PART
I
Unless
the context requires otherwise, references to the “
Company,
” “
we,
” “
us,
”
“
our,
” “
Monaker
” and “
Monaker Group, Inc.
” refer specifically to Monaker
Group, Inc. and its consolidated subsidiaries including Extraordinary Vacations USA, Inc. (100% interest), NextTrip Holdings,
Inc. (100% interest), Voyages North America, LLC (72.5% interest which was sold in August 2017) and Name Your Fee, LLC (51% interest
which was sold in May 2016).
In
addition, unless the context otherwise requires and for the purposes of this report only:
●
“
Exchange Act
” refers to the Securities Exchange Act of 1934, as amended;
●
“
SEC
” or the “
Commission
” refers to the United States Securities and Exchange Commission;
●
“
Securities Act
” refers to the Securities Act of 1933, as amended; and
●
“
FYE
” means fiscal year end.
Item
1. Business.
Organizational
History
Our
predecessor, Maximus Exploration Corporation, was incorporated in the State of Nevada on December 29, 2005, and was a reporting
‘shell company’ as defined in Rule 405 of the Securities Act (“
Maximus
”). Extraordinary Vacations
Group, Inc. (“
EXVG
”) was incorporated in the State of Nevada in June 2004. Extraordinary Vacations USA Inc.
(“
EVUSA
”), EXVG’s wholly-owned subsidiary, is a Delaware corporation, incorporated on June 24, 2002.
On October 9, 2008, EXVG agreed to sell 100% of EVUSA to Maximus and consummated a reverse merger with Maximus. Maximus then changed
its name to Next 1 Interactive, Inc. On June 24, 2015, we changed our name to Monaker Group, Inc.
On
May 12, 2012, we effected a 1:500 reverse stock-split of all of our outstanding shares of common stock, which has been retroactively
reflected herein.
On
June 25, 2015, we effected a 1:50 reverse stock-split of all of our outstanding shares of common stock, which has been retroactively
reflected herein.
On
February 12, 2018, we effected a 1:2.5 reverse stock-split of all of our outstanding shares of common stock, which has been retroactively
reflected herein.
Executive
Offices and Telephone Number
Our
principal executive offices are located at 2893 Executive Park Drive, Suite 201, Weston, Florida 33331 and our telephone number
is (954) 888-9779. Our web hosting operations are based in Florida and at Rackspace Hosting, Inc., an off-site hosting facility
and our booking engine and websites will be hosted in the cloud with Microsoft Azure. Additional information about us is available
on our website at www.monakergroup.com. The information on our website is not incorporated herein by reference.
Overview
Monaker
Group, Inc. and its subsidiaries operate online marketplaces (described in greater detail below). We believe our most promising
part of our business plan is the plan to incorporate alternative lodging rental units into our marketplaces while facilitating
access to alternative lodging rentals to other distributors. Alternative lodging rentals (ALRs) are whole unit vacation homes
or timeshare resort units that are fully furnished, privately owned residential properties, including homes, condominiums, apartments,
villas and cabins that property owners and managers rent to the public on a nightly, weekly or monthly basis. NextTrip.com, one
of our marketplaces, provides access to airline, car rental, lodgings and activities products and, it will soon (planned to be
completed in or around July 2018) include our ALR offering which will unite travelers seeking ALRs located in countries around
the world. Another one of our other marketplaces, Maupintour, also provides concierge tours and activities at destinations. Currently
our Maupintour and NextTrip online marketplaces (each as discussed in greater detail below) are operational, provided that such
marketplaces do not currently allow for the booking of ALRs, which capability we plan to have in place in or around the end of
July 2018.
Our
ambition is to become the largest instantly bookable vacation rental platform in the world, providing large travel distributors
via a business-to-business model (B2B), our ALR inventory, as well as providing direct to consumers both ALR products and auxiliary
services so travelers can purchase vacations through NextTrip.com, NextTrip.biz, Maupintour.com or EXVG.com. Additionally, we
plan to provide the most qualified platform to assist property owners and managers the means to broaden their distribution for
booking their homes. The Company serves three major constituents: (1) property owners and managers, (2) travelers and (3) other
travel/lodging 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 rate for each booking and, in return, their properties will be listed for free as an available ALR on NextTrip.com,
NextTrip.biz, Maupintour.com or EXVG.com (as well as with distributors). Travelers will be able to visit NextTrip.com, Maupintour.com
or EXVG.com (and distributors) and search and compare our large and detailed inventory of listings to find ALRs meeting their
needs.
The
global vacation rental industry is large and growing, but it is also fragmented and inefficient. We believe we will benefit from
having both (a) a broad selection of ALR listings, and (b) a large audience of travelers who visit (i) NextTrip.com, Maupintour.com
or EXVG.com as well as (ii) Distributors. We believe that the broad selection of ALRs will attract more travelers and the large
audience of travelers will in turn attract more ALRs from property owners and managers.
Monaker
is a technology driven travel company which has identified and sourced ALR products and plans to convert them into instantly bookable
products as its distinguishing niche. The ALRs are owned and leased by third parties and will be available to rent through Monaker’s
websites as well as other Distributors in or around the end of July 2018. Monaker’s services include critical elements such
as technology, an extensive film library, trusted brands and established partnerships that enhance product offerings and reach.
We believe that consumers are quickly adopting video for researching and educating themselves prior to purchases, and Monaker
has carefully amassed 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.
Summary
Monaker
sells travel services to leisure and corporate customers around the world. Our primary focus is to incorporate ALR options into
our current offerings of scheduling, pricing and availability information for booking reservations for airlines, hotels, rental
cars, cruises and other travel products such as sightseeing tours, shows and event tickets and theme park passes. The Company
sells these travel services both individually and as components of dynamically-assembled packaged travel vacations and trips.
In addition, the Company provides content that presents travelers with information about travel destinations, maps and other travel
details. In February 2018, 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 licensed technology (described below) that will connect our proprietary technology and will allow our users to search
large travel suppliers of alternative lodging inventories and present consumers comprehensive and optimal alternatives at the
most inexpensive rates to choose from.
In
March 2018, the Company introduced Travelmagazine.com, an online travel publication with the aim of giving travelers around the
world inspiration for future travel destinations and trips. The publication offers written articles, videos, and podcasts. Moving
forward, we plan for Travelmagazine.com to become a central hub of information for travelers who are looking to get detailed information
on destinations all around the world. We also plan to move Travelmagazine.com from having content created by a team of staff writers,
to a team of worldwide writers who will contribute content to the page for publication. The website is planned to be supported
by advertising and allow for promotion of both ALR and Maupintour vacation products.
The
Company plans to sell its travel services through various distribution channels. The primary distribution channel will be through
its B2B channel partners which includes sales via (i) other travel companies’ websites and (ii) networks of third-party
travel agents. Secondary distribution will occur through its own website at NextTrip.com, the NextTrip mobile application (“
app
”)
and Nexttrip.Biz. Additionally we will offer specialty travel services via EXVG.com and Maupintour, targeting high touch inventory
to customers through a toll-free telephone number designed to assist customers with complex or high- priced offerings.
Monaker’s
core holdings include NextTrip.com, NextTrip.Biz, Maupintour.com and EXVG.com. NextTrip.com is the primary consumer website, where
travel services and products are booked. The travel services and products include tours; activities/attractions; airline; hotel;
and car rentals and ALRs. Maupintour complements the Nextrip.com offering by providing high-end tour packages and activities/attractions.
EXVG.com is planned to be a specialized secondary website devoted to those ALRs that cannot be booked on a real-time basis. These
ALRs tend to be sourced from owners and managers who have not invested in a reservation management system and/or the owner or
manager prefers to personally vet the customer before accepting a booking; typically because the ALR is a high value property.
EXVG.com travel services and products will only include the aforementioned ALRs as well as tours and activities from Maupintour.
NextTrip.Biz is targeted at small to midsized businesses offering them a customized travel solution for staff business travel
to meetings, conferences, conventions or even vacation travel and gives the companies lower costs, better expense control and
the option for a “
self-branded
” website.
The
Company owns an approximately 13% interest in RealBiz Media Group, Inc. (“
RealBiz
”) as of February 28, 2018
which is represented by 44,470,101 RealBiz Series A Preferred Stock shares.
Products
and Services
Monaker
plans to focus on marketing ALR options directly to consumers and to other travel distributors. The Company’s concentration
on ALRs is driven by contracts with vacation home (including timeshare) unit owners and managers that are made available to consumers
and to other travel portals (Distributors) for nightly or extended stays. In addition, we offer travelers activities and tours
through our subsidiary, Maupintour. Therefore, not only can we assist a traveler with identifying a destination and the lodging
at the destination, but we can provide options of activities while at the destination. We also provide the means for making arrangements
for airline tickets, car rentals and lodging (i.e. hotels and ALRs in the near future). In summary, Monaker offers travelers the
complete travel package made easy or…
Travel Made Easy
TM
.
Products
and Services For Property Owners And Managers
Listings.
Once our website is fully operational, planned to be completed in or around the end of July 2018, property owners and managers
will be able to list a property, with no initial upfront fees, and provide those listings at a negotiated preferential rate for
traveler bookings generated on our websites.
Listings
that are ‘real-time online bookable’ properties will be managed by the property owner or manager through an application
program interface (API) which will provide real-time updates to each property and immediately notify the property owner or manager
of all information regarding bookings, modifications to bookings and cancellations of bookings. Information such as content, descriptions
and images are provided to us through that API.
Listings
that are ‘request-accept’ properties will require communication and approval from the property owner or manager (hence
‘request-accept’) and will not be managed through an API (as discussed above). We will provide a set of tools for
the property owner or manager which will enable them to manage an availability calendar, reservations, inquiries and the content
of the listing. These tools will allow the property owner or manager to create the listing by uploading photographs, text descriptions
or lists of amenities, a map showing the location of the property, and property availability, all of which can be updated throughout
the term of the listing. Each listing will provide travelers the ability to use email or other methods to contact property owners
and managers.
The
listings will include tools and services to help property owners and managers run their vacation rental businesses more efficiently
such as responding to and managing inquiries, preparing and sending rental quotes and payment invoices, allowing travelers to
book online, including being able to enter into rental agreements with travelers online, and processing online payments. Property
owners and managers that elect to process online payments will be subject to a transaction fee.
Redistribution
of Listings.
We will make selected, online bookable properties available to online travel agencies as well as channel partners
(jointly referred to as “
Distributors
”). We will be compensated for these services by receiving a commission
that is added to the negotiated net rate for each booking.
Products
and Services for Travelers
Search
Tools and Ability to Compare
. Our online marketplace NextTrip.com provides travelers with tools to search for and filter several
travel products including air, car, accommodations (soon to include ALRs) and activities based on various criteria, such as destination,
travel dates, type of property, number of bedrooms, amenities, price, or keywords.
Traveler
Login.
Travelers are able to create accounts on the NextTrip.com website that enable them access to their booking activity
through the website.
Travel
Blog.
Travel guides, videos and pictures as well as travel articles can be accessed through the NextTrip Travel Blog and Travelmagazine.com.
Security.
We use a combination of technology and human review to evaluate the content of listings and to screen for inaccuracies or
fraud with the goal of providing only accurate and trustworthy information to travelers.
Reviews
and Ratings.
Travelers will be able to submit online reviews of the ALRs they have rented through our websites. These reviews
should convey the accuracy of the listing information found on our websites.
Communication.
Travelers who create an account on our website will receive regular communications, including notices about places of interest,
special offers, new listings, and an email newsletter. The newsletter will be available to any traveler who agrees to receive
it and offers introductions to new destinations and vacation rentals, as well as tips and useful information when staying in vacation
rentals.
Mobile
Websites and Applications.
We provide versions of our websites formatted for web browsers, smart-phones and tablets so that
property owners, managers and travelers can access our websites and tools from mobile devices.
Competition
The
market to provide listing, searching and marketing services whether they are ALR, activities and tours, airline bookings, car
rentals or hotel stays is highly competitive and fragmented with limited barriers to entry. Each of the ALR services that we will
provide to property owners, managers and travelers is currently offered by competitors. Furthermore, ALRs are not typically marketed
exclusively through any single channel, and many of our listing agreements are not exclusive, potentially allowing our competitors
to aggregate a set of listings similar to ours. We believe we will compete primarily on the basis of the quantity, quality, and
nature of the properties offered on our websites. The majority of ALRs that will be offered in our marketplace reflect a whole
house or property rather than a room. In addition, we anticipate that we will benefit from the quality of the direct relationships
we have with property owners and managers, the global diversity of the ALRs available on our websites, the quality of our websites,
the tools provided to our property owners and managers, the strength of our brands, and the success of our marketing programs
and price.
Our
principal competitors include:
|
●
|
other
vacation and short-term rental listing websites, such as TripAdvisor.com, HomeAway.com,
VRBA.com, Booking.com and Airbnb.com;
|
|
●
|
websites
that list both rooms to rent as well as ALRs, such as Airbnb.com, Booking.com, HomeAway.com
and VRBO.com;
|
|
●
|
professional
property managers who charge a percentage of booking revenue for their services, such
as Wyndham Worldwide Corp. and InterHome, AG;
|
|
●
|
hotels
that offer large rooms and amenities common in ALRs, such as Hyatt Vacation Clubs and
Four Seasons Resorts;
|
|
●
|
websites
that aggregate listings from property managers who advertise and take bookings on behalf
of property managers, such as Perfect Places, Inc., Atraveo and E-Domizil;
|
|
●
|
online
travel websites, such as those operated by Expedia.com, Hotels.com, Kayak.com, Booking.com,
Orbitz.com, Priceline.com and Travelocity.com, that have traditionally provided comprehensive
travel services and may expand or are now expanding into the ALR category;
|
|
●
|
timeshare
exchange companies, such as Interval International, Inc. and RCI, LLC;
|
|
●
|
large
Internet companies, such as Craigslist, Inc., eBay Inc., Google Inc., MSN.com and Yahoo!,
which provide vacation rental listing or search services in addition to a wide variety
of other products or services; and
|
|
●
|
offline
publishers of classified vacation rental listings, including regional newspapers and
travel-related magazines.
|
For
a discussion of the risks attendant to the highly competitive nature of our market, see the information under the heading “
Risk
Factors
” below under the caption “
The market in which we participate is highly competitive, and we may be unable
to compete successfully with our current or future competitors.
”
Seasonality
Property
owners and managers tend to list their properties when travelers are most likely to make vacation plans. The timing primarily
depends on whether travelers are taking a winter or summer vacation and tends to vary by country. The highest level of listings
are expected in the first quarter of a year, which is typically when travelers are making plans for summer vacations in the United
States and Europe. The lowest level of listings are expected in the third quarter. By the fourth quarter, property owners and
managers of winter vacation destinations will be listing their properties in time to meet the needs of travelers planning those
trips. Other vacation areas outside of the United States and Europe also have seasonality, which may not be reflected in the same
quarters (for example, winter and summer months are reversed in the southern hemisphere).
As
the listings grow, the seasonality of those transactions may result in higher revenues in the summer and winter vacation months.
We also expect seasonality in the number of visitors to our websites, with the first quarter having the highest number of visitors.
Research
and Development
We
have developed proprietary systems to create, maintain and operate our websites. This technology consists of systems developed
by internal and third party designers, developers and engineers and software acquired or licensed from outside developers and
companies. As soon as the development is complete (which is planned to be completed in the next few months, if not sooner), those
third party designers, developers and engineers will be employed as full-time employees. Our systems are being designed to serve
other property distributors, property owners, managers and travelers in an automated and scalable fashion. Costs associated with
our research and development are included as capitalized development costs or included in several expenses including technology
and development, salaries and benefits and in general and administrative expenses.
Technology
and Infrastructure
Our
websites are hosted using a combination of third-party data centers distributed globally across multiple regions. Our systems
architecture has been designed to manage increases in traffic on our websites through the addition of server and network hardware
without making software changes. Our third-party data centers provide our online marketplace with scalable and redundant Internet
connectivity and redundant power and cooling to our hosting environments. We use security methods to ensure the integrity of our
networks and protection of confidential data collected and stored on our servers, and we have developed and use internal policies
and procedures to protect the personal information of our property owners, managers and travelers using our websites that we collect
and use as part of our normal operations. Access to our networks, and the servers and databases, on which confidential data is
stored, is protected by industry standard firewall technology. Physical access to our servers and related equipment is secured
by limiting access to the data center to operations personnel only. Costs associated with our web hosting operation are included
in general and administrative costs.
Intellectual
Property
Our
intellectual property includes the content of our websites, our registered domain names, our registered and unregistered trademarks,
contracts with third party property managers and distributors. We believe that our intellectual property is an essential asset
of our business and that our registered domain names and our technology infrastructure will give us a competitive advantage in
the online market for ALR listings and arrangements with attractions and tour operators. We rely on a combination of trademark,
copyright and trade secret laws in the United States as well as contractual provisions, to protect our proprietary technology
and our brands. We also rely on copyright laws to protect the appearance and design of our sites and applications, although to
date we have not registered for copyright protection on any particular content. We have registered numerous Internet domain names
related to our business in order to protect our proprietary interests. We also enter into confidentiality and invention assignment
agreements with our employees and consultants and seek to control access to and distribution of our proprietary information in
a commercially prudent manner. The efforts we have taken to protect our intellectual property may not be sufficient or effective,
and, despite these precautions, it may be possible for other parties to copy or otherwise obtain and use the content of our websites
or our brand names without authorization.
The
primary web properties are:
|
●
|
nexttrip.com
(and nextrip.com)
|
|
●
|
exvg.com
(and extraordinaryvacations.com)
|
Please
see the information under the heading “
Risk Factors
” under the caption “
If we do not adequately protect
our intellectual property, our ability to compete could be impaired.
”
Recent
Events Through Year-End
Private
Placement Offering
On
August 11, 2017, the Company closed the transactions contemplated by the Common Stock and Warrant Purchase Agreement, entered
into by the Company on July 31, 2017 (the “
Purchase Agreement
”), with certain accredited investors named therein
(collectively, the “
Purchasers
”). Under the terms of the Purchase Agreement, the Company sold the Purchasers
an aggregate of 613,000 shares of our common stock (the “
Shares
”) and 613,000 warrants to purchase one share
of common stock (the “
Offering Warrants
” and together with the Shares, the “
Units
”). The
combined purchase price for one Share and one Offering Warrant to purchase one share of common stock in the Private Placement
offering was $5.00.
Pursuant
to a Placement Agency Agreement (the “
Agent Agreement
”) entered into with Northland Securities, Inc. (the “
Agent
”)
on July 31, 2017, in connection with the offering, the Agent served as the Company’s exclusive placement agent for the offering.
In consideration therewith, we paid the Agent 8% of the gross proceeds from the sale of the Units ($245,200) and, for the consideration
of $50, sold the Agent a warrant to purchase shares of common stock equal to 5% of the shares sold in the offering (i.e., warrants
to purchase 30,650 shares of common stock)(the “
Agent Warrants
” and collectively with the Offering Warrants,
the “
Warrants
”). The Company also agreed to reimburse up to $150,000 of the expenses of the Agent in connection
with the offering. The Placement Agreement includes customary representations and warranties and includes indemnification rights
of the Agent. The Agent is also entitled to the registration rights and liquidated damages associated therewith which the Purchasers
have pursuant to the Purchase Agreement.
William
Kerby, the Chief Executive Officer and Chairman of the Company, purchased $50,000 of the Securities (10,000 Shares and Offering
Warrants); Simon Orange, a member of the Board of Directors of the Company, purchased $175,000 of the Securities (35,000 Shares
and Offering Warrants); Donald Monaco, a member of the Board of Directors of the Company, purchased $175,000 of the Securities
(35,000 Shares and Offering Warrants); Pat LaVecchia, a member of the Board of Directors of the Company, purchased $10,000 of
the Securities (2,000 Shares and Offering Warrants); and Robert J. Post, a member of the Board of Directors of the Company, purchased
$25,000 of the Securities (5,000 Shares and Offering Warrants). Additionally, Stephen Romsdahl, a then significant stockholder
of the Company, purchased $50,000 of the Securities (10,000 Shares and Offering Warrants) and another non-related party, who is
a key distributor of the Company, purchased $100,000 of the Securities (20,000 Shares and Offering Warrants).
The
exercise price of the Warrants was originally $5.25 per share, subject to adjustment as provided therein, which as described below
has since lowered the exercise price thereof to $5.09 per share, 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, each as described in greater detail in the Warrants. If after February
11, 2018, a registration statement covering the issuance or resale of the shares of common stock issuable upon exercise of the
Warrants (the “
Warrant Shares
”) is not available for the issuance or resale, as applicable, the Purchasers
and the Agent, may exercise the Warrants by means of a “
cashless exercise
.”
Pursuant
to the Purchase Agreement, we agreed that we will not, and we will ensure that our directors and officers and their affiliates
would 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 to register the Shares and shares of
common stock underlying the Offering Warrants (the “
Offering Warrants
” and 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 $5.00, 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. As of February 28, 2018, the Company has issued 15,686 shares of common stock to the Purchasers
in order to adjust the purchase price for shares issued at an effective price per share less than $5.00 and through the date of
this filing, an additional 4,390 shares of common stock to the Purchasers in order to adjust the purchase price for shares issued
at an effective price per share less than $5.00, for a total of 20,076 common shares.
Pursuant
to the terms of 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 was December 9, 2017, and the Registration Statement was declared effective on November
13, 2017), subject to penalties as described in the Purchase Agreement.
The
Purchase Agreement also required 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 was October 10, 2017 and which application was submitted on October 6, 2017)
and to cause the Shares to be listed on the NASDAQ no later than 120 days following closing of the offering (which date was December
9, 2017). The Company’s common stock was not approved for listing on the NASDAQ Capital Market by the deadline of December
9, 2017, and the Company was in default of this requirement.
As
a result of such default we were required to provide each Purchaser in the offering (and the placement agent in the offering),
as partial liquidated damages for such delay, additional warrants equal to each Purchaser’s (and the agent’s) pro
rata share of 1% of the warrants sold in the private placement offering (i.e. 6,437 warrants), per day, to each purchaser and
the Agent. Such liquidated damages continued to be due, each day that we failed to comply with the requirements above, up to a
maximum of 100 days. Pursuant to the liquidated damages provision of the purchase agreement, the Company, through the date of
listing on the NASDAQ Capital Market (February 22, 2018), granted warrants to purchase an additional 465,066 shares of common
stock to the Purchasers and the Agent in the offering.
The
aggregate net proceeds from the offering, after deducting the placement agent’s fees payable in cash (described above) and
other estimated offering expenses, were approximately $2.7 million. The Company intends to use the aggregate net proceeds to expand
its technology division, increase its alternative lodging rental count, and general corporate purposes.
A
required term of the offering 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 1,869,611 shares of Series A 10% Cumulative Convertible Preferred
Stock (“
Series A Preferred Stock
”) beneficially owned by them into 1,495,689 shares of common stock of the
Company, which conversion occurred shortly after the closing of the offering. As a result of the conversion, we no longer have
any outstanding shares of preferred stock.
As
additional consideration for Pacific Grove Capital LP (“
Pacific Grove
”), agreeing to participate in the offering
as a Purchaser, the Company entered into a Board Representation Agreement with Pacific Grove. Pursuant to the Board Representation
Agreement, Pacific Grove will be granted the right to designate one person to be nominated for election to the Company’s
Board of Directors so long as (i) Pacific Grove together with its affiliates beneficially own at least 4.99% of the Company’s
common stock, or (ii) Pacific Grove together with its affiliates beneficially own at least 75% of the Securities purchased in
the offering. Notwithstanding its rights under the Board Representation Agreement, Pacific Grove has not provided us notice of
any nominees for appointment to the Board of Directors to date.
Wilton
Debt Conversion and Voting Agreement
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 (the “
Debt Conversion Agreement
”). 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 (the “
Wilton Notes
”), into 281,866 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.
Bettwork
Purchase Agreement, Secured Note and Assignment and Novation
Effective
on August 31, 2017, we entered into a Purchase Agreement (the “
Bettwork Agreement
”) with Bettwork Industries,
Inc. (“
Bettwork
”). Bettwork’s common stock is quoted on the OTC Pink market under the symbol “
BETW
”.
Pursuant
to the Bettwork 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.
Bettwork
and Crystal Falls Investments, LLC Assignment and Novation Agreement
Separate
from the Purchase Agreement, on August 31, 2017, we entered into an Assignment and Novation Agreement (the “
Assignment
”)
with 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.
Replacement
of Republic Bank Revolving Line of Credit
On
September 15, 2017, we entered into a replacement revolving line of credit agreement with Republic Bank, Inc. of Duluth, Minnesota
(“
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 the date of this Report, we have made draws of $1,193,000 under the line
of credit.
Settlement
Agreement
On
or around December 22, 2017, we entered into a Settlement Agreement with RealBiz Media Group, Inc., our former consolidated subsidiary
and NestBuilder.com Corp (“
Nestbuilder
”). As part of the Settlement Agreement, we agreed to pay NestBuilder
$100,000 and to issue a total of 8,000 shares of our restricted common stock; with 5,200 restricted common shares being issued
to NestBuilder valued at $27,820 and 2,800 restricted common shares being issued to Brian N Torres, PA valued at $14,980 as designated
by NestBuilder; RealBiz agreed to reinstate to us 44,470,101 shares of RealBiz Series A Convertible Preferred Stock and ratify
all rights under the Certificate of Designation as reformed and amended of the RealBiz Series A Convertible Preferred Stock (e.g.,
to provide for a conversion ratio of 1 share of RealBiz common stock for each 1 share of RealBiz Series A Convertible Preferred
Stock converted from time to time) and remove any dividend obligations. The RealBiz designation of the Series A Convertible Preferred
Stock was also amended to provide us with anti-dilution protection below $0.05 per share. The agreement further provided for each
party to dismiss various lawsuits which were pending involving the parties with prejudice and for general releases from each party.
First
Amendment to Warrant January 10, 2018
On
January 10, 2018, we entered into a First Amendment To Warrant (“
Amendment
”) agreement with Pacific Grove which
amended the Common Stock and Warrant Purchase Agreement, provided to Pacific Grove in connection with the closing of the Purchase
Agreement, whereby Pacific Grove acquired warrants to purchase 350,000 shares of our common stock. Through January 10, 2018, Pacific
earned additional warrants to purchase 271,250 shares of our common as partial liquidated damages for delays in obtaining an uplisting
to the NASDAQ Capital Market, which uplisting was required pursuant to the Purchase Agreement, to have occurred on or before December
9, 2017; these additional warrants (on substantially similar terms as the warrants granted in connection with the offering) are
equal to Pacific’s pro rata share of 1% of the warrants sold pursuant to the Purchase Agreement for each day that the Company
failed to obtain the NASDAQ listing (the “
Liquidated Damages
”). Total warrants held by Pacific Grove as of
January 10, 2018 were 458,500. We desired to incentivize Pacific Grove to exercise the Warrants by reducing the exercise price
of the warrants from $5.25 per share to $2.625 per share, provided that Pacific agreed to immediately exercise such 458,500 warrants
for $1,203,563 in cash. Pursuant to the Amendment, the exercise price of the warrants was reduced as discussed above and Pacific
exercised the warrants in cash.
Pursuant
to the Liquidated Damages provision of the Purchase Agreement (as discussed above), and including the warrants granted to Pacific
in consideration for the Liquidated Damages, the Company, through January 10, 2018, had granted warrants to purchase an additional
199,532 shares of common stock to the Purchasers and the Agent.
Additionally,
as a result of the reduction in the exercise price of the Pacific Grove warrants which was agreed to pursuant to the Amendment,
the anti-dilution provisions of the Purchase Agreement and the Purchasers warrants was triggered. Specifically, because the Company
issued shares of common stock below (a) the $5.00 price per share of the securities sold pursuant to the Purchase Agreement, the
Purchasers were due an additional 14,458 shares of the Company’s common stock; and (b) the $5.25 exercise price of the warrants
sold pursuant to the Purchase Agreement (and the warrants granted to the placement agent), automatically decreased to $5.125 per
share.
First
Amendment to Warrant January 29, 2018
On
January 29, 2018, we entered into a First Amendment To Warrant agreement with The Stadlin Trust dated 5/25/01 (“
Stadlin
”)
which amended the Common Stock and Warrant Purchase Agreement provided to Stadlin in connection with the closing of the offering,
whereby Stadlin acquired warrants to purchase 20,000 shares of our common stock. Through January 29, 2018, Stadlin earned additional
warrants to purchase 9,800 shares of our common as partial liquidated damages for delays in obtaining an uplisting to the NASDAQ
Capital Market, which uplisting was required pursuant to the Purchase Agreement, to have occurred on or before December 9, 2017;
these additional warrants (on substantially similar terms as the warrants granted in connection with the offering) are equal to
Stadlin’s pro rata share of 1% of the warrants sold pursuant to the Purchase Agreement for each day that the Company failed
to obtain the NASDAQ listing. Total warrants held by Stadlin as of January 29, 2018 were 29,800. We desired to incentivize Stadlin
to exercise the Warrants by reducing the exercise price of the warrants from $5.125 per share to $2.625 per share, provided that
Stadlin agreed to immediately exercise such 29,800 warrants for $78,225 in cash. Pursuant to the amendment, the exercise price
of the warrants was reduced as discussed above and Stadlin exercised the warrants in cash.
Pursuant
to the Liquidated Damages provision of the Purchase Agreement (as discussed above), and including the warrants granted to Stadlin
in consideration for the Liquidated Damages, the Company, through January 29, 2018, had granted warrants to purchase an additional
315,388 shares of common stock to the Purchasers and the Agent.
Additionally,
as a result of the reduction in the exercise price of the Stadlin warrants which was agreed to pursuant to the Amendment, the
anti-dilution provisions of the Purchase Agreement and the Purchasers warrants was triggered. Specifically, because the Company
issued shares of common stock below (a) the $5.00 price per share of the securities sold pursuant to the Purchase Agreement, the
Purchasers were due an additional 1,220 shares of the Company’s common stock; and (b) the $5.125 exercise price of the warrants
sold pursuant to the Purchase Agreement (and the warrants granted to the placement agent), the exercise price of such warrants
remained unchanged at $5.125 per share.
Reverse
Stock Split
Effective
on February 6, 2018, the Board of Directors of the Company, approved a 1-for-2.5 reverse stock split of the Company’s outstanding
common stock (the “
Reverse Split
”). The Company’s majority stockholders, effective on September 13, 2017,
via a written consent to action without a meeting, provided the Board of Directors authority to affect a reverse stock split of
the Company’s outstanding common stock in a ratio of between one-for-one and one-for-four, in their sole discretion, without
further stockholder approval, by amending the Company’s Articles of Incorporation, at any time prior to the earlier of (a)
September 13, 2018; and (b) the date of the Company’s 2018 annual meeting of stockholders (the “
Stockholder Authority
”).
The Reverse Split was affected and approved by the Board of Directors pursuant to the Stockholder Authority.
Effective
on February 8, 2018, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary
of State of Nevada to effect the 1-for-2.5 Reverse Split of all of the Company’s outstanding shares of common stock, which
was effective on Monday, February 12, 2018.
NASDAQ
Listing
Effective
on March 12, 2018, the Company’s common stock began trading on The Nasdaq Capital Market under the trading symbol “
MKGI.
”
Recent
Transactions Which Occurred After Year End 2018
On
March 1, 2018, we entered into a First Amendment to Warrant agreement with Pacific Grove. Pursuant to the agreement, the Company
and Pacific Grove agreed to reduce the exercise price of the warrants to purchase 147,000 shares of common stock which Pacific
Grove was granted as penalty warrants in connection with the Company’s prior failure to obtain the timely listing of its
common stock on the Nasdaq Capital Market, from $5.125 per share to $2.625 per share, in consideration for Pacific Grove immediately
exercising such warrants for cash. Total consideration received from the exercise of the warrants by Pacific Grove pursuant to
the Amendment was $385,875.
Pursuant
to the anti-dilution provisions of the Purchase Agreement, the Purchasers were due their pro rata portion (less Stadlin, who had
waived such rights) of an aggregate of an additional 4,390 shares of common stock in connection with the reduction in exercise
price of the warrants held by Pacific Grove as described above.
As
a result of all of the anti-dilutive transactions described above, a total of 14,458 shares of common stock were issued to the
Purchasers (the “
Liquidated Damage Shares
”) and the exercise price of the warrants sold pursuant to the Purchase
Agreement and granted as liquidated damages, as discussed below, was automatically adjusted from the original exercise price of
$5.25 per share to $5.09 per share.
As
a result of the liquidated damage provisions triggered by our failure to timely obtain an uplisting to the Nasdaq Capital Market,
penalty warrants to purchase a total of 465,066 shares of common stock were granted to the Purchasers and the agent in the offering,
of which warrants to purchase 265,300 shares of common stock have been exercised to date and which 265,300 shares of common stock
have been issued in connection with the exercises thereof and warrants to purchase 199,766 shares of common stock remain unexercised
as of the date of this Report.
Employees
We
employed 8 full-time employees at February 28, 2018. Additionally, we use independent contractors and temporary personnel to supplement
our workforce, particularly in the development and technology tasks. Our employees are not represented by a labor union and we
consider our employee relations to be good. Competition for qualified personnel in our industry has historically been intense,
particularly for software engineers, developers and other technical staff.
Segments
We
operate as one operating segment consisting of products and services related to our online marketplace of travel services. For
a discussion of revenue, net income and total assets, see Part II, Item 8 of this Annual Report on Form 10-K.
Our
travel services are composed of the following services:
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●
|
NextTrip.com
is a travel portal that provides travelers with the ability to obtain flights, car and
lodging rentals through third party relationships as well as a vast array of activities
for entertainment while at their destinations. NextTrip.com will promote ALRs, in its
lodging offering which includes vacation homes and unused timeshare properties.
|
|
●
|
Tours
and activities are the focus of Maupintour. Maupintour is one of the oldest luxury tour
companies in North America serving travel agents around the world. Maupintour has over
65 years’ experience with creating tours and activity-focused trips, from private
tours of the Vatican to bicycling in the Alps to wine-tasting in Italy.
|
|
|
|
|
●
|
A
vacation home platform for vacation home rentals to be made available to other Distributors
is being incorporated into NextTrip.com and once incorporated (which is planned to be
completed in the next few months, if not sooner), it will allow other travel distributors
to have access to real-time on-line bookable ALRs and present these products to their
customers. This platform will present, through a proprietary API, a diverse portfolio
of properties.
|
|
●
|
A
timeshare resort rental platform is also being incorporated into NextTrip.com with the
goal of expanding the traditional “
alternative lodging
” definition
to include higher-end resort units. This will allow consumers to search and book from
hundreds of thousands of vacant timeshare units. This vacant inventory is global with
a large portion in 4 and 5 star hotels and resorts. Once incorporated into Nextrip.com,
consumers will be able to book resort properties, in real-time, at significant discounts
and without fear of any timeshare Membership solicitation. Additionally, the platform
(which is planned to be completed in the next few months, if not sooner) will provide
timeshare Property Managers/Developers/Owners a complete management tool. This will allow
them to add and edit their own properties, monitor inventory bookings and rent properties
that would have previously been vacant.
|
|
●
|
A
library of travel footage shot in many countries around the world. There are many clips
of hotels, resorts, cruise and destination activities that are used in the creation of
travel videos that are presented on NextTrip blog.
|
|
●
|
NextTrip.biz
is an active, internet based, corporate booking solution as a standalone platform for
business owners to be able to sign up, create accounts for employees, control expenditures,
add markups, and manage overall business travel.
|
|
●
|
Travelmagazine.com
is an online travel publication with the aim of giving travelers around the world inspiration
for where to go next. The publication offers written articles, videos, and podcasts.
|
Other
Investments:
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 February 28, 2018, Monaker
owned 44,470,101 shares of RealBiz Media Group, Inc. (RealBiz) Series A Preferred Stock. This interest, has been written down
to zero ($0) as of February 28, 2018 and February 28, 2017 to reflect the realizable value of this investment.
Asset
Purchases
On
October 23, 2017, we entered into a Platform Purchase Agreement with Exponential, Inc. (“
XPO
”), which offers
a white-label e- commerce platform. Pursuant to the Platform Purchase Agreement, XPO agreed to provide us software development
services in connection with the development of an e-commerce platform (the Monaker Booking Engine (MBE)) and related application
program interfaces (APIs). In consideration for the services agreed to be rendered by XPO, we issued XPO 200,000 shares of restricted
common stock, valued at $1,485,000.
On
November 14, 2017, we entered into a Purchase Agreement with Michael Heinze, Michael Kistner and Rebecca Dernbach, whereby we
purchased source code in connection with an alternative lodging platform for $75,000 in cash and 34,783 shares of restricted common
stock with a market value of $5.75 per share and an aggregate value of $200,000 for a total acquisition of $275,000.
On November 21, 2017, Monaker entered
into a Purchase Agreement and an addendum thereto (the “
Purchase Addendum
”) with A-Tech LLC (“
A-Tech
”)
on behalf of its wholly-owned subsidiary Parula Village Ltd. (“
Parula
”) whereby Monaker purchased from A-Tech,
through
Parula,
ownership of 12 parcels of land on Long Caye, Lighthouse Reef, Belize (the “
Property
”)
for 240,000 shares of restricted common stock valued at a total of $1,500,000. Additionally, as part of the same consideration,
A-Tech agreed to construct 12 vacation rental residences on the Property within 270 days of closing of the transaction (the “
Construction
Obligation
”); and the agreement provided that if the vacation rental residences were not completed within the 270 days,
Monaker would cancel 12,000 shares, valued at $75,000 (of the previously issued 240,000 shares of restricted common stock) for
each residence not completed. In the event the average closing price of Monaker’s common stock for the 10 trading days prior
to the 90th day after the closing of the transaction was less than $6.25 per share, Monaker was required to issue additional shares
of restricted common stock such that the value of the shares issued to A-Tech totaled $1.5 million. On February 20, 2018 (the
first business day following the 90
th
day after the closing), Monaker issued an additional 66,632 shares of common
stock at $4.80 for a total of $319,834, to meet the 90 day anniversary look-back provision for a guaranteed purchase price of
$1.5 million. In the event any encumbrances, taxes, levies, claims or liens of any kind are brought against the Property within
24 months of the closing, Monaker has the right at its sole discretion to either unwind the transaction and cancel all the shares
issued to A-Tech or have A-Tech take actions to settle such claims. A-Tech also agreed to a leak out provision which prohibits
it from selling shares of common stock exceeding 30% of the weekly volume of our common stock, up to a maximum of 96,000 shares
each quarter, starting 180 days from the closing (provided that A-Tech is prohibited from selling any shares prior to the 180th
day following the closing). Additionally, A-Tech granted us (or our assigns) a 48 hour first right of refusal to purchase any
shares of common stock proposed to be sold by A-Tech at $6.25 per share, prior to A-Tech selling any such shares in the open market.
On May 31, 2018 effective February 28, 2018, Monaker and A-Tech entered into a First Amendment to the Purchase
Agreement, to amend the terms of the Purchase Agreement to (a) provide for the acquisition by Monaker of a ‘right to own’
the Property instead of the ownership of the Property itself, as the title to the Property had not been legally transferred as
of such date, which ‘right to own’ had an exercise price of $0 and was transferrable and exercisable by the Company
at any time, (b) terminate the Construction Obligation, and (c) to correct certain inaccuracies in the original agreement. The
First Amendment also required A-Tech to return 210,632 shares of common stock to Monaker for cancellation and were cancelled for
non-performance. The First Amendment to the Purchase Agreement had an effective date of November 21, 2017.
Immediately thereafter, on May 31, 2018,
Monaker and Bettwork entered into an agreement whereby Bettwork acquired the ‘right to own’ the Property from the
Company in consideration for a Secured Convertible Promissory Note in the amount of $1.6 million (the “
Secured Note
”).
The amount owed under the Secured Note accrues interest at a fluctuating interest rate, based on the prime rate, and is due and
payable on May 31, 2020. The repayment of the Secured Note is secured by a first priority security interest in the ‘right
to own’ and subsequent to the exercise thereof, the Property. 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 9.99% beneficial ownership limitation. The conversion price of the
Secured Note is $1.00 per share, 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). Bettwork and A-Tech share a common principal.
The
Company is actively working on creating several key relationships with travel suppliers to allow it to distribute its ALR offerings.
Currently, travel revenues are principally generated by Maupintour. Maupintour’s revenue is generated from the sale of high-end
escorted tours and Flexible Independent Travel (FIT) tours as well as upscale clientele seeking customized trips. The Company
estimates that its target market for Maupintour represents less than 1% of all U.S. domestic leisure travelers. We believe that
upscale travelers, primarily discerning “
Baby Boomers,
” seek travel solutions rather than pre-packaged tours,
and Maupintour has consistently tried to cater to this niche marketplace, rather than compete on the lower end of the market.
The
travel videos are active on the NextTrip Blog and the number of travel clips available is increasing. Our videos have calls-to-action
that we plan to push across the web and to mobile devices. As brand awareness is created through this media, we anticipate that
revenues should increase as well.
The
Company’s target markets are a) those consumers that prefer a “
home away from home
” experience when choosing
their lodging preference (i.e., vacation homes) and those consumers that want affordable high-end resort accommodations (i.e.,
timeshare resort units); and b) established distribution channels and portals that cater to those same consumers.
Essentially,
the Company has identified its target products as ALRs along with activities / tours. Its historical television media and real
estate assets have been disposed to focus exclusively on the travel sector. The Company continues to serve its existing travel
clients through Maupintour and NextTrip.com.
Sources
and Availability of Raw Materials and the Names of Principal Suppliers
Our
products do not require the consumption of raw materials.
Dependence
on One or a Few Customers
We
do not depend on one or a few customers. As we expand our business, we do not anticipate that we will depend on one or a few customers.
Government
Regulation
Our
operations are subject to and affected by various government regulations, U.S. federal, state and local government authorities.
These providers, distributors, etc. are also subject to periodic renewal and ongoing regulatory requirements. The rules, regulations,
policies and procedures affecting our businesses are constantly subject to change. The following descriptions are summary in nature
and do not purport to describe all present and proposed laws and regulations affecting our businesses.
Regulation
of the Internet
We
operate several internet websites which we use to distribute information about, and supplement our programs. Internet services
are now subject to regulation in the United States relating to the privacy and security of personally identifiable user information
and acquisition of personal information from children under the age of 13, including the federal Child Online Protection Act (COPA)
and the federal Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM). In addition, a majority of
states have enacted laws that impose data security and security breach obligations. Additional federal and state laws and regulations
may be adopted with respect to the Internet or other online services, covering such issues as user privacy, child safety, data
security, advertising, pricing, content, copyrights and trademarks, access by persons with disabilities, distribution, taxation
and characteristics and quality of products and services. In addition, to the extent we offer products and services to online
consumers outside the United States, the laws and regulations of foreign jurisdictions, including, without limitation, consumer
protection, privacy, advertising, data retention, intellectual property, and content limitations, may impose additional compliance
obligations on us.
Other
Regulations
We
are also subject to various local, state and federal regulations, including, without limitation, regulations promulgated by federal
and state environmental, health and labor agencies.
Item
1A. Risk Factors
In
addition to the other information in this Annual Report, readers should carefully consider the following important factors. These
factors, among others, in some cases have affected, and in the future could affect, our financial condition and results of operations
and could cause our future results to differ materially from those expressed or implied in any forward-looking statements that
appear in this Annual Report or that we have made or will make elsewhere.
Risks
Relating to the July/August 2017 Private Placement Offering
We
face significant penalties and damages in the event the registration statement required to be filed by us in connection with our
August 2017 private placement offering is subsequently suspended or terminated.
Pursuant
to the terms of the Purchase Agreement entered into with the Purchasers in July 2017, relating to the sale of common stock and
warrants, which closed in August 2017 (as described in greater detail above in “
Item 1. Business
” - “
Recent
Events Through Year-End
” – “
Private Placement Offering
” and below under “
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
” – “
Liquidity and Capital Resources
”
- “
Recent Significant Funding Transactions
” – “
Private Placement Offering
”), 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 within 45 days following the closing of the August 2017 private placement offering (which date was September 25, 2017, and
which filing deadline was met) to register the resale of the shares sold in connection therewith and the shares of common stock
issuable upon exercise of the warrants sold in connection therewith (collectively, the “
Shares and Warrant Shares
”)
and to cause the registration statement to become effective within 120 days following the closing of the private placement offering
(which date was December 9, 2017 and which registration statement became effective on November 13, 2017). In the event that there
occurs a suspension in the availability of the registration statement, after effectiveness thereof, subject to certain exceptions
described in the purchase agreement, we are required to pay to each purchaser (and the agent), on the 30th day following the first
day of such suspension, and on each 30th day thereafter, an amount equal to 1% of the purchase price paid for the securities purchased
by the purchaser (and agent) and not previously sold by the purchaser with such payments to be prorated on a daily basis during
each 30 day period, up to a maximum of 6% of the purchase price paid for the securities.
We
have already granted the purchasers additional warrants due to our failure to obtain the timely listing of our common stock on
the NASDAQ Capital Market and in the event the required registration statement is subsequently suspended or terminated or we otherwise
fail to meet certain requirements set forth in the purchase agreement, we could be required to pay significant additional penalties
which could adversely affect our cash flow and cause the value of our securities to decline in value.
The
restrictions and covenants in the purchase agreement, as well as any future financing agreements that we may enter into, may restrict
our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability
to comply with these covenants may be affected by events beyond our control and we may not be able to meet those covenants.
The
warrants sold in the July/August private offering contain anti-dilution rights. The issuance and sale of common stock upon exercise
of the warrants may cause substantial dilution to existing stockholders and may also depress the market price of our common stock.
The
exercise price of the warrants sold in the July/August private offering (and the penalty warrants described above) was initially
$5.25 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 (and the penalty
warrants described above) are subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization,
reorganization or similar transaction, and are also subject to weighted average 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, each as described in greater detail
in the warrants. After the six month anniversary of the closing (February 11, 2018), if a registration statement covering the
issuance or resale of the shares of common stock issuable upon exercise of the warrants is not available for the issuance or resale,
as applicable, the purchasers and the agent, may exercise the warrants by means of a “
cashless exercise
.”
As
a result of the reduction in the exercise price of the Pacific Grove and Stadlin warrants as described above under “
Part
I
” – “
Item 1. Business
” – “
Recent Events Through Year-End
”, the anti-dilution
provision of the Purchasers warrants were triggered. Specifically, because the Company issued shares of common stock below the
$5.25 exercise price of the warrants sold pursuant to the Purchase Agreement (and the warrants granted to the placement agent),
the exercise price of such warrants automatically decreased to $5.09 per share.
If
exercises of the warrants and sales of such shares issuable upon exercise thereof take place, the price of our common stock may
decline. In addition, the common stock issuable upon exercise of the warrants may represent overhang that may also adversely affect
the market price of our common stock. Overhang occurs when there is a greater supply of a company’s stock in the market
than there is demand for that stock. When this happens the price of the company’s stock will decrease, and any additional
shares which stockholders attempt to sell in the market will only further decrease the share price. If the share volume of our
common stock cannot absorb shares sold by the Warrant holders, then the value of our common stock will likely decrease.
The
shares sold pursuant to the July/August 2017 private offering purchase agreement were granted anti-dilution rights for a period
of twelve months following the closing of such transaction.
Pursuant
to the July/August 2017 private offering 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 (defined above), entitling any person or entity to acquire shares of common stock at an effective price per share less
than $5.00, 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.
As
a result of the reduction in the exercise price of the Pacific Grove and Stadlin warrants as described above under “
Part
I
” – “
Item 1. Business
” – “
Recent Events Through Year-End
”, the anti-dilution
provision of the Purchase Agreement was triggered. Specifically, because the Company issued shares of common stock below the $5.00
price per share of the securities sold pursuant to the Purchase Agreement, the Purchasers were issued an additional 15,686 shares
of the Company’s common stock through the filing of this Report.
In
the event we issue or are deemed to have issued additional securities for a value less than the adjusted price of $4.875, and
we are required to issue the purchasers additional shares of common stock, it could cause significant dilution to existing stockholders.
If
the holders of our common stock sell a large number of shares all at once or in blocks, the market price of our shares would most
likely decline.
Up
to 1,256,650 shares of common stock may be resold by certain stockholders through our resale registration statement filed to register
the Shares and Warrant Shares, which became effective on November 13, 2017. Should such holders decide to sell their shares at
a price below the market price as quoted on OTCQB, or any exchange on which our common stock might be listed in the future, the
price may continue to decline. A steep decline in the price of our common stock upon being quoted on OTCQB, or any exchange on
which our common stock might be listed in the future, would adversely affect our ability to raise additional equity capital, and
even if we were successful in raising such capital, the terms of such raise may be substantially dilutive to current stockholders.
Risks
Related to Our Operations, Business and Industry
We
will need additional capital which may not be available on commercially acceptable terms, if at all, which raises questions about
our ability to continue as a going concern.
As
of February 28, 2018, and February 28, 2017, the Company had an accumulated deficit of $110,696,774 and $100,659,632,
respectively. The net loss for the year ended February 28, 2018, amounted to $10,037,142 which is mostly attributable to
$2,571,503 of general and administrative expenses (including $750,000 of bad debt reserve; $515,674 of professional fees
related to RealBiz litigation; $295,128 of investor relations and; $282,134 of accounting and legal fees); $2,085,000 of
impairment loss; $1,589,060 of salaries and benefits, $947,243 of stock-based compensation; $508,566 of technology and
development; and other expenses of $84,423. The travel operations generated a gross profit of $102,462 while the costs to
develop and repair the platforms and websites amounted to $508,566. Additional development expenses are expected and we
believe that the platforms / websites are expected to be operational between the second and third quarter of the fiscal
year ended February 28, 2019. The accompanying consolidated financial statements have been prepared assuming the Company will
continue as a going concern.
We
are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive
industry. Due to the absence of a long standing operating history and the emerging nature of the markets in which we compete,
we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue
streams. Our revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability
of this business model is unproven. We may never ever achieve profitable operations or generate significant revenues. Our future
operating results depend on many factors, including demand for our products, the level of competition, and the ability of our
officers to manage our business and growth. As a result of the emerging nature of the market in which we compete, we may incur
operating losses until such time as we can develop a substantial and stable revenue base. Additional development expenses may
delay or negatively impact the ability of the Company to generate profits. Accordingly, we cannot assure you that our business
model will be successful or that we can sustain revenue growth, achieve or sustain profitability, or continue as a going concern.
We
currently have a monthly cash requirement of approximately $180,000, exclusive of capital expenditures. We believe that in the
aggregate, we could require several millions of dollars to support and expand the marketing and development of our travel products,
repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations, office
space and systems for managing the business, and cover other operating costs until our planned revenue streams from travel products
are fully-implemented and begin to offset our operating costs. As described above, we believe that we have sufficient capital
to support our operations with the funds raised in the July/August 2017 private placement offering (described above in “
Part
I
” – “
Item 1. Business
” – “
Recent Events Through Year End
” –
“
Private Placement
”), together with the warrants exercised in January 2018 and expected revenues which we anticipate
generating beginning at the end of July 2018. Notwithstanding the above, if we require additional funding in the future and we
are unable to obtain additional funding on acceptable terms, or at all, it will negatively impact our business, financial condition
and liquidity. As of February 28, 2018 and February 28, 2017, we had $1,727,324 and $3,018,467, respectively, of current liabilities.
Since
our inception, we have funded our operations with the proceeds from private equity financings. Currently, revenues provide less
than 10% of our cash requirements. Our remaining cash needs are derived from debt and equity raises.
We
have experienced liquidity issues due to, among other reasons, our limited ability to raise adequate capital on acceptable terms.
We have historically relied upon the issuance of promissory notes that are convertible into shares of our common stock to fund
our operations and have devoted significant efforts to reduce that exposure. We anticipate that we will need to issue equity to
fund our operations and continue to repay our outstanding debt for the foreseeable future. If we are unable to achieve operational
profitability or we are not successful in securing other forms of financing, we will have to evaluate alternative actions to reduce
our operating expenses and conserve cash.
These
conditions raise substantial doubt about our ability to continue as a going concern for the next twelve months. The accompanying
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and
classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The financial
statements included herein also include a going concern footnote from our auditors.
In
the event we are unable to raise adequate funding in the future for our operations and to pay our outstanding debt obligations,
we may be forced to scale back our business plan and/or liquidate some or all of our assets (or our creditors may undertake a
foreclosure of such assets in order to satisfy amounts we owe to such creditors) or may be forced to seek bankruptcy protection,
which could result in the value of our outstanding securities declining in value or becoming worthless.
The
$4.5 million owed to us under Secured Convertible Promissory Notes and the $750,000 owed to us under a promissory note, each
due from Bettwork Industries, Inc., may not be repaid timely, if at all.
Effective
on August 31, 2017, we entered into a Purchase Agreement with Bettwork, pursuant to which we sold Bettwork certain of our media
assets in consideration for a Secured Convertible Promissory Note in the principal amount of $2.9 million. The amount owed under
the Secured Note accrues interest at a fluctuating interest rate, based on the prime rate, and is due and payable on August 31,
2020. The repayment of the Secured Note is secured by a first priority security interest in all of the acquired assets. 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. The conversion price of the Secured Note is $1.00 per share, 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). On May 31, 2018, Monaker and Bettwork entered into an agreement whereby Bettwork acquired the ‘right
to own’ certain property located in Belize from the Company in consideration for a Secured Convertible Promissory Note in
the amount of $1.6 million. The amount owed under the Secured Convertible Promissory Note accrues interest at a fluctuating interest
rate, based on the prime rate, and is due and payable on May 31, 2020. The repayment of the Secured Convertible Promissory Note
is secured by a first priority security interest in the ‘right to own’ and subsequent to the exercise thereof, the
property. Bettwork may prepay the Secured Convertible Promissory Note at any time, subject to its obligation to provide us 15 days
prior written notice prior to any prepayment. The Secured Convertible Promissory Note is convertible into shares of Bettwork’s
common stock, at our option, at a conversion price of $1.00, subject to adjustment as provided in the Secured Convertible Promissory
Note, and subject to a 9.99% beneficial ownership limitation. Bettwork also owes us $750,000 under an outstanding promissory
note.
Bettwork
may not timely pay, or may not pay at all, the amounts due pursuant to the terms of the Secured Notes and promissory note. In
the event that Bettwork fails to pay the amount due under the Secured Notes, we may be forced to attempt to foreclose on the
assets securing the notes and/or enter into litigation against Bettwork, seeking the payment of the amount due. In the event
that Bettwork does not have sufficient capital to pay the amounts due, we may be forced to accept a lesser amount of funding
from Bettwork. Additionally, in the event that we are forced to foreclose on the assets securing the Secured Notes, such
assets may not have a value equal to the amount owed under the notes and further, there may not be any other buyers for such
assets. In the event we convert the amount due under the Secured Notes into common stock of Bettwork, such conversion may be
at a premium to the market value of Bettwork’s common stock and there may be no market or liquidity for
Bettwork’s common stock. In the event of the occurrence of any of the above described events, and/or in the event
Bettwork fails to repay the promissory note, we may not have sufficient cash flow for our operations, may be forced to expend
significant resources in litigation and/or in attempting to enforce our security interest over the assets, which may have a
material adverse effect on our results of operations, our ability to maintain any future listing we secure on a national
stock exchange, and/or cause the value of our common stock to decline in value. As of February 28, 2018, the August 2017
Secured Note and promissory note have been reserved. The August 2017 Secured Note
has been reserved with deferred revenue of $2,900,000 and the $750,000 promissory note has been reserved with bad debt
expense. The $1.6 million Secured Convertible Promissory Note was entered into after February 28, 2018.
If
we are not able to complete software interfaces with our property owners, managers and distributors, in a timely manner, our business
is susceptible to shortfalls in revenues due to delays in remitting our ALRs to distributors and/or ALRs not being available for
bookings or distribution.
The
Company contracts with property owners and managers to list their ALRs on the Company’s system. Those ALRs will be populated
into the system through an application programming interface (API) from the property owner and/or manager to the Company. If the
technology of the API is inadequate, erroneous or corrupted, the Company may incur delays in populating the ALRs into the Company’s
system until the issues related to their API are corrected. These delays could cause delays in realizing revenues from bookings
from those additional ALRs.
Also,
the Company plans to provide its ALRs to distributors who will allow its customers to book those ALRs. The Company plans to make
those ALRs available to distributors through its own API. If the technology of the distributor cannot write the correct program
to request the ALRs from the Company’s operating system, the Company may incur delays in making the ALRs available to the
distributor until the issues are resolved and the correct program is written by the distributor. These delays could cause delays
in realizing revenues from bookings from those ALRs.
If
we are unable to attract and maintain a critical mass of alternative lodging rental (ALR ) listings and travelers, whether due
to competition or other factors, our marketplace will become less valuable to property owners and managers and to travelers, and
it could significantly decrease our ability to generate revenue and net income in the future.
We
anticipate that moving forward, most of our revenue will be generated when ALRs are booked by either customers to our website
or, by customers to distributors we provide ALRs to (“
Distributors
”). Our revenue will be the difference between
the funds received from our customers and distributors versus the net amount owed to the property owner / manager at the time
of booking. Accordingly, our success primarily depends on our ability to attract owners, managers and travelers to NextTrip.com,
Maupintour.com and to Distributors. If property owners and managers choose not to market their ALRs through our websites, or instead
list them with a competitor, we may be unable to offer a sufficient supply and variety of ALRs to attract travelers to our websites.
Similarly, our volume of new and renewal listings may suffer if we are unable to attract travelers to our websites or, to the
Distributors. As a result of any of these events, the perceived usefulness of our online marketplace and the relationships with
Distributors may decline, and, consequently, it could significantly decrease our ability to generate revenue and net income in
the future. As a result, the value of our securities may decline in value or become worthless.
Currently
pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or
settlements.
From
time to time, we are involved in lawsuits, regulatory inquiries and may be involved in governmental and other legal proceedings
arising out of the ordinary course of our business. Many of these matters raise difficult and complicated factual and legal issues
and are subject to uncertainties and complexities. The timing of the final resolutions to these types of matters is often uncertain.
Additionally, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of
which could require substantial payments, adversely affecting our results of operations and liquidity.
Our
business will depend substantially on property owners and managers renewing their listings.
Our
business will depend substantially on property owners and managers renewing their listings. Significant declines in our listing
renewals could harm our expected operating results. Property owners and managers will generally market their vacation rentals
on our websites with no obligation to renew. We may be unable to predict future listing renewal rates accurately, and our renewal
rates may decline materially or fluctuate as a result of a number of factors. These factors include property owners’ decisions
to sell or to cease renting their properties, their decisions to use the services of our competitors, or their dissatisfaction
with our pricing, products, services or websites. Property owners and managers may not establish or renew listings if we cannot
generate a large number of travelers who book vacation rentals through our marketplace and/or through our distributors. As a result
our revenue may decline and our results of operations may be negatively affected.
If
Distributors are unable to drive customers to their websites and/or we are unable to drive visitors to our websites, from search
engines or otherwise, this could negatively impact transactions on the websites of our Distributor websites as well as our websites
and consequently cause our revenue to decrease.
Many
visitors find the Distributors and our websites by searching for vacation rental information through Internet search engines.
A critical factor in attracting visitors to our websites, and those of our Distributors, is how prominently our Distributors and
we are displayed in response to search queries. Accordingly, we utilize search engine marketing, or SEM, as a means to provide
a significant portion of our visitor acquisition. SEM includes both paid visitor acquisition (on a cost-per-click basis) and unpaid
visitor acquisition, which is often referred to as organic search.
We
will employ search engine optimization, or SEO to acquire visitors. SEO involves developing our websites in order to rank highly
in relevant search queries. In addition to SEM and SEO, we may also utilize other forms of marketing to drive visitors to our
websites, including branded search, display advertising and email marketing.
The
various search engine providers, such as Google and Bing, employ proprietary algorithms and other methods for determining which
websites are displayed for a given search query and how highly websites rank. Search engine providers may change these methods
in a way that may negatively affect the number of visitors to our Distributors’ websites as well as our own websites and
may do so without public announcement or detailed explanation. Therefore, the success of our SEO and SEM strategy depends, in
part, on our ability to anticipate and respond to such changes in a timely and effective manner.
In
addition, websites must comply with search engine guidelines and policies. These guidelines and policies are complex and may change
at any time. If we or our Distributors fail to follow such guidelines and policies properly, the search engine may cause our content
to rank lower in search results or could remove the content altogether. If we or our Distributors fail to understand and comply
with these guidelines and policies and ensure our websites’ compliance, our SEO and SEM strategy may not be successful.
If
our Distributors or we are listed less prominently or fail to appear in search result listings for any reason, including as a
result of our failure to successfully execute our SEO and SEM strategy, it is likely that we will acquire fewer visitors to our
websites. Fewer visitors to our websites could lead to property owners and managers becoming dissatisfied with our websites, as
well as fewer travelers inquiring and booking through our websites, either or both of which could adversely impact our revenue.
We may not be able to replace this traffic in a cost-effective manner from other channels, such as cost-per-click SEM or display
or other advertising, or even at all. Any attempt to replace this traffic through other channels may increase our sales and marketing
expenditures, which could adversely affect our operating results.
Unfavorable
changes in, or interpretations of, government regulations or taxation of the evolving alternative lodging rental (ALR), Internet
and e- commerce industries could harm our operating results.
We
have contracted for ALRs in markets throughout the world, in jurisdictions which have various regulatory and taxation requirements
that can affect our operations or regulate the rental activity of property owners and managers.
Compliance
with laws and regulations of different jurisdictions imposing different standards and requirements is very burdensome because
each region has different regulations with respect to licensing and other requirements for ALRs. Our online marketplaces are accessible
by property owners, managers and travelers in many states and foreign jurisdictions. Our efficiencies and economies of scale depend
on generally uniform treatment of property owners, managers and travelers across all jurisdictions. Compliance requirements that
vary significantly from jurisdiction to jurisdiction impose added costs and increased liabilities for compliance deficiencies.
In addition, laws or regulations that may harm our business could be adopted, or interpreted in a manner that affects our activities,
including but not limited to the regulation of personal and consumer information and real estate licensing requirements. Violations
or new interpretations of these laws or regulations may result in penalties, negatively impact our operations and damage our reputation
and business.
In
addition, regulatory developments may affect the ALR industry and the ability of companies like us to list those vacation rentals
online. For example, some municipalities have adopted ordinances that limit the ability of property owners and managers to rent
certain properties for fewer than 30 consecutive days and other cities may introduce similar regulations. Some cities also have
fair housing or other laws governing whether and how properties may be rented, which they assert apply to ALR. Many homeowners,
condominium and neighborhood associations have adopted rules that prohibit or restrict short-term vacation rentals. In addition,
many of the fundamental statutes and regulations that impose taxes or other obligations on travel and lodging companies were established
before the growth of the Internet and e-commerce, which creates a risk of these laws being used, in ways not originally intended,
that could burden property owners and managers or otherwise harm our business. These and other similar new and newly interpreted
regulations could increase costs for, or otherwise discourage, owners and managers from listing their property with us, which
could harm our business and operating results.
From
time to time, we may become involved in challenges to, or disputes with government agencies regarding, these regulations. We may
not be successful in defending against the application of these laws and regulations. Further, if we were required to comply with
regulations and government requests that negatively impact our relations with property owners, managers and travelers, our business,
operations and financial results could be adversely impacted.
Additionally,
new, changed, or newly interpreted or applied tax laws, statutes, rules, regulations or ordinances could increase our property
owners’ and managers’ and our compliance, operating and other costs. This, in turn, could deter property owners and
managers from renting their ALR properties, negatively affect our new listings and renewals, or increase costs of doing business.
Any or all of these events could adversely impact our business and financial performance.
Furthermore,
as we expand or change the products and services that we offer or the methods by which we offer them, we may become subject to
additional legal regulations, tax requirements or other risks. Regulators may seek to impose regulations and requirements on us
even if we utilize third parties to offer the products or services. These regulations and requirements may apply to payment processing,
insurance products or the various other products and services we may now or in the future offer or facilitate through our marketplace.
Whether we comply with or challenge these additional regulations, our costs may increase and our business may otherwise be harmed.
If
we are not able to maintain and enhance our NextTrip brand and the brands associated with each of our websites, our reputation
and business may suffer.
It
is important for us to maintain and enhance our brand identity in order to attract and retain property owners, managers, distributors
and travelers. The successful promotion of our brands will depend largely on our marketing and public relations efforts. We expect
that the promotion of our brands will require us to make substantial investments, and, as our market becomes more competitive,
these branding initiatives may become increasingly difficult and expensive. In addition, we may not be able to successfully build
our NextTrip brand identity without losing value associated with, or decreasing the effectiveness of, our other brand identities.
If we do not successfully maintain and enhance our brands, we could lose traveler traffic, which could, in turn, cause property
owners and managers to terminate or elect not to renew their listings with us. In addition, our brand promotion activities may
not be successful or may not yield revenue sufficient to offset their cost, which could adversely affect our reputation and business.
Our
long-term success depends, in part, on our ability to expand our property owner, manager and traveler bases outside of the United
States and, as a result, our business is susceptible to risks associated with international operations.
We
have limited operating and e-commerce experience in many foreign jurisdictions and are making significant investments to build
our international operations. We plan to continue our efforts to expand globally, including acquiring international businesses
and conducting business in jurisdictions where we do not currently operate. Managing a global organization is difficult, time
consuming and expensive and any international expansion efforts that we undertake may not be profitable in the near or long term
or otherwise be successful. In addition, conducting international operations subjects us to risks that include:
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the
cost and resources required to localize our services, which requires the translation
of our websites and their adaptation for local practices and legal and regulatory requirements;
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adjusting
the products and services we provide in foreign jurisdictions, as needed, to better address
the needs of local owners, managers, distributors and travelers, and the threats of local
competitors;
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being
subject to foreign laws and regulations, including those laws governing Internet activities,
email messaging, collection and use of personal information, ownership of intellectual
property, taxation and other activities important to our online business practices, which
may be less developed, less predictable, more restrictive, and less familiar, and which
may adversely affect financial results in certain regions;
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competition
with companies that understand the local market better than we do or who have pre-existing
relationships with property owners, managers, distributors and travelers in those markets;
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legal
uncertainty regarding our liability for the transactions and content on our websites,
including online bookings, property listings and other content provided by property owners
and managers, including uncertainty resulting from unique local laws or a lack of clear
precedent of applicable law;
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lack
of familiarity with and the burden of complying with a wide variety of other foreign
laws, legal standards and foreign regulatory requirements, including invoicing, data
collection and storage, financial reporting and tax compliance requirements, which are
subject to unexpected changes;
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laws
and business practices that favor local competitors or prohibit or limit foreign ownership
of certain businesses;
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challenges
associated with joint venture relationships and minority investments;
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adapting
to variations in foreign payment forms;
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difficulties
in managing and staffing international operations and establishing or maintaining operational
efficiencies;
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difficulties
in establishing and maintaining adequate internal controls and security over our data
and systems;
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currency
exchange restrictions and fluctuations in currency exchange rates;
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potentially
adverse tax consequences, which may be difficult to predict, including the complexities
of foreign value added tax systems and restrictions on the repatriation of earnings;
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increased
financial accounting and reporting burdens and complexities and difficulties in implementing
and maintaining adequate internal controls;
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political,
social and economic instability abroad, war, terrorist attacks and security concerns
in general;
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the
potential failure of financial institutions internationally;
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reduced
or varied protection for intellectual property rights in some countries; and
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higher
telecommunications and Internet service provider costs.
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Operating
in international markets also requires significant management attention and financial resources. We cannot guarantee that our
international expansion efforts in any or multiple territories will be successful. The investment and additional resources required
to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability and could
instead result in increased costs.
The
market in which we participate is highly competitive, and we may be unable to compete successfully with our current or future
competitors.
The
market to provide listing, search and marketing services for the ALR industry is very competitive and highly fragmented. In addition,
the barriers to entry are low and new competitors may enter. All of the services that we plan to provide to property owners, managers
and travelers, including listing and search, are provided separately or in combination by current or potential competitors. Our
competitors may adopt aspects of our business model, which could reduce our ability to differentiate our services. Additionally,
current or new competitors may introduce new business models or services that we may need to adopt or otherwise adapt to in order
to compete, which could reduce our ability to differentiate our business or services from those of our competitors. Furthermore,
properties in the ALR industry are not typically marketed exclusively through any single channel, and our listing agreements are
not typically exclusive. Accordingly, our competitors could aggregate a set of listings similar to ours. Increased competition
could result in a reduction in revenue, rate of new listing acquisition, existing listings or market share.
There
are thousands of vacation rental listing websites that compete directly with us for listings, travelers, or both, such as Booking.com,
HomeAway.com, Airbnb, and TripAdvisor. Many of these competitors offer free or heavily discounted listings or focus on a particular
geographic location or a specific type of rental property. Some of them also aggregate property listings obtained through various
sources, including the websites of property managers some of whom will also market their properties on our websites.
Competitors
also operate websites directed at the wider fragmented travel lodging market, such as Airbnb and HomeAway by listing either rooms
or the owner’s primary home. These properties increase both the number of rental opportunities available to travelers and
the competition for the attention of the traveler. Some vacation rental property owners and managers also list on these websites,
and consequently these companies currently compete with us to some extent.
We
will also compete with online travel agency websites, such as Expedia, Hotels.com, Kayak, Priceline, Booking.com, Orbitz and Travelocity,
which have traditionally provided comprehensive travel services and some of whom are now expanding into the vacation rental category.
We also compete with large Internet search companies, such as craigslist, eBay, Google, MSN.com and Yahoo!, which provide listing
or advertising services in addition to a wide variety of other products or services. In addition, some competitors, such as Perfect
Places, Inc., Atraveo and eDomizil, predominately serve the professional property manager marketplace, and therefore have the
ability to create more products and features targeted to property managers. Hotels, corporate travel providers, travel metasearch
engines, travel content aggregators, mobile platform travel applications, social media websites, and even mobile computing hardware
providers all also have the potential to increase their competitive presence in the areas of our business as well.
We
believe we will compete primarily on the basis of the quantity and quality of our listings, the quality of the direct relationships
we have with distributors, property owners and managers, the volume of expected travelers who will visit our websites, the global
diversity of the vacation rentals available on our websites, the quality of our websites, the tools provided to our distributors,
property owners and managers to assist them with their business, customer service, brand identity, the success of our marketing
programs, and price. If current or potential property owners, managers, distributors or travelers choose to use any of these competitive
offerings in lieu of ours, our revenue could decrease and we could be required to make additional expenditures to compete more
effectively. Any of these events or results could harm our business, operating results and financial condition.
In
addition, most of our current or potential competitors are larger and have more resources than we do. Many of our current and
potential competitors enjoy substantial competitive advantages, such as greater name recognition in their markets, longer operating
histories and larger marketing budgets, as well as substantially greater financial, technical and other resources. In addition,
our current or potential competitors may have access to larger property owner, manager or traveler bases. As a result, our competitors
may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or owner,
manager or traveler requirements. Furthermore, because of these advantages, existing and potential owners, managers, distributors
and travelers might accept our competitors’ offerings, even if they may be inferior to ours. For all of these reasons, we
may not be able to compete successfully against our current and future competitors.
If
the businesses and/or assets that we have acquired or invested in do not perform as expected or we are unable to effectively integrate
acquired businesses, our operating results and prospects could be harmed.
We
have four platforms, a library of travel footage, an equity investment in RealBiz Media Group, Inc. and land in Belize to be developed
into vacation rentals. The businesses we have acquired, or invested in, may not perform as well as we expect. Failure to manage
and successfully integrate recently acquired businesses and technologies could harm our operating results and our prospects. If
the companies we have invested in do not perform well, our investments could become impaired and our financial results could be
negatively impacted.
Our
mergers and acquisitions involve numerous risks, including the following:
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difficulties
in integrating and managing the combined operations, technologies, technology platforms
and products of the acquired companies and realizing the anticipated economic, operational
and other benefits in a timely manner, which could result in substantial costs and delays
or other operational, technical or financial problems;
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legal
or regulatory challenges or post-acquisition litigation, which could result in significant
costs or require changes to the businesses or unwinding of the transaction;
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failure
of the acquired company or assets to achieve anticipated revenue, earnings or cash flow;
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diversion
of management’s attention or other resources from our existing business;
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our
inability to maintain key distributors and business relationships, and the reputations
of acquired businesses;
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uncertainty
resulting from entering markets in which we have limited or no prior experience or in
which competitors have stronger market positions;
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our
dependence on unfamiliar affiliates and partners of acquired businesses;
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unanticipated
costs associated with pursuing acquisitions;
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liabilities
of acquired businesses, which may not be disclosed to us or which may exceed our estimates,
including liabilities relating to non-compliance with applicable laws and regulations,
such as data protection and privacy controls;
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difficulties
in assigning or transferring to us or our subsidiaries intellectual property licensed
to companies we acquired;
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difficulties
in maintaining our internal standards, controls, procedures and policies including financial
reporting requirements of the Sarbanes-Oxley Act of 2002 and extending these controls
to acquired companies;
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potential
loss of key employees of the acquired companies;
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difficulties
in complying with antitrust and other government regulations;
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challenges
in integrating and auditing the financial statements of acquired companies that have
not historically prepared financial statements in accordance with U.S. generally accepted
accounting principles; and
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potential
accounting charges to the extent intangibles recorded in connection with an acquisition,
such as goodwill, trademarks, customer relationships or intellectual property, are later
determined to be impaired and written down in value.
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Moreover,
we rely heavily on the representations and warranties provided to us by the sellers of acquired companies and assets, including
as they relate to creation, ownership and rights in intellectual property, existence of open source software and compliance with
laws and contractual requirements. If any of these representations and warranties are inaccurate or breached, such inaccuracy
or breach could result in costly litigation and assessment of liability for which there may not be adequate recourse against such
sellers, in part due to contractual time limitations and limitations of liability.
If
we are unable to introduce new or upgraded products, services or features that distributors, travelers or property owners and
managers recognize as valuable, we may fail to (i) drive additional travelers to the websites of our distributors, (ii) drive
additional travelers to our websites, (iii) retain existing property owners and managers, (iv) attract new property owners and
managers, (v) retain existing distributors, and/or (vi) attract new distributors. Our efforts to develop new and upgraded services
and products could require us to incur significant costs.
In
order to attract travelers to (i) our distributors, as well as (ii) our own online marketplace while retaining, and attracting
new, distributors, property owners and managers, we will need to continue to invest in the development of new products, services
and features that both add value for travelers, distributors, property owners and managers and differentiate us from our competitors.
The success of new products, services and features depends on several factors, including the timely completion, introduction and
market acceptance of the product, service or feature. If travelers, distributors, property owners or managers do not recognize
the value of our new services or features, they may choose not to utilize our products or list on our online marketplace.
Attempting
to develop and deliver these new or upgraded products, services or features involves inherent hazards and difficulties, and is
costly. Efforts to enhance and improve the ease of use, responsiveness, functionality and features of our existing websites have
inherent risks, and we may not be able to manage these product developments and enhancements successfully. We may not succeed
in developing new or upgraded products, services or features or new or upgraded products, services or features may not work as
intended or provide value. In addition, some new or upgraded products, services or features may be difficult for us to market
and may also involve unfavorable pricing. Even if we succeed, we cannot guarantee that our property owners and managers will respond
favorably.
In
addition to developing our own improvements, we may choose to license or otherwise integrate applications, content and data from
third parties. The introduction of these improvements imposes costs on us and creates a risk that we may be unable to continue
to access these technologies and content on commercially reasonable terms, or at all. In the event we fail to develop new or upgraded
products, services or features, the demand for our services and ultimately our results of operations may be adversely affected.
We
have a relatively limited operating history and we operate in a rapidly evolving industry, which makes it difficult to evaluate
our current business and future prospects. If we fail to predict the manner in which our business will perform or how the market
will develop, our business and prospects may suffer materially.
Our
limited operating history, together with our rapidly changing industry, may make it difficult to evaluate our current business
and our future prospects. We have encountered, and will continue to encounter, risks and difficulties frequently experienced by
growing companies in rapidly changing industries. These include challenges in accurate financial planning and forecasting as we
develop new products or strategic plans with little or no historical reference as a basis for such planning and forecasting. Our
business and prospects should be considered in light of the risks and difficulties we may encounter as a company operating in
a highly competitive environment where changes to our business, plans, and products may be required to respond to such changes.
In
addition, the market for online ALR is relatively new and, in many territories, is unproven with little data or research available
regarding the market and industry. It is uncertain whether the ALR market in many territories will continue to develop or if our
services will achieve and sustain a level of demand and market acceptance sufficient for us to generate revenue, net income and
cash flow growth, at anticipated levels or at all; we may need to focus on, or offer, different types of products and services
in order to remain competitive. Our success will depend, to a substantial extent, on the willingness of property owners and managers
to use commercial online rental property listing services. Some property managers have developed (and use) their own proprietary
online listing services and, therefore, may be reluctant or unwilling to use our services to market their properties. Furthermore,
some travelers and property owners and managers may be reluctant or unwilling to use online listing services because of concerns
regarding the security of data, the potential for fraudulent activity, including phishing, or the integrity of the online marketplace.
If property owners and managers do not perceive the benefits of marketing their properties online, then our market may not develop
as we expect, or it may develop more slowly than we expect, either of which could significantly harm our business and operating
results. Moreover, our success will depend on travelers’ use of our distributors, as well as our own, online marketplace
to search, locate and rent vacation rentals, which will depend on their willingness to use the Internet and their belief in the
integrity of the websites. In addition, since we operate in unproven and unstudied markets, we have limited insight into trends
that may develop in those markets and may affect our business. We may make errors in predicting and reacting to other relevant
business trends, which could harm our business.
Changes
in our effective tax rate could harm our future operating results.
We
are subject to federal and state income taxes in the United States and in various foreign jurisdictions. Our provision for income
taxes and our effective tax rate are subject to volatility and could be adversely affected by several circumstances, including:
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earnings
being lower than anticipated in countries that have lower tax rates and higher than anticipated
in countries that have higher tax rates;
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effects
of certain non-tax deductible expenses;
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changes
in the valuation of our deferred tax assets and liabilities;
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transfer
pricing adjustments, including the effect of acquisitions on our intercompany research
and development cost sharing arrangement and legal structure;
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adverse
outcomes resulting from any tax audit;
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our
ability to utilize our net operating losses and other deferred tax assets; and
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changes
in accounting principles or changes in tax laws and regulations, or the application of
the tax laws and regulations, including possible U.S. changes to the deductibility of
expenses attributable to foreign income, or the foreign tax credit rules.
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Significant
judgment is required in the application of accounting guidance relating to uncertainty in income taxes. If tax authorities challenge
our tax positions and any such challenges are settled unfavorably, it could adversely impact our provision for income taxes.
We
are exposed to fluctuations in currency exchange rates.
Because
we plan to conduct a significant portion of our business outside the United States but report our results in U.S. dollars, we
face exposure to adverse movements in currency exchange rates, which may cause our revenue and operating results to differ materially
from expectations. In addition, fluctuation in our mix of U.S. and foreign currency denominated transactions may contribute to
this effect as exchange rates vary. Moreover, as a result of these exchange rate fluctuations, revenue, cost of revenue, operating
expenses and other operating results may differ materially from expectations when translated from the local currency into U.S.
dollars upon consolidation. For example, if the U.S. dollar strengthens relative to foreign currencies our non-U.S. revenue would
be adversely affected when translated into U.S. dollars. Conversely, a decline in the U.S. dollar relative to foreign currencies
would increase our non-U.S. revenue when translated into U.S. dollars. We may enter into hedging arrangements in order to manage
foreign currency exposure but such activity may not completely eliminate fluctuations in our operating results.
Our
business depends on retaining and attracting capable management and operating personnel.
Our
success depends in large part on our ability to attract and retain high-quality management and operating personnel, as well as
skilled technical and marketing personnel, who are in high demand and are often subject to competing offers. Competition for qualified
employees is intense in our industry, and the loss of even a few qualified employees, or an inability to attract, retain and motivate
additional highly skilled employees required for the planned expansion of our business could harm our operating results and impair
our ability to grow. To attract and retain key personnel, we use various measures, including an equity incentive program and incentive
bonuses for executive officers and other key employees. While we attempt to provide additional or different incentive compensation
tools to mitigate this impact, the measures we employ to attract and maintain key personnel may not be effective enough to enable
us to attract and retain the personnel we require to operate our business effectively.
If
we lose the services of our key personnel, including William Kerby, our Chief Executive Officer, our business would be materially
and adversely affected. Furthermore, we do not have “
key person
” life insurance, and we do not presently intend
to purchase such insurance, on Mr. Kerby or any of our other key personnel. We believe that our success is substantially dependent
upon: (1) our ability to retain and motivate our senior management team and other key employees; and (2) our ability to identify,
attract, hire, train, retain and motivate other qualified personnel. The development of our business and operations is dependent
upon the efforts and talents of our executive officers, whose extensive experience and contacts within the industries in which
we wish to compete are a critical component of our business strategy. We may not be successful in retaining the services of any
of the members of our senior management team or other key personnel, or in hiring qualified technical, managerial, marketing and
administrative personnel. If we do not succeed in retaining our employees and in attracting new employees, our business could
suffer significantly.
The
employment agreements of our officers include limited non-solicitation and non-compete provisions and provide for severance pay
upon termination of such agreements for certain reasons.
William
Kerby, our Chairman and Chief Executive Officer, entered into an employment agreement, dated October 15, 2006 and earns an annual
base salary of $375,000. He may also, as determined by the Board of Directors (or an authorized committee thereof), receive a
year-end performance bonus. The agreement has automatic renewal periods of four years each, and is currently in place until October
14, 2018. In the event the agreement is terminated by the Company with notice of non-renewal, the Company is required to pay Mr.
Kerby all salary earned up until the date of termination, plus three months’ severance. The Agreement is also terminated
upon the death or disability (i.e., he is unable to perform duties for a period of 120 days out of any 180 day period) of Mr.
Kerby, and can be terminated by the Company for cause (gross negligence, willful misconduct, willful nonfeasance, material breach,
conviction following final disposition of any available appeal of a felony or pleading guilty to or no contest to any felony)
or without cause, and by Mr. Kerby for good reason (i.e., in the event the Company breaches any term of the agreement) or for
no reason. In the event Mr. Kerby’s employment is terminated due to Mr. Kerby’s death, the Company is required to
continue to pay his salary to his estate for a period of six months. In the event Mr. Kerby’s employment is terminated due
to Mr. Kerby’s disability, the Company is required to continue to pay Mr. Kerby’s salary for the greater of two years
or the period until disability insurance benefits furnished by the Company, if any, begin. In the event Mr. Kerby terminates his
employment for good reason or the Company terminates his employment without cause, the Company is required to continue to pay
Mr. Kerby’s salary and benefits for the remainder of the then term. In the event the Company terminates his employment for
cause, Mr. Kerby is due his salary through the termination date. The agreement includes non-solicitation and non-competition clauses,
prohibiting him from soliciting customers and clients of the Company or otherwise interfering with the Company’s employees
for a period of six months from the date of termination, and prohibiting him from competing against the Company anywhere in the
United States, for a period of three months from the date of termination, respectively, provided that the non-competition provision
is voided in the event of the non-renewal of the agreement, in the event Mr. Kerby terminates his employment for good reason,
in the event the Company terminates the agreement other than for cause, and certain other reasons described in greater detail
in the agreement.
Omar
Jimenez, our Chief Financial Officer and Chief Operating Officer, entered into an employment agreement, dated January 4, 2016,
and earns an annual base salary of $325,000, and he is eligible for cash or common stock bonuses at the discretion of the board
of directors. If the agreement is terminated by Mr. Jimenez for good reason (as defined in the agreement) or by the Company without
cause, and other than due to Mr. Jimenez’s death or disability, Mr. Jimenez is due two calendar months of severance pay;
if the agreement is terminated due to Mr. Jimenez’s disability, Mr. Jimenez, is due compensation through the remainder of
the month during which he was terminated. The agreement includes a one year non-solicitation and non-competition clause following
the date of the termination of the agreement, which non-competition clause prohibits him (without the prior written consent of
the Company which consent will not be unreasonably withheld) from directly or through another person or another entity carrying
on or being engaged in any business within North America which is competitive with the business of the Company, however the non-compete
shall terminate in the event of a termination of employment by Mr. Jimenez for good reason or a termination by the Company other
than for cause or disability.
The
automatic renewal feature of the agreements may prevent us from terminating the employment of such officers, the non-solicitation
and non-compete provisions may not provide us adequate protection from such persons competing with us after their termination,
and the severance pay payable to such individuals may make it costly to terminate the employment of such individuals, make us
less attractive for potential acquirers or prevent a change of control.
If
we fail to protect confidential information against security breaches, or if distributors, property owners, managers or travelers
are reluctant to use our online marketplace because of privacy or security concerns, we might face additional costs, and activity
on our websites could decline.
We
collect and use personally identifiable information of distributors, property owners, managers and travelers in the operation
of our business. Our systems may be vulnerable to computer viruses or physical or electronic break-ins that our security measures
may not detect. Anyone that is able to circumvent our security measures could misappropriate confidential or proprietary information,
cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business.
We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security
breaches of our systems, or even the systems of third parties we rely upon, such as credit card processors, could damage our reputation
and expose us to litigation and possible liability under various laws and regulations. In addition, industry-wide incidents, or
incidents specific to us, could deter people from using our distributors’, as well as, our online marketplaces. Concern
among distributors, property owners, managers and travelers regarding our use of personal information collected on our websites
could keep them from using, or continuing to use, our online marketplace.
There
are risks of security breaches both on our own systems and on third party systems which store our information as we increase the
types of technology we use to operate our marketplace, such as mobile applications. New and evolving technology systems and platforms
may involve security risks that are difficult to predict and adequately guard against. In addition, third parties that process
credit card transactions between us and property owners and managers maintain personal information collected from them. Such information
could be stolen or misappropriated, and we could be subject to liability as a result. Further, property owners and managers may
develop a lack of confidence in these third parties or in their ability to securely conduct credit card transactions on our distributors’
websites, our websites or the Internet in general, which could adversely impact our business, revenue and operating results. Our
property owners, managers and travelers may be harmed by such breaches and we may in turn be subject to costly litigation or regulatory
compliance costs, and harm to our reputation and brand. Moreover, some property owners, managers and travelers may cease using
our marketplace altogether.
The
laws of some states and countries require businesses that maintain personal information about their residents in electronic databases
to implement reasonable measures to keep that information secure. Our practice is to encrypt all sensitive information, but we
do not know whether our current practice will be challenged under these laws. In addition, under certain of these laws, if there
is a breach of our computer systems and we know or suspect that unencrypted personal data has been stolen, we are required to
inform any user whose data was stolen, which could harm our reputation and business. Complying with the applicable notice requirements
in the event of a security breach could result in significant costs. We may also be subject to contractual claims, investigation
and penalties by regulatory authorities, and claims by persons whose information was disclosed.
Compounding
these legal risks, many states and countries have enacted different and often contradictory requirements for protecting personal
information collected and maintained electronically. Compliance with these numerous and contradictory requirements is particularly
difficult for us because we collect personal information from users in multiple jurisdictions. While we intend to comply fully
with these laws, failure to comply could result in legal liability, cause us to suffer adverse publicity and lose business, traffic
and revenue. If we were required to pay any significant amount of money in satisfaction of claims under these or similar laws,
or if we were forced to cease our business operations for any length of time as a result of our inability to comply fully, our
business, operating results and financial condition could be adversely affected.
In
addition, third parties may target users of our websites directly with attempts to breach the security of their email accounts
or management systems, such as through phishing attacks, which are fraudulent identity theft schemes designed to appear as legitimate
emails from us or from our property owners and managers. Criminals may also employ other schemes aimed at defrauding our property
owners, managers or travelers in ways that we may not anticipate or be able to adequately guard against. Although phishing attacks
and other fraud schemes are generally not carried out through our systems, victims may nevertheless seek recovery from us. As
a result, we may be required to defend ourselves in costly litigation and may suffer harm to our reputation, brand and business.
In
the event any of the above risks were to occur our reputation could be harmed, we and/or our distributors could lose either website
traffic or users and as a result, our results of operations and the value of our securities could be adversely affected.
If
we are unable to adapt to changes in technology, our business could be harmed.
Because
property owners, managers and travelers can access our websites using a variety of hardware and software platforms, we will need
to continuously modify and enhance our service to keep pace with related technological changes. We may not be successful in developing
necessary, functional and popular modifications and enhancements. Furthermore, uncertainties about the timing and nature of these
necessary changes could result in unplanned research and development expenses. In addition, any failure of our online marketplace
to operate effectively with future technologies could result in dissatisfaction from travelers, distributors, property owners,
and managers, any of which could harm our business.
We
may be subject to liability for the activities of our property owners and managers, which could harm our reputation and increase
our operating costs.
We
may receive complaints related to certain activities on our websites, including disputes over the authenticity of an ALR listing.
We may be subject to claims of liability for unauthorized use of credit card and/or bank account information, identity theft,
phishing attacks, potential breaches of system security, libel, and infringement of third-party copyrights, trademarks or other
intellectual property rights. Fraud may be purported by owners or managers listing properties which either do not exist or are
significantly not as described in the listing. The methods used by perpetrators of fraud constantly evolve and are complex. Moreover,
our trust and security measures may not detect all fraudulent activity. Consequently, we expect to receive complaints from travelers
and requests for reimbursement of their rental fees, as well as actual or threatened related legal action against us in the usual
course of business.
We
may also be subject to claims of liability based on events that occur during travelers’ stays at ALRs, including those related
to robbery, injury, death, and other similar incidents. These types of claims could increase our operating costs and adversely
affect our business and results of operations, even if these claims do not result in liability, as we incur costs related to investigation
and defense. The available terms and conditions of our websites specifically state that we are exempt from any liability to travelers
relating to these matters. However, the enforceability of these terms varies from jurisdiction to jurisdiction, and the laws in
this area are consistently evolving. If we are subject to liability or claims of liability relating to the acts of our property
owners or managers, or due to fraudulent listings, we may be subject to negative publicity, incur additional expenses and be subject
to liability, any of which could harm our business and our operating results.
Loss
or material modification of our credit card acceptance privileges could have a material adverse effect on our business and operating
results. Credit card acceptance privileges involve additional potential costs relating to reimbursements and fraud.
The
loss of our credit card acceptance privileges could significantly limit the availability and desirability of our products and
services. Moreover, if we fail to fully perform our contractual obligations we could be obligated to reimburse credit card companies
for refunded payments that have been contested by the cardholders. In addition, even when we are in compliance with these obligations,
we bear other expenses including those related to the acceptance of fraudulent credit cards. As a result of all of these risks,
credit card companies may require us to set aside additional cash reserves, may increase the transaction fees they charge us,
or may even refuse to renew our acceptance privileges.
In
addition, credit card networks, such as Visa, MasterCard and American Express, have adopted rules and regulations that apply to
all merchants who process and accept credit cards and include the Payment Card Industry Data Security Standards, or the PCI DSS.
Under these rules, we are required to adopt and implement internal controls over the use, storage and security of card data. We
assess our compliance with the PCI DSS rules on a periodic basis and make necessary improvements to our internal controls. Failure
to comply may subject us to fines, penalties, damages and civil liability and could prevent us from processing or accepting credit
cards. However, we cannot guarantee that compliance with these rules will prevent illegal or improper use of our payments systems
or the theft, loss or misuse of the credit card data.
The
loss of, or the significant modification of, the terms under which we obtain credit card acceptance privileges could have a material
adverse effect on our business, revenue and operating results.
Our
revenue, expenses and operating results could be negatively affected by changes in travel, real estate and ALR markets, as well
as general economic conditions.
Our
business is particularly sensitive to trends in the travel, real estate and vacation rental markets, which are unpredictable,
as well as trends in the general economy. Therefore, our operating results, to the extent they reflect changes in the broader
travel, real estate and vacation rental industries, may be subject to significant fluctuations. For example, changes in the travel
industry, such as disruptions caused by war, terrorist attacks, natural disasters, weather, bankruptcies or diseases could significantly
reduce the willingness of potential travelers to plan vacation and other travel. Such disruptions that harm or destroy vacation
homes could cause the property owners and managers of such homes to cancel or fail to renew their listings. Downturns in real
estate markets may result in decreased new building rates and increases in foreclosures, which could also result in fewer vacation
rentals available for listing. Also, since vacation travel is generally dependent on discretionary spending, negative general
economic conditions could significantly reduce the overall amount that travelers spend on vacation travel.
Additionally,
property owners may choose or be forced to sell their vacation rentals during periods of economic slowdown or recession. Any or
all of these factors could reduce the demand for vacation rentals and our services, thereby reducing our revenue. This in turn
could increase our need to make significant expenditures to continue to attract distributors, property owners, managers and travelers
to our websites.
Vacation
rentals are often located in popular vacation destinations around the world and utilized on a seasonal basis. Factors influencing
the desirability of vacation rentals in a particular region or season could adversely affect our ability to obtain new listings
and retain existing listings.
ALRs
are often located in popular vacation destinations and utilized on a seasonal basis. As a result, our listings involve properties
that are often concentrated in particular regions, and our revenue is dependent upon our ability (or willingness) to list properties
in those regions. If we became unable (or unwilling) to list properties in a particular region, our listings in the region could
decline or cease to grow, and revenue and results of operations could be adversely impacted.
In
addition, factors influencing the desirability of ALRs in a particular region or during a specific season could adversely affect
our ability to obtain new listings and retain existing listings. A significant natural disaster, political turmoil or other regional
disturbance could reduce the number of available vacation rentals in that area, reducing our listing base and our revenue. In
addition, if we do not have sufficient property listings in a newly popular vacation destination, we could fail to attract travelers;
consequently, property owners and managers may opt to list their properties with a competitor having a greater presence in that
area.
We
could face liability for transactions and information on (or accessible through) our or, our distributors’, online marketplaces.
A
significant portion of the information available through our and our distributors’ online marketplaces is submitted by property
owners and managers and third parties. Property owners and managers could assert that information concerning them on our websites
contains errors or omissions and third parties could seek damages from us for losses incurred if they rely upon such incorrect
information. We could also be subject to claims that such information is defamatory, libelous, or infringes on third-party copyrights
and privacy and publicity rights. We might be subject to claims that by providing links to third party websites, we are liable
for wrongful actions by those third parties. Even if these claims do not result in liability to us, we could incur significant
costs in investigating and defending against these claims.
In
addition, our services will feature a property review platform, which allows travelers to post property reviews and other information
about properties, property owners and managers. Although this feedback is generated by users and not by us, claims of libel, defamation
or other injury have been made against other Internet service providers offering similar forums and may be made against us for
content posted in this forum. Our potential liability for this information could require us to expend substantial resources to
reduce our liability exposure and may limit the attractiveness of our and our distributors’ online marketplace. Moreover,
our general liability insurance may not cover all potential claims to which we are exposed and may not be adequate to indemnify
us for all liability that may be imposed and as a result we could face significant liability for such claims which could have
a material adverse effect on our cash flows.
Property
owner, distributor, manager or traveler complaints or negative publicity about our company, our services or our business activities
could diminish use of our online marketplace and our brand.
Property
owner, distributor, manager or traveler complaints or negative publicity about our company, our services or our business activities
could severely diminish consumer confidence in and use of our online marketplace and negatively affect our brand. Our measures
to combat risks of fraud and breaches of privacy and security can damage relations with our property owners and managers, for
instance when we remove listings which have repeatedly been reported as misleadingly described. These measures heighten the need
for prompt and accurate customer service to resolve irregularities and disputes. Effective customer service requires significant
personnel expense, and this expense, if not managed properly, could significantly impact our profitability. Failure to manage
or train our customer service representatives properly could compromise our ability to handle property owner, manager and traveler
complaints effectively. If we do not handle these complaints effectively, our reputation may suffer, and we may lose the confidence
of property owners, distributors, managers and travelers. We may also be the subject of blog or forum postings that include inaccurate
statements and create negative publicity. As a result of these complaints or negative publicity, property owners, distributors
and managers may discontinue their listing or services with us or travelers may discontinue their use of our websites, and our
business, brand and results of operations could be adversely impacted.
If
we do not adequately protect our intellectual property, our ability to compete could be impaired.
Our
intellectual property includes the content of our websites, registered domain names, as well as registered and unregistered trademarks.
We believe that our intellectual property is an essential asset of our business and that our domain names and our technology infrastructure
currently give us a competitive advantage in the online market for ALR listings. If we do not adequately protect our intellectual
property, our brand, reputation and perceived content value could be harmed, resulting in an impaired ability to compete effectively.
To
protect our intellectual property we rely on a combination of copyright, trademark, patent and trade secret laws, contractual
provisions and our user policy and restrictions on disclosure. Upon discovery of potential infringement of our intellectual property,
we promptly take action we deem appropriate to protect our rights. We also enter into confidentiality agreements with our employees
and consultants and seek to control access to and distribution of our proprietary information in a commercially prudent manner.
The efforts we have taken to protect our intellectual property may not be sufficient or effective, and, despite these precautions,
it may be possible for other parties to copy or otherwise obtain and use the content of our websites without authorization. We
may be unable to prevent competitors from acquiring domain names or trademarks that are similar to, infringe upon or diminish
the value of our domain names, service marks and our other proprietary rights. Even if we do detect violations and decide to enforce
our intellectual property rights, litigation may be necessary to enforce our rights, and any enforcement efforts we undertake
could be time-consuming, expensive, distracting and result in unfavorable outcomes. A failure to protect our intellectual property
in a cost-effective and meaningful manner could have a material adverse effect on our ability to compete.
Effective
trademark, copyright and trade secret protection may not be available in every country in which our products are available over
the Internet. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual
property rights are uncertain and still evolving.
We
may be subject to claims that we violated intellectual property rights of others, which are extremely costly to defend and could
require us to pay significant damages and limit our ability to operate.
Companies
in the Internet and technology industries, and other patent and trademark holders seeking to profit from royalties in connection
with grants of licenses, own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation
based on allegations of infringement or other violations of intellectual property rights. There may be intellectual property rights
held by others, including issued or pending patents and trademarks, that cover significant aspects of our technologies, content,
branding or business methods. Any intellectual property claim against us, regardless of merit, could be time-consuming and expensive
to settle or litigate and could divert our management’s attention and other resources. These claims also could subject us
to significant liability for damages and could result in our having to stop using technology, content, branding or business methods
found to be in violation of another party’s rights. We might be required or may opt to seek a license for rights to intellectual
property held by others, which may not be available on commercially reasonable terms, or at all. If we cannot license or develop
technology, content, branding or business methods for any allegedly infringing aspect of our business, we may be unable to compete
effectively. Even if a license is available, we could be required to pay significant royalties, which could increase our operating
expenses. We may also be required to develop alternative non-infringing technology, content, branding or business methods, which
could require significant effort and expense and be inferior. Any of these results could harm our operating results.
We
currently rely on a small number of third-party service providers to host and deliver a significant portion of our services, and
any interruptions or delays in services from these third parties could impair the delivery of our services and harm our business.
We
rely on third-party service providers for numerous products and services, including payment processing services, data center services,
web hosting services, insurance products for customers and travelers and some customer service functions. We rely on these companies
to provide uninterrupted services and to provide their services in accordance with all applicable laws, rules and regulations.
We
use a combination of third-party data centers to host our websites and core services. We do not control the operation of any of
the third-party data center facilities we use. These facilities may be subject to break-ins, computer viruses, denial-of-service
attacks, sabotage, acts of vandalism and other misconduct. They are also vulnerable to damage or interruption from power loss,
telecommunications failures, fires, floods, earthquakes, hurricanes, tornadoes and similar events. We currently do not have a
comprehensive disaster recovery plan in place nor do our systems provide complete redundancy of data storage or processing. As
a result, the occurrence of any of these events, a decision by our third-party service providers to close their data center facilities
without adequate notice or other unanticipated problems could result in loss of data as well as a significant interruption in
our services and harm to our reputation and brand. Additionally, our third-party data center facility agreements are of limited
durations, and our third-party data center facilities have no obligation to renew their agreements with us on commercially reasonable
terms, or at all. If we are unable to renew our agreements with these facilities on commercially reasonable terms, we may experience
delays in the provisioning of our services until an agreement with another data center facility can be arranged. This shift to
alternate data centers could take more than 24 hours depending on the nature of the event.
Furthermore,
we depend on continuous and uninterrupted access to the Internet through third-party bandwidth providers to operate our business.
If we lose the services of one or more of our bandwidth providers for any reason or if their services are disrupted, we could
experience disruption in our services or we could be required to retain the services of a replacement bandwidth provider, which
could harm our business and reputation.
Our
operations are dependent on the availability of electricity, which also comes from third-party providers. If we or the third-party
data center facilities that we use to deliver our services were to experience a major power outage, it could result in disruption
of our services and harm to our business.
If
these companies experience difficulties and are not able to provide services in a reliable and secure manner, if they do not operate
in compliance with applicable laws, rules and regulations and, with respect to payment and card processing companies, if they
are unable to effectively combat the use of fraudulent payments on our websites, our results of operations and financial positions
could be materially and adversely affected. In addition, if such third-party service providers were to cease operations or face
other business disruption either temporarily or permanently, or otherwise face serious performance problems, we could suffer increased
costs and delays until we find or develop an equivalent replacement, any of which could have an adverse impact on our business
and financial performance.
Our
processing, storage, use and disclosure of personal data will expose us to risks of internal or external security breaches and
could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal
privacy rights.
The
security of data when engaging in electronic commerce is essential in maintaining consumer and supplier confidence in our services.
Substantial or ongoing security breaches whether instigated internally or externally on our systems or other internet based systems
could significantly harm our future business. It is possible that advances in computer circumvention capabilities, new discoveries
or other developments, including our own acts or omissions, could result in a compromise or breach of customer transaction data.
We
cannot guarantee that our security measures will prevent security breaches or attacks. A party (whether internal, external, an
affiliate or unrelated third party) that is able to circumvent our security systems could steal customer information or transaction
data, proprietary information or cause significant interruptions in our operations. For instance, from time to time, companies
have experienced “
denial-of-service
” type attacks that have made portions of websites slow or unavailable for
periods of time. We may need to expend significant resources to protect against security breaches or to address problems caused
by breaches, and reductions in website availability and response time could cause loss of substantial business volumes during
the occurrence of any such incident. Security breaches could result in negative publicity, damage our reputation, expose us to
risk of loss or litigation and possible liability and subject us to regulatory penalties and sanctions. Security breaches could
also cause customers and potential customers to lose confidence in our security, which would have a negative effect on the value
of our brand.
We
also face risks associated with security breaches affecting third parties conducting business over the Internet. Consumers generally
are concerned with security and privacy on the Internet, and any publicized security problems could inhibit the growth of the
Internet and, therefore, our services as a means of conducting commercial transactions. Additionally, security breaches at third
parties such as supplier or distributor systems upon which we may rely could result in negative publicity, damage our reputation,
expose us to risk of loss or litigation and possible liability and subject us to regulatory penalties and sanctions.
In
our processing transactions, we expect to receive a large volume of personally identifiable data but, we will not store personally
identifiable data. We could be adversely affected if legislation or regulations are expanded to require changes in our business
practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect
our business, results of operations and financial condition.
Our
websites may encounter technical problems and service interruptions.
Our
websites may in the future experience slower response times or interruptions as a result of increased traffic or other reasons.
These delays and interruptions resulting from failure to maintain Internet service connections to our site could frustrate visitors
and reduce our future web site traffic, which could have a material adverse effect on our business.
If
we do not successfully implement any acquisition strategies, our operating results and prospects could be harmed.
We
face competition within our industry for acquisitions of businesses, technologies and assets, and, in the future, such competition
may become more intense. As such, even if we are able to identify an acquisition that we would like to consummate, we may not
be able to complete the acquisition on commercially reasonable terms or at all because of such competition. Furthermore, if we
enter into negotiations that are not ultimately consummated, those negotiations could result in diversion of management time and
significant out-of-pocket costs. Even if we are able to complete such acquisitions, we may additionally expend significant amounts
of cash or incur substantial debt to finance them, which indebtedness could result in restrictions on our business and use of
available cash. In addition, we may finance or otherwise complete acquisitions by issuing equity or convertible debt securities,
which could result in dilution of our existing stockholders. If we fail to evaluate and execute acquisitions successfully, we
may not be able to realize their benefits. If we are unable to successfully address any of these risks, our business, financial
condition or operating results could be harmed.
If
we fail to maintain effective internal controls, it could adversely affect our financial position and lower our stock price.
We
are subject to reporting and other obligations under the Exchange Act, including the requirements of the Sarbanes-Oxley Act. These
provisions require annual management assessments of the effectiveness of our internal controls over financial reporting. We also
operate in a complex environment and expect these obligations, together with our rapid growth and expansion through acquisitions,
to place significant demands on our management and administrative resources, including accounting and tax resources. If we are
unable to conclude that our internal control over financial reporting is effective, our investors could lose confidence in the
accuracy and completeness of our financial reports.
Shareholders
may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of additional
shares of our common stock.
Wherever
possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe
that the non-cash consideration will consist of restricted shares of our common stock or where shares are to be issued to our
officers, directors and applicable consultants, free trading shares pursuant to Form S-8 registration statements. Our Board of
Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares
of common stock. In addition, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to
market. These actions will result in dilution of the ownership interests of existing shareholders, which may further dilute common
stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability
to maintain control of the Company because the shares may be issued to parties or entities committed to supporting existing management.
We
have significant indebtedness, which could adversely affect our business and financial condition.
As
of February 28, 2018, the aggregate face value of our draws on a line of credit amounted to $1.193 million. Risks relating to
our indebtedness include:
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increasing
our vulnerability to general adverse economic and industry conditions;
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requiring
us to dedicate a portion of our cash flow from operations to principal and interest payments
on our indebtedness, thereby reducing the availability of cash flow to fund working capital,
capital expenditures, acquisitions and investments and other general corporate purposes;
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making
it more difficult for us to optimally capitalize and manage the cash flow for our businesses;
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limiting
our flexibility in planning for, or reacting to, changes in our businesses and the markets
in which we operate;
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possibly
placing us at a competitive disadvantage compared to our competitors that have less debt;
and
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limiting
our ability to borrow additional funds or to borrow funds at rates or on other terms
that we find acceptable.
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William
Kerby (our CEO and Chairman) and Donald P. Monaco (our Director), together own approximately 29% of our voting securities which
gives them significant influence over the affairs of our Company.
William
Kerby (CEO and Chairman) and Donald P. Monaco (Director), collectively control approximately 29% of our voting securities which
gives them significant voting control over our Company. In addition to the above, pursuant to a Voting Agreement entered into
in August 2017, Mark A. Wilton, who holds 11.3% of our outstanding common stock agreed 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. As a result of the ownership described
above, Messrs. Kerby and Monaco have significant influence in matters affecting our stockholders and significant control in determining
the outcome of corporate transactions or other matters, including the election of directors, mergers, consolidations, the sale
of all or substantially all of our assets, and also the power to prevent or cause a change in control.
Because
we are a small company, the requirements of being a public company, including compliance with the reporting requirements of the
Exchange Act and the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act, may strain our resources, increase our costs
and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
As
a public company with listed equity securities, we must comply with the federal securities laws, rules and regulations, including
certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act and the Dodd-Frank Act, related
rules and regulations of the SEC, with which a private company is not required to comply. Complying with these laws, rules and
regulations will occupy a significant amount of time of our directors and management and will significantly increase our costs
and expenses, which we cannot estimate accurately at this time. Among other things, we must:
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establish
and maintain a system of internal control over financial reporting in compliance with
the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations
of the SEC and the Public Company Accounting Oversight Board;
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prepare
and distribute periodic public reports in compliance with our obligations under the federal
securities laws;
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maintain
various internal compliance and disclosures policies, such as those relating to disclosure
controls and procedures and insider trading in our common stock;
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involve
and retain to a greater degree outside counsel and accountants in the above activities;
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maintain
a comprehensive internal audit function; and
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maintain
an investor relations function.
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In
addition, being a public company subject to these rules and regulations may require us to accept less director and officer liability
insurance coverage than we desire or to incur substantial costs to obtain coverage. These factors could also make it more difficult
for us to attract and retain qualified members of our Board of Directors.
Risks
Related to the Ownership of our Common Stock
Nevada
law and our Articles of Incorporation authorize us to issue shares of stock, which shares may cause substantial dilution to our
existing stockholders.
We
have authorized capital stock consisting of 500,000,000 shares of common stock, $0.00001 par value per share and 100,000,000 shares
of preferred stock, $0.00001 par value per share. As of the date of this report, we have 8,152,656 shares of common stock issued
and outstanding and no shares of preferred stock issued and outstanding. As a result, our Board of Directors has the ability to
issue a large number of additional shares of common stock and/or to affect a reverse stock split, without stockholder approval,
and if additional shares are issued, it could cause substantial dilution to our then stockholders. Additionally, shares of preferred
stock may be issued by our Board of Directors without stockholder approval with voting powers, and such preferences and relative,
participating, optional or other special rights and powers as determined by our Board of Directors, which may be greater than
the shares of common stock currently outstanding. As a result, shares of preferred stock may be issued by our Board of Directors
which cause the holders to have super majority voting power over our shares, provide the holders of the preferred stock the right
to convert the shares of preferred stock they hold into shares of our common stock, which may cause substantial dilution to our
then common stock stockholders and/or have other rights and preferences greater than those of our common stock stockholders. Investors
should keep in mind that the Board of Directors has the authority to issue additional shares of common stock and preferred stock,
which could cause substantial dilution to our existing stockholders. Additionally, the dilutive effect of any preferred stock,
which we may issue may be exacerbated given the fact that such preferred stock may have super majority voting rights and/or other
rights or preferences which could provide the preferred stockholders with voting control over us subsequent to this offering and/or
give those holders the power to prevent or cause a change in control. As a result, the issuance of shares of common stock and/or
preferred stock may cause the value of our securities to decrease and/or become worthless.
Our
outstanding warrants may adversely affect the trading price of our common stock.
As of the date of this report, there were (i) outstanding warrants to purchase 971,941 shares of common stock
at a weighted average exercise price of $5.29 per share. For the life of the warrants, the holders have the opportunity to profit
from a rise in the market price of our common stock without assuming the risk of ownership. The issuance of shares upon the exercise
of outstanding securities will also dilute the ownership interests of our existing stockholders.
The
availability of these shares for public resale, as well as any actual resales of these shares, could adversely affect the trading
price of our common stock. We cannot predict the size of future issuances of our common stock pursuant to the exercise of outstanding
options or warrants or conversion of other securities, or the effect, if any, that future issuances and sales of shares of our
common stock may have on the market price of our common stock. Sales or distributions of substantial amounts of our common stock
(including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the market
price of our common stock to decline.
Our
stock price may be volatile.
The
market price of our common stock is likely to be volatile and could be subject to wide fluctuations in response to, among other
things, the risk factors described in this section of this Annual Report, and other factors beyond our control. Factors affecting
the trading price of our common stock could include:
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variations
in our operating results;
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variations
in operating results of similar companies and competitors;
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changes
in the estimates of our operating results or changes in recommendations by any securities
analysts that elect to follow our common stock;
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changes
in our outlook for future operating results which are communicated to investors and analysts;
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announcements
of technological innovations, new products, services or service enhancements, strategic
alliances or agreements by us or by our competitors;
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marketing
and advertising initiatives by us or our competitors;
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the
increase or decrease of listings;
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threatened
or actual litigation;
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changes
in our management;
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recruitment
or departures of key personnel;
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market
conditions in our industry, the travel industry and the economy as a whole;
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the
overall performance of the equity markets;
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sales
of shares of our common stock by existing stockholders;
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the
reports of industry research analysts who cover our competitors and us;
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stock-based
compensation expense under applicable accounting standards; and
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adoption
or modification of regulations, policies, procedures or programs applicable to our business.
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Furthermore,
the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of
equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance
of those companies. These broad market and industry fluctuations and general economic, political and market conditions, such as
recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our common
stock regardless of our actual operating performance. Each of these factors, among others, could harm the value of our common
stock.
In
the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class
action litigation; we are currently the target of this type of litigation. Securities litigation against us, regardless of the
merits or outcome, could result in substantial costs and divert our management’s attention from other business concerns,
which could materially harm our business.
If
securities analysts and other industry experts do not publish research or publish negative research about our business, our stock
price and trading volume could decline.
The
trading market for our common stock depends in part on the research, reports and other media that securities analysts and other
industry experts publish about us or our business. If security analysts don’t cover our stock, downgrade our stock or publish
negative research about our business, our stock price could decline. If analysts do not cover us in the future, cease coverage
of our company or fail to publish reports on us regularly, we could lose visibility in the stock market and demand for our stock
could decrease, which could cause our stock price or trading volume to decline. If one or more industry analysts publish negative
statements about our business, our stock price could decline.
Failure
to adequately manage our growth may seriously harm our business.
We
plan to grow our business as rapidly as possible. If we do not effectively manage our growth, the quality of our services may
suffer, which could negatively affect our reputation and demand for our services. Our growth may place a significant strain on
our managerial, administrative, operational, and financial resources and our infrastructure. Our future success will depend, in
part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:
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implement
additional management information systems;
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further
develop our operating, administrative, legal, financial, and accounting systems and controls;
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hire
additional personnel;
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develop
additional levels of management within our company;
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locate
additional office space;
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maintain
close coordination among our engineering, operations, legal, finance, sales and marketing,
and client service and support organizations; and
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manage
our expanding international operations.
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As
a result, we may lack the resources to deploy our services on a timely and cost-effective basis. Failure to accomplish any of
these requirements could impair our ability to deliver services in a timely fashion or attract and retain new customers.
We
do not anticipate paying any dividends on our common stock.
We
do not anticipate paying any cash dividends on our common stock in the foreseeable future. If we do not pay cash dividends, our
stockholders could receive a return on their investment in our common stock only if the market price of our common stock has increased
when they sell their shares.
Our
incorporation documents and Nevada law may inhibit a takeover that stockholders consider favorable and could also limit the market
price of our common stock, which may inhibit an attempt by our stockholders to change our direction or management.
Nevada
law and our articles of incorporation contain provisions that could delay or prevent a change in control of our Company. Some
of these provisions include the following:
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authorize
our board of directors to determine the rights, preferences, privileges and restrictions
granted to, or imposed upon, the preferred stock and to fix the number of shares constituting
any series and the designation of such series without further action by our stockholders;
and
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Prohibit
cumulative voting in the election of directors, which would otherwise allow less than
a majority of stockholders to elect director candidates.
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These
and other provisions in our articles of incorporation, as amended, and under Nevada law could reduce the price that investors
might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would
be without these provisions. Furthermore, these provisions may inhibit an attempt by our stockholders to change our direction
or management.
We
adopted provisions in our amended and restated articles of incorporation limiting the liability of management to stockholders.
We
have adopted provisions, and will maintain provisions, to our amended and restated articles of incorporation that limit the liability
of our directors, and provide for indemnification by us of our directors and officers to the fullest extent permitted by Nevada
law. Our amended and restated articles of incorporation and Nevada law provide that directors have no personal liability to third
parties for monetary damages for actions taken as a director, except for breach of duty of loyalty, acts or omissions not in good
faith involving intentional misconduct or knowing violation of law, unlawful payment of dividends or unlawful stock repurchases,
or transactions from which the director derived improper personal benefit. Such provisions limit the stockholders’ ability
to hold directors liable for breaches of fiduciary duty and reduce the likelihood of derivative litigation against directors and
officers.
Our
Common Stock may be delisted from the Nasdaq Capital Market if we cannot satisfy Nasdaq’s continued listing requirements.
Among the conditions required for continued listing on the Nasdaq Capital Market, Nasdaq requires us to maintain
at least $2.5 million in stockholders’ equity or $500,000 in net income over the prior two years or two of the prior three
years, to have a majority of independent directors, and to maintain a stock price over $1.00 per share. As of the date of this
report, our stockholders’ equity is not above Nasdaq’s $2.5 million minimum. Additionally, moving forward, we may not
generate over $500,000 of yearly net, we may not be able to maintain independent directors, and we may not be able to maintain
a stock price over $1.00 per share. If we fail to timely comply with the applicable requirements, and/or to timely cure the deficiency
in our stockholders’ equity, our stock may be delisted. In addition, even if we demonstrate compliance with the requirements
above, we will have to continue to meet other objective and subjective listing requirements to continue to be listed on the Nasdaq
Capital Market. Delisting from the Nasdaq Capital Market could make trading our common stock more difficult for investors, potentially
leading to declines in our share price and liquidity. Without a Nasdaq Capital Market listing, stockholders may have a difficult
time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock would likely be made more difficult
and the trading volume and liquidity of our stock could decline. Delisting from the Nasdaq Capital Market could also result in
negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may
adversely affect the acceptance of our common stock as currency or the value accorded by other parties. Further, if we are delisted,
we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements
could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the
secondary market. If our common stock is delisted by Nasdaq, our common stock may be eligible to trade on an over-the-counter quotation
system, such as the OTCQB market, where an investor may find it more difficult to sell our stock or obtain accurate quotations
as to the market value of our common stock. In the event our common stock is delisted from the Nasdaq Capital Market, we may not
be able to list our common stock on another national securities exchange or obtain quotation on an over-the counter quotation system.
If
we are delisted from the Nasdaq Capital Market, your ability to sell your shares of our common stock could also be limited by
the penny stock restrictions, which could further limit the marketability of your shares.
If
our common stock is delisted, it could come within the definition of “
penny stock
” as defined in the Exchange
Act and would then be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers
who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9,
the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement
to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness
of broker-dealers to sell our securities, and accordingly would affect the ability of stockholders to sell their securities in
the public market. These additional procedures could also limit our ability to raise additional capital in the future.
Due
to the fact that our common stock is listed on the Nasdaq Capital Market, we are subject to financial and other reporting and
corporate governance requirements which increase our costs and expenses.
We
are currently required to file annual and quarterly information and other reports with the Securities and Exchange Commission
that are specified in Sections 13 and 15(d) of the Exchange Act. Additionally, due to the fact that our common stock is listed
on the Nasdaq Capital Market, we are also subject to the requirements to maintain independent directors, comply with other corporate
governance requirements and are required to pay annual listing and stock issuance fees. These obligations require a commitment
of additional resources including, but not limited, to additional expenses, and may result in the diversion of our senior management’s
time and attention from our day-to-day operations. These obligations increase our expenses and may make it more complicated or
time consuming for us to undertake certain corporate actions due to the fact that we may require Nasdaq approval for such transactions
and/or Nasdaq rules may require us to obtain shareholder approval for such transactions.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
The
Company leases its office space and certain office equipment under non-cancellable operating leases. Our executive, administrative
and operating offices are primarily located in Weston, Florida where we leased approximately 2,500 square feet of office space
at 2690 Weston Road, Suite 200, Weston, Florida 33331. In accordance with the terms of the office space lease agreement, the Company
was renting the commercial office space, for a term of three years from January 1, 2016 through December 31, 2018. Monthly rental
costs for calendar years 2016, 2017 and 2018 are $6,500, $6,695 and $6,896, respectively per month. The rent for the years ended
February 28, 2018 and February 28, 2017 was $79,864 and $79,665, respectively.
The
office lease described above terminated early on March 31, 2018, at the request of the landlord, without penalties to the Company.
The Company entered into a new contract for new office space encompassing approximately 2,500 square feet at 2893 Executive Park
Drive Suite 201, Weston, Florida 33331. The lease has a term of three years from April 15, 2018 through April 14, 2021. Monthly
rental costs for the periods ending April 14, 2019, 2020 and 2021 are $6,243, $6,492 and $6,781, respectively.
Item
3. Legal Proceedings
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 alleged 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 alleged was due to it), ‘mistake or error’, ‘unclean hands’, ‘waiver’,
‘release’, ‘breach of contract’ (we alleged 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 was predicated was rescinded shortly after its issuance and was of no force or effect). The Counterclaim
against RealBiz alleged causes of action including ‘unjust enrichment’ (we alleged that the net amount due to us from
RealBiz was in excess of $10 million dollars if there is no oral agreement), ‘money had and received’, and ‘breach
of contract’ (we alleged there was an oral agreement that all intercompany balances would be written–off), and sought
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.
On
December 22, 2017, we entered into a Settlement Agreement with RealBiz, NestBuilder and AST for the dismissal with prejudice of
this lawsuit (as discussed below).
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, however, the
defendant’s wrongfully refused to register the transfers in violation of the Delaware Code and the terms of RealBiz’s
preferred and common stock.
On
December 22, 2017, we entered into a Settlement Agreement with RealBiz, NestBuilder and AST for the dismissal with prejudice of
this lawsuit (as discussed below).
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 RealBiz 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 sought 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 to obtain damages
for terminating and cancelling our stock.
On
December 22, 2017, we entered into a Settlement Agreement with RealBiz, NestBuilder and AST for the dismissal with prejudice of
this lawsuit (as discussed below).
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. 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. On March 30, 2017, we filed a Reply memorandum in support of our Motion to Dismiss. On January 24, 2018,
the Court granted our Motion to Dismiss and dismissed Plaintiff’s complaint and gave Plaintiff leave to file an amended
complaint. On February 23, 2018, Mcleod, joined by new plaintiff, Ronald Mims, filed an Amended Complaint with the same allegations
of security fraud as alleged in the original complaint. On March 29, 2018, we filed a Motion to Dismiss Plaintiffs’ Amended
Complaint. 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.
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 was, 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 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 was no longer a shareholder of RealBiz, and 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
(the “
Florida Action
”).
On
December 22, 2017, we entered into a Settlement Agreement with RealBiz, NestBuilder and AST for the dismissal with prejudice of
this lawsuit (as discussed below).
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 was for damages for breaching their fiduciary duties to
Monaker and the action against AST was for aiding and abetting those breaches. The suit alleged 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 alleged 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 alleged that AST aided and abetted the Defendants
Directors in converting and eliminating Monaker’s beneficial ownership in RealBiz securities.
On
December 22, 2017, we entered into a Settlement Agreement with RealBiz, NestBuilder and AST for the dismissal with prejudice of
the following lawsuits:
Case Number 1:16-cv-61017-FAM; Case No.: CACE-16-019818; Case No.: 16-24978-CIV-GRAHAM; Case No.: C.A
2017-0189; Case No.: 2017-0351 and Case No.: 2017-0189-JRS.
As part of the Settlement Agreement, Monaker agreed to pay NestBuilder
$100,000 and to issue 20,000 shares of Monaker’s restricted common stock to person(s) to be designated by NestBuilder; RealBiz
reinstated to Monaker 44,470,101 shares of RealBiz Series A Convertible Preferred Stock and ratified all rights under the Certificate
of Designation as reformed and amended (to provide for a conversion ratio of 1 share of RealBiz common stock for each 1 share
of RealBiz Series A preferred stock) and remove any dividend obligations. The RealBiz designation was also amended to provide
us with anti-dilution protection below $0.05 per share. The agreement further provided for each party to dismiss the above referenced
lawsuits with prejudice and for general releases from each party.
The
Company is unable to determine the estimate of the probable or reasonable possible loss or range of losses arising from the above
unsettled and dismissed 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 a $450,943 credit to stock compensation in May 2017 as a result of the settlement.
Item
4. Mine Safety Disclosures
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
The
following table and biographical summaries set forth information, including principal occupation and business experience for at
least the last five years, about our directors and executive officers. The terms of all the directors, as identified below, will
run until their successors are elected and qualified or until their earlier resignation or removal.
Name
|
|
Age
|
|
Position
|
|
Officer
and/or
Director
Since
|
William
Kerby
|
|
60
|
|
Chief
Executive Officer and Chairman
|
|
2008
|
Omar
Jimenez
|
|
56
|
|
Chief
Financial Officer, Chief Operating Officer, Treasurer and Secretary and Director
|
|
2016
|
Pat
LaVecchia
|
|
51
|
|
Director
|
|
2011
|
Donald
P. Monaco
|
|
65
|
|
Director
|
|
2012
|
Doug
Checkeris
|
|
62
|
|
Director
|
|
2012
|
Simon
Orange
|
|
50
|
|
Director
|
|
2017
|
Robert
Post
|
|
56
|
|
Director
|
|
2017
|
Management
and Director Biographies
:
William
Kerby – Chief Executive Officer and Chairman
William
Kerby is the Founder, Chairman, and CEO of Monaker Group, Inc. From July 2008 to present, he has been the architect of the Monaker
model, overseeing the development and operations of the Company’s Travel, Real Estate and Television Media divisions. In
October 2012, Monaker transferred its real estate assets into a public company - RealBiz Media Group, Inc., where Mr. Kerby served
as CEO until August 2015 and on the Board until April of 2016. In July 2015, the decision was made to separate the Television
and Real Estate operations from Monaker thereby allowing management to focus all efforts on the development of its travel operations.
From April 2002 to July 2008, Mr. Kerby served as the CEO of various media and travel entities that ultimately became part of
Extraordinary Vacations Group. Operations included Cruise & Vacation Shoppes, Maupintour Extraordinary Vacations, Attaché
Travel and the Travel Magazine - a TV series of 160 travel shows. From February 1999 to April 2002, Mr. Kerby founded and managed
Travelbyus, a publicly-traded company on the TSX and NASD Small Cap. The launch included an intellectually patented travel model
that utilized technology-based marketing to promote its travel services and products. Mr. Kerby negotiated the acquisition and
financing of 21 companies encompassing multiple tour operators, 2,100 travel agencies, media that included print, television,
outdoor billboard and wireless applications and leading edge technology in order to build and complete the Travelbyus model. The
company had over 500 employees, gross revenues exceeding $3 billion and a Market Cap over $900 million. From June 1989 to January
1999, Mr. Kerby founded and grew Leisure Canada – a company that included the Master Franchise for Thrifty Car Rental British
Columbia, TravelPlus (a nationwide Travel Agency), Bluebird Holidays (an international tour company with operations in the U.S.,
Canada, Great Brittan, France, South Africa and the South Pacific) and Canadian Traveler (a travel magazine). Leisure Canada was
acquired in May 1998 by Wilton Properties, a Canadian company developing hotel and resort properties in Cuba. From October 1980
through June 1989, Mr. Kerby worked in the financial industry as an investment advisor. Mr. Kerby graduated from York University
in May 1980 with a Specialized Honors Economics degree. We selected Mr. Kerby to serve on our Board because he brings to the board
extensive knowledge of the travel industry. Having served in senior corporate positions in many travel related companies, he has
a vast knowledge of the industry.
Omar
Jimenez – Chief Financial Officer, Chief Operating Officer, Treasurer, Secretary, and Director
In
January 2017, the Board of Directors of the Company appointed Omar Jimenez as a member of the Board of Directors. On September
19, 2016, Mr. Jimenez was appointed by the Board of Directors of the Company to the positions of Treasurer and Secretary of the
Company. In January 2016, the Board of Directors of the Company appointed Omar Jimenez to the position of Chief Financial Officer
and Chief Operating Officer of the Company. Mr. Jimenez has held a variety of senior financial management positions during his
career. From May 2009 to January 2016, he served as the founder of MARMEL International, Inc., a company that provides accounting
and consulting services. In addition, from June 2004 to May 2009 he served as President and Chief Financial Officer at American
Leisure Holdings, Inc., focusing on leisure and business travel, hospitality & hotels, call centers and real estate development.
Mr. Jimenez also served from April 2002 to June 2004 as Director of Operations for US Installation Group, Inc., a selling and
installation group for The Home Depot, and CFO and VP of Onyx Group, Inc., a conglomerate with 700 employees and annual revenues
exceeding $400 million. Mr. Jimenez is a Certified Public Accountant (CPA), Chartered Global Management Accountant (CGMA), Chartered
Property Casualty Underwriter (CPCU), a Member of the AICPA and FICPA. Mr. Jimenez holds a B.B.A in Accounting and a B.B.A in
Finance from the University of Miami and an M.B.A from Florida International University.
Pat
LaVecchia – Director
Pat
LaVecchia has served as a member of the Board of Directors since 2011. Mr. LaVecchia has been a founding principal and Managing
Member of LaVecchia Capital LLC (“
LaVecchia Capital
”), a merchant banking and investment firm, since 2007 and
has over 20 years of experience in the financial industry. Mr. LaVecchia has built and run several major Wall Street groups and
has extensive expertise in capital markets, including initial public offerings, secondary offerings, raising capital for private
companies and PIPEs as well as playing the leading role in numerous mergers, acquisitions, private placements and high yield transactions.
Prior to forming LaVecchia Capital, Mr. LaVecchia ran several groups at major firms including: Managing Director and Head of the
Private Equity Placement Group at Bear, Stearns & Company (1994 to 1997); Group Head of Global Private Corporate Equity Placements
at Credit Suisse First Boston (1997 to 2000); Managing Director and Group Head of the Private Finance and Sponsors Group at Legg
Mason Wood Walker, Inc (2001 to 2003); co-founder and Managing Partner of Viant Group (2003-2005) and Managing Director and Head
of Capital Markets at FTN Midwest Securities Corp. (2005 to 2007). Mr. LaVecchia received his B.A., magna cum laude (and elected
to Phi Beta Kappa), from Clark University and an M.B.A. from The Wharton School of the University of Pennsylvania with a major
in Finance and a concentration in Strategic Planning. In the past, Mr. LaVecchia has served on several public company boards,
including as Vice Chairman of InfuSystems, Inc. (INFU). Mr. LaVecchia also served on the RealBiz Media Group, Inc. Board of Directors
from April 2014 until April 2016. Mr. LaVecchia is also currently a managing partner of Sapphire Capital Management. Mr. LaVecchia
also sits on several advisory boards and non-profit boards.
Donald
P. Monaco – Director
Donald
P. Monaco has served as a member of the Board of Directors since August 2011. Mr. Monaco served on the RealBiz Media Group, Inc.
Board of Directors from October 2012 until April 2016. Mr. Monaco is the owner of Monaco Air Duluth, LLC, a full service, fixed-base
operator aviation services business at Duluth International Airport serving airline, military and general aviation customers since
November 2005; a partner in Lark O’ the Lake, LLC since April 2015; and the principal owner of the Duluth Flying Club, LLC
since May 2015. Mr. Monaco also serves as a Commissioner on the Metropolitan Airports Commission in Minneapolis-St. Paul and is
a Director at Republic Bank in Duluth, Minnesota. Mr. Monaco is the President and Chairman of the Monaco Air Foundation, Treasurer
of Honor Flight Northland, Treasurer of the Duluth Aviation Institute, and a member of the Duluth Chamber of Commerce Military
Affairs Committee. Mr. Monaco spent over 18 years as a Partner and Senior Executive and served 28 years as an international information
technology and business management consultant with Accenture in Chicago, Illinois.
Doug
Checkeris – Director
Doug
Checkeris has served as a member of the Board of Directors since September 2012. Mr. Checkeris also served as the Company’s
Chief Marketing Officer from February 2012 to February 2014. Mr. Checkeris is a Senior Media and Advertising Executive with nearly
three decades of hands-on management in all facets of interactive media. Mr. Checkeris’s work experience includes 14 years
of service with Mediacom where he rose through the ranks to become the CEO for Mediacom North America, until recently headquartered
in New York. With close to $18 billion in global billings, 4,600 employees, and 116 offices in 89 countries, Mediacom provides
and specializes in business-building media solutions for some of the world’s largest, well-known advertisers. Previous to
Mediacom, Mr. Checkeris started his career in a media company in Toronto, Canada, and was a partner when the company was acquired
by Grey Worldwide and the WPP. Mr. Checkeris served on the RealBiz Media Group, Inc. Board of Directors from October 2012 until
April 2016.
Simon
Orange – Director
Simon
Orange has served as a member of the Board of Directors since January 2017. Mr. Orange is the founding partner and chairman of
CorpAcq, a corporate acquisitions and investments company located in the United Kingdom. Mr. Orange served as the chairman of
CorpAcq from 2006 to 2009 and from April 2014 to present. At CorpAcq, Mr. Orange is responsible for identifying and negotiating
acquisitions in conjunction with its corporate finance partners, as well as overseeing strategic development, funding, and partnerships.
Following a “
buy and build
” approach, CorpAcq maintains long-term investments in a diverse portfolio of successful
businesses. Currently comprised of 19 portfolio companies, CorpAcq has been recognized as one of the fastest growing enterprises
in the United Kingdom. Mr. Orange has been involved in funding and managing the growth of numerous business ventures, some which
have been acquired by NASDAQ and London Stock Exchange listed companies. He is also a founding member of Cicero Consulting Group,
based in New York City.
Robert
J. Post – Director
Robert
J. Post has served as a member of the Board of Directors since January 2017. Mr. Post has served as Chief Executive Officer of
Cloud5, the largest provider of cloud based telecommunications and high speed Internet to major brands in the hospitality industry,
including Marriott, IHG, Hilton, La Quinta, Motel 6 and Red Roof Inn, since January 2015. He has also served as a member of the
Board of Directors of Cloud5 since January 2015. Mr. Post has served as the Executive Chairman of The Knowland Group, a hospitality
and data analytics company since March 2014. From 2005 to December 2011, Mr. Post served as Chairman, Chief Executive Officer
and Chief Financial Officer of TravelClick, a leading provider of global, hotel e-commerce solutions that supports more than 15,000
customers across 140 countries, including Blackstone, Hilton, Hyatt, Accor, Marriott and Trump. He also previously served as executive
and corporate officer at MICROS Systems, a hospitality technology provider, where he helped lead its secondary NASDAQ offering.
Since 2002, Mr. Post has also operated Pconsulting, providing start-up investment and restructuring services for mid-sized businesses,
including OpenTable.com, HotelBank, and Radiant Systems. Mr. Post served as a member of the Board of Directors of Avatech Solutions,
a publicly reporting company, and served on the Compensation and Audit Finance Committee of that entity, from March 2004 to October
2010. He is a graduate of Wharton’s Advanced Management Program, and earned his Bachelor’s of Science in Business
from Duquesne University.
Family
Relationships amongst Directors and Officers:
There
are no family relationships among our directors, executive officers, or persons nominated or chosen by the Company to become directors
or executive officers.
Arrangements
between Officers and Directors
To
our knowledge, there is no arrangement or understanding between any of our officers and any other person, including directors,
pursuant to which the officer was selected to serve as an officer.
Involvement
in Certain Legal Proceedings
None
of our executive officers or directors has been involved in any of the following events during the past ten years: (1) any bankruptcy
petition filed by or against any business of which such person was a general partner or executive officer either at the time of
the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being a named subject to
a pending criminal proceeding (excluding traffic violations and minor offenses); (3) being subject to any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (4) being
found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have
violated a federal or state securities or commodities law; (5) being the subject of, or a party to, any Federal or State judicial
or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged
violation of (i) any Federal or State securities or commodities law or regulation; (ii) any law or regulation respecting financial
institutions or insurance companies, including, but not limited to, a temporary or permanent injunction, order of disgorgement
or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or (iii)
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or (6) being the subject
of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section (1a)(40) of the Commodity Exchange
Act), or any equivalent exchange, association, entity, or organization that has disciplinary authority over its members or persons
associated with a member.
Committees
of the Board of Directors
Board
Committee Membership
|
Independent
|
Audit
Committee
|
Compensation
Committee
|
Nominating
and
Corporate Governance
Committee
|
William
Kerby (1)
|
|
|
|
|
Omar
Jimenez
|
|
|
|
|
Pat
LaVecchia
|
X
|
C
|
|
M
|
Donald
P. Monaco
|
|
|
|
|
Doug
Checkeris
|
X
|
M
|
M
|
M
|
Simon
Orange
|
X
|
|
C
|
|
Robert
Post
|
X
|
|
|
|
|
|
M
|
|
|
(1)
Chairman of Board of Directors.
C
- Chairman of Committee.
M
- Member.
The
charter for each committee of the Board identified below is available on our website at www.monakergroup.com. Copies of the committee
charters are also available for free upon written request to our Corporate Secretary. Additionally, the committee charters are
incorporated by reference as exhibits to this Annual Report on Form 10-K.
Audit
Committee
The
Audit Committee, which is comprised exclusively of independent directors, has been established by the Board to oversee our accounting
and financial reporting processes and the audits of our financial statements.
The
Board has selected the members of the Audit Committee based on the Board’s determination that the members are financially
literate (as required by NASDAQ rules) and qualified to monitor the performance of management and the independent auditors and
to monitor our disclosures so that our disclosures fairly present our business, financial condition and results of operations.
The
Board has also determined that Mr. Post, is an “
audit committee financial expert
” (as defined in the SEC rules)
because he has the following attributes: (i) an understanding of generally accepted accounting principles in the United States
of America (“
GAAP
”) and financial statements; (ii) the ability to assess the general application of such principles
in connection with accounting for estimates, accruals and reserves; (iii) experience analyzing and evaluating financial statements
that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity
of issues that can reasonably be expected to be raised by our financial statements; (iv) an understanding of internal control
over financial reporting; and (v) an understanding of audit committee functions. Mr. Post has acquired these attributes by means
of having held various positions that provided relevant experience, as described in his biographical above.
The
Audit Committee has the sole authority, at its discretion and at our expense, to retain, compensate, evaluate and terminate our
independent auditors and to review, as it deems appropriate, the scope of our annual audits, our accounting policies and reporting
practices, our system of internal controls, our compliance with policies regarding business conduct and other matters. In addition,
the Audit Committee has the authority, at its discretion and at our expense, to retain special legal, accounting or other advisors
to advise the Audit Committee.
The
Audit Committee was formed on April 18, 2017.
The
Audit Committee Charter is incorporated herein by reference as Exhibit 99.1.
Compensation
Committee
The
Compensation Committee, which is comprised exclusively of independent directors, is responsible for the administration of our
stock compensation plans, approval, review and evaluation of the compensation arrangements for our executive officers and directors
and oversees and advises the Board on the adoption of policies that govern the Company’s compensation and benefit programs.
In addition, the Compensation Committee has the authority, at its discretion and at our expense, to retain special legal, accounting
or other advisors to advise the Compensation Committee.
The
Compensation Committee was formed on April 18, 2017.
The
Compensation Committee Charter is incorporated herein by reference as Exhibit 99.2.
Nominating
and Governance Committee
The
Nominating and Governance Committee, which is comprised exclusively of independent directors, is responsible for identifying prospective
qualified candidates to fill vacancies on the Board, recommending director nominees (including chairpersons) for each of our committees,
developing and recommending appropriate corporate governance guidelines and overseeing the self-evaluation of the Board.
In
considering individual director nominees and Board committee appointments, our Nominating and Governance Committee seeks to achieve
a balance of knowledge, experience and capability on the Board and Board committees and to identify individuals who can effectively
assist the Company in achieving our short-term and long-term goals, protecting our stockholders’ interests and creating
and enhancing value for our stockholders. In so doing, the Nominating and Governance Committee considers a person’s diversity
attributes (e.g., professional experiences, skills, background, race and gender) as a whole and does not necessarily attribute
any greater weight to one attribute. Moreover, diversity in professional experience, skills and background, and diversity in race
and gender, are just a few of the attributes that the Nominating and Governance Committee takes into account. In evaluating prospective
candidates, the Nominating and Governance Committee also considers whether the individual has personal and professional integrity,
good business judgment and relevant experience and skills, and whether such individual is willing and able to commit the time
necessary for Board and Board committee service.
While
there are no specific minimum requirements that the Nominating and Governance Committee believes must be met by a prospective
director nominee, the Nominating and Governance Committee does believe that director nominees should possess personal and professional
integrity, have good business judgment, have relevant experience and skills, and be willing and able to commit the necessary time
for Board and Board committee service. Furthermore, the Nominating and Governance Committee evaluates each individual in the context
of the Board as a whole, with the objective of recommending individuals that can best perpetuate the success of our business and
represent stockholder interests through the exercise of sound business judgment using their diversity of experience in various
areas. We believe our current directors possess diverse professional experiences, skills and backgrounds, in addition to (among
other characteristics) high standards of personal and professional ethics, proven records of success in their respective fields
and valuable knowledge of our business and our industry.
The
Nominating and Governance Committee uses a variety of methods for identifying and evaluating director nominees. The Nominating
and Governance Committee also regularly assesses the appropriate size of the Board and whether any vacancies on the Board are
expected due to retirement or other circumstances. In addition, the Nominating and Governance Committee considers, from time to
time, various potential candidates for directorships. Candidates may come to the attention of the Nominating and Governance Committee
through current Board members, professional search firms, stockholders or other persons. These candidates may be evaluated at
regular or special meetings of the Nominating and Governance Committee and may be considered at any point during the year.
The
Committee evaluates director nominees at regular or special Committee meetings pursuant to the criteria described above and reviews
qualified director nominees with the Board. The Committee selects nominees that best suit the Board’s current needs and
recommends one or more of such individuals for election to the Board.
The
Committee will consider candidates recommended by stockholders, provided the names of such persons, accompanied by relevant biographical
information, and other information as required by the Company’s Bylaws, are properly submitted in writing to the Secretary
of the Company in accordance with the Bylaws and applicable law. The Secretary will send properly submitted stockholder recommendations
to the Committee. Individuals recommended by stockholders in accordance with these procedures will receive the same consideration
received by individuals identified to the Committee through other means. The Committee also may, in its discretion, consider candidates
otherwise recommended by stockholders without accompanying biographical information, if submitted in writing to the Secretary.
The
Nominating and Governance Committee was formed on April 18, 2017.
The
Nominating and Governance Committee Charter is incorporated herein by reference as Exhibit 99.3.
Board
Leadership Structure
Our
Board of Directors has the responsibility for selecting the appropriate leadership structure for the Company. In making leadership
structure determinations, the Board of Directors considers many factors, including the specific needs of the business and what
is in the best interests of the Company’s stockholders. Our current leadership structure is comprised of a combined Chairman
of the Board and Chief Executive Officer (“
CEO
”), Mr. Kerby. The Board of Directors believes that this leadership
structure is the most effective and efficient for the Company at this time. Mr. Kerby possesses detailed and in-depth knowledge
of the issues, opportunities, and challenges facing the Company, and is thus best positioned to develop agendas that ensure that
the Board of Directors’ time and attention are focused on the most critical matters. Combining the Chairman of the Board
and CEO roles promotes decisive leadership, fosters clear accountability and enhances the Company’s ability to communicate
its message and strategy clearly and consistently to our stockholders, particularly during periods of turbulent economic and industry
conditions. The Board believes that its programs for overseeing risk, as described below, would be effective under a variety of
leadership frameworks and therefore do not materially affect its choice of structure.
Risk
Oversight
Effective
risk oversight is an important priority of the Board of Directors. Because risks are considered in virtually every business decision,
the Board of Directors discusses risk throughout the year generally or in connection with specific proposed actions. The Board
of Directors’ approach to risk oversight includes understanding the critical risks in the Company’s business and strategy,
evaluating the Company’s risk management processes, allocating responsibilities for risk oversight, and fostering an appropriate
culture of integrity and compliance with legal responsibilities. The directors exercise direct oversight of strategic risks to
the Company.
Board
of Directors Meetings
During
the fiscal year that ended on February 28, 2018, the Board took all actions via the unanimous written consent of the Board of
Directors; provided that the Board did confer on a regular, frequent and informal basis throughout the year. All directors attended
at least 75% of the Board of Directors meetings during FYE February 28, 2018.
Stockholder
Communications with the Board
In
connection with all other matters other than the nomination of members of our Board of Directors (as described above), our stockholders
and other interested parties may communicate with members of the Board of Directors by submitting such communications in writing
to our Secretary, 2893 Executive Park Drive, Suite 201, Weston, Florida 33331, who, upon receipt of any communication other than
one that is clearly marked “
Confidential
,” will note the date the communication was received, open the communication,
make a copy of it for our files and promptly forward the communication to the director(s) to whom it is addressed. Upon receipt
of any communication that is clearly marked “
Confidential
,” our Secretary will not open the communication,
but will note the date the communication was received and promptly forward the communication to the director(s) to whom it is
addressed. If the correspondence is not addressed to any particular member of the Board of Directors, the communication will be
forwarded to a Board member to bring to the attention of the Board.
Code
of Ethics
We
maintain a Code of Ethics and Code of Business Conduct, which are applicable to all of our directors, officers and employees.
These codes set forth ethical standards to which these persons must adhere and other aspects of accounting, auditing and financial
compliance, as applicable. We undertake to provide a printed copy of these codes free of charge to any person who requests. Any
such request should be sent to our principal executive offices attention: Chief Operating Officer.
We
intend to disclose any amendments to our Code of Ethics and Code of Business Conduct and any waivers with respect to our Code
of Ethics and Code of Business Conduct granted to our principal executive officer, our principal financial officer, or any of
our other employees performing similar functions on our website at www.monakergroup.com, within four business days after the amendment
or waiver. In such case, the disclosure regarding the amendment or waiver will remain available on our website for at least 12
months after the initial disclosure. There have been no waivers granted with respect to our Code of Ethics and Code of Business
Conduct to any such officers or employees to date.
Whistleblower
Protection Policy
On
April 18, 2017, the Company adopted a Whistleblower Protection Policy (“
Whistleblower Policy
”) that applies
to all of its directors, officers, employees, consultants, contractors and agents of the Company. The Whistleblower Policy has
been reviewed and approved by the Board.
COMPLIANCE
WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section
16(a) of the Exchange Act requires our directors and officers, and persons who beneficially own more than 10% of a registered
class of the Registrant’s equity securities, to file reports of beneficial ownership and changes in beneficial ownership
of our securities with the SEC on Forms 3, 4 and 5. Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.
Based
solely upon our review of the Section 16(a) filings that have been furnished to us and representations by our directors and executive
officers (where applicable), we believe that during FYE February 28, 2018, that no director, executive officer, or beneficial
owner of more than 10% of our common stock failed to file a report on a timely basis, except for: Donald P. Monaco, our director,
who inadvertently failed to timely disclose six transactions on Form 4; Robert J. Post, our director, who inadvertently failed
to timely disclose four transactions on Form 4; Omar Jimenez, our Chief Financial Officer, Chief Operating Officer and director,
who inadvertently failed to timely disclose one transaction on Form 4; William Kerby, our Chief Executive Officer and Chairman,
who inadvertently failed to timely disclose four transactions on Form 4; Pat LaVecchia, our director, who inadvertently failed
to timely disclose four transactions on Form 4; Simon Orange, our director, who inadvertently failed to timely disclose three
transaction on Form 4; and Pacific Grove, a greater than 10% shareholder of the Company, which failed to timely disclose its initial
ownership on Form 3 and failed to timely disclose two transactions on Form 4.
Pursuant
to SEC rules, we are not required to disclose in this filing any failure to timely file a Section 16(a) report that has been disclosed
by us in a prior annual report or proxy statement.
Item
11. Executive Compensation
DIRECTOR
AND OFFICER COMPENSATION
The
following table sets forth certain information concerning compensation earned by or paid to certain persons who we refer to as
our “
Named Executive Officers
” for services provided for the fiscal years ended February 28, 2018 and February
28, 2017 (Fiscal 2018 and Fiscal 2017, respectively). Our Named Executive Officers include persons who (i) served as our principal
executive officer or acted in a similar capacity during Fiscal 2018 and 2017, (ii) were serving at fiscal year-end as our two
most highly compensated executive officers, other than the principal executive officer, whose total compensation exceeded $100,000,
and (iii) if applicable, up to two additional individuals for whom disclosure would have been provided as a most highly compensated
executive officer, but for the fact that the individual was not serving as an executive officer at fiscal year-end.
Name
and
Principal
Position
|
|
Fiscal
Year
Ended
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
(a)
|
|
|
Option
Awards
|
|
|
Non-Equity
Inventive Plan Compensation
|
|
|
Nonqualified
Deferred Compensation Earnings
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
William
Kerby, CEO and
Chairman of the Board (1),
(3), (5), (6)
|
|
2018
|
|
|
$
|
375,100
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
39,600
|
|
|
$
|
414,700
|
|
|
|
2017
|
|
|
$
|
306,250
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
39,600
|
|
|
$
|
345,850
|
|
Omar
Jimenez, CFO, COO
and Director (2), (4)
|
|
2018
|
|
|
$
|
325,643
|
|
|
$
|
70,000
|
(8)
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
395,643
|
|
|
|
2017
|
|
|
$
|
231,250
|
|
|
$
|
40,000
|
(8)
|
|
$
|
250,000
|
(7)
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
521,250
|
|
|
(a)
|
The
value of the Stock Awards in the table above was calculated based on the fair value of
such securities calculated in accordance with Financial Accounting Standards Board Accounting
Standards Codification Topic 718.
|
|
(1)
|
William
Kerby is the CEO and Chairman of the Company. Mr. Kerby has been CEO since the inception
of the Company.
|
|
(2)
|
Omar
Jimenez was hired as CFO and COO of the Company on January 21, 2016.
|
|
(3)
|
William
Kerby currently receives an annual base salary of $375,000.
|
|
(4)
|
Omar
Jimenez currently receives a base salary of $325,000.
|
|
(5)
|
William
Kerby receives additional compensation in the form of a Car Allowance in the amount of
$1,200 per month.
|
|
(6)
|
William
Kerby receives additional compensation in the form of a Merchant Banking Guarantee in
the amount of $2,100 per month.
|
|
(7)
|
On
April 19, 2017, we issued Omar Jimenez, the Company’s Chief Financial Officer,
Chief Operating Officer and director, 40,000 shares of restricted common stock valued
at $250,000 or $6.25 per share as bonus compensation for the fiscal year ended February
28, 2017.
|
|
(8)
|
As
of February 28, 2018, Omar Jimenez has accrued an unpaid contractual bonus of $170,000
of which $70,000 was accrued for the year ended February 28, 2018; $40,000 was accrued
for the year ended February 28, 2017; and $60,000 was accrued for periods prior to February
28, 2017, each pursuant to the terms of his employment agreement.
|
Outstanding
Equity Awards at Fiscal Year-End
None.
Employment
Agreements
We
have the following employment contracts in place with our Named Executive Officers:
William
Kerby
William
Kerby entered into an employment agreement, dated October 15, 2006, with the Company. Pursuant to this employment agreement, Mr.
Kerby is employed as the Company’s Chief Executive Officer at an annual base salary of $375,000 per year. He may also, as
determined by the Board of Directors, receive a year-end performance bonus. The initial term of the agreement commenced October
15, 2006, with automatic renewal periods of four years each, which automatically renewed on October 15, 2010 and October 15, 2014,
and is currently in place until October 14, 2018.
In
the event the agreement is terminated by the Company with notice of non-renewal, the Company is required to pay Mr. Kerby all
salary earned up until the date of termination, plus three months’ severance. The Agreement is also terminated upon the
death or disability (i.e., he is unable to perform duties for a period of 120 days out of any 180 day period) of Mr. Kerby, and
can be terminated by the Company for cause (gross negligence, willful misconduct, willful nonfeasance, material breach, conviction
following final disposition of any available appeal of a felony or pleading guilty to or no contest to any felony) or without
cause, and by Mr. Kerby for good reason (i.e., in the event the Company breaches any term of the agreement) or for no reason.
In the event Mr. Kerby’s employment is terminated due to Mr. Kerby’s death, the Company is required to continue to
pay his salary to his estate for a period of six months. In the event Mr. Kerby’s employment is terminated due to Mr. Kerby’s
disability, the Company is required to continue to pay Mr. Kerby’s salary for the greater of two years or the period until
disability insurance benefits furnished by the Company, if any, begin. In the event Mr. Kerby terminates his employment for good
reason or the Company terminates his employment without cause, the Company is required to continue to pay Mr. Kerby’s salary
and benefits for the remainder of the then term. In the event the Company terminates his employment for cause, Mr. Kerby is due
his salary through the termination date. The agreement includes non-solicitation and non-competition clauses, prohibiting him
from soliciting customers and clients of the Company or otherwise interfering with the Company’s employees for a period
of six months from the date of termination, and prohibiting him from competing against the Company anywhere in the United States,
for a period of three months from the date of termination, respectively, provided that the non-competition provision is voided
in the event of the non-renewal of the agreement, in the event Mr. Kerby terminates his employment for good reason, in the event
the Company terminates the agreement other than for cause, and certain other reasons described in greater detail in the agreement.
Omar
Jimenez
Omar
Jimenez has an employment agreement, dated January 21, 2016, with the Company. Mr. Jimenez is employed as the Chief Financial
Officer and Chief Operating Officer of the Company. The employment agreement provides that Mr. Jimenez receives a base salary
for such services at an annual rate of $325,000 per year, and is eligible for cash or common stock bonuses at the discretion of
the board of directors. If the agreement is terminated by Mr. Jimenez for good reason (as defined in the agreement) or by the
Company without cause, and other than due to Mr. Jimenez’s death or disability, Mr. Jimenez is due two calendar months of
severance pay; if the agreement is terminated due to Mr. Jimenez’s disability, Mr. Jimenez, is due compensation through
the remainder of the month during which he was terminated. The agreement includes a one year non-solicitation and non-competition
clause following the date of the termination of the agreement, which non-competition clause prohibits him (without the prior written
consent of the Company which consent will not be unreasonably withheld) from directly or through another person or another entity
carrying on or being engaged in any business within North America which is competitive with the business of the Company, however
that the non-compete shall terminate in the event of a termination of employment by Mr. Jimenez for good reason or a termination
by the Company other than for cause or disability.
STOCK
OPTION PLAN
Other
than the 2017 Equity Incentive Plan, described above under “
Part II
” – “
Item 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
” - “
Equity Incentive Plan
”,
the Company has no Stock Option or Incentive Plans.
DIRECTOR
COMPENSATION TABLE
The
following table sets forth information concerning the total compensation that we have paid or that has accrued on behalf of our
non-executive directors during the fiscal year ended February 28, 2018. Our executive directors do not receive compensation for
their service on the Board of Directors separate from the compensation they receive as an executive officer of the Company, as
described above.
Name
|
|
Fiscal
Year
|
|
|
Fees
Earned
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non
Equity
Incentive
Plan
Comp
|
|
|
Non
Qualified
Deferred
Comp
|
|
|
All
other Compensation
|
|
|
Total
|
|
Pat
LaVecchia,
Director
|
|
2018
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald
P. Monaco, Director
|
|
2018
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doug
Checkeris,
Director
|
|
2018
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simon
Orange,
Director
|
|
2018
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Post,
Director
|
|
2018
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
A
formalized Director Compensation plan has not been approved as of the date of this filing.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
following table sets forth certain information regarding the beneficial ownership of our common stock (there are currently no
shares of preferred stock issued or outstanding) as of the date of this Annual Report by (i) each Named Executive Officer, (ii)
each member of our Board of Directors, (iii) each person deemed to be the beneficial owner of more than five percent (5%) of any
class of our capital stock, and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, each
person named in the following table is assumed to have sole voting power and investment power with respect to all shares of our
common stock listed as owned by such person. The address of each person is deemed to be the address of the Company unless otherwise
noted.
Beneficial
ownership is determined in accordance with the rules of the SEC and includes voting and/or investing power with respect to securities.
These rules generally provide that shares of common stock subject to options, warrants or other convertible securities that are
currently exercisable or convertible, or exercisable or convertible within 60 days of June, 2018, are deemed to be outstanding
and to be beneficially owned by the person or group holding such options, warrants or other convertible securities for the purpose
of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person or group.
To
our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, (a) the
persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially
owned by them, subject to applicable community property laws; and (b) no person owns more than 5% of our common stock. Unless
otherwise indicated, the address for each of the officers or directors listed in the table below is 2893 Executive Park Drive,
Suite 201, Weston, Florida 33331.
Name of Beneficial Owner
|
|
Shares of Common Stock
Beneficially Owned (a)
|
|
|
Percent of
Common Stock
Outstanding (1)
|
Executive Officers and Directors
|
|
|
|
|
|
William Kerby
|
|
703,360
|
(3)(4)
|
|
8.6%
|
Omar Jimenez
|
|
40,000
|
|
|
*
|
Donald P. Monaco
|
|
1,681,534
|
(5)
|
|
20.1%
|
Pat LaVecchia
|
|
55,982
|
|
|
*
|
Doug Checkeris
|
|
40,000
|
|
|
*
|
Simon Orange
|
|
286,307
|
(6)
|
|
3.5%
|
Robert J. Post
|
|
53,815
|
(7)
|
|
*
|
All Named Executive Officers and Directors as a Group (7 persons)
|
|
2,860,998
|
|
|
34.4%
|
|
|
|
|
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
Mark Wilton (8)
|
|
917,396
|
(4)
|
|
11.3%
|
Pacific Grove Master Fund LP (9)
|
|
996,306
|
|
|
12.2%
|
*
Less than 1%.
|
(a)
|
Includes options, warrants and convertible securities exercisable or convertible for common stock within 60
days of June 13, 2018.
|
|
(1)
|
Based
on 8,145,266 shares of common stock outstanding.
|
|
(2)
|
Based
on 8,145,266 total voting shares.
|
|
(3)
|
William
Kerby holds 608,074 shares of common stock and warrants to purchase 15,300 shares of
common stock of the Company individually. Mr. Kerby is deemed to own 80,000 shares held
by In-Room Retail Systems, LLC, which entity he owns.
|
|
(4)
|
On
August 24, 2017, and effective on August 22, 2017, we entered into a Debt Conversion
and Voting Agreement with Mark A. Wilton, pursuant to the Debt Conversion and Voting
Agreement, Mr. Wilton agreed 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 (the “
Wilton Voting Rights
”). The Wilton
Voting Rights are not included in Mr. Kerby’s beneficial ownership as described
in the table above as such voting rights only apply when, and if, the Board of Directors
adopts a proposal and recommends Mr. Wilton vote to approve such proposal. The shares
of common stock subject to the Wilton Voting Rights are included in Mr. Wilton’s
beneficial ownership as reported above.
|
|
(5)
|
Donald
P. Monaco beneficially owns (i) 823,525 shares of common stock owned by the Donald P.
Monaco Insurance Trust (the “
Trust
”), and (ii) 822,302 shares are
beneficially owned by Monaco Investment Partners II, LP (“
MI Partners
”).
Mr. Monaco also beneficially owns warrants to purchase 35,750 shares of common stock
of the Company owned by the Trust. Mr. Monaco is the managing general partner of MI Partners
and trustee of the Trust. Mr. Monaco disclaims beneficial ownership of all shares held
by the Trust and MI Partners in excess of his pecuniary interest, if any.
|
|
(6)
|
Simon
Orange holds 16,000 shares of common stock and warrants to purchase 8,000 shares of common
stock of the Company individually. Mr. Orange is deemed to own 186,608 shares of common
stock and warrants to purchase 75,750 shares of common stock of the Company held by Charcoal
Investment LTD, which entity he owns.
|
|
(7)
|
Robert
Post beneficially owns 25,129 shares of common stock and warrants to purchase 28,650
shares of common stock held by the Robert Post 2007 Revocable Trust (the “
Trust
”).
Mr. Post is trustee of the trust. Mr. Post disclaims beneficial ownership of all shares
held by the Trust in excess of his pecuniary interest, if any.
|
|
(8)
|
Address:
1314 E. Las Olas Blvd Apt #45, Fort Lauderdale, Florida 33301.
|
|
(9)
|
Robert
James Mendola, Jr. (“
Mr. Mendola
”), serves as a Manager of Pacific
Grove Capital LLC (“
Pacific LLC
”), Pacific Grove Capital GP LLC (“
Pacific
GP
”), and the portfolio manager of Pacific Grove Master Fund LP (the “
Master
Fund
”), Pacific Grove Partners LP (“
Pacific Partnership
”),
and Pacific Grove International Ltd. (the “
Fund
”). The address of
the principal office of each of the entities described in this Footnote 9 (with the exception
of the Master Fund and Fund) is 580 California Street, Suite 1925, San Francisco, CA
94104. The principal business office of the Master Fund and Fund is located at c/o Walkers
Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman
KY1-9008, Cayman Islands. Mr. Mendola, due to his status as the Manager of Pacific LLC,
Pacific GP, and portfolio manager of the Master Fund, the Fund and Pacific Partnership,
is deemed to be the beneficial owner of the securities held by the Master Fund. Pacific
GP is the general partner of the Master Fund and Pacific Grove Capital LP (“
PGC
”)
is the investment adviser of the Master Fund, the Fund and Pacific Partnership pursuant
to agreements that provide Pacific GP and/or PGC the authority, among other things, to
invest their assets in the shares held in the Company, to vote and dispose of the shares
held in the Company and other things. Pursuant to such agreements, PGC is entitled to
allocations or other compensation based on the Master Fund’s realized and unrealized
gains. The Master Fund holds the shares held in the Company directly, and each of the
Fund and the Partnership holds its proportionate share of the shares held in the Company
indirectly, for the benefit of its investors. The information set forth in this footnote
9 is based solely on information filed by Mr. Mendola and his related entities with the
SEC on (i) Schedule 13D/A on January 26, 2018 and (ii) Form 4 on March 5, 2018, which
information the Company has not independently confirmed.
|
Changes
in Control
We
are not aware of any arrangements that may result in “
changes in control
” as that term is defined by the provisions
of Item 403(c) of Regulation S- K.
Item
13. Certain Relationships and Related Transactions, and Director Independence.
Except
as discussed below or otherwise disclosed above under “
Director and Officer Compensation
” (see above Item 11.
Executive Compensation), which information is incorporated by reference where applicable in this “
Certain Relationships
and Related Transactions, and Director Independence
” section, the following sets forth a summary of all transactions
since the beginning of the fiscal year of 2017, or any currently proposed transaction, in which the Company was to be a participant
and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of the Company’s total
assets at the fiscal year-end for 2018 and 2017, and in which any Related Person had or will have a direct or indirect material
interest (other than compensation described under “
Director and Officer Compensation
”). We believe the terms
obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable
to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions. “
Related
Persons
” include each of our “
Named Executive Officers
” as defined under “
Item 11. Executive
Compensation
” (see above), each person who was serving on our Board of Directors as of the date that the related party
transaction occurred, Mark Wilton, his related entities and immediate family members, who is a greater than 10% shareholder of
the Company, Stephen Romsdahl, his related entities and immediate family members, through August 11, 2017, the date that he ceased
being a greater than 5% shareholder of the Company and Pacific Grove Master Fund LP, its related entities, commencing on August
11, 2017, the date it became a greater than 5% shareholder of the Company.
On
March 15, 2016, Stephen Romsdahl, a then greater than 5% stockholder of the Company, subscribed for $120,000 of units (19,200
total units) in our offering of up to $400,000 of units of the Company, each comprised of 1 share of common stock and 2 Special
Exchange warrants to purchase one share of common stock at an exercise price of $0.625 per share.
On
March 17, 2016, Mark Wilton, a greater than 5% stockholder of the Company, subscribed for $60,000 of units (9,600 total units)
in our offering of up to $400,000 units of the Company, each comprised of 1 share of common stock and 2 Special Exchange warrants
to purchase one share of common stock at an exercise price of $0.625 per share.
Messrs.
Donald P. Monaco, Pat LaVecchia, Douglas Checkeris and William Kerby who represented all of the then members of the Board of Directors
of the Company, resigned as directors of RealBiz Media Group, Inc. (“
RealBiz
”), the Company’s former
consolidated subsidiary, effective Monday April 11, 2016.
On
April 17, 2016, Monaco Investment Partners II, L.P, of which Donald Monaco is the managing general partner and a Director of the
Company, exercised warrants to purchase 80,000 shares of common stock at an exercise price of $3.75 per share.
On
May 3, 2016, Monaco Investment Partners II, L.P, of which Donald Monaco is the managing general partner and a Director of the
Company, exercised warrants to purchase 120,000 shares of common stock at an exercise price of $3.75 per share.
On
May 31, 2016, the Company received $90,000 in proceeds from the Donald P. Monaco Insurance Trust (whose trustee is Donald Monaco
a director of Monaker) and issued 24,000 common shares in connection with a partial warrant exercise for $3.75 per share.
On
June 2, 2016, the Company borrowed three hundred thousand dollars ($300,000) from the Donald P. Monaco Insurance Trust (“
Trust
”),
which was evidenced by a Promissory Note (“
Note
”) in the principal amount of three hundred thousand dollars
($300,000), which accrues interest at the rate of 6% per annum (12% upon the occurrence of an event of default). All principal,
interest and other sums due under the Note were due and payable on the earlier of (a) the date the operations of NextTrip.com
generate net revenues equal to $300,000; (b) the date the Company entered into an alternate financing in excess of $300,000; or
(c) August 1, 2016. The Note contained standard and customary events of default. Donald P. Monaco, a member of our Board of Directors,
is the trustee of the Trust. This Note could be prepaid in whole or in part at any time, without penalty or premium.
On
June 15, 2016, we entered into a revolving line of credit agreement with Republic Bank, Inc. of Duluth, Minnesota, 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 were due on June 15, 2017 (since extended as discussed below). Amounts borrowed under the line of credit are planned
to be used for marketing initiatives, working capital and to repay $300,000 previously borrowed from the Trust as discussed above.
The loan contains standard and customary events of default. On June 16, 2016, we borrowed $450,000 under the line of credit.
On
July 8, 2016, Stephen Romsdahl, a then greater than 5% stockholder of the Company, exercised warrants to purchase 38,400 shares
of common stock which had an exercise price of $0.625 per share for an aggregate of $24,000.
On
August 23, 2016, Pat LaVecchia, our director, converted 1,000 shares of Series D Preferred Stock into shares of common stock in
connection with a special exchange conversion whereby Series D Preferred Stock stockholders were offered a special conversion
rate of $6.25 per share of the Company’s common stock, provided accrued dividends were waived (instead of the stated $12.50
conversion price), into 800 shares of common stock at $6.25 per share, valued at $5,000.
Effective
September 8, 2016, the Company sold 55,200 units, each consisting of one share of common stock and one warrant to purchase one
share of common stock (the “
Units
”), to Charcoal Investments Ltd. (“
Charcoal
”), which entity
is owned by Simon Orange, who became a member of the Board of Directors of the Company on January 5, 2017, in consideration for
$345,000 or $6.25 per unit. The warrants were evidenced by a Warrant to Purchase Common Stock (the “
Charcoal Warrants
”),
had an exercise price of $6.25 per share and an expiration date of September 7, 2017.
Also
on September 8, 2016, the Company entered into a consulting agreement with Mr. Orange, pursuant to which Mr. Orange agreed to
provide the Company consulting services by aiding the Company in financial, organizational and developmental advice during a twelve
month period. In connection with assisting with a $750,000 private offering of units (pursuant to which Charcoal subscribed for
units as described above), Mr. Orange received compensation consisting of cash, shares and warrants. This consulting agreement
was terminated immediately upon Mr. Orange’s appointment to the Board of Directors on January 5, 2017.
On
October 26, 2016, the Donald P. Monaco Insurance Trust, of which Donald Monaco is the trustee and a Director of the Company, exercised
warrants to purchase 112,000 shares of common stock with an exercise price of $3.75 per share.
On
November 4, 2016, Mark Wilton, a greater than 5% stockholder of the Company, was issued 45,908 shares of restricted common stock
pursuant to a subscription agreement for $99,800 in proceeds.
On
December 1, 2016, Stephen Romsdahl, a then greater than 5% stockholder of the Company, exercised warrants to purchase 34,000 shares
of common stock which had an exercise price of $1.25 per share.
On
December 20, 2016, we borrowed $37,500 from In Room Retail, which was evidenced by a Promissory Note (“
Note
”)
in the principal amount of $37,500, which accrued interest at the rate of 6% per annum. William Kerby, our Chairman and Chief
Executive Officer, is the managing member of In Room Retail.
On
January 26, 2017, the Company, Mr. Orange, a director, and Charcoal, agreed to reduce the exercise price of warrants to purchase
63,200 shares of common stock to $5.00 per share and Mr. Orange and Charcoal exercised all of the Warrants in consideration for
an aggregate of $316,000, and the Company issued Mr. Orange 8,000 shares of restricted common stock and Charcoal 55,200 shares
of restricted common stock, in connection with such exercise. In consideration for agreeing to exercise the Warrants, the Company
granted Mr. Orange warrants to purchase 8,000 shares of the Company’s common stock and Charcoal warrants to purchase 55,200
shares of common stock, each with an exercise price of $5.00 per share and an expiration date of January 25, 2020.
From
February 6, 2017 to March 10, 2017, the Company raised $1,550,000 from the sale of 310,000 units, each consisting of one share
of restricted common stock and one warrant to purchase one share of common stock (the “
Units
”), to fourteen
accredited investors in a private offering, at $5.00 per Unit. Investors in the offering included an entity owned by Donald P.
Monaco, the Company’s director (40,000 Units for $200,000), and Robert J. Post, the Company’s director (20,000 Units
for $100,000). The warrants have an exercise price of $5.00 per share and a term of three years, and include no cashless exercise
rights.
On
April 19, 2017, we issued 40,000 shares of common stock to Omar Jimenez, a member of the Board of Directors and an executive of
the Company, valued at $250,000, as a fiscal year-ended February 28, 2017 employee bonus.
On
July 31, 2017, the Company entered into the Common Stock and Warrant Purchase Agreement the Purchasers and completed the
transactions contemplated in connection therewith as described in greater detail above under “
Part I
”
– “
Item 1. Business
” – “
Recent Events Through Year-End
” – “
Private
Placement Offering
”, including the Offering.
William
Kerby, the Chief Executive Officer and Chairman of the Company purchased $50,000 of the Securities (10,000 Shares and Warrants);
Simon Orange, a member of the Board of Directors of the Company purchased $175,000 of the Securities (35,000 Shares and Warrants);
Donald Monaco, a member of the Board of Directors of the Company purchased $175,000 of the Securities (35,000 Shares and Warrants);
Pat LaVecchia, a member of the Board of Directors of the Company purchased $10,000 of the Securities (2,000 Shares and Warrants);
and Robert J. Post, a member of the Board of Directors of the Company purchased $25,000 of the Securities (5,000 Shares and Warrants).
Additionally, Stephen Romsdahl, a then greater than 5% shareholder of the Company purchased $50,000 of the Securities (10,000
Shares and Warrants) and another non-related party, who is a key distributor of the Company, purchased $100,000 of the Securities
(20,000 Shares and Warrants) in the Offering.
A
required term of the Offering 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 (“
Series A Preferred Stock
”) beneficially owned by them into 1,495,689 shares of common stock
of the Company, which conversions were effective July 28, 2017.
As
additional consideration for Pacific Grove agreeing to participate in the Offering as a Purchaser, the Company entered into a
Board Representation Agreement with Pacific Grove. Pursuant to the Board Representation Agreement, Pacific Grove will be granted
the right to designate one person to be nominated for election to the Company’s Board of Directors so long as (i) Pacific
Grove together with its affiliates beneficially owns at least 4.99% of the Common Stock, or (ii) Pacific Grove together with its
affiliates beneficially owns at least 75% of the Securities purchased in the Offering. To date, Pacific Grove has not nominated
any person for election to the Company’s Board of Directors.
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 (the “
Debt Conversion Agreement
”). 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 (the “
Wilton Notes
”), into 281,866 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.
On
December 12, 2017, we received $105,000 from Monaco Investment Partners II, LP, whose managing general partner is Donald Monaco
a director of the Company and issued 21,000 shares of common stock in connection with the exercise of a warrant to purchase 21,000
shares of common stock, which had an exercise price of $5.00 per share.
On
January 10, 2018, we received $1,203,563 from Pacific Grove, a greater than 10% shareholder of the Company, and issued 458,500
shares of common stock in connection with a First Amendment to Warrant. Pursuant to the First Amendment to Warrant Agreement,
Pacific Grove exercised warrants to purchase 350,000 shares of common stock at a reduced exercise price of $2.625 per share. Additionally,
Pacific Grove exercised penalty warrants to purchase 108,500 shares of common stock at a reduced exercise price of $2.625 per
share.
As
a result of the reduction in the exercise price of the Pacific Grove warrants which was agreed to pursuant to the First Amendment
to Warrant, the anti-dilution provisions of the Purchase Agreement were triggered. The Purchasers were issued a total of 14,458
shares of the Company’s common stock valued at $70,483 in connection with such anti-dilution rights.
On
January 11, 2018, we received $130,200 from Donald P. Monaco Insurance Trust, of which Donald Monaco is the trustee and a member
of the Board of Directors of the Company, and issued 24,800 shares of common stock in connection with the exercise warrants to
purchase 24,800 shares of common stock which had an exercise price of $5.25 per share.
On
January 11, 2018, we received $10,500 from William Kerby, the CEO and Chairman of the Company, and issued 2,000 shares of common
stock in connection with the exercise of a warrant to purchase 2,000 shares of common stock, which had an exercise price of $5.25
per share.
On
January 11, 2018, we received $95,000 from Monaco Investment Partners II LP, of which Donald Monaco is the managing general partner
and a member of the Board of Directors of the Company, and issued 19,000 shares of common stock in connection with the exercise
of a warrant to purchase 19,000 shares of common stock, which had an exercise price of $5.00 per share.
On
January 11, 2018, we received $200,000 from Charcoal Investment Ltd, which entity is owned by Simon Orange, a member of the Board
of Directors of the Company, and issued 40,000 shares of common stock in connection with the exercise of a warrant to purchase
40,000 shares of common stock, which had an exercise price of $5.00 per share.
On
January 29, 2018, we received $78,225 from The Stadlin Trust dated 5/25/01 and issued 29,800 shares of common stock in connection
with a First Amendment to Warrant Agreement. Pursuant to the First Amendment to Warrant Agreement, The Stadlin Trust exercised
warrants to purchase 20,000 shares of common stock at a reduced exercise price of $2.625 per share. Additionally, Pacific exercised
penalty warrants to purchase 9,800 shares of common stock at a reduced exercise price of $2.625 per share.
As
a result of the reduction in the exercise price of the The Stadlin Trust warrants which was agreed to pursuant to the First Amendment
to Warrant, the anti-dilution provisions of the Purchase Agreement were triggered. The Purchasers were issued a total of 1,220
shares of the Company’s common stock valued at $5,946 in connection with such anti-dilution rights.
As
a result of the anti-dilutive transactions above, a total of 14,458 shares of common stock were issued to the Purchasers (the
“
Liquidated Damage Shares
”) and the exercise price of the warrants sold pursuant to the Purchase Agreement
and granted as liquidated damages, as discussed below, was automatically adjusted from the original exercise price of $5.25 per
share to $5.09 per share.
As
a result of the liquidated damage provisions triggered by our failure to timely obtain an uplisting to the Nasdaq Capital Market,
penalty warrants to purchase a total of 465,066 shares of common stock were granted to the Purchasers and the agent in the offering,
of which warrants to purchase 265,300 shares of common stock have been exercised to date and which 265,300 shares of common stock
have been issued in connection with the exercises thereof and warrants to purchase 199,766 shares of common stock remain unexercised
as of the date of this Report.
Director
Independence
The
Board of Directors annually determines the independence of each director and nominee for election as a director. The Board makes
these determinations in accordance with the listing standards of the various exchanges for the independence of directors and the
SEC’s rules.
In
assessing director independence, the Board considers, among other matters, the nature and extent of any business relationships,
including transactions conducted, between the Company and each director and between the Company and any organization for which
one of our directors is a director or executive officer or with which one of our directors is otherwise affiliated.
The
Board has affirmatively determined that each of Mr. Pat LaVecchia, Mr. Doug Checkeris, Mr. Robert Post and Mr. Simon Orange are
independent.
Review,
Approval and Ratification of Related Party Transactions
Given
our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or
ratification of transactions, such as those described above, with our executive officers, directors and significant stockholders.
However, all of the transactions described above were approved and ratified by the Board of Directors and one or more officers
of the Company. In connection with the approval of the transactions described above, the Board of Directors took into account
several factors, including its fiduciary duty to the Company; the relationships of the related parties described above to the
Company; the material facts underlying each transaction; the anticipated benefits to the Company and related costs associated
with such benefits; whether comparable products or services were available; and the terms the Company could receive from an unrelated
third party.
Item
14. Principal Accountant Fees and Services.
(1)
Audit Fees
The
aggregate fees billed for each of the last two fiscal years for professional services rendered by our principal accountant for
our audit of annual consolidated financial statements and review of consolidated financial statements included in our quarterly
reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements
for those fiscal years were:
February
28, 2018
|
|
|
$
|
65,000
|
|
February
28, 2017
|
|
|
$
|
30,000
|
|
(2)
Audit-Related Fees
The
aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported
in the preceding paragraph:
February
28, 2018
|
|
|
$
|
10,000
|
|
February
28, 2017
|
|
|
$
|
39,000
|
|
(3)
Tax Fees
The
aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for
tax compliance, tax advice, and tax planning were:
February
28, 2018
|
|
|
$
|
5,000
|
|
February
28, 2017
|
|
|
$
|
0
|
|
(4)
All Other Fees
The
aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant
other than the services reported in paragraphs (1), (2), and (3) was:
February
28, 2018
|
|
|
$
|
0
|
|
February
28, 2017
|
|
|
$
|
0
|
|
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
Note
1 – Description of Business
Nature
of Operations and Business Organization
Monaker
Group, Inc. and its subsidiaries (“
Monaker
”, “
we
”, “
our
”, “
us
”,
or “
Company
”) operate an online marketplace and will be incorporating alternative lodging rental units into
its marketplace while facilitating access to alternative lodging rentals to other distributors. Alternative lodging rentals (ALRs)
are whole unit vacation homes or timeshare resort units that are fully furnished, privately owned residential properties, including
homes, condominiums, apartments, villas and cabins that property owners and managers rent to the public on a nightly, weekly or
monthly basis. NextTrip.com, one of our marketplaces, provides access to airline, car rental, lodgings and activities products
and, it will soon include our ALR offering which will unite travelers seeking ALRs located in countries around the world. Another
one of our other marketplaces, Maupintour, also provides concierge tours and activities at destinations.
We
provide a vacation rental platform with auxiliary services so travelers can purchase vacations through NextTrip.com, Maupintour.com
or EXVG.com (or through one of the Company’s distributors who Monaker has provided ALRs to, hereinafter referred to as “
Distributors
”)
and to provide the most qualified bookings to property owners and managers. The Company 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 rate for each booking and, in return, their properties will be listed for free
as an available ALR on NextTrip.com, Maupintour.com or EXVG.com (as well as with Distributors). Travelers will be able to visit
NextTrip.com, Maupintour.com or EXVG.com (and Distributors) and search and compare our large and detailed inventory of listings
to find ALRs meeting their needs. Currently our Maupintour and NextTrip online marketplaces (each as discussed in greater detail
below) are operational, provided that such marketplaces do not currently allow for the booking of ALRs, which capability we plan
to have in place in or around the end of July 2018.
Monaker
is a technology driven travel company which has identified 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 the websites of other Distributors. Monaker’s
services include critical elements such as technology, an extensive film library, trusted brands and established partnerships
that will enhance product offerings and reach. We believe that consumers are quickly adopting video for researching and educating
themselves prior to purchases, and Monaker has carefully amassed 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.
Summary
Monaker
sells travel services to leisure and corporate customers around the world. Our primary focus is to incorporate ALR options into
the current offering of scheduling, pricing and availability information for booking reservations for airlines, hotels, rental
cars, cruises and other travel products such as sightseeing tours, shows and event tickets and theme park passes. The Company
sells these travel services both individually and as components of dynamically-assembled packaged travel vacations and trips.
In addition, the Company provides content that presents travelers with information about travel destinations, maps and other travel
details. In February 2018, 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 licensed technology (described below) that will connect our proprietary technology and will search 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. The primary distribution channel will be through its
own website at NextTrip.com and the NextTrip mobile application (“
app
”). The second distribution channel is
selling travel services to customers through a toll-free telephone number designed to assist customers with complex or high-priced
offerings of Maupintour. The remaining distribution channels include sales on (i) other travel companies’ websites and (ii)
networks of third-party travel agents.
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 tours; activities/attractions; airline; hotel; and car rentals and
will include ALRs. Maupintour complements the Nextrip.com offering by providing high-end tour packages and activities/attractions.
EXVG.com will be a specialized secondary website devoted to those ALRs that cannot be booked on a real-time basis. These ALRs
tend to be sourced from owners and managers who have not invested in a reservation management system and/or the owner or manager
prefers to personally vet the customer before accepting a booking; typically because the ALR is a high value property. EXVG.com
travel services and products will only include the aforementioned ALRs as well as tours and activities from Maupintour.
The
Company owns an approximately 13% interest in RealBiz Media Group, Inc. (“
RealBiz
”) as of February 28, 2018
which is represented by 44,470,101 RealBiz Preferred Series A Shares.
The
Company is a Nevada corporation headquartered in Weston, Florida.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
Products
and Services
Monaker’s
plans to focus on marketing ALR options directly to consumers and to other travel distributors. The Company’s concentration
on ALRs is driven by contracts with vacation home (including timeshare) unit owners and managers that are made available to consumers
and to other travel portals (Distributors) for nightly or extended stays. In addition, we offer travelers activities and tours
through our subsidiary, Maupintour. Therefore, not only can we assist a traveler with identifying a destination and the lodging
at the destination, but we can provide options of activities while at the destination. We also provide the means for making arrangements
for airline tickets, car rentals and lodging (i.e. hotels and ALRs in the near future). In summary, Monaker offers travelers the
complete travel package made easy or…
Travel Made Easy
TM
.
Products
and Services For Property Owners And Managers
Listings.
Once our website is fully operational, planned to be completed in or around the end of July 2018, property owners and managers
will be able to list a property, with no initial upfront fees, and provide those listings at a negotiated preferential rate for
traveler bookings generated on our websites.
Listings
that are ‘real-time online bookable’ properties will be managed by the property owner or manager through an application
program interface (API) which will provide real-time updates to each property and immediately notify the property owner or manager
of all information regarding bookings, modifications to bookings and cancellations of bookings. Information such as content, descriptions
and images are provided to us through that API.
Listings
that are ‘request-accept’ properties will require communication and approval from the property owner or manager (hence
‘request-accept’) and will not be managed through an API (as discussed above). We will provide a set of tools for
the property owner or manager which will enable them to manage an availability calendar, reservations, inquiries and the content
of the listing. These tools will allow the property owner or manager to create the listing by uploading photographs, text descriptions
or lists of amenities, a map showing the location of the property, and property availability, all of which can be updated throughout
the term of the listing. Each listing will provide travelers the ability to use email or other methods to contact property owners
and managers.
The
listings will include tools and services to help property owners and managers run their vacation rental businesses more efficiently
such as to responding to and managing inquiries, preparing and sending rental quotes and payment invoices, allowing travelers
to book online, including being able to enter into rental agreements with travelers online, and processing online payments. Property
owners and managers that elect to process online payments will be subject to a transaction fee.
Redistribution
of Listings.
We will make selected, online bookable properties available to online travel agencies as well as channel partners
(jointly referred to as “
Distributors
”). We will be compensated for these services by receiving a commission
that is added to the negotiated net rate for each booking.
Products
and Services for Travelers
Search
Tools and Ability to Compare
. Our online marketplace NextTrip.com provides travelers with tools to search for and filter several
travel products including air, car, accommodations (soon to include ALRs) and activities based on various criteria, such as destination,
travel dates, type of property, number of bedrooms, amenities, price, or keywords.
Traveler
Login.
Travelers are able to create accounts on the NextTrip.com website that enable them access to their booking activity
through the website.
Travel
Blog.
Travel guides, videos and pictures as well as travel articles can be accessed through the NextTrip Travel Blog and Travelmagazine.com.
Security.
We use a combination of technology and human review to evaluate the content of listings and to screen for inaccuracies or
fraud with the goal of providing only accurate and trustworthy information to travelers.
Reviews
and Ratings.
Travelers will be able to submit online reviews of the ALRs they have rented through our websites. These reviews
should convey the accuracy of the listing information found on our websites.
Communication.
Travelers who create an account on our website will receive regular communications, including notices about places of interest,
special offers, new listings, and an email newsletter. The newsletter will be available to any traveler who agrees to receive
it and offers introductions to new destinations and vacation rentals, as well as tips and useful information when staying in vacation
rentals.
Mobile
Websites and Applications.
We provide versions of our websites formatted for web browsers, smart-phones and tablets so that
property owners, managers and travelers can access our websites and tools from mobile devices.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements include the accounts of Monaker Group, Inc. and all of its wholly and majority-owned
subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States. All significant
intercompany transactions and balances have been eliminated in consolidation.
Business
Segment
The
Company has one operating segment consisting of various products and services related to its online marketplace of travel and
accommodation rental listings.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
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 allowance for doubtful accounts, the fair
value of short-term investments, the carrying amounts of goodwill and other indefinite-lived intangible assets, depreciation and
amortization, the valuation of stock options, deferred income taxes and the fair value of non-controlling interests.
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 February 28, 2018 and February 28, 2017.
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 did not have accounts receivable, therefore did not have an allowance
for doubtful accounts as of February 28, 2018 and February 28, 2017.
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. The Company does not own property and equipment.
The Company incurred depreciation expense of $ -0- and $-0- for the years ended February 28, 2018 and February 28, 2017, respectively.
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 years ended February 28, 2018 and February 28, 2017, 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. 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.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
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 years ended February 28, 2018 and February
28, 2017. Intangible assets that have finite useful lives are amortized over their useful lives. The Company incurred amortization
expense of $211,158 and $1,779,820 during the years ended February 28, 2018 and February 28, 2017, respectively. Also, $1,485,000 of website development costs and $600,000 of rights to purchase land were impaired
as of February 28, 2018.
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.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from
Equity (Topic 480) Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features,
II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. ASU 2017-11 intends to reduce the complexity associated
with the issuer’s accounting for certain financial instruments with characteristics of liabilities and equity. Specifically,
the Board determined that a down round feature (as defined) would no longer cause a freestanding equity-linked financial instrument
(or an embedded conversion option) to be accounted for as a derivative liability at fair value with changes in fair value recognized
in current earnings and is effective in fiscal years beginning after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. The Company adopted the new standard during 2017, preventing the need to account for several
outstanding warrants that contain down round features as derivative instruments.
Reclassification
For
comparability, certain prior year amounts have been reclassified, where appropriate, to conform to the financial statement presentation
used in 2018. 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 is 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. On February 12,
2018, we effected a 1:2.5 reverse stock-split of all of our outstanding shares of common stock, which has been retroactively reflected
herein.
Revenue
Recognition
We
recognize revenue when the customer has purchased the product, the occurrence of the earlier of date of travel or the date of
cancellation has expired, the sales price is fixed or determinable and collectability is reasonably assured.
Revenue
for customer travel packages purchased directly from the Company are recorded gross (the amount paid to the Company by the customer
is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues).
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
We
generate our revenues from sales directly to customers as well as through other distribution channels of tours and activities
at destinations throughout the world. We also generate revenue from commissions on bookings and sales of ancillary products and
services.
Payments
for tours or activities received in advance of services being rendered are recorded as deferred revenue and recognized at the
earlier of the date of travel or the last date of cancellation (i.e., the customer’s refund privileges lapse).
Cost
of Revenue
Cost
of revenue consists of cost of the tours and activities, commissions and merchant fees charged by credit card processors.
Selling
and Promotions Expense
Selling
and promotion expenses consist primarily of advertising and promotional expenses, expenses related to our participation in industry
conferences, and public relations expenses.
Advertising
Expense
Advertising
costs are charged to expense as incurred and are included in selling and promotions expense in the accompanying consolidated financial
statements. Advertising expense for the years ended February 28, 2018 and February 28, 2017, was $84,424 and $176,715, 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.
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 February 28, 2018, the Company’s income tax returns for tax years ending February 28, 2017, February
29, 2016 and February 28, 2015, 2014 and 2013, and February 29, 2012 remain potentially subject to audit by the taxing authorities.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
Monaker
Group, Inc. 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 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
13– Fair Value Measurements).
Going
Concern
As of February 28, 2018, and February 28, 2017, the Company had an accumulated deficit of $110,696,774 and
$100,659,632, respectively. The accompanying consolidated financial statements have been prepared assuming the Company will continue
as a going concern.
We
have very limited financial resources. We currently have a monthly cash requirement of approximately $180,000, exclusive of capital
expenditures. We will need to raise substantial additional capital to support the on-going operation and increased market penetration
of our products including the development of national advertising relationships, increases in operating costs resulting from additional
staff and office space until such time as we generate revenues sufficient to support current operations. We believe that in the
aggregate, we could require several millions of dollars to support and expand the marketing and development of our travel products,
repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations, office
space and systems for managing the business, and cover other operating costs until our planned revenue streams from travel products
are fully-implemented and begin to offset our operating costs. Our failure to obtain additional capital to finance our working
capital needs on acceptable terms, or at all, will negatively impact our business, financial condition and liquidity. As of February
28, 2018, we had approximately $1,727,324 of current liabilities. We currently do not have the resources to satisfy these obligations,
and our inability to do so could have a material adverse effect on our business and 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, and management and members of the Board are working aggressively to increase the viewership of our
products by promoting it across other mediums which will result in higher revenues. 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.
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.
Recent
Accounting Policies Not Yet Adopted
Revenue
from Contracts with Customers
. In May 2014, the FASB issued an Accounting Standards Update (“
ASU
”) amending
revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the
nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB
issued an ASU deferring the effective date of the revenue standard so it would be effective for annual and interim reporting periods
beginning after December 15, 2017. In addition, the FASB has also issued several amendments to the standard which clarify certain
aspects of the guidance, including principal versus agent considerations and identifying performance obligations.
The
guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective), or retrospectively
with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective).
We will adopt this new guidance in the first quarter of fiscal 2019 and apply the modified retrospective method.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
The
new guidance will likely result in insignificant changes in the timing and classification of revenue streams, and an insignificant
amount of capitalization of costs to obtain contracts.
We
have identified and implemented changes to our accounting policies and practices, business processes, and controls to support
the new revenue recognition standard. We are continuing our assessment of potential changes to our disclosures under the new guidance.
Recognition
and Measurement of Financial Instruments
. In January 2016, the FASB issued new guidance related to accounting for equity investments, financial liabilities
under the fair value option, and the presentation and disclosure requirements for financial instruments. The new standard is effective
for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The most significant impact
for the Company is with respect to the requirement that equity investments with readily determinable fair values, such as our investment
in RealBiz Media Group, Inc. (“
RealBiz
”) Series A Preferred shares, must be carried at fair value with changes
in fair value recorded through net income. Today, such investment is designated as available for sale and is recorded at $0 value
with changes in fair value recorded through other comprehensive income. Upon adoption in the first quarter of fiscal 2019, we will
record a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of the annual period of adoption related
to unrealized gains/losses, net of tax, previously classified within other comprehensive income and will begin recording fair value
changes within other, net on our consolidated statements of operations. In addition, we intend to elect to measure minority equity
investments that do not have a readily determinable fair value at cost less impairment, adjusted by observable price changes as
permitted by the new guidance with changes recorded within other, net on our consolidated statements of operations. Fair value
changes for our investments could vary significantly period to period.
Definition
of a Business
. In January 2017, the FASB issued new guidance clarifying the definition of a business for determining whether
transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for
annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted
for transactions that occurred before the issuance date or effective date of the standard if the transactions were not reported
in financial statements that have been issued or made available for issuance. The standard must be applied prospectively. Upon
adoption, the standard will impact how we assess acquisitions (or disposals) of assets or businesses.
Statement
of Cash Flows
. In August and November 2016, the FASB issued new guidance related to the statement of cash flows which clarifies
how companies present and classify certain cash receipts and cash payments as well as amends current guidance to address the classification
and presentation of changes in restricted cash in the statement of cash flows. The new guidance is effective for annual periods,
and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. We plan to adopt
this new guidance on March 1, 2018 retrospectively and currently anticipate the most significant impact will be to include in
our cash and cash-equivalent balances in the consolidated statement of cash flow those amounts that are deemed to be restricted
cash and restricted cash equivalents.
Intra-entity
Transfers of Assets Other Than Inventory
. In October 2016, the FASB issued new guidance amending the accounting for income
taxes associated with intra-entity transfers of assets other than inventory. This accounting update, which is part of the FASB’s
simplification initiative, is intended to reduce diversity in practice and the complexity of tax accounting, particularly for
those transfers involving intellectual property. This new guidance requires an entity to recognize the income tax consequences
of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new standard is effective for annual
periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted.
Leases.
In February 2016, the FASB issued new guidance related to accounting and reporting guidelines for leasing arrangements. The
new guidance requires entities that lease assets to recognize assets and liabilities on the balance sheet related to the rights
and obligations created by those leases regardless of whether they are classified as finance or operating leases. Consistent with
current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will
depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement
users better understand the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual
and interim reporting periods beginning after December 15, 2018. Early adoption is permitted and should be applied using a modified
retrospective approach. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial
statements.
Hedge
Accounting
. In August 2017, the FASB amended the existing accounting guidance for hedge accounting. The amendments require
expanded hedge accounting for both non-financial and financial risk components and refine the measurement of hedge results to
better reflect an entity’s hedging strategies. The new guidance also amends the presentation and disclosure requirements
and changes how entities assess hedge effectiveness. The new guidance is effective for annual periods, and interim periods within
those annual periods, beginning after December 15, 2018 with early adoption permitted. The new guidance must be adopted using
a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial
adoption date. We are in the process of evaluating the impact of adopting this new guidance on our consolidated financial statements.
Measurement
of Credit Losses on Financial Instruments
. In June 2016, the FASB issued new guidance on the measurement of credit losses
for financial assets measured at amortized cost, which includes accounts receivable, and available-for-sale debt securities. The
new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more
timely recognition of credit losses. This update is effective for annual periods beginning after December 15, 2019, including
interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018,
including interim periods within those annual periods. We are in the process of evaluating the impact of adopting this new guidance
on our consolidated financial statements.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
Note
3 – Notes Receivable
Current
On
May 16, 2016, the Company entered into a Membership Interest Purchase Agreement with Crystal Falls Investments, LLC (“
Crystal
Falls
”), 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 (the “
Name Your Fee Note
”). The Name Your Fee Note does not accrue
interest, is secured by the 51% membership interest in Name Your Fee, LLC and was to be repaid through 20% of the net earnings
received in NameYourFee.com through maturity. The Name Your Fee Note contains standard and customary events of default. The principal
amount of the note is due on May 15, 2018.
On August 31, 2017, we entered into an Assignment and Novation Agreement (the “
Assignment
”)
with Bettwork Industries, Inc. (“
Bettwork
”) and Crystal Falls. 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. The outstanding principal balance of the
Name Your Fee Note as of February 28, 2018 and February 28, 2017 is $750,000 and $750,000, respectively, and, an allowance for
bad debt of $750,000 (i.e., 100%) has been reserved against the Name Your Fee Note as of February 28, 2018; this amount has been
recognized as a bad debt expense included in general and administrative expenses in fiscal year ended February 28, 2018.
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. As of February 28, 2018, no interest
income has been accrued.
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 outstanding principal balance of the Secured Note as of
February 28, 2018 and February 28, 2017 is $2,900,000 and $0, respectively, and, an allowance of $2,900,000 (i.e. 100%) has been
reserved against the Secured Note as of February 28, 2018; this amount has been recognized as a deferred gain liability in fiscal
year ended February 28, 2018. The repayment of the Secured Note is secured by a first priority security interest in all of the
Assets.
Note
4 – Investment in Equity Instruments
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 February 28, 2018, Monaker
owned 44,470,101 shares of RealBiz Media Group, Inc. (RealBiz) Series A Preferred Stock and, as of February 28, 2017, Monaker
owned 44,470,101 shares of RealBiz Series A Preferred Stock and 10,359,890 shares of RealBiz common stock. This interest has been
written down to zero ($0) as of February 28, 2015.
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.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
On December 22, 2017, we entered into a Settlement Agreement with RealBiz, NestBuilder.com Corp. (“
Nestbuilder
”)
and American Stock Transfer & Trust Company, LLC (“
AST
”) relating to the dismissal with prejudice of certain
pending lawsuits with RealBiz, including Case No.: 1:16-cv-24978-DLG, as described in greater detail below under “
Note
11 - Commitments and Contingencies
” – “
Legal Matters
”
.
As part of the Settlement Agreement,
Monaker agreed to pay NestBuilder $100,000 and to issue 20,000 shares of Monaker’s restricted common stock to person(s) to
be designated by NestBuilder; RealBiz reinstated to Monaker 44,470,101 shares of RealBiz Series A Convertible Preferred Stock and
ratified all rights under the Certificate of Designation as reformed and amended (to provide for a conversion ratio of 1 share
of RealBiz common stock for each 1 share of RealBiz Series A preferred stock converted) and remove any dividend obligations. The
RealBiz designation was also amended to provide us with anti- dilution protection below $0.05 per share. The agreement further
provided for each party to dismiss the above referenced lawsuits with prejudice and for general releases from each party. As a
result of the settlement, the investment in equity securities, 44,470,101 shares of RealBiz Series A Preferred Stock is recorded
at $- as of February 28, 2018.
Note
5 – Acquisitions and Dispositions
On
May 16, 2016, the Company entered into a Membership Interest Purchase Agreement with Crystal Falls for the sale of its 51% membership
interest in Name Your Fee, LLC in exchange for the Name Your Fee Note, as described in Note 3 above.
On
August 31, 2017, we entered into an Assignment and Novation Agreement (the “
Assignment
”) with Bettwork and
Crystal Falls, as described in Note 3 above.
On
August 31, 2017, we entered into a 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 Note, as described in Note 3 above.
On
October 23, 2017, Monaker entered into a Platform Purchase Agreement with Exponential, Inc. (“
XPO
”), which
offers a white-label e-commerce platform. Pursuant to the Platform Purchase Agreement, XPO agreed to provide us software development
services in connection with the development of an e-commerce platform (the Monaker Booking Engine (MBE)) and related application
program interfaces (APIs), and to further manage all merchant relationships sold on the platform and reporting and accounting
thereof. Monaker issued XPO 200,000 shares of restricted common stock at $7.425 per share for a total acquisition price of $1,485,000.
Additional consideration for the issuance of the shares included Monaker becoming the exclusive provider of alternative lodging
rentals (ALRs) for all travel sales on XPO’s platforms.
On
November 14, 2017, Monaker entered into a Purchase Agreement with Michael Heinze, Michael Kistner and Rebecca Dernbach whereby
Monaker purchased the source code owned in connection with an alternative lodging platform for $75,000 in cash and 34,783 shares
of restricted common stock with a market value of $5.75 per share and an aggregate value of $200,000 for a total acquisition price
of $275,000. Michael Heinze, Michael Kistner and Rebecca Dernbach have the right to put the Shares back to Monaker after six months
from the date of the Purchase Agreement for $125,000 in cash (i.e., May 13, 2018).
On November 21, 2017, Monaker entered into a Purchase Agreement with A-Tech LLC on behalf of its wholly-owned
subsidiary Parula Village Ltd. (“
A-Tech
”) whereby Monaker purchased from A-Tech the rights to ownership of 12
parcels of land on Long Caye, Lighthouse Reef, Belize (the “
Property
”) for 240,000 shares of restricted common
stock valued at a total of $1,500,000. Additionally, A-Tech agreed to construct 12 vacation rental residences on the Property within
270 days of closing of the transaction (the “Construction Obligation”); if the vacation rental residences are not completed
within the 270 days, Monaker will cancel 12,000 shares, valued at $75,000 (of the previously issued 240,000 shares of restricted
common stock) for each residence not completed. In the event the average closing price of Monaker’s common stock for the
10 trading days prior to the 90th day after the closing of the transaction is less than $6.25 per share, Monaker has the option
to issue up to an additional 40,000 shares of our restricted common stock such that the value of the shares issued to A-Tech totals
$1.5 million (subject to the 40,000 restricted common share maximum). In the event any encumbrances, taxes, levies, claims or liens
of any kind are brought against the Property within 24 months of the closing, Monaker has the right at its sole discretion to either
unwind the transaction and cancel all the shares issued to A-Tech or have A-Tech take actions to settle such claims. On February
20, 2018, Monaker issued an additional 66,632 shares of common stock at $4.80 for a total of $319,834 to meet the 90 day anniversary
look-back provision for a guaranteed purchase price of $1.5 million. Monaker assessed the value of the property and issued the
shares to A-Tech to preserve its ownership in the land and deposits. The additional consideration of $319,834 is included in the
deposit amount which can be cancelled if the vacation rental residences are not completed within the 270 days of closing of the
transaction (i.e., August 18, 2018). As of February 28, 2018, the shares attributable to the construction (210,632 shares) were
cancelled for non-performance.
Subsequent
to February 28, 2018, the Company sold its right to acquire the residential lots to Bettwork for $1.6 million. See note 6.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
Note
6 – Website Development Costs and Intangible Assets
The
following table sets forth the intangible assets, both acquired and developed, including accumulated amortization as of February
28, 2018 and February 28, 2017:
|
|
February 28, 2018
|
|
|
|
Useful Life
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Value
|
|
Website platform
|
|
1.0 years
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
$
|
—
|
|
Contracts, domains, customer lists
|
|
2.0 years
|
|
|
1,199,447
|
|
|
|
1,199,447
|
|
|
|
—
|
|
Website platform
|
|
3.0 years
|
|
|
37,657
|
|
|
|
37,657
|
|
|
|
—
|
|
Website development costs
|
|
2.0 years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Website development costs (not placed in service)
|
|
3.0 years
|
|
|
1,482,541
|
|
|
|
213,518
|
|
|
|
1,269,023
|
|
Web platform
|
|
4.0 years
|
|
|
598,099
|
|
|
|
598,099
|
|
|
|
—
|
|
Right to purchase land parcels
|
|
Indefinite
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Trademark
|
|
Indefinite
|
|
|
5,430
|
|
|
|
—
|
|
|
|
5,430
|
|
|
|
|
|
$
|
3,723,174
|
|
|
$
|
2,448,721
|
|
|
$
|
1,274,453
|
|
During the year ended February 28, 2018, the Company incurred $1,480 in fees to register its trademark, $76,500
of additional website development costs for the NextTrip.com website which has been placed in service, acquisition of rights to
purchase land in Belize for $600,000, and, $2,027,203 of additional website development costs for the EXVG.com website; which site
has not been placed in service as of February 28, 2018, which costs are capitalized. Also, the Company sold a website portal (see
Note 5 and Note 9) with a cost of $181,730 and accumulated depreciation of $181,730.
|
|
February
28, 2017
|
|
|
|
Useful
Life
|
|
|
Cost
|
|
|
|
Accumulated
Amortization
|
|
|
|
Net
Carrying
Value
|
|
Website
platform
|
|
1.0
years
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
$
|
—
|
|
Contracts,
domains, customer lists
|
|
2.0
years
|
|
|
1,199,447
|
|
|
|
1,199,447
|
|
|
|
—
|
|
Website
platform
|
|
3.0
years
|
|
|
37,657
|
|
|
|
37,657
|
|
|
|
—
|
|
Website
development costs
|
|
2.0
years
|
|
|
181,730
|
|
|
|
181,730
|
|
|
|
—
|
|
Website
development costs (not placed in service)
|
|
3.0
years
|
|
|
770,482
|
|
|
|
2,363
|
|
|
|
768,119
|
|
Web
platform
|
|
4.0
years
|
|
|
598,099
|
|
|
|
598,099
|
|
|
|
—
|
|
Software
development (not placed in service)
|
|
Indefinite
|
|
|
3,950
|
|
|
|
—
|
|
|
|
3,950
|
|
|
|
|
|
$
|
3,191,365
|
|
|
$
|
2,419,296
|
|
|
$
|
772,069
|
|
During
the year ended February 28, 2017, the Company incurred $3,950 in fees to register its trademark and $685,414 of additional website
development costs for the NextTrip.com and EXVG.com websites; these sites have not been placed in service as of February 28, 2017
and are capitalized. The Company also incurred an additional $11,447 related to the contracts, domains and customers. It was determined
that the term of the contracts have effectively expired and the customer lists as well as the domains are of no value; therefore
the contracts, domains and customer lists have been fully amortized. Also the website platform form StingyTravel.com has been
determined to be of no value and has been fully amortized.
This
capitalization of these costs fall within the scope of ASC 350-50-25-15 wherein costs of upgrades and enhancements should be capitalized
as they will result in added functionality of the website.
Intangible
assets are amortized on a straight-line basis over their expected useful lives, estimated to be 4 years, except for the website(s),
which is 3 years. Amortization expense related to website development costs and intangible assets was $211,155 and $1,779,820
(which included the write-off non-performing platforms, contracts, and domains in the amount of $1,637,104) for the years ended
February 28, 2018 and February 28, 2017, respectively. Also, $1,485,000 of website development costs and $600,000 of rights to purchase land were impaired as of
February 28, 2018.
Note
7 – Convertible Promissory Notes
The
Company had a convertible promissory note totaling $- and $1,409,326, with an interest rate of 6% per annum, maturing December
17, 2017 and with a fixed conversion rate of $5.00 per share, as of February 28, 2018 and 2017, respectively.
During
the years ended February 28, 2018 and February 28, 2017, the Company recognized interest expense of $135,000 and $180,000, respectively.
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 (the “
Debt Conversion Agreement
”). 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 (the “
Wilton
Notes
”, which includes the note referenced in the paragraph above), into 281,866 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 the Company provides 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.
In
August 2017, the Company issued 281,866 shares of common stock upon conversion of $1,409,326 of principal held by Mr. Mark Wilton,
a significant stockholder of the Company.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
Note
8 – Line of Credit
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 remained 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. As of February 28, 2018 and 2017, $1,193,000 is outstanding under the line of credit.
Interest
expense charged to operations relating to this line of credit was $62,790 and $29,822, respectively for the years ended
February 28, 2018 and February 28, 2017. The Company has accrued interest as of February 28, 2018 and February 28, 2017 of
$-0- and $-0-, respectively.
Note
9 – 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 3, Note 5 and Recent Events Through Year-end).
The gain on the sale of the non-core assets
(described above) is a deferred gain until it is probable that the note receivable will be collected.
Note
10 – 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 $0.00001 per share (the “
Preferred Stock
”) with the exception of Series A Preferred Stock
shares having a $0.01 par value per share. 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
August 26, 2016, we converted all of our then outstanding Series B (110,200 shares), Series C (13,100 shares) and Series D (110,156
shares) Preferred Stock, into an aggregate of 444,712 shares of our common stock, pursuant to certain special conversion terms
offered in connection therewith and the mandatory conversion terms thereof.
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.
All
Series A, B, C and D Preferred Stock shares have been retired. There are no outstanding Series A, B, C, and D Preferred Stock
shares.
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.
Per
the terms of the Amended and Restated Certificate of Designations relating to the Series A Preferred Stock, 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)
$62.50 per share; or
|
|
○
|
(b)
at the lowest price the Company has issued stock as part of a financing.
|
|
●
|
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 $62.50 of debt
for each share of Series A Preferred Stock.
|
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
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.
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; or to allow 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 Series A Preferred Stock shareholders agreed to authorize a change to the Certificate of
Designations of the Series A Preferred Stock to lock the conversion price to the lower of (a) a fixed price of $1.25 per share;
and (b) the lowest price the Company has issued stock as part of a financing after January 1, 2006.
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 1,495,689 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 February 28, 2018 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 February 28, 2018 and February 28,
2017.
Share
Repurchase Transactions
During
the years ended February 28, 2018 and February 28, 2017, there were no repurchases of the Company’s common stock by Monaker.
Common
Stock
On
February 6, 2018, the Board of Directors of the Company, approved a 1-for-2.5 reverse stock split of the Company’s outstanding
common stock (the “
Reverse Split
”). The Company’s majority stockholders, effective on September 13, 2017,
via a written consent to action without a meeting, provided the Board of Directors authority to affect a reverse stock split of
the Company’s outstanding common stock in a ratio of between one-for-one and one-for-four, in their sole discretion, without
further stockholder approval, by amending the Company’s Articles of Incorporation, at any time prior to the earlier of (a)
September 13, 2018; and (b) the date of the Company’s 2018 annual meeting of stockholders (the “
Stockholder Authority
”).
The Reverse Split was affected and approved by the Board of Directors pursuant to the Stockholder Authority. Effective on February
8, 2018, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State
of Nevada to effect the 1-for-2.5 Reverse Split, which was effective on February 12, 2018.
During
the year ended February 28, 2018, the Company:
|
●
|
Sold 700,768 shares of restricted common stock for $3,065,000 in gross proceeds in private transactions ($2,868,353
net of costs).
|
|
●
|
Cancelled 277,686 shares of restricted common stock at a value of $1,616,773 due to termination of agreements.
|
|
●
|
Issued
130,920 shares of restricted common stock valued at $805,876 for stock compensation.
|
|
●
|
Issued
281,866 shares of restricted common stock valued at $1,409,326 for conversion of notes
payable and accrued interest thereon.
|
|
●
|
Issued
8,000 shares of restricted common stock for settlement agreement of $42,800.
|
|
●
|
Sold
625,278 shares of restricted common stock for $1,962,418 in proceeds via a warrant exercise
agreement.
|
|
●
|
Issued
40,000 shares of restricted common stock to Omar Jimenez, an executive of the Company,
valued at $268,000 as part of a bonus agreement.
|
|
●
|
Issued
1,495,689 shares of common stock on July 28, 2017 in connection with the conversion of
1,869,611 shares of Series A Preferred Stock into common stock.
|
|
●
|
Issued
235,583 shares of restricted common stock valued at $1,690,001 in connection with asset
purchase agreements.
|
|
●
|
Issued
306,632 shares of restricted common stock via a land purchase agreement valued at $1,765,804.
|
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
During
the year ended February 28, 2017, the Company:
|
●
|
Sold
1,130,546 shares of restricted common stock and warrants for $4,329,939 in proceeds in
private transactions.
|
|
●
|
Issued
320,338 shares of restricted common stock and warrants valued at $2,165,578 for stock
compensation.
|
|
●
|
Issued
139,088 shares of restricted common stock valued at $664,373 for conversion of notes
payable and accrued interest thereon.
|
|
●
|
Issued
30,000 shares of restricted common stock valued at $112,500 for the acquisition of 1.5%
of Recruiter.com on September 19, 2016. As of November 30, 2016, the value of this investment
was written down to $0 to reflect the market value of the investment.
|
|
●
|
Issued
1,832 shares of common stock for acquisitions valued at $11,448.
|
The
Company had 8,001,266 and 4,454,306 shares issued and outstanding as of February 28, 2018 and February 28, 2017, respectively.
Common
Stock Warrants
On July 31, 2017,
the Company issued an aggregate of 613,000 common stock warrants in connection with a private placement offering of 613,000 shares
of common stocks. The warrants were exercisable immediately at $5.25 per share and expire on July 30, 2022. These warrants contain
a subsequent equity sale reset “down round”, which provides that if the Company sells or grants any option to purchase
any common stock of the Company at any effective price per share less than the exercise price of the warrants, the exercise price
shall be reduced to equal that lower exercise price.
During January 2018,
the Company entered into a First Amendment To Warrant (“
Amendment
”) agreement with Pacific Grove which amended
the Common Stock and Warrant Purchase Agreement, provided to Pacific Grove in connection with the closing of the Purchase Agreement,
whereby Pacific Grove acquired warrants to purchase 350,000 shares of our common stock. This amendment led to a reduction in the
exercise the exercise price of the warrants from $5.25 per share to $2.625 per share. This exercise price reduction was to incentivize
the exercise of these warrants and to raise cash.
Additionally, as a result of the reduction
in the exercise price of the Pacific Grove warrants which was agreed to pursuant to the Amendment, the anti-dilution provisions
of the Purchase Agreement and the Purchasers warrants was triggered. Specifically, because the Company issued shares of common
stock below (a) the $5.00 price per share of the securities sold pursuant to the Purchase Agreement, the Purchasers were due an
additional 14,458 shares of the Company’s common stock; and (b) the $5.25 exercise price of the warrants sold pursuant to
the Purchase Agreement (and the warrants granted to the placement agent), automatically decreased to $5.125 per share.
On January 29, 2018, we entered into a First
Amendment To Warrant agreement with The Stadlin Trust dated 5/25/01 (“
Stadlin
”) which amended the Common Stock
and Warrant Purchase Agreement provided to Stadlin in connection with the closing of the offering, whereby Stadlin acquired warrants
to purchase 20,000 shares of our common stock. Through January 29, 2018, Stadlin earned additional warrants to purchase 9,800 shares
of our common as partial liquidated damages for delays in obtaining an uplisting to the NASDAQ Capital Market, which uplisting
was required pursuant to the Purchase Agreement, to have occurred on or before December 9, 2017; these additional warrants (on
substantially similar terms as the warrants granted in connection with the offering) are equal to Stadlin’s pro rata share
of 1% of the warrants sold pursuant to the Purchase Agreement for each day that the Company failed to obtain the NASDAQ listing.
Total warrants held by Stadlin as of January 29, 2018 were 29,800. We desired to incentivize Stadlin to exercise the Warrants by
reducing the exercise price of the warrants from $5.125 per share to $2.625 per share, provided that Stadlin agreed to immediately
exercise such 29,800 warrants for $78,225 in cash. Pursuant to the amendment, the exercise price of the warrants was reduced as
discussed above and Stadlin exercised the warrants in cash.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February 28, 2018 and 2017
Additionally, as a result of the reduction
in the exercise price of the Stadlin warrants which was agreed to pursuant to the Amendment, the anti-dilution provisions of the
Purchase Agreement and the Purchasers warrants was triggered. Specifically, because the Company issued shares of common stock below
(a) the $5.00 price per share of the securities sold pursuant to the Purchase Agreement, the Purchasers were due an additional
1,220 shares of the Company’s common stock; and (b) the $5.125 exercise price of the warrants sold pursuant to the Purchase
Agreement (and the warrants granted to the placement agent), the exercise price of such warrants remained unchanged at $5.125 per
share.
At first, the warrants
were accounted for as part of Company equity since the warrants were considered indexed to the Company’s own stock. Under
ASC 815, the “down round” protection can sever the indexed to the Company’s own stock and the warrants could
be accounted for as derivative liabilities at the time the reset was triggered, the change in fair value resulting from the reset
of $26,060 was recognized as change in fair value of derivative liabilities.
In July 2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815): I. Accounting
for Certain Financial Instruments with Down Round Features, II. Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.
ASU 2017-11 intends to reduce the complexity associated with the issuer’s accounting for certain financial instruments with
characteristics of liabilities and equity. Specifically, the Board determined that a down round feature (as defined) would no longer
cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be accounted for as a derivative
liability at fair value with changes in fair value recognized in current earnings and is effective in fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company adopted the new standard
during 2017, preventing the need to account for the Company to account for the outstanding warrants that contain down round features
as derivative instruments.
The
following table sets forth common stock purchase warrants outstanding as of February 28 2018, and February 28, 2017, and changes
in such warrants outstanding for the years ending February 28, 2018 and February 28, 2017:
|
|
Warrant
|
|
Weighted
Average
Exercise
|
Outstanding,
February 29, 2016
|
|
|
582,420
|
|
|
$
|
4.64
|
|
Warrants
granted
|
|
|
985,482
|
|
|
$
|
4.27
|
|
Warrants
exercised/forfeited/expired
|
|
|
(759,863
|
)
|
|
$
|
(4.19
|
)
|
Outstanding,
February 28, 2017
|
|
|
808,039
|
|
|
$
|
4.72
|
|
Warrants
granted
|
|
|
1,285,819
|
|
|
$
|
4.18
|
|
Warrants
exercised/forfeited/expired
|
|
|
(974,917
|
)
|
|
$
|
(3.63
|
)
|
Outstanding,
February 28, 2018
|
|
|
1,118,941
|
|
|
$
|
5.27
|
|
|
|
|
|
|
|
|
|
|
Common
stock issuable upon exercise of warrants
|
|
|
1,118,941
|
|
|
$
|
5,891,297
|
|
|
|
Common
Stock Issuable Upon Exercise of
Warrants Outstanding
|
|
Common
Stock Issuable
Upon Warrants
Exercisable
|
Range
of
Exercise
Prices
|
|
Number
Outstanding at
February 28,
2018
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable at
February 28,
2018
|
|
Weighted
Average
Exercise
Price
|
$
|
1.25
|
|
|
|
16,800
|
|
|
|
1.72
|
|
|
$
|
1.25
|
|
|
|
16,800
|
|
|
$
|
1.25
|
|
$
|
3.75
|
|
|
|
30,000
|
|
|
|
2.29
|
|
|
$
|
3.75
|
|
|
|
30,000
|
|
|
$
|
3.75
|
|
$
|
5.00
|
|
|
|
295,520
|
|
|
|
1.98
|
|
|
$
|
5.00
|
|
|
|
295,520
|
|
|
$
|
5.00
|
|
$
|
5.13
|
|
|
|
654,421
|
|
|
|
4.42
|
|
|
$
|
5.13
|
|
|
|
654,421
|
|
|
$
|
5.13
|
|
$
|
5.63
|
|
|
|
21,000
|
|
|
|
4.28
|
|
|
$
|
5.63
|
|
|
|
21,000
|
|
|
$
|
5.63
|
|
$
|
6.25
|
|
|
|
1,200
|
|
|
|
1.42
|
|
|
$
|
6.25
|
|
|
|
1,200
|
|
|
$
|
6.25
|
|
$
|
7.50
|
|
|
|
80,000
|
|
|
|
1.17
|
|
|
$
|
7.50
|
|
|
|
80,000
|
|
|
$
|
7.50
|
|
$
|
10.00
|
|
|
|
20,000
|
|
|
|
0.67
|
|
|
$
|
10.00
|
|
|
|
20,000
|
|
|
$
|
10.00
|
|
|
|
|
|
|
1,118,941
|
|
|
|
3.85
|
|
|
$
|
5.27
|
|
|
|
1,118,941
|
|
|
$
|
5.27
|
|
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February
28, 2018 and 2017
At
February 28, 2018, there were warrants outstanding to purchase 1,118,941 shares of common stock with a weighted average exercise
price of $5.27 and weighted average life of 3.85 years.
At
February 28, 2017, there were warrants to purchase 808,039 shares of common stock outstanding with a weighted average exercise
price of $4.72 and weighted average life of 2.23 years.
During
the year ended February 28, 2018, the Company granted:
|
●
|
warrants
to purchase 707,978 shares of common stock in connection with subscriptions;
|
|
●
|
warrants
to purchase 112,772 shares of common stock in consideration for consulting fees; and
|
|
●
|
warrants to purchase 465,069 shares of common stock in consideration for liquidated damages which resulted
in penalty expenses of $1,972,800.
|
Related
Party Transactions
On
March 15, 2016, Stephen Romsdahl, a greater than 5% shareholder of the Company, subscribed for $120,000 of units (48,000 total
units) in our offering of up to $400,000 of units of the Company, each comprised of 1 share of common stock and 2 Special Exchange
warrants to purchase one share of common stock at an exercise price of $0.625 per share.
On
March 17, 2016, Mark Wilton, a greater than 5% shareholder of the Company, subscribed for $60,000 of units (24,000 total units)
in our offering of up to $400,000 units of the Company, each comprised of 1 share of common stock and 2 Special Exchange warrants
to purchase one share of common stock at an exercise price of $0.25 per share.
On
April 17, 2016, Monaco Investment Partners II, L.P, of which Donald Monaco is the managing general partner and a Director of the
Company, exercised warrants to purchase 80,000 shares of common stock at an exercise price of $3.75 per share.
Messrs.
Donald P. Monaco, Pat LaVecchia, Douglas Checkeris and William Kerby who represented all of the members of the Board of Directors
of Monaker resigned as directors of RealBiz effective Monday April 11, 2016.
On
May 3, 2016, Monaco Investment Partners II, L.P, of which Donald Monaco is the managing general partner and a Director of the
Company, exercised warrants to purchase 120,000 shares of common stock at an exercise price of $3.75 per share.
On
May 31, 2016, the Company received $90,000 in proceeds from the Donald P. Monaco Insurance Trust (whose trustee is Donald Monaco
a director of Monaker) and issued 24,000 common shares in connection with the exercise of warrants to purchase 24,000 shares of
common stock with an exercise price of $3.75 per share.
On
June 2, 2016, the Company borrowed three hundred thousand dollars ($300,000) from the Donald P. Monaco Insurance Trust (“
Trust
”),
which was evidenced by a Promissory Note (“
Note
”) in the principal amount of three hundred thousand dollars
($300,000), which accrues interest at the rate of 6% per annum (12% upon the occurrence of an event of default). All principal,
interest and other sums due under the Note is due and payable on the earlier of (a) the date the operations of NextTrip.com generate
net revenues equal to $300,000; (b) the date the Company enters into an alternate financing in excess of $300,000; or (c) August
1, 2016. The Note contains standard and customary events of default. Donald P. Monaco, a member of our Board of Directors, is
the trustee of the Trust. This Note could be prepaid in whole or in part at any time, without penalty or premium.
On
June 15, 2016, we entered into a revolving line of credit agreement with Republic Bank, Inc. of Duluth, Minnesota, 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 were due on June 15, 2017. The loan contains standard and customary events of default. On June 16, 2016, we borrowed
$450,000 under the line of credit. Amounts borrowed under the line of credit were used for marketing initiatives, working capital
and to repay $300,000 previously borrowed from the Trust as discussed above.
On
July 8, 2016, Stephen Romsdahl, a then greater than 5% shareholder of the Company, exercised warrants to purchase 38,400 shares
of common stock which had an exercise price of $0.625 per share for an aggregate of $24,000.
On
August 23, 2016, Pat LaVecchia, our director, converted 1,000 shares of Series D Preferred Stock into shares of common stock in
connection with a special exchange conversion whereby Series D Preferred Stock shareholders were offered a special conversion
rate of $6.25 per share of the Company’s common stock, provided accrued dividends were waived (instead of the stated $31.25
conversion price), into 800 shares of common stock at $6.25 per share, valued at $5,000.
Effective
September 8, 2016, the Company sold 55,200 units, each consisting of one share of common stock and one warrant to purchase one
share of common stock (the “
Units
”), to Charcoal Investments Ltd. (“
Charcoal
”), which entity
is owned by Simon Orange, who became a member of the Board of Directors of the Company on January 5, 2017, in consideration for
$345,000 or $6.25 per unit. The warrants were evidenced by a Warrant to Purchase Common Stock (the “
Charcoal Warrants
”),
had an exercise price of $6.25 per share and an expiration date of September 7, 2017.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February
28, 2018 and 2017
Also
on September 8, 2016, the Company entered into a consulting agreement with Mr. Orange, pursuant to which Mr. Orange agreed to
provide the Company consulting services by aiding the Company in financial, organizational and developmental advice during a twelve
month period. In connection with assisting with a $750,000 private offering of units (pursuant to which Charcoal subscribed for
units as described above), Mr. Orange received compensation consisting of cash, shares and warrants.
On
October 26, 2016, the Donald P. Monaco Insurance Trust, of which Donald Monaco is the trustee and a Director of the Company, exercised
warrants to purchase 112,000 shares of common stock with an exercise price of $3.75 per share.
On
November 4, 2016, Mark Wilton, a greater than 5% shareholder of the Company, was issued 45,908 shares of restricted common stock
pursuant to a subscription agreement for $99,800 in proceeds.
On
December 1, 2016, Stephen Romsdahl, a then greater than 5% shareholder of the Company, exercised warrants to purchase 34,000 shares
of common stock which had an exercise price of $1.25 per share.
On
December 20, 2016, we borrowed $37,500 from In Room Retail, which was evidenced by a Promissory Note (“
Note
”)
in the principal amount of $37,500, which accrued interest at the rate of 6% per annum. William Kerby, our Chairman and Chief
Executive Officer, is the managing member of In Room Retail.
On
January 26, 2017, the Company, Mr. Orange, a director, and Charcoal, agreed to reduce the exercise price of the 63,200 warrants
to purchase shares of common stock (the “
Warrants
”) to $5.00 per share, Mr. Orange and Charcoal exercised all
of the Warrants in consideration for an aggregate of $316,000, and the Company issued Mr. Orange 8,000 shares of restricted
common stock and Charcoal 55,200 shares of restricted common stock, in connection with such exercise. In consideration for
agreeing to exercise the Warrants, the Company granted Mr. Orange warrants to purchase 8,000 shares of the Company’s common
stock and Charcoal warrants to purchase 55,200 shares of common stock, each with an exercise price of $5.00 per share and
an expiration date of January 25, 2020.
From
February 6, 2017 to March 10, 2017, the Company raised $1,550,000 from the sale of 310,000 units, each consisting of one share
of restricted common stock and one warrant to purchase one share of common stock (the “
Units
”), to fourteen
accredited investors in a private offering, at $5 per Unit. Investors in the offering included an entity owned by Donald P. Monaco,
the Company’s director (40,000 Units for $200,000), and Robert J. Post, the Company’s director (20,000 Units for $100,000).
The warrants have an exercise price of $5.00 per share and a term of three years, and include no cashless exercise rights.
On
April 19, 2017, we issued 40,000 shares of common stock to Omar Jimenez, a member of the Board of Directors and an executive of
the Company, valued at $250,000, as a fiscal year-ended February 28, 2017 employee bonus.
On
August 11, 2017, the Company closed the transactions contemplated by the Common Stock and Warrant Purchase Agreement, entered
into by the Company on July 31, 2017 (the “
Purchase Agreement
”), with certain accredited investors named
therein (collectively, the “
Purchasers
”). Under the terms of the Purchase Agreement, the Company sold the Purchasers
an aggregate of 613,000 shares of common stock (the “
Shares
”) and 613,000 warrants to purchase one share of
common stock (the “
Offering Warrants
” and together with the Shares, the “
Securities
”). The
combined purchase price for one Share and one Offering Warrant to purchase one share of common stock in the Private Placement
offering was $5.00. William Kerby, the Chief Executive Officer and Chairman of the Company, purchased $50,000 of the Securities
(10,000 Shares and Offering Warrants); Simon Orange, a member of the Board of Directors of the Company, purchased $175,000 of
the Securities (35,000 Shares and Offering Warrants); Donald Monaco, a member of the Board of Directors of the Company, purchased
$175,000 of the Securities (35,000 Shares and Offering Warrants); Pat LaVecchia, a member of the Board of Directors of the Company,
purchased $10,000 of the Securities (2,000 Shares and Offering Warrants); and Robert J. Post, a member of the Board of Directors
of the Company, purchased $25,000 of the Securities (5,000 Shares and Offering Warrants). Additionally, Stephen Romsdahl, a significant
stockholder of the Company, purchased $50,000 of the Securities (10,000 Shares and Offering Warrants) and another non-related
party, who is a key distributor of the Company, purchased $100,000 of the Securities (20,000 Shares and Offering Warrants).
A
required term of the Offering 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 (“
Series A Preferred Stock
”) beneficially owned by them into 1,495,689 shares of common stock
of the Company, which conversions were effective July 28, 2017.
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 281,866 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.
On
December 12, 2017, we received $105,000 from Monaco Investment Partners II, LP, whose managing general partner is Donald Monaco,
a director of the Company, and issued 21,000 shares of common stock in connection with the exercise of a warrant to purchase 21,000
shares of common stock, which had an exercise price of $5.00 per share.
On
January 10, 2018, we received $1,203,563 from Pacific Grove Capital LP, a greater than 10% shareholder of the Company, and issued
458,500 shares of common stock in connection with a First Amendment to Warrant. Pursuant to the First Amendment to Warrant Agreement,
Pacific Grove exercised warrants to purchase 350,000 shares of common stock at a reduced exercise price of $2.625 per share. Additionally,
Pacific Grove exercised penalty warrants to purchase 108,500 shares of common stock at a reduced exercise price of $2.625 per
share.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February
28, 2018 and 2017
As
a result of the reduction in the exercise price of the Pacific Grove warrants which was agreed to pursuant to the First Amendment
to Warrant, the anti-dilution provisions of the Purchase Agreement were triggered. The Purchasers were issued a total of 14,458
shares of the Company’s common stock valued at $70,483 in connection with such anti-dilution rights.
On
January 11, 2018, we received $130,200 from the Donald P. Monaco Insurance Trust, of which Donald Monaco is the trustee and a
member of the Board of Directors of the Company, and issued 24,800 shares of common stock in connection with the exercise warrants
to purchase 24,800 shares of common stock, which had an exercise price of $5.25 per share.
On
January 11, 2018, we received $10,500 from William Kerby, the CEO and Chairman of the Company, and issued 2,000 shares of common
stock in connection with the exercise of a warrant to purchase 2,000 shares of common stock, which had an exercise price of $5.25
per share.
On
January 11, 2018, we received $95,000 from Monaco Investment Partners II LP, of which Donald Monaco is the managing general partner
and a member of the Board of Directors of the Company, and issued 19,000 shares of common stock in connection with the exercise
of a warrant to purchase 19,000 shares of common stock, which had an exercise price of $5.00 per share.
On
January 11, 2018, we received $200,000 from Charcoal Investment Ltd, which entity is owned by Simon Orange, a member of the Board
of Directors of the Company, and issued 40,000 shares of common stock in connection with the exercise of a warrant to purchase
40,000 shares of common stock, which had an exercise price of $5.00 per share.
As
of February 28, 2018, the Company accrued a contractual bonus of $170,000 to the Company’s Chief Operating Officer, Chief
Financial Officer and Director. This amount is included in accounts payable and accrued expenses of $313,491.
Dividends
in arrears on the outstanding Series A Preferred Stock shares (which are beneficially owned by Donald P. Monaco, our director
and William Kerby, our CEO and Chairman) total $1,025,233 and $838,272 as of February 28, 2017 and February 29, 2016, respectively.
Note
11 – Commitments and Contingencies
The
Company leases its office space 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. Monthly rental costs for calendar years 2016, 2017 and 2018 are $6,500, $6,695 and $6,896, respectively. The rent for
the years ended February 28, 2018 and February 28, 2017 were $79,864 and $79,665, respectively.
The
current office lease will terminate early on March 31, 2018, at the request of the landlord, without penalties to the Company.
The Company has entered into a new contract for new office space, for a term of three years from April 15, 2018 through April
14, 2021. Monthly rental costs for the periods ending April 14, 2019, 2020 and 2021 are $6,243, $6,492 and $6,781, respectively.
Our
future minimum rental payments through February 28, 2019 amount to $72,430.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
February
28, 2018
|
|
|
February
28, 2019
|
|
|
thereafter
|
|
|
Totals
|
|
Leases
|
|
|
$
|
72,430
|
|
|
$
|
77,534
|
|
|
$
|
91,107
|
|
|
$
|
241,071
|
|
Other
|
|
|
|
51,167
|
|
|
|
3,150
|
|
|
|
—
|
|
|
|
54,317
|
|
Totals
|
|
|
$
|
123,597
|
|
|
$
|
80,684
|
|
|
$
|
91,107
|
|
|
$
|
295,388
|
|
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.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February
28, 2018 and 2017
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.
On
December 9, 2016, a class action lawsuit McLeod v. Monaker Group, Inc. et al (Case No.: 0:16-cv-62902-WJZ) was 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 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. 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. On March 16, 2017, the plaintiffs responded to the Motion to Dismiss,
and on March 30, 2017, we filed a Reply memorandum in support of our Motion to Dismiss. On January 24, 2018, the Court granted
our Motion to Dismiss and dismissed Plaintiff’s complaint and gave Plaintiff leave to file an amended complaint. On February
23, 2018, Mcleod, joined by new plaintiff, Ronald Mims, filed an Amended Complaint with the same allegations of security fraud
as alleged in the original complaint. On March 29, 2018, we filed a Motion to Dismiss Plaintiffs’ Amended Complaint. 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.
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.
On
December 22, 2017, we entered into a Settlement Agreement with RealBiz, NestBuilder and AST for the dismissal with prejudice of
the following lawsuits: Case Number 1:16-cv-61017-FAM; Case No.: CACE-16-019818; Case No.: 16-24978-CIV- GRAHAM; Case No.: C.A
2017-0189; Case No.: 2017-0351 and Case No.: 2017-0189-JRS. As part of the Settlement Agreement, Monaker agreed to pay NestBuilder
$100,000 and to issue 20,000 shares of Monaker’s restricted common stock to person(s) to be designated by NestBuilder; RealBiz
reinstated to Monaker 44,470,101 shares of RealBiz Series A Convertible Preferred Stock and ratified all rights under the Certificate
of Designation as reformed and amended (to provide for a conversion ratio of 1 share of RealBiz common stock for each 1 share
of RealBiz Series A preferred stock) and remove any dividend obligations. We accrued settlement expenses of $142,800 and a gain
on settlement of $176,324, for a net gain on settlement of $33,524, in connection with the Settlement Agreement. The RealBiz designation
is also amended to provide us with anti-dilution protection below $0.05 per share. The agreement further provided for each party
to dismiss the above referenced lawsuits with prejudice and for general releases from each party.
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 a $450,945 credit to stock compensation in May 2017 as a result of the settlement.
Note
12 – 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
13 – 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).
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February
28, 2018 and 2017
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 any increase or decrease in the fair value being recorded in results of operations
as adjustments to fair value of derivatives. The 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
Company did not have exposure to derivative liabilities and the Company did not have exposure to embedded conversion options as
those instruments were converted to equity positions by the note-holder. There are not derivative liabilities as of February 28,
2018 and February 28, 2017.
The
Company has $-0- convertible promissory notes that include embedded conversion options at February 28, 2018 and February 28, 2017.
Note
14 – Income Taxes
Monaker
follows the guidance of ASC 740, “
Income Taxes
.” Deferred income taxes reflect the net effect of (a) temporary
differences 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 net provision for refundable Federal income tax has been made in the
accompanying statement of loss because no recoverable taxes 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.
The
provision for income taxes consists of the following components for the years ended February 28, 2018 and February 28, 2017:
|
|
2017
|
|
|
2016
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
components of deferred income tax assets and liabilities for the years ended February 28, 2018 and February 28, 2017, are as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
29,904,863
|
|
|
$
|
27,018,698
|
|
Equity based compensation
|
|
|
4,329,000
|
|
|
|
4,329,000
|
|
Amortization and impairment of intangibles
|
|
|
43,890
|
|
|
|
1,779,820
|
|
Total deferred assets
|
|
|
34,277,753
|
|
|
|
33,127,518
|
|
Valuation allowance
|
|
|
(34,277,753
|
)
|
|
|
(33,127,518
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
income tax provision differs from the expense that would result from applying statutory rates to income before income taxes principally
because of the valuation allowance on net deferred tax assets for which realization is uncertain.
The
effective tax rates for years ended February 28, 2018 and February 28, 2017 were computed by applying the federal and state statutory
corporate tax rates as follows:
|
|
2018
|
|
|
2017
|
|
Statutory Federal income tax rate
|
|
|
-21
|
%
|
|
|
-35
|
%
|
State taxes, net of Federal
|
|
|
-5
|
%
|
|
|
-4
|
%
|
Permanent difference
|
|
|
11
|
%
|
|
|
11
|
%
|
Change in valuation allowance
|
|
|
15
|
%
|
|
|
28
|
%
|
|
|
|
0
|
%
|
|
|
0
|
%
|
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February
28, 2018 and 2017
The
valuation allowance has increased by $1,150,235 for the fiscal year ended 2018 primarily as a result of a current year tax
loss of $2,886,165 which increased net operating loss to $29,904,863 at February 28, 2018, from $27,018,698 at February 28,
2017, and a decrease of $1,735,930 in amortization of intangibles to $43,890 at February 28, 2018, from $1,779,820 at
February 28, 2017.
The
net operating loss (“
NOL
”) carry-forward balance as of February 28, 2018 is approximately $30 million expiring
between 2029 and 2037. Management has reviewed the provisions of ASC 740 regarding assessment of their valuation allowance on
deferred tax assets and based on that criteria determined that it does not have sufficient taxable income to offset those assets.
Therefore, management has assessed the realization of the deferred tax assets and has determined that it is more likely than not
that they will not be realized and has provided a full valuation allowance against these assets. The utilization of the NOL’s
may be limited by Internal Revenue Code Section 382 which restricts annual utilization following a greater than 50% change in
ownership.
At
the adoption date the Company applied ASC 740 to all tax positions for which the statute of limitations remained open. As a result
of the implementation of ASC 740, the Company did not recognize a material increase in the liability for uncertain tax positions
as of February 28, 2018.
Note
15 – Earnings Per Share
The
following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per-share computations
for each of the past two fiscal years:
|
|
|
|
Weighted
Average
|
|
|
|
|
Income
|
|
Shares
|
|
Per Share
|
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
For the year ended February 28, 2018:
|
|
|
|
|
|
|
Basic earnings (losses)
|
|
$
|
(10,037,142
|
)
|
|
|
6,216,988
|
|
|
$
|
(1.61
|
)
|
Effect of dilutive securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dilutive earnings
|
|
$
|
(10,037,142
|
)
|
|
|
6,216,988
|
|
|
$
|
(1.61
|
)
|
For the year ended February 28, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (losses)
|
|
$
|
(7,097,275
|
)
|
|
|
3,444,583
|
|
|
$
|
(2.06
|
)
|
Effect of dilutive securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Dilutive earnings
|
|
$
|
(7,097,275
|
)
|
|
|
3,444,583
|
|
|
$
|
(2.06
|
)
|
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.
Note
16 – Subsequent Events
First
Amendment to Warrant Agreement March 1, 2018
On
March 1, 2018, we entered into a First Amendment to Warrant agreement with Pacific Grove. Through January 10, 2018, Pacific earned
and exercised additional warrants to purchase 108,500 shares of our common as partial liquidated damages for delays in obtaining
an uplisting to the NASDAQ Capital Market, which uplisting was required pursuant to the Purchase Agreement, to have occurred on
or before December 9, 2017; these additional warrants (on substantially similar terms as the warrants granted in connection with
the offering) are equal to Pacific Grove’s pro rata share of 1% of the warrants sold pursuant to the Purchase Agreement
for each day that the Company failed to obtain the NASDAQ listing (the “
Liquidated Damages
”). Between January
11, 2018 and February 21, 2018 (the date of NASDAQ listing), Pacific earned additional warrants to purchase 147,000 shares of
our common as partial liquidated damages for delays in obtaining an uplisting to the NASDAQ Capital Market (previously described).
Total warrants held by Pacific as of March 1, 2018 were 147,000. We desired to incentivize Pacific Grove to exercise the Warrants
by reducing the exercise price of the warrants from the adjusted price of $5.13 per share to $2.625 per share, provided that Pacific
Grove agreed to immediately exercise such 147,000 warrants for $385,875 in cash. Pursuant to the Amendment, the exercise price
of the warrants was reduced as discussed above and Pacific exercised the warrants in cash.
The
Purchase Agreement includes certain liquidated damage provisions which require the Company to grant to the Purchasers as partial
liquidated damages for any delay in obtaining an uplisting to the NASDAQ Capital Market (“
NASDAQ
”), which uplisting
was required to have occurred, pursuant to the Purchase Agreement, on or before December 9, 2017 (the “
Required Uplisting
Date
”), additional warrants (on substantially similar terms as the warrants granted pursuant to the Purchase Agreement)
equal to each Purchaser’s pro rata share of 1% of the warrants sold pursuant to the Purchase Agreement, for each day that
the Company fails to uplist its common stock to NASDAQ after the Required Uplisting Date. A total of up to 100% of the warrants
sold pursuant to the Purchase Agreement may be issued to the Purchasers as Liquidated Damages.
Monaker
Group, Inc.
Notes
to the Consolidated Financial Statements
February
28, 2018 and 2017
Pursuant
to the Liquidated Damages provision of the Purchase Agreement (as discussed above), and including the warrants granted to Pacific
Grove in consideration for the Liquidated Damages, the Company, through February 21, 2018, has granted warrants to purchase an
additional 465,066 shares of common stock to the Purchasers and the placement agent in the offering, which also has the right
to receive additional warrants as if it was a Purchaser under the Purchase Agreement.
Additionally,
as a result of the reduction in the exercise price of the Pacific Grove warrants which was agreed to pursuant to the Amendment,
the anti-dilution provisions of the Purchase Agreement and the Purchaser warrants were triggered. Specifically, because the Company
issued shares of common stock below (a) the adjusted $5.13 price per share of the securities sold pursuant to the Purchase Agreement,
the Purchasers are due an additional 4,390 shares of the Company’s common stock; and (b) the $5.25 exercise price of the
warrants sold pursuant to the Purchase Agreement (and the warrants granted to the placement agent), the exercise price of such
warrants automatically decreased to $5.09 per share.
On May 31, 2018 effective February 28, 2018, Monaker and A-Tech entered into a First Amendment to the Purchase
Agreement, to amend the terms of the Purchase Agreement to (a) provide for the acquisition by Monaker of a ‘right to own’
the Property instead of the ownership of the Property itself, as the title to the Property had not been legally transferred as
of such date, which ‘right to own’ had an exercise price of $0 and was transferrable and exercisable by the Company
at any time, (b) terminate the Construction Obligation, and (c) to correct certain inaccuracies in the original agreement. The
First Amendment also required A-Tech to return 210,632 shares of common stock to Monaker for cancellation and were cancelled for
non-performance. The First Amendment to the Purchase Agreement had an effective date of November 21, 2017.
Immediately thereafter, on May 31, 2018, Monaker and Bettwork entered into an agreement whereby Bettwork acquired the
‘right to own’ the Property from the Company in consideration for a Secured Convertible Promissory Note in the amount
of $1.6 million (the “
Secured Note
”). The amount owed under the Secured Note accrues interest at a fluctuating
interest rate, based on the prime rate, and is due and payable on May 31, 2020. The repayment of the Secured Note is secured by
a first priority security interest in the ‘right to own’ and subsequent to the exercise thereof, the Property. 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 9.99% beneficial ownership
limitation. The conversion price of the Secured Note is $1.00 per share, 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). Bettwork and A-Tech share a common principal.