The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial
Statements
(Unaudited)
Note 1 – Summary of Business Operations
and Significant Accounting Policies
Nature of Operations and Business
Organization
Monaker Group, Inc. and its subsidiaries
(“
Monaker
”, “
we
”, “
our
”, “
us
”, or “
Company
”)
operate an online marketplace for the alternative lodging rental industry. Alternative lodging rentals (ALRs) are whole unit vacation
homes or timeshare resort units that are fully furnished, privately owned residential properties, including homes, condominiums,
villas and cabins, that property owners and managers rent to the public on a nightly, weekly or monthly basis. As an added feature
to our ALR offerings, we also provide access to airline, car rental, hotel, cruise and activities products along with concierge
tours and activities, at the destinations, that are catered to the traveler through our Maupintour products.
We provide a vacation rental platform with
auxiliary services so travelers can purchase vacations through our websites that include NextTrip.com, Maupintour.com and EXVG.com
or through distributors of the Company’s ALRs, while providing inquiries and bookings to property owners and managers. NextTrip
serves three major constituents: (1) property owners and managers, (2) travelers, and (3) other distributors. Property owners and
managers provide detailed listings of their properties to the Company with the goal of reaching a broad audience of travelers seeking
ALRs. The property owners and managers provide us their properties, at a preferential net rate for each booking and, in return,
their properties are listed for free as an available ALR on NextTrip.com (as well as other distributors of the Company’s
ALRs). Travelers visit NextTrip.com (as well as other distributors of the Company’s ALRs) and are able to search and compare
our large and detailed inventory of listings to find ALRs meeting their needs.
Monaker is a technology driven travel company
with ALR products as its distinguishing niche. The ALRs are owned and leased by third parties and are available to rent through
Monaker’s websites as well as other distributors of Monaker’s ALRs. Monaker’s services include critical elements
such as technology, an extensive film library, trusted brands and established partnerships that enhance product offerings and reach.
Monaker has video content, key industry relationships and a prestigious Travel Brand as cornerstones for the development and planned
deployment of core-technology on both proprietary and partnership platforms.
Monaker sells travel services to leisure
and corporate customers around the world. The primary focus is on providing ALR options as well as providing schedule, pricing
and availability information for booking reservations for airlines, hotels, rental cars, cruises and other travel products such
as sightseeing tours, show and event tickets and theme park passes. The Company sells these travel services both individually and
also as components of dynamically-assembled packaged travel vacations and trips. In addition, the Company provides proprietary
videos that present travelers with information about travel destinations, maps and other travel details. In May 2017, the Company
introduced its new Travel Platform under the NextTrip brand. This platform continues to be improved with a focus on maximizing
the consumer’s experience and assisting them in the decision and purchasing process.
The platform is a combination of proprietary
and licensed technology (described below) that connects and searches large travel suppliers of alternative lodging inventories
to present to consumers comprehensive and optimal alternatives at the most inexpensive rates to choose from.
The Company sells its travel services through
various distribution channels including (i) direct to consumers through its websites (NextTrip.com and EXVG.com), its mobile application
(“
app
”), and a toll-free telephone number designed to assist customers with complex or high-priced offerings
of Maupintour and, (ii) the Company plans to provide real-time bookable ALRs to other distributors (such as other travel companies’
websites and networks of third-party travel agents) who will sell the ALRs to their customers.
Monaker’s core holdings include NextTrip.com,
Maupintour.com and EXVG.com. NextTrip.com is the primary website, where travel services and products are booked. The travel services
and products include ALRs, tours, activities/attractions, airline, hotel, and car rentals. Maupintour complements the Nextrip.com
offering by providing high-end tour packages and activities/attractions. EXVG.com is the website where ALRs, that are not real-time
bookable, will be promoted.
Interim Financial Statements
These unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States (“
US GAAP
”)
for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the consolidated financial
statements do not include all of the information and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included
and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with
the financial statements for the fiscal year ended February 28, 2017 and notes thereto and other pertinent information contained
in our Form 10-K the Company has filed with the Securities and Exchange Commission (the “
SEC
”).
The results of operations for the nine
months ended November 30, 2017, are not necessarily indicative of the results to be expected for the full fiscal year ending February
28, 2018.
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries. All material inter-company transactions and accounts
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting periods. Actual results could differ from those estimates. These differences could have a material
effect on the Company’s future results of operations and financial position. Significant items subject to estimates and assumptions
include certain revenues, the carrying amounts of indefinite-lived intangible assets, depreciation and amortization, the valuation
of stock warrants, and deferred income taxes.
Cash and Cash Equivalents
For purposes of balance sheet presentation
and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt
instruments with an original maturity of less than 90 days to be cash and cash equivalents. The Company had no cash equivalents
at November 30, 2017 and February 28, 2017.
Website Development Costs
The Company accounts for website development
costs in accordance with Accounting Standards Codification 350-50 “
Website Development Costs
”. Accordingly,
all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure
development stage that meet specific criteria are capitalized and costs incurred in the day to day operation of the website are
expensed as incurred. All costs associated with the websites are subject to straight-line amortization over a three-year period.
Software Development Costs
The Company capitalizes internal software
development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines
established by “
ASC 985-20-25
” Accounting for the Costs of Software to Be Sold, Leased, or Otherwise Marketed,
requiring certain software development costs to be capitalized upon the establishment of technological feasibility. The establishment
of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management
with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and
hardware technologies. Amortization of the capitalized software development costs begins when the product is available for general
release to customers. Capitalized costs are amortized based on the greater of (a) the ratio of current gross revenues to the total
current and anticipated future gross revenues, or (b) the straight-line method over the remaining estimated economic life of the
product. For the nine months ended November 30, 2017 and the year ended February 28, 2017, all software has been placed in service
and all costs associated with the software development have been expensed.
Impairment of Intangible Assets
In accordance with ASC 350-30-65 “Goodwill
and Other Intangible Assets”, the Company assesses the impairment of identifiable intangible assets whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important, which could
trigger an impairment review include the following:
1. Significant underperformance compared
to historical or projected future operating results;
2. Significant changes in the manner or
use of the acquired assets or the strategy for the overall business; and
3. Significant negative industry or economic
trends.
When the Company determines that the carrying
value of an intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment
and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment
charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined
by management to be commensurate with the risk inherent to the current business model. Significant management judgment is required
in determining whether an indicator of impairment exists and in projecting cash flows. The Company did not record an impairment
charge on its intangible assets during the nine months ended November 30, 2017 and 2016, respectively. Intangible assets that
have finite useful lives are amortized over their useful lives once placed into service. During the period ended November 30,
2017, the Company’s website has been deployed. The Company incurred amortization expense of $140,772 and $842,106 on its
intangible assets, website, for the nine months ended November 30, 2017 and 2016, respectively.
Convertible Debt Instruments
The Company records debt net of debt discount
for beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant
to the Beneficial Conversion and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and
beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest
expense over the life of the debt.
Derivative Instruments
The Company enters into financing arrangements
that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. The Company
accounts for these arrangements in accordance with Accounting Standards Codification topic 815, Accounting for Derivative Instruments
and Hedging Activities (“
ASC 815
”) as well as related interpretations of this standard. In accordance with this
standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values
with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract
are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The
Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate
valuation models, considering all of the rights and obligations of each instrument.
The Company estimates fair values of derivative
financial instruments using various techniques (and combinations thereof) that are considered consistent with the objective measuring
fair values. In selecting the appropriate technique, the Company considers, among other factors, the nature of the instrument,
the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as freestanding
warrants, the Company generally uses the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the
requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to determine the
fair value of these instruments. Estimating fair values of derivative financial instruments requires the development of significant
and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal
and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive
to changes in the trading market price of our common stock. Since derivative financial instruments are initially and subsequently
carried at fair values, our income (expense) going forward will reflect the volatility in these estimates and assumption changes.
Under the terms of this accounting standard, increases in the trading price of the Company’s common stock and increases in
fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in
the trading price of the Company’s common stock and decreases in trading fair value during a given financial quarter result
in the application of non-cash derivative income.
Based upon ASC 815-25, the Company has
adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible debentures. Pursuant to the
sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
Reclassification
For comparability, certain prior year amounts
have been reclassified, where appropriate, to conform to the financial statement presentation used in 2017. The reclassifications
have no impact on net loss.
Earnings per Share
Basic earnings per share are computed by
dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings
per share are computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during each period.
Fair Value of Financial Instruments
The Company has adopted the provisions
of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP,
and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance
on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value
hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable
inputs). The hierarchy consists of three levels:
|
Level 1:
|
Observable inputs that reflect unadjusted quoted prices
for identical assets or liabilities traded in active markets.
|
|
Level 2:
|
Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly or indirectly.
|
|
Level 3:
|
Inputs that are generally unobservable. These inputs
may be used with internally developed methodologies that result in management’s best estimate of fair value.
|
Financial instruments consist principally
of cash, accounts receivable, prepaid expenses, accounts payable, accrued liabilities and other current liabilities. The carrying
amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively
short-term nature. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar
remaining maturities. The carrying amounts approximate fair value. It is management’s opinion that the Company is not exposed
to any significant currency or credit risks arising from these financial instruments.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition
guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition
method. The updated standard is effective for fiscal years, and interim reporting periods within those years, beginning after December
15, 2017, and permits early adoption a year earlier, after December 15, 2016. The Company has not yet selected a transition method
and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related
disclosures.
In February 2016, the FASB issued ASU 2016-02,
Leases. This guidance requires an entity to recognize lease liabilities and a right-of-use asset for all leases on the balance
sheet and to disclose key information about the entity’s leasing arrangements. ASU 2016-02 is effective for annual reporting
periods beginning after December 15, 2019, including interim periods within that reporting period, with earlier adoption permitted.
ASU 2016-02 must be adopted using a modified retrospective approach for all leases existing at, or entered into after the date
of initial adoption, with an option to elect to use certain transition relief. The Company has not yet selected a transition method
and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related
disclosures.
Note 2 – Note Receivable
Current
On December 22, 2014, we advanced $15,000
to a non-related third party debtor and signed a one year, six percent (6%) promissory note in the amount of $15,000. The entire
principal balance of this note was rolled into and became part of the consideration paid for the purchase of our 51% membership
interest in Name Your Fee, LLC, including approximately $1,000,000 in intangible assets. Our interest in Name Your Fee, LLC was
sold on May 16, 2016, to the same non-related third party, for cancellation of $45,000 in notes (including the $15,000 note described
above) and a promissory note in the amount of $750,000 (see also Note 4).
On August 31, 2017, we entered into an
Assignment and Novation Agreement (the “
Assignment
”) with Bettwork Industries, Inc. (“
Bettwork
”)
and Crystal Falls Investments, LLC (“
Crystal Falls
”), which entity purchased our 51% membership interest in
Name Your Fee, LLC in May 2016, in consideration for among other things, $750,000 evidenced by a Promissory Note (the “
Name
Your Fee Note
”). Pursuant to the Assignment, the Name Your Fee Note, which had a principal balance of $750,000 as of
the date of the Assignment, was assigned from Crystal Falls to Bettwork, we agreed to only look to Bettwork for the repayment of
the Name Your Fee Note, Bettwork agreed to repay the Name Your Fee Note pursuant to its terms, and we provided Crystal Falls a
novation of amounts owed thereunder. Crystal Falls also released us from any and all claims in connection with such Name Your Fee
Note and any other claims which Crystal Falls then had. The Assignment also amended the Name Your Fee Note to include an option
which allows us to convert the amount owed under the Name Your Fee Note into shares of Bettwork’s common stock at a conversion
price of $1.00 per share.
Long-term
Effective on August 31, 2017, we entered
into a Purchase Agreement (the “
Purchase Agreement
”) with Bettwork. Bettwork’s common stock is quoted
on the OTC Pink market under the symbol “
BETW
”. Pursuant to the Purchase Agreement, we sold Bettwork:
|
(a)
|
our 71.5% membership interest in Voyages North America, LLC, a Delaware limited liability company
(“
Voyages
”), including the voyage.tv website and 16,000 hours of destination and promotional videos;
|
|
(b)
|
our 10% ownership in Launch360 Media, Inc., a Nevada corporation (“
Launch360”
);
|
|
(c)
|
Rights to broadcast television commercials for 60 minutes every day on R&R TV network stations
which rights remain in place until the earlier of (i) the date the shares of Launch360 are no longer held by Bettwork; and (ii)
the date that Launch360 no longer has rights to broadcast television commercials on R&R TV network stations, for whatever reason;
and
|
|
(d)
|
Our Technology Platform for Home & Away Club and supporting I.C.E. partnership (collectively
(a) through (d), the “
Assets
”).
|
Bettwork agreed to pay $2.9 million for
the Assets, payable in the form of a Secured Convertible Promissory Note (the “
Secured Note
”). The amount owed
under the Secured Note accrues interest at the rate of (a) six percent per annum until the end of the last day of the month in
which the sale occurred; and (b) the greater of (i) six percent per annum and (ii) the prime rate plus 3 3/4% per annum, thereafter
through maturity, which maturity date is August 31, 2020, provided that the interest rate increases to twelve percent upon the
occurrence of an event of default.
Bettwork may prepay the Secured Note at
any time, subject to its obligation to provide us 15 days prior written notice prior to any prepayment. The Secured Note is convertible
into shares of Bettwork’s common stock, at our option, subject to a 4.99% beneficial ownership limitation (which may be waived
by us with at least 61 days prior written notice). The conversion price of the Secured Note is $1.00 per share (the “
Conversion
Price
”), unless, prior to the Secured Note being paid in full, Bettwork completes a capital raise or acquisition and
issues common stock or common stock equivalents (including, but not limited to convertible securities) with a price per share (as
determined in our reasonable discretion) less than the Conversion Price then in effect (each a “
Transaction
”),
at which time the Conversion Price will be adjusted to match such lower pricing structure associated with the Transaction (provided
such repricing shall continue to apply to subsequent Transactions which occur prior to the Secured Note being paid in full as well).
The repayment of the Secured Note is secured
by a first priority security interest in all of the Assets.
Note 3 – Investment in Equity
Instruments and Deconsolidation
We assess the potential impairment of our
equity method investments when indicators such as a history of operating losses, negative earnings and cash flow outlook, and the
financial condition and prospects for the investee’s business segment might indicate a loss in value. We have recognized
an impairment loss on investment in unconsolidated affiliate. As of November 30, 2017 and February 28, 2017, Monaker owned 44,470,101
shares of RealBiz Media Group, Inc. (RealBiz) Series A Preferred Stock and 10,359,890 shares of RealBiz common stock, notwithstanding
RealBiz’s attempt in January 2017 to cancel the majority of such shares as discussed below and the pending litigation in
connection therewith. This interest, along with a net receivable balance due, has been written down to zero ($0) as of November
30, 2017 and February 28, 2017 to reflect the realizable value of this investment and asset.
On November 16, 2016, RealBiz notified
Monaker that the Board of Directors of RealBiz voted to cancel and retire all issued and outstanding shares of RealBiz Preferred
Stock and all but 1,341,533 shares of common stock of RealBiz held by Monaker. On January 18, 2017, RealBiz unilaterally cancelled
all shares of common stock of RealBiz held by Monaker. RealBiz’s announced cancellation and retirement was without Monaker’s
consent, and done in violation of Delaware law, federal law and the terms of RealBiz’s preferred and common stock. We filed
a complaint on November 30, 2016 (Monaker Group, Inc., f/k/a Next 1 Interactive, Inc. v. RealBiz Media Group, Inc., f/k/a Webdigs,
Inc. and American Stock Transfer & Trust Company, LLC Case No.: 1:16-cv-24978-DLG), seeking damages and injunctive and declaratory
relief, arising from RealBiz’s declared cancellation and retirement of the shares, which action is still pending.
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 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 converted) and removed any dividend obligations. The Company
relinquished all of its common stock held in RealBiz. 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. The Company recorded approximately $147,000 as settlement expense for the nine months ended September 30, 2017.
Note 4 – Acquisitions and Dispositions
On May 16, 2016, the Company entered into
a Membership Interest Purchase Agreement for the sale of its 51% membership interest in Name Your Fee, LLC in exchange for a Promissory
Note, maturing on May 15, 2018, in the amount of $750,000 plus the cancellation of $45,000 in existing promissory notes due from
the purchaser. The Promissory Note does not accrue interest, is secured by the 51% membership interest in Name Your Fee, LLC and
will be repaid through 20% of the net earnings received in NameYourFee.com through maturity. The Note contains standard and customary
events of default. The principal amount of the note is due on May 15, 2018, provided that it will not be an event of default under
the note unless the note is not repaid within 60 days after such maturity date (i.e., by July 14, 2018). As of November 30, 2017,
the outstanding balance is $750,000.
On August 31, 2017, we entered into the
Assignment described in greater detail in Note 2 above, with Bettwork and Crystal Falls, which entity purchased our 51% membership
interest in Name Your Fee, LLC in May 2016, in consideration for among other things, the $750,000 Name Your Fee Note. Pursuant
to the Assignment, the Name Your Fee Note, which had a principal balance of $750,000 as of the date of the Assignment, was assigned
from Crystal Falls to Bettwork, we agreed to only look to Bettwork for the repayment of the Name Your Fee Note, Bettwork agreed
to repay the Name Your Fee Note pursuant to its terms, and we provided Crystal Falls a novation of amounts owed thereunder. Crystal
Falls also released us from any and all claims in connection with such Name Your Fee Note and any other claims which Crystal Falls
then had. The Assignment also amended the Name Your Fee Note to include an option which allows us to convert the amount owed under
the Name Your Fee Note into shares of Bettwork’s common stock at a conversion price of $1.00 per share.
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 500,000 shares
of restricted common stock at $2.97 each share for a total acquisition 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 86,957 shares of restricted common stock with a market
value of $2.30 per share and an aggregate value of $200,000 for a total acquisition of $275,000. Michael Heinze, Michael Kistner
and Rebecca Dernbach have the right to put the Shares back to Monaker after six months after the date of the Purchase Agreement
for $125,000 in cash.
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 ownership of 12 parcels of land on Long Caye,
Lighthouse Reef, Belize for 600,000 shares of restricted common stock at $2.41 each share for a total acquisition of
$1,446,000 plus the accrual of $54,000 to account for the guaranteed purchase price 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; if the vacation rental residences are not completed within the 270 days, Monaker will cancel 30,000 shares,
valued at $75,000 (of the previously issued 600,000 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
90
th
day after the closing of the transaction is less than $2.50 per share, Monaker has the option to issue up to
an additional 100,000 shares of our restricted common stock such that the value of the shares issued to A-Tech totals $1.5
million (subject to the 100,000 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.
Note 5 – Line of Credit and Other
Notes Payable
The following table sets forth the line
of credit and other notes payable as of November 30, 2017 and February 28, 2017:
|
|
Principal
|
|
Line of Credit
|
|
November 30, 2017
|
|
|
February 28, 2017
|
|
On June 15, 2016, we entered into a revolving line of credit agreement with Republic Bank, Inc. of Duluth, Minnesota (“
Republic
”), in the maximum amount of $1,000,000. Amounts borrowed under the line of credit accrue interest at the Wall Street Journal U.S. Prime Rate plus 1% (updated daily until maturity), payable monthly in arrears beginning on July 15, 2016. Any amounts borrowed under the line of credit are originally due on June 15, 2017; however, on June 12, 2017, the line of credit was extended for 90 days through September 13, 2017. On December 22, 2016, the revolving line of credit was increased to $1,200,000; all other terms of the revolving line of credit remain unchanged. On September 15, 2017, we entered into a replacement revolving line of credit agreement with Republic, which replaced and superseded our prior line of credit with Republic originally entered into in June 2016. The Line of Credit is in an amount of up to $1.2 million, which borrowed amount is due and payable by us on September 15, 2018. Amounts borrowed under the Line of Credit accrue interest at the Wall Street Journal U.S. Prime Rate plus 1% (updated daily until maturity), payable monthly in arrears beginning on October 15, 2017. The loan contains standard and customary events of default and no financial covenants. From June 16, 2016 through November 30, 2017, we have made draws of $1,193,000 under the line of credit.
|
|
|
1,193,000
|
|
|
|
1,193,000
|
|
|
|
$
|
1,193,000
|
|
|
$
|
1,193,000
|
|
Interest charged to operations relating
to the above line of credit note was $46,510 and $39,678, respectively, for the nine months ended November 30, 2017 and 2016.
As of November 30, 2017, accrued interest
is $0 and was $0 as of February 28, 2017. Interest obligations on the line of credit are current.
On July 20, 2017, we entered into a $75,000
short term demand loan with a stated interest rate of 6% per annum for funds received from In Room Retail, Inc., which is owned
by William Kerby, CEO and Chairman of the Company. This demand loan was repaid on August 9, 2017.
Interest charged to operations relating
to the above note was $248 and $0, respectively, for the nine months ended November 30, 2017 and 2016.
Note 6 – Convertible Promissory
Notes
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
(a greater than 5% shareholder who is treated as a related party) regarding a convertible promissory note then held by Mr. Mark
Wilton. The convertible promissory note, maturing December 1, 2017, was in the amount of $0 and $1,409,326 as of November 30, 2017
and February 28, 2017, respectively, had an interest rate of 6% per annum and a fixed conversion rate if converted by Mr. Wilton
of $5.00 per share, provided the Company also had the right to force conversion of the notes into common stock at a conversion
price equal to 80% of the 5 day trailing average closing price of our common stock prior to conversion.
Pursuant to the Debt Conversion Agreement,
we converted various promissory notes which Mr. Wilton held in the Company, which had an aggregate principal balance of $1,409,326
and were due and payable on December 17, 2017, into 704,663 shares of our restricted common stock. The conversion was undertaken
pursuant to the forced conversion terms of the Wilton Notes, which allowed us to force the conversion of the Wilton Notes into
common stock at a conversion price equal to 80% of the 5 day trailing average closing price of our common stock prior to conversion.
Additionally, pursuant to the Debt Conversion Agreement, we agreed to pay Mr. Wilton $45,000 in cash, payable at the rate of $15,000
per month in September, October and November, 2017, and Mr. Wilton agreed (a) to vote (and provided William Kerby, our Chief Executive
Officer, and any other individual who is designated by us in the future, a proxy to vote), all of the voting shares held by him,
in favor of any proposals recommended by the Board of Directors of the Company, and (b) to not transfer any of the voting shares
which he held, subject to certain exceptions, until the earlier of August 22, 2020 and the date we provide Mr. Wilton notice of
the termination of such voting proxy. We and Mr. Wilton also provided each other general releases pursuant to the Debt Conversion
Agreement.
During the nine months ended November 30,
2017 and 2016, the Company recognized interest expense of $135,000 and $150,000, respectively.
Note 7 – Deferred Gain
On August 31, 2017 we sold non-core assets
for $2,900,000 (with a net book value of $0) which included our 71.5% membership interest in Voyages North America, LLC, our 10%
ownership in Launch360 Media, Inc., rights to broadcast television commercials for 60 minutes every day on R&R TV network stations
and our technology platform for Home & Away Club (as described in Note 2 and in greater detail below under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” – “Liquidity and Capital Resources”
- “Recent Significant Funding Transactions” – “Bettwork Purchase Agreement, Secured Note and Assignment
and Novation”).
The gain on the sale of the non-core assets
(described above) is a deferred gain until such time as Bettwork completes its filings of current financial information with the
OTC Markets and further implements its business plans and management can determine collectibility is reasonably assured.
Note 8 – Stockholders’ Equity
Preferred stock
The aggregate number of shares of preferred
stock that the Company is authorized to issue is up to One Hundred Million (100,000,000), with a par value of $0.00001 per share
(“
the Preferred Stock
”) with the exception of Series A Preferred Stock shares having a $0.01 par value. The
Preferred Stock may be divided into and issued in series. The Board of Directors of the Company is authorized to divide the authorized
shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from
the shares of all other series and classes. The Board of Directors of the Company is authorized, within any limitations prescribed
by law and the articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations
and terms of the shares of any series of Preferred Stock.
On September 22, 2017, we filed Certificate
of Withdrawal of Certificate of Designations relating to our Series B, Series C and Series D Preferred Stock and terminated the
designation of our Series B, Series C and Series D Preferred Stock. The designations previously included (a) 3,000,000 shares of
preferred stock designated as Non-Voting Series B 10% Cumulative Convertible Preferred Stock; (b) 3,000,000 shares of preferred
stock designated as Non-Voting Series C 10% Cumulative Convertible Preferred Stock; and (c) 3,000,000 shares of preferred stock
designated as Non-Voting Series D 10% Cumulative Convertible Preferred Stock. The Certificate of Withdrawal of Certificate of Designations
did not affect the Company’s previously designated shares of Series A 10% Cumulative Convertible Preferred Stock.
Series A Preferred Stock
The Company has authorized and
designated 3,000,000 shares of Preferred Stock as Series A 10% Cumulative Convertible Preferred Stock, par value $0.01 per share
(the “
Series A Preferred Stock
”). The holders of record of shares of Series A Preferred Stock shall be entitled
to vote on all matters submitted to a vote of the shareholders of the Company and shall be entitled to one hundred (100) votes
for each share of Series A Preferred Stock.
On July 31, 2017, the Company entered into
a Common Stock and Warrant Purchase Agreement, with certain accredited investors. A required term of the Common Stock and Warrant
Purchase Agreement was that William Kerby, our Chief Executive Officer and Chairman and Donald P. Monaco, our Director, on behalf
of themselves and the entities which they control, convert the 1,869,611 shares of Series A 10% Cumulative Convertible Preferred
Stock beneficially owned by them (representing all of our then outstanding shares of Series A Preferred Stock) into 3,789,222 shares
of common stock of the Company, which conversions were effective July 28, 2017.
Dividends in arrears on the outstanding
Series A Preferred Stock shares totaled $1,102,066 and $1,025,233 as of July 31, 2017 (date the Series A Preferred Stock shares
were converted to common stock) and February 28, 2017, respectively. These dividends will only be payable when and if declared
by the Board.
The Company had 0 and 1,869,611 shares
of Series A Preferred Stock issued and outstanding as of November 30, 2017 and February 28, 2017.
Common Stock
During the nine months ended November 30,
2017, the Company:
●
|
|
Sold 1,712,500 shares of common stock and 1,712,500 warrants to purchase 1,712,500 shares of common stock with an exercise price of $2 per share (“Warrants”), for gross proceeds of $3,425,000. The cost of capital was $376,567 and net proceeds were $3,023,933 in the private transactions.
|
●
|
|
Issued 427,300 shares of common stock, valued at $1,073,878 for stock compensation.
|
●
|
|
Issued 75,444 shares of common stock for $139,888 in connection with the exercise of warrants.
|
●
|
|
Issued 3,739,222 shares of common stock, in connection with a conversion of 1,869,611 Series A Preferred Stock shares.
|
●
|
|
Issued 704,663 shares of common stock, valued at $1,409,326 in connection with the conversion of a convertible note.
|
●
|
|
Issued 1,186,957 shares of common stock, valued at $3,131,001 in connection with the purchase of various assets.
|
●
|
|
Retired 167,635 shares of common stock valued at $450,945 in connection with the settlement of a financial advisory agreement. In May 2017, we entered into a settlement agreement with a financial advisory firm who was engaged to raise capital per an agreement signed in October 2016. Based upon the firm’s inability to meet any of the agreed upon milestones, the firm agreed to return all the consideration paid for the services. The Company recorded a $450,945 credit to stock compensation in May 2017 as a result of the settlement.
|
|
|
|
The Company had 18,812,389 and 11,133,938
shares of common stock issued and outstanding as of November 30, 2017 and February 28, 2017, respectively.
On July 31, 2017, the Company entered
into a Common Stock and Warrant Purchase Agreement “Purchase Agreement,” with certain accredited investors named therein
(collectively, the “
Purchasers
”). Under the terms of the Purchase Agreement, which closed on August 11, 2017,
the Company sold the Purchasers 1,532,500 shares of the Company’s common stock and warrants to purchase 1,532,500 shares
of common stock.
In connection with the aforementioned Common
Stock and Warrant Purchase Agreement, the Company agreed that until August 11, 2018, if the Company or any subsidiary thereof issues
or agrees to issue any (i) common stock or (ii) any securities of the Company or the subsidiary that would entitle the holder thereof
to acquire at any time common stock, including without limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time directly or indirectly convertible into or exchangeable for, or otherwise entitles the holder thereof
to receive, common stock, except for certain Exempt Issuances (defined below), entitling any person or entity to acquire shares
of common stock at an effective price per share less than $2.00, within three trading days of the date thereof we are required
to issue to such Purchaser additional shares of common stock based on the formula set forth in the Purchase Agreement.
The exercise price of the Warrants is $2.10
per share, subject to adjustment as provided therein, and the Warrants are exercisable beginning on July 31, 2017 through July
30, 2022. The exercise price and number of shares of common stock issuable upon the exercise of the Warrants are subject to adjustment
in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, and
will also be subject to anti-dilution adjustments in the event the Company issues or is deemed to have issued any securities below
the then exercise price of the Warrants, subject to certain exceptions (i.e., the Exempt Issuances, described below), during the
12 months following the closing date.
In connection with the Purchase Agreement,
the Company agreed to use commercially reasonable efforts to file a registration statement on Form S-1 (or Form S-3, if available)
with the SEC (the “Registration Statement”) within 45 days following the closing of the offering (which date was September
25, 2017, and which Registration Statement was timely filed) to register the resale of the Shares and Warrant Shares and to cause
the Registration Statement to become effective within 120 days following the closing of the offering (which date was December 9,
2017), subject to penalties as described in the Purchase Agreement. The Registration Statement was filed on September 25, 2017
and became effective on November 13, 2017, prior to the required effectiveness deadline.
Pursuant to the Purchase Agreement, we
agreed that we will not, and we will ensure that our directors and officers and their affiliates will not, without the prior written
consent of all Purchasers, from the date of execution of the Purchase Agreement and continuing to and including the date 90 days
after the effective date of the registration statement, of which this prospectus forms a part (the “Lock-Up Period”),
(A) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock or (B) enter into
any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock,
whether any such transaction described in clause (A) or (B) above is to be settled by delivery of common stock or such other securities,
in cash or otherwise, however, the Company may conduct an Exempt Issuance (as defined below) without the prior written consent
of all Purchasers. “Exempt Issuance” means the issuance of (a) shares of common stock or options to employees, consultants,
officers or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members
of the board of directors of the Company or a majority of the members of a committee of non-employee directors established for
such purpose, (b) securities upon the exercise of or conversion of any convertible securities, options or warrants issued and outstanding
on the date of the Purchase Agreement, provided that such securities have not been amended since the date of the Purchase Agreement
to increase the number of such securities or to decrease the exercise or conversion price of any such securities, and (c) securities
issued pursuant to acquisitions or strategic transactions, provided any such issuance shall only be to a person which is, itself
or through its subsidiaries, an operating company in which the Company receives benefits in addition to the investment of funds,
but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or
to an entity whose primary business is investing in securities.
Pursuant to the Purchase Agreement, we
agreed that until the 12 month anniversary of the closing of the Offering, i.e., August 11, 2018, if the Company or any subsidiary
thereof issues or agrees to issue any (i) common stock or (ii) any securities of the Company or the subsidiary that would entitle
the holder thereof to acquire at any time common stock, including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time directly or indirectly convertible into or exchangeable for, or otherwise entitles
the holder thereof to receive, common stock, except for the Exempt Issuances, entitling any person or entity to acquire shares
of common stock at an effective price per share less than $2.00, within three trading days of the date thereof the Company is required
to issue to such Purchaser additional shares of common stock based on the formula set forth in the Purchase Agreement.
The Purchase Agreement also requires the
Company to apply for listing of its common stock on the NASDAQ Capital Market within 60 days following the closing of the offering
(which date 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 is in default
of this requirement. Therefore, we are 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., 16,092 warrants), per day, to each purchaser and the
agent. Such liquidated damages continue to be due, each day that we fail to comply with the requirements above, up to a maximum
of 100 days. As such, we are required to issue up to an additional 1,609,125 additional warrants in the event that we are never
able to obtain a listing of our common stock on the NASDAQ.
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, has granted warrants to purchase an additional 498,831 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.
Common Stock Warrants
During the nine months ended November 30,
2017, the Company granted a total of 281,925 warrants for services with a fair value of $440,748. The fair value was determined
using the Black Scholes option pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free
interest rate of 2.14% (ii) estimated volatility of 674% (iii) dividend yield of 0.00%, and (iv) expected life of the warrants
of 1 - 5 years.
The following table sets forth common stock
purchase warrants outstanding as of November 30, 2017 and February 28, 2017, and changes in such warrants outstanding for the nine
months ended November 30, 2017:
|
|
Warrants
|
|
|
Weighted
Average Exercise Price
|
|
Outstanding, February 28, 2017
|
|
|
2,020,088
|
|
|
$
|
2.24
|
|
|
|
|
|
|
|
|
|
|
Warrants granted
|
|
|
2,051,869
|
|
|
$
|
2.09
|
|
Warrants exercised/cancelled/expired
|
|
|
(920,372
|
)
|
|
$
|
(1.82
|
)
|
Outstanding, November 30, 2017
|
|
|
3,151,585
|
|
|
$
|
2.51
|
|
As of November 30, 2017, there were 3,151,585
warrants outstanding with a weighted average exercise price of $2.12 and weighted average life of 4.40 years. During the nine months
ended November 30, 2017, the Company granted 2,051,869 warrants to purchase 2,051,869 shares of common stock – 281,925 warrants
for consulting fees, 180,000 warrants in connection with common stock subscriptions, 57,444 extended warrants after expiration
and 1,532,500 warrants in connection with a Common Stock and Warrant Purchase Agreement entered into on July 31, 2017, as described
in greater detail above.
Note 9 – Related Party Transactions
On July 31, 2017, the Company entered into
a Common Stock and Warrant Purchase Agreement, with certain accredited investors. A required term of the Common Stock and Warrant
Purchase Agreement was that William Kerby, our Chief Executive Officer and Chairman and Donald P. Monaco, our Director, on behalf
of themselves and the entities which they control, convert the 1,869,611 shares of Series A 10% Cumulative Convertible Preferred
Stock beneficially owned by them (representing all of our then outstanding shares of Series A Preferred Stock) into 3,789,222 shares
of common stock of the Company, which conversions were effective July 28, 2017.
Furthermore, officers and directors of
the Company and their affiliates had to invest at least an aggregate of $500,000 into the Company on the same terms as the accredited
investors. In connection therewith, William Kerby, the Chief Executive Officer and Chairman of the Company, purchased $50,000 of
the Securities (25,000 shares of common stock and Warrants); Simon Orange, a member of the Board of Directors of the Company, purchased
$175,000 of the Securities (87,500 shares of common stock and Warrants); Donald Monaco, a member of the Board of Directors of the
Company, purchased $175,000 of the Securities (87,500 shares of common stock and Warrants); Pat LaVecchia, a member of the Board
of Directors of the Company, purchased $10,000 of the Securities (5,000 shares of common stock and Warrants); and Robert J. Post,
a member of the Board of Directors of the Company, purchased $25,000 of the Securities (12,500 shares of common stock and Warrants).
Additionally, Stephen Romsdahl, a significant stockholder of the Company, purchased $50,000 of the Securities (25,000 shares of
common stock and Warrants) and another non-related party, who is a key distributor of the Company, purchased $100,000 of the Securities
(50,000 shares of common stock and Warrants).
On August 24, 2017, and effective on August
22, 2017, we entered into a Debt Conversion and Voting Agreement with Mark A. Wilton, a significant stockholder of the Company.
Pursuant to the Debt Conversion Agreement, we converted various promissory notes which Mr. Wilton held in the Company, which had
an aggregate principal balance of $1,409,326 and were due and payable on December 17, 2017, into 704,663 shares of our restricted
common stock. Additionally, we agreed to pay Mr. Wilton $45,000 in cash, payable at the rate of $15,000 per month in September,
October and November, 2017.
For the three months ending November
30, 2017, the Company accrued a contractual bonus of $160,000 to the Company’s Chief Operating Officer,
Chief Financial Officer and Director. This amount is included in accounts payable and accrued expenses as of November 30,
2017 of $573,605.
Note 10 – Commitments and Contingencies
The Company leases its office space and
certain office equipment under non-cancellable operating leases. In accordance with the terms of the office space lease agreement,
the Company is renting the commercial office space, for a term of three years from January 1, 2016 through December 31, 2018. The
rent for the nine months ended November 30, 2017 and 2016 was $60,555 and $59,262, respectively.
Our future minimum rental payments through
February 28, 2018 amount to $66,132.
The following schedule represents obligations
under written commitments on the part of the Company that are not included in liabilities:
|
|
|
Current
|
|
|
Long Term
|
|
|
|
|
|
|
|
February 28, 2018
|
|
|
February 28, 2019
|
|
|
February 28, 2020 and thereafter
|
|
|
Totals
|
|
Leases
|
|
|
$
|
20,487
|
|
|
$
|
68,959
|
|
|
$
|
—
|
|
|
$
|
89,446
|
|
Other
|
|
|
|
15,030
|
|
|
|
10,520
|
|
|
|
9,470
|
|
|
|
35,020
|
|
Totals
|
|
|
$
|
35,517
|
|
|
$
|
79,479
|
|
|
$
|
9,470
|
|
|
$
|
124,465
|
|
On July 31, 2017, the Company
entered into a Common Stock and Warrant Purchase Agreement which requires the Company to apply for listing of its common
stock on the NASDAQ Capital Market within 60 days following the closing of the offering (which date was October 10, 2017 and
the 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 is in default of this requirement.
Therefore, we are 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., 16,092 warrants), per day, to each purchaser and the
agent. Such liquidated damages continue to be due, each day that we fail to comply with the requirements above, up to a
maximum of 100 days. As such, we are required to issue up to an additional 1,609,125 additional warrants in the event that we
are never able to obtain a listing of our common stock on the NASDAQ.
The Company is committed to pay three to
six months’ severance in the case of termination or death to certain key officers.
Legal Matters
The Company is involved, from
time to time, in litigation, other legal claims and proceedings involving matters associated with or incidental to our business,
including, among other things, matters involving breach of contract claims, intellectual property, employment issues, and other
related claims and vendor matters. The Company believes that the resolution of currently pending matters will not individually
or in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of
the current litigation or other legal claims could change in light of the discovery of facts not presently known to the Company
or by judges, juries or other finders of fact, which are not in accord with management’s evaluation of the possible liability
or outcome of such litigation or claims.
On March 28, 2016, the Company
was presented with a Demand for Arbitration, pursuant to Rule 4(a) of the American Arbitration Association Commercial Rules of
Arbitration, whereby Acknew Investments, Inc. and Vice Regal Developments Inc. (Claimants) are arguing that $700,000 is due to
them, even though they have already been paid said amounts through preferred shares that were issued as a guarantee and which Claimants
converted into shares of common stock. In connection with the purchase of the stock of the entity that eventually became RealBiz
Media Group, Inc., the Company issued 380,000 shares of Monaker Series D Preferred Stock shares with a value of $1,900,000, which
was considered the $1,200,000 value of the stock portion of the purchase price, and was also meant to guaranty the payment of the
balance of $700,000. The Company contends that the obligation to pay the $700,000 was extinguished with the conversion of the Monaker
Series D Preferred Stock shares into shares of common stock. The date for arbitration has not been set and the Company will vehemently
defend its position.
On June 2, 2016, the Company
paid an arbitration award of $81,572 ($73,959 plus interest of $7,613) to Twelfth Child Entertainment, LLC for a License Agreement
settlement for rights to air programs regarding “
Foreclosure to Fabulous
” television programming on the Company’s
previously owned media business that was sold on January 21, 2016. The Company absorbed this settlement as part of its partnership
commitment with Launch Media 360 which is an investment of the Company.
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. The lawsuit asks the court to confirm the action
is a proper class action. We believe the claims asserted in the lawsuit are without merit and intend to vigorously defend ourselves
against the claims made in the lawsuit. The Company has no basis for determining whether there is any likelihood of material loss
associated with the claims and/or the potential and/or the outcome of the litigation. On February 16, 2017, we filed a Motion
to Dismiss the lawsuit and on March 3, 2017, the Court entered an order staying discovery and all other proceedings pending resolution
of the Motion to Dismiss. On March 31, 2017, the plaintiffs responded to the Motion to Dismiss, and the Motion to Dismiss is still
pending with the court.
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 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 converted) and removed any dividend obligations. The Company relinquished all of its common stock held in RealBiz.
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. The Company
recorded approximately $147,000 of settlement expense for the nine months ended November 30, 2017.
The Company is unable to determine
the estimate of the probable or reasonable possible loss or range of losses arising from the above legal proceedings.
Contractual Settlement
In May 2017, we entered into
a settlement with a financial advisory firm who was engaged to raise capital per an agreement signed in October 2016. Based upon
the firms inability to meet any of the agreed upon milestones, the firm agreed to return all the consideration paid for the services.
The Company recorded $450,945 credit to stock compensation in May 2017 as a result of the settlement.
Note 11 – Business Segment Reporting
Accounting Standards Codification 280-16
“Segment Reporting”, established standards for reporting information about operating segments in annual consolidated
financial statements and required selected information about operating segments in interim financial reports issued to stockholders.
It also established standards for related disclosures about products, services, and geographic areas. Operating segments are defined
as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
The Company has one operating segment consisting
of various products and services related to its online marketplace of travel and related logistics including destination tours
/ activities, accommodation rental listings, hotel listings, air and car rental. The Company’s chief operating decision maker
is considered to be the Chief Executive Officer. The chief operating decision maker allocates resources and assesses performance
of the business and other activities at the single operating segment level.
Note 12 – Subsequent Events
Our July 31, 2017 Common Stock and Warrant
Purchase Agreement requires the Company to apply for listing of its common stock on the NASDAQ Capital Market within 60 days following
the closing of the offering (which date 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 is in default of this requirement. Therefore, we are 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., 16,092 warrants), per
day, to each purchaser and the agent. Such liquidated damages continue to be due, each day that we fail to comply with the requirements
above, up to a maximum of 100 days. As such, we are required to issue up to an additional 1,609,125 additional warrants in the
event that we are never able to obtain a listing of our common stock on the NASDAQ.
On December 11, 2017, we issued 2,000 shares of common stock, valued at $5,000, as payment for services rendered
to a consultant.
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 52,500
shares of common stock in connection with the exercise of a warrant which had an exercise price of $2.00 per share.
On December 14, 2017, we issued 20,000
shares of common stock to a consultant, valued at $45,800, as payment for marketing and investor relations services agreed to be
rendered for a period of six months pursuant to the terms of an agreement.
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 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 converted) and removed any dividend obligations. The Company relinquished all of its common stock held in RealBiz.
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. The Company
recorded approximately $147,000 of settlement expense for the nine months ended November 30, 2017.
On January 10, 2018, 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 entered into a First Amendment To Warrant (Amendment) agreement with Pacific Grove Capital LP (Pacific) which amended the Common
Stock and Warrant Purchase Agreement (Purchase Agreement), entered into on July 31, 2017 through which Pacific acquired warrants
to purchase 875,000 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 as of January 10, 2018 were 1,146,250. We desired to incentivize
Pacific to exercise the Warrants by reducing the exercise price of the warrants from $2.10 per share to $1.05 per share, provided
that Pacific agreed to immediately exercise such 1,146,250 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. The Company will record the incentive at the time of modification.
On January 12, 2018, we received the $1,203,563
exercise price of the Pacific warrants and issued 1,146,250 shares of common stock to Pacific.
On January 12, 2018, we received $95,000
from Monaco Investment Partners II, LP, whose managing general partner is Donald Monaco a director of the Company, and issued 47,500
shares of common stock in connection with the exercise of a warrant which had an exercise price of $2.00 per share.
On January 12, 2018, we received $130,200
in proceeds from Donald P Monaco Insurance Trust, whose trustee is Donald Monaco a director of the Company, and issued 62,000 shares
of common stock in connection with the exercise of a warrant which had an exercise price of $2.10 per share.
On January 16, 2018, we received $200,000
in proceeds from Charcoal Investments, Ltd., whose trustee is Simon Orange a director of the Company, and issued 100,000 shares
of common stock in connection with the exercise of a warrant which had an exercise price of $2.00 per share.
On January 12, 2018, we received $10,500
in proceeds from William Kerby, Chief Executive Officer and Chairman of the Board of Directors of the Company, and issued 5,000
shares of common stock in connection with the exercise of a warrant which had an exercise price of $2.10 per share.
The Purchase Agreement includes certain
liquidated damage provisions which require the Company to grant to the purchasers who purchased securities pursuant to the Purchase
Agreement (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.
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, has granted warrants to purchase an additional 498,831 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 warrants which was agreed to pursuant to the Amendment, the
anti-dilution provisions of the Purchase Agreement and the Purchaser warrants was triggered. Specifically, because the
Company issued shares of common stock below (a) the $2.00 price per share of the securities sold pursuant to the Purchase
Agreement, the Purchasers are due an additional 36,142 shares of the Company’s common stock; and (b) the $2.10 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 $2.05 per share as a
result of such anti-dilution.