Business context and reporting period
Entity mismatch: The supplied filing is AMERI Holdings, Inc.’s Form 10-Q, not an Enveric Biosciences, Inc. filing. It covers the quarter ended March 31, 2017; financial statements are unaudited.
AMERI provides SAP-focused technology consulting and services. Growth during the quarter was driven mainly by acquisitions, including ATCG, acquired March 10, 2017.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $12.34 million | $7.01 million |
| Gross profit / margin | $3.30 million / 26.8% | $1.65 million / 23.5% |
| Operating loss | $0.63 million | $0.98 million |
| Net loss attributable to the Company | $1.23 million, including $0.50 million preferred dividend | $1.10 million |
| Operating cash flow | $(0.84) million | $0.15 million |
- Revenue increased 76% year over year; management attributed most of the increase to acquired businesses, especially DCM. Existing customers contributed 4% of the increase.
- Cash was $1.81 million at March 31, up from $1.38 million at year-end. Investing cash outflow was $0.32 million and financing cash inflow was $1.59 million; the latter included $1.25 million from convertible notes and increased borrowing.
- Current assets were $12.35 million against current liabilities of $17.27 million, implying negative working capital of approximately $4.92 million. Accounts receivable were $9.59 million.
- Total liabilities were $34.91 million. The balance sheet reports a $3.96 million line of credit, $1.42 million of bank term loans, and $1.25 million of convertible notes. Acquisition consideration payable totaled approximately $20.16 million, including cash and equity obligations.
Material changes, outlook, and risks
- Gross margin improved to 26.8% from 23.5%, while operating expenses rose to $3.93 million from $2.63 million. Amortization increased substantially following acquisitions.
- ATCG acquisition consideration was approximately $8.78 million, including shares, $3.75 million of 6% promissory notes payable in 2017–2018, and potential stock earn-outs. Goodwill increased to $21.88 million.
- The company issued $1.25 million of 8% unsecured convertible notes due March 2020. Conversion terms may result in dilution and depend in part on a potential exchange uplisting.
- Management gave no specific revenue or earnings guidance. It cited organic growth and strategic alternatives, including selective acquisitions, and identified financing, integration, staffing, customer diversification, and cost control as challenges. Management’s gross-margin target was 25%–30%, with no assurance it would be achieved.
- The company was out of compliance with Sterling National Bank financial covenants. A waiver covered non-compliance through March 31, 2017; a second-quarter waiver was being negotiated, and management did not expect compliance after the waivers expired. The facility is secured by substantially all borrower assets.
- The Series A preferred dividend due March 31 was unpaid at the filing date; the company said it planned to pay it in common stock. Five major customers represented 38.5% of quarterly revenue, down from 60.2% a year earlier.
- Disclosure controls and internal control over financial reporting were deemed not effective, principally because acquired subsidiaries had not been fully integrated. The filing also corrects a prior-period expense classification error of approximately $1.5 million; the reclassification did not change net loss.
Important facts for investors to verify
- Confirm the correct issuer: the supplied document identifies AMERI Holdings, Inc., not Enveric Biosciences, Inc.
- Clarify the reported $3.96 million line-of-credit balance: the debt note separately identifies Sterling revolving borrowings of $2.44 million and Bigtech borrowings of $0.37 million.
- Track Sterling covenant waivers, any further lender remedies, and the company’s liquidity and ability to meet obligations.
- Verify payment and settlement of the preferred dividend, acquisition earn-outs, and other cash consideration obligations, including the DCM earn-out then under discussion.
- Assess acquisition integration, customer concentration, receivable collections, and the potential dilution from convertible notes and acquisition-related share issuances.