Business Context and Reporting Period
Company: AMERI Holdings, Inc. (Note: Request metadata listed "Enveric Biosciences," but the filing text identifies the registrant as AMERI Holdings, Inc., a provider of SAP cloud and digital enterprise services).
Reporting Period: Fiscal year ended December 31, 2016.
Business Overview: AMERI operates through twelve subsidiaries, delivering SAP enterprise services, digital transformation, and cloud services. The company pursues an aggressive acquisition strategy to expand its SAP consulting capabilities and offshore delivery model. Key acquisitions in 2016 included DC&M Partners, Virtuoso, and Bigtech Software.
Key Financial Metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Net Revenue | $36,145,589 | $20,261,172 |
| Gross Profit | $6,536,657 | $6,869,668 |
| Gross Margin | 18.1% | 33.9% |
| Operating Loss | $(5,379,863) | $(793,982) |
| Net Loss | $(2,788,112) | $(814,075) |
| Cash and Equivalents (Year End) | $1,379,887 | $1,878,034 |
| Total Debt (Short & Long Term) | ~$5.03 million | ~$6.24 million |
| Stockholders' Equity | $11,663,703 | $258,533 |
Liquidity: Cash decreased by approximately $498,000 year-over-year. Operating cash flow was negative $(2.70) million, primarily due to working capital requirements. Financing activities provided $8.80 million, driven by debt issuances and stock sales.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 78% to $36.1 million. Approximately 60% of this growth is attributed to 2016 acquisitions (DC&M, Virtuoso, Bigtech) and the full-year inclusion of Ameri Georgia.
- Margin Compression: Gross margin declined significantly from 33.9% to 18.1%. Management attributes this to lower margins on professional services and a decrease in project revenues relative to 2015.
- Expense Increases: Operating expenses rose to $11.9 million from $7.7 million. Key drivers included:
- General and Administration (G&A) increased to $8.55 million (from $5.72 million) due to integration costs and stock-based compensation.
- Depreciation and amortization surged to $1.36 million (from $0.17 million) due to the capitalization of customer lists from acquisitions.
- Nonrecurring expenditures totaled $1.59 million, largely for legal fees and acquisition-related costs.
- Debt Structure: The company entered a new $10 million credit facility with Sterling National Bank in July 2016. As of year-end, approximately $5 million was outstanding. A $5 million convertible note was exchanged for Series A Preferred Stock in December 2016.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Strategy: Management expects to continue its acquisition strategy to disrupt offshore IT service models. Future growth is targeted in SAP HANA migration, cloud engagements, and AI/robotics. The company expects existing cash and operating cash flows to meet liquidity requirements for the next 12 months.
Risks and Contingencies:
- Covenant Compliance: Due to 2016 acquisitions, the company failed to meet certain financial covenants in its Sterling National Bank credit facility. The bank agreed to a waiver in exchange for a fee.
- Customer Concentration: The top five customers accounted for 52.75% of total revenue in 2016. 98% of revenue was derived from North American clients.
- Internal Controls: Management concluded that internal controls over financial reporting were not effective as of December 31, 2016, citing the challenges of integrating recently acquired subsidiaries.
- Accounts Receivable: Receivables totaled $8.06 million (approx. 80% of current assets) with no allowance for doubtful accounts recorded.
Unusual Items:
- Subsequent Acquisition: On March 10, 2017, the company acquired ATCG Technology Solutions for a mix of stock, promissory notes ($3.75 million), and earn-outs.
- Subsequent Financing: In March 2017, the company issued $1.25 million in 8% Convertible Unsecured Promissory Notes.
- Merger Proposal: In March 2017, the company announced a merger proposal for CIBER, Inc.
Investor Verification Checklist
- Margin Sustainability: Verify if the 18.1% gross margin is sustainable or if it reflects temporary integration inefficiencies from recent acquisitions.
- Debt Covenants: Confirm the status of the waiver with Sterling National Bank and the company's ability to meet future financial covenants without further waivers.
- Receivables Quality: Assess the collectability of the $8.06 million in accounts receivable, given the lack of an allowance for doubtful accounts and high customer concentration.
- Internal Controls: Monitor the timeline for remediation of ineffective internal controls over financial reporting, which poses a risk to future audit opinions.
- Acquisition Integration: Evaluate the financial performance of the 2016 acquisitions (DC&M, Virtuoso, Bigtech) to ensure they are delivering the projected revenue synergies.