Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: November 30, 2015
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________________________
Commission File No. 000-52669
MONAKER GROUP, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 26-3509845 | |
|
(State or other jurisdiction of |
|
(I.R.S. Employer incorporation or formation) |
2690 Weston Road, Suite 200
Weston, FL 33331
(Address of principal executive offices)
(954) 888-9779
(Registrant’s telephone number)
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of January 18, 2016, there were 5,491,753 shares outstanding of the registrant’s common stock.
Explanatory Note
The Registrant has prepared this Amendment No. 1 on Form 10-Q/A (this “Amendment”) to amend its Quarterly Report on Form 10-Q for the quarter ended November 30, 2015, as filed with the Securities and Exchange Commission on January 19, 2016 (the “Original Filing”), to correct certain errors related to the Registrant’s accounting treatment with its deconsolidated affiliate (RealBiz Media Group, Inc.) which were identified in June of 2016, in connection with the preparation of the Registrant’s consolidated annual financial statements for the fiscal year ended February 29, 2016 and the resulting restatement of its financial statements included in the Original Filing. See Note 2 in the unaudited consolidated financial statements included herewith for more information. In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, currently dated certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment.
Due to the error, as further described below, and based upon the recommendation of management, the Registrant’s Board of Directors determined on May 31, 2016 that the Registrant’s previously issued audited financial statements should no longer be relied upon. As a result of the foregoing, the Registrant has previously restated its consolidated financial statements for the fiscal year ended February 28, 2015, the quarter ended May 31, 2015 and the quarter ended August 31, 2015.
Except for the restated financial statements included herein; additional language added to Note 1 of the consolidated unaudited financial statements included herein (the “Financial Statements”) under “Principles of Consolidation”; new Note 2 to the Financial Statements; updates to the numbering of the other footnotes in the Financial Statements in connection with the addition of Note 2; removal of prior Note 7 to the Financial Statements; updates to the “Results of Operations” section of this filing to correspond to the restated Financial Statements; updates to the “Unregistered Sales of Equity Securities and Use of Proceeds” section, to confirm the exemption relied upon for the issuance and sale of the securities described therein, and other minor corrections, changes and updates throughout this filing, this Amendment speaks as of the date of the Original Filing, does not reflect events that may have occurred subsequent to the Original Filing and does not modify or update in any way disclosures made in the Original Filing.
This Amendment replaces and supersedes the Original Filing and readers should disregard the Original Filing in its entirety.
2
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
3
Monaker Group, Inc. and Subsidiaries
(Unaudited)
| (Restated) | (Restated) | |||||||
| November 30, | February 28, | |||||||
| 2015 | 2015 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 287,892 | $ | 226,412 | ||||
| Notes receivable | 15,000 | 15,000 | ||||||
| Prepaid expenses and other current assets | 87,534 | 68,159 | ||||||
| Security deposits | 13,206 | 13,206 | ||||||
| Total current assets | 403,632 | 322,777 | ||||||
| Investments | 56,000 | — | ||||||
| Dividend receivable | — | 881,587 | ||||||
| Website Development costs and intangible assets, net | 2,637,781 | 189,235 | ||||||
| Total assets | $ | 3,097,413 | $ | 1,393,599 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,575,010 | $ | 2,387,833 | ||||
| Other current liabilities | 37,770 | 139,750 | ||||||
| Derivative liabilities - convertible promissory notes | 178,212 | 287,149 | ||||||
| Convertible promissory notes, net of discount of $-0- and $-0-, respectively | 593,599 | 6,828,386 | ||||||
| Convertible promissory notes - related party, net of discount of $-0- and $-0-, respectively | 350,000 | 1,025,000 | ||||||
| Other advances | 50,000 | 68,000 | ||||||
| Other notes payable | 120,000 | 120,000 | ||||||
| Shareholder loans | 394,919 | 379,000 | ||||||
| Notes payable | 924,072 | 924,072 | ||||||
| Total current liabilities | 4,223,582 | 12,159,190 | ||||||
| Convertible notes payable - long term, net of discount of $-0- and $-0-, respectively | 2,963,303 | — | ||||||
| Total liabilities | 7,186,885 | 12,159,190 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit | ||||||||
| Series A Preferred stock, $.01 par value; 3,000,000 authorized; 1,869,611 and 2,216,014 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | 18,696 | 22,160 | ||||||
| Series B Preferred stock, $.00001 par value; 3,000,000 authorized; 134,200 and 262,200 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | 1 | 3 | ||||||
| Series C Preferred stock, $.00001 par value; 3,000,000 authorized; 41,000 and 217,600 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | — | 2 | ||||||
| Series D Preferred stock, $.00001 par value; 3,000,000 authorized; 347,456 and 838,800 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | 4 | 8 | ||||||
| Common stock, $.00001 par value; 500,000,000 shares authorized; 4,728,610 and 422,167 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | 47 | 4 | ||||||
| Additional paid-in-capital | 89,341,965 | 78,229,105 | ||||||
| Stock subscription receivable | — | (5,000 | ) | |||||
| Accumulated deficit | (93,925,793 | ) | (89,011,873 | ) | ||||
| Total Monaker Group, Inc. stockholders’ deficit | (4,565,080 | ) | (10,765,591 | ) | ||||
| Noncontrolling interest | 475,608 | — | ||||||
| Total stockholders’ deficit | (4,089,472 | ) | (10,765,591 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 3,097,413 | $ | 1,393,599 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Monaker Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| For the three months ended | For the nine months ended | |||||||||||||||
| November 30, | November 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| Revenues | ||||||||||||||||
| Travel and commission revenues | $ | 21,717 | $ | 89,393 | $ | 507,077 | $ | 295,679 | ||||||||
| Real estate media revenue | — | 220,948 | — | 765,964 | ||||||||||||
| Total revenues | 21,717 | 310,341 | 507,077 | 1,061,643 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues (exclusive of amortization) | 25,373 | 218,079 | 188,078 | 678,185 | ||||||||||||
| Technology and development | 18,282 | 155,904 | 54,846 | 850,854 | ||||||||||||
| Salaries and benefits | 338,528 | 458,331 | 1,032,826 | 1,708,965 | ||||||||||||
| Selling and promotions expense | 10,940 | 46,995 | 14,203 | 241,023 | ||||||||||||
| Warrant modification expense | — | 17,202 | — | 17,202 | ||||||||||||
| Impairment of ReachFactor intangible assets | — | 125,000 | — | 125,000 | ||||||||||||
| General and administrative | 929,234 | 716,144 | 1,589,674 | 2,073,641 | ||||||||||||
| Total operating expenses | 1,322,357 | 1,737,655 | 2,879,627 | 5,694,870 | ||||||||||||
| Operating loss | (1,300,640 | ) | (1,427,314 | ) | (2,372,550 | ) | (4,633,227 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest income (expense) | 2,367,209 | (376,980 | ) | (340,987 | ) | (909,830 | ) | |||||||||
| Gain (loss) on settlement of debt | (695,598 | ) | — | (919,598 | ) | — | ||||||||||
| Derivative liability expense | — | (234,303 | ) | — | (234,303 | ) | ||||||||||
| Gain (loss) on change in fair value of derivatives | 8,302 | (40,635 | ) | 108,937 | 1,102,932 | |||||||||||
| Gain on deconsolidation of subsidiary | — | 6,255,188 | — | 6,255,188 | ||||||||||||
| Loss from proportionate share of investment in unconsolidated affiliate | — | (179,567 | ) | — | (179,567 | ) | ||||||||||
| Loss on inducement to convert preferred stock | (1,392,666 | ) | — | (1,392,666 | ) | — | ||||||||||
| Other expense | (107 | ) | 2,303 | (1,840 | ) | 168,387 | ||||||||||
| Total other income (expense) | 287,140 | 5,426,006 | (2,546,154 | ) | 6,202,807 | |||||||||||
| Net income (loss) | $ | (1,013,500 | ) | $ | 3,998,692 | $ | (4,918,704 | ) | $ | 1,569,580 | ||||||
| Net income attributable to the noncontrolling interest | 2,641 | 1,211,386 | 4,784 | 2,017,039 | ||||||||||||
| Net income (loss) attributable to Monaker Group, Inc. | $ | (1,010,859 | ) | $ | 5,210,078 | $ | (4,913,920 | ) | $ | 3,586,619 | ||||||
| Preferred stock dividend | — | — | — | (2,582 | ) | |||||||||||
| Net income (loss) attributable to common shareholders | $ | (1,010,859 | ) | $ | 5,210,078 | $ | (4,913,920 | ) | $ | 3,584,037 | ||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic | 2,498,269 | 411,167 | 1,549,050 | 405,854 | ||||||||||||
| Diluted | 2,498,269 | 6,503,931 | 1,549,050 | 6,498,618 | ||||||||||||
| Basic net income (loss) per share attributable to Common Shareholders | $ | (0.40 | ) | $ | 12.67 | $ | (3.17 | ) | $ | 8.83 | ||||||
| Diluted net income (loss) per share attributable to Common Shareholders | $ | (0.40 | ) | $ | 0.87 | $ | (3.17 | ) | $ | 0.62 | ||||||
| Comprehensive loss: | ||||||||||||||||
| Unrealized gain on foreign currency translation adjustment | — | 121,829 | — | 120,151 | ||||||||||||
| Comprehensive income (loss) | $ | (1,010,859 | ) | $ | 5,331,907 | $ | (4,913,920 | ) | $ | 3,704,188 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Monaker Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended
| (Restated) | ||||||||
| November 30, | November 30, | |||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) applicable to Monaker Group, Inc. | $ | (4,913,920 | ) | $ | 3,586,619 | |||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Noncontrolling interest in income of consolidated subsidiaries | (4,784 | ) | (2,017,039 | ) | ||||
| Gain on deconsolidation of subsidiary | — | (6,255,188 | ) | |||||
| Loss from proportionate share of investment in unconsolidated affiliate | — | 179,567 | ||||||
| Impairment of intangible assets | — | 125,000 | ||||||
| Warrant modification expense | — | 17,202 | ||||||
| Derivative liability (income) expense | (108,937 | ) | 234,303 | |||||
| Amortization of intangibles | 54,846 | 1,260,415 | ||||||
| Amortization of debt discount | — | 445,401 | ||||||
| Stock based compensation and consulting fees | 1,086,007 | 513,877 | ||||||
| Loss on inducements to convert included in interest expense | 1,392,666 | — | ||||||
| Directors fees | — | 200,000 | ||||||
| Loss on settlement of debt | 919,598 | — | ||||||
| Gain on change in fair value of derivatives | — | (1,102,932 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts receivable | — | (56,773 | ) | |||||
| Decrease in dividends receivable | 881,587 | |||||||
| Decrease in prepaid expenses and other current assets | (19,375 | ) | (11,057 | ) | ||||
| Decrease in security deposits | — | 10,156 | ||||||
| Increase in due to/from affiliates | — | (144,891 | ) | |||||
| Increase in accounts payable and accrued expenses | (671,473 | ) | 672,252 | |||||
| Decrease in other current liabilities | (139,750 | ) | 29,371 | |||||
| Net cash used in operating activities | (1,523,535 | ) | (2,313,717 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Payments related to website development costs | (10,000 | ) | (576,677 | ) | ||||
| Investment in Name Your Fee | 75,000 | — | ||||||
| Deconsolidation of subsidiary | — | (20,066 | ) | |||||
| Payments for computer equipment | — | (2,514 | ) | |||||
| Net cash used in (provided by) investing activities | 65,000 | (599,257 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible promissory notes | — | 470,000 | ||||||
| Principal payments against convertible promissory notes | — | — | ||||||
| Principal payments of other notes payable | (36,400 | ) | (37,829 | ) | ||||
| Proceeds from shareholder loans | 15,919 | — | ||||||
| Proceeds from advances | 57,000 | — | ||||||
| Principal payments against shareholder advances | (75,000 | ) | — | |||||
| Proceeds from issuance of Series B Preferred shares | 75,000 | 200,000 | ||||||
| Proceeds from issuance of Series C Preferred shares | 27,500 | 547,000 | ||||||
| Proceeds received in advance subscriptions | — | 277,500 | ||||||
| Proceeds from the issuance of common stock | 1,361,231 | 1,134,776 | ||||||
| Proceeds from the exercise of common stock warrants | 89,765 | 157,680 | ||||||
| Proceeds from the collection of stock subscription receivable | 5,000 | 48,380 | ||||||
| Net cash provided by financing activities | 1,520,015 | 2,797,507 | ||||||
| Effect of exchange rate changes on cash | — | 916 | ||||||
| Net increase (decrease) in cash | 61,480 | (114,551 | ) | |||||
| Cash at beginning of period | 226,412 | 117,818 | ||||||
| Cash at end of period | $ | 287,892 | $ | 3,267 | ||||
| Supplemental disclosure: | ||||||||
| Cash paid for interest | $ | 177,215 | $ | 180,406 | ||||
| Non-cash transactions: | ||||||||
| Shares/warrants issued for conversions of debt to equity | $ | 3,910,084 | $ | 7,000 | ||||
| Common stock for investment | $ | 56,000 | $ | — | ||||
| Common stock for assets | $ | 1,188,001 | $ | — | ||||
| Series D Preferred for assets | $ | 400,000 | $ | — | ||||
6
Note 1 - Summary of Business Operations and Significant Accounting Policies
Nature of Operations and Business Organization
Monaker Group, Inc. (“Monaker” or the “Company”) is a multi-faceted interactive media company whose key focus is around what the Company believes to be the most universal, yet powerful consumer-passion categories being - travel, home and work. The Company is engaged in the business of providing digital media and marketing services for these industries along with the opportunity to create long term relationships through its Home & Away Club membership programs. The Company generates revenue from commissions from traditional sales of our travel products and expects to be accelerating its revenue base through: (i) advertising revenue from preferred suppliers, sponsors and referral fees (ii) travel and employment media services which include video sponsorship packages, pre-roll advertising, commissions and referral fees; and (iii) revenue derived from Home & Away Club memberships. The Company’s Media Group concentrates awareness campaigns through its three divisions:
| (1) | Travel – which encompasses Maupintour (one of the oldest luxury tour operators in the United States) and NextTrip.com/Voyage.tv, a video and media website with thousands of hours of travel footage. |
| (2) | Employment – the NameYourFee.com website which allows recruiters to expand their reach of candidates to potential employers. |
| (3) | Home – via its Home & Away Club loyalty program and minority interest in RealBiz Media Group, Inc. (“RealBiz”), a publically traded company. |
The Company plans to accelerate targeted content utilizing video via digital platforms including satellite, cable, broadcast, broadband, web, print and the development of a Home & Away Mobile App.
We currently focus primarily on our travel segment and our planned expansion into the employment and Home/Membership services during the next quarter. The following is an overview of the 3 areas that currently have travel operations and/or the Company is imminently commencing promotion utilizing our media services.
1. Maupintour Extraordinary Vacations (“Maupintour”) is the oldest tour operator in North America having a history of over 65 years of creating and booking tours and activity-focused trips, from private tours of the Vatican to bicycling in the Alps to wine tasting in Italy. Maupintour books these trips and serves thousands of travel agents around the world. The Company has an active alumni that desires luxury vacations that includes private sightseeing, fine dining and 4 and 5 star accommodations. The Company previously ran group tours ranging from 10 to 25; however it has moved its model to customization of high end tours for families, small groups and individuals. The Company’s most popular destinations are Egypt, Israel, Europe, Africa, Asia and Peru. The Company’s peak season for this division is from February to July. Maupintour’s website is www.Maupintour.com.
2. NextTrip.com is being repositioned as an all-purpose travel site that includes customer support, relevant social networking, and travel business showcases, with a primary emphasis on Video to targeted web users and a secondary promotion to TV viewers via video on demand (VOD) promotion. The site is scheduled for launch in the 2nd quarter of this fiscal year and will work in conjunction with the Home & Away Club App to provide users with relevant information utilizing its diverse video library and experience to entertain, inform, and offer utility and savings to members. The travel website currently offers users, free of charge, hundreds of destination videos and promotes worldwide vacation destinations. NextTrip.com plans to generate revenues through advertising, travel commission, referral fees, and its affiliate program. The travel products and fulfillment and services are both created by the Company and/or contracted out to key industry suppliers including Mark Travel. Mark Travel is the largest wholesaler of travel products in the United States. NextTrip.com will look to serve relevant videos to travelers via four key elements: (i) television ads (ii) travel video on demand for web and TV (iii) broadband telecast (with the web player surrounded by interactive banner ads and/or discount travel coupons) and (iv) the development of its Travel App.
3. The Home & Away Club (H&AC). The Company has launched the Home & Away Club website and is targeting both existing customers and new potential customers to the site by offering up to $500 Rewards so consumers can try before they buy. As a primary means of creating awareness for H&AC the Company is utilizing existing customers, relationships and forging new partnerships within the travel, real estate and employment sectors. The Company will utilize targeted video for the travel, leisure, home products and services to engage and enable viewers to request information, make reservations and get an in-depth look at products and services the Club offers. The Company created a points based program for real estate agents that utilize the RealBiz services. With the Home and Away Club, agents can earn dollars for completing specified actions, purchase Home and Away Club membership for themselves and/or gift to their customers and receive greatly discounted gifts to give to their happy clients. The membership gives the homeowner access to wholesale pricing on travel, lifestyle and home products while providing the real estate agents a loyalty platform that allows them the means to stay in contact with their customer.
Interim Financial Statements
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended February 28, 2015 and notes thereto and other pertinent information contained in our Form 10-K the Company has filed with the Securities and Exchange Commission (the “SEC”).
The results of operations for the nine months ended November 30, 2015 are not necessarily indicative of the results to be expected for the full fiscal year ending February 29, 2016.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material inter-company transactions and accounts have been eliminated in consolidation.
7
At February 28, 2014, the Company owned a 61% interest in RealBiz Media Group, Inc. (“RealBiz”), which owned an 85% interest in RealBiz Holdings, Inc. On October 31, 2014, the Company’s interest dropped to 43% in RealBiz, as a result of the conversion of our Series A Preferred Stock into common stock of RealBiz. These entities’ accounts are no longer consolidated in the accompanying financial statements because we no longer have a controlling financial interest in such entities. All inter-company balances and transactions have been eliminated. The 34% non-controlling interest in RealBiz at November 30, 2015 is represented by 48,621,133 shares of RealBiz Series A Preferred Stock with an annual dividend rate of 10% and 10,359,890 shares of RealBiz common stock issued and outstanding as of November 30, 2015. The shares of RealBiz Series A Preferred Stock and common stock have been written down to zero ($0) to reflect the realizable value of this investment. In addition, the Company is owed in excess of $10 million in funds as a net receivable balance due from RealBiz for amounts paid for the benefit of or on behalf of RealBiz. The net receivable from RealBiz has been written down to zero ($0) to reflect the net realizable value of the asset.
Noncontrolling Interest and Investment in Unconsolidated Affiliates
The Company accounts for its less than 100% interest in consolidated subsidiaries in accordance with ASC Topic 810, Consolidation, and accordingly the Company presents noncontrolling interests as a component of equity on its consolidated balance sheets and reports noncontrolling interest net loss under the heading “Net loss attributable to noncontrolling interest” in the consolidated statements of operations. Investments in unconsolidated affiliates are accounted for by either the equity or cost methods, generally depending upon ownership levels. The equity method of accounting is used when the Company’s investment in voting stock of an entity gives it the ability to exercise significant influence over the operating and financial policies of the investee, which is presumed to be the case when the Company holds 20% to 50% of the voting stock of, or can otherwise demonstrate significant influence over, the investee. Unconsolidated affiliate companies in which the Company does not have significant influence and owns less than 20% of the voting stock are accounted for using the cost method. These investments in unconsolidated affiliates are assessed periodically for impairment and are written down if and when the carrying amount is considered to be permanently impaired.
Deconsolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting consistent with accounting principles generally accepted in the United States of America (“GAAP”). In accordance with accounting guidance for consolidation, prior to the Deconsolidation Date of October 31, 2014, the accompanying consolidated financial statements present the consolidated results of the Company including its investment in RealBiz. On the deconsolidation date, in accordance with ASC 810-10-50-1B and the voting interest model, which basically requires that an entity consolidate another entity if it owns a majority (greater than 50%) of that other entity. Monaker commenced accounting for its investments in RealBiz in accordance with the equity method of accounting as of the Deconsolidation Date.
Use of Estimates
The Company’s significant estimates include allowance for doubtful accounts, valuation of intangible assets, stock based compensation, accrued expenses and derivative liabilities. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. While the Company believes that such estimates are fair when considered in conjunction with the consolidated financial statements taken as a whole, the actual amounts of such estimates, when known, will vary from these estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.
Cash and Cash Equivalents
For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. The Company had no cash equivalents at November 30, 2015 and February 28, 2015.
Website Development Costs
The Company accounts for website development costs in accordance with Accounting Standards Codification 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day to day operation of the website are expensed as incurred. The Company placed into service in June 2013 two websites, Maupintour.com and Nexttrip.com. Additionally, the Company placed into service in March 2014 the Nestbuilder website. All costs associated with these websites are subject to straight-line amortization over a three-year period. For the nine months ended November 30, 2015, the Company has capitalized $915,392 of costs associated with the Name Your Fee employment website that has not yet been placed into service. Websites related to RealBiz have been deconsolidated from the financial statements as of October 31, 2014.
Software Development Costs
The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines established by “ASC 985-20-25” Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, requiring certain software development costs to be capitalized upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. Amortization of the capitalized software development costs begins when the product is available for general release to customers. Capitalized costs are amortized based on the greater of (a) the ratio of current gross revenues to the total current and anticipated future gross revenues, or (b) the straight-line method over the remaining estimated economic life of the product. Software development costs related to RealBiz have been deconsolidated from the financial statements as of October 31, 2014.
8
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 recorded an impairment charge on its intangible assets for $0 and $125,000 during the nine months ended November 30, 2015 and 2014, respectively. Intellectual properties that have finite useful lives are amortized over their useful lives. The Company incurred amortization expense of $54,846 and $1,260,415 for the nine months ended November 30, 2015 and 2014, respectively.
Convertible Debt Instruments
The Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.
Derivative Instruments
The Company enters into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with Accounting Standards Codification topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretations of this standard. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, considering all of the rights and obligations of each instrument.
The Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as freestanding warrants, the Company generally uses the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these estimates and assumption changes. Under the terms of the accounting standard, increases in the trading price of the Company’s common stock and increases in fair value during a given financial quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the Company’s common stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income.
Based upon ASC 815-25 the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible debentures. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
Common Stock
On October 28, 2011, the Board and the holders of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares of common stock from 200,000,000 to 500,000,000. On February 13, 2012, the Board and the holders of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares of common stock from 500,000,000 to 2,500,000,000. The increase in our authorized shares of common stock became effective upon the filing of the amendment(s) to our articles of incorporation with the Secretary of State of the State of Nevada.
On May 2, 2012, the Board consented to (i) effect a 1-to-500 reverse split of the Company’s common stock and (ii) reduce the number of authorized shares from 2,500,000,000 to 5,000,000. Such actions became effective upon the filing of the amendment(s) to our articles of incorporation with the Secretary of State of the State of Nevada. The consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.
On June 26, 2012, the Board and the holders of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares of common stock from 5,000,000 to 500,000,000.
9
On June 25, 2015, the Board consented to (i) effect a 1-to-50 reverse split of the Company’s common stock and (ii) change the name of the Company from Next 1 Interactive, Inc. to Monaker Group, Inc. Such actions became effective upon the filing of the amendment(s) to our articles of incorporation with the Secretary of State of the State of Nevada. The consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.
Earnings per Share
Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted loss per common share is not presented because it is anti-dilutive.
Revenue recognition
Travel
Gross travel tour revenues represent the total retail value of transactions booked for both agency and merchant transactions recorded at the time of booking, reflecting the total price due for travel by travelers, including taxes, fees and other charges, and are generally reduced for cancellations and refunds. The Company also generates revenue from paid cruise ship bookings in the form of commissions. Commission revenue is recognized at the date the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Media
Our no longer consolidated subsidiary RealBiz’s marketing and promotional services are provided to agents or brokers via a web-based portal that allows for credit card payments. Customers may pay a monthly recurring fee or an annual fee. Some customers additionally pay a one-time set up fee. Monthly recurring fees are recognized in the month the service is rendered. Collection of one-time set up fees and annual services fees give rise to recognized monthly revenue in the then-current month as well as deferred revenue liabilities representing the collected fee for services yet to be delivered.
Under these policies, no revenue is recognized unless persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is deemed reasonably assured. The Company considers an insertion order signed by the client or its agency to be evidence of an arrangement.
Cost of Revenues
Cost of revenues, for the travel segment, includes costs directly attributable to services sold and delivered. These costs include such items as amounts paid for airlines, hotels, excursions, sales commissions to business partners, industry conferences and public relations costs. Cost of revenues, for the media segment, include such items as credit card fees, sales commission to business partners, expenses related to our participation in industry conferences, and public relations expenses.
Sales and Promotion
Sales and marketing expenses consist primarily of advertising and promotional expenses, salary expenses associated with sales and marketing staff, expenses related to our participation in industry conferences, and public relations expenses. The goal of our advertising is to acquire new subscribers for our e-mail products, increase the traffic to our web sites, and increase brand awareness.
Advertising Expense
Advertising costs are charged to expense as incurred and are included in selling and promotions expense in the accompanying consolidated financial statements. Advertising expense for the nine months ended November 30, 2015 and 2014, was $14,203 and $272,714, respectively.
Share Based Compensation
The Company computes share based payments to employees in accordance with Accounting Standards Codification 718-10 “Compensation” (ASC
718-10). ASC 718-10 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services at fair value, focusing primarily on accounting for transactions in which an entity obtains employees services in share-based payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair value of an entity’s equity instruments or that may be settled by the issuance of those equity instruments. Equity instruments issued to non-employees for goods or services are accounted for at fair value and marked to market until service is complete or a performance commitment date is reached, whichever is earlier, in accordance with ASC 505-50.
In March 2005, the SEC issued SAB No. 107, Share-Based Payment (“SAB 107”) which provides guidance regarding the interaction of ASC 718-10 and certain SEC rules and regulations. The Company has applied the provisions of SAB 107 in its adoption of ASC 718-10.
10
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 November 30, 2015, the Company’s income tax returns for tax years ending February 28, 2015, 2014, 2013, and 2012 remain potentially subject to audit by the taxing authorities.
Monaker follows the guidance of ASC 740, “Income Taxes.” Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry- forwards. No current tax provision has been made in the accompanying statement of income (loss) because no taxes are due currently or were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward has been recognized, as it is not deemed likely to be realized.
Fair Value of Financial Instruments
The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
Financial instruments consist principally of cash, accounts receivable, prepaid expenses, accounts payable, accrued liabilities, notes payable, convertible notes and other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair value. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments. See Note 16 for fair value measurements.
Recent Accounting Pronouncements
We have implemented all new relevant accounting pronouncements that are in effect through the date of these financial statements. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.
Reclassifications
Certain reclassifications have been made in the unaudited consolidated financial statements for comparative purposes. These reclassifications have no effect on the results of operations or financial position of the Company.
11
Note 2 – Restatement of Previously Issued Financial Statements
Background
In June 2016, in connection with the preparation of the Company’s consolidated annual financial statements for the fiscal year ended February 29, 2016, certain errors related to the Company’s accounting treatment with its deconsolidated affiliate relating to amounts due to affiliates were identified.
Due to these errors, as further described below, and based upon the recommendation of management, the Company’s Board of Directors determined on June 15, 2016 that the Company’s previously issued audited financial statements for the year ended February 28, 2015, should no longer be relied upon. As a result of the foregoing, the Company has restated its consolidated financial statements for the fiscal year ended February 28, 2015, and the quarters ended May 31, 2015, August 31, 2015, and November 30, 2015 (which are included herein).
On October 27, 2015 of the Company’s wholly-owned subsidiary AOV Holding, Inc. acquired Always On Vacation, Inc. for $1,188,000 in common stock. The Company adjusted the purchase price allocation which affected cash, other current assets, accounts payable and other current liabilities thereby reducing goodwill and recorded intangible assets of $1,188,000 for software.
Accounting Adjustments
The following tables show a comparison of the significant accounting adjustments that were made to the Company’s historical consolidated financial statements.
| Monaker Group, Inc. and Subsidiaries | ||||||||||||
| Consolidated Balance Sheets | ||||||||||||
| As Previously Reported November 30, 2015 | Restatement / Adjustment | As Restated November 30, 2015 | ||||||||||
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash | $ | 343,281 | $ | (55,389 | ) | $ | 287,892 | |||||
| Notes receivable | 15,000 | — | 15,000 | |||||||||
| Prepaid expenses and other current assets | 138,174 | (50,640 | ) | 87,534 | ||||||||
| Security deposits | — | 13,206 | 13,206 | |||||||||
| Total current assets | 496,455 | (92,823 | ) | 403,632 | ||||||||
| Investments | 2,048,143 | (1,992,143 | ) | 56,000 | ||||||||
| Website Development costs and intangible assets, net | 4,397,167 | (1,759,386 | ) | 2,637,781 | ||||||||
| Total assets | $ | 6,941,765 | $ | (3,844,352 | ) | $ | 3,097,413 | |||||
| Liabilities and Stockholders’ Deficit | ||||||||||||
| Current Liabilities | ||||||||||||
| Accounts payable and accrued expenses | $ | 2,190,196 | $ | (615,186 | ) | $ | 1,575,010 | |||||
| Other current liabilities | 834,663 | (796,893 | ) | 37,770 | ||||||||
| Due to affiliates | 1,286,421 | (1,286,421 | ) | — | ||||||||
| Derivative liabilities - convertible promissory notes | 178,212 | — | 178,212 | |||||||||
| Convertible promissory notes, net of discount of $-0- and $-0-, respectively | 593,599 | — | 593,599 | |||||||||
| Convertible promissory notes - related party, net of discount of $-0- and $-0-, respectively | 350,000 | — | 350,000 | |||||||||
| Other advances | 50,000 | — | 50,000 | |||||||||
| Other notes payable | 120,000 | — | 120,000 | |||||||||
| Shareholder loans | 394,919 | — | 394,919 | |||||||||
| Notes payable | 924,072 | — | 924,072 | |||||||||
| Total current liabilities | 6,922,082 | (2,698,500 | ) | 4,223,582 | ||||||||
| Convertible notes payable - long term, net of discount of $-0- and $-0-, respectively | 2,963,303 | — | 2,963,303 | |||||||||
| Total liabilities | 9,885,385 | (2,698,500 | ) | 7,186,885 | ||||||||
| Stockholders’ deficit | ||||||||||||
| Series A Preferred stock, $.01 par value; 3,000,000 authorized; 1,869,611 and 2,216,014 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | 18,696 | — | 18,696 | |||||||||
| Series B Preferred stock, $.00001 par value; 3,000,000 authorized; 134,200 and 262,200 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | 1 | — | 1 | |||||||||
| Series C Preferred stock, $.00001 par value; 3,000,000 authorized; 41,000 and 217,600 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | — | — | — | |||||||||
| Series D Preferred stock, $.00001 par value; 3,000,000 authorized; 347,456 and 838,800 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | 4 | — | 4 | |||||||||
| Common stock, $.00001 par value; 500,000,000 shares authorized; 4,728,610 and 422,167 shares issued and outstanding at November 30, 2015 and February 28, 2015, respectively | 47 | — | 47 | |||||||||
| Additional paid-in-capital | 91,366,876 | (2,024,911 | ) | 89,341,965 | ||||||||
| Accumulated deficit | (94,804,852 | ) | 879,059 | (93,925,793 | ) | |||||||
| Total Monaker Group, Inc. stockholders’ deficit | (3,419,228 | ) | (1,145,852 | ) | (4,565,080 | ) | ||||||
| Noncontrolling interest | 475,608 | — | 475,608 | |||||||||
| Total stockholders’ deficit | (2,943,620 | ) | (1,145,852 | ) | (4,089,472 | ) | ||||||
| Total liabilities and stockholders’ deficit | $ | 6,941,765 | $ | (3,844,352 | ) | $ | 3,097,413 | |||||
12
| Monaker Group, Inc. and Subsidiaries | ||||||||||||
| Consolidated Statements of Operations and Comprehensive Income (Loss) | ||||||||||||
| For the three months ended | ||||||||||||
| As Previously Reported November 30, 2015 | Restatement / Adjustment | As Restated November 30, 2015 | ||||||||||
| Revenues | ||||||||||||
| Travel and commission revenues | $ | 21,717 | $ | — | $ | 21,717 | ||||||
| Total revenues | 21,717 | — | 21,717 | |||||||||
| Operating expenses | ||||||||||||
| Cost of revenues (exclusive of amortization) | 25,373 | — | 25,373 | |||||||||
| Technology and development | 18,282 | — | 18,282 | |||||||||
| Salaries and benefits | 338,528 | — | 338,528 | |||||||||
| Selling and promotions expense | 10,940 | — | 10,940 | |||||||||
| General and administrative | 929,234 | — | 929,234 | |||||||||
| Total operating expenses | 1,322,357 | — | 1,322,357 | |||||||||
| Operating loss | (1,300,640 | ) | — | (1,300,640 | ) | |||||||
| Other income (expense) | ||||||||||||
| Interest expense including loss on inducement expense on conversion of debt | (380,982 | ) | 2,748,191 | 2,367,209 | ||||||||
| Gain (loss) on settlement of debt | 1,418,026 | (2,113,624 | ) | (695,598 | ) | |||||||
| Gain on change in fair value of derivatives | 8,302 | — | 8,302 | |||||||||
| Loss from proportionate share of investment in unconsolidated affiliate | (444,872 | ) | 444,872 | — | ||||||||
| Loss on inducement to convert preferred stock | (1,392,666 | ) | — | (1,392,666 | ) | |||||||
| Impairment of equity method investment | (3,038,365 | ) | 3,038,365 | — | ||||||||
| Other income | 234,522 | (234,629 | ) | (107 | ) | |||||||
| Total other income (expense) | (3,596,035 | ) | 3,883,175 | 287,140 | ||||||||
| Net income (loss) | $ | (4,896,675 | ) | $ | 3,883,175 | $ | (1,013,500 | ) | ||||
| Net loss attributable to the noncontrolling interest | 2,641 | — | 2,641 | |||||||||
| Net loss attributable to Monaker Group, Inc. | $ | (4,894,034 | ) | $ | 3,883,175 | $ | (1,010,859 | ) | ||||
| Preferred stock dividend | — | — | — | |||||||||
| Net loss attributable to common shareholders | $ | (4,894,034 | ) | $ | 3,883,175 | $ | (1,010,859 | ) | ||||
| Weighted average number of shares outstanding | 2,498,269 | — | 2,498,269 | |||||||||
| Basic and diluted net loss per share | $ | (1.96 | ) | $ | 1.56 | $ | (0.40 | ) | ||||
| Comprehensive loss: | ||||||||||||
| Unrealized loss on foreign currency translation adjustment | — | — | — | |||||||||
| Comprehensive loss | $ | (4,894,034 | ) | $ | 3,883,175 | $ | (1,010,859 | ) | ||||
13
| Monaker Group, Inc. and Subsidiaries | ||||||||||||
| Consolidated Statements of Operations and Comprehensive Income (Loss) | ||||||||||||
| For the nine months ended | ||||||||||||
| As Previously Reported November 30, 2015 | Restatement / Adjustment | As Restated November 30, 2015 | ||||||||||
| Revenues | ||||||||||||
| Travel and commission revenues | $ | 507,077 | $ | — | $ | 507,077 | ||||||
| Total revenues | 507,077 | — | 507,077 | |||||||||
| Operating expenses | ||||||||||||
| Cost of revenues (exclusive of amortization) | 188,078 | — | 188,078 | |||||||||
| Technology and development | 54,846 | — | 54,846 | |||||||||
| Salaries and benefits | 1,032,826 | — | 1,032,826 | |||||||||
| Selling and promotions expense | 14,203 | — | 14,203 | |||||||||
| General and administrative | 1,589,674 | — | 1,589,674 | |||||||||
| Total operating expenses | 2,879,627 | — | 2,879,627 | |||||||||
| Operating loss | (2,372,550 | ) | — | (2,372,550 | ) | |||||||
| Other income (expense) | ||||||||||||
| Interest expense including loss on inducement expense on conversion of debt | (2,260,087 | ) | 1,919,100 | (340,987 | ) | |||||||
| Gain (loss) on settlement of debt | 1,194,026 | (2,113,624 | ) | (919,598 | ) | |||||||
| Gain on change in fair value of derivatives | 108,937 | — | 108,937 | |||||||||
| Loss from proportionate share of investment in unconsolidated affiliate | (1,203,103 | ) | 1,203,103 | — | ||||||||
| Loss on inducement to convert preferred stock | (1,392,666 | ) | — | (1,392,666 | ) | |||||||
| Impairment of equity method investment | (3,038,365 | ) | 3,038,365 | — | ||||||||
| Other income | 232,789 | (234,629 | ) | (1,840 | ) | |||||||
| Total other income (expense) | (6,358,469 | ) | 3,812,315 | (2,546,154 | ) | |||||||
| Net income (loss) | $ | (8,731,019 | ) | $ | 3,812,315 | $ | (4,918,704 | ) | ||||
| Net loss attributable to the noncontrolling interest | 4,784 | — | 4,784 | |||||||||
| Net loss attributable to Monaker Group, Inc. | $ | (8,726,235 | ) | $ | 3,812,315 | $ | (4,913,920 | ) | ||||
| Net loss attributable to common shareholders | $ | (8,726,235 | ) | $ | 3,812,315 | $ | (4,913,920 | ) | ||||
| Weighted average number of shares outstanding | 1,549,050 | — | 1,549,050 | |||||||||
| Basic and diluted net loss per share | $ | (5.63 | ) | $ | 2.46 | $ | (3.17 | ) | ||||
| Comprehensive loss: | ||||||||||||
| Unrealized loss on foreign currency translation adjustment | — | — | — | |||||||||
| Comprehensive loss | $ | (8,726,235 | ) | $ | 3,812,315 | $ | (4,913,920 | ) | ||||
14
| Monaker Group, Inc. and Subsidiaries | ||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| For the nine months ended | ||||||||||||
| As Previously Reported November 30, 2015 | Restatement / Adjustment | As Restated November 30, 2015 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss applicable to Monaker Group, Inc. | $ | (8,726,235 | ) | $ | 3,812,315 | $ | (4,913,920 | ) | ||||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||||||
| Noncontrolling interest in income of consolidated subsidiaries | (4,784 | ) | — | (4,784 | ) | |||||||
| Loss from proportionate share of investment in unconsolidated affiliate | 1,203,103 | (1,203,103 | ) | — | ||||||||
| Amortization of intangibles | 54,846 | — | 54,846 | |||||||||
| Stock based compensation and consulting fees | 715,677 | 370,330 | 1,086,007 | |||||||||
| Loss on settlement of debt | 1,656,418 | (736,820 | ) | 919,598 | ||||||||
| Directors fees | 5,000 | (5,000 | ) | — | ||||||||
| Gain on settlement of debt | (728,664 | ) | 728,664 | — | ||||||||
| Gain on change in fair value of derivatives | (108,937 | ) | — | (108,937 | ) | |||||||
| Loss on inducement to converted preferred stock | 1,392,666 | — | 1,392,666 | |||||||||
| Impairment on investment in preferred stock | 3,038,365 | (3,038,365 | ) | — | ||||||||
| Dividend income | (234,859 | ) | 234,859 | — | ||||||||
| Bad debt | 316,254 | (316,254 | ) | — | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| (Increase) decrease in dividends receivable | — | 881,587 | 881,587 | |||||||||
| Decrease in prepaid expenses and other current assets | (19,368 | ) | (7 | ) | (19,375 | ) | ||||||
| Decrease in due to/from affiliates | (35,555 | ) | 35,555 | — | ||||||||
| Increase in accounts payable and accrued expenses | (128,720 | ) | (542,753 | ) | (671,473 | ) | ||||||
| Decrease in other current liabilities | (9,480 | ) | (130,270 | ) | (139,750 | ) | ||||||
| Net cash used in operating activities | (1,614,273 | ) | 90,738 | (1,523,535 | ) | |||||||
| Cash flows from investing activities: | ||||||||||||
| Payments related to website development costs | (10,000 | ) | — | (10,000 | ) | |||||||
| Investment in Name Your Fee | — | 75,000 | 75,000 | |||||||||
| Net cash used in investing activities | (10,000 | ) | 75,000 | 65,000 | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Principal payments against convertible promissory notes | (36,400 | ) | — | (36,400 | ) | |||||||
| Principal payments of other notes payable | — | (75,000 | ) | (75,000 | ) | |||||||
| Proceeds from shareholder loans | 25,000 | (9,081 | ) | 15,919 | ||||||||
| Proceeds from advances | (9,081 | ) | 66,081 | 57,000 | ||||||||
| Proceeds received for capital contribution for Name Your Fee | 75,000 | (75,000 | ) | — | ||||||||
| Proceeds received for settlement on accrued dividends | 75,000 | (75,000 | ) | — | ||||||||
| Proceeds from issuance of series B preferred shares | — | 75,000 | 75,000 | |||||||||
| Proceeds from issuance of series C preferred shares | 10,000 | 17,500 | 27,500 | |||||||||
| Proceeds from the issuance of common stock | 1,450,996 | — | 1,450,996 | |||||||||
| Proceeds from the exercise of common stock warrants | 88,725 | (88,725 | ) | — | ||||||||
| Proceeds from the collection of stock subscription receivable | 5,000 | — | 5,000 | |||||||||
| Net cash provided by financing activities | 1,684,240 | (164,225 | ) | 1,520,015 | ||||||||
| Net decrease in cash | 59,967 | 1,513 | 61,480 | |||||||||
| Cash at beginning of period | 226,412 | — | 226,412 | |||||||||
| Cash from merger | 56,902 | (56,902 | ) | — | ||||||||
| Cash at end of period | $ | 343,281 | $ | (55,389 | ) | $ | 287,892 | |||||
15
Note 3 – Going Concern
As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $93,925,793, a working capital deficit of $3,819,950 at November 30, 2015, a net loss for the nine months ended November 30, 2015 of $4,913,920 and cash used in operations during the nine months ended November 30, 2015 of $1,523,535. While the Company is attempting to increase sales, the growth has yet to achieve significant levels to fully support its daily operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management plans to address this this going concern by continuing to raise funds with third parties by way of a public or private offering. Management and members of the Board are working aggressively to increase the viewership of our products by promoting it across other mediums which should increase value to advertisers and result in higher advertising rates and revenues.
While the Company believes in the viability of its strategy to improve sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The Company’s limited financial resources have prevented the Company from aggressively advertising its products and services to achieve consumer recognition. The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan and generate greater revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management believes that the actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern.
Note 4 – Note Receivable
On December 22, 2014, the Company advanced $15,000 to a non-related third party debtor and signed a one year, six (6%) percent promissory note. The entire principal balance of this note, together with all accrued and unpaid interest, is due and payable on December 31, 2015.
Note 5 – Investment in Equity Instruments and Deconsolidation
Our investment in an unconsolidated affiliate consists of an investment in equity instruments of RealBiz. On October 9, 2012, Monaker and RealBiz, formerly known as Webdigs, Inc. (“Webdigs”), completed the transactions contemplated by that certain Share Exchange Agreement entered into on April 4, 2012 (the “Exchange Agreement”). Under the Exchange Agreement, our Company exchanged with Webdigs all of the outstanding equity in Attaché Travel International, Inc., a Florida corporation and wholly owned subsidiary of Monaker (“Attaché”). Attaché owns approximately 85% of a corporation named RealBiz Holdings Inc. (“RealBiz”) which is the parent corporation of RealBiz360, Inc. RealBiz is a real estate media services company with a proprietary video processing technology that is used to provide virtual tours to the real estate industry. In exchange for our Attaché shares, our Company received a total of 93 million shares of newly designated Series A Convertible Preferred Stock (“Webdigs Series A Stock”). At November 30, 2015 Monaker owned 48,621,133 shares of RealBiz Series A Preferred Stock and 10,359,890 shares of RealBiz common stock, representing 34% ownership of RealBiz.
On October 31, 2014 (“Deconsolidation Date”), Monaker and RealBiz deconsolidated their financial statements since the investment in RealBiz went below 50% majority ownership and Monaker was deemed to no longer have control over RealBiz. Monaker’s proportional financial interest in RealBiz is reduced when shares of Monaker Dual convertible preferred stock and Monaker convertible debt are exchanged for RealBiz common shares. The financial statements as of February 28, 2015 include consolidated balances of RealBiz through October 31, 2014. During the nine months ended November 30, 2015, Monaker recorded our allocated portions totaling $-0- of RealBiz’s net loss of $4,928,000. Monaker continues to own RealBiz Preferred Series A stock and, through November 30, 2015, although the two companies shared similar Directors, the companies are operating independently.
At November 30, 2015, RealBiz Media Group, Inc. had current assets of approximately $467,000, total assets of approximately $501,000, current liabilities of approximately $1,619,000 and total liabilities of approximately $2,309,000. For the nine months ended November 30, 2015, unaudited RealBiz Media Group, Inc. had gross sales of approximately $727,000 and a net loss of approximately $4,928,000.
Note 6 – Property and Equipment
At November 30, 2015, the Company did not have any property and equipment.
Note 7 – Website Development Costs and Intangible Assets
The following table sets forth the intangible assets, both acquired and developed, including accumulated amortization as of November 30, 2015:
| November 30, 2015 | ||||||||||||||
Remaining Useful Life | Cost | Accumulated Amortization | Net Carrying Value | |||||||||||
| Website platform | 3.0 years | $ | 400,000 | $ | — | $ | 400,000 | |||||||
| Website development costs | 0.3 years | 635,755 | 632,616 | 3,139 | ||||||||||
| H & A Club Portal | 2.1 years | 181,730 | 50,480 | 131,250 | ||||||||||
| Acquired contracts, domains & customer lists | 2.0 years | 1,188,000 | — | 1,188,000 | ||||||||||
| Name Your Fee Website (not placed in service) | 3.0 years | 915,392 | — | 915,392 | ||||||||||
| $ | 3,320,877 | $ | 683,096 | $ | 2,637,781 | |||||||||
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On May 14, 2015, the Company signed a Joint Venture Agreement with Jasper Group Holdings, Inc. for the limited purpose of utilizing and developing the NameYourFee.com website and such other businesses as the partners may agree upon in writing. The Company received a 51% capital interest and 50% of the future profits and issued 100,000 of its Series D Preferred Stock at a value of $500,000, based on its stated value of $5 per share. Upon the consolidation of Name Your Fee, LLC for the nine months ended November 30, 2015, the Company has capitalized $915,392 of costs associated with the Name Your Fee employment website that has not been placed into service.
Note 8 – Notes Payable
| ||||
| The following table sets forth the notes payable as of November 30, 2015: | Principal | |||
| On September 6, 2011, the Company renegotiated a note, due to default, until February 1, 2013 for $785,000. Beginning on October 1, 2011, the Company is obligated to make payments of $50,000 due on the first day of each month. The first $185,000 in payments is to be in cash and the remaining $600,000 shall me made in cash or common stock. On February 15, 2012, the noteholder assigned $225,000 of its $785,000 outstanding promissory note to a non-related third party investor and the Company issued a new convertible promissory note for the same value. On February 27, 2015, the Company signed a settlement agreement whereby interest payments were made and the balance is convertible to common stock at the Company’s option. As of November 30, 2015, the Company is not in default of this note. | $ | 510,000 | ||
| On August 16, 2004, the Company entered into a promissory note with an unrelated third party for $500,000. The note bears interest at 7% per year and matured in March 2011 and was payable in quarterly installments of $25,000. The Company is in default of this note. | 137,942 | |||
|
In February 2009, the Company restructured note agreements with three existing noteholders. The collective balance at the time of the restructuring was $250,000 plus accrued interest payable of $158,000 which was consolidated into three new notes payable totaling $408,000. The notes bear interest at 10% per year and matured on May 31, 2010, at which time the total amount of principle and accrued interest was due. In connection with the restructure of these notes the Company issued 150,000 detachable 3 year warrants to purchase common stock at an exercise price of $3.00 per share. The warrant issuance was recorded as a discount and amortized monthly over the terms of the note. On July 30, 2010, the Company issued 535,000 shares of common stock to settle all of these note agreements except for $25,000. The Company is in default of this note. | 25,000 | |||
|
In connection with the acquisition of Brands on Demand, a five year lease agreement was entered into by an officer of the Company. Subsequent to terminating the officer, the Company entered into an early termination agreement with the lessor in the amount of $30,000 secured by a promissory note to be paid in monthly installments of $2,500, beginning June 1, 2009 and matured June 1, 2010. The Company is in default of this note. | 30,000 | |||
|
On December 5, 2011, the Company converted $252,833 of accounts payable and executed an 8% promissory note to same vendor. Commencing on December 5, 2011 and continuing on the 1st day of each calendar month thereafter, the Company shall pay $12,000 per month. All payments shall be applied first to payment in full of any costs incurred in the collection of any sum due under this note, including, without limitation, reasonable attorney’s fee, then to payment in full of accrued and unpaid interest and finally to the reduction of the outstanding principal balance of the note. The Company is in default of this note. | 221,130 | |||
| $ | 924,072 | |||
| Interest charged to operations relating to the above notes was $43,422 and $35,431, respectively for the nine months ended November 30, 2015 and 2014. As of November 30, 2015, the Company has not made payments on the above obligations; accrued interest at November 30, 2015 is $256,094. | ||||
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Note 9 – Other Notes Payable
The following table sets forth the other notes payable as of November 30, 2015:
| Principal | ||||
| Related parties : | ||||
| On August 21, 2012, the Company received $50,000 in proceeds from a related-party investor and issued a bridge loan agreement with no maturity date. In lieu of interest, the Company issued 100,000 two (2) year warrants with an exercise price of $0.05 per share valued at $1,500 and charged this to operations. The fair value of the warrants was estimated at the date of grant using the Black-Scholes option- pricing model with the following assumptions: risk-free interest rate of 0.29%, dividend yield of -0-%, volatility factor of 384.11% and expected life of three months. On July 15, 2013, the Company received $90,000 from the same related-party investor and converted the remaining balance of $30,000 into a new convertible promissory note valued at $120,000. The new note bears interest at 12% per annum until the maturity date of October 31, 2015 of which the annual interest rate is 18% per annum. Until such time of repayment of principal and interest, the holder of the new note may convert, in whole or part, into Series A or Series B Preferred stock. The Company has made the following principal payments: $20,000 on August 15, 2013, $25,000 on October 1, 2013 and $25,000 on October 23, 2014, leaving a remaining principal balance of $50,000 | 50,000 | |||
| Non-related parties: | ||||
| The Company has an existing promissory note, dated July 23, 2010, with a shareholder in the amount of $100,000. The note is due and payable on July 23, 2012 and bears interest at a rate of 6% per annum. As consideration for the loan, the Company issued 200 warrants to the holder with a nine year life and a fair value of approximately $33,000 to purchase shares of the Company’s common stock, $0.00001 par value, per share, at an exercise price of $500 per share. The fair value of the warrants was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of .984%, dividend yield of -0-%, volatility factor of 115.05% and an expected life of 1.5 years and has been fully amortized. On September 26, 2012, the noteholder assigned $30,000 of its principal to a non-related third party investor and the Company issued a convertible promissory note for same value. The Company is in default of this note | 70,000 | |||
| $ | 120,000 | |||
| Interest charged to operations relating to the above notes was $7,650 and $10,068 respectively for the nine months ended November 30, 2015 and 2014. As of November 30, 2015, the Company has not made payments on the above obligations; and accrued interest at November 30, 2015 is $50,232. | ||||
Note 10 – Other Advances
Related Party
On April 13, 2011 the Company owed $186,000 of related party advances, the Company, as part of a shareholder loan conversion agreement, converted $98,000 of related party advances with the issuance of 1,407,016 shares of common stock and 2,814,032 three (3) year warrants with an exercise price $0.25 per share. Also on April 13, 2011, the Company converted $70,000 of related party advances into a convertible promissory note, leaving a balance due of $18,000. During the nine months ended November 30, 2015, the remaining principal balance of $18,000 was converted into the common stock of our former consolidated subsidiary, RealBiz, as part of an exchange agreement between the Company and the debt holder. In order to issue RealBiz common stock, we convert our investment of Series A Preferred stock into common stock of RealBiz and then exchange those shares for debt.
Non Related Party
Prior to the fiscal year ended February 28, 2011, a non-related party made $50,000 in payments to a vendor on behalf of the Company. The remaining principal balance as of November 30, 2015 totaled $50,000.
Note 11 – Shareholder Loans
During the nine months ended November 30, 2015, the Company received $25,000 in cash proceeds, made payments of $9,081 in principal payments and the remaining balance as of November 30, 2015 totaled $394,919.
Note 12 – Convertible Promissory Notes
The Company has convertible promissory notes with interest rates ranging from 6% to 12% per annum, maturity dates ranging from September 30, 2012 to October 19, 2016 and with a range of fixed and variable conversion features. During the nine months ended November 30, 2015 and 2014, the Company recognized interest expense of $289,915 and $437,067, respectively. The table below summarizes the convertible promissory notes as of November 30, 2015.
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| November 30, 2015 | ||||||||||||
Non Related Party | Related Party | Total | ||||||||||
| Principal | ||||||||||||
| Beginning balance | $ | 6,828,386 | $ | 1,025,000 | $ | 7,853,386 | ||||||
| Additions: | ||||||||||||
| Proceeds received from note issuances | — | — | — | |||||||||
| Fees | — | — | — | |||||||||
| — | — | — | ||||||||||
| Subtractions: | ||||||||||||
| Conversion to common shares | 3,235,084 | 675,000 | 3,910,084 | |||||||||
| Principal repayments | 36,400 | — | 36,400 | |||||||||
| 3,271,484 | 675,000 | 3,946,484 | ||||||||||
| Ending balance | $ | 3,556,902 | $ | 350,000 | $ | 3.906,902 | ||||||
| Carrying Value | ||||||||||||
| Total convertible promissory notes | $ | 3,556,902 | $ | 350,000 | $ | 3,906,902 | ||||||
| Less: current portion | 593,599 | 350,000 | 943,599 | |||||||||
| Long term portion | $ | 2,963,303 | $ | — | $ | 2,963,303 | ||||||
| Principal past due and in default | $ | 316,017 | $ | — | $ | 316,017 | ||||||
During the nine months ended November 30, 2015, the Company:
| ● | Recorded debt discount amortization expense in the amount of $-0- |
| ● | Made $36,400 in principal payments against outstanding convertible promissory notes. |
| ● | Executed a conversion of $810,804 of principal into 411,754 shares of the Company’s common stock. |
| ● | Issued 124,000 shares of its common stock in satisfaction of $3,100,000 in principal of modified convertible promissory notes in accordance with the terms of the notes. Additionally, as an inducement to convert such notes into common stock, the Company issued 496,000 shares of its common stock at a value of $1,612,000 and granted one (1) year common stock warrants to purchase 30,000 shares of common stock with an exercise price of $0.50 per share valued at $44,418, for a total amount charged to interest expense of $1,656,418. The value of the common stock issued was based on the fair value of the stock determined by actual trading price quotes at the time of issuance. The value of the warrants was estimated at the time of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.23%, dividend yield of -0-%, volatility factor of 217.20%, and expected life of one year. |
Note 13 – Stockholders’ Deficit
Preferred stock
The aggregate number of shares of preferred stock that the Company is authorized to issue is up to One Hundred Million (100,000,000), with a par value of $0.0001 per share (“the Preferred Stock”) with the exception of Series A Preferred shares having a $0.01 par value. The Preferred Stock may be divided into and issued in series. The Board of Directors of the Company is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. The Board of Directors of the Company is authorized, within any limitations prescribed by law and the articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of Preferred Stock.
When our shareholders elect to convert to common stock of RealBiz, we convert our Series A Preferred stock investment of RealBiz into common stock of RealBiz and then exchange those shares for our preferred stock.
Series A Preferred Stock
The Company has authorized and designated 3,000,000 shares of Preferred Stock as Series A 10% Cumulative Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”). The holders of record of shares of Series A Preferred Stock are entitled to vote on all matters submitted to a vote of the shareholders of the Company and are entitled to one hundred (100) votes for each share of Series A Preferred Stock.
Per the terms of the Amended and Restated Certificate of Designations, subject to the availability of authorized and unissued shares of Series A Preferred Stock, the holders of Series A Preferred Stock may, by written notice to the Company, elect to convert all or any part of such holder’s shares of Series A Preferred Stock into common stock at a conversion rate of the lower of (a) $0.50 per share or (b) at the lowest price the Company has issued stock as part of a financing. Additionally, the holders of Series A Preferred Stock may by written notice to the Company, convert all or part of such holder’s shares (excluding any shares issued pursuant to conversion of unpaid dividends) into debt obligations of the Company, secured by a security interest in all of the assets of the Company and its’ subsidiaries, at a rate of $0.50 of debt for each share of Series A Preferred Stock. On July 9, 2013, the Company amended the Certificate of Designations for the Company’s Series A Preferred Stock to allow for conversion into Series C Preferred stock to grant to a holder of the Series A Preferred Stock the option to elect to convert all or any part of such holder’s shares of Series A Preferred Stock into shares of the Company’s Series C Convertible Preferred Stock, par value $0.00001 per share (“Series C Preferred Stock”), at a conversion rate of five (5) shares of Series A Preferred Stock for every one (1) share of Series C Preferred Stock. Furthermore, the amendment allows for conversion into common stock at the lowest price the Company has issued stock as part of a financing to include all financing such as new debt and equity financing and stock issuances as well as existing debt conversions into stock. On February 28, 2014, the Company’s Preferred Series A shareholders agreed to authorize a change to the Certificate of Designations of the Series A Preferred Stock in Nevada to lock the conversion price to a fixed price of $0.01.
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In the event of any liquidation, dissolution or winding up of this Company, either voluntary or involuntary (any of the foregoing, a “liquidation”), holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Company to the holders of the common Stock or any other series of Preferred Stock by reason of their ownership thereof an amount per share equal to $1.00 for each share (as adjusted for any stock dividends, combinations or splits with respect to such shares) of Series A Preferred Stock held by each such holder, plus the amount of accrued and unpaid dividends thereon (whether or not declared) from the beginning of the dividend period in which the liquidation occurred to the date of liquidation.
During the nine months ended November 30, 2015, the Company:
| ● | Converted 331,403 shares of Series A Preferred stock, at a carrying value of $331,403, into 3,314,030 shares of common stock of our former subsidiary RealBiz at agreed upon conversion terms. |
| ● | Converted 15,000 shares of Series A Preferred stock, at a carrying value of $15,000 into 30,000 shares of common stock. |
Dividends in arrears on the outstanding preferred shares total $821,954 as of November 30, 2015. The Company had 1,869,611 shares issued and outstanding as of November 30, 2015.
Series B Preferred Stock
The Company has authorized and designated 3,000,000 shares of Preferred Stock as Non-Voting Series B 10% Cumulative Convertible Preferred Stock with a par value of $0.00001 per share (“the Series B Preferred Stock”). The holders of Series B Preferred Stock may elect to convert all or any part of such holder’s shares into the Company’s common stock at $5 per share or into shares of RealBiz Media’s common stock at $0.05 per share.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
During the nine months ended November 30, 2015, the Company:
| ● | Issued 15,000 shares of Series B Preferred stock for proceeds received in the prior year valued at $75,000. |
| ● | Issued 15,000 shares of Series B Preferred stock as partial payment of interest due to a convertible promissory note holder valued at $75,000. |
| ● | Converted 20,000 shares of Series B Preferred stock into RealBiz common stock, upon the investor’s request, issuing 2,000,000 shares of RealBiz common stock with a total carrying value of $100,000. |
| ● | Entered into a special exchange agreement with holders of Series B Preferred stock to convert 138,000 shares of Series B Preferred stock at a value of $690,000 into 280,000 shares of its common stock valued at $948,600, incurring a loss on inducement of $258,600 with the Series B Preferred stock shareholders agreeing to forfeit $145,162 in accrued dividends and any entitlement to future dividends. |
Dividends in arrears on the outstanding preferred shares total $412,588 as of November 30, 2015. The Company had 134,200 shares of Series B Preferred stock issued and outstanding as of November 30, 2015.
Series C Preferred Stock
The Company has authorized and designated 3,000,000 shares of Preferred Stock as Non-Voting Series C 10% Cumulative Convertible Preferred Stock with a par value of $0.00001 per share (the “Series C Preferred Stock”). On July 9, 2014, Monaker filed (i) an Amendment to its Series C Certificate of Designation with the Secretary of State of the State of Nevada to change the conversion price from $5.00 to a new conversion price of $0.25. The holders of Series C Preferred stock may elect to convert all of any part of such holder’s shares into the Company’s common stock at $0.25 per share or into shares of RealBiz Media’s common stock at $0.10 per share.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
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During the nine months ended November 30, 2015, the Company:
| ● | Issued 2,000 shares of its Series C Preferred stock along with one (1) year common stock warrants to purchase 2,000 shares of common stock with an exercise price of $2.50 per share and received $10,000 in cash proceeds. |
| ● | Issued 3,500 shares of its Series C Preferred stock along with one (1) year common stock warrants to purchase 4,500 shares of common stock with an exercise price of $2.50 per share, for $22,500 of proceeds received from prior year advances. |
| ● | Issued 13,000 shares of Series C Preferred stock and one (1) year common stock warrants to purchase 6,000 shares of common stock with an exercise price of $0.50 per share, to recipients for consulting services rendered valued at $73,138. The value of the common stock issued was based on the fair value of the stock at the time of issuance. The value of the warrants was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.10% to 0.24%, dividend yield of -0-%, volatility factor of 217.04, and expected life of one year. |
| ● | Issued 30,000 shares of Series C Preferred stock for a deferred compensation settlement with the former CFO of RealBiz, our former subsidiary valued at $150,000. |
| ● | Converted 22,100 shares of Series C Preferred stock into 960,000 shares of common stock of our former subsidiary RealBiz at the agreed upon conversion terms. |
| ● | Entered into a special exchange agreement with holders of Series C Preferred stock to convert 203,000 shares of Series C Preferred stock at a value of $1,005,000 into 406,000 shares of its common stock valued at $1,286,216, incurring a loss on inducement of $281,216 with the Series C Preferred stock shareholders agreeing to forfeit $97,389 in accrued dividends and any entitlement to future dividends. |
Dividends in arrears on the outstanding preferred shares total $42,120 as of November 30, 2015. The Company had 41,000 shares of Series C Preferred stock issued and outstanding as of November 30, 2015.
Series D Preferred Stock
The Company has authorized and designated 3,000,000 shares of Preferred Stock as Non-Voting Series D 10% Cumulative Convertible Preferred Stock with a par value of $0.00001 per share (the “Series D Preferred Stock”). On July 9, 2014, the Company filed (i) an Amendment to its Series D Certificate of Designation with the Secretary of State of the State of Nevada to change the conversion price from $5.00 to a new conversion price of $0.25. The holders of Series D Preferred stock may elect to convert all of any part of such holder’s shares into the Company’s common stock at $0.25 per share or into shares of RealBiz Media’s common stock at $0.15 per share.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to 100% of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of then outstanding Preferred Stock before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
During the nine months ended November 30, 2015, the Company:
| ● | Issued 60,000 shares of Series D Preferred stock in connection with an Asset Purchase Agreement the Company assigned to its former subsidiary, RealBiz, valued at $400,000. The value assigned to the asset purchase agreement was based upon the fair market value of RealBiz’s common stock on the date of the agreement as if all 60,000 shares were converted into RealBiz common stock. |
| ● | Issued 100,000 shares of Series D Preferred stock in connection with a joint venture agreement with Jasper Group Holdings, Inc. (“Jasper”) and created a Florida Limited Liability Company called Name Your Fee, LLC. As stated in the agreement, ownership of the entity is at 51% for Monaker and 49% for Jasper. Monaker will issue to Jasper 100,000 Series D Preferred shares at a stated value of $5 per share for a total of $500,000 as its contribution. Jasper is contributing $75,000, advancing $75,000 to RealBiz (a former subsidiary of Monaker) and the assets of the website (Name Your Fee) together with associated technology. |
| ● | Issued 1,000 shares of Series D Preferred stock to a director at a stated value of $5 per share totaling $5,000. |
| ● | Converted 62,100 shares of Series D Preferred stock, upon investor request, into 2,069,793 shares of RealBiz with a carrying value of $310,500. |
| ● | Entered into a special exchange agreement with holders of Series D Preferred stock to convert 561,600 shares of Series D Preferred stock at a value of $2,808,000 into 1,123,200 shares of its common stock valued at $3,660,850, incurring a loss on inducement of $852,850 with the Series D shareholders agreeing to forfeit $729,048 in accrued dividends and any entitlement to future dividends. |
| ● | Converted 28,644 shares of Series D Preferred stock, upon investor request, into 75,000 shares of the Company’s common stock at a value of $143,220. |
Dividends in arrears on the outstanding preferred shares total $766,059 as of November 30, 2015. The Company had 347,456 shares of Series D Preferred stock issued and outstanding as of November 30, 2015.
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Common Stock
On October 28, 2011, the Board and the holders of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares of common stock from 200,000,000 to 500,000,000. On February 13, 2012, the Board and the holders of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares of common stock from 500,000,000 to 2,500,000,000. The increase in our authorized shares of common stock became effective upon the filing of the amendment(s) to our articles of incorporation with the Secretary of State of the State of Nevada.
On May 2, 2012, the Board consented to (i) effect a 1-to-500 reverse split of the Company’s common stock and (ii) reduce the number of authorized shares from 2,500,000,000 to 5,000,000. Such actions became effective upon the filing of the amendment(s) to our articles of incorporation with the Secretary of State of the State of Nevada. The consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.
On June 26, 2012, the Board and the holders of a majority of the voting power of our shareholders approved an amendment to our articles of incorporation to increase our authorized shares of common stock from 5,000,000 to 500,000,000.
On June 25, 2015, the Board consented to (i) effect a 1-to-50 reverse split of the Company’s common stock and (ii) change the name of the Company from Next 1 Interactive, Inc. to Monaker Group, Inc. Such actions became effective upon the filing of the amendment(s) to our articles of incorporation with the Secretary of State of the State of Nevada. The consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.
During the nine months ended November 30, 2015, the Company:
| ● | Issued 676,677 shares of its common stock along with one year common stock warrants to purchase 510,840 shares of common stock with an exercise price between $1.50 and $12.50 per share, for cash proceeds of $1,437,796. |
| ● | Issued 71,532 shares of its common stock upon the exercise of common stock warrants to purchase 71,532 shares of common stock, for cash proceeds of $89,766. |
| ● | Preferred series conversions: |
○ Converted 15,000 shares of Series A Preferred stock valued at $15,000, into 30,000 shares of the Company’s common stock.
○ Entered into a special exchange agreement with holders of Series B Preferred stock to convert 138,000 shares of Series B preferred stock at a value of $690,000 into 280,000 shares of its common stock valued at $948,600, incurring a loss on inducement of $258,600 with the Series B Preferred stock shareholders agreeing to forfeit $145,162 in accrued dividends and any entitlement to future dividends.
○ Entered into a special exchange agreement with holders of Series C Preferred stock to convert 203,000 shares of Series C Preferred stock at a value of $1,005,000 into 406,000 shares of its common stock valued at $1,286,216, incurring a loss on inducement of $281,216 with the Series C Preferred stock shareholders agreeing to forfeit $97,389 in accrued dividends and any entitlement to future dividends.
○ Entered into a special exchange agreement with holders of Series D Preferred stock to convert 560,600 shares of Series D Preferred stock at a value of $2,808,000 into 1,121,200 shares of its common stock valued at $3,660,850, incurring a loss on inducement of $852,850 with the Series D Preferred stock shareholders agreeing to forfeit $729,048 in accrued dividends and any entitlement to future dividends.
○ Converted 28,644 shares of Series D Preferred stock, upon investor request, into 75,000 shares of the Company’s common stock at a value of $143,220.
| ● | Issued 136,000 shares of its common stock in satisfaction of $146,430 in principal of convertible promissory notes in accordance with the terms of the notes. |
| ● | Issued 620,000 shares of its common stock in satisfaction of $4,756,418 in principal of modified convertible promissory notes in accordance with the terms of the notes. Additionally, as an inducement to convert $3,100,000 of the $4,756,418 in principal, the Company issued 496,000 shares of its common stock at a value of $1,612,000 and granted one (1) year common stock warrants to purchase 30,000 shares with an exercise price of $0.50 per share valued at $44,418 for a total amount charged to interest expense of $1,656,418. The value of the common stock issued was based on the fair value of the stock determined by actual trading price quotes at the time of issuance. The value of the warrants was estimated at the time of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.23%, dividend yield of -0-%, volatility factor of 217.20% and expected life of one year. |
| ● | Issued 20,000 shares of its common stock as part of an acquisition agreement with Launch 360 Media, Inc. (“Launch 360”), dated May 6, 2015, for a ten percent (10%) interest in the common stock outstanding of Launch 360 valued at $56,000. The value of the common stock issued was based on the fair value of the stock determined by actual trading price quotes at the time of issuance. |
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| ● | Issued 24,919 shares of its common stock valued at $108,195 to its employees as stock compensation. The value of the common stock issued was based on the fair value of the stock at the time of issuance. |
| ● | Issued 109,731 shares of its common stock and one (1) year common stock warrants to purchase 182,291 shares of common stock with an exercise price of $1.25 per share for a total value of $563,060 for consulting services rendered. The value of the common stock issued was based on the fair value of the stock determined by actual trading price quotes at the time of issuance. The value of the warrants was estimated at the time of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.40%, dividend yield of -0-%, volatility factor of 207.55% and expected life of one year. |
| ● | Issued 355,754 shares of common stock valued at $1,135,124 to settle $964,384 of principal as part of settlement agreements with note holders and recognized a $170,740 loss on settlement of debt. The value of the common stock issued was based on the fair value of the stock determined by actual trading price quotes at the time of execution of the settlement agreements. |
| ● | Issued 383,230 shares of its common stock on October 26, 2015, valued at $1,188,000, to the holders of Always On Vacation, Inc. involving a merger of Monaker’s wholly-owned subsidiary AOV Holding, Inc. and Always On Vacation, Inc. effectively cancelling each shares of capital stock of Always on Vacation, Inc. The common stock was recorded at fair value as of the acquisition dated according to ASC 805 and is treated as a business combination. |
The Company had 4,728,610 shares of common stock issued and outstanding as of November 30, 2015 post-split based upon the 1:50 reverse stock split that occurred on June 25, 2015 and has retroactively adjusted the unaudited consolidated financial statements according to ASC 260-10-55-12.
Common Stock Warrants
At November 30, 2015, there were 1,006,685 warrants outstanding with a weighted average exercise price of $3.77 and weighted average life of 1.34 years. During the nine months ended November 30, 2015, the Company granted 735,631 warrants – 182,291 warrants for consulting fees, 12,500 warrants attached to Series C Preferred stock issuances, 510,840 warrants granted with common stock subscriptions and 30,000 warrants granted for inducement to settle modified debt; 69,500 were exercised and 123,911 expired. As of November 30, 2015 and February 28, 2015, the warrants have an intrinsic value of $0.00.
Common Stock Options
On August 23, 2015, the Company entered into a stock option termination agreement with all the option holders. Due to the multiple reverse stock splits, the Company anticipated it would be highly unlikely these options would be exercised and terminated all 81 options outstanding.
Note 14 - Commitments and Contingencies
The Company leases approximately 6,500 square feet of office space in Weston, Florida pursuant to a lease agreement, with Bedner Farms, Inc. of the building located at 2690 Weston Road, Weston, Florida 33331. In accordance with the terms of the lease agreement, the Company is renting the commercial office space, for a term of five years commencing January 1, 2011 through December 31, 2015. The rent for the nine months ended November 30, 2015 and 2014 was $109,024 and $103,856 respectively. In September of 2011, the Company sublet a portion of its office space offsetting our rent expense by $1,500 per month. In November 2012, the Company entered into another agreement to sublet a portion of its office space offsetting our rent expense by an additional $2,500 per month, this tenant will pay $2,750 as of January 2014. In January 2014, the total monthly rent sublet offset is $4,250.
On December 17, 2015, the Company signed a new lease for approximately 2,500 square feet with Bedner Farms as the over-landlord and Swift Response, LLC as the sub-landlord for office space location at 2690 Weston Road Weston, Florida 33331. The Company is renting commercial office space for three years commencing January 1, 2016 through December 31, 2018. The rent for the three years are $78,000, $80,340, $82,750 respectively.
The following schedule represents obligations under written commitments on the part of the Company that are not included in liabilities:
| Current | Long Term | ||||||||||||||||
| FY 2018 | |||||||||||||||||
| And | |||||||||||||||||
| FY 2016 | FY 2017 | thereafter | Totals | ||||||||||||||
| Consulting | $ | 25,875 | $ | 103,500 | $ | 207,000 | $ | 336,375 | |||||||||
| Leases | 26,144 | 81,481 | 149,700 | 257,325 | |||||||||||||
| Other | 97,447 | 331,764 | 663,528 | 1,092,739 | |||||||||||||
| Totals | $ | 149,466 | $ | 516,745 | $ | 1,020,228 | $ | 1,686,439 | |||||||||
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Legal Matters
The Company is involved, from time to time, in litigation, other legal claims and proceedings involving matters associated with or incidental to our business, including, among other things, matters involving breach of contract claims, intellectual property, employment issues, vendor matters, and other related claims. The Company believes that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal claims could change in light of the discovery of facts not presently known to the Company or by judges, juries or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.
There is currently a case pending whereby the Company’s Chief Executive Officer (the “Defendant”) is being sued for allegedly breaching a contract, which he signed in his role as the CEO of the Company’s wholly owned subsidiary Extraordinary Vacations Group, Inc. (“Extraordinary Vacations”). The case is being strongly contested. The Defendant filed a motion to dismiss plaintiff’s amended complaint with prejudice and such motion has been argued before the judge in the case. The Company is currently awaiting the judge’s ruling at this time.
The Company is a defendant in a lawsuit filed by Twelfth Child Entertainment in the Circuit Court for Palm Beach, Florida alleging that Monaker owes 11,000 shares of Series D Preferred stock for a License Agreement. The case has been resolved in arbitration and the Twelfth Child was granted an arbitration award of approximately $80,000. However, the Company is continuing to negotiate a settlement that would set aside this award.
There is a case that was filed on March 14, 2014 whereby the Company is a defendant in a lawsuit filed by Lewis Global Partners in the Circuit Court for Broward County, Florida alleging that Monaker owes 2,700 shares of Series B Preferred stock for a Consulting Agreement. The case is being strongly contested and is being sent to arbitration.
The Company is unable to determine the estimate of the probable or reasonably possible loss or range of losses arising from the above legal proceedings.
Note 15 – Segment Reporting
Accounting Standards Codification 280-16 “Segment Reporting”, established standards for reporting information about operating segments in annual consolidated financial statements and required selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products, services, and geographic areas. Operating segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
The Company currently has only one segment in full operation, Travel. In the prior year, the Company had consolidated RealBiz and had a second segment, real estate media which is no longer reported.
The Company did not generate any revenue outside the United States for the nine months ended November 30, 2015 and 2014 and did not have any assets located outside the United States.
Note 16 – Fair Value Measurements
The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).
The hierarchy consists of three levels:
| ● | Level 1 - Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with an increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. Effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrant and option derivatives are valued using the Black-Scholes model.
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The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities as their fair values were determined by using the Black-Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.
The following table sets forth the liabilities as of November 30, 2015, which are recorded on the balance sheet at fair value on a recurring basis by level within the fair value hierarchy. As required, they are classified based on the lowest level of input that is significant to the fair value measurement:
| Fair Value Measurements at Reporting Date Using | |||||||||||||||
| Description | November 30, 2015 | Quoted Prices in Identical Assets (Level 1) | Significant Other Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Convertible promissory note with embedded conversion option | $ | 178,212 | $ | — | $ | — | $ | 178,212 | |||||||
| Total | $ | 178,212 | $ | — | $ | — | $ | 178,212 | |||||||
The following table sets forth a summary of changes in fair value of our derivative liabilities for the nine months ended November 30, 2015:
| Beginning balance, February 28, 2015 | $ | 287,149 | ||
| Change in fair value of embedded conversion feature of: | ||||
| Gain on change in fair value of derivatives on convertible promissory notes | (108,937 | ) | ||
| Ending balance, November 30, 2015 | $ | 178,212 |
Note 17 – Subsequent Events
The Company has evaluated subsequent events occurring after the balance sheet date and has identified the following:
During December 2015 and January 2016, the Company:
| ● | Converted $350,000 in modified convertible promissory notes and $50,000 in notes payable in accordance with an exchange agreement with a note holder and issued 226,292 shares of common stock. |
| ● | Issued 222,400 shares of common stock upon the conversion of 111,200 shares of Series B Preferred stock. |
| ● | Issued 10,000 shares of common stock for the conversion of a $12,500 convertible promissory note. |
| ● | Issued 5,000 shares of common stock to various parties to settle debt in relation to the Always on Vacation acquisition. Common shares issued for AOV shareholders, deferred compensation and bonus shares. |
| ● | Issued 61,430 shares of common stock as part of the Always On Vacation exchange agreement. |
| ● | Issued 20,635 shares of Company common stock for various consulting and employment agreements. |
We are currently assessing the impact of the accounting for these transactions.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
The following discussion should be read in conjunction with the attached consolidated unaudited financial statements and notes thereto, and our consolidated audited financial statements and related notes for our fiscal year ended February 28, 2015 found in our Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward looking statements by using words such as “anticipate,” “believe,” “intends,” or similar expressions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth in our Annual Report on Form 10-K.
This Report contains statements that we believe are, or may be considered to be, “forward-looking statements”. All statements other than statements of historical fact included in this Report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the Securities and Exchange Commission (“SEC”) or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Report.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates past judgments and estimates, including those related to bad debts, accrued liabilities, convertible promissory notes and contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies and related risks described in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on June 16, 2015 are those that depend most heavily on these judgments and estimates. As of November 30, 2015, there had been no material changes to any of the critical accounting policies contained therein.
Overview
We are a media based company utilizing video as a key driver to create consumer awareness of products and opportunities in the travel, home and employment sectors. To further loyalty and long term relationships we have created a membership reward programs and multiple business associations and partnerships. Additionally we hold a 51% majority ownership in Name Your Fee, LLC for the employment segment, a minority interest in RealBiz Media Group, Inc. a publicly traded real estate media company (“RealBiz”), servicing the real estate segment and a 10% ownership in R&R Television Network a company services the lifestyle industry. The Company’s mission has been to both create and acquire travel, employment and real estate video content that can be delivered on any screen (Television, web and mobile), all with interactive advertising and transactional shopping components designed to engage and enable viewers to request information, make purchases and get an in-depth look at products and services all through their device of choice. Since our deconsolidation of RealBiz, our only operational segment is our travel segment.
Summary
Monaker Group, Inc. (“Monaker”) is a multi-faceted interactive media company whose key focus is around what the Company believes to be the most universal, yet powerful consumer-passion categories being - travel, home and work. The Company is engaged in the business of providing digital media and marketing services for these industries along with the opportunity to create long term relationships through its Home & Away Club membership programs. During the nine months ended November 30, 2015, all of our revenue was derived from our travel operations. The Company generates revenue from commissions from traditional sales of our travel products and expects to accelerate its revenue base through: (i) advertising revenue from preferred suppliers, sponsors and referral fees, (ii) travel and employment media services which include video sponsorship packages, pre-roll advertising, commissions and referral fees; and (iii) revenue derived from Home & Away Club memberships.
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The Company’s Media Group concentrates awareness campaigns through its three divisions:
(1) Travel – which encompasses Maupintour (one of the oldest luxury tour operators in the United States) NextTrip.com/Voyage.tv, a video and media website with thousands of hours of travel footage.
(2) Employment - the NameYourFee.com website which is designed to allow recruiters to expand their reach of candidates to potential employers.
(3) Home – via its Home & Away Club loyalty program and minority interest in RealBiz.
The Company targets content utilizing video via digital platforms including satellite, cable, and broadcast, Broadband, Web, Print and the development of a Home & Away Mobile App.
We are currently primarily focused only on our travel segment and expect to expand into the employment and Home/Membership services during the next quarter. The following is an overview of the 3 areas that currently have travel operations and/or the Company is imminently commencing promotion utilizing our media services.
1. Maupintour Extraordinary Vacations (“Maupintour”) is the oldest tour operator in North America having a history of over 65 years of creating and booking tours and activity-focused trips, from private tours of the Vatican to bicycling in the Alps to wine tasting in Italy. Maupintour books these trips and serves thousands of travel agents around the world. The Company has an active alumni that desires luxury vacations that includes private sightseeing, fine dining and 4 and 5 star accommodations. The Company previously ran group tours ranging from 10 to 25; however it has moved its model to customization of high end tours for families, small groups and individuals. The Company’s most popular destinations are Egypt, Israel, Europe, Africa, Asia and Peru. The Company’s peak season for this division is from February to July. Maupintour’s website is www.Maupintour.com.
2. NextTrip.com is being repositioned as an all-purpose travel site that includes customer support, relevant social networking, and travel business showcases, with a primary emphasis on Video to targeted web users and a secondary promotion to TV viewers via VOD promotion. The site is scheduled for launch in the 2nd quarter of this fiscal year and will work in conjunction with the Home & Away Club App to provide users with relevant information utilizing its diverse video library and experience to entertains, informs, and offers utility and savings to members. The travel website currently offers users, free of charge, hundreds of destination videos and promotes worldwide vacation destinations. NextTrip.com plans to generate revenues through advertising, travel commission, referral fees, and its affiliate program. The travel products and fulfillment and services are both created by the company and/or contracted out to key industry suppliers including Mark Travel. Mark Travel is the largest wholesaler of travel products in the United States. NextTrip.com will look to serve relevant videos to travelers via four key elements: (i) television ads; (ii) travel video on demand for web and TV; (iii) broadband telecast (with the web player surrounded by interactive banner ads and/or discount travel coupons); and (iv) the development of its Travel App.
3. The Home & Away Club (H&AC). The Company has launched the Home & Away Club website and is both targeting existing customers and new potential customers to the site by offering up to $500 Rewards so consumers can try before they buy. As a primary means of creating awareness for H&AC the Company is utilizing existing customers, relationships and forging new partnerships within the travel, real estate and employment sectors. The Company intends to utilize targeted video for the travel, leisure, home products and services to engage and enable viewers to request information, make reservations and get an in-depth look at products and services the Club offers. The Company created a points based program for real estate agents that utilize the RealBiz services. With the Home and Away club, agents can earn dollars for completing actions and can receive greatly discounted gifts to give to their happy clients. This allows real estate agents the ability to earn and/or purchase Home and Away Club membership for themselves and/or gifting to their customers. The membership gives the homeowner access to wholesale pricing on travel, lifestyle and home products while providing the real estate agents a loyalty platform that allows them the means to stay in contact with their customer.
Sufficiency of Cash Flows
Because current cash balances and our projected cash generated from operations are not sufficient to meet our cash needs for working capital and capital expenditures, management intends to seek additional equity or obtain additional credit facilities. However, there can be no assurance that we will be able to issue additional capital upon terms acceptable to us. The sale of additional equity will result in additional dilution to our shareholders. A portion of our cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies.
RESULTS OF OPERATIONS
For the Three Months Ended November 30, 2015 Compared to the Three Months Ended November 30, 2014
Revenues
Our total revenues decreased 93% to $21,717 for the three months ended November 30, 2015, compared to $310,341 for the three months ended November 30, 2014, a decrease of $288,624. The decrease is mainly due to the deconsolidation of our former consolidated subsidiary RealBiz and, consequently, our revenues no longer include the revenue of RealBiz. This decrease in revenues was partially offset by the recognition of travel revenues, previously deferred, because the travel had not occurred.
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Revenues from the travel segment decreased 76% to $21,717 for the three months ended November 30, 2015, compared to $89,393 for the three months ended November 30, 2014, a decrease of $67,676. The decrease is attributable to a decrease in tour and cruises booked by our luxury tour operation which provides escorted and independent tours worldwide to upscale travelers.
Revenues from the RealBiz real estate media operations decreased 100% to $0 for the three months ended November 30, 2015, compared to $220,948 for the three months ended November 30, 2014, a decrease of $220,948, due to the deconsolidation of our former consolidated subsidiary RealBiz.
Operating Expenses
Our operating expenses include cost of revenues, technology and development, salaries and benefits, selling and promotions and general and administrative expenses. Our operating expenses decreased 24% to $1,322,357 for the three months ended November 30, 2015, compared to $1,737,655 for the three months ended November 30, 2014, a decrease of $415,298. This decrease was mainly attributable to deconsolidation of the expenses of our former consolidated subsidiary, RealBiz.
Other Income (Expenses)
Interest income increased to $2,367,209 for three months ended November 30, 2015, compared to interest expense of $376,980 for the three months ended November 30, 2014, an increase in interest income of $2,744,189, primarily due to the inducement expense relating to inducing a convertible debt holder to convert its debt into common shares and warrants as discussed in Note 13. Gain on change in fair value of derivatives increased 120% to $8,302 for the three months ended November 30, 2015, compared to a loss on change in fair value of derivatives of $40,635 for the three months ended November 30, 2014, an increase of $48,937 primarily due to change in the per share value of the underlying common stock and conversion of outstanding principal in convertible promissory notes containing embedded conversion options. There was also a $6,255,188 decrease in gain on deconsolidation of subsidiary, relating to RealBiz, for the three months ended November 30, 2014, compared to no gain on deconsolidation of subsidiary for the three months ended November 30, 2015. We had $695,598 of loss on settlement of debt for the three months ended November 30, 2015. The loss was due primarily to the inducement of converting a debt and equity holder into common shares. We had total other expense of $287,140 for the three months ended November 30, 2015, compared to total other income of $5,426,006 for the three months ended November 30, 2014, a decrease of $5,138,866, mainly due to the reduction in gain on deconsolidation of subsidiary.
Net Loss
We had a net loss of $1,013,500 for the three months ended November 30, 2015, compared to net income of $3,998,692 for the three months ended November 30, 2014, a decrease of $5,012,192. The increase in loss from 2014 to 2015 was primarily a result of the deconsolidation of our former consolidated subsidiary, RealBiz.
RESULTS OF OPERATIONS
For the Nine Months Ended November 30, 2015 Compared to the Nine Months Ended November 30, 2014
Revenues
Our total revenues decreased 52% to $507,077 for the nine months ended November 30, 2015, compared to $1,061,643 for the nine months ended November 30, 2014, a decrease of $554,566. The decrease is mainly due to the deconsolidation of our former consolidated subsidiary, RealBiz, and no longer including the revenue of RealBiz. The decrease was partially offset by the receipt of deferred revenue.
Revenues from the travel segment increased 71% to $507,077 for the nine months ended November 30, 2015, compared to $295,679 for the nine months ended November 30, 2014, an increase of $211,398. The increase is attributable to the receipt of deferred revenue.
Revenues from the RealBiz real estate media operations decreased 100% to $0 for the nine months ended November 30, 2015, compared to $765,964 for the nine months ended November 30, 2014, due to the deconsolidation of our former consolidated subsidiary, RealBiz, and no longer including the revenue of RealBiz in our financials.
Operating Expenses
Our operating expenses include cost of revenues, technology and development, salaries and benefits, selling and promotions and general and administrative expenses. Our operating expenses decreased 49% to $2,879,627 for the nine months ended November 30, 2015, compared to $5,694,870 for the nine months ended November 30, 2014, a decrease of $2,815,243. This decrease was mainly attributable to deconsolidation of the expenses of the former consolidated subsidiary, RealBiz.
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Other Income (Expenses)
Interest expense decreased to $340,987 for the nine months ended November 30, 2015, compared to $909,830 for the nine months ended November 30, 2014, a decrease of $568,843, primarily due to the inducement expense relating to inducing a debt holder to convert its debt into common shares and warrants as disclosed in Note 14. Loss on settlement of debt increased 100% to $919,598 for the nine months ended November 30, 2015, compared to $0 for the nine months ended November 30, 2014. The loss was due primarily to the inducement of converting a debt and equity holder into common shares. Gain on change in fair value of derivatives decreased 90% to $108,937 for the nine months ended November 30, 2015, compared to $1,102,932 for the nine months ended November 30, 2014, a decrease of $993,995 primarily due to change in the per share value of the underlying common stock and conversion of outstanding principal in convertible promissory notes containing embedded conversion options. Gain on deconsolidation of subsidiary decreased 100% to $0 for the nine months ended November 30, 2015, compared to $6,255,188 for the nine months ended November 30, 2014, the decrease of $6,255,188 due to restating the effect of deconsolidation. Total other expense decreased to $2,546,154 for the nine months ended November 30, 2015, compared to a $6,202,807 gain for the nine months ended November 30, 2014, an increase in loss of $8,748,961 primarily due to non-recurring expenses resulting from the deconsolidation of our former consolidated subsidiary RealBiz.
Net Loss
We had a net loss of $4,918,704 for the nine months ended November 30, 2015, compared to net income of $1,569,580 for the nine months ended November 30, 2014, an increase in net loss of $6,488,284. The increase in loss from 2014 to 2015 was primarily due to an increase of $1,023,172 in interest expense from loss on inducement expense on conversion of debt, and a decrease of $6,255,188 in gain on deconsolidation of subsidiary which were offset by a decrease in operating expenses of $2,815,243.
Contractual Obligations
The following schedule represents obligations under written commitments on the part of the Company that are not included in liabilities:
| Current | Long Term | ||||||||||||||||
| FY 2018 | |||||||||||||||||
| And | |||||||||||||||||
| FY 2016 | FY 2017 | thereafter | Totals | ||||||||||||||
| Consulting | $ | 25,875 | $ | 103,500 | $ | 207,000 | $ | 336,375 | |||||||||
| Leases | 26,144 | 81,481 | 149,700 | 257,325 | |||||||||||||
| Other | 97,447 | 331,764 | 663,528 | 1,092,739 | |||||||||||||
| Totals | $ | 149,466 | $ | 516,745 | $ | 1,020,228 | $ | 1,686,439 | |||||||||
Liquidity and Capital Resources
At November 30, 2015, we had $287,892 cash on-hand, an increase of $61,480 from $226,412 at the start of fiscal 2016. The increase in cash was due primarily to equity fund raising offset by operating expenses, website development costs and advances to affiliates.
Net cash used in operating activities was $1,523,535 for the nine months ended November 30, 2015, a decrease of $790,182 from $2,313,717 used during the nine months ended November 30, 2014. This decrease was primarily due to an increase in loss on inducement to convert a debt into common stock included in interest expense, a decrease in the gain on change in fair value of derivatives, a decrease in the non-controlling interest in income of consolidated subsidiaries, an increase in loss on debt conversions and an increase in stock based compensation, offset by increases in net loss and to a lesser extent a decrease in the amortization of intangibles, a decrease in amortization of debt, a decrease in directors fees, and a decrease in accounts payable and accrued expenses.
Net cash provided by investing activities increased to $65,000 for the nine months ended November 30, 2015, compared to $599,257 used in investing activities for the nine months ended November 30, 2014, an increase of $664,257 primarily due to website development costs incurred in the prior year.
Net cash provided by financing activities decreased by $1,277,492 to $1,520,015, for the nine months ended November 30, 2015, compared to $2,797,507 for the nine months ended November 30, 2014. This decrease was primarily due to the decrease of proceeds from convertible notes of $470,000, net decrease of proceeds received from the issuance of Series B Preferred stock shares of $125,000 and Series C Preferred stock shares of $519,500, a decrease of proceeds received in advance subscriptions of $277,500 which was offset by an increase of proceeds from the issuance of common stock of $158,540.
The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue as a going concern. However, there can be no assurance that we will be able to raise additional capital upon terms that are acceptable to us. We currently do not have adequate cash to meet our short or long-term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders.
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We are a media company currently primarily focusing on travel and real estate by utilizing multiple media platforms including the Internet, radio and television. As a company that has recently changed our business model and emerged from the development phase with a limited operating history, we are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence of an operating history under the new business model and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue streams. Our multi-platform media revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability of this business model is unproven. Our ability to generate revenues depends, among other things, on our ability to create enough viewership to provide advertisers, sponsors, travelers and homebuyers value. Accordingly, we cannot assure you that our business model will be successful or that we can sustain revenue growth, achieve or sustain profitability, or continue as a going concern.
We will need to raise substantial additional capital to support the on-going operation and increased market penetration of our real estate and travel business including the development of national sales representation for national and global advertising and sponsorships, increases in operating costs resulting from additional staff and office space until such time as we generate revenues sufficient to support the business. We believe that in the aggregate, we will need approximately $750,000 to $1.5 million to repay debt obligations, provide capital expenditures for additional equipment and satisfy payment obligations, office space and systems required to manage the business, and cover other operating costs until our planned revenue streams from advertising, sponsorships, e-commerce, travel and real estate are fully- implemented and begin to offset our operating costs. There can be no assurances that we will be successful in raising the required capital to complete this portion of our business plan.
Since our inception, we have funded our operations with the proceeds from the private equity financings. We have issued these shares without registration in private placements under Section 4(a)(2) of the Securities Act of 1933, as amended, (the “Securities Act”) afforded the Company. The shares were sold solely to “accredited investors” as that term is defined in the Securities Act. Currently, revenues provide less than 20% of our cash requirements. The remaining cash need is derived from raising additional capital. The current monthly cash burn rate is approximately $200,000, with the expectation of profitability by the end of fiscal 2016.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
This represents the risk of loss that may result from the potential change in value of a financial instrument because of fluctuations in interest rates and market prices. We do not currently have any trading derivatives nor do we expect to have any in the future. We have established policies and internal processes related to the management of market risks, which we use in the normal course of our business operations.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of November 30, 2015. Based upon that evaluation, our CEO and CFO concluded that, as of November 30, 2015, our disclosure controls and procedures were not effective as a result of the material weaknesses in internal control over financial reporting described below.
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision of the Company’s CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Additionally, we have determined that our disclosure controls and procedures were not effective at the reasonable assurance level due to the lack of an independent audit committee or audit committee financial expert which represents a material weakness as reported in the Company’s Annual Report on Form 10-K, filed with the SEC on June 16, 2015. Due to liquidity issues, we have not been able to immediately take any action to remediate this material weakness. However, when conditions allow, we intend to expand our board of directors and establish an independent audit committee consisting of individuals with industry experience including a qualified financial expert. Notwithstanding the assessment that our disclosure controls and procedures were not effective and that there was a material weakness as identified herein, we believe that our consolidated financial statements contained herein fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects.
(b) Changes in Internal Control over Financial Reporting.
During the quarter ended November 30, 2015, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER
INFORMATION
There have been no material changes from the legal matters reported in our Annual Report on Form 10-K for the year ended February 28, 2015, as filed with the SEC on June 16, 2015.
There have been no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended February 28, 2015, as filed with the SEC on June 16, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended November 30, 2015:
| ● | The Company issued 350,000 shares of its common stock for cash proceeds of $855,000. | |
| ● | 15,000 shares of Series A Preferred Stock were converted into 30,000 shares of our common stock. | |
| ● | 140,000 shares of Series B Preferred Stock were converted into 280,000 shares of our common stock. | |
| ● | 203,000 shares of Series C Preferred Stock were converted into 406,000 shares of our common stock. | |
| ● | 599,100 shares of Series D Preferred Stock were converted into 1,198,200 shares of our common stock. | |
| ● | The Company issued 32,000 shares of common stock upon conversion of convertible promissory notes with a value of $65,100. | |
| ● | The Company issued 2,333 shares of common stock as part of an employment agreement value at $8,632. | |
| ● | The Company issued 55,000 shares of common stock valued at $411,450 for consulting fees rendered. | |
| ● | The Company issued 383,230 shares of common stock as part of the acquisition of AOV valued at $1,188,000. | |
| ● | The Company issued 355,754 shares of common stock valued at $1,135,124 to settle $964,384 of principal as part of settlement agreements with note holders and recognized a $170,740 loss on settlement of debt. |
We claim an exemption from registration for the issuances and sales described above pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act, since the foregoing issuances did not involve a public offering, the recipients were (a) “accredited investors”; and/or (b) had access to similar documentation and information as would be required in a Registration Statement under the Securities Act, the recipients acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities were offered without any general solicitation by us or our representatives. No underwriters or agents were involved in the foregoing issuances and grants and we paid no underwriting discounts or commissions. The securities sold are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
We claim an exemption from registration provided by Section 3(a)(9) of the Securities Act for the conversions of preferred stock and convertible notes described above, as the securities were exchanged by us with our existing security holders in transactions where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.
Item 3. Defaults upon Senior Securities.
There were no defaults upon senior securities during the period ended November 30, 2015.
Item 4. Mine Safety Disclosures
Not applicable
There is no other information required to be disclosed under this item, which was not previously disclosed.
Exhibit No.
Description
31.1
31.2
32.1
32.2
101
The following financial statements from Monaker Group, Inc.’s Quarterly Report on Form 10-Q/A for the nine months ended November 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Loss, (iii) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements (filed herewith).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MONAKER GROUP, INC. | |||
| Date: January 20, 2017 | /s/ William Kerby | ||
| William Kerby | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| Date: January 20, 2017 | /s/ Omar Jimenez | ||
| Omar Jimenez | |||
| Chief Financial Officer | |||
| (Principal Accounting Officer) | |||
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