The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes
to the Condensed Consolidated Financial Statements (Unaudited)
Note
1 – Summary of Business Operations and Significant Accounting Policies
Nature
of Operations and Business Organization
NextPlay
Technologies, Inc. and its consolidated subsidiaries (“NextPlay”, “we”, “our”, “us”,
or the “Company”) is building a technology solutions company, offering games, in-game advertising, crypto-banking,
connected TV and travel booking services to consumers and corporations within a growing worldwide digital ecosystem. NextPlay’s
engaging products and services utilize innovative advertising technology (AdTech), Artificial Intelligence (AI) and financial
technology (FinTech) solutions to leverage the strengths and channels of its existing and acquired technologies.
NextPlay
is organized into three (3) divisions: NextMedia, the Company’s Interactive Digital Media Division, NextFinTech, the Company’s
Finance and Technology Division; and NextTrip, the Company’s Travel Division.
In the Interactive Digital Media Division, NextPlay closed its acquisition
of HotPlay Enterprise Limited and its In-Game Advertising (“IGA”) platform on June 30, 2021, and acquired a 51% interest in
Reinhart TV AG (“Reinhart”), on June 23, 2021. Reinhart owns 100 percent of Zappware, a 20-year-old interactive Digital TV
solutions company based in Belgium. The acquisition of Reinhart gives NextPlay potential reach into tens of millions of households with
its IGA, Video Game, FinTech, and Travel products.
In
the Finance and Technology Division, the Company’s acquisition of International Financial Enterprise Bank (“IFEB”),
now called NextBank International, Inc. (“NextBank”), 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 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 and will create significant opportunities to accelerate products and services within the Fintech division’s
asset management business.
Leveraging Longroot Thailand’s blockchain technology, NextPlay is
developing blockchain products and solutions to support its other business units, such as a next generation insurance solution to be offered
through our Travel division.
Our Travel division currently offers booking solutions for both business
and leisure travel and plans to expand its product and services offerings by integrating multiple technologies from other NextPlay divisions.
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
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, 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.
Reverse
Acquisition
HotPlay, as the accounting acquirer, recorded the assets acquired and liabilities
assumed of Monaker in the reverse acquisition at its fair value as of the acquisition date. HotPlay’s historical financial statements
have replaced Monaker’s historical consolidated financial statements with respect to periods prior to the completion of the merger,
with retroactive adjustments to HotPlay’s legal capital to reflect the legal capital of Monaker. Monaker (which was renamed NextPlay Technologies,
Inc. in connection with the reverse acquisition) remains the continuing registrant and reporting company.
HotPlay
was determined to be the accounting acquirer based on the following facts and circumstances: (1) members of HotPlay and HotPlay
Stockholders owned approximately 72.61% of the voting interests of the combined company immediately following the closing
of the transaction; and (2) the majority of the Board of Directors of the combined company was composed of Directors designated
by HotPlay under the terms of the HotPlay Exchange Agreement.
The Company recorded all tangible and intangible assets acquired and liabilities
assumed at their preliminary estimated fair values on the reverse acquisition date. The following represents the allocation of the estimated
purchase consideration:
|
Reverse Acquisition of HotPlay Enterprise Ltd. (6/30/21)
|
|
|
Fair Value of Monaker assets acquired
|
|
|
|
|
Cash
|
|
$
|
9,323,686
|
|
|
Current assets
|
|
$
|
24,082,699
|
|
|
Non-current assets
|
|
$
|
26,247,848
|
|
|
Net assets acquired
|
|
$
|
59,654,233
|
|
|
|
|
|
|
|
|
Fair Value of Monaker liabilities assumed
|
|
|
|
|
|
Current liabilities
|
|
$
|
32,482,320
|
|
|
Non-current liabilities
|
|
$
|
5,420,131
|
|
|
Net liabilities assumed
|
|
$
|
37,902,451
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
21,751,782
|
|
|
Purchase consideration
|
|
|
|
|
Number of Monaker common shares outstanding as of 6/30/2021
|
|
|
23,854,203
|
|
|
Monaker share price as of 6/30/2021
|
|
$
|
2.24
|
|
|
Preliminary estimate of fair value of common shares
|
|
$
|
53,433,415
|
|
|
Fair value of total estimated consideration transferred
|
|
$
|
53,433,415
|
|
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
|
|
|
Fair value of Monaker net assets acquired as of 6/30/2021
|
|
$
|
21,751,782
|
|
|
|
|
|
|
|
|
Fair value of total estimated consideration transferred
|
|
$
|
53,433,415
|
|
|
Goodwill
|
|
$
|
31,681,633
|
|
Interim
Financial Statements
These unaudited condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States (“US GAAP”) for interim financial
information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the condensed consolidated financial statements do
not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are
of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the financial statements
for the fiscal year ended February 28, 2021 and notes thereto and other pertinent information contained in the Form 10-K and 8-K, the
Company has filed with the Securities and Exchange Commission (the “SEC”) on June 8, 2021
The
results of operations for the six months ended August 31, 2021, are not necessarily indicative of the results to be expected for
the full fiscal year ending February 28, 2022.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All
material inter-company transactions and accounts have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those
estimates. These differences could have a material effect on the Company’s future results of operations and financial position.
Significant items subject to estimates and assumptions include the fair value of investments, the carrying amounts of intangible
assets, depreciation and amortization, the valuation of stock options, and deferred income taxes.
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 August 31, 2021 and February 28, 2021.
Prepaid
Expenses and Other Current Assets
The
Company records cash paid in advance for goods and/or services to be received in the future as prepaid expenses. Prepaid expenses
are expensed over time according to the period where it is indicated on the contract.
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.
Loans Receivable
Loans that the Company has the intent and ability
to hold for the foreseeable future, or until maturity or pay-off, generally are stated at their outstanding principal amount adjusted
for charge-offs and the allowance for loan losses. Interest is accrued as earned based upon the daily outstanding principal balance.
The accrual of interest is generally discontinued
at the time a loan is 90 days past due, unless the credit is well-secured and in the process of collection. Past due status is based on
contractual terms of the loan. In all cases, loans are placed on non-accrual or charged- off at an earlier date if collection of principal
or interest is considered doubtful.
All interest accrued but not collected for loans placed
on nonaccrual or charged-off is reversed against interest income. Interest on these loans is accounted for on the cash-basis or cost recovery
method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually
due are brought current and future payments are reasonably assured.
As of August 31, 2021, there were no loans placed
on non-accrual.
Interest and Non-interest Bearing Deposits
During the period ended August 31, 2021, the Company
had interest and non-interest- bearing deposits received from customers with interest rates ranging from 0% to 4% payable per annum.
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.
Computer, Furniture and Equipment
The Company purchases computers, laptops, furniture and fixture. These
are originally recorded at cost and stated at cost less accumulated depreciation. The computers and laptops are depreciated over a useful
life of 3 years. The furniture and fixture are depreciated over a useful life of 5 years. Straight-line depreciation is used for all computers, furniture and equipment.
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.
Impairment
of Intangible Assets
In
accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets”, the Company assesses the impairment of
identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Factors the Company considers important, which could trigger an impairment review include the following:
|
|
1.
|
Significant underperformance
compared to historical or projected future operating results;
|
|
|
2.
|
Significant changes in the
manner or use of the acquired assets or the strategy for the overall business; and
|
|
|
3.
|
Significant negative industry
or economic trends.
|
When
the Company determines that the carrying value of an intangible asset may not be recoverable based upon the existence of one or
more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted
cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash
flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model.
Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
Intangible assets that have finite useful lives are amortized over their useful lives. The Company incurred depreciation and amortization expense
of $1,526,740 and $194,114 during the six months ended August 31, 2021 and 2020, respectively.
Foreign
Currency Translation
The
Company prepares the financial statements of its foreign subsidiaries using the local currency as the functional currency. The
assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at the rates of exchange at
the balance sheet date with the resulting translation adjustments included as a separate component of stockholders’ equity
through other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss.
Income
and expenses are translated at the average monthly rates of exchange. The Company includes realized gains and losses from foreign
currency transactions in other income (expense), net in the consolidated statements of net and comprehensive loss.
The
effect of foreign currency translation on cash and cash equivalents is reflected in cash flows from operating activities on the
consolidated statements of cash flows.
Reclassification
Certain
prior period amounts have been reclassified to conform with the current period presentation. The reclassification has no impact
on the total assets, total liabilities, stockholders’ equity and net loss for the period.
Earnings
per Share
Basic
earnings per share are computed by dividing net income or loss by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share are computed by dividing net income (loss) by the weighted average number of shares
of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. For the six months
ended August 31, 2021, convertible notes payables were excluded from the computation of diluted net loss per share as the result
of the computation was anti-dilutive.
Revenue
Recognition
Travel
We
recognize revenue when the customer has purchased the product, the occurrence of the earlier of date of travel or the date of
cancellation has expired, the sales price is fixed or determinable and collectability is reasonably assured.
Revenue
for customer travel packages purchased directly from the Company are recorded gross (the amount paid to the Company by the customer
is shown as revenue and the cost of providing the respective travel package is recorded to cost of revenues).
We
generate our revenues from sales directly to customers as well as through other distribution channels of tours and activities
at destinations throughout the world.
Payments
for tours or activities received in advance of services being rendered are recorded as deferred revenue and recognized as revenue
at the earlier of the date of travel or the last date of cancellation (i.e., the customer’s refund privileges lapse).
NextBank
International
NextBank
International provides traditional banking services in niche-focused businesses, including commercial and residential real estate
and the origination and sale of loans and receivables financing, among other types of lending services. Revenue is recognized
from two sources, interest income and loan fees.
Interest
is accrued as earned based upon the daily outstanding principal balance. The accrual of interest is generally discontinued at
the time a loan is 90 days past due, unless the credit is well-secured and in the process of collection. Past due status is based
on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged- off at an earlier date if collection
of principal or interest is considered doubtful.
All
interest accrued but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. Interest
on these loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned
to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably
assured. As of August 31, 2021, there were no loans placed on non-accrual.
Revenue
is also recognized on service fees such as loan origination fees, brokering fees, and deposit account fees.
Digital
Media
Revenue
is generated from subscriptions and services rendered. Subscription revenues are deferred and recognized as the service is performed
each month. Revenue from services is recognized when the contractual performance obligation is met.
Cost
of Revenue
Cost of revenue consists of cost of the tours and activities, commissions
and merchant fees charged by credit card processors, interest expense, loan related commissions, cost of services and sub-contractors.
Selling
and Promotions Expense
Selling
and promotion expenses consist primarily of advertising and promotional expenses, expenses related to our participation in industry
conferences, and public relations expenses. The expense for the six months ended August 31, 2021 and August 31, 2020, was $361,629
and $0, respectively.
Stock
Based Compensation
Stock-based
compensation is accounted for based on the requirements of ASC 718, “Compensation – Stock Compensation”,
which requires recognition in the financial statements of the cost of employee and director services received in exchange for
an award of equity instruments over the period the employee or director is required to perform the services in exchange for the
award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received
in exchange for an award based on the grant-date fair value of the award. The Company recognizes compensation on a straight-line
basis over the requisite service period for each award.
The Company adopted ASU No. 2018-7, Compensation-Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting awards (“ASU 2018-7”) As a result, awards
are measured based on the grant date closing price of the Company’s common stock consistent with awards made to the Company’s
employees and directors. The Company recognizes the remaining unrecognized value of unvested awards over the remaining performance period,
with no further remeasurement through the performance completion date.
Warrant
Modifications
The
Company treats a modification of the terms or conditions of an equity award in accordance with ASC Topic 718-20-35-3, by treating
the modification as an exchange of the original award for a new award. In substance, the entity repurchases the original instrument
by issuing a new instrument of equal or greater value, incurring additional compensation cost for any incremental value. Incremental
compensation cost is measured as the excess, if any, of the fair value of the modified award determined in accordance with the
provisions of ASC Topic 718-20-35-3 over the fair value of the original award immediately before its terms are modified, measured
based on the share price and other pertinent factors at that date.
Fair
Value of Financial Instruments
The
Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair
value measurements, but it does provide guidance on how to measure fair value by providing a fair value hierarchy used to classify
the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs)
and an entity’s own assumptions (unobservable inputs).
The
hierarchy consists of three levels:
|
|
●
|
Level 1 - Quoted
prices in active markets for identical assets or liabilities.
|
|
|
●
|
Level 2 - Inputs
other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
|
|
|
●
|
Level 3 - Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The
Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option
liabilities.
Financial instruments consist principally of cash, accounts receivable,
investments in unconsolidated affiliates, other receivable, net, accounts payable, accrued liabilities, notes payable, related parties,
line of credit and certain other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets
approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed
to any significant currency or credit risks arising from these financial instruments.
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.
Recent
Accounting Pronouncements
ACCOUNTING STANDARDS UPDATE 2016-13, FINANCIAL INSTRUMENTS—CREDIT
LOSSES (TOPIC 326)
On June 16, 2016, the FASB completed its Financial
Instruments—Credit Losses project by issuing Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses
(Topic 326). The new guidance requires organizations to measure all expected credit losses for financial instruments held at the reporting
date based on historical experience, current conditions, and reasonable and supportable forecasts.
The new guidance; (i) eliminates the probable initial
recognition threshold in current GAAP and, instead, reflects an organization’s current estimate of all expected credit losses over
the contractual term of its financial assets, (ii) broadens the information that an entity can consider when measuring credit losses to
include forward-looking information, (iii) increases usefulness of the financial statements by requiring timely inclusion of forecasted
information in forming expectations of credit losses, (iv) increases comparability of purchased financial assets with credit deterioration
(PCD assets) with other purchased assets that do not have credit deterioration as well as originated assets because credit losses that
are expected will be recorded through an allowance for credit losses for all assets, (v) increases users’ understanding of underwriting
standards and credit quality trends by requiring additional information about credit quality indicators by year of origination (vintage),
and (vi) aligns the income statement recognition of credit losses, for available-for-sale debt securities, with the reporting period in
which changes occur by recording credit losses (and subsequent changes in credit losses) through an allowance rather than a write down.
The new guidance affects organizations that hold financial
assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income. It affects
loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and
any other financial assets not excluded from the scope that have the contractual right to receive cash.
For public business entities that meet the definition
of a U.S. Securities and Exchange (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for
fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, it is effective
for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application is permitted.
We are currently evaluating the impact of the new
guidance.
Segment Reporting
Accounting Standards Codification 280-10 “Segment
Reporting”, established standards for reporting information about operating segments in annual consolidated financial statements
and required selected information about operating segments in interim financial reports issued to stockholders. It also established standards
for related disclosures about products, services, and geographic areas. Operating segments are defined as components of the enterprise
about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making
group, in deciding how to allocate resources and in assessing performance.
An operating segment component has the following characteristics:
|
|
a.
|
It engages in business activities from which it may recognize revenues and incur expenses (including revenues
and expenses relating to transactions with other components of the same public entity).
|
|
|
b.
|
Its operating results are regularly reviewed by the public entity’s chief operating decision maker
to make decisions about resources to be allocated to the segment and assess its performance.
|
|
|
c.
|
Its discrete financial information is available.
|
The Company has three operating segments
consisting of (i) the NextMedia Division, which consists of HotPlay and Reinhart/Zappware, (ii) the NextFinTech Division, which consists
of Longroot and NextBank, and (iii) NextTrip Division, which includes NextTrip holdings. The Company’s chief operating decision
maker is considered to be the Co-Chief Executive Officers. The chief operating decision maker allocates resources and assesses performance
of the business and other activities at the single operating segment level.
See Note 13 Business Segment Reporting for
details on each segment unit.
Note
2 - Going Concern
As
of August 31, 2021, and February 28, 2021, the Company had an accumulated deficit of $10,410,073
and $1,200,309,
respectively. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as
a going concern.
We
have limited financial resources. As of August 31, 2021, we have working capital of $6,514,366, which we believe is enough to cover our monthly cash requirement of approximately $1,450,000 for the next approximately four months.
We
will need to raise substantial additional capital to support the on-going operation and increased market penetration of our products
until such time as we generate revenues sufficient to support current operations. We believe that in the aggregate, we could require
several millions of dollars to support and expand the marketing and development of our travel and technology driven products, repay debt
obligations, provide capital expenditures for additional equipment and development costs, payment obligations, and systems for managing
the business, and cover 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, will negatively impact our business, financial condition, and liquidity. We currently do not have the resources to
satisfy these obligations, and our inability to do so could have a material adverse effect on our business and ability to continue as
a going concern. As indicated by the increase of the Company’s deferred revenue balance as of August 31, 2021, $898,088,
we expect to see increase in revenue in the 3rd and 4th quarter.
Management’s
plans with regard to this going concern are as follows: (i) the Company plans to continue to raise funds with third parties by
way of public or private offerings, (ii) the Company is working aggressively to increase the viewership of its travel and gaming
products by promoting it across other mediums which the Company hopes will result in higher revenues, (iii) the Company plans to
issue tokens under Longroot entity during the 4th quarter which will result in generating revenues, and (iv) the Company plans
to tighten our spending on our expenses which will help in the cost reduction of our operation.
The
ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business
plan and generate greater revenues. Management believes that the actions presently being taken to further implement its business
plan and generate additional revenues provide the opportunity for the Company to continue as a going concern.
Although
we currently cannot predict the full impact of the COVID-19 pandemic on our fiscal 2022 financial results relating to our operations,
we anticipate an increase in year-over-year revenue as compared to the fiscal year 2021 ended February 28, 2021. However, the
ultimate extent of the COVID-19 pandemic and its impact on global travel and overall economic activity is constantly changing
and impossible to predict currently.
Note
3 – Notable Financial Information
Prepaid
Expenses and Other Current Assets
As
of August 31, 2021 and February 28, 2021, the Company had prepaid expenses and other current assets of $2,598,781, and $235,746, respectively.
Accounts
Receivable
As
of August 31, 2021 and February 28, 2021, the Company had accounts receivable of $1,551,256, and $0, respectively.
Unbilled Receivables
As of August 31, 2021 and February 28, 2021, the Company
had unbilled receivables of $4,760,457, and $0, respectively.
Loans
Receivable
As
of August 31, 2021 and February 28, 2021, the Company had loan receivable of $9,309,102, and $0, respectively, relating to NextBank.
Goodwill
As
of August 31, 2021 and February 28, 2021, the Company had total goodwill of $42,990,276
and $0, respectively. The increase of $42,990,276 is related to following; (i) the reverse acquisition of HotPlay of $31,681,633, (ii) the acquisition of NextBank International of $7,644,101,
and (iii) the acquisition of Zappware by Reinhart of $3,664,542.
Computer, Furniture and Equipment
As
of August 31, 2021 and February 28, 2021, the Company had net computer, furniture and equipment of $629,005 and $25,793, of which $39,312, and $1,381 included depreciation expense, respectively.
Accounts
Payable and Accrued Expenses
As
of August 31, 2021 and February 28, 2021, the Company had accounts payable and accrued expenses of $6,190,967, and $343,941, respectively.
Other
Liabilities – Customer Deposits
As
of August 31, 2021 and February 28, 2021, the Company had other current liabilities – customer deposits of $11,269,465,
and $0,
respectively, relating to NextBank.
Deferred
Revenue
As
of August 31, 2021 and February 28, 2021, the Company had deferred revenue of $898,088, and $0, respectively, relating to travel future sales.
Short
Term Note Payable – Related Parties
As
of August 31, 2021 and February 28, 2021, the Company had short term note payable – related party of $769,965, and $1,053,082, respectively, relating to Tree Roots Entertainment and MQDC.
Long
Term Note Payable – Related Parties
As
of August 31, 2021 and February 28, 2021, the Company had long term note payable – related party of $1,350,994, and $0, respectively, relating to Reinhart long-term loans.
Note
4 – 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 British Columbia Securities Commission, which impacts Axion.
The
closing of the HotPlay Exchange Agreement on June 30, 2021, triggered the automatic conversion of the Company’s outstanding
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock into common stock of the Company. Specifically,
effective June 30, 2021, the 10,000,000 shares of outstanding Series B Convertible Preferred Stock and 3,828,500 shares of outstanding
Series C Convertible Preferred Stock automatically converted into 7,417,700 and 3,828,500 shares of common stock of the Company,
respectively, in accordance with the terms of such preferred stock (the “Preferred Conversion”).
The
Creditor Warrants, have cashless exercise rights, an exercise price of $2.00 per share and have a term of two years, beginning
on the Vesting Date (defined below). The Creditor 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 Creditor Warrants will terminate (as applicable, the “Vesting
Date”). All of the Creditor Warrants were granted to Cern One.
On
August 20, 2021, our counsel sent a demand letter for payment to Axion Ventures Inc. As of August 31, 2021, there has been no
response in related to the demand letter.
On
September 1, 2021, the Company filed a claim in the Supreme Court of British Columbia demanding payment of $7,657,024.
Note
5 – Investments in Unconsolidated Affiliates
We
assess the potential impairment of our equity method investments when indicators such as a history of operating losses, negative
earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate
a loss in value.
Note
5.1 – 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, which the Company acquired approximately 33.85%
of (provided that such ownership of Axion has not been formally transferred to the Company to date) on November 16, 2020, as
discussed above.
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 million shares of Axion, equal to 5.7% of Axion’s
outstanding shares, from the stockholders for approximately $2 million, 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
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, but 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 to be purchased of Axion through closing. The purchase remains subject to the
negotiation of, and entry into, a definitive purchase agreement with the sellers, as well as other closing conditions, which have
not been entered into and/or which have not been completed, to date.
As
of August 31, 2021, total payment of cash and shares is $937,117. The Company plans to make the final payment of 50% of the purchase
price soon after the British Columbia Securities Commission (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.
Go
Game Securities Purchase Agreement
On
June 30, 2021, the Company entered into a Securities Purchase Agreement (the “Go Game SPA”) with David Ng,
an individual (the “Seller”). Pursuant to the Go Game SPA, the Company agreed to acquire a 37% interest in
the capital stock of Go Game Pte Ltd, a Singapore private limited company (“Go Game”), a mobile game publisher
and technology company, representing an aggregate of 686,868 shares of Go Game’s Class B Preferred shares (the “Initial
Go Game Shares”). The Go Game SPA also included an option whereby the Company can acquire additional shares of Go Game,
as described in greater detail below. 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 (currently $37.71 per share)(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 preferred stock issuable upon conversion thereof).
The
closing of the acquisition of the Initial Go Game Shares is subject to certain closing conditions and requirements which may not
be met on a timely basis, if at all. The Company and Seller have made customary representations and warranties and have agreed
to customary covenants in the Go Game SPA. There is no assurance that all of the conditions to the consummation of the Go Game
SPA will be satisfied.
In
connection with the parties’ entry into the Go Game SPA, the Seller entered into a lock-up agreement with the Company, whereby
the Seller agreed that the Seller would not transfer or sell, any of the Series D Preferred Stock shares and/or shares of common
stock issuable upon conversion thereof, until 18 months after the Company’s acquisition of the Initial Go Game Shares (the
“Initial Closing”), without the prior written consent of the Company, except that 1,525,000 of such shares may be
transferred or sold six months after the Initial Closing, and an additional 1,525,000 shares may be transferred or sold 12 months
after the Initial Closing.
As
of August 31, 2021, the second payment of $1.25 million on or before July 31, 2021 has been on hold upon the completion of due
diligence. The Company expects to resume payments upon the completion of the due diligence. Total payment to the Seller is $1,250,000
as of August 31, 2021.
Note
5.2 – Investment in Unconsolidated Affiliates
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,
were exchanged for 7,000,000 shares of Bettwork’s common stock at $0.75 per share, for a fair value of $5,250,000 as of
July 2, 2018. Bettwork’s common stock has a readily determinable fair value in the market under the symbol “BETW”.
On
February 28, 2021, the 6,142,856 shares of Bettwork’s common stock held by the Company were trading at $0.09 per share valued
at $55,286. On August 31, 2021, the 6,142,856 shares of Bettwork’s common stock held by the Company were trading at $0.0003
per share valued at $1,843. The change in fair value of $53,443 is recognized in net loss as other income, valuation loss, net
for the six months ended August 31, 2021.
Recruiter.com
Group, Inc. formerly Truli Technologies Inc (OTCQB: RCRT).
On
August 31, 2016, the Company entered into a Marketing and Stock Exchange Agreement with Recruiter.com (“Recruiter”).
The Agreement required the Company to issue to Recruiter 75,000 shares of the Company’s common stock in exchange for 2,200
shares of Recruiter common stock. Also, the Company issued to Recruiter an additional 75,000 shares of common stock for marketing
initiatives within the Recruiter platform. In essence, the Company issued 75,000 shares of its common stock to purchase 2,200
shares of Recruiter, and the Company issued an additional 75,000 shares of its common stock 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.
During
the quarter ended August 31, 2021, the Company sold in open market transactions 68,083 shares of Recruiter stock. The sale of
these shares resulted in a realized gain of $28,028 for the six months ended August 31, 2021.
On
February 28, 2021, the Company owned 78,137 shares of Recruiter’s common stock compared to 3,461 shares of Recruiter’s
common stock as of August 31, 2021. As of August 31, 2021, each share of Recruiter’s common stock was valued at $4.00 per
share which changed the fair value of the 3,461 shares of Recruiter common stock to $13,844. The net change in the fair value
of $139,008 is recognized in net income as other income as of August 31, 2021.
Acquisition
of Axion Shares
The
investment in affiliate of $4,856,825 as of February 28, 2021, represents the Company’s acquisition of 33.8% of Axion on
November 16, 2020. Pursuant to the Axion Exchange Agreement, 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 August 31, 2021, the value of this investment decreased by $3,973,766 from $4,856,825 to $883,059,
due to the change in the market price of Axion shares.
Also
pursuant to the Axion Exchange Agreement, which closed on November 16, 2020, certain creditors of Axion (the “Axion Creditors”)
exchanged debt owed to them by Axion in the aggregate amount of $7,657,024, for 3,828,500 shares of Series C Convertible Preferred
Stock of the Company, which were automatically convertible into common shares of the Company on a one-for-one basis on June 30,
2021. As of August 31, 2021, the values associated with the assumed debt has remained unchanged.
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. 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.
As of August 31, 2021, there has been no activity related to the warrant and the warrant has not vested.
Note
6 – Acquisitions and Dispositions
Reinhart
Interactive TV AG and Zappware N.V. Acquisition
On
January 15, 2021, we entered into a Founding Investment and Subscription Agreement (the “Investment Agreement”)
with Reinhart, and Jan C. Reinhart, the founder of Reinhart (“Founder”).
The
Investment Agreement contemplated the Company acquiring 51% of the ownership of Reinhart, in consideration for 10,000,000 Swiss
Francs (approximately $10.7 million US). The closing of the transactions contemplated by the Investment Agreement was to take
place on April 1, 2021, or earlier if the conditions to closing were earlier satisfied. Conditions to closing included the Company
paying the required capital contribution, approval of the transaction by the board of directors of the Company and Reinhart, and
certain requirements and confirmations required by Swiss law. The Investment Agreement included customary representations and
warranties of the parties. We also agreed to reimburse the Founder’s legal fees of up to 30,000 Swiss Francs (approximately
$33,670) in connection with the transaction. Additionally, in the event we failed to close the transactions contemplated by the
Investment Agreement by April 1, 2021, we agreed to pay the Founder 500,000 Swiss Francs (approximately $560,000), as a break-up
fee.
We paid the founder $10.7 million in cash on March 31, 2021; however, the
shares of Reinhart were not transferred to the Company until June 23, 2021. The consideration paid to the Founder came largely from funds advanced by HotPlay
pursuant to the HotPlay Convertible Notes (defined and described in “Note 8—Notes Payable”,
under “HotPlay Convertible Notes”). As of June 23, 2021, all the closing conditions had been satisfied and this transaction
has been completed.
In accordance with ASC 805, as described
in “Note 1 – Summary of Business Operations and Significant Accounting
Policies”, the Company has accounted for this business combination utilizing the following values in connection with
the business acquisition of Reinhart as of June 23, 2021. The business combination accounting is provisionally complete for all
assets and liabilities acquired on the acquisition date and we will continue to evaluate the fair values within the 1-year timeframe
as provided in the applicable guidance.
|
Acquisition of Reinhart TV AG/Zappware
|
|
|
Total Identifiable Assets
|
|
$
|
20,920,433
|
|
|
Total liabilities
|
|
$
|
10,212,673
|
|
|
Net Assets
|
|
$
|
10,707,760
|
|
|
|
|
|
|
|
|
Total Consideration transferred
|
|
$
|
10,707,760
|
|
Reinhart is in the business of providing a software-based TV and video
distribution platform to telecom companies and digital content owners, and providing services to telecom companies and digital content
owners for user interaction design, as well as software development, deployment and support.
In connection with our entry into the Investment Agreement, we entered
into a Founding Shareholders’ Agreement with the Founder (the “Shareholders’ Agreement”). The Shareholders’
Agreement set forth certain rules for the governance and control of Reinhart. Given the percentage ownership of 51%, the Company controls,
also the Shareholders’ Agreement provides that the board of directors of Reinhart will consist of five members, three of which will
be appointed by the Founder and other shareholders of Reinhart, and two of which will be appointed by the Company which include William
Kerby, the Company’s Co-Chief Executive Officer, and Mark Vange, the then Chief Technology Officer of HotPlay and current Chief
Technology Officer of the Company; that any material shareholder matters are required to be approved by shareholders holding at least
66 2/3% of the total outstanding vote of Reinhart; that in the event Reinhart issues, within five years after the closing date, any equity
or convertible equity, with a price less than the most recent valuation of Reinhart’s shares, the shares held by each director who
is appointed by the Founder are subject to weighted average anti-dilution protection; provides for various restrictions on transfers of
shares of Reinhart, including right of first refusal rights, tag-along rights, and drag-along rights, as well as certain rights which
would trigger the right of the other parties to the Shareholders’ Agreement to acquire the shares held by an applicable shareholder,
for the higher of the fair market value and the nominal value of the shares (except in the case of (c) where the purchase price is the
lower of such amounts), if such shareholder (a) commits a criminal act against the interests of another party, Reinhart or its affiliates;
(b) breaches the Shareholders’ Agreement, and fails to cure such breach 20 days after notice thereof is provided; or (c) the employment
of any employed shareholder is terminated for certain reasons.
The
Shareholders’ Agreement also provides a right for the Founder and any other persons appointed as directors by the Founder
to put their shares to the Company, at which time the Company will be required to purchase such shares (the “Founder’s
Shares”), based on the following schedule:
|
Date
right is triggered
|
Percent
of Founder’s Shares eligible to be sold
|
Required
Purchase Price
|
|
January
1, 2024
|
%
|
15
times EBITDA based on audited 2023 Reinhart financials
|
|
January
1, 2025
|
%
|
15
times EBITDA based on audited 2024 Reinhart financials
|
|
December
20, 2025, if the board of directors of Reinhart, together with a majority of the directors appointed by the Company, agree
to sell Reinhart to a third party, but the Company and the Founder can’t agree on such sale, by such date
|
%
|
Higher
of (a) 15 times EBITDA based on audited 2025 Reinhart financials; and (b) the value of a fully-funded acquisition proposal
based on audited 2025 Reinhart financials
|
|
January
1, 2026
|
%
|
Lower
of (a) 15 times EBITDA based on audited 2025 Reinhart financials; and (b) the value of a fully-funded acquisition proposal
based on audited 2025 Reinhart financials
|
The
Shareholders’ Agreement also allows the parties to file for an initial public offering on a Swiss trading exchange. The
Shareholders’ Agreement has a term of 10 years, extendable thereafter for successive five-year periods, unless terminated
by either party with 12 months prior written notice (provided that any such termination shall only be applicable to the terminating
shareholder), subject to earlier termination in connection with certain initial public offerings.
NextBank
International (formerly IFEB) Acquisition
On
April 1, 2021, we entered into a Bill of Sale for Common Stock, effective March 22, 2021 (the “Bill of Sale”),
with certain third parties pursuant to which the Company agreed to purchase 2,191,489 shares (the “IFEB Shares”)
of authorized and outstanding Class A Common Stock of International Financial Enterprise Bank, Inc., a Puerto Rico corporation
licensed as an Act 273-2012 international financial entity headquartered in San Juan Puerto Rico (“IFEB”),
which IFEB Shares totaled approximately 57.1% of the outstanding Class A Common Stock of IFEB. The purchase price of the IFEB
Shares was $6,400,000, which amount was paid to the sellers on April 1, 2021.
IFEB
was incorporated in 2017 as a corporation under the laws of the Commonwealth of Puerto Rico and received its international financial
entity license on June 18, 2017 from the Office of the Commissioner of Financial Institutions of Puerto Rico, in Spanish, “Oficina
del Comisionado de Instituciones Financieras” or “OCIF”, as license #51. As a result, IFEB is regulated
by OCIF.
On May 6, 2021, in anticipation of the
acquisition of the IFEB Shares, and control of IFEB, the Company and IFEB entered into a Preferred Stock Exchange Agreement, which
was amended by a First Amendment to Preferred Stock Exchange Agreement entered into May 10, 2021 and effective May 6, 2021 (as
amended by the first amendment, the “Original Preferred Exchange Agreement”), pursuant to which the Company
agreed to exchange 1,950,000 shares of the Company’s restricted common stock for 5,850 shares of cumulative, non-compounding,
non-voting, non-convertible, perpetual Series A preferred shares of IFEB. The Original Preferred Exchange Agreement was subsequently
replaced by the Preferred Exchange Agreement, described below under “Note 14—Subsequent Events”.
Notwithstanding
the terms of the Bill of the Sale, and the payment by the Company of the aggregate purchase price pursuant thereto, the transfer
of the Initial IFEB Shares to the Company and the Company’s acquisition of control of IFEB was subject to review of the
Company’s financial viability, as well as other matters, by OCIF, which approval of OCIF was received in June 2021, but
which acquisition did not close until July 21, 2021.
Separately,
on July 21, 2021, the Company entered into, and closed the transactions contemplated by, a Share Exchange Agreement with various
other holders of shares of Class A Common Stock of IFEB (the “Additional Sellers” and the “IFEB Exchange
Agreement”). Pursuant to the IFEB Exchange Agreement, the Additional Sellers exchanged an aggregate of 1,649,614 of
the outstanding Class A Stock of IFEB, representing 42.94% of such outstanding Class A Stock of IFEB in consideration for an aggregate
of 1,926,750 shares of the Company’s restricted common stock (the “IFEB Common Shares”), with each one
share of Class A Stock of IFEB being exchanged for 1.168 shares of restricted 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 Stock of IFEB.
As
a result of the closing of both transactions, we acquired control of 100% of IFEB as of July 21, 2021.
In accordance with ASC 805, as described
in “Note 1 – Summary of Business Operations and Significant Accounting
Policies”, the Company has accounted for this business combination utilizing the following values in connection with
the business acquisition of NextBank as of July 21, 2021. The business combination accounting is provisionally complete for all
assets and liabilities acquired on the acquisition date and we will continue to evaluate the fair values within the 1-year timeframe
as provided in the guidance.
|
Acquisition of NextBank International, Inc. (7/21/21)
|
|
|
Fair Value of assets acquired
|
|
|
|
|
Cash
|
|
$
|
4,200,006
|
|
|
Current assets
|
|
$
|
8,789,072
|
|
|
Non-current assets
|
|
$
|
224,210
|
|
|
Net assets acquired
|
|
$
|
13,213,288
|
|
|
|
|
|
|
|
|
Fair Value of liabilities assumed
|
|
|
|
|
|
Current liabilities
|
|
$
|
9,643,436
|
|
|
Non-current liabilities
|
|
$
|
—
|
|
|
Net liabilities assumed
|
|
$
|
9,643,436
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
3,569,852
|
|
|
|
|
|
|
|
|
Purchase consideration
|
|
|
|
|
|
Cash
|
|
$
|
6,400,000 (1)
|
|
|
Common stock (1,925,581 shares @ $2.50)
|
|
$
|
4,813,953
|
|
|
Fair value of total consideration transferred
|
|
$
|
11,213,953
|
|
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
|
|
|
Fair value of net assets acquired as of 7/21/2021
|
|
$
|
3,569,852
|
|
|
|
|
|
|
|
|
Fair value of total consideration transferred
|
|
$
|
11,213,953
|
|
|
Goodwill
|
|
$
|
7,644,101
|
|
|
(1)
|
The $6.4 million of cash was paid by NextPlay prior to the closing of the Reverse Acquisition and is
not presented on the Company’s consolidated statement of cash flows
|
The
IFEB Exchange Agreement required that:
(a) three
legacy board members of IFEB remain on the Board of Directors of IFEB for a period of one year after the closing date of the IFEB
Exchange Agreement, subject to rights of removal if such continued appointment/service as board members would violate the fiduciary
duties of any other board members;
(b) certain
outstanding loans held by one of the legacy board members be extended, and be subject to a further extension;
(c) that
Ms. Nithinan Boonyawattanapisut, Mr. J. Todd Bonner, Mr. Donald P. Monaco and Mr. William Kerby (each a member of the Board of
Directors of the Company) and Mr. Jan Reinhart, the founder of Reinhart, be appointed as members of the Board of Directors of
IFEB;
(d) that
Ronald Poe will be appointed as Vice President of Longroot, Inc., the Company’s wholly-owned subsidiary, and be provided
a salary of $120,000 per year, pursuant to an employment agreement; and
(e) that
Robert Fiallo, will be hired by an affiliate of the Company pursuant to an employment agreement, and be paid a base salary of
$300,000 per year, plus a bonus of 3% of the profits from projects he works with or assists in developing.
Note
7 – Website Development Costs and Intangible Assets
The
following table sets forth the intangible assets, both acquired and developed, including accumulated amortization as of August
31, 2021:
August
31, 2021
|
|
|
Useful
Life
|
|
Cost
|
|
|
Impairment
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
|
In-Service
Date
(Estimate)
|
|
|
Website platform
|
|
1.0 years
|
|
$
|
400,000
|
|
|
|
—
|
|
|
$
|
400,000
|
|
|
$
|
—
|
|
|
—
|
|
|
Contracts, domains, customer lists
|
|
2.0 years
|
|
|
1,199,446
|
|
|
|
—
|
|
|
|
1,199,446
|
|
|
|
—
|
|
|
—
|
|
|
Website platform
|
|
3.0 years
|
|
|
635,756
|
|
|
|
—
|
|
|
|
635,756
|
|
|
|
—
|
|
|
—
|
|
|
Website development costs
|
|
3.0 years
|
|
|
912,416
|
|
|
|
—
|
|
|
|
890,141
|
|
|
|
22,275
|
|
|
—
|
|
|
Software development costs
|
|
3.0 years
|
|
|
36,823,358
|
|
|
|
—
|
|
|
|
24,262,427
|
|
|
|
12,560,931
|
|
|
—
|
|
|
Trademark & License
|
|
Indefinite
|
|
|
8,019,680
|
|
|
|
—
|
|
|
|
923,198
|
|
|
|
7,096,482
|
|
|
—
|
|
|
Software licenses
|
|
3.0 years
|
|
|
367,930
|
|
|
|
—
|
|
|
|
47,825
|
|
|
|
320,105
|
|
|
—
|
|
|
CIP – IDS Project
|
|
|
|
|
3,126,543
|
|
|
|
3,126,543
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
CIP – Not
in service
|
|
|
|
|
315,831
|
|
|
|
—
|
|
|
|
—
|
|
|
|
315,831
|
|
|
12/01/2021
|
|
|
|
|
|
|
$
|
51,800,960
|
|
|
|
3,126,543
|
|
|
$
|
28,358,793
|
|
|
|
20,315,624
|
|
|
|
|
During
the quarter ended August 31, 2021, the Company purchased a total of $2,200,000 of the intellectual property including the development
of electronic games under a master development and license with HotPlay Thailand. The cost of purchases was recorded as Construction
in Progress (CIP).
As part of the IDS Settlement, the Company reviewed the IDS platform software.
As a result of the review, the Company determined to impair the remaining balance of the software platform in the amount of $3,126,543
because it will not have a value in use.
Intangible
assets are amortized on a straight-line basis over their expected useful lives which is estimated to be 3 years. Amortization
expense related to website development costs and intangible assets, excluding amortization of debt issuance costs, was $160,618
and $79,059 for the quarters ended August 31, 2021 and August 31, 2020, respectively.
Based
on the carrying value of definite-lived intangible assets as of August 31, 2021, we estimate our amortization expense for the
next five years will be as follows:
|
As of August 31, 2021
|
|
Amortization
Expense
|
|
|
2022
|
|
$
|
4,905,129
|
|
|
2023
|
|
|
6,790,982
|
|
|
2024
|
|
|
6,400,327
|
|
|
2025
|
|
|
2,219,186
|
|
|
2026
|
|
|
—
|
|
|
|
|
$
|
20,315,624
|
|
Note
8 – Notes Payable
Note
Purchase Agreements: Streeterville Capital, LLC
On
November 23, 2020, the Company entered into a Note Purchase Agreement (the “November 2020 Note Purchase Agreement”)
with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company sold Streeterville a Secured
Promissory Note in the original principal amount of $5,520,000 (the “November 2020 Streeterville Note”). Streeterville
paid consideration of an initial cash purchase price of $3,500,000 for the note and issued the Company a promissory note in the
amount of $1,500,000 (the “November 2020 Investor Note”). The associated debt issuance costs of the note were
$370,000 for total amount due $3,870,000. In addition to the $370,000 of debt issuance costs the Company paid $245,000 for advisory
fees, giving net proceeds of $3,255,000.
The
November 2020 Streeterville Note bears interest at a rate of 10% per annum and matures 12 months after the date of the note (i.e.,
on November 23, 2021). From time to time, beginning six months after issuance, Streeterville may redeem a portion of the November
2020 Streeterville Note, not to exceed $0.8 million if the November 2020 Investor Note has not been funded and $1.25 million if
the November 2020 Investor Note has been funded. 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 November 2020 Streeterville
Note. Under certain circumstances the Company may 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 is increased by 2%. Subject
to the terms and conditions set forth in the November 2020 Streeterville Note, the Company may 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 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 November 2020 Streeterville
Note, which percentage 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 fail to pay an Equity Payment, the outstanding
balance of the November 2020 Streeterville Note automatically increases by 10%. Additionally, in the event we fail to timely pay
any such Equity Payment, Streeterville may seek an injunction which would prevent us from issuing common or preferred stock until
or unless we pay such Equity Payment.
The
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) increases by an amount equal to 25% of the then-current
outstanding balance thereof (the “April 2021 Note Increase”): (a) HotPlay must have become a wholly-owned subsidiary
of the Company; (b) during the period beginning on July 21, 2020, and ending on the date that the HotPlay Share Exchange is consummated,
HotPlay must have raised at least $15,000,000 in cash through equity investments; (c) upon consummation of the HotPlay Share Exchange,
all outstanding debt owed by the Company to HotPlay must have either been forgiven by HotPlay or converted into the Company’s
common stock; (d) HotPlay must have become a co-borrower on the November 2020 Streeterville Note; and (e) the Company must have
paid off all outstanding debt obligations to the Donald P. Monaco Insurance Trust and National Bank of Commerce, in full (collectively,
the “November 2020 Note Transaction Conditions”).
Pursuant
to the November 2020 Streeterville Note, we provided Streeterville a right of first refusal to purchase any promissory note, debenture
or other debt instrument which we propose to sell, other than sales to officers or directors of the Company and/or sales to the
government. Each time, if ever, that we provide Streeterville such right, and Streeterville does not exercise such right to provide
such funding, the outstanding balance of the November 2020 Streeterville Note increases by 3%. Each time, if ever, that we fail
to comply with the terms of the right of first refusal, the outstanding balance of the November 2020 Streeterville Note increases
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 automatically
increases by 15%, and for each other default, the outstanding balance of the November 2020 Streeterville Note automatically increases
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 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 are 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, evidences 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 accrues 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 may 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 is fully earned and the
remaining $150,000 is not fully earned until the March 2021 Investor Note is fully-funded by Streeterville, which March 2021 Investor
Note was fully funded 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 don’t pay the amount of any requested redemption within
three trading days, an amount equal to 25% of such redemption amount is added to the outstanding balance of the March 2021 Streeterville
Note. Under certain circumstances, the Company may defer the redemption payments up to three times, for 30 days each, provided
that upon each such deferral the outstanding balance of the March 2021 Streeterville Note is increased by 2%. Subject to the terms
and conditions set forth in the March 2021 Streeterville Note, the Company may prepay all or any portion of the outstanding balance
of the March 2021 Streeterville Note at any time subject to a prepayment penalty equal to 10% of the amount of the outstanding
balance to be prepaid. For so long as the March 2021 Streeterville Note remains outstanding, the Company has agreed to pay to
Streeterville 20% of the gross proceeds that the Company receives from the sale of any of its common stock or preferred stock,
which payments will be applied towards and will reduce the outstanding balance of the March 2021 Streeterville Note, which percentage
increases to 30% upon the occurrence of, and continuance of, an event of default under the March 2021 Streeterville Note (each
an “Equity Payment”). Each time that we fail to pay an Equity Payment, the outstanding balance of the March
2021 Streeterville Note automatically increases by 10%. Additionally, in the event we fail to timely pay any such Equity Payment,
Streeterville may seek an injunction which would prevent us from issuing common or preferred stock until or unless we pay such
Equity Payment.
The
March 2021 Streeterville Note provides that if any of the following events have not occurred on or before June 30, 2021, the then
outstanding balance of the note (including accrued and unpaid interest) increases by an amount equal to 25% of the then-current
outstanding balance thereof: (a) HotPlay must have become a wholly-owned subsidiary of the Company; (b) during the period
beginning on July 21, 2020, and ending on the date that the HotPlay Share Exchange is consummated, HotPlay must have raised
at least $15,000,000 in cash or debt through equity investments (which has been completed); (c) upon consummation of the
HotPlay Share Exchange, all outstanding debt owed by the Company to HotPlay must have either been forgiven by HotPlay or converted
into the Company’s common stock; and (d) HotPlay must have become a co-borrower on the March 2021 Streeterville Note
(collectively, the “March 2021 Note Transaction Conditions”).
The
March 2021 Note Purchase Agreement required that we complete the purchase of the Reinhart (the “Reinhart Interest”),
within ten 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 has been 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.
HotPlay
Convertible Notes
On
September 1, 2020, September 18, 2020, September 30, 2020, on or around November 2, 2020, and on November 24, 2020, and on around
December 28, 2020 and on and around January 6, 2021 HotPlay advanced NextPlay Technologies, Inc $300,000, $700,000, $1,000,000,
$400,000, $100,000, $450,000, $50,000 respectively, under the terms of the HotPlay Exchange Agreement. The advances were evidenced
by convertible promissory notes (“HotPlay Convertible Notes”) in the amount of each advance, and an effective
date as of the date of each advance. The HotPlay Convertible Notes totaled $3.0 million as of February 28, 2021.
On
March 16, 2021, March 19, 2021, and April 15, 2021, HotPlay loaned the Company $9 million, $1 million and $2 million, respectively.
The loans were made pursuant to the terms of the HotPlay Exchange Agreement and were evidenced by Convertible Promissory Notes
dated effective March 16, 2021, March 19, 2021, and April 15, 2021, in the amount of $9,000,000, $1,000,000, and $2,000,000, respectively.
With the April 15, 2021 loan, HotPlay had loaned the Company all $15 million of the funds required to be funded pursuant to the
terms of the HotPlay Exchange Agreement.
The
advances, and the entry into the HotPlay Convertible Notes, were required conditions to the HotPlay Exchange Agreement.
The
HotPlay Notes were automatically forgiven by HotPlay as inter-company loans upon the closing of the HotPlay Exchange Agreement
which occurred on June 30, 2021.
Note 9 – Related Party Promissory Notes and Transactions
Schedule
of related parties
|
Name
of related parties
|
Relationship
with the Company
|
|
Red
Anchor Trading Corporation (“RATC”)
|
A
shareholder of the Company and controlled by CEO of the Company and a director of the Company
|
|
Tree
Roots Entertainment Group Company Limited (“TREG”)
|
A
shareholder of the Company
|
|
T&B
Media Global (Thailand) Company Limited (“T&B”)
|
A
shareholder of the Company
|
|
Dees
Supreme Company Limited
|
A
shareholder of the Company
|
|
HotNow
(Thailand) Company Limited (“HotNow”)
|
An entity controlled by a Co-CEO of the Company
|
|
True
Axion Interactive Company Limited (“TAI”)
|
An entity controlled by a Co-CEO of the Company
|
|
Magnolia
Quality Development Corporation Limited (“MQDC”)
|
A
shareholder of TREG which is a shareholder of the Company
|
|
Nithinan
Boonyawattanapisut
|
CEO
of the Company, a shareholder of the Company, RATC, HotNow and TAI
|
|
|
|
Other
than disclosed elsewhere, the Company had the following significant related party transactions for the six months ended August,
31, 2021.
|
|
|
|
|
|
Payment of rental expense:
|
|
|
|
|
|
Tree Roots Entertainment Group Co., Ltd
|
|
|
26,425
|
|
|
Purchase of intangible asset:
|
|
|
|
|
|
HotNow (Thailand) Company Limited
|
|
|
318,123
|
|
|
Purchase of equipment:
|
|
|
|
|
|
HotNow (Thailand) Company Limited
|
|
|
117,385
|
|
|
Operating expense:
|
|
|
|
|
|
HotNow (Thailand) Company Limited
|
|
|
188,492
|
|
|
Interest expense of loan from:
|
|
|
|
|
|
Magnolia Quality Development Corporation Limited
|
|
|
21,446
|
|
|
Tree Roots Entertainment Group Company Limited
|
|
|
51,262
|
|
|
Rental expense:
|
|
|
|
|
|
Tree Roots Entertainment Group Co., Ltd
|
|
|
54,078
|
|
|
Payment of loan interest:
|
|
|
|
|
|
Magnolia Quality Development Corporation Limited
|
|
|
21,097
|
|
|
Tree Roots Entertainment Group Co., Ltd
|
|
|
22,077
|
|
|
Payment of contract cost:
|
|
|
|
|
|
HotNow (Thailand) Company Limited
|
|
|
499,843
|
|
The
Company entered into a short-term loan with MQDC for $480,000 (15,000,000 Thai Baht) with an accrued interest rate of 9% per annum
which is payable on demand and unsecured. Accrued interest on this loan was $2,550 as of August 31, 2021.
The
Company entered into a short-term loan with TREG for $543,000
(17,000,000
Thai Baht) with an accrued interest rate of 9.7%
per annum which is payable on demand and unsecured. Accrued interest on this loan was $4,445 as of August 31, 2021. On May 31, 2021,
HP Thailand repaid 7,000,000
Thai Baht (approximately $223,000)
in connection with the short-term loan from TREG.
|
|
a)
|
The
Company had the following related party balances as of August 31, 2021:
|
|
|
|
Nature
|
|
August 31 , 2021
|
|
|
Amounts due from related party:
|
|
|
|
|
|
|
|
HotNow (Thailand) Company Limited
|
|
|
|
|
1,431
|
|
|
Amounts due to related parties:
|
|
|
|
|
|
|
|
Magnolia Quality Development Corporation Limited
|
|
Accrued Interest expense
|
|
|
3,531
|
|
|
Tree Roots Entertainment Group
|
|
Other payable
|
|
|
4,523
|
|
|
|
|
Accrued Interest expense
|
|
|
32,962
|
|
|
|
|
Accrued rental expense
|
|
|
44,782
|
|
|
Total
|
|
|
|
$
|
87,229
|
|
|
Notes payable:
|
|
|
|
|
|
|
|
Magnolia Quality Development Corporation Limited
|
|
|
|
|
461,979
|
|
|
Tree Roots Entertainment Group
|
|
|
|
|
307,986
|
|
|
Total
|
|
|
|
$
|
769,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
March 31, 2021, HotPlay Thailand entered into an asset purchase agreement with HotNow, a related party, which is also under the
same common control of HotPlay Thailand to purchase some of the assets, all software used in the business including all rights
under licenses and other agreements and employees with the aggregate price of 19,500,000 Thai Baht (inclusive of 7% value added
tax (VAT)) (approximately $624,000). On April 7, 2021, HotPlay Thailand made an advanced payment to HotNow in the amount of 5,000,000
Thai Baht (approximately $149,533). On June 7, 2021, HotPlay Thailand paid the remaining cost of the asset purchase to HotNow
in the amount of 14,500,000 Thai Baht (approximately $474,467) pursuant to the terms of the asset purchase agreement.
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 $2,550 as of August 31, 2021.
HotPlay
Thailand entered into a short-term loan with TREG
for $543,000 (17,000,000 Thai Baht) with an interest rate of 9.7% per annum, which is payable on demand and unsecured. Accrued
interest on this loan was $4,445 as of August 31, 2021. On May 31, 2021, HotPlay Thailand repaid a 7,000,000 Thai Baht (approximately
$223,000) in connection with the short-term loan from TREG.
Also
on April 7, 2021, the board of directors of the Company ratified the current compensation payable to members of the board of directors,
which provides that each non-executive member of the Board be paid (a) compensation of shares per year; (b) compensation
of 5,000 shares per year, if they are the chairperson of any committee of the board of directors; and (c) compensation of 10,000
shares per year, to the Chairman of the Board (collectively, the “Board Compensation Terms”), except that all
shares due to the Directors serving as of March 1, 2021, for the fiscal year ending February 28, 2022, were agreed to be issued
up front and to be fully-vested/earned on the date of grant, instead of vesting over time, as previously awarded. In total, an
aggregate of 165,000 shares of common stock were issued to the non-executive directors on April 8, 2021 for compensation for fiscal
2022 (such shares, the “Fiscal 2022 Board Compensation Shares”). The Fiscal 2022 Board Compensation Shares
were issued under the Company’s Amended and Restated 2017 Equity Incentive Plan (the “Plan”).
On
April 7, 2021, the Company entered into a Lock-Up Agreement with each of the non-executive members of the board of directors.
Pursuant to the Lock-Up Agreements, each non-executive director agreed not to transfer, sell, pledge or assign any of their applicable
Fiscal 2022 Board Compensation Shares until March 1, 2022.
On
April 7, 2021, the board of directors of the Company, consistent with the employment agreement of Mr. William Kerby, the Co-Chief
Executive Officer of the Company, which provides for Mr. Kerby to receive a base salary of $400,000 per year, and an annual bonus
payable at the discretion of the board of directors, of up to 100% of his base salary (50% based on meeting short term goals and
50% based on meeting long-term goals), and other bonuses which may be granted from time to time in the discretion of the board
of directors, agreed to award Mr. Kerby a discretionary bonus for fiscal 2021 of $400,000, which was payable in cash or shares
of common stock, at Mr. Kerby’s option, under the Plan, with a conversion price of $3.02 per share, the closing sales price
of the Company’s common stock on the date the board of directors approved such bonus. On April 7, 2021, April 28, 2021,
and May 16, 2021, Mr. Kerby elected to receive cash in connection with the bonus of $100,000, $150,000, and $150,000, respectively.
The
Company declared dividends in arrears of $1,102,068 on previously outstanding Series A Preferred Stock, that were converted into
common stock with the Series A Preferred Stock being redeemed. These dividends were payable when and if declared by the board
of directors. The dividends were owed to an entity controlled by Donald P. Monaco, our Co-Chairman, William Kerby, our CEO and
a director, and Warren Kettlewell, a former Board Member.
On
April 8, 2021, the Company entered into an Exchange Agreement with William Kerby, its Co-Chief Executive Officer and director
and Monaco Investment Partners II, LP (“MI Partners”), of which Donald P. Monaco is the managing general partner
and the Co-Chairman of the board of directors of the Company (the “Exchange Agreement”). Pursuant to the Exchange
Agreement, the terms of which were approved by the board of directors of the Company, Mr. Kerby and MI Partners exchanged their
right to an aggregate of $1,016,314 in accrued dividends (the “Accrued Dividends”) which had accrued on the
Company’s outstanding Series A Preferred Stock, which had been held by Mr. Kerby and MI Partners prior to the conversion
of such Series A Preferred Stock into common stock of the Company in August 2017, for Convertible Promissory Notes. Specifically,
Mr. Kerby exchanged rights to $430,889 of accrued dividends on the Series A Preferred Stock for a Convertible Promissory Note
with a principal balance of $430,889 and MI Partners exchanged rights to $585,425 of accrued dividends on the Series A Preferred
Stock for a Convertible Promissory Note with a principal balance of $585,425 (the “Convertible Promissory Notes”).
The
Convertible Promissory Notes accrue interest at the rate of 12% per annum, compounded monthly at the end of each calendar month,
with such interest payable at maturity or upon conversion. The principal and accrued interest owed under the Convertible Promissory
Notes is convertible, at the option of the holders thereof, into shares of the Company’s common stock, at any time beginning
seven days after the closing date of the HotPlay Exchange Agreement (which closed on June 30, 2021) and prior to the payment in
full of such Convertible Promissory Notes by the Company, at a conversion price equal to the greater of (i) the closing consolidated
bid price of the Company’s common stock on April 8, 2021 (which was $3.02); and (ii) the five-day volume weighted average
price of the Company’s common stock for the five trading days following the date that the HotPlay Exchange Agreement closes
(which was below the $3.02 per share minimum conversion price). The Convertible Promissory Notes are unsecured, have a maturity
date of April 7, 2022, and include standard and customary events of default. On August 27, 2021, $50,000 cash was drawn by Mr.
Kerby against his Convertible Promissory Note.
The
Audit Committee of the board of directors of the Company is tasked with reviewing and approving any issues relating to conflicts
of interests and all related party transactions of the Company (“Related Party Transactions”). The Audit Committee,
in undertaking such review and approval, will analyze the following factors, in addition to any other factors the Audit Committee
deems appropriate, in determining whether to approve a Related Party Transaction: (1) the fairness of the terms for the Company
(including fairness from a financial point of view); (2) the materiality of the transaction; (3) bids / terms for such transaction
from unrelated parties; (4) the structure of the transaction; (5) the policies, rules and regulations of the U.S. federal and
state securities laws; (6) the policies of the Committee; and (7) interests of each related party in the transaction.
The
Audit Committee will only approve a Related Party Transaction if the Audit Committee determines that the terms of the Related
Party Transaction are beneficial and fair (including fair from a financial point of view) to the Company and are lawful under
the laws of the United States. In the event multiple members of the Audit Committee are deemed a related party, the Related Party
Transaction will be considered by the disinterested members of the board of directors in place of the Committee.
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 $0.01 par value per share. The Preferred Stock may be divided into and issued in series. The board of directors
of the Company is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be
so designated as to distinguish the shares thereof from the shares of all other series and classes. The board of directors of
the Company is authorized, within any limitations prescribed by law and the articles of incorporation, to fix and determine the
designations, rights, qualifications, preferences, limitations and terms of the shares of any series of Preferred Stock.
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 August 31, 2021 and February
28, 2021, respectively. These dividends will only be payable when and if declared by the Board of Directors. On April 7, 2021,
the Board approved the dividends to be paid.
The
Company had 0 shares of Series A Preferred Stock issued and outstanding as of August 31, 2021 and February 28, 2021.
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 5 –
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 common stock upon the closing of the HotPlay Share Exchange on June 30,
2021.
As
of August 31, 2021 and February 28, 2021, 0
(zero) and 10,000,000
shares of Series B Preferred Stock are outstanding, respectively.
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 is automatically, and without any required action by any Holder, converted into
common stock, on a one-for one basis, upon the occurrence of certain events, including five business days after the closing of
the HotPlay Exchange Agreement.
As
of August 31, 2021 and February 28, 2021, 0 (zero) and 3,828,500
shares of Series C Preferred Stock are outstanding, respectively.
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 and 0 shares of Series D Preferred
Stock outstanding as of August 31, 2021 and February 28, 2021, respectively.
Common
Stock
The
Company issued the initial payment of $500,000 to IDS as per the settlement agreement during the six months ended August 31, 2021
in consideration for the first transfer of 344,400 shares to be repurchased. As of the filing date, the transfer of shares has
been completed.
During
the three months ended August 31, 2021, the following shares of common stock were issued:
|
|
●
|
1,925,581 shares of common stock in an Exchange agreement valued at $4,813,953.
|
|
|
●
|
325,000 shares of common stock for consulting and investor relations services rendered valued at $605,747.
|
|
|
●
|
335,000 shares of common stock for related redemption on a loan valued at $1,270,000.
|
|
|
●
|
8,000 shares of common stock as a bonus for an executive of the Company valued at $16,000.
|
|
|
●
|
63,246,200 shares of common stock in related to the reverse acquisition of HotPlay valued at $79,057,750.
|
The
Company had 89,693,984 and 62,400,000 shares of common stock issued and outstanding at August 31, 2021 and February 28, 2021,
respectively.
Common
Stock Warrants
The
following table sets forth common stock purchase warrants outstanding as of August 31, 2021, and February 28, 2021, and changes
in such warrants outstanding for the quarter ending August 31, 2021:
|
|
|
Warrant
|
|
|
Weighted
Average
Exercise
|
|
|
Outstanding, February
28, 2021
|
|
|
3,045,921
|
|
|
$
|
2.50
|
|
|
Warrants granted
|
|
|
161,900
|
|
|
$
|
2.00
|
|
|
Warrants exercised/forfeited/expired
|
|
|
(225,400
|
)
|
|
$
|
(2.00
|
)
|
|
Outstanding, August 31, 2021
|
|
|
2,982,421
|
|
|
$
|
2.45
|
|
|
Common stock issuable upon exercise of warrants
|
|
|
2,982,421
|
|
|
$
|
2.45
|
|
At
February 28, 2021, there were warrants outstanding to purchase 3,045,921 shares of common stock with a weighted average exercise
price of $2.50 and weighted average remaining life of 1.18 years.
At
August 31, 2021, there were warrants outstanding to purchase 2,982,421 shares of common stock with a weighted average exercise
price of $2.45 and weighted average remaining life of 0.93 year.
During
the quarter ended August 31, 2021, the Company granted:
● warrants
to purchase 161,900 shares of common stock in connection with subscriptions for shares of common stock.
Note
11 – Commitments and Contingencies
The
Company entered into a new office lease to relocate our executive, administrative, and operating offices located 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. Monthly rental costs, including building maintenance
assessment, for fiscal years 2022, 2023, 2024, 2025, 2026, 2027 and 2028 are estimated to be $9,424, $14,735 $19,067, $19,447,
$19,838, $20,239, and $20,651, respectively.
The
rent for the quarters ended August 31, 2021 and August 31, 2020 was $18,671 and $33,628, respectively. The Company recorded operating
lease Right-to-Use asset of $1,232,520 along with current operating lease liability of $1,232,520 as of August 31, 2021.
The
following schedule represents obligations and commitments on the part of the Company that are not included in liabilities:
|
|
|
Current
|
|
Long
Term
|
|
|
|
|
|
|
FYE
2022
|
|
FYE
2023
|
|
Totals
|
|
|
Office Leases Nextplay
|
|
$
|
62,485
|
|
$
|
176,822
|
|
$
|
239,307
|
|
|
Office Lease HotPlay
|
|
$
|
18,000
|
|
|
|
$
|
18,000
|
|
|
Insurance and Other
|
|
|
55,917
|
|
|
55,917
|
|
|
111,833
|
|
|
Totals
|
|
$
|
136,402
|
|
$
|
232,739
|
|
$
|
377,783
|
|
Legal
Matters
The
Company is involved, from time to time, in litigation, other legal claims and proceedings involving matters associated with or
incidental to our business, including, among other things, matters involving breach of contract claims, intellectual property,
employment issues, and other related claims and vendor matters. The Company believes that the resolution of currently pending
matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations.
However, assessment of the current litigation or other legal claims could change 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 shares of restricted common stock (the
“IDS Shares”) valued at $2.50 per share, or $4,920,000 in 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 (“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 Chief Executive Officer and an employee of the Company.
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.
Litigation between Axion and NextPlay
On
January 15, 2021, Axion Ventures, Inc., filed a civil claim in the Supreme Court of British Columbia (Action No. S-209245), against J. Todd Bonner,
our director, 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 Enterprise Limited, HotPlay
(Thailand) Ltd., 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 Longroot, Inc., filed a response to Axion’s claim whereby
all parties disputed Axion’s claims and argued all such transactions involving the Company, Mr. Kerby and Longroot which
are the subject of Axion’s claims were legitimate and pleading various other defenses. The Company, Mr. Kerby and Longroot
dispute Axion’s claims and continue to vigorously defend themselves against the allegations made.
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.
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.
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.
The
Company has three operating segments consisting of (i) the NextMedia Division, which consists of HotPlay and Reinhart/Zappware,
(ii) the NextFinTech Division, which consists of Longroot and NextBank, and (iii) NextTrip Division, which includes NextTrip holdings.
The Company’s chief operating decision maker is considered to be the Co-Chief Executive Officers. The chief operating decision
maker allocates resources and assesses performance of the business and other activities at the single operating segment level.
Schedule
of segments
|
For the six months ended August 31, 2021
|
|
NextTrip
|
|
|
NextFinTech
|
|
|
NextMedia
|
|
|
Total
|
|
|
Sales
|
|
$
|
36,890
|
|
|
$
|
293,357
|
|
|
$
|
2,317,036
|
|
|
$
|
2,647,283
|
|
|
Cost of Sales
|
|
$
|
34,231
|
|
|
$
|
87,339
|
|
|
$
|
1,152,770
|
|
|
$
|
1,274,340
|
|
|
Gross Profit
|
|
$
|
2,659
|
|
|
$
|
206,018
|
|
|
$
|
1,164,266
|
|
|
$
|
1,372,943
|
|
|
For the three months ended August 31, 2021
|
|
NextTrip
|
|
|
NextFinTech
|
|
|
NextMedia
|
|
|
Total
|
|
|
Sales
|
|
$
|
36,890
|
|
|
$
|
293,357
|
|
|
$
|
2,317,036
|
|
|
$
|
2,647,283
|
|
|
Cost of Sales
|
|
$
|
34,231
|
|
|
$
|
87,339
|
|
|
$
|
1,152,770
|
|
|
$
|
1,274,340
|
|
|
Gross Profit
|
|
$
|
2,659
|
|
|
$
|
206,018
|
|
|
$
|
1,164,266
|
|
|
$
|
1,372,943
|
|
|
For the six months ended August 31, 2020*
|
|
|
NextTrip
|
|
|
|
NextFinTech
|
|
|
|
NextMedia
|
|
|
|
Total
|
|
|
Sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cost of Sales
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Gross Profit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
For the three months ended August 31, 2020*
|
|
|
NextTrip
|
|
|
|
NextFinTech
|
|
|
|
NextMedia
|
|
|
|
Total
|
|
|
Sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cost of Sales
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Gross Profit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
*
|
|
Due to the reverse acquisition with HotPlay, the year-ago results incorporated only HotPlay's
financials.
|
There
were no reconciling or inter-company items between segments.
Schedule
of geographic information
|
Sales
|
|
August 31,
2021
|
|
|
August 31,
2020
|
|
|
United States and Puerto Rico
|
|
$
|
330,247
|
|
|
$
|
—
|
|
|
Europe
|
|
|
2,317,036
|
|
|
|
—
|
|
|
Thailand
|
|
|
—
|
|
|
|
—
|
|
|
|
|
$
|
2,647,283
|
|
|
$
|
—
|
|
|
Long-lived Assets
|
|
August 31,
2021
|
|
|
February 28,
2021
|
|
|
United States and Puerto Rico
|
|
$
|
47,095,396
|
|
|
$
|
—
|
|
|
Europe
|
|
|
9,980,308
|
|
|
|
—
|
|
|
Thailand
|
|
|
9,481,355
|
|
|
|
7,785,396
|
|
|
|
|
$
|
66,640,215
|
|
|
$
|
7,785,396
|
|
Note
13 – Subsequent Events
Nithinan
Boonyawattanapisut’s Employment Agreement
On
September 16, 2021, the Company entered into an Employment Agreement with Nithinan ‘Jess’ Boonyawattanapisut, its
Co-Chief Executive Officer and member of its board of directors, which agreement has an effective date of October 1, 2021. The
agreement remains in effect (renewing automatically on a month-to-month basis), until either party provides the other at least
30 days prior written notice of its intent to terminate the agreement, or until terminated as discussed below.
The
agreement includes a non-compete provision, prohibiting Ms. Boonyawattanapisut from competing against the Company during the term
of the agreement and for a period of 12 months after termination thereof (subject to certain exceptions described below), in any
state or country in connection with (A) the commercial sale of products sold by the Company during the six (6) months preceding
the termination date; and (B) any services the Company commercially offered during the six (6) months prior to the termination
date (collectively, the “Non-Compete”).
During
the term of the agreement, Ms. Boonyawattanapisut is to receive a base salary of $400,000 per year, which may be increased at
any time at the discretion of the Compensation Committee of the board of directors of the Company without the need to amend the
agreement; an annual bonus payable at the discretion of the Compensation Committee; other bonuses which may be granted/approved
from time to time in the discretion of the Compensation Committee; $200,000 in cash and 25,000 shares of common stock issued as
a sign-on bonus under the terms of the Company‘s Amended and Restated 2017 Equity Incentive Plan (the “Plan”);
up to four weeks of annual paid time off, which can be rolled-over year to year, or which in the discretion of Ms. Boonyawattanapisut,
can be required to be paid in cash at the end of any year or the termination of the agreement; and a car allowance equal to an
equivalent of $1,500 per month, during the term of the agreement.
The
agreement provides Ms. Boonyawattanapisut with the option of receiving some or all of the base salary and/or any bonus in shares
of the Company’s common stock, with such shares being based on the higher of (a) the closing sales price per share on the
trading day immediately preceding the determination by Ms. Boonyawattanapisut to accept shares in lieu of cash; and (b) the lowest
price at which such issuance will not require stockholder approval under the rules of the stock exchange where the Company’s
common stock is then listed or Nasdaq ((a) or (b) as applicable, the “Share Price” and the “Stock Option”),
provided that Ms. Boonyawattanapisut is required to provide the Company at least five business days prior written notice if she
desires to exercise the Stock Option as to any payment of compensation, unless such time period is waived by the Company. The
issuance of the shares described above is subject to the approval of the stock exchange where the Company’s common stock
is then listed or Nasdaq, and where applicable, stockholder approval, and in the sole discretion of the board of directors, may
be issued under, or outside of, a stockholder approved stock plan.
The
agreement includes standard provisions relating to the reimbursement of business expenses, indemnification rights, rights to Company
property and inventions (which are owned by the Company), dispute resolutions, tax savings, clawback rights and provisions entitling
Ms. Boonyawattanapisut to receive any fringe benefits offered by the Company to other executives (subsidized in full by the Company)
including, but not limited to, family coverage for health/medical/dental/vision, life and disability insurance.
The
agreement terminates upon Ms. Boonyawattanapisut’s death and can be terminated by the Company upon her disability (as described
in the agreement), by the Company for Cause (defined below) or Ms. Boonyawattanapisut for Good Reason (defined below). For the
purposes of the agreement, (A) “Cause” means (i) Ms. Boonyawattanapisut’s gross and willful misappropriation or theft
of the Company’s or any of its subsidiary’s funds or property; or (ii) Ms. Boonyawattanapisut’s conviction of, or plea of guilty
or nolo contendere to, any felony or crime involving dishonesty or moral turpitude; or (iii) Ms. Boonyawattanapisut materially
breaches any obligation, duty, covenant or agreement under the agreement, which breach is not cured or corrected within thirty
(30) days of written notice thereof from the Company ( except for certain breaches which cannot be cured); or (iv) Ms. Boonyawattanapisut
commits any act of fraud; and (B) “Good Reason” means (i) without the consent of Ms. Boonyawattanapisut, the Company
materially reduces Ms. Boonyawattanapisut’s title, duties or responsibilities, without the same being corrected within ten (10)
days after being given written notice thereof; (ii) the Company fails to pay any regular installment of base salary to Ms. Boonyawattanapisut
and such failure to pay continues for a period of more than thirty (30) days; or (iii) a successor to the Company fails to assume
the Company’s obligations under the agreement, without the same being corrected within thirty (30) days after being given written
notice thereof.
In
the event of termination of the agreement for death or disability by Ms. Boonyawattanapisut without Good Reason, or for Cause
by the Company, Ms. Boonyawattanapisut is due all consideration due and payable to her through the date of termination. In the
event of termination of the agreement by Ms. Boonyawattanapisut for Good Reason or the Company for any reason other than Cause
(or if Ms. Boonyawattanapisut’s employment is terminated other than for Cause within six (6) months before or twenty-four (24)
months following the occurrence of a Change of Control (defined in the agreement) of the Company), Ms. Boonyawattanapisut is due
all consideration due and payable through the date of termination; a lump sum payment equal to twelve (12) months of base salary;
continued participation in all benefit plans and programs of the Company for twelve (12) months after termination (or at the option
of the Company, reimbursement of COBRA insurance premiums for substantially similar coverage as the Company’s plans); and the
Non-Compete will not apply to Ms. Boonyawattanapisut.
The
terms of the agreement were approved by the Company’s Compensation Committee and Audit Committee, each consisting solely of ‘independent’
members of the Company’s board of directors.
Board
of Directors’ Compensation
On
September 16, 2021, the Board of Directors approved an updated compensation plan setting forth compensation payable to the non-executive
members of the Board of Directors. Pursuant to the updated compensation plan, each non-executive member of the Board of Directors
will receive (a) compensation of $60,000 per year; (b) additional compensation of $15,000 per year for chairpersons of each committee
of the Board of Directors; and ( c) additional consideration of $30,000 per year to each co-chairman of the Board of Directors.
The compensation is earned and payable on a pro-rata, quarterly basis, with a total of 70% of the compensation payable in common
stock, based on the closing price of the Company’s common stock on the last day of each fiscal quarter during which consideration
is earned, and 30% accrued and paid in cash at such time as the Company has had at least two consecutive profitable quarters.
The compensation is payable retroactive to July 1, 2020. Notwithstanding the above, the compensation payable to Mr. Donald P.
Monaco, our Co-Chairman of the Board of Directors is to be reduced by the amount he has already been paid in fiscal 2022. Finally,
in addition to the above, the board is eligible for yearly bonuses as approved by the Board of Directors. All shares issued pursuant
to the above will be issued under the Plan and subject thereto.
Hudson
Bay’s Warrant Exchange Agreement
On
September 22, 2021, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Hudson Bay Master
Fund Ltd. (the “Holder”), a holder of warrants to purchase 322,000 shares of the Company’s common stock with an exercise
price $2.00 per share (the “Warrants”) originally purchased from the Company on September 28, 2018. Pursuant to the
terms of the Warrants, the Holder had the right, upon closing of our acquisition of HotPlay Enterprise Limited, effective on June
30, 2021, to elect to require the redemption of the Warrants for a cash payment of the Black Scholes Value of the Warrants (the
“Black Scholes Value”), which election was subsequently made by the Holder. Pursuant to the Exchange Agreement, the
Holder agreed to exchange the Warrant ( and thereby release the Company from the obligation to pay the Black Scholes Value) for
a promissory note in the principal amount of $900,000 (the “Note”). The Exchange Agreement included customary representations
and warranties of the parties; a restriction prohibiting the Company from undertaking a variable rate transaction for so long
as the Note remains outstanding; and a favored nations provision, relating to subsequent amendments, modifications, waivers or
exchanges of any warrant to purchase common stock of the Company, which applies until the first anniversary of the repayment of
the Note. The Company also agreed to pay $15,000 of the legal fees of the Holder pursuant to the Exchange Agreement.
The
Note is payable by the Company, in four equal payments of $225,000 each,
with payments due on October 22, 2021, November 22, 2021, December 22, 2021, and on maturity, January 22, 2022. We can prepay
any amount due under the Note without penalties, provided we provide the Holder five days prior written notice. The amount
due under the Note does not accrue interest, unless an event of default occurs thereunder, at which time the amount owed
under the Note will accrue interest at 18% per annum, until paid in full. The Note contains customary restrictions (including
future payments of indebtedness while the Note is outstanding and in default), covenants and events of default, including if
a change of control of the Company occurs, and upon the occurrence of an event of default, the Holder can declare the entire
balance of the Note immediately due and payable, together with a redemption premium of 25% (i.e., can require the Company to
pay 125% of the amount due under the Note). The Note also includes certain rights which accrue to the Holder upon a
fundamental transaction.
NextBank
International Preferred Stock Exchange Agreement
On
September 28, 2021, the Company entered into a Preferred Stock Exchange Agreement (the “Preferred Exchange Agreement”)
with NextBank, which was acquired by the Company on July 21, 2021 (see “Note 6—Acquisitions
and Dispositions”).
Pursuant
to the Preferred Exchange Agreement, the Company agreed to exchange 5,070,000 shares of the Company’s restricted common
stock (the “Exchanged Common Shares”), for 10,140 shares of cumulative, non-compounding, non-voting, non-convertible,
perpetual Series A preferred stock shares of NextBank (the “NextBank Preferred Shares”). The NextBank Preferred Shares
have an aggregate face value of $10,140,000, and accrue a 2% dividend, payable quarterly in arrears. The NextBank Preferred Shares
are non-redeemable; however, NextBank may, by the vote of the holders of a majority of its common stock, call and redeem the NextBank
Preferred Shares in exchange for the Exchanged Common Shares plus accrued interest at the time of any such redemption. Additionally,
the NextBank Preferred Shares include a change of control provision, whereby upon a change of control (as defined in the Preferred
Exchange Agreement), the Company may cause NextBank to repurchase the NextBank Preferred Shares in exchange for the Exchanged
Common Shares, plus accrued interest.
The
Preferred Exchange Agreement included customary representations, covenants and warranties of the parties, and closing conditions
which would be customary for a transaction of this type. The transactions contemplated by the Preferred Exchange Agreement closed
on October 1, 2021.
IDS
Settlement
On
September 27, 2021, the Court entered into the Agreed Order. The Court ordered that (i) to resume the monthly payment on or
before September 28, 2021, (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 payment 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.
Streeterville
Exchange Agreement
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.
Intellectual
Property Purchase Agreements
On
August 19, 2021, the Company entered into an Intellectual Property Purchase Agreements with Fighter Base Publishing Inc. (“Fighter
Base”) and Inc. (“Token IQ”, and together with Fighter Base, the “IP Sellers”),
dated as of the same date (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), which entity is owned and controlled by
Mark Vange, the Chief Technology Officer of the Company. Pursuant to the IPP Agreement, the Company agreed to acquire certain
intellectual property owned by Token IQ (relating to the distributed ledger industry), which entity is 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 shares of common stock ($3 per
share of common stock).
Pursuant
to the Token IQ IPP Agreement, the intellectual property to be acquired thereunder has a mutually agreed upon value of $5 million,
which will be paid by the Company by way of the issuance to Fighter Base of 1,250,000 shares of common stock ($4 per share of
common stock).
The
Token IQ IPP Agreement includes the right for Token IQ to license the intellectual property purchased thereunder to third parties,
with the approval of the Company, which shall not be unreasonable withheld, provided that any licenses are non-transferable, non-sublicensable
and non-exclusive, and that the licenses will not compete with the Company. Any consideration received by Token IQ from such licenses
will be split 50/50 between the Company and Token IQ.
The
closing of the transactions contemplated by the IPP Agreements are subject to customary closing conditions, which include, due
to Mr. Vange’s status as an officer of the Company, the approval of the Company’s shareholders of the transactions
contemplated by the IPP Agreements and the issuance of shares of common stock thereunder.
Consulting
Agreement
Effective
on August 19, 2021, the Board of Directors of the Company appointed Mr. Andrew Greaves to serve as the Company’s Chief Operating
Officer and changed Mr. Timothy Sikora’s titles from Chief Operating Officer of the Company and Chief Information Officer
of NextTrip, to Chief Information Officer of the Company and President and Chief Operating Officer of NextTrip.
On
June 9, 2021, GLM Consulting Ltd (the “Consultant”), of which Mr. Greaves serves as the sole officer and director,
entered into a Consulting Agreement with the Company to assist the Company in growing a connected subscriber base and ecosystem
across all devices: Digital TV, Set Top Box, Streaming Devices, PC, Laptop, Tablet and Smartphones, by providing a range of operational
expertise. The term of the agreement started on July 6, 2021 and is effective until June 30, 2022, provided that the agreement
may be terminated at any time, by either party, with two weeks written prior notice. The Company agreed to pay the Consultant
a daily consulting fee of one thousand US dollars ($1,000), for each day of service up to a maximum amount of 20 days per month
unless previously agreed in writing with the Company. Each day of service shall include a minimum of eight hours. The Consulting
Agreement included confidentiality obligations of the parties and customary work for hire language. To date the Consultant has
been paid approximately $39,000 pursuant to the Consulting Agreement from the Company.