Enveric Biosciences(ENVB) - 2019 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1 - Financial Statements This section presents AMERI Holdings, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholder equity, and cash flows, along with detailed explanatory notes Unaudited Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and liabilities from December 31, 2018, to September 30, 2019, while total stockholders' equity increased, primarily due to changes in cash and warrant liability | Metric | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $499,686 | $1,371,331 | | Total current assets | $8,688,346 | $10,061,353 | | Total assets | $26,656,309 | $29,637,450 | | Total current liabilities | $13,408,946 | $14,688,965 | | Total long-term liabilities | $- | $4,189,388 | | Total liabilities | $13,408,946 | $18,878,353 | | Total stockholders' equity | $13,247,363 | $10,759,097 | - Total assets decreased by approximately $3 million, primarily driven by a reduction in cash and cash equivalents and the elimination of warrant liability[12] - Total stockholders' equity increased by approximately $2.5 million, mainly due to an increase in additional paid-in capital[12] Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company shifted from operating income to a net loss attributable to common stockholders for both the three and nine months ended September 30, 2019, largely due to decreased revenue and the absence of significant income from changes in estimates for consideration payable | Metric | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :------------------------------------------ | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Revenue | $9,148,857 | $10,576,254 | $30,850,110 | $32,715,104 | | Gross profit | $1,899,451 | $2,345,798 | $6,421,590 | $7,077,682 | | Operating Income (loss) | $(1,565,000) | $6,100,378 | $(4,339,798) | $3,654,095 | | Net Income (loss) attributable to the Company | $41,299 | $5,699,467 | $(3,075,240) | $2,867,493 | | Net Income (loss) attributable to common stock holders | $(65,466) | $3,883,015 | $(3,393,944) | $389,488 | | Basic income (loss) per share | $(0.001) | $0.18 | $(0.07) | $0.02 | | Diluted income (loss) per share | $(0.001) | $0.16 | $(0.07) | $0.02 | - Revenue decreased by 13% for the three months and 6% for the nine months ended September 30, 2019, compared to the prior year periods[16] - Operating income shifted to a loss of $1.565 million for the three months and $4.340 million for the nine months ended September 30, 2019, primarily due to the absence of a $7.275 million (three months) and $7.140 million (nine months) income from changes in estimates for consideration payable recognized in 2018[16] Unaudited Condensed Statement of Changes in Stockholder Equity Stockholders' equity increased from December 31, 2018, to September 30, 2019, despite a net loss, driven by significant increases in common shares outstanding and additional paid-in capital from warrant exercises and earnout share issuances | Metric | Dec 31, 2018 | Sep 30, 2019 | | :-------------------------------- | :----------- | :----------- | | Common Shares | 42,329,121 | 62,820,789 | | Common Stock Par Value | $423,290 | $628,207 | | Additional paid-in capital | $44,722,856 | $50,417,513 | | Accumulated deficit | $(34,478,253) | $(37,872,197) | | Total stockholders' equity | $10,759,097 | $13,247,363 | - Common shares outstanding increased by over 20 million shares, and additional paid-in capital increased by approximately $5.7 million, primarily due to the exercise of warrants and shares issued for earnouts[17][18] - Accumulated deficit worsened by approximately $3.4 million, reflecting the net loss for the period[17][18] Unaudited Condensed Consolidated Statements of Cash Flows The company experienced a net decrease in cash and cash equivalents for the nine months ended September 30, 2019, primarily due to cash used in operating and investing activities, partially offset by financing activities | Metric | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :------------------------------------------ | :----------------------- | :----------------------- | | Net cash provided by (used in) operating activities | $(1,974,286) | $(1,562,515) | | Net cash used in investing activities | $(246,805) | $(3,657,226) | | Net cash provided by financing activities | $1,349,446 | $2,401,347 | | Net increase (decrease) in cash and cash equivalents | $(871,645) | $(2,818,394) | | Cash at the end of the period | $499,686 | $2,063,690 | - Cash used in operating activities increased from $1.56 million in 2018 to $1.97 million in 2019[22] - Cash provided by financing activities decreased from $2.40 million in 2018 to $1.35 million in 2019, despite proceeds from issuance of common shares[22] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide critical context to the financial statements, detailing the company's business, accounting policies, significant acquisitions, revenue recognition, intangible assets, goodwill, earnings per share, debt, commitments, fair value measurements, and private offerings NOTE 1. DESCRIPTION OF BUSINESS AMERI Holdings, Inc. provides SAP TM cloud and digital enterprise services globally through its eleven subsidiaries, primarily generating revenue from North America and operating as a single segment - AMERI Holdings, Inc. provides SAP TM cloud and digital enterprise services through eleven subsidiaries[24] - The company's primary market is North America, where it earns almost all of its revenue[24] - The company operates as a single business segment[24] NOTE 2. BASIS OF PRESENTATION The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC regulations, reflecting all necessary adjustments, with no material impact from recent ASU adoptions - Financial statements are prepared in accordance with U.S. GAAP and Article 10 of Regulation S-X[25] - The company adopted ASU No. 2016-02 (Leases) in the current quarter, with no material impact on financial statements[29] - The company does not expect any material impact from ASU No. 2017-04 (simplifying Goodwill Impairment test) upon its effective date (after December 15, 2019)[28] NOTE 3. BUSINESS COMBINATIONS The company completed several acquisitions, including Ameri Georgia, Bigtech Software, Virtuoso, Ameri Arizona, and Ameri California, with purchase prices ranging from $0.9 million to $15.8 million, allocated to working capital, intangibles, and goodwill, and still owes $2,496,000 in cash consideration payable | Asset Component | Ameri Georgia | Bigtech | Virtuoso | Ameri Arizona | Ameri California | | :------------------------ | :------------ | :------ | :------- | :------------ | :--------------- | | Intangible Assets | $1.8M | $0.6M | $0.9M | $5.4M | $3.8M | | Goodwill | $3.5M | $0.3M | $0.9M | $10.4M | $5.0M | | Net Working Capital Acquired | $4.6M | - | - | - | - | | Total Purchase Price | $9.9M | $0.9M | $1.8M | $15.8M | $8.8M | - As of the report date, the Company owed an aggregate of $2,496,000 in consideration payable by cash related to the Ameri Arizona acquisition[48][42] - Acquisitions like Ameri Georgia, Bigtech, Virtuoso, Ameri Arizona, and Ameri California were completed between 2015 and 2017, expanding the company's SAP consulting services[31][34][37][40][43] NOTE 4. REVENUE RECOGNITION Revenue is recognized when control of deliverables is transferred to customers, based on a five-step approach, with fixed-price contracts using the cost-to-cost method and time-and-materials contracts recognizing revenue as services are provided - Revenue is recognized following a five-step approach, transferring control of deliverables to customers[49] - Fixed-price contracts for application development and systems integration services use the cost-to-cost method for revenue recognition[51] - Time-and-materials, transaction-based, or volume-based contracts recognize revenue over the period services are provided[52] NOTE 5. INTANGIBLE ASSETS The company's intangible assets primarily consist of customer lists acquired through various acquisitions, amortized over finite lives expiring through 2022, with amortization expense decreasing from $2.2 million in 2018 to $1.6 million in 2019 for the nine-month periods, and an impairment charge of $0.9 million recorded in 2018 - Intangible assets primarily consist of customer lists acquired through acquisitions, amortized using the straight-line method or based on estimated future cash flows[59] | Metric | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :------------------- | :----------------------- | :----------------------- | | Amortization expense | $1.6 million | $2.2 million | - An impairment charge of $0.9 million was recorded in 2018 for certain customer lists due to a triggering event[60] NOTE 6. GOODWILL Goodwill remained at $13.7 million as of September 30, 2019, and December 31, 2018, following $8.2 million in impairment charges recorded in 2018 due to declines in estimated future cash flows for specific reporting units - Total goodwill was $13.7 million as of September 30, 2019, and December 31, 2018[61] - In 2018, the company recorded $8.2 million in goodwill impairment charges[62] - Impairment was primarily driven by declines in estimated future cash flows for Virtuoso, Bigtech, Ameri Consulting Service Pvt. Ltd, and Ameri Arizona[62] NOTE 7. EARNINGS (LOSS) PER SHARE Basic and diluted income (loss) per share calculations are presented, with no dilutive effect considered for Equity Awards or 2017 Notes for the nine months ended September 30, 2019 and 2018, due to net losses attributable to common stockholders, making their inclusion anti-dilutive | Metric | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :------------------------------------------ | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Net income (loss) attributable to common stockholders | $(65,466) | $3,883,015 | $(3,393,944) | $389,488 | | Basic weighted average number of common shares outstanding | 53,776,825 | 21,657,181 | 49,984,757 | 19,683,610 | | Diluted weighted average number of common shares outstanding | 53,776,825 | 24,184,264 | 49,984,757 | 20,630,142 | | Basic income (loss) per share | $(0.001) | $0.18 | $(0.07) | $0.02 | | Diluted income (loss) per share | $(0.001) | $0.16 | $(0.07) | $0.02 | - No shares from Equity Awards or 2017 Notes were included in diluted loss per share calculations for the nine months ended September 30, 2019 and 2018, as the effect would be anti-dilutive[64] NOTE 8. OTHER ITEMS The company did not grant any restricted stock units or stock options during the nine months ended September 30, 2019, but recorded stock compensation expenses of $0.6 million for the period, a decrease from $0.9 million in the prior year - No restricted stock units or stock options were granted during the nine months ended September 30, 2019[67] | Metric | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :-------------------------- | :----------------------- | :----------------------- | | Stock compensation expenses | $0.6 million | $0.9 million | NOTE 9. BANK DEBT In January 2019, certain subsidiaries entered into a two-year Credit Facility with North Mill Capital LLC for an initial advance of $2.85 million, collateralized by all borrower assets and guaranteed by the company, with approximately $2.75 million used to repay previous obligations, and a principal balance of $3.4 million as of September 30, 2019 - On January 23, 2019, subsidiaries entered into a two-year Credit Facility with North Mill Capital LLC[69] - An initial advance of approximately $2.85 million was received, with $2.75 million used to repay prior obligations[71][70] - The Credit Facility is collateralized by all borrower assets and guaranteed by AMERI Holdings, Inc., with an interest rate of prime plus 1.75% (minimum 7.25%)[69][70] - As of September 30, 2019, the principal balance and accrued interest under the Credit Facility amounted to $3.4 million[72] NOTE 10. CONVERTIBLE NOTES The company issued $1.25 million in 8% Convertible Unsecured Promissory Notes in March 2017, maturing in March 2020, with $0.25 million repaid in Q1 2019, and the notes convertible into common stock at $2.80 per share and ranking junior to the secured credit facility - Issued $1.25 million in 8% Convertible Unsecured Promissory Notes in March 2017, maturing in March 2020[73] - Repaid $0.25 million towards the 2017 notes during the first quarter of 2019[74] - Notes are convertible into common stock at a conversion price of $2.80 per share and rank junior to the secured credit facility[75] NOTE 11. COMMITMENTS AND CONTINGENCIES The company has operating lease commitments for office space, with rent expense increasing from $199,579 in 2018 to $253,813 in 2019 for the nine-month periods, and future minimum lease payments totaling $254,600 through 2021 | Metric | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :------------------- | :----------------------- | :----------------------- | | Rent expense | $253,813 | $199,579 | | Year ending December 31, | Amount | | :----------------------- | :----- | | 2019 | $47,893 | | 2020 | $159,345 | | 2021 | $47,362 | | Total | $254,600 | NOTE 12. FAIR VALUE MEASUREMENT The company uses a three-level hierarchy for fair value measurements, with no warrant or contingent consideration liabilities as of September 30, 2019, a significant change from December 31, 2018, when these Level 3 liabilities totaled $4.79 million due to settlements and reclassifications - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[79] | Metric | Sep 30, 2019 | Dec 31, 2018 | | :------------------------- | :----------- | :----------- | | Warrant Liability (Level 3) | $- | $4,189,388 | | Contingent consideration (Level 3) | $- | $605,223 | | Total (Level 3) | $- | $4,794,611 | - The closing balance of Level 3 instruments decreased from $4,794,611 at December 31, 2018, to $0 at September 30, 2019, due to payments/settlements[80] NOTE 13. PRIVATE OFFERINGS In 2018, the company raised $6.6 million through private placements of common stock and warrants, with warrants initially recorded as a liability due to reset features and down-round protection, and subsequently cancelled in September 2019 in exchange for 10,234,136 shares of Common Stock, reclassifying the remaining warrant liability to stockholders' equity - In July and August 2018, the company raised approximately $6.6 million through private placements of common stock and warrants[84][85] - Purchaser Warrants were initially recorded as a derivative financial instrument liability due to reset features and down-round protection[91] - On September 19, 2019, all outstanding Purchaser Warrants were cancelled in exchange for 10,234,136 shares of Common Stock, and the remaining warrant liability of $4,984,573 was reclassified to Stockholder's Equity[91] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of AMERI Holdings, Inc.'s business, history, and a detailed analysis of its financial performance for the three and nine months ended September 30, 2019, highlighting key financial trends, liquidity concerns, and critical accounting policies, emphasizing the shift to operating losses and ongoing capital needs Company History and Overview AMERI Holdings, Inc. was incorporated in 1994, became AMERI Holdings in 2015 through a reverse merger, and specializes in SAP cloud, digital, and enterprise services, primarily in North America, employing an acquisition strategy to disrupt the IT service provider model - AMERI Holdings, Inc. was incorporated in February 1994 and changed its name in May 2015 after a reverse merger[102] - The company specializes in delivering SAP cloud, digital, and enterprise services to clients worldwide, with a strong focus on North America[103][24] - Revenue is generated from consulting services under time-and-materials and fixed-price contracts[104] Matters that May or Are Currently Affecting Our Business Key challenges affecting the business include the ability to raise additional capital, diversify the client base, expand geographically, attract skilled professionals, acquire and integrate other technology services companies, and control operating costs - Challenges include raising additional capital and diversifying the client base[110] - The company faces challenges in attracting skilled professionals and integrating acquired companies[110] - Controlling operating costs as the organization expands is a significant concern[110] RESULTS OF OPERATIONS The company experienced a decline in revenue and a shift from operating income to significant operating losses for both the three and nine months ended September 30, 2019, compared to the prior year, primarily due to the completion of major customer assignments and the absence of a large income from changes in estimates for consideration payable recognized in 2018, coupled with increased SG&A expenses Revenues Revenues decreased by 13% for the three months and 6% for the nine months ended September 30, 2019, primarily due to the completion of major customer assignments, with sales to five major customers accounting for 52% and 47% of total revenue for the respective periods | Metric | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :------- | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Revenue | $9,148,857 | $10,576,254 | $30,850,110 | $32,715,104 | - Revenue decreased by $1.4 million (13%) for the three months and $1.9 million (6%) for the nine months ended September 30, 2019, mainly due to the completion of major customer assignments[113][115] - Sales to five major customers accounted for 52% of total revenue for the three months and 47% for the nine months ended September 30, 2019[114][116] Gross Margin Gross margin remained relatively stable at 21% for both the three and nine months ended September 30, 2019, a slight decrease from 22% in the comparable 2018 periods, with future gross margins anticipated to be in the range of 20% to 25% | Metric | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :---------- | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Gross margin | 21% | 22% | 21% | 22% | - Target gross margins in future periods are anticipated to be in the range of 20% to 25%[117] Selling, General and Administration Expenses SG&A expenses increased to $2.9 million for the three months and $9.1 million for the nine months ended September 30, 2019, compared to $2.7 million and $8.1 million in the prior year periods, primarily due to new sales initiatives and recruiting a new sales team | Metric | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :----------------------------------- | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Selling, General and administration | $2,902,401 | $2,655,902 | $9,075,751 | $8,059,432 | - The increase in SG&A expenses was mainly due to new sales initiatives, including recruiting a new sales team[120][121] Depreciation and Amortization Depreciation and amortization expense was $0.6 million for the three months ended September 30, 2019, and decreased to $1.7 million for the nine months ended September 30, 2019, from $2.3 million in the prior year, reflecting the amortization of customer lists over 60 months | Metric | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :-------------------------- | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Depreciation and amortization | $562,050 | $636,495 | $1,685,637 | $2,266,513 | - Customer lists acquired during various acquisitions are amortized over a period of 60 months[122] Operating Income (Loss) The company reported an operating loss of $1.6 million for the three months and $4.3 million for the nine months ended September 30, 2019, a significant decline from operating income in the prior year, primarily attributed to the absence of a $7.3 million (three months) and $7.1 million (nine months) income from changes in estimates for consideration payable recognized in 2018, coupled with increased sales initiatives | Metric | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :-------------------- | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Operating Income (loss) | $(1,565,000) | $6,100,378 | $(4,339,798) | $3,654,095 | - The change to an operating loss was mainly due to the absence of a $7.3 million (three months) and $7.1 million (nine months) income from changes in estimates for consideration payable recognized in 2018[123][124] - Increased losses were also attributed to new sales initiatives, including recruiting a new sales team[123][124] Interest Expense Interest expense increased to $0.25 million for the three months ended September 30, 2019, from $0.2 million in the prior year, while remaining stable at $0.6 million for the nine-month periods | Metric | Three Months Sep 30, 2019 | Three Months Sep 30, 2018 | Nine Months Sep 30, 2019 | Nine Months Sep 30, 2018 | | :-------------- | :------------------------ | :------------------------ | :----------------------- | :----------------------- | | Interest expenses | $(252,648) | $(190,394) | $(551,862) | $(584,074) | Liquidity and Capital Resources The company's cash position decreased significantly to $0.5 million as of September 30, 2019, from $1.4 million at December 31, 2018, with negative working capital of $4.7 million, primarily due to cash used in operating and investing activities, raising substantial doubt about its ability to continue as a going concern without additional funding Cash Position and Cash Flows Cash and cash equivalents decreased to $0.5 million as of September 30, 2019, from $1.4 million at December 31, 2018, with operating activities using $2 million, investing activities using $0.2 million, and financing activities providing $1.3 million during the nine months ended September 30, 2019 | Metric | Sep 30, 2019 | Dec 31, 2018 | | :----------------------- | :----------- | :----------- | | Cash position | $0.5 million | $1.4 million | - Cash used for operating activities was $2 million during the nine months ended September 30, 2019[127] - Cash provided by financing activities (predominantly by exercise of warrants) was $1.3 million during the nine months ended September 30, 2019[127] Liquidity Concerns As of September 30, 2019, the company had negative working capital of $4.7 million and cash of $0.5 million, raising substantial doubt about its ability to continue as a going concern, dependent on raising additional funding and achieving operating efficiencies, following recurring losses from selling, general, and administration activities and its acquisition strategy - As of September 30, 2019, the company had negative working capital of $4.7 million and cash of $0.5 million[129] - The company's ability to continue as a going concern is dependent on raising additional funding and generating additional revenues[130] - The company has incurred recurring losses due to selling, general, and administration activities and its acquisition strategy[129] Available Credit Facility, Borrowings and Repayment of Debt In January 2019, subsidiaries secured a new Credit Facility of $2.85 million from North Mill Capital LLC, using $2.75 million to repay previous obligations, with a balance of $3.4 million as of September 30, 2019, and the company also repaid $0.25 million of its 8% Convertible Unsecured Promissory Notes in Q1 2019 - A new Credit Facility was entered into on January 23, 2019, with an initial advance of approximately $2.85 million[131][132] - Approximately $2.75 million of the initial advance was used to repay outstanding obligations under the Sterling National Bank Credit Facility[133] - As of September 30, 2019, the principal balance and accrued interest under the new Credit Facility amounted to $3.4 million[133] - The company repaid $0.25 million towards its 8% Convertible Unsecured Promissory Notes during the first quarter of 2019[138] Accounts Receivable, Accounts Payable, and Accrued Expense Accounts receivable decreased slightly to $7.6 million as of September 30, 2019, from $7.9 million at December 31, 2018, while accounts payable increased to $4.7 million from $4.4 million, and accrued expenses decreased to $1.5 million from $1.7 million over the same period | Metric | Sep 30, 2019 | Dec 31, 2018 | | :----------------- | :----------- | :----------- | | Accounts receivable | $7.6 million | $7.9 million | | Accounts payable | $4.7 million | $4.4 million | | Accrued expenses | $1.5 million | $1.7 million | Operating Activities, Off-Balance Sheet Arrangements, and Impact of Inflation Cash flows from operating activities are primarily driven by customer collections and used for personnel, facilities, and taxes, with no off-balance sheet arrangements, and inflation did not significantly impact results as the company actively manages costs - Primary sources of operating cash flows are cash collections from customers, with uses for personnel, leased facilities, and taxes[143] - The company does not have any off-balance sheet arrangements[144] - Inflation did not have a significant impact on results, and the company attempts to minimize its effects by controlling operating costs and adjusting billing rates[145] Critical Accounting Policies Key accounting policies include revenue recognition (ASC 606), stock-based compensation, warrant liability classification and re-measurement, impairment testing for long-lived assets and goodwill, income tax accounting, allowance for doubtful accounts, and business combination accounting, with the valuation of contingent earn-out consideration involving significant judgment and estimates - Revenue is recognized in accordance with ASC 606, based on criteria such as persuasive evidence of an arrangement, delivery, fixed price, and collectability[148] - Warrants issued in private placements are classified as a liability and re-measured at fair value each reporting period, with changes recognized in the statement of operations[151] - Goodwill and purchased intangible assets are evaluated for impairment at least annually, or as circumstances warrant, using fair value comparisons[156] - Valuation of contingent earn-out consideration involves significant judgment based on financial projections and probability assessments, with changes in fair value impacting operating results[157] Special Note Regarding Forward-Looking Information This section cautions readers that the report contains forward-looking statements subject to known and unknown risks and uncertainties, which are based on current plans and assessments but do not guarantee future results, and the company undertakes no obligation to update them - The report contains forward-looking statements subject to known and unknown risks and uncertainties[159] - Forward-looking statements relate to future events, strategies, financial performance, and outlook, but future results cannot be guaranteed[160][161] - The company undertakes no obligation to update any forward-looking statements after the report date[161] Item 3 - Quantitative and Qualitative Disclosures About Market Risk This section states that there are no applicable quantitative and qualitative disclosures about market risk for the company - The company has no applicable quantitative and qualitative disclosures about market risk[162] Item 4 - Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were not yet effective as of September 30, 2019, primarily due to challenges in integrating control procedures across multiple acquired privately held companies, and the company is actively working to improve and harmonize these controls Management's Report on Disclosure Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not yet effective as of September 30, 2019, largely attributed to the ongoing integration of control procedures for recently acquired privately held companies, and the company is working to improve and harmonize these controls - Disclosure controls and procedures were not yet effective as of September 30, 2019[164] - The ineffectiveness is largely due to the challenge of integrating control procedures across acquired privately held companies[164] - The company is working to improve and harmonize financial reporting controls and procedures across all its entities[164] Management's Report on Internal Control Over Financial Reporting Management assessed that internal control over financial reporting was not yet effective as of September 30, 2019, due to the ongoing integration of control procedures for multiple acquired subsidiaries, and the company is actively working to improve and harmonize these controls - Internal control over financial reporting was not yet effective as of September 30, 2019[168] - The primary reason for ineffectiveness is the ongoing integration of control procedures for multiple acquired privately held companies[168] - The company is working to improve and harmonize financial reporting controls and procedures[168] Inherent Limitations on Effectiveness of Controls Internal control systems inherently have limitations, including human diligence, judgment lapses, human failures, collusion, and improper management override, meaning no system can provide absolute assurance against all errors or fraud, and effectiveness projections are subject to risks of inadequacy or deterioration - Internal control systems have inherent limitations, including human diligence, judgment lapses, and human failures[170] - Controls can be circumvented by collusion or improper management override[170] - No control system can provide absolute assurance against all errors or fraud, only reasonable assurance[170] Changes in Internal Control Over Financial Reporting No material changes in the company's internal control over financial reporting occurred during the third quarter ended in 2019 that materially affected, or are reasonably likely to materially affect, the internal control over financial reporting - No material changes in internal control over financial reporting occurred during the third quarter ended in 2019[171] PART II - OTHER INFORMATION Item 1 - Legal Proceedings The company settled a lawsuit with MACT Holdings LLC, a former member of Ameri Arizona, for $200,000 in February 2019, resolving disputes over earn-out payments and stock consideration, with no other material pending legal proceedings - The company settled a lawsuit with MACT Holdings LLC for $200,000 in February 2019, resolving disputes over earn-out payments and stock consideration[172][173] - No other material legal proceedings are currently pending[177] Item 1A - Risk Factors This section states that there are no applicable risk factors to disclose - No applicable risk factors are disclosed in this report[178] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities and use of proceeds to report[179] Item 3 - Defaults upon Senior Securities This section states that there were no defaults upon senior securities to report - No defaults upon senior securities to report[180] Item 4 - Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[181] Item 5 - Other Information This section states that there is no other information to report - No other information to report[182] Item 6 - Exhibits This section lists the exhibits filed with the Form 10-Q, including the Form of Exchange Agreement, Section 302 Certifications of the Principal Executive and Financial Officers, and Section 906 Certifications - Exhibits include the Form of Exchange Agreement, Section 302 Certifications, and Section 906 Certifications[183] SIGNATURES The report is duly signed on behalf of AMERI Holdings, Inc. by its Chief Executive Officer, Brent Kelton, and Chief Financial Officer, Barry Kostiner, on November 8, 2019 - The report was signed by Brent Kelton, Chief Executive Officer, and Barry Kostiner, Chief Financial Officer, on November 8, 2019[186][188]