Filing summary
Issuer identity: The supplied metadata names Enveric Biosciences, Inc., but the filing itself is AMERI Holdings, Inc.’s Form 10-Q for the quarter ended June 30, 2016, filed August 12, 2016. Verify that this is the intended filing. Financial statements are unaudited.
Business context and reporting period
AMERI describes itself as a technology-management and consulting services company, with revenue primarily from IT consulting contracts. The reporting period covers the three and six months ended June 30, 2016; comparisons are to the same 2015 periods. The company attributed much of its revenue growth to its 2015 acquisition of Bellsoft. Revenue was generated entirely from North American customers in the periods discussed.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $6.69 million | $3.93 million | $13.70 million | $8.22 million |
| Gross profit | $1.52 million | $0.98 million | $2.77 million | $2.10 million |
| Gross margin | 22.7% | 25.0% | 20.2% | 25.6% |
| Operating income (loss) | ($0.94 million) | $0.18 million | ($1.92 million) | $1.26 million |
| Net income (loss) | ($1.21 million) | $0.11 million | ($2.37 million) | $1.19 million |
| Basic loss per share | ($0.09) | $0.01 | ($0.19) | $0.10 |
For the six months, operating cash flow was negative $166,151, investing cash flow was negative $3.28 million, and financing cash flow was positive $5.17 million. Cash increased by $1.73 million to $3.60 million at June 30. Current assets were $8.22 million and current liabilities $7.23 million, implying working capital of about $0.99 million.
At June 30, liabilities included $5.0 million in convertible notes, $1.41 million in short-term notes, and $0.50 million of long-term acquisition consideration. Total liabilities were $12.73 million. The company reported $2.41 million of stockholders’ equity and 13.49 million common shares issued and outstanding.
Material changes versus the prior period
- Revenue increased 70.1% in Q2 and 66.8% for the first six months, with management attributing the increase primarily to Bellsoft.
- Despite higher gross profit, gross margin declined in both comparisons. Management cited lower professional-services margins for Q2; the six-month MD&A gives a different explanation, so the cause of the full-period margin decline is not clearly reconciled.
- Operating results shifted from profit to loss, as general and administrative expenses rose substantially alongside acquisition-related overhead. Six-month nonrecurring expenditures were $615,220, including earn-out estimate changes, restructuring costs, and legal fees.
- Interest expense rose to $384,260 for the first half, from $25,542 a year earlier. Stock-based compensation and acquisition-related amortization also increased.
- Cash was higher than at year-end, supported by $3.0 million from a common-stock sale and $2.0 million from partial exercise of a warrant, among other financing activity.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific financial guidance or quantified forecast. Management cautions that interim results may not predict full-year results; revenue and earnings can fluctuate with project activity, sales cycles, customer demand, and employee utilization.
- On July 1, 2016, the company entered a three-year loan agreement providing up to $10 million in borrowing capacity: up to $8 million revolving credit and up to $2 million for a permitted acquisition, plus letters of credit. The facility is secured by substantially all borrower assets, has financial covenants, and requires lender consent for permitted acquisitions.
- After quarter-end, AMERI acquired DC&M Partners for $3.0 million cash, 1.6 million shares to be issued in 2018 or earlier upon a change of control, and potential earn-outs. The filing also describes a proposed Bigtech acquisition whose closing date had not been determined as of June 30.
- Bellsoft acquisition consideration included contingent earn-outs and quarterly payments; management revised its earn-out estimate during the first quarter. Changes in contingent consideration estimates may materially affect results.
- Management concluded that disclosure controls and internal control over financial reporting were not effective as of June 30, citing inadequacies associated with acquired subsidiaries’ prior privately held status. The filing says corrective changes were made, but also says controls were not effective.
- The company reported no legal proceedings and no material changes to previously disclosed risk factors. Key risks include customer retention and collections, converting the sales pipeline to billable work, recruiting and retaining skilled personnel, integration and execution of acquisitions, and changes in IT-services demand.
Important facts to verify
- Confirm that this AMERI Holdings filing, rather than an Enveric Biosciences filing, is the intended document.
- Reconcile management’s explanation of six-month gross-margin performance with the reported decline from 25.6% to 20.2%.
- Review the terms, covenant headroom, borrowing and repayment activity, and use of proceeds under the July 2016 Sterling facility.
- Assess acquisition earn-out obligations, the DC&M share issuance and contingencies, and the status and final terms of the Bigtech transaction.
- Evaluate the causes, remediation, and ongoing status of the reported control deficiencies, and confirm the company’s debt and liquidity position after quarter-end.