Business context and reporting period
Entity clarification: The supplied filing is AMERI Holdings, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2017; it is not an Enveric Biosciences filing. AMERI provided SAP-focused technology and consulting services and expanded through acquisitions, including Ameri California in March 2017.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $12.53 million | $10.06 million | $37.14 million | $23.76 million |
| Gross profit / margin | $2.56 million / 20% | $1.70 million / 17% | $8.20 million / 22% | $4.86 million / 20% |
| Operating loss | $(3.95) million | $(1.29) million | $(8.08) million | $(3.21) million |
| Net loss attributable to common shareholders | $(4.61) million | $(1.78) million | $(9.62) million | $(4.08) million |
| Loss per share | $(0.31) | $(0.13) | $(0.66) | $(0.32) |
Revenue rose approximately 25% in the quarter and 56% for the nine-month period. Management attributed much of the nine-month increase to Ameri California and to having a full nine months of Ameri Arizona and Bigtech revenue in 2017. Gross margin improved, but the company remained loss-making; higher general and administrative expense, including stock-based compensation and costs from acquired businesses, contributed to wider operating losses.
Cash, debt and liquidity
- Cash was $844,104 at September 30, 2017, down from $1.38 million at December 31, 2016. Nine-month operating cash outflow was $1.80 million; investing outflow was $703,000; financing inflow was $1.97 million.
- Current assets were $11.42 million against current liabilities of $31.49 million, a working-capital deficit of approximately $20.08 million. Accounts receivable were $9.17 million.
- Disclosed September 30 balances included Sterling revolving loans of $3.77 million and Sterling term loans of $1.98 million, plus $1.25 million of 8% convertible notes. Bigtech separately had a $305,282 line of credit and a $14,695 term loan.
- Acquisition consideration payable totaled $19.32 million, including $7.13 million cash obligations and $12.19 million in equity consideration; $5.35 million was contingent earn-out consideration.
- Management said working-capital constraints had delayed payments to some vendors, some of which threatened legal action. The company was seeking additional financing, with no assurance it would be available.
Changes, outlook and material risks
- Stock-based compensation was $5.17 million for the nine months, including a $2.17 million charge associated with a warrant exercised on a cashless basis. A separate second-quarter charge reflected accelerated expense on cancelled restricted stock units.
- AMERI was out of compliance with Sterling’s financial covenants and obtained waivers for each of the first three quarters, paying $5,000 per waiver. Management did not expect covenant compliance after the waivers expired. A default could permit acceleration, termination of further credit, and enforcement against substantially all pledged assets; it could also trigger a default under the convertible notes.
- Management’s stated target gross-margin range was 20%–25%, with no assurance it would be achieved. No clear quantified revenue or earnings guidance was provided.
- A Q3 streamlining and restructuring charge of approximately $85,000 affected about 20 employees. Management estimated annual savings of approximately $1.5 million; realization is uncertain.
- Five customers generated 43% of Q3 revenue and 39% of nine-month revenue. One customer represented 14% and 11%, respectively, indicating customer-concentration exposure.
- Controls over financial reporting and disclosure controls were reported ineffective, largely because acquired businesses had not yet been fully integrated into the company’s control processes. The company also disclosed an unpaid preferred-stock dividend due September 30, 2017, which it said would be paid in kind upon filing.
Important facts for investors to verify
- Confirm the filing’s identity and period: this is AMERI Holdings’ 2017 Q3 filing, not an Enveric Biosciences filing.
- Check subsequent Sterling covenant waivers, compliance status, available borrowing capacity, and any debt acceleration or default developments.
- Assess near-term liquidity, vendor payment status, and whether additional financing was secured.
- Verify the amount and timing of acquisition earn-outs and other consideration payable, and the progress and actual savings from restructuring.
- Review customer concentration, acquisition integration, and remediation of ineffective financial-reporting controls.