RISK
FACTORS
An
investment in our securities involves a high degree of risk. This prospectus contains the risks applicable to an investment in
our securities. Prior to making a decision about investing in our securities, you should carefully consider the specific factors
discussed under the heading “Risk Factors” in this prospectus. The risks and uncertainties we have described are not
the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also
affect our operations. The occurrence of any of these known or unknown risks might cause you to lose all or part of your investment
in the offered securities.
Risks
Related to Our Business
We
have no history of profitability.
We
commenced operations in 1994 and to date have not generated any profit. We do not have a significant operating history which would
provide you with meaningful information about our past or future operations with respect to our international consumer packaged
goods, foodstuff distribution and wholesale trade. We have not yet achieved positive cash flow on a monthly basis during any fiscal
year including the current fiscal year ended October 31, 2019.
We
had net losses of $2,389,850 and $2,824,292 for the years ended October 31, 2019 and 2018, respectively. We had net losses of
$9,816,408 for the six months ended April 30, 2020. Furthermore, we had a working capital deficit of $1,787,284 and $174,754 at
October 31, 2019 and April 30, 2020, respectively. If we are unable to achieve profitability, we may be unable to continue our
operations.
Our
independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern,
which may hinder our ability to obtain future financing.
Our
financial statements as of October 31, 2019 have been prepared under the assumption that we will continue as a going concern for
the next twelve months. Our independent registered public accounting firm included in its opinion for the year ended October 31,
2019 an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability
to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent
upon our ability to obtain additional equity or debt financing, reduce expenditures and to generate significant revenue. Our financial
statements as of October 31, 2019 did not include any adjustments that might result from the outcome of this uncertainty. The
reaction of investors to the inclusion of a going concern statement by our independent registered public accounting firm, and
our potential inability to continue as a going concern, in future years could materially adversely affect our share price and
our ability to raise new capital or enter into strategic alliances.
We
will require additional financing in the future to fund our operations which may cause dilution to our existing stockholders or
restrict our operations.
We
will need additional capital in the future to continue to execute our business plan. Therefore, we will be dependent upon additional
capital in the form of either debt or equity to continue our operations. At the present time, we do not have arrangements to raise
all of the needed additional capital, and we will need to identify potential investors and negotiate appropriate arrangements
with them. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our
operating performance and investor sentiment. To the extent that we raise additional capital through the sale of equity or convertible
debt securities, the ownership interests of our stockholders will be diluted, and the terms of such financings may include liquidation
or other preferences, anti-dilution rights, and other provisions that may adversely affect the rights of our stockholders, including
rights, preferences and privileges that are senior to those of our holders of common stock in the event of a liquidation. In addition,
debt financing, if available, could include covenants limiting or restricting our ability to take certain actions, such as incurring
additional debt, making capital expenditures, or declaring dividends and may require us to grant security interests in our assets.
If we are unable to raise additional capital when required or on acceptable terms we may need to curtail or cease our operations.
Our
indebtedness and liquidity needs could restrict our operations and make us more vulnerable to adverse economic conditions.
Our
existing indebtedness may adversely affect our operations and limit our growth, and we may have difficulty repaying our debt when
due. If market or other economic conditions deteriorate, our ability to comply with covenants contained in our debt instruments
may be impaired. If we violate any of the restrictions or covenants set forth in our debt instruments, all or a significant portion
of our indebtedness may become immediately due and payable. Our inability to make payments on our indebtedness when due may have
a material adverse effect on our operations and financial condition.
We
depend on a small number of customers and the loss of one or more major customers could have a material adverse effect on our
business, financial condition and results of operations.
For
the year ended October 31, 2019, approximately 42% of accounts receivable were concentrated with three customers and approximately
66% of revenues were concentrated with six customers, all of which customers are located outside the United States. For the year
ended October 31, 2018, approximately 84% of accounts receivable were concentrated with six customers and approximately 64% of
revenues were concentrated with five customers, all of which customers are located outside United States. 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.
Our
reliance on distributors and retailers could affect our ability to efficiently and profitably distribute and market our products,
maintain our existing customers and expand our business.
Our
ability to maintain and expand our customer base, maintain our presence in existing markets and establish a presence in new markets
is dependent on our ability to establish and maintain successful relationships with reliable distributors and retailers. Most
of our distributors and retailers sell and distribute competing products and our products may represent a small portion of their
businesses. The success of our distribution network will depend on the performance of the distributors and retailers. There is
a risk that the retailers and distributors that we engage may fail to distribute our products or position our products in localities
that may not be receptive to customers. Our ability to incentivize, motivate and retain distributors to manage and sell our products
is affected by competition from other food companies that have greater resources than we do. To the extent that our distributors
and retailers are distracted from selling our products or do not deploy sufficient resources to manage and sell our products,
our sales and results of operations could be adversely affected. Furthermore, our distributors’ and retailers’ financial
position or market share may deteriorate, which could adversely affect the distribution, marketing and sales activities related
to our products thereby having a material adverse effect on our business.
Our
ability to maintain and expand our distribution network and attract additional distributors and retailers depends on a number
of factors, some of which are outside our control. Some of these factors include:
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the
level of demand for our brand and products in a particular geographic location;
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our
ability to price our products at levels competitive with those of our competitors; and
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our
ability to deliver products in the quantity and at the time requested by distributors and retailers.
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We
may not be able to successfully manage all or any of these factors in any of our current or prospective markets which could have
a material adverse effect on our results of operation and financial condition.
If
we do not adequately manage our inventory levels, our operating results could be adversely affected.
We
need to maintain adequate inventory levels to be able to deliver products on a timely basis. Our inventory supply depends on our
ability to accurately estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly
for new products, for seasonal promotions and in new markets. If we materially underestimate demand for our products or are unable
to maintain sufficient inventory, we may not be able to satisfy demand on a short-term basis. Alternatively, if we overestimate
demand for our products, we may have too much inventory on hand, which may result in higher storage costs and the risk of inventory
spoilage. If we fail to manage our inventory to meet demand, we could damage our brand and our relationship with our customers
which could have a material adverse effect on our operating results and financial condition.
If
we do not continually enhance our brand recognition, increase distribution of our products, attract new customers and introduce
new products our business may suffer.
The
food industry is subject to rapid and frequent changes in consumer demands. Because consumers in this industry are constantly
seeking new products, our success relies heavily upon our ability to continue to market new products. We may not be successful
in introducing or marketing new products on a timely basis, if at all. Our inability to commercialize new products may have an
adverse effect on our business, financial condition and results of operations.
Any
damage to our brand or reputation could adversely affect our business, financial condition and results of operations.
We
must protect and grow the value of our brand to continue to be successful in the future. Any incident that erodes consumer affinity
for our brand could significantly reduce our value and damage our business. For example, negative third-party reports regarding
our products, whether accurate or not, may adversely impact consumer perceptions. In addition, if we recall certain products irrespective
of whether such recall is mandatory or voluntary, the public perception of the quality of our products may be diminished. We may
also be adversely affected by news reports or other negative publicity, regardless of their accuracy, regarding other aspects
of our business, such as public health concerns, illness and safety. This negative publicity could adversely affect our brand
and reputation which could have a material adverse effect on our business and financial condition.
We
have no long-term contracts with our customers which require our customers to purchase a minimum amount of our products. The absence
of long-term contracts could result in periods during which we must continue to pay costs and service indebtedness without revenues.
We
do not have long-term contacts with our customers which require our customers to purchase a minimum amount of our products. Accordingly,
we could have periods during which we have no or limited orders for our products, which will make it difficult for us to operate
as we will have to continue paying our expenses and servicing our debt. We cannot provide assurance that we will be able to timely
locate new customers, if at all. The periods in which we have no or limited purchase orders for our products could have a material
adverse effect on our business and financial condition.
Severe
weather conditions and natural disasters may affect manufacturing facilities and distribution activities which may negatively
impact the operating results of our business.
Severe
weather conditions and natural disasters, such as fires, floods, droughts, frosts, hurricanes, earthquakes and tornadoes may curtail
or prevent the manufacturing or distribution of our products which may have a material adverse effect on our results of operation
or financial condition.
Global
or regional health pandemics or epidemics, including COVID-19, could negatively impact our business operations, financial performance
and results of operations.
Our
business and financial results could be negatively impacted by the recent outbreak of COVID-19 or other pandemics or epidemics.
The severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and hard to predict. During
2020, COVID-19 has significantly impacted economic activity and markets around the world, and it could negatively impact our business
in numerous ways, including but not limited to those outlined below:
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Commodity
costs have become more volatile due to the COVID-19 outbreak and we expect continued commodity cost volatility.
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The
COVID-19 outbreak could disrupt our global supply chain, operations and routes to market or those of our suppliers, customers,
distributors and retailers. These disruptions or our failure to effectively respond to them could increase product or distribution
costs or cause delays in delivering or an inability to deliver products to our customers.
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Disruptions
or uncertainties related to the COVID-19 outbreak for a sustained period of time could result in delays or modifications to
our strategic plans and initiatives and hinder our ability to achieve our business objectives.
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Illness,
travel restrictions or workforce disruptions could negatively affect our supply chain, distribution or other business processes.
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Government
or regulatory responses to pandemics could negatively impact our business. Mandatory lockdowns or other restrictions on operations
in some countries have temporarily disrupted our ability to distribute our products in some of these markets. Continuation
or expansion of these disruptions could materially adversely impact our operations and results.
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The
COVID-19 outbreak has increased volatility and pricing in the capital markets and volatility is likely to continue which could
have a material adverse effect on our ability to obtain financing.
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These
and other impacts of the COVID-19 or other global or regional health pandemics or epidemics could have the effect of heightening
many of the other risks described in this “Risk Factors” section such as those relating to our reputation, brands,
product sales, results of operations or financial condition. We might not be able to predict or respond to all impacts on a timely
basis to prevent near- or long-term adverse impacts to our results. The ultimate impact of these disruptions also depends on events
beyond our knowledge or control, including the duration and severity of any outbreak and actions taken by parties other than us
to respond to them. Any of these disruptions could have a negative impact on our business operations, financial performance and
results of operations, which impact could be material.
Our
international operations expose us to regulatory, economic, political and social risks in the countries in which we operate.
The
international nature of our operations involves a number of risks, including changes in regulations, tariffs, taxes and exchange
controls, economic downturns, inflation and political and social instability including retaliation, war, and civil unrest in the
countries in which we operate. Moreover, consumers in different countries may have varying tastes, preferences and nutritional
opinions. We cannot be certain that we will be able to enter and successfully compete in additional foreign markets or that we
will be able to continue to compete in the foreign markets in which we currently operate.
Doing
business outside the United States requires us to comply with the laws and regulations of various foreign jurisdictions, which
place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject
to anti-corruption and trade control laws and regulations, including, but not limited to, the Foreign Corrupt Practices Act (“FCPA”)
and the Export Sales Reporting Program. The FCPA prohibits us from providing anything of value to foreign officials for the purposes
of obtaining or retaining business or securing any improper business advantage. Our continued expansion outside the United States
and our development of new partnerships and joint venture relationships worldwide could increase the risk of FCPA violations in
the future. We have operations and deal with governmental clients in countries known to experience corruption, including certain
emerging countries in the Middle East. Our activities in these countries create the risk of unauthorized payments or offers of
payments by one of our employees or third parties that we engage that could be in violation of various laws including the FCPA
and other anti-corruption laws, even though these parties are not always subject to our control. As a result of doing business
in foreign countries and with foreign partners, we are exposed to a heightened risk of violating anti-corruption laws. In addition,
we are subject to the Export Sales Reporting Program which monitors U.S. agricultural export sales on a daily and weekly basis,
and we must comply with the Office of Foreign Assets Control (“OFAC”) trade sanctions. Violations of anti-corruption,
export and other regulations we may be subject to may be punishable by civil penalties, including fines, denial of export privileges,
injunctions and asset seizures as well as criminal fines and imprisonment.
Disruptions
in the worldwide economy may adversely affect our business, financial condition and results of operations.
Adverse
and uncertain economic conditions may impact distributor, retailer and consumer demand for our products. In addition, our ability
to manage normal commercial relationships with our suppliers, distributors, retailers and consumers may suffer. Consumers may
shift to purchasing lower-priced products during economic downturns, making it more difficult for us to sell our premium products.
During economic downturns, it may be more difficult to persuade existing consumers to continue to use our brand or persuade new
consumers to select our brand without price promotions. Furthermore, during economic downturns, distributors and retailers may
reduce their inventories of our products. Our results of operations depend upon, among other things, our ability to maintain and
increase sales volume with our existing distributors and retailers, to attract new consumers and to provide products that appeal
to consumers at prices they are willing and able to pay. Prolonged unfavorable economic conditions may have an adverse effect
on our results of operation and financial condition.
We
purchase substantially all of our food products from a limited number of regions and from a limited number of suppliers. Price
increases and shortages in food products could adversely affect our operating results.
We
purchase substantially all of our 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. Any such failure
to supply or delay caused by our supplies may have a material adverse effect on our operating results.
Price
increases may not be sufficient to cover increased costs, or may result in declines in sales volume due to price elasticity in
the marketplace.
We
may be able to pass some or all input costs to our customers by increasing the selling price of our products or decreasing the
size of our products; however, higher product prices or decreased product sizes may also result in a reduction in sales volume
and/or consumption. If we are not able to increase our selling prices or reduce product sizes sufficiently, or in a timely manner,
to offset increased input costs, including packaging, freight, direct labor, overhead and employee benefits, or if our sales volume
decreases significantly, there could be a negative impact on our financial condition and results of operations.
We
operate in a highly competitive industry.
The
food industry is intensely competitive and consolidation in this industry continues. We face competition in the areas of brand
recognition, taste, quality, price, advertising/promotion, convenience and service. A number of our competitors are larger than
us and have substantial financial, marketing and other resources as well as substantial international operations. In addition,
reduced barriers to entry are creating new competition. Furthermore, in order to protect our existing market share or capture
increased market share in this highly competitive environment, we may be required to increase expenditures for promotions and
advertising and continue to introduce and establish new products. Due to inherent risks in the marketplace associated with advertising
and new product introductions, including uncertainties about trade and consumer acceptance, increased expenditures may not prove
successful in maintaining or enhancing our market share and could impact our operating results. In addition, we may incur increased
credit and other business risks because we operate in a highly competitive environment.
Our
business operations could be disrupted if our information technology systems fail to perform adequately.
The
efficient operation of our business depends on our information technology systems. We rely on our information technology systems
to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes.
The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction
errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer.
In particular, as we grow, we need to make sure that our information technology systems are upgraded and integrated throughout
our business and able to generate reports sufficient for management to run our business. In addition, our information technology
systems may be vulnerable to damage, interruption or security breaches from circumstances beyond our control, including fire,
natural disasters, system failures, cyber-attacks, corporate espionage, and viruses. Any such damage, interruption or security
breach could have a material adverse effect on our business.
We
may be subject to significant liability and may have to recall our products if the consumption of any food product manufactured
or marketed by us causes injury, illness or death. Regardless of whether such claims against us are valid, they may be expensive
to defend and may generate negative publicity, both of which could materially adversely affect our business, operating results
and financial condition.
The
sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering
by unauthorized third parties or product contamination or spoilage, including the presence of bacterial contamination, foreign
objects, substances, chemicals, other agents or residues introduced during production processes. Our food products may also be
subject to product tampering, contamination or spoilage or be mislabeled or otherwise damaged which may result in a product recall.
We
are dependent on our third-party manufacturers for compliance with rules and regulations with respect to production of many of
our products. Although we believe that we and our manufacturers are in material compliance with all applicable laws and regulations,
if the consumption of our products causes or is alleged to have caused an illness in the future, we may become subject to claims
or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative
publicity surrounding an illness, injury or death could have a material adverse effect on our business, results of operations
and financial condition.
The
food industry has been subject to a growing number of claims, including class action lawsuits based on the nutritional content
of food products as well as disclosure and advertising practices. In the future we may be subject to these types of claims and
proceedings and, even if we are successful in defending such claims, publicity about these matters may harm our reputation and
adversely affect our results. Regardless of whether any claims against us are valid, or whether we are ultimately held liable,
claims may be expensive to defend and may divert time and money away from our operations, which could have a material adverse
effect on our performance. Furthermore, a significant judgment could materially and adversely affect our financial condition or
results of operations.
Outbreaks
of disease among livestock and poultry flocks could harm our revenues and operating margins.
As
a supplier of meat products, we are subject to risks associated with the outbreak of disease in beef livestock and poultry flocks,
including, but not limited to, avian influenza and bovine spongiform encephalopathy. The outbreak of disease could adversely affect
our supply of raw materials, increase the cost of production and reduce operating margins. Additionally, the outbreak of disease
may hinder our ability to market and sell products which could have a material adverse effect on our results of operations and
financial condition.
We
are dependent upon key personnel whose loss may adversely impact our business.
Our
success materially depends upon the expertise, experience and continued service of our management and other key personnel, including
but not limited to, our current Chief Executive Officer, Anshu Bhatnagar. If we lose the services of Anshu Bhatnagar or any of
other member of management, our business would be materially and adversely affected.
Our
future success also depends upon our ability to attract and retain highly qualified management personnel and other employees.
Any difficulties in obtaining, retaining and training qualified employees could have a material adverse effect on our results
of operation or financial condition. The process of identifying such personnel with the combination of skills and attributes required
to carry out our business plan is often lengthy. Any difficulties in obtaining and retaining qualified managers and employees
could have a material adverse effect on our results of operation or financial condition.
We
may fail to realize all of the anticipated benefits of any entities which we acquire, such benefits may take longer to realize
than expected or we may encounter significant difficulties integrating acquired businesses into our operations. If our acquisitions
do not achieve their intended benefits, our business, financial condition, and results of operations could be materially and adversely
affected.
We
believe that businesses that we acquire will result in certain benefits, including certain cost synergies and operational efficiencies;
however, to realize these anticipated benefits, the businesses we acquire must be successfully combined with our business. The
combination of independent businesses is a complex, costly, and time-consuming process that will require significant management
attention and resources. The integration process may disrupt the businesses and, if implemented ineffectively, would limit the
expected benefits of these acquisitions to us. The failure to meet the challenges involved in integrating acquired businesses
and realizing anticipated benefits could cause an interruption of, or a loss of momentum in, our activities and could adversely
affect our results of operations.
The
overall integration of acquired businesses may result in material unanticipated problems, expenses, liabilities, competitive responses,
loss of customer and other business relationships, and diversion of management’s attention. The difficulties of combining
the operations of companies include, among others:
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the
diversion of management’s attention to integration matters;
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difficulties
in achieving anticipated cost savings, synergies, business opportunities, and growth prospects from the combinations;
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difficulties
in the integration of operations and systems; and
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conforming
standards, controls, procedures, accounting and other policies, business cultures, and compensation structures between the
two companies.
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Many
of these factors are outside of our control and any one of these factors could result in, among other things, increased costs
and decreases in the amount of expected revenues, which could materially adversely impact our business, financial condition, and
results of operations. In addition, even if we are able to successfully integrate acquired businesses, the full benefits, including
the synergies, cost savings, revenue growth, or other benefits that are expected, may not be achieved within the anticipated time
frame, or at all. All of these factors could decrease or delay the expected accretive effect of the acquisitions, and negatively
impact our business, operating results, and financial condition.
Risks
Relating to Our Securities
Certain
provisions of the Delaware General Corporation Law (“DGCL”), our Amended and Restated Certificate of Incorporation,
as amended (the “Certificate of Incorporation”), and our Amended and Restated Bylaws (“Bylaws”) may have
anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price to decline.
Our
Certificate of Incorporation, Bylaws and Delaware law could make it more difficult for a third party to acquire us, even if closing
such a transaction would be beneficial to our stockholders. Our Certificate of Incorporation authorizes us to issue up
to 125,000,000 shares of preferred stock. This preferred stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders.
The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters),
preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. The issuance of any preferred
stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our
common stock. In particular, specific rights granted to holders of preferred stock could be used to restrict our ability to merge
with, or sell our assets to, a third party and thereby preserve control by the present management. As of July 22, 2020
we have designated (i) 120,000,000 shares of preferred stock as Series A Convertible Preferred Stock, of which 28,944,601 are
outstanding, (ii) 1,000,000 shares of preferred stock as Series B Convertible Preferred Stock, none of which are outstanding and
(iii) 1,000,000 shares of preferred stock as Series C Convertible Preferred Stock, of which 430,801 shares are outstanding.
Provisions
of our Certificate of Incorporation, Bylaws and Delaware law also could have the effect of discouraging potential acquisition
proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider
favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In
particular, our Certificate of Incorporation, Bylaws and Delaware law, as applicable, among other things:
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provide
the board of directors with the ability to alter the Bylaws without stockholder approval;
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provide
that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum;
and
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provide
that special meetings of stockholders may
be called only by our board.
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If
we fail to comply with the rules under the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”) related to internal
controls and procedures in the future, or, if we discover material weaknesses and other deficiencies in our internal controls
over financial reporting, our stock price could decline significantly and raising capital could be more difficult.
Section
404 of Sarbanes-Oxley requires annual management assessments of the effectiveness of our internal controls over financial reporting.
If we fail to comply with the rules under Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we
discover material weaknesses and other deficiencies in our internal controls over financial reporting, our stock price could decline
significantly and raising capital could be more difficult. If material weaknesses or significant deficiencies are discovered or
if we otherwise fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude
on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley.
Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping
prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results
could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock
could drop significantly.
Our
common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited,
which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule
15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer
approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information
and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating
the risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability
determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the
transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock”
rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of
our common stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and
the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in
penny stocks.
We
have never paid cash dividends and have no plans to pay cash dividends in the future
Holders
of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors. To date, we
have paid no cash dividends on our capital stock and we do not expect to pay cash dividends in the foreseeable future. We intend
to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our capital
stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock.
If
we fail to remain current in our reporting requirements, we could be removed from the OTCQB which would limit the ability of broker-dealers
to sell our securities and the ability of stockholders to sell their securities in the secondary market.
As
a company listed on the OTCQB and subject to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange
Act”), we must be current with our filings pursuant to Section 13 or 15(d) of the Exchange Act in order to maintain price
quotation privileges on the OTCQB. If we fail to remain current in our reporting requirements, we could be removed from the OTCQB.
As a result, the market liquidity of our securities could be severely adversely affected by limiting the ability of broker-dealers
to trade our securities and the ability of stockholders to sell their securities in the secondary market.
Our
common stock could be subject to extreme volatility.
The
trading price of our common stock may be affected by a number of factors, including events described in the risk factors set forth
herein and in our other reports filed with the SEC from time to time, as well as our operating results, financial condition and
other events or factors. In addition to the uncertainties relating to future operating performance and the profitability of operations,
factors such as variations in interim financial results or various, and unpredictable, factors, many of which are beyond our control,
may have a negative effect on the market price of our common stock. In recent years, broad stock market indices, in general, and
smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may
experience wide fluctuations in the market price of our common stock. In addition, securities markets have, from time to time,
experienced significant price and volume fluctuations that are not related to the operating performance of particular companies.
These market fluctuations may have a material adverse effect the market price of our common stock.
Financial
reporting obligations of being a public company in the United States are expensive and time-consuming, and our management will
be required to devote substantial time to compliance matters.
As
a publicly traded company we incur significant legal, accounting and other expenses. The obligations of being a public company
in the United States require significant expenditures and places significant demands on our management and other personnel, including
costs resulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate
governance practices, including those under the Sarbanes-Oxley Act of 2002, as amended, and the Dodd-Frank Wall Street Reform
and Consumer Protection Act. These rules require the establishment and maintenance of effective disclosure and financial controls
and procedures, internal control over financial reporting and changes in corporate governance practices, among many other complex
rules that are often difficult to implement, monitor and maintain compliance with. Our management and other personnel will need
to devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations,
otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted from the OTCQB, among other
potential problems.
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
|
|
April 30, 2020
|
|
|
October 31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
368,013
|
|
|
$
|
371,898
|
|
Accounts receivable, net
|
|
|
5,449,931
|
|
|
|
3,319,687
|
|
Inventory
|
|
|
586,912
|
|
|
|
598,515
|
|
Prepaid expenses
|
|
|
507,071
|
|
|
|
65,749
|
|
Other assets
|
|
|
8,629
|
|
|
|
8,629
|
|
Total Current Assets
|
|
|
6,920,556
|
|
|
|
4,364,478
|
|
Property and equipment, net
|
|
|
22,500
|
|
|
|
23,257
|
|
Operating lease right-of-use asset
|
|
|
135,789
|
|
|
|
-
|
|
Intangible asset - license, net
|
|
|
717,971
|
|
|
|
837,707
|
|
Total Assets
|
|
$
|
7,796,816
|
|
|
$
|
5,225,442
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,136,531
|
|
|
$
|
3,613,641
|
|
Operating lease liability
|
|
|
86,496
|
|
|
|
-
|
|
Interest payable
|
|
|
211,995
|
|
|
|
127,465
|
|
Customer deposits
|
|
|
246,000
|
|
|
|
-
|
|
Due to former officer
|
|
|
1,801
|
|
|
|
1,801
|
|
Notes payable
|
|
|
1,319,963
|
|
|
|
1,030,000
|
|
Convertible notes payable, net
|
|
|
1,092,524
|
|
|
|
1,378,855
|
|
Total Current Liabilities
|
|
|
7,095,310
|
|
|
|
6,151,762
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Note payable, net of current portion
|
|
|
69,653
|
|
|
|
-
|
|
Operating lease liability, net of current portion
|
|
|
61,819
|
|
|
|
-
|
|
Total Liabilities
|
|
|
7,226,782
|
|
|
|
6,151,762
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 April 30, 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 April 30, 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 April 30, 2020 and October 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.000001 par value; 7,500,000,000 shares authorized and 2,422,390,263 and 2,305,778,511 shares issued at April 30, 2020 and October 31, 2019, respectively
|
|
|
2,423
|
|
|
|
2,306
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in-capital
|
|
|
38,788,567
|
|
|
|
27,565,919
|
|
Common stock to be issued
|
|
|
90,000
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(38,310,998
|
)
|
|
|
(28,494,590
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
|
570,034
|
|
|
|
(926,320
|
)
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
7,796,816
|
|
|
$
|
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
|
|
|
For the Six Months Ended
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
4,647,886
|
|
|
$
|
2,942,435
|
|
|
$
|
10,821,548
|
|
|
$
|
5,386,255
|
|
Cost of revenue
|
|
|
3,911,958
|
|
|
|
2,490,130
|
|
|
|
8,952,063
|
|
|
|
4,567,597
|
|
Gross Profit
|
|
|
735,928
|
|
|
|
452,305
|
|
|
|
1,869,485
|
|
|
|
818,658
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
6,843,163
|
|
|
|
382,987
|
|
|
|
8,723,439
|
|
|
|
481,211
|
|
Selling and promotions expense
|
|
|
112,860
|
|
|
|
-
|
|
|
|
131,482
|
|
|
|
-
|
|
Legal and professional fees
|
|
|
194,026
|
|
|
|
76,538
|
|
|
|
397,530
|
|
|
|
188,190
|
|
General and administrative
|
|
|
583,728
|
|
|
|
236,468
|
|
|
|
1,197,234
|
|
|
|
430,303
|
|
Total Operating Expenses
|
|
|
7,733,777
|
|
|
|
695,993
|
|
|
|
10,449,685
|
|
|
|
1,099,704
|
|
Operating loss
|
|
|
(6,997,849
|
)
|
|
|
(243,688
|
)
|
|
|
(8,580,200
|
)
|
|
|
(281,046
|
)
|
Other (Expense) Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(142,206
|
)
|
|
|
(46,889
|
)
|
|
|
(193,786
|
)
|
|
|
(148,522
|
)
|
Amortization of debt discount
|
|
|
(141,770
|
)
|
|
|
(702,376
|
)
|
|
|
(260,986
|
)
|
|
|
(702,376
|
)
|
Amortization of issuance costs
|
|
|
(31,295
|
)
|
|
|
-
|
|
|
|
(57,663
|
)
|
|
|
-
|
|
Loss on convertible note payable extinguishment
|
|
|
-
|
|
|
|
-
|
|
|
|
(355,317
|
)
|
|
|
-
|
|
Loss on convertible note payable settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
(368,456
|
)
|
|
|
-
|
|
Initial derivative liability expense
|
|
|
-
|
|
|
|
(225,115
|
)
|
|
|
-
|
|
|
|
(225,115
|
)
|
Loss on legal settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(199,489
|
)
|
Gain on convertible notes payable settlement
|
|
|
-
|
|
|
|
681,945
|
|
|
|
-
|
|
|
|
681,945
|
|
Gain on extinguishment of debt
|
|
|
-
|
|
|
|
2,700,737
|
|
|
|
-
|
|
|
|
2,700,737
|
|
Total Other (Expense) Income
|
|
|
(315,271
|
)
|
|
|
2,408,302
|
|
|
|
(1,236,208
|
)
|
|
|
2,107,180
|
|
(Loss) income before income taxes
|
|
|
(7,313,120
|
)
|
|
|
2,164,614
|
|
|
|
(9,816,408
|
)
|
|
|
1,826,134
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net (loss) income
|
|
$
|
(7,313,120
|
)
|
|
$
|
2,164,614
|
|
|
$
|
(9,816,408
|
)
|
|
$
|
1,826,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per common share - basic
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per common share - diluted
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
|
|
2,325,846,232
|
|
|
|
1,514,514,259
|
|
|
|
2,316,497,631
|
|
|
|
1,506,628,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – diluted
|
|
|
2,325,846,232
|
|
|
|
2,144,219,259
|
|
|
|
2,316,497,631
|
|
|
|
2,136,333,559
|
|
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 and Six Months Ended April 30, 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
|
|
Shares issued for conversion
of Preferred Stock A to Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,125,500
|
|
|
|
3
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
-
|
|
Stock-based compensation
for warrants issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,606,312
|
|
|
|
|
|
|
|
|
|
|
|
6,606,312
|
|
Shares to be issued
for conversion of convertible promissory notes to Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,388,198
|
|
|
|
99
|
|
|
|
655,912
|
|
|
|
(465,675
|
)
|
|
|
|
|
|
|
190,336
|
|
Beneficial conversion
feature for conversion of convertible promissory notes to Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
830,162
|
|
|
|
|
|
|
|
|
|
|
|
830,162
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,313,120
|
)
|
|
|
(7,313,120
|
)
|
Balance,
April 30, 2020
|
|
|
41,444,601
|
|
|
$
|
42
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
430,801
|
|
|
$
|
-
|
|
|
|
2,422,390,263
|
|
|
$
|
2,423
|
|
|
$
|
38,788,567
|
|
|
$
|
90,000
|
|
|
$
|
(38,310,998
|
)
|
|
$
|
570,034
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(338,478
|
)
|
|
|
(338,478
|
)
|
Balance,
January 31, 2019
|
|
|
44,570,101
|
|
|
$
|
44,570
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
455,801
|
|
|
$
|
456
|
|
|
|
1,500,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
22,546,899
|
|
|
$
|
456,090
|
|
|
$
|
(26,443,218
|
)
|
|
$
|
(1,895,204
|
)
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,170
|
|
|
|
|
|
|
|
|
|
|
|
138,170
|
|
Relative fair value
of warrants issued with convertible promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
697,611
|
|
|
|
|
|
|
|
|
|
|
|
697,611
|
|
Shares to be issued
under conversion of convertible promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,483,866
|
)
|
|
|
1,458,244
|
|
|
|
|
|
|
|
(1,025,622
|
)
|
Reduction of par value of Common and Preferred
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,652,875
|
)
|
|
|
1,652,875
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,146,612
|
|
|
|
2,146,612
|
|
Balance,
April 30, 2019
|
|
|
44,570,101
|
|
|
$
|
44,570
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
430,801
|
|
|
$
|
431
|
|
|
|
1,654,529,989
|
|
|
$
|
1,655
|
|
|
$
|
22,853,274
|
|
|
$
|
1,458,244
|
|
|
$
|
(24,278,606
|
)
|
|
$
|
79,568
|
|
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 Six Months Ended
|
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(9,816,408
|
)
|
|
$
|
1,826,134
|
|
Adjustments to reconcile net(loss) income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
123,493
|
|
|
|
897
|
|
Amortization of issuance costs
|
|
|
57,663
|
|
|
|
-
|
|
Amortization of beneficial conversion feature
|
|
|
80,320
|
|
|
|
-
|
|
Amortization of debt discount
|
|
|
260,986
|
|
|
|
702,376
|
|
Loss on convertible note payable extinguishment
|
|
|
355,317
|
|
|
|
-
|
|
Loss on convertible note payable settlement
|
|
|
368,456
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
8,236,124
|
|
|
|
138,170
|
|
Initial derivative liability expense
|
|
|
-
|
|
|
|
225,115
|
|
Gain on convertible notes settlement
|
|
|
-
|
|
|
|
(681,944
|
)
|
Gain on extinguishment of debt
|
|
|
-
|
|
|
|
(2,700,737
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(2,130,244
|
)
|
|
|
(589,993
|
)
|
Decrease (increase) in inventory
|
|
|
11,603
|
|
|
|
(162,272
|
)
|
Increase in prepaid expenses
|
|
|
(441,322
|
)
|
|
|
-
|
|
Increase in other assets
|
|
|
-
|
|
|
|
(1,226
|
)
|
Increase in accounts payable and accrued expenses
|
|
|
1,339,123
|
|
|
|
867,688
|
|
Increase in customer deposits
|
|
|
246,000
|
|
|
|
-
|
|
Decrease in due to officer
|
|
|
-
|
|
|
|
(2,000
|
)
|
Increase in right to use and lease obligation, net
|
|
|
12,526
|
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(1,296,364
|
)
|
|
|
(377,792
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
941,000
|
|
|
|
1,960,319
|
|
Payments applied to convertible promissory notes
|
|
|
-
|
|
|
|
(1,118,049
|
)
|
Proceeds from issuance of notes payable
|
|
|
354,479
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
1,295,479
|
|
|
|
842,270
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(3,885
|
)
|
|
|
464,478
|
|
Cash at beginning of period
|
|
|
371,898
|
|
|
|
28,554
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
368,013
|
|
|
$
|
493,032
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
10,448
|
|
|
$
|
81,260
|
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
|
|
For the Six Months Ended
|
|
|
|
April 30,
|
|
|
|
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 (includes beneficial conversion feature)
|
|
$
|
2,363,212
|
|
|
$
|
-
|
|
Shares
|
|
|
113,486,252
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Initial recognition of relative fair value of warrant agreements as convertible promissory notes discount:
|
|
$
|
-
|
|
|
$
|
697,611
|
|
|
|
|
|
|
|
|
|
|
Initial recognition of derivative liability as debt discount:
|
|
$
|
-
|
|
|
$
|
752,389
|
|
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 SIX MONTHS ENDED APRIL 30, 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 SIX MONTHS ENDED APRIL 30, 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 six months ended April 30, 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 six months ended April 30, 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 SIX MONTHS ENDED APRIL 30, 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 April 30, 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 April 30, 2020 or October 31, 2019.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED APRIL 30, 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 April 30, 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 SIX MONTHS ENDED APRIL 30, 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 7).
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
six months ended April 30, 2020 and 2019 was $456,625 and $178,360, respectively.
Customer Deposits
From time to time the Company requires
prepayments for deposits in advance of delivery of products. Such amounts are initially recorded as customer deposits. The Company
recognizes such revenue as it is earned in accordance with revenue recognition policies.
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 SIX MONTHS ENDED APRIL 30, 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 and six months ended
April 30, 2020, as we incurred a net loss for those periods. At April 30, 2020, there were outstanding warrants to purchase approximately
1.3 billion 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
7.5 million shares of the Company’s common stock to be issued, and approximately 212 million shares of the Company’s
common stock issuable upon the conversion of convertible notes payable which may dilute future EPS. At April 30, 2019, there
were outstanding warrants to purchase approximately 624 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,
approximately 595 million shares of the Company’s common stock to be issued, and approximately 6 million shares of
the Company’s common stock issuable upon the conversion of convertible notes payable 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 5).
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED APRIL 30, 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 a net loss of $9,816,408 and negative cash flows from operations of $1,296,364 for the six months
ended April 30, 2020. At April 30, 2020, the Company had a working capital deficit of $174,754, and an accumulated deficit
of $38,310,998. 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: PREPAID EXPENSES
Prepaid expenses total $507,071 and $65,749
at April 30, 2020 and October 31, 2019, respectively, and consist mainly of prepaid advertising, prepaid insurance, and deposits
on purchases.
NOTE
5: 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.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED APRIL 30, 2020 AND 2019
(UNAUDITED)
NOTE
5: LEASES (continued)
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 April 30, 2020.
For
the three and six months ended April 30, 2020, the Company had operating lease costs of $21,362 and $42,723, respectively, which
are included in general and administrative expenses in the unaudited consolidated statements of operations. For the three and
six months ended April 30, 2020, the Company made operating lease cash payments of $22,486 and $44,749, respectively, which are
included in cash flows from operating activities in the unaudited consolidated statements of cash flows.
At
April 30, 2020, the remaining lease term is 20 months and the discount rate is 5%. Future annual minimum cash payments required
under this operating type lease as of April 30, 2020 are as follows:
Future Minimum Lease Payments:
|
|
|
|
Remainder of fiscal year 2020
|
|
$
|
45,862
|
|
2021
|
|
|
93,329
|
|
2022
|
|
|
15,745
|
|
Total Minimum Lease Payments
|
|
$
|
154,936
|
|
Less: amount representing interest
|
|
|
(6,621
|
)
|
Present Value of Lease Liabilities
|
|
$
|
148,315
|
|
Less: current portion
|
|
|
(86,496
|
)
|
Long-Term Portion
|
|
$
|
61,819
|
|
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 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 10). 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
|
|
April 30,
2020
|
|
|
October 31,
2019
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
MLB license
|
|
32 months
|
|
$
|
357,027
|
|
|
$
|
357,027
|
|
Customer contracts
|
|
7 years
|
|
|
544,630
|
|
|
|
544,630
|
|
Accumulated amortization
|
|
|
|
|
(183,686
|
)
|
|
|
(63,950
|
)
|
Intangible assets, net
|
|
|
|
$
|
717,971
|
|
|
$
|
837,707
|
|
As
a result of the COVID-19 pandemic, we have considered its potential impact on our global supply chain, operations and routes to
market or those of our suppliers, customers, distributors and retailers. Based on our analysis, we have determined there is currently
no indication that the carrying amounts of our MLB License and acquired customer contracts are impaired and not fully recoverable,
and therefore no impairment exists at April 30, 2020.
Amortization
expense for the three and six months ended April 30, 2020 was $53,233 and $119,736, respectively. There was no amortization expense
during the three and six months ended April 30, 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
|
|
$
|
106,465
|
|
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 SIX MONTHS ENDED APRIL 30, 2020 AND 2019
(UNAUDITED)
NOTE
7: 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
|
|
|
For the Six Months Ended
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
United Arab Emirates
|
|
$
|
3,592,222
|
|
|
$
|
2,084,506
|
|
|
$
|
8,499,065
|
|
|
$
|
3,820,170
|
|
Oman
|
|
|
437,047
|
|
|
|
198,732
|
|
|
|
1,036,627
|
|
|
|
398,251
|
|
Kingdom of Saudi Arabia
|
|
|
376,208
|
|
|
|
463,737
|
|
|
|
693,313
|
|
|
|
660,385
|
|
Bahrain
|
|
|
217,423
|
|
|
|
195,460
|
|
|
|
567,557
|
|
|
|
507,449
|
|
United States
|
|
|
24,986
|
|
|
|
-
|
|
|
|
24,986
|
|
|
|
-
|
|
Revenue
|
|
$
|
4,647,886
|
|
|
$
|
2,942,435
|
|
|
$
|
10,821,548
|
|
|
$
|
5,386,255
|
|
NOTE
8: 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.
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.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED APRIL 30, 2020 AND 2019
(UNAUDITED)
NOTE
8: DEBT (continued)
On
February 10, 2020, the Company issued and sold a convertible promissory note to an accredited investor in the principal amount
of $420,000 (including a $70,000 original issuance discount). The note matures on November 10, 2020, bears 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 with certain prepayment
penalties as defined in the note.
On
April 8, 2020, the Company entered into Amendment #1 to the convertible notes dated September 13, 2019 in the aggregate principal
amount of $660,000 (including an aggregate of $110,000 in original issuance discounts), amending the conversion price. As a result
of this amendment, an aggregate beneficial conversion feature of $598,888 was recognized based upon the intrinsic value of the
conversion option as a discount of the convertible notes, which will be amortized to interest expense through the maturity dates.
On various dates through April 30, 2020, an aggregate of $138,000 of the outstanding principal and $674 of accrued interest
was converted into an aggregate of 25,029,712 shares of the Company’s common stock.
On
April 21, 2020, the Company entered into Amendment #1 to the convertible note dated October 2, 2019 in the principal amount of
$345,000 (including a $45,000 original issuance discount), amending the conversion price. As a result of this amendment, a beneficial
conversion feature of $231,274 was recognized 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 April 21, 2020, $50,000 of the outstanding principal
and $1,660 of accrued interest was converted into 6,833,369 shares of the Company’s common stock.
On
April 29, 2020, the Company issued and sold a convertible promissory note to an accredited investor in the principal amount of
$165,000 (including a $15,000 original issuance discount). The note matures on April 29, 2021, bears interest at a rate of 8%
per annum, (increasing to 18% 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 $0.02 per share, subject to adjustment. The note may
be prepaid by the Company at any time prior to the maturity date of the Note with certain prepayment penalties as defined in the
note.
At
April 30, 2020 and October 31, 2019, there was $1,092,524 and $1,378,855 of convertible notes payable outstanding, net
of discounts and beneficial conversion features of $916,475 and $231,146, respectively.
During
the six months ended April 30, 2020 and 2019, amortization of debt discount, issuance costs, and beneficial conversion features
amounted to $398,969 and $702,376, respectively.
During
the six months ended April 30, 2020, an aggregate of $809,276 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 six months ended April 30, 2019, an aggregate of $1,485,633 of convertible notes,
including accrued interest, were converted into shares of the Company’s common stock and there were payments of an aggregate
of $1,118,049 toward the outstanding balances of convertible notes.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED APRIL 30, 2020 AND 2019
(UNAUDITED)
NOTE
8: DEBT (continued)
Notes
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 April 30, 2020, the Company expects to repay the Monaco Note in full as quickly as possible based upon its available
capital.
On
March 31, 2020, the Company issued and sold a promissory note to an accredited investor in the principal amount of $312,500 (including
a $62,500 original issuance discount). The note matures on July 1, 2020, bears interest at a rate of 4% per annum, (increasing
to 18% per annum upon the occurrence of an Event of Default (as defined in the note)) and provides a security interest in all
of the Company’s equity ownership interest in its wholly owned subsidiary, Big League Foods, Inc. The note may be prepaid
by the Company at any time prior to the maturity date with no prepayment penalties.
On
April 23, 2020, the Company entered into a promissory note with an approved lender in the principal amount of $104,479. The note
was approved under the provisions of the Coronavirus, Aid, Relief and Economic Security Act (the “CARES Act”) and
the terms of the Paycheck Protection Program of the U.S. Small Business Administration’s 7(a) Loan Program. The note accrues
interest for the first six months following the issuance date at a rate of 1% per annum, (increasing to 6% per annum upon the
occurrence of an Event of Default (as defined in the note)), and beginning November 23, 2020, requires 18 monthly payments of
$5,880 each, consisting of principal and interest until paid in full on April 23, 2022. The note may be prepaid by the Company
at any time prior to the maturity date with no prepayment penalties. Additionally, any portion of the note up to the entire principal
and accrued interest balance may be forgiven in the event the Company satisfies certain requirements as determined by the CARES
Act. The Company expects to satisfy the requirements for forgiveness of the entire principal and accrued interest balance and
will apply for such forgiveness by the deadline.
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 (3.30% at April 30, 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
April 30, 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 April 30, 2020.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED APRIL 30, 2020 AND 2019
(UNAUDITED)
NOTE
9: 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 2,422,390,263 are outstanding at April 30,
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 April 30, 2020, (B) 1,000,000 shares have been designated
as Series B Convertible Preferred Stock, of which no shares are outstanding at April 30, 2020 and (C) 1,000,000 have been designated
as Series C Convertible Preferred Stock, of which 430,801 shares are outstanding at April 30, 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.
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 six months ended April 30, 2020, the Company:
|
●
|
issued
113,486,252 shares of its common stock valued at $2,363,212 as repayment for outstanding principal and interest on convertible
promissory notes as requested by the note holders in accordance with contractual terms.
|
|
|
|
|
●
|
issued
3,125,500 shares of its common stock 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 $97,500 of stock-based compensation
expense during the six months ended April 30, 2020, related to this common stock grant.
|
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED APRIL 30, 2020 AND 2019
(UNAUDITED)
NOTE
9: STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
Common
Stock Warrants
On
April 29, 2020, the Company entered into an amended and restated employment agreement (the “2020 Employment Agreement”)
with its Chief Executive Officer, whereby the 2020 Employment Agreement amended and restated the prior employment agreement dated
January 31, 2017 (the “2017 Agreement”).
Under
the provisions of the 2017 Agreement, the Company was committed to issue warrants to its Chief Executive Officer 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.
|
These
provisions were amended and replaced in the 2020 Employment Agreement with the one-time grant of warrants to purchase 471,883,795
shares of the Company’s common stock at an exercise price of $0.006 per share. This one-time grant of warrants increased
the Chief Executive Officer’s ownership to 20% of the Company’s common stock on a fully diluted basis, which is consistent
with the intentions of the Company’s Board of Directors and with the Company’s former management.
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 six months ended April 30, 2020:
Expected volatility
|
|
|
194.54% - 399.10
|
%
|
Weighted-average volatility
|
|
|
122.01
|
%
|
Expected dividends
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
5.0
|
|
Risk-free rate
|
|
|
0.37% - 1.57
|
%
|
During
the six months ended April 30, 2020, the grant date fair value of the warrants earned was $8,859,550.
The
following table sets forth common share purchase warrants outstanding at April 30, 2020:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Value
|
|
Outstanding, October 31, 2019
|
|
|
725,705,000
|
|
|
$
|
0.003
|
|
|
$
|
-
|
|
Warrants granted and issued
|
|
|
586,057,150
|
|
|
$
|
0.006
|
|
|
$
|
-
|
|
Warrants exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Warrants forfeited
|
|
|
(2,205,000
|
)
|
|
$
|
(0.066
|
)
|
|
$
|
-
|
|
Outstanding, April 30, 2020
|
|
|
1,309,557,150
|
|
|
$
|
0.005
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuable upon exercise of warrants
|
|
|
1,309,557,150
|
|
|
$
|
0.005
|
|
|
$
|
-
|
|
|
|
|
|
|
|
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 April 30,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
at April 30,
|
|
|
Exercise
|
|
Prices
|
|
|
2020
|
|
|
Life (Years)
|
|
|
Price
|
|
|
2020
|
|
|
Price
|
|
$
|
0.0025
|
|
|
|
580,000,000
|
|
|
|
1.85
|
|
|
$
|
0.0025
|
|
|
|
580,000,000
|
|
|
$
|
0.0025
|
|
$
|
0.0060
|
|
|
|
728,557,150
|
|
|
|
0.85
|
|
|
$
|
0.0060
|
|
|
|
728,557,150
|
|
|
$
|
0.0060
|
|
$
|
0.0500
|
|
|
|
1,000,000
|
|
|
|
0.67
|
|
|
$
|
0.0500
|
|
|
|
1,000,000
|
|
|
$
|
0.0500
|
|
|
|
|
|
|
1,309,557,150
|
|
|
|
1.29
|
|
|
$
|
0.0050
|
|
|
|
1,309,557,150
|
|
|
$
|
0.0050
|
|
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED APRIL 30, 2020 AND 2019
(UNAUDITED)
NOTE
10: COMMITMENTS AND CONTINGENCIES
Binding
Acquisition Agreement
On
April 3, 2020, the Company entered into a binding agreement (“Acquisition Agreement”) with ZC Top Apparel Manufacturing
(“ZC Top”), which was confirmed and superseded by a Securities Purchase Agreement on May 8, 2020 (the “May 8,
2020 Agreement”), wherein the Company acquired a controlling 51% interest of the issued and outstanding common voting shares
of ZC Top (the “Majority Interest”). The purchase price for the Majority Interest was $100,000, which was paid by
the Company and additional working capital can be provided by the Company when needed, from time to time, in the form of purchase
financing, letters of credit, bank guarantees, merchant cash advances or any other structure that may be required to facilitate
the business. ZC Top is a Philippines-based maker of highly sought-after reusable N95 fabric masks and biohazard suits.
License
Contingent Consideration
As
described in Note 6, 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 April 30, 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 April 30, 2020, the Company’s total expected future obligation related
to these guaranteed minimum payments was $1,133,333, of which the Company expects to pay $265,000 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 April 30, 2020 relating to these guaranteed minimum payments totaled $401,667 and are included in accounts payable
and accrued expenses.
NOTE
11: 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 SIX MONTHS ENDED APRIL 30, 2020 AND 2019
(UNAUDITED)
NOTE
12: ACQUISITION TERMINATION
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.
NOTE
13: SUBSEQUENT EVENTS
Subsequent
to April 30, 2020, an aggregate of $591,381 of principal and accrued interest have been converted into 158,544,788 shares
of the Company’s common stock.
On
May 8, 2020, the Company entered into a Securities Purchase Agreement (the “May 8, 2020 Agreement”) with ZC Top Apparel
Manufacturing (“ZC Top”) which confirmed and superseded a binding agreement dated April 3, 2020 (the “Acquisition
Agreement”) wherein the Company acquired a controlling 51% interest of the issued and outstanding common voting shares of
ZC Top (the “Majority Interest”). The purchase price for the Majority Interest was $100,000, which was paid by the
Company. Additional working capital can be provided by the Company when needed, from time to time, in the form of purchase financing,
letters of credit, bank guarantees, merchant cash advances or any other structure that may be required to facilitate the business.
ZC Top is a Philippines-based maker of highly sought-after reusable N95 fabric masks and biohazard suits.
On
May 28, 2020, the Company issued 12,500,000 shares of its common stock related to the conversion of 12,500,000 shares of its Series
A Convertible Preferred stock.
PART
II- INFORMATION NOT REQUIRED IN PROSPECTUS
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
|
|
$
|
179
|
|
Printing
expenses
|
|
$
|
10,000
|
|
Accounting
fees and expenses
|
|
$
|
3,000
|
|
Legal
fees and expenses
|
|
$
|
10,000
|
|
Blue
sky fees
|
|
$
|
10,000
|
|
Miscellaneous
|
|
$
|
1,351
|
|
Total
|
|
$
|
34,530
|
|
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
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
RECENT
SALES OF UNREGISTERED SECURITIES
Unless
otherwise indicated, the foregoing securities were offered, sold 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. Purchasers were “accredited investors” and/or “sophisticated investors”
pursuant to Section 501(a)(b) of the Securities Act, who provided the Company with representations, warranties and information
concerning their respective qualifications as “sophisticated investors” and/or “accredited investors.”
The Company provided and made available to purchasers full information regarding its business and operations. There was no general
solicitation in connection with the offer or sale of the restricted securities. Purchasers acquired the restricted common stock
for their own account, for investment purposes and not with a view to public resale or distribution thereof within the meaning
of the Securities Act. The restricted shares cannot be sold unless pursuant to an effective registration statement by the Company,
or by an exemption from registration requirements of Section 5 of the Securities Act—the existence of any such exemption
subject to legal review and approval by the Company.
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 15,098,054 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
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.
On
May 12, 2020, the Company issued a convertible promissory note in the principal amount of $153,000.
On
May 28, 2020, the company issued 12,500,000 shares of Common Stock upon the conversion of outstanding Series A Convertible Preferred
Stock.
In
May 2020, the Company issued 111,876,878 shares of Common Stock upon the conversion of outstanding convertible notes.
On
June 1, 2020, 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.
In
June 2020, the Company issued 162,777,308 shares of Common Stock upon the conversion of outstanding convertible notes.
On
July 14, 2020, the Company issued a convertible promissory note in the principal amount of $63,000.
In
July 2020, the Company issued 110,644,441 shares of Common Stock upon the conversion of outstanding convertible notes.
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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.
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.
(2)
|
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.
|
|
|
(3)
|
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.
|