
|
Amount
|
|
|
% of
combined
revenue
|
|
Customer A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,521
|
|
|
|
13.5
|
%
|
|
$
|
1,696
|
|
|
|
6
|
%
|
Accounts receivable and unbilled accounts receivable
|
|
$
|
2,319
|
|
|
|
8.3
|
%
|
|
$
|
1,590
|
|
|
|
6
|
%
|
Customer B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,708
|
|
|
|
5.1
|
%
|
|
$
|
1,370
|
|
|
|
5
|
%
|
Accounts receivables and unbilled accounts receivable
|
|
$
|
530
|
|
|
|
1.9
|
%
|
|
$
|
1,102
|
|
|
|
4
|
%
|
Capital Commitments
The Group had outstanding
contractual commitments of $5 and $20 as of June 30, 2018 and March 31, 2018, respectively, for capital expenditures relating to
the acquisition of property, equipment and new network infrastructure.
Operating Leases
The Group leases certain
office premises under operating leases. Many of these leases include a renewal option on a periodic basis at the Group’s
option, with the renewal periods ranging from two to five years. Rental expense for operating leases amounted to $800 for the three
months ended June 30, 2018 compared to $864 for the three months ended June 30, 2017. The schedule for future minimum rental payments
over the lease term in respect of operating leases is set out below.
Year ending March 31,
|
|
Amount
|
|
2019
|
|
$
|
2,337
|
|
2020
|
|
|
3,135
|
|
2021
|
|
|
735
|
|
2022
|
|
|
276
|
|
2023
|
|
|
278
|
|
Thereafter
|
|
|
417
|
|
Total minimum lease payments
|
|
$
|
7,178
|
|
Facility Leases
Our subsidiary in India,
MSSIPL, has entered into a lease for its operations in Mahape, India, as lessee, with Majesco Limited as lessor. The approximate
aggregate annual rent payable to Majesco Limited under this lease agreement is $1,384. The lease became effective on June
1, 2015 and expires on May 31, 2020. MSSIPL paid Majesco Limited $326 in rent under the lease during the three months ended June
30, 2018, and $327 during the three months ended June 30, 2017. MSSIPL may terminate the lease after three years with six months’
prior written notice to Majesco Limited. Majesco Limited may terminate the lease after five years with six months’ prior
written notice to MSSIPL.
MSSIPL also entered
into a lease for its operations in Pune, India, with Mastek Ltd. as lessor. The approximate aggregate annual rent payable to Mastek
Ltd. under this lease agreement is $294. The lease became effective on June 1, 2015 and expires on May 31, 2020. MSSIPL has also
entered into a supplementary lease for its operations in Pune, India, with Mastek Ltd. as lessor. The approximate aggregate annual
rent payable to Mastek Ltd. under this supplementary lease agreement is $110. The lease became effective on April 1, 2016
and expires on May 31, 2020. MSSIPL paid Mastek Ltd. $101 in rent under the leases during the three months ended June 30, 2018
and $103 in rent under the leases during the three months ended June 30, 2017. MSSIPL may terminate the lease after three years
with six months’ prior written notice to Mastek Ltd. Mastek Ltd. may terminate the lease after five years.
On June 1, 2018,
MSSIPL gave notice to Mastek Ltd. of its termination of both leases.
On December 14, 2014,
Majesco entered into a definitive merger agreement with Cover-All. The merger was completed on June 26, 2015. Cover-All licenses
and maintains software products for the property/casualty insurance industry throughout the United States and Puerto Rico. Majesco
merged with Cover-All to expand its insurance business in the United States.
The following table
summarizes the consideration paid in the merger of Cover-All into Majesco and the amounts of identified assets acquired and liabilities
assumed at the merger date:
Fair value of consideration transferred
|
|
|
|
|
Common stock
|
|
$
|
12
|
|
Additional paid-in capital
|
|
|
29,708
|
|
Total consideration
|
|
$
|
29,720
|
|
The merger of Cover-All
and Majesco was a stock-for-stock merger with each share of Cover-All common stock issued and outstanding immediately prior to
the merger converted into the right to receive the number of shares of Majesco common stock multiplied by the exchange ratio. The
exchange ratio in the merger was 0.21641. Accordingly, at the closing of the merger, Cover-All, in the aggregate, represented 16.5%
of the total capitalization of the combined company.
In the merger, 5,844,830
shares of Majesco common stock were issued to the shareholders of Cover-All and 197,081 equity incentives were issued to the holders
of options and restricted stock units of Cover-All. Consequently, common stock of Majesco was increased by $12 and additional paid
in capital was increased by $29,708.
Recognized amount of identifiable assets acquired
and liabilities assumed
|
|
Amount
|
|
Cash
|
|
$
|
2,990
|
|
Accounts receivable
|
|
|
1,592
|
|
Prepaid expenses and other current assets
|
|
|
629
|
|
Property, plant and equipment
|
|
|
454
|
|
Other assets
|
|
|
148
|
|
Customer contracts
|
|
|
2,410
|
|
Customer relationships
|
|
|
4,460
|
|
Technology
|
|
|
3,110
|
|
Defer tax asset on NOL
|
|
|
459
|
|
Accounts payable
|
|
|
(1,120
|
)
|
Accrued expenses
|
|
|
(623
|
)
|
Deferred revenue
|
|
|
(2,515
|
)
|
Capital lease liability
|
|
|
(294
|
)
|
|
|
|
|
|
Total fair value of assets acquired
|
|
|
11,700
|
|
Fair value of consideration paid
|
|
|
29,720
|
|
Goodwill
|
|
$
|
18,020
|
|
The goodwill of $18,020
arising from the merger consists largely of the synergies and economies of scale expected from combining the operations of Majesco
and Cover-All. Further, though workforce has been valued, it is not recognized separately, but subsumed in goodwill. Goodwill deductible
for tax purpose amounts to $0.
On October
31, 2015, Majesco Sdn. Bhd. (“MSC”) entered into a Share Purchase Agreement with Mastek Ltd. for the purchase of the
issued and authorized shares of Mastek Asia Pacific Pte Limited,
which was renamed Majesco Asia Pacific
Pte. Limited.
Recognized amount of identifiable assets acquired
and liabilities assumed
|
|
Amount
|
|
Cash
|
|
$
|
212
|
|
Accounts receivable
|
|
|
18
|
|
Other assets
|
|
|
1
|
|
Accrued expenses
|
|
|
(14
|
)
|
|
|
|
|
|
Total fair value of assets acquired
|
|
|
217
|
|
Fair value of consideration paid
|
|
|
276
|
|
Goodwill
|
|
$
|
59
|
|
The following table
summarizes the consideration paid to Mastek Ltd. and the amounts of identified assets acquired and liabilities assumed at the effective
date:
The changes in the
varying amount of goodwill are as follows:
Changes in carrying amount of the goodwill
|
|
As of June
30, 2018
|
|
|
As of March
31, 2018
|
|
|
|
|
|
|
|
|
Opening value
|
|
$
|
32,216
|
|
|
$
|
32,275
|
|
Addition on account of currency fluctuation
|
|
|
-
|
|
|
|
1
|
|
Impairment of Goodwill
|
|
|
-
|
|
|
|
(60
|
)
|
Closing value
|
|
$
|
32,216
|
|
|
$
|
32,216
|
|
Due to uncertainty
in the future business of Majesco Asia Pacific Pte. Limited, which indicated the potential impairment of goodwill, the Group decided
to impair the amount of goodwill recognized earlier in the acquisition of this entity as at March 31, 2017.
Details of identifiable intangible assets
acquired are as follows:
|
|
Weighted
average
amortization
period (in
years)
|
|
|
Amount
assigned
|
|
|
Residual
value
|
|
Customer contracts
|
|
|
3
|
|
|
$
|
2,410
|
|
|
|
-
|
|
Customer relationships
|
|
|
8
|
|
|
|
4,460
|
|
|
|
-
|
|
Technology
|
|
|
6
|
|
|
|
3,110
|
|
|
|
-
|
|
Total
|
|
|
6
|
|
|
$
|
9,980
|
|
|
|
-
|
|