I will now turn the call over to RealBiz CEO, Ansh
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Posted On: 11/04/2018 10:17:01 AM
I will now turn the call over to RealBiz CEO, Anshu Bhatnagar. Please go ahead.
Anshu Bhatnagar
Thank you, Mark. By now most of you are aware that we signed a juice marketing deal with Disney giving us exclusive distribution rights for Disney-branded juice products in the United Arab Emirates and Oman. That single agreement with one of the most recognized companies in the history of consumer products should give you an idea of what can be in-store for Verus in the future. Signing any agreement with Disney is both an achievement and an honor because they maintain the highest standards in consumer product space.
Our agreement gives us exclusive distribution rights for all juice products bearing Disney characters and labels sold in these important GCC countries. This program will evolve over the next year and we are not yet prepared to put a dollar figure to that agreement, but we expect it will be a significant source of revenue. Disney characters have a wide appeal in this region and our agreement extends to all Disney-branded juice products.
So any juice box bearing characters from frozen or cars and any classic characters such as Mickey Mouse for example will now be handled by the Verus Distribution Network. As a background, the UAE has one of the fastest growing juice markets in the world for the last decade and juice is consumed at many meals during the day.
To give you an idea of the importance of juice in the region, by 2018 both Saudi Arabia and UAE are forecast to overtake North America in a per capita consumption of 100% juice products. So juice is a very important food category and we will represent the Disney name on products in one of the largest markets in the region.
Now for some operational commentary. This was another quarter without much revenue to show for our hard work, but with a tremendous number of accomplishments that will position us for the future. We understand and share the frustration of our shareholders who are impatient with the lack of revenue growth, particularly in the quarter that under different circumstances might have shown some improvement.
There has also been some confusion among investors in our new Vietnam business, which was not scheduled to start in Q3 and did not contribute to these results. We have collected all the questions, comments, and criticisms. We have received and plan to answer those as completely as we can during the course of this call.
If you charge judge the company by our revenues there isn't much to get excited about because we continue to operate in a maintenance mode. That is out of necessity, but it temporarily masks that tremendous infrastructure development. In just the last few months, we have added an independent board, a very experienced CFO from a multibillion dollar public company, two subsidiaries covering a wide swath of North Africa, the Middle East, and Asia; a banking relationship in Asia through Standard Chartered Bank; and just this week a very experienced group level CFO for the UAE's subsidiary.
Bringing in Piyush Munot as CFO to oversee our operations in the Middle East, Africa and Asia is a tremendous hire. We don't expect most investors to know some of the companies in the region, but Piyush was recently Group Finance Controller at a Division of Al Dahra Holdings, one of the leading sovereign wealth fund agri businesses in the UAE.
He has worked at major accounting firms such as KPMG and PWC, and is a US certified public accountant. He is also a great addition to our team and will help seamlessly integrate our overseas operations into our corporate accounting structure here in the US.
In less than two months, we have added a corporate CFO, Mark Lindsey with multibillion dollar public company experience, and now have a subsidiary CFO from one of the largest food business companies in the Middle East. I can't stress enough how important this depth to management will be to go our business internationally.
Anyone who examines our 10-Q will see that we are living frugally via monthly financing, while working diligently to arrange suitable working capital for expansion. That is not ideal, but we are keeping our expenses low, while we seek out financing that will not be a long-term handicap to our growth. These financing deals are a necessity of where we are as a stock, but we do not intend to allow these notes to convert.
We frequently get the question, why don't we just do a deal with an individual or small fund to kick-start our sales. The answer is, that courtrooms and investors do not mix. It’s not easy to arrange quality financing with lawsuits, always pushing its way into the conversation. We have had many offers on the table, nearly all of which contain either worse terms than the current financing or were extremely dilutive to current shareholders.
We would much rather give up some short-term profit in order to preserve our long-term ability to build shareholder value, but obviously this can't go on definitely and buying time is not the same as building a company. Despite this challenge, I can report that we are in late stage discussions with several entities to replace these short-term notes with more acceptable and much larger financing options.
I can't give details on this call, but our goal is to float a small debt offering that is not highly dilutive to current shareholders. We have an offer on the table with terms acceptable to us awaiting approval from a third party. That is about all I can say on this specific financing and it is not yet signed, but it would fix our financing problems for six months or longer and allow us to transition into a more traditional alliance of credit with commercial banks.
In anticipation of that day, we already have had discussions with international commercial banks and have been assured that Verus would easily qualify once our revenue rates hit a more commercial threshold. So the road is paved and we have a 100% confidence in the future sources of working capital once we establish some consistent sales. We are also negotiating trade credit agreements with selected customers and vendors that will shorten the terms of our capital requirements in an attempt to squeeze more sales out of our limited capital.
Of course financing is our number one impediment to growth, but not our number one problem. The key stumbling block is the same as the last two quarterly calls. The legacy fight between former RealBiz Management and Monaker Group. But let me just frame this in a way that I hope will earn some patients from everyone and a better understanding of our current situation and strategy.
The legacy RealBiz lawsuit and the two parties involved in this dispute Monaker Group and former CEO, Alex Aliksanyan have controlled both the pace and the tone of the negotiation to settle this dispute. Mr. Aliksanyan was originally expected to conclude this dispute by January 2017, and then by the time his contract ended March 31, 2017, thereby enabling us to perform a reverse split and spin-off of the real estate assets.
When no agreement was reached by that date Mr. Aliksanyan initiated a secondary lawsuit to gain control over the proceedings that further delayed our effort to move ahead with various foods as an independent entity and froze our ability to assume a lead role in negotiating an end to the dispute. Verus Foods essentially became a hostage to these proceedings unable to perform a reverse split, unable to force a settlement, and severely hampered all fundraising activities.
From our perspective, the dollar value of the lawsuit is less than what we expect to generate in profits during a single month in operations once we hit our run rate on just our current and unannounced orders. So these delays have been particularly frustrating and costly to all shareholders. Mr. Aliksanyan has a singular goal to press forward to potentially receive a cash settlement from Monaker to fund and continue the real estate operations.
The Verus part of the business has a singular focus to separate ourselves from these proceedings, but there is some potentially good news. A court ruling on August 30, 2017, in Montgomery County Circuit Court placed control of the Monaker Group litigation with the Real Estate Division. As a result, all future judgments, monetary awards, and cost associated with the case will be connected solely with the real estate division.
As a reminder to investors, the legacy Monaker lawsuit court date was recently changed from July 2017 to March 2018 and will be heard in the Florida Southern District Court. This could represent a significant positive enabling the real estate food division to pursue their individual goals as independent entities. Barring any foreseen delays from the participating parties, this should enable us to finally split the real estate and food units into separate companies in the very near future.
The real estate division will tentatively being named NestBuilder.com and will begin operating as a distinct company under the direction of Alex Aliksanyan while Verus Food division will operate as a separate public company under the direction of CEO, Anshu Bhatnagar. Shareholders of record at the time of the spin-off will own shares in both companies.
We believe a definitive split would give Verus enough separation from the real estate division and the lawsuits to enable us to finally move forward with financing and other as of yet unannounced plans that will lead to meaningful sales acceleration. This might be a good time to break for some financials. Unfortunately our new CFO, Mark Lindsey had previous arranged engagements and is travelling, so I will cover the financials today.
Although this was technically a record revenue quarter generating 1.15 million in sales, it was also an unfortunate reflection of the lack of working capital. With proper financing, we could have generated at least 15 million this quarter under our current and unsigned contracts. Our order backlog currently stands at 103 million and consists entirely of Buffalo meat contracts.
We have the potential and pending business in five other product categories. So these orders barely scratch the surface in terms of the diverse product offering available to us in our target markets. As a reminder, in my previous iteration of this business, poultry was a largest revenue category. Probably the most interesting item this quarter was the gross margin figure of 25.9%. Clearly this is very high for a food company and should not be extrapolated over the course of our future business.
We are running a very small staff and generating maintenance level sales, so expect gross margins to settle into the teens when we add more product lines with different margin profiles in the future. We have guided to profitability at around $5 million in annual sales, but have some flexibility on that and could hit breakeven at lower levels with the right product mix and further trade concessions from customers and suppliers.
Most of our financial metrics were similar to last quarter, but one line item increased and will remain higher as salaries and benefits line. We’re hiring key people such as our CFO, so our salaries and G&A will be a higher fixed cost going forward. However, in Q3, our net loss increased only 6% despite layering on more personnel. So we are being very prudent in our spending.
In Q2 2017 we put our money into marketing and set the stage for order growth. In Q3, we concentrated on building the organization. Our net loss of $170,914 was consistent with our current overhead being only modestly higher than can be supported by this very small revenue base. It doesn't take much imagination to see how quickly we could become profitable once our revenue increases.
The key takeaway is that we now have the right personnel in place to support a $100 million plus business with only fill in personnel to add as needed. So, incremental business can be leveraged of our current infrastructure very easily and profitably. It is important to remember we are profitable on every shipment in terms of gross margin. So our entire story revolves around scale.
We have fielded quite a few questions recently about our Vietnam Buffalo order, which was originally scheduled to start in August, but this temporarily delayed due to logistical issues with our end customer. We expect the orders to commence in the near future, but do not have a firm start date yet. This kind of delay is typical in the meat business in the region and provides evidence of the advantage of having contracts covering many food categories and geographies, our ultimate goal for Verus.
Right now the most important revenue item is a launch of our retail sector with the Disney juice distribution agreement, which involve some scaling up after launch and potentially involve a significant number of monthly containers or product. We previously spoke about our goal in 2017 to add business in four key sales category consisting of wholesale, van sales, HORECA, and retail sales. We started the year in wholesale.
We further added our own cold storage and started providing van sales. Then we added our own butchery and signed contracts with some large five-star hotels and entered the HORECA market, and now this Disney agreement gives us a tremendous first entree into the fourth category retail. So we have fulfilled our objective to target each of the most important food sales channels in our market.
Some skeptics might look at our work so far and see a cart before a horse, with minimal resources and evidence to realize our goals. We have consistently told investors that we are not standing still. So events over the last two months should offer proof that our game plan is progressing. Since July, we hired two highly regarded financial professionals both from leading firms on different continents.
We added three well-respected and dynamic board members. These aren’t figurehead board members, but industry professionals with a deep understanding of our business. And we have signed an exclusive distribution deal with Disney, one of the most respected brands in the world and a company known for being careful and thorough in choosing its partners.
I have been back and forth from Dubai, India, and the Far East at least five times this year already in an effort to ensure we have the infrastructure in place for success. So in this regard, we are ready. We would have not put this enormous effort if we didn’t think we could eventually overcome the few hurdles that still remain in front of us. So what scenarios can investors expect?
Our best case scenario involves a swift separation from our legacy business and lawsuits giving us ability to operate in an autonomous fashion with no outside interference or encumbrances. Under that scenario, we believe we can sign very acceptable working capital agreements. We have a contingency plan in place in case we experience further delays, each of which will ensure some level of growth.
In terms of goals we hope to achieve the following as quickly as possible. To separate the two companies giving various foods its own identity and autonomy, to negotiate agreements that will enable us to perform a reverse split making our stock more institutional, to finalize financing that will carry our sales through the 50 million mark and lay the groundwork for commercial lines of credit, to begin shipping at expected higher volumes under existing contracts, and finally to begin initiating orders under currently waiting for capital and other food categories such as frozen vegetables and poultry. All of these goals are achievable, so we are very optimistic and excited to enter this new stage in our business.
At this time, I would like to open up the calls to questions.
Question-and-Answer Session
Operator
[Operator Instructions] And we will take our first question from [indiscernible]. Please go ahead.
Unidentified Analyst
Hi good afternoon Anshu, congratulations on the Disney deal, obviously, and looks like we're getting some progress in the monitor front so congratulations to you and your team on that and hopefully we will have some better news looking forward to there. I have a few questions, I guess I will just take it one at a time rather than listing them up and making you kind of write them down. First is the Standard Chartered credit facility, can you just talk a little bit about, if you can the size of the facility and what’s backing it? Is it an AR an inventory backed facility or is there other kind of collateral that’s going against that?
Anshu Bhatnagar
No, it’s not really a trade facility in that regard. What we have done with Standard Chartered Bank is really, a program for discounting site LCs, which is not something that can happen here in the US. So, US banks don't discount. They can discount use on [indiscernible] which is basically an LC that has a term associated with it, but they won’t discount a side LC. So typically in a trade process what happens is, a customer will open a letter of credit to us and by the time we have to pay cash to our supplier, and by the time the product ships, and we can negotiate that LC and get paid, it can be anywhere between two weeks to 30 days.
And since it’s being paid on site, there is no discounting and what Standard Chartered Bank is willing to is discount that site LC and what that enables us to do is basically on that transaction get paid within five days, potentially, and so instead of on a call it $1 million a month order we can essentially with maybe $100,000 full fill that order by having the Standard Chartered relationship and the cost of that is negligible.
Unidentified Analyst
So does that apply both to your UAE business and also the new Vietnam deal?
Anshu Bhatnagar
Absolutely. So any LC business that is something we can move forward with. So the Vietnam deal is currently all on letters of credit, but you know we have other customers that are willing to pay on letter of credits as well and so those would apply to that as well.
Unidentified Analyst
Just to the point of Vietnam deal, so you mentioned it has gotten off to a slow start, are you actually shipping products there now or is that something that is going to occur later on in the year?
Anshu Bhatnagar
That’s going to occur later on hopefully soon. There was actually some delays on - logistical delays on the part of the customers, so nothing with respect to us or our supplier, we are ready to go there were some issues with the board there and what is going on. So that has actually resolved and now they are just waiting on timing and product mix. So hopefully we will get that started soon.
Unidentified Analyst
Okay great. With respect to your gross margin, so there was obviously a big uptick quarter-to-quarter, you touched on this kind of briefly, but I just want to understand that a little bit better, what drove the margin improvement because you basically had flat revenues quarter-to-quarter, was there a product mix issue, a customer mix issue or walls it just lower commodity prices that kind of you benefited from and captured that price benefit on your margin versus your customers?
Anshu Bhatnagar
Yes, so it is a combination being that overall revenue is not that high, we have our HORECA business line, which is actually quite high, and so the blend is making our margins a lot stronger, but as we increase our wholesale business, which is a function of our working capital, those margins are going to go down.
Unidentified Analyst
The pomegranate juice business, have you started distributing product yet for the company that you are representing?
Anshu Bhatnagar
Not yet. We do have a signed agreement and this was kind of one of the catalyst for the Disney as well, and so we are almost waiting for getting both of these products at the same time because this allows us to sort of get into the retail space with beverages. And bringing in Disney is a lot stronger. It doesn't take much to sell the Disney brand as it would to establishing a new brand. So this is something that worked out well and we are timing it sort of to launch both at the same time.
Unidentified Analyst
So just directionally, just taking through these kind of larger branded kind of distribution opportunities like Disney and pomegranate deal, should investors be thinking about those kind of being large revenue opportunities perhaps lower than overall kind of gross margin and probably lower OpEx I would imagine as well. So, the net margin benefit may be you kind of, the same as your core business, but it will tend to be a different mix of margin components?
Anshu Bhatnagar
Yes, the margin and retail was pretty high, compared to wholesale and maybe not as high as HORECA business, but it is pretty high. And really what this does and the way investors should look at this is, once you are in the retail, it is hard getting into retail. Once I, like looking at the US for example, and once I am registered to sell to say Safeway or whole foods that is the hard part. And once I am in there, I can start selling other product lines. And that is the same in the markets we are in and as we get into these retail space this will open up just a flood of suppliers that want to sell their products into this region.
There is just hundreds of US companies that would love to have their products and retail stores in Dubai and have no way of getting that done. And for us this is a great entrée and once we have that distribution, the retail distribution channel setup, it is going to really open the doors for us in a tremendous way, and lot of these suppliers are willing to pay for all the fees, all the marketing fees, all the advertising and promotion fees or listing fees, and it is really having that channel being in those distribution channels that would allow us to really bring on that additional revenue. And Disney is a great entrée for us to get into all these retail channels.
Unidentified Analyst
So is Disney already - Disney brand has used products in this country or are you kind of opening this up for them?
Anshu Bhatnagar
They are there, but not in a big way. So it is not something that was, you know of any substance. So the previous attempt they weren't very successful at. So we are actually going to be moving forward in a very substantial way with them.
Unidentified Analyst
Just similar earlier with the pomegranate juice manufacturer are opening up these markets for them on a geographic basis?
Anshu Bhatnagar
Exactly. They were also in that market in the past, but again we will be handling their entire distribution moving forward.
Unidentified Analyst
Okay, great. With respect to the convertible notes and you address this issue partly based on, I think I understand it a little bit better, you mentioned that it is the company’s intention not to incur any kind of incremental dilution as these notes kind of come up for conversion. I think a lot of investors are just kind of concerned because it was like hundreds of millions of shares reserved for convertible note issuance in the converts and I know in the case of the power up tranche, which was the first tranche I guess to come up for possible repayment, you took care of that and you kind of rolled it over and bought it back on to the balance sheet, although it didn't show up in the quarter obviously because it is post quarter end, but just in terms of timing, so when we have these kind of repayment dates is that the date we should kind of consider if you haven't prepaid by that point then to give the hold or the opportunity to convert this doc should they choose to do so?
Anshu Bhatnagar
Yes, I believe you are correct on that.
Unidentified Analyst
There was prepayment day and a conversion day and that’s, I think some of those are kind of confused what the differences between the two, so I wanted to kind of clarify that.
Anshu Bhatnagar
I think you are correct on that, but again it is our intent to kind of stay ahead of this and you know, it is not our intent to let this convert, but we are going to sort of see where we are at that point and kind of make a decision, but our intent is to like what we did with Power Up as to not let them convert, and essentially roll it over if we have to.
Unidentified Analyst
Okay. And my final question is in regards to the spin-off, so we are obviously all very excited about the possibility of doing this, I am just curious, what are the steps that need to occur between now and obviously completing that and what could be some of the possible stumbling box, just so we are aware that because obviously we have had a bunch of capital market setback since you took over the business, so I just want to kind of make sure I understand clearly what needs to get done before you can affect the spin-off?
Anshu Bhatnagar
I think the first step is getting the terms negotiated with the spin-off entity. So we are actually very, very close on that. As far as my understanding is, we're pretty much there, we have all our spin-off agreement negotiated and I think there is some minor loose ends that were just kind of tightening up. I just got back from Dubai yesterday and, or day before yesterday and just we will follow up and see where things are left off, but I’m hoping that’s the first step is getting an agreement done.
And once that is there and we sort of execute the spin-off agreement at that point, we can just start moving forward, I think they will have a shareholder that pulled a Noble report, get the shareholder of record at that date and essentially go and file with the SEC to - I think they file a Form 10 and move forward in setting up the entity and all that, so it is getting moved into the new entity.
Unidentified Analyst
Okay, I just have one follow-up question and I will let somebody else take over after this, but the $78 million UAE deal, obviously I mentioned to you that you’ve only delivered to million of revenue against this deal, are the customers still okay with the kind of locked up progress in terms of delivering as our contract, or are there any kind of issues as far as them kind of wondering if you guys can actually deliver?
Anshu Bhatnagar
Yes. So that is, I was there just as I said last week I was there, I met my Saudi Arabian - customer actually came down from Saudi Arabia to meet me. We discussed this, we are trying to work, you know with all our customers we are trying to - for all the submarkets we’re trying to work on how can we get this done, they understand where we are, they want the product, but we saw of a good relationship and we’re trying to work out a solution on how we can get them to product at the same time over come our financing issue that we have.
So, I think in certain cases we - at least with the Saudi counterpart, I think we have a solution that might work. That is something we are going to move forward. They are willing to come up with, you know meet us halfway and hopefully we can do something similar that we are trying to do with Vietnam, with Saudi Arabia and start the shipments through Saudi Arabia immediately. So that’s something we are working on. We have had similar dialogue with all the other, sort of markets as well. Qatar is right now of the list, but everyone else we are still talking to.
Unidentified Analyst
Okay, great. Well I appreciate you indulging me and best of luck.
Anshu Bhatnagar
Thank you.
Operator
And we'll take our next question from James Rhodes. Please go ahead sir. And Mr. Rhodes your line is open if you have a question or comment today. Please check your mute button. Mr. Rhodes your line is open. [Operator Instructions] And we do have a question from Frederick Burton [ph]. Please go ahead sir.
Unidentified Analyst
Yes. When you do the spin-off you are going to spin-off the real estate division and real business and RealBiz is going to stay intact can be Verus, is that correct?
Anshu Bhatnagar
That’s correct.
Unidentified Analyst
Okay. So you will be able to take advantage of the tax situation that’s there in RealBiz going forward, correct?
Anshu Bhatnagar
Correct, absolutely.
Unidentified Analyst
Okay, terrific. When do you anticipate the spin-off versus selling or lesser?
Anshu Bhatnagar
I am not, I was hoping it would be done already, but I am feeling pretty optimistic, I think as I mentioned we have an agreement that is pretty much done at this point, and I am fairly optimistic that we will get this executed then I will have positive feedback shortly.
Unidentified Analyst
I see. So anybody who is a share holder of RealBiz now or in the future will participate in Verus Foods growth, correct Alex?
Anshu Bhatnagar
Yes. Absolutely. That won't change at all. You would also have shares in the spun-off entity which is related [indiscernible]. Nothing changes from - as far as your shares in RealBiz and Verus Foods is concerned.
Unidentified Analyst
In other words anyone who becomes a shareholder of RealBiz in the future after your spin-off will share in the growth of Verus that’s all I wanted to know?
Anshu Bhatnagar
Absolutely.
Unidentified Analyst
Okay, terrific. Thank you, Anshu. Appreciate it. I will speak to you soon.
Operator
And Mr. Rhodes has returned and has a question. Sir your line is open. And Mr. Rhodes again please check your mute function. And sir we are unable to hear you.
Unidentified Analyst
Yes, is that better?
Operator
Yes, thank you.
Unidentified Analyst
Anshu how are you? Jim Rhodes [ph].
Anshu Bhatnagar
Hi, Jim.
Unidentified Analyst
Anshu I had a question regarding any insider buying? I know at this point, we have seen a very lack thereof any insider buying, was that because there has been some restrictions on the new hires or I was wondering if you can maybe touch based a little bit on why we haven't seen anything from anyone up to this point?
Anshu Bhatnagar
Yes, I think it is really - it is fairly new. I mean if you look at the board of directors they were just recently hired, we haven't even had our first board meeting yet with the new board. Our CFO just joined, this is the first, he literally was swamped in this queue. So, yes I mean, I think moving forward the things might change, but right now it is really just me as an insider. And I am still part of my earn-out agreement that I am bound by. So it’s kind of where things are right now, but I’m pretty sure that’s going to change in the future.
Unidentified Analyst
One last question. I know that today we saw the Disney announcement, and that looks on the surface like that could be potentially quite a nice contract for the company, are there other, I know you guys understand the full deck that you are playing with and little by little we are getting the story told from an outsider perspective and understanding everything that has been happening behind the scenes, is there other things that we should be stay tuned for that should be coming out over the next weeks and months ahead that possibly have already been signs you have been delivered it’s just not in the right time, so what everybody knows those developments?
Anshu Bhatnagar
Well there is a lot that’s going on, right. And just a tremendous amount and what we’re trying to do is, is manage our growth and our sort of obligations in terms of bringing on new business lines with the capital that we have. So as soon as the signs seen is sealed and delivered we will announce it, but we are actually holding off on signing additional orders until the timing is correct.
And Disney seemed appropriate because it allows us to get into certain markets in a big way, so we signed that, but there is a tremendous amount of opportunity that we are sitting on right now, and as we can sort of look at the financing of that along with sort of the opportunity we will go ahead and execute that. So on certain cases we would be able to get credit terms from the supplier and in that case we might move forward with those deals sooner than later.
Unidentified Analyst
Okay. Pleasure Anshu. Good luck with everything going forward.
Anshu Bhatnagar
Thank you.
Operator
[Operator Instructions] And there are no further questions at this time. And gentlemen I would like to turn the call back to you for any closing remarks.
Anshu Bhatnagar
Thank you, operator. We look forward to a conference call in the not so distant future under just the Verus Food name. We think we are very close to that possibility and we will keep investors informed regarding the timing of the spin-off and other important corporate events. Thank you again for joining us today.
Operator
And this concludes today's conference. Thank you for your participation. You may now disconnect.
Anshu Bhatnagar
Thank you, Mark. By now most of you are aware that we signed a juice marketing deal with Disney giving us exclusive distribution rights for Disney-branded juice products in the United Arab Emirates and Oman. That single agreement with one of the most recognized companies in the history of consumer products should give you an idea of what can be in-store for Verus in the future. Signing any agreement with Disney is both an achievement and an honor because they maintain the highest standards in consumer product space.
Our agreement gives us exclusive distribution rights for all juice products bearing Disney characters and labels sold in these important GCC countries. This program will evolve over the next year and we are not yet prepared to put a dollar figure to that agreement, but we expect it will be a significant source of revenue. Disney characters have a wide appeal in this region and our agreement extends to all Disney-branded juice products.
So any juice box bearing characters from frozen or cars and any classic characters such as Mickey Mouse for example will now be handled by the Verus Distribution Network. As a background, the UAE has one of the fastest growing juice markets in the world for the last decade and juice is consumed at many meals during the day.
To give you an idea of the importance of juice in the region, by 2018 both Saudi Arabia and UAE are forecast to overtake North America in a per capita consumption of 100% juice products. So juice is a very important food category and we will represent the Disney name on products in one of the largest markets in the region.
Now for some operational commentary. This was another quarter without much revenue to show for our hard work, but with a tremendous number of accomplishments that will position us for the future. We understand and share the frustration of our shareholders who are impatient with the lack of revenue growth, particularly in the quarter that under different circumstances might have shown some improvement.
There has also been some confusion among investors in our new Vietnam business, which was not scheduled to start in Q3 and did not contribute to these results. We have collected all the questions, comments, and criticisms. We have received and plan to answer those as completely as we can during the course of this call.
If you charge judge the company by our revenues there isn't much to get excited about because we continue to operate in a maintenance mode. That is out of necessity, but it temporarily masks that tremendous infrastructure development. In just the last few months, we have added an independent board, a very experienced CFO from a multibillion dollar public company, two subsidiaries covering a wide swath of North Africa, the Middle East, and Asia; a banking relationship in Asia through Standard Chartered Bank; and just this week a very experienced group level CFO for the UAE's subsidiary.
Bringing in Piyush Munot as CFO to oversee our operations in the Middle East, Africa and Asia is a tremendous hire. We don't expect most investors to know some of the companies in the region, but Piyush was recently Group Finance Controller at a Division of Al Dahra Holdings, one of the leading sovereign wealth fund agri businesses in the UAE.
He has worked at major accounting firms such as KPMG and PWC, and is a US certified public accountant. He is also a great addition to our team and will help seamlessly integrate our overseas operations into our corporate accounting structure here in the US.
In less than two months, we have added a corporate CFO, Mark Lindsey with multibillion dollar public company experience, and now have a subsidiary CFO from one of the largest food business companies in the Middle East. I can't stress enough how important this depth to management will be to go our business internationally.
Anyone who examines our 10-Q will see that we are living frugally via monthly financing, while working diligently to arrange suitable working capital for expansion. That is not ideal, but we are keeping our expenses low, while we seek out financing that will not be a long-term handicap to our growth. These financing deals are a necessity of where we are as a stock, but we do not intend to allow these notes to convert.
We frequently get the question, why don't we just do a deal with an individual or small fund to kick-start our sales. The answer is, that courtrooms and investors do not mix. It’s not easy to arrange quality financing with lawsuits, always pushing its way into the conversation. We have had many offers on the table, nearly all of which contain either worse terms than the current financing or were extremely dilutive to current shareholders.
We would much rather give up some short-term profit in order to preserve our long-term ability to build shareholder value, but obviously this can't go on definitely and buying time is not the same as building a company. Despite this challenge, I can report that we are in late stage discussions with several entities to replace these short-term notes with more acceptable and much larger financing options.
I can't give details on this call, but our goal is to float a small debt offering that is not highly dilutive to current shareholders. We have an offer on the table with terms acceptable to us awaiting approval from a third party. That is about all I can say on this specific financing and it is not yet signed, but it would fix our financing problems for six months or longer and allow us to transition into a more traditional alliance of credit with commercial banks.
In anticipation of that day, we already have had discussions with international commercial banks and have been assured that Verus would easily qualify once our revenue rates hit a more commercial threshold. So the road is paved and we have a 100% confidence in the future sources of working capital once we establish some consistent sales. We are also negotiating trade credit agreements with selected customers and vendors that will shorten the terms of our capital requirements in an attempt to squeeze more sales out of our limited capital.
Of course financing is our number one impediment to growth, but not our number one problem. The key stumbling block is the same as the last two quarterly calls. The legacy fight between former RealBiz Management and Monaker Group. But let me just frame this in a way that I hope will earn some patients from everyone and a better understanding of our current situation and strategy.
The legacy RealBiz lawsuit and the two parties involved in this dispute Monaker Group and former CEO, Alex Aliksanyan have controlled both the pace and the tone of the negotiation to settle this dispute. Mr. Aliksanyan was originally expected to conclude this dispute by January 2017, and then by the time his contract ended March 31, 2017, thereby enabling us to perform a reverse split and spin-off of the real estate assets.
When no agreement was reached by that date Mr. Aliksanyan initiated a secondary lawsuit to gain control over the proceedings that further delayed our effort to move ahead with various foods as an independent entity and froze our ability to assume a lead role in negotiating an end to the dispute. Verus Foods essentially became a hostage to these proceedings unable to perform a reverse split, unable to force a settlement, and severely hampered all fundraising activities.
From our perspective, the dollar value of the lawsuit is less than what we expect to generate in profits during a single month in operations once we hit our run rate on just our current and unannounced orders. So these delays have been particularly frustrating and costly to all shareholders. Mr. Aliksanyan has a singular goal to press forward to potentially receive a cash settlement from Monaker to fund and continue the real estate operations.
The Verus part of the business has a singular focus to separate ourselves from these proceedings, but there is some potentially good news. A court ruling on August 30, 2017, in Montgomery County Circuit Court placed control of the Monaker Group litigation with the Real Estate Division. As a result, all future judgments, monetary awards, and cost associated with the case will be connected solely with the real estate division.
As a reminder to investors, the legacy Monaker lawsuit court date was recently changed from July 2017 to March 2018 and will be heard in the Florida Southern District Court. This could represent a significant positive enabling the real estate food division to pursue their individual goals as independent entities. Barring any foreseen delays from the participating parties, this should enable us to finally split the real estate and food units into separate companies in the very near future.
The real estate division will tentatively being named NestBuilder.com and will begin operating as a distinct company under the direction of Alex Aliksanyan while Verus Food division will operate as a separate public company under the direction of CEO, Anshu Bhatnagar. Shareholders of record at the time of the spin-off will own shares in both companies.
We believe a definitive split would give Verus enough separation from the real estate division and the lawsuits to enable us to finally move forward with financing and other as of yet unannounced plans that will lead to meaningful sales acceleration. This might be a good time to break for some financials. Unfortunately our new CFO, Mark Lindsey had previous arranged engagements and is travelling, so I will cover the financials today.
Although this was technically a record revenue quarter generating 1.15 million in sales, it was also an unfortunate reflection of the lack of working capital. With proper financing, we could have generated at least 15 million this quarter under our current and unsigned contracts. Our order backlog currently stands at 103 million and consists entirely of Buffalo meat contracts.
We have the potential and pending business in five other product categories. So these orders barely scratch the surface in terms of the diverse product offering available to us in our target markets. As a reminder, in my previous iteration of this business, poultry was a largest revenue category. Probably the most interesting item this quarter was the gross margin figure of 25.9%. Clearly this is very high for a food company and should not be extrapolated over the course of our future business.
We are running a very small staff and generating maintenance level sales, so expect gross margins to settle into the teens when we add more product lines with different margin profiles in the future. We have guided to profitability at around $5 million in annual sales, but have some flexibility on that and could hit breakeven at lower levels with the right product mix and further trade concessions from customers and suppliers.
Most of our financial metrics were similar to last quarter, but one line item increased and will remain higher as salaries and benefits line. We’re hiring key people such as our CFO, so our salaries and G&A will be a higher fixed cost going forward. However, in Q3, our net loss increased only 6% despite layering on more personnel. So we are being very prudent in our spending.
In Q2 2017 we put our money into marketing and set the stage for order growth. In Q3, we concentrated on building the organization. Our net loss of $170,914 was consistent with our current overhead being only modestly higher than can be supported by this very small revenue base. It doesn't take much imagination to see how quickly we could become profitable once our revenue increases.
The key takeaway is that we now have the right personnel in place to support a $100 million plus business with only fill in personnel to add as needed. So, incremental business can be leveraged of our current infrastructure very easily and profitably. It is important to remember we are profitable on every shipment in terms of gross margin. So our entire story revolves around scale.
We have fielded quite a few questions recently about our Vietnam Buffalo order, which was originally scheduled to start in August, but this temporarily delayed due to logistical issues with our end customer. We expect the orders to commence in the near future, but do not have a firm start date yet. This kind of delay is typical in the meat business in the region and provides evidence of the advantage of having contracts covering many food categories and geographies, our ultimate goal for Verus.
Right now the most important revenue item is a launch of our retail sector with the Disney juice distribution agreement, which involve some scaling up after launch and potentially involve a significant number of monthly containers or product. We previously spoke about our goal in 2017 to add business in four key sales category consisting of wholesale, van sales, HORECA, and retail sales. We started the year in wholesale.
We further added our own cold storage and started providing van sales. Then we added our own butchery and signed contracts with some large five-star hotels and entered the HORECA market, and now this Disney agreement gives us a tremendous first entree into the fourth category retail. So we have fulfilled our objective to target each of the most important food sales channels in our market.
Some skeptics might look at our work so far and see a cart before a horse, with minimal resources and evidence to realize our goals. We have consistently told investors that we are not standing still. So events over the last two months should offer proof that our game plan is progressing. Since July, we hired two highly regarded financial professionals both from leading firms on different continents.
We added three well-respected and dynamic board members. These aren’t figurehead board members, but industry professionals with a deep understanding of our business. And we have signed an exclusive distribution deal with Disney, one of the most respected brands in the world and a company known for being careful and thorough in choosing its partners.
I have been back and forth from Dubai, India, and the Far East at least five times this year already in an effort to ensure we have the infrastructure in place for success. So in this regard, we are ready. We would have not put this enormous effort if we didn’t think we could eventually overcome the few hurdles that still remain in front of us. So what scenarios can investors expect?
Our best case scenario involves a swift separation from our legacy business and lawsuits giving us ability to operate in an autonomous fashion with no outside interference or encumbrances. Under that scenario, we believe we can sign very acceptable working capital agreements. We have a contingency plan in place in case we experience further delays, each of which will ensure some level of growth.
In terms of goals we hope to achieve the following as quickly as possible. To separate the two companies giving various foods its own identity and autonomy, to negotiate agreements that will enable us to perform a reverse split making our stock more institutional, to finalize financing that will carry our sales through the 50 million mark and lay the groundwork for commercial lines of credit, to begin shipping at expected higher volumes under existing contracts, and finally to begin initiating orders under currently waiting for capital and other food categories such as frozen vegetables and poultry. All of these goals are achievable, so we are very optimistic and excited to enter this new stage in our business.
At this time, I would like to open up the calls to questions.
Question-and-Answer Session
Operator
[Operator Instructions] And we will take our first question from [indiscernible]. Please go ahead.
Unidentified Analyst
Hi good afternoon Anshu, congratulations on the Disney deal, obviously, and looks like we're getting some progress in the monitor front so congratulations to you and your team on that and hopefully we will have some better news looking forward to there. I have a few questions, I guess I will just take it one at a time rather than listing them up and making you kind of write them down. First is the Standard Chartered credit facility, can you just talk a little bit about, if you can the size of the facility and what’s backing it? Is it an AR an inventory backed facility or is there other kind of collateral that’s going against that?
Anshu Bhatnagar
No, it’s not really a trade facility in that regard. What we have done with Standard Chartered Bank is really, a program for discounting site LCs, which is not something that can happen here in the US. So, US banks don't discount. They can discount use on [indiscernible] which is basically an LC that has a term associated with it, but they won’t discount a side LC. So typically in a trade process what happens is, a customer will open a letter of credit to us and by the time we have to pay cash to our supplier, and by the time the product ships, and we can negotiate that LC and get paid, it can be anywhere between two weeks to 30 days.
And since it’s being paid on site, there is no discounting and what Standard Chartered Bank is willing to is discount that site LC and what that enables us to do is basically on that transaction get paid within five days, potentially, and so instead of on a call it $1 million a month order we can essentially with maybe $100,000 full fill that order by having the Standard Chartered relationship and the cost of that is negligible.
Unidentified Analyst
So does that apply both to your UAE business and also the new Vietnam deal?
Anshu Bhatnagar
Absolutely. So any LC business that is something we can move forward with. So the Vietnam deal is currently all on letters of credit, but you know we have other customers that are willing to pay on letter of credits as well and so those would apply to that as well.
Unidentified Analyst
Just to the point of Vietnam deal, so you mentioned it has gotten off to a slow start, are you actually shipping products there now or is that something that is going to occur later on in the year?
Anshu Bhatnagar
That’s going to occur later on hopefully soon. There was actually some delays on - logistical delays on the part of the customers, so nothing with respect to us or our supplier, we are ready to go there were some issues with the board there and what is going on. So that has actually resolved and now they are just waiting on timing and product mix. So hopefully we will get that started soon.
Unidentified Analyst
Okay great. With respect to your gross margin, so there was obviously a big uptick quarter-to-quarter, you touched on this kind of briefly, but I just want to understand that a little bit better, what drove the margin improvement because you basically had flat revenues quarter-to-quarter, was there a product mix issue, a customer mix issue or walls it just lower commodity prices that kind of you benefited from and captured that price benefit on your margin versus your customers?
Anshu Bhatnagar
Yes, so it is a combination being that overall revenue is not that high, we have our HORECA business line, which is actually quite high, and so the blend is making our margins a lot stronger, but as we increase our wholesale business, which is a function of our working capital, those margins are going to go down.
Unidentified Analyst
The pomegranate juice business, have you started distributing product yet for the company that you are representing?
Anshu Bhatnagar
Not yet. We do have a signed agreement and this was kind of one of the catalyst for the Disney as well, and so we are almost waiting for getting both of these products at the same time because this allows us to sort of get into the retail space with beverages. And bringing in Disney is a lot stronger. It doesn't take much to sell the Disney brand as it would to establishing a new brand. So this is something that worked out well and we are timing it sort of to launch both at the same time.
Unidentified Analyst
So just directionally, just taking through these kind of larger branded kind of distribution opportunities like Disney and pomegranate deal, should investors be thinking about those kind of being large revenue opportunities perhaps lower than overall kind of gross margin and probably lower OpEx I would imagine as well. So, the net margin benefit may be you kind of, the same as your core business, but it will tend to be a different mix of margin components?
Anshu Bhatnagar
Yes, the margin and retail was pretty high, compared to wholesale and maybe not as high as HORECA business, but it is pretty high. And really what this does and the way investors should look at this is, once you are in the retail, it is hard getting into retail. Once I, like looking at the US for example, and once I am registered to sell to say Safeway or whole foods that is the hard part. And once I am in there, I can start selling other product lines. And that is the same in the markets we are in and as we get into these retail space this will open up just a flood of suppliers that want to sell their products into this region.
There is just hundreds of US companies that would love to have their products and retail stores in Dubai and have no way of getting that done. And for us this is a great entrée and once we have that distribution, the retail distribution channel setup, it is going to really open the doors for us in a tremendous way, and lot of these suppliers are willing to pay for all the fees, all the marketing fees, all the advertising and promotion fees or listing fees, and it is really having that channel being in those distribution channels that would allow us to really bring on that additional revenue. And Disney is a great entrée for us to get into all these retail channels.
Unidentified Analyst
So is Disney already - Disney brand has used products in this country or are you kind of opening this up for them?
Anshu Bhatnagar
They are there, but not in a big way. So it is not something that was, you know of any substance. So the previous attempt they weren't very successful at. So we are actually going to be moving forward in a very substantial way with them.
Unidentified Analyst
Just similar earlier with the pomegranate juice manufacturer are opening up these markets for them on a geographic basis?
Anshu Bhatnagar
Exactly. They were also in that market in the past, but again we will be handling their entire distribution moving forward.
Unidentified Analyst
Okay, great. With respect to the convertible notes and you address this issue partly based on, I think I understand it a little bit better, you mentioned that it is the company’s intention not to incur any kind of incremental dilution as these notes kind of come up for conversion. I think a lot of investors are just kind of concerned because it was like hundreds of millions of shares reserved for convertible note issuance in the converts and I know in the case of the power up tranche, which was the first tranche I guess to come up for possible repayment, you took care of that and you kind of rolled it over and bought it back on to the balance sheet, although it didn't show up in the quarter obviously because it is post quarter end, but just in terms of timing, so when we have these kind of repayment dates is that the date we should kind of consider if you haven't prepaid by that point then to give the hold or the opportunity to convert this doc should they choose to do so?
Anshu Bhatnagar
Yes, I believe you are correct on that.
Unidentified Analyst
There was prepayment day and a conversion day and that’s, I think some of those are kind of confused what the differences between the two, so I wanted to kind of clarify that.
Anshu Bhatnagar
I think you are correct on that, but again it is our intent to kind of stay ahead of this and you know, it is not our intent to let this convert, but we are going to sort of see where we are at that point and kind of make a decision, but our intent is to like what we did with Power Up as to not let them convert, and essentially roll it over if we have to.
Unidentified Analyst
Okay. And my final question is in regards to the spin-off, so we are obviously all very excited about the possibility of doing this, I am just curious, what are the steps that need to occur between now and obviously completing that and what could be some of the possible stumbling box, just so we are aware that because obviously we have had a bunch of capital market setback since you took over the business, so I just want to kind of make sure I understand clearly what needs to get done before you can affect the spin-off?
Anshu Bhatnagar
I think the first step is getting the terms negotiated with the spin-off entity. So we are actually very, very close on that. As far as my understanding is, we're pretty much there, we have all our spin-off agreement negotiated and I think there is some minor loose ends that were just kind of tightening up. I just got back from Dubai yesterday and, or day before yesterday and just we will follow up and see where things are left off, but I’m hoping that’s the first step is getting an agreement done.
And once that is there and we sort of execute the spin-off agreement at that point, we can just start moving forward, I think they will have a shareholder that pulled a Noble report, get the shareholder of record at that date and essentially go and file with the SEC to - I think they file a Form 10 and move forward in setting up the entity and all that, so it is getting moved into the new entity.
Unidentified Analyst
Okay, I just have one follow-up question and I will let somebody else take over after this, but the $78 million UAE deal, obviously I mentioned to you that you’ve only delivered to million of revenue against this deal, are the customers still okay with the kind of locked up progress in terms of delivering as our contract, or are there any kind of issues as far as them kind of wondering if you guys can actually deliver?
Anshu Bhatnagar
Yes. So that is, I was there just as I said last week I was there, I met my Saudi Arabian - customer actually came down from Saudi Arabia to meet me. We discussed this, we are trying to work, you know with all our customers we are trying to - for all the submarkets we’re trying to work on how can we get this done, they understand where we are, they want the product, but we saw of a good relationship and we’re trying to work out a solution on how we can get them to product at the same time over come our financing issue that we have.
So, I think in certain cases we - at least with the Saudi counterpart, I think we have a solution that might work. That is something we are going to move forward. They are willing to come up with, you know meet us halfway and hopefully we can do something similar that we are trying to do with Vietnam, with Saudi Arabia and start the shipments through Saudi Arabia immediately. So that’s something we are working on. We have had similar dialogue with all the other, sort of markets as well. Qatar is right now of the list, but everyone else we are still talking to.
Unidentified Analyst
Okay, great. Well I appreciate you indulging me and best of luck.
Anshu Bhatnagar
Thank you.
Operator
And we'll take our next question from James Rhodes. Please go ahead sir. And Mr. Rhodes your line is open if you have a question or comment today. Please check your mute button. Mr. Rhodes your line is open. [Operator Instructions] And we do have a question from Frederick Burton [ph]. Please go ahead sir.
Unidentified Analyst
Yes. When you do the spin-off you are going to spin-off the real estate division and real business and RealBiz is going to stay intact can be Verus, is that correct?
Anshu Bhatnagar
That’s correct.
Unidentified Analyst
Okay. So you will be able to take advantage of the tax situation that’s there in RealBiz going forward, correct?
Anshu Bhatnagar
Correct, absolutely.
Unidentified Analyst
Okay, terrific. When do you anticipate the spin-off versus selling or lesser?
Anshu Bhatnagar
I am not, I was hoping it would be done already, but I am feeling pretty optimistic, I think as I mentioned we have an agreement that is pretty much done at this point, and I am fairly optimistic that we will get this executed then I will have positive feedback shortly.
Unidentified Analyst
I see. So anybody who is a share holder of RealBiz now or in the future will participate in Verus Foods growth, correct Alex?
Anshu Bhatnagar
Yes. Absolutely. That won't change at all. You would also have shares in the spun-off entity which is related [indiscernible]. Nothing changes from - as far as your shares in RealBiz and Verus Foods is concerned.
Unidentified Analyst
In other words anyone who becomes a shareholder of RealBiz in the future after your spin-off will share in the growth of Verus that’s all I wanted to know?
Anshu Bhatnagar
Absolutely.
Unidentified Analyst
Okay, terrific. Thank you, Anshu. Appreciate it. I will speak to you soon.
Operator
And Mr. Rhodes has returned and has a question. Sir your line is open. And Mr. Rhodes again please check your mute function. And sir we are unable to hear you.
Unidentified Analyst
Yes, is that better?
Operator
Yes, thank you.
Unidentified Analyst
Anshu how are you? Jim Rhodes [ph].
Anshu Bhatnagar
Hi, Jim.
Unidentified Analyst
Anshu I had a question regarding any insider buying? I know at this point, we have seen a very lack thereof any insider buying, was that because there has been some restrictions on the new hires or I was wondering if you can maybe touch based a little bit on why we haven't seen anything from anyone up to this point?
Anshu Bhatnagar
Yes, I think it is really - it is fairly new. I mean if you look at the board of directors they were just recently hired, we haven't even had our first board meeting yet with the new board. Our CFO just joined, this is the first, he literally was swamped in this queue. So, yes I mean, I think moving forward the things might change, but right now it is really just me as an insider. And I am still part of my earn-out agreement that I am bound by. So it’s kind of where things are right now, but I’m pretty sure that’s going to change in the future.
Unidentified Analyst
One last question. I know that today we saw the Disney announcement, and that looks on the surface like that could be potentially quite a nice contract for the company, are there other, I know you guys understand the full deck that you are playing with and little by little we are getting the story told from an outsider perspective and understanding everything that has been happening behind the scenes, is there other things that we should be stay tuned for that should be coming out over the next weeks and months ahead that possibly have already been signs you have been delivered it’s just not in the right time, so what everybody knows those developments?
Anshu Bhatnagar
Well there is a lot that’s going on, right. And just a tremendous amount and what we’re trying to do is, is manage our growth and our sort of obligations in terms of bringing on new business lines with the capital that we have. So as soon as the signs seen is sealed and delivered we will announce it, but we are actually holding off on signing additional orders until the timing is correct.
And Disney seemed appropriate because it allows us to get into certain markets in a big way, so we signed that, but there is a tremendous amount of opportunity that we are sitting on right now, and as we can sort of look at the financing of that along with sort of the opportunity we will go ahead and execute that. So on certain cases we would be able to get credit terms from the supplier and in that case we might move forward with those deals sooner than later.
Unidentified Analyst
Okay. Pleasure Anshu. Good luck with everything going forward.
Anshu Bhatnagar
Thank you.
Operator
[Operator Instructions] And there are no further questions at this time. And gentlemen I would like to turn the call back to you for any closing remarks.
Anshu Bhatnagar
Thank you, operator. We look forward to a conference call in the not so distant future under just the Verus Food name. We think we are very close to that possibility and we will keep investors informed regarding the timing of the spin-off and other important corporate events. Thank you again for joining us today.
Operator
And this concludes today's conference. Thank you for your participation. You may now disconnect.
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