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,” “non-accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Our expectations are as of the date this Form 10-K is filed, and we do not intend to update any of the forward-looking
statements after the filing date to conform these statements to actual results, unless required by law.
We file annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and proxy and information statements and amendments to reports filed or furnished
pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. You may read and copy these materials
at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation
of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website
(
http
://www.sec.gov
)
that contains reports, proxy and information statements and other information regarding us and other companies that file materials
with the SEC electronically.
PART I
Item 1. Business.
Organizational History
Our predecessor, Maximus Exploration Corporation
was incorporated in the State of Nevada on December 29, 2005, and was a reporting shell company (“Maximus”). Extraordinary
Vacations Group, Inc. (“EXVG”) was incorporated in the State of Nevada, June 2004. Extraordinary Vacations USA Inc.
(“EVUSA”), EXVG’s wholly-owned subsidiary, is a Delaware corporation, incorporated on June 24, 2002. On October
9, 2008, EXVG agreed to sell 100% of EVUSA to Maximus and consummated a reverse merger with Maximus. Maximus then changed its
name to Next 1 Interactive, Inc. (“Next 1” or “Company”). The transaction is described below.
Pursuant to a Stock Purchase Agreement,
dated September 24, 2008, by and among Andriv Volianuk, a 90.7% stockholder of Maximus, EXVG and EVUSA, Mr. Volianuk sold his
5,000,000 shares of Maximus common stock, representing 100% of his shares, to EXVG for an aggregate purchase price of $200,000.
After the sale, Mr. Volianuk did not own any shares of Maximus. EXVG then reissued the 5,000,000 Maximus shares to the management
of EXVG in exchange for the cancellation of their preferred and common stock of EXVG under the same terms and conditions as that
offered to EXVG shareholders.
Pursuant to a share exchange agreement,
dated October 9, 2008, between Maximus, EXVG and EVUSA, EXVG exchanged 100% of its shares in EVUSA (the “EVUSA Shares”)
for 13 million shares of common stock of Maximus (the “Share Exchange”), resulting in EXVG becoming the majority shareholder
of Maximus. EXVG then proceeded to distribute the 13 million shares of Maximus common stock to the stockholders of EXVG (“EXVG
Stockholders”) and the management of EXVG, on a pro rata basis. As a result of these transactions, EVUSA became a wholly-owned
subsidiary of Maximus. Maximus then amended its Certificate of Incorporation to change its name to Next 1 and to authorize 200,000,000
shares of common stock, par value $0.00001 per share, and 100,000,000 shares of preferred stock, par value $0.00001 per share.
Such transactions are hereafter referred to as the “Acquisition.”
The purpose of the Acquisition was so
that Next 1 would become a fully reporting company with the U.S. Securities and Exchange Commission and have our stock quoted
on the Over-the-Counter Bulletin Board (the “OTCQB”).
At the time of the Acquisition, there
were 18,511,500 shares of common stock of Next 1 issued and outstanding, of which 13,000,000 were held by the EXVG Stockholders
and 5,000,000 were held by the management of Next 1 and 511,500 shares by the Company’s investors. Of the 13,000,000 shares
held by the former stockholders of EXVG, 5,646,765 shares were held by the executive officers and directors of Next 1.
On October 9, 2012, Next 1
and RealBiz Media Group, Inc., formerly known as Webdigs, Inc. (“Webdigs”), completed the transactions
contemplated by that certain Share Exchange Agreement entered into on April 4, 2012 (the “Exchange Agreement”).
Under the Exchange Agreement, our Company exchanged with Webdigs all of the outstanding equity in Attaché Travel
International, Inc., a Florida corporation and wholly owned subsidiary of Next 1 (“Attaché”).
Attaché owns approximately 85% of a corporation named RealBiz Holdings Inc. (“RealBiz”) which is the
parent corporation of RealBiz360, Inc. RealBiz is a real estate media services company with a proprietary video processing
technology that is used to provide virtual tours to the real estate industry. In
exchange for our Attaché shares, our Company received a total of 93 million shares of newly designated Series A
Convertible Preferred Stock (“Webdigs Series A Stock”). The exchange of Attaché shares for Webdigs Series
A Stock is referred to as the “Exchange Transaction.”
Executive Offices and Telephone Number
Our principal executive offices are located
at 2690 Weston Road, Suite 200, Weston, Florida 33331 and our telephone number is (954) 888-9779. Our web hosting operations are
based in Florida and at Rackspace Hosting, Inc., an off-site hosting facility.
Our Business
We are a media based company focusing
directly on the travel segment and indirectly through our 61% ownership interest in RealBiz Media Group, Inc. a publicly traded
real estate media company (“RealBiz”), on the real estate segment. The Company's and RealBiz’s mission has been
to both create and acquire travel and real estate video content that can be delivered on any screen (Television, web and mobile),
all with interactive advertising and transactional shopping components that engage and enable viewers to request information,
make purchases and get an in-depth look at products and services all through their device of choice.
Summary
Next 1 is a multi-faceted interactive
media company whose key focus is around what we believe to be two of the most universal, yet powerful consumer-passion categories
- real estate and travel. We are engaged in the business of providing digital media and marketing services for the travel industry
and, indirectly through RealBiz, for the real estate industry. We plan to deliver targeted content via digital platforms including
satellite, cable, broadcast, Broadband, Web, Print and Mobile. We currently generate revenue from commissions from (i) traditional
sales of our travel products as well as advertising revenue from preferred suppliers and sponsors and referral fees; (ii) travel
media services which include video monthly sponsorship packages, pre-roll advertising, commissions and referral fees; and (iii)
revenue derived from the real estate operations of RealBiz. We have three divisions: (x) our Maupintour Extraordinary Vacations,
which is the oldest tour operator in the United States; (y) NextTrip.com, a video and media website with state of the art booking
engines; (z) TripProfessionals.com, a trip professional membership program which is an at home agency program allowing the consumer
to customize and book travel while earning commission. In addition, RealBiz generates revenue from advertising revenues, real
estate broker commissions and referral fees. RealBiz also has three divisions: (i) its fully licensed real estate division (formerly
known as Webdigs, Inc.); (ii) its TV media contracts (Extraordinary Vacation Homes/ Third home) division; and (iii) its Real Estate
Virtual Tour and Media group (RealBiz 360). The cornerstone of all three divisions is the proprietary technology which allows
for an automated conversion of data (text and pictures of home listings) to a video with voice and music. At present the Company
operates travel companies and travel media services, RealBiz Media Group Inc., operates the Home Tour Network. The Home Tour Network
owns technology that allows it to create video from real estate agents home listings which can be featured on hundreds of relevant
real estate related websites, You Tube and VOD Television Networks in 2 cities on the Cox Communications Network and Comcast Cable
Network
While web and mobile video views continue
to grow exponentially (especially for the younger demographic) the Company still sees great value in television – especially
for the baby boomer generation. Television is enjoyed by all ages and the Cable Market is providing On Demand services for entertainment
and information at home. According to A.C. Nielson Co. “the average American watches more than four hours of TV each day,
or two months of nonstop TV watching per year. In a 65 year life, that person will have spent nine years glued to the tube.”
Cable reaches 70 million U.S. households penetrating 57 percent of the total TV households, and receiving $26 billion total advertising
in 2008, source is TV-Free America.
The Company’s plan is to expand
its revenue base by exploiting all avenues available to it on the Real Estate and Travel verticals – two channels where
it has expertise and knowledge. During the past year, the Company concentrated on restructuring, implementing Video on Demand
Solutions for both television and web. As a result we saw decreased revenues accompanied by significant increases in expenditures
to put the model in place.
Next 1 has expended significant capital
over the past two years in the creation of its interactive media platforms. The Company is targeting to have all platforms operational
by the second quarter of fiscal year 2015. The platforms should allow the Company to capture multiple revenue streams including
transactional commissions, referral fees, advertising and sponsorships. These media platforms have been designed to address the
Advertisers’ and Marketers’ needs to provide compelling content and a delivery system in the emerging convergent landscape
of the web, television and mobile platforms. Additionally, these integrated media platforms provide for the delivery of measurable
return on investment to its advertisers, sponsors and business partners.
The most expensive media platforms to
roll out will be the real estate portal that encompasses most of the real estate listings in video format as well as the VOD television
network - the HTN real estate channel branded as the Realtor.com Channel. The television properties are the key platforms that
differentiate the Company from our competition. The ability to launch a full time nationwide real estate VOD TV network that
reaches millions of households and can be accessed by millions of households on the device of their choice is unusual in the television
industry. The price of entry, the programming and advertising needs and the opportunity to enhance the multi-platform network
with interactive applications and VOD is truly unique.
Additionally, the Company has differentiated
itself from other media companies through its ownership and operation of businesses in its verticals - travel and real estate.
These businesses not only afford the Company multiple industry relationships and affiliations, but further provide industry licenses
that should allow the Company to capture sales commissions and referral fees from products advertised and sold through its media
platforms. This is a distinct advantage that will provide new revenue streams in addition to the traditional marketing and advertising
revenues for both the travel and real estate operations. The Company’s executive team has extensive backgrounds in the travel
and real estate sectors and has been augmented by experienced media developers and marketers.
The Company is in the final stages of
structuring to allow it to carefully control its expenses and share costs between its distinct business units. The roll out, promotion
and marketing of its various business units and media are inter-related and cross promoted. This allows the Company to control
its general and administrative expenses and to leverage the strength of its executive and sales teams for all of its media platforms.
Our sales force has been trained to understand the key benefits of all of the Company’s holdings, allowing it to sell advertising,
sponsorships, proprietary group travel, affinity programs and services.
We also hold certain travel film footage
assets through RRTV Network (its discontinued Television Network). We are positioning ourselves to emerge as a multi revenue stream
“Next Generation” media company, representing the convergence of TV, Mobile devices and the Internet by providing
multiple platform dynamics for interactivity on TV, Video On Demand (VOD) and web solutions. We have worked with multiple distributors
beta testing our platforms for travel and RealBiz’s platform for real estate as part of our and RealBiz’s planned
use of TV programs and film footage for on demand viewing by consumers on web, mobile and TV Networks. The list of MSO’s
(Multiple System Operator) we have worked with includes Comcast, Cox, Time Warner and Direct TV.
Restructuring
Over the last three years we
accumulated significant debt as a result of launching and operating a full time television network for travel and real estate
- RRTV Networks. Unfortunately the economic environment for real estate was extremely difficult as the housing market went
through the greatest decline in U.S. history. As such, management was faced with difficult choices and embarked on
significant cost cutting and structuring efforts. As a major part of the structuring, Next 1 discontinued broadcasting of the
RRTV Network as well as eliminated or realigned its non-conforming operations, reduced staffing and facility leases and
worked with its creditors in efforts to either extend or settle debt. Additionally its real estate division - Next 1 Realty
was sold as part of a share exchange to Webdigs to create a new publicly traded real estate media service company –
RealBiz Media Group, Inc. (“RealBiz”)
With the remaining operations, the Company
turned its focus to the build out of web based operations that incorporated the Company’s significant film footage library
in efforts to deliver an enhanced user experience for its travel and real estate platforms. This restructuring for both travel
and real estate divisions when completed is expected to streamline operations and better positioned the Company for the interactive
revolution underway, referred to as “TV everywhere.”
In order to accomplish this goal the Company
has and will continue to incur a number of expenditures throughout the balance of the year. New expenditures are expected to include:
(1) additional broadcast distribution fees for Video on Demand, (2) build out of complimentary websites and mobile solutions,
and (3) outsourcing of key interactive technology solutions to complement our in-house expertise in maximizing the efficiency
of the operation. Additionally, management has looked to use its limited financial resources to reconfigure and/or retire existing
“floorless debt” while at the same time implementing new travel services with key suppliers to create travel offerings
utilizing its film footage and displaying on media platforms on an on demand basis.
The Company’s targeted focus of
reconfiguring its film assets in the travel short video clips so consumers can access them On-Demand and act on them through interactive
services for television, mobile and the Internet puts the Company in a position to address advertisers’ evolving need to
focus on exploiting video opportunities on multiple platforms with the convergence of internet, television and mobile. The Company
and RealBiz have developed and assembled key assets that allow it to provide media and technology solutions for consumers in the
Home and Travel arenas across multiple media platforms. These two verticals (Home and Travel) hold significant appeal to advertisers
as they continuously remain in the top five advertising “spend” categories in the North American market. Management
believes the steps it is taking now will create a ‘clear differentiation’ in the cable TV space and provide the Company’s
shareholders and its clients with a unique and cutting edge solution to both traditional and non-linear platforms to advertise
their products.
In management’s view, finding
the funding to complete and implement its video centric model is the key to allow the Company to secure a foothold in the new
interactive platforms for web, mobile and TV platforms. The Company is no longer broadcasting the RRTV Network and has eliminated or realigned non-conforming operations and built out web based operations which has resulted in both a drop in
revenue from traditional operations while at the same time showed a marked increase in operational costs. These steps are
deemed to be essential by management, as the Company repositions it’s travel and real estate programs to capture
potentially very significant new revenue from the combination of “on demand” content and key websites and mobile
solutions that can integrate components of the RRTV Network.
The Company’s management believes
that the Next 1’s separation of travel and real estate assets will allow it to focus its efforts on media and travel expansion
while still maintaining an ownership in RealBiz. This relationship with RealBiz should ensure Next 1’s travel operations
will have access to RealBiz’s significant distribution and reach into real estate agents and homeowners through its television,
web and mobile services. The RealBiz platforms are targeted at home owners and service ideal consumers to promote travel products
to. In short we believe that RealBiz will provide a great catalyst to accelerate all of Next 1’s travel programs as it reached
across multiple media platforms to home owners – a key travel demographic.
Business Model Summary
Next 1’s main focus is Travel and,
through Reabiz, Real Estate which we believe represent the two largest consumer-passion categories.
The Next 1 business model includes the
deployment of:
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Interactive TV Capabilities
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Web Portal and Microvideo Apps (agent marketing tool under development)
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Video on Demand solutions for both Travel & Real Estate
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Exclusivity and/or proprietary positioning
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Specialized and/or proprietary technology
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Utilization of Company's real estate and travel licenses
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A scalable, profitable and portable solution for media
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Next 1 Interactive
recognized
the convergence taking place in interactive television/ the web and mobile and began the process of recreating several of its
key relationships through its
operating business units in 3 distinct categories:
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travel operations
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travel media services and
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real estate media services
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Potential revenue streams
from Next Trip -
Traditional Commissions from sales of travel products through Nexttrip and Maupintours as well as
Advertising, from Preferred Suppliers and key Sponsorships.
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Potential revenue streams from Travel
Video on Demand -
Monthly sponsorship packages, pre-roll advertising, travel commissions and referral fees, acceleration
of company owned travel entities (Maupintours, Extraordinary Vacations and Next Trip)
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Potential revenue streams from Real
Estate through ownership of RealBiz Media Group -
Commissions and referral fees on home sales, pre-roll/post-roll
advertising, lead generation fees, banner ads and cross market advertising promotions, (listing and marketing fees, web and
mobile advertising).
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Travel Division:
Next Trip Summary
Next 1 Interactive is differentiated from
other media companies because it owns and operates businesses in its verticals – Next Trip serves the travel spectrum with
travel licenses
ARC, IATA, CLIA & Florida Seller of Travel.
The Company owns:
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Maupintour Extraordinary Vacations, which is the oldest tour company
in the US.
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NextTrip.com – a content rich video and media site in which
the Company has contracted to produce state of the art booking engines.
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Trip Professional – an at home agency program allowing the
consumer to customize and book travel while earning commissions.
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Maupintour Extraordinary
Vacations
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Maupintour Extraordinary Vacations (“Maupintour”)
is the oldest tour operator in North America having a history of over 65 years of creating and booking tours and activity-focused
trips, from private tours of the Vatican to bicycling in the Alps to wine tasting in Italy. Maupintour books these trips and serves
thousands of travel agents around the world. The Company has an active alumni that desires luxury vacations that includes private
sightseeing, fine dining and 4 and 5 star accommodations. The Company previously ran group tours ranging from 10 to 25; however
it has moved its model to customization of high end tours for families, small groups and individuals. The Company’s most
popular destinations are Egypt, Israel, Europe, Africa, Asia and Peru. The Company’s peak season for this division is from
February to July. Maupintour’s website is
www.Maupintour.com
.
NextTrip.com is being repositioned as
an all-purpose travel site that includes 24/7 customer support, relevant social networking, and travel business showcases, with
a primary emphasis on Video to targeted web users and a secondary promotion to TV viewers via VOD promotion. The site is scheduled
for launch in the 2nd quarter of this fiscal year and will provide users with a diverse video experience that entertains,
informs, and offers utility and savings. The travel information website offers users, free of charge, hundreds of destination
videos and promotes worldwide vacation destinations. NextTrip.com plans to generate revenues through advertising, travel commission,
referral fees, and its affiliate program. The travel fulfillment and services for the site are handled by Mark Travel. Mark
Travel is the largest wholesaler of travel products in the United States. NextTrip.com, in conjunction with its Connext1 program
and key media partners (including RealBiz Media, M80, WAYN and Fareportal) will look to serve relevant videos to travelers via
four key elements: (i) television ads (ii) travel video on demand for web and TV (iii) broadband telecast (with the web player
surrounded by interactive banner ads and/or discount travel coupons) and (iv) wireless access to the network on smart phones/devices.
The Company is continuing to build out a targeted travel video with interactive advertising and transactional shopping components
that engage and enable viewers to request information, make reservations and get an in-depth look at products and services all
through their device of choice. The Company believes this approach will allow for multiple revenue streams and integrated media
platforms that deliver measurable return on investment to its advertisers, sponsors and business partners.
Additionally, “on
demand” travel solution allows users to access travel content via digital platforms including Web, Cable, Broadband and
mobile. This delivery of travel information, services and entertainment to consumers will help the Company to capture
multiple revenue streams including transactional commissions, referral fees, advertising and sponsorship. NextTrip.com was
originally launched in July of 2008 as Nexttrip.com. Media and travel booking solutions are being restructured with
fulfillment of Travel bookings being handled by Mark Travel. The Company is targeting completion of new booking engines and
video content by July 2014. The website is www.NextTrip.com.
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Trip Professionals.com
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The Company operates a Trip Professional
Membership Program. The program allows members to join for a $199 annual fee and earn 80% of the commissions on travel products
purchased though the member. At present the Company is working on a new booking engine whereby members can access wholesale pricing
and set commissions and is currently being redesigned to allow its members access to vacations at wholesale pricing, view destination
video and adjust commissions within acceptable limits.
Web Properties
The websites and mobile applications have
started to drive incremental revenues based on the promotion and awareness through the Connext1 program and VOD TV platforms.
The Company has engaged several tourism boards including Japan, Egypt, Columbia, Hawaii and others as it rolls out its Connext1
program. In addition to cooperative advertising programs it is anticipated that Connext1will generate long term benefits through
sales commissions on the sales of tour packages in 2014.
VoyageTV and NextTrip /Connext 1 Media Overview
Voyage.tv
is an online travel
channel that produces and distributes travel video programming on the Internet, cable television and Video on Demand. Voyage.tv
also has a branded YouTube channel (VoyageChannel), which broadcasts select videos from Voyage’s slate and provides an alternate
portal for viewers to access content.
The Company was founded in 2006 and was
merged into Next 1 in February 2013. Functioning as a tool for exploring destinations, sharing travel experiences and booking
trips, Voyage.tv is a global platform for travelers to exchange advice and access an inside look at destinations around the world.
Video segments are accompanied by an array of articles written by resident editors within each destination and journalists
that
include travel writing
on dining, nightlife, spas, area excursions, attractions, sightseeing, tours, shopping
and other lifestyle interests.
Program Categories include:
72-Hours
highlights top attractions or things to
do within a destination
Nirvana
features spas and treatments around the world
Gourmet Regionale
showcases restaurants and dining around the world
Guy Stuff
focuses on activities and content for a male demographic
Goodlife
highlights luxury and upscale lifestyle experiences in each destination
Look
centers on fashion, style and shopping programming
Earth Calling
includes eco-centric and “green” programming
Kidz
highlights attractions and activities geared towards children and families
Conversations
With features interviews with notable people within destinations
Next 1 plans to intergrate VoyageTV’s
thousands of hours of video footage, distribution channels and partners in with its Connext 1 and NextTrip platforms to accelerate
awareness of travel products, promote travel sales and deliver targeted advertising to consumers at the same time it delivers
unique destination videos within several branded program categories.
Next 1 Interactive
operated a fully programmed
television network know as Resort and Residence TV from November 2009 to March of 2012. The channel delivered current and relevant
programming about the two great passion areas in life –
Home and Travel
. While the Network served as a significant
means of awareness, the Company believes one of the true hidden values is in the thousands of hours of travel video that were
acquired and developed during the network operations. Adding the VoyageTV content will give the Company an impressive video library.
As consumers move to an on demand world that uses videos accessible from any device, Next 1 will give consumers access to thousands
of relevant videos, many with transactional capabilities linking by way of two new “over the top” television, broadband
TV (web based) and Travel Video on Demand Networks – under the
VoyageTV and Next Trip branding
.
This linkage of NextTrip Video on Demand
Networks with Television, Web and Mobile devices will give viewers the ability to go from watching a television show such as “Extraordinary
Vacations” to link directly to specific featured trips available for purchase on the Video on Demand Network. The consumer
viewing the Video on Demand Networks may request additional information, order discount coupons, request a call from a licensed
agent or purchase from the comfort of their living room. This viewing and video linkage will be available on Next 1’s TV,
Broadband, Web and Mobile channels.
Key to this interactivity is Next 1 Interactive
holds licenses in the travel industries thereby allowing it to receive referral fees and commissions in addition to traditional
advertising. Additionally the Company’s long term travel relationships allow it to both access travel products and produce
relevant and timely video content for the viewers.
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NextTrip /Connext 1 Media Overview
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NextTrip/Connext 1 Media
is
positioning itself to emerge as a multi revenue stream “Next Generation” media company, representing the convergence
of TV, Mobile devices and the Internet by providing multiple platform dynamics for interactivity on the consumer’s device
of choice. A first mover in interactive television and VOD, Next Trip has done test programs including interactive programs into
21 million homes nationwide with Comcast and DirecTV (the number 1 and 2 players in the industry) under the brand name RRTV Networks.
The
Company recognized the convergence taking place in interactive television/ the web and began the process of recreating several
of its key relationships in travel and media over the last 3
years in efforts to position itself for the interactive
revolution with “TV everywhere”.
The Next Trip Travel marketing solutions
Connext 1 employs unique marketing solutions by utilizing its video technology platform in combination with key travel and media
players including Videology, M80, Tricept and WAYN. Connext 1 should provide a great catalyst of accelerate all of Next Trip’s
travel programs across multiple media platforms. Television is enjoyed by all ages and with the advent of TV and video being available
on multiple devices (TV/Phone/ Computer/ iPad), providing On Demand services for entertainment, information and transactional
purposed appears to have a very bright future.
NextTrip/Connext
1 Media
intends to provide access to travel video on a 24/7 basis supported by full service travel divisions and
key partnerships with multiple cruise and tour groups within the United States. NextTrip will use network original programs
with thousands of hours of travel footage to create valuable and relevant content for its viewers on an On demand basis to
any device. The Company is uniquely positioned to deliver a relevant Video to the user with calls to action an access
to additional ON Demand travel products under the NextTrip -Vacation travel Portal launching in its second quarter fiscal
2015.
In the travel segment the Company has
a full line up of programming from VoyageTV and its RRTV Network including key television shows:
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“
Extraordinary Vacations
”-
Next Trip has created the ultimate travel shopping show where you can learn about the hottest new destinations, new ways to
travel, new travel products, helpful travel tips and best of all, the latest travel deals. From cruising to golf resorts,
Caribbean or European destinations, guided tours plus great deals on car rentals, airlines, travel packages and lots more..
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The Travel Magazine
- The
Travel Magazine is one of the largest sources of professionally produced travel video featuring 160 shows from 80 countries.
Each show is 24 minutes of programming of destinations around the world.
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The Golf Show-
Next 1 purchased
40 “Golf Show” episodes with all accompanying rights and properties. The shows are used for short clips with tips,
tricks, and destinations.
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VoyageTV
– 1000’s
of hours of travel footage from around the globe featuring top attractions, things to do, spas, dining around the world, luxury
and upscale lifestyle experiences
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The primary web properties are:
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www.Maupintour.com
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and
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www.tripprofessionals.com
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In travel the Company is actively working
on creating and/or expanding several key relationships with travel and media suppliers to allow it to monitor and distribute its
travel products, videos and key travel suppliers videos with calls to action across millions of web and mobile devices. As
the travel businesses gain more awareness through these media platforms, it is expected that the Travel Unit’s revenues
will increase significantly, not only from increased tour business, but from new revenue streams generated by the network, more
specifically, revenue generated from web advertising and referrals as well as TV shows, commercials and leads.
The media assets, while generating distinct
advertising revenue streams, also affords the Company the opportunity to leverage the growth of the non-media based travel businesses.
This makes for a sound business opportunity to significantly improve the marketing scope of the base travel business through both
traditional outlets and its extensive media reach.
Travel revenues are generated by Maupintour,
NextTrip.com and the Trip Professionals program. Our current market is primarily the North American leisure travel industry, though
our websites are available in English worldwide.
Maupintour’s revenue is generated
from the sale of high end escorted tours and Flexible Independent Travel (FIT) tours. NextTrip.com is a travel website with primary
focus centered on vacation packages. The Company currently uses certain of its media assets like clips from its Travel Magazine
TV series to promote travel destinations on the Travel sites. We plan to significantly expand the number of travel clips available
on the web to both our properties and other company websites by utilizing much of the content that was broadcast as part of RRTV’s
travel destinations programming as well as footage available through tourism boards and key travel suppliers.
The Company’s target market is the
traditional travel sector, which the Company continues to operate as mature businesses. These businesses continue to serve their
existing client bases, and include Maupintour and NextTrip.com. The core travel businesses cater to upscale clientele seeking
customized trips. The Company estimates that its target market for Maupintour represents less than 5% of all U.S. domestic leisure
travelers. We believe that upscale travelers, primarily discerning “Baby Boomers,” seek travel solutions rather than
pre-packaged tours, and the Company has made a consistent business of catering to this niche marketplace, rather than compete
on the lower end of the market which is now dominated by names like Expedia and Travelocity. Conversely, the introduction of programs
like Trip Professionals could target a significantly larger percentage of U.S. domestic leisure travelers as the products and
commission sharing represent substantial savings to the average consumer.
Real Estate Division
In 2012 the Company sold all real estate
assets of Next 1 Realty to a separate public entity with Next 1 initially controlling 93 percent ownership. Next1 currently controls
61% of the voting power of RealBiz. This move was undertaken by management to allow separation of the real estate and travel assets
and thereby assist in fund raising without Next 1 incurring any additional debt. RealBiz then started a planned nationwide rollout
of the Home Tour Network in conjunction with its partner Realtor.com by initially launching the first two of multiple cities in
the U.S.A (Las Vegas and Atlanta). Additionally during this period the Company suspended the RRTV Network distribution on DirecTV
and cable distribution. It is the Company’s intention to add additional broadcast distributions through “on demand”
solutions for web, mobile and television VOD networks through both its own operations and through RealBiz operations.
RealBiz Media Group Inc.
(RealBiz)
is a publicly traded
Real Estate Media Service company that has positioned itself to be both a media specialist and a licensed operator. As such
the Company is poised to emerge as a multi revenue streams from advertising revenues as well as commissions and referral fees.
This new “Next Generation” media company is well positioned to capture revenues from the convergence of TV, Mobile
devices and the Internet by providing video, search and purchase capabilities on multiple platform dynamics for web, mobile, interactivity
on TV and Video On Demand. RealBiz Media currently operates an INTERACTIVE VOD Network for Real Estate in conjunction with its
partner Realtor.com. The network is branded under the name of Home Tour Network and is carried on Cox Communications and Comcast
stations. In late May 2012, RealBiz Media signed a significant multiyear partnership with Realtor.com that included agreements
to rebrand the network to “Realtor.com channel” and expand the network into 55 million households. Additionally the
Company has been commissioned to develop a major real estate web portal and enhanced widget/microvideo app platforms to work
in conjunction with Realtor.com and other major real estate brokerage groups.
RealBiz is engaged in the business of
providing digital media and marketing services for the real estate industry. RealBiz currently generates revenue from advertising
revenues, real estate broker commissions and referral fees. RealBiz has three divisions: (i) its fully licensed real estate division
(formerly known as Webdigs, Inc.); (ii) its TV media contracts (Extraordinary Vacation Homes/ Third home) division; and (iii)
its Real Estate Virtual Tour and Media group (RealBiz 360). The cornerstone of all three divisions is its proprietary technology
which allows for an automated conversion of data (text and pictures of home listings) to a video with voice and music. RealBiz
provides video, search and purchase capabilities on multiple platform dynamics for web, mobile, interactivity on TV and Video
On Demand. Once a video is created using RealBiz’s proprietary technology, these home listing videos are automatically distributed
to multiple media platforms (Television, broadband, web and mobile) for consumer viewing.
RealBiz has
positioned its company in the following four areas summarized here and explained in more detail below:
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Real Estate Video on Demand
Channel – RealBiz earns fees from pre-roll/post-roll advertising, banner ads and cross-market advertising promotions.
RealBiz charges an $89 listing and marketing fee, and earn revenue from web-based and mobile advertising.
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2.
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Website and Mobile Applications
– RealBiz is developing a real estate web portal. This site will be unique to the world of real estate search sites
on multiple levels, from a consumer perspective the user experience will be completely visual and video centric, secondly,
the site will provide local neighborhood information and allow for social interaction between home seekers and current residents
who can provide an unbiased view of the selected neighborhood, and the content on the site will focus on the entire home ownership
lifecycle from purchase through maintenance to home sale therefore giving the site a much deeper and more loyal audience over
time.
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3.
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From an industry perspective
the site will be revolutionary because it includes and agent only platform that allows for agent to agent interaction, and
“App Store” for relevant video content, community events, discount coupons, industry news and agent share programs.
This site will completely empower the agent with content and assets that they can use to pursue prospects and generate leads
at a fraction of the cost they’re currently paying. This agent only site interacts with our Microvideo App (MVA) platform.
The MVA was developed and implemented to allow agents to access specific video based product strategies that are designed
specifically to increase the SEO rank and traffic credit to real estate franchise systems and/or their brokers. This solution
gives those franchises and brokers a much needed tool to lower their cost of prospect acquisition.
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Traditional Real Estate
Sales – RealBiz’s previous company, Webdigs, had licensed real estate brokerage division currently has participating
brokers in 48 states. We believe there are potential opportunities to take advantage of an improving real estate market, and
RealBiz be able to capture leads from the Real Estate Video on Demand Channel. RealBiz currently has no activities in this
division.
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Real Estate On Demand
General
For the real estate video on demand area
(“VOD”), RealBiz plans to market the approximately 120,000 “premium VOD TV residential home listings”
as well as incorporate approximately over 2.5 million Multiple Listing Service (“MLS”) home listings from all major
U.S. cities, with video on demand and interactive capabilities for users of its real estate website. We expect that this new interactive
real estate tool may create direct referral fees, placement fees, advertising fees and possibly even mortgage financing revenue
for RealBiz at a future date.
We recognize that in the U.S. most consumers
research the buying of a home primarily through the Internet, newspapers and real estate magazines. Television does present a
unique option as it provides brokers with significant “Brand awareness” in addition to individual property promotion.
However as with other video mediums, traditional cable television on demand is changing as consumers increasingly move to adopt
new platforms like IPTV (i.e. Rovi, Roku, Netflix) to access content on demand. We believe that the VOD solutions will continue
to expand thereby allowing the consumer to view, in high quality video, local listings and specialty properties (oceanfront properties,
mountain homes, farms, senior communities, etc.) through their screen of choice (television, computer or mobile device). This
familiar television environment is no longer centered on the baby boomer and over-40 demographic that, in many cases, are more
comfortable with a remote control then they are with a mouse or touch screen. The real estate VOD solution is branded as “Home
Tour Network.” RealBiz has been servicing the real estate industry for over 6 years and enjoys direct access to the nation's
largest real estate companies.
Currently, RealBiz’s desktop solution
for virtual tours has been used by over 60,000 real estate agents and brokers.
Key Trends for VOD Advertising
The VOD market shows the strong potential
for giving the company and brokers a great awareness platform to drive people to targeted websites. Additionally with, traditional
cable television on demand platform expanding to meet consumers increasing move to adopt new platforms like IPTV (i.e. Rovi, Roku,
Netflix), VOD opportunities also expand as the new platforms no longer have restrictions for the amount of content or booking
capabilities The video audience grew by 32%, and time spent grew by 12%. According to Magna Global, VOD will outperform DVR in
the US, reaching nearly 66 million households vs. 53 million households for DVR in 2015. In the VOD market, Comcast holds the
lion’s share in terms of VOD views and revenues. With the acquisition of NBC Universal, Comcast will be able to serve one-fourth
of the U.S pay-television households. Comcast has approximately 22.8 million cable television subscribers and 17 million high-speed
Internet subscribers .
New Opportunities for VOD Advertising
VOD ad platforms support a variety of
advertising formats, from traditional embedded ad spots to ad overlays, bookends and even long-form, on-demand “showcase”
ads that deliver information and allow some degree of interaction. Marketer, a leading media research firm, estimates that U.S.
online advertising spending will hit new peaks from 2012 to 2014, surpassing US$30 billion in 2012, and exceeding US$40 billion
in 2014. Marketer expects that spending on marketing will bring double-digit growth to online advertising for five consecutive
years.
We believe the real estate market in particular
is well suited to use VOD technology for the following reasons:
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Real estate agents and
brokers generally look for more cost-effective ways to market
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Agents that place their listings on
TV have a distinct marketing advantage over agents that don’t
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Google has made Traditional Internet
websites and high-end print advertising (pay for click) very expensive
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Media channels focused on real estate
are better able to reach the “new consumer”
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VOD is able to deliver what potential
home buyers are asking for – video of a prospective home purchase, which provides valuable information to consumers
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Ability to target in local markets
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VOD is able to promote both listings
and brand
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Reach out to higher demographics -
Cable viewers have higher incomes, higher education and more disposable income
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Access through their television allows
consumer home seekers to easily search listings with the touch of their remote
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Our VOD Solution
RealBiz is becoming one of the fastest
growing real estate image content management, creation and media delivery companies in the United States. In addition, we believe
our approach to VOD will be beneficial due to the following factors:
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RealBiz’s exclusive
partnerships with several national real estate brokerage firms aimed at creating and delivering VOD Listings to TV Networks
through the HomeTourNetwork
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RealBiz’s proprietary Video Ad
Builder tool, which we believe is the easiest way to create promotional VOD advertisements for television
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RealBiz’s marketing partnerships,
which we expect will allow it to scale its business across major U.S. markets quickly and efficiently
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Home Tour Network
Home Tour Network currently operates in
3 strategic cities – Atlanta, Las Vegas and Chicago. The VOD platform allows for up to 3,000 television listings with a
reach that ranges from hundreds of thousands of homes per market to over a million homes in some markets. Real estate agent’s
listings are automatically converted from the industry’s largest data feed and then can easily be placed on our interactive
television platform for a fee ranging from $50 to $90 per month. This is a fraction of the cost to run an advertisement in a newspaper
and provides real feedback to the agent.
Website and Mobile Applications
RealBiz is utilizing its technological
advantage along with its industry contracts to create two separate and very important critical paths for real estate professionals
and their organizations to follow. By using its video processing prowess combined with micro-site and website building techniques
RealBiz has created an agent/broker micro-site product that leverages best practices in SEO (search engine optimization) on the
agent/brokers behalf and delivers a web and mobile friendly rich media experience to consumers. This solution provides the broker
a significant increase in organic ranking in local searches, increased site traffic and by doing so, reduces the agent/broker
dependency on traditional listing aggregators. Secondly, by leveraging its relationship within the industry, RealBiz has access
to a database of over 1.5 million homes. These homes are being converted into video assets and will be part of a real estate portal
that unlike other listing aggregators will empower the agents with tools to push information in the form of video (their listings,
other listings and useful home buyer/home owner information) to their prospect base. This solution provides the “zero listing”
agent (about 70% of the agents in the U.S.) the opportunity to position themselves as a local community expert with listings and
information that make him/her an asset to their prospect base. This portal and its tools will provide a much needed sense of control
to the agent community while providing a significant decrease in their cost of lead acquisition.
Business Strategy
Near-Term Objectives
:
Next 1 is a multi-faceted interactive
media company whose key focus is to continue to grow its media interests around what we believe to be two of the most universal,
yet powerful consumer passions - real estate and travel. The Company delivers targeted content via digital platforms including
cable, broadcast, and broadband, web, print and mobile. The Company has launched real estate VOD channel starting with 2 cities
on the Cox Communications and Comcast Cable Network and is targeting in conjunction with RealBiz to reach over 50 million households
with its “Home Tour Network” by 2015.
Additionally, the Company has differentiated
itself from other media companies through its ownership and operation of businesses in its verticals - travel and real estate.
These real estate and travel businesses not only afford the Company multiple industry relationships and affiliations, but further
provide industry licenses that will allow the Company to capture sales commissions and referral fees from products advertised
and sold through its media platforms. Next 1 has expended significant capital over the past two years in the creation of its interactive
media platforms and the launching and roll out of its television networks. The Company is targeting to have all platforms operational
by the fourth quarter of 2012.
The key objective for the Company, once
all platforms are operating, is to capture multiple revenue streams including transactional commissions, referral fees, advertising
and sponsorship.
Long-Term Objectives
:
As we expand our business model we will
become a full-service multi-media advertising outlet offering television (traditional and VOD), internet display ads, rich media
ads, video ads, and mobile outlets. As we build our network, viewership and traffic, our reach and cross-promotion capabilities
will lead to the launching of additional targeted on demand solutions. Our involvement in cable TV, web and mobile will keep us
at the forefront of cross-platform deal-making as such activity becomes more common among advertisers.
Our Competitors
Our primary competitors are companies
such as the Travel Channel, Home and Garden TV, Plum TV, Wealth TV, the Outdoor Channel, and others. These are television networks
that are primarily targeted at specific verticals in the travel, real estate and lifestyle fields.
In the travel sector, internet sites such
as “Travelocity.com”, “Expedia.com”, and “Priceline.com” appear focused on their own core
functionality - fare searches and ticket sales. Therefore, they are more likely to become actual advertisers on our network then
they are to be competitors. As such, we see greater potential in providing advertising solutions to drive customers to “Travel
Video Showcases” and to websites, than to compete in the sale of low margin travel product.
In the real estate sector, internet sites
such as Trulia.com and Zillow.com as well as other internet sites providing real estate information to consumers provide opportunities
similar to our RealBiz products and services.
Other Competitors include Netflix, DVDs,
other VOD advertisers, Internet sellers of travel, and other real estate advertising.
Intellectual Property
In October 2012, the Company consummated
the share exchange with Webdigs and RealBiz 360 to create RealBiz. RealBiz had 28 patents on technology for the conversion of
pictures and text into video. The system can process large amounts of data in a very compressed period of time. The Company has
since made additional modifications and developed a MicroVideo App. It intends to add additional patents over the current year.
Sources and Availability of Raw
Materials and the Names of Principal Suppliers
Our products do not require the consumption
of raw materials.
Dependence on One or a Few Customers
We do not depend on one or a few customers.
As we expand our business, we do not anticipate that we will depend on one or a few customers.
Government Regulation
Our operations are subject to and
affected by various government regulations, U.S. federal, state and local government authorities. The operations of cable,
satellite and telecommunications service providers, or distributors, are subject to the Communications Act of 1934, as
amended, and to regulatory supervision by the FCC. These providers, distributors, etc. are also subject to periodic renewal
and ongoing regulatory requirements. The rules, regulations, policies and procedures affecting our businesses are
constantly subject to change. These descriptions are summary in nature and do not purport to describe all present and
proposed laws and regulations affecting our businesses.
Effect of “Must-Carry”
Requirements
The Cable Act of 1992 imposed “must
carry” or “retransmission consent” regulations on cable systems, requiring them to carry the signals of local
broadcast television stations. Direct broadcast satellite (“DBS”) systems are also subject to their own must carry
rules. The FCC recently adopted an order requiring cable systems, following the anticipated end of analog television broadcasting
in June 2009, to carry the digital signals of local television stations that have must carry status and to carry the same signal
in analog format, or to carry the signal in digital format alone, provided that all subscribers have the necessary equipment to
view the broadcast content. The FCC’s implementation of these “must-carry” obligations requires cable and DBS
operators to give broadcasters preferential access to channel space. This reduces the amount of channel space that is available
for carriage of our network by cable television systems and DBS operators. Congress and the FCC may, in the future, adopt new
laws, regulations and policies regarding a wide variety of matters which could affect RRTV. We are unable to predict the outcome
of future federal legislation, regulation or policies, or the impact of any such laws, regulations or policies on RRTV’s
operations.
Closed Captioning and Advertising
Restrictions on Children’s Programming
Our network will provide closed-captioning
of programming for the hearing impaired prior to the three-year compliance requirement. Our programming and Internet websites
intended primarily for children 12 years of age and under must comply with certain limits on advertising. We are a “family-friendly”
network that provides on-screen notices of programs that may not be appropriate for children.
Obscenity Restrictions
Cable operators and other distributors
are prohibited from transmitting obscene programming, and our carriage/distribution agreements generally require us to refrain
from including such programming on our network.
Regulation of the Internet
We operate several internet websites which
we use to distribute information about and supplement our programs. Internet services are now subject to regulation in the United
States relating to the privacy and security of personally identifiable user information and acquisition of personal information
from children under the age of 13, including the federal Child Online Protection Act (COPA) and the federal Controlling the Assault
of Non-Solicited Pornography and Marketing Act (CAN-SPAM). In addition, a majority of states have enacted laws that impose data
security and security breach obligations. Additional federal and state laws and regulations may be adopted with respect to the
Internet or other online services, covering such issues as user privacy, child safety, data security, advertising, pricing, content,
copyrights and trademarks, access by persons with disabilities, distribution, taxation and characteristics and quality of products
and services. In addition, to the extent we offer products and services to online consumers outside the United States, the laws
and regulations of foreign jurisdictions, including, without limitation, consumer protection, privacy, advertising, data retention,
intellectual property, and content limitations, may impose additional compliance obligations on us.
Other Regulations
In addition to the regulations applicable
to the television industry in general, we are also subject to various local, state and federal regulations, including, without
limitation, regulations promulgated by federal and state environmental, health and labor agencies.
Research & Development
The Company is not currently engaged in
any research and development. The Company is currently focused on marketing and distributing its current inventory of products
and services.
Employees
As of June 13, 2014, the Company has twelve
full-time employees: seven are located in the headquarter office; one is located in Nevada and one in Canada.
Item 1A. Risk Factors
In addition to the other
information in this Form 10-K, readers should carefully consider the following important factors. These factors, among others,
in some cases have affected, and in the future could affect, our financial condition and results of operations and could cause
our future results to differ materially from those expressed or implied in any forward-looking statements that appear in this
Form 10-K or that we have made or will make elsewhere.
Risks Inherent to this
Company
:
Because of losses incurred
by us to date and our general financial condition, we received a going concern qualification in the audit report from our Independent
Registered Public Accounting Firm for the most recent fiscal year that raises substantial doubt about our ability to continue
to operate as a going concern.
At February 28, 2014, we had
$117,818 cash on hand. The accompanying consolidated financial statements have been prepared assuming the Company will continue
as a going concern. As discussed in Note 2 to the consolidated financial statements included in this Annual Report, the Company
had an accumulated deficit of $87,625,076 and a working capital deficit of $13,549,796 at February 28, 2014, net losses for the
year ended February 28, 2014 of $18,295,802 and cash used in operations during the year ended February 28, 2014 of $4,590,428.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
We have a limited operating
history and we anticipate that we will have operating losses in the foreseeable future.
We cannot assure you that we
will ever achieve profitable operations or generate significant revenues. Our future operating results depend on many factors,
including demand for our products, the level of competition, and the ability of our officers to manage our business and growth.
As a result of our limited operating history and the emerging nature of the market in which we compete, we anticipate that we
will have operating losses until such time as we can develop a substantial and stable revenue base.
We will need additional capital
which may not be available on commercially acceptable terms, if at all.
We have very limited financial
resources. We currently have a monthly cash requirement of approximately $300,000, exclusive of capital expenditures. We will
need to raise substantial additional capital to support the on-going operation and increased market penetration of RRTV including
the development of national advertising relationships, increases in operating costs resulting from additional staff and office
space until such time as we generate revenues sufficient to support itself. We believe that in the aggregate, we will need as
much as approximately $1 million to $5 million to support and expand the network reach, repay debt obligations, provide capital
expenditures for additional equipment, payment obligations under charter affiliation agreements, office space and systems for
managing the business, and cover other operating costs until our planned revenue streams from media advertising and e-commerce,
travel and real estate are fully- implemented and begin to offset our operating costs. Our failure to obtain additional capital
to finance our working capital needs on acceptable terms, or at all, will negatively impact our business, financial condition
and liquidity. In addition, as of February 28, 2014, we had approximately $13.9 million of current liabilities. We currently do
not have the resources to satisfy these obligations, and our inability to do so could have a material adverse effect on our business
and ability to continue as a going concern.
If we continue to experience
liquidity issues and are unable to generate revenue, we may be unable to repay our outstanding debt when due and may be forced
to seek protection under the federal bankruptcy laws.
We have experienced liquidity
issues since our inception due to, among other reasons, our limited ability to raise adequate capital on acceptable terms. We
have historically relied upon the issuance of promissory notes that are convertible into shares of our common stock to fund our
operations and currently anticipate that we will need to continue to issue promissory notes, or equity, to fund our operations
and repay our outstanding debt for the foreseeable future. At February 28, 2014, we had $9.9 million of current debt outstanding.
If we are unable to achieve operational profitability or not successful in issuing additional promissory notes or securing other
forms of financing, we will have to evaluate alternative actions to reduce our operating expenses and conserve cash.
Moreover, as a result of our
liquidity issues, we have experienced delays in the repayment of promissory notes upon maturity and the payment of trade receivables
to vendors and others when due. Our failure to pay vendors and others may continue to result in litigation, as well as interest
and late charges, which will increase our cost of operations. If in the future, holders of promissory notes demand repayment of
principal and accrued interest instead of electing to convert to common stock and we are unable to repay our debt when due or
resolve issues with existing promissory note holders, we may be forced to refinance these notes on terms less favorable to us
than the existing notes.
Our business revenue generation
model is unproven and could fail.
Our revenue model is new and
evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven
and there can be no assurance that we can achieve profitable operations. Our ability to generate revenues depends, among other
things, on our ability to operate our television network and operate our video on demand business and create enough viewership
to provide advertisers, sponsors, travelers and home buyers value. Accordingly, we cannot assure you that our business model will
be successful or that we can sustain revenue growth, or achieve or sustain profitability.
Our success is dependent
upon our senior management team and our ability to hire and retain qualified employees.
Our success materially depends
upon the efforts of our management and other key personnel, including but not limited to Bill Kerby, CEO, and Adam Friedman, Chief Financial Officer. If we lose the services of any of these members of management, our business
would be materially and adversely affected. Furthermore,
we do not have “key person” life insurance, and we do not presently intend to purchase such insurance.
We believe that our success
is substantially dependent upon: (1) our ability to retain and motivate our senior management team and other key employees; and
(2) our ability to identify, attract, hire, train, retain and motivate other qualified personnel. The development of our business
and operations is dependent upon the efforts and talents of our executive officers, whose extensive experience and contacts within
the industries in which we wish to compete are a critical component of our business strategy. We cannot assure you that we will
be successful in retaining the services of any of the members of our senior management team or other key personnel, or in hiring
qualified technical, managerial, marketing and administrative personnel. If we do not succeed in retaining our employees and in attracting new employees, our business
could suffer significantly.
We may be unable to implement
our business and growth strategy.
Our growth strategy and ability
to generate revenues and profits is dependent upon our ability to: (1) develop and provide new services and products; (2) establish
and maintain sales and distribution channels, including the on-going operation and expansion of our television network; (3) develop
new business opportunities; (4) maintain our existing clients and continue to develop the organization and systems to support
these clients; (5) establish financial and management systems; (6) attract, retain and hire highly skilled management and consultants;
(7) obtain adequate financing on acceptable terms to fund our growth strategy; (8) develop and expand our client and customer
bases; and (9) negotiate agreements on terms that will permit us to generate adequate profit margins. Our failure with respect
to any or all of these factors could impair our ability to successfully implement our growth strategy, which could have a material
adverse effect on our results of operations and financial condition.
We intend to launch new products
in a volatile market and we may be unsuccessful.
We intend to launch new products,
which include a television network and VOD for real estate and travel related products. The media, travel and real estate sectors
are volatile marketplaces and we may not be able to successfully penetrate and develop all or either of them. We cannot assure
you that we will be able to maintain the airwave space necessary to carry a new television network. We will be successful only
if consumers establish a loyalty to our network and purchase the products and services advertised on the network. We will have
no control over consumer reaction to our network or product offerings. If we are not successful in building a strong and loyal
consumer following, we may not be able to generate sufficient revenues to achieve profitability.
We do not have the ability
to control the volatility of sales.
Our business is dependent on
selling our products in a volatile consumer-oriented marketplace. The retail consumer industry, by its nature, is very volatile
and sensitive to numerous economic factors, including competition, market conditions and general economic conditions. None of
these conditions are within our control. There can be no assurance that we will have stable or growing sales of our products and
advertising space on our television network, and maintain profitability in the volatile consumer marketplace.
We may not be able to purchase
and/or license assets that are critical to our business.
We intend to purchase and/or
license archived video and travel collection libraries to fulfill the programming needs of the Network. The acquisition or licensure
of these assets is critical to accomplishing our business plan. We cannot assure that we will be successful in obtaining these
assets or that if we do acquire them, that we will be able to do so at a reasonable cost. Our failure to purchase and/or license
these libraries at a reasonable cost would have a material adverse effect on our business, results of operations and financial
condition.
We enter into carriage/distribution
agreements with companies that will broadcast our products. If we do not maintain good working relationships with these companies,
or perform as required under these agreements, it could adversely affect our business.
The carriage/distribution agreements
establish complex relationships between these companies and us. We intend to spend a significant amount of time, effort and cost
to maintain our relationships with these companies and address the issues that from time to time may arise from these complex
relationships. These companies could decide not to renew their agreements at the end of their respective terms. Additionally,
if we do not perform as required under these agreements or if we breach these agreements, these companies could seek to terminate
their agreements prior to the end of their respective terms or seek damages from us. Loss of these existing carriage/distribution
agreements would adversely affect our ability to continue to operate our network as well as our ability to fully implement our
business plan.
Additionally, the companies
that we have carriage/distribution agreements with are subject to FCC jurisdiction under the Communications Act of 1934, as amended.
FCC rules, among other things, govern the term, renewal and transfer of radio and television broadcasting licenses and limit concentrations
of broadcasting control inconsistent with the public interest. If these companies do not maintain their radio and television broadcasting
licenses, our business could be substantially harmed.
Our failure to develop advertising
revenues could adversely impact our business.
Initially, we intend to generate
a significant portion of our revenue from our full-time television programming network, RRTV, through sales of advertising time,
television commerce of travel packages and sponsorships of programming enhanced by interactive applications. We may not be able
to obtain long-term commitments from advertisers and sponsors or fully deploy the strategy of interactive applications due to
the start-up nature of our business. Advertisers generally may cancel, reduce or postpone orders without penalty. Cancellations,
reductions or delays in purchases of advertising could occur as a result of a strike, or a general economic downturn in one or
more industries or in one or more geographic areas. If we are unable to generate significant revenue from advertising, it will
have a material adverse effect on our business, financial condition and results of operations.
We rely on third parties
for key aspects of the process of providing services to our customers, and any failure or interruption in the services provided
by these third parties could harm our ability to operate our business and damage our reputation.
We rely on third-party vendors, including
website providers and information technology vendors. Any disruption in access to the websites developed and hosted by these third-party
providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our
business. Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent
of which we cannot predict. We exercise little or no control over all of these third-party vendors, which increases our vulnerability
to problems with the services they provide.
In addition, we license technology and
related databases from third parties to facilitate aspects of our website and connectivity operations. Any errors, failures, interruptions
or delays experienced in connection with these third-party technologies and information services could materially and negatively
impact our relationship with our customers and adversely affect our brand and our business. It is possible that such errors, failures,
interruptions or delays could even expose us to liabilities to our customers or other third parties.
Interruption or
failure of our information technology and communications systems would impair our ability to effectively provide our services,
which could in turn damage our reputation and harm our business.
Our ability to provide our services critically
depends on the continuing operation of our information technology and communications systems. Any damage to or failure of our
systems would likely result in interruptions in our service to customers and the closings of real estate transactions from which
we principally derive revenue. Accordingly, interruptions in our service would likely reduce our revenues and profits, and our
brand could be damaged, perhaps irreparably, if people believe our system and services are unreliable.
To our knowledge, our systems are vulnerable
to damage or interruption from terrorist or malicious attacks, floods, tornados, fires, power loss, telecommunications failures,
computer viruses and other attempts to harm our systems, and similar types of events. Our data centers are subject to break-ins,
sabotage and intentional acts of vandalism, and to other potential disruptions. Some of our systems are not fully redundant (i.e.,
backed up), and our disaster recovery planning cannot account for all eventualities. The occurrence of a natural disaster, or
a decision to close a facility we are using without adequate notice for financial reasons or other unanticipated problems at our
data centers, could result in lengthy interruptions in our service. Any unscheduled interruption in our service would likely place
a burden on our entire organization and result in an immediate loss of revenue. The steps we have taken to increase the reliability
and redundancy of our systems are expensive, reduce our operating margin and even then may not be successful in reducing the frequency
or duration of unscheduled downtime.
Our
operations are dependent upon our ability to protect our intellectual property, which could be costly.
Our technology is the cornerstone of our
business and our success will depend in part upon protecting any technology we use or may develop from infringement, misappropriation,
duplication and discovery, and avoiding infringement and misappropriation of third party rights. Our intellectual property is
essential to our business, and our ability to compete effectively with other companies depends on the proprietary nature of our
technologies. We do not have patent protection for our proprietary video on demand technology. We rely upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop, maintain, and strengthen its competitive position.
Although we have confidentiality provisions in the agreements with our employees and independent contractors, there can be no
assurance that such agreements can fully protect our intellectual property, be enforced in a timely manner or that any such employees
or consultants will not violate their agreements with us.
Furthermore, we may have to take legal
action in the future to protect our trade secrets or know-how, or to defend them against claimed infringement of the rights of
others. Any legal action of that type could be costly and time-consuming to us, and there can be no assure that such actions will
be successful. The invalidation of key proprietary rights which we own or unsuccessful outcomes in lawsuits to protect our intellectual
property may have a material adverse effect on our business, financial condition and results of operations.
If we cannot adequately protect our intellectual
property rights, our competitors may be able to compete more directly with us, which could adversely affect our competitive position
and, as a result, our business, financial condition and results of operations.
Our certificate of incorporation grants
our Board of Directors, without any action or approval by our stockholders, the power to issue additional shares of capital stock,
including the power to designate additional classes of common and preferred stock.
Our
authorized capital consists of 500,000,000 shares of common stock, of which 17,579,280 are outstanding and authorized Preferred
Stock 3
,
000,000 shares have been designated as Series A Preferred
Stock, of which 2,216,014 shares are outstanding; 3,000,000 shares have been designated as Series B Preferred stock, of which
285,900 shares are outstanding; 3,000,000 shares have been designated as Series C Preferred stock, of which 42,000 shares are
outstanding and 3,000,000 shares have been designated as Series D Preferred stock, of which 860,520 shares are outstanding. 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.
We may not be able to maintain our
client relationships that we have developed.
Our clients are, and will be, comprised
primarily of travel agencies, cruise lines, real estate agents and brokers, and national consumer lifestyle product advertisers.
This clientele is fragmented and requires a great deal of servicing to maintain strong relationships. Our ability to maintain
client loyalty will be dependent upon our ability to successfully market and distribute their products. We cannot assure you that
we will be successful in maintaining relationships with our artists. Our inability to maintain these relationships could have
a material adverse effect on our business, results of operations and financial condition.
We may encounter intense competition
from substantially larger and better financed companies.
Our success will depend upon our ability
to continue to penetrate the consumer market for media-oriented products and establish a television network with sufficient ratings
to cover the costs associated with operating the network and provide a return to our investors. Our Television Network, Travel
Company and Real Estate business will compete with more established entities with greater financial resources, longer operating
histories and more recognition in the market place than we do. It is also possible that previously unidentified competitors may
enter the market place and decrease our chance of acquiring the requisite market share. Our future success will depend upon our
continued ability to penetrate the market quickly and efficiently. Our ability to respond to competitive product offerings and
the evolving demands of the marketplace will play a key role in our success. Our failure to develop, maintain and continually
improve our distribution process could prevent us from attaining and maintaining sufficient market share. If we are unable to
respond and compete in these markets, it will have a material adverse effect on our business, results of operations and financial
condition.
Certain legal proceedings and regulatory
matters could adversely impact our results of operations.
We are involved in certain legal proceedings
and are subject from time to time to various claims involving alleged breach of contract claims, intellectual property and other
related claims employment issues, vendor matters and other litigations. Certain of these lawsuits and claims, if decided adversely
to us or settled by us, could result in material liability to the Company or have a negative impact on the Company’s reputation
or relations with its employees, customers, licensees or other third parties. In addition, regardless of the outcome of any litigation
or regulatory proceedings, such proceedings could result in substantial costs and may require that the Company devotes substantial
time and resources to defend itself. Further, changes in governmental regulations both in the U.S. and in other countries where
we conduct business operations could have an adverse impact on our results of operations. See Item 3 —
“Legal Proceedings”
for further discussion of the Company’s legal matters.
We may not be able to adequately manage
future growth.
If we are successful in implementing our
business plan to maturity, the anticipated future growth of the business could place a significant strain on our managerial, operational
and financial resources. We cannot assure you that management would effectively manage significant growth in our business. If
we are successful in executing our business plan and achieve our anticipated growth, such success will place significant demands
on our management, as well as on our administrative, operational and financial resources. For us to manage our growth and satisfy
the greater financial disclosure and internal control requirements that arise with exiting the development stage and becoming
fully operational, we must:
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upgrade our operational, financial, accounting and management
information systems, which would include the purchase of new accounting and human resources
software;
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identify
and hire an adequate number of operating, accounting and administrative personnel and
other qualified employees;
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manage new
employees and integrate them into our culture;
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incorporate
effectively the components of any businesses or assets that we may acquire in our effort
to achieve or support growth;
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closely
monitor the actions of our broadcast entities and manage the contractual relationships
we have with them; and
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develop
and improve financial and disclosure processes to satisfy the reporting requirements
of the SEC, including Section 404 of the Sarbanes-OxleyAct of 2002, and the Financial
Industry Regulatory Authority.
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The failure to adequately manage any growth would adversely
affect our business operations and financial results.
Mr. Kerby, Warren Kettlewell and Don
Monaco own approximately 95% of our voting securities which gives them significant influence over the affairs of our Company.
Bill Kerby (CEO and Chariman), Warren
Kettlewell (Director) and Don Monaco (Director), collectively control approximately 95% of our voting securities which gives them
voting control over our Company. Bill Kerby, our Chief Executive Officer, owns 809,611 shares of Series A Preferred Stock; Warren
Kettlewell a director owns 331,403 shares of Series A Preferred stock; and Don Monaco a director owns 1,075,000 shares of Series
A Preferred Stock. Each share of Series A Preferred Stock is equal to 100 votes and votes on the same basis as the common stock.
As a result, Messrs. Kerby, Kettlewell and Monaco collectively control approximately 95% of our voting securities, thereby giving
them significant influence in electing our directors and appointing management possibly delaying or preventing mergers or deals
and suppressing the value of our common stock.
We may be unable to adequately react
to market changes.
Our success is partially dependent upon
our ability to develop our market and change our business model as may be necessary to react to changing market conditions. Our
ability to modify or change our business model to fit the needs of a changing market place is critical to our success, and our
inability to do so could have a material adverse effect on our business, liquidity and financial condition.
There are potential conflicts of interests
and agreements that are not subject to arm’s length negotiations.
There may be conflicts of interest between
our management and our non-management stockholders.
Some of our officers, including our Chief Executive Officer
and our Chief Financial Officer are executive officers of RealBiz and therefore are currently working for the Company on a part-time
basis. Several of the part-time employees also work at other jobs and have discretion to decide what time they devote to our activities,
which may result in a lack of availability when needed due to responsibilities at other jobs.
Conflicts of interest create the risk
that management may have an incentive to act adversely to the interests of other investors. A conflict of interest may arise between
our management’s personal pecuniary interest and its fiduciary duty to our stockholders. Further, our management’s
own pecuniary interest may at some point compromise its fiduciary duty to our stockholders. In addition, our officers and directors
are currently involved with other blank check companies and conflicts in the pursuit of business combinations with such other
blank check companies with which they and other members of our management are, and may in the future be affiliated with, may arise.
If we and the other blank check companies that our officers and directors are affiliated with desire to take advantage of the
same opportunity, then those officers and directors that are affiliated with both companies would abstain from voting upon the
opportunity. In the event of identical officers and directors, the officers and directors will arbitrarily determine the Registrant
that will be entitled to proceed with the proposed transaction.
Risks Related to Investment in
Our Securities
There is not presently an active market
for shares of our common stock, and therefore, you may be unable to sell any shares of common stock in the event that you need
a source of liquidity.
Although our common stock is quoted on
the OTCQB, the trading market in our common stock has substantially less liquidity than the trading in stock on other markets
or stock of other companies quoted on the OTCQB. A public trading market in our common stock having the desired characteristics
of depth, liquidity and orderliness depends on the presence in the market of willing buyers and sellers of our common stock at
any time. This presence depends on the individual decisions of investors and general economic and market conditions over which
we have no control. In the event an active market does not develop, you may be unable to sell your shares of common stock at or
above the price you paid for them or at any price. Also, due to a significant amount of issuances of our stock in a short period
of time, the Depository Trust Corporation has placed a temporary “chill” on new issuances which may further delay
the transfer of shares.
Existing stockholders may suffer substantial
dilution with future issuances of our common stock.
We may continue to issue a large amount
of securities or debt that can be converted into common stock within the next several years, either in connection with our equity
incentive plan for directors, officers, key employees and consultants, or in private or public offerings to meet our working capital
requirements. In addition, we have convertible debt and 8,063,184 outstanding warrants. Also, there are currently 2,216,014 shares
of the Company’s Series A Preferred Stock, which are convertible into shares of common stock at $0.01. Any grants or sales
of additional shares of our common stock, or exercise of our convertible instruments will have a dilutive effect on the existing
stockholders, which could adversely affect the value of our common stock.
Our management, through its significant
ownership of our common and preferred stock, has substantial control over our operations.
Our management owns a significant portion
of the total outstanding shares of our common stock. These officers and employees have been and will continue to be able to significantly
influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers
or other business combination transactions.
We have identified material weaknesses
in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional
material weaknesses will not occur in the future. If our internal control over financial reporting or our disclosure controls
and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud, or file our periodic
reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to
a decline in our stock price.
Our most recent evaluation of our internal
controls resulted in our conclusion that our disclosure controls and procedures and that our internal controls over financial
reporting were not effective. Effective internal controls are necessary for us to provide reliable financial reports. All internal
control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation. In our case, our failure to achieve
and maintain an effective internal control environment could cause us to be unable to produce reliable financial reports or prevent
fraud. This may cause investors to lose confidence in our reported financial information, which could in turn have a material
adverse effect on our stock price.
Our lack of an independent audit committee and audit committee
financial expert at this time may hinder our board of directors’ effectiveness in fulfilling the functions of the audit
committee without undue influence from management and until we establish such committee will prevent us from obtaining a listing
on a national securities exchange.
Although our common stock is not listed
on any national securities exchange, for purposes of independence we use the definition of independence applied by NASDAQ.
Currently, we have no independent audit committee. Our full board of directors functions as our audit committee and is comprised
of five directors, two of whom are considered to be "independent" in accordance with the requirements set forth
in NASDAQ Listing Rule 5605(a)(2). An independent audit committee plays a crucial role in the corporate governance process, assessing
our Company's processes relating to our risks and control environment, overseeing financial reporting, and evaluating internal
and independent audit processes. The lack of an independent audit committee may prevent the board of directors from being independent
from management in its judgments and decisions and its ability to pursue the responsibilities of an audit committee without
undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable
to attract and retain qualified, independent directors, the management of our business could be compromised. An independent audit
committee is required for listing on any national securities exchange, therefore until such time as we meet the audit committee
independence requirements of a national securities exchange we will be ineligible for listing on any national securities exchange.
Our board of directors act as our compensation
committee, which presents the risk that compensation and benefits paid to those executive officers who are board members and other
officers may not be commensurate with our financial performance.
A compensation committee consisting of
independent directors is a safeguard against self-dealing by company executives. Our board of directors acts as the compensation
committee and determines the compensation and benefits of our executive officers, administers our employee stock and benefit plans,
and reviews policies relating to the compensation and benefits of our employees. Our lack of an independent compensation committee
presents the risk that our executive officer on the board may have influence over his personal compensation and benefits levels
that may not be commensurate with our financial performance.
We have never paid cash dividends and do not anticipate
paying any in the foreseeable future.
We have never declared or paid a cash dividend and we do not
expect to have any cash with which to pay cash dividends in the foreseeable future. If we do have available cash, we intend to
use it to grow our business.
Our incorporation documents and Nevada law may inhibit a
takeover that stockholders consider favorable and could also limit the market price of your shares of common stock, which may
inhibit an attempt by our stockholders to change our direction or management.
Nevada law and our certificate of incorporation contain provisions
that could delay or prevent a change in control of our Company. Some of these provisions include the following:
(a) authorize our board of directors to determine the rights,
preferences, privileges and restrictions granted to, or imposed upon, the preferred stock and to fix the number of shares constituting
any series and the designation of such series without further action by our stockholders; and
(b) Prohibit cumulative voting in the election of directors,
which would otherwise allow less than a majority of stockholders to elect director candidates.
These and other provisions in our amended
and restated certificate of incorporation and under Nevada law could reduce the price that investors might be willing to pay for
shares of our common stock in the future and result in the market price being lower than it would be without these provisions.
We adopted provisions in our amended
and restated certificate of incorporation limiting the liability of management to stockholders.
We have adopted provisions, and will maintain
provisions, to our amended and restated certificate of incorporation that limit the liability of our directors, and provide for
indemnification by us of our directors and officers to the fullest extent permitted by Nevada law. Our amended and restated certificate
of incorporation and Nevada law provides that directors have no personal liability to third parties for monetary damages for actions
taken as a director, except for breach of duty of loyalty, acts or omissions not in good faith involving intentional misconduct
or knowing violation of law, unlawful payment of dividends or unlawful stock repurchases, or transactions from which the director
derived improper personal benefit. Such provisions limit the stockholders’ ability to hold directors liable for breaches
of fiduciary duty and reduce the likelihood of derivative litigation against directors and officers.
We are subject to the penny stock rules,
which may adversely affect trading in our common stock.
Currently our common stock is a “low-priced”
security under the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance
with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document
that describes the risks associated with such stocks, the broker-dealers’ duties in selling the stock, the customer’s
rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination
approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience
and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent
from the customer, and provide monthly account statements to the customer. The effect of these restrictions will probably decrease
the willingness of broker- dealers to make a market in our common stock, decrease liquidity of our common stock and increase transaction
costs for sales and purchases of our common stock as compared to other securities. Our management is aware of the abuses that
have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of
the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations
to prevent abuses normally associated with “low-priced” securities from being established with respect to our securities.
As an issuer of “penny stock,”
the protection provided by the federal securities laws relating to forward looking statements does not apply to us.
Although federal securities laws provide
a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this
safe harbor is not available to issuers of penny stocks. As a result, the Company will not have the benefit of this safe harbor
protection in the event of any legal action based upon a claim that the material provided by the Company contained a material
misstatement of fact or was misleading in any material respect because of the Company’s failure to include any statements
necessary to make the statements not misleading. Such an action could hurt our financial condition.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The Company leases approximately 6,500
square feet of office space in Weston, Florida pursuant to a lease agreement, with Bedner Farms, Inc. of the building located
at 2690 Weston Road, Weston, Florida 33331. In accordance with the terms of the lease agreement, the Company is renting the commercial
office space, for a term of five years commencing January 1, 2011 through December 31, 2015. The rent for the year ended February
28, 2014 was $135,233. In September of 2011, the Company sublet a portion of its office space offsetting our rent expense by $1,500
per month. In November 2012, the Company entered into another agreement to sublet a portion of its office space offsetting our
rent expense by an additional $2,500 per month, this tenant will pay $2,750 as of January 2014. In January 2014, the total monthly
rent sublet offset is $4,250. The Company currently does not own any real property.
Item 3. Legal Proceedings
The Company is a defendant in a lawsuit filed by Twelfth Child Entertainment in the Circuit Court for
Palm Beach, Florida alleging that Next 1 owes 11,000 shares of Series D Preferred stock for a License Agreement. The case is being
strongly contested and is in arbitration.
Item 4. Mine Safety Disclosures
Not applicable.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an
integral part of these consolidated financial statements.
Note 1 - Summary of Business Operations and Significant
Accounting Policies
Nature of Operations and Business Organization
Next 1 Interactive, Inc. (“Next
1” or the “Company”) is a media based company focusing directly on the travel segment and indirectly through
our 61% ownership interest in RealBiz Media Group, Inc. a publicly traded real estate media company (“RealBiz”), on
the real estate segment. The Company's and RealBiz’s mission has been to both create and acquire travel and real estate
video content that can be delivered on any screen (Television, web and mobile), all with interactive advertising and transactional
shopping components that engage and enable viewers to request information, make purchases and get an in-depth look at products
and services all through their device of choice.
Next 1 is a multi-faceted interactive
media company whose key focus is around what we believe to be two of the most universal, yet powerful consumer-passion categories
- real estate and travel. We are engaged in the business of providing digital media and marketing services for the travel industry
and, indirectly through RealBiz, for the real estate industry. We plan to deliver targeted content via digital platforms including
satellite, cable, broadcast, Broadband, Web, Print and Mobile. We currently generate revenue from commissions from (i) traditional
sales of our travel products as well as advertising revenue from preferred suppliers and sponsors and referral fees; (ii) travel
media services which include video monthly sponsorship packages, pre-roll advertising, commissions and referral fees; and (iii)
revenue derived from the real estate operations of RealBiz. We have three divisions: (x) our Maupintour Extraordinary Vacations,
which is the oldest tour operator in the United States; (y) NextTrip.com, a video and media website with state of the art booking
engines; (z) TripProfessionals.com, a trip professional membership program which is an at home agency program allowing the consumer
to customize and book travel while earning commission. In addition, RealBiz generates revenue from advertising revenues, real
estate broker commissions and referral fees. RealBiz also has three divisions: (i) its fully licensed real estate division (formerly
known as Webdigs, Inc.); (ii) its TV media contracts (Extraordinary Vacation Homes/ Third home) division; and (iii) its Real Estate
Virtual Tour and Media group (RealBiz 360). The cornerstone of all three divisions is the proprietary technology which allows
for an automated conversion of data (text and pictures of home listings) to a video with voice and music. At present the Company
operates travel companies and travel media services, RealBiz Media Group Inc., operates the Home Tour Network. The Home Tour Network
owns technology that allows it to create video from real estate agents home listings which can be featured on hundreds of relevant
real estate related websites, You Tube and VOD Television Networks in 2 cities on the Cox Communications Network and Comcast Cable
Network
RealBiz Media is engaged in the business
of providing digital media and marketing services for the real estate industry. RealBiz Media currently generates revenue from
advertising revenues, real estate broker commissions and referral fees. RealBiz has positioned itself in the following three areas
summarized here and explained in more detail below:
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Real Estate
Video on Demand Channel – We earn fees from pre-roll/post-roll advertising, banner ads and cross-market advertising
promotions. We charge an $89 listing and marketing fee, and earn revenue from web-based and mobile advertising.
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Website and Mobile Applications
– We are developing a real estate web portal. This site is expected to be unique to the world of real estate search
sites on multiple levels, from a consumer perspective the user experience is being designed to be completely visual and
video centric, secondly, the site will provide local neighborhood information and allow for social interaction between
home seekers and current residents who can provide an unbiased view of the selected neighborhood, and the content on the
site will focus on the entire home ownership lifecycle from purchase through maintenance to home sale therefore giving
the site a much deeper and more loyal audience over time.
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Agent to Agent Interaction-From
an industry perspective we believe the site will be revolutionary because it includes an agent only platform that is being
designed to allow for agent to agent interaction, and “App Store” for relevant video content, community events,
discount coupons, industry news and agent share programs. This site will completely empower the agent with content and
assets that they can use to pursue prospects and generate leads at a fraction of the cost they’re currently paying.
This agent only site will interact with our Microvideo App (MVA) platform. The MVA was developed and implemented to allow
agents to access specific video based product strategies that are designed specifically to increase the SEO rank and traffic
credit to real estate franchise systems and/or their brokers. This solution gives those franchises and brokers a much
needed tool to lower their cost of prospect acquisition.
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Effective May 22, 2012, the Company effected
a 1-for-500 reverse stock split, which reduced the number of issued and outstanding shares from 1,848,014,287 to 3,696,029 shares.
The consolidated financial statements have been retroactively adjusted for all periods presented to reflect this reverse stock split.
Material Definitive Agreement
On October 9, 2012, our Company, Next
1 Interactive, Inc., a Nevada corporation (“Next 1”) and RealBiz Media Group, Inc., formerly known as Webdigs, Inc.
(“Webdigs”), completed the transactions contemplated by that certain Share Exchange Agreement entered into on April
4, 2012 (the “Exchange Agreement”). Under the Exchange Agreement, our Company exchanged with Webdigs all of the outstanding
equity in Attaché Travel International, Inc., a Florida corporation and wholly owned subsidiary of Next 1 (“Attaché”).
Attaché owns approximately 85% of a corporation named RealBiz Holdings Inc., which is the parent corporation of RealBiz360,
Inc. (“RealBiz”). RealBiz is a real estate media services company whose proprietary video processing technology provides
home virtual tours to the real estate industry. In exchange for our Attaché shares, our Company received 93 million shares
of newly designated Series A Convertible Preferred Stock (“Webdigs Series A Stock”). The exchange of Attaché
shares in exchange for Webdigs Series A Stock is referred to as the “Exchange Transaction.”
Note 1 - Summary of Business Operations and Significant
Accounting Policies (continued)
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries. All material inter-company transactions and
accounts have been eliminated in consolidation.
The Company owns an 85% interest in RealBiz
Holdings, Inc. and a 61% interest in RealBiz Media and these entities’ accounts are consolidated in the accompanying financial
statements because we have control over operating and financial policies. All inter-company balances and transactions have been
eliminated. The 39% non-controlling interest in RealBiz Media Group, Inc. is represented by 1,009,762 shares of Series A Preferred
Stock with an annual dividend rate of 10% and 58,097,461 share of RealBiz Media Group, Inc. common stock
Noncontrolling Interests
The Company accounts for its less than
100% interest in consolidated subsidiaries in accordance with ASC Topic 810, Consolidation, and accordingly the Company presents
noncontrolling interests as a component of equity on its consolidated balance sheets and reports noncontrolling interest net loss
under the heading “Net loss applicable to noncontrolling interest in consolidated subsidiary” in the consolidated
statements of operations.
Use of Estimates
The Company’s significant estimates
include allowance for doubtful accounts, valuation of intangible assets, stock based compensation, accrued expenses and derivative
liabilities. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. While the Company believes
that such estimates are fair when considered in conjunction with the consolidated financial statements taken as a whole, the actual
amounts of such estimates, when known, will vary from these estimates. If actual results significantly differ from the Company’s
estimates, the Company’s financial condition and results of operations could be materially impacted.
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.
Accounts Receivable
The Company extends credit to its customers
in the normal course of business. Further, the Company regularly reviews outstanding receivables, and provides for estimated losses
through an allowance for doubtful accounts. 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. For the years ended February 28, 2014 and 2013, the Company recognized an allowance for doubtful accounts
of $76,823 and $-0-, respectively.
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 $7,131 and $-0- for the years ended February 28, 2014 and 2013, 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. As of February 28, 2014, the Company did not impair any long-lived assets.
Website Development Costs
The Company accounts for website development
costs in accordance with Accounting Standards Codification 350-50 “Website Development Costs”. Accordingly, all costs
incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development
stage that meet specific criteria are capitalized and costs incurred in the day to day operation of the website are expensed as
incurred.
Note 1 - Summary of Business Operations and Significant
Accounting Policies (continued)
Website Development Costs(continued)
Management placed the RRTV.com website
into service during the fiscal year ended February 28, 2010, subject to straight-line amortization over a three-year period. The
Company has now launched two additional websites, Maupintour.com and Nexttrip.com, during June 2013, subject to straight-line
amortization over a three-year period.
Goodwill and Other Intangible Assets
In accordance with ASC 350-30-65 “Goodwill
and Other Intangible Assets, the Company assesses the impairment of identifiable intangible assets whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important, which could
trigger an impairment review include the following:
1. Significant underperformance to historical
or projected future operating results;
2. Significant changes in the manner or
use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic
trends.
When the Company determines that the carrying
value of an intangible may not be recoverable based upon the existence of one or more of the above indicator of impairment and
the carrying value of the asset cannot be recovered from projected undiscounted cash flow, the Company records an impairment charge.
The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management
to be commensurate with the risk inherent to the current business model. Significant management judgment is required in determining
whether an indicator of impairment exists and in projecting cash flows.
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.
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 interpretation 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.
We estimate 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, we consider, 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,
we generally use 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. Under the terms of the new accounting
standard, 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.
Based upon ASC 815-25 the Company has adopted
a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible debentures. Pursuant to the sequencing
approach, the Company evaluates its contracts based upon earliest issuance date.
Earnings per Share
Basic earnings per share are computed by dividing net income
by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed
by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. Diluted loss per common share is not presented because it is anti-dilutive.
Note 1 - Summary of Business Operations and Significant
Accounting Policies (continued)
Earnings per Share(continued)
The Company’s common stock equivalents
include the following:
|
|
|
February 28,
2014
|
|
|
February 28,
2013
|
|
|
Series A convertible preferred stock issued and outstanding
|
|
|
221,601,400
|
|
|
|
2,366,014
|
|
|
Series B convertible preferred stock issued and outstanding
|
|
|
285,900
|
|
|
|
2,138,000
|
|
|
Series C convertible preferred stock issued and outstanding
|
|
|
42,000
|
|
|
|
180,000
|
|
|
Series D convertible preferred stock issued and outstanding
|
|
|
860,520
|
|
|
|
5,760,385
|
|
|
Warrants to purchase common stock issued, outstanding and exercisable
|
|
|
8,178,184
|
|
|
|
6,495,778
|
|
|
Stock options issued, outstanding and exercisable
|
|
|
4,050
|
|
|
|
4,050
|
|
|
Shares on convertible promissory notes
|
|
|
10,776,616
|
|
|
|
32,133,155
|
|
|
|
|
|
241,748,670
|
|
|
|
49,077,382
|
|
Revenue recognition
Travel
Gross travel tour revenues represent the
total retail value of transactions booked for both agency and merchant transactions recorded at the time of booking, reflecting
the total price due for travel by travelers, including taxes, fees and other charges, and are generally reduced for cancellations
and refunds. We also generate revenue from paid cruise ship bookings in the form of commissions. Commission revenue is recognized
at the date the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist
and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied
are recorded as unearned revenue.
Media
Through our subsidiary, RealBiz Media Group, Inc., marketing and promotional services are provided to agents or brokers via
a web-based portal that allows for credit card payments. Customers may pay a monthly recurring fee or an annual fee. Some
customers additionally pay a one-time set up fee. Monthly recurring fees are recognized in the month the service is rendered.
Collection of one-time set up fees and annual services fees give rise to recognized monthly revenue in the then-current month
as well as deferred revenue liabilities representing the collected fee for services yet to be delivered.
Under these policies, no revenue is recognized
unless persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is
deemed reasonably assured. The Company considers an insertion order signed by the client or its agency to be evidence of an arrangement.
Cost of Revenues
Cost of revenues, for the travel
segment, includes costs directly attributable to services sold and delivered. These costs include such items as amounts paid
for airlines, hotels, excursions, sales commissions to business
partners, industry conferences and public relations costs. Cost of revenues, for the media segment, include such items as credit card fees, sales commission to business partners, expenses
related to our participation in industry conferences, and public relations expenses.
Sales and Promotion
Sales and marketing expenses consist primarily
of advertising and promotional expenses, salary expenses associated with sales and marketing staff, expenses related to our participation
in industry conferences, and public relations expenses. The goal of our advertising is to acquire new subscribers for our e-mail
products, increase the traffic to our Web sites, and increase brand awareness.
Advertising Expense
Advertising costs are charged to expense
as incurred and are included in selling and promotions expense in the accompanying consolidated financial statements. Advertising
expense for the years ended February 28, 2014 and 2013 was $309,359 and $131,504.
Note 1 - Summary of Business Operations and Significant
Accounting Policies (continued)
Share Based Compensation
The Company computes share based payments
to employees 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.
Equity instrument issued to non-employees for goods or services are accounted for at fair value and marked to market until service
is complete or a performance commitment date is reached, whichever is earlier, in accordance with ASC 505-50.
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.
Income Taxes
The Company accounts for income taxes
in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes.
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 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.
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, accounts payable, accrued liabilities and other current liabilities. The carrying
amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively
short- term nature. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar
remaining maturities. The carrying amounts approximate fair value. It is management’s opinion that the Company is not exposed
to any significant currency or credit risks arising from these financial instruments. See footnote 18 for fair value measurements.
Foreign Currency and Other Comprehensive Income (Loss)
The functional currency of our foreign
subsidiaries is the applicable local currency, the Canadian dollar. The translation from the respective foreign currencies to United States
Dollars (U.S. Dollar) is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date
and for income statement accounts using a weighted average exchange rate during the period. Gains or losses resulting from such
translation are included as a separate component of accumulated other comprehensive income. Gains or losses resulting from foreign
currency transactions are included in foreign currency income or loss except for the effect of exchange rates on long-term inter-company
transactions considered to be a long-term investment, which are accumulated and credited or charged to other comprehensive income.
Transaction
gains and losses are recognized in our results of operations based on the difference between the foreign exchange rates on the
transaction date and on the reporting date. We recognized net foreign exchange gains of $13,827 and $2,334 for the years ended
February 28, 2014 and 2013, respectively. The foreign currency exchange gains and losses are included as a component of other
(income) expense, net, in the accompanying Consolidated Statements of Operations. For the years ended February 28, 2014 and 2013,
the unrealized loss on foreign currency translation adjustment was $85,776 and $33,459 respectively
.
The exchange rate adopted for the foreign exchange transactions are the rates of exchange as quoted on OANDA. Translation
of amount from Canadian dollars into United States dollars was made at the following exchange rates for the respective periods:
|
|
•
|
As of February 28, 2014 - Canadian dollar .8981 to $1.00
|
|
|
•
|
As of February 28, 2013 - Canadian dollar .9747 to $1.00
|
|
|
•
|
For the year ended February 28, 2014 - Canadian dollar .9684 to $1.00
|
|
|
•
|
For the year ended February 28, 2013 - Canadian dollar 1.0015 to $1.00
|
Note 1 - Summary of Business Operations and Significant
Accounting Policies (continued)
Reclassifications
The Company reclassified certain amounts previously reported
in the fiscal year ended February 28, 2013 to conform to the classifications used in the period ended February 28, 2014. Such
reclassifications have no effect on the reported net loss.
Recent Accounting Pronouncements
In July 2013, the FASB issued Accounting
Standards Update No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar
Tax Loss, or a Tax Credit Carryforward Exists" ("ASU No. 2013-11"). ASU No. 2013-11 requires an entity to present
an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred
tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with limited exceptions. ASU
No. 2013-11 is effective for interim and annual periods beginning after December 15, 2013 and may be applied retrospectively.
The adoption of the provisions of ASU No. 2013-11 did not have a material impact on the company's financial position or results
of operations.
In March 2013, the FASB issued Accounting
Standards Update No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain
Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU No. 2013-05").
ASU No. 2013-05 requires an entity that ceases to have a controlling financial interest in a subsidiary or group of assets within
a foreign entity to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation
adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation
of the foreign entity in which the subsidiary or group of assets had resided. ASU No. 2013-05 is effective for interim and annual
periods beginning after December 15, 2013, with early adoption permitted and is to be applied prospectively. The adoption of the
provisions of ASU No. 2013-05 did not have a material impact on the company's financial position or results of operations.
In February 2013, the FASB issued amendments
to the accounting guidance for presentation of comprehensive income to improve the reporting of reclassifications out of accumulated
other comprehensive income. The amendments do not change the current requirements for reporting net income or other comprehensive
income, but do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive
income by component. In addition, an entity is required to present, either on the face of the statement where the net income is
presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line
items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety
in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income,
an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about these amounts.
For public companies, these amendments are effective for reporting periods beginning after December 15, 2012. Other than
a change in presentation, the adoption of these amendments to the accounting guidance did not have a material impact on the Company's
consolidated financial position or results of operations.
Note 2 - Going Concern
As reflected in the accompanying consolidated
financial statements, the Company had an accumulated deficit of $87,625,076 and a working capital deficit of ($13,549,796) at
February 28, 2014, net losses for the year ended February 28, 2014 of $18,295,802 and cash used in operations during the year
ended February 28, 2014 of $4,590,428. While the Company is attempting to increase sales, the growth has yet to achieve significant
levels to fully support its daily operations.
Management’s plans with regard to
this going concern are as follows: The Company will continue to raise funds with third parties by way of a public or private offering.
Management and members of the Board are working aggressively to increase the viewership of our products by promoting it across
other mediums which will increase value to advertisers and result in higher advertising rates and revenues.
While the Company believes in the viability
of its strategy to improve sales volume and in its ability to raise additional funds, there can be no assurances to that effect.
The Company’s limited financial resources have prevented the Company from aggressively advertising its products and services
to achieve consumer recognition. The ability of the Company to continue as a going concern is dependent on the Company’s
ability to further implement its business plan and generate greater revenues. The consolidated financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as a going concern. Management believes that the
actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity
for the Company to continue as a going concern.
Note 3 – Notes Receivable
On August 23, 2013, the Company advanced
$20,000 to a non-related third party and signed a 6% promissory note with a maturity date of September 30, 2013. The entire principal
amount plus $128 of accrued interest was received and the note fully satisfied on October 1, 2013.
Note 4 – Property and Equipment
During the year ended February 28,
2014, the Company recorded the purchase of $42,149 of computer equipment which has not been placed into service and $20,367
of computer equipment placed into service. Any property and equipment previously recorded in prior fiscal years, was fully
impaired and written off. Computer equipment placed into service is depreciated using the straight-line method over an
estimated useful life of three (3) years. Depreciation expense recorded for the years ended February 28, 2014 and 2013 was
$7,131 and $-0-, respectively.
Note 5 – Website Development Costs and Intangible
Assets
The following table sets forth the intangible
assets, both acquired and developed, including accumulated amortization:
|
|
|
February 28, 2014
|
|
|
|
Remaining
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Marketing Agreement
|
|
2.1 years
|
|
$
|
4,796,178
|
|
|
$
|
1,913,256
|
|
|
$
|
2,882,922
|
|
|
Website development costs
|
|
0.1 years
|
|
|
756,980
|
|
|
|
731,875
|
|
|
|
25,105
|
|
|
Website development costs (not placed in service)
|
|
3.0 years
|
|
|
1,173,300
|
|
|
|
-0-
|
|
|
|
1,173,300
|
|
|
|
|
|
|
$
|
6,726,458
|
|
|
$
|
2,645,131
|
|
|
$
|
4,081,327
|
|
|
|
|
February 28, 2013
|
|
|
|
Remaining
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier Relationships
|
|
0.0 years
|
|
$
|
7,938,935
|
|
|
$
|
7,938,935
|
|
|
$
|
-0-
|
|
|
Technology
|
|
0.0 years
|
|
|
5,703,829
|
|
|
|
5,703,829
|
|
|
|
-0-
|
|
|
Sales/Marketing Agreement
|
|
3.1 years
|
|
|
4,796,178
|
|
|
|
535,908
|
|
|
|
4,260,270
|
|
|
Website development costs
|
|
0.7 years
|
|
|
719,323
|
|
|
|
690,832
|
|
|
|
28,491
|
|
|
Trade Name
|
|
0.0 years
|
|
|
291,859
|
|
|
|
291,859
|
|
|
|
-0-
|
|
|
|
|
|
|
$
|
19,450,124
|
|
|
$
|
15,161,363
|
|
|
$
|
4,288,761
|
|
Intangible
assets are amortized on a straight-line basis over their expected useful lives, estimated to be up to 4 years, except for
the website development costs which is 3 years. The Company evaluated the remaining useful life of the intangibles and did
not record an impairment of intangible assets during the years ended February 28, 2014 and 2013. Amortization expense related
to intangible assets was $1,418,391 and $604,008 for the years ended February 28
,
2014 and February 28, 2013, respectively.
Note 6 – Acquisitions
On October 3, 2012, the Company entered
a securities exchange agreement and exercised the option purchase agreement to purchase 664.1 common shares of RealBiz Holdings,
Inc. The Company applied $300,000 of cash, issued a Series D Preferred Stock subscription agreement for
380,000 shares valued at $1,900,000 and
agreed to a $50,000 thirty day (30) day post-closing final buyout bringing the total value of the agreement to $2,250,000.
The Company accounted for the acquisition
utilizing the purchase method of accounting in accordance with ASC 805 "Business Combinations". The Company is the acquirer
for accounting purposes and RealBiz Holdings, Inc. is the acquired Company. Accordingly, the Company applied pushdown accounting
and adjusted to fair value all of the assets and liabilities directly on the financial statements of the subsidiary, RealBiz Holdings,
Inc.
The net purchase price, including acquisition
costs paid by the Company, was allocated to assets acquired and liabilities assumed on the records of the Company as follows:
|
Cash
|
|
$
|
34,366
|
|
|
Other current assets
|
|
|
40,696
|
|
|
Intangible asset
|
|
|
4,796,178
|
|
|
|
|
|
4,871,240
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other miscellaneous payables
|
|
|
2,330,846
|
|
|
Deferred revenue
|
|
|
48,569
|
|
|
Convertible notes payable to officer
|
|
|
241,825
|
|
|
|
|
|
2,621,240
|
|
|
Net purchase price
|
|
$
|
2,250,000
|
|
Note 6 – Acquisitions (continued)
Unaudited pro forma results of operations data as if the acquisition
of RealBiz Holdings, Inc. and RealBiz Media Group, Inc. had occurred as of
March 1, 2012 is as follows:
|
|
|
The Company, Real Biz
Holdings, Inc and RealBiz
Media Group, Inc.
|
|
|
|
|
For the year ended
|
|
|
|
|
February 28, 2013
|
|
|
|
|
|
|
|
Pro forma revenue
|
|
$
|
1,743,620
|
|
|
|
|
|
|
|
|
Pro forma operating loss
|
|
$
|
5,388,815
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
4,850,543
|
|
|
|
|
|
|
|
|
Pro forma basic and diluted net loss per share
|
|
$
|
.65
|
|
On October 9, 2012, Next 1 and RealBiz
Media, formerly known as Webdigs, Inc. (“Webdigs”), completed the transactions contemplated by that certain Share
Exchange Agreement entered into on April 4, 2012 (the “Exchange Agreement”). Under the Exchange Agreement, the Company
received all of the outstanding equity in Attaché Travel International, Inc., a Florida corporation and wholly owned subsidiary
of Next 1 (“Attaché”). Attaché in turn owns approximately 85% of a corporation named RealBiz Holdings
Inc., which is the parent corporation of RealBiz360, Inc. (“RealBiz”). RealBiz is a real estate media services company
whose proprietary video processing technology has made it one of the leaders in providing home virtual tours to the real estate
industry. In exchange for our Attaché shares, the Company received 93 million shares of newly designated Series A Convertible
Preferred Stock (”Webdigs Series A Stock”). The exchange of Attaché shares in exchange for Webdigs Series A
Stock is referred to as the “Exchange Transaction.”
Note 7 – Accounts Payable and Accrued Expenses
For the years ended February 28, 2014 and 2013, accounts payable
and accrued expenses consist of the following, respectively:
|
|
|
February 28,
|
|
|
February 28,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
1,448,379
|
|
|
$
|
1,902,896
|
|
|
Accrued interest
|
|
|
603,695
|
|
|
|
533,456
|
|
|
Deferred salary
|
|
|
453,868
|
|
|
|
76,891
|
|
|
Accrued expenses - other
|
|
|
262,889
|
|
|
|
145,826
|
|
|
|
|
$
|
2,768,831
|
|
|
$
|
2,659,069
|
|
During the year ended February 28, 2014, the Company negotiated
the reduction of outstanding balances with various vendors resulting in a gain on settlement of debt in the amount of $59,411.
Note 8 – Notes Payable
The following table sets forth the notes
payable as of February 28, 2014 and 2013, respectively:
|
|
|
Principal
|
|
|
|
|
2/28/14
|
|
|
2/28/13
|
|
|
On September 6, 2011, the Company re-negotiated the note, due to default, until
February 1, 2013 for $785,000. Beginning on October 1, 2011, the Company shall make payments of $50,000 due on
the first day of each month. The first $185,000 in payments shall be in cash and the remaining $600,000 shall be
made in cash or common stock. On February 15, 2012, the noteholder assigned $225,000 of its $785,000 outstanding
promissory note to a non-related third party investor and the Company issued a new convertible promissory note for the same
value. As of February 28, 2014, the remaining principal balance is $510,000 and the Company is in default of this note.
|
|
$
|
510,000
|
|
|
$
|
510,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 16, 2004, the Company entered into a promissory note with an unrelated third party
for $500,000. The note bears interest at 7% per year, matures in March 2011 and is payable in quarterly installments of $25,000.
As of February 28, 2014, the remaining principal balance is $137,942, un-paid accrued interest is $160,114 and the Company
is in default of this note.
|
|
|
137,942
|
|
|
|
167,942
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2009, the Company restructured note agreements with three existing noteholders.
The collective balance at the time of the restructuring was $250,000 plus accrued interest payable of $158,000 which was consolidated
into three new notes payable totaling $408,000. The notes bear interest at 10% per year and matured on May 31, 2010, at which
time the total amount of principal and accrued interest was due. In connection with the restructure of these notes the Company
issued 150,000 detachable 3 year warrants to purchase common stock at an exercise price of $3.00 per share. The warrant issuance
was recorded as a discount and amortized monthly over the terms of the note. On July 30, 2010, the Company issued 535,000
shares of common stock to settle all of these note agreements except for $25,000. As of February 28, 2014, the remaining principal
balance is $25,000, un-paid accrued interest is $8,754 and the Company is in default of this note.
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the acquisition of Brands on Demand, a five year lease agreement was entered
into by an officer of the Company. Subsequent to terminating the officer, the Company entered into an early termination
agreement with the lessor in the amount of $30,000 secured by a promissory note to be paid in monthly installments of $2,500,
beginning June 1, 2009 and maturing June1, 2010. As of February 28, 2014, the Company has not made any installment payments
on this obligation, the remaining principal balance is $30,000, un-paid accrued interest is $15,497 and the Company is in
default of this note.
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 5, 2011, the Company converted $252,833 of accounts payable
and executed a 8% promissory note to same vendor. Commencing on December 5, 2011 and continuing on the 1st day
of each calendar month thereafter, the Company shall pay $12,000 per month. All payments shall be applied first
to payment in full of any costs incurred in the collection of any sum due under this Note, including, without limitation,
reasonable attorney's fee, then to payment in full of accrued and unpaid interest and finally to the reduction of the outstanding
principal balance of the Note. As of February 28, 2014, the remaining principal balance is $221,129, un-paid accrued
interest is $14,308 and the Company is in default on the note.
|
|
|
221,130
|
|
|
|
221,130
|
|
|
|
|
|
924,072
|
|
|
|
954,072
|
|
|
Notes and advances attributable to consolidated subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RealBiz Media Group, Inc., received $35,000 in proceeds and signed a 19% promissory note with
a maturity date of May 15, 2014. The Company is obligated to make twelve equal payments of $3,225 beginning June 15, 2013.
|
|
|
9,378
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
RealBiz Media Group, Inc., received $50,000 in proceeds from a non-related third party investor
in a non-interest bearing advance. It is anticipated that this loan will be converted into either a debt or equity
instrument. As of the date of this audit report its status has remained unchanged.
|
|
|
50,000
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
RealBiz Media Group, Inc., incurred consulting fees in the amount of
$120,000 recorded as a non-interest bearing advance from a non-related third party investor. It is anticipated that this loan
will be converted into either a debt or equity instrument. As of the date of this audit report its status has remained
unchanged.
|
|
|
120,000
|
|
|
|
-0-
|
|
|
|
|
$
|
1,103,450
|
|
|
$
|
954,072
|
|
|
Interest charged to operations relating to these notes was $33,854 and $38,086, respectively
for the years ended February 28, 2014 and 2013.
|
|
|
|
|
|
|
|
|
Note 9 – Other Notes Payable
The following table sets forth the other
notes payable as of February 28, 2014 and 2013, respectively:
|
|
|
Principal
|
|
|
|
|
2/28/14
|
|
|
2/28/13
|
|
|
Related parties:
|
|
|
|
|
|
|
|
|
|
A director and officer has advanced funds, at the interest rate of 18% per annum,
to the Company since inception of which the principal amounts have been repaid. As of February 28, 2014, the Company
does not have any principal balance or accrued interest. Interest expense recognized for the years ended February 28, 2014
and 2013 is $156 and $270 respectively.
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
An entity where a director/officer of the Company is president has advanced funds to the Company
since inception of which the principal amounts have been repaid. As of February 28, 2014, the Company does not have any principal
balance due to this entity, however there is an unpaid accrued interest balance totaling $5,967 Interest expense
recognized for the years ended February 28, 2014 and 2013 is $1,594 and $1,881, respectively.
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 21, 2012, the Company received $50,000 in proceeds from a related-party investor
and issued a bridge loan agreement with no maturity date. In lieu of interest, the Company issued 100,000 two (2)
year warrants with an exercise price of $0.05 per share valued at $1,500 and charged to operations. 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 0.29%, dividend yield of -0-%, volatility factor of 384.11% and expected life of 2 years. During
the year ended February 28, 2013, the Company made a total of $20,000 in principal payments leaving a balance due of $30,000
at February 28, 2013. On July 15, 2013, the Company received $90,000 from the same related-party investor and converted
the remaining balance of $30,000 into a new convertible promissory note valued at $120,000. The new note bears
interest at 12% per annum until the maturity date of December 15, 2013 of which the annual interest rate is 18% per annum. Until
such time of repayment of principal and interest, the holder of the new note may convert, in whole or part, into Series A
or Series B Preferred stock. As of February 28, 2014, the principal balance due is $50,000 with unpaid accrued
interest balance of $5,552. Interest expense recognized for the years ended February 28, 2014 and 2013, is $5,552
and $1,500, respectively. On December 24, 2013 the due date of the note was extended until February 28, 2014.
|
|
|
50,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 23, 2013, the Company received $75,000 in proceeds from a related-party investor
and issued a 6 % promissory note maturing on April 30, 2013. The Company issued 375,000 one (1) year warrants with an exercise
price of $0.03 per share valued at $5,213 and charged as interest expense to operations. 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 0.15%, dividend yield of -0-%, volatility factor of 354.79% and expected life of 1year. As of February 28,
2014, the principal balance due is $25,000 with unpaid accrued interest of $3,956 and is past due. Interest expense
recognized for the years ended February 28, 2014 and 2013 is $3,956 and $-0-, respectively.
|
|
|
25,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-related parties:
|
|
|
|
|
|
|
|
|
|
The Company has an existing promissory note, dated July 23, 2010, with a shareholder
in the amount of $100,000. The note is due and payable on July 23, 2012 and bears interest at rate of 6% per annum.
As consideration for the loan, the Company issued 200 warrants to the holder with a six year life and a fair value of
approximately $33,000 to purchase shares of the Company’s common stock, $0.00001 par value, per share, at an exercise
price of $500 per share. On September 26, February 29, 2012, the noteholder assigned $30,000 of its principal to a non-related
third party investor and the Company issued a convertible promissory note for same value, leaving a remaining principal balance of
$70,000 and un-paid accrued interest of $19,446 as of February 28, 2014. As of February 28, 2014, the
principal balance of this note is in default.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the 200 warrants were estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of .984%, dividend yield
of -0-%, volatility factor of 115.05% and an expected life of 1.5 years. The fair value of warrants is amortized as finance
fees over the term of the loan. The Company has fully amortized the $33,000 in prepaid finance fees incurred upon origination
in prior years. Interest charged to operations relating to this note was $5,209 and $4,905, respectively for the years ended
February 28, 2014 and 2013.
|
|
|
70,000
|
|
|
|
70,000
|
|
|
|
|
$
|
145,000
|
|
|
$
|
175,000
|
|
Note 10 – Other Advances
Related Party
On April 13, 2011, the Company, as part
of a shareholder loan conversion agreement, included $98,000 of related party advances and issued 1,407,016 shares of common stock
and 2,814,032 three (3) year warrants with an exercise price $0.25 per share. On April 13, 2011, the Company converted $70,000
of related party advances into a convertible promissory note. The Company incurred no activity during the years ended February
28, 2014 and 2013 and the remaining principal balance as of February 28, 2014 totaled $18,000.
Non Related Party
Prior to the fiscal year ended February
28, 2011, a non-related party made $50,000 in payments to a vendor on behalf of the Company. The Company incurred no activity
during the years ended February 28, 2014 and 2013 and the remaining principal balance as of February 28, 2014 totaled $50,000.
Note 11 – Shareholder Loans
During the year ended February 28, 2014,
the Company:
|
|
·
|
received
$55,000 in proceeds for shareholder advances
|
|
|
·
|
converted
$11,000 of previous advances into 220,000 shares of RealBiz Media Group, Inc. common
stock, resulting in a loss on settlement of debt in the amount of $31,580
|
|
|
·
|
converted
$110,000 of previous advances, simultaneously converting prior convertible promissory
notes valued at $478,000 with accrued interest of $16,582 into two new convertible promissory
notes of $554,582 and $50,000.
|
The remaining balance as of February 28, 2014 totaled $379,000.
During the year ended February 28, 2013,
the Company:
|
|
·
|
Received
$843,000 in proceeds for shareholder advances. Of this amount, $608,000 was designated
for Series B Preferred Stock subscriptions together with $130,000 received in the previous
year ended February 29, 2012, resulting in Company then issuing 147,600 shares of Series
B Preferred Stock subscriptions with a total value of $738,000.
|
|
|
·
|
Made
payments totaling $20,000 against outstanding shareholder advances.
|
|
|
·
|
Issued
85,000 shares of Series A Preferred stock in satisfaction of $85,000 of shareholder advances
as part of a $481,403 exchange agreement with a related-party shareholder and 32,000
shares of Series D Preferred Stock in satisfaction of a $170,000 of outstanding shareholder
balances.
|
|
|
·
|
Entered
an agreement with a third-party investor to convert $225,000 of shareholder advances
in addition to accrued unpaid interest of $280,000 on various existing convertible promissory
notes combining them into a new 6% convertible promissory note valued at $505,000 with
a maturity date of October 15, 2014.
|
The remaining balance as of February 28, 2013 totaled $445,000.
Note 12 – Settlement agreements
On December 1, 2012, the Company entered
into a settlement agreement with two convertible promissory note holders and agreed to a series of payments totaling $149,917.
The creditors relieved the Company of $145,000 in principal and $32,463 in accrued interest recognizing a gain on settlement of
debt for $27,546 as of February 28, 2013. As of February 28, 2014, the Company has completely satisfied the terms of the agreement.
Note 13 – Convertible Promissory Notes
The Company has convertible promissory
notes with interest rates ranging from 6% to 12% per annum, maturity dates ranging from September 30, 2012 to December 1, 2014
and with a range of fixed and variable conversion features. During years ended February 28, 2014 and 2013, the Company recognized
interest expense of $465,885 and $592,471, respectively. The table below summarizes the convertible promissory notes as of February
28, 2014 and 2013.
|
|
|
2/28/14
|
|
|
2/28/13
|
|
|
|
|
Non
Related
Party
|
|
|
Related
Party
|
|
|
Total
|
|
|
Non
Related
Party
|
|
|
Related
Party
|
|
|
Total
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,545,240
|
|
|
$
|
650,000
|
|
|
$
|
8,195,240
|
|
|
$
|
8,341,905
|
|
|
$
|
355,000
|
|
|
$
|
8,696,905
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from note issuances
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
344,500
|
|
|
|
400,000
|
|
|
|
744,500
|
|
|
Fees assessed
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
31,000
|
|
|
|
-0-
|
|
|
|
31,000
|
|
|
Penalties assessed
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
99,100
|
|
|
|
-0-
|
|
|
|
99,100
|
|
|
Accrued interest converted
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
280,000
|
|
|
|
-0-
|
|
|
|
280,000
|
|
|
Shareholder advances converted
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
225,000
|
|
|
|
-0-
|
|
|
|
225,000
|
|
|
Notes payable converted
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
53,000
|
|
|
|
-0-
|
|
|
|
53,000
|
|
|
Notes issued through debt consolidation
|
|
|
604,582
|
|
|
|
-0-
|
|
|
|
604,582
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
Debt modification
|
|
|
6,071,703
|
|
|
|
-0-
|
|
|
|
6,071,703
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
Assigned
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0—
|
|
|
|
486,600
|
|
|
|
-0-
|
|
|
|
486,600
|
|
|
|
|
|
6,676,285
|
|
|
|
-0-
|
|
|
|
6,676,285
|
|
|
|
1,519,200
|
|
|
|
400,000
|
|
|
|
1,919,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtractions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments towards principal
|
|
|
120,500
|
|
|
|
-0-
|
|
|
|
120,500
|
|
|
|
77,667
|
|
|
|
-0-
|
|
|
|
77,667
|
|
|
Conversion to common stock
|
|
|
6,335
|
|
|
|
-0-
|
|
|
|
6,335
|
|
|
|
677,801
|
|
|
|
-0-
|
|
|
|
677,801
|
|
|
Conversion to preferred series A shares
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
105,000
|
|
|
|
105,000
|
|
|
Conversion to preferred series D shares
|
|
|
25,000
|
|
|
|
-0-
|
|
|
|
25,000
|
|
|
|
865,662
|
|
|
|
-0-
|
|
|
|
865,662
|
|
|
Conversion to RealBiz common shares
|
|
|
357,215
|
|
|
|
-0-
|
|
|
|
357,215
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
Cancelation of principal
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
6,000
|
|
|
|
-0-
|
|
|
|
6,000
|
|
|
Settlement of debt
|
|
|
54,763
|
|
|
|
-0-
|
|
|
|
54,763
|
|
|
|
202,135
|
|
|
|
-0-
|
|
|
|
202,135
|
|
|
Notes retired through debt consolidation
|
|
|
478,000
|
|
|
|
-0-
|
|
|
|
478,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
Notes retired through debt modification
|
|
|
6,009,326
|
|
|
|
-0-
|
|
|
|
6,009,326
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
Assigned
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0—
|
|
|
|
486,600
|
|
|
|
-0-
|
|
|
|
486,600
|
|
|
|
|
|
7,051,139
|
|
|
|
-0-
|
|
|
|
7,051,139
|
|
|
|
2,315,865
|
|
|
|
105,000
|
|
|
|
2,420,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
7,170,386
|
|
|
$
|
650,000
|
|
|
$
|
7,820,386
|
|
|
$
|
7,545,240
|
|
|
$
|
650,000
|
|
|
$
|
8,195,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
29,471
|
|
|
$
|
-0-
|
|
|
$
|
29,471
|
|
|
$
|
924,446
|
|
|
$
|
-0-
|
|
|
$
|
924,446
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred during the year
|
|
|
555,745
|
|
|
|
-0-
|
|
|
|
555,745
|
|
|
|
194,664
|
|
|
|
-0-
|
|
|
|
194,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtractions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized during the year
|
|
|
514,815
|
|
|
|
-0-
|
|
|
|
514,815
|
|
|
|
1,089,639
|
|
|
|
-0-
|
|
|
|
1,089,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
70,401
|
|
|
$
|
-0-
|
|
|
$
|
70,401
|
|
|
$
|
29,471
|
|
|
$
|
-0-
|
|
|
$
|
29,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
$
|
7,099,985
|
|
|
$
|
650,000
|
|
|
$
|
7,749,985
|
|
|
$
|
7,515,769
|
|
|
$
|
650,000
|
|
|
$
|
8,165,769
|
|
|
less: current portion
|
|
|
7,099,985
|
|
|
|
650,000
|
|
|
|
7,749,985
|
|
|
|
7,478,828
|
|
|
|
650,000
|
|
|
|
8,128,828
|
|
|
long term portion
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
36,941
|
|
|
$
|
-0-
|
|
|
$
|
36,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal past due
|
|
$
|
494,101
|
|
|
$
|
-0-
|
|
|
$
|
494,101
|
|
|
$
|
6,441,122
|
|
|
$
|
-0-
|
|
|
$
|
6,441,122
|
|
During the year ended February 28, 2014,
the Company:
|
|
·
|
converted
$110,000 of shareholder advances (see footnote 11), simultaneously converting prior convertible
promissory notes valued at $478,000 with accrued interest of $16,582 into two new convertible
promissory notes of $554,582 and $50,000
with
fixed conversion rates into NXOI or RBIZ shares with a maturity date of March 31, 2014.
As required, the Company evaluated the beneficial conversion feature of the notes resulting
in a debt discount of $554,582, amortizing this amount based on the terms of the notes
using the straight line method. As a result, $485,266 was charged to operations as interest
for these notes.
|
|
|
·
|
paid
a total of $120,500 in principal against outstanding balances.
|
|
|
·
|
wrote
off $54,763 of remaining principal according to the terms of a forbearance agreement,
recognizing a gain of $54,763.
|
|
|
·
|
converted
$6,335 of outstanding principal based on its original terms and issued 618,000 shares
of its common stock.
|
Note 13 – Convertible Promissory Notes (continued)
During the year ended February 28, 2014,
the Company (continued):
|
|
·
|
induced
a noteholder to convert $357,215 of outstanding principal and $65,487 of accrued interest
into 977,732 shares of RealBiz Media's common stocked valued at $3,753,148 recognizing
a loss of $3,287,866 .
|
|
|
·
|
converted
$25,000 of outstanding principal, based on its original terms, plus $3,067 of accrued
interest with a total value of $28,067 and issued 5,613 shares of Series D Preferred
stock.
|
|
|
·
|
recognized
amortization of debt discount during the year ending February 28, 2014 of $514,737 with
a remaining expected life of one month.
|
|
|
·
|
recognized
a loss on the change in fair value of derivatives for the year ending February 28, 2014
in the amount of $1,050,626 . The fair value of the derivative liability as of February
28, 2014 is $1,355,613. The Company determines the fair value of the embedded conversion
option liability using the Black-Scholes option-pricing model with the following assumptions:
risk-free interest rates from 0.04%, dividend yield of -0-%, volatility factor of 63.10%
and expected life of one month.
|
During the year ended February 28, 2013,
the Company,
|
|
·
|
received
a total of $744,500 of proceeds of which $344,500 came from non-related third party investors
and $400,000 came from related party investors. In turn, the Company issued convertible
promissory notes with interest rates ranging from 6% to 12% per annum, maturity dates
ranging from September 30, 2012 to October 15, 2014, with various conversion features
and 450,000 one (1) year warrants with an exercise price of $0.05.
|
|
|
·
|
incurred
$31,000 in fees for debt assignments and $99,100 of penalties for late conversions for
various note holders, increasing each respective noteholder’s principal balance.
During the year ended February 28, 2013, the Company converted $280,000 of accrued interest,
$225,000 of shareholder loans and $53,000 of notes payable into convertible promissory
notes. Additionally, various noteholders assigned $486,600 of principal to new non-related
third party investors. In turn, the Company issued $486,600 of convertible promissory
notes with interest rates of 6% per annum, maturity dates ranging from February 1, 2013
to December 31, 2013 and with various conversion features.
|
|
|
·
|
various
noteholders voluntarily converted $1,648,463 of principal and the Company issued 11,442,205
shares of its Common Stock, 481,403 shares of Preferred Series A and 185,129 shares of
Preferred Series D. Additionally, a noteholder cancelled $6,000 of its principal balance
through an amendment of its convertible promissory note. The Company also came to terms
with three non-related party note holders and entered into settlement agreements reducing
their principal balances by $202,135.
|
|
|
·
|
recognized
$194,664 in debt discount due to the embedded variable conversion features within various
notes incurred and an initial derivative liability recorded. The Company used the Black-Scholes
option-pricing model to calculate the initial fair value of the derivatives with the
following assumptions: risk-free interest rates from 0.14% to 0.27%, dividend yield of
-0-%, volatility factor from 282.18% to 397.14% and expected life from 8 to 25 months.
|
|
|
·
|
recognized
amortization of debt discount during the year ending February 28, 2013 of $1,089,639
with a remaining expected life of twenty months.
|
|
|
·
|
recognized
a gain on the change in fair value of derivatives in the amounts of $2,081,029 and $2,223,649,
respectively. The Company determines the fair value of the embedded conversion option
liability using the Black-Scholes option-pricing model with the following assumptions:
risk-free interest rates from 0.07% to 0.25%, dividend yield of -0-%, volatility factor
of 33.29 % to 438.93% and expected life from one to 24 months.
|
Convertible debt modification (non-related
party)
On February 24, 2014, the Company entered
into a note amendment with a non-related party lender affecting several outstanding convertible promissory notes totaling $6,009,326
in principal that is past due and $62,377 in accrued interest as of November 30, 2013. The agreement extended the maturity date
of all the notes held by the lender to December 1, 2014 and allowing the lender the right to extend the maturity date of each
of the notes to December 1, 2015, provided that all quarterly interest payment are made by the due dates of January 15th, April
15th, July 15 and October 15th. Additionally, the agreement changed the conversion feature of each note held by the lender from
the variable conversion rate based on market price to a fixed conversion rate of $0.50 per share. As part of the note amendment,
the Company's subsidiary, RealBiz Media Group, Inc., issued 12,000,000 one (1) year warrants with an exercise price of $0.50.
Note 13 – Convertible Promissory Notes (continued)
Convertible debt modification (non-related
party, continued)
The Company applied the 10% cash
flow test pursuant to Topic ASC 470-50-40-10 "Debt Modification and Extinguishment" to calculate the difference
between the present value of the new loan's cash flows and the present value of the old loan's remaining cash flow and
concluded that the results exceeded the 10% factor, the debt modification is considered substantially different and applied
extinguishment accounting. Accordingly, the gain or loss on extinguishment should be measured by the difference between the
carrying amount of the old debt and the fair value of the new debt. Additionally, Topic ASC 470-50-40-17 states if the
exchange or modification is to be accounted for in the same manner as a debt extinguishment and the new debt instrument is
initially recorded at fair value, then the fees paid or received shall be associated with the extinguishment of the old debt
instrument and included in determining the debt extinguishment gain or loss to be recognized. The fair value of the warrants
was determined to be $4,809,308, the fair value of the new debt was determined to be $6,070,540 and the carrying amount of
the old debt of principal and accrued interest totaling $6,070,703 resulting in a total loss on the extinguishment of debt
of $4,808,145. The fair value of the warrants were calculated using the Black-Scholes option pricing model with the following
assumptions: risk free interest rate of 0.35%, expected volatility of 324.34% with a one year life. The Company determined
the fair value of the new debt by taking a weighted average of all the Company's existing convertible promissory notes
interest rate for a discount rate, calculating that rate to be approximately 7% and computed the present value of the new
debt's remaining cash flows.
Convertible debt modification (related party)
On December 24, 2013, the Company entered
into a note amendment with a related-party lender affecting several outstanding convertible promissory notes totaling $650,000
in principal that is past due and $143,151 in accrued interest. The agreement extended the maturity date of all the notes held
by the lender to February 28, 2014. Additionally, until February 28, 2014, the related-party lender shall have the opportunity
to exchange the convertible promissory notes, in whole or in part, for Series A or Series B Preferred stock of the Company.
The Company applied the 10% cash flow
test pursuant to Topic ASC 470-50-40-10 "Debt Modification and Extinguishment" to calculate the difference between the
present value of the new loan's cash flows and the present value of the old loan's remaining cash flow and concluded that the
results didn't exceed the 10% factor, the debt modification is not considered substantially different and did not apply extinguishment
accounting. Pursuant to Topic ASC 470-60-55-10 it was determined that the related party lender granted a concession as the effective
borrowing rate calculated on the new debt is less that the effective borrowing rate of the old debt and can be accounted for as
a troubled debt restructuring requiring to account for the modification on a prospective basis. The carrying amount of the convertible
promissory notes is not adjusted and the effects of the changes are to be reflected in future periods.
Convertible promissory note attributable to consolidated
subsidiary
During the year ended February 28, 2014,
RealBiz Media Group, Inc.:
|
|
·
|
executed
a debt assignment agreement, regarding $615,264 of debt, assigning $605,000 of the debt
to an un-related third party investor creating a new convertible promissory note valued
at $605,000 with a conversion rate of $0.15 per share into the Company's common stock,
forgiving $10,264 resulting in a gain on legal settlement.
|
|
|
·
|
$440,000
of principal was assigned to various non-related third party investors and the Company
issued non-interest bearing convertible promissory notes that are due on demand. The
conversion feature of $0.15 of these notes was evaluated and determined that $440,000
should be allocated to the beneficial conversion feature ("BCF") and amortized
as interest expense over the life of the note. The convertible promissory notes are due
on demand, therefore $440,000 of the BCF was charged to interest expense for the year
ended.
|
|
|
·
|
various
noteholders converted $325,000 of principal at a conversion rate of $0.15 per share and
the Company issued 2,166,666 shares of its common stock and the remaining principal balance
at February 28, 2014 is $280,000.
|
During the year ended February 28, 2013,
RealBiz Media Group, Inc.:
|
|
·
|
the
Company assumed the debt of $615,264 which was owed to two minority shareholders holding
approximately 1.6% of the Company's shares at October 31, 2012.
|
Note 14 – Stockholders’ Deficit
Preferred stock
The aggregate number of shares of preferred
stock that the Company is authorized to issue is up to One Hundred Million (100,000,000), with a par value of $0.0001 per share
(“the Preferred Stock”) with the exception of Series A Preferred shares having a $0.01 par value. The Preferred Stock
may be divided into and issued in series. The Board of Directors of the Company is authorized to divide the authorized shares
of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the
shares of all other series and classes. The Board of Directors of the Company is authorized, within any limitations prescribed
by law and the articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations
and terms of the shares of any series of Preferred Stock.
Note 14 – Stockholders’ Deficit (continued)
Series A Preferred Stock
The Company has authorized and designated
3,000,000 shares of Preferred Stock as Series A 10% Cumulative Convertible Preferred Stock, par value $0.01 per share (the “Series
A Preferred Stock”). The holders of record of shares of Series A Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the shareholders of the Company and shall be entitled to one hundred (100) votes for each share of Series
A Preferred Stock.
Per the
terms of the Amended and Restated Certificate of Designations, subject to the availability of authorized and unissued shares of
Series A Preferred Stock, the holders of Series A Preferred Stock may, by written notice to the Company, elect to convert all
or any part of such holder’s shares of Series A Preferred Stock into common stock at a conversion rate of the lower of (a)
$0.50 per share or (b) at the lowest price the Company has issued stock as part of a financing. Additionally, the holders of Series
A Preferred Stock, may by written notice to the Company, convert all or part of such holder’s shares (excluding any shares
issued pursuant to conversion of unpaid dividends) into debt obligations of the Company, secured by a security interest in all
of the assets of the Company and its’ subsidiaries, at a rate of $0.50 of debt for each share of Series A Preferred Stock.
On July 9, 2013, the Company amended the Certificate of Designations for the Company’s Series A Preferred Stock to allow
for conversion into Series C Preferred stock to grant to a holder of the Series A Preferred Stock the option to elect to convert
all or any part of such holder's shares of Series A Preferred Stock into shares of the Company’s Series C Convertible Preferred
Stock, par value $0.00001 per share (“Series C Preferred Stock”), at a conversion rate of five (5) shares of Series
A Preferred Stock for every one (1) share of Series C Preferred Stock. Furthermore, the amendment allows for conversion into common
stock at the lowest price the Company has issued stock as part of a financing to include all financing such as new debt and equity
financing and stock issuances as well as existing debt conversions into stock.
On
February
28, 2014, the Company's Preferred Series A shareholders have agreed to authorize a change to the Certificate of Designations of
the Series A Preferred Stock in Nevada to lock the conversion price to a fixed price of $0.01.
In the event of any liquidation, dissolution
or winding up of this Company, either voluntary or involuntary (any of the foregoing, a “liquidation”), holders of
Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this
Company to the holders of the common Stock or any other series of Preferred Stock by reason of their ownership thereof an amount
per share equal to $1.00 for each share (as adjusted for any stock dividends, combinations or splits with respect to such shares)
of Series A Preferred Stock held by each such holder, plus the amount of accrued and unpaid dividends thereon (whether or not
declared) from the beginning of the dividend period in which the liquidation occurred to the date of liquidation.
Accounting Standards Codification subtopic
815-40, Derivatives and Hedging; Contracts in Entity’s own Equity (“ASC 815-40”) became effective for us on
March 1, 2010. The Company’s Series A (convertible) Preferred Stock has certain reset provisions that require the Company
to reduce the conversion price of the Series A (convertible) Preferred Stock if we issue equity at a price less than the conversion
price. Upon the effective date, the provisions of ASC 815-40 required a reclassification to liability based on the reset feature
of the agreements if the Company sells equity at a price below the conversion price of the Series A Preferred Stock. However,
the reset provision was removed thereby eliminating the derivative liability as of February 28, 2014. In accordance with ASC 815-40,
the Company records the changes in the fair value of the derivative liability as non-operating, non-cash income or expense. The
change in fair value of the Series A Preferred Stock derivative liability as of February 28, 2014 and 2013 resulted in non-operating
income of $42,881 and $1,263,876, respectively.
During the year ended February 28, 2014,
the Company:
|
|
·
|
converted
150,000 Series A preferred shares, held by a related party investor, into 30,000 shares
of Series C Preferred Stock valued at $150,000.
|
During the year ended February 28, 2013,
the Company:
|
|
·
|
realized
a Series A preferred stock dividend of $3,790
|
|
|
·
|
issued
75,000 shares of Preferred Series A stock at $1 per share and received $75,000 in proceeds.
|
|
|
·
|
issued
481,403 shares of Series A preferred stock valued at $481,403 and induced a related party
shareholder to convert $112,247 of their convertible promissory notes principal and interest
and $85,000 of their shareholder loans resulting in a loss on settlement of debt in the
amount of $284,156.
|
Dividends in arrears on the outstanding
preferred shares total $429,198 as of February 28, 2014. The Company had 2,216,014 and 2,366,014 shares issued and outstanding
as of February 28, 2014 and 2013, respectively.
Note 14 – Stockholders’ Deficit (continued)
Series B Preferred Stock
The Company has authorized and designated
3,000,000 shares of Preferred Stock as Non-Voting Series B 10% Cumulative Convertible Preferred Stock with a par value of $0.00001
per share (“the Series B Preferred Stock”). The holders of Series B Preferred Stock may elect to convert all or any
part of such holder’s shares into the Company’s common stock at $5 per share or into shares of RealBiz Media’s
common stock at $0.05 per share.
Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to receive out of
the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid
dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred Stock before
any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient
to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders
in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
During the year ended February 28, 2014,
the Company:
|
|
·
|
issued
53,600 shares of Series B Preferred Stock for services rendered, consisting of financing
and consulting fees valued at $268,000. The value of the
Series B Preferred Stock was based on the fair value of the stock at the time of issuance.
|
|
|
·
|
Upon
investor’s request, converted 183,900 shares of Series B Preferred Stock, at its
stated value per share of $5, into 18,603,312 shares of RealBiz Media’s common
stock with a total value of $919,500.
|
During the year ended February 28, 2013,
the Company:
|
|
·
|
entered
into stock subscription agreements and issued 364,600 shares of Series B preferred stock
at $5 per share and 1,630,250 one (1) to five (5) year common stock warrants with an
exercise price of $0.02 to $2.50 and received $1,692,728 in proceeds, net of $272 of
bank charges plus $130,000 received in the prior year ended February 29, 2012 with a
total value of $1,823,000.
|
|
|
·
|
entered
into Series B preferred stock subscription agreements and issued 51,600 shares in exchange
for services rendered, consisting of financing and consulting fees incurred in raising
capital, valued at $258,000. The value of the preferred stock issued is based on the
fair value of the stock at the time of issuance.
|
Dividends in arrears on the outstanding
preferred shares total $332,422 as of February 28, 2014. The Company had 285,900 and 416,200 shares issued and outstanding as
of February 28, 2014 and 2013, respectively.
Series C Preferred Stock
The Company has authorized and designated
3,000,000 shares of Preferred Stock as Non-Voting Series C 10% Cumulative Convertible Preferred Stock with a par value of $0.00001
per share (the “Series C Preferred Stock”). The holders of Series C Preferred Stock may elect to convert all or any
part of such holder’s shares into the Company’s common stock at $5 per share or into shares of RealBiz Media’s
common stock at $0.10 per share.
Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to receive out of
the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid
dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred Stock before
any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient
to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders
in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
During the year ended February 28, 2014,
the Company:
|
|
·
|
converted
150,000 shares of Series A Preferred Stock into 36,000 shares of Series C Preferred Stock
valued at $150,000. Simultaneously, converting the same 36,000 shares of Series C Preferred
Stock into 1,500,000 shares of RealBiz Media’s common stock at a value of $150,000.
|
|
|
·
|
issued
6,000 shares of its Series C Preferred stock as part of an employment agreement with
an executive valued at $30,000.
|
Note 14 – Stockholders’ Deficit (continued)
Series C Preferred Stock (continued)
During the year ended February 28, 2013,
the Company:
|
|
·
|
entered
into stock subscription agreements and issued 10,000 shares of Series C preferred stock
at $5 per share and received $50,000 in proceeds.
|
|
|
·
|
entered
into Series C preferred stock subscription agreements and issued 26,000 shares in exchange
for services rendered, consisting of financing and consulting fees incurred in raising
capital, valued at $130,000. The value of the preferred stock issued was based on the
fair value of the stock at the time of issuance or the fair value of the services provided,
whichever was more readily determinable.
|
Dividends in arrears on the outstanding
preferred shares total $26,514 as of February 28, 2014. The Company had 42,000 and 36,000 shares issued and outstanding as of
February 28, 2014 and 2013, respectively.
Series D Preferred Stock
The Company has authorized and designated
3,000,000 shares of Preferred Stock as Non-Voting Series D 10% Cumulative Convertible Preferred Stock with a par value of $0.00001
per share (the “Series D Preferred Stock”). The holders of Series D Preferred Stock may elect to convert all or any
part of such holder’s shares into the Company’s common stock at $5 per share or into shares of RealBiz Media’s
common stock at $0.15 per share.
Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to receive out of
the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid
dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred Stock before
any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient
to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders
in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
During the year ended February 28, 2014,
the Company:
|
|
·
|
issued
20,000 previously subscribed shares of Series D Preferred Stock, 200,000 one (1) year
warrants with an exercise price of $0.03 and collected $105,000 in proceeds from prior
year subscription agreements.
|
|
|
·
|
received
$1,150,785 in proceeds net of $215 of bank charges and issued 230,200 shares of Series
D Preferred Stock and 2,141,000 one
|
year warrants with exercise
price of $0.03 to $0.10 with a total value of $1,151,000.
|
|
·
|
issued
42,500 shares of Series D Preferred Stock valued at $212,500, based on recent sales of Series D Preferred shares, to its
employees as
stock compensation and issued 5,250 shares of Series D Preferred Stock valued at
$26,250 to employees of its subsidiary RealBiz Media Group, Inc. as stock
compensation. The value of the preferred stock issued was based on the fair value
of the stock
at the time of issuance.
|
|
|
·
|
issued
25,100 shares of Series D Preferred Stock and 50,000 one-year warrants with an exercise
price of $0.03 in exchange for services rendered, consisting of financing and consulting
fees incurred in raising capital, valued at $126,187. The value of the preferred stock
issued was based on the fair value of the stock at the time of issuance. The value of
the warrants was estimated at the date of grant using Black-Scholes option pricing model
with the following assumptions: risk free interest rate of 0.16%, dividend yield of -0-%,
volatility factor of 344.89% and expected life of one year.
|
|
|
·
|
issued
5,613 shares of Series D Preferred Stock valued at $28,067 for the conversion of promissory
notes.
|
|
|
·
|
converted
598,220 shares of Series D Preferred Stock, upon investors’ request, into 19,726,730
shares of RealBiz Media’s common stock valued at $2,991,998. Included in these
conversions were 380,000 shares of Series D Preferred Stock held as part of the October
2, 2012 purchase of 664.1 shares of Real Biz Holdings, Inc. These shares contained a
"ratchet" provision and upon conversion eliminated the associated derivative
liability. In accordance with ASC 815-40, the Company records the changes in the fair
value of the derivative liability as non-operating, non-cash income or expense. The change
in fair value of the 380,000 shares of Series D Preferred Stock derivative liability
as of February 28, 2014 and 2013 resulted in non-operating income of $55,719 and $-0-,
respectively.
|
|
|
·
|
retired
2,000 shares of Series D Preferred Stock valued at $6,000.
|
Note 14 – Stockholders’ Deficit (continued)
Series D Preferred Stock (continued)
During the year ended February 28, 2013,
the Company:
|
|
·
|
entered
into stock subscription agreements and issued 372,700 shares of Series D preferred stock
at $5 per share and 1,980,500 one (1) and four (4) year common stock warrants with an
exercise prices of $0.03 to $0.10 and received $1,862,656 in proceeds, net of $844 of
bank charge with a total value of $1,863,500.
|
|
|
·
|
issued
158,648 shares of Series D preferred stock and 103,200 one (1) to four (4) warrants with
an exercise price of $.03 to $25 in exchange for services rendered, consisting of financing
and consulting fees incurred in raising capital, valued at $794,134. The value of the
preferred stock issued was based on the fair value of the stock at the time of issuance
or the fair value of the services provided, whichever was more readily determinable.
The value of the warrants was estimated at date of grant using Black-Scholes option pricing
model with the following assumptions: risk free interest rate 0.15% to 0.36, dividend
yield of -0-%, volatility factor of 342.90% to 346.22% and expected life of 1 to 4 years.
|
|
|
·
|
issued
185,129 shares of Series D Preferred stock valued at $925,647 and induced noteholders
to convert $865,662 of convertible promissory notes principal.
|
|
|
·
|
issued
32,000 shares of Series D preferred stock valued at $160,000 for the conversion of shareholder
loans.
|
|
|
·
|
issued
3,600 shares of Series D preferred stock valued at $18,000 for the conversion of accounts
payable.
|
|
|
·
|
issued
380,000 shares valued at $1,900,000 as part of the agreement of October 2, 2012 for the
purchase of 664.1 shares of Real Biz Holdings, Inc. Additionally, the Company recorded
a derivative liability valued at $35,733 as the purchase agreement includes a "ratchet"
provision. The fair value of the "ratchet" provision was estimated at the date
of grant using the Black-Scholes option-pricing model with the following assumptions:
risk-free interest rate of 0.29%, dividend yield of -0-%, volatility factor of 395.51%
and expected life of 2 years.
At
each reporting date, the Company records the changes in fair value of the derivative
liability as non-operating, non-cash income. The change in fair value of this "ratchet"
provision derivative liability resulted in a current year non-operating loss included
in operations of $19,986.
|
|
|
·
|
issued
stock subscription agreements for 20,000 shares of Series D preferred stock.
|
Dividends in arrears on the outstanding
preferred shares total $763,378 as of February 28, 2014. The Company had 860,520 and 1,132,077 shares issued and outstanding as
of February 28, 2014 and 2013, respectively.
.
Common Stock
On October 28, 2011, the Board and the
holders of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to increase
our authorized shares of common stock from 200,000,000 to 500,000,000. On February 13, 2012, the Board and the holders of a majority
of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares
of common stock from 500,000,000 to 2,500,000,000. The increase in our authorized shares of common stock became effective upon
the filing of the amendment(s) to our articles of incorporation with the Secretary of State of the State of Nevada.
On May 2, 2012, the Board consented to
(i) effect a 500-to-1 reverse split of the Company’s common stock and (ii) reduce the number of authorized shares from 2,500,000,000
to 5,000,000. Such actions became effective upon the filing of the amendment(s) to our articles of incorporation with the Secretary
of State of the State of Nevada. The consolidated financial statements have been retroactively adjusted to reflect this reverse
stock split.
On June 26, 2012, the Board and the holders
of a majority of the voting power of our shareholders have approved an amendment to our articles of incorporation to increase
our authorized shares of common stock from 5,000,000 to 500,000,000.
During the year ended February 28, 2014,
the Company:
|
|
·
|
issued
1,361,750 common shares valued at fair market value on date of issuance totaling $129,050 and received $80,515 in proceeds
net of $155,
leaving a subscription receivable of $48,380 collected in March
2014.
|
|
|
·
|
issued
334,500 common shares upon the exercise of 334,500 outstanding warrants and received
$15,950 in proceeds.
|
Note 14 – Stockholders’ Deficit (continued)
Common Stock (continued)
During the year ended February 28, 2014,
the Company (continued):
|
|
·
|
During
the year ended February 28, 2014, the Company issued 1,562,088 shares of common stock
and 1,182,000 one (1) year warrants with an exercise price between $.03 and $0.10 in
exchange for services rendered, consisting of financing and consulting fees incurred
in raising capital, valued at $108,257. The value of the common stock issued was based
on the fair value of the stock at the time of issuance. The value of the warrants was
estimated at the date of grant using Black-Scholes option pricing model with the following
assumptions: risk free interest rate between 0.08% and 0.14%, dividend yield of -0-%,
volatility factor between of 191.20% and 619.66% and expected life of one year.
|
|
|
·
|
issued
618,000 shares of common stock in a partial conversion of a convertible promissory note
valued at $6,335.
|
|
|
·
|
125,000 warrants, with an exercise prices at par value, were exercised and 125,000 common shares were
issued.
|
|
|
·
|
issued
600,000 shares of Common Stock valued at $19,800 to its employees as stock compensation.
The value of the common stock issued was based on the closing price as quoted on the NASDAQ at the
time of issuance.
|
|
|
·
|
perpetuated
an agreement consolidating a prior convertible promissory note valued at $478,000 with
accrued interest of 16,582 and shareholder advance from same lender in the amount of
$110,000 with a total value of $604,582. The total value of $604,582 was split between
two convertible promissory notes in the amounts of $554,582 and $50,000 with fixed conversion
rates into NXOI or RBIZ shares with a maturity date of March 31, 2014. The Company valuated
the beneficial conversion feature of new convertible promissory note notes resulting
in a debt discount of $554,582 recorded as a debt discount with a corresponding increase
in additional paid in capital.
|
During the year ended February 28, 2013,
the Company:
|
|
·
|
issued
385,734 shares of common stock and 733,400 one (1) to two (2) warrants with an exercise
price of $.001 to $1 in exchange for services rendered, consisting of financing and consulting
fees incurred in raising capital, valued at $54,763. The value of the common stock issued
was based on the fair value of the stock at the time of issuance. The value of the warrants
was estimated at date of grant using Black-Scholes option pricing model with the following
assumptions: risk free interest rate 0.16% to 0.23%, dividend yield of -0-%, volatility
factor of 287.30% to 396.95 and expected life of 1 to 2 years.
|
|
|
·
|
issued
11,442,205 shares of common stock valued at $681,792 to holders of convertible promissory
notes upon the exercise of their right to convert any part of the outstanding interest
or principal, incurring $99,100 penalties for tardy conversions.
|
|
|
·
|
the
remaining 2,025 stock options issued on October 3, 2011, with an exercise price of $7.25
to employees, directors and executives vested and the Company incurred $10,125 in compensation
costs.
|
The Company had 17,579,280 and 12,977,942
shares issued and outstanding as of February 28, 2014 and 2013, respectively.
Common Stock Warrants
|
The following table
sets forth common share purchase warrants outstanding as of February 28, 2014:
|
|
|
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding, February 29, 2012
|
|
|
180,590
|
|
|
$
|
180.00
|
|
|
Warrants granted
|
|
|
6,373,600
|
|
|
$
|
71.32
|
|
|
Warrants exercised/expired/forfeited
|
|
|
(58,412
|
)
|
|
$
|
(155.00
|
)
|
|
Outstanding, February 29, 2013
|
|
|
6,495,778
|
|
|
$
|
3.71
|
|
|
Warrants granted
|
|
|
3,968,000
|
|
|
$
|
0.05
|
|
|
Warrants exercised/forfeited/expired
|
|
|
(2,285,594
|
)
|
|
$
|
(6.00
|
)
|
|
Outstanding, February 28, 2014
|
|
|
8,178,184
|
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuable upon exercise of warrants
|
|
|
8,178,184
|
|
|
$
|
1.23
|
|
Note 14 – Stockholders’ Deficit (continued)
Common Stock Warrants (continued)
|
|
|
|
Common
Stock Issuable Upon Exercise of
Warrants Outstanding
|
|
|
Common
Stock Issuable
Upon
Warrants
Exercisable
|
|
|
Range
of
Exercise
Prices
Prices
|
|
|
Number
Outstanding
at February
28, 2014
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
at February
28, 2014
|
|
|
Weighted
Average
Exercise
Price
|
|
|
$
|
0.02
|
|
|
|
500,000
|
|
|
|
0.29
|
|
|
$
|
0.02
|
|
|
|
500,000
|
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
|
4,611,000
|
|
|
|
0.42
|
|
|
$
|
0.03
|
|
|
|
4,611,000
|
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
|
1,500,000
|
|
|
|
2.46
|
|
|
$
|
0.05
|
|
|
|
1,500,000
|
|
|
$
|
0.05
|
|
|
$
|
0.10
|
|
|
|
1,481,000
|
|
|
|
0.50
|
|
|
$
|
0.10
|
|
|
|
1,481,000
|
|
|
$
|
0.10
|
|
|
$
|
0.15
|
|
|
|
3,500
|
|
|
|
0.29
|
|
|
$
|
0.15
|
|
|
|
3,500
|
|
|
$
|
0.15
|
|
|
$
|
1.00
|
|
|
|
10,000
|
|
|
|
0.95
|
|
|
$
|
1.00
|
|
|
|
10,000
|
|
|
$
|
1.00
|
|
|
$
|
25.00
|
|
|
|
4,347
|
|
|
|
1.09
|
|
|
$
|
25.00
|
|
|
|
4,347
|
|
|
$
|
25.00
|
|
|
$
|
50.00
|
|
|
|
13,628
|
|
|
|
0.12
|
|
|
$
|
50.00
|
|
|
|
13,628
|
|
|
$
|
50.00
|
|
|
$
|
75.00
|
|
|
|
4,840
|
|
|
|
0.19
|
|
|
$
|
75.00
|
|
|
|
4,840
|
|
|
$
|
75.00
|
|
|
$
|
100.00
|
|
|
|
460
|
|
|
|
0.16
|
|
|
$
|
100.00
|
|
|
|
460
|
|
|
$
|
100.00
|
|
|
$
|
125.00
|
|
|
|
39,250
|
|
|
|
0.12
|
|
|
$
|
125.00
|
|
|
|
39,250
|
|
|
$
|
125.00
|
|
|
$
|
250.00
|
|
|
|
7,600
|
|
|
|
0.66
|
|
|
$
|
250.00
|
|
|
|
7,600
|
|
|
$
|
250.00
|
|
|
$
|
375.00
|
|
|
|
200
|
|
|
|
1.79
|
|
|
$
|
375.00
|
|
|
|
200
|
|
|
$
|
375.00
|
|
|
$
|
500.00
|
|
|
|
1,600
|
|
|
|
1.65
|
|
|
$
|
500.00
|
|
|
|
1,600
|
|
|
$
|
500.00
|
|
|
$
|
1,000.00
|
|
|
|
759
|
|
|
|
1.95
|
|
|
$
|
1000.00
|
|
|
|
759
|
|
|
$
|
1000.00
|
|
|
|
|
|
|
|
8,178,184
|
|
|
|
0.80
|
|
|
$
|
1.23
|
|
|
|
8,178,184
|
|
|
$
|
1.23
|
|
At February 28, 2014, there
were 8,178,184 warrants outstanding with a weighted average exercise price of $1.23 and weighted average life of .80 years.
During the year ended February 28, 2014, the Company granted 3,968,000 warrants (2,456,000 issued for Series D Preferred shares for cash
stock subscriptions; 1,232,000 issued for consulting services rendered; and 280,000 issued as part of cash stock
subscriptions of RealBiz Media Group, Inc.), 125,000 warrants were exercised at par, 334,500 warrants were exercised with proceeds
received and 1,826,094 warrants expired. As of February 28, 2014 and 2013, the warrants have an intrinsic value of $-0-.
Common Stock Options
On October 28, 2009, the shareholders
approved the Next 1 Interactive, Inc. 2009 Long-Term Incentive Plan (the “2009 Plan”) at the annual shareholders meeting.
Under the 2009 Plan, 9,000 shares of common stock are reserved for issuance on the effective date of the 2009 Plan. Utilizing
a variety of equity compensation instruments, the Company plans to use the 9,000 shares under the 2009 Plan to:
(1) Attract and retain key
employees and directors, including key Next 1 executives, and
(2) Provide an incentive for
them to assist Next 1 to achieve long-range performance goals and enable them to participate in the long-term growth of the Company.
On October 3, 2011, the Company authorized
the issuance of 4,050 ten (10) year stock options with an exercise price of $7.25 per share, with 50% vesting immediately and
the remaining 50% vesting in six (6) months. The 4,050 stock options were distributed as follows: 400 each were granted to board
members Pat LaVecchia, Warren Kettlewell and Don Monaco; 800 each were granted to Bill Kerby, CEO and Adam Friedman, CFO; 1,250
was issued to various employees.
The fair value of the options granted
on October 3, 2011 was estimated on the date of grant using the Black-Scholes option-pricing model with the weighted average assumptions
given below:
|
Weighted average fair value of options granted
|
|
$
|
0.10
|
|
|
Expected stock price volatility
|
|
|
236.23
|
%
|
|
Risk-free interest rate
|
|
|
1.80
|
%
|
|
Expected life of options
|
|
|
10.0
years
|
|
Note 14
–
Stockholders’ Deficit (continued)
Common Stock Options (continued)
The Company estimates forfeiture and volatility
using historical information. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon
issues over the equivalent lives of the options. The expected life of the options represents the estimated period of time until
exercise giving consideration to the contractual terms. The Company has not paid dividends on common shares and no assumption
of dividend payment is made in the model.
Transactions concerning stock options
pursuant to our stock option plans are summarized as follows:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding, February 29, 2012
|
|
|
4,050
|
|
|
$
|
7.25
|
|
|
$
|
0.000
|
|
|
Stock options granted
|
|
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
Stock options exercised/forfeited
|
|
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
Outstanding, February 28, 2013
|
|
|
4,050
|
|
|
$
|
7.25
|
|
|
$
|
0.000
|
|
|
Stock options granted
|
|
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
Stock options exercised/forfeited
|
|
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
Outstanding, February 28, 2014
|
|
|
4,050
|
|
|
$
|
7.25
|
|
|
$
|
0.000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
4,050
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during
the period
|
|
|
|
|
|
$
|
7.25
|
|
|
|
|
|
|
|
|
|
Common Stock Issuable
Upon Exercise of Options Outstanding
|
|
|
Common Stock Issuable
Upon Options Exercisable
|
|
|
Range
of
Exercise
Prices
|
|
|
Options Outstanding
at 2/28/14
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
Weighted Average
Exercise Prices
|
|
|
Options
Exercisable at
2/28/14
|
|
|
Weighted
Average
Exercise
Price
|
|
|
$
|
7.25
|
|
|
|
4,050
|
|
|
|
7.60
|
|
|
$
|
7.25
|
|
|
|
4,050
|
|
|
$
|
7.25
|
|
At February 28, 2014, there were 4,050
options outstanding with a weighted average exercise price of $7.25 and weighted average life of 7.60 years. During the year ended
February 28, 2014, no options were granted or exercised.
Compensation expense relating to stock
options granted during the years ended February28, 2014 and 2013, was $-0- and $10,125, respectively.
Note 14
–
Stockholders’ Deficit (continued)
Our subsidiary, RealBiz Media Group,
Inc.
During the year ended February 28, 2014,
there was a significant increase in the non-controlling interest due to the following issuances in our subsidiary:
|
|
·
|
issued
7,871,333 shares of common stock and 7,856,333 half year and one year warrants with an
exercise price of $1.00 to $1.25 were issued to recipients for proceeds valued at $3,965,500.
|
|
|
·
|
210,000
warrants were exercised and 210,000 shares of common stock were issued for proceeds valued
at $210,000.
|
|
|
·
|
issued
30,000 shares of common stock were issued for proceeds of $15,000 collected by Next 1
Interactive, Inc.
|
|
|
·
|
issued
5,000 shares valued at $5,000
|
|
|
·
|
issued
916,450 shares of common stock and 954,682 1 year warrants with an exercise price of
$1.00 to $1.25 were issued to recipients for consulting services valued at $1,321,025.
The value of the common stock issued was based on the fair value of the stock at the
time of issuance. The value of the warrants was estimated at the date of grant using
Black-Scholes option pricing model with the following assumptions: risk free interest
rate of 0.10% to 0.35% , dividend yield of -0-%, volatility factor of 177.07% to 396.42%
and expected life of one year.
|
|
|
·
|
5,990,238
shares of common stock were issued upon conversion of Series A preferred stock valued
at $299,512.
|
|
|
·
|
common
shares issued for the conversion of Next 1 Interactive, Inc. Preferred stock:
|
|
Series
|
|
Shares
|
|
|
Value
|
|
|
B
|
|
|
18,603,312
|
|
|
$
|
951,500
|
|
|
|
|
|
|
|
|
|
|
|
|
C
|
|
|
1,500,000
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
D
|
|
|
19,726,730
|
|
|
$
|
2,959,998
|
|
|
|
·
|
issued
977,732 shares of common stock for the conversion of Next 1 Interactive, Inc. convertible
promissory notes valued at $3,753,148.
|
|
|
·
|
issued
100,000 shares of common stock to Company executives for website development costs valued
at $100,000.
|
|
|
·
|
issued
2,166,666 shares of common stock for conversion of promissory notes valued at $325,000
|
|
|
·
|
the
Company evaluated the beneficial conversion feature of new convertible promissory note
notes resulting in a debt discount of $440,000
|
|
|
·
|
issued
12,000,000 warrants to a convertible promissory note holder of Next 1 Interactive, Inc.
as part of a debt modification agreement valued at $4,809,308
|
|
|
·
|
accrued
but unpaid preferred stock dividends payable on the outstanding preferred Series A shares
as of February 28, 2014 amounted to $470,120 and was offset by $453,426 of Next 1's accrued
but unpaid preferred stock dividends receivable on its investment of RealBiz's Preferred
Series A shares, resulting in a net preferred stock dividend of $16,694.
|
Note 15 - Commitments and Contingencies
The Company leases approximately
6,500 square feet of office space in Weston, Florida pursuant to a lease agreement, with Bedner Farms, Inc. of the building
located at 2690 Weston Road, Weston, Florida 33331. In accordance with the terms of the lease agreement, the Company is
renting the commercial office space, for a term of five years commencing January 1, 2011 through December 31, 2015. The rent
for the year ended February 28, 2014 and 2013, was $135,233 and $150,072, respectively. In September of 2011, the Company
sublet a portion of its office space offsetting our rent expense by $1,500 per month. In November 2012, the Company entered
into another agreement to sublet a portion of its office space offsetting our rent expense by an additional $2,500 per month,
this tenant will pay $2,750 as of January 2014. In January 2014, the total monthly rent sublet offset is $4,250.
Our future minimum rental payments through February 28, 2015 is $143,123 consisting of rent expenditure of $192,623 offset
by our tenant contribution of $45,500. Our future minimum rental payments through February 28, 2016 is $146,637 consisting
of rent expenditure of $163,637 offset by our tenant contribution of $18,000.
Note 15 - Commitments and Contingencies (continued)
The following schedule represents obligations
under written commitments on the part of the Company that are not included in liabilities:
|
|
|
Current
|
|
|
Long Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
FY2015
|
|
|
FY2016
|
|
|
beyond
|
|
|
Totals
|
|
|
Carriage Fees
|
|
$
|
47,090
|
|
|
$
|
47,090
|
|
|
$
|
94,181
|
|
|
$
|
188,361
|
|
|
Consulting
|
|
|
135,233
|
|
|
|
138,475
|
|
|
|
148,638
|
|
|
|
422,346
|
|
|
Other
|
|
|
150,792
|
|
|
|
150,792
|
|
|
|
301,584
|
|
|
|
603,168
|
|
|
Totals
|
|
$
|
333,115
|
|
|
$
|
336,357
|
|
|
$
|
544,403
|
|
|
$
|
1,213,875
|
|
Legal Matters
The Company is otherwise involved, from
time to time, in litigation, other legal claims and proceedings involving matters associated with or incidental to our business,
including, among other things, matters involving breach of contract claims, intellectual property and other related claims employment
issues, and vendor matters. The Company believes that the resolution of currently pending matters will not individually or in
the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current
litigation or other legal claims could change in light of the discovery of facts not presently known to the Company or by judges,
juries or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome
of such litigation or claims.
There is currently a case pending whereby
the Company’s Chief Executive Officer (the “Defendant”) is being sued for allegedly breaching a contract, which
he signed in his role as CEO of Extraordinary Vacations Group, Inc. (“Extraordinary Vacations”). The case is being
strongly contested. The Defendant filed a motion to dismiss plaintiff’s amended complaint with prejudice and such motion
has been argued before the judge in the case. The Company is currently awaiting the judge’s ruling at this time.
The Company was a defendant in a lawsuit
filed by Gari Media Group, Inc. in the United States District court for central district of California alleging that, Next 1 owed
$75,000 from a video and music production agreement provided for the Company’s television network. A settlement agreement
was finalized and on September 3, 2013, the lawsuit was dismissed.
The Company is a defendant in a lawsuit
filed by Twelfth Child Entertainment in the Circuit Court for Palm Beach, Florida alleging that Next 1 owes 11,000 shares of Series
D Preferred stock for a License Agreement. The case is being strongly contested and is in arbitration.
Other Matters
In December 2005, the Company acquired
Maupintour, LLC. (“Maupintour”). On March 1, 2007, the Company sold Maupintour to an unrelated third party for the
sum of $1.00 and the assumption of $900,000 of Maupintour’s debts. In October 2007, the Company was advised that purchaser
had been unable to raise the required capital it had agreed to under the negotiated purchase agreement and was exercising its
right to rescind the purchase. Extraordinary Vacations agreed to fund all passengers travel and moved to wind down the corporation.
As part of the wind down of Maupintour, the Company created Maupintour Extraordinary Vacations, Inc. on December 14, 2007 under
which certain assets and liabilities of Maupintour were assumed in order to allow for customer travel and certain past obligations
of Maupintour to be met. Management estimates that there is approximately $420,000 in potential liabilities and has recorded an
accrual for $420,000 in other current liabilities at February 28, 2014.
Note 16 – Segment Reporting
Accounting Standards Codification 280-16
“Segment Reporting”, established standards for reporting information about operating segments in annual consolidated
financial statements and required selected information about operating segments in interim financial reports issued to stockholders.
It also established standards for related disclosures about products, services, and geographic areas. Operating segments are defined
as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
The Company has two reportable operating
segments: Media and Travel. The accounting policies of each segment are the same as those described in the summary of significant
accounting policies. Each segment has its own product manager but the overall operations are managed and evaluated by the Company’s
chief operating decision makers for the purpose of allocating the Company’s resources. The Company also has a corporate
headquarters function, which does not meet the criteria of a reportable operating segment. Interest expense and corporate expenses
are not allocated to the operating segments.
Note 16 – Segment Reporting (continued)
The tables below present information about
reportable segments for the years ended February 28, 2014 and February 28, 2013:
|
|
|
2014
|
|
|
2013
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
1,098,377
|
|
|
$
|
436,748
|
|
|
Travel
|
|
|
464,998
|
|
|
|
550,367
|
|
|
Segment revenues
|
|
$
|
1,563,375
|
|
|
$
|
987,115
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
4,568,472
|
|
|
$
|
2,276,093
|
|
|
Travel
|
|
|
1,933,765
|
|
|
|
2,868,784
|
|
|
Segment expense
|
|
$
|
6,502,237
|
|
|
$
|
5,144,877
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
(3,470,094
|
)
|
|
$
|
(1,839,344
|
)
|
|
Travel
|
|
|
(1,468,767
|
)
|
|
|
(2,318,417
|
|
|
Segment net loss
|
|
$
|
(4,938,861
|
)
|
|
$
|
(4,157,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
4,434,112
|
|
|
$
|
4,469,372
|
|
|
Travel
|
|
|
10,406
|
|
|
|
10,406
|
|
|
Segment total
|
|
|
4,444,518
|
|
|
|
4,479,778
|
|
|
Corporate
|
|
|
48,380
|
|
|
|
110,000
|
|
|
Segment total
|
|
$
|
4,492,898
|
|
|
$
|
4,589,778
|
|
The Company did not generate any revenue outside the United
States for the years ended February28, 2014 and 2013, and did not have any assets located outside the United States.
Note 17 – Fair Value Measurements
The Company has adopted new guidance under
ASC Topic 820, effective January 1, 2009. New authoritative accounting guidance (ASC Topic 820-10-15) under ASC Topic 820, Fair
Value Measurements and Disclosures, delayed the effective date of ASC Topic 820-10 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until
2009.
ASC Topic 820 establishes a fair value
hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires
disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. Further new authoritative
accounting guidance (ASU No. 2009-05) under ASC Topic 820, provides clarification that in circumstances in which a quoted price
in an active market for the identical liabilities is not available, a reporting entity is required to measure fair value using
one or more of the techniques provided for in this update.
The standard describes a fair value hierarchy
based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used
to measure fair value, which are the following:
|
|
·
|
Level
1 - Quoted prices in active markets for identical assets or liabilities.
|
|
|
·
|
Level
2 - Inputs other than Level 1 that are observable, either directly or indirectly, such
as quoted prices for similar assets of liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
|
|
|
·
|
Level
3 - Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
|
Our assessment of the significance of
a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset
or liability
The Company analyzes all financial instruments
with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815,
“Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any
increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The
effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of
the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrant and option derivatives
are valued using the Black-Scholes model.
Note 17 – Fair Value Measurements (continued)
The Company uses Level 3 inputs for its
valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were
determined by using the Black-Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities
are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results
of operations as adjustments to fair value of derivatives.
The following table sets forth the liabilities
as of February 28, 2014, which are recorded on the balance sheet at fair value on a recurring basis by level within the fair value
hierarchy. As required, they are classified based on the lowest level of input that is significant to the fair value measurement:
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
Description
|
|
February
28,
2014
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note with
embedded conversion option
|
|
$
|
1,355,613
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
1,355,613
|
|
|
Total
|
|
$
|
1,355,613
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
1,355,613
|
|
The following table sets forth a summary of changes in fair
value of our derivative liabilities for the year ended February 28, 2014 and 2013:
|
|
|
2/28/14
|
|
|
2/28/13
|
|
|
Beginning balance
|
|
$
|
403,587
|
|
|
$
|
2,254,219
|
|
|
Fair value of embedded conversion feature of:
|
|
|
|
|
|
|
|
|
|
Preferred Series securities at issue date
|
|
|
-0-
|
|
|
|
35,733
|
|
|
Convertible promissory notes as issue date
|
|
|
-0-
|
|
|
|
194,664
|
|
|
Change in fair value of embedded conversion feature of:
|
|
|
|
|
|
|
|
|
|
Preferred Series securities included in earnings
|
|
|
(98,600
|
)
|
|
|
(1,275,150
|
)
|
|
Convertible promissory notes included in earnings
|
|
|
1,050,626
|
|
|
|
(805,879
|
)
|
|
Ending balance
|
|
$
|
1,355,613
|
|
|
$
|
403,587
|
|
Note 18 – Income Taxes
Next 1 Interactive Inc. follows the guidance
of ASC 740, “Income Taxes.” Deferred income taxes reflect the net effect of (a) temporary difference between carrying
amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating
loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because
no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward
and other temporary differences has been recognized, as it is not deemed likely to be realized.
The provision for income taxes consists
of the following components for the years ended February 28, 2014 and 2013 are as follows:
|
|
|
2014
|
|
|
2013
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The components of deferred income tax
assets and liabilities for the years ended February 28, 2014 and 2013 are as follows:
|
|
|
2014
|
|
|
2013
|
|
|
Net operating loss carry-forwards - non current
|
|
$
|
19,265,000
|
|
|
$
|
17,572,000
|
|
|
Equity based compensation - non current
|
|
|
4,129,000
|
|
|
|
3,277,000
|
|
|
Amortization of intangibles - non current
|
|
|
(1,110,000
|
)
|
|
|
(1,640,000
|
)
|
|
Valuation allowance
|
|
|
(22,284,000
|
)
|
|
|
(19,209,000
|
)
|
|
Net deferred tax assets (liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
Note 18 – Income Taxes (continued)
The income tax provision differs from
the expense that would result from applying statutory rates to income before income taxes principally because of the valuation
allowance on net deferred tax assets for which realization is uncertain.
The effective tax rates for years ended
February 28, 2014 and 2012 were computed by applying the federal and state statutory corporate tax rates as follows:
|
|
|
2014
|
|
|
2013
|
|
|
Statutory Federal income tax rate
|
|
|
-35
|
%
|
|
|
-35
|
%
|
|
State taxes, net of Federal
|
|
|
-4
|
%
|
|
|
-4
|
%
|
|
Permanent difference
|
|
|
21
|
%
|
|
|
1
|
%
|
|
Increase in valuation allowance
|
|
|
18
|
%
|
|
|
38
|
%
|
|
|
|
|
0
|
%
|
|
|
0
|
%
|
The valuation allowance has increased
by $3,075,000 in fiscal year end 2014.
The net operating
loss (“NOL”) carry-forward balance as of February 28, 2014 is approximately $50 million expiring between 2025
and 2033. Management has reviewed the provisions of ASC 740 regarding assessment of their valuation allowance on deferred
tax assets and based on that criteria determined that it may not have sufficient taxable income in the future to offset
those assets. Therefore, Management has assessed the realization of the deferred tax assets and has determined
that it is more likely than not that they will not be realized and has provided a valuation allowance against these assets
sufficient enough to reduce deferred tax assets to an amount equal to deferred tax liabilities. The utilization of the
NOL’s may be limited by Internal Revenue Code Section 382 which restricts annual utilization following a greater than
50% change in ownership.
The Company adopted the provisions
of ASC 740, previously FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, on January 1, 2007.
Previously the Company has accounted for tax contingencies in accordance with Statement of Financial Accounting Standards 5,
Accounting for Contingencies. The statute of limitations is still open on years 2010 and subsequent. The Company recognizes
the financial statement impact 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. At the adoption date the Company
applied ASC 740 to all tax positions for which the statute of limitations remained open. As a result of the implementation of
ASC 740, the Company did not recognize a material increase in the liability for uncertain tax positions.
Note
19 – Subsequent Events
The Company has evaluated subsequent events occurring after
the balance sheet date and has identified the following:
Next 1 Interactive, Inc.
During March, April and May of 2014:
|
|
·
|
converted
200 shares of Series B Preferred stock valued at $1,000 at the request of the investor,
into 20,000 shares of RealBiz Media Group, Inc. stock a subsidiary of Next 1 Interactive,
Inc.
|
|
|
·
|
warrants
holders exercised 1,321,000 warrants and the Company received proceeds of $45,180 net
of $20 in bank charges for a total value of $45,200 and issued 1,321,000 shares of common
stock.
|
|
|
·
|
received
proceeds of $47,733 net of $67 in bank charges for a total value of $47,800 and issued
548,000 shares of common stock.
|
|
|
·
|
effective
May 1, 2014, appointed Michael Craig, age 63, as a director of the board of directors
of Next 1 Interactive, Inc. (the “Company”). There are no family relationships
between Mr. Craig and any director, executive officer or person nominated or chosen by
the Company to become as director or executive officer. Additionally, there have been
no transactions involving Mr. Craig that would require disclosure under Item 404(a) of
Regulation S-K
.
|
|
|
·
|
On
May 5, 2014, the Company received approval of holders of a majority of the outstanding
shares of the Series C Preferred Stock and Series D Preferred Stock for the Amendment
to the Corporation’s Certificates of Designation to change the conversion price
from $5.00 to $0.25.
|
|
|
·
|
On
May 30, 2014, Deborah Linden resigned from her postion as President and Chief Operations Officer.
|
Note
19 – Subsequent Events
(continued)
RealBiz Media Group, Inc.
During March, April and May of 2014:
|
|
·
|
issued
65,900 shares of common stock and 8,400 one (1) warrants with an exercise price of $1.00
in exchange for services rendered valued at $55,143. The value of the shares issued was
based upon the fair market value at the date of issuance. The value of the warrants was
estimated at date of grant using Black-Scholes option pricing model with the following
assumptions: risk free interest rate of 0.13% , dividend yield of -0-%, volatility factor
of 326.14% and expected life of 1 year.
|
|
|
·
|
received
$150,100 in proceeds and issued 283,500 shares of its common stock, 283,500 of its one
(1) year warrants with an exercise price between $0.50 and $1.25 and the Company also
issued 467,000 of its one (1) year warrants with an exercise price between $0.05 and
$0.10.
|
|
|
·
|
On
March 4, 2014, announced the launch of the Nestbuilder Agent website. The accumulated
capitalized costs of this website will be amortized over a three year period under the
straight line method.
|
|
|
·
|
issued
200,000 shares of common stock upon the exercise of 200,000 warrants at $0.18 per share
receiving $36,000 in proceeds.
|
|
|
·
|
received
$369,940 in proceeds, in advance, for subscriptions in common stock and warrants not
yet issued as of the date of the audit report.
|
|
|
·
|
On May 24, 2014, entered into an Asset Sale Agreement with ReachFactor, Inc.
(“ReachFactor”) and its two principals, Suresh Srinivasan and Arun Srinivasan pursuant to which the Company
acquired substantially all of the assets of ReachFactor and the Company assumed certain liabilities of ReachFactor. As a
condition to the closing of the Asset Sale Agreement, the Company also entered into an employment agreement with each of
Suresh Srinivasan (the “Suresh Employment Agreement”) and Arun Srinivasan (the “Arun Employment
Agreement”). Under the terms of the Suresh Employment Agreement, Suresh Srinivasan has been retained to serve as Chief
Operating Officer of the Company for a term of 36 months commencing May 27, 2014. Under the terms of the Arun Employment
Agreement, Arun Srinivasan has been retained to serve as Chief Marketing Officer and Chief Technology Officer of the Company
for a term of 36 months commencing May 27, 2014 and has been appointed to the board of directors of the Company.
ReachFactor is a social media marketing platform that helps real estate agents and brokerages grow their online visibility,
connect with customer prospects and turn those prospects into new customers.
|
|
|
·
|
On May 30, 2014, Deborah Linden resigned from her position as Chief Operations Officer.
|