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Enveric Biosciences(ENVB) - 2018 Q4 - Annual Report

Part I Item 1. Business AMERI Holdings, Inc, provides SAP cloud, digital, and enterprise services globally with a strong US presence supported by offshore capabilities - The company's business model inverts the conventional global delivery model by having a strong U.S. presence supported by offshore capabilities in India and Canada12 - Growth is driven by strategic acquisitions to expand service offerings in areas like SAP S/4 HANA, SAP Success Factors, and SAP Hybris1323 - Service offerings are categorized into three main areas: Cloud Services, Digital Services (including mobile solutions and Robotic Process Automation), and Enterprise Services (including Business Intelligence and analytics)252830 - For the fiscal year 2018, the top five customers accounted for approximately 39% of total revenue, indicating a significant client concentration39 - As of December 31, 2018, the company had a total headcount of 390, which includes 188 billable subcontractors49 Item 1A. Risk Factors The company faces substantial risks from a history of net losses, working capital constraints, intense competition, and potential Nasdaq delisting Historical Net Losses | Year | Net Revenue | Comprehensive Net Loss | | :--- | :--- | :--- | | 2018 | $43.0 million | $19.4 million | | 2017 | $48.6 million | $11.1 million | - The company faces working capital constraints and had outstanding cash payment obligations of approximately $2.7 million related to past acquisitions as of December 31, 201858 - On December 10, 2018, the company received a notice from Nasdaq for failing to meet the minimum $1.00 per share bid price requirement, posing a risk of delisting160161 - A significant portion of revenue is concentrated in a limited number of clients, with the top five accounting for 39% of total revenue in 2018102103 - As of December 31, 2018, the company had approximately $4 million in borrowings outstanding under its senior secured credit facility145 - Management concluded that as of December 31, 2018, the company's internal control over financial reporting was not effective, largely due to difficulties in integrating acquired private companies195 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None200 Item 2. Properties The company's principal executive office is in Suwanee, Georgia, with additional leased offices in the US and India - The main executive office is in Suwanee, Georgia, with additional leased facilities in the U.S. and India totaling approximately 17,000 square feet200 Item 3. Legal Proceedings A lawsuit concerning unpaid earn-out payments from a subsidiary was settled in February 2019 for $200,000 - A lawsuit from a former member of Ameri Arizona regarding earn-out payments was settled in February 2019 for $200,000202 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable204 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, it has never paid dividends, and it issued unregistered stock for acquisition-related payments in 2018 - Common stock trades on The Nasdaq Capital Market under the ticker "AMRH"206 - The company has a policy of retaining earnings for business development and has never paid cash dividends on its common stock208 - Multiple unregistered stock issuances occurred in 2018 to satisfy earn-out and other payment obligations from the acquisitions of Virtuoso, Bigtech, and Ameri Arizona209210211 Item 6. Selected Financial Data This section is not applicable as the company qualifies as a smaller reporting company - Not applicable for smaller reporting companies216 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2018 revenue decreased 12% to $43.0 million and net loss widened to $19.5 million, driven by a $9.0 million goodwill impairment charge Results of Operations (Year Ended December 31) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Net Revenue | $42,998,280 | $48,593,712 | | Gross Profit | $8,983,504 | $10,237,745 | | Operating Loss | ($7,146,460) | ($10,896,531) | | Net Loss | ($16,897,516) | ($9,074,813) | | Net Loss Attributable to Common Stockholders | ($19,480,701) | ($11,163,964) | | Basic & Diluted Loss Per Share | ($0.82) | ($0.75) | - Revenue decreased by $5.6 million (12%) in 2018 compared to 2017, mainly because the company chose not to pursue certain low-margin professional services business232 - The company recorded a $9.0 million impairment charge on goodwill and intangible assets in 2018, which was a primary driver of the increased net loss238 - The company's financial condition raises substantial doubt about its ability to continue as a going concern due to recurring operational losses and negative working capital of $4.7 million as of December 31, 2018261262 - In January 2019, the company entered into a new Loan and Security Agreement with North Mill Capital LLC, using an initial advance of ~$2.85 million to repay its previous credit facility265268 Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section is not required as the company qualifies as a smaller reporting company - As a "smaller reporting company," this information is not required298 Item 8. Financial Statements and Supplementary Data This item refers to the consolidated financial statements and supplementary data beginning on page F-1 of the report - The response to this Item is submitted as a separate section of this report beginning on page F-1299 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None299 Item 9A. Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were not effective as of December 31, 2018 - Management concluded that disclosure controls and procedures were not effective as of December 31, 2018302 - Management also concluded that internal control over financial reporting was not effective as of December 31, 2018305 - The primary reason for the ineffectiveness is the difficulty in fully integrating acquired private companies and establishing consistent processes and procedures across all subsidiaries302305 Item 9B. Other Information The company received and addressed a Nasdaq non-compliance letter in March 2019 regarding independent director requirements for its committees - Received a Nasdaq non-compliance letter on March 21, 2019, regarding independent director requirements for board committees309 - The company appointed Thoranath Sukumaran to the audit and compensation committees on March 25, 2019, to regain compliance310 Part III Item 10. Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the company's forthcoming definitive proxy statement - Information is incorporated by reference from the company's proxy statement312 Item 11. Executive Compensation Required information is incorporated by reference from the company's forthcoming definitive proxy statement - Information is incorporated by reference from the company's proxy statement314 Item 12. Security Ownership of Certain Beneficial Owners, Management and Related Stockholder Matters Required information is incorporated by reference from the company's forthcoming definitive proxy statement - Information is incorporated by reference from the company's proxy statement315 Item 13. Certain Relationships and Related Transactions and Director Independence Required information is incorporated by reference from the company's forthcoming definitive proxy statement - Information is incorporated by reference from the company's proxy statement316 Item 14. Principal Accountants Fees and Services Required information is incorporated by reference from the company's forthcoming definitive proxy statement - Information is incorporated by reference from the company's proxy statement317 Part IV Item 15. Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including acquisition, financing, and corporate governance agreements - Lists various agreements including Share Purchase Agreements for acquisitions, Loan and Security Agreements, and forms of Warrants and Promissory Notes319321 Financial Statements Consolidated Financial Statements The consolidated financial statements for 2018 and 2017 reveal a significant decline in financial health, with decreased assets, a widened net loss, and severe liquidity challenges Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,371,331 | $4,882,084 | | Goodwill | $13,729,770 | $21,898,323 | | Total Assets | $29,637,450 | $52,196,628 | | Liabilities & Equity | | | | Total current liabilities | $14,688,965 | $30,367,882 | | Warrant liability | $4,189,388 | $0 | | Total Liabilities | $18,878,353 | $32,748,445 | | Total stockholders' equity | $10,759,097 | $19,448,183 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Net revenue | $42,998,280 | $48,593,712 | | Gross profit | $8,983,504 | $10,237,745 | | Impairment charges | $9,038,553 | $0 | | Net Income (loss) | ($16,897,516) | ($9,074,813) | Consolidated Cash Flow Highlights (Year Ended Dec 31) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | ($2,565,495) | ($2,740,794) | | Net cash used in investing activities | ($3,639,246) | ($169,860) | | Net cash provided by financing activities | $2,693,988 | $6,412,851 | Notes to Consolidated Financial Statements The notes detail a $9.0 million impairment charge, warrant liability classification, debt defaults, and a full valuation allowance against deferred tax assets - The company recorded an impairment charge of $8.2 million on goodwill and $0.9 million on certain customer lists during 2018 due to declining future cash flow projections419422 - In July/August 2018, the company completed a private placement that included warrants classified as a derivative liability of $4.2 million on the balance sheet389339 - The company was in default on its credit facility with Sterling National Bank as of year-end 2018 and subsequently entered into a new loan agreement with North Mill Capital LLC447473 - A full valuation allowance of $6.1 million was recorded against the company's deferred tax assets at December 31, 2018, as management concluded they were not more likely-than-not to be realizable462 - Subsequent to year-end, in March 2019, the company received gross proceeds of approximately $1.5 million from the exercise of warrants478