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 the parent company of Next 1 Network (formerly RRTV Network and Resort &
Residence TV), Next Trip – its travel division, and Realbiz Media. (“formerly Next One Realty”) – its
real estate division. The Company 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 TV, Video On Demand (VOD) and web solutions. The Company has worked with multiple distributors beta
testing its platforms as part of its roll out of TV programming and VOD Networks. The list of distributors the Company has
worked with includes Comcast, Cox, Time Warner and Direct TV. At present, the Company operates the Home Tour Network through
its majority owned subsidiary real estate partner – RealBiz Media Group, Inc. (“Realbiz Media”). The Home
Tour Network features over 5,000 home listings in five cities on the Cox Communications network.
Next 1 is comprised of three distinct
categories:
The Company recognized the convergence taking place in interactive television/the web and began the process of
recreating several of its key relationships in real estate, travel and media over the last three years in efforts to position itself
for the interactive revolution with “TV everywhere”. Currently Next 1 has operating agreements and /or active discussions
are underway with broadband, cable and Over the Top TV solutions for the Next 1 Networks during the next 12 months.
Linear TV Network with supporting Web
sites –
The potential revenue streams from Next 1 Networks - Traditional Advertising, Interactive Ads, Sponsorships,
Paid Programming, travel commissions and referral fees.
TV Video On Demand channels for Travel
with supporting Web sites –
The 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, Next Trip,
Extraordinary Vacations and Trip Professionals).
TV Video on Demand channels for Real
Estate with supporting Web sites
– The potential revenue streams from Real Estate Video on Demand Channel
-
Commissions
and referral fees on home sales, pre-roll/post-roll advertising, lead generation fees, banner ads and cross market advertising
promotions ($89 listing and marketing fee, web and mobile advertising).
On October 9, 2008, the Company acquired
the majority of shares in Maximus Exploration Corporation, a reporting shell company, pursuant to a share exchange agreement. The
share exchange provided for the exchange rate of 1 share of Maximus common stock for 60 shares Extraordinary Vacations Group, Inc.
common stock. The consolidated financial statements of Next 1, reflects the retroactive effect of the share exchange as if it had
occurred at March 1, 2008. All loss per share amounts are reflected based on Next 1’s outstanding, basic and dilutive.
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 to reflect this reverse stock
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 has made it one of the leaders in
providing home 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 in exchange for Webdigs Series A Stock is referred to as the “Exchange Transaction.”
Basis of Presentation
The unaudited consolidated financial
statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”) for interim reporting and include all adjustments (consisting only of
normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These consolidated
financial statements have not been audited.
Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate
to make the information presented not misleading. However, these consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the Company's Annual Report for the year ended February
28, 2013, filed with the SEC on June 13, 2013 and as amended on July 1, 2013. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
Note 1 - Summary of Business Operations and Significant Accounting
Policies (continued)
Principles of Consolidation
The accompanying unaudited 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 85 % interest in Realbiz Holdings, Inc. and
89% 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.
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 unaudited consolidated balance sheets and reports noncontrolling
interest net loss under the heading “Net loss applicable to noncontrolling interest in consolidated subsidiary” in
the unaudited consolidated statements of operations.
Use of Estimates
The Company’s significant estimates
include allowance for doubtful accounts, valuation of intangible assets, 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
Cash and cash equivalents consist of cash
and short-term investments with insignificant interest rate risk and original maturities of 90 days or less.
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. 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 also performs ongoing credit evaluations of customers’ financial condition. The Company maintains
reserves for potential credit losses, and such losses traditionally have been within its expectations.
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
May 31, 2013, the Company had no 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.
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.
Note 1 - Summary of Business Operations and Significant Accounting
Policies (continued)
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 expected 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 many 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. The Company evaluated the remaining useful life of the
intangibles and did not record an impairment of intangible assets during the three months ended May 31, 2013 and 2012.
Intellectual properties that have
finite useful lives are amortized over their useful lives. The Company incurred amortization expense of $361,403 and $17,025
for the three months ended May 31, 2013 and 2012.
Other Comprehensive Income (Loss)
Comprehensive income (loss) includes net
income (loss) and items defined as other comprehensive income (loss). Items defined as other comprehensive income (loss) include
items such as foreign currency translation adjustments. For the three months ended May 31, 2013 and 2012, the accumulated comprehensive
income was $19,574 and $-0-, respectively.
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.
Note 1 - Summary of Business Operations
and Significant Accounting Policies (continued)
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.
The Company’s common stock equivalents include the following:
|
|
May 31, 2013
|
|
Series A convertible preferred stock issued and outstanding
|
|
|
2,216,014
|
|
Series B convertible preferred stock issued and outstanding
|
|
|
2,074,750
|
|
Series C convertible preferred stock issued and outstanding
|
|
|
180,000
|
|
Series D convertible preferred stock issued and outstanding
|
|
|
5,133,635
|
|
Warrants to purchase common stock issued, outstanding and exercisable
|
|
|
8,583,493
|
|
Stock options issued, outstanding and exercisable
|
|
|
4,050
|
|
Shares on convertible promissory notes
|
|
|
32,133,155
|
|
|
|
|
50,325,097
|
|
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.
Advertising
We recognize advertising revenues in the
period in which the advertisement is displayed, if evidence of an arrangement exists, the fees are fixed or determinable and collection
of the resulting receivable is reasonably assured. If fixed-fee advertising is displayed over a term greater than one month, revenues
are recognized ratably over the period as described below. The majority of insertion orders have terms that begin and end in a
quarterly reporting period. In the cases where at the end of a quarterly reporting period the term of an insertion order is not
complete, the Company recognizes revenue for the period by pro-rating the total arrangement fee to revenue and deferred revenue
based on a measure of proportionate performance of its obligation under the insertion order. The Company measures proportionate
performance by the number of placements delivered and undelivered as of the reporting date. The Company uses prices stated on its
internal rate card for measuring the value of delivered and undelivered placements. Fees for variable-fee advertising arrangements
are recognized based on the number of impressions displayed or clicks delivered during the period.
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 includes costs directly
attributable to services sold and delivered. These costs include such items as broadcast carriage fees, costs to produce television
content, sales commission to business partners, hotel and airfare, cruises and membership fees.
Note 1 - Summary of Business Operations and Significant Accounting
Policies (continued)
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 three months ended May 31, 2013 and 2012 was $79,623 and $9,500.
Share Based Compensation
The Company computes share based payments
in accordance with Accounting Standards Codification 718-10 “Compensation” (ASC 718-10). ASC 718-10 establishes standards
for the accounting for transactions in which an entity exchanges its equity instruments for goods and services at fair value, focusing
primarily on accounting for transactions in which an entity obtains employees services in share-based payment transactions. It
also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair
value of an entity’s equity instruments or that may be settled by the issuance of those equity instruments.
In March 2005, the SEC issued SAB No. 107,
Share-Based Payment (“SAB 107”) which provides guidance regarding the interaction of ASC 718-10 and certain SEC rules
and regulations. The Company has applied the provisions of SAB 107 in its adoption of ASC 718-10.
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 17 for fair value measurements.
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 May 31,
2013. Such reclassifications have no effect on the reported net loss.
Recent Accounting Pronouncements
In July 2012,
the Financial Accounting Standards Board (FASB) amended ASC 350,
“
Intangibles — Goodwill and Other”.
This amendment is intended to simplify how an entity tests indefinite-lived assets other than goodwill for impairment by providing
entities with an option to perform a qualitative assessment to determine whether further impairment testing is necessary. The amended
provisions will be effective for the Company beginning in the first quarter of 2014, and early adoption is permitted. This amendment
impacts impairment testing steps only, and therefore adoption will not have an impact on the Company’s consolidated financial
position, results of operations or cash flows.
In August 2012,
the FASB issued Accounting Standards Update (“ASU”) 2012-03, “Technical Amendments and Corrections to SEC Sections:
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release
No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update
No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is
not expected to have a material impact on financial position or results of operations of the Company.
In October 2012,
the FASB issued ASU 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04 ("ASU
2012-04"). The amendments in this update cover a wide range of topics in the Accounting Standards Codification. These amendments
include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair
value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption
of ASU 2012-04 is not expected to have a material impact on financial position or results of operations of the Company.
In February 2013,
the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02).
This guidance is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other
comprehensive income (AOCT). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other
comprehensive income. However, the amendments required disclosure of amounts reclassified out of AOCI in its entirety, by component,
on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety
to net income must be cross-referenced to other disclosure that provides additional detail. This standard is effective prospectively
for annual and interim reporting periods beginning after December 15, 2012. The adoption of ASU 201-02 is not expected to have
a material impact on financial position or results of operations of the Company.
Management does not believe that any other
recently issued, but not effective, accounting standards if currently adopted would have a material effect on the accompanying
consolidated financial statements.
Note 2 - Going Concern
As reflected in the accompanying consolidated
financial statements, the Company had an accumulated deficit of $71,844,415 and a working capital deficit of $12,650,048 at May
31, 2013, net losses for the three months ended May 31, 2013 of $1,401,001 and cash used in operations during the three months
ended May 31, 2013 of $1,248,743. 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 through private placements with third parties by way
of a public or private offering. In addition, the board of directors (the “Board”) has agreed to make available, to
the extent possible, the necessary capital required to allow management to aggressively expand its planned Interactive and Video
on Demand and RealBiz platforms 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 – Property and Equipment
As of May 31, 2013 and 2012 respectively,
the Company did not record property and equipment on its books and records. Any property and equipment previously recorded was
fully impaired and written off. Therefore, there was no depreciation expense recorded for the three months ended May 31, 2013 and
2012.
Note 4 – Website Development Costs and Intangible Assets
The following table sets forth the intangible
assets, both acquired and developed, including accumulated amortization:
|
|
May 31, 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
|
|
2.8 years
|
|
|
4,796,178
|
|
|
|
880,287
|
|
|
|
3,915,891
|
|
Website development costs
|
|
0.7 years
|
|
|
738,420
|
|
|
|
707,855
|
|
|
|
30,565
|
|
Trade Name
|
|
0.0 years
|
|
|
291,859
|
|
|
|
291,859
|
|
|
|
-0-
|
|
|
|
|
|
$
|
19,469,221
|
|
|
$
|
15,522,765
|
|
|
$
|
3,946,456
|
|
Intangible assets are amortized on a straight-line
basis over their expected useful lives, estimated to be 4 years, except for the web site, which is 3 years. Amortization expense
related to website development costs and intangible assets was $361,403 and $17,025 for the three months ended May 31, 2013 and
2012, respectively.
Note 5 – 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 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 assume 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
|
|
Unaudited pro forma results of operations data as if the Company,
RealBiz Holdings, Inc. and RealBiz Media Group, Inc. had occurred as of March 1, 2012 are as follows:
|
|
The Company, RealBiz
Holdings, Inc and RealBiz
Media Group, Inc.
|
|
|
|
For the three months ended
|
|
|
|
May 31, 2012
|
|
|
|
|
|
Pro forma revenue
|
|
$
|
460,169
|
|
|
|
|
|
|
Pro forma loss from operations
|
|
$
|
897,302
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
890,641
|
|
|
|
|
|
|
Pro forma basic and diluted net loss per share
|
|
$
|
.34
|
|
Note 5 – Acquisitions
(continued)
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, our 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, 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 6 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following,
respectively:
|
|
May 31, 2013
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
1,539,758
|
|
Accrued interest
|
|
|
591,899
|
|
Deferred salary
|
|
|
76,891
|
|
Accrued expenses - other
|
|
|
111,947
|
|
|
|
$
|
2,320,495
|
|
Note 7 – Notes Payable
On May 28, 2010, the Company entered into
a settlement agreement by and among the Company and Televisual Media, a Colorado limited liability company, TV Ad Works, LLC, a
Colorado limited liability company, TV Net Works, a Colorado limited liability company, TV iWorks, a Colorado limited liability
and Mr. Gary Turner and Mrs. Staci Turner, individuals residing in the State of Colorado (individually and collectively “TVMW,”
and together with the Company, the “Parties”), in order to resolve certain disputed claims regarding the service agreements
referred to above. The final settlement agreement stipulates that any party shall not construe the settlement as an admission or
denial of liability hereto.
On March 23, 2011, the Company entered
into a debt purchase agreement whereby $65,000 of certain aged debt evidenced by a Settlement Agreement dated May 28, 2010 for
$1,000,000 with a remaining balance of $815,000, was purchased by a non-related third party investor. As part of the agreement,
the Company received $65,000 in consideration for issuing a 6-month, 21% convertible promissory note, with a face value of $68,500,
maturing on September 23, 2011. On August 31, 2011, the noteholder entered into a wrap around agreement to assign $485,000 of its
debt to investors and immediately assigned $50,000 of its principal to a non-related third party investor and the Company issued
a secured convertible promissory note for the same value. On September 6, 2011, the Company re-negotiated the settlement
agreement 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
May 31, 2013, the remaining principal balance is $510,000 and the note is in default.
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 and matured in March
2011 and is payable in quarterly installments of $25,000. As of May 31, 2013, the remaining principal balance is $157,942 and un-paid
accrued interest is $160,799. The Company is in default of this note.
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, 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 principle 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 of principal and $8,754
of un-paid interest still owed as of May 31, 2013 and the Company is in default of this note.
Note 7 – Notes Payable (continued)
In connection with the acquisition of Brands
on Demand, an officer of the Company entered into a five-year lease agreement. Subsequent to terminating the officer, the Company
entered into an early termination agreement with the lessor valued at $30,000 secured by a promissory note with monthly installments
of $2,500, beginning June 1, 2009 and maturing June 1, 2010. As of May 31, 2013, the Company has not made any installment payments
on this obligation and the remaining principal balance of the note is $30,000, un-paid accrued interest is $15,497 and the Company
is in default of this note.
On December 5, 2011, the Company converted
$252,833 of accounts payable and executed an 8% promissory note to same vendor. Commencing on December 5, 2011 and continuing on
the first 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 May 31, 2013, the remaining principal balance is $221,130 and unpaid accrued interest is $13,267. The
Company is in default of this note.
The total of $944,072 in principal of the above debt is currently
past due. Interest charged to operations relating to these notes was $8,603 and $10,236, respectively for the three months ended
May 31, 2013 and 2012.
Note 8 – Capital Lease Payable
On June 1, 2006, the Company entered into
a five (5) year equipment lease agreement requiring monthly payments of $5,078 including interest at approximately 18% per year
and expires on June 1, 2011 with a related party. On September 3, 2010, the Company amended the original agreement to procure $56,671
of additional equipment. The Company extended the maturity to September 1, 2012 and all other lease terms remained unchanged. As
of May 31, 2013, the Company has satisfied all the terms of the lease agreement. Interest expense on the lease was $-0- and $931
for the three months ended May 31, 2013 and 2012, respectively.
Note 9
–
Other Notes Payable
Related Party
A director and officer had advanced funds
to the Company since inception. As of May 31, 2013, the Company does not have any principal balance due to the officer/director,
however there is an unpaid accrued interest balance totaling $1,960. The interest rate is 18% per annum compounded daily, on the
unpaid balance. Interest expense recognized for the three months ended May 31, 2013 and 2012 is $76 and $63, respectively.
An unrelated entity where the director/officer
is president has advanced funds to the Company since inception of which the principal amounts have been repaid. As of May 31, 2013,
the Company does not have any principal balance due to this entity, however there is an unpaid accrued interest balance totaling
$13,675. Interest expense recognized for the three months ended May 31, 2013 and 2012 is $530 and $443 respectively.
On August 21, 2012, the Company received
$50,000 in proceeds from a board member 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. Interest expense
of $-0- has been recognized for the three months ended May 31, 2013 and 2012. As of May 31, 2013, the remaining principal balance is $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 Company uses the Black-Scholes option-pricing model to determine the warrant’s fair value using the following assumptions:
risk-free interest rate of 0.15%, dividend yield of -0-%, volatility factor of 354.79% and expected life of 1year. Interest expense
of $-0- has been recognized for the three months ended May 31, 2013 and 2012. As of May 31, 2013, the remaining principal balance is $75,000.
Non Related Party
The Company has an existing promissory
note, dated July 23, 2010, with a shareholder in the amount of $100,000. The note was due and payable on July 23, 2011 and bore
interest at rate of 6% per annum. As consideration for the loan, the Company issued 200 warrants to the holder with a three-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, 2011, 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 balance of $70,000
as of May 31, 2013. As of May 31, 2013, the principal balance of this note is in default and the amount of accrued interest is
$19,446. 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 0.984%, dividend yield of -0-%, volatility factor of 115.05% and an expected
life of 1.5 years. The fair value of warrants was amortized as finance fees over the term of the loan. The Company recorded approximately
$33,000 in prepaid finance fees upon origination and amortized approximately $-0- and $13,279 in expense, respectively for the
three months ended May 31, 2013 and 2012. Interest charged to operations relating to this note was $1,284 and $1,209, respectively
for the three months ended May 31, 2013 and 2012.
Note 10
–
Other Advances
Related Party
During the three months ended May 31, 2013,
the Company incurred no activity and the remaining principal balance is $18,000.
Non Related Party
During the three months ended May 31, 2013,
the Company incurred no activity and the remaining principal balance is $50,000.
Note 11 – Shareholder Loans
During the three months ended May 31, 2013,
the Company received $55,000 in proceeds for shareholder advances and the principal balance as of May 31, 2013 totaled $500,000.
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 May 31, 2013,
the Company has completely satisfied the terms of the agreement.
Note 13 – Convertible Promissory Notes
During the three months ended May 31, 2013,
the Company
|
·
|
processed a total of $50,000 of principal
payments against outstanding balances.
|
|
·
|
converted $6,335 of outstanding principal
and issued 618,000 shares of its common stock.
|
|
·
|
converted $54,850 of outstanding principal
and upon investor request executed the issuance of 27,500 shares of RealBiz Media’s common stock realizing a loss of $42,325.
|
|
·
|
recognized amortization of debt discount
during the three months ending May 31, 2013 and 2012 of $9,480 and $692,324, respectively with a remaining expected life from seven
to twenty months.
|
|
·
|
recognized a gain on the change in fair
value of derivatives in the amounts of $195,133 and $882,487, 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 0.03% to 0.30%, dividend yield of -0-%, volatility factor of 11.93 % to 389.63% and expected life from one to eighteen months.
|
Below is a summary of the convertible promissory notes as of
May 31, 2013:
|
|
Remaining
Principal
Balance
|
|
|
Un-Amortized
Debt Discount
|
|
|
Carrying
Value
|
|
|
Principal
Past Due
|
|
Non-Related Party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
7,423,080
|
|
|
$
|
4,197
|
|
|
$
|
7,418,883
|
|
|
$
|
6,441,080
|
|
Long term
|
|
|
53,300
|
|
|
|
15,794
|
|
|
|
37,506
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,476,380
|
|
|
|
19,991
|
|
|
|
7,456,389
|
|
|
|
6,441,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
650,000
|
|
|
|
-0-
|
|
|
|
650,000
|
|
|
|
650,000
|
|
Long term
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
650,000
|
|
|
|
-0-
|
|
|
|
650,000
|
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,126,380
|
|
|
$
|
19,991
|
|
|
$
|
8,106,389
|
|
|
$
|
7,091,080
|
|
Interest rates range from 5.0% to 12.0% and maturity dates range
from September 30, 2012 to October 15, 2014. During three months ended May 31, 2013 and 2012, the Company recognized interest expense
of $149,477 and $153,884, respectively.
Note 13 – Convertible Promissory Notes (continued)
Convertible promissory note attributable
to consolidated subsidiary
As of May 31, 2013, the Company has a convertible
promissory note payable in the amount of $605,000 in outstanding principal. This note is convertible into RealBiz Media Group,
Inc.’s common stock at $0.15 per share and bears no interest.
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”).
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.
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, may 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 Company and its’ subsidiaries,
at a rate of $0.50 of debt for each share of Series A Preferred Stock. On July 9, 2012, the Company amended the Certificate of
Designations for the Company’s Series A Preferred Stock to allow for conversion into Series C Preferred stock (as defined
below). Furthermore, the amendment allows for conversion 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.
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.
For the three months ended May 31, 2013,
the Company, in accordance with ASC 815-40, determined the fair value of the Series A Preferred Stock to be $42,881, using the
Black-Scholes formula assuming no dividends, a risk-free interest rate of 0.22%, expected volatility of 447.81%, and expected life
of 2 years (based on the current rate of conversion). At each reporting date, the Company records the changes in the fair value
of the derivative liability as non-operating, non-cash income. The change in fair value of the Series A Preferred Stock derivative
liability resulted in current year non-operating income included in operations of $1,030.
During the three months ended May 31, 2013,
the Company converted 150,000 shares, held by a related party investor, into 30,000 shares of Series C Preferred Stock valued at
$150,000.
Dividends in arrears on the outstanding
preferred shares total $263,452 as of May 31, 2013. The Company had 2,216,014 shares issued and outstanding as of May 31, 2013
and 2,366,014 shares issued and outstanding as of February 28, 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 $0.0001
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 three months ended May 31, 2013,
the Company:
|
·
|
issued 7,600 shares of Series B Preferred
Stock for services rendered, consisting of financing and consulting fees incurred in raising capital, valued at $38,000. 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
8,850 shares of Series B Preferred Stock into 885,000 shares of RealBiz Media’s common stock with a total value of $44,250.
|
Dividends in arrears on the outstanding
preferred shares total $178,008 as of May 31, 2013. The Company had 414,950 shares issued and outstanding as of May 31, 2013 and
416,200 shares issued and outstanding as of February 28, 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 $0.0001
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 three months ended May 31, 2013,
an investor in the Company converted 150,000 shares of Series A Preferred Stock into 30,000 shares of Series C Preferred Stock
valued at $150,000. Simultaneously, the same investor converted the same 30,000 shares of Series C Preferred Stock into 1,500,000
shares of RealBiz Media’s common stock at a value of $150,000.
Dividends in arrears on the outstanding
preferred shares total $11,483 as of May 31, 2013. The Company had 36,000 shares issued and outstanding as of May 31, 2013 and
February 28, 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 $0.0001
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.
Note 14
–
Stockholders’
Deficit (continued)
Preferred Series D
(continued)
During the three months ended May 31, 2013,
the Company:
|
·
|
issued 20,000 shares of Series D Preferred
Stock, 200,000 one (1) year warrants with an exercise price of $0.03 and collected $100,000 in proceeds from prior year subscription
agreements.
|
|
·
|
received $1,135,810 in proceeds net of
$190 of bank charges and issued 227,200 shares of Series D Preferred Stock and 2,133,500 one (1) 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 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 1,700 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 $9,187. 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.
|
|
·
|
converted 402,000 shares of Series D Preferred
Stock, upon investors’ request, into 13,533,300 shares of RealBiz Media’s common stock valued at $2,010,000.
|
Dividends in arrears on the outstanding
preferred shares total $403,458 as of May 31, 2013. The Company had 1,029,727 shares issued and outstanding as of May 31, 2013
and 1,132,077 shares issued and outstanding as of February 28, 2013, respectively.
Common Stock
On October 28, 2011, 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 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 have 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 three months ended May 31, 2013,
the Company:
|
·
|
issued 125,000 shares of common stock
and 20,000 one (1) year warrants with an exercise price of $0.10 in exchange for services rendered, consisting of financing and
consulting fees incurred in raising capital, valued at $201. 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 $0.14%, dividend yield of -0-%, volatility factor of 338.98% and
expected life of one year.
|
|
·
|
During the three months ended May 31,
2013, the Company issued 618,000 shares of common stock in a partial conversion of a convertible promissory note valued at $6,335.
|
Common Stock Warrants
At May 31, 2013, there were 8,583,493 warrants
outstanding with a weighted average exercise price of $1.89 and weighted average life of 1.36 years. During the three months ended
May 31, 2013, the Company granted 2,403,500 warrants, 125,000 were exercised and 190,785 expired.
Note 14
–
Stockholders’ Deficit (continued)
Common Stock Options
At May 31, 2013, there were 4,050 options outstanding
with a weighted average exercise price of $7.25 and weighted average life of 8.35 years. During the three months ended May 31,
2013, no options were granted or exercised.
Compensation expense relating to stock
options granted during the three months ended May 31, 2013 and 2012, was $-0- and $10,125, respectively.
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 on January 1, 2011 through December 31, 2015. Starting September of 2011, the
Company subletted 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. The total monthly rent sublet offset is $4,000. The rent for the three months ended May 31, 2013 was $33,646.
The following schedule represents obligations
under written commitments on the part of the Company that are not included in liabilities:
|
|
Current
|
|
|
Long-Term
|
|
|
|
|
|
|
FY2014
|
|
|
FY2015
|
|
|
FY2016
and
beyond
|
|
|
Totals
|
|
Consulting
|
|
$
|
147,818
|
|
|
$
|
47,090
|
|
|
$
|
47,090
|
|
|
$
|
241,998
|
|
Leases
|
|
|
101,587
|
|
|
|
138,475
|
|
|
|
29,728
|
|
|
|
269,790
|
|
Other
|
|
|
125,703
|
|
|
|
167,604
|
|
|
|
167,604
|
|
|
|
460,911
|
|
Totals
|
|
$
|
375,108
|
|
|
$
|
353,169
|
|
|
$
|
244,422
|
|
|
$
|
972,699
|
|
Legal Matters
We are 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. We believe 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, our assessment of the current litigation
or other legal claims could change in light of the discovery of facts not presently known to us or determinations 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 owes
$75,000 from a video and music production agreement provided for the company’s television network. A settlement agreement
is currently being negotiated.
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 May 31, 2013.
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.
The tables below present information about
reportable segments for the three months ended May 31, 2013 and May 31, 2012:
|
|
2013
|
|
|
2012
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
320,508
|
|
|
$
|
723
|
|
Travel
|
|
|
174,933
|
|
|
|
167,673
|
|
Segment revenues
|
|
$
|
495,441
|
|
|
$
|
168,396
|
|
|
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
1,100,035
|
|
|
$
|
3,233
|
|
Travel
|
|
|
600,439
|
|
|
|
748,329
|
|
Segment expense
|
|
$
|
1,700,473
|
|
|
$
|
751,562
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
Media
|
|
$
|
(779,526
|
)
|
|
$
|
(2,509
|
)
|
Travel
|
|
|
(425,506
|
)
|
|
|
(580,656
|
)
|
Segment net loss
|
|
$
|
(1,205,032
|
)
|
|
$
|
(583,165
|
)
|
The Company did not generate any revenue
outside the United States for the three months ended May 31, 2013 and 2012, 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
Note 17 – Fair Value Measurements (continued)
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.
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 May 31, 2013, which is recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy.
As required, these 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
|
|
5/31/13
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A and D convertible redeemable preferred stock with reset provisions
|
|
$
|
43,911
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
43,911
|
|
Convertible promissory note with embedded conversion option
|
|
|
164,543
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
164,543
|
|
Total
|
|
$
|
208,454
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
208,454
|
|
The following table sets forth a summary of changes in fair
value of our derivative liabilities for the three months ended May 31, 2013:
Beginning balance
|
|
$
|
403,587
|
|
Fair value of embedded conversion feature of Preferred Series securities at issue date
|
|
|
-0-
|
|
Fair value of embedded conversion feature of convertible promissory notes at issue date
|
|
|
-0-
|
|
Change in fair value of embedded conversion feature of Preferred Series securities included in earnings
|
|
|
(54,689
|
)
|
Change in fair value of embedded conversion feature of convertible promissory notes included in earnings
|
|
|
(140,444
|
)
|
Ending balance
|
|
$
|
208,454
|
|
Note 18
–
Subsequent Events
In May 2009, the FASB issued accounting
guidance now codified as FASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for,
and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available
to be issued. ASC Topic 855 is effective for interim or fiscal periods ending after June 15, 2009. Accordingly, the Company adopted
the provisions of ASC Topic 855 on June 30, 2009. The Company evaluated subsequent events for the period after May 31, 2013, and
has determined that all events requiring disclosure have been made.
During June through July of 2013, the Company:
|
·
|
replaced previously outstanding warrants
with an exercise price of $2.50 and various expiration dates with an exercise price of $0.10. The Company determined this modification,
calculated as the difference in fair value of the warrants immediately before and after the change in exercise prices had no significant
impact on our results and the incremental cost was immaterial. We determined the fair value using the Black-Scholes option-pricing
model and the following assumptions: dividend rate of $0.00, risk free return of 0.15%, volatility of 627.70%, market price of
$0.019 and $0.03 per share and maturity of 1 year. Management has reviewed and assessed the warrants issued or modified during
June 2013 and determined there are no changes to warrants that qualify for treatment as derivatives under applicable US GAAP rules.
|
|
·
|
converted 2,000 shares of Series B Preferred
Stock valued at $10,000, at the request of the investor, into 20,000 shares of RealBiz Media‘s common stock.
|
Note 18
–
Subsequent Events
(continued)
During June through July of 2013, the Company
(continued):
|
·
|
issued 2,500 shares of Series D Preferred
Stock in exchange for services rendered valued at $12,500. The value of the Series D Preferred Stock was based on the fair value
of the stock at the time of issuance.
|
|
·
|
issued 600,000 one (1) year warrants with
an exercise price of $0.03 in exchange for services rendered valued at $6,049. 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 0.14% to 0.15%, dividend
yield of -0-%, volatility factor of 330.84% to 628.18% and expected life of 1 year.
|
|
·
|
effected $85,000 in principal and interest
payments on convertible promissory notes.
|
|
·
|
RealBiz Media received $224,955 in proceeds,
net of $45 of bank charges, and issued 450,000 shares of common stock and 420,000 one (1) year warrants with an exercise price
of $0.03 valued at $225,000.
|
|
·
|
filed a Certificate of Amendment to the
Certificate of Designations (the “Series A Amendment”) with the Nevada Secretary of State to amend and restate the
Certificate of Designations of the Company’s Series A 10% Cumulative Convertible Preferred Stock, $0.01 par value per share
(the “Series A Preferred Stock”). The Series A Amendment amends and restates the voting powers, designations, preferences,
limitations restrictions and relative rights of the Series A Preferred Stock to clarify the conversion price and 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.
|