PART
I
ITEM
1. BUSINESS
Overview
Until
July 31, 2018, we operated a real estate segment which generated revenue from service fees (for video creation and production
and website hosting (ReachFactor)) and product sales (Nestbuilder Agent 2.0 and Microvideo app). The real estate segment was formed
through the merging of three divisions: (i) our fully licensed real estate division (formerly known as Webdigs); (ii) our television
media contracts division (Home Preview Channel /Extraordinary Vacation Homes); and (iii) our Real Estate Virtual Tour and Media
group division (RealBiz 360). The assets of these divisions were used to create a new suite of real estate products and services
that created stickiness through the utilization of video, social media and loyalty programs. At the core of our programs was our
proprietary video creation technology which allowed for an automated conversion of data (text and pictures of home listings) to
a video with voice and music. We provided video search, storage and marketing capabilities on multiple platform dynamics for web,
mobile and television. Once a home, personal or community video was created using our proprietary technology, it could be published
to social media, emailed or distributed to multiple real estate websites, broadband or television for consumer viewing.
We
entered into a Contribution and Spin-off Agreement with NestBuilder.com Corp., a Nevada corporation (“NestBuilder”),
on October 27, 2017, as amended on January 28, 2018, whereby, effective as of August 1, 2018, we spun off our real estate division
into NestBuilder. Since August 1, 2018, we, through our wholly-owned subsidiary, Verus Foods, Inc. (“Verus Foods”),
an international supplier of consumer food products, are 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 brand primarily to supermarkets, hotels and other members of the wholesale trade. Initially, in 2017,
we focused on frozen foods, particularly meat, poultry, seafood, vegetables, and french fries with beverages as a second vertical.
During 2018, we added cold-storage facilities, and began seeking international sources for fresh fruit, produce and similar
perishables, as well as other consumer packaged foodstuff with the goal to create vertical farm-to-market operations. Verus
has also begun to explore new consumer packaged goods (“CPG”) non-food categories, such as cosmetic and fragrances,
for future product offerings.
We
currently have a significant regional presence in the Middle East and North Africa (“MENA”) and sub-Saharan Africa
(excluding The Office of Foreign Assets Control restricted nations), with deep roots in the Gulf Cooperation Council (“GCC”)
countries, which includes the United Arab Emirates (“UAE”), 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
December 2016, Verus Foods entered into a sales contract pursuant to which Verus Foods may sell certain meat products for an aggregate
sale price of up to approximately $79 million. As of October 31, 2018, the Company has sold approximately $8,200,000 in
products pursuant to the sales contract. In addition, in August 2017, Verus Foods entered into a two-year exclusive distribution
agreement whereby Verus Foods will purchase certain Disney-branded juice products and will distribute the same in the UAE and
Oman.
Government
Regulation
We
are subject to the laws and regulations in the countries in which we operate.
Our
food products are subject to local, national and multinational regulations related to labeling, health and nutrition claims, packaging,
pricing, marketing and advertising, privacy and related areas. In addition, various jurisdictions regulate our operations by licensing
and inspecting the manufacturing plants and facilities of our suppliers, enforcing standards for select food products, grading
food products, and regulating trade practices related to the sale and pricing of our food products. Many of the food commodities
we use in our operations are subject to government agricultural policy and intervention. These policies have substantial effects
on prices and supplies and are subject to periodic governmental review.
Examples
of laws and regulations that affect our business include selective food taxes, labeling requirements such as front-of-pack labeling
and nutrient profiling, marketing restrictions, potential withdrawal of trade concessions as dispute settlement retaliation and
sanctions on sales or sourcing of raw materials. We will continue to monitor developments in laws and regulations.
In
addition
, we are subject to U.S. and foreign anti-corruption
laws including the Foreign Corrupt Practices Act (“FCPA”) which
prohibits us from providing
anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage.
We are also subject to the Export Sales Reporting Program of the United States Department of Agriculture (“USDA”)
which monitors U.S. agricultural export sales on a daily and weekly basis. The program requires U.S. exporters to report sales
of certain commodities to the Foreign Agricultural Service of the USDA on a weekly basis. Commodities currently covered by the
program include wheat, wheat products, barley, corn, grain sorghum, oats, rye, rice, soybeans, soybean cake and meal, soybean
oil, cotton, cottonseed, cottonseed cake and meal, cottonseed oil, sunflowerseed oil, flaxseed, linseed oil, cattle hides and
skins, beef and pork. In addition to the weekly requirement, daily reporting is required when a single exporter sells 100,000
metric tons or more of wheat, corn, grain sorghum, barley, oats, soybeans, soybean cake or soybean meal, or 20,000 metric tons
or more of soybean oil, to a single destination on a single day. In addition to the foregoing, we must comply with The Office
of Foreign Assets Control trade sanctions. The Office of Foreign Assets Control (“OFAC”) of the U.S. Department of
Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals targeted
against foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to
the proliferation of weapons of mass destruction and other threats to national security, foreign policy or economy of the United
Stated.
Our
failure to comply with any of the foregoing regulations or regulations that 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.
Market
and Competition
We
generate a majority of our revenue from food imported into the GCC countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and
the United Arab Emirates. The GCC has highly developed wholesale, grocery, and retail infrastructures that attract thousands of
brands from around the world. According to A.T. Kearney, there are approximately 600 food distributors in the GCC.
According to a 2017 report published by Alpen Capital, food imports into the GCC are expected to reach $53.1 billion by 2020.
In addition, according to Global Islamic Economy Gateway, imports account for about 78% of food consumed in the GCC.
In
the branded product space, management believes that our key competitors include The Savola Group and Almarai which are based in
Saudi Arabia; Americana Quality which is based in Kuwait; and Al Islami Foods which is based in the UAE, which currently ranks
as the world’s largest Halal food vendor, with more than 80 frozen and specialty lines. In addition to the foregoing, we
also compete with recognized international brands from multi-line companies such as Nestle and Mondelez International.
Although
many of our competitors have greater financial, distribution and marketing resources than us, management believes there are many
food categories and niches in which we can successfully compete in this highly-fragmented market. In addition, we focus on the
regional sensitivities and dietary requirements of the markets we export products to. We offer both Verus Foods-branded products
along with products from other brands, particularly from brands that desire to enter the GCC market, but lack the infrastructure
or resources to do so. In addition to the foregoing, management believes that we are one of the only U.S. based public companies
operating in the GCC that can provide its own branded products and also act as a distributor for other brands across all of the
major food sales categories. Management believes that a majority of the suppliers in this space are either non-U.S. based, private
companies or are public entities with a narrow focus on their own brands.
Employees
As
of March 13, 2019, the Company had 4 full-time employees and 5 part-time employees.
Corporate
History
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.
We
entered into a Contribution and Spin-off Agreement with NestBuilder on October 27, 2017, as amended on January 28, 2018, whereby,
effective as of August 1, 2018, we spun off our real estate division into NestBuilder. All of our stockholders as of July 2, 2018,
the record date, which held their shares as of July 20, 2018, the ex-dividend date, received one share of NestBuilder common stock
for each 900 shares of our Company owned.
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.
Effective
October 16, 2018, we changed our name from RealBiz Media Group, Inc. to Verus International, Inc. and our ticker symbol to “VRUS”.
ITEM
1A. RISK FACTORS
An
investment in our securities involves significant risks. Before deciding to invest in our securities, you should carefully consider
each of the following risk factors and all of the other information set forth in this document. Our business and results of operations
could be seriously harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks
and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results. If any of the following events occur, our business, financial condition
and results of operations could be materially adversely affected. In such case, the value and trading price of our common stock
could decline, and you may lose all or part of your investment.
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. The Company has not yet achieved positive cash flow
on a monthly basis during any fiscal year including the current fiscal year ended October 31, 2018 and there is significant risk
to the survival of the Company.
There
is substantial doubt about our ability to continue as a going concern.
We
have had net losses of $2,842,292 and $1,278,209 for the years ended October 31, 2018 and 2017, respectively. Furthermore,
we had a working capital deficit of $1,573,851 as of October 31, 2018. Since the financial statements were prepared assuming
that we would continue as a going concern, these conditions coupled with our current liquidity position raise substantial doubt
about our ability to continue as a going concern. Furthermore, since we are pursuing new products and services, this diminishes
our ability to accurately forecast our revenues and expenses. We expect that our ability to continue as a going concern depends,
in large part, on our ability to generate sufficient revenues, limit our expenses and/or obtain necessary financing. If we are
unable to generate sufficient revenues, limit our expenses and/or obtain necessary financing, we may be forced to curtail or cease
operations.
We
will require additional financing in the future to fund 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. If we are unable to raise additional capital when required or on acceptable terms,
we may have to significantly delay, scale back or discontinue 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, 2018, approximately 84% of accounts receivable were concentrated with six customers and approximately
64% of revenues were concentrated with five customers. We expect that our top six and five
customers
will begin to account for a less significant portion of our accounts receivable and revenues, respectively, for the foreseeable future due to
product expansion with different customers. For the year ended October 31, 2017, approximately 64% of accounts receivable were
concentrated with four customers and approximately 60% of revenues were concentrated with four customers. The loss of one
or more of our top four 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 markets and expand our business into other geographic markets.
Our
ability to maintain and expand our existing markets for our products, and to establish markets in new geographic distribution
areas, 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 not adequately perform their functions by, among other things,
failing to distribute our products or positioning our products in localities that may not be receptive to our products. 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 employ sufficient efforts in managing and selling our products, our sales and results of operations could be adversely
affected. Furthermore, such third-parties’ financial position or market share may deteriorate, which could adversely affect
the distribution, marketing and sales activities related to our products.
Our
ability to maintain and expand our distribution network and attract additional distributors and retailers will depend 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 geographic areas of distribution
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 correctly 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 would adversely affect 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, either on a timely basis or at all, 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 on 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. If we are unable to commercialize new products, our revenue
may not grow as expected, which would adversely affect 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 are forced, or voluntarily
elect, to recall certain products, the public perception of the quality of our food 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 would
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.
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 U.S. and foreign 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 the U.S. government and various foreign
jurisdictions, which place restrictions on our operations, trade practices, partners and investment decisions. In particular,
our operations are subject to U.S. and foreign 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 must comply with 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 were
unable to fully 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 can not 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. A
ny
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 pricing 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 and easier access to funding 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 must 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 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 face these types of claims and proceedings
and, even if we are successful in defending these 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
have identified a material weakness in our internal control over financial reporting that could, if not remediated, result in
material misstatements in our financial statements.
In
connection with the audit of our consolidated financial statements as of and for the year ended October 31, 2018, we have concluded
that there is a material weakness relating to our internal control over financial reporting. A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that
a material misstatement of the company’s annual or interim consolidated financial statements will not be prevented or detected
on a timely basis.
Specifically,
we identified a material weakness relating to the lack of segregation of duties due to the small size of our accounting staff.
Although we need to take measures to fully mitigate such material weakness, the measures we have taken, and expect to take, to
improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are
effective or to ensure that the identified material weakness will not result in a material misstatement of our annual or interim
consolidated financial statements. If we are unable to correct material weaknesses or deficiencies in internal controls in a timely
manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified
in the rules and forms of the SEC, will be adversely affected. This failure could negatively affect the market price and trading
liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and
criminal investigations and penalties, and materially and adversely impact our business and financial condition.
Certain
provisions of the Delaware General Corporation Law (“DGCL”), our Amended and Restated Certificate of Incorporation,
as amended (“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 future 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.
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, the 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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Our
management controls a large block of our voting capital stock that will allow them to control us.
As
of March 13, 2019, members of our management team beneficially own approximately 65.32% of our outstanding voting capital.
As a result, management may have the ability to control substantially all matters submitted to our stockholders for approval including:
|
●
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election
of our board of directors;
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●
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removal
of any of our directors;
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●
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amendment
of our Certificate of Incorporation or Bylaws; and
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adoption
of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving
us.
|
In
addition, management’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting
to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over
our stock price. Any additional investors will own a minority percentage of our voting capital stock and will have minority voting
rights.
Risks
Relating to Our Securities
Our
Certificate of Incorporation grants our board of directors, without any action or approval by our stockholders, the power to designate
and issue preferred stock with rights, preferences and privileges that may be adverse to the rights of the holders of our common
stock.
The
total number of shares of all classes of stock that the Company has the authority to issue is 1,625,000,000 shares consisting
of: (i) 1,500,000,000 shares of common stock, par value $0.001, of which 1,500,000,000 shares are issued and outstanding
as of March 13, 2019 and (ii) 125,000,000 shares of preferred stock, par value $0.001 per share of which (A) 120,000,000
shares have been designated as Series A Convertible Preferred Stock, of which 44,570,101 are outstanding as of March 13,
2019 (B) 1,000,000 shares have been designated as Series B Convertible Preferred Stock, none of which are outstanding as of March
13, 2019 and (C) 1,000,000 have been designated as Series C Convertible Preferred Stock, of which 455,801 shares are outstanding
as of March 13, 2019. Each share of common stock is entitled to cast one vote per share on all matters submitted to holders
of common stock, each share of Series A Preferred Stock is entitled to cast 0.05 vote per share on matters submitted to the holders
of common stock, and each share of Series C Preferred Stock is entitled to cast 10,000 votes per share on matters submitted to
the holders of common stock.
Pursuant
to authority granted by our Certificate of Incorporation and applicable state law, our board of directors, without any action
or approval by our stockholders, may issue
preferred stock 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 rights of holders of other
classes or series of capital stock, including preferred stock that may be issued could be superior to the rights of the holders
of shares of our common stock. The designation and issuance of shares of capital stock having preferential rights could materially
adversely affect
the rights of the holders of our common stock.
In addition, any
issuances of additional capital stock (common or preferred) will dilute the percentage of ownership interest of our stockholders.
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 Securities Exchange Act of 1934 (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
are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable
to emerging growth companies, which could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”)
and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not “emerging growth companies” including not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations
regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding
a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage
of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting
standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. We cannot predict if investors will find our common stock less attractive
because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less
active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting
exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company”
until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more;
(ii) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering; (iii) the
date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on
which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
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 OTC Pink 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 OTC Pink and subject to the reporting requirements of the 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 OTC Pink. If we fail
to remain current in our reporting requirements, we could be removed from the OTC Pink. 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
in this Annual Report, 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 and wide bid-ask spreads. These fluctuations may have a negative effect on the market price of our common
stock. In addition, the securities market has, 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 affect
the market price of our common stock.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM
2. PROPERTIES
On
April 11, 2017, we entered into a sublease with Buchanan Partners, LLC, pursuant to which we lease offices at 9841 Washingtonian
Blvd, #390, Gaithersburg, MD 20878. We currently lease our office which consists of 2,798 square feet for $7,204.85 per month.
Each year, our rent will increase by approximately 3% such that: (i) from April 1, 2019 until March 2020, we will pay $7,421.00
per month; (ii) from April 1, 2020 until March 2021, we will pay $7,643.63 per month; and (iii) from April 1, 2021 until December
31, 2021, we will pay $7,872.93 per month. The term of the lease shall expire on December 31, 2021.
ITEM
3. LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse result in matters may arise from time to time that may harm our
business. As of the date of this report, except as set forth herein, management believes that there are no claims against us,
which it believes will result in a material adverse effect on our business or financial condition.
On
May 11, 2016, we filed a lawsuit in the United States District Court for the Southern District of Florida against Monaker seeking
collection of the balance owed to us, in the amount of $1,287,517, for advances on operating expenses and various debt obligation
conversions to and from Monaker and the Company. On December 22, 2017, we entered into a settlement agreement (the “Settlement
Agreement”) pursuant to which Monaker paid NestBuilder funds as part of the settlement, and we filed a joint stipulation
of dismissal with prejudice with respect to the lawsuit.
In
December 2016, Monaker filed a lawsuit against us in Eleventh Circuit Federal Court seeking an injunction against our action to
cancel 44,470,101 shares of Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”)
and 10,559,890 shares of common stock which were issued to Monaker. In addition, Monaker sought to reverse the cancellation of
such shares in their entirety. On January 15, 2017, the Court denied Monaker’s motion for a preliminary injunction. Pursuant
to the terms of the Settlement Agreement, we agreed to issue Monaker 44,470,101 shares of Series A Preferred Stock and 10,559,890
shares of common stock and we filed a joint stipulation of dismissal with prejudice with respect to the lawsuit.
On
April 5, 2017, Alex Aliksanyan filed a lawsuit against us in the Circuit Court of Maryland seeking injunctive relief compelling
the spin-off of the assets of our former real estate division. A trial was held on August 30, 2017, after which the court ordered
us to proceed with the spin-off and denied other claims. We entered into a Contribution and Spin-off Agreement with NestBuilder
on October 27, 2017, as amended on January 28, 2018, whereby, effective as of August 1, 2018, we spun off our real estate division
into NestBuilder. All of our stockholders as of July 2, 2018, the record date, which held their shares as of July 20, 2018, the
ex-dividend date, received one share of NestBuilder common stock for each 900 shares of our Company owned. The judgment has been
satisfied and the matter was dismissed on February 13, 2018.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
1: ORGANIZATION AND NATURE OF BUSINESS
Organization
and Nature of Business
We
were incorporated in the state of Delaware under the name Spectrum Gaming Ventures, Inc. on May 25, 1994. On October 10, 1995,
we changed our name to Select Video, Inc. On October 24, 2007, we filed a Certificate of Ownership with the Delaware Secretary
of State whereby Webdigs, Inc., our wholly-owned subsidiary, was merged with and into us and we changed our name to Webdigs, Inc.
On
October 9, 2012, we consummated a share exchange (the “Exchange Transaction”) with Monaker Group, Inc. (formerly known
as Next 1 Interactive, Inc.), a Nevada corporation (“Monaker”) pursuant to which we received all of the outstanding
equity in Attaché Travel International, Inc., a Florida corporation and wholly owned subsidiary of Monaker (“Attaché”)
in consideration for the issuance of 93 million shares of our newly designated Series A Convertible Preferred Stock to Monaker.
Attaché owned approximately 80% of a corporation named RealBiz Holdings Inc. which is the parent corporation of RealBiz
360, Inc. (“RealBiz”). As a condition to the closing of the Exchange Transaction, on October 3, 2012, we filed a Certificate
of Ownership with the Delaware Secretary of State whereby RealBiz Media Group, Inc., our wholly-owned subsidiary, was merged with
and into us and we changed our name to RealBiz Media Group, Inc.
On
May 1, 2018, Verus Foods MENA Limited (“Verus MENA”)
entered into a Share Purchase and Sale Agreement with a purchaser (the “Purchaser”) pursuant to which Verus MENA
sold 75 shares (the “Gulf Agro Shares”) of Gulf Agro Trading, LLC (“Gulf Agro”), representing 25%
of the common stock of Gulf Agro, to the Purchaser. In consideration for the Gulf Agro Shares, the Purchaser
was assigned certain contracts executed during a specified period of time. Upon the consummation of the transaction
contemplated by the Share Purchase and Sale Agreement, the Purchaser obtained a broader license for product distribution.
All liabilities of Gulf Agro remained with Gulf Agro.
Until
July 31, 2018, we operated a real estate segment which generated
revenue from service fees (for video creation and production and website hosting (ReachFactor)) and product sales (Nestbuilder
Agent 2.0 and Microvideo app). The real estate segment was formed through the merging of three divisions: (i) our fully licensed
real estate division (formerly known as Webdigs); (ii) our television media contracts division (Home Preview Channel
/Extraordinary Vacation Homes); and (iii) our Real Estate Virtual Tour and Media group division (RealBiz 360). The
assets of these divisions were used to create a new suite of real estate products and services that created stickiness through
the utilization of video, social media and loyalty programs. At the core of our programs was our proprietary video creation technology
which allowed for an automated conversion of data (text and pictures of home listings) to a video with voice and music. We provided
video search, storage and marketing capabilities on multiple platform dynamics for web, mobile and television. Once a home,
personal or community video was created using our proprietary technology, it could be published to social media, emailed
or distributed to multiple real estate websites, broadband or television for consumer viewing.
We
entered into a Contribution and Spin-off Agreement with NestBuilder.com Corp. (“NestBuilder”) on October 27,
2017, as amended on January 28, 2018, whereby, effective as of August 1, 2018, we spun off our real estate division into NestBuilder.
All of our stockholders as of July 2, 2018, the record date, which held their shares as of July 20, 2018, the ex-dividend date,
received one share of NestBuilder common stock for each 900 shares of our Company owned. As a result of the spin-off of the real
estate segment, all related assets and liabilities are disclosed net as current assets and current liabilities within the consolidated
balance sheets, and all related income and expenses are disclosed net as income (loss) from discontinued operations within the
consolidated statements of operations and comprehensive income (loss).
Since
August 1, 2018,
we, through our wholly-owned subsidiary, Verus Foods, Inc. (“Verus Foods”),
an international supplier of consumer food products, are 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 brand primarily to supermarkets, hotels and other members of the wholesale trade. Initially, in 2017,
we focused on frozen foods, particularly meat, poultry, seafood, vegetables, and french fries with beverages as a second vertical.
During 2018, we added cold-storage facilities, and began seeking international sources for fresh fruit, produce and similar
perishables, as well as other consumer packaged foodstuff, with the goal to create vertical farm-to-market operations.
Verus has also begun to explore new consumer packaged goods (“CPG”) non-food categories, such as cosmetic and fragrances,
for future product offerings.
We
currently have a significant regional presence in the Middle East and North Africa (“MENA”) and sub-Saharan Africa
(excluding The Office of Foreign Assets Control restricted nations), with deep roots in the Gulf Cooperation Council (“GCC”)
countries, which includes the United Arab Emirates, Oman, Bahrain, Qatar, Kingdom of Saudi Arabia and Kuwait. The Company’s
long-term goal is to source goods and generate international wholesale and retail CPG sales in North and South America,
Europe, Africa, Asia and Australia.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Consolidation
The
consolidated financial statements for the years ended October 31, 2018 and 2017 include the operations of Verus MENA effective
May 1, 2018, Verus
Foods, Inc.
effective January
2017, and Gulf Agro Trading, LLC through April 30, 2018 (see Note 15). The historical operations of subsidiaries
RealBiz 360 Enterprise (Canada), Inc., RealBiz 360, Inc., and its wholly-owned subsidiary, Webdigs, LLC, which includes the dormant
wholly owned subsidiaries of Home Equity Advisors, LLC, and Credit Garage, LLC from the recapitalization date of October 9, 2012
are reported as discontinued operations for all periods presented through July 31, 2018 (see Note 15). All significant
intercompany accounts and transactions have been eliminated in the consolidation.
Reclassifications
Certain
reclassifications have been made to prior year’s consolidated financial statements to enhance comparability with the current
year’s consolidated financial statements, including, but not limited to presenting the spin-off of the real estate
segment as discontinued operations for all periods presented.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported
amounts of revenues and expenses during 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, valuation of derivative liabilities,
stock-based compensation, and the deferred tax asset valuation allowance.
Concentrations
of Credit Risk
The
Company’s food products accounts receivable, net and revenues as of and for the year ended October 31, 2018 were geographically
concentrated with customers located in the GCC countries. In addition, significant concentrations existed with a limited number
of customers. Approximately 84
% of accounts receivable, net as of October 31, 2018 was concentrated
with six customers and approximately 64% of revenues for the year ended October 31, 2018 were concentrated with
five customers. The loss of one or more of our top four 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.
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 were unable to fully offset the effect of these increased costs through price increases, and we can provide no assurance that
we will be able to pass along such increased costs to our customers. Furthermore, if we cannot obtain sufficient food products
or our suppliers cease to be available to us, we could experience shortages in our food products or be unable to meet our commitments
to customers. Alternative sources of food products, if available, may be more expensive. For periods in which the prices are
declining, the Company may be required to write down its inventory carrying cost which, depending on the extent of the differences
between market price and carrying cost, could have a material adverse effect on the Company’s consolidated results of operations
and financial position.
Cash
and Cash Equivalents
For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money
market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents.
There were no cash equivalents at October 31, 2018 or October 31, 2017.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Marketable
securities
During
January 2018, as part of the legal settlement with Monaker Group, Inc. (“Monaker”), NestBuilder received Monaker common
shares valued at $32,270, which were classified as “available for sale” securities until being spun-off on August
1, 2018 (see Note 14). Pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 115,
Accounting
for Certain Investments in Debt and Equity Securities
, our marketable securities are trading securities and changes are reflected
in our statement of operations.
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. The Company has determined
the allowance for doubtful accounts to be $0 and $45,933 as of October 31, 2018 and 2017, respectively.
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.
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 life of computer equipment is 3 years. When equipment is retired, sold or impaired,
the resulting gain or loss is reflected in earnings. The Company incurred depreciation expense of $0 and $10,311 for the years
ended October 31, 2018 and 2017, respectively.
Impairment
of Long-Lived Assets
In
accordance with Accounting Standards Codification (“ASC”) 360-10, “Property, Plant, and Equipment”,
the Company periodically reviews its long- lived assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value. For the years ended October 31, 2018 and 2017, the Company
did not impair any long-lived assets.
Fair
Value of Financial Instruments
The
Company has adopted ASC topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair
Value Measurements”. ASC 820 defines “fair value” as the price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date.
ASC
820 also describes three levels of inputs that may be used to measure fair value:
Level
1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level
2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level
3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s
best estimate of fair value.
Financial
instruments consist principally of cash, accounts receivable, prepaid expenses, due from affiliates, accounts payable, accrued
liabilities and other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets
approximate their fair values due to their relatively short-term nature. The fair value of short and long-term debt is based on
current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair
value. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from
these financial instruments.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition
The
Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exits; (2) delivery
has occurred or services have been rendered; (3) the Company’s price to its customer is fixed or determinable and (4) collectability
is reasonably assured.
Cost
of Revenues
Cost
of revenues represents the cost of the food products sold during the periods presented.
Share-Based
Compensation
The
Company computes share based payments in accordance with ASC 718-10 “Compensation” (“ASC 718-10”).
ASC 718-10 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods
and services at fair value, focusing primarily on accounting for transactions in which an entity obtains employees services in
share-based payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods and
services that are based on the fair value of an entity’s equity instruments or that may be settled by the issuance of those
equity instruments. In March 2005, the U.S. Securities and Exchange Commission (the “SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 107, Share-Based Payment (“SAB 107”) which provides guidance regarding
the interaction of ASC 718-10 and certain SEC rules and regulations. The Company has applied the provisions of SAB 107 in its
adoption of ASC 718-10. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50, Equity Based
Payments to Non-Employees. The Company estimates the fair value of stock options by using the Black-Scholes option pricing model.
Derivative
Instruments
The
Company enters into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that
contain embedded derivative features. The Company accounts for these arrangements in accordance with ASC topic 815, Accounting
for Derivative Instruments and Hedging Activities as well as related interpretations of this standard. In accordance with this
standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair
values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host
contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings.
The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate
valuation models, considering all of the rights and obligations of each instrument.
The
Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are
considered consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers,
among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. Estimating
fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and
are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition,
option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price
of the Company’s common stock. Since derivative financial instruments are initially and subsequently carried at fair
values, our income (expense) going forward will reflect the volatility in these estimates and assumption changes. Increases in
the trading price of the Company’s common stock and increases in fair value during a given financial quarter result in the
application of non-cash derivative expense. Conversely, decreases in the trading price of the Company’s common stock and
decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income. The
Company determined due to the lack of an active market for the Company’s common stock that there was no derivative liability
associated with the convertible notes entered into during the year ended October 31, 2018.
Convertible
Debt Instruments
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the Financial Accounting Standards
Board (the “FASB”) ASC. The amounts allocated to warrants and beneficial conversion rights are recorded as
debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.
Foreign
Currency
Assets
and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end
exchange rates and profit and loss accounts have been translated using average exchange rates. Foreign currency translation gains
and losses are included in the Consolidated Statements of Operations and Comprehensive Loss as a component of comprehensive loss.
Assets and liabilities of an entity that are denominated in currencies other than an entity’s functional currency are re-measured
into the functional currency using end of period exchange rates or historical rates, where applicable to certain balances. Gains
and losses related to these re-measurements are recorded within the Consolidated Statements of Operations and Comprehensive Loss
as a component of other income (expense).
Income
Taxes
The
Company accounts for income taxes in accordance with Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty
in Income Taxes (“ASC 740”). Under this method, deferred income taxes are determined based on the estimated future
tax effects of differences between the financial statement and tax basis of assets and liabilities and net operating loss and
tax credit carryforwards given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes
to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the
jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax
regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of
deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on
the “more likely than not” criteria of ASC 740.
ASC
740 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not”
threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its
October 31, 2018, 2017 and 2016 tax years may be selected for examination by the taxing authorities as the statute
of limitations remains open.
The
Company recognizes expenses for tax penalties and interest assessed by the Internal Revenue Service and other taxing authorities
upon receiving valid notice of assessments. The Company has received no such notices for the years ended October 31, 2018
and 2017.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings
Per Share
In
accordance with the provisions of FASB ASC Topic 260,
Earnings per Share
, basic earnings per share (“EPS”)
is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding
during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating
EPS on a diluted basis.
In
computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included.
The effect of contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported.
Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the years ended October 31,
2018 and 2017 as we incurred a net loss for those periods. As of October 31, 2018, there were outstanding warrants to purchase
123,761,716 shares of the Company’s common stock and approximately 276 million shares of the Company’s
common stock to be issued which may dilute future earnings per share.
Recently
Adopted Accounting Standards
In
July 2017, the FASB issued ASU 2017-11, Update to Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic
480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The amendments in Part I of this update are effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted,
including adoption in an interim period, however, any adjustments should be reflected as of the beginning of the fiscal year that
includes that interim period. The amendments in Part II of this update do not require any transition guidance because those amendments
do not have an accounting effect. The ASU makes limited changes to the guidance on classifying certain financial instruments as
either liabilities or equity. The ASU is intended to improve (1) the accounting for instruments with “down-round”
provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite
deferral of certain pending content with scope exceptions. We early adopted the new standard effective November 1, 2017, and determined
the adoption of ASU 2017-11 did not have a material impact on our financial position, results of operations, or cash flows.
Recently
Issued Accounting Standards Not Yet Adopted
In
August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which
deferred the effective date of ASU 2014-09 for all entities by one year. This update is effective for public business entities
for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Earlier
application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods
within that reporting period. ASU 2014-09 was to become effective for us beginning November 1, 2017; however, ASU 2015-14 deferred
our effective date until November 1, 2018, which is when we plan to adopt this standard. The ASU permits two methods of adoption:
retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect
of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The ASU
also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from
contracts with customers. Additionally, qualitative and quantitative disclosures are required for customer contracts, significant
judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. We have completed the
process of evaluating the effect of the adoption and determined there were no changes required to our reported revenues as a result
of the adoption. The majority of our revenue arrangements generally consist of a single performance obligation to transfer promised
goods (sales of food and beverage products to customers). Based on our evaluation process and review of our contracts with customers,
the timing and amount of revenue recognized based on ASU 2015-14 is consistent with our revenue recognition policy under previous
guidance. We adopted the new standard effective November 1, 2018, using the modified retrospective approach, and will expand our
consolidated financial statement disclosures in order to comply with the ASU. We have determined the adoption of ASU 2015-14 will
not have a material impact on our financial position, results of operations, or cash flows.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In
February 2016, the FASB issued ASU 2016-02,
Leases
(“ASU 2016-02”). The standard amends the existing accounting
standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted
changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of fiscal 2020. Early adoption of ASU
2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at,
or entered into after, the date of initial application, with an option to use certain transition relief. In September 2017,
the FASB issued ASU 2017-13,
Revenue Recognition
(Topic 605),
Revenue from Contracts with Customers (Topic 606),
Leases (Topic 840), and Leases (Topic 842
, which amends certain aspects of the new lease standard. The Company is currently
evaluating the impact of adopting ASU 2016-02 and ASU 2017-13
on the Company’s financial
position, results of operations or cash flows.
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments
, which provides clarification on classifying a variety of activities within the statement of cash flows. The
standard is effective for the Company as of November 1, 2018, with early adoption permitted. The Company does not expect the adoption
of this guidance to have a material impact on its consolidated financial statements.
In
November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”).
The new standard changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash
and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the statement of cash flows. The new standard is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2017, with early adoption permitted. The standard is effective for the Company
as of November 1, 2018. The Company does not expect the adoption of this guidance to have a material impact on its consolidated
financial statements.
In
January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
.
The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this ASU
provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a
business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability
to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. This ASU is
the final version of proposed ASU 2015-330
Business Combinations (Topic 805) – Clarifying the Definition of a Business
,
which has been deleted. The amendments in this ASU are effective for all entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017, with early adoption permitted. The standard is effective for the Company
as of November 1, 2018. The Company does not expect the adoption of this guidance to have a material impact on its consolidated
financial statements.
In
May 2017, the FASB issued ASU 2017-09,
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic
718,
Compensation—Stock Compensation
, to a change to the terms or conditions of a share-based payment award. The
amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require
an entity to apply modification accounting in Topic 718. This ASU is the final version of proposed ASU 2016-360—
Compensation—Stock
Compensation (Topic 718)—Scope of Modification Accounting
, which has been deleted. The amendments in this ASU are effective
for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with
early adoption permitted. The standard is effective for the Company as of November 1, 2018. The Company does not expect the adoption
of this guidance to have a material impact on its consolidated financial statements.
In
August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities. This ASU provides new guidance about income statement classification and eliminates the requirement to separately
measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments included in the effectiveness
will be recorded in other comprehensive income (OCI) and amounts deferred in OCI will be reclassified to earnings in the same
income statement line item in which the earnings effect of the hedged item is reported. The standard is effective for the Company
as of November 1, 2019, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material
impact on its consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, to modify the disclosure requirements on fair value measurements in Topic 820,
Fair Value Measurement, based on the concepts in the Concept Statement, including the consideration of costs and benefits. The
standard is effective for the Company as of November 1, 2020, with early adoption permitted. The Company does not expect the adoption
of this guidance to have a material impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying consolidated financial statements.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
3: GOING CONCERN
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The
Company has incurred net losses of $2,824,292 and $1,278,209 and has incurred negative cash flows from operations of $1,070,299
and $972,816 for the years ended October 31, 2018 and 2017, respectively. As of October 31, 2018, the Company had a working
capital deficit of $1,573,851, and an accumulated deficit of $26,104,740. 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 filing, without additional debt or equity financing. The consolidated financial statements do not include
any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
In
order to meet its working capital needs through the next twelve months and to fund the growth of our 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: Property and Equipment
At
October 31, 2018 and 2017, the Company’s property and equipment are as follows:
|
|
Estimated
Life
(in years)
|
|
|
October
31, 2018
|
|
|
October
31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Office
equipment
|
|
|
3
|
|
|
$
|
98,341
|
|
|
$
|
82,719
|
|
Less:
accumulated depreciation
|
|
|
|
|
|
|
(82,719
|
)
|
|
|
(82,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,622
|
|
|
$
|
-
|
|
The
Company has recorded $0 and $10,311 of depreciation expense for the years ended October 31, 2018 and 2017, respectively. There
was no property and equipment impairments recorded for the years ended October 31, 2018 and 2017.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
5: 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.
At
October 31, 2018 and October 31, 2017, there was $622,026
and $975,250 of convertible notes payable
outstanding, respectively, net of discounts of $4,765 and $15,000, respectively. Additionally, at October 31, 2018, the Company
was in default with respect to certain convertible notes as a result of not having sufficient shares of common stock available
for issuance upon the conversion of such notes and certain cross-default provisions. The default provisions include 1) default
interest rates ranging from 18% to 24% per annum, and 2) an increase in the total amount due calculated by multiplying
the aggregate of the then outstanding principal amount of the note, together with accrued and unpaid interest thereon, plus default
interest by 200%. As of October 31, 2018, the principal amount of the notes together with accrued interest totaled $1,709,948,
consisting of $875,100 of default principal and $171,569 of default interest.
During
the year ending October 31, 2018, the Company made a payment of $57,952 to Power Up Lending Group, Ltd. (“Power Up”)
to prepay the Power Up Note 3, which included a principal payment of $40,000 and an interest payment together with prepayment
penalties of $17,952.
During
the year ending October 31, 2018, holders of convertible notes converted an aggregate of $741,708 of outstanding principal,
$43,977 of accrued interest and $16,250 of associated professional fees into an aggregate of 1,244,233,615 shares of the Company’s
common stock.
On
August 17, 2018, the Company issued Power Up a convertible note in the principal amount of $63,000 (the “Power Up Note 9”).
The Power Up Note 9 accrues interest at a rate of 8% per annum and matures on May 30, 2019. Pursuant to the terms of the Power
Up Note 9, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to February
13, 2019, subject to certain prepayment penalties. In addition, the outstanding principal and accrued interest of the Power
Up Note 9 are convertible into shares of the Company’s common stock at a discount rate of 42% of the average of the lowest
two trading prices for the Company’s common stock during the twenty trading day period ending on the latest complete
trading day prior to the conversion date.
On
July 26, 2018, the Company issued Auctus Fund, LLC (“Auctus”) a convertible note in the principal amount
of $137,250 (the “Auctus Note 2”)
with a $7,500 discount. The Auctus Note
2 accrues interest at a rate of 8% per annum and matures on April 18, 2019. Pursuant to the terms of the Auctus Note 2,
the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to January 22,
2019, subject to certain prepayment penalties. In addition, the outstanding principal and accrued interest of the Auctus
Note 2 are convertible into shares of the Company’s common stock at a discount rate of 40% of the lowest trading price
during the previous twenty-five trading day period ending on the latest complete trading day prior to the conversion date.
On
July 5, 2018, the Company issued Power Up a convertible note in the principal amount of $53,000 (the “Power Up Note 8”).
The Power Up Note 8 accrues interest at a rate of 8% per annum and matures on April 30, 2019. Pursuant to the terms of the Power
Up Note 8, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to January
1, 2019, subject to certain prepayment penalties. In addition, the outstanding principal and accrued interest of the Power
Up Note 8 are convertible into shares of the Company’s common stock at a discount rate of 42% of the average of the lowest
two trading prices for the Company’s common stock during the fifteen trading day period ending on the latest complete trading
day prior to the conversion date.
On
June 5, 2018, the Company issued Power Up a convertible note in the principal amount of $35,000 (the “Power Up Note 7”).
The Power Up Note 7 accrues interest at a rate of 8% per annum and matures on March 30, 2019. Pursuant to the terms of the Power
Up Note 7, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to December
2, 2018, subject to certain prepayment penalties. In addition, the outstanding principal and accrued interest of the Power
Up Note 7 are convertible into shares of the Company’s common stock at a discount rate of 39% of the average of the lowest
three trading prices for the Company’s common stock during the fifteen trading day period ending on the latest complete
trading day prior to the conversion date.
On
January 26, 2018, the Company issued the Donald P. Monaco Insurance Trust a promissory note in the principal amount of $530,000
(the “Monaco Note”). The Monaco Note accrues interest at a rate of 12% per annum and matures on January 26, 2019.
Pursuant to the terms of the Monaco Note, the Company may prepay the principal amount of the note together with accrued interest
at any time prior to the date of maturity without a prepayment penalty. Pursuant to the terms of the Monaco Note, the outstanding
principal and accrued interest of the Monaco Note are not convertible into shares of the Company’s common stock; provided,
however, in the event that the Company fails to pay the obligations set forth in the Monaco Note on the maturity
date, the holder may convert the Monaco Note into shares of the Company’s common stock at a conversion price equal to the
lowest closing price of the Company’s common stock during the fifteen trading days prior to the date the holder gives notice
of the default to the Company.
On
December 28, 2017, the Company issued Power Up a convertible note in the principal amount of $53,000 (the “Power Up Note
6”). The Power Up Note 6 accrues interest at a rate of 8% per annum and matured on October 5, 2018. Pursuant to the
terms of the Power Up Note 6, the Company may prepay the principal amount of the note together with accrued interest at any time
on or prior to June 26, 2018, subject to certain prepayment penalties. Pursuant to the terms of the Power Up Note 6, the outstanding
principal and accrued interest of the Power Up Note 6 are convertible into shares of the Company’s common stock at a discount
rate of 39% of the average of the lowest three trading prices for the Company’s common stock during the fifteen trading
day period ending on the latest complete trading day prior to the conversion date.
At various dates
subsequent to issuance, all outstanding principal and interest was converted by Power Up into an aggregate of 116,301,520
shares of the Company’s common stock.
On
December 21, 2017, the Company issued EMA Financial, LLC (“EMA”) a convertible note in the principal amount of $100,000
(the “EMA Note 2”). The EMA Note 2 accrues interest at a rate of 8% per annum and matures on December 21, 2018. Pursuant
to the terms of the EMA Note 2, the Company may prepay the principal amount of the note together with accrued interest at any
time on or prior to June 19, 2018
, subject to certain prepayment penalties. Pursuant to the terms
of the EMA Note 2, the outstanding principal and accrued interest on the EMA Note 2 are convertible into shares of the Company’s
common stock at the lower of: (i) $0.0065, and (ii) 60% of either the lowest sale price for the common stock on the principal
market during the fifteen consecutive trading days including and immediately preceding the conversion date, or the closing bid
price, whichever is lower;
provided, however
, if the Company’s share price at any time loses the bid (as specified
in the EMA Note 2), then the conversion price may, in EMA’s sole and absolute discretion, be reduced to a fixed conversion
price of $0.00001, subject to the Company reducing the par value of its common stock;
provided, further that,
that
if on the date of delivery of the conversion shares to EMA, or any date thereafter while conversion shares are held EMA, the closing
bid price per share of common stock on the principal market on the trading day on which the common stock are traded is less than
the sale price per share of common stock on the principal market on the trading day used to calculate the conversion price hereunder,
then such conversion price shall be automatically reduced such that the conversion price shall be recalculated using the new low
closing bid price (“Adjusted Conversion Price”) and shall replace the conversion price above, and EMA shall be issued
a number of additional shares such that the aggregate number of shares EMA receives is based upon the Adjusted Conversion Price.
In addition, it at any time the conversion price as set forth above is less than the par value of the Company’s common
stock, then the conversion price shall equal the par value of the Company’s common stock and the conversion amount shall
be increased to include such additional amount to the extent necessary to cause the number of shares of the Company’s common
stock issuable upon conversion of the EMA Note 2 (the “EMA Note 2 Conversion Shares”) to equal the number of EMA Note
2 Conversion Shares as would have been issued had the conversion price not been adjusted to equal the par value of the Company’s
common stock. At various dates subsequent to issuance, a portion of outstanding principal and interest was converted by EMA into
an aggregate of 206,450,000 shares of the Company’s common stock.
On
October 24, 2017, the Company issued Crossover Capital Fund I, LLC a convertible note in the principal amount of $107,500 with
an original issuance discount of $7,500 (the “Crossover Note 2a”). The Crossover Note 2a accrues interest
at a rate of 9% per annum and matured on July 24, 2018. Pursuant to the terms of the Crossover Note 2a, the Company may
prepay the principal amount of the note together with accrued interest at any time on or prior to April 22, 2018, subject to certain
prepayment penalties. Pursuant to the terms of the Crossover Note 2a, the outstanding principal and accrued interest of
the note are convertible into shares of the Company’s common stock at a discount rate of 39%
of
the average of the lowest three trading prices for the Company’s common stock during the fifteen trading day period ending
on the latest complete trading day prior to the conversion date, subject to adjustment as set forth in the
Crossover Note 2a.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
5: CONVERTIBLE NOTES PAYABLE (continued)
On
October 24, 2017, the Company issued Crossover Capital Fund II, LLC a convertible note in the principal amount of $107,500 with
an original issue discount of $7,500 (the “Crossover Note 2b”). The Crossover Note 2b accrues interest
at a rate of 9% per annum and matured on July 24, 2018. Pursuant to the terms of the Crossover Note 2b, the Company
may prepay the principal amount of the note together with accrued interest at any time on or prior to April 22, 2018, subject
to certain prepayment penalties. Pursuant to the terms of the Crossover Note 2b, the outstanding principal and accrued interest
of the note are convertible into shares of the Company’s common stock at a discount rate of 39%
of
the average of the lowest three trading prices for the Company’s common stock during the fifteen trading day period ending
on the latest complete trading day prior to the conversion date, subject to adjustment as set forth in the
Crossover Note 2b.
On
October 20, 2017, the Company issued Power Up a convertible note in the principal amount of $68,000 (the “Power Up Note
5”). The Power Up Note 5 accrues interest at a rate of 8% per annum and matured on July 30, 2018. Pursuant to the
terms of the Power Up Note 5, the Company may prepay the principal amount of the note together with accrued interest at any time
on or prior to April 18, 2018, subject to certain prepayment penalties. In addition, the outstanding principal and accrued
interest of the note are convertible into shares of the Company’s common stock at a discount rate of 39% of the market price
on the date of conversion, subject to certain restrictions. At various dates subsequent to issuance, all outstanding principal
and interest was converted by Power Up into an aggregate of 92,939,459 shares of the Company’s common stock.
On
September 1, 2017, the Company issued Power Up a convertible note in the principal amount of $78,000 (the “Power Up Note
4”). The Power Up Note 4 accrues interest at a rate of 8% per annum and matured on June 10, 2018. Pursuant to the
terms of the Power Up Note 4, the Company may prepay the principal amount of the note together with accrued interest at any time
on or prior to February 28, 2018, subject to certain prepayment penalties. In addition, the outstanding principal and accrued
interest of the note are convertible into shares of the Company’s common stock at a discount rate of 39% of the market price
on the date of conversion, subject to certain restrictions. During March 2018, the Company repaid the principal and accrued interest
in full on the Power Up Note 4 in the amount of $
113,556.
On
August 2, 2017, the Company issued JSJ Investments Inc. (“JSJ”) a convertible note in the principal amount
of $77,000 (the “JSJ Note 2”). The JSJ Note 2 accrues interest at a rate of 8% per annum and matured on May
2, 2018. Pursuant to the terms of the JSJ Note 2, the Company may prepay the principal amount of the note together with accrued
interest at any time on or prior to January 29, 2018, subject to certain prepayment penalties. In addition, the
outstanding principal and accrued interest of the note are convertible into shares of the Company’s common stock at a discount
rate of 39% of the market price during the twenty trading day period ending on the trading day prior to the conversion
date, subject to adjustment as set forth in the JSJ Note 2. At various dates subsequent to issuance, all outstanding
principal and interest was converted by JSJ into an aggregate of 137,053,771 shares of the Company’s common
stock.
On
July 17, 2017, the Company issued Crossover Capital Fund II, LLC a convertible note in the principal amount of $100,250 (the “Crossover
Note”). The Crossover Note accrues interest at a rate of 9% per annum and matures on April 17, 2018. Pursuant to the terms
of the Crossover Note, the Company may prepay the principal amount of the note together with accrued interest at any time on or
prior to January 13, 2018, subject to certain prepayment penalties. In addition, the outstanding principal and accrued
interest of the note are convertible into shares of the Company’s common stock at a discount rate of 38.5% of the lowest
trading price for the Company’s common stock during the fifteen trading day period including the trading day
on which a conversion notice is received by the Company, subject to adjustment as set forth in the Crossover Note.
At various dates subsequent to issuance, a portion of outstanding principal and interest was converted by the lender into an
aggregate of 129,500,000 shares of the Company’s common stock.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
5: CONVERTIBLE NOTES PAYABLE (continued)
On
June 29, 2017, the Company issued Power Up a convertible note in the principal amount of $40,000 (the “Power Up Note 3”).
The Power Up Note 3 accrues interest at a rate of 8% per annum and matured on March 30, 2018. Pursuant to the terms of
the Power Up Note 3, the Company may prepay the principal amount of the note together with accrued interest at any time on or
prior to December 26, 2017, subject to certain prepayment penalties. In addition, the outstanding principal and accrued
interest of the note are convertible into shares of the Company’s common stock at a discount rate of 39% of the market price
on the date of conversion, subject to certain restrictions. During December 2017, the Company repaid the principal and accrued
interest in full on the Power Up Note 3 in the amount of $57,952.
On
June 20, 2017, the Company issued EMA a convertible note in the principal amount of $100,000 (the “EMA Note”). The
EMA Note accrues interest at a rate of 8% per annum and matured on June 20, 2018. Pursuant to the terms of the EMA Note,
the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to December 17,
2017, subject to certain prepayment penalties. In addition, the outstanding principal and accrued interest of the note
are convertible into shares of the Company’s common stock at a discount rate of 40% of the market price on the date of conversion,
subject to certain restrictions. At various dates subsequent to issuance, all outstanding principal and interest was converted
by EMA into an aggregate of 39,500,000 shares of the Company’s common stock.
On
June 15, 2017, the Company issued GS Capital Partners, LLC a convertible note in the principal amount of $82,000 (the “GS
Note”). The GS Note accrues interest at a rate of 8% per annum and matured on June 15, 2018. Pursuant to the terms
of the GS Note, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior
to December 12, 2017, subject to certain prepayment penalties. In addition, the outstanding principal and accrued interest
of the note are convertible into shares of the Company’s common stock at a discount rate of 36% of the lowest trading
price of the Company’s common stock during the twelve trading day period including the trading day on which a
conversion notice is received by the Company, subject to adjustment as set forth in the GS Note. At various dates
subsequent to issuance, all outstanding principal and interest was converted by the lender into an aggregate of 59,639,472
shares of the Company’s common stock.
On
May 17, 2017, the Company issued Auctus a convertible note in the principal amount of $130,000 (the “Auctus Note”).
The Auctus Note accrues interest at a rate of 8% per annum and matured on February 17, 2018. Pursuant to the terms of the Auctus
Note, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to November
13, 2017, subject to certain prepayment penalties. In addition, the outstanding principal and accrued interest of the note
are convertible into shares of the Company’s common stock at a discount rate of 40% of the market price on the date of conversion,
subject to certain restrictions. At various dates subsequent to issuance, a portion of outstanding principal and interest was
converted by Auctus into an aggregate of 441,210,887 shares of the Company’s common stock.
On
April 19, 2017, the Company issued JSJ a convertible note in the principal amount of $125,000 (the “JSJ Note 1”).
The JSJ Note 1 accrues interest at a rate of 8% per annum and matured on January 19, 2018. Pursuant to the terms of the JSJ Note
1, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to October 16,
2017, subject to certain prepayment penalties. In addition, the outstanding principal and accrued interest of the note
are convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion,
subject to certain restrictions. At various dates subsequent to issuance, all outstanding principal and interest was converted
by JSJ into an aggregate of 25,497,818 shares of the Company’s common stock.
On
April 4, 2017, the Company issued Power Up a convertible note in the principal amount of $38,000 (the “Power Up Note 2”).
The Power Up Note 2 accrues interest at a rate of 8% per annum and matured on January 30, 2018. Pursuant to the terms of the Power
Up Note 2, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to October
1, 2017, subject to certain prepayment penalties. In addition, the outstanding principal and accrued interest of the note
are convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion,
subject to certain restrictions. In October 2017, the outstanding principal and interest on the Power Up Note 2 was converted
by Power Up into an aggregate of 4,358,555 shares of the Company’s common stock.
On
February 21, 2017, the Company issued Power Up a convertible note in the principal amount of $78,500 (the “Power Up Note
1”). The Power Up Note 1 accrues interest at a rate of 8% per annum and matured on November 30, 2017. Pursuant to the terms
of the Power Up Note 1, the Company may prepay the principal amount of the note together with accrued interest at any time on
or prior to August 28, 2017, subject to certain prepayment penalties. In August 2017, the Company repaid the principal and accrued
interest in full on the Power Up Note 1 in the amount of $114,211.
During
December 2016, one of our convertible noteholders converted $25,000 of outstanding principal into 25,000 shares of our Series
C Convertible Preferred Stock, at a price of $1.00 per share.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
5: CONVERTIBLE NOTES PAYABLE (continued)
On
December 31, 2016
, the holders of convertible notes with an aggregate outstanding principal
and accrued interest balance of $801,935 converted their notes into an aggregate of 69,368,539 shares of
the Company’s common stock.
NOTE
6: NON-CONTROLLING INTEREST
During
June 2015, RealBiz entered into an agreement to purchase the minority interest in its Canadian subsidiaries from former employees
for four million shares of RealBiz common stock with a fair market value of approximately $240,000. These shares of common stock
were never issued by the Company and the Company has continued to report a Non-controlling Interest in its Canadian subsidiaries.
In addition, in August 2015, RealBiz filed a Complaint in the Superior Court of the State of California against the same former
employees alleging certain breaches of contract and violation of non-compete agreements. The Complaint was settled in August 2016
with both parties agreeing to a mutual release of any further obligations between the parties which included the issuance of the
four million shares of RealBiz common stock for the minority interest purchase.
As
the impact of not recording the purchase of the non-controlling interest in Q3 2015 and the Complaint settlement in Q3 2016 is
considered immaterial to the current and prior periods, the transactions were recorded in Q4 2017 as of the beginning of the quarter.
The financial statement impact of recording the transactions in Q4 2017 was a reclassification of the July 31, 2017 Non-controlling
Interest balance of $241,474 to Accumulated Deficit which increased Accumulated Deficit as of July 31, 2017 from $21,966,603 to
$22,208,077.
As
a result of the spin-off of the 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 and comprehensive income (loss).
NOTE
7: STOCKHOLDERS’ EQUITY
The
total number of shares of all classes of stock that the Company shall have the authority to issue is 1,625,000,000 shares
consisting of 1,500,000,000 shares of common stock with a $0.001 par value per share; of which 1,500,000,000
are outstanding as of October 31, 2018 and 125,000,000 shares of preferred stock, par value $0.001 per share of which (A)
120,000,000 shares have been designated as Series A Convertible Preferred of which 44,570,101 are outstanding as of October 31,
2018, (B) 1,000,000 shares have been designated as Series B Convertible Preferred Stock, of which no shares are outstanding as
of October 31, 2018 and (C) 1,000,000 have been designated as Series C Convertible Preferred Stock, of which 160,000 shares are
outstanding as of October 31, 2018.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
7: STOCKHOLDERS’ EQUITY (continued)
Common
Stock
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.
|
During
the year ended October 31, 2017, the Company:
●
|
granted
shares of restricted stock on January 2, 2017, to Mr. Alex Aliksanyan, Mr. Thomas Grbelja, the Company’s former chief
executive officer and chief financial officer, respectively, and another employee pursuant to their separate Restricted Stock
Grant Agreements, dated January 2, 2017, and the terms of their separate employment agreements. Mr. Aliksanyan, Mr.
Grbelja and the third employee were granted 13,699,350, 6,309,596 and 1,973,615 shares of restricted common stock,
respectively. The shares of restricted common stock issued pursuant to these grants cannot be transferred for six months.
These shares were granted for services previously performed in their roles with the Company.
|
Conversion
of Convertible Notes
During
the year ended October 31, 2018, the holders of convertible notes with aggregate outstanding principal and accrued interest
balances of an aggregate of $1,801,935 converted their notes into an aggregate of 1,244,233,615 shares of
our common stock.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
7: STOCKHOLDERS’ EQUITY (continued)
Common
Stock Warrants
The
Company estimates the fair value of each option award on the date of grant using a black-scholes option valuation model that uses
the assumptions noted in the table below. Because 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 option exercise and employee termination within the valuation model; separate groups
of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term
of options granted is derived from the output of the option valuation model and represents the period of time that options granted
are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior.
The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at
the time of grant. The following assumptions were utilized during 2018:
Expected
volatility
|
|
|
1.45%
- 6.30
|
%
|
Weighted-average
volatility
|
|
|
3.52
|
%
|
Expected
dividends
|
|
|
0
|
%
|
Expected
term (in years)
|
|
|
1.0
|
|
Risk-free
rate
|
|
|
1.09%
- 2.67
|
%
|
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
|
|
|
$
|
0.00
|
|
Warrants
granted and issued
|
|
|
105,975,249
|
|
|
$
|
0.006
|
|
|
$
|
0.00
|
|
Warrants
forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Outstanding,
October 31, 2018
|
|
|
123,761,716
|
|
|
$
|
0.007
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issuable upon exercise of warrants
|
|
|
123,761,716
|
|
|
$
|
0.007
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
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
|
|
The
following table sets forth common share purchase warrants outstanding as of October 31, 2017:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Value
|
|
Outstanding,
October 31, 2016
|
|
|
16,055,000
|
|
|
$
|
0.061
|
|
|
$
|
0.00
|
|
Warrants
granted and issued
|
|
|
16,581,467
|
|
|
$
|
0.010
|
|
|
$
|
0.00
|
|
Warrants
forfeited
|
|
|
(14,850,000
|
)
|
|
$
|
(0.054
|
)
|
|
$
|
0.00
|
|
Outstanding,
October 31, 2017
|
|
|
17,786,467
|
|
|
$
|
0.016
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issuable upon exercise of warrants
|
|
|
17,786,467
|
|
|
$
|
0.016
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
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
|
|
|
2017
|
|
|
Life
(Years)
|
|
|
Price
|
|
|
2017
|
|
|
Price
|
|
$
|
0.006
|
|
|
|
14,581,467
|
|
|
|
3.87
|
|
|
$
|
0.006
|
|
|
|
14,581,467
|
|
|
$
|
0.006
|
|
$
|
0.025
|
|
|
|
1,000,000
|
|
|
|
2.17
|
|
|
$
|
0.025
|
|
|
|
1,000,000
|
|
|
$
|
0.025
|
|
$
|
0.050
|
|
|
|
1,000,000
|
|
|
|
1.47
|
|
|
$
|
0.050
|
|
|
|
1,000,000
|
|
|
$
|
0.050
|
|
$
|
0.100
|
|
|
|
1,205,000
|
|
|
|
2.35
|
|
|
$
|
0.100
|
|
|
|
1,205,000
|
|
|
$
|
0.100
|
|
|
|
|
|
|
17,786,467
|
|
|
|
3.77
|
|
|
$
|
0.016
|
|
|
|
17,786,467
|
|
|
$
|
0.016
|
|
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
7: STOCKHOLDERS’ EQUITY (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 the Second Amended and Restated Certificate of Designations, Preferences and Rights of the
Series A Convertible Preferred Stock (the “Second Amended and Restated COD”) whereby the Company removed the anti-dilution
protection for holders of Series A Convertible Preferred Stock, removed all preferred stock dividends, reduced the conversion
rate of each share of Series A Convertible Preferred Stock into one share of Common Stock, and provided holders of such preferred
stock with a right of participation in future financings. The Second Amended and Restated COD became effective upon filing with
the Delaware Secretary of State on February 8, 2019 (See Note 16).
Accrued
and declared preferred stock dividends on the outstanding preferred shares as of October 31, 2018 and 2017 totaled $0 for both
periods.
On
February 26, 2018, the Company entered into an inducement agreement (the “Inducement Agreement”) effective as of February
8, 2019, pursuant to which the Company will 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
January 19, 2017, we issued 100,000 shares of Series A Convertible Preferred Stock to Mr. Anshu Bhatnagar, the Company’s
Chief Executive Officer, for $610.
In
December 2016, the Company cancelled 44,560,760 shares of Series A Convertible Preferred Stock and 10,559,892 shares of common
stock which were held by Monaker in connection with an over issuance of shares of common stock relating the conversion of the
Monaker dual convertible preferred shares.
In
December 2016, the Company converted 1,155,625 of its Series A Convertible Preferred Stock into an aggregate of 1,155,800
shares of common stock.
As
of October 31, 2018 and 2017, there were 44,570,101 and 100,000, shares of Series A Convertible Preferred Stock outstanding,
respectively.
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 Convertible Preferred Stock accrue dividends at a rate of 10% per annum on
the 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 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, 2018 and 2017
NOTE
7: STOCKHOLDERS’ EQUITY (continued)
Series
B Convertible Preferred Stock
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 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 stated value, as adjusted.
As
of October 31, 2018 and 2017, there were no shares of Series B Convertible Preferred Stock outstanding.
Series
C Convertible Preferred Stock
Pursuant
to authority granted by our certificate of incorporation and applicable state law, our Board of Directors, without any action
or approval by our stockholders, may designate and issue shares in such classes or series (including other classes or series of
preferred stock) as it deems appropriate and establish the rights, preferences, and privileges of such shares, including dividends,
liquidation and voting rights. The rights of holders of other classes or series of capital stock, including preferred stock that
may be issued could be superior to the rights of the shares of common stock offered hereby. The designation and issuance of shares
of capital stock having preferential rights could adversely affect other rights appurtenant to the shares of our common stock.
Finally, any issuances of additional capital stock (common or preferred) will dilute the percentage of ownership interest of our
stockholders and may dilute the per-share book value of the Company. For example, our Series C Convertible Preferred Stock contain
voting rights which provide each share of Series C Convertible Preferred Stock with 100 votes for each shares of common stock
into which the Series C Convertible Preferred Stock is convertible. Accordingly, our currently outstanding 160,000 shares of Series
C Convertible Preferred Stock (which are convertible into 16,000,000 common shares) are entitled to 1,600,000,000 votes on any
matter presented for a vote to our common stockholders. This has resulted in the holders of our Series C Convertible Preferred
Stock having voting majority voting control of our corporation.
On
January 6, 2017, we issued 100,000 shares of Series C Convertible Preferred Stock to Mr. Anshu Bhatnagar, the Company’s
Chief Executive Officer, for $100,000.
In
December 2016, one of our convertible noteholders converted $25,000 of outstanding principal into 25,000 shares of our Series
C Convertible Preferred Stock, at a price of $1.00 per share.
As
of October 31, 2018 and 2017, there were 160,000 shares of Series C Convertible Preferred Stock outstanding, respectively.
NOTE
8: RELATED PARTY TRANSACTIONS
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 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 shares
of common stock was $299,635 and was recorded within our Consolidated Statement of Changes in Stockholders’
Deficit. During the fiscal year ending October 31,
2017, there were no related party transactions to report.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
9: 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, 2018 and 2017 was $0.
The
provision for income taxes varies from the statutory rate applied to the net loss as follows for the years ended October 31:
|
|
2018
|
|
|
2017
|
|
Federal
income tax benefit at statutory rate (23%)
|
|
$
|
(659,190
|
)
|
|
$
|
(447,373
|
)
|
State
taxes, net of federal benefit
|
|
|
(127,093
|
)
|
|
|
(57,519
|
)
|
Effect
of Canadian tax and exchange rates
|
|
|
(257,084
|
)
|
|
|
(19,893
|
)
|
Nondeductible
expenses
|
|
|
90,961
|
|
|
|
53,709
|
|
Change
in valuation allowance
|
|
|
(952,406
|
)
|
|
|
(471,076
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
2018
|
|
|
2017
|
|
Deferred
tax assets (liabilities)
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards (U.S.)
|
|
$
|
2,594,497
|
|
|
$
|
2,877,555
|
|
Net
operating loss carryforwards (Canada)
|
|
|
1,021,065
|
|
|
|
1,099,050
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
3,615,562
|
|
|
|
3,976,605
|
|
Valuation
allowance
|
|
|
(3,615,562
|
)
|
|
|
(3,976,605
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
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 $361,043 and $471,076 during the fiscal years ended October 31,
2018 and 2017, respectively.
As
of October 31, 2018 the Company has a total net operating loss carryforward of approximately $14,027,399. Net operating
loss carryforwards expire through 2037. Under the Internal Revenue Code Section 382 and the Canadian Tax Act, 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 27.8%. The change in blended tax rate reduced the 2018 net operating loss carry
forward deferred tax assets by $1,424,404.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
Note
10: 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 14).
NOTE
11: QUARTERLY DATA (UNAUDITED)
The
tables below provide the Company’s unaudited condensed consolidated results of operations for each quarter during the year
ended October 31, 2018:
|
|
Fiscal
year ended October 31, 2018
|
|
|
|
1Q
2018
|
|
|
2Q
2018
|
|
|
3Q
2018
|
|
|
4Q
2018
|
|
Revenue
|
|
$
|
996,126
|
|
|
$
|
1,238,318
|
|
|
$
|
1,371,445
|
|
|
$
|
2,196,148
|
|
Cost
of revenue
|
|
|
938,190
|
|
|
|
1,026,581
|
|
|
|
1,147,231
|
|
|
|
1,941,452
|
|
Gross
Profit
|
|
|
57,936
|
|
|
|
211,737
|
|
|
|
224,214
|
|
|
|
254,697
|
|
Operating
Expenses
|
|
|
281,746
|
|
|
|
481,068
|
|
|
|
336,231
|
|
|
|
560,036
|
|
Operating
(loss) income
|
|
|
(223,810
|
)
|
|
|
(269,331
|
)
|
|
|
(112,017
|
)
|
|
|
(305,339
|
)
|
Other
Income (Expense)
|
|
|
(400,740
|
)
|
|
|
(30,450
|
)
|
|
|
(799,493
|
)
|
|
|
(942,298
|
)
|
Loss
from continuing operations before income taxes
|
|
|
(624,550
|
)
|
|
|
(299,781
|
)
|
|
|
(911,510
|
)
|
|
|
(1,247,637
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss
from continuing operations
|
|
|
(624,550
|
)
|
|
|
(299,781
|
)
|
|
|
(911,510
|
)
|
|
|
(1,247,637
|
)
|
Income
(loss) from discontinued operations
|
|
|
117,544
|
|
|
|
(10,779
|
)
|
|
|
152,422
|
|
|
|
-
|
|
Net
loss
|
|
$
|
(507,006
|
)
|
|
$
|
(310,560
|
)
|
|
$
|
(759,088
|
)
|
|
$
|
(1,247,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from discontinued operations per common share - basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – basic and diluted
|
|
|
274,118,608
|
|
|
|
355,330,860
|
|
|
|
827,585,586
|
|
|
|
1,500,000,000
|
|
NOTE
12: COMMITMENTS AND CONTINGENCIES
The
Company’s future fiscal year minimum lease payments for its corporate office operating lease are as follows:
2019
|
|
$
|
87,971
|
|
2020
|
|
$
|
90,610
|
|
2021
|
|
$
|
93,610
|
|
2022
|
|
$
|
15,746
|
|
Total
|
|
$
|
287,656
|
|
Rent
expense for the Company’s corporate office for the fiscal years ending October 31, 2018 and 2017 was $78,681 and $59,358,
respectively.
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
13: 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 February 26
,
2019, the Company entered into an inducement agreement (the “Inducement Agreement”) effective as of February 8, 2019,
pursuant to which the Company will 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.
In
addition, 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.
NOTE
14: 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.
The
spin-off was recorded at the carrying amount of the real estate segment’s net assets of $12,261 as of July 31, 2018, as
follows:
|
|
July
31, 2018
|
|
Assets
|
|
|
|
|
Current
Assets
|
|
|
|
|
Cash
|
|
$
|
80,969
|
|
Marketable
Securities
|
|
|
27,727
|
|
Accounts
receivable, net
|
|
|
146
|
|
Other
assets
|
|
|
13,303
|
|
Total
Current Assets
|
|
$
|
122,144
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
109,883
|
|
Total
Current Liabilities
|
|
$
|
109,883
|
|
|
|
|
|
|
Net
Assets of Real Estate Segment
|
|
$
|
12,261
|
|
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 and comprehensive
income (loss).
The
assets and liabilities associated with discontinued operations included in our Consolidated Balance Sheet were as follows:
|
|
October
31, 2018
|
|
|
October
31, 2017
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
28,554
|
|
|
$
|
28,810
|
|
|
$
|
251,301
|
|
|
$
|
280,111
|
|
Accounts
receivable, net
|
|
|
1,246,301
|
|
|
|
9,564
|
|
|
|
812,748
|
|
|
|
822,312
|
|
Inventory
|
|
|
90,589
|
|
|
|
-
|
|
|
|
341,188
|
|
|
|
341,188
|
|
Prepaid
expenses
|
|
|
12,412
|
|
|
|
3,300
|
|
|
|
-
|
|
|
|
3,300
|
|
Other
assets
|
|
|
8,629
|
|
|
|
-
|
|
|
|
16,621
|
|
|
|
16,621
|
|
Total
Current Assets
|
|
$
|
1,386,485
|
|
|
$
|
41,674
|
|
|
$
|
1,421,858
|
|
|
$
|
1,463,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
642,739
|
|
|
|
396,407
|
|
|
|
834,591
|
|
|
|
1,230,998
|
|
Interest
payable
|
|
|
257,170
|
|
|
|
-
|
|
|
|
22,560
|
|
|
|
22,560
|
|
Due
to officer
|
|
|
33,301
|
|
|
|
-
|
|
|
|
33,301
|
|
|
|
33,301
|
|
Note
payable
|
|
|
530,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible
notes payable, net
|
|
|
1,497
,126
|
|
|
|
-
|
|
|
|
975,250
|
|
|
|
975,250
|
|
Total
Current Liabilities
|
|
$
|
2,960,336
|
|
|
$
|
396,407
|
|
|
$
|
1,865,702
|
|
|
$
|
2,262,109
|
|
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
14: DISCONTINUED OPERATIONS (continued)
The
revenues and expenses associated with discontinued operations included in our Consolidated Statements of operations were as follows:
|
|
Year
Ended
|
|
|
|
October
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
Revenue
|
|
$
|
216,316
|
|
|
$
|
5,802,037
|
|
|
$
|
6,018,353
|
|
|
$
|
386,179
|
|
|
$
|
2,888,094
|
|
|
$
|
3,274,273
|
|
Cost
of revenue
|
|
|
56,800
|
|
|
|
5,053,453
|
|
|
|
5,110,253
|
|
|
|
145,299
|
|
|
|
2,510,621
|
|
|
|
2,655,920
|
|
Gross
Profit
|
|
|
159,516
|
|
|
|
748,584
|
|
|
|
908,099
|
|
|
|
240,880
|
|
|
|
377,473
|
|
|
|
618,353
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
82,326
|
|
|
|
488,577
|
|
|
|
570,902
|
|
|
|
176,272
|
|
|
|
941,456
|
|
|
|
1,117,728
|
|
Selling
and promotions expense
|
|
|
824
|
|
|
|
-
|
|
|
|
824
|
|
|
|
2,901
|
|
|
|
965
|
|
|
|
3,866
|
|
Legal
and professional fees
|
|
|
82,999
|
|
|
|
285,138
|
|
|
|
368,137
|
|
|
|
46,006
|
|
|
|
450,335
|
|
|
|
496,341
|
|
General
and administrative
|
|
|
71,714
|
|
|
|
885,367
|
|
|
|
957,081
|
|
|
|
74,938
|
|
|
|
204,028
|
|
|
|
278,966
|
|
Total
Operating Expenses
|
|
|
237,863
|
|
|
|
1,659,081
|
|
|
|
1,896,944
|
|
|
|
300,117
|
|
|
|
1,596,784
|
|
|
|
1,896,901
|
|
Operating
loss
|
|
|
(78,347
|
)
|
|
|
(910,498
|
)
|
|
|
(988,845
|
)
|
|
|
(59,237
|
)
|
|
|
(1,219,310
|
)
|
|
|
(1,278,547
|
)
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(1,322
|
)
|
|
|
(320,527
|
)
|
|
|
(321,849
|
)
|
|
|
(1,272
|
)
|
|
|
(144,674
|
)
|
|
|
(145,946
|
)
|
Gain
(Loss) on legal settlement of accounts payable and convertible debt
|
|
|
338,855
|
|
|
|
(914,353
|
)
|
|
|
(575,497
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gain
(Loss) on extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
170,000
|
|
|
|
(23,716
|
)
|
|
|
146,284
|
|
Default
principal increase on convertible notes payable
|
|
|
-
|
|
|
|
(938
,100
|
)
|
|
|
(938
,100
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
Other Income (Expense)
|
|
|
337,533
|
|
|
|
(2,172,980
|
)
|
|
|
(1,835,447
|
)
|
|
|
168,728
|
|
|
|
(168,390
|
)
|
|
|
338
|
|
Income
(loss) before income taxes
|
|
|
259,186
|
|
|
|
(3,083,478
|
)
|
|
|
(2,824,292
|
)
|
|
|
109,491
|
|
|
|
(1,387,700
|
)
|
|
|
(1,278,209
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss)
|
|
$
|
259,186
|
|
|
$
|
(3,083,478
|
)
|
|
$
|
(2,824,292
|
)
|
|
$
|
109,491
|
|
|
$
|
(1,387,700
|
)
|
|
$
|
(1,278,209
|
)
|
VERUS
INTERNATIONAL, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended October 31, 2018 and 2017
NOTE
15: BUSINESS DIVESTITURE
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. This transaction benefited VME by providing VME with a broader license for
product distribution and full control of all intellectual property rights.
NOTE
16: SUBSEQUENT EVENTS
On
December 26, 2018, the board of directors of the Company adopted the Verus International, Inc. 2018 Equity Incentive Plan pursuant
to which, subject to an increase in the Company’s authorized common stock, the Company reserved 149,900,000 shares of common
stock for issuance thereunder.
On December 28, 2018, the Board of Directors awarded the Company’s Chief Executive Officer 294,545 shares
of Series C Preferred Stock, in lieu of the 117,055,586 warrants to acquire 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.
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 unanimous written consent approving 1) the 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) grant 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, 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
Corporation shall not effect Reverse Stock Splits that, in the aggregate, exceeds 1-for-400, and (Y) any Reverse Stock Split is
completed no later than the first anniversary of the Record Date, as defined. The increase in authorized shares occurs a minimum of 20 days after the mailing of the required information
statement to shareholders.
In
connection with the closing of the transactions contemplated
by that certain securities purchase agreement dated February 8, 2019 by and between the Company and an accredited investor (the
“SPA”), the Company entered into (i) amendment no. 1 dated January 26, 2019 to the promissory note issued in
favor of the Donald P. Monaco Insurance Trust (the “Note”) whereby the maturity date of the Note was amended to January
26, 2020 and (ii) amendment no. 2 dated February 8, 2019 to the Note whereby the maturity date of the Note was amended
to November 8, 2019.
Also
in connection with the closing of the transactions contemplated by the SPA, on February 8, 2019, the Company filed the Second
Amended and Restated Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock (the “Second
Amended and Restated COD”) whereby the Company removed the anti-dilution protection for holders of Series A Convertible
Preferred Stock and provided holders of such preferred stock with a right of participation in future financings. The Second
Amended and Restated COD became effective upon filing with the Delaware Secretary of State on February 8, 2019.
On
February 26, 2019, the Company entered into an inducement agreement (the “Inducement Agreement”) effective
as of February 8, 2019
, pursuant to which the Company will 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
February 8, 2019, the Company entered into a securities purchase agreement 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 of the Company’s common stock.
In connection with the securities purchase agreement, the Company also entered into a Registration Rights Agreement with
the First Investor (the “First Registration Rights Agreement”), pursuant to which the Company is required to file
a Registration Statement on Form S-1 (or Form S-3, if available) (the “Registration Statement”) covering the resale
of the Registrable Securities (as defined in the First Registration Rights Agreement) within 60 days of February 8, 2019.
The Company is further required to use its best efforts to have the Registration Statement declared effective by the SEC as soon
as practicable, but in no event later than the earlier of: (x) (i) in the event that the Registration Statement is not subject
to a review by the SEC, 120 calendar days after February 8, 2019 or (ii) in the event that the Registration Statement
is subject to a limited or full review by the SEC, 140 calendar days after February 8, 2019; and (y) the 5th business day
after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement
will not be reviewed or will not be subject to further review.
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
and a three-year warrant to purchase up to 148,148,148 shares of the Company’s common stock. In connection
with the securities purchase agreement, the Company also entered into a Registration Rights Agreement with the Second Investor
(the “Second Registration Rights Agreement”), pursuant to which the Company is required to file the Registration Statement
covering the resale of the Registrable Securities (as defined in the Second Registration Rights Agreement) within 60 days of February
11, 2019. The Company is further required to use its best efforts to have the Registration Statement declared effective by
the SEC as soon as practicable, but in no event later than the earlier of: (x) (i) in the event that the Registration Statement
is not subject to review by the SEC, 120 calendar days after February 11, 2019 or (ii) in the event that the Registration
Statement is subject to a limited or full review by the SEC, 140 calendar days after February 11, 2019; and (y) the 5th
business day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration
Statement will not be reviewed or will not be subject to further review.
On
February 8, 2019, in conjunction with the February 8, 2019 securities purchase agreement, the Company used a portion
of such proceeds to payoff 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
payoff proceeds of $1,118,049
paid all convertible note holders in full and resulted in a gain on
extinguishment of debt of $681,945.