NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2020
NOTE
1. DESCRIPTION OF BUSINESS:
AMERI
Holdings, Inc. (“AMERI”, the “Company”, “we” or “our”) is a company that, through
the operations of its eleven subsidiaries, provides SAP TM cloud and digital enterprise services to clients worldwide.
Headquartered in Alpharetta, Georgia, we typically go to market both vertically by industry and horizontally by product/technology
specialties and provide our customers with a wide range of business and technology offerings. We work with customers, primarily
within North America, to improve process, reduce costs and increase revenue through the judicious use of technology. The Company
earns almost all of its revenue from North America. The Company takes the position that all of its businesses operate as a single
segment.
On
January 10, 2020, we and Ameri100 Inc. (“Buyer”) entered into a Stock Purchase Agreement (the “Agreement”)
pursuant to which, among other things and subject to the satisfaction or waiver of specified conditions, the Company will sell
to Buyer and Buyer will purchase from the Company one hundred percent (100%) of the outstanding equity interests (the “Purchased
Shares”) of Ameri100 Holdco, Inc. (“Holdco”) (the “Spin-Off”).
On
January 10, 2020, the Company entered into an Amalgamation Agreement (as amended on May 6, 2020, the “Amalgamation Agreement”)
with Jay Pharma Merger Sub, Inc., a company organized under the laws of Canada and a wholly-owned subsidiary of the Company (“Merger
Sub”), Jay Pharma Inc., a company organized under the laws of Canada (“Jay Pharma”), Jay Pharma ExchangeCo.,
Inc. a company organized under the laws of British Columbia and a wholly-owned subsidiary of the Company (“ExchangeCo”),
and Barry Kostiner, as the Company Representative, which provides that, among other things, Merger Sub and Jay Pharma will be
amalgamated and will continue as one corporation (“Amalco”), with Amalco continuing as a direct wholly-owned subsidiary
of ExchangeCo and an indirect wholly-owned subsidiary of Ameri, on the terms and conditions set forth in the Amalgamation Agreement.
On August 12, 2020, the Company, Jay Pharma and certain other signatories thereto entered into a tender agreement (as may be amended
from time to time, the “Tender Agreement”), which provides that, among other things, Ameri will make a tender offer
(such offer, as it may be amended or supplemented from time to time as permitted under the Tender Agreement, the “Offer”)
to purchase all of the outstanding common shares of Jay Pharma for the number of shares of Resulting Issuer common stock equal
to the exchange ratio set forth in the Tender Agreement, and Jay Pharma will become a wholly-owned subsidiary of Ameri, on the
terms and conditions set forth in the Tender Agreement. The Tender Agreement terminates and replaces in its entirety the Amalgamation
Agreement.
Liquidity
and Going Concern
The
Company has incurred net losses from operations since inception. The net loss for the nine months ended September 30, 2020 was
$4.6 million and the accumulated deficit was $45.1 million as of September 30, 2020. The Company’s ongoing losses have had
a significant negative impact on the Company’s financial position and liquidity. The Company has also been historically
reliant on loans from related parties, loans from third parties and sales of equity securities to fund operations, working capital
and complete acquisitions. To increase revenues, our operating expenses are likely to continue to grow and, as a result, we will
need to generate significant additional revenues to cover such expenses. We expect our primary sources of cash to be customer
collections and external financing. We also continue to work on cost reductions, and we have initiated steps to reduce our overhead
to improve cash savings. We may raise additional capital through the sale of equity or debt securities or borrowings from financial
institutions or third parties or a combination of the foregoing. Capital raised will be used to implement our business plan, grow
current operations, make acquisitions or start new vertical businesses among some of the possible uses.
One
of the Company’s largest customers has terminated the majority of its work as a result of COVID-19. This customer has accounted
in the past for annual revenues of between $5 to $7 million dollars. The impact on this quarter is a reduction of approximately
$1.5 million in revenue.
As
a result of funding from the Small Business Association as well as sales of securities, the Company believes it has adequate
cash reserves to cover expected working capital needs over the next 12 months.
Our
financial statements as of September 30, 2020 have been prepared under the assumption that we will continue as a going concern.
Our ability to continue as a going concern is dependent upon our ability to raise additional funding through the issuance of equity
or debt securities, as well as to attain further operating efficiencies and, ultimately, to generate additional revenues. Our
financial statements do not include any adjustments that might result from the outcome of this uncertainty. Although the Company
believes in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise
additional funds if necessary, there can be no assurances to that effect. The foregoing conditions raise substantial doubt about
our ability to continue as a going concern.
NOTE
2. BASIS OF PRESENTATION:
The
accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally
accepted accounting principles in the United States of America, or U.S. GAAP, and Article 10 of Regulation S-X under the Securities
Exchange Act of 1934, as amended. Certain information and disclosure notes normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to those
rules and regulations, although we believe that the disclosures made are adequate to ensure the information presented is not misleading.
The
accompanying unaudited condensed consolidated financial statements reflect all adjustments (which were of a normal, recurring
nature) that, in the opinion of management, are necessary to present fairly our financial position, results of operations and
cash flows as of and for the interim periods presented. All intercompany transactions have been eliminated in the accompanying
unaudited condensed consolidated financial statements.
Our
comprehensive income (loss) consists of net income (loss) plus or minus any periodic currency translation adjustments.
The
results for the interim periods presented are not necessarily indicative of the results expected for any future period. The following
information should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2019.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments”. This ASU requires that credit losses be reported using an expected losses model rather
than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale
debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized
cost of the investment. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities
to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair
value increases. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019 with early adoption permitted,
and requires adoption using a modified retrospective approach, with certain exceptions. Based on the composition of the Company’s
investment portfolio as of December 31, 2019, current market conditions and historical credit loss activity, the adoption of this
standard is not expected to have a material impact on the Company’s consolidated financial statements. Additionally, for
trade receivables, due to their short duration and the credit profile of the Company’s customers, the effect of transitioning
from the incurred losses model to the expected losses model is not expected to be material.
In
June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic718):
Improvements to Nonemployee Share-Based Payment Accounting. Under the new standard, companies will no longer be required to
value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant-date
under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07 is effective for annual reporting periods beginning
after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted, but no
earlier than the Company’s adoption date of Topic 606, Revenue from Contracts with Customers (as described above
under “Revenue Recognition”). The Company adopted the new standard during the year ended December 31, 2019
and the adoption did not have a material effect on the consolidated financial statements and related disclosures.
In
August 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2018-13, “Fair Value Measurement
(Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. This ASU
removed the following disclosure requirements: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the
fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair
value measurements. Additionally, this update added the following disclosure requirements:
(1)
the changes in unrealized gains and losses for the period included in other comprehensive income and loss for recurring Level
3 fair value measurements held at the end of the reporting period; (2) the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative
information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative
information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop
Level 3 fair value measurements. ASU No. 2018-13 will be effective for fiscal years beginning after December 15, 2019 with early
adoption permitted.
In
January 2017, the FASB issued ASU No. 2017-04, simplifying the Test for Goodwill Impairment. Under this new standard, goodwill
impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed
the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment
by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its
assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual
periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or
annual goodwill impairment test performed on testing dates after January 1, 2017. 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
May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes
the revenue recognition requirements in “Revenue Recognition (Topic 605).” This ASU requires an entity to recognize
revenue when goods are transferred, or services are provided to customers in an amount that reflects the consideration to which
the entity expects to be entitled to in exchange for those goods or services. This ASU also requires disclosures enabling users
of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts
with customers.
In
August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606), deferral of the Effective
Date.” With the issuance of ASU 2015-14, the new revenue guidance ASU 2014-09 will be effective for annual periods, and
interim periods within those annual periods, beginning after December 15, 2018, using one of two prescribed retrospective methods.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customer (Topic 606), Identifying Performance
Obligations and Licensing.” The guidance is applicable from the date of applicability of ASU 2014-09. This ASU finalizes
the amendments to the guidance on the new revenue standard on the identification of performance obligations and accounting for
licenses of intellectual property. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements
(Topic 606)” which is applicable from the date of applicability of ASU 2014-09. This guidance provides optional exemptions
from the disclosure requirement for remaining performance obligations for specific situations in which an entity need not estimate
variable consideration to recognize revenue. In May 2016, FASB issued ASU No. 2016-12, “Narrow-Scope Improvements and
Practical Expedients”. This amendment clarified certain aspects of Topic 606 and will be applicable from the date of
applicability of ASU 2014-09. The Company has implemented the above standard.
In
February 2016, the FASB issued ASU 2016-02 “Leases” (Topic 842) which amended guidance for lease arrangements
to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s
leasing activities. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter
the collection of lease guidance is referred to as ASC 842. The revised guidance seeks to achieve this objective by requiring
reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements.
On
January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and analyzed the lease for a right of use
(“ROU”) asset and liability to be recorded on the consolidated balance sheet related to the operating lease for its
office space. Results for the year ended December 31, 2019 are presented under ASC 842, while prior period amounts were not adjusted
and continue to be reported in accordance with the legacy accounting guidance under ASC Topic 840, Leases.
As
part of the adoption the Company elected the practical expedients permitted under the transition guidance within the new standard,
which among other things, allowed the Company to:
|
1.
|
Not
separate non-lease components from lease components and instead to account for each separate lease component and the non-lease
components associated with that lease component as a single lease component.
|
|
|
|
|
2.
|
Not
to apply the recognition requirements in ASC 842 to short-term leases.
|
|
|
|
|
3.
|
Not
record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered
immaterial. Refer to Note 15 of our consolidated financial statements for additional disclosures required by ASC 842.
|
In
May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,”
which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. This standard is required to be adopted in the first quarter of 2018. The Company
adopted the standard during the year ended December 31, 2018 and the adoption did not have a material effect on its consolidated
financial statements and disclosures.
In
July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic
480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting
for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments
(or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current
accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible
instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part
II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence
of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite
deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain
mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This
ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted
the new standard during the year ended December 31, 2019 and the adoption did not have a material effect on the consolidated financial
statements and related disclosures.
In
June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic718):
Improvements to Nonemployee Share-Based Payment Accounting. Under the new standard, companies will no longer be required to
value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant-date
under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07 is effective for annual reporting periods beginning
after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted, but no
earlier than the Company’s adoption date of Topic 606, Revenue from Contracts with Customers (as described above
under “Revenue Recognition”). The Company adopted the new standard during the year ended December 31, 2019
and the adoption did not have a material effect on the consolidated financial statements and related disclosures.
Recent
issued accounting pronouncements
In
August 2020, the FASB issued ASU 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity. The amendments in Update No. 2020-06 simplify the complexity associated with applying U.S.
GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus
on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. Update
No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within
those fiscal years. The Company is currently in the process of determining the effect that the adoption will have on its financial
position and results of operations.
In
March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions to account for contracts,
hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. The amendments
of ASU No. 2020-04 are effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications
made and hedging relationships entered into on or before December 31, 2022. The Company is evaluating the impact that the amendments
of this standard would have on the Company’s consolidated financial statements
In
December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the
general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income
taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods.
The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.
Management
has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”)
through the date these financial statements were available to be issued and found no recent accounting pronouncements issued,
but not yet effective accounting pronouncements, when adopted, will have a material impact on the financial statements of the
Company.
Subsequent
Events. The Company evaluates subsequent events and transactions that occur after the balance sheet date for potential
recognition or disclosure. Any material events that occur between the balance sheet date and the date that the financial statements
were issued are disclosed as subsequent events, while the financial statements are adjusted to reflect any conditions that existed
at the balance sheet date.
NOTE
3. BUSINESS COMBINATIONS:
Acquisition
of Ameri Georgia
On
November 20, 2015, we completed the acquisition of Bellsoft, Inc., a consulting company based in Lawrenceville, Georgia, which
specializes in SAP software, business intelligence, data warehousing and other enterprise resource planning services. Following
the acquisition, the name of Bellsoft, Inc. was changed to Ameri100 Georgia Inc. (“Ameri Georgia”). Ameri Georgia
has operations in the United States, Canada and India.
The
total purchase price of $9.9 million was allocated to net working capital of $4.6 million, intangibles of $1.8 million, taking
into consideration projected revenue from the acquired list of Ameri Georgia customers over a period of three years, and goodwill.
The excess of total purchase price over the net working capital and intangibles allocations has been allocated to goodwill.
On
January 17, 2018, we completed all payment obligations to the former shareholders of Ameri Georgia in connection with the Ameri
Georgia share purchase agreement, and we have no further payment obligations pursuant thereto.
Acquisition
of Bigtech Software Private Limited
On
June 23, 2016, we entered into a definitive agreement to purchase Bigtech Software Private Limited (“Bigtech”), a
pure-play SAP services company providing a wide range of SAP services including turnkey implementations, application management,
training and basis ABAP support. Based in Bangalore, India, Bigtech offers SAP services to improve business operations at companies
of all sizes and verticals.
The
acquisition of Bigtech was effective as of July 1, 2016, and the total consideration for the acquisition of Bigtech was $850,000.
Bigtech’s
financial results are included in our condensed consolidated financial results starting July 1, 2016. The Bigtech acquisition
did not constitute a significant acquisition for the Company for purposes of Regulation S-X. The valuation of Bigtech was made
on the basis of its projected revenues.
Acquisition
of Virtuoso
On
July 22, 2016, we acquired all of the outstanding membership interests of Virtuoso, L.L.C. (“Virtuoso”), a Kansas
limited liability company, pursuant to the terms of an Agreement of Merger and Plan of Reorganization, by and among us, Virtuoso
Acquisition Inc., Ameri100 Virtuoso Inc., Virtuoso and the sole member of Virtuoso (the “Sole Member”). Virtuoso is
an SAP consulting firm specialized in providing services on SAP S/4 HANA finance, enterprise mobility and cloud migration and
is based in Leawood, Kansas. In connection with the merger, Virtuoso’s name was changed to Ameri100 Virtuoso Inc. The Virtuoso
acquisition did not constitute a significant acquisition for the Company for purposes of Regulation S-X.
The
total purchase price of $1.8 million was allocated to intangibles of $0.9 million, taking into consideration projected revenue
from the acquired list of Virtuoso customers over a period of three years, and the balance was allocated to goodwill. The Virtuoso
earn-out payments for 2016 amounted to $0.06 million in cash and 12,408 shares of common stock, which were delivered to the Sole
Member during the twelve months ended December 31, 2017.
Acquisition
of Ameri Arizona
On
July 29, 2016, we acquired 100% of the membership interests of DC&M Partners, L.L.C. (“Ameri Arizona”), an Arizona
limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement by and among us, Ameri Arizona, all
of the members of Ameri Arizona, Giri Devanur and Srinidhi “Dev” Devanur, our former President and Chief Executive
Officer and current Executive Chairman, respectively. In July 2017, the name of DC&M Partners, L.L.C. was changed to Ameri100
Arizona LLC. Ameri Arizona is an SAP consulting company headquartered in Chandler, Arizona. Ameri Arizona provides its clients
with a wide range of information technology development, consultancy and management services with an emphasis on the design, build
and rollout of SAP implementations and related products.
The
aggregate purchase price for the acquisition of Ameri Arizona was $15.8 million. The total purchase price of $15.8 million was
allocated to intangibles of $5.4 million, taking into consideration projected revenue from the acquired list of Ameri Arizona
customers over a period of three years, and the balance was allocated to goodwill. In August 2018, the Company resolved the payment
of all earn-out payments to the former members of Ameri Arizona pursuant to the Ameri Arizona membership interest purchase agreement,
and the Company has no further payment obligations with respect to any Ameri Arizona earn-out.
As
of the date of this report, the aggregate of $1,000,000 in consideration payable by cash to Lucid Solutions Inc. and Houskens
LLC in connection with the Ameri100 Arizona acquisition has been taken over as per the Exchange Agreement dated June 3, 2020.
See Note 10 to our unaudited condensed consolidated financial statements for additional information.
Acquisition
of Ameri California
On
March 10, 2017, we acquired 100% of the shares of ATCG Technology Solutions, Inc. (“Ameri California”), a Delaware
corporation, pursuant to the terms of a Share Purchase Agreement among the Company, Ameri California, all of the stockholders
of Ameri California (the “Stockholders”), and the Stockholders’ representative. In July 2017, the name of ATCG
Technology Solutions, Inc. was changed to Ameri100 California Inc. Ameri California provides U.S. domestic, offshore and onsite
SAP consulting services and has its main office in Folsom, California. Ameri California specializes in providing SAP Hybris, SAP
Success Factors and business intelligence services.
The
aggregate purchase price for the acquisition of Ameri California was $8.8 million. The total purchase price of $8.8 million was
allocated to intangibles of $3.8 million, taking into consideration projected revenue from the acquired list of Ameri California
customers over a period of three years, and goodwill. The excess of total purchase price over the intangibles allocation has been
allocated to goodwill.
Presented
below is the summary of the foregoing acquisitions:
Allocation
of purchase price in millions of U.S. dollars
|
|
Ameri
|
|
|
|
|
|
|
|
|
Ameri
|
|
|
Ameri
|
|
Asset
Component
|
|
Georgia
|
|
|
Bigtech
|
|
|
Virtuoso
|
|
|
Arizona
|
|
|
California
|
|
Intangible
Assets
|
|
|
1.8
|
|
|
|
0.6
|
|
|
|
0.9
|
|
|
|
5.4
|
|
|
|
3.8
|
|
Goodwill
|
|
|
3.5
|
|
|
|
0.3
|
|
|
|
0.9
|
|
|
|
10.4
|
|
|
|
5.0
|
|
Working
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
1.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accounts
Receivable
|
|
|
5.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
Assets
|
|
|
0.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
7.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
|
1.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accrued
Expenses & Other Current Liabilities
|
|
|
1.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
2.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
Working Capital Acquired
|
|
|
4.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Purchase Price
|
|
|
9.9
|
|
|
|
0.9
|
|
|
|
1.8
|
|
|
|
15.8
|
|
|
|
8.8
|
|
NOTE
4. REVENUE RECOGNITION:
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue
recognition requirements under Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry
Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange
for those goods or services. The new guidance will significantly enhance comparability of revenue recognition practices across
entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature,
amount, timing and uncertainty of revenue that is recognized. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts
with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients. This update clarifies the objectives
of collectability, sales and other taxes, noncash consideration, contract modifications at transition, completed contracts at
transition and technical correction. The amendments in this update affect the guidance in ASU 2014-09. In September 2017, the
FASB issued additional amendments providing clarification and implementation guidance.
The
Company adopted ASC 606 effective January 1, 2018 using the modified retrospective method which would require a cumulative effect
adjustment for initially applying the new revenue standard as an adjustment to the opening balance of retained earnings and the
comparative information would not require to be restated and continue to be reported under the accounting standards in effect
for those periods.
The
adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery
of the Company’s services and will provide financial statement readers with enhanced disclosures. We recognize revenues
as we transfer control of deliverables (products, solutions and services) to our customers in an amount reflecting the consideration
to which we expect to be entitled.
To
achieve this core principle, the Company applies the following five steps:
1)
|
Identify
the contract with a customer
|
A
contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s
rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract
has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that
are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies
judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the
customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining
to the customer.
2)
|
Identify
the performance obligations in the contract
|
Performance
obligations promised in a contract are identified based on the services that will be transferred to the customer that are both
capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources
that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the
transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple
promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct
in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance
obligation.
3)
|
Determine
the transaction price
|
The
transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring
services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount
of variable consideration that should be included in the transaction price utilizing either the expected value method or the most
likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction
price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract
will not occur. None of the Company’s contracts as of December 31, 2019 contained a significant financing component.
4)
|
Allocate
the transaction price to performance obligations in the contract
|
If
the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract
with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or
to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct
services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain
multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative
standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance
obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling
price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable
through past transactions, the Company estimates the standalone selling price taking into account available information such as
market conditions and internally approved pricing guidelines related to the performance obligations.
5)
|
Recognize
revenue when or as the Company satisfies a performance obligation
|
The
Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised service to a customer.
Disaggregation
of Revenue from Entities. The following table disaggregates gross revenue by entity for the nine months ended September 30,
2020 and 2019:
|
|
For
Nine Months Ended
|
|
|
|
September
30, 2020
|
|
|
September
30,
2019
|
|
ATGC
India
|
|
$
|
117,043
|
|
|
$
|
246,594
|
|
Ameri
100 California
|
|
|
10,025,993
|
|
|
|
8,270,065
|
|
Ameri
100 Arizona
|
|
|
2,728,199
|
|
|
|
6,202,325
|
|
Ameri
100 Canada
|
|
|
275,508
|
|
|
|
516,372
|
|
Ameri
100 Georgia
|
|
|
3,897,277
|
|
|
|
9,901,456
|
|
Bigtech
Software
|
|
|
39,138
|
|
|
|
228,767
|
|
Ameri
100 Consulting Pvt Ltd
|
|
|
260,439
|
|
|
|
82,129
|
|
Ameri
Partners
|
|
|
8,896,902
|
|
|
|
5,402,402
|
|
Total
revenue
|
|
$
|
26,340,499
|
|
|
$
|
30,850,110
|
|
For
performance obligations where control is transferred over time, revenues are recognized based on the extent of progress towards
completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment
and is based on the nature of the deliverables to be provided.
Revenues
related to fixed-price contracts for application development and systems integration services, consulting or other technology
services are recognized as the service is performed using the cost to cost method, under which the total value of revenues is
recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected labor
costs. Revenues related to fixed-price application maintenance, testing and business process services are recognized based on
our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered.
If our invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost
to cost method described above. The cost to cost method requires estimation of future costs, which is updated as the project progresses
to reflect the latest available information; such estimates and changes in estimates involve the use of judgment. The cumulative
impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known
and any anticipated losses on contracts are recognized immediately.
Revenues
related to our time-and-materials, transaction-based or volume-based contracts are recognized over the period the services are
provided either using an output method such as labor hours, or a method that is otherwise consistent with the way in which value
is delivered to the customer.
Revenues
also include the reimbursement of out-of-pocket expenses.
We
may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of
our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised
deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the
promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance
obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone
selling price is the price at which we would sell a promised good or service separately to the customer. When not directly observable,
we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone
selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change.
We
assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether
a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing
component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises
for reasons other than the provision of finance to either the customer or us, no financing component is deemed to exist. The primary
purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to
receive or provide financing from or to customers. We do not consider set up or transition fees paid upfront by our customers
to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from
early termination of the contract.
Prior
to the adoption of the New Revenue Standard on January 1, 2018, revenues were earned and recognized when all of the following
criteria were met: evidence of an arrangement existed, the price was fixed or determinable, the services had been rendered and
collectability was reasonably assured. Contingent or incentive revenues were recognized when the contingency was satisfied and
we concluded the amounts were earned. Volume discounts were recorded as a reduction of revenues as services were provided. Revenues
also included the reimbursement of out-of-pocket expenses.
For
the three months ended September 30, 2020 and September 30, 2019, sales to five major customers accounted for approximately 54%
and 52% of our total revenue, respectively. For the three months ended September 30, 2020, five of our customers contributed 23%,10%,9%,7%
and 6% of our revenue.
For
the nine months ended September 30, 2020 and September 30, 2019, sales to five major customers accounted for approximately 47%
of our total revenue, respectively.
NOTE
5. INTANGIBLE ASSETS:
The
Company’s intangible assets primarily consists of the customer lists it acquired through various acquisitions. We amortize
our intangible assets that have finite lives using either the straight-line method or based on estimated future cash flows to
approximate the pattern in which the economic benefit of the asset will be utilized. Amortization expense was $1.6 million for
the nine months ended September 30, 2020 and September 30, 2019. This amortization expense relates to customer lists which expire
through 2022.
NOTE
6. GOODWILL:
Goodwill
represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations.
The total value of the Company’s goodwill was $13.7 million as of September 30, 2020 and December 31, 2019.
As
per Company policy, goodwill impairment tests are conducted on an annual basis and any impairment is reflected in the Company’s
Statements of Operations.
NOTE
7. EARNINGS (LOSS) PER SHARE:
Basic
income (loss) per share is computed based upon the weighted average number of common shares outstanding for the period. When applicable,
diluted income (loss) per share is calculated using two approaches. The first approach, the treasury stock method, reflects the
potential dilution that could occur if outstanding stock options, warrants, restricted stock units and outstanding shares to be
awarded to satisfy contingent consideration for the business combinations (collectively, the “Equity Awards”) were
exercised and issued. The second approach, the if converted method, reflects the potential dilution of the Equity Awards, the
8% Convertible Unsecured Promissory Notes (the “2017 Notes”) described in Note 10 being exchanged for common stock.
Under this method, interest expense, net of tax, if any, associated with the 2017 Notes, up through redemption, is added back
to net income attributable to common stockholders and the shares outstanding are increased by the underlying 2017 Notes are considered
to be issued.
For
the nine months ended September 30, 2020 and 2019, no shares related to the issuance of common stock upon exercise of the Equity
Awards or the exchange of the 2017 Notes for common stock were considered in the calculation of diluted loss per share, as the
effect would be anti-dilutive due to net losses attributable to common stockholders for both periods.
A
reconciliation of net loss attributable to common stockholders and weighted average shares used in computing basic and diluted
net loss per share is as follows:
|
|
For
the Nine Months Ended
|
|
|
|
September
30, 2020
|
|
|
September
30,
2019
|
|
Numerator
for basic and diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common stockholders
|
|
$
|
(4,644,246
|
)
|
|
|
(3,393,945
|
)
|
Numerator
for diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common stockholders - as reported
|
|
$
|
(4,644,246
|
)
|
|
|
(3,393,945
|
)
|
Net
income (loss) attributable to common stockholders - after assumed conversions of dilutive
|
|
|
|
|
|
|
|
|
Shares
|
|
$
|
(4,644,246
|
)
|
|
|
(3,393,945
|
)
|
Denominator
for weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
shares
|
|
|
4,172,526
|
|
|
|
1,999,390
|
|
Dilutive
effect of Equity Awards
|
|
|
|
|
|
|
|
|
Dilutive
effect of 2017 Notes
|
|
|
|
|
|
|
-
|
|
Diluted
shares
|
|
|
4,172,526
|
|
|
|
1,999,390
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share – basic:
|
|
$
|
(1.11
|
)
|
|
|
(1.70
|
)
|
Income
(loss) per share – diluted:
|
|
$
|
(1.11
|
)
|
|
|
(1.70
|
)
|
NOTE
8. INCENTIVE PLAN ITEMS:
During
the nine months ended September 30, 2020, the Company has not granted any restricted stock units and stock options to purchase
Company’s common stock to key employees or directors out of Company’s 2015 Equity Incentive Award Plan. The company
has booked charges of $49,474 as stock compensation expenses for the nine months ended September 30, 2020 and $0.5 million
for the nine months ended September 30, 2019.
NOTE
9. BANK DEBT:
On
January 23, 2019, certain subsidiaries of the Company, including Ameri100 Arizona LLC, Ameri100 Georgia, Inc., Ameri100 California,
Inc. and Ameri and Partners, Inc., as borrowers (individually and collectively, “Borrower”) entered into a Loan and
Security Agreement (the “Loan Agreement”) for a credit facility (the “Credit Facility”) with North Mill
Capital LLC, as lender (the “Lender”). The Loan Agreement has an initial term of two years from the closing date,
with renewal thereafter if Lender, at its option, agrees in writing to extend the term for additional one year periods (the “Term”).
The Loan Agreement is collateralized by a first-priority security interest in all of the assets of Borrower. In addition, (i)
pursuant to a Corporate Guaranty entered into by the Company in favor of the Lender (the “Corporate Guaranty”), the
Company has guaranteed the Borrower’s obligations under the Credit Facility and (ii) pursuant to a Security Agreement entered
into between the Company and Lender (the “Security Agreement”), the Company granted a first-priority security interest
in all of its assets to Lender.
The
Borrowers received an initial advance on January 23, 2019 in an amount of approximately $2.85 million (the “Initial Advance”).
Borrowings under the Credit Facility accrue interest at the prime rate (as designated by Wells Fargo Bank, National Association)
plus one and three quarters percentage points (1.75%), but in no event shall the interest rate be less than seven and one-quarter
percent (7.25%). Notwithstanding anything to the contrary contained in the Loan Documents, the minimum monthly interest payable
by Borrower on the Advances (as defined in the Loan Agreement) in any month shall be calculated based on an average Daily Balance
(as defined in the Loan Agreement) of Two Million Dollars ($2,000,000) for such month. For the first year of the Term, Borrower
shall pay to Lender a facility fee equal to $50,000, due in equal monthly installments, with additional facility fees due to Lender
in the event borrowings exceed certain thresholds and with additional facility fees due and payable in later years or upon later
milestones. In addition, Borrower shall pay to Lender a monthly fee (the “Servicing Fee”) in an amount equal to one-eighth
percent (.125%) of the average Daily Balance (as defined in the Loan Agreement) during each month on or before the first day of
each calendar month during the Term.
Borrower
also agreed to certain negative covenants in the Loan Agreement, including that they will not, without the prior written consent
of Lender, enter into any extraordinary transactions, dispose of assets, merge, acquire, or consolidate with or into any other
business organization or restructure.
As
of September 30, 2020, the principal balance and accrued interest under the Credit Facility amounted to $3.1 million.
NOTE
10. CONVERTIBLE NOTES:
On
November 25, 2019, the Company entered into a securities purchase agreement with an institutional investor for the sale of a $1,000,000
convertible debenture (the “First Debenture”).
The
First Debenture accrued interest at rate of 5% and was due six (6) months from the issue date. The First Debenture was convertible
at any time after the issue date into shares of Company’s Common Stock at a price equal to $2.725.
On
January 14, 2020, the Company entered into a securities purchase agreement (with the same institutional investor for the sale
of a $500,000 convertible debenture (the “Second Debenture” and collectively with the First Debenture, the “Debentures”).
The
Second Debenture accrued interest at rate of 5% and was due on the same date as the First Debenture. The Second Debenture was
convertible at any time after the issue date into shares of Company’s Common Stock at a price equal to $2.725.
During
the nine months ended September 30, 2020 the holders of First Debenture and Second Debenture exercised their rights for conversion
into common shares for which the company issued 550,458 common shares. After the conversion, there are no First Debentures or
Second Debentures outstanding.
On
June 3, 2020 Ameri entered into an Exchange Agreement with Alpha Capital Ansalt (“Alpha”), the holder of certain
8% unsecured convertible notes, which notes were originally issued on or about March 7, 2017 (the “2017 Prior Notes”).
Pursuant to such Exchange Agreement, Alpha agreed to exchange the 2017 Prior Notes for a new convertible 1% debenture (the “June
Debenture”) in the aggregate principal amount of $2,265,342.46, which June Debenture is convertible into shares of common
stock of Ameri at a conversion price of $1.75 per share. The June Debenture is due on December 31, 2020. As of September 30, 2020,
828,572 shares of common stock have been issued upon conversions of the June Debenture.
On
September 15, 2020, Ameri entered into separate Exchange Agreements with the holders of certain 7.25% secured convertible notes,
including Alpha, which notes were originally issued on or about February 24, 2020 (the “2020 Prior Notes”). Pursuant
to such Exchange Agreements, the holders agreed to exchange the 2020 Prior Notes for new convertible 7.25% debentures (the “September
Debentures” and collectively with the June Debenture, the “Convertible Debentures”) in the aggregate principal
amount of $1,002,979 which September Debentures are convertible into shares of Ameri common stock at a conversion price of $1.11
per share. The principal amount of the September Debentures is equal to the principal amount of the 2020 Prior Notes and the accrued
interest thereon. The September Debentures are due on the earlier of (i) the effective date of the Offer or (ii) October 31, 2020.
As of September 30, 2020, no shares of common stock have been issued upon conversions of the September Debentures.
NOTE
11. LEASES:
The
Company determines if an arrangement contains a lease at inception. Right of use (“ROU”) assets represent the right
to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from
the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease
payments over the lease term.
The
Company’s principal facility is located in Alpharetta, Georgia. The Company also leases office space in various locations
with expiration dates between 2016 and 2020. In January 2020, the Company entered into a lease agreement for its Dallas office
with expiration date 2027. The lease agreements often include leasehold improvement incentives, escalating lease payments, renewal
provisions and other provisions which require the Company to pay taxes, insurance, maintenance costs, or defined rent increases.
Rent expense is recorded over the lease terms on a straight-line basis. Rent expense was $0.2 million and $0.25 million for the
nine months ended September 30, 2020 and September 30, 2019, respectively.
The
Company utilized a portfolio approach in determining the discount rate. The portfolio approach takes into consideration the range
of the term, the range of the lease payments, the category of the underlying asset and the Company’s estimated incremental
borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of
lease payments. The Company also considered its recent debt issuances as well as publicly available data for instruments with
similar characteristics when calculating the incremental borrowing rates.
The
lease terms include options to extend the leases when it is reasonably certain that the Company will exercise that option. These
operating leases contain renewal options for periods ranging from three to five years that expire at various dates with no residual
value guarantees. Future obligations relating to the exercise of renewal options is included in the measurement if, based on the
judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is
reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal
rate compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the
option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in
the measurement of the right-of-use assets and operating lease liabilities.
Leases
with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient noted above.
The
Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company recognizes variable
lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an
index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are
recognized in the period incurred. Rent expense was $0.2 million and $0.25 million for the nine months ended September 30, 2020
and September 30, 2019, respectively. The components of lease expense were as follows:
|
|
Nine
Months
ended,
Sep
30, 2020
|
|
|
|
|
|
Operating
leases
|
|
|
107,852
|
|
Interest
on lease liabilities
|
|
|
6,117
|
|
Total
net lease cost
|
|
|
113,969
|
|
Supplemental
balance sheet information related to leases was as follows:
|
|
September
30, 2020
|
|
Operating
leases:
|
|
|
|
|
Operating
lease ROU assets
|
|
$
|
874,606
|
|
|
|
|
|
|
Current
operating lease liabilities, included in current liabilities
|
|
$
|
208,663
|
|
Noncurrent
operating lease liabilities, included in long-term liabilities
|
|
|
678,272
|
|
Total
operating lease liabilities
|
|
$
|
886,935
|
|
Supplemental
cash flow and other information related to leases was as follows:
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30, 2020
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating
cash flows from operating leases
|
|
$
|
-
|
|
ROU
assets obtained in exchange for lease liabilities:
|
|
|
|
|
Operating
leases
|
|
$
|
874,606
|
|
|
|
|
|
|
Weighted
average remaining lease term (in years):
|
|
|
6.75
|
|
Operating
leases
|
|
|
2.3
|
|
Weighted
average discount rate:
|
|
|
|
|
Operating
leases
|
|
|
7.25
|
%
|
Total
future minimum payments required under the lease obligations as of September 30, 2020 are as follows:
Nine
Months Ending September 30,
|
|
|
|
2020
|
|
$
|
181,898
|
|
2021
|
|
|
192,470
|
|
2022
|
|
|
81,444
|
|
2023
|
|
|
91,140
|
|
2024
|
|
|
101,675
|
|
Thereafter
|
|
|
238,308
|
|
Total
lease payments
|
|
$
|
886,935
|
|
Less:
amounts representing interest
|
|
|
|
|
Total
lease obligations
|
|
$
|
886,935
|
|
NOTE
12. FAIR VALUE MEASUREMENT:
We
utilize the following valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy
prioritizes the inputs into three broad levels as follows:
|
●
|
Level
1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
●
|
Level
2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset
or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial
instrument; and
|
|
●
|
Level
3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.
|
A
financial asset or liability’s classification within the hierarchy is determined based upon the lowest level input that
is significant to the fair value measurement.
The
fair value of the contingent consideration was estimated using a discounted cash flow technique with significant inputs that are
not observable in the market. The significant inputs not supported by market activity included our probability assessments of
expected future cash flows related to the acquisitions during the earn-out period, appropriately discounted considering the uncertainties
associated with the obligation, and calculated in accordance with the respective terms of the share purchase agreements.
No
financial instruments were transferred into or out of Level 3 classification during the period ended September 30, 2020 and year
ended December 31, 2019.
NOTE
13. WARRANTS OUTSTANDING:
The
following warrants were outstanding as of September 30, 2020:
Exercise
Price ($)
|
|
|
Outstanding
Warrants
|
|
|
Weighted
Average Remaining Contractual life (Years)
|
|
|
Number
Exercisable
|
|
102.88
|
|
|
|
52,877
|
|
|
|
0.02
|
|
|
|
52,877
|
|
150.00
|
|
|
|
40,000
|
|
|
|
0.03
|
|
|
|
40,000
|
|
37.50
|
|
|
|
200,000
|
|
|
|
2.02
|
|
|
|
200,000
|
|
55.00
|
|
|
|
60,375
|
|
|
|
4.68
|
|
|
|
60,375
|
|
45.75
|
|
|
|
36,665
|
|
|
|
4.85
|
|
|
|
36,665
|
|
1.83
|
|
|
|
340,448
|
|
|
|
4.85
|
|
|
|
340,448
|
|
0.001
|
|
|
|
646,094
|
|
|
|
0.25
|
|
|
|
646,094
|
|
Total
|
|
|
|
1,376.459
|
|
|
|
|
|
|
|
1,376,459
|
|
NOTE
14- PREFERRED STOCK
On
December 30, 2016, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Lone Star Value
Investors, LP (“LSVI”), pursuant to which a Convertible Note was returned to the Company and cancelled in exchange
for 363,611 shares of the Company’s Series A Preferred Stock, which is non-convertible and perpetual preferred stock of
the Company. We have issued 61,327 shares as preferred dividends as of September 30, 2020 and the company has 424,938 outstanding
shares preferred stock.
A
dividend of $217,291 has become due and has not yet been paid.
NOTE
15. LOAN FROM PAYCHECK PROTECTION PROGRAM (PPP):
On
May 11, 2020, we received proceeds from a loan in the amount of $1,719,600 (the “PPP Loan”) from Sterling National
Bank, as lender, pursuant to the Small Business Association Paycheck Protection Program (the “PPP”) of the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan, which was in the form of a promissory note
issued by the Company, matures on May 6, 2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on November
6, 2020. The note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP
Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities,
and interest on other debt obligations incurred before July 12, 2020. The Company intends to use the entire PPP Loan amount for
qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying
expenses as described in the CARES Act.
NOTE
16. LOAN FROM U.S. SMALL BUSINESS ADMINISTRATION (EIDL)
On
June 18,2020, we have received proceeds from a loan in the amount of $ 149,900 (the “EIDL Loan”) from U.S.Small Business
Administration as EIDL Loan pursuant to the Small Business Association Economic Injury Disaster Recovery Loan (the “EIDL
Loan”) which was in the form of a Loan Authorization and Agreement executed by the company matures 30 years from the promissory
note and bears interest at a rate of 3.75% per annum, Installment payments, including principal and interest of $731 monthly will
begin 12 months from the date of promissory note. The balance of principal and interest will be payable 30 years from the date
of the promissory note.
NOTE
17. REVISION OF PRIOR YEAR FINANCIAL STATEMENTS
The
Company’s corrections of the financial statements as of December 31, 2019 and the year then ended were a result of the adoption
of FASB ASU 2016-02 “Leases” (Topic 842) and the implementation of the guidance for a lease that was executed
as of April 1, 2019.
In
accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality and Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements the Company determined that previously issued financial statements be revised to reflect the correction of these
errors.
As
a result of the aforementioned correction of accounting errors, the relevant financial statements have been revised as follows:
The
following tables summarize the effects of the revisions on the specific items presented in the Company’s historical consolidated
financial statements previously included in the Company’s Annual Report for the year ended December 31, 2019:
|
|
December
31, 2019
|
|
|
|
As
Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
As
Revised
|
|
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease right of use asset, net
|
|
$
|
-
|
|
|
$
|
286,163
|
|
|
$
|
286,163
|
|
Total
Other Assets
|
|
|
17,405,998
|
|
|
|
286,163
|
|
|
|
17,692,161
|
|
Total
Assets
|
|
$
|
25,005,152
|
|
|
$
|
286,163
|
|
|
$
|
25,291,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion – operating lease liability
|
|
$
|
-
|
|
|
$
|
120,052
|
|
|
$
|
120,052
|
|
Total
Current Liabilities
|
|
|
14,383,605
|
|
|
|
120,052
|
|
|
|
14,503,657
|
|
Long-term
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease liability, net
|
|
|
-
|
|
|
|
169,897
|
|
|
|
169,897
|
|
Total
Long-term Liabilities
|
|
|
-
|
|
|
|
169,897
|
|
|
|
169,897
|
|
Total
Liabilities
|
|
$
|
14,383,605
|
|
|
$
|
289,949
|
|
|
$
|
14,673,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Deficit
|
|
$
|
(40,508,231
|
)
|
|
$
|
(3,788
|
)
|
|
$
|
(40,512,019
|
)
|
Total
Stockholders’ Equity
|
|
|
10,621,547
|
|
|
|
(3,788
|
)
|
|
|
10,617,764
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
25,005,152
|
|
|
|
286,163
|
|
|
|
25,291,315
|
|
|
|
For
the year ended December 31, 2019
|
|
|
|
As
Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As
Revised
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
(691,138
|
)
|
|
$
|
(3,788
|
)
|
|
$
|
(694,926
|
)
|
Total
other income (expenses)
|
|
|
1,109,576
|
|
|
|
(3,788
|
)
|
|
|
1,105,788
|
|
Loss
before income taxes
|
|
|
(5,215,318
|
)
|
|
|
(3,788
|
)
|
|
|
(5,219,106
|
)
|
Net
loss
|
|
|
(5,603,975
|
)
|
|
|
(3,788
|
)
|
|
|
(5,607,763
|
)
|
Net
loss attributable to common stockholders
|
|
|
(6,029,978
|
)
|
|
|
(3,788
|
)
|
|
|
(6,033,766
|
)
|
Total
comprehensive loss
|
|
|
(6,056,963
|
)
|
|
|
(3,788
|
)
|
|
|
(6,060,751
|
)
|
Comprehensive
loss attributable to Company
|
|
$
|
(6,056,963
|
)
|
|
$
|
(3,788
|
)
|
|
$
|
(6,060,751
|
)
|
Basic
and diluted loss per share
|
|
$
|
(2.83
|
)
|
|
$
|
-
|
|
|
$
|
(2.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(6,029,978
|
)
|
|
$
|
(3,788
|
)
|
|
$
|
(6,033,766
|
)
|
Amortization
of right of use asset
|
|
|
-
|
|
|
|
3,788
|
|
|
|
3,788
|
|
Net
Cash Used in Operating Activities
|
|
$
|
(2,453,123
|
)
|
|
$
|
-
|
|
|
$
|
(2,453,123
|
)
|
|
|
For
the year ended December 31, 2019
|
|
|
|
As
Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As
Revised
|
|
Statement
of Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(6,029,978
|
)
|
|
$
|
(3,788
|
)
|
|
$
|
(6,033,766
|
)
|
Accumulated
deficit ending balance
|
|
$
|
(40,508,231
|
)
|
|
$
|
(3,788
|
)
|
|
$
|
(40,512,019
|
)
|
Total
stockholders’ equity ending balance
|
|
$
|
10,621,547
|
|
|
$
|
(3,788
|
)
|
|
$
|
10,617,764
|
|
NOTE
18. SUBSEQUENT EVENTS:
As
of November 13, 2020, 908,723 shares
of common stock have been issued upon conversions of the September Debentures.
As
of November 13,2020, 50,224 shares of common stock have been issued upon conversions of the June Debentures
As
of November 13, 2020, 646,094 shares
of common stock have been issued upon exercise of the Pre-Funded Warrants.