NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2018
(UNAUDITED)
NOTE
1: NATURE OF BUSINESS AND BASIS OF PRESENTATION
Organization
and Nature of Business
RealBiz
Media Group, Inc., including all its subsidiaries, are collectively referred to herein as “RealBiz,” “RBIZ”,
“Company,” “us,” or “we”. Through July 31, 2018, RealBiz operated two business segments –
food products and real estate. On July 31, 2018, the real estate segment of the Company’s business
was spun-off into a separate public company (see Note 8).
As
an international supplier of consumer food products, we market under our own brand primarily to supermarkets, hotels, and other
members of the wholesale trade, offering frozen foods, particularly meat, poultry, seafood, vegetables, french fries, and beverages.
We have a significant regional presence in the Middle East and North Africa (“MENA”) and sub-Saharan Africa (excluding
Office of Foreign Assets Control (“OFAC”) restricted nations), with deep roots in the Gulf Cooperation Council (“GCC”)
countries, which includes the United Arab Emirates (“UAE”), Oman, Bahrain, Qatar, Kingdom of Saudi Arabia and Kuwait.
Basis
of Presentation
The
unaudited interim consolidated financial information furnished herein reflects all adjustments, consisting only of normal recurring
items, which in the opinion of management, are necessary to fairly state the Company’s financial position, results of operations
and cash flows for the dates and periods presented and to make such information not misleading. Certain information and footnote
disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) have been omitted pursuant to rules and regulations of the Securities
and Exchange Commission (the “SEC”); nevertheless, management of the Company believes that the disclosures herein
are adequate to make the information presented not misleading.
These
unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial
statements for the year ended October 31, 2017, contained in the Company’s Annual Report on Form 10-K filed with the SEC
on March 26, 2018. The results of operations for the nine months ended July 31, 2018, are not necessarily indicative of results
to be expected for any other interim period or the fiscal year ending October 31, 2018.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of unaudited consolidated financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the unaudited consolidated financial statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. If actual results significantly differ from the Company’s estimates,
the Company’s financial condition and results of operations could be materially impacted. Significant estimates include
the collectability of accounts receivable, stock-based compensation and the deferred tax asset valuation allowance.
Reclassifications
Certain
reclassifications have been made to prior year’s consolidated financial statements to enhance comparability with the current
year’s consolidated financial statements, including but not limited to presenting the spin-off of the real estate segment
as discontinued operations for all periods presented.
Concentrations
of Credit Risk
The
Company’s food products accounts receivable, net and revenues are geographically concentrated with customers located
in the GCC countries. In addition, significant concentrations exist with a limited number of customers. If demand for the Company’s
products from these customers decreases, there may be an adverse effect on the Company’s consolidated results
of operations and financial position.
The
Company purchases substantially all of its food products from a limited number of regions around the world or from a limited number
of suppliers. The Company’s consolidated results of operations and financial position may be materially and adversely affected
if there are significant price increases for these food products, the Company has difficulty obtaining these food products, or
the quality of available food products deteriorates. For periods in which the prices of these food products are rising, the Company
may be unable to pass on the increased cost to the Company’s customers, which would result in decreased margins. For periods
in which the prices are declining, the Company may be required to write down its inventory carrying cost which, depending on the
extent of the differences between market price and carrying cost, could have a material adverse effect on the Company’s
consolidated results of operations and financial position.
Cash
and Cash Equivalents
For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money
market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents.
There were no cash equivalents at July 31, 2018 and October 31, 2017.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Marketable
securities
In
January 2018, as part of the legal settlement with Monaker Group, Inc. (“Monaker”), NestBuilder received Monaker common
shares valued at $32,270, which we have classified as “available for sale” securities. Pursuant to Statement of Financial
Accounting Standards (“SFAS”) No. 115,
Accounting for Certain Investments in Debt and Equity Securities
, our
marketable securities are trading securities and changes are reflected in our statement of operations.
Accounts
Receivable
The
Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts.
In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make
required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop
or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains
reserves for potential credit losses and such losses traditionally have been within its expectations. At July 31, 2018, the Company
determined there was no requirement for an allowance for doubtful accounts. At October 31, 2017, the allowance for doubtful accounts
was $45,933.
Inventory
Inventory
is stated at the lower of net realizable value, determined on the first-in, first-out basis, or cost. Net realizable value is
based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion and transportation.
Convertible
Debt Instruments
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the Financial Accounting Standards Board
(“FASB”), Accounting Standards Codification (“ASC”). The amounts allocated to warrants and beneficial
conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense
over the life of the debt.
Fair
Value of Financial Instruments
The
Company has adopted ASC topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), formerly SFAS
No. 157 “Fair Value Measurements”. ASC 820 defines “fair value” as the price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date.
ASC
820 also describes three levels of inputs that may be used to measure fair value:
Level
1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level
2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level
3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s
best estimate of fair value.
Financial
instruments consist principally of cash, marketable securities, accounts receivable, prepaid expenses, due from affiliates, accounts
payable, accrued liabilities and other current liabilities. The carrying amounts of such financial instruments in the accompanying
balance sheets approximate their fair values due to their relatively short-term nature. The fair value of long-term debt is based
on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair
value. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from
these financial instruments.
Revenue
Recognition
The
Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence an arrangement exists; (2) delivery
has occurred or services have been rendered; (3) the Company’s price to its customer is fixed or determinable and (4) collectability
is reasonably assured.
Share-Based
Compensation
The
Company computes share based payments in accordance with ASC 718-10,
Compensation
(“ASC 718-10”). ASC 718-10
establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services
at fair value, focusing primarily on accounting for transactions in which an entity obtains employees services in share-based
payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services
that are based on the fair value of an entity’s equity instruments or that may be settled by the issuance of those equity
instruments. In March 2005, the SEC issued Share-Based Payment No. 107 (“SAB 107”) which provides guidance regarding
the interaction of ASC 718-10 and certain SEC rules and regulations. The Company has applied the provisions of SAB 107 in its
adoption of ASC 718-10. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50,
Equity
Based Payments to Non-Employees
. The Company estimates the fair value of stock options by using the Black-Scholes option pricing
model.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign
Currency
Assets
and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end
exchange rates and profit and loss accounts have been translated using average exchange rates. Foreign currency translation gains
and losses are included in the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) as a component
of accumulated other comprehensive loss. Assets and liabilities of an entity that are denominated in currencies other than an
entity’s functional currency are re-measured into the functional currency using end of period exchange rates or historical
rates, where applicable to certain balances. Gains and losses related to these re-measurements are recorded within the Unaudited
Consolidated Statements of Operations and Comprehensive Income (Loss) as a component of Other Income (Expense).
Income
Taxes
The
Company accounts for income taxes in accordance with Accounting for Income Taxes, as clarified by ASC 740-10,
Accounting for
Uncertainty in Income Taxes
(“ASC 740”). Under this method, deferred income taxes are determined based on the
estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities and net operating
loss and tax credit carryforwards given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based
on changes to the assets or liabilities from year-to-year. In providing for deferred taxes, the Company considers tax regulations
of the jurisdictions in which the Company operates, estimates of future taxable income and available tax planning strategies.
If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value
of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based
on the “more likely than not” criteria of ASC 740.
ASC
740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not”
threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood
of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its October 31,
2017, 2016 and 2015 tax years may be selected for examination by the taxing authorities as the statute of limitations remains
open.
The
Company recognizes expenses for tax penalties and interest assessed by the Internal Revenue Service and other taxing authorities
upon receiving valid notice of assessments. The Company has received no such notices for the tax years ended October 31, 2017
and 2016.
Earnings
Per Share
In
accordance with the provisions of FASB ASC Topic 260,
Earnings per Share
, basic earnings per share (“EPS”)
is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding
during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating
EPS on a diluted basis.
In
computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included.
The effect of contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported.
Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the three and nine months
ended July 31, 2018 and July 31, 2017 as we incurred a net loss for those periods. At July 31, 2018, there were outstanding warrants
to purchase up to 17,786,467 shares of the Company’s common stock and approximately 369 million shares of the Company’s
common stock which may dilute future EPS as a result of conversions of outstanding convertible promissory notes.
Concentrations,
Risks and Uncertainties
The
Company’s ongoing operations are related to the international food industries, and its prospects for success are tied indirectly
to interest rates and the worldwide demand for the Company’s food products.
Recently
Issued Accounting Standards Not Yet Adopted
In
August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which
deferred the effective date of ASU 2014-09 for all entities by one year. This update is effective for public business entities
for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early
application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting
periods within that reporting period. ASU 2014-09 becomes effective for us beginning November 1, 2018, which is when we
plan to adopt this standard. The ASU permits two methods of adoption: retrospectively to each prior reporting period presented
(full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the
date of initial application (the modified retrospective method). The ASU also requires expanded disclosures relating to the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and
quantitative disclosures are required for customer contracts, significant judgments and changes in judgments, and assets recognized
from the costs to obtain or fulfill a contract. The Company is currently evaluating the impact of adopting ASU 2015-14 on the
Company’s financial position, results of operations and cash flows.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In
February 2016, the FASB issued ASU 2016-02,
Leases
(“ASU 2016-02”). The standard amends the existing accounting
standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted
changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of fiscal 2020. Early adoption of ASU
2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at,
or entered into after, the date of initial application, with an option to use certain transition relief. In September, the FASB
issued ASU 2017-13,
Revenue Recognition
(Topic 605),
Revenue from Contracts with Customers (Topic 606), Leases (Topic
840), and Leases (Topic 842)
, which amends certain aspects of the new lease standard. The Company is currently evaluating
the impact of adopting ASU 2016-02 on the Company’s financial position, results of operations and cash flows.
In
November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”).
The new standard changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash
and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the statement of cash flows. The new standard is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2017. Early adoption is permitted. ASU 2016-08 is not expected to have a material
impact on the Company’s financial statements.
In
January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
.
The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this ASU
provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a
business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability
to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. This ASU is
the final version of proposed ASU 2015-330
Business Combinations (Topic 805) – Clarifying the Definition of a Business
,
which has been deleted. The amendments in this ASU are effective for all entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material
impact on the Company’s financial statements.
In
May 2017, the FASB issued ASU 2017-09,
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic
718,
Compensation—Stock Compensation
, to a change to the terms or conditions of a share-based payment award. The
amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require
an entity to apply modification accounting in Topic 718. This ASU is the final version of proposed ASU 2016-360—
Compensation—Stock
Compensation (Topic 718)—Scope of Modification Accounting
, which has been deleted. The amendments in this ASU are effective
for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early
adoption is permitted. This ASU is not expected to have a material impact on the Company’s financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying unaudited consolidated financial statements.
NOTE
3: GOING CONCERN
The
accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The
Company incurred a net loss of $1,576,655 for the nine months ended July 31, 2018. At July 31, 2018, the Company had a
working capital deficit of $1,208,361, net cash used in operations of $978,000, and an accumulated deficit of $25,018,786.
It is management’s opinion that these facts raise substantial doubt about the Company’s ability to continue as a going
concern for a period of twelve months from the date of this filing, without additional debt or equity financing. The unaudited
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts nor to the amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
In
order to meet its working capital needs through the next twelve months and to fund the growth of the food business, the Company
may consider plans to raise additional funds through the issuance of additional shares of common or preferred stock and/or through
the issuance of debt instruments. Although the Company intends to obtain additional financing to meet its cash needs, the Company
may be unable to secure any additional financing on terms that are favorable or acceptable to it, if at all.
Note
4: Segment reporting
Through
July 31, 2018, the Company had two reportable segments: real estate and food products. On July 31, 2018, the real estate
segment was spun-off into a separate public company, leaving the Company with only the food products segment (see Note 8).
NOTE
5: CONVERTIBLE NOTES PAYABLE
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the FASB ASC. The amounts allocated
to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is
amortized to interest expense over the life of the debt.
At
July 31, 2018 and October 31, 2017, there was $1,349,618 and $975,250 of convertible notes payable outstanding, respectively,
net of discounts of $7,500 and $15,000, respectively. Additionally, at July 31, 2018, the Company was in default with respect
to certain convertible notes as a result of not having sufficient shares of common stock available for issuance upon the
conversion of such notes and certain cross-default provisions. The default provisions include 1) default interest rates ranging
from 18% to 24% per annum, 2) daily fixed dollar penalties, and 3) an increase in the total amount due calculated by multiplying
the aggregate of the then outstanding principal amount of the note, together with accrued and unpaid interest thereon, plus default
interest and fixed dollar penalties by 200%. As of July 31, 2018, the principal amount of the notes together with interest accrued
thereon and penalties totaled $855,398, consisting of $793,327 of default principal and $62,071 of default interest.
On
December 21, 2017, the Company issued EMA Financial, LLC (“EMA”) a convertible note in the principal amount of $100,000
(the “EMA Note 2”). The EMA Note 2 accrues interest at a rate of 8% per annum and matures on December 21, 2018. Pursuant
to the terms of the EMA Note 2, the Company may prepay the principal amount of the note together with accrued interest at any
time on or prior to June 19, 2018
,
subject to certain prepayment penalties. Pursuant to the terms of the EMA Note 2, the outstanding principal and accrued interest
on the EMA Note 2 are convertible into shares of the Company’s common stock at the lower of: (i) the closing sale price
of the common stock on the principal market on the trading day immediately preceding the closing date of such note, and (ii) 60%
of either the lowest sale price for the common stock on the principal market during the fifteen consecutive trading days including
and immediately preceding the conversion date, or the closing bid price, whichever is lower;
provided, however
, if the
Company’s share price at any time loses the bid (as specified in the EMA Note 2), then the conversion price may, in EMA’s
sole and absolute discretion, be reduced to a fixed conversion price of $0.00001, subject to the Company reducing the par value
of its common stock;
provided, further that,
that if on the date of delivery of the conversion shares to EMA, or
any date thereafter while conversion shares are held EMA, the closing bid price per share of common stock on the principal market
on the trading day on which the common stock are traded is less than the sale price per share of common stock on the principal
market on the trading day used to calculate the conversion price hereunder, then such conversion price shall be automatically
reduced such that the conversion price shall be recalculated using the new low closing bid price (“Adjusted Conversion Price”)
and shall replace the conversion price above, and EMA shall be issued a number of additional shares such that the aggregate number
of shares EMA receives is based upon the Adjusted Conversion Price.
On
December 28, 2017, the Company issued Power Up Lending Group Ltd. (“Power Up”) a convertible note in the principal
amount of $53,000 (the “Power Up Note 6”). The Power Up Note 6 accrues interest at a rate of 8% per annum and matures
on October 5, 2018. Pursuant to the terms of the Power Up Note 6, the Company may prepay the principal amount of the note together
with accrued interest at any time on or prior to June 26, 2018, subject to certain prepayment penalties. Pursuant to the terms
of the Power Up Note 6, the outstanding principal and accrued interest of the Power Up Note 6 are convertible into shares of the
Company’s common stock at a discount rate of 39% of the average of the lowest three trading prices for the Company’s
common stock during the fifteen trading day period ending on the latest complete trading day prior to the conversion date.
On
January 26, 2018, the Company issued the Donald P. Monaco Insurance Trust a promissory note in the principal amount of $530,000
(the “Monaco Note”). The Monaco Note accrues interest at a rate of 12% per annum and matures on January 26, 2019.
Pursuant to the terms of the Monaco Note, the Company may prepay the principal amount of the note together with accrued interest
at any time prior to the date of maturity without a prepayment penalty. Pursuant to the terms of the Monaco Note, the outstanding
principal and accrued interest of the Monaco Note are not convertible into shares of the Company’s common stock; provided,
however, upon the Company’s failure to pay the obligations set forth in the Monaco Note on the maturity date, the holder
may convert the Monaco Note into shares of the Company’s common stock at a conversion price equal to the lowest closing
price of the Company’s common stock during the fifteen trading days prior to the date the holder gives notice of the default
to the Company.
On
June 5, 2018, the Company issued Power Up a convertible note in the principal amount of $35,000 (the “Power Up Note 7”).
The Power Up Note 7 accrues interest at a rate of 8% per annum and matures on March 30, 2019. Pursuant to the terms of the Power
Up Note 7, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to December
2, 2018, subject to certain prepayment penalties. Pursuant to the terms of the Power Up Note 7, the outstanding principal and
accrued interest of the Power Up Note 7 are convertible into shares of the Company’s common stock at a discount rate of
39% of the average of the lowest three trading prices for the Company’s common stock during the fifteen trading day period
ending on the latest complete trading day prior to the conversion date.
On
July 5, 2018, the Company issued Power Up a convertible note in the principal amount of $53,000 (the “Power Up Note 8”).
The Power Up Note 8 accrues interest at a rate of 8% per annum and matures on April 30, 2019. Pursuant to the terms of the Power
Up Note 8, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to January
1, 2019, subject to certain prepayment penalties. Pursuant to the terms of the Power Up Note 8, the outstanding principal and
accrued interest of the Power Up Note 8 are convertible into shares of the Company’s common stock at a discount rate of
42% of the average of the lowest two trading prices for the Company’s common stock during the fifteen trading day period
ending on the latest complete trading day prior to the conversion date.
On
July 26, 2018, the Company issued Actus Fund, LLC (“Actus”) a convertible note in the principal amount of $137,250
(the “Actus Note 2”). The Actus Note 2 accrues interest at a rate of 8% per annum and matures on April 18, 2019. Pursuant
to the terms of the Actus Note 2, the Company may prepay the principal amount of the note together with accrued interest at any
time on or prior to January 22, 2019, subject to certain prepayment penalties. Pursuant to the terms of the Actus Note 2, the
outstanding principal and accrued interest of the Actus Note 2 are convertible into shares of the Company’s common stock
at a discount rate of 40% of the lowest trading price during the previous twenty-five trading day period ending on the latest
complete trading day prior to the conversion date.
During
the three months ended July 31, 2018, holders of convertible notes converted an aggregate of $545,547 of outstanding principal,
$31,184 of accrued interest and $11,500 of associated professional fees into an aggregate of 1,145,215,919 shares of the Company’s
common stock.
During
the nine months ended
July 31, 2018, the Company made a payment of $57,952 to Power Up to prepay the Power Up Note 3, which included a principal
payment of $40,000 and an interest payment together with prepayment penalties of $17,952.
NOTE
6: STOCKHOLDERS’ DEFICIT
The
total number of shares of all classes of stock that the Company shall have the authority to issue is 1,625,000,000 shares
consisting of 1,500,000,000 shares of common stock with a $0.001 par value per shares; of which 1,500,000,000 are
outstanding at July 31, 2018 and 125,000,000 shares of preferred stock, par value $0.001 per share of which (A) 120,000,000
shares have been designated as Series A Convertible Preferred of which 44,570,101 are outstanding at July 31, 2018, (B)
1,000,000 shares have been designated as Series B Convertible Preferred Stock, of which no shares are outstanding at July 31,
2018 and (C) 1,000,000 have been designated as Series C Convertible Preferred Stock, of which 160,000 shares are outstanding
at July 31, 2018. At July 31, 2018, the Company does not have any shares of common stock available for issuance, which
triggered a default on certain convertible notes payable (see Note 5).
Common
Stock
During
the nine months ended July 31, 2018, holders of convertible notes converted an aggregate of $767,209 principal, $43,977 of accrued
interest and $16,250 of associated professional fees into an aggregate of 1,248,092,927 shares of the Company’s common stock.
On
January 29, 2018, the Company settled litigation with NestBuilder which resulted in the return and cancellation of 4,163,315 shares
of the Company’s common stock on February 2, 2018.
As
of July 31, 2018, there were warrants to purchase up to 17,786,467 shares of the Company’s common stock outstanding and
approximately 369 million shares of the Company’s common stock which may dilute future EPS as a result of conversions of
outstanding convertible promissory notes.
NOTE
7: COMMITMENTS AND CONTINGENCIES
In
October 2017, we announced the execution of a definitive agreement that included significant contingencies to spin-off the real
estate segment into a separate public company named NestBuilder. On July 31, 2018, all contingencies were met and all stockholders
of record received, on a pro-rata basis, 1 share of NestBuilder for every 900 shares of the Company held in connection with
the spin-off.
NOTE
8: DISCONTINUED OPERATIONS
Through
July 31, 2018, we operated a real estate segment which generated revenue from service fees (video creation and production and
website hosting (ReachFactor)) and product sales (Nestbuilder Agent 2.0 and Microvideo app). The real estate segment was formed
through the merging of three divisions: (i) our fully licensed real estate division (formerly known as Webdigs); (ii) our TV media
contracts (Home Preview Channel /Extraordinary Vacation Homes) division; and (iii) our Real Estate Virtual Tour and Media group
(RealBiz 360). The assets of these divisions were used to create a new suite of real estate products and services that created
stickiness through the utilization of video, social media and loyalty programs. At the core of our programs was our proprietary
video creation technology which allowed for an automated conversion of data (text and pictures of home listings) to a video with
voice and music. We provided video search, storage and marketing capabilities on multiple platform dynamics for web, mobile and
TV. Once a home, personal or community video was created using our proprietary technology, it could be published to social media,
email or distributed to multiple real estate websites, broadband or television for consumer viewing.
As
a result of the spin-off of the real estate segment, all related assets and liabilities are disclosed net as current assets and
current liabilities within the consolidated balance sheets, and all related income and expenses are disclosed net as income (loss)
from discontinued operations within the consolidated statements of operations and comprehensive income (loss).
The
assets and liabilities associated with discontinued operations included in our Consolidated Balance Sheet were as
follows:
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July
31, 2018
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October
31, 2017
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(Unaudited)
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Discontinued
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Continuing
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Total
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Discontinued
|
|
|
Continuing
|
|
|
Total
|
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Assets
|
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|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
80,969
|
|
|
$
|
136,475
|
|
|
$
|
217,444
|
|
|
$
|
28,810
|
|
|
$
|
251,301
|
|
|
$
|
280,111
|
|
Marketable securities
|
|
|
27,727
|
|
|
|
—
|
|
|
|
27,727
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Accounts receivable, net
|
|
|
146
|
|
|
|
1,127,655
|
|
|
|
1,127,801
|
|
|
|
9,564
|
|
|
|
812,748
|
|
|
|
822,312
|
|
Inventory
|
|
|
—
|
|
|
|
59,636
|
|
|
|
59,636
|
|
|
|
—
|
|
|
|
341,188
|
|
|
|
341,188
|
|
Prepaid expenses
|
|
|
3,300
|
|
|
|
95,955
|
|
|
|
99,255
|
|
|
|
3,300
|
|
|
|
—
|
|
|
|
3,300
|
|
Other assets
|
|
|
10,003
|
|
|
|
8,629
|
|
|
|
18,632
|
|
|
|
—
|
|
|
|
16,621
|
|
|
|
16,621
|
|
Total
Current Assets
|
|
$
|
122,144
|
|
|
$
|
1,428,350
|
|
|
$
|
1,550,494
|
|
|
$
|
41,674
|
|
|
$
|
1,421,858
|
|
|
$
|
1,463,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
109,883
|
|
|
|
608,271
|
|
|
|
718,154
|
|
|
|
396,407
|
|
|
|
834,591
|
|
|
|
1,230,998
|
|
Interest payable
|
|
|
—
|
|
|
|
127,782
|
|
|
|
127,782
|
|
|
|
—
|
|
|
|
22,560
|
|
|
|
22,560
|
|
Due to officer
|
|
|
—
|
|
|
|
33,301
|
|
|
|
33,301
|
|
|
|
—
|
|
|
|
33,301
|
|
|
|
33,301
|
|
Note payable
|
|
|
—
|
|
|
|
530,000
|
|
|
|
530,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Convertible notes payable, net
|
|
|
—
|
|
|
|
1,349,618
|
|
|
|
1,349,618
|
|
|
|
—
|
|
|
|
975,250
|
|
|
|
975,250
|
|
Total
Current Liabilities
|
|
$
|
109,883
|
|
|
$
|
2,648,972
|
|
|
$
|
2,758,855
|
|
|
$
|
396,407
|
|
|
$
|
1,865,702
|
|
|
$
|
2,262,109
|
|
The
revenues and expenses associated with discontinued operations included in our Consolidated Statements of operations were
as follows:
|
|
Three
months ended
|
|
|
|
July
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
Revenue
|
|
$
|
70,016
|
|
|
$
|
1,371,445
|
|
|
$
|
1,441,461
|
|
|
$
|
106,055
|
|
|
$
|
1,048,576
|
|
|
$
|
1,154,631
|
|
Cost
of revenue
|
|
|
17,200
|
|
|
|
1,147,231
|
|
|
|
1,164,431
|
|
|
|
28,320
|
|
|
|
827,161
|
|
|
|
855,481
|
|
Gross
Profit
|
|
|
52,816
|
|
|
|
224,214
|
|
|
|
277,030
|
|
|
|
77,735
|
|
|
|
221,415
|
|
|
|
299,150
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
23,482
|
|
|
|
55,347
|
|
|
|
78,829
|
|
|
|
35,187
|
|
|
|
161,954
|
|
|
|
197,141
|
|
Selling
and promotions expense
|
|
|
26
|
|
|
|
-
|
|
|
|
26
|
|
|
|
1,301
|
|
|
|
-
|
|
|
|
1,301
|
|
Legal
and professional fees
|
|
|
6,550
|
|
|
|
44,215
|
|
|
|
50,765
|
|
|
|
400
|
|
|
|
138,876
|
|
|
|
139,276
|
|
General
and administrative
|
|
|
29,739
|
|
|
|
236,669
|
|
|
|
266,409
|
|
|
|
2,291
|
|
|
|
109,683
|
|
|
|
111,974
|
|
Total
Operating Expenses
|
|
|
59,798
|
|
|
|
336,231
|
|
|
|
396,029
|
|
|
|
39,179
|
|
|
|
410,513
|
|
|
|
449,692
|
|
Operating
(loss) income
|
|
|
(6,982
|
)
|
|
|
(112,017
|
)
|
|
|
(118,999
|
)
|
|
|
38,556
|
|
|
|
(189,098
|
)
|
|
|
(150,542
|
)
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(429
|
)
|
|
|
(98,743
|
)
|
|
|
(99,172
|
)
|
|
|
(524
|
)
|
|
|
(9,221
|
)
|
|
|
(9,745
|
)
|
Other income (expense)
|
|
|
159,832
|
|
|
|
92,577
|
|
|
|
252,409
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Default
principal increase on convertible notes payable
|
|
|
-
|
|
|
|
(793,327
|
)
|
|
|
(793,327
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
Other Income (Expense)
|
|
|
159,403
|
|
|
|
(799,493
|
)
|
|
|
(640,089
|
)
|
|
|
(524
|
)
|
|
|
(9,221
|
)
|
|
|
(9,745
|
)
|
Income
(loss) before income taxes
|
|
|
152,422
|
|
|
|
(911,510
|
)
|
|
|
(759,088
|
)
|
|
|
38,032
|
|
|
|
(198,319
|
)
|
|
|
(160,287
|
)
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss)
|
|
$
|
152,422
|
|
|
$
|
(911,510
|
)
|
|
$
|
(759,088
|
)
|
|
$
|
38,032
|
|
|
$
|
(198,319
|
)
|
|
$
|
(160,287
|
)
|
|
|
Nine
months ended
|
|
|
|
July
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
Revenue
|
|
$
|
216,316
|
|
|
$
|
3,605,889
|
|
|
$
|
3,822,204
|
|
|
$
|
299,982
|
|
|
$
|
2,033,644
|
|
|
$
|
2,333,626
|
|
Cost of revenue
|
|
|
56,800
|
|
|
|
3,112,002
|
|
|
|
3,168,802
|
|
|
|
120,402
|
|
|
|
1,769,302
|
|
|
|
1,889,704
|
|
Gross Profit
|
|
|
159,516
|
|
|
|
493,887
|
|
|
|
653,403
|
|
|
|
179,580
|
|
|
|
264,342
|
|
|
|
443,922
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
|
|
82,326
|
|
|
|
382,437
|
|
|
|
464,763
|
|
|
|
141,123
|
|
|
|
834,283
|
|
|
|
975,406
|
|
Selling and promotions
expense
|
|
|
824
|
|
|
|
-
|
|
|
|
824
|
|
|
|
5,494
|
|
|
|
965
|
|
|
|
6,459
|
|
Legal and professional
fees
|
|
|
82,999
|
|
|
|
251,061
|
|
|
|
334,060
|
|
|
|
20,154
|
|
|
|
378,233
|
|
|
|
398,387
|
|
General
and administrative
|
|
|
71,714
|
|
|
|
465,547
|
|
|
|
537,261
|
|
|
|
16,181
|
|
|
|
192,128
|
|
|
|
208,309
|
|
Total
Operating Expenses
|
|
|
237,863
|
|
|
|
1,099,045
|
|
|
|
1,336,908
|
|
|
|
182,952
|
|
|
|
1,405,609
|
|
|
|
1,588,561
|
|
Operating
(loss) income
|
|
|
(78,347
|
)
|
|
|
(605,158
|
)
|
|
|
(683,506
|
)
|
|
|
(3,372
|
)
|
|
|
(1,141,267
|
)
|
|
|
(1,144,639
|
)
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,322
|
)
|
|
|
(178,079
|
)
|
|
|
(179,401
|
)
|
|
|
(760
|
)
|
|
|
(97,603
|
)
|
|
|
(98,363
|
)
|
Other income (expense)
|
|
|
338,855
|
|
|
|
(259,276
|
)
|
|
|
79,579
|
|
|
|
-
|
|
|
|
(23,716
|
)
|
|
|
(23,716
|
)
|
Default
principal increase on convertible notes payable
|
|
|
-
|
|
|
|
(793,327
|
)
|
|
|
(793,327
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
Other Income (Expense)
|
|
|
337,533
|
|
|
|
(1,230,682
|
)
|
|
|
(893,149
|
)
|
|
|
(760
|
)
|
|
|
(121,319
|
)
|
|
|
(122,079
|
)
|
Income (loss)
before income taxes
|
|
|
259,186
|
|
|
|
(1,835,841
|
)
|
|
|
(1,576,655
|
)
|
|
|
(4,132
|
)
|
|
|
(1,262,586
|
)
|
|
|
(1,266,718
|
)
|
Income
taxes
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
income (loss)
|
|
$
|
259,186
|
|
|
$
|
(1,835,841
|
)
|
|
$
|
(1,576,655
|
)
|
|
$
|
(4,132
|
)
|
|
$
|
(1,262,586
|
)
|
|
$
|
(1,266,718
|
)
|
NOTE
9: BUSINESS DIVESTITURE
Effective May 1, 2018, Verus Foods MENA
Limited (“Verus MENA”) sold its 25% common stock ownership in Gulf Agro Trading, LLC (“Gulf Agro”) to
Verus Middle East General Trading, LLC (“VME”). As VME is a new legal entity, in consideration of its 25% common stock
ownership in Gulf Agro, VME was assigned all contracts executed during a specified period of time including all future related
revenue, in addition to retaining certain receivables and inventory which were previously paid to or belonged to Gulf Agro, and
the forgiveness of $119,106 of payables, which resulted in a gain of $119,106 and is reflected within the other income (expense)
section of our unaudited consolidated statements of operations and comprehensive income (loss). All remaining liabilities of Gulf
Agro remained with Gulf Agro. This transaction benefited VME by providing VME with a broader license for product distribution,
forgiveness of $119,106 of payables resulting in the aforementioned gain, and full control of all intellectual property rights.