Notes
to Consolidated Financial Statements
(Unaudited)
Note
1 - Summary of Business Operations and Significant Accounting Policies
Nature
of Operations and Business Organization
Monaker
Group, Inc. (“Monaker” or the “Company”) is a multi-faceted interactive media company whose key focus
is around what the Company believes to be the most universal, yet powerful consumer-passion categories being - travel, home and
work. The Company is engaged in the business of providing digital media and marketing services for these industries along with
the opportunity to create long term relationships through its Home & Away Club membership programs. The Company generates
revenue from commissions from traditional sales of our travel products and expects to be accelerating its revenue base through:
(i) advertising revenue from preferred suppliers, sponsors and referral fees (ii) travel and employment media services which include
video sponsorship packages, pre-roll advertising, commissions and referral fees; and (iii) revenue derived from Home & Away
Club memberships. The Company’s Media Group concentrates awareness campaigns through its three divisions:
|
(1)
|
Travel
– which encompasses Maupintour (one of the oldest luxury tour operators in the United States) and NextTrip.com/Voyage.tv,
a video and media website with thousands of hours of travel footage.
|
|
(2)
|
Employment
– the NameYourFee.com website which allows recruiters to expand their reach of candidates to potential employers.
|
|
(3)
|
Home – via its
Home & Away Club loyalty program and minority interest in Realbiz Media Group, Inc. (“RealBiz”),
a publicly traded company.
|
The
Company plans to accelerate targeted content utilizing video via digital platforms including satellite, cable, broadcast, broadband,
web, print and the development of a Home & Away Mobile App.
We
currently focus primarily on our travel segment and our planned expansion into the employment and Home/Membership services during
the next quarter. The following is an overview of the 3 areas that currently have travel operations and/or the Company is imminently
commencing promotion utilizing our media services.
1.
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 is being repositioned as an all-purpose travel site that includes 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 work in conjunction with the Home
& Away Club App to provide users with relevant information utilizing its diverse video library and experience to entertain,
inform, and offer utility and savings to members. The travel website currently 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 products and fulfillment and services are both created by the Company and/or
contracted out to key industry suppliers including Mark Travel. Mark Travel is the largest wholesaler of travel products in the
United States. NextTrip.com 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) the development of its Travel App.
3.
The Home & Away Club (H&AC). The Company has launched the Home & Away Club website and is targeting both existing
customers and new potential customers to the site by offering up to $500 Rewards so consumers can try before they buy. As a primary
means of creating awareness for H&AC the Company is utilizing existing customers, relationships and forging new partnerships
within the travel, real estate and employment sectors. The Company will utilize targeted video for the travel, leisure, home products
and services to engage and enable viewers to request information, make reservations and get an in-depth look at products and services
the Club offers. The Company created a points based program for real estate agents that utilize the RealBiz services. With the
Home and Away Club, agents can earn dollars for completing specified actions, purchase Home and Away Club membership for themselves
and/or gift to their customers and receive greatly discounted gifts to give to their happy clients. The membership gives the homeowner
access to wholesale pricing on travel, lifestyle and home products while providing the real estate agents a loyalty platform that
allows them the means to stay in contact with their customer.
Interim
Financial Statements
These
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the
United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation
S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended
February 28, 2015 and notes thereto and other pertinent information contained in our Form 10-K the Company has filed with the
Securities and Exchange Commission (the “SEC”).
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
The
results of operations for the six months ended August 31, 2015 are not necessarily indicative of the results to be expected for
the full fiscal year ending February 28, 2016.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material
inter-company transactions and accounts have been eliminated in consolidation.
At
February 28, 2014, the Company owned a 61% interest in RealBiz Media Group, Inc. (“RealBiz”), which owned an
85% interest in RealBiz Holdings, Inc. On October 31, 2014, the Company’s interest dropped to 43% as a result of
conversion of our Series A Preferred Stock into common stock of RealBiz. These entities’ accounts are no longer
consolidated in the accompanying financial statements because we no longer have a controlling financial interest in such
entities. All inter-company balances and transactions have been eliminated. The 69% non-controlling interest in RealBiz at
August 31, 2015 is represented by 1,016,400 shares of RealBiz Series A Preferred Stock with an annual dividend rate of 10%
and 115,392,851 shares of RealBiz common stock issued and outstanding as of August 31, 2015. The shares of RealBiz Series
A Preferred Stock and common stock have been written down to zero ($0) to reflect the realizable value of this investment.
In addition, the Company is owed in excess of $10 million in funds as a net receivable balance due from RealBiz for amounts
paid for the benefit of or on behalf of RealBiz. The net receivable from RealBiz has been written down to zero ($0) to
reflect the net realizable value of the asset.
Noncontrolling
Interest and Investment in Unconsolidated Affiliates
The
Company accounts for its less than 100% interest in consolidated subsidiaries in accordance with ASC Topic 810,
Consolidation, and accordingly the Company presents noncontrolling interests as a component of equity on its consolidated
balance sheets and reports noncontrolling interest net loss under the heading “Net loss attributable to noncontrolling
interest” in the consolidated statements of operations. The Company consolidated its 51% interest in Name Your Fee, LLC
during the six months ended August 31, 2015, which was exchanged for our debt. Investments in unconsolidated affiliates are
accounted for by either the equity or cost methods, generally depending upon ownership levels. The equity method of
accounting is used when the Company’s investment in voting stock of an entity gives it the ability to exercise
significant influence over the operating and financial policies of the investee, which is presumed to be the case when the
Company holds 20% to 50% of the voting stock of, or can otherwise demonstrate significant influence over, the investee.
Unconsolidated affiliate companies in which the Company does not have significant influence and owns less than 20% of the
voting stock are accounted for using the cost method. These investments in unconsolidated affiliates are
assessed periodically for impairment and are written down if and when the carrying amount is considered to be
permanently impaired.
Deconsolidation
The
Company prepares its consolidated financial statements on the accrual basis of accounting consistent with accounting principles
generally accepted in the United States of America (“GAAP”). In accordance with accounting guidance for consolidation,
prior to the Deconsolidation Date of October 31, 2014, the accompanying consolidated financial statements present the consolidated
results of the Company including its investment in RealBiz. On the deconsolidation date, in accordance with ASC 810-10-50-1B and
the voting interest model, which basically requires that an entity consolidate another entity if it owns a majority (greater than
50%) of that other entity. Monaker commenced accounting for its investments in RealBiz in accordance with the equity method of
accounting as of the Deconsolidation Date.
Use
of Estimates
The
Company’s significant estimates include allowance for doubtful accounts, valuation of intangible assets, stock based compensation,
accrued expenses and derivative liabilities. These estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
While the Company believes that such estimates are fair when considered in conjunction with the consolidated financial statements
taken as a whole, the actual amounts of such estimates, when known, will vary from these estimates. If actual results significantly
differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially
impacted.
Cash
and Cash Equivalents
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.
The Company had no cash equivalents at August 31, 2015 and February 28, 2015.
Accounts
Receivable
The
Company extends credit to its customers in the normal course of business. Further, the Company regularly reviews outstanding receivables,
and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves,
the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors.
As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments
to the allowance for doubtful accounts may be required. The Company maintains reserves for potential credit losses, and such losses
traditionally have been within its expectations. The Company’s allowance for doubtful accounts was $-0- and $-0- at August
31, 2015 and February 28, 2015, respectively.
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 using the straight-line method 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.
For the six months ended August 31, 2015 and
August 31, 2014, the Company did not incur depreciation expense.
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
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 six months ended August 31, 2015 and for the year ended February 28, 2015, the
Company did not record impairment losses on any of its property and equipment.
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. The Company placed into service in June 2013 two websites, Maupintour.com and Nexttrip.com.
Additionally, the Company placed into service in March 2014 the Nestbuilder website. All costs associated with these websites
are subject to straight-line amortization over a three-year period. For the six months ended August 31, 2015, the Company has
capitalized $915,392 of costs associated with the Name Your Fee employment website that has not yet been placed into service.
Websites related to RealBiz have been deconsolidated from the financial statements as of October 31, 2014.
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. Software development costs related to RealBiz have been deconsolidated from
the financial statements as of October 31, 2014.
Impairment
of 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 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 asset 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 flows, the Company records an impairment charge. The Company measures any impairment 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 record an impairment charge on its intangible assets during the six months ended August 31, 2015 and 2014,
respectively. Intellectual properties that have finite useful lives are amortized over their useful lives. The Company incurred
amortization expense of $36,564 and $999,595 for the six months ended August 31, 2015 and 2014, 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.
Derivative
Instruments
The
Company enters into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that
contain embedded derivative features. The Company accounts for these arrangements in accordance with Accounting Standards Codification
topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretations
of this standard. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the
balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly
and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized
as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based
on available market data using appropriate valuation models, considering all of the rights and obligations of each instrument.
The
Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are
considered consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers,
among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For
less complex derivative instruments, such as freestanding warrants, the Company generally uses the Black-Scholes model, adjusted
for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms,
dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments
requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the
instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes
model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since derivative financial
instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility
in these estimates and assumption changes. Under the terms of the accounting standard, increases in the trading price of the Company’s
common stock and increases in fair value during a given financial quarter result in the application of non-cash derivative expense.
Conversely, decreases in the trading price of the Company’s common stock and decreases in trading fair value during a given
financial quarter result in the application of non-cash derivative income.
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Based
upon ASC 815-25 the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible
debentures. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
Common Stock
On October 28, 2011, the Board and the holders of a majority
of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares
of common stock from 200,000,000 to 500,000,000. On February 13, 2012, the Board and the holders of a majority of the voting power
of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares of common stock from
500,000,000 to 2,500,000,000. The increase in our authorized shares of common stock became effective upon the filing of the amendment(s)
to our articles of incorporation with the Secretary of State of the State of Nevada.
On May 2, 2012, the Board consented to (i) effect a 1-to-500
reverse split of the Company’s common stock and (ii) reduce the number of authorized shares from 2,500,000,000 to 5,000,000.
Such actions became effective upon the filing of the amendment(s) to our articles of incorporation with the Secretary of State
of the State of Nevada. The consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.
On June 26, 2012, the Board and the holders of a majority
of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares
of common stock from 5,000,000 to 500,000,000.
On June 25, 2015, the Board consented to (i) effect a 1-to-50 reverse split of the Company’s common
stock and (ii) change the name of the Company from Next 1 Interactive, Inc. to Monaker Group, Inc. Such actions became effective
upon the filing of the amendment(s) to our articles of incorporation with the Secretary of State of the State of Nevada. The consolidated
financial statements have been retroactively adjusted to reflect this reverse stock split.
Earnings
per Share
Basic
earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during
the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock,
common stock equivalents and potentially dilutive securities outstanding during each period. Diluted loss per common share is
not presented because it is anti-dilutive.
Revenue
recognition
Travel
Gross
travel tour revenues represent the total retail value of transactions booked for both agency and merchant transactions recorded
at the time of booking, reflecting the total price due for travel by travelers, including taxes, fees and other charges, and are
generally reduced for cancellations and refunds. The Company also generates revenue from paid cruise ship bookings in the form
of commissions. Commission revenue is recognized at the date the price is fixed or determinable, the delivery is completed, no
other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Media
Our
no longer consolidated subsidiary RealBiz’s marketing and promotional services are provided 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.
Under
these policies, no revenue is recognized unless persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and collection is deemed reasonably assured. The Company considers an insertion order signed by the client
or its agency to be evidence of an arrangement.
Cost
of Revenues
Cost
of revenues, for the travel segment, includes costs directly attributable to services sold and delivered. These costs include
such items as amounts paid for airlines, hotels, excursions, sales commissions to business partners, industry conferences and
public relations costs. Cost of revenues, for the media segment, include such items as credit card fees, sales commission to business
partners, expenses related to our participation in industry conferences, and public relations expenses.
Sales
and Promotion
Sales
and marketing expenses consist primarily of advertising and promotional expenses, salary expenses associated with sales and marketing
staff, expenses related to our participation in industry conferences, and public relations expenses. The goal of our advertising
is to acquire new subscribers for our e-mail products, increase the traffic to our web sites, and increase brand awareness.
Advertising
Expense
Advertising
costs are charged to expense as incurred and are included in selling and promotions expense in the accompanying consolidated financial
statements. Advertising expense for the six months ended August 31, 2015 and 2014, was $3,263 and $194,028, respectively.
Share
Based Compensation
The
Company computes share based payments to employees 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. Equity instruments issued to non-employees for goods or services are accounted for at fair value and
marked to market until service is complete or a performance commitment date is reached, whichever is earlier, in accordance with
ASC 505-50.
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.
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Warrant
Modifications
The
Company treats a modification of the terms or conditions of an equity award in accordance with ASC Topic 718-20-35-3 by treating
the modification as an exchange of the original award for a new award. In substance, the entity repurchases the original instrument
by issuing a new instrument of equal or greater value, incurring additional compensation cost for any incremental value. Incremental
compensation cost shall be measured as the excess, if any, of the fair value of the modified award determined in accordance with
the provisions of this Topic over the fair value of the original award immediately before its terms are modified, measured based
on the share price and other pertinent factors at that date.
Income
Taxes
The
Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires,
among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred
tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The
Company follows the provisions of the ASC 740-10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are
filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others
are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above
should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest
and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all
highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The
Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether
a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a
tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished.
For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position
is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations
remains open. As of August 31, 2015, the Company’s income tax returns for tax years ending February 28, 2015, 2014, 2013,
and 2012 remain potentially subject to audit by the taxing authorities.
Monaker
follows the guidance of ASC 740, “Income Taxes.” Deferred income taxes reflect the net effect of (a) temporary difference
between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes,
and (b) net operating loss carry-forwards. No current tax provision has been made in the accompanying statement of income (loss)
because no taxes are due currently or were paid previously. Similarly, no deferred tax asset attributable to the net operating
loss carry-forward has been recognized, as it is not deemed likely to be realized.
Fair
Value of Financial Instruments
The
Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair
value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the
source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs)
and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level
1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level
2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level
3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s
best estimate of fair value.
Financial
instruments consist principally of cash, accounts receivable, prepaid expenses, accounts payable, accrued liabilities, notes payable,
convertible notes and other current liabilities. The carrying amounts of such financial instruments in the accompanying balance
sheets approximate their fair values due to their relatively short-term nature. The fair value of long-term debt is based on current
rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair value.
It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these
financial instruments. See Note 16 for fair value measurements.
Recent
Accounting Pronouncements
We
have implemented all new relevant accounting pronouncements that are in effect through the date of these financial statements.
These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe
that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial
position or results of operations.
Reclassifications
Certain
reclassifications have been made in the unaudited consolidated financial statements for comparative purposes. These reclassifications
have no effect on the results of operations or financial position of the Company.
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Note
2 – Restatement of Previously Issued Financial Statements
Background
In
June 2016, in connection with the preparation of the Company’s consolidated annual financial statements for the fiscal year
ended February 29, 2016, certain errors related to the Company’s accounting treatment with its deconsolidated affiliate
relating to amounts due to affiliates were identified.
Due
to these errors, as further described below, and based upon the recommendation of management, the Company’s Board of Directors
determined on June 15, 2016 that the Company’s previously issued audited financial statements for the year ended February
28, 2015, should no longer be relied upon. As a result of the foregoing, the Company has restated its consolidated financial statements
for the fiscal year ended February 28, 2015, and the quarter ended May 31, 2015, and will be restating its consolidated financial
statements for the other two quarterly periods of the fiscal year ended February 29, 2016 including the quarter ended August 31,
2015, included herein.
Accounting
Adjustments
The
following is a discussion of the significant accounting adjustments that were made to the Company’s historical consolidated
financial statements.
Monaker
Group, Inc. and Subsidiaries
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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As Previously
Reported
August 31, 2015
|
|
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Restatement /
Adjustment
|
|
|
As Restated
August 31, 2015
|
|
Assets
|
|
|
|
|
|
|
|
|
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|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
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Cash
|
|
$
|
20,367
|
|
|
$
|
|
|
|
$
|
20,367
|
|
Notes receivable
|
|
|
15,000
|
|
|
|
|
|
|
|
15,000
|
|
Prepaid expenses and other current assets
|
|
|
88,690
|
|
|
|
(13,469
|
)
|
|
|
75,221
|
|
Security deposits
|
|
|
—
|
|
|
|
13,206
|
|
|
|
13,206
|
|
Total current assets
|
|
|
124,057
|
|
|
|
(263
|
)
|
|
|
123,794
|
|
Investments
|
|
|
4,828,766
|
|
|
|
(4,772,766
|
)
|
|
|
56,000
|
|
Dividends receivable
|
|
|
881,587
|
|
|
|
|
|
|
|
881,587
|
|
Website development costs and intangible assets, net
|
|
|
1,068,063
|
|
|
|
400,000
|
|
|
|
1,468,063
|
|
Total assets
|
|
$
|
6,902,473
|
|
|
|
(4,373,029
|
)
|
|
$
|
2,529,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,567,901
|
|
|
$
|
641,652
|
|
|
$
|
3,209,553
|
|
Other current liabilities
|
|
|
18,773
|
|
|
|
|
|
|
|
18,773
|
|
Due to affiliates
|
|
|
1,003,595
|
|
|
|
(1,003,595
|
)
|
|
|
—
|
|
Derivative liabilities - convertible promissory notes
|
|
|
186,514
|
|
|
|
|
|
|
|
186,514
|
|
Convertible promissory notes, net of discount of $-0- and -$-0-, respectively
|
|
|
620,733
|
|
|
|
|
|
|
|
620,733
|
|
Convertible promissory notes - related party, net of discount of $-0- and $-0-, respectively
|
|
|
1,025,000
|
|
|
|
|
|
|
|
1,025,000
|
|
Other advances
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
Other notes payable
|
|
|
120,000
|
|
|
|
|
|
|
|
120,000
|
|
Shareholder loans
|
|
|
404,000
|
|
|
|
|
|
|
|
404,000
|
|
Notes payable
|
|
|
924,072
|
|
|
|
|
|
|
|
924,072
|
|
Total current liabilities
|
|
|
6,920,588
|
|
|
|
(361,943
|
)
|
|
|
6,558,645
|
|
Convertible promissory notes payable-long term, net of discount of $-0- and -$-0-, respectively
|
|
|
2,963,303
|
|
|
|
|
|
|
|
2,963,303
|
|
Total liabilities
|
|
|
9,883,891
|
|
|
|
(361,943
|
)
|
|
|
9,521,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred stock, $.01 par value; 3,000,000 authorized; 1,884,611 and 2,216,014 shares issued and outstanding at August 31, 2015 and February 28, 2015, respectively
|
|
|
18,846
|
|
|
|
|
|
|
|
18,846
|
|
Series B Convertible Preferred stock, $.00001 par value; 3,000,000 authorized; 257,200 and 262,200 shares issued and outstanding at August 31, 2015 and February 28, 2015, respectively
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Series C Convertible Preferred stock, $.00001 par value; 3,000,000 authorized; 239,200 and 217,600 shares issued and outstanding at August 31, 2015 and February 28, 2015, respectively
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Series D Convertible Preferred stock, $.00001 par value; 3,000,000 authorized; 981,800 and 838,800 shares issued and outstanding at August 31, 2015 and February 28, 2015, respectively
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
Common stock, $.00001 par value; 500,000,000 shares authorized; 1,636,093 and 442,167 shares issued and outstanding at August 31, 2015 and February 28, 2015, respectively
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Additional paid-in-capital
|
|
|
86,437,274
|
|
|
|
(1,006,970
|
)
|
|
|
85,430,304
|
|
Stock subscription receivable
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(5,000
|
)
|
Accumulated deficit
|
|
|
(89,910,818
|
)
|
|
|
(3,004,116
|
)
|
|
|
(92,914,934
|
)
|
Total Monaker Group, Inc. stockholders’ deficit
|
|
|
(3,459,667
|
)
|
|
|
(4,011,086
|
)
|
|
|
(7,470,753
|
)
|
Noncontrolling interest
|
|
|
478,249
|
|
|
|
|
|
|
|
478,249
|
|
Total stockholders’ deficit
|
|
|
(2,981,418
|
)
|
|
|
(4,011,086
|
)
|
|
|
(6,992,504
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
6,902,473
|
|
|
$
|
(4,373,029
|
)
|
|
$
|
2,529,444
|
|
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Monaker Group, Inc. and Subsidiaries
Consolidated Statements of
Operations and Comprehensive Income (Loss)
For the three months ended
|
|
As
Previously
Reported
August 31, 2015
|
|
|
Restatement/
Adjustment
|
|
|
As
Restated
August
31, 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel and commission revenues
|
|
$
|
149,267
|
|
|
$
|
|
|
|
$
|
149,267
|
|
Real estate media revenue
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Total revenues
|
|
|
149,267
|
|
|
|
|
|
|
|
149,267
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
90,311
|
|
|
|
|
|
|
|
90,311
|
|
Technology and development
|
|
|
18,282
|
|
|
|
|
|
|
|
18,282
|
|
Salaries and benefits
|
|
|
405,820
|
|
|
|
|
|
|
|
405,820
|
|
Selling and promotions expense
|
|
|
3,147
|
|
|
|
|
|
|
|
3,147
|
|
General and administrative
|
|
|
412,391
|
|
|
|
|
|
|
|
412,391
|
|
Total operating expenses
|
|
|
929,951
|
|
|
|
|
|
|
|
929,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(780,684
|
)
|
|
|
|
|
|
|
(780,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense including loss on inducement expense on conversion of debt
|
|
|
(47,879
|
)
|
|
|
(645,944
|
)
|
|
|
(693,823
|
)
|
Loss on conversion of debt
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Gain (loss) on change in fair value of derivatives
|
|
|
133,896
|
|
|
|
|
|
|
|
133,896
|
|
Loss from proportionate share of investment in unconsolidated affiliate
|
|
|
(414,800
|
)
|
|
|
414,800
|
|
|
|
—
|
|
Other income (expense)
|
|
|
(916
|
)
|
|
|
|
|
|
|
(916
|
)
|
Total other income (expense)
|
|
|
(329,699
|
)
|
|
|
(231,144
|
)
|
|
|
(560,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,110,383
|
)
|
|
|
(231,144
|
)
|
|
|
(1,341,527
|
)
|
Net loss attributable to the noncontrolling interest
|
|
|
2,143
|
|
|
|
|
|
|
|
2,143
|
|
Net loss attributable to Monaker Group, Inc.
|
|
$
|
(1,108,240
|
)
|
|
$
|
(231,144
|
)
|
|
$
|
(1,339,384
|
)
|
Preferred Stock Dividend
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Net loss attributable to Common Shareholders
|
|
$
|
(1,108,240
|
)
|
|
$
|
(231,144
|
)
|
|
$
|
(1,339,384
|
)
|
Weighted average number of shares outstanding
|
|
|
1,606,641
|
|
|
|
(736,436
|
)
|
|
|
870,205
|
|
Basic and diluted net loss per share
|
|
$
|
(0.69
|
)
|
|
$
|
(0.85
|
)
|
|
$
|
(1.54
|
)
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized income (loss) on currency translation adjustment
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Comprehensive loss
|
|
$
|
(1,108,240
|
)
|
|
$
|
(231,144
|
)
|
|
$
|
(1,339,384
|
)
|
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Monaker Group, Inc. and Subsidiaries
Consolidated Statements of
Operations and Comprehensive Income (Loss)
For the six months ended
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Restatement/
|
|
|
As Restated
|
|
|
|
August 31, 2015
|
|
|
Adjustment
|
|
|
August 31, 2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel and commission revenues
|
|
$
|
485,360
|
|
|
$
|
|
|
|
$
|
485,360
|
|
Real estate media revenue
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Total revenues
|
|
|
485,360
|
|
|
|
|
|
|
|
485,360
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
162,705
|
|
|
|
|
|
|
|
162,705
|
|
Technology and development
|
|
|
36,564
|
|
|
|
|
|
|
|
36,564
|
|
Salaries and benefits
|
|
|
694,298
|
|
|
|
|
|
|
|
694,298
|
|
Selling and promotions expense
|
|
|
3,263
|
|
|
|
|
|
|
|
3,263
|
|
General and administrative
|
|
|
660,440
|
|
|
|
|
|
|
|
660,440
|
|
Total operating expenses
|
|
|
1,557,270
|
|
|
|
|
|
|
|
1,557,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,071,910
|
)
|
|
|
|
|
|
|
(1,071,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense including loss on inducement expense on conversion of debt
|
|
|
(1,879,105
|
)
|
|
|
(829,091
|
)
|
|
|
(2,708,196
|
)
|
Loss on conversion of debt
|
|
|
(224,000
|
)
|
|
|
|
|
|
|
(224,000
|
)
|
Gain (loss) on change in fair value of derivatives
|
|
|
100,635
|
|
|
|
|
|
|
|
100,635
|
|
Loss from proportionate share of investment in unconsolidated affiliate
|
|
|
(758,231
|
)
|
|
|
758,231
|
|
|
|
—
|
|
Other income (expense)
|
|
|
(1,733
|
)
|
|
|
|
|
|
|
(1,733
|
)
|
|
Total other income (expense)
|
|
|
(2,762,434
|
)
|
|
|
(70,860
|
)
|
|
|
(2,833,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(3,834,344
|
)
|
|
|
(70,860
|
)
|
|
|
(3,905,204
|
)
|
Net loss attributable to the noncontrolling interest
|
|
|
2,143
|
|
|
|
|
|
|
|
2,143
|
|
Net loss attributable to Monaker Group, Inc.
|
|
$
|
(3,832,201
|
)
|
|
$
|
(70,860
|
)
|
|
$
|
(3,903,061
|
)
|
Preferred Stock Dividend
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Net loss attributable to Common Shareholders
|
|
$
|
(3,832,201
|
)
|
|
$
|
(70,860
|
)
|
|
$
|
(3,903,061
|
)
|
Weighted average number of shares outstanding
|
|
|
1,094,985
|
|
|
|
(331,785
|
)
|
|
|
763,200
|
|
Basic and diluted net loss per share
|
|
$
|
(3.50
|
)
|
|
$
|
(1.61
|
)
|
|
$
|
(5.11
|
)
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized income (loss) on currency translation adjustment
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Comprehensive loss
|
|
$
|
(3,832,201
|
)
|
|
$
|
(70,860
|
)
|
|
$
|
(3,903,061
|
)
|
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Monaker
Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For
the six months ended
|
|
As
Previously
Reported
August 31,
2015
|
|
|
Restatement/
Adjustment
|
|
|
As
Restated
August
31, 2015
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to Monaker Group, Inc.
|
|
$
|
(3,832,201
|
)
|
|
$
|
(70,860
|
)
|
|
$
|
(3,903,061
|
)
|
Adjustments to reconcile net loss to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in loss of consolidated subsidiaries
|
|
|
(2,143
|
)
|
|
|
|
|
|
|
(2,143
|
)
|
Loss on proportionate share of investment in unconsolidated affiliate
|
|
|
758,231
|
|
|
|
(758,231
|
)
|
|
|
—
|
|
Amortization of intangibles and depreciation
|
|
|
36,564
|
|
|
|
|
|
|
|
36,564
|
|
Stock based compensation and consulting fees
|
|
|
295,594
|
|
|
|
148,220
|
|
|
|
443,814
|
|
Loss on inducements to convert included in interest expense
|
|
|
1,656,418
|
|
|
|
|
|
|
|
1,656,418
|
|
Loss on debt conversion
|
|
|
224,000
|
|
|
|
|
|
|
|
224,000
|
|
Loss (gain) on change in fair value of derivatives
|
|
|
(100,635
|
)
|
|
|
|
|
|
|
(100,635
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
(7,325
|
)
|
|
|
262
|
|
|
|
(7,063
|
)
|
Decrease in due to/from affiliates
|
|
|
(134,460
|
)
|
|
|
134,460
|
|
|
|
—
|
|
Increase in accounts payable and accrued expenses
|
|
|
180,068
|
|
|
|
641,653
|
|
|
|
821,721
|
|
Increase (decrease) in other current liabilities
|
|
|
(28,477
|
)
|
|
|
(92,500
|
)
|
|
|
(120,977
|
)
|
Net cash used in operating activities
|
|
|
(954,366
|
)
|
|
|
3,004
|
|
|
|
(951,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments related to website development costs
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
(10,000
|
)
|
Payments for computer equipment
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Investment in Name Your Fee
|
|
|
—
|
|
|
|
75,000
|
|
|
|
75,000
|
|
Net cash provided by (used in) investing activities
|
|
|
(10,000
|
)
|
|
|
75,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments against convertible promissory notes
|
|
|
(36,400
|
)
|
|
|
|
|
|
|
(36,400
|
)
|
Proceeds from shareholder loans
|
|
|
25,000
|
|
|
|
|
|
|
|
25,000
|
|
Proceeds from advances
|
|
|
—
|
|
|
|
57,000
|
|
|
|
57,000
|
|
Payments on other advances
|
|
|
—
|
|
|
|
(75,000
|
)
|
|
|
(75,000
|
)
|
Proceeds received for capital contribution for Name Your Fee
|
|
|
75,000
|
|
|
|
(75,000
|
)
|
|
|
—
|
|
Proceeds from issuance of series C preferred shares
|
|
|
10,000
|
|
|
|
15,000
|
|
|
|
25,000
|
|
Proceeds received in advance subscriptions
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Proceeds from issuance of common stock
|
|
|
595,996
|
|
|
|
88,721
|
|
|
|
684,717
|
|
Proceeds from exercise of common stock warrants
|
|
|
88,725
|
|
|
|
(88,725
|
)
|
|
|
—
|
|
Net cash provided by investing activities
|
|
|
758,321
|
|
|
|
(78,004
|
)
|
|
|
680,317
|
|
Net decrease in cash
|
|
|
(206,045
|
)
|
|
|
|
|
|
|
(206,045
|
)
|
Cash at beginning of period
|
|
|
226,412
|
|
|
|
|
|
|
|
226,412
|
|
Cash at end of period
|
|
$
|
20,367
|
|
|
$
|
|
|
|
$
|
20,367
|
|
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Note
3 – Going Concern
As
reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $92,914,934, a working
capital deficit of $6,434,851 at August 31, 2015, a net loss for the six months ended August 31, 2015 of $3,905,204 and cash used
in operations during the six months ended August 31, 2015 of $951,362. While the Company is attempting to increase sales, the
growth has yet to achieve significant levels to fully support its daily operations. These factors raise substantial doubt about
the Company’s ability to continue as a going concern. Management’s plans with regard to this going concern are as
follows: The Company will continue to raise funds with third parties by way of a public or private offering. Management and members
of the Board are working aggressively to increase the viewership of our products by promoting it across other mediums which should
increase value to advertisers and result in higher advertising rates and revenues.
While
the Company believes in the viability of its strategy to improve sales volume and in its ability to raise additional funds, there
can be no assurances to that effect. The Company’s limited financial resources have prevented the Company from aggressively
advertising its products and services to achieve consumer recognition. The ability of the Company to continue as a going concern
is dependent on the Company’s ability to further implement its business plan and generate greater revenues. The consolidated
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management believes that the actions presently being taken to further implement its business plan and generate additional revenues
provide the opportunity for the Company to continue as a going concern.
Note
4 – Note Receivable
On
December 22, 2014, the Company advanced $15,000 to a non-related third party debtor and signed a one year, six (6%) percent promissory
note. The entire principal balance of this note, together with all accrued and unpaid interest, is due and payable on December
31, 2015.
Note
5 – Investment in Equity Instruments and Deconsolidation
Our
investment in an unconsolidated affiliate consists of an investment in equity instruments of RealBiz. At August 31, 2015 Monaker owned 49,554,326 shares of RealBiz Series
A Preferred Stock, representing 31% ownership of RealBiz.
On
October 31, 2014 (“Deconsolidation Date”), Monaker and RealBiz deconsolidated their financial statements since the
investment in RealBiz went below 50% majority ownership and Monaker was deemed to no longer have control over RealBiz. Monaker’s
proportional financial interest in RealBiz is reduced when shares of Monaker Dual convertible preferred stock and Monaker convertible
debt are exchanged for RealBiz common shares. The financial statements as of February 28, 2015 include consolidated balances of
RealBiz through October 31, 2014. During the six months ended August 31, 2015, Monaker recorded our allocated portions totaling
$-0- of RealBiz’s net loss of $2,471,552. Monaker continues to own RealBiz Preferred Series A stock and, through August
31, 2015, although the two companies shared similar Directors, the companies are operating independently.
At
August 31, 2015, RealBiz Media Group, Inc. had current assets of approximately $400,000, total assets of approximately $3,000,000,
current liabilities of approximately $2,600,000 and total liabilities of approximately $3,300,000. For the six months ended August
31, 2015, unaudited RealBiz Media Group, Inc. had gross sales of approximately $600,000 and a net loss of approximately $2,500,000.
Note
6 – Property and Equipment
At
August 31, 2015, the Company did not have any property and equipment.
Note
7 – Website Development Costs and Intangible Assets
The
following table sets forth the intangible assets, both acquired and developed, including accumulated amortization as of August
31, 2015:
|
|
August 31, 2015
|
|
|
Remaining
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Useful Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
Website platform
|
|
|
3.8 years
|
|
|
$
|
400,000
|
|
|
$
|
—
|
|
|
$
|
400,000
|
|
Website development costs
|
|
|
1.0 years
|
|
|
|
635,755
|
|
|
|
629,478
|
|
|
|
6,277
|
|
H & A Club Portal
|
|
|
2.9 years
|
|
|
|
181,730
|
|
|
|
35,336
|
|
|
|
146,394
|
|
Name Your Fee Website (not placed in service)
|
|
|
3.0 years
|
|
|
|
915,392
|
|
|
|
—
|
|
|
|
915,392
|
|
|
|
|
|
|
|
$
|
2,132,877
|
|
|
$
|
664,814
|
|
|
$
|
1,468,063
|
|
On
May 14, 2015, the Company signed a Joint Venture Agreement with Jasper Group Holdings, Inc. for the limited purpose of utilizing
and developing the NameYourFee.com website and such other businesses as the partners may agree upon in writing. The Company received
a 51% capital interest and 50% of the future profits and issued 100,000 of its Series D Preferred Stock at a value of $500,000,
based on its stated value of $5 per share. Upon the consolidation of Name Your Fee, LLC for the six months ended August 31, 2015,
the Company has capitalized $915,392 of costs associated with the Name Your Fee employment website that has not been placed into
service.
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Note
8 – Notes Payable
|
|
|
|
|
The following table
sets forth the notes payable as of August 31, 2015:
|
|
|
|
|
|
|
|
|
|
Principal
|
|
On September
6, 2011, the Company renegotiated a note, due to default, until February 1, 2013 for $785,000. Beginning on October 1, 2011,
the Company is obligated to make payments of $50,000 due on the first day of each month. The first $185,000 in payments is
to be in cash and the remaining $600,000 shall me made in cash or common stock. On February 15, 2012, the noteholder assigned
$225,000 of its $785,000 outstanding promissory note to a non-related third party investor and the Company issued a new convertible
promissory note for the same value. On February 27, 2015, the Company signed a settlement agreement whereby interest payments
were made and the balance is convertible to common stock at the Company’s option. As of August 31, 2015, the Company
is not in default of this note.
|
|
$
|
510,000
|
|
|
|
|
|
|
On August 16, 2004,
the Company entered into a promissory note with an unrelated third party for $500,000. The note bears interest at 7% per year
and matured in March 2011 and was payable in quarterly installments of $25,000.
|
|
|
137,942
|
|
|
|
|
|
|
In February 2009,
the Company restructured note agreements with three existing noteholders. The collective balance at the time of the restructuring
was $250,000 plus accrued interest payable of $158,000 which was consolidated into three new notes payable totaling $408,000.
The notes bear interest at 10% per year and matured on May 31, 2010, at which time the total amount of principle and accrued
interest was due. In connection with the restructure of these notes the Company issued 150,000 detachable 3 year warrants
to purchase common stock at an exercise price of $3.00 per share. The warrant issuance was recorded as a discount and amortized
monthly over the terms of the note. On July 30, 2010, the Company issued 535,000 shares of common stock to settle all of these
note agreements except for $25,000.
|
|
|
25,000
|
|
|
|
|
|
|
In
connection with the acquisition of Brands on Demand, a five year lease agreement was
entered into by an officer of the Company. Subsequent to terminating the officer, the
Company entered into an early termination agreement with the lessor in the amount of
$30,000 secured by a promissory note to be paid in monthly installments of $2,500, beginning
June 1, 2009 and matured June 1, 2010.
|
|
|
30,000
|
|
|
|
|
|
|
On
December 5, 2011, the Company converted $252,833 of accounts payable and executed an 8% promissory note to same vendor. Commencing
on December 5, 2011 and continuing on the 1st day of each calendar month thereafter, the Company shall pay $12,000 per month.
All payments shall be applied first to payment in full of any costs incurred in the collection of any sum due under this note,
including, without limitation, reasonable attorney’s fee, then to payment in full of accrued and unpaid interest and
finally to the reduction of the outstanding principal balance of the note.
|
|
|
221,130
|
|
|
|
$
|
924,072
|
|
|
|
|
|
|
Interest charged to operations
relating to the above notes was $10,940 and $34,525, respectively for the six months ended August 31, 2015 and 2014. As of August
31, 2015, the Company has not made payments on the above obligations, accrued interest at August 31, 2015 is $250,563. The Company
is in default of the above notes with the exception of the first note with a principal balance of $510,000.
Note 9 – Other Notes Payable
The following table sets forth the other notes payable
as of August 31, 2015:
|
|
Principal
|
|
Related parties
:
|
|
|
|
|
|
|
|
|
|
On August 21, 2012, the Company received $50,000 in proceeds from a related-party investor and issued a bridge loan agreement with no maturity date. In lieu of interest, the Company issued 100,000 two (2) year warrants with an exercise price of $0.05 per share valued at $1,500 and charged this to operations. The fair value of the warrants was estimated at the date of grant using the Black-Scholes option- pricing model with the following assumptions: risk-free interest rate of 0.29%, dividend yield of -0-%, volatility factor of 384.11% and expected life of three months. On July 15, 2013, the Company received $90,000 from the same related-party investor and converted the remaining balance of $30,000 into a new convertible promissory note valued at $120,000. The new note bears interest at 12% per annum until the maturity date of October 31, 2015 of which the annual interest rate is 18% per annum. Until such time of repayment of principal and interest, the holder of the new note may convert, in whole or part, into Series A or Series B Preferred stock. The Company has made the following principal payments: $20,000 on August 15, 2013, $25,000 on October 1, 2013 and $25,000 on October 23, 2014, leaving a remaining principal balance of $50,000.
|
|
|
50,000
|
|
|
|
|
|
|
Non-related parties
:
|
|
|
|
|
|
|
|
|
|
The Company has an existing promissory note, dated July 23, 2010, with a shareholder in the amount of $100,000. The note is due and payable on July 23, 2012 and bears interest at a rate of 6% per annum. As consideration for the loan, the Company issued 200 warrants to the holder with a nine year life and a fair value of approximately $33,000 to purchase shares of the Company’s common stock, $0.00001 par value, per share, at an exercise price of $500 per share. The fair value of the warrants was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of .984%, dividend yield of -0-%, volatility factor of 115.05% and an expected life of 1.5 years and has been fully amortized. On September 26, 2012, the noteholder assigned $30,000 of its principal to a non-related third party investor and the Company issued a convertible promissory note for same value. The Company is in default of this note.
|
|
|
20,000
|
|
|
|
$
|
70,000
|
|
Interest charged to operations
relating to the above notes was $5,125 and $7,156 respectively for the six months ended August 31, 2015 and 2014. As of August
31, 2015, the Company has not made payments on the above obligations; accrued interest at August 31, 2015 is $47,686.
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Note 10 – Other Advances
Related Party
On April 13, 2011, the Company,
as part of a shareholder loan conversion agreement, included the conversion of $98,000 of related party advances and the issuance
of 1,407,016 shares of common stock and 2,814,032 three (3) year warrants with an exercise price $0.25 per share. On April 13,
2011, the Company converted $70,000 of related party advances into a convertible promissory note. This conversion was applied against
a principal balance of $186,000 leaving a balance due of $18,000. During the six months ended August 31, 2015, the remaining principal
balance of $18,000 was converted into the common stock of our former consolidated subsidiary, RealBiz, as part of an exchange agreement
between the Company and the debt holder. In order to issue RealBiz common stock, we convert our investment of Series A Preferred stock into common
stock of RealBiz and then exchange those shares for debt.
Non Related Party
Prior to the fiscal year ended February 28, 2011,
a non-related party made $50,000 in payments to a vendor on behalf of the Company. The remaining principal balance as of August
31, 2015 totaled $50,000.
Note 11 – Shareholder
Loans
During the six months ended August 31, 2015, the
Company received $25,000 in cash proceeds, made no conversions or payments and the remaining balance as of August 31, 2015 totaled
$404,000.
Note 12 – Convertible
Promissory Notes
The
Company has convertible promissory notes with interest rates ranging from 6% to 12% per annum, maturity dates ranging from September
30, 2012 to October 19, 2016 and with a range of fixed and variable conversion features. During the six months ended August 31,
2015 and 2014, the Company recognized interest expense of $2,517,693 and $532,850, respectively. The table below summarizes the
convertible promissory notes as of August 31, 2015.
|
|
August 31, 2015
|
|
|
|
Non Related
Party
|
|
|
Related
Party
|
|
|
Total
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
6,828,386
|
|
|
$
|
1,025,000
|
|
|
$
|
7,853,386
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from note issuances
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Subtractions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion to common shares
|
|
|
3,207,950
|
|
|
|
—
|
|
|
|
3,207,950
|
|
Principal repayments
|
|
|
36,400
|
|
|
|
—
|
|
|
|
36,400
|
|
|
|
|
3,244,350
|
|
|
|
—
|
|
|
|
3,244,350
|
|
Ending balance
|
|
$
|
3,584,036
|
|
|
$
|
1,025,000
|
|
|
$
|
4,609,036
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible promissory notes
|
|
$
|
3,584,036
|
|
|
$
|
1,025,000
|
|
|
$
|
4,609,036
|
|
Less: current portion
|
|
|
620,733
|
|
|
|
1,025,000
|
|
|
|
1,645,733
|
|
Long term portion
|
|
$
|
2,963,303
|
|
|
$
|
—
|
|
|
$
|
2,963,303
|
|
Principal past due and in default
|
|
$
|
343,151
|
|
|
$
|
—
|
|
|
$
|
343,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended August 31, 2015, the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
Recorded
debt discount amortization expense in the amount of $0.
|
|
•
|
Made $36,400 in principal payments against outstanding
convertible promissory notes.
|
|
•
|
Executed a conversion of $107,950 of principal into
104,000 shares of the Company’s common stock.
|
|
•
|
Issued 124,000 shares of its common stock in satisfaction
of $3,100,000 in principal of modified convertible promissory notes in accordance with the terms of the notes. Additionally, as
an inducement to convert, the Company issued 496,000 shares of its common stock at a value of $1,612,000 and issued 30,000 one
(1) year common stock warrants with an exercise price of $0.50 per share valued at $44,418 for a total amount charged to interest
expense of $1,656,418. The value of the common stock issued was based on the fair value of the stock determined by actual trading
price quotes 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 of 0.23%, dividend yield of -0-%, volatility factor of 217.20%
and expected life of one year.
|
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Note 13 – Stockholders’
Deficit
Preferred stock
The aggregate number of shares
of preferred stock that the Company is authorized to issue is up to One Hundred Million (100,000,000), with a par value of $0.0001
per share (“the Preferred Stock”) with the exception of Series A Preferred shares having a $0.01 par value. The Preferred
Stock may be divided into and issued in series. The Board of Directors of the Company is authorized to divide the authorized shares
of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the
shares of all other series and classes. The Board of Directors of the Company is authorized, within any limitations prescribed
by law and the articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations
and terms of the shares of any series of Preferred Stock.
When our shareholders elect to convert to common stock of RealBiz, we convert our Series A Preferred stock
investment of RealBiz into common stock of RealBiz and then exchange those shares for our preferred stock.
Series A Preferred Stock
The Company has authorized
and designated 3,000,000 shares of Preferred Stock as Series A 10% Cumulative Convertible Preferred Stock, par value $0.01 per
share (the “Series A Preferred Stock”). The holders of record of shares of Series A Preferred Stock are entitled to
vote on all matters submitted to a vote of the shareholders of the Company and are entitled to one hundred (100) votes for each
share of Series A Preferred Stock.
Per the terms of the Amended
and Restated Certificate of Designations, subject to the availability of authorized and unissued shares of Series A Preferred Stock,
the holders of Series A Preferred Stock may, by written notice to the Company, elect to convert all or any part of such holder’s
shares of Series A Preferred Stock into common stock at a conversion rate of the lower of (a) $0.50 per share or (b) at the lowest
price the Company has issued stock as part of a financing. Additionally, the holders of Series A Preferred Stock may by written
notice to the Company, convert all or part of such holder’s shares (excluding any shares issued pursuant to conversion of
unpaid dividends) into debt obligations of the Company, secured by a security interest in all of the assets of the Company and
its’ subsidiaries, at a rate of $0.50 of debt for each share of Series A Preferred Stock. On July 9, 2013, the Company amended
the Certificate of Designations for the Company’s Series A Preferred Stock to allow for conversion into Series C Preferred
stock to grant to a holder of the Series A Preferred Stock the option to elect to convert all or any part of such holder’s
shares of Series A Preferred Stock into shares of the Company’s Series C Convertible Preferred Stock, par value $0.00001
per share (“Series C Preferred Stock”), at a conversion rate of five (5) shares of Series A Preferred Stock for every
one (1) share of Series C Preferred Stock. Furthermore, the amendment allows for conversion into common stock at the lowest price
the Company has issued stock as part of a financing to include all financing such as new debt and equity financing and stock issuances
as well as existing debt conversions into stock. On February 28, 2014, the Company’s Preferred Series A shareholders agreed
to authorize a change to the Certificate of Designations of the Series A Preferred Stock in Nevada to lock the conversion price
to a fixed price of $0.01.
In the event of any liquidation,
dissolution or winding up of this Company, either voluntary or involuntary (any of the foregoing, a “liquidation”),
holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets
of this Company to the holders of the common Stock or any other series of Preferred Stock by reason of their ownership thereof
an amount per share equal to $1.00 for each share (as adjusted for any stock dividends, combinations or splits with respect to
such shares) of Series A Preferred Stock held by each such holder, plus the amount of accrued and unpaid dividends thereon (whether
or not declared) from the beginning of the dividend period in which the liquidation occurred to the date of liquidation.
During the six months ended
August 31, 2015, the Company:
|
•
|
Converted 331,403 shares of Series A Preferred stock,
at a carrying value of $331,403, into 3,314,030 shares of common stock of our former consolidated subsidiary RealBiz at agreed
upon conversion terms.
|
Dividends in arrears on the
outstanding preferred shares total $745,804 as of August 31, 2015. The Company had 1,884,611 shares issued and outstanding as of
August 31, 2015.
Series B Preferred Stock
The Company has authorized
and designated 3,000,000 shares of Preferred Stock as Non-Voting Series B 10% Cumulative Convertible Preferred Stock with a par
value of $0.00001 per share (“the Series B Preferred Stock”). The holders of Series B Preferred Stock may elect to
convert all or any part of such holder’s shares into the Company’s common stock at $5 per share or into shares of RealBiz
Media’s common stock at $0.05 per share.
Upon any liquidation, dissolution
or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to
receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued
and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred
Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed
among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon
were paid in full.
During the six months ended
August 31, 2015, the Company:
|
•
|
Issued 15,000 shares of Series B Preferred Stock for
proceeds received in prior year valued at $75,000.
|
|
•
|
Converted 20,000 shares of Series B Preferred Stock into
RealBiz, upon investor’s request, issuing 2,000,000 shares of RealBiz Media Group, Inc. common stock with a total carrying
value of $100,000.
|
Dividends in arrears on the outstanding
preferred shares total $538,652 as of August 31, 2015. The Company had 257,200 shares issued and outstanding as of August 31,
2015.
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Series C Preferred Stock
The Company has authorized
and designated 3,000,000 shares of Preferred Stock as Non-Voting Series C 10% Cumulative Convertible Preferred Stock with a par
value of $0.00001 per share (the “Series C Preferred Stock”). On July 9, 2014, Monaker filed (i) an Amendment to its
Series C Certificate of Designation with the Secretary of State of the State of Nevada to change the conversion price from $5.00
to a new conversion price of $0.25. The holders of Series C Preferred stock may elect to convert all of any part of such holder’s
shares into the Company’s common stock at $0.25 per share or into shares of RealBiz Media’s common stock at $0.10 per
share.
Upon any liquidation, dissolution
or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to
receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued
and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred
Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed
among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon
were paid in full.
During the six months ended
August 31, 2015, the Company:
|
•
|
Issued 2,000 shares of its Series C Preferred Stock along
with 2,000 one (1) year common stock warrants with an exercise price of $2.50 and received $10,000 in cash proceeds.
|
|
•
|
Issued 3,500 shares of its Series C Preferred Stock along
with 4,500 one (1) year common stock warrants with an exercise price of $2.50 for $17,500 of proceeds received from prior year
advances.
|
|
•
|
Issued 13,000 shares of Series C Preferred Stock and
6,000 one (1) year warrants with an exercise price of $0.50 to recipients for consulting services valued at $73,138.
|
|
•
|
Issued 26,000 shares of Series C Preferred Stock for
a deferred compensation settlement with the former Chief Financial Officer of RealBiz Media Group, Inc., our former consolidated
subsidiary.
|
|
•
|
Converted 22,100 shares of Series C Preferred Stock into
960,000 shares of common stock of our former consolidated subsidiary RealBiz Media Group, Inc. at the agreed upon conversion terms.
|
Dividends in arrears on the
outstanding preferred shares total $128,233 as of August 31, 2015. The Company had 239,200 shares issued and outstanding as of
August 31, 2015.
Series D Preferred Stock
The Company has authorized
and designated 3,000,000 shares of Preferred Stock as Non-Voting Series D 10% Cumulative Convertible Preferred Stock with a par
value of $0.00001 per share (the “Series D Preferred Stock”). On July 9, 2014, the Company filed (i) an Amendment to
its Series D Certificate of Designation with the Secretary of State of the State of Nevada to change the conversion price from
$5.00 to a new conversion price of $0.25. The holders of Series D Preferred stock may elect to convert all of any part of such
holder’s shares into the Company’s common stock at $0.25 per share or into shares of RealBiz Media’s common stock
at $0.15 per share.
Upon any liquidation, dissolution
or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to
receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued
and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred
Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed
among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon
were paid in full.
During the six months ended
August 31, 2015, the Company:
|
•
|
Issued 60,000 shares of Series D Preferred Stock for
the benefit of an Asset Purchase Agreement the Company assigned to its former consolidated subsidiary, RealBiz, valued at $400,000.
The value assigned to the asset purchase agreement was based upon the fair market value of RealBiz’s common stock on the
date of the agreement as if all 60,000 shares were converted to RealBiz common stock.
|
|
•
|
Issued 100,000 shares of Series D Preferred stock for
the benefit of a joint venture agreement with Jasper Group Holdings, Inc. (“Jasper”) and created a Florida Limited
Liability Company called Name Your Fee, LLC. As stated in the agreement, ownership of the Company is at 51% for Monaker(“Monaker”)
f/k/a Next 1 Interactive, Inc. and 49% for Jasper. Monaker will issue to Jasper 100,000 Preferred Series D shares at a stated
value of $5 per share for a total of $500,000 as its contribution. Jasper is contributing $75,000, advancing $75,000 to RealBiz
Media Group, Inc., (a former consolidated subsidiary of the Company) and the assets of the website (Name Your Fee) together with
associated technology.
|
|
•
|
Converted 52,000 shares of Series D Preferred Stock,
upon investor request, into 563,610 shares of RealBiz Media Group, Inc. with a carrying value of $85,000.
|
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
|
•
|
Issued
35,000 shares of Series D Preferred Stock for subscription.
|
Dividends in arrears on
the outstanding preferred shares total $1,454,141 as of August 31, 2015. The Company had 981,800 shares issued and outstanding
as of August 31, 2015.
Common Stock
On October 28, 2011, the Board
and the holders of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to
increase our authorized shares of common stock from 200,000,000 to 500,000,000. On February 13, 2012, the Board and the holders
of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized
shares of common stock from 500,000,000 to 2,500,000,000. The increase in our authorized shares of common stock became effective
upon the filing of the amendment(s) to our articles of incorporation with the Secretary of State of the State of Nevada.
On May 2, 2012, the Board consented
to (i) effect a 1-to-500 reverse split of the Company’s common stock and (ii) reduce the number of authorized shares from
2,500,000,000 to 5,000,000. Such actions became effective upon the filing of the amendment(s) to our articles of incorporation
with the Secretary of State of the State of Nevada. The consolidated financial statements have been retroactively adjusted to reflect
this reverse stock split.
On June 26, 2012, the Board
and the holders of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to
increase our authorized shares of common stock from 5,000,000 to 500,000,000.
On June 25, 2015, the Board
consented to (i) effect a 1-to-50 reverse split of the Company’s common stock and (ii) change the name of the Company from
Next 1 Interactive, Inc. to Monaker Group, Inc. Such actions became effective upon the filing of the amendment(s) to our articles
of incorporation with the Secretary of State of the State of Nevada. The consolidated financial statements have been retroactively
adjusted to reflect this reverse stock split.
During the six months ended
August 31, 2015, the Company:
|
•
|
Issued 355,549 shares of its common stock along with
190,840 one year common stock warrants with an exercise price between $0.50 and $12.50 for cash proceeds of $595,996.
|
|
•
|
Issued 69,500 shares of its common stock upon the exercise
of 69,500 common stock warrants for cash proceeds of $88,725.
|
|
•
|
Issued 104,000 shares of its common stock in satisfaction
of $107,950 in principal of convertible promissory notes in accordance with the terms of the notes.
|
|
•
|
Issued 124,000 shares of its common stock in satisfaction
of $3,100,000 in principal of modified convertible promissory notes in accordance with the terms of the notes. Additionally, as
an inducement to convert, the Company issued 496,000 shares of its common stock at a value of $1,612,000 and granted 30,000 one
(1) year common stock warrants with an exercise price of $0.50 per share valued at $44,418 for a total amount charged to interest
expense of $1,656,418. The value of the common stock issued was based on the fair value of the stock determined by actual trading
price quotes 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 of 0.23%, dividend yield of -0-%, volatility factor of 217.20%
and expected life of one year.
|
|
•
|
Issued 20,000 shares of its common stock as part of an
acquisition agreement with Launch 360 Media, Inc. (“Launch 360), dated May 6, 2015, for a ten percent (10%) interest in
the common stock outstanding of Launch 360 valued at $56,000. The value of the common stock issued was based on the fair value
of the stock determined by actual trading price quotes at the time of issuance.
|
|
•
|
Issued 9,586 shares of its common stock valued at $35,737
to its employees as stock compensation. The value of the common stock issued was based on the fair value of the stock at the time
of issuance.
|
|
•
|
Issued 35,291 shares of its common stock valued at $150,217
and 22,291 one (1) year common stock warrants with an exercise price of $1.25 per share valued at $36,502 for a total amount of
$186,719 for consulting services rendered. The value of the common stock issued was based on the fair value of the stock determined
by actual trading price quotes 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 of 0.40%, dividend yield of -0-%, volatility
factor of 207.55% and expected life of one year.
|
The Company had 1,636,093 shares
issued and outstanding as of August 31, 2015 post-split based upon the 1:50 reverse stock split that occurred on June 25, 2015
and has retroactively adjusted the consolidated financial statements according to ASC 260-10-55-12.
Common Stock Warrants
At August 31, 2015, there were
526,685 warrants outstanding with a weighted average exercise price of $6.26 and weighted average life of 1.67 years. During the
six months ended August 31, 2015, the Company granted 255,631 warrants – 22,291 warrants for consulting fees, 12,500 warrants
attached to Preferred Series C issuances, 190,840 warrants issued with common stock subscriptions and 30,000 warrants for inducement
to settle modified debt; and 123,911 expired.
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Common Stock Options
At August 31, 2015, there were 81 options outstanding
with a weighted average exercise price of $362.50 and weighted average life of 6.09 years. During the six months ended August 31,
2015, no options were granted or exercised. Under the Monaker Group, Inc. 2009 Incentive Compensation Plan there are 99 shares
of common stock that are reserved for future issuances.
Compensation expense relating to stock options granted
during the six months ended August 31, 2015 and 2014, was $-0-.
Note 14 - Commitments and Contingencies
The
Company leases approximately 6,500 square feet of office space in Weston, Florida pursuant to a lease agreement, with Bedner Farms,
Inc. of the building located at 2690 Weston Road, Weston, Florida 33331. In accordance with the terms of the lease agreement,
the Company is renting the commercial office space, for a term of five years commencing January 1, 2011 through December 31, 2015.
The rent for the six months ended August 31, 2015 and 2014 was $72,237 and $69,237 respectively. In September of 2011, the Company
sublet a portion of its office space offsetting our rent expense by $1,500 per month. In November 2012, the Company entered into
another agreement to sublet a portion of its office space offsetting our rent expense by an additional $2,500 per month, this
tenant will pay $2,750 as of January 2014. In January 2014, the total monthly rent sublet offset is $4,250.
Our future minimum rental payments through February 28,
2016 are $65,455, consisting of rent expenditure of $48,455 offset by our tenant contribution of $17,000.
The following schedule represents obligations under written
commitments on the part of the Company that are not included in liabilities:
|
|
Current
|
|
|
|
Long Term
|
|
|
|
|
|
|
|
|
FY 2018
|
|
|
|
|
|
|
|
|
And
|
|
|
|
|
FY 2016
|
|
FY 2017
|
|
thereafter
|
|
Totals
|
|
Consulting
|
|
|
$
|
76,065
|
|
|
$
|
152,130
|
|
|
$
|
304,260
|
|
|
$
|
532,455
|
|
Leases
|
|
|
|
50,516
|
|
|
|
3,091
|
|
|
|
-0-
|
|
|
|
53,607
|
|
Other
|
|
|
|
210,953
|
|
|
|
31,764
|
|
|
|
663,528
|
|
|
|
906,245
|
|
Totals
|
|
|
$
|
337,534
|
|
|
$
|
186,985
|
|
|
$
|
967,788
|
|
|
$
|
1,492,307
|
|
Legal Matters
The Company is involved, from time to time, in litigation,
other legal claims and proceedings involving matters associated with or incidental to our business, including, among other things,
matters involving breach of contract claims, intellectual property, employment issues, vendor matters, and other related claims.
The Company believes that the resolution of currently pending matters will not individually or in the aggregate have a material
adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal
claims could change in light of the discovery of facts not presently known to the Company or by judges, juries or other finders
of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or
claims.
There is currently a case pending whereby the Company’s
Chief Executive Officer (the “Defendant”) is being sued for allegedly breaching a contract, which he signed in his
role as the CEO of the Company’s wholly owned subsidiary Extraordinary Vacations Group, Inc. (“Extraordinary Vacations”).
The case is being strongly contested. The Defendant filed a motion to dismiss plaintiff’s amended complaint with prejudice
and such motion has been argued before the judge in the case. The Company is currently awaiting the judge’s ruling at this
time.
The Company is a defendant in a lawsuit filed by Twelfth
Child Entertainment in the Circuit Court for Palm Beach, Florida alleging that Monaker owes 11,000 shares of Series D Preferred
stock for a License Agreement. The case has been resolved in arbitration and the Twelfth Child was granted an arbitration award
of approximately $80,000. However, the Company is continuing to negotiate a settlement that would set aside this award.
There is a case that was filed on March 14, 2014 whereby
the Company is a defendant in a lawsuit filed by Lewis Global Partners in the Circuit Court for Broward County, Florida alleging
that Monaker owes 2,700 shares of Series B Preferred stock for a Consulting Agreement. The case is being strongly contested and
is being sent to arbitration.
The Company is unable to determine the estimate of the
probable or reasonably possible loss or range of losses arising from the above legal proceedings.
Note 15 – Segment Reporting
Accounting Standards Codification 280-16 “Segment
Reporting”, established standards for reporting information about operating segments in annual consolidated financial statements
and required selected information about operating segments in interim financial reports issued to stockholders. It also established
standards for related disclosures about products, services, and geographic areas. Operating segments are defined as components
of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision
maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
The Company currently has only one segment in full operation,
Travel. In the prior year, the Company had consolidated RealBiz and had a second segment, real estate media which is no longer
reported.
The Company did not generate any revenue outside the
United States for the six months ended August 31, 2015 and 2014 and did not have any assets located outside the United States.
Note 16 – Fair Value Measurements
The Company has adopted the provisions of ASC Topic 820,
Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures
about fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance on how to measure
fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes
between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).
The hierarchy consists of three levels:
|
·
|
Level 1 - Quoted prices in active markets for identical
assets or liabilities.
|
|
·
|
Level 2 - Inputs other than Level 1 that are observable,
either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
|
|
·
|
Level 3 - Unobservable inputs that are supported by little
or no market activity and that are significant to the fair value of the assets or liabilities.
|
Our assessment of the significance of a particular input
to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The Company analyzes all financial instruments with features
of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives
and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with an increase or decrease
in the fair value being recorded in results of operations as adjustments to fair value of derivatives. Effects of interactions
between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments.
In addition, the fair values of freestanding derivative instruments such as warrant and option derivatives are valued using the
Black-Scholes model.
The Company uses Level 3 inputs for its valuation methodology
for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using
the Black-Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to
reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations
as adjustments to fair value of derivatives.
The following table sets forth the liabilities as of
August 31, 2015, which are recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. As required, they are classified based on the lowest level of
input that is significant to the fair value measurement:
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
Other
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
Active Markets
for
|
|
|
|
Observable
|
|
|
|
Unobservable
|
|
|
|
|
August 31,
|
|
|
|
Identical Assets
|
|
|
|
Inputs
|
|
|
|
Inputs
|
|
Description
|
|
|
2015
|
|
|
|
(Level 1)
|
|
|
|
(Level 2)
|
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note with embedded conversion option
|
|
$
|
186,514
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
186,514
|
|
Total
|
|
$
|
186,514
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
186,514
|
|
The following table sets forth a summary of changes in fair value of our derivative liabilities for the
six months ended August 31, 2015:
|
|
August 31, 2015
|
|
Beginning balance
|
|
$
|
287,149
|
|
Change in fair value of embedded conversion feature of:
|
|
|
|
|
Gain on change in fair value of derivatives on convertible promissory notes
|
|
|
(100,635
|
)
|
Ending balance
|
|
$
|
186,514
|
|
Monaker
Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
Note 17 – Subsequent Events
The Company has evaluated subsequent events occurring after the balance sheet
date and has identified the following:
During September 2015, the Company:
|
•
|
received $25,000 in proceeds and issued 10,000 shares
of common stock and 40,000 one year common stock warrants with an exercise price of $0.10.
|
|
•
|
received $250,000 in proceeds as part of a subscription
for 100,000 shares of common stock and 100,000 one year common stock warrants with an exercise price of $1.50.
|
|
•
|
received $75,000 in relation to the negotiation of a
dividend agreement with RealBiz.
|