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EX-21 - EX-21 - REALBIZ MEDIA GROUP, INCv335171_ex21.htm
EX-31.1 - EX-31.1 - REALBIZ MEDIA GROUP, INCv335171_ex31-1.htm
EX-31.2 - SECTION 302 CERTIFICATION - REALBIZ MEDIA GROUP, INCv335171_ex31-2.htm
EX-32.1 - EX-32.1 - REALBIZ MEDIA GROUP, INCv335171_ex32-1.htm
EX-32.2 - CERTIFICATION PURSUANT TO - REALBIZ MEDIA GROUP, INCv335171_ex32-2.htm

 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     For the fiscal year ended October 31, 2012
     

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     For the transition period from _______________________ to ___________________
     

 

Commission File Number 001-34106

 


 

REALBIZ MEDIA GROUP, INC.

Formerly Webdigs, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   11-3820796
(State of incorporation)   (I.R.S. Employer Identification No.)
     

2690 Weston Road, Suite 200

Weston, FL

  33331
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (954) 888-9779

 

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common stock, $.001 par value

 


 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes   x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  

o Yes   x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.  

 o Yes   x 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).

o Yes   o No

 

 
 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  o    Accelerated filer  o    Non-accelerated filer  o    Smaller reporting company  x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).

o Yes   x No

 

The aggregate market value of the voting stock held by persons other than officers, directors and more than 5% stockholders of the registrant (non-affiliates) was approximately $32,000 as of April 30, 2012 when the last reported sales price was $0.22 per share. As of October 31, 2012, 383,651 shares of common stock were outstanding. This takes into account the 1 for 200 reverse stock split which occurred on May 17, 2012

 

 

 
 

 

 

Realbiz Media Group, Inc.

 

Form 10-K

 

Table of Contents

 

    Page
     
PART I    
Item 1. Business 1
Item 1A. Risk Factors 6
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Mine Safety Disclosures 10
     
PART II    
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 10
Item 6. Selected Financial Data 13
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk  
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 19
Item 9A. Controls and Procedures 19
Item 9B. Other Information 20
     
PART III    
Item 10. Directors, Executive Officers and Corporate Governance 21
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 24
Item 13. Certain Relationships and Related Transactions, and Director Independence 25
Item 14. Principal Accountant Fees and Services 26
     
PART IV    
Item 15. Exhibits and Financial Statement Schedules 27
  Signatures 28

 

 

 
 

 

PART I

ITEM 1. BUSINESS

 

Overview of our Business and its History

 

On April 4, 2012, the Company entered into a share exchange agreement with Next 1 Interactive, Inc. (“Next 1”), a publicly traded company. The agreement calls for Next 1 to exchange 100% of the common shares (100,000,000) of their wholly-owned subsidiary Next One Realty, Inc., for newly issued Series A Convertible Preferred Stock of Webdigs. The Series A Convertible Preferred Stock has not yet been designated and is the subject of negotiation. At the closing of this transaction Next 1 would own, on an as-converted basis, approximately 93% of the issued and outstanding shares of Webdigs, Inc. As a result, Next 1 is in control of the Company and potential future operations have not been determined at this time.

 

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 RealBiz 360, 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 in this Current Report are on a post-split basis.

 

As reflected in our financial statements, our business lacks the revenue required to operate with positive cash flow.

 

Background and Industry Trends

 

We believe that the real estate market is undergoing a dramatic change not dissimilar to that previously experienced by traditional stock brokerages. We believe that the most critical aspect driving this change is the advent of the Internet as a tool for searching for and researching real estate, eliminating the commitments of time and expense involved with visiting multiple properties in person.  According to the National Association of Realtors’ 2010 “Member Profile,” 74% of home buyers use the internet to search for a home. This actually exceeds the 69% who use a realtor for their search. Note: many buyers use both the internet and a realtor in their search. In addition, home sellers can use the Internet to check home valuations, track the housing market and research comparable sales information.

 

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The increased use of technology throughout the entire process of a typical residential real estate transaction is an important development in the real estate market. For instance, electronic communication and electronic data storage permits a real estate brokerage to quickly reproduce standard real estate transaction documents, store such documents and store other important information about customers and properties, and communicate quickly with other parties involved in real estate transactions (e.g., title companies, insurers, surveyors, inspectors and governmental agencies), all of which permits increased efficiencies in the process of buying and selling a home. The technological changes and developments generally make it possible to effect a greater volume of transactions with less effort and expense.

 

We believe the technological developments in the real estate market and the increased amount of information available to and used by ordinary consumers appear to be circumstances that are similar to those developments that eventually gave rise to the non-traditional stock brokerages which have intruded upon the market dominance of traditional stock brokerages over the past two decades. For example, we note that the non-traditional stock brokerages developed their services and products to compete primarily on the bases of price, consumer effort and technology. Their websites, such as TD Ameritrade or e-Trade, provide not only trading capacity for the average consumer, but also a tremendous amount of information about companies. In this regard, we note that there has recently been a proliferation of various Internet-related real estate businesses that seek to provide either specific and limited services or information relating to residential real estate transactions (e.g., ForSaleByOwner.com, BuyOwner.com, Trulia.com and Zillow.com). Like the non-traditional stock brokerages, these businesses typically rely on consumer effort, technology and price as the bases for competition. This is the model Webdigs has based its business practices on.

 

 

Our Business Model, Products and Services

 

RealBiz has positioned itself in the following three areas summarized here and explained in more detail below:

 

1.Real Estate Video on Demand Channel – We earn fees from pre-roll/post-roll advertising, banner ads and cross-market advertising promotions. We charge an $89 listing and marketing fee, and earn revenue from web-based and mobile advertising.

 

2.Website and Mobile Applications – We are developing a real estate web portal to work in conjunction with our national Video on Demand (VOD) Television Platform. This site will be unique to the world of real estate search sites on multiple levels, first the user experience will be completely visual and video centric, secondly, the site will focus on local neighborhood participation for social interaction between home seekers and current residents who can provide an unbiased view of the selected neighborhood and lastly the content on the site will focus on the entire home ownership lifecycle from purchase through maintenance to home sale therefore giving the site a much deeper and more loyal audience over time.

 

3.Traditional Real Estate Sales – Our previous company, Webdigs, had licensed real estate brokerage division currently has participating brokers in 19 states. We believe there are potential opportunities to take advantage of an improving real estate market, and will be able to capture leads from a new television series “Foreclosure 2 Fabulous” which we expect will launch to over 100 million homes in the fall or winter of 2012.

 

Real Estate On Demand

 

General

 

For the real estate video on demand area (“VOD”), we plan to market the approximately 120,000 “premium VOD TV residential home listings” as well as incorporate approximately over 4.5 million Multiple Listing Service (“MLS”) home listings from all major U.S. cities, with video on demand and interactive capabilities for users of our real estate website. We expect that this new interactive real estate tool may create direct referral fees, advertising fees and possibly even mortgage financing revenue for our Company.

 

We recognize that in the U.S. most consumers research the buying of a home through newspapers, magazines, the Internet and television. Only after the search has been narrowed down does the average consumer look to find a real estate agent. The VOD solution allows the consumer to view, in high quality video, local listings and specialty properties (oceanfront properties, mountain homes, farms, senior communities, etc.) through their television with just a click of the remote control. This familiar television environment is especially targeted at the baby boomer and over-40 demographic that, in many cases, are more comfortable with a remote control then they are with a mouse or touch screen. The real estate VOD solution is branded as “Home Tour Network.”Through our controlling ownership of RealBiz, we enjoy direct access to the nation's largest real estate companies.

 

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Currently, we believe our desktop solution for virtual tours has been used by over 60,000 real estate agents and brokers.

 

Key Trends for VOD Advertising

 

We believe that the VOD market shows the strong potential for growth. An analysis by comScore, a leading digital market intelligence firm, estimated that in 2010 more people searching for real estate used or watched real estate videos, and those that used the video tools watched more of it than in previous years. The video audience grew by 32%, and time spent grew by 12%. According to Magna Global, VOD will outperform DVR in the US, reaching nearly 66 million households vs. 53 million households for DVR in 2015. In the VOD market, Comcast holds the lion’s share in terms of VOD views and revenues. With the recent acquisition of NBC Universal, Comcast will be able to serve one-fourth of the U.S pay-television households. Comcast has approximately 22.8 million cable television subscribers and 17 million high-speed Internet subscribers. The second largest cable VOD provider is Time Warner followed by COX and Charter.

 

New Opportunities for VOD Advertising

 

VOD ad platforms support a variety of advertising formats, from traditional embedded ad spots to ad overlays, bookends and even long-form, on-demand “showcase” ads that deliver information and allow some degree of interaction. We believe that an AdWords-type clickable link will be soon be able to take the viewer from a traditional advertisement to a showcase spot that gives in-depth information about a product the viewer is interested in. Reports vary widely on the percentage of viewers who use their DVRs to skip advertisements. The 2010 “U.S. Digital Year in Review,” released by comScore, suggests that as a percent of online video consumption, video ads have continued to climb. At year-end 2010, 16% of videos viewed were ads. This represents a significant increase over the estimated 12% from mid-2010 (a mere six months earlier). Marketer, a leading media research firm, estimates that U.S. online advertising spending will hit new peaks from 2011 to 2014, surpassing US$30 billion in 2012, and exceeding US$40 billion in 2014. Marketer expects that spending on marketing will bring double-digit growth to online advertising for five consecutive years.

 

We believe the real estate market in particular is well suited to use VOD technology for the following reasons:

 

Real estate agents and brokers generally look for more cost-effective ways to market
 Agents that place their listings on TV have a distinct marketing advantage over agents that don’t
Traditional Internet websites and high-end print have become too expensive
Media channels focused on real estate are better able to reach the “new consumer”
VOD is able to deliver what potential home buyers are asking for – video of a prospective home purchase, which provides valuable information to consumers
Ability to target in local markets
VOD is able to promote both listings and brand
Reach out to higher demographics - Cable viewers have higher incomes, higher education and more disposable income
Access through their television allows consumer home seekers to easily search listing with the touch of their remote

 

Our VOD Solution

 

We believe that RealBiz is the fastest growing real estate image content management, creation and media delivery company in the United States. In addition, we believe our approach to VOD benefits from the following factors:

 

·Our exclusive partnerships with several national real estate brokerage firms aimed at creating and delivering VOD Listings to TV Networks through the HomeTourNetwork
·Our proprietary Video Ad Builder tool, which we believe is the easiest way to create promotional VOD advertisements for television
·Our marketing partnerships, which we expect will allow us to scale our business across major U.S. markets quickly and efficiently

 

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Home Tour Network

 

Home Tour Network was launched October 3, 2011 into 5 strategic cities – Los Angeles, San Diego, Washington DC, Hartford and Providence. The VOD platform allows for up to 5,000 television listings with a reach that ranges from hundreds of thousands of homes per market to over a million homes in some markets. Real estate agent’s listings are automatically converted from the industry’s largest data feed and then can easily be placed on our interactive television platform for a fee ranging from $50 to $75 per month. This is a fraction of the cost to run an advertisement in a newspaper and provides real feedback to the agent.

 

Home Tour Network gives the consumer what we believe to be a simple, effective and fun way to shop for real estate. The user can even “drive through neighborhoods” without ever leaving the comfort of their living room. The rich media listings are updated daily and allow consumers to simply “click their remote,” text or call to receive access to more information or speak to a licensed real estate agent. Home Tour Network website will deliver an extremely broad range of properties to look at and review – from local homes for sale, foreclosure properties and high-end luxury estates. This allows the user to be both informed and entertained. We believe that people greatly enjoy the social media, and voyeuristic window into our neighbors’ homes, and what they’re worth now.

 

Website and Mobile Applications

 

Our RealBiz business model calls for signing up more subscribing real estate agents and brokers, facilitating more mortgage originations, and selling more of highly targeted advertising that will play or be viewable in VOD home tours or on our planned video portal for real estate. Our partnerships with participating brokers and real estate firms link us into one of the largest real estate information marketplaces. Our VOD tools provide vital information about homes, real estate listings and mortgages now, but with the rollout of our own real estate website portal (anticipated in the next six months), it will also boast web and mobile applications to accompany our VOD model. Additionally, we expect that our portal will allow homeowners, potential buyers and sellers to connect with real estate and mortgage service providers. We expect that our portal will allow us to generate revenue through subscriptions, lead generation referrals (principally for mortgages, legal services, home security, etc.) and website advertising.

 

Traditional Real Estate Sales (Webdigs and Foreclosure 2 Fabulous)

 

We believe that the U.S. real estate market has passed bottom. Over the last year, home prices have increased by 3.7% since May 2011, and that annual gain was the largest yearly increase in home prices since September 2006, almost six years ago.

 

In the short-term, we plan to capture revenues from this market through foreclosures and real estate auctions. In recent years, the U.S. real estate industry has sustained the most significant market crash of real estate in living history. As a result, U.S. banks are holding a large foreclosure property inventory. We have recently completed two test markets for real estate auctions of foreclosure properties:

 

1.Foreclosed Properties – of less than $20,000 in value; and
2.Foreclosed Properties – in excess of $100,000 in value.

 

In both cases, consumer interest was extraordinary, as the viewing public appears to have interest in capturing bargains.

 

In May 2012, we entered into an agreement to become the realtor of record for a new television show called “Foreclosure 2 Fabulous.” The one-hour show has attracted multiple sponsors including Lowes, Florida Tourism Board, Nat King Cole Foundation and Shenandoah Kitchens. We believe the Foreclosure 2 Fabulous show will premiere in the fall or winter of 2012, with initial distribution to over millions of households. The Foreclosure 2 Fabulous show will afford RealBiz two minutes of airtime, as well as multiple promos, directing viewers to our 800 numbers, website and VOD Network. It is our intent to include a foreclosure section for our VOD channel, and to launch real estate auctions on a full-time linear network, along with distribution through VOD, Internet and smart devices.

 

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Market and Competition

 

The National Association of Realtors has approximately 1.2 million members, of which we estimate roughly half are active and associated with at least one real estate brokerage firm.

 

Presently, Zillow is the largest independent real estate market site, as measured by homes in its database and unique visitors to its website. However, Zillow does not yet have a dominant position. Realtor.com, Trulia, Homes.com and a variety of other websites all have meaningful market share and listing information. Trulia.com for example, has about 90% of Zillow’s traffic and is growing faster, year-over-year. We believe that we can carve out a piece of this lucrative market. Google has recently exited the mortgage marketplace business, thus improving our potential competitive position.

 

 

Industry Segments

 

We currently operate in one primary operating segment, real estate, though video on demand and web-assisted services.

  

Environmental Regulation

 

We are not subject to environmental regulations that have a material effect upon our capital expenditures or otherwise.

 

Other Regulation

 

We are subject to governmental regulation by federal, state and local regulatory authorities with respect to our operations. We operate several Internet websites that we use to distribute information about and provide our services and content. Internet services are now subject to regulation in the United States relating to the privacy and security of personally identifiable user information and acquisition of personal information from children under the age of 13, including the federal Child Online Protection Act (COPA) and the federal Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM). In addition, a majority of states have enacted laws that impose data security and security breach obligations. Additional federal and state laws and regulations may be adopted with respect to the Internet or other online services, covering such issues as user privacy, child safety, data security, advertising, pricing, content, copyrights and trademarks, access by persons with disabilities, distribution, taxation and characteristics and quality of products and services. In addition, to the extent we offer products and services to online consumers outside the United States, the laws and regulations of foreign jurisdictions, including, without limitation, consumer protection, privacy, advertising, data retention, intellectual property, and content limitations, may impose additional compliance obligations on us.

 

 

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Employees

 

The Company currently has 28 full-time and five part-time employees.

 

Corporate Structure and Information

 

Our principal offices are located at 2690 Weston Road, Suite 200, Weston, FL 33331, and our telephone number at that office is (954) 888-9779. Our website address is www.realbizmedia.com. The information contained on our website or that can be accessed through our website does not constitute part of this document.

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock involves significant risks. Before deciding to invest in our common stock, you should carefully consider each of the following risk factors and all of the other information set forth in this document. The following risks could materially harm our business, financial condition or future results. If any such risks materialize, the value of our common stock could decline, and you could lose all or part of your investment.

 

We are a recently formed company with no history of profitability.

 

Our former entity, Webdigs, began operations in July 2007 and to date has not generated a yearly profit. In addition, consolidated annual revenues remain around $1 million. As a young company, we are subject to all of the risks associated with a new business enterprise. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, especially in challenging and competitive industries such as residential real estate and mortgage brokerage and particularly in light of current general economic, real estate and credit market conditions.

 

We do not yet have a significant operating history which would provide you with meaningful information about our past or future operations. The Company has not achieved positive cash flow on a monthly basis during the current fiscal year ending October 31, 2012 and there is significant risk to the survival of the enterprise.

 

We will require additional financing in the future, but such financing may not be available to us.

 

We will require significant additional capital to continue our operations. To date, our revenues from operations have not generated cash flow sufficient to finance our operations and growth. As a result, we have periodically since our

If adequate funds are not available on acceptable terms, we may be unable to fund the operation of our business. As a result, we would likely be forced to dramatically alter or cease operations.

 

We critically rely on our executive management, and the loss of certain members of management would materially and negatively affect us.

 

Our success materially depends upon the efforts of our management and other key personnel, including but not limited to Bill Kerby, CEO and Chairman, Phil Bliss, CIO, Doug Checkeris, Acting Chief Marketing Officer, Steven Marques, Chief Revenue Officer and Adam Friedman, Chief Financial Officer. If we lose the services of any of these members of management, our business would be materially and adversely affected. We have entered into a formal services and non-competition agreement with Mr. Bliss and Mr. Checkeris. Nevertheless, agreements do not ensure the continued availability to us of Mssrs. Kerby, Bliss and Checkeris or any other manager or employee. Furthermore, we do not have “key person” life insurance, and we do not presently intend to purchase such insurance.

 

Our future success also depends upon our ability to attract and retain highly qualified management personnel and other employees. Any difficulties in obtaining, retaining and training qualified employees could have a material adverse effect on our results of operation or financial condition. The process of identifying such personnel with the combination of skills and attributes required to carry out our strategy is often lengthy. Any difficulties in obtaining and retaining qualified managers and employees could have a material adverse effect on our results of operation or financial condition.

 

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There is substantial doubt about our ability to continue as a going concern.

 

We have had net losses for the years ended October 31, 2012 and 2011 of $963,220 and $953,460 respectively. Furthermore, we had a working capital deficit as of October 31, 2012 of $2,311,736. Since the financial statements were prepared assuming that we would continue as a going concern, these conditions coupled with our current liquidity position raise substantial doubt about our ability to continue as a going concern. Furthermore, since we are pursuing new business, this diminishes our ability to accurately forecast our revenues and expenses. We expect that our ability to continue as a going concern depends, in large part, on our ability to generate sufficient revenues, limit our expenses without sacrificing customer service, and obtain necessary financing. If we are unable to raise additional capital, we may be forced to discontinue our business.

 

We may be unable to obtain sufficient market acceptance of our services.

 

The market for residential real estate sales is well-established. However, the market for non-traditional residential real estate sales is relatively new, developing and even more uncertain. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for products and services are subject to tremendous uncertainty. Our future growth and financial performance will almost entirely depend upon consumers’ acceptance of our products and services. In this regard, the failure of advertisers to accept our model or the inability of our services to satisfy consumer expectations, would have a material adverse effect on our business, and could cause us to cease operations.

 

We rely on third parties for key aspects of the process of providing services to our customers, and any failure or interruption in the services provided by these third parties could harm our ability to operate our business and damage our reputation.

 

We rely on third-party vendors, including website providers and information technology vendors. Any disruption in access to the websites developed and hosted by these third-party providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our business. Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise little or no control over all of these third-party vendors, which increases our vulnerability to problems with the services they provide.

 

In addition, we license technology and related databases from third parties to facilitate aspects of our website and connectivity operations. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services could materially and negatively impact our relationship with our customers and adversely affect our brand and our business. It is possible that such errors, failures, interruptions or delays could even expose us to liabilities to our customers or other third parties.

 

Interruption or failure of our information technology and communications systems would impair our ability to effectively provide our services, which could in turn damage our reputation and harm our business.

 

Our ability to provide our services critically depends on the continuing operation of our information technology and communications systems. Any damage to or failure of our systems would likely result in interruptions in our service to customers and the closings of real estate transactions from which we principally derive revenue. Accordingly, interruptions in our service would likely reduce our revenues and profits, and our brand could be damaged, perhaps irreparably, if people believe our system and services are unreliable.

 

To our knowledge, our systems are vulnerable to damage or interruption from terrorist or malicious attacks, floods, tornados, fires, power loss, telecommunications failures, computer viruses and other attempts to harm our systems, and similar types of events. Our data centers are subject to break-ins, sabotage and intentional acts of vandalism, and to other potential disruptions. Some of our systems are not fully redundant (i.e., backed up), and our disaster recovery planning cannot account for all eventualities. The occurrence of a natural disaster, or a decision to close a facility we are using without adequate notice for financial reasons or other unanticipated problems at our data centers, could result in lengthy interruptions in our service. Any unscheduled interruption in our service would likely place a burden on our entire organization and result in an immediate loss of revenue. The steps we have taken to increase the reliability and redundancy of our systems are expensive, reduce our operating margin and even then may not be successful in reducing the frequency or duration of unscheduled downtime.

 

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Our certificate of incorporation grants our Board of Directors, without any action or approval by our stockholders, the power to issue additional shares of capital stock, including the power to designate additional classes of common and preferred stock.

 

Our authorized capital consists of 250,000,000 shares of capital stock. Pursuant to authority granted by our certificate of incorporation and applicable state law, our Board of Directors, without any action or approval by our stockholders, may designate and issue shares in such classes or series (including other classes or series of preferred stock) as it deems appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights. The rights of holders of other classes or series of capital stock, including preferred stock that may be issued could be superior to the rights of the shares of common stock offered hereby. The designation and issuance of shares of capital stock having preferential rights could adversely affect other rights appurtenant to the shares of our common stock. Finally, any issuances of additional capital stock (common or preferred) will dilute the percentage of ownership interest of our stockholders and may dilute the per-share book value of the Company.

 

On May 17, 2012, the Company affected a 1 for 200 reverse stock split. The Company retrospectively restated the outstanding shares for the earnings per share calculation. The balance sheet has not been restated and will be adjusted during the period the split occurred.

 

There is limited public market for our common stock.

 

We commenced trading on the OTC Bulletin Board on December 19, 2008 and there are currently over 300,000 shares registered and eligible for sale via the OTCQB (a market tier on the over-the-counter Pink Sheets market). To date, however, our stock has been thinly traded with some days having no shares sold. We cannot guarantee that a highly liquid market will exist in the near future.

 

We are required to comply with governmental regulations, which will increase our costs and could prohibit us from conducting business in certain jurisdictions.

 

We are subject to governmental regulation by federal, state and local regulatory authorities with respect to our real estate business. Governmental bodies may change the regulatory framework within which we intend to operate, without providing any recourse for adverse effects that the change may have on our business.

 

We can give no assurance that we will be able to comply with existing laws and regulations, that additional regulations that harm our business will not be adopted, or that we will continue to maintain our licenses, approvals or authorizations. Our failure to comply with applicable laws and regulations, or the adoption of new laws and regulations restricting our intended operations, could have a material adverse effect on our business and could cause us to cease operations.

 

The efforts of the National Association of Realtors or other organizations could prevent us from operating our business, and could lead to the imposition of significant restrictions on our operations.

 

The National Association of Realtors, which represents real estate brokerages, has issued rules that attempt to block access of web-assisted real estate companies to the Multiple Listing System (MLS) and may adopt additional rules intended to reduce or eliminate competition from web-assisted (online) discount real estate businesses such as Realbiz. Our business is dependent upon the ability to access the MLS to be competitive. We can give no assurance that the National Association of Realtors will not be successful in preventing our access to the MLS, or that it or another organization will not be successful in adopting rules or imposing other restrictions on web-assisted real estate businesses such as Realbiz. Such adoption or imposition of regulations or restrictions would have a material adverse effect on our business.

 

 

8
 

 

Competition in the traditional and online residential real estate industry is intense.

 

The residential real estate industry is highly competitive. We believe that important competitive factors in this industry include (but are not limited to) price, service, and ease of use. We presently face competition from numerous companies engaged in traditional residential real estate marketing services and we expect online competition to increase in the future from existing and new competitors. Most of our current and potential competitors have substantially greater financial, marketing and technical resources than us, as well as significant operating histories. Accordingly, we may not be able to compete successfully against new or existing competitors. Furthermore, competition may reduce the prices we are able to charge for our services, thereby potentially lowering revenues and margins, which would likely have a material adverse effect on our results of operation and financial condition.

 

The online residential real estate industry is subject to significant and rapid technological change.

 

The online residential real estate industry is subject to rapid innovation and technological change, shifting customer preferences, new service introductions and competition from traditional real estate brokerage firms. Competitors in this market have frequently taken different strategic approaches and have launched substantially different products or services in order to exploit the same perceived market opportunity. Although we believe that we are offering a unique solution, there can be no assurance that our services will be competitive technologically or otherwise, or that any other services developed by us will be competitive.

 

Our ability to compete in this industry will depend upon, among other things, broad acceptance of our services and on our ability to continually improve current and future services we may develop to meet changing customer requirements. There can be no assurance that we will successfully identify new service or product opportunities and develop and bring to the market new and enhanced solutions in a timely manner, that such products or services will be commercially successful, that we will benefit from such development, or that products and services developed by others will not render our products and services noncompetitive or obsolete. If we are unable to penetrate markets in a timely manner in response to changing market conditions or customer requirements, or if new or enhanced products or services do not achieve a significant degree of market acceptance, our business would be materially and adversely affected.

 

We may be impacted by general economic conditions within the United States residential real estate market.

 

The residential real estate market has experienced vast fluctuations in recent times. In some years, real estate home sales are brisk, while in other years the residential real estate market has been stagnant. Our ability to attract home sellers and buyers to use our website will, in part, depend upon consumers’ willingness in general to buy or sell a home. When consumers sense that the overall economy is not doing well, they are less likely to make an expensive purchase such as a home.

 

In addition, unemployment remains at the high levels by historical standards. There also remains an enormous inventory of unsold and vacant homes. In the first quarter of 2010, the US Census Bureau reported there were 19 million vacant homes in the United States.

 

 

9
 

 

Failure to achieve and maintain effective internal controls could limit our ability to detect and prevent fraud and thereby adversely affect our business and stock price.

 

Effective internal controls are necessary for us to provide reliable financial reports. All internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our most recent evaluation of our internal controls resulted in our conclusion that our disclosure controls and procedures were not effective due to a lack of segregation of duties in our accounting and financial functions, including financial reporting and our quarterly closing process. In our case, our failure to achieve and maintain an effective internal control environment could cause us to be unable to produce reliable financial reports or prevent fraud. This may cause investors to lose confidence in our reported financial information, which could in turn have a material adverse effect on our stock price.

 

Important Note: The foregoing risks are not a complete list of all risks that do or may affect the results of operation, financial condition or business prospects of Realbiz Media Group, but do represent management’s understanding and belief of the material risks associated with the Company, its business and any investment in securities of the Company. In addition to the above risks, businesses are often subject to risks not foreseen or fully appreciated by management. In reviewing this document, potential investors should keep in mind other possible risks that could be important. In sum, investors are urged to make their own evaluation of Realbiz Media Group.

 

ITEM 2. PROPERTIES

 

We maintain our principal executive offices at 2690 Weston Road, Suite 200, Weston, FL 33331.

 

 

ITEM 3. LEGAL PROCEEDINGS

 

We are not currently party to any material legal proceedings. From time to time, we (or our principal operating subsidiary, RealBiz) may be named as a defendant in legal actions arising from our normal business activities.

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

General

 

Our common stock is listed on the OTCQB under the symbol RBIZ.PK. Our stock began trading under the symbol “WBDG” on December 19, 2008 and changed to “RBIZ” on October 5, 2012. The following table shows our high and low closing prices of our common stock at the end of each quarter for the fiscal years 2012 and 2011. These stock prices below take into account the 1 for 200 reverse stock split which occurred on May 17, 2012.

 

 

Period  High Price   Low Price 
         
Fiscal Year Ended October 31, 2012        
First Quarter  $0.42   $0.24 
Second Quarter  $0.32   $0.22 
Third Quarter  $0.22   $0.22 
Fourth Quarter  $3.00   $0.22 

 

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Fiscal Year Ended October 31, 2011                
First Quarter   $ 4.00     $ 0.14  
Second Quarter   $ 0.32     $ 0.16  
Third Quarter   $ 4.00     $ 0.20  
Fourth Quarter   $ 0.42     $ 0.42  

 

Our closing stock price on May 21, 2012 was $0.22. As of the date of this filing, we had approximately 257 holders of record of our common stock.

 

Dividends

 

We have not paid any dividends on our common stock and do not anticipate paying any such dividends in the near future. Instead, we intend to use any earnings for future acquisitions and expanding our business. Nevertheless, at this time there are not any restrictions on our ability to pay dividends on our common stock.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The table below sets forth certain information, as of the close of business on October 31, 2012, regarding equity compensation plans (including individual compensation arrangements) under which our securities were then authorized for issuance.

 

   

Number of Securities

to be Issued Upon

Exercise of

Outstanding Options,

Warrants and Rights

 

Weighted-Average

Exercise Price of

Outstanding Options,

Warrants and Rights

 

Number of Securities

Remaining Available for

Issuance Under Equity

Compensation Plans

(excluding securities reflected

in column a)

 
    (a)   (b)   (c)  
Equity compensation plans approved by shareholders     -     N/A     -  
                     
Restricted Stock Plan and Stock Option equity compensation plans not approved by shareholders (1) (2)     600,000     $50.00     None  

_____________________ 

(1)In May 2008, the Board of Directors approved the issuance of incentive stock options totaling 600,000 shares to three of its non-employee directors, expiring in May 2013. An additional 200,000 options were granted to a new director on October 31, 2009, expiring in October 2011.
(2)See Note 6 of the financial statements for more information on restricted stock grants.

 

Presently, we are not required by applicable state law or the listing standards of any self-regulatory agency (e.g., the OTCQB, NASD, AMEX or NYSE) to obtain the approval of our security holders prior to issuing any such compensatory options, warrants or other rights to purchase our securities.

 

Potential Anti-Takeover Effects

 

Certain provisions set forth in our Amended and Restated Certificate of Incorporation, as amended, in our bylaws and in Delaware law, which are summarized below, may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.

 

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Blank Check Preferred Stock. Our Certificate of Incorporation and bylaws contain provisions that permit us to issue, without any further vote or action by the stockholders, up to 125,000,000 shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series, and the preferences and relative, participating, optional and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of such series.

 

Special Meetings of Stockholders. Our bylaws provide that special meetings of stockholders may be called only by the chairman or by our board. Stockholders are not permitted to call a special meeting of stockholders, to require that the board call such a special meeting, or to require that our board request the calling of a special meeting of stockholders.

 

While the foregoing provisions of our certificate of incorporation, bylaws and Delaware law may have an anti-takeover effect, these provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors and to discourage certain types of transactions that may involve an actual or threatened change of control. In that regard, these provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.

 

Delaware Takeover Statute

 

In general, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation that is a public company from engaging in any “business combination” (as defined below) with any “interested stockholder” (defined generally as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with such entity or person) for a period of three years following the date that such stockholder became an interested stockholder, unless: (1) prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (2) on consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (3) on or subsequent to such date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

 

Section 203 of the Delaware General Corporation Law defines “business combination” to include: (1) any merger or consolidation involving the corporation and the interested stockholder; (2) any sale, transfer, pledge or other disposition of ten percent or more of the assets of the corporation involving the interested stockholder; (3) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (4) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (5) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

 

 

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Transfer Agent and Registrar

 

Our transfer agent is Pacific Stock Transfer Company, located at 4045 South Spencer Street, Suite 403, Las Vegas, Nevada 89119. The transfer agent’s telephone number is (702) 361-3033. The transfer agent is registered under the Securities and Exchange Act of 1934.

 

Listing

 

Our common stock is currently traded on the OTCQB (a market tier on the over-the-counter Pink Sheets market) under the symbol RBIZ.PK.

 

Sales of Unregistered Securities

 

On March 11, 2011, the Company’s Board of Directors granted the Company’s CFO the right to convert up to $96,384 of accrued salary into shares of the Company’s common stock at a price of $0.01 per share.  On March 11, 2011, the Company’s CFO exercised this right and converted $96,384 of his accrued but unpaid compensation owed to him by the Company, acquiring 9,638,400 shares of the Company’s common stock at a price per share of $0.01.

 

On March 15, 2011, the Company’s Chairman and CEO exercised his right to convert $300,000 of the Convertible Note Payable – Officer/Stockholder he held with the Company at a price of $0.01 per common share resulting in the issuance of an additional 30,000,000 common shares to him and concurrently reducing the balance of the Convertible Note Payable – Officer/Stockholder by $300,000.

 

For these issuances of common stock, we relied on the exemption from federal registration under Section 4(2) of the Securities Act of 1933 and, in those instances where the issuances were made to affiliates or accredited investors, upon Rule 506 promulgated thereunder. In that regard, we relied on Rule 506 based on the fact that the investors who purchased these securities qualified as an “accredited investors” under Rule 501 of the Securities Act of 1933. In all cases, investors had knowledge and experience in financial and business matters such that they were capable of evaluating the risks of the investment. The securities offered and sold in the transactions were not registered under the Securities Act of 1933 and therefore may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 

ITEM 6. SELECTED FINANCIAL DATA

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our audited consolidated financial statements and related notes that appear elsewhere in this filing.

 

Cautionary Note Regarding Forward-Looking Statements

 

Some of the statements made in this section of our report are forward-looking statements. These forward-looking statements generally relate to and are based upon our current plans, expectations, assumptions and projections about future events. Our management currently believes that the various plans, expectations, and assumptions reflected in or suggested by these forward-looking statements are reasonable. Nevertheless, all forward-looking statements involve risks and uncertainties and our actual future results may be materially different from the plans, objectives or expectations, or our assumptions and projections underlying our present plans, objectives and expectations, which are expressed in this section.

 

In light of the foregoing, prospective investors are cautioned that the forward-looking statements included in this filing may ultimately prove to be inaccurate—even materially inaccurate. Because of the significant uncertainties inherent in such forward-looking statements, the inclusion of such information should not be regarded as a representation or warranty by Realbiz Media Group, Inc. or any other person that our objectives, plans, expectations or projections that are contained in this filing will be achieved in any specified time frame, if ever. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. The risks discussed in the Item 1A of this filing should be considered in evaluating our prospects and future performance.

 

General Overview

 

General Overview

 

On April 4, 2012, the Company entered into a share exchange agreement with Next 1 Interactive, Inc. (“Next 1”), a publicly traded company. The agreement calls for Next 1 to exchange 100% of the common shares (100,000,000) of their wholly-owned subsidiary Next One Realty, Inc., for newly issued Series A Convertible Preferred Stock of Webdigs. The Series A Convertible Preferred Stock has not yet been designated and is the subject of negotiation. At the closing of this transaction Next 1 would own, on an as-converted basis, approximately 93% of the issued and outstanding shares of Webdigs, Inc.

 

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 RealBiz 360, 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.”

 

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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 in this Current Report are on a post-split basis.

 

On March 16, 2012, the Company sold the “Webdigs” domain, technology and certain trademarks to Fiontrai II, LLC for $15,000. These assets, which were held in Webdigs, LLC, included US Trademark No. 3,461,665 "Webdigs", along with www.webdigs.com domain name and the original webdigs.com website software and technology developed by MoCo, Inc. Included in this transaction was a royalty agreement whereby Webdigs could receive royalty payments from Fiontrai upon its licensing the technology to other third parties. Also included in this transaction was a royalty agreement for which Fiontrai II paid $1,000.00 (part of the total $15,000). Robert Buntz, CEO purchased the royalty agreement from the Company in exchange for a principal reduction of his loan to the Company of $5,000.00.

  

 

Please see Note 12, Subsequent Events, for other recent developments.

 

Results of Operations

 

The following information should be read in conjunction with the audited financial statements and notes thereto appearing elsewhere in this Annual Report.

 

   

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Revenues

 

Our total revenues decreased 25% to $1,172,498 for the year ended October 31, 2012, compared to $1,556,970 for the year ended October 31, 2011, a decrease of $384,472. The decrease is due to reduced real estate revenue from virtual tours due to drop in available listings in a tough real estate environment.

 

Revenues from real estate decreased 16% to $1,125,076 for the year ended October 31, 2012, compared to $1,335,577 for the year ended October 31, 2011, a decrease of $210,501. The decrease is due to the decline of virtual tours due to drop in available listings in a tough real estate environment.

 

Revenues from other sources, consulting, decreased 79% to $47,422 for the year ended October 31, 2012, compared to $221,393 for the year ended October 31, 2011, a decrease of $173,971. This decrease was due to reduced real estate revenue from virtual tours due to drop in available listings in a tough real estate environment.

 

Cost of Revenue

 

Cost of revenues decreased 24% to $105,116 for year ended October 31, 2012, compared to $137,557 for the year ended October 31, 2011, a decrease of $32,441. The decrease in costs was primarily associated with the Company’s decrease in costs associated with the decrease in virtual tours due to drop in available listings in a tough real estate environment.

 

Operating Expenses

 

Our total operating expenses decreased 14% or $336,082 to $2,068,823 for the year ended October 31, 2012, compared to $2,404,905 for the year ended October 31, 2011. The decrease was primarily due to a decrease in: selling and promotional costs of $157,942, professional fees of $35,483, consulting fees of $320,002, travel and entertainment of $46,842 and dues and subscriptions of $30,030; offset by an increase in salaries and benefits of $161,051, legal and accounting fees of $30,104, rent of $7,509, telephone of $5,458, web hosting of $11,034, office expense of $16,372 and other miscellaneous operating expense of $22,688.

 

Other Income (Expense)

 

Interest income increased 19% to $38,221 for the year ended October 31, 2012, compared to $32,032 for year ended October 31, 2011, an increase of $6,189 primarily due to additional investment. Foreign exchange gains increased 299% to $38,221 for the year ended October 31, 2012, compared to loss of $19,177 for year ended October 31, 2011, an increase of $57,398 primarily due to fluctuations in the exchange rates Gain on sale of marketable securities decrease 100% to $-0- for the year ended October 31, 2012, compared to a gain of $110,552 for the year ended October 31, 2012 primarily due to no marketable securities in 2012. Other expense decreased 100% to $-0- for the year ended October 31, 2012, compared to $59,343 for year ended October 31, 2011, an decrease of $59,343 primarily due to a one time non recurring charge incurred during consolidation.

 

Net Loss

 

Net loss increased 1% to $963,220 for the year ended October 31, 2012, compared to net loss of $953,460 for the year end October 31, 2011, a decrease of $9,760 primarily due to the reduced revenue offset by reduced costs.

 

Assets and Employees; Research and Development

 

We do not currently anticipate purchasing any equipment or other assets in the near term, however, as we expand operations, we will need additional equipment and employees to create and market our products.

 

Liquidity and Capital Resources; Anticipated Financing Needs

 

At October 31, 2012, the Company had $36,408 cash on-hand, a decrease of $74,829 from $111,237 at the start of fiscal 2012. The decrease in cash was due primarily to operating expenses.

 

Net cash used in operating activities was $45,569 for the year ended October 31, 2012, a decrease of $551,307 from $596,876 used during the year ended October 31, 2011. This decrease was due to an increase in accounts payable and accrued liabilities offset by a reduction in the gain on sale and the decrease of marketable securities and deferred revenue.

 

16
 

 

Net cash provided by financing activities decreased $463,161 to $29,260, for the year ended October 31, 2012, compared to $433,901 for the year ended October 31, 2011.  This decrease was primarily due to the decrease in payments on notes payable.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. We evaluate these estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant estimates are determining some of the inputs for our stock option fair value calculation and assessing the valuation allowance for income taxes.

 

We consider the following accounting policies to be those most important to the portrayal of our results of operations and financial condition:

 

Revenue Recognition. Real estate brokerage revenues were recognized at the closing of a real estate transaction. Fees due to third party real estate agents or clients are accrued at the time of closing and treated as an offset to gross revenues.

 

Income Taxes. The Company accounts for income taxes using an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period. The Company has recorded a full valuation allowance for its net deferred tax assets as of October 31, 2011 and 2010 because realization of those assets is not reasonably assured.

 

The Company will recognize a 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 financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

The Company believes its income tax filing positions and deductions will be sustained upon examination and, accordingly, no reserves, or related accruals for interest and penalties has been recorded at October 31, 2011 and 2010.

 

Share-Based Compensation. The Company accounts for stock incentive plans by measurement and recognition of compensation expense for all stock-based awards based on estimated fair values, net of estimated forfeitures. Share-based compensation expense recognized for the years ended October 31, 2011 and 2010 includes compensation cost for restricted stock awards and stock options. The Company uses the Black- Scholes option-pricing model to determine the fair value of options granted as of the grant date.

 

The Company reviews the outstanding receivables on a monthly basis and receivables are considered past due when payment has not been received 30 days after a transaction closes. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to receivables. Historically, the Company has not experienced significant losses related to receivables from individual customers. At October 31, 2011 and 2010, the Company considers its accounts receivable to be fully collectible and therefore, has not recorded an allowance for doubtful accounts.

 

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Office Equipment and Fixtures. Office equipment and fixtures are recorded at cost. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. When items of property or equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in operating income.

 

Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets as follows:

 

Office equipment 2 to 5 years
Furniture and fixtures 3 to 7 years

 

 

Intangible Assets.

 

On October 9, 2012, the Company entered a Share Exchange Agreement (Note 1). The Company accounted for the acquisition utilizing the purchase method of accounting in accordance with ASC 805 “Business Combinations”. The Company is the acquiree for accounting purposes. Accordingly, the Company applied push-down accounting and has recorded the intangible asset as described herein.

 

* The Company is in review of the facts and circumstances surrounding events to determine if the carrying amount of held-and-used identifiable amortized intangibles acquired during the October 2012 acquisition may be reallocated under the provisions of ASC 350 and ASC 805. The Company has until October 2013 (12 months) to determine the final allocations and it is studying a reallocation with more emphasis on “customer relationships and customer lists”. No amortization has been calculated based on the original allocations.

 

 

Recently Issued Accounting Pronouncements

 

ASU 2011-05 – Presentation of comprehensive income

 

ASU 2011-05 was the result of a joint project with the IASB and amends the guidance in ASC 220, Comprehensive Income, by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders’ equity. Instead, the new guidance now requires entities to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive statements.

 

All entities that report OCI items will be impacted by the changes in this ASU. The components of OCI have not changed, nor has the guidance on when OCI items are reclassified to net income; however, the amendments require entities to present all reclassification adjustments from OCI to net income on the face of the statement of comprehensive income.

 

The amendments to ASC 220, Comprehensive Income, included in ASU 2011-05, Presentation of Comprehensive Income, are effective for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2011 (that is, the fiscal year beginning January 1, 2012 for calendar-year entities) for public entities and for interim and annual periods thereafter. The amended guidance must be applied retrospectively and early adoption is permitted. The Company does not expect the adoption of this recently issued accounting pronouncement to have a significant impact on its results of operations, financial position or cash flows.

 

18
 

 

Seasonality of Business

 

The residential real estate market has traditionally experienced seasonality, with a peak in the spring and summer seasons and a decrease in activity during the fall and winter seasons. Revenues in each quarter can be significantly affected by activity during the prior quarter, given the time lag between contract execution and closing. A typical real estate transaction has a 30 day lag between contract signing and closing of the transaction.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

See financial statements starting on page 29.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) as of October 31, 2011 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

 

Management’s Annual Report On Internal Control Over Financial Reporting

 

Based on this evaluation and taking into account that certain material weaknesses existed as of October 31, 2011, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective.  As a result of this conclusion, the financial statements for the period covered by this Annual Report on Form 10-K were prepared with particular attention to the material weaknesses previously disclosed. Notwithstanding the material weaknesses in internal controls that continue to exist as of October 31, 2011, we have concluded that the financial statements included in this Annual Report on Form 10-K present fairly, the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America (GAAP).

   

19
 

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

     
  •  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
     
  •  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
     
  •  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

  

Our management assessed the effectiveness of our internal control over financial reporting as of October 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

 

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.  In connection with the assessment described above, management has re-evaluated the control deficiencies identified in the prior fiscal year.

 

We conclude that, as of October 31, 2012, our internal control over financial reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO.  We intend to further improve our internal controls in our current fiscal year and add additional measures to further mitigate our material internal control weaknesses as the Company grows assuming our operating funds are sufficient.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC to provide only management’s report in this annual report.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended October 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management has concluded that the material weaknesses in internal control as described in Item 9A of the Company’s Form 10-K for the year ended October 31, 2011 have not been fully remediated. 

 

ITEM 9B. OTHER INFORMATION

 

On December 21, 2012, the Board of Directors accepted Rob Buntz’s resignation as Chief Executive Officer and appointed Bill Kerby as new Chief Executive Officer of the Company. Mr. Buntz will remain as a Director. Also approved as Directors to the Board were Don Monaco, Phil Bliss and Doug Checkeris. Phil Bliss was appointed to be the Chief Information Officer, Steve Marques was appointed Chief Revenue Officer, Doug Checkeris was appointed Acting Chief Marketing Officer and Adam Friedman was appointed Chief Financial Officer.

 

20
 

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

Directors, Executive Officers and Other Key Employees

 

Our Board of Directors and management team includes:

 

Name   Age   Position(s)   Independent Director
Bill Kerby   55   Director (Chairman), Chief Executive Officer   No
Adam Friedman   48   Chief Financial Officer   No
Donald Monaco   60   Director   Yes
Philip Bliss   64   Chief Information Officer, Director   No
Robert A. Buntz, Jr.   60   Director   Yes
Steven Marques   52   Chief Revenue Officer   No
Doug Checkeris   57   Acting Chief Marketing Officer, Director  

No 

             

Biographies for the members of our Board of Directors and our management team are set forth below:

 

William Kerby – Chief Executive Officer and Chairman:

 

On December 21, 2012, the board of directors of the Company appointed William Kerby, age 55, to the position of Chief Executive Officer and Chairman of the Board of the Company. Mr. Kerby, age 55 is the founder of Next 1, Interactive, Inc. From 2008 to present, he has been the architect of the Next 1 model, overseeing the development and operations of the Travel, Real Estate and Media divisions of the company. From 2004 to 2008, Mr. Kerby served as the Chairman and CEO of Extraordinary Vacations Group whose operations included Cruise & Vacation Shoppes, Maupintour Extraordinary Vacations and the Travel Magazine - a TV series of 160 travel shows. From 2002 to 2004 Mr. Kerby was Chairman of Cruise & Vacation Shoppes after it was acquired by a small group of investors and management from Travelbyus. Mr. Kerby was given the mandate to expand the operations focusing on a “marketing driven travel model.” In June 2004 Cruise & Vacation Shoppe was merged into Extraordinary Vacations Group. From 1999 to 2002 Mr. Kerby founded and managed Travelbyus, a publicly traded company on the TSX and NASD Small Cap. The launch included an intellectually patented travel model that utilized technology-based marketing to promote its travel services and products. Mr. Kerby negotiated the acquisition and financing of 21Companies encompassing multiple tour operators, 2,100 travel agencies, media that included print, television, outdoor billboard and wireless applications and leading edge technology in order to build and complete the Travelbyus model. The company had over 500 employees, gross revenues exceeding $3 billion and a Market Cap over $900 million. Prior to this Mr. Kerby founded Leisure Canada – a company that included a nationwide Travel Agency, international tour operations, travel magazines and the Master Franchise for Thrifty Car Rental British Columbia.

 

Adam Friedman - Chief Financial Officer:

 

On December 21, 2012, the board of directors of the Company appointed Adam Friedman, age 48, to the position of Chief Financial Officer of the Company. Mr. Friedman has served as the Chief Financial Officer of Next 1 Interactive, Inc. since 2010 From 2006 to 2010, Mr. Friedman had previously served as Chief Financial Officer, Corporate Secretary, and Controller for MDwerks, Inc. (“MDwerks”) where his responsibilities included overseeing the company’s finances, human resources department, U.S. Securities & Exchange Commission compliance, and Sarbanes-Oxley compliance. Prior to joining MDwerks, Mr. Friedman served as the Vice President of Finance for CSA Marketing, Inc. from 2005 to 2006. For the eleven years prior to 2005, Mr. Friedman served as the Business Manager/Controller and Director of Financial Planning at the GE/NBC/Telemundo Group, Inc. Mr. Friedman also worked as a Senior Financial Analyst for Knight-Ridder, Inc and as an Audit Senior Accountant for KPMG Peat Marwick. Mr. Friedman received his MBA from St. Thomas University and his BSM from Tulane University.

 

21
 

 

Don Monaco - Director:

 

On December 21, 2012, the Company appointed Don Monaco, 60, as a member of its Board of Directors. Mr. Monaco is the principal owner of Monaco Air Duluth, LLC, a full service, fixed-base operator aviation services business at Duluth International Airport serving airline, military and general aviation customers. Mr. Monaco spent over 18 years as a Partner and Senior Executive and has 28 years as an international information technology and business management consultant with Accenture in Chicago, Illinois. Mr. Monaco also serves as a Commissioner on the Metropolitan Airports Commission in Minneapolis-St. Paul and as Commissioner and President of the Duluth Economic Development Authority. Mr. Monaco is also the President of the Monaco Air Foundation, Vice-Chairman of the Miller-Dwan Foundation, Treasurer of Honor Flight Northland, Treasurer of the Duluth Aviation Institute, Co-Chair of the Northern Aero Alliance, and a member of Lake Superior College's Center for Advanced Aviation Steering Committee. The Company believes that Mr. Monaco’s senior management experience qualifies him to be a member of the Board.

 

Doug Checkeris - Director:

 

On December 21, 2012, the Company appointed Doug Checkeris, 57, as a member of its Board of Directors. Mr. Checkeris is a Senior Media and Advertising Executive with nearly three decades of hands-on management in all facets of interactive media. Doug’s work experience includes 14 years of service with Mediacom where he rose through the ranks to become the CEO for Mediacom North America, until recently headquartered in New York. With close to $18 billion in global billings, 4,600 employees, and 116 offices in 89 countries, Mediacom provides and specializes in business-building media solutions for some of the world’s largest, well-known advertisers. Previous to Mediacom, Doug started his career in a media company in Toronto, Canada, and was a partner when the company was acquired by Grey Worldwide and the WPP.

 

Philip Bliss - Director:

 

On December 21, 2012, the Company appointed Phil Bliss, 64, as its Chief Information Officer and a member of its Board of Directors. Mr. Bliss is a digital marketing pioneer who has been at the forefront of digital media development for the past twenty years. Mr. Bliss provides marketing, product and technology leadership, as well as providing strategy, development and marketing expertise to companies that want to leverage their digital assets. Mr. Bliss has built and sold four companies and been a strategic advisor, product marketer and director to many start-ups in the technology sector. In the last seventeen years he has built, managed or launched hundreds of web sites, built and marketed twelve products and consulted with numerous large and small organizations on their technology products and web strategies. Over the past six years he has built a number of new products and process for the Higher Education sector and consulted with many universities and colleges through their web renewal activities. His national and international track record includes many technology, educational, non-profit, and American Indian companies including the Smithsonian Institution, University of Toronto, Brock University, Microsoft, NEC, Samsung, and Cisco Systems.

 

Robert A. Buntz, Jr. - Director:

 

On December 21, 2012, the Company accepted the resignation of Robert Buntz, Jr.,61, as Chief Executive Officer of the Company, but retained him as a member of its Board of Directors. Mr. Buntz has served as a director of the Company, including Webdigs, LLC, since inception in May 2007. Mr. Buntz has been an entrepreneur for more than 30 years and a real estate broker for more than 25. In 1981, Mr. Buntz developed the award-winning Bluefin Bay on Lake Superior, Tofte, Minnesota, and operated that resort until 2007. Among his achievements, Mr. Buntz’s development company donated the land, time and funding to help create the North Shore Commercial Fishing Museum and Mr. Buntz created and developed one of the first rural affordable housing projects, Tofte Homestead. From 1984 through 2006, and while he was simultaneously operating Bluefin Bay, Mr. Buntz was the owner and operator of Tofte Land Co., Inc., a real estate holding and brokerage firm. He now has more than 25 years of hospitality experience as an owner-operator of destination properties. Mr. Buntz has served on the board of directors of the Explore Minnesota Tourism Council and the (Minnesota) Governor’s Tourism Advisory Committee for more than 15 years. Currently, Mr. Buntz is a board member and past-chair of the board of the American Museum of Asmat Art. Mr. Buntz received the (Minnesota) Governor’s Entrepreneurship Award from Governor Rudy Perpich and the Outstanding Individual in Tourism Award from Governor Jesse Ventura. He is a graduate of Grinnell College.

 

22
 

 

Steven Marques – Chief Revenue Officer/Acting President:

 

On December 21, 2012, the board of directors of the Company appointed Steven Marques, 52, to the position of Chief Revenue Officer. Mr. Marques is Acting President and was previously President/Chief Operations Officer of RealBiz360 Inc. dba/RealBiz Media Inc which began in early 2004 prior to the merger into RealbizMedia Group. He led the company to become one of top 5 leading Virtual Tour companies in North America. Steve was instrumental in overseeing the company’s current operating plan to include the move to Video On Demand television with its partner Next 1 Interactive, which then led the company’s expansion into Video Content Syndication which is the base of its business plan today. Under his management he was instrumental for the company’s strategic alliances and key partnerships with companies like Realogy, Keller Williams, Move-Realtor.com, Coldwell Banker NRT franchises and more. Mr. Marques’ prior leadership roles include; Vice President of Global Sales for iseemedia; Sr. Vice President of Marketing for Omnigon, a San Diego based Bio-tech Company, and MGI software, leaders in consumer based photo and video software. Mr. Marques has been in the Computer and Internet industry since 1983 where he was part of the start-up management teams of Egghead Discount Software which was one of America’s first Retail Computer software chains with over 200 locations at its peak.
 

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth the cash and non-cash compensation for the years ended October 31, 2012 and 2011 which was awarded to or earned by (i) our Chief Executive Officer during fiscal year 2012 and (ii) our other executive officers (other than the Chief Executive Officer) who served the Company and who received in excess of $100,000 in total compensation for a year (collectively, the “named executive officers”).

 

Name and Principal  Stock   All Other                 
Position  Year   Salary   Bonus   Awards   Compensation   Total 
Robert A. Buntz, Jr   2012   $-   $-   $-   $-   $- 
Former Chief Executive Officer and President   2011   $96,000   $-   $-   $-   $96,000 
Edward P. Wicker   2012   $-   $-   $-   $-   $- 
Former Chief Financial Officer   2011   $84,000   $-   $-   $-   $84,000 
Steven Marques   2012   $88,300   $-   $-   $-   $88,300 
Chief Revenue Officer/Acting President   2011   $105,000   $-   $-   $-   $105,000 

 

Employment Agreements with Executives and Key Personnel

 

The Company does not currently have any employment agreements. On December 31, 2011, Mr. Wicker resigned.

 

Currently, the Company does not offer any executive bonus or incentive compensation plan and there are no current plans to put one in place for fiscal year 2013.

 

Outstanding Equity Awards at Fiscal Year End

 

There were no outstanding equity awards for the executives as of October 31, 2012.

 

23
 

 

Director Compensation 

 

Our non-employee directors have elected to forego any cash compensation for participating in Board of Directors and committee meetings telephonically until such time as we become profitable over the course of an entire fiscal year, at which time the Board of Directors may reconsider the structure of its director compensation. In general, director compensation will be subject to review and adjustment from time to time at the discretion of our Board of Directors.

 

The following table sets forth the compensation of our non-employee directors for fiscal year 2012:

 

    Fees                   Nonqualified           
    Earned              Non-Equity    Deferred           
    or Paid    Stock    Option    Incentive Plan    Compensation    All other      
    in Cash    Awards    Awards    Compensation    Plan    Compensation    Total 
Name   $    $    $    $    $    $    $ 
Don Monaco   -    -    -    -    -    -   $- 
Philip Bliss   -    -    -    -    -    -   $- 
Doug Checkeris   -    -    -    -    -    -   $- 
Robert Buntz, Jr.   -    -    -    -    -    -   $- 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information with respect to the beneficial ownership of our issued and outstanding common stock as of October 12, 2012, after giving effect to the Exchange Transaction, by (i) each of our named executive officers; (ii) each of our directors; and (iii) all of our executive officers, directors and director nominees as a group. Ownership percentages are based on 365,176 shares of common stock issued and outstanding as of the close of business on October 12, 2012 (after giving effect to a reverse stock split effected as of May 10, 2012), and 100,000,000 shares of Series A Stock issued and outstanding as of that date. Based on that information available to us, as of that date, no person is a beneficial owner of more than 5% of our common stock other than Next 1 Interactive, Inc. and Robert A. Buntz, Jr.

 

Beneficial ownership is determined in accordance with the rules of the SEC. To our knowledge and subject to applicable community property laws, each of the holders of stock listed below has sole voting and investment power as to the stock owned unless otherwise noted. Except as otherwise noted below, the address for each director or officer listed in the table is c/o RealBiz Media Group, Inc., 2690 Weston Road, Suite 200, Weston, FL 33331.

 

Name and Address   

Common Shares

Beneficially Owned(1)

    Percentage of Common Shares 
Next 1 Interactive, Inc. (1)   93,000,000    92.66%
Robert A. Buntz, Jr. (2)   5,983,600    5.96%
William Kerby (3)   0    * 
Don Monaco (4)   0    * 
Adam Friedman (5)   0    *  
Philip Bliss (6)   0    *  
Doug Checkeris (7)   0    *  
Steven Marques (8)   0    *  
All current directors and officers as a group (9)   5,983,600    5.96%

_____________________

 

*less than one percent.

 

24
 

 

  
(1)Next 1 Interactive, Inc. holds 93,000,000 shares of Series A Stock that was issued in the Exchange Transaction.
  
(2)Mr. Buntz is our former Chief Executive Officer and a Director of the Company.
  
(3)Mr. Kerby is our Chairman of the Board and Chief Executive Officer, appointed to such position as of the closing of the Exchange Transaction. Mr. Kerby also serves as the Chief Executive Officer of Next 1. See footnote 1 above. Mr. Kerby possesses beneficial ownership of approximately 43.6% of the total voting stock of Next 1.
  
(4)Mr. Monaco is a director of the Company, appointed to such position as of the closing of the Exchange Transaction. Mr. Monaco also serves as a director of Next 1. See footnote 1 above. Mr. Monaco possesses beneficial ownership of approximately 53.8% of the total voting stock of Next 1.
  
(5)Mr. Friedman is our Chief Financial Officer, appointed to such position as of the closing of the Exchange Transaction. Mr. Friedman also serves as the Chief Financial Officer of Next 1. See footnote 1 above.
  
(6)Mr. Bliss is a director of the Company and our Chief Information Officer, appointed to such position as of the closing of the Exchange Transaction. Mr. Bliss also serves as a Director of Next 1. See footnote 1 above.
  
(7)Mr. Checkeris is our Acting Chief Marketing Officer, appointed to such position as of the closing of the Exchange Transaction. Mr. Checkeris also serves as a Director of Next 1. See footnote 1 above.
  
(8)Mr. Marques is our Chief Revenue Officer, appointed to such position as of the closing of the Exchange Transaction.
  
(9)Consists of Messrs. Buntz, Kerby, Monaco, Friedman, Bliss, Checkeris, and Marques. See, however, footnotes 4 and 5 above for an understanding of the indirect economic interest of Messrs. Kerby and Monaco.
  

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE

 

Related-Party Transaction Policy

 

Our Board of Directors has no formal written policy regarding transactions with related persons, but we do plan to abide by conflict-of-interest statutes under Delaware law and approve any related-party transactions by a majority of disinterested directors. In general, applicable law exhorts any director proposing to enter into a related-party transaction must disclose to our Board of Directors the proposed transaction and all material facts with respect thereto. In reviewing such a proposed transaction, our board expects to consider all relevant facts and circumstances, including (1) the commercial reasonableness of the terms, (2) the benefit and perceived benefits, or lack thereof, to us, (3) the opportunity costs of alternate transactions, (4) the materiality and character of the related party’s interest, and (5) the actual or apparent conflict of interest of the related party. We expect to apply this analysis with respect to related party transactions that may involve our officers or greater-than-five-percent shareholders.

 

We do expect to adopt a formal written policy respecting related-party transactions in which our directors, officers and greater-than-five-percent shareholders may engage, consistent with Sarbanes-Oxley related internal control requirements and best practices.

 

Related-Party Transactions of Company – Webdigs, Inc. (Pre-Exchange Transaction)

 

The Company’s principal advertising agency/website developer was owed $615,264 at October 31, 2012 and 2011, respectively. The two principals of this advertising company were at the time also minority stockholders in the Company, holding approximately 1.6% of the Company’s outstanding common shares at October 31, 2012. For the years ended October 31, 2012 and 2011, the Company incurred $0 and $31,556 in services and rent from this related party, respectively.

 

25
 

 

As of October 31, 2011 and 2010, the Company was indebted to its then-officers (Messrs. Buntz and Wicker) for amounts totaling $3,578 and $8,345, respectively, for unreimbursed business expenses. All of the indebtedness represents non-interest bearing payables due on demand.

 

During the year ended October 31, 2010, the Company borrowed $355,500 from Robert A. Buntz, Jr. under a convertible promissory note accruing interest at an annual rate of 12%. At October 31, 2011 and 2010, the balances due under this note were $243,079 and $528,500, respectively. On October 12, 2010, these notes were modified to allow the Mr. Buntz to convert amounts into the Company’s common stock at $0.01 per share instead of a previous conversion price of $22 (after adjustment for reverse split). This modification resulted in a beneficial conversion charge to interest expense of $580,424 because the stock was trading at $6.00 (on a post-split basis) on that date. On March 15, 2011, Mr. Buntz converted $300,000 of the debt into 150,000 shares of common stock (on a post-split basis). For the years ended October 31, 2011 and 2010, the Company incurred $46,038 and $630,932 of interest expense in connection with this note, respectively. Accrued interest included in accrued expenses due under the note as of October 31, 2011 and 2010 was $91,962 and $51,924, respectively. The accrued interest was also convertible into the Company’s common stock at $2.00 per share (after adjustment for reverse split).

 

In connection with the closing of the Exchange Transaction on October 9, 2012, Messrs. Buntz and Wicker converted all of their outstanding notes, unpaid salary and all other obligations and liabilities to them owed by the Company into 5,983,600 and 1,016,400 shares of Series A Stock, respectively.

 

Related-Party Transactions of Company – RealBiz

 

None

 

Director Independence

 

As of October 31, 2012, The Board of Directors was comprised of one-half “independent” directors as defined in Rule 4200(a)(15) of the NASDAQ Stock Market.

 

Our Board of Directors does not currently have an Audit Committee consisting of a member who was independent as defined in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market. On January 11, 2012, three directors, Steven Sjoblad, Joseph Fox and Donald Miller, resigned.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Aggregate fees billed by our principal independent registered public accounting firm for audits of the financial statements for the fiscal years indicated:

 

 

   2012   2011 
Audit fees  $26,000   $23,500 
Audit related fees   -   $19,624 
Tax fees   -    - 
All other fees   -    - 
Total  $26,000   $43,124 

 

Audit Fees. The fees identified under this caption were for professional services rendered by Moquist Thorvilson Kaufmann & Pieper LLC (MTK) for fiscal years 2012 and 2011 in connection with the audit of our annual financial statements. The amounts also include fees for services that are normally provided by the independent public registered accounting firm in connection with statutory and regulatory filings and engagements for the years identified.

 

26
 

 

Audit-Related Fees. The fees identified under this caption were for assurance and related services that were related to the review of our financial statements included in our quarterly reports on Form 10-Q and were not reported under the caption “Audit Fees.” We also incurred audit fees for the carve out and potential spinoff of IggysHouse.com. This category may include fees related to the performance of audits and attestation services not required by statute or regulations, and accounting consultations about the application of generally accepted accounting principles to proposed transactions.

 

Tax Fees. The fees identified under this caption were for tax compliance, tax planning, tax advice and corporate tax services. Corporate tax services encompass a variety of permissible services, including technical tax advice related to tax matters; assistance with withholding-tax matters; assistance with state and local taxes; preparation of reports to comply with local tax authority transfer pricing documentation requirements; and assistance with tax audits.

 

Approval Policy. Our Audit Committee approves in advance all services provided by our independent registered public accounting firm. All engagements of our independent registered public accounting firm in fiscal years 2012 and 2011 were pre-approved by the Board of Directors.

 

 

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Financial Statements

 

Description   Page
Report of Independent Registered Public Accounting Firm    F-1
Consolidated Balance Sheets    F-2
Consolidated Statements of Operations    F-3
Consolidated Statement of Stockholders’ Deficit    F-4
Consolidated Statements of Cash Flows    F-5
Notes to Consolidated Financial Statements    F-6

 

 

 

27
 

 

     

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Stockholders and Board of Directors

RealBiz Media Group, Inc.

 

 

We have audited the accompanying consolidated balance sheets of RealBiz Media Group, Inc. as of October 31, 2012 and 2011 and the related consolidated statements of operations and comprehensive loss and changes in stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RealBiz Media Group, Inc. as of October 31, 2012 and 2011 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has incurred losses of $963,220 and $953,460 for the years ended October 31, 2012 and 2011, respectively and the Company had an accumulated deficit of $6,091,775 and a working capital deficit of $2,311,736 at October 31, 2012. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

  /s/ D’Arelli Pruzansky, P.A.
  Certified Public Accountants

 

Boca Raton, Florida

February 14, 2013

 

 

 

 

 

F-1
 

 

RealBiz Media Group, Inc.
Consolidated Balance Sheets

 

 

   October 31, 2012   October 31, 2011 
ASSETS       
Current Assets:          
Cash and cash equivalents  $36,408   $111,237 
Accounts receivable, net   31,669    28,582 
Total current assets   68,077    139,819 
           
Intangible assets   4,796,978    - 
           
Total Assets  $4,865,055   $139,819 
           
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)          
Current Liabilities:          
Accounts payable and accrued liabilities  $836,961   $107,735 
Deferred revenue   41,859    51,112 
Advances from affiliate   835,729    201,660 
Loans payable   50,000    369,040 
Shareholder loans   615,264    - 
Total current liabilities   2,379,813    729,547 
           
Total liabilities   2,379,813    729,547 
           
Shareholders' Equity (Deficit):          
Common stock $.001 par value, 625,000 authorized, 383,651 and 642 issued and outstanding at October 31, 2012 and 2011 respectively.   383    1 
Preferred series A shares $.001 par value 100,000,000 authorized, 100,000,000 and 0 issued and outstanding at October 31, 2012 and 2011 respectively.   100,000    - 
Additional paid in capital   8,482,483    4,543,933 
Other comprehensive income (loss)   (5,849)   (5,107)
Accumulated deficit   (6,091,775)   (5,128,555)
Total Shareholders' Equity (deficit)   2,485,242    (589,728)
           
Total Liabilities and Shareholders' Equity (Deficit)  $4,865,055   $139,819 

 

See accompanying notes to consolidated financial statements.

 

 

F-2
 

 

RealBiz Media Group, Inc.
Consolidated Statements of Operations

 

 

   For the years ended October 31,  
   2012   2011 
         
Revenues          
Real estate revenues  $1,125,077   $1,335,577 
Other revenue   47,421    221,393 
Total Revenue   1,172,498    1,556,970 
           
Cost of revenues   105,116    137,557 
           
Gross profit   1,067,382    1,419,413 
           
Operating expenses          
Salaries and benefits expenses   890,174    729,123 
Selling and promotion expenses   307,266    465,208 
General and administrative expenses   871,383    1,210,574 
Total Costs and Expenses   2,068,823    2,404,905 
           
Operating Loss   (1,001,441)   (985,492)
           
Other income (expense)          
Foreign exchange gain / (loss)   38,221    (19,177)
Gain on sale of marketable securities   -    110,552 
Other income (expense)   -    (59,343)
Total Other Income (Expense), net   38,221    32,032 
           
Net Loss  $(963,220)  $(953,460)
           
Other comprehensive income (loss)          
Unrealized gains (losses) on currency translation adjustments   (742)   13,403 
Other comprehensive income (loss)   (742)   13,403 
Comprehensive loss  $(963,962)  $(940,057)
           
Weighted average numbers of shares outstanding   383,651    642 
           
Basic and diluted net loss per share  $(2.51)  $(1,485.14)

 

 

See accompanying notes to consolidated financial statements.

 

 

F-3
 

 

RealBiz Media Group, Inc.
Consolidated Statements of Cash Flows

 

   For the years ended October 31,  
   2012   2011 
         
Cash flows from operating activities:          
Net loss  $(963,220)  $(953,460)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Gain on sale marketable securities   -    (110,552)
Changes in operating assets and liabilities:          
(Increase) decrease in accounts receivable   (3,087)   52,895 
Decrease in marketable securities   -    274,680 
(Increase) decrease in prepaid and other assets   -    2,079 
Increase in accounts payable & accrued libilities   378,319    31,460 
Increase in advances from affiliates   551,672    201,660 
Decrease in deferred revenue   (9,253)   (95,638)
Net cash used in operating activities   (45,569)   (596,876)
           
Cash flows from financing activities          
Proceeds from notes payable   -    513,490 
Payments of notes payable   (29,260)   (79,589)
Net cash used in financing activities   (29,260)   433,901 
           
Net decrease in cash and cash equivalents   (74,829)   (162,975)
           
Cash and equivalents, at beginning of period   111,237    274,212 
           
Cash and equivalents, at end of period  $36,408   $111,237 
           
Supplemental disclosure of non-cash investing and financing activities:          
Push down fair value adjustment to net asset and additional paid-in-capital  $5,016,506   $- 
Increase in liabilities - in connection with recapitalization of company  $(1,077,957)  $- 

 

See accompanying notes to consolidated financial statements.

 

F-4
 

 

RealBiz Media Group, Inc.
Consolidated Statement of Changes in Stockholders' Equity (Deficit)

Years Ending October 31, 2012 and 2011

 

          Other   Total 
                   Additional       Comprehensive   Stockholders' 
   Preferred Series A   Common Stock   Paid-in   Accumulated   Income   Equity 
   Shares   Amount   Shares   Amount   Capital   Deficit   (Loss)   (Deficit) 
                                         
Balances at October 31, 2010   -   $-    642   $1   $4,543,933   $(4,175,095)  $(18,510)  $350,329 
                                         
                                         
Net Loss   -    -    -    -    -    (953,460)   13,403    (940,057)
                                         
Balances at October 31, 2011       $-    642   $1   $4,543,933   $(5,128,555)  $(5,107)  $(589,728)
                                         
Push down fair value adjustment   -    -    -    -    5,016,507    -    -    5,016,507 
                                         
Recapitalization of Company   100,000,000    100,000    383,009    382    (1,077,957)   -    -    (977,575)
                                         
Net Loss   -    -    -    -    -    (963,220)   (742)   (963,962)
                                         
Balances at October 31, 2012   100,000,000   $100,000    383,651   $383   $8,482,483   $(6,091,775)  $(5,849)  $2,485,242 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

F-5
 

 

REALBIZ MEDIA GROUP, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended October 31, 2012 and 2011

 

 

NOTE 1: ORGANIZATION AND NATURE OF BUSINESS

 

Organization

 

On October 9, 2012 RealBiz Holdings, Inc. (RealBiz) n.k.a. Realbiz Media Group, Inc., formerly a private entity, was party to two transactions. In the first transaction it was acquired by an unrelated public company, Next 1 Interactive, Inc. (the Parent). This transaction was accounted for by the Parent as a business combination using the acquisition method of accounting. Accordingly, the fair value adjustments were "pushed down" to RealBiz's books in accordance with the SEC Staff Accounting Bulletin Topic 5J "New Basis of Accounting Required in Certain Circumstances. In the second transaction the Parent, in order to make its new subsidiary, RealBiz, a public company, had RealBiz enter into a reverse acquisition transaction with another public company, Webdigs, Inc. (Webdigs) whereby Webdigs acquired 100% of RealBiz in exchange for Webdigs issuing a voting preferred stock to the Parent giving the Parent control over Webdigs. This transaction was accounted for as a recapitalization of RealBiz. Webdigs then changed its name to Realbiz Media Group, Inc.

 

The chronological historical events leading to the above transactions are as follows:

 

On August 8, 2012, Next 1 Interactive, Inc., a Nevada corporation (“Next 1”) together with its subsidiary Next One Realty (the trade name for Next 1’s wholly owned subsidiary Attaché Travel International, Inc.) entered into a Purchase Agreement (“Acknew Purchase Agreement”) with Acknew Investments Inc. (“Acknew”) and RealBiz Holdings Inc. Under the Acknew Purchase Agreement, Next 1 has agreed to acquire from Acknew common shares of RealBiz Holdings, Inc. representing approximately an 85% ownership interest in RealBiz Holdings, Inc. RealBiz Holdings Inc. is the parent corporation of RealBiz 360, Inc. and RealBiz 360 Enterprise (Canada), Inc. (together referred to as “RealBiz”).

 

Pursuant to the Acknew Purchase Agreement, Next 1 and Webdigs, Inc. (“Webdigs” or the “Company”) would consummate a share exchange transaction contemplated by a Share Exchange Agreement dated April 5, 2012 (“Share Exchange Agreement”) by and between Next 1 and Webdigs. In that contemplated share exchange transaction, Next 1 would receive a controlling interest in Webdigs through its receipt of approximately 93 million shares of newly designated preferred stock representing approximately 92% of the total outstanding capital stock of Webdigs immediately after the transaction. In exchange, Next 1 would transfer its entire share ownership in Next One Realty to Webdigs.

 

On October 9, 2012, Webdigs and Next 1 completed the transactions contemplated by the Share Exchange Agreement. Under the Share Exchange Agreement, Webdigs received all of the outstanding equity in Attaché Travel International, Inc. (“Attaché”). In exchange for our Webdigs’s receipt of the Attaché shares from Next 1, Webdigs 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.”

  

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 9, 2012, by engaging in a short-form parent-subsidiary merger in the State of Delaware.

 

Nature of Business

 

RealBiz is a real estate media services company that provides marketing and promotional services to listing agents and brokers through its proprietary video processing technology or virtual home tours. RealBiz has positioned itself in the following three areas:

 

1.Real Estate Video on Demand Channel - We earn commissions and fees on home sales, pre-roll/post-roll advertising, banner ads and cross-market advertising promotions. We charge a listing and marketing fee and earn revenue from web-based and mobile advertising.

 

2.Website and Mobile Applications - We are developing a real estate web portal to work in conjunction with our national Video on Demand (VOD) Television Platform. This site will be unique to the world of real estate search sites on multiple levels, first the user experience will be completely visual and video centric, secondly, the site will focus on local neighborhood participation for social interaction between home seekers and current residents who can provide an unbiased view of the selected neighborhood and lastly the content on the site will focus on the entire home ownership lifecycle from purchase through maintenance to home sale therefore giving the site a much deeper and more loyal audience over time.

 

3.Traditional Real Estate Sales - Our previous company, Webdigs, had licensed real estate brokerage division currently has participating brokers in 19 states. We believe there are potential opportunities to take advantage of an improving real estate market.

 

F-6
 

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Consolidation

 

The consolidated financial statements for the years ended October 31, 2012 and 2011 include the operations of Webdigs, Inc. and its wholly-owned subsidiary, Webdigs, LLC, which includes the dormant wholly owned subsidiaries of Home Equity Advisors, LLC, and Credit Garage, LLC from the recapitalization date of October 9, 2012 and the historical operations of RealBiz Media Group, Inc, which includes its subsidiaries RealBiz 360 Enterprise (Canada), Inc. and RealBiz 360, Inc. All significant intercompany accounts and transactions have been eliminated in the consolidation.

 

On May 17, 2012, the Company affected a 1 for 200 reverse stock split. All share and per share information in the consolidated financial statements presented has been retrospectively adjusted for the split.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.

 

Cash and Cash Equivalents

 

For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents.

 

Accounts Receivable

 

The Company provides its marketing and promotional services to agents or brokers via a web-based portal that allows for credit card payments. The Company recognizes accounts receivable for amounts uncollected from the credit card service provider at the end of the accounting period. The Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains reserves for potential credit losses, and such losses traditionally have been within its expectations.

 

Intangible Assets

 

In accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets, the Company assesses the impairment of identifiable intangible whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:

 

1.Significant underperformance to expected historical or projected future operating results;

 

2.Significant changes in the manner or use of the acquired assets or the strategy for the overall business; and

 

3.Significant negative industry or economic trends.

 

When the Company determines that the carrying value of an intangible many not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flow, the Company records an impairment charge equal to the amount book value exceeds fair value. The Company measures fair value based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company did not consider it necessary to record an impairment charge on its intangible assets during the years ended October 31, 2012 and 2011.

 

F-7
 

  

Intangible assets that have finite useful lives are amortized over their useful lives.

 

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.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, notes payable, commissions and fees payable, and interest payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

 

Revenue Recognition

 

The Company provides its marketing and promotional services to agents or brokers via a web-based portal that allows for credit card payments. Customers may pay a monthly recurring fee or an annual fee. Some customers additionally pay a one-time set up fee. Monthly recurring fees are recognized in the month the service is rendered. Collection of one-time set up fees and annual services fees give rise to recognized monthly revenue in the then-current month as well as deferred revenue liabilities representing the collected fee for services yet to be delivered.

 

Cost of Revenues

 

Cost of revenues includes costs attributable to services sold and delivered. These costs include such items as credit card fees, sales commission to business partners, expenses related to our participation in industry conferences, and public relations expenses.

 

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.

 

Other Comprehensive Income (Loss)

 

Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income (loss). Items defined as other comprehensive income (loss) include items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities. For the years ended October 31, 2012 and 2011, the accumulated comprehensive loss was ($5,849) and ($5,107), respectively.

 

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.

 

F-8
 

  

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.

 

Income (Loss) Per Share

 

Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common shareholders by the weighted average number of shares of common stock outstanding during the period.

 

Diluted net income (loss) per common share is computed in the same manner, but also considers the effect of common stock shares underlying the following:

 

   October 31, 2012   October 31, 2011 
Common stock options   4,000    4,000 
Common stock warrants   -    200,000 

 

All of the common shares underlying the stock options and warrants above were excluded from diluted weighted average shares outstanding for the years ended October 31, 2012 and October 31, 2011 respectively because their effects were considered anti-dilutive.

 

Concentrations, Risks and Uncertainties

 

The Company’s operations are related to the real estate industry and its prospects for success are tied indirectly to interest rates and the general housing and business climates in the United States.

 

F-9
 

  

Recently Issued Accounting Pronouncements

 

Effective January 1, 2012, the Company adopted ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, and the second statement would include components of other comprehensive income. This ASU does not change the items that must be reported in other comprehensive income. . The adoption of ASU 2011-05 did not have a material impact on the Company’s interim unaudited consolidated financial statements.

 

Effective January 1, 2012, the Company adopted ASU 2011-08, Intangibles – Goodwill and Other (“ASU 2011-08”). ASU 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test. The adoption of ASU 2011-08 did not have a material impact on the Company’s interim unaudited consolidated financial statements.

 

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

 

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

 

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

 

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 3: GOING CONCERN

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

The Company has incurred losses of $963,220 and $953,460 for the years ended October 31, 2012 and 2011 respectively. At October 31, 2012, the Company had a working capital deficit of $2,311,736, and an accumulated deficit of $6,091,775. It is management’s opinion that these facts raise substantial doubt about the Company’s ability to continue as a going concern without additional debt or equity financing. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

In order to meet its working capital needs through the next twelve months, the Company may consider plans to raise additional funds through the issuance of additional shares of common stock and or through the issuance of debt instruments. Although we intend to obtain additional financing to meet our cash needs, we may be unable to secure any additional financing on terms that are favorable or acceptable to us, if at all.

 

F-10
 

 

NOTE 4: INTANGIBLE ASSETS

 

At October 31, 2012 and 2011, the Company’s intangible assets are as follows:

 

   Gross
Carrying
Amount
   Accumulated
Amortization
   Net
Carrying
Amount
 
2011  $-   $-   $- 
2012  $4,796,978   $-   $4,796,178*

 

Amortization expense amounted to $nil and $nil for the years ended October 31, 2012 and 2011, respectively.  

 

On October 9, 2012, the Company entered a Share Exchange Agreement (Note 1). The Company accounted for the acquisition utilizing the purchase method of accounting in accordance with ASC 805 "Business Combinations". The Company is the aquiree for accounting purposes. Accordingly, the Company applied push-down accounting and has recorded the intangible asset as described herein.

 

* The Company is in review of the facts and circumstances surrounding events to determine if the carrying amount of held-and-used identifiable amortizable intangibles acquired during the October 2012 acquisition may be reallocated under the provisions of ASC 350 and ASC 805. The Company has until October 2013 (12 months) to determine the final allocations and it is studying a reallocation with more emphasis on “customer relationships and customer lists”. No amortization has been calculated based on the original allocations.

 

NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

At October 31, 2012 and 2011, the Company’s accounts payable and accrued liabilities are as follows:

 

   October 31, 2012   October 31, 2011 
Trade payables and accruals  $392,795   $105,836 
Professional Fees   30,000    - 
Payroll and commissions (1)   413,416    1,899 
Other liabilities   750    - 
Total accounts payable and accrued liabilities  $836,961   $107,735 

 

(1)Includes deferred payroll expenses payable to a related party. (See Note 10)

 

 

NOTE 6: ADVANCES FROM NEXT 1 INTERACTIVE, INC.

 

During the normal course of business, Next 1 made operating advances for operating expenses to RealBiz 360 Enterprise (Canada), Inc. and Webdigs, Inc., prior to the consummation of the Exchange Agreement. As of October 31, 2012, advances to RealBiz 360 Enterprise (Canada), Inc. totaled $753,332 and $82,397 to Webdigs, Inc. As of October 31, 2011, advances to RealBiz 360 Enterprise (Canada), Inc. totaled $201,660 and $nil to Webdigs, Inc.

 

 

NOTE 7: LOANS PAYABLE

 

During the fiscal years ended October 31, 2010, 2011, and 2012, Acknew, along with one of its officers, made interest-free operating loans to RealBiz 360 Enterprise (Canada), Inc. and RealBiz Holdings, Inc. As of October 31, 2011, these loans, in aggregate, totaled $369, 040. As part of the Acknew Purchase Agreement, in addition to other consideration, portions of these obligations were retired. As of October 31, 2012, the remaining obligation to Acknew totaled $50,000.

 

   October 31, 2012   October 31, 2011 
Acknew loans  $50,000   $369,040 
Total accounts payable and accrued liabilities  $50,000   $369,040 

 

F-11
 

  

NOTE 8: SHARE-BASED COMPENSATION

 

The Company recognizes compensation expense for stock option grants over the requisite service period for vesting of the award.

 

Stock Options consist of the following for the years ended October 31, 2012 and 2011, after taking into account a 200 for 1 reverse stock split:

 

               Weighted 
       Weighted       average 
       average   Aggregate   remaining 
   Number of   exercise   intrinsic   contractual 
   options   price   value   term (years) 
                 
Outstanding at October 31, 2010   4,000   $50.00   $-    2.54 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Forfeited   -    -    -    - 
                     
Outstanding at October 31, 2011   4,000    50.00    -    1.54 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Forfeited   -    -    -    - 
                     
Outstanding at October 31, 2012   4,000   $50.00   $-    0.54 

 

The aggregate intrinsic value in the table above represents the difference between the closing stock price on October 31, 2012 and the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders had all option holders exercised their options on October 31, 2012.  There were no options exercised during the years ended October 31, 2012 and 2011.

 

Stock Warrants

 

As of October 31, 2011, the Company has 200,000 warrants outstanding with the exercise price of $0.30. The warrants expired on December 12, 2011. No additional warrants were issued in during the twelve months ended October 31, 2012.

 

 

NOTE 9: SHAREHOLDERS’ EQUITY

 

As of October 31, 2010, the Company had 125,000,000 shares of common stock authorized with a par value of $0.001, with another 125,000,000 authorized shares designated as common or preferred stock. On May 17, 2012, the Company effectuated a 1 for 200 reverse stock split for its common stock shares. Adjusted for the stock split, the Company has 625,000 shares of common stock authorized with a par value of $0.001.

 

Common Stock

 

On October 9, 2012 the Company recapitalized by being acquired by a public company which resulted in a deemed issuance of 383,009 shares of common stock to the original shareholders of the public entity, a deemed issuance of 7,000,000 Preferred Series A voting shares to the original shareholders of the public entity, and a new issuance of 93,000,000 Preferred Series A voting shares. Total net liabilities of $977,575 were assumed in the recapitalization.

  

Preferred Stock Series A

 

As of October 31, 2012 and 2011, the Company had 100,000,000 shares of Series A Preferred stock issued and outstanding respectively. The Preferred shares were issued pursuant to the recapitalization and share exchange (Note1). The preferred shares were issued at $.001 par, bear dividends at an annual rate of 10% per annum payable on a quarterly basis when declared by the board of directors. Dividends shall accrue whether or not they have been declared by the board. At the election of the Company, Preferred Dividends may be converted into Series A Stock, with each converted share having a value equal to the Market Price per share, subject to adjustment for stock splits. In order to exercise such option, the Company shall deliver written notice to the holder.

Each share of Series A Stock shall be convertible at the option of the holder thereof at any time into a number of shares of Common Stock determined by dividing the Stated Value by the Conversion Price then in effect. The initial conversion price for the Series A Stock shall be equal to $0.05 per share.

 

As a result of push-down accounting applied in October 2012 (See Note 1) the Company recorded $5,016,506 of additional paid-in-capital.

 

F-12
 

   

NOTE 10: RELATED PARTY TRANSACTIONS

 

Due to - Minority Stockholder

 

The Company’s former principal advertising agency/website developer was owed $615,264 at October 31, 2012 and 2011, respectively. The two principals of this advertising company are also minority stockholders in the Company - holding approximately 1.6% of the Company’s outstanding shares at October 31, 2012.

 

Due to Officers

 

As of October 31, 2012 and October 31, 2011, the Company was indebted to certain related parties for amounts totaling $69,327 and $3,578, respectively, for deferred salary and unreimbursed business expenses. All of the indebtedness represented non-interest bearing payables due on demand. These amounts have been included in Accounts Payable and Accrued Liabilities on our consolidated balance sheets.

 

NOTE 11: INCOME TAXES

 

The Company accounts for income taxes taking into account deferred tax assets and liabilities which represent the future tax consequences of the differences between financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year the change is enacted.


The provision (benefit) for income taxes consists of the following for the years ended October 31:

 

    2012    2011 
           
Current  $-   $- 
Deferred   -    - 
           
Provision for income taxes  $-   $- 

  



The provision for income taxes varies from the statutory rate applied to the total loss as follows for the years ended October 31:

 

   2012   2011 
         
Federal income tax benefit at statutory rate (35%)  $(337,127)  $(333,711)
State taxes, net of federal benefit   (43,626)   (43,184)
Effect of Canadian tax rates   89,687    107,094 
Nondeductible expenses   3,171    5,426 
           
Change in valuation allowance   287,895    264,375 
           
Provision for income taxes  $-   $- 

 

F-13
 

 

Significant components of the Company’s estimated deferred tax balances at October 31, 2012 and 2011 consist of:

 

Deferred tax assets (liabilities)          
Net operating loss carryforwards (U.S.)  $100,986   $33,655 
Net operating loss carryforwards (Canada)   423,882    230,720 
Accrued Salaries   27,402    - 
           
Net deferred tax assets   552,270    264,375 
Valuation allowance   (552,270)   (264,375)
           
Provision for income taxes  $-   $- 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company has recorded a full valuation allowance against its net deferred tax assets because it is not currently able to conclude that it is more likely than not that these assets will be realized. The amount of deferred tax assets considered to be realizable could be increased in the near term if estimates of future taxable income during the carryforward period are increased. The valuation allowance increased by $287,895 during the fiscal year ended October 31, 2012.

 

The Company has a total net operating loss carryforward of approximately $1,825,000, of which approximately $255,000 relates to domestic entities and $1,570,000 relates to wholly owned Canadian subsidiaries. Net operating loss carryforwards expire through 2032. Under the Internal Revenue Code Section 382 (IRC 382) and the Canadian Tax Act, certain stock transactions which significantly change ownership, including the sale of stock to new investors, the exercise of options to purchase stock, or other transactions between shareholders could limit the amount of net operating loss carryforwards that may be utilized on an annual basis to offset taxable income in future periods.

 

NOTE 12: FAIR VALUE MEASUREMENT AND DISCLOSURE

 

The Company has adopted ASC 820, Fair Market Measurement and Disclosures including the application of the statement to non-recurring, non-financial assets and liabilities. The adoption of ASC 820 did not have a material impact on the Company’s fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

 

Level 1-Quoted prices in active markets for identical assets or liabilities.
Level 2-Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3-Unobservable inputs based on the Company’s own assumptions,

 

Fair Value Measurements at October 31, 2011 and 2012 respectively using:

 

Description  Quoted Prices in Active Markets for Identical Assets
(Level 1)
   Significant Other Observable Inputs
(Level 2)
   Significant Unobservable Inputs
(Level 3)
   Total 
                 
Cash Equivalents  $111,237   $-   $-   $111,237 
October 31, 2011  $111,237   $-   $-   $111,237 
Cash Equivalents  $36,408   $-   $-   $36,408 
October 31, 2012  $36,408   $-   $-   $36,408 

 

  

NOTE 13: SUBSEQUENT EVENTS

 

Pursuant to FASB ASC 855, management has evaluated all events and transactions that occurred from November 1, 2012 through the date of issuance of the financial statements. During this period we did not have any significant subsequent events, except as disclosed below:

 

F-14
 

 

Exhibits

 

Exhibit

Number

  Description
21   Subsidiaries of Realbiz Media Group, Inc. *
     
31.1   Certification of CEO pursuant to Section 302. *
     
31.2   Certification of CFO pursuant to Section 302. *
     
32.1   Certification of CEO pursuant to Section 906. *
     
32.2   Certification of CFO pursuant to Section 906. *
     

 

* Filed electronically herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Realbiz Media Group, Inc.
   
  /s/ William Kerby
  William Kerby
  President and Chief Executive Officer
 

February 14, 2013

 

  /s/ Adam Friedman
  Adam Friedman
 

Chief Financial Officer

February 14, 2013

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Title   Date
         
/s/ William Kerby   Chairman and Chief Executive Officer    February 14, 2013 
William Kerby  

(Principal Executive Officer)

 

   
         
/s/ Adam Friedman  

Chief Financial Officer

  February 14, 2013 
Adam Friedman   (Principal Financial Officer)    
         

 

 

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