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NEXT 1 INTERACTIVE, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) Forward Looking Statements 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 February 28, 2014 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 this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. This Report contains statements that we believe are, or may be considered to be, "forward-looking statements". All statements other than statements of historical fact included in this Report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as "may," "will," "expect," "intend," "estimate," "foresee," "project," "anticipate," "believe," "plans," "forecasts," "continue" or "could" or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management's opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Report. 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, accrued liabilities, convertible promissory notes 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 June 13, 2014 are those that depend most heavily on these judgments and estimates. As of May 31, 2014, there had been no material changes to any of the critical accounting policies contained therein. 24 Overview Next 1 Interactive, Inc. ("Next 1" or the "Company") is a media based company focusing directly on the travel segment and indirectly through our 58% ownership interest in RealBiz Media Group, Inc. a publicly traded real estate media company ("RealBiz"), on the real estate segment. The Company's and RealBiz's mission has been to both create and acquire travel and real estate video content that can be delivered on any screen (Television, web and mobile), all with interactive advertising and transactional shopping components that engage and enable viewers to request information, make purchases and get an in-depth look at products and services all through their device of choice. Next 1 is a multi-faceted interactive media company whose key focus is around what we believe to be two of the most universal, yet powerful consumer-passion categories - real estate and travel. We are engaged in the business of providing digital media and marketing services for the travel industry and, indirectly through RealBiz, for the real estate industry. We plan to deliver targeted content via digital platforms including satellite, cable, broadcast, Broadband, Web, Print and Mobile. We currently generate revenue from commissions from (i) traditional sales of our travel products as well as advertising revenue from preferred suppliers and sponsors and referral fees; (ii) travel media services which include video monthly sponsorship packages, pre-roll advertising, commissions and referral fees; and (iii) revenue derived from the real estate operations of RealBiz. We have three divisions: (x) our Maupintour Extraordinary Vacations, which is one of the oldest luxury tour operator in the United States; (y) NextTrip.com/Voyage.tv a video and media website with thousands of hours of travel footage(z) TripProfessionals.com, a trip professional membership program which is an at home agency program allowing the consumer to customize and book travel while earning commission. In addition, RealBiz generates revenue from advertising revenues, real estate broker commissions and referral fees. RealBiz also has four divisions: (i) its fully licensed real estate division (formerly known as Webdigs, Inc.); (ii) Nestbuilder.com /Nestbuilder Agent its consumer and agent websites with over 1.6 million video listings and agent marketing platforms (iii) its Real Estate Virtual Tour, MicroVideo App and Media group and (iv) ReachFactor - its agent social media marketing division. The cornerstone of all four divisions is the proprietary technology which allows for an automated conversion of data (text and pictures of home listings) to a video with voice and music. At present the Company operates travel companies and travel media services, RealBiz Media Group Inc., operates the Home Tour Network. The Home Tour Network owns technology that allows it to create video from real estate agents home listings which can be featured on hundreds of relevant real estate related websites, You Tube and VOD Television Networks in 2 cities on the Cox Communications Network and Comcast Cable Network We currently focus our travel segment on the following travel operations and travel media services. 1. Maupintour Extraordinary Vacations Maupintour Extraordinary Vacations ("Maupintour") is the oldest tour operator in North America having a history of over 65 years of creating and booking tours and activity-focused trips, from private tours of the Vatican to bicycling in the Alps to wine tasting in Italy. Maupintour books these trips and serves thousands of travel agents around the world. The Company has an active alumni that desires luxury vacations that includes private sightseeing, fine dining and 4 and 5 star accommodations. The Company previously ran group tours ranging from 10 to 25; however it has moved its model to customization of high end tours for families, small groups and individuals. The Company's most popular destinations are Egypt, Israel, Europe, Africa, Asia and Peru. The Company's peak season for this division is from February to July. Maupintour's website is www.Maupintour.com. 2. NextTrip.com NextTrip.com is being repositioned as an all-purpose travel site that includes 24/7 customer support, relevant social networking, and travel business showcases, with a primary emphasis on Video to targeted web users and a secondary promotion to TV viewers via VOD promotion. The site is scheduled for launch in the 2nd quarter of this fiscal year and will provide users with a diverse video experience that entertains, informs, and offers utility and savings. The travel information website offers users, free of charge, hundreds of destination videos and promotes worldwide vacation destinations. NextTrip.com plans to generate revenues through advertising, travel commission, referral fees, and its affiliate program. The travel fulfillment and services for the site are handled by Mark Travel. Mark Travel is the largest wholesaler of travel products in the United States. NextTrip.com, in conjunction with its Connext1 program and key media partners (including RealBiz Media, M80, WAYN and Fareportal) will look to serve relevant videos to travelers via four key elements: (i) television ads (ii) travel video on demand for web and TV (iii) broadband telecast (with the web player surrounded by interactive banner ads and/or discount travel coupons) and (iv) wireless access to the network on smart phones/devices. The Company is continuing to build out a targeted travel video with interactive advertising and transactional shopping components that engage and enable viewers to request information, make reservations and get an in-depth look at products and services all through their device of choice. The Company believes this approach will allow for multiple revenue streams and integrated media platforms that deliver measurable return on investment to its advertisers, sponsors and business partners. Additionally, "on demand" travel solution allows users to access travel content via digital platforms including Web, Cable, Broadband and mobile. This delivery of travel information, services and entertainment to consumers will help the Company to capture multiple revenue streams including transactional commissions, referral fees, advertising and sponsorship. NextTrip.com was originally launched in July of 2008 as Nexttrip.com. Media and travel booking solutions are being restructured with fulfillment of Travel bookings being handled by Mark Travel. The Company is targeting completion of new booking engines and video content by July 2014. The website is www.NextTrip.com. 3. Trip Professionals.com The Company operates a Trip Professional Membership Program. The program allows members to join for a $199 annual fee and earn 80% of the commissions on travel products purchased though the member. At present the Company is working on a new booking engine whereby members can access wholesale pricing and set commissions and is currently being redesigned to allow its members access to vacations at wholesale pricing, view destination video and adjust commissions within acceptable limits. RealBiz Media is a publicly traded real estate media company that is engaged in the business of providing digital media and marketing services for the real estate industry. RealBiz Media currently generates revenue from advertising revenues and through real estate agent and broker service fees. RealBiz has positioned itself in the following three areas summarized here and explained in more detail below: 1. Real Estate "Turn Key" social media and marketing services - RealBiz Media earns fees from creating agent personalized websites as well as offering ongoing services for marketing the agent though both our and other social media platforms like Facebook. Services include site design, site optimization, ad placements, key words, SEO strategies that cause awareness and lead generation for the agent. We charge between $100 and $10,000 per month dependent upon the level of marketing. 2. Website and Mobile Applications - RealBiz Media is developing a real estate web portal. This site is expected to be unique to the world of real estate search sites on multiple levels, from a consumer perspective the user experience is being designed to be completely visual and video centric, secondly, the site will provide local neighborhood information and allow for social interaction between home seekers and current residents who can provide an unbiased view of the selected neighborhood, and the content on the site will focus on the entire home ownership lifecycle from purchase through maintenance to home sale therefore giving the site a much deeper and more loyal audience over time. 3. Agent to Agent Interaction-From an industry perspective we believe the site will be revolutionary because it includes an agent only platform that is being designed to allow for agent to agent interaction, and "App Store" for relevant video content, community events, discount coupons, industry news and agent share programs. This site will completely empower the agent with content and assets that they can use to pursue prospects and generate leads at a fraction of the cost they're currently paying. This agent only site will interact with our Microvideo App (MVA) platform. The MVA was developed and implemented to allow agents to access specific video based product strategies that are designed specifically to increase the SEO rank and traffic credit to real estate franchise systems and/or their brokers. This solution gives those franchises and brokers a much needed tool to lower their cost of prospect acquisition. 25 Sufficiency of Cash Flows Because current cash balances and our projected cash generated from operations are not sufficient to meet our cash needs for working capital and capital expenditures, management intends to seek additional equity or obtain additional credit facilities. However, there can be no assurance that we will be able to issue additional capital upon terms acceptable to us. The sale of additional equity could result in additional dilution to the our shareholders. A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies. RESULTS OF OPERATIONS For the Three Months Ended May 31, 2014 Compared to the Three Months Ended May 31, 2013 Revenues Our total revenues decreased 30% to $344,957 for the three months ended May 31, 2014, compared to $495,441 for the three months ended May 31, 2013, a decrease of $150,484. This is due to a decrease in the marketing and sales efforts of the travel division and the shifting of paying customers in the virtual tour business to a free trial of new technology products being released by our subsidiary, RealBiz, real estate division. Revenues from the travel segment decreased 48% to $90,156 for the three months ended May 31, 2014, compared to $174,933 for the three months ended May 31, 2013, a decrease of $84,777. Travel revenue is generated from luxury tour operations which provide escorted and independent tours worldwide to upscale travelers. Revenues from real estate media decreased 21% to $254,801 for the three months ended May 31, 2014, compared to $320,508 for the three months ended May 31, 2013, a decrease of $65,707. The decrease was a result of efforts of our subsidiary, RealBiz Media Group, Inc., whereby we lost several single agent accounts and smaller brokers shifting from the legacy virtual tour business as the Company is now focused on the roll out 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 decreased 61% to $61,623 for three months ended May 31, 2014, compared to $158,914 for the three months ended May 31, 2013, a decrease of $97,291. The decrease was directly associated with the marketing and sales efforts of the travel and the real estate division of our subsidiary RealBiz. Operating Expenses Our operating expenses include salaries and benefits, selling and promotion, general and administrative expenses increased 4% to $1,864,220 for the three months ended May 31, 2014, compared to $1,797,674 for the three months ended May 31, 2013, an increase of $66,546. This increase was substantially due to an increase in website maintenance costs of our RealBiz product Nestbuilder of $164,252 and to a lesser extent an increase in finance and consulting fees from raising capital of $122,887, dues and subscriptions of $100,392, legal and professional fees of $61,344, selling and promotion of $50,280 and technology and internet of $24,047, partially offset by a reduction in investor relations of $369,514 and to a lesser extent a reduction of salaries and benefits of $151,509. Other Expenses Interest expense increased 43% to $241,535 for three months ended May 31, 2014, compared to $169,450 for three months ended May 31, 2013, an increase of $72,085 due primarily to amortization of debt discount on convertible promissory notes. Loss on settlement of debt decreased 100% to $-0- for the three months ended May 31, 2014, compared to $22,797 for the three months ended May 31, 2013, a decrease of $22,797 primarily due to the lack of settlement of debt during our first fiscal quarter. Gain on legal settlement decreased 100% to $-0- for the three months ended May 31, 2014, compared to $57,500 for the three months ended May 31, 2013, a decrease of $57,500 due primarily to the lack of forgiveness of amounts due to accounts payable vendors. Gain on the change in fair value of derivatives increased 472% to $1,115,797 for the three months ended May 31, 2014, compared to a gain of $195,133 for the three months ended May 31, 2013, an increase of $920,664 primarily due to the increase in share price to $0.085 at May 31, 2014 compared to $0.02 at May 31, 2013 used in the Black-Scholes calculation of the value of the derivative liabilities of the convertible promissory notes. Other income/expense increased to $160,336 of other income, compared to other expense of $240 for the three months ended May 31, 2013, an increase of $160,576, primarily due to a net grant received from a grant program in Canada to encourage research and development. 26 Net Loss We had a net loss of $546,288 for the three months ended May 31, 2014, compared to net loss of $1,401,001 for the three months ended May 31, 2013, a decrease of $854,713. The decrease in loss from 2013 to 2014 was primarily due to an increase of $920,644 in the gain in the change in the fair value of derivatives, an increase of other income of $160,576, a decrease in the loss of settlement of debt of $22,797; offset by an increase in interest expense of $72,085 and a decrease in gain on legal settlement of $57,500. Included in the net loss for the three months ended May 31, 2014, is $376,637 of net loss attributable to the noncontrolling interest in subsidiary. Contractual Obligations The following schedule represents obligations under written commitments on the part of the Company that are not included in liabilities: Current Long Term FY 2017 and FY2015 FY2016 beyond Totals Consulting $ 3,750 $ -0- $ -0- $ 3,750 Leases 110,505 148,638 -0- 259,143 Other 159,100 219,720 439,440 818,260 Totals $ 273,355 $ 368,358 $ 439,440 $ 1,081,153 Liquidity and Capital Resources At May 31, 2014, we had $59,110 cash on-hand, a decrease of $58,708 from $117,818 at the start of fiscal 2014. The decrease in cash was attributable to a decline in funds raised for subscription agreements. Net cash used in operating activities was $811,132 for the three months ended May 31, 2014, a decrease of $457,185 from $1,268,317 used during the three months ended May 31, 2013. This decrease was primarily due to an increase in the gain on change in fair value of derivatives, stock based compensation and the non-controlling interest in loss of consolidated subsidiaries; offset by increases in amortization of intangibles and debt discount. Net cash used in investing activities increased to $25,298 for the three months ended May 31, 2014, compared to $19,097 for the three months ended May 31, 2013, an increase of $6,201 primarily due to incurring website development costs and to a lesser extent the purchase of computer equipment. Net cash provided by financing activities decreased by $625,964 to $768,369, for the three months ended May 31, 2014, compared to $1,394,333 for the three months ended May 31, 2013. This decrease was primarily due to the net decrease of proceeds of the issuance of shares of preferred stock, common stock and the exercise of warrants in the amount of $682,352, and an increase in payments to shareholder loans and other notes payable in the amount of $18,612; offset by an increase in proceeds received from promissory notes in the amount of $75,000. The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. However, there can be no assurance that we will be able to raise additional capital upon terms that are acceptable to us. We currently do not have adequate cash to meet our short or long-term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders. We are a media company focusing on travel and real estate by utilizing multiple media platforms including the Internet, radio and television. As a company that has recently changed our business model and emerged from the development phase with a limited operating history, we are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. We cannot assure you that the business will continue as a going concern or ever achieve profitability. Due to the absence of an operating history under the new business model and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue streams. 27 We will need to raise substantial additional capital to support the on-going operation and increased market penetration of our Video on Demand real estate and travel business including the development of national sales representation for national and global advertising and sponsorships, increases in operating costs resulting from additional staff and office space until such time as we generate revenues sufficient to support the business. We believe that in the aggregate, we will need approximately $750,000 to $1.5 million to repay debt obligations, provide capital expenditures for additional equipment and satisfy payment obligations, office space and systems required to manage the business, and cover other operating costs until our planned revenue streams from advertising, sponsorships, e-commerce, travel and real estate are fully- implemented and begin to offset our operating costs. There can be no assurances that we will be successful in raising the required capital to complete this portion of our business plan. Since our inception, we have funded our operations with the proceeds from the private equity financings. We have issued these shares without registration under the Securities Act of 1933, as amended, afforded the Company under Section 4(a)(2) and Regulation D promulgated thereunder because the issuance did not involve a public offering of securities. The shares were sold solely to "accredited investors" as that term is defined in the Securities Act of 1933, as amended, and pursuant to the exemptions from the registration requirements of the Securities Act under Section 4(a)(2) and Regulation D thereunder. Currently, revenues provide less than 20% of the our cash requirements. The remaining cash need is derived from raising additional capital. The current monthly cash burn rate is approximately $400,000, with the expectation of profitability by the third quarter of fiscal 2015. Our multi-platform media revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven and there can be no assurance that we can achieve profitable operations. Our ability to generate revenues depends, among other things, on our ability to operate our television network and create enough viewership to provide advertisers, sponsors, travelers and homebuyers value. Accordingly, we cannot assure you that our business model will be successful or that we can sustain revenue growth, or achieve or sustain profitability. |