UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended July 31, 2014

  

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 0-53359

 

 

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

 

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.  

 x Yes    o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( §232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

x Yes    o No

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

 

As of September 9, 2014 there were 77,266,755 shares of the issuer’s common stock, $0.001 par value, outstanding.

 

 

RealBiz Media Group, Inc.

Form 10-Q

 

Table of Contents

 

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Unaudited Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4
Item 4.	Controls and Procedures	4
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	5
Item 1A.	Risk Factors	5
Item 2.	Unregistered Sales of Equity Securities	5
Item 3.	Defaults Upon Senior Securities	5
Item 4.	Mine Safety Disclosures	6
Item 5.	Other Information	6
Item 6.	Exhibits	6
SIGNATURES		7
EXHIBIT INDEX

 

 

REALBIZ MEDIA GROUP, INC.

CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTH PERIODS ENDED JULY 31, 2014 AND 2013

REALBIZ MEDIA GROUP, INC.

 

TABLE OF CONTENTS

 

	PAGE
Consolidated Unaudited Financial Statements:
Consolidated Balance Sheets	F-2
Consolidated Unaudited Statements of Operations and Comprehensive Income (Loss)	F-3
Consolidated Unaudited Statements of Cash Flows	F-4
Notes to the Consolidated Unaudited Financial Statements	F-6

 

 

RealBiz Media Group, Inc.

Consolidated Balance Sheets

 

		July 31,				October 31,
		2014				2013
		(Unaudited)
Assets
Current Assets
Cash		$	11,100			$	1,304,374
Accounts receivable, net of allowance for doubtful accounts			87,599				76,047
Prepaid expenses			3,050				272
Security deposits			-				345
Total current assets			101,749				1,381,038
Property and equipment, net			49,100				56,357
Website development costs and intangible assets, net			4,170,002				4,254,582
Due from affiliates			1,295,938				4,199
Total assets		$	5,616,789			$	5,696,176
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses		$	1,717,529			$	1,257,032
Deferred revenue			31,038				31,310
Convertible notes payable			60,000				280,000
Loans payable			170,000				191,214
Total current liabilities			1,978,567				1,759,556
Total liabilities			1,978,567				1,759,556
Stockholders' Equity
Series A convertible preferred stock, $.001 par value; 100,000,000 authorized and  94,009,762 shares issued and outstanding at July 31,2014 and October 31, 2013, respectively			94,010				94,010
Common stock, $.001 par value; 125,000,000 authorized and 73,703,454 shares issued and outstanding at July 31,2014 and 49,039,511 shares issued and outstanding at October 31, 2013, respectively			73,703				49,040
Additional paid-in-capital			17,282,851				14,179,044
Subscription advances			30,000				13,500
Accumulated other comprehensive income (loss)			41,276				(19,215	)
Accumulated deficit			(13,883,618	)			(10,379,759	)
Total stockholders' equity			3,638,222				3,936,620
Total liabilities and stockholders' equity		$	5,616,789			$	5,696,176

 

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

 

 

RealBiz Media Group, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

 

		For the three months ended								For the nine months ended
		July 31,								July 31,
		2014				2013				2014				2013
Revenues
Real estate media revenue		$	274,712			$	272,853			$	773,326			$	864,022
Cost of revenues			170,801				15,538				209,926				51,157
Gross profit			103,911				257,315				563,400				812,865
Operating expenses
Salaries and benefits			333,479				157,166				827,849				829,121
Selling and promotions expense			13,337				40,146				219,085				156,261
General and administrative			599,283				657,754				2,841,045				1,648,926
Total operating expenses			946,099				855,066				3,887,979				2,634,308
Operating loss			(842,188	)			(597,751	)			(3,324,579	)			(1,821,443	)
Other income (expense)
Interest expense			-				-				(1,314	)			-
Loss on conversion of debt to equity			-				(1,066	)			-				(1,066	)
Gain on forgiveness of debt			-				-				-				384,304
Exchange gain (loss)			12,832				(1,419	)			(2,875	)			(1,419	)
Other income (expense)			(1,156	)			2,581				176,533				-
Total other income (expense)			11,676				96				172,344				381,819
Net loss		$	(830,512	)		$	(597,655	)		$	(3,152,235	)		$	(1,439,624	)
Preferred Stock Dividend			(118,496	)			(125,261	)			(351,624	)			(405,399	)
Net loss attributable to common stockholders		$	(949,008	)		$	(722,916	)		$	(3,503,859	)		$	(1,845,023	)
Weighted average number of shares outstanding			69,163,833				23,379,147				61,036,665				9,667,400
Basic and diluted net loss per share		$	(0.01	)		$	(0.03	)		$	(0.06	)		$	(0.19	)
Comprehensive income (loss):
Unrealized gain (loss) on currency translation adjustment			(6,697	)			11,665				60,491				31,612
Comprehensive loss		$	(955,705	)		$	(711,251	)		$	(3,443,368	)		$	(1,813,411	)

 

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

 

 

RealBiz Media Group, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

		For the nine months ended
		July 31,
		2014				2013
Cash flows from operating activities:
Net loss		$	(3,152,235	)		$	(1,439,624	)
Adjustments to reconcile net loss to net cash from operating activities:
Amortization and depreciation			1,276,094				1,109,873
Gain on forgiveness of debt			-				(384,304	)
Stock based compensation and consulting fees			785,781				63,418
Changes in operating assets and liabilities:
Increase in accounts receivable			(11,552	)			(102,154	)
Increase in prepaid expenses			(2,778	)			(691	)
Increase in subscription receivable			-				(5,000	)
(Increase) decrease in security deposits			345				(9,542	)
(Increase) decrease in due from affiliates			(1,291,738	)			162,728
Increase (decrease) in accounts payable and accrued expenses			108,873				(7,842	)
Decrease in deferred revenue			(272	)			(6,038	)
Net cash used in operating activities			(2,287,482	)			(619,176	)
Cash flows from investing activities:
Purchase of computer equipment			(4,960	)			(42,149	)
Payments towards software developments costs			(16,260	)			-
Payments towards website development costs			(563,037	)			(168,610	)
Net cash used in investing activities			(584,257	)			(210,759	)
Cash flows from financing activities:
Proceeds from loans payable			-				35,000
Payments applied to loans payable			(21,214	)			(55,385	)
Proceeds from subscription advances			30,000				-
Proceeds from the sale of common stock and warrants			842,668				802,000
Proceeds from the exercise of outstanding warrants			666,520				-
Net cash provided by financing activities			1,517,974				781,615
Effect of exchange rate changes on cash			60,491				31,612
Net decrease in cash			(1,293,274	)			(16,708	)
Cash at beginning of period			1,304,374				36,408
Cash at end of period		$	11,100			$	19,700
Supplemental disclosure:
Cash paid for interest		$	1,314			$	1,066

  

 

Supplemental disclosure of non-cash investing and financing activity:

 

		For the nine months ended
		July 31,
		2014				2013
Preferred stock dividends accrued:
Value		$	351,624			$	280,138
Settlement of prior year advances for subscriptions of common stock:
Value		$	13,500			$	-
Shares			27,000				-
Warrants			9,000				-
Next 1 Interactive, Inc. Preferred Series B shares converted to common stock:
Value		$	453,250			$	44,250
Shares			9,065,000				885,000
Next 1 Interactive, Inc. Preferred Series C shares converted to common stock:
Value		$	-			$	150,000
Shares			-				1,500,000
Next 1 Interactive, Inc. Preferred Series D shares converted to common stock:
Value		$	133,225			$	1,860,686
Shares			888,078				14,334,942
Next 1 Interactive, Inc. convertible promissory notes converted to common stock:
Value		$	80,000			$	56,376
Shares			1,600,000				27,500
Warrants issued for Next 1, Interactive Inc. debt modifications:
Value		$	4,809,308			$	-
Warrants			12,000,000				-

 

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

 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1: NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

Nature of Business

 

We are engaged in the business of providing digital media and marketing services for the real estate industry. We currently generate revenue from advertising, real estate broker commissions and referral fees.

 

Basis of Presentation

 

The unaudited interim consolidated financial information furnished herein reflects all adjustments, consisting only of normal recurring items, which in the opinion of management are necessary to fairly state RealBiz Media Group, Inc. and its subsidiaries’ (collectively, the “Company” or “we,” “us” or “our”) financial position, results of operations and cash flows for the dates and periods presented and to make such information not misleading. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”); nevertheless, management of the Company believes that the disclosures herein are adequate to make the information presented not misleading.

 

These consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended October 31, 2013, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 13, 2014. The results of operations for the three and nine months ended July 31, 2014, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending October 31, 2014.

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted 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. There were no cash equivalents at July 31, 2014 and October 31, 2013.

 

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.

 

Property and Equipment

 

All expenditures on the acquisition for property and equipment are recorded at cost and capitalized as incurred, provided the asset benefits the Company for a period of more than one year. Expenditures on routine repairs and maintenance of property and equipment are charged directly to operating expense. The property and equipment is depreciated based upon its estimated useful life after being placed in service. The estimated useful life of computer equipment is 3 years. When equipment is retired, sold or impaired, the resulting gain or loss is reflected in earnings. The Company incurred depreciation expense of $12,217 and $-0- for the nine months ended July 31, 2014 and 2013, respectively.

 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Impairment of Long-Lived Assets

 

In accordance with Accounting Standards Codification 360-10, “Property, Plant and Equipment”, the Company periodically reviews its long- lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the nine months ended July 31, 2014 and 2013, the Company did not impair any long-lived assets.

 

Website Development Costs

 

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

 

Software Development Costs

 

The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines established by "ASC 985-20-25" Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, requiring certain software development costs to be capitalized upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. Amortization of the capitalized software development costs begins when the product is available for general release to customers. Capitalized costs are amortized based on the greater of (a) the ratio of current gross revenues to the total current and anticipated future gross revenues, or (b) the straight-line method over the remaining estimated economic life of the product. For the nine months ended July 31, 2014, the Company has capitalized $16,260 of costs associated with the development of a mobile app that has not been placed into service.

 

Goodwill and Other Intangible Assets

 

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

 

1.

Significant underperformance compared to historical or projected future operating results;

 

2.

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

 

3.

Significant negative industry or economic trends.

 

When the Company determines that the carrying value of an intangible may not be recoverable based upon the existence of one or more of the above 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 that the 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 nine months ended July 31, 2014 and 2013.

 

Intellectual properties that have finite useful lives are amortized over their useful lives. The Company incurred amortization expense of $1,263,877 and $1,109,873 for the nine months ended July 31, 2014 and 2013, respectively.

 

Convertible Debt Instruments

 

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

 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair Value of Financial Instruments

 

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

 

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

 

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

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

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

 

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

 

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.

 

Advertising Expense

 

Advertising costs are charged to expense as incurred and are included in selling and promotions expense in the accompanying unaudited consolidated financial statements. Advertising expense for the nine months ended July 31, 2014 and 2013 was $58,990 and $33,405, respectively.

 

Share-Based Compensation

 

The Company computes share based payments in accordance with Accounting Standards Codification 718-10 “Compensation” (ASC 718-10). ASC 718-10 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services at fair value, focusing primarily on accounting for transactions in which an entity obtains employees services in share-based payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair value of an entity’s equity instruments or that may be settled by the issuance of those equity instruments. In March 2005, the SEC issued SAB No. 107, Share-Based Payment (“SAB 107”) which provides guidance regarding the interaction of ASC 718-10 and certain SEC rules and regulations. The Company has applied the provisions of SAB 107 in its adoption of ASC 718-10. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50, Equity Based Payments to Non-Employees. The Company estimates the fair value of stock options by using the Black-Scholes option pricing model.

 

Foreign Currency and Other Comprehensive Income (Loss)

 

The functional currency of our foreign subsidiaries is typically the applicable local currency. The translation from the respective foreign currencies to United States Dollars (U.S. Dollar) is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using a weighted average exchange rate during the period. Gains or losses resulting from such translation are included as a separate component of accumulated other comprehensive income. Gains or losses resulting from foreign currency transactions are included in foreign currency income or loss except for the effect of exchange rates on long-term inter-company transactions considered to be a long-term investment, which are accumulated and credited or charged to other comprehensive income.

 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Foreign Currency and Other Comprehensive Income (Loss) (continued):

 

Transaction gains and losses are recognized in our results of operations based on the difference between the foreign exchange rates on the transaction date and on the reporting date. We recognized net foreign exchange loss of $2,875 and $1,419 for nine months ended July 31, 2014 and 2013, respectively. The foreign currency exchange gains and losses are included as a component of other (income) expense, net, in the accompanying Consolidated Unaudited Statements of Operations. For the nine months ended July 31, 2014 and 2013, the increase in accumulated comprehensive gain was $60,491 and $31,612, respectively.

 

The exchange rate adopted for the foreign exchange transactions are the rates of exchange as quoted on OANDA. Translation of amount from Canadian dollars into United States dollars was made at the following exchange rates for the respective periods:

 

·	As of July 31, 2014 - Canadian dollar $0.91970 to US $1.00
·	For the nine months ended July 31, 2014 - Canadian dollar $0.92563 to US $1.00

 

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 and net operating loss and tax credit carryforwards given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

 

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

 

Earnings Per Share

 

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

 

Diluted earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted loss per common share is considered to be equal to basic because it is anti-dilutive. The Company’s common stock equivalents include the following:

 

			July 31, 2014
Series A convertible preferred stock issued and outstanding			94,009,762
Warrants to purchase common stock issued, outstanding and exercisable			17,099,257
Stock options issued, outstanding and exercisable			1,000
Shares on convertible promissory notes			400,000
			111,510,019

 

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.

 

Reclassifications

 

Certain reclassifications have been made in the consolidated financial statements for comparative purposes.  These reclassifications have no effect on the results of operations or financial position of the Company.

 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Recently Issued Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update that amends the accounting guidance on revenue recognition. The amendments in this accounting standard update are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of the provisions of the accounting standard update.

 

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment,” (ASU 2014-08). This ASU changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on our operations and financial results.” For disposals of individually significant components that do not qualify as discontinued operations, we must disclose pre-tax earnings of the disposed component. This guidance is effective for us prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. We do not expect the adoption of this guidance to have a material impact on our 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 a net losses of $3,152,235 for the nine months ended July 31, 2014. At July 31, 2014, the Company had a working capital deficit of $1,876,818, and an accumulated deficit of $13,883,618. 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 or preferred 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.

 

Note 4: Property and Equipment

 

During the nine months ended July 31, 2014, the Company recorded the purchase of $4,960 of computer equipment and placed into service $42,149 of equipment purchased in the prior fiscal year, all depreciated using the straight line method over a 3 year period. The Company has recorded $12,217 and $-0- of depreciation expense for the nine months ended July 31, 2014 and 2013, respectively. The depreciable equipment has a weighted average remaining useful life of 2.3 years. There was no asset impairment recorded for the nine months ended July 31, 2014 and 2013.

   

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 5: INTANGIBLE ASSETS

 

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

 

		July 31, 2014
		Remaining						Accumulated				Net Carrying
		Useful Life		Cost				Amortization				Value
Sales/Marketing agreement		1.7 years		$	4,796,178			$	2,410,359			$	2,385,819
Website development costs		2.6 years			1,398,789				180,868				1,217,921
Web platform/customer list - ReachFactor acquisition		2.8 years			600,000				49,998				550,002
Software development costs (not placed in service)		3.0 years			16,260				-0-				16,260
				$	6,811,227			$	2,641,225			$	4,170,002

  

During the nine months ended July 31, 2014, the Company incurred expenditures of $563,037 for website development costs as a new development team was brought in to assess the quality of the website. Upon their recommendation, significant changes, upgrades and modifications were recommended and have been ongoing since the post launch date of March 4, 2014. This is being done to ensure that the site works capably as the Company's "revenue driver". This capitalization falls with the scope of ASC 350-50-25-15 wherein costs of upgrades and enhancements should be capitalized as they will result in added functionality of the website.

 

During the nine months ended July 31, 2014, the Company incurred expenditures of $16,260 for software development costs to develop a mobile app called "EZ FLIX" as a tool to assist users in converting still pictures to video. The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines established by "ASC 985-20-25" Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, requiring certain software development costs to be capitalized upon the establishment of technological feasibility. As of July 31, 2014, the app has not been placed into service.

 

On May 24, 2014, RealBiz Media Group, Inc. (“RBIZ”) entered into an Asset Sale Agreement with ReachFactor, Inc. (“ReachFactor”) and its two principals, Suresh Srinivasan and Arun Srinivasan pursuant to which the Company acquired substantially all of the assets of ReachFactor and the Company assumed certain liabilities of ReachFactor not to exceed $25,000 in consideration of RBIZ's issuance to ReachFactor of 2,000,000 shares of RBIZ's common stock valued at $0.15 per share for a total of $300,000. The acquisition of the assets is subject to an unwind at the option of Suresh Srinivasan and Arun Srinivasan if on or prior to the date that is six months after the closing of the Asset Sale Agreement, the Company terminates the employment of either of Suresh Srinivasan and/ or Arun Srinivasan (each referred to as an “Executive”) without cause or either Executive terminates his employment for good reason. In the event of an unwind the assets revert back to ReachFactor and the 2,000,000 shares of stock revert back to RBIZ.

 

The value of the common stock was based on the fair value of the stock at the time of issuance which was $0.15 per share and RBIZ capitalized $600,000 as intangible assets to be amortized over a three year period beginning June 1, 2014. The $600,000 included the capitalization of the stock issuance valued at $300,000 referred to above along with additional consideration of $300,000, related to the acquisition, representing the value of an additional 2,000,000 shares of RBIZ's common stock that were issued on the acquisition date to an escrow account and is considered as part of the purchase price consideration because these shares can only be forfeited upon the total rewinding of the acquisition or voluntary termination of employment by the Srinivasans and the Srinivasans are receiving market-based cash compensation for their services to RBIZ. These additional shares are to be released to Suresh Srinivasan and Arun Srinivasan at the rate of 500,000 shares every three months. The transaction represents an asset acquisition that is accounted for as a business combination under ASC 805.

 

Intangible assets are amortized on a straight-line basis over their expected useful lives, estimated to be 4 years, except for the website(s), which is 3 years. Amortization expense related to website development costs and intangible assets was $1,263,877 and $1,109,873, for nine months ended July 31, 2014 and 2013, respectively.

  

NOTE 6: ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

At July 31, 2014, the Company’s accounts payable and accrued expenses are as follows:

 

		July 31, 2014
Trade payables and accruals		$	231,647
Accrued preferred stock dividends			875,519
Payroll and commissions			414,209
Other liabilities			196,154
Total accounts payable and accrued expenses		$	1,717,529

 

NOTE 7: DUE FROM/TO AFFILIATES

 

During the normal course of business, the Company receives and/ or makes advances for operating expenses to/from our parent Company, Next 1 Interactive, Inc. As of July 31, 2014, the Company is due $1,295,938 as a result of such transactions.

 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 8: CONVERTIBLE NOTES PAYABLE

 

During the nine months ended July 31, 2014, the Company:

 

·	issued 1,366,666 shares at the conversion rate of $0.15 per share, upon the noteholder's request, to convert the remaining principal balance of $205,000.
·	issued 100,000 shares at the conversion rate of $0.15 per share, upon the noteholder's request, to convert $15,000 in principal leaving a remaining principal balance of $60,000.

 

NOTE 9: LOANS PAYABLE

 

During the nine months ended July 31, 2014, the Company made $21,214 in principal payments and incurred $1,314 in interest expense for the promissory note. There was no activity for the nine months ended July 31, 2014 for the non-related third party investors.

 

The Company’s loans payable is summarized follows:

 

		July 31, 2014
Promissory note		$	-0-
Non-related third party investors			170,000
Total Loans payable		$	170,000

 

NOTE 10: STOCKHOLDERS’ EQUITY

 

The Company has 250,000,000 shares available and has designated 125,000,000 shares of common stock as authorized and 100,000,000 shares of Series A convertible preferred stock as authorized, both with a par value of $.001 as of July 31, 2014. There are 25,000,000 shares available for future designation as either common or preferred stock

 

Common Stock

 

During the nine months ended July 31, 2014, the Company:

 

·	issued 3,950,379 shares of its common stock along with 3,079,056 one year warrants with an exercise price between a $0.18 and $1.25 for cash proceeds of $842.668.
·	issued 2,975,111 shares of its common stock upon exercise of 2,975,111 outstanding warrants for cash proceeds of $666,520.
·	issued 27,000 shares of its common stock along with 9,000 one year warrants with an exercise price between $0.18 to $1.00 as settlement of $13,500 of proceeds received in advance for prior fiscal year subscription agreements.
·	issued 620,830 shares of its common stock along with 235,780 one year warrants with an exercise price between $0.05 to $1.00 for a total value of $773,025 for consulting fees rendered.  The value of the common stock issued was based on the fair value of the stock at the time of issuance.  The value of the warrants was estimated at the time of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate between 0.10% and 0.14%, dividend yield of -0-%, volatility factor between 318.89% and 611.08% and expected life of one year.
·	issued 9,065,000 shares of its common stock valued at $453,250 upon the conversion of the holders of convertible Series B preferred shares held in its parent company Next 1 Interactive, Inc. These common shares were valued at the carrying value of the converted parent company Series B preferred shares.
·	issued 888,078 shares of its common stock valued at $133,225 upon the conversion of the holders of convertible Series D preferred shares held in its parent company Next 1 Interactive, Inc. These common shares were valued at the carrying value of the converted parent company Series D preferred shares.
·	issued 1,600,000 shares of its common stock valued at $80,000 upon the conversion of the holders of convertible promissory notes held in its parent company Next 1 Interactive, Inc. These common shares were valued at the carrying value of the converted parent company promissory notes.
·	issued 12,000,000 one (1) year common stock warrants with an exercise price of $0.50 for a debt modification of convertible promissory notes held in its parent company Next 1 Interactive, Inc valued at $4,809,308. The value of the warrants was estimated at the time of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.35%, dividend yield of -0-%, volatility factor of 324.34% and expected life of one year.

 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 10: STOCKHOLDERS’ EQUITY (continued)

 

During the nine months ended July 31, 2014, the Company (continued):

 

Common Stock (continued)

 

·	issued 2,000,000 shares of common stock as part of employment agreements in place with executives valued at $300,000.  The value of the common stock was based on the fair value of the stock at the time of issuance.
·	issued 2,000,000 shares of common stock upon execution of an Asset Sale Agreement with ReachFactor, Inc. pursuant to which the Company acquired substantially all of the assets of ReachFactor and the Company assumed certain liabilities of ReachFactor not to exceed $25,000.  The value of the common stock was based on the fair value of the stock at the time of issuance and totaled $300,000.
·	issued 1,366,666 shares at the conversion rate of $0.15 per share, upon the noteholder's request, to convert the remaining principal balance of $205,000.

   

·	issued 100,000 shares at the conversion rate of $0.15 per share, upon the noteholder's request, to convert $15,000 in principal leaving a remaining principal balance of $60,000.
·	issued 70,789 shares upon the exercise of 70,879 warrants in settlement of consulting fees valued at $12,758.
·	On May 5, 2014, the Company's board of directors authorized a special warrant exercise pricing available to warrant holders of record as of May 5, 2014.  The Board agreed to reduce the pricing on the warrants to $0.18 from their current level of $1.00 to $1.25 for the month of May 2014 only. The Company evaluated the incremental value of the modified warrants, as compared to the original warrant value, concluding that modification expense incurred was immaterial and the modification expense not recorded.
·	All of the conversions of Next 1 Interactive, Inc. securities were accounted for as contributed capital.

 

Common Stock Warrants

 

At July 31, 2014, there were 17,099,257 warrants outstanding with a weighted average exercise price of $0.57 and weighted average life of .52 years. During the nine months ended July 31, 2014, the Company granted 15,323,836 warrants, 3,045,990 were exercised, 3,430,500 expired and 10,000 were assigned and 63,921 were cancelled.

 

Convertible Preferred Stock Series A

 

As of July 31, 2014, the Company had 94,009,762 shares of Convertible Preferred Stock Series A issued and outstanding. The preferred shares were issued at $.001 par and bear dividends at a rate of 10% per annum payable on a quarterly basis when declared by the board of directors. Dividends 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 delivers written notice to the holder. Each share of Series A Stock is 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 conversion price for the Series A Stock is equal to $1.00 per share.

 

In the event of (a) the sale, conveyance, exchange, exclusive license, lease or other disposition of all or substantially all of the intellectual property or assets of the Company, (b) any acquisition of the Company by means of consolidation, stock exchange, stock sale, merger of other form of corporate reorganization of the Company with any other entity in which the Company's stockholders prior to the consolidation or merger own less than a majority of the voting securities of the surviving entity, or (c) the winding up or dissolution of the Company, whether voluntary or involuntary (each such event in clause (a), (b) or (c) a "liquidation event"), the Board shall determine in good faith the amount legally available for distribution to stockholders after taking into account the distribution of assets among, or payment thereof over to, creditors of the Company (the "net assets available for distribution"). The holders of the Series A stock then outstanding shall be entitled to be paid out of the net assets available for Distribution (or the consideration received in such transaction) before any payment or distribution shall be made to the holders of any class of preferred stock ranking junior to the Series A Stock or to the Common Stock, an amount for each share of Series A Stock equal to all accrued and unpaid Preferred Dividends plus the Stated Value, as adjusted (the "Series A Liquidation Amount").

 

Accrued but unpaid preferred stock dividends on the outstanding preferred shares as of July 31, 2014 totaled $875,519 and are included in accrued expenses.

 

 

REALBIZ MEDIA GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 11: OTHER INCOME

 

Other income for the three and nine months ended July 31, 2014 represents primarily the proceeds from a Canadian grant program encouraging research and development activities.

 

NOTE 12: RELATED PARTY TRANSACTIONS

 

During the nine months ended July 31, 2014, the Company paid $800 a month in rent for office space on behalf of an officer of the Company.

 

NOTE 13: SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events occurring after the balance sheet date and has identified the following:

 

On August 22, 2014, RealBiz’s board of directors has unanimously adopted a resolution seeking stockholder approval to authorize the Amendment to our Certificate of Incorporation to increase the number of authorized shares of common stock from 125 million shares to 250 million shares (the “Common Increase”) and to increase the number of shares of preferred stock designated as Series A Preferred Stock from 100 million shares to 120 million shares (the “Preferred Increase”). RealBiz’s Certificate of Incorporation, as currently in effect, authorizes RealBiz to issue up to 125 million shares of common stock, par value $0.001 per and One Hundred Twenty-Five Million (125,000,000) shares which may be designated as common or preferred stock, $.001 par value per share. The board of directors has proposed an increase in the number of authorized shares of the common stock and shares designated as Series A Preferred Stock of RealBiz and a stockholder holding in excess of 98.9% of the Series A Preferred Stock outstanding voting power which represents in excess of 55.5% of the outstanding voting power has approved the filing of the Amendment.  Upon the filing of the Amendment, RealBiz will be authorized to issue 250 million shares of common stock $.001 par value and the number of shares of preferred stock designated as Series A Preferred Stock will increase to One Hundred Twenty Million (120,000,000) and par value, will remain the same.

 

During August and September of 2014, the Company received an aggregate of $75,000 in consideration of the future issuance of shares of a new series of Series B Preferred Stock, which to date have not been issued.

  

 

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the attached consolidated unaudited financial statements and notes thereto, and our consolidated audited financial statements and related notes for our fiscal year ended October 31, 2013 found in our Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward looking statements by using words such as “anticipate,” “believe,” “intends,” or similar expressions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth in our Annual Report on Form 10-K.

 

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.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates past judgments and estimates, including those related to bad debts, potential impairment of intangible assets, accrued liabilities, and contingencies. Management bases its 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. The accounting policies and related risks described in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on February 13, 2014 are those that depend most heavily on these judgments and estimates. As of July 31, 2014, there had been no material changes to any of the critical accounting policies contained therein.

 

 Results of Operations

 

Three months ended July 31, 2014 compared to three months ended July 31, 2013.

 

Revenues

 

Our total revenues increased 1% to $274,712 for the three months ended July 31, 2014, compared to $272,853 for the three months ended July 31, 2013, an increase of $1,859. The increase in sales is the reflection of additional revenue reported and collected from Realtor.com listing uploads. The Company is shifting from the legacy virtual tour business and focused on the rollout of its new technology products and is offering agents a free trial period before charging fees for the use of these new products.

 

Cost of Revenues

 

Cost of revenues increased 999% to $170,801 for the three months ended July 31, 2014, compared to $15,538 for the three months ended July 31, 2013, an increase of $155,263. This is predominately due to the amortization of the cost of the Nestbuilder website placed in service in March 2014 which has been classified as a cost of sale as the website is considered a revenue producing tool for the Company.

 

Operating Expenses

 

Our operating expenses, which include salaries and benefits, selling and promotion and general and administrative expenses, remained relatively stable and increased to $946,099 for the three months ended July 31, 2014, compared to $855,066 for the three months ended July 31, 2013, an increase of $91,033. This increase was substantially due to an increase in salaries and benefits of $176,313 and to a lesser extent: an increase in investor relations of $151,541, an increase in consulting fees of $72,988, an increase in audit and accounting of $40,582, an increase in legal and professional of $45,302, an increase in filing fees of $4,346, an increase in bank charges of $4,325, an increase in depreciation of $1,807; this was offset by a decrease in web hosting of $179,145 and to a lesser extent offset by: a decrease in travel and entertainment of $70,447, a decrease in telephone expense of $18,022, a decrease in amortization of intangible assets of $12,097, a decrease in rent of $8,961, a decrease in office expense of $8,856, a decrease in insurance of $7,253 and a decrease in miscellaneous expense of $74,591.

 

  

Other Income (Expenses)

 

Our other income increased 12,062% to $11,676 of other income for the three months ended July 31, 2014, compared to $96 of other income for the three months ended July 31, 2013, an increase of $11,580. This increase was substantially due to an increase in foreign change gains.

 

Net Loss

 

We had a net loss of $830,512 for the three months ended July 31, 2014, compared to net loss of $597,655 for the three months ended July 31, 2013, an increase of $232,857.The increase in net loss from 2013 to 2014 was substantially due to an increase in salaries and benefits of $176,313 and to a lesser extent an increase in investor relations of $151,541, an increase in consulting fees of $72,988 offset by a decrease in web hosting of $79,145 and to a lesser extent a decrease in travel and entertainment of $70,447, a decrease in miscellaneous expense of $74,591 along with other factors noted above.

 

Nine months ended July 31, 2014 compared to nine months ended July 31, 2013.

 

Revenues

 

Our total revenues decreased 10% to $773,326 for the nine months ended July 31, 2014, compared to $864,022 for the nine months ended July 31, 2013, a decrease of $90,696. The Company is shifting from the legacy virtual tour business and focused on the rollout of its new technology products and is offering agents a free trial period before charging fees for the use of these new products.

 

Cost of Revenue

 

Cost of revenues increased 310% to $209,926 for the nine months ended July 31, 2014, compared to $51,157 for the nine months ended July 31, 2013, an increase of $158,769. This is predominately due to the amortization of the cost of the Nestbuilder website placed in service in March 2014 which has been classified as a cost of sale as the website is considered a revenue producing tool for the Company.

 

Operating Expenses

 

Our operating expenses, which include salaries and benefits, selling and promotion and general and administrative expenses, increased 48% to $3,887,979 for the nine months ended July 31, 2014, compared to $2,634,308 for the nine months ended July 31, 2013, an increase of $1,253,671. This increase was substantially due to an increase in consulting fees of $724,236 and to a lesser extent: an increase in investor relations of $362,043, an increase in audit and accounting fees of $88,460, an increase in legal and professional fees of $86,320, an increase in selling and promotion of $62,824, an increase in filing fees of $25,546, an increase in travel and entertainment of $20,738, an increase in bank charges of $13,638, an increase in depreciation of $12,217; this was offset by a decrease in amortization of intangibles of $26,864 and to a lesser extent: a decrease in rent of $9,427 and a decrease in office expense of $7,466.

 

Other Income (Expenses)

 

Our other income/expenses decreased 55% to $172,344 for the nine months ended July 31, 2014, compared to $381,819 of other income for the nine months ended July 31, 2013, a decrease of $209,475. This decrease was substantially due a decrease in gain on forgiveness of debt of $384,304 and to a lesser extent an increase in exchange losses of $1,456 and interest expense of $1,314. This was an offset by an increase in other income of $176,533 primarily consisting of proceeds received from a grant program in Canada to encourage research and development.

 

Net Loss

 

We had a net loss of $3,152,235 for the nine months ended July 31, 2014, compared to net loss of $1,439,624 for the nine months ended July 31, 2013, an increase of $1,712,611. The increase in net loss from 2013 to 2014 was substantially due to an increase in consulting fees of $724,236 and to a lesser extent an increase in investor relations of $362,043, along with other factors noted above.

 

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 July 31, 2014, the Company had $11,100 cash on-hand, a decrease of $1,293,274 from $1,304,374 at the end of fiscal 2013. The decrease in cash was due primarily to operating expenses and advances to affiliates.

 

Net cash used in operating activities was $2,287,482 for the nine months ended July 31, 2014, an increase of $1,668,306 from $619,176 used during the nine months ended July 31, 2013. This increase was mainly due to an increase in net loss and due from affiliates offset by stock based compensation and consulting fees.

 

 

We have financed our operations since inception primarily through proceeds from equity financings and revenue derived from operations. During the nine months ended July 31, 2014, we raised $1,539,188 from the sale of common stock and warrants and the exercise of warrants. Our continued operations will primarily depend on our ability to raise additional capital from various sources including equity and debt financings, as well as our revenue derived from operations. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs or will be on favorable terms. Based on our current plans, we believe that our cash provided from the above sources will be sufficient to enable us to meet our planned operating needs for the next 12 months.

 

We have based our estimate on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our shares or debt and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Disclosure controls and procedures include, without limitation, controls and other procedures that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and (ii) accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were ineffective as of July 31, 2014.

 

Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.

 

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which should enable us to implement adequate segregation of duties within the internal control framework.

 

These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. In light of this material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the quarter ended July 31, 2014, included in this Quarterly Report on Form 10-Q were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated unaudited financial statements for the quarter ended July 31, 2014 are fairly stated, in all material respects, in accordance with US GAAP.

 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

  

 

 Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

We are not currently a party to any material litigation and are not aware of any threatened litigation that would have a material effect on our business.

 

Item 1A.  Risk Factors.

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K/A for the fiscal year ended October 31, 2013, filed with the SEC on February 13, 2014.

 

Item 2.  Unregistered Sales of Equity Securities

 

Set forth below is information regarding securities sold by us during the three months ended July 31, 2014 that were not registered under the Securities Act:

 

·

Issued 3,213,546 shares of our common stock along with 2,342,223 one year warrants with an exercise price of $0.18 for cash proceeds of $407,568.

 

·

issued 2,815,111 shares of its common stock upon exercise of 2,815,111 outstanding warrants for cash proceeds of $506,520.

 

·

Issued 246,080 shares of our common stock along with 44,530 one year warrants with an exercise price of $1 for a total value of $55,937 for consulting fees rendered.  The value of the common stock issued was based on the fair value of the stock at the time of issuance.

 

·

Issued 970,000 shares of our common stock valued at $48,500 upon the conversion of the holders of convertible Series B preferred shares held in its parent company Next 1 Interactive, Inc.

 

·

Issued 70,660 shares of our common stock valued at $10,600 upon the conversion of the holders of convertible Series D preferred shares held in its parent company Next 1 Interactive, Inc.

 

·

issued 2,000,000 shares of common stock as part of employment agreements in place with executives valued at $300,000. The value of the common stock was based on the fair value of the stock at the time of issuance.

 

·

issued 2,000,000 shares of common stock upon execution of an Asset Sale Agreement with ReachFactor, Inc. pursuant to which the Company acquired substantially all of the assets of ReachFactor and the Company assumed certain liabilities of ReachFactor not to exceed $25,000. The value of the common stock was based on the fair value of the stock at the time of issuance and totaled $300,000.

 

·

issued 1,366,666 shares at the conversion rate of $0.15 per share, upon the noteholder's request, to convert the remaining principal balance of $205,000.

 

·

issued 100,000 shares at the conversion rate of $0.15 per share, upon the noteholder's request, to convert $15,000 in principal leaving a remaining principal balance of $60,000.

 

·

issued 70,789 shares upon the exercise of 70,879 warrants in settlement of consulting fees valued at $12,758.

 

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

 

Item 3.  Defaults Upon Senior Securities

 

There were no defaults upon senior securities during the quarter ended July 31, 2014.

 

 

Item 4.  Mine Safety Disclosures

 

Not applicable

 

Item 5.  Other Information

 

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

 

Item 6.  Exhibits.

 

Exhibit Number		Description
4.1		Note Amendment between Next 1 and Mark A. Wilton, as countersigned by Realbiz Media Group, Inc. dated February 24, 2014 *
4.2		Warrant issued by Realbiz Media Group, Inc. to Mark A. Wilton *
31.1		Certification of Chief Executive Officer **
31.2		Certification of Chief Financial Officer **
32.1		Certification of Chief Executive Officer **
32.2		Certification of Chief Financial Officer **
101.INS		XBRL Instance Document**
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB		XBRL Taxonomy Extension Label Linkbase Document**
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document**
101.SCH		XBRL Taxonomy Extension Schema Document**

 

*Incorporated by reference to the Form 8-K filed on February 27, 2014.

** Furnished 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
	September 15, 2014
	/s/ Adam Friedman
	Adam Friedman
	Chief Financial Officer
	September 15, 2014

 

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		September 15, 2014
William Kerby		(Principal Executive Officer)
/s/ Adam Friedman		Chief Financial Officer		September 15, 2014
Adam Friedman		(Principal Financial Officer)