AMERI Holdings, Inc. — Form 10-Q summary
Filing identity: The supplied filing is for AMERI Holdings, Inc., not Enveric Biosciences, Inc. It covers the quarter and nine months ended September 30, 2018; financial statements are unaudited. AMERI provides SAP cloud, digital and enterprise consulting services.
Financial results
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $10.58 million | $12.53 million | $32.72 million | $37.14 million |
| Gross profit / margin | $2.35 million / 22% | $2.56 million / 20% | $7.08 million / 22% | $8.20 million / 22% |
| Operating income (loss) | $6.10 million | $(3.95) million | $3.65 million | $(7.68) million |
| Net income (loss) | $5.70 million | $(4.06) million | $2.87 million | $(8.05) million |
| Net income (loss) attributable to common stockholders | $3.88 million | $(4.61) million | $0.39 million | $(9.62) million |
- Revenue declined 16% in Q3 and 12% year to date. Management attributed the declines to a large project in the 2017 comparison period and the decision not to pursue certain lower-margin professional-services work.
- Q3 operating income includes a one-time, non-cash $7.27 million gain from revising estimated consideration payable for the Ameri Arizona acquisition. Thus reported operating and net income do not reflect only recurring operations.
- SG&A declined to $2.66 million in Q3 from $5.69 million and to $8.06 million year to date from $13.56 million. Management cited lower stock-based compensation and ongoing restructuring and cost reductions. The company recorded a $127,100 restructuring charge during the first nine months.
- Interest expense was $190,000 in Q3 and $584,000 year to date. The filing reports a $261,330 expense from the change in fair value of warrant liability for the nine-month period.
Cash, liquidity and debt
- Cash was $2.06 million at September 30, down from $4.88 million at December 31, 2017. Nine-month operating cash use was $1.56 million, investing cash use was $3.66 million, and financing cash provided was $2.40 million.
- Current assets were $10.59 million and current liabilities $12.86 million, a $2.27 million working-capital deficit. The company also disclosed difficulty meeting deferred acquisition-payment obligations.
- At quarter-end, the balance sheet showed $3.60 million drawn under the line of credit, $1.25 million in convertible notes, and $1.70 million in long-term warrant liability. The term loan was repaid on August 2. The $1.25 million notes bear 8% interest, mature in March 2020, and are convertible at $2.80 per share.
- The senior lender declared default and accelerated its obligations over covenant violations and impaired financial condition. It extended the repayment termination date to December 31, 2018, but could stop discretionary revolver advances and may pursue remedies, including foreclosure on substantially all pledged assets.
- Management stated that the conditions raised substantial doubt about the company’s ability to continue as a going concern. The company was seeking additional financing, with no assurance it could obtain funding or meet its obligations.
Capital transactions, outlook and risks
- A 2018 private placement raised approximately $6.6 million gross. Price-reset provisions subsequently reduced the common-share purchase price to $0.29 and adjusted warrants to an exercise price of $0.3123. The filing says 22.76 million shares were issued or issuable under the purchase agreements and pre-funded warrants, with another 22.54 million shares issuable upon exercise of purchaser warrants. These terms create substantial potential dilution.
- Preferred-stock terms were amended: dividends through March 2020 are payable in preferred shares at a 2% annual rate; cash dividends are scheduled to resume thereafter, subject to specified in-kind payment elections. The company also issued warrants for 5 million common shares to preferred holders.
- Management gave no specific revenue or earnings forecast. It stated a target gross-margin range of 20%–25%, without assurance of achieving it, and cited growth, cost control, client diversification, hiring, acquisitions and access to capital as ongoing challenges. Five major customers represented 40% of Q3 revenue.
- Two former Ameri Arizona members were owed $2.496 million in cash consideration that had not been paid as of the filing; the company was negotiating payment terms. A separate dispute concerns whether another former member properly elected cash instead of shares. A related lawsuit’s stated 2017 earn-out amount had been paid, but the share-versus-cash dispute remained contested.
- A payee email compromise resulted in an approximately $125,000 payment to a fraudulent bank account. The company was pursuing recovery and evaluating insurance coverage but gave no assurance of recovery; it had not recorded an adjustment and implemented dual-control confirmation for bank-account changes.
- Management concluded that disclosure controls and internal control over financial reporting were not effective as of September 30, primarily because acquired businesses had not been fully integrated. The company was working to harmonize controls.
Important facts for investors to verify
- Whether the December 31, 2018 lender deadline was met, the credit facility remained available, and covenant defaults or enforcement actions followed.
- Whether AMERI obtained sufficient new capital to address its going-concern uncertainty, working-capital deficit and overdue acquisition payments.
- The final share counts and dilution from the private-placement resets, pre-funded warrants, purchaser warrants and preferred-stock warrants.
- Whether the reported profit improvement persists after excluding the $7.27 million non-cash acquisition-consideration gain and other non-recurring items.
- Recovery of the $125,000 fraudulent payment, outcome of the Ameri Arizona payment dispute, and remediation of ineffective financial-reporting controls.