10-Q 1 v365781_10q.htm QUARTERLY REPORT

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: November 30, 2013

 

¨ TRANSITION REPORT PURSUANT TO 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)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during the preceding 12 months (or 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes       ¨ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company: 

 

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

 

As of January 17, 2014, there were 14,672,097 shares outstanding of the registrant’s common stock

 

 
 

  

TABLE OF CONTENTS

 

  PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements. 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 24
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 29
     
Item 4. Controls and Procedures. 29
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings. 30
     
Item 1A. Risk Factors. 30
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 30
     
Item 3. Defaults Upon Senior Securities. 30
     
Item 4. Mine Safety Disclosures. 30
     
Item 5. Other Information. 30
     
Item 6. Exhibits. 31

 

 
 

  

Next 1 Interactive, Inc. and Subsidiaries

Consolidated Balance Sheets

 

   November 30,   February 28, 
   2013   2013 
   (Unaudited)     
Assets          
Current Assets          
Cash  $963,234   $36,351 
Accounts receivable, net of allowance for doubtful accounts   61,860    77,054 
Stock subscription receivable   -    100,000 
Prepaid expenses and other current assets   39,306    49,000 
Security deposits   28,953    28,612 
Total current assets   1,093,353    291,017 
           
Property and equipment   43,777    - 
Website Development costs and intangible assets, net   3,757,645    4,288,761 
Total assets  $4,894,775   $4,579,778 
           
Liabilities and Stockholders' Deficit          
Current Liabilities          
Accounts payable and accrued expenses  $2,580,888   $3,274,333 
Other current liabilities   70,192    159,124 
Derivative liabilities - convertible promissory notes   580,325    304,987 
Derivative liabilities - preferred stock   8,431,660    98,600 
Convertible promissory notes, net of discount of $-0- and $6,777, respectively   1,065,864    7,478,828 
Convertible promissory notes - related party, net of discount of $-0- and $-0-, respectively   -    650,000 
Convertible promissory note attributable to subsidiary   605,000    - 
Other advances   68,000    68,000 
Other notes payable   145,000    175,000 
Settlement agreements   -    64,167 
Shareholder loans   500,000    445,000 
Notes payable of subsidiary   18,324    - 
Notes payable - current portion   924,072    954,072 
Total current liabilities   14,989,325    13,672,111 
           
Convertible promissory notes:          
Non-related party, net of discount of $2,667 and $22,694 respectively   6,006,659    36,941 
Related party, net of discount of $-0-and $-0- respectively   650,000    - 
           
Total liabilities   21,645,984    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 November 30, 2013 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; 315,250 shares issued and outstanding at  November 30, 2013 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; 36,000 shares issued and outstanding at  November 30, 2013 and 36,000 shares issued and outstanding at February 28, 2013, respectively   -    - 
Series D Convertible Preferred stock, $.00001 par value; 3,000,000 authorized; 863,645 shares issued and outstanding at  November 30, 2013 and 1,132,077 shares issued and outstanding at February 28, 2013, respectively   9    11 
Preferred Stock Subscribed   -    100,000 
Common stock, $.00001 par value; 500,000,000 shares authorized; 14,083,342 shares issued and outstanding at November 30, 2013 and 12,977,942 shares issued and outstanding at February 28, 2013, respectively   141    130 
Additional paid-in-capital   66,288,358    61,958,113 
Stock subscription receivable   (5,000)   (10,000)
    66,305,671    62,071,918 
Other comprehensive income   87,976    33,459 
Accumulated deficit   (88,234,261)   (71,193,862)
Total Next 1 Interactive, Inc. stockholders' deficit   (21,840,614)   (9,088,485)
Noncontrolling interest   5,089,405    (40,789)
Total stockholders' deficit   (16,751,209)   (9,129,274)
Total liabilities and stockholders' deficit  $4,894,775   $4,579,778 

 

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

 

1
 

  

Next 1 Interactive, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

   For the three months ended   For the nine months ended 
   November 30,   November 30, 
   2013   2012   2013   2012 
                 
Revenues                    
Travel and commission revenues  $91,263   $89,199   $413,256   $397,466 
Advertising revenues   299,956    132,532    857,255    133,521 
Total revenues   391,219    221,731    1,270,511    530,987 
                     
Cost of revenues   74,530    93,478    360,391    323,081 
                     
Gross profit   316,689    128,253    910,120    207,906 
                     
Operating expenses                    
Salaries and benefits   489,603    377,465    1,710,404    906,099 
Selling and promotions expense   100,789    40,939    226,105    57,459 
General and administrative   2,778,735    1,348,060    4,780,750    2,327,630 
Total operating expenses   3,369,127    1,766,464    6,717,259    3,291,188 
                     
Operating loss   (3,052,438)   (1,638,211)   (5,807,139)   (3,083,282)
                     
Other income (expense)                    
Interest expense   (170,338)   (328,093)   (509,525)   (1,573,565)
Gain (loss) on settlement of debt   (3,285,541)   (28,789)   (3,319,446)   (5,045)
Gain (loss) on legal settlement   (31,691)   250,000    38,287    250,000 
Gain (loss) on change in fair value of derivatives   (4,884,803)   (204,573)   (8,608,398)   1,585,654 
Other income (expense)   (19,748)   (52,714)   (18,677)   (102,759)
Total other income (expense)   (8,392,121)   (364,169)   (12,417,759)   154,285 
                     
Net loss   (11,444,559)   (2,002,380)   (18,224,898)   (2,928,997)
                     
Net loss attributable to the noncontrolling interest   932,774    4,988    1,199,931    4,988 
                     
Net loss attributable to Next 1 Interactive, Inc.  $(10,511,785)  $(1,997,392)  $(17,024,967)  $(2,924,009)
                     
Preferred Stock Dividend   (1,277)   -    (15,433)   - 
                     
Net loss attributable to Common Shareholders  $(10,513,062)  $(1,997,392)  $(17,040,400)  $(2,924,009)
                     
Weighted average number of shares outstanding   14,034,678    9,429,561    13,675,633    5,949,549 
                     
Basic and diluted net loss per share  $(0.75)  $(0.21)  $(1.25)  $(0.49)
                     
Comprehensive loss:                    
Unrealized loss on currency translation adjustment   (34,943)   -    (54,517)   - 
Comprehensive loss  $(10,548,005)  $(1,997,392)  $(17,094,917)  $(2,924,009)

 

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

 

2
 

  

Next 1 Interactive, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

   For the nine months ended 
   November 30, 
   2013   2012 
Cash flows from operating activities:          
Net loss applicable to Next 1 Interactive, Inc. common stock  $(17,024,967)  $(2,924,009)
           
Adjustments to reconcile net loss to net cash from operating activities:          
Noncontrolling interest in loss of consolidated subsidiaries   (1,199,931)   (4,988)
Warrants issued in lieu of interest   -    1,500 
Loss on conversion of debt   3,319,446    5,045 
Gain on legal settlement of debt   (38,287)   (250,000)
Other comprehensive loss   54,517    - 
Bad debt expense   76,823    - 
Amortization of intangibles   1,070,916    51,075 
Amortization of discount on notes payable   26,804    1,045,867 
Stock based compensation and consulting fees   1,600,578    925,967 
Conversion penalties   -    129,021 
Loss (gain) on change in fair value of derivatives   8,608,398    (1,585,654)
Changes in operating assets and liabilities:          
Increase in accounts receivable   (61,629)   (36,383)
Decrease (increase) in prepaid expenses and other current assets   9,694    (22,918)
Increase in security deposits   (341)   (15,000)
Increase (decrease) in accounts payable and accrued expenses   36,216    (1,180,065)
(Decrease) increase in other current liabilities   (45,931)   41,185 
Net cash used in operating activities   (3,567,694)   (3,819,357)
           
Cash flows from investing activities:          
Payments related to website development costs   (539,800)   - 
Payments for computer equipment   (43,777)   - 
Retirement of Series D shares   (6,002)   - 
Advances related to notes receivable   (20,000)   - 
Proceeds received related to notes receivable   20,000    - 
Purchase of option agreement   -    (277,000)
Net cash used in investing activities   (589,579)   (277,000)
           
Cash flows from financing activities:          
Proceeds from convertible promissory notes   -    594,500 
Payments on convertible promissory notes   (70,500)   (42,667)
Proceeds from other notes payable   90,000    50,000 
Principal payments of other notes payable   (120,000)   (20,000)
Principal payments of settlement agreements   (64,167)   - 
Proceeds from shareholder loans   55,000    733,000 
Payments on shareholder loans   -    (20,000)
Proceeds from sundry notes payable   35,000    - 
Payments of sundry notes payable   (96,677)   (37,500)
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   -    1,692,728 
Proceeds from issuance of series D preferred shares   1,151,000    1,177,442 
Proceeds from the collection of stock subscription receivable   105,000    - 
Proceeds from exercise of common stock warrants   60,000    - 
Proceeds received in advance for common stock subscriptions   13,500    - 
Proceeds from issuance of common stock and warrants   3,926,000    - 
Net cash provided by financing activities   5,084,156    4,177,098 

 

3
 

  

   For the nine months ended 
   November 30, 
   2013   2012 
         
Net increase (decrease) in cash   926,883    80,741 
           
Cash at beginning of period   36,351    12,989 
           
Cash at end of period  $963,234   $93,730 
           
Supplemental disclosure:          
Cash paid for interest  $282,677   $265,424 
           
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  $6,334   $652,041 
Shares   618,000    9,007,433 
           
Series D Preferred:          
Value  $28,067   $841,866 
Shares   5,613    168,377 
Warrants   50,000    - 
           
Shares/Warrants issued for conversion of shareholder loans:          
Series D Preferred:          
Value  $-   $150,000 
Shares   -    30,000 
           
Shares/Warrants issued for conversion of accounts payable:          
Series D Preferred:          
Value  $-   $18,000 
Shares   -    3,600 
           
Preferred stock converted into RealBiz Media Group, Inc. common stock:          
Series B Preferred:          
Value  $542,750   $- 
Shares   108,550    - 
           
Series C Preferred:          
Value  $150,000   $- 
Shares   30,000    - 
           
Series D Preferred:          
Value  $2,884,370   $- 
Shares   576,695    - 
           
Shares issued to employees of RealBiz Media Group, Inc.          
Series D Preferred:          
Value  $26,250   $- 
Shares   5,250    - 
           
Stock options vested:          
Value  $-   $10,125 
Number of options   -    2,025 
           
Preferred stock dividend:          
Series A Preferred   -    3,790 
           
Previously subscribed shares now issued:          
Series D Preferred:          
Value  $100,000   $- 
Shares   20,000    - 

 

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

 

4
 

 

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 engaged in two lines of business: travel and real estate. Through its wholly owned subsidiary, Next 1 Network (formerly RRTV Network and Resort & Residence TV), it operates its travel division, and through its majority owned subsidiary, RealBiz Media Group, Inc. (“RealBiz Media” formerly Next One Realty), it operates its real estate division. The Company is positioning itself to emerge as a multi revenue stream “Next Generation” media-company, representing the convergence of TV, Mobile devices and the Internet by providing multiple platform dynamics for interactivity on TV, Video On Demand (VOD) and web solutions. The Company, through its subsidiaries has worked with multiple distributors beta testing its platforms as part of its roll out of TV programming and VOD Networks. The list includes Comcast, Cox, Time Warner and Direct TV.

 

Next 1 Network is engaged in the business of providing digital media and marketing services for the travel industry.  Next 1 Network has two divisions: its linear TV networks and travel Video on Demand. It currently generates revenue from advertising revenues and commissions.  Through linear TV networks, the Next 1 Network derives revenue from traditional advertising, interactive ads, sponsorships, paid programming, travel commissions and referral fees. Through Travel Video on Demand, the Next 1 Network derives revenue from monthly sponsorship packages, pre-roll advertising, travel commissions and referral fees, acceleration of our other company owned travel entities (Maupintours, Next Trip, Extraordinary Vacations and Trip Professionals).

 

RealBiz Media is engaged in the business of providing digital media and marketing services for the real estate industry. RealBiz Media currently generate 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.”

 

5
 

 

Note 1 - Summary of Business Operations and Significant Accounting Policies (continued)

 

Basis of Presentation

 

The unaudited consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These consolidated financial statements have not been audited.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report for the year ended February 28, 2013, filed with the SEC on June 13, 2013 and as amended on July 1, 2013. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year.

 

Principles of Consolidation

 

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material inter-company transactions and accounts have been eliminated in consolidation.

 

The Company owns an 85 % interest in Realbiz Holdings, Inc. and a 66% interest in Realbiz Media and these entities’ accounts are consolidated in the accompanying financial statements because we have control over operating and financial policies. All inter-company balances and transactions have been eliminated.

 

Noncontrolling Interests

 

The Company accounts for its less than 100% interest in consolidated subsidiaries in accordance with ASC Topic 810, Consolidation, and accordingly the Company presents noncontrolling interests as a component of equity on its unaudited consolidated balance sheets and reports noncontrolling interest net loss under the heading “Net loss applicable to noncontrolling interest in consolidated subsidiary” in the unaudited consolidated statements of operations.

 

Use of Estimates

 

The Company’s significant estimates include allowance for doubtful accounts, valuation of intangible assets, 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

 

Cash and cash equivalents consist of cash and short-term investments with insignificant interest rate risk and original maturities of 90 days or less.

 

Accounts Receivable

 

The Company extends credit to its customers in the normal course of business. Further, the Company regularly reviews outstanding receivables, and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company also performs ongoing credit evaluations of customers’ financial condition. The Company maintains reserves for potential credit losses, and such losses traditionally have been within its expectations.

 

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 but as of November 30, 2013, it has not been placed in service and there is no depreciation expense recorded. When equipment is retired, sold or impaired, the resulting gain or loss is reflected in earnings.

 

6
 

 

Note 1 - Summary of Business Operations and Significant Accounting Policies (continued)

 

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 November 30, 2013, 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 nine months ended November 30, 2013 and 2012.

 

Intellectual properties that have finite useful lives are amortized over their useful lives. The Company incurred amortization expense of $1,070,916 and $51,075 for the nine months ended November 30, 2013 and 2012.

 

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.

 

7
 

 

Note 1 - Summary of Business Operations and Significant Accounting Policies (continued)

 

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.

 

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:

 

   November 30,
2013
 
Series A convertible preferred stock issued and outstanding   216,196,488 
Series B convertible preferred stock issued and outstanding   312,250 
Series C convertible preferred stock issued and outstanding   36,000 
Series D convertible preferred stock issued and outstanding   863,645 
Warrants to purchase common stock issued, outstanding and exercisable   8,286,759 
Stock options issued, outstanding and exercisable   4,050 
Shares on convertible promissory notes   26,461,513 
    252,163,705 

 

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.

 

8
 

 

Note 1 - Summary of Business Operations and Significant Accounting Policies (continued)

 

Advertising

 

We recognize advertising revenues in the period in which the advertisement is displayed, if evidence of an arrangement exists, the fees are fixed or determinable and collection of the resulting receivable is reasonably assured. If fixed-fee advertising is displayed over a term greater than one month, revenues are recognized ratably over the period as described below. The majority of insertion orders have terms that begin and end in a quarterly reporting period. In the cases where at the end of a quarterly reporting period the term of an insertion order is not complete, the Company recognizes revenue for the period by pro-rating the total arrangement fee to revenue and deferred revenue based on a measure of proportionate performance of its obligation under the insertion order. The Company measures proportionate performance by the number of placements delivered and undelivered as of the reporting date. The Company uses prices stated on its internal rate card for measuring the value of delivered and undelivered placements. Fees for variable-fee advertising arrangements are recognized based on the number of impressions displayed or clicks delivered during the period.

 

Under these policies, no revenue is recognized unless persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is deemed reasonably assured. The Company considers an insertion order signed by the client or its agency to be evidence of an arrangement.

 

Cost of Revenues

 

Cost of revenues includes costs directly attributable to services sold and delivered. These costs include such items as 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.

 

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 nine months ended November 30, 2013 and 2012 was $226,105 and $57,459.

 

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.

 

9
 

 

Note 1 - Summary of Business Operations and Significant Accounting Policies (continued)

 

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 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 $4,417and $-0- for the nine months ended November 30, 2013 and 2012, 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 nine months ended November 30, 2013 and 2012, the accumulated comprehensive loss was $54,517 and $-0-, 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 November 30, 2013. Such reclassifications have no effect on the reported net loss.

 

Recent Accounting Pronouncements

 

In July 2012, the Financial Accounting Standards Board (FASB) amended ASC 350, “ Intangibles — Goodwill and Other”. This amendment is intended to simplify how an entity tests indefinite-lived assets other than goodwill for impairment by providing entities with an option to perform a qualitative assessment to determine whether further impairment testing is necessary. The amended provisions will be effective for the Company beginning in the first quarter of 2014, and early adoption is permitted. This amendment impacts impairment testing steps only, and therefore adoption will not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

 

In August 2012, the FASB issued Accounting Standards Update (“ASU”) 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 has not had a material impact on financial position or results of operations of the Company.

 

In October 2012, the FASB issued ASU 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04 ("ASU 2012-04"). The amendments in this update cover a wide range of topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 has not had a material impact on financial position or results of operations of the Company.

 

10
 

 

Note 1 - Summary of Business Operations and Significant Accounting Policies (continued)

 

Recent Accounting Pronouncements (continued)

 

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (ASU 2013-02). This guidance is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCT). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments required disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosure that provides additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The adoption of ASU 201-02 has not had a material impact on financial position or results of operations of the Company.

 

In July 2013, the FASB issued ASU 2013-10 Derivatives and Hedging Topic 815, provides for the inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes, effective for swaps entered into after July 17, 2013. This release allows the use of the overnight index swap rate as an additional benchmark for hedge accounting treatment. Management has determined that the application of this standard will not have a material effect on the financial statements of the Company

 

In July 2013, the FAS issued ASU 2013-11 Income Taxes Topic, Provides for the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, effective for fiscal years beginning after 12-15-13. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented 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 if available and a company has the intent and ability to use for such purpose. Management has determined that the application of this standard did not have a material effect on the financial statements of the Company.

 

Management does not believe that any other recently issued, but not effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.

 

Note 2 - Going Concern

 

As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $88,234,261 and a working capital deficit of $13,895,972 at November 30, 2013, net losses for the nine months ended November 30, 2013 of $18,224,898 and cash used in operations during the nine months ended November 30, 2013 of $3,567,694. 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

 

As of November 30, 2013, the Company recorded the purchase of $43,777 of computer equipment which has not been placed into service. Any property and equipment previously recorded in prior fiscal years, was fully impaired and written off. Therefore, there was no depreciation expense recorded for the nine months ended November 30, 2013 and 2012.

 

11
 

 

Note 5 – Website Development Costs and Intangible Assets

 

The following table sets forth the intangible assets, both acquired and developed, including accumulated amortization:

 

   November 30, 2013
   Remaining      Accumulated   Net Carrying 
   Useful Life  Cost   Amortization   Value 
                
Sales/Marketing Agreement  2.6 years  $4,796,178   $1,568,919   $3,227,259 
Website development costs  2.5 years   756,980    728,737    28,243 
Website development costs (not placed in service)  3.0 years   502,143    -0-    502,143 
      $6,055,301   $2,297,656   $3,757,645 

 

Intangible assets are amortized on a straight-line basis over their expected useful lives, estimated to be 4 years, except for the web site, which is 3 years. Amortization expense related to website development costs and intangible assets was $1,070,916 and $51,075 for the nine months ended November 30, 2013 and 2012, 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 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 

 

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 nine months ended 
   November 30, 2012 
     
Pro forma revenue  $1,214,943 
      
Pro forma loss from operations  $3,667,453 
      
Pro forma net loss  $3,490,873 
      
Pro forma basic and diluted net loss per share  $0.83 

 

12
 

 

Note 6 – Acquisitions (continued)

 

On October 9, 2012, Next 1 and RealBiz Media, formerly known as Webdigs, Inc. (“Webdigs”), completed the transactions contemplated by that certain Share Exchange Agreement entered into on April 4, 2012 (the “Exchange Agreement”). Under the Exchange Agreement, our Company received all of the outstanding equity in Attaché Travel International, Inc., a Florida corporation and wholly owned subsidiary of Next 1 (“Attaché”). Attaché in turn owns approximately 85% of a corporation named RealBiz Holdings Inc., which is the parent corporation of RealBiz360, Inc. (“RealBiz”). RealBiz is a real estate media services company whose proprietary video processing technology has made it one of the leaders in providing home virtual tours to the real estate industry. In exchange for our Attaché shares, 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

 

Accounts payable and accrued expenses consist of the following at November 30th:

 

   2013 
     
Trade accounts payable  $1,539,260 
Accrued interest   521,176 
Deferred salary   308,029 
Accrued expenses - other   212,423 
   $2,580,888 

 

Note 8 – Notes Payable

 

On May 28, 2010, the Company entered into a settlement agreement by and among the Company and Televisual Media, a Colorado limited liability company, TV Ad Works, LLC, a Colorado limited liability company, TV Net Works, a Colorado limited liability company, TV iWorks, a Colorado limited liability and Mr. Gary Turner and Mrs. Staci Turner, individuals residing in the State of Colorado (individually and collectively “TVMW,” and together with the Company, the “Parties”), in order to resolve certain disputed claims regarding the service agreements referred to above. The final settlement agreement stipulates that any party shall not construe the settlement as an admission or denial of liability hereto.

 

On March 23, 2011, the Company entered into a debt purchase agreement whereby $65,000 of certain aged debt evidenced by a Settlement Agreement dated May 28, 2010 for $1,000,000 with a remaining balance of $815,000, was purchased by a non-related third party investor. As part of the agreement, the Company received $65,000 in consideration for issuing a 6-month, 21% convertible promissory note, with a face value of $68,500, maturing on September 23, 2011. On August 31, 2011, the noteholder entered into a wrap around agreement to assign $485,000 of its debt to investors and immediately assigned $50,000 of its principal to a non-related third party investor and the Company issued a secured convertible promissory note for the same value. On September 6, 2011, the Company re-negotiated the settlement agreement note, due to default, until February 1, 2013 for $785,000. Beginning on October 1, 2011, the Company shall make payments of $50,000 due on the first day of each month. The first $185,000 in payments shall be in cash and the remaining $600,000 shall be made in cash or common stock. On February 15, 2012, the noteholder assigned $225,000 of its $785,000 outstanding promissory note to a non- related third party investor and the Company issued a new convertible promissory note for the same value. As of November 30, 2013, the remaining principal balance is $510,000 and the note is in default.

 

On August 16, 2004, the Company entered into a promissory note with an unrelated third party for $500,000. The note bears interest at 7% per year and matured in March 2011 and is payable in quarterly installments of $25,000. As of November 30, 2013, the remaining principal balance is $137,942 and accrued interest is $155,014. The Company is in default of this note.

 

In February 2009, the Company restructured note agreements with three existing noteholders. The collective balance at the time of the restructuring was $250,000 plus accrued interest payable of $158,000, consolidated into three new notes payable totaling $408,000. The notes bear interest at 10% per year and matured on May 31, 2010, at which time the total amount of principle and accrued interest was due. In connection with the restructure of these notes, the Company issued 150,000 detachable 3-year warrants to purchase common stock at an exercise price of $3.00 per share. The warrant issuance was recorded as a discount and amortized monthly over the terms of the note. On July 30, 2010, the Company issued 535,000 shares of common stock to settle all of these note agreements except for $25,000 of principal and $7,932 of interest still owed as of November 30, 2013 and the Company is in default of this note.

 

In connection with the acquisition of Brands on Demand, an officer of the Company entered into a five-year lease agreement. Subsequent to terminating the officer, the Company entered into an early termination agreement with the lessor valued at $30,000 secured by a promissory note with monthly installments of $2,500, beginning June 1, 2009 and maturing June 1, 2010. As of November 30, 2013, the Company has not made any installment payments on this obligation and the remaining principal balance of the note is $30,000, accrued interest is $14,544 and the Company is in default of this note.

 

13
 

 

Note 8 – Notes Payable (continued)

 

On December 5, 2011, the Company converted $252,833 of accounts payable and executed an 8% promissory note to same vendor. Commencing on December 5, 2011 and continuing on the first day of each calendar month thereafter, the Company shall pay $12,000 per month. All payments shall be applied first to payment in full of any costs incurred in the collection of any sum due under this Note, including, without limitation, reasonable attorney's fee, then to payment in full of accrued and unpaid interest and finally to the reduction of the outstanding principal balance of the Note. As of November 30, 2013, the remaining principal balance is $221,130 and accrued interest is $14,308. The Company is in default of this note.

 

The total of $924,072 in principal of the above debt is currently past due. Interest charged to operations relating to these notes was $23,572 and $30,374, respectively for the nine months ended November 30, 2013 and 2012.

 

Note attributable to consolidated subsidiary

 

During the nine months ended November 30, 2013, the Company's 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. During the nine months ended November 30, 2013 and 2012, the subsidiary incurred interest expense of $2,677 and $-0-, respectively. The remaining principal balance as of November 30, 2013 is $18,324.

 

Note 9 – Capital Lease Payable

 

On June 1, 2006, the Company entered into a five (5) year equipment lease agreement requiring monthly payments of $5,078 including interest at approximately 18% per year and expires on June 1, 2011 with a related party. On September 3, 2010, the Company amended the original agreement to procure $56,671 of additional equipment. The Company extended the maturity to September 1, 2012 and all other lease terms remained unchanged. As of November 30, 2013, the Company has satisfied all the terms of the lease agreement. Interest expense on the lease was $-0- and $1,208 for the nine months ended November 30, 2013 and 2012, respectively.

 

Note 10 – Other Notes Payable

 

Related Party

 

A director and officer had advanced funds to the Company since inception. As of November 30, 2013, the Company does not have any principal or accrued interest due to the officer/director. The interest rate on advances is 18% per annum compounded daily, on the unpaid balance. Interest expense recognized for the nine months ended November 30, 2013 and 2012 is $156 and $199, respectively.

 

An un-related entity where the director/officer is president has advanced funds to the Company since inception of which the principal amounts have been repaid. As of November 30, 2013, the Company does not have any principal balance due to this entity, however there is an unpaid accrued interest balance totaling $5,708. Interest expense recognized for the nine months ended November 30, 2013 and 2012 is $1,335 and $1,385 respectively.

 

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%. 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 November 30, 2013, the principal balance due is $50,000 with unpaid accrued interest balance of $3,932. Interest expense recognized for the nine months ended November 30, 2013 and 2012, is $3,932 and $1,500, respectively.

 

On January 23, 2013, the Company received $75,000 in proceeds from a related-party investor and issued a 6 % promissory note maturing on April 30, 2013. The Company issued 375,000 one (1) year warrants with an exercise price of $0.03 per share valued at $5,213 and charged as interest expense to operations. The Company uses the Black-Scholes option-pricing model to determine the warrant’s fair value using the following assumptions: risk-free interest rate of 0.15%, dividend yield of -0-%, volatility factor of 354.79% and expected life of 1 year. Interest expense of $3,525 and $-0-, respectively has been recognized for the nine months ended November 30, 2013 and 2012. As of November 30, 2013, the remaining principal balance is $25,000, unpaid accrued interest is $3,525 and the note is in default.

 

14
 

 

Note 10 – Other Notes Payable (continued)

 

Non Related Party

 

The Company has an existing promissory note, dated July 23, 2010, with a shareholder for $100,000. The note was due and payable on July 23, 2011 and bore interest at rate of 6% per annum. As consideration for the loan, the Company issued 200 warrants to the holder with a three-year life and a fair value of approximately $33,000 to purchase shares of the Company’s common stock, $0.00001 par value, per share, at an exercise price of $500 per share. On September 26, 2011, the noteholder assigned $30,000 of its principal to a non-related third party investor and the Company issued a convertible promissory note for same value, leaving a remaining balance of $70,000 and unpaid accrued interest of $18,132 as of November 30, 2013. As of November 30, 2013, the principal balance of this note is in default. The fair value of the warrants was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 0.984%, dividend yield of -0-%, volatility factor of 115.05% and an expected life of 1.5 years. The fair value of warrants was amortized as finance fees over the term of the loan. The Company recorded approximately $33,000 in prepaid finance fees upon origination and amortized approximately $-0- in expense, respectively for the nine months ended November 30, 2013 and 2012. Interest charged to operations relating to this note was $3,895 and $3,668, respectively for the nine months ended November 30, 2013 and 2012.

 

Note 11 – Other Advances

 

Related Party

 

During the nine months ended November 30, 2013, the Company incurred no activity and the remaining principal balance is $18,000.

 

Non Related Party

 

During the nine months ended November 30, 2013, the Company incurred no activity and the remaining principal balance is $50,000.

 

Note 12 – Shareholder Loans

 

During the nine months ended November 30, 2013, the Company received $55,000 in proceeds for shareholder advances and the principal balance as of November 30, 2013 totaled $500,000.

 

Note 13 – 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 November 30, 2013, the Company has completely satisfied the terms of the agreement.

 

Note 14 – Convertible Promissory Notes

 

During the nine months ended November 30, 2013 the Company:

 

·paid a total of $70,500 in principal against outstanding balances.

 

·converted $6,335 of outstanding principal and issued 618,000 shares of its common stock.

 

·converted $3,687,661 of outstanding principal and upon investor request executed the issuance of 977,732 shares of our subsidiary RealBiz Media’s common stock realizing a loss of $3,319,446.

 

·converted $25,000 of outstanding principal and issued 5,613 shares of Series D Preferred stock.

 

·recognized amortization of debt discount during the nine months ending November 30, 2013 and 2012 of $26,804 and $1,045,867, respectively with a remaining expected life of eleven months.

 

·recognized a loss and gain on the change in fair value of derivatives for the nine months ending November 30, 2013 and 2012, in the amounts of $275,338 loss and $1,585,654 gain, 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 0.05% to 0.13%, dividend yield of -0-%, volatility factor of 1.27% to 617.76% and expected life from one to fifteen months.

 

15
 

 

Note 14 – Convertible Promissory Notes (continued)

 

Below is a summary of the convertible promissory notes as of November 30, 2013:

 

   Remaining
Principal
Balance
   Un-Amortized
Debt Discount
   Carrying
Value
   Principal
Past Due
 
Non-Related Party                    
Current  $1,065,864   $-0-   $1,065,864   $1,065,864 
Long term   6,009,326    2,667    6,006,659    -0- 
                     
    7,075,190    2,667    7,072,523    1,065,864 
                     
Related Party                    
Current   -0-    -0-    -0-    -0- 
Long term   650,000    -0-    650,000    -0- 
    650,000    -0-    650,000    -0- 
                     
   $7,725,190   $2,667   $7,722,523   $1,065,864 

 

Interest rates range from 5.0% to 12.0% and maturity dates range from September 30, 2012 to October 15, 2014. During nine months ended November 30, 2013 and 2012, the Company recognized interest expense of $435,198 and $445,900, respectively.

 

Convertible promissory note attributable to consolidated subsidiary

 

As of November 30, 2013, the Company has a convertible promissory note payable for $605,000 in outstanding principal. This note is convertible into our subsidiary RealBiz Media Group, Inc.’s common stock at $0.15 per share and bears no interest.

 

Note 15 – Stockholders’ Deficit

 

Preferred stock

 

The aggregate number of shares of preferred stock that the Company is authorized to issue is up to One Hundred Million (100,000,000), with a par value of $0.0001 per share (“the Preferred Stock”).

 

The Preferred Stock may be divided into and issued in series. The Board of Directors of the Company is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. The Board of Directors of the Company is authorized, within any limitations prescribed by law and the articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of Preferred Stock.

 

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, 2012, the Company amended the Certificate of Designations for the Company’s Series A Preferred Stock to allow for conversion into Series C Preferred stock. Furthermore, the amendment allows for conversion at the lowest price the Company has issued stock as part of a financing to include all financing such as new debt and equity financing and stock issuances as well as existing debt conversions into stock.

 

16
 

 

Note 15 – Stockholders’ Deficit (continued)

 

Series A Preferred Stock (continued)

 

In the event of any liquidation, dissolution or winding up of this Company, either voluntary or involuntary (any of the foregoing, a “liquidation”), holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Company to the holders of the common Stock or any other series of Preferred Stock by reason of their ownership thereof an amount per share equal to $1.00 for each share (as adjusted for any stock dividends, combinations or splits with respect to such shares) of Series A Preferred Stock held by each such holder, plus the amount of accrued and unpaid dividends thereon (whether or not declared) from the beginning of the dividend period in which the liquidation occurred to the date of liquidation.

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s own Equity (“ASC 815-40”) became effective for us on March 1, 2010. The Company’s Series A (convertible) Preferred Stock has certain reset provisions that require the Company to reduce the conversion price of the Series A (convertible) Preferred Stock if we issue equity at a price less than the conversion price. Upon the effective date, the provisions of ASC 815-40 required a reclassification to liability based on the reset feature of the agreements if the Company sells equity at a price below the conversion price of the Series A Preferred Stock.

 

For the nine months ended November 30, 2013, the Company, in accordance with ASC 815-40, determined the fair value of the Series A Preferred Stock to be $8,431,660, using the Black-Scholes formula assuming no dividends, a risk-free interest rate of 0.28%, expected volatility of 702.67%, and expected life of 2 years (based on the current rate of conversion). At each reporting date, the Company records the changes in the fair value of the derivative liability as non-operating, non-cash income. The change in fair value of the Series A Preferred Stock derivative liability as of November 30, 2013 and 2012 resulted in non-operating charge of $8,388,779 and non-operating income of $1,263,876, respectively.

 

During the nine months ended November 30, 2013, 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.

 

Dividends in arrears on the outstanding preferred shares total $374,557 as of November 30, 2013. The Company had 2,216,014 shares issued and outstanding as of November 30, 2013 and 2,366,014 shares issued and outstanding as of February 28, 2013, respectively.

 

Series B Preferred Stock

 

The Company has authorized and designated 3,000,000 shares of Preferred Stock as Non-Voting Series B 10% Cumulative Convertible Preferred Stock with a par value of $0.0001 per share (“the Series B Preferred Stock”). The holders of Series B Preferred Stock may elect to convert all or any part of such holder’s shares into the Company’s common stock at $5 per share or into shares of RealBiz Media’s common stock at $0.05 per share.

 

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

 

During the nine months ended November 30, 2013, the Company:

 

·issued 7,600 shares of Series B Preferred Stock for services rendered, consisting of financing and consulting fees incurred in raising capital, valued at $38,000. The value of the Series B Preferred Stock was based on the fair value of the stock at the time of issuance.

 

·Upon investor’s request, converted 108,550 shares of Series B Preferred Stock, at its stated value per share of $5, into 10,355,500 shares of RealBiz Media’s common stock with a total value of $542,749.

 

·recognized a change in fair value of the Series B Preferred Stock derivative liability as of November 30, 2013 and 2013 resulted in non-operating income of $55,719 and $-0-, respectively

 

Dividends in arrears on the outstanding preferred shares total $272,286 as of November 30, 2013. The Company had 315,250 shares issued and outstanding as of November 30, 2013 and 416,200 shares issued and outstanding as of February 28, 2013, respectively.

 

17
 

 

Note 15 – Stockholders’ Deficit (continued)

 

Series C Preferred Stock

 

The Company has authorized and designated 3,000,000 shares of Preferred Stock as Non-Voting Series C 10% Cumulative Convertible Preferred Stock with a par value of $0.0001 per share (the “Series C Preferred Stock”). The holders of Series C Preferred Stock may elect to convert all or any part of such holder’s shares into the Company’s common stock at $5 per share or into shares of RealBiz Media’s common stock at $0.10 per share.

 

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

 

During the nine months ended November 30, 2013, an investor in the Company converted 150,000 shares of Series A Preferred Stock into 30,000 shares of Series C Preferred Stock valued at $150,000. Simultaneously, the same investor converted the same 30,000 shares of Series C Preferred Stock into 1,500,000 shares of RealBiz Media’s common stock at a value of $150,000.

 

Dividends in arrears on the outstanding preferred shares total $20,509 as of November 30, 2013. The Company had 36,000 shares issued and outstanding as of November 30, 2013 and February 28, 2013, respectively.

 

Series D Preferred Stock

 

The Company has authorized and designated 3,000,000 shares of Preferred Stock as Non-Voting Series D 10% Cumulative Convertible Preferred Stock with a par value of $0.0001 per share (the “Series D Preferred Stock”). The holders of Series D Preferred Stock may elect to convert all or any part of such holder’s shares into the Company’s common stock at $5 per share or into shares of RealBiz Media’s common stock at $0.15 per share.

 

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

 

During the nine months ended November 30, 2013, the Company:

 

·issued 20,000 shares of Series D Preferred Stock, 200,000 one (1) year warrants with an exercise price of $0.03 and collected $100,000 in proceeds from prior year subscription agreements.

 

·received $1,150,785 in proceeds net of $215 of bank charges and issued 230,200 shares of Series D Preferred Stock and 2,136,500 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 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 6,700 shares of Series D Preferred Stock and 50,000 one-year warrants with an exercise price of $0.03 in exchange for services rendered, consisting of financing and consulting fees incurred in raising capital, valued at $34,187. 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 576,695 shares of Series D Preferred Stock, upon investors’ request, into 19,222,614 shares of RealBiz Media’s common stock valued at $2,884,373.

 

·retired 2,000 shares of Series D Preferred Stock valued at $6,000.

 

Dividends in arrears on the outstanding preferred shares total $647,514 as of November 30, 2013. The Company had 863,645 shares issued and outstanding as of November 30, 2013 and 1,132,077 shares issued and outstanding as of February 28, 2013, respectively.

 

18
 

 

Note 15 – Stockholders’ Deficit (continued)

 

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 nine months ended November 30, 2013, the Company:

 

·issued 362,400 shares of common stock and 120,000 one (1) year warrants with an exercise price of $0.10 in exchange for services rendered, consisting of financing and consulting fees incurred in raising capital, valued at $6,153. 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 $0.13%, dividend yield of -0-%, volatility factor of 618.49% 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 "cashless warrants" were exercised and 125,000 common shares were issued.

 

Common Stock Warrants

 

At November 30, 2013, there were 8,286,759 warrants outstanding with a weighted average exercise price of $1.41 and weighted average life of .93 years. During the nine months ended November 30, 2013, the Company granted 2,666,500 warrants, 125,000 "cashless" warrants were exercised and 750,519 warrants expired.

 

Common Stock Options

 

At November 30, 2013, there were 4,050 options outstanding with a weighted average exercise price of $7.25 and weighted average life of 7.84 years. During the nine months ended November 30, 2013, no options were granted or exercised.

 

Compensation expense relating to stock options granted during the nine months ended November 30, 2013 and 2012, was $-0- and $10,125, respectively.

 

19
 

 

Note 15 – Stockholders’ Deficit (continued)

 

Our subsidiary, RealBiz Media Group, Inc.

 

During the nine months ended there was a significant increase in the non-controlling interest due to the following issuances in our subsidiary:

 

·7,776,000 shares of common stock and 6,594,000 1 year warrants with an exercise price of $1 were issued to recipients for proceeds valued at $3,939,500.

 

·60,000 warrants were exercised and 60,000 shares of common stock were issued for proceeds valued at $60,000.

 

·826,050 shares of common stock and 120,050 1 year warrants with an exercise price of $1 were issued to recipients for consulting services valued at $1,309,739. 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 0.11% to 0.13% , dividend yield of -0-%, volatility factor of 319.13% to 430.47% 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:

 

   Share   Value 
Series B   10,355,000   $542,750 
Series C   1,500,000   $150,000 
Series D   19,222,614   $2,884,373 

 

·977,732 shares issued and 690,232 1 year warrants issued for the conversion of Next 1 Interactive, Inc. convertible promissory notes valued at $3,733,148.

 

Note 16 - Commitments and Contingencies

 

The Company leases approximately 6,500 square feet of office space in Weston, Florida pursuant to a lease agreement with Bedner Farms, Inc. of the building located at 2690 Weston Road, Weston, Florida 33331. In accordance with the terms of the lease agreement, the Company is renting the commercial office space, for a term of five years commencing on January 1, 2011 through December 31, 2015. Starting September of 2011, the Company 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 rent for the nine months ended November 30th, 2013 was $100,935.

 

The following schedule represents obligations under written commitments on the part of the Company that are not included in liabilities:

 

   Current   Long-Term     
           FY2016     
           and     
   FY2014   FY2015   beyond   Totals 
Consulting  $23,545   $47,090   $47,090   $117,726 
Leases   34,295    138,475    148,638    321,407 
Other   107,469    143,292    143,292    394,053 
Totals  $165,309   $328,857   $339,020   $833,186 

 

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.

 

20
 

 

Note 16 - Commitments and Contingencies (continued)

 

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 November 30, 2013.

 

Note 17 – Segment Reporting

 

Accounting Standards Codification 280-16 “Segment Reporting”, established standards for reporting information about operating segments in annual consolidated financial statements and required selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products, services, and geographic areas. Operating segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

 

The Company has two reportable operating segments: Media and Travel. The accounting policies of each segment are the same as those described in the summary of significant accounting policies. Each segment has its own product manager but the overall operations are managed and evaluated by the Company’s chief operating decision makers for the purpose of allocating the Company’s resources. The Company also has a corporate headquarters function, which does not meet the criteria of a reportable operating segment. Interest expense and corporate expenses are not allocated to the operating segments.

 

The tables below present information about reportable segments for the three and nine months ended November 30, 2013 and November 30, 2012:

 

   For the three months ended   For the nine months ended 
   November 30,   November 30, 
   2013   2012   2013   2012 
Revenues:                    
Travel   $91,263   $89,199   $413,256   $397,466 
Media   299,956    132,532    857,255    133,521 
Segment revenues  $391,219   $140,860   $1,270,511   $530,987 
                     
Operating expense:                    
Travel  $908,718   $756,145   $2,067,225   $1,801,756 
Media   2,282,516    602,042    4,287,595    605,400 
Segment expense  $3,191,234   $1,358,187   $6,354,820   $2,407,153 
                     
Net income (loss):                    
Travel  $(817,455)  $(666,946)  $(1,653,969)  $(1,404,287)
Media   (1,982,559)   (469,509)   (3,430,339)   (471,878)
Segment net loss  $(2,800,014)  $(1,136,455)  $(5,084,308)  $(1,876,165)

 

The Company did not generate any revenue outside the United States for the nine months ended November 30, 2013 and 2012, and did not have any assets located outside the United States.

 

21
 

 

Note 18 – 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.

 

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 November 30, 2013, 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  November 30,
2013
   Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
                 
Series A and D convertible redeemable preferred stock with reset provisions  $8,431,660   $-0-   $-0-   $8,431,660 
Convertible promissory note with embedded conversion option   580,325    -0-    -0-    580,325 
Total  $9,011,985   $-0-   $-0-   $9,011,985 

 

22
 

 

Note 18 – Fair Value Measurements (continued)

 

The following table sets forth a summary of changes in fair value of our derivative liabilities for the nine months ended November 30, 2013:

 

Beginning balance  $403,587 
Change in fair value of embedded conversion feature of Preferred Series securities included in earnings   8,333,060 
Change in fair value of embedded conversion feature of convertible promissory notes included in earnings   275,338 
Ending balance  $9,011,985 

 

Note 19 – Subsequent Events

 

In accordance with ASC 855, Subsequent Events, the Company has evaluated subsequent events through the date of issuance of the unaudited interim consolidated financial statements. Subsequent to the fiscal period ended November 30, 2013, the Company did not have any material recognizable subsequent events except that the Company:

 

·negotiated with a non-related party noteholder to extend the due date of $6,009,326 in principal to December 1, 2014 and with a related party noted holder extended the due date of $400,000 of principal to February 28, 2014. Both agreement(s) were signed in December 2013.

 

·issued 600,000 shares of its common stock valued at $23,100 and 6,000 shares of Series C Preferred stock valued at $30,000 to an employee during December 2013. The value of the common shares issued was based on the fair market value on the date of issuance of $.0385 per share and the Series D Preferred was valued based on its stated value of $5.00 per share.

 

·converted 54,850 shares of Series B Preferred stock valued at $274,250 during December 2013 at the request of the investor, into 5,485,000 shares of RealBiz Media Group, Inc. stock a subsidiary of Next 1 Interactive, Inc.

 

·the Company converted 8,125 shares of Series D Preferred stock valued at $40,625 during December 2013 and January 2014, at the request of the investor, into 270,806 shares of RealBiz Media Group, Inc. stock a subsidiary, of Next 1 Interactive, Inc.

 

Subsequent events for our subsidiary, RealBiz Media Group, Inc.:

 

·During December 2013, warrants holders exercised 90,000 warrants and the Company received $90,000 and issued 90,000 shares of common stock.

 

·During December 2013, issued 180,400 shares of common stock and 134,400 six (6) months to one (1) year warrants with an exercise price of $1 in exchange for services rendered valued at $407,721. 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% to 0.14%, dividend yield of -0-%, volatility factor of 319.22% to 326.53% and expected life of six months to one year.

 

 

23
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward Looking Statements

 

This Report contains statements that we believe are, or may be considered to be, “forward-looking statements”. All statements other than statements of historical fact included in this Report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Report.

 

 

 

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Overview

 

Next 1 Interactive, Inc. (“Next 1” or the “Company”) is engaged in two lines of business: travel and real estate. Through its wholly owned subsidiary, Next 1 Network (formerly RRTV Network and Resort & Residence TV), it operates its travel division, and through its majority owned subsidiary, RealBiz Media Group, Inc. (“RealBiz Media” formerly Next One Realty), it operates its real estate division. The Company is positioning itself to emerge as a multi revenue stream “Next Generation” media-company, representing the convergence of TV, Mobile devices and the Internet by providing multiple platform dynamics for interactivity on TV, Video On Demand (VOD) and web solutions. The Company, through its subsidiaries has worked with multiple distributors beta testing its platforms as part of its roll out of TV programming and VOD Networks. The list includes Comcast, Cox, Time Warner and Direct TV.

 

Next 1 Network is engaged in the business of providing digital media and marketing services for the travel industry. Next 1 Network has two divisions: its linear TV networks and travel Video on Demand. It currently generates revenue from advertising revenues and commissions. Through linear TV networks, the Next 1 Network derives revenue from traditional advertising, interactive ads, sponsorships, paid programming, travel commissions and referral fees. Through Travel Video on Demand, the Next 1 Network derives revenue from monthly sponsorship packages, pre-roll advertising, travel commissions and referral fees, acceleration of our other company owned travel entities (Maupintours, Next Trip, Extraordinary Vacations and Trip Professionals).

 

RealBiz Media is engaged in the business of providing digital media and marketing services for the real estate industry. RealBiz Medai currently generate 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.

  

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Sufficiency of Cash Flows

 

Because current cash balances and our projected cash generated from operations are not sufficient to meet our cash needs for working capital and capital expenditures, management intends to seek additional equity or obtain additional credit facilities. However, there can be no assurance that we will be able to issue additional capital upon terms acceptable to us. The sale of additional equity could result in additional dilution to the our shareholders. A portion of our 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, we evaluate potential acquisitions of such businesses, products or technologies.

 

RESULTS OF OPERATIONS

 

For the Three Months Ended November 30, 2013 Compared to the Three Months Ended November 30, 2012

 

Revenues

 

Our total revenues increased 76% to $391,219 for the three months ended November 30, 2013, compared to $221,731 for the three months ended November 30, 2012, an increase of $169,488. This is due to an increase in the marketing and sales efforts of the travel division and the efforts of our subsidiary, RealBiz, real estate division.

 

Revenues from the travel segment increased 2% to $91,263 for the three months ended November 30, 2013, compared to $89,199 for the three months ended November 30, 2012, an increase of $2,064. Travel revenue is generated from luxury tour operations which provide escorted and independent tours worldwide to upscale travelers.

 

Revenues from advertising increased 126% to $299,956 for the three months ended November 30, 2013, compared to $132,532 for the three months ended November 30, 2012, an increase of $167,424. The increase was a result of efforts of our subsidiary, RealBiz Media Group, Inc., in its efforts to increase market share within the real estate industry.

 

Cost of Revenue

 

Cost of revenues decreased 20% to $74,530 for three months ended November 30, 2013, compared to $93,478 for the three months ended November 30, 2012, a decrease of $18,948. The decrease was directly associated with the marketing and sales efforts of the real estate division of our subsidiary RealBiz.

 

Operating Expenses

 

Our operating expenses include salaries and benefits, selling and promotion, general and administrative expenses, increased 91% to $3,369,127 for the three months ended November 30, 2013, compared to $1,766,464 for the three months ended November 30, 2012, an increase of $1,602,663. This increase was mainly attributable to: an increase in finance and consulting fees incurred in raising capital of $1,094,273, salaries and benefits (including stock compensation) of $112,138, selling and promotion of $59,850, amortization of intangibles of $330,380, legal and professional fees of $59,691; partially offset by a reduction in miscellaneous operating expenses of $53,669.

 

Other Expenses

 

Interest expense decreased 48% to $170,338 for three months ended November 30, 2013, compared to $328,093 for three months ended November 30, 2012, a decrease of $157,755 due primarily to conversions of debt into preferred Series D shares. Loss on conversion of debt increased 11,312% to $3,285,541 for the three months ended November 30, 2013, compared to $28,789 for the three months ended November 30, 2012, an increase of $3,256,752 primarily due to the increase in the settlement of debt through issuance of preferred Series D shares of stock. Gain on legal settlement decreased 113% to $31,691 for the three months ended November 30, 2013, compared to $250,000 for the three months ended November 30, 2012, an decrease of $281,691 due primarily to the lack of forgiveness of amounts due to accounts payable vendors during the prior year. Loss on the change in fair value of derivatives increased 2,288% to $4,884,803 for the three months November 30, 2013, compared to a loss of $204,573 for the three months ended November 30, 2012, an increase of $4,680,230 primarily due to the changes in the terms of the Company's Preferred Series A shares' ratchet provision. Other income/expense decreased 63% to $19,748 of other expense, compared to other expense of $52,714 for the three months ended November 30, 2012, an decrease of $32,966.

 

Net Loss

 

We had a net loss of $11,444,559 for the three months ended November 30, 2013, compared to net loss of $2,002,380 for the three months ended November 30, 2012, an increase of $9,442,179. The increase in loss from 2012 to 2013 was primarily due to an increase of $4,680,230 in the loss in the change in the fair value of derivatives, $3,256,752 in the loss on settlement of debt and $281,691 in gain on legal settlment; offset by decreases of $157,755 of interest expense and $32,966 of other expense. Included in the net loss for the three months ended November 30, 2013, is $932,774 of net loss attributable to the noncontrolling interest in subsidiary.

 

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For the Nine months Ended November 30, 2013 Compared to the Nine months Ended November 30, 2012

 

Revenues

 

Our total revenues increased 139% to $1,270,511for the nine months ended November 30, 2013, compared to $530,987 for the nine months ended November 30, 2012, a increase of $739,524. This is due to an increase in the marketing and sales efforts of the travel division and the efforts of our subsidiary, RealBiz, real estate division.

 

Revenues from the travel segment increased 4% to $413,256 for the nine months ended November 30, 2013, compared to $397,466 for the nine months ended November 30, 2012, an increase of $15,790. Travel revenue is generated from luxury tour operations which provide escorted and independent tours worldwide to upscale travelers.

 

Revenues from advertising increased 542% to $857,255 for the nine months ended November 30, 2013, compared to $133,521 for the nine months ended November 30, 2012, an increase of $723,734. 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 increased 12% to $360,391 for nine months ended November 30, 2013, compared to $323,081 for the nine months ended November 30, 2012, an increase of $37,310. The increase was directly associated with the costs associated with the marketing and sales efforts of the real estate division of our subsidiary RealBiz.

 

Operating Expenses

 

Our operating expenses, include salaries and benefits, selling and promotion, general and administrative expenses, increased 104% to $6,717,259 for the nine months ended November 30, 2013, compared to $3,291,188 for the nine months ended November 30, 2012, an increase of $3,426,071. This increase was mainly attributable to: an increase in consulting fees incurred in raising capital of $1,217,990, salaries and benefits (including stock compensation) of $804,305, selling and promotion of $168,646, amortization of intangibles of $1,019,840, legal and professional fees of $54,723 and miscellaneous operating expenses of $160,567.

 

Other Expenses

 

Interest expense decreased 68% to $509,525 for nine months ended November 30, 2013, compared to $1,573,565 for nine months ended November 30, 2012, a decrease of $1,064,040 due primarily to conversions of debt into preferred Series D shares. Loss on conversion of debt increased 65697% to $3,319,446 for the nine months ended November 30, 2013, compared to a loss on conversion of debt of $5,045 for the nine months ended November 30, 2012, an increase in loss of $3,314,401 primarily due to the increase in the settlement of debt through issuance of preferred Series D shares of stock. Gain on legal settlement decreased 85% to $38,287 for the nine months ended November 30, 2013, compared to $250,000 for the nine months ended November 30, 2012, an decrease of $211,713 due primarily to the lack of forgiveness of amounts due to accounts payable vendors. Loss on the change in fair value of derivatives increased 643% to $8,608,398 for the nine months November 30, 2013, compared to a gain of $1,585,654 for the nine months ended November 30, 2012, an increase of $10,194,052 primarily due to the changes in the terms of the Company's Preferred Series A shares' ratchet provision. Other income/expense decreased 82% to $18,677 for the nine months ended November 30, 2013, compared to other expense of $102,759 for the nine months ended November 30, 2012, a decrease of $84,082 primarily due to the reduction of conversion penalties.

 

Net Loss

 

We had a net loss of $18,224,898 for the nine months ended November 30, 2013, compared to net loss of $2,928,997 for the nine months ended November 30, 2012, an increase of $15,295,901. The increase in loss from 2012 to 2013 was primarily due to an increase of $10,194,052 in the loss in the change in the fair value of derivatives, $3,314,401 in the loss on conversion of debt and $211,713 in gain on legal settlement; offset by decrease of $1,064,040 of interest expense and $84,082 of other expense. Included in the net loss for the nine months ended November 30, 2013, is $1,199,931 of net loss attributable to the noncontrolling interest in subsidiary.

 

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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     
           FY2016     
           and     
   FY2014   FY2015   beyond   Totals 
Consulting  $23,545   $47,090   $47,090   $117,726 
Leases   34,295    138,475    148,638    321,407 
Other   107,469    143,292    143,292    394,053 
Totals  $165,309   $328,857   $339,020   $833,186 

 

Liquidity and Capital Resources

 

At November 30, 2013, we had $963,234 cash on-hand, an increase of $926,883 from $36,351 at the start of fiscal 2012. The increase in cash was due primarily to funds raised through subscription agreements for Series D Preferred Stock and common shares of RealBiz Media.

 

Net cash used in operating activities was $3,567,694 for the nine months ended November 30, 2013, an increase of $251,663 from $3,819,357 used during the nine months ended November 30, 2012. This decrease was primarily due to an decrease in the loss on conversion of debt, amortization of intangibles, the non-controlling interest in loss of consolidated subsidiaries, amortization of intangible assets and stock based compensation, a decrease in the gain on change in fair value of derivatives, offset by a decrease in amortization in debt discount.

 

Net cash used in investing activity increased to $589,579 for the nine months ended November 30, 2013, compared to $277,000 for the nine months ended November 30, 2012, an increase of $312,579 primarily due to incurring website development costs, to a lesser expense the purchase of computer equipment and a notes receivable advance, offset by the reduction of the purchase of an option agreement.

 

Net cash provided by financing activities increased $907,058 to $5,084,156, for the nine months ended November 30, 2013, compared to $4,177,098 for the nine months ended November 30, 2012. 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 in the amount of $4,078,058, offset by decrease in net proceeds from promissory notes of $622,333, net proceeds from shareholder loans and other notes payable in the amount of $855,939 and decrease in principal payments for notes payable and capital lease in the amount of $1,692,728.

 

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. However, there can be no assurance that we will be able to raise additional capital upon terms that are acceptable to us. 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 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 we can successfully implement our business strategy, which includes all associated revenue streams.

 

We 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 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 $1 million to $5 million to repay debt obligations, provide capital expenditures for additional equipment and satisfy payment obligations, office space and systems required to manage the business, and cover other operating costs until our planned revenue streams from advertising, sponsorships, e-commerce, travel and real estate are fully- implemented and begin to offset our operating costs. There can be no assurances that we will be successful in raising the required capital to complete this portion of our business plan.

 

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Since our inception, we have funded our operations with the proceeds from the private equity financings. We have issued these shares without registration under the Securities Act of 1933, as amended, afforded the Company under Section 4(a)(2) promulgated there under because 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(a)(2) and Regulation D there under. Currently, revenues provide less than 20% of our cash requirements. The remaining cash need is derived from raising additional capital. The current monthly cash burn rate is approximately $400,000, with the expectation of profitability by the second 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 homebuyers 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Market Risk

 

This represents the risk of loss that may result from the potential change in value of a financial instrument because of fluctuations in interest rates and market prices. We do not currently have any trading derivatives nor do we expect to have any in the future. We have established policies and internal processes related to the management of market risks, which we use in the normal course of our business operations.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our Principal Executive Officer and Principal Accounting Officer are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

 

Our Principal Executive Officer and Principal Accounting Officer evaluated the effectiveness of our disclosure controls and procedures as of November 30, 2013. Based on that evaluation, our Principal Executive Officer and Principal Accounting Officer have determined that our disclosure controls and procedures were not effective at the reasonable assurance level due to the lack of an independent audit committee or audit committee financial expert which represents a material weakness as reported in the Company’s Annual Report on Form 10-K, filed with the SEC on June 13, 2013 and as amended on July 1, 2013. Due to liquidity issues, we have not been able to immediately take any action to remediate this material weakness. However, when conditions allow, we intend to expand our board of directors and establish an independent audit committee consisting of a minimum of three individuals with industry experience including a qualified financial expert. Notwithstanding the assessment that our disclosure controls and procedures were not effective and that there was a material weakness as identified herein, we believe that our consolidated financial statements contained herein fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects.

 

(b) Changes in Internal Control over Financial Reporting.

 

During the nine months ended November 30, 2013, there have been no changes in our internal control over financial reporting (as defined in Rule13a-15(f) of the Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There have been no material changes from the legal matters reported in our Annual Report on Form 10-K for the year ended February 28, 2013, as filed with the SEC on June 13, 2013 and as amended on July 1, 2013, we are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations.

 

Item 1A. Risk Factors.

 

There have been no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended February 28, 2013, as filed with the SEC on June 13, 2013 and as amended on July 1, 2013.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the nine months ended November 30, 2013, the Company:

 

·issued 362,400 shares of common stock and 120,000 one (1) year warrants with an exercise price of $0.10 in exchange for services rendered, consisting of financing and consulting fees incurred in raising capital, valued at $6,153.

 

·issued 618,000 shares of common stock in a partial conversion of a convertible promissory note valued at $6,335. The issuances was exempt from registration under Section 3(a)(9) of the Securities Act of 1933.

 

During December 2013 and January 2014, the Company:

 

·issued 600,000 shares of its common stock valued at $23,100 and 6,000 shares of Series C Preferred stock valued at $30,000 to an employee during December 2013.

 

·converted 54,850 shares of Series B Preferred stock valued at $274,250 during December 2013 at the request of the investor, into 5,485,000 shares of RealBiz Media Group, Inc. stock a subsidiary of Next 1 Interactive, Inc.

 

·the Company converted 8,125 shares of Series D Preferred stock valued at $40,625 during December 2013 and January 2014, at the request of the investor, into 270,806 shares of RealBiz Media Group, Inc. stock, a subsidiary of Next 1 Interactive, Inc.

 

RealBiz Media Group, Inc. (our subsidiary):

 

·During December 2013, warrants holders exercised 90,000 warrants and the Company received $90,000 and issued 90,000 shares of common stock.

 

·During December 2013, issued 180,400 shares of common stock and 134,400 six (6) months to one (1) year warrants with an exercise price of $1 in exchange for services rendered valued at $407,721.

 

Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act 1933 in reliance upon Section 4(a)(2) of the Securities Act 1933 as transactions by an issuer not involving any public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.

 

Item 3. Defaults upon Senior Securities.

 

There were no defaults upon senior securities during the period ended November 30, 2013.

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information.

 

There is no other information required to be disclosed under this item, which was not previously disclosed.

 

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Item 6. Exhibits.

 

Exhibit No.   Description
     
31.1   Certification of the Principal Executive Officer of Next 1 Interactive, Inc., pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
     
31.2   Certification of the Principal Accounting Officer of Next 1 Interactive, Inc., pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
     
32.1   Certification of the Principal Executive Officer of Next 1 Interactive, Inc., 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 Principal Accounting Officer of Next 1 Interactive, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NEXT 1 INTERACTIVE, INC.
   
Date: January 21, 2014 /s/ William Kerby
  William Kerby
  Chief Executive Officer
  (Principal Executive Officer)
   
Date: January 21, 2014 /s/  Adam Friedman
  Adam Friedman
  Chief Financial Officer
  (Principal Accounting Officer)

 

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