Verus International, Inc. (OTCQB:VRUS) Q1 2020 Earnings Conference Call April 29, 2020 4:30 PM ET
Company Participants
Mark Forney - Investor Relations
Anshu Bhatnagar - Chief Executive Officer
Chris Cutchens - Chief Financial Officer
Conference Call Participants
Operator
Greetings. Welcome to the Verus International First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded.
I will now turn the conference over to our host, Mark Forney, Investor Relations. Thank you. You may begin.
Mark Forney
Good afternoon, everyone, and welcome to Verus International’s Fiscal 2020 Q1 Earnings Conference Call. As a reminder, Verus' Q1 ended on January 31st, 2020. So, all figures presented in through these periods will reflect that end date.
Earlier today, we issued our fiscal year 2200 Q1 financial results. A copy of the press release is available on the Investor Relations section of our website and the financials are posted on EDGAR. We report our financials in US dollars. So, today's discussion will use that currency, unless otherwise noted.
Before beginning our formal remarks, I'd like to remind listeners that today's discussion may contain forward-looking statements that reflect management's current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Verus does not undertake to update any forward-looking statements except as required.
At this point, I am pleased to turn the call over to Verus CEO, Anshu Bhatnagar. Please go ahead.
Anshu Bhatnagar
Thank you, Mark. As you’ve seen in our financial press release, we just reported another revenue record quarter, posting a 153% year-over-year increase. This is our first quarter with over $6 million in revenue. Today is an important filing for us, because it puts our financials back on to our regular calendar schedule.
I will let Chris provide details on the full financials, but I would like to note that we achieved this strong sales growth without any contributions from Big League Foods, as that subsidiary was in its product redesign process for the entire quarter.
So I think you can see, what kind of a revenue growth we have in front of us as the new MLB products began to ramp up deliveries in 2020. And even more importantly, as our protective gear business begins to contribute in a bigger way in future quarters.
I will talk a bit later in the call about some of our other units, but I want to start off by laying our vision for Verus Cares, our new medical protective supply division. This division evolved out of our previously announced Top Apparel Manufacturing or TAM transaction in the Philippines and is a vehicle by which we intend to create a global protective gear revenue stream.
Before I start, I would like to officially welcome the new President of Verus Cares division, Anders Gratte to the Verus team. Anders was one of the co-owners of TAM. So he brings a readymade understanding of the business to this position. He is truly international with successful enterprises on multiple continents.
Based just on the initial customer contacts at Verus Cares, this subsidiary will be our most international business. So having that level of global experience is invaluable.
I will also like to mention that Michael McGowan, our General Counsel has accepted a new role as Vice President and Deputy General of Newstar, one of his clients from recent years.
We learned a great deal from Michael and given his background, we aren’t surprised to see a billion dollar company steal him away from us. We are grateful for the time he spent on our team. Based on our current needs, we plan on looking for a replacement as soon as possible.
I know that some investors are wondering why we would enter this space, but the answer is simple. It is a business where we can use our expertise in international commerce to carve out sustainable market share. This market is so large that gaining just a sliver of the global pie could worth all other business units combined. That is a long-term vision. Shorter-term, the demand is too strong to ignore.
Before we move forward with the TAM deal, we conducted a team-wide analysis of the opportunity. It became very apparent early that the global need for protective gear was extraordinary and growing.
That was obvious, but what was less obvious was, how long the demand might last. How we might participate in the early search and how we could craft a quality product line that might have some staying power over the duration of the demand cycle.
I think it’s important to examine our strategy, point-by-point, laying out what we think could be a transformative, new revenue source for our company. Point number one, it is well-known that the potential in the U.S. is enormous, but the opportunity is even larger globally.
The first evidence of this, we just announced our first order, an $820,000 disposable medical down agreement with a Danish customer. This was a great first order, but despite its significant size, it’s considered a trial order. That should give everyone an idea of the scale of the supply agreements being signed for protective equipment in an era where a trial order can approach $1 million.
A second feature, which is a tremendous advantage of large unit size orders is, the customers typically wire 30% to 40% deposit prior to production. That makes a portion of each order self-funding. The ramifications are outstanding as prepayments significantly derisk each transaction and greatly reduce our working capital needs and we expect to see that replicated on very large orders.
This has a potential to create a revenue snowball effect where the entire enterprise eventually becomes self-funding. We didn’t enter business blindly. We did so with customer orders in hand of significant size, all contingent on supplying samples to prospective customers. That is the next stage and will be the primary focus in early May.
A common question is, will the demand cycle last? We studied this extensively. Modeled it against past epidemics and believe that there will eventually be excess supply in some categories. But we believe that the supply curve will take longer to catch-up in the reusable space and in general, will have a longer duration than some past epidemic surges.
Our model shows several phases of this cycle including the next flu season, which is October to March, with varying, but continued demand into 2021.
Point number three, while less discussed is a practical consideration. Some customers have expressed a desire to establish alternative sources of supply from new geographies. So we can check that box as well.
We are getting a lot of request concerning capacity. But as we examine our book of request, that becomes a little more complicated, because the requests are spread out among, masks, gowns, gloves and protective suits which all have different manufacturing characteristics.
So the best way to measure our progress may not be in units, but in dollar value of the contracts we announce. Though the mask segment has received a majority of the interest in the press as our first order shows the market for gowns, and other protective gear are also as important and very large. Masks are obviously the main area of interest.
So we think that two million masks a week are possible within our current footprint. But we have already made contingency plans to ramp up production as needed. We have tie-ups with facilities in both India and Vietnam in case our order book develops too rapidly.
So we have a good plan in place for a number of different contingencies. We are currently working on the logistics of supply material for production, but expect to have that in place during the next few weeks. There is a common misconception that our mask design is not U.S.-ready, because it’s not NIOSH-approved yet.
We will be seeking that approval in the near future, but want to remind investors that our masks was already tested by an accredited Utah-based laboratory and exceeds N-95 standards in the key categories, efficiency and particle size. So, many of our requests are from U.S. sources who have seen these superior specs even prior to NIOSH approval.
We will advice everyone on the certification process, but it would be incorrect to think that this is preventing us from moving forward with customers around the world. Most recently, the Philippines manufacturing facility has been making masks for the domestic market and that last count had produced more than 40,000 masks for local use.
So, to recap where we are in the Verus Cares division, our initial step is to begin shipping sample masks sets to pending customers for review which we hope to commence in early May. As qualifying samples are approved, full production will begin upon receipt of an initial deposit from each customer.
We are in the process of streamlining our supply chain and expect to announce logistical and other manufacturing details over the next 30 days.
We are not prepared to discuss margin, but we believe we, can offer competitive pricing with enough cushion to remain quite profitable when pricing normalizes in the future. If the pending orders we already have in hand are approved by customers following receipt of samples, the quantities would have a material effect on our 2020 projections.
I would also like to note that Verus will recognize 100% of the revenue generated through this division, so each order will add top-line growth.
At this point, I will turn the call over to Chris to discuss our financials.
Chris Cutchens
Thanks, Anshu. As you have already seen in our financial release, this was another record quarter for Verus. I will discuss the quarter first, but I also intend to bring everyone up-to-date on some important and positive events that took place after quarter end.
The first quarter of fiscal 2020 saw a return to our previous growth rate as our revenue increased 153% to approximately $6.2 million for the three months ended January 31, 2020, compared to approximately $2.4 million for the three months ended January 31, 2019.
As Anshu noted, this was entirely GCC business and included no contribution from our Big League Foods subsidiary while we retooled the candy by moving to baseball ping shapes and more professional packaging. The geographic contribution of revenue was similar to prior quarters in the GCC coming from Saudi Arabia, Bahrain, Oman and the UAE.
A benefit of this core GCC business is it allows us to develop other product categories, such as Big League Foods products, while still generating revenue growth. For those of you who have seen and tasted the newly designed MLB candies, you know what the end result of careful planning looks and taste like, so we are much better positioned for the future than in any prior time in our food division.
In addition to triple-digit revenue growth, the quarter also represented a 30% sequential revenue growth over the last quarter, a growth rate desired by many companies. Gross profit grew 209% to approximately $1.1 million for the three months ended January 31, 2020, compared to approximately $400,000 for the comparable prior year period.
Gross profit margins increased 337 basis points reaching a record 18.4% for the current quarter, compared to 15.1% for the prior year comparable period. This increase is a testament to the leverage in our model and precursor of things to come, particularly when higher margin candy and non-food categories begin to contribute more to our revenue mix.
Once these other product categories kick in, we can expect to break the 20% gross profit margin barrier pretty quickly.
Moving to operating expenses. Like prior quarters, non-cash charges obscured our results, specifically, our profitability this quarter. Operating expenses which includes salaries and benefits, stock compensation, selling and promotions expense, legal and professional fees, and general and administrative expenses increased to approximately $2.7 million for the three months ended January 31, 2020, compared to approximately $400,000 for the comparable prior year period, an increase of $2.3 million.
The increase was primarily due to an increase of $1.7 million and stock-based compensation expense related to performance warrants earned by our CEO, and a restricted common stock grant to our CFO, coupled with higher expenses across all other category to support the 153% increase in revenue and higher expenses related to enhancements to our MLB branded products.
Other expenses, which include interest expense and debt-related items increased by approximately $620,000 year-over-year. As I previously referenced briefly, non-cash charges masked our profitability for the quarter.
Excluding non-cash charges for the quarter, which included stock-based compensation and tangible assets amortization and depreciation, we generated pro forma operating income of $139,000. This is exciting as we are beginning to see the effectiveness and leverage of our model.
I want to spend a moment discussing our operating expenses, specifically, the stock-based compensation portion. As operating expense is tied to supporting significant revenue growth are essential, we will continue to make investments as determined appropriate.
However, specific to stock-based compensation, we have made changes that will mitigate the negative effect of such stock-based compensation in future quarters. Before I expand, it is important to note that the CEO’s stock-based compensation playing an effect through reamendment that was filed today is not new and has not been changed since its 2017 effectiveness.
To level set, the terms under the original plan granted a warrant to purchase 7.5 million shares of the company’s common stock for each $1 million in revenue generated by the company in addition to an annual warrant grant to purchase 3% of the when outstanding shares of common stock, until such time as the CEO owned 20% of the when outstanding shares of common stock.
It has become apparent that this structure was not designed for the kind of rapid revenue growth rate we are achieving each quarter. So the amendment filed earlier today is approved by the Board resolved this issue by replacing the revenue and annual warrant provisions with the one-time grant of warrants to purchase shares of the company’s common stock, which increased the CEO’s ownership to 20% of the company’s common shares on a fully diluted basis.
The impact of this amendment is one, a final stock-based compensation expense, related to this one-time grant will be recognized during our second fiscal quarter ending April 30th, 2020. Two, no future stock-based compensation expense after the second fiscal quarter ending April 30th, 2020 related to this matter.
And three, most importantly, this provides true visibility beginning in the third quarter – third fiscal quarter ending July 31st, 2020 to the company’s profitability from operations. This is an important milestone that we are pleased to have resolved at this stage of the company’s lifecycle.
Now there are a few remaining items before I turn the call back over to Anshu. As it relates to our filing status, Verus became current following the filing of its fiscal 2019 10-K and today’s filing of its first quarter fiscal 2020 10-Q, puts us back on to our traditional financial schedule.
This is important in restarting our discussions with sources of commercial financing, which are currently a top priority and have resumed since the filing of our 10-K. Our goal is to replace the current notes with LIBOR Plus to another higher grade financing in the near future. We are confident in being able to achieve this goal.
Additionally, we are pleased to report that we recently received $105,000 under the Federal Government’s COVID-19 Payroll Protection Program or PPP as it is most commonly referred to. This loan carries a 1% interest rate, a two year repayment term and forgiveness of the entire balance in the event certain criteria are met, of which criteria we expect to meet.
We have also applied for a COVID-19 economic injury disaster loan or EIDL as it most commonly referred to in the amount of $2 million. These loans currently carry a 3.75% interest rate, but are less restrictive as the funds can also be used for accounts payable, rent and similar expenses. We have not yet received these funds, but are awaiting the results of our application and ultimate qualifying amount.
And last, but certainly not least, we are extremely excited about our new Verus Cares division and the unique capital dynamic it provides. As Anshu previously mentioned, a typical 20% to 30% deposit wired prior to production significantly derisks each transaction and greatly reduces our working capital needs, while creating a potential structure whereby the entire enterprise eventually becomes self-funding.
At this point, I will turn the call back over to Anshu for some insights of what we see Verus in the coming months.
Anshu Bhatnagar
Thanks, Chris. If we are told us some months ago that we would be unable to travel, Major League Baseball would cancel Opening Day, and our first national and regional chain customers would be in indefinite lockdown, we would have certainly felt the same kind of angst that’s making it hard to get up in the morning for executives at many public companies these days.
And yet, here we are right now with all those conditions in place, but instead feeling exceptionally optimistic about our future. Certainly, we have quite a few challenges in this environment, but all companies have been dealt something they must overcome. But most of our challenges are temporary. We know, baseball will come back and TJ Maxx and other large retailers will eventually open their doors.
But this is not the reason for our optimism. Our optimism comes from heading three great business units at one time, all poised to create fast growing revenue streams in the future. The Middle East is a source of dependable sales, so that is the foundation revenue. Big League Foods business currently in the form of MLB Confections as a main driver has been redesigned in terms of packaging and products.
The response has been phenomenal, not just among retailers, but among other professional sports leagues. Professional sports may be in a state of flux and working on their plans to reopen or start the season, but we have high confidence that we will finalize our partnership with these leagues very soon.
Our Medical Supply division is a largest opportunity we have to-date with the potential to eclipse our other divisions. I have already described the game plan there, the details which are mostly logistic-related. Something we will update regularly as events unfold. But we are done yet.
To end this portion of the call, I want to give a hint of some things to come, things that I am pretty sure will be the subject of future conversation.
We are working on additional M&A that would expand our vertical integration in the U.S. market, new product categories that will utilize our Texas facility as we await the completion of our manufacturing plant and strategic calibrations that will enhance our standing as a public company.
With a quarter, we will have three distinct revenue streams giving us three uncorrelated sources of top-tier growth. We think that will be a winning combination that will put us on track for a future uplift.
At this point, I would like to turn the call over for our Q&A.
Question-And-Answer Session
Operator
[Operator Instructions] Our first question comes from Brian Caruso [Ph]. Please state your question.
Unidentified Analyst
Yes, thanks for taking my question. My question is, what is the timeline and expected challenges to listing the Verus stock on the more common stock exchange such as the NASDAQ or the Dow and what is the timeline and length look like?
Anshu Bhatnagar
Yes, so, that’s a great question and that’s something we are definitely working on. So the big challenge in terms of our listing requirement is a shareholder equity. So the listing requirement for the NASDAQ I believe has a $5 million shareholder equity, while New York Stock Exchange has a $4 million shareholder equity. Now, we don’t need that shareholder equity.
We can actually apply to get on the New York Stock Exchange and do a raise in conjunction with uplifts. So that is something we are or we had considered in the past. Another way to do it is, to actually meet the listing requirements and don’t do a capital raise right now.
And our goal was not do a capital raise of – like $4 million to $5 million capital raise in conjunction with an uplift, because that becomes a little bit expensive, because there is a lot of risk to investors where investors don’t know what impact it’s going to have, that uplift is going to have. So, there is a lot of – sort of variable risk of the stock can go down significantly or what impact it’s going to have overall.
So what our goal was originally for shareholders’ benefit was to say, hey, look, if we can meet that listing requirement prior to an uplift and then uplift without a capital raise and once the stock stabilizes, then do a capital raise. That would be our first choice. So we are still evaluating. We might continue down that same path or we might go in a different direction.
We are actually interviewing and having fantastic conversations with some of the most reputable banks, investment banks out there and we are actually looking at both from a timing perspective and structure perspective what would be the best way to move forward. But this is something that is definitely high on our radar and it’s something we are definitely working towards.
I hope that answers your question.
Operator
Thank you. Our next question comes from Matthew Carlyle [Ph]. Please state your question.
Unidentified Analyst
Hi, great job in the prior quarter. The question that I have, really comes down to the authorized share structure. It seems – I know you guys had addressed it in the prior calls saying that you guys would be addressing the authorized shares. Is that’s something that is tied to the lines of credit? Or is that’s something that you guys are waiting for prior to uplift to adjust that share structure?
Because I believe that’s probably what is affecting us being on the OTC and there being no trust to the OTC. Is that something where you guys are looking to address that core or after an uplift or prior to the uplift directly before it?
Chris Cutchens
Sure, sure. I think that’s a great question. So, that is something we are looking to address and we – and part of getting the authorized change rather up or down requires the information statement and shareholder – mailings to shareholder through a 14-C and that’s a process that we are going to have to take anyway.
So, it’s a couple things we are going to do as part of the uplift. We are going to have to take into account whatever corporate actions that would be required in conjunction with that uplift and that’s something we are working on now.
So we’ve already have in terms of working with our attorneys and bankers in terms of getting governance documents in place, getting our charter updated, getting our bylaws and other documents all in order.
And so, our goal would be shortly and one of the requirements was to get the 10-K to be current on our filings to get all those documents in place and so we can go ahead and move forward with that and get approval on that.
If it turns out that we are looking to uplift within the near future, it would all be in conjunction and we would go ahead and get authorization like we did in the past where we go ahead and have a reverse stock split approved, not done yet and all the other corporate actions that need to be taken, will be taken all at the same time under one mailing, because the cost of mailings are quite expensive and it’s very time-consuming at the same time.
So, it could take anywhere between 60 to 90 days to get that process complete. So, our goal would be to do one information statement that handles it all and so we don’t have to do that two times. So that’s kind of what the plan is and that’s something we would hope to do in the very near future in the next – I would say, hopefully in the next 30 days, we can get that wrapped up.
Operator
Thank you. Our next question comes from Rob [Indiscernible]. Please state your question.
Unidentified Analyst
Hey. How is it going?
Anshu Bhatnagar
Very good.
Unidentified Analyst
I want to ask if it’s possible like, are you guys thinking of maybe given every shareholder the dividend from the Verus International, the Verus Cares?
Anshu Bhatnagar
Yes, good question. As of right now, I don’t think we are in a position for – to give dividends just based on where we are. But look, if everything goes well, that is something we should definitely consider and we will definitely keep – think about that as things continue to move forward. But, yes, the way things are at least projected to move, that might be a possibility.
Operator
Thank you. Next question comes from John Zee [Ph]. Please state your question.
Unidentified Analyst
Hi, thanks for taking my call. My question is, why are the MLB candies not in the convenient stores? Even though they are not supplying baseball, obviously, there is still to be a great amount of interest in picking these out at the convenient stores across the country at this time.
Anshu Bhatnagar
Sure. Another great question. So, yes, we are in talks with a lot of convenient store distributors both on the corporate stores, the corporate-owned convenient stores, as well as independent-owned convenient stores. So we actually have a fairly good reach right now in terms of where we feel that the product will by the end of the year and where we would thought it would be by now.
But I think with MLB not being in season now or they are not playing right now, a lot of our customers are saying, hey, look, let’s just kind of wait and see as soon as they come back and say, look, MLB season is on. We’ll go ahead and place the order, because they feel that is going to happen any day and that would change the amount of orders placed in the convenient stores.
So that is something we are working on and I think the product – our goal was this year to be in about 30,000 convenient stores. And I think that’s a – that was a sort of conservative number that we had and we feel that we could definitely meet that, especially adding the fact that we are adding new leagues and will no longer be a seasonal item. So that was another thing will be just kind of year around.
Operator
Our next question comes from Christopher [Indiscernible]. Please state your question.
Unidentified Analyst
Hi, thanks for taking my call. I have two questions actually. First, what percentage of a typical order does – or trial order represents with regard to the mask production? And secondly, a bit broader, how do you see this garment companies fitting into the overall strategy beyond 2020?
Verus as part of the food company and it might share some logistics benefits, there is perception that we are not taking advantage of all of the leverage that we might have with the previous caller’s question about shelf space for example.
This is clearly a different kind of sale altogether. So, I was hoping you could kind of speak to the overall strategy and how these features fit together? Because it’s not clear to me.
Chris Cutchens
Great question. So, I guess, to your first part of your question percentage, we have certain customers that actually are requesting, hey we want to do a trial order and other customers that said, hey, we just need to see samples, right. So as soon as we get samples in hand, we approve samples, we’ll go ahead and place the order. And so, that’s kind of – it’s just a mix.
So I wouldn’t say there is certain percent I can say is one way or another. But I think I would say, a bulk of them just simply want to see samples and they’ll place the order. They don’t need us a trial – a trial amount as long as we can give them sufficient samples that should be fine. Going into your second part of your question about, how this fits in.
So, two things, right, one is, we try to brand ourselves really as a consumer products company more than a – just a food company. So, clearly, we started off as a food company, but there was a lot of opportunity that came – that sort of has come and will continue to come that will take us well beyond the traditional food channels, right.
So we don’t want to restrict ourselves as long as we are going into convenient, we have a distribution we are in grocery, we are in all the retail channels. It doesn’t matter to us, what product we put in there. It could be cosmetics, it could be perfumes, it can be Ultraceuticals, it can be any other product that we can distribute in the same retail channels.
And that’s really what we want to take advantage of. We want to take advantage of our distribution. We want to take advantage of our international trade and their trade facilities, as well as our credit insurance facilities and alike.
So this allows us to do certain things where other companies kind of struggle and even understanding how to do trade finance and how to do trade transactions is something a lot of – unless you are in that business, you don’t understand how to do it.
So, that’s something we want to take advantage of and we want to continue to take advantage of the fact that we have a sort of distribution both domestic as well as international on the consumer products.
With respect to these specific protective gear and masks, at some point we do feel that, we are not trying to compete against 3M and going after 3M masks, right. That’s not really where we want to play in. What we want to do is, we want to go and target the consumer, the consumer side of the business.
There is a lot of people that need masks when they go out for walks, they go out to grocery stores, those 3M masks are very uncomfortable and they are really not suited for this. Our masks, even though they have the same rating, are far more comfortable and you could make them look good. We can work with other branding and other stuff with our masks to make it more interesting for the end-consumer.
And that’s really what we want to focus on. So we are also in talks with grocery stores and convenient stores who want to buy our products right now and that also opens the doors for other products we can sell and that’s really what we look at. We want to make - sometimes you need a – to get into a particular store, you need the retailer to want your product and then I can sell other products.
So that’s kind of sometimes how it is. So that’s sort of worked well for us in the past. And I think this is going to continue to work well for us right now, because this is a product that people want right now and that would open the door for us to put other products in there.
Operator
Thank you. Our next question comes from Louis Zimmerman [Ph]. Please state your question.
Unidentified Analyst
Yes. Thank you very much. Another fabulous job. Two quick questions. I got on the call, I got disconnected. So I apologize if I am repeating a question. What’s going on with the 8-K from this – maybe this transaction of – as I’d like to call it ZC Top. And I guess, you address that and if you don’t mind, hey, it’s going to make me a shop dressman. If you don’t mind, I’ll come back with my second question.
Anshu Bhatnagar
Sure. So, yes, regarding the 8-K, the way the transaction was structured and sort of the speed of the transaction to get the transaction done, because we had orders in hand and we wanted to move quickly on this at that point. So the way we structured that transaction is, we basically agreed to the terms in a binding term sheet, right.
So, we had a binding term sheet that laid out every transaction term of how this transaction would – how the – all the economics work in that. Then we have an irrevocable agreement that we put in place.
That said that, hey, look, we are going to move forward and the reason we didn’t go straight to a purchase agreement is, because it was a free zone company out of the Philippines and we needed Philippine counsel to add certain language in there, which we weren’t able to get.
So, even though the transaction is complete and irrevocable, there was certain language we wanted to sort of have introduced in the final purchase agreement as it relates to Philippine law, when it comes to the free zone and how the transaction would specifically – all the sort of stuff that needs to be done locally.
And so, when speaking to our counsel, here, they said, look, you don’t – you should 8-K it after that agreement is done. We expect that 8-K to go out hopefully this week. We are hoping to do it before this call. But, just dealing with all that and most likely we are still hoping to get it done this week and that’s really where that stands.
Operator
Thank you. Our next question comes from Brett [Indiscernible]. Please go ahead with your question.
Unidentified Analyst
Hi, thanks for taking my call. I had a question. I know that we had in place already the international financing. And my question is, now that we’ve had that financing in place for possibly about a year or so.
Is there an opportunity to increase that line of credit? And I guess, my second question would be, since it’s been a year or so, how come we have not received any domestic credit, which obviously would be helpful at this point? And can you just shed a little light on those two please?
Anshu Bhatnagar
Sure. So - so, yes to the first part, yes, we are looking to increase our foreign line. That’s something we definitely want to – we want to move forward on sooner than later and that’s – and hopefully we’ll get that in place pretty quickly. Regarding the domestic line, we have approached the bank about getting a separate line of credit that’s domestic.
So that way, the two business units kind of don’t compete against each other. And really what we were kind of waiting for this sort of season to start, so we can kind of – the bank could get more comfortable with the current receivables and orders that we have in hand and get that in place.
It is something that we’ve already reached out to our creditor partner on and they are looking and evaluating that and we hope to get that in place soon.
Operator
Our next question comes from Samira Goel [Ph]. Please state your question. Samira, your line is open. Okay. Our next question comes from Scott [Indiscernible]. Please state your question.
Unidentified Analyst
Hi. Thank you. I’ve got a couple of questions. In regards to Big League Foods, the initial information that we’re getting that was, ice cream was the largest or the focus of the – for Big League Foods and then it’s kind of changed to candy. Has the ice cream portion got on a backburner for now?
And also, in regards to the revenues, there is no revenue showing for the Big League Foods yet. In the first quarter, there was both initial run and a second run that was distributed to the Northeast. Why are we not showing revenues on Big League Foods in the first quarter? And then, also, can you shed a little bit more light on Michael McGowan leaving and plans to replace him? Thank you.
Anshu Bhatnagar
Sure. Great. All right. So, I will take the first and the last question and I will Chris answer the revenue one. I mean, I can answer, but I will take a break. So, regarding the ice creams, that is – it’s still a focus for the company. I mean, it’s not – but with respect to where things are right now, the problem with frozen distribution, it’s a lot more challenging than candies. Candies we can ship everywhere.
We could drop ship the candies and so there is a lot more movement that we have with the candies than we do have with the – on the frozen side. And especially, right now, based on where things are trying to keep inventory of frozen items, it’s far more – more challenging. And so, we are still evaluating and that’s not something we stepped away from.
I think we are going to continue - at least, as of right now, we are still looking to continue the ice cream business. We still have a lot of ice cream in inventory. But it is not something we are heavily focused on at this moment, just because of where the distribution and managing the logistical supply chain and the cold chain which is far more difficult than with candy products. And so, that’s the main reason on that.
Regarding the departure of Michael, it’s just – there was a better opportunity for him or another opportunity for him and we have a good relationship and we saw of a good relationship with him and we are looking to find a replacement which we are already in talks with a few people and trying to work it out the same way we did with Michael.
So, Michael was on as a “General Counsel” through his company, his own practice and it gives us enough time to kind of cry each other out and that’s kind of something we are actually working on right now, as well with other sources to trying to figure out what’s the best replacement would be.
Regarding recognizing Q1 revenue, sales of the product and recognizing Q1, Chris, do you want to take that?
Chris Cutchens
Sure, sure, I’ll start with that. Thank you. So, yes, couple points there specific to Q1. Let’s remember that into January 31. So, that’s been – let us say, it’s now about three months ago. So, during that period of time, as we were refilling the candies.
Although we had a lot of product movement, a lot of that was promotional to get the candies in the hands of the people that needed to receive it to be able to make a decision and then be able to proceed with purchase orders. So, that’s what we saw happening in Q1. Q2, that actually ends tomorrow. We will see certain revenues for the quarter, now that we’ve had the website up and running for a period of time. So, that’s going well.
And so that’s what we’ll see. The one thing I want to also point out is that, to be able to get the product in the right people’s hands, the decision-makers to ultimately make a decision to proceed and obtain purchase orders, purchase don’t equate to invoices.
So, we can’t based on and I won’t bore any one - everyone with the details put it on – on in a candy literature can’t record revenue based on purchase orders, it’s based on satisfied invoices achieving the number of requirements. So, I hope that helps.
Operator
Thank you. Our next question comes from Jacob Bullock [Ph]. Please state your question.
Unidentified Analyst
Yes, hi. I have a couple different questions. One of them is, like about the communication between the companies and their shareholders and if we are actually going to still have that $59 million possible target, and also the last one would be, we were kind of ramped up to believe that we would have this overwhelming information that will quote to delta phases off and we actually haven’t received any of that.
Anshu Bhatnagar
So, yes, communication is kind of a tricky – I guess, is being in the public markets. I mean, we get sort of a mixed review, I think when we started giving out too much information, we started getting complaints that hey you sound like you are promoting the stock and you shouldn’t be doing that.
Just give out sort of appropriate information and when we sort of don’t give out enough information, we get a lot of sort of pushback on that also.
I think, just as a overall philosophy, I think, we tend to just give out anything that’s sort of appropriate and major, we’ll try to 8-K that information or if it’s not 8- K – if it’s not an 8-K event, then we’ll go ahead and put out our press release and kind of talk about certain information. But thoughts and concepts are anything else we are working on.
We try not to do that, it’s just - because it’s just, I think the perception is, I can come across that we are trying to overly promote the stock and that’s really not our objective and that’s not something we are trying to do and so that’s – we just try to give enough communication as appropriate and when appropriate.
Regarding the target, we are, at this point, look, our companies, we’ve been growing pretty well. But there is a lot of changes that are happening. And if the mask business, sort of the protective gear business goes, as well, as we think it might or it should, this number can be a very conservative number.
And if this pandemic goes – there is a lot that can happen. So, it’s really hard to kind of predict at this point as to what the guidance would be for year end. But overall, we are still optimistic.
Operator
Our next question comes from Ken Chang [Ph]. Please state your question.
Unidentified Analyst
Thank you for taking my questions. So, I have a couple of questions, as well. First of all, I know you guys don’t really focus on the stock price and myself, I am not a – I am more of a long-term investor. But it’s sort of displacing to see the stock price at what is currently at. If that’s really out there, it would have been great quarter.
So, I was wondering what your take is on the stock price? I am not going to sugarcoat it, but it’s doing quite badly. And second question is, what you guys are doing about that to make it to come to a more reasonable level so to speak? Thank you.
Anshu Bhatnagar
Sure. No, I appreciate that. Yes, unfortunately, there is not a whole lot we do when it comes to the actual stock price itself that – and I think this is maybe a function of being on the OTC. I don’t know if that’s – or what the sort of reason behind it is.
From our perspective, what we tend to do or what we feel we could do as management is, one, continue to perform, which we have been and continue to communicate and try to get what we need to shareholders to be able to make informed decisions. And the rest is really up to the market as how it reacts.
I feel the frustration. I feel kind of frustrated as well, often when we have the record news or record quarter and the stock goes down and you just don’t understand it and maybe it’s just a function of being on this exchange and that’s it. But there is really not much more we can do to address where the stock price is.
Operator
Thank you. Our next question comes from Kyle Stein [Ph]. Please state your question.
Unidentified Analyst
Hi, I was wondering about, you never say anything about Ian Ron, that sounds like his name, but completely, but – and it’s like product advancement and his job with the company. And I saw that he was coming out with Apps four to five, I was wondering if that was part of it? Your plans at all to go into the App business? And then, how Anshu running two businesses, how that’s working out for him in his opinion?
Anshu Bhatnagar
So, yes, with respect to Ian Ron, yes, so, he is with the company now. He is part of the Verus family and there is a lot of things we are working together on and in terms of and just a lot of changes that are happening on the – because it’s such a new business unit.
So there is a lot that we are going to be sort of going through right now and there is a lot of information that’s going to follow. I am going to – probably, we will see that in forthcoming releases as we kind of build that whole division out and I’ll let kind of Anders start communicating more on that, as well.
With respect to mine being involved in two companies. It’s working out fine. mPhase is a very different company than what Verus is. And the way that mPhase is structured doesn’t required the same level of sort of commitment from my part that Verus does.
So, I tend to spend a lot more – sort of my energy here and Verus – sorry, mPhase is a much larger company in terms of personnel. We have over a hundred employees and other people managing. So we have three people in HR, four people in accounting and this is a whole departments of people that are handling different things and I am really – my involvement is not the same level that I get involved on making the sort of granular decisions that I have to make in – at Verus.
Operator
Thank you. Our next question comes from Kevin Grogan [Ph]. Please state your question.
Unidentified Analyst
Good afternoon. I just had a couple of questions and we haven’t heard anything about the French fry operation. I would like to know about that. And what are the best projections that you have for becoming a profitable entity?
Anshu Bhatnagar
Sure, so, great questions. So yes, the French fry business is going quite well. That’s expanding. I mean, that’s really – it’s something that’s driving the margins in that Middle East market. It’s a big category in general. People in that region sort of have fries with all their meals and this is almost like a staple there.
And so, that’s something that’s continuing to expand and it drives - help drive the margin to be better. And as far as projections, right now, we are not – we are just not comfortable giving projections, because there is a lot of changes going on, as I just mentioned earlier. But, we feel, we do feel very optimistic about where the company is even through this period.
So, we feel quite optimistic. And this is across all categories. So, the Middle East, we feel pretty good, because in the Middle East where we are supplying staples, right. We are not supplying premium angus beef for instance. It’s all the staple type foods that we are focusing on. So that’s regardless of what the economy does. That’s something that’s going to continue to be consumed.
It’s going to be continued to grow. As far as Big League Foods, we are very confident that all the sports are going to open and it’s going to continue to grow. The fact that we are signing up all other leagues is phenomenal, right. That’s a game-changer for the company.
And of course, the Verus Cares division is going to be – I mean, this is a perfect timing for that and we couldn’t be more fortunate to be in that space right now. So we feel that this is – that we are very optimistic, but it’s right now, very difficult to – based on circumstances to give any projections.
Operator
Thank you. That concludes our question and answer session for today. I’ll now turn the call back to Anshu Bhatnagar for closing remarks. Thank you.
Anshu Bhatnagar
Thank you guys for joining us today. We expect to have a lot of activity pending in all our business units in the coming weeks. So we look forward to providing some important follow-on updates and announcements. We appreciate your continued support. Thank you.
Operator
Thank you. This concludes today’s call. All parties may disconnect. Have a good day.
AI
