10-Q 1 f10q0522_nextplay.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: May 31, 2022

 

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 company  

 

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 July 14, 2022 the registrant had 117,913,353 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 May 31, 2022

 

TABLE OF CONTENTS

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ii
   
WHERE YOU CAN FIND OTHER INFORMATION vi
   
PART I – FINANCIAL INFORMATION 1
   
Item 1. Financial Statements 1
Condensed Consolidated balance sheets (UNAUDITED) 1
Condensed Consolidated Statements of Operations, net and comprehensive loss (UNAUDITED) 2
Condensed Consolidated Statements of Stockholders’ Equity (UNAUDITED) 3
Condensed Consolidated Statements of Cash Flows (UNAUDITED) 4
Notes to the condensed Consolidated Financial Statements (Unaudited) 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44
Item 3. Quantitative and Qualitative Disclosures About Market Risk 52
Item 4. Controls and Procedures. 52
   
PART II – OTHER INFORMATION 53
   
Item 1. Legal Proceedings 53
Item 1A. Risk Factors 53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 54
Item 3. Defaults Upon Senior Securities 54
Item 4. Mine Safety Disclosures 54
Item 5. Other Information 54
Item 6. Exhibits 55

 

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, 2022, as filed with the SEC on June 21, 2022 (under the heading “Risk Factors” and in other parts of that report). 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 the fair value of investments, the carrying amounts of intangible assets, depreciation and amortization, deferred income taxes, purchase price allocation in connection with business combinations and allowance for credit losses. 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, including 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.

 

ii

 

 

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:

 

  We will need to raise additional funding to support our operations, which funding may not be available on favorable terms, if at all;
     
  We have a limited operating history in certain of the industries that we currently operate in and have incurred significant operating losses since inception. We may never become profitable or, if achieved, be able to sustain profitability;
     
  We have significant indebtedness, which could adversely affect our business and financial condition;
     
  We owe significant amounts to Streeterville Capital, LLC, which is secured by a security interest over substantially all of our assets, and we are subject to requirements, penalties and damages under our agreements with Streeterville;
     
  Our long-term success depends, in part, on our ability to continue to expand our operations outside of the United States and, as a result, our business is susceptible to risks associated with international operations;
     
  The sale of our travel and media businesses is contingent upon the satisfaction of a number of conditions, may not be completed on the currently contemplated timeline, or at all, and may not achieve the intended benefits;
     
  Currently pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements;
     
  The industries in which we participate are highly competitive;
     
  A failure to be current in our filings with the SEC could pose significant risks to our business, which could, individually or in the aggregate, materially and adversely affect our financial condition and results of operations.
     
  Our common stock may be delisted from the Nasdaq Capital Market if we cannot satisfy Nasdaq’s continued listing requirements;
     
  Some members of our senior management team have limited experience in the day-to-day operations of the industries in which our businesses operate;
     
  Our future success depends on the continuing efforts of our key employees and our ability to attract, hire, retain and motivate highly skilled employees in the future; 
     
  We rely on relationships with developers to provide an extensive game portfolio and sufficient advertising spaces;
     
  We derive a significant portion of our revenues from advertisements, and if any events occur that negatively impact our relationships with advertisers, our advertising revenues and operating results and prospects could be harmed;
     
  Our 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 our business;
     
  Our business partners may be unable to honor their obligations to us, or their actions may put us at risk;
     
  HotPlay’s go-to-market strategy and corresponding timeline are dependent on being able to successfully recruit substantial additional resources within Q2 of FY23. Failure to do this could result in the revenues generated from HotPlay being delayed beyond FY23;

 

iii

 

 

  Although Longroot is a licensed ICO Portal in Thailand, it has not yet closed any offerings, and there can be no assurances that it will;
     
  Longroot operations are subject to risks associated with digital asset exchanges being a new industry, regulatory changes and/or restrictions, potential illegal uses of digital assets, cyber security risks, and reliance on open source blockchain technologies;
     
  Our ability to generate revenue through the sale of digital assets is subject to risk associated with economic and market conditions, the acceptance and widespread use of digital assets, and investor confidence levels;
     
  The performance of the digital assets issued is dependent on the performance of the issuer and underlying asset, which is unpredictable and may result in reputation damage should they underperform;
     
  There are cyber security risks related to digital asset trading;
     
  We depend on third party cryptographic and algorithmic protocols governing the issuance of and transactions in digital assets;
     
  Our tokens might be used for illegal or improper purposes, which could expose us to additional liability and harm our business;
     
  Developing NextBank into a comprehensive FinTech solution provider involves a high level of complexity, may require substantial resources and costs, and is subject to obtaining regulatory approval;
     
  NextBank’s ability to originate loans is subject to risk associated with economic and market conditions;
     
  NextBank uses correspondent banks and is subject to risk associated with termination of such relationships, which may negatively impact its operations;
     
  Our success is subject to the development of new or upgraded products, services and features over time;
     
  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;
     
  Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, content, competition, and consumer protection. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business;
     
  Our business, products, and distribution are subject to increasing regulation in key territories. If we do not successfully respond to these regulations, our business could be negatively impacted;
     
  NextBank is subject to various regulatory capital requirements. Regulatory changes or actions may alter the requirements for capital;
     
  NextBank faces a risk of non-compliance and enforcement action related to the Bank Secrecy Act and other anti-money laundering, customer due diligence, and combating the financing of terrorism statutes and regulations;
     
  We are subject to anti-bribery, anti-corruption and similar laws, and non-compliance with such laws could subject us to criminal penalties or significant fines and harm our business and reputation;
     
  If we do not adequately protect our intellectual property, our ability to compete could be impaired;
     
  Certain of our products are subject to the threat of piracy and unauthorized copying, and inadequate intellectual property laws and other protections could prevent us from enforcing or defending our proprietary technologies;

 

iv

 

 

  We may be subject to claims that we violated intellectual property rights of others, which are extremely costly to defend and could require us to pay significant damages and limit our ability to operate;
     
  Our ability to acquire and maintain licenses to intellectual property may affect our revenue and profitability;
     
  We use open-source software in connection with certain of our games and services, which may pose particular risks to our proprietary software, products, and services, and which could have a negative impact on our business;
     
  The price of our common stock may fluctuate significantly, and investors could lose all or part of their investments;
     
  Stockholders may be diluted significantly as a result of the issuance of additional shares of our common stock or securities convertible into, or exercisable for, shares of our common stock;
     
  The ownership of our capital stock is highly concentrated, which may prevent other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline;
     
  If we fail to maintain effective internal controls, it could adversely affect our financial position and lower our stock price;
     
  If securities analysts and other industry experts do not publish research or publish negative research about our business, our stock price and trading volume could decline;
     
  Provisions in our amended and restated articles of incorporation limit the liability of our management to stockholders;
     
  Certain of our outstanding warrants include anti-dilutive rights;
     
  Sales of a substantial number of our securities in the public market could cause our stock price to fall; and
     
  We have not paid dividends on shares of our common stock in the past and do not plan to do so in the future.

 

v

 

 

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, 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, with the SEC. 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.  

 

vi

 

 

 PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

NextPlay Technologies, Inc.

Condensed Consolidated Balance Sheets

 

   May 31,
2022
   February 28,
2022
 
   (Unaudited)   (Audited) 
Assets        
Current assets        
Cash and cash equivalents  $2,406,475   $4,282,110 
Short term investments   305,271    304,509 
Loans receivable, net   19,982,775    16,556,288 
Loans receivable – related parties, net   705,000    725,000 
Unbilled receivables   4,619    2,179 
Other receivables   432,075    339,233 
Other receivables, related parties   100,000    155,425 
Prepaid expenses and other current assets   1,250,732    826,419 
Advances for investments   1,977,213    3,227,117 
Investments in unconsolidated affiliates: Short-term   4,188    8,722 
Assets held for sale - current   28,514,136    7,332,994 
Total current assets  $55,682,484   $33,759,996 
Non-current assets          
Investments in unconsolidated affiliates: Long-term   6,258    6,258 
Convertible notes receivable, related party   4,594,214    4,594,214 
Intangible assets, net   15,874,162    9,883,789 
Goodwill   27,949,554    27,949,554 
Computers, furniture and equipment, net   396,101    366,499 
Operating lease right-of-use asset   1,554,144    1,894,654 
Security deposits   428,943    177,972 
Assets held for sale – non current   
    21,120,557 
Total non-current asset  $50,803,376   $65,993,497 
Total assets  $106,485,860   $99,753,493 
           
Liabilities and stockholders’ equity          
Current liabilities          
Line of credit and notes payable, net  $4,840,139   $4,463,471 
Accounts payable and accrued expenses   6,940,176    4,288,575 
Accounts payable and accrued expenses – related parties   44,685    433,814 
Other current liabilities   130,341    127,779 
Current portion of operating lease liability   257,340    218,181 
Other current liabilities - customer demand deposits payable   18,960,031    7,497,465 
Notes payable - related party   733,396    765,040 
Liabilities held for sale - current   9,975,136    9,708,053 
Total current liabilities  $41,881,244   $27,502,378 
           
Non-current liabilities          
Note payable long term, related parties   
    966,314 
Operating lease liability, net of current portion   1,452,347    1,543,627 
Other long-term liability   8,114    6,087 
Liabilities held for sale - non current   
    1,873,889 
Total non-current liabilities  $1,460,461   $4,389,917 
Total liabilities  $43,341,705   $31,892,295 
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 May 31, 2022 and February 28, 2022, respectively   
    
 
Series B Preferred stock, $0.00001 par value; 10,000,000 authorized; 0 and 0 shares issued and outstanding at May 31, 2022 and February 28, 2022, respectively   
    
 
Series C Preferred stock, $0.00001 par value; 3,828,500 authorized; 0 and 0 shares issued and outstanding at May 31, 2022 and February 28, 2022, respectively   
    
 
Series D Preferred stock, $0.00001 par value; 6,100,000 authorized; 0 and 0 shares issued and outstanding at May 31, 2022 and February 28, 2022, respectively   
    
 
Common stock, $0.00001 par value; 500,000,000 shares authorized; 111,736,081 and 108,360,020 shares outstanding at May 31, 2022 and February 28, 2022, respectively   1,118    1,084 
Treasury stock   (771,453)   (771,453)
Additional paid-in-capital   104,414,539    104,393,361 
Accumulated other comprehensive income   (746,819)   (218,703)
Accumulated deficit   (44,858,461)   (39,173,079)
Stockholders’ equity attributable to parent  $58,038,924   $64,231,210 
Non-Controlling Interest in consolidated subsidiaries   1,605,586    3,629,988 
Non-Controlling Interest in unconsolidated affiliates held for sale   3,499,645    
 
Total stockholders’ equity   63,144,155    67,861,198 
Total liabilities and stockholders’ equity  $106,485,860   $99,753,493 

 

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

 

1

 

 

NextPlay Technologies, Inc.

Condensed Consolidated Statements of Operations, Net and Comprehensive Loss

(Unaudited)

 

   For the three months ended 
   May 31,
2022
   May 31,
2021
 
   (Unaudited)   (Unaudited) 
Revenue        
Interest and financial services  $466,551   $
 
Total revenue   466,551    
 
           
Cost of Revenue          
Interest and financial services   102,967    
 
Total Cost of Revenue   102,967    
 
Gross Profit   363,584    
 
Operating Expenses          
General and administrative   2,303,055    137,909 
Salaries and benefits   1,429,444    178,126 
Technology and development   279,606    55,794 
Stock-based compensation   432,641    
 
Selling and promotions expense   28,542    27,138 
Depreciation and amortization   396,770    134,758 
Total operating expenses   4,870,058    533,725 
Operating Loss   (4,506,474)   (533,725)
Other Income/ (Expense)          
Valuation loss, net   (4,534)   
 
Interest expense   (165,025)   (40,958)
Foreign exchange loss   
    (1,289)
Other income   72,293    77 
Total other income/(expense)   (97,266)   (42,170)
Net loss before tax from continuing operations  $(4,603,740)  $(575,895)
Estimated corporate taxes   
    
 
Net Loss after tax from continuing operations:   (4,603,740)   (575,895)
Net Loss after tax from discontinued operations:   (808,246)   
 
Net Loss after tax from continuing operations:   (4,603,740)   (575,895)
Share of loss from non-controlling interest   144,890    178,768 
Net loss from continuing operations attributable to parent  $(4,458,850)  $(397,127)
Net Loss after tax from discontinued operation:   (808,246)   
 
Share of profit from non-controlling interest   (418,286)   
 
Net loss from discontinued operation attributable to parent  $(1,226,532)  $
 
Net loss attributable to parent   (5,685,382)   (397,127)
           
Other Comprehensive (loss) income          
Foreign currency translation loss from continuing operations   (201,534)   (52,023)
Foreign currency translation loss from discontinued operations   (746,581)   
 
Total other comprehensive (loss)   (948,115)   (52,023)
Comprehensive Loss   (6,360,101)   (627,918)
           
Currency translation allocated to:          
Equity holders of the Company   (528,116)   (25,491)
Non-controlling interests of the subsidiaries   (419,999)   (26,532)
Total foreign currency translation   (948,115)   (52,023)
           
Total comprehensive loss attributable to:          
Equity holders of the Company   (6,213,498)   (422,618)
Non-controlling interests of the subsidiaries   (146,603)   (205,300)
Total comprehensive loss   (6,360,101)   (627,918)
           
Weighted average number of common shares outstanding          
Basic   109,508,246    62,400,000 
Diluted   109,508,246    62,400,000 
           
Basic net (loss) per share from continuing operations:  $(0.04)  $(0.01)
Basic net (loss) per share from discontinued operations:  $(0.01)  $
 
Total basic net (loss) per share  $(0.05)  $(0.01)
           
Diluted net (loss) per share from continuing operations:  $(0.04)  $(0.01)
Diluted net (loss) per share from discontinued operations:  $(0.01)  $
 
Total diluted net (loss) per share  $(0.05)  $(0.01)

 

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

 

2

 

 

 NextPlay Technologies, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

 

For the three months ended May 31, 2022 and May 31, 2021

(Unaudited)

 

 

  Common Stock
Shares
   Common
Stock
Amount
   Treasury
Stock
   Additional
Paid-in
Capital
   Accumulated
Deficit
   Accumulated
Other
Comprehensive
income
   Total
stockholders’
equity
   Non-controlling
interest
   Stockholders’
equity
 
Balances, March 1, 2022   108,360,020   $1,084    (771,453)  $104,393,361   $(39,173,079)  $(218,703)  $64,231,210   $3,629,988   $67,861,198 
Net loss for the period                   (5,685,382)       (5,685,382)   273,396    (5,411,986)
Shares issued for compensation   209,394    2        126,638            126,640        126,640 
Shares issued for consulting services   250,000    3    
    305,998            306,001        306,001 
Shares issued for assets acquisition   2,916,667    29        1,210,388            1,210,417        1,210,417 
Increase in ownership of subsidiary - HotPlay               (1,621,846)           (1,621,846)   1,621,846    
 
Foreign currency translation adjustment       
        
        (528,116)   (528,116)   (419,999)   (948,115)
Balances, May 31, 2022   111,736,081    1,118    (771,453)   104,414,539    (44,858,461)   (746,819)   58,038,924    5,105,231    63,144,155 

 

 

   Common Stock
Shares
   Common
Stock
Amount
   Treasury
Stock
   Additional
Paid-in
Capital
   Accumulated
Deficit
   Accumulated
Other
Comprehensive
income
   Total
stockholders’
equity
   Non-controlling interest   Stockholders’
equity
 
Balances, March 1, 2021   62,400,000    624    
    11,599,357    (1,200,309)   10,221    10,409,893    (390,277)   10,019,616 
Net loss for the period       
        
    (397,127)   
    (397,127)   (178,768)   (575,895)
Foreign currency translation adjustment           
    
    
    (25,491)   (25,491)   (26,532)   (52,023)
Balances, May 31, 2021   62,400,000   $624    
   $11,599,357   $(1,597,436)  $(15,270)  $9,987,275   $(595,577)  $9,391,698 

 

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

 

3

 

 

NextPlay Technologies, Inc.  

Condensed Consolidated Statements of Cash Flows 

(Unaudited)

 

   For the Three Months Ended 
   May 31,
2022
   May 31,
2021
 
Cash flows from operating activities:        
Net loss from operations  $(5,685,382)  $(397,127)
           
Adjustments to reconcile net income to net cash used in operating activities:          
Depreciation and amortization   396,770    134,758 
Valuation loss, net   4,534    
 
Stock based compensation   432,641    
 
Provision from employee benefits   2,301    
 
Share of non-controlling interest   273,396    (178,768)
Gain on currency translation   (948,115)   (8,968)
           
Changes in operating assets and liabilities:          
Amounts due from related parties   19,068    (25,037)
Advance payment to a related party   
    (149,533)
Amounts due to related party   6,625    58,765 
Unbilled receivable   (2,440)   
 
Loans receivable   (3,500,112)    
Prepaid expenses and other current assets   (397,638)   (28,350)
Security deposits   (254,388)   
 
Operating lease liabilities   237,443    
 
Accounts payable & accrued expenses   2,262,456    (40,863)
Deferred revenue - related party   110,907    
 
Other current liabilities   4,684    (190)
Other Liabilities - Customer Deposits   11,498,819    
 
Assets held for sale   (1,384,539)   
 
Liabilities held for sale   (2,627,075)   
 
Cash provided by (used in) operating activities  $449,955   $(635,313)
           
Cash flows from investing activities:          
Short term investment   (762)   
 
Convertible notes receivable - related party   
    (12,000,000)
Additions of intangible assets - related party   (66,766)   (479,865)
Additions of intangible assets   (3,799,983)   (21,930)
Purchase of computer, furniture, and equipment   (64,581)   (14,019)
Proceeds from disposal of computer, furniture, and equipment   68,323    
 
Cash used in investing activities  $(3,863,769)  $(12,515,814)
           
Cash flows from financing activities:          
Proceeds from convertible notes payable – related party   
    14,000,000 
Repayment of notes payable - related party   (966,314)   (223,937)
Proceeds from promissory notes   463,902    
 
Payments on promissory notes   (296,250)   
 
Cash (used in) provided by financing activities  $(798,662)  $13,776,063 
           
Cash and Cash Equivalents          
           
Net change during the period   (4,212,476)   624,936 
           
Balance, beginning of period – continuing operation   4,282,110    444,920 
Balance, beginning of period – discontinued operation   2,336,841    
 
Balance, beginning of period   6,618,951    444,920 
           
Balance, end of period from continued operation  $2,406,475   $1,069,856 
           
Supplemental disclosures of cash flow information          
Cash paid for interest  $214,504   $23,286 
           
NON-CASH TRANSACTIONS          
Share issuances for asset acquisition – Fighter Base and Token IQ   1,210,417    
 
Share issuances for consulting and employee compensation   432,641    
 
Reclassification of advance payment to intangible asset – GoGame   1,250,000    
 

 

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

 

4

 

 

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., together with its consolidated subsidiaries (collectively, “NextPlay,” “we,” “our,” “us,” or the “Company”), is building a technology solutions company, offering games, in-game advertising, digital asset products and services, and connected TV 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.

 

As of May 31, 2022, NextPlay is organized into two divisions: (i) NextMedia, the Company’s Interactive Digital Media Division and (ii) NextFinTech, the Company’s Finance and Technology Division.

 

(i) NextMedia, the Company’s Interactive Digital Media 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.

 

(ii) NextFinTech, the Company’s Finance and Technology Division

 

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 in financial advisory service and owns 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.

 

Effective November 16, 2021, the Labuan Financial Services Authority (the “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 $2,260,000 US), (iii) submission of proof of registration as a member of Labuan International Insurance Association, (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 were to be met within 3 months of November 29, 2021, the date Labuan FSA issued a letter confirming the conditional approval. In May 2022, the Company received a permission letter from Labuan FSA to extend the establishment until August 31, 2022. The Company plans to use the general insurance license to issue primary insurance products and the reinsurance license to issue crypto-securitized insurance in collaboration with Longroot.

 

On October 14, 2021, “Longroot Inc.” (a subsidiary of the Company) changed its name to “Next Fintech Holdings, Inc.” The Company plans to use Next Fintech Holdings, Inc. as the holding company for its FinTech division.

 

5

 

 

Strategic Sale of Reinhart Digital TV (Zappware) and NextTrip to TGS Esports, Inc.

 

On June 28, 2022, the Company entered into a series of agreements, including a securities exchange agreement, with William Kerby, the Company’s co-Chief Executive Officer and director, Donald P. Monaco, a director of the Company, and British Columbia-based TGS E-Sports Inc. (TSX-V: TGS, OTC: TGSEF) (“TGS”), a public company whose securities are listed for trading on the Canadian TSX Venture Exchange, pursuant to which the Company has agreed to sell the Company’s travel business, NextTrip Group, LLC (“NextTrip”), and its 51% ownership of Reinhart Digital TV (the 100% owner of Zappware) to TGS in exchange for securities of TGS as discussed in further detail below. TGS, is a leading esports tournament solutions provider.

 

Prior to the execution of the securities exchange agreement, NextTrip issued an aggregate of 915,000 units in NextTrip to Messrs. Kerby and Monaco to resolve certain management unit issuances provided for in NextTrip’s Operating Agreement as consideration for services rendered.

 

As consideration for the sale of Reinhart and NextTrip, upon closing of the transaction, (i) the Company will receive 232,380,952 shares of newly created nonvoting convertible preferred stock of TGS (the “TGS Preferred”), valued at $12.2 million, and (ii) Messrs. Kerby and Monaco, both of whom hold certain equity interests in NextTrip (discussed above), will receive an aggregate of 69,714,286 shares of TGS common shares, valued at $3.66 million, of which 11,619,048 TGS common shares will be held in escrow for a period of time.  The TGS Preferred shares will be redeemable in certain situations, can be sold subject to certain transfer restrictions (including a right of first refusal in favor of TGS), and may be converted into shares of TGS common shares in certain limited circumstances, including mandatory conversion upon the occurrence of certain events. In the event that the TGS Preferred shares are converted into shares of TGS common shares by the Company at any time, the Company is obligated to distributed all such shares of TGS common shares in a stock dividend to its shareholders. Concurrently with a determination to convert the TGS Preferred shares into shares of TGS common shares, if ever, the Company will set a shareholder record date for a special dividend to distribute all of the common shares of TGS held by the Company to the Company’s shareholders, on a pro-rata basis.

 

In addition to the securities exchange agreement, the Company, NextTrip, Reinhart and TGS also entered into a separation agreement on June 28, 2022, to further document the separation of NextTrip and Reinhart from the Company and to assign, transfer and convey certain assets and liabilities held in NextTrip or the Company’s name, respectively, to NextTrip or the Company, respectively, to allow for the separation of the businesses in accordance with the securities exchange agreement at closing of the transaction. The separation agreement also provides for the termination of certain intercompany agreements and accounts by and between the parties at closing of the transaction, sets rights related to confidentiality, non-disclosure and maintenance of attorney-client privilege matters, and also provides for a mutual release by and among the Company, NextTrip and Reinhart for all pre-closing claims between themselves and their officers, directors, affiliates, successors and assigns.

 

In addition, the separation agreement provides for the contribution of (i) $1.5 million to NextTrip and (ii) an additional $1.5 million in ten (10) equal monthly installments beginning July 1, 2022, in exchange for NextTrip, as of May 1, 2022, agreeing to assume the ongoing operating expenses of NextTrip and Reinhart. NextTrip has also agreed to assume payments under that certain payment obligation of the Company pursuant an Amendment to Intellectual Property Purchase Agreement effective May 18, 2021, by and between the Company, IDS Inc., TD Assets Holding LLC, and Ari Daniels in the approximate amount of $2,500,000, provided, however, that, if the Company fails to make any of the above installment payments within five (5) business days of being due, that such IDS payment obligation reverts back to the Company.

 

Closing of the transaction remains subject to various conditions, including (without limitation) regulatory approvals, approval of certain related matters by TGS’ shareholders and consummation of a financing by TGS, and is expected to occur in the second half of 2022. No assurances can be provided that the closing conditions will be satisfied, or that the transaction will be consummated on the anticipated timeline, or at all.

 

The transaction, once consummated, is expected to streamline the Company’s business operations and management, improve capital allocation, and is expected to unlock shareholder value by offering investors a pure-play investment in the Digital Media and Financial Technology sectors. 

 

As a result of the foregoing, as of May 31, 2022, Reinhart/Zappware and NextTrip were no longer consolidated nor treated as a division of the Company; accordingly, for the three-month period ended May 31, 2022, the Company had two remaining reportable business segments: NextFinTech and NextMedia. Assets and liabilities of Reinhart TV AG/Zappware and NextTrip were classified as held for sale according to Strategic Sale of Reinhart Digital TV (Zappware) and NextTrip to TGS Esports, Inc.

 

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. The comparative figures included in the accompanying condensed consolidated financial statements for the period as from incorporation date to May 31, 2021 represents financial position and operating results of HotPlay Enterprise Ltd.

 

As of May 31, 2022, the Company is in the process of assessing the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, therefore the assets acquired and liabilities assumed were provisionally recorded. The assessment is to be completed within a period of one year from the acquisition date, pursuant to the measurement period allowed under ASC 805. During the measurement period, the Company is to retrospectively adjust the provisional amounts recognized at the acquisition date, and recognize additional assets or liabilities, if it obtains new information about facts and circumstances that existed as of the acquisition date.

 

6

 

 

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 US GAAP 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, 2022 and notes thereto and other pertinent information contained in the Company’s Annual Report on Form 10-K, which the Company filed with the Securities and Exchange Commission (the “SEC”) on June 21, 2022.

 

The results of operations for the three months ended May 31, 2022 are not necessarily indicative of the results to be expected for the full fiscal year ending February 28, 2023.

 

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, deferred income taxes, purchase price allocation in connection with the business combination and allowance for credit losses.

 

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 May 31, 2022, and February 28, 2022.

 

Short Term Investments

 

The short term investments are a short-term cash deposit with a maturity date more than three months, as required by the Office of the Commissioner of Financial Institutions (“OCIF”) for business purpose of one of the Company’s subsidiaries.

 

Accounts Receivable, Other Receivable, 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 credit loss, and unbilled receivables are measured at the amount of consideration that the Company is entitled to, less credit loss. The Company calculates its allowance for current expected credit losses (“CECL”) based on lifetime expected credit losses at each reporting date. CECLs are calculated based on its historical credit loss experience and adjusted for forward-looking factors specific to the debtors and the economic environment. A receivable is written off when there is no reasonable expectation of recovering the contractual cash flows.

 

Loans Receivable and Allowance for Loan Losses

 

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.

 

7

 

 

Allowance for Loan Losses

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon collectability of loans, based on historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This represents management’s estimate of CECL in the Company’s loan portfolio over its expected life, which is the contract term being the reasonable and supportable period that we can reasonably and supportably forecast future economic conditions to estimate expected credit losses. The historical loss experience is to be adjusted for asset-specific risk characteristics and economic conditions, including both current conditions and reasonable and supportable forecasts of future conditions.

 

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Due to potential changes in conditions, it is possible that changes in estimates will occur and that such changes could be material to the amounts reported in the Company’s financial statements.

  

Unbilled Receivables

 

Unbilled receivable represents costs associated with software development according to contracts with customers. Unbilled receivables mainly consist of employee and payroll related expenses and amounts recorded on a project where billing milestones have not yet been achieved.

 

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 indicated on the respective contract. Other current assets are recognized when it is probable that the future economic benefits will flow to the Company and the asset has a cost or value that can be measured reliably. It is then charged to expense over the expected number of periods during which economic benefits will be realized.

 

Advances for Investments

 

Advances for investments represent cash deposits transferred to the potential seller as a deposit payment, as stipulated in the relevant investment purchase agreement, mainly for potential acquisitions of assets or businesses.

 

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

 

8

 

 

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 non-controlling interest (“NCI”), consideration transferred and goodwill or any bargain purchase gain, as well as the remeasurement of any pre-existing interest in the acquiree.

 

In our assessment, goodwill arisen from reverse acquisition is allocated systematically and reasonably to reporting segments which are regularly reviewed by the Company’s Chief Operating Decision Maker (“CODM”). The CODM allocates resources and assess performance of the business and other activities at the single operating segment level. The reporting units for impairment testing purpose are determined as the lowest level of cash generating unit below the operating segments since the components constitute a business for which discrete financial information is available, and the CODM regularly reviews the operating results of the components. Certain components share similar economic characteristic and are deemed to be a single reporting unit.

 

The Company assigned assets and liabilities to each reporting unit based on either specific identification or by using judgment for the remaining assets and liabilities that are not specific to a reporting unit. Goodwill was assigned to the reporting units based on a combination of specific identification and relative fair values. Goodwill associated with reporting units being sold are included in the carrying amount of assets held for sale at the reporting date.

 

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.

 

9

 

 

In impairment testing, goodwill acquired in a business combination is allocated to each of the Company’s reporting units that are expected to benefit from the synergies of the combination. The Company estimates the recoverable amount of each reporting unit to which the goodwill and intangible assets relates. Where the recoverable amount of the reporting unit is less than the carrying amount, an impairment loss is recognized in profit or loss. Impairment losses cannot be reversed in future periods. During the fourth quarter of each fiscal year, the Company carries out annual impairment reviews at the reporting unit level in respect of goodwill and intangible assets by performing qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If those impairment indicators exist, the quantitative assessment is required to assess the recoverable amount of the reporting unit by performing step 1 of the two-step goodwill impairment test. If we perform step 1 and the carrying amount of the reporting unit exceeds its fair value, we would perform step 2 to measure such impairment. In determining value in use, the estimated future cash flows are discounted to their present value to reflect current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by a valuation model that, based on information available, reflects the amount that the Company could obtain from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal.

 

In determining allowance for impairment of goodwill and intangible assets, the management is required to exercise judgements regarding determination of the recoverable amount of the asset, which is the higher of its fair value less costs of disposal and its value in use.

  

Accounts Payable, Notes Payable and Accrued Expenses

 

Accounts payable are recognized when the Company receives invoices, and accrued expenses are recognized when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably.

 

Notes payable are recognized at cost, net transaction costs. Transaction costs are amortized over the terms of notes payable using effective interest rate method.

  

Customer Demand Deposits Payable

 

Customer deposit represents cash demand deposits payable 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 fair value.

 

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.

 

10

 

 

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 three months ended May 31, 2022 and 2021, warrants were excluded from the computation of diluted net loss per share, as the result of the computation was anti-dilutive. The Company presents earnings per share from continuing operation and discontinued operation separately.

 

Assets and liabilities held for sale

 

In accordance with ASC 306, the sale of Reinhart/Zappware and NextTrip qualified as assets and liabilities held for sale as: (i) the Company has committed to a plan to sell, (ii) the disposal entities are available for immediate sale, (iii) the buyer has been identified and has committed to purchase, subject to satisfaction of certain closing conditions, and (iv) it is probable to occur within 1 year from the date of the classification. Assets and liabilities held for sale are measured at the lower of carrying amount and the fair value less cost to sell. Computer and equipment and intangible assets are not depreciated or amortized once classified as held for sale.

 

Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position as well as for prior period. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of comprehensive loss. 

 

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:

 

Interest and Financial services

 

NextBank International provides traditional banking services in niche-focused businesses, including commercial and residential real estate and the origination and sale of loans, among other types of lending services. Revenues are categorized as interest income and financial services. NextBank is primarily responsible for fulfilling the services to clients, bears risks on its loan products, has discretion in establishing the price, hence it acts as principal, and recognizes revenues at the gross amount received for the services.

 

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.

 

Financial services are categorized as follows:

 

  - Origination fee is recognized at point of time when the loan contract is mutually originated between a customer and the Company.

 

  - Deposit account fees and other administrative fees are generally recognized upon completion of services (wire in/out processing, certain deposit condition met, etc.).

 

11

 

 

Cost of Revenue

 

Cost of revenue from finance and technology mainly consists of interest expense, loan related commissions, amortization of core banking software and technology facilities and infrastructures.

  

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 is recognized when incurred.

 

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 and recognizes forfeitures as when they occur.

 

Warrants

 

The Company accounts for the warrants in accordance with the guidance contained in ASC 815, under which the warrants do not meet the criteria for equity classification and must be recorded as liabilities. Most of warrant agreements contain fixed strike prices and a fixed number of shares that may be issued upon exercise of the warrants at the fixed strike price, with certain provisions that may result in changes to the strike price in certain circumstances, subject to stockholder approval. All such warrant agreements are exercisable at the option of the holder and settled in shares of the Company. The warrants are qualified as equity-linked instrument embedded in a host instrument, whereby they do not meet definition of derivative; therefore it is not required to separate the embedded component from its host.

 

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, if any.

 

Financial instruments consist principally of cash, investments in unconsolidated affiliates, other receivables, 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.

 

12

 

 

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.

 

As of May 31, 2022, the Company had two operating segments consisting of

 

  (i) NextMedia segment, consisting of:

 

  - HotPlay Enterprise Ltd. and HotPlay (Thailand) Co., Ltd.,

 

  (ii) NextFinTech segment, consisting of:

 

  - Next Fintech Holdings, Inc. (formerly Longroot Inc)

 

  - Longroot Limited

 

  - Longroot Holding (Thailand) Co., Ltd.

 

  - Longroot (Thailand) Co., Ltd.

 

  - Next Bank International, Inc.

 

The Company’s chief operating decision makers of the Company 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.

 

As a result of the proposed strategic sale of Reinhart/Zappware and NextTrip, as of May 31, 2022, those entities were no longer consolidated nor treated as a division of the Company; accordingly, for the three-month period ended May 31, 2022, the Company had two remaining reportable business segments: NextFinTech and NextMedia.

 

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

 

13

 

 

Comparative figures

 

Certain comparative figures have been reclassified to conform with the current period presentation.

 

Recent Accounting Pronouncements

 

In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The FASB is issuing this Update (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.

 

Stakeholders asserted that the language in the illustrative example resulted in diversity in practice on whether the effects of a contractual restriction that prohibits the sale of an equity security should be considered in measuring that equity security’s fair value. Some stakeholders apply a discount to the price of an equity security subject to a contractual sale restriction, whereas other stakeholders consider the application of a discount to be inappropriate under the principles of Topic 820

 

For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.

 

The Company is still evaluating the impact of this pronouncement on the consolidated financial statements.

 

Note 2 - Going Concern

 

As of May 31, 2022, and February 28, 2022, the Company had an accumulated deficit of $44.9 million and $39.2 million, 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 May 31, 2022, we have working capital of $13.8 million. Our monthly cash requirement is approximately $1.5 million. The monthly cash requirement decreased by approximately $0.4 million beginning May 1, 2022 as a result of the proposed sale of NextTrip.

 

We will need to raise additional capital or borrow loans to support the on-going operations, increase market penetration of our products, expand the marketing and development of our 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.

 

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 FinTech 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 2023 fiscal year, 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.

 

14

 

 

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.

 

Note 3 – Notable Financial Information

  

Short term investment

 

As of May 31, 2022 and February 28, 2022, NextBank had short-term deposits of $0.3 million and $0.3 million, respectively, with an original maturity in November 2022, and an interest rate of 0.05% per annum.

 

Loans Receivable

 

Loans receivable related to the provision of 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 of NextBank. As of May 31, 2022 and February 28, 2022, the Company had loans receivable of $20.8 million and $17.4 million, respectively, and the allowance for loan losses of $0.1 million and $0.1 million, respectively. The interest rate ranges from 5.5% to 17.9%.

 

As of May 31, 2022, most of the loans were performing, and a general allowance was established at appropriate rate on the principal amount outstanding at year end. Due to limited outstanding loans, they are analyzed one by one to determine if the general reserve covers the related risk of such loans. As of May 31, 2022, the Company’s management deemed the reserve as sufficient when compared to the risk assessment.

 

As of May 31, 2022, there were loans placed on non-accrual loan of $0.04 million.

 

Unbilled Receivables

 

As of May 31, 2022 and February 28, 2022, the Company had unbilled receivables of $0.01 million and $0.01 million, respectively.

 

Prepaid Expenses and Other Current Assets

 

As of May 31, 2022 and February 28, 2022, the Company had prepaid expenses of $0.9 million and $0.8 million, respectively. As of May 31, 2022 and February 28, 2022, the Company had other current assets of $0.4 million and $0.03 million respectively.

 

Convertible Notes Receivable, Related Party

 

As of May 31, 2022 and February 28, 2022, the Company had Convertible Notes Receivable, related party, net allowance for expected credit loss of $4.6 million relating to receivables from Axion. As of May 31, 2022 and February 28, 2022, the allowance for expected credit loss was $3.1 million.

 

Goodwill

 

As of May 31, 2022 and February 28, 2022, the Company had total goodwill of $27.9 million as allocated to units as follows:

 

(i)HotPlay reporting unit of $4.2 million.
   
(ii)Longroot reporting unit of $8.0 million.
   
(iii)NextBank reporting unit of $15.7 million.

 

15

 

 

Computers, Furniture and Equipment

 

As of May 31, 2022 and February 28, 2022, the Company had net computers, furniture and equipment of $0.4 million and $0.4 million, of which $0.05 million and $0.1 million included depreciation expense, respectively.

 

Operating Lease Right-to-Use asset and Operating Lease Liability

 

The Company’s lease agreements are for office space used in its operation. The following schedule represents outstanding balance of operating lease Right-to-Use asset and operating lease liability of the Company as of May 31, and February 28, 2022, respectively:

 

Operating lease Right-to-Use asset  May 31,
2022
   February 28,
2022
 
Net Carrying Value  $1,554,144   $1,894,654 

 

Operating lease liability  May 31,
2022
   February 28,
2022
 
Current portion  $257,340   $218,181 
Noncurrent portion   1,452,347    1,543,627 
Totals  $1,709,687   $1,761,808 

 

Accounts Payable and Accrued Expenses

 

As of May 31, 2022 and February 28, 2022, the Company had accounts payable of $3.1 million and $1.9 million, respectively. As of May 31, 2022 and February 28, 2022, the Company had accrued expenses of $3.9 million and $2.8 million, respectively.

 

Other Liabilities – Customer Demand Deposits Payable

 

As of May 31, 2022 and February 28, 2022, the Company had other current liabilities – customer demand deposits payable of $19.0 million and $7.5 million, respectively, relating to NextBank.

 

As of May 31, 2022, the Company had interest and non-interest- bearing deposits received from customers with interest rates ranging from 0% to 4% payable per annum.

 

Short Term Note Payable – Related Parties

 

As of May 31, 2022, and February 28, 2022, the Company had a short term note payable – related party of $0.7 million and $0.8 million, respectively, relating to Tree Roots Entertainment and Magnolia Quality Development Corporation Limited. The notes payable are unsecured, accrue interest at a rate of 9.00% - 9.75% per annum, and are due at call.

 

Long Term Note Payable – Related Parties

 

As of May 31, 2022 and February 28, 2022, the Company had a long term note payable – related party of $0 and $1.0 million, respectively, mainly related to note payable of preferred dividends in arrears which was repaid during the three-months ended May 31, 2022.

 

The note payable had an interest rate of 12% per annum, compounded monthly at the end of calendar month, with such interest payable at maturity or upon conversion.

 

16

 

 

Revenue

 

Disaggregation of revenue information was as follows:

 

   May 31,
2022
   May 31,
2021
 

NextFinTech

        
Interest income  $379,691    
 
Financial services   86,860    
 
Total revenue  $466,551    
 

 

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). On March 31, 2021, the Company paid the founder $10.7 million in cash and received the transfer of the shares on June 23, 2021. As of June 23, 2021, all the closing conditions had been satisfied and this transaction was completed.

 

As of May 31, 2022, the Company is in process of assessing the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, mainly in relation to its identification and valuation of intangible assets and certain tangible assets, therefore the assets acquired, and liabilities assumed were provisionally recorded. The assessment is to be completed within a period of one year from the acquisition date, pursuant to the measurement period allowed under ASC 805. During the measurement period, the Company is to retrospectively adjust the provisional amounts recognized at the acquisition date, and recognize additional assets or liabilities, if it obtains new information about facts and circumstances that existed as of the acquisition date.

 

As of May 31, 2022, with regards to the strategic decision sale of Reinhart/Zappware in June 2022, assets and liabilities including goodwill of Zappware and Reinhart, were presented at its recoverable amount, included in assets and liabilities held for sale at the balance sheet date.

 

NextBank International (formerly IFEB) Acquisition

 

On April 1, 2021, the Company 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”), representing 57.16% 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.

 

On May 6, 2021, 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, 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.

 

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.

 

17

 

 

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

 

As of May 31, 2022, the Company is in process of assessing the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, therefore the assets acquired, and liabilities assumed were provisionally recorded. The assessment is to be completed within a period of one year from the acquisition date, pursuant to the measurement period allowed under ASC 805. During the measurement period, the Company is to retrospectively adjust the provisional amounts recognized at the acquisition date, and recognize additional assets or liabilities, if it obtains new information about facts and circumstances that existed as of the acquisition date.

 

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 that a Co-CEO of the Company is a shareholder of
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 three months ended May 31, 2022:

 

Payment of marketing expense:    
Immediate Family Member  $57,600 
Payment of consulting expense:     
Immediate Family Member  $110,000 
Payment of salary expense:     
Immediate Family Member  $32,160 
Payment of contract cost :     
HotNow (Thailand) Company Limited  $85,440 
General and admin expense:     
HotNow (Thailand) Company Limited  $32,553 
Interest expense of loan from:     
Magnolia Quality Development Corporation Limited  $10,078 
Tree Roots Entertainment Group Company Limited  $7,278 

 

The Company had the following related party balances as of May 31, 2022 and February 28, 2022:

 

   Nature  May 31,
2022
   February 28,
2022
 
Amounts due from related parties:           
HotNow (Thailand) Company Limited  Other receivable   100,000    155,425 
Total      100,000    155,425 
              
Amounts due to related parties:             
Magnolia Quality Development Corporation Limited  Accrued interest expense   6,619    3,169 
Tree Roots Entertainment Group  Accrued interest expense   35,191    32,700 
HotNow (Thailand) Company Limited  Accrued expense   1,105    393 
Axion Interactive Inc.  Other payable   1,770    1,770 
Red Anchor Trading Corporation  Account payable   
    395,782 
Total     $44,685    433,814 
              
Notes payable:             
Magnolia Quality Development Corporation Limited      440,038    459,024 
Tree Roots Entertainment Group      293,358    306,016 
Immediate Family Member      
    966,314 
Total      733,396    1,731,354 

 

18

 

 

The comparative figure for the three months ended May 31, 2021 represents significant related party transactions of HotPlay Enterprise Ltd., as follows:

 

Payment for convertible notes receivable to:    
NextPlay Technologies, Inc  $12,000,000 
Cash receipt for convertible Notes Payable from:     
Tree Roots Entertainment Group Co., Ltd  $12,000,000 
NextPlay Technologies, Inc  $2,000,000 
Advance payment for asset acquisition to:     
HotNow (Thailand) Company Limited  $149,533 
Repayment of Short-term Loan:     
Tree Roots Entertainment Group Company Limited  $223,937 
Interest expense of loan from:     
Magnolia Quality Development Corporation Limited  $10,886 
Tree Roots Entertainment Group Co., Ltd  $43,716 
Rental expense:     
Tree Roots Entertainment Group Co., Ltd  $27,449 
Payment of loan interest:     
Magnolia Quality Development Corporation Limited  $10,531 
Tree Roots Entertainment Group Co., Ltd  $12,755 
Payment of contract cost:     
HotNow (Thailand) Company Limited  $489,147 

 

Significant agreements with related parties

 

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 $6,619 as of May 31, 2022.

 

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 $4,780 as of May 31, 2022. 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 Q3 FY2023 As of May 31, 2022, the outstanding balance was $705,000.

  

Significant agreements with management of the Company

 

On August 19, 2021, the Company entered into 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 Token IQ of 1,250,000 restricted shares of Company common stock (valued at $4 per share of common stock).

 

19

 

 

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.

 

On May 2, 2022, the Company completed such assets acquisitions from Fighter Base and Token IQ, and pursuant to the terms of the respective IPP Agreements, the Company issued shares of its common stock as consideration for the purchase from Fighter Base and Token IQ in the amount of 1,666,6667 and 1,250,000 shares, respectively. The Company recorded at fair value of the common stock issued on May 2, 2022, at a closing price $0.415 per share, as intangible asset under development, as of the recognition date and as of May 31, 2022 the balance amounted to $1,210,417.

 

Note 6 – Investments in Unconsolidated Affiliates

 

We assess the potential impairment of our 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.

 

20

 

 

As of May 31, 2022, 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 May 31, 2022 and the recoverable amount was $937,117.

 

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. The balance as of May 31, 2022 was in amount $1,000,000.

 

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 May 31, 2022, no development and activity has been started. Soma is anticipated to continue the project with NextTrip after completion of the sale thereof to TGS.

  

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 May 31, 2022, 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 as other expense in statement of income as of May 31, 2022.

 

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.

 

21

 

 

During the year ended February 28, 2022, 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 year ended February 28, 2022.

 

The Company owned 3,461 shares of Recruiter’s common stock as of May 31, 2022. As of May 31, 2022, each share of Recruiter’s common stock was valued at $1.21 per share, which changed the fair value of the 3,461 shares of Recruiter common stock to $4,188.

 

The net change in the fair value is recognized as other expense in statement of income as of May 31, 2022.

 

Acquisition of Axion Shares

 

The investment in affiliate at cost of $4,856,825 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 May 31, 2022, the outstanding amount of this investment as of May 31, 2022 was $4,415; there was no change in market price during the three-month period ended May 31, 2022.

 

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 May 31, 2022, these warrants are no longer outstanding.

 

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

 

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 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 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.

 

22

 

 

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 May 31, 2022, these warrants are no longer outstanding.

 

On August 20, 2021, our counsel sent a demand letter for payment to Axion Ventures Inc., but the Company has not received a 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.

 

In November 2021, the Company commenced a new claim for the debt claimed to reflect the difference between what was owed and what the Company is claiming to avoid double-claiming.

 

In February 2022, the court was receptive to loans related evidence (e.g. loan agreements, bank statements, board resolutions, etc.), and determined that it will be further resolved together with other Axion issues in the next trial. The summary trial judge has advised that he wishes to take case management over this and several related proceedings. It is anticipated that the trial of this action would be reset for 12 weeks sometime in 2023 or early 2024, a new trial date has not been determined. Document and oral discovery are ongoing, which will be necessary for the parties to make full disclosure on all issues. During fiscal year 2022, the Company recorded an allowance for credit losses for the principal amounted to $3.1 million and for the accrued interest receivable amounted to $0.2 million.

 

As of May 31, 2022, the recoverable amount of Axion receivables net allowance for credit loss were $4.6 million.

 

Note 8 – Intangible Assets

 

The following table sets forth the intangible assets, both acquired and developed, including accumulated amortization as of May 31, 2022:

 

   Useful Life  Cost    Impairment   Accumulated Amortization   Net Carrying Value 
Software development costs  3.0 - 5.0 years  $575,133    200,000   $2,180   $372,953 
Trademark & License  1.0 - 20.0 years   5,696,166    
    1,186,761    4,509,405 
CIP – Software development      10,991,804    
    
    10,991,804 
      $17,263,103    200,000   $1,188,941   $15,874,162 

 

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 $0.1 million and $0.5 million for the three-month periods ended May 31, 2022 and 2021, respectively.

 

23

 

 

Based on the carrying value of definite-lived intangible assets as of May 31, 2022, we estimate our amortization expense for the next five years will be as follows:

 

As of May 31, 2022   Amortization
Expense
 
2023   $1,178,826 
2024    1,632,045 
2025    1,538,160 
2026    533,326 
2027    
 
    $4,882,358 

 

CIP – Software under development acquired from Go Game

 

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.

 

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).

 

On March 30, 2022, the Company, Go Game and the Seller entered into an asset purchase agreement (the “Asset Purchase Agreement”) which amends and restates in its entirety the Go Game SPA disclosed previously whereby Go Game agreed to sell and assign to the Company, and the Company agreed to purchase and assume from Go Game substantially all the assets and certain liabilities (but only to the extent such liabilities arise solely from activities or events that occur after the closing date) related to the goPlay platform (the “Go Game Assets”), together with a perpetual license to the goPay payment gateway (the “goPay License”).

 

24

 

 

As consideration for purchase of the Go Game Assets and the receipt of the goPay License, the Company agreed to pay $5,000,000 (the “Purchase Price”) as follows:

 

  (i) A cash payment of $1,250,000, which was paid previously by the Company to Go Game/Seller following the execution of the Go Game SPA;

 

  (ii) A cash payment of $1,500,000 at closing by wire transfer of immediately available funds; and

 

  (iii) A cash payment of $2,250,000, which shall be payable monthly by the Company to Go Game with simple interest thereon at the rate of 12.0% per annum until March 31, 2023.

 

No stock consideration of Go Game or the Company is being exchanged, as was previously contemplated under the Go Game SPA.

 

In the event the Company defaults on its monthly cash payment obligations under (iii) above, the Company agrees that the Seller shall be given the absolute right to demand for the return by way of assigning, transferring, and delivering to Seller all of Purchaser’s right, title, ownership and interest in certain games and source code for goPay (without taking away the perpetual licensing right).

 

For a period of six months following the closing, Go Game will provide transitional assistance to the Company to integrate the goPlay platform and associated game titles, together with the goPay payment gateway, at no additional charge.

 

The goPay License allows the Company to exploit the goPay payment gateway to enhance the products and service offerings of the Company. The goPay License does not allow the Company to exploit and sublicense the goPay technology as a stand-alone product.

 

Prior to the Closing (as defined below), Go Game was engaged in discussions with potential customers of the goPlay platform. At the Closing, the Company and Go Game entered into a revenue share agreement (the “Revenue Share Agreement”), pursuant to which Go Game shall refer such potential customers and any other potential customers to the Company, in exchange for a right to receive fifty percent (50%) of net revenues attributable to such sales.

 

In addition, the Company and the Seller entered into a restrictive covenant agreement (the “Restrictive Covenant Agreement”), whereby Seller will agree to refrain from competing with the Company and soliciting the Company’s employees at the time of the closing and for a period of time thereafter in order to protect the Company’s legitimate business interests and goodwill in connection with the Asset Purchase Agreement.

 

The consummation of the transactions contemplated by the Asset Purchase Agreement (the “Closing”) occurred on April 4, 2022, following the execution of the Asset Purchase Agreement on March 30, 2022. The acquired asset had a balance, as of May 31, 2022, in the amount $5,000,000 presented as intangible asset under development as it needed further development to align with its business use and purpose. The consideration paid as of May 21, 2022 amounted to $2,950,000.

 

25

 

 

CIP – Software under development acquired from Fighter Base and Token IQ

 

On August 19, 2021, the Company entered into the IPP Agreements with Fighter Base and Token IQ Inc., dated as of the same date. 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.  

 

On May 2, 2022, the Company completed such assets acquisition from Fighter Base and Token IQ, and pursuant to the terms of the respective IPP Agreements, the Company issued shares of its common stock as consideration for the purchase from Fighter Base and Token IQ in the amount of 1,666,6667 and 1,250,000 shares, respectively. The Company recorded at fair value of the common stock issued on May 2, 2022, at a closing price $0.415 per share. As of the recognition date and as of May 31, 2022, the total balance amounted to $1,210,417, presented as intangible asset under development as it needed further development to align with its business use and purpose.

 

Note 9 – Notes Payable

 

Description  As of
May 31,
2022
   As of
February 28,
2022
 
Streeterville Capital, LLC  $4,517,639   $4,053,736 
Business Brokers, LLC   678,750    725,000 
Total   5,196,389    4,778,736 
Less: Debt issuance cost   (356,250)   (315,265)
Line of Credit and Notes Payable, net   4,840,139    4,463,471 
Less: Current portion of Line of Credit and Notes Payable   (4,840,139)   (4,463,471)
Line of Credit and Notes Payable Long Term, net  $
   $
 

 

Note Purchase Agreements: Streeterville Capital

 

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.

 

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”).

 

26

 

 

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.

 

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.

 

27

 

 

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 30, 2021, and the remaining $506,085 of the April 2021 Note Increase would only be added to the balance of the November 2020 Streeterville Note if the Company failed to meet the November 2020 Transaction Conditions by June 30, 2021. Separately, if the Company did not meet the March 2021 Note Transaction Conditions by June 30, 2021, the March 2021 Streeterville Note would be subject to the June 2021 Note Increase. The Company completed the acquisition of HotPlay effective as of June 30, 2021, and as such the November 2020 Transaction Conditions and the March 2021 Note Transaction Conditions were satisfied.

 

On June 22, 2021, the Company entered into an Exchange Agreement with Streeterville, pursuant to which Streeterville exchanged $600,000 of a June 2021 requested redemption of $1.25 million under the November 2020 Streeterville Note (which amount was partitioned into a separate promissory note) for 300,000 shares of the Company’s common stock.

 

On July 21, 2021, the Company entered into an Exchange Agreement with Streeterville, whereby Streeterville exchanged $400,000 owed under a November 2020 promissory note (which amount was partitioned into a separate promissory note) for 200,000 shares of the Company’s common stock.

 

On September 1, 2021, the Company entered into an Exchange Agreement with Streeterville, whereby Streeterville exchanged $270,000 owed under a November 2020 promissory note (which amount was partitioned into a separate promissory note) for 135,000 shares of the Company’s common stock.

 

On October 22, 2021, the Company entered into the Note Purchase Agreement (the “October 2021 Note Purchase Agreement”) with Streeterville, pursuant to which the Company sold Streeterville a Secured Promissory Note in the original principal amount of $1,665,000 (the “October 2021 Streeterville Note”). Streeterville paid consideration of $1,500,000, which represents the original principal amount less a $150,000 original issue discount, which was fully earned upon issuance, and a total of $15,000 to cover Streeterville’s professional fees and transaction expenses.

 

28

 

 

The October 2021 Streeterville Note bears interest at a rate of 10% per annum and matures 12 months after its issuance date (i.e., on October 22, 2022). From time to time, beginning six months after issuance, Streeterville may redeem any portion of the October 2021 Streeterville Note, up to a maximum amount of $375,000 per month. In the event the Company fails to 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 October 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 October 2021 Streeterville Note is increased by 2%. Subject to the terms and conditions set forth in the October 2021 Streeterville Note, the Company may prepay all or any portion of the outstanding balance of the October 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 October 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 within ten days of receiving such amount, which payments will be applied towards and will reduce the outstanding balance of the October 2021 Streeterville Note, which percentage increases to 30% upon the occurrence of, and continuance of, an event of default under the October 2021 Streeterville Note (each an “Equity Payment”). Each time that the Company fails to pay an Equity Payment, the outstanding balance of the October 2021 Streeterville Note automatically increases by 10%. Additionally, in the event the Company fails to timely pay any such Equity Payment, Streeterville may seek an injunction which would prevent the Company from issuing common or preferred stock until or unless the Company paid all past-due Equity Payments.

 

The October 2021 Streeterville Note provides that by November 21, 2021 (the “Deadline”), HotPlay must become a co-borrower on (a) the October 2021 Streeterville Note, (b) the November 2020 Streeterville Note, and (c) and the March 2021 Streeterville Note (collectively, the “2020-2021 Streeterville Notes”). If HotPlay has not become a co-borrower on the 2020-2021 Streeterville Notes by the Deadline, the outstanding balance on the October 2021 Streeterville Note automatically increases by an amount equal to 25% of the then-current outstanding balance, provided such failure is not deemed an event of default under the October 2021 Streeterville Note.

 

Pursuant to the October 2021 Streeterville Note, the Company provided Streeterville a right of first refusal to purchase any promissory note, debenture, or other debt instruments which the Company proposes to sell, other than sales to officers or directors of the Company and/or sales to the government. Each time, if ever, that the Company provides Streeterville such right, and Streeterville does not exercise such right to provide such funding, the outstanding balance of the October 2021 Streeterville Note increases by 3%, unless the proceeds from such sale(s) are used to repay the October 2021 Streeterville Note in full. Each time, if ever, that the Company fails to comply with the terms of the right of first refusal, the outstanding balance of the October 2021 Streeterville Note increases by 10%. Additionally, upon each major default described in the October 2021 Streeterville Note (i.e., the failure to pay amounts under the October 2021 Streeterville Note when due or to observe any covenant under the Note Purchase Agreement (other than the requirement to make Equity Payments)), the outstanding balance of the October 2021 Streeterville Note may be increased, at Streeterville’s option, by 15%, and for each other default, the outstanding balance of the October 2021 Streeterville Note may be increased, at Streeterville’s option, by 5%, provided such increase can only occur three times each as to major defaults and minor defaults, and that such aggregate increase cannot exceed 30% of the balance of the October 2021 Streeterville Note immediately prior to the first event of default.

 

The October 2021 Note Purchase Agreement and the October 2021 Streeterville Note contain customary events of default, including if the Company undertakes a fundamental transaction (including consolidations, mergers, and certain changes in control of the Company), without Streeterville’s prior written consent. As described in the October 2021 Streeterville Note, upon the occurrence of certain events of default (mainly our entry into bankruptcy), the outstanding balance of the October 2021 Streeterville Note will become automatically due and payable. Upon the occurrence of other events of default, Streeterville may declare the outstanding balance of the October 2021 Streeterville Note immediately due and payable at such time or at any time thereafter. After the occurrence of an event of default (and upon written notice from Streeterville), interest on the October 2021 Streeterville Note will accrue at a rate of 22% per annum, or if lesser, the maximum rate permitted under applicable law. The October 2021 Note Purchase Agreement prohibits Streeterville from shorting our stock through the period that Streeterville holds the October 2021 Streeterville Note.

 

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On November 3, 2021, the Company closed a registered direct offering of its securities, resulting in gross proceeds to the Company of approximately $30 million. This offering triggered the provisions of the 2020-2021 Streeterville Notes requiring the Company 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 within ten days of receiving such amount, which payments must be applied towards and reduce the outstanding balance of each of the outstanding Streeterville Notes; however, the condition to pay 20% of the gross proceeds from the sale of any stock were negotiated with the lender and waived for the October 2021 Streeterville Note in November 2021.

 

On November 4, 2021, the Company completely paid off the November 2020 Streeterville Note in the amount of $3,100,807 and paid down the outstanding balance of the March 2021 Streeterville Note in the amount of $6,000,000.

 

On March 23, 2022, the Company completely paid off the March 2021 Streeterville Note, outstanding balance in the amount of $3,002,142.

 

On April 29, 2022, the Company entered into the Standstill Agreement with Streeterville, pursuant to which, Streeterville agreed not to seek to redeem any portion of the October 2021 Streeterville Note (in the original principal amount of $1,665,000) until September 18, 2022. As consideration for such agreement, the outstanding balance of the October 2021 Note was increased by $87,639.33 (the “Standstill Fee”); as a result, the outstanding balance of the October 2021 Note as of April 29, 2022 was $1,840,912.84 (including outstanding interest).

 

On May 5, 2022, the Company entered into a Note Purchase Agreement (the “May 2022 Note Purchase Agreement”) with Streeterville, pursuant to which the Company sold Streeterville a Secured Promissory Note in the original principal amount of $2,765,000 (the “May 2022 Streeterville Note”). Streeterville paid consideration of $2,500,000, which represents the original principal amount less a $250,000 OID, which was fully earned upon issuance, and a total of $15,000 to cover Streeterville’s professional fees and transaction expenses.

 

The May 2022 Streeterville Note bears interest at a rate of 10% per annum and matures 12 months after its issuance date (i.e., on May 5, 2023). From time to time, beginning six months after issuance, Streeterville may redeem any portion of the May 2022 Streeterville Note, up to a maximum amount of $625,000 per month. In the event the Company fails to 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 May 2022 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 May 2022 Streeterville Note is increased by 2%.

 

Subject to the terms and conditions set forth in the May 2022 Streeterville Note, the Company may prepay all or any portion of the outstanding balance of the May 2022 Streeterville Note on or before the date that is 6 months from the Effective Date subject to a prepayment penalty equal to 5% of the amount of the outstanding balance, and after 6 months from the Effective Date will be subject to 10%. For so long as the May 2022 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 within ten days of receiving such amount, which payments will be applied towards and will reduce the outstanding balance of the May 2022 Streeterville Note. Each time that the Company fails to pay an Equity Payment, the outstanding balance of the May 2022 Streeterville Note automatically increases by 10%. Additionally, in the event the Company fails to timely pay any such Equity Payment, Streeterville may seek an injunction which would prevent the Company from issuing common or preferred stock until or unless the Company paid all past-due Equity Payments.

 

Additionally, upon each major default described in the May 2022 Streeterville Note (including, without limitation, the failure to pay amounts under the May 2022 Streeterville Note when due or to observe any covenant under the May 2022 Note Purchase Agreement (other than the requirement to make Equity Payments)), the outstanding balance of the May 2022 Streeterville Note may be increased, at Streeterville’s option, by 15%, and for each other default, the outstanding balance of the May 2022 Streeterville Note may be increased, at Streeterville’s option, by 5%, provided such increase can only occur three times each as to major defaults and minor defaults, and that such aggregate increase cannot exceed 30% of the balance of the May 2022 Streeterville Note immediately prior to the first event of default.

 

The May 2022 Note Purchase Agreement and the May 2022 Streeterville Note contain customary events of default, including if the Company undertakes a fundamental transaction (including consolidations, mergers, and certain changes in control of the Company), without Streeterville’s prior written consent. Pursuant to the May 2022 Streeterville Note, upon the occurrence of certain events of default (mainly our entry into bankruptcy), the outstanding balance of the May 2022 Streeterville Note will become automatically due and payable. Upon the occurrence of other events of default, Streeterville may declare the outstanding balance of the May 2022 Streeterville Note immediately due and payable at such time or at any time thereafter. After the occurrence of an event of default (and upon written notice from Streeterville), interest on the May 2022 Streeterville Note will accrue at a rate of 22% per annum, or if lesser, the maximum rate permitted under applicable law. The May 2022 Note Purchase Agreement prohibits Streeterville from shorting our stock through the period that Streeterville holds the May 2022 Streeterville Note.

 

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The May 2022 Note Purchase Agreement also provides for cross-indemnification by the parties in the event that they incur loss or damage related to, among other things, a breach of applicable representations, warranties, or covenants under the May 2022 Note Purchase Agreement.

 

In connection with the May 2022 Note Purchase Agreement and the May 2022 Streeterville Note, the Company entered into a Security Agreement with Streeterville, pursuant to which the obligations of the Company are secured by substantially all of the assets of the Company.

 

On June 2, 2022, the Company entered into a Global Amendment to satisfy the requirement that HotPlay become a co-borrower on the October 2021 Streeterville Note and the May 2022 Streeterville Note and jointly and severally assume all of the obligations and duties of the Company under those notes. As a result, all references to “Borrower” or the “Company” in such notes now jointly refer to HotPlay and NextPlay. Streeterville also agreed to waive its right to enforce an increase in the balance of the October 2021 Streeterville Note due to the Company’s failure to add HotPlay as a co-borrower on the October 2021 Streeterville Note within the prescribed period of time to do so. The Global Amendment does not alter any other terms of the notes.

 

As of May 31, 2022, the remaining balances of the outstanding Streeterville notes were as follows:

 

i)The October 2021 Note: principal balance of $1,752,639, accrued interest of $104,708 and accumulated unamortized debt issuance cost of $106,250.
   
ii)The May 2022 Note: principal balance of $2,765,000, accrued interest of 124,747 and accumulated unamortized debt issuance cost of $250,000.

 

Loan agreement with Business Brokers, LLC

 

Effective November 1, 2021, a subsidiary of the Company obtained a credit facility of $ 0.725 million from Business Brokers, LLC to which it engages regularly in the issuance of construction and commercial loans. The facility is guaranteed by notes receivable.  The facility carries a blended interest of 14.05% per annum and is repayable upon the collection of the notes that guarantees it, or the Company decision to repay it in full, whichever comes first, with interest only monthly payments requirement. As of May 31, 2022, the loans had outstanding balance of $0.682 million.

 

Note 10 – Stockholders’ Equity

 

Preferred stock

 

The aggregate number of shares of preferred stock that the Company is authorized to issue is up to One Hundred Million (100,000,000), with a par value of $0.00001 per share (the “Preferred Stock”), with the exception of Series A Preferred Stock shares having a par value of $0.01 per share. The Preferred Stock may be divided into and issued in one or more series. The board of directors of the Company is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. The board of directors of the Company is authorized, within any limitations prescribed by law and the articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of Preferred Stock.

 

Series A Preferred Stock

 

The Company has authorized and designated 3,000,000 shares of Preferred Stock as Series A 10% Cumulative Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”). The holders of record of shares of Series A Preferred Stock shall be entitled to vote on all matters submitted to a vote of the shareholders of the Company and shall be entitled to one hundred (100) votes for each share of Series A Preferred Stock.

 

Dividends in arrears on the previously outstanding Series A Preferred Stock shares totaled $0 and $1,102,068 as of May 31, 2022 and February 28, 2022, respectively. These dividends were paid in April 2022.

 

The Company had 0 shares of Series A Preferred Stock issued and outstanding as of May 31, 2022 and February 28, 2022.

 

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Series B Preferred Stock

 

The Company has authorized and designated 10,000,000 shares of Preferred Stock as Series B Convertible Preferred Stock, which shares were issued to certain Axion stockholders in exchange for their ordinary shares of Axion equal to approximately 33.85% of the outstanding common shares of Axion pursuant to the Axion Exchange Agreement (see “Note 6 – Investment in Unconsolidated Affiliates”). Each share of Series B Preferred Stock automatically, and without any required action by any holder, converted into 0.74177 shares of Company common stock upon the closing of the HotPlay Share Exchange on June 30, 2021.

 

As of May 31, 2022 and February 28, 2022, the Company had 0 shares of Series B Preferred Stock issued and outstanding.

 

Series C Preferred Stock

 

The Company has authorized and designated 3,828,500 shares of Preferred Stock as Series C Convertible Preferred Stock. The Series C Preferred Stock was issued to certain debt holders of Axion who are party to the Axion Share Exchange Agreement and who agreed to exchange certain debt owed to such debt holders by Axion for shares of Series C Preferred Stock pursuant to the Share Exchange Agreement. Each share of Series C Preferred Stock automatically, and without any required action by any holder, converted into one share of the Company’s common stock, upon the closing of the HotPlay Share Exchange on June 30, 2021.

 

As of May 31, 2022 and February 28, 2022, the Company had 0 shares of Series C Preferred Stock issued and outstanding.

 

Series D Preferred Stock

 

On July 21, 2021, the Company designated Series D Convertible Preferred Stock (“Series D Preferred Stock”), by filing a Certificate of Designation of such Series D Preferred Stock with the Secretary of State of Nevada (the “Series D Designation”). The Series D Designation, which was approved by the board of directors of the Company on July 15, 2021, designated 6,100,000 shares of Series D Preferred Stock, $0.00001 par value per share. The Series D Designation provides that the Series D Preferred Stock has a liquidation preference which is (a) pari passu with respect to the Company’s common stock; and (b) junior to all current and future senior indebtedness and securities of the Company. If the Company determines to liquidate, dissolve or wind-up its business and affairs, the Company will prior to or concurrently with the closing, effectuation or occurrence of any such action, pay the holders of the Series D Preferred Stock, pari passu with the holders of the common stock, an amount equal to the Liquidation Preference per share of Series D Preferred Stock. The “Liquidation Preference” per share of the Series D Preferred Stock is equal to $1.00 per share, or $6,100,000 in aggregate. Each share of Series D Preferred Stock is automatically convertible on the fifth business day after the date that the shareholders of the Company, as required pursuant to applicable rules and regulations of NASDAQ, has approved the issuance of the shares of common stock upon conversion of the Series D Preferred Stock, and such other matters as may be required by NASDAQ or SEC rules and requirements to allow the conversion of the Series D Preferred Stock, into that number of shares of common stock as equal the Conversion Rate multiplied by the then outstanding shares of Series D Preferred Stock. For the purposes of the following sentence: “Conversion Rate” equals 0.44 shares of Company common stock for each share of Series D Preferred Stock converted, which equals (i) the Liquidation Preference ($1.00 per share of Series D Preferred Stock), divided by (ii) $2.28, the average of the closing sales prices for the Company’s common stock on the Nasdaq Capital Market for the 30 days prior to July 15, 2021, rounded to the nearest hundredths place, subject to equitable adjustment for stock splits and combinations.

 

The Company had 0 shares of Series D Preferred Stock outstanding as of May 31, 2022 and February 28, 2022.

 

Common Stock

   

During the three-months ended May 31, 2022, the following shares of common stock were issued:

 

  - 209,394 shares of common stock for employee compensation, valued at $126,640.
     
  - 250,000 shares of common stock for consulting services, valued at $ 306,001.
     
  - 2,916,667 shares of common stock for assets purchased, valued at $1,210,417.

 

The Company had 111,736,081 and 108,360,020 shares of common stock issued and outstanding at May 31, 2022 and February 28, 2022, respectively.

 

Changes in ownership interests in subsidiaries without change in control

 

On March 14, 2022, HotPlay (Thailand) Co., Ltd. (“HPT”) received a promotional privileges approval from the Board of Investment, which permitted majority foreign ownership, and on April 26, 2022, HotPlay Enterprise Ltd. (“HPE”) completed the transfer of shares from existing Thai shareholders without paying consideration in accordance with the HotPlay Exchange Agreement and ultimately owns 100% interest in HPT. Upon the change in ownership interest in its subsidiary, the Company has recognized deficit from changing ownership interest in subsidiaries amounting to $1.6 million in its Consolidated Statements of Stockholders’ Equity, presented as deduction in additional paid-in capital. Subsequently, on May 26, 2022, HPT received foreign business license to operate the reserved business in Thailand.

 

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Common Stock Warrants

 

The following table sets forth common stock purchase warrants outstanding as of May 31, 2022, and February 28, 2022, and changes in such warrants outstanding for the quarter ending May 31, 2022:

 

   Warrants   Weighted
Average
Exercise
Price
 
         
Outstanding, February 28, 2022   14,811,679   $2.05 
Outstanding, May 31, 2022   14,811,679   $2.05 
Common stock issuable upon exercise of warrants   14,811,679   $2.05 
Warrant granted/exercised/forfeited/expired   
    
 

 

On January 28, 2022, the Company held a Special Meeting of Stockholders (the “Special Meeting”) in a virtual format. Stockholders did not approve an amendment to the exercise price provisions of those warrants (the “Warrants”) issued in connection with a registered direct offering of the Company’s securities pursuant to that Stock Purchase Agreement entered into by and among the Company and certain investors on November 1, 2021, and specifically to remove the $1.97 floor price (the “Floor Price”) of the Warrants such that the exercise price of the Warrants may be reduced below the Floor Price in the event that the Company issues or enters into any agreement to issue securities for consideration less than the then current exercise price of the warrants (the “Warrant Amendment”).

 

On April 22, 2022, the Company held its 2022 Annual Meeting of Stockholders (the “Annual Meeting”) in a virtual format, at which Annual Meeting the Warrant Amendment was again presented to the Company’s stockholders for approval, amongst other things. Stockholders did not approve the Warrant Amendment at the Annual Meeting.

 

The Company intends to continue to comply with the requirements related to stockholder approval of the Warrant Amendment, as set forth in the relevant transaction documents.

 

On May 31, 2022, there were warrants outstanding to purchase an aggregate of 14,811,679 shares of common stock with a weighted average exercise price of $2.05 and weighted average remaining life of 0.64 year.

 

As discussed above, on November 1, 2021, the Company issued Warrants to purchase an aggregate of 14,240,508 shares of Company common stock in connection with the Offering. Each whole Warrant sold in the Offering will be exercisable for one share of common stock at an initial exercise price of $1.97 per share (the “Initial Exercise Price”), the closing sales price of the Company’s common stock on October 29, 2021 (the last trading day prior to the date that the Purchase Agreement was entered into). The Warrants may be exercised commencing six months after the issuance date (the “Initial Exercise Date”) and terminating on the fifth anniversary of the Initial Exercise Date. The Warrants are exercisable for cash; provided, however that they may be exercised on a cashless exercise basis if, at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance or resale of the shares of Common Stock issuable upon exercise of the Warrants. The exercise of the Warrants will be subject to a beneficial ownership limitation, which will prohibit the exercise thereof, if upon such exercise the holder of the Warrants, its affiliates and any other persons or entities acting as a group together with the holder or any of the holder’s affiliates would hold 4.99% (or, upon election of a purchaser prior to the issuance of any shares, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of the Warrant held by the applicable holder, provided that the holders may increase or decrease the beneficial ownership limitation (up to a maximum of 9.99%) upon 61 days advance notice to the Company, which 61 day period cannot be waived.

 

The Warrants also include certain anti-dilution rights, which provide that if at any time the Warrants are outstanding, the Company issues or enters into any agreement to issue, or is deemed to have issued or entered into an agreement to issue (which includes the issuance of securities convertible or exercisable for shares of Common Stock), securities for consideration less than the then current exercise price of the Warrants, the exercise price of such Warrants will be automatically reduced to the lowest price per share of consideration provided or deemed to have been provided for such securities; provided, however, that unless and until the Company has received stockholder approval to reduce the exercise price of the Warrants below $1.97 per share (the “Floor Price”), no such adjustment to the exercise price may be made. Pursuant to the Purchase Agreement, the Company has agreed to use its reasonable best efforts to obtain stockholder approval within 90 days from the date of the prospectus supplement to remove the Floor Price of the Warrants. In the event that such stockholder approval is not obtained within 90 days of the date of the prospectus supplement, the Company has agreed to hold a special meeting of its stockholders every three months thereafter, for so long as the Warrants remain outstanding, to obtain such stockholder approval.

 

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If the Company fails for any reason to deliver shares of Common Stock upon the valid exercise of the Warrants, subject to its receipt of a valid exercise notice and the aggregate exercise price, by the time period set forth in the Warrants, the Company will be required to pay the applicable holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of shares subject to such exercise (as calculated in the Warrant), $10 per trading day (increasing to $20 per trading day on the third trading day after such liquidated damages begin to accrue) for each trading day that such shares are not delivered. The Warrants also include customary buy-in rights in the event the Company fails to deliver shares of Common Stock upon exercise thereof within the time periods set forth in the Warrant.

 

As of May 31, 2022, none of the Warrants have been exercised by the holders thereof.

 

Note 11 – Commitments and Contingencies

 

The Company entered into an office lease in Sunrise, Florida where we leased approximately 5,279 square feet of office space at 1560 Sawgrass Corporate Parkway, Suite 130, Sunrise, Florida 33323. In accordance with the terms of the office space lease agreement, the Company will be renting the commercial office space, for a term of almost eight years from March 1, 2021, through July 31, 2028. Additionally, the Group rents office space located in Puerto Rico and Thailand with lease terms ranging from five to nine years.

 

The following schedule represents obligations and commitments on the part of the Company:

 

   Current   Long Term     
   FYE 2023   FYE 2024   Totals 
Office Leases  $383,759   $1,574,961   $1,958,720 
Insurance and Other   138,121    7,200    145,321 
Totals  $521,880   $1,582,161   $2,104,041 

 

Legal Matters 

 

The Company is involved, from time to time, in litigation, other legal claims and proceedings involving matters associated with or incidental to our business, including, among other things, matters involving breach of contract claims, intellectual property, employment issues, and other related claims and vendor matters. The Company believes that the resolution of currently pending matters could individually or in the aggregate, have a material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal claims could change considering the discovery of facts not presently known to the Company or by judges, juries or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.

 

IDS Settlement

 

On August 15, 2019, the Company entered into an Intellectual Property Purchase Agreement with IDS Inc. (“IDS” and the “IP Purchase Agreement”). Pursuant to the agreement, the Company purchased certain proprietary technology from IDS for the reservation and booking of air travel, hotel accommodations, car rentals, and ancillary products, services, and amenities, integration of the same with the providers of such products and services, associated functions, including website addresses, patents, trademarks, copyrights and trade secrets relating thereto, and all goodwill associated therewith (collectively, the “IP Assets”). In consideration for the purchase, the Company issued IDS 1,968,000 restricted shares of Company common stock (the “IDS Shares”) valued at $2.50 per share, or $4,920,000 in the aggregate.

 

On April 27, 2020, the Company filed a verified complaint for injunctive relief against IDS and TD Assets Holding, LLC (“TD Asset”), Navarro McKown, Aaron McKown and Ari Daniels, which parties are affiliated with IDS, in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida (Case No. CACE-20-007088). Pursuant to the complaint, the Company alleged causes of action against the defendants, including IDS, based on among other things, fraud, conspiracy to commit fraud, aiding and abetting fraud, rescission, and breach of contract, and sought a temporary and permanent injunction against the defendants, requiring such persons to return the 1,968,000 IDS Shares issued pursuant to the terms of the IP Purchase Agreement and preventing such persons from selling or transferring any IDS Shares, sought damages from the defendants, rescission of the IP Purchase Agreement, attorneys fees and other amounts. The defendants subsequently filed various counterclaims against the Company.

 

On April 29, 2020, the Company filed a Verified Motion for Temporary Injunction (the “Injunction Motion”). Defendants IDS, TD Assets, and Ari Daniels filed an answer, affirmative defenses, and counterclaims (the “Answer and Counterclaim”). The Answer and Counterclaim included alleged breach of contract and tort claims against the Company. On September 17, 2020, the Company moved to strike the affirmative defenses and dismiss the counterclaims. On October 15, 2020, defendants IDS, TD Assets, and Ari Daniels filed an amended Answer and Counterclaim, including alleged breach of contract, tort, and federal securities claims against the Company, Mr. William Kerby, our Co-Chief Executive Officer and an employee of the Company.

 

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On July 27, 2020, the Company entered into a confidential settlement agreement with certain of the defendants in the IDS matter, Navarro Hernandez, P.L., Aaron M. McKown, and Jeffery S. Bailey. The settlement provided for mutual releases of the parties and amounts payable from such parties to the Company in four tranches, in consideration for such settlement, of which all such payments have been timely paid pursuant to the terms of the settlement.

 

The remaining parties to the litigation subsequently attempted to mediate their claims pursuant to a court ordered mediation in February 2021.

 

Effective on May 18, 2021, the Company, IDS, TD Asset and Ari Daniels, the principal of IDS, entered into an Amendment to Intellectual Property Purchase Agreement (the “IP Purchase Amendment”). Pursuant to the IP Purchase Agreement, the parties amended the IP Purchase Agreement, with the Company agreeing to make a payment to IDS in the amount of $2,850,000 (the “Payment”), payable by way of an initial payment of $500,000, and twelve monthly payments of approximately $195,833 (collectively, the “Required Payments”), with such monthly payments beginning 30 days after the initial payment, which is due seven days after the date of the IP Purchase Amendment. Such monthly payments may be pre-paid at any time without penalty. At the Company’s option, any portion of the amount due may be paid to IDS by a party separate from the Company (either a related party of the Company or a third-party) (a “Paying Party”), for the benefit of the Company, which shall be treated for all purposes as a payment by the Company. As consideration for such Paying Party making such payment on behalf of the Company, IDS agreed to transfer the Paying Party a number of the IDS Shares equal to the amount of the cash payment(s) made by a Paying Party multiplied by 0.6888 as to the first $500,000 payment, and 0.691 as to the monthly payments (as applicable, the “Applicable Portion” of the IDS Shares). Upon each payment of amounts due to IDS pursuant to the terms of the IP Agreement Amendment as discussed above by the Company (instead of a Paying Party), IDS agreed to transfer the portion of the IDS Shares equal to the Applicable Portion, to the Company.

 

Pursuant to the IP Purchase Amendment, on May 19, 2021, the Company made the initial payment of $500,000. Thereafter, the first 344,400 shares of common stock repurchased by the Company were returned to treasury and cancelled.

 

On September 27, 2021, the Court entered the Agreed Order. The Court ordered that:

 

(i)the Company resume the monthly payment on or before September 28, 2021 (which payment has not been made due to failure of IDS to provide required documents);

 

(ii)$24,583.33 shall be paid monthly to one of IDS’s counsel and the balance of each payment shall be paid to the IDS Defendants;

 

(iii)$20,000 of the 12th monthly payments shall be withheld pending further order of the court; and

 

(iv)NextPlay (formerly Monaker) was awarded its fees and costs associated with the filing of the Motion.

 

As of May 31, 2022, IDS still has not provided any of the necessary documents in order make the stock transfers. The entire IDS Settlement, agreements, and amendment are part of the proposed sale of NextTrip, whereby upon closing of the proposed transaction, the IDS settlement will no longer be a responsibility of the Company; provided, however, that, if the Company fails to make certain required installment payments to NextTrip within five (5) business days of being due, such IDS payment obligations will revert back to the Company.

 

Litigation between Axion and NextPlay

 

On January 15, 2021, Axion filed a civil claim in the Supreme Court of British Columbia (Action No. S-209245), against J. Todd Bonner, Chairman of the Company’s board of directors, Nithinan Boonyawattanapisut, our Co-Chief Executive Officer and director, the Company, William Kerby, our Co-Chief Executive Officer, Cern One Limited, Red Anchor Trading Corp., CC Asia Pacific Ventures Ltd., HotPlay, HotPlay (Thailand) Ltd., Next Fintech Holdings, Inc. (formerly Longroot, Inc.). and certain other parties. The claim alleges that Mr. Bonner and his wife, Ms. Boonyawattanapisut, used their positions as directors and officers of Axion and certain of its subsidiaries, together with the other defendants, to unlawfully take ownership of Axion’s subsidiaries and assets, including its intellectual property. Axion’s claim includes causes of action for conspiracy and fraud; theft of Axion intellectual property and ownership of Longroot; an investor scheme; breaches of fiduciary duty by Mr. Bonner and Ms. Boonyawattanapisut and others; negligence; knowing assistance of breach of fiduciary duty; collective trust; knowing receipt of trust property; knowing assistance in dishonest conduct; unjust enrichment; and breach of honest performance. The claim seeks general and special damages for conspiracy, damages for breaches of fiduciary duties, accountings and repayments of amounts alleged improperly paid, including to the Company, interim, interlocutory and permanent injunctions, rescission of the issuance of shares of Longroot Cayman; restitution; the return of Axion’s intellectual property; and other accountings, damages, punitive damages, interest and special costs.

 

On April 9, 2021, the Company, on behalf of itself, Mr. Kerby and Next Fintech Holdings, Inc. (formerly Longroot, Inc.), filed a response to Axion’s claim whereby all such parties disputed Axion’s claims and argued all such transactions involving the Company, Mr. Kerby and Next Fintech which are the subject of Axion’s claims were legitimate and pleading various other defenses. The Company, Mr. Kerby and Next Fintech dispute Axion’s claims and continue to vigorously defend themselves against the allegations made.

 

35

 

 

The lawsuit states that J. Todd Bonner, Nithinan ‘Jess’ Boonyawattanapisut, Cern One Limited, and Red Anchor Trading Corp. made loans totaling USD $9,141,372 to the defendants at various times between March 2018 and June 2020. Mr. Bonner is the Co-Chairman of NextPlay, and a past CEO and Director of Axion. His wife, Ms. Boonyawattanapisut, is the Co-CEO of NextPlay. On or about July 21, 2020, the Company and the lenders entered into a share exchange agreement whereby the lenders transferred rights to repayment of USD $7,657,023 of the debt owed by defendants plus interest to the Company, in exchange for Company stock or warrants. On or about August 23, 2021, counsel for NextPlay demanded repayment of the debts owed by the defendants, and defendants have not paid any portion of the amounts due.

 

On September 1, 2021, the Company filed a lawsuit in the Supreme Court of British Columbia (Action No. S-217835) under the Canadian Foreign Money Claims Act (R.S.B.C. 1996, c. 155). The defendants are Axion; Axion Interactive Inc., a wholly-owned subsidiary of Axion; and Ying Pei Digital Technology (Shanghai) Company Ltd., a Chinese wholly-owned subsidiary of Axion. NextPlay owns approximately 33.85% of the outstanding shares of Axion.

 

The Company alleges debts that the defendants refuse to pay totaling USD $7,657,023, under various promissory notes and loan agreements acquired by the Company in July 2020. The Company also seeks interest on the past-due amounts and costs associated with collection.

 

In November 2021, the Company commenced a new claim for the debt claimed to reflect the difference between what was owed and what the Company is claiming to avoid double-claiming.

 

In February 2022, the court was receptive to loans related evidence (e.g. loan agreements, bank statements, board resolutions, etc.), and that it will be further resolved together with other Axion issues in the next trial. The summary trial judge has advised that he wishes to take case management over this and several related proceedings, It is anticipated that the trial of this action would be reset for 12 weeks sometime in 2023 or early 2024, a new trial date has not been determined. Document and oral discovery are ongoing, which will be necessary for the parties to make full disclosure on all issues.

 

As of May 31, 2022, there has been no significant update in the court proceedings.

 

Note 12 – Business 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.

 

36

 

 

As of May 31, 2022, the Company has two operating segments consisting of (i) the NextMedia Division, which consists of HotPlay, and (ii) the NextFinTech Division, which consists of Longroot and NextBank. 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. At the reporting date, only NextFinTech generated revenue from operation.

 

As described in Note 14 for the strategic sales of NextTrip and Reinhart/Zappware units, the business of NextTrip represented the entirety of the NextTrip operating segment and Reinhart Digital TV was a part of NextMedia operating segment prior to being classified as held for sale. As of May 31, 2022, they were classified as held for sale and therefore no longer presented in segment reporting.

 

Schedule of segments

 

For the three months ended May 31, 2022  NextFinTech   NextMedia   Totals 
Revenue  $466,551   $
   $466,551 
Cost of Revenue  $102,967   $
   $102,967 
Gross Profit  $363,584   $
   $363,584 
                
Operating expenses:               
General and administrative  $841,604   $141,206   $982,810 
Salaries and benefits   850,797    258,852    1,109,649 
Depreciation and Amortization   25,366    146,598    171,964 
Others   136,037    45,325    181,362 
Total operating expenses  $1,853,804   $591,981   $2,445,785 
                
Operating Loss  $(1,490,220)  $(591,981)  $(2,082,201)
                
                
Other Income/(Expense)  $35,228   $(10,100)  $25,128 
                
Net (loss) before tax – reportable segment  $(1,454,992)  $(602,081)  $(2,057,073)
                
Unallocated distribution and administrative expenses and finance cost:               
- General and administrative            $1,320,245 
- Salaries and benefits             319,795 
- Other operating expenses             784,233 
- Interest expense             145,385 
- Other income             (22,992)
             $2,546,667 
Net (loss) before tax from continuing operation            $(4,603,740)
                
Segment assets   49,744,076    19,838,787    69,582,863 
Unallocated assets             8,388,861 
Assets from discontinued operation             28,514,136 
Total asset             106,485,860 

 

For the three months ended May 31, 2021  HotPlay 
Revenue  $
  —
 
Cost of Revenue  $
 
Gross Profit  $
 

 

There were no reconciling or inter-company items between segments during the three-month period ended May 31, 2022.

 

There was only one segment for the three-month period ended May 31, 2021.

 

37

 

 

Schedule of geographic information

 

Revenue  For three
months
ended
May 31,
2022
  

For three
months
ended
May 31,
2021

 
United States and Puerto Rico  $466,551   $
 

 

 

Long-lived Assets

  May 31,
2022
   February 28,
2022
 
United States and Puerto Rico  $40,673,604   $44,128,496 
Europe   
    11,913,658 
Thailand   10,129,772    9,951,343 
   $50,803,376   $65,993,497 

 

Note 13 – Fair Value Measurements

 

The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).

 

The hierarchy consists of three levels:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

Other financial instruments of the Company are short-term in nature or carrying interest at rates close to the market interest rates, their fair value is not expected to be materially different from the amounts presented in the Consolidated Balance Sheet.

 

Fair value of financial instruments

 

The methods and assumptions used by the Grouping estimating the fair value of financial instruments are as follows:

 

a) For financial assets and liabilities which have short-term maturities, including cash and cash equivalents, short term investment, accounts receivable, loans receivable, unbilled receivables, other receivables, line of credit and notes payable and accounts payable, the carrying amounts in the balance sheets approximate their fair value. 

 

b) The fair value of investment in unconsolidated affiliates is generally derived from quoted market prices or based on generally accepted pricing models when no market price is available.

 

38

 

 

Note 14– Subsequent Events

   

Sales plan - Reinhart Digital TV (Zappware) and NextTrip to TGS Esports, Inc

 

On June 28, 2022, the Company entered into a series of agreements, including a Securities Exchange Agreement, with William Kerby, the Company’s co-Chief Executive Officer and director, Donald P. Monaco, a director of the Company, and British Columbia-based TGS E-Sports Inc. (TSX-V: TGS, OTC: TGSEF), a public company whose securities are listed for trading on the Canadian TSX Venture Exchange, pursuant to which the Company has agreed to sell the Company’s travel business, NextTrip Group, LLC, and its 51% ownership of Reinhart Digital TV (the 100% owner of Zappware) to TGS in exchange for securities of TGS , as discussed in further detail below. TGS is a leading esports tournament solutions provider. 

 

Prior to the execution of the securities exchange agreement, NextTrip issued an aggregate of 915,000 units in NextTrip to Messrs. Kerby and Monaco to resolve certain management unit issuances provided for in NextTrip’s Operating Agreement as consideration for services rendered.

 

As consideration for the sale, upon closing of the transaction, (i) the Company will receive 232,380,952 shares of newly created TGS Preferred stock, valued at $12.2 million, and (ii) Messrs. Kerby and Monaco, both of whom hold certain equity interests in NextTrip (discussed above), will receive an aggregate of 69,714,286 TGS common shares, valued at $3.66 million, of which 11,619,048 TGS common shares will be held in escrow for a period of time. The TGS Preferred shares will be redeemable in certain situations, can be sold subject to certain transfer restrictions (including a right of first refusal in favor of TGS), and may be converted into shares of TGS common shares in certain limited circumstances, including mandatory conversion upon the occurrence of certain events. In the event that the TGS Preferred shares are converted into shares of TGS common shares by the Company at any time, the Company is obligated to distributed all such shares of TGS common shares in a stock dividend to its shareholders. Concurrently with a determination to convert the TGS Preferred shares into shares of TGS common shares, if ever, the Company will set a shareholder record date for a special dividend to distribute all of the common shares of TGS held by the Company to the Company’s shareholders, on a pro-rata basis.

 

Concurrently with the execution of the Securities Exchange Agreement, the Company, NextTrip, Reinhart and TGS entered into a separation agreement (the “Separation Agreement”) to further document the separation of NextTrip and Reinhart from the Company and to assign, transfer and convey certain assets and liabilities held in NextTrip or the Company’s name, respectively, to NextTrip or the Company, respectively, to allow for the separation of the businesses in the Securities Exchange Agreement at closing of the transaction.

 

Further, the Separation Agreement terminates certain intercompany agreements and accounts by and between the parties at closing of the transaction, sets rights related to confidentiality, non-disclosure and maintenance of attorney-client privilege matters and also provides for a mutual release by and among the Company, NextTrip and Reinhart for all pre-closing claims between themselves and their officers, directors, affiliates, successors and assigns.

 

In addition, the Separation Agreement provides for the contribution of (i) $1.5 million to NextTrip and (ii) an additional $1.5 million in ten (10) equal monthly installments beginning July 1, 2022, in exchange for NextTrip, as of May 1, agreeing to assume the ongoing operating expenses of NextTrip and Reinhart. NextTrip has also agreed to assume payments under that certain payment obligation of the Company pursuant an Amendment to Intellectual Property Purchase Agreement effective May 18, 2021 by and between the Company, IDS Inc., TD Assets Holding LLC, and Ari Daniels in the approximate amount of $2,500,000, provided, however, that, if the Company fails to make any of the above installment payments within five (5) business days of being due, that such IDS payment obligation reverts back to the Company.

 

Closing of the transaction remains subject to various conditions, including (without limitation) regulatory approvals and consummation of a financing by TGS, and is expected to occur in the second half of 2022. Additionally, as a further condition of closing the transaction, TGS shall hold a shareholder meeting as soon as reasonably practicable to approve the transaction, an amendment to the articles of incorporation of TGS to create the TGS Preferred, a 40:1 share consolidation (reverse stock split) and related matters (collectively, the “Transaction Proposals”). In connection with the shareholder meeting, TGS is also obligated to file a circular with the Canadian securities authorities in accordance with Canadian law and the policies of the TSXV. No assurances can be provided that the closing conditions will be satisfied, or that the transaction will be consummated on the anticipated timeline, or at all.

 

In addition, in order to induce the Company to enter into the Securities Exchange Agreement, certain TGS shareholders agreed to enter into a voting support agreement pursuant to which they agreed to vote their TGS common shares in favor of the Transaction Proposals.

 

At closing of the transaction, the Company shall enter into (i) a right of first refusal and distribution agreement that governs certain rights between the parties with respect to the subsequent disposition of the TGS Preferred Shares, and (ii) a stock escrow agreement, pursuant to which a portion of the TGS common shares issued to Messrs. Kerby and Monaco will be held in escrow for a period of up to four (4) years (the “Escrow Period”) at which point, if the following conditions have not been met, such Escrow Shares will be canceled and returned to TGS’ treasury: (x) the TGS common share trading price at the time of a conversion of Preferred Shares by the Company occurs is at or above $0.06375 (a 115% premium on the closing price), or (y) the Preferred Shares are sold or redeemed by the Company at or above a price of $14,030,000 (a 115% premium).

 

At the closing of the transaction, the board of directors of TGS will consist of seven members, five of whom will be designated by Messrs. Kerby and Monaco and two of which will be designated by Mr. Spiro Khouri of TGS.

 

The transaction, once consummated, is expected to streamline the Company’s business operations and management, improve capital allocation, and is expected to unlock shareholder value by offering investors a pure-play investment in the Digital Media and Financial Technology sectors. 

 

As a result of the foregoing, as of May 31, 2022, Reinhart/Zappware and NextTrip were no longer consolidated nor treated as a division of the Company; accordingly, for the three-month period ended May 31, 2022, the Company had two remaining reportable business segments: NextFinTech and NextMedia.

 

39

 

 

In connection with the sale plan, the Company has reclassified certain assets and liabilities to present as held for sale. As of May 31, 2022, the Company has classified goodwill and intangible assets as held for sale in current assets as follows:

 

   As of May 31, 2022 
   Reinhart
/Zappware
   NextTrip   Total 
Goodwill            
Carrying amount  $16,818,456   $5,191,082    22,009,538 
Accumulated translation adjustment   (983,733)   
    (983,733)
Allowance for impairment loss   (5,040,460)   (5,191,082)   (10,231,542)
Goodwill, net  $10,794,263   $
   $10,794,263 
                
Intangible assets               
Net book value  $7,525,588   $3,965,122    11,490,710 
Allowance for impairment loss   
    (1,681,874)   (1,681,874)
Intangible assets, net  $7,525,588   $2,283,248   $9,808,836 

 

During the three-month period ended May 31, 2022, the Company performed the impairment assessment and recognized the impairment loss in operation loss from discontinued operations to reflect the expected recoverable amount, comprised of impairment loss on intangible assets of NextTrip amounting to $0.5 million, and impairment loss on goodwill of Reinhart/Zappware, amounting to $0.1 million.

 

As of February 28, 2022, the Company has classified goodwill and intangible assets as held for sale in non-current assets as follows:

 

   As of February 28, 2022 
   Reinhart
/Zappware
   NextTrip   Total 
Goodwill            
Carrying amount  $16,818,456   $5,191,082   $22,009,538 
Accumulated translation adjustment   (844,568)   
    (844,568)
Allowance for impairment loss   (4,977,023)   (5,191,082)   (10,168,105)
Goodwill, net  $10,996,865   $
   $10,996,865 
                
Intangible assets               
Net book value  $6,468,491   $2,525,142    8,993,633 
Allowance for impairment loss   
    (1,215,746)   (1,215,746)
Intangible assets, net  $6,468,491   $1,309,396   $7,777,887 

 

During the year ended February 28, 2022, the Company performed the impairment assessment and recognized the impairment loss for goodwill and intangible assets of Reinhart/Zappware and NextTrip units, as we assessed that the fair value from expected recoverable selling price was lower than the book value, therefore recorded impairment on goodwill amounted to $10.2 million, comprised Reinhart/Zappware in amount $5.0 million and NextTrip in amount $5.2 million and impairment loss on intangible assets of NextTrip amounting to $1.2 million.

 

The business of NextTrip represented the entirety of the NextTrip operating segment and Reinhart Digital TV was a part of NextMedia operating segment until February 28, 2022. Comparative figures included in the accompanying condensed consolidated financial statements have been reclassified to conform with current period presentation.

 

40

 

 

The detail of assets and liabilities classified as held for sale as of May 31, 2022 and February 28, 2022 were as follows:

 

   Reinhart/Zappware 
   May 31,
2022
   February 28,
2022
 
Assets        
Cash and cash equivalent  $1,194,230    2,185,719 
Accounts receivable, net   1,073,312    839,612 
Unbilled receivables   1,819,470    3,275,229 
Other receivable       3,251 
Work in progress   647,743    691,863 
Prepaid expenses and other current assets   194,514    123,084 
Intangible assets, net   7,525,588     
Goodwill, net   10,794,263     
Computers, furniture and equipment, net   131,766     
Operating lease right-of-use asset   1,935,764     
Security deposits   59,105     
Total current assets held for sale   25,375,755    7,118,758 
           
Intangible assets, net       6,468,491 
Goodwill, net       10,996,865 
Computers, furniture and equipment, net       149,791 
Operating lease right-of-use asset       2,067,942 
Security deposits       71,401 
Total non current assets held for sale       19,754,490 
           
Total assets  $25,375,755    26,873,248 
           
Liabilities          
Line of credit and notes payable, net  $3,030,849    2,878,274 
Accounts payable and accrued expenses   3,138,538    3,557,080 
Other current liabilities   264,906    264,905 
Deferred revenue   1,007,698    2,040,787 
Current portion of operating lease liability   1,935,765    493,622 
Total current liabilities held for sale   9,377,755    9,234,668 
           
Line of Credit and Notes Payable Long Term, net       270,808 
Operating lease liability, net of current portion       1,574,320 
Other long term liability       28,761 
Total non current liabilities held for sale       1,873,889 
           
Total liabilities  $9,377,755    11,108,557 
           
Net asset  $15,998,000    15,764,691 

 

   NextTrip 
   May 31,
2022
   February 28,
2022
 
Assets        
Cash and cash equivalent  $536,429    151,122 
Accounts receivable, net   3,856    1,056 
Other receivable   204,891    1,197 
Prepaid expenses and other current assets   66,227    60,861 
Intangible assets, net   2,283,248     
Computers, furniture and equipment, net   28,730     
Security deposits   15,000     
Total current assets held for sale   3,138,381    214,236 
           
Intangible assets, net       1,309,396 
Computers, furniture and equipment, net       41,671 
Security deposits       15,000 
Total non current assets held for sale       1,366,067 
Total assets  $3,138,381    1,580,303 
           
Liabilities          
Accounts payable and accrued expenses   449,837    315,595 
Deferred revenue   147,544    157,790 
Total current liabilities held for sale   597,381    473,385 
Total liabilities  $597,381    473,385 
Net asset   2,541,000    1,106,918 

 

41

 

 

   Total assets and
liabilities held for sale
 
   May 31,
2022
   February 28,
2022
 
Assets        
Cash and cash equivalent   1,730,659    2,336,841 
Accounts receivable, net   1,077,168    840,668 
Unbilled receivables   1,819,470    3,275,229 
Other receivable   204,891    4,448 
Work in progress   647,743    691,863 
Prepaid expenses and other current assets   260,741    183,945 
Intangible assets, net   9,808,836     
Goodwill, net   10,794,263     
Computers, furniture and equipment, net   160,496     
Operating lease right-of-use asset   1,935,764     
Security deposits   74,105     
Total current assets held for sale   28,514,136    7,332,994 
           
Intangible assets, net       7,777,887 
Goodwill, net       10,996,865 
Computers, furniture and equipment, net       191,462 
Operating lease right-of-use asset       2,067,942 
Security deposits       86,401 
Total non current assets held for sale       21,120,557 
           
Total assets   28,514,136    28,453,551 
           
Liabilities          
Line of credit and notes payable, net   3,030,849    2,878,274 
Accounts payable and accrued expenses   3,588,375    3,872,675 
Other current liabilities   264,906    264,905 
Deferred revenue   1,155,242    2,198,577 
Operating lease liability   1,935,765    493,622 
Total current liabilities held for sale   9,975,136    9,708,053 
           
Line of Credit and Notes Payable Long Term, net       270,808 
Operating lease liability, net of current portion       1,574,320 
Other long term liability       28,761 
Total non current liabilities held for sale       1,873,889 
Total liabilities   9,975,136    11,581,942 
           
Net asset   18,539,000    16,871,609 

 

The Consideration expected to be received by the Company upon closing of the transaction – Nonvoting convertible preferred shares of TGS compared with net book value of selling assets as of May 31, 2022 were as follows:

 

Net asset of Reinhart/Zappware as of May 31, 2022   15,998,000 
Net asset of NextTrip as of May 31, 2022   2,541,000 
Total net asset   18,539,000 
      
Additional cash contribution to TGS per agreement   3,000,000 
Cash transferred to NextTrip in May 2022   (1,500,000)
    1,500,000 
      
Less: Fair value of Reinhart/Zappware – non-controlling interest   (7,839,000)
Consideration expected to receive – Nonvoting convertible preferred shares of TGS   12,200,000 

 

42

 

 

The operating results of held-for-sale entities included in the Company’s Statement of Comprehensive Income for the three-month period ended May 31, 2022 were as follows:

 

 

For the three months ended May 31, 2022   Reinhart/
Zappware
    NextTrip     Total  
Revenue   $ 4,027,662     $ 171,751     $ 4,199,413  
Cost of Revenue     1,315,768       135,885       1,451,653  
Gross Profit   $ 2,711,894     $ 35,866     $ 2,747,760  
Operating expenses     1,741,033       1,171,260       2,912,293  
Other Expense     117,216       526,497       643,713  
Net profit (loss) before tax for the period from discontinued operations   $ 853,645     $ (1,661,891 )   $ (808,246 )
Estimated corporate taxes   $     $     $  
Net profit (loss) after tax for the period from discontinued operations   $ 853,645     $ (1,661,891 )   $ (808,246 )
Share profit of non-controlling interest     418,286             418,286  
Net profit (loss) from discontinued operation attributable to parent     435,359       (1,661,891 )     (1,226,532 )
                         
Other Comprehensive (loss) income:                        
Currency Translation from discontinued operation   $ (746,581 )   $     $ (746,581 )
Comprehensive (loss) income   $ 107,064     $ (1,661,891 )   $ (1,554,827 )
                         
Currency translation allocated to:                        
Equity holders of the Company   $ (380,756 )   $     $ (380,756 )
Non-controlling interests of the subsidiaries     (365,825 )           (365,825 )
    $ (746,581 )   $     $ (746,581 )
                         
Total comprehensive (loss) income attributable to:                        
Equity holders of the Company   $ 54,603     $ (1,661,891 )   $ (1,607,288 )
Non-controlling interests of the subsidiaries     52,461             52,461  
    $ 107,064     $ (1,661,891 )   $ (1,554,827 )

 

The operating result included in the Company’s Statement of Comprehensive income for the three-month period ended May 31, 2021 represented HotPlay only.

 

The net cashflow of held-for-sale entities are included in the Company’s cash flow statement for the three-month period ended May 31, 2022 were as follows:

 

   Reinhart/
Zappware
   NextTrip   Total 
Net cash flows from (used in) operating activities  $(312,682)  $1,584,429   $1,271,747 
Net cash flows used in investing activities   (550,517)   (2,699,122)   (3,249,639)
Net cash flows from (used in) financing activities   (128,290)   1,500,000    1,371,710 
Net increase (decrease) in cash and cash equivalent  $(991,489)  $385,307   $(606,182)

 

No cashflow of held-for-sale entities are included in the Company’s cash flow statement for the three-month period ended May 31, 2021, as it represented HotPlay only.

 

June 2022 Promissory Notes

 

On June 13, 2022, the Company entered into two promissory notes, each in the principal amount of approximately CAD $231,121 (USD $178,234), with its former legal counsel, which notes were issued, along with a CAD $10,000 (USD $7,712) in lieu of immediate payment of outstanding amounts payable to such counsel for legal services previously rendered to the Company. The first note will mature on July 31, 2022, and the second note will mature on September 1, 2022; provided, however, that if the Company fails to repay the first note in full on or before its maturity date, then the second note will automatically become immediately due and payable. Both notes are unsecured and accrue interest at a rate of 18% per annum.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

General Information

 

This information should be read in conjunction with the interim unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (the “Report”), and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended February 28, 2022, filed with the Securities and Exchange Commission on June 21, 2022.

 

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information - Item 1. Financial Statements”.

 

Our logo and some of our trademarks and tradenames are used in this Report. This Report also includes trademarks, tradenames and service marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to in this Report may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

The market data and certain other statistical information used throughout this Report are based on independent industry publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosures contained in this Report, and we believe these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding any third-party information presented in this Report, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under, and incorporated by reference in, the section entitled “Item 1A. Risk Factors” of this Report. These and other factors could cause our future performance to differ materially from our assumptions and estimates. Some market and other data included herein, as well as the data of competitors as they relate to NextPlay Technologies, Inc., is also based on our good faith estimates.

 

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” and “NextPlay” refer specifically to NextPlay Technologies, Inc., formerly Monaker Group, Inc., and its consolidated subsidiaries.

 

In addition, unless the context otherwise requires and for the purposes of this report only:

 

Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

 

SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and

 

Securities Act” refers to the Securities Act of 1933, as amended.

 

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, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act with the SEC. 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.

 

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Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

 

  Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A.
     
  Results of Operations. An analysis of our financial results comparing the three months ended May 31, 2022 and 2021.
     
  Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition.

 

  Critical Accounting Policies and Estimates. Accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

 

OVERVIEW

 

During the three month period ended May 31, 2022, NextPlay Technologies, Inc., together with its consolidated subsidiaries, is building a technology solutions company, offering games, in-game advertising, digital asset products and 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.

 

As of May 31, 2022, NextPlay is organized into two divisions: (i) NextMedia, the Company’s Interactive Digital Media Division and (ii) NextFinTech, the Company’s Finance and Technology Division.

 

NextMedia Division

 

HotPlay

 

HotPlay Enterprise Limited (“HotPlay”), which is wholly-owned by NextPlay, is an in-game advertising (“IGA”) platform that delivers advertisements into video games without disrupting gameplay, enabling video games to monetize without compromising on the integrity of the game. The platform enables advertisers and merchants of all sizes to hyper-locally deliver promotional coupons to gamers, offering them real world rewards from playing video games. Video games could also deliver relevant virtual rewards through the platform in order to increase retention rate.

 

Upon receiving the rewards, gamers are able to access them via the HotPlay redemption mobile application (“Redemption App”). The redemption app also features a list of games integrated with HotPlay IGA, giving video games visibility among the HotPlay user base.

 

In order to increase HotPlay IGA adoption among third party video game developers, HotPlay has established an in-house game development studio dedicated to developing casual and hyper-casual games that help showcase the capabilities of our technology.

 

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NextFinTech Division

 

Next Fintech

 

NextPlay owns 100% of Next Fintech Holdings, Inc. (formerly Longroot, Inc.) (“Next Fintech”), which in turn owns 75% of Longroot Limited, a Cayman Islands company (“Longroot Cayman”). Longroot Cayman owns 49% of the outstanding ordinary shares (with 51% of the preferred shares owned by two Thai citizen nominee shareholders) of Longroot Holding (Thailand) Company Limited (“Longroot Thailand”), provided that Longroot Cayman controls 90% of Longroot Thailand’s voting shares and therefore effectively controls Longroot Thailand. Longroot Thailand is an Initial Coin Offering (“ICO”) Portal that provides digital asset financing and investment services that are fully regulated and licensed by the Securities and Exchange Commission of Thailand (the “Thai SEC”). It is focused on creating Thai regulated cryptocurrencies backed by high quality assets that are designed to be more resistant to market declines. The initial class of assets includes video games, insurance, precious metals, and real estate.

 

Longroot Thailand is a licensed ICO Portal under the Thai SEC and is regulated under the Thai Digital Asset Law which stipulates that all offerings of digital assets have to be conducted via a Thai SEC licensed ICO Portal.

 

NextBank International

 

NextBank International (“NextBank”) (previously International Financial Enterprise Bank), which is wholly-owned by NextPlay, is an International Financial Entity (“IFE”) operating under the laws of the Commonwealth of Puerto Rico. Licensed under Act 273 by the Office of the Commissioner of Financial Institutions (“OCIF”), NextBank currently offers concierge services to high net worth individuals and entrepreneurs, and loan products.

 

NextPlay plans to create a diversified FinTech solution company that offers asset banking, asset management and mobile payment and banking services.

 

Strategic Sale of Reinhart Digital TV (Zappware) and NextTrip to TGS Esports, Inc.

 

On June 28, 2022, the Company entered into a series of agreements, including a securities exchange agreement, with William Kerby, the Company’s co-Chief Executive Officer and director, Donald P. Monaco, a director of the Company, and British Columbia-based TGS E-Sports Inc. (TSX-V: TGS, OTC: TGSEF) (“TGS”), a public company whose securities are listed for trading on the Canadian TSX Venture Exchange, pursuant to which the Company has agreed to sell the Company’s travel business, NextTrip Group, LLC (“NextTrip”), and its 51% ownership of Reinhart Digital TV (the 100% owner of Zappware) to TGS in exchange for securities of TGS (discussed in further deta