Filing summary
Issuer and period: The supplied filing is AMERI Holdings, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017—not an Enveric Biosciences filing. AMERI provided SAP-focused technology and consulting services and expanded through acquisitions.
Financial performance
| Metric | Three months ended June 30, 2017 | Three months ended June 30, 2016 | Six months ended June 30, 2017 | Six months ended June 30, 2016 |
|---|---|---|---|---|
| Revenue | $12.27 million | $6.69 million | $24.61 million | $13.70 million |
| Gross profit | $2.33 million | $1.52 million | $5.63 million | $2.77 million |
| Operating loss | $3.51 million | $0.94 million | $4.14 million | $1.92 million |
| Net loss attributable to AMERI | $3.28 million | $1.21 million | $4.00 million | $2.30 million |
| Net loss attributable to common shareholders | $3.78 million | $1.21 million | $5.01 million | $2.30 million |
Quarterly revenue increased about 83% year over year, and six-month revenue increased about 80%, primarily reflecting acquired businesses. Gross margin was 19% for the quarter versus 23% a year earlier; for the six months it was 23% versus 20%. Management cited discounts, the end of higher-margin contracts and revenue mix as pressure on legacy-business margins. Its stated gross-margin target was 25%–30%, with no assurance of achieving it.
Operating expenses rose substantially, including higher general and administrative expense and acquisition-related amortization. Six-month stock-based compensation expense was about $2.35 million; the filing also reports accelerated expense from cancelled restricted stock units. The company recorded a $400,000 gain from reducing its estimate of Ameri Arizona contingent consideration. No income tax benefit was recorded despite the losses.
Cash, liquidity and obligations
- Cash was $1.04 million at June 30, 2017, down from $1.38 million at December 31, 2016.
- For the six months, operating cash use was $1.70 million, investing cash use was $0.70 million, and financing provided $2.06 million. Financing included borrowings and convertible-note proceeds.
- Current assets were $10.75 million and current liabilities $15.59 million, indicating negative working capital of about $4.84 million. Management said working-capital constraints had delayed payments to some vendors, some of whom had threatened legal action.
- Balance-sheet bank borrowings comprised approximately $4.11 million in lines of credit and $1.74 million in term loans. The company also had $1.25 million of 8% convertible notes due in 2020. The notes have conversion terms linked to a potential exchange uplisting or, failing that, a later market-price measure.
- Acquisition consideration payable totaled approximately $19.32 million, including $7.13 million in cash obligations and $12.19 million of equity consideration; $5.35 million was contingent earn-out consideration.
Material changes, outlook and risks
- Revenue growth chiefly reflected acquisitions, including Ameri Arizona and Ameri California; legacy Ameri & Partners and Ameri Georgia revenue declined slightly in the quarter. Five customers represented 42% of quarterly revenue, down from 65% in the comparable 2016 quarter.
- AMERI disclosed that it was out of compliance with Sterling National Bank financial covenants and had obtained waivers for the March and June 2017 quarters, each for a $5,000 fee. Management did not expect to meet the covenants after the waivers expire. Without further waivers, the lender could accelerate repayment, terminate further credit and pursue substantially all pledged assets; a bank default could also affect the convertible notes.
- Management was seeking additional financing and negotiating with vendors. The filing cautions that additional capital may not be available and that vendor actions could affect revenue.
- After quarter-end, the company began streamlining operations affecting about 20 employees. It expected an approximately $80,000 restructuring charge in the September 2017 quarter and annual savings of about $1.5 million.
- Management reported that disclosure controls and internal control over financial reporting were not yet effective, largely because acquired private companies had not been fully integrated into its control processes.
- AMERI had not paid the Series A preferred dividend due June 30, 2017; it said it would pay the accrued dividend in kind with the filing. Preferred dividends reduced six-month earnings available to common shareholders by about $1.00 million.
- The filing provides no specific revenue or earnings forecast. It describes strategic alternatives, organic growth and possible acquisitions, while highlighting risks involving customer concentration, recruiting, integration, profitability and access to capital.
Investor verification priorities
- Confirm the issuer identity: the filing is for AMERI Holdings, Inc., despite the request metadata naming Enveric Biosciences.
- Check subsequent covenant-waiver status, lender remedies, available borrowing capacity and whether additional financing was secured.
- Assess liquidity, overdue vendor balances, cash conversion and the company’s ability to fund cash acquisition obligations and earn-outs.
- Verify whether expected restructuring savings were realized and whether gross margins improved toward management’s 25%–30% target.
- Review integration progress and remediation of ineffective financial reporting controls, as well as the dilution and terms associated with convertible notes and acquisition equity consideration.