UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: February 28, 2014
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to _____________
Commission File No. 000-52669
NEXT 1 INTERACTIVE, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 26-3509845 | |
| (State or other jurisdiction of | (I.R.S. employer | |
| incorporation or formation) | identification number) |
2690 Weston Road, Suite 200
Weston, FL 33331
(Address of principal executive offices)
(954) 888-9779
(Registrant’s telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.00001 par value per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
The Registrant’s revenue for its most recent fiscal year was $1,563,375.
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on August 31, 2013, based on a closing price of $.0079 was approximately $110,000 As of June 12, 2014, the registrant had 20,208,347 shares of its common stock, par value $0.00001 per share, outstanding.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the registrant to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward- looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Registrant’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Registrant. Although the Registrant believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Registrant or any other person that the objectives and plans of the Registrant will be achieved.
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
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.
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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.
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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:
| • | Interactive TV Capabilities | |
| • | Web Portal and Microvideo Apps (agent marketing tool under development) | |
| • | Video on Demand solutions for both Travel & Real Estate | |
| • | Exclusivity and/or proprietary positioning | |
| • | Specialized and/or proprietary technology | |
| • | Utilization of Company's real estate and travel licenses | |
| • | A scalable, profitable and portable solution for media |
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:
| Ø | travel operations | |
| Ø | travel media services and | |
| Ø | 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. |
 |
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) |
 |
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). |
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:
| • | Maupintour Extraordinary Vacations, which is the oldest tour company in the US. |
| • | NextTrip.com – a content rich video and media site in which the Company has contracted to produce state of the art booking engines. |
| • | Trip Professional – an at home agency program allowing the consumer to customize and book travel while earning commissions. |
| 1. | Maupintour Extraordinary Vacations |
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.
| 2. | NextTrip.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.
| 3. | Trip Professionals.com |
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.
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VoyageTV and NextTrip /Connext 1 Media Overview
| 1. | VoyageTV |
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.
| 2. | NextTrip /Connext 1 Media Overview |
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:
| Ø | “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.. |
| Ø | 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. |
| Ø | 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. |
| Ø | 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:
| • | www.nxoi.com ; |
| • | www.RRTV.com ; |
| • | www.NextTrip.com ; |
| • | www.voyage.tv; |
| • | www.Maupintour.com ; and |
| • | www.tripprofessionals.com . |
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:
| 1. | 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. |
| 2. | 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. | 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. |
| 4. | 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. |
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:
| • | Real estate agents and brokers generally look for more cost-effective ways to market | |
| • | Agents that place their listings on TV have a distinct marketing advantage over agents that don’t | |
| • | Google has made Traditional Internet websites and high-end print advertising (pay for click) very expensive | |
| • | Media channels focused on real estate are better able to reach the “new consumer” | |
| • | VOD is able to deliver what potential home buyers are asking for – video of a prospective home purchase, which provides valuable information to consumers | |
| • | Ability to target in local markets | |
| • | VOD is able to promote both listings and brand | |
| • | Reach out to higher demographics - Cable viewers have higher incomes, higher education and more disposable income | |
| • | Access through their television allows consumer home seekers to easily search listings with the touch of their remote |
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:
| · | RealBiz’s exclusive partnerships with several national real estate brokerage firms aimed at creating and delivering VOD Listings to TV Networks through the HomeTourNetwork | |
| · | RealBiz’s proprietary Video Ad Builder tool, which we believe is the easiest way to create promotional VOD advertisements for television | |
| · | RealBiz’s marketing partnerships, which we expect will allow it to scale its business across major U.S. markets quickly and efficiently |
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.
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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.
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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.
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.
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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.
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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.
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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:
| • | upgrade our operational, financial, accounting and management information systems, which would include the purchase of new accounting and human resources software; |
| • | identify and hire an adequate number of operating, accounting and administrative personnel and other qualified employees; |
| • | manage new employees and integrate them into our culture; |
| • | incorporate effectively the components of any businesses or assets that we may acquire in our effort to achieve or support growth; |
| • | closely monitor the actions of our broadcast entities and manage the contractual relationships we have with them; and |
| • | 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. |
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.
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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.
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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.
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.
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.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Market Information
Our common stock currently trades on the Over the Counter Bulletin Board under the ticker symbol “NXOI.” Our fiscal year end is February 28. The following table sets forth the high and low trade information for our common stock for each quarter since of the past two (2) fiscal years as follows:
| Period | High Price | Low Price | ||||||
| Fiscal Year Ended February 28, 2013 | ||||||||
| First Quarter | $ | 1.1500 | $ | 0.1500 | ||||
| Second Quarter | $ | 0.2390 | $ | 0.0152 | ||||
| Third Quarter | $ | 0.1450 | $ | 0.0148 | ||||
| Fourth Quarter | $ | 0.0490 | $ | 0.0141 | ||||
| Fiscal Year Ended February 28, 2014 | ||||||||
| First Quarter | $ | 0.0390 | $ | 0.0190 | ||||
| Second Quarter | $ | 0.0300 | $ | 0.0005 | ||||
| Third Quarter | $ | 0.0400 | $ | 0.0050 | ||||
| Fourth Quarter | $ | 0.2300 | $ | 0.0131 | ||||
(b) Holders
These quotations reflect interdealer prices, without retail markup, markdown, or commission and may not represent actual transactions. As of June 12, 2014, we had approximately 446 shareholders.
(c) Dividend Policy
The payment of cash dividends by us is within the discretion of our board of directors and depends in part upon our earnings levels, capital requirements, financial condition, any restrictive loan covenants, and other factors our board considers relevant. Since our inception, we have not declared or paid any dividends on our common stock and we do not anticipate paying such dividends in the foreseeable future. We intend to retain earnings, if any, to finance our operations and expansion.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of February 28, 2014, information with regard to equity compensation plans (including individual compensation arrangements) under which our securities are authorized for issuance:
| Number of Securities to be issued upon exercise of outstanding options and rights (a) | Weighted average exercise prices of outstanding options and rights (b) | Number of securities remaining available for future issuances under equity compensation plans(excluding securities reflected in column (a)) (c) | ||||||||||
| Equity compensation plans approved by stockholders | 558 | $ | 7.25 | 682 | ||||||||
| Equity compensation plans not approved by stockholders | -0- | $ | -0- | -0- | ||||||||
| 558 | $ | 7.25 | 682 | |||||||||
Transfer Agent
Our stock transfer agent is American Stock Transfer Co. (“AST”), 6201 15th Avenue, Brooklyn, NY 11219. AST’s telephone number in the U.S. is (718) 921-8124 and their internet address is www.amstock.com.
Rule 10B-18 Transactions
During the year ended February 28, 2014, there were no repurchases of the Company’s common stock by Next 1.
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Recent Issuances of Unregistered Securities
During the fiscal year ended February 28, 2014, we have issued the following securities which were not registered under the Securities Act and not previously disclosed in the Company’s Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. Unless otherwise indicated, all of the share issuances described below were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act for transactions not involving a public offering:
Common Stock
During the three months ended February 28, 2014, the Company:
| · | issued 1,199,688 shares of common stock and 1,062,000 half year (1/2) to two year (2) warrants with an exercise price of $.03 to $0.10 in exchange for services rendered, consisting of financing and consulting fees, valued at $102,092. The value of the common stock issued was based on the fair value of the stock at the time of issuance. The value of the warrants was estimated at date of grant using Black-Scholes option pricing model with the following assumptions: risk free interest rate 0.09% to 0.11$, dividend yield of -0-%, volatility factor of 191.20% to 619.66% and expected life of 1/2 to 2 years. |
| · | issued 600,000 shares of common stock as employee compensation with a total value of $19,800. The value of the common 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. |
| · | issued 334,500 shares of common stock upon the exercise of 334,500 warrants exercised receiving $15,950 in proceeds. |
| · | issued 1,361,750 shares of common stock for subscriptions receiving $129,050 in proceeds. |
Preferred Series B
During the three months ended February 28, 2014, the Company:
| · | issued 46,000 shares of Preferred Series B Stock in exchange for services rendered, consisting of financing and consulting fees incurred in raising capital, valued at $250,000. The value of the preferred stock issued is 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. |
Preferred Series C
During the three months ended February 28, 2014, the Company:
| · | issued 6,000 shares of Preferred Series C Stock to an executive of the Company as part of their employment agreement valued at $30,000. 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. |
Preferred Series D
During the three months ended February 28, 2014, the Company:
| · | issued 18,400 shares of Preferred Series D Stock in exchange for services rendered, consisting of financing and consulting fees incurred in raising capital, valued at $92,000. 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. |
Item 6. Selected Financial Data
Not applicable.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE FOLLOWING DISCUSSION OF OUR RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS ANNUAL REPORT.
Forward Looking Statements
Some of the information in this section contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they:
· discuss our future expectations;
· contain projections of our future results of operations or of our financial condition; and
· state other “forward-looking” information.
We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors,” “Business” and elsewhere in this Annual Report. See “Risk Factors.”
Unless stated otherwise, the words “we,” “us,” “our,” “the Company,” “Next 1 Interactive, Inc.,” or “Next 1” in this Annual Report collectively refers to the Company.
Recent 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 Real Biz 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 Real Biz Holdings, Inc. is the acquired Company. Accordingly, the Company applied push-down accounting and adjusted to fair value all of the assets and liabilities directly on the financial statements of the subsidiary, Real Biz 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 |
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. 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.”
Evolving Industry Standards; Rapid Technological Changes
The technologies used in the pay television industry are rapidly evolving. Many technologies and technological standards are in development and have the potential to significantly transform the ways in which programming is created and transmitted. We cannot accurately predict the effects that implementing new technologies will have on our programming and broadcasting operations. We may be required to incur substantial capital expenditures to implement new technologies, or, if we fail to do so, may face significant new challenges due to technological advances adopted by competitors, which in turn could result in harming our business and operating results.
The Company’s success in its business will depend in part upon its continued ability to enhance its existing products and services, to introduce new products and services quickly and cost effectively to meet evolving customer needs, to achieve market acceptance for new product and service offerings and to respond to emerging industry standards and other technological changes. There can be no assurance that the Company will be able to respond effectively to technological changes or new industry standards. Moreover, there can be no assurance that competitors of the Company will not develop competitive products, or that any such competitive products will not have an adverse effect upon the Company’s operating results.
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Moreover, management intends to continue to implement “best practices” and other established process improvements in its operations going forward. There can be no assurance that the Company will be successful in refining, enhancing and developing its operating strategies and systems going forward, that the costs associated with refining, enhancing and developing such strategies and systems will not increase significantly in future periods or that the Company’s existing software and technology will not become obsolete as a result of ongoing technological developments in the marketplace.
Travel Industry Trends
Our current revenue is primarily derived from customers accessing our travel websites: NextTrip.com, Maupintour and Cruise Shoppes. According to PhoCusWright, 2007 is the first year in which more than half of all travel in the U.S. was purchased online. The remainder of travel in the U.S. was booked through traditional offline channels. Suppliers, including airlines, hotels and car rental companies, have continued to focus their efforts on direct sale of their products through their own websites, further promoting the migration of customers to online booking. In the current environment, suppliers’ websites are believed to be taking market share domestically from both online travel companies (“OTCs”) and traditional offline travel companies.
In the U.S., the booking of air travel has become increasingly driven by price. As a result, we believe that OTCs will continue to focus on differentiating themselves from supplier websites by offering customers the ability to selectively combine travel products such as air, car, hotel and destination services into one- stop shopping vacation packages.
Despite the increase in online marketing costs, the continued growth of search and meta-search sites as well as Web 2.0 features creates new opportunities for travel websites to add value to the customer experience and generate advertising revenue. Web 2.0 is a term used to describe content features such as social networks, blogs, user reviews, videos and podcasts such as our NextTrip.com, NetTripRadio.com, and Maupitour.Com websites. We believe that the ability of Web 2.0 websites will add value for customers, suppliers and third-party partners while simultaneously creating new revenue streams.
Sufficiency of Cash Flows
Because current cash balances and projected cash generation from operations are not sufficient to meet the Company’s cash needs for working capital and capital expenditures, management intends to seek additional equity or obtain additional credit facilities. The sale of additional equity could result in additional dilution to the Company’s shareholders. A portion of the Company’s cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, the Company evaluates potential acquisitions of such businesses, products or technologies.
RESULTS OF OPERATIONS
Results of Operations for the Fiscal Year Ended February 28, 2014 Compared to the Fiscal Year Ended February 28, 2013
Revenues
Our total revenues increased 58% to $1,563,375 for the fiscal year ended February 28, 2014, compared to $987,115 for the fiscal year ended February 28, 2013, an increase of $576,260. This is due to an increase in the marketing and sales efforts of our subsidiary, RealBiz, real estate division.
Revenues from the travel segment decreased 16% to $464,998 for the fiscal year ended February 28, 2014, compared to $550,367 for the fiscal year ended February 28, 2013, a decrease of $85,369. Travel revenue is generated from luxury tour operations which provide escorted and independent tours worldwide to upscale travelers. The decrease is due to the decline in tours and cruises sold.
Revenues from advertising increased 151% to $1,098,377 for the fiscal year ended February 28, 2014, compared to $436,748 for the fiscal year ended February 28, 2013, an increase of $661,629. The increase was a result of efforts of the RealBiz group of subsidiaries in its efforts to increase market share within the real estate industry.
Cost of Revenue
Cost of revenues decreased 18% to $412,225 for fiscal year ended February 28, 2014, compared to $501,460 for the fiscal year ended February 28, 2013, an decrease of $89,235. The decrease was directly associated with the costs associated with the costs of tours/cruises being booked by the travel division.
Operating Expenses
Our operating expenses, include salaries and benefits, selling and promotion, general and administrative expenses, increased 76% to $9,368,450 for the fiscal year ended February 28, 2014, compared to $5,315,808 for the fiscal year ended February 28, 2013, an increase of $4,052,642.
This increase was substantially due to an increase in consulting fees incurred in raising capital of $1,460,825, an increase in amortization of intangibles of $1,316,377, an increase in salaries and benefits (including stock compensation of $980,034 and to a lesser extent an increase in legal and professional fees of $181,351, an increase in selling and promotions expense of $177,855 offset by a decrease in miscellaneous operating expenses of $63,800.
Other Expenses
Interest expense decreased 36% to $1,129,388 for fiscal year ended February 28, 2014, compared to $1,774,792 for fiscal year ended February 28, 2013, a decrease of $645,404 due primarily to conversions of debt into preferred Series D shares or common shares of RealBiz Media Group, Inc. Loss on conversion of debt increased 974% to $3,319,446 for the fiscal year ended February 28, 2014, compared to a loss on conversion of debt of $309,201 for the fiscal year ended February 28, 2013, an increase in loss of $3,010,245 primarily due to the increase in the settlement of debt through issuance of preferred Series D shares of stock and the issuance of common shares of RealBiz Media Group, Inc. Loss on debt modification increased $4,808,145 for the fiscal year ended February 28, 2014 compared to $-0- for the fiscal year ended February 28, 2013 as the Company negotiated with a promissory note holder in modifying the terms of original promissory notes. Gain on legal settlement decreased 82% to $124,337 for the fiscal year ended February 28, 2014, compared to $701,026 for the fiscal year ended February 28, 2013, a decrease of $576,589 due primarily to the decline of forgiveness of amounts due to accounts payable vendors during the current year. Loss on the change in fair value of derivatives decreased 146% to $952,026 for the fiscal year ended February 29, 2014, compared to a gain of $2,081,029 for the fiscal year ended February 28, 2013, an increase of $3,033,055 primarily due to the changes in the terms of the Company's Preferred Series A shares' ratchet provision. Other income/expense decreased 106% to other income of $6,066 for the fiscal year ended February 28, 2014, compared to other expense of $101,011 for the fiscal year ended February 28, 2013, a decrease of $107,077 primarily due to the reduction of conversion penalties.
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Net Loss
We had a net loss of $18,295,802 for the fiscal year ended February 28, 2014, compared to net loss of $4,233,102 for the fiscal year ended February 28, 2013, an increase of $14,062,700. The increase in loss from 2013 to 2014 was primarily due to an increase of loss on debt modification of $4,808,145, an increase in loss on conversion of debt of $3,010,245, an increase in loss in the change in the fair value of derivatives of $3,033,055, a decrease in the gain on legal settlement of $576,589, offset by a decrease in interest expense of $645,404 and other expense of $107,077. Included in the net loss for the fiscal year ended February 28, 2014, is $1,881,282 of net loss attributable to the noncontrolling interest in subsidiary.
Contractual Obligations. The following schedule represents obligations under written commitments on the part of the Company that are not included in liabilities:
| Current | Long Term | |||||||||||||||
| FY 2017 | ||||||||||||||||
| and | ||||||||||||||||
| FY2015 | FY2016 | beyond | Totals | |||||||||||||
| Carriage Fees | $ | 47,090 | $ | 47,090 | $ | 94,181 | $ | 188,362 | ||||||||
| Consulting | 135,233 | 138,475 | 148,638 | 422,346 | ||||||||||||
| Other | 150,792 | 150,792 | 301,584 | 603,162 | ||||||||||||
| Totals | $ | 333,116 | $ | 336,357 | $ | 544,402 | $ | 1,213,876 | ||||||||
Liquidity and Capital Resources; Going Concern
At February 28, 2014, we had $117,818 cash on-hand, an increase of $81,467 from $36,351 at the start of fiscal 2013. The increase in cash was due primarily to funds raised through subscription agreements for Series D Preferred Stock, exercise of common stock warrants and subscription agreements for common shares of RealBiz Media Group, Inc.
Net cash used in operating activities was $4,590,428 for the fiscal year ended February 28, 2014, a decrease of $653,888 from $5,244,316 used during the fiscal year ended February 28, 2013. This decrease was primarily due to an increase in the loss on conversion of debt, amortization of intangibles, the non-controlling interest in loss of consolidated subsidiaries, stock based compensation and consulting, loss on debt modification, a decrease in the gain on change in fair value of derivatives, a decrease in the gain on legal settlement of debt, offset by a decrease in amortization in debt discount and conversion penalties.
Net cash used in investing activity increased to $743,816 for the fiscal year ended February 28, 2014, compared to $-0- for the fiscal year ended February 28, 2013, primarily due to incurring website development costs, to a lesser extent the purchase of computer equipment and a notes receivable advance.
Net cash provided by financing activities increased $148,033 to $5,415,711, for the fiscal year ended February 28, 2014, compared to $5,267,678 for the fiscal year ended February 28, 2013. This increase was primarily due to the net increase of proceeds of the issuance of shares of Preferred stock, common stock and the exercise of warrants, offset by decrease in net proceeds from promissory notes and a decrease in net proceeds from shareholder loans and other notes payable
The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. We currently do not have adequate cash to meet our short or long-term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders.
Since our inception in June 2002, we have been focused on the travel industry solely through the internet. We have recently changed our business model from a company that generates nearly all revenues from its travel divisions to a media company focusing on travel and, though RealBiz, real estate by utilizing multiple media platforms including the internet, radio and television. As a company that has recently changed our business model and emerged from the development phase with a limited operating history, we are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. We cannot assure you that the business will continue as a going concern or ever achieve profitability. Due to the absence of an operating history under the new business model and the emerging nature of the markets in which we compete, we anticipate operating losses until such time as we can successfully implement our business strategy, which includes all associated revenue streams.
Since our inception, we have financed our operations through numerous debt and equity issuances.
The Company will need to raise substantial additional capital to support the on-going operation and increased market penetration of our Video on Demand real estate and travel business and RRTV including the development of national sales representation for national and global advertising and sponsorships, increases in operating costs resulting from additional staff and office space until such time as we generate revenues sufficient to support the business. We believe that in the aggregate, we will need approximately $5 million to support and expand the network reach, repay debt obligations, provide capital expenditures for additional equipment and satisfy payment obligations under carriage/distribution agreements, office space and systems required to manage the business, and cover other operating costs until our planned revenue streams from media advertising, sponsorships, e-commerce, travel and real estate are fully-implemented and begin to offset our operating costs. There can be no assurances that the Company will be successful in raising the required capital to complete this portion of its business plan.
To date, we have funded our operations with the proceeds from the private equity and debt financings. The Company issued the shares without registration under the Securities Act of 1933, as amended, afforded the Company under Section 4(a) (2) promulgated thereunder due to the fact that the issuance did not involve a public offering of securities. The shares were sold solely to “accredited investors” as that term is defined in the Securities Act of 1933, as amended, and pursuant to the exemptions from the registration requirements of the Securities Act under Section 4(2) and Regulation D thereunder.
Currently, revenues provide less than 10% of the Company’s cash requirements. The remaining cash needed is expected to be derived from raising additional capital. The current monthly cash burn rate is approximately $300,000. We expect the monthly cash burn rate will gradually increase to approximately $1.0 million, with the expectation of profitability by the fourth quarter of fiscal 2015.
Our multi-platform media 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 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.
As of February 28, 2014, the Company has accounts payable of $2,768,831, convertible promissory notes of $8,029,985, advances and shareholder loans totaling $447,000 and other notes payable totaling $1,248,450. We anticipate to satisfy these amounts from future proceeds derived from equity issuances, conversions to equity securities and revenue generated from sales.
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Critical Accounting Policies
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.
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.
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.
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. 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.
Intellectual properties that have finite useful lives are amortized over their useful lives. The Company incurred amortization expense of $1,418,391 and $604,008 for the years ended February 28, 2014 and 2013.
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.
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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. 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 includes costs directly attributable to services sold and delivered. These costs include such items as amounts paid for airlines, hotels, excursions, broadcast carriage fees, costs to produce television content, sales commissions to business partners, industry conferences and public relations costs.
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.
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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.
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.
Foreign Currency and Other Comprehensive Income (Loss)
The functional currency of our foreign subsidiaries is typically the applicable local currency. 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 accumulated comprehensive gain was $119,235 and $33,459 respectively.
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.
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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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements are contained in pages F-1 through F-42 which appear at the end of this annual report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) as of February 28, 2014 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation and taking into account that certain material weaknesses existed as of February 28, 2014, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective. As a result of this conclusion, the financial statements for the period covered by this Annual Report on Form 10-K were prepared with particular attention to the material weaknesses previously disclosed. Notwithstanding the material weaknesses in internal controls that continue to exist as of February 28, 2014, we have concluded that the consolidated financial statements included in this Annual Report on Form 10-K present fairly, the consolidated financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America (GAAP).
Management’s Annual Report On Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| • | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
| • | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and | |
| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
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Our management assessed the effectiveness of our internal control over financial reporting as of February 28, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management has re-evaluated the control deficiencies identified in the prior fiscal year.
We conclude that, as of February 28, 2014, our internal control over financial reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO. We intend to further improve our internal controls in our current fiscal year and add additional measures to further mitigate our material internal control weaknesses as the Company grows assuming our operating funds are sufficient.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the year ended February 28, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management has concluded that the material weaknesses in internal control as described in Item 9A of the Company’s Form 10-K for the year ended February 28, 2014 have not been fully remediated.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers at May 15, 2014. The terms of all the directors, as identified below, will run until their successors are elected and qualified.
| Name | Age | Position | Officer
and/or Director Since | |||
| William Kerby | 57 | Chief Executive Officer and Chairman | 2008 | |||
| Adam Friedman | 49 | Chief Financial Officer | 2010 | |||
| Warren Kettlewell | 68 | Director | 2011 | |||
| Pat LaVecchia | 47 | Director | 2011 | |||
| Don Monaco | 61 | Director | 2012 | |||
| Doug Checkeris | 59 | Director | 2012 | |||
| Deborah Linden | 58 | Director | 2013 | |||
| Michael Craig | 63 | Director | 2014 |
Management and Director Biographies:
William Kerby – Chief Executive Officer and Chairman
William Kerby, age 56 is the founder of Next 1, Interactive, Inc. From 2008 to present, he has been the architect of the Next One model, overseeing the development and operations of the Travel, Real Estate and Media divisions of the Company. From 2004 to 2008, Mr. Kerby served as the Chairman and CEO of Extraordinary Vacations Group whose operations included Cruise & Vacation Shoppes, Maupintour Extraordinary Vacations and the Travel Magazine - a TV series of 160 travel shows. From 2002 to 2004 Mr. Kerby was Chairman of Cruise & Vacation Shoppes after it was acquired by a small group of investors and management from Travelbyus. Mr. Kerby was given the mandate to expand the operations focusing on a “marketing driven travel model.” In June 2004 Cruise & Vacation Shoppe was merged into Extraordinary Vacations Group. From 1999 to 2002 Mr. Kerby founded and managed Travelbyus, a publicly traded company on the TSX and NASD Small Cap. The launch included an intellectually patented travel model that utilized technology-based marketing to promote its travel services and products. Mr. Kerby negotiated the acquisition and financing of 21 Companies encompassing multiple tour operators, 2,100 travel agencies, media that included print, television, outdoor billboard and wireless applications and leading edge technology in order to build and complete the Travelbyus model. The Company had over 500 employees, gross revenues exceeding $3 billion and a Market Cap over $900 million. Prior to this Mr. Kerby founded Leisure Canada – a company that included a nationwide Travel Agency, international tour operations, travel magazines and the Master Franchise for Thrifty Car Rental British Columbia. We selected Mr. Kerby to serve on our Board because he brings to the board extensive knowledge of the travel industry. Having served in senior corporate positions in many travel related companies he has a vast knowledge of the industry.
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Deborah Linden-former President, Chief Operating Officer, Director
Deborah Linden, 58, served as our President and Chief Operating Officer from October 29, 2013 through May 30, 2014 co-founded Island One Resorts in 1981 and served as CEO of the timeshare development and management company until its sale in 2011 and continued as a consultant through the transition until October 2013. At its height, the $100 million annual company had a 1,250 person staff; over 65,000 vacation owners; a points-based vacation club; 12 homeowners associations; and nine resorts throughout Florida and the Caribbean. An active volunteer to the American Resort Development Association (ARDA), she has spearheaded many timeshare industry initiatives in the arenas of legislation, sales, marketing, ethics and education. Her leadership includes over 20 years on the Board of Directors; 10 years on the Board Executive Committee; Chairman of the Board from 1993-1995; and Chairman of the Vacation Timesharing Council from 1990-1993. Ms. Linden’s contributions to business development and community outreach have been recognized with numerous awards, including ARDA’s 2000 Circle of Excellence Lifetime Achievement; Ernst & Young 2006 Entrepreneur of the Year, Florida Real Estate & Construction; and Dynetech-Crummer 2006 Entrepreneur of the Year, $50+ million category. Ms. Linden is Chairman of the Board of DL Foundation, which performs community outreach initiatives benefiting children’s charities, the community, disaster victims and families in crisis. We selected Ms. Linden to serve on our Board because she brings to the board significant strategic and business experience. Having served in senior corporate positions she has a vast knowledge of corporate governance.
Adam Friedman - Chief Financial Officer
On August 16, 2010, the board of directors of the Company appointed Adam Friedman, age 48, to the position of Chief Financial Officer of the Company. Under the terms of his three-year employment agreement expiring on August 15, 2013, Mr. Friedman has agreed to devote all of his time, attention, and ability to the business of the Company. From February 2006 to July 2010, Mr. Friedman previously served as Chief Financial Officer, Corporate Secretary, and Controller for MDwerks, Inc. (“MDwerks”) where his responsibilities included overseeing the Company’s finances, human resources department, U.S. Securities & Exchange Commission compliance, and Sarbanes-Oxley compliance. Prior to joining MDwerks, Mr. Friedman served as the Vice President of Finance for CSA Marketing, Inc. from March 2005 to February 2006. For the eleven years prior to March 2005, Mr. Friedman served as the Business Manager/Controller and Director of Financial Planning at the GE/NBC/Telemundo Group, Inc. Mr. Friedman also worked as a Senior Financial Analyst for Knight-Ridder, Inc and as an Audit Senior Accountant for KPMG Peat Marwick. Mr. Friedman received his MBA from St. Thomas University and his BSM from Tulane University.
Warren Kettlewell– Director
On January 12, 2011, the board of directors appointed Warren Kettlewell, age 67, to the board of directors of the Company. A description of Mr. Kettle well’s relevant business experience is detailed below. Prior to joining the Company’s board of directors, Mr. Kettlewell was an active investor of the Company for the prior five years. Mr. Kettlewell is currently the President and Chief Executive Officer of Cardar Investments Limited, a privately owned investment company involved in real estate development (“Cardar”). Mr. Kettlewell has held these respective positions at Cardar since founding the company in 1983. Additionally, since 1990, Mr. Kettlewell has been active shareholder in and advisor to Cango Petroleum, Inc., a company in the business of owning and operating independent retail gas stations in Canada. The Company believes that the addition of Mr. Kettlewell to the board of directors will enhance the board with his business and real estate industry experience. We selected Mr. Kettlewell to serve on our Board because he brings to the board extensive knowledge of the real estate industry. Having been involved in the real estate industry for many years he has a vast knowledge of the industry.
Pat LaVecchia – Director
Mr. LaVecchia has been a founding principal and Managing Partner of LaVecchia Capital LLC (“LaVecchia Capital”), a merchant banking and investment firm, since 2007 and has over 20 years of experience in the financial industry. Mr. LaVecchia has built and run several major Wall Street groups and has extensive expertise in capital markets, including initial public offerings, secondary offerings, raising capital for private companies and PIPEs as well as playing the leading role in numerous mergers, acquisitions, private placements and high yield transactions. Prior to forming LaVecchia Capital, Mr. LaVecchia ran several groups at major firms including: Managing Director and Head of the Private Equity Placement Group at Bear, Stearns & Company (1994 to 1997); Group Head of Global Private Corporate Equity Placements at Credit Suisse First Boston (1997 to 2000); Managing Director and Group Head of the Private Finance and Sponsors Group at Legg Mason Wood Walker, Inc (2001 to 2003); co-founder and Managing Partner of Viant Group (2003-2005) and Managing Director and Head of Capital Markets at FTN Midwest Securities Corp. (2005 to 2007). Mr. LaVecchia received his B.A., magna cum laude (and elected to Phi Beta Kappa), from Clark University and an M.B.A. from The Wharton School of the University of Pennsylvania with a major in Finance and a concentration in Strategic Planning. In the past, Mr. LaVecchia has served on several public company boards, including as Vice Chairman of InfuSystems, Inc. (INFU). Mr. LaVecchia is also currently a managing partner of Sapphire Capital Partners. Mr. LaVecchia also sits on several advisory boards and non-profit boards. The Company believes that Mr. LaVecchia’s investment banking and business experience allows him to contribute business and financing expertise and qualifies him to be a member of the Board.
Don Monaco - Director
On August 26, 2011, Next 1 (the “Company”) appointed Don Monaco, age 59, as a member of its Board of Directors. Mr. Monaco is the principal owner of Monaco Air Duluth, LLC, a full service, fixed-base operator aviation services business at Duluth International Airport serving airline, military and general aviation customers. Mr. Monaco spent over 18 years as a Partner and Senior Executive and has 28 years as an international information technology and business management consultant with Accenture in Chicago, Illinois. Mr. Monaco also serves as a Commissioner on the Metropolitan Airports Commission in Minneapolis-St. Paul and as Commissioner and Vice-President of the Duluth Economic Development Authority. Mr. Monaco is also the President of the Monaco Air Foundation, Chairman of the Miller-Dwan Foundation, Treasurer of Honor Flight Northland, Treasurer of the Duluth Aviation Institute, Co-Chair of the Northern Aero Alliance, a Director for the Destination Duluth nonprofit corporation, a member of the Duluth Chamber of Commerce Military Affairs Committee, and a member of Lake Superior College's Center for Advanced Aviation Steering Committee. We selected Mr. Monaco to serve on our Board because he brings a strong business background to the Company, and adds significant strategic, business and financial experience. Mr. Monaco’s business background provides him with a broad understanding of the issues facing us, the financial markets and the financing opportunities available to us.
Doug Checkeris - Director
On December 21, 2012, the Company appointed Doug Checkeris, 57, as a member of its Board of Directors. Mr. Checkeris is a Senior Media and Advertising Executive with nearly three decades of hands-on management in all facets of interactive media. Doug’s work experience includes 14 years of service with Mediacom where he rose through the ranks to become the CEO for Mediacom North America, until recently headquartered in New York. With close to $18 billion in global billings, 4,600 employees, and 116 offices in 89 countries, Mediacom provides and specializes in business-building media solutions for some of the world’s largest, well-known advertisers. Previous to Mediacom, Doug started his career in a media company in Toronto, Canada, and was a partner when the company was acquired by Grey Worldwide and the WPP. We selected Mr. Checkeris to serve on our Board because he brings to the board extensive knowledge of the media industry. Having served in senior corporate positions in many media related companies he has a vast knowledge of the industry.
Michael Craig - Director
Effective May 1, 2014, the Company appointed Michael Craig, age 63, as a director of Realbiz Media Group Inc. (the “Company”) Mr. Craig, since August 2012, has been the President of MaasPros, a company in Canada that assists businesses in implementing profitable and measurable digital marketing solutions to converts visitors into qualified leads. From April 2011 to August 2012, Mr. Craig was Chief Operating Officer of Winmar Franchise Corporation, a property restoration company in Canada. From 2009 through 2010, Mr. Craig was a consultant for the Pizzaiolo Gourmet Pizza company. Prior to these positions, Mr. Craig had various positions in many varied industries. Mr. Craig’s technology and vast business experience qualifies him to be a member of the Board. His executive leadership experience provides him with valuable experience.
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Family Relationships amongst Directors and Officers:
There are no family relationships among our directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers.
Involvement in Certain Legal Proceedings
None of the executive officers of the Company (i) has been involved as a general partner or executive officer of any business which has filed a bankruptcy petition; (ii) has been convicted in any criminal proceeding nor is subject to any pending criminal proceeding; (iii) has been subjected to any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (iv) has been found by a court, the Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law.
Committees of the Board of Directors
Because of our limited resources, our Board does not currently have an established audit committee or executive committee. The current members of the Board perform the functions of an audit committee, governance/nominating committee, and any other committee on an as needed basis. If and when the Company grows its business and/or becomes profitable, the Board intends to establish such committees.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Registrant’s directors and officers, and persons who beneficially own more than 10% of a registered class of the Registrant’s equity securities, to file reports of beneficial ownership and changes in beneficial ownership of the Registrant’s securities with the SEC on Forms 3, 4 and 5. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Registrant with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms that were received by us, or written representations from certain reporting persons that no Form 5s were required for those persons, we are not aware, of any failures to file reports or report transactions in a timely manner during the current fiscal year through the date of this filing other than the late filing of a Form 3(s) for Ms. Linden, Mr. Monaco, Mr. Checkeris, Mr. LaVecchia, Mr. Craig and Mr. Kettlewell and the late filing of one Form 4(s) for Mr. Kerby, two Form 4(s) for Mr. Friedman, six Form 4(s) for Mr. Monaco, four Form 4(s) for Mr. LaVecchia, one Form 4(s) for Ms. Linden, one Form 4(s) for Mr. Checkeris, and three Form 4(s) for Mr. Kettlewell, which we are in the process of preparing.
Code of Ethics
We have long maintained a Code of Conduct which is applicable to all of our directors, officers and employees. We undertake to provide a printed copy of these codes free of charge to any person who requests. Any such request should be sent to our principal executive offices attention: Corporate Secretary.
Item 11. Executive Compensation
DIRECTOR AND OFFICER COMPENSATION
The following table sets forth information concerning the total compensation that we have paid or that has accrued on behalf of our executive officers during the fiscal years ended February 28, 2014 and 2013:
| Name and Principal Position | Fiscal
Year Ended | Salary | Bonus | Stock
Awards | Option
Awards | Non-Equity Compensation | Nonqualified Compensation Earnings | All
Other Compensation | Total | |||||||||||||||||||||||||
| William Kerby, CEO and Chairman of the Board (1), (4), (9) | 2014 | $ | 376,891 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | 14,400 | $ | 391,291 | |||||||||||||||||
| 2013 | $ | 300,000 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | 14,400 | $ | 314,400 | ||||||||||||||||||
| Deborah Linden, former COO (2), (5), (7) | 2014 | $ | 20,000 | $ | -0- | $ | 49,800 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | 69,800 | |||||||||||||||||
| 2013 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | ||||||||||||||||||
| Adam Friedman, CFO (3), (6), (8) | 2014 | $ | 150,000 | $ | -0- | $ | 75,000 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | 225,000 | |||||||||||||||||
| 2013 | $ | 150,000 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | 150,000 | ||||||||||||||||||
| (1) | William Kerby is the CEO and Chairman of Next 1 Interactive, Inc. Mr. Kerby has been CEO since the inception of the Company. |
| (2) | Deborah Linden was hired as President and COO of Next 1 Interactive, Inc. on Oct 14, 2013. She resigned as President and Chief Operating Officer on May 30, 2014. |
| (3) | Adam Friedman was hired as CFO on August 16th, 2010. |
| (4) | Bill Kerby receives an annual base salary of $300,000. He also was paid $76,891 of deferred compensation in this fiscal year. |
| (5) | Deborah Linden received a base salary of $200,000. For the first 90 day of her contract, she received $5000 per month. 50% of her compensation was allocated to RealBiz Media Group. |
| (6) | Adam Friedman receives an annual base salary of $150,000. |
| (7) | Deborah Linden was granted 6,000 shares of Next 1's Series C Preferred Stock on 12/9/2013 at a stated value of $5 per share for a total stock award valued at $30,000. She was also was granted 600,000 shares of Next 1's common stock on 12/8/13 at a fair value at date of grant of $.03 per share for a total stock award valued at $19,800. She recieved a total stock award compensation of $49,800. |
| (8) | Adam Friedman was granted 15,000 shares of Next 1's Series D Preferred Stock on 3/8/13 at a stated value of $5 per share for a total stock award valued at $75,000. |
| (9) | William Kerby receives additional compensation in the form of a Car Allowance in the amount of $1,200 per month. |
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Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable stock options and restricted stock, as well as the exercise prices and expiration dates thereof, as of February 28, 2014:
| Name and principal position | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Un- exercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration Date | |||||||||||||
| William Kerby, CEO | 800 | 0 | -0- | $ | 7.25 | 10/2/21 | ||||||||||||
| Adam Friedman, CFO | 800 | 0 | -0- | $ | 7.25 | 10/2/21 | ||||||||||||
Employment Agreements
We have the following employment contracts with the named executive officers:
William Kerby
William Kerby has an employment agreement, dated October 15, 2006, with the Company. Pursuant to this employment agreement, Mr. Kerby is employed as the Company’s Chief Executive Officer at an annual base salary of $300,000 in cash and Company common stock. He may also, as determined by the Board of Directors, receive a year-end performance bonus. The initial term of the agreement commenced June 1, 2002 and terminated June 1, 2008, with an automatic renewal for a period of four years. Upon termination of the second term, the Agreement shall be automatically renewed for successive periods of four years each subject to the same terms and conditions, unless modified or terminated by one or both parties in accordance with the agreement.
Adam Friedman
Adam Friedman has an employment agreement, dated August 16, 2010, with the Company. Mr. Friedman is employed as the Chief Financial Officer of the Company. Under the terms of his three-year employment agreement expiring on August 15, 2013, Mr. Friedman has agreed to devote all of his time, attention, and ability to the business of the Company. The employment agreement provides that Mr. Friedman will receive a base salary for such services at an annual rate of One Hundred and Fifty Thousand Dollars ($150,000) and he will be eligible for cash bonuses at the discretion of the board of directors. Mr. Friedman is entitled to participate in our 2009 Long-Term Incentive Plan and receive other Company-paid employee benefits.
Deborah Linden
Effective October 29, 2013, Ms. Linden entered into a three-year employment agreement (the “Linden Agreement”) with us and RealbizRealBiz. Pursuant to the Linden Agreement, Ms. Linden will be entitled a monthly payment of $5,000 cash and $12,000 in stock (30,000 shares of our Series C Preferred Stock and 600,000 of our shares of common stock) for the first 90 days after the date of the Linden Agreement and thereafter if the parties determine to continue the Agreement she will receive an annual base salary for the first year of $200,000, increasing to $250,000 in the second year. Ms Linden will be issued a bonus of up to 2% of the consolidated EBITDA of the two companies up to a maximum of $150,000 paid in shares of our stock for each year of the Agreement, such bonus earned at the end of each year. The Linden Agreement also includes confidentiality obligations, non-compete and non-solicitation provisions.
If Ms Linden’s employment is terminated for any reason, she or her estate as the case may be, will be entitled to receive the accrued base salary, vacation pay, expense reimbursement , bonus and any other entitlements accrued by her through the date of termination to the extent not previously paid (the “Accrued Obligations”); provided, however, that if her employment is terminated (1) by us other than for Cause, (as defined in the Linden Agreement), disability or death or by Ms Linden for Good Reason (as defined in the Agreement) then we shall continue to pay her the Accrued Obligation for a period of 90 days (2) by reason of her death then we shall continue to pay the Accrued Obligations through the date of death or (3) by reason of Disability (as defined in the Linden Agreement), then we shall continue to pay her Accrued Obligations earned through the calendar month of the termination.
On May 30, 2014, Deborah Linden resigned from her position as President and Chief Operations Officer.
STOCK OPTION PLAN
The shareholders approved the Next 1 Interactive, Inc. 2009 Long-Term Incentive Plan (the “2009 Plan”) at the annual shareholders meeting on October 28, 2009. 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, we plan 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.
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DIRECTOR COMPENSATION TABLE
The following table sets forth information concerning the total compensation that we have paid or that has accrued on behalf of our directors during the fiscal years ended February 28, 2014 and 2013:
| Name | Fiscal Year | Fees Earned | Stock Awards | Option Awards | Non Equity Incentive Plan Comp | Non Qualified Deferred Comp | All other Compensation | Total | ||||||||||||||||||||||
| Warren Kettlewell, | 2014 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| Director (1) | 2013 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| Pat LaVecchia, | 2014 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| Director (2) | 2013 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| Donald P. Monaco, | 2014 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| Director (3) | 2013 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| Deborah Linden, | 2014 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| Director | 2013 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| Doug Checkeris, | 2014 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| Director (4), (5) | 2013 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | 60,000 | $ | 60,000 | |||||||||||||||
| Mike Craig, | 2014 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | 38,000 | $ | 38,000 | |||||||||||||||
| Director (6), (7) | 2013 | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | $ | -0- | |||||||||||||||
| (1) | As of February 28, 2014 and 2013, 400 stock options were outstanding and exercisable, originally issued on October 3, 2011. |
| (2) | As of February 28, 2014 and 2013, 400 stock options were outstanding and exercisable, originally issued on October 3, 2011. |
| (3) | As of February 28, 2014 and 2013, 400 stock options were outstanding and exercisable, originally issued on October 3, 2011. |
| (4) | On July 8, 2012 issued 8,000 shares of Series C Preferred stock valued at $40,000 for consulting services rendered. The shares were valued at the then share price for sales of Series C Preferred stock. |
| (5) | On October 3, 2012 issued 4,000 shares of Series C Preferred stock valued at $20,000 for consulting services rendered. The shares were valued at the then share price for sales of Series C Preferred stock. |
| (6) | On April 24, 2013 issued 7,600 shares of Series B Preferred stock valued at $38,000 for consulting services rendered. The shares were valued at the then share price for sales of Series B Preferred stock. |
| (7) | This does not include $20,000 paid to MaasPROS on February 10, 2014, a company where he serves as its President. |
A formalized Director compensation plan has not been approved as of the date of this filing.
Committees of the Board of Directors
Because of our limited resources, our Board does not currently have an established audit committee or executive committee. The current members of the Board perform the functions of an audit committee, governance/nominating committee, and any other committee on an as needed basis. If and when the Company grows its business and/or becomes profitable, the Board intends to establish such committees.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding the beneficial ownership of our common stock and Series A Preferred Stock as of the date of this Annual Report by (i) each Named Executive Officer, (ii) each member of our Board of Directors, (iii) each person deemed to be the beneficial owner of more than five percent (5%) of any class of our common stock, and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, each person named in the following table is assumed to have sole voting power and investment power with respect to all shares of our common stock listed as owned by such person. The address of each person is deemed to be the address of the issuer unless otherwise noted.
| Title of Class | Name of Beneficial Owner | Amount and Nature of Beneficial Owner | Percent of Class (1) | |||||||
| Common Stock | William Kerby | 822,256 | (2) | 3.90 | % | |||||
| Series A Preferred Stock | CEO & Vice Chairman | 809,611 | (3) | 36.53 | % | |||||
| Series D Preferred Stock | 5,000 | 0.59 | % | |||||||
| Common Stock | Warren Kettlewell | 373,951 | (4) | 1.80 | % | |||||
| Series A Preferred Stock | Director | 331,403 | (3) | 14.96 | % | |||||
| Common Stock | Pat LaVecchia | 30,200 | (5) | 0.20 | % | |||||
| Series D Preferred Stock | Director | 2,800 | 0.33 | % | ||||||
| Common Stock | Donald P. Monaco | 1,627,400 | (6) | 7.50 | % | |||||
| Series A Preferred Stock | Director | 1,075,000 | (3) | 48.51 | % | |||||
| Common Stock | Doug Checkeris | 12,000 | (7) | 0.10 | % | |||||
| Series C Preferred Stock | Director | 12,000 | 28.57 | % | ||||||
| Common Stock | Deborah Linden | 606,000 | (8) | 3.00 | % | |||||
| Series C Preferred Stock | Director | 6,000 | 14.29 | % | ||||||
| Common Stock | Mike Craig | 13,231 | (9) | 0.10 | % | |||||
| Series B Preferred Stock | Director | 3,000 | 1.05 | % | ||||||
| Common Stock | Adam Friedman | 15,800 | (10) | 0.10 | % | |||||
| Series D Preferred Stock | CFO | 15,000 | 1.76 | % | ||||||
| Common Stock | All Officers and Directors as a group (8 persons) | 3,500,838 | 15.32 | % | ||||||
| Series A Preferred Stock | 2,216,014 | 100.00 | % | |||||||
| Series B Preferred Stock | 3,000 | 1.05 | % | |||||||
| Series C Preferred Stock | 18,000 | 42.86 | % | |||||||
| Series D Preferred Stock | 22,800 | 2.68 | % | |||||||
| (1) | The percentage of common stock held by each listed person is based on 20,087,347 shares of common stock issued and outstanding as of the date of this Annual Report. The percentage of Series A Preferred Stock held by each person is based on 2,216,014 shares of Series A Preferred Stock issued and outstanding as of this date of this Annual Report. The percentage of Series B Preferred Stock held by each person is based on 286,700 shares of Series B Preferred Stock issued and outstanding as of this date of this Annual Report. The percentage of Series C Preferred Stock held by each person is based on 42,000 shares of Series C Preferred Stock issued and outstanding as of this date of this Annual Report. The percentage of Series D Preferred Stock held by each person is based on 850,520 shares of Series D Preferred Stock issued and outstanding as of this date of this Annual Report. Pursuant to Rule 13d-3 promulgated under the Exchange Act, any securities not outstanding which are subject to warrants, rights or conversion privileges exercisable within 60 days are deemed to be outstanding for purposes of computing the percentage of outstanding securities of the class owned by such person but are not deemed to be outstanding for the purposes of computing the percentage of any other person. |
| (2) | William Kerby holds 5,842 shares individually. On October 3, 2011, the Company issued to Mr. Kerby 800 stock options all of which are fully vested and included as beneficial ownership. Mr. Kerby owns 809,611 of Series A Convertible Preferred shares and as of February 28, 2014 are convertible to 809,611 common shares to be included as beneficial ownership. Mr. Kerby's family members own 5,000 of Series D Convertible Preferred Shares and as of February 28, 2014 are convertible to 5,000 common shares to be included as beneficial ownership. Mr. Kerby’s family member holds an additional 3 common shares. Mr. Kerby is also the owner of In-Room Retail Systems, LLC, an inactive company, which owns 1,000 shares. Due to these relationships, Mr. Kerby beneficially owns 822,256 shares of common stock of the Company. |
| (3) | Having a voting equivalency of 100 votes per share. The 2,216,014 Series A Preferred Shares owned by the directors converts to 221,601,400 common shares which represents 91.7% of total voting shares. |
| (4) | Warren Kettlewell holds no shares individually. On October 3, 2011, the Company issued to Mr. Kettlewell 400 stock options of which all are vested and were included as beneficial ownership. Mr. Kettlewell's family members hold an additional 42,148 shares. Mr. Kettlewell owns 331,403 of Series A Convertible Preferred shares and as of February 28, 2014 are convertible to 331,403 common shares to be included as beneficial ownership. Due to these relationships, Mr. Kettlewell beneficially owns 373,951 shares of common stock of the Company. |
| (5) | Pat LaVecchia holds 27,000 shares individually. On October 3, 2011, the Company issued to Mr. LaVecchia 400 stock options of which all are vested and were included as benefical ownership. Mr. LaVecchia owns 2,800 of Series D Convertible Preferred Shares and as of February 28, 2014 are convertible to 2,800 common shares to be included as beneficial ownership. Mr La Vecchia beneficially owns 30,200 shares of the Company. |
| (6) | Donald P. Monaco holds 1,000 shares individually. On October 3, 2011, the Company issued to Mr. Monaco 400 stock options of which all are vested and were included as beneficial ownership. Mr. Monaco owns 551,000 warrants that can be converted in 551,000 common shares. Mr. Monaco owns 1,075,000 of Series A Convertible Preferred shares and as of February 28, 2014 are convertible to 1,075,000 common shares to be included as beneficial ownership. Mr. Monaco beneficially owns 1,627,400 shares of the Company. |
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| (7) | Doug Checkeris owns 12,000 of Series C Convertible Preferred Shares and as of February 28, 2014 are convertible to 12,000 common shares to be included as beneficial ownership. Mr. Checkeris beneficially owns 12,000 shares of the Company. |
| (8) | Deborah Linden owns 600,000 shares individually. Ms. Linden owns 6,000 of Series C Convertible Preferred Shares and as of February 28, 2014 are convertible to 6,000 common shares to be included as beneficial ownership. Ms. Linden beneficially owns 606,000 shares of the Company. |
| (9) | Mike Craig holds 2,116 shares individually, Mr. Craig jointly owns 7,515 shares with a family member, this family member owns 200 shares and another family member owns 400 shares which are to be included as beneficial ownership. Mr. Craig owns 3,000 shares of Series B Convertible Preferred shares as of February 28, 2014 and are convertible to 3,000 common shares to be included as beneficial ownership. Mr. Craig beneficially owns 13,321 shares of the Company. |
| (10) | On October 3, 2011, the Company issued to Adam Friedman 800 stock options of which all are vested and were included as beneficial ownership. On March 8, 2013, the Company issued to Mr. Friedman 15,000 of Series D Convertible Preferred Shares and as of February 28, 2014 are convertible to 15,000 common shares to be included as beneficial ownership. Mr. Friedman beneficially owns 15,800 shares of the Company. |
Changes in Control
We are not aware of any arrangements that may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
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. 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 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. See financial statement footnote 9.
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 1 year. 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. See financial statement footnote 9.
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. See financial statement footnote 10.
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.
On April 13, 2013, the Company issued 7,600 shares of Series B Preferred stock valued at $38,000 and on February 10, 2014 paid $20,000 to a director as compensation for consulting services rendered by an entity owned by the director.
On July 8, 2012, the Company issued 8,000 shares of Series C Preferred stock valued at $40,000; on October 3, 2012, the Company issued 4,000 shares of Series C Preferred stock valued at $20,000; and on October 3, 2012, the Company issued 1,000 shares of Series D Preferred stock valued at $5,000.
On February 10, 2014, the Company contracted with MaasPROS to develop a program for its travel division. Mike Craig, a director, is the President of MaasPROS. The Company has paid MaasPROS $40,000 through June 13, 2014.
| 32 |
Director Independence
None of our directors are deemed to be independent with the exception of Pat LaVecchia and Mike Craig.
Item 14. Principal Accountant Fees and Services.
(1) Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual consolidated financial statements and review of consolidated financial statements included in our quarterly reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:
| 2014 | $ | 55,500 | ||
| 2013 | $ | 55,000 |
(2) Audit-Related Fees
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported in the preceding paragraph:
| 2014 | $ | 0 | ||
| 2013 | $ | 0 |
(3) Tax Fees
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were:
| 2014 | $ | 0 | ||
| 2013 | $ | 0 |
(4) All Other Fees
The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:
| 2014 | $ | 0 | ||
| 2013 | $ | 0 |
PART IV
Item 15. Exhibits, Financial Statement Schedules.
| Exhibit No. | Description | |
| 3.1 | Articles of Incorporation of Maximus (as filed as Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 (SEC File No. 333-136630), filed on August 14, 2006) | |
| 3.2 | Amendment to the Articles of Incorporation of Maximus (as filed as Exhibit 3.1.2 to the Company’s Registration Statement on Form S-1/A (SEC File No. 333-154177), filed on March 12, 2009) | |
| 3.3 | Bylaws of Next 1 Interactive, Inc. (as filed as Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 (SEC File No. 333-136630), filed on August 14, 2006) | |
| 3.4 | Bylaws of Extraordinary Vacations USA, Inc. (as filed as Exhibit 3.2.2 to the Company’s Registration Statement on Form S-1/A (SEC File No. 333-154177) filed on March 12, 2009) | |
| 33 |
| 3.5 | Certificate of Designations of Series A 10% Cumulative Convertible Preferred Stock of Next 1 Interactive, Inc. (as filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-1/A (SEC File No. 333-154177), filed on March 12, 2009) | |
| 3.6 | Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock of Next 1 Interactive, Inc., filed with the SEC on Form 10-K on June 13, 2013* | |
| 3.7 | Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock of Next 1 Interactive, Inc., filed with the SEC on Form 10-K on June 13, 2013* | |
| 3.8 | Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock of Next 1 Interactive, Inc., filed with the SEC on Form 10-K on June 13, 2013* | |
| 4.1 | $3,000,000 Zero Coupon Debenture (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August 21, 2009) | |
| 4.2 | Common Stock Purchase Warrant, issued October 26, 2010, in favor of Lincoln Park Capital Fund, LLC (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on September 2, 2010) | |
| 4.3 | $500,000 Promissory Note, dated August 26, 2010, issued in favor of The Mark Travel Corporation(as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on September 2, 2010) | |
| 4.4 | $3,500,000 Promissory Note, dated March 5, 2010, issued in favor of Mark A. Wilton (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on March 10, 2010) | |
| 4.5 | Note Amendment between the Company and Mark Wilton dated February 24, 2014 filed with the SEC on Form 8-K on February 27, 2014 | |
| 10.1 | Share Transaction Purchase Agreement dated September 24, 2008 between EXVG, EVUSA and Maximus (as filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (SEC File No. 333-154177) on October 10, 2008) | |
| 10.2 | Form of Subscription and Investment Representation Agreement (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on August 18, 2010) | |
| 10.3 | Form of Subscription Agreement (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 2, 2010) | |
| 10.4 | Purchase Agreement, dated as of October 26, 2010, by and between Next 1 Interactive, Inc. and Lincoln Park Capital Fund, LLC (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on November 1, 2010) | |
| 10.5 | Registration Rights Agreement, dated as of October 26, 2010, by and between Next 1 Interactive, Inc. and Lincoln Park Capital Fund, LLC (as filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 1, 2010) | |
| 10.6 | Strategic Media Agreement, dated August 29, 2010, by and between Next 1 Interactive, a Nevada corporation and Market Update Network Corp., d/b/a MUNCmedia, a Washington corporation (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 22, 2010) | |
| 10.7 | Settlement Agreement, dated May 28, 2010, by and among the Company and Televisual Media Works, LLC, 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(as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 8, 2010) | |
| 10.8 | Asset Purchase Agreement, dated August 17, 2009, by and among Next 1 Interactive, Inc. and Televisual Media Works, LLC (as filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on August 21, 2009) | |
| 10.9 | Asset Purchase Agreement between Next 1 Interactive, Inc. and Televisual Media Works, LLC (as filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on August 21, 2009) | |
| 14.1 | Code of Ethics (as filed on the Company’s Amendment No. 1 to Registration Statement on Form S-1 (SEC File No. 333-154177) filed on March 12, 2009) | |
| 14.2 | Code of Business Conduct (as filed on the Company’s Amendment No. 1 to Registration Statement on Form S-1 (SEC File No. 333-154177) filed on March 12, 2009) | |
| 31.1 | Certification of the Registrant’s Principal Executive Officer pursuant to 15d-15(e), under the Securities and Exchange Act of 1934, as amended, with respect to the registrant’s Annual Report on Form 10-K for the fiscal year ended February 29, 2012* | |
| 31.2 | Certification of the Registrant’s Principal Financial Officer pursuant to 15d-15(e), under the Securities and Exchange Act of 1934, as amended, with respect to the registrant’s Annual Report on Form 10-K for the fiscal year ended February 29, 2012* | |
| 32.1 | Certification of the Registrant’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 32.2 | Certification of the Registrant’s Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 101.INS | XBRL Instance Document* * | |
| 101.SCH | XBRL Schema Document* * | |
| 101.CAL | XBRL Calculation Linkbase Document* * | |
| 101.DEF | XBRL Definition Linkbase Document* * | |
| 101.LAB | XBRL Label Linkbase Document* * | |
| 101.PRE | XBRL Presentation Linkbase Document** |
| 34 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: June 13, 2014 | NEXT 1 INTERACTIVE, INC. | |
| By: | /s/ William Kerby | |
| William Kerby | ||
| Chief Executive Officer | ||
| and Chairman | ||
| (Principal Executive Officer) |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ William Kerby | Chief Executive Officer and Chairman | June 13, 2014 | ||
| William Kerby | (Principal Executive Officer) | |||
| /s/ Adam Friedman | Chief Financial Officer | June 13, 2014 | ||
| Adam Friedman | (Principal Financial and Accounting Officer) | |||
| /s/ Warren Kettlewell | Director | June 13, 2014 | ||
| Warren Kettlewell | ||||
| /s/ Pat LaVecchia | Director | June 13, 2014 | ||
| Pat LaVecchia | ||||
| /s/ Don Monaco | Director | June 13, 2014 | ||
| Don Monaco | ||||
| /s/ Deborah Linden | Director | June 13, 2014 | ||
| Deborah Linden | ||||
| /s/ Doug Checkeris | Director | June 13, 2014 | ||
| Doug Checkeris | ||||
| /s/ Mike Craig | Director | June 13, 2014 | ||
| Mike Craig |
| 35 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Next 1 Interactive, Inc.
We have audited the accompanying consolidated balance sheets of Next 1 Interactive, Inc. and Subsidiaries. as of February 28, 2014 and 2013 and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended February 28, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Next 1 Interactive, Inc. and Subsidiaries at February 28, 2014 and 2013 and the results of their operations and their cash flows for each of the two years in the period ended February 28, 2014, in conformity with accounting principles generally accepted in the United States of America.
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, the Company has incurred net losses of $18,295,802 and net cash used in operations of $4,590,428 for the year ended February 28, 2014 and the Company had an accumulated deficit of $87,625,076 and a working capital deficit of $13,549,796 at February 28, 2014. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ D’Arelli Pruzansky, P.A.
Certified Public Accountants
Boca Raton, Florida
June 11, 2014
| 36 |
| Next 1 Interactive, Inc. and Subsidiaries |
| Consolidated Balance Sheets |
| February 28, | February 28, | |||||||
| 2014 | 2013 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 117,818 | $ | 36,351 | ||||
| Accounts receivable, net of allowance for doubtful accounts | 61,635 | 77,054 | ||||||
| Stock subscription receivable | 48,380 | 110,000 | ||||||
| Prepaid expenses and other current assets | 101,691 | 49,000 | ||||||
| Security deposits | 26,662 | 28,612 | ||||||
| Total current assets | 356,186 | 301,017 | ||||||
| Property and equipment, net | 55,385 | - | ||||||
| Website development costs and intangible assets, net | 4,081,327 | 4,288,761 | ||||||
| Total assets | $ | 4,492,898 | $ | 4,589,778 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 2,768,831 | $ | 2,659,069 | ||||
| Other current liabilities | 56,103 | 159,124 | ||||||
| Derivative liabilities - convertible promissory notes | 1,355,613 | 304,987 | ||||||
| Derivative liabilities - preferred stock | - | 98,600 | ||||||
| Convertible promissory notes, net of discount of $70,401 and $6,777, respectively | 7,099,985 | 7,478,828 | ||||||
| Convertible promissory notes - related party, net of discount of $-0- and $-0-, respectively | 650,000 | 650,000 | ||||||
| Convertible notes payable of subsidiary | 280,000 | 615,264 | ||||||
| Other advances | 68,000 | 68,000 | ||||||
| Other notes payable | 145,000 | 175,000 | ||||||
| Settlement agreements | - | 64,167 | ||||||
| Shareholder loans | 379,000 | 445,000 | ||||||
| Notes payable - current portion | 1,103,450 | 954,072 | ||||||
| Total current liabilities | 13,905,982 | 13,672,111 | ||||||
| Convertible promissory notes - long term portion, net of discount of $-0- and $22,694, respectively | - | 36,941 | ||||||
| Total liabilities | 13,905,982 | 13,709,052 | ||||||
| Stockholders' Deficit | ||||||||
| Series A Convertible Preferred stock, $.01 par value; 3,000,000 authorized; and 2,216,014 shares issued and outstanding at February 28, 2014 and 2,366,014 shares issued and outstanding at February 28, 2013, respectively | 22,160 | 23,660 | ||||||
| Series B Convertible Preferred stock, $.00001 par value; 3,000,000 authorized; 285,900 shares issued and outstanding at February 28, 2014 and 416,200 shares issued and outstanding at February 28, 2013, respectively | 3 | 4 | ||||||
| Series C Convertible Preferred stock, $.00001 par value; 3,000,000 authorized; 42,000 shares issued and outstanding at February 28, 2014 and 36,000 shares issued and outstanding at February 28, 2013, respectively | - | - | ||||||
| Series D Convertible Preferred stock, $.00001 par value; 3,000,000 authorized; 860,520 shares issued and outstanding at February 28, 2014 and 1,132,077 shares issued and outstanding at February 28, 2013, respectively | 9 | 11 | ||||||
| Convertible preferred stock subscribed | - | 100,000 | ||||||
| Common stock, $.00001 par value; 500,000,000 shares authorized; 17,579,280 shares issued and outstanding at February 28, 2014 and 12,977,942 shares issued and outstanding at February 28, 2013, respectively | 176 | 130 | ||||||
| Additional paid-in-capital | 73,877,065 | 61,958,113 | ||||||
| Stock subscription receivable | (5,000 | ) | - | |||||
| 73,894,413 | 62,081,918 | |||||||
| Other comprehensive income | 119,235 | 33,459 | ||||||
| Accumulated deficit | (87,625,076 | ) | (71,193,862 | ) | ||||
| Total Next 1 Interactive, Inc. stockholders' deficit | (13,611,428 | ) | (9,078,485 | ) | ||||
| Noncontrolling interest | 4,198,344 | (40,789 | ) | |||||
| Total stockholders' deficit | (9,413,084 | ) | (9,119,274 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 4,492,898 | $ | 4,589,778 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 37 |
| Next 1 Interactive, Inc. and Subsidiaries |
| Consolidated Statements of Operations and Comprehensive Income (Loss) |
| For the years ended |
| February 28, | February 28, | |||||||
| 2014 | 2013 | |||||||
| Revenues | ||||||||
| Travel and commission revenues | $ | 464,998 | $ | 550,367 | ||||
| Real estate media revenues | 1,098,377 | 436,748 | ||||||
| Total revenues | 1,563,375 | 987,115 | ||||||
| Cost of revenues | 412,225 | 501,460 | ||||||
| Gross profit | 1,151,150 | 485,655 | ||||||
| Operating expenses | ||||||||
| Salaries and benefits | 2,546,077 | 1,566,043 | ||||||
| Selling and promotions expense | 309,359 | 131,504 | ||||||
| General and administrative | 6,513,014 | 3,618,261 | ||||||
| Total operating expenses | 9,368,450 | 5,315,808 | ||||||
| Operating loss | (8,217,300 | ) | (4,830,153 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | (1,129,388 | ) | (1,774,792 | ) | ||||
| Loss on settlement of debt | (3,319,446 | ) | (309,201 | ) | ||||
| Loss on debt modification | (4,808,145 | ) | - | |||||
| Gain on legal settlement | 124,437 | 701,026 | ||||||
| Gain (loss) on change in fair value of derivatives | (952,026 | ) | 2,081,029 | |||||
| Other expense | 6,066 | (101,011 | ) | |||||
| Total other income (expense) | (10,078,502 | ) | 597,051 | |||||
| Net loss | (18,295,802 | ) | (4,233,102 | ) | ||||
| Net loss attributable to the noncontrolling interest | 1,881,282 | 40,789 | ||||||
| Net loss attributable to Next 1 Interactive, Inc. | $ | (16,414,520 | ) | $ | (4,192,313 | ) | ||
| Preferred Stock Dividend | (16,694 | ) | (18,373 | ) | ||||
| Net loss attributable to Common Shareholders | $ | (16,431,214 | ) | $ | (4,210,686 | ) | ||
| Weighted average number of shares outstanding | 13,977,561 | 7,407,990 | ||||||
| Basic and diluted net loss per share | $ | (1.18 | ) | $ | (0.57 | ) | ||
| Comprehensive loss: | ||||||||
| Unrealized loss on foreign currency translation adjustment | (85,776 | ) | (33,459 | ) | ||||
| Comprehensive loss | $ | (16,516,990 | ) | $ | (4,244,145 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
| 38 |
| Next 1 Interactive, Inc. and Subsidiaries |
| Consolidated Statements of Cash Flows |
| For the years ended |
| February 28, | February 28, | |||||||
| 2014 | 2013 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss applicable to Next 1 Interactive, Inc. common stock | $ | (16,414,520 | ) | $ | (4,192,313 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Noncontrolling interest in loss of consolidated subsidiaries | (1,881,282 | ) | (40,789 | ) | ||||
| Warrants issued in lieu of interest | - | 38,774 | ||||||
| Loss on conversion of debt | 3,319,446 | 309,201 | ||||||
| Gain on legal settlement of debt | (124,437 | ) | (701,026 | ) | ||||
| Loss on debt modification | 4,808,145 | - | ||||||
| Other comprehensive loss | 85,776 | 33,459 | ||||||
| Bad debt expense | 76,823 | - | ||||||
| Amortization and depreciation | 1,425,522 | 604,008 | ||||||
| Amortization of discount on notes payable | 952,070 | 1,089,639 | ||||||
| Stock based compensation and consulting fees | 2,212,219 | 1,247,021 | ||||||
| Conversion penalties and fee assessed for debt assignments | - | 130,100 | ||||||
| Loss (gain) on change in fair value of derivatives | 952,026 | (2,081,029 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in accounts receivable | (61,404 | ) | (35,459 | ) | ||||
| Increase in subscription receivable | (48,380 | ) | - | |||||
| Increase in prepaid expenses and other current assets | (52,690 | ) | (49,000 | ) | ||||
| Decrease in security deposits | 1,950 | 17,999 | ||||||
| Increase (decrease) in accounts payable and accrued expenses | 199,309 | (1,102,347 | ) | |||||
| Decrease in other current liabilities | (41,001 | ) | (512,554 | ) | ||||
| Net cash used in operating activities | (4,590,428 | ) | (5,244,316 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Payments related to website development costs | (675,300 | ) | - | |||||
| Payments for computer equipment | (62,516 | ) | - | |||||
| Retirement of Series D shares | (6,000 | ) | - | |||||
| Advances related to notes receivable | (20,000 | ) | - | |||||
| Proceeds received related to notes receivable | 20,000 | - | ||||||
| Net cash used in investing activities | (743,816 | ) | - | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible promissory notes | - | 744,500 | ||||||
| Payments on convertible promissory notes | (120,500 | ) | (77,667 | ) | ||||
| Proceeds from other notes payable | 90,000 | 125,000 | ||||||
| Principal payments of other notes payable | (120,000 | ) | (20,000 | ) | ||||
| Principal payments of settlement agreements | (64,167 | ) | (85,750 | ) | ||||
| Proceeds from shareholder loans | 55,000 | 843,000 | ||||||
| Payment on shareholder loans | - | (20,000 | ) | |||||
| Proceeds from sundry notes payable | 85,000 | - | ||||||
| Principal payments on sundry notes payable | (105,622 | ) | (42,500 | ) | ||||
| Principal payments on capital lease | - | (25,405 | ) | |||||
| Proceeds from issuance of series A preferred shares | - | 75,000 | ||||||
| Proceeds from issuance of series B preferred shares | - | 1,823,000 | ||||||
| Proceeds from issuance of series C preferred shares | - | 50,000 | ||||||
| Proceeds from issuance of series D preferred shares | 1,151,000 | 1,878,500 | ||||||
| Proceeds from the collection of stock subscription receivable | 105,000 | - | ||||||
| Proceeds from exercise of common stock warrants | 225,950 | - | ||||||
| Proceeds from issuance of common stock and warrants | 4,114,050 | - | ||||||
| Net cash provided by financing activities | 5,415,711 | 5,267,678 | ||||||
| 39 |
| February 28, | February 28, | |||||||
| 2014 | 2013 | |||||||
| Net increase in cash | 81,467 | 23,362 | ||||||
| Cash at beginning of period | 36,351 | 12,989 | ||||||
| Cash at end of period | $ | 117,818 | $ | 36,351 | ||||
| Supplemental disclosure: | ||||||||
| Cash paid for interest | $ | 412,006 | $ | 350,408 | ||||
| Supplemental disclosure of non-cash investing and financing activity: | ||||||||
| Series A shares converted to Series C shares: | ||||||||
| Value | $ | 150,000 | $ | - | ||||
| Shares | 150,000 | - | ||||||
| Shares/Warrants issued for conversion of debt to equity: | ||||||||
| Common stock: | ||||||||
| Value | $ | 6,335 | $ | 681,792 | ||||
| Shares | 618,000 | 11,442,205 | ||||||
| Series A Preferred: | ||||||||
| Value | $ | - | $ | 273,951 | ||||
| Shares | - | 273,951 | ||||||
| Series D Preferred: | ||||||||
| Value | $ | 28,067 | $ | 925,646 | ||||
| Shares | 5,613 | 185,129 | ||||||
| Shares/Warrants issued for conversion of shareholder loans: | ||||||||
| Series A Preferred: | ||||||||
| Value | $ | - | $ | 207,452 | ||||
| Shares | - | 207,452 | ||||||
| Series D Preferred: | ||||||||
| Value | $ | - | $ | 170,000 | ||||
| Shares | - | 32,000 | ||||||
| Shares/Warrants issued for conversion of accounts payable: | ||||||||
| Series D Preferred: | ||||||||
| Value | $ | - | $ | 18,000 | ||||
| Shares | - | 3,600 | ||||||
| Shares issued for investment in subsidiary | ||||||||
| Series D Preferred: | ||||||||
| Value | $ | - | $ | 1,900,000 | ||||
| Shares | - | 380,000 | ||||||
| 40 |
| February 28, | February 28, | |||||||
| 2014 | 2013 | |||||||
| Preferred stock converted into RealBiz Media Group, Inc. common stock: | ||||||||
| Series B Preferred: | ||||||||
| Value | $ | 919,498 | $ | - | ||||
| Shares | 183,900 | - | ||||||
| Series C Preferred: | ||||||||
| Value | $ | 150,000 | $ | - | ||||
| Shares | 30,000 | - | ||||||
| Series D Preferred: | ||||||||
| Value | $ | 2,991,998 | $ | - | ||||
| Shares | 598,220 | - | ||||||
| Stock options vested: | ||||||||
| Value | $ | - | $ | 10,125 | ||||
| Number of options | - | 2,025 | ||||||
| Preferred stock dividend: | ||||||||
| Series A Preferred | - | 3,790 | ||||||
| Warrants issued in lieu of interest | ||||||||
| Value | $ | - | $ | 38,774 | ||||
| Shares | - | 1,475,000 | ||||||
| Warrants issued for debt modification | ||||||||
| Value of debt modified | $ | 6,071,703 | $ | - | ||||
| Value of warrants issued | $ | 4,809,308 | ||||||
| Quantity | 12,000,000 | - | ||||||
| Convertible promissory note assignments to new third party investors | ||||||||
| Value | $ | 478,000 | $ | 486,600 | ||||
| Conversion of shareholder advances to convertible promissory notes | ||||||||
| Value | $ | 110,000 | $ | 225,000 | ||||
| Previously subscribed shares now issued: | ||||||||
| Series D Preferred: | ||||||||
| Value | $ | 100,000 | $ | - | ||||
| Shares | 20,000 | - | ||||||
| Shares of RealBiz Media Group, Inc common stock issued for website development costs | ||||||||
| Series D Preferred: | ||||||||
| Value | $ | 418,000 | $ | - | ||||
| Shares | 100,000 | - | ||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
| 41 |
| Next 1 Interactive, Inc. and Subsidiaries |
| Consolidated Statement of Changes in Stockholders Deficit |
| Additional | Other | Stockholders' | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock A | Preferred Stock B | Preferred Stock C | Preferred Stock D | Stock | Common Stock | Paid-in | Treasury | Comprehensive | Accumulated | Non-Controlling | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Subscribed | Shares | Amount | Capital | Stock | Income | Deficit | Interest | (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, February 29, 2012 | 1,809,611 | $ | 18,096 | - | $ | - | - | $ | - | - | $ | - | $ | - | 1,150,003 | $ | 12 | $ | 52,735,407 | $ | - | $ | - | $ | (66,983,176 | ) | $ | - | $ | (14,229,661 | ) | |||||||||||||||||||||||||||||||||||||
| Preferred stock/warrants issued for cash: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | 75,000 | 750 | - | - | - | - | - | - | - | - | - | 74,250 | - | - | - | - | 75,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series B | - | - | 364,600 | 4 | - | - | - | - | - | - | - | 1,822,996 | - | - | - | - | 1,823,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series C | - | - | - | - | 10,000 | - | - | - | - | - | - | 50,000 | - | - | - | - | 50,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D | - | - | - | - | - | - | 372,700 | 4 | - | - | - | 1,863,496 | - | - | - | - | 1,863,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for consulting: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | - | - | - | - | - | - | - | - | - | 385,734 | 4 | 54,759 | - | - | - | - | 54,763 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series B | - | - | 51,600 | - | - | - | - | - | - | - | - | 258,000 | - | - | - | - | 258,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series C | - | - | - | - | 26,000 | - | - | - | - | - | - | 130,000 | - | - | - | - | 130,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D | - | - | - | - | - | - | 158,648 | 2 | - | - | - | 794,132 | - | - | - | - | 794,134 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of debt to equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | - | - | - | - | - | - | - | - | - | 11,442,205 | 114 | 681,678 | - | - | - | - | 681,792 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A preferred stock | 481,403 | 4,814 | - | - | - | - | - | - | - | - | - | 476,589 | - | - | - | - | 481,403 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares | - | - | - | - | - | - | 185,129 | 2 | - | - | - | 925,644 | - | - | - | - | 925,646 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares issued for conversion of shareholder advances | - | - | - | - | - | - | 32,000 | - | - | - | - | 160,000 | - | - | - | - | 160,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares issued for accounts payable | - | - | - | - | - | - | 3,600 | - | - | - | - | 18,000 | - | - | - | - | 18,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares issued for investment in subsidiary | - | - | - | - | - | - | 380,000 | 3 | - | - | - | 1,899,996 | - | - | - | - | 1,899,999 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares subscriptions | - | - | - | - | - | - | - | - | 100,000 | - | - | - | - | - | - | - | 100,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants Issued in lieu of interest | - | - | - | - | - | - | - | - | - | - | - | 38,774 | - | - | - | - | 38,774 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation - options vested | - | - | - | - | - | - | - | - | - | - | - | 10,125 | - | - | - | - | 10,125 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividend(s) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (18,373 | ) | - | (18,373 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss applicable to Next 1 Interactive, Inc. | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (4,192,313 | ) | - | (4,192,313 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to the noncontrolling interest | - | (40,789 | ) | (40,789 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 33,459 | - | - | 33,459 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative liability on Series D preferred shares issued for investment in subsidiary | - | - | - | - | - | - | - | - | - | - | - | (35,733 | ) | - | - | - | - | (35,733 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, February 28, 2013 | 2,366,014 | $ | 23,660 | 416,200 | $ | 4 | 36,000 | $ | - | 1,132,077 | $ | 11 | $ | 100,000 | 12,977,942 | $ | 130 | $ | 61,958,113 | $ | - | $ | 33,459 | $ | (71,193,862 | ) | $ | (40,789 | ) | $ | (9,119,274 | ) | ||||||||||||||||||||||||||||||||||||
| Common shares issued for cash | - | - | - | - | - | - | - | - | - | 1,361,750 | 14 | 129,036 | - | - | - | - | 129,050 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock warrants exercised and common shares issued for cash | - | - | - | - | - | - | - | - | - | 334,500 | 3 | 15,947 | - | - | - | - | 15,950 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D Preferred stock/warrants issued for cash | - | - | - | - | - | - | 230,200 | 2 | - | - | - | 1,150,998 | - | - | - | - | 1,151,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D shares issued from prior year stock subscribed | - | - | - | - | - | - | 20,000 | - | (100,000 | ) | - | - | 100,000 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D shares issued from prior year subscription receivable | - | - | - | - | - | - | - | - | (5,000 | ) | - | - | - | - | - | - | - | (5,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for consulting: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | - | - | - | - | - | - | - | - | - | 1,562,088 | 16 | 108,241 | - | - | - | - | 108,257 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series B | - | - | 53,600 | 1 | - | - | - | - | - | - | - | 267,999 | - | - | - | - | 268,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D | - | - | - | - | - | - | 25,100 | - | - | - | - | 126,187 | - | - | - | - | 126,187 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of debt to equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | - | - | - | - | - | - | - | - | - | 618,000 | 6 | 6,329 | - | - | - | - | 6,335 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares | - | - | - | - | - | - | 5,613 | - | - | - | - | 28,067 | - | - | - | - | 28,067 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A preferred shares converted to Series C preferred shares | (150,000 | ) | (1,500 | ) | - | - | 36,000 | - | - | - | - | - | - | 1,500 | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Series B preferred shares converted to RealBiz Media Group, Inc. common stock | - | - | (183,900 | ) | (2 | ) | - | - | - | - | - | - | - | (919,498 | ) | - | - | - | - | (919,500 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Series C preferred shares converted to RealBiz Media Group, Inc. common stock | - | - | - | - | (36,000 | ) | - | - | - | - | - | - | (150,000 | ) | - | - | - | - | (150,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares converted to RealBiz Media Group, Inc. common stock | - | - | - | - | - | - | (598,220 | ) | (4 | ) | - | - | - | (2,991,994 | ) | - | - | - | - | (2,991,998 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares issues as stock compensation: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 42 |
| Additional | Other | Stockholders' | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock A | Preferred Stock B | Preferred Stock C | Preferred Stock D | Stock | Common Stock | Paid-in | Treasury | Comprehensive | Accumulated | Non-Controlling | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Subscribed | Shares | Amount | Capital | Stock | Income | Deficit | Interest | (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares | - | - | - | - | - | - | - | - | - | 600,000 | 6 | 19,794 | - | - | - | - | 19,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series C preferred | - | - | - | - | 6,000 | - | - | - | - | - | - | 30,000 | - | - | - | - | 30,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred | - | - | - | - | - | - | 42,500 | - | - | - | - | 212,500 | - | - | - | - | 212,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares issued to employees of RealBiz Media Group, Inc. | - | - | - | - | - | - | 5,250 | - | - | - | - | 26,250 | - | - | - | - | 26,250 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Series D preferred shares retired | - | - | - | - | - | - | (2,000 | ) | - | - | - | - | (6,000 | ) | - | - | - | - | (6,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cashless warrants exercised and common shares issued | - | - | - | - | - | - | - | - | - | 125,000 | 1 | (1 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion | - | - | - | - | - | - | - | - | - | - | - | 554,582 | - | - | - | - | 554,582 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividend(s) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (16,694 | ) | - | (16,694 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss applicable to Next 1 Interactive, Inc. | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (16,414,520 | ) | - | (16,414,520 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to the noncontrolling interest | - | (1,881,282 | ) | (1,881,282 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subsidiary sales of stock less noncontrolling interest | 13,209,015 | 6,120,415 | 19,329,430 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 85,776 | - | - | 85,776 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, February 28, 2014 | 2,216,014 | $ | 22,160 | 285,900 | $ | 3 | 42,000 | $ | - | 860,520 | $ | 9 | $ | (5,000 | ) | 17,579,280 | $ | 176 | $ | 73,877,065 | $ | - | $ | 119,235 | $ | (87,625,076 | ) | $ | 4,198,344 | $ | (9,413,084 | ) | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 43 |
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:
| 1. | 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. |
2. |
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. | |
| 3. | 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. |
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.”
| 44 |
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.
| 45 |
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.
| 46 |
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.
| 47 |
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 |
| 48 |
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.
| 49 |
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 |
| 50 |
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.
| 51 |
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. | ||||||||
| 52 |
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 | |||||
| 53 |
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.
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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. |
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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.
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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.
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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.
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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. |
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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. |
| 60 |
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. |
| 61 |
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 | |||||
| 62 |
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 Prices |
Number
| Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price |
Number
| 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 |
| 63 |
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 | 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.
| 64 |
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.
| 65 |
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.
| 66 |
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.
| 67 |
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) | $ | - | $ | - | ||||
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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. |
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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. |
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