Notes to Consolidated Financial Statements
(Unaudited)
(All amounts are in thousands of US Dollars except per share data and as stated otherwise)
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1.
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DESCRIPTION OF BUSINESS
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Majesco is a global provider of core insurance
software, consulting services and other insurance technology solutions for business transformation for the insurance industry.
We offer core insurance software solutions for property and casualty/general insurance (“P&C”), life and annuity
(“L&A”) and pensions group/employee benefits providers, allowing them to manage policy administration, claims management
and billing functions. In addition, we offer a variety of other technology-based solutions that are designed to enable organizations
to automate and innovate business processes across the end-to-end insurance value chain and comply with policies and regulations
across their organizations. Our solutions enable customers to respond to evolving market needs and regulatory changes, while improving
the efficiency of their core operations, thereby increasing revenues and reducing costs.
Majesco’s customers are insurers,
managing general agents and other risk providers from the P&C, L&A and group insurance segments worldwide. Other risk providers
s are self insurers or reinsurers.
Majesco was previously 100% owned (directly
or indirectly) by Mastek Ltd., a publicly traded limited company domiciled in India whose equity shares are listed on the Bombay
Stock Exchange and the National Stock Exchange (India). Mastek Ltd. underwent a demerger through a scheme of arrangement under
India’s Companies Act, 1956, pursuant to which its insurance related business was separated from Mastek Ltd.’s non-insurance
related business and the insurance related operations of Mastek Ltd. that were not previously directly owned by Majesco were contributed
to Majesco (the “Reorganization”). The Reorganization was completed on June 1, 2015.
Majesco, along with its subsidiaries, operates
in the United States, Canada, Mexico, the United Kingdom, Malaysia, Singapore, Thailand and India (hereinafter referred to as the
“Group”).
Merger with Cover-All Technologies Inc.
On June 26, 2015, Cover-All Technologies
Inc. (“Cover-All”), an insurance software company listed on the NYSE American (then, NYSE MKT), merged with and into
Majesco in a 100% stock-for-stock merger, with Majesco surviving the merger.
In connection with the merger, Majesco’s
common stock was listed on the NYSE American (then, NYSE MKT) and began trading on the NYSE American (then, NYSE MKT) on June 29,
2015. Pursuant to the merger, Cover-All’s stockholders and holders of its options and restricted stock units received equity
or equity interests in Majesco representing approximately 16.5% of the total capitalization of the combined company in the merger.
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2.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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The accompanying unaudited consolidated
financial statements were prepared in accordance with accounting principles generally accepted in the United States of America,
or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X.
The March 31, 2017 consolidated balance sheet was derived from our audited consolidated financial statements included in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2017 filed with the SEC on June 16, 2017 (the “Annual Report”),
but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments except as otherwise noted, considered necessary for a fair statement of results of operations and financial
position have been included. The results for the interim periods presented are not necessarily indicative of the results expected
for any future period. The following information should be read in conjunction with the audited financial statements and notes
thereto included in our Annual Report.
Mastek Ltd. maintained benefit and stock-based
compensation programs at the parent company level. After the demerger from Mastek Ltd., which became effective on June 1, 2015,
the Group employees who participated in those programs were allotted options of Majesco’s parent company, Majesco Limited,
in the same proportion in addition to the existing options of Mastek Ltd., which these employees already had. The consolidated
balance sheets do not include any outstanding equity related to the stock-based compensation programs of Mastek Ltd., but include
outstanding equity related to the equity-based compensation programs of Majesco Limited.
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b.
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Significant Accounting Policies
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For a description of all significant accounting
policies, see Note 2, Summary of Significant Accounting Policies, of the Notes to the consolidated financial statements included
in our Annual Report. There have been no material changes to our significant accounting policies since the filing of the Annual
Report.
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c.
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Principles of Consolidation
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The Group’s consolidated financial
statements include the accounts of Majesco and its wholly owned subsidiaries, Cover-All Systems, Inc., Majesco Canada Ltd., Majesco
Software and Solutions Inc. (“MSSI”), Majesco Sdn. Bhd., Majesco UK Limited, Majesco (Thailand) Co., Ltd., Majesco
Software and Solutions India Private Limited and Majesco Asia Pacific Pte Ltd. as of December 31, 2017. All material intercompany
balances and transactions have been eliminated in consolidation.
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an on-going basis, we
evaluate our estimates, including those related to revenue recognition, cash equivalents and marketable securities, accounts receivable,
income taxes, goodwill, and stock-based compensation.
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3.
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RECENT ACCOUNTING PRONOUNCEMENTS
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Recent Accounting and Auditing Development
Improvements on Employee Share-Based Payment Accounting
In March 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, “Improvements
on Employee Share-Based Payment Accounting (Topic 718)” (“ASU 2016-09”), which simplifies several aspects of
the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for
income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.
The new standard is effective for annual periods beginning after December 15, 2016 and interim periods within those years.
The standard became effective for the Company on April 1, 2017. The adoption of this update did not have a material impact
on the Company’s consolidated financial statements.
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU No.
2014-09, “Revenue from Contracts with Customers (Topic 606)”, which provides guidance for revenue recognition. This
ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts
for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition,
and most industry-specific guidance.
In August 2015, the FASB issued ASU
No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, deferring the effective
date of this standard. As a result, the ASU and related amendments will be effective for the Company for its fiscal year beginning
April 1, 2018, including interim periods within that fiscal year.
Subsequently, the FASB issued ASU No. 2016-08,
“Principal Versus Agent Consideration (or Reporting Revenue Gross versus Net)” in March 2016, ASU No. 2016-10,
Identifying Performance Obligations and Licensing in April 2016, and ASU No. 2016-12, Narrow-Scope Improvements and Practical
Expedients in May 2016. These amendments clarified certain aspects of Topic 606 and will also be effective for the Company
for its fiscal year beginning April 1, 2018.
The core principle of Topic 606 is to recognize
revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected
to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in doing
so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing
GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include
in the transaction price and allocating the transaction price to each separate performance obligation, among others. Topic 606
also provides guidance on the recognition of costs related to obtaining customer contracts.
Preliminarily, the Company plans to adopt
these ASUs (collectively, Topic 606) on April 1, 2018. Topic 606 permits two methods of adoption: retrospectively to each
prior reporting period presented (the “Full Retrospective Method”), or retrospectively with the cumulative effect of
initially applying the guidance recognized at the date of initial application (the “Modified Retrospective Method”).
The Company currently intends to apply the Modified Retrospective Method. Although the Company does not expect a material impact
on revenues upon adoption, we expect that the new standard will expand disclosure, specifically around the quantitative and qualitative
information about the Company’s underlying performance obligations.
Business Combinations (Topic 805): Clarifying the Definition
of a Business
In January 2017, the FASB issued ASU
2017-01, “Business Combinations (Topic 805)”: Clarifying the Definition of a Business, which provides a more robust
framework to use in determining when a set of assets and activities is a business. The standard will be effective for the Company
beginning April 1, 2018. 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.
Statement of Cash Flows (Topic 230): Restricted Cash
In November 2016, the FASB issued ASU
2016-18,” Statement of Cash Flows (Topic 230)”: Restricted Cash, which requires the statement of cash flows to report
changes in cash, cash equivalents, and restricted cash. The standard will be effective for the Company beginning August 1,
2018. 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.
Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU
2016-15, “Statement of Cash Flows (Topic 230)”: Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15),
which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The
standard will be effective for the Company beginning April 1, 2018. Based on its current assessment, the Company does not
expect the adoption of this update to have a material impact on its consolidated financial statements.
Income Tax Consequences of an Intra-Entity Transfer of Assets
Other Than Inventory (Topic 740)
In October 2016, the FASB issued ASU
2016-16, “Income Taxes — Intra-Entity Transfers of Assets Other Than Inventory (Topic 740)”, which
requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the
transfer occurs. The new standard must be adopted using a modified retrospective transition method which is a cumulative-effective
adjustment to retained earnings as of the beginning of the first effective reporting period. The standard will be effective for
the Company beginning April 1, 2018. 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.
Accounting for Leases (Topic 842)
In February 2016, the FASB issued ASU
No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on their balance
sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a
lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use
the underlying asset for the lease term. The standard will be effective for the Company beginning April 1, 2019. Based on
its current assessment, the Company does not expect the adoption of this update to have a material impact on its consolidated financial
statements.
Simplifying the Test for Goodwill Impairment (Topic 350)
In January 2017, the FASB issued Accounting
Standards Update No. 2017-04, “Intangibles — Goodwill and Other (Topic 350)”: Simplifying the Test
for Goodwill Impairment, which removes the requirement for an entity to calculate the implied fair value of goodwill (as part of
step 2 of the current goodwill impairment test) in measuring a goodwill impairment loss. The standard will be effective for the
Company beginning April 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on
testing dates after January 1, 2017. Based on its current assessment, the Company does not expect the adoption of this update
to have a material impact on its consolidated financial statements.
Emerging Growth Company
The Group is an “emerging growth company”
under the federal securities laws and is subject to reduced public company reporting requirements. Section 107 of the JOBS Act
also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), 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. The Group has 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 fully with public company accounting standards’ effective dates.
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4.
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FAIR VALUE OF FINANCIAL INSTRUMENTS
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The Group’s financial instruments
consist primarily of cash and cash equivalents, short term investments in time deposits, restricted cash, derivative financial
instruments, accounts receivable, unbilled accounts receivable, accounts payable, contingent consideration liability and accrued
liabilities. The carrying amounts of cash and cash equivalents, short term investments in time deposits, restricted cash, accounts
receivable, unbilled accounts receivable, accounts payable and accrued liabilities as of the reporting date approximate their fair
market value due to the relatively short period of time of original maturity tenure of these instruments.
Basis of Fair Value Measurement
Fair value is defined as the exchange price
that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The current
accounting guidance for fair value measurements defines a three-level valuation hierarchy for disclosures as follows:
Level 1:
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Unadjusted quoted prices in active markets for identical assets or liabilities.
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Level 2:
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Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
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Level 3:
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Unobservable inputs that are supported by little or no market activity, which require the Group to develop its own assumptions.
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The following table sets forth the financial assets,
measured at fair value, by level within the fair value hierarchy as of December 31, 2017 and March 31, 2017:
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As of
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December 31, 2017
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March 31, 2017
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Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Level 2
|
|
|
|
|
|
|
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Derivative financial instruments (included in the following line items in the Consolidated Balance Sheets)
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|
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|
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Prepaid expenses and other current assets
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$
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375
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$
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99
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Other assets
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$
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126
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|
|
|
-
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Other liabilities
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|
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(12
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)
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|
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(10
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)
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Accrued expenses and other liabilities
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|
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(27
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)
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|
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-
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|
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$
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462
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|
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$
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89
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Level 3
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|
|
|
|
|
|
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Contingent consideration
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|
|
|
|
|
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Other liabilities
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$
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-
|
|
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$
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-
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Accrued expenses and other liabilities
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|
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(813
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)
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|
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(756
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)
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|
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$
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(813
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)
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$
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(756
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)
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Total
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$
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(351
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)
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$
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(667
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)
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The following table presents the
change in level 3 instruments:
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As of and for the three months ended
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|
|
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December 31, 2017
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|
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December 31, 2016
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Opening balance
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$
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(793
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)
|
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$
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(670
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)
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Additions
|
|
|
-
|
|
|
|
-
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Total losses recognized in Statement of Operations
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|
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(20
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)
|
|
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(41
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)
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Settlements
|
|
|
-
|
|
|
|
-
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Closing balance
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$
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(813
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)
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$
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(711
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)
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|
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As of and for the nine months ended
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|
|
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December 31, 2017
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|
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December 31, 2016
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Opening balance
|
|
$
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(756
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)
|
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$
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(593
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)
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Additions
|
|
|
-
|
|
|
|
-
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Total losses recognized in Statement of Operations
|
|
|
(57
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)
|
|
|
(118
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)
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Settlements
|
|
|
-
|
|
|
|
-
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Closing balance
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|
$
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(813
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)
|
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$
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(711
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)
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Contingent consideration pertaining to the
acquisition of the consulting business of Agile Technologies, LLC, a New Jersey limited liability company (“Agile”),
as of December 31, 2015 has been classified under level 3 as the fair valuation of such contingent consideration has been
calculated using one or more of the significant inputs which are not based on observable market data. The fair value of the contingent
consideration was estimated using a discounted cash flow technique with significant inputs that are not observable in the market.
The significant inputs not supported by market activity included the Group’s probability assessments of expected future cash
flows related to its acquisition of the consulting business of Agile during the earn-out period, appropriately discounted considering
the uncertainties associated with the obligation, and calculated in accordance with the terms of the asset purchase agreement (the
“Agile Agreement”) dated December 12, 2014, as amended on January 26, 2016.
The total losses attributable to changes
in the estimated contingent consideration payable for the acquisition of the consulting business of Agile were $(20) and $(57)
for the three and nine months ended December 31, 2017, respectively, and $(163) for the fiscal year ended March 31, 2017.
The Group paid $1.1 million to Agile as earn-out consideration in the fiscal year ended March 31, 2017. The Group paid $1.5
million to Agile as earn-out consideration in the fiscal year ended March 31, 2016.
We use foreign currency forward contracts
and par forward contracts to hedge our risks associated with foreign currency fluctuations related to certain commitments and forecasted
transactions. The use of hedging instruments is governed by our policies which are approved by our Board of Directors. We designate
these hedging instruments as cash flow hedges. Derivative financial instruments we enter into that are not designated as hedging
instruments in hedge relationships are classified as financial instruments at fair value in the statement of operations.
The fair value of derivative financial instruments
is determined based on observable market inputs and valuation models. The derivative financial instruments are valued based on
valuations received from the relevant counter-party (i.e., bank). The fair value of the foreign exchange forward contract and foreign
exchange par forward contract not valued by a bank has been determined as the difference between the forward rate on the reporting
date and the forward rate on the original transaction, multiplied by the transaction’s notional amount (with currency matching).
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5.
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CAPITAL LEASE OBLIGATIONS
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The Group leases a vehicle and furniture
under capital leases which are stated at the present value of the minimum lease payments. The gross stated amounts for such capital
leases are nil and $101 and related accumulated depreciation recorded under capital leases is nil and $42, respectively, as of
December 31, 2017 and March 31, 2017. At the termination of the leases, the Group has an option to receive title to the assets
at no cost or for a nominal payment.
Depreciation expenses in respect of assets
held under capital leases were $5 and $5 for the three and nine months ended December 31, 2017 compared to $6 and $20 for the three
and nine months ended December 31, 2016, respectively.
There are no future minimum lease payments
under capital leases as of December 31, 2017.
The Group acquired software under
a hire purchase arrangement which is stated at the present value of the minimum instalment payments. The gross stated amount for
such software is $431 and $459 and related accumulated depreciation is $86 and $23, respectively, as of December 31, 2017 and March
31, 2017.
Depreciation expenses in respect of assets
held under hire purchase were $22 and $65 for the three and nine months ended December 31, 2017, compared to $6 and $20 for the
three and nine months December 31, 2016, respectively.
The following is a schedule of the future
minimum installment payments under hire purchase, together with the present value of the net minimum installment payments as of
December 31, 2017.
Period ended December 31,
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Amount
|
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2018
|
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$
|
139
|
|
2019
|
|
|
139
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Total minimum installment payments of hire purchase
|
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$
|
278
|
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Less: Interest portion
|
|
|
9
|
|
Present value of net minimum installments of hire purchase
|
|
$
|
269
|
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Line of Credit
On March 25, 2011, the Group entered
into a secured revolving working capital line of credit facility (the “Credit Facility”) with ICICI Bank Limited (“ICICI”)
under which the maximum borrowing limit was $5,000. The interest rate on the Credit Facility at March 31, 2016 was the three-month
LIBOR plus 350 basis points and increased to the three-month LIBOR plus 375 basis points with the second extension of this facility
described below. The Credit Facility was guaranteed by Mastek Ltd., subject to the terms and conditions set forth in the guarantee.
The Credit Facility initially matured on November 11, 2015. On November 20, 2015, the Group extended this line of credit
to February 11, 2016. The facility was further extended to May 9, 2016 and again extended to May 15, 2017. Majesco
paid a processing fee of $12.50 in connection with the second extension and a processing fee of $50.83 in connection with
the third extension. In connection with these extensions of the Majesco line of credit, Mastek Ltd. also extended its guarantee
of such line of credit. Majesco has agreed to pay a fee and indemnify Mastek Ltd. against any payments made by Mastek Ltd. in connection
with this guarantee. On January 20, 2017, the Group paid in full the balance under this facility with proceeds from a new
$10,000 receivables purchase facility with HSBC Bank USA, National Association (“HSBC”) described below, and this facility
was terminated. On repayment of this facility, the guarantee by Mastek Ltd. of this facility was also terminated and the Group’s
liability to Mastek Ltd. regarding this guarantee also ceased to exist. The interest rate on the Credit Facility was 4.75% at January
20, 2017.
This facility was secured by a continuing
first priority lien on and security interest in, among other things, all of Majesco’s personal property and assets (both
tangible and intangible), including accounts receivable, cash, certificated and uncertificated securities and proceeds of any insurance
or indemnity payable to the Group with respect to the collateral. This facility contained financial covenants, as well as restrictions
on, among other things, the ability of the Group to incur debt or liens; make loans and investments; enter into mergers, acquisitions
and other business combinations; engage in asset sales; or amend its governing documents. This facility also restricted the Group
from paying dividends upon and during the continuation of an event of default.
MSSIPL Facilities
On June 30, 2015, the Group’s
subsidiary, Majesco Software and Solutions India Pvt. Ltd. (“MSSIPL”), entered into a secured Pre Shipment in Foreign
Currency and Post Shipment in Foreign Currency (“PCFC”) facility with Yes Bank under which MSSIPL may request 3 months
pre-export advances and advances against export collection bills. The maximum borrowing limit was initially 300 million Indian
rupees. The interest rate on this PCFC facility was initially USD 3 months LIBOR plus 275 basis points. The interest rate on this
PCFC facility is determined at the time of each advance This PCFC facility is secured by a first pari passu charge over the current
assets of MSSIPL. Excess outstanding beyond 100 million Indian rupees is to be backed by 100% fixed deposit receipts in MSSIPL
or Majesco Limited. On September 27, 2016, MSSIPL extended this PCFC facility to June 17, 2017.
On September 13, 2017, MSSIPL entered into
an addendum facility letter (the “2017 Addendum”) to its addendum facility letter dated September 27, 2016 with respect
to the PCFC facility with Yes Bank dated June 30, 2015. The 2017 Addendum further extended the maturity date of the PCFC facility
to May 22, 2018 and reduced the maximum borrowing limit from 300 million Indian rupees to 130 million Indian rupees, or approximately
$2,036 based upon the exchange rate on December 31, 2017. There is no outstanding balance against this loan as of December 31,
2017.
In addition, the 2017 Addendum also amended
the interest rate of the PCFC facility to LIBOR plus 150 basis points plus 2%. The interest rate on the PCFC facility is determined
at the time of each advance.
As of December 31, 2017, the Group
was in compliance with the terms of this facility.
On May 9, 2017, MSSIPL and Standard Chartered
Bank entered into an Export Invoice Financing Facility, Working Capital Overdraft Facility, Short Term Loans Facility, Bonds and
Guarantees Facility and Pre Shipment Financing Under Export Orders Facility (the “Combined Facility”) pursuant to which
Standard Chartered Bank agreed to a Combined Facility of up to 200 million Indian rupees (or approximately $3,133 at exchange rates
in effect on December 31, 2017). The Export Invoice Financing Facility is for the financing of MSSIPL’s sale of goods, as
evidenced by MSSIPL’s invoice to the customer. Each amount drawn is required to be repaid within 90 days. The interest on
this facility is based on the marginal cost of funds based lending rate (“MCLR”) plus a margin to be agreed with Standard
Chartered Bank at the time of each drawdown. The MCLR is to be determined on the date of each disbursement and be effective until
repayment. Interest will accrue from the utilization date to the date of repayment or payment of that utilization. The Working
Capital Overdraft Facility and the Short Term Loans Facility are for working capital purposes and subject to sub-limits. The interest
on these facilities is based on the MCLR plus a margin to be agreed with Standard Chartered Bank at the time of each borrowing.
The MCLR is to be determined on the date of each disbursement and be effective until repayment or maturity. Interest will accrue
from the draw down date up to the repayment or maturity date. The Bonds and Guarantees Facility is for the issuance of guarantees
and subject to commissions as agreed with Standard Chartered Bank from time to time. The Pre Shipment Financing Under Export Orders
Facility is for the purchase of raw material, processing, packing, transportation, warehousing and other expenses and overheads
incurred by MSSIPL to ready goods for sale. The interest on this facility is based on the MCLR plus a margin to be agreed with
Standard Chartered Bank at the time of each borrowing. The MCLR is to be determined on the date of utilization and be effective
until repayment. Interest will accrue from the utilization date up to the repayment date.
The interest under the Combined Facility
may be changed by Standard Chartered Bank upon the occurrence of certain market disruption events. The Combined Facility is secured
by a first pari passu security interest over the current assets of MSSIPL. MSSIPL was in compliance under the terms of this Combined
Facility as of December 31, 2017.
The outstanding loan balance under this
Combined Facility as of December 31, 2017 is nil.
Term Loan Facility
On March 23,
2016, Majesco entered into a Loan Agreement (the “Loan Agreement”) with HSBC pursuant to which HSBC agreed to extend
loans to Majesco in the amount of up to $10,000 and Majesco issued a promissory note to HSBC in the maximum principal amount of $10,000
or any lesser amount borrowed under the Loan Agreement (the “Note”, and together with the “Loan Agreement”,
the “Facility”). The outstanding principal balance of the loan bears interest based on LIBOR plus a margin in effect
on the first day of the relevant interest period. Until January 1, 2018, only interest will be 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 shall be due and payable semi-annually. All principal and interest outstanding under the Note shall
be due and payable on March 1, 2021. The Facility is unsecured and supported by a letter of credit issued by a bank of $10,000,
which is secured by a cash pledge of the Group’s parent company, Majesco Limited. As of December 31, 2017, the Group
had $10,000 outstanding under this Facility.
As of December 31, 2017, the Group was in compliance with the terms of
this Facility.
The Facility contains affirmative covenants
that require Majesco to furnish financial statements to HSBC and cause Majesco Limited to maintain (1) a Net Debt-to-EBITDA Ratio
(as defined in the Loan Agreement) of not more than (a) 5.00 to 1.00 as of the last day of its 2017 fiscal year and (b) 2.50 to
1.00 as of the last day of each fiscal year thereafter, and (2) a Debt Service Coverage Ratio (as defined in the Loan Agreement)
of not less than 1.50 to 1.00 as of the last day of each fiscal year. The Facility contains restrictive covenants on Majesco, including
restrictions on declaring or paying dividends upon and during the continuation of an event of default, incurring additional indebtedness,
selling material portions of its assets or undertaking other substantial changes to the business, purchasing or holding securities
for investment, and extending credit to any person outside the ordinary course of business. The Facility also restricts any transfer
or change in, or assignment or pledge of the ownership or control of Majesco which would cause Majesco Limited to directly own
less than fifty one percent (51%) of the issued and outstanding equity interests in Majesco. The Facility also restricts Majesco
Limited from incurring any Net Debt (as defined in the Loan Agreement) in excess of $25,000 at any time prior to April 1,
2017. The Facility also contains customary events of default provision and indemnification provisions whereby Majesco will indemnify
HSBC against all losses or damages related to the Facility; provided, however, that Majesco shall not have any indemnification
obligations to HSBC for any claims caused by HSBC’s gross negligence or willful misconduct. Majesco used the loan proceeds
to repay existing indebtedness and for capital expenditures, working capital and other general corporate purposes.
Receivable Purchase Facility
On January 13, 2017, Majesco and its
subsidiaries Majesco Software and Solutions Inc. (“MSSI”), and Cover-All Systems, jointly and severally entered into
a Receivable Purchase Agreement with HSBC pursuant to which HSBC may advance funds against receivables at an agreed advance rate.
The outstanding aggregate amount of all advances may not exceed a $10,000 facility limit. The facility bears interest at two (2%)
per cent plus the ninety (90) day LIBOR rate. HSBC will also receive an arrangement fee equal to 0.20% of the facility limit and
a facility review fee equal to 0.20% of the facility limit. Majesco will serve as HSBC’s agent for the collection of receivables,
and Majesco will collect and otherwise enforce payment of the receivables. HSBC has a security interest in accounts of MSSI and
Cover-All Systems. The term of the Receivable Purchase Agreement is for a minimum period of twelve (12) months and shall continue
unless terminated by either party. Either party may terminate the Receivable Purchase Agreement at any time upon sixty (60) days’
prior written notice to the other party. The Receivable Purchase Agreement will provide additional liquidity to the Group for working
capital and other general corporate purposes. As of December 31, 2017, Majesco had $2,952 outstanding under this facility.
Majesco used proceeds from this facility to refinance the ICICI facility described above, to fund capital expenditures and for
working capital and other general corporate purposes.
|
7.
|
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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated as hedging instruments under Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
126
|
|
|
$
|
375
|
|
|
$
|
12
|
|
|
$
|
27
|
|
Total
|
|
$
|
126
|
|
|
$
|
375
|
|
|
$
|
12
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated as hedging instruments under Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
-
|
|
|
$
|
99
|
|
|
$
|
10
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
$
|
99
|
|
|
$
|
10
|
|
|
$
|
-
|
|
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.
Cash Flow Hedges and Other Derivatives
We use foreign currency forward contracts
and par forward contracts to hedge our risks associated with foreign currency fluctuations related to certain commitments and forecasted
transactions. The use of hedging instruments is governed by our policies which are approved by our Board of Directors. We designate
these hedging instruments as cash flow hedges. Derivative financial instruments we enter into that are not designated as hedging
instruments in hedge relationships are classified as financial instruments at fair value in the statement of operations.
The aggregate contracted USD principal amounts
of the Group’s foreign exchange forward contracts (sell) outstanding amounted to $17,950 and nil as of December 31, 2017
and March 31, 2017, respectively. The aggregate contracted Great Britain Pound (“GBP”) principal amounts of the Group’s
foreign exchange forward contracts (sell) outstanding amounted to GBP 1,485 and GBP 2,080 as of December 31, 2017 and March
31, 2017, respectively.
The outstanding forward contracts as of
December 31, 2017 mature between one month and 24 months. As of December 31, 2017, the Group estimates that $305, net of tax, of
the net gains related to derivatives designated as cash flow hedges recorded in accumulated other comprehensive income (loss) is
expected to be reclassified into earnings within the next 24 months.
The related cash flow impacts of all of
our derivative activities are reflected as cash flows from operating activities.
The following table provides information
on the amounts of pre-tax gains/(losses) recognized in and reclassified from Accumulated Other Comprehensive Income “AOCI”
of derivative instruments designated as cash flow hedges:
|
|
Amount of
Gain/(Loss)
recognized in
AOCI (effective
portion)
|
|
|
Amount of
Gain/(Loss)
reclassified
from AOCI to
Statement of
Operations
(Revenue)
|
|
For the nine months ended December 31, 2017
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
553
|
|
|
$
|
(180
|
)
|
Total
|
|
$
|
553
|
|
|
$
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
For the nine months ended December 31, 2016
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
97
|
|
|
$
|
(187
|
)
|
Total
|
|
$
|
97
|
|
|
$
|
(187
|
)
|
|
8.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME
|
Changes in accumulated other comprehensive
income by component was as follows:
|
|
Three months ended
December 31, 2017
|
|
|
Three months ended
December 31, 2016
|
|
|
|
Before
tax
|
|
|
Tax
effect
|
|
|
Net of
Tax
|
|
|
Before
tax
|
|
|
Tax
effect
|
|
|
Net of
Tax
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
(49
|
)
|
|
$
|
-
|
|
|
$
|
(49
|
)
|
|
$
|
(148
|
)
|
|
$
|
—
|
|
|
$
|
(148
|
)
|
Change in foreign currency translation adjustments
|
|
|
291
|
|
|
|
-
|
|
|
|
291
|
|
|
|
(309
|
)
|
|
|
—
|
|
|
|
(309
|
)
|
Closing balance
|
|
$
|
242
|
|
|
$
|
-
|
|
|
$
|
242
|
|
|
$
|
(457
|
)
|
|
$
|
—
|
|
|
$
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains/(losses) on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
(101
|
)
|
|
$
|
35
|
|
|
$
|
(66
|
)
|
|
$
|
125
|
|
|
$
|
(43
|
)
|
|
$
|
82
|
|
Unrealized gains/(losses) on cash flow hedges
|
|
|
665
|
|
|
|
(226
|
)
|
|
|
439
|
|
|
|
21
|
|
|
|
(7
|
)
|
|
|
14
|
|
Reclassified to Revenue
|
|
|
(102
|
)
|
|
|
34
|
|
|
|
(68
|
)
|
|
|
(59
|
)
|
|
|
20
|
|
|
|
(39
|
)
|
Net change
|
|
$
|
563
|
|
|
$
|
(191
|
)
|
|
$
|
372
|
|
|
$
|
(38
|
)
|
|
$
|
13
|
|
|
$
|
(25
|
)
|
Closing balance
|
|
$
|
462
|
|
|
$
|
(157
|
)
|
|
$
|
305
|
|
|
$
|
87
|
|
|
$
|
(30
|
)
|
|
$
|
57
|
|
|
|
Nine months ended
December 31, 2017
|
|
|
Nine months ended
December 31, 2016
|
|
|
|
Before
tax
|
|
|
Tax
effect
|
|
|
Net of
Tax
|
|
|
Before
tax
|
|
|
Tax
effect
|
|
|
Net of
Tax
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
(345
|
)
|
|
$
|
-
|
|
|
$
|
(345
|
)
|
|
$
|
222
|
|
|
$
|
—
|
|
|
$
|
222
|
|
Change in foreign currency translation adjustments
|
|
|
587
|
|
|
|
-
|
|
|
|
587
|
|
|
|
(679
|
)
|
|
|
—
|
|
|
|
(679
|
)
|
Closing balance
|
|
$
|
242
|
|
|
$
|
-
|
|
|
$
|
242
|
|
|
$
|
(457
|
)
|
|
$
|
—
|
|
|
$
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains/(losses) on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
89
|
|
|
$
|
(30
|
)
|
|
$
|
59
|
|
|
$
|
176
|
|
|
$
|
(60
|
)
|
|
$
|
116
|
|
Unrealized gains/(losses) on cash flow hedges
|
|
|
553
|
|
|
|
(188
|
)
|
|
|
365
|
|
|
|
97
|
|
|
|
(33
|
)
|
|
|
64
|
|
Reclassified to Revenue
|
|
|
(180
|
)
|
|
|
61
|
|
|
|
(119
|
)
|
|
|
(186
|
)
|
|
|
63
|
|
|
|
(123
|
)
|
Net change
|
|
$
|
373
|
|
|
$
|
(127
|
)
|
|
$
|
246
|
|
|
$
|
(89
|
)
|
|
$
|
30
|
|
|
$
|
(59
|
)
|
Closing balance
|
|
$
|
462
|
|
|
$
|
(157
|
)
|
|
$
|
305
|
|
|
$
|
87
|
|
|
$
|
(30
|
)
|
|
$
|
57
|
|
The Group recognized income tax provisions
of $2,939 and $1,643, respectively, for the three and nine months ended December 31, 2017 and recognized income tax provisions
(benefits) of $57 and $(84), respectively, for the three and nine months ended December 31, 2016. For the nine months ended December
2017, the deferred tax benefit primarily relates to the Company recognizing an increase in deferred tax assets from the anticipated
future realization of net operating loss carry forwards and the reduction of deferred tax liabilities related to the amortization
of intangible assets.
The effective tax rate are 2266% and 43%,
respectively, for the three and nine months ended December 31, 2017. The current estimated effective tax rate of 27.3% decreased
mainly due to the change of the federal statutory tax rate from 34% to 21% as of January 1, 2018.
|
10.
|
EMPLOYEE STOCK OPTION PLAN
|
Majesco 2015 Equity Incentive Plan
In the three and nine months ended December
31, 2017, we recognized $425 and $1,208, respectively, in equity-based compensation expense in our consolidated financial statements
compared to $326 and $960, respectively, in the three and nine months ended December 31, 2016.
In June 2015, Majesco adopted the Majesco
2015 Equity Incentive Plan (the “2015 Plan”). Under the 2015 Plan, options and stock awards for the purchase of up
to 3,877,263 shares may be granted by the Compensation Committee of the Board of Directors to our employees, consultants and directors
at an exercise or grant price determined by the Compensation Committee of the Board of Directors on the date of grant. Options
may be granted as incentive or nonqualified stock options with a term of not more than ten years. The 2015 Plan allows the grant
of restricted or unrestricted stock awards or awards denominated in stock equivalent units or any combination of the foregoing,
which may be paid in common stock or other securities, in cash, or in a combination of common stock or other securities and cash.
On December 31, 2017, an aggregate of 555,093 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 volatilities are based on peer entities as the
historical volatility of Majesco’s common stock is limited.
|
|
-
|
In accordance with ASC 718, Majesco uses the simplified
method for estimating the expected term when measuring the fair value of employee stock options using the Black-Scholes option
pricing model. Majesco believes the use of the simplified method is appropriate due to the employee stock options qualifying as
“plain-vanilla” options under the criteria established by SAB Topic 14.
|
|
-
|
The risk-free interest rate for periods within the contractual
life of the option is based on the U.S. Treasury yields for an equivalent term at the time of grant.
|
|
-
|
Majesco does not anticipate paying dividends during the
expected term.
|
|
|
As of December 31,
|
|
Variables (range)
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
41%–50
|
%
|
|
|
41%–50
|
%
|
Weighted-average volatility
|
|
|
41
|
%
|
|
|
41
|
%
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
3-5
|
|
|
|
3-5
|
|
Risk-free interest rate
|
|
|
0.46
|
%
|
|
|
0.46
|
%
|
As of December 31, 2017, there was $3,244
of total unrecognized compensation costs related to non-vested share-based compensation arrangements previously granted by Majesco.
That cost is expected to be recognized over a weighted-average period of 2.6 years.
A summary of the outstanding common stock
options under the 2015 Plan is as follows:
|
|
Shares
|
|
|
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
|
|
|
Weighted-Average
Exercise Price
|
|
Balance, April 1, 2017
|
|
|
2,868,642
|
|
|
$
|
4.79 – 7.72
|
|
|
|
8.91years
|
|
|
$
|
5.34
|
|
Granted
|
|
|
555,000
|
|
|
|
4.85-5.58
|
|
|
|
—
|
|
|
|
4.91
|
|
Exercised
|
|
|
(2,083
|
)
|
|
|
4.92
|
|
|
|
—
|
|
|
|
4.92
|
|
Cancelled
|
|
|
(161,333
|
)
|
|
|
4.87 – 6.22
|
|
|
|
—
|
|
|
|
5.60
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
—
|
|
|
|
-
|
|
Balance, December 31, 2017
|
|
|
3,260,226
|
|
|
$
|
4.79 – 7.72
|
|
|
|
8.18 years
|
|
|
$
|
5.25
|
|
Of the stock options outstanding, an aggregate
of 1,138,878 were exercisable as of December 31, 2017.
The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.
Because our employee stock options have characteristics significantly different from those of traded options, and because changes
in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of our employee stock options.
We follow FASB Accounting Standards Codification
(“ASC”) 718, Accounting for Stock Options and Other Stock-Based Compensation. Among other items, ASC 718 requires companies
to record the compensation expense for share-based awards issued to employees and directors in exchange for services provided.
The amount of the compensation expense is based on the estimated fair value of the awards on their grant dates and is recognized
over the required service periods. Our share-based awards include stock options and restricted stock awards. For restricted stock
awards, the calculation of compensation expense under ASC 718 is based on the intrinsic value of the grant.
Warrants
As of December 31, 2017, 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, 2017
is as follows:
|
|
Outstanding
and Exercisable
Warrants
|
|
|
Exercise Price
Per Warrant
|
|
|
Weighted-Average
Remaining
Contractual Life
|
|
|
Weighted-Average
Exercise Price
|
|
Balance, December 31, 2017
|
|
|
25,000
|
|
|
$
|
7.00
|
|
|
|
2.7
|
|
|
$
|
7.00
|
|
On September 1, 2015, Majesco issued to
Maxim Partners LLC a five year warrant to purchase 25,000 shares of common stock of Majesco at an exercise price of $7.00 per share.
The warrant was issued in connection with the engagement of the holder to perform certain advisory services to the Group. The number
of shares issuable upon exercise of the warrant may be reduced under certain circumstances of non-performance under the services
agreement. The warrant may be exercised at any time after September 1, 2016 and will expire, if unexercised, on September 1, 2020.
The warrant contains certain anti-dilution adjustment protection in case of certain future issuances of securities, stock dividends,
split and other transactions affecting Majesco’s securities. The holder of the warrant is entitled to piggyback registration
rights in case of certain registered securities offerings by Majesco
.
Employee Stock Option Scheme of Majesco Limited
— Plan 1
Certain employees of the Group participate
in the Group’s parent company Majesco Limited’s employee stock option plan. The plan, termed as “ESOP plan 1,”
became effective June 1, 2015, the effective date of the demerger from Mastek Ltd. Group employees who were issued options in the
earlier ESOP plans of Mastek Ltd. were given options of Majesco Limited following the demerger. Under the plan, Majesco Limited
also grants newly issued options to the employees of MSSIPL from time to time. During the nine months ended December 31, 2017,
181,500 options were granted under ESOP plan 1 of Majesco Limited. The options were granted at the market price on the grant date.
As of December 31, 2017, the total future
compensation cost related to non-vested options not yet recognized in the Statement of Operations was $1,710 and the weighted average
period over which these awards are expected to be recognized was 2.19 years. The weighted average remaining contractual life of
options expected to vest as of December 31, 2017 is 9.19 years.
Majesco Limited calculated the fair value
of each option grant on the date of grant using the Black-Scholes pricing method with the following assumptions:
|
|
2017
|
|
|
2016
|
|
Weighted-average volatility
|
|
|
49.47
|
%
|
|
|
51.02
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term (in years)
|
|
|
6 Years
|
|
|
|
6 Years
|
|
Risk-free interest rate
|
|
|
6.59
|
%
|
|
|
7.46
|
%
|
The summary of outstanding options of Majesco
Limited as of December 31, 2017 is as follows:
|
|
No of Options
Outstanding
|
|
|
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
|
|
|
Weighted-Average
Exercise Price
|
|
Balance, December 31, 2017
|
|
|
856,602
|
|
|
|
$0.1 - $3
|
|
|
|
6.76
|
|
|
|
1.41
|
|
|
|
|
648,158
|
|
|
|
$3.1 - $6
|
|
|
|
9.15
|
|
|
|
5.01
|
|
|
|
|
124,500
|
|
|
|
$6.1 - $7
|
|
|
|
9.03
|
|
|
|
7.69
|
|
|
|
|
1,629,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the stock options of Majesco Limited
outstanding and held by Group employees, an aggregate of 1,005,294 are currently exercisable.
Majesco Performance Bonus Plan
Majesco established the Majesco Performance
Bonus Plan (the “Performance Bonus Plan”). The Performance Bonus Plan is administered by the Compensation Committee
of the Board of Directors of Majesco. The purpose of the Performance Bonus Plan is to benefit and advance the interests of the
Group by rewarding selected employees of the Group for their contributions to the Group’s financial success and thereby motivate
them to continue to make such contributions in the future by granting them performance-based awards that are fully tax deductible
to the Group.
During the three and nine months ended December
31, 2017, we accrued $1,847 and $3,021, respectively, in incentive compensation expense in our consolidated financial statements
compared to $1,561 and $4,653, respectively, during the three and nine months ended December 31, 2016.
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, 2017, we had issued and sold 89,985 shares under
the ESPP.
The basic and diluted earnings/(loss) per
share were as follows:
|
|
Three months ended December 31,
|
|
|
Nine months ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/ (Loss)
|
|
$
|
(3,069
|
)
|
|
$
|
209
|
|
|
$
|
(5,435
|
)
|
|
$
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average outstanding equity shares
|
|
|
36,536,797
|
|
|
|
36,487,496
|
|
|
|
36,524,799
|
|
|
|
36,471,151
|
|
Adjustment for dilutive potential ordinary shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options under Majesco 2015 Equity Incentive Plan
|
|
|
0
|
|
|
|
1,743,608
|
|
|
|
0
|
|
|
|
0
|
|
Dilutive weighted average outstanding equity shares
|
|
|
36,536,797
|
|
|
|
38,231,104
|
|
|
|
36,524,799
|
|
|
|
36,471,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.08
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
(0.08
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.00
|
)
|
Basic earnings per share amounts are calculated
by dividing net income for the three and nine months ended December 31, 2017 and 2016 attributable to common shareholders by the
weighted average number of ordinary shares outstanding during the same periods.
Diluted earnings per share amounts are calculated
by dividing the net income attributable to common shareholders by the sum of the weighted average number of ordinary shares outstanding
during the three and nine months periods plus the weighted average number of common shares that would be issued on the conversion
of all the dilutive potential common shares into common shares.
The calculation of diluted earnings per
share excluded 3,260,236 shares and 3,260,236 options for the three and nine months ended December 31, 2017 and 774,481 shares
and 2,613,642 options for the three and nine months ended December 31, 2016 granted to employees, as their inclusion would have
been antidilutive.
|
12.
|
RELATED PARTIES TRANSACTIONS
|
Reimbursement of Expenses
The following tables summarize the liabilities to or by related
parties:
|
|
As of
December 31,
2017
|
|
|
As of
March 31,
2017
|
|
Net reimbursable expenses payable to Majesco Limited or Mastek Ltd.
(1)
|
|
$
|
(273
|
)
|
|
$
|
(622
|
)
|
|
(1)
|
The net reimbursable expenses payable at December 31, 2017 and March 31, 2017 include employee stock option charges of Majesco Limited and various expenses which are recurring in nature and attributable to shared resources with Majesco Limited or Mastek Ltd. that are in the process of being separated after the Reorganization, including air travel, travel insurance, telephone costs, water charges, insurance costs, administrative personnel costs, software and hardware costs and third party license costs, less receivables from Majesco Limited or Mastek Limited for similar expenses.
|
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 $1,303. The lease became effective on June 1,
2015 and expires on May 31, 2020.
MSSIPL also entered into a lease for facilities
for its operations in Pune, India, with Mastek Ltd. as lessor. The lease became effective on June 1, 2015 and expires on May 31,
2020. MSSIPL has also entered into a supplementary lease for its operations in Pune, India, with Mastek Ltd. as lessor. The supplementary
lease became effective on April 1, 2016 and expires on May 31, 2020. The approximate aggregate annual rent payable to
Mastek Ltd. under the foregoing lease agreements is $409.
|
|
As of
December 31,
2017
|
|
|
As of
March 31,
2017
|
|
Security deposits paid to Majesco Limited by MSSIPL for use of Mahape premises
|
|
$
|
657
|
|
|
$
|
648
|
|
Security deposits paid to Mastek Ltd. by MSSIPL for use of Pune premises
|
|
$
|
207
|
|
|
$
|
224
|
|
Rental expenses paid by MSSIPL to Majesco
Limited for use of premises for the three and nine months ended December 31, 2017 were $328 and $986, respectively. Rental
expenses paid by MSSIPL to Mastek Ltd. for use of premises for the three and nine months ended December 31, 2017 were $103 and
$309, 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, which
services comprise the delivery of development, integration and support services to third parties by use of Mastek Ltd.’s
development, integration and support methodologies and tools. The Joint Venture Agreement became effective on September 24,
2015 and will remain in force, unless terminated by either party upon three months’ notice in writing to the other of its
intention to terminate the Joint Venture Agreement. The consideration for each party’s performance of its obligations under
the Joint Venture Agreement is the performance of the other’s obligations under the same agreement, being services to the
other. The services comprise, in the case of Mastek Ltd., Mastek Ltd.’s development, integration and support methodologies
and tools and business development services. In the case of MSSIPL, the services comprise the provision of leading edge technical
expertise and advice. The parties will also exchange technical and business information.
Services Agreements
On December 2, 2015, Majesco UK Limited,
a company registered in England and Wales wholly owned by Majesco (“Majesco UK”), entered into a Services Agreement
(the “UK Services Agreement”) with Mastek UK, pursuant to which Mastek UK provided certain corporate and operational
support services to Majesco UK, including managed office accommodation and facilities; managed office IT infrastructure and networks;
and corporate support services, insurance coverage and subscription to professional associations and publications. The charges
for these core services consisted of a monthly charge of 13 GBP (USD $20) and a pass through of actual costs of providing the services.
Any support services by Mastek UK staff not included in the core services were charged on a basis to be determined separately between
both parties but before provision of such services. The UK Services Agreement was effective as of January 1, 2015 and was
terminated on December 31, 2016. The charge by Majesco UK to Mastek UK under the UK Services Agreement for the three and nine months
ended December 31, 2017 was nil and nil, respectively, and $37 and $140, respectively, for the three and nine months ended December
31, 2016.
On March 1, 2016, Majesco, and Digility
Inc., a Delaware corporation (“Digility”) wholly-owned by Mastek UK, entered into a Services Agreement (the “Digility
Services Agreement”), pursuant to which Majesco provided certain management and operational support services to Digility,
including managed office accommodation and facilities, managed office IT infrastructure and networks, and corporate support services.
The charges for these services consisted of an initial set-up fee of $1, a monthly fee of $4 and a pass through
of actual costs of providing the services incurred in excess of the monthly fee. The Digility Services Agreement w was effective
as of March 1, 2016 and was terminated on August 31, 2017. Service charges received from Digility for the three and nine months
ended December 31, 2017 were nil and $19, respectively, and $11 and $38, respectively, for the three and nine months ended
December 31, 2016.
On August 2, 2016, Majesco Limited
and MSSIPL entered into a master service agreement, effective as of June 30, 2016, pursuant to which MSSIPL will provide software
development services to Majesco Limited. Under this agreement, MSSIPL will charge Majesco Limited cost plus a margin for the services
rendered. Software development charges charged by MSSIPL under the agreement for the three and nine months ended December 31,
2017 were $275 and $805, respectively, and $211 and $702 for the three and nine months ended December 31, 2016, respectively.
Sublease
On March 1, 2016, Majesco and Digility
entered into a Sublease Agreement (the “Sublease Agreement”), pursuant to which Majesco sublets the premises located
on the first floor of 685 Route 202/206, Bridgewater, New Jersey to Digility. Digility will pay monthly $1 for rent to Majesco
during the term of the Sublease Agreement. Digility will also reimburse Majesco for any costs charged by the landlord, Route 206
Associates, a New Jersey partnership, for additional services requested by Digility. The term of the Sublease Agreement commenced
on March 1, 2016 and expired on July 31, 2017. Either party for any reason or no reason may terminate the Sublease Agreement
by providing the other party written notice of the termination thirty (30) days in advance. The Sublease Agreement contains customary
representations, warranties and indemnities of the parties. Rental charges received from Digility for the three and nine months
ended December 31, 2017 were nil and $5, respectively, and for the three and nine months ended December 31, 2016 were
$4 and $11, respectively.
Guarantee
During the three and nine months ended December 31,
2017, Majesco paid $13 and $38, respectively, to Majesco Limited as arrangement fees and guarantee commission for the guarantee
given by Majesco Limited to HSBC for the facilities taken by Majesco and its subsidiaries. During the three and nine months ended
December 31, 2016, Majesco paid $19 and $90, 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.
Intellectual Property License
On August 2, 2016, Majesco Limited
and MSSIPL entered into a Memorandum of Understanding (the “MOU”) pursuant to which MSSIPL granted Majesco Limited
a perpetual, royalty-free right to use the intellectual property rights of MSSIPL in “Elixir”, including any improvements
and upgrades, in connection with Majesco Limited’s India insurance business.
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, 2017
|
|
|
Three months
ended
December 31, 2016
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
27,870
|
|
|
$
|
26,643
|
|
UK
|
|
|
1,601
|
|
|
|
1,911
|
|
Canada
|
|
|
431
|
|
|
|
323
|
|
Malaysia
|
|
|
1,491
|
|
|
|
867
|
|
Thailand
|
|
|
-
|
|
|
|
-
|
|
Others
|
|
|
376
|
|
|
|
268
|
|
|
|
$
|
31,769
|
|
|
$
|
30,012
|
|
|
|
Nine months
ended
December 31, 2017
|
|
|
Nine months
ended
December 31, 2016
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
79,969
|
|
|
$
|
82,177
|
|
UK
|
|
|
4,478
|
|
|
|
6,606
|
|
Canada
|
|
|
832
|
|
|
|
1,338
|
|
Malaysia
|
|
|
3,773
|
|
|
|
2,542
|
|
Thailand
|
|
|
-
|
|
|
|
-
|
|
Others
|
|
|
985
|
|
|
|
949
|
|
|
|
$
|
90,037
|
|
|
$
|
93,612
|
|
The following table sets forth the Group’s property
and equipment, net by geographic region:
|
|
As of
December 31, 2017
|
|
|
As of
March 31, 2017
|
|
USA
|
|
$
|
1,391
|
|
|
$
|
1,812
|
|
India
|
|
|
1,484
|
|
|
|
1,835
|
|
Canada
|
|
|
20
|
|
|
|
-
|
|
UK
|
|
|
7
|
|
|
|
11
|
|
Malaysia
|
|
|
-
|
|
|
|
1
|
|
|
|
$
|
2,902
|
|
|
$
|
3,659
|
|
We provide a significant volume of services
to a number of significant customers. Therefore, the loss of a significant customer could materially reduce our revenues. The Group
had one and no customer for the three and nine months ended December 31, 2017, and no customer for the three and nine months ended
December 31, 2016 that accounted for 10% or more of total revenue. The Group had one customer as of December 31, 2017 and no customer
as of December 31, 2016 that accounted for 10% or more of total accounts receivable and unbilled accounts receivable. Presented
in the table below is information about our major customers:
|
|
Three months ended
December 31, 2017
|
|
|
Three months ended
December 31, 2016
|
|
|
|
Amount
|
|
|
% of
combined
revenue
|
|
|
Amount
|
|
|
% of
combined
revenue
|
|
Customer A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,292
|
|
|
|
10
|
%
|
|
$
|
2,127
|
|
|
|
7
|
%
|
Accounts receivable and unbilled accounts receivable
|
|
$
|
4,595
|
|
|
|
19
|
%
|
|
$
|
176
|
|
|
|
1
|
%
|
|
|
Nine months ended
December 31, 2017
|
|
|
Nine months ended
December 31, 2016
|
|
|
|
Amount
|
|
|
% of
combined
revenue
|
|
|
Amount
|
|
|
% of
combined
revenue
|
|
Customer A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
7,114
|
|
|
|
8
|
%
|
|
$
|
8,428
|
|
|
|
9
|
%
|
Accounts receivable and unbilled accounts receivable
|
|
$
|
4,595
|
|
|
|
19
|
%
|
|
$
|
176
|
|
|
|
1
|
%
|
Capital Commitments
The Group had outstanding contractual commitments
of $23 and $358 as of December 31, 2017 and March 31, 2017, 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 2 to 5 years. Rental expense for operating leases amounted to $810 and $ 2,509, for the three and
nine months ended December 31, 2017, respectively, compared to $826 and $2,492 for the three and nine months ended December 31,
2016, respectively. The schedule for future minimum rental payments over the lease term in respect of operating leases is set out
below.
Year ending March 31,
|
|
Amount
|
|
2018
|
|
$
|
759
|
|
2019
|
|
|
3,105
|
|
2020
|
|
|
3,192
|
|
2021
|
|
|
737
|
|
2022
|
|
|
291
|
|
Thereafter
|
|
|
736
|
|
Total minimum lease payments
|
|
$
|
8,820
|
|
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 $1,303. The lease became effective on June 1, 2015 and expires on
May 31, 2020. MSSIPL paid Majesco Limited $328 and $986, respectively, in rent under the lease during the three and nine months
ended December 31, 2017, and $312 and $942, respectively, during the three and nine months ended December 30, 2016. MSSIPL may
terminate the lease after three years with six months’ prior written notice to Majesco Limited. Majesco Limited may terminate
the lease after five years with six months’ prior written notice to MSSIPL.
MSSIPL also entered into a lease for its
operations in Pune, India, with Mastek Ltd. as lessor. The approximate aggregate annual rent payable to Mastek Ltd. under this
lease agreement is $294. The lease became effective on June 1, 2015 and expires on May 31, 2020. MSSIPL has also entered into a
supplementary lease for its operations in Pune, India, with Mastek Ltd. as lessor. The approximate aggregate annual rent payable
to Mastek Ltd. under this supplementary lease agreement is $115. The lease became effective on April 1, 2016 and expires on
May 31, 2020. MSSIPL paid Mastek Ltd. $103 and $309, respectively, in rent under the leases during the three and nine months ended
December 30, 2017 and $98 and $294, respectively, in rent under the leases during the three and nine months ended December 31,
2016. 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 December 14, 2014, Majesco entered into
a definitive merger agreement with Cover-All. The merger was completed on June 26, 2015. Cover-All licenses and maintains software
products for the property/casualty insurance industry throughout the United States and Puerto Rico. Majesco merged with Cover-All
to expand its insurance business in the United States.
The following table summarizes the consideration
paid in the merger of Cover-All into Majesco and the amounts of identified assets acquired and liabilities assumed at the merger
date:
Fair value of consideration transferred
|
|
|
|
|
Common stock
|
|
$
|
12
|
|
Additional paid-in capital
|
|
|
29,708
|
|
Total consideration
|
|
$
|
29,720
|
|
The merger of Cover-All and Majesco was
a stock-for-stock merger with each share of Cover-All common stock issued and outstanding immediately prior to the merger converted
into the right to receive the number of shares of Majesco common stock multiplied by the exchange ratio. The exchange ratio in
the merger was 0.21641. Accordingly, at the closing of the merger, Cover-All in the aggregate represented 16.5% of the total capitalization
of the combined company.
In the merger, 5,844,830 shares of Majesco
common stock were issued to the shareholders of Cover-All and 197,081 equity incentives were issued to the holders of options and
restricted stock units of Cover-All. Consequently, common stock of Majesco was increased by $12 and additional paid in capital
was increased by $29,708.
Recognized amount of identifiable assets acquired
and liabilities assumed
|
|
Amount
|
|
Cash
|
|
$
|
2,990
|
|
Accounts receivable
|
|
|
1,592
|
|
Prepaid expenses and other current assets
|
|
|
629
|
|
Property, plant and equipment
|
|
|
454
|
|
Other assets
|
|
|
148
|
|
Customer contracts
|
|
|
2,410
|
|
Customer relationships
|
|
|
4,460
|
|
Technology
|
|
|
3,110
|
|
Defer tax asset on NOL
|
|
|
459
|
|
Accounts payable
|
|
|
(1,120
|
)
|
Accrued expenses
|
|
|
(623
|
)
|
Deferred revenue
|
|
|
(2,515
|
)
|
Capital lease liability
|
|
|
(294
|
)
|
|
|
|
|
|
Total fair value of assets acquired
|
|
|
11,700
|
|
Fair value of consideration paid
|
|
|
29,720
|
|
Goodwill
|
|
$
|
18,020
|
|
The goodwill of $18,020 arising from the
merger consists largely of the synergies and economies of scale expected from combining the operations of Majesco and Cover-All.
Further, though workforce has been valued, it is not recognized separately, but subsumed in goodwill. Goodwill deductible for tax
purpose amounts to nil.
On October 31, 2015, Majesco Sdn. Bhd. (“MSC”)
entered into a Share Purchase Agreement with Mastek Ltd. for the purchase of the issued and authorized shares of Mastek Asia Pacific
Pte Limited.
Recognized amount of identifiable assets acquired
and liabilities assumed
|
|
Amount
|
|
Cash
|
|
$
|
212
|
|
Accounts receivable
|
|
|
18
|
|
Other assets
|
|
|
1
|
|
Accrued expenses
|
|
|
(14
|
)
|
|
|
|
|
|
Total fair value of assets acquired
|
|
|
217
|
|
Fair value of consideration paid
|
|
|
276
|
|
Goodwill
|
|
$
|
59
|
|
The following table summarizes the consideration
paid to Mastek Ltd. and the amounts of identified assets acquired and liabilities assumed at the effective date:
The changes in the varying amount of goodwill
are as follows:
Changes in carrying amount of the goodwill
|
|
As of December
31, 2017
|
|
|
As of March
31, 2017
|
|
|
|
|
|
|
|
|
Opening value
|
|
$
|
32,216
|
|
|
$
|
32,275
|
|
Addition on account of currency fluctuation
|
|
|
-
|
|
|
|
1
|
|
Impairment of Goodwill
|
|
|
-
|
|
|
|
(60
|
)
|
Closing value
|
|
$
|
32,216
|
|
|
$
|
32,216
|
|
Due to uncertainty in the future business
of Majesco Asia Pacific Pte. Limited, which indicated the potential impairment of goodwill, the Group decided to impair the amount
of goodwill recognized earlier in the acquisition of this entity as at March 31, 2017.
Details of identifiable intangible assets
acquired are as follows:
|
|
Weighted
average
amortization
period (in
years)
|
|
|
Amount
assigned
|
|
|
Residual
value
|
|
Customer contracts
|
|
|
3
|
|
|
$
|
2,410
|
|
|
|
-
|
|
Customer relationships
|
|
|
8
|
|
|
|
4,460
|
|
|
|
-
|
|
Technology
|
|
|
6
|
|
|
|
3,110
|
|
|
|
-
|
|
Total
|
|
|
6
|
|
|
$
|
9,980
|
|
|
|
-
|
|
Revenues and earnings specific to the Cover-All
business for the period June 26, 2015 to June 30, 2015 were $233 and $47, respectively. Revenues and earnings specific to the Cover-All
business for the period July 1, 2015 to March 31, 2016 were $17,636 and $1,260, respectively.
On January 23, 2018, Majesco Limited, the
controlling shareholder of Majesco and a public limited company domiciled in India whose equity shares are listed on the BSE Limited
and the National Stock Exchange of India Limited, launched an offering of its securities to qualified institutional investors located
outside of the United States (the “Placement”). In connection with the Placement, investors are receiving a preliminary
placement document which includes information including, but not limited to, details regarding the Placement, risk factors and
information with respect to Majesco Limited’s business.
The Placement closed on January 29, 2018.
Majesco Limited intends to use the proceeds from the Placement to fund inorganic growth, investments in its subsidiaries (including
Majesco) by way of private placement or rights issue to fund acquisitions and/or repayment or prepayment of debt, working capital
and corporate purposes.
On January 24, 2018, MSSI, a subsidiary
of Majesco, received a summons with notice filed in the Supreme Court of the State of New York by a customer, Alamance Services
Inc. (“Alamance”), alleging a purported breach of services and license agreement by MSSI. In the summons, Alamance
seeks compensatory damages (including lost profits) of an amount to be proven at trial of at least $10 million, pre-and post-judgment
interest and costs and fees. Majesco believes this claim has no merit and intends to defend against it vigorously and assert all
of its rights against this customer. In the opinion of management, Majesco has made adequate provisions against bad and doubtful
receivables arising from this claim. In addition, Majesco has notified its carrier under its $40 million professional
indemnity insurance policy. Majesco does not expect the outcome of this litigation to have a material effect on its business or
results of operations. However, litigation is inherently unpredictable, and the costs and other effects of such matter and
the possibility of any adverse outcome cannot be determined at this time.