ENVERIC BIOSCIENCES, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2020
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Commission file number 001-38286
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AMERI Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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95-4484725
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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4080, McGinnis Ferry Road, Suite 1306, Alpharetta, Georgia
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30005
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
(770) 935-4152
Not applicable
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of
“large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer☐
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Accelerated filer☐
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Non-accelerated filer☑
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Smaller reporting company☑
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Emerging growth company ☑
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section
7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Trading Symbol
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Name of Each Exchange on Which Registered
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Common Stock $0.01 par value per share
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AMRH
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The NASDAQ Stock Market LLC
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Warrants to Purchase Common Stock
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AMRHW
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The NASDAQ Stock Market LLC
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As of May 14, 2020, 3,246,705 shares of the registrant’s common stock were issued and outstanding.
AMERI Holdings, Inc.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
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Page
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PART I - FINANCIAL INFORMATION
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24
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PART II - OTHER INFORMATION
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25
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26
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27
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PART I
| ITEM 1. |
AMERI HOLDINGS, INC.
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March 31,
2020
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December 31,
2019
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|||||||
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Assets
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||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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1,267,352
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$
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431,400
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||||
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Accounts receivable
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8,101,751
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6,384,148
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||||||
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Other current assets
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874,856
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783,606
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Total current assets
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10.243,959
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7,599,154
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Other assets:
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||||||||
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Property and equipment, net
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115,521
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83,128
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||||||
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Intangible assets, net
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3,035,580
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3,584,221
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||||||
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Goodwill
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13,729,770
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13,729,770
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||||||
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Deferred income tax assets, net
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11,349
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8,879
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||||||
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Total other assets
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16,892,220
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17,405,998
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||||||
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Total assets
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$
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27,136,179
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$
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25,005,152
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Liabilities
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Current liabilities:
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Line of credit
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$
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4,553,492
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$
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2,881,061
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Accounts payable
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5,254,231
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4,696,352
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||||||
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Other accrued expenses
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2,177,206
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1,989,894
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||||||
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Convertible notes
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1,000,000
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1,000,000
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||||||
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Debentures
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1,500,000
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1,000,000
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||||||
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Consideration payable – cash
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1,000,000
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2,496,000
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Short term Loans
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1,000,000
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-
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||||||
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Dividend payable – Preferred stock
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428,133
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320,298
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Total current liabilities
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16,913,062
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14,383,605
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Long-term liabilities:
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Total liabilities
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16,913,062
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14,383,605
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Stockholders’ equity:
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Preferred stock, $0.01 par value; 1,000,000 authorized, 424,938 issued and outstanding as of March 31, 2020 and December 31, 2019.
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4,249
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4,249
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Common stock, $0.01 par value; 100,000,000 shares authorized, 3,246,705 and 2,522,095 issued and outstanding as of March 31, 2020 and December 31, 2019,
respectively
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32,467
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25,221
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Additional paid-in capital
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52,562,485
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51,040,296
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Accumulated deficit
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(42,400,593
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)
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(40,508,231
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)
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Accumulated other comprehensive income (loss)
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24,509
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60,012
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Total stockholders’ equity
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10,223,117
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10,621,547
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Total liabilities and stockholders’ equity
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$
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27,136,179
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$
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25,005,152
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||||
See accompanying notes to the unaudited condensed consolidated financial statements.
AMERI HOLDINGS, INC.
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Three Months Mar 31,2020
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Three Months Mar 31,2019
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Revenue
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9,602,528
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10,686,196
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Cost of revenue
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7,720,962
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8,546,232
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Gross profit
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1,881,566
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2,139,964
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Operating expenses
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Selling,General and administration
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2,924,518
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2,877,309
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Depreciation and amortization
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559,623
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561,017
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Operating expenses
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3,484,141
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3,438,326
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Operating Income (loss)
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(1,602,575
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)
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(1,298,362
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Interest expenses
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(160,060
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)
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(142,554
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)
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Impairment on goodwill and Intangibles
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Changes in fair value of warrant liability
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-
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(450,267
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)
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Income (loss) before income taxes
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(1,762,635
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)
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(1,891,183
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Income tax benefit
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(21,892
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)
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31,211
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Income (loss) after income taxes
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(1,784,527
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)
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(1,859,972
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)
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Net income attributable to non-controlling interest
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Net Income (loss) attributable to the Company
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(1,784,527
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)
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(1,859,972
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)
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Dividend on preferred stock
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(107,835
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)
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(105,705
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)
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Net Income (loss) attributable to common stock holders
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(1,892,362
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)
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(1,965,677
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)
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Other comprehensive income (loss), net of tax
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Foreign exchange translation
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(35,503
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)
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18,714
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Total Comprehensive Income (loss)
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(1,927,865
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)
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(1,946,963
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)
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Basic income (loss) per share
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(0.60
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)
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(1.09
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Diluted income (loss) per share
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(0.60
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)
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(1.09
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)
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Basic weighted average number of common shares outstanding
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3,175,040
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1,807,403
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Diluted weighted average number of common shares outstanding
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3,175,040
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1,807,403
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||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
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Common Stock
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Preferred Stock
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Shares
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Par
Value at
$0.01
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Shares
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Par
Value
at
$0.01
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Additional
paid-in
capital
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Foreign
Currency
Translation
Reserve
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Retained
earnings
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Total
stockholders’
equity
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|||||||||||||||||
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Balance at Dec 31, 2018
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1,693,165
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$
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16,932
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420,720
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$
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4,207
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$
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45,129,214
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$
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86,997
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$
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(34,478,253
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)
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$
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10,759,097
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|||||||||||||||
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Net Loss for the period
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(1,965,677
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)
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(1,965,677
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)
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||||||||||||||||||||||||||
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Other comprehensive income (loss)
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18,714
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18,714
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||||||||||||||||||||||||||||
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Shares Issued towards earnouts
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131,570
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1,316
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603,907
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605,223
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||||||||||||||||||||||||||
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Exercise of Warrants (PIPE series A&B)
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187,972
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1,880
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1,465,715
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1,467,595
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||||||||||||||||||||||||||
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Stock Compensation expenses
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277,377
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277,377
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||||||||||||||||||||||||||||
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Balance at March 31, 2019
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2,012,708
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$
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20,128
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420,720
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$
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4,207
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$
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47,476,214
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$
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105,711
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$
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(36,443,930
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)
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$
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11,162,329
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|||||||||||||||
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Balance at December 31, 2019
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2,522,095
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$
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25,221
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424,938
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$
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4,249
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$
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51,040,296
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$
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60,012
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$
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(40,508,231
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)
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$
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10,621,547
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|||||||||||||||
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Net Loss for the period
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(1,892,362
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)
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(1,892,362
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)
|
||||||||||||||||||||||||||
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Other comprehensive income (loss)
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(35,503
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)
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(35,503
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)
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||||||||||||||||||||||||||
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Stock Compensation expenses
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19,810
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19,810
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||||||||||||||||||||||||||||
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Shares Issued for Extinguishment of liability
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599,610
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5,996
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1,490,004
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1,496,000
|
||||||||||||||||||||||||||
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Conversion of accrued Interest
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125,000
|
1,250
|
12,375
|
13,625
|
||||||||||||||||||||||||||
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Balance at March 31, 2020
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3,246,705
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$
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32,467
|
424,938
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$
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4,249
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$
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52,562,485
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$
|
24,509
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$
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(42,400,593
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)
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$
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10,223,117
|
|||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
AMERI HOLDINGS, INC.
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March, 31
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||||||||
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2020
|
2019
|
|||||||
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Cash flow from operating activities
|
||||||||
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Net Income (Loss)
|
(1,927,865
|
)
|
(1,946,963
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)
|
||||
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Adjustment to reconcile comprehensive income/(loss) to net cash used in operating activities
|
||||||||
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Depreciation and amortization
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559,623
|
561,017
|
||||||
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Impairment on goodwill and Intangible assets
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-
|
|||||||
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Provision for Preference dividend
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107,835
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105,705
|
||||||
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Changes in fair value of warrants
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-
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450,267
|
||||||
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Stock, option, restricted stock unit and warrant expense
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19,810
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277,377
|
||||||
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Foreign exchange translation adjustment
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(35,503
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)
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18,715
|
|||||
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Provision for Income taxes ( net off deferred income taxes)
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21,892
|
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(31,211
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)
|
||||
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Loss on sale of fixed assets
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-
|
|||||||
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Changes in assets and liabilities:
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||||||||
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Increase (decrease) in:
|
||||||||
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Accounts receivable
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(1,717,603
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)
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(1,028,745
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)
|
||||
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Other current assets
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(91,250
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)
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(16,951
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)
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||||
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Increase (decrease) in:
|
||||||||
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Accounts payable and accrued expenses
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769,956
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626,655
|
||||||
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Net cash provided by (used in) operating activities
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(2,293,105
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)
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(984,134
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)
|
||||
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Cash flow from investing activities
|
||||||||
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Purchase of fixed assets
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(43,374
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)
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(11,923
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)
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||||
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Acquisition consideration
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-
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(100,000
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)
|
|||||
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Net cash used in investing activities
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(43,374
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)
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(111,923
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)
|
||||
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Cash flow from financing activities
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||||||||
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Proceeds from bank loan and convertible notes, net
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3,172,431
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(19,772
|
)
|
|||||
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Proceeds from issuance of common shares, net
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-
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1,467,595
|
||||||
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Net cash provided by financing activities
|
3,172,431
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1,447,823
|
||||||
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Net increase (decrease) in cash and cash equivalents
|
835,952
|
351,766
|
||||||
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Cash and cash equivalents as at beginning of the period
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431,400
|
1,371,331
|
||||||
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Cash at the end of the period
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1,267,352
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1,723,097
|
||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
AMERI HOLDINGS, INC.
MARCH 31, 2020
| NOTE 1. |
DESCRIPTION OF BUSINESS:
|
AMERI Holdings, Inc. (“AMERI”, the “Company”, “we” or “our”) is a company that, through the operations of its eleven subsidiaries, provides SAP
TM
cloud and digital
enterprise services to clients worldwide. Headquartered in Alpharetta, Georgia, we typically go to market both vertically by industry and horizontally by product/technology specialties and provide our customers with a wide range of business and
technology offerings. We work with customers, primarily within North America, to improve process, reduce costs and increase revenue through the judicious use of technology. The Company earns almost all of its revenue from North America. The Company
takes the position that all of its businesses operate as a single segment.
On January 10, 2020, we and Ameri100 Inc. (“Buyer”) entered into a Stock Purchase Agreement (the “Agreement”) pursuant to which, among other things and subject to the satisfaction or waiver of
specified conditions, the Company will sell to Buyer and Buyer will purchase from the Company one hundred percent (100%) of the outstanding equity interests (the “Purchased Shares”) of Ameri100 Holdco, Inc. (“Holdco”) (the “Spin-Off”).
On January 10, 2020, the Company entered into an Amalgamation Agreement (
as amended on May 6, 2020,
the “Amalgamation Agreement”) with Jay Pharma Merger Sub, Inc. a company organized under the laws of Canada and a wholly-owned subsidiary of the Company (“Merger Sub”), Jay Pharma Inc., a company
organized under the laws of Canada (“Jay Pharma”), Jay Pharma ExchangeCo., Inc. a company organized under the laws of British Columbia and a wholly-owned subsidiary of the Company (“ExchangeCo”), and Barry Kostiner, as the Company Representative
,
which provides that, among other things, Merger Sub and Jay Pharma will be amalgamated and will continue as one corporation (“Amalco”), with Amalco continuing as a direct wholly-owned subsidiary of
ExchangeCo and an indirect wholly-owned subsidiary of Ameri, on the terms and conditions set forth in the Amalgamation Agreement.
| NOTE 2. |
BASIS OF PRESENTATION:
|
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United
States of America, or U.S. GAAP, and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Certain information and disclosure notes normally included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to ensure the information presented is not misleading.
The accompanying unaudited condensed consolidated financial statements reflect all adjustments (which were of a normal, recurring nature) that, in the opinion of management, are
necessary to present fairly our financial position, results of operations and cash flows as of and for the interim periods presented. All intercompany transactions have been eliminated in the accompanying unaudited condensed consolidated financial
statements.
Our comprehensive income (loss) consists of net income (loss) plus or minus any periodic currency translation adjustments.
The results for the interim periods presented are not necessarily indicative of the results expected for any future period. The following information should be read in conjunction
with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Recent Accounting Pronouncements
New Standards to Be Implemented
In January 2017, the FASB issued ASU No. 2017-04, simplifying the Test for Goodwill Impairment. Under this new standard, goodwill impairment would be measured as the amount by which a
reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by
hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual periods beginning after December 15, 2019, and
interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment test performed on testing dates after January 1, 2017. The company does not expect any material impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use
asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would
recognize total lease expense on a straight-line basis. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2018. Upon adoption, entities will be required to use a modified
retrospective transition which provides for certain practical expedients. Entities are required to apply the new standard at the beginning of the earliest comparative period presented. Early adoption of this new standard is permitted.
| NOTE 3. |
BUSINESS COMBINATIONS:
|
Acquisition of Ameri Georgia
On November 20, 2015, we completed the acquisition of Bellsoft, Inc., a consulting company based in Lawrenceville, Georgia, which specializes in SAP software, business intelligence, data
warehousing and other enterprise resource planning services.
Following the acquisition, the name of Bellsoft, Inc. was changed to Ameri100 Georgia Inc. (“Ameri Georgia”).
Ameri
Georgia has operations in the United States, Canada and India.
The total purchase price of $9.9 million was allocated to net working capital of $4.6 million, intangibles of $1.8 million, taking into consideration projected revenue from the
acquired list of Ameri Georgia customers over a period of three years, and goodwill. The excess of total purchase price over the net working capital and intangibles allocations has been allocated to goodwill.
On January 17, 2018, we completed all payment obligations to the former shareholders of Ameri Georgia in connection with the Ameri Georgia share purchase agreement, and we have no further payment
obligations pursuant thereto.
Acquisition of Bigtech Software Private Limited
On June 23, 2016, we entered into a definitive agreement to purchase Bigtech Software Private Limited (“Bigtech”), a pure-play SAP services company providing a wide range of SAP services including
turnkey implementations, application management, training and basis ABAP support. Based in Bangalore, India, Bigtech offers SAP services to improve business operations at companies of all sizes and verticals.
The acquisition of Bigtech was effective as of July 1, 2016, and the total consideration for the acquisition of Bigtech was $850,000.
Bigtech’s financial results are included in our condensed consolidated financial results starting July 1, 2016. The Bigtech acquisition did not constitute a significant acquisition
for the Company for purposes of Regulation S-X. The valuation of Bigtech was made on the basis of its projected revenues.
Acquisition of Virtuoso
On July 22, 2016, we acquired all of the outstanding membership interests of Virtuoso, L.L.C. (“Virtuoso”), a Kansas limited liability company
, pursuant to the terms of an Agreement of Merger and Plan of Reorganization, by and among us, Virtuoso Acquisition Inc., Ameri100 Virtuoso Inc., Virtuoso and the sole member of Virtuoso (the “Sole Member”)
. Virtuoso is an SAP
consulting firm specialized in providing services on SAP S/4 HANA finance, enterprise mobility and cloud migration and is based in Leawood, Kansas.
In connection with the merger, Virtuoso’s
name was changed to Ameri100 Virtuoso Inc.
The Virtuoso acquisition did not constitute a significant acquisition for the Company for purposes of Regulation S-X.
The total purchase price of $1.8 million was allocated to intangibles of $0.9 million, taking into consideration projected revenue from the acquired list of Virtuoso customers over a
period of three years, and the balance was allocated to goodwill. The Virtuoso earn-out payments for 2016 amounted to $0.06 million in cash and 12,408 shares of common stock, which were delivered to the Sole Member during the twelve months ended
December 31, 2017.
Acquisition of Ameri Arizona
On July 29, 2016, we acquired 100% of the membership interests of DC&M Partners, L.L.C. (“Ameri Arizona”), an Arizona limited liability company, pursuant to the terms of a Membership Interest Purchase Agreement by
and among us, Ameri Arizona, all of the members of Ameri Arizona, Giri Devanur and Srinidhi “Dev” Devanur, our former President and Chief Executive Officer and current Executive Chairman, respectively. In July 2017, the name of DC&M Partners,
L.L.C. was changed to Ameri100 Arizona LLC. Ameri Arizona is an SAP consulting company headquartered in Chandler, Arizona. Ameri Arizona provides its clients with a wide range of information technology development, consultancy and management
services with an emphasis on the design, build and rollout of SAP implementations and related products. As of the date of this report the Company owed an aggregate of $1,000,000 in consideration payable by cash to Lucid Solutions Inc, and Houskens
LLC in connection with the Ameri100 Arizona acquisition.
The aggregate purchase price for the acquisition of Ameri Arizona was $15.8 million.
The total purchase price of $15.8 million was allocated to intangibles of $5.4 million, taking into consideration projected revenue from the acquired list of Ameri Arizona customers over a period of three years, and
the balance was allocated to goodwill.
In August 2018, the Company resolved the payment of all earn-out payments to the former members of Ameri Arizona pursuant to the Ameri Arizona membership interest purchase
agreement,
and the Company has no further payment obligations with respect to any Ameri Arizona earn-out
.
Acquisition of Ameri California
On March 10, 2017, we acquired 100% of the shares of ATCG Technology Solutions, Inc. (“Ameri California”), a Delaware corporation, pursuant to the terms of a Share Purchase Agreement among the
Company, Ameri California, all of the stockholders of Ameri California (the “Stockholders”), and the Stockholders’ representative. In July 2017, the name of ATCG Technology Solutions, Inc. was changed to Ameri100 California Inc. Ameri California
provides U.S. domestic, offshore and onsite SAP consulting services and has its main office in Folsom, California. Ameri California specializes in providing SAP Hybris, SAP Success Factors and business intelligence services.
The aggregate purchase price for the acquisition of Ameri California was $8.8 million.
The total purchase price of $8.8 million was allocated to intangibles of $3.8 million, taking into consideration projected revenue from the acquired list of Ameri California customers over a period
of three years, and goodwill. The excess of total purchase price over the intangibles allocation has been allocated to goodwill.
Presented below is the summary of the foregoing acquisitions:
Allocation of purchase price in millions of U.S. dollars
|
Asset Component
|
Ameri
Georgia
|
Bigtech
|
Virtuoso
|
Ameri
Arizona
|
Ameri
California
|
|||||||||||||||
|
Intangible Assets
|
1.8
|
0.6
|
0.9
|
5.4
|
3.8
|
|||||||||||||||
|
Goodwill
|
3.5
|
0.3
|
0.9
|
10.4
|
5.0
|
|||||||||||||||
|
Working Capital
|
||||||||||||||||||||
|
Current Assets
|
||||||||||||||||||||
|
Cash
|
1.4
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Accounts Receivable
|
5.6
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Other Assets
|
0.2
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
7.3
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Current Liabilities
|
||||||||||||||||||||
|
Accounts Payable
|
1.3
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Accrued Expenses & Other Current Liabilities
|
1.3
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
2.7
|
-
|
-
|
-
|
-
|
||||||||||||||||
|
Net Working Capital Acquired
|
4.6
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
Total Purchase Price
|
9.9
|
0.9
|
1.8
|
15.8
|
8.8
|
|||||||||||||||
As of the date of this report the Company owed an aggregate of $1,000,000 in consideration payable by cash to Lucid Solutions Inc, and Houskens LLC in connection with the Ameri100
Arizona acquisition.
| NOTE 4. |
REVENUE RECOGNITION:
|
Revenue Recognition.
We recognize revenues as we transfer control of deliverables (products, solutions and services) to our customers in an amount reflecting the consideration to
which we expect to be entitled. To recognize revenues, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate
the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. We account for a contract when it has approval and commitment from all parties, the rights of the parties
are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We apply judgment in determining the customer’s ability and intention to pay based on a variety of factors
including the customer’s historical payment experience.
For performance obligations where control is transferred over time, revenues are recognized based on the extent of progress towards completion of the performance obligation. The selection of the
method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided.
Revenues related to fixed-price contracts for application development and systems integration services, consulting or other technology services are recognized as the service is performed using the
cost to cost method, under which the total value of revenues is recognized on the basis of the percentage that each contract’s total labor cost to date bears to the total expected labor costs. Revenues related to fixed-price application maintenance,
testing and business process services are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not consistent with value delivered,
revenues are recognized as the service is performed based on the cost to cost method described above. The cost to cost method requires estimation of future costs, which is updated as the project progresses to reflect the latest available information;
such estimates and changes in estimates involve the use of judgment. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on
contracts are recognized immediately.
Revenues related to our time-and-materials, transaction-based or volume-based contracts are recognized over the period the services are provided either using an output method such as labor hours, or
a method that is otherwise consistent with the way in which value is delivered to the customer.
We assess the timing of the transfer of goods or services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical
expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less. If the difference in timing arises for reasons other than the provision of finance to
either the customer or us, no financing component is deemed to exist. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our services, not to receive or provide financing from or to
customers. We do not consider set up or transition fees paid upfront by our customers to represent a financing component, as such fees are required to encourage customer commitment to the project and protect us from early termination of the contract.
Trade Receivables, Contract Assets and Contract Liabilities.
We classify our right to consideration in exchange for deliverables as either a receivable or a
contract asset. A receivable is a right to consideration that is unconditional (i.e., only the passage of time is required before payment is due). For example, we recognize a receivable for revenues related to our time and materials and transaction
or volume-based contracts when earned regardless of whether amounts have been billed. We present such receivables in “Trade accounts receivable, net” in our consolidated statements of financial position at their net estimated realizable value. A
contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in “Other current assets” in our consolidated statements of financial position and primarily relate to unbilled
amounts on fixed-price contracts utilizing the cost to cost method of revenue recognition. Our contract liabilities, or deferred revenue, consist of advance payments and billings in excess of revenues recognized. We classify deferred revenue as
current or noncurrent based on the timing of when we expect to recognize the revenues. The noncurrent portion of deferred revenue is included in “Other noncurrent liabilities” in our consolidated statements of financial position.
Allowance for Doubtful Accounts.
We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that may not be collected.
The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other applicable factors. We evaluate the collectability of our trade accounts receivable on an on-going
basis and write off accounts when they are deemed to be uncollectable.
| NOTE 5. |
INTANGIBLE ASSETS:
|
The Company’s intangible assets primarily consists of the customer lists it acquired through various acquisitions. We amortize our intangible assets that have finite lives using either the
straight-line method or based on estimated future cash flows to approximate the pattern in which the economic benefit of the asset will be utilized. Amortization expense was $0.5 million and $0.6 million for the three months ended March 31, 2020
and March 31, 2019 respectively. This amortization expense relates to customer lists which expire through 2022.
| NOTE 6. |
GOODWILL:
|
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations. The total value of the Company’s goodwill was
$13.7 million as of March 31, 2020 and December 31, 2019.
As per Company policy, goodwill impairment tests are conducted on an annual basis and any impairment is reflected in the Company’s Statements of Operations.
| NOTE 7. |
EARNINGS (LOSS) PER SHARE:
|
Basic income (loss) per share is computed based upon the weighted average number of common shares outstanding for the period. When applicable, diluted income (loss) per share is
calculated using two approaches. The first approach, the treasury stock method, reflects the potential dilution that could occur if outstanding stock options, warrants, restricted stock units and outstanding shares to be awarded to satisfy contingent
consideration for the business combinations (collectively, the “Equity Awards”) were exercised and issued. The second approach, the if converted method, reflects the potential dilution of the Equity Awards, the 8% Convertible Unsecured Promissory
Notes (the “2017 Notes”) described in Note 10 being exchanged for common stock. Under this method, interest expense, net of tax, if any, associated with the 2017 Notes, up through redemption, is added back to net income attributable to common
stockholders and the shares outstanding are increased by the underlying 2017 Notes are considered to be issued.
For the three months ended March 31, 2020 and 2019, no shares related to the issuance of common stock upon exercise of the Equity Awards or the exchange of the 2017 Notes for common
stock were considered in the calculation of diluted loss per share, as the effect would be anti-dilutive due to net losses attributable to common stockholders for both periods.
A reconciliation of net loss attributable to common stockholders and weighted average shares used in computing basic and diluted net loss per share is as follows:
|
For the Three Months
Ended
|
||||||||
|
March 31,
2020
|
March 31,
2019
|
|||||||
|
Numerator for basic and diluted income (loss) per share:
|
||||||||
|
Net income (loss) attributable to common stockholders
|
$
|
(1,892,362
|
)
|
(1,965,677
|
)
|
|||
|
Numerator for diluted income (loss) per share:
|
||||||||
|
Net income (loss) attributable to common stockholders - as reported
|
$
|
(1,892,362
|
)
|
(1,965,677
|
)
|
|||
|
Net income (loss) attributable to common stockholders - after assumed conversions of dilutive shares
|
$
|
(1,892,362
|
)
|
(1,965,677
|
)
|
|||
|
Denominator for weighted average common shares outstanding:
|
||||||||
|
Basic shares
|
3,175,040
|
1,807,403
|
||||||
|
Dilutive effect of Equity Awards
|
-
|
|||||||
|
Dilutive effect of 2017 Notes
|
-
|
-
|
||||||
|
Diluted shares
|
3,175,040
|
1,807,403
|
||||||
|
|
||||||||
|
Income (loss) per share – basic:
|
$
|
(0.60
|
)
|
(1.09
|
)
|
|||
|
Income (loss) per share – diluted:
|
$
|
(0.60
|
)
|
(1.09
|
)
|
|||
| NOTE 8. |
INCENTIVE PLAN ITEMS:
|
During the three months ended March 31, 2020, the Company has not granted any restricted stock units and stock options to purchase Company’s common stock to key employees or directors
out of Company’s 2015 Equity Incentive Award Plan. The company has booked charges of $19,810 as stock compensation expenses for the three months ended March 31 2020 and $0.3 million for the three months ended March 31, 2019.
| NOTE 9. |
BANK DEBT:
|
On January 23, 2019, certain subsidiaries of the Company, including Ameri100 Arizona LLC, Ameri100 Georgia, Inc., Ameri100 California, Inc. and Ameri and Partners, Inc., as borrowers
(individually and collectively, “Borrower”) entered into a Loan and Security Agreement (the “Loan Agreement”) for a credit facility (the “Credit Facility”) with North Mill Capital LLC, as lender (the “Lender”). The Loan Agreement has an initial term
of two years from the closing date, with renewal thereafter if Lender, at its option, agrees in writing to extend the term for additional one year periods (the “Term”). The Loan Agreement is collateralized by a first-priority security interest in all
of the assets of Borrower. In addition, (i) pursuant to a Corporate Guaranty entered into by the Company in favor of the Lender (the “Corporate Guaranty”), the Company has guaranteed the Borrower’s obligations under the Credit Facility and (ii)
pursuant to a Security Agreement entered into between the Company and Lender (the “Security Agreement”), the Company granted a first-priority security interest in all of its assets to Lender.
The Borrowers received an initial advance on January 23, 2019 in an amount of approximately $2.85 million (the “Initial Advance”). Borrowings under the Credit Facility accrue interest
at the prime rate (as designated by Wells Fargo Bank, National Association) plus one and three quarters percentage points (1.75%), but in no event shall the interest rate be less than seven and one-quarter percent (7.25%). Notwithstanding anything to
the contrary contained in the Loan Documents, the minimum monthly interest payable by Borrower on the Advances (as defined in the Loan Agreement) in any month shall be calculated based on an average Daily Balance (as defined in the Loan Agreement) of
Two Million Dollars ($2,000,000) for such month. For the first year of the Term, Borrower shall pay to Lender a facility fee equal to $50,000, due in equal monthly installments, with additional facility fees due to Lender in the event borrowings
exceed certain thresholds and with additional facility fees due and payable in later years or upon later milestones. In addition, Borrower shall pay to Lender a monthly fee (the “Servicing Fee”) in an amount equal to one-eighth percent (.125%) of the
average Daily Balance (as defined in the Loan Agreement) during each month on or before the first day of each calendar month during the Term.
Borrower also agreed to certain negative covenants in the Loan Agreement, including that they will not, without the prior written consent of Lender, enter into any extraordinary transactions, dispose of
assets, merge, acquire, or consolidate with or into any other business organization or restructure. As of March 31, 2020, the principal balance and accrued interest under the Credit Facility amounted to $ 4.5 million.
As of March 31, 2020, the principal balance and accrued interest under the Credit Facility amounted to $ 4.5 million.
| NOTE 10. |
CONVERTIBLE NOTES:
|
On March 7, 2017, we completed the sale and issuance of 8% Convertible Unsecured Promissory Notes (the “2017 Notes”) for aggregate proceeds to us of $1.25 million from four accredited investors,
including one of the Company’s then-directors, Dhruwa N. Rai, and David Luci, who became a director of the Company in February 2018. The 2017 Notes were issued pursuant to Securities Purchase Agreements between the Company and each investor. The 2017
Notes bear interest at 8% per annum until maturity in March 2020, with interest being paid annually on the first, second and third anniversaries of the issuance of the 2017 Notes beginning in March 2018. From and after an event of default and for so
long as the event of default is continuing, the 2017 Notes will bear default interest at the rate of 10% per annum.
We have not repaid the 2017 Notes and do not currently have sufficient funds available to meet these obligations.
During the first quarter of 2019 the company repaid $0.25 million towards 2017 notes.
The 2017 Notes are convertible into shares of our common stock at a conversion price equal to $2.80. The holders of the 2017 Notes have the right, at their option, at any time and from time to time
to convert, in part or in whole, the outstanding principal amount and all accrued and unpaid interest under the 2017 Notes into shares of the Company’s common stock at the conversion price.
On November 25, 2019, the Company entered into a securities purchase agreement with an institutional investor for the sale of a $1,000,000 convertible debenture (the “First
Debenture”).
The First Debenture accrues interest at rate of 5% and will be due six (6) months from the issue date. The First Debenture may be converted at any time after the issue date
into shares of Company’s Common Stock at a price equal to $2.725.
On January 14, 2020, the Company entered into a securities purchase agreement (with the same institutional investor for the sale of a $500,000 convertible debenture (the
“Second Debenture” and collectively with the First Debenture, the “Debentures”).
The Second Debenture accrues interest at rate of 5% and is due on the same date as the First Debenture. The Second Debenture may be converted at any
time after the issue date into shares of Company’s Common Stock at a price equal to $2.725.
| NOTE 11. |
COMMITMENTS AND CONTINGENCIES:
|
Operating Leases
The Company’s principal facility is located in Alpharetta, Georgia. The Company also leases office space in various locations with expiration dates between 2020 and 2027. The lease
agreements often include leasehold improvement incentives, escalating lease payments, renewal provisions and other provisions which require the Company to pay taxes, insurance, maintenance costs, or defined rent increases. All of the Company’s leases
are accounted for as operating leases. Rent expense is recorded over the lease terms on a straight-line basis. Rent expense was $90,449 and $70,219 for the three months ended March 31, 2020 and 2019, respectively.
|
Year ending December 31
|
Total
|
|||
|
2020
|
190,413
|
|||
|
2021
|
156,868
|
|||
|
2022
|
113,565
|
|||
|
2023
|
116,969
|
|||
|
2024
|
120,476
|
|||
|
2025
|
124,091
|
|||
|
2026
|
127,814
|
|||
|
2027
|
64,692
|
|||
|
Total
|
1,014,888
|
|||
| NOTE 12. |
FAIR VALUE MEASUREMENT:
|
We utilize the following valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as
follows:
|
|
• |
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
|
• |
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for
substantially the full term of the financial instrument; and
|
|
|
• |
Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.
|
A financial asset or liability’s classification within the hierarchy is determined based upon the lowest level input that is significant to the fair value measurement.
The fair value of the contingent consideration was estimated using a discounted cash flow technique with significant inputs that are not observable in the market. The significant
inputs not supported by market activity included our probability assessments of expected future cash flows related to the acquisitions during the earn-out period, appropriately discounted considering the uncertainties associated with the obligation,
and calculated in accordance with the respective terms of the share purchase agreements.
No financial instruments were transferred into or out of Level 3 classification during the period ended March 31 2020 and year ended December 31, 2019.
| NOTE 13. |
WARRANTS OUTSTANDING:
|
The following warrants, were outstanding as of March 31, 2020:
|
Exercise Price
|
Number Outstanding
|
Weighted Average
Remaining Contractual
life (Years)
|
Number Exercisable
|
|||||||||||
|
$
|
150.00
|
40,000
|
0.02
|
40,000
|
||||||||||
|
$
|
102.88
|
3,902
|
0.03
|
3,902
|
||||||||||
|
$
|
37.50
|
200,000
|
2.27
|
200,000
|
||||||||||
|
$
|
102.88
|
48,975
|
0.42
|
48,975
|
||||||||||
|
Total
|
292,878
|
292,878
|
||||||||||||
|
NOTE 14.
|
PREFERRED STOCK
|
On December 30, 2016, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Lone Star Value Investors, LP (“LSVI”), pursuant to which a Convertible Note was returned to the
Company and cancelled in exchange for 363,611 shares of the Company’s Series A Preferred Stock, which is non-convertible and perpetual preferred stock of the Company. We have issued 61,327 shares as preferred dividends as of March 31 2020 and the
company has 424,938 outstanding shares preferred stock.
| NOTE 15. |
SECURED NOTE:
|
Effective February 27, 2020, the “Company entered into a note purchase and security agreement (the “Purchase Agreement”) with an investor for the sale of a $1,000,000 secured promissory note (the “Note”). The Note
accrues interest at rate of 7.25% and is due on August 31, 2020.
The Company granted to the investor a security interest (the “Security Interest”) in and lien on all of Company’s tangible and intangible assets owned now or acquired later by the Company of any
nature whatsoever. The Security Interest is a second priority security interest, senior to all other indebtedness of the Company other than with respect to the Company’s existing indebtedness to North Mill Capital LLC (“North Mill”) the priority of
which is established pursuant to an Intercreditor and Debt Subordination Agreement between the investor and North Mill.
| NOTE 16. |
SUBSEQUENT EVENTS:
|
Maturity Extension and Forbearance Agreement
On May 6, 2020, the Company entered into a Maturity Extension and Forbearance Agreement (“Agreement”) with the holder of the Debentures. Pursuant to the Agreement (i) the holder
agreed to extend the Maturity Date of the Debentures to from May 26, 2020 to September 30, 2020, (ii) the Company may now prepay each Debenture at any time, with accrued interest to the date of such payment, but no other premium or penalty, and
(iii) the parties changed the definition of “Permitted Indebtedness” in the Debentures so as to permit indebtedness issued pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act or related or similar governmental programs
including disaster-relief or pandemic-relief programs designed to help businesses in the wake of the Coronavirus pandemic. In consideration for entering into the Agreement the Company agreed to issue to the holder a prepaid warrant (the “Warrant”)
to purchase up to 646,094 shares of the Company’s common stock. The Warrant shall be exercisable, commencing on May 6, 2020 until exercised in full, at a price of $0.001 per share, and shall also be exercisable on a cashless basis.
Amalgamation Amendment Agreement
On May 6, 2020, the Company entered into an Amalgamation Amendment Agreement (the “Amendment”) to amend that certain Amalgamation Agreement dated January 10, 2020, by and between Ameri Holdings, Inc., Jay Pharma Merger
Sub, Inc. (“
Merger
Sub
”), Jay Pharma Inc. (“Jay Pharma”), Jay Pharma ExchangeCo, Inc. (“ExchangeCo”), and Barry Kostiner (the “Amalgamation Agreement”). Pursuant to the Amendment, the parties agreed that (i) at the Effective Time,
Ameri Holdings, Inc. shall issue to the holder of a certain note issued by Jay Pharma, series B warrants (the “Series B Warrants”) to acquire 8,100,000 shares of common stock of the company resulting from the amalgamation, and (ii) providing for
certain registration rights, pursuant to a Registration Statement on Form S-4, of the Series B Warrants and the shares issuable upon exercise of the Series B Warrants. The Series B Warrants shall be exercisable for a period of five years commencing
on the ninetieth (90th) day after the later of the last day of the Lock-up Period and leak-out Period (accelerated or otherwise) set forth in the Lock-up agreement to be executed by the holders of Jay Pharma securities in connection with the
Amalgamation, at a price of $0.01 per share, and shall also be exercisable on a cashless basis.
Loan from Paycheck Protection Program (PPP)
On May
11, 2020, we received proceeds from a loan in the amount of $1,719,600 (the “PPP Loan”) from Sterling National Bank,
as lender, pursuant to the Small Business Association (“SBA”) Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security
(“CARES”)
Act.
The Loan, which was in the form of a Promissory Note
issued by the Borrower, matures on May 6, 2022 and bears interest at a rate
of 1.00% per annum, payable monthly commencing on November 6, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue
group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before July 12, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain
amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in
our Annual Report on Form 10-K for the year ended December 31, 2019. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements” included
elsewhere herein.
We use the terms “we,” “our,” “us,” “AMERI” and “the Company” in this report to refer to AMERI Holdings, Inc. and its wholly-owned subsidiaries.
Company History
We were incorporated under the laws of the State of Delaware in February 1994 as Spatializer Audio Laboratories, Inc., which was a shell company immediately prior to our completion of
a “reverse merger” transaction on May 26, 2015, in which we caused Ameri100 Acquisition, Inc., a Delaware corporation and our newly created, wholly owned subsidiary, to be merged with and into Ameri and Partners Inc (“Ameri and Partners”), a Delaware
corporation (the “Merger”). On May 26, 2015, we completed the Merger, in which we caused Ameri100 Acquisition, Inc., a Delaware corporation and our newly created, wholly owned subsidiary, to be merged with and into Ameri and Partners (doing business
as Ameri100), a Delaware corporation. As a result of the Merger, Ameri and Partners became our wholly owned operating subsidiary. The Merger was consummated under Delaware law, pursuant to an Agreement of Merger and Plan of Reorganization, dated as
of May 26, 2015 (the “Merger Agreement”), and in connection with the Merger we changed our name to AMERI Holdings, Inc. We are headquartered in Alpharetta, Georgia.
On January 10, 2020, we entered into the Stock Purchase Agreement with respect to the Spin-Off and the Amalgamation Agreement with respect to
the Amalgamation. There is no assurance when or if the amalgamation will be completed. Any delay in completing the amalgamation may substantially reduce the intended benefits that Ameri and Jay Pharma expect to obtain from the amalgamation.
Completion of the amalgamation and spin-off is subject to the satisfaction or waiver of a number of conditions as set forth in the Amalgamation Agreement
and spin-off agreements, including the approval by Ameri’s stockholders and Jay Pharma’s shareholders, approval by NASDAQ of Ameri’s application for the listing of common stock in connection with the amalgamation, and other customary closing
conditions. There can be no assurance that Ameri and Jay Pharma will be able to satisfy the closing conditions or that closing conditions of the amalgamation or spin-off beyond their control will be satisfied or waived. If such conditions are not
satisfied or waived, the amalgamation and spin-off may not occur or will be delayed, and Ameri and Jay Pharma each may lose some or all of the intended benefits of the amalgamation. In addition, if the Amalgamation Agreement is terminated under
certain circumstances, Ameri or Jay Pharma may be required to pay a termination fee of $500,000. Moreover, each of Ameri and Jay Pharma has incurred and expect to continue to incur significant expenses related to the amalgamation, such as legal and
accounting fees, some of which must be paid even if the amalgamation is not completed.
Overview
We specialize in delivering SAP cloud, digital and enterprise services to clients worldwide. Our SAP focus allows us to provide technological solutions to a broad and growing base of clients. Our
model inverts the conventional global delivery model wherein offshore IT service providers are based abroad and maintain a minimal presence in the United States. With a strong SAP focus, our client partnerships anchor around SAP cloud and digital
services. We pursue an acquisition strategy that seeks to disrupt the established business model of offshore IT service providers.
We generate revenue by providing consulting services under written service contracts with our customers. The service contracts we enter into generally fall into two categories: (1) time-and-materials
contracts and (2) fixed-price contracts.
When a customer enters into a time-and-materials or fixed-price (or a periodic retainer-based) contract, the revenue is recognized in accordance with the deliverables of each contract. If the
deliverables involve separate units of accounting, the consideration from the arrangement is measured and allocated to the separate units, based on vendor specific objective evidence of the value for each deliverable.
The revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Revenue pursuant to fixed-price contracts is recognized under
the proportional performance method of accounting. We routinely evaluate whether revenue and profitability should be recognized in the current period. We estimate the proportional performance on fixed-price contracts on a monthly basis utilizing
hours incurred to date as a percentage of total estimated hours to complete the project.
For the three months ended March 31, 2020 and March 31, 2019, sales to five major customers accounted for 59% and 42% of our total revenue, respectively. For the three
months ended March 31, 2020, three of our customers contributed 24% and 11% each by other two customers for our revenue. For the comparable period in 2019, one of our customers contributed 13% of our revenue
.
We continue to explore strategic alternatives to improve the market position and profitability of our product and service offerings in the marketplace, generate additional liquidity
for the Company, and enhance our valuation. We expect to pursue our goals during the next twelve months through organic growth and through other strategic alternatives. Some of these alternatives have included, and could continue to include,
selective acquisitions. The Company has obtained financing and additional capital from the sale of equity and incurrence of indebtedness in the past, and continues to consider capital raising and financing from the sale of various types of equity and
incurrence of indebtedness to provide capital for our business plans and operations in the future.
Business Update Regarding COVID-19
During the first quarter of 2020, the spread of a new strain of coronavirus and the disease created by that virus, COVID-19, has created a global pandemic presenting substantial
public health and economic challenges around the world. The global pandemic is affecting our employees, communities and business operations, as well as the global economy and financial markets. The full extent to which the COVID-19 pandemic will
directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19,
the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
The disclosure in the remainder of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is qualified by the disclosure in this
section on the impacts of COVID-19 and, to the extent that the disclosure in the remainder of this MD&A refers to a financial or performance metric that has been affected by a trend or activity, that reference is in addition to any impact
discussed in this section of the impacts of the COVID-19 pandemic. The effect of the COVID-19 pandemic is rapidly evolving and, as such, the information contained herein is accurate as of the date hereof, but may become outdated due to changing
circumstances beyond our present awareness or control.
The Company has Implemented work from home policies and procedures for all of its employees and consultants in the USA and India. These policies and procedures will remain in place until such time
that the local regulatory authorities in each of our locations approves the return to normal business operations. At this time, none of our employees’ health has been impacted by COVID-19.
No clients have gone out of business or filed for bankruptcy, and although there has been a reduction in staffing, no active clients have completely ceased using our services as a result of COVID-19. As a direct result
of COVID-19 we had significant consultant roll-offs from one of the top US airlines that has been one of our top five revenue clients over the last several years. We expect a portion of that business to come back when the US airline business
recovers. Additionally, we have seen minor consultant roll-offs from other clients related to COVID-19. We have had no projects cancelled due to COVID-19 although we have had some new projects put on hold. We have also had clients notify us they
will be slow to pay our bills and have some reduced billable hours per week until the economy reopens further. We are at the beginning stages of rebuilding our sales pipeline for a post-COVID economy.
Discussion of Business Activity
The Company has recently been awarded enterprise IT solutions projects include implementations of i) S/4HANA, SAP’s new enterprise IT platform, ii) Hybris, SAP’s e-commerce platform, and iii) SuccessFactors, SAP’s human
resources platform, in addition to the migration of enterprises from on-premises IT infrastructure to the cloud.
Key new business activities in April and May, 2020:
|
•
|
Awarded S/4HANA transformation for a spinoff in the midstream oil and gas industry:
|
|
•
|
Awarded S/4HANA private cloud transformation for US firearm and ammunition company
|
|
•
|
Completed go live on Hybris e-commerce implementation for lifestyle apparel and athletic company
|
|
•
|
Initiated Application Managed Services (AMS) contract with a transportation infrastructure construction and maintenance client
|
|
•
|
Initiated Application Managed Services (AMS) contract with a US manufacturer of industrial cooling equipment
|
|
•
|
Signed a new Master Services Agreement and commenced services for water treatment provider.
|
In addition to client initiatives, the Company has invested in continued development of its internal technology expertise and business process efficiency. We have initiated the internal implementation of a Professional
Services Automation suite we hope that will significantly streamline our business operations.
There is a continued near-term expectation of negative cashflow as a result of high Selling, General and Administrative expenses and significant expenses associated with building solutions, sales and resource
recruiting capabilities. Also, SAP has pushed out its deadline for mandatory migration to S/4HANA past 2025, which is expected to have a near-term negative impact on the expansion of the solutions business. Due to the foregoing and COVID-19
Pandemic, it is expected that our business will fall short of our 2020 revenue goals.
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019.
|
Mar 31,2020
|
Mar 31,2019
|
|||||||
|
Revenue
|
9,602,528
|
10,686,196
|
||||||
|
Cost of revenue
|
7,720,962
|
8,546,232
|
||||||
|
Gross profit
|
1,881,566
|
2,139,964
|
||||||
|
Operating expenses
|
||||||||
|
Selling, General and administration
|
2,924,518
|
2,877,309
|
||||||
|
Depreciation and amortization
|
559,623
|
561,017
|
||||||
|
Operating expenses
|
3,484,141
|
3,438,326
|
||||||
|
Operating Income (loss)
|
(1,602,575
|
)
|
(1,298,362
|
)
|
||||
|
Interest expenses
|
(160,060
|
)
|
(142,554
|
)
|
||||
|
Impairment on goodwill and Intangibles
|
||||||||
|
Changes in fair value of warrant liability
|
-
|
(450,267
|
)
|
|||||
|
Income (loss) before income taxes
|
(1,762,635
|
)
|
(1,891,183
|
)
|
||||
|
Income tax benefit
|
(21,892
|
)
|
31,211
|
|||||
|
Income (loss) after income taxes
|
(1,784,527
|
)
|
(1,859,972
|
)
|
||||
|
Net income attributable to non-controlling interest
|
||||||||
|
Net Income (loss) attributable to the Company
|
(1,784,527
|
)
|
(1,859,972
|
)
|
||||
|
Dividend on preferred stock
|
(107,835
|
)
|
(105,705
|
)
|
||||
|
Net Income (loss) attributable to common stock holders
|
(1,892,362
|
)
|
(1,965,677
|
)
|
||||
|
Other comprehensive income (loss), net of tax
|
||||||||
|
Foreign exchange translation
|
(35,503
|
)
|
18,714
|
|||||
|
Total Comprehensive Income (loss)
|
(1,927,865
|
)
|
(1,946,963
|
)
|
||||
|
Basic income (loss) per share
|
(0.60
|
)
|
(1.09
|
)
|
||||
|
Diluted income (loss) per share
|
(0.60
|
)
|
(1.09
|
)
|
||||
|
Basic weighted average number of common shares outstanding
|
3,175,040
|
1,807,403
|
||||||
|
Diluted weighted average number of common shares outstanding
|
3,175,040
|
1,807,403
|
||||||
Revenues
Revenues for the three months ended March 31, 2020 decreased by $1 million, or 11%, as compared to the three months ended March 31, 2019 mainly due to completion of some of our major
customer assignments in 2019, which had contributed revenue during three months ended March 31, 2019.
For the three months ended March 31, 2020 and March 31, 2019, sales to five major customers accounted for 59% and 42% of our total revenue, respectively. For the
three months ended March 31, 2020, three of our customers contributed 24% and 11% each by other two customers for our revenue. For the comparable period in 2019, one of our customers contributed 13% of our revenue
.
We derived most of our revenues from our customers located in North America for the three months ended March 31, 2020 and March 31, 2019.
Gross Margin
Our gross margin was 20% for the three months ended March 31, 2020 and comparable period in 2019.
Our target gross margins in future periods are anticipated to be in the range of 20% to 25% based on a mix of project revenues and professional service revenues. However, there is no
assurance that we will achieve such anticipated gross margins.
Selling, General and Administration Expenses
Selling, general and administration (“SG&A”) expenses include all costs, including rent costs, which are not directly associated with revenue-generating activities, as well
as the non-cash expense for stock-based compensation. These include employee costs, corporate costs and facilities costs. Employee costs include administrative salaries and related employee benefits, travel, recruiting and training costs. Corporate
costs include reorganization costs, legal, accounting and outside consulting fees. Facilities costs primarily include rent and communications costs.
SG&A expenses for the three months ended March 31, 2020 and March 31, 2019 were $2.9 million.
SG&A expenses are expected to remain stable, despite the effects of COVID-19.
Depreciation and Amortization
Depreciation and amortization expense amounted to $0.6 million for the three months ended March 31, 2020 and three months ended March 31, 2019. The customer lists from each acquisition
are amortized over a period of 60 months.
Operating Income (Loss)
Our operating loss was $1.8 million for the three months ended March 31, 2020, as compared to $1.9 million operating loss for the three months ended March 31, 2019. We expect the COVID-19 pandemic to
negatively impact our operations for the remainder of the fiscal year and for the next twelve months.
Interest Expense
Our interest expense for the three months ended March 31, 2020 was $0.16 million as compared to $0.14 million for the three months ended March 31, 2019.
Liquidity and Capital Resources
Our cash position was approximately $1.3 million as of March 31, 2020, as compared to $0.4 million as of December 31, 2019.
Cash used for operating activities was $2.3 million during the three months ended March 31, 2020 and was primarily a result of net changes in working capital requirements. Cash used
in investing activities was $0.04 million during the three months ended March 31, 2020. Cash provided by financing activities by loans was $3.1 million during the three months ended March 31, 2020.
Liquidity Concerns
We have incurred recurring losses as a result of costs and expenses related to our selling, general and administration activities and our acquisition strategy. As of March 31, 2020,
we had negative working capital of $6.7 million and cash of $1.3 million on hand. Historically, our principal sources of cash have included bank borrowings and sales of securities. Our operating expenses are likely to continue to grow and, as a
result, we will need to generate significant additional revenues to cover such expenses.
Our financial statements as of March 31, 2020 have been prepared under the assumption that we will continue as a going concern. Our ability to continue as a going concern is
dependent upon our ability to raise additional funding through the issuance of equity or debt securities, as well as to attain further operating efficiencies and, ultimately, to generate additional revenues. Our financial statements do not include
any adjustments that might result from the outcome of this uncertainty. We can give no assurances that additional capital that we are able to obtain, if any, will be sufficient to meet our needs. The foregoing conditions raise substantial doubt
about our ability to continue our operations.
Available Credit Facility, Borrowings and Repayment of Debt
As of March 31, 2020, we had approximately $4.5 million in borrowings outstanding under our senior secured credit facility (the “Credit Facility”), which provided for up to $8
million in principal for revolving loans (the “Revolving Loans”) for general working capital purposes.
In addition, we have an outstanding aggregate of $1.5 million in 5% Convertible Unsecured Debentures (the “Debentures”), which were issued to one of accredited investors. The
Debentures bear interest at 5% per annum and are convertible at $2.70 per share.
Effective February 27, 2020, we entered into a note purchase and security agreement with an investor for the sale of a $1,000,000 secured promissory note, which accrues interest
at rate of 7.25% and is due on August 31, 2020.
In addition, as of March 31, 2020, we have an outstanding aggregate of $1 million in 8% Convertible Unsecured Promissory Notes (the “2017 Notes”), which were issued to one of our accredited investor,
including one of the Company’s then-directors, Dhruwa N. Rai, and David Luci, who became a director of the Company in February 2018. The 2017 Notes bear interest at 8% per annum and were due in March 2020. We have not repaid the 2017 Notes and do not
currently have sufficient funds available to meet these obligations.
Accounts Receivable
Accounts receivable for the period ended March 31, 2020 were $8.1 million as compared to $6.4 million as on December 31, 2019 the increase was mainly due to delay in payment by our customers due to the
COVID-19 pandemic.
Accounts Payable
Accounts payable for the period ended March 31, 2020 were $5.2 million as compared to $4.7 million as on December 31, 2019. The increase in Accounts payable is due to delay in payments to our vendors.
Accrued Expense
Accrued expenses for the period ended March 31, 2020 were $2.2 million as compared to $2.1 million as on December 31, 2019.
Operating Activities
Our largest source of operating cash flows is cash collections from our customers. Our primary uses of cash for operating activities are for personnel-related expenditures, leased
facilities and taxes.
Off- Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Impact of Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. On an ongoing basis, we attempt to minimize any effects of inflation
on our operating results by controlling operating costs and, whenever possible, seeking to ensure that billing rates reflect increases in costs due to inflation.
For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at the exchange rate in effect at each
period end. Statements of Operations accounts are translated at the exchange rate prevailing as of the date of the transaction. The gains or losses resulting from such translation are reported under accumulated other comprehensive income (loss) as a
separate component of equity. Realized gains and losses from foreign currency transactions are included in other income, net for the periods presented.
Recent Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements for additional information.
Critical Accounting Policies
Revenue Recognition.
We recognize revenue in accordance with the Accounting Standard Codification 606 “Revenue
Recognition.” Revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to buyer is fixed and determinable, and
(4) collectability is reasonably assured. We recognize revenue from information technology services as the services are provided. Service revenues are recognized based on contracted hourly rates, as services are rendered or upon completion of
specified contracted services and acceptance by the customer.
Stock-Based Compensation.
Stock-based compensation expense for awards of equity instruments to employees and non-employee
directors is determined based on the grant-date fair value of those awards. We recognize these compensation costs net of an estimated forfeiture rate over the requisite service period of the award. Forfeitures are estimated on the date of grant and
revised if actual or expected forfeiture activity differs materially from original estimates.
Warrant Liability
The Company accounts for the warrants issued in July 2018 in accordance with the guidance on Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity, which provides that the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until
exercised, and any change in fair value is recognized in the Company’s statement of operations. The fair value of warrants issued by the Company in connection with private placements of securities has been estimated using the warrants quoted market
price.
Impairment.
Long-lived assets, which include property, plant and equipment, and certain other assets to be held and used
by us, are reviewed when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable based on estimated future cash flows. If this assessment indicates that the carrying values will not be recoverable, as
determined based on undiscounted cash flows over the remaining useful lives, an impairment loss is recognized based on the fair value of the asset.
Income Taxes.
We provide for income taxes utilizing the asset and liability method of accounting. Under this method,
deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely than not that future tax benefits associated with a deferred income tax asset will not be
realized, a valuation allowance is provided. The effect on deferred income tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date. Tax benefits earned on employee stock awards in
excess of recorded stock-based compensation expense are credited to additional paid-in capital. Our provision for income taxes also includes the impact of provisions established for uncertain income tax positions, as well as the related interest.
Accounts Receivable.
We extend credit to clients based upon management’s assessment of their credit-worthiness on an
unsecured basis. We provide an allowance for uncollectible accounts based on historical experience and management evaluation of trend analysis. We include any balances that are determined to be uncollectible in allowance for doubtful accounts.
Business Combination.
We account for business combinations using the acquisition method, which requires the identification
of the acquirer, the determination of the acquisition date and the allocation of the purchase price paid by the acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent consideration and
any non-controlling interest in the acquiree at their acquisition date fair values. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.
Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in our
consolidated financial statements from the acquisition date.
Goodwill and Purchased Intangibles.
We evaluate goodwill and purchased intangible assets for impairment at least annually,
or as circumstances warrant. Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit with its carrying amount. For purchased intangible assets, if our annual qualitative assessment indicates possible
impairment, we test the assets for impairment by comparing the fair value of such assets to their carrying value. In determining the fair value, we utilize various estimates and assumptions, including discount rates and projections of future cash
flows. If an impairment is indicated, a write down to the implied fair value of goodwill or fair value of intangible asset is recorded.
Valuation of Contingent Earn-out Consideration.
Acquisitions may include contingent consideration payments based on
the achievement of certain future financial performance measures of the acquired company. Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on
financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable, however, there is significant judgment involved. We evaluate, on a routine, periodic basis, the
estimated fair value of the contingent consideration and changes in estimated fair value, subsequent to the initial fair value estimate at the time of the acquisition, will be reflected in income or expense in the consolidated statements of
operations. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with
respect to the likelihood of achieving the various earn-out criteria. Any changes in the estimated fair value of contingent consideration may have a material impact on our operating results.
Foreign Currency Translation
The Company translates the foreign currency financial statements into U.S. Dollars using the year or reporting period end or average exchange rates in accordance with the
requirements of ASC 830, Foreign Currency Matters. Assets and liabilities are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented. The cumulative
translation adjustment is included in the accumulated other comprehensive gain (loss) within stockholders’ equity (deficit).
Special Note Regarding Forward-Looking Information
Some of the statements in this Quarterly Report on Form 10-Q and elsewhere constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors that may cause results, levels of activity, growth, performance, tax consequences or achievements to be
materially different from any future results, levels of activity, growth, performance, tax consequences or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those listed below.
The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance, including
statements concerning our 2020 outlook, future revenue and growth, customer spending outlook, general economic trends, IT service demand, future revenue and revenue mix, utilization, new service offerings, significant customers, competitive and
strategic initiatives, growth plans, potential stock repurchases, future results, tax consequences and liquidity needs. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “believe,” “anticipate,”
“anticipated,” “expectation,” “continued,” “future,” “forward,” “potential,” “estimate,” “estimated,” “forecast,” “project,” “encourage,” “opportunity,” “goal,” “objective,” “could,” “expect,” “expected,” “intend,” “plan,” “planned,” or the
negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on our current plans or assessments which are believed to be reasonable as of the date of
this Form 10-Q.
Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, growth, earnings per
share or achievements. However, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Except as otherwise required, we undertake no obligation to update any of the forward-looking statements
after the date of this Form 10-Q to conform such statements to actual results.
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not applicable.
| ITEM 4. |
CONTROLS AND PROCEDURES
|
Management’s Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934
,
as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report on Form 10-Q, we have carried out an evaluation of
the effectiveness of the design and operation of our Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Company’s management, including our Company’s Chief Executive
Officer and Chief Financial Officer. Based upon that evaluation, our company’s Chief Executive Officer and Chief Financial Officer concluded that our company’s disclosure controls and procedures are not yet effective as of the end of the period
covered by this report as noted below in management’s report on internal control over financial reporting. This is largely due to the fact that we are acquiring privately held companies as part of our growth strategy and our control procedures over
all acquired subsidiaries will not be effective until such time as we are able to fully integrate the acquisition with our company and set processes and procedures for the acquired entities. We are working to improve and harmonize our financial
reporting controls and procedures across all of our companies. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably
likely to materially affect our internal controls over financial reporting.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will
prevent all error or fraud. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934.
Our management has assessed the effectiveness of our internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Our internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; providing reasonable assurance that transactions
are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made in accordance with authorizations of management
and our directors; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. As a result of this
assessment, our management concluded that, as of March 31, 2020, our internal control over financial reporting was not yet effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. This is largely due to the fact that we previously acquired multiple privately held companies as part of our growth strategy and our control procedures
over all acquired subsidiaries will not be effective until such time as we are able to fully integrate the acquisition with our company and set processes and procedures for the acquired entities. We are working to improve and harmonize our financial
reporting controls and procedures across all of our companies.
This Quarterly Report on Form 10-Q does not include an attestation report of our independent auditors regarding internal control over financial reporting. Management’s report was not
subject to attestation by our independent auditors pursuant to temporary rules of the SEC that permit our company to provide only management’s report in this Quarterly Report on Form 10-Q.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of
existing and/or changing rules and principles, segregation of management duties, scale of organization and personnel factors. Internal control over financial reporting is a process, which involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate,
this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the third quarter ended in
2019 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.
PART II - OTHER INFORMATION
| ITEM 1. |
LEGAL PROCEEDINGS
|
We are not currently a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or
otherwise material to the financial condition of our business.
| ITEM 1A. |
RISK FACTORS
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Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our Form 10-K, the
occurrence of any one of which could have a material adverse effect on our actual results.
There have been no material changes to the Risk Factors previously disclosed in our Form 10-K, except as noted below.
Our results of operations could in the future be materially adversely
affected
by the
global
coronavirus pandemic (COVID-19).
The global coronavirus pandemic (COVID-19) has created significant volatility in the price of our common stock, uncertainty in customer demand for our services,
and widespread economic disruption. The extent to which the coronavirus pandemic will impact our business, operations and financial results will depend on numerous factors that are frequently changing or unknown, and that we may not be able to
accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ responses or planned responses to the pandemic; the impact of the pandemic on economic activity and any interventions intended to
mitigate decreased economic activity; the effect on our customers and customer demand for our products, services, and solutions; our ability to sell and provide our products, services, and solutions, including as a result of travel restrictions,
personnel working from home or with diminished technology and communication abilities, and social distancing; the ability of our customers to pay timely, if at all, for our services and solutions with or without discounts requested by our
customers; and closures of our and our customers’ offices and facilities. The closure of our customers’ facilities, restrictions that prevent our customers from accessing those facilities or their own customers, and broad disruptions in our
customers’ markets and customer base, has disrupted, and could in the future disrupt the demand for our products, services, and solutions and result in, among other things, termination of customer contracts, delays or interruptions in the
performance of contracts, losses of revenues, and an increase in bad debts. Customers may also slow or halt decision making, delay planned work, or suspend, terminate, or reduce existing contracts or services. Travel and immigration restrictions
may delay or prevent our personnel from accessing worksites, and work-from-home or remote working arrangements could reduce profitability or increase information security and connectivity vulnerabilities. In addition, when COVID-19-related
restrictions on business are eased, our ability to deliver services to our customers could be affected by any outbreak of illness among employees returning to our facilities or to our customers’
facilities. Moreover, there may be additional costs that we will have to incur in connection with further changes to, or a return
to, normal operating conditions.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the risk factors included in the Annual Report on Form
10-K for the year ended December 31, 2019, including, but not limited to, those relating to our operations in emerging markets, our ability to execute on our growth strategy through strategic acquisitions, our dependency on third parties for
network infrastructure, attracting, hiring, and retaining personnel, the effects on movements in foreign currency exchange rates, and the effects that changes to fiscal, political, regulatory and other federal policies may have on our operations,
each of which could materially adversely affect our business, financial condition, results of operations and/or stock price.
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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Effective February 27, 2020, we entered into a note purchase and security agreement with an investor for the sale of a $1,000,000 secured promissory note (the “Note”).
The Note accrues interest at rate of 7.25% and is due on August 31, 2020. The Note was issued in reliance on an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) thereof.
| ITEM 3. |
None.
| ITEM 4. |
Not applicable.
| ITEM 5. |
On May 11, 2020, we received proceeds from a loan in the amount of $1,719,600 (the “PPP Loan”) from Sterling National Bank, as lender, pursuant to the Small Business Association (“SBA”)
Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.
The Loan, which was in the form of a Promissory Note issued by the Borrower, matures on May 6, 2022
and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 6, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll
costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before July 12, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the
terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.
| ITEM 6. |
EXHIBITS
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Exhibit
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Description
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Share Purchase Agreement, dated January 10, 2020, by and between AMERI Holdings, Inc. and Ameri100, Inc. (incorporated by reference as Exhibit 2.1 to the Company’s current report on Form 8-K filed on January 13, 2020)
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Amalgamation Agreement, dated January 10, 2020, by and between AMERI Holdings, Inc., Jay Pharma Merger Sub, Inc., Jay Pharma Inc., Jay Pharma ExchangeCo., Inc. and Barry Kostiner (incorporated by reference as
Exhibit 2.2 to the Company’s current report on Form 8-K filed on January 13, 2020)
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Form of Exchange Agreement, by and among AMERI Holdings, Inc., Ameri100, Inc. and each Converted Debt Holder (incorporated by reference as Exhibit 10.1 to the Company’s current report on Form 8-K filed on
January 13, 2020)
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Note Purchase and Security Agreement (incorporated by reference as Exhibit 10.1 to the Company’s current report on Form 8-K filed on March 4, 2020)
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Secured Promissory Note (incorporated by reference as Exhibit 10.2 to the Company’s current report on Form 8-K filed on March 4, 2020)
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Promissory Note from Sterling National Bank, due May 6, 2022
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Section 302 Certification of Principal Executive Officer
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Section 302 Certification of Principal Financial and Accounting Officer
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Section 906 Certification of Principal Executive Officer
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Section 906 Certification of Principal Financial and Accounting Officer
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101**
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The following materials from Ameri Holdings, Inc.’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019 are formatted in XBRL (eXtensible Business Reporting Language): (i) the
Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Stockholders’ Equity (Deficit), (iv) the Consolidated Statements of Cash Flow, and (iv) Notes to the Consolidated Financial
Statements.
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| * |
Furnished herewith.
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| ** |
In accordance with Item 601 of Regulation S-K, this Exhibit is hereby furnished to the SEC as an accompanying document and is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933.
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Pursuant to the requirements of the Section 13 or 15 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 15
th
day of May, 2020.
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AMERI Holdings, Inc.
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By:
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/s/ Brent Kelton
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Brent Kelton
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Chief Executive Officer (Principal Executive Officer)
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By:
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/s/ Barry Kostiner
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Barry Kostiner
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Chief Financial Officer (Principal Accounting Officer)
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27
TABLE OF CONTENTS
Part IItem 1. Financial StatementsNote 1. Description Of Business:Note 2. Basis Of Presentation:Note 3. Business Combinations:Note 4. Revenue Recognition:Note 5. Intangible Assets:Note 6. Goodwill:Note 7. Earnings (loss) Per Share:Note 8. Incentive Plan Items:Note 9. Bank Debt:Note 10. Convertible Notes:Note 11. Commitments and Contingencies:Note 12. Fair Value Measurement:Note 13. Warrants Outstanding:Note 14. Preferred StockNote 15. Secured Note:Note 16. Subsequent Events:Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits