SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|[X]||ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the fiscal year ended October 31, 2017|
|[ ]||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the transition period from _______________________ to ___________________|
Commission File Number 001-34106
REALBIZ MEDIA GROUP, INC.
(Exact name of registrant as specified in its charter)
|9841 Washingtonian Blvd #390|
|(Address of principal executive offices)||(Zip Code)|
Registrant’s telephone number, including area code: (301) 329-2700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [X] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
|Large accelerated filer [ ]||Accelerated filer [ ]|
|Non-accelerated filer [ ]||Smaller reporting company [X]|
|Emerging growth company [X]|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).
[ ] Yes [X] No
The aggregate market value of the voting stock and non-voting common equity held by non-affiliates was approximately $5.3 million as of April 28, 2017, when the last reported trading price was $0.022 per share.
As of March 16, 2018, 356,284,081 shares of common stock were outstanding.
Documents Incorporated by Reference:
RealBiz Media Group, Inc.
Table of Contents
|ITEM 1. BUSINESS||3|
|ITEM 1A. RISK FACTORS||5|
|ITEM 1B. UNRESOLVED STAFF COMMENTS.||12|
|ITEM 2. PROPERTIES||12|
|ITEM 3. LEGAL PROCEEDINGS||12|
|ITEM 4. MINE SAFETY DISCLOSURES||13|
|ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES||13|
|ITEM 6. SELECTED FINANCIAL DATA||14|
|ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS||14|
|ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK||18|
|ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA||18|
|ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE||18|
|ITEM 9A. CONTROLS AND PROCEDURES||18|
|ITEM 9B. OTHER INFORMATION||19|
|ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE||20|
|ITEM 11. EXECUTIVE COMPENSATION||22|
|ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS||25|
|ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE||26|
|ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES||27|
|ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES||28|
ITEM 1. BUSINESS
RealBiz Media Group, Inc., including all its subsidiaries, are collectively referred to herein as “RealBiz,” “RBIZ”, “the Company,” “us,” or “we”.
We were previously engaged in the business of providing digital media and marketing services for the real estate industry and generated revenue from service fees (video creation and production and website hosting (ReachFactor)) and product sales (Nestbuilder Agent 2.0 and Microvideo app). Previously, we were 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 three divisions was 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.
On October 27, 2017, we entered into a Contribution and Spin-off Agreement (the “Spin-Off Agreement”) with NestBuilder.com Corp., a Nevada corporation and newly formed digital real estate company (“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 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 February 23, 2018 as the record date for the determination of stockholders entitled to receive the Distribution. The Distribution is currently scheduled to occur four weeks after the effective date of the Registration Statement on Form 10.
As of the date hereof, we, through our wholly-owned subsidiary, Verus Foods, Inc. (“Verus”) focus on international consumer packaged goods, foodstuff distribution and wholesale trade. Verus was incorporated in Nevada in January 2017 and is an international supplier of consumer food products. Verus markets products 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. Verus’ initial focus in 2017 was on frozen foods, particularly meat, poultry, seafood, vegetables and french fries. Subsequently, in 2017, Verus added beverages as a second vertical. 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, Oman, Bahrain, Qatar, Kingdom of Saudi Arabia and Kuwait.
In January 2017, Verus received a contract valued at $78 million to supply beef to the GCC countries. In addition, Verus executed an agreement in August 2017 to become an exclusive distributor of Disney-branded juice products in the UAE and Oman. The first purchase order under the agreement was issued in December 2017.
Seasonality of Business
Verus is expected to have only modest seasonality due to the product mix, which will include many staples such as nuts, fruits, honey and meats. We expect our initial growth rates to mask any seasonality during our first years of operation. In the Middle East markets, we expect to see a spike in sales during the month of Ramadan.
Verus is subject to U.S. Department of Agriculture (“USDA”) and other government regulations in the countries in which we operate.
In addition, doing business outside the United States requires us to comply with the laws and regulations of the U.S. government and various foreign jurisdictions, which place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. and foreign anti-corruption and trade control laws and regulations, including, but not limited to, the Foreign Corrupt Practices Act (“FCPA”) or the Bribery Act and export controls. The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. In addition, the Bribery Act extends beyond bribery of foreign public officials and also applies to transactions with private persons. The provisions of the Bribery Act are also more onerous than the FCPA in a number of other respects, including jurisdictional reach, non-exemption of facilitation payments and, potentially, penalties.
Currently, Verus generates a majority of its revenue from food imports into the GCC countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. According to a report published in February 2017 by Alpen Capital, food imports into the GCC are expected to reach $53.1 billion by 2020. According to Global Islamic Economy Gateway, imports account for about 78% of food consumed in the GCC.
The GCC has highly developed wholesale, grocery, and retail infrastructures that attract thousands of brands from around the world. According to A.T. Kearney, at the wholesale level, the region may be served by as many as 600 food distributors, some of which also conduct business in other parts of the Middle East and North Africa. In the branded product space, key competitors include The Savola Group and Almarai which are based in Saudi Arabia; Americana Quality which is based in Kuwait; and Al Islami Foods which is based in the UAE, which currently ranks as the world’s largest Halal food vendor, with more than 100 frozen and specialty lines. Verus also competes with recognized international brands from multi-line companies such as Nestle and Mondelez International.
Verus believes that there are many food categories and niches in which it can successfully compete in this highly-fragmented market. Verus offers both Verus-branded products along with other brands, particularly from brands wanting to enter the GCC, but lacking the infrastructure or expertise to do so. In the latter category of brands wanting to enter the GCC, the number of companies seeking to sell their products through a partner such as Verus is significant.
In addition to the foregoing, management believes that Verus is one of the only U.S. based public companies operating in the region that can provide its own branded products and also act as a distributor for other brands across all of the major food sales categories. Management believes that a majority of the suppliers in this space are either non-U.S. based, private companies or are public entities with a narrow focus on their own brands. U.S. companies that supply food are the most highly respected in the GCC, due to their adherence to strict USDA standards, government oversight and reliability. As a result, U.S. affiliation and/or labeling are trusted in the GCC marketplace and American branding is highly desirable among consumers.
As of December 31, 2017, the Company had 6 full-time and 1 part-time employee in the Food Products segment and 3 full-time and 1 part-time employee in the Real Estate segment
Our principal offices are located at 9841 Washingtonian Blvd, Suite #390, Gaithersburg, MD, 20878, and our telephone number at that office is (301) 329-2700. Our website address is www.realbizmedia.com . The information contained on our website or that can be accessed through our website does not constitute part of this Annual Report on Form 10-K.
We were incorporated in the state of Delaware under the name Webdigs, Inc on July 12, 2012. 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 changed our name from “Webdigs, Inc.” to “RealBiz Media Group, Inc.”, by consummating a short-form parent-subsidiary merger in the State of Delaware.
In August 2015, we completed the restructuring of our management, financial reporting and operations from our former parent company, Monaker. The primary purpose of the restructuring was to eliminate unnecessary development expenses and unlock revenue opportunities by creating a unified technology platform.
On August 6, 2015, we issued an aggregate 35,000 shares of our Series C Convertible Preferred Stock to (i) Keith White, a member of the Company’s Board of Director at the time and (ii) a company controlled by the Company’s then Chairman, Don Monaco. Mr. Monaco received 20,000 shares of Series C Preferred Stock in consideration for the cancellation of $100,000 in indebtedness owed to him by the Company’s former parent company, Monaker. The debt was convertible into 2 million shares of the Company’s common stock. Mr. White received 15,000 shares of Series C Preferred Stock in exchange for 15,000 shares the Company’s Series B Preferred Stock held by Mr. White.
On October 27, 2017, we entered into 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 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 February 23, 2018 as the record date for the determination of stockholders entitled to receive the Distribution. The Distribution is currently scheduled to occur four weeks after the effective date of the Registration Statement on Form 10.
ITEM 1A. RISK FACTORS
An investment in our common stock involves significant risks. Before deciding to invest in our common stock, you should carefully consider each of the following risk factors and all of the other information set forth in this document. Our business and results of operations could be seriously harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business
We have no history of profitability.
We commenced operations in 2012 and to date have not generated any profit. As an early stage company, we are subject to all of the risks associated with a new business enterprise. Our prospects must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with a new business enterprise. We do not yet have a significant operating history which would provide you with meaningful information about our past or future operations. The Company has not yet achieved positive cash flow on a monthly basis during any fiscal year including the current fiscal year ended October 31, 2017 and there is significant risk to the survival of the enterprise.
There is substantial doubt about our ability to continue as a going concern.
We have had net losses of $1,278,209 and $906,725 for the years ended October 31, 2017 and 2016, respectively. Furthermore, we had a working capital deficit of $798,577 as of October 31, 2017. Since the financial statements were prepared assuming that we would continue as a going concern, these conditions coupled with our current liquidity position raise substantial doubt about our ability to continue as a going concern. Furthermore, since we are pursuing new products and services, this diminishes our ability to accurately forecast our revenues and expenses. We expect that our ability to continue as a going concern depends, in large part, on our ability to generate sufficient revenues, limit our expenses and/or obtain necessary financing. If we are unable to raise additional capital, we may be forced to curtail or cease operations.
We will require additional financing in the future to fund our operations.
We will need additional capital in the future to continue to execute our business plan. Therefore, we will be dependent upon additional capital in the form of either debt or equity to continue our operations. At the present time, we do not have arrangements to raise all of the needed additional capital, and we will need to identify potential investors and negotiate appropriate arrangements with them. We may not be able to arrange enough investment within the time the investment is required or that if it is arranged, that it will be on favorable terms. If we cannot obtain the needed capital, we may not be able to become profitable and may have to curtail or cease our operations.
Our indebtedness and liquidity needs could restrict our operations and make us more vulnerable to adverse economic conditions.
Our existing indebtedness may adversely affect our operations and limit our growth, and we may have difficulty making debt service payments on such indebtedness as payments become due. We may also experience the occurrence of events of default or breach of financial covenants. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any of the restrictions or covenants, a significant portion of our indebtedness may become immediately due and payable. We might not have, or be able to obtain, sufficient funds to make these accelerated payments which may have a material adverse effect on our financial condition.
Our reliance on distributors and retailers could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets and expand our business into other geographic markets.
Our ability to maintain and expand our existing markets for our products, and to establish markets in new geographic distribution areas, is dependent on our ability to establish and maintain successful relationships with reliable distributors and retailers strategically positioned to serve those areas. Most of our distributors and retailers sell and distribute competing products and our products may represent a small portion of their businesses. The success of this network will depend on the performance of the distributors and retailers. There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our products in localities that may not be receptive to our product. Our ability to incentivize and motivate distributors to manage and sell our products is affected by competition from other food companies who have greater resources than we do. To the extent that our distributors and retailers are distracted from selling our products or do not employ sufficient efforts in managing and selling our products, our sales and results of operations could be adversely affected. Furthermore, such third-parties’ financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sales activities.
Our ability to maintain and expand our distribution network and attract additional distributors and retailers will depend on a number of factors, some of which are outside our control. Some of these factors include:
|●||the level of demand for our brand and products in a particular distribution area;|
|●||our ability to price our products at levels competitive with those of competing products; and|
|●||our ability to deliver products in the quantity and at the time ordered by distributors and retailers.|
We may not be able to successfully manage all or any of these factors in any of our current or prospective geographic areas of distribution. Our inability to achieve success with regards to any of these factors in a geographic distribution area will have a material adverse effect on our relationships in that particular geographic area, thus limiting our ability to maintain or expand our market which could have a material adverse effect on our results of operation or financial condition.
If we do not adequately manage our inventory levels, our operating results could be adversely affected.
We need to maintain adequate inventory levels to be able to deliver products on a timely basis. Our inventory supply depends on our ability to correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly for new products, seasonal promotions and new markets. If we materially underestimate demand for our products or are unable to maintain sufficient inventory, we might not be able to satisfy demand on a short-term basis. If we overestimate demand for our products, we may end up with too much inventory, resulting in higher storage costs and the risk of inventory spoilage. If we fail to manage our inventory to meet demand, we could damage our relationships with our customers and could delay or lose sales opportunities, which would unfavorably impact our future sales and adversely affect our operating results.
If we do not continually enhance our brand recognition, increase distribution of our products, attract new customers and introduce new products, either on a timely basis or at all, our business may suffer.
The food industry is subject to rapid and frequent changes in consumer demands. Because consumers in this industry are constantly seeking new products, our success relies heavily on our ability to continue to market new products. We may not be successful in introducing on a timely basis or marketing new products. If we are unable to commercialize new products, our revenue may not grow as expected, which would adversely affect our business, financial condition and results of operations.
Any damage to our brand or reputation could adversely affect our business, financial condition and results of operations.
We must protect and grow the value of our brand to continue to be successful in the future. Any incident that erodes consumer affinity for our brand could significantly reduce our value and damage our business. For example, negative third-party reports regarding our products, whether accurate or not, may adversely impact consumer perceptions. In addition, if we are forced, or voluntarily elect, to recall certain products, the public perception of the quality of our food may be diminished. We may also be adversely affected by news reports or other negative publicity, regardless of their accuracy, regarding other aspects of our business, such as public health concerns, illness and safety. This negative publicity could adversely affect our brand and reputation as well as our revenue and profits.
We must expend resources to maintain consumer awareness of our brand, build brand loyalty and generate interest in our products.
In order to remain competitive, we may need to increase our marketing and advertising spending in order to maintain and increase consumer awareness, protect and grow our existing market share or to promote new products, which could impact our operating results. Substantial advertising and promotional expenditures may be required to maintain or improve our brand’s market position or to introduce new products to the market, and participants in our industry are engaging with non-traditional media, including consumer outreach through social media and web-based channels. An increase in our marketing and advertising efforts may not maintain our current reputation, or lead to an increase in brand awareness.
We have no long-term contracts with our customers which require the purchase of a minimum amount of our products. The absence of long-term contracts could result in periods during which we must continue to pay costs and service indebtedness without current revenues or with reduced revenues.
Our customers do not provide us with firm, long-term volume purchase commitments. As a result of the absence of long-term contracts, we could have periods during which we have no or only limited orders for our products, but we will continue to have to pay our costs including costs to maintain our work force and service our indebtedness, without the benefit of current revenues or with reduced revenues. We cannot ensure that we will be able to timely find new customers to supplement periods where we experience no or limited purchase orders or that we can recover fixed costs as a result of experiencing reduced purchase orders. Periods of no or limited purchase orders for our products could have a material adverse effect on our net income, cause us to incur losses or result in violations of the debt covenants contained in our financing arrangements.
Severe weather conditions and natural disasters can affect manufacturing facilities and distribution activities, and negatively impact the operating results of our business.
Severe weather conditions and natural disasters, such as fires, floods, droughts, frosts, hurricanes, earthquakes and tornadoes may curtail or prevent the manufacturing or distribution of our products which may have a material adverse effect on our results of operation or financial condition.
Our international operations expose us to regulatory, economic, political and social risks in the countries in which we operate.
The international nature of our operations involves a number of risks, including changes in U.S. and foreign regulations, tariffs, taxes and exchange controls, economic downturns, inflation and political and social instability in the countries in which we operate and our dependence on foreign personnel. Moreover, consumers in different countries may have varying tastes, preferences and nutritional approaches. We cannot be certain that we will be able to enter and successfully compete in additional foreign markets or that we will be able to continue to compete in the foreign markets in which we currently operate.
Doing business outside the United States requires us to comply with the laws and regulations of the U.S. government and various foreign jurisdictions, which place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. and foreign anti-corruption and trade control laws and regulations, including, but not limited to, the Foreign Corrupt Practices Act (“FCPA”) or the Bribery Act and export controls. As a result of doing business in foreign countries and with foreign partners, we are exposed to a heightened risk of violating anti-corruption and trade control laws and sanctions regulations. The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. In addition, the Bribery Act extends beyond bribery of foreign public officials and also applies to transactions with private persons. The provisions of the Bribery Act are also more onerous than the FCPA in a number of other respects, including jurisdictional reach, non-exemption of facilitation payments and, potentially, penalties. Our continued expansion outside the United States and our development of new partnerships and joint venture relationships worldwide, could increase the risk of FCPA or Bribery Act violations in the future. Violations of anti-corruption and trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions and asset seizures as well as criminal fines and imprisonment.
Disruptions in the worldwide economy may adversely affect our business, financial condition and results of operations.
Adverse and uncertain economic conditions may impact distributor, retailer and consumer demand for our products. In addition, our ability to manage normal commercial relationships with our suppliers, distributors, retailers and consumers may suffer. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns, making it more difficult to sell our premium products. During economic downturns, it may be more difficult to convince consumers to switch to or continue to use our brand or convince new consumers to choose our brand without price promotions. Distributors and retailers may become more conservative in response to these conditions and seek to reduce their inventories. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing distributors and retailers, to attract new consumers and to provide products that appeal to consumers at prices they are willing and able to pay. Prolonged unfavorable economic conditions may have an adverse effect on our sales and profitability.
Price increases may not be sufficient to cover increased costs, or may result in declines in sales volume due to pricing elasticity in the marketplace.
We expect to pass along to customers some or all cost increases in packaging materials and other inputs through increases in the selling prices of, or decreases in the packaging sizes of, some of our products. Higher product prices or smaller packaging sizes may result in reductions in sales volume. To the extent the price increases or packaging size decreases are not sufficient to offset increased packaging materials and other input costs, and/or if they result in significant decreases in sales volume, our business results and financial condition may be adversely affected.
We operate in a highly competitive industry .
We operate in the highly competitive food industry and experience competition in all of our categories. The principal areas of competition are brand recognition, taste, quality, price, advertising/promotion, convenience and service. A number of our primary competitors are larger than us and have substantial financial, marketing and other resources. In addition, reduced barriers to entry and easier access to funding are creating new competition. A strong competitive response from one or more of these competitors to our marketplace efforts, or a continued shift towards store brand offerings, could result in us reducing prices, increasing marketing or other expenditures, and/or losing market share.
Our business operations could be disrupted if our information technology systems fail to perform adequately.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer. In particular, as we grow, we need to make sure that our information technology systems are upgraded and integrated throughout our business and able to generate reports sufficient for management to run our business. In addition, our information technology systems may be vulnerable to damage, interruption or security breaches from circumstances beyond our control, including fire, natural disasters, system failures, cyber-attacks, corporate espionage, and viruses. Any such damage, interruption or security breach could have a material adverse effect on our business.
We may be subject to significant liability should the consumption of any food product manufactured or marketed by us cause injury, illness or death. Regardless of whether such claims against us are valid, they may be expensive to defend and may generate negative publicity, both of which could materially adversely affect our operating results.
The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties or product contamination or spoilage, including the presence of bacterial contamination, foreign objects, substances, chemicals, other agents or residues introduced during production processes. Although we believe that we and our manufacturers are in material compliance with all applicable laws and regulations, if the consumption of our products causes or is alleged to have caused an illness in the future, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding an illness, injury or death could materially adversely affect our reputation with existing and potential customers and consumers on a permanent basis and our corporate image and operating results.
Our food products may also experience product tampering, contamination or spoilage or be mislabeled or otherwise damaged. Under certain circumstances a product recall could be initiated, leading to a material adverse effect on our reputation, operations and operating results. Recalls may be required to avoid seizures or civil or criminal litigation or due to market demands. Even if such a situation does not necessitate a recall, product liability claims could be asserted against us. A product liability judgment or a product recall involving us could have a material adverse effect on our business, financial condition, results of operations or liquidity and could impair the perception of our brands for an extended period of time.
W e are dependent on our third-party manufacturers for compliance with sound and lawful production of many of our products. Even if we have insurance or contractual indemnification, product liabilities relating to defective products could have a material adverse effect on our business, results of operations, liquidity, financial condition and brand image.
Regardless of whether any claims against us are valid, or whether we are ultimately held liable, claims may be expensive to defend and may divert time and money away from our operations, which could have a material adverse effect on our performance. A significant judgment could materially and adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations may also materially and adversely affect our reputation, which could materially adversely affect our results.
The food industry has been subject to a growing number of claims, including class action lawsuits based on the nutritional content of food products as well as disclosure and advertising practices. In the future we may face these types of claims and proceedings and, even if we are successful in defending these claims, publicity about these matters may harm our reputation and adversely affect our results. In addition, suits against our competitors can harm our business. These types of class action lawsuits can also make it more difficult for us to market our products, by restricting our ability to differentiate our products from other products on the market.
Outbreaks of disease among livestock and poultry flocks could harm the Company’s revenues and operating margins.
As a supplier of meat products, we are subject to risks associated with the outbreak of disease in beef livestock and poultry flocks, including, but not limited to, avian influenza and bovine spongiform encephalopathy. The outbreak of disease could adversely affect our supply of raw materials, increase the cost of production and reduce operating margins. Additionally, the outbreak of disease may hinder our ability to market and sell products which could have a material adverse effect on our results of operations and financial condition.
We are dependent upon key personnel whose loss may adversely impact our business.
Our success materially depends upon the expertise, experience and continued service of our management and other key personnel, including but not limited to, our current Chief Executive Officer, Anshu Bhatnagar. If we lose the services of Anshu Bhatnagar or any of other member of management, our business would be materially and adversely affected. We do not have “key person” life insurance, and we do not presently intend to purchase such insurance.
Our future success also depends upon our ability to attract and retain highly qualified management personnel and other employees. Any difficulties in obtaining, retaining and training qualified employees could have a material adverse effect on our results of operation or financial condition. The process of identifying such personnel with the combination of skills and attributes required to carry out our business plan is often lengthy. Any difficulties in obtaining and retaining qualified managers and employees could have a material adverse effect on our results of operation or financial condition.
We have identified a material weakness in our internal control over financial reporting that could, if not remediated, result in material misstatements in our financial statements.
In connection with the audit of our consolidated financial statements as of and for the year ended October 31, 2017, we have concluded that there is a material weakness relating to our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Specifically, we identified a material weakness relating to the lack of segregation of duties due to the small size of the Company’s accounting staff. We need to take measures to fully mitigate such issue; provided, however, the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that the identified material weakness will not result in a material misstatement of our annual or interim consolidated financial statements. If we are unable to correct material weaknesses or deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC, will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.
Certain provisions of the Delaware General Corporation Law (“DGCL”), our Certificate of Incorporation, and our Bylaws may have anti-takeover effects which may make an acquisition of our Company by another company more difficult.
Our Certificate of Incorporation and Bylaws contain provisions that permit us to issue, without any further vote or action by the stockholders, up to 125,000,000 shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series, and the preferences and relative, participating, optional and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of such series.
Our Bylaws provide that special meetings of stockholders may be called only by our board. Stockholders are not permitted to call a special meeting of stockholders, to require that the Board call such a special meeting, or to require that the Board request the calling of a special meeting of stockholders.
These provisions in our Certificate of Incorporation and Bylaws may have anti-takeover effects, which could delay, defer, or prevent a takeover attempt that a holder of our common stock might consider in its best interest.
Risks Relating to Our Securities
Our Certificate of Incorporation grants our Board of Directors, without any action or approval by our stockholders, the power to designate and issue preferred stock with rights, preferences and privileges that may be adverse to the rights of the holders of our common stock.
The total number of shares of all classes of stock that the Company has the authority to issue is 1,625,000,000 shares consisting of: (i) 1,500,000,000 shares of common stock, par value $0.001, of which 356,284,081 shares are issued and outstanding as of March 16, 2018 and (ii) 125,000,000 shares of preferred stock, par value $0.001 per share of which (A) 120,000,000 shares have been designated as Series A Convertible Preferred Stock, of which 44,570,101 are outstanding as of March 16, 2018 (B) 1,000,000 shares have been designated as Series B Convertible Preferred Stock, none of which are outstanding as of March 16, 2018 and (C) 1,000,000 have been designated as Series C Convertible Preferred Stock, of which 160,000 shares are outstanding as of March 16, 2018.
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 holders of shares of our common stock. 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 contain voting rights which provide each share of Series C Convertible Preferred Stock with 10,000 votes. Accordingly, 160,000 shares of Series C Convertible Preferred Stock outstanding as of October 31, 2017 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 the Company.
There is a limited trading market for our shares. You may not be able to sell your shares if you need money.
Our common stock is quoted on the OTCQB, an inter-dealer automated quotation system for equity securities. During the three months ended October 31, 2017, the average daily trading volume of our common stock was approximately 502,000 shares. As of October 31, 2017, we had 445 record holders of our common stock (not including an indeterminate number of stockholders whose shares are held by brokers in “street name”). There has been limited trading activity in our stock, and when it has traded, the price has fluctuated widely. We consider our common stock to be “thinly traded” and any last reported sale prices may not be a true market-based valuation of the common stock. Stockholders may experience difficulty selling their shares if they choose to do so because of the illiquid market and limited public float for our common stock.
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule 15g-9 under the Securities Exchange Act of 1934 (the “Exchange Act”) establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
We are an “emerging growth company” within the meaning of the Securities Act, and if we decide to take advantage of certain exemptions from various reporting requirements applicable to emerging growth companies, our common stock could be less attractive to investors.
For as long as we remain an “emerging growth company”, as defined in the Jumpstart our Business Startups Act (the “JOBS Act”), we will have the option to take advantage of certain exemptions from various reporting and other requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these and other exemptions until we are no longer an “emerging growth company”. In addition, the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year during which we have total annual gross revenues of $1.07 billion or more, (2) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering, (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, and (4) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act (i.e., the first day of the fiscal year after we have (a) more than $700,000,000 in outstanding common equity held by our non-affiliates, measured each year on the last day of our second fiscal quarter, and (b) been public for at least 12 months).
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock or warrants less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We have never paid cash dividends and have no plans to pay cash dividends in the future
Holders of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors. To date, we have paid no cash dividends on our shares of our preferred or common stock and we do not expect to pay cash dividends in the foreseeable future. We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our preferred or common stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock.
If we fail to remain current in our reporting requirements, we could be removed from the OTCQB which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Securities traded on the OTCQB must be registered with the SEC and the issuer must be current with its filings pursuant to Section 13 or 15(d) of the Exchange Act in order to maintain price quotation privileges on the OTCQB. If we fail to remain current in our reporting requirements, we could be removed from the OTCQB. As a result, the market liquidity of our securities could be severely adversely affected by limiting the ability of broker-dealers to trade our securities and the ability of stockholders to sell their securities in the secondary market. In addition, we may be unable to get re-listed on the OTCQB which may have an adverse material effect on our Company.
Our common stock could be subject to extreme volatility.
The trading price of our common stock may be affected by a number of factors, including events described in the risk factors set forth in this Annual Report, as well as our operating results, financial condition and other events or factors. In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock. In recent years, broad stock market indices, in general, and smaller capitalization companies, in particular, have experienced substantial price fluctuations. In a volatile market, we may experience wide fluctuations in the market price of our common stock and wide bid-ask spreads. These fluctuations may have a negative effect on the market price of our common stock. In addition, the securities market has, from time to time, experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
ITEM 2. PROPERTIES
On April 11, 2017, we entered into a sublease pursuant to which we lease offices at 9841 Washingtonian Blvd #390, Gaithersburg, MD 20878. We currently lease our office which consists of 2,798 square feet for $6,995 per month. Each year, our rent will increase by 3% such that: (i) from April 1, 2018 until March 2019, we will pay $7,204.85 per month; (ii) from April 1, 2019 until March 2020, we will pay $7,421 per month; (iii) from April 1, 2020 until March 2021, we will pay $7,643.63 per month; and (iv) from April 1, 2021 until December 31, 2021, we will pay $7,872.93 per month. The term of the lease shall expire on December 31, 2021.
ITEM 3. LEGAL PROCEEDINGS
On May 11, 2016, we filed a lawsuit in the United States District Court for the Southern District of Florida against Monaker seeking collection of the balance owed to us, in the amount of $1,287,517, for advances on operating expenses and various debt obligation conversions to and from. On December 22, 2017, we entered into a settlement agreement (the “Settlement Agreement”) pursuant to which Monaker paid NestBuilder funds as part of the settlement, and we filed a Joint Stipulation of Dismissal with Prejudice with respect to the lawsuit.
In December 2016, Monaker filed a lawsuit against us in Eleventh Circuit Federal Court seeking an injunction against our action to cancel 44,470,101 shares of Series A Preferred Stock and 10,359,890 shares of common stock which were issued to Monaker. Additionally, Monaker sought to reverse the cancellation of these shares in its entirety. On January 15, 2017, the Court denied Monaker’s motion for a preliminary injunction. Pursuant to the terms of the Settlement Agreement, we agreed to issue Monaker 44,470,101 shares of Series A Preferred Stock and 10,359,890 shares of common stock and we filed a Joint Stipulation of Dismissal with Prejudice with respect to the lawsuit.
On April 5, 2017, Alex Aliksanyan filed a lawsuit against us in the Circuit Court of Maryland seeking injunctive relief compelling the spin-off of assets in the former Real Estate Division. A trial was held on August 30, 2017, after which the Court ordered us to proceed with the spin-off and denied other claims. On October 27, 2017, we announced the execution of a Contribution and Spin-off Agreement to spin-off our real estate division into NestBuilder.com Corp., a separate public company. The judgment has been satisfied and the matter was dismissed on February 13, 2018.
In addition to the matter presented above, in the ordinary course of business, we may from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters may have a material adverse effect upon our financial condition and/or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on the OTCQB under the symbol “RBIZ”. The following table shows our high and low closing prices of our common stock at the end of each quarter for the fiscal years 2017 and 2016.
|Period||High Price||Low Price|
|Fiscal Year Ended October 31, 2017|
|Fiscal Year Ended October 31, 2016|
Our closing stock price on March 16, 2018 was $0.0050 and we had approximately 448 holders of record of our common stock.
We have not paid any dividends on our common stock and do not anticipate paying any such dividends in the near future. Instead, we intend to use any earnings for future acquisitions and expanding our business.
Securities Authorized for Issuance under Equity Compensation Plans.
The following provides information concerning compensation plans under which our equity securities are authorized for issuance as of October 31, 2017:
|Plan Category||Number of securities to be issued upon exercise of outstanding options, warrants and rights||
average exercise price of outstanding options,
warrants and rights
|Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))|
|Equity compensation plans approved by security holders||—||—||—|
|Equity compensation plans not approved by security holders (1)(2)||—||$||10.00||33,160,000|
|(1)||2015 Stock Incentive Plan. On July 24, 2015, our Board of Directors adopted the 2015 Stock Incentive Plan . The purpose of our 2015 Stock Incentive Plan is to advance the best interests of the Company by providing those persons who have a substantial responsibility for our management and growth with additional incentive and by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with us. Further, the availability and offering of stock options and common stock under the plan supports and increases our ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth, and profitability which we depend. The total number of shares available for the grant of either stock options or compensation stock under the plan is 33,520,000 shares, subject to adjustment. Our Board of Directors administers our plan and has full power to grant stock options and common stock, construe and interpret the plan, establish rules and regulations and perform all other acts, including the delegation of administrative responsibilities, it believes reasonable and proper. Any decision made, or action taken, by our Board of Directors arising out of or in connection with the interpretation and administration of the plan is final and conclusive. The Board of Directors, in its absolute discretion, may award common stock to employees of, consultants to, and directors of the company, and such other persons as the Board of Directors or compensation committee may select, and permit holders of common stock options to exercise such options prior to full vesting therein and hold the common stock issued upon exercise of the option as common stock. Stock options may also be granted by our Board of Directors or compensation committee to non-employee directors of the company or other persons who are performing or who have been engaged to perform services of special importance to the management, operation, or development of the company. In the event that our outstanding common stock is changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation, other reorganization, recapitalization, combination of shares, stock split-up or stock dividend, prompt, proportionate, equitable, lawful and adequate adjustment shall be made of the aggregate number and kind of shares subject to stock options which may be granted under the plan. Our Board of Directors may at any time, and from time to time, suspend or terminate the plan in whole or in part or amend it from time to time in such respects as our Board of Directors may deem appropriate and in our best interest. The maximum aggregate number of shares of common stock that may be issued and sold under all awards granted under the plan is 33,520,000 shares, and as of October 31, 2017, we have issued 360,000 shares under the plan, and there are no options outstanding under this plan.|
|(2)||See Note 10 to the consolidated financial statements for more information on restricted stock grants.|
Recent Sales of Unregistered Securities
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with the financial statements, related notes and other financial information included elsewhere in this Report on Form 10-K. The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” and elsewhere in this Form 10-K. To the extent that this Annual Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of our Company, please be advised that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in forward-looking statements and thus you should not unduly rely on these statements.
In 2017, we decided to strategically pivot our business model and took up an opportunity to enter the global food business. We also decided that the real estate business model, including the upcoming product launch, would best be served in a separate public company.
In conjunction with these actions, on January 2, 2017, we underwent a management restructuring. We appointed Anshu Bhatnagar as our Chief Executive Officer and will depend on his expertise to develop operations in the food industry. In addition, we have entered into a Spin-off Agreement pursuant to which we intend to spin-off our current real estate business into a separate company that will be managed by our former Chief Executive Officer, Alex O. Aliksanyan. We believe this move will be of great value to our shareholders as we venture into a thriving business sector.
Verus, a Nevada corporation, and our wholly owned subsidiary, is an international supplier of consumer food products. Verus markets food products under its own brand primarily to supermarkets, hotels, and other members of the wholesale trade. In 2018, the Company plans to pursue a three-pronged development program through the addition of cold-storage facilities, product line expansion, and new vertical farm-to-market operations. Verus’ initial focus is on frozen foods, particularly meat, poultry, seafood, vegetables, and French fries. Verus has a significant regional presence in MENA and sub-Saharan Africa (excluding OFAC-restricted nations), with deep roots in the GCC countries.
On October 27, 2017, we entered into 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 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 February 23, 2018 as the record date for the determination of stockholders entitled to receive the Distribution. The Distribution is currently scheduled to occur four weeks after the effective date of the Registration Statement on Form 10.
Results of Operations
Total revenues increased $2,405,745 or 277% for the year ended October 31, 2017 to $3,274,273 compared to $868,258 for the year ended October 31, 2016.
The Real Estate segment revenues decreased $482,349, or a 55% decrease from prior year. The decrease in Real Estate segment revenues is the result of a wind-down of the Real Estate operations in preparation for a spin-off of the segment.
The Food Products segment revenues increased $2,888,094, or a 100% increase from prior year. The increase is a result of the addition of the Food Products segment in January 2017.
Cost of Revenues
Cost of revenues totaled $2,655,920 for year ended October 31, 2017, compared to $207,081 for the year ended October 31, 2016, representing an increase of $2,448,839.
The Real Estate segment cost of revenues decreased $61,782, or a 30% decrease from prior year. The decrease in Real Estate segment cost of revenues is the result of a wind-down of the Real Estate operations in preparation for a spin-off of the segment. For the Real Estate segment, cost of revenues consists primarily of engineering costs incurred in connection with maintenance of our online networks.
The Food Products segment cost of revenues increased $2,510,621, or a 100% increase from prior year. The increase is a result of the addition of the Food Products segment in January 2017.
Our operating expenses, include salaries and benefits, selling and promotion, amortization and depreciation, legal expenses and general and administrative expenses, increased 67% to $1,896,901 for the year ended October 31, 2017, compared to $1,133,139 for the year ended October 31, 2016, an increase of $763,762. The increase was substantially due to increased salaries and benefits, legal expenses and general and administrative expenses as a result of the addition of the Food Products segment in January 2017.
Other Income (Expenses)
Our other expenses, net, improved by $435,371 for the year ended October 31, 2017 as compared to the prior year. The improvement in 2017 was primarily driven by a $506,045 decrease in interest expense in 2017 compared to 2016 as a result of the conversions of debt to equity in 2017 and 2016.
We had a net loss of $1,278,209 for the year ended October 31, 2017, compared to a net loss of $906,725 for the year ended October 31, 2016, an increase of $371,484. The net loss was primarily driven by losses in the Food Products segment as this business was being developed.
Liquidity and Capital Resources; Anticipated Financing Needs
At October 31, 2017, we had $280,111 of cash on-hand, an increase of $131,224 from $148,887 as of October 31, 2016.
Net cash used in operating activities was $949,333 for the year ended October 31, 2017, an increase of $607,485 from $341,848 used during the year ended October 31, 2016. This increase was primarily due to an increased net loss for the year ended October 31, 2017 as a result of the increased operating costs associated with the addition of the Food Products segment in January 2017.
Net cash provided by financing activities increased by $910,860 to $1,090,860 for the year ended October 31, 2017, compared to $180,000 for the year ended October 31, 2016.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We have identified the policies below as critical to our understanding of the results of our business operations. We discuss the impact and any associated risks related to these policies on our business operations throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results.
In the ordinary course of business, we have made a number of estimates and assumptions in preparing our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Actual results could differ significantly from those estimates and assumptions. The following critical accounting policies are those that are most important to the portrayal of our consolidated financial statements. For a summary of our significant accounting policies, including the critical accounting policies discussed below, refer to Note 2 — “Summary of Significant Accounting Policies” included in the “Notes to Consolidated Financial Statements”.
We consider the following accounting policies to be those most important to the portrayal of our results of operations and financial condition:
Revenue Recognition .
The Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence that 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.
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.
Income Taxes . The Company accounts for income taxes using an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period. The Company has recorded a full valuation allowance for its net deferred tax assets as of October 31, 2017 and 2016 because realization of those assets is not reasonably assured.
The Company will recognize a 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 financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
The Company believes its income tax filing positions and deductions will be sustained upon examination and, accordingly, no reserves, or related accruals for interest and penalties has been recorded at October 31, 2017 and 2016.
Share-Based Compensation . The Company accounts for stock incentive plans by measurement and recognition of compensation expense for all stock-based awards based on estimated fair values, net of estimated forfeitures. Share-based compensation expense recognized for the years ended October 31, 2017 and 2016 includes compensation cost for restricted stock awards and stock options. The Company uses the Black-Scholes option-pricing model to determine the fair value of options granted as of the grant date.
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 as of October 31, 2017 and 2016.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements starting on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of October 31, 2017 to determine whether the Company’s disclosure controls and procedures are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in the reports that filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were ineffective as of October 31, 2017. Management has identified control deficiencies regarding the lack of segregation of duties. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.
To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which should enable us to implement adequate segregation of duties within the internal control framework.
These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. In light of this material weakness, we performed additional analyses and procedures in order to conclude that our audited consolidated financial statements for the year ended October 31, 2017, included in this Annual Report on Form 10-K were fairly stated in accordance with GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated audited financial statements for the year ended October 31, 2017 are fairly stated, in all material respects, in accordance with GAAP.
Management’s Annual Report On Internal Control Over Financial Reporting
Management, including our Chief Executive Officer and Chief Financial Officer, are responsible for establishing and maintaining adequate internal control over our financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management concluded that, as of October 31, 2017, our internal control over financial reporting was not effective. Detailed support for certain transactions were not maintained. The Company intends to appoint a full-time Chief Financial Officer and believes that this addition will allow the Company to take steps to remedy the weakness in our internal control over financial reporting.
As an “emerging growth company” as defined in the JOBS Act, we are not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. Accordingly, this Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting, and management’s report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended October 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors, Executive Officers, and Other Key Employees
|Anshu Bhatnagar||44||Chief Executive Officer and Chairman|
|Thomas Butler Fore||51||Director|
Biographies for the members of our Board of Directors and our management team are set forth below:
Anshu Bhatnagar – Chief Executive Officer and Chairman
Anshu Bhatnagar has served as our Chief Executive Officer and Chairman of the Board since January 2, 2017. In addition, Mr. Bhatnagar is a food distribution veteran and previously was the Chief Executive Officer of American Agro Group, an international trading and distribution company that specialized in exporting agricultural commodities and food products from 2012 to 2016. Mr. Bhatnagar was also a Managing Member of Blue Capital Group, a real estate oriented multi-family office focused on acquiring, developing, and managing commercial real estate as well as investing in operating businesses from 2008 to 2016. He has also owned, operated and sold other successful businesses in technology, construction and waste management. The Board believes Mr. Bhatnagar is qualified to serve as a member of the Board because of his extensive business experience.
Michael O’Gorman – Director
Michael O’Gorman has served as a member of our Board since August 11, 2017. Mr. O’Gorman has over 35 years of successful food brokerage, food manufacturing, project management, finance and legal experience in the international arena. Since 1982, Mr. O’Gorman has also served as Chairman and Chief Executive Officer of Crassus Group of companies, includes entities whose subsidiaries specialize in sourcing and marketing all natural, healthy food and consumer products. In addition, from 1976 to 1979 he served as Chief of Staff in both the House of Representatives and U.S. Senate. He has firsthand experience with agriculture since he has owned and operated a 252-acre farm where he raised both crops and Black Angus cattle. Mr. O’Gorman has spent a number of years working at major international law firms as well serving as a Member of the Corporate Law Department, Director of Litigation Support Group of Peabody International Corporation, Fortune 100 NYSE from 1979 to 1986. Mr. O’Gorman received his JD with a concentration in international law from the University of Connecticut, MBA in international finance from Fairleigh Dickinson University and BS in organic chemistry from St. Peters College. The Board believes Mr. O’Gorman is qualified to serve as a member of the Board because of his experience in agriculture and the food industry.
Thomas Butler Fore – Director
Thomas Butler Fore has served as a member of our Board since August 11, 2017. Mr. Fore is a multi-faceted entrepreneur and executive with experience in numerous categories of business, including real estate, media, personal care products and fashion. He has served as Chief Executive Officer of Sora Development, an award winning real estate development firm focused on large mixed-use projects with a specialty in public-private partnerships since 2007. In addition, from 2012 he served as Chief Executive Officer of Tiderock Media, a film production company and in 2014 he founded Digital2go Media Networks where he also served as a member of its board. Mr. Fore is also involved as an advisor and partner in numerous other enterprises in media, real estate and consumer products. Mr. Fore received his BA from Towson University. The Board believes Mr. Fore is qualified to serve as a member of the Board because of his background and experience in the industry.
There are no family relationships among our executive officers and directors.
Involvement in Certain Legal Proceedings
During the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has been:
|●||the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;|
|●||convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);|
|●||subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities, or banking activities;|
|●||found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;|
|●||the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or|
|●||the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.|
We presently do not have an audit committee, compensation committee or nominating committee or committee performing similar functions, as our management believes that until this point it has been premature at the early stage of our management and business development to form an audit, compensation, or nominating committee. The Board acts in place of such committees. The Company currently does not have an audit committee expert; however, the Company intends to engage someone with the qualifications required to serve as an audit committee expert.
Although our common stock is not listed on any national securities exchange, for purposes of independence we use the definition of independence applied by The Nasdaq Stock Market. The Board has determined that each of Michael O’Gorman and Thomas Butler Fore are “independent” in accordance with such definition.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers, and stockholders holding more than 10% of our outstanding common stock, to file with the SEC initial reports of ownership and reports of changes in beneficial ownership of our common stock. Executive officers, directors and greater-than-10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. To our knowledge, based solely on review of the copies of such reports furnished to us for the period ended October 31, 2017, all of the Section 16(a) reports required to be filed by our executive officers, directors, and greater-than-10% stockholders were filed on a timely basis, except Michael O’Gorman, Lalit Lal and Thomas B. Fore failed to timely file their Form 3s.
Code of Ethics
The Company has not yet adopted a Code of Ethics which is applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or its directors or employees; however, the Company intends to adopt a Code of Ethics as soon as practicable.
Changes in Nominating Procedures
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the current and former Chief Executive Officer and Chief Financial Officer who are the individuals with salaries in excess of $100,000.
|Summary Compensation Table|
|Name and Position||Year||Salary||Bonus||Award||
|Chief Executive Officer and Director||2016||—||—||—||—||—|
|Former Chief Executive Officer – Real Estate Division (August 10, 2015-January 2, 2017), CIO and COO (February 20, 2015-January 2, 2017)||2016||$||90,000||(1)||—||800,000||(2)||—||890,000|
|Former Chief Financial Officer, and Former Director (2)||2016||$||64,500||(3)||—||30,000||(4)||—||94,500|
|(1)||Based on an annual base salary of $120,000.|
Mr. Aliksanyan was granted 800,000 shares of common stock valued at $0.10 per share, which shares were to be issued on a quarterly basis with 200,000 shares issued on each of May 31, 2016, August 31, 2016, November 30, 2016, and February 28, 2016. During the fiscal year ended October 31, 2017, 400,000 of Mr. Aliksanyan’s 800,000 stock granted vested. Mr. Aliksanyan also received 350,000 shares of common stock as of July 31, 2016, valued at $0.10 in consideration of achieving certain milestones under his employment agreement. In addition, Mr. Aliksanyan was granted 2,400,000 shares in September 2016 valued at $0.05 per share for his services as Chief Executive Officer of the Company.
|(3)||Based on an annual base salary of $70,000|
Mr. Grbelja was granted 300,000 shares of common stock valued at $0.10 per share, which shares were to be issued on a quarterly basis with 75,000 shares issued on September 23, 2016, December 23, 2016, March 23, 2016 and June 23, 2016. During the fiscal year ended October 31, 2017, 75,000 of Mr. Grbelja’s 300,000 stock granted vested.
Based upon $0.006 per share.
Employment Agreements with Executives and Key Personnel
Anshu Bhatnagar Employment Agreement
On January 31, 2017, the Company entered into an employment agreement with Anshu Bhatnagar (the “Bhatnagar Employment Agreement”), effective as of January 2, 2017. Pursuant to the terms of the Bhatnagar Employment Agreement, Mr. Bhatnagar will serve as Chief Executive Officer of the Company and a member of the Company’s Board of Directors (the “Board”) for a term which shall expire on December 31, 2021; provided, however , that the Bhatnagar Employment Agreement may be renewed thereafter upon written notice by the Company and Mr. Bhatnagar. Pursuant to the Bhatnagar Employment Agreement, the Company shall pay Mr. Bhatnagar (i) an annual base salary of $175,000, (ii) an annual discretionary bonus, as determined by the Board and (iii) warrants (the “Warrants”) to purchase 37,500 shares of the Company’s common stock at an exercise price equal to $240 per share. Mr. Bhatnagar may exercise the Warrants until such time as he owns 20% of the Company’s then issued and outstanding shares of common stock.
In addition to the foregoing, commencing January 1, 2018, Mr. Bhatnagar shall receive warrants to acquire up to 3% of the Company’s issued and outstanding common stock at the beginning of each calendar year thereafter.
Potential Payments upon Termination
We have entered into an agreement that require us to make payments and/or provide benefits to Mr. Bhatnagar in the event of a termination of employment. The following summarizes the potential payments to Mr. Bhatnagar.
Anshu Bhatnagar, Chief Executive Officer
If the Company terminates the Bhatnagar Employment Agreement for death or for Cause (as defined in the Bhatnagar Employment Agreement) or Mr. Bhatnagar terminates the Employment Agreement for other than Good Reason (as defined in the Bhatnagar Employment Agreement), Mr. Bhatnagar shall receive (i) any earned but unpaid base salary, (ii) any accrued but unpaid annual bonus, (iii) any earned but unpaid incentive compensation, (iv) unpaid business expense reimbursements, (v) accrued but unused vacation, (vi) accrued but unused sick leave and (vii) any vested benefits Mr. Bhatnagar may be eligible to receive pursuant to the Company’s employee benefit plans (collectively, the “Accrued Benefits”). If the Company terminates the Bhatnagar Employment Agreement due to disability or without Cause (as defined in the Bhatnagar Employment Agreement) or Mr. Bhatnagar terminates the Employment Agreement for Good Reason (as defined in the Bhatnagar Employment Agreement), the Company shall continue to pay Mr. Bhatnagar (i) his then base salary and Plans (as defined in the Bhatnagar Employment Agreement) for the balance of the Employment Period (as defined in the Bhatnagar Employment Agreement), (ii) the Accrued Benefits and (ii) any pro-rata share of the annual bonus that Mr. Bhatnagar would have or could have been earned prior to the Date of Termination (as defined in the Bhatnagar Employment Agreement). In addition to the foregoing, if Mr. Bhatnagar executes a general release of claims in favor of the Company within 21 days from the Date of Termination (as defined in the Bhatnagar Employment Agreement), Mr. Bhatnagar shall receive an additional 24 months of his then base salary.
Thomas Grbelja, Chief Financial Officer-Real Estate and Director
If Thomas Grbelja’s employment agreement (the “Employment Agreement”) is terminated, Mr. Grbelja will be entitled to receive his accrued base salary, vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”); provided, however , that if Mr. Grbelja’s employment is terminated (i) by the Company other than For Cause (as defined in the Employment Agreement) or (ii) by Mr. Grbelja For Good Reason (as defined in the Employment Agreement) then, in addition to paying the Accrued Obligations, the vesting of any shares of stock held in escrow or subject to a vesting schedule shall be accelerated and the shares shall be released to Mr. Grbelja. In the event of a termination by the Company other than For Cause (as defined in the Employment Agreement), disability or death occurs within six months of the date of the Employment Agreement, Mr. Grbelja may elect, at his sole discretion, to initiate and “unwind” event as described above. Mr. Grbelja resigned as Chief Financial Officer on January 2, 2017.
Outstanding Equity Awards at Fiscal Year End
There were no outstanding equity awards as of October 31, 2017.
Our non-employee directors have elected to forego any cash compensation for participating in Board of Directors and committee meetings until such time as we become profitable over the course of an entire fiscal year, at which time the Board of Directors may reconsider the structure of its director compensation. In general, director compensation will be subject to review and adjustment from time to time at the discretion of our Board of Directors.
Accordingly, our non-employee directors received no compensation in the fiscal year ended October 31, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information as of March 16, 2018, as to each person or group who is known to us to be the beneficial owner of more than 5% of our outstanding voting securities and as to the security and percentage ownership of each of our executive officers and directors and of all of our officers and directors as a group. As of March 16, 2018, we had 356,284,081 shares of common stock outstanding.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder.
Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of the date written above are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
|Amount and Nature of Beneficial Ownership|
|Name and Address (2)||Common Stock Ownership||Percentage of Common Stock Ownership (3)||Series A Preferred Stock Ownership||Percentage of Series A Preferred Stock Ownership (3)||Series C Preferred Stock Ownership||Percentage of Series C Preferred Stock Ownership (3)||Percentage of Total Voting Power (4)|
|Donald P. Monaco Investment Partners II LP (5)||9,587,302||2.69||%||-||0||%||20,000||12.5||%||11.4||%|
|Monaker Group, Inc. (6)||10,559,890||2.96||%||
|Officers and Directors:|
|Thomas Butler Fore||-||0||%||-||0||%||-||0||%||0||%|
|All Officers and Directors as a Group (3 Persons)||0||0||%||100,000||100||%||100,000||62.5||%||51.06||%|
* Less than one percent.
|(1)||This tabular information is intended to conform to Rule 13d-3 promulgated under the Exchange Act relating to the determination of beneficial ownership of securities. Unless otherwise indicated, the tabular information gives effect to the exercise of warrants or options exercisable within 60 days of the date of this table owned in each case by the person or group whose percentage ownership is set forth opposite the respective percentage and is based on the assumption that no other person or group exercise their option.|
|(2)||Unless otherwise indicated, the address of the stockholder is c/o RealBiz Media Group, Inc., 9841 Washingtonian Blvd #390, Gaithersburg, MD 20878.|
Based on 356,284,081 shares of common stock, 44,570,101 shares of Series A Convertible Preferred Stock and 160,000 Series C Convertible Preferred Stock shares issued and outstanding as of March 16, 2018.
Percentage of total voting power is based on 1,843,759,200 votes and includes voting rights attached to all shares of common stock outstanding and all shares of preferred stock outstanding that are convertible in to shares of the Company’s common stock. Holders of our common stock are entitled to one vote per share, holders of our Series A Convertible Preferred Stock are entitled to 0.05 votes per share and holders of our Series C Preferred Stock are entitled to 10,000 votes per share.
|(5)||Donald P. Monaco is the Managing General Partner of Monaco Investment Partners II, L.P. and in such capacity has voting and dispositive power over the securities held by such entity.|
|(6)||William Kerby is the Chief Executive Officer of Monaker Group, Inc, and in such capacity has voting and dispositive power over the securities held by such entity.|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE
Related-Party Transaction Policy
Our Board of Directors has no formal written policy regarding transactions with related persons, but we do plan to abide by conflict-of-interest statutes under Delaware law and approve any related-party transactions by a majority of disinterested directors. In general, applicable law states that any director proposing to enter into a related-party transaction must disclose to our Board of Directors the proposed transaction and all material facts with respect thereto. In reviewing such a proposed transaction, our Board of Directors expects to consider all relevant facts and circumstances, including (1) the commercial reasonableness of the terms, (2) the benefit and perceived benefits, or lack thereof, to us, (3) the opportunity costs of alternate transactions, (4) the materiality and character of the related party’s interest, and (5) the actual or apparent conflict of interest of the related party. We expect to apply this analysis with respect to related party transactions that may involve our officers or greater than 5% stockholders.
We do expect to adopt a formal written policy respecting related-party transactions in which our directors, officers and greater than 5% stockholders may engage, consistent with Sarbanes-Oxley related internal control requirements and best practices.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Aggregate fees billed by our principal independent registered public accounting firm for audits of the consolidated financial statements for the fiscal years indicated:
|Audit related fees||15,000||15,000|
|All other fees||-||-|
Audit Fees. The fees identified under this caption were for professional services rendered by our independent public registered accounting firm for fiscal years 2017 and 2016 in connection with the audit of our annual financial statements. The amounts also include fees for services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings and engagements for the years identified. The Company’s independent registered public accounting firm was D’Arelli Pruzansky, P.A. (“D’Arelli”) for fiscal year 2016 and the first quarter of fiscal year 2017. Effective May 26, 2017, D’Arelli merged with Assurance Dimensions, Inc. (“Assurance”). As a result, D’Arelli resigned as the Company’s independent registered public accounting firm and Assurance was engaged by the Company.
Audit-Related Fees . The fees identified under this caption were for review of our financial statements included in our quarterly reports on Form 10-Q and were not reported under the caption “Audit Fees.” This category may include fees related to the performance of audits and attestation services not required by statute or regulations, and accounting consultations about the application of generally accepted accounting principles to proposed transactions.
Tax Fees . The fees identified under this caption were for tax compliance, tax planning, tax advice and corporate tax services. Corporate tax services encompass a variety of permissible services, including technical tax advice related to tax matters; assistance with withholding-tax matters; assistance with state and local taxes; preparation of reports to comply with local tax authority transfer pricing documentation requirements; and assistance with tax audits.
Approval Policy . Our Board of Directors approves in advance all services provided by our independent registered public accounting firm. All engagements of our independent registered public accounting firm in fiscal years 2017 and 2016 were pre-approved by the Board of Directors.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|Report of Independent Registered Public Accounting Firm||F-1|
|Consolidated Balance Sheets||F-2|
|Consolidated Statements of Operations and Comprehensive loss||F-3|
|Consolidated Statement of Changes In Stockholders’ Deficit||F-4|
|Consolidated Statements of Cash Flows||F-5|
|Notes to Consolidated Financial Statements||F-7|
|3.1||Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of Form 10-12b filed on June 20, 2008)|
|3.2||Amendment to Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.2 of Form 10-12b filed on June 20, 2008)|
|3.4||Certificate of Ownership (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on October 15, 2012)|
|3.5||Amendment to the Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.6 of Form 10-K filed on February 13, 2015)|
|3.6||Certificate of Designations for Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 10-Q filed on September 23, 2013)|
|3.7||Amendment to the Certificate of Designations for Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 3.7 of Form 10-K filed on February 13, 2015)|
|3.8||Certificate of Designations for Series B Convertible Preferred Stock (Incorporated by reference to Exhibit 3.8 of Form 10-K filed on February 13, 2015)|
|3.9||Certificate of Designations of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on May 8, 2015)|
|Amendment to Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on April 10, 2017)|
|3.13||Amendment to Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on February 27, 2018)|
|4.1+||2015 Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 of Form S-8 filed on August 7, 2015)|
|10.1||Asset Purchase Agreement with ReachFactor (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on May 30, 2014)|
|10.2||Form of Subscription Agreement (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on December 3, 2015)|
|10.3+||Employment Agreement with Anshu Bhatnagar (Incorporated by reference to Exhibit 10.1 of Form 8-K/A filed on January 31, 2017)|
|10.4||Securities Purchase Agreement by and between the Company and Auctus Fund, LLC (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on June 2, 2017)|
|10.5||Form of Convertible Promissory Note (Incorporated by reference to Exhibit 10.2 of Form 8-K filed on June 2, 2017)|
|10.6||Securities Purchase Agreement by and between the Company and EMA Financial, LLC dated June 22, 2017 (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on June 26, 2017)|
|10.7||Form of Convertible Promissory Note (Incorporated by reference to Exhibit 10.2 of Form 8-K filed on June 26, 2017)|
|10.8||Securities Purchase Agreement by and between the Company and Power Up Lending Group Ltd. (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on November 1, 2017)|
|10.9||Form of Convertible Promissory Note (Incorporated by reference to Exhibit 10.2 of Form 8-K filed on November 1, 2017)|
|10.10||Contribution and Spin-off Agreement (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on November 3, 2017)|
|10.11||Securities Purchase Agreement by and between the Company and Crossover Capital Fund I, LLC (Incorporated by reference to Exhibit 10.3 of Form 8-K filed on November 3, 2017)|
|10.12||Form of Convertible Promissory Note in favor of Crossover Capital Fund I, LLC (Incorporated by reference to Exhibit 10.4 of Form 8-K filed on November 3, 2017)|
|10.13||Securities Purchase Agreement by and between the Company and Crossover Capital Fund II, LLC (Incorporated by reference to Exhibit 10.5 of Form 8-K filed on November 3, 2017)|
|10.14||Form of Convertible Promissory Note in favor of Crossover Capital Fund II, LLC (Incorporated by reference to Exhibit 10.6 of Form 8-K filed on November 3, 2017)|
|10.15||Form of Securities Purchase Agreement by and between the Company and EMA Financial, LLC (Incorporated by reference to Exhibit 10.6 of Form 8-K filed on January 4, 2018)|
|10.16||Form of Convertible Promissory Note in favor of EMA Financial, LLC (Incorporated by reference to Exhibit 10.6 of Form 8-K filed on January 4, 2018)|
|10.17||Form of Note issued to Donald P. Monaco, as Trustee of the Donald P. Monaco Insurance Trust on January 26, 2018 ( Incorporated by reference to Exhibit 10.1 of Form 8-K filed on February 12, 2018)|
|10.18*||Sublease between the Company and Buchanan Partners, LLC dated April 11, 2017|
|10.19*||8% Convertible Redeemable Note issued to GS Capital Partners, LLC on June 15, 2017|
|10.20*||Convertible Promissory Note issued to Crossover Capital Fund I, LLC on October 24, 2017|
|10.22*||8% Convertible Note issued to EMA Financial, LLC on December 21, 2017|
|10.23*||Convertible Promissory Note issued to Power Up Lending Group Ltd. on December 28, 2017|
|10.24*||8% Convertible Promissory Note issued to JSJ Investments Inc. on August 2, 2017|
|10.27*||First Amendment to Contribution and Spin-Off Agreement dated January 29, 2018|
|16.1||Letter from D’Arelli Pruzansky, P.A. (Incorporated by reference to Exhibit 16.1 on Form 8-K filed on June 6, 2017)|
|21.1*||List of Subsidiaries|
|23.1*||Consent of Independent Registered Accounting Firm|
|32.1*||Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002|
|101.INS**||XBRL Instance Document|
|101.CAL**||XBRL Taxonomy Extension Calculation Linkbase Document|
|101.DEF**||XBRL Taxonomy Extension Definition Linkbase Document|
|101.LAB**||XBRL Taxonomy Extension Label Linkbase Document|
|101.PRE**||XBRL Taxonomy Extension Presentation Linkbase Document|
|101.SCH**||XBRL Taxonomy Extension Schema Document|
+ Each of these Exhibits constitutes a management contract, compensatory plan, or arrangement.
* Filed herewith.
** Furnished herewith.
# Confidential treatment is being requested for portions of this exhibit. These portions have been omitted from the annual report and are being filed separately with the Securities and Exchange Commission.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|Realbiz Media Group, Inc.|
|/s/ Anshu Bhatnagar|
Chief Executive Officer (Principal Executive, Financial and Accounting Officer)
March 26, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this amended report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.
|/s/ Anshu Bhatnagar||Chief Executive Officer and Chairman of the Board||March 26, 2018|
(Principal Executive, Financial and Accounting Officer)
|/s/ Michael O’Gorman||Director||March 26, 2018|
|/s/ Thomas Butler Fore||Director||March 26, 2018|
|Thomas Butler Fore|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
RealBiz Media Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of RealBiz Media Group, Inc. as of October 31, 2017 and 2016 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for each of the two years in the period ended October 31, 2017 and 2016, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended October 2017, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had a Net Loss of approximately $1,300,000 for the year ended of October 31, 2017 and a working capital deficit of approximately $799,000. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits include performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Assurance Dimensions
Certified Public Accountants
We have served as the Company’s auditor since 2017.
Coconut Creek, Florida
March 26, 2018
RealBiz Media Group, Inc.
Consolidated Balance Sheets
|Accounts receivable, net of allowance for doubtful accounts||822,312||26,474|
|Total current assets||1,463,532||178,661|
|Total Current Assets|
|Property and equipment, net||-||10,311|
|Liabilities and Stockholders’ Deficit|
|Accounts payable and accrued expenses||$||1,253,558||$||758,293|
|Due to officer||33,301||-|
|Convertible notes payable, net of discount of $15,000 and $85,319, respectively||975,250||1,044,681|
|Total Current Liabilities||2,262,109||1,990,224|
|Commitments and Contingencies (See Note 12)|
|Series A Convertible Preferred Stock, $0.001 par value; 120,000,000 authorized and 100,000 and 45,716,385 shares issued and outstanding as of October 31, 2017 and 2016, respectively||100||45,716|
|Series B Convertible Preferred Stock, $0.001 par value; 1,000,000 authorized and 0 shares issued and outstanding as of October 31, 2017 and 2016, respectively||-||-|
|Series C Convertible Preferred Stock, $0.001 par value; 1,000,000 authorized and 160,000 and 35,000 shares issued and outstanding as of October 31, 2017 and 2016, respectively||160||35|
|Common stock, $0.001 par value; 1,000,000,000 shares authorized; 249,369,810 and 155,521,500 shares issued and outstanding as of October 31, 2017 and 2016, respectively||249,370||155,522|
|Accumulated other comprehensive loss||(53,285||)||(63,588||)|
|Total Stockholders’ Deficit||(798,577||)||(1,801,252||)|
|Total Liabilities and Stockholders’ Deficit||$||1,463,532||$||188,972|
The accompanying notes are an integral part of these consolidated financial statements
RealBiz Media Group, Inc.
Consolidated Statements of Operations and Comprehensive Loss
|For the Years Ended|
Cost of Revenues
|Cost of Revenues – Real estate||145,299||207,081|
|Cost of Revenues – Food products||2,510,621||-|
|Total Cost of Revenues||2,655,920||207,981|
|Salaries and benefits||1,117,728||561,766|
|Selling and promotions expense||3,866||9,305|
|Depreciation and amortization expense||10,311||24,436|
|General and administrative||764,995||537,632|
|Total Operating Expenses||1,896,901||1,133,139|
|Other Income (Expense)|
|Gain on change on fair value of derivative liabilities||-||5,765|
|Gain on settlement of notes payable and accrued expenses||-||201,744|
Foreign currency exchange gain
|Gain on extinguishment of debt||146,284||—|
|Total Other Income (Expense)||338||(435,033||)|
|Weighted Average Number of Shares Outstanding||229,394,625||149,625,555|
|Basic and Diluted Net Loss Per Share||$||(0.01||)||$||(0.01||)|
|Other Comprehensive Loss:|
|Unrealized gain (loss) on currency translation adjustment||10,303||
The accompanying notes are an integral part of these consolidated financial statements.
RealBiz Media Group, Inc.
Consolidated Statement of Changes in Stockholders’ Deficit
For the Years Ended October 31, 2017 and 2016
|# of shares||Par||# of shares||Par||# of shares||Par||# of shares||Par||
|Balance, October 31, 2015||46,188,600||$||46,189||-||$||-||35,000||$||35||133,687,500||$||133,688||$||19,047,753||$||(60,627||)||$||(20,974,694||)||$||(1,807,655||)|
|Shares issued for consulting and professional fees||800,000||800||31,200||32,000|
|Shares issued for compensation||1,300,000||1,300||13,400||14,700|
|Shares issued for accrued interest on convertible promissory notes||5,648,964||5,649||180,777||186,426|
|Shares issued from sale of common stock||13,600,000||13,600||666,400||680,000|
|Shares issued in exchange for note payable||1,000,000||1,000||49,000||50,000|
|Return of shares pursuant to settlement||(1,000,000||)||(1,000||)||(49,000||)||(50,000||)|
|Adjustment of outstanding shares||(472,215||)||(473||)||484,936||485||(12||)||-|
|Other comprehensive income (loss)||(2,961||)||
|Balance, October 31, 2016||45,716,385||$||45,716||-||$||-||35,000||$||35||155,521,500||$||155,522||$||19,939,518||$||(63,588||)||$||(21,878,458||)||$||(1,801,254||)|
|Retirement of Series A Convertible Preferred Stock||(44,560,760||)||(44,561||)||44,561|
|Conversion of Series A Convertible Preferred Stock into Common Stock||(1,155,625||)||(1,155||)||1,155,800||1,155|
|Issuance of Series A Convertible Preferred Stock||100,000||100||510||610|
|Issuance of Series C Convertible Preferred Stock||100,000||100||99,900||100,000|
|Issuance of Common Stock Warrants||15,000||15,000|
|Retirement of Common Stock||(10,559,892||)||(10,560||)||10,560|
|Shares Issued for Conversion of Promissory Notes||25,000||25||81,469,602||81,470||1,200,745||1,282,240|
|Common Stock issued for accrued compensation||21,782,800||21,783||252,625||274,408|
|Share based compensation -warrants||608,630||608,630|
|Adjustment to true-up APIC||
|Other comprehensive income (loss)||10,303||10,303|
|Balance, October 31, 2017||100,000||$||100||-||$||-||160,000||$||160||249,369,810||$||249,370||$||22,409,041||$||(53,285||)||$||(23,403,963||)||$||(798,577||)|
The accompanying notes are an integral part of these consolidated financial statements.
RealBiz Media Group, Inc.
Consolidated Statements of Cash Flows
|For the Years Ended|
|Cash flows from operating activities:|
Adjustments to reconcile net loss to net cash used in operating activities:
|Gain on settlement of notes payable and accrued expenses||-||(201,744||)|
|Gain on extinguishment of debt||(146,284||)||-|
|Amortization and depreciation||10,311||24,436|
|Gain on change in fair value of derivative liabilities||-||(5,765||)|
|Amortization of debt discount||61,603||383,744|
|Stock based compensation and consulting fees||626,469||46,700|
|Changes in operating assets and liabilities:|
|(Increase) d ecrease in accounts receivable, net||(795,838||)||41,678|
|Decrease in due from former officer||-||37,500|
|Increase in inventory||(341,188||)|
|Increase in accounts payable, accrued expenses and other||897,752||247,572|
|Increase in due to officer||33,301||-|
|Decrease in deferred revenue||(17,250||)||(9,244||)|
|Net cash used in operating activities||(949,333||)||(341,848||)|
|Cash flows from financing activities:|
|Proceeds from convertible promissory notes||975,250||-|
|Payments of loans payable||-||(500,000||)|
|Proceeds from issuance of Series A Convertible Preferred Stock||610||-|
|Proceeds from issuance of Series C Convertible Preferred Stock||100,000||-|
|Proceeds from the sale of common stock and warrants||15,000||680,000|
|Net cash provided by financing activities||1,090,860||180,000|
|Effect of exchange rate on cash and cash equivalents||(10,303||)||2,961|
|Net increase (decrease) in cash||131,224||(158,887||)|
|Cash at beginning of period||148,887||307,774|
|Cash at end of period|