Majesco - FORM 10-Q - February 10, 2020

Attached files

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EX-32.2 - CERTIFICATION - Majesco	f10q1219ex32-2_majesco.htm
EX-32.1 - CERTIFICATION - Majesco	f10q1219ex32-1_majesco.htm
EX-31.2 - CERTIFICATION - Majesco	f10q1219ex31-2_majesco.htm
EX-31.1 - CERTIFICATION - Majesco	f10q1219ex31-1_majesco.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 001-37466

Majesco

(Exact Name of Registrant as Specified in Its Charter)

California		77-0309142
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

412 Mount Kemble Ave., Suite 110C Morristown, NJ		07960
(Address of principal executive offices)		(Zip code)

(973) 461-5200
(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, par value $0.002 per share		MJCO		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at February 3, 2020
Common Stock, $0.002 par value per share		43,235,701 shares

MAJESCO

INDEX TO FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2019

PART I - FINANCIAL INFORMATION		1

Item 1.	Financial Statements (unaudited)	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative And Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	44

PART II - OTHER INFORMATION		45

Item 1A.	Risk Factors	45

Item 6.	Exhibits	45

Signatures		46

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Majesco and Subsidiaries

Consolidated Balance Sheets
(All amounts are in thousands of US Dollars except share data and as stated otherwise)

	December 31,			March 31,
	2019			2019
ASSETS	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	19,996		$	11,329
Short term investments		25,542			28,108
Restricted cash		42			43
Accounts receivable, net		26,259			17,366
Unbilled accounts receivable		14,579			17,916
Prepaid expenses and other current assets		13,985			15,598
Total current assets		100,403			90,360
Property and equipment, net		2,195			3,026
Right-of-use asset, net		3,964			—
Intangible assets, net		10,518			12,969
Deferred income tax assets		6,957			7,816
Unbilled accounts receivable, net of current portion		2,710			543
Other assets		187			489
Goodwill		34,144			34,145
Total Assets	$	161,078		$	149,348
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Loan from bank-receivable financing and vehicle loan	$	53		$	442
Lease liability		1,977			—
Accounts payable		2,233			2,327
Accrued expenses and other current liabilities		27,382			34,871
Deferred revenue		18,172			10,988
Total current liabilities		49,817			48,628
Vehicle loan		52			109
Lease liability, net of current portion		2,026			—
Consideration payable for Exaxe Holdings Limited acquisition		2,931			2,951
Other liabilities		1,208			1,089
Total Liabilities		56,034			52,777
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.002 per share – 50,000,000 shares authorized as of December 31, 2019 and March 31, 2019, and no shares issued and outstanding as of December 31, 2019 and March 31, 2019		—			—
Common stock, par value $0.002 per share – 450,000,000 shares authorized as of December 31, 2019 and March 31, 2019; 43,235,701 shares issued and outstanding as of December 31, 2019 and 42,846,273 shares issued and outstanding as of March 31, 2019		87			86
Additional paid-in capital		125,699			122,163
Accumulated deficit		(20,002	)		(26,499	)
Accumulated other comprehensive loss		(740	)		(412	)
Total stockholders’ equity attributable to Majesco stockholders		105,044			95,338
Non-controlling interests in consolidated subsidiaries		—			1,233
Total Stockholders’ Equity		105,044			96,571
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	161,078		$	149,348

See accompanying notes to the Consolidated Financial Statements.

Majesco and Subsidiaries

Consolidated Statements of Income (Unaudited)
(All amounts are in thousands of US Dollars except per share data and as stated otherwise)

	Three Months ended December 31, 2019			Three Months ended December 31, 2018			Nine Months ended December 31, 2019			Nine Months ended December 31, 2018
Revenue	$	37,175		$	35,820		$	108,534		$	104,117
Cost of revenue		19,323			18,293			55,130			53,340
Gross profit	$	17,852		$	17,527		$	53,404		$	50,777
Operating expenses
Research and development expenses	$	4,712		$	4,850		$	14,639		$	14,381
Selling, general and administrative expenses		10,027			10,303			31,729			29,484
Total operating expenses	$	14,739		$	15,153		$	46,368		$	43,865
Income from operations	$	3,113		$	2,374		$	7,036		$	6,912
Interest income		141			7			491			32
Interest expense		(79	)		(114	)		(269	)		(342	)
Other income (expenses), net		138			(57	)		578			553
Gain on reversal of accrued contingent liability		1,359			—			1,359			835
Income before provision for income taxes	$	4,672		$	2,210		$	9,195		$	7,990
Provision for income taxes		797			483			3,130			2,543
Net Income	$	3,875		$	1,727		$	6,065		$	5,447
Earnings per share:
Basic	$	0.09		$	0.05		$	0.14		$	0.15
Diluted	$	0.09		$	0.04		$	0.14		$	0.14
Weighted average number of common shares outstanding
Basic		43,102,144			36,664,718			42,992,839			36,633,300
Diluted		45,294,983			38,725,682			45,167,708			38,814,422

See accompanying notes to the Consolidated Financial Statements.

Majesco and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)
(All amounts are in thousands of US Dollars)

	Three Months ended December 31, 2019		Three Months ended December 31, 2018		Nine Months ended December 31, 2019			Nine Months ended December 31, 2018
Net Income	$	3,875	$	1,727	$	6,065		$	5,447
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments		523		346		(376	)		(892	)
Unrealized gains (losses) on cash flow hedges		93		1,201		47			(170	)
Other comprehensive income/(loss)	$	616	$	1,547	$	(329	)	$	(1,062	)
Comprehensive Income	$	4,491	$	3,274	$	5,736		$	4,385

See accompanying notes to the Consolidated Financial Statements.

Majesco and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(All amounts are in thousands of US Dollars except per share data and as stated otherwise)

	Preferred Stock		Common Stock (shares)		Stock Amount		Additional Paid-In Capital		Accumulated deficit			Accumulated Other Comprehensive Income			Non- Controlling Interests			Total Stakeholder Equity
Balance as of March 31, 2018 as reported		—		36,600,457	$	73	$	75,022	$	(30,283	)	$	361			—		$	45,173
Net income		—		—		—		—	$	1,036			—			—		$	1,036
Issue of stock under ESOP and ESPP		—		—		—	$	45		—			—			—		$	45
Stock based compensation		—		—		—	$	658		—			—			—		$	658
Foreign currency translation adjustments		—		—		—		—		—		$	(579	)		—		$	(579	)
Unrealized gains on cash flow hedges		—		—		—		—		—		$	(659	)		—		$	(659	)
Balance as of June 30, 2018		—		36,600,457	$	73	$	75,725	$	(29,247	)	$	(877	)		—		$	45,674
Net income		—		—		—		—	$	2,829			—			—		$	2,829
Issue of stock under ESOP and ESPP		—		—		—	$	234		—			—			—		$	234
Stock based compensation		—		—		—	$	691		—			—			—		$	691
Foreign currency translation adjustments		—		—		—		—		—		$	(659	)		—		$	(659	)
Unrealized gains on cash flow hedges		—		—		—		—		—		$	(712	)		—		$	(712	)
Balance as of September 30, 2018		—		36,600,457	$	73	$	76,650	$	(26,418	)	$	(2,248	)		—		$	48,057
Net income		—		—		—		—	$	1,829			—			—		$	1,829
Net assets received on business combination		—		—		—		—		603			—			—			603
Acquisition of Exaxe Holdings Ltd. non-controlling interest		—		—		—		—	$	—			—		$	(1,238	)	$	(1,238	)
Issue of stock under ESOP and ESPP		—		—		—	$	190		—			—			—		$	190
Stock based compensation		—		—		—	$	804		—			—			—		$	804
Foreign currency translation adjustments		—		—		—		—		—		$	346			—		$	346
Unrealized gains on cash flow hedges		—		—		—		—		—		$	1,201			—		$	1,201
Balance as of December 31, 2018		—		36,600,457	$	73	$	77,644	$	(23,986	)	$	(701	)		(1,238	)	$	51,792

	Preferred Stock		Common Stock (shares)		Stock Amount		Additional Paid-In Capital		Accumulated deficit			Accumulated Other Comprehensive Income			Non- Controlling Interests			Total Stakeholder Equity
Balance as of March 31, 2019 as reported		—		42,846,273	$	86	$	122,163	$	(23,792	)	$	(412	)	$	1,233		$	99,278
Net assets received on business combination		—		—		—		—	$	823			—			—		$	823
Consideration paid on business combination		—		—		—		—	$	(3,530	)		—			—		$	(3,530	)
Balance as on March 31, 2019 as adjusted		—		42,846,273	$	86	$	122,163	$	(26,499	)	$	(412	)	$	1,233		$	96,571
Net income		—		—		—		—	$	1,282			—			—		$	1,282
Issue of stock under ESOP and ESPP		—		83,492		—	$	475		—			—			—		$	475
Stock based compensation		—		—		—	$	929		—			—			—		$	929
Foreign currency translation adjustments		—		—		—		—		—		$	66			—		$	66
Unrealized gains on cash flow hedges		—		—		—		—		—		$	117			—		$	117
Balance as of June 30, 2019		—		42,929,765	$	86	$	123,567	$	(25,217	)	$	(229	)	$	1,233		$	99,440
Net income		—		—		—		—	$	908			—			—		$	908
Issue of stock under ESOP and ESPP		—		71,203		—	$	402		—			—			—		$	402
Stock based compensation		—		—		—	$	569		—			—			—		$	569
Acquisition of Exaxe Holdings Ltd. non-controlling interest		—		—		—		—	$	434			—		$	(1,233	)	$	(799	)
Foreign currency translation adjustments		—		—		—		—		—		$	(964	)		—		$	(964	)
Unrealized gains on cash flow hedges		—		—		—		—		—		$	(163	)		—		$	(163	)
Balance as of September 30, 2019		—		43,000,968	$	86	$	124,538	$	(23,875	)	$	(1,356	)	$	—		$	99,393
Net income		—		—		—		—	$	3,875			—			—		$	3,875
Issue of stock under ESOP and ESPP		—		134,733		—	$	489		—			—			—		$	489
Stock based compensation		—		100,000		1	$	672		—			—			—		$	673
Acquisition of Exaxe Holdings Ltd. non-controlling interest		—		—		—		—	$	(2	)		—		$	—		$	(2	)
Foreign currency translation adjustments		—		—		—		—		—		$	523			—		$	523
Unrealized gains on cash flow hedges		—		—		—		—		—		$	93			—		$	93
Balance as of December 31, 2019		—		43,235,701	$	87	$	125,699	$	(20,002	)	$	(740	)	$	—		$	105,044

See accompanying notes to the Consolidated Financial Statements.

Majesco and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)
(All amounts are in thousands of US Dollars)

	Nine Months ended December 31, 2019			Nine Months ended December 31, 2018
Net cash flows from operating activities
Net income	$	6,065		$	5,447
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on property and equipment		1,185			1,142
Amortization of intangibles		2,458			1,853
Amortization of right-of-use asset		1,918			—
Stock-based compensation		2,170			2,154
Gain on sale of property and equipment		(10	)		(4	)
Unrealized cash flow hedges		47			—
Deferred income taxes		840			540
Change in operating assets and liabilities:
Accounts receivable		(8,897	)		(949	)
Unbilled accounts receivable		1,180			(1,642	)
Prepaid expenses and other current assets		1,345			(1,396	)
Other non-current assets		287			(283	)
Accounts payable		(92	)		(336	)
Lease liability		(1,879	)		—
Accrued expenses and other liabilities		(4,144	)		5,643
Deferred revenue and other non-current liabilities		7,293			586
Net cash provided by operating activities	$	9,766		$	12,755
Net cash flows from investing activities
Purchase of property and equipment	$	(495	)	$	(951	)
Proceeds from the sale of property and equipment		10			57
Proceeds from sale of intangible assets		—			(21	)
Purchase consideration paid on acquisition of business (net of cash acquired)		(3,530	)		(6,581	)
Payment on purchase of balance 10% share of Exaxe Holdings Limited		(805	)		—
Purchase of investments		(22,412	)		(21,794	)
Proceeds from sale of investments		24,960			18,495
Net cash used in investing activities	$	(2,272	)	$	(10,795	)
Net cash flows from financing activities
Payment of capital lease obligations	$	—		$	(203	)
Proceeds from share issued under ESPP and ESOP		1,366			—
Proceeds of loan from bank		—			76,075
Repayment of term loans		—			(1,667	)
Repayment of loans from bank		(445	)		(74,304	)
Net cash provided by/(used in) financing activities	$	921		$	(99	)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		251			172
Net increase in cash and cash equivalents, and restricted cash	$	8,666		$	2,033
Cash and cash equivalents, and restricted cash, beginning of the period		11,372			9,152
Cash, cash equivalents, and restricted cash at end of the period	$	20,038		$	11,185
Supplementary disclosure of cash flow information
Income taxes paid	$	3,186		$	2,119

See accompanying notes to the Consolidated Financial Statements.

Majesco and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)
(All amounts are in thousands of US Dollars except per share data and as stated otherwise)

1	DESCRIPTION OF BUSINESS

Majesco (the “Company” and, together with its subsidiaries, the “Group”) is a global leader of cloud insurance software solutions for insurance business transformation. We provide technology, expertise, and leadership that helps insurers modernize, innovate and connect to build the future of their business and the insurance industry at speed and scale. We do this by providing technology that connects people and businesses to insurance in ways that are innovative, hyper-relevant, compelling and personal. In addition to the United States, we operate in Canada, Mexico, the United Kingdom, Malaysia, Singapore, Ireland and India. With our CloudInsurer^® solutions, we offer cloud-based core insurance platforms, along with distribution management and data and analytics solutions. With our Digital1^st™solutions we offer a cloud-native, digital engagement and microservices platform-as-a-service for the insurance business and an ecosystem of partners with apps that provide innovative data sources and capabilities. These solutions enable Property & Casualty/General Insurance (“P&C”), and Life, Annuities, Pensions and Group/Voluntary Benefits (“L&A and Group”) providers to modernize and optimize their businesses across the end-to-end insurance value chain, better comply with policies and regulations, innovate with new business models, enter new markets, and launch new products and services for incumbents, greenfields and startups. Using this portfolio of solutions including our core P&C, L&A and Group and LifePlus insurance platforms, data and analytics, distribution management and Digital1^st Insurance, our customers can respond to evolving market needs, growth and innovation opportunities and regulatory changes, which enables agility, innovation and speed while improving the effectiveness and efficiency of their business operations.

Majesco’s customers are insurers, managing general agents and other risk providers from the P&C, L&A and Group insurance segments worldwide.

Majesco’s common stock was listed and began trading on the NYSE American on June 29, 2015. Effective on February 26, 2019, Majesco transferred the listing of its common stock and began trading on the Nasdaq Global Market under the symbol “MJCO.”

2	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements reflect the Group’s financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).

All inter-company balances and transactions have been eliminated in consolidation.

Certain employees of the Group participate in benefit and stock-based compensation programs of our parent company Majesco Limited. The consolidated balance sheets include the outstanding equity-based compensation program of Majesco and Majesco Limited which are operated for the benefit of our employees.

Significant Accounting Policies

For a description of all significant accounting policies, see Note 2, Summary of Significant Accounting Policies, of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 (the “Annual Report”). There have been no material changes to our significant accounting policies since the filing of the Annual Report other than Accounting Standards Codification (“ASC”) 842 for Lease accounting which has been included under Note 3. Recent Accounting Pronouncements.

Principles of Consolidation

The Group’s consolidated financial statements include the accounts of Majesco and its subsidiaries, Majesco Canada Ltd., Majesco Software and Solutions Inc. (“MSSI”), Majesco Sdn. Bhd., Majesco UK Limited, Majesco Software and Solutions India Private Limited (“MSSIPL”), Majesco Asia Pacific Pte Ltd., Exaxe Limited and Exaxe Holdings Limited (“Exaxe”) as of December 31, 2019.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an on-going basis, we evaluate our estimates, including those related to revenue recognition and marketable securities, accounts receivable, income taxes, goodwill, and stock-based compensation.

3.	RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Developments

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 supersedes the lease guidance under FASB ASC Topic 840, Leases, resulting in the creation of FASB ASC Topic 842, Leases. ASU 2016-02 requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term from operating leases. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors were originally required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, FASB issued ASU No. 2018-11, Targeted Improvements. This update still requires modified retrospective transition; however, it adds the option to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment in the current period instead of at the beginning of the earliest period presented. Under this option, comparative periods presented in the financial statements in which the new lease standard is adopted will continue to be presented in accordance with prior guidance. The Company has adopted the new accounting standard using the modified retrospective alternative effective April 1, 2019.

The adoption of the new standard had a material effect on the Company’s financial statements, with the most significant effects of adoption relating to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for real estate operating leases; and (2) providing significant new disclosures about its leasing activities. Upon adoption, the Company recognized operating lease liabilities of approximately $5.8 million based on the present value of the remaining minimum rental payments for existing operating leases. The Company also recognized corresponding ROU assets of approximately $5.8 million. There is no impact to stockholders’ equity from the adoption.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU No. 2016-13”). ASU No. 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ASU No. 2016-13 will be effective for the Company in the first quarter of fiscal year 2021, with early adoption permitted, and is to be applied using a modified retrospective approach. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which removes the requirement for an entity to calculate the implied fair value of goodwill (as part of step 2 of the current goodwill impairment test) in measuring a goodwill impairment loss. The standard will be effective for the Company in the first quarter of fiscal 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Based on its current assessment, the Company does not expect the adoption of this update to have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which permits the reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act (the “TCJA” or “U.S. tax reform”) from accumulated other comprehensive income (loss) to retained earnings. The new standard became effective for the Company beginning with the first quarter of fiscal 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which aligns the measurement and classification guidance for share-based payments to nonemployees with that for employees, with certain exceptions. It expands the scope of ASC 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in the entity’s own operations and supersedes the guidance in ASC 505-50. The ASU retains the existing cost attribution guidance, which requires entities to recognize compensation cost for nonemployee awards in the same period and in the same manner (i.e., capitalize or expense) they would if they paid cash for the goods or services, but it moves the guidance to ASC 718. The guidance also allows nonpublic entities to account for nonemployee awards using certain practical expedients that are already available for employee awards, but the same accounting policies must be used for awards to both employees and nonemployees. The new standard became effective for the Company beginning with the first quarter of fiscal 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU 2018-09 – Codification Improvements (“ASU 2018-09”), which facilitates amendments to a variety of topics to clarify, correct errors in, or make minor improvements to the accounting standards codification. The effective date of the standard is dependent on the facts and circumstances of each amendment. Some amendments do not require transition guidance and will be effective upon the issuance of this standard. A majority of the amendments in ASU 2018-09 became effective for the Company beginning with the first quarter of fiscal 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends ASC 820, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The effective date is the first quarter of fiscal year 2021, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2021 permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company is currently evaluating the impact of adopting ASU 2018-13 on its consolidated financial statements.

Emerging Growth Company

We are an “emerging growth company” and “smaller reporting company” under the federal securities laws and are subject to reduced public company reporting requirements. We will remain an emerging growth company until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the preceding three-year period and (d) the last day of our fiscal year containing the fifth anniversary of the date on which shares of our common stock were offered in connection with the completion of our merger with Cover-All, or March 31, 2021. Section 107 of the Jumpstart Our Business Startups Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have taken advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.

4.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The Group’s financial instruments consist primarily of cash and cash equivalents, short term investments in time deposits, restricted cash, accounts receivable, unbilled accounts receivable, accounts payable, accrued liabilities and derivative financial instruments. The carrying amounts of cash and cash equivalents, short term investments in time deposits, restricted cash, accounts receivable, unbilled accounts receivable, accounts payable and accrued liabilities as of the reporting date approximate their fair market value due to the relatively short period of time of original maturity tenure of these instruments.

Basis of Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The current accounting guidance for fair value measurements defines a three-level valuation hierarchy for disclosures as follows:

	Level 1:	Unadjusted quoted prices in active markets for identical assets or liabilities.

	Level 2:	Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

	Level 3:	Unobservable inputs that are supported by little or no market activity, which require the Group to develop its own assumptions.

The following table sets forth the financial assets, measured at fair value, by level within the fair value hierarchy as of December 31, 2019 and March 31, 2019:

Assets and Liabilities	As of
	December 31, 2019			March 31, 2019
Level 2
Derivative financial instruments (included in the following line items in the consolidated balance sheets)
Prepaid expenses and other current assets	$	470		$	132
Other liabilities		(101	)		(21	)
Other assets		155			436
Accrued expenses and other liabilities		(72	)		(136	)
	$	452		$	411
Level 3
Contingent consideration		(3,007	)		(4,884	)
	$	(3,007	)	$	(4,884	)
Total	$	(2,555	)	$	(4,473	)

The following table presents the change in level 3 instruments:

	As of and for the three months ended
	December 31, 2019			December 31, 2018
Opening balance	$	(4,206	)	$	—
Partial payment of contingent consideration		—			—
Total gain recognized in the consolidated statements of income		1,199			—
Closing balance	$	(3,007	)	$	—

	As of and for the nine months ended
	December 31, 2019			December 31, 2018
Opening balance	$	(4,884	)	$	(835	)
Partial payment of contingent consideration		678			—
Total gain recognized in the consolidated statements of income		1,199			835
Closing balance	$	(3,007	)	$	—

The Company considers all short-term investments purchased with an original maturity date of three months or less to be cash equivalents.

Contingent consideration pertaining to the acquisition of the consulting business of Agile as of December 31, 2015 has been classified under level 3 as the fair valuation of such contingent consideration and has been calculated using one or more significant inputs which are not based on observable market data. The fair value of the contingent consideration was estimated using a discounted cash flow technique with significant inputs that are not observable in the market. The significant inputs not supported by market activity included the Group’s probability assessments of expected future cash flows related to its acquisition of the consulting business of Agile during the earn-out period, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the asset purchase agreement (the “Agile Agreement”) dated December 12, 2014, as amended on January 26, 2016.

The total gain attributable to changes in the estimated contingent consideration payable for the acquisition of the consulting business of Agile were $0 and $0 for the three and nine months ended December 31, 2019, respectively and $0 and $835 for the three and nine months ended December 31, 2018, respectively. The Group paid no earn-out consideration to Agile in the fiscal year ended March 31, 2019. The Group paid $1,100 to Agile as earn-out consideration in the fiscal year ended March 31, 2018.

During the quarter ended December 31, 2018, the Group and the shareholders of Agile determined that the final earnout targets under the Agile Agreement would not be met and that no further contingent consideration would therefore be due under the Agile Agreement. Accordingly, the accrued contingent consideration has been reversed in the consolidated statements of income during the three and nine months period ended December 31, 2018.

Contingent consideration pertaining to the acquisition of the stock of Exaxe as of March 31, 2019 has been classified under level 3 as the fair value of such contingent consideration has been calculated using one or more significant inputs which are not based on observable market data. The fair value of the contingent consideration was estimated using a discounted cash flow technique with significant inputs that are not observable in the market. The significant inputs not supported by market activity included the Group’s probability assessments of expected future cash flows related to its acquisition of the stock of Exaxe during the earn-out period, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the share purchase agreement dated November 27, 2018 (the “Exaxe Agreement”).

The estimated contingent consideration payable for the acquisition of the stock of Exaxe was $3,007 at December 31, 2019 and $4,884 at March 31, 2019. The long-term contingent consideration has been evaluated for net present value. During the quarter ended December 31, 2019, the Group and the former founders of Exaxe determined that the year 1 earn-out targets under the Exaxe share purchase agreement were not met and that no earn-out was payable to them towards the year 1 earn-out. Accordingly, the accrued deferred payment for year 1 has been reversed in the income statement during the period ended December 31, 2019 and disclosed as a separate line item below the income from operations for the quarter. The total gain attributable to changes in the estimated contingent consideration payable for the acquisition of Exaxe were $1,359 and $1,359 for the three and nine months ended December 31, 2019.

The fair value of derivative financial instruments is determined based on observable market inputs and valuation models. The derivative financial instruments are valued based on valuations received from the relevant counter-party (i.e., bank). The fair value of the foreign exchange forward contract and foreign exchange par forward contract has been determined as the difference between the forward rate on the reporting date and the forward rate on the original transaction, multiplied by the transaction’s notional amount (with currency matching).

5.	BORROWINGS

MSSIPL Facilities

On May 9, 2017, MSSIPL and Standard Chartered Bank entered into an Export Invoice Financing Facility, Working Capital Overdraft Facility, Short Term Loans Facility, Bonds and Guarantees Facility and Pre Shipment Financing Under Export Orders Facility (the “Combined Facility”) pursuant to which Standard Chartered Bank agreed to a Combined Facility of up to 200 million Indian rupees (or approximately $2,801 at exchange rates in effect on December 31, 2019). The Export Invoice Financing Facility is for the financing of MSSIPL’s sale of services, as evidenced by MSSIPL’s invoice to the customer. Each amount drawn is required to be repaid within 90 days. The interest on this facility is based on the marginal cost of funds based lending rate (the “MCLR”) plus a margin to be agreed with Standard Chartered Bank at the time of each drawdown. The MCLR is to be determined on the date of each disbursement and is effective until repayment. Interest will accrue from the utilization date to the date of repayment or payment of that utilization. The Working Capital Overdraft Facility and the Short Term Loans Facility are for working capital purposes and subject to sub-limits. The interest on these facilities is based on the MCLR plus a margin to be agreed with Standard Chartered Bank at the time of each disbursement. The MCLR is to be determined on the date of each disbursement and is effective until repayment or maturity. Interest will accrue from the draw down date up to the repayment or maturity date. The Bonds and Guarantees Facility is for the issuance of guarantees and subject to commissions as agreed with Standard Chartered Bank from time to time. The Pre Shipment Financing Under Export Orders Facility is for the delivery of software ready for sale. The interest on this facility is based on the MCLR plus a margin to be agreed with Standard Chartered Bank at the time of each disbursement. The MCLR is to be determined on the date of utilization and is effective until repayment. Interest will accrue from the utilization date up to the repayment date.

The interest under the Combined Facility may be changed by Standard Chartered Bank upon the occurrence of certain market disruption events. The Combined Facility is secured by a first pari passu security interest over the current assets of MSSIPL. MSSIPL was in compliance under the terms of this Combined Facility as of December 31, 2019. There are no outstanding loans under this Combined Facility as of December 31, 2019.

Term Loan Facility

On March 23, 2016, Majesco entered into a Loan Agreement (the “Loan Agreement”) with HSBC Bank USA, National Association (“HSBC”) pursuant to which HSBC agreed to extend loans to Majesco in the amount of up to $10,000 and Majesco issued a promissory note to HSBC in the maximum principal amount of $10,000 or any lesser amount borrowed under the Loan Agreement (the “Note”, and together with the “Loan Agreement”, the “Facility”). The outstanding principal balance of the loan bore interest based on LIBOR plus a margin in effect on the first day of the relevant interest period. Until January 1, 2018, only interest was payable under the loan. Commencing on January 1, 2018, and on each January 1 and July 1 thereafter until July 1, 2020, installments of principal in the amount of $1,667 were due and payable semi-annually. All principal and interest outstanding under the Note was due and payable on March 1, 2021. The Facility was unsecured and supported by a letter of credit issued by a bank of $10,000, which was secured by a cash pledge of our parent company, Majesco Limited. On February 27, 2019, Majesco used a portion of the proceeds from its rights offering to repay the total amount outstanding under the Loan Agreement with HSBC and terminated this Facility.

Receivable Purchase Facility

On January 13, 2017, Majesco and its subsidiaries MSSI, and Cover-All Systems, jointly entered into a Receivable Purchase Agreement with HSBC pursuant to which HSBC may advance funds against receivables at an agreed advance rate. The outstanding aggregate amount of all advances may not exceed a $10,000 facility limit. The facility bears interest at 2% plus the 90 day LIBOR rate. HSBC will also receive an arrangement fee equal to 0.20% of the facility limit and a facility review fee equal to 0.20% of the facility limit. Majesco serves as HSBC’s agent for the collection of receivables, and Majesco collects and otherwise enforces payment of the receivables. HSBC has a security interest in accounts of MSSI and Cover-All Systems. The term of the Receivable Purchase Agreement is for a minimum period of 12 months and shall continue unless terminated by either party. Either party may terminate the Receivable Purchase Agreement at any time upon 60 days’ prior written notice to the other party. The Group expensed the discount, interest and other direct fees as incurred. The Receivable Purchase Agreement will provide additional liquidity to the Group for working capital and other general corporate purposes.

On November 29, 2018, the Group amended the Receivable Purchase Agreement to increase its limit to $15,000 until March 29, 2019, and $10,000 thereafter. HSBC received an arrangement fee of $10 in connection with this amendment. The amendment provided additional liquidity to Majesco for mergers and acquisitions and other general corporate purposes. There are no outstanding loans under this facility as of December 31, 2019. Majesco used proceeds from this facility to repay existing indebtedness and for capital expenditures, working capital and other general corporate purposes.

Exaxe Facilities

Exaxe Limited has a receivables purchase agreement with AIB Commercial Finance Limited (“AIB Commercial”) pursuant to which AIB Commercial will purchase up to € 200 in receivables from Exaxe Limited on a discounted basis. In addition, Exaxe Limited has an overdraft facility with Allied Irish Banks, p.l.c. (“AIB”) of up to € 100. The facility has a variable interest rate and is payable on demand at any time. This facility is secured by the assets of Exaxe Limited. As of December 31, 2019, there are no outstanding balances under these facilities.

On July 17, 2019, Majesco’s subsidiary Exaxe Limited, and HSBC France, Dublin Branch (“HSBC France”), entered into a € 400 (or approximately $448 at exchange rates in effect on December 31, 2019) overdraft facility (the “HSBC France Facility”). The HSBC France Facility is for working capital purposes. The HSBC France Facility is subject to review from time to time, and in any event a review shall occur in May 2020. Exaxe Limited may terminate the HSBC France Facility at any time without penalty. Interest under the HSBC France Facility is payable at the rate of 3.5% per annum over the prevailing European Central Bank Rate on amounts up to € 400 and 7% per annum over such rate on amounts over € 400. The HSBC France Facility is secured by the assets of Exaxe Limited. Exaxe Limited agreed to certain negative covenants under the HSBC France Facility, including not to create or allow any mortgage or security over its assets or revenues. All Euros are in thousands unless indicated otherwise. As of December 31, 2019, there are no outstanding balances under the HSBC France Facility.

Vehicle loans

MSSIPL has obtained vehicle loans from HDFC Bank for the purchase of vehicles. The loans bear interest at a rate of 8.75% per annum, are payable in 60 monthly installments over a 5-year period and are secured by a pledge of the vehicles. The outstanding balance of these vehicle loans as of December 31, 2019 is $52.

6.	DERIVATIVE FINANCIAL INSTRUMENTS

The following table provides information of fair values of derivative financial instruments:

	Asset				Liability
	Noncurrent*		Current*		Noncurrent*		Current*
As of December 31, 2019
Designated as Cash Flow Hedges
Foreign exchange forward contracts	$	155	$	470	$	101	$	72
Total	$	155	$	470	$	101	$	72

As of March 31, 2019
Designated as Cash Flow Hedges
Foreign exchange forward contracts	$	436	$	132	$	21	$	136
	$	436	$	132	$	21	$	136

The non-current and current portions of derivative assets are included in ‘Other assets’ and ‘Prepaid expenses and other current assets,’ respectively, and the noncurrent and current portions of derivative liabilities are included in ‘Other liabilities’ and ‘Accrued expenses and other current liabilities,’ respectively, in our consolidated balance sheets.

Cash Flow Hedges and Other Derivatives

We use foreign currency forward contracts and par forward contracts to hedge our risks associated with foreign currency fluctuations related to certain commitments and forecasted transactions. The use of hedging instruments is governed by our policies which are approved by our Board of Directors. We designate these hedging instruments as cash flow hedges. Derivative financial instruments we enter into that are not designated as hedging instruments in hedge relationships are classified as financial instruments at fair value in the consolidated statements of income.

The aggregate contracted USD notional amounts of the Group’s foreign exchange forward contracts outstanding amounted to $41,300 and $31,100 as of December 31, 2019 and March 31, 2019, respectively.

The outstanding forward contracts as of December 31, 2019 mature between one month and 37 months. As of December 31, 2019, the Group estimates that $47, net of tax, of the net (loss)/gains related to derivatives designated as cash flow hedges recorded in accumulated other comprehensive income (loss) is expected to be reclassified into earnings within the next 37 months.

The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.

The following table provides information on the amounts of pre-tax (losses) recognized in and reclassified from Accumulated Other Comprehensive Income (“AOCI”) of derivative instruments designated as cash flow hedges:

	Amount of Income (Loss) recognized in AOCI (effective portion)			Amount of (Loss) reclassified from AOCI to Statement of Operations (Revenue)
For the nine months ended December 31, 2019
Foreign exchange forward contracts	$	41		$	(30	)
Total	$	41		$	(30	)

For the nine months ended December 31, 2018
Foreign exchange forward contracts	$	(239	)	$	(517	)
Total	$	(239	)	$	(517	)

7.	ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income by component were as follows:

	Three months ended December 31, 2019									Three months ended December 31, 2018
	Before tax			Tax effect			Net of Tax			Before tax			Tax effect			Net of Tax
Other comprehensive income
Foreign currency translation adjustments
Opening balance	$	(1,602	)	$	—		$	(1,602	)	$	(945	)	$	—		$	(945	)
Change in foreign currency translation adjustments		523			—			523			346			—			346
Closing balance	$	(1,079	)	$	—		$	1,079		$	(599	)	$	—		$	(599	)

Unrealized gains/(losses) on cash flow hedges
Opening balance	$	328		$	(83	)	$	245		$	(1,838	)	$	535		$	(1,303	)
Unrealized gains/(losses) on cash flow hedges		130			(33	)		98			1,954			(569	)		1,385
Reclassified to Revenue		(6	)		2			(5	)		(259	)		75			(184	)
Net change	$	124		$	(31	)	$	93		$	1,695		$	(494	)	$	1,201
Closing balance	$	452		$	(114	)	$	338		$	(143	)	$	41		$	(102	)

	Nine months ended December 31, 2019									Nine months ended December 31, 2018
	Before tax			Tax effect			Net of Tax			Before tax			Tax effect			Net of Tax
Other comprehensive income
Foreign currency translation adjustments
Opening balance	$	(703	)	$	—		$	(703	)	$	293		$	—		$	293
Change in foreign currency translation adjustments		(376	)		—			(376	)		(892	)		—			(892	)
Closing balance	$	(1,079	)	$	—		$	(1,079	)	$	(599	)	$	—		$	(599	)

Unrealized gains/(losses) on cash flow hedges
Opening balance	$	411		$	(120	)	$	291		$	96		$	(28	)	$	68
Unrealized gains/(losses) on cash flow hedges		71			(3	)		68			278			(80	)		198
Reclassified to Revenue		(30	)		9			(21	)		(517	)		149			(368	)
Net change	$	41		$	6		$	47		$	(239	)	$	69		$	(170	)
Closing balance	$	452		$	(114	)	$	338		$	(143	)	$	41		$	(102	)

8.	INCOME TAXES

The Group recognized income tax provisions of $797 and $3,130 for the three and nine months ended December 31, 2019, respectively, and recognized income tax provisions of $483 and $2,543 for the three and nine months ended December 31, 2018, respectively.

The effective tax rate is 25.6% and 38.4% for the three and nine months ended December 31, 2019, respectively, which differs from the statutory U.S. federal income tax rate of 21%, mainly due to the impact of different tax jurisdictions.

9.	EMPLOYEE STOCK OPTION PLAN

Majesco 2015 Equity Incentive Plan

During the three and nine months ended December 31, 2019, we recognized $617 and $1,883, respectively, in equity-based compensation expense in our consolidated financial statements compared to $684 and $1,542 during the three and nine months ended December 31, 2018, respectively.

In June 2015, Majesco adopted the Majesco 2015 Equity Incentive Plan (the “2015 Plan”). On May 9, 2018, the Board of Directors of Majesco approved an increase of 2,000,000 shares in the number of shares available for issuance under the 2015 Plan thereby increasing the number of shares available under such plan from 3,877,263 shares to 5,877,263 shares. This increase was approved by the shareholders of Majesco at the 2018 annual meeting of shareholders. Under the 2015 Plan, options, restricted stock and other equity incentive awards with respect to up to 5,877,263 shares may be granted by the Compensation Committee of the Board of Directors to our employees, consultants and directors at an exercise or grant price determined by the Compensation Committee of the Board of Directors on the date of grant. Options may be granted as incentive or nonqualified stock options with a term of not more than ten years. The 2015 Plan allows the grant of restricted or unrestricted stock awards or awards denominated in stock equivalent units or any combination of the foregoing, which may be paid in common stock or other securities, in cash, or in a combination of common stock or other securities and cash. As of December 31, 2019, 2,001,275 shares were available for grant under the 2015 Plan.

Majesco uses the Black-Scholes-Merton option-pricing model (“Black-Scholes”) to measure fair value of the share-based awards. The Black-Scholes model requires us to make significant judgments regarding the assumptions used within the model, the most significant of which are the expected stock price volatility, the expected life of the option award, the risk-free interest rate of return and dividends during the expected term.

Expected volatility is based on peer entities as historical volatility data for Majesco’s common stock is limited.

In accordance with ASC 718, Majesco uses the simplified method for estimating the expected term when measuring the fair value of employee stock options using the Black-Scholes option pricing model. Majesco believes the use of the simplified method is appropriate due to the employee stock options qualifying as “plain-vanilla” options under the criteria established by Staff Accounting Bulletins Topic 14.

The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yields for an equivalent term at the time of grant.

Majesco does not anticipate paying dividends during the expected term.

	Unaudited For the Nine months ended December 31,
Variables (range)	2019			2018

Expected volatility		41%–46	%		41%–50	%
Weighted-average volatility		46	%		41	%
Expected dividends		0	%		0	%
Expected term (in years)		3-5			3-5
Risk-free interest rate		1.9	%		2.5	%

As of December 31, 2019, there was $4,402 of total unrecognized compensation costs related to non-vested share-based compensation arrangements previously granted by Majesco. That cost is expected to be recognized over a weighted-average period of 1.63 years.

Stock Option Awards

A summary of the outstanding common stock options under the 2015 Plan is as follows:

	Shares			Exercise Price Per Share		Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price
Balance, April 1, 2019		3,259,267		$	4.79-7.72	8.08 years	$	5.49
Granted		160,000			8.05-10.02	9.55 years		8.71
Exercised		(317,434	)		4.79-7.53	—		4.24
Cancelled		(209,292	)		4.79-7.25	—		5.29
Balance, December 31, 2019 (unaudited)		2,892,541		$	4.79-10.02	7.76 years	$	5.68

Of the stock options outstanding, an aggregate of 2,057,115 were exercisable as of December 31, 2019.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.

We follow FASB ASC 718, Accounting for Stock Options and Other Stock-Based Compensation (“ASC 718”). Among other items, ASC 718 requires companies to record the compensation expense for share-based awards issued to employees and directors in exchange for services provided. The amount of the compensation expense is based on the estimated fair value of the awards on their grant dates and is recognized over the required service periods. Our share-based awards include stock options and restricted stock awards. For restricted stock awards, the calculation of compensation expense under ASC 718 is based on the intrinsic value of the grant.

Restricted Stock Unit Awards

Restricted stock unit activity during the nine months ended December 31, 2019 was as follows:

	Number of RSUs			Weighted Average Grant-Date Fair Value
Balance, April 1, 2019		375,000		$	7.49
Vested		(100,000	)	$	7.55
Granted		105,000			8.51
Balance, December 31, 2019 (unaudited)		380,000		$	8.42

Warrants

As of December 31, 2019, there were warrants to purchase 25,000 shares of common stock outstanding. A summary of the terms of the outstanding warrants as of December 31, 2019 is as follows:

		Outstanding and Exercisable Warrants				Exercise Price Per Warrant				Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price
Balance, December 31, 2019 (unaudited)			25,000			$	7.00			0.67 years		$	7.00

On September 1, 2015, Majesco issued to Maxim Partners LLC a five-year warrant to purchase 25,000 shares of common stock of Majesco at an exercise price of $7.00 per share. The warrant was issued in connection with the engagement of the holder to perform certain advisory services for the Group. The number of shares issuable upon exercise of the warrant may be reduced under certain circumstances of non-performance under the services agreement. The warrant may be exercised at any time after September 1, 2016 and will expire, if unexercised, on September 1, 2020. The warrant contains certain anti-dilution adjustment protection in case of certain future issuances of securities, stock dividends, split and other transactions affecting Majesco’s securities. The holder of the warrant is entitled to piggyback registration rights in case of certain registered securities offerings by Majesco.

Employee Stock Option Scheme of Majesco Limited — Plan 1

Certain employees of the Group participate in the Group’s parent company, Majesco Limited’s, employee stock option plan. The plan, termed as “ESOP plan 1,” became effective June 1, 2015, the effective date of the demerger from Mastek Ltd. Group employees who were issued options in the earlier ESOP plans of Mastek Ltd. were given options of Majesco Limited following the demerger. Under the plan, Majesco Limited also grants newly issued options to the employees of MSSIPL from time to time. During the nine months ended December 31, 2019, no options to purchase shares of common stock were granted under ESOP plan 1 of Majesco Limited.

As of December 31, 2019, the total future compensation cost related to non-vested options not yet recognized in the consolidated statements of income was $212, and the weighted average period over which these awards are expected to be recognized was 1.89 years. The weighted average remaining contractual life of options expected to vest as of December 31, 2019 is 8.76 years.

During the three and nine months ended December 31, 2019, we recognized $55 and $287, respectively, in equity-based compensation expense in our consolidated financial statements compared to $120 and $612 during the three and nine months ended December 31, 2018, respectively.

Majesco Limited calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing method with the following assumptions:

	For the Nine Months ended December 31,
	2019			2018
Weighted-average volatility		44	%		-
Expected dividends	$	0.32			-
Expected term (in years)		4-8 Years			-
Risk-free interest rate		6.1% - 6.5	%		-

The summary of outstanding options of Majesco Limited as of December 31, 2019 is as follows:

	No. of Options Outstanding		Exercise Price Per Share		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price
		668,904	$	0.10 - $3.00		5.52	1.13
		500,798	$	3.10 - $6.00		4.93	4.64
		115,500	$	6.10 - $9.00		8.67	7.37
Balance, December 31, 2019		1,285,202

Of the stock options of Majesco Limited outstanding and held by Group employees, an aggregate of 1,081,449 are exercisable as of December 31, 2019.

Majesco Performance Bonus Plan

Majesco established the Majesco Performance Bonus Plan (the “Performance Bonus Plan”). The Performance Bonus Plan is administered by the Compensation Committee of the Board of Directors of Majesco. The purpose of the Performance Bonus Plan is to benefit and advance the interests of the Group by rewarding select employees of the Group for their contributions to the Group’s financial success and thereby motivating them to continue to make such contributions in the future by granting them performance-based awards that are fully tax deductible to the Group.

During the three and nine months ended December 31, 2019, Majesco accrued $3,531 and $4,598, respectively, in incentive compensation expense in its consolidated financial statements compared to $3,215 and $9,249 during the three and nine months ended December 31, 2018, respectively.

Majesco Employee Stock Purchase Plan

Majesco established the Majesco Employee Stock Purchase Plan (the “ESPP”). The ESPP is intended to be qualified under Section 423 of the Internal Revenue Code. If a plan is qualified under Section 423, employees who participate in the ESPP enjoy certain tax advantages. The ESPP allows employees to purchase shares of Majesco common stock at a discount, without being subject to tax until they sell the shares, and without having to pay any brokerage commissions with respect to the purchases.

The purpose of the ESPP is to encourage the purchase of Majesco common stock by our employees, to provide employees with a personal stake in our business and to help us retain our employees by providing a long-range inducement for such employees to remain in our employ.

The ESPP provides employees with the right to purchase shares of common stock through payroll deductions. The total number of shares available for purchase under the ESPP is 2,000,000. The ESPP Plan became effective January 1, 2016. As of December 31, 2019, we had issued and sold 144,457 shares under the ESPP.

10.

EARNINGS PER SHARE

The basic and diluted earnings per share were as follows:

	Three months ended December 31,
	2019		2018

Net Income	$	3,875	$	1,727

Basic weighted average outstanding equity shares		43,102,144		36,664,718
Adjustment for dilutive potential ordinary shares
Options under Majesco 2015 Equity Plan		2,192,839		2,060,964
Dilutive weighted average outstanding equity shares		45,294,983		38,725,682

Earnings per share:
Basic	$	0.09	$	0.05
Diluted	$	0.09	$	0.04

	Nine months ended December 31,
	2019		2018

Net Income	$	6,065	$	5,447

Basic weighted average outstanding equity shares		42,992,839		36,633,300
Adjustment for dilutive potential ordinary shares
Options under Majesco 2015 Equity Plan		2,174,869		2,181,122
Dilutive weighted average outstanding equity shares		45,167,708		38,814,422

Earnings per share:
Basic	$	0.14	$	0.15
Diluted	$	0.14	$	0.14

Basic earnings per share amounts are calculated by dividing net income for the three and nine months ended December 31, 2019 and 2018 attributable to common shareholders by the weighted average number of common shares outstanding during the same periods.

Diluted earnings per share amounts are calculated by dividing the net income attributable to common shareholders by the sum of the weighted average number of shares of common stock outstanding during the three and nine month ended December 31, 2019 and 2018 plus the weighted average number of shares of common stock that would be issued upon the conversion of all the dilutive potential shares of common stock into shares of common stock as applicable pursuant to the treasury method.

The calculation of diluted earnings per share excluded 68,000 and 68,000 shares of common stock issuable upon exercise of options for the three and nine months ended December 31, 2019, respectively, and 449,209 and 449,209 shares of common stock issuable upon exercise of options for the three and nine months ended December 31, 2018, respectively, granted to employees, as their inclusion would have been antidilutive.

11.

RELATED PARTIES TRANSACTIONS

Reimbursement of Expenses

The Group reimbursed the insurance premium paid by Majesco Limited for the insurance policies maintained at the Majesco Limited group level. During the three and nine months ended December 31, 2019 MSSIPL paid $0 and $88, respectively and during the three and nine months ended December 31, 2018 MSSIPL paid $0 and $68, respectively, to Majesco Limited toward such insurance premium.

Leases

MSSIPL entered into an operating lease for its operation facilities in Mahape, India, as lessee, with Majesco Limited, Majesco’s parent company, as lessor. The approximate aggregate annual rent payable to Majesco Limited under this lease agreement is $1,436. The lease is effective June 1, 2015 and expires on May 31, 2020. MSSIPL may terminate the lease after three years with six months’ prior written notice to Majesco Limited. Majesco Limited may terminate the lease after five years with six months’ prior written notice to MSSIPL. On May 16, 2019, a new lease agreement between Majesco Limited and MSSIPL was signed for the leasing of additional office space by Majesco Limited to MSSIPL, in continuation to the existing operating lease until May 31, 2020. The approximate aggregate annual rent payable to Majesco Limited under this additional lease agreement is $42.

MSSIPL also entered into a lease for its operations in Pune, India, with Mastek Ltd. as lessor. The approximate aggregate annual rent payable to Mastek Ltd. under this lease agreement is $237. The lease became effective on June 1, 2015 and expires on May 31, 2020. MSSIPL has also entered into a supplementary lease for its operations in Pune, India, with Mastek Ltd. as lessor. The approximate aggregate annual rent payable to Mastek Ltd. under this supplementary lease agreement is $110. The lease became effective on April 1, 2016 and expires on May 31, 2020. MSSIPL may terminate the lease after three years with six months’ prior written notice to Mastek Ltd. Mastek Ltd. may terminate the lease after five years. On June 1, 2018, MSSIPL gave notice to Mastek Ltd. of its termination of both leases with an effective termination date of November 30, 2018.

	As of December 31, 2019		As of March 31, 2019

Security deposits paid to Majesco Limited by MSSIPL for use of Mahape premises	$	591	$	552
Security deposits paid to Mastek Ltd. by MSSIPL for use of Pune premises	$	—	$	—

Rental expenses paid by MSSIPL to Majesco Limited for use of premises for the three and nine months ended December 31, 2019 was $354 and $1,058, respectively, and $339 and $1,008 for the three and nine months ended December 31, 2018, respectively. Rental expenses paid by MSSIPL to Mastek Ltd. for use of premises for the three and nine months ended December 31, 2019 was $0 and $0, respectively, and $103 and $308 for the three and nine months ended December 31, 2018, respectively.

Joint Venture Agreement

On September 24, 2015, MSSIPL and Mastek (UK) Limited, a wholly owned subsidiary of Mastek Ltd. (“Mastek UK”), entered into a Joint Venture Agreement (the “Joint Venture Agreement”) pursuant to which the two companies agreed to work together to deliver services to third parties under the terms of the Joint Venture Agreement, which services comprise the delivery of development, integration and support services to third parties by use of Mastek Ltd.’s development, integration and support methodologies and tools. The Joint Venture Agreement is effective September 24, 2015 and will remain in force, unless terminated by either party upon three months’ notice in writing to the other of its intention to terminate the Joint Venture Agreement. The consideration for each party’s performance of its obligations under the Joint Venture Agreement is the performance of the other’s obligations under the same agreement, being services to the other. The services comprise in the case of Mastek Ltd., Mastek Ltd.’s development, integration and support methodologies and tools and business development services. In the case of MSSIPL, the services comprise the provision of leading edge technical expertise and advice. The parties will also exchange technical and business information.

Services Agreements

On August 2, 2016, Majesco Limited and MSSIPL entered into a master service agreement, effective as of June 30, 2016 pursuant to which MSSIPL provided software development services to Majesco Limited. Under this agreement, MSSIPL charges Majesco Limited cost plus a margin for the services rendered. Software development charges charged by MSSIPL under the agreement for the three and nine months ended December 31, 2019 was $0 and $0, respectively, and $247 and $941 for the three and nine months ended December 31, 2018, respectively. This agreement was terminated on April 1, 2019 following the closing of the business transfer pursuant to the Transfer Agreement discussed below.

On July 25, 2018, Majesco Limited and MSSIPL entered into an Intra Group Services Agreement (the “Intra-Group Agreement”) pursuant to which Majesco Limited provides certain sales and marketing services to MSSIPL in the Asia Pacific region (collectively, the “Services”). In consideration for the Services, MSSIPL pays Majesco Limited all direct and indirect operating costs of Majesco Limited incurred for the provision of the Services and which shall be allocated to MSSIPL on the basis of gross revenues plus a 10% mark-up. The mark-up will be subject to a periodic review. The Intra-Group Agreement is effective as of April 1, 2018 and will remain in effect until terminated. Each party may terminate the Intra-Group Agreement at any time upon 60 days prior written notice to the other. Expenses charged by Majesco Limited under the Intra-Group Agreement for the three and nine months ended December 31, 2019 were $0 and $0, respectively, and $14 and $88 for the three and nine months ended December 31, 2018, respectively. This agreement was terminated on April 1, 2019 following the closing of the business transfer pursuant to the Transfer Agreement discussed below.

Guarantee

During the three and nine months ended December 31, 2019, Majesco paid $0 and $0, respectively, and $8 and $27 for the three and nine months ended December 31, 2018, respectively, to Majesco Limited as arrangement fees and guarantee commission for the guarantee given by Majesco Limited to HSBC and ICICI Bank for the facilities taken by Majesco and its subsidiaries. Both facilities have been repaid and were terminated on June 30, 2019.

Lease with Exaxe Sellers

On October 14, 2004, Exaxe Consulting Limited entered into a lease (the “Lease”) with Norman Carroll, Philip Naughton and Luc Hemeryck for certain real property facilities for a term which initially expired on October 13, 2025. Pursuant to a Deed of Assignment dated December 6, 2017 between Exaxe Consulting Limited and Exaxe Limited, Exaxe Consulting Limited assigned Exaxe Limited the Lease for the balance of the term. Pursuant to a Deed of Variation of the Lease and Deed of Renunciation executed in September 2019, the term of the Lease is expected to terminate on August 31, 2024 The annual rental fee under the Lease is € 106 ($10 per month at exchange rates in effect on December 31, 2019).

Business Transfer Agreement and Memorandum of Understanding

On April 1, 2019, MSSIPL entered into a Business Transfer Agreement (the “Transfer Agreement”) with Majesco Limited, Majesco’s controlling shareholder. Pursuant to the Transfer Agreement, on May 15, 2019, MSSIPL purchased all of Majesco Limited’s insurance software business in India in a slump sale transaction, which included, among other things, Majesco Limited’s customer contracts and certain employees servicing this business, for a total value of approximately 243,745,000 Indian Rupees (approximately $3,400 at exchange rates in effect on December 31, 2019). The transaction did not include real estate properties of Majesco Limited used in the business which continue to be rented by MSSIPL from Majesco Limited.

Effective as of May 16, 2019, MSSIPL and Majesco Limited entered into a Memorandum of Understanding (the “MOU”) in connection with the Transfer Agreement pursuant to which MSSIPL will have access to facilities including, but not limited to, hardware, software and administrative support services in consideration for 20,000 Indian rupees (or approximately $281 at exchange rates in effect on December 31, 2019). The term of the MOU commenced on May 15, 2019 and shall terminate on March 31, 2022.

This being a transaction between entities under common control, the Company has followed the guidance as per FASB Business Combinations Topic 805 and recorded the assets, liabilities and reserves at respective book values as on April 1, 2019 pertaining to the transferred business and recorded resultant negative capital reserve which is adjusted in accumulated deficit of $2,707.

Recognized amount of identifiable assets acquired and liabilities assumed

	Amount
Current assets	$	1,038
Current liabilities		(486	)
Fixed assets		271
Total net book value of assets acquired		823
Total purchase consideration		3,530
Retained Earnings	$	2,707

12.

SEGMENT INFORMATION

The Group operates in one segment as software solutions provider for the insurance industry. The Group’s chief operating decision maker (the “CODM”) is its Chief Executive Officer. The CODM manages the Group’s operations on a consolidated basis for purposes of allocating resources. When evaluating the Group’s financial performance, the CODM reviews all financial information on a consolidated basis. A majority of the Group’s principal operations and decision-making functions are located in the United States.

The following table sets forth revenues by country based on the billing address of the customer:

	Three months ended December 31, 2019		Three months ended December 31, 2018

USA	$	33,115	$	29,979
UK		840		1,813
Canada		93		144
Ireland		1,263		1,726
Malaysia		1,217		1,544
Others		647		614
	$	37,175	$	35,820

	Nine months ended December 31, 2019		Nine months ended December 31, 2018

USA	$	96,561	$	90,208
UK		2,653		4,924
Canada		213		330
Ireland		3,399		1,726
Malaysia		3,772		4,461
Others		1,936		2,468
	$	108,534	$	104,117

The following table sets forth the Group’s property and equipment, net, by geographic region:

	As of December 31, 2019 (unaudited)		As of March 31, 2019
USA	$	575	$	892
India		1,473		1,944
Canada		1		49
UK		5		5
Malaysia		87		133
Ireland		54		3
	$	2,195	$	3,026

We provide a considerable volume of services to a number of significant customers. Therefore, the loss of a significant customer could materially reduce our revenues. The Group had one customer accounting for more than 10% of revenues for the three and nine months ended December 31, 2019 and one customer accounting for more than 10% of revenues for the three and nine months ended December 31, 2018. Presented in the table below is information about our top customer:

	Three months ended December 31, 2019 (unaudited)					Three months ended December 31, 2018 (unaudited)
	Amount		% of Combined Category			Amount		% of Combined Category
Top Customer
Revenue	$	2,212		6	%	$	5,796		16.2	%
Accounts receivable and unbilled accounts receivable	$	5,765		14.1	%	$	8,174		26.0	%

	Nine months ended December 31, 2019 (unaudited)					Nine months ended December 31, 2018 (unaudited)
	Amount		% of Combined Category			Amount		% of Combined Category
Top Customer
Revenue	$	6,557		6	%	$	18,423		17.7	%
Accounts receivable and unbilled accounts receivable	$	5,765		14.1	%	$	8,174		26.0	%

The top customer for the three and nine months ended December 31, 2019 was the same customer for both periods. The top customer for the three and nine months ended December 31, 2018 was the same customer for both periods.

13.

COMMITMENTS

Capital Commitments

The Group had outstanding contractual commitments of $44 and $90 as of December 31, 2019 and March 31, 2019, respectively, for capital expenditures relating to the acquisition of property, equipment and new network infrastructure.

Operating Leases

The Group leases certain office premises under operating leases. Many of these leases include a renewal option on a periodic basis at the Group’s option, with the renewal periods ranging from two to five years. Rental expense for operating leases amounted to $788 and $2,432 for the three and nine months ended December 31, 2019, respectively, compared to $858 and $2,465 for the three and nine months ended December 31, 2018, respectively. The schedule for future minimum rental payments over the lease term in respect of operating leases is set forth below.

Year ending March 31,	Amount
2020	$	1,977
2021		1,049
2022		626
2023		607
2024		179
Thereafter		0
	$	4,438
Less: Imputed interest		435
Total minimum lease liability	$	4,003

Lease liabilities, current portion		1,977
Lease liabilities, net of current portion		2,026
Total lease liabilities	$	4,003

Facility Leases

Our subsidiary in India, MSSIPL, has entered into a lease for its operations in Mahape, India, as lessee, with Majesco Limited as lessor. The approximate aggregate annual rent payable to Majesco Limited under this lease agreement is $1,436. The lease became effective on June 1, 2015 and expires on May 31, 2020. MSSIPL paid Majesco Limited $354 and $1,058 in rent under the lease during the three and nine months ended December 31, 2019, respectively, and $339 and $1,008 during the three and nine months ended December 31, 2018, respectively. MSSIPL may terminate the lease after three years with six months’ prior written notice to Majesco Limited. Majesco Limited may terminate the lease after five years with six months’ prior written notice to MSSIPL. On May 16, 2019, a new lease agreement between Majesco Limited and MSSIPL was signed for the leasing of additional office space by Majesco Limited to MSSIPL, in continuation to the existing operating lease until May 31, 2020. The approximate aggregate annual rent payable to Majesco Limited under this additional lease agreement is $42.

MSSIPL also entered into a lease for its operations in Pune, India, with Mastek Ltd. as lessor. The approximate aggregate annual rent payable to Mastek Ltd. under this lease agreement is $237. The lease became effective on June 1, 2015 and expires on May 31, 2020. MSSIPL has also entered into a supplementary lease for its operations in Pune, India, with Mastek Ltd. as lessor. The approximate aggregate annual rent payable to Mastek Ltd. under this supplementary lease agreement is $110. The lease became effective on April 1, 2016 and expires on May 31, 2020. MSSIPL paid Mastek Ltd. $0 and $0 in rent under the leases during the three and nine months ended December 31, 2019, respectively, and $103 and $308 in rent under the leases during the three and nine months ended December 31, 2018, respectively. MSSIPL may terminate the lease after three years with six months’ prior written notice to Mastek Ltd. Mastek Ltd. may terminate the lease after five years. On June 1, 2018, MSSIPL gave notice to Mastek Ltd. of its termination of both leases with an effective termination date of November 30, 2018.

Transition to ASC 842 Leases

ASC 842 Leases sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. It introduces a single, on-balance sheet lease accounting model for lessees.

The Company has adopted ASC 842, effective annual reporting period beginning April 1, 2019 and applied the standard to its leases, under the modified retrospective method, with the cumulative effect of initially applying the Standard, recognized on the date of initial application (April 1, 2019). Accordingly, the Company has not restated comparative information.

For transition, the Company has elected not to apply the requirements of ASC 842 to leases which are expiring within 12 months from the date of transition by class of asset. The Company has also used the practical expedient provided by the standard when applying ASC 842 to leases previously classified as operating leases and therefore, has not reassessed whether a contract, is or contains a lease, at the date of initial application, excluded initial direct costs from measuring the right of use asset at the date of initial application and used hindsight when determining the lease term if the contract contains options to extend or terminate the lease. The Company has used a single discount rate to a portfolio of leases with similar characteristics.

On transition, the Company recognized a lease liability measured at the present value of the remaining lease payments. The ROU asset is recognized at its carrying amount as if the standard had been applied since the commencement of the lease, but discounted using the lessee’s incremental borrowing rate as at April 1, 2019. Accordingly, a ROU asset and a corresponding lease liability of $5,882 has been recognized.

Leases

We lease certain office space and vehicles. We consider various factors such as market conditions and the terms of any renewal options that may exist to determine whether we will renew or replace the lease. A majority of our leases have remaining lease terms of one to seven years, typically with the option to extend the leases. Some of our leases may include the option to terminate. In the event we are reasonably certain to exercise the option to extend a lease, we will include the extended terms in the operating lease right-of-use asset and operating lease liability. Real estate taxes, insurance, maintenance, and operating expenses applicable to the leased property are our obligations under the lease agreements. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and lease expense for these leases is recognized on a straight-line basis over the lease term. All leases included in our right of use asset and lease liability consist of operating leases.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The gross amounts of assets and liabilities related to operating leases are as follows:

	Balance Sheet Caption	December 31, 2019
Assets:
Operating lease assets	right-of-use assets, net	$	3,964
Liabilities:
Current:
Operating lease liabilities	lease liability	$	1,977
Long-term:
Operating lease liabilities	lease liability, net of current portion		2,026
Total lease liabilities		$	4,003

ROU assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of the lease payments over the lease term. As our leases do not provide a readily determinable implicit rate, we use an incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term and included in selling, general and administrative expenses.

Information related to the Company’s ROU assets and related lease liabilities were as follows:

	Three months ended
	December 31,
	2019 (Unaudited)
Cash paid for operating lease liabilities	$	714
Right-of-use assets obtained in exchange for new operating lease obligations	$	—
Weighted-average remaining lease term		2.5 years
Weighted-average discount rate		5.1	%

	Nine months ended
	December 31,
	2019 (Unaudited)
Cash paid for operating lease liabilities	$	2,141
Right-of-use assets obtained in exchange for new operating lease obligations	$	—
Weighted-average remaining lease term		2.5 years
Weighted-average discount rate		5.1	%

Transfer Pricing

The Company’s India subsidiary, MSSIPL, received a Draft Assessment Order on December 26, 2018 for assessment year 2015 relating to MSSIPL ’s transfer pricing model. MSSIPL filed an application with the Dispute Resolution Panel (DRP) on January 24, 2019.

MSSIPL has filed an appeal against the DRP order to the Income Tax Appellate Tribunal (ITAT), for which a hearing was conducted on January 14 and 15, 2020. Further the Company has received a stay order on the Tax Demand. The Company believes it will be successful upon completion of the appeal process, but at this time cannot estimate the amount to be due, if any.

14.

ACQUISITION

On November 27, 2018 (the “Effective Date”), the Company entered into a share purchase agreement (the “Agreement”) for the acquisition of all the issued share capital (collectively, the “Securities”) of Exaxe. On the Effective Date, the Company completed the purchase of 90% of the Securities. The Company purchased the remaining 10% of the Securities on August 1, 2019. The economic transfer date of Exaxe was October 1, 2018.

In consideration for the purchase of the Securities, on the Effective Date, the Company paid the sellers € 6,392 (or approximately $7,158 at exchange rates in effect on December 31, 2019). In addition, on August 1, 2019, the Company paid the sellers € 717 (or approximately $803) for the remainder of the Securities.

The Company also agreed to make certain earnout payments to the sellers if certain adjusted EBITDA (as defined in the Agreement) targets for Exaxe are met. If adjusted EBITDA for Exaxe for the period of January 1, 2019 through December 31, 2019 is at least equal to 75% of the adjusted EBITDA target for such year, the Company has agreed to pay € 625(or approximately $700 at exchange rates in effect on December 31, 2019) to the sellers and an additional € 25(or approximately $28 at exchange rates in effect on December 31, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earn-out payment amount not to exceed € 1,250 (or approximately $1,400 at exchange rates in effect on December 31, 2019)). During the quarter ended December 31, 2019, the Group and the former founders of Exaxe determined that the year 1 earn-out targets under the Exaxe share purchase agreement were not met and that no earn-out was payable to them towards the year 1 earn-outs of adjusted EBITDA for Exaxe for the period of January 1, 2020 through December 31, 2020 is at least equal to 75% of the adjusted EBITDA target for such year, the Company has agreed to pay € 750 (or approximately $840 at exchange rates in effect on December 31, 2019) to the sellers and an additional € 30 (or approximately $34 at exchange rates in effect on December 31, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earn-out payment amount not to exceed €1,500 (or approximately $1,680 at exchange rates in effect on December 31, 2019)). If adjusted EBITDA for Exaxe for the period of January 1, 2021 through December 31, 2021 is at least equal to 75% of the adjusted EBITDA target for such year, the Company has agreed to pay € 875 (or approximately $980 at exchange rates in effect on December 31, 2019) to the sellers and an additional € 35 (or approximately $40 at exchange rates in effect on December 31, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earn-out payment amount not to exceed € 1,750 (or approximately $1,960 at exchange rates in effect on December 31, 2019)). In lieu of being paid to the sellers, a portion of these earn-out payments will be paid to key employees as bonuses if they remain employed by Exaxe at the earnout payment date. The Company may also withhold 15% of any earn-out payment if a seller who is a key employee leaves the employment of Exaxe prior to the end of the earn-out period (other than due to death, serious illness, compassionate grounds, by mutual agreement or termination for cause or misconduct). The Company will also be entitled to withhold and off set against any earn-out payment such amounts due and payable or which may become due and payable by the sellers to the Company with respect to claims under the agreement and related transaction documents.

The entire earn-out amount of € 4,500 (or approximately $5,040 at exchange rates in effect on December 31, 2019) (less any portion already paid) will become due and payable upon a sale of beneficial interests in a majority of the outstanding shares of Exaxe or its subsidiary or a sale or other disposal in whole or substantial part of the undertaking or assets of Exaxe or its subsidiary before the end of the earn-out period.

The Company will also be restricted from making certain changes to the business of Exaxe, or diverting or redirecting Exaxe’s orders, revenue, customers, clients, suppliers or employees during the earn-out period.

In connection with the transaction, on the Effective Date, Exaxe Limited, a subsidiary of Exaxe, entered into employment agreements with each of Norman Carroll (the Chief Executive Officer of Exaxe) and Philip Naughton (the Executive Director – Business Development of Exaxe) pursuant to which Norman Carroll and Philip Naughton will act as SVP Ireland/UK Operations and Executive Director Business Development of Exaxe Limited, respectively. The Company agreed to grant Norman Carroll and Philip Naughton stock options awards with respect to such number of shares of the Company’s common stock having an aggregate value of € 1,000 (or approximately $1,120 at exchange rates in effect on December 31, 2019) pursuant to the Company’s 2015 Plan.

In addition, in connection with the transaction, the parties have entered into a revised lease agreement with certain sellers (including Norman Carroll and Philip Naughton) for certain real property facilities leased by Exaxe Limited.

We have included the financial results of Exaxe in our consolidated financial statements from the date of acquisition. The purchase price for Exaxe was approximately $12,329. In connection with the Exaxe acquisition, we have recorded $10,339 of net assets and $1,990 of goodwill.

The following table summarizes the amounts of identified assets acquired and liabilities assumed at the acquisition date:

Recognized amount of identifiable assets acquired and liabilities assumed

	Amount
Cash	$	297
Accounts receivable		968
Prepaid expenses and other current assets		498
Property, plant and equipment		42
Trade name		364
Customer relationships		1,658
Technology		7,314
Deferred tax asset from prior net operating losses		167
Accounts payable and other liabilities		(883	)
Deferred revenue		(86	)
Total fair value of assets acquired		10,339
Total purchase consideration		12,329
Goodwill	$	1,990

The changes in the varying amount of goodwill are as follows:

Changes in carrying amount of the goodwill

	Three months ended December 31, 2019		Nine months ended December 31, 2019

Opening value	$	34,090	$	34,145
Changes on account of currency fluctuation		54		(1	)
Impairment of Goodwill		—		—
Closing value	$	34,144	$	34,144

	Three months ended December 31, 2018			Nine months ended December 31, 2018

Opening value	$	32,216		$	32,216
Changes on account of currency fluctuation		(26	)		(26	)
Impairment of Goodwill		—			—
Addition on account of business combination		2,536			2,536
Closing value	$	34,726		$	34,726

Goodwill represents the cost of the acquired businesses in excess of the estimated fair value of assets acquired, identifiable intangible assets and liabilities assumed. Goodwill is not amortized but is tested for impairment at the reporting unit level at least annually or as circumstances warrant. If impairment is indicated and carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, then goodwill is written-down. There are no indefinite-lived intangible assets.

The following table sets forth the major categories of the Group’s intangible assets and the weighted-average remaining amortization period for those assets that were not already fully amortized:

	December 31, 2019
									Weighted
									Average
									Remaining
	Gross						Net		Amortization
	Carrying		Accumulated				Carrying		Period
	Amount		Amortization		Impairment		Amount		(Years)
Technology	$	10,664	$	4,801	$	—	$	5,863		6
Trade Name		352		45		—		307		9
Customer relationship		8,326		4,308		—		4,018		4
Customer Contract		2,950		2,950		—		—		—
Software		1,038		708		—		330		2
	$	23,330	$	12,812	$	—	$	10,518

	March 31, 2019
									Weighted
									Average
									Remaining
	Gross Carrying		Accumulated				Net Carrying		Amortization Period
	Amount		Amortization		Impairment		Amount		(Years)
Technology	$	10,672	$	3,118	$	—	$	7,554		6
Trade Name		353		18		—		335		9
Customer relationship		8,328		3,753		—		4,575		4
Customer Contract		2,950		2,950		—		—		—
Software		3,844		3,339		—		505		2
	$	26,147	$	13,178	$	—	$	12,969

Changes in the net carrying amount of intangible assets were as follows:

	Technology			Trade Name		Customer Relationship		Customer Contract		Software		Total
March 31, 2019	$	7,554		$	335	$	4,575	$	—	$	505	$	12,969
Amortization		1,566			29		567		—		296		2,458
Addition-Business acquisition		—			—		—		—		37		37
Foreign currency translation		(125	)		1		10		—		84		(30	)
December 31, 2019 (Unaudited)	$	5,863		$	307	$	4,018	$	—	$	330	$	10,518

Amortization expense of $822 and $2,458 for the three and nine months ended December 31, 2019, respectively, and $1,226 and $1,853 for the three and nine months ended December 31, 2018, respectively, was recorded as cost of goods sold. The amortization expense of acquired intangible assets for each of the following five years and thereafter are expected to be as follows:

	Amortization
Years ending March 31	Expense
2020	$	3,228
2021		2,919
2022		2,020
2023		1,954
Thereafter		2,848
Total	$	12,969

Details of identifiable intangible assets acquired are as follows:

	Weighted average amortization period (in years)		Amount assigned		Residual value
Technology		5	$	7,314		—
Trade name		10		364		—
Customer relationships		15		1,658		—
Total		6.96	$	9,336		—

15.

NON-CONTROLLING INTEREST

On November 27, 2018, the Company entered into a share purchase agreement for the acquisition of all the issued Securities of Exaxe. The Company completed the purchase of 90% of the Securities on November 27, 2018. The Company purchased the remaining 10% of the Securities on August 1, 2019 and there is no non-controlling interest as of December 31, 2019. The economic transfer date of Exaxe was October 1, 2018.

16.

SUBSEQUENT EVENTS

On January 30, 2020, the Company, Majesco Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”) and InsPro Technologies Corporation (“InsPro”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, Merger Sub will merge with and into InsPro (the “Merger”) with InsPro surviving the Merger as a wholly-owned subsidiary of the Company. The Merger consideration to be paid by the Company on the closing date (the “Effective Time”) of the Merger, subject to certain adjustments as set forth in the Merger Agreement (including for cash and certain debt of InsPro), is $12 million in cash. Consummation of the Merger is subject to certain conditions, including, without limitation, adoption of the Merger Agreement by the requisite vote of InsPro’s stockholders, the accuracy of the representations and warranties (subject to customary materiality qualifiers), the absence of any Material Adverse Effect (as defined in the Merger Agreement) with respect to InsPro, InsPro’s compliance with its covenants and agreements contained in the Merger Agreement (subject to customary materiality qualifiers) and InsPro’s fairness advisor shall not have withdrawn, revoked or modified their fairness opinion, among others.

In addition, pursuant to the Merger Agreement, The Co-Investment Fund II, L.P. and Independence Blue Cross, LLC (collectively, the “Shareholders”) each entered into a voting agreement (the “Voting Agreement”) with the Company and Merger Sub. Pursuant to the Voting Agreement, the Shareholders agreed to vote their shares of InsPro’s common stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, in each case, in favor of, among other things, the adoption of the Merger Agreement and the consummation of the Merger and the other transactions contemplated by the Merger Agreement and against (i) any competing proposal or competing transaction, (ii) the adoption of any competing transaction agreement and (iii) any other action that would in any manner (A) prevent, impede, frustrate or nullify any provision of the Merger Agreement, (B) change the voting rights of any class of InsPro’s capital stock or (C) otherwise interfere with or delay the transactions contemplated by the Merger Agreement. In addition, the Shareholders have agreed not to (i) subject to certain exceptions, transfer their shares of InsPro’s common stock and/or preferred stock, as applicable, and (ii) solicit alternative transactions or enter into discussions concerning, or provide confidential information in connection with, any alternative transaction. The Voting Agreements will terminate upon the earlier of the Effective Time or the termination of the Merger Agreement in accordance with its terms.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with “Selected Financial Data,” and the consolidated financial statements and related notes included in our Annual Report on Form 10-K for our fiscal year ended March 31, 2019 and referred to herein as the “Annual Report,” and the consolidated financial statements and related notes for the quarter ended December 31, 2019 included in Part I, Item I of this Quarterly Report on Form 10-Q. The statements in this discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described below in “Special Note Regarding Forward-Looking Statements” and in Part II, Item 1A “Risk Factors.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

All US dollar currency amounts in this MD&A are in thousands unless indicated otherwise. All Euros in this MD&A are in thousands unless indicated otherwise. Except where the context requires otherwise, references in this MD&A to “Majesco,” “Group,” “we” or “us” are to Majesco and its subsidiaries on a worldwide consolidated basis.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “will,” “might,” “projects,” “expects,” “plans,” “believes,” “anticipates,” “targets,” “intends,” “hopes,” “aims,” “can,” “should,” “could,” “would,” “goal,” “potential,” “approximately,” “estimate,” “pro forma,” “continue” or “pursue” or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.

These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and the other documents referred to and relate to a variety of matters, including, but not limited to, other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of management, are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should not be relied upon as predictions of future events and Majesco cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by Majesco or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.

These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in “Item 1A. Risk Factors” in our Annual Report and elsewhere in this Quarterly Report on Form 10-Q. Important factors that could cause actual results to differ materially from those described in forward-looking statements contained herein include, but are not limited to:

●

our ability to achieve increased market penetration for our product and service offerings and obtain new customers;

●

our ability to raise future capital as needed to fund our growth and innovation plans;

●

growth prospects of the property & casualty and life & annuity insurance industry;

●

the strength and potential of our technology platform and our ability to innovate and anticipate future customer needs;

●

our ability to protect our intellectual property rights;

●

our ability to compete successfully against other providers and products;

●

our dependence on certain key customers and the risk of loss of these customers;

●

security breaches affecting our systems, software, applications, and products;

●

the unauthorized access, acquisition, disclosure, theft or compromise of proprietary or personal customer or consumer data and information;

●

the risk of telecommunication or technological disruptions;

●

our exposure to additional scrutiny and increased expenses as a result of being a public company;

●

our ability to identify and complete acquisitions, manage growth and successfully integrate acquisitions;

●

our financial condition, financing requirements and cash flow;

●

market expectations regarding our potential growth and ability to implement our short and long-term strategies;

●

the risk of loss of strategic relationships;

●

the success of our research and development investments;

●

changes in economic conditions, political conditions and trade protection measures and licensing requirements in the United States and in the foreign jurisdictions in which we operate;

●

changes in laws or regulations affecting the insurance industry in particular;

●

changes in tax laws, including to the transfer pricing regime;

●

restrictions and changes in laws on immigration;

●

our inability to achieve sustained profitability;

●

our ability to obtain, use or successfully integrate third-party licensed technology;

●

our ability and cost of retaining and recruiting key personnel or the risk of loss of such key personnel;

●

the adverse outcome of legal proceedings against us;

●

the risk that our customers internally develop new competitive products; and

●

the impact of new accounting standards and changes we may need to make in anticipation or as a result of these standards.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.

Overview

Majesco is a global leader of cloud insurance software solutions for insurance business transformation. We provide technology, expertise, and leadership that helps insurers modernize, innovate and connect to build the future of their business and the insurance industry at speed and scale. We do this by providing technology that connects people and businesses to insurance in ways that are innovative, hyper-relevant, compelling and personal. In addition to the United States, we operate in Canada, Mexico, the United Kingdom, Malaysia, Singapore, Ireland and India. With our CloudInsurer^® solutions, we offer cloud-based core insurance platforms, along with distribution management and data and analytics solutions. With our Digital1^st™solutions we offer a cloud-native, digital engagement and microservices platform-as-a-service for the entire insurance business and an ecosystem of partners with apps that provide innovative data sources and capabilities. These solutions enable Property & Casualty/General Insurance (“P&C”), and Life, Annuities, Pensions and Group/ Voluntary Benefits (“L&A and Group”) providers to modernize and optimize their businesses across the end-to-end insurance value chain, better comply with policies and regulations, innovate with new business models, enter new markets and launch new products and services for incumbents, greenfields and startups. Using this portfolio of solutions including our core P&C, L&A and Group and LifePlus insurance platforms, data and analytics, distribution management and Digital1^st Insurance, our customers can respond to evolving market needs, growth and innovation opportunities and regulatory changes, which enables agility, innovation and speed while improving the effectiveness and efficiency of their business operations.

Long-term, strong customer relationships are a key component of our success given the long-term nature of our contracts, opportunity for deeper relationships with our portfolio of solutions, and the importance of customer references for new sales. Our customers range from some of the largest global tier one insurance carriers in the industry to mid-market insurers, MGAs, startups and greenfields, including specialty, mutual and regional carriers. As of December 31, 2019, we served approximately 200 insurance companies on a worldwide basis.

We generate revenue from our global IP led business as well as from engagements in the insurance services space. The IP business is primarily driven through either an on-premise deployment or deployment of the platform on the cloud. While the on-premise model generates revenues from the licensing of our proprietary software (perpetual or annual license fees), and support and maintenance fees pursuant to contracts with customers, we have been witnessing a significant shift in the business model with customers preferring the cloud model which offers a speed to value benefit together with low upfront investments. The revenues from the cloud model are primarily from monthly subscriptions once the platform is deployed for use. Additionally, we also generate revenues from professional fees for services that the customer may engage Majesco for under both modes of deployment. License fees, support and maintenance and cloud subscription fees are usually managed through multi-year agreements, typically over a period of five to seven years. Insurance services revenues is primarily driven by professional services offered in the areas of transformation consulting, data, digital, testing and application development and management.

Recent Developments

Three Months Ended December 31, 2019 Highlights

A few of our highlights of our three months ended December 31, 2019 were:

●

Revenues of $37,175 with a gross profit of 48.0% of revenue;

●

$4,712 (12.7% of revenue) in research and development (“R&D”) expenses;

●

$10,027 (27.0 % of revenue) in selling, general and administrative expenses;

●

Net income of $3,875; and

●

Adjusted EBITDA of $4,985, representing 13.4% of revenue.

Nine Months Ended December 31, 2019 Highlights

A few of our highlights of our nine months ended December 31, 2019 were:

●

Revenues of $108,534 with a gross profit of 49.2% of revenue;

●

$14,639 (13.5% of revenue) in R&D expenses;

●

$31,729 (29.2% of revenue) in selling, general and administrative expenses;

●

Net income of $6,065; and

●

Adjusted EBITDA of $12,849, representing 11.8% of revenue.

Use of Non-GAAP Financial Measures

In evaluating our business, we consider and use EBITDA as a supplemental measure of operating performance. We define EBITDA as earnings before interest, taxes, depreciation and amortization. We present EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. We define Adjusted EBITDA as EBITDA before stock-based compensation, a reversal of accrual for contingent liability and mergers and acquisitions expenses.

The terms EBITDA and Adjusted EBITDA are not defined under U.S. generally accepted accounting principles (“U.S. GAAP”) and are not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA have limitations as an analytical tool, and when assessing our operating performance, investors should not consider EBITDA or Adjusted EBITDA in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Among other things, EBITDA and Adjusted EBITDA do not reflect our actual cash expenditures. Other companies may calculate similar measures differently than us, limiting their usefulness as comparative tools. We compensate for these limitations by relying on U.S. GAAP results and using EBITDA and Adjusted EBITDA only supplementary.

For an unaudited reconciliation of U.S. GAAP net income to EBITDA and Adjusted EBITDA for the three and nine months ended December 31, 2019 and December 31, 2018, see “— Results of Operations — Three and Nine Months Ended December 31, 2019 Compared to Three and Nine Months Ended December 31, 2018 — Adjusted EBITDA”.

Agile Asset Acquisition

On January 1, 2015, we acquired substantially all of the insurance consulting business of Agile Technologies, LLC, a New Jersey limited liability company, a business and technology management consulting firm. Total consideration for the Agile asset acquisition amounted to approximately $8,500, including approximately $7,800 in earn-out payments over three years based on the satisfaction of certain time milestones and performance targets.

During the quarter ended September 30, 2018, we and the shareholders of Agile determined that the final earn-out targets under the Agile asset purchase agreement would not be met and that no further contingent consideration would therefore be due under the Agile asset purchase agreement. Accordingly, the accrued outstanding balance has been reversed in the income statement during the period ended September 30, 2018. We have no further obligations with respect to earn-out payments under the Agile asset purchase agreement.

Through this acquisition, we acquired the insurance-focused IT consulting business of Agile, as well as business process optimization capabilities and additional technology services including data architecture strategy and services. In connection with this acquisition, over 55 insurance technology professionals and other personnel formerly employed or engaged by Agile became our employees or independent contractors. This acquisition also resulted in the addition of approximately 20 customers to our customer base. In connection with this acquisition, we assumed office leases under which Agile was lessee in New Jersey, Georgia and Ohio, and acquired certain trademarks, service marks, domain names and business process framework of Agile.

Cover-All Merger

On June 26, 2015, Cover-All Technologies Inc., a provider of core insurance software and business analytics solution primarily focused on commercial lines for the property and casualty insurance industry listed on the NYSE American, merged with and into Majesco, with Majesco as the surviving corporation, in a stock-for-stock transaction. In the merger, each share of Cover-All common stock issued and outstanding immediately prior to the effective time of the merger (other than treasury shares) was automatically cancelled and extinguished and converted into the right to receive 0.21641 shares of common stock of Majesco. This exchange ratio resulted in holders of issued and outstanding Cover-All common stock and outstanding options and restricted stock units and other equity awards of Cover-All holding in the aggregate approximately 16.5% of the total capitalization of the combined company immediately following consummation of the merger.

Cover-All’s customers include insurance companies, agents, brokers and managing general agents throughout the United States and Puerto Rico. Cover-All’s software solutions and services are designed to enable customers to introduce new products quickly, expand their distribution channels, reduce costs and improve service to their customers. Cover-All’s business analytics solution enables customers to leverage their information assets for real time business insights and for better risk selection, pricing and financial reporting.

Exaxe Acquisition

On November 27, 2018 (the “Effective Date”), we entered into a share purchase agreement (the “Exaxe Agreement”) for the acquisition of all the issued share capital (collectively, the “Securities”) of Exaxe Holdings Limited, a private limited company incorporated in Ireland (“Exaxe”). Exaxe is an EMEA (Europe, the Middle East and Africa) based cloud software leader in the life, pensions and wealth management segment. Headquartered in Dublin, Ireland, Exaxe serves a growing list of top European insurers. This acquisition will strengthen and expand our software offerings in EMEA for the individual life, pensions and wealth management market while complementing the Group’s software and Group focused customer base in the UK. On the Effective Date, we consummated the purchase of 90% of the Securities. As agreed to, we purchased the remaining 10% of the Securities on August 1, 2019.

In consideration for the purchase of the Securities, on the Effective Date, we paid the sellers € 6,392 (or approximately $7,158 at exchange rates in effect on December 31, 2019) and € 717 (or approximately $803 at exchange rates in effect on December 31, 2019) for the remainder of the Securities on August 1, 2019.

We also agreed to make certain earn-out payments to the sellers if certain adjusted EBITDA (as defined in the Exaxe Agreement) targets for Exaxe are met. If adjusted EBITDA for Exaxe for the period of January 1, 2019 through December 31, 2019 is at least equal to 75% of the adjusted EBITDA target for such year, we have agreed to pay € 625 (or approximately $700 at exchange rates in effect on December 31, 2019) to the sellers and an additional € 25 (or approximately $28 at exchange rates in effect on December 31, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earn-out payment amount not to exceed € 1,250 (or approximately $1,400 at exchange rates in effect on December 31, 2019)). During the quarter ended December 31, 2019, we and the former founders of Exaxe determined that the year 1 earn-out targets under the Exaxe share purchase agreement were not met and that no earn-out was payable to them towards the year 1 earn-outs. Accordingly, the accrued deferred payment for year 1 has been reversed in the income statement during the period ended December 31, 2019 and disclosed as a separate line item below the income from operations for the quarter.

The entire earn-out amount of € 4,500 (or approximately $5,040 at exchange rates in effect on December 31, 2019) (less any portion already paid or written off for not meeting requirements for a particular period) will become due and payable upon a sale of beneficial interests in a majority of the outstanding shares of Exaxe or its subsidiary or a sale or other disposal in whole or substantial part of the undertaking or assets of Exaxe or its subsidiary before the end of the earn-out period.

We will also be restricted from making certain changes to the business of Exaxe, or diverting or redirecting Exaxe’s orders, revenue, customers, clients, suppliers or employees during the earn-out period.

In connection with the transaction, on the Effective Date, Exaxe Limited, a subsidiary of Exaxe, entered into employment agreements with each of Norman Carroll (the Chief Executive Officer of Exaxe) and Philip Naughton (the Executive Director – Business Development of Exaxe) pursuant to which Norman Carroll and Philip Naughton will act as SVP Ireland/UK Operations and Executive Director Business Development of Exaxe Limited, respectively. We agreed to grant Norman Carroll and Philip Naughton stock options awards with respect to such number of shares of our common stock having an aggregate value of € 1,000 (or approximately $1,120 at exchange rates in effect on December 31, 2019) pursuant to our 2015 equity incentive plan.

In addition, in connection with the transaction, we entered into a revised lease agreement with certain sellers (including Norman Carroll and Philip Naughton) for certain real property facilities leased by Exaxe Limited.

We always look at additional acquisitions to complement our service offerings and growth strategy. Our success, in the near term, will depend, in large part, on our ability to: (a) successfully integrate our acquisitions into our business, (b) build up momentum for new sales, (c) cross-sell to existing customers and (d) exceed customer satisfaction through our state of the art products and solutions.

Inflation

Although we cannot accurately determine the amounts attributable thereto, our net revenues and results of operations have been affected by inflation experienced in the U.S., Indian and other economies in which we operate through increased costs of employee compensation and other operational expenses during the three and nine months ended December 31, 2019 and December 31, 2018. To the extent permitted by the marketplace for our products and services, we attempt to recover increases in costs by periodically increasing prices. However, there can be no assurance that we will be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Currency Fluctuations

We are affected by fluctuations in currency exchange rates with respect to our contracts. We hedge a substantial portion of our foreign currency exposure. For more information, see “— Quantitative and Qualitative Disclosures About Market Risk.”

Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with U.S. GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for us include revenue recognition, intangible assets and goodwill.

Revenue Recognition

Revenues are recognized based on the following general revenue recognition principles are met:

●

Identify contract with a customer: There is an agreement between the company and a customer that creates enforceable rights and obligations. If required, the company combines two or more contracts and accounts for them as one contract for the purposes of revenue recognition.

●

Identify performance obligations in the contract: Under the contracts the company establishes the different performance obligations. Determination of performance obligation is based on whether the customer can derive benefit from the product and services on its own or together with other resources and each of these benefits can be separately identified.

●

Determine transaction price: The transaction price is the amount of consideration in the contract that the company expects to be entitled to receive in exchange for transferring the intellectual property and/or services to the customer. The company may enter in to fixed price contracts or variable priced contracts depending on the nature of the contract.

●

Allocate transaction price to performance obligations in the contract: We allocate the transaction price to each performance obligation on the basis of the relative standalone selling price for each distinct deliverable.

●

Recognize revenue when or as the company satisfies performance obligations: We recognize revenue when or as we satisfy each of the distinct performance by transferring the intellectual property or services that has been agreed upon with the customer. The revenue recognized is the amount allocated to that distinct obligation and the satisfaction of it. The obligation may be satisfied at a point of time or over a period of time. For performance obligations satisfied over a period of time, we recognize revenue based on the progress toward satisfaction of the obligation.

We have historically sold codebase solutions which required significant customization before the solution was ready for use by the customer and required us to provide continued services and support to ensure that the solution served the purposes of the customer. Over the years we have made significant investments in R&D and successfully transformed the codebase solution into a single package out of the box product, rich in functionality and content with easy and seamless upgrade capabilities. With this, on all our new sales and deployments, our obligation is now limited to the deployment of the contracted product on the environment for which it was sold (cloud-based or on-premise). The product is ready to use and the customer may choose to use the product as is, choose to retain our consultants to install, assist in implementation and customize the environment, contract with a third party to carry out this work or do it themselves with the toolkit that comes with the product. Revenues for license fees for sales of our out-of-the-box product offerings is recorded at the time of delivery as there is no significant ongoing service obligation after the point of sale. When our customers contract us for consulting and maintenance services, we account for the revenues from those standalone elements over the life of the contract.

In addition, we have made further investments to create a robust and market-leading cloud platform that is well positioned to take advantage of significant opportunities in the insurance marketplace. We invoice customers a subscription based fee for our cloud platform. Revenue from subscription fees is recognized ratably over the life of the contract.

Time and Material Contracts — Professional services revenue consists primarily of revenue received for assisting with the development, implementation of our software, on-site support, and other professional consulting services. In determining whether professional services revenue should be accounted for, we review the nature of our software products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which typically do involve significant customization to or development of the underlying software code; and whether milestones or acceptance criteria exist that affect the realization of the services rendered. Substantially all of our professional services arrangements are billed on a time and materials basis and, accordingly, are recognized as the services are performed. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. Payments received in advance of rendering professional services are deferred and recognized when the related services are performed. Work performed and expenses incurred in advance of invoicing are recorded as unbilled receivables. These amounts are billed in the subsequent months.

Fixed Price Contracts — For arrangements that do not qualify for separate accounting for the license and professional services revenues, including arrangements that involve significant modification or customization of the software, that include milestones or customer specific acceptance criteria that may affect collection of the software license fees or where payment for the software license is tied to the performance of professional services, software license revenue is generally recognized together with the professional services revenue using the percentage-of-completion method. Under the percentage-of completion method, revenue recognized is equal to the ratio of costs expended to date to the anticipated total contract costs, based on current estimates of costs to complete the project. If there are milestones or acceptance provisions associated with the contract, the revenue recognized will not exceed the most recent milestone achieved or acceptance obtained. If the total estimated costs to complete a project exceed the total contract amount, indicating a loss, the entire anticipated loss would be recognized in the current period.

Revenue is shown net of applicable service tax, sales tax, value added tax and other applicable taxes. We have accounted for reimbursements received for out of pocket expenses incurred as revenues in the Consolidated Statements of Income.

Goodwill and Other Intangible Assets

Intangible assets other than goodwill are amortized over their estimated useful lives on a straight line basis. The estimated useful life of an identifiable intangible asset is based on a number of factors, including the effects of obsolescence, demand, competition, the level of maintenance expenditures required to obtain the expected future cash flows from the asset and other economic factors (such as the stability of the industry, known technological advances, etc.).

The estimated useful lives of intangible assets are as follows:

Non-compete agreements		3 years
Leasehold benefit		Ascertainable life or primary period of lease, whichever is less
Internal-use Software		1 – 5 years
Intellectual Property Rights		1 – 5 years
Customer Contracts		1 – 3 years
Customer Relationships		6 – 15 years
Technology		6 years
Trademark		10 years

Impairment of Long-Lived Assets and Intangible Assets

We review long-lived assets and certain identifiable intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During this review, we re-evaluate the significant assumptions used in determining the original cost and estimated lives of long-lived assets. Although the assumptions may vary from asset to asset, they generally include operating results, changes in the use of the asset, cash flows and other indicators of value. Management then determines whether the remaining useful life continues to be appropriate or whether there has been an impairment of long-lived assets based primarily upon whether expected future undiscounted cash flows are sufficient to support the assets’ recovery. If impairment exists, we adjust the carrying value of the asset to fair value, generally determined by a discounted cash flow analysis.

Property and Equipment

Property and equipment are stated at actual cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives. The cost and the accumulated depreciation for premises and equipment sold, retired or otherwise disposed of are removed from the stated values and the resulting gains and losses are included in the Consolidated Statements of Income.

Maintenance and repairs are charged to combined Statements of Income when incurred. Cost of assets not put to use before the balance sheet date are disclosed under the caption “capital work in progress.”

The estimated useful lives of assets are as follows:

Leasehold Improvements		5 years or lease period, whichever is less
Computers		2 years
Plant and Equipment		2 – 5 years
Furniture and Fixtures		5 years
Vehicles		5 years
Office Equipment		2 – 5 years

Results of Operations

Three and Nine Months Ended December 31, 2019 Compared to Three and Nine Months Ended December 31, 2018

The following tables summarize our consolidated statements of income for the three and nine months ended December 31, 2019 and December 31, 2018, including as a percentage of revenues:

Statements of Income Data

	Three Months Ended (Unaudited)
(U.S. Dollars; dollar amounts in thousands):	December 31, 2019			%			December 31, 2018			%
Total revenues	$	37,175					$	35,820
Total cost of revenues		19,323			52	%		18,293			51	%
Total gross profit		17,852						17,527
Operating expenses:
Research and development expenses		4,712			11	%		4,850			14	%
Selling, general and administrative expenses		10,027			29	%		10,303			29	%
Total operating expenses		14,739						15,153
Income from operations		3,113						2,374
Interest income		141						7
Interest expense		(79	)					(114	)
Other income (expenses), net		138						(57	)
Gain on reversal of accrued contingent liability		1,359						—
Income before provision for income taxes		4,672						2,210
Income taxes		797						483
Net income	$	3,875			8	%	$	1,727			5	%

	Nine Months Ended (Unaudited)
(U.S. Dollars; dollar amounts in thousands):	December 31, 2019			%			December 31, 2018			%
Total Revenues	$	108,534					$	104,117
Total cost of revenues		55,130			49	%		53,340			52	%
Total gross profit		53,404						50,777
Operating expenses:
Research and development expenses		14,639			13	%		14,381			14	%
Selling, general and administrative expenses		31,729			30	%		29,484			27	%
Total operating expenses		46,368						43,865
Income from operations		7,036						6,912
Interest income		491						32
Interest expense		(269	)					(342	)
Other income (expenses), net		578						553
Gain on reversal of accrued contingent liability		1,359						835
Income before provision for income taxes		9,195						7,990
Income taxes		3,130						2,543
Net income	$	6,065			5	%	$	5,447			5	%

The following table represents revenues by each subsidiary and corresponding geographical region:

	Three Months Ended (Unaudited)
(U.S. Dollars; dollar amounts in thousands):	December 31, 2019		%			December 31, 2018		%
Geography: North America
Legal Entity
Majesco	$	10,790		29	%	$	10,476		30	%
Majesco Software and Solutions Inc.		22,325		60	%		13,260		37	%
Majesco Canada Ltd., Canada		94		—	%		144		—	%
Cover-All Systems, Inc.(1)		—		—	%		6,243		18	%
	$	33,209		89	%	$	30,123		85	%
Geography: Europe
Legal Entity
Majesco UK Limited, UK	$	840		2	%	$	1,813		5	%
Exaxe Limited		1,263		3	%		1,726		5	%
		2,103		6	%		3,539		10	%
Geography: Other
Legal Entity
Majesco Sdn. Bhd., Malaysia	$	1,217		4	%	$	1,544		4	%
Majesco Asia Pacific Pte Ltd., Singapore		114		—	%		207		0	%
Majesco Software and Solutions India Private Limited, India		532		1	%		407		1	%
	$	1,863		5	%	$	2,158		5	%
Total Revenues	$	37,175				$	35,820

(1)

Cover-All Systems, Inc. was merged into Majesco Software and Solutions Inc. on January 1. 2019.

	Nine Months Ended (Unaudited)
(U.S. Dollars; dollar amounts in thousands):	December 31, 2019		%			December 31, 2018		%
Geography: North America
Legal Entity
Majesco	$	30,933		29	%	$	31,189		30	%
Majesco Software and Solutions Inc.		65,628		60	%		39,304		38	%
Majesco Canada Ltd., Canada		213		—	%		474		0	%
Cover-All Systems, Inc.(1)		—		—	%		19,571		19	%
	$	96,774		89	%	$	90,538		88	%
Geography: Europe
Legal Entity
Majesco UK Limited, UK	$	2,653		3	%	$	4,924		5	%
Exaxe Limited		3,399		3	%		1,726		2	%
		6,052		6	%		6,650		7	%
Geography: Other
Legal Entity
Majesco Sdn. Bhd., Malaysia	$	3,772		4	%	$	4,461		4	%
Majesco Asia Pacific Pte Ltd., Singapore		338		—	%		916		1	%
Majesco Software and Solutions India Private Limited, India		1,598		1	%		1,552		1	%
	$	5,708		5	%	$	6,929		5	%
Total Revenues	$	108,534				$	104,117

(1)

Cover-All Systems, Inc. was merged into Majesco Software and Solutions Inc. on January 1. 2019.

Revenues

Revenues for the three months ended December 31, 2019 were $37,175 compared to $35,820 for the three months ended December 31, 2018, reflecting an increase of 3.8%. The increase during the quarter was primarily on account of an increase in subscription revenues with projects going live and new business additions in P&C.

Revenues for the nine months ended December 31, 2019 were $108,534 compared to $104,117 for the nine months ended December 31, 2018, reflecting an increase of 4.2%. The increase during the nine months ended December 31, 2019 was on account of the growth in the North America business, with significant increase in product revenues, and due to the additional two quarter of revenues from the acquisition of Exaxe.

Gross Profit

Gross profit was $17,852 for the three months ended December 31, 2019 compared with $17,527 for the three months ended December 31, 2018. Gross profit percentage for the three months ended December 31, 2019 decreased to 48.0% of revenue from 49.0% of revenue for the three months ended December 31, 2018 mainly on account of the inflationary impact to the business and investments being made to scale the business.

Gross profit was $53,404 for the nine months ended December 31, 2019 compared with $50,777 for the nine months ended December 31, 2018, representing an increase of 5.1%. The increase in margin has been primarily due to a better margin revenue mix. Gross profit percentage for the nine months ended December 31, 2019 increased to 49.2% of revenue from 48.8% of revenue for the nine months ended December 31, 2018.

Salaries and consultant fees were approximately $13,165 for the three months ended December 31, 2019 compared to $13,562 for the three months ended December 31, 2018. This represents a decrease of 3.0% in salaries and consultant fees due to a reduction in headcount. As a percentage of revenues, salaries and consultant fees decreased from 38.4% for the three months ended December 31, 2018 to 35.4% for the three months ended December 31, 2019.

Salaries and consultant fees were approximately $40,097 for the nine months ended December 31, 2019 compared to $38,816 for the nine months ended December 31, 2018. This represents an increase of 3.8% in salaries and consultant fees. As a percentage of revenues, salaries and consultant fees decreased from 37.5% for the nine months ended December 31, 2018 to 36.9% for the nine months ended December 31, 2019.

Operating Expenses

Operating expenses were $14,739 for the three months ended December 31, 2019 compared to $15,153 for the three months ended December 31, 2018. The decrease in operating expenses was primarily due to a decrease in R&D costs of $138 and a decrease in selling, general and administrative expenses of $376. The company continued to invest in R&D based on the product roadmap. The continued investment is maturing our products to being sold more as out of the box products. The decrease in selling, general and administrative expenses was primarily on account of significant marketing and branding activities that were undertaken in the previous year and a reduction in amortization of equity incentives costs. As a percentage of revenues, operating expenses decreased to 39.6% for the three months ended December 31, 2019 from 42.3% for the three months ended December 31, 2018.

Operating expenses were $46,368 for the nine months ended December 31, 2019 compared to $43,865 for the nine months ended December 31, 2018. The increase in operating expenses was primarily due to an increase in R&D costs of $258 and an increase in selling, general and administrative expenses of $2,245. The increase in selling and general expenses was driven by the inclusion of the Exaxe business, one-time expenses related to our customer conference, and the year to date impact of the new management roles and bandwidth created in the company. As a percentage of revenues, operating expenses increased to 42.7% for the nine months ended December 31, 2019 from 42.1% for the nine months ended December 31, 2018.

Income from Operations

Income from operations was $3,113 for the three months ended December 31, 2019 compared to $2,374 for the three months ended December 31, 2018. As a percentage of revenues, net income from operations was 8.4% for the three months ended December 31, 2019 compared to a net gain of 6.6% for the three months ended December 31, 2018. Income from operations was higher primarily due to an increase in revenue together with a change in revenue mix with high margin product revenues increasing.

Income from operations was $7,036 for the nine months ended December 31, 2019 compared to $6,912 for the nine months ended December 31, 2018. As a percentage of revenues, net income from operations was 6.5% for the nine months ended December 31, 2019 compared to a net gain of 6.6% for the nine months ended December 31, 2018

Other Income

Other income (expense), net was $138 for the three months ended December 31, 2019 compared to $(57) for the three months ended December 31, 2018. The increase is mainly due to an increase in currency exchange gain during the three months ended December 31, 2019.

Other income (expense), net was $578 for the nine months ended December 31, 2019 compared to $553 for the nine months ended December 31, 2018.

Tax provision

We recognized an income tax provision of $797 and $3,130 for the three and nine months ended December 31, 2019, respectively, and recognized an income tax provision of $483 and $2,543 for the three and nine months ended December 31, 2018, respectively.

Net income

Net income was $3,875 for the three months ended December 31, 2019 compared to net income of $1,727 for the three months ended December 31, 2018. Net income per share, basic and diluted, was $0.09 and $0.09, respectively, for the three months ended December 31, 2019 compared to net income per share, basic and diluted, of $0.05 and $0.04, respectively, for the three months ended December 31, 2018.

Net income was $6,065 for the nine months ended December 31, 2019 compared to net income of $5,447 for the nine months ended December 31, 2018. Net income per share, basic and diluted, was $0.14 and $0.14, respectively, for the nine months ended December 31, 2019 compared to net income per share, basic and diluted, of $0.15 and $0.14, respectively, for the nine months ended December 31, 2018.

Adjusted EBITDA

Adjusted EBITDA, a non-GAAP metric, was $4,985 for the three months ended December 31, 2019 compared to $4,830 for the three months ended December 31, 2018. Adjusted EBITDA, a non-GAAP metric, was $12,849 for the nine months ended December 31, 2019 compared to $12,607 for the nine months ended December 31, 2018.

The following is an unaudited reconciliation of U.S. GAAP net income to EBITDA and Adjusted EBITDA for the three and nine months ended December 31, 2019 and the three and nine months ended December 31, 2018:

	Unaudited
	Three Months ended
(U.S. dollars, in thousands):	December 31, 2019			December 31, 2018
Net Income	$	3,875		$	1,727
Add:
Provision for income taxes		797			483
Depreciation and amortization		1,200			1,201
Interest expense		79			113
Less:
Interest income		(141	)		(7	)
Other income (expenses), net		(138	)		57
EBITDA	$	5,672		$	3,574
Add:
Stock-based compensation		672			814
Merger and acquisition expenses		—			442
Less:
Reversal of accrual for contingent consideration liability		(1,359	)
Adjusted EBITDA		4,985			4,830
Revenue		37,175			35,820
Adjusted EBITDA as a % of Revenue		13.41	%		13.48	%

	Unaudited
	Nine Months ended
(U.S. dollars, in thousands):	December 31, 2019			December 31, 2018
Net Income	$	6,065		$	5,447
Add:
Provision for income taxes		3,130			2,543
Depreciation and amortization		3,643			3,075
Interest expense		269			342
Less:
Interest income		(491	)		(32	)
Other income (expenses), net		(578	)		(553	)
EBITDA	$	12,038		$	10,822
Add:
Stock-based compensation		2,170			2,178
Merger and acquisition expenses		—			442
Less:
Reversal of accrual for contingent consideration liability		(1,359	)		(835	)
Adjusted EBITDA		12,849			12,607
Revenue		108,534			104,117
Adjusted EBITDA as a % of Revenue		11.84	%		12.11	%

Liquidity and Capital Resources

Our cash, cash equivalents and restricted cash and short term investments position was $45,580 at December 31, 2019 and $14,527 at December 31, 2018.

Net cash provided by operating activities was $9,766 for the nine months ended December 31, 2019 and $12,755 for the nine months ended December 31, 2018. We had accounts receivable of $26,259 at December 31, 2019 and $17,366 at March 31, 2019. Days outstanding increased to 101 days at the end of December 31, 2019 as compared to 85 days at the end of March 31, 2019.

Net cash used in investing activities amounted to $(2,272) for the nine months ended December 31, 2019 compared to $(10,795) for the nine months ended December 31, 2018 primarily due to the payment of the purchase price for the acquisition of the India business from Majesco Limited, investments in short term investment, and purchases of property, equipment and intangible assets during the nine months ended December 31, 2019.

Sale / (purchase) of investments in mutual funds, acquisition of business and certificate of deposits (net) was $(2,548) for the nine months ended December 31, 2019 and $(3,299) for the nine months ended December 31, 2018. Restricted cash was $42 at December 31, 2019 and $50 at December 31, 2018.

Net cash provided by / (used in) financing activities was $921 for the nine months ended December 31, 2019 compared to $(99) for the nine months ended December 31, 2018 mainly due to the proceeds from shares issued under the Majesco Employee Stock Purchase Plan.

On February 25, 2019, we completed a rights offering pursuant to which we received approximately $43,477 in gross proceeds from the sale of 6,123,463 shares of our common stock to shareholders who exercised their subscription rights (including both basic and over-subscriptions) in the rights offering. We used a portion of the proceeds from our rights offering to purchase the remaining 10% of the share capital of Exaxe and to repay $5,000, which constituted the total amount outstanding under our loan agreement with HSBC Bank USA, National Association, and terminated this facility. We expect to use the remaining proceeds from the rights offering to fund future acquisitions and for general corporate purposes, including to fund any earn-out payments under the Exaxe acquisition.

We believe that our cash flows from operations and available borrowings are sufficient to meet our liquidity requirements for the next twelve months, including capital expenditures.

Financing Arrangements

MSSIPL Facilities

On May 9, 2017, our subsidiary, Majesco Software and Solutions India Pvt. Ltd. (“MSSIPL”), and Standard Chartered Bank entered into an Export Invoice Financing Facility, Working Capital Overdraft Facility, Short Term Loans Facility, Bonds and Guarantees Facility and Pre Shipment Financing Under Export Orders Facility (the “Combined Facility”) pursuant to which Standard Chartered Bank agreed to a Combined Facility of up to 200 million Indian rupees (or approximately $2,801 at exchange rates in effect on December 31, 2019). The Export Invoice Financing Facility is for the financing of MSSIPL’s sale of services, as evidenced by MSSIPL’s invoice to the customer. Each amount drawn is required to be repaid within 90 days. The interest on this facility is based on the marginal cost of funds based lending rate (the “MCLR”) plus a margin to be agreed with Standard Chartered Bank at the time of each drawdown. The MCLR is to be determined on the date of each disbursement and is effective until repayment. Interest will accrue from the utilization date to the date of repayment or payment of that utilization. The Working Capital Overdraft Facility and the Short Term Loans Facility are for working capital purposes and subject to sub-limits. The interest on these facilities is based on the MCLR plus a margin to be agreed with Standard Chartered Bank at the time of each borrowing. The MCLR is to be determined on the date of each disbursement and is effective until repayment or maturity. Interest will accrue from the draw down date up to the repayment or maturity date. The Bonds and Guarantees Facility is for the issuance of guarantees and subject to commissions as agreed with Standard Chartered Bank from time to time. The Pre Shipment Financing Under Export Orders Facility is for the purchase of raw material, processing, packing, transportation, warehousing and other expenses and overheads incurred by MSSIPL to ready goods for sale. The interest on this facility is based on the MCLR plus a margin to be agreed with Standard Chartered Bank at the time of each borrowing. The MCLR is to be determined on the date of utilization and is effective until repayment. Interest will accrue from the utilization date up to the repayment date.

The interest under the Combined Facility may be changed by Standard Chartered Bank upon the occurrence of certain market disruption events. The Combined Facility is secured by a first pari passu security interest over the current assets of MSSIPL. MSSIPL was in compliance under the terms of this Combined Facility as of December 31, 2019. There were no outstanding loans under this Combined Facility as of December 31, 2019.

Term Loan Facility

On March 23, 2016, we entered into a Loan Agreement (the “Loan Agreement”) with HSBC Bank USA, National Association (“HSBC”) pursuant to which HSBC agreed to extend loans to us in the amount of up to $10,000 and we issued a promissory note to HSBC in the maximum principal amount of $10,000 or any lesser amount borrowed under the Loan Agreement (the “Note”, and together with the “Loan Agreement”, the “Facility”). The outstanding principal balance of the loan bore interest based on LIBOR plus a margin in effect on the first day of the relevant interest period. Until January 1, 2018, only interest was payable under the loan. Commencing on January 1, 2018, and on each January 1 and July 1 thereafter until July 1, 2020, installments of principal in the amount of $1,667 were due and payable semi-annually. All principal and interest outstanding under the Note was due and payable on March 1, 2021. The Facility was unsecured and supported by a letter of credit issued by a bank of $10,000, which was secured by a cash pledge of our parent company, Majesco Limited. On February 27, 2019, we used a portion of the proceeds from our rights offering to repay the total amount outstanding under the Loan Agreement with HSBC and terminated this facility.

Receivable Purchase Facility

On January 13, 2017, Majesco and its subsidiaries, Majesco Software and Solutions Inc. (“MSSI”) and Cover-All Systems, jointly entered into a Receivable Purchase Agreement with HSBC (the “Receivable Purchase Agreement”) pursuant to which HSBC may advance funds against receivables at an agreed advance rate. The outstanding aggregate amount of all advances may not exceed a $10,000 facility limit. The facility bears interest at 2% plus the 90 day LIBOR rate. HSBC will also receive an arrangement fee equal to 0.20% of the facility limit and a facility review fee equal to 0.20% of the facility limit. Majesco serves as HSBC’s agent for the collection of receivables, and Majesco collects and otherwise enforces payment of the receivables. HSBC has a security interest in accounts of MSSI and Cover-All Systems. The term of the Receivable Purchase Agreement is for a minimum period of 12 months and shall continue unless terminated by either party. Either party may terminate the Receivable Purchase Agreement at any time upon 60 days’ prior written notice to the other party. The Receivable Purchase Agreement will provide additional liquidity to us for working capital and other general corporate purposes.

On November 29, 2018, we amended the Receivable Purchase Agreement to increase its limit to $15,000 until March 29, 2019, and $10,000 thereafter. HSBC received an arrangement fee of $10 in connection with this amendment. The amendment will provide additional liquidity to Majesco for mergers and acquisitions and other general corporate purposes. There are no outstanding loans under this facility as of December 31, 2019. We used proceeds from this facility to repay existing indebtedness and for capital expenditures, working capital and other general corporate purposes.

Exaxe Facilities

On July 17, 2019, Majesco’s subsidiary Exaxe Limited, and HSBC France, Dublin Branch (“HSBC France”), entered into a € 400 (or approximately $448 at exchange rates in effect on December 31, 2019) overdraft facility (the “HSBC France Facility”). The HSBC France Facility is for working capital purposes. The HSBC France Facility is subject to review from time to time and in any event a review shall occur in May 2020. Exaxe may terminate the HSBC France Facility at any time without penalty. Interest under the HSBC France Facility is payable at the rate of 3.5% per annum over the prevailing European Central Bank Rate on amounts up to € 400 and 7% per annum over such rate on amounts over € 400. The HSBC France Facility is secured by a fixed and floating charge over certain assets of Exaxe. Exaxe agreed to certain negative covenants under the HSBC France Facility, including not to create or allow any mortgage or security over its assets or revenues. As of December 31, 2019, there are no outstanding balances under this HSBC France Facility.

Vehicle loans

Dividends and Redemption

We have not paid any dividends since we became a stand-alone public company in 2015. It has otherwise been our policy to invest earnings in growth rather than distribute earnings as common stock dividends. This policy is expected to continue but is subject to regular review by our Board of Directors.

Contractual Obligations

In the normal course of our business, we are party to a variety of contractual obligations as summarized in our Annual Report. These contractual obligations are considered by us when assessing our liquidity requirements. There have been no material changes to our contractual obligations as disclosed in the Annual Report, other than those which occur in the ordinary course of business. We had borrowed $0 under the Combined Facility, $0 under our receivable purchase facility and $52 under our auto loans at December 31, 2019, compared to $0, $415 and $137, respectively, as of March 31, 2019.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

Emerging growth company

We are an “emerging growth company” and a “smaller reporting company” under the federal securities laws and are subject to reduced public company reporting requirements. In addition, Section 107 of the Jumpstart Our Business Startups Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have taken advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. We are exposed to market risk primarily due to fluctuations in foreign currency exchange rates and interest rates, each as described more fully below. We do not hold or issue derivative financial instruments for trading or speculative purposes.

Interest Rate Sensitivity

Our exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents and investments. We do not use derivative financial instruments to hedge our interest rate exposure. Our cash and cash equivalents and short term investments as of December 31, 2019 were $19,996 and $25,542, respectively.

We invest primarily in highly liquid, money market funds and bank fixed deposits. Because of the short-term nature of the majority of the interest-bearing securities we hold, we believe that a 10% fluctuation in the interest rates applicable to our cash and cash equivalents and investments would not have a material effect on our financial condition or results of operations.

The rate of interest on our Combined Facility, our receivable purchase facility and our auto loans which were in effect as of December 31, 2019, are variable and are based on LIBOR plus a fixed margin. As of December 31, 2019, we had $0 and $0 in borrowings outstanding under our receivable purchase facility with HSBC and our Combined Facility, respectively. As of December 31, 2019, we had borrowed $52 under our auto loans. We believe that a 10% fluctuation in the interest rates applicable to our borrowings would not have a material effect on our financial condition or results of operations.

Foreign Currency Exchange Risk

Our reporting currency is the U.S. dollar. However, payments to us by customers outside the U.S. are generally made in the local currency. Accordingly, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, Canadian dollar, Indian rupee, British pound, Malaysian ringgit, Singapore dollar, Irish pound and Mexican peso. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy.

We generated approximately 10% and 11% of our gross revenues outside of the United States for the three months ended December 31, 2019 and 2018, respectively, compared to 11% and 11% for the nine months ended December 31, 2019 and 2018, respectively. The effect of foreign exchange rate changes on cash and cash equivalents resulted in a gain/(loss) of $240 and $115 for the three months ended December 31, 2019 and December 31, 2018, respectively, compared to gain of $251 and $172 for the nine months ended December 31, 2019 and December 31, 2018, respectively. For the three months ended December 31, 2019 and December 31, 2018, we had a foreign exchange gain/(loss) of approximately $523 and $346, respectively, compared to a foreign exchange gain/(loss) of $(376) and $(892) for the nine months ended December 31, 2019 and December 31, 2018, respectively.

The aggregate contracted USD notional amounts of the Group’s foreign exchange forward contracts outstanding amounted to $41,300 and $31,100 as of December 31, 2019 and March 31, 2019, respectively. The aggregate contracted Great Britain Pound (“GBP”) notional amounts of the Group’s foreign exchange forward contracts outstanding amounted to GBP 0 and GBP 0 as of December 31, 2019 and March 31, 2019, respectively. The outstanding forward contracts as of December 31, 2019 mature between one month and 37 months. As of December 31, 2019, we estimate that $47, net of tax, of the net (loss)/gains related to derivatives designated as cash flow hedges recorded in accumulated other comprehensive income (loss) is expected to be reclassified into earnings within the next 37 months. The outstanding foreign exchange forward contracts in U.S. dollars as of December 31, 2019 are designated as in hedge relationship and there will be no impact on our statements of income due to a strengthening or weakening of 10% in the foreign exchange rates.

The fair value of derivative financial instruments is determined based on observable market inputs and valuation models. The derivative financial instruments are valued based on valuations received from the relevant counterparty (i.e., bank). The fair value of the foreign exchange forward contract and foreign exchange par forward contract has been determined as the difference between the forward rate on reporting date and the forward rate on the original transaction, multiplied by the transaction’s notional amount (with currency matching). The following table provides information of fair values of derivative financial instruments:

	Assets				Liability
	Noncurrent*		Current*		Noncurrent*		Current*
As of December 31, 2019
Designated as hedging instruments under Cash Flow Hedges
Foreign exchange forward contracts	$	155	$	470	$	101	$	72
Total	$	155	$	470	$	101	$	72

The noncurrent and current portions of derivative assets are included in ‘Other Assets’ and ‘Prepaid Expenses and Other Current Assets,’ respectively, and the noncurrent and current portions of derivative liabilities are included in ‘Other Liabilities’ and ‘Accrued Expenses and Other Liabilities,’ respectively in the Consolidated Balance Sheet.

For more information on foreign currency translation adjustments and cash flow hedges and other derivative financial instruments, see Notes 6 and 7 to our consolidated financial statements for the three and nine months ended December 31, 2019.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2019. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of December 31, 2019, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weakness in internal control over financial reporting related to the preparation of the income tax provision described below.

Material Weakness in Internal Control Over Financial Reporting

In connection with management’s assessment of internal controls over financial reporting during the second quarter as part of the preparation of the Company’s income tax returns, we identified a material weakness related to the application of certain provisions of the Internal Revenue Code. Management has put in place a remediation plan to address the material weakness which includes engaging a prominent accounting firm with global tax expertise to assist in the final preparation of the Company’s March 31, 2019 tax return due January 15, 2020 and its quarterly provisions. During the third quarter, the prominent accounting firm was engaged to address the identified material weakness and continue to provide additional tax support to the Company going forward. Management believes the remediation of the material weakness will be completed during the fourth quarter of the Company’s fiscal year ending March 31, 2020.

Changes in Internal Control over Financial Reporting

Other than the material weakness discussed above, there were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A.

Risk Factors.

Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report. Except as set forth below, there have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to accounting controls and procedures in the future, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting. If we fail to comply with the rules under the Sarbanes-Oxley Act related to disclosure controls and procedures in the future, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. In connection with the review of our internal control and accounting procedures for the quarter ended September 30, 2019, our management identified a material weakness related to ineffective internal control over financial reporting related to the preparation of our income tax provision in accordance with the provisions of the Internal Revenue Code. During the quarter ended December 31, 2019, management has already put in place remediation plans to address the material weakness, including engaging a prominent accounting firm to assist in the final preparation of the Company’s March 31, 2019 tax return. Although management expects that the remediation of the material weakness will be completed during the fourth quarter of the Company’s fiscal year ending March 31, 2020, no assurances can be given that the material weakness will be timely resolved within the fourth quarter. In addition, if additional material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.

Item 6.

Exhibits.

Exhibit No.		Description
31.1*		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MAJESCO

Date: February 10, 2020	By:	/s/ Adam Elster
		Adam Elster, Chief Executive Officer (Principal Executive Officer)

Date: February 10, 2020	By:	/s/ Wayne Locke
		Wayne Locke, Chief Financial Officer (Principal Financial and Accounting Officer)

Majesco - FORM 10-Q - February 10, 2020

Attached files

Majesco Reports