UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

[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

 

or

 

[  ] 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)

 

Delaware   11-3820796

(State of

incorporation)

 

(I.R.S. Employer

Identification No.)

     
9841 Washingtonian Blvd #390    
Gaithersburg, MD   20878
(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:

 

None.

 

 

 

 

 

 

RealBiz Media Group, Inc.

Form 10-K

Table of Contents

 

PART I 3
   
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
   
PART II 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
   
PART III 20
   
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
   
PART IV 28
   
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 28

 

2
 

 

PART I

 

ITEM 1. BUSINESS

 

RealBiz Media Group, Inc., including all its subsidiaries, are collectively referred to herein as “RealBiz,” “RBIZ”, “the Company,” “us,” or “we”.

 

Overview  

 

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.

 

Government Regulation

 

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.

 

Competition

 

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.

 

Employees

 

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 

 

3
 

 

Corporate History

 

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.

 

4
 

 

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.

 

5
 

 

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.

 

6
 

 

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.

 

7
 

 

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.

 

8
 

 

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.

 

9
 

 

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.

 

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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.

 

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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.

 

None.

 

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.

 

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ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

General

 

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                
First Quarter   $ 0.1400     $ 0.0042  
Second Quarter   $ 0.0450     $ 0.0188  
Third Quarter   $ 0.0350     $ 0.0123  
Fourth Quarter   $ 0.0351     $ 0.0105  
                 
Fiscal Year Ended October 31, 2016                
First Quarter   $ 0.0655     $ 0.0111  
Second Quarter   $ 0.0347     $ 0.0290  
Third Quarter   $ 0.0240     $ 0.0060  
Fourth Quarter   $ 0.0258     $ 0.0008  

 

Our closing stock price on March 16, 2018 was $0.0050 and we had approximately 448 holders of record of our common stock.

 

Dividends

 

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:

 

    (a)     (b)     (c)  
Plan Category   Number of securities to be issued upon exercise of outstanding options, warrants and rights     Weighted-
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  
Total         $ 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

 

None.

 

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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.

 

General Overview

 

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.

 

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Results of Operations

 

Revenues

 

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.

 

Operating Expenses

 

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.

 

15
 

 

Net Loss

 

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.

 

16
 

 

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.

 

17
 

 

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

 

None.

 

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.

 

18
 

 

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

 

None.

 

19
 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

Directors, Executive Officers, and Other Key Employees

 

Name   Age   Position(s)
         
Anshu Bhatnagar   44   Chief Executive Officer and Chairman
         
Michael O’Gorman   62   Director
         
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.

 

20
 

 

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.

 

Family Relationships

 

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.

 

21
 

 

Corporate Governance

 

Board Committees

 

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.

 

Director Independence

 

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

 

None.

 

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      

All Other

Compensation

      Total ($)  
Anshu Bhatnagar     2017     $ 175,000                         175,000  
Chief Executive Officer and Director     2016                                
                                                 
Alex Aliksanyan     2017     $ 56,716 (1)           13,699,350 (5)           138,912  
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  
                                                 
Thomas Grbelja     2017     $ 35,500 (3)           6,309,596 (5)           73,358  
Former Chief Financial Officer, and Former Director (2)     2016     $ 64,500 (3)           30,000 (4)           94,500  

 

22
 

 

 

 

  (1) Based on an annual base salary of $120,000.
     
  (2)

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
     
  (4)

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.  

     
  (5)

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.

 

23
 

 

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.

 

Director Compensation

 

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.

 

24
 

 

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)  
5% Stockholders:                                                        
Donald P. Monaco Investment Partners II LP (5)     9,587,302       2.69 %     -         0 %     20,000       12.5 %     11.4 %
                                                         
Alex Aliksanyan     14,699,350       4.13 %     -         0 %     -       0 %      *
                                                         
Brian Swift     6,056,296       1.70 %     -         0 %     25,000       15.6 %     13.07 %
                                                         
Keith White     200,000         *       -         0 %     15,000       9.4 %     7.67 %
                                                         
Roy Rogers     25,115,163       7.05 %     -         0 %     -       0 %     1.28 %
                                                         
Howard Miller     13,051,391       3.66 %     -         0 %     -       0 %     *
                                                         
Monaker Group, Inc. (6)     10,559,890       2.96 %    

44,470,101

      99.78 %     -       0 %     *  
                                                         
Officers and Directors:                                                        
Anshu Bhatnagar     -       0 %     100,000         *     100,000       62.5 %     51.06 %
                                                         
Michael O’Gorma     -       0 %     -       0 %     -       0 %     0 %
                                                         
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 %

 

25
 

 

* 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.
   
(3)

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.

   
(4)

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.

 

26
 

 

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:

 

    2017     2016  
Audit fees   $ 30,000     $ 30,000  
Audit related fees     15,000       15,000  
Tax fees     -       3,000  
All other fees     -       -  
Total   $ 45,000     $ 48,000  

 

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.

 

27
 

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Financial Statements

 

Description   Pages
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

 

Exhibit
Number
  Description
     
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)
     
3.3  

Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.3 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)
     

3.10

  Amendment to Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of Form 8-K filed on April 10, 2017)
     
3.11*  

Amendment to Amended and Restated Certificate of Incorporation dated October 2007

     
3.12*  

Amendment to Amended and Restated Certificate of Incorporation dated May 2012

     
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)

 

28
 

 

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
     
10.21*  

Convertible Promissory Note issued to Crossover Capital Fund II, 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
     
10.25#*  

Sales Contract by and between Verus Foods, Inc. and Gulf ARGO Trading, LLC dated December 26, 2016 

     
10.26#*  

Exclusive Distribution Agreement by and between Verus Foods Inc. and Padrone General Trading LLC dated August 18, 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
     
31.1*  

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

     
31.2*  

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

 
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.

 

29
 

 

SIGNATURES

 

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
  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.

 

Name   Title   Date
         
/s/ Anshu Bhatnagar   Chief Executive Officer and Chairman of the Board   March 26, 2018
Anshu Bhatnagar  

(Principal Executive, Financial and Accounting Officer)

   
         
/s/ Michael O’Gorman   Director   March 26, 2018
Michael O’Gorman        
         
/s/ Thomas Butler Fore   Director   March 26, 2018
Thomas Butler Fore        

 

30
 

 

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

 

F- 1
 

 

RealBiz Media Group, Inc.

Consolidated Balance Sheets

 

    October 31,  
    2017     2016  
             
Assets                
Current Assets                
Cash   $ 280,111     $ 148,887  
Accounts receivable, net of allowance for doubtful accounts     822,312       26,474  
Inventory     341,188       -  
Prepaid expenses     3,300       3,300  
Other assets     16,621       -  
Total current assets     1,463,532       178,661  
Total Current Assets                
Property and equipment, net     -       10,311  
Total Assets   $ 1,463,532     $ 188,972  
                 
Liabilities and Stockholders’ Deficit                
Current Liabilities                
Accounts payable and accrued expenses   $ 1,253,558     $ 758,293  
Due to officer     33,301       -  
Deferred revenue     -       17,250  
Convertible notes payable, net of discount of $15,000 and $85,319, respectively     975,250       1,044,681  
Loans payable     -       170,000  
Total Current Liabilities     2,262,109       1,990,224  
                 
Commitments and Contingencies (See Note 12)                
                 
Stockholders’ Deficit                
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  
                 
Additional paid-in-capital     22,409,041       19,939,518  
Accumulated other comprehensive loss     (53,285 )     (63,588 )
Accumulated deficit     (23,403,963 )     (21,878,455 )
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

 

F- 2
 

 

RealBiz Media Group, Inc.

Consolidated Statements of Operations and Comprehensive Loss

 

    For the Years Ended  
    October 31,  
    2017     2016  
             
Revenues                
Real estate   $ 386,179     $ 868,528  
Food products     2,888,094        
Total Revenues     3,274,273       868,528  

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   
                 
Gross Profit     618,353       661,447  
                 
Operating Expenses                
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  
                 
Operating Loss     (1,278,547 )     (471,692 )
                 
Other Income (Expense)                
Interest expense     (145,946 )     (651,991 )
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

    -       9,450  
Gain on extinguishment of debt     146,284        
Total Other Income (Expense)     338       (435,033 )
                 
Net Loss   $ (1,278,209 )   $ (906,725 )
                 
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      

(2,961

)
Comprehensive loss   $ (1,267,906 )   $ (909,686 )

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F- 3
 

 

RealBiz Media Group, Inc.

Consolidated Statement of Changes in Stockholders’ Deficit

For the Years Ended October 31, 2017 and 2016

 

    Preferred
Stock A
         

Preferred
Stock B

         

Preferred
Stock C

          Common
Stock
       

Additional

Paid-In

    Other
Comprehensive
 Income
    Accumulated    

Total

Stockholders’

 
    # of shares     Par     # of  shares     Par     # of shares     Par     # of shares     Par  

Capital

    (Loss)     Deficit     Equity  
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 )          

(2,961

)  
Net loss                                                                                  

(903,764

)    

(903,764

)
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                                                                  

236,992

             

(236,992

)    

-

 
Other comprehensive income (loss)                                                                           10,303           10,303  
Net loss                                                                                  

(1,288,512

)    

(1,288,512

)
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.

 

F- 4
 

 

RealBiz Media Group, Inc.

Consolidated Statements of Cash Flows

 

    For the Years Ended  
    October 31,  
    2017     2016  
Cash flows from operating activities:                
Net loss   $ (1,278,209 )   $ (906,725 )

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   $ 280,111     $ 148,887  
                 
Supplemental disclosure:                
Cash paid for interest   $ 3,183     $ 84,600  

 

F- 5
 

 

    For the years ended  
    October 31,  
    2017     2016  
             
Supplemental disclosure of non-cash investing and financing activity:                
Retirement of Series A Convertible Preferred Stock                
Value   $ -     $ -  
Shares     (44,560,760 )     -  
Retirement of Common Stock                
Value   $ -     $ ( 50,000 )  
Shares     (10,559,892     ( 1,000,000 )  
                 
Settlement of accrued compensation through issuance of Common Stock                
Value   $ 274,408     $ -  
Shares     21,782,800       -  
                 
Settlement of loans payable through issuance of Series C Convertible Preferred Stock                
Value   $  25,000     $ 126,450  
Shares     25,000       1,246,500  
                 
Common Stock issued in exchange for note payable and conversion of convertible promissory notes                
Value   $ 1,282,240     $ 236,426  
Shares     81,469,602       6,648,964  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F- 6
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 1: ORGANIZATION AND NATURE OF BUSINESS

 

Organization and Nature of Business

 

RealBiz Media Group, Inc. (“RealBiz”) was incorporated in Delaware in 1994 under the name of Select Video, Inc. This entity changed its name to Webdigs, Inc. in 2007 and to RealBiz Media Group, Inc. in 2012. RealBiz operates in two business segments – Food Products and Real Estate.

 

Food Products

 

Verus Foods, Inc. (“Verus”) a Nevada corporation, and our wholly owned subsidiary, was incorporated in January 2017, and is an international supplier of consumer food products. Verus markets under its own brand primarily to supermarkets, hotels and other members of the wholesale trade. In 2017, Verus pursued 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 the Middle East and North Africa (“MENA”) and sub-Saharan Africa (excluding Office of Foreign Assets Control (“OFAC”) restricted nations), with deep roots in the Gulf Cooperation Council (“GCC”) countries, which includes the United Arab Emirates (“UAE”), Oman, Bahrain, Qatar, Kingdom of Saudi Arabia and Kuwait.

 

In December 2016, Verus received a contract valued at approximately $78 million to supply beef to the GCC countries. The first orders under this contract were shipped in February 2017. In addition, Verus executed an agreement in September 2017 with The Walt Disney Company to become the exclusive distributor of Disney-branded juice products in the UAE and Oman. The first purchase order under the Walt Disney agreement was issued in December 2017

 

Real Estate

 

Our real estate segment generates revenue from service fees (video creation and production and website hosting (ReachFactor)) and product sales (Nestbuilder Agent 2.0 and Microvideo app). The real estate segment was formed through the merging of three divisions: (i) our fully licensed real estate division (formerly known as Webdigs); (ii) our TV media contracts (Home Preview Channel /Extraordinary Vacation Homes) division; and (iii) our Real Estate Virtual Tour and Media group (RealBiz 360). The assets of these divisions were used to create a new suite of real estate products and services that create stickiness through the utilization of video, social media and loyalty programs. At the core of our programs is our proprietary video creation technology which allows for an automated conversion of data (text and pictures of home listings) to a video with voice and music. We provide video search, storage and marketing capabilities on multiple platform dynamics for web, mobile and TV. Once a home, personal or community video is created using our proprietary technology, it can be published to social media, email or distributed to multiple real estate websites, broadband or television for consumer viewing.

 

In October 2017, we announced the execution of a definitive agreement to spin-off the real estate segment into a separate public company names NestBuilder.com Corp. (“NestBuilder”). The spin-off will be consummated once the NestBuilder Form 10 registration statement has been declared effective by the Securities and Exchange Commission (“SEC’).

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Consolidation

 

The consolidated financial statements for the years ended October 31, 2017 and 2016 include the operations of Verus effective in January 2017 and the RealBiz Media Group, Inc., and its wholly-owned subsidiary, Webdigs, LLC, which includes the dormant wholly owned subsidiaries of Home Equity Advisors, LLC, and Credit Garage, LLC from the recapitalization date of October 9, 2012 and the historical operations of RealBiz Media Group, Inc., which includes its subsidiaries RealBiz 360 Enterprise (Canada), Inc. and RealBiz 360, Inc. All significant intercompany accounts and transactions have been eliminated in the consolidation.

 

Reclassifications

 

Certain reclassifications have been made to prior year’s consolidated financial statements to enhance comparability with the current year’s consolidated financial statements.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted. Significant estimates include the collectability of accounts receivable, valuation of derivative liabilities, and the deferred tax asset valuation allowance.

 

Concentrations of Credit Risk

 

The Company’s Food Product accounts receivable, net and revenues as of and for the year ended October 31, 2017 were geographically concentrated with customers located in the GCC countries. In addition, significant concentrations existed with a limited number of customers. Approximately 64% of accounts receivable, net as of October 31, 2017 was concentrated with four customers and approximately 60% of revenues for the year ended October 31, 2017 were concentrated with four customers. If demand for the Company’s products from these customers should decrease, there could be an adverse effect on the Company’s consolidated results of operations and financial position.

 

The Company purchases substantially all of its food products from a limited number of regions around the world or from a limited number of suppliers. The Company’s consolidated results of operations and financial position may be materially and adversely affected if there are significant price increases for these food products, the Company has difficulty obtaining these food products, or the quality of available food products deteriorates. For periods in which the prices of these food products are rising, the Company may be unable to pass on the increased cost to the Company’s customers, which would result in decreased margins. For periods in which the prices are declining, the Company may be required to write down its inventory carrying cost which, depending on the extent of the differences between market price and carrying cost, could have a material adverse effect on the Company’s consolidated results of operations and financial position.

 

Cash and Cash Equivalents

 

For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. There were no cash equivalents during the years ended October 31, 2017 and 2016.

 

F- 7
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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 $45,933 and $0 as of October 31, 2017 and 2016, respectively.

 

Inventory

 

Inventory is stated at the lower of net realizable value, determined on the first-in, first-out (“FIFO”) basis, or cost. Net realizable value is based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion and transportation.

 

Property and Equipment

 

All expenditures on the acquisition for property and equipment are recorded at cost and capitalized as incurred, provided the asset benefits the Company for a period of more than one year. Expenditures on routine repairs and maintenance of property and equipment are charged directly to operating expense. The property and equipment is depreciated based upon its estimated useful life after being placed in service. The estimated useful life of computer equipment is 3 years. When equipment is retired, sold or impaired, the resulting gain or loss is reflected in earnings. The Company incurred depreciation expense of $10,311 and $24,436 for the years ended October 31, 2017 and 2016, respectively.

 

Impairment of Long-Lived Assets

 

In accordance with Accounting Standards Codification 360-10, “Property, Plant, and Equipment”, the Company periodically reviews its long- lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the years ended October 31, 2017 and 2016, the Company did not impair any long-lived assets.

 

Fair Value of Financial Instruments

 

The Company adopted ASC topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements,” effective January 1, 2009. 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. There was no impact relating to the adoption of ASC 820 to the Company’s consolidated financial statements.

 

ASC 820 also describes three levels of inputs that may be used to measure fair value:

 

Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

 

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

Financial instruments consist principally of cash, accounts receivable, prepaid expenses, due from affiliates, accounts payable, accrued liabilities and other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short- term nature. The fair value of short and long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair value. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

F- 8
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue Recognition

 

The Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exits; (2) delivery has occurred or services have been rendered; (3) the Company’s price to its customer is fixed or determinable and (4) collectability is reasonably assured.

 

Cost of Revenues

 

Cost of revenues includes costs attributable to services sold and delivered for the Real Estate segment. These costs include engineering costs incurred to maintain our networks. For the Food Products segment, cost of revenues represents the cost of the food products sold during the period presented.

 

Share-Based Compensation

 

The Company computes share based payments in accordance with Accounting Standards Codification 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 SAB No. 107, Share-Based Payment (“SAB 107”) which provides guidance regarding the interaction of ASC 718-10 and certain SEC rules and regulations. The Company has applied the provisions of SAB 107 in its adoption of ASC 718-10. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50, Equity Based Payments to Non-Employees. The Company estimates the fair value of stock options by using the Black-Scholes option pricing model.

 

Derivative Instruments

 

The Company enters into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with Accounting Standards Codification topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretations of this standard. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, considering all of the rights and obligations of each instrument.

 

The Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as freestanding warrants, the Company generally uses the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk-free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these estimates and assumption changes. Increases in the trading price of the Company’s common stock and increases in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the Company’s common stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income. The Company determined due to the lack of an active market for the Company’s common stock that there was no derivative liability associated with the convertible notes entered into during the year ended October 31, 2017.

 

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 FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.

 

Foreign Currency

 

Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end exchange rates and profit and loss accounts have been translated using average exchange rates. Foreign currency translation gains and losses are included in the Consolidated Statements of Operations and Comprehensive Loss as a component of Other comprehensive loss. Assets and liabilities of an entity that are denominated in currencies other than an entity’s functional currency are re-measured into the functional currency using end of period exchange rates or historical rates, where applicable to certain balances. Gains and losses related to these re-measurements are recorded within the Consolidated Statements of Operations and Comprehensive Loss as a component of Other income (expense).

 

Income Taxes

 

The Company accounts for income taxes in accordance with Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes (“ASC 740”). Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities and net operating loss and tax credit carryforwards given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

 

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its October 31, 2016, 2015 and 2014 tax years may be selected for examination by the taxing authorities as the statute of limitations remains open.

 

The Company recognizes expenses for tax penalties and interest assessed by the Internal Revenue Service and other taxing authorities upon receiving valid notice of assessments. The company has received no such notices for the years ended October 31, 2017 and 2016.

 

F- 9
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Earnings Per Share

 

In accordance with the provisions of FASB ASC Topic 260, Earnings per Share , basic earnings per share (“EPS”) is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating EPS on a diluted basis.

 

In computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included. The effect of contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported. Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the years ended October 31, 2017 and 2016 as we incurred a net loss for those periods. As of October 31, 2017, there were outstanding warrants to purchase 16,786,467 shares of the Company’s common stock and approximately 87 million shares of the Company’s common stock which may dilute future earnings per share.

 

Recently Issued Accounting Pronouncements

 

In August 2017, the FASB issued Accounting Standards Update ("ASU") 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU provides new guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments included in the effectiveness will be recorded in other comprehensive income (OCI) and amounts deferred in OCI will be reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is reported. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.

 

In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , which provides clarification on classifying a variety of activities within the statement of cash flows. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , which simplifies the accounting for share-based payment transactions, including income taxes, classification of awards as either equity or liabilities and classification on the statement of cash flows. The new guidance also allows an entity to make an accounting policy election to account for forfeitures when they occur or to estimate the number of awards that are expected to vest with a subsequent true up to actual forfeitures (current GAAP). The standard is effective for the Company as of November 1, 2017, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes previous revenue recognition guidance. ASU 2014-09 requires that a company recognize revenue at an amount that reflects consideration to which the company expects to be entitled in exchange for transferring goods or services to a customer. In applying the new guidance, a company will (i) identify the contract(s) with customer; (ii) identify the performance obligations in the contract; (iii) determine transaction price; (iv) allocate the transaction price to the contract’s performance obligations; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was to be effective for reporting periods beginning after December 15, 2016. However, on July 9, 2015, the FASB voted to approve a one-year deferral of the effective date. This new guidance is effective for the Company beginning November 1, 2018 and can be adopted using either a full retrospective or modified approach. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.

 

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), to simplify the presentation of deferred income taxes. The amendments in this update require that all deferred tax assets and liabilities, including those previously classified as current, be classified as a single noncurrent line in a classified statement of financial position. The amendments in the standard will align the presentation of deferred income tax assets and liabilities with International Financial Reporting Standards. The standard is effective for the Company as of November 1, 2017 with early adoption permitted. The Company plans to adopt the new guidance on November 1, 2017. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements.

 

F- 10
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 3: GOING CONCERN

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

The Company has incurred net losses of $1,278,209 and $906,725 and has incurred negative cash flows from operations of $949,333 and $341,848 for the years ended October 31, 2017 and 2016, respectively. As of October 31, 2017, the Company had a working capital deficit of $798,577, and an accumulated deficit of $23,403,963. It is management’s opinion that these facts raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date of this filing, without additional debt or equity financing. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

In order to meet its working capital needs through the next twelve months and to fund the growth of our food business, the Company may consider plans to raise additional funds through the issuance of additional shares of common or preferred stock and or through the issuance of debt instruments. Although the Company intends to obtain additional financing to meet our cash needs, the Company may be unable to secure any additional financing on terms that are favorable or acceptable to it, if at all.

 

Note 4: Property and Equipment

 

At October 31, 2017 and 2016, the Company’s property and equipment are as follows:

 

    Estimated Life (in years)     October 31, 2017     October 31, 2016  
                   
Office equipment     3     $ 82,719     $ 82,719  
Less: accumulated depreciation           (82,719 )     (72,408 )
                     
          $ -     $ 10,311  

 

The Company has recorded $10,311 and $24,436 of depreciation expense for the years ended October 31, 2017 and 2016, respectively. There was no property and equipment impairments recorded for the years ended October 31, 2017 and 2016.

 

F- 11
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

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 Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.

 

As of October 31, 2017 and 2016, there was $975,250 and $1,044,681 of convertible notes payable outstanding, net of discounts, respectively. All convertible notes are currently in default due to the Company not filing its Annual Report on Form 10-K on a timely basis.

 

On October 24, 2017, the Company issued Crossover Capital Fund I, LLC a convertible note in the principal amount of $107,500 (the “Crossover Note 2a”) with a $7,500 discount. The Crossover Note 2a accrues interest at a rate of 9% per annum and matures on July 24, 2018. Pursuant to the terms of the Crossover Note 2a, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to April 22, 2018, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion, subject to certain restrictions.

 

On October 24, 2017, the Company issued Crossover Capital Fund II, LLC a convertible note in the principal amount of $107,500 (the “Crossover Note 2b”) with a $7,500 discount. The Crossover Note 2b accrues interest at a rate of 9% per annum and matures on July 24, 2018. Pursuant to the terms of the Crossover Note 2b, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to April 22, 2018, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion, subject to certain restrictions. In January 2018, approximately $18,300 of outstanding principal and accrued interest on the Crossover Note 2b was converted by the lender into 16,000,000 shares of the Company’s common stock.

 

On October 20, 2017, the Company issued Power Up Lending Group Ltd. a convertible note in the principal amount of $68,000 (the “Power Up Note 5”). The Power Up Note 5 accrues interest at a rate of 8% per annum and matures on July 30, 2018. Pursuant to the terms of the Power Up Note 5, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to April 18, 2018, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion, subject to certain restrictions.

 

On September 1, 2017, the Company issued Power Up Lending Group Ltd. a convertible note in the principal amount of $78,000 (the “Power Up Note 4”). The Power Up Note 4 accrues interest at a rate of 8% per annum and matures on June 10, 2018. Pursuant to the terms of the Power Up Note 4, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to February 28, 2018, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion, subject to certain restrictions.

 

On August 2, 2017, the Company issued JSJ Investments Inc. a convertible note in the principal amount of $125,000 (the “JSJ Note 2”). The JSJ Note 2 accrues interest at a rate of 8% per annum and matures on May 2, 2018. Pursuant to the terms of the JSJ Note 2, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to January 29, 2018, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion, subject to certain restrictions.

 

On July 17, 2017, the Company issued Crossover Capital Fund II, LLC a convertible note in the principal amount of $100,250 (the “Crossover Note”). The Crossover Note accrues interest at a rate of 9% per annum and matures on April 17, 2018. Pursuant to the terms of the Crossover Note, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to January 13, 2018, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 38.5% of the market price on the date of conversion, subject to certain restrictions.

 

F- 12
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 5: CONVERTIBLE NOTES PAYABLE (continued)

 

On June 29, 2017, the Company issued Power Up Lending Group Ltd. a convertible note in the principal amount of $40,000 (the “Power Up Note 3”). The Power Up Note 3 accrues interest at a rate of 8% per annum and matures on March 30, 2018. Pursuant to the terms of the Power Up Note 3, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to December 26, 2017, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion, subject to certain restrictions. In December 2017, the Company repaid the principal and accrued interest in full on the Power Up Note 3 in the amount of $57,952.

 

On June 20, 2017, the Company issued EMA Financial, LLC a convertible note in the principal amount of $100,000 (the “EMA Note”). The EMA Note accrues interest at a rate of 8% per annum and matures on June 20, 2018. Pursuant to the terms of the EMA Note, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to December 17, 2017, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 40% of the market price on the date of conversion, subject to certain restrictions. In December 2017, approximately $9,000 of outstanding principal plus accrued interest on the EMA Note was converted by the lender into 3,500,000 shares of the Company’s common stock. In January 2018, $18,900 of outstanding principal on the EMA Note was converted by the lender into 20,000,000 shares of the Company’s common stock.

 

On June 15, 2017, the Company issued GS Capital Partners, LLC a convertible note in the principal amount of $82,000 (the “GS Note”). The GS Note accrues interest at a rate of 8% per annum and matures on June 15, 2018. Pursuant to the terms of the GS Note, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to December 12, 2017, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 36% of the market price on the date of conversion, subject to certain restrictions. In December 2017, $17,000 of outstanding principal plus accrued interest on the GS Note was converted by the lender into 8,675,490 shares of the Company’s common stock.

 

On May 17, 2017, the Company issued Auctus Fund, LLC a convertible note in the principal amount of $130,000 (the “Auctus Note”). The Auctus Note accrues interest at a rate of 8% per annum and matured on February 17, 2018. Pursuant to the terms of the Auctus Note, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to November 13, 2017, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 40% of the market price on the date of conversion, subject to certain restrictions. In December 2017, approximately $20,000 of outstanding principal and interest on the Auctus Note was converted by the lender into 3,500,000 shares of the Company’s common stock. In January 2018, approximately $16,500 of outstanding principal and interest on the Auctus Note was converted by the lender into 22,703,700 shares of the Company’s common stock. As of the date of this filing, principal of approximately $90,000 remains outstanding on the Auctus Note.

 

On April 19, 2017, the Company issued JSJ Investments Inc. a convertible note in the principal amount of $125,000 (the “JSJ Note 1”). The JSJ Note 1 accrues interest at a rate of 8% per annum and matured on January 19, 2018. Pursuant to the terms of the JSJ Note 1, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to October 16, 2017, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion, subject to certain restrictions. On October 26, 2017, $25,000 of outstanding principal and interest on the JSJ Note 1 was converted by the lender into 3,359,312 shares of the Company’s common stock. In December 2017, the remaining outstanding principal and interest on the JSJ Note 1 was converted by the lender into 22,138,506 shares of the Company’s common stock.

 

On April 4, 2017, the Company issued Power Up Lending Group Ltd. a convertible note in the principal amount of $38,000 (the “Power Up Note 2”). The Power Up Note 2 accrues interest at a rate of 8% per annum and matured on January 30, 2018. Pursuant to the terms of the Power Up Note 2, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to October 1, 2017, subject to certain prepayment penalties. Pursuant to the terms of the convertible note, the outstanding principal and accrued interest of the note are generally convertible into shares of the Company’s common stock at a discount rate of 39% of the market price on the date of conversion, subject to certain restrictions. In October 2017, the outstanding principal and interest on the Power Up Note 2 was converted by the lender into 4,358,555 shares of the Company’s common stock.

 

On February 21, 2017, the Company issued Power Up Lending Group Ltd. a convertible note in the principal amount of $78,500 (the “Power Up Note 1”). The Power Up Note 1 accrues interest at a rate of 8% per annum and matured on November 30, 2017. Pursuant to the terms of the Power Up Note 1, the Company may prepay the principal amount of the note together with accrued interest at any time on or prior to August 28, 2017, subject to certain prepayment penalties. In August 2017, the Company repaid the principal and accrued interest in full on the Power Up Note 1 in the amount of $114,211.

 

In December 2016, one of our convertible noteholders converted $25,000 of outstanding principal into 25,000 shares of our Series C Convertible Preferred Stock, at a price of $1.00 per share.

 

F- 13
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 5: CONVERTIBLE NOTES PAYABLE (continued)

 

On December 31, 2016, the holders of convertible notes with aggregate outstanding principal and accrued interest balances of $1,185,624 converted their notes into 69,368,539 shares of our common stock.

 

In November 2015, the Company consummated a settlement with Himmil Investments Ltd. (“Himmil”) pursuant to which we redeemed our outstanding 7.5% convertible promissory note issued to Himmil and cancellation of their common stock purchase warrants for $475,000.

 

On June 16, 2015, the Company issued a two (2) year, 7.5% unsecured convertible note maturing on June 16, 2017 with a non-related third-party investor with a principal balance of $500,000 and received $480,000 in cash proceeds net of $20,000 in loan origination fees included in the calculation of the debt discount. As an incentive, the Company issued a warrant to the holder with a two-year life and a fair value of approximately $17,500 to purchase 675,000 shares of the Company’s common stock, $0.001 par value, per share, at an exercise price of $0.10 per share included as part of the debt discount. The Note and the Warrant were issued pursuant to the terms of a Securities Purchase Agreement, dated May 12, 2015, entered into by the Company and the Investor. The issuance of the Note and Warrant were contingent upon a registration statement being declared effective by the Securities and Exchange Commission, which occurred on June 12, 2015. The fair value of the warrants was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 0.71%, dividend yield of -0-%, volatility factor of 214.49% based on historical movements in our stock price, and an expected life of 2.0 years. The value of these warrants was charged to interest expense with the offset to additional paid-in-capital. The noteholder, at their option, has the right from time to time, and at any time on or after the issuance date, to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock at the Conversion Price. The conversion price means the lower of the fixed conversion price of $0.10 or the variable conversion price. The variable conversion price shall mean 65% multiplied by the average of the VWAP (volume weighted average price) of the common stock during the twelve (12) consecutive trading day period ending on and including the trading day immediately preceding the conversion date. The conversion price will be subject to adjustment upon the happening of certain events, including the issuance of securities at a price lower than the fixed conversion price. If the Company fails to timely issue shares of Common Stock after receipt of a conversion notice, it will be obligated to pay to the holder 1% of the product of the number of shares of Common Stock not timely issued and the closing sale price of the Common Stock on the trading day preceding the last possible date which we could have issued the shares of Common Stock to the holder. In addition, the Company will also be required to pay the buy-in price under certain circumstances. The holder is not entitled to exercise any conversion right that would result in the holder owning more than 4.99% of Common Stock. The Note can be prepaid by the Company at any time after the issuance date at a prepayment penalty of 125% of the balance outstanding, including interest thereon. The Note contains certain covenants, including certain restrictions on incurrence of indebtedness, liens, cash dividend payments, transfer of assets, until such time as the note is converted, redeemed, or paid in full.

 

Additionally, the Company accounted for the embedded conversion option liability in accordance with ASC 815 as well as related interpretation of this standard. The Company determined the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, giving consideration to all of the rights and obligations of each instrument. The initial fair value of the embedded conversion option liability associated with the funds received on June 16, 2015, was valued using the Black-Scholes model, resulting in an initial fair value of $755,536. The assumptions used in the Black-Scholes option pricing model at the date the funds were received are as follows: (1) dividend yield of 0%; (2) expected volatility of 239%, (3) risk-free interest rate of 0.13%, and (4) expected life of 2.00 years.

 

The fair value of embedded conversion option liability at October 31, 2015 was valued using the Black-Scholes model, resulting in a fair value of $628,762, resulting in a gain in the change in the fair value of derivatives totaling $126,117 for the year ending October 31, 2015. The assumptions used in the Black-Scholes pricing model at October 31, 2015 are as follows: (1) dividend yield of 0%; (2) expected volatility of 264.21%, (3) risk-free interest rate of 1.50%, and (4) expected life of 1.63 years. During the year ended October 31, 2015, $75,000 of the debt discount has been amortized and recorded as interest expense.

 

F- 14
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 5: CONVERTIBLE NOTES PAYABLE (continued)

 

On November 30, 2015, these notes were paid off pursuant to a settlement agreement. The noteholder received $500,000 in full satisfaction of this liability. The derivative liability related to this was written off and recorded as gain on settlement of notes payable and accrued expenses in the accompanying statement of operations for the year ended October 31, 2016.

 

A summary of the gain on settlement of notes payable and accrued expenses during fiscal 2016 is as follows:

 

Loss on payoff of Himmil note payable   $ (470,727 )
Gain related to elimination of derivative liability on Himmil note payable     622,997  
Gain on settlement of accrued liabilities     23,026  
Settlement of payables of RealBiz Enterprises, Inc., Canada     26,448  
    $ 201,744  

 

Between December 2014 and April 2015, the Company received $1,130,000 in proceeds and issued two (2) year, 12% convertible promissory notes maturing on December 31, 2016 to various third-party investors. Interest shall accrue on the principal of the note at a rate equal to 12.0% per annum in cash and 12.0% in stock per annum based upon $0.10 (ten) cents per share. The noteholder, at their option, shall have the right, but not the obligation, at any time and from time to time, to convert all or any portion of the principal and interest into fully paid and non-assessable shares of Company common stock at the conversion price of $0.10 per share.

 

The Company evaluated the conversion feature of the promissory notes and determined the Company’s common stock exceeded the conversion price as stated in each of the convertible promissory notes. Management determined that the favorable exercise price represented a beneficial conversion feature. Using the intrinsic value method at the convertible promissory note date, a total discount of $775,780 was recognized.

 

NOTE 6: NON-CONTROLLING INTEREST 

 

In June 2015, RealBiz entered into an agreement to purchase the minority interest in its Canadian subsidiaries from former employees for four million shares of RealBiz common stock with a fair market value of approximately $240,000. These shares of common stock were never issued by the Company and the Company has continued to report a Non-controlling Interest in its Canadian subsidiaries. In addition, in August 2015, RealBiz filed a Complaint in the Superior Court of the State of California against the same former employees alleging certain breaches of contract and violation of non-compete agreements. The Complaint was settled in August 2016 with both parties agreeing to a mutual release of any further obligations between the parties which included the issuance of the four million shares of RealBiz common stock for the minority interest purchase.

 

As the impact of not recording the purchase of the non-controlling interest in Q3 2015 and the Complaint settlement in Q3 2016 is considered immaterial to the current and prior periods, the transactions have been recorded in Q4 2017 as of the beginning of the quarter. The financial statement impact of recording the transactions in Q4 2017 was a reclassification of the July 31, 2017 Non-controlling Interest balance of $241,474 to Accumulated Deficit which increased Accumulated Deficit as of July 31, 2017 from $21,966,603 to $22,208,077.

 

NOTE 7: STOCKHOLDERS’ EQUITY

 

The total number of shares of all classes of stock that the Company shall have the authority to issue is 1,125,000,000 shares consisting of 1,000,000,000 shares of common stock with a $0.001 par value per shares (increased to 1,500,000,000 as of February 26, 2018); of which 249,369,810 are outstanding as of October 31, 2017 and 320,000,000 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 100,000 are outstanding as of October 31, 2017, (B) 1,000,000 shares have been designated as Series B Convertible Preferred Stock, of which no shares are outstanding as of October 31, 2017 and (C) 1,000,000 have been designated as Series C Convertible Preferred Stock, of which 160,000 shares are outstanding as of October 31, 2017.

 

F- 15
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 7: STOCKHOLDERS’ EQUITY (continued)

 

Common Stock

 

During the year ended October 31, 2017, the Company:

 

On January 2, 2017, we granted shares of restricted stock to Mr. Alex Aliksanyan, Mr. Thomas Grbelja, the Company’s former chief executive officer and chief financial officer, respectively, and another employee pursuant to their separate Restricted Stock Grant Agreements, dated January 2, 2017, and the terms of their separate Employment Agreements. Mr. Aliksanyan, Mr. Grbelja and the third employee were granted 13,699,350, 6,109,597 and 1,973,615 shares of restricted common stock, respectively. The shares of restricted common stock issued pursuant to these grants cannot be transferred for six months. These shares were granted for services previously performed in their roles with the Company.

 

During the year ended October 31, 2016, the Company:

 

●      issued 5,648,964 shares of its common stock valued at $186,426 as payment for accrued interest on convertible promissory notes as requested by the note holders according to contractual terms.

 

●      issued 13,600,000 units (“Units”) at a price of $0.05 per Unit for gross proceeds of $680,000. Each Unit consisted of 1 share of common stock and a warrant to purchase 1 share of common stock requiring the issuance of 13,600,000 shares of common stock and 1-year warrants to purchase 13,600,000 shares of our common stock with an exercise price of $0.05 per share. The Company used $500,000 of these proceeds as the final payment required under our Settlement Agreement and Release with Himmil Investments, Ltd. including repayment in full of its outstanding 7.5% $500,000 convertible promissory note issued to Himmil Investments Ltd. A company controlled by our former Chairman, purchased 6,000,000 Units for $300,000 and our former Chief Financial Officer purchased 200,000 Units for $10,000.

 

●      issued 800,000 shares of common stock to a third-party consultant in consideration of professional services rendered. The market value of these shares was approximately $32,000 on the date of issuance.

 

●      retired 1,000,000 shares of its common stock with a value of $50,000 received from a former employee, based on the quoted price on the date of issuance.

 

●      issued 1,300,000 shares of its common stock valued at $14,700 as compensation for two employees, based on the quoted price on the date of issuance.

 

●      issued 1,000,000 shares of its common stock valued at $0.05 per share to a company controlled by its former chairman in consideration of his agreement to cancel and extinguish a 0%, $50,000 promissory note issued to him.

 

Conversion of Convertible Notes

 

On December 31, 2016, the holders of convertible notes with aggregate outstanding principal and accrued interest balances of $1,185,624 converted their notes into 69,368,539 shares of our common stock.

 

F- 16
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 7: STOCKHOLDERS’ EQUITY (continued)

 

Common Stock Warrants

 

The following table sets forth common share purchase warrants outstanding as of October 31, 2017:

 

          Weighted        
          Average        
          Exercise     Intrinsic  
    Warrants     Price     Value  
Outstanding, October 31, 2016     16,055,000     $ 0.061     $ 0.00  
Warrants granted and issued     16,581,467     $ 0.010     $ 0.00  
Warrants forfeited     (14,850,000 )   $ (0.054 )   $ 0.00  
Outstanding, October 31, 2017     17,786,467     $ 0.016     $ 0.00  
                         
Common stock issuable upon exercise of warrants     17,786,467     $ 0.016     $ 0.00  

 

            Common Stock Issuable  
      Common Stock Issuable Upon Exercise of     Upon Warrants  
      Warrants Outstanding     Exercisable  
            Weighted                    
      Number     Average     Weighted     Number     Weighted  
Range of     Outstanding     Remaining     Average     Exercisable     Average  
Exercise     at October     Contractual     Exercise     at October     Exercise  
Prices     31, 2017     Life (Years)     Price     31, 2017     Price  
$ 0.006       14,581,467       3.87     $ 0.006       14,581,467     $ 0.006  
$ 0.025       1,000,000       2.17     $ 0.025       1,000,000     $ 0.025  
$ 0.050       1,000,000       1.47     $ 0.050       1,000,000     $ 0.050  
$ 0.100       1,205,000       2.35     $ 0.100       1,205,000     $ 0.100  
          17,786,467       3.77     $ 0.016       17,786,467     $ 0.016  

 

The following table sets forth common share purchase warrants outstanding as of October 31, 2016:

 

          Weighted        
          Average        
          Exercise     Intrinsic  
    Warrants     Price     Value  
Outstanding, October 31, 2015     4,980,000     $ 0.121     $ 0.00  
Warrants granted and issued     13,600,000     $ 0.050     $ 0.00  
Warrants forfeited     (2,525,000 )   $ (0.142 )   $ 0.00  
Outstanding, October 31, 2016     16,055,000     $ 0.061     $ 0.00  
                         
Common stock issuable upon exercise of warrants     16,055,000     $ 0.061     $ 0.00  

 

            Common Stock Issuable  
      Common Stock Issuable Upon Exercise of     Upon Warrants  
      Warrants Outstanding     Exercisable  
            Weighted                    
      Number     Average     Weighted     Number     Weighted  
Range of     Outstanding     Remaining     Average     Exercisable     Average  
Exercise     at October     Contractual     Exercise     at October     Exercise  
Prices     31, 2016     Life (Years)     Price     31, 2016     Price  
$ 0.05       13,600,000       0.083     $ 0.05       13,600,000     $ 0.05  
$ 0.10       2,455,000       0.083     $ 0.10       2,455,0005     $ 0.10  
          16,055,000       0.083     $ 0.058       16,055,000     $ 0.058  

 

F- 17
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 7: STOCKHOLDERS’ EQUITY (continued)

 

Series A Convertible Preferred Stock

 

On October 14, 2014, the Company filed a certificate of amendment pursuant to the July 31, 2014 Board of Directors approval to increase the Series A Convertible Preferred A shares from 100,000,000 shares to 120,000,000 shares. As of October 31, 2017 and 2016, the Company had 100,000 and 45,716,385 shares of Series A Convertible Preferred Stock issued and outstanding. The Series A Convertible Preferred Stock was issued at $0.001 par value and bear dividends at a rate of 10% per annum payable on a quarterly basis when declared by the board of directors. Dividends accrue whether or not they have been declared by the board. At the election of the Company, Preferred Dividends may be converted into Series A Convertible Preferred Stock, with each converted share having a value equal to the market price per share, subject to adjustment for stock splits. In order to exercise such option, the Company delivers written notice to the holder. Each 20 shares of Series A Convertible Preferred Stock is convertible at the option of the holder thereof at any time into one share of Common Stock. Each holder of Series A Convertible Preferred Stock shall be entitled to one vote for each whole share of common stock that would be issuable upon conversion of such share on the record date for determining eligibility to participate in the action being taken.

 

In the event of (a) the sale, conveyance, exchange, exclusive license, lease or other disposition of all or substantially all of the intellectual property or assets of the Company, (b) any acquisition of the Company by means of consolidation, stock exchange, stock sale, merger of other form of corporate reorganization of the Company with any other entity in which the Company’s stockholders prior to the consolidation or merger own less than a majority of the voting securities of the surviving entity, or (c) the winding up or dissolution of the Company, whether voluntary or involuntary (each such event in clause (a), (b) or (c) a “liquidation event”), the Board shall determine in good faith the amount legally available for distribution to stockholders after taking into account the distribution of assets among, or payment thereof over to, creditors of the Company (the “net assets available for distribution”). The holders of the Series A Convertible Preferred Stock then outstanding shall be entitled to be paid out of the net assets available for Distribution (or the consideration received in such transaction) before any payment or distribution shall be made to the holders of any class of preferred stock ranking junior to the Series A Convertible Preferred Stock or to the Common Stock, an amount for each share of Series A Convertible Preferred Stock equal to all accrued and unpaid Preferred Dividends plus the Stated Value, as adjusted (the “Series A Liquidation Amount”).

 

Accrued and declared preferred stock dividends on the outstanding preferred shares as of October 31, 2017 and 2016 totaled $0 and $915,447, respectively and are included in accounts payable and accrued expenses in the accompanying balance sheet. These preferred stock dividends were declared on December 28, 2015, to holders of record on August 31, 2015. Additional preferred stock dividends accruing, but have not been declared, on the outstanding preferred shares as of October 31, 2017 were $7,808.

 

On January 6, 2017, we issued 100,000 shares of Series A Convertible Preferred Stock to Mr. Anshu Bhatnagar, the Company’s chief executive officer, for $610.  

 

In December 2016, the Company cancelled 44,560,760 shares of Series A Convertible Preferred Stock and 10,559,892 shares of common stock which were held by Monaker in connection with an over issuance of shares of common stock relating the conversion of the Monaker dual convertible preferred shares.

 

In December 2016, the Company converted 1,155,625 of its Series A Convertible Preferred Stock into 1,155,800 shares of common stock.

 

During the year ended October 31, 2016, the Company adjusted its balance of Series A Convertible Preferred Stock to agree to its internal stock transfer ledger based on prior year conversions.

 

As of October 31, 2017 and 2016, there were 100,000 and 45,716,385, respectively, of Series A Convertible Preferred Stock shares outstanding.

 

Series B Convertible Preferred Stock

 

On July 31, 2014, the Company’s Board of Directors approved the creation of a new Series B Convertible Preferred Stock and on October 14, 2014 a certificate of designation was filed with the state of Delaware designating 1,000,000 shares with a par value of $0.001, a stated value of $5.00 per share and convertible into the Company’s common stock at $0.05 per share. As of October 31, 2014, the Company had -0- shares of Series B Convertible Preferred Stock issued and outstanding. The Series B Convertible Preferred Stock will bear dividends at a rate of 10% per annum and shall accrue on the stated value of such shares of the Series B Convertible Preferred Stock. Dividends accrue whether or not they have been declared by the Board of Directors. At the election of the Company, it may satisfy its obligations hereunder to pay dividends on the Series B Convertible Preferred Stock by issuing shares of common stock to the holders of Series B Convertible Preferred Stock on a uniform and prorated basis. Each share of Series B Convertible Preferred Stock is convertible at the option of the holder thereof at any time into a number of shares of Common Stock determined by dividing the Stated Value by the Conversion Price then in effect. The conversion price for the Series B Convertible Preferred Stock is equal to $0.05 per share. Each holder of Series B Convertible Preferred Stock shall be entitled to the number of votes equal to two hundred (200) votes for each shares of Series B Convertible Preferred Stock held by them.

 

F- 18
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 7: STOCKHOLDERS’ EQUITY (continued)

 

Series B Convertible Preferred Stock

 

In the event of (a) the sale, conveyance, exchange, exclusive license, lease or other disposition of all or substantially all of the intellectual property or assets of the Company, (b) any acquisition of the Company by means of consolidation, stock exchange, stock sale, merger of other form of corporate reorganization of the Company with any other entity in which the Company’s stockholders prior to the consolidation or merger own less than a majority of the voting securities of the surviving entity, or (c) the winding up or dissolution of the Company, whether voluntary or involuntary (each such event in clause (a), (b) or (c) a “liquidation event”), the Board shall determine in good faith the amount legally available for distribution to stockholders after taking into account the distribution of assets among, or payment thereof over to, creditors of the Company (the “net assets available for distribution”). The holders of the Series A Convertible Preferred Stock then outstanding shall be entitled to be paid out of the net assets available for Distribution (or the consideration received in such transaction) before any payment or distribution shall be made to the holders of any class of preferred stock ranking junior to the Series B Convertible Preferred Stock or to the Common Stock, an amount for each share of Series B Convertible Preferred Stock equal to all accrued and unpaid Preferred Dividends plus the Stated Value, as adjusted (the “Series B Liquidation Amount”).

 

As of October 31, 2017 and 2016, there were no Series B shares outstanding.

 

Series C Convertible Preferred Stock

 

Pursuant to authority granted by our certificate of incorporation and applicable state law, our Board of Directors, without any action or approval by our stockholders, may designate and issue shares in such classes or series (including other classes or series of preferred stock) as it deems appropriate and establish the rights, preferences, and privileges of such shares, including dividends, liquidation and voting rights. The rights of holders of other classes or series of capital stock, including preferred stock that may be issued could be superior to the rights of the shares of common stock offered hereby. The designation and issuance of shares of capital stock having preferential rights could adversely affect other rights appurtenant to the shares of our common stock. Finally, any issuances of additional capital stock (common or preferred) will dilute the percentage of ownership interest of our stockholders and may dilute the per-share book value of the Company. For example, our Series C Convertible Preferred Stock contain voting rights which provide each share of Series C Convertible Preferred Stock with 100 votes for each shares of common stock into which the Series C Convertible Preferred Stock is convertible. Accordingly, our currently outstanding 160,000 shares of Series C Convertible Preferred Stock (which are convertible into 16,000,000 common shares) are entitled to 1,600,000,000 votes on any matter presented for a vote to our common stockholders. This has resulted in the holders of our Series C Convertible Preferred Stock having voting majority voting control of our corporation.

 

On August 6, 2015, we issued 35,000 shares of our Series C Convertible Preferred Stock to a company controlled by our former Chairman, Don Monaco (20,000 shares) and our former director, Keith White (15,000 shares). Mr. Monaco received his 20,000 shares in consideration of cancellation of $100,000 in indebtedness owed to him by our former parent company Monaker Group, Inc. which was convertible into 2 million shares of our common stock. Mr. White received his 15,000 shares of Series C Convertible Preferred Stock in exchange for his previously held 15,000 shares of our Series B Convertible Preferred Stock. Each share of our Series C Convertible Preferred Stock is convertible into that number of shares of shares of common stock determined by dividing (i) the stated value ($5.00) by (ii) the conversion price then in effect ($0.05). Accordingly, the 35,000 shares of Series C Convertible Preferred Stock are convertible into 3,500,000 shares of common stock. The holders of Series C Convertible Preferred Stock vote together with holders of our common stock as a single class and each holder of Series C Convertible Preferred Stock is entitled to the number of votes equal to one hundred (100) votes for each share of our common stock into which the Series C Convertible Preferred Stock could be converted. Accordingly, the 35,000 shares of Series C Convertible Preferred Stock are entitled to 350,000,000 votes. This issuance of Series C Convertible Preferred Stock resulted in a change of control as the Series C Convertible Preferred Stock holders as a class held approximately 68% of the aggregate outstanding voting shares upon issuance (and individually Messrs. Monaco and White’s shares of Series C Convertible Preferred Stock provides them with approximately 39% and 29% of the aggregate outstanding voting shares, respectively). Prior to the issuance of the Series C Convertible Preferred Stock, the holders of our Series A Convertible Preferred Stock held approximately 30% of the aggregate voting shares (of which Monaker Group, Inc. held approximately 29.4% of the aggregate outstanding voting shares due to its ownership of the Series A Convertible Preferred Stock).

 

On January 6, 2017, we issued 100,000 shares of Series C Convertible Preferred Stock to Mr. Anshu Bhatnagar, the Company’s chief executive officer, for $100,000.  

 

In December 2016, one of our convertible noteholders converted $25,000 of outstanding principal into 25,000 shares of our Series C Convertible Preferred Stock, at a price of $1.00 per share.

 

As of October 31, 2017 and 2016, there were 35,000 and 160,000 Series C shares outstanding, respectively.

 

NOTE 8: RELATED PARTY TRANSACTIONS

 

On November 19, 2015, the Company agreed to issue 1,000,000 shares of common stock valued at $0.05 per share to a company controlled by its former Chairman in consideration of his agreement to cancel and extinguish a 0%, $50,000 promissory note issued to him on August 28, 2015.

 

On November 30, 2015, a company controlled by the Company’s former Chairman purchased 6,000,000 units at a price of $0.05 per unit for an aggregate purchase price of $300,000. Each unit consisted of 1 share of common stock and a 1-year warrant to purchase 1 share of common at an exercise price of $0.05 per share. This resulted in the issuance of 6,000,000 shares of common stock and a 1-year warrant to purchase 6,000,000 shares of our common stock at an exercise price of $0.05 per share. In addition, our former Chief Financial Officer purchased 200,000 Units for $10,000.

 

F- 19
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

NOTE 9: INCOME TAXES

 

The Company accounts for income taxes taking into account deferred tax assets and liabilities which represent the future tax consequences of the differences between financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year the change is enacted. Due to recurring losses, the Company’s tax provision for the years ended October 31, 2017 and 2016 was $0.

 

The provision for income taxes varies from the statutory rate applied to the net loss as follows for the years ended October 31:

 

    2017     2016  
Federal income tax benefit at statutory rate (35%)   $ (447,373   $ (317,400 )
State taxes, net of federal benefit     (57,519     (40,800 )
Effect of Canadian tax and exchange rates     (19,893     (199,223 )
Nondeductible expenses     53,709       130,300  
Change in valuation allowance     (471,076     (427,123 )
                 
Provision for income taxes   $ -     $ -  

 

    2017     2016  
Deferred tax assets (liabilities)                
Net operating loss carryforwards (U.S.)   $ 2,877,555     $ 2,410,723  
Net operating loss carryforwards (Canada)     1,099,050       1,120,747  
                 
Net deferred tax assets     3,976,605       3,531,470  
Valuation allowance     (3,976,605     (3,531,470 )
                 
Provision for income taxes   $ -     $ -  

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company has recorded a full valuation allowance against its net deferred tax assets because it is not currently able to conclude that it is more likely than not that these assets will be realized. The amount of deferred tax assets considered to be realizable could be increased in the near term if estimates of future taxable income during the carryforward period are increased. The valuation allowance increased by $471,076 and $427,123 during the fiscal years ended October 31, 2017 and 2016, respectively.

 

As of October 31, 2017 the Company has a total net operating loss carryforward of approximately $11,432,198. Net operating loss carryforwards expire through 2036. Under the Internal Revenue Code Section 382 (“IRC 382”) and the Canadian Tax Act, certain stock transactions which significantly change ownership, including the sale of stock to new investors, the exercise of options to purchase stock, or other transactions between shareholders could limit the amount of net operating loss carryforwards that may be utilized on an annual basis to offset taxable income in future periods.

 

F- 20
 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2017 and 2016

 

Note 10: Segment reporting

 

The Company has two reportable segments: Real Estate and Food Products. The Real Estate segment provides service in the form of video creation and production and website hosting (ReachFactor) and product sales (Nestbuilder Agent 2.0 and Microvideo app). The Food Products segment is an international supplier of consumer food products, marketing its own brand primarily to supermarkets, hotels and other members of the wholesale trade. The Food Business commenced operations in January 2017.

 

The Company evaluates segment performance based on segment net income (loss). Costs excluded from segment net income (loss) and reported as “Other” consist of corporate general and administrative costs which are not allocable to the two reportable segments. Legal fee expense incurred for general corporate matters are considered a component of the Other segment. Legal fee expense specific to other segments’ activities has been allocated to those segments.

 

Management of the Company reviews assets on a consolidated basis only and, therefore, assets by reportable segment have not been included in the disclosure below.

 

The following financial information represents the operating results of the reportable segments of the Company for the year ended October 31, 2017:

 

    Real Estate     Food
Products
    Other     Consolidated  
                         
Revenues   $ 386,179     $ 2,888,094     $ -     $ 3,274,273  
Cost of revenues     145,299       2,510,621       -       2,655,920  
Gross Profit     240,880       377,473       -       618,353  
Operating Expenses:                                
Salaries and benefits     176,272       941,456       -       1,117,728  
Selling and promotions expense     2,901       965       -       3,866  
General and administrative     120,944       644,051       -       775,306  
Total Operating Expenses     300,117       1,586,472               1,896,900  
Operating Loss     (59,237 )     (1,208,999 )             (1,278,547 )
Other Expenses:                                
Interest expense     (1,272 )     -       (144,674 )     (145,946 )
Gain on extinguishment of debt and settlement of accounts payable     170,000       -       (23,716 )     146,284  
Total Other Expenses     168,728       -       (168,390 )     338  
Net Income (Loss)   $ 109,491       (1,208,999 )     (168,390 )   $ (1,278,209 )

 

NOTE 11: QUARTERLY DATA (UNAUDITED)

 

The tables below provide the Company’s unaudited condensed consolidated results of operations for each quarter during the year ended October 31, 2017:

 

    Fiscal year ended October 31, 2017  
    Q1 2017     Q2 2017     Q3 2017     Q4 2017  
Total Revenues   $ 101,633     $ 1,077,362     $ 1,154,631     $ 940,647  
Cost of revenues     49,796       892,345       855,481       766,215  
Gross Profit     51,837       185,017       299,150       174,432  
Operating Expenses     947,871       327,866       460,339       252,906  
Operating Loss     (896,033 )     (142,849 )     (161,189 )     (78,474 )
Other Income (Expenses)     (107,419 )     (4,915 )     (9,745 )     122,417  
Income (Loss) Before Income Taxes     (1,003,452 )     (147,764 )     (170,934 )     43,943  
Income taxes     -       -       -       -  
Net Income (Loss)   $ (1,003,452 )   $ (147,764 )   $ (170,934 )   $ 43,943  
                                 
Per Share Data:                                
Net loss per share – basic and diluted   $ (0.01 )   $ (0.00 )   $ (0.00 )   $ 0.00
                                 
Weighted average shares outstanding – basic and diluted     183,046,000       240,835,621       241,651,943       242,724,287  

 

NOTE 12: COMMITMENTS AND CONTINGENCIES

 

RealBiz v. Monaker, Case No. 0:16-cv-61017-FAM. This case is set for trial in March 2018. RealBiz has a pending Motion for Summary Judgment to be ruled on by the Court before trial. RealBiz believes it is owed approximately $1.3 million from Monaker according to the companies’ prior audited financial statements that showed this debt due to RealBiz from Monaker. Monaker has countersued RealBiz and claims that Monaker’s financial statements were previously materially incorrect and needed to be restated, and that as a result of Monaker’s subsequent review of its financials RealBiz owes Monaker money. We are unable to predict the result of this litigation.

 

Monaker v. RealBiz, Case No. 1:16-cv-24978-DLG. This case is set for trial in January 2018. The court denied each party’s Motion for Summary Judgement, but in the process ruled that Monaker needs to prove its mistake claim by clear and convincing evidence. This case stems from RealBiz’s adjustment to its books to reflect Monaker’s prior over issuance of RealBiz shares when RealBiz used the incorrect conversion ratio pursuant to RealBiz’s Amended Certificate of Designation that was filed with the Secretary of State of Delaware in October 2014. Monaker argues that said Amended Certificate of Designation, which was signed by Monaker’s current CEO when he was also the CEO for RealBiz includes a drafting error and should be ignored by the Court. Monaker seeks the return of the shares that were removed after RealBiz’s adjustment after identifying the conversation ratio error in November 2016, or alternatively, monetary damages to account for Monaker’s share reduction. We are unable to predict the result of this litigation.

 

The Company’s future fiscal year minimum lease payments for its corporate office operating lease are as follows:

 

2018   $ 85,408  
2019   $ 87,971  
2020   $ 90,610  
2021   $ 93,329  
2022   $ 15,746  
Total   $ 373,064  

 

NOTE 13: SUBSEQUENT EVENTS

 

On January 26, 2018, the Company issued Donald P. Monaco, as Trustee of the Donald P. Monaco Insurance Trust (the “Holder”), a promissory note (the “Note”) in the principal amount of $530,000. The Note accrues interest at a rate of 12% per annum and matures on January 26, 2019 (the “Maturity Date”). Any amount of principal or interest accrued on the Note which is not paid when due shall bear interest at a rate of 18% per annum. In addition, upon the Company’s failure to pay the Obligations (as defined in the Note) on the Maturity Date, the Holder may convert the Note into shares of the Company’s common stock at a conversion price equal to the lowest closing price of the Company’s common stock during the 15 trading days prior to the date the Holder gives notice of the default to the Company. In addition, pursuant to the Note, the Holder shall have a lien on and a right to set off against all money, securities and other property of the Company now owned or hereafter acquired. The Company shall have the right to prepay the Note, in whole or in part, at any time without any premium or penalty.

 

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.

 

On January 29, 2018, Nestbuilder, the Company, Mr. Aliksanyan, and Mr. Bhatnagar entered into that certain First Amendment to Contribution and Spin-Off Agreement dated as of January 29, 2018 (the “First Amendment”), whereby the Spin-off Agreement was amended so that Mr. Bhatnagar is required to sell shares of Nestbuilder common stock he and his affiliates receive in the Distribution to RealBiz stockholders upon delivery of written notice by Nestbuilder requesting such sale, which notice cannot be given less than 60 days after the effective date of the Distribution.

 

Effective February 26, 2018, the Company filed an amendment to its Certificate of Incorporation to increase its authorized common stock from 1,000,000,000 to 1,500,000,000 shares.

 

On March 13, 2018, the board of directors of RealBiz authorized and approved   a new distribution date of the Spin-Off Distribution such that the Distribution will occur on the third Friday following the completion of the Securities and Exchange Commission’s review of the registration statement on Form 10 filed by NestBuilder and the information statement attached thereto.

 

F- 21
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 10.43

 

SUBLEASE

 

THIS SUBLEASE (this “Sublease”) is made and entered into as of the 11th day of April 2017, by and between Buchanan Partners, LLC , a State of Maryland limited liability company (the “Sublandlord”) and REALBIZ MEDIA GROUP, a Delaware corporation (the “Subtenant”).

 

WITNESSETH:

 

WHEREAS, Sublandlord is a tenant under a Lease Agreement (the “Original Lease”) dated April 2, 2007, as amended by that certain First Amendment to Lease dated as of January 1, 2012 (the “First Amendment”), and by that certain Second Amendment to Lease dated as of January 1, 2012 (the “Second Amendment”; the Original Lease, the First Amendment, and the Second Amendment are hereinafter jointly referred to as the “Lease”) between TBC-WASHINGTONIAN, LLC (the “Landlord”) and Sublandlord, pursuant to the terms of which Sublandlord, as tenant, is leasing from Landlord that certain space located at 9841 Washingtonian Boulevard, Gaithersburg, Maryland 20878 (the “Property”), known as Suite 300 and containing approximately 10,628 square feet of rentable office space (the “Premises”). A copy of the Lease is attached hereto as Exhibit A and is made a part hereof; and

 

WHEREAS, Subtenant desires to sublease from Sublandlord 2,798 rentable square feet of the Premises (the “Subleased Space”) and further described in Exhibit B and made a part hereof. The Sublandlord shall ensure that the Subleased Space is separately demised from the rest of the Premises prior to April 12, 2017 at the sole cost and expense of the Sublandlord; and

 

WHEREAS, the parties and Landlord have executed and make a part hereof the Consent to Sublease dated effective as of April 12, 2017 and attached hereto as Exhibit C and made a part hereof (the “Consent”); and

WHEREAS, the parties desire to enter into this Sublease defining their respective rights, duties, and liabilities relating to the Subleased Space;

 

NOW, THEREFORE, in consideration of the recitals above, the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sublandlord and Subtenant hereby agree as follows:

 

1. Term; Quiet Enjoyment .

 

a. Sublandlord, for and in consideration of the payment of the rent and the performance of the covenants hereinafter mentioned, does hereby demise, lease and assign unto Subtenant, the Subleased Space, commencing April 12, 2017 (the “Commencement Date”) and ending Four (4) years and Nine (9) months after the Commencement Date (the “Term”), except that in no event shall the Term hereunder extend beyond the term as set forth in the Lease. A Lease Year shall be the period of twelve consecutive months beginning on April 1 of each year during the Term. Subtenant shall be permitted to occupy the Subleased Premises prior to the Commencement Date, solely for moving furniture and equipment and not for the conduct of business. Subtenant shall have no obligation to pay any Base Rent with respect to such period of early access prior to the Commencement Date but all other provisions of this Lease shall apply during such period.

 

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b. Sublandlord covenants that Subtenant shall, and may peacefully have, hold and enjoy the Subleased Space against any person whomsoever lawfully claiming the same or any part thereof by, through, or under Sublandlord, but not otherwise, provided, however, that Subtenant pays the Base Rent (as hereinafter defined) and other sums herein recited to be paid by Subtenant and performs all of Subtenant’s covenants and agreements herein contained. This Sublease shall be conditioned upon Sublandlord obtaining prior to April 12, 2017 a Landlord Consent in the form attached hereto as Exhibit “C” executed by Landlord. Subtenant shall have access to the Subleased Space as of the Commencement Date and during the Term twenty-four (24) hours per day, seven (7) days per week, three hundred sixty-five (365) days per year.

 

c. On or before the Commencement Date, Subtenant shall be provided, at no charge, with fifteen (15) access cards to the Property and Subleased Space along with fifteen (15) keys to the extent that the access cards do not open the doors to the Subleased Space.

 

2. Rent .

 

a. Base Rent . Subtenant shall pay Base Rent based on Thirty and 00/100 Dollars ($30.00) per square foot (the “Base Rent”), which shall be Six Thousand Nine Hundred Ninety-Five and 00/100 Dollars ($6,995.00) per month for the first Lease Year. In addition, Tenant shall pay during the Term, Tenant’s proportionate share of increases in Real Estate Taxes and Operating Expenses above the Real Estate Taxes and Operating Expenses in effect for the Base Year. The Base Year for the Term is 2017. Subtenant shall pay $4,061.61 with the execution of this Sublease as the Base Rent for the 18 remaining days in month of April, 2017, and shall commence making monthly payments of Base Rent on May 1, 2017 and continuing on the first day of every month thereafter during the Term. On the first anniversary of the Commencement Date, and on each anniversary thereafter, the Base Rent then in effect shall be increased automatically by three percent (3%) above the Base Rent for the prior Lease Year. Landlord shall abate fifty percent (50%) of Tenant’s Base Rent for the months of May, June, July, August and September, 2017. The following will be the Base Rent Schedule for the entire Term of the Lease:

 

  April 12, 2017 – April 31,2017   $4,061.61
  May 1, 2017 – September 30, 2017   $3,497.50 per month
  October 1, 2017 – March 31, 2018   $6,995.00 per month
  April 1, 2018 – March 31, 2019   $7,204.85 per month
  April 1, 2019 – March 31, 2020   $7,421.00 per month
  April 1, 2020 – March 31, 2021   $7,643.63 per month
  April 1, 2021 – December 31, 2021   $7,872.93 per month

 

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b. Rent . All amounts due hereunder from Subtenant, including but not limited to Base Rent and the proportionate share of increases in Real Estate Taxes and Operating Expenses above the Base Year, shall be referred to herein as “Rent”. Subtenant shall pay Rent to Sublandlord without any demand, setoff or deduction of any kind. In the event any installment of Rent is not paid by the fifth (5th) day of each month, a late charge of five (5%) percent of the delinquent installment shall be due and payable. All payments of Rent shall be paid by good and sufficient check or by other means (such as automatic debit or electronic transfer) acceptable to Sublandlord if so requested by the Subtenant. Sublandlord’s acceptance of less than the correct amount of Rent shall be considered a payment on account of the earliest Rent due. No endorsement or statement on a check or letter accompanying a check or payment shall be considered an accord and satisfaction, and either party may accept such check or payment without such acceptance being considered a waiver of any rights such party may have under this Sublease or applicable Law. Subtenant’s covenant to pay Rent is independent of every other covenant in this Sublease with the exception of the Subtenant’s continued quiet possession of the Subleased Space as set forth in Section 1b.

 

3. Subordinate to Lease Terms . This Sublease is expressly made subject and subordinate to the terms and conditions of the Lease. With regard to the Subleased Space, Subtenant agrees to assume all the non-monetary obligations of Sublandlord under the Lease. Unless herein otherwise expressly provided in this Sublease, all such terms and conditions of the Lease are hereby incorporated herein by reference as though fully set forth herein at length, except the Base Rent shall be as herein expressly provided and shall be paid to Sublandlord instead of the Landlord as provided in the Lease. Subtenant agrees to comply with and abide by all the terms, provisions, covenants and conditions of the Lease, and any violation of the same by Subtenant shall constitute a default under the Sublease; provided, however, that in the event the Lease requires Landlord to give Sublandlord notice and time to cure for any such default, Sublandlord shall provide such notice and time to cure to Subtenant, but in no event shall such notice and cure period extend beyond the notice and cure period granted to Sublandlord under the Lease.

 

4 . Default . Upon default by Subtenant in the payment of Rent or in the performance of any of its obligations, after any applicable written notice from the Sublandlord and opportunity by Subtenant to cure such default as provided in Section 3 above, Sublandlord shall have the same rights and remedies against Subtenant as are afforded the Landlord against Sublandlord in the event of Sublandlord’s default under the terms of the Lease. Subtenant shall have the same rights and remedies against Sublandlord with respect to the Subleased Space under this Sublease as are afforded the Sublandlord against the Landlord under the Lease. If Landlord defaults in the performance of any of its material obligations under the Lease that are related directly to the Subleased Space, Subtenant’s use or occupancy thereof, or other rights of Subtenant under this Sublease, then Sublandlord shall, upon request and at the expense of Sublandlord, take commercially reasonable steps to cause Landlord to perform and provide such material obligation provided in no event shall Sublandlord be obligated to commence any suit or legal proceeding against Landlord. Anything to the contrary contained herein notwithstanding, in the event of any interruption in the access to or use of the Subleased Space or in the facilities or services required to be furnished thereto, then, to the extent Sublandlord is entitled to the same with respect to its obligation to pay Rent under the Lease, or any portion thereof, Subtenant is entitled to an equitable diminution of Rent based upon the pro rata portion of the Subleased Space affected by such interruption.

 

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5. Assignment. Subtenant shall not assign, mortgage or encumber this Sublease or allow the same to be transferred by operation of law or otherwise, nor sublet the Subleased Space without the prior written consent of Sublandlord, not to be unreasonably withheld, delayed or conditioned, and without the prior written consent of Landlord, which may be withheld at Landlord’s sole discretion. Upon receipt of Subtenant’s request to assign this Sublease, and if both (i) such request requires the consent of Landlord and (ii) Sublandlord has approved Tenant’s request to assign this Sublease, then Sublandlord shall promptly submit such request to Landlord for its approval in accordance with the provisions of the Lease, at no cost to Sublandlord. In no event shall the term of any assignment or sublease exceed the term of the Lease.

 

6. Condition of Subleased Space. Subtenant agrees to accept the Subleased Space and the facilities and utilities thereon “as is” in the present condition. A list of all furniture that is to remain in the Premises is attached hereto as Exhibit D. In consideration for the Base Rent and other promises contained in this Sublease, Subtenant may use the furniture set forth on Exhibit D at no extra cost or expense to Subtenant. By its act of taking possession, Subtenant shall be deemed to have accepted the Subleased Space and all facilities and utilities thereon, and to have acknowledged that the same are in the condition called for by the terms of this Sublease. Subtenant shall not be permitted to make any alterations to the Subleased Space without the prior approval of Sublandlord, provided, however, if such alterations do not affect the structural elements of the Building or the mechanical, electrical, plumbing, and fire/life safety systems serving the Building or the Subleased Space and such alterations do not cost more than $20,000, then Sublandlord shall not unreasonably withhold its consent thereto. Notwithstanding the foregoing, if such alterations to the Subleased Space involve cosmetic improvements to the Subleased Space that do not impact the structural elements of the Building, and do not exceed $7,500, then Sublandlord’s consent shall not be required, except that if such cosmetic improvements involve painting, installing carpeting, the relocation or removal of modular furniture (any of the six units belonging to Landlord that are located in the Subleased Space), or the removal of any furniture or equipment (such as cabinets but not including pictures that belong to Tenant) that is attached to the wall, then Sublandlord’s prior consent, not to be unreasonably withheld, delayed or conditioned, shall be required. In the event that Landlord’s consent is required for any alterations by Subtenant, whether in accordance with this Sublease, the Lease, or the Consent, and Landlord fails to give its consent thereto, it shall not be unreasonable for Sublandlord to withhold its consent thereto. Subtenant shall restore and repair any damage caused by Subtenant or its employees, agents or contractors. Subtenant shall use the office space for general office use. Parking is provided to Subtenant and its employees, vendors, contractors and invitees on a non-reserved basis in the public structured parking garage adjacent to the Building pursuant to the covenants, conditions and restrictions established by the community association of which the Building is a part, further subject to the terms of the Lease. Subtenant shall be fully responsible and liable (Landlord and Sublandlord being indemnified) for the regulatory compliance and operation of the Subleased Space. Landlord’s consent shall be required for any hazardous materials use, or hazardous by-product, as a result of Subtenant’s activities in the Premises with the exception of standard office products to the extent that such products are stored and used in compliance with all applicable laws. Personal property, business and trade fixtures, machinery and equipment, furniture and movable partitions owned by Subtenant shall be and remain the property of Subtenant and may be removed by Subtenant at any time during the Term, and in any event, shall be removed on or before the expiration of the Term hereof. Subtenant shall repair any damage caused by such removal.

 

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7. Insurance . Subtenant shall at all times during the Term hereof keep in force at its own expense insurance as defined in Section 14A of the Lease except that, in accordance with the terms of the Consent, the Subtenant shall be required to maintain a $2 million umbrella liability policy in lieu of $4 million as provided for in Section 14A of the Lease.

 

8. Deposit . Contemporaneously with the execution of this Sublease, Subtenant shall deliver the sum of Six Thousand Nine Hundred Ninety-Five and 00/100 Dollars ($6,995.00) to Sublandlord as a Security Deposit (the “Security Deposit”) for the payment and performance by Subtenant of all Subtenant’s obligations, covenants, conditions and agreements under this Sublease. Such sum shall be in the form of wire transfer or business check. Upon the expiration or earlier termination of the Term hereof Sublandlord shall, if Subtenant is not in default after the expiration of any applicable notice and cure period required hereunder, return such Security Deposit to Subtenant, less such portion thereof as Sublandlord shall have appropriated to make good any default by Subtenant with respect to Subtenant’s obligations within thirty (30) days of such expiration or termination. If Subtenant makes any default during the Term of the Sublease after the expiration of any applicable notice and cure period required hereunder, Sublandlord shall have the right, but not the obligation, to apply all or any portion of the Security Deposit to remedy such default, in which event Subtenant shall deposit within ten (10) business days, with the Sublandlord, the amount necessary to restore the Security Deposit to its original amount. The Security Deposit shall not be deemed liquidated damages, and Sublandlord’s application of said Security Deposit to reduce its damages shall not preclude recovery from Subtenant of any additional damages incurred by Sublandlord. Subtenant shall not be permitted to utilize the Security Deposit, or request for application of the Security Deposit, to satisfy any of Subtenant’s obligations under this Sublease or the Lease.

 

9. Landlord Notice . Sublandlord hereby agrees to take all necessary steps and to ensure that the Landlord is properly notified and provides the necessary consent for the operation of the terms and conditions of this Sublease.

 

10. Signage . Sublandlord and Subtenant shall cooperate with the Landlord and Landlord’s property manager to provide Subtenant, at Sublandlord’s expense, with building standard suite entry signage and for Subtenant to be listed in all building lobby directories. The parties anticipate that the Subleased Space will be designated as Suite 390.

 

11. Applicable Laws. This Sublease shall be construed and interpreted in accordance with the laws of the jurisdiction in which the Premises are situated. All obligations under this Sublease are performable in the county or other jurisdiction where the Subleased Space is located, which shall be venue for all legal actions. If any term or provision of this Sublease shall be invalid or unenforceable, then such term or provision shall be automatically reformed to the extent necessary to render such term or provision enforceable, without the necessity of execution of any amendment or new document. The remainder of this Sublease shall not be affected, and each remaining and reformed provision of this Sublease shall be valid and enforced to the fullest extent permitted by Law. The headings and titles to the Sections of this Sublease are for convenience only and shall have no effect on the interpretation of any part of this Sublease. The words “include”, “including” and similar words will not be construed restrictively to limit or exclude other items not listed.

 

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12. Binding Effect . All of the covenants and agreements herein contained shall be binding upon and shall inure to the benefit of the parties hereto and their permitted respective, successors and permitted assigns (and, in the event that the Subtenant is an individual, his or her permitted heirs and representatives). All understandings, discussions, and agreements previously made between the parties, written or oral, are superseded by this Sublease, and neither party is relying upon any warranty, statement or representation not contained in this Sublease. This Sublease may be modified only by a written agreement signed by Sublandlord and Subtenant. The exhibits and riders attached hereto are incorporated herein and made a part of this Sublease for all purposes.

 

13. Broker . Each party represent that no real estate broker, salesman, or agent other than Avison Yong-Washington DC, LLC acting on behalf of Sublandlord (“Sublandlord’s Broker”), was instrumental in procuring this Sublease. Sublandlord’s Broker will receive a commission in accordance with a separate agreement paid by Sublandlord. Subtenant and Sublandlord shall each indemnify the other against all costs, expenses, attorneys’ fees, liens and other liability for commissions or other compensation claimed by any broker or agent claiming the same by, through or under the indemnifying party, other than the Sublandlord’s Broker.

 

14. Notices . It is expressly agreed that any notice required or desired to be sent shall be delivered to the following addresses and shall be deemed given when sent by overnight mail by a nationally recognized courier service, or hand delivered:

 

  If to Sublandlord:   If to Subtenant:
       
  Buchanan Partners, LLC   RealBiz Media Group
  9841 Washingtonian Blvd.   During the Term, the Subleased
  Suite 300   Space
  Gaithersburg, MD 20878    
      After the Term:
      2690 Weston Road, Suite 200T
      Weston, FL 33331
       
  With a copy to Mary Gayle Holden, Esq.   With a copy to Kirk Halpin, Esq.
  109 North Bailey Lane, Suite 201   6100 Day Long Lane, Suite 100
  Purcellville, VA 20132   Clarksville, MD 21029

 

Additionally, Subtenant acknowledges that the address to which all payments of Rent due the Sublandlord should be sent is to the Sublandlord at the aforementioned Sublandlord address.

 

15. Attorney’s Fees . If either party institutes a suit against the other for violation of or to enforce any covenant or condition of this Sublease, or if either party intervenes in any suit in which the other is a party to enforce or protect its interest or rights, the prevailing party shall be entitled to all of its costs and expenses, including reasonable attorneys’ fees.

 

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16. Releases . Sublandlord and Subtenant, respectively, hereby release each other from any and all liability or responsibility to the other or anyone claiming through or under it by way of subrogation or otherwise for any loss or damage to property covered by any insurance then in force to the extent that actual recovery is made under the policies thereof, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible, provided, however, that this release shall be applicable and in force and effect only with respect to any loss or damage occurring during such time as the policy or policies of insurance covering said loss shall contain a clause or endorsement to the effect that, or shall otherwise provide that, this release shall not adversely affect or impair said insurance or prejudice the right of the insured to recover thereunder.

 

17. Representations and Warranties . As of the date hereof, Sublandlord hereby represents and warrants to Subtenant as follows: (i) the copy of the Lease attached as Exhibit A is true, correct and complete; (ii) Sublandlord has not assigned, subleased or otherwise transferred or encumbered its interest in and to the Lease or the Premises; (iii) the term of the Lease expires on December 31, 2021; (iv) Sublandlord has fully performed all of its obligations under the Lease, including, without limitation, payment of all rent and all other sums and amounts due to Landlord from Sublandlord under the Lease as of the date hereof; (v) Sublandlord has not received any written notice of any uncured default under the Lease and, to Sublandlord’s actual knowledge, Sublandlord is not currently in default under any term or provision of the Lease, and no circumstances exist or event has occurred pursuant to which Sublandlord may be deemed in default merely upon service of notice or the passage of time; (vi) to Sublandlord’s actual knowledge, Landlord is not currently in default under any term or provision of the Lease, and no circumstances exist or event has occurred pursuant to which Landlord may be deemed in default merely upon service of notice or the passage of time; (vii) Sublandlord shall perform all obligations of Tenant under the Lease (other than those required to be performed by Subtenant hereunder) and shall not (A) amend or modify any portions of the Lease that would materially and directly affect the Subleased Space or Subtenant’s rights under the Sublease without Subtenant’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, (B) terminate the Lease or surrender the Subleased Space, or (C) take any action or suffer any inaction that would permit the Landlord to terminate the Lease; and (viii) Sublandlord is not the subject of any litigation now pending or, to the best of Sublandlord’s knowledge, threatened in writing, which would materially impair the ability of Sublandlord to pay and perform Sublandlord’s obligations under the Lease and this Sublease.

 

18. Counterparts. This Sublease may be executed in counterparts and by each party to this Sublease on separate counterparts, each of which when so executed and delivered will be deemed an original and all of which taken together will constitute but one and the same instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, each of the parties has executed and delivered this Sublease, or has caused its duly authorized attorney-in-fact to execute and deliver this Sublease, under seal, as of the day and year written below.

 

  sublandlord :
     
  BUCHANAN PARTNERS L.L.C. ,
  a Maryland limited liability company
     
  By:  
  Name:  
  Title: Manager
     
  SUBTENANT :
     
  RealBiz Media Group
  a Delaware corporation
     
  By:  
  Name: Anshu Bhatnagar
  Title:  

 

 

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EXHIBIT A

Copy of Lease

 

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EXHIBIT B

Plan of Suite 390

 

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EXHIBIT C

Consent To Sublease

 

This CONSENT TO SUBLEASE (this “ Consent ”) is entered into by and among Landlord, Tenant and Subtenant with reference to the following:

 

1. General Terms . All capitalized terms used in this Consent shall have the same meanings as set forth in the Primary Lease, unless otherwise provided below:

 

  a. Effective Date ”: April 12, 2017
       
  b. Landlord ”: TBC-WASHINGTONIAN , llc, a Maryland limited liability company
       
  c. Tenant ”: BUCHANAN PARTNERS L.L.C., a Maryland limited liability company
       
  d. Subtenant ”: RealBiz Media Group, a Delaware corporation
       
  e. Primary Lease ”: Office Lease dated effective as of April 2, 2007, as amended by that certain First Amendment to Lease dated as of January 1, 2012 and by that certain Second Amendment to Lease dated as of January 1, 2012 , between Landlord and Tenant
       
  f. Primary Premises ”: Approximately 10,628 square feet on the third (3 rd ) floor of the Building
       
  g. Building ”: The building commonly known as Lakefront at Washingtonian and located at 9841 Washingtonian Boulevard, Gaithersburg, Maryland
       
  h. Sublease ”: Sublease dated as of April 12, 2017, between Tenant and Subtenant
       
  i. Subleased Premises ”: Approximately 2,798 square feet of Rentable Area on the third (3 rd ) floor, known as Suite 390, of the Building

 

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2. Recitals .

 

  a. Tenant is the tenant under the Primary Lease, under which Landlord leased to Tenant the Primary Premises located in the Building.
     
  b. Tenant desires to sublease the Subleased Premises to Subtenant.
     
  c. The Primary Lease requires Landlord’s consent to such sublease.

 

3. Landlord’s Consent, and Tenant and Subtenant Agreements .

 

  a. Consent and Subtenant Acknowledgement . As of the Effective Date, and subject to the Landlord receiving any necessary consent or approval from its lender(s), Landlord consents to the sublease of the Subleased Premises from Tenant to Subtenant pursuant to the Sublease, a copy of which is attached to this Consent as Exhibit “A” , subject to the terms and conditions of this Consent. Subtenant acknowledges that it has examined and is familiar with all of the terms and provisions of the Primary Lease. In the event Landlord’s lender charges Landlord a fee to review or approve the Consent, Tenant agrees to reimburse Landlord for such fee.
     
  b. Subtenant Agreements . Subtenant agrees to use the Subleased Premises in a manner which will not cause default under the terms of the Primary Lease. Prior to Subtenant taking occupancy of the Subleased Premises, Subtenant shall deliver to Landlord a certificate of insurance or insurance policy with copies of the applicable endorsements, which reflect (i) Landlord being named in the policy or policies as additional insured, and (ii) insurance coverage as required by the Primary Lease except that Subtenant shall be required to maintain a $2 million umbrella liability policy in lieu of $4 million as provided for in Section 14A of the Lease. Subtenant agrees that to the extent Tenant agreed to indemnify, and waived any rights as against, any Landlord Parties in the Primary Lease, Subtenant hereby agrees to and adopts such indemnity obligations and waivers on its own behalf for the benefit of the Landlord Parties . If not defined in the Primary Lease, “ Landlord Parties ” shall mean Landlord, its trustees, affiliates, subsidiaries, members, principals, beneficiaries, partners, officers, directors, shareholders, employees, mortgagee(s) and agents (including the manager of the Building).
     
  c. Prohibition Against Further Transfers . Tenant, except as it may expressly be permitted under the Primary Lease, and Subtenant shall not, without Landlord’s prior written consent in each instance, (i) convey, assign or encumber the Primary Lease or the Sublease or any interest in either, directly or indirectly, voluntarily or by operation of law, except thru the merger or conversion of Tenant or Subtenant with or into another entity, (ii) sublet all or any portion of the Primary Premises or Subleased Premises except to subsidiary or affiliated entities of the Subtenant, (iii) permit the use or occupancy of any part of the Primary Premises or Subleased Premises by anyone other than Tenant or Subtenant or Subtenant’s subsidiary or affiliated entities, as applicable (any of the foregoing actions shall be a “ Prohibited Transfer ”), or (iv) amend the Sublease. Following any Prohibited Transfer, Tenant or Subtenant, as applicable (and any guarantors) shall remain fully liable under the Primary Lease or this Consent, as may be amended with consent of Tenant and Subtenant (or any guarantors), and Landlord may proceed directly under the Primary Lease or this Consent against Tenant or Subtenant (or any guarantors) without first proceeding against any other party.
     
  d. Simultaneously with execution and delivery of this Consent, Tenant shall pay Landlord all of its costs and expenses including legal fees in connection with Landlord’s approval of the Sublease, not to exceed $1,000.

 

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4. Sublease Subordination . The Sublease shall be subject and subordinate at all times to all of the covenants, agreements, terms, provisions and conditions of the Primary Lease and of this Consent. Neither Tenant nor Subtenant shall do or permit anything to be done in connection with the Sublease or Subtenant’s occupancy of the Subleased Premises that will violate the Primary Lease or this Consent. As between Landlord and Subtenant, the Sublease shall automatically terminate upon termination of the Primary Lease for any reason whatsoever, notwithstanding any other provision of the Sublease to the contrary.

 

5. Alterations . Tenant and Subtenant agree that no non-cosmetic alterations, additions or physical changes will be made in or to any part of the Subleased Premises, including the work described in Section 6 of the Sublease, without Landlord’s prior written consent in each instance, except as may be permitted under the Primary Lease. In the event Landlord gives its written consent (or such consent under the Primary Lease is not required) for alterations, Subtenant (i) shall not proceed with such alterations until it has paid for and obtained an asbestos survey or any other type of inspection or survey required by state or federal law from Landlord or contractor(s) approved in advance by Landlord, and (ii) shall promptly pay Landlord’s then-current construction management/supervisory fee, which fee will not exceed 15% of the total cost of the alterations. If alterations performed by or for Subtenant trigger additional required improvements or inspections (e.g., upgrades for ADA compliance), Subtenant shall pay the cost of all such additional required improvements and inspections.

 

6. No Release or Change In Status . Landlord’s consent shall not be deemed in any way or manner to be a waiver or release of Tenant or any guarantor(s) of Tenant’s obligations under the Primary Lease from the responsibility and liability for the payment of rent under the Primary Lease and for compliance with any and all obligations to be performed by Tenant as the tenant under the Primary Lease. Without limiting the scope of the preceding sentence, it is specifically understood that Tenant shall remain fully liable for the obligation to pay Landlord for any special services provided to Subtenant in the course of Subtenant’s use and occupancy of the Subleased Premises, whether or not specifically provided for in the Primary Lease (including, without limitation, after-hours heating and air conditioning of the Subleased Premises), and Tenant hereby covenants and agrees that unless and until Landlord receives a written notice to the contrary from Tenant, Landlord may honor Subtenant’s request for any such special services without the specific consent of Tenant. Tenant and Subtenant acknowledge that (a) Landlord may provide such services at the direct request of Subtenant (including billing Subtenant for such services provided that the Landlord has notified the Subtenant in advance of the cost of such additional services), (b) Landlord may establish records identifying Subtenant as if Subtenant was a tenant of Landlord, (c) such actions are merely for the convenience of Landlord, Tenant, and Subtenant, and (d) the parties shall maintain their respective capacities as Landlord, Tenant, and Subtenant, unless an express intent to the contrary is expressed in a written agreement executed by all the affected parties. After an event of default by Tenant under the Primary Lease, Landlord may, in addition to any other remedies under the Primary Lease or at law, collect directly from Subtenant all rents due and owing from Subtenant and apply any such rent against sums due to Landlord by Tenant as tenant under the Primary Lease. Further, Tenant authorizes and directs Subtenant to make such payments of rent directly to Landlord upon its receipt of written notice of default from Landlord. The collection of any such rents shall not be deemed a waiver of any rights and remedies of Landlord against Tenant as the tenant under the Primary Lease or constitute a novation or release of Tenant as tenant from the further performance of its obligations under the Primary Lease. Tenant acknowledges that the receipt by Landlord from Subtenant of any such rents shall be a full and complete release, discharge and acquittance of any claims by Tenant for rent against Subtenant to the extent of any such amount of rent so paid to Landlord. In addition, Tenant agrees that it forfeits its rights to any excess consideration to which it may otherwise be entitled during any period when Tenant is in default under the Primary Lease, and any such excess consideration shall be payable to Landlord.

 

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7. Landlord’s Obligations . Notwithstanding anything to the contrary contained in the Sublease, neither the Sublease nor this Consent shall (i) enlarge or increase Landlord’s obligations or liability, or (ii) reduce or decrease Landlord’s rights, under the Primary Lease or otherwise. Landlord is not a party to the Sublease and, therefore, is not bound by the Sublease or any of its terms. Landlord shall have no responsibility or obligation to Subtenant for the performance by Tenant of its obligations under the Sublease. Similarly, Landlord shall have no responsibility or obligation to Subtenant for the performance of any obligations Landlord may owe to Tenant under the Primary Lease.

 

8. Excess Rents . In the event that the rental and other consideration payable to Tenant by Subtenant under the Sublease exceed the rental payable under the Primary Lease with respect to the Subleased Premises, then Tenant shall be bound and obligated to pay Landlord fifty percent (50%) of such excess rental within thirty (30) days of Tenant’s receipt of same from Subtenant in accordance with Section 11.C. of the Primary Lease. Tenant’s failure to pay to Landlord such amounts when due shall be an event of default under the Primary Lease.

 

9. Tenant-Specific Rights . Subtenant acknowledges and agrees that Subtenant shall not have the right to exercise any renewal, expansion, right of first refusal or other similar options or rights afforded to Tenant under the Primary Lease. In addition, Tenant, as a result of subleasing all or any part of the Primary Premises, has terminated its right to exercise any such options or rights. Subtenant shall have no signage rights in the Building other than the right to be listed in the Building directory. Subtenant shall have no right to use any rooftop antenna space on, or riser space within, the Building.

 

10. Brokerage . Landlord represents that it has not used the services of any real estate broker, salesman, or agent in relation to the Sublease. Tenant and Subtenant represent that the only real estate broker, salesman, or agent used in relation to the Sublease is Avison Yong-Washington DC, LLC acting on behalf of Tenant. Tenant and Subtenant each agree to indemnify, defend and hold Landlord and its designated property management, construction and marketing firms harmless from and against any and all damage, loss, cost or expense, including, without limitation, all attorneys’ fees and disbursements, incurred by reason of any claim of or liability to any broker or other person for commissions with respect to the negotiation, execution and delivery of the Sublease. The obligations of Tenant and Subtenant under this Paragraph shall survive the expiration or termination of the Sublease.

 

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11. Other Agreements . Other than the Sublease, the Primary Lease and this Consent, there are no other agreements or understandings, whether written or oral, between Tenant and Subtenant with respect to Subtenant’s use and occupancy of the Subleased Premises or any property of Tenant located in the Building. No compensation or consideration is payable or will become due and payable to Tenant or any affiliate of Tenant in connection with the Sublease other than the rentals expressly set forth in the Sublease. This Consent shall not be amended orally, but only by an agreement in writing signed by all parties to this Consent. It is the parties’ intent that their relationship will be governed by written agreement. Therefore, no course of dealing will be deemed to effect a change in any of the parties’ respective capacities as Landlord, Tenant and Subtenant, nor modify the agreement contained in this Consent as it may be modified by subsequent written amendments, if any.

 

12. Indemnities . Subtenant and Tenant will indemnify and defend the Landlord Parties against, and hold the Landlord Parties harmless from Subtenant’s actions and matters arising from Subtenant’s use of the Subleased Premises, Subtenant’s failure to observe or perform any of the terms, covenants, or conditions of this Consent or the Lease.

 

13. Binding Effect . This Consent shall be binding on and inure to the benefit of the parties to this Consent and their successors and permitted assigns.

 

14. Recording . Neither this Consent nor the Sublease may be recorded, without Landlord’s prior written consent.

 

15. Conflicts . In the event of any conflicts among the provisions of the Primary Lease, the Sublease and this Consent, the provisions of this Consent and the Primary Lease shall control; and in the event of any conflicts between the provisions of the Primary Lease and this Consent, the provisions of this Consent shall control.

 

16. Counterparts . This Consent may be executed in counterparts and by each party to this Consent on separate counterparts, each of which when so executed and delivered will be deemed an original and all of which taken together will constitute but one and the same instrument.

 

[SIGNATURES TO FOLLOW]

 

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ACCORDINGLY, the parties have executed this Consent as of the Effective Date.

 

  LANDLORD :
     
  TBC-WASHINGTONIAN, LLC,
  a Maryland limited liability company
     
  By:  
  Name: Peter C. Hill-Byrne
  Title: Authorized Representative
     
  TENANT :
  BUCHANAN PARTNERS L.L.C. ,
  a Maryland limited liability company
     
  By:  
  Name:  
  Title: Manager
     
  SUBTENANT :
     
  RealBiz Media Group
  a Delaware corporation
  By:  
  Name: Anshu Bhatnagar
  Title:  

 

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EXHIBIT D

 

Furniture

 

17

 

 

 

18

 

 

 

 

 

THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)

 

US $82,000.00

 

REALBIZ MEDIA GROUP, INC.

8% CONVERTIBLE REDEEMABLE NOTE

DUE JUNE 15, 2018

 

FOR VALUE RECEIVED, RealBiz Media Group, Inc. (the “Company”) promises to pay to the order of GS CAPITAL PARTNERS, LLC and its authorized successors and permitted assigns (“ Holder ”), the aggregate principal face amount of Eighty Two Thousand Dollars exactly (U.S. $82,000.00) on June 15, 2018 (“ Maturity Date ”) and to pay interest on the principal amount outstanding hereunder at the rate of 8% per annum commencing on June 15, 2017. The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note are payable at 110 Wall Street, Suite 5-070 New York, NY 10005, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein.

 

This Note is subject to the following additional provisions:

 

1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.

 

 

     

 

 

2. The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.

 

3. This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (“ Act ”) and applicable state securities laws. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company’s records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted (“ Notice of Conversion ”) in the form annexed hereto as Exhibit A . The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.

 

4. (a) The Holder of this Note is entitled, at its option, at any time after the 6 month anniversary of this Note, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock (the “ Common Stock ”) at a price (“ Conversion Price ”) for each share of Common Stock equal to 64% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC Markets exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future (“ Exchange ”), for the twelve prior trading days including the day upon which a Notice of Conversion is received by the Company or its transfer agent (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company or its transfer agent after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share . To the extent the Conversion Price of the Company’s Common Stock closes below the par value per share, the Company will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Company agrees to honor all conversions submitted pending this increase. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 54% instead of 64% while that “Chill” is in effect. In no event shall the Holder be allowed to effect a conversion if such conversion, along with all other shares of Company Common Stock beneficially owned by the Holder and its affiliates would exceed 9.9% of the outstanding shares of the Common Stock of the Company.

 

(b) Interest on any unpaid principal balance of this Note shall be paid at the rate of 8% per annum. Interest shall be paid by the Company in Common Stock (“Interest Shares”). Holder may, at any time, send in a Notice of Conversion to the Company for Interest Shares based on the formula provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid principal balance of this Note to the date of such notice.

 

 

2

 

 

(c) The Notes may be prepaid with the following penalties:

 

Time Period   Payment Premium
<=60 days after note issuance  

115% of the sum of principal plus accrued interest

     
>60 days <= 120 days after note issuance  

125% of the sum of principal plus accrued interest

     
>120 days <=180 days after note issuance  

135% of the sum of principal plus accrued interest

 

This Note may not be prepaid after the 180 th day. Such redemption must be closed and funded within 3 days of giving notice of redemption of the right to redeem shall be null and void.

 

(d) Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a “Sale Event”), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.

 

(e) In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.

 

5. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.

 

6. The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.

 

 

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7. The Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.

 

8. If one or more of the following described “Events of Default” shall occur:

 

(a) The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or

 

(b) Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or

 

(c) The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note or any other note issued to the Holder; or

 

(d) The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or

 

(e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or

 

(f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or

 

(g) One or more money judgments, writs or warrants of attachment, or similar process, in excess of fifty thousand dollars ($50,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

 

(h) The Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or

 

 

4

 

 

(i) The Company shall have its Common Stock delisted from an exchange (including the OTC Market Exchange) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days or ceases to file its 1934 act reports with the SEC;

 

(j) If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the Board;

 

(k) The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business days of its receipt of a Notice of Conversion; or

 

(l) The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder.

 

(m) The Company shall not be “current” in its filings with the Securities and Exchange Commission;

 

(n) The Company shall lose the “bid” price for its stock in a market (including the OTC marketplace or other exchange); or

 

Then, or at any time thereafter, unless cured within 5 days, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not issued beginning on the 4 th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10 th day. The penalty for a breach of Section 8(n) shall be an increase of the outstanding principal amounts by 20%. In case of a breach of Section 8(i), the outstanding principal due under this Note shall increase by 50%. If this Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%. Further, if a breach of Section 8(m) occurs or is continuing after the 6 month anniversary of the Note, then the Holder shall be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. For example, if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion discount is 50% the Holder may elect to convert future conversions at$0.005 per share.

 

 

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If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

Make-Whole for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder the conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows:

 

Failure to Deliver Loss = [(Highest VWAP for the 30 trading days on or after the day of exercise) x (Number of conversion shares)]

 

The Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.

 

9. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.

 

10. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.

 

11. The Company represents that it is not a “shell” issuer and has never been a “shell” issuer or that if it previously has been a “shell” issuer that at least 12 months have passed since the Company has reported form 10 type information indicating it is no longer a “shell issuer. Further. The Company will instruct its counsel to either (i) write a 144 opinion to allow for salability of the conversion shares or (ii) accept such opinion from Holder’s counsel.

 

12. The Company shall issue irrevocable transfer agent instructions reserving 25,625,000 shares of its Common Stock for conversions under this Note (the “Share Reserve”). Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. The Company shall pay all transfer agent costs associated with issuing and delivering the share certificates to Holder. If such amounts are to be paid by the Holder, it may deduct such amounts from the Conversion Price. The company should at all times reserve a minimum of four times the amount of shares required if the note would be fully converted. The Holder may reasonably request increases from time to time to reserve such amounts. The Company will instruct its transfer agent to provide the outstanding share information to the Holder in connection with its conversions.

 

 

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13. The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.

 

14. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable provision shall automatically be revised to equal the maximum rate of interest or other amount deemed interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it will not seek to claim or take advantage of any law that would prohibit or forgive the Company from paying all or a portion of the principal or interest on this Note.

 

15. This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York or in the Federal courts sitting in the county or city of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.

 

 

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.

 

Dated: 6/17/2017    
     
  REALBIZ MEDIA GROUP, INC.
     
  By:
  Title: CEO

 

 

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EXHIBIT A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Note)

 

The undersigned hereby irrevocably elects to convert $ ____________ of the above Note into __________ Shares of Common Stock of RealBiz Media Group, Inc. (“Shares”) according to the conditions set forth in such Note, as of the date written below.

 

If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.

 

Date of Conversion:__________________________________________________

Applicable Conversion Price:___________________________________________

Signature:_________________________________________________________

[Print Name of Holder and Title of Signer]

 

Address: __________________________________________________________

__________________________________________________________

 

SSN or EIN:______________________

Shares are to be registered in the following name: ____________________________

 

Name:_____________________________________________________

Address: __________________________________________________

Tel: _______________________________________________

Fax: ___________________________________

SSN or EIN:_____________________________

 

Shares are to be sent or delivered to the following account:

 

Account Name: __________________________________________

Address: _______________________________________________

 

 

9

 

 

 

 

NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: $107,500.00 Issue Date: October 24, 2017
Purchase Price: $100,000.00  
Original Issue Discount: $7,500.00  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED , REALBIZ MEDIA GROUP, INC. , a Delaware corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of CROSSOVER CAPITAL FUND I, LLC , a Washington limited liability company, or registered assigns (the “Holder”) the principal sum of $107,500.00 (the “Principal Amount”), together with interest at the rate of nine percent (9%) per annum, at maturity or upon acceleration or otherwise, as set forth herein (the “Note”). The consideration to the Borrower for this Note is $100,000.00 (the “Consideration”). At the closing, the outstanding principal amount under this Note shall be $107,500.00, consisting of the Consideration plus the OID (as defined herein). The maturity date shall be nine (9) months from the Issue Date (the “Maturity Date”), and is the date upon which the principal sum, as well as any accrued and unpaid interest and other fees shall be due and payable. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid by the Maturity Date, shall bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum and (ii) the maximum amount permitted by applicable law from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 360-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into the Borrower’s common stock (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.

 

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This Note carries an original issue discount of $7,500.00 (the “OID”), to cover the Holder’s accounting fees, due diligence fees, monitoring, and/or other transactional costs incurred in connection with the purchase and sale of the Note, which is included in the principal balance of this Note. Thus, the purchase price of this Note shall be $100,000.00, computed as follows: the Principal Amount minus the OID.

 

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

 

The following additional terms shall also apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right . The Holder shall have the right at any time on or after the date which is one hundred eighty (180) days following the Issue Date of this Note, to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the Conversion Price (as defined herein) determined as provided herein (a “Conversion”); provided , however , that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided , further , however , that the limitations on conversion may be waived (up to a maximum of 9.99%) by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 5:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

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1.2 Conversion Price.

 

(a) Calculation of Conversion Price . The “Conversion Price” shall mean the Variable Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events)(also subject to adjustment as further described herein). The “Variable Conversion Price” shall mean 61% multiplied by the Market Price (as defined herein) (representing a discount rate of 39%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the fifteen (15) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. “Trading Price” or “Trading Prices” means, for any security as of any date, the lowest traded price on the Over-the- Counter Pink Marketplace, OTCQB, or applicable trading market (the “OTCQB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. www.Nasdaq.com) or, if the OTCQB is not the principal trading market for such security, on the principal securities exchange or trading market where such security is listed or traded. If the Trading Prices cannot be calculated for such security on such date in the manner provided above, the Trading Prices shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Prices are required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. If at any time while this Note is outstanding, the Borrower’s Common Stock are not deliverable via DWAC, an additional 5% discount shall be factored into the Variable Conversion Price until this Note is no longer outstanding.

 

Each time, while this Note is outstanding, the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, in which any 3 rd party has the right to convert monies owed to that 3 rd party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Variable Conversion Price in effect at that time (prior to all other applicable adjustments in the Note), then the Variable Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Note) until this Note is no longer outstanding. Each time, while this Note is outstanding, the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, in which any 3 rd party has a look back period greater than the look back period in effect under the Note at that time, then the Holder’s look back period shall automatically be adjusted to such greater number of days until this Note is no longer outstanding. The adjustments in this paragraph, with respect to Section 3(a)(9) transactions, shall not take effect unless the holder of the note with more favorable terms is eligible to convert. The Borrower shall give written notice to the Holder, with the adjusted Variable Conversion Price and/or adjusted look back period (each adjustment that is applicable due to the triggering event), within one (1) business day of an event that requires any adjustment described in the two immediately preceding sentences.

 

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Holder shall be entitled to deduct $500.00 from the conversion amount in each Notice of Conversion to cover Holder’s deposit fees associated with each Notice of Conversion. All expenses incurred by Holder with respect to the Borrower’s transfer agent, for the issuance of the Common Stock into which this Note is convertible into, shall immediately and automatically be added to the balance of the Note at such time as the expenses are incurred by Holder.

 

If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Amount for such conversion may be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price.

 

1.3 Authorized Shares . The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower is required at all times to have authorized and reserved four (4) times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

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If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion . Subject to Section 1.1, this Note may be converted by the Holder in whole or in part, at any time on or after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

(b) Surrender of Note Upon Conversion . Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

(c) Payment of Taxes . The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.

 

(d) Delivery of Common Stock Upon Conversion . Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof.

 

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(e) Obligation of Borrower to Deliver Common Stock . Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 5:00 p.m., New York, New York time, on such date.

 

(f) Delivery of Common Stock by Electronic Transfer . In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

(g) Failure to Deliver Common Stock Prior to Deadline . Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

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1.5 Concerning the Shares . The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor. Except as otherwise provided (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

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1.6 [Intentionally Omitted].

 

1.7 Status as Shareholder . Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.

 

ARTICLE II. CERTAIN COVENANTS

 

2.1 Distributions on Capital Stock . So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.

 

2.2 Restriction on Stock Repurchases . So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

 

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ARTICLE III. EVENTS OF DEFAULT

 

If any of the following events of default (each, an “Event of Default”) shall occur:

 

3.1 Failure to Pay Principal or Interest . The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise, and such breach continues for a period of five (5) days.

 

3.2 Conversion and the Shares . The Borrower fails to reserve a sufficient amount of shares of common stock as required under the terms of this Note (including Section 1.3 of this Note), fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent.

 

3.3 Breach of Covenants . The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

3.4 Breach of Representations and Warranties . Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note.

 

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3.5 Receiver or Trustee . The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.6 Judgments . Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

 

3.7 Bankruptcy . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock . The Borrower shall fail to maintain the listing or quotation of the Common Stock on the OTCQB or an equivalent replacement exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT.

 

3.9 Failure to Comply with the Exchange Act . The Borrower shall fail to comply with the reporting requirements of the Exchange Act (including but not limited to becoming delinquent in its filings), and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

3.10 Liquidation . Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.11 Cessation of Operations . Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

 

3.12 Financial Statement Restatement . The Borrower replaces its auditor, or any restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note.

 

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3.13 Replacement of Transfer Agent . In the event that the Borrower replaces its transfer agent, and the Borrower fails to provide prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

 

3.14 Cross-Default . Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the other financial instrument, including but not limited to all convertible promissory notes, currently issued, or hereafter issued, by the Borrower, to the Holder (the “Other Agreements”), after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled to apply all rights and remedies of the Holder under the terms of this Note by reason of a default under said Other Agreement or hereunder.

 

3.15 Inside Information . Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

 

3.16 Intentionally Omitted .

 

Upon the occurrence of any Event of Default specified in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16 and/or 3.17 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 150% (EXCEPT THAT 150% SHALL BE REPLACED WITH 200% WITH RESPECT TO A DEFAULT UNDER SECTION 3.2) multiplied by the then outstanding entire balance of the Note (including principal and accrued and unpaid interest) plus Default Interest, if any, plus any amounts owed to the Holder pursuant to Sections 1.4(g) hereof (collectively, in the aggregate of all of the above, the “Default Sum”), and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

The Holder shall have the right at any time to require the Borrower to issue the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect, subject to issuance in tranches due to the beneficial ownership limitations contained in this Note.

 

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ARTICLE IV. MISCELLANEOUS

 

4.1 Failure or Indulgence Not Waiver . No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2 Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, facsimile, or electronic mail addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, upon electronic mail delivery, or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

 

If to the Borrower, to:

 

REALBIZ MEDIA GROUP, INC.

9841 Washingtonian Boulevard, #390

Gaithersburg, MD 20850

e-mail: anshub@verusfoods.com

 

If to the Holder:

 

CROSSOVER CAPITAL FUND I, LLC

3820 East Mercer Way Mercer Island, WA 98040

e-mail: ken@crossovercap.com

 

4.3 Amendments . This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

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4.4 Assignability . This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

4.5 Cost of Collection . If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.6 Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state and/or federal courts of New York, NY. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens . The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

4.7 Certain Amounts . Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

 

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4.8 Remedies . The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

4.9 Prepayment . Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay this Note, during the initial 30 day period after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 115% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 31 st day through the 60 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 120% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 61 st day through the 90 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 125% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 91 st day through the 120 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 130% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 121 st day through the 150 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 135% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 151 st day through the 180 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 140% multiplied by the total amount outstanding under the Note. The Borrower may not prepay this Note after the 180 th day after the issuance of this Note.

 

4.10 Usury . To the extent it may lawfully do so, the Borrower hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Holder in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Borrower under this Note for payments which under the applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under the law applicable to this Note (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under the law applicable to this Note in the nature of interest that the Borrower may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by the law applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the Issue Date, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Borrower to the Holder with respect to indebtedness evidenced by this the Note, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Borrower, the manner of handling such excess to be at the Holder’s election.

 

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4.11 Section 3(a)(10) Transactions . If at any time while this Note is outstanding, the Borrower enters into a transaction structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”), then a liquidated damages charge of 25% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment or as an addition to the balance of the Note, as determined by mutual agreement of the Borrower and Holder.

 

4.12 [Intentionally Omitted ].

 

4.13 Co-Investment Rights . If at any time while this Note is outstanding, the Borrower has a bona fide offer of capital or financing from any 3 rd party, that the Borrower intends to act upon, then the Borrower must also offer such opportunity to the Holder to provide such capital or financing to the Borrower on the same terms as each respective 3 rd party’s terms. The offer notice must be sent via electronic mail to ken@crossovercap.com.

 

4.14 Terms of Future Financings . So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Note, then the Borrower shall notify the Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage. With respect to securities issued prior to the Issue Date, this Section 4.14 shall only apply if the respective security was not disclosed in the Borrower’s filings with the Securities and Exchange Commission.

 

[signature page to follow]

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this October 24, 2017.

 

REALBIZ MEDIA GROUP, INC.  
     
By:  
Name: Anshu Bhatnagar  
Title: Chief Executive Officer  

 

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EXHIBIT A — NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $             principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of REALBIZ MEDIA GROUP, INC., a Delaware corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of October 24, 2017 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

  [  ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
     
    Name of DTC Prime
    Broker: Account Number:
     
  [  ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

     
     

 

  Date of Conversion:      
  Applicable Conversion Price: $    
  Number of Shares of Common Stock to be Issued      
  Pursuant to Conversion of the Notes:      
  Amount of Principal Balance Due remaining      
  Under the Note after this conversion:      

 

  CROSSOVER CAPITAL FUND I, LLC
  By:    
  Name:                    
  Title:    
  Date:    

 

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NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: $107,500.00 Issue Date: October 24, 2017
Purchase Price: $100,000.00  
Original Issue Discount: $7,500.00  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED , REALBIZ MEDIA GROUP, INC. , a Delaware corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of CROSSOVER CAPITAL FUND II, LLC , a Washington limited liability company, or registered assigns (the “Holder”) the principal sum of $107,500.00 (the “Principal Amount”), together with interest at the rate of nine percent (9%) per annum, at maturity or upon acceleration or otherwise, as set forth herein (the “Note”). The consideration to the Borrower for this Note is $100,000.00 (the “Consideration”). At the closing, the outstanding principal amount under this Note shall be $107,500.00, consisting of the Consideration plus the OID (as defined herein). The maturity date shall be nine (9) months from the Issue Date (the “Maturity Date”), and is the date upon which the principal sum, as well as any accrued and unpaid interest and other fees shall be due and payable. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid by the Maturity Date, shall bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum and (ii) the maximum amount permitted by applicable law from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 360-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into the Borrower’s common stock (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.

 

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This Note carries an original issue discount of $7,500.00 (the “OID”), to cover the Holder’s accounting fees, due diligence fees, monitoring, and/or other transactional costs incurred in connection with the purchase and sale of the Note, which is included in the principal balance of this Note. Thus, the purchase price of this Note shall be $100,000.00, computed as follows: the Principal Amount minus the OID.

 

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

 

The following additional terms shall also apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right . The Holder shall have the right at any time on or after the date which is one hundred eighty (180) days following the Issue Date of this Note, to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the Conversion Price (as defined herein) determined as provided herein (a “Conversion”); provided , however , that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided , further , however , that the limitations on conversion may be waived (up to a maximum of 9.99%) by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 5:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

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1.2 Conversion Price .

 

(a) Calculation of Conversion Price . The “Conversion Price” shall mean the Variable Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events)(also subject to adjustment as further described herein). The “Variable Conversion Price” shall mean 61% multiplied by the Market Price (as defined herein) (representing a discount rate of 39%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the fifteen (15) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. “Trading Price” or “Trading Prices” means, for any security as of any date, the lowest traded price on the Over-the- Counter Pink Marketplace, OTCQB, or applicable trading market (the “OTCQB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. www.Nasdaq.com) or, if the OTCQB is not the principal trading market for such security, on the principal securities exchange or trading market where such security is listed or traded. If the Trading Prices cannot be calculated for such security on such date in the manner provided above, the Trading Prices shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Prices are required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. If at any time while this Note is outstanding, the Borrower’s Common Stock are not deliverable via DWAC, an additional 5% discount shall be factored into the Variable Conversion Price until this Note is no longer outstanding.

 

Each time, while this Note is outstanding, the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, in which any 3 rd party has the right to convert monies owed to that 3 rd party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Variable Conversion Price in effect at that time (prior to all other applicable adjustments in the Note), then the Variable Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Note) until this Note is no longer outstanding. Each time, while this Note is outstanding, the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, in which any 3 rd party has a look back period greater than the look back period in effect under the Note at that time, then the Holder’s look back period shall automatically be adjusted to such greater number of days until this Note is no longer outstanding. The adjustments in this paragraph, with respect to Section 3(a)(9) transactions, shall not take effect unless the holder of the note with more favorable terms is eligible to convert. The Borrower shall give written notice to the Holder, with the adjusted Variable Conversion Price and/or adjusted look back period (each adjustment that is applicable due to the triggering event), within one (1) business day of an event that requires any adjustment described in the two immediately preceding sentences.

 

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Holder shall be entitled to deduct $500.00 from the conversion amount in each Notice of Conversion to cover Holder’s deposit fees associated with each Notice of Conversion. All expenses incurred by Holder with respect to the Borrower’s transfer agent, for the issuance of the Common Stock into which this Note is convertible into, shall immediately and automatically be added to the balance of the Note at such time as the expenses are incurred by Holder.

 

If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Amount for such conversion may be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price.

 

1.3 Authorized Shares . The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower is required at all times to have authorized and reserved four (4) times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

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If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion .

 

(a) Mechanics of Conversion . Subject to Section 1.1, this Note may be converted by the Holder in whole or in part, at any time on or after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

(b) Surrender of Note Upon Conversion . Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

(c) Payment of Taxes . The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.

 

(d) Delivery of Common Stock Upon Conversion . Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof.

 

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(e) Obligation of Borrower to Deliver Common Stock . Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 5:00 p.m., New York, New York time, on such date.

 

(f) Delivery of Common Stock by Electronic Transfer . In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

(g) Failure to Deliver Common Stock Prior to Deadline . Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

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1.5 Concerning the Shares . The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor. Except as otherwise provided (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

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1.6 [Intentionally Omitted].

 

1.7 Status as Shareholder . Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.

 

ARTICLE II. CERTAIN COVENANTS

 

2.1 Distributions on Capital Stock . So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.

 

2.2 Restriction on Stock Repurchases . So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

 

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ARTICLE III. EVENTS OF DEFAULT

 

If any of the following events of default (each, an “Event of Default”) shall occur:

 

3.1 Failure to Pay Principal or Interest . The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise, and such breach continues for a period of five (5) days.

 

3.2 Conversion and the Shares . The Borrower fails to reserve a sufficient amount of shares of common stock as required under the terms of this Note (including Section 1.3 of this Note), fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent.

 

3.3 Breach of Covenants . The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

3.4 Breach of Representations and Warranties . Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note.

 

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3.5 Receiver or Trustee . The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.6 Judgments . Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

 

3.7 Bankruptcy . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock . The Borrower shall fail to maintain the listing or quotation of the Common Stock on the OTCQB or an equivalent replacement exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT.

 

3.9 Failure to Comply with the Exchange Act . The Borrower shall fail to comply with the reporting requirements of the Exchange Act (including but not limited to becoming delinquent in its filings), and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

3.10 Liquidation . Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.11 Cessation of Operations . Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

 

3.12 Financial Statement Restatement . The Borrower replaces its auditor, or any restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note.

 

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3.13 Replacement of Transfer Agent . In the event that the Borrower replaces its transfer agent, and the Borrower fails to provide prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

 

3.14 Cross-Default . Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the other financial instrument, including but not limited to all convertible promissory notes, currently issued, or hereafter issued, by the Borrower, to the Holder (the “Other Agreements”), after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled to apply all rights and remedies of the Holder under the terms of this Note by reason of a default under said Other Agreement or hereunder.

 

3.15 Inside Information . Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

 

3.16 Intentionally Omitted.

 

Upon the occurrence of any Event of Default specified in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16 and/or 3.17 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 150% (EXCEPT THAT 150% SHALL BE REPLACED WITH 200% WITH RESPECT TO A DEFAULT UNDER SECTION 3.2) multiplied by the then outstanding entire balance of the Note (including principal and accrued and unpaid interest) plus Default Interest, if any, plus any amounts owed to the Holder pursuant to Sections 1.4(g) hereof (collectively, in the aggregate of all of the above, the “Default Sum”), and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

The Holder shall have the right at any time to require the Borrower to issue the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect, subject to issuance in tranches due to the beneficial ownership limitations contained in this Note.

 

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ARTICLE IV. MISCELLANEOUS

 

4.1 Failure or Indulgence Not Waiver . No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2 Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, facsimile, or electronic mail addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, upon electronic mail delivery, or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

 

If to the Borrower, to:

 

REALBIZ MEDIA GROUP, INC.

9841 Washingtonian Boulevard, #390

Gaithersburg, MD 20850

e-mail: anshub@verusfoods.com

 

If to the Holder:

 

CROSSOVER CAPITAL FUND II, LLC

3820 East Mercer Way

Mercer Island, WA 98040

e-mail: ken@crossovercap.com

 

4.3 Amendments . This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

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4.4 Assignability . This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

4.5 Cost of Collection . If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.6 Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state and/or federal courts of New York, NY. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens . The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

4.7 Certain Amounts . Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

 

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4.8 Remedies . The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

4.9 Prepayment . Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay this Note, during the initial 30 day period after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 115% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 31 st day through the 60 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 120% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 61 st day through the 90 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 125% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 91 st day through the 120 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 130% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 121 st day through the 150 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 135% multiplied by the total amount outstanding under the Note. Further, the Borrower may prepay this Note, from the 151 st day through the 180 th day after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 140% multiplied by the total amount outstanding under the Note. The Borrower may not prepay this Note after the 180 th day after the issuance of this Note.

 

4.10 Usury . To the extent it may lawfully do so, the Borrower hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Holder in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Borrower under this Note for payments which under the applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under the law applicable to this Note (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under the law applicable to this Note in the nature of interest that the Borrower may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by the law applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the Issue Date, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Borrower to the Holder with respect to indebtedness evidenced by this the Note, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Borrower, the manner of handling such excess to be at the Holder’s election.

 

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4.11 Section 3(a)(10) Transactions . If at any time while this Note is outstanding, the Borrower enters into a transaction structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”), then a liquidated damages charge of 25% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment or as an addition to the balance of the Note, as determined by mutual agreement of the Borrower and Holder.

 

4.12 [Intentionally Omitted] .

 

4.13 Co-Investment Rights . If at any time while this Note is outstanding, the Borrower has a bona fide offer of capital or financing from any 3 rd party, that the Borrower intends to act upon, then the Borrower must also offer such opportunity to the Holder to provide such capital or financing to the Borrower on the same terms as each respective 3 rd party’s terms. The offer notice must be sent via electronic mail to ken@crossovercap.com.

 

4.14 Terms of Future Financings . So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Note, then the Borrower shall notify the Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage. With respect to securities issued prior to the Issue Date, this Section 4.14 shall only apply if the respective security was not disclosed in the Borrower’s filings with the Securities and Exchange Commission.

 

[signature page to follow]

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this October 24, 2017.

 

REALBIZ MEDIA GROUP, INC.  
     
By:  
Name: Anshu Bhatnagar  
Title: Chief Executive Officer  

 

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EXHIBIT A — NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $           principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of REALBIZ MEDIA GROUP, INC., a Delaware corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of October 24, 2017 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

  [  ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
     
    Name of DTC Prime
    Broker: Account Number:
     
  [  ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

     
     

 

  Date of Conversion:      
  Applicable Conversion Price: $    
  Number of Shares of Common Stock to be Issued      
  Pursuant to Conversion of the Notes:      
  Amount of Principal Balance Due remaining      
  Under the Note after this conversion:      

 

  CROSSOVER CAPITAL FUND II, LLC
  By:    
  Name:                    
  Title:    
  Date:    

 

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NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: $100,000.00 Issue Date: December 21, 2017

 

8% CONVERTIBLE NOTE

 

FOR VALUE RECEIVED , REALBIZ MEDIA GROUP, INC., a Delaware corporation (“Borrower” or “Company”), hereby promises to pay to the order of EMA FINANCIAL, LLC, a Delaware limited liability company, or its registered assigns (the “Holder”), on December 21, 2018, (subject to extension as set forth below, the “Maturity Date”), the sum of $ 100,000.00 as set forth herein, together with interest on the unpaid principal balance hereof at the rate of eight (8%) per annum (the “Interest Rate”) from the date of issuance hereof until this Note plus any and all amounts due hereunder are paid in full, and any additional amounts set forth herein, including without limitation any Additional Principal (as defined herein). Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty-four (24%) per annum from the due date thereof until the same is paid (“Default Interest”). All payments due hereunder shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement entered into by and between the Company and Holder dated on or about the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”). The Holder may, by written notice to the Borrower at least five (5) days before the Maturity Date (as may have been previously extended), extend the Maturity Date to up to one (1) year following the date of the original Maturity Date hereunder.

 

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This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1. Conversion Right . The Holder shall have the right, in its sole and absolute discretion, at any time from time to time, to convert all or any part of the outstanding amount due under this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided , however , that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.9% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided , further , however , that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each Conversion of this Note (“Conversion Shares”) shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any Conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such Conversion, plus (2) accrued and unpaid interest, if any, on such principal amount being converted at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2), plus (4) any Additional Principal for such Conversion, plus (5) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.2(c) and 1.4(g) hereof.

 

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1.2. Conversion Price .

 

a) Calculation of Conversion Price . The conversion price hereunder (the “Conversion Price”) shall equal 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, and (ii) 60% of either the lowest sale price for the Common Stock on the Principal Market during the fifteen (15) 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 (ex: 0.0001 on the ask with zero market makers on the bid on level 2), then the Conversion Price may, in the Holder’s sole and absolute discretion, be reduced to a fixed conversion price of 0.00001 (if lower than the conversion price otherwise), and provided, that if on the date of delivery of the Conversion Shares to the Holder, or any date thereafter while Conversion Shares are held by the Holder, the closing bid price per share of Common Stock on the Principal Market on the Trading Day on which the Common Shares 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 Holder shall be issued a number of additional shares such that the aggregate number of shares Holder receives is based upon the Adjusted Conversion Price, and provided, further , that the Conversion Price shall be subject to Section 1.2(b) below. For the purpose of clarity, any shares required to be issued as a result of an Adjusted Conversion Price shall be deemed to be “Conversion Shares” under this Note. If an Event of Default under Section 3.9 of the Note has occurred, Holder, in its sole discretion, may elect to use a Conversion Price which shall equal 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; (ii) 60% of either the lowest sale price or the closing bid price, whichever is lower for the Common Stock on the Principal Market during any Trading Day in which the Event of Default has not been cured. If such Common Stock is not traded on the OTCBB, OTCQB, NASDAQ or NYSE, then such sale price shall be the sale price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no sale price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If such sale price cannot be calculated for such security on such date in the manner provided above, such price shall be the fair market value as mutually determined by the Borrower and the Holder. If the Borrower’s Common stock is chilled for deposit at DTC, becomes chilled at any point while this Note remains outstanding or deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, or if the closing sale price at any time falls below $0.003601 (as appropriately and equitably adjusted for stock splits, stock dividends, stock contributions and similar events), then such 60% figure specified in clause 1.2(a)(ii) above shall be reduced to 45%. In the event that the shares of the Borrower’s Common Stock are not deliverable via DWAC following the conversion of any amount hereunder, an additional 5% discount will be attributed to the Conversion Price. Additionally, the Borrower acknowledges that it will take all reasonable steps necessary or appropriate, including providing a board of directors resolution authorizing the issuance of common stock to Holder. So long as the requested sale may be made pursuant to Rule 144, the Company agrees to accept an opinion of counsel to the Holder confirming the rights of the Holder to sell shares of Common Stock issuable or issued to Holder on conversion of this Note pursuant to Rule 144 as promulgated by the SEC (“Rule 144”), as such Rule 144 may be in effect from time to time, which opinion will be issued at the Company’s expense and the conversion dollar amount will be reduced by $750.00 to cover the cost of such legal opinion. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. Additionally, if the Company ceases to be a reporting company pursuant to the 1934 Act or if the Note cannot be converted into free trading shares after 181 days from the issuance date, an additional 15% discount will be attributed to the Conversion Price for any and all Conversions submitted thereafter.

 

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b) If at any time the Conversion Price as determined hereunder for any Conversion would be less than the par value of the Common Stock, then the Conversion Price hereunder shall equal such par value for such Conversion and the Conversion Amount for such Conversion shall be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of Conversion Shares issuable upon such Conversion to equal the same number of Conversion Shares as would have been issued had the Conversion Price not been subject to the minimum price set forth in this Section 1.2(b).

 

c) Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the free trading shares of Common Stock issuable upon conversion of this Note is not delivered by the Deadline (as defined below) the Borrower shall pay to the Holder $1,000.00 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder, shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert this Note is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion right are difficult if not impossible to quantify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section are justified.

 

1.3. Authorized Shares . The Borrower covenants that the Borrower will at all times while this Note is outstanding reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion or adjustment of this Note. The Borrower is required at all times to have authorized and reserved eight (8) times the number of shares that is actually issuable upon full conversion or adjustment of this Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). Initially, the Company will instruct the Transfer Agent to reserve two hundred twenty -two million two hundred and fifty thousand (222,250,000) shares of common stock in the name of the Holder for issuance upon conversion hereof. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which this Note shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of this Note in full. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

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If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4. Method of Conversion .

 

a) Mechanics of Conversion . Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time and from time to time after the Issue Date, by submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time).

 

b) Book Entry upon Conversion . Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

c) Payment of Taxes . The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.

 

d) Delivery of Common Stock upon Conversion . Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4 or upon an event triggering the calculation of an Adjusted Conversion Price, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt or such an event (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

 

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e) Obligation of Borrower to Deliver Common Stock . Upon receipt by the Borrower of a duly and properly executed Notice of Conversion or upon an event triggering the calculation of an Adjusted Conversion Price, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion or as a result of an Adjusted Conversion Price, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion or adjustment, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein or upon an event triggering the calculation of an Adjusted Conversion Price, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 11:59 p.m., New York, New York time, on such date.

 

f) Delivery of Common Stock by Electronic Transfer . In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion or upon an event triggering the calculation of an Adjusted Conversion Price to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

g) Failure to Deliver Common Stock Prior to Deadline . Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion or adjustment of this Note is not delivered by the Deadline, the Borrower shall pay to the Holder $1,000.00 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock to the Holder. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder, shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert and/or receive shares in the event of an adjustment is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion or adjustment right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

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h) The Borrower acknowledges that it will take all reasonable steps necessary or appropriate, including accepting an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issued to Holder on conversion or adjustment of the Note pursuant to Rule 144 as promulgated by the SEC (“Rule 144”), as such Rule may be in effect from time to time. So long as the requested sale may be made pursuant to Rule 144 the Borrower agrees to accept an opinion of counsel to the Holder which opinion will be issued at the Borrower’s expense.

 

i) Charges and Expenses . Issuance of Common Stock to Holder, or any of its assignees, upon the conversion of this Note shall be made without charge to the Holder for any issuance fee, transfer tax, legal opinion and related charges, postage/mailing charge or any other expense with respect to the issuance of such Common Stock. Company shall pay all Transfer Agent fees incurred from the issuance of the Common Stock to Holder, as well as any and all other fees and charges required by the Transfer Agent as a condition to effectuate such issuance. That notwithstanding, the Holder may in the interest of securing issuance and/or delivery of Common Stock before the Deadline, at any time from time to time, in its sole discretion elect to pay any such fees or charges upfront, and Company agrees that any such fees or charges as noted in this Section that are paid by the Holder (whether from the Company’s delays, outright refusal to pay, Holder’s interest in securing issuance and/or delivery of Common Stock before the Deadline, or otherwise), will be at Company’s expense, and the conversion amount will automatically be reduced by that dollar amount to cover the cost of the fees or charges as noted in this Section.

 

1.5. Restricted Securities . The shares of Common Stock issuable upon conversion or adjustment of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Any legend set forth on any stock certificate evidencing any Conversion Shares shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably acceptable to the Company, or (ii) in the case of the Common Stock issued or issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.

 

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1.6. Effect of Certain Events .

 

a) Effect of Merger, Consolidation, Etc . At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

b) Adjustment Due to Merger, Consolidation, Etc . If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time, for clarification, the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

c) Adjustment Due to Distribution . If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. Such assets shall be held in escrow by the Company pending any such conversion

 

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d) Purchase Rights . If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

e) Stock Dividends and Stock Splits . If the Company, at any time while this Note is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any securities convertible into or exercisable for Common Stock; (B) subdivides outstanding shares of Common Stock into a larger number of shares; (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (D) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price (and each sale or bid price used in determining the Conversion Price) shall be multiplied by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

f) Notice of Adjustments . Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

 

1.7. Revocation . If any Conversion Shares are not received by the Deadline, the Holder may revoke the applicable Conversion pursuant to which such Conversion Shares were issuable. This Note shall remain convertible after the Maturity Date hereof until this Note is repaid or converted in full.

 

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1.8. Prepayment . Notwithstanding anything to the contrary contained in this Note, subject to the terms of this Section, at any time during the period beginning on the Issue Date and ending on the date which is six (6) months following the Issue Date (“Prepayment Termination Date”), Borrower shall have the right, exercisable on not less than five (5) Trading Days prior written notice to the Holder of this Note, to prepay the outstanding balance on this Note (principal and accrued interest), in full, in accordance with this Section. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than ten (10) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to the Prepayment Factor (as defined below), multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section. After the Prepayment Termination Date, the Borrower shall have no right to prepay this Note. For purposes hereof, the “Prepayment Factor” shall equal the percentage set forth below with respect to each Optional Prepayment Date beside such Prepayment Factor:

 

The Prepayment Factor is:   If the Optional Prepayment Date occurs:
115%   1-30 days after the Issue Date
120%   31-60 days after the Issue Date
125%   61-90 days after the Issue Date
130%   91-120 days after the Issue Date
135%   121-150 days after the Issue Date
140%   151-180 days after the Issue Date

 

ARTICLE II. CERTAIN COVENANTS

 

2.1. Distributions on Capital Stock . So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.

 

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2.2. Restriction on Stock Repurchases . So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

 

2.3. Borrowings; Liens . Notwithstanding section 4(l) of the Purchase Agreement, so long as the Borrower shall have any obligation under this Note, the Borrower shall not (i) create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, or (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business, or (ii) enter into, create or incur any liens, claims or encumbrances of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom, securing any indebtedness occurring after the date hereof.

 

2.4. Sale of Assets . So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

 

2.5. Advances and Loans . So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof.

 

2.6. Charter . So long as the Borrower shall have any obligations under this Note, the Borrower shall not amend its charter documents, including without limitation its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder.

 

2.7. Transfer Agent . The Borrower shall not change its transfer agent without the prior written consent of the Holder. Any resignation by the transfer agent without a replacement transfer agent consented to by the Holder prior to such replacement taking effect shall constitute an Event of Default hereunder.

 

ARTICLE III. EVENTS OF DEFAULT

 

Any one or more of the following events which shall occur and/or be continuing shall constitute an event of default (each, an “Event of Default”):

 

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3.1. Failure to Pay Principal or Interest . The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.

 

3.2. Conversion and the Shares . The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so at any time following the execution hereof or) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for five (5) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty-eight (48) hours of a demand from the Holder.

 

3.3. Breach of Covenants . The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of three (3) days after written notice (via email) thereof to the Borrower from the Holder.

 

3.4. Breach of Representations and Warranties . Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.5. Receiver or Trustee . The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.6. Judgments . Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

 

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3.7. Bankruptcy . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8. Delisting of Common Stock . The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB, or OTCQB, or an equivalent replacement exchange, NASDAQ, the NYSE or AMEX.

 

3.9. Failure to Comply with the Exchange Act . The Borrower shall fail to comply in any material respect with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

3.10. Liquidation . Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.11. Cessation of Operations . Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

 

3.12. Maintenance of Assets . The failure by Borrower, during the term of this Note, to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

 

3.13. Financial Statement Restatement . The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.14. Reverse Splits . The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

3.15. Replacement of Transfer Agent . In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

 

3.16. Cross-Default . Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

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Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, 3.17, 3.18 and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified in the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect. The Holder may still convert any amounts due hereunder, including without limitation the Default Sum, until such time as this Note has been repaid in full.

 

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3.17. Inside Information . The Borrower or its officers, directors, and/or affiliates attempt to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

 

3.18 Bid Price . The Borrower shall lose the “bid” price for its Common Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per Level 2) and/or a market (including the OTC Pink, OTCQB or an equivalent replacement exchange).

 

ARTICLE IV. MISCELLANEOUS

 

4.1. Failure or Indulgence Not Waiver . No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2. Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, email or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile or email, with accurate confirmation generated by the transmitting facsimile machine or computer, at the address, email or number designated in the Purchase Agreement (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.

 

4.3. Amendments . This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.4. Assignability . This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

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4.5. Cost of Collection . If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.6. Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of Delaware without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction. Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought only in the civil or state courts of New York or in the federal courts located in the State and county of New York. Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower’s obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of the Holder. This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.

 

4.7. Certain Amounts . Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

 

4.8. Disclosure . Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries, the Company shall within one (1) Trading Day after any such receipt or delivery, publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to the Company or its Subsidiaries.

 

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4.9. Notice of Corporate Events . Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.

 

4.10. Remedies . The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

4.11. Usury . This Note shall be subject to the anti-usury limitations contained in the Purchase Agreement.

 

(Remainder of Page intentionally left blank)

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer as of the Issue Date first set forth above.

 

REALBIZ MEDIA GROUP, INC.  
     
By:

   

 
Name: Anshu Bhatnagar  
Title: CEO  

 

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EXHIBIT A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the 8% Convertible Note of REALBIZ MEDIA GROUP, INC., a Delaware corporation (the Company ”), into shares of common stock (the “ Common Stock ”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 1.1 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock pursuant to any prospectus.

 

Conversion calculations:

 

  Issue Date of Note:_______________________________________
  Date to Effect Conversion:__________________________________
   
  Conversion Price:_________________________________________
   
  Principal Amount of Note to be Converted:______________________
  Less applicable fees under the Note:___________________________
  Amount of Note to be Converted:_____________________________
   
 

Interest Accrued on Account of

Conversion at Issue:______________________________________

   
 

Additional Principal on Account of Conversion

Pursuant to Section 1.2(b) of the Note:_________________________

   
  Number of shares of Common Stock to be issued:_________________
   ______________________________________________________
  Remaining Balance of Note*:________________________________
   
  Signature:_______________________________________________
   
  Name: _________________________________________________
   
  Address for Delivery of Common Stock Certificates:_______________
   ______________________________________________________
  ______________________________________________________
   
  Or
   
  DWAC Instructions:
  Broker No:_______________
  Account No:_____________

 

*Sum provided does not include accrued interest

 

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NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: $53,000.00 Issue Date: December 28, 2017
Purchase Price: $53,000.00  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED , REALBIZ MEDIA GROUP, INC. , a Delaware corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of POWER UP LENDING GROUP LTD. , a Virginia corporation, or registered assigns (the “Holder”) the sum of $53,000.00 together with any interest as set forth herein, on October 5, 2018 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight (8%)(the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

 

The following terms shall apply to this Note:

 

 

 

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right . The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III), each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided , however , that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The beneficial ownership limitations on conversion as set forth in the section may NOT be waived by the Holder . The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”); however, if the Notice of Conversion is sent after 6:00pm, New York, New York time the Conversion Date shall be the next business day. The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.4 hereof.

 

1.2 Conversion Price . The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 61% multiplied by the Market Price (as defined herein) (representing a discount rate of 39%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the fifteen (15) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the OTCQB, OTCQX, Pink Sheets electronic quotation system or applicable trading market (the “OTC”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTC is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets”. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTC, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

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1.3 Authorized Shares . The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved eight times the number of shares that would be issuable upon full conversion of the Note (assuming that the 4.99% limitation set forth in Section 1.1 is not in effect)(based on the respective Conversion Price of the Note (as defined in Section 1.2) in effect from time to time, initially 110,330,470)(the “Reserved Amount”) . The Reserved Amount shall be increased (or decreased with the written consent of the Holder) from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion .

 

(a) Mechanics of Conversion . As set forth in Section 1.1 hereof, from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower (upon payment in full of any amounts owed hereunder).

 

(b) Surrender of Note Upon Conversion . Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.

 

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(c) Delivery of Common Stock Upon Conversion . Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations hereunder, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.

 

(d) Delivery of Common Stock by Electronic Transfer . In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions set forth herein, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

(e) Failure to Deliver Common Stock Prior to Deadline . Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline due to action and/or inaction of the Borrower, the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock (the “Fail to Deliver Fee”); provided; however that the Fail to Deliver Fee shall not be due if the failure is a result of a third party (i.e., transfer agent; and not the result of any failure to pay such transfer agent) despite the best efforts of the Borrower to effect delivery of such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(e) are justified.

 

1.5 Concerning the Shares . The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless: (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration (such as Rule 144 or a successor rule) (“Rule 144”); or (iii) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).

 

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Any restrictive legend on certificates representing shares of Common Stock issuable upon conversion of this Note shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if the Borrower or its transfer agent shall have received an opinion of counsel from Holder’s counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that (i) a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected; or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act; or otherwise may be sold pursuant to an exemption from registration. In the event that the Company does not reasonably accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration (such as Rule 144), at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 Effect of Certain Events .

 

(a) Effect of Merger, Consolidation, Etc . At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III). “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

(b) Adjustment Due to Merger, Consolidation, Etc . If, at any time when this Note is issued and outstanding and prior to conversion of all of the Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, ten (10) days prior written notice (but in any event at least five (5) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Note. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

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(c) Adjustment Due to Distribution . If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

1.7 Prepayment . Notwithstanding anything to the contrary contained in this Note, at any time during the periods set forth on the table immediately following this paragraph (the “Prepayment Periods”), the Borrower shall have the right, exercisable on not more than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.7. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to Holder, or upon the direction of the Holder as specified by the Holder in a writing to the Borrower (which shall direction to be sent to Borrower by the Holder at least one (1) business day prior to the Optional Prepayment Date). If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash equal to the percentage (“Prepayment Percentage”) as set forth in the table immediately following this paragraph opposite the applicable Prepayment Period, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Section 1.4 hereof (the “Optional Prepayment Amount”). If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.7.

 

Prepayment Period   Prepayment Percentage
     
1. The period beginning on the Issue Date and ending on the date which is thirty (30) days following the Issue Date.   115%
     
2. The period beginning on the date which is thirty-one (31) days following the Issue Date and ending on the date which is sixty (60) days following the Issue Date.   120%

 

 

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3. The period beginning on the date which is sixty-one (61) days following the Issue Date and ending on the date which is ninety (90) days following the Issue Date.   125%
     
4. The period beginning on the date that is ninety-one (91) day from the Issue Date and ending one hundred twenty (120) days following the Issue Date.   130%
     
5. The period beginning on the date that is one hundred twenty-one (121) day from the Issue Date and ending one hundred fifty (150) days following the Issue Date.   135%
     
6. The period beginning on the date that is one hundred fifty-one (151) day from the Issue Date and ending one hundred eighty (180) days following the Issue Date.   140%

 

 

After the expiration of one hundred eighty (180) days following the Issue Date, the Borrower shall have no right of prepayment.

 

ARTICLE II. CERTAIN COVENANTS

 

2.1 Sale of Assets . So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

 

ARTICLE III. EVENTS OF DEFAULT

 

If any of the following events of default (each, an “Event of Default”) shall occur:

 

3.1 Failure to Pay Principal and Interest . The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity or upon acceleration and such breach continues for a period of five (5) days after written notice from the Holder.

 

3.2 Conversion and the Shares . The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty-eight (48) hours of a demand from the Holder.

 

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3.3 Breach of Covenants . The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of twenty (20) days after written notice thereof to the Borrower from the Holder.

 

3.4 Breach of Representations and Warranties . Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.5 Receiver or Trustee . The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.6 Bankruptcy . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.7 Delisting of Common Stock . The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTC (which specifically includes the quotation platforms maintained by the OTC Markets Group) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.8 Failure to Comply with the Exchange Act . The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

3.9 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.10 Cessation of Operations . Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

 

3.11 Financial Statement Restatement . The restatement of any financial statements filed by the Borrower with the SEC at any time after 180 days after the Issuance Date for any date or period until this Note is no longer outstanding, if the result of such restatement would, by comparison to the un-restated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

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3.12 Replacement of Transfer Agent . In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

 

3.13 Cross-Default . Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.7, 3.8, 3.10, 3.11, 3.12, 3.13, and/or 3.14 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

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If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

 

ARTICLE IV. MISCELLANEOUS

 

4.1 Failure or Indulgence Not Waiver . No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2 Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

 

If to the Borrower, to:

 

REALBIZ MEDIA GROUP, INC.

9711 Washingtonian Blvd #550

Gaithersburg , MD 20850

Attn: Anshu Bhatnagar, Chief Executive Officer

Fax:

Email: anshub@realbizmedia.com

 

If to the Holder:

 

POWER UP LENDING GROUP LTD.

111 Great Neck Road, Suite 214

Great Neck, NY 11021

Attn: Curt Kramer, Chief Executive Officer

e-mail: info@poweruplending.com

 

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With a copy by fax only to (which copy shall not constitute notice):

 

Naidich Wurman LLP

111 Great Neck Road, Suite 216

Great Neck, NY 11021

Attn: Allison Naidich

facsimile: 516-466-3555

e-mail: allison@nwlaw.com

 

4.3 Amendments . This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.4 Assignability . This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the Securities and Exchange Commission). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement; and may be assigned by the Holder without the consent of the Borrower.

 

4.5 Cost of Collection . If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.6 Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of Virginia without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens . The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note, any agreement or any other document delivered in connection with this Note by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

4.7 Purchase Agreement . By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.

 

4.8 Remedies . The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this on December 28, 2017

 

REALBIZ MEDIA GROUP, INC.

 

By:    
  Anshu Bhatnagar  
  Chief Executive Officer  

 

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EXHIBIT A — NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $_________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of REALBIZ MEDIA GROUP, INC., a Delaware corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of December 28, 2017 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

  [  ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
     
    Name of DTC Prime Broker:
    Account Number:
     
  [  ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

  POWER UP LENDING GROUP LTD.  
  111 Great Neck Road, Suite 214  
  Great Neck, NY 11021  
  Attention: Certificate Delivery  
  e-mail: info@poweruplendinggroup.com  

 

  Date of conversion:    
  Applicable Conversion Price: $  
  Number of shares of common stock to be issued pursuant to conversion of the Notes:    
  Amount of Principal Balance due remaining under the Note after this conversion:    

 

POWER UP LENDING GROUP LTD.  
     
By:    
Name: Curt Kramer  
Title: Chief Executive Officer  
Date:    

 

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NEITHER THIS NOTE NOR THE SECURITIES THAT MAY BE ISSUED BY THE COMPANY UPON CONVERSION HEREOF (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THE SECURITIES NOR ANY INTEREST OR PARTICIPATION THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED: (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT, OR APPLICABLE STATE SECURITIES LAWS; OR (II) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A FORM ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR; (III) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER THE 1933 ACT.

 

8% CONVERTIBLE PROMISSORY NOTE

 

MATURITY DATE OF MAY 2, 2018 *THE “MATURITY DATE”

 

$77,000 AUGUST 2, 2017 *THE “ISSUANCE DATE”

 

FOR VALUE RECEIVED , RealBiz Media Group Inc., a Delaware Corporation (the “Company” ) doing business in Gaithersburg, MD hereby promises to pay to the order of JSJ Investments Inc., an accredited investor and Texas Corporation, or its assigns (the “Holder” ), the principal amount of Seventy-Seven Thousand Dollars ($77,000) ( “Note” ), on demand of the Holder at any time on or after May 2, 2018 (the “Maturity Date” ), and to pay interest on the unpaid principal balance hereof at the rate of Eight Percent (8%) per annum (the “Interest Rate” ) commencing on the date hereof (the “Issuance Date” ).

 

1. Payments of Principal and Interest.

 

    a. Pre-Payment and Payment of Principal and Interest. The Company may pay this Note in full, together with any and all accrued and unpaid interest, plus any applicable pre-payment premium set forth herein and subject to the terms of this Section 1.a, at any time on or prior to the date which occurs 180 days after the Issuance Date hereof (the “Prepayment Date”). In the event the Note is not prepaid in full on or before the Prepayment Date, it shall be deemed a “Pre-Payment Default” hereunder. Until the Thirtieth (30th) day after the Issuance Date the Company may pay the principal at a cash redemption premium of 115%, in addition to outstanding interest, without the Holder’s consent; from the 31st day to the Sixtieth (60th) day after the Issuance Date, the Company may pay the principal at a cash redemption premium of 120%, without the Holder’s consent; from the 61st day to the Ninetieth (90th) day after the Issuance Date, the Company may pay the principal at a cash redemption premium of 125%, without the Holder’s consent; from the 91st day to the One Hundred and Twentieth (120th) day after the Issuance Date, the Company may pay the principal at a cash redemption premium of 130%, without the Holder’s consent; from the 121st day to the One Hundred and Fiftieth (150th) day after the Issuance Date, the Company may pay the principal at a cash redemption premium of 135%, without the Holder’s consent; from the 151st day to the Prepayment Date, the Company may pay the principal at a cash redemption premium of 140%, without the Holder’s consent. After the Prepayment Date up to the Maturity Date this Note shall have a cash redemption premium of 150% of the then outstanding principal amount of the Note, plus accrued interest and Default Interest (defined below), if any, which may only be paid by the Company upon Holder’s prior written consent. At any time on or after the Maturity Date, the Company may repay the then outstanding principal plus accrued interest and Default Interest, if any, to the Holder.
       
    b. Demand of Repayment. The principal and interest balance of this Note shall be paid to the Holder hereof on demand by the Holder at any time on or after the Maturity Date. The Default Amount (defined herein), if applicable, shall be paid to Holder hereof on demand by the Holder at any time such Default Amount becomes due and payable to Holder.
       
    c. Interest. This Note shall bear interest ( “Interest” ) at the rate of Eight Percent (8%) per annum from the Issuance Date until the same is paid, or otherwise converted in accordance with Section 2 below, in full and the Holder, at the Holder’s sole discretion, may include any accrued but unpaid Interest in the Conversion Amount. Interest shall commence accruing on the Issuance Date, shall be computed on the basis of a 365- day year and the actual number of days elapsed and shall accrue daily and, after the Maturity Date, compound quarterly. Upon an Event of Default, as defined in Section 10 below, the Interest Rate shall increase to Eighteen Percent (18%) per annum for so long as the Event of Default is continuing ( “Default Interest” ).

 

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    d. General Payment Provisions. This Note shall be paid in lawful money of the United States of America by check or wire transfer to such account as the Holder may from time to time designate by written notice to the Company in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. For purposes of this Note, “Business Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the State of Texas are authorized or required by law or executive order to remain closed.

 

2. Conversion of Note. At any time after the Issuance Date, the Conversion Amount (see Paragraph 2(a)(i)) of this Note shall be convertible into shares of the Company’s common stock (the “Common Stock” ) according to the terms and conditions set forth in this Paragraph 2.

 

  a. Certain Defined Terms. For purposes of this Note, the following terms shall have the following meanings:

 

  i. “Conversion Amount” means the sum of (a) the principal amount of this Note to be converted with respect to which this determination is being made, (b) Interest; and (c) Default Interest, if any, if so included at the Holder’s sole discretion.
     
  ii. “Conversion Price” means a 39% discount to the lowest trading price during the previous twenty (20) trading days to the date of a Conversion Notice.
     
  iii. “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.
     
  iv. “Shares” means the Shares of the Common Stock of the Company into which any balance on this Note may be converted upon submission of a “Conversion Notice” to the Company substantially in the form attached hereto as Exhibit 1.

 

  b. Holder’s Conversion Rights. At any time after the Issuance Date, the Holder shall be entitled to convert all of the outstanding and unpaid principal and accrued interest of this Note into fully paid and non-assessable shares of Common Stock in accordance with the stated Conversion Price. The Holder shall not be entitled to convert on a Conversion Date that amount of the Note in connection with that number of shares of Common Stock which would be in excess of the sum of the number of shares of Common Stock issuable upon the conversion of the Note with respect to which the determination of this provision is being made on a Conversion Date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such Conversion Date. For the purposes of the provision to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate conversions of 4.99% (“Conversion Limitation 1”). The Holder shall have the authority to determine whether the restriction contained in this Section 2(b) will limit any conversion hereunder, and accordingly, the Holder may waive the conversion limitation described in this Section 2(b) , in whole or in part, upon and effective after 61 days prior written notice to the Company to increase or decrease such percentage to any other amount as determined by Holder in its sole discretion (“Conversion Limitation 2”).
     
  c. Fractional Shares. The Company shall not issue any fraction of a share of Common Stock upon any conversion; if such issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share except in the event that rounding up would violate the conversion limitation set forth in section 2(b) above.
     
  d. Conversion Amount. The Conversion Amount shall be converted pursuant to Rule 144(b)(1)(ii) and Rule 144(d)(1)(ii) as promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended, into unrestricted shares at the Conversion Price.
     
  e. Mechanics of Conversion. The conversion of this Note shall be conducted in the following manner:

 

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  i. Holder’s Conversion Requirements. To convert this Note into shares of Common Stock on any date set forth in the Conversion Notice by the Holder (the “Conversion Date” ), the Holder shall transmit by email, facsimile or otherwise deliver, for receipt on or prior to 11:59 p.m., Eastern Time, on such date or on the next business day, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit 1 to the Company.
     
  ii. Company’s Response. Upon receipt by the Company of a copy of a Conversion Notice, the Company shall as soon as practicable, but in no event later than one (1) Business Day after receipt of such Conversion Notice, send, via email, facsimile or overnight courier, a confirmation of receipt of such Conversion Notice to such Holder indicating that the Company will process such Conversion Notice in accordance with the terms herein. Within two (2) Business Days after the date the Conversion Notice is delivered, the Company shall have issued and electronically transferred the shares to the Broker indicated in the Conversion Notice; should the Company be unable to transfer the shares electronically, it shall, within two (2) Business Days after the date the Conversion Notice was delivered, have surrendered to an overnight courier for delivery the next day to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder, for the number of shares of Common Stock to which the Holder shall be entitled.
     
  iii. Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.
     
  iv. Timely Response by Company. Upon receipt by Company of a Conversion Notice, Company shall respond within one business day to Holder confirming the details of the Conversion, and provide within two business days the Shares requested in the Conversion Notice.
     
  v. Liquidated Damages for Delinquent Response. If the Company fails to deliver for whatever reason (including any neglect or failure by, e.g., the Company, its counsel or the transfer agent) to Holder the Shares as requested in a Conversion Notice within five (5) business days of the Conversion Date, the Company shall be deemed in “Default of Conversion.” Beginning on the sixth (6th) business day after the date of the Conversion Notice, after the Company is deemed in Default of Conversion, there shall accrue liquidated damages (the “Conversion Damages”) of $1,000 per day for each day after the fifth business day until delivery of the Shares is made, and such penalty will be added to the Note being converted (under the Company’s and Holder’s expectation and understanding that any penalty amounts will tack back to the Issuance Date of the Note). The Parties agree that, at the time of drafting of this Note, the Holder’s damages as to the delinquent response are incapable or difficult to estimate and that the liquidated damages called for is a reasonable forecast of just compensation.
     
  vi. Liquidated Damages for Inability to Issue Shares. If the Company fails to deliver Shares requested by a Conversion Notice due to an exhaustion of authorized and issuable common stock such that the Company must increase the number of shares of authorized Common Stock before the Shares requested may be issued to the Holder, the discount set forth in the Conversion Price will be increased by 5 percentage points (i.e. from 40% to 45%) for the Conversion Notice in question and all future Conversion Notices until the outstanding principal and interest of the Note is converted or paid in full. These liquidated damages shall not render the penalties prescribed by Paragraph 2(e)(v) void, and shall be applied in conjunction with Paragraph 2(e)(v) unless otherwise agreed to in writing by the Holder. The Parties agree that, at the time of drafting of this Note, the Holder’s damages as to the inability to issue shares are incapable or difficult to estimate and that the liquidated damages called for is a reasonable forecast of just compensation.
     
  vii. Rescindment of Conversion Notice. If: (i) the Company fails to respond to Holder within one business day from the date of delivery of a Conversion Notice confirming the details of the Conversion, (ii) the Company fails to provide the Shares requested in the Conversion Notice within three business days from the date of the delivery of the Conversion Notice, (iii) the Holder is unable to procure a legal opinion required to have the Shares issued unrestricted and/or deposited to sell for any reason related to the Company’s standing with the SEC or FINRA, or any action or inaction by the Company, (iv) the Holder is unable to deposit the Shares requested in the Conversion Notice for any reason related to the Company’s standing with the SEC or FINRA, or any action or inaction by the Company, (v) if the Holder is informed that the Company does not have the authorized and issuable Shares available to satisfy the Conversion, or (vi) if OTC Markets changes the Company’s designation to ‘Limited Information’ (Yield), ‘No Information’ (Stop Sign), ‘Caveat Emptor’ (Skull and Crossbones), or ‘OTC’, ‘Other OTC’ or ‘Grey Market’ (Exclamation Mark Sign) on the day of or any day after the date of the Conversion Notice, the Holder maintains the option and sole discretion to rescind the Conversion Notice ( “Rescindment” ) by delivering a notice of rescindment to the Company in the same manner that a Conversion Notice is required to be delivered to the Company pursuant to the terms of this Note.

 

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  viii. Transfer Agent Fees and Legal Fees. The issuance of the certificates shall be without charge or expense to the Holder. The Company shall pay any and all Transfer Agent fees, legal fees, and advisory fees required for execution of this Note and processing of any Notice of Conversion, including but not limited to the cost of obtaining a legal opinion with regard to the Conversion. The Holder will deduct $2,000 from the principal payment of the Note solely to cover the cost of obtaining any and all legal opinions required to obtain the Shares requested in any given Conversion Notice. These fees do not make provision for or suffice to defray any legal fees incurred in collection or enforcement of the Note as described in Paragraph 13.
     
  ix. Conversion Right Unconditional. If the Holder shall provide a Notice of Conversion as provided herein, the Company’s obligations to deliver Common Stock shall be absolute and unconditional, irrespective of any claim of setoff, counterclaim, recoupment, or alleged breach by the Holder of any obligation to the Company.

 

3. Other Rights of Holder: Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities, cash or other assets with respect to or in exchange for Common Stock is referred to herein as “Organic Change.” Prior to the consummation of any (i) Organic Change or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the “Acquiring Entity” ) a written agreement (in form and substance reasonably satisfactory to the Holder) to deliver to Holder in exchange for this Note, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Note, and reasonably satisfactory to the Holder. Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance reasonably satisfactory to the Holder) to ensure that the Holder will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of the Note, such shares of stock, securities, cash or other assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the conversion of the Note as of the date of such Organic Change (without taking into account any limitations or restrictions on the convertibility of the Note set forth in Section 2(b) or otherwise). All provisions of this Note must be included to the satisfaction of Holder in any new Note created pursuant to this section.

 

  4. Representations and Warranties of the Company. In connection with the transactions provided for herein, the Company hereby represents and warrants to the Holder the following:

 

  a. Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.
     
  b. Authorization. All corporate action has been taken on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement. The Company has taken all corporate action required to make all of the obligations of the Company reflected in the provisions of this Agreement, valid and enforceable obligations. The shares of capital stock issuable upon conversion of the Note have been authorized or will be authorized prior to the issuance of such shares.

 

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  c. Fiduciary Obligations. The Company hereby represents that it intends to use the proceeds of the Note primarily for the operations of its business and not for any personal, family, or household purpose. The Company hereby represents that its board of directors, in the exercise of its fiduciary duty, has approved the execution of this Agreement based upon a reasonable belief that the proceeds of the Note provided for herein is appropriate for the Company after reasonable inquiry concerning its financial objectives and financial situation.
     
  d. Data Request Form. The Company hereby represents and warrants to Holder that all of the information furnished to Holder pursuant to the data request form ( “DRF” ) dated August 2, 2017 is true and correct in all material respects as of the date hereof.

 

5. Reservation of Shares. The Company shall at all times, so long as any principal amount of the Note is outstanding, reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Note, eight times the number of shares of Common Stock as shall at all times be sufficient to effect the conversion of all of the principal amount, plus Interest and Default Interest, if any, of the Note then outstanding ( “Share Reserve” ), unless the Holder stipulates otherwise in the “Irrevocable Reserve Letter.” So long as this Note is outstanding, upon written request of the Holder or via telephonic communication, the Company’s Transfer Agent shall furnish to the Holder the then-current number of common shares issued and outstanding, the then-current number of common shares authorized, the then-current number of unrestricted shares, and the then- current number of shares reserved for third parties.
     
6. Voting Rights. The Holder of this Note shall have no voting rights as a note holder, except as required by law, however, upon the conversion of any portion of this Note into Common Stock, Holder shall have the same voting rights as all other Common Stock holders with respect to such shares of Common Stock then owned by Holder.
     
7. Reissuance of Note. In the event of a conversion or redemption pursuant to this Note of less than all of the Conversion Amount represented by this Note, the Company shall promptly cause to be issued and delivered to the Holder, upon tender by the Holder of the Note converted or redeemed, a new note of like tenor representing the remaining principal amount of this Note which has not been so converted or redeemed and which is in substantially the same form as this Note, as set forth above.

 

  8. Default and Remedies.

 

  a. Event of Default . For purposes of this Note, an “Event of Default” shall occur upon:

 

  i. the Company’s default in the payment of the outstanding principal, Interest or Default Interest of this Note when due, whether at Maturity, acceleration or otherwise;
  ii. the occurrence of a Default of Conversion as set forth in Section 2(e)(v);
  iii. the failure by the Company for ten (10) days after notice to it to comply with any material provision of this Note not included in this Section 10(a);
  iv. the Company’s breach of any covenants, warranties, or representations made by the Company herein;
  v. any of the information in the DRF is false or misleading in any material respect;
  vi. the default by the Company in any Other Agreement entered into by and between the Company and Holder, for purposes hereof “Other Agreement” shall mean, collectively, all agreements and instruments between, among or by: (1) the Company, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including without limitation, promissory notes;
  vii. the cessation of operations of the Company;
  viii. the Company pursuant to or within the meaning of any Bankruptcy Law; (a) commences a voluntary case; (b) consents to the entry of an order for relief against it in an involuntary case; (c) consents to the appointment of a Custodian of it or for all or substantially all of its property; (d) makes a general assignment for the benefit of its creditors; or (e) admits in writing that it is generally unable to pay its debts as the same become due;
  ix. court of competent jurisdiction entering an order or decree under any Bankruptcy Law that: (a) is for relief against the Company in an involuntary case; (b) appoints a Custodian of the Company or for all or substantially all of its property; or (c) orders the liquidation of the Company or any subsidiary, and the order or decree remains unstayed and in effect for thirty (30) days;
  x. the Company files a Form 15 with the SEC;
  xi. the Company’s failure to timely file all reports required to be filed by it with the Securities and Exchange Commission;

 

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  xii. the Company’s failure to timely file all reports required to be filed by it with OTC Markets to remain a “Current Information” designated company;
  xiii. the Company’s Common Stock is reported as “No Inside” by OTC Markets at any time while any principal, Interest or Default Interest under the Note remains outstanding;
  xiv. the Company’s failure to maintain the required Share Reserve pursuant to the terms of the Irrevocable Reserve Letter and Letter of Instructions to the Transfer Agent;
  xv. the Company directs its transfer agent not to transfer, or delays, impairs, or hinders its transfer agent in transferring or issuing (electronically or in certificated form) any certificate for Shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw and stop transfer instructions) on any certificate for any Shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor its obligations pursuant to a Conversion Notice submitted by the Holder) and any such failure shall continue uncured for three (3) Business Days after the Conversion Notice has been delivered to the Company by Holder;
  xvi. the Company’s failure to remain current in its billing obligations with its transfer agent and such delinquency causes the transfer agent to refuse to issue Shares to Holder pursuant to a Conversion Notice;
  xvii. the Company effectuates a reverse split of its Common Stock and fails to provide twenty (20) days prior written notice to Holder of its intention to do so; or
  xviii. OTC Markets changes the Company’s designation to ‘No Information’ (Stop Sign), ‘Caveat Emptor’ (Skull and Crossbones), or ‘OTC’, ‘Other OTC’ or ‘Grey Market’ (Exclamation Mark Sign).
  xix. Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Securities Exchange Act of 1934) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 40% of the voting securities of the Company, (b) the Company merges into or consolidates with any other Person, as that term is defined in the Securities Act of 1933, as amended, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 60% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Issuance Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound .
  xx. Altering the conversion terms of any notes that are currently outstanding.

 

The Term “Bankruptcy Law” means Title 11, U.S. Code, or any similar Federal or State Law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

 

  b. Remedies. If an Event of Default occurs, the Holder may in its sole discretion determine to request immediate repayment of all or any portion of the Note that remains outstanding; at such time the Company will be required to pay the Holder the Default Amount (defined herein) in cash. For purposes hereof, the “Default Amount” shall mean the lesser of: i) the product of (A) the then outstanding principal amount of the Note, plus accrued Interest and Default Interest, divided by (B) the Conversion Price as determined on the Issuance Date, multiplied by (C) the highest price at which the Common Stock traded at any time between the Issuance Date and the date of the Event of Default, or ii) the original face value of the Note plus accrued interest times a multiple of three (3). If the Company fails to pay the Default Amount within five (5) Business Days of written notice that such amount is due and payable, then Holder shall have the right at any time, so long as the Company remains in default (and so long and to the extent there are a sufficient number of authorized but unissued shares), to require the Company, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Company equal to the Default Amount divided by the Conversion Price then in effect.

 

  6  

 

 

 

  9. Vote to Change the Terms of this Note. This Note and any provision hereof may only be amended by an instrument in writing signed by the Company and the Holder.
     
  10. Lost or Stolen Note. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of an indemnification undertaking by the Holder to the Company in a form reasonably acceptable to the Company and, in the case of mutilation, upon surrender and cancellation of the Note, the Company shall execute and deliver a new Note of like tenor and date and in substantially the same form as this Note; provided, however, the Company shall not be obligated to re-issue a Note if the Holder contemporaneously requests the Company to convert such remaining principal amount, plus accrued Interest and Default Interest, if any, into Common Stock.
     
  11. Payment of Collection, Enforcement and Other Costs. If: (i) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (ii) an attorney is retained to represent the Holder of this Note in any bankruptcy, reorganization, receivership or other proceedings affecting creditors’ rights and involving a claim under this Note, then the Company shall pay to the Holder all reasonable attorneys’ fees, costs and expenses incurred in connection therewith, in addition to all other amounts due hereunder.
     
  12. Cancellation. After all principal, accrued Interest and Default Interest, if any, at any time owed on this Note has been paid in full or otherwise converted in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.
     
  13. Waiver of Notice. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note.

 

  14. Governing Law. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the laws of the State of Texas, without giving effect to provisions thereof regarding conflict of laws. Each party hereby irrevocably submits to the non- exclusive jurisdiction of the state and federal courts sitting in Texas for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by sending, through certified mail or overnight courier, a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
     
  15. Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including a decree of specific performance and/or other injunctive relief), and no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit the Holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).
     
  16. Specific Shall Not Limit General; Construction. No specific provision contained in this Note shall limit or modify any more general provision contained herein. This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof.

 

  7  

 

 

 

  17. Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude further exercise thereof or of any other right, power or privilege.
     
  18. Partial Payment. In the event of partial payment by the Holder, the principal sum due to the Holder shall be prorated based on the consideration actually paid by the Holder such that the Company is only required to repay the amount funded and the Company is not required to repay any unfunded portion of this Note, with the exception of any OID contemplated herein.
     
  19. Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects herein. None of the terms of this Agreement can be waived or modified, except by an express agreement signed by all Parties hereto.
     
  20. Additional Representations and Warranties. The Company expressly acknowledges that the Holder, including but not limited to its officer, directors, employees, agents, and affiliates, have not made any representation or warranty to it outside the terms of this Agreement. The Company further acknowledges that there have been no representations or warranties about future financing or subsequent transactions between the parties.
     
  21. Notices. All notices and other communications given or made to the Company pursuant hereto shall be in writing (including facsimile or similar electronic transmissions) and shall be deemed effectively given: (i) upon personal delivery, (ii) when sent by electronic mail or facsimile, as deemed received by the close of business on the date sent, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery. All communications shall be sent either by email, or fax, or to the email address or facsimile number set forth on the signature page hereto. The physical address, email address, and phone number provided on the signature page hereto shall be considered valid pursuant to the above stipulations; should the Company’s contact information change from that listed on the signature page, it is incumbent on the Company to inform the Holder.
     
  22. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the rest of the Agreement shall be enforceable in accordance with its terms.
     
  23. Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it will not seek to claim or take advantage of any law that would prohibit or forgive the Company from paying all or a portion of the principal, Interest or Default Interest on this Note.

 

24. Successors and Assigns. This Agreement shall be binding upon all successors and assigns hereto.

 

— SIGNATURE PAGE TO FOLLOW —

 

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IN WITNESS WHEREOF, the Company has caused this Note to be signed by its CEO, on and as of the Issuance Date.

 

COMPANY  
     
Signature:    
     
By: Anshu Bhatnagar  
     
Title: CEO  
     
Address: 9841 Washingtonian Blvd, Suite 390  
  Gaithersburg MD 20878  
     
     
Email anshub@realbizmedia.com  
     
Phone: (301) 329-2700  
     
Facsimile:    

 

JSJ Investments Inc.

 

Signature:

 

Sameer Hirji, President

JSJ Investments Inc.

10830 North Central Expressway, Suite 152

Dallas TX 75231

888-503-2599

 

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Exhibit 1

 

Conversion Notice

 

Reference is made to the 8% Convertible Note issued by RealBiz Media Group Inc. (the “Note”), dated August 2, 2017 in the principal amount of $77,000 with 8% interest. This note currently holds a principal balance of $77,000. The features of conversion stipulate a Conversion Price equal to a 39% discount to the lowest trading price during the previous twenty (20) trading days to the date of a Conversion Notice, pursuant to the provisions of Section 2(a)(ii) in the Note.

 

In accordance with and pursuant to the Note, the undersigned hereby elects to convert $            of the principal/interest balance of the Note, indicated below into shares of Common Stock (the “Common Stock”), of the Company, by tendering the Note specified as of the date specified below.

 

Date of Conversion: ________  
   
Please confirm the following information:
Conversion Amount: $ ________________
Conversion Price: $ ____________  ( ____ % discount from $ ______________)
Number of Common Stock to be issued:  
Current Issued/Outstanding:  

 

If the Issuer is DWAC eligible, please issue the Common Stock into which the Note is being converted in the name of the Holder of the Note and transfer the shares electronically to:

 

[BROKER INFORMATION]

 

Holder Authorization:

 

JSJ Investments Inc.

10830 North Central Expressway, Suite 152    * Do not send certificates to this address

Dallas, TX 75231

888-503-2599

Tax ID: 20-2122354

 

Sameer Hirji, President

 

[DATE]

 

[CONTINUED ON NEXT PAGE]

 

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PLEASE BE ADVISED, pursuant to Section 2(e)(ii) of the Note, “Upon receipt by the Company of a copy of the Conversion Notice, the Company shall as soon as practicable, but in no event later than one (1) Business Day after receipt of such Conversion Notice, SEND, VIA EMAIL, FACSIMILE OR OVERNIGHT COURIER, A CONFIRMATION OF RECEIPT OF SUCH CONVERSION NOTICE TO SUCH HOLDER INDICATING THAT THE COMPANY WILL PROCESS SUCH CONVERSION NOTICE in accordance with the terms herein. Within two (2) Business Days after the date of the Conversion Confirmation, the Company shall have issued and electronically transferred the shares to the Broker indicated in the Conversion Notice; should the Company be unable to transfer the shares electronically, they shall, within two (2) Business Days after the date of the Conversion Confirmation, have surrendered to FedEx for delivery the next day to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder, for the number of shares of Common Stock to which the Holder shall be entitled.”

 

Signature:  
 
   
Anshu Bhatnagar  
CEO  
RealBiz Media Group Inc.  

 

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Exhibit 21.1

 

Subsidiaries

 

Verus Foods, Inc., a Nevada corporation

Verus Foods MENA Limited, a JAFZA offshore company

Verus Foods (Singapore) PTE. LTD., a Singapore private limited company

Gulf Agro Trading, LLC, a Dubai limited liability company 

RealBiz360, Inc., a Delaware corporation

RealBiz Media Group, Inc., a Florida corporation

EZ Flix, LLC, a Florida limited liability company

RealBiz Holdings Inc., a Canada corporation

RealBiz 360 Enterprise, Inc., a Canada corporation

 

 

 

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in the Registration Statement No. 333-206216 of our report dated March 26, 2018, with respect to the audited consolidated financial statements of RealBiz Media Group, Inc., for the years ended October 31, 2017 and 2016.

 

/s/ Assurance Dimensions  
Certified Public Accountants  
   
Coconut Creek, Florida  
March 26, 2018  

 

     

 

 

 

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Anshu Bhatnagar, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of RealBiz Media Group, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 26, 2018

 

/s/ Anshu Bhatnagar  
Anshu Bhatnagar  

Chief Executive Officer (Principal Executive Officer)

 

 

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Anshu Bhatnagar, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of RealBiz Media Group, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 26, 2018

 

/s/ Anshu Bhatnagar  
Anshu Bhatnagar  
 (Principal Financial and Accounting Officer)  

 

 

 

 

Exhibit 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

 

I, Anshu Bhatnagar., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of RealBiz Media Group, Inc. on Form 10-K for the period ended October 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of RealBiz Media Group, Inc.

 

Date: March 26, 2018

 

  By: /s/ Anshu Bhatnagar
  Name: Anshu Bhatnagar
  Title:

Chief Executive Officer (Principal Executive, Financial and Accounting Officer)