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RBIZ > SEC Filings for RBIZ > Form 10-K on 13-Feb-2014All Recent SEC Filings

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Form 10-K for REALBIZ MEDIA GROUP, INC


13-Feb-2014

Annual Report


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

We are engaged in the business of providing digital media and marketing services for the real estate industry. We currently generate revenue from advertising revenues, real estate broker commissions and referral fees. We have three divisions: (i) our fully licensed real estate division (formerly known as Webdigs); (ii) our TV media contracts (Extraordinary Vacation Homes/ Third home) division; and (iii) our Real Estate Virtual Tour and Media group (Realbiz 360). The cornerstone of all three divisions is our proprietary technology which allows for an automated conversion of data (text and pictures of home listings) to a video with voice and music. We provide video, search and purchase capabilities on multiple platform dynamics for web, mobile, interactivity on TV and Video On Demand. Once a video is created using our proprietary technology, these home listing videos are automatically distributed to multiple media platforms (Television, broadband, web and mobile) for consumer viewing.

We have positioned our Company in the following four areas summarized here and explained in more detail below:

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

2. Website and Mobile Applications - We are developing a real estate web portal. This site is expected to be unique to the world of real estate search sites on multiple levels, from a consumer perspective the user experience is being designed to be completely visual and video centric, secondly, the site will provide local neighborhood information and allow for social interaction between home seekers and current residents who can provide an unbiased view of the selected neighborhood, and the content on the site will focus on the entire home ownership lifecycle from purchase through maintenance to home sale therefore giving the site a much deeper and more loyal audience over time.

3. Agent to Agent Interaction-From an industry perspective we believe the site can be viewed as revolutionary because it includes an agent only platform that allows for agent to agent interaction, and "App Store" for relevant video content, community events, discount coupons, industry news and agent share programs. This site will completely empower the agent with content and assets that they can use to pursue prospects and generate leads at a fraction of the cost they're currently paying. This agent only site will interact with our Microvideo App (MVA) platform. The MVA was developed and implemented to allow agents to access specific video based product strategies that are designed specifically to increase the SEO rank and traffic credit to real estate franchise systems and/or their brokers. This solution gives those franchises and brokers a much needed tool to lower their cost of prospect acquisition.

4. Traditional Real Estate Sales - Our previous company, Webdigs, had a licensed real estate brokerage division that currently has participating brokers in 48 states. We believe there are potential opportunities to take advantage of such an improving real estate market, and that our traditional brokerage division will be able to capture leads from the Real Estate Video on Demand Channel. The Company currently has no activities in this division.

The Share Exchange

On October 9, 2012, we completed a share exchange (the "Exchange Transaction" ) with Next 1 Interactive, Inc., a Nevada corporation ("Next 1"),that was contemplated by that certain Share Exchange Agreement entered into on April 4, 2012 (the "Exchange Agreement") pursuant to which we received all of the outstanding equity in Attaché Travel International, Inc., a Florida corporation and wholly owned subsidiary of Next 1 ("Attaché") in consideration of our issuance to Next 1 of 93 million shares of our newly designated Series A Convertible Preferred Stock (our "Series A Stock). Attaché owns approximately 80% of a corporation named RealBiz Holdings Inc. which is the parent corporation of RealBiz 360, Inc. ("RealBiz"). As a condition to the closing of the Exchange Transaction, on October 3, 2012, we changed our name from "Webdigs, Inc." to "RealBiz Media Group, Inc.", by engaging in a short-form parent-subsidiary merger in the State of Delaware. Bill Kerby, our Chief Executive Officer is also the Chief Executive Officer of Next 1 and our Chief Financial Officer, Adam Friedman is also the Chief Financial Officer of Next 1.

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, Mr. 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. At the closing of the Exchange Transaction, Mr. Wicker resigned his position as a director of our Company and as our Chief Financial Officer. The Preferred A Shares for Mr. Buntz were converted to 5,990,238 Common Shares on February 27, 2013.

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.

On March 16, 2012, we 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 us in exchange for a principal reduction of his loan to the Company of $5,000.

Please see Note 16, Subsequent Events, for 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.

Revenues

Our total revenues decreased 2% to $1,145,540 for the year ended October 31, 2013, compared to $1,172,498 for the year ended October 31, 2012, a decrease of $26,958. This is due to a decrease in the commission revenue share portion of the multiple listing service contracts expiring and not renewed.

Cost of Revenue

Cost of revenues decreased 43% to $60,297 for year ended October 31, 2013, compared to $105,116 for the year ended October 31, 2012, a decrease of $44,819. This is due to a decrease in the commission revenue share portion of the multiple listing service contracts expiring and not renewed.

Operating Expenses

Our operating expenses, include salaries and benefits, selling and promotion, general and administrative expenses, increased 132% to $4,791,247 for the year ended October 31, 2013, compared to $2,068,823 for the year ended October 31, 2012, an increase of $2,722,424. This increase was substantially due to an increase in salaries and benefits of $341,251, the amortization of intangible assets of $1,377,348, consulting fees incurred in raising capital of $610,206, investor relations of $296,382 and to a lesser extent due to bad debt of $75,405, audit and accounting fees of $68,908, insurance of $63,962, filing fees of $30,217, legal and professional fees of $33,815 and miscellaneous expenses of $7,583. This was partially offset by decreases in selling and promotion of $53,638, dues and subscriptions of $29,446, webhosting of $43,972 and travel and entertainment of $55,597.

Other Income (Expenses)

Interest expense increased 100% to $442,341 for year ended October 31, 2013, compared to $-0- for year ended October 31, 2012, an increase of $442,341 due primarily to the amortization of the beneficial conversion features of the new convertible promissory notes. Gain on forgiveness of debt increased 100% to $384,304 for the year ended October 31, 2013, compared to $-0- for the year ended October 31, 2012, an increase of $384,304 due primarily to the forgiveness of amounts due to various creditors during the current fiscal year. To a lesser extent, a decrease of 98% to $592 for the year ended October 31, 2013, compared to $38,221 for the year ended October 31, 2012, a decrease of $37,629 offset by an increase other expenses of 100% to $640 for the year ended October 31, 2013, compared to $-0- for the year ended October 31, 201, an increase of $640.

Net Loss

We had a net loss of $3,764,089 for the year ended October 31, 2013, compared to net loss of $963,220 for the year ended October 31, 2012, an increase of $2,800,869. The increase in loss from 2012 to 2013 was primarily due to an increase of $1,377,348 in the amortization of intangible assets, increase in interest expense of $440,000 due to the amortization of the beneficial conversion feature of new convertible promissory notes and consulting fees of $610,206.

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, 2013, we had $1,304,374 cash on-hand, an increase of $1,267,966 from $36,408 at the start of fiscal 2012. The increase in cash was due primarily to funds raised through common stock subscription agreements.

Net cash used in operating activities was $2,172,242 for the year ended October 31, 2013, an increase of $2,126,673 from $45,569 used during the year ended October 31, 2012. This decrease was primarily due to an increase in amortization of intangibles, amortization of beneficial conversion feature, stock based compensation and consulting fees, offset by gain on forgiveness of debt.

Net cash used in investing activity increased to $470,506 for the year ended October 31, 2013, compared to $-0- for the year ended October 31, 2012, an increase of $470,506 primarily due to incurring website development costs and to a lesser expense the purchase of computer equipment.

Net cash provided by financing activities increased $3,939,974 to $3,910,714, for the year ended October 31, 2013, compared to net cash used of $29,260 for the year ended October 31, 2012. This increase was primarily due to the net increase of proceeds received from loans of $50,474 and net proceeds from common stock subscriptions and the exercise of warrants in the amount of $3,889,500.

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. 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.

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, 2013 and 2012 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, 2013 and 2012.

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, 2013 and 2012 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.

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. For the year ended October 31, 2013, the Company determined the allowance for doubtful accounts to be $76,823.

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:

Computer equipment 3 years

Intangible Assets.

On October 3, 2012, Next 1 Interactive, Inc. ("Next 1") entered a securities exchange agreement and exercised the option purchase agreement to purchase 664.1 common shares of Real Biz Holdings, Inc. Next 1 applied $300,000 of cash, issued a Series D Preferred stock subscription agreement for 380,000 shares and agreed to a $50,000 thirty day (30) day post closing final buyout bringing the total value of the agreement to $2,250,000.

Next 1 accounted for the acquisition utilizing the purchase method of accounting in accordance with ASC 805 "Business Combinations". Next 1 is the acquirer for accounting purposes and Real Biz Holdings, Inc. is the acquired Company. Accordingly, Next 1 applied push-down accounting and adjusted to fair value all of the assets and liabilities directly on the financial statements of the subsidiary, Real Biz Holdings, Inc.

The net purchase price, including acquisition costs paid by Next 1, was allocated to assets acquired and liabilities assume on the records of the Next 1 as follows:

Cash                                                                  $    34,366
Other current assets                                                       40,696
Intangible asset                                                        4,796,178
                                                                        4,871,240

Accounts payable, accrued expenses and other miscellaneous payables     2,330,846
Deferred revenue                                                           48,569
Convertible notes payable to officer                                      241,825
                                                                        2,621,240
Net purchase price                                                    $ 2,250,000

Recently Issued Accounting Pronouncements

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU No. 2013-11"). ASU No. 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with limited exceptions. ASU No. 2013-11 is effective for interim and annual periods beginning after December 15, 2013 and may be applied retrospectively. The adoption of the provisions of ASU No. 2013-11 is not expected to have a material impact on the company's financial position or results of operations.

In March 2013, the FASB issued Accounting Standards Update No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU No. 2013-05"). ASU No. 2013-05 requires an entity that ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU No. 2013-05 is effective for interim and annual periods beginning after December 15, 2013, with early adoption permitted and is to be applied prospectively. The adoption of the provisions of ASU No. 2013-05 is not expected to have a material impact on the company's financial position or results of operations.

In February 2013, the FASB issued Accounting Standards Update No. 2013-04, "Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date" ("ASU No. 2013-04"). ASU No. 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, ASU No. 2013-04 requires an entity to disclose the nature and amount of the obligation, as well as other information.

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.

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