The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this filing. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. These statements involve risks and uncertainties and our actual results could differ materially from those discussed below. See the " Forward-Looking Statements " disclosure above for a discussion of the uncertainties, risks and assumptions associated with these statements. See also the disclosures under " Item 1A. Risk Factors ", above for additional discussion of such risks.
Growth Opportunities and Trends
Our ability to further grow our revenue will depend largely on increasing the number of distributors, the number of paid listings, increasing revenue per listing and increasing revenue from other products and services through our marketplace.
Our achievement of these objectives will further depend on our ability to successfully enable more online bookable listings. Achieving growth in the number of distributors and the number of listings involves our ability to (i) increase our listing renewal rates, (ii) reach new distributors, property managers and owners through marketing activities, and/or (iii) obtain new listings through geographic expansion, strategic acquisitions or investments. Increasing revenue per listing and revenue from other products and services will involve our ability to successfully drive more bookings and to successfully introduce new products to our marketplace.
In the future, we believe it will become more important to increase marketing investments to grow and further advertise our brand and products to distributors and travelers. We have seen other companies launch online businesses offering ALRs or other alternatives to hotels and we believe this growing favorable awareness of alternatives to hotels will support growth in our business. However, we have also seen a trend of increased government regulation and taxation of the industry. We continue to monitor the effects of these trends and will take actions as necessary to mitigate their effects.
We also expect that fiscal 2021 will be impacted negatively by the effects of COVID-19 as discussed below.
Recent Significant Funding Transactions
As discussed in greater detail under " Item 8. Financial Statements and Supplementary Data " - " Note 16 - Subsequent Events ":
? On
Secured Promissory Note in the original principal amount of
paid consideration of
discount of
$15,000 .
? On
(the "PPP") under the "CARES Act". The Loan is evidenced by a promissory
Note (the "PPP Note"), dated effective
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Additionally, we were significantly dependent during the year ended
Key Financial Highlights
Key financial highlights for the fiscal year ended (FYE)
? Travel and commission revenues were$441,769 compared to$505,187 for the FYEFebruary 28, 2019 , a decrease of 12.6%; ? Net loss attributable toMonaker Group, Inc. was approximately$9.4 million , or$(0.80) per basic and diluted share for the FYEFebruary 29, 2020 , compared to a net profit of approximately$4.3 million , or$0.50 per diluted share, for the FYEFebruary 28, 2019 , or a decrease of 320%; ? Cash used in operating activities was approximately$4.94 million for the FYEFebruary 29, 2020 compared to cash used in operating activities of approximately$3.55 million for the FYEFebruary 28, 2019 ; ? Cash provided by financing activities was approximately$3.29 million for the FYEFebruary 29, 2020 compared to approximately$2.53 million for the FYEFebruary 28, 2019 ; ? There was a net increase in cash of approximately$129,527 for the FYEFebruary 29, 2020 , compared to a decrease in cash of approximately$1,571,435 for the FYEFebruary 28, 2019 ; and ? Cash and cash equivalents as ofFebruary 29, 2020 was approximately$162,506 . RESULTS OF OPERATIONS
Results of Operations for the Fiscal Year Ended
Revenues
Total travel and commission revenues decreased 12.6% to
Cost of Revenues
We had cost of revenues of
Operating Expenses
Our operating expenses, including technology and development, salaries and
benefits, selling and promotion, amortization of intangibles, impairment of
intangibles and general and administrative expenses, increased 13.1% to
47 Table of Contents Other Income (Expenses)
Other income (expense) includes gain on sale of assets, valuation gain/(loss),
interest expense, loss on legal settlement, contract settlement expenses, and
realized loss on sale of marketable securities. Total other expenses were
Net Income/Loss
We had net loss of
Contractual Obligations.
The following schedule represents obligations and commitments on the part of the Company that are not included in liabilities:
Current Long Term FYE 2022 and FYE FYE 2021 2023 beyond Totals Office Leases$ 121,879 $ 10,171 $ 132,050 Other 7,940 - 7,940 Totals$ 129,819 $ 10,171 $ 139,990
Liquidity and Capital Resources; Going Concern
At
As of
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As of
Net cash used in operating activities increased to
Net cash provided by investing activities increased to
Net cash provided by financing activities increased to
On
Additional information regarding our notes payable, notes receivable, investments in equity instruments, acquisitions and dispositions and line of credit can be found under " Item 8. Financial Statements and Supplementary Data " - " Note 3 - Notes Receivable "; " Note 9 - Related Party Promissory Notes and Transactions ", " Note 4 - Investment in Equity Instruments ", " Note 5 - Acquisitions and Dispositions ", " Note 7 - Line of Credit "; and " Note 16 - Subsequent Events ".
We have very limited financial resources. We currently have a monthly cash
requirement of approximately
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To date, we have funded our operations with the proceeds from equity and debt
financings and we anticipate we will continue to meet our funding requirements
through the sale of equity or debt financing, which funds may not be available
on favorable terms, if at all. We anticipate that we would need several millions
of dollars to properly market our services and fund the operations for the next
12 months. Assuming we are able to raise the funds discussed above, we currently
anticipate that by the fourth fiscal quarter of FYE
Although we currently cannot predict the full impact of the COVID-19 pandemic on our first or second fiscal 2021 financial results, we currently anticipate a significant decrease in year-over-year revenue, which decreases may continue throughout the remainder of fiscal 2021 or beyond. However, the ultimate extent of the COVID-19 pandemic and its impact on global travel and overall economic activity is unknown and impossible to predict at this time.
Separately, our capital requirements may increase in the near term and long-term due to the impact of the COVID-19 pandemic, the resulting reduced demand for travel services, the increases in cancellations and re-bookings, and the extent to which such pandemic may further impact the ability of our customers to fulfill their payment obligations.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with
Our significant accounting policies are described in " Item 8. Financial Statements and Supplementary Data " - " Note 2 - Summary of Significant Accounting Policies " to the accompanying consolidated financial statements.
The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations. We believe that the policies listed below involve the greatest degree of complexity and judgment by our management and are critical for understanding and evaluating our financial condition and results of operations. If actual results significantly differ from the Company's estimates, the Company's financial condition and results of operations could be materially impacted.
Revenue Recognition
We recognize revenue when the customer has purchased the product, the occurrence of the earlier of date of travel or the date of cancellation has expired, the sales price is fixed or determinable and collectability is reasonably assured.
Revenues for customer travel packages purchased directly from the Company are recorded in gross amounts (the amount paid to the Company by the customer is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues).
We generate our revenues from sales directly to customers as well as through other distribution channels of tours and activities at destinations throughout the world. We also generate revenue from commissions on bookings and sales of ancillary products and services.
Payments for tours or activities received in advance of services being rendered are recorded as deferred revenue and recognized at the earlier of the date of travel or the last date of cancellation (i.e., the customer's refund privileges lapse).
50 Table of Contents Business Combinations
The purchase prices of acquired businesses or acquired assets have been allocated to the tangible and intangible assets acquired and liabilities assumed, based upon their estimated fair value at the date control is obtained. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill.
Most of the businesses we have acquired did not have a significant amount of tangible assets. We typically identified the following identifiable intangible assets in each acquisition: trade name, customer relationships and internal software. In making certain assumptions on valuation and useful lives, we considered the unique nature of each acquired asset.
Determining the estimated fair value of assets involves the use of significant estimates, judgment and assumptions, such as future cash flows and selection of comparable companies. Future changes in our assumptions or the interrelationship of those assumptions may negatively impact future valuations and could result in an impairment of goodwill or intangible assets that may have a material effect on our financial condition and operating results.
Definite-lived intangible assets are recorded at cost and amortized using a method that reflects our best estimate of the pattern in which the economic benefit of the related intangible asset is utilized.
Accounts Receivable
We extend credit to our customers in the normal course of business. Further, we
regularly review outstanding receivables, and provide for estimated losses
through an allowance for doubtful accounts. In evaluating the level of
established loss reserves, we make judgments regarding our customers' ability to
make required payments, economic events and other factors. As the financial
condition of these parties change, circumstances develop or additional
information becomes available, and adjustments to the allowance for doubtful
accounts may be required. We maintain reserves for potential credit losses, and
such losses traditionally have been within our expectations. As of
Impairment of Long-Lived Assets
In accordance with Accounting Standards Codification 360-10, "Property, Plant
and Equipment", we periodically review our long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be fully recoverable. We recognize an impairment loss when
the sum of expected undiscounted future cash flows is less than the carrying
amount of the asset. The amount of impairment is measured as the difference
between the asset's estimated fair value and its book value. As of
Website Development Costs
We account 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 subject to straight-line amortization over a three-year period and costs incurred in the day to day operation of the website are expensed as incurred.
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In accordance with ASC 350-30-65 "
1. Significant underperformance 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 we determine 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 flow, we record an impairment charge. We measure 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. We evaluated the remaining useful life of the intangibles and did not
record an impairment of intangible assets during the years ended
Intellectual properties that have finite useful lives are amortized over their
useful lives. We incurred amortization expense of
Convertible promissory notes
Upon issuance of convertible promissory senior notes, we separated the notes
into liability and equity components. We record 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
In accounting for the transaction costs related to the Note issuance, we allocated the total amount incurred to the liability and equity components based on their relative values. Transaction costs attributable to the liability component are being amortized to expense over the term of the notes using the effective interest rate method, and transaction costs attributable to the equity component were netted with the equity component in stockholders' equity.
52 Table of Contents Derivative Instruments
We enter into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. We account for these arrangements in accordance with Accounting Standards Codification topic 815, Accounting for Derivative Instruments and Hedging Activities ("ASC 815") as well as related interpretation 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. We determine 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.
We estimate 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, we consider, 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, we generally use 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 new accounting standard, increases in the trading price of our 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 our common stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative income.
Based upon ASC 815-25 the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible debentures. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
In
Stock-Based Compensation
We have stock-based compensation plans which allow for the issuance of stock-based awards, including stock options, restricted stock units and restricted stock awards. We compute share-based payments 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.
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SAB No. 107, Share-Based Payment ("
The Black-Scholes model requires various assumptions including fair value of the underlying stock, volatility, expected term, risk-free interest rate and expected dividends. We use our historical experience to estimate the expected forfeiture rate of awards, and only recognize expense for those awards expected to vest. To the extent the actual forfeiture rate is different from the estimate, the stock-based compensation expense is adjusted accordingly. If any of the assumptions we use in estimating the fair value of awards change significantly or the actual forfeiture rate is different than the estimate, stock-based compensation expense may differ materially in the future.
We have implemented all new relevant accounting pronouncements that are in effect through the date of these financial statements. These pronouncements did not have a material impact on the financial statements and unless otherwise disclosed, 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.
Income Taxes
We account for income taxes pursuant to the provisions of ASC 740-10, "Accounting for Income Taxes" in accordance with the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We then assess the likelihood that the deferred tax assets will be recovered from future taxable income and the reversal of temporary taxable differences. A valuation allowance is established against deferred tax assets to the extent we believe that recovery is not likely. Significant judgment is required in determining any valuation allowance to be recorded. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, reversals of taxable temporary differences and the feasibility of tax planning over the periods in which the temporary differences are deductible. In the event we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which the determination is made.
The difference between our effective income tax rate and the federal statutory rate is primarily a function of the mix of uncertain tax positions and permanent differences including non-deductible charges. Our provision for income taxes is subject to volatility and could be adversely impacted if earnings or tax rates differ from our expectations or if new tax laws are enacted.
Significant judgment is required in evaluating any uncertain tax positions, including the timing and amount of deductions and allocations of income among various tax jurisdictions. We are required to identify, evaluate and measure all uncertain tax positions taken or to be taken on tax returns and to record liabilities for the amount of these positions that may not be sustained, or may only partially be sustained, upon examination by the relevant taxing authorities. Although we believe that our estimates and judgments are reasonable, actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. We adjust these reserves in light of changing facts and circumstances, such as the closing of an audit or the refinement of an estimate. To the extent that the final outcome of a matter is different than the amount recorded, such differences will impact the provision for income taxes in the period in which the determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as any related net interest and penalties.
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We have 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
We follow 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.
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.
On
On
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