10-Q 1 f10q1121_nextplaytech.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: November 30, 2021

 

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. 001-38402

  

(Exact name of registrant as specified in its charter)

 

Nevada   26-3509845
(State or other jurisdiction of incorporation or formation)   (I.R.S. Employer Identification Number)

 

1560 Sawgrass Corporate Parkway, Suite 130, Sunrise, Florida   33323
(Address of principal executive offices)   (Zip Code)

 

(954) 888-9779

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.00001 Par Value Per Share   NXTP   The NASDAQ Stock Market LLC
(Nasdaq Capital Market)

 

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 every Interactive Data File required to be submitted 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 such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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 13, 2022 the registrant had 109,247,388 shares of its common stock, par value $0.00001 per share, outstanding.

 

 

 

 

 

  

NEXTPLAY TECHNOLOGIES, INC.,

formerly MONAKER GROUP, INC.

FORM 10-Q

For the Quarter Ended NOVEMBER 30, 2021

 

TABLE OF CONTENTS

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 1
   
WHERE YOU CAN FIND OTHER INFORMATION 4
   
PART I – FINANCIAL INFORMATION 5
   
Item 1. Financial Statements 5
Condensed Consolidated balance sheets (UNAUDITED) 5
Condensed Consolidated Statements of Operations, net and comprehensive loss (UNAUDITED) 6
Condensed Consolidated Statements of Stockholders’ Equity (UNAUDITED) 7
Condensed Consolidated Statements of Cash Flows (UNAUDITED) 8
Notes to the condensed Consolidated Financial Statements (Unaudited) 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 46
Item 3. Quantitative and Qualitative Disclosures About Market Risk 54
Item 4. Controls and Procedures. 54
   
PART II – OTHER INFORMATION 55
   
Item 1. Legal Proceedings 55
Item 1A. Risk Factors 55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 57
Item 3. Defaults Upon Senior Securities 57
Item 4. Mine Safety Disclosures 57
Item 5. Other Information 57
Item 6. Exhibits 58

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (“Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding future events and the future results of NextPlay Technologies, Inc., formerly Monaker Group, Inc. (the “Company”) that are based on current expectations, estimates, forecasts, and projections about the industries in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. In particular, as discussed in greater detail below, our financial condition and results could be materially adversely affected by the continued impacts and disruptions caused by the novel coronavirus (COVID-19) global pandemic and governmental responses thereto. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements included in this Report. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, including under the section entitled “Risk Factors”, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), including the Company’s Annual Report on Form 10-K for the year ended February 28, 2021, as filed with the SEC on June 8, 2021 (under the heading “Risk Factors” and in other parts of that report) and in the Company’s Quarterly Reports on Form 10-Q for the quarter ended May 31, 2021, as filed with the SEC on July 14, 2021 (under the heading “Risk Factors”), and for the quarter ended August 31, 2021, as filed with the SEC on October 20, 2021 (under the heading “Risk Factors”). The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason, except as otherwise required by law.

 

The following discussion is based upon our unaudited Condensed Consolidated Financial Statements included elsewhere in this Report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, derivative liabilities and related disclosure of contingencies. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. On an on-going basis, we evaluate our estimates, including those related to allowances for doubtful accounts, impairment of long-term assets, especially goodwill and intangible assets, assumptions used in the valuation of stock-based compensation, revenue, leases, and litigation. We base our estimates on historical experience and on various other assumptions that we believe 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. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, and in other reports we file with the SEC, and in our most recent Annual Report on Form 10-K. All references to years relate to the Company’s fiscal year ended February 28 or 29 (during leap years) of the particular year.

 

1

 

 

Summary Risk Factors

 

We face risks and uncertainties related to our business, many of which are beyond our control. In particular, risks associated with our business include:

 

  The Company will need to raise additional funding to support its operations, which funding may not be available on favorable terms, if at all;
     
  Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms and can adversely affect the financial strength of our business partners;
     
  Various third parties owe the Company a significant amount of money, which may not be timely paid, if at all;
     
  The Company owes significant amounts to Streeterville Capital, LLC (“Streeterville”), which is secured by a security interest over substantially all of the Company’s assets, and the Company is subject to requirements, penalties and damages under its agreements with Streeterville;
     
  The Company’s operations have been negatively affected by, and have experienced material declines as a result of, COVID-19 and the governmental responses thereto;
     
  Currently pending and future litigation affecting the Company may have a material adverse effect on the Company;
     
  The Company’s operations are subject to uncertainties and risks outside of its control;
     
  The Company is subject to extensive government regulations and rules, both within the United States and internationally, and the failure to comply with such regulations and rules could have a material adverse effect on the Company;
     
  The Company’s businesses are subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, content, competition, consumer protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to the Company’s business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm the Company’s business;
     
  The success of the Company is subject to the development of new or upgraded products, services and features over time;
     
  HotPlay uses open-source software in connection with certain of its games and services, which may pose particular risks to its proprietary software, products, and services in a manner that could harm its business;
     
  HotPlay’s products are subject to the threat of piracy and unauthorized copying, and inadequate intellectual property laws and other protections could prevent it from enforcing or defending proprietary technologies;
     
  HotPlay relies on relationships with developers to provide it with an extensive game portfolio and sufficient advertising spaces;
     
  HotPlay derives a significant portion of its revenues from advertisements and if any events occur that negatively impact its relationships with advertisers, its advertising revenues and operating results would be negatively impacted;
     
  HotPlay’s products and internal systems rely on software and hardware that is highly technical, and any errors, bugs, or vulnerabilities in these systems, or failures to address or mitigate technical limitations in such systems, could adversely affect its business;
     
  Longroot Holding (Thailand) Company Limited’s (“Longroot”) operations are subject to risks associated with cryptocurrency exchanges being a new industry, regulatory changes and/or restrictions, potential illegal uses of cryptocurrencies, the acceptance and widespread use of cryptocurrencies, cyber security risks, and competing blockchain technologies;

 

2

 

 

  The Company’s travel division revenue, expenses and operating results could be negatively affected by changes in travel, real estate and ALR markets, as well as general economic conditions;
     
  The Company is subject to competition with competitors who have significantly more resources, more brand recognition and a longer operating history than the Company;
     
  The Company is subject to risks associated with failures to maintain intellectual property and claims by third parties relating to an allegation that the Company violated such third parties’ intellectual property rights;
     
  Fluctuations in currency exchange rates could negatively impact the Company’s business;
     
  The Company relies on third party service providers and the failure of such third parties to provide the services contracted for, on the terms contracted, or otherwise, could have a material adverse effect on the Company;
     
  The Company relies on the internet, internet infrastructure, servers and networkers for its operations and in order to generate revenues;
     
  The Company’s ability to raise funding, and dilution caused by such fundings, anti-dilution rights included in outstanding warrants;
     
  If we fail to maintain effective internal controls, it could adversely affect our financial position and lower our stock price;
     
  The trading price of the Company’s common stock is subject to numerous risks, including volatility and illiquidity, amongst other things;
     
  The price of our common stock may fluctuate significantly, and you could lose all or part of your investment;
     
  Nevada law and our Articles of Incorporation authorize us to issue shares of common and preferred stock, which shares may cause substantial dilution to our existing stockholders;
     
  Our Common Stock may be delisted from the Nasdaq Capital Market if we cannot satisfy Nasdaq’s continued listing requirements;
     
  The officers and directors of the Company have the ability to exercise significant influence over the Company;
     
  The market in which we participate is highly competitive, and we may be unable to compete successfully with our current or future competitors;
     
  If we are unable to adapt to changes in technology, our business could be harmed;
     
  We may be subject to liability for the activities of our property owners and managers, which could harm our reputation and increase our operating costs;
     
  We have incurred significant losses to date and require additional capital which may not be available on commercially acceptable terms, if at all;
     
  Our ability to integrate the operations of NextBank International, Inc., and regulatory and other risks associated therewith; and
     
  Those discussed under the caption “Risk Factors” of this Report.

 

3

 

 

WHERE YOU CAN FIND OTHER INFORMATION

 

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The SEC maintains a website (https://www.sec.gov) that contains reports, proxy and information statements and other information regarding us and other companies that file materials with the SEC electronically. Additional information about us is available on our website at www.nextplaytechnologies.com. We do not incorporate the information on or accessible through our websites into this filing, and you should not consider any information on, or that can be accessed through, our websites as part of this filing.  

 

4

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

NextPlay Technologies, Inc.

Condensed Consolidated Balance Sheets

 

   November 30,   February 28, 
  

2021

(Unaudited)

  

2021 

(Audited)

 
Assets          
Current assets          
Cash and cash equivalent  $20,472,178   $444,920 
Restricted cash   945,224    
 
Prepaid expenses and other current assets   3,142,958    235,746 
Accounts receivable, net   1,220,964    
 
Unbilled receivables   4,369,424    
 
Other receivable, related parties   160,036    
 
Advance for investment   3,227,117    
 
Investment in unconsolidated affiliate: Short-term   10,072    
 
Convertible notes receivable, related party   7,657,024    3,000,000 
Loans receivable   9,126,612    
 
Total current assets  $50,331,609   $3,680,666 
           
Non-current assets          
Investment in unconsolidated affiliates: Long-term   45,996    
 
Intangible assets, net   18,893,957    7,759,603 
Goodwill   46,373,194    
 
Computers, furniture and equipment, net   680,320    25,793 
Operating lease right-of-use asset   4,195,864    
 
Security Deposits   440,378    
 
Total non-current asset  $70,629,709   $7,785,396 
           
Total assets  $120,961,318   $11,466,062 
           
Liabilities and stockholders’ equity          
Current liabilities          
Line of credit & notes payable, net  $6,773,028   $
 
Accounts payable and accrued expenses   7,716,322    343,941 
Other current liabilities   117,866    11,163 
Deferred revenue   517,310    
 
Current portion of operating lease liability   869,533    
 
Other current liabilities-customer deposits   9,638,613    
 
Other liabilities affiliate   
    38,260 
Notes payable - related party   742,611    1,053,082 
Total current liabilities  $26,375,283   $1,446,446 
           
Non-current liabilities          
Line of Credit and Notes Payable Long Term, net   322,318    
 
Note payable long term, related parties   966,314    
 
Operating lease liability, non-current portion   3,350,955    
 
Total non-current liabilities  $4,639,587   $
 
           
Total liabilities  $31,014,870   $1,446,446 
           
Commitments and Contingencies   
 
    
 
 
           
Stockholders’ equity          
Series A Preferred stock, $0.01 par value; 3,000,000 authorized; 0 and 0 shares issued and outstanding at November 30, 2021 and February 28, 2021, respectively   
    
 
Series B Preferred stock, $0.00001 par value; 10,000,000 authorized; 0 and 10,000,000 shares issued and outstanding at November 30, 2021 and February 28, 2021, respectively   
    
 
Series C Preferred stock, $0.00001 par value; 3,828,500 authorized; 0 and 3,828,500 shares issued and outstanding at November 30, 2021 and February 28, 2021, respectively   
    
 
Series D Preferred stock, $0.00001 par value; 6,100,000 authorized; 0 and 0 shares issued and outstanding at November 30, 2021 and February 28, 2021, respectively   
    
 
Common stock, $0.00001 par value; 500,000,000 shares authorized; 109,247,388 and 62,400,000 shares outstanding at November 30, 2021 and February 28, 2021, respectively   1,092    624 
Treasury stock   (771,456)   
 
Additional paid-in-capital   105,662,478    11,599,357 
Accumulated other comprehensive income   (276,038)   10,221 
Accumulated deficit   (19,469,705)   (1,200,309)
Stockholders’ equity attributable to parent  $85,146,371   $10,409,893 
Non-controlling interest in consolidated affiliates   4,800,077    (390,277)
           
Total stockholders’ equity   89,946,448    10,019,616 
Total liabilities and stockholders’ equity  $120,961,318   $11,466,062 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

  

NextPlay Technologies, Inc.

Condensed Consolidated Statements of Operations, Net and Comprehensive Loss

(Unaudited)

 

   For the three months ended   For the nine months ended 
   November 30,   November 30,   November 30,   November 30, 
   2021   2020   2021   2020 
                 
Revenue                
Media subscription and services  $3,698,329    
   $6,015,365    
 
Interest and bank services   420,522    
    713,879    
 
Travel services   80,249    
    117,139    
 
                     
Total revenue  $4,199,100    
   $6,846,383    
 
                     
Cost of Revenue                    
Media subscription and services   1,675,419    
    2,828,189    
 
Interest and bank services   208,232    
    295,571    
 
Travel services   69,281    
    103,512    
 
                     
Total Cost of Revenue  $1,952,932    
   $3,227,272    
 
                     
Gross Profit  $2,246,168    
   $3,619,111    
 
                     
Operating Expenses                    
General and administrative   4,792,330    230,338    7,038,226    453,331 
Salaries and benefits   2,913,939    91,716    5,042,481    203,393 
Technology and development   344,890    115    596,143    336 
Stock-based compensation   665,202    
    880,435    
 
Selling and promotions expense   441,096    954    802,725    954 
Depreciation and amortization   1,963,855    139,332    3,490,595    333,446 
                     
Total operating expenses   11,121,312    462,455    17,850,605    991,460 
                     
Operating Loss   (8,875,144)   (462,455)   (14,231,494)   (991,460)
                     
Other Income/ (Expense)                    
Valuation loss, net   (842,678)   
    (2,339,071)   
 
Impairment loss   
    
    (3,126,543)   
 
Interest income (expense)   55,224    (14,937)   56,431    (39,765)
Realized loss on sale of marketable securities   
    
    (59,586)   
 
Foreign Exchange gain   
    56,835    
    56,835 
Other expense   (13,537)   (281)   (11,398)    
Total other (expenses)/income   (800,991)   41,617    (5,480,167)   17,070 
Net loss before tax  $(9,676,135)   (420,838)  $(19,711,661)   (974,390)
Estimated corporate taxes   5,316    
    54,689    
 
Net loss   (9,670,819)   (420,838)   (19,656,972)   (974,390)
                     
Share of non-controlling interest      (611,187)   111,762    (1,387,576)   (243,170)
Net loss attributable to parent  $(9,059,632)   (532,600)  $(18,269,396)   (731,220)
                     
Other Comprehensive (loss) income:                    
Foreign currency translation (loss)   (145,763)   (44,382)   (286,259)   (23,296)
Total other comprehensive (loss)      (145,763)   (44,382)   (286,259)   (23,296)
                     
Comprehensive loss   (9,816,582)   (465,220)   (19,943,231)   (997,686)
                     
Weighted average number of common shares outstanding                    
Basic   94,544,672    104,563    104,368,960    104,563 
Diluted   94,544,672    104,563    104,368,960    104,563 
Basic net loss per share  $(0.10)   (5.09)  $(0.18)   (6.99)
Diluted net loss per share  $(0.10)   (5.09)  $(0.18)   (6.99)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

 

NextPlay Technologies, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

  

For the nine months ended November 30, 2021

 

   Preferred B
Shares
   Preferred B
Amount
   Preferred C
Shares
   Preferred C
Amount
   Common Stock
Shares
   Common
Stock
$ Value
   Treasury
Stock
   Subscription
receivable
   Additional
Paid In
Capital
   Accumulated
deficit
   Accumulated
other
comprehensive
income
   Total
shareholders’
equity
   Minority
interest
   Total
shareholders’
equity
 
Balance at February 28, 2021   
    
    
    
    62,400,000   $624    
   $
    —
   $11,599,357   $(1,200,309)  $10,221   $10,409,893   $(390,277)  $10,019,616 
Reduction of share capital                       (10,400,000)   (104)   
    
    (2,999,896)   
    
    (3,000,000)   
    (3,000,000)
Reverse acquisition recapitalization   10,000,000    100    3,828,500    38    23,854,203    239    
    
    62,813,297    
    
    62,813,536    5,401,901    68,215,437 
Conversion of preferred   (10,000,000)   (100)   (3,828,500)   (38)   11,246,200    112    
    
    (112)   
    
    
    
    
 
Shares issued for compensation   
    
    
    
    499,062    5    
    
    1,061,095    
    
    1,061,100    
    1,061,100 
Shares issued for consulting   
    
    
    
    400,000    4    
    
    754,996    
    
    755,000    
    755,000 
Shares issued for debt payment   
    
    
    
    335,000    3    
    
    669,997    
    
    670,000    
    670,000 
Shares issued for business acquisition   
    
    
    
    1,925,581    19    
    
    4,813,933    
    
    4,813,952    
    4,813,952 
Shares issued for private placement   
    
    
    
    18,987,342    190    
    
    27,849,811    
    
    27,850,001    
    27,850,001 
Warrant cancellation       
        
        
    
    
    (900,000)   
    
    (900,000)   
    (900,000)
Share repurchase       
        
        
    (771,456)   
 
    
    
    
    (771,456)   
    (771,456)
Foreign currency translation adjustment       
        
        
    
    
    
    
    (286,259)   (286,259)   

(324,311

)    (610,570)
Net loss for the period       
        
        
    
    
    
    (18,269,396)   
    (18,269,396)   (1,387,576)   (19,656,972)
Changes in ownership interest from acquisition       
        
        
    
    
    
    
    
    
    1,500,340    1,500,340 
Balance at November 30, 2021   
    
    
    
    109,247,388   $1,092   $(771,456)  $
   $105,662,478   $(19,469,705)  $(276,038)  $85,146,371   $4,800,077   $89,946,448 

  

For the three months ended November 30, 2021

 

   Preferred B
Shares
   Preferred B
Amount
   Preferred C
Shares
   Preferred C
Amount
   Common
Stock
Shares
   Common
Stock
$ Value
   Treasury
Stock
   Subscription
receivable
   Additional
Paid In
Capital
   Accumulated
deficit
   Accumulated
other
comprehensive
income
   Total
shareholders’
equity
   Minority
interest
   Total
shareholders’
equity
 
Balance at August 31, 2021   
     
    
     
    
     
    
     
    89,693,984   $895    (771,456)  $
     
   $77,518,323   $(10,410,073)  $(130,275)  $66,207,414   $4,235,235   $70,442,649 
Shares issued for compensation       
        
    491,062    6    
    
    1,045,095    
    
    1,045,101    
    1,045,101 
Shares issued for consulting       
        
    75,000    1    
    
    149,250    
    
    149,251    
    149,251 
Shares issued for private placement       
        
    18,987,342    190    
    
    27,849,810    
    
    27,850,000    
    27,850,000 
Warrant cancellation       
        
        
    
    
    (900,000)   
    
    (900,000)   
    (900,000)
Foreign currency translation adjustment       
        
        
    
    
    
    
    (145,763)   (145,763)   

(324,311

)    (470,074)
Net loss for the period       
        
        
    
    
    
    (9,059,632)   
    (9,059,632)   (611,187)   (9,670,819)
Changes in ownership interest from acquisition       
        
        
    
    
    
    
    
    
    1,500,340    1,500,340 
Balance at November 30, 2021   
    
    
    
    109,247,388   $1,092    (771,456)  $
   $105,662,478   $(19,469,705)  $(276,038)  $85,146,371   $4,800,077   $89,946,448 

 

For the nine months ended November 30, 2020

 

   Preferred B
Shares
   Preferred B
Amount
   Preferred C
Shares
   Preferred C
Amount
   Common
Stock
Shares
   Common
Stock $ Value
   Treasury
Stock
   Subscription
receivable
   Additional
Paid In
Capital
   Accumulated
deficit
   Accumulated
other
comprehensive
income
   Total
shareholders’
equity
   Minority
interest
   Total
shareholders’
equity
 
Balance as of March 6, 2020 (inception)   
     
    
     
    
     
    
     
        
    
     
    
    
    
    
    
    
    
 
Share contribution cash       
        
    13,000,000    132    
    
 
    2,150,752    
    
    2,150,884    32,184    2,183,068 
Intangible assets       
        
    39,000,000    390    
    
    6,403,004    
    
    6,403,394    
    6,403,394 
Unpaid capital       
        
        
    
    (955,783)   
    
    
    (955,783)   (32,184)   (987,967)
Net loss for the period       
        
        
    
    
    
    (731,220)   
    (731,220)   (243,170)   (974,390)
Foreign currency translation adjustment       
        
        
    
    
    
    
    (11,415)   (11,415)   (11,881)   (23,296)
Balance at November 30, 2020   
    
    
    
    52,000,000   $522   $
   $(955,783)  $8,553,756   $(731,220)  $(11,415)  $6,855,860   $(255,051)  $6,600,809 

 

For the three months ended November 30, 2020

 

   Preferred B
Shares
   Preferred B
Amount
   Preferred C
Shares
   Preferred C
Amount
   Common
Stock
Shares
   Common
Stock
$ Value
   Treasury
Stock
   Subscription
receivable
   Additional
Paid In
Capital
   Accumulated
deficit
   Accumulated
other
comprehensive
income
   Total
shareholders’
equity
   Minority
interest
   Total
shareholders’ equity
 
Balance as of August 31, 2020   
     
    
     
    
     
    
     
    52,134,541    522    
     
    (1,878,113)   8,584,804    (198,620)   21,086    6,529,679    (354,932)   6,174,747 
Share contribution cash       
        
    (134,541)   
    
    31,048    (31,048)   
    
    
    
    
 
Intangible assets       
        
        
    
    
    
    
    
    
    
    
 
Unpaid capital       
        
        
    
    891,282    
    
    
    891,282    
    891,282 
Net loss for the period       
        
        
    
    
    
    (532,600)   
    (532,600)   111,762    (420,838)
Foreign currency translation adjustment       
        
        
    
    
    
    
    (32,501)   (32,501)   (11,881)   (44,382)
Balance at November 30, 2020   
    
    
    
    52,000,000   $522   $
   $(955,783)  $8,553,756   $(731,220)  $(11,415)  $6,855,860   $(255,051)  $6,600,809 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 

 

NextPlay Technologies, Inc.  

Condensed Consolidated Statements of Cash Flows 

(Unaudited)

 

   For the nine months ended 
   November 30, 2021   November 30, 2020 
Cash flows from operating activities:        
Net loss  $(18,269,396)  $(731,220)
           
Adjustments to reconcile net income to net cash used for operating activities:          
Depreciation and amortization   3,310,293    337,187 
Foreign exchange gain, net   
    (56,195)
Valuation loss, net   2,416,176    
 
Stock based compensation   880,435    
 
Goodwill   76,961     
Loss from computer, furniture and equipment written off   
    12,751 
Gain on sale of computer, furniture and equipment   (25)   
 
Loss on minority interest   (1,387,576)   (243,170)
Loss on currency translation   (610,571)    
Impairment loss   3,126,543    
 
Changes in operating assets and liabilities:          
Amounts due from related parties   46,953    (4,192)
Amounts due to related party   73,188    76,393 
Accounts receivable   4,863,328    
 
Unbilled receivable   (4,369,424)   
 
Loans receivable   (1,389,808)   
 
Prepaid expenses and other current assets   120,627    (172,686)
Security deposits   (67,518)   
 
Operating lease liabilities   49,924    8,846 
Accounts payable & accrued expenses   751,155    105,119 
Deferred revenue - related party   (450,152)   
 
Other current liabilities   (1,745,492)   10,760 
           
Cash used in operating activities  $(12,574,379)  $(656,407)
           
Cash flows from investing activities:          
Short term investment - related party   235,658    
 
Investment in unconsolidated affiliate   952,550    
 
Payment in advance for investment   (1,000,000)   
 
Convertible notes receivable - related party   
    (2,500,000)
Additions of intangible assets – related party   (919,357)   (2,035,425)
Additions of intangible assets   (970,630)   (7,226)
Purchase of computer, furniture, and equipment   (250,636)   (29,513)
Proceeds from disposal of fixed assets   1,460    
 
Effects of a business combination of NextBank   4,200,006    
 
Effects of a business combination of NextPlay (Monaker)   9,323,686    
 
           
Cash provided by (used in) investing activities  $11,572,737   $(4,572,164)
           
Cash flows from financing activities:          
Proceeds from issuance of ordinary shares   
    2,044,217 
Proceed from notes payable - related party   700,000    1,883,420 
Advance received from related parties for share subscription   
    2,500,000 
Repayment of notes payable - related party   (213,155)   (1,123,443)
Treasury stock transaction   (500,000)   
 
Proceeds from promissory notes - related party   1,680,504    
 
Proceeds from promissory notes   1,987,318    
 
Payments on promissory notes – related party   (1,330,967)   
 
Payments on promissory notes   (8,199,576)   
 
Proceeds from sale of stock   27,850,000    
 
           
Cash provided by financing activities  $21,974,124   $5,304,194 
           
Effect of exchange rate changes on cash, cash equivalents and restricted cash       (5,028)
           
Cash, Cash Equivalents, and Restricted Cash          
           
Net change during the period   20,972,482    70,595 
           
Balance, beginning of period   444,920    
 
           
Balance, end of period  $21,417,402   $70,595 
           
Supplemental disclosures of cash flow information          
Cash paid for interest  $520,785   $36,468 
           
NON-CASH TRANSACTIONS          
Addition of intangible assets through exchanging shares   
    5,554,278 
Settle (a) Convertible note receivable and (b) note payable due to closing share exchange transaction   12,000,000    
 
Settle (a) Convertible note receivable and (b) share capital increase due to closing share exchange transaction   3,000,000    
 
Operating lease right to use assets obtained in exchange for new operating lease liabilities   
    8,755 
Share issues for consulting and employee compensation   1,816,100    
 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8

 

 

   For the nine months ended 
   November 30, 
   2021   2020 
Reconciliation of cash, cash equivalents, and restricted cash reported in the statement of financial position        
         
Cash and cash equivalents  $20,472,178   $70,595 
           
Restricted cash  $945,224   $
-
 
           
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows  $21,417,402   $70,595 

 

9

 

 

NextPlay Technologies, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

Note 1 – Summary of Business Operations and Significant Accounting Policies

 

Nature of Operations and Business Organization

 

NextPlay Technologies, Inc. and its consolidated subsidiaries (“NextPlay,” “we,” “our,” “us,” or the “Company”) is building a technology solutions company, offering games, in-game advertising, digital asset products and services, connected TV and travel booking services to consumers and corporations within a growing worldwide digital ecosystem. NextPlay’s engaging products and services utilize innovative advertising technology (“AdTech”), Artificial Intelligence (“AI”) and financial technology (“FinTech”) solutions to leverage the strengths and channels of its existing and acquired technologies.

 

NextPlay is organized into three (3) divisions: (i) NextMedia, the Company’s Interactive Digital Media Division; (ii) NextFinTech, the Company’s Finance and Technology Division; and (iii) NextTrip, the Company’s Travel Division.

 

In the Interactive Digital Media Division, NextPlay closed its acquisition of HotPlay Enterprise Limited and its In-Game Advertising (“IGA”) platform on June 30, 2021 and acquired a 51% interest in Reinhart TV AG (“Reinhart”) on June 23, 2021. Reinhart owns 100 percent of Zappware, a 20-year-old interactive Digital TV solutions company based in Belgium. The acquisition of Reinhart gives NextPlay potential reach into tens of millions of households with its IGA, Video Game, FinTech, and Travel products.

 

In the Finance and Technology Division, the Company’s acquisition of International Financial Enterprise Bank (“IFEB”), now called NextBank International, Inc. (“NextBank”), and the conditional approval from the Labuan Financial Services Authority (“Labuan FSA”) to operate a general insurance and reinsurance business, is expected to allow NextPlay to offer individuals and households asset management and banking services, and travel related services such as travel finance and travel insurance, subject to regulatory approval and licensing.

 

Our Company, in accordance with Thailand foreign ownership laws, holds an indirect control of Longroot (Thailand) Company Limited (“Longroot”), which operates an Initial Coin Offering (“ICO”) Portal which is approved and regulated by the Thai Securities and Exchange Commission (“Thai SEC”). The Portal enables us to crypto-securitize an array of high quality alternative assets, such as video games, insurance contracts, and real estate. These digital assets serve as a new asset class, which the Company’s management believes will create significant opportunities to accelerate products and services within the Fintech division’s asset management business.

 

Leveraging Longroot Thailand’s blockchain technology, NextPlay is developing blockchain products and solutions to support its other business units, such as a next generation insurance solution to be offered through our Travel division.

 

Our Travel division currently offers booking solutions for both business and leisure travel and plans to expand its product and services offerings by integrating multiple technologies from other NextPlay divisions.

 

On October 14, 2021, “Longroot Inc.” (a subsidiary company) changed its name to “Next Fintech Holdings, Inc.”

 

Conditional Approval for License to Carry on General Insurance and Reinsurance Business

 

Effective November 16, 2021, Labuan FSA approved the Company’s application to carry on general insurance and reinsurance business subject to certain conditions including (i) payment of a $15,000 annual license fee, (ii) submission of evidence reflecting paid up capital amounting to MYR 10.0 mil (approximately to $2,390,000 US), (iii) submission of proof of registration as a member of Labuan International Insurance Association, and (iv) submission of a Management Services Agreement with the appointed insurance manager, (v) submission of a Letter of Undertaking, and (vi) submission of constituent documents to the Registration of Company Unit. The conditions are to be met within 3 months of November 29, 2021, the date Labuan FSA issued a letter confirming the conditional approval.

 

Reverse Acquisition of HotPlay Enterprise Ltd.

 

On July 23, 2020, the Company (then known as Monaker Group, Inc. (“Monaker”)) entered into a Share Exchange Agreement (as amended from time to time, the “Share Exchange Agreement”) with HotPlay Enterprise Limited (“HotPlay”) and the stockholders of HotPlay (the “HotPlay Stockholders”). Pursuant to the Share Exchange Agreement, Monaker exchanged 52,000,000 shares of its common stock for 100% of the issued and outstanding capital of HotPlay, with HotPlay continuing as a wholly owned subsidiary of Monaker. The reverse acquisition between HotPlay and Monaker was completed on June 30, 2021. After the reverse acquisition, effective July 9, 2021, Monaker changed its name to “NextPlay Technologies, Inc.” The HotPlay acquisition was accounted for as a reverse acquisition with HotPlay being deemed the acquiring company for accounting purposes.

 

10

 

 

Reverse Acquisition of HotPlay Enterprise Ltd. (6/30/21)
Fair Value of Monaker assets acquired    
Cash  $9,323,686 
Current assets  $24,082,699 
Non-current assets  $26,247,848 
Net assets acquired  $59,654,233 
      
Fair Value of Monaker liabilities assumed     
Current liabilities  $32,482,320 
Non-current liabilities  $5,420,131 
Net liabilities assumed  $37,902,451 
      
Net assets acquired  $21,751,782 

 

Purchase consideration    
Number of Monaker common shares outstanding as of 6/30/2021   23,854,203 
Monaker share price as of 6/30/2021  $2.24 
Preliminary estimate of fair value of common shares  $53,433,415 
Fair value of total estimated consideration transferred  $53,433,415 
Purchase Price Allocation     
Fair value of Monaker net assets acquired as of 6/30/2021  $21,751,782 
Fair value of total estimated consideration transferred  $53,433,415 
Goodwill  $31,681,633 

 

The business combination accounting is provisionally complete for all assets and liabilities acquired on the acquisition date and we will continue to evaluate the fair values within the 1-year timeframe as provided in the applicable guidance.

 

Interim Financial Statements

 

These unaudited condensed 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 condensed 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 condensed consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended February 28, 2021, and notes thereto and other pertinent information contained in the annual report on Form 10-K the Company has filed with the Securities and Exchange Commission (the “SEC”) on June 8, 2021.

 

The results of operations for the nine months ended November 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year ending February 28, 2022.

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All material inter-company transactions and accounts have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These differences could have a material effect on the Company’s future results of operations and financial position. Significant items subject to estimates and assumptions include the fair value of investments, the carrying amounts of intangible assets, depreciation and amortization, the valuation of stock options, and deferred income taxes.

 

11

 

 

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 on November 30, 2021, and February 28, 2021.

 

Restricted Cash

 

Restricted cash represents cash retained in an escrow account for business purposes for more than 90 days. The outstanding restricted cash as of November 30, 2021 was $945,224, and was $0 as of February 28, 2021.

 

Accounts Receivable and Unbilled Receivables

 

A receivable is recognized when the Company has an unconditional right to receive consideration. If revenue has been recognized before the Company has an unconditional right to receive consideration, the amount is presented as an unbilled receivable. A receivable is measured at transaction price less impairment loss and unbilled receivables are measured at the amount of consideration that the Group is entitled to, less impairment loss.

 

Prepaid Expenses and Other Current Assets

 

The Company records cash paid in advance for goods and/or services to be received in the future as prepaid expenses. Prepaid expenses are expensed over time according to the period where it is indicated on the contract.

 

Convertible Notes Receivable .

 

Loans Receivable

 

Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are stated at their outstanding principal amount adjusted for charge-offs and the allowance for loan losses. Interest is accrued as earned based upon the daily outstanding principal balance.

 

The accrual of interest is generally discontinued at the time a loan is 90 days past due unless the credit is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged- off at an earlier date if collection of principal or interest is considered doubtful.

 

All interest accrued but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. Interest on these loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

As of November 30, 2021, there were no loans placed on non-accrual.

 

12

 

 

Advance for Investment

 

Advance for investment represents cash deposits transferred to the investment seller as a deposit payment as stipulated in the investment purchase agreement.

 

Investment in Unconsolidated Affiliates

 

Investment in unconsolidated affiliates is recognized at cost less valuation loss.

 

Computer, Furniture and Equipment

 

The Company purchases computers, laptops, furniture and fixture. These are originally recorded at cost and stated at cost less accumulated depreciation. The computers and laptops are depreciated over a useful life of 3 and 5 years, respectively. The furniture and fixture are depreciated over a useful life of 5 and 10 years, respectively. Straight-line depreciation is used for all computers, laptops, furniture and equipment.

 

Intangible Assets

 

Software Development Costs

 

The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines established by “ASC 985-20-25” Accounting for the Costs of Software to Be Sold, Leased, or Otherwise Marketed, requiring certain software development costs to be capitalized upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. Amortization of the capitalized software development costs begins when the product is available for general release to customers. Capitalized costs are amortized based on the straight-line method over the remaining estimated economic life of the product.

 

Website Development Costs

 

The Company accounts for website development costs in accordance with Accounting Standards Codification (ASC) 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day-to-day operation of the website are expensed as incurred. All costs associated with the websites are subject to straight-line amortization over a three-year period.

 

Goodwill

 

Goodwill represents the future economic benefits arising from assets acquired in a business combination that is not individually identified and separately recognized as an asset. Adjustments made to the acquisition accounting during the measurement period may affect the recognition and measurement of assets acquired and liabilities assumed, any NCI, consideration transferred and goodwill or any bargain purchase gain, as well as the remeasurement of any pre-existing interest in the acquiree.

 

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. Intangible assets that have finite useful lives are amortized over their useful lives. The Company incurred amortization expense of $3,310,293 and $337,187 during the nine months ended November 30, 2021 and 2020, respectively.

  

13

 

 

Accounts payable, note payables and accrued expenses

 

Accounts payable, note payables and accrued expenses are recognized when they occur at cost.

 

Customer deposit

 

Customer deposit represents cash deposits received from customers at NextBank.

 

Business Combination

 

The Company uses the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). ASC 805 requires, among other things, that assets acquired, and liabilities assumed be recognized at their fair values, as determined in accordance with ASC 820, Fair Value Measurements, as of the closing date. ASC 805 establishes a measurement period to provide the Company with a reasonable amount of time to obtain the information necessary to identify and measure various items in a business combination and cannot extend beyond one year from the acquisition date.

 

Non-controlling interests

 

Non-controlling interests represent the equity in a subsidiary that is not attributable directly or indirectly to the parent. At the acquisition date, the Company measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree. Changes in the Company’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

 

Foreign Currency Translation

 

The Company prepares the consolidated financial statements using U.S. dollars as the functional currency. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the rates of exchange at the balance sheet date with the resulting translation adjustments included as a separate component of stockholders’ equity through other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss.

 

Income and expenses are translated at the average monthly rates of exchange. The Company includes realized gains and losses from foreign currency transactions in other income (expense), net in the consolidated statements of net and comprehensive loss.

 

The effect of foreign currency translation on cash and cash equivalents is reflected in cash flows from operating activities on the consolidated statements of cash flows.

 

Reclassification

 

Certain prior period amounts have been reclassified to conform with the current period presentation. The reclassification has no impact on the total assets, total liabilities, stockholders’ equity and net loss for the period.

 

Earnings per Share

 

Basic earnings per share are computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the nine months ended November 30, 2021, convertible notes payables were excluded from the computation of diluted net loss per share, as the result of the computation was anti-dilutive.

  

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606 which involves identifying the contracts with customers, identifying performance obligations in the contracts, determining transactions price, allocating transaction price to the performance obligation and recognizing revenue when the performance obligation is satisfied. Types of revenue consist of:

 

Digital Media

 

Revenue is generated from subscriptions and services rendered. Subscription revenues are deferred and recognized as the service is performed each month. Revenue from services is recognized when the contractual performance obligation is met.

 

14

 

 

Finance and Technology

 

NextBank International provides traditional banking services in niche-focused businesses, including commercial and residential real estate and the origination and sale of loans and receivables financing, among other types of lending services. Revenue is recognized from two sources, interest income and loan fees.

 

Interest is accrued as earned based upon the daily outstanding principal balance. The accrual of interest is generally discontinued at the time a loan is 90 days past due, unless the credit is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged- off at an earlier date if collection of principal or interest is considered doubtful.

 

All interest accrued but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. Interest on these loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. As of November 30, 2021, there were no loans placed on non-accrual.

 

Revenue is also recognized on service fees such as loan origination fees, brokering fees, and deposit account fees.

 

As of November 30, 2021, the Company had interest and non-interest- bearing deposits received from customers with interest rates ranging from 0% to 4% payable per annum.

 

Travel

 

We recognize revenue when the customer has purchased the product, the occurrence of the earlier of date of travel or the date of cancellation has expired, the sales price is fixed or determinable and collectability is reasonably assured.

 

Revenue for customer travel packages purchased directly from the Company are recorded gross (the amount paid to the Company by the customer is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues).

 

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.

 

Payments for tours or activities received in advance of services being rendered are recorded as deferred revenue and recognized as revenue at the earlier of the date of travel or the last date of cancellation (i.e., the customer’s refund privileges lapse).

 

Cost of Revenue

 

Cost revenue from digital media mainly consists of cost of employees - software developer and other sub-contractors.

 

Cost of revenue from finance and technology mainly consists of interest expense, loan related commissions.

 

Cost of revenue from travel mainly consists of cost of the tours and activities, commissions and merchant fees charged by credit card processors.

 

Selling and Promotions Expense

 

Selling and promotion expenses consist primarily of advertising and promotional expenses, expenses related to our participation in industry conferences, and public relations expenses. The expense for the nine months ended November 30, 2021 and November 30, 2020 was $802,725 and $954, respectively.

 

15

 

 

Stock Based Compensation

 

Stock-based compensation is accounted for based on the requirements of ASC 718, “Compensation – Stock Compensation”, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company recognizes compensation on a straight-line basis over the requisite service period for each award.

 

The Company adopted ASU No. 2018-7, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting awards (“ASU 2018-7”). As a result, awards are measured based on the grant date closing price of the Company’s common stock consistent with awards made to the Company’s employees and directors. The Company recognizes the remaining unrecognized value of unvested awards over the remaining performance period, with no further remeasurement through the performance completion date.

 

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 is measured as the excess, if any, of the fair value of the modified award determined in accordance with the provisions of ASC Topic 718-20-35-3 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.

 

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 it does provide 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.

 

The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities.

 

Financial instruments consist principally of cash, accounts receivable, investments in unconsolidated affiliates, other receivable, net, accounts payable, accrued liabilities, notes payable, related parties, line of credit and certain 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. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

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Leases

 

The Company utilizes operating leases for its offices. The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s contractual obligation to make lease payments under the lease. Operating leases are included in operating lease right-to-use assets, non-current, and operating lease liabilities current and non-current captions in the consolidated balance sheets.

 

Operating lease right-to-use assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. Lease agreements may contain periods of free rent or reduced rent, predetermined fixed increases in the minimum rent and renewal or termination options, all impacting the determination of the lease term and lease payments to be used in calculating the lease liability. Lease cost is recognized on a straight-line basis over the lease term. The Company uses the implicit rate in the lease when determinable. As most of the Company’s leases do not have a determinable implicit rate, the Company uses a derived incremental borrowing rate based on borrowing options under its credit agreement. The Company applies a spread over treasury rates for the indicated term of the lease based on the information available on the commencement date of the lease.

 

Segment Reporting

 

Accounting Standards Codification 280-10 “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.

 

An operating segment component has the following characteristics:

 

a.It engages in business activities from which it may recognize revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity).

b.Its operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

c.Its discrete financial information is available.

 

The Company has three operating segments consisting of (i) the NextMedia Division, which consists of HotPlay and Reinhart/Zappware, (ii) the NextFinTech Division, which consists of Longroot and NextBank, and (iii) NextTrip Division, which includes NextTrip holdings. The Company’s chief operating decision makers are considered to be the Co-Chief Executive Officers. The chief operating decision makers allocate resources and assesses performance of the business and other activities at the single operating segment level.

 

See Note 12 Business Segment Reporting for details on each segment unit.

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.

 

The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial statements.

 

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Note 2 - Going Concern

 

As of November 30, 2021, and February 28, 2021, the Company had an accumulated deficit of $19,469,705 and $1,200,309, respectively. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern.

 

We have limited financial resources. As of November 30, 2021, we have working capital of $23,956,326, which we believe is adequate to cover our monthly cash requirement of approximately $1,450,000 for over twelve months.

 

We will need to raise additional capital to support the on-going operation, increase market penetration of our products, expand the marketing and development of our travel and technology driven products, repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations, and systems for managing the business including covering other operating costs until our planned revenue streams from all businesses and products are fully implemented and begin to offset our operating costs. Our failure to obtain additional capital to finance our working capital needs on acceptable terms, or at all, would negatively impact our business, financial condition, and liquidity. We currently have limited resources to satisfy these obligations, and our inability to do so could have a material adverse effect on our business and ability to continue as a going concern. As indicated by the increase of the Company’s deferred revenue balance as of November 30, 2021, $517,310, we expect to see an increase in revenue in the 4th quarter.

 

Management’s plans with regard to this going concern are as follows:

 

(i)the Company plans to continue to raise funds with third parties by way of public or private offerings,
(ii)the Company is working aggressively to increase the viewership of its travel and gaming products by promoting it across other mediums,
(iii)the Company expects growth in revenue from interest and non-interest income through organic growth and new business initiatives in the finance and technology division
(iv)

the Company plans to issue tokens under its Longroot entity during the year 2022, which is expected to result in generating revenues; and

(v)the Company is tightening its spending on expenses, which is expected to help in the cost reduction of the operations.

 

The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan and generate greater revenues. Management believes that the actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern.

 

Although we currently cannot predict the full impact of the COVID-19 pandemic on our fiscal 2022 financial results relating to our operations, we anticipate an increase in year-over-year revenue as compared to the fiscal year 2021 ended February 28, 2021. However, the ultimate extent of the COVID-19 pandemic and its impact on global travel and overall economic activity is constantly changing and impossible to predict currently.

 

Note 3 – Notable Financial Information

 

Prepaid Expenses and Other Current Assets

 

As of November 30, 2021 and February 28, 2021, the Company had prepaid expenses of $2,390,581 and $11,590, respectively. As of November 30, 2021 and February 28, 2021, the Company had other current assets of $752,377 and $224,156, respectively.

 

Accounts Receivable

 

As of November 30, 2021 and February 28, 2021, the Company had accounts receivable of $1,220,964 and $0, respectively. As of November 30, 2021 and February 28, 2021, the allowance for doubtful account was $292,530 and $0, respectively.

 

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Unbilled Receivables

 

As of November 30, 2021 and February 28, 2021, the Company had unbilled receivables of $4,369,424 and $0, respectively.

 

Loans Receivable

 

As of November 30, 2021 and February 28, 2021, the Company had loans receivable of $9,126,612 and $0, respectively, relating to NextBank.

 

Goodwill

 

As of November 30, 2021 and February 28, 2021, the Company had total goodwill of $46,373,194 and $0, respectively. The year-over-year increase resulted from the following:

 

(i)the reverse acquisition of HotPlay of $31,681,633;
(ii)the acquisition of NextBank International of $7,644,101;
(iii)the acquisition of Zappware by Reinhart of $3,609,939; and
(iv)the recognition of goodwill from Longroot acquisition on November 16, 2020 in which the Purchase Price Allocation (PPA) was completed by an independent appraiser and the Company recorded the fair value of assets and liabilities, as a result, goodwill increased in amount $3,437,521.

 

Summary of changes in fair value allocation resulted below:

 

   Amount 
Goodwill increased   3,437,521 
      
Net other assets decreased   (188,479)
Intangible assets decreased   (1,748,702)
Non-controlling interest increased   (1,500,340)
    
-
 

 

Computer, Furniture and Equipment

 

As of November 30, 2021 and February 28, 2021, the Company had net computer, furniture and equipment of $680,320 and $25,793, of which $86,240 and $1,381 included depreciation expense, respectively.

 

Accounts Payable and Accrued Expenses

 

As of November 30, 2021 and February 28, 2021, the Company had accounts payable of $3,726,801 and $81,779, respectively. As of November 30, 2021 and February 28, 2021, the Company had accrued expenses of $3,989,521 and $262,162, respectively.

  

Other Liabilities – Customer Deposits

 

As of November 30, 2021 and February 28, 2021, the Company had other current liabilities – customer deposits of $9,638,613 and $0, respectively, relating to NextBank.

 

Deferred Revenue

 

As of November 30, 2021 and February 28, 2021, the Company had deferred revenue of $517,310 and $0, respectively, relating to travel and digital future sales.

 

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Short Term Note Payable – Related Parties

 

As of November 30, 2021 and February 28, 2021, the Company had a short term note payable – related party of $742,611 and $1,053,082, respectively, relating to Tree Roots Entertainment and MQDC.

 

Long Term Note Payable – Related Parties

 

As of November 30, 2021 and February 28, 2021, the Company had a long term note payable – related party of $966,314 and $0, respectively, mainly related to note payable of preferred dividends in arrears.

 

Note 4 – Acquisitions and Dispositions

 

Reinhart Interactive TV AG and Zappware N.V. Acquisition

 

On January 15, 2021, we entered into a Founding Investment and Subscription Agreement (the “Investment Agreement”) with Reinhart, and Jan C. Reinhart, the founder of Reinhart (“Founder”).

 

The Investment Agreement contemplated the Company acquiring 51% of the ownership of Reinhart, in consideration for 10,000,000 Swiss Francs (approximately $10.7 million US). The closing of the transactions contemplated by the Investment Agreement was to take place on April 1, 2021, or earlier if the conditions to closing were earlier satisfied. Conditions to closing included the Company paying the required capital contribution, approval of the transaction by the board of directors of the Company and Reinhart, and certain requirements and confirmations required by Swiss law. The Investment Agreement included customary representations and warranties of the parties. We also agreed to reimburse the Founder’s legal fees of up to 30,000 Swiss Francs (approximately $33,670 US) in connection with the transaction. Additionally, in the event we failed to close the transactions contemplated by the Investment Agreement by April 1, 2021, we agreed to pay the Founder 500,000 Swiss Francs (approximately $560,000 US), as a break-up fee.

 

We paid the founder $10.7 million in cash on March 31, 2021; however, the shares of Reinhart were not transferred to the Company until June 23, 2021. The consideration paid to the Founder came largely from funds advanced by HotPlay pursuant to the HotPlay Convertible Notes (defined and described in “Note 9—Notes Payable”, under “HotPlay Convertible Notes”). As of June 23, 2021, all the closing conditions had been satisfied and this transaction was completed.

 

In accordance with ASC 805, as described in “Note 1 – Summary of Business Operations and Significant Accounting Policies”, the Company has accounted for this business combination utilizing the following values in connection with the business acquisition of Reinhart as of June 23, 2021. The business combination accounting is provisionally complete for all assets and liabilities acquired on the acquisition date and we will continue to evaluate the fair values within the 1-year timeframe as provided in the applicable guidance.

 

Acquisition of Reinhart TV AG/Zappware
Total Identifiable Assets  $23,458,222 
Total liabilities  $12,750,462 
Net Assets  $10,707,760 
      
Total Consideration transferred  $10,707,760 

 

Reinhart is in the business of providing a software-based TV and video distribution platform to telecom companies and digital content owners, and providing services to telecom companies and digital content owners for user interaction design, as well as software development, deployment and support.

 

In connection with our entry into the Investment Agreement, we entered into a Founding Shareholders’ Agreement with the Founder (the “Shareholders’ Agreement”). The Shareholders’ Agreement set forth certain rules for the governance and control of Reinhart. The Shareholders’ Agreement provides: (i) that the board of directors of Reinhart will consist of five members, three of which will be appointed by the Founder and other shareholders of Reinhart, and two of which will be appointed by the Company, which include William Kerby, the Company’s Co-Chief Executive Officer, and Mark Vange, the then Chief Technology Officer of HotPlay and current Chief Technology Officer of the Company; (ii) that any material shareholder matters are required to be approved by shareholders holding at least 66 2/3% of the total outstanding vote of Reinhart; (iii) that in the event Reinhart issues, within five years after the closing date, any equity or convertible equity, with a price less than the most recent valuation of Reinhart’s shares, the shares held by each director who is appointed by the Founder are subject to weighted average anti-dilution protection; and (iv) provides for various restrictions on transfers of shares of Reinhart, including right of first refusal rights, tag-along rights, and drag-along rights, as well as certain rights which would trigger the right of the other parties to the Shareholders’ Agreement to acquire the shares held by an applicable shareholder, for the higher of the fair market value and the nominal value of the shares (except in the case of (c) where the purchase price is the lower of such amounts), if such shareholder (a) commits a criminal act against the interests of another party, Reinhart or its affiliates; (b) breaches the Shareholders’ Agreement, and fails to cure such breach 20 days after notice thereof is provided; or (c) the employment of any employed shareholder is terminated for certain reasons.

 

20

 

 

The Shareholders’ Agreement also provides a right for the Founders to sell their shares to the Company, at which time the Company will be required to purchase such shares (the “Founder’s Shares”), based on the following schedule:

 

Date right is triggered  Percent of Founder’s Shares eligible to be sold   Required Purchase Price
January 1, 2024   33%  15 times EBITDA based on audited 2023 Reinhart financials
January 1, 2025   66%  15 times EBITDA based on audited 2024 Reinhart financials
December 20, 2025, if the board of directors of Reinhart, together with a majority of the directors appointed by the Company, agree to sell Reinhart to a third party, but the Company and the Founder cannot agree on such sale, by such date   100%  Higher of (a) 15 times EBITDA based on audited 2025 Reinhart financials; and (b) the value of a fully-funded acquisition proposal based on audited 2025 Reinhart financials
January 1, 2026   100%  Lower of (a) 15 times EBITDA based on audited 2025 Reinhart financials; and (b) the value of a fully-funded acquisition proposal based on audited 2025 Reinhart financials

 

The Shareholders’ Agreement also allows the parties to file for an initial public offering on any internationally recognized exchange. The Shareholders’ Agreement has a term of 10 years, extendable thereafter for successive five-year periods, unless terminated by either party with 12 months prior written notice (provided that any such termination shall only be applicable to the terminating shareholder), subject to earlier termination in connection with certain initial public offerings.

 

NextBank International (formerly IFEB) Acquisition

 

On April 1, 2021, we entered into a Bill of Sale for Common Stock, effective March 22, 2021 (the “Bill of Sale”), with certain third parties, pursuant to which the Company agreed to purchase 2,191,489 shares (the “IFEB Shares”) of authorized and outstanding Class A Common Stock of International Financial Enterprise Bank, Inc., a Puerto Rico corporation licensed as an Act 273-2012 international financial entity headquartered in San Juan Puerto Rico (“IFEB”), which IFEB Shares totaled approximately 57.1% of the outstanding Class A Common Stock of IFEB. The purchase price of the IFEB Shares was $6,400,000, which amount was paid to the sellers on April 1, 2021.

 

IFEB was incorporated in 2017 as a corporation under the laws of the Commonwealth of Puerto Rico and received its international financial entity license on June 18, 2017 from the Office of the Commissioner of Financial Institutions of Puerto Rico, in Spanish, “Oficina del Comisionado de Instituciones Financieras” or “OCIF”, as license #51. As a result, IFEB is regulated by OCIF.

 

On May 6, 2021, in anticipation of the acquisition of the IFEB Shares, and control of IFEB, the Company and IFEB entered into a Preferred Stock Exchange Agreement, which was amended by a First Amendment to Preferred Stock Exchange Agreement entered into May 10, 2021 and effective May 6, 2021 (as amended by the first amendment, the “Original Preferred Exchange Agreement”), pursuant to which the Company agreed to exchange 1,950,000 shares of the Company’s common stock for 5,850 shares of cumulative, non-compounding, non-voting, non-convertible, perpetual Series A Preferred shares of IFEB.

 

Notwithstanding the terms of the Bill of the Sale, and the payment by the Company of the aggregate purchase price pursuant thereto, the transfer of the Initial IFEB Shares to the Company and the Company’s acquisition of control of IFEB was subject to review of the Company’s financial viability, as well as other matters, by OCIF, which approval of OCIF was received in June 2021, but which acquisition did not close until July 21, 2021.

 

Separately, on July 21, 2021, the Company entered into, and closed the transactions contemplated by, a Share Exchange Agreement with various other holders of shares of Class A Common Stock of IFEB (the “Additional Sellers” and the “IFEB Exchange Agreement”). Pursuant to the IFEB Exchange Agreement, the Additional Sellers exchanged an aggregate of 1,648,614 of the outstanding Class A Common Stock of IFEB, representing 42.94% of such outstanding Class A Common Stock of IFEB, in consideration for an aggregate of 1,926,750 restricted shares of the Company’s common stock (the “IFEB Common Shares”), with each one share of Class A Common Stock of IFEB being exchanged for 1.168 restricted shares of common stock of the Company, based on an agreed upon value of $2.50 per share for each share of Company common stock and $2.92 per share for each share of Class A Common Stock of IFEB.

 

21

 

 

As a result of the closing of both transactions, we acquired control of 100% of IFEB as of July 21, 2021.

 

In accordance with ASC 805, as described in “Note 1 – Summary of Business Operations and Significant Accounting Policies”, the Company has accounted for this business combination utilizing the following values in connection with the business acquisition of NextBank as of July 21, 2021. The business combination accounting is provisionally complete for all assets and liabilities acquired on the acquisition date and we will continue to evaluate the fair values within the 1-year timeframe as provided in the guidance.

 

Acquisition of NextBank International, Inc. (7/21/21)
Fair Value of assets acquired    
Cash  $4,200,006 
Current assets  $8,789,072 
Non-current assets  $224,210 
Net assets acquired  $13,213,288 
      
Fair Value of liabilities assumed     
Current liabilities  $9,643,436 
Non-current liabilities  $
 
Net liabilities assumed  $9,643,436 
      
Net assets acquired  $3,569,852 
Purchase consideration     
Cash  $6,400,000(1)
Common stock (1,925,581 shares @ $2.50 per share)  $4,813,953 
Fair value of total consideration transferred  $11,213,953 
      
Purchase Price Allocation     
Fair value of net assets acquired as of 7/21/2021  $3,569,852 
      
Fair value of total consideration transferred  $11,213,953 
Goodwill  $7,644,101 

 

(1)The $6.4 million of cash was paid by NextPlay prior to the closing of the Reverse Acquisition and is not presented on the Company’s consolidated statement of cash flows.

 

The IFEB Exchange Agreement required that:

 

(a) three legacy board members of IFEB remain on the Board of Directors of IFEB for a period of one year after the closing date of the IFEB Exchange Agreement, subject to rights of removal if such continued appointment/service as board members would violate the fiduciary duties of any other board members;

 

(b) certain outstanding loans held by one of the legacy board members be extended, and be subject to a further extension;

 

(c) that Ms. Nithinan Boonyawattanapisut, Mr. J. Todd Bonner, Mr. Donald P. Monaco and Mr. William Kerby (each a member of the Board of Directors of the Company) and Mr. Jan Reinhart, the founder of Reinhart, be appointed as members of the Board of Directors of IFEB;

 

(d) that Mr. Ronald Poe will be appointed as Vice President of Next Fintech Holdings Inc. (formerly Longroot, Inc.), the Company’s wholly-owned subsidiary, and be provided a salary of $120,000 per year, pursuant to an employment agreement; and

 

(e) that Mr. Robert Fiallo, will be hired by an affiliate of the Company pursuant to an employment agreement, and be paid a base salary of $300,000 per year, plus a bonus of 3% of the profits from projects he works with or assists in developing.

 

22

 

 

On September 28, 2021, the Company entered into a Preferred Stock Exchange Agreement (the “Preferred Exchange Agreement”) with NextBank, and the Company agreed to exchange 5,070,000 restricted shares of the Company’s common stock (the “Exchanged Common Shares”), for 10,140 shares of cumulative, non-compounding, non-voting, non-convertible, perpetual Series A preferred stock of NextBank (the “NextBank Preferred Shares”). The NextBank Preferred Shares have an aggregate face value of $10,140,000, and accrue a 2% dividend, payable quarterly in arrears. The NextBank Preferred Shares are non-redeemable; however, NextBank may, by the vote of the holders of a majority of its common stock, call and redeem the NextBank Preferred Shares in exchange for the Exchanged Common Shares plus accrued interest at the time of any such redemption. Additionally, the NextBank Preferred Shares include a change of control provision, whereby upon a change of control (as defined in the Preferred Exchange Agreement), the Company may cause NextBank to repurchase the NextBank Preferred Shares in exchange for the Exchanged Common Shares, plus accrued interest.

 

The Preferred Exchange Agreement included customary representations, covenants and warranties of the parties, and closing conditions which would be customary for a transaction of this type. The transactions contemplated by the Preferred Exchange Agreement closed on October 1, 2021.

 

Note 5 – Related Party Transactions

 

Parties are considered to be related to the Company if the Company has the ability, directly or indirectly, to control or joint control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa.

 

Name of related parties   Relationship with the Company
Red Anchor Trading Corporation (“RATC”)   A shareholder of the Company and controlled by a Co-CEO of the Company and a director of the Company
Tree Roots Entertainment Group Company Limited (“TREG”)   A significant shareholder of the Company
Axion Ventures Inc. (“Axion”)   An entity shareholding by a Co-CEO of the Company
Axion Interactive Inc. ("AI")   A subsidiary of Axion
HotNow (Thailand) Company Limited (“HotNow”)   An entity controlled by a Co-CEO of the Company
True Axion Interactive Company Limited (“TAI”)   An entity shareholding by a Co-CEO of the Company
Magnolia Quality Development Corporation Limited (“MQDC”)   A significant shareholder of TREG, which is a significant shareholder of the Company
Nithinan Boonyawattanapisut   Co-CEO of the Company, and a shareholder of the Company, RATC, HotNow, Axion and TAI
Immediate Family Member   Immediate family member with executive officer of the Company

 

Other than disclosed elsewhere, the Company had the following significant related party transactions for the nine months ended November 30, 2021.

 

Payment of marketing expense:    
Immediate Family Member  $199,200 
Payment of consulting expense:     
Immediate Family Member  $82,500 
Payment of salary expense:     
Immediate Family Member  $73,057 
Purchase of intangible asset:     
HotNow (Thailand) Company Limited  $275,397 
Purchase of equipment:     
HotNow (Thailand) Company Limited  $127,927 
True Axion Interactive Company Limited  $14,115 
General and admin expense:     
HotNow (Thailand) Company Limited  $15,045 
Operating expense:     
HotNow (Thailand) Company Limited  $211,589 
Interest expense of loan from:     
Magnolia Quality Development Corporation Limited  $31,583 
Tree Roots Entertainment Group Company Limited  $58,504 
Rental expense:     
Tree Roots Entertainment Group Company Limited  $62,164 
HotNow (Thailand) Company Limited  $12,715 
Other expense:     
HotNow (Thailand) Company Limited  $5,454 
Payment of contract cost:     
HotNow (Thailand) Company Limited  $671,673 

 

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The Company had the following related party balances as of November 30, 2021 as follows:

 

   Nature  November 30,
2021
 
Amounts due to related parties:        
Magnolia Quality Development Corporation Limited  Accrued interest expense   3,296 
Tree Roots Entertainment Group  Accrued interest expense   32,791 
HotNow (Thailand) Company Limited  Other liability   391 
Axion Interactive Inc.  Other payable   1,770 
Total     $38,248 
Notes receivable:        
HotNow (Thailand) Company Limited      52,745 
Notes payable:        
Magnolia Quality Development Corporation Limited      445,567 
Tree Roots Entertainment Group      297,044 
Total     $795,356 

 

The comparative figure for the nine months ended November 30, 2020 represents significant related party transactions of Hotplay Enterprise Ltd. as follow:

 

Advance received for share subscription:    
Red Anchor Trading Corporation  $2,500,000 
Short-term Loan from:     
Tree Roots Entertainment Group Co., Ltd  $660,849 
Repayment of Short-term Loan:     
Tree Roots Entertainment Group Co., Ltd  $396,509 
Interest expense of loan from:     
Magnolia Quality Development Corporation Limited  $10,682 
Tree Roots Entertainment Group Company Limited  $6,273 
Payment of loan interest:     
Magnolia Quality Development Corporation Limited  $10,799 
Tree Roots Entertainment Group Co., Ltd  $4,874 
Payment of contract cost:     
HotNow (Thailand) Company Limited  $476,037 
True Axion Interactive Company Limited  $322,515 

 

Significant agreements with related parties

 

On March 31, 2021, HotPlay Thailand entered into an asset purchase agreement with HotNow, a related party, which is also under the same common control of HotPlay Thailand, to purchase certain of the assets of HotNow, including all software used in the business and including all rights under licenses and other agreements and employees, for the aggregate price of 19,500,000 Thai Baht (inclusive of 7% value added tax (VAT)) (approximately $624,000 US). On April 30, 2021, HotPlay Thailand made an advanced payment to HotNow in the amount of 5,000,000 Thai Baht (approximately $149,533 US). On June 7, 2021, HotPlay Thailand paid the remaining cost of the asset purchase to HotNow in the amount of 14,500,000 Thai Baht (approximately $474,467 US) pursuant to the terms of the asset purchase agreement.

 

On March 24, 2021, HotPlay Thailand entered into a short-term loan with MQDC for $480,000 (15,000,000 Thai Baht) with an interest rate of 9% per annum, which is payable on demand and unsecured. Accrued interest on this loan was $3,296 as of November 30, 2021.

 

During June and July 2020, HotPlay Thailand entered into a short-term loan with TREG for the aggregate principal amount of $543,000 (17,000,000 Thai Baht) with an interest rate of 9.75% per annum, which is payable on demand and unsecured. Accrued interest on this loan was $2,380 as of November 30, 2021. On May 31, 2021, HotPlay Thailand repaid 7,000,000 Thai Baht (approximately $223,000 US) in connection with the short-term loan from TREG.

 

Next Bank International currently holds a $705,000 loan that was purchased in 2020 at a discounted purchase price of $647,776, when the Bank was not partially or wholly owned by Next Play Technologies. The borrower is an entity affiliated with a current member of the Bank’s Board of Directors. The Loan bears interest at an annual rate of 10%. It is expected to be fully collected in Q1 2022. As of November 30, 2021, the outstanding balance was $705,000.

 

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Management compensation

 

On April 7, 2021, the board of directors of the Company ratified the current compensation payable to members of the board of directors, which provides that each non-executive member of the Board be paid the following:

 

(a)compensation of 20,000 shares of Company common stock per year;
(b)compensation of 5,000 shares of Company common stock per year, if they are the chairperson of any committee of the board of directors; and
(c)compensation of 10,000 shares of Company common stock per year, to the Chairman of the Board (collectively, the “Board Compensation Terms”); provided that all shares due to the directors serving as of March 1, 2021, for the fiscal year ending February 28, 2022, were issued up front and were fully-vested/earned on the date of grant, instead of vesting over time, as previously awarded.

 

In total, an aggregate of 165,000 shares of common stock were issued to the non-executive directors on April 8, 2021, for fiscal 2022 compensation (such shares, the “Fiscal 2022 Board Compensation Shares”). The Fiscal 2022 Board Compensation Shares were issued under the Company’s Amended and Restated 2017 Equity Incentive Plan (the “Plan”).

 

On April 7, 2021, the Company entered into a Lock-Up Agreement with each of the non-executive members of the board of directors. Pursuant to the Lock-Up Agreements, each non-executive director agreed not to transfer, sell, pledge, or assign any of their applicable Fiscal 2022 Board Compensation Shares until March 1, 2022.

 

On April 7, 2021, the board of directors of the Company, consistent with the employment agreement of Mr. William Kerby, the Co-Chief Executive Officer of the Company, which provides for Mr. Kerby to receive a base salary of $400,000 per year, and an annual bonus, payable at the discretion of the board of directors, of up to 100% of his base salary (50% based on meeting short term goals and 50% based on meeting long-term goals), and other bonuses which may be granted from time to time in the discretion of the board of directors, agreed to award Mr. Kerby a discretionary bonus for fiscal 2021 of $400,000, which was payable in cash or shares of common stock, at Mr. Kerby’s option, under the Plan, with a price of $3.02 per share, the closing sales price of the Company’s common stock on the date the board of directors approved such bonus. On April 7, 2021, April 28, 2021, and May 16, 2021, Mr. Kerby elected to receive cash in connection with the bonus of $100,000, $150,000, and $150,000, respectively. 

 

On April 7, 2021, the Company declared dividends in arrears of $1,102,068 on previously outstanding Series A Preferred Stock, that were converted into common stock with the Series A Preferred Stock being redeemed. These dividends were payable when and if declared by the board of directors. The dividends were owed to an entity controlled by Donald P. Monaco, our Co-Chairman at that time, William Kerby, our Co- Chief Executive Officer and a director, and Warren Kettlewell, a former board member.

 

On April 8, 2021, the Company entered into an Exchange Agreement with William Kerby, its Co-Chief Executive Officer and director, and Monaco Investment Partners II, LP (“MI Partners”), of which Donald P. Monaco, the then Co-Chairman of the board of directors of the Company, is the managing general partner (the “Exchange Agreement”). Pursuant to the Exchange Agreement, the terms of which were approved by the board of directors of the Company, Mr. Kerby and MI Partners exchanged their right to an aggregate of $1,016,314 in accrued dividends (the “Accrued Dividends”), which had accrued on the Company’s outstanding Series A Preferred Stock, which had been held by Mr. Kerby and MI Partners prior to the conversion of such Series A Preferred Stock into common stock of the Company in August 2017, for Convertible Promissory Notes. Specifically, Mr. Kerby exchanged rights to $430,889 of accrued dividends on the Series A Preferred Stock for a Convertible Promissory Note with a principal balance of $430,889 and MI Partners exchanged rights to $585,425 of accrued dividends on the Series A Preferred Stock for a Convertible Promissory Note with a principal balance of $585,425 (the “Convertible Promissory Notes”).

 

The Convertible Promissory Notes accrue interest at the rate of 12% per annum, compounded monthly at the end of each calendar month, with such interest payable at maturity or upon conversion. The principal and accrued interest owed under the Convertible Promissory Notes is convertible, at the option of the holders thereof, into shares of the Company’s common stock, at any time beginning seven days after the closing date of the HotPlay Exchange Agreement (which closed on June 30, 2021) and prior to the payment in full of such Convertible Promissory Notes by the Company, at a conversion price equal to the greater of (i) the closing consolidated bid price of the Company’s common stock on April 8, 2021 (which was $3.02); and (ii) the five-day volume weighted average price of the Company’s common stock for the five trading days following the date that the HotPlay Exchange Agreement closes (which was below the $3.02 per share minimum conversion price). The Convertible Promissory Notes are unsecured, have a maturity date of April 7, 2022, and include standard and customary events of default. On August 27, 2021, $50,000 cash was drawn by Mr. Kerby against his Convertible Promissory Note. As of November 30, 2021 the outstanding balance of the convertible promissory notes were in amount of $966,314.

 

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On September 16, 2021, the Company’s board of directors approved an updated compensation plan setting forth compensation payable to the non-executive members of the board of directors. Pursuant to the updated compensation plan, each non-executive member of the board of directors will receive:

 

(a)compensation of $60,000 per year;
(b)additional compensation of $15,000 per year for chairpersons of each committee of the board of directors; and
(c)additional consideration of $30,000 per year to each co-chairman of the board of directors.

 

The compensation is earned and payable on a pro-rata, quarterly basis, with a total of 70% of the compensation payable in shares of Company common stock, based on the closing price of the Company’s common stock on the last day of each fiscal quarter during which consideration is earned, and 30% accrued and paid in cash at such time as the Company has had at least two consecutive profitable quarters. The compensation is payable retroactive to July 1, 2020. Notwithstanding the above, the compensation payable to Mr. Donald P. Monaco, our previous Co-Chairman of the board of directors, is to be reduced by the amount he has already been paid in fiscal 2022. Finally, in addition to the above, non-executive members of the board are eligible for yearly bonuses as approved by the board of directors. All shares issued pursuant to the above will be issued under the Plan and subject thereto.

 

Significant agreements with managements of the Company

 

a)On June 9, 2021, GLM Consulting Ltd (the “Consultant”), of which Andrew Greaves, the Company’s Chief Operating Officer, serves as the sole officer and director, entered into a Consulting Agreement with the Company to assist the Company in growing a connected subscriber base and ecosystem across all devices: Digital TV, Set Top Box, Streaming Devices, PC, Laptop, Tablet and Smartphones, by providing a range of operational expertise. The term of the agreement started on July 6, 2021 and is effective until June 30, 2022, provided that the agreement may be terminated at any time, by either party, with two weeks written prior notice. The Company agreed to pay the Consultant a daily consulting fee of $1,000, for each day of service up to a maximum amount of 20 days per month unless previously agreed in writing with the Company. Each day of service shall include a minimum of 8 hours. The Consulting Agreement included confidentiality obligations of the parties and customary work for hire language.

 

b)On September 16, 2021, the Company entered into an Employment Agreement with Nithinan “Jess” Boonyawattanapisut, its Co-Chief Executive Officer and member of its board of directors, which agreement has an effective date of October 1, 2021. The agreement remains in effect (renewing automatically on a month-to-month basis), until either party provides the other at least 30 days prior written notice of its intent to terminate the agreement, or until terminated as discussed below.

 

The agreement includes a non-compete provision, prohibiting Ms. Boonyawattanapisut from competing against the Company during the term of the agreement and for a period of 12 months after termination thereof (subject to certain exceptions described below), in any state or country in connection with (i) the commercial sale of products sold by the Company during the six (6) months preceding the termination date; and (ii) any services the Company commercially offered during the six (6) months prior to the termination date (collectively, the “Non-Compete”).

 

During the term of the agreement, Ms. Boonyawattanapisut is to receive (i) a base salary of $400,000 per year, which may be increased at any time at the discretion of the Compensation Committee of the board of directors of the Company without the need to amend the agreement; (ii) an annual bonus payable at the discretion of the Compensation Committee; (iii) other bonuses which may be granted/approved from time to time in the discretion of the Compensation Committee; (iv) $200,000 in cash and 25,000 shares of common stock issued as a sign-on bonus under the terms of the Plan; (v) up to four weeks of annual paid time off, which can be rolled-over year to year, or which in the discretion of Ms. Boonyawattanapisut, can be required to be paid in cash at the end of any year or the termination of the agreement; and (vi) a car allowance equal to an equivalent of $1,500 per month, during the term of the agreement.

 

The agreement provides Ms. Boonyawattanapisut with the option of receiving some or all of the base salary and/or any bonus in shares of the Company’s common stock, with the value of such shares being based on the higher of (i) the closing sales price per share on the trading day immediately preceding the determination by Ms. Boonyawattanapisut to accept shares in lieu of cash; and (ii) the lowest price at which such issuance will not require stockholder approval under the rules of the stock exchange where the Company’s common stock is then listed or Nasdaq ((i) or (ii) as applicable, the “Share Price” and the “Stock Option”), provided that Ms. Boonyawattanapisut is required to provide the Company at least five business days prior written notice if she desires to exercise the Stock Option as to any payment of compensation, unless such time period is waived by the Company.

 

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The issuance of the shares described above is subject to the approval of the stock exchange where the Company’s common stock is then listed or Nasdaq, and where applicable, stockholder approval, and in the sole discretion of the board of directors, may be issued under, or outside of, a stockholder approved stock plan.

 

The agreement includes standard provisions relating to the reimbursement of business expenses, indemnification rights, rights to Company property and inventions (which are owned by the Company), dispute resolutions, tax savings, clawback rights and provisions entitling Ms. Boonyawattanapisut to receive any fringe benefits offered by the Company to other executives (subsidized in full by the Company) including, but not limited to, family coverage for health/medical/dental/vision, life and disability insurance.

 

The agreement terminates upon Ms. Boonyawattanapisut’s death and can be terminated by the Company upon her disability (as described in the agreement), by the Company for Cause (defined below) or by Ms. Boonyawattanapisut for Good Reason (defined below). For the purposes of the agreement, (i) “Cause” means (A) Ms. Boonyawattanapisut’s gross and willful misappropriation or theft of the Company’s or any of its subsidiary’s funds or property, or (B) Ms. Boonyawattanapisut’s conviction of, or plea of guilty or nolo contendere to, any felony or crime involving dishonesty or moral turpitude, or (C) Ms. Boonyawattanapisut materially breaches any obligation, duty, covenant or agreement under the agreement, which breach is not cured or corrected within thirty (30) days of written notice thereof from the Company (except for certain breaches which cannot be cured), or (D) Ms. Boonyawattanapisut commits any act of fraud; and (ii) “Good Reason” means (A) without the consent of Ms. Boonyawattanapisut, the Company materially reduces Ms. Boonyawattanapisut’s title, duties or responsibilities, without the same being corrected within ten (10) days after being given written notice thereof; (B) the Company fails to pay any regular installment of base salary to Ms. Boonyawattanapisut and such failure to pay continues for a period of more than thirty (30) days; or (C) a successor to the Company fails to assume the Company’s obligations under the agreement, without the same being corrected within thirty (30) days after being given written notice thereof.

 

In the event of termination of the agreement for death or disability by Ms. Boonyawattanapisut without Good Reason, or for Cause by the Company, Ms. Boonyawattanapisut is due all consideration due and payable to her through the date of termination. In the event of termination of the agreement by Ms. Boonyawattanapisut for Good Reason or the Company for any reason other than Cause (or if Ms. Boonyawattanapisut’s employment is terminated other than for Cause within 6 months before or 24 months following the occurrence of a Change of Control (defined in the agreement) of the Company), Ms. Boonyawattanapisut is due (i) all consideration due and payable through the date of termination; (ii) a lump sum payment equal to 12 months of base salary; (iii) continued participation in all benefit plans and programs of the Company for 12 months after termination (or at the option of the Company, reimbursement of COBRA insurance premiums for substantially similar coverage as the Company’s plans); and (iv) the Non-Compete will not apply to Ms. Boonyawattanapisut.

 

The terms of the agreement were approved by the Company’s Compensation Committee and Audit Committee, each consisting solely of ‘independent’ members of the Company’s board of directors.

 

c)On August 19, 2021, the Company entered into an Intellectual Property Purchase Agreements with Fighter Base Publishing Inc. (“Fighter Base”) and Inc. (“Token IQ”), and together with Fighter Base, the “IP Sellers”), dated as of the same date (each an “IPP Agreement”, and together the “IPP Agreements”). Pursuant to the IPP Agreements, the Company agreed to acquire certain intellectual property owned by Fighter Base (relating to the games industry) and by Token IQ (relating to the distributed ledger industry), both of which entities are owned and controlled by Mark Vange, the Chief Technology Officer of the Company.

 

Pursuant to the Fighter Base IPP Agreement, the intellectual property to be acquired thereunder has a mutually agreed upon value of $5 million, which will be paid by the Company by way of the issuance to Fighter Base of 1,666,667 restricted shares of Company common stock (valued at $3 per share of common stock).

 

Pursuant to the Token IQ IPP Agreement, the intellectual property to be acquired thereunder has a mutually agreed upon value of $5 million, which will be paid by the Company by way of the issuance to Fighter Base of 1,250,000 restricted shares of Company common stock (valued at $4 per share of common stock).

 

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Pursuant to the IPP Agreements, in the event that the shares of Company common stock issued in connection with the foregoing transactions are still restricted after closing of such transactions, the Company shall file a registration statement with the SEC to register such shares for resale by their respective owners (Token IQ and Fighter Base, as applicable).

 

The Token IQ IPP Agreement includes the right for Token IQ to license the intellectual property purchased thereunder to third parties, with the approval of the Company, which shall not be unreasonable withheld, provided that any licenses are non-transferable, non-sublicensable and non-exclusive, and that the licenses will not compete with the Company. Any consideration received by Token IQ from such licenses will be split 50/50 between the Company and Token IQ.

 

The closing of the transactions contemplated by the IPP Agreements are subject to customary closing conditions, which include, due to Mr. Vange’s status as an officer of the Company, the approval of the Company’s shareholders of the transactions contemplated by the IPP Agreements and the issuance of shares of Company common stock thereunder. The Company has scheduled a meeting of its stockholders set for January 28, 2022 which, among other things, includes approval of the IPP Agreements as a proposal for shareholder approval.

 

Departure and Election of Directors

 

On November 9, 2021, Stacey Riddell resigned as a member of the Company’s board of directors. Ms. Riddell’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

 

On November 23, 2021, the Company’s board of directors appointed Farooq Moosa as an independent director of the Company to fill the vacant Board seat resulting from Ms. Riddell’s resignation. Mr. Moosa will hold this position until the Company’s next annual meeting of shareholders or until his successor is elected and qualified, subject to his earlier death, resignation, or removal.

 

There is no arrangement or understanding between Mr. Moosa and any other person pursuant to which Mr. Moosa was selected as a director of the Company. Other than the Company’s formal plan for compensating its directors for their services, there are no plans, contracts or arrangements or amendments to any plans, contracts or arrangements entered into with Mr. Moosa in connection with his appointment to the board of directors, nor are there any grants or awards made to Mr. Moosa in connection therewith. Mr. Moosa is not a participant in, nor is he to be a participant in, any related-person transaction or proposed related-person transaction required to be disclosed by Item 404(a) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

 

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Note 6 – Investments in Unconsolidated Affiliates

 

We assess the potential impairment of our equity method investments when indicators such as a history of operating losses, negative earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value.

 

Note 6.1 – Advances for investments

 

Letter of Intent to Acquire Axion Shares

 

On October 28, 2020, the Company entered into a non-binding Letter of Intent (as amended by the first amendment thereto dated March 10, 2021, the “Letter of Intent”) with Radiant Ventures Limited, which manages Radiant VC1 Limited and Radiant PV 1 Limited, two stockholders of Axion Ventures, Inc. (“Axion”). As discussed below, the Company acquired approximately 33.85% of Axion (provided that such ownership of Axion has not been formally transferred to the Company to date) on November 16, 2020 pursuant to the Axion Exchange Agreement (as defined in Note 7, below).

 

Pursuant to the Letter of Intent, the Company agreed, subject to certain condition precedents, including regulatory approvals and the entry into material agreements with the sellers, to acquire approximately 12,000,000 shares of Axion, equal to 5.7% of Axion’s outstanding shares, from certain of its stockholders for approximately $2,000,000, payable in a combination of stock and cash. In connection with our entry into the Letter of Intent, we paid the sellers a $500,000 non-refundable deposit towards the cash purchase price of the shares in or around October 2020 (representing 25% of such purchase price). We also issued the sellers 235,000 shares of Company common stock in March 2021, representing an additional 25% of the purchase price. Both payments are non-refundable. A final payment of 50% of the purchase price is due 10 days after the British Columbia Securities Commission (“BCSC”) lifts a cease trade order on Axion’s shares and is payable at the option of the sellers in cash or shares of the Company’s common stock, based on a 20% discount to the Company’s stock price at the time the election to take such final payment in shares is made, provided that such stock price valuation will not be less than $2.00 per share and not more than $3.00 per share. The Letter of Intent was to be terminated if the final payment had not been made by the earlier of June 30, 2021 and 15 days after the BCSC lifts the Axion no trade order; however, the parties have verbally agreed to extend such date. The purchase is also contingent on the sellers granting the Company a proxy to vote the shares of Axion to be purchased through closing. The purchase remains subject to the negotiation of, and entry into, a definitive purchase agreement with the sellers, as well as other closing conditions, which have not been entered into and/or which have not been completed, to date.

 

As of November 30, 2021, total payment of cash and shares already paid by the Company to the sellers was $937,117. The Company plans to make the final payment of 50% of the purchase price after the BCSC lifts a cease trade order on Axion’s shares, provided that the Company cannot estimate when, or if, such cease trade order will be lifted. There is no further update as of November 30, 2021.

 

Go Game Securities Purchase Agreement

 

On June 30, 2021, the Company entered into a Securities Purchase Agreement (the “Go Game SPA”) with David Ng, an individual (the “Seller”). Pursuant to the Go Game SPA, the Company agreed to acquire a 37% interest in the capital stock of Go Game Pte Ltd, a Singapore private limited company (“Go Game”), a mobile game publisher and technology company, representing an aggregate of 686,868 shares of Go Game’s Class B Preferred shares (the “Initial Go Game Shares”). The Go Game SPA also includes an option whereby the Company can acquire additional shares of Go Game, as described in greater detail below. Pursuant to the Go Game SPA, the aggregate consideration to be paid for the Initial Go Game Shares is: (i) 6,100,000 shares of Series D Preferred Stock (representing $6.1 million of value, based on an aggregate liquidation preference of $6.1 million), and (ii) $5 million in cash, with $1.25 million paid on June 30, 2021, $1.25 million payable on or before July 31, 2021, and $2.5 million payable on or before September 30, 2021.

 

Pursuant to the Go Game SPA, the Company was also granted an option (the “Go Game Option”), to purchase up to an additional 259,895 shares of Go Game’s Class B Preferred shares from the Seller (the “Option Shares”) (representing 14% of Go Game’s outstanding Class B Preferred shares, or 51% with the Initial Go Game Shares). The Go Game Option is subject to the Seller’s acquisition of the Option Shares subsequent to the date of the Go Game SPA. The Go Game Option is exercisable from time to time after the date that the shareholders of the Company have approved the issuance of shares of common stock upon conversion of the Series D Preferred Stock and in connection with the Go Game Option (the “Approval Date”), and prior to January 1, 2022. The per share consideration due in connection with an exercise of the Go Game Option is equal to $70 million, divided by the then number of outstanding shares of Go Game ($37.71 per share at the time the agreement was entered into) (the “Call Option Price”). The Call Option Price is to be satisfied by the issuance of shares of Company common stock valued based on the greater of (a) $2.35 per share and (b) 85% of the average of the closing prices of the Company’s common stock for the prior thirty days (the “30-Day Average”). The Seller agreed not to transfer the Option Shares from the date acquired through the exercise or expiration of the Go Game Option. Upon issuance of any shares of common stock upon exercise of the Go Game Option, the Seller agreed to enter into a lock-up agreement restricting any sales or transfers of any shares of common stock of the Company for a period of 18 months following the issuance date.

 

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We agreed pursuant to the Go Game SPA, that upon our purchase of the Initial Go Game Shares, that we would appoint the Seller to the board of directors of the Company, and that we would continue to nominate the Seller as a board nominee for appointment on the board of directors at each subsequent shareholder meeting of the Company, subject to certain exceptions, until the earlier of (i) Seller’s death; (ii) Seller’s resignation from the board of directors; (iii) the date that Seller is no longer qualified to serve as a member of the board of directors; (iv) the date the board of directors, acting in good faith, determines that the continued appointment of Seller to the board of directors would violate the fiduciary duties of such members of the board of directors; (v) the third anniversary of the acquisition of the Initial Go Game Shares; and (vi) the date that the Seller holds less than 2 million shares of Company common stock (including shares of common stock issuable upon conversion shares of Series D Preferred Stock held by Seller).

 

The closing of the acquisition of the Initial Go Game Shares is subject to certain closing conditions and requirements which may not be met on a timely basis, if at all. The Company and Seller have made customary representations and warranties and have agreed to customary covenants in the Go Game SPA. There is no assurance that all of the conditions to the consummation of the Go Game SPA will be satisfied.

 

In connection with the parties’ entry into the Go Game SPA, the Seller entered into a lock-up agreement with the Company, whereby the Seller agreed that the Seller would not transfer or sell, any of the Series D Preferred Stock shares and/or shares of common stock issuable upon conversion thereof, until 18 months after the Company’s acquisition of the Initial Go Game Shares (the “Initial Closing”), without the prior written consent of the Company, except that 1,525,000 of such shares may be transferred or sold six months after the Initial Closing, and an additional 1,525,000 shares may be transferred or sold 12 months after the Initial Closing.

 

As of November 30, 2021, the second payment of $1.25 million payable on or before July 31, 2021 and the third payment of $2.5 million payable on or before September 30, 2021 had not been paid and the shares of Series D Preferred Stock had not been issued, and such payments remained on hold subject to the completion of due diligence and further negotiation by the parties. Total payments made to the Seller as of November 30, 2021 were $1,250,000. It is anticipated that the due diligence and negotiations will be concluded on or about the end of January 2022.

 

Letter of Intent of Potential acquisition of 100% of a Bank Holding Company

 

On November 1, 2021, the Company signed a non-binding Letter of Intent to acquire 100% of the capital stock of a bank holding company which is the 100% owner of a community bank. In connection with the execution of the non-binding Letter of Intent, on November 10, 2021, the Company made a non-refundable deposit of $1,000,000 on behalf of itself and other parties to the acquisition (as discussed below), which shall be credited against the purchase price at closing, if completed. The acquisition, if completed, will be made with other parties, to be named subsequently, and it is expected that no individual party will acquire more than 24.9% of said bank holding company. There is no legal obligation between the parties with respect to the acquisition unless and until the parties enter into a definitive agreement with respect thereto. Closing of the transaction will be subject to regulatory approvals, amongst other things.

 

Note 6.2 – Investment in Unconsolidated Affiliates

 

Soma Innovation Lab Joint Venture

 

On March 8, 2021, the Company entered into a Joint Venture Agreement with Soma Innovation Lab (“Soma”). Pursuant to the agreement, the parties agreed to form a joint venture for designing hyper-personalized experiences for targeted gamers. The agreement requires the Company to provide Soma the use of the HotPlay technology, assuming the Company acquire ownership of such technology as a result of the closing of the Company’s pending Share Exchange (as defined below), with HotPlay (as defined below), which technology is owned by HotPlay, and that the Company would issue the principals of Soma 72,000 shares of restricted common stock (valued at $180,000), of which $45,000 was earned immediately and the remaining shares will be earned at the rate of 6,000 per month. Pursuant to the agreement, Soma agreed to provide the Company use of an email client list and other services. The joint venture is owned 50/50 between us and Soma, with net profits/revenues paid pursuant to the same 50/50 split. In the event the joint venture achieves revenue in excess of expenses and the Company recovers the $180,000 value of the shares, then the Company agreed to issue Soma a bonus of 50,000 shares of restricted common stock. The joint venture (and agreement) each have a term of two years. The Company also agreed to use Soma for certain work to be performed on its websites and travel magazine, and agreed to pay Soma $75,000 per month ($225,000 in aggregate) for such work, payable by way of the issuance of 90,000 shares of restricted common stock. As of November 30, 2021, the project was still under development by the parties.

 

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6,142,856 shares of Bettwork Industries Inc. Common Stock (OTC Pink: BETW)

 

On July 2, 2018, three Secured Convertible Promissory Notes aggregating $5,250,000, evidencing amounts we were owed by Bettwork Industries Inc. (“Bettwork”), were exchanged for 7,000,000 shares of Bettwork’s common stock at $0.75 per share, for a fair value of $5,250,000 as of July 2, 2018. Bettwork’s common stock has a readily determinable fair value in the market under the symbol “BETW.”

 

On February 28, 2021, the 6,142,856 shares of Bettwork’s common stock held by the Company were trading at $0.009 per share, valued at an aggregate of $55,286. On November 30, 2021, the 6,142,856 shares of Bettwork’s common stock held by the Company were trading at $0.0003 per share, valued at an aggregate of $1,843. Any change in fair value is recognized in net loss as other income, valuation loss, net for the nine months ended November 30, 2021.

 

Recruiter.com Group, Inc. formerly Truli Technologies Inc (OTCQB: RCRT).

 

On August 31, 2016, the Company entered into a Marketing and Stock Exchange Agreement with Recruiter.com (“Recruiter”). The agreement required the Company to issue to Recruiter 75,000 shares of the Company’s common stock in exchange for 2,200 shares of Recruiter common stock. The Company issued to Recruiter an additional 75,000 shares of Company common stock for as a prepayment for marketing and advertising within the Recruiter platform. Recruiter was at that time a private company with a platform that companies and individuals use for employment placements.

 

On January 15, 2019, pursuant to an Agreement and Plan of Merger / Merger Consideration, Truli Technologies Inc., which subsequently changed its name to Recruiter.com Group, Inc. (OTCQB: RCRT) (“Recruiter.com”), acquired Recruiter and Monaker exchanged its 2,200 shares in Recruiter for 139,273 shares of Recruiter.com common stock.

 

During the quarter ended November 30, 2021, the Company sold in open market transactions 68,083 shares of Recruiter.com common stock. The sale of these shares resulted in a realized gain of $28,028 for the nine months ended November 30, 2021.

 

On February 28, 2021, the Company owned 78,137 shares of Recruiter’s common stock compared to 3,461 shares of Recruiter’s common stock as of November 30, 2021. As of November 30, 2021, each share of Recruiter’s common stock was valued at $2.96 per share, which changed the fair value of the 3,461 shares of Recruiter common stock to $10,245. The net change in the fair value of $10,245 is recognized in net income as other income as of November 30, 2021.

 

Acquisition of Axion Shares

 

The investment in affiliate of $4,856,825 as of February 28, 2021, represents the Company’s acquisition of approximately 33.85% of Axion on November 16, 2020. Pursuant to the Axion Exchange Agreement (as defined in Note 7, below), which closed on November 16, 2020, the Axion Stockholders, exchanged ordinary shares of Axion equal to approximately 33.85% of the outstanding common shares of Axion, in consideration for 10,000,000 shares of Series B Convertible Preferred Stock of the Company, which automatically converted into 7,417,700 common shares of the Company on June 30, 2021. As of November 30, 2021, the value of this investment decreased by $838,906 from $883,059 to $44,153, due to the change in the market price of Axion shares.

  

Also pursuant to the Axion Exchange Agreement, which closed on November 16, 2020, the Company granted a warrant to Cern One Limited (one of the Axion Stockholders), to purchase 1,914,250 shares of the Company’s common stock, with an exercise price of $2.00 per share. The warrants vest on the earlier of (i) the date the Axion debt is fully repaid by Axion or (ii) the date that the Company obtains 51% or more of the voting control of, and economic rights to, Axion, provided that such vesting date must occur before November 16, 2021 or the warrants will terminate. Because the vesting conditions had not been satisfied as of November 16, 2021, the warrants terminated automatically on such date pursuant to their terms. Accordingly, as of November 30, 2021, these warrants are no longer outstanding.

 

See Note 7, below, for additional information regarding this transaction.

 

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Note 7 – Notes Receivable

 

Current

 

$7,657,024 Convertible Notes - Axion Debt Share Exchanges

 

On July 23, 2020, the Company entered into a Share Exchange Agreement (as amended from time to time, the “HotPlay Exchange Agreement” and the transactions contemplated therein, the “HotPlay Share Exchange”) with HotPlay and the stockholders of HotPlay (the “HotPlay Stockholders”). The transactions contemplated by the HotPlay Exchange Agreement were subject to certain closing conditions, including, the approval of the listing of the combined company’s common stock on the NASDAQ Capital Market following the closing.

 

On November 12, 2020, the Company entered into an Amended and Restated Share Exchange Agreement (as amended by the first amendment thereto dated January 6, 2021, the “Axion Exchange Agreement”) with certain stockholders holding shares of Axion Ventures, Inc. (“Axion” and the “Axion Stockholders”) and certain debt holders holding unsecured debt of Axion (the “Axion Creditors”) (the “Axion Share Exchange,” and collectively with the HotPlay Exchange Agreement, the “Exchange Agreements” and the transactions contemplated therein, the “Share Exchanges”). The transactions contemplated by the Axion Exchange Agreement closed on November 16, 2020.

 

Pursuant to the Axion Exchange Agreement, (a) the Axion Stockholders (including Cern One Limited (“Cern One”)), exchanged ordinary shares of Axion equal to approximately 33.85% of the then outstanding common shares of Axion, in consideration for 10,000,000 shares of Series B Convertible Preferred Stock of the Company (the “Series B Preferred Stock”); and (b) the Axion Creditors exchanged unsecured debt of Axion in the aggregate amount of $7,657,024 (the “Axion Debt”), for (i) 3,828,500 shares of Series C Convertible Preferred Stock of the Company (the “Series C Preferred Stock”); and (ii) a warrant, granted to Cern One, to purchase 1,914,250 shares of the Company’s common stock (the “Creditor Warrants”), which is only exercisable upon the occurrence of certain events (described below). Although the Axion Share Exchange closed on November 16, 2020, the Company has yet to formally complete the transfer of the ownership of the Axion shares into its name, due to a Cease Trade Order issued by the BCSC, which impacts Axion.

 

The closing of the HotPlay Exchange Agreement on June 30, 2021 triggered the automatic conversion of the Company’s outstanding Series B Convertible Preferred Stock and Series C Convertible Preferred Stock into common stock of the Company. Specifically, effective June 30, 2021, the 10,000,000 shares of outstanding Series B Convertible Preferred Stock and 3,828,500 shares of outstanding Series C Convertible Preferred Stock automatically converted into 7,417,700 and 3,828,500 shares of common stock of the Company, respectively, in accordance with the terms of such preferred stock (the “Preferred Conversion”).

 

The Creditor Warrants had cashless exercise rights, an exercise price of $2.00 per share and, a term of two years, beginning on the Vesting Date (defined below). The Creditor Warrants were scheduled to vest on the earlier of:

 

(i)The date the Axion Debt is fully repaid by Axion, and
(ii)the date that the Company obtains 51% or more of the voting control of, and economic rights to, Axion, provided that such vesting date must occur before November 16, 2021, or the Creditor Warrants will terminate (as applicable, the “Vesting Date”). All of the Creditor Warrants were granted to Cern One.

 

Because the vesting conditions had not been satisfied as of November 16, 2021, the warrants terminated automatically on such date pursuant to their terms. Accordingly, as of November 30, 2021, these warrants are no longer outstanding.

 

On August 20, 2021, our counsel sent a demand letter for payment to Axion Ventures Inc. As of November 30, 2021, there has been no response in related to the demand letter.

 

On September 1, 2021, the Company filed a claim in the Supreme Court of British Columbia demanding payment of $7,657,024.

 

During the 3rd quarter ended November 30, 2021, the Company has commenced a new claim for the amount of the debt that it acquired. The Company will be amending its claim shortly to reduce the total claimed to reflect the difference between what is owed and what the Company is claiming (to avoid double-claiming).

 

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Note 8 – Intangible Assets

 

The following table sets forth the intangible assets, both acquired and developed, including accumulated amortization as of November 30, 2021:

 

   Useful Life  Cost   Impairment   Accumulated
Amortization
   Net Carrying
Value
 
Software development costs  3.0 - 5.0 years  $32,874,600   $
   $24,203,267   $8,671,333 
Trademark & License  6.0 - 20.0 years   6,050,082    
    1,047,153    5,002,929 
Others  1.0 - 3.0 years   3,063,994    
    1,886,816    1,177,178 
CIP – Software development      4,042,517    
    
    4,042,517 
CIP – IDS Project      3,126,543    3,126,543    
    
 
      $49,157,736   $3,126,543   $27,137,236   $18,893,957 

 

As part of the IDS Settlement, the Company reviewed the IDS platform software. As a result of the review, the Company determined to impair the remaining balance of the software platform in the amount of $3,126,543 because it will not have a value in use.

 

Intangible assets are amortized on a straight-line basis over their expected useful lives, which is estimated to be 1-20 years. The expected useful lives are determined as to reflect the expected pattern of consumption of the future economic benefits embedded in the assets.

 

Amortization expense related to website development costs and intangible assets, excluding amortization of debt issuance costs, was $1,661,927 and $135,329 for the quarters ended November 30, 2021 and November 30, 2020, respectively.

 

Based on the carrying value of definite-lived intangible assets as of November 30, 2021, we estimate our amortization expense for the next five years will be as follows:

 

As of November 30, 2021  Amortization Expense 
2022  $4,561,873 
2023   6,315,756 
2024   5,952,439 
2025   2,063,889 
2026   
 
   $18,893,957 

 

Note 9 – Notes Payable

 

Note Purchase Agreements: Streeterville Capital, LLC

 

On November 23, 2020, the Company entered into a Note Purchase Agreement (the “November 2020 Note Purchase Agreement”) with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company sold Streeterville a Secured Promissory Note in the original principal amount of $5,520,000 (the “November 2020 Streeterville Note”). Streeterville paid consideration of an initial cash purchase price of $3,500,000 for the note and issued the Company a promissory note in the amount of $1,500,000 (the “November 2020 Investor Note”). The associated debt issuance costs of the note were $370,000 for total amount due $3,870,000. In addition to the $370,000 of debt issuance costs, the Company paid $245,000 for advisory fees, resulting in net proceeds to the Company of $3,255,000.

 

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The November 2020 Streeterville Note bore interest at a rate of 10% per annum and was scheduled to mature 12 months after the date of the note (i.e., on November 23, 2021). From time to time, beginning 6 months after issuance, Streeterville had the right to redeem a portion of the November 2020 Streeterville Note, not to exceed $0.8 million if the November 2020 Investor Note had not been funded and $1.25 million if the November 2020 Investor Note had been funded. In the event we did not pay the amount of any requested redemption within three trading days, an amount equal to 25% of such redemption amount was to be added to the outstanding balance of the November 2020 Streeterville Note. Under certain circumstances the Company could defer the redemption payments up to three times, for a duration of 30 days each, provided that upon each such deferral the outstanding balance of the November 2020 Streeterville Note would increase by 2%. Subject to the terms and conditions set forth in the November 2020 Streeterville Note, the Company had the right to prepay all or any portion of the outstanding balance of the November 2020 Streeterville Note at any time subject to a prepayment penalty equal to 10% of the amount of the outstanding balance to be prepaid. For so long as the November 2020 Streeterville Note remained outstanding, the Company agreed to pay to Streeterville 20% of the gross proceeds that the Company received from the sale of any of its common stock or preferred stock, which payments were to be applied towards, and would reduce, the outstanding balance of the November 2020 Streeterville Note, which percentage was to increases to 30% upon the occurrence of, and continuance of, an event of default under the November 2020 Streeterville Note (each an “Equity Payment”). Each time that we failed to pay an Equity Payment, the outstanding balance of the November 2020 Streeterville Note would automatically increase by 10%. Additionally, in the event we were to fail to timely pay any such Equity Payment, Streeterville had the right to seek an injunction which would prevent us from issuing common or preferred stock until or unless we paid such Equity Payment.

 

The November 2020 Streeterville Note provided that if any of the following events had not occurred on or before April 30, 2021, the then outstanding balance of the note (including accrued and unpaid interest) would increase by an amount equal to 25% of the then-current outstanding balance thereof (the “April 2021 Note Increase”):

 

(a)HotPlay must have become a wholly-owned subsidiary of the Company;
(b)during the period beginning on July 21, 2020, and ending on the date that the HotPlay Share Exchange is consummated, HotPlay must have raised at least $15,000,000 in cash through equity investments;
(c)upon consummation of the HotPlay Share Exchange, all outstanding debt owed by the Company to HotPlay must have either been forgiven by HotPlay or converted into the Company’s common stock;
(d)HotPlay must have become a co-borrower on the November 2020 Streeterville Note; and
(e)the Company must have paid off all outstanding debt obligations to the Donald P. Monaco Insurance Trust and National Bank of Commerce, in full (collectively, the “November 2020 Note Transaction Conditions”).

 

Pursuant to the November 2020 Streeterville Note, we provided Streeterville a right of first refusal to purchase any promissory note, debenture or other debt instrument which we proposed to sell, other than sales to officers or directors of the Company and/or sales to the government. Each time, if ever, that we provided Streeterville such right, and Streeterville did not exercise such right to provide such funding, the outstanding balance of the November 2020 Streeterville Note would increase by 3%. Each time, if ever, that we failed to comply with the terms of the right of first refusal, the outstanding balance of the November 2020 Streeterville Note would increase by 10%. Additionally, upon each major default described in the November 2020 Streeterville Note (i.e., the failure to pay amounts under the November 2020 Streeterville Note when due or to observe any covenant under the November 2020 Note Purchase Agreement (other than the requirement to make Equity Payments)) the outstanding balance of the November 2020 Streeterville Note would automatically increase by 15%, and for each other default, the outstanding balance of the November 2020 Streeterville Note would automatically increase by 5%, provided such increase could only occur three times each as to major defaults and minor defaults, and that such aggregate increase could not exceed 30% of the balance of the Streeterville Note immediately prior to the first event of default.

 

In connection with the November 2020 Note Purchase Agreement and the November 2020 Streeterville Note, the Company entered into a Security Agreement with Streeterville (the “Security Agreement”), pursuant to which the obligations of the Company were secured by substantially all the assets of the Company, subject to a priority lien and security interest in the collateral of the Company.

 

The November 2020 Investor Note, in the principal amount of $1,500,000, evidenced the amount payable by Streeterville to the Company as partial consideration for the acquisition by the Company of the November 2020 Streeterville Note. The November 2020 Investor Note accrued interest at the rate of 10% per annum, payable in full on November 23, 2021, subject to a 30-day extension exercisable at the option of Streeterville and could be prepaid at any time. The amount of the Investor Note has been offset against the amount of the November 2020 Streeterville Note in the balance sheet as of February 28, 2021, as both notes have substantially similar terms, and the Investor Note was provided in consideration for the acquisition of a portion of the November 2020 Streeterville Note. The November 2020 Investor Note was subsequently funded in full in January 2021.

 

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On March 22, 2021, we entered into a Note Purchase Agreement dated March 23, 2021 (the “March 2021 Note Purchase Agreement”) with Streeterville, pursuant to which the Company sold Streeterville a Secured Promissory Note in the original principal amount of $9,370,000 (the “March 2021 Streeterville Note”). Streeterville paid consideration of (a) $7,000,000 in cash; and (b) issued the Company a promissory note in the amount of $1,500,000 (the “March 2021 Investor Note”), in consideration for the March 2021 Streeterville Note, which included an original issue discount of $850,000 (the “OID”) and reimbursement of Streeterville’s transaction expenses of $20,000. A total of $700,000 of the OID was fully earned upon issuance and the remaining $150,000 was not fully earned until the March 2021 Investor Note was fully-funded by Streeterville, which occurred on May 26, 2021.

 

The March 2021 Streeterville Note bears interest at a rate of 10% per annum and matures 12 months after its issuance date (i.e., on March 23, 2022). From time to time, beginning six months after issuance, Streeterville may redeem a portion of the March 2021 Streeterville Note, not to exceed $2.125 million. In the event we do not pay the amount of any requested redemption within three trading days, an amount equal to 25% of such redemption amount is added to the outstanding balance of the March 2021 Streeterville Note. Under certain circumstances, the Company may defer the redemption payments up to three times, for 30 days each, provided that upon each such deferral the outstanding balance of the March 2021 Streeterville Note is increased by 2%. Subject to the terms and conditions set forth in the March 2021 Streeterville Note, the Company may prepay all or any portion of the outstanding balance of the March 2021 Streeterville Note at any time subject to a prepayment penalty equal to 10% of the amount of the outstanding balance to be prepaid. For so long as the March 2021 Streeterville Note remains outstanding, the Company has agreed to pay to Streeterville 20% of the gross proceeds that the Company receives from the sale of any of its common stock or preferred stock, which payments will be applied towards and will reduce the outstanding balance of the March 2021 Streeterville Note, which percentage increases to 30% upon the occurrence of, and continuance of, an event of default under the March 2021 Streeterville Note (each an “Equity Payment”). Each time that we fail to pay an Equity Payment, the outstanding balance of the March 2021 Streeterville Note automatically increases by 10%. Additionally, in the event we fail to timely pay any such Equity Payment, Streeterville may seek an injunction which would prevent us from issuing common or preferred stock until or unless we pay such Equity Payment.

 

The March 2021 Streeterville Note provides that if any of the following events have not occurred on or before June 30, 2021, the then outstanding balance of the note (including accrued and unpaid interest) increases by an amount equal to 25% of the then-current outstanding balance thereof: (a) HotPlay must have become a wholly-owned subsidiary of the Company; (b) during the period beginning on July 21, 2020, and ending on the date that the HotPlay Share Exchange is consummated, HotPlay must have raised at least $15,000,000 in cash or debt through equity investments (which has been completed); (c) upon consummation of the HotPlay Share Exchange, all outstanding debt owed by the Company to HotPlay must have either been forgiven by HotPlay or converted into the Company’s common stock; and (d) HotPlay must have become a co-borrower on the March 2021 Streeterville Note (collectively, the “March 2021 Note Transaction Conditions”).

 

The March 2021 Note Purchase Agreement required that we complete the purchase of the Reinhart (the “Reinhart Interest”), within 10 days of the date of the sale of the March 2021 Streeterville Note, and that the Company pledge the Reinhart Interest to Streeterville pursuant to a pledge agreement thereafter, both of which were timely completed.  

 

Also on May 26, 2021, Streeterville funded the March 2021 Investor Note (in the amount of $1.5 million) in full.

 

We made a required equity payment of $1,857,250 to Streeterville under the March 2021 Streeterville Note on May 26, 2021, with funds raised through a May 2021 underwritten offering, which represented approximately 20% of the funds raised in such offering.

 

We failed to timely meet the November 2020 Note Transaction Conditions; however, on June 1, 2021, Streeterville agreed to defer 50% of the April 2021 Note Increase which was otherwise to occur due to the Company’s failure to timely meet all of the November 2020 Note Transaction Conditions. As such, a total of $506,085 was capitalized into the outstanding balance of the November 2020 Streeterville Note effective as of April