Filing identity and reporting period
The supplied filing is AMERI Holdings, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, filed March 29, 2018. It does not identify Enveric Biosciences, Inc.; investors should verify that this is the intended filing. The filing reports annual results, not a standalone fourth quarter.
Business context
AMERI provided SAP cloud, digital and enterprise consulting services, primarily to North American clients, using U.S. and India delivery operations. Its growth strategy relied on acquisitions and cross-selling; it acquired Ameri California in March 2017 and reported a strategic SAP migration partnership with NEC. Five customers generated 43% of 2017 revenue, down from 53% in 2016.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $48.6 million | $36.1 million |
| Gross profit / margin | $10.2 million / 21% | $6.9 million / 19% |
| Operating loss | $12.0 million | $5.4 million |
| Net loss attributable to common stockholders | $11.2 million | $2.8 million |
| Basic and diluted loss per share | $0.75 | $0.21 |
| Cash used in operations | $2.7 million | $2.7 million |
| Cash and cash equivalents at year-end | $4.9 million | $1.4 million |
- Revenue grew 34.4%, primarily from Ameri California and a full year of Ameri Arizona; revenue at Ameri and Partners and Ameri Georgia declined by $2.7 million combined.
- Gross margin improved by 2 percentage points; management attributed part of the improvement to Ameri California, whose reported gross margin was 26%.
- SG&A rose to $18.5 million from $9.4 million. Stock-based compensation was $7.1 million, versus $1.5 million in 2016; depreciation and amortization increased to $3.2 million from $1.4 million.
- Financing activities provided $7.1 million; investing activities used $0.8 million. November’s public offering generated approximately $6.1 million gross before offering costs, alongside $1.25 million of convertible notes and net bank borrowings.
- At year-end, current assets were $14.6 million and current liabilities $30.4 million, implying negative working capital of approximately $15.7 million. Total stockholders’ equity was $19.4 million.
- Debt disclosures include approximately $5.6 million outstanding under the Sterling credit facility, $1.25 million of 8% convertible notes, and a $3.75 million acquisition note issued for Ameri California. The balance sheet also reports $4.05 million of current line-of-credit liabilities and $1.88 million of term-loan debt; amounts and classifications should be reconciled against the notes.
Outlook, risks and unusual items
- Management cited a 20%–25% target range for future gross margins, with no assurance it would be achieved. It expected 2017 operational streamlining to produce approximately $1.75 million in annual savings; the restructuring charge was about $0.4 million and 26 employees were eliminated.
- The filing states that substantial doubt exists about AMERI’s ability to continue as a going concern. Management said continued operations depended on additional financing, operating efficiencies and revenue growth; it warned that inadequate financing could force the company to cease operations.
- AMERI was not in compliance with Sterling’s financial covenants for the four quarters of 2017 and obtained quarterly waivers for fees. It did not expect further waivers; a default could accelerate secured debt, with substantially all borrower assets pledged as collateral.
- The company reported approximately $5.5 million in cash acquisition-related obligations, anticipated cash dividends of about $2 million annually on Series A preferred stock through 2019, and that it was not current on payments to some unsecured noteholders. As of March 2018, it also reported being behind on interest payments on some 2017 notes. The Ameri California note maturity was extended to August 31, 2018 under a February 2018 amendment.
- Other key risks include customer concentration and contracts terminable on short notice; acquisition integration and goodwill impairment; competitive pricing and skilled-worker availability; India, visa and foreign-exchange exposures; and potential dilution from equity awards, warrants, convertible notes and acquisition consideration.
- Management concluded that disclosure controls and internal control over financial reporting were not effective at December 31, 2017, principally because acquired subsidiaries had not been fully integrated. The independent auditor gave an unqualified opinion on the financial statements but did not express an opinion on internal-control effectiveness.
- Notable non-cash and estimate items included $2.2 million of warrant-based compensation expense and a $1.1 million gain from reducing estimated contingent acquisition consideration.
Investor verification priorities
- Confirm the intended issuer and period: this is AMERI Holdings’ FY 2017 10-K, not an Enveric Biosciences filing or a quarterly report.
- Assess near-term liquidity and going-concern risk, including the timing and funding of acquisition payments, preferred dividends, note interest and other obligations.
- Verify the status of Sterling covenant compliance, any waivers or defaults, available borrowing capacity and potential acceleration or cross-default provisions.
- Reconcile debt and acquisition-related liabilities across the balance sheet, credit-facility disclosures and subsequent amendments.
- Evaluate whether revenue growth, customer retention and the stated gross-margin and cost-savings targets are sustainable, given customer concentration and the losses reported.
- Review remediation of material control deficiencies and potential dilution from outstanding shares, warrants, options, RSUs and convertible debt.