NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE THREE MONTHS ENDED
JANUARY 31, 2018
(UNAUDITED)
NOTE
1: NATURE OF BUSINESS AND BASIS OF PRESENTATION
Organization
and Nature of Business
RealBiz
Media Group, Inc., including all its subsidiaries, are collectively referred to herein as “RealBiz,” “RBIZ”,
“the Company,” “us,” or “we”. RealBiz operates in two business segments – Food Products
and Real Estate.
Food
Products
Verus Foods, Inc. (“Verus”)
a Nevada corporation, and our wholly owned subsidiary, was incorporated in January 2017, and is an international supplier of consumer
food products. Verus markets under its own brand primarily to supermarkets, hotels and other members of the wholesale trade. In
2018, Verus is pursuing a three-pronged development program through the addition of cold-storage facilities, product line expansion
and new vertical farm-to-market operations. Subsequently, in 2017, Verus added beverages as a second vertical. Verus’ initial
focus is on frozen foods, particularly meat, poultry, seafood, vegetables and french fries. Verus has a significant regional presence
in the Middle East and North Africa (“MENA”) and sub-Saharan Africa (excluding Office of Foreign Assets Control (“OFAC”)
restricted nations), with deep roots in the Gulf Cooperation Council (“GCC”) countries, which includes the United
Arab Emirates (“UAE”), Oman, Bahrain, Qatar, Kingdom of Saudi Arabia and Kuwait.
In
January 2017, Verus received a contract valued at approximately $78 million to supply beef to the GCC countries. The first orders
under this contract were shipped in February 2017. In addition, Verus executed an agreement in August 2017 to which it became
the exclusive distributor of Disney-branded juice products in the UAE and Oman. The first purchase order under the agreement was
issued in December 2017.
Real
Estate
Our
real estate segment generates revenue from service fees (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 create stickiness through the utilization of video,
social media and loyalty programs. At the core of our programs is our proprietary video creation technology which allows for an
automated conversion of data (text and pictures of home listings) to a video with voice and music. We provide video search, storage
and marketing capabilities on multiple platform dynamics for web, mobile and TV. Once a home, personal or community video is created
using our proprietary technology, it can be published to social media, email or distributed to multiple real estate websites,
broadband or television for consumer viewing.
In
October 2017, we announced the execution of a definitive agreement to spin-off the real estate segment into a separate public
company named NestBuilder.com Corp. (“NestBuilder”). All stockholders of record at the time of the spin-off will receive
an equivalent stock position in NestBuilder (the “Distribution”). The obligation of the Company and NestBuilder
to consummate the Distribution was subject to the Securities and Exchange Commission (“SEC”) declaring NestBuilder’s
Registration Statement on Form 10 effective, which Form 10 was declared effective by the SEC on February 20, 2018. Following the
effective date of the Registration Statement on Form 10, the parties deemed it advisable and in the best interest of such parties
to fix the record date as April 25, 2018 for the determination of stockholders entitled to receive the Distribution. The distribution
date has been set as May 18, 2018.
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 SEC;
nevertheless, management of the Company believes that the disclosures herein are adequate to make the information presented not
misleading.
These
unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements
for the year ended October 31, 2017, contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 26,
2018. The results of operations for the three months ended January 31, 2018, are not necessarily indicative of results to be expected
for any other interim period or the fiscal year ending October 31, 2018.
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 consolidated financial statements to enhance comparability with the current
year’s consolidated financial statements.
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. If demand for the Company’s
products from these customers should decrease, there could be an adverse effect on the Company’s consolidated results of
operations and financial position.
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. The Company’s consolidated results of operations and financial position may be materially and adversely affected
if there are significant price increases for these food products, the Company has difficulty obtaining these food products, or
the quality of available food products deteriorates. For periods in which the prices of these food products are rising, the Company
may be unable to pass on the increased cost to the Company’s customers, which would result in decreased margins. 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 as of January 31, 2018 and October 31, 2017.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Marketable
securities
In
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. Pursuant to Statement of Financial
Accounting Standards (“SFAS”) No. 115,
Accounting for Certain Investments in Debt and Equity Securities
, our
marketable securities are marked to market on a quarterly basis, with unrealized gains and losses being reflected as a component
of other income.
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 $119,106 and $45,933 as of January 31, 2018 and October 31, 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.
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”), Accounting Standards Codification (“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.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, marketable securities, 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 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
The
Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists;
(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.
The
Company provides its marketing and promotional services to agents or brokers via a web-based portal that allows for credit card
payments. Customers may pay a monthly recurring fee or an annual fee. Some customers additionally pay a one-time set up fee. Monthly
recurring fees are recognized in the month the service is rendered. Collection of one-time set up fees and annual services fees
give rise to recognized monthly revenue in the then-current month as well as deferred revenue liabilities representing the collected
fee for services yet to be delivered.
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 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.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
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 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
740-10 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% likelihood
of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its October 31,
2017, 2016 and 2015 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, 2017
and 2016.
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, 2018 and 2017 as we incurred a net loss for those periods. As of January 31, 2018, there were outstanding warrants to purchase
16,786,467 shares of the Company’s common stock and approximately 256 million shares of the Company’s common stock
which may dilute future earnings per share as a result of conversions of outstanding convertible promissory notes.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations,
Risks and Uncertainties
The
Company’s operations are related to the real estate and international food industries, and its prospects for success are
tied indirectly to interest rates, the general housing and business climates in the United States and the worldwide demand for
the Company’s food products.
Recently
Issued Accounting Pronouncements
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, 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 on the Company’s financial position, results of operations or cash flows.
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. Early adoption is permitted. ASU 2016-08 is not expected to have a material
impact on the Company’s 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. Early adoption is permitted. This ASU is not
expected to have a material impact on the Company’s 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. Early
adoption is permitted. This ASU is not expected to have a material impact on the Company’s 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 unaudited 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 $507,006 for the three months ended January 31, 2018. As of January 31, 2018, the Company
had a working capital deficit of $774,762 and an accumulated deficit of $23,910,969. 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 and to fund the growth of the food business, the
Company may consider plans to raise additional funds through the issuance of additional shares of common or preferred stock and/or
through the issuance of debt instruments. Although the Company intends to obtain additional financing to meet our 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: Segment reporting
The
Company has two reportable segments: Real Estate and Food Products. The Real Estate segment provides service in the form
of (video creation and production and website hosting (ReachFactor)) and product sales (Nestbuilder Agent 2.0 and Microvideo app).
The Food Products segment is an international supplier of consumer food products, marketing its own brand primarily to
supermarkets, hotels, and other members of the wholesale trade.
The
Company evaluates segment performance based on segment income (loss) before taxes. Costs excluded from segment income (loss) before
taxes and reported as “Other” consist of corporate general and administrative costs which are not allocable to the
three reportable segments.
Management
of the Company assesses assets on a consolidated basis only and, therefore, assets by reportable segment have not been included
in the reportable segments below. The accounting policies of the reportable segments are the same as those described in the summary
of significant accounting policies contained in the Company’s Annual Report on Form 10-K for the year ended October 31,
2017.
The
following financial information represents the operating results of the reportable segments of the Company for the three months
ended January 31, 2018:
|
|
|
Real
Estate
|
|
|
Food
Products
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
70,016
|
|
|
$
|
996,125
|
|
|
$
|
-
|
|
|
$
|
1,066,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
19,800
|
|
|
|
938,190
|
|
|
|
-
|
|
|
|
957,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
50,216
|
|
|
|
57,935
|
|
|
|
-
|
|
|
|
108,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and Marketing
|
|
|
133
|
|
|
|
-
|
|
|
|
-
|
|
|
|
133
|
|
|
Salaries
and benefits
|
|
|
35,375
|
|
|
|
147,208
|
|
|
|
-
|
|
|
|
182,583
|
|
|
Legal
and professional fees
|
|
|
47,000
|
|
|
|
68,015
|
|
|
|
-
|
|
|
|
115,015
|
|
|
General
and administrative expense
|
|
|
12,602
|
|
|
|
65,983
|
|
|
|
-
|
|
|
|
78,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
95,110
|
|
|
|
281,206
|
|
|
|
-
|
|
|
|
376,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(44,894
|
)
|
|
|
(223,271
|
)
|
|
|
-
|
|
|
|
(268,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(49,358
|
)
|
|
|
(49,358
|
)
|
|
Gain
(
Loss) on legal settlement
|
|
|
132,370
|
|
|
|
(351,853
|
)
|
|
|
(30,000
|
)
|
|
|
(189,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
132,370
|
|
|
|
(351,853
|
)
|
|
|
(79,358
|
)
|
|
|
(238,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
87,476
|
|
|
$
|
(575,124
|
)
|
|
$
|
(79,358
|
)
|
|
$
|
(507,006
|
)
|
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.
As
of January 31, 2018 and October 31, 2017, there was $1,427,027 and $975,250 of convertible notes payable outstanding, net of
discounts, respectively. All convertible notes are currently in default due to the Company not filing this Quarterly Report
on Form 10-Q on a timely basis.
On
December 21, 2017, the Company issued EMA Financial, LLC 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 21, 2018, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal
and accrued interest of the EMA Note 2 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.
On
December 28, 2017, the Company issued Power Up Lending Group Ltd. (“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 matures
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 convertible note, 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 market price on the date of conversion, subject to certain restrictions.
On
January 26, 2018, the Company issued the Donald P. Monaco Insurance Trust a promissory note in the amount of $530,000 (the “Monaco
Note”). The Monaco Note accrues interest at a rate of 12% per annum and matures on January 22, 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, upon the Company’s
failure 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 15 trading days prior to the date the holder gives notice of the default to the Company.
During
the three months ended January 31, 2018, holders of convertible notes payable converted an aggregate of $196,662 of outstanding
principal, $12,793 of accrued interest and $4,750 of associated professional fees into an aggregate of 99,517,696 shares of the
Company’s common stock. In addition, during the three months ended January 31, 2018, the Company made a payment of $57,952
to 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.
In
December 2016, one of our convertible noteholders converted $25,000 of outstanding principal into 25,000 shares of the
Company’s Series C Convertible Preferred Stock, at a price of $1.00 per share.
On
December 31, 2016, the holders of convertible notes payable with an outstanding principal balance of $1,105,000 converted their
notes into an aggregate of 69,368,539 shares of the Company’s common stock.
NOTE
6: 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 shares; of which 359,447,396 are outstanding as of January
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 January 31, 2018, (B) 1,000,000 shares have been designated
as Series B Convertible Preferred Stock, of which no shares are outstanding as of January 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 January 31, 2018.
Common
Stock
During
the three months ended January 31, 2018, holders of convertible notes payable converted an aggregate of $196,662 principal, $12,793
of accrued interest and $4,750 of associated professional fees into an aggregate of 99,517,696 shares of the Company’s common
stock.
On
December 22, 2017, the Company settled litigation matters with Monaker which resulted in the issuance of 10,559,890 shares of
the Company’s common stock to Monaker.
On
Janua
ry 29, 2018, the Company settled litigation with NestBuilder
which resulted in the return and cancellation of 4,163,315 shares of the Company’s common stock on February 2, 2018.
As
of January 31, 2018, there were outstanding warrants to purchase 16,786,467 shares of the Company’s common stock and approximately
256 million shares of the Company’s common stock which may dilute future earnings per share as a result of conversions of
outstanding convertible promissory notes.
Series
A Convertible Preferred Stock
On
December 22, 2017, the Company settled litigation matters with Monaker which resulted in the issuance of 44,470,101 shares of
the Company’s Series A Convertible Preferred Stock. See Note 8. Litigation for further discussion.
NOTE
7: COMMITMENTS AND CONTINGENCIES
On
October 27, 2017, we entered into a Contribution and Spin-off Agreement (the “Spin-Off Agreement”) with NestBuilder
pursuant to which we will spin-off our real estate division into NestBuilder. All stockholders of record at the time of the spin-off
will receive an equivalent stock position in NestBuilder (the “Distribution”). The obligation of the Company and NestBuilder
to consummate the Distribution was subject to the SEC declaring NestBuilder’s Registration Statement on Form 10 effective,
which Form 10 was declared effective by the SEC on February 20, 2018. Following the effective date of the Registration Statement
on Form 10, the parties deemed it advisable and in the best interest of such parties to fix April 25, 2018 as the record
date for the determination of stockholders entitled to receive the Distribution. The Distribution is currently scheduled to occur
on May 18, 2018.
On
January 29, 2018, NestBuilder, the Company, Mr. Aliksanyan and Mr. Bhatnagar entered into that certain First Amendment to Contribution
and Spin-Off Agreement dated as of January 29, 2018 (the “First Amendment”), whereby the Spin-off Agreement was amended
such that Mr. Bhatnagar is required to sell shares of NestBuilder common stock he and his affiliates receive in the Distribution
to NestBuilder upon delivery of written notice by NestBuilder requesting such sale, which notice cannot be given less than 60
days after the effective date of the Distribution.
NOTE
8: LITIGATION
RealBiz v. Monaker, Case No. 0:16-cv-61017-FAM.
This matter was set for trial in March 2018. RealBiz had a pending Motion for Summary Judgment to be ruled on by the court
before trial. RealBiz believes it was owed approximately $1.3 million from Monaker according to the companies’ prior audited
financial statements that showed this debt due to RealBiz from Monaker. Monaker had countersued RealBiz 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 RealBiz 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 RealBiz’s adjustment to its books to reflect Monaker’s
prior over issuance of RealBiz shares when RealBiz used the incorrect conversion ratio pursuant to RealBiz’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 RealBiz 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 RealBiz’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.
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.