The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes
to the Consolidated Financial Statements
(Unaudited)
Note
1 – Summary of Business Operations and Significant Accounting Policies
Nature
of Operations and Business Organization
Monaker
Group, Inc. and its subsidiaries (“
Monaker
”, “
we
”, “
our
”, “
us
”,
or “
Company
”) operate an online marketplace for the alternative lodging rental industry. Alternative lodging
rentals (ALRs) are whole unit vacation homes or timeshare resort units that are fully furnished, privately owned residential properties,
including homes, condominiums, villas and cabins, that property owners and managers rent to the public on a nightly, weekly or
monthly basis. As an added feature to our ALR offerings, we also provide access to airline, car rental, hotel, cruise and activities
products along with concierge tours and activities, at the destinations, that are catered to the traveler through our Maupintour
products.
We
provide a vacation rental platform with auxiliary services so travelers can purchase vacations through our websites that include
NextTrip.com, Maupintour.com and EXVG.com or through distributors of the Company’s ALRs, while providing inquiries and bookings
to property owners and managers. NextTrip serves three major constituents: (1) property owners and managers, (2) travelers, and
(3) other distributors. Property owners and managers provide detailed listings of their properties to the Company with the goal
of reaching a broad audience of travelers seeking ALRs. The property owners and managers provide us their properties, at a preferential
net rate for each booking and, in return, their properties are listed for free as an available ALR on NextTrip.com (as well as
other distributors of the Company’s ALRs). Travelers visit NextTrip.com (as well as other distributors of the Company’s
ALRs) and are able to search and compare our large and detailed inventory of listings to find ALRs meeting their needs.
Monaker
is a technology driven travel company with ALR products as its distinguishing niche. The ALRs are owned and leased by third parties
and are available to rent through Monaker’s websites as well as other distributors of Monaker’s ALRs. Monaker’s
services include critical elements such as technology, an extensive film library, trusted brands and established partnerships
that enhance product offerings and reach. Monaker has video content, key industry relationships and a prestigious Travel Brand
as cornerstones for the development and planned deployment of core-technology on both proprietary and partnership platforms.
Monaker
sells travel services to leisure and corporate customers around the world. The primary focus is on providing ALR options as well
as providing schedule, pricing and availability information for booking reservations for airlines, hotels, rental cars, cruises
and other travel products such as sightseeing tours, show and event tickets and theme park passes. The Company sells these travel
services both individually and also as components of dynamically-assembled packaged travel vacations and trips. In addition, the
Company provides proprietary videos that present travelers with information about travel destinations, maps and other travel details.
In May 2017, the Company introduced its new Travel Platform under the NextTrip brand. This platform continues to be improved with
a focus on maximizing the consumer’s experience and assisting them in the decision and purchasing process.
The
platform is a combination of proprietary and licensed technology (described below) that connects and searches large travel suppliers
of alternative lodging inventories to present to consumers comprehensive and optimal alternatives at the most inexpensive rates
to choose from.
The
Company sells its travel services through various distribution channels including (i) direct to consumers through its websites
(NextTrip.com and EXVG.com), its mobile application (“
app
”), and a toll-free telephone number designed to assist
customers with complex or high-priced offerings of Maupintour and, (ii) the Company plans to provide real-time bookable ALRs to
other distributors (such as other travel companies’ websites and networks of third-party travel agents) who will sell the
ALRs to their customers.
Monaker’s
core holdings include NextTrip.com, Maupintour.com and EXVG.com. NextTrip.com is the primary website, where travel services and
products are booked. The travel services and products include ALRs, tours, activities/attractions, airline, hotel, and car rentals.
Maupintour complements the Nextrip.com offering by providing high-end tour packages and activities/attractions. EXVG.com is the
website where ALRs, that are not real-time bookable, will be promoted.
Interim
Financial Statements
These
unaudited 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, 2017 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
”).
The
results of operations for the six months ended August 31, 2017, are not necessarily indicative of the results to be expected for
the full fiscal year ending February 28, 2018.
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.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those
estimates. These differences could have a material effect on the Company’s future results of operations and financial position.
Significant items subject to estimates and assumptions include certain revenues, the carrying amounts of indefinite-lived intangible
assets, depreciation and amortization, the valuation of stock warrants, and deferred income taxes.
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, 2017 and February 28, 2017.
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. All costs associated with the websites are subject to straight-line amortization
over a three-year period.
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 Software to Be Sold,
Leased, or Otherwise Marketed, requiring certain software development costs to be capitalized upon the establishment of technological
feasibility. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require
considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic
life, and changes in software and hardware technologies. Amortization of the capitalized software development costs begins when
the product is available for general release to customers. Capitalized costs are amortized based on the greater of (a) the ratio
of current gross revenues to the total current and anticipated future gross revenues, or (b) the straight-line method over the
remaining estimated economic life of the product. For the six months ended August 31, 2017 and the year ended February 28, 2017,
all software has been placed in service and all costs associated with the software development have been expensed.
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, 2017 and 2016,
respectively. Intangible assets that have finite useful lives are amortized over their useful lives once placed into service.
During the period ended August 31, 2017, the Company’s website has been deployed. The Company incurred amortization expense
of $70,385 and $414,897 on its intangible assets, website, for the six months ended August 31, 2017 and 2016, 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 determine the fair value of 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 this 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.
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.
Reclassification
For
comparability, certain prior year amounts have been reclassified, where appropriate, to conform to the financial statement presentation
used in 2017. The reclassifications have no impact on net loss.
Earnings
per Share
Basic
earnings per share are computed by dividing net income or loss by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share are computed by dividing net income (loss) by the weighted average number of shares
of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.
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 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.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount
of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard
will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the
retrospective or cumulative effect transition method. The updated standard is effective for fiscal years, and interim reporting
periods within those years, beginning after December 15, 2017, and permits early adoption a year earlier, after December 15, 2016.
The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have
on its consolidated financial statements and related disclosures.
In
February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires an entity to recognize lease liabilities and a right-of-use
asset for all leases on the balance sheet and to disclose key information about the entity’s leasing arrangements. ASU 2016-02
is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period,
with earlier adoption permitted. ASU 2016-02 must be adopted using a modified retrospective approach for all leases existing at,
or entered into after the date of initial adoption, with an option to elect to use certain transition relief. The Company has
not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its consolidated
financial statements and related disclosures.
Note
2 – Note Receivable
Current
On
December 22, 2014, we advanced $15,000 to a non-related third party debtor and signed a one year, six percent (6%) promissory
note in the amount of $15,000. The entire principal balance of this note was rolled into and became part of the consideration
paid for the purchase of our 51% membership interest in Name Your Fee, LLC, including approximately $1,000,000 in intangible assets.
Our interest in Name Your Fee, LLC was sold on May 16, 2016, to the same non-related third party, for cancellation of $45,000
in notes (including the $15,000 note described above) and a promissory note in the amount of $750,000 (see also Note 4).
On
August 31, 2017, we entered into an Assignment and Novation Agreement (the “
Assignment
”) with Bettwork Industries,
Inc. (“
Bettwork
”) and Crystal Falls Investments, LLC (“
Crystal Falls
”), which entity purchased
our 51% membership interest in Name Your Fee, LLC in May 2016, in consideration for among other things, $750,000 evidenced by
a Promissory Note (the “
Name Your Fee Note
”). Pursuant to the Assignment, the Name Your Fee Note, which had
a principal balance of $750,000 as of the date of the Assignment, was assigned from Crystal Falls to Bettwork, we agreed to only
look to Bettwork for the repayment of the Name Your Fee Note, Bettwork agreed to repay the Name Your Fee Note pursuant to its
terms, and we provided Crystal Falls a novation of amounts owed thereunder. Crystal Falls also released us from any and all claims
in connection with such Name Your Fee Note and any other claims which Crystal Falls then had. The Assignment also amended the
Name Your Fee Note to include an option which allows us to convert the amount owed under the Name Your Fee Note into shares of
Bettwork’s common stock at a conversion price of $1.00 per share.
Long-term
Effective
on August 31, 2017, we entered into a Purchase Agreement (the “
Purchase Agreement
”) with Bettwork. Bettwork’s
common stock is quoted on the OTC Pink market under the symbol “
BETW
”. Pursuant to the Purchase Agreement,
we sold Bettwork:
|
(a)
|
our
71.5% membership interest in Voyages North America, LLC, a Delaware limited liability
company (“
Voyages
”), including the voyage.tv website and 16,000 hours
of destination and promotional videos;
|
|
(b)
|
our
10% ownership in Launch360 Media, Inc., a Nevada corporation (“
Launch360”
);
|
|
(c)
|
Rights
to broadcast television commercials for 60 minutes every day on R&R TV network stations
which rights remain in place until the earlier of (i) the date the shares of Launch360
are no longer held by Bettwork; and (ii) the date that Launch360 no longer has rights
to broadcast television commercials on R&R TV network stations, for whatever reason;
and
|
|
(d)
|
Our
Technology Platform for Home & Away Club and supporting I.C.E. partnership (collectively
(a) through (d), the “
Assets
”).
|
Bettwork
agreed to pay $2.9 million for the Assets, payable in the form of a Secured Convertible Promissory Note (the “
Secured
Note
”). The amount owed under the Secured Note accrues interest at the rate of (a) six percent per annum until the end
of the last day of the month in which the sale occurred; and (b) the greater of (i) six percent per annum and (ii) the prime rate
plus 3 3/4% per annum, thereafter through maturity, which maturity date is August 31, 2020, provided that the interest rate increases
to twelve percent upon the occurrence of an event of default.
Bettwork
may prepay the Secured Note at any time, subject to its obligation to provide us 15 days prior written notice prior to any prepayment.
The Secured Note is convertible into shares of Bettwork’s common stock, at our option, subject to a 4.99% beneficial ownership
limitation (which may be waived by us with at least 61 days prior written notice). The conversion price of the Secured Note is
$1.00 per share (the “
Conversion Price
”), unless, prior to the Secured Note being paid in full, Bettwork completes
a capital raise or acquisition and issues common stock or common stock equivalents (including, but not limited to convertible
securities) with a price per share (as determined in our reasonable discretion) less than the Conversion Price then in effect
(each a “
Transaction
”), at which time the Conversion Price will be adjusted to match such lower pricing structure
associated with the Transaction (provided such repricing shall continue to apply to subsequent Transactions which occur prior
to the Secured Note being paid in full as well).
The
repayment of the Secured Note is secured by a first priority security interest in all of the Assets.
Note
3 – Investment in Equity Instruments and Deconsolidation
We
assess the potential impairment of our equity method investments when indicators such as a history of operating losses, negative
earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate
a loss in value. We have recognized an impairment loss on investment in unconsolidated affiliate. As of August 31, 2017 and February
28, 2017, Monaker owned 44,470,101 shares of RealBiz Media Group, Inc. (RealBiz) Series A Preferred Stock and 10,359,890 shares
of RealBiz common stock, notwithstanding RealBiz’s attempt in January 2017 to cancel the majority of such shares as discussed
below and the pending litigation in connection therewith. This interest, along with a net receivable balance due, has been written
down to zero ($0) as of August 31, 2017 and February 28, 2017 to reflect the realizable value of this investment and asset.
On
November 16, 2016, RealBiz notified Monaker that the Board of Directors of RealBiz voted to cancel and retire all issued and outstanding
shares of RealBiz Preferred Stock and all but 1,341,533 shares of common stock of RealBiz held by Monaker. On January 18, 2017,
RealBiz unilaterally cancelled all shares of common stock of RealBiz held by Monaker. RealBiz’s announced cancellation and
retirement was without Monaker’s consent, and done in violation of Delaware law, federal law and the terms of RealBiz’s
preferred and common stock. We filed a complaint on November 30, 2016 (Monaker Group, Inc., f/k/a Next 1 Interactive, Inc. v.
RealBiz Media Group, Inc., f/k/a Webdigs, Inc. and American Stock Transfer & Trust Company, LLC Case No.: 1:16-cv-24978-DLG),
seeking damages and injunctive and declaratory relief, arising from RealBiz’s declared cancellation and retirement of the
shares, which action is still pending.
Note
4 – Acquisitions and Dispositions
On
May 16, 2016, the Company entered into a Membership Interest Purchase Agreement for the sale of its 51% membership interest in
Name Your Fee, LLC in exchange for a Promissory Note, maturing on May 15, 2018, in the amount of $750,000 plus the cancellation
of $45,000 in existing promissory notes due from the purchaser. The Promissory Note does not accrue interest, is secured by the
51% membership interest in Name Your Fee, LLC and will be repaid through 20% of the net earnings received in NameYourFee.com through
maturity. The Note contains standard and customary events of default. The principal amount of the note is due on May 15, 2018,
provided that it will not be an event of default under the note unless the note is not repaid within 60 days after such maturity
date (i.e., by July 14, 2018). As of August 31, 2017, the outstanding balance is $750,000.
On
August 31, 2017, we entered into the Assignment described in greater detail in Note 2 above, with Bettwork and Crystal Falls,
which entity purchased our 51% membership interest in Name Your Fee, LLC in May 2016, in consideration for among other things,
the $750,000 Name Your Fee Note. Pursuant to the Assignment, the Name Your Fee Note, which had a principal balance of $750,000
as of the date of the Assignment, was assigned from Crystal Falls to Bettwork, we agreed to only look to Bettwork for the repayment
of the Name Your Fee Note, Bettwork agreed to repay the Name Your Fee Note pursuant to its terms, and we provided Crystal Falls
a novation of amounts owed thereunder. Crystal Falls also released us from any and all claims in connection with such Name Your
Fee Note and any other claims which Crystal Falls then had. The Assignment also amended the Name Your Fee Note to include an option
which allows us to convert the amount owed under the Name Your Fee Note into shares of Bettwork’s common stock at a conversion
price of $1.00 per share.
Note
5 – Line of Credit and Other Notes Payable
The
following table sets forth the line of credit and other notes payable as of August 31, 2017 and February 28, 2017:
|
|
Principal
|
|
Line
of Credit
|
|
August 31,
2017
|
|
|
February 28,
2017
|
|
On June 15, 2016, we entered into a revolving line of credit agreement with Republic Bank, Inc. of Duluth, Minnesota (“
Republic
”), in the maximum amount of $1,000,000. Amounts borrowed under the line of credit accrue interest at the Wall Street Journal U.S. Prime Rate plus 1% (updated daily until maturity), payable monthly in arrears beginning on July 15, 2016. Any amounts borrowed under the line of credit are originally due on June 15, 2017; however, on June 12, 2017, the line of credit was extended for 90 days through September 13, 2017. On December 22, 2016, the revolving line of credit was increased to $1,200,000; all other terms of the revolving line of credit remain unchanged. On September 15, 2017, we entered into a replacement revolving line of credit agreement with Republic, which replaced and superseded our prior line of credit with Republic originally entered into in June 2016. The Line of Credit is in an amount of up to $1.2 million, which borrowed amount is due and payable by us on September 15, 2018. Amounts borrowed under the Line of Credit accrue interest at the Wall Street Journal U.S. Prime Rate plus 1% (updated daily until maturity), payable monthly in arrears beginning on October 15, 2017. The loan contains standard and customary events of default and no financial covenants. From June 16, 2016 through August 31, 2017, we have made draws of $1,193,000 under the line of credit.
|
|
|
1,193,000
|
|
|
|
1,193,000
|
|
|
|
$
|
1,193,000
|
|
|
$
|
1,193,000
|
|
Interest
charged to operations relating to the above line of credit note was $30,256 and $5,236, respectively, for the six months ended
August 31, 2017 and 2016.
As
of August 31, 2017, accrued interest is $0 and was $0 as of February 28, 2017. Interest obligations on the line of credit are
current.
On
July 20, 2017, we entered into a $75,000 short term demand loan with a stated interest rate of 6% per annum for funds received
from In Room Retail, Inc., which is owned by William Kerby, CEO and Chairman of the Company. This demand loan was repaid on August
9, 2017.
Interest
charged to operations relating to the above note was $248 and $0, respectively, for the six months ended August 31, 2017 and 2016.
Note
6 – Convertible Promissory Notes
As
of August 31, 2017, the Company had a convertible promissory note with Mr. Mark Wilton, who was then a greater than 5% shareholder
and is treated as a related party. The convertible promissory note, maturing December 1, 2017, was in the amount of $0 and $1,409,326
as of August 31, 2017 and February 28, 2017, respectively, has an interest rate of 6% per annum and a fixed conversion rate if
converted by Mr. Wilton of $5.00 per share, provided the Company also had the right to force conversion of the notes into common
stock at a conversion price equal to 80% of the 5 day trailing average closing price of our common stock prior to conversion.
On
August 24, 2017, and effective on August 22, 2017, we entered into a Debt Conversion and Voting Agreement with Mark A. Wilton,
a significant stockholder of the Company. Pursuant to the Debt Conversion Agreement, we converted various promissory notes which
Mr. Wilton held in the Company, which had an aggregate principal balance of $1,409,326 and were due and payable on December 17,
2017, into 704,663 shares of our restricted common stock. The conversion was undertaken pursuant to the forced conversion terms
of the Wilton Notes, which allowed us to force the conversion of the Wilton Notes into common stock at a conversion price equal
to 80% of the 5 day trailing average closing price of our common stock prior to conversion. Additionally, pursuant to the Debt
Conversion Agreement, we agreed to pay Mr. Wilton $45,000 in cash, payable at the rate of $15,000 per month in September, October
and November, 2017, and Mr. Wilton agreed (a) to vote (and provided William Kerby, our Chief Executive Officer, and any other
individual who is designated by us in the future, a proxy to vote), all of the voting shares held by him, in favor of any proposals
recommended by the Board of Directors of the Company, and (b) to not transfer any of the voting shares which he held, subject
to certain exceptions, until the earlier of August 22, 2020 and the date we provide Mr. Wilton notice of the termination of such
voting proxy. We and Mr. Wilton also provided each other general releases pursuant to the Debt Conversion Agreement.
During
the six months ended August 31, 2017 and 2016, the Company recognized interest expense of $90,000 and $90,000, respectively.
Note
7 – Deferred Gain
On
August 31, 2017 we sold non-core assets for $2,900,000 (with a net book value of $0) which included our 71.5% membership interest
in Voyages North America, LLC, our 10% ownership in Launch360 Media, Inc., rights to broadcast television commercials for 60 minutes
every day on R&R TV network stations and our technology platform for Home & Away Club (as described in Note 2 of the financial
statements included herein and in greater detail below under (as described below under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” – “Liquidity and Capital Resources” - “Recent
Significant Funding Transactions” – “Bettwork Purchase Agreement, Secured Note and Assignment and Novation”).
The
gain on the sale of the non-core assets (described above) is a deferred revenue until such time as Bettwork completes its filings
of current financial information with the OTC Markets and further implements its business plans.
Note
8 – Stockholders’ Equity
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 $0.00001 per share (“
the Preferred Stock
”) with the exception of Series A Preferred Stock
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.
On
September 22, 2017, we filed Certificate of Withdrawal of Certificate of Designations relating to our Series B, Series C and Series
D Preferred Stock and terminated the designation of our Series B, Series C and Series D Preferred Stock. The designations previously
included (a) 3,000,000 shares of preferred stock designated as Non-Voting Series B 10% Cumulative Convertible Preferred Stock;
(b) 3,000,000 shares of preferred stock designated as Non-Voting Series C 10% Cumulative Convertible Preferred Stock; and (c)
3,000,000 shares of preferred stock designated as Non-Voting Series D 10% Cumulative Convertible Preferred Stock. The Certificate
of Withdrawal of Certificate of Designations did not affect the Company’s previously designated shares of Series A 10% Cumulative
Convertible 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 shall be entitled to vote on all matters submitted to a vote of the shareholders of the Company and shall be entitled to
one hundred (100) votes for each share of Series A Preferred Stock.
On
July 31, 2017, the Company entered into a Common Stock and Warrant Purchase Agreement, with certain accredited investors. A required
term of the Common Stock and Warrant Purchase Agreement was that William Kerby, our Chief Executive Officer and Chairman and Donald
P. Monaco, our Director, on behalf of themselves and the entities which they control, convert the 1,869,611 shares of Series A
10% Cumulative Convertible Preferred Stock beneficially owned by them (representing all of our then outstanding shares of Series
A Preferred Stock) into 3,789,222 shares of common stock of the Company, which conversions were effective July 28, 2017.
Dividends
in arrears on the outstanding Series A Preferred Stock shares totaled $1,102,066 and $1,025,233 as of July 31, 2017 (date the
Series A Preferred Stock shares were converted to common stock) and February 28, 2017, respectively. These dividends will only
be payable when and if declared by the Board.
The
Company had 0 and 1,869,611 shares of Series A Preferred Stock issued and outstanding as of August 31, 2017 and February 28, 2017.
Common
Stock
During
the six months ended August 31, 2017, the Company:
●
|
|
Sold
1,712,500 shares of common stock and 1,532,500 warrants to purchase1,532,500 shares of common stock with an exercise price
of $2 per share (“Warrants”), for gross proceeds of $3,425,000. The cost of capital was $376,567 and net proceeds
were $3,048,433 in the private transactions.
|
●
|
|
Issued
255,300 shares of common stock, valued at $657,278 for stock compensation.
|
●
|
|
Issued
75,444 shares of common stock for $139,888 in connection with the exercise of warrants.
|
●
|
|
Issued
3,739,222 shares of common stock, in connection with a conversion of 1,869,611 Series A Preferred Stock shares.
|
●
|
|
Issued
704,663 shares of common stock, valued at $1,409,326 in connection with the conversion of a convertible note.
|
●
|
|
Retired
167,635 shares of common stock valued at $450,945 in connection with the settlement of a financial advisory agreement. In
May 2017, we entered into a settlement agreement with a financial advisory firm who was engaged to raise capital per an agreement
signed in October 2016. Based upon the firm’s inability to meet any of the agreed upon milestones, the firm agreed to
return all the consideration paid for the services. The Company recorded a $450,945 credit to stock compensation in May 2017
as a result of the settlement.
|
On
July 31, 2017, the Company entered into a Common Stock and Warrant Purchase Agreement “Purchase Agreement,” with certain
accredited investors named therein (collectively, the “
Purchasers
”). Under the terms of the Purchase Agreement,
which closed on August 11, 2017, the Company sold the Purchasers 1,532,500 shares of the Company’s common stock and warrants
to purchase 1,532,500 shares of common stock. The common stock and warrants are in the table above.
In
connection with the aforementioned Common Stock and Warrant Purchase Agreement, the Company agreed that until August 11, 2018,
if the Company or any subsidiary thereof issues or agrees to issue any (i) common stock or (ii) any securities of the Company
or the subsidiary that would entitle the holder thereof to acquire at any time common stock, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument that is at any time directly or indirectly convertible into
or exchangeable for, or otherwise entitles the holder thereof to receive, common stock, except for certain Exempt Issuances (defined
below), entitling any person or entity to acquire shares of common stock at an effective price per share less than $2.00, within
three trading days of the date thereof we are required to issue to such Purchaser additional shares of common stock based on the
formula set forth in the Purchase Agreement.
The
exercise price of the Warrants is $2.10 per share, subject to adjustment as provided therein, and the Warrants are exercisable
beginning on July 31, 2017 through July 30, 2022. The exercise price and number of shares of common stock issuable upon the exercise
of the Warrants are subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization,
reorganization or similar transaction, and will also be subject to anti-dilution adjustments in the event the Company issues or
is deemed to have issued any securities below the then exercise price of the Warrants, subject to certain exceptions (i.e., the
Exempt Issuances, described below), during the 12 months following the closing date.
In
connection with the Purchase Agreement, the Company agreed to use commercially reasonable efforts to file a registration statement
on Form S-1 (or Form S-3, if available) with the SEC (the “Registration Statement”) within 45 days following the closing
of the offering (which date was September 25, 2017, and which Registration Statement was timely filed) to register the resale
of the Shares and Warrant Shares and to cause the Registration Statement to become effective within 120 days following the closing
of the offering (which date is December 9, 2017), subject to penalties as described in the Purchase Agreement.
Pursuant
to the Purchase Agreement, we agreed that we will not, and we will ensure that our directors and officers and their affiliates
will not, without the prior written consent of all Purchasers, from the date of execution of the Purchase Agreement and continuing
to and including the date 90 days after the effective date of the registration statement, of which this prospectus forms a part
(the “Lock-Up Period”), (A) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock or (B) enter into any swap or other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the common stock, whether any such transaction described in clause (A) or (B) above is to be settled
by delivery of common stock or such other securities, in cash or otherwise, however, the Company may conduct an Exempt Issuance
(as defined below) without the prior written consent of all Purchasers. “Exempt Issuance” means the issuance of (a)
shares of common stock or options to employees, consultants, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the board of directors of the Company or a majority of the members
of a committee of non-employee directors established for such purpose, (b) securities upon the exercise of or conversion of any
convertible securities, options or warrants issued and outstanding on the date of the Purchase Agreement, provided that such securities
have not been amended since the date of the Purchase Agreement to increase the number of such securities or to decrease the exercise
or conversion price of any such securities, and (c) securities issued pursuant to acquisitions or strategic transactions, provided
any such issuance shall only be to a person which is, itself or through its subsidiaries, an operating company in which the Company
receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
Pursuant
to the Purchase Agreement, we agreed that until the 12 month anniversary of the closing of the Offering, i.e., August 11, 2018,
if the Company or any subsidiary thereof issues or agrees to issue any (i) common stock or (ii) any securities of the Company
or the subsidiary that would entitle the holder thereof to acquire at any time common stock, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument that is at any time directly or indirectly convertible into
or exchangeable for, or otherwise entitles the holder thereof to receive, common stock, except for the Exempt Issuances, entitling
any person or entity to acquire shares of common stock at an effective price per share less than $2.00, within three trading days
of the date thereof the Company is required to issue to such Purchaser additional shares of common stock based on the formula
set forth in the Purchase Agreement.
The
Purchase Agreement also requires the Company to apply for listing of its common stock on the NASDAQ Capital Market within 60 days
following the closing of the offering (which date is October 10, 2017) and to cause the Shares to be listed on the NASDAQ no later
than 120 days following closing of the offering (which date is December 9, 2017).
The
Company had 17,453,432 and 11,133,938 shares of common stock issued and outstanding as of August 31, 2017 and February 28, 2017,
respectively.
Common
Stock Warrants
During
the six months ended August 31, 2017, the Company granted a total of 55,300 warrants for services with a fair value of $131,925.
The fair value was determined using the Black Scholes option pricing model. The assumptions used to calculate the fair market
value are as follows: (i) risk-free interest rate of 1.42% (ii) estimated volatility of 291% (iii) dividend yield of 0.00%, and
(iv) expected life of the warrants of 3 - 5 years.
The
following table sets forth common stock purchase warrants outstanding as of August 31, 2017 and February 28, 2017, and changes
in such warrants outstanding for the three months ended August 31, 2017:
|
|
Warrants
|
|
|
Weighted
Average Exercise Price
|
|
Outstanding, February 28,
2017
|
|
|
2,020,088
|
|
|
$
|
2.24
|
|
Warrants granted
|
|
|
1,901,869
|
|
|
$
|
4.71
|
|
Warrants exercised/cancelled/expired
|
|
|
(901,212
|
)
|
|
$
|
(1.31
|
)
|
Outstanding, August 31, 2017
|
|
|
3,020,745
|
|
|
$
|
4.07
|
|
|
|
|
|
|
|
|
|
|
Common stock issuable
upon exercise of warrants
|
|
|
3,020,745
|
|
|
$
|
4.07
|
|
As
of August 31, 2017, there were 3,020,745 warrants outstanding with a weighted average exercise price of $4.07 and weighted
average life of 4.40 years. During the six months ended August 31, 2017, the Company granted 1,901,869 warrants to purchase
1,901,869 shares of common stock – 131,925 warrants for consulting fees, 180,000 warrants in connection with common
stock subscriptions, 57,444 extended warrants after expiration and 1,532,500 warrants in connection with a Common Stock and
Warrant Purchase Agreement entered into on July 31, 2017, as described in greater detail above. The 131,925 warrants include
76,625 warrants that were issued to the placement agents for raising capital.
Note
9 – Related Party Transactions
On
July 31, 2017, the Company entered into a Common Stock and Warrant Purchase Agreement, with certain accredited investors. A required
term of the Common Stock and Warrant Purchase Agreement was that William Kerby, our Chief Executive Officer and Chairman and Donald
P. Monaco, our Director, on behalf of themselves and the entities which they control, convert the 1,869,611 shares of Series A
10% Cumulative Convertible Preferred Stock beneficially owned by them (representing all of our then outstanding shares of Series
A Preferred Stock) into 3,789,222 shares of common stock of the Company, which conversions were effective July 28, 2017.
Furthermore,
officers and directors of the Company and their affiliates had to invest at least an aggregate of $500,000 into the Company on
the same terms as the accredited investors. In connection therewith, William Kerby, the Chief Executive Officer and Chairman of
the Company, purchased $50,000 of the Securities (25,000 shares of common stock and Warrants); Simon Orange, a member of the Board
of Directors of the Company, purchased $175,000 of the Securities (87,500 shares of common stock and Warrants); Donald Monaco,
a member of the Board of Directors of the Company, purchased $175,000 of the Securities (87,500 shares of common stock and Warrants);
Pat LaVecchia, a member of the Board of Directors of the Company, purchased $10,000 of the Securities (5,000 shares of common
stock and Warrants); and Robert J. Post, a member of the Board of Directors of the Company, purchased $25,000 of the Securities
(12,500 shares of common stock and Warrants). Additionally, Stephen Romsdahl, a significant stockholder of the Company, purchased
$50,000 of the Securities (25,000 shares of common stock and Warrants) and another non-related party, who is a key distributor
of the Company, purchased $100,000 of the Securities (50,000 shares of common stock and Warrants).
On
August 24, 2017, and effective on August 22, 2017, we entered into a Debt Conversion and Voting Agreement with Mark A. Wilton,
a significant stockholder of the Company. Pursuant to the Debt Conversion Agreement, we converted various promissory notes which
Mr. Wilton held in the Company, which had an aggregate principal balance of $1,409,326 and were due and payable on December 17,
2017, into 704,663 shares of our restricted common stock. Additionally, we agreed to pay Mr. Wilton $45,000 in cash, payable at
the rate of $15,000 per month in September, October and November, 2017.
Note
10 – Commitments and Contingencies
The
Company leases its office space and certain office equipment under non-cancellable operating leases. In accordance with the terms
of the office space lease agreement, the Company is renting the commercial office space, for a term of three years from January
1, 2016 through December 31, 2018. The rent for the six months ended August 31, 2017 and 2016 was $40,470 and $39,002, respectively.
Our
future minimum rental payments through February 28, 2018 amount to $66,132.
The
following schedule represents obligations under written commitments on the part of the Company that are not included in liabilities:
|
|
|
Current
|
|
|
Long Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2020
|
|
|
|
|
|
|
|
February 28,
|
|
|
February 28,
|
|
|
and
|
|
|
|
|
|
|
|
2018
|
|
|
2019
|
|
|
thereafter
|
|
|
Totals
|
|
Leases
|
|
|
$
|
40,572
|
|
|
$
|
27,583
|
|
|
$
|
—
|
|
|
$
|
68,155
|
|
Other
|
|
|
|
25,560
|
|
|
|
8,700
|
|
|
|
2,450
|
|
|
|
36,710
|
|
Totals
|
|
|
$
|
66,132
|
|
|
$
|
36,283
|
|
|
$
|
2,450
|
|
|
$
|
104,865
|
|
The
Company is committed to pay three to six months’ severance in the case of termination or death to certain key officers.
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, and other related claims and vendor matters. 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.
On
March 28, 2016, the Company was presented with a Demand for Arbitration, pursuant to Rule 4(a) of the American Arbitration Association
Commercial Rules of Arbitration, whereby Acknew Investments, Inc. and Vice Regal Developments Inc. (Claimants) are arguing that
$700,000 is due to them, even though they have already been paid said amounts through preferred shares that were issued as a guarantee
and which Claimants converted into shares of common stock. In connection with the purchase of the stock of the entity that eventually
became RealBiz Media Group, Inc., the Company issued 380,000 shares of Monaker Series D Preferred Stock shares with a value of
$1,900,000, which was considered the $1,200,000 value of the stock portion of the purchase price, and was also meant to guaranty
the payment of the balance of $700,000. The Company contends that the obligation to pay the $700,000 was extinguished with the
conversion of the Monaker Series D Preferred Stock shares into shares of common stock. The date for arbitration has not been set
and the Company will vehemently defend its position.
On
June 2, 2016, the Company paid an arbitration award of $81,572 ($73,959 plus interest of $7,613) to Twelfth Child Entertainment,
LLC for a License Agreement settlement for rights to air programs regarding “
Foreclosure to Fabulous
” television
programming on the Company’s previously owned media business that was sold on January 21, 2016. The Company absorbed this
settlement as part of its partnership commitment with Launch Media 360 which is an investment of the Company.
Litigation
related to RealBiz Media Group, Inc. (“RealBiz”)
Case
Number 1:16-cv-61017-FAM
On
May 11, 2016, RealBiz filed a Complaint against us in the United States District Court for the Southern District of Florida (the
“
Complaint
”). The Complaint alleges $1,287,517 is due from us to RealBiz, and seeks the recovery of such amount,
plus pre-judgment interest from October 31, 2015 and costs. The Complaint alleges causes of action including ‘account stated’
and ‘unjust enrichment’.
On
May 19, 2016, we filed an Answer and Counterclaim to the Complaint (the “
Counterclaim
”) denying RealBiz’s
allegations and claims and pleading affirmative defenses including ‘failure to state a claim for which relief can be granted’,
‘set-off’ rights (including that if there was any amount owed, RealBiz’s obligation to us far exceeded the $1.3
million amount that RealBiz alleges is due to it), ‘mistake or error’, ‘unclean hands’, ‘waiver’,
‘release’, ‘breach of contract’ (we allege there was an oral agreement that all intercompany balances
would be written–off) and ‘rescission of letter addressing partial balance due’ (confirming that a letter upon
which RealBiz’s case is predicated was rescinded shortly after its issuance and is of no force or effect). The Counterclaim
against RealBiz alleges causes of action including ‘unjust enrichment’ (we allege that the net amount due to us from
RealBiz is in excess of $10 million dollars if there is no oral agreement), ‘money had and received’, and ‘breach
of contract’ (we allege there was an oral agreement that all intercompany balances would be written–off), and seeks
recovery of all actual damages, consequential damages and incidental damages, if any, including but not limited to attorney’s
fees and costs, plus-prejudgment and post-judgment interest. We believe the claims asserted in the Complaint, as amended, are
without merit and intend to vigorously defend ourselves against the lawsuit while simultaneously seeking damages against RealBiz.
The Company has no basis for determining whether there is any likelihood of material loss associated with the claims and/or the
potential and/or the outcome of the litigation.
Case
No.: CACE-16-019818
On
October 27, 2016, the Company filed a Complaint (Monaker Group, Inc., f/k/a Next 1 Interactive, Inc. v. RealBiz Media Group, Inc.,
f/k/a Webdigs, Inc. and American Stock Transfer & Trust Company, LLC (“
AST
”)) for damages and injunctive
relief from the defendant’s unreasonable delay and/or refusal to register the transfer of certain securities. We instructed
RealBiz to transfer our preferred or common stock in RealBiz to certain of our shareholders on several occasions. Defendants,
however, wrongfully refused to register the transfers in violation of the Delaware Code and the terms of RealBiz’s preferred
and common stock.
Case
No.: 16-24978-CIV-GRAHAM
On
November 16, 2016, RealBiz cancelled the 44,470,101 Series A preferred shares and 10,359,892 common shares which were held by
the Company in connection with an alleged over issuance of common shares relating to the conversion of Monaker’s dual convertible
preferred shares.
On
November 30, 2016, the Company filed a Complaint (Monaker Group, Inc., f/k/a Next 1 Interactive, Inc. v. RealBiz Media Group,
Inc., f/k/a Webdigs, Inc. and American Stock Transfer & Trust Company, LLC) for damages and injunctive and declaratory relief,
arising from RealBiz’s declared cancellation, retirement, and/or termination of certain securities. RealBiz notified Monaker
of its intent to unilaterally cancel, retire, and/or terminate its preferred and common stock held by Monaker. RealBiz’s
announced cancellation, retirement, and termination was without Monaker’s consent, and done in violation of Delaware law,
federal law and the terms of RealBiz’s preferred and common stock.
The
Company seeks to reverse all actions taken by RealBiz that adversely and materially affected its rights under the Company’s
preferred stock in RealBiz subsequent to the termination and cancellation of our stock or in the alternative obtain damages for
terminating and cancelling our stock.
Case
No.: 0:16-cv-62902-WJZ
A
class action lawsuit has been filed against us, William Kerby, our Chief Executive Officer and Chairman, Donald Monaco, our director,
and D’Arelli Pruzansky, P.A., our former auditor, in the U.S. District Court for the Southern District of Florida on behalf
of persons who purchased our common stock and exercised options between April 6, 2012 and June 23, 2016 (the “
Class Period
”).
The case, McLeod v. Monaker Group, Inc. et al, was filed on December 9, 2016. The lawsuit focuses on whether the Company and its
executives violated federal securities laws and whether the Company’s former auditor was negligent and makes allegations
regarding the activities of certain Company executives. The lawsuit alleges and estimates total shareholders losses totaling approximately
$20,000,000. The lawsuit stems from the Company’s announcement in June 2016 that it would have to restate its financial
statements due to issues related to the Company’s investment in RealBiz. The lawsuit asks the court to confirm the action
is a proper class action. We believe the claims asserted in the lawsuit are without merit and intend to vigorously defend ourselves
against the claims made in the lawsuit. The Company has no basis for determining whether there is any likelihood of material loss
associated with the claims and/or the potential and/or the outcome of the litigation. On February 16, 2017, we filed a Motion
to Dismiss the lawsuit and on March 3, 2017, the Court entered an order staying discovery and all other proceedings pending resolution
of the Motion to Dismiss.
Case
No.: C.A 2017-0189
On
March 14, 2017, we filed a lawsuit against RealBiz pursuant to Section 220 of Delaware General Corporation Law, in The Court of
Chancery of The State of Delaware seeking relief in the form of an order compelling RealBiz to make available to Monaker, for
inspection and copying, certain corporate books and records as demanded by Monaker in a February 27, 2017 letter (the “
Demand
”).
In addition to our statutory right to inspection under Section 220, we have contractual rights to access books and records as
outlined in the documents governing our investment in RealBiz. Monaker’s purpose in making the Demand is, among other things,
to: (1) determine the status of its investment and interest in RealBiz; (2) determine the appropriateness of certain actions recently
announced by RealBiz; (3) investigate suspected wrongdoing by certain officers and directors of RealBiz; and (4) determine whether
the RealBiz’s directors advanced their personal interests at the expense of Monaker and other investors. RealBiz has declined
to produce the requested books and records despite the Demand and communications between the parties’ counsels, filed a
motion to dismiss taking the position that the Company is no longer a shareholder of RealBiz, and has insisted instead that Monaker
serve a second request for production in a separate action, Monaker Group, Inc. v. RealBiz Media Group, Inc., No. 1:16-cv-24978-DLG,
currently pending in the Southern District of Florida (the “
Florida Action
”).
Case
No.: 2017-0351
On
May 8, 2017, we filed a lawsuit in The Court of Chancery of The State of Delaware against Alex Aliksanyan, Thomas Grbelja, Keith
White, Warren Kettlewell, Anshu Bhatnagar (collectively, the “
Director Defendants
”, each former directors of
non-party RealBiz) and AST. The action against the Director Defendants is for damages for breaching their fiduciary duties to
Monaker and the action against AST is for aiding and abetting those breaches. The suit alleges that the Director Defendants acted
in concert to dilute and terminate Monaker’s ownership interest in and control of RealBiz to enrich themselves. The suit
also alleges that the Director Defendants entered into self-serving agreements, issued securities below the stated value of the
preferred stock as well as the sale of common stock at a substantial discount to the market value and improperly terminated and
cancelled Monaker’s preferred and common stock in RealBiz. Finally, the suit alleges that AST aided and abetted the Defendants
Directors in converting and eliminating Monaker’s beneficial ownership in RealBiz securities.
Case
No.: 2017-0189-JRS
On
March 14, 2017, the Company filed a verified complaint in the Court of Chancery of the State of Delaware, seeking to exercise
its statutory right to review books and records of RealBiz.
The
Company is unable to determine the estimate of the probable or reasonable possible loss or range of losses arising from the above
legal proceedings.
Contractual
Settlement
In
May 2017, we entered into a settlement with a financial advisory firm who was engaged to raise capital per an agreement signed
in October 2016. Based upon the firms inability to meet any of the agreed upon milestones, the firm agreed to return all the consideration
paid for the services. The Company recorded $450,945 credit to stock compensation in May 2017 as a result of the settlement.
Note
11 – Business 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.
The
Company has one operating segment consisting of various products and services related to its online marketplace of travel and
related logistics including destination tours / activities, accommodation rental listings, hotel listings, air and car rental.
The Company’s chief operating decision maker is considered to be the Chief Executive Officer. The chief operating decision
maker allocates resources and assesses performance of the business and other activities at the single operating segment level.
Note
12 – Subsequent Events
Effective
on September 1, 2017, we entered into an Engagement Agreement with A-Tech, LLC, a third-party consultant. Pursuant to the Engagement
Agreement, the consultant agreed to provide the Company consulting services in connection with the Company’s planned up-listing
to NASDAQ, to introduce investor relations firms to the Company, and if requested, consult with the Company in connection with
the acquisition and development of vacation rental homes. The Engagement Agreement has a term of 12 months, renewable thereafter
for additional three month periods in the event both parties agree in writing. The Company agreed to pay the consultant total
compensation of $180,000 during the 12 month initial term of the agreement, payable at the rate of $15,000 per month.
On
September 15, 2017, we entered into a replacement revolving line of credit agreement with Republic, which replaced and superseded
our prior line of credit with Republic originally entered into in June 2016 and amended from time to time. The line of credit
is in an amount of up to $1.2 million, which borrowed amount is due and payable by us on September 15, 2018 (previously the amounts
due under the line of credit were due on September 13, 2017). Amounts borrowed under the line of credit accrue interest at the
Wall Street Journal U.S. Prime Rate plus 1% (updated daily until maturity), payable monthly in arrears beginning on October 15,
2017. The loan contains standard and customary events of default and no financial covenants. From June 16, 2016 through August
31, 2017, we have made draws of $1,193,000 under the line of credit.
On
September 19, 2017, we issued 20,000 shares of common stock, valued at $35,200, for payment due pursuant to the terms of a three
month consulting agreement originally entered into on June 30, 2016, to be effective July 1, 2016, as extended on September 30,
2016, December 31, 2016, March 31, 2017 and June 30, 2017.
On
September 22, 2017, we filed Certificate of Withdrawal of Certificate of Designations relating to our Series B, Series C and Series
D Preferred Stock and terminated the designation of our Series B, Series C and Series D Preferred Stock. The designations previously
included (a) 3,000,000 shares of preferred stock designated as Non-Voting Series B 10% Cumulative Convertible Preferred Stock;
(b) 3,000,000 shares of preferred stock designated as Non-Voting Series C 10% Cumulative Convertible Preferred Stock; and (c)
3,000,000 shares of preferred stock designated as Non-Voting Series D 10% Cumulative Convertible Preferred Stock. The Certificate
of Withdrawal of Certificate of Designations did not affect the Company’s previously designated shares of Series A 10% Cumulative
Convertible Preferred Stock.
Effective
on September 13, 2017, the holders of 9,437,131 shares of the Company’s common stock, representing 54.0% of the outstanding
shares of the Company’s common stock as of such date, executed a written consent in lieu of the 2017 annual meeting of stockholders
(the “Majority Stockholder Consent”), approving the following matters, which had previously been approved by the Board
of directors of the Company on August 25, 2017, and recommended to be presented to the majority stockholders for their approval
by the Board of Directors on the same date: (1) the re-appointment of all seven members of our Board of Directors (the “Board”);
(2) the adoption of the Monaker Group, Inc. 2017 Equity Incentive Plan (the “Plan”); (3) authority for our Board of
Directors, without further stockholder approval, to effect a reverse stock split of all of the outstanding common stock of the
Company, by the filing of a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State
of Nevada, in a ratio of between one-for-one and one-for-four, with the Company’s Board of Directors having the discretion
as to whether or not the reverse split is to be effected, and with the exact exchange ratio of any reverse split to be set at
a whole number within the above range as determined by the Board of Directors in its sole discretion, at any time before the earlier
of (a) September 13, 2018; and (b) the date of the Company’s 2018 annual meeting of stockholders; (4) the appointment of
LBB & Associates Ltd, LLP as our independent registered public accounting firm; (5) an advisory vote on the frequency of an
advisory vote on executive compensation; and (6) an advisory vote on executive compensation.
Pursuant
to SEC rules and regulations the items described above as approved by the Majority Stockholder Consent, no earlier than forty
(40) days after the date notice of the internet availability of such Information Statement materials is first sent to stockholders,
which we expect to be on or approximately October 26, 2017.
The
Plan is intended to secure for the Company the benefits arising from ownership of the Company’s common stock by the employees,
officers, directors and consultants of the Company, all of whom are and will be responsible for the Company’s future growth.
The Plan is designed to help attract and retain for the Company, qualified personnel for positions of exceptional responsibility,
to reward employees, officers, directors and consultants for their services to the Company and to motivate such individuals through
added incentives to further contribute to the success of the Company. The Plan will provide an opportunity for any employee, officer,
director or consultant of the Company, subject to any limitations provided by federal or state securities laws, to receive (i)
incentive stock options (to eligible employees only); (ii) nonqualified stock options; (iii) restricted stock; (iv) stock awards;
(v) shares in performance of services; or (vi) any combination of the foregoing. In making such determinations, the Board of Directors
(or the Compensation Committee) may take into account the nature of the services rendered by such person, his or her present and
potential future contribution to the Company’s success, and such other factors as the Board of Directors (or the Compensation
Committee) in its discretion shall deem relevant. Incentive stock options granted under the Plan are intended to qualify as “incentive
stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).
Nonqualified (non-statutory stock options) granted under the Plan are not intended to qualify as incentive stock options under
the Code. See “Federal Income Tax Consequences” below for a discussion of the principal federal income tax consequences
of awards under the Plan. No incentive stock option may be granted under the Plan to any person who, at the time of the grant,
owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of our Company or any affiliate of
our Company, unless the exercise price is at least 110% of the fair market value of the stock subject to the option on the date
of grant and the term of the option does not exceed five years from the date of grant.
Subject
to adjustment in connection with the payment of a stock dividend, a stock split or subdivision or combination of the shares of
common stock, or a reorganization or reclassification of the Company’s common stock, the maximum aggregate number of shares
of common stock which may be issued pursuant to awards under the Plan is 1,250,000 shares. Such shares of common stock shall be
made available from the authorized and unissued shares of the Company.