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 September 30, 2019

OR

☐ 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 November 8, 2019
Common Stock, $0.002 par value per share	43,064,668 shares

MAJESCO

INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 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	28
Item 3.	Quantitative And Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	43
PART II - OTHER INFORMATION		44
Item 1A.	Risk Factors	44
Item 6.	Exhibits	44
Signatures		45

i

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)

	September 30,			March 31,
	2019			2019
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	19,691		$	11,329
Short term investments		15,244			28,108
Restricted cash		42			43
Accounts receivable, net		22,842			17,366
Unbilled accounts receivable		14,805			17,916
Prepaid expenses and other current assets		14,065			15,598
Total current assets		86,689			90,360
Property and equipment, net		2,569			3,026
Right-of-use asset, net		4,615			—
Intangible assets, net		11,124			12,969
Deferred income tax assets		6,680			7,816
Unbilled accounts receivable, net of current portion		2,767			543
Other assets		186			489
Goodwill		34,090			34,145
Total Assets	$	148,720		$	149,348
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Loan from bank-receivable financing and vehicle loan	$	55		$	442
Lease liability		2,339			—
Accounts payable		1,506			2,327
Accrued expenses and other current liabilities		26,305			34,871
Deferred revenue		12,457			10,988
Total current liabilities		42,662			48,628
Vehicle loan		65			109
Lease liability, net of current portion		2,302			—
Consideration payable for Exaxe Holdings Limited acquisition		3,009			2,951
Other liabilities		1,289			1,089
Total Liabilities		49,327			52,777
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.002 per share – 50,000,000 shares authorized as of September 30, 2019 and March 31, 2019, no shares issued and outstanding as of September 30, 2019 and March 31, 2019		—			—
Common stock, par value $0.002 per share – 450,000,000 shares authorized as of September 30, 2019 and March 31, 2019; 43,000,968 shares issued and outstanding as of September 30, 2019 and 42,846,273 shares issued and outstanding as of March 31, 2019		86			86
Additional paid-in capital		124,538			122,163
Accumulated deficit		(23,875	)		(26,499	)
Accumulated other comprehensive loss		(1,356	)		(412	)
Total stockholders’ equity attributable to Majesco stockholders		99,393			95,338
Non controlling interests in consolidated subsidiaries		—			1,233
Total Stockholders’ Equity		99,393			96,571
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	148,720		$	149,348

See accompanying notes to the Consolidated Financial Statements.

1

Majesco and Subsidiaries

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

	Three Months ended September 30, 2019			Three Months ended September 30, 2018			Six Months ended September 30, 2019			Six Months ended September 30, 2018
Revenue	$	34,055		$	34,322		$	71,359		$	68,297
Cost of revenue		18,372			17,008			35,806			35,053
Gross profit	$	15,683		$	17,314		$	35,553		$	33,244
Operating expenses
Research and development expenses	$	4,457		$	4,683		$	9,927		$	9,532
Selling, general and administrative expenses		9,876			9,869			21,702			19,174
Total operating expenses	$	14,333		$	14,552		$	31,629		$	28,706
Income from operations	$	1,350		$	2,762		$	3,924		$	4,538
Interest income		161			19			350			25
Interest expense		(102	)		(104	)		(191	)		(228	)
Other income (expenses), net		451			430			440			611
Gain on reversal of accrued contingent liability		—			835			—			835
Income before provision for income taxes	$	1,860		$	3,942		$	4,523		$	5,781
Provision for income taxes		952			1,265			2,333			2,060
Net Income	$	908		$	2,677		$	2,190		$	3,721
Earnings per share:
Basic	$	0.02		$	0.07		$	0.05		$	0.10
Diluted	$	0.02		$	0.07		$	0.05		$	0.10
Weighted average number of common shares outstanding
Basic		42,962,524			36,634,019			42,937,888			36,617,505
Diluted		44,854,157			38,664,803			44,836,758			38,936,340

See accompanying notes to the Consolidated Financial Statements.

2

Majesco and Subsidiaries

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

	Three Months ended September 30, 2019			Three Months ended September 30, 2018			Six Months ended September 30, 2019			Six Months ended September 30, 2018
Net Income	$	908		$	2,677		$	2,190		$	3,721
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments		(965	)		(658	)		(898	)		(1,238	)
Unrealized gains (losses) on cash flow hedges		(162	)		(712	)		(46	)		(1,371	)
Other comprehensive income/(loss)	$	(1,127	)	$	(1,370	)	$	(944	)	$	(2,609	)
Comprehensive Income/(Loss)	$	(219	)	$	1,307		$	1,246		$	1,112

See accompanying notes to the Consolidated Financial Statements.

3

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		Additional Common Shares		Stock Amount		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

	Preferred Stock		Additional Common Shares		Stock Amount		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 payable 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		0	$	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 LT. 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

4

Majesco and Subsidiaries

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

	Six Months ended September 30, 2019			Six Months ended September 30, 2018
Net cash flows from operating activities
Net income	$	2,190		$	3,721
Adjustments to reconcile net income to net cash provided/(used) by operating activities:
Depreciation on property and equipment		807			832
Amortization of intangibles		1,636			1,057
Amortization of right of use asset		1,266			—
Stock-based compensation		1,498			1,358
Profit on sale of assets		(4	)		(4	)
Unrealized cash flow hedges		(46	)		—
Deferred income taxes		1,121			(444	)
Change in Assets and Liabilities:
Accounts receivable		(5,556	)		8
Unbilled accounts receivable		788			—
Prepaid expenses and other current assets		1,312			(1,236	)
Other non-current assets		291			(10	)
Accounts payable		(810	)		635
Lease liability		(1,241	)		—
Accrued expenses and other liabilities		(5,130	)		3,185
Deferred revenue and other non-current liabilities		1,732			(624	)
Net cash provided/(used) by operating activities	$	(146	)	$	8,478
Net cash flows from investing activities
Purchase of property and equipment	$	(472	)	$	(502	)
Proceeds from the sale of property and equipment		—			(5	)
Proceeds from sale of intangible assets		4			57
Purchase consideration paid on acquisition of business (net of cash acquired)		(3,530	)		—
Payment on purchase of balance 10% share of Exaxe Holdings Limited		(802	)		—
Purchase of investments		(15,280	)		(14,757	)
Proceeds from sale of investments		28,131			12,014
Decrease in restricted cash		(1	)		—
Net cash provided /(used) by investing activities	$	8,050		$	(3,193	)
Net cash flows from financing activities
Payment of capital lease obligations	$	—		$	(134	)
Proceeds from share issued under ESPP and ESOP		877			—
Proceeds of loan from bank		—			30,575
Repayment of loans from bank		(430	)		(32,620	)
Net cash provided / (used) by financing activities	$	447		$	(2,179	)
Effect of foreign exchange rate changes on cash and cash equivalents		11			57
Net increase in cash and cash equivalents	$	8,362		$	3,163
Cash and cash equivalents, beginning of the period		11,329			9,152
Cash and cash equivalents at end of the period	$	19,691		$	12,315
Supplementary disclosure of cash flow information
Income taxes paid	$	2,621			1,362

See accompanying notes to the Consolidated Financial Statements.

5

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 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. 

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

a. 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.

b. Significant Accounting Policies

For a description of all significant accounting policies, see Note 2, Summary of Significant Accounting Policies, of the notes to the consolidated and combined 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. 

c. 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 September 30, 2019.

d. Use of Estimates

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 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 and marketable securities, accounts receivable, income taxes, goodwill, and stock-based compensation.

6

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 right-of-use 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 $5.2 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 $5.2 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. 

7

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 I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3:	Unobservable inputs that are supported by little or no market activity, which require the Group to develop its own assumptions.

8

The following table sets forth the financial assets, measured at fair value, by level within the fair value hierarchy as of September 30, 2019 and March 31, 2019:

	As of
	September 30, 2019			March 31, 2019
	(unaudited)
Assets and Liabilities
Level 2
Derivative financial instruments (included in the following line items in the Consolidated Balance Sheets)
Prepaid expenses and other current assets	$	154		$	436
Other liabilities		(108	)		(21	)
Other assets		420			132
Accrued expenses and other liabilities		(138	)		(136	)
	$	328		$	411
Level 3
Contingent consideration		(4,206	)		(4,884	)
	$	(4,206	)	$	(4,884	)
Total	$	(3,878	)	$	(4,473	)

The following table presents the change in level 3 instruments:

	As of and for the  three months ended (unaudited)
	September 30, 2019			September 30, 2018
Opening balance	$	(4,884	)	$	(835	)
Partial payment of contingent consideration		678			—
Total gain recognized in the Statement of Operations		—			835
Closing balance	$	(4,206	)	$	—

	As of and for the  six months ended (unaudited)
	September 30, 2019			September 30, 2018
Opening balance	$	(4,884	)	$	(835	)
Partial payment of contingent consideration		678			—
Total gain recognized in the Statement of Operations		—			835
Closing balance	$	(4,206	)	$	—

9

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 six months ended September 30, 2019, respectively and $835 and $835 for the three and six months ended September 30, 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 September 30, 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 income statement during the period ended September 30, 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 $4,206 at September 30, 2019 and $4,884 at March 31, 2019. The long-term contingent consideration has been evaluated for net present value.

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).

10

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 $2,833 at exchange rates in effect on September 30, 2019). 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 (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 September 30, 2019. There are no outstanding loans under this Combined Facility as of September 30, 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 September 30, 2019. Majesco used proceeds from this facility to repay existing indebtedness and for capital expenditures, working capital and other general corporate purposes.

11

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 September 30, 2019, there were 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 € 400,000 (or approximately $437,473 at exchange rates in effect on September 30, 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 € 400,000 and 7% per annum over such rate on amounts over € 400,000. 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. 

Auto loans

MSSIPL has obtained auto 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 auto loans as of September 30, 2019 is $55.

6. DERIVATIVE FINANCIAL INSTRUMENTS

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

	Asset				Liability
	Noncurrent*		Current*		Noncurrent*		Current*
As of September 30, 2019 (unaudited)
Designated as Cash Flow Hedges
Foreign exchange forward contracts	$	154	$	420	$	108	$	138
Total	$	154	$	420	$	108	$	138
As of March 31, 2019
Designated as Cash Flow Hedges
Foreign exchange forward contracts	$	436	$	132	$	21	$	136
	$	436	$	132	$	21	$	136

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

Cash Flow Hedges and Other Derivatives

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

The aggregate contracted USD notional amounts of the Group’s foreign exchange forward contracts outstanding amounted to $39,250 and $31,100 as of September 30, 2019 and March 31, 2019, respectively.

The outstanding forward contracts as of September 30, 2019 mature between one month and 37 months. As of September 30, 2019, the Group estimates that $(46), 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.

12

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 (Loss) recognized in AOCI (effective portion)			Amount of (Loss) reclassified from AOCI to Statement of Operations (Revenue)
For the six months ended September 30, 2019 (unaudited)
Foreign exchange forward contracts	$	(83	)	$	(23	)
Total	$	(83	)	$	(23	)
For the six months ended September 30, 2018 (unaudited)
Foreign exchange forward contracts	$	(1,675	)	$	(259	)
Total	$	(1,675	)	$	(259	)

7. ACCUMULATED OTHER COMPREHENSIVE INCOME

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

	Three months ended September 30, 2019 (unaudited)									Three months ended September 30, 2018 (unaudited)
	Before tax			Tax effect			Net of Tax			Before tax			Tax effect		Net of Tax
Other comprehensive income
Foreign currency translation adjustments
Opening balance	$	(637	)	$	—		$	(637	)	$	(287	)	$	—	$	(287	)
Change in foreign currency translation adjustments		(965	)		—			(965	)		(658	)		—		(658	)
Closing balance	$	(1,602	)	$	—		$	(1,602	)	$	(945	)	$	—	$	(945	)
Unrealized gains/(losses) on cash flow hedges
Opening balance	$	575		$	(167	)	$	408		$	(833	)	$	35	$	(798	)
Unrealized gains/(losses) on cash flow hedges		(225	)		78			(147	)		(807	)		443		(364	)
Reclassified to Revenue		(23	)		7			(16	)		(198	)		57		(141	)
Net change	$	(248	)	$	85		$	(163	)	$	(1,005	)	$	500	$	(505	)
Closing balance	$	327		$	(82	)	$	245		$	(1,838	)	$	535	$	(1,303	)

	Six months ended September 30, 2019 (unaudited)									Six months ended September 30, 2018 (unaudited)
	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		(899	)		—			(899	)		(1,238	)		—			(1,238	)
Closing balance	$	(1602	)	$	—		$	(1602	)	$	(945	)	$	—		$	(945	)
Unrealized gains/(losses) on cash flow hedges
Opening balance	$	411		$	(120	)	$	291		$	96		$	(28	)	$	68
Unrealized gains/(losses) on cash flow hedges		(60	)		30			(30	)		(1,675	)		488			(1,187	)
Reclassified to Revenue		(23	)		7			(16	)		(259	)		75			(184	)
Net change	$	(83	)	$	37		$	(46	)	$	(1,934	)	$	563		$	(1,371	)
Closing balance	$	328		$	(83	)	$	245		$	(1,838	)	$	535		$	(1,303	)

13

8. INCOME TAXES

The Group recognized income tax provisions of $952 and $2,333 for the three and six months ended September 30, 2019, respectively, and recognized income tax provisions of $1,265 and $2,060 for the three and six months ended September 30, 2018, respectively.

The effective tax rate is 51.2% and 51.6% for the three and six months ended September 30, 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 six months ended September 30, 2019, we recognized $516 and $1,266, respectively, in equity-based compensation expense in our consolidated financial statements compared to $406 and $858 during the three and six months ended September 30, 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 amount 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 September 30, 2019, 2,120,892 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 Six months ended September 30,
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		2.5	%		2.5	%

14

As of September 30, 2019, there was $4,492 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 1.54 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		80,000			8.05-10.02		9.70 years		8.92
Exercised		(141,152	)		4.79-7.53		—		5.18
Cancelled		(193,909	)		4.79-7.53		—		5.32
Balance, September 30, 2019 (unaudited)		3,004,206		$	4.79-10.02		7.60 years	$	5.57

Of the stock options outstanding, an aggregate of 2,129,523 were exercisable as of September 30, 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 six months ended September 30, 2019 was as follows: 

	Number of RSUs		Weighted Average Grant-Date Fair Value
Balance, April 1, 2019		375,000	$	7.49
Granted		75,000	$	8.50
Balance, September 30, 2019 (unaudited)		450,000	$	7.66

15

Warrants

As of September 30, 2019, there were warrants to purchase 25,000 shares of common stock outstanding. A summary of the terms of the outstanding warrants as of September 30, 2019 is as follows:

	Outstanding and Exercisable Warrants		Exercise Price Per Warrant		Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price
Balance, September 30, 2019 (unaudited)		25,000	$	7.00	0.92 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 six months ended September 30, 2019, no options to purchase shares of common stock were granted under ESOP plan 1 of Majesco Limited.

As of September 30, 2019, the total future compensation cost related to non-vested options not yet recognized in the Statement of Operations was $308, and the weighted average period over which these awards are expected to be recognized was 3.83 years. The weighted average remaining contractual life of options expected to vest as of September 30, 2019 is 8.76 years.

During the three and six months ended September 30, 2019, we recognized $62 and $232, respectively, in equity-based compensation expense in our consolidated financial statements compared to $285 and $493, respectively, during the three and six months ended September 30, 2018

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:

	Unaudited For the Six Months ended September 30,
	2019			2018
Weighted-average volatility		44			34	%
Expected dividends		0.32	%		—	%
Expected term (in years)		4-8 Years			2-5 Years
Risk-free interest rate		6.1% - 6.5	%		7.20%-7.70	%

The summary of outstanding options of Majesco Limited as of September 30, 2019 is as follows:

	No. of Options Outstanding		Exercise Price Per Share		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price
		677,054	$	0.10 - $3.00		5.74		1.13
		516,733	$	3.10 - $6.00		5.16		4.61
		100,500	$	6.10 - $9.00		8.61		7.43
Balance, September 30, 2019 (unaudited)		1,294,287

Of the stock options of Majesco Limited outstanding and held by Group employees, an aggregate of 1,103,659 are exercisable as of September 30, 2019.

16

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 six months ended September 30, 2019, Majesco accrued $483 and $1,067, respectively, in incentive compensation expense in its consolidated financial statements compared to $2,939 and $6,034 during the three and six months ended September 30, 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 September 30, 2019, we had issued and sold 136,756 shares under the ESPP.

10. EARNINGS PER SHARE

The basic and diluted earnings per share were as follows:

	Unaudited Three months ended  September 30,
	2019		2018
Net Income	$	908	$	2,677
Basic weighted average outstanding equity shares		42,962,524		36,634,019
Adjustment for dilutive potential ordinary shares
Options under Majesco 2015 Equity Plan		1,891,633		2,030,784
Dilutive weighted average outstanding equity shares		44,854,157		38,664,803
Earnings per share:
Basic	$	0.02	$	0.07
Diluted	$	0.02	$	0.07

	Unaudited Six months ended  September 30,
	2019		2018
Net Income	$	2,190	$	3,721
Basic weighted average outstanding equity shares		42,937,888		36,617,505
Adjustment for dilutive potential ordinary shares
Options under Majesco 2015 Equity Plan		1,898,870		2,318,835
Dilutive weighted average outstanding equity shares		44,836,758		38,936,340
Earnings per share:
Basic	$	0.05	$	0.10
Diluted	$	0.05	$	0.10

17

Basic earnings per share amounts are calculated by dividing net income for the three and six months ended September 30, 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 six month ended September 30, 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 six months ended September 30, 2019, respectively, and 155,816 and 155,816 shares of common stock issuable upon exercise of options for the three and six months ended September 30, 2018, respectively, granted to employees, as their inclusion would have been antidilutive.

11. RELATED PARTIES TRANSACTIONS

Reimbursement of Expenses

The Group reimburses expenses incurred by Majesco Limited attributable to shared resources with Majesco Limited that are in the process of being separated after the separation of Mastek Ltd.’s insurance related operations, including utility charges, less receivables from Majesco Limited for similar expenses. The amount receivable/(payable) from Majesco Limited for reimbursement of expenses as on September 30, 2019 and September 30, 2018 is $0 and $0, respectively.

The Group also reimburses the insurance premium paid by Majesco Limited for the insurance policy at the Majesco Limited group level pertaining to the employees of MSSIPL. During the three and six months ended September 30, 2019 MSSIPL paid $0 and $88, 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 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 September 30, 2019 (unaudited)		As of September 30, 2018 (unaudited)
Security deposits paid to Majesco Limited by MSSIPL for use of Mahape premises	$	615	$	579
Security deposits paid to Mastek Ltd. by MSSIPL for use of Pune premises	$	—	$	182

18

Rental expenses paid by MSSIPL to Majesco Limited for use of premises for the three and six months ended September 30, 2019 was $357 and $708, respectively, and $343 and $669 for the three and six months ended September 30, 2018, respectively. Rental expenses paid by MSSIPL to Mastek Ltd. for use of premises for the three and six months ended September 30, 2019 was $0 and $0, respectively, and $104 and $205 for the three and six months ended September 30, 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 provides 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 six months ended September 30, 2019 was $0 and $0, respectively and $359 and $694 for the three and six months ended September 30, 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 six months ended September 30, 2019 were $0 and $0, respectively, and $17 and $74 for the three and six months ended September 30, 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 May 16, 2019 an agreement between MSSIPL and Majesco Limited was signed where MSSIPL will provide administrative support to Majesco Limited annually for approximately $4. This services agreement will terminate on March 31, 2022.

Guarantee

During the three and six months ended September 30, 2019, Majesco paid $0 and $0, respectively, and $8 and $18 for the three and six months ended September 30, 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 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 September 30, 2024. The annual rental fee under the Lease is € 106 ($10 per month at exchange rates in effect on September 30, 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 $3.5 million at exchange rates in effect on September 30, 2019). The transaction did not include real estate properties of Majesco Limited used in the business which will continue to be rented by MSSIPL from Majesco Limited.

19

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.

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 facilities including, but not limited to, hardware, software and administrative support services in consideration for 20 Indian rupees (or approximately $282,186 at exchange rates in effect on September 30, 2019). The term of the MOU commenced on May 15, 2019 and shall terminate on March 31, 2022. 

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 September 30, 2019 (unaudited)		Three months ended September 30, 2018 (unaudited)
USA	$	30,423	$	30,216
UK		726		1,683
Canada		97		168
Ireland		875		—
Malaysia		1,266		1,518
Others		668		737
	$	34,055	$	34,322

	Six months ended September 30, 2019 (unaudited)		Six months ended September 30, 2018 (unaudited)
USA	$	63,446	$	60,086
UK		1,813		3,111
Canada		120		330
Ireland		2,136		—
Malaysia		2,555		2,917
Others		1,289		1,853
	$	71,359	$	68,297

20

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

	As of September 30, 2019 (unaudited)		As of March 31, 2019
USA	$	691	$	892
India		1,720		1,944
Canada		1		49
UK		4		5
Malaysia		100		133
Ireland		53		3
	$	2,569	$	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 no customer for the three and six months ended September 30, 2019, and one customer for the three and six months ended September 30, 2018 that accounted for 10% or more of total revenue. The Group had no customer as of September 30, 2019 and one customer as of September 30, 2018 that accounted for 10% or more of total accounts receivable and unbilled accounts receivable. Presented in the table below is information about our top customer:

	Three months ended September 30, 2019 (unaudited)					Three months ended September 30, 2018 (unaudited)
	Amount		% of Combined Category			Amount		% of Combined Category
Top Customer
Revenue	$	1,673		5	%	$	4,716		13.7	%
Accounts receivable and unbilled accounts receivable	$	10,488		26	%	$	8,106		29.0	%

	Six months ended September 30, 2019 (unaudited)					Six months ended September 30, 2018 (unaudited)
	Amount		% of Combined Category			Amount		% of Combined Category
Top Customer
Revenue	$	4,345		6	%	$	9,347		13.7	%
Accounts receivable and unbilled accounts receivable	$	10,488		26	%	$	8,106		29.0	%

The top customers for the three and six months ended September 30, 2019 are two separate customers for the respective periods. The top customer for the three and six months ended September 30, 2018 is the same customer for both periods.

21

13. COMMITMENTS

Capital Commitments

The Group had outstanding contractual commitments of $4 and $90 as of September 30, 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 $804 and $1,644 for the three and six months ended September 30, 2019, respectively, compared to $807 and $1,607 for the three and six months ended September 30, 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	$	2,339
2021		1,237
2022		622
2023		637
2024		305
Thereafter		0
	$	5,140
Less: Imputed interest		499
Total minimum lease liability	$	4,641
Lease liabilities, current portion		2,339
Lease liabilities, net of current portion		2,302
Total lease liabilities	$	4,641

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 $357 and $708, respectively, in rent under the lease during the three and six months ended September 30, 2019, respectively, and $343 and $669 during the three and six months ended September 30, 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 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 six months ended September 30, 2019, respectively, and $104 and $205 in rent under the leases during the three and six months ended September 30 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.

22

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 right-of-use 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	September 30, 2019
Assets:
Operating lease assets	right-of-use assets, net	$	4,615
Liabilities:
Current:
Operating lease liabilities	lease liability	$	2,339
Long-term:
Operating lease liabilities	lease liability, net of current portion		2,302
Total lease liabilities		$	4,641

23

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
	September 30,
	2019 (Unaudited)
Cash paid for operating lease liabilities	$	715
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	%

	Six months ended
	September 30,
	2019 (Unaudited)
Cash paid for operating lease liabilities	$	1,426
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 on January 24, 2019. MSSIPL expects to file an appeal to the Income tax Appellate Tribunal upon receipt of a final assessment order. The Company believes it will be successful upon appeal 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 $6,991 at exchange rates in effect on September 30, 2019). In addition, on August 1, 2019, the Company paid the sellers € 717 (or approximately $784 at exchange rates in effect on September 30, 2019) for the remainder of the Securities.

24

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 $684 at exchange rates in effect on September 30, 2019) to the sellers and an additional € 25 (or approximately $27 at exchange rates in effect on September 30, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earnout payment amount not to exceed € 1,250 (or approximately $1,367 at exchange rates in effect on September 30, 2019)). If 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 $820 at exchange rates in effect on September 30, 2019) to the sellers and an additional € 30 (or approximately $33 at exchange rates in effect on September 30, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earnout payment amount not to exceed €1,500 (or approximately $1,641 at exchange rates in effect on September 30, 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 $957 at exchange rates in effect on September 30, 2019) to the sellers and an additional € 35 (or approximately $38 at exchange rates in effect on September 30, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earnout payment amount not to exceed € 1,750 (or approximately $1,914 at exchange rates in effect on September 30, 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 earnout payment if a seller who is a key employee leaves the employment of Exaxe prior to the end of the earnout 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 earnout 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 earnout amount of € 4,500 (or approximately $4,922 at exchange rates in effect on September 30, 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 earnout 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 earnout 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 $1,094 at exchange rates in effect on September 30, 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.

25

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

	As of September 30, 2019			As of March 31, 2019
	(unaudited)
Opening value	$	34,145		$	32,216
Changes on account of currency fluctuation		(55	)		(61	)
Impairment of Goodwill		—			—
Addition on account of business combination		—			1,990
Closing value	$	34,090		$	34,145

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:

	September 30, 2019 (Unaudited)
									Weighted
									Average
									Remaining
	Gross						Net		Amortization
	Carrying		Accumulated				Carrying		Period
	Amount		Amortization		Impairment		Amount		(Years)
Technology	$	10,468	$	4,195	$	—	$	6,273		4
Trade Name		343		36		—		307		9
Customer relationship		8,281		4,122		—		4,159		4
Customer Contract		2,950		2,950		—		—		—
Software		1,027		642		—		385		2
	$	23,069	$	11,945	$	—	$	11,124

26

	March 31, 2019
									Weighted
									Average
	Gross						Net		Remaining
	Carrying		Accumulated				Carrying		Amortization
	Amount		Amortization		Impairment		Amount		Period (Years)
Technology	$	10,672	$	3,118	$	—	$	7,554		4
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		1,029			19			454		—		134			1,636
Addition-Business acquisition		—			—			—		—		37			37
Foreign currency translation		(252	)		(9	)		38		—		(23	)		(246	)
September 30, 2019 (Unaudited)	$	6,273		$	307		$	4,159	$	—	$	385		$	11,124

Amortization expense of $819 and $1,636 for the three and six months ended September 30, 2019, respectively, and $817 and $626 for the three and six months ended September 30, 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	$	3,273
2021		2,924
2022		2,037
2023		1,976
Thereafter		2,759
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		1,657		—
Total		6.96	$	9,335		—

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 September 30, 2019. The economic transfer date of Exaxe was October 1, 2018.

27

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 September 30, 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” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report. 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;

28

● 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.

29

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 September 30, 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.

Three Months Ended September 30, 2019 Highlights

A few of our highlights of our three months ended September 30, 2019 were:

● Revenues of $34,055 with a gross profit of 46.1% of revenue;

● $4,457 (13.08% of revenue) in R&D expenses;

● $9,876 (29 % of revenue) in selling, general and administrative expenses;

● Net income of $908; and

● Adjusted EBITDA of $3,136, representing 9.21% of revenue.

Six Months Ended September 30, 2019 Highlights

A few of our highlights of our six months ended September 30, 2019 were:

● Revenues of $71,359 with a gross profit of 49.82% of revenue;

● $9,927 (13.91% of revenue) in R&D expenses;

● $21,702 (30.41% of revenue) in selling, general and administrative expenses;

● Net income of $2,190; and

● Adjusted EBITDA of $7,865, representing 11.02% of revenue.

30

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 equity-based compensation.

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 supplementally.

For an unaudited reconciliation of U.S. GAAP net income to EBITDA and Adjusted EBITDA for the three and six months ended September 30, 2019 and September 30, 2018, see “— Results of Operations — Three and Six Months Ended September 30, 2019 Compared to Three and Six Months Ended September 30, 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 earnout 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 earnout 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.

31

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 $6,991 at exchange rates in effect on September 30, 2019) and € 717 (or approximately $784 at exchange rates in effect on September 30, 2019) for the remainder of the Securities on August 1, 2019.

We also agreed to make certain earnout 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 $684 at exchange rates in effect on September 30, 2019) to the sellers and an additional € 25 (or approximately $27 at exchange rates in effect on September 30, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earnout payment amount not to exceed € 1,250 (or approximately $1,367 at exchange rates in effect on September 30, 2019)). If 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, we have agreed to pay € 750 (or approximately $820 at exchange rates in effect on September 30, 2019) to the sellers and an additional € 30 (or approximately $33 at exchange rates in effect on September 30, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earnout payment amount not to exceed € 1,500 (or approximately $1,641 at exchange rates in effect on September 30, 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, we have agreed to pay € 875 (or approximately $957 at exchange rates in effect on September 30, 2019) to the sellers and an additional € 35 (or approximately $38 at exchange rates in effect on September 30, 2019) for each full 1% increase above 75%, up to a maximum of 100% (with a maximum earnout payment amount not to exceed € 1,750 (or approximately $1,914 at exchange rates in effect on September 30, 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. We may also withhold 15% of any earnout payment if a seller who is a key employee leaves the employment of Exaxe prior to the end of the earnout period (other than due to death, serious illness, compassionate grounds, by mutual agreement or termination for cause or misconduct). We will also be entitled to withhold and off set against any earnout payment such amounts due and payable or which may become due and payable by the sellers to us with respect to claims under the agreement and related transaction documents.

The entire earnout amount of € 4,500 (or approximately $4,922 at exchange rates in effect on September 30, 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 earnout 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 earnout 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 $1,094 at exchange rates in effect on September 30, 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 six months ended September 30, 2019 and September 30, 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.

32

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 research and development (“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.

33

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, 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 Statement of Operations.

Goodwill and Other Intangible Assets

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.

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 Statement of Operations.

34

Maintenance and repairs are charged to combined Statement of Operations 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 Six Months Ended September 30, 2019 Compared to Three and Six Months Ended September 30, 2018

The following tables summarize our consolidated statements of operations for the three and six months ended September 30, 2019 and September 30, 2018, including as a percentage of revenues: 

Statement of Operations Data

	Three Months Ended (Unaudited)
(U.S. Dollars; dollar amounts in thousands):	September 30, 2019			%			September 30, 2018			%
Total revenues	$	34,055					$	34,322
Total cost of revenues		18,372			54	%		17,008			50	%
Total gross profit		15,683						17,314
Operating expenses:
Research and development expenses		4,457			13	%		4,683			14	%
Selling, general and administrative expenses		9,876			29	%		9,869			29	%
Total operating expenses		14,333						14,552
Income from operations		1,350						2,762
Interest income		161						19
Interest expense		(102	)					(104	)
Other income (expenses), net		451						430
Gain on reversal of accrued contingent liability		—						835
Income before provision for income taxes		1,860						3,942
Income taxes		952						1,265
Net income	$	908			3	%	$	2,677			8	%

	Six Months Ended (Unaudited)
(U.S. Dollars; dollar amounts in thousands):	September 30, 2019			%			September 30, 2018			%
Total Revenues	$	71,359					$	68,297
Total cost of revenues		35,806			50	%		35,053			51	%
Total gross profit		35,553						33,244
Operating expenses:
Research and development expenses		9,927			14	%		9,532			14	%
Selling, general and administrative expenses		21,702			30	%		19,174			28	%
Total operating expenses		31,629						28,706
Income from operations		3,924						4,538
Interest income		350						25
Interest expense		(191	)					(228	)
Other income (expenses), net		440						611
Gain on reversal of accrued contingent liability		—						835
Income before provision for income taxes		4,523						5,781
Income taxes		2,333						2,060
Net income	$	2,190			3	%	$	3,721			5	%

35

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

	Three Months Ended (Unaudited)
(U.S. Dollars; dollar amounts in thousands):	September 30, 2019		%			September 30, 2018		%
Geography: North America
Legal Entity
Majesco	$	9,713		29	%	$	10,340		30	%
Majesco Software and Solutions Inc.		20,710		61	%		13,111		38	%
Majesco Canada Ltd., Canada		97		—	%		168		1	%
Cover-All Systems, Inc.(1)		—		—	%		6,766		20	%
	$	30,520		90	%	$	30,385		89	%
Geography:  Europe
Legal Entity
Majesco UK Limited, UK	$	726		2	%	$	1,683		5	%
Exaxe Limited		875		3	%		—		—	%
		1,601		5	%		1,683		5	%
Geography:  Other
Legal Entity
Majesco Sdn. Bhd., Malaysia	$	1,266		4	%	$	1,518		4	%
Majesco Asia Pacific Pte Ltd., Singapore		108		—	%		293		1	%
Majesco Software and Solutions India Private Limited, India		560		1	%		443		1	%
	$	1,934		5	%	$	2,254		6	%
Total Revenues	$	34,055				$	34,322

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

	Six Months Ended (Unaudited)
(U.S. Dollars; dollar amounts in thousands):	September 30, 2019		%			September 30, 2018		%
Geography: North America
Legal Entity
Majesco	$	20,143		28	%	$	20,714		30	%
Majesco Software and Solutions Inc.		43,303		61	%		26,045		38	%
Majesco Canada Ltd., Canada		120		—	%		330		0	%
Cover-All Systems, Inc.(1)		—		—	%		13,328		20	%
	$	63,566		89	%	$	60,417		88	%
Geography:  Europe
Legal Entity
Majesco UK Limited, UK	$	1,813		3	%	$	3,111		5	%
Exaxe Limited		2,135		3	%		—		—	%
		3,948		6	%		3,111		5	%
Geography:  Other
Legal Entity
Majesco Sdn. Bhd., Malaysia	$	2,555		4	%	$	2,917		4	%
Majesco Asia Pacific Pte Ltd., Singapore		224		—	%		710		1	%
Majesco Software and Solutions India Private Limited, India		1,066		1	%		1,142		2	%
	$	3,845		5	%	$	4,769		7	%
Total Revenues	$	71,359				$	68,297

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

Revenues

Revenues for the three months ended September 30, 2019 were $34,055 compared to $34,322 for the three months ended September 30, 2018, reflecting a decline of 0.8%. The decrease during the quarter was primarily due to go live in small markets and a slowdown among customers on account of economic uncertainties, mitigated through an increase in P&C business and revenue from Exaxe.

Revenues for the six months ended September 30, 2019 were $71,359 compared to $68,297 for the six months ended September 30, 2018, reflecting an increase of 4.5%. The increase during the six months ended September 30, 2019 was primarily due to the acquisition of Exaxe.

36

Gross Profit

Gross profit was $15,683 for the three months ended September 30, 2019 compared with $17,314 for the three months ended September 30, 2018, representing a decrease of 9.4%. The decrease in margin has been primarily due to impacts of inflation and investments made to scale the Company’s business. Gross profit percentage for the three months ended September 30, 2019 decreased to 46.1% of revenue from 50.1% of revenue for the three months ended September 30, 2018.

Gross profit was $35,553 for the six months ended September 30, 2019 compared with $33,244 for the six months ended September 30, 2018, representing an increase of 6.5%. The increase in margin has been primarily due to a better margin revenue mix. Gross profit percentage for the six months ended September 30, 2019 increased to 50% of revenue from 49% of revenue for the six months ended September 30, 2018.

Salaries and consultant fees were approximately $13,626 for the three months ended September 30, 2019 compared to $13,017 for the three months ended September 30, 2018. This represents an increase of 4.5% in salaries and consultant fees. As a percentage of revenues, salaries and consultant fees increased from 37.9% for the three months ended September 30, 2018 to 40% for the three months ended September 30, 2019.

Salaries and consultant fees were approximately $26,932 for the six months ended September 30, 2019 compared to $25,698 for the six months ended September 30, 2018. This represents an increase of 4.6% in salaries and consultant fees. As a percentage of revenues, salaries and consultant fees increased from 37.6% for the six months ended September 30, 2018 to 37.7% for the six months ended September 30, 2019.

Operating Expenses

Operating expenses were $14,333 for the three months ended September 30, 2019 compared to $14,552 for the three months ended September 30, 2018. The decrease in operating expenses was primarily due to a decrease in R&D costs of $226 and an increase in selling, general and administrative expenses of $7 due to management and investments in sales and marketing. We continued to invest in R&D to enhance our cloud and digital offerings. The continued investment is maturing our products to being sold more as out of the box products. The increase in selling, general and administrative expenses was driven by the inclusion of the Exaxe business, one-time expenses related to our customer conference, rebranding and other non-recurring professional fees. As a percentage of revenues, operating expenses decreased to 42.1% for the three months ended September 30, 2019 from 42.4% for the three months ended September 30, 2018. 

Operating expenses were $31,629 for the six months ended September 30, 2019 compared to $28,706 for the six months ended September 30, 2018. The increase in operating expenses was primarily due to an increase in R&D costs of $395 and an increase in selling, general and administrative expenses of $2,528. We continued to invest in R&D to enhance our cloud and digital offerings. The continued investment is maturing our products to being sold more as out of the box products. The increase in selling and general expenses was driven by the inclusion of the Exaxe business, one-time expenses related to our customer conference, rebranding and other non-recurring professional fees. As a percentage of revenues, operating expenses increased to 44.3% for the six months ended September 30, 2019 from 42.0% for the six months ended September 30, 2018. 

Income from Operations

Income from operations was $1,350 for the three months ended September 30, 2019 compared to $2,762 for the three months ended September 30, 2018. As a percentage of revenues, net gain from operations was 4.0% for the three months ended September 30, 2019 compared to a net gain of 8.1% for the three months ended September 30, 2018. Income from operations was lower primarily due to a marginal decline in revenue together with impacts of inflation on costs together with investments in scaling of the Company’s business.

Income from operations was $3,924 for the six months ended September 30, 2019 compared to $4,538 for the six months ended September 30, 2018. As a percentage of revenues, net gain from operations was 5.5% for the six months ended September 30, 2019 compared to a net gain of 6.6% for the six months ended September 30, 2018. Income from operations was lower primarily due to the investment made by the Company with respect to selling, general and administrative expenses as a result of scaling the Company’s business. 

Other Income

Other income (expense), net was $451 for the three months ended September 30, 2019 compared to $430 for the three months ended September 30, 2018. The increase is mainly due to an increase in currency exchange gain during the three months ended September 30, 2019. 

Other income (expense), net was $ 440 for the six months ended September 30, 2019 compared to $611 for the six months ended September 30, 2018. The decrease is mainly due to an increase in currency exchange loss during the six months ended September 30, 2019.

Tax provision

We recognized an income tax provision of $952 and $2,333 for the three and six months ended September 30, 2019, respectively, and recognized an income tax provision of $1,265 and $2,060 for the three and six months ended September 30, 2018, respectively.

The effective tax rate is 51.2% and 51.6% for the three and six months ended September 30, 2019, respectively, which differs from the statutory U.S. federal income tax rate of 21%, mainly due to the impact of different tax jurisdictions.

37

Net income

Net income was $908 for the three months ended September 30, 2019 compared to net income of $2,677 for the three months ended September 30, 2018. Net income per share, basic and diluted, was $0.02 and $0.02, respectively, for the three months ended September 30, 2019 compared to net income per share, basic and diluted, of $0.07 and $0.07, respectively, for the three months ended September 30, 2018.

Net income was $2,190 for the six months ended September 30, 2019 compared to net income of $3,721 for the six months ended September 30, 2018. Net income per share, basic and diluted, was $0.05 and $0.05, respectively, for the six months ended September 30, 2019 compared to net income per share, basic and diluted, of $0.10 and $0.10, respectively, for the six months ended September 30, 2018.

Adjusted EBITDA

Adjusted EBITDA, a non-GAAP metric, was $3,136 for the three months ended September 30, 2019 compared to $4,287 for the three months ended September 30, 2018. Adjusted EBITDA, a non-GAAP metric, was $7,865 for the six months ended September 30, 2019 compared to $7,785 for the six months ended September 30, 2018.

The following is an unaudited reconciliation of U.S. GAAP net income to EBITDA and Adjusted EBITDA for the three and six months ended September 30, 2019 and the three and six months ended September 30, 2018:

	Unaudited
	Three Months ended
(U.S. dollars, in thousands):	September 30, 2019			September 30, 2018
Net Income	$	908		$	2,677
Add:
Provision for income taxes		952			1,264
Depreciation and amortization		1,217			843
Interest expense		102			104
Less:
Interest income		(161	)		(19	)
Other income (expenses), net		(451	)		(430	)
EBITDA	$	2,567		$	4,439
Add:
Stock-based compensation		569			683
Less:
Reversal of accrual for contingent consideration liability		—			(835	)
Adjusted EBITDA		3,136			4,287
Revenue		34,055			34,322
Adjusted EBITDA as a % of Revenue		9.21	%		12.49	%

	Unaudited
	Six Months ended
(U.S. dollars, in thousands):	September 30, 2019			September 30, 2018
Net Income	$	2,190		$	3,721
Add:
Provision for income taxes		2,333			2,060
Depreciation and amortization		2,443			1,889
Interest expense		191			228
Less:
Interest income		(350	)		(25	)
Other income (expenses), net		(440	)		(611	)
EBITDA	$	6,367		$	7,262
Add:
Stock-based compensation		1,498			1,358
Less:
Reversal of accrual for contingent consideration liability		—			(835	)
Adjusted EBITDA		7,865			7,785
Revenue		71,359			68,297
Adjusted EBITDA as a % of Revenue		11.02	%		11.40	%

38

Liquidity and Capital Resources

Our cash and cash equivalent and short term investments position was $34,935 at September 30, 2019 and $15,058 at September 30, 2018.

Net cash provided / (used) by operating activities was $(146) for the six months ended September 30, 2019 and $8,478 for the six months ended September 30, 2018. We had accounts receivable of $22,842 at September 30, 2019 and $17,366 at March 31, 2019. Days outstanding increased to 102 days at the end of September 30, 2019 as compared to 85 days at the end of March 31, 2019.

Net cash provided / (used) by investing activities amounted to $8,050 for the six months ended September 30, 2019 compared to $(3,193) for the six months ended September 30, 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 six months ended September 30, 2019.

Sale / (purchase) of investments in mutual funds, acquisition of business and certificate of deposits (net) was $12,849 for the six months ended September 30, 2019 and $(2,743) for the six months ended September 30, 2018. Restricted cash was $42 at September 30, 2019 and $48 at September 30, 2018.

Net cash provided / (used) by financing activities was $447 for the six months ended September 30, 2019 compared to $(2,179) for the six months ended September 30, 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 earnout 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 $2,833 at exchange rates in effect on September 30, 2019). 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 (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.

39

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 September 30, 2019. There were no outstanding loans under this Combined Facility as of September 30, 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 September 30, 2019. We 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 September 30, 2019, there were 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 $436 at exchange rates in effect on September 30, 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.

40

Auto loans

MSSIPL has obtained auto 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 auto loans as of September 30, 2019 is $55.

Dividends and Redemption

We have declared and paid a cash dividend on our common stock only for our fiscal year 2000. 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 $55 under our auto loans at September 30, 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.

41

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 September 30, 2019 were $19,691 and $15,244, 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 September 30, 2019, are variable and are based on LIBOR plus a fixed margin. As of September 30, 2019, we had $0 and $0 in borrowings outstanding under our receivable purchase facility with HSBC and our Combined Facility, respectively. As of September 30, 2019, we had borrowed $55 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 September 30, 2019 and 2018, respectively, compared to 11% and 11% for the six months ended September 30, 2019 and 2018, respectively. The effect of foreign exchange rate changes on cash and cash equivalents resulted in a gain/(loss) of $698 and $(63) for the three months ended September 30, 2019 and September 30, 2018, respectively, compared to gain of $794 and $57 for the six months ended September 30, 2019 and September 30, 2018, respectively. For the three months ended September 30, 2019 and September 30, 2018, we had a foreign exchange gain/(loss) of approximately $(965) and $(899), respectively, compared to a foreign exchange gain/(loss) of $616 and $616 for the six months ended September 30, 2019 and September 30, 2018, respectively. 

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

The aggregate contracted USD notional amounts of the Group’s foreign exchange forward contracts outstanding amounted to $39,250 and $31,100 as of September 30, 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 September 30, 2019 and March 31, 2019, respectively. The outstanding forward contracts as of September 30, 2019 mature between one month and 37 months. As of September 30, 2019, we estimate that $(46), 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 September 30, 2019 are designated as in hedge relationship and there will be no impact on our statement of operations due to a strengthening or weakening of 10% in the foreign exchange rates.

42

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 September 30, 2019 (unaudited)
Designated as hedging instruments under Cash Flow Hedges
Foreign exchange forward contracts	$	154	$	420	$	108	$	138
Total	$	154	$	420	$	108	$	138

* 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 six months ended September 30, 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 September 30, 2019. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 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 is putting in place a remediation plan to address the material weakness which will include engaging a third party with global tax expertise to assist in the final preparation of the Company’s March 31, 2019 tax return due January 15, 2020. Management expects that the remediation of the material weakness will be completed during the third quarter of 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.

43

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. Management is putting in place remediation plans to address the material weakness within the third quarter, including engaging a third party with global tax expertise to assist in the final preparation of the Company’s March 31, 2019 tax return due January 15, 2020. Although management expects that the remediation of the material weakness will be completed during its fiscal year ended March 31, 2020, no assurances can be given that the material weakness will be timely resolved, if at all. 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
10.1	Facility Letter, dated July 17, 2019, by and between Exaxe Limited and HSBC France, Dublin Branch (incorporated by reference to Exhibit 10.1 to Majesco’s Current Report on Form 8-K filed with the SEC on July 23, 2019)
10.2	Deed of Variation of Lease dated September 9, 2019 by and among Exaxe Limited and Norman Carroll, Philip Naughton and Frances Hemeryck (trading as the Sandyford Business Co-ownership) (incorporated by reference to Exhibit 10.1 to Majesco’s Current Report of Form 8-K filed with the SEC on September 11, 2019)
10.3	Deed of Renunciation dated September 9, 2019 by and among Exaxe Limited and Norman Carroll, Philip Naughton and Frances Hemeryck (trading as the Sandyford Business Co-ownership) (incorporated by reference to Exhibit 10.2 to Majesco’s Current Report of Form 8-K filed with the SEC on September 11, 2019)
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.

44

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: November 13, 2019	By:	/s/ Adam Elster
		Adam Elster, Chief Executive Officer (Principal Executive Officer)
Date: November 13, 2019	By:	/s/ Wayne Locke
		Wayne Locke, Chief Financial Officer (Principal Financial and Accounting Officer)

45