Enveric Biosciences, Inc. - Quarter Report: 2015 September (Form 10-Q)

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 INDEX

 

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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements			3
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2015 and March 31, 2015			3
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Six Months Ended September 30, 2015 and 2014			4
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2015 and 2014			5
Notes to Unaudited Condensed Consolidated Financial Statements			6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations			12
Business Overview			12
Results for the Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014			13
Results for the Six Months Ended September 30, 2015 Compared to the Six Months Ended September 30, 2014			16
Liquidity and Capital Resources			18
Acquisitions, Earn-out Payments and Commitments			18
Off Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments			19
Critical Accounting Policies and Estimates			20
Recent Accounting Pronouncements			20
Special Note Regarding Forward-Looking Statements			20
Item 3 - Quantitative and Qualitative Disclosures About Market Risk			21
Item 4 - Controls and Procedures			21
Evaluation of Disclosure Controls and Procedures			21
Changes in Controls and Procedures			22
PART II - OTHER INFORMATION			22
Item 1 - Legal Proceedings			22
Item 1A - Risk Factors			22
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			22
Item 3 - Defaults upon Senior Securities			22
Item 4 - Mine Safety Disclosures			22
Item 5 - Other Information			22
Item 6 - Exhibits			23
Signatures			24

 

 

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014

(UNAUDITED)

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014

(UNAUDITED)

 

 

		Six Months Ended September 30,
		2015				2014
Cash flows from operating activities:
Net income/(loss)		$	(48,572	)		$	291,556
Adjustment to reconcile net income/(loss) to net cash provided by
(used in) operating activities
Depreciation and amortization			17,423				16,839
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable			(5,973,970	)			2,079,092
Other current assets			(277,707	)			(660,918	)
Security deposit			(16,837	)			(3,750	)
Increase (decrease) in:
Accounts payable and accrued expenses			623,905				(1,001,253	)
Other current liabilities			1,670,333				95,168
Taxes payable			(84,971	)			(82,285	)
Net cash provided by (used in) operating activities			(4,090,396	)			734,448
Cash flows from investing activities:
Purchase of fixed assets			(51,720	)			(34,313	)
Increase in intangibles			(3,070,821	)			(125,000	)
Decrease in investments			340,000				-
Goodwill on acquisition of Bellsoft			(3,470,522	)			-
Consideration payable on acquisition of Bellsoft			9,300,000				-
Net cash provided by (used in) investing activities			3,046,937				(159,313	)
Cash flows from financing activities:
Increase in line of credit			250,000				-
Proceeds from issue of convertible note			5,000,000				-
Issuance of capital			34,521				125,000
Net cash provided by financing activities			5,284,521				125,000
Net increase (decrease) in cash and cash equivalents			4,241,062				700,135
Cash at the beginning of the year			825,621				374,706
Cash at the end of the year		$	5,066,683			$	1,074,841
Supplementary disclosure of cash flows information
Cash paid during the period for:
Interest		$	87,655			$	-
Income taxes		$	-			$	26,405
Issuance of restricted stock awards		$	2,039			$	-

 

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AMERI HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1.	ORGANIZATION:

 

 

2.	BASIS OF PRESENTATION:

 

The accompanying unaudited condensed consolidated financial statements have been prepared by AMERI pursuant to the rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures 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.

3.	BUSINESS COMBINATIONS:

 

The Company recognizes revenue primarily through the provision of consulting services.

We generate revenue by providing consulting services under written service contracts with our customers. The service contracts we enter into generally fall into two specific categories: time and materials and fixed-price.

The revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. We routinely evaluate whether revenue and profitability should be recognized in the current period. We estimate the proportional performance on our fixed-price contracts on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. This method is used because reasonably dependable estimates of costs and revenue earned can be made, based on historical experience and milestones identified in any particular contract. If we do not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion of performance, subject to any warranty provisions or other project management assessments as to the status of work performed.

Estimates of total project costs are continuously monitored during the term of an engagement. There are situations where the number of hours to complete projects may exceed our original estimate, as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. Accordingly, recorded revenues and costs are subject to revision throughout the life of a project based on current information and historical trends. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified.

If our initial estimates of the resources required or the scope of work to be performed on a contract are inaccurate, or we do not manage the project properly within the planned time period, a provision for estimated losses on incomplete projects may be made. Any known or probable losses on projects are charged to operations in the period in which such losses are determined. A formal project review process takes place quarterly, although projects are continuously evaluated throughout the period. Management reviews the estimated total direct costs on each contract to determine if the estimated amounts are accurate, and estimates are adjusted as needed in the period identified. No losses were recognized on contracts during the three- or six-month periods ended September 30, 2015 or 2014.

On April 20, 2015, our Board of Directors and the holder of a majority of our outstanding shares of common stock approved the adoption of our 2015 Equity Incentive Award Plan (the "Plan") and a grant of discretionary authority to the executive officers to implement and administer the Plan. The Plan allows for the issuance of up to 2,000,000 shares of our common stock for award grants (all of which can be incentive stock options). The Plan provides equity-based compensation through the grant of cash-based awards, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other stock-based awards. We believe that an adequate reserve of shares available for issuance under the Plan is necessary to enable us to attract, motivate and retain key employees and directors and to provide an additional incentive for such individuals through stock ownership and other rights that promote and recognize the financial success and growth of our Company.  During the three months ended September 30, 2015, we granted 83,189 restricted stock units to certain members of the Board of Directors.

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The Company recorded a tax provision (benefit) of $(128,460) and $(62,444) for the three month periods ended September 30, 2015 and 2014, respectively, and $(84,971) and $95,792 for the six-month periods ended September 30, 2015 and 2014, respectively.  The reported tax provision (benefit) for the three- and six-month periods ended September 30, 2015 and 2014 are based upon an estimated annual effective tax rate of 28% for all such periods.  The effective tax rates reflected our combined federal and state income tax rates and the recognition of U.S. deferred tax liabilities for differences between the book and tax basis of goodwill.

We assess the realizability of our deferred tax assets and assess the need for a valuation allowance on an ongoing basis. The periodic assessment of the net carrying value of our deferred tax assets under the applicable accounting rules is highly judgmental. We are required to consider all available positive and negative evidence in evaluating the likelihood that we will be able to realize the benefit of our deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent operations. Since this evaluation requires consideration of events that may occur some years into the future, there is significant judgment involved, and our conclusion could be materially different should certain of our expectations not transpire.

As of both September 30, 2015 and March 31, 2015, no deferred tax asset valuation allowance balance was recorded.

We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open to examination by a taxing authority. As of September 30, 2015, the gross amount of unrecognized tax benefits exclusive of interest and penalties was zero. We have identified no other uncertain tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the twelve months ending September 30, 2016. We remain subject to examination until the statute of limitations expires for each respective tax jurisdiction.

 

7.	INTANGIBLE ASSETS:

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 $6,250 and $6,250 during the three-month periods ended September 30, 2015 and 2014, respectively, and $12,500 and $12,500 for the six-month periods ended September 30, 2015 and 2014, respectively. This amortization expense relates to customer lists, which expire through 2019.

Estimated annual amortization expense (including amortization expense associated with capitalized software costs) for the current year and the following four years ending March 31, is as follows:

 

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Accrued expense and other liabilities as of September 30, 2015 consisted of the following:

 

 

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.

·

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.

As of both September 30, 2015 and 2014 our financial assets and liabilities required to be measured on a recurring basis were our money market investments.

The following table represents the Company's fair value hierarchy for its financial assets and liabilities required to be measured on a recurring basis:

 

	Basis of Fair Value Measurements
	Balance				Quoted Prices in Active Markets for Identical Items (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
	(in thousands)
Balance at September 30, 2015:
Financial assets:
Money market investment		$	194			$	194			$	—			$	—
Total financial assets		$	194			$	194			$	—			$	—

10.  NET INCOME (LOSS) PER SHARE:

A reconciliation of net income and weighted average shares used in computing basic and diluted net income per share is as follows:

 

	Three Months Ended								Six Months Ended
	September 30,								September 30,
	2015				2014				2015				2014
	(in thousands, except per share data)								(in thousands, except per share data)
Basic net income (loss) per share:
Net income (loss) applicable to common shares		$	(0.01	)		$	(0.01	)		$	0.00			$	0.03
Weighted average common shares outstanding			11,639				9,992				11,347				9,992
Basic net income (loss) per share of common stock		$	(0.01	)		$	(0.01	)		$	0.00			$	0.03
Diluted net income (loss) per share:
Net income (loss) applicable to common shares		$	(0.01	)		$	(0.01	)		$	0.00			$	0.03
Weighted average common shares outstanding			11,639				9,992				11,347				9,992
Dilutive effects of convertible debt, stock options and warrants			-				-				-				-
Weighted average common shares, assuming dilutive effect of stock options			11,639				9,992				11,347				9,992
Diluted net income (loss) per share of common stock		$	(0.01	)		$	(0.01	)		$	0.00			$	0.03

 

Share-based awards, inclusive of all grants made under the Company's equity plans, for which either the stock option exercise price or the fair value of the restricted share award exceeds the average market price over the period, have an anti-dilutive effect on earnings per share, and accordingly, are excluded from the diluted computations for all periods presented.

As of September 30, 2015, there were approximately 223,189 share-based awards outstanding, respectively, under the Company's equity plans.  During the three months ended September 30, 2015, we granted 83,189 restricted stock units.

 

Due to net loss, potential shares were not included in the calculation of diluted EPS as it will have an antidilutive effect.

 

11.   COMMITMENTS AND CONTINGENCIES:

Operating Leases

The Company's principal facility is located in Princeton, New Jersey. The Company also leases office space in various locations with expiration dates between 2015 and 2018.  The lease agreements often include leasehold improvement incentives, escalating lease payments, renewal provisions, and other provisions which require the Company to pay taxes, insurance, maintenance costs, or defined rent increases. All of the Company's leases are accounted for as operating leases.  Rent expense is recorded over the lease terms on a straight-line basis.  Rent expense was $19,545 and $3,312 for the three months ended September 30, 2015 and 2014, respectively, and $30,357 and $6,624 for the six-month periods ended September 30, 2015 and 2014, respectively.  The increase during these periods is due to new office space that was leased by the Company in Princeton, New Jersey on July 1, 2015 and the addition of office space through the acquisition of Bellsoft.

The Company has entered into an operating lease for its primary office facility in Princeton, New Jersey, which expires in July 2017. The future minimum rental payments under these lease agreements are as follows:

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AMERI HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

12.   SUBSEQUENT EVENTS:

 

On November 16, 2015, the Company issued an option to purchase 50,000 shares of our common stock to an employee.

The Company completed the acquisition of Bellsoft on November 20, 2015, as described in Note 3 above.

Simultaneously with the Bellsoft acquisition, Bellsoft entered into a Revolving Credit and Security Agreement (the "Credit Facility") with Federal National Payables, Inc., a Delaware corporation doing business as Federal National Commercial Credit (the "Lender").  Up to $6 million principal amount of advances may be extended under the Credit Facility. The Credit Facility will be used to pay a portion of the costs associated with the acquisition of Bellsoft, with the balance being available for general working capital of Bellsoft.  The Credit Facility has a term of two years, which will automatically renew unless a written notice of termination is given by Bellsoft or the Lender to the other at least 60 days prior to the end of the original or any renewed term.  Interest under the Credit Facility will accrue on the higher of (a) the outstanding principal amount of advances under the Credit Facility and (b) $2,000,000 at a per annum rate equal to the Prime Rate plus 1.00%, which will be payable monthly in arrears.  With each payment of interest, Bellsoft will also pay a servicing fee of 0.38% multiplied by the higher of (a) the average daily principal amount of advances under the Credit Facility for the previous calendar month or portion thereof and (b) $2,000,000.  The Credit Facility is secured by substantially all of Bellsoft's assets. The amounts borrowed by Bellsoft under the Credit Facility are guaranteed by AMERI.

Prior to the closing of the acquisition, Bellsoft had a $2 million line of credit, of which Bellsoft had drawn $200,000.  The line of credit was paid off and terminated prior to the closing.

 

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The following information should be read in conjunction with the information contained in the Unaudited Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements" included elsewhere herein. We use the terms "we," "our," "us," "AMERI" and "the Company" in this report to refer to AMERI Holdings, Inc. and its wholly-owned subsidiaries.

Business Overview

Revenue.   The Company derives its service revenue from time and materials-based contracts and fixed-price contracts. Time and materials-based contracts represented 91% and 28% of service revenue for the three-month periods ended September 30, 2015 and 2014, respectively, and 80% and 32% for the six-month periods ended September 30, 2015 and 2014, respectively.  Revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Fixed-price contracts represented 9% and 72% of service revenue for the three-month periods ended September 30, 2015 and 2014, respectively, and 20% and 68% for the six-month periods ended September 30, 2015 and 2014, respectively.  Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. Revenue from professional services are attributable to the time and material contracts that we secure and the project revenues are all on fixed price basis.

Estimates of total project costs are continuously monitored during the term of an engagement. There are situations where the number of hours to complete projects may exceed (or be less than) our original estimate, as a result of an increase (or decrease) in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. Accordingly, recorded revenues and costs are subject to revision throughout the life of a project based on current information and historical trends. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified.

With the acquisition of Bellsoft, we have a larger customer base which has given us an opportunity to expand our sales across each of our service offerings and have a number of engagements in the pipeline that will provide us with a healthy revenue increase visibility entering the last quarter of 2015.

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Operating Expenses.  The largest portion of our operating expenses consists of cash compensation and benefits associated with our project consulting personnel and related expenses. Project personnel expenses also consist of payroll costs and related benefits associated with our professional staff. Other related expenses include travel, subcontracting costs, third-party vendor payments and non-billable expenses associated with the delivery of services to our customers. We consider the relationship between project personnel expenses and service revenue to be an important measure of our operating performance. The relationship between project personnel expenses and service revenue is driven largely by the chargeability of our consultant base, the prices we charge our customers and the non-billable costs associated with securing new customer engagements and developing new service offerings. The remainder of our recurring operating expense is composed of expenses associated with the development of our business and the support of our customer-serving professionals, such as professional development and recruiting, marketing and sales, and management and administrative support. Professional development and recruiting expenses consist primarily of recruiting and training content development and delivery costs. Marketing and sales expenses consist primarily of the costs associated with the development and maintenance of our marketing materials and programs. Management and administrative support expenses consist primarily of the costs associated with operations, including finance, information systems, human resources, facilities (including the rent of office space), and other administrative support for project personnel.

We regularly review our fees for services, professional compensation, and overhead costs to ensure that our services and compensation are competitive within the industry and that our overhead costs are balanced with our revenue levels. In addition, we monitor the progress of customer projects with customer senior management. We manage the activities of our professionals by closely monitoring engagement schedules and staffing requirements.

 

Company Performance Measurement Systems and Metrics. The Company's management monitors and assesses its operating performance by evaluating key metrics and indicators on an ongoing basis.

Results of Operations for the Three- and Six-Month Periods Ended September 30, 2015 and September 30, 2014.

The following discussion of our results of operations constitutes management's review of the factors that affected our financial and operating performance for the three and six months ended September 30, 2015 and 2014.  The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere in this report.

Results for the Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

The financial information that follows has been rounded in order to simplify its presentation. The amounts and percentages below have been calculated using the detailed financial information contained in the unaudited condensed consolidated financial statements, the notes thereto, and the other financial data included in this Quarterly Report on Form 10-Q.

The following table sets forth the percentage of total revenue of items included in our unaudited condensed consolidated statements of operations:

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The number of customers the Company served during the three-month period ended September 30, 2015 totaled 23, as compared to 7 customers during the three-month period ended September 30, 2014.  During the three months ended September 30, 2015, we secured first-time engagements with a total of two new customers.  The acquisition of Bellsoft has brought in 14 new customers during the six-months ended September 30, 2015.

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		Six Months Ended September 30,
		2015				2014
Revenue:
Projects revenue			20.57	%			67.52	%
Professional & Enterprise Services revenue			79.42	%			32.49	%
Total revenue			100.00	%			100.00	%
Cost of revenue:
Consulting Services Paid			71.13	%			82.77	%
Total cost of revenue			71.13	%			82.77	%
Gross profit			28.86	%			17.23	%
Operating expenses:
Selling, general and administrative			23.67	%			11.94	%
Direct acquisition			6.60	%			0.14	%
Total operating expenses			30.27	%			12.08	%
Operating income (loss)			(1.41)	%			5.15	%
Other expense (income), net			1.25	%			0.21	%
Income (loss) before income taxes			(2.66)	%			4.94	%
Income tax (benefit) provision			(1.01)	%			1.22	%
Net income (loss)			(0.59)	%			3.72	%

 

Liquidity and Capital Resources

The following table summarizes our cash flow activities for the periods indicated:   

 

		Three Months Ended September 30,								Six Months Ended September 30,
		2015				2014				2015				2014
Cash flows provided by (used in):
Operating activities		$	(3,248,377	)		$	501,798			$	(4,090,396	)		$	734,448
Investing activities		$	3,687,470			$	983			$	3,046,937			$	(159,313	)
Financing activities		$	250,000				-			$	5,284,521			$	125,000
Total cash provided by (used in) the period		$	689,093			$	502,781			$	4,241,062			$	700,135

 

Acquisitions

Acquisition of Bellsoft. In connection with the acquisition of Bellsoft, the selling shareholders of Bellsoft are eligible to receive additional contingent consideration.  Contingent earn-out consideration to be paid, if any, to Bellsoft will be based upon the achievement of certain performance targets over the next two years, concluding on September 1, 2017.

 

 

 

Contingent consideration is computed as follows:

 

Simultaneously with the Bellsoft acquisition, Bellsoft entered into a Revolving Credit and Security Agreement with Federal National Payables, Inc., a Delaware corporation doing business as Federal National Commercial Credit.  Up to $6 million principal amount of advances may be extended under the Credit Facility. The Credit Facility will be used to pay a portion of the costs associated with the acquisition of Bellsoft, with the balance being available for general working capital of Bellsoft.  The Credit Facility has a term of two years, which will automatically renew unless a written notice of termination is given by Bellsoft or the Lender to the other at least 60 days prior to the end of the original or any renewed term.  Interest under the Credit Facility will accrue on the higher of (a) the outstanding principal amount of advances under the Credit Facility or (b) $2,000,000 at a per annum rate equal to the Prime Rate plus 1.00%, which will be payable monthly in arrears.  With each payment of interest, Bellsoft will also pay a servicing fee of 0.38% multiplied by the higher of (a) the average daily principal amount of advances under the Credit Facility for the previous calendar month or portion thereof or (b) $2,000,000.  The Credit Facility is secured by Bellsoft's Accounts Receivable.  The amounts borrowed by Bellsoft under the Credit Facility are guaranteed by AMERI.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Contingent Liabilities

Severance Payments to Bellsoft's Executive Vice Presidents. As per the employment agreements with each of Bellsoft's Executive Vice Presidents,  the Company has agreed that in the event of a termination without cause by Bellsoft, or resignation for good reason by such employees, the employees shall be paid any accrued compensation, and following the such employees' execution and delivery of a general release (that is no longer subject to revocation under applicable law), shall also be eligible to receive (i) a severance payment equal to six (6) months of such employees base salary, to be paid in accordance with Bellsoft's standard payroll procedures, less applicable withholdings and deductions, and (ii) Bellsoft's portion of the premiums associated with six (6) months of coverage under the Bellsoft's group health plan under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, provided such employees timely elect continued coverage for themselves and their spouse and dependents who are then covered under Bellsoft's group health plan.

 

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Valuation of Contingent Earn-out Consideration.  Acquisitions may include contingent consideration payments based on the achievement of certain future financial performance measures of the acquired Company. Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable, however, there is significant judgment involved. We evaluate, on a routine, periodic basis, the estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value estimate at the time of the acquisition, will be reflected in income or expense in the consolidated statements of operations. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. Any changes in the estimated fair value of contingent consideration may have a material impact on our operating results.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers  (Topic 606) (ASU 2014-09). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new guidance is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016; early adoption is not permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. This update could impact the timing and amounts of revenue recognized. The Company is currently evaluating the effect that implementation of this update will have on its consolidated financial position and results of operations upon adoption.

In August 2014, FASB issued Accounting Standards Update No. 2014-15, " Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern " (ASU 2014-15), to provide guidance on management's responsibility in evaluating whether there is substantial doubt about a Company's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our financial position, results of operations, or cash flows.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this Quarterly Report on Form 10-Q and elsewhere constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties, and other factors that may cause results, levels of activity, growth, performance, tax consequences, or achievements to be materially different from any future results, levels of activity, growth, performance, tax consequences, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those listed below.

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The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance, including statements concerning our 2015 outlook, future revenue and growth, customer spending outlook, general economic trends, IT service demand, future revenue and revenue mix, utilization, new service offerings, significant customers, competitive and strategic initiatives, growth plans, potential stock repurchases, future results, tax consequences, and liquidity needs. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "believe," "anticipate," "anticipated," "expectation," "continued," "future," "forward," "potential," "estimate," "estimated," "forecast," "project," "encourage," "opportunity," "goal," "objective," "could," "expect," "expected," "intend," "plan," "planned," or the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on our current plans or assessments which are believed to be reasonable as of the date of this Form 10-Q. Factors that may cause actual results, goals, targets or objectives to differ materially from those contemplated, projected, forecasted, estimated, anticipated, planned, or budgeted in such forward-looking statements include, among others, the following possibilities: (1) failure to obtain new customers or retain significant existing customers; (2) the loss of one or more key executives and/or employees; (3) changes in industry trends, such as a decline in the demand for Enterprise Resource Planning and Enterprise Performance Management solutions, custom development and system integration services, and/or declines in industry-wide information technology spending, whether on a temporary or permanent basis and/or delays by customers in initiating new projects or existing project milestones; (4) inability to execute upon growth objectives, including new services and growth in entities acquired by our Company; (5) adverse developments and volatility involving geopolitical, or technology market conditions; (6) unanticipated events or the occurrence of fluctuations or variability in the matters identified as delays in, or the failure of, our sales pipeline being converted to billable work and recorded as revenue; (8) termination by clients of their contracts with us or inability or unwillingness of clients to pay for our services, which may impact our accounting assumptions; (9) inability to recruit and retain professionals with the high level of information technology skills and experience needed to provide our services; (10) failure to expand outsourcing services to generate additional revenue; (11) any changes in ownership of the company or otherwise that would result in a limitation of the net operating loss carry forward under applicable tax laws; (12) the failure of the marketplace to embrace advisory and product-based consulting services; and (13) changes in our utilization levels. In evaluating these statements, you should specifically consider various factors described above. These factors may cause our actual results to differ materially from those contemplated, projected, anticipated, planned, or budgeted in any such forward-looking statements.

Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, growth, earnings per share, or achievements. However, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Except as otherwise required, we undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results.

 

The impact of inflation and changing prices has not been material on revenue or income from continuing operations during the three- or six-month periods ended September 30, 2015 and 2014.

 

 

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, which we have designed to ensure that material information related to the Company, including our consolidated subsidiaries, is properly identified and evaluated on a regular basis and disclosed in accordance with all applicable laws and regulations. The President and Chief Executive Officer and the Vice President of Finance of the Company (the Company's principal executive officer and principal financial officer, respectively) have concluded, based on their evaluations of the Company's disclosure controls and procedures as of the end of the period covered by this report, that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure.

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There were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Not applicable.

ITEM 5.

OTHER INFORMATION

 

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