PINX:NXOI Next 1 Interactive Inc Quarterly Report 10-Q Filing - 8/31/2012

Effective Date 8/31/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: August 31, 2012

 

¨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).

¨ 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 October 18, 2012, there were 9,396,197 shares outstanding of the registrant’s common stock.

 

 
 

 

Next 1 Interactive, Inc. and Subsidiaries

Consolidated Balance Sheets

 

   August 31,   February 29, 
   2012   2012* 
   (Unaudited)     
Assets          
Current Assets          
Cash  $4,065   $12,989 
Accounts receivable, net of allowance for doubtful accounts   -    1,456 
Miscellaneous receivable   427,909    - 
Prepaid expenses and other current assets   24,560    - 
Security deposits   46,611    46,611 
Total current assets   503,145    61,056 
           
Option Agreement   582,000    305,000 
           
Website Development costs and intangible assets, net   62,541    96,591 
Total assets  $1,147,686   $462,647 
           
Liabilities and Stockholders' Deficit          
Current Liabilities          
Accounts payable and accrued expenses  $2,155,724   $2,012,489 
Other current liabilities   550,817    603,953 
Derivative liabilities - convertible promissory notes   610,513    916,202 
Derivative liabilities - preferred series A   41,947    1,338,017 
Convertible promissory notes, net of discount of $160,159 and $924,446, respectively   7,112,694    7,417,459 
Convertible promissory notes - related party, net of discount of $-0- and $-0-, respectively   605,000    355,000 
Other advances   68,000    68,000 
Other notes payable   120,000    70,000 
Shareholder loans   835,000    840,000 
Capital lease payable   -    25,405 
Notes payable - current portion   944,813    960,681 
Total current liabilities   13,044,508    14,607,206 
           
Convertible promissory notes - long term portion, net of discount of $36,269 and $-0-, respectively   36,131    - 
Notes payable - long-term portion   19,259    88,891 
Total liabilities   13,099,898    14,696,097 
           
Stockholders' Deficit          
Series A Preferred stock,  $.01 par value; 3,000,000 authorized; and 1,884,611 shares issued and outstanding at August 31, 2012 and 1,809,611 shares issued and outstanding at February 29, 2012, respectively   18,846    18,096 
Series B Preferred stock, $.00001 par value; 3,000,000 authorized; -0- shares issued and outstanding at  August 31, 2012 and February 29, 2012, respectively   -    - 
Series C Preferred stock, $.00001 par value; 3,000,000 authorized; -0- shares issued and outstanding at  August 31, 2012 and February 29, 2012, respectively   -    - 
Series D Preferred stock, $.00001 par value; 3,000,000 authorized; -0- shares issued and outstanding at  August 31, 2012 and February 29, 2012, respectively   -    - 
Preferred Stock Subscribed   2,475,100    - 
Common stock, $.00001 par value; 500,000,000 shares authorized; 7,638,829 and 1,150,003 shares issued and outstanding at  August 31, 2012 and February 29, 2012, respectively   76    12 
Additional paid-in-capital   53,467,349    52,735,408 
Stock subscription receivable   -    (3,790)
    55,961,371    52,749,726 
Accumulated deficit   (67,913,583)   (66,983,176)
Total stockholders' deficit   (11,952,212)   (14,233,450)
           
Total liabilities and stockholders' deficit  $1,147,686   $462,647 

 

*Derived from audited financial statements.

 

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

 

2
 

 

Next 1 Interactive, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

   For the three months ended   For the six months ended 
   August 31,   August 31, 
   2012   2011   2012   2011 
                 
Revenues                    
Travel and commission revenues  $140,594   $371,617   $308,267   $548,884 
Advertising revenues   266    28,561    989    145,531 
Total revenues   140,860    400,178    309,256    694,415 
                     
Cost of revenues   110,323    672,772    229,603    2,037,948 
                     
Gross profit (loss)   30,537    (272,594)   79,653    (1,343,533)
                     
Operating expenses                    
Salaries and benefits   237,417    331,002    528,634    779,189 
Selling and promotions expense   7,020    6,575    16,520    34,801 
General and administrative   508,698    1,390,082    979,570    2,454,289 
Total operating expenses   753,135    1,727,659    1,524,724    3,268,279 
                     
Operating loss   (722,598)   (2,000,253)   (1,445,071)   (4,611,812)
                     
Other income (expense)                    
Interest expense   (389,404)   (1,365,771)   (1,245,472)   (3,334,288)
Gain (loss) on settlement of debt   (6,256)   (386,637)   23,744    (498,065)
Gain on legal settlement   -    1,314,420    -    1,314,420 
Gain on change in fair value of derivatives   907,740    2,155,230    1,790,227    1,998,397 
Other expense   (1,186)   (86,615)   (50,045)   (86,634)
Total other income (expense)   510,894    1,630,627    518,454    (606,170)
                     
Net loss  $(211,704)  $(369,626)  $(926,617)  $(5,217,982)
                     
Weighted average number of shares outstanding   5,840,084    160,445    4,228,456    145,805 
                     
Basic and diluted net loss per share  $(0.04)  $(2.30)  $(0.22)  $(35.79)

 

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

 

3
 

 

Next 1 Interactive, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

   For the six months ended 
   August 31, 
   2012   2011 
Cash flows from operating activities:          
Net loss  $(926,617)  $(5,217,982)
Adjustments to reconcile net loss to net cash from operating activities:          
Interest on bridge loan conversions   -    339,984 
Warrants issued in lieu of interest   1,500    - 
(Gain) loss on settlement of debt   (30,000)   498,065 
Gain on legal settlement   -    (1,314,420)
Amortization of intangibles   34,050    611,436 
Amortization of discount on notes payable   916,486    2,691,880 
Amortization of finance fees   -    23,779 
Stock based compensation and consulting fees   160,081    1,085,018 
Conversion penalties   46,950    - 
Gain on change in fair value of derivatives   (1,790,227)   (1,998,397)
Changes in operating assets and liabilities:          
Decrease in accounts receivable   1,456    16,344 
Increase in miscellaneous receivables   (427,909)   - 
Increase in prepaid expenses and other current assets   (24,560)   (302)
Increase in security deposits   -    (19,279)
Increase in accounts payable and accrued expenses   202,475    881,589 
Decrease in other current liabilities   (29,136)   (81,441)
Net cash used in operating activities   (1,865,451)   (2,483,726)
           
Cash flows from investing activities:          
Purchase of option agreement   (277,000)   (100,000)
Net cash used in investing activities   (277,000)   (100,000)
           
Cash flows from financing activities:          
Proceeds from convertible promissory notes   594,500    1,451,000 
Payments on convertible promissory notes   (31,171)   (17,000)
Payments on other advances   -    (21,319)
Proceeds from other notes payable   50,000    100,000 
Principal payments of other notes payable   (32,500)   (56,500)
Proceeds from shareholder loans   733,000    250,000 
Proceeds from sundry notes payable   -    130,000 
Principal payments on sundry notes payable   -    (130,000)
Principal payments on capital lease   (25,405)   (28,772)
Proceeds from issuance of Series A Preferred shares   75,000    - 
Proceeds from preferred series subscriptions agreements   770,103    - 
Proceeds from the collection of stock subscription receivable   -    242,415 
Proceeds from the sale of common stock and warrants   -    348,750 
Net cash provided by financing activities   2,133,527    2,268,574 
           
Net decrease in cash   (8,924)   (315,152)
           
Cash at beginning of period   12,989    419,817 
           
Cash at end of period  $4,065   $104,665 
           
Supplemental disclosure:          
Cash paid for interest  $182,208   $11,933 

 

Supplemental disclosure of non-cash investing and financing activity:

 

During the six months ended August 31, 2012, the Company issued 35,000 shares of common stock and 110,000 warrants in exchange for services rendered, consisting of financing and consulting fees incurred in raising capital, valued at approximately $14,956. The value of the common stock issued was based on the fair value of the stock at the time of issuance or the fair value of the services provided, whichever was more readily determinable. The value of the warrants was estimated at date of grant using Black-Scholes option pricing model with the following assumptions: risk free interest rate 0.16% to 0.19$, dividend yield of -0-%, volatility factor of 287.30% to 356.88 and expected life of 1 year.

 

During the six months ended August 31, 2012, the Company converted a series of promissory notes and issued 6,453,700 shares of the Company's common valued at $632,182, incurring $46,950 of penalties for tardy conversions

 

During the six months ended August 31, 2012, the remaining 2,025 stock options issued on October 3, 2011, with an exercise price of $7.25 to employees, directors and executives vested and the Company incurred $10,125 in compensation costs.

 

During the six months ended August 31, 2012, the Company realized a Series A preferred stock dividend of $3,790.

 

During the six months ended August 31, 2012, the Company transacted $55,000 in consulting agreements and issued 11,000 shares of Series B preferred stock subscription agreements.

 

During the six months ended August 31, 2012, the Company transacted $80,000 in consulting agreements and issued 16,000 shares of Series C preferred stock subscription agreements.

 

During the six months ended August 31, 2012, the Company converted $831,600 of outstanding debt and issued 166,320 shares of Seried D preferred stock subscription agreements.

  

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

 

4
 

 

Note 1 - Summary of Business Operations and Significant Accounting Policies

 

Nature of Operations and Business Organization

 

Next 1 Interactive (“Next 1” or the “Company”) is the parent company of RRTV Network (formerly Resort & Residence TV), Next Trip – its travel division, and Next One Realty – its real estate division. The company is positioning itself to emerge as a multi revenue stream “Next Generation” media-company, representing the convergence of TV, Mobile devices and the Internet by providing multiple platform dynamics for interactivity on TV, Video On Demand (VOD) and web solutions. The company has worked with multiple distributors beta testing its platforms as part of its roll out of TV programming and VOD Networks. The list of MSO’s the company has worked with includes Comcast, Cox, Time Warner and Direct TV. At present the company operates the Home Tour Network through its minority owned/joint venture real estate partner – RealBiz Media. The Home Tour Network features over 5,000 home listings in five cities on the Cox Communications network.

 

Next 1 Interactive is comprised of three distinct categories: The Company recognized the convergence taking place in interactive television/the web and began the process of recreating several of its key relationships in real estate, travel and media over the last three years in efforts to position itself for the interactive revolution with “TV everywhere”. Currently Next 1 has operating agreements and /or active discussions are underway with broadband, cable and Over the Top TV solutions for the Next 1 Networks during the next 12 months.

 

Linear TV Network with supporting Web sites – The potential revenue streams from Next 1 Networks - Traditional Advertising, Interactive Ads, Sponsorships, Paid Programming, travel commissions and Referral fees.

 

TV Video On Demand channels for Travel with supporting Web sites – The potential revenue streams from Travel Video on Demand - Monthly sponsorship packages, pre-roll advertising, travel commissions and referral fees, acceleration of company owned travel entities (Maupintours, Next Trip, Extraordinary Vacations and Trip Professionals).

 

TV Video on Demand channels for Real Estate with supporting Web sites – The potential revenue streams from Real Estate Video on Demand Channel - Commissions and referral fees on home sales, pre-roll/post-roll advertising, lead generation fees, banner ads and cross market advertising promotions ($89 listing and marketing fee, web and mobile advertising).

 

On October 9, 2008, the Company acquired the majority of shares in Maximus Exploration Corporation, a reporting shell company, pursuant to a share exchange agreement. The share exchange provided for the exchange rate of 1 share of Maximus common stock for 60 shares Extraordinary Vacations USA common stock. The consolidated financial statements of Next 1, Interactive, Inc. reflects the retroactive effect of the Share Exchange as if it had occurred at March 1, 2008. All loss per share amounts are reflected based on Next 1 shares outstanding, basic and dilutive.

 

Effective May 22, 2012, the Company effected a 1-for-500 reverse stock split which reduced the number of issued and outstanding shares from 1,848,014,287 to 3,696,029 shares. The consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.

 

Basis of Presentation and Going Concern

 

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 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 29, 2012, which is included in the Company's Form 10-K for the year ended February 29, 2012. 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.

 

5
 

 

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

 

Use of Estimates

 

The Company’s significant estimates include allowance for doubtful accounts, valuation of intangible assets, accrued expenses and derivative liabilities. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. While the Company believes that such estimates are fair when considered in conjunction with the consolidated financial statements taken as a whole, the actual amounts of such estimates, when known, will vary from these estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.

 

Cash and Cash Equivalents

 

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

 

Accounts Receivable

 

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

 

Impairment of Long-Lived Assets

 

In accordance with Accounting Standards Codification 360-10, “Property, Plant and Equipment”, the Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. As of August 31, 2012, the Company had no long-lived assets.

 

Website Development Costs

 

The Company accounts for website development costs in accordance with Accounting Standards Codification 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day to day operation of the website are expensed as incurred.

 

Management placed the website into service during the fiscal year ended February 28, 2010, subject to straight-line amortization over a three year period.

 

Goodwill and Intangible Assets

 

The Company applies Accounting Standards Codification 350-20 “Goodwill and Other”, which established accounting and reporting requirements for goodwill and other intangible assets. The standard requires that all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged must be recognized as an asset apart from goodwill. Intellectual properties obtained through acquisition, with indefinite lives, are not amortized, but are subject to an annual assessment for impairment by applying a fair value based test. Intellectual properties that have finite useful lives are amortized over their useful lives. The amortization expense for the six months ended August 31, 2012 and 2011 is $34,050 and $611,436, respectively.

 

Convertible Debt Instruments

 

The Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.

 

6
 

 

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, giving consideration to 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 to be 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 free-standing 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 is 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:

 

 

   August 31,
2012
   August 31,
2011
 
Series A convertible preferred stock issued and outstanding   1,884,611    15,553 
Warrants to purchase common stock issued, outstanding and exercisable   1,935,012    122,197 
Stock options issued, outstanding and exercisable   4,050    -0- 
Series B convertible preferred subscribed   1,493,000    -0- 
Series C convertible preferred subscribed   80,000    -0- 
Series D convertible preferred subscribed   902,100    -0- 
Shares on convertible promissory notes   34,431,847    198,544 
    40,730,620    336,294 

Revenue Recognition

 

Barter

 

Barter transactions represent the exchange of advertising or programming for advertising, merchandise or services. Barter transactions which exchange advertising for advertising are accounted for in accordance with EITF Issue No. 99-17 “Accounting for Advertising Barter Transactions” (ASC Topic 605-20-25), which are recorded at the fair value of the advertising provided based on the Company’s own historical practice of receiving cash for similar advertising from buyers unrelated to the counterparty in the barter transactions.

 

Barter transactions which exchange advertising or programming for merchandise or services are recorded at the monetary value of the revenue expected to be realized from the ultimate disposition of merchandise or services. Expenses incurred in broadcasting barter provided are recorded when the program, merchandise or service is utilized.

 

The Company did not recognize Barter revenue or expense for the six months ended August 31, 2012 and 2011, respectively.

 

7
 

 

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

 

Travel

 

Gross travel tour revenues represent the total retail value of transactions booked for both agency and merchant transactions recorded at the time of booking, reflecting the total price due for travel by travelers, including taxes, fees and other charges, and are generally reduced for cancellations and refunds.  We also generate revenue from paid cruise ship bookings in the form of commissions. Commission revenue is recognized at the date the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

 

Advertising

 

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

 

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

 

Cost of Revenues

 

Cost of revenues includes costs directly attributable to services sold and delivered. These costs include such items as broadcast carriage fees, costs to produce television content, sales commission to business partners, hotel and airfare, cruises and membership fees.

 

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 six months ended August 31, 2012 and August 31, 2011 was $16,620 and $85,000, respectively.

 

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.

 

8
 

 

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

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

 

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

Fair Value of Financial Instruments

 

The Company adopted ASC topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements,” effective January 1, 2009. ASC 820 defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There was no impact relating to the adoption of ASC 820 to the Company’s consolidated financial statements.

 

ASC 820 also describes three levels of inputs that may be used to measure fair value:

 

  · Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

 

  · Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

  · Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

Financial instruments consist principally of cash, accounts receivable, prepaid expenses, accounts payable, accrued liabilities and other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short- term nature. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair value. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments. See note 15 for Fair Value footnote.

 

Reclassifications

 

Certain amounts previously reported in the fiscal year ended February 29, 2012 have been reclassified to conform to the classifications used in the six months ended August 31, 2012. Such reclassifications have no effect on the reported net loss.

 

Recent Accounting Pronouncements

 

In May 2011, the FASB and International Accounting Standards Board (“IASB”) (collectively the “Boards”) issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011- 04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in US GAAP. ASU 2011-04 is effective for the first reporting annual period beginning after December 15, 2011 and shall be applied prospectively. We do not expect this standard to have any material effect on our consolidated financial statements.

 

9
 

 

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

 

Recent Accounting Pronouncements (continued)

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single statement detailing the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income. The option to present other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this update, which should be applied retrospectively, are effective for public companies for fiscal years, and interim periods beginning after December 15, 2011. The adoption of this guidance will not have any impact on the Company's condensed consolidated financial statements.

 

During September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment, ("ASU Update No. 2011-08). ASU Update No. 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU Update No. 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles - Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU Update No. 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment test performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made for issuance. The adoption of this guidance will not have any impact on the Company's condensed consolidated financial statements.

 

During November 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities, (ASU Update No.2011-11). ASU Update No. 2011-11, requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Offsetting, otherwise known as netting, is the presentation of assets and liabilities as a single net amount in the statement of financial position (balance sheet). An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. We will be adopting ASU Update No. 2011-11 during our first quarter of fiscal 2014.

 

Management does not believe that any other recently issued, but not yet 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 $67,913,583 and a working capital deficit of $12,541,363 at August 31, 2012, net losses for the six months ended August 31, 2012 of $926,617 and cash used in operations during the six months ended August 31, 2012 of $1,865,451. While the Company is attempting to increase sales, the growth has yet to achieve significant levels to fully support its daily operations.

 

Management’s plans with regard to this going concern are as follows: The Company will continue to raise funds through private placements with third parties by way of a public or private offering. In addition, the Board of Directors has agreed to make available, to the extent possible, the necessary capital required to allow management to aggressively expand its planned Interactive and Video on Demand solutions. Management and Board members are working aggressively to increase the viewership of our network by promoting it across other mediums as well as other networks 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.

 

10
 

 

Note 3 – Property and Equipment

 

As of August 31, 2012 and 2011, respectively, the Company did not record property and equipment on its books and records. Any property and equipment previously recorded was fully impaired and written off. Therefore there was no depreciation expense recorded for the six months ended August 31, 2012 and 2011.

 

Note 4 – Website Development Costs and Intangible Assets

 

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

 

   August 31, 2012 
   Remaining      Accumulated   Net Carrying 
   Useful Life  Cost   Amortization   Value 
                
Supplier Relationships  0.0 years  $7,938,935   $7,938,935   $-0- 
Technology  0.0 years   5,703,829    5,703,829    -0- 
Website development costs  1.0 years   719,323    656,782    62,541 
Trade Name  0.0 years   291,859    291,859    -0- 
      $14,653,946   $14,591,405   $62,541 

 

Intangible assets are amortized on a straight-line basis over their expected useful lives, estimated to be 7 years, except for the web site which is 3 years. Amortization expense related to intangible assets was $34,050 and $611,436 for the six months ended August 31, 2012 and 2011, respectively.

 

Note 5 – Option Purchase Agreement

 

As of August 31, 2012, the Company has advanced approximately $931,957 to RealBiz Holdings, Inc. towards the purchase of shares as well as for their operating expenses.  The Company is currently in negotiations with RealBiz Holdings, Inc. to purchase up to an 84% interest through a combination of cash and preferred share issuances.  No shares of RealBiz Holdings, Inc. were issued to Next 1 Interactive, Inc. as of October 20, 2012, the date of filing the Company’s 10-Q.

  

Note 6 - Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consist of the following at August 31:

 

   2012 
     
Trade accounts payable  $1,155,196 
Accrued interest   716,306 
Deferred salary   76,891 
Accrued expenses - other   207,331 
   $2,155,724 

 

Note 7 – Notes Payable

 

On May 28, 2010, the Company entered into a settlement agreement (the “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 the settlement shall not be construed as an admission or denial of liability by any Party 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.

 

11
 

 

Note 7 – Notes Payable (continued)

 

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 August 31, 2012, 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 August 31, 2012, the remaining principal balance is $177,942 and un-paid accrued interest is $129,960. 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 which was consolidated into three new notes payable totaling $408,000. The notes bear interest at 10% per year and matured on May 31, 2010, at which time the total amount of 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 $4,065 of un-paid interest still owed as of August 31, 2012 and the Company is in default of this note.

 

In connection with the acquisition of Brands on Demand, a five year lease agreement was entered into by an officer of the Company. Subsequent to terminating the officer, the Company entered into an early termination agreement with the lessor in the amount of $30,000 secured by a promissory note to be paid in monthly installments of $2,500, beginning June 1, 2009 and maturing June 1, 2010. As of August 31, 2012, the Company has not made any installment payments on this obligation and the remaining principal balance of the note is $30,000, un-paid accrued interest is $10,069 and the Company is in default of this note. 

 

On November 17, 2010, the Company entered into a demand note for the principal sum of $100,000. The terms of the loan is set for three weeks with the loan due and payable as of December 8, 2010. The lender has the option to receive payment of the loan in the amount of $100,000 plus 100,000 warrants for Next 1 Interactive common stock at $0.50 per share for a 3 year term or an alternative form of repayment. The alternative form of repayment gives the lender the right to have the loan amalgamated into an existing subscription agreement with the Noteholder, under the same terms of $0.50 per share with two warrants per share exercisable at $1.00 per share with a three year term. The Company has not issued the warrants to the lender and on May 16, 2011, entered into a convertible promissory note agreement rolling the balance of $100,000, adjoining an additional note for $125,000 into a new convertible promissory note of $225,000.

 

On June 15, 2011, the Company received $100,000 in consideration for issuing a six months interest free $106,000 promissory note maturing November 25, 2011, incurring a one-time fee of $6,000. The payments shall be due and payable as follows: $26,500 on August 15, 2011; 26,500 on September 26, 2011; $26,500 on October 25, 2011; and $26,500 on November 25, 2011. On July 17, 2012, the Company entered an exchange agreement whereby a noteholder converted several promissory notes totaling $278,000 into one new convertible promissory note and additionally the Company received $200,000 from the same third-party investor and issued a convertible promissory note valued at $478,000.

 

On December 5, 2011, the Company converted $252,833 of accounts payable and executed a 8% promissory note to same vendor. Commencing on December 5, 2011 and continuing on the 1st day of each calendar month thereafter, the Company shall pay $12,000 per month. All payments shall be applied first to payment in full of any costs incurred in the collection of any sum due under this Note, including, without limitation, reasonable attorney's fee, then to payment in full of accrued and unpaid interest and finally to the reduction of the outstanding principal balance of the Note. As of August 31, 2012, the remaining principal balance is $221,129 and un-paid accrued interest is $6,598 and the note is six months in arrears. 

 

Debt maturities over the next five years attributable to the foregoing are tabulated below:

 

For the six months ending August31,    
2013  $944,813 
2014   19,259 
2015 and thereafter   -0- 
Total  $964,072 

  

Interest charged to operations relating to this note was $20,553 and $36,060, respectively for the six months ended August 31, 2012 and 2011.

 

12
 

 

Note 8 – Capital Lease Payable

 

On June 1, 2006, the Company entered into a five year lease agreement for the purchase, installation, maintenance and training costs of certain telephone, communications and computer hardware equipment with a related party. The lease requires monthly payments of $5,078 including interest at approximately 18% per year and expires on June 1, 2011. On September 3, 2010, the Company amended the original agreement and secured additional financing in the amount of $56,671 to procure additional equipment for our real estate VOD operations as part of joint venture agreement with an un-related entity Real Biz, Inc. The purpose is to provide the funding necessary for Real Biz, Inc. to purchase and install “Solution Hardware” that will be owned by Real Biz, Inc. The lease agreement remained unchanged with the exception of the terms being extended to September 1, 2012. As of August 31, 2012, the Company has satisfied all the terms of the lease agreement. Interest expense on the lease was $1,208 and $6,779 for the six months ended August 31, 2012 and 2011, respectively.

 

Note 9Other Notes Payable

 

Related Party

 

A director and officer had advanced funds to the Company since inception of which the principal amounts have been repaid. As of August 31, 2012, the Company does not have any principal balance due to the officer/director, however there is an unpaid accrued interest balance totaling $1,498. The interest is at 18% per annum, compounded daily, on the unpaid balance. Interest expense recognized for the six months ended August 31, 2012 and 2011 is $130 and $330, respectively.

 

An individual that is related to an existing director/officer has advanced funds to the Company since inception of which the principal amounts have been repaid. As of August 31, 2012, the Company does not have any principal or accrued interest due to this individual. Interest expense recognized for the six months ended August 31, 2012 and 2011 is $-0- and $1,766, respectively.

 

An unrelated entity where the director/officer is president has advanced funds to the Company since inception of which the principal amounts have been repaid. As of August 31, 2012, the Company does not have any principal balance due to this entity, however there is an unpaid accrued interest balance totaling $10,447. Interest expense recognized for the six months ended August 31, 2012 and 2011 is $906 and $1,119, 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. Interest expense recognized for the six months ended August 31, 2012 and 2011 is $1,500 and $-0-, respectively.

 

Non Related Party

 

On March 5, 2010, the Company entered into a promissory note with a director (“holder”) of the Company.  Pursuant to the note, the holder agreed to loan the Company $3,500,000. The note has an effective date of January 25, 2010 and a maturity date of January 25, 2011. The note bears interest at 6% per annum and as an incentive, the Company, on April 30, 2010, issued 850,000 warrants to the holder with a six-year life and a fair value of approximately $175,000 to purchase shares of the Company’s common stock, $0.00001 par value, per share, at an exercise price of $1.00 per share. As part of the original agreement on July 12, 2010, the Company issued 100,000 warrants to the holder with a three-year life and a fair value of approximately $22, 372 to purchase shares of the Company’s common stock, $0.00001 par value, per share, at an exercise price of $1.00 per share. Additionally, on July 23, 2010, the Company issued 100,000 warrants to the holder with a six-year life and a fair value of approximately $33,427 to purchase shares of the Company’s common stock, $0.00001 par value, per share, at an exercise price of $1.00 per share. 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 between 0.94% and 1.51%, dividend yield of -0-%, volatility factor between 115.05% and 124.65% and an expected life of 1.5 years.

 

13
 

 

Note 9Other Notes Payable (continued)

 

Non Related Party (continued)

 

The fair value of warrants is amortized as finance fees over the term of the loan. The Company recorded approximately $230,880 in prepaid finance fees upon origination and was fully amortized. Interest expense recognized for the six months ended August 31, 2012 and 2011 is $-0- and $4,060, respectively. On March 11, 2011, the Company entered into a termination agreement with the noteholder where upon the note holder exercised 1,050,000 warrants into common shares, converted $450,000 of principal owed under the current note into 2,250,000 common shares, executed a new convertible promissory note of $500,000 and $25,000 was applied as a credit against a stock subscription of the noteholder's daughter.

 

On March 5, 2010, the Company entered into a promissory note with a former director (“holder”) of the Company.  Pursuant to the note, the holder agreed to loan the Company $3,500,000. The note has an effective date of January 25, 2010 and a maturity date of January 25, 2011. The note bears interest at 6% per annum.   Previous to entering into this agreement and as an incentive, the Company, on January 27, 2010, issued 7,000,000 warrants to the holder with a six-year life and a fair value of $2.3 million to purchase shares of the Company’s common stock, $0.00001 par value, per share, at an exercise price of $1.00 per share. 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 1.46%, dividend yield of -0-%, volatility factor of 136.1% and an expected life of 1.5 years. The fair value of warrants is amortized as finance fees over the term of the loan. The Company recorded approximately $2.3 million in prepaid finance fees upon origination and was fully amortized. Interest expense recognized for the six months ended August 31, 2012 and 2011 is $-0- and $46,369, respectively. During the three months ended November 30, 2011, the Company received $130,000 in advances from the former director (holder) of which the Company repaid $130,000. On April 15, 2011 the former note, plus accrued interest was converted into six convertible promissory notes totaling $6,099,526.

 

The Company has an existing promissory note, dated July 23, 2010, with a shareholder in the amount of $100,000. The note is due and payable on July 23, 2011 and bears interest at rate of 6% per annum. As consideration for the loan, the Company issued 200 warrants to the holder with a three year life and a fair value of approximately $33,000 to purchase shares of the Company’s common stock, $0.00001 par value, per share, at an exercise price of $500 per share. On September 26, 2011, the noteholder assigned $30,000 of its principal to a non-related third party investor and the Company issued a convertible promissory note for same value, leaving a remaining balance of $70,000 as of August 31, 2012. As of August 31, 2012, 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 is amortized as finance fees over the term of the loan. The Company recorded approximately $33,000 in prepaid finance fees upon origination and amortized approximately $-0- and $13,279 in expense, respectively for the six months ended August 31, 2012 and 2011. Interest charged to operations relating to this note was $2,436 and $3,184, respectively for the six months ended August 31, 2012 and 2011.

 

Note 10Other Advances

 

Related Party

 

During the six months ended August 31, 2012, the Company incurred no activity. The principal balance as of August 31, 2012 totaled $18,000.

 

Non Related Party

 

During the six months ended August 31, 2012, the Company incurred no activity. The principal balance as of August 31, 2012, totaled $50,000.

 

Note 11 – Shareholder Loans

 

During the six months ended August 31, 2012, the Company received cash advances amounting to $733,000 from shareholders. Of this amount, $608,000 was designated for Series B Preferred Stock and $130,000 received in the year ended February 29, 2011 was designated for Series B Preferred Stock. The remaining balance as of August 31, 2012 totaled $825,000.

 

14
 

 

Note 12 – Convertible Promissory Notes

 

During the six months ended August 31, 2012, the Company received a total of $594,500 of proceeds of which $344,500 came from non-related third party investors and $250,000 came from related party investors. In turn, the Company issued convertible promissory notes with interest rates ranging from 6% to 12% per annum, maturity dates ranging from September 30, 2012 to August 31, 2013 and with various conversion features.

 

During the six months ended August 31, 2012, the Company incurred $46,950 of penalties for late conversions for various note holders, increasing each respective noteholder’s principal balance. During the six months ended August 31, 2012, the Company converted $53,000 of notes payable into convertible promissory notes. Additionally, various noteholders assigned $336,600 of principal to new non-related third party investors. In turn, the Company issued $336,600 of convertible promissory notes with interest rates of 6% per annum, maturity dates ranging from February 1, 2013 to December 31, 2013 and with various conversion features.

 

During the six months ended August 31, 2012, various noteholders voluntarily converted $1,403,931 of principal and interest and the Company issued 6,453,700 shares of its common stock and 166,320 shares of preferred series D stock. Additionally, a noteholder cancelled $6,000 of its principal balance through an amendment of its convertible promissory note.

 

During the six months ended August 31, 2012, the Company recognized $188,468 in debt discount due to the embedded variable conversion features within various notes incurred and an initial derivative liability recorded. The Company used the Black-Scholes option-pricing model to calculate the initial fair value of the derivatives with the following assumptions: risk-free interest rates from 0.14% to 0.27%, dividend yield of -0-%, volatility factor from 282.18% to 301.47% and expected life from eight to 21 months. Amortization of debt discount during the six months ending August 31, 2012 and 2011 was $916,486 and 2,691,880, respectively.

 

During the six months ended August 31, 2012 and 2011, the Company recognized a gain on the change in fair value of derivatives in the amounts of $1,790,227 and $1,998,397,833, 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 0.09% to 0.14%, dividend yield of -0-%, volatility factor of 7.28 % to 318.74% and expected life from one to 16 months.

 

Below is a summary of the convertible promissory notes as of August 31, 2012:

 

   Remaining
Principal
Balance
   Un-Amortized
Debt Discount
   Carrying
Value
   Principal
Past Due
 
Non-Related Party                    
Current  $7,272,853   $160,159   $7,112,694   $377,936 
Long term   72,400    36,269    36,131    -0- 
    7,345,253    196,428    7,148,825    377,936 
                     
Related Party                    
Current   605,000    -0-    605,000    355,000 
Long term   -0-    -0-    -0-    -0- 
    605,000    -0-    605,000    355,000 
                     
   $7,950,253   $196,428   $7,753,825   $732,936 

  

Interest rates ranged from 5.0% to 12.0% and maturity dates ranged from January 10, 2012 to December 31, 2013. During the six months ended August 31, 2012 and 2011, the Company recognized interest expense of $297,030 and $193,839, respectively. 

 

15
 

 

Note 13Stockholders’ Deficit

 

Preferred stock in general

 

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

 

The Preferred Stock may be divided into and issued in series. The Board of Directors of the Corporation 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 Corporation is authorized, within any limitations prescribed by law and this Article, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of Preferred Stock.

 

Preferred Series A

 

The Company has authorized 3,000,000 shares, par value $.01 per share and designated as Series A 10% Cumulative Convertible Preferred Stock (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 Corporation and shall be entitled to one hundred (100) votes for each share of Series A Preferred Stock. The Company had 1,884,611 and 1,809,611 shares issued and outstanding as of August 31, 2012 and February 29, 2012, respectively.

 

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 Corporation, may elect to convert all or any part of such holder’s shares of Series A Preferred Stock into Common Stock at a conversion rate of the lower of (a) $0.50 per share or (b) at the lowest price the Company has issued stock as part of a financing. Additionally, the holders of Series A Preferred Stock, may by written notice to the Corporation, convert all or part of such holder’s shares (excluding any shares issued pursuant to conversion of unpaid dividends) into debt obligations of the Corporation, secured by a security interest in all of the Corporation and its’ subsidiaries, at a rate of $0.50 of debt for each share of Series A Preferred Stock.

 

In the event of any liquidation, dissolution or winding up of this Corporation, 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 Corporation 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.

 

During the six months ended August 31, 2012 the Company issued 75,000 shares of Preferred Series A stock at $1 per share and received $75,000 in proceeds.

 

Dividends in arrears on the outstanding preferred shares total $98,387 as of August 31, 2012.

 

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 six months ended August 31, 2012, the Company, in accordance with ASC 815-40, determined the fair value of the Preferred Series A stock to be $41,947, using the Black-Scholes formula assuming no dividends, a risk-free interest rate of 0.22%, expected volatility of 391..05%, and expected life of 2 years (based on the current rate of conversion). Changes in fair value are recorded as non-operating, non-cash income or expense at each reporting date. The change in fair value of the Preferred Series A derivative liability resulted in current year non-operating income included in operations of $1,296,070.

 

Preferred Series B

 

The Company has authorized 3,000,000 shares of Non-Voting Series B 10% Cumulative Convertible Preferred Stock with a par value of $0.0001 per share. Preferred Series B stockholders may elect to convert all or any part of such holder’s shares with a $5 conversion into Next 1 Interactive, Inc. stock or a $0.05 conversion into Next One Realty.

 

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.

 

There were no Series B Preferred shares issued and outstanding at August 31, 2012.

 

16
 

 

Note 13Stockholders’ Deficit (continued)

 

Preferred Series C

 

The Company has authorized 3,000,000 shares of Non-Voting Series C 10% Cumulative Convertible Preferred Stock with a par value of $0.0001 per share. Preferred Series C stockholders may elect to convert all or any part of such holder’s shares with a $5 conversion into Next 1 Interactive, Inc. stock or a $0.10 conversion into Next One Realty.

 

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.

 

There were no Series C Preferred shares issued and outstanding at August 31, 2012.

 

Preferred Series D

 

The Company has authorized 3,000,000 shares of Non-Voting Series D 10% Cumulative Convertible Preferred Stock with a par value of $0.0001 per share. Preferred Series D stockholders may elect to convert all or any part of such holder’s shares with a $5 conversion into Next 1 Interactive, Inc. stock or a $0.15 conversion into Next One Realty.

 

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.

 

There were no Series D Preferred shares issued and outstanding at August 31, 2012.

 

Preferred stock subscribed

 

During the six months ended August 31, 2012, the Company received cash proceeds of $699,728 incurring $272 of bank charges, converted $738,000 of shareholders loans and transacted $55,000 in consulting agreements and issued subscription agreements for 298,600 shares of Series B Preferred stock. The Company issued as incentives 2,531,500 one (1) to five (5) year warrants with an exercise price range between $0.02 and $2.50.

 

During the six months ended August 31, 2012, the Company transacted $80,000 in consulting agreements and issued subscription agreements for 16,000 shares of Series B Preferred stock.

 

During the six months ended August 31, 2012, the Company received cash proceeds of $70,375 incurring $125 of bank charges and converted $831,600 of outstanding debt issuing subscription agreements for 180,420 shares of Series D Preferred stock. The Company issued as incentives 35,250 one (1) year warrants with an exercise price of $0.10.

 

Common Stock

 

On October 28, 2011, our board of directors 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 400,000 to 1,000,000. On February 13, 2012, our board of directors 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 1,000,000 to 5,000,000. 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, our board of directors 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 and 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, our board of directors 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.

 

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Note 13Stockholders’ Deficit (continued)

 

Common Stock (continued)

 

During the six months ended August 31, 2012, the Company issued 35,000 shares of common stock and 110,000 warrants in exchange for services rendered, consisting of financing and consulting fees incurred in raising capital, valued at approximately $14,956. The value of the common stock issued was based on the fair value of the stock at the time of issuance or the fair value of the services provided, whichever was more readily determinable. The value of the warrants was estimated at date of grant using Black-Scholes option pricing model with the following assumptions: risk free interest rate 0.16% to 0.19$, dividend yield of -0-%, volatility factor of 287.30% to 356.88% and expected life of 1 year. 

 

During the six months ended August 31, 2012, the Company converted a series of promissory notes and issued 6,453,700 shares of the Company's common valued at $632,182, incurring $46,850 of penalties for tardy conversions.

 

During the six months ended August 31, 2012, the remaining 2,025 stock options issued on October 3, 2011, with an exercise price of $7.25 to employees, directors and executives vested and the Company incurred $10,125 in compensation costs.

 

Common Stock Warrants

 

At August 31, 2012, there were 1,935,012 warrants outstanding with a weighted average exercise price of $15.55 and weighted average life of 3.13 years. During the six months ended August 31, 2012, 24,328 warrants expired.

 

Common Stock Options

 

At August 31, 2012, there were 4,050 options outstanding with a weighted average exercise price of $7.25 and weighted average life of 9.07 years. During the six months ended August 31, 2012, no options were exercised.

 

Note 14 - Commitments and Contingencies

 

The Company leases approximately 6,500 square feet of office space in Weston, Florida pursuant to a lease agreement, with Bedner Farms, Inc. of the building located at 2690 Weston Road, Weston, Florida 33331. In accordance with the terms of the lease agreement, the Company is renting the commercial office space, for a term of five years commencing January 1, 2011 through December 31, 2015. In September of 2011, the Company sublets a portion of its office space offsetting our rent expense by $1,500 per month. The rent for the six months ended August 31, 2012 was $76,585.

 

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

 

   Current   Long-Term     
   FY2013   FY2014   FY2015and
beyond
   Totals 
Carriage Fees  $342,614   $-0-   $-0-   $342,614 
Consulting   74,545    95,090    95,090    264,725 
Leases   79,251    161,208    195,923    436,382 
Other   47,802    47,802    -0-    95,604 
Totals  $544,212   $304,100   $291,013   $1,139,325 

  

Legal Matters

 

We are otherwise involved, from time to time, in litigation, other legal claims and proceedings involving matters associated with or incidental to our business, including, among other things, matters involving breach of contract claims, intellectual property and other related claims employment issues, and vendor matters. We believe that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations. However, our assessment of the current litigation or other legal claims could change in light of the discovery of facts not presently known to us or determinations by judges, juries or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.

 

18
 

 

Note 14 - Commitments and Contingencies (continued)

 

There is currently a case pending whereby the Company’s Chief Executive Officer (“defendant”) is being sued for allegedly breaching a contract which he signed in his role as CEO of Extraordinary Vacations Group, Inc. The case is being strongly contested. The defendant’s motion to dismiss plaintiff’s amended complaint with prejudice has been argued before the judge in the case. We are awaiting a ruling at this time.

 

The Company is a defendant in a lawsuit filed by Gari Media Group, Inc. In the United States District court for central district of California alleging that Next 1 owes $75,000 from a video and music production agreement provided for the company‘s television network. The Company is vigorously defending the allegations and has made a settlement offer.

 

The Company is a defendant in a lawsuit filed by Liquidis Marketing, Inc. in Illinois state court alleging that Next 1 owes $350,000 from a production and content distribution agreement provided for the Company’s video on demand network. The Company has settled this dispute on October 4, 2012 for $20,000.

.

 

Other Matters

 

In December 2005, the Company acquired Maupintour, LLC. On March 1, 2007, the Company sold Maupintour LLC to an unrelated third party for the sum of $1.00 and the assumption of $900,000 of Maupintour 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 LLC, the Company created Maupintour Extraordinary Vacations, Inc. on December 14, 2007 under which certain assets and liabilities of Maupintour LLC was assumed in order to allow for customer travel and certain past obligations of Maupintour LLC 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 August 31, 2012.

 

Note 15Segment 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.

 

19
 

 

  

Note 15Segment Reporting (continued)

 

The tables below present information about reportable segments for the six months ended August 31, 2012 and August 31, 2011:

 

   2012   2011 
         
Revenues:          
Media  $989   $116,970 
Travel   308,267    177,267 
Segment revenues  $309,256   $294,237 

 

   2012   2011 
         
Operating Expenses:          
Media  $3,358   $487,694 
Travel   1,045,608    739,210 
Segment expenses  $1,048,966   $1,226,904 

 

   2012   2011 
         
Net Income (Loss):          
Media  $(2,369)  $(1,051,806)
Travel   (737,341)   119,139 
Segment Net Loss  $(739,710)  $(932,667)

 

The Company did not generate any revenue outside the United States for the six months ended August 31, 2012 and August 31, 2011, and the Company did not have any assets located outside the United States.

 

Note 16 – 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.

 

20
 

 

Note 16 – Fair Value Measurements (continued)

 

  · 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 August 31, 2012, which is recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. As required, these are classified based on the lowest level of input that is significant to the fair value measurement:

 

       Fair Value Measurements at Reporting Date Using 
Description  8/31/2012   Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   Significant Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
                 
Series A convertible redeemable preferred stock with reset provisions  $41,947    -0-    -0-   $41,947 
Convertible promissory note with embedded conversion option   610,513    -0-    -0-    610,513 
Total  $652,460    -0-   $-0-   $652,460 

 

The following table sets forth a summary of changes in fair value of our derivative liabilities for the six months ended August 31, 2012:

 

Beginning balance, February 29, 2012  $2,254,219 
Fair value of embedded conversion feature of Preferred Series A securities as issue date   -0- 
Fair value of embedded conversion feature on convertible promissory notes at issued date   188,468 
Change in fair value of embedded conversion feature of Preferred Series A securities included in earnings   (1,296,070)
Change in fair value of embedded conversion feature of convertible promissory notes included in earnings   (494,157)
Ending balance, August 31, 2012  $652,460 

 

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Note 17Subsequent Events

 

In May 2009, the FASB issued accounting guidance now codified as FASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FASC Topic 855 is effective for interim or fiscal periods ending after June 15, 2009. Accordingly, the Company adopted the provisions of FASC Topic 855 on June 30, 2009. The Company evaluated subsequent events for the period after August 31, 2012, and has determined that all events requiring disclosure have been made.

  

During September and October of 2012, the Company converted $11,185 of convertible promissory notes and issued 1,376,864 shares of its common stock.

 

During September and October of 2012, the Company issued 100,734 of common stock, along with 1,000 shares of Series B Preferred stock, 31,000 shares of Series D Preferred stock and 250,000 two (2) year warrants with a $0.05 exercise price in exchange for services rendered valued at $96,646. The value of the common stock issued was based on the fair value of the stock at the time of issuance or the fair value of the services provided, whichever was more readily determinable. 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 0.230%, dividend yield of -0-%, volatility factor of 396.95% and an expected life of 2 years.

  

During September 2012, the Company entered into exchange agreements to convert $10,286 of principal and interest for convertible promissory notes into Preferred Series D subscription agreements for 2,057 shares of Series D preferred stock.

 

On October 4, 2012, the Company negotiated the following transaction with a significant non-related third party investor: the Company converted $225,000 of shareholder loans and $280,000 of accrued interest into a new 6% convertible promissory note maturing on October 15, 2014 with a face value of $505,000. Upon any conversion of this Note, conversion price will equal the “variable conversion price” (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Maker relating to the Maker’s securities). The variable conversion price shall mean 90% of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion date.

  

During October 2012, the Company received $310,000 in proceeds and issued 62,000 shares of Series D Preferred Stock and 5,000 one (1) year warrants with an exercise price of $0.10.

 

During October 2012, the Company issued 288,000 of Series B Preferred stock to recipients for previously subscribed shares valued at $1,400,000.

 

During October 2012, the Company received $20,000 in proceeds and issued 4,000 shares of Series B Preferred stock.

 

During October 2012, the Company incurred $51,075 of penalties for late conversions for various note holders, increasing each respective noteholder’s principal balance.

 

During October 2012, the Company issued 180,420 shares of Series D Preferred stock to recipients for previously subscribed shares valued at $902,100.

 

Material Definitive Agreement

 

On October 9, 2012, RealBiz Media Group, Inc., formerly known as Webdigs, Inc. (our “Company”), and Next 1 Interactive, Inc., a Nevada corporation (“Next 1”), 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 80% 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 Company’s receipt of the Attaché shares from Next 1, our Company issued to Next 1 a total of 93 million shares of our newly designated Series A Convertible Preferred Stock (our “Series A Stock”). The exchange of Attaché shares in exchange for our Series A Stock is referred to as the “Exchange Transaction.”

 

Coincident with the closing of the Exchange Transaction, we converted all of our outstanding debt, payables and liabilities owed to Robert A. Buntz, Jr. (“Buntz”) and Edward Wicker (“Wicker”) into an aggregate of 7 million shares of Series A Stock. Specifically, Buntz received 5,983,600 shares of Series A Stock upon his conversion of approximately $401,498 in liabilities we owed him, and Wicker received 1,016,400 shares of Series A Stock upon his conversion of approximately $53,356 in liabilities we owed him. Buntz was, and remains after the Exchange Transaction, a director of our Company and our Chief Executive Officer. At the closing of the Exchange Transaction, Wicker resigned his position as a director of our Company and as our Chief Financial Officer.

 

As a condition to the closing of the Exchange Transaction, our Company changed its name from “Webdigs, Inc.” to “RealBiz Media Group, Inc.” on October 3, 2012, by engaging in a short-form parent-subsidiary merger in the State of Delaware.

 

As a result of the Exchange Transaction and the conversion of liabilities referred to above, the shareholders of our Company before the Exchange Transaction retained approximately 365,176 shares of common stock (after giving effect to a reverse split effected as of May 3, 2012), representing approximately .364% of our issued and outstanding shares of capital stock (both common and preferred) immediately after the Exchange Transaction. Unless otherwise indicated, all common share figures set forth are on a post-split basis.

 

22
 

 

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.

 

Overview

 

Next 1 Interactive (“Next 1” or the “Company”) is the parent company of RRTV Network (formerly Resort & Residence TV), Next Trip – its travel division, and Next One Realty – its real estate division. The Company is positioning itself to emerge as a multi revenue stream “Next Generation” media-company, representing the convergence of TV, mobile devices and the Internet by providing multiple platform dynamics for interactivity on TV, Video On Demand (VOD) and web solutions. The Company has worked with multiple distributors beta testing its platforms as part of its roll out of TV programming and VOD Networks. The list of multi-system operators the Company has worked with includes Comcast, Cox, Time Warner and Direct TV. At present the Company operates the Home Tour Network through its minority owned/joint venture real estate partner – RealBiz Media. As of July 17, 2012 the Home Tour Network features over 4,300 home listings in four cities on the Cox Communications network.

 

Next 1 Interactive is comprised of three distinct categories: The Company recognized the convergence taking place in interactive television/ the web and began the process of recreating several of its key relationships in real estate, travel and media over the last three years in efforts to position itself for the interactive revolution with “TV everywhere”. Currently the Company has operating agreements and /or active discussions are underway with broadband, cable and Over the Top TV solutions for the Next 1 Networks during the next 12 months.

 

Linear TV Network with supporting Web sites – The potential revenue streams from Next 1 Networks - Traditional Advertising, Interactive Ads, Sponsorships, Paid Programming, travel commissions and Referral fees.

 

TV Video On Demand channels for Travel with supporting Web sites – The potential revenue streams from Travel Video on Demand - Monthly sponsorship packages, pre-roll advertising, travel commissions and referral fees, acceleration of company owned travel entities (Maupintours, Next Trip and Trip Professionals).

 

TV Video on Demand channels for Real Estate with supporting Web sites – The potential revenue streams from Real Estate Video on Demand Channel - Commissions and referral fees on home sales, pre-roll/post-roll advertising, lead generation fees, banner ads and cross market advertising promotions ($89 listing and marketing fee, web and mobile advertising).

 

23
 

 

Sufficiency of Cash Flows

 

Because current cash balances and projected cash generation from operations are not sufficient to meet the Company’s cash needs for working capital and capital expenditures, management intends to seek additional equity or obtain additional credit facilities. The sale of additional equity could result in additional dilution to the Company’s shareholders. A portion of the Company’s cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, the Company evaluates potential acquisitions of such businesses, products or technologies.

 

RESULTS OF OPERATIONS

 

Three Months Ended August 31, 2012 Compared to Three Months Ended August 31, 2011

 

Revenues

 

Our total revenues decreased 65% to $140,860 for the three months ended August 31, 2012, compared to $400,178 for the three months ended August 31, 2011, a decrease of $259,318. The decrease is due to the Company ceasing the operations of the R & R television network.

 

Revenues from the travel segment decreased 62% to $140,594 for the three months ended August 31, 2012, compared to $371,617 for the three months ended August 31, 2011, a decrease of $231,023. Travel revenue is generated from its luxury tour operation which provides escorted and independent tours worldwide to upscale travelers. The decrease is due to the decline of tours booked.

 

Revenues from advertising decreased 99% to $266 for the three months ended August 31, 2012, compared to $28,561 for the three months ended August 31, 2011, a decrease of $28,295. Advertising revenue is generated from the sale of advertising time on R&R TV, including advertisements shown during a program (also known as short-form advertising) and infomercials in which the advertisement is the program itself (also known as long-form advertising). The decrease is due to the Company ceasing the operations of the R & R television network.

 

Cost of Revenue

 

Cost of revenues decreased 84% to $110,323 for three months ended August 31, 2012, compared to $672,772 for the three months ended August 31, 2011, a decrease of $562,449. The significant decrease in costs was primarily associated with the Company ceasing the operations of the R & R television network.

 

Operating Expenses

 

Our total operating expenses decreased 56% or $974,524 to $753,135 for the three months ended August 31, 2012, compared to $1,727,659 for the three months ended August 31, 2011. The decrease was primarily due to a decrease in: financing fees of $17,450, amortization of intangibles of $288,693, salaries and benefits of $93,585, legal and accounting fees of $8,424, consulting fees of $405,398 and other miscellaneous operating expense of $160,974.

 

Other Expenses

 

Interest expense decreased 71% to $389,404 for the three months ended August 31, 2012, compared to $1,365,771 for the three months ended August 31, 2011, a decrease of $976,367 primarily due to the conversion of debt instruments into common shares and preferred stock subscriptions. Loss on settlement of debt decreased 98% to 6,256 for the three months ended August 31, 2012, compared to $386,637 for the three months ended August 31, 2011, a decrease of $380,381 primarily due to the decline of past due liabilities. Gain on change in fair value of derivatives decreased 58% to $907,740 for the three months ended August 31, 2012, compared to $2,155,230 for the three months ended August 31, 2011, a decrease of $1,247,490 primarily due to the increase in the number of debt to equity conversions. Gain on legal settlement decreased 100% to $-0- for the three months ended August 31, 2012, compared to $1,314,420 for the three months ended August 31, 2011, a decrease of $1,314,420 primarily due to no legal issues settled. Other expense decreased 99% to $1,186 for the three months ended August 31, 2012, compared to $86,615 for the three months ended August 31, 2011, a decrease of $85,429 primarily due to no modifications of warrants executed.

 

Net Loss

 

Net loss decreased 43% to $211,704 for the three months ended August 31, 2012, compared to net loss of $369,626 for the three months ended August 31, 2011, a decrease of $157,922 primarily due to the ceasing of operations of the television network.

 

24
 

 

Six Months Ended August 31, 2012 Compared to Six Months Ended August 31, 2011

 

Revenues

 

Our total revenues decreased 55% to $309,256 for the fiscal quarter ended August 31, 2012, compared to $694,415 for the fiscal quarter ended August 31, 2011, a decrease of $385,159. In addition to the general decrease in travel related revenue due to less marketing and sales efforts, the decrease in television advertising is due to the ceasing of operations of the R&R television network due to cost constraints.

 

Revenues from the travel segment decreased 44% to $308,267 for the fiscal quarter ended August 31, 2012, compared to $548,884 for the fiscal quarter ended August 31, 2011, a decrease of $240,617. Travel revenue is generated from its luxury tour operation which provides escorted and independent tours worldwide to upscale travelers. The decrease is due to the reductions of tours booked.

 

Revenues from advertising decreased 99% to $989 for the fiscal quarter ended August 31, 2012, compared to $145,531 for the fiscal quarter ended August 31, 2011, a decrease of $144,542. Advertising revenue is generated from the sale of advertising time on R&R TV, including advertisements shown during a program (also known as short-form advertising) and infomercials in which the advertisement is the program itself (also known as long-form advertising). The decrease is due to the Company ceasing the operations of the R & R television network.

 

Cost of Revenue

 

Cost of revenues decreased 89% to $229,603 for fiscal quarter ended August 31, 2012, compared to $2,037,948 for the fiscal quarter ended August 31, 2011, a decrease of $1,808,345. The significant decrease in costs were primarily associated with the Company ceasing the operations of the R & R television network.

 

Operating Expenses

 

Our operating expenses include website maintenance fees, general and administrative expenses, salaries and benefits, advertising and promotion, legal and professional fees, consulting and finance fees incurred in raising capital and amortization of intangibles.

 

Our total operating expenses decreased 53% to 1,524,724 for the fiscal quarter ended August 31, 2012, compared to $3,268,279 for the fiscal quarter ended August 31, 2011, a decrease of $1,743,555. The decrease was primarily due to a decrease in: financing fees of $27,538, amortization of intangibles of $577,384, salaries and benefits of $250,555, legal and accounting fees of $12,349, consulting fees of $729,606 and other miscellaneous operating expense of $146,123.

 

Other Expenses

 

Interest expense decreased 63% to $1,245,472 for fiscal quarter ended August 31, 2012, compared to $3,334,288 for fiscal quarter ended August 31, 2011, a decrease of $2,088,816 primarily due to the conversion of debt instruments into common shares and preferred stock subscriptions. Loss on settlement of debt increased 105% to 23,744 for fiscal quarter ended August 31, 2012, compared to a gain of $498,065 for fiscal quarter ended August 31, 2011, an increase of $521,809 primarily due to settlement of debt through issuance of shares of stock.Gain on change in fair value of derivatives decreased 10% for fiscal quarter ended August 31, 2012, compared to $1,998,397 for fiscal quarter ended August 31, 2011, a decrease of $208,170 primarily due to the increase in the number of debt to equity conversions. Gain on legal settlement decreased 100% to $-0- for fiscal quarter ended August 31, 2012, compared to $1,314,420 for fiscal quarter ended August 31, 2011, a decrease of $1,314,420 primarily due to no legal issues settled. Other expense decreased 42% to $50,045 for fiscal quarter ended August 31, 2012, compared to $86,634 for fiscal quarter ended August 31, 2011, a decrease of $36,589 primarily due to no modifications of warrants executed.

 

Net Loss

 

Net loss decreased 82% to $926,617 for fiscal quarter ended August 31, 2012, compared to net loss of $5,217,982 for fiscal quarter ended August 31, 2011, a decrease of $4,291,365 primarily due to the ceasing of operations of the television network

 

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     
   FY2013   FY2014   FY 2015   Totals 
Carriage Fees  $342,614   $-0-   $-0-   $342,614 
Consulting   74,545    95,090    95,090    264,725 
Leases   79,251    161,208    195,923    436,382 
Other   47,802    47,802    -    95,604 
                     
Totals  $544,212   $304,100   $291,013   $1,139,325 

  

25
 

 

Liquidity and Capital Resources

 

At August 31, 2012, the Company had $4,065 cash on-hand, a decrease of $8,924 from $12,989 at the start of fiscal 2012. The decrease in cash was due primarily to operating expenses.

 

Net cash used in operating activities was $1,865,451 for the quarter ended August 31, 2012; a decrease of $618,275 from $2,483,726 used during the quarter ended August 31, 2011. This decrease was due to a reduction in net loss partially offset by interest, loss on derivatives, stock based consulting and increases in accounts payable and accrued expenses.

 

Net cash used in investing activity increased to $277,000 for the quarter ended August 31, 2012, compared to $100,000 for the quarter ended August 31, 2011 due to the purchase of an option agreement.

 

Net cash provided by financing activities decreased $135,047 to $2,133,527, for the quarter ended August 31, 2012, compared to $2,268,574 for the quarter ended August 31, 2011.  This decrease was primarily due to the net increase of $334,148 in shareholder loans; an increase of $253,938 in proceeds from stock issuances and subscriptions; a net increase of $133,367 of other notes payable; decrease of $856,500 for convertible promissory notes

 

The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. We currently do not have adequate cash to meet our short or long term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders.

 

Since our inception in June 2002, we have been focused on the travel industry solely through the Internet. We have recently changed our business model from a company that generates nearly all revenues from its travel divisions to a media company focusing on travel and real estate by utilizing multiple media platforms including the Internet, radio and television. As a company that has recently changed our business model and emerged from the development phase with a limited operating history, we are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. We cannot assure you that the business will continue as a going concern or ever achieve profitability. Due to the absence of an operating history under the new business model and the emerging nature of the markets in which we compete, we anticipate operating losses until such time as we can successfully implement our business strategy, which includes all associated revenue streams.

 

The Company will need to raise substantial additional capital to support the on-going operation and increased market penetration of our Video on Demand real estate and travel business and R&RTV 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 support and expand the network reach, repay debt obligations, provide capital expenditures for additional equipment and satisfy payment obligations under carriage/distribution agreements, office space and systems required to manage the business, and cover other operating costs until our planned revenue streams from media advertising, sponsorships, e-commerce, travel and real estate are fully-implemented and begin to offset our operating costs. There can be no assurances that the Company will be successful in raising the required capital to complete this portion of its business plan.

 

Since our inception, we have funded our operations with the proceeds from the private equity financings. The Company issued these shares without registration under the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering of securities. The shares were sold solely to “accredited investors” as that term is defined in the Securities Act of 1933, as amended, and pursuant to the exemptions from the registration requirements of the Securities Act under Section 4(2) and Regulation D thereunder.

 

Currently, revenues provide less than 20% of the Company’s cash requirements. The remaining cash need is derived from raising additional capital. The current monthly cash burn rate is approximately $300,000. We expect the monthly cash burn rate will gradually increase to approximately $1.0 million, with the expectation of profitability by the fourth quarter of fiscal 2013.

 

Our multi-platform media revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven and there can be no assurance that we can achieve profitable operations. Our ability to generate revenues depends, among other things, on our ability to operate our television network and create enough viewership to provide advertisers, sponsors, travelers and home buyers value. Accordingly, we cannot assure you that our business model will be successful or that we can sustain revenue growth, or achieve or sustain profitability.

 

26
 

 

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 as a result 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 August 31, 2012. 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 February 29, 2012, Annual Report on Form 10-K. Due to liquidity issues, we have not been able to immediately take any action to remediate this material weakness. However, when conditions allow, we will 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 quarter ended August 31, 2012, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

27
 

 

PART IIOTHER INFORMATION

 

Item 1.Legal Proceedings.

 

Other than the litigation matters listed in our Annual Report on Form 10-K for the year ended February 29, 2012, as filed with the SEC on June 15, 2012, 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. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A.Risk Factors.

 

We believe there are 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 29, 2012, filed with the SEC on June 15, 2012.

 

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

 

Item 3.Defaults upon Senior Securities.

 

There were no defaults upon senior securities during the period ended August 31, 2012.

 

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.

 

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.

 

28
 

 

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: October 22, 2012 /s/ William Kerby  
  William Kerby
  Chief Executive Officer
  (Principal Executive Officer)
     
Date: October 22, 2012 /s/  Adam Friedman  
  Adam Friedman
  Chief Financial Officer
  (Principal Accounting Officer)

 

29

PINX:NXOI Next 1 Interactive Inc Quarterly Report 10-Q Filling

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PINX:NXOI Next 1 Interactive Inc Quarterly Report 10-Q Filing - 8/31/2012
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