Filing scope and business context
Entity mismatch: The supplied filing is AMERI Holdings, Inc.’s Form 10-K, not an Enveric Biosciences filing. It reports the fiscal year ended December 31, 2018, with 2017 comparisons; it does not provide standalone fourth-quarter results. AMERI provides SAP-focused cloud, digital and enterprise consulting services, primarily to North American customers.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $43.0 million | $48.6 million |
| Gross profit / margin | $9.0 million / 20.9% | $10.2 million / 21.1% |
| Operating loss | $7.1 million | $10.9 million |
| Net loss | $16.9 million | $9.1 million |
| Net loss attributable to common shareholders | $19.5 million; $0.82 per share | $11.2 million; $0.75 per share |
| Cash from operations | $(2.6) million | $(2.7) million |
| Cash at year-end | $1.4 million | $4.9 million |
Revenue fell about 12%, mainly because the company stopped pursuing certain low-margin professional-services work. Gross margin was broadly stable. SG&A fell $7.7 million, partly due to lower stock compensation and restructuring savings. The operating loss narrowed despite $9.0 million of goodwill and intangible-asset impairments; a $6.9 million non-cash gain from revising acquisition consideration also reduced reported operating expenses.
At December 31, 2018, total assets were $29.6 million, total liabilities $18.9 million and stockholders’ equity $10.8 million. Working capital was negative $4.7 million. Current liabilities included a $4.0 million bank line, $1.25 million of convertible notes and $2.7 million of cash acquisition consideration payable. The company reported a $4.2 million warrant liability. Its $6.3 million income-tax expense included a $6.1 million valuation allowance against deferred tax assets, despite a pretax loss.
Cash used in investing activities was $3.6 million, primarily for acquisition consideration; financing activities provided $2.7 million. Cash declined by $3.5 million during the year. The filing states that substantial doubt existed about the company’s ability to continue as a going concern, citing liquidity needs and dependence on additional financing and operating efficiencies.
Material changes, outlook and risks
- Management targeted future gross margins of 20%–25%, without assurance, and estimated completed streamlining would save about $2.5 million annually. No specific revenue or earnings guidance was provided.
- Five major customers generated 39% of 2018 revenue, versus 43% in 2017. The company’s project contracts are generally short-term and may be terminated with little notice.
- In July 2018, AMERI raised approximately $6.6 million gross in a private placement. Price-reset terms substantially increased potential warrant shares; 22.5 million shares were issuable under the adjusted purchaser warrants at year-end, creating significant dilution risk.
- Goodwill and intangible impairments reflected weaker expected cash flows at acquired businesses. Goodwill fell to $13.7 million from $21.9 million.
- The Sterling National Bank facility was in default following financial covenant issues and had been extended through December 31, 2018. On January 23, 2019, a new lender advanced approximately $2.85 million under a secured facility, primarily to repay the old facility. The new agreement grants first-priority security interests and includes restrictive covenants.
- Management concluded internal control over financial reporting and disclosure controls were not effective at year-end, principally because acquired subsidiaries had not been fully integrated. The auditor did not attest to internal-control effectiveness. The financial-statement audit opinion was unqualified.
- Nasdaq had notified the company of a minimum bid-price deficiency, with an initial cure deadline of June 10, 2019. A separate committee-independence deficiency disclosed in March 2019 was addressed by appointing a director to the committees.
- A dispute over Ameri Arizona acquisition consideration was settled in February 2019 for $200,000 payable in installments. In March 2019, the company reported about $1.5 million in proceeds from exercises of Series A warrants.
Important facts for investors to verify
- Confirm the issuer: this filing is for AMERI Holdings, Inc., not Enveric Biosciences, and covers the full 2018 fiscal year rather than Q4 alone.
- Review the going-concern disclosure, cash runway, negative working capital, acquisition obligations and availability and terms of the replacement credit facility.
- Check the current outstanding share count and the remaining potential dilution from warrants, preferred stock, options and convertible notes.
- Assess whether customer concentration, revenue contraction, impaired acquired businesses and the stated cost savings have changed since year-end.
- Track remediation of ineffective financial controls and continued compliance with Nasdaq listing requirements.