Verus
International, Inc.
Consolidated
Statement of Changes in Stockholders’ Deficit
For
the Years Ended October 31, 2019 and 2018
|
|
Preferred
Stock A
|
|
|
|
|
|
Preferred
Stock B
|
|
|
|
|
|
Preferred
Stock C
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
Additional
|
|
|
Other
Comprehensive
|
|
|
Shares
|
|
|
|
|
|
Total
|
|
|
|
#
of
shares
|
|
|
Par
|
|
|
#
of
shares
|
|
|
Par
|
|
|
#
of
shares
|
|
|
Par
|
|
|
#
of
shares
|
|
|
Par
|
|
|
Paid-In
Capital
|
|
|
Income
(Loss)
|
|
|
to
be Issued
|
|
|
Accumulated
Deficit
|
|
|
Stockholder’s
Deficit
|
|
Balance,
October 31, 2017
|
|
|
100,000
|
|
|
$
|
100
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
160,000
|
|
|
$
|
160
|
|
|
|
249,369,810
|
|
|
$
|
249,370
|
|
|
$
|
22,409,041
|
|
|
$
|
(53,285
|
)
|
|
$
|
-
|
|
|
$
|
(23,403,963
|
)
|
|
$
|
(798,577
|
)
|
Shares
Issued for Conversion of Promissory Notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,244,233,615
|
|
|
|
1,244,233
|
|
|
|
(442,298
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
801,935
|
|
Shares
issued under Monaker litigation settlement
|
|
|
44,470,101
|
|
|
|
44,470
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,559,890
|
|
|
|
10,560
|
|
|
|
275,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
330,180
|
|
Common
Stock retired from Nestbuilder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,163,315
|
)
|
|
|
(4,163
|
)
|
|
|
4,163
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjustment
for excess NestBuilder settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
116,137
|
|
|
|
116,137
|
|
Spin-off
of real estate segment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,639
|
)
|
|
|
-
|
|
|
|
7,378
|
|
|
|
(12,261
|
)
|
Shares
to be issued under stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
299,635
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
299,635
|
|
Shares
to be issued under Monaker litigation settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
456,090
|
|
|
|
-
|
|
|
|
456,090
|
|
Other
comprehensive income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,924
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,924
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,824,292
|
)
|
|
|
(2,824,292
|
)
|
Balance,
October 31, 2018
|
|
|
44,570,101
|
|
|
$
|
44,570
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
160,000
|
|
|
$
|
160
|
|
|
|
1,500,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
22,545,691
|
|
|
$
|
-
|
|
|
$
|
456,090
|
|
|
$
|
(26,104,740
|
)
|
|
$
|
(1,558,229
|
)
|
Shares
issued under exchange agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
295,801
|
|
|
|
296
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,208
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,504
|
|
Shares
issued under Monaker settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
152,029,899
|
|
|
|
152,030
|
|
|
|
304,060
|
|
|
|
-
|
|
|
|
(456,090
|
)
|
|
|
-
|
|
|
|
-
|
|
Conversion
of Preferred Stock C to Common Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
(25
|
)
|
|
|
2,500,000
|
|
|
|
2,500
|
|
|
|
(2,475
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares
to be issued under stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,515,794
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,515,794
|
|
Relative
fair value of warrants issued with convertible promissory notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
697,611
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
697,611
|
|
Shares
issued for sale of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,666,666
|
|
|
|
42
|
|
|
|
499,958
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
Conversion
of convertible promissory notes to Common Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
607,162,591
|
|
|
|
607
|
|
|
|
(837,699
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(837,092
|
)
|
Shares
issued for warrant exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,419,355
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Reduction
of par value of Preferred and Common Stock
|
|
|
-
|
|
|
|
(44,525
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(431
|
)
|
|
|
-
|
|
|
|
(1,652,875
|
)
|
|
|
1,697,831
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Beneficial
conversion feature for conversion of convertible promissory note to Common Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143,942
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143,942
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,389,850
|
)
|
|
|
(2,389,850
|
)
|
Balance,
October 31, 2019
|
|
|
44,570,101
|
|
|
$
|
45
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
430,801
|
|
|
$
|
-
|
|
|
|
2,305,778,511
|
|
|
$
|
2,306
|
|
|
$
|
27,565,919
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(28,494,590
|
)
|
|
$
|
(926,320
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
Verus
International, Inc.
Consolidated
Statements of Cash Flows
|
|
For
the Years Ended
|
|
|
|
October
31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,389,850
|
)
|
|
$
|
(2,824,292
|
)
|
Adjustments to reconcile
net loss to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Amortization of issuance costs
|
|
|
21,355
|
|
|
|
-
|
|
Depreciation and amortization
|
|
|
68,136
|
|
|
|
-
|
|
Beneficial conversion feature for conversion
of convertible debt to Common Stock
|
|
|
143,942
|
|
|
|
-
|
|
Initial derivative liability expense
|
|
|
225,115
|
|
|
|
-
|
|
Amortization of debt discount
|
|
|
839,876
|
|
|
|
17,735
|
|
Share based compensation
|
|
|
3,380,469
|
|
|
|
299,635
|
|
Gain on extinguishment of debt
|
|
|
(2,700,737
|
)
|
|
|
-
|
|
Gain on convertible notes settlement
|
|
|
(681,945
|
)
|
|
|
-
|
|
Loss on spin-off of real estate segment
|
|
|
-
|
|
|
|
12,261
|
|
Legal settlement settled in shares
|
|
|
-
|
|
|
|
330,180
|
|
Legal settlement to be settled in shares
|
|
|
-
|
|
|
|
456,090
|
|
Default principal increase on convertible
notes payable
|
|
|
-
|
|
|
|
938,100
|
|
Gain on NestBuilder settlement
|
|
|
-
|
|
|
|
(116,137
|
)
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(2,618,016
|
)
|
|
|
(433,553
|
)
|
(Increase) decrease in inventory
|
|
|
(507,926
|
)
|
|
|
250,599
|
|
Increase in prepaid expenses
|
|
|
(53,337
|
)
|
|
|
(12,412
|
)
|
Decrease in other assets
|
|
|
-
|
|
|
|
7,992
|
|
Increase in accounts payable and accrued
expenses
|
|
|
2,066,054
|
|
|
|
358,236
|
|
Decrease in due
to officer
|
|
|
(31,500
|
)
|
|
|
-
|
|
Net cash used
in operating activities of continuing operations
|
|
|
(2,238,364
|
)
|
|
|
(715,566
|
)
|
Net cash used
in operating activities of discontinued operations
|
|
|
-
|
|
|
|
(354,733
|
)
|
Net cash used
in operating activities
|
|
|
(2,238,364
|
)
|
|
|
(1,070,299
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Asset acquisition, net of cash acquired
|
|
|
(99,650
|
)
|
|
|
-
|
|
Capital expenditures
|
|
|
(11,470
|
)
|
|
|
(15,622
|
)
|
Net cash used
in investing activities of continuing operations
|
|
|
(111,120
|
)
|
|
|
(15,622
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible
notes payable
|
|
|
3,270,000
|
|
|
|
908,250
|
|
Payments applied to convertible promissory
notes
|
|
|
(1,577,172
|
)
|
|
|
(118,000
|
)
|
Proceeds from issuance of note payable
|
|
|
500,000
|
|
|
|
-
|
|
Proceeds from
sale of common stock
|
|
|
500,000
|
|
|
|
-
|
|
Net cash provided
by financing activities of continuing operations
|
|
|
2,692,828
|
|
|
|
790,250
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and
cash equivalents
|
|
|
-
|
|
|
|
72,924
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
343,344
|
|
|
|
(222,747
|
)
|
Cash at beginning of period
|
|
|
28,554
|
|
|
|
251,301
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
371,898
|
|
|
$
|
28,554
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure:
|
|
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
97,734
|
|
|
$
|
53,508
|
|
|
|
For
the years ended
|
|
|
|
October
31,
|
|
|
|
2019
|
|
|
2018
|
|
Supplemental disclosure of non-cash
operating activities:
|
|
|
|
|
|
|
Settlement of accrued compensation through issuance of Series
C Preferred Stock:
|
|
|
|
|
|
|
Value
|
|
$
|
1,504
|
|
|
$
|
-
|
|
Shares
|
|
|
295,801
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Acquisition
price of french fry business customer contracts through relief of accounts receivable
invoices
|
|
$
|
544,630
|
|
|
$
|
-
|
|
Initial recognition of relative fair
value of warrant agreements as convertible promissory notes discount
|
|
$
|
697,611
|
|
|
$
|
-
|
|
Common Stock issued in exchange for
note payable and conversion of convertible promissory notes
|
|
|
|
|
|
|
|
|
Value
|
|
$
|
188,530
|
|
|
$
|
801,935
|
|
Shares
|
|
|
607,162,591
|
|
|
|
1,244,233,615
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
1: ORGANIZATION AND NATURE OF BUSINESS
Organization
and Nature of Business
Verus
International, Inc., including its wholly-owned subsidiaries, are collectively referred to herein as “Verus,” “VRUS”,
“Company,” “us,” or “we.”
We
were incorporated in the state of Delaware under the name Spectrum Gaming Ventures, Inc. on May 25, 1994. On October 10, 1995,
we changed our name to Select Video, Inc. On October 24, 2007, we filed a Certificate of Ownership with the Delaware Secretary
of State whereby Webdigs, Inc., our wholly-owned subsidiary, was merged with and into us and we changed our name to Webdigs, Inc.
On
October 9, 2012, we consummated a share exchange (the “Exchange Transaction”) with Monaker Group, Inc. (formerly known
as Next 1 Interactive, Inc.), a Nevada corporation (“Monaker”) pursuant to which we received all of the outstanding
equity in Attaché Travel International, Inc., a Florida corporation and wholly owned subsidiary of Monaker (“Attaché”)
in consideration for the issuance of 93 million shares of our newly designated Series A Convertible Preferred Stock to Monaker.
Attaché owned approximately 80% of a corporation named RealBiz Holdings Inc. which is the parent corporation of RealBiz
360, Inc. (“RealBiz”). As a condition to the closing of the Exchange Transaction, on October 3, 2012, we filed a Certificate
of Ownership with the Delaware Secretary of State whereby RealBiz Media Group, Inc., our wholly-owned subsidiary, was merged with
and into us and we changed our name to RealBiz Media Group, Inc.
On
May 1, 2018, Verus Foods MENA Limited (“Verus MENA”) entered into a Share Purchase and Sale Agreement with a purchaser
(the “Purchaser”) pursuant to which Verus MENA sold 75 shares (the “Gulf Agro Shares”) of Gulf Agro Trading,
LLC (“Gulf Agro”), representing 25% of the common stock of Gulf Agro, to the Purchaser. In consideration for the Gulf
Agro Shares, the Purchaser was assigned certain contracts executed during a specified period of time. Upon the consummation of
the transaction contemplated by the Share Purchase and Sale Agreement, the Purchaser obtained a broader license for product distribution.
All liabilities of Gulf Agro remained with Gulf Agro.
Until
July 31, 2018, we operated a real estate segment which generated revenue from service fees (for video creation and production
and website hosting (ReachFactor)) and product sales (Nestbuilder Agent 2.0 and Microvideo app). The real estate segment was formed
through the merging of three divisions: (i) our fully licensed real estate division (formerly known as Webdigs); (ii) our television
media contracts division (Home Preview Channel /Extraordinary Vacation Homes); and (iii) our Real Estate Virtual Tour and Media
group division (RealBiz 360). The assets of these divisions were used to create a new suite of real estate products and services
that created stickiness through the utilization of video, social media and loyalty programs. At the core of our programs was our
proprietary video creation technology which allowed for an automated conversion of data (text and pictures of home listings) to
a video with voice and music. We provided video search, storage and marketing capabilities on multiple platform dynamics for web,
mobile and television. Once a home, personal or community video was created using our proprietary technology, it could be published
to social media, emailed or distributed to multiple real estate websites, broadband or television for consumer viewing.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
We
entered into a Contribution and Spin-off Agreement with NestBuilder.com Corp. (“NestBuilder”) on October 27, 2017,
as amended on January 28, 2018, whereby, effective as of August 1, 2018, we spun off our real estate division into NestBuilder.
All of our stockholders as of July 2, 2018, the record date, which held their shares as of July 20, 2018, the ex-dividend date,
received one share of NestBuilder common stock for each 900 shares of our Company owned. As a result of the spin-off of the real
estate segment, all related assets and liabilities are disclosed net as current assets and current liabilities within the consolidated
balance sheets, and all related income and expenses are disclosed net as income (loss) from discontinued operations within the
consolidated statements of operations and comprehensive income (loss).
Since
August 1, 2018, we, through our wholly-owned subsidiary, Verus Foods, Inc., an international supplier of consumer food products,
have been focused on international consumer packaged goods, foodstuff distribution and wholesale trade. Our fine food products
are sourced in the United States and exported internationally. We market consumer food products under our own brands primarily
to supermarkets, hotels, and other members of the wholesale trade. Initially, we focused on frozen foods, particularly meat, poultry,
seafood, vegetables, and french fries with beverages as a second vertical, and during 2018, we added cold-storage facilities and
began seeking international sources for fresh fruit, produce and similar perishables, as well as other consumer packaged foodstuff
with the goal to create vertical farm-to-market operations. Verus has also begun to explore new consumer packaged goods (“CPG”)
non-food categories, such as cosmetic and fragrances, for future product offerings.
We
currently have a significant regional presence in the Middle East and North Africa (“MENA”) and sub-Saharan Africa
(excluding The Office of Foreign Assets Control restricted nations), with deep roots in the Gulf Cooperation Council (“GCC”)
countries, which includes the United Arab Emirates, Oman, Bahrain, Qatar, Kingdom of Saudi Arabia and Kuwait. The Company’s
long-term goal is to source goods and generate international wholesale and retail CPG sales in North and South America, Europe,
Africa, Asia and Australia.
In
addition to the foregoing, since our acquisition of Big League Foods, Inc. (“BLF”) during April 2019, pursuant to
which we acquired a license with Major League Baseball Properties, Inc. (“MLB”) to sell MLB-branded frozen dessert
products and confections, we have been selling pint size ice cream in grocery store-type packaging and are exploring novelty “grab-and-go”
size ice cream in cone, bar, and sandwich versions under our frozen dessert product line. In addition, under our confections product
line, we are selling gummi and chocolate candies. The MLB license covers all 30 MLB teams, and all of our current products pursuant
to such license feature “home team” packaging that matches the fan base in each region.
Furthermore,
during August 2019, we purchased all of the assets of a french fry business in the Middle East.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Consolidation and Presentation
The
consolidated financial statements for the years ended October 31, 2019 and 2018 include the operations of BLF effective April
25, 2019, Verus MENA effective May 1, 2018, Verus Foods, Inc. effective January 2017, and Gulf Agro Trading, LLC through April
30, 2018 (see Note 17). The historical operations of subsidiaries RealBiz 360 Enterprise (Canada), Inc., RealBiz 360, Inc., and
its wholly-owned subsidiary, Webdigs, LLC, which includes the dormant wholly owned subsidiaries of Home Equity Advisors, LLC,
and Credit Garage, LLC from the recapitalization date of October 9, 2012 are reported as discontinued operations for all periods
presented through July 31, 2018 (see Note 16). All significant intercompany balances and transactions have been eliminated in
the consolidation.
Reclassifications
Certain
reclassifications of prior year amounts have been made to enhance comparability with the current year’s consolidated financial
statements, including, but not limited to, presenting the spin-off of the real estate segment as discontinued operations for all
periods presented and presentation of certain items within the consolidated statement of cash flows.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results
could differ from those estimates. If actual results significantly differ from the Company’s estimates, the Company’s
financial condition and results of operations could be materially impacted. Significant estimates include the collectability of
accounts receivable, valuations of inventory, finite-lived intangible assets, derivative liabilities, stock-based compensation,
and the valuation reserve for income taxes.
Concentrations
of Credit Risk
The
Company’s food products accounts receivable, net and revenues as of and for the year ended October 31, 2019 were geographically
concentrated with customers located in the GCC countries. In addition, significant concentrations existed with a limited number
of customers. Approximately 42% of accounts receivable, net as of October 31, 2019 was concentrated with three customers and approximately
66% of revenues for the year ended October 31, 2019 were concentrated with six customers. Although the loss of one or more of
our top customers, or a substantial decrease in demand by any of those customers for our products, could have a material adverse
effect on our business, results of operations and financial condition, such risks may be mitigated by our access to credit insurance
programs.
The
Company purchases substantially all of its food products from a limited number of regions around the world or from a limited number
of suppliers. Increases in the prices of the food products which we purchase could adversely affect our operating results if we
are unable to offset the effect of these increased costs through price increases, and we can provide no assurance that we will
be able to pass along such increased costs to our customers. Furthermore, if we cannot obtain sufficient food products or our
suppliers cease to be available to us, we could experience shortages in our food products or be unable to meet our commitments
to customers. Alternative sources of food products, if available, may be more expensive. For periods in which the prices are declining,
the Company may be required to write down its inventory carrying cost which, depending on the extent of the differences between
market price and carrying cost, could have a material adverse effect on the Company’s consolidated results of operations
and financial position.
Cash
and Cash Equivalents
For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money
market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents.
There were no cash equivalents at October 31, 2019 or October 31, 2018.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Marketable
securities
During
January 2018, as part of the legal settlement with Monaker, NestBuilder received Monaker common shares valued at $32,270, which
were classified as “available for sale” securities until being spun-off on August 1, 2018 (see Note 16). These marketable
securities were determined trading securities pursuant to Statement of Financial Accounting Standards (“SFAS”) No.
115, Accounting for Certain Investments in Debt and Equity Securities, and any changes in value during the holding period
until the spin-off were reflected in our statement of operations. There were no marketable securities at October 31, 2019 or October
31, 2018.
Accounts
Receivable
The
Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts.
In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make
required payments, economic events, and other factors. As the financial condition of these parties change, circumstances develop
or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains
reserves for potential credit losses, and such losses traditionally have been within its expectations. At October 31, 2019 and
2018, the Company determined there was no requirement for an allowance for doubtful accounts.
Inventory
Inventory
is stated at the lower of net realizable value, determined on the first-in, first-out basis, or cost. Net realizable value is
based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion and transportation.
Inventories consist of raw materials (film and packaging) and finished products. At October 31, 2019, raw materials and finished
products inventory totaled $54,392 and $544,123, respectively. At October 31, 2018, all inventory was finished products inventory.
Intangible
Assets
The
Company amortizes its two intangible assets, a license with MLB, and certain acquired customer contracts, on a straight-line basis
over the estimated useful lives of the assets.
Property
and Equipment
All
expenditures on the acquisition for property and equipment are recorded at cost and capitalized as incurred, provided the asset
benefits the Company for a period of more than one year. Expenditures on routine repairs and maintenance of property and equipment
are charged directly to operating expense. The property and equipment is depreciated based upon its estimated useful life after
being placed in service. The estimated useful lives range from 3 to 7 years based upon asset class. When an asset is retired,
sold or impaired, the resulting gain or loss is reflected in earnings. The Company incurred depreciation expense of $3,835 for
the year ended October 31, 2019. The Company did not incur depreciation expense for the year ended October 31, 2018.
Impairment
of Long-Lived Assets
In
accordance with Accounting Standards Codification (“ASC”) 360-10, “Property, Plant, and Equipment”, the
Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value. For the years ended October 31, 2019 and 2018, the Company
did not impair any long-lived assets.
Fair
Value of Financial Instruments
The
Company measures its financial instruments in accordance with ASC topic 820, “Fair Value Measurements and Disclosures”
(ASC 820), formerly SFAS No. 157 “Fair Value Measurements.” ASC 820 defines “fair value” as the price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC
820 also describes three levels of inputs that may be used to measure fair value:
Level
1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level
2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level
3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s
best estimate of fair value.
Financial
instruments consist principally of cash, accounts receivable, prepaid expenses, due from affiliates, accounts payable, accrued
liabilities and other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets
approximate their fair values due to their relatively short-term nature. The fair value of short and long-term debt is based on
current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair
value. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from
these financial instruments.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition
Revenue
is derived from the sale of food and beverage products. The Company recognizes revenue when obligations under the terms of a contract
with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured
as the amount of consideration the Company expects to receive in exchange for transferring products. The amount of consideration
the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers
and their customers. In the event any discounts, sales incentives, or similar arrangements are agreed to with a customer, such
amounts are estimated at time of sale and deducted from revenue. Sales taxes and other similar taxes are excluded from revenue
(see Note 8).
Cost
of Revenues
Cost
of revenues represents the cost of the food products sold during the periods presented.
Shipping
and Handling Costs
Shipping
and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for the
years ended October 31, 2019 and 2018 were $562,959 and $162,190, respectively.
Share-Based
Compensation
The
Company computes share based payments in accordance with ASC 718-10 “Compensation” (“ASC 718-10”). ASC
718-10 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods
and services at fair value, focusing primarily on accounting for transactions in which an entity obtains employees services in
share-based payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods and
services that are based on the fair value of an entity’s equity instruments or that may be settled by the issuance of those
equity instruments. In March 2005, the U.S. Securities and Exchange Commission (the “SEC”) issued Staff Accounting
Bulletin (“SAB”) No. 107, Share-Based Payment (“SAB 107”) which provides guidance regarding the interaction
of ASC 718-10 and certain SEC rules and regulations. The Company has applied the provisions of SAB 107 in its adoption of ASC
718-10. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50, Equity Based Payments to
Non-Employees. The Company estimates the fair value of stock options and warrants by using the Black-Scholes option pricing model.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative
Instruments
The
Company accounts for financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that
contain embedded derivative features in accordance with ASC topic 815, “Accounting for Derivative Instruments and Hedging
Activities” as well as related interpretations of this standard. In accordance with this standard, derivative instruments
are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized
in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized
at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value
of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, considering
all of the rights and obligations of each instrument.
The
Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are
considered consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers,
among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. Estimating
fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and
are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition,
option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price
of the Company’s common stock. Since derivative financial instruments are initially and subsequently carried at fair values,
our income (expense) going forward will reflect the volatility in these estimates and assumption changes. Increases in the trading
price of the Company’s common stock and increases in fair value during a given financial quarter result in the application
of non-cash derivative expense. Conversely, decreases in the trading price of the Company’s common stock and decreases in
trading fair value during a given financial quarter result in the application of non-cash derivative income.
Convertible
Debt Instruments
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the Financial Accounting Standards Board
(the “FASB”) ASC. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount
and as additional paid-in-capital. Debt discount is amortized to expense over the life of the debt.
Foreign
Currency
Assets
and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end
exchange rates and profit and loss accounts have been translated using average exchange rates. Foreign currency translation gains
and losses are included in the Consolidated Statements of Operations and Comprehensive Loss as a component of comprehensive loss.
Assets and liabilities of an entity that are denominated in currencies other than an entity’s functional currency are re-measured
into the functional currency using end of period exchange rates or historical rates, where applicable to certain balances. Gains
and losses related to these re-measurements are recorded within the Consolidated Statements of Operations and Comprehensive Loss
as a component of other income (expense).
Income
Taxes
The
Company accounts for income taxes in accordance with Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for
Uncertainty in Income Taxes (“ASC 740”). Under this method, deferred income taxes are determined based on the
estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities and net operating
loss and tax credit carryforwards given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based
on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations
of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies.
If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value
of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based
on the “more likely than not” criteria of ASC 740.
ASC
740 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not”
threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its
October 31, 2019, 2018, 2017 and 2016 tax years may be selected for examination by the taxing authorities as the statute of limitations
remains open.
The
Company recognizes expenses for tax penalties and interest assessed by the Internal Revenue Service and other taxing authorities
upon receiving valid notice of assessments. The Company has received no such notices for the years ended October 31, 2019 and
2018.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings
Per Share
In
accordance with the provisions of FASB ASC Topic 260, Earnings per Share, basic earnings per share (“EPS”)
is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding
during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating
EPS on a diluted basis.
In
computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included.
The effect of contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported.
Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the years ended October 31,
2019 and 2018 as we incurred a net loss for those periods. At October 31, 2019, there were outstanding warrants to purchase approximately
726 million shares of the Company’s common stock, approximately 88 million shares of the Company’s common stock issuable
upon the conversion of series A and series C convertible preferred stock, and approximately 16 million shares of the Company’s
common stock issuable upon the conversion of convertible notes payable which may dilute future EPS. At October 31, 2018, there
were outstanding warrants to purchase approximately 124 million shares of the Company’s common stock, approximately 276
million shares of the Company’s common stock to be issued, and approximately 61 million shares of the Company’s common
stock issuable upon the conversion of series A and series C convertible preferred stock which may dilute future EPS.
Recently
Adopted Accounting Standards
Effective
November 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance
sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and
is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP.
The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or
services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not
addressed completely in the prior accounting guidance. The Company adopted ASC 606 using the modified retrospective method, which
did not have an impact on its consolidated financial statements. The Company determined the adoption of ASC 606 did not have a
material impact on its consolidated financial statements. The comparative information has not been restated and continues to be
reported under the accounting standards in effect for those periods. Refer to Note 8 for additional information regarding the
Company’s adoption of ASC 606.
Effective
November 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic
230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides clarification
on classifying a variety of activities within the statement of cash flows. The Company determined the adoption of ASU 2016-15
did not have a material impact on its consolidated financial statements.
Effective
November 1, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”),
which changes the presentation of restricted cash and cash equivalents on the statement of cash flows by including restricted
cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the statement of cash flows. The Company determined the adoption of ASU 2016-18 did not have a material
impact on its consolidated financial statements.
Effective
November 1, 2018, the Company adopted ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The Company
determined the adoption of ASU 2017-01 did not have a material impact on its consolidated financial statements.
Effective
November 1, 2018, the Company adopted ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification
Accounting (“ASU 2017-09”), which clarifies and reduces both (1) diversity in practice and (2) cost and complexity
when applying the guidance in Topic 718, Compensation – Stock Compensation, to a change to the terms or conditions of a
share-based payment award. The Company determined the adoption of ASU 2017-09 did not have a material impact on its consolidated
financial statements.
Effective
November 1, 2018, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities (“ASU 2017-12”), which provides new guidance about income statement classification and
eliminates the requirement to separately measure and report hedge ineffectiveness. The Company determined the adoption of ASU
2017-12 did not have a material impact on its consolidated financial statements.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Issued Accounting Standards Not Yet Adopted
During
February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize
leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No.
2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842,
Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that
requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12
months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense
recognition in the income statement. The new standard is effective for the Company on November 1, 2019, with early adoption permitted.
The Company expects to adopt the new standard on its effective date. A modified retrospective transition approach is required,
applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its
effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial
application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered
into between the date of initial application and the effective date. The entity must also recast its comparative period financial
statements and provide the disclosures required by the new standard for the comparative periods. Upon adoption of the new standard
on November 1, 2019, the Company expects to use the effective date as its date of initial application. Consequently, financial
information will not be updated and the disclosures required under the new standard will not be provided for dates and periods
before November 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company expects
to elect the ‘package of practical expedients’, which permits it not to reassess under the new standard its prior
conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the
use-of hindsight or the practical expedient pertaining to land easements; the latter not being applicable. The Company expects
the adoption of this standard will not have a material impact on its consolidated financial statements. While the Company continues
to assess all of the effects of adoption, the Company currently believes the most significant impact relates to the recognition
of a new ROU asset and lease liability on its balance sheet for the Company’s office operating lease and providing significant
new disclosures about its leasing activities. The Company does not expect a significant change in its leasing activities between
now and adoption. Upon adoption, the Company currently expects to recognize an additional operating liability of approximately
$191,000 with a corresponding ROU asset of the same amount based on the present value of the remaining minimum rental payments
under current leasing standards for the Company’s existing operating lease.
During
August 2018, the FASB issued ASU 2018-13, to modify the disclosure requirements on fair value measurements in Topic 820, Fair
Value Measurement, based on the concepts in the Concept Statement, including the consideration of costs and benefits. The standard
is effective for the Company as of November 1, 2020, with early adoption permitted. The Company does not expect the adoption of
this guidance to have a material impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying consolidated financial statements.
NOTE
3: GOING CONCERN
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The
Company has incurred net losses of $2,389,850 and $2,824,292 and has used cash in operating activities of $2,238,364 and $1,070,299
for the years ended October 31, 2019 and 2018, respectively. As of October 31, 2019, the Company had a working capital deficit
of $1,787,284, and an accumulated deficit of $28,494,590. It is management’s opinion that these facts raise substantial
doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date of this report,
without additional debt or equity financing. The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
In
order to meet its working capital needs through the next twelve months and to fund the growth of the food business, the Company
may consider plans to raise additional funds through the issuance of equity or debt. Although the Company intends to obtain additional
financing to meet its cash needs, the Company may be unable to secure any additional financing on terms that are favorable or
acceptable to it, if at all.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
4: BUSINESS ACQUISITION
On
October 30, 2019 (the “Closing Date”), the Company entered into a Contribution and Sale Agreement (the “Agreement”)
with Nutribrands Holdings, LLC, a wholly-owned subsidiary of the Company (“Nutribrands Holdings”), South Enterprise,
LLC (“South Enterprise”), the members of South Enterprise (the “SE Members”), Nutribrands, LTDA (“Nutribrands”
and together with South Enterprise, the “Companies” and each individually, a “Company”) and the equity
holders of Nutribrands (the “NB Equity Holders” and together with the SE Members, the “Sellers”) and Rodrigo
Nogueira, solely in his capacity as the Seller’s representative. Pursuant to the terms of the Agreement, on the Closing
Date, the Sellers contributed all of their limited liability interests and equity interests (collectively, the “Interests”)
in South Enterprise and Nutribrands, respectively, to Nutribrands Holdings in exchange for 49% of the membership interests of
Nutribrands Holdings (the “Nutribrands Holdings Membership Interests”). Pursuant to the terms of the Agreement, until
the five year anniversary of the Closing Date, the Companies may request that Nutribrands Holdings make available, Working Capital
(as defined in the Agreement) for Qualified Transactions (as defined in the Agreement). Of such Working Capital, $1 million may
be used by the Sellers for certain transaction fees. Furthermore, the Company has agreed to provide certain Working Capital Financing
(as defined in the Agreement) for Qualified Transactions, and to the extent that the Company does not provide such Working Capital
Financing and fails to fund the Qualified Transactions, the Sellers shall have the right to terminate the Agreement and the Holdings
LLC Agreement (as defined in the Agreement). Moreover, upon the expiration of the Measurement Period (as defined the Agreement),
if the Companies fail to meet or exceed the Projections (as defined in the Agreement) with respect to the end of the Measurement
Period, Nutribrands Holdings shall have the right to redeem or the Company shall have the right to acquire, and the Sellers shall
have the obligation to transfer, pursuant to the Holdings LLC Agreement, the Nutribrands Holdings Membership Interests having
an aggregate value (based on the value assigned to such interests on the Closing Date) equal to the amount of the shortfall of
the actual revenue of the Company for the trailing 12 month period ending on the fifth anniversary of the Closing Date and the
projected revenue for such trailing 12 month period included in the Projections. Furthermore, pursuant to the Agreement, beginning
one year after the Closing Date, until the five-year anniversary thereof, the Sellers shall have the opportunity to receive an
annual dividend of up to $4.5 million per year based upon the cumulative consolidated financial performance of the Companies;
provided, however, such dividend shall not exceed an aggregate of $18 million.
Subsequent
to the Closing Date, as a result of the Company and Sellers inability to agree upon advancement of Nutribrands’ business
operations, effective March 31, 2020, the Company and Sellers entered into a Termination and Release Agreement (“Termination
Agreement”) pursuant to which, among other things, (i) all agreements between the parties (including the October 30, 2019
Amended and Restated Operating Agreement of Nutribrands International, LLC and the Agreement and all related ancillary agreements)
were terminated (the “Released Transactions”) and (ii) the parties released each other from any and all obligations
whatsoever arising from the Released Transactions, subject to certain exceptions. Accordingly, the Company concluded that no business
combination occurred on October 30, 2019, as the Company never obtained control over Nutribrands as it did not have control over
management nor could it agree with the management of Nutribrands to advance the business and operate pursuant to the terms of
the Agreement. Therefore, in accordance with ASC topic 855, “Subsequent Events”, this Termination Agreement was considered
a Type 1 subsequent event and therefore no financial information related to this transaction has been included in the Company’s
consolidated financial statements as of and for the year ended October 31, 2019.
NOTE
5: ASSET ACQUISITIONS
Big
League Foods, Inc.
On
April 25, 2019, the Company entered into a stock purchase agreement with BLF and James Wheeler, the sole stockholder of BLF. Pursuant
to the terms of the stock purchase agreement, on the closing date, the Seller sold all of BLF’s outstanding capital stock,
or 1,500 shares of common stock to the Company. On the closing date, the Company paid the Seller $50,000 net of the aggregate
amount of any pre-closing liabilities or obligations of BLF (other than the Assumed Company Obligations (as defined in the stock
purchase agreement)) and the applicable payees thereof, the aggregate amount of the Assumed Company Obligations. Within ten business
days from the date upon which the Company delivers its first invoice for the Product (as defined in the stock purchase agreement)
to a customer, the Company will pay the Seller an additional $50,000 net of the Aggregate Liabilities (as defined in the stock
purchase agreement) and the applicable payees thereof, the aggregate amount of the Assumed Company Obligations. During August
2019, the additional $50,000 was paid to the Seller.
In
addition, the Company will pay the Seller earnout payments in an amount not to exceed $5 million during the period commencing
on the closing date through the quarter including December 31, 2022 (the “Earn Out Period”). During the Earnout Period
the Seller will be entitled to receive a payment for each fiscal quarter based on the difference of the Operating Income (as defined
in the stock purchase agreement) minus the Earnout Commission (as defined in the stock purchase agreement) (the “Difference”).
If the Difference is a positive number for the applicable fiscal quarter, the Earnout Payment for such fiscal quarter shall equal
the amount of the Earnout Commission. If the Difference is equal to zero or a negative number for the applicable fiscal quarter,
the Earnout Payment for such fiscal quarter shall be equal to the Operating Income. During the Earnout Period, the Seller will
be entitled to receive any portion of the Earnout Commission that was excluded from any prior Earnout Payment based on the Difference
in the applicable fiscal quarter being a negative number (the “Catch-Up Payment”); provided, however, no Catch-up
Payment will be payable following the date on which the final Earnout Payment is made for the last fiscal quarter in the Earnout
Period.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
5: ASSET ACQUISITIONS (continued)
Upon
the closing of such acquisition, BLF became the Company’s wholly-owned subsidiary and the Company acquired a license with
MLB to sell MLB-branded frozen dessert products and confections. The license covers all 30 MLB teams.
The
transaction was accounted for as an asset acquisition, with substantially all of the purchase consideration allocated to the license
(see Note 6).
French
Fry Business
On
August 30, 2019, the Company entered into an asset purchase agreement with a certain seller (“Seller”) pursuant to
which, on September 6, 2019, the Company acquired all of the assets of the Seller’s french fry business (the “Acquired
Assets”) in consideration for $544,477 (2,000,000 United Arab Emirates Dirham) in cash, plus assumption of certain liabilities.
The purchase price was satisfied by relieving the Seller of certain accounts receivable invoices which totaled the purchase price
and were outstanding and due to the Company.
The
transaction was accounted for as an asset acquisition, with all of the purchase consideration allocated to the customer contracts
which provide the Company the right to earn revenue under the related terms (see Note 6).
NOTE
6: INTANGIBLE ASSETS, NET
Intangible
assets, net, consist of two intangible assets, a license (the “License”) with MLB and certain acquired customer contracts.
MLB
License
The
MLB License allows us to sell MLB-branded frozen dessert products and confections. The License was acquired as part of the April
25, 2019 stock purchase agreement (see Note 5) pursuant to which the Company purchased all of the outstanding capital stock of
BLF. The transaction was accounted for as an asset acquisition, with substantially all of the purchase consideration allocated
to the License.
The
purchase consideration to acquire the License totals $5,357,377, which consists of $50,000 cash paid subsequent to closing, $257,377
of accrued MLB License royalty fees that were assumed by the Company upon acquisition of the License (net of cash acquired of
$350), and $5,050,000 cash that is contingently payable over time, through December 31, 2022, based on the future sales of MLB-branded
products (see Note 14). The contingent consideration is recognized as an increase to the carrying amount of the License intangible
asset when the payment becomes probable and estimable, net of any catch-up for amortization expense.
Acquired
Customer Contracts
The
acquired customer contracts were purchased for $544,477 (2,000,000 United Arab Emirates Dirham) from a third-party frozen foods
vendor on September 6, 2019, giving the Company the right to earn revenue under the terms of the acquired customer contracts.
The
net carrying amount of the intangible assets are as follows:
|
|
Estimated
|
|
|
|
|
|
|
October
31,
|
|
Useful
Lives
|
|
2019
|
|
|
2018
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
MLB
license
|
|
32 months
|
|
$
|
357,027
|
|
|
$
|
-
|
|
Customer contracts
|
|
7 years
|
|
|
544,630
|
|
|
|
-
|
|
Accumulated
amortization
|
|
|
|
|
(63,950
|
)
|
|
|
-
|
|
Intangible assets,
net
|
|
|
|
$
|
837,707
|
|
|
$
|
-
|
|
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
6: INTANGIBLE ASSETS, NET (continued)
Amortization
expense included in cost of revenue for the year ended October 31, 2019 was $63,950. There was no amortization expense during
the year ended October 31, 2018.
Annual
amortization expense related to the existing net carrying amount of the intangible assets for the next five years is expected
to be as follows:
Fiscal year 2020
|
|
$
|
226,201
|
|
Fiscal year 2021
|
|
$
|
212,931
|
|
Fiscal year 2022
|
|
$
|
100,325
|
|
Fiscal year 2023
|
|
$
|
77,804
|
|
Fiscal year 2024
|
|
$
|
77,804
|
|
Note
7: Property and Equipment
At
October 31, 2019 and 2018, the Company’s property and equipment are as follows:
|
|
Estimated
|
|
|
|
|
|
|
October
31,
|
|
Useful
Lives
|
|
2019
|
|
|
2018
|
|
Computer equipment
|
|
3 years
|
|
$
|
86,974
|
|
|
$
|
98,341
|
|
Furniture and fixtures
|
|
7 years
|
|
|
13,213
|
|
|
|
-
|
|
Production assets
|
|
3 years
|
|
|
9,624
|
|
|
|
-
|
|
Accumulated depreciation
|
|
|
|
|
(86,554
|
)
|
|
|
(82,719
|
)
|
|
|
|
|
$
|
23,257
|
|
|
$
|
15,622
|
|
The
Company has recorded $3,835 and $0 of depreciation expense for the years ended October 31, 2019 and 2018, respectively. There
was no property and equipment impairments recorded for the years ended October 31, 2019 and 2018.
NOTE
8: REVENUE
The
Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Product sales occur
once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects
to receive in exchange for transferring products. The amount of consideration the Company receives and revenue the Company recognizes
varies with changes in customer incentives the Company offers to its customers and their customers. Sales taxes and other similar
taxes are excluded from revenue.
The
adoption of ASC 606 resulted in no impact to the individual financial statement line items of the Company’s Consolidated
Statements of Operations during the year ended October 31, 2019.
Information
about the Company’s revenue by country is as follows:
Year
Ended October 31,
|
|
2019
|
|
|
2018
|
|
United Arab Emirates
|
|
$
|
9,326,205
|
|
|
$
|
3,686,471
|
|
Kingdom of Saudi Arabia
|
|
|
1,891,059
|
|
|
|
710,580
|
|
Bahrain
|
|
|
1,202,282
|
|
|
|
827,997
|
|
Oman
|
|
|
1,140,116
|
|
|
|
576,989
|
|
United States
|
|
|
51,439
|
|
|
|
-
|
|
Net
revenue
|
|
$
|
13,611,101
|
|
|
$
|
5,802,037
|
|
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
9: DEBT
Convertible
Notes Payable
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the FASB ASC. The amounts allocated
to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is
amortized to expense over the life of the debt.
On
February 8, 2019, the Company entered into a securities purchase agreement, as amended on May 30, 2019, with an accredited investor
(the “First Investor”), whereby the Company sold an 8% convertible promissory note in the original principal amount
of $1,250,000 (the “First Note”) and a three-year warrant to purchase up to 925,925,925 shares (the “First Warrant”)
of the Company’s common stock. The Company allocated a value of $573,389 to the First Warrant based upon a relative fair
value methodology. The First Note converts at 90% of the lowest sale price during the 30 trading days prior to conversion. Due
to certain ratchet provisions contained in the First Note, the Company accounted for this conversion feature as a derivative liability.
Accordingly, the Company recorded a derivative liability of $842,676 and a debt discount of $676,611 and began amortizing the
debt discount over the related term of the First Note. On March 6, 2019, the Company received a conversion notice from the First
Investor, pursuant to which the principal amount of the First Note together with interest accrued thereon was to convert into
shares of the Company’s common stock. As of March 6, 2019, the date the Company received the conversion notice, the Company
did not have sufficient available shares of common stock to issue and therefore recorded the value of such shares at such date
as shares to be issued within the Consolidated Balance Sheets. On May 30, 2019, the Company and the First Investor entered into
a letter agreement pursuant to which the conversion price of the First Note was amended to a fixed conversion price of $0.0025
per share and the First Warrant was amended such that it was exercisable for 500,000,000 shares of the Company’s common
stock at an exercise price of $0.0025 per share. On June 4, 2019, the Company issued the 512,333,333 shares of its common stock
to the First Investor. In connection with the securities purchase agreement, the Company entered into a Registration Rights Agreement
with the First Investor, as amended, pursuant to which the Company was required to file a Registration Statement (the “Registration
Statement”) covering the resale of the shares of common stock underlying the First Note and the First Warrant.
On
February 11, 2019, the Company entered into a securities purchase agreement with an accredited investor (the “Second Investor”),
whereby the Company sold an 8% convertible promissory note in the original principal amount of $200,000 (the “Second Note”
and together with the First Note, the “Notes”) and a three-year warrant to purchase up to 148,148,148 shares (the
“Second Warrant” and together with the First Warrant, the “Warrants”) of the Company’s common stock.
The Company allocated a value of $124,222 to the Second Warrant based upon a relative fair value methodology. The Second Note
converts at 90% of the lowest sale price during the 30 trading days prior to conversion. Due to certain ratchet provisions contained
in the Second Note, the Company accounted for this conversion feature as a derivative liability. Accordingly, the Company recorded
a derivative liability of $134,828 and a debt discount of $75,778 and began amortizing the debt discount over the related term
of the Second Note. On March 6, 2019, the Company received a conversion notice from the Second Investor, pursuant to which the
principal amount of the Second Note together with interest accrued thereon was to convert into shares of the Company’s common
stock. As of March 6, 2019, the date the Company received the conversion notice, the Company did not have sufficient available
shares of common stock to issue and therefore recorded the value of such shares at such date as shares to be issued within the
Consolidated Balance Sheets. On May 30, 2019, the Company and the Second Investor entered into a letter agreement pursuant to
which, among other things, the conversion price of the Second Note was amended to a fixed conversion price of $0.0025 per share
and the Second Warrant was amended such that it was exercisable for 80,000,000 shares of the Company’s common stock at an
exercise price of $0.0025 per share. On June 4, 2019, the Company issued the 81,920,000 shares of its common stock to the Second
Investor. In connection with the securities purchase agreement, the Company entered into a Registration Rights Agreement, as amended,
with the Second Investor pursuant to which the Company was required to file the Registration Statement covering the resale of
the shares of common stock underlying the Second Note and the Second Warrant.
The
Company initially filed the Registration Statement with the SEC on June 7, 2019 which Registration Statement was declared effective
by the SEC on August 7, 2019.
Upon
conversions of the Notes together with interest accrued thereon, and amendments of the Warrants, the related derivative liabilities
and debt discounts were eliminated and the Company recorded a net gain on extinguishment of debt of $2,700,737, which is recorded
within the Consolidated Statements of Operations.
On
February 8, 2019, the Company used a portion of the proceeds it received from the First Investor to pay off all convertible note
holders at an aggregate amount less than the total amount due, which consisted of the principal amount of the notes, accrued interest,
and penalties consisting of default principal and interest. The aggregate payment of $1,118,049 paid all convertible note holders
in full and resulted in a gain on extinguishment of debt of $681,945.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
9: DEBT (continued)
On
April 25, 2019, the Company entered into a securities purchase agreement with an accredited investor (the “Third Investor”)
pursuant to which the Company issued and sold a convertible note in the principal amount of $600,000 (including a $90,000 original
issuance discount). The note matures on November 12, 2019, bears interest at a rate of 5% per annum (increasing to 24% per annum
upon the occurrence of an event of default) and is convertible into shares of the Company’s common stock at a conversion
price of $0.10 per share, subject to adjustment. The note may be prepaid by the Company at any time without penalty. On September
17, 2019, the Company entered into Amendment #1 to the note amending the conversion price to $0.011844 per share and recognized
a beneficial conversion feature of $143,942 based upon the intrinsic value of the conversion option as a discount of the convertible
note, which will be amortized to interest expense through the maturity date. On September 18, 2019, $150,000 of the outstanding
principal and $2,897 of accrued interest was converted into an aggregate of 12,909,528 shares of the Company’s common stock.
On September 25, 2019, the Company paid off the outstanding balance of $459,123, consisting of $450,000 of principal and $9,123
of accrued interest.
On
July 1, 2019, the Company entered into a securities purchase agreement with an accredited investor (the “Fourth Investor”)
pursuant to which the Company issued and sold a convertible note in the principal amount of $605,000 (including a $90,000 original
issuance discount). The note matures on July 1, 2020, bears interest at a rate of 4% per annum (increasing to 24% per annum upon
the occurrence of an event of default) and is convertible into shares of the Company’s common stock at a conversion price
of $0.10 per share, subject to adjustment. The note may be prepaid by the Company at any time prior to the 180th day
after the issuance date, subject to certain prepayment penalties.
On
September 17, 2019, the Company entered into securities purchase agreements with accredited investors (the “Investors”)
pursuant to which the Company issued and sold convertible promissory notes in the aggregate principal amount of $660,000 (including
an aggregate of $110,000 in original issuance discounts). The notes mature on September 17, 2020, bear interest at a rate of 4%
per annum (increasing to 24% per annum upon the occurrence of an event of default) and are convertible into shares of the Company’s
common stock at a conversion price of $0.10 per share, subject to adjustment. The notes may be prepaid by the Company at any time
prior to the 180th day after the issuance date, subject to certain prepayment penalties.
On
October 2, 2019, the Company entered into a securities purchase agreement with an accredited investor (the “Seventh Investor”)
pursuant to which the Company issued and sold a convertible note in the principal amount of $345,000 (including a $45,000 original
issuance discount). The note matures on April 15, 2020, bears interest at a rate of 6% per annum (increasing to 24% per annum
upon the occurrence of an event of default) and is convertible into shares of the Company’s common stock at a conversion
price of $0.10 per share, subject to adjustment. The note may be prepaid by the Company at any time prior to the 180th
day after the issuance date, subject to certain prepayment penalties.
At
October 31, 2019 and October 31, 2018, there was $1,378,855 and $1,497,126 of convertible notes payable outstanding, net of discounts
of $231,146 and $4,765, respectively.
During
the years ended October 31, 2019 and 2018, amortization of debt discount amounted to $839,876 and $17,735, respectively.
During
the year ended October 31, 2019, $1,638,531 of convertible notes, including accrued interest, were converted into shares of the
Company’s common stock and there were payments of an aggregate of $1,577,172 toward the outstanding balances of convertible
notes.
At
October 31, 2019, the Company was in compliance with the terms of the outstanding convertible notes.
Note
Payable
In
connection with the closing of the transactions contemplated by the securities purchase agreement entered into with the First
Investor, the Company entered into Amendment No. 1 dated January 26, 2019 to the promissory note (the “Monaco Note”)
issued in favor of the Donald P. Monaco Insurance Trust on January 26, 2018 in the principal amount of $530,000, with an annual
interest rate of 12%, whereby (i) the maturity date of the Monaco Note was extended to January 26, 2020 and (ii) the Company agreed
to use its best efforts to prepay the unpaid principal amount of the Monaco Note together with all accrued but unpaid interest
thereon on or prior to March 31, 2019.
Subsequently,
the Company entered into Amendment No. 2 dated February 8, 2019 to the Monaco Note whereby the maturity date of the Monaco Note
was extended to November 8, 2019.
At
October 31, 2019, the Company was in compliance with the terms of the Monaco Note. Subsequent to October 31, 2019, upon maturity,
as the Company was not able to pay the balance due, the interest rate immediately increased to 18% per annum and the note holder
agreed to only impose the default interest rate and not proceed with any other default remedies currently available. The Company
expects to repay the Monaco Note in full as quickly as possible based upon its available capital.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
9: DEBT (continued)
Revolving
Credit Agreement
On
July 31, 2019, the Company entered into a secured, $500,000 revolving credit agreement (“Credit Facility”). Borrowings
under the Credit Facility may be used to fund working capital needs and bear interest at a one-month LIBOR-based rate plus 300
basis-points (4.80% at October 31, 2019). The Company’s performance and payment obligations under the Credit Facility are
guaranteed by substantially all of its assets. The structure of this Credit Facility is a note payable with a revolving credit
line feature with a mutual termination provision instead of a stated maturity date. The outstanding balance under the Credit Facility
may be prepaid at any time without premium or penalty. Additionally, the Credit Facility contains customary events of default
and remedies upon an event of default, including the acceleration of repayment of outstanding amounts under the Credit Facility.
At
October 31, 2019, $500,000 was outstanding under the Credit Facility. The Credit Facility contains customary affirmative and negative
covenants, including a borrowing base requirement upon each request for an advance from the Credit Facility. The Company was in
compliance with all covenants at October 31, 2019.
NOTE
10: STOCKHOLDERS’ DEFICIT
The
total number of shares of all classes of stock that the Company shall have the authority to issue is 7,625,000,000 shares consisting
of 7,500,000,000 shares of common stock with a $0.000001 par value per share of which 2,305,778,511 are outstanding at October
31, 2019 and 125,000,000 shares of preferred stock, par value $0.000001 per share of which (A) 120,000,000 shares have been designated
as Series A Convertible Preferred of which 44,570,101 are outstanding at October 31, 2019, (B) 1,000,000 shares have been designated
as Series B Convertible Preferred Stock, of which no shares are outstanding at October 31, 2019 and (C) 1,000,000 have been designated
as Series C Convertible Preferred Stock, of which 430,801 shares are outstanding at October 31, 2019.
On
January 11, 2019, stockholders holding a majority of the voting power of the Company’s issued and outstanding shares of
voting stock, executed a written consent approving 1) an amendment to the Company’s Amended and Restated Certificate of
Incorporation, as amended (the “Certificate of Incorporation”) to (i) increase the number of authorized shares of
common stock of the Company to 7,500,000,000 shares from 1,500,000,000 shares and (ii) decrease the par value of the common stock
and preferred stock to $0.000001 from $0.001 per share; and 2) granting discretionary authority to the Company’s Board of
Directors to amend the Certificate of Incorporation to effect one or more consolidations of the issued and outstanding shares
of common stock of the Company, pursuant to which the shares of common stock would be combined and reclassified into one share
of common stock at a ratio within the range from 1-for-2 up to 1-for-400 (the “Reverse Stock Split”), provided that,
(X) that the Company may not effect Reverse Stock Splits that, in the aggregate, exceed 1-for-400, and (Y) any Reverse Stock Split
may not be completed later than January 11, 2020. On April 16, 2019, the Company filed a Certificate of Amendment to its Certificate
of Incorporation to increase its authorized common stock from 1,500,000,000 shares to 7,500,000,000 shares and to decrease the
par value of its common stock and preferred stock from $0.001 per share to $0.000001 per share. As of October 31, 2019, the Company
has not effectuated any Reverse Stock Split.
Common
Stock
During
the year ended October 31, 2019, the Company:
●
|
issued
152,029,899 shares of its common stock to satisfy the settlement agreement by and among the Company, Monaker, American Stock
Transfer & Trust Company, LLC and NestBuilder that was executed on or about December 22, 2017.
|
|
|
●
|
entered
into a securities purchase agreement with an accredited investor pursuant to which the Company issued 41,666,666 shares of
its common stock for aggregate gross proceeds of $500,000.
|
|
|
●
|
entered
into a letter agreement with the First Investor, pursuant to which the principal amount of the First Note together with interest
accrued thereon was converted into an aggregate of 512,333,333 shares of the Company’s common stock at a fixed conversion
price of $0.0025 per share and the First Warrant was amended such that the First Warrant is exercisable for 500,000,000 shares
of the Company’s common stock at a fixed exercise price of $0.0025 per share. The Company issued the 512,333,333 shares
of its common stock on June 4, 2019 (see Note 9).
|
|
|
●
|
entered
into a letter agreement with the Second Investor, pursuant to which the principal amount of the Second Note together with
interest accrued thereon was converted into an aggregate of 81,920,000 shares of the Company’s common stock at a fixed
conversion price of $0.0025 per share and the Second Warrant was amended such that the Second Warrant is exercisable for 80,000,000
shares of the Company’s common stock at a fixed exercise price of $0.0025 per share. The Company issued the 81,920,000
shares of its common stock on June 4, 2019 (see Note 9).
|
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
10: STOCKHOLDERS’ DEFICIT (continued)
●
|
granted
30,000,000 shares of its common stock to Christopher Cutchens, the Company’s Chief Financial Officer. The common stock
will vest 25% on the six month, 1 year, 2 year, and 3 year anniversaries of the grant date. The Company recorded $143,750
of stock-based compensation expense during the year ended October 31, 2019, related to this common stock grant.
|
|
|
●
|
issued
2,419,355 shares of its common stock to satisfy a former employee’s exercise of 3,000,000 warrants on a cashless basis.
|
|
|
●
|
issued
12,909,258 shares of its common stock valued at $152,897 as repayment for outstanding principal and interest on a convertible
promissory note as requested by the note holder according to contractual terms.
|
During
the year ended October 31, 2018, the Company:
●
|
issued
1,244,233,615 shares of its common stock valued at $801,936 as repayment for outstanding principal and interest on convertible
promissory notes as requested by the note holders according to contractual terms.
|
|
|
●
|
issued
44,470,101 shares of its Series A Convertible Preferred Stock and 10,559,890 shares of its common stock valued at $330,180
as a result of the Monaker litigation settlement.
|
|
|
●
|
retired
4,163,315 shares of its common stock as a result of the NestBuilder spin-off transaction.
|
|
|
●
|
committed
to issue 152,029,899 shares of its common stock valued at $456,090 as a result of an additional settlement with Monaker.
|
|
|
●
|
issued
warrants to purchase 117,055,586 shares of its common stock valued at $299,635 under the provisions of the employment agreement
of the Company’s Chief Executive Officer.
|
|
|
●
|
issued
1,244,233,615 shares of its common stock to the holders of convertible notes with aggregate outstanding principal and accrued
interest balances of $801,935.
|
Common
Stock Warrants
During
February 2019, the Company entered into securities purchase agreements with the First and Second Investor, whereby the Company
sold the First and Second Notes and First and Second Warrants, respectively. The Company allocated a value of $697,611 to the
First and Second Warrants based upon a relative fair value methodology (see Note 9).
Additionally,
under the provisions of the employment agreement with its Chief Executive Officer, the Company is committed to issue warrants
to purchase shares of its common stock as follows:
●
|
for
each $1 million in revenue generated by the Company, a warrant to purchase 7,500,000 shares of the Company’s common
stock will be granted, until such time as the Chief Executive Officer owns 20% of the then-outstanding shares of common stock.
|
|
|
●
|
at
the beginning of each calendar year, a warrant to acquire 3% of the Company’s outstanding common stock will be granted.
|
All
warrants to purchase shares of the Company’s common stock that are granted under the provisions of the Chief Executive Officer’s
employment agreement are immediately vested upon being earned.
At
October 31, 2019, the Company was committed to issue warrants to purchase 142,500,000 shares of its common stock under the provisions
of the employment agreement of its Chief Executive Officer. The fair value of these warrants was $2,515,794 and was recognized
as an operating expense within the consolidated statements of operations.
At
October 31, 2019, there were warrants to purchase up to 725,705,000 shares of the Company’s common stock outstanding which
may dilute future EPS.
At
October 31, 2019, there remained warrants to purchase approximately 394,000,000 shares of the Company’s common stock, to
be issued if earned, under the provisions of the Chief Executive Officer’s employment agreement, which would increase such
ownership percentage of the Company’s common stock to the 20% limit.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
10: STOCKHOLDERS’ DEFICIT (continued)
The
Company estimates the fair value of each award on the date of grant using a Black-Scholes option valuation model that uses assumptions
for warrants earned during the years ended October 31, 2019 and 2018. Since Black-Scholes option valuation models incorporate
ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on the historical volatility of
the Company’s stock. The Company uses historical data to estimate award exercise and employee termination within the valuation
model, whereby separate groups of employees that have similar historical exercise behavior are considered separately for valuation
purposes. The expected term of granted awards is derived from the output of the option valuation model and represents the period
of time that granted awards are expected to be outstanding. The risk-free rate for periods within the contractual life of the
award is based on the U.S. Treasury yield curve in effect at the time of grant. The following assumptions were utilized during
the years ended October 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Expected volatility
|
|
|
0.20%
- 486.01
|
%
|
|
|
1.45%
- 6.30
|
%
|
Weighted-average volatility
|
|
|
50.14
|
%
|
|
|
3.52
|
%
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
0.5
|
|
|
|
1.0
|
|
Risk-free rate
|
|
|
1.46%
- 2.60
|
%
|
|
|
1.09%
- 2.67
|
%
|
The
following table sets forth common share purchase warrants outstanding as of October 31, 2019:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Value
|
|
Outstanding, October 31, 2018
|
|
|
123,761,716
|
|
|
$
|
0.007
|
|
|
$
|
-
|
|
Warrants granted and issued
|
|
|
1,796,574,073
|
|
|
$
|
0.001
|
|
|
$
|
-
|
|
Warrants exercised
|
|
|
(3,000,000
|
)
|
|
$
|
(0.006
|
)
|
|
$
|
-
|
|
Warrants exchanged
|
|
|
(1,191,630,789
|
)
|
|
$
|
(0.002
|
)
|
|
$
|
-
|
|
Outstanding, October 31, 2019
|
|
|
725,705,000
|
|
|
$
|
0.003
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issuable upon exercise of warrants
|
|
|
725,705,000
|
|
|
$
|
0.003
|
|
|
$
|
-
|
|
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
10: STOCKHOLDERS’ DEFICIT (continued)
|
|
|
|
|
|
Common
Stock Issuable
|
|
|
|
|
Common
Stock Issuable Upon Exercise of
|
|
|
Upon
Warrants
|
|
|
|
|
Warrants
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Weighted
|
|
|
Number
|
|
|
Weighted
|
|
Range
of
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable
|
|
|
Average
|
|
Exercise
|
|
|
at
October 31,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
at
October 31,
|
|
|
Exercise
|
|
Prices
|
|
|
2019
|
|
|
Life
(Years)
|
|
|
Price
|
|
|
2019
|
|
|
Price
|
|
$
|
0.0025
|
|
|
|
580,000,000
|
|
|
|
2.35
|
|
|
$
|
0.0025
|
|
|
|
580,000,000
|
|
|
$
|
0.0025
|
|
$
|
0.0060
|
|
|
|
142,500,000
|
|
|
|
0.79
|
|
|
$
|
0.0060
|
|
|
|
142,500,000
|
|
|
$
|
0.0060
|
|
$
|
0.0250
|
|
|
|
1,000,000
|
|
|
|
0.17
|
|
|
$
|
0.0250
|
|
|
|
1,000,000
|
|
|
$
|
0.0250
|
|
$
|
0.0500
|
|
|
|
1,000,000
|
|
|
|
1.17
|
|
|
$
|
0.0500
|
|
|
|
1,000,000
|
|
|
$
|
0.0500
|
|
$
|
0.1000
|
|
|
|
1,205,000
|
|
|
|
0.35
|
|
|
$
|
0.1000
|
|
|
|
1,205,000
|
|
|
$
|
0.1000
|
|
|
|
|
|
|
725,705,000
|
|
|
|
1.99
|
|
|
$
|
0.0034
|
|
|
|
725,705,000
|
|
|
$
|
0.0034
|
|
The
following table sets forth common share purchase warrants outstanding as of October 31, 2018:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Value
|
|
Outstanding, October 31, 2017
|
|
|
17,786,467
|
|
|
$
|
0.016
|
|
|
$
|
-
|
|
Warrants granted and issued
|
|
|
105,975,249
|
|
|
$
|
0.006
|
|
|
$
|
-
|
|
Warrants forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Outstanding, October 31, 2018
|
|
|
123,761,716
|
|
|
$
|
0.007
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issuable upon exercise of warrants
|
|
|
123,761,716
|
|
|
$
|
0.007
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Common
Stock Issuable
|
|
|
|
|
Common
Stock Issuable Upon Exercise of
|
|
|
Upon
Warrants
|
|
|
|
|
Warrants
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Weighted
|
|
|
Number
|
|
|
Weighted
|
|
Range
of
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable
|
|
|
Average
|
|
Exercise
|
|
|
at
October 31,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
at
October 31,
|
|
|
Exercise
|
|
Prices
|
|
|
2018
|
|
|
Life
(Years)
|
|
|
Price
|
|
|
2018
|
|
|
Price
|
|
$
|
0.006
|
|
|
|
120,556,716
|
|
|
|
0.98
|
|
|
$
|
0.006
|
|
|
|
120,556,716
|
|
|
$
|
0.006
|
|
$
|
0.025
|
|
|
|
1,000,000
|
|
|
|
1.17
|
|
|
$
|
0.025
|
|
|
|
1,000,000
|
|
|
$
|
0.025
|
|
$
|
0.050
|
|
|
|
1,000,000
|
|
|
|
0.47
|
|
|
$
|
0.050
|
|
|
|
1,000,000
|
|
|
$
|
0.050
|
|
$
|
0.100
|
|
|
|
1,205,000
|
|
|
|
1.35
|
|
|
$
|
0.100
|
|
|
|
1,205,000
|
|
|
$
|
0.100
|
|
|
|
|
|
|
123,761,716
|
|
|
|
0.98
|
|
|
$
|
0.007
|
|
|
|
123,761,716
|
|
|
$
|
0.007
|
|
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
10: STOCKHOLDERS’ DEFICIT (continued)
Series
A Convertible Preferred Stock
On
October 14, 2014, the Company filed a certificate of amendment to its Certificate of Designations, Number, Voting Powers, Preferences
and Rights of Series A Convertible Preferred Stock with the Delaware Secretary of State pursuant to the July 31, 2014 Board of
Directors approval to increase the Series A Convertible Preferred A shares from 100,000,000 shares to 120,000,000 shares. The
Series A Convertible Preferred Stock was issued at $0.001 par value and bear dividends at a rate of 10% per annum payable on a
quarterly basis when declared by the board of directors. Dividends accrue whether or not they have been declared by the board.
At the election of the Company, Preferred Dividends may be converted into Series A Convertible Preferred Stock, with each converted
share having a value equal to the market price per share, subject to adjustment for stock splits. In order to exercise such option,
the Company delivers written notice to the holder. Each 20 shares of Series A Convertible Preferred Stock is convertible at the
option of the holder thereof at any time into one share of Common Stock. Each holder of Series A Convertible Preferred Stock shall
be entitled to one vote for each whole share of common stock that would be issuable upon conversion of such share on the record
date for determining eligibility to participate in the action being taken.
In
the event of (a) the sale, conveyance, exchange, exclusive license, lease or other disposition of all or substantially all of
the intellectual property or assets of the Company, (b) any acquisition of the Company by means of consolidation, stock exchange,
stock sale, merger of other form of corporate reorganization of the Company with any other entity in which the Company’s
stockholders prior to the consolidation or merger own less than a majority of the voting securities of the surviving entity, or
(c) the winding up or dissolution of the Company, whether voluntary or involuntary (each such event in clause (a), (b) or (c)
a “liquidation event”), the Board shall determine in good faith the amount legally available for distribution to stockholders
after taking into account the distribution of assets among, or payment thereof over to, creditors of the Company (the “net
assets available for distribution”). The holders of the Series A Convertible Preferred Stock then outstanding shall be entitled
to be paid out of the net assets available for Distribution (or the consideration received in such transaction) before any payment
or distribution shall be made to the holders of any class of preferred stock ranking junior to the Series A Convertible Preferred
Stock or to the Common Stock, an amount for each share of Series A Convertible Preferred Stock equal to all accrued and unpaid
Preferred Dividends plus the Stated Value, as adjusted (the “Series A Liquidation Amount”).
On
February 8, 2019, the Company filed a Second Amended and Restated Certificate of Designations, Preferences and Rights of the Series
A Convertible Preferred Stock (the “Second Amended and Restated Series ACOD”), as amended on April 9, 2019 with the
Delaware Secretary of State. Pursuant to the Second Amended and Restated Series A COD, the Company designated 120,000,000 shares
as Series A Convertible Preferred Stock (the “Series A Preferred Stock”). Each share of Series A Preferred Stock is
convertible at any time at the option of the holder into such number of shares of the Company’s common stock determined
by dividing the Series A Conversion Price divided by the Series A Stated Value. The “Series A Conversion Price” is
$1.00 per share, subject to adjustment, and the “Series A Stated Value is $1.00 per share. Each share of Series A Preferred
Stock shall be entitled to vote such number of shares into which the Series A Preferred Stock are convertible into. In addition,
from the date the Company issued the First Note until such time that no shares of Series A Preferred Stock are outstanding, each
holder of Series A Preferred Stock shall have the right to participate in any subsequent financings of the Company in an amount
equal to up to 50% of such financing. In the event of (a) the sale, conveyance, exchange, exclusive license, lease or other disposition
of all or substantially all of the intellectual property or assets of the Company, (b) any acquisition of the Company by means
of consolidation, stock exchange, stock sale, merger of other form of corporate reorganization of the Company with any other entity
in which the Company’s stockholders prior to the consolidation or merger own less than a majority of the voting securities
of the surviving entity, or (c) the winding up or dissolution of the Company, whether voluntary or involuntary (each such event
in clause (a), (b) or (c) a “Liquidation Event”), the board shall determine in good faith the amount legally available
for distribution to stockholders after taking into account the distribution of assets among, or payment thereof over to, creditors
of the Company (the “Net Assets Available for Distribution”). The holders of the Series A Preferred Stock then outstanding
shall be entitled to be paid out of the Net Assets Available for Distribution (or the consideration received in such transaction)
before any payment or distribution shall be made to the holders of any class of preferred stock ranking junior to the Series A
Preferred Stock or to the common stock, an amount for each share of Series A Preferred Stock equal to the Series A Stated Value.
There
were no accrued or declared preferred stock dividends on the outstanding preferred shares at October 31, 2018.
On
March 25, 2019, the Company entered into an inducement agreement (the “Inducement Agreement”) effective as of February
8, 2019, pursuant to which the Company issued Monaker 152,029,899 shares of its common stock as an inducement to remove certain
anti-dilution provisions contained in the Series A Preferred Stock Certificate of Designation in connection with the offering
to the First Investor of the First Note and the First Warrant. At October 31, 2018, the value of the 152,029,899 shares of common
stock was $456,090 and was recorded as shares to be issued within our Consolidated Statement of Changes in Stockholders’
Deficit.
At
October 31, 2019 and 2018, there were 44,570,101 shares of Series A Convertible Preferred Stock outstanding.
Series
B Convertible Preferred Stock
On
July 31, 2014, the Company’s Board of Directors approved the creation of a new Series B Convertible Preferred Stock and
on October 14, 2014 the Company filed a Certificate of Designation of Series B Convertible Preferred Stock with the Delaware Secretary
of State designating 1,000,000 shares, par value of $0.001 per share, as Series B Convertible Preferred Stock (“Series B
Convertible Preferred Stock”). The Series B Convertible Preferred Stock have a stated value of $5.00 per share (the “Series
B Stated Value”). The Series B Convertible Preferred Stock accrue dividends at a rate of 10% per annum on the Series B Stated
Value of such shares of the Series B Convertible Preferred Stock. Dividends accrue whether or not they have been declared by the
board of directors. At the election of the Company, it may satisfy its obligations to pay dividends on the Series B Convertible
Preferred Stock by issuing shares of common stock to the holders of Series B Convertible Preferred Stock on a uniform and prorated
basis. Each share of Series B Convertible Preferred Stock is convertible at the option of the holder thereof at any time into
a number of shares of common stock determined by dividing the Series B Stated Value by the conversion price then in effect. The
conversion price for the Series B Convertible Preferred Stock is equal to $0.05 per share, subject to adjustment. Each holder
of Series B Convertible Preferred Stock shall be entitled to the number of votes equal to 200 votes for each shares of Series
B Convertible Preferred Stock held by them.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
10: STOCKHOLDERS’ DEFICIT (continued)
Upon
the occurrence of a Liquidation Event, the board shall determine in good faith the amount legally available for distribution to
stockholders after taking into account the Net Assets Available for Distribution. The holders of the Series B Convertible Preferred
Stock then outstanding shall be entitled to be paid out of the Net Assets Available for Distribution (or the consideration received
in such transaction) before any payment or distribution shall be made to the holders of any class of preferred stock ranking junior
to the Series B Convertible Preferred Stock or to the common stock, an amount for each share of Series B Convertible Preferred
Stock equal to all accrued and unpaid preferred dividends plus the Series B Stated Value.
As
of October 31, 2019 and 2018, there were no shares of Series B Convertible Preferred Stock outstanding.
Series
C Convertible Preferred Stock
On
May 5, 2015, the Company filed a Certificate of Designation of Series C Convertible Preferred Stock (the “Series C COD”)
with the Delaware Secretary of State. Pursuant to the Series C COD, the Company designated 1,000,000 shares as Series C Convertible
Preferred Stock (the “Series C Preferred Stock”). Each share of Series C Preferred Stock is convertible at any time
at the option of the holder into such number of shares of the Company’s common stock determined by dividing the Series C
Stated Value by the Series C Conversion Price. The “Series C Stated Value” means $5.00 per share, and the “Series
C Conversion Price” means $0.05 per share, subject to adjustment.
Each
share of Series C Preferred Stock shall be entitled to vote such number of shares equal to 100 votes for each share of common
stock into which the Series C Preferred Stock is then convertible into. Shares of Series C Preferred Stock shall accrue dividends
at a rate of 10% per annum on the Series C Stated Value which shall be payable when and if declared by the board of directors.
Upon the occurrence of a Liquidation Event, the board shall determine in good faith the amount legally available for distribution
to stockholders after taking into account the Net Assets Available for Distribution. The holders of the Series C Convertible Preferred
Stock then outstanding shall be entitled to be paid out of the Net Assets Available for Distribution (or the consideration received
in such transaction) before any payment or distribution shall be made to the holders of any class of preferred stock ranking junior
to the Series C Convertible Preferred Stock or to the common stock, an amount for each share of Series C Convertible Preferred
Stock equal to all accrued and unpaid preferred dividends plus the Series C Stated Value.
On
December 28, 2018, the Board of Directors awarded the Company’s Chief Executive Officer 295,801 shares of Series C Preferred
Stock, in exchange for 117,556,716 of his warrants to acquire shares of common stock and a 501,130 share common stock bonus as
approved by the Company’s Board of Directors related to the Company’s fiscal 2018 performance.
On
April 26, 2019, a shareholder converted 25,000 shares of Series C Preferred Stock into an aggregate of 2,500,000 shares of the
Company’s common stock.
At
October 31, 2019 and 2018, there were 430,801 and 160,000 shares of Series C Convertible Preferred Stock outstanding, respectively.
NOTE
11: RELATED PARTY TRANSACTIONS
During
the fiscal year ending October 31, 2019, there were no related party transactions to report.
At
October 31, 2018, Anshu Bhatnagar, our Chief Executive Officer was due warrants to acquire 117,055,586 shares of common stock
under the provisions of his employment agreement. Since there were no authorized shares of common stock available for issuance,
on December 28, 2018, the Board of Directors awarded our Chief Executive Officer 294,545 shares of Series C Preferred Stock, in
lieu of the warrants to acquire 117,055,586 shares of Common Stock due him, and inclusive of 501,130 shares of Common Stock related
to an incentive bonus as approved by the Board of Directors. At October 31, 2018, the value of the 117,055,586 warrants to acquire
shares of Common Stock was $299,635 and was recorded within our Consolidated Statement of Changes in Stockholders’ Deficit.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
12: INCOME TAXES
The
Company accounts for income taxes taking into account deferred tax assets and liabilities which represent the future tax consequences
of the differences between financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities.
Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit
carryforwards. Deferred liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will
not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year the change is
enacted. Due to recurring losses, the Company’s tax provision for the years ended October 31, 2019 and 2018 was $0 and $0,
respectively.
The
provision for income taxes consisted of the following:
Year
Ended October 31,
|
|
2019
|
|
|
2018
|
|
Deferred tax benefit (provision):
|
|
|
|
|
|
|
|
|
Federal
|
|
|
729,016
|
|
|
|
659,190
|
|
State, net of federal benefit
|
|
|
226,255
|
|
|
|
127,093
|
|
Effect of Canada tax and exchange rates
|
|
|
-
|
|
|
|
257,084
|
|
Nondeductible expenses
|
|
|
-
|
|
|
|
(90,961
|
)
|
Change in valuation
allowance
|
|
|
(955,271
|
)
|
|
|
(952,406
|
)
|
Income
tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following table presents the difference between the effective tax rate and the U.S. federal statutory income tax rate:
Year
Ended October 31,
|
|
2019
|
|
|
2018
|
|
U.S. federal statutory income
tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State taxes, net of federal benefit
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
Other
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Effect of valuation
allowance
|
|
|
(28.0
|
)%
|
|
|
(28.0)
|
%
|
Effective
income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Deferred
income taxes reflect the net tax effect of temporary difference between the carrying amounts of assets and liabilities. The significant
components of the deferred income tax asset (liability) are as follows:
|
|
October
31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
(US)
|
|
|
1,312,249
|
|
|
|
2,594,497
|
|
Net operating loss carryforwards (Canada)
|
|
|
-
|
|
|
|
1,021,065
|
|
Deferred stock warrants
|
|
|
1,388,579
|
|
|
|
-
|
|
Other
|
|
|
17,075
|
|
|
|
-
|
|
Depreciation
|
|
|
(6,400
|
)
|
|
|
-
|
|
Net deferred tax assets
|
|
|
2,711,503
|
|
|
|
3,615,562
|
|
Valuation allowance
|
|
|
(2,711,503
|
)
|
|
|
(3,615,562
|
)
|
Income
tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion
or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences will become deductible. The Company considers
the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. The Company has recorded a full valuation allowance against its net deferred tax assets because it is not currently
able to conclude that it is more likely than not that these assets will be realized. The amount of deferred tax assets considered
to be realizable could be increased in the near term if estimates of future taxable income during the carryforward period are
increased. The valuation allowance decreased by $904,059 and $361,043 during the fiscal years ended October 31, 2019 and 2018,
respectively.
As
of October 31, 2019 the Company has a total net operating loss carryforward of approximately $4,600,000. Net operating loss carryforwards
generated before January 1, 2018 will expire through 2037. Under the Internal Revenue Code Section 382, certain stock transactions
which significantly change ownership, including the sale of stock to new investors, the exercise of options to purchase stock,
or other transactions between shareholders could limit the amount of net operating loss carryforwards that may be utilized on
an annual basis to offset taxable income in future periods. Effective December 22, 2017 a new tax bill was signed into law that
reduced the federal income tax rate for corporations from 35% to 21%. The new bill reduced the blended tax rate for the Company
from 39.5% to 27.5%. The change in blended tax rate reduced the 2018 net operating loss carry forward deferred tax assets by approximately
$1,400,000.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
Note
13: Segment reporting
Through
July 31, 2018, the Company had two reportable segments: real estate and food products. On July 31, 2018, the real estate segment
was spun-off into a separate public company, leaving the Company with only the food products segment (see Note 16).
NOTE
14: COMMITMENTS AND CONTINGENCIES
License
Contingent Consideration
As
described in Note 5, during April 2019 the Company acquired the License to sell MLB-branded frozen dessert products and confections
as part of its acquisition of BLF. The consideration payable to the seller of BLF includes $5,050,000 of contingent consideration,
of which $50,000 is due upon the initial sale of an MLB-branded product and of which $5,000,000 is to be paid over time, through
December 31, 2022, based on future sales of MLB-branded products (the “Earnout”). The Earnout is payable on a quarterly
basis at $1.00 per case sold for sales that have a minimum gross margin of 20% per case. The Earnout payable each quarter is limited
in aggregate to the operating income of BLF; however, any amounts constrained due to this limit may be rolled forward to future
periods and paid when there is sufficient excess operating income. The Company accrues for this contingent consideration when
payment becomes both probable and estimable.
During
August 2019, $50,000 of the License contingent consideration was paid to the seller of BLF as the initial sale of an MLB-branded
product was achieved during July 2019. At October 31, 2019, the Company believes it is a reasonable possibility that the remaining
maximum amount of $5,000,000 will be paid over the term of the arrangement.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
14: COMMITMENTS AND CONTINGENCIES (continued)
Guaranteed
Minimum Royalties
The
Company is obligated to pay royalties to certain vendors for the sale of products that contain their intellectual property. These
royalty fees are based on a percentage of sales of the underlying products and are included in cost of revenue. The royalties
also include certain guaranteed minimum payments. As of October 31, 2019, the Company’s total expected future obligation
related to these guaranteed minimum payments was $1,346,818, of which the Company expects to pay $478,485, $738,333 and $130,000
during the fiscal years ending October 31, 2020, 2021, and 2022, respectively. Amounts accrued at October 31, 2019 relating to
these guaranteed minimum payments totaled $233,841 and are included in accounts payable and accrued expenses.
Operating
Lease Obligation
The
Company’s future fiscal year minimum lease payments for its corporate office operating lease are as follows:
2020
|
|
$
|
90,610
|
|
2021
|
|
$
|
93,329
|
|
2022
|
|
$
|
15,746
|
|
Total
|
|
$
|
199,685
|
|
Rent
expense for the Company’s corporate office for the fiscal years ending October 31, 2019 and 2018 was $87,910 and $78,681,
respectively.
NOTE
15: LITIGATION
RealBiz
v. Monaker, Case No. 0:16-cv-61017-FAM. This matter was set for trial in March 2018. The Company had a pending Motion for
Summary Judgment to be ruled on by the court before trial. The Company believes it was owed approximately $1.3 million from Monaker
according to the companies’ prior audited financial statements that showed this debt due to the Company from Monaker. Monaker
had countersued the Company and claims that Monaker’s financial statements were materially incorrect and needed to be restated,
and that as a result of Monaker’s subsequent review of its financials the Company owed Monaker money.
Monaker
v. RealBiz, Case No. 1:16-cv-24978-DLG. This case was set for trial in January 2018. This case stems from the Company’s
adjustment to its books to reflect Monaker’s prior over issuance of the Company’s shares when the Company used the
incorrect conversion ratio pursuant to the Company’s Series A Preferred Stock Amended Certificate of Designation (the “COD”)
that was filed with the Secretary of State of Delaware in October 2014. Monaker argued that said COD, which was signed by Monaker’s
current CEO when he was also the CEO for the Company includes a drafting error and should be disregarded by the court. Monaker
seeks the return of the shares of Series A Preferred Stock that were cancelled after the Company’s adjustment after identifying
the conversion ratio error in November 2016, or alternatively, monetary damages to account for Monaker’s share reduction.
On
December 22, 2017, the foregoing litigation was settled with the issuance of 44,470,101 shares of the Company’s Series A
Convertible Preferred Stock and 10,559,890 shares of the Company’s common stock to Monaker and a $100,000 payment to NestBuilder
by Monaker. The settlement included an anti-dilution provision requiring the Company to issue additional shares of its preferred
or common stock to Monaker to maintain Monaker’s ownership percentage as of the date of the settlement. On March 25, 2019,
the Company entered into an inducement agreement (the “Inducement Agreement”) effective as of February 8, 2019, pursuant
to which the Company agreed to issue Monaker 152,029,899 shares of its common stock as an inducement to remove certain anti-dilution
provisions contained in the Series A Preferred Stock Certificate of Designation in connection with the Company’s offering
of a convertible promissory note in the original principal amount of $1,250,000 and a three-year warrant to purchase up to 925,925,925
shares of the Company’s common stock. At October 31, 2018, the value of the 152,029,899 shares of common stock was $456,090
and was recorded as shares to be issued within our Consolidated Statement of Changes in Stockholders’ Deficit. On April
22, 2019, the 152,029,899 shares of common stock were issued to Monaker to satisfy the Inducement Agreement.
On
January 29, 2018, additional litigation between the Company and NestBuilder was settled with the Company agreeing to pay NestBuilder
$30,000 and NestBuilder agreeing to return to the Company 4,163,315 shares of the Company’s common stock.
On
December 1, 2018, Mid-Atlantic CFO Advisory Services (“Mid-Atlantic”) commenced a lawsuit against Verus Foods, Inc.
and Anshu Bhatnagar in the Fairfax Circuit Court, Case No. 2018-16824. This case stems from the Company’s use of Mid-Atlantic’s
services for certain business transactions and the Company’s failure to pay for such services. On December 28, 2018, a Confirmation
of Arbitration Award and Final Judgment Order was approved, awarding Mid-Atlantic an amount which included claimed services, attorney’s
fees, arbitration costs and fees, and interest of 4% percent per annum from November 22, 2018. On October 30, 2019, the Company
paid $205,300 and received a Final Judgment Order releasing Verus Foods, Inc. and Anshu Bhatnagar from all claims.
On
April 4, 2019, Auctus Fund, LLC (“Auctus”) commenced a lawsuit against the Company in the United States District Court
for the District of Massachusetts. On August 27, 2019 the Company filed a motion to dismiss this lawsuit. On September 30, 2019,
Auctus responded by filing a First Amended Complaint. The Company then filed a second motion to dismiss on October 24, 2019. On
February 25, 2020, the court issued a decision dismissing the securities laws and unjust enrichment and breach of fiduciary duty
claims and retaining the breach of contract, breach of covenant of good faith, fraud and deceit, and negligent misrepresentation-and
the Massachusetts Consumer Protection Act claims. The Company filed its Answer to the complaint on March 10, 2020. The case remains
pending in the District of Massachusetts. This case stems from a securities purchase agreement and convertible note issued in
May 2017, a securities purchase agreement and convertible note issued in July 2018, the spin-off of the Company’s real estate
division into NestBuilder including the issuance of shares of NestBuilder in the spin-off to the Company’s stockholders
and an inducement agreement, release and payoff agreement executed by the parties in February 2019 whereby the Company settled
the balance of outstanding amounts owed to Auctus in consideration for cash and shares of NestBuilder. Auctus has requested that
the court grant it injunctive and equitable relief and specific performance with respect to the Company’s obligations; determine
that the Company is liable for all damages, losses and costs and award Auctus actual losses sustained; award Auctus costs including,
but not limited to, costs required to prosecute the action including attorneys’ fees; and punitive damages. The Company
intends to continue to defend this matter and although the ultimate outcome cannot be predicted with certainty, based on the current
information available, the Company does not believe the ultimate liability, if any, will have a material adverse effect on its
financial condition or results of operations.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
16: DISCONTINUED OPERATIONS
Through
July 31, 2018, we operated a real estate segment which generated revenue from service fees (for video creation and production
and website hosting (ReachFactor)) and product sales (Nestbuilder Agent 2.0 and Microvideo app). The real estate segment was formed
through the merging of three divisions: (i) our fully licensed real estate division (formerly known as Webdigs); (ii) our TV media
contracts (Home Preview Channel /Extraordinary Vacation Homes) division; and (iii) our Real Estate Virtual Tour and Media group
(RealBiz 360). The assets of these divisions were used to create a new suite of real estate products and services that created
stickiness through the utilization of video, social media and loyalty programs. At the core of our programs was our proprietary
video creation technology which allowed for an automated conversion of data (text and pictures of home listings) to a video with
voice and music. We provided video search, storage and marketing capabilities on multiple platform dynamics for web, mobile and
TV. Once a home, personal or community video was created using our proprietary technology, it could be published to social media,
email or distributed to multiple real estate websites, broadband or television for consumer viewing.
As
a result of the spin-off of our real estate segment, all related assets and liabilities for periods prior to August 1, 2018 are
disclosed net as current assets and current liabilities within the consolidated balance sheets, and all related income and expenses
are disclosed net as income from discontinued operations within the consolidated statements of operations.
The
revenues and expenses associated with discontinued operations included in our consolidated statements of operations were as follows:
|
|
Year
Ended October 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
Revenue
|
|
$
|
13,611,101
|
|
|
$
|
216,316
|
|
|
$
|
5,802,037
|
|
|
$
|
6,018,353
|
|
Cost of revenue
|
|
|
11,546,413
|
|
|
|
56,800
|
|
|
|
5,053,453
|
|
|
|
5,110,253
|
|
Gross Profit
|
|
|
2,064,688
|
|
|
|
159,516
|
|
|
|
748,584
|
|
|
|
908,099
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
3,892,926
|
|
|
|
82,326
|
|
|
|
488,577
|
|
|
|
570,902
|
|
Selling and promotions
expense
|
|
|
125,644
|
|
|
|
824
|
|
|
|
-
|
|
|
|
824
|
|
Legal and professional
fees
|
|
|
618,310
|
|
|
|
82,999
|
|
|
|
285,138
|
|
|
|
368,137
|
|
General
and administrative
|
|
|
1,544,689
|
|
|
|
71,714
|
|
|
|
885,367
|
|
|
|
957,081
|
|
Total
Operating Expenses
|
|
|
6,181,569
|
|
|
|
237,863
|
|
|
|
1,659,081
|
|
|
|
1,896,944
|
|
Operating
loss
|
|
|
(4,116,881
|
)
|
|
|
(78,347
|
)
|
|
|
(910,498
|
)
|
|
|
(988,845
|
)
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(364,005
|
)
|
|
|
(1,322
|
)
|
|
|
(320,527
|
)
|
|
|
(321,849
|
)
|
Loss on legal settlements
|
|
|
(205,300
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Initial derivative
liability expense
|
|
|
(225,115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of
debt discount
|
|
|
(839,876
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of
issuance costs
|
|
|
(21,355
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gain on extinguishment
of debt
|
|
|
2,700,737
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gain on convertible
notes payable settlement
|
|
|
681,945
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss on legal
settlement of accounts payable
and convertible debt
|
|
|
-
|
|
|
|
338,855
|
|
|
|
(914,353
|
)
|
|
|
(575,497
|
)
|
Default
principal increase on convertible
notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
(938,100
|
)
|
|
|
(938,100
|
)
|
Total
Other Income (Expense)
|
|
|
1,727,031
|
|
|
|
337,533
|
|
|
|
(2,172,980
|
)
|
|
|
(1,835,447
|
)
|
(Loss) income before
income taxes
|
|
|
(2,389,850
|
)
|
|
|
259,186
|
|
|
|
(3,083,478
|
)
|
|
|
(2,824,292
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
(loss) income
|
|
$
|
(2,389,850
|
)
|
|
$
|
259,186
|
|
|
$
|
(3,083,478
|
)
|
|
$
|
(2,824,292
|
)
|
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2019 and 2018
NOTE
17: BUSINESS DIVESTITURE
On
May 1, 2018, Verus MENA entered into a Share Purchase and Sale Agreement with the Purchaser pursuant to which Verus MENA sold
75 shares of Gulf Agro, representing 25% of the common stock of Gulf Agro, to the Purchaser. In consideration for the Gulf Agro
Shares, the Purchaser was assigned certain contracts executed during a specified period of time. Upon the consummation of the
transaction contemplated by the Share Purchase and Sale Agreement, the Purchaser obtained a broader license for product distribution.
All liabilities of Gulf Agro remained with Gulf Agro. This transaction benefited Verus MENA by providing Verus MENA with a broader
license for product distribution and full control of all intellectual property rights.
NOTE
18: SUBSEQUENT EVENTS
On
November 8, 2019, the Monaco Note matured and the principal amount of $530,000 and accrued interest of $113,597 became due. As
the Company was not able to pay the balance due of $643,597, the interest rate immediately increased to 18% per annum. The note
holder has agreed to only impose the default interest rate and not proceed with any other default remedies currently available.
The Company expects to repay the Monaco Note in full as quickly as possible based upon its available capital.
On
January 2, 2020, the Company entered into Amendment #1 (the “Amendment”) of a convertible note originally issued on
July 1, 2019 in the principal amount of $605,000, to modify the conversion price. Subsequent to the Amendment, an aggregate of
$153,266 of principal and accrued interest have been converted into 15,098,054 shares of the Company’s common stock.
On
January 9, 2020, the Company entered into a securities purchase agreement with an accredited investor pursuant to which the Company
issued a convertible note in the principal amount of $605,000 (including a $90,000 original issuance discount). The note matures
on January 9, 2021, accrues interest at a rate of 4% per annum (increasing to 24% per annum upon the occurrence of an event of
default) and is convertible into shares of the Company’s common stock at a conversion price of $0.015 per share, subject
to adjustment. The note may be prepaid by the Company at any time prior to the 180th day after the issuance date, subject
to certain prepayment penalties.
On
February 10, 2020, the Company issued a convertible note in the principal amount of $420,000 (including a $70,000 original issuance
discount) to an accredited investor. The note matures on November 10, 2020, accrues interest at a rate of 4% per annum and is
convertible into shares of the Company’s common stock at a conversion price of $0.0125 per share, subject to adjustment.
The note may be prepaid by the Company at any time prior to the 180th day after the issuance date, subject to certain
prepayment penalties.
On
February 14, 2020, as a result of the Company’s failure to timely file its Form 10-K, the Company was in default with respect
to certain of its convertible notes. The Company obtained waiver agreements, within the stated cure periods, whereby the events
of default and the rights to the event of default remedies were waived until the earlier of (i) April 30, 2020 or (ii) the date
upon which the Company is no longer in default.
On
February 25, 2020, the court issued a decision in the lawsuit commenced by Auctus against the Company dismissing the securities
laws and unjust enrichment and breach of fiduciary duty claims and retaining the breach of contract, breach of covenant of
good faith, fraud and deceit, and negligent misrepresentation-and the Massachusetts Consumer Protection Act claims. The Company
filed its Answer to the complaint on March 10, 2020. The case remains pending in the District of Massachusetts (see Note
15).
Effective
March 31, 2020, the Company and Sellers of Nutribrands entered into the Termination Agreement with Nutribrands LTDA pursuant to
which, among other things, all agreements between the parties (including the October 30, 2019 Amended and Restated Operating Agreement
of Nutribrands International, LLC, the Contribution and Sale Agreement and all related ancillary agreements (collectively, “Released
Transactions”)) were terminated and the parties released each other from all obligations arising from the Released Transactions
(See Note 4).
On
March 31, 2020, the Company issued a promissory note in the principal amount of $312,500 (including a $62,500 original issuance
discount) to an accredited investor. The note matures on July 1, 2020, accrues interest at a rate of 4% per annum, and is secured
by an interest in all of the equity of BLF. The note may be prepaid by the Company at any time prior to maturity with no prepayment
penalties.
Verus
International, Inc.
Consolidated
Balance Sheets
|
|
January
31, 2020
|
|
|
October
31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
245,836
|
|
|
$
|
371,898
|
|
Accounts
receivable, net
|
|
|
4,434,176
|
|
|
|
3,319,687
|
|
Inventory
|
|
|
419,360
|
|
|
|
598,515
|
|
Prepaid
expenses
|
|
|
251,082
|
|
|
|
65,749
|
|
Other
assets
|
|
|
8,629
|
|
|
|
8,629
|
|
Total
Current Assets
|
|
|
5,359,083
|
|
|
|
4,364,478
|
|
Property
and equipment, net
|
|
|
24,378
|
|
|
|
23,257
|
|
Operating
lease right-of-use asset
|
|
|
155,125
|
|
|
|
-
|
|
Intangible
asset - license, net
|
|
|
771,203
|
|
|
|
837,707
|
|
Total
Assets
|
|
$
|
6,309,789
|
|
|
$
|
5,225,442
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
3,296,856
|
|
|
$
|
3,613,641
|
|
Operating
lease liability
|
|
|
84,755
|
|
|
|
-
|
|
Interest
payable
|
|
|
160,574
|
|
|
|
127,465
|
|
Due
to former officer
|
|
|
1,801
|
|
|
|
1,801
|
|
Notes
payable
|
|
|
1,030,000
|
|
|
|
1,030,000
|
|
Convertible
notes payable, net
|
|
|
1,395,439
|
|
|
|
1,378,855
|
|
Total
Current Liabilities
|
|
|
5,969,425
|
|
|
|
6,151,762
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Liabilities
|
|
|
|
|
|
|
|
|
Operating
lease liability, net of current portion
|
|
|
84,020
|
|
|
|
-
|
|
Total
Liabilities
|
|
|
6,053,445
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, $0.000001 par value; 120,000,000 shares authorized and 41,444,601 and 45,570,101 shares issued
and outstanding at January 31, 2020 and October 31, 2019, respectively
|
|
|
42
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Series
B convertible preferred stock, $0.000001 par value; 1,000,000 shares authorized and no shares issued and outstanding at January
31, 2020 and October 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Series
C convertible preferred stock, $0.000001 par value; 1,000,000 shares authorized and 430,801 shares issued and outstanding
at January 31, 2020 and October 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.000001 par value; 7,500,000,000 shares authorized and 2,320,876,565 and 2,305,778,511 shares issued at January 31,
2020 and October 31, 2019, respectively
|
|
|
2,321
|
|
|
|
2,306
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
30,696,181
|
|
|
|
27,565,919
|
|
Shares
to be issued
|
|
|
555,678
|
|
|
|
-
|
|
Accumulated
deficit
|
|
|
(30,997,878
|
)
|
|
|
(28,494,590
|
)
|
Total
Stockholders’ Equity (Deficit)
|
|
|
256,344
|
|
|
|
(926,320
|
)
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
6,309,789
|
|
|
$
|
5,225,442
|
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
Verus
International, Inc.
Consolidated
Statements of Operations
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
|
January
31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
6,173,662
|
|
|
$
|
2,443,820
|
|
Cost of revenue
|
|
|
5,040,105
|
|
|
|
2,077,467
|
|
Gross Profit
|
|
|
1,133,557
|
|
|
|
366,353
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
1,880,276
|
|
|
|
98,223
|
|
Selling and promotions
expense
|
|
|
18,622
|
|
|
|
-
|
|
Legal and professional
fees
|
|
|
203,504
|
|
|
|
111,652
|
|
General
and administrative
|
|
|
613,506
|
|
|
|
193,845
|
|
Total
Operating Expenses
|
|
|
2,715,908
|
|
|
|
403,720
|
|
Operating
loss
|
|
|
(1,582,351
|
)
|
|
|
(37,367
|
)
|
Other (Expense) Income:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(51,580
|
)
|
|
|
(99,095
|
)
|
Loss on convertible
note payable settlement
|
|
|
(368,456
|
)
|
|
|
-
|
|
Loss on convertible
note payable extinguishment
|
|
|
(355,317
|
)
|
|
|
-
|
|
Loss on legal settlements
|
|
|
-
|
|
|
|
(199,489
|
)
|
Amortization of
debt discount
|
|
|
(119,216
|
)
|
|
|
(2,538
|
)
|
Amortization
of issuance costs
|
|
|
(26,368
|
)
|
|
|
-
|
|
Total
Other (Expense) Income
|
|
|
(920,937
|
)
|
|
|
(301,122
|
)
|
Loss before income
taxes
|
|
|
(2,503,288
|
)
|
|
|
(338,489
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
Net
loss
|
|
$
|
(2,503,288
|
)
|
|
$
|
(338,489
|
)
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
Loss per common share – basic
and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic and diluted
|
|
|
2,307,352,261
|
|
|
|
1,500,000,000
|
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
Verus
International, Inc.
Consolidated
Statement of Changes in Stockholders’ Equity (Deficit)
For
the Three Months Ended January 31, 2020 and 2019
(Unaudited)
|
|
Preferred
Stock A
|
|
|
Preferred
Stock B
|
|
|
Preferred
Stock C
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Common
Stock
to be
|
|
|
Accumulated
|
|
|
Total
Stockholders’ Equity
|
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Capital
|
|
|
Issued
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance,
October 31, 2019
|
|
|
44,570,101
|
|
|
$
|
45
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
430,801
|
|
|
$
|
-
|
|
|
|
2,305,778,511
|
|
|
$
|
2,306
|
|
|
$
|
27,565,919
|
|
|
$
|
-
|
|
|
$
|
(28,494,590
|
)
|
|
$
|
(926,320
|
)
|
Conversion of Preferred
Stock A to Common Stock
|
|
|
(3,125,500
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
-
|
|
Shares to be issued
under stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,253,238
|
|
|
|
90,000
|
|
|
|
|
|
|
|
2,343,238
|
|
Conversion of convertible
promissory notes to Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,098,054
|
|
|
|
15
|
|
|
|
877,024
|
|
|
|
|
|
|
|
|
|
|
|
877,039
|
|
Shares to be issued
for conversion of convertible promissory note to Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465,675
|
|
|
|
|
|
|
|
465,675
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,503,288
|
)
|
|
|
(2,503,288
|
)
|
Balance,
January 31, 2020
|
|
|
41,444,601
|
|
|
$
|
42
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
430,801
|
|
|
$
|
-
|
|
|
|
2,320,876,565
|
|
|
$
|
2,321
|
|
|
$
|
30,696,181
|
|
|
$
|
555,678
|
|
|
$
|
(30,997,878
|
)
|
|
$
|
256,344
|
|
|
|
Preferred
Stock A
|
|
|
Preferred
Stock B
|
|
|
Preferred
Stock C
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Common
Stock
to be
|
|
|
Accumulated
|
|
|
Total
Stockholders’
Equity
|
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Capital
|
|
|
Issued
|
|
|
Deficit
|
|
|
(Deficit)
|
|
Balance,
October 31, 2018
|
|
|
44,570,101
|
|
|
$
|
44,570
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
160,000
|
|
|
$
|
160
|
|
|
|
1,500,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
22,545,691
|
|
|
$
|
456,090
|
|
|
$
|
(26,104,740
|
)
|
|
$
|
(1,558,229
|
)
|
Shares issued under
Exchange Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,801
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
1,208
|
|
|
|
|
|
|
|
|
|
|
|
1,504
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(338,489
|
)
|
|
|
(338,489
|
)
|
Balance,
January 31, 2019
|
|
|
44,570,101
|
|
|
$
|
44,570
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
455,801
|
|
|
$
|
456
|
|
|
|
1,500,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
22,546,899
|
|
|
$
|
456,090
|
|
|
$
|
(26,443,229
|
)
|
|
$
|
(1,895,214
|
)
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
Verus
International, Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
|
January
31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,503,288
|
)
|
|
$
|
(338,489
|
)
|
Adjustments to reconcile
net loss to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
68,330
|
|
|
|
225
|
|
Amortization of issuance costs
|
|
|
26,368
|
|
|
|
-
|
|
Amortization of debt discount
|
|
|
119,216
|
|
|
|
2,538
|
|
Loss
on convertible note payable extinguishment
|
|
|
355,317
|
|
|
|
-
|
|
Loss on convertible note payable settlement
|
|
|
368,456
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
1,653,245
|
|
|
|
-
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(1,114,489
|
)
|
|
|
(197,459
|
)
|
Increase in prepaid expenses
|
|
|
(185,333
|
)
|
|
|
-
|
|
Decrease (increase) in inventory
|
|
|
179,155
|
|
|
|
(23,946
|
)
|
Increase in accounts payable and accrued
expenses
|
|
|
420,311
|
|
|
|
576,329
|
|
Increase in right
to use and lease obligation, net
|
|
|
13,650
|
|
|
|
-
|
|
Net cash (used
in) provided by operating activities
|
|
|
(599,062
|
)
|
|
|
19,198
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(3,000
|
)
|
|
|
-
|
|
Net cash used
in investing activities
|
|
|
(3,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from
issuance of convertible notes payable, net of commission
|
|
|
476,000
|
|
|
|
-
|
|
Net cash provided
by financing activities
|
|
|
476,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(126,062
|
)
|
|
|
19,198
|
|
Cash at beginning of period
|
|
|
371,898
|
|
|
|
28,554
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
245,836
|
|
|
$
|
47,752
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure:
|
|
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
4,530
|
|
|
$
|
-
|
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
|
|
For
the Three Months Ended
|
|
|
|
January
31,
|
|
|
|
2020
|
|
|
2019
|
|
Supplemental disclosure
of non-cash operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of accrued compensation through
issuance of Series C Preferred Stock:
|
|
|
|
|
|
|
|
|
Value
|
|
$
|
-
|
|
|
$
|
1,504
|
|
Shares
|
|
|
-
|
|
|
|
295,081
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock issued in exchange for
conversion of Series A Preferred Stock:
|
|
|
|
|
|
|
|
|
Value
|
|
$
|
3
|
|
|
$
|
-
|
|
Shares
|
|
|
3,215,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common Stock issued in exchange for
conversion of convertible promissory note and accrued interest:
|
|
|
|
|
|
|
|
|
Value
|
|
$
|
153,265
|
|
|
$
|
-
|
|
Shares
|
|
|
15,098,054
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common Stock to be issued in exchange
for conversion of convertible promissory note and accrued interest:
|
|
|
|
|
|
|
|
|
Value
|
|
$
|
465,675
|
|
|
$
|
-
|
|
Shares
|
|
|
66,525,117
|
|
|
|
-
|
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
1: NATURE OF BUSINESS AND BASIS OF PRESENTATION
Organization
and Nature of Business
Verus
International, Inc., including its wholly-owned subsidiaries, are collectively referred to herein as “Verus,” “VRUS”,
“Company,” “us,” or “we.”
We
were incorporated in the state of Delaware under the name Spectrum Gaming Ventures, Inc. on May 25, 1994. On October 10, 1995,
we changed our name to Select Video, Inc. On October 24, 2007, we filed a Certificate of Ownership with the Delaware Secretary
of State whereby Webdigs, Inc., our wholly-owned subsidiary, was merged with and into us and we changed our name to Webdigs, Inc.
On
October 9, 2012, we consummated a share exchange (the “Exchange Transaction”) with Monaker Group, Inc. (formerly known
as Next 1 Interactive, Inc.), a Nevada corporation (“Monaker”) pursuant to which we received all of the outstanding
equity in Attaché Travel International, Inc., a Florida corporation and wholly owned subsidiary of Monaker (“Attaché”)
in consideration for the issuance of 93 million shares of our newly designated Series A Convertible Preferred Stock to Monaker.
Attaché owned approximately 80% of a corporation named RealBiz Holdings Inc. which is the parent corporation of RealBiz
360, Inc. (“RealBiz”). As a condition to the closing of the Exchange Transaction, on October 3, 2012, we filed a Certificate
of Ownership with the Delaware Secretary of State whereby RealBiz Media Group, Inc., our wholly-owned subsidiary, was merged with
and into us and we changed our name to RealBiz Media Group, Inc.
On
May 1, 2018, Verus Foods MENA Limited (“Verus MENA”) entered into a Share Purchase and Sale Agreement with a purchaser
(the “Purchaser”) pursuant to which Verus MENA sold 75 shares (the “Gulf Agro Shares”) of Gulf Agro Trading,
LLC (“Gulf Agro”), representing 25% of the common stock of Gulf Agro, to the Purchaser. In consideration for the Gulf
Agro Shares, the Purchaser was assigned certain contracts executed during a specified period of time. Upon the consummation of
the transaction contemplated by the Share Purchase and Sale Agreement, the Purchaser obtained a broader license for product distribution.
All liabilities of Gulf Agro remained with Gulf Agro.
Since
August 1, 2018, we, through our wholly-owned subsidiary, Verus Foods, Inc., an international supplier of consumer food products,
have been focused on international consumer packaged goods, foodstuff distribution and wholesale trade. Our fine food products
are sourced in the United States and exported internationally. We market consumer food products under our own brands primarily
to supermarkets, hotels, and other members of the wholesale trade. Initially, we focused on frozen foods, particularly meat, poultry,
seafood, vegetables, and french fries with beverages as a second vertical, and during 2018, we added cold-storage facilities and
began seeking international sources for fresh fruit, produce and similar perishables, as well as other consumer packaged foodstuff
with the goal to create vertical farm-to-market operations. Verus has also begun to explore new consumer packaged goods (“CPG”)
non-food categories, such as cosmetic and fragrances, for future product offerings.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
1: NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)
We
currently have a significant regional presence in the Middle East and North Africa (“MENA”) and sub-Saharan Africa
(excluding The Office of Foreign Assets Control restricted nations), with deep roots in the Gulf Cooperation Council (“GCC”)
countries, which includes the United Arab Emirates, Oman, Bahrain, Qatar, Kingdom of Saudi Arabia and Kuwait. The Company’s
long-term goal is to source goods and generate international wholesale and retail CPG sales in North and South America, Europe,
Africa, Asia and Australia.
In
addition to the foregoing, since our acquisition of Big League Foods, Inc. (“BLF”) during April 2019, pursuant to
which we acquired a license with Major League Baseball Properties, Inc. (“MLB”) to sell MLB-branded frozen dessert
products and confections, we have been selling pint size ice cream in grocery store-type packaging and are exploring novelty “grab-and-go”
size ice cream in cone, bar, and sandwich versions under our frozen dessert product line. In addition, under our confections product
line, we are selling gummi and chocolate candies. The MLB license covers all 30 MLB teams, and all of our current products pursuant
to such license feature “home team” packaging that matches the fan base in each region.
Furthermore,
during August 2019, we purchased all of the assets of a french fry business in the Middle East.
Basis
of Presentation
The
consolidated unaudited financial information furnished herein reflects all adjustments, consisting only of normal recurring items,
which in the opinion of management, are necessary to fairly state the Company’s financial position, results of operations
and cash flows for the dates and periods presented and to make such information not misleading. Certain information and footnote
disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) have been omitted pursuant to rules and regulations of the Securities
and Exchange Commission (the “SEC”); nevertheless, management of the Company believes that the disclosures herein
are adequate to make the information presented not misleading.
The
consolidated unaudited financial statements for the three months ended January 31, 2020 and 2019 include the operations of
BLF effective April 25, 2019, Verus MENA effective May 1, 2018, and Verus Foods, Inc. effective January 2017. All significant
intercompany balances and transactions have been eliminated in the consolidation.
These
consolidated unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial
statements for the year ended October 31, 2019, contained in the Company’s Annual Report on Form 10-K filed with the SEC
on April 13, 2020. The results of operations for the three months ended January 31, 2020, are not necessarily indicative of results
to be expected for any other interim period or the fiscal year ending October 31, 2020.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the unaudited consolidated financial statements and reported amounts of revenues and expenses for the reporting
period. Actual results could differ from those estimates. If actual results significantly differ from the Company’s estimates,
the Company’s financial condition and results of operations could be materially impacted. Significant estimates include
the collectability of accounts receivable, valuations of inventory, finite-lived intangible assets, derivative liabilities, stock-based
compensation and the valuation reserve for income taxes.
Concentrations
of Credit Risk
The
Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the Company’s
cash accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) limit. At January 31, 2020 and October
31, 2019, Company’s cash balances did not exceed the FDIC limit.
The
Company’s food products accounts receivable, net and revenues are geographically concentrated with customers located in
the GCC countries. In addition, significant concentrations exist with a limited number of customers. Although the loss of one
or more of our top customers, or a substantial decrease in demand by any of those customers for our products, could have a material
adverse effect on our business, results of operations and financial condition, such risks may be mitigated by our access to credit
insurance programs.
The
Company purchases substantially all of its food products from a limited number of regions around the world or from a limited number
of suppliers. Increases in the prices of the food products which we purchase could adversely affect our operating results if we
are unable to offset the effect of these increased costs through price increases, and we can provide no assurance that we will
be able to pass along such increased costs to our customers. Furthermore, if we cannot obtain sufficient food products or our
suppliers cease to be available to us, we could experience shortages in our food products or be unable to meet our commitments
to customers. Alternative sources of food products, if available, may be more expensive. For periods in which the prices are declining,
the Company may be required to write down its inventory carrying cost which, depending on the extent of the differences between
market price and carrying cost, could have a material adverse effect on the Company’s consolidated results of operations
and financial position.
Cash
and Cash Equivalents
For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money
market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents.
There were no cash equivalents at January 31, 2020 or October 31, 2019.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts
Receivable
The
Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts.
In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make
required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop
or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains
reserves for potential credit losses and such losses traditionally have been within its expectations. At January 31, 2020 and
October 31, 2019, the Company determined there was no requirement for an allowance for doubtful accounts.
Inventory
Inventory
is stated at the lower of net realizable value, determined on the first-in, first-out basis, or cost. Net realizable value is
based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion and transportation.
Inventories consist of raw materials (film and packaging) and finished products.
Intangible
Assets
The
Company amortizes its two intangible assets, a license with Major League Baseball Properties, Inc., and certain acquired customer
contracts, on a straight-line basis over the estimated useful lives of the assets.
Property
and Equipment
All
expenditures on the acquisition for property and equipment are recorded at cost and capitalized as incurred, provided the asset
benefits the Company for a period of more than one year. Expenditures on routine repairs and maintenance of property and equipment
are charged directly to operating expense. The property and equipment is depreciated based upon its estimated useful life after
being placed in service. The estimated useful lives range from 3 to 7 years based upon asset class. When an asset is retired,
sold or impaired, the resulting gain or loss is reflected in earnings.
Impairment
of Long-Lived Assets
In
accordance with Accounting Standards Codification (“ASC”) 360-10, “Property, Plant, and Equipment”, the
Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value.
Fair
Value of Financial Instruments
The
Company measures its financial instruments in accordance with ASC topic 820, “Fair Value Measurements and Disclosures”
(“ASC 820”), formerly SFAS No. 157 “Fair Value Measurements”. ASC 820 defines “fair value”
as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC
820 also describes three levels of inputs that may be used to measure fair value:
Level
1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level
2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level
3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s
best estimate of fair value.
Financial
instruments consist principally of cash, accounts receivable, prepaid expenses, due from affiliates, accounts payable, accrued
liabilities and other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets
approximate their fair values due to their relatively short-term nature. The fair value of short and long-term debt is based on
current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair
value. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from
these financial instruments.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition
Revenue
is derived from the sale of food and beverage products. The Company recognizes revenue when obligations under the terms of a contract
with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured
as the amount of consideration the Company expects to receive in exchange for transferring products. The amount of consideration
the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers
and their customers. In the event any discounts, sales incentives, or similar arrangements are agreed to with a customer, such
amounts are estimated at time of sale and deducted from revenue. Sales taxes and other similar taxes are excluded from revenue
(see Note 6).
Shipping
and Handling Costs
Shipping
and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for the
three months ended January 31, 2020 and 2019 was $250,853 and $73,915, respectively.
Share-Based
Compensation
The
Company computes share based payments in accordance with the provisions of ASC Topic 718, Compensation – Stock Compensation
and related interpretations. As such, compensation cost is measured on the date of grant
at the fair value of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods
of the grants. The Company estimates the fair value of stock options and warrants by using the Black-Scholes option pricing
model.
Convertible
Debt Instruments
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the Financial Accounting Standards Board
(“FASB”) ASC. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and
as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.
Foreign
Currency
The
Company has one non-U.S. subsidiary, where the functional currency is not the U.S. dollar. The related assets and liabilities
of this non-U.S. subsidiary have been translated using end of period exchange rates or historical exchange rates to the U.S. dollar.
Income
Taxes
The
Company accounts for income taxes in accordance with Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for
Uncertainty in Income Taxes (“ASC 740”). Under this method, deferred income taxes are determined based on the
estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities and net operating
loss and tax credit carryforwards given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based
on changes to the assets or liabilities from year-to-year. In providing for deferred taxes, the Company considers tax regulations
of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies.
If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value
of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based
on the “more likely than not” criteria of ASC 740.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ASC
740 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not”
threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its
October 31, 2019, 2018, 2017 and 2016 tax years may be selected for examination by the taxing authorities as the statute of limitations
remains open.
The
Company recognizes expenses for tax penalties and interest assessed by the Internal Revenue Service and other taxing authorities
upon receiving valid notice of assessments. The Company has received no such notices for the tax years ended October 31, 2019
and 2018.
Earnings
Per Share
In
accordance with the provisions of FASB ASC Topic 260, Earnings per Share, basic earnings per share (“EPS”)
is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding
during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating
EPS on a diluted basis.
In
computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included.
The effect of contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported.
Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the three months ended January
31, 2020 and 2019, as we incurred a net loss for those periods. At January 31, 2020, there were outstanding warrants to purchase
approximately 839 million shares of the Company’s common stock, approximately 85 million shares of the Company’s common
stock issuable upon the conversion of Series A and Series C convertible preferred stock, approximately
74 million shares of the Company’s common stock to be issued, and approximately 51 million shares of the Company’s
common stock issuable upon the conversion of convertible notes payable which may dilute future EPS. At January 31, 2019, there
were outstanding warrants to purchase approximately 21 million shares of the Company’s common stock, approximately 90 million
shares of the Company’s common stock issuable upon the conversion of series A and series C convertible preferred stock which
may dilute future EPS.
Concentrations,
Risks and Uncertainties
A
significant portion of the Company’s ongoing operations are related to the international food industries, and its prospects
for success are tied indirectly to interest rates and the worldwide demand for the Company’s food and beverage products.
Recently
Adopted Accounting Standards
Effective
November 1, 2019, the Company adopted FASB ASC Topic 842, Leases (“ASC 842”), which requires lessees to
recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes
a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet
for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income statement. The Company adopted ASC 842 using a modified
retrospective approach as of the effective date of the new standard. Consequently, financial information has not been updated
and the disclosures required under the ASC 842 have not been provided for dates and periods before November 1, 2019. The Company
elected the package of practical expedients permitted under the transition guidance within ASC 842, which allowed the Company
to carry forward the historical lease classification, not reassess prior conclusions related to expired or existing contracts
that are or that contain leases, and not reassess the accounting for initial direct costs. Upon adopting ASC 842 on November 1,
2019, the Company recognized a ROU asset of $174,241 and a corresponding lease liability of $188,792 pertaining to the Company’s
corporate office lease. The lease liability was measured based on the present value of the future minimum lease payments utilizing
the Company’s incremental borrowing rate. The ROU asset was measured based on the initial measurement of the lease liability,
less a preexisting deferred rent balance from the prior fiscal year. As the Company’s Dubai, UAE office lease has a lease
term of only 12 months, no ROU asset or lease liability was recognized for this lease (see Note 4).
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Issued Accounting Standards Not Yet Adopted
During
August 2018, the FASB issued ASU 2018-13, to modify the disclosure requirements on fair value measurements in Topic 820, Fair
Value Measurement, based on the concepts in the Concept Statement, including the consideration of costs and benefits. The standard
is effective for the Company as of November 1, 2020, with early adoption permitted. The Company does not expect the adoption of
this guidance to have a material impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying unaudited consolidated financial statements.
NOTE
3: GOING CONCERN
The
accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The
Company has incurred negative cash flows from operations of $599,062 for the three months ended January 31, 2020. At January 31,
2020, the Company had a working capital deficit of $610,342, and an accumulated deficit of $30,997,878. It is management’s
opinion that these facts raise substantial doubt about the Company’s ability to continue as a going concern for a period
of twelve months from the date of this report, without additional debt or equity financing. The unaudited consolidated financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the
amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
In
order to meet its working capital needs through the next twelve months from the date of this report and to fund the growth of
the food business, the Company may consider plans to raise additional funds through the issuance of equity or debt. Although the
Company intends to obtain additional financing to meet its cash needs, the Company may be unable to secure any additional financing
on terms that are favorable or acceptable to it, if at all.
NOTE
4: LEASES
The
Company has an operating lease for its corporate office in Gaithersburg, Maryland and a short-term lease for office space in Dubai,
UAE.
At
the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment
is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right
to substantially all the economic benefit from the use of the asset throughout the term, and (3) whether the Company has the right
to direct the use of the asset. The Company allocates the consideration in the contract to each lease and non-lease component
based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are
accounted for separately. Leases are classified as either finance leases or operating leases based on criteria in ASC 842.
At
lease commencement, the Company records a lease liability equal to the present value of the remaining lease payments, discounted
using the rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing
rate. A corresponding ROU asset is recorded, measured based on the initial measurement of the lease liability. ROU assets also
include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease
when it is reasonably certain that the Company will exercise that option.
Lease
expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term. Included
in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability.
Lease expense for finance leases consists of the amortization of the ROU asset, which is calculated on a straight-line basis over
the shorter of the useful life of the asset or the lease term, and interest expense on the lease liability, which is calculated
using the effective interest rate method. The Company had no finance leases at January 31, 2020.
For
the three months ended January 31, 2020, the Company had operating lease costs of $21,362, which are included in general and administrative
expenses in the unaudited consolidated statements of operations. For the same period, the Company made operating lease cash payments
of $22,263, which are included in cash flows from operating activities in the unaudited consolidated statements of cash flows.
At
January 31, 2020, the remaining lease term is 23 months and the discount rate is 5%. Future annual minimum cash payments required
under this operating type lease as of January 31, 2020 are as follows:
Future Minimum Lease Payments:
|
|
|
|
Remainder of fiscal year
2020
|
|
$
|
68,347
|
|
2021
|
|
|
93,329
|
|
2022
|
|
|
15,746
|
|
Total Minimum Lease
Payments
|
|
$
|
177,422
|
|
Less: amount
representing interest
|
|
|
(8,647
|
)
|
Present Value of Lease Liabilities
|
|
$
|
168,775
|
|
Less: current
portion
|
|
|
(84,755
|
)
|
Long-Term
Portion
|
|
$
|
84,020
|
|
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
5: INTANGIBLE ASSETS, NET
Intangible
assets, net, consist of two intangible assets, a license (the “License”) with MLB and certain acquired customer contracts.
MLB
License
The
MLB License allows us to sell MLB-branded frozen dessert products and confections. The License was acquired during April 2019
under a stock purchase agreement pursuant to which the Company purchased all of the outstanding capital stock of BLF. The transaction
was accounted for as an asset acquisition, with substantially all of the purchase consideration allocated to the License.
The
purchase consideration to acquire the License totaled $5,357,377, which consisted of $50,000 cash paid subsequent to closing,
$257,377 of accrued MLB License royalty fees that were assumed by the Company upon acquisition of the License (net of cash acquired
of $350), and $5,050,000 cash that is contingently payable over time, through December 31, 2022, based on the future sales of
MLB-branded products (see Note 9). The contingent consideration is recognized as an increase to the carrying amount of the License
intangible asset when the payment becomes probable and estimable, net of any catch-up for amortization expense.
Acquired
Customer Contracts
The
acquired customer contracts were purchased for $544,630 (2,000,000 United Arab Emirates Dirham) from a third-party frozen foods
vendor during September 2019, giving the Company the right to earn revenue under the terms of the acquired customer contracts.
The
net carrying amount of the intangible assets are as follows:
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful
Lives
|
|
January
31, 2020
|
|
|
October
31, 2019
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
MLB license
|
|
32 months
|
|
$
|
357,027
|
|
|
$
|
357,027
|
|
Customer contracts
|
|
7 years
|
|
|
544,630
|
|
|
|
544,630
|
|
Accumulated amortization
|
|
|
|
|
(130,454
|
)
|
|
|
(63,950
|
)
|
Intangible assets,
net
|
|
|
|
$
|
771,203
|
|
|
$
|
837,707
|
|
Amortization
expense for the three months ended January 31, 2020 was $66,504. There was no amortization expense during the three months ended
January 31, 2019.
Annual
amortization expense related to the existing net carrying amount of the intangible assets for the next five years is expected
to be as follows:
Remainder
of fiscal year 2020
|
|
$
|
159,698
|
|
Fiscal year 2021
|
|
$
|
212,931
|
|
Fiscal year 2022
|
|
$
|
100,325
|
|
Fiscal year 2023
|
|
$
|
77,804
|
|
Fiscal year 2024
|
|
$
|
77,804
|
|
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
6: REVENUE
The
Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Product sales occur
once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects
to receive in exchange for transferring products. The amount of consideration the Company receives and revenue the Company recognizes
varies with changes in customer incentives the Company offers to its customers and their customers. Sales taxes and other similar
taxes are excluded from revenue.
Information
about the Company’s revenue by country is as follows:
|
|
For
the Three Months Ended
|
|
|
|
January
31,
|
|
|
|
2020
|
|
|
2019
|
|
United
Arab Emirates
|
|
$
|
4,906,843
|
|
|
$
|
1,735,664
|
|
Oman
|
|
|
599,580
|
|
|
|
199,518
|
|
Bahrain
|
|
|
350,134
|
|
|
|
311,989
|
|
Kingdom of Saudi Arabia
|
|
|
317,105
|
|
|
|
196,649
|
|
United
States
|
|
|
-
|
|
|
|
-
|
|
Revenue
|
|
$
|
6,173,662
|
|
|
$
|
2,443,820
|
|
NOTE
7: DEBT
Convertible
Notes Payable
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the FASB ASC. The amounts allocated
to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is
amortized to interest expense over the life of the debt.
On
January 2, 2020, the Company entered into Amendment #1 to the convertible note dated July 1, 2019 in the principal amount of $605,000
(including a $90,000 original issuance discount), amending the conversion price. As a result of this amendment, the outstanding
balance was determined extinguished and a loss on convertible note payable extinguishment of $355,317 was recognized, and a new
liability was established. On various dates through January 31, 2020, the outstanding principal and accrued interest was converted
into an aggregate of 81,623,171 shares of the Company’s common stock at an average conversion price of $0.009527, resulting
in the recognition of a loss on convertible note payable settlement of $368,456. At January 31, 2020, 66,525,117 shares, valued
at $465,675, are to be issued.
On
January 9, 2020, the Company entered into a securities purchase agreement with an accredited investor pursuant to which the Company
issued and sold a convertible note in the principal amount of $605,000 (including a $90,000 original issuance discount). The note
matures on January 9, 2021, bears interest at a rate of 4% per annum (increasing to 24% per annum upon the occurrence of an Event
of Default (as defined in the note)) and is convertible into shares of the Company’s common stock at a conversion price
of $0.015 per share, subject to adjustment. The note may be prepaid by the Company at any time prior to the 180th day
with certain prepayment penalties as defined in the note.
At
January 31, 2020 and October 31, 2019, there was $1,395,439 and $1,378,855 of convertible notes payable outstanding, net of discounts
of $214,562 and $231,146, respectively.
During
the three months ended January 31, 2020 and 2019, amortization of debt discount and issuance costs amounted to $145,584 and $2,538,
respectively.
During
the three months ended January 31, 2020, $618,941 of convertible notes, including accrued interest, were converted into shares
of the Company’s common stock and there were no payments toward the outstanding balances of convertible notes. During
the three months ended January 31, 2019, there were no conversions of convertible notes into shares of the Company’s common
stock and no payments toward the outstanding balances of convertible notes.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
7: DEBT (continued)
Note
Payable
On
January 26, 2019, the Company entered into Amendment No. 1 to the promissory note (the “Monaco Note”) issued in favor
of the Donald P. Monaco Insurance Trust on January 26, 2018 in the principal amount of $530,000, with an annual interest rate
of 12%, whereby (i) the maturity date of the Monaco Note was extended to January 26, 2020 and (ii) the Company agreed to use its
best efforts to prepay the unpaid principal amount of the Monaco Note together with all accrued but unpaid interest thereon on
or prior to March 31, 2019.
Subsequently,
the Company entered into Amendment No. 2 dated February 8, 2019 to the Monaco Note whereby the maturity date of the Monaco Note
was extended to November 8, 2019.
Upon
maturity on November 8, 2019, the Company was not able to pay the balance due and the interest rate immediately increased to 18%
per annum. The note holder agreed to only impose the default interest rate and not proceed with any other default remedies currently
available. At January 31, 2020, the Company expects to repay the Monaco Note in full as quickly as possible based upon its available
capital.
Revolving
Credit Agreement
On
July 31, 2019, the Company entered into a secured, $500,000 revolving credit agreement (“Credit Facility”). Borrowings
under the Credit Facility may be used to fund working capital needs and bear interest at a one-month LIBOR-based rate plus 300
basis-points (4.66% at January 31, 2020). The Company’s performance and payment obligations under the Credit Facility are
guaranteed by substantially all of its assets. The structure of this Credit Facility is a note payable with a revolving credit
line feature with a mutual termination provision instead of a stated maturity date. The outstanding balance under the Credit Facility
may be prepaid at any time without premium or penalty. Additionally, the Credit Facility contains customary events of default
and remedies upon an event of default, including the acceleration of repayment of outstanding amounts under the Credit Facility.
At
January 31, 2020, $500,000 was outstanding under the Credit Facility. The Credit Facility contains customary affirmative and negative
covenants, including a borrowing base requirement upon each request for an advance from the Credit Facility. The Company was in
compliance with all covenants at January 31, 2020.
NOTE
8: STOCKHOLDERS’ EQUITY (DEFICIT)
The
total number of shares of all classes of stock that the Company shall have the authority to issue is 7,625,000,000 shares consisting
of 7,500,000,000 shares of common stock with a $0.000001 par value per share of which 2,320,876,565 are outstanding at January
31, 2020 and 125,000,000 shares of preferred stock, par value $0.000001 per share of which (A) 120,000,000 shares have been designated
as Series A Convertible Preferred of which 41,444,601 are outstanding at January 31, 2020, (B) 1,000,000 shares have been designated
as Series B Convertible Preferred Stock, of which no shares are outstanding at January 31, 2020 and (C) 1,000,000 have been designated
as Series C Convertible Preferred Stock, of which 430,801 shares are outstanding at January 31, 2020.
On
January 11, 2019, stockholders holding a majority of the voting power of the Company’s issued and outstanding shares of
voting stock, executed a written consent approving 1) an amendment to the Company’s Amended and Restated Certificate of
Incorporation, as amended (the “Certificate of Incorporation”) to (i) increase the number of authorized shares of
common stock of the Company to 7,500,000,000 shares from 1,500,000,000 shares and (ii) decrease the par value of the common stock
and preferred stock to $0.000001 from $0.001 per share; and 2) granting discretionary authority to the Company’s Board of
Directors to amend the Certificate of Incorporation to effect one or more consolidations of the issued and outstanding shares
of common stock of the Company, pursuant to which the shares of common stock would be combined and reclassified into one share
of common stock at a ratio within the range from 1-for-2 up to 1-for-400 (the “Reverse Stock Split”), provided that,
(X) that the Company may not effect Reverse Stock Splits that, in the aggregate, exceed 1-for-400, and (Y) any Reverse Stock Split
may not be completed later than January 11, 2020. Since the Company had not effectuated any Reverse Stock Split by January 11,
2020, the related approval expired.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
8: STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
Series
A Convertible Preferred Stock
On
January 8, 2020, a shareholder converted 3,125,500 shares of Series A Preferred Stock into the same number of shares of the Company’s
common stock.
Common
Stock
During
the three months ended January 31, 2020, the Company:
|
●
|
issued
15,098,054 shares of its common stock valued at $877,039 and reflected 66,525,117
shares of its common stock valued at $465,675 as shares to be issued, as repayment for
outstanding principal and interest on a convertible promissory note as requested by the note holder in accordance with contractual
terms.
|
|
|
|
|
●
|
reflected
3,125,500 shares of its common stock as shares to be issued for the conversion of 3,125,500 shares of its Series A Convertible
Preferred stock.
|
|
|
|
|
●
|
reflected
7,500,000 shares of its common stock as shares to be issued for the vesting of the first 25% of a 30,000,000 common stock
grant to Christopher Cutchens, the Company’s Chief Financial Officer. The Company recorded $56,250 of stock-based compensation
expense during the three months ended January 31, 2020, related to this common stock grant.
|
Common
Stock Warrants
Under
the provisions of the employment agreement with its Chief Executive Officer, the Company is committed to issue warrants to purchase
shares of its common stock as follows:
|
●
|
For
each $1 million in revenue generated by the Company, a warrant to purchase 7,500,000 shares of the Company’s common
stock at an exercise price of $0.006 per warrant will be granted, until such time as the Chief Executive Officer owns 20%
of the then-outstanding shares of common stock.
|
|
|
|
|
●
|
At
the beginning of each calendar year, a warrant to acquire 3% of the Company’s outstanding common stock will be granted.
|
At
January 31, 2020, there remained approximately 284 million shares of the Company’s common stock, to be issued if earned,
under the provisions of the Chief Executive Officer’s employment agreement, which would increase such ownership percentage
of the Company’s common stock to the 20% limit.
The
Company estimates the fair value of each award on the date of grant using a Black-Scholes option valuation model that uses the
following assumptions for warrants earned during the three months ended January 31, 2020:
Expected volatility
|
|
194.54% - 399.10
|
%
|
Weighted-average volatility
|
|
|
137.58
|
%
|
Expected dividends
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
1.0
|
|
Risk-free rate
|
|
|
1.46%
- 1.57
|
%
|
During
the three months ended January 31, 2020, the grant date fair value of the warrants earned was $2,253,238.
The
following table sets forth common share purchase warrants outstanding at January 31, 2020:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Value
|
|
Outstanding, October 31, 2019
|
|
|
725,705,000
|
|
|
$
|
0.003
|
|
|
$
|
-
|
|
Warrants granted and issued
|
|
|
114,173,355
|
|
|
$
|
0.006
|
|
|
$
|
-
|
|
Warrants exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Warrants forfeited
|
|
|
(1,000,000
|
)
|
|
$
|
(0.025
|
)
|
|
$
|
-
|
|
Outstanding, January 31, 2020
|
|
|
838,878,355
|
|
|
$
|
0.004
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issuable upon exercise of warrants
|
|
|
838,878,355
|
|
|
$
|
0.004
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Common
Stock Issuable
|
|
|
|
|
Common
Stock Issuable Upon Exercise of
|
|
|
Upon
Warrants
|
|
|
|
|
Warrants
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Weighted
|
|
|
Number
|
|
|
Weighted
|
|
Range
of
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable
|
|
|
Average
|
|
Exercise
|
|
|
at
January 31,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
at
January 31,
|
|
|
Exercise
|
|
Prices
|
|
|
2020
|
|
|
Life
(Years)
|
|
|
Price
|
|
|
2020
|
|
|
Price
|
|
$
|
0.0025
|
|
|
|
580,000,000
|
|
|
|
2.10
|
|
|
$
|
0.0025
|
|
|
|
580,000,000
|
|
|
$
|
0.0025
|
|
$
|
0.0060
|
|
|
|
256,673,355
|
|
|
|
0.78
|
|
|
$
|
0.0060
|
|
|
|
256,673,355
|
|
|
$
|
0.0060
|
|
$
|
0.0500
|
|
|
|
1,000,000
|
|
|
|
0.92
|
|
|
$
|
0.0500
|
|
|
|
1,000,000
|
|
|
$
|
0.0500
|
|
$
|
0.1000
|
|
|
|
1,205,000
|
|
|
|
0.10
|
|
|
$
|
0.1000
|
|
|
|
1,205,000
|
|
|
$
|
0.1000
|
|
|
|
|
|
|
838,878,355
|
|
|
|
1.69
|
|
|
$
|
0.0038
|
|
|
|
838,878,355
|
|
|
$
|
0.0038
|
|
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
9: COMMITMENTS AND CONTINGENCIES
License
Contingent Consideration
As
described in Note 5, during April 2019 the Company acquired the License to sell MLB-branded frozen dessert products and confections
as part of its acquisition of BLF. The consideration payable to the seller of BLF includes $5,050,000 of contingent consideration,
of which $50,000 is due upon the initial sale of an MLB-branded product and of which $5,000,000 is to be paid over time, through
December 31, 2022, based on future sales of MLB-branded products (the “Earnout”). The Earnout is payable on a quarterly
basis at $1.00 per case sold for sales that have a minimum gross margin of 20% per case. The Earnout payable each quarter is limited
in aggregate to the operating income of BLF; however, any amounts constrained due to this limit may be rolled forward to future
periods and paid when there is sufficient excess operating income. The Company accrues for this contingent consideration when
payment becomes both probable and estimable.
During
August 2019, $50,000 of the License contingent consideration was paid to the seller of BLF as the initial sale of an MLB-branded
product was achieved during July 2019. At January 31, 2020, the Company believes it is a reasonable possibility that the remaining
maximum amount of $5,000,000 will be paid over the term of the arrangement.
Guaranteed
Minimum Royalties
The
Company is obligated to pay royalties to certain vendors for the sale of products that contain their intellectual property. These
royalty fees are based on a percentage of sales of the underlying products and are included in cost of revenue. The royalties
also include certain guaranteed minimum payments. As of January 31, 2020, the Company’s total expected future obligation
related to these guaranteed minimum payments was $1,265,833, of which the Company expects to pay $397,500 during the remaining
fiscal year October 31, 2020, and $738,333 and $130,000 during the fiscal years ending October 31, 2021, and 2022, respectively.
Amounts accrued at January 31, 2020 relating to these guaranteed minimum payments totaled $314,826 and are included in accounts
payable and accrued expenses.
NOTE
10: LITIGATION
On
April 4, 2019, Auctus Fund, LLC (“Auctus”) commenced a lawsuit against the Company in the United States District Court
for the District of Massachusetts. On August 27, 2019, the Company filed a motion to dismiss this lawsuit. On September 30, 2019,
Auctus responded by filing a First Amended Complaint. The Company then filed a second motion to dismiss on October 24, 2019. On
February 25, 2020, the court issued a decision dismissing the securities laws and unjust enrichment and breach of fiduciary duty
claims and retaining the breach of contract, breach of covenant of good faith, fraud and deceit, and negligent misrepresentation-and
the Massachusetts Consumer Protection Act claims. The Company filed its Answer to the complaint on March 10, 2020. The case remains
pending in the District of Massachusetts. This case stems from a securities purchase agreement and convertible note issued in
May 2017, a securities purchase agreement and convertible note issued in July 2018, the spin-off of the Company’s real estate
division into NestBuilder including the issuance of shares of NestBuilder in the spin-off to the Company’s stockholders
and an inducement agreement, release and payoff agreement executed by the parties in February 2019 whereby the Company settled
the balance of outstanding amounts owed to Auctus in consideration for cash and shares of NestBuilder. Auctus has requested that
the court grant it injunctive and equitable relief and specific performance with respect to the Company’s obligations; determine
that the Company is liable for all damages, losses and costs and award Auctus actual losses sustained; award Auctus costs including,
but not limited to, costs required to prosecute the action including attorneys’ fees; and punitive damages. The Company
intends to continue to defend this matter and although the ultimate outcome cannot be predicted with certainty, based on the current
information available, the Company does not believe the ultimate liability, if any, will have a material adverse effect on its
financial condition or results of operations.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2020 AND 2019
(UNAUDITED)
NOTE
11: SUBSEQUENT EVENTS
Subsequent
to January 31, 2020, an aggregate of $30,674 of principal and accrued interest have been converted into 6,762,339 shares of the
Company’s common stock.
On
February 10, 2020, the Company issued a convertible note in the principal amount of $420,000 (including a $70,000 original issuance
discount) to an accredited investor. The note matures on November 10, 2020, accrues interest at a rate of 4% per annum and is
convertible into shares of the Company’s common stock at a conversion price of $0.0125 per share, subject to adjustment.
The note may be prepaid by the Company at any time prior to the 180th day after the issuance date, subject to certain
prepayment penalties.
On
February 14, 2020, as a result of the Company’s failure to timely file its Form 10-K, the Company was in default with respect
to certain of its convertible notes. The Company obtained waiver agreements, within the stated cure periods, whereby the events
of default and the rights to the event of default remedies were waived until the earlier of (i) April 30, 2020 or (ii) the date
upon which the Company is no longer in default. The Company filed its Form 10-K on April 13, 2020 and is no longer in default.
On
February 25, 2020, the court issued a decision in the lawsuit commenced by Auctus against the Company dismissing the securities
laws and unjust enrichment and breach of fiduciary duty claims and retaining the breach of contract, breach of covenant of good
faith, fraud and deceit, and negligent misrepresentation-and the Massachusetts Consumer Protection Act claims. The Company filed
its Answer to the complaint on March 10, 2020. The case remains pending in the District of Massachusetts (see Note 10).
Effective
March 31, 2020, the Company and Sellers of Nutribrands entered into the Termination Agreement with Nutribrands LTDA pursuant to
which, among other things, all agreements between the parties (including the October 30, 2019 Amended and Restated Operating Agreement
of Nutribrands International, LLC, the Contribution and Sale Agreement and all related ancillary agreements (collectively, “Released
Transactions”)) were terminated and the parties released each other from all obligations arising from the Released Transactions.
On
March 31, 2020, the Company issued a promissory note in the principal amount of $312,500 (including a $62,500 original issuance
discount) to an accredited investor. The note matures on July 1, 2020, accrues interest at a rate of 4% per annum, and is secured
by an interest in all of the equity of BLF. The note may be prepaid by the Company at any time prior to maturity with no prepayment
penalties.
On April 17, 2020, the Company issued 3,125,500
shares of its common stock related to the conversion of 3,125,500 shares of its Series A Convertible Preferred stock. The shares
were reported as shares to be issued at January 31, 2020.
PART
II- INFORMATION NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
following table sets forth the costs and expenses payable by the Company in connection with the issuance and distribution of the
securities being registered hereunder. All amounts are estimates except the SEC registration fee.
SEC
registration fees
|
|
$
|
1,666
|
|
Printing
expenses
|
|
$
|
10,000
|
|
Accounting
fees and expenses
|
|
$
|
3,000
|
|
Legal
fees and expenses
|
|
$
|
25,000
|
|
Blue
sky fees
|
|
$
|
10,000
|
|
Miscellaneous
|
|
$
|
3,334
|
|
Total
|
|
$
|
53,000
|
|
Item
14. Indemnification of Directors and Officers.
The
Company’s Certificate of Incorporation and Bylaws (collectively, the “Charter Documents”) provide that, to the
fullest extent permitted under the DGCL, no director of the Company shall be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director. In addition, the Company’s Charter Documents provide that
the Company shall indemnify and hold harmless, to the fullest extent permitted by applicable
law, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason
of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the
Company or, while a director or officer of the Company,
is or was serving at the request of the Company as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity against all liability
and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Pursuant to
the Company’s Charter Documents, the Company shall pay the expenses (including attorneys’ fees) incurred by a Covered
Person in defending any Proceeding in advance of its final disposition; provided, however, that, to the extent required by applicable
law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking
by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled
to be indemnified pursuant to the Company’s Certificate of Incorporation. Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable
Item
15. Recent Sales of Unregistered Securities.
On
May 17, 2017, we issued Auctus a convertible note in the principal amount of $130,000.
On
June 15, 2017, we issued GS Capital Partners, LLC a convertible note in the principal amount of $82,000.
On
June 20, 2017, we issued EMA a convertible note in the principal amount of $100,000.
On
June 29, 2017, we issued Power Up a convertible note in the principal amount of $40,000.
From
June 30, 2017 through January 1, 2019, the Company issued its Chief Executive Officer warrants to purchase up to an aggregate
of 105,975,249 shares of Common Stock of which warrants to purchase up to 52,500,000 shares of Common Stock were issued pursuant
to the terms of his employment agreement and warrants to purchase up to 53,475,249 shares of Common Stock were issued for
the achievement of certain revenue targets pursuant to the terms of his employment agreement. On December 28, 2018, the Company’s
Chief Executive Officer exchanged, among other things, the warrants for an aggregate of 295,801 shares of the Company’s
Series C Convertible Preferred Stock.
On
July 17, 2017, we issued Crossover Capital Fund II, LLC (“Crossover II”) a convertible note in the principal amount
of $100,250.
On
August 2, 2017, we issued JSJ an 8% convertible promissory note in the principal amount of $77,000.
On
September 1, 2017, we issued Power Up a convertible note in the principal amount of $78,000.
On
October 20, 2017, we issued Power Up a convertible note in the principal amount of $68,000.
On
October 24, 2017, we issued Crossover Capital Fund I, LLC a convertible promissory note in the principal amount of $107,500 (which
included an original issuance discount of $7,500).
On
October 24, 2017, we issued Crossover II a convertible promissory note in the principal amount of $107,500 (which included an
original issuance discount of $7,500).
On
December 21, 2017, we issued EMA an 8% convertible note in the principal amount of $100,000.
On
December 28, 2017, we issued Power Up a convertible promissory note in the principal amount of $53,000.
On
January 26, 2018, we issued the Donald P. Monaco Insurance Trust a promissory note in the principal amount of $530,000.
On
August 17, 2018, we issued Power Up a convertible note in the principal amount of $63,000.
On
June 5, 2018, we issued Power Up a convertible note in the principal amount of $35,000.
On
July 5, 2018, we issued Power Up a convertible note in the principal amount of $53,000.
On
July 26, 2018, we issued Auctus a convertible note in the principal amount of $137,250 (which included an original issuance discount
of $7,500).
On
January 1, 2019, the Company issued its Chief Executive Officer warrants to purchase up to 45,000,000 shares of the Company’s
Common Stock pursuant to the terms of his employment agreement/.
On
February 1, 2019, the Company issued its Chief Executive Officer warrants to purchase up to 15,000,000 shares of the Company’s
Common Stock for the achievement of certain revenue targets pursuant to the terms of his employment agreement.
On
February 8, 2019, we issued an investor an 8% convertible promissory note in the original principal amount of $1,250,000 convertible
into shares of Common Stock at a variable conversion price and a three-year warrant to purchase up to 925,925,925 shares of our
Common Stock at a variable exercise price. On May 30, 2019, we issued 512,333,333 shares of Common Stock upon full conversion
of the note and amended the warrant such that the holder is entitled to purchase up to 500,000,000 shares of our Common Stock
at a fixed exercise price.
On
February 11, 2019, we issued an investor an 8% convertible promissory note in the original principal amount of $200,000 convertible
into shares of Common Stock at a variable conversion price and a three-year warrant to purchase up to 148,148,148 shares of our
Common Stock at a variable exercise price. On May 30, 2019, we issued 81,920,000 shares of Common Stock upon full conversion of
the note and amended the warrant such that the holder is entitled to purchase up to 80,000,000 shares of our Common Stock at a
fixed exercise price.
On
April 25, 2019, we issued an accredited investor a convertible promissory note in the principal amount of $600,000 (including
a $90,000 original issuance discount).
On
May 1, 2019, the Company issued its Chief Executive Officer warrants to purchase up to 22,500,000 shares of the Company’s
Common Stock for the achievement of certain revenue targets pursuant to the terms of his employment agreement.
On
May 30, 2019, we issued an accredited investor 41,666,666 shares of Common Stock.
On
June 21, 2019, the Company issued 2,419,355 shares of Common Stock upon the exercise of warrants.
On
February 1, 2019 and May 1, 2019, the Company issued the Chief Executive Officer warrants to purchase an aggregate of 37,500,000
shares of Common Stock to an officer of the Company for services rendered.
On
July 1, 2019, the Company issued and sold a convertible note in the principal amount of $605,000 (including a $90,000 original
issuance discount).
On
August 1, 2019, the Company issued its Chief Executive Officer warrants to purchase up to 22,500,000 shares of the Company’s
Common Stock for the achievement of certain revenue targets pursuant to the terms of his employment agreement.
On
September 13, 2019, the Company issued promissory notes in the aggregate principal amount of $660,000 (including an aggregate
of $110,000 in original issuance discounts).
On
September 18, 2019, the Company issued 12,909,258 shares of Common Stock upon the conversion of an outstanding convertible note.
On
October 2, 2019, the Company issued promissory notes in the aggregate principal amount of $345,000 (including a $45,000 original
issuance discount).
On
November 1, 2019, the Company issued its Chief Executive Officer warrants to purchase up to 37,500,00 shares of the Company’s
Common Stock for the achievement of certain revenue targets pursuant to the terms of his employment agreement.
On
December 1, 2019, 7,500,000 shares of Common Stock, vested and were issuable to our Chief Financial Officer, which shares were
subject to a vesting schedule, for services rendered.
On
January 1, 2020, the Company issued its Chief Executive Officer warrants to purchase up to 69,173,355 shares of the Company’s
Common Stock pursuant to the terms of his employment agreement.
In
January 2020, the Company issued an aggregate of 13,098,141 shares of Common Stock upon the conversion of outstanding convertible
notes.
On
January 8, 2020, the company issued 3,125,500 shares of Common Stock upon the conversion of outstanding Series A Convertible Preferred
Stock.
On
January 9, 2020, the Company issued a convertible promissory note in the principal amount of $605,000 (including a $90,000 original
issuance discount).
On
February 1, 2020, the Company issued its Chief Executive Officer warrants to purchase up to 45,000,000 shares of the Company’s
Common Stock for the achievement of certain revenue targets pursuant to the terms of his employment agreement.
On
February 10, 2020, the Company issued a convertible promissory note in the principal amount of $420,000 (including a $70,000 original
issuance discount).
On
March 31, 2020, the Company issued a convertible promissory note in the principal amount of $312,500 (including a $62,500 original
issuance discount).
On
April 29, 2020, the Company issued a convertible promissory note in the principal amount of $165,000 (including a $15,000 original
issuance discount).
In
April 2020, the Company issued an aggregate of 98,388,198 shares of Common Stock upon the conversion of outstanding convertible
notes.
On
April 28, 2020, the Company issued its Chief Executive Officer warrants to purchase up to 471,883,795 shares of the Company’s
Common Stock pursuant to the terms of the Bhatnagar Employment Agreement.
In
May 2020, the Company issued 8,086,253 shares of Common Stock upon the conversion of an outstanding convertible note.
Unless
otherwise indicated, the foregoing securities were offered and issued in reliance on the exemption from registration requirements
under the Securities Act afforded by Section 4(a)(2) thereof and/or Rule 506 of Regulation D promulgated thereunder or Section
3(a)(9) of the Securities Act.
Item
16. Exhibits and Financial Statement Schedules.
(a)
Exhibits
The
exhibit index attached hereto is incorporated herein by reference.
(b)
Financial Statement Schedule
All
schedules have been omitted because the information required to be set forth in the schedules is either not applicable or is shown
in the financial statements or notes thereto.
Item
17. Undertakings.
(a)
The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(1)
|
That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
|
|
|
(2)
|
To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
|
|
|
(4)
|
That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
|
|
(i)
|
If
the registrant is relying on Rule 430B (§230.430B of this chapter):
|
(A)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3) (§230.424(b)(3) of this chapter) shall be deemed to be
part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement;
and
(B)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (§230.424(b)(2), (b)(5), or (b)(7) of
this chapter) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii), or (x) (§230.415(a)(1)(i), (vii), or (x) of this chapter) for the purpose of providing the information required by
section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the
earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities
in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that
is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to
the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such document immediately prior to such effective date;
or
(ii)
If the registrant is subject to Rule 430C (§230.430C of this chapter), each prospectus filed pursuant to Rule 424(b) as part
of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5)
|
That,
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities:
|
The
undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser
and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424 (§230.424 of this chapter);
(ii)
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b)
|
The
undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
|
|
(c)
|
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form
S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Gaithersburg, State of Maryland,
on May 6, 2020.
|
VERUS
INTERNATIONAL, INC.
|
|
|
|
/s/
Anshu Bhatnagar
|
|
Anshu
Bhatnagar
|
|
Chief
Executive Officer (Principal Executive Officer)
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Anshu Bhatnagar
|
|
Chief
Executive Officer and Chairman of the Board
|
|
May
6, 2020
|
Anshu
Bhatnagar
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Christopher Cutchens
|
|
Chief
Financial Officer
|
|
May
6, 2020
|
Christopher
Cutchens
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
May
6, 2020
|
Michael
O’Gorman
|
|
|
|
|
|
|
|
|
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*
|
|
Director
|
|
May
6, 2020
|
Thomas
Butler Fore
|
|
|
|
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*By:
|
/s/
Anshu Bhatnagar
|
|
Attorney-in-Fact
|
|
May
6, 2020
|
|
Anshu
Bhatnagar
|
|
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Exhibit
Number
|
|
Description
|
3.1
|
|
Amended
and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of Form 10-12b filed on June 20, 2008)
|
3.2
|
|
Amendment
to Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.2 of Form 10-12b filed on June
20, 2008)
|
3.3
|
|
Certificate
of Ownership Merging Webdigs, Inc. with and into Select Video, Inc. (Incorporated by reference to Exhibit 3.3 of Form 10-Q
filed on June 17, 2019)
|
3.4
|
|
Certificate
of Amendment to Certificate of Incorporation (Incorporated by reference to Exhibit 3.12 of Form 10-K filed on March 26, 2018)
|
3.5
|
|
Certificate
of Ownership (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on October 15, 2012)
|
3.6
|
|
Amendment
to the Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.6 of Form 10-K filed on February
13, 2015)
|
3.7
|
|
Certificate
of Designations for Series B Convertible Preferred Stock (Incorporated by reference to Exhibit 3.8 of Form 10-K filed on February
13, 2015)
|
3.8
|
|
Certificate
of Designations of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on May
8, 2015)
|
3.9
|
|
Amendment
to Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on April
10, 2017)
|
3.10
|
|
Amendment
to Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on February
27, 2018)
|
3.11
|
|
Certificate
of Amendment to Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on October 16, 2018)
|
3.12
|
|
Second
Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of Verus
International, Inc. (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on February 12, 2019)
|
3.13
|
|
Amended
and Restated Bylaws (Incorporated by reference to Exhibit 3.3 of Form 10-12b filed on June 20, 2008)
|
3.14
|
|
Amendment
No. 1 to Second Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred
Stock of Verus International, Inc. (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on April 11, 2019)
|
3.15
|
|
Certificate
of Amendment of the Amended and Restated Certificate of Incorporation of Verus International, Inc. (Incorporated by reference
to Exhibit 3.1 of Form 8-K filed on April 18, 2019)
|
4.1+
|
|
2015
Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 of Form S-8 filed on August 7, 2015)
|
4.2+
|
|
2018
Equity Incentive Plan (Incorporated by reference to Exhibit 4.2 of Form 10-K filed on March 19, 2019)
|
5.1
|
|
Opinion
of Sheppard Mullin Richter & Hampton LP as to the legality of securities being registered (Incorporated by reference to
Exhibit 5.1 to Form S-1 filed on August 1, 2019)
|
10.1+
|
|
Amended
and Restated Employment Agreement by and between Verus International, Inc. and Anshu Bhatnagar (Incorporated by reference
to Exhibit 10.1 of Form 8-K filed on April 29, 2020)
|
10.2
|
|
Contribution
and Spin-off Agreement (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on November 3, 2017)
|
10.3
|
|
First
Amendment to Contribution and Spin-Off Agreement dated January 29, 2018 (Incorporated by reference to Exhibit 10.27 of Form
10-K filed on March 26, 2018)
|
10.4
|
|
Form
of Note issued to Donald P. Monaco Insurance Trust on January 26, 2018 (Incorporated by reference to Exhibit 10.1 of Form
8-K filed on February 12, 2018)
|
10.5
|
|
Amendment
No. 1 to Note issued to Donald P. Monaco Insurance Trust (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on February
12, 2019)
|
10.6
|
|
Amendment
No. 2 to Note issued to Donald P. Monaco Insurance Trust (Incorporated by reference to Exhibit 10.2 of Form 8-K filed on February
12, 2019)
|
10.7
|
|
Form
of February 8th Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on February
11, 2019)
|
10.8
|
|
Form
of February 8th Registration Rights Agreement (Incorporated by reference to Exhibit 10.2 of Form 8-K filed on February
11, 2019)
|
10.9
|
|
Form
of February 8th Warrant (Incorporated by reference to Exhibit 10.3 of Form 8-K filed on February 11, 2019)
|
10.10
|
|
Form
of February 8th 8% Convertible Promissory Note (Incorporated by reference to Exhibit 10.4 of Form 8-K filed on
February 11, 2019)
|
10.11
|
|
Form
of February 11th Securities Purchase Agreement (Incorporated by reference to Exhibit 10.5 of Form 8-K filed on
February 11, 2019)
|
10.12
|
|
Form
of February 11th Registration Rights Agreement (Incorporated by reference to Exhibit 10.6 of Form 8-K filed on
February 11, 2019)
|
10.13
|
|
Form
of February 11th Warrant (Incorporated by reference to Exhibit 10.7 of Form 8-K filed on February 11, 2019)
|
10.14
|
|
Form
of February 11th 8% Convertible Promissory Note (Incorporated by reference to Exhibit 10.8 of Form 8-K filed on
February 11, 2019)
|
10.15
|
|
Sublease
between the Company and Buchanan Partners, LLC dated April 11, 2017 (Incorporated by reference to Exhibit 10.18 of Form 10-K
filed on March 26, 2018)
|
10.16#
|
|
Sales
Contract by and between Verus Foods, Inc. and Gulf ARGO Trading, LLC dated December 26, 2016 (Incorporated by reference to
Exhibit 10.16 on Form 10-K filed on March 19, 2019)
|
10.17#
|
|
Exclusive
Distribution Agreement by and between Verus Foods Inc. and Padrone General Trading LLC dated August 18, 2017 (Incorporated
by reference to Exhibit 10.17 on Form 10-K filed on March 19, 2019)
|
10.18
|
|
Stock
Purchase Agreement by and among Verus International, Inc., Big League Foods and James Wheeler (Incorporated by reference to
Exhibit 10.1 on Form 8-K filed on April 26, 2019)
|
10.19
|
|
Securities
Purchase Agreement (Incorporated by reference to Form 8-K filed on May 31, 2019)
|
10.20+
|
|
Employment
Agreement by and between the Company and Christopher Cutchens (Incorporated by reference to Form 8-K filed on June 6, 2019)
|
10.21
|
|
Securities
Purchase Agreement (Incorporated by reference to Form 8-K filed on July 8, 2019)
|
10.22
|
|
4%
Convertible Note (Incorporated by reference to Form 8-K filed on July 8, 2019)
|
10.23
|
|
Credit
Agreement, dated as of July 31, 2019, by and among Verus International, Inc. and Verus Foods Inc., as Borrowers, and The Columbia
Bank, as lender (Incorporated by reference to Form 8-K filed on August 1, 2019)
|
10.24##
|
|
Asset
Purchase Agreement, dated as of August 30, 2019, by and among Verus International, Inc. and the Sellers thereto (Incorporated
by reference to Form 8-K filed on September 3, 2019)
|
10.25
|
|
Form
of Securities Purchase Agreement (Incorporated by reference to Form 8-K filed on September 20, 2019)
|
10.26
|
|
4%
Convertible Notes (Incorporated by reference to Form 8-K filed on September 20, 2019)
|
10.27
|
|
Contribution
and Sale Agreement dated October 30, 2019 (Incorporated by reference to Form 8-K filed on November 4, 2019)
|
10.28
|
|
Form
of Securities Purchase Agreement (Incorporated by reference to Form 8-K filed on January 17, 2020)
|
10.29
|
|
4%
Convertible Note (Incorporated by reference to Form 8-K filed on January 17, 2020)
|
10.30
|
|
4%
Convertible Note (Incorporated by reference to Form 8-K filed on February 14, 2020)
|
10.31
|
|
Form
of Note (Incorporated by reference to Form 8-K filed on April 7, 2020)
|
10.32
|
|
Form
of Securities Purchase Agreement dated October 2, 2019 (Incorporated by reference to Exhibit 10.32 on Form 10-K filed on April
13, 2020)
|
10.33
|
|
Form
of 6% Convertible Redeemable Note dated October 2, 2019 (Incorporated by reference to Exhibit 10.33 on Form 10-K filed on
April 13, 2020)
|
10.34
|
|
Termination
Agreement by and between the Company and Nutribrands, LTDA dated March 31, 2020 (Incorporated by reference to Exhibit 10.1
on Form 8-K filed on April 14, 2020)
|
16.1
|
|
Letter
from Assurance Dimensions, Inc. (Incorporated by reference to exhibit 16.1 on Form 8-K filed on January 15, 2020)
|
16.2
|
|
Letter
from Mayer Hoffman McCann P.C. (Incorporated by reference to exhibit 16.1 on Form 8-K filed on February 24, 2020)
|
21.1
|
|
List
of Subsidiaries (Incorporated by reference to Exhibit 21.1 on Form 10-K filed on April 13, 2020)
|
23.1*
|
|
Consent of Assurance Dimensions
|
23.2
|
|
Consent
of Sheppard Mullin Richter & Hampton LLP (included as part of Exhibit 5.1)
|
+
Each of these Exhibits constitutes a management contract, compensatory plan, or arrangement.
*
Filed herewith.
#
The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed
separately with the SEC.
## Pursuant to Item 601(b)(10) of
Regulation S-K, certain confidential portions of this exhibit were omitted by means of making such portions with an asterisk because
the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
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