Filing identity and reporting period
Important mismatch: The request identifies Enveric Biosciences, Inc. and “2019 Q4,” but the supplied filing is AMERI Holdings, Inc.’s Form 10-K for the fiscal year ended December 31, 2019. The summary below describes the supplied AMERI filing, not an Enveric filing. It reports annual results, not standalone fourth-quarter results.
AMERI provided SAP cloud, digital and enterprise consulting services, principally to North American customers. The company reported one operating segment. Its financial statements were audited by Ram Associates, which gave an unqualified opinion on the financial statements; the auditor did not attest to internal control effectiveness.
Financial results and condition
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $39.9 million | $43.0 million |
| Gross profit / margin | $8.15 million / 20% | $8.98 million / 21% |
| Operating loss | $6.32 million | $7.15 million |
| Net loss attributable to common shareholders | $6.03 million | $19.48 million |
| Comprehensive loss | $6.06 million | $19.43 million |
| Cash used in operating activities | $2.45 million | $2.57 million |
| Cash used in investing activities | $0.28 million | $3.64 million |
| Cash provided by financing activities | $1.80 million | $2.69 million |
- Revenue declined; management attributed the decrease mainly to not pursuing certain lower-margin professional services. The MD&A says revenue fell 6%, although the reported totals imply a different percentage change.
- Gross margin eased from 21% to 20%. Management stated a future target range of 20%–25%, with no assurance it would be achieved.
- SG&A increased to $12.21 million from $10.79 million, mainly due to recruiting and compensating a new sales team. Depreciation and amortization decreased to $2.27 million from $2.90 million.
- Cash and cash equivalents were $0.43 million at year-end, down from $1.37 million. Working capital was negative $6.8 million. Accounts receivable was $6.38 million, down from $7.87 million; accounts payable was $4.70 million, up from $4.38 million.
- Year-end liabilities totaled $14.38 million and stockholders’ equity was $10.62 million. The balance sheet listed $2.88 million under a revolving credit facility, $1.0 million in convertible notes and $1.0 million in debentures. It also showed $2.50 million of cash acquisition consideration payable.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing limited cash, negative working capital, operating losses and dependence on new financing and operating improvements.
Material changes versus FY 2018
- Common-shareholder loss narrowed substantially, but results in both years were affected by significant non-cash and other items. FY 2018 included $9.04 million of goodwill and intangible impairment charges and a $6.94 million gain from a change in estimated acquisition consideration; FY 2019 included a $1.80 million gain from a change in warrant-liability fair value.
- Five major customers accounted for 48% of FY 2019 revenue, compared with 39% in FY 2018, increasing customer concentration. Three customers contributed 14%, 13% and 10% of FY 2019 revenue.
- The company completed a 1-for-25 reverse stock split in November 2019; reported share and per-share figures were retroactively adjusted.
- Warrants associated with a 2018 private placement were exchanged for shares in 2019; no such purchaser warrants remained outstanding at year-end.
Outlook, risks and subsequent events
- Management expected customer collections and external financing to be principal cash sources and said it was pursuing cost reductions. It warned that inability to obtain financing could leave it unable to meet obligations and potentially force it to cease operations.
- The senior secured revolving facility had a $8 million stated limit and a 7.25% minimum interest rate; it was secured by assets and included restrictive covenants and default remedies. The $1 million 8% notes matured in March 2020; the filing says they had not been repaid and the company lacked sufficient funds to pay them at the time described.
- After year-end, AMERI entered into agreements for a proposed sale of its legacy operating business and a proposed amalgamation with Jay Pharma. The transaction was conditional on approvals and other closing requirements; Jay Pharma holders were to receive shares representing approximately 84% of the post-transaction company’s common stock. The filing also describes potential expense reimbursement or termination payments if transactions failed.
- In January 2020, AMERI issued 599,600 shares to certain creditors in satisfaction of $1.496 million of obligations; a further $1.0 million plus interest was payable under specified transaction or termination circumstances. In February 2020, it arranged a separate $1 million secured note at 7.25%, due August 31, 2020.
- The filing’s subsequent-events disclosure says COVID-19 had already reduced revenue from a major travel-industry customer, with an expected annual revenue reduction of approximately $3 million. Management warned of possible further effects, including delayed receivable collection and impairment losses; the duration and full financial impact were unknown.
- Management concluded that disclosure controls and internal control over financial reporting were not yet effective, citing the time needed to implement controls across acquired subsidiaries.
- Other key risks include reliance on a concentrated customer base, short-term and terminable client engagements, competitive and pricing pressure, dependence on skilled personnel and India-based delivery, debt-default and cross-default exposure, potential goodwill impairment, and the effects of COVID-19.
Important facts for investors to verify
- Confirm the issuer and filing: the provided document is AMERI Holdings, Inc.’s FY 2019 10-K, not an Enveric Biosciences filing.
- Reconcile the revenue-decline percentage: the MD&A reports 6%, while the stated annual revenue figures do not appear to yield that rate.
- Confirm the outstanding debt and terms. The filing gives inconsistent debenture balances and conversion prices in different sections (including $1.0 million and $1.5 million balances, and conversion prices of $0.01, $0.109 and $2.70); it also describes the secured-facility lender and the 2017 note status.
- Verify the status and final terms of the proposed spin-off, Jay Pharma amalgamation, creditor share exchanges and subsequent financing; the filing describes these as conditional or subsequent events, not completed transactions.
- Assess near-term liquidity, the going-concern uncertainty, ability to repay or refinance maturing obligations, and whether customer collections or COVID-related revenue losses changed materially after year-end.
- Review the remediation of ineffective disclosure and financial-reporting controls, and monitor customer concentration and the stated COVID-related revenue exposure.