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.
Verus
International, Inc.
Consolidated
Balance Sheets
(Unaudited)
|
|
January
31, 2019
|
|
|
October
31, 2018
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
47,752
|
|
|
$
|
28,554
|
|
Accounts
receivable, net
|
|
|
1,443,760
|
|
|
|
1,246,301
|
|
Inventory
|
|
|
114,536
|
|
|
|
90,589
|
|
Prepaid
expenses
|
|
|
12,411
|
|
|
|
12,412
|
|
Other
assets
|
|
|
8,629
|
|
|
|
8,629
|
|
Total
Current Assets
|
|
|
1,627,088
|
|
|
|
1,386,485
|
|
Property
and equipment, net
|
|
|
15,397
|
|
|
|
15,622
|
|
Total
Assets
|
|
$
|
1,642,485
|
|
|
$
|
1,402,107
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,118,469
|
|
|
$
|
642,739
|
|
Interest
payable
|
|
|
356,265
|
|
|
|
257,170
|
|
Due
to former officer
|
|
|
33,301
|
|
|
|
33,301
|
|
Note
payable
|
|
|
530,000
|
|
|
|
530,000
|
|
Convertible
notes payable, net
|
|
|
1,499,664
|
|
|
|
1,497,126
|
|
Total
Current Liabilities
|
|
|
3,537,699
|
|
|
|
2,960,336
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, $0.001 par value; 120,000,000 shares authorized and 44,570,101 shares issued and outstanding
at January 31, 2019 and October 31, 2018
|
|
|
44,570
|
|
|
|
44,570
|
|
|
|
|
|
|
|
|
|
|
Series
B convertible preferred stock, $0.001 par value; 1,000,000 shares authorized and no shares issued and outstanding at January
31, 2019 and October 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Series
C convertible preferred stock, $0.001 par value; 1,000,000 shares authorized and 455,801 and 160,000 shares issued and outstanding
at January 31, 2019 and October 31, 2018, respectively
|
|
|
456
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
Common stock,
$0.001 par value; 1,500,000,000 shares authorized and 1,500,000,000 shares issued and outstanding at January 31, 2019 and
October 31, 2018
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
22,546,899
|
|
|
|
22,545,691
|
|
Common
stock to be issued
|
|
|
456,090
|
|
|
|
456,090
|
|
Accumulated
deficit
|
|
|
(26,443,229
|
)
|
|
|
(26,104,740
|
)
|
Total
Stockholders’ Deficit
|
|
|
(1,895,214
|
)
|
|
|
(1,558,229
|
)
|
Total
Liabilities and Stockholders’ Deficit
|
|
$
|
1,642,485
|
|
|
$
|
1,402,107
|
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
Verus
International, Inc.
Consolidated
Statements of Operations
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
|
January
31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
$
|
2,443,820
|
|
|
$
|
996,125
|
|
Cost
of revenue
|
|
|
2,077,467
|
|
|
|
938,190
|
|
Gross
Profit
|
|
|
366,353
|
|
|
|
57,935
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
98,223
|
|
|
|
147,208
|
|
Legal
and professional fees
|
|
|
111,652
|
|
|
|
68,015
|
|
General
and administrative
|
|
|
193,845
|
|
|
|
66,522
|
|
Total
Operating Expenses
|
|
|
403,720
|
|
|
|
281,745
|
|
Operating
loss
|
|
|
(37,367
|
)
|
|
|
(223,810
|
)
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(101,633
|
)
|
|
|
(48,887
|
)
|
Loss
on legal settlement
|
|
|
(199,489
|
)
|
|
|
(351,853
|
)
|
Total
Other Income (Expense)
|
|
|
(301,122
|
)
|
|
|
(400,740
|
)
|
Loss
from continuing operations before income taxes
|
|
|
(338,489
|
)
|
|
|
(624,550
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
Loss
from continuing operations
|
|
|
(338,489
|
)
|
|
|
(624,550
|
)
|
Discontinued
operations (Note 9)
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
|
117,544
|
|
Net
loss
|
|
$
|
(338,489
|
)
|
|
$
|
(507,006
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
from discontinued operations per common share - basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – basic and diluted
|
|
|
1,500,000,000
|
|
|
|
274,118,608
|
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
Verus
International, Inc.
Consolidated
Statement of Changes in Stockholders’ Deficit
For
the Three Months Ended January 31, 2019
and 2018
(Unaudited)
|
|
Preferred
Stock A
|
|
|
Preferred
Stock B
|
|
|
Preferred
Stock C
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Common
Stock
to be
|
|
|
Accumulated
|
|
|
Total
Stockholder’s
|
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Capital
|
|
|
Issued
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance,
October 31, 2018
|
|
|
44,570,101
|
|
|
$
|
44,570
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
160,000
|
|
|
$
|
160
|
|
|
|
1,500,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
22,545,691
|
|
|
$
|
456,090
|
|
|
$
|
(26,104,740
|
)
|
|
$
|
(1,558,229
|
)
|
Shares
issued under Exchange Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,801
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
1,208
|
|
|
|
|
|
|
|
|
|
|
|
1,504
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(338,489
|
)
|
|
|
(338,489
|
)
|
Balance,
January 31, 2019
|
|
|
44,570,101
|
|
|
$
|
44,570
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
455,801
|
|
|
$
|
456
|
|
|
|
1,500,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
22,546,899
|
|
|
$
|
456,090
|
|
|
$
|
(26,443,229
|
)
|
|
$
|
(1,895,214
|
)
|
|
|
Preferred
Stock A
|
|
|
Preferred
Stock B
|
|
|
Preferred
Stock C
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Other
Comprehensive
Income
|
|
|
Accumulated
|
|
|
Total
Stockholder’
s
|
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Shares
|
|
|
Par
|
|
|
Capital
|
|
|
(Loss)
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance,
October 31, 2017
|
|
|
100,000
|
|
|
$
|
100
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
160,000
|
|
|
$
|
160
|
|
|
|
249,369,810
|
|
|
$
|
249,370
|
|
|
$
|
22,409,041
|
|
|
$
|
(53,285
|
)
|
|
$
|
(23,403,963
|
)
|
|
$
|
(798,577
|
)
|
Shares
Issued for Conversion of Promissory Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,517,696
|
|
|
|
99,518
|
|
|
|
114,687
|
|
|
|
|
|
|
|
|
|
|
|
214,205
|
|
Shares
issued under Monaker litigation settlement
|
|
|
44,470,101
|
|
|
|
44,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,559,890
|
|
|
|
10,560
|
|
|
|
275,150
|
|
|
|
|
|
|
|
|
|
|
|
330,180
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,564
|
)
|
|
|
|
|
|
|
(13,564
|
)
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(507,006
|
)
|
|
|
(507,006
|
)
|
Balance,
January 31, 2018
|
|
|
44,570,101
|
|
|
$
|
44,570
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
160,000
|
|
|
$
|
160
|
|
|
|
359,447,396
|
|
|
$
|
359,448
|
|
|
$
|
22,798,878
|
|
|
$
|
(66,849
|
)
|
|
$
|
(23,910,969
|
)
|
|
$
|
(774,762
|
)
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
Verus
International, Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
|
January
31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(338,489
|
)
|
|
$
|
(624,550
|
)
|
Net
income from discontinued operations
|
|
|
-
|
|
|
|
117,544
|
|
Adjustments
to reconcile net loss to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
225
|
|
|
|
-
|
|
Amortization
of debt discount
|
|
|
2,538
|
|
|
|
5,440
|
|
Legal
settlement settled in shares
|
|
|
-
|
|
|
|
289,483
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in accounts receivable
|
|
|
(197,459
|
)
|
|
|
4,874
|
|
(Increase)
Decrease in inventory
|
|
|
(23,946
|
)
|
|
|
155,499
|
|
Increase
in other assets
|
|
|
-
|
|
|
|
(84,665
|
)
|
Increase
(Decrease) in accounts payable and accrued expenses
|
|
|
576,329
|
|
|
|
(70,493
|
)
|
Net
cash provided by (used in) operating activities of continuing operations
|
|
|
19,198
|
|
|
|
(324,412
|
)
|
Net
cash used in operating activities of discontinued operations
|
|
|
-
|
|
|
|
(13,774
|
)
|
Net
cash provided by (used in) operating activities of continuing and discontinued operations
|
|
|
19,198
|
|
|
|
(338,186
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible promissory notes
|
|
|
-
|
|
|
|
683,000
|
|
Payments
applied to convertible promissory notes
|
|
|
-
|
|
|
|
(40,000
|
)
|
Net
cash provided by financing activities of continuing operations
|
|
|
-
|
|
|
|
643,000
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
19,198
|
|
|
|
304,814
|
|
Cash
at beginning of period
|
|
|
28,554
|
|
|
|
251,301
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
47,752
|
|
|
$
|
556,115
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
|
$
|
17,952
|
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
|
|
For
the Three Months Ended
|
|
|
|
January
31,
|
|
|
|
2019
|
|
|
2018
|
|
Supplemental disclosure
of non-cash operating activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of accrued
compensation through issuance of Series C Preferred Stock:
|
|
|
|
|
|
|
|
|
Value
|
|
$
|
1,504
|
|
|
$
|
-
|
|
Shares
|
|
|
295,801
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of convertible
notes payable, accrued interest and professional fees through issuance of Common Stock:
|
|
|
|
|
|
|
|
|
Value
|
|
$
|
-
|
|
|
$
|
214,205
|
|
Shares
|
|
|
|
|
|
|
99,517,696
|
|
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
NOTE
1: NATURE OF BUSINESS AND BASIS OF PRESENTATION
Organization
and Nature of Business
Verus
International, Inc., including its wholly-owned subsidiary, are collectively referred to herein as “Verus,” “VRUS”,
“Company,” “us,” or “we”.
We
were incorporated in the state of Delaware under the name Spectrum Gaming Ventures, Inc. on May 25, 1994. On October 10, 1995,
we changed our name to Select Video, Inc. On October 24, 2007, we filed a Certificate of Ownership with the Delaware Secretary
of State whereby Webdigs, Inc., our wholly-owned subsidiary, was merged with and into us and we changed our name to Webdigs, Inc.
On
October 9, 2012, we consummated a share exchange (the “Exchange Transaction”) with Monaker Group, Inc. (formerly known
as Next 1 Interactive, Inc.), a Nevada corporation (“Monaker”) pursuant to which we received all of the outstanding
equity in Attaché Travel International, Inc., a Florida corporation and wholly owned subsidiary of Monaker (“Attaché”)
in consideration for the issuance of 93 million shares of our newly designated Series A Convertible Preferred Stock to Monaker.
Attaché owned approximately 80% of a corporation named RealBiz Holdings Inc. which is the parent corporation of RealBiz
360, Inc. (“RealBiz”). As a condition to the closing of the Exchange Transaction, on October 3, 2012, we filed a Certificate
of Ownership with the Delaware Secretary of State whereby RealBiz Media Group, Inc., our wholly-owned subsidiary, was merged with
and into us and we changed our name to RealBiz Media Group, Inc.
On May
1, 2018, Verus Foods MENA Limited (“Verus MENA”) entered into a Share Purchase and Sale Agreement with a purchaser
(the “Purchaser”) pursuant to which Verus MENA sold 75 shares (the “Gulf Agro Shares”) of Gulf Agro Trading,
LLC (“Gulf Agro”), representing 25% of the common stock of Gulf Agro, to the Purchaser. In consideration for the Gulf
Agro Shares, the Purchaser was assigned certain contracts executed during a specified period of time. Upon the consummation of
the transaction contemplated by the Share Purchase and Sale Agreement, the Purchaser obtained a broader license for product distribution.
All liabilities of Gulf Agro remained with Gulf Agro.
Until July
31, 2018, we operated a real estate segment which generated revenue from service fees (for video creation and production and website
hosting (ReachFactor)) and product sales (Nestbuilder Agent 2.0 and Microvideo app). The real estate segment was formed through
the merging of three divisions: (i) our fully licensed real estate division (formerly known as Webdigs); (ii) our television media
contracts division (Home Preview Channel /Extraordinary Vacation Homes); and (iii) our Real Estate Virtual Tour and Media group
division (RealBiz 360). The assets of these divisions were used to create a new suite of real estate products and services that
created stickiness through the utilization of video, social media and loyalty programs. At the core of our programs was our proprietary
video creation technology which allowed for an automated conversion of data (text and pictures of home listings) to a video with
voice and music. We provided video search, storage and marketing capabilities on multiple platform dynamics for web, mobile and
television. Once a home, personal or community video was created using our proprietary technology, it could be published to social
media, emailed or distributed to multiple real estate websites, broadband or television for consumer viewing.
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.
Basis
of Presentation
The
unaudited interim consolidated financial information furnished herein reflects all adjustments, consisting only of normal recurring
items, which in the opinion of management, are necessary to fairly state the Company’s financial position, results of operations
and cash flows for the dates and periods presented and to make such information not misleading. Certain information and footnote
disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) have been omitted pursuant to rules and regulations of the Securities
and Exchange Commission (the “SEC”); nevertheless, management of the Company believes that the disclosures herein
are adequate to make the information presented not misleading.
The
unaudited consolidated financial statements for the three months ended January 31, 2019 and 2018 include the operations of Verus
MENA effective May 1, 2018, Verus Foods effective January 2017, and Gulf Agro Trading, LLC through April 30, 2018 (see Note 11).
The historical operations of the Company’s real estate segment which were spun-off effective as of August 1, 2018, are reported
as discontinued operations for the three months ended January 31, 2018. All significant intercompany accounts and transactions
have been eliminated in the consolidation.
These
unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial
statements for the year ended October 31, 2018, contained in the Company’s Annual Report on Form 10-K filed with the SEC
on March 19, 2019. The results of operations for the three months ended January 31, 2019, are not necessarily indicative of results
to be expected for any other interim period or the fiscal year ending October 31, 2019.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of unaudited consolidated financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the unaudited consolidated financial statements and reported amounts of revenues and expenses 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, stock-based compensation and the deferred tax asset valuation allowance.
Reclassifications
Certain
reclassifications have been made to prior year’s unaudited consolidated financial statements to enhance comparability with
the current year’s unaudited consolidated financial statements, including, but not limited to, presenting the spin-off of
the Company’s real estate segment as discontinued operations for the three months ended January 31, 2018.
Concentrations
of Credit Risk
The
Company’s food products accounts receivable, net and revenues are geographically concentrated with customers located in
the GCC countries. In addition, significant concentrations exist with a limited number of customers. The loss of one or more of
our top customers, or a substantial decrease in demand by any of those customers for our products, could have a material adverse
effect on our business, results of operations and financial condition.
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 the Company purchases could adversely affect its operating results
if the Company is unable to fully offset the effect of these increased costs through price increases, and the Company can provide
no assurance that it will be able to pass along such increased costs to the Company’s customers. Furthermore, if the Company
cannot obtain sufficient food products or its suppliers cease to be available, the Company could experience shortages in its food
products or be unable to meet its commitments to customers. Alternative sources of food products, if available, may be more expensive.
For periods in which the prices are declining, the Company may be required to write down its inventory carrying cost which, depending
on the extent of the differences between market price and carrying cost, could have a material adverse effect on the Company’s
consolidated results of operations and financial position.
Cash
and Cash Equivalents
For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money
market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents.
There were no cash equivalents at January 31, 2019 and October 31, 2018.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
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 we have classified as “available for sale” securities until being spun-off on August
1, 2018 (see Note 10). 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 consolidated 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. At January 31, 2019 and
October 31, 2018, the Company determined there was no requirement for an allowance for doubtful accounts.
Inventory
Inventory
is stated at the lower of net realizable value, determined on the first-in, first-out basis, or cost. Net realizable value is
based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion and transportation.
All inventory are considered finished goods.
Fair
Value of Financial Instruments
The
Company has adopted Accounting Standards Codification (“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.
Revenue
Recognition
Revenue
is derived from the sale of food and beverage products. The Company recognizes revenue when obligations under the terms of a contract
with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured
as the amount of consideration the Company expects to receive in exchange for transferring products. The amount of consideration
the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers
and their customers. In the event any discounts, sales incentives, or similar arrangements are agreed to with a customer, such
amounts are estimated at time of sale and deducted from revenue. Sales taxes and other similar taxes are excluded from revenue
(see Note 4).
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 SEC issued Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment No. 107
(“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.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Convertible
Debt Instruments
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the Financial Accounting Standards Board
(“FASB”) ASC. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and
as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.
Foreign
Currency
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 Unaudited Consolidated Statements of Operations as a component of accumulated other 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 Unaudited Consolidated Statements of Operations
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 tax years ended October 31, 2018
and 2017.
Earnings
Per Share
In
accordance with the provisions of FASB ASC Topic 260,
Earnings per Share
, basic earnings per share (“EPS”)
is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding
during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating
EPS on a diluted basis.
In
computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included.
The effect of contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported.
Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the three months ended January
31, 2019 and January 31, 2018 as we incurred a net loss for those periods. At January 31, 2019, there were outstanding warrants
to purchase up to 21,205,000 shares of the Company’s common stock and approximately 695,000,000 shares of the Company’s
common stock to be issued, which may dilute future EPS. At January 31, 2018, there were outstanding warrants to purchase up to
16,786,467 shares of the Company’s common stock and approximately 256,000,000 shares of the Company’s common stock
to be issued, which may dilute future EPS.
Shipping
and Handling Costs
Shipping
and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for three
months ended January 31, 2019 and 2018 was $73,915 and $32,341, respectively.
Concentrations,
Risks and Uncertainties
The
Company’s ongoing operations are related to the international food industries, and its prospects for success are tied indirectly
to interest rates and the worldwide demand for the Company’s food and beverage products.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Adopted Accounting Standards
Effective
November 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance
sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and
is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in US
GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the
goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that
were not addressed completely in the prior accounting guidance. The Company adopted ASC 606 using the modified retrospective method,
which did not have an impact on its consolidated financial statements. The Company expects the impact to net income of the new
standard will be immaterial on an ongoing quarterly and annual basis. The comparative information has not been restated and continues
to be reported under the accounting standards in effect for those periods. Refer to Note 4 for additional information regarding
the Company’s adoption of ASC 606.
Effective November 1, 2018,
the Company adopted Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides clarification on classifying a variety
of activities within the statement of cash flows. The Company determined the adoption of ASU 2016-15 did not have a material impact
on its consolidated financial statements.
Effective
November 1, 2018, the Company adopted ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”),
which changes the presentation of restricted cash and cash equivalents on the statement of cash flows by including restricted
cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the statement of cash flows. The Company determined the adoption of ASU 2016-18 did not have a material
impact on its consolidated financial statements.
Effective
November 1, 2018, the Company adopted ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”), which 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 Company determined
the adoption of ASU 2017-01 did not have a material impact on its consolidated financial statements.
Effective November 1, 2018,
the Company adopted ASU 2017-09,
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
(“ASU
2017-09”), which clarifies and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance
in Topic 718,
Compensation—Stock Compensation
, to a change to the terms or conditions of a share-based payment award.
The Company determined the adoption of ASU 2017-09 did not have a material impact on its consolidated financial statements.
Effective
November 1, 2018, the Company adopted ASU 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities
(“ASU 2017-12”), which provides new guidance about income statement classification and
eliminates the requirement to separately measure and report hedge ineffectiveness. The Company determined the adoption of ASU
2017-12 did not have a material impact on its consolidated financial statements.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Issued Accounting Standards Not Yet Adopted
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 consolidated financial statements.
In August 2018, the FASB issued
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair
Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based
on the concepts in the Concept Statement, including the consideration of costs and benefits. The standard is effective for the
Company as of November 1, 2020, with early adoption permitted. The Company does not expect the adoption of this guidance to have
a material impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying unaudited consolidated financial statements.
NOTE
3: GOING CONCERN
The
accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The
Company incurred a net loss of $338,489 and has generated positive cash flows from operations of $19,198 for the three months
ended January 31, 2019. At January 31, 2019, the Company had a working capital deficit of $1,910,611, and an accumulated deficit
of $26,443,229. 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 unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern.
In
order to meet its working capital needs through the next twelve months from the date of this filing and to fund the growth of
the food business, the Company may consider plans to raise additional funds through the issuance of equity or debt. Although the
Company intends to obtain additional financing to meet its cash needs, the Company may be unable to secure any additional financing
on terms that are favorable or acceptable to it, if at all.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
NOTE
4: REVENUE
The
Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Product sales occur
once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects
to receive in exchange for transferring products. The amount of consideration the Company receives and revenue the Company recognizes
varies with changes in customer incentives the Company offers to its customers and their customers. Sales taxes and other similar
taxes are excluded from revenue.
The
adoption of ASC 606 resulted in no impact to the individual financial statement line items of the Company’s unaudited Condensed
Consolidated Statements of Operations during the three months ended January 31, 2019.
Information
about the Company’s net revenue by country is as follows:
Three
Months Ended January 31,
|
|
2019
|
|
|
2018
|
|
Kingdom
of Saudi Arabia
|
|
$
|
196,649
|
|
|
$
|
119,578
|
|
Oman
|
|
|
199,518
|
|
|
|
91,713
|
|
Bahrain
|
|
|
311,989
|
|
|
|
216,071
|
|
United
Arab Emirates
|
|
|
1,735,664
|
|
|
|
568,763
|
|
Net
revenue
|
|
$
|
2,443,820
|
|
|
$
|
996,125
|
|
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
January 31, 2019 and October 31, 2018, there was $624,564 and $622,026 of convertible notes payable outstanding, net of discounts
of $2,227 and $4,765, respectively. Additionally, at January 31, 2019, 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%. At January 31, 2019, the principal
amount of the notes, including accrued interest totaled $1,792,790, consisting of $875,100 of default principal and $241,013 of
default interest.
During
the three months ended January 31, 2019, there were no conversions of convertible notes into shares of the Company’s common
stock and no payments toward the outstanding balances of convertible notes.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
NOTE
6: NOTE PAYABLE
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 amendment no. 1 dated
January 26, 2019 to the promissory note issued in favor of the Donald P. Monaco Insurance Trust (the “Note”) in the
amount of $530,000, with an annual interest rate of 12%, whereby (i) the maturity date of the Note was amended from January 26,
2019 to January 26, 2020 and (ii) the Company agreed to use its best efforts to prepay the unpaid principal amount of the Note
together with all accrued but unpaid interest thereon on or prior to March 31, 2019; provided, however, that the failure by the
Company to prepay such amount by March 31, 2019 would not result in an event of default pursuant to the terms of the Note.
Subsequently,
the Company entered into amendment no. 2 dated February 8, 2019 to the Note, whereby the maturity date of the Note was amended
to November 8, 2019.
At January
31, 2019, the Company was in compliance with the terms of this note payable.
NOTE
7: STOCKHOLDERS’ DEFICIT
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, $0.001 par value per shares, of which 1,500,000,000 are outstanding at January 31, 2019
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 at January 31, 2019, (B) 1,000,000 shares have been designated
as Series B Convertible Preferred Stock, of which no shares are outstanding at January 31, 2019 and (C) 1,000,000 have been designated
as Series C Convertible Preferred Stock, of which 455,801 shares are outstanding at January 31, 2019. At January 31, 2019, the
Company does not have any shares of common stock available for issuance, which triggered a default on certain convertible notes
payable (see Note 5).
On January 11, 2019, stockholders
holding a majority of the voting power of the Company’s issued and outstanding shares of voting stock, executed a written
consent approving 1) an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate
of Incorporation”) to (i) increase the number of authorized shares of common stock of the Company to 7,500,000,000 shares
from 1,500,000,000 shares and (ii) decrease the par value of the common stock and preferred stock to $0.000001 from $0.001 per
share; and 2) granting discretionary authority to the Company’s Board of Directors to amend the Certificate of Incorporation
to effect one or more consolidations of the issued and outstanding shares of common stock of the Company, pursuant to which the
shares of common stock would be combined and reclassified into one share of common stock at a ratio within the range from 1-for-2
up to 1-for-400 (the “Reverse Stock Split”), provided that, (X) that the Company may not effect Reverse Stock Splits
that, in the aggregate, exceed 1-for-400, and (Y) any Reverse Stock Split may not be completed later than January 11, 2020. The
increase in authorized shares of common stock will occur upon the filing of an amendment to the Company’s Certificate of
Incorporation which amendment may not be filed prior to such date that is at least 20 days after the mailing of the Company’s
information statement on Schedule 14C to stockholders of the Company. As of the date of this filing, the Company has not increased
its authorized shares of common stock.
Common
Stock
During
the three months ended January 31, 2019, no shares of the Company’s common stock were issued.
At
January 31, 2019, the Company was committed to issue warrants to purchase 15,000,000 shares of its common stock under the provisions
of the employment agreement of its Chief Executive Officer.
At January 31, 2019, the Company
was committed to issue 152,029,899 shares of its common stock as a result of the settlement agreement by and among the Company,
Monaker, American Stock Transfer & Trust Company, LLC and NestBuilder executed on or about December 22, 2017. In addition,
at January 31, 2019, there were warrants to purchase up to 21,205,000 shares of the Company’s common stock outstanding and
approximately 695,000,000 shares of the Company’s common stock to be issued which may dilute future EPS.
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 following assumptions for warrants earned during the three months ended January 31, 2019:
Expected volatility
|
|
|
1.46
|
%
|
Weighted-average volatility
|
|
|
1.46
|
%
|
Expected dividends
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
1.0
|
|
Risk-free rate
|
|
|
2.56
|
%
|
The
following table sets forth common share purchase warrants outstanding as of January 31, 2019:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Value
|
|
Outstanding,
October 31, 2018
|
|
|
123,761,716
|
|
|
$
|
0.007
|
|
|
$
|
0.00
|
|
Warrants
granted and issued
|
|
|
15,000,000
|
|
|
$
|
0.006
|
|
|
$
|
0.00
|
|
Warrants
forfeited
|
|
|
(117,556,716
|
)
|
|
$
|
(0.006
|
)
|
|
$
|
0.00
|
|
Outstanding,
January 31, 2019
|
|
|
21,205,000
|
|
|
$
|
0.007
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issuable upon exercise of warrants
|
|
|
21,205,000
|
|
|
$
|
0.014
|
|
|
$
|
0.00
|
|
Series
C Convertible Preferred Stock
On
December 28, 2018, the Board of Directors awarded the Company’s Chief Executive Officer 295,801 shares of Series C Preferred
Stock, in exchange for 117,556,716 of his warrants to acquire shares of Common Stock and a 501,130 share Common Stock bonus as
approved by the Board of Directors related to the Company’s fiscal 2018 performance.
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
NOTE
8: COMMITMENTS AND CONTINGENCIES
Mid-Atlantic
CFO Advisory Services (“Mid-Atlantic”) v. Verus Foods and Anshu Bhatnagar, Case No. 2018-16824. This case stems from
the Company’s use of Mid-Atlantic’s services for certain business transactions and the Company’s failure to
pay for such services. On December 28, 2018, a Confirmation of Arbitration Award and Final Judgment Order was approved, awarding
Mid-Atlantic an amount which included claimed services, attorney’s fees, arbitration costs and fees, and interest of 4%
percent per annum from November 22, 2018. At January 31, 2019, the amount due to Mid-Atlantic under this judgment, including interest,
was $199,489 and is included within other income (expense) in our Unaudited Consolidated Statements of Operations for the three
months ended January 31, 2019.
Note
9: Segment reporting
Through
July 31, 2018, the Company had two reportable segments: real estate and food products. On August 1, 2018, the real estate segment
was spun-off into a separate public company, leaving the Company with only the food products segment (see Note 10).
NOTE
10: DISCONTINUED OPERATIONS
Through
July 31, 2018, we operated a real estate segment which generated revenue from service fees (for video creation and production
and website hosting (ReachFactor)) and product sales (Nestbuilder Agent 2.0 and Microvideo app). The real estate segment was formed
through the merging of three divisions: (i) our fully licensed real estate division (formerly known as Webdigs); (ii) our TV media
contracts (Home Preview Channel /Extraordinary Vacation Homes) division; and (iii) our Real Estate Virtual Tour and Media group
(RealBiz 360). The assets of these divisions were used to create a new suite of real estate products and services that created
stickiness through the utilization of video, social media and loyalty programs. At the core of our programs was our proprietary
video creation technology which allowed for an automated conversion of data (text and pictures of home listings) to a video with
voice and music. We provided video search, storage and marketing capabilities on multiple platform dynamics for web, mobile and
TV. Once a home, personal or community video was created using our proprietary technology, it could be published to social media,
email or distributed to multiple real estate websites, broadband or television for consumer viewing.
As
a result of the spin-off of our real estate segment, all related assets and liabilities for periods prior to August 1, 2018 are
disclosed net as current assets and current liabilities within the consolidated balance sheets, and all related income and expenses
are disclosed net as income from discontinued operations within the consolidated statements of operations.
The
revenues and expenses associated with discontinued operations included in our Unaudited Consolidated Statements of Operations
for the three months ended January 31, 2018 were as follows:
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
Revenue
|
|
$
|
70,016
|
|
|
$
|
996,125
|
|
|
$
|
1,066,141
|
|
Cost
of revenue
|
|
|
19,800
|
|
|
|
938,190
|
|
|
|
957,990
|
|
Gross
Profit
|
|
|
50,216
|
|
|
|
57,935
|
|
|
|
108,151
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
35,375
|
|
|
|
147,208
|
|
|
|
182,583
|
|
Selling
and promotions expense
|
|
|
133
|
|
|
|
-
|
|
|
|
133
|
|
Legal
and professional fees
|
|
|
47,000
|
|
|
|
68,015
|
|
|
|
115,015
|
|
General
and administrative
|
|
|
12,062
|
|
|
|
66,523
|
|
|
|
78,585
|
|
Total
Operating Expenses
|
|
|
94,570
|
|
|
|
281,746
|
|
|
|
376,316
|
|
Operating
loss
|
|
|
(44,354
|
)
|
|
|
(223,811
|
)
|
|
|
(268,165
|
)
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(472
|
)
|
|
|
(48,887
|
)
|
|
|
(49,358
|
)
|
Gain
(Loss) on legal settlement of accounts payable and convertible debt
|
|
|
162,370
|
|
|
|
(351,853
|
)
|
|
|
(189,483
|
)
|
Total
Other Income (Expense)
|
|
|
161,899
|
|
|
|
(400,740
|
)
|
|
|
(238,841
|
)
|
Income
(loss) before income taxes
|
|
|
117,544
|
|
|
|
(624,550
|
)
|
|
|
(507,006
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss)
|
|
$
|
117,544
|
|
|
$
|
(624,550
|
)
|
|
$
|
(507,006
|
)
|
VERUS
INTERNATIONAL, INC.
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2019 AND 2018
(UNAUDITED)
NOTE
11: BUSINESS DIVESTITURE
On
May 1, 2018, Verus MENA entered into a Share Purchase and Sale Agreement with the Purchaser pursuant to which Verus MENA sold
75 shares of Gulf Agro, representing 25% of the common stock of Gulf Agro, to the Purchaser. In consideration for the Gulf Agro
Shares, the Purchaser was assigned certain contracts executed during a specified period of time. All liabilities of Gulf Agro
remained with Gulf Agro. This transaction benefited Verus MENA by providing Verus MENA with a broader license for product distribution
and full control of all intellectual property rights.
NOTE
12: SUBSEQUENT EVENTS
In
connection with the closing of the transactions contemplated by the SPA, the Company entered into amendment no. 2 dated February
8, 2019 to the Note, whereby the maturity date of the Note was amended to November 8, 2019 (see Note 6).
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
April 10, 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 January 31, 2019, 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 SPA,
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 5
th
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 SPA, the Company used a portion of such proceeds to pay off all convertible note holders
at an aggregate amount less than the total amount due, which consisted of the principal amount of the notes, accrued interest,
and penalties consisting of default principal and interest. The aggregate 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.
PART
II- INFORMATION NOT REQUIRED IN PROSPECTUS